Opinion 88-16
(July 1988)

In your letter of April 19, 1988, you requested the Professional Guidance Committee to evaluate a proposed contingent fee agreement. The Committee reviewed the proposed agreement at its meetings in May and June. This constitutes the formal opinion of the Committee.

Your proposed contingent fee agreement provides that, in general, reimbursement of the costs of litigation will be contingent upon recovery of monies on behalf of the client. That same agreement goes on to recognize a few situations under which costs would no longer be contingent, i.e., it would require a client to reimburse an attorney for costs: (1) where the attorney is discharged; (2) where the attorney seeks to withdraw from the representation of the client for reasons "which are just and adequate"; and, (3) where the client has rejected an offer of settlement which appears to counsel to be "fair and reasonable under the circumstances" or when the attorney "concludes that further representation of the claim is unjustified." In the last situations (number 3) you propose to require the client to pay the costs as they are incurred.

Initially, you question whether the proposed fee agreement would be a violation of the Pennsylvania criminal statutes on barratry. Although our charge is to interpret the Rules of Professional Conduct, it is easy to conclude that making reimbursement of costs contingent upon the outcome of litigation is not a violation of 18 Pa.C.S.A. ยง5109, which defines barratry. That statute focuses upon the nature of a lawsuit (i.e., when one vexes others with "unjust and vexatious suits"), and not the circumstances of maintaining the suit.

The Committee has concluded that the first and second exception in your proposed agreement are consistent with the Rules of Professional Conduct. However, the last exceptions, those in number (3) above, may create, in our view, an impermissible conflict of interest.

Rule 1.5(c) describes permissible contingent fee agreements. Rule 1.8(e) permits a lawyer to advance costs and expenses in litigation, the repayment of which may be contingent on the outcome of the matter. Both of these rules must be considered in any analysis of a proposed contingent fee agreement.

Rule 1.8(e) does provide that reimbursement of costs can be contingent upon the outcome of the case. However, there is no requirement that reimbursement of costs must be contingent upon the outcome.

Reimbursement, by the client, of costs without any contingencies is very acceptable. Moreover, providing for reasonable reimbursement under circumstances which are within the control of the client (discharge) or under the supervision of the court (withdrawal) is acceptable. See Rule 1.16.

Any relationship between a lawyer and client has the potential for conflicts of interest. See Rule 1.8. Nevertheless, we believe your proposed fee agreement may create a greater degree of conflict than is permitted under the Rules.

The last exception, number (3) above, has the potential for creating unnecessary conflict of interest between the lawyer and his client. First, the words "just and adequate" (or "unjustified") cannot be objectively defined. If the "attorney concludes that further prosecution of the claim is unjustified," then, if "unjustified" means frivolous, no one should pursue the claim. Also, the attorney should not be able to unilaterally make the determination that the facts warrant imposing the costs upon the client. Additionally, once settlement is proposed, or if disposition of the suit by other than verdict or withdrawal is proposed, the attorney should not be permitted to impose "last minute pressure" upon the client to come up with funds (in some cases very large sums) on the eve of trial at risk of dismissal. This would interject an unfair wedge to force the client to accept the settlement. In most cases it would be impossible for the client to produce a large sum of money.

The foregoing considerations cannot, of course, be evaluated in a vacuum. The client's particular situation must be considered. If the client is a person or entity of substantial means, such a provision might be reasonable, as long as it did not create a "hammer" to be used to overcome the client's independent determination of the appropriateness of settlement. Therefore, the appropriateness of using the exceptions to making reimbursement of costs contingent upon the outcome for certain clients can be considered by you on an ad hoc basis.

We hope the foregoing opinion is of some value to you.

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.