State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
In a dissolution of marriage proceeding, may an attorney enter into a contingent fee agreement with one of the parties regarding a dispute (a) as to whether property is a community asset or not; (b) based upon the value of other community assets where there is no dispute as to percentage ownership but a dispute as to valuation of the property; or (c) based upon the value of community assets where there is no dispute as to percentage of ownership or value?
In a dissolution of marriage proceeding, may an attorney enter into a contingent fee agreement to represent one of the parties based upon the amount of spousal and/or child support recovered?
If an attorney is requested to represent a party to attempt to recover spousal and child support which have not been paid pursuant to a valid court order or agreement, may the attorney enter into a contingent fee agreement based upon the amount of past due support which is ultimately recovered?
Contingent fee agreements based upon the value of community property assets recovered in a dissolution proceeding are not per se improper under rule 2-107, Rules of Professional Conduct, provided that the agreement does not discourage or provide impediment to potential reconciliation of the spouses during the pendency of the action. An agreement to attempt to recover past due spousal or child support payments on a contingency basis is not ethically improper. The propriety of an agreement to attempt to collect future spousal or child support based upon the amount of spousal or child support recovered is unsettled and depends upon resolution of public policy issues which are beyond the purview of this committee.
Business and Professions Code sections 6067 and 6068.
Rule 2-107 of the Rules of Professional Conduct of the State Bar of California.
The Committee has framed this opinion in light of the following factual situation:
Husband and Wife were married in 1965. They purchased a home in 1970. At the time of purchase, and at husband's suggestion, wife signed a quit claim deed to the home. Wife alleges that she did not know what signing the quit claim deed meant. Prior to the marriage and in 1963, husband purchased undeveloped real property. Payments on the loans for the home and the undeveloped property were made throughout the marriage.
Husband and Wife both desire a dissolution of marriage. Wife has requested that lawyer represent her in the dissolution action. Because she does not have enough funds to pay the lawyer her hourly rate, the client has asked the lawyer to represent her on a contingent fee basis. Wife believes that she should have some interest in their home, support for herself and their four children, and any other property which is part of the community assets. Husband is asserting that the home is his separate property; that Wife is entitled to no support; that the undeveloped property is his separate property because Wife referred to it throughout the marriage as "your property" and that even if some portion of the property is a community asset, the total value of the property is $125,000. Wife indicated that a real estate developer had recently offered husband $325,000 for the undeveloped property.
Lawyer has asked whether or not she can ethically enter into a contingent fee agreement with the client. The Committee has identified the issues set forth above from these facts, with the addition of issue 2.
Contingent fee agreements are favored in California for the reasons indicated in Newman v. Freitas (1900) 129 Cal. 283, 292:
"Contracts for contingent fees paid attorneys ... in this and perhaps most of the states ... are allowed, if not favored. This is on the ground that otherwise a party, without means to employ an attorney and pay his fee certain, and having a meritorious cause of action or defense, would find himself powerless to protect his rights...."
(See also Eaton v. Thieme (1936) 15 Cal.App.2d 458 [59 P.2d 638]; Witkin, 1 Calif. Proc. (2d Ed. 1970) pp. 87-88, 92 and ABA Code Prof. Resp., EC 2-201 [which observes that a successful prosecution of the claim produces res out of which the fee can be paid].)
No Business and Professions Code section, Rule of Professional Conduct or other California statute expressly prohibits a lawyer from entering into a contingent fee agreement in a dissolution of marriage proceeding. However, rule 2-107 of the Rules of Professional Conduct prohibits a lawyer from entering into an agreement for, charging or collecting an illegal or unconscionable fee. (See also Bus. & Prof. Code, 6067, 6068(a) [which require a member of the State Bar to uphold the law of California] and In re Rohan (1978) 21 Cal.3d 195.)
In the absence of express provisions, we look to statutory and case authority concerning the validity of specific fee agreements. Unless as attorneys fees may be awarded under a statute, the measure and mode of compensation of members of the State Bar is left to the agreement of the parties. (Code Civ. Proc., 102l.) Although some statutes provide for discretionary court award of attorneys fees in dissolution of marriage and child custody proceedings, such statutes do not purport to be the exclusive mode of attorney compensation in such matters. They are all phrased permissively. (See, e.g., Civ. Code, 4370, 4371.) Moreover, there are no statutes which expressly prohibit or limit contingent fee agreements in such matters.
Prior to 1970, California judicial authority found certain contingent fee agreements negotiated in divorce actions void as against public policy. (See: Theisen v. Keough (1931) 115 Cal.App. 353, 356 [l P.2d 1015]; Ayres v. Lipschutz (1924) 68 Cal.App. 134 [28 P.720]; Newman v. Freitas, supra, at 289. See also Bar Assn. of San Francisco, Legal Ethics Comm. lnformal Opinion 1971-1 and citations therein.) Each of these cases concerns a contingent fee agreement made because a party sought the services of the attorney to procure a divorce. The rationale of holding such agreements void was that an attorney acquired a personal, pecuniary interest in preventing a reconciliation between husband and wife. (Hill v. Hill (1943) 23 Cal.2d 82, 92 [142 P.2d 417, 421) These cases held that the agreements were void as against public policy, reasoning that the policy of the law favors and encourages marriage and reconciliation of marriage. (See also, Coons v. Kary (1968) 263 Cal.App.2d 650, 653-654.)
There are exceptions to this general rule. Contingent fee agreements in dissolution or divorce proceedings have been upheld and may be enforceable under certain circumstances. (See Krieger v. Bulpitt (1953) 40 Cal.2d 97 [251 P.2d 673]; Coviello v. State Bar (1955) 45 Cal.2d 57, 59, 60-61; Mahoney v. Sharff (1961) 191 Cal. App.2d 191.)
Krieger v. Bulpitt (1953) 40 Cal.2d 97 [251 P.2d 673], a unanimous decision of the California Supreme Court, held that a contingent fee agreement in a domestic relations case was enforceable and not violative of public policy. The facts found by the California Supreme Court were as follows:
The wife filed an action for divorce. The husband retained attorneys to represent him in the pending divorce action and to secure a favorable property settlement. The husband and attorneys entered into a contingent fee agreement calling for the attorneys to receive "ten percent of the appraised value of all property secured for the [husband] but in no case ... less than $5,000 nor more than $7,500." (Krieger, supra, p.673.)
The court distinguished this contract from those that had been held void, because this contract did not have as its object the dissolution of marriage. The court also held that all contingent fee agreements in divorce actions should' not be condemned. The validity of each should be determined in light of the facts and circumstances of each case, as follows:
"There should not be a dogmatic condemnation of every contingent fee contract in a divorce action regardless of distinguishable circumstances. Rather the validity of such contract should be determined in the light of the factual background of the particular case and considerations of public policy appropriate thereto .... In such case where a marriage's legitimate ends have been frustrated and the parties cannot derive from it the benefits for which it was instituted, the best policy is to permit dissolution of the marriage...." [Citations omitted.]
"[T]he husband engaged plaintiffs to defend the suit and protect his interests in adjusting property rights on a contingent fee basis because, as appears from the agreement, he had no funds with which to reimburse them for 'services rendered and to be rendered' in the pending litigation. A contingent fee contract made under such circumstances between an attorney and a client does not involve vitiating considerations contrary to public policy or constitute an agreement 'promotive of divorce.' Such agreement is wholly distinguishable from the contingent fee contract which is condemned as tending 'directly to bring about alienation of husband and wife by offering a stranger a premium to advise dissolution of the marriage ties.'" (Emp. added. Krieger, supra, 251 P.2d at p. 675.)
In Coviello v. State Bar (1955) 45 Cal.2d 57, 59, 60-61, an attorney was charged with acts involving moral turpitude (Bus. & Prof. Code, 6067, 6068, 6106) for entering into a contingent fee agreement to clarify a woman's marital status with her presumptive husband and to obtain her share of community monies or property. The marriage was bigamous. The State Bar Disciplinary Board dismissed this count. On review, the court observed that dismissal was appropriate because the contingent fee agreement was not promotive of divorce and "therefore not the type of contingent fee agreement prohibited by the law of this state", citing the Krieger case, supra. (Coviello, supra, at pp. 60-61.)
The Coviello case stands for the proposition that a contingent fee agreement which is not promotive of divorce, is not illegal and therefore not a violation of an attorney's oath and duty to uphold the law of this state. (See Bus. & Prof. Code, 6067, 6068(a).) By the same reasoning, such a fee agreement would also not be an illegal agreement within the meaning of rule 2-107(A) of the Rules of Professional Conduct. A fortiori, if the preservation of the marriage is not at issue in a dissolution of marriage proceeding, a contingent fee agreement is not per se violative of the member's professional obligations.
Coviello raises an alternative suggestion: a contingent fee agreement in a dissolution of marriage proceeding that is promotive of divorce and therefore void, is an illegal agreement. In such circumstances, the member of the bar may be unable to enforce payment of fees, and may also be charged with professional misconduct for violating the oath and duty to uphold the law. (Bus. & Prof. Code, 6067, 6068(a) and rule 2-107(A) of the Rules of Professional Conduct (entering into an illegal fee agreement).)
From the foregoing authorities, we conclude that unless the fee is so high as to be unconscionable, and violative of rule 2-107, the issue is whether the agreement is violative of public policy because its object is promotive of divorce. However, it is important to note that the foregoing cases were decided prior to the effective date of the Family Law Act in 1970. (Civ. Code, 4000 et. seq.) The Family Law Act has not altered the basic public policy favoring marriage. However, the Act introduces a "no-fault" concept into dissolution of marriages since a marriage may be dissolved on the ground that irreconcilable differences exist which have caused the irremediable breakdown of the marriage. (See Civ. Code, 4506.) "Irreconcilable differences" are those grounds determined by the court to be substantial reasons for not continuing the marriage and which make it appear that the marriage should be dissolved. (See Civ. Code, 4507.) We have found no California appellate cases reported since 1970 which discuss the propriety of contingent fee agreements in dissolution cases.
Accordingly, we conclude that not all contingent fee agreements based upon the value of community property assets recovered in a dissolution proceeding are inherently improper. However, this conclusion should not be construed as general approval of the conduct in all cases, (See rule 1-100 of the Rules of Professional Conduct, which provides in pertinent part: "...The prohibition of certain conduct within these rules is not to be interpreted as an approval of conduct not specifically mentioned....")
Each member of the bar must consider the propriety of the proposed agreement in light of the facts and circumstances of the particular case and considerations of public policy (e.g. (a) the public policy disfavoring the alienation of the marital relations by vesting in the attorney a pecuniary interest in consummation of the dissolution; (b) the public policy requiring that community property be evenly divided; and (c) that custody of children be determined in accordance with the best interests of the children.) In pre-1970 cases, the following factors are often used by courts in determining the validity of such agreements:
If no dissolution proceeding has begun and the person seeks the services of an attorney to institute the action, courts have held contingent fee agreements to be void, as promotive of divorce. (See Coons v. Kary (1968) 262 Cal.App.2d 650, 652; and cases cited therein.)
The Supreme Court has observed that there is no public policy in the continuance of a moribund marriage, where all possibility of reconciliation is apparently extinct and the parties have no intention or expectation of resuming marital relations. In these cases, a contingent fee agreement may be valid. (Krieger v. Bulpitt, supra, at p.675; see also Coviello v. State Bar, supra, at pp.60-61.)
Where an attorney is requested to prosecute a divorce action which was commenced by another attorney who no longer represents the client, the attorney must determine whether or not the marriage is salvageable prior to considering whether or not the action is one in which a contingent fee arrangement might be appropriate. In Coons v. Kary, supra, at p.653, the court observed:
"...There was no testimony that [the attorney] attempted to determine whether [the marriage was salvageable] or not. Instead he promptly began to discuss how he would be paid. The arrangement finally agreed upon can only have had the effect of giving [the attorney] a financial interest in furthering the dissolution of the marriage, an interest which could well have led him to oppose any tendencies toward reconciliation that his client might have manifested...."
Where the party to the dissolution action has no funds with which to reimburse an attorney for services rendered in the litigation, the contract may be upheld. (Krieger v. Bulpitt, supra, 251 P.2d at 675.)
The committee finds that the propriety of a contingent fee agreement may depend upon the type of issues which must be resolved in the dissolution proceedings. For example, it may be appropriate to have such an agreement if the only issue is whether property is or is not a community asset. In other instances such as those in which the lawyer must prove valuation of the marital property, such agreements may not be appropriate because, for example, they may create a conflict of interest between the desire of the client to have a low valuation and the recovery of higher fees by the lawyer if the property has a higher valuation.
In Coviello v. State Bar, supra, at pp. 60-61, the contingent fee agreement entered into could not be promotive of divorce because the marriage of the parties was bigamous.
Even after an attorney has determined that a contingent fee agreement is proper in the circumstances of a particular case, the attorney should take steps to ensure that the contingent fee agreement does not foreclose reconciliation in the future. For example, the court, in Krieger, supra, 251 P.2d at p. 673 implied that one means of removing the likelihood that an attorney will have a financial interest against reconciliation is to have an alternative fee arrangement (based upon an hourly rate or flat fee) which is operative in the event of a reconciliation of the spouses. The terms of the agreement should be discussed fully with the client in order that the client does not believe that there is any impediment to reconciliation with his/her spouse. In this way, we believe that the agreement may avoid being found promotive of divorce and that the potential conflict of interest may be avoided.
In addition, the general ethical requirements regarding fees and fee agreements must be considered. (Rule 2-107, Rules Prof. Conduct.2)
Any potential contingent fee agreement should protect against the possibility of double recovery or that the fee may become exorbitant or unreasonable if the court awards attorneys fees. (See Mahoney v. Sharff (1961) 191 Cal.App.2d 191, 194-193.)
A lawyer should take care that a contingent fee agreement based upon the amount of property recovered does not affect the lawyer's obligation of undivided fidelity to the client's interests. For example, it is conceivable that a situation might arise wherein the lawyer's personal pecuniary interest in achieving a high valuation of community property, thereby increasing the amount of his/her contingent fee, conflicts with the best interest of a client having a lower valuation.
Past due spousal support is in the nature of a debt. We have found no California authority which suggests that there is any ethical impropriety in agreeing to attempt to recover past due spousal support payments on a contingency basis. Certainly, since the object of the agreement is recovery of past due spousal support payments, it is not promotive of divorce.
The propriety of contingent fee agreements in past due child support payment matters depends upon the facts and circumstances of the particular matter. For example:
1. Civil Code section 4370 (c) provides:
"Notwithstanding any other provision of law, absent good cause to the contrary, the court, upon determining an ability to pay, shall award reasonable attorney's fees to a custodial parent in any action to enforce an existing order for child support."
In cases in which a court may award reasonable attorney's fees pursuant to this section, the attorney will have to disclose the existence of the contingent fee agreement to avoid misleading the court and to avoid being paid twice for the reasonable value of his/her services. (See rule 2-107 (A), Rules of Professional Conduct.)
2. Where a court does not award reasonable attorneys fees because the other party has no ability to pay or because the court has found other good cause why the party should not pay, we have found no express authority suggesting that an attorney is precluded from receiving a percentage of the past due child support recovered as attorneys fees. In structuring a fee agreement with a client in these matters, attorneys may desire to have an alternative form of payment. For example: either a percentage of the past due child support recovered or the reasonable attorneys fees awarded by the court pursuant to section 4370 (c) of the Civil Code.
3. In circumstances (1) where it is unlikely that the custodial parent will be able to recover reasonable attorneys fees pursuant to Civil Code section 4380 subdivision (c); (2) where the custodial parent cannot afford reasonable attorneys fees to maintain an action to enforce an existing order for child support; and (3) where the action will create a res of past due child support, entering into a contingent fee agreement is not, in and of itself, improper.
We have found no express California authority which addresses the propriety of an attorney entering into a contingent fee agreement in which the fees are based upon a percentage of the spousal or child support to be obtained in the future. In analogous circumstances involving future support, however, there appear to be two contrasting views:
The case of Kyne v. Kyne (1943) 60 Cal.App.2d 326, [140 P. 2d 886] is instructive. In Kyne, the court considered a contingent fee contract in an action brought by a child against his alleged father for paternity and for an order of support. On appeal, the court held that a contingent fee contract in this type of action was void as against public policy. The court said:
"[I]t was the duty of the court to award for the support of the child, whose paternity has been established, an amount sufficient for his support, within the means of the father, and it was likewise the duty of the court as part of the child's right to support to make an allowance of attorney's fees. The amount necessary for the child support may not be reduced by permitting the deduction therefrom or the assignment of a part of said support money for the payment of attorneys' fees, which it is likewise the duty of the court to make an allowance for attorneys' fees as part of the child's right to support."
In personal injury cases wherein the victim is rendered physically or mentally incompetent and where the recovery includes future support for the victim, an attorney may ethically take a percentage of the recovery.
Because the Committee cannot predict whether a future court might hold that contingency fee agreements in future child or spousal support cases are void as against public policy along the lines suggested by the 1943 Kyne case, the Committee has set forth both views for an attorney.
1. On the one hand, there may be the appearance that an attorney's fees are being taken from funds which are needed to feed, clothe, and shelter a child or spouse.
2. On the other hand, a child or spouse may never be able to receive support to which they are entitled because of the inability of the parent to pay reasonable attorney's fees.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
1 Ethical Consideration 2-20 of the former Model Code of Professional Responsibility of the American Bar Association, which has not been adopted in California, finds contingent fee arrangements in domestic relations cases "rarely justified" because of the "human relationships involved and the unique character of the proceedings." (EC 2-20.) However, the disciplinary rules of the Model Code do not expressly prohibit contingent fee agreements in domestic relations matters. Present rule 1.5 (d) (1) of the Model Rules of Professional Conduct (adopted by the American Bar Association House of Delegates August 1983) provides: "A lawyer shall not enter into an arrangement for, charge or collect: any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof."
2 The Committee does not opine upon the applicability of Business & Professions Code section 6147 to these types of contingent fee agreements.