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TCL > January 1998 Issue > Abstracts of Recent CBA Ethics Committee Letter Opinions

January 1998       Vol. 27, No. 1       Page  29

Abstracts of Recent CBA Ethics Committee Letter Opinions

NOTE: The following abstracts of informal CBA Ethics Committee letter opinions are offered as potential sources of guidance to the Bar on matters of ethical concern. Because they abridge the letter opinions and omit facts and circumstances tending to identify the inquiring attorney, the abstracts are not exhaustive, and therefore should serve only as a starting point for, or supplement to, thorough research and analysis. Inquirers are advised, in advance, if the opinion provided to them will be abstracted and published. For a number of reasons, the full letter opinions themselves are not provided to persons other than the original inquirer. The letter opinions and these abstracts are issued for advisory purposes only and are not binding in any way upon the Supreme Court or its Grievance Committee. Citations in the abstracts to the "Colorado Rules" refer to the Colorado Rules of Professional Conduct.

FIRST INQUIRY: Abstract No. 96/97-16

Summary of Facts Provided

A law firm (the "Firm") represents discharged employees in employment discrimination cases. In some of those cases, reinstatement is available as a remedy. The Firm desires to enter into a fee agreement with those clients under which the client agrees to pay "the greater of fifty percent of any cash lump sum award or the attorneys’ fees expended by the lawyers [calculated on an hourly basis] if the client accepts a settlement offer which includes reinstatement of employment." The fee arrangement includes both administrative and judicial proceedings.

Issue and Conclusions

Is the proposed fee agreement permitted under applicable provisions of the Colorado Rules?

A mixed hourly and contingency fee agreement is permitted if the agreement as a whole is reasonable within the meaning of Rule 1.5(a) of the Colorado Rules, and if the agreement otherwise complies with Chapter 23.3, C.R.Civ.P. For example, an agreement which obligates the client to pay a fee equal to the greater of (1) a set percentage of his/her recovery, or (2) the fee actually awarded by the court, would be permitted, provided the agreement as a whole satisfied Rule 1.5(a)’s test of reasonableness. In such a case, the client’s obligation to pay is funded by the results of the representation, and is consistent with most clients’ expectations of the way in which a contingency fee arrangement will work.

Although the form of the Firm’s proposal is permitted under Rule 1.5(a), it may be inconsistent with its clients’ expectations, since many of the clients may not have the financial wherewithal to pay fees on an hourly basis at the time they seek representation, and since relief in the form of reinstatement (as opposed to damages or other monetary relief) probably will not appreciably enhance their ability to pay hourly fees. Such circumstances could easily lead to misunderstandings and disputes. Although the client’s ability to pay is not a factor expressly identified by Rule 1.5(a), the Committee believes that an attorney is obligated to fully inform the client of the foreseeable consequences of the operation of a fee agreement. See, Colorado Rule 1.4(b).

The Colorado Supreme and Appeals Courts have not addressed the question of whether a contingency fee of 50 percent is excessive per se, or, if not, the circumstances under which it might be permitted. There appears to be general agreement among primary and secondary authorities outside Colorado that a contingency as high as 50 percent might be permitted when justified by the particular circumstances of the representation, including its complexity and risk, and the need for highly skilled counsel. However, those authorities make clear that a 50 percent contingency is the exception, not the rule, and that an agreement providing for a 50 percent contingency will be deemed excessive and invalid when not supported by relevant circumstances.

The Committee believes that a 50 percent contingency fee does not constitute a per se violation of Rule 1.5(a), and may, under appropriate circumstances, constitute a reasonable fee. However, as a matter of policy, and because it is ill equipped to address such questions, the Committee declines to express an opinion concerning whether the Firm’s proposed 50 percent contingency would be reasonable.

The Committee did not comment on whether it would it be permissible for an attorney defending a claim brought by a client of the Firm to offer settlement in the form of reinstatement, conditioned upon a requirement that the employee either waive or compromise his/her statutory right to attorneys’ fees. However, the subject of fee waivers in the settlement context has engendered substantial discussion. See, e.g., ABA/BNA Lawyer’s Manual on Professional Conduct, at 41:1601-1613.

SECOND INQUIRY: Abstract 96/97-17

Summary of Facts Provided

An attorney represents a personal injury client who wishes to sell a portion of the proceeds of the client’s personal injury claim to a third party in order to obtain living expenses from the third party pending resolution of the claim. The attorney has been requested to acknowledge and agree to the arrangement, and to pay over to the third party the amount of advances and a percentage of the gross recovery upon final disposition of the claim, after deducting attorneys’ fees, expenses of litigation, and hospital and medical liens.

Issue and Conclusion

Does the attorney violate the Colorado Rules by consenting to an agreement between the client and third party for advances of living expenses?

If the attorney has no financial interest in the arrangement with the third party, the attorney is not prohibited from acknowledging and honoring the agreement. Although the Colorado Rules do not prohibit the concept of the proposed arrangement, any such agreement must be closely examined in order to confirm that its terms and implementation will not violate individual provisions of the Colorado Rules.

A number of possible effects of the Colorado Rules were considered and determined not to prevent the agreement.Colorado Rule 1.8(e), while prohibiting the attorney from advancing or guaranteeing financial assistance to a client, does not apply to the proposed agreement if the attorney has no financial interest in the agreement. Because Colorado Rule 5.4 requires protection of the attorney’s professional independence against interference from third parties, any proposed agreement must be reviewed in order to confirm that this prohibition is not violated. Any limitation upon the attorney’s professional independence or judgment under Colorado Rule 1.2, any provision which could result in a breach of confidentiality prohibited under Colorado Rule 1.6, or a conflict of interest prohibited under Colorado Rule 1.7 should be expunged or the problem should be specifically discussed with the client and the client’s consent should be obtained, if compliance with the Colorado Rules can be attained through such consent.

Examples of provisions which would require particular scrutiny under the Colorado Rules include a requirement to disclose information to the third party; restrictions on the attorney’s ability to proceed independently on behalf of the client in the event of a dispute with the third party or a negotiated settlement of the litigation; restrictions on the client’s right freely to change attorneys; and definitions of expenses which may be deducted prior to computing the percentage due to the third party.

Because of the involvement of the attorney in the transaction, it may be advisable to have the client consult with other counsel to satisfy the spirit of Colorado Rule 1.8(a)(2).

THIRD INQUIRY: Abstract 96/97-18

Summary of Facts Provided

Attorney A represents defendant, who is involved in a land dispute with plaintiff. Prior to a lawsuit being filed, plaintiff invited defendant to a meeting with plaintiff and plaintiff’s attorney. Attorney A believes that plaintiff’s attorney knew that attorney A represented defendant in the matter. No agreement was reached at the meeting, and plaintiff then filed the lawsuit. At a deposition, some on-the-record negotiations occurred between plaintiff, plaintiff’s attorney and defendant. Attorney A stopped the discussions and advised that any negotiations should take place in a different setting.

After the deposition had concluded, attorney A discovered plaintiff’s attorney negotiating with defendant in the lobby without attorney A’s participation. When attorney A asked the attorney to discontinue such discussions, plaintiff’s attorney responded that he was "merely continuing the negotiations that had begun during the deposition." Attorney A believes that plaintiff’s attorney is unaware of the provisions of Colorado Rule 4.2, which precludes an attorney from communicating with a party about a matter in which the party is represented by an attorney unless the party’s attorney has given permission for such communication or such communication is otherwise authorized by law.

Issue and Conclusion

May attorney A notify plaintiff’s attorney of the restrictions of Colorado Rule 4.2 and advise that the attorney’s communications with attorney A’s client are improper?

Attorney A may notify opposing counsel of the restrictions in Colorado Rule 4.2 and of the fact that opposing counsel may be violating the rule, but the inquiring attorney should avoid stating that opposing counsel’s actions are in fact a violation of the rule because this is a determination to be made by other authorities. While Colorado Rule 4.5 prohibits threats of disciplinary charges to obtain an advantage in a civil matter, there is a distinction between threatening someone with a grievance and notifying someone that his or her conduct may violate a rule or statute. Many violations can be eliminated, rectified, or minimized if a lawyer is notified of a rule the lawyer may be violating and there is a frank dialogue among the participants to the dispute. Because a disciplinary counsel has the charging authority as to whether conduct has violated a disciplinary rule, the opposing attorney should be told only that the attorney’s actions may be in violation of the rule.

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