The State Bar of Michigan’s Standing Committee on Professional Ethics recently issued a new ethics opinion regarding reverse contingent fee arrangements, in which the attorney’s compensation is calculated based on the amount by which the client’s liability is reduced.
Under such an agreement, the lawyer and client agree that the lawyer will receive a percentage of the amount saved by the client. For example, if a tax authority asserts that a client owes $1 million, and the lawyer negotiates a settlement for $400,000, the savings to the client is $600,000. If the fee agreement calls for a one-third reverse contingent fee, the lawyer would be entitled to $200,000.
Reverse contingent fee agreements are typically used in civil defense matters, tax controversies, debt resolution or other situations where a client must pay a sum of money rather than recover one.
Opinion RI-394 outlines the conditions that must be met for a reverse contingent fee arrangement to be considered ethically permissible. Based on RI-394, an appropriate reverse contingent fee must include:
• A written fee agreement, specifying the method of calculation.
• Full disclosure and informed consent.
• A reasonably-assessed baseline.
• A fee that is not clearly excessive when agreed to, charged, or collected.
• Written disclosure of the method of calculation at the conclusion of the matter.
The full opinion, which references MRPC 1.5, ABA Formal Opinion 93-373, and DC Bar Ethics Opinion 347, elaborates on each one of these conditions.
To read the full opinion, visit www.michbar.org/opinions/ethics/numbered_opinions/RI-394.
Under such an agreement, the lawyer and client agree that the lawyer will receive a percentage of the amount saved by the client. For example, if a tax authority asserts that a client owes $1 million, and the lawyer negotiates a settlement for $400,000, the savings to the client is $600,000. If the fee agreement calls for a one-third reverse contingent fee, the lawyer would be entitled to $200,000.
Reverse contingent fee agreements are typically used in civil defense matters, tax controversies, debt resolution or other situations where a client must pay a sum of money rather than recover one.
Opinion RI-394 outlines the conditions that must be met for a reverse contingent fee arrangement to be considered ethically permissible. Based on RI-394, an appropriate reverse contingent fee must include:
• A written fee agreement, specifying the method of calculation.
• Full disclosure and informed consent.
• A reasonably-assessed baseline.
• A fee that is not clearly excessive when agreed to, charged, or collected.
• Written disclosure of the method of calculation at the conclusion of the matter.
The full opinion, which references MRPC 1.5, ABA Formal Opinion 93-373, and DC Bar Ethics Opinion 347, elaborates on each one of these conditions.
To read the full opinion, visit www.michbar.org/opinions/ethics/numbered_opinions/RI-394.
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