ETHICS OPINION 660-1984 Propriety of representation in matrimonial action upon any form of contingent fee arrangement.

NEW YORK COUNTY LAWYERS’ ASSOCIATION

COMMITTEE ON PROFESSIONAL ETHICS

 

Question No. 660

 

 

When is it proper for an attorney to accept the representation of a client in a matrimonial action upon the basis of a contingent fee?

 

Answer to Question No. 660

It is, for the reasons set forth below, the view of the Committee that it is ethically improper for an attorney to enter into any form of contingent fee arrangement in any aspect of a matrimonial matter, except where the representation is to collect alimony or child support payments already due and owing the party.

 

As a result of recent changes in the New York Domestic Relations Law, including the introduction of equitable distribution, certain practices have developed, such as the charging of premiums based upon financial settlements achieved and other contingent fee arrangments, which have caused the Committee to undertake this review.

 

While we do not address ourselves to questions of law, we note that contingent fee arrangements in certain matrimonial matters have long been held to be improper. See Levine v. Levine, 206 Misc. 884, 135 N.Y.S.2d 304 (Sup. Ct. Queens Co. 1954) (retainer agreement for percentage of alimony or lump sum in lieu of future alimony in matrimonial action void); Dougherty v. Burger, 133 Misc. 807, 234 N.Y.S. 274 (Sup. Ct. N.Y. Co. 1929) (retainer agreement for percentage of lump sum in divorce action void; court finds no distinction between weekly alimony installments and lump sum payment made in lieu of future alimony); In re Dangler. 192 A.D. 237, 182 N.Y.S. 471 (1st Dep’t 1920) (retainer agreement for percentage of lump sum or alimony in separation action void); In re Brackett, 114 A.D. 257, 99 N.Y.S. 802 (3d Dep’t), aff ‘d, 189 N.Y. 502, 81 N.E. 1160 (1906) (retainer agreement for percentage of total settlement, including support, maintenance and other matters, in separation action void); Van Vleck v. Van Vleck, 21 A.D. 272, 47 N.Y.S. 470 (4th Dep’t 1897) (retainer agreement for percentage of support in separation action void).

 

The Disciplinary Rules of the Code of Professional Responsibility expressly proscribe a contingent fee only in criminal cases (see DR 2-106(C)), and Ethical Consideration 2-20 cautions that “[b]ecause of the human relationships involved and the unique character of the proceedings, contingent fee arrangements in domestic relation cases are rarely justified.”

 

A contingent fee in a civil matter has become generally approved. Since, however, in a domestic relations action, by its nature a contingent fee creates for the lawyer a proprietary interest in the subject matter of the litigation — the establishment of the financial relationship between the parties — such a fee arrangement is fraught with potential inherent conflict of interest and should be avoided. N.Y. City 30-35 (1982); EC 5-7; DR 5-103; N.Y. State 390 (1975), cautioning adherence to “the stringent criteria” of EC 2-20, EC 5-7 and DR 2-106.

In the areas of civil litigation where a contingent fee is most commonly employed — negligence and condemnation matters — the central focus of the litigation is the res which is either created or augmented through the efforts of the lawyer. This is not so in the domestic relations area.

 

In matrimonial actions, the court, by its nature, sits almost as parens patriae, overseeing the State’s role to assure that adequate provision is made for the financially needy spouse and children. Once the award is made, it is against public policy for the lawyer to diminish such award by his participation in it with the spouse and children. (See Dougherty v. Eurger, 133 Misc. 807, 234 N.Y.S. 274.)

 

The inquiry, however, does not end there. Once the important initial designation of the property subject to division under equitable distribution is made, it must be apportioned between the parties. Under New York law the apportionment may be decided only after consideration is given to a series of factors — 10 each in connection with equitable distribution and maintenance, and 5 factors for child support.

 

The determination of how much should be allocated for alimony (maintenance) as opposed to the amount awarded for the property settlement (equitable distribution) is very complex. The factors are intertwined with the overall outcome of the litigation in a way that makes it extremely difficult, if not impossible, to segregate the maintenance or child support portions from any other monetary distributions under the statute. See, e.g., DRL § 236 B:

 

5. Disposition of property in certain matrimonial actions. (d) In determining an equitable disposition of property . . . the court shall consider:

* * *

(5) any award of maintenance under subdivision six of this part;

* * *

6. Maintenance. (a) . . . In determining the amount and duration of maintenance the court shall consider:

(1) the income and property of the respective parties . . . including marital property distributed pursuant to subdivision five of this part;

* * *

7. Child Support. (a) . . . The court . . . shall make its award for child support after consideration of all relevant factors, including: (1) the financial resources of the custodial and non-custodial parent, and those of the child; . . .

 

The mandated interaction between awards tor maintenance and awards of property under equitable distribution places too heavy a burden upon the attorney who has bargained for a fee contingent on the benefits derived from the property settlement. This same attorney must then determine how to channel his efforts — should they go towards obtaining maximum alimony and support (not subject to his agreement for a contingent fee), or towards obtaining the maximum property settlement (in which he will share under his agreement), or should they go towards obtaining a desirable balance between the two. The conflict resulting from the temptation to structure settlements or awards with large property distributions and small alimony and support awards regardless of the interests of the client, is obvious.

 

The conflict of interest inherent in the lawyer’s making such a dollar calculation does not promote public confidence in the legal profession. It not only opens the door to questions of the reasonableness of the fee, but creates the very appearance of professional impropriety that should be avoided. See EC 2-20, DR 2-106 and Canon 9.

 

New York courts have refused to make any distinction between contingent fees based upon an alimony (maintenance) award and contingent fees based upon a lump sum paid in lieu of all future alimony: “I can conceive of no good reason why in the one case such an agreement [contingent fee] should be forbidden and in the other countenanced. The evils inherent in the one are present in the other.” Dougherty, 133 Misc. at 808, 237 N.Y.S. at 276; see also Levine, 206 Misc. at 885, 135 N.Y.S.2d at 305; Dangler, 192 A.D. 237, 182 N.Y.S. 471.

 

While we do not pass on questions of law, we suggest that the same reasoning would preclude making any distinction between contingent fees based on alimony and contingent fees based on the value of a property settlement under equitable distribution.

 

Contingent fees are also frequently employed in collection matters, where, but for the lawyer’s efforts, the debt would go unpaid. In domestic relations matters, contingent fees have been permitted in the collection of past due alimony or child support. In such collection matters there is little risk of conflict of interest since the financial relationship between the parties has already been set and the lawyer’s duty is merely to enforce the pre-fixed obligation. See N.Y. State 443 (1974); N.Y. County 533 (1964); N.Y. County 275 (1929).

 

The commentators are in agreement that “[a]n attorney may collect past due, but not future, alimony on a contingent basis and may not take a percentage of a divorce property settlement.” Wise, Legal Ethics 233 (1970). See also MacKinnon, Contingent Fees for Legal Services: A Study of Professional Economics and Responsibilities, 45-49 (1964) (Contingent fee contracts interfere with the court’s statutory duty and responsibility. “The establishment of fee by private contract as a percentage of the amount of support, alimony, and other property awarded to a party by the court tends to frustrate the court’s action in setting these amounts at appropriate figures.”); Drinker, Legal Ethics 177 (1953).

It is therefore the view of the Committee that it is ethically improper for an attorney to enter into any form of contingent fee arrangement in any aspect of a matrimonial matter, except where the representation is to collect alimony or child support payments already due and owing the party.

 

May 4, 1984