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                                         102 N.J.L.J. 89
                                        July 27, 1978


Appointed by the New Jersey Supreme Court


Excessive Contingent Fees
Excess Claim for Nonlitigation Services

    An out-of-state attorney agreed to represent a New Jersey client (also an attorney) on a personal injury claim in New Jersey court on the basis of a contingent fee which both parties knew was in excess of the limits set forth in R. 1:21-7(c). The foreign attorney then retained the inquirer as a local counsel. Inquirer entered his appearance in the litigation as attorney of record, and the foreign attorney was thereafter admitted pro hac vice on the inquirer's motion.
    After the case was settled on a favorable basis, and the proceeds were disbursed by the foreign attorney, the inquirer learned for the first time of the improper fee arrangement. Thereafter, inquirer protested and demanded that application be made to the court, pursuant to R. 1:21-7(f), or that the excess fee be refunded. Instead, a conference was held by both attorneys with the client, which resulted in the foreign attorney refunding a portion of the fees, but still retaining an amount in excess of that permitted by R. 1:21-7(c), on the ground that the excess was payment "for nonlitigation services." Inquirer questions the good faith of that description in stating that "the fee paid far exceeded the time value of those [nonlitigation] services."
    The fee paid to the foreign attorney himself exceeded the limits set by the rule, even without considering the fact that fees were also paid to the inquirer and to an attorney who had previously represented the client in the initial stages of the litigation, but had since been discharged. Concerning the fees paid to inquirer in the matter, he states they were "in an amount in excess of the time value of inquirer's services, but were conditioned upon the inquirer agreeing to represent the client in certain continuing legal controversies."
    In context of the above, the inquirer asks several questions which will be evident from the following answers. The assumption in the first five questions is that in fact the fees paid to the foreign attorney were in excess of those permitted by R. 1:21-7(c). The question as to whether that assumption is factual is dealt with
in question 6.
    (1) The initial contingent fee agreement is violative of R. 1 21-7(c), DR 2-106(A) and, therefore, DR 1-102(A), including several subsections thereof notwithstanding that the client was a New Jersey attorney with knowledge of the rule. DR 2-106(A) prohibits charges of more than a reasonable fee and R. 1 21-7(c) enumerates and defines a reasonable contingent fee in a New Jersey personal injury tort action. R. 1:21-7(c) is clear and states that "an attorney shall not contract for, charge, or collect a contingent fee in excess of the following limits" (emphasis added). See McMullen v. Conforti & Eisele, 67 N.J. 416 (1975). If such limits are exceeded in the initial contingent fee arrangement, without the court approval required by R. 1:21-7(f), then such agreement is improper and constitutes conduct violating not only that rule, but also DR 2-106(A) (fees) and DR 1-102(A) (misconduct). Under the pro hac vice rule, R. 1:21-2, the attorney of record in litigation in New Jersey is responsible "for the conduct of the cause and of the admitted attorney therein." When an excessive contingent fee is sought it is the duty of the attorney to make the application to the court required by R. 1:21-7(f), even if neither the foreign attorney nor the client wishes such application to be made, and in fact, opposes it. If this were not so, it would be difficult to see how the rule could retain its force.
    (2) The fact that some part of the total fees which were in excess of those permitted by R. 1:21-7(c) was paid to the producer counsel appears irrelevant, since inquirer assumes that the portion of the fees retained by the foreign attorney, both under the original agreement and under the settlement, is still in excess of the amount permitted.
    (3) The inquirer's participation in the negotiations and settlement resulting in the retention of the excessive fee by the foreign attorney is violative of the rule and Disciplinary Rules cited in answer (1) above.
    (4) The fact that the inquirer did not learn of the excessive fee until after the litigation was terminated, does not affect this opinion, for after learning of it, the inquirer still participated in the "contracting," "charging for" and "collecting" of an excessive fee, and could not do so without court approval, as required by R. 1:21-7(f).
    (5) The fact that the parties (including the client, who is himself an attorney) agreed to and desire to effectuate the improper settlement with full knowledge of their rights, does not
negate our conclusion for the reasons set forth in (1) above.
    (6) Whether or not the effect of R. 1:21-7 is avoided by the description of the amount of excessive fees as being compensation for "non litigation services" involves a question of fact which is not for this Committee to decide. If the fees were charged in good faith for "nonlitigation services," then there is no problem. If, however, the fees were in fact for services in the litigation, then the misdescription of such fees does not help the proponents of the
arrangements but merely underlines its character as essentially fraudulent. If the inquirer has serious doubts concerning the bona fides of the arrangement, the prudent course would be to present the entire matter to the court pursuant to R. 1:21-7(f).

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