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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Colorado Legal Ethics

1.5   Rule 1.5 Fees

1.5:100   Comparative Analysis of Colorado Rule

Primary Colorado References: CO Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary:

1.5:101      Model Rule Comparison

Colo.RPC 1.5 follows MR 1.5 with several exceptions. The Colorado Supreme Court modified MR 1.5(c) (“A fee may be contingent except in a matter in which a contingent fee is prohibited by paragraph (d) or other law”) to permit contingent fees “except in a matter in which a contingent fee is otherwise prohibited.” The Colorado Rule replaces the balance of MR 1.5(c), describing the requirements for a contingent fee agreement, with the statement that “[a] contingent fee shall meet all of the requirements of Chapter 23.3 of the Colorado Rules of Civil Procedure, ‘Rules Governing Contingent Fees.’” Colo.RPC 1.5 also omits MR 1.5(d), which prohibits contingent fee agreements in certain types of matters, because those prohibitions appear in the Colorado Rules Governing Contingent Fees, CRCP Ch. 23.3.

MR 1.5(e), which addresses a division of fees between lawyers not in the same firm, appears in Colo.RPC 1.5(d), with several changes. First, the Colorado Rule requires the division of fees to be “in proportion to the services performed by and responsibility assumed by each lawyer,” while MR 1.5(e)(1) would permit a division (assuming that the other elements of that subsection are satisfied) if the division is “in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation.” Second, Colo.RPC 1.5(d)(2) requires that the client be given full disclosure of the division of fees to be made and that the client affirmatively consent to the division, while MR 1.5(e)(2) requires only that the client be informed of and does not object to the participation of all of the lawyers involved. Third, Colorado added a requirement that the division of fees be set forth in writing signed by the lawyers and by the client with informed consent. Colo.RPC 1.5(d)(3) and MR 1.5(e)(3) have identical language requiring that the total fee be reasonable. The Committee Comment notes that the changes from MR 1.5(e) were intended “to tighten up the client consent requirements.”

Colo.RPC 1.5(e), unlike the Model Rule, flatly prohibits referral fees.

The Colorado Supreme Court generally adopted the Comment to MR 1.5, with the following changes. The Committee Comment adds the following language at the end of MR Comment [1]:

In setting a fee, a lawyer should also consider the inability of the client to pay a reasonable fee. Persons unable to pay all or a portion of a reasonable fee should be able to obtain necessary legal services, and lawyers should support and participate in ethical activities designed to achieve that objective.

Concerning contingent fees, the Committee Comment replaces the language at the end of Comment [3] to MR 1.5 (“Applicable law may impose limitations on contingent fees, such as a ceiling on the percentage.”), with the statement that “Chapter 23.3 of the Colorado Rules of Civil Procedure governs contingent fee arrangements, and contingent fees otherwise may be limited by applicable law.” Comment [4] to the Model Rule, regarding division of fees, has been revised to reflect the differences between Colo.RPC 1.5(d) and MR 1.5(e), discussed above.

1.5:102      Model Code Comparison

The Committee Comment notes that the fee-splitting provisions of MR 1.5(e) were revised in Colo.RPC 1.5(d) to resemble more closely DR 2-107(A).

1.5:200   A Lawyer's Claim to Compensation

Primary Colorado References: CO Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA § 41:101, ALI-LGL §§ 50-54, Wolfram §§ 9.1-9.6

An attorney is entitled to be paid a reasonable fee for the services that he is requested to provide. The reasonableness of attorney’s fees are subject to scrutiny by courts pursuant to their supervisory powers over attorneys. Law Offices of J.E. Losavio, Jr. v. Law Firm of Michael W. McDivitt, P.C., 865 P.2d 934, 935 (Colo. App. 1993); People v. Nutt, 696 P.2d 242, 248 (Colo. 1984). Colo.RPC 1.5 defines factors relevant to determination of reasonableness. These factors are commonly followed by the courts. E.g., Tallitsch v. Child Support Services, Inc., 926 P.2d 143 (Colo. App. 1996), cert. denied, Nov. 12, 1996.

Colorado law governs an attorney’s fee when the attorney is licensed in Colorado and litigation has its genesis in Colorado. Joyce v. Elliott, 857 P.2d 549, 550-51 (Colo. App. 1993), aff’d, 889 P.2d 43 (Colo. 1994). Lack of benefit to the client from the work is clearly a factor. People v. Boyle, 942 P.2d 1199, 1202 (Colo. 1997). However, a fee is not contingent in whole or in part unless agreed by the parties. Rifkin v. Steele Platt, 824 P.2d 32 (Colo. App. 1991).

1.5:210      Client-Lawyer Fee Agreements

With few exceptions Colorado does not require a written fee agreement between lawyer and client. The exceptions include:

a. When the fee is contingent. See 1.5:600, infra;

b. When the fee is to be divided among lawyers of different firms. See 1.5:800.

c. When an attorney represents any party in a workers’ compensation case. CRS § 8-43-403. See also CRS § 8-80-102.

Notwithstanding that an agreement between the attorney and client defines the fee to be paid to the attorney, those fees are subject to review as to reasonableness by the courts. See Section 1.5:200. The factors relevant to reasonableness of a fee agreement are the same as when there is no agreement. See Section 1.5:220.

CBA Formal Op. 81, Lawyer’s Participation in Pre-Paid Legal Service Plans (March 18, 1989), defined allowable lawyer’s arrangements with prepaid legal services plan under the former Colorado Code: A lawyer may not accept employment through a prepaid legal service plan if the lawyer knows or should know that the plan is in violation of applicable laws, rules of court, other legal requirements that govern legal services operations or any disciplinary rule. An open panel prepaid legal service plan permits members or beneficiaries to choose their own attorneys. A closed panel plan permits members or beneficiaries to use only those attorneys designated by the plan. A lawyer may accept work from a nonprofit closed panel provider so long as a member or beneficiary may select his or her own counsel, and representation by the provided counsel would not be unethical, improper or inadequate. A lawyer may accept work for a for-profit panel provider so long as (1) it is an open panel plan; or (2) it is a closed panel plan and the organization providing the plan “bears ultimate liability of its members or beneficiary” and, further a member or beneficiary must select his or her own counsel when representation by the provided counsel would be unethical, improper or inadequate, citing DR 2-103(D)(4)(A) and (E). The plan must provide that the plan member or beneficiary and not the plan be recognized as the client. Further, the plan must allow the participating lawyer to exercise independent professional judgment, to maintain client confidences, to practice competently and to avoid conflicts of interest. Finally the plan must advertise and solicit plan members within the ambit of DR 2-101.

1.5:220      A Lawyer's Fee in Absence of Agreement

“When an attorney renders services, upon request or employment, without agreement as to his fee [if no written agreement is required], he or she is entitled to a fair, just and reasonable compensation, which is measured by the reasonable value of the services rendered. . . . In other words, the fee may be awarded in quantum meruit.” In re Marriage of O’Brien, 759 P.2d 826, 828 (Colo. App. 1988), cert. denied, Aug. 29, 1988. To recover under the theory of quantum meruit, an attorney must show that he conferred a benefit upon the client which was appreciated and accepted by the client under such circumstances that it would be inequitable for the benefit to be retained without payment of its value. Beeson v. Industrial Claim Appeals Office, 942 P.2d 1314, 1316 (Colo. App. 1997), cert. denied, Sept. 8, 1997. The factors to be considered in determining the amount of a quantum meruit recovery include those listed in Colo.RPC 1.5. Law Offices of J.E. Losavio, Jr. v. Law Firm of Michael W. McDivitt, P.C., 865 P.2d 934, 936 (Colo. App. 1993). The weight given to any factor depends on the circumstances of each case, and no one factor is determinative. Beeson, 942 P.2d 1314 at 1316. Reasonableness is determined by the standards of the locale where the lawyer resides and offices, not where the service is rendered. Enyard v. Orr, 238 P. 29, 35-36 (Colo. 1925).

Ordinarily, the duty to respond to disciplinary matters is a duty personal to the attorney involved. However, the Supreme Court has indicated in dictum that there might be unusual and extraordinary circumstances which would allow an attorney to bill a client pursuant to a fee agreement for the legal costs incurred by the attorney in defending against unfounded disciplinary charges brought by a third party. People v. Brown, 840 P.2d 1085, 1089 (Colo. 1992). While the Supreme Court did not give any examples, where the client engages the lawyer to undertake legal proceedings against a third party known for his filing of frivolous grievances against lawyers might be an example.

If the contingent fee agreement is not valid under the Rules Governing Contingent Fees, the lawyer may not recover the contingent fee on the alternative theories of promissory estoppel, fraudulent misrepresentation, or tortious interference with contract. Fasing v. LaFond, 944 P.2d 608, 612 (Colo. App. 1997), cert. denied, Oct. 20, 1997. However, where the agreed contingent formula produces an excessive fee, reasonable compensation based on the elements of Colo.RPC 1.5 is still due. While expert testimony is admissible on the question of the value of legal services, courts “may be considered as experts upon the value of legal services.” Enyard v. Orr, 238 P. 29, 36 (Colo. 1925).

Somewhat different principles apply when the client seeks to recover the fee paid from the lawyer versus when an attorney seeks to collect the fee from the client. In Beeson v. Industrial Claim Appeals Office, 942 P.2d 1314 (Colo. 1997), cert. denied, Sept. 8, 1997, the client engaged the attorney to represent her in a worker’s compensation claim. They orally agreed to a 20% contingent fee. The lawyer negotiated and collected a settlement and received 20% thereof.

1.5:230      Fees on Termination [see 1.16:600]

Colo.RCP 1.16(d) provides that upon termination of representation, a lawyer shall take steps to assure the refunding of any advance payment of fees that has not been earned. Attorneys have been censured for improper conduct which included failure to return unearned advance fees. E.g. People v. O’Donnell, 955 P.2d 53 (Colo. App. 1998).

The Colorado courts have confirmed that under Colo.RCP 8.4(a), regardless of the terms of engagement, a client has an absolute right to discharge his lawyer. Olsen and Brown v. City of Englewood, 889 P.2d 673, 675 (Colo. 1995). Colorado has considered the right of the lawyer to collect fees upon termination in the context of that rule, generally holding that fee agreements are not allowed to, in effect, impinge upon that absolute right. Id. at 676.

A lawyer who replaces another lawyer is not responsible for any fees due the replaced attorney. CBA Formal Op. No. 40, Accepting Case Handled by Another Lawyer (Feb. 3, 1968, addendum issued 1995).

Termination of Non-Contingent Fee Representation.

An attorney who withdraws from a case for justifiable reason, or is terminated by his client without cause, may recover compensation for his services actually performed on a quantum meruit basis, even if there is no fee agreement. Jenkins v. District Court, 676 P.2d 1201, 1204 (Colo. 1984); Olsen and Brown v. City of Englewood, 889 P.2d 673, 675 (Colo. 1995).

In the Olsen and Brown case, the client entered into an oral agreement with the plaintiff law firm to represent the client in litigation to its conclusion, including all appeals, for a set monthly fee. This litigation required the law firm to devote substantially full time to the case, and to forego other work. Subsequently, the client terminated the representation without cause, and the firm sued in breach of contract to recover future profits. The Court of Appeals held that a lawyer who enters into a fixed fee contract to render specific legal services and is discharged by the client without cause is entitled only to compensation for the reasonable value of the services rendered up to the time of discharge. 867 P.2d 96 at 98. The Supreme Court affirmed, noting the fiduciary relationship, and the absolute right of the client “to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer’s services.” Colo.RPC 1.16. The court noted that to allow an attorney to recover damages for services not actually rendered prior to termination of the attorney-client relationship (future profits) would penalize the client in direct contravention of the client’s absolute right to discharge his attorney. 889 P.2d at 676.

The Olsen and Brown court distinguished Mutter v. Burgess, 290 P. 269 (Colo. 1930). In Mutter, the client agreed to pay the lawyer a $1,000 retainer, with an additional payment contingent on the outcome of the case. The client paid $200, and thereafter discharged the attorney without cause. The attorney sued to recover the remaining $800 due under the agreement. The Court allowed the recovery. The Olsen and Brown Court distinguished Mutter since Mutter was “based exclusively upon a non-refundable retainer agreement. . . . [whereas] Olsen entered into an oral agreement to represent Englewood for a fixed monthly amount until the conclusion of the case, including appeals.”. Id. at 676 fn 3. This case suggests a client contract to pay a lawyer a fixed fee would be binding, even if the client chose thereafter to terminate the attorney before he completed his engagement. Perhaps, however, Mutter v. Burgess is no longer law in Colorado, particularly where the retainer fee is disproportionate to the value of the services rendered.

Colorado does not appear to have considered the recovery of fees by a terminated attorney engaged on a noncontingency basis when the retainer agreement provides for a defined amount of compensation. The circumstances to be considered under the language of the agreement include (a) termination by the lawyer (i) with cause or (ii) without cause, and (b) termination by the client (i) with cause or (ii) without cause. It appears that a court would uphold a provision allowing the attorney to recover compensation for services performed if the client terminated without cause, or the lawyer terminated for cause.

On the other hand, a clause providing for the lawyer to receive compensation for past services if terminated by the client with cause, or by the attorney without cause raises special considerations, including not burdening the client’s absolute right to terminate the relationship.

Termination of Contingent Fee Representation.

If the agreement so provides, an attorney terminated by the client or justifiably withdrawing from a contingent fee representation may be entitled to compensation on a quantum meruit basis.

Law Offices of J.E. Losavio, Jr. v. Law Firm of Michael W. McDivitt, P.C., 865 P.2d 934 (Colo. App. 1993) was an action to apportion fees between the original attorney and the successor attorney retained successively on a contingent fee basis with respect to a personal injury claim. The appellate court rejected an apportionment by the trial court based upon the ratio of costs advanced by each attorney.

The Court of Appeals reaffirmed that an attorney who withdraws for justifiable reasons or is terminated by a client without cause is entitled to compensation for services rendered on a quantum meruit basis. 865 P.2d at 935. The Court adopted the traditional elements of a quantum meruit case, and the factors set forth in Colo.RCP 1.5 for determining the reasonable value of an attorney’s services recovery based on quantum meruit. 865 P.2d at 936. The Court also noted that the total fees of both attorneys on a quantum meruit basis need not equal the contingency fee amount (although it is a factor), although it is a cap. Id.

However, a lawyer voluntarily withdrawing without cause may be entitled to no compensation. In Joyce v. Elliott, 857 P.2d 549 (Colo. App. 1993), aff’d, 889 P.2d 43 (Colo. 1994), the attorney entered into a contingent fee agreement with his client, which also provided for compensation at an hourly rate if the client terminated the Agreement. Thereafter, the attorney filed a motion to withdraw because of “an irreconcilable conflict.” The Court found that the attorney did not need to withdraw, and the attorney, not the client, terminated the Agreement on the same day as filing the motion to withdraw. Thereafter, the client settled his claims on which the attorney represented him, and the Court authorized the withdrawal. The attorney then sought to recover his fees on a quantum meruit basis. The Colorado Supreme Court applied CRCP 23.3, Rule on Contingent Fees, and held that since the Agreement did not provide for the lawyer to receive any compensation if he (and not the client) voluntarily and without cause terminated the Agreement, the lawyer could not recover any compensation.

Thereafter, client sought to recover the fee that had been paid to the lawyer. The Court of Appeals held that the oral contingent fee agreement was void. However, the Court held that the attorney need not “disgorge” the fees received: he could justify the fees on a quantum meruit basis. “Importantly, Fogel was not seeking unpaid fees after having been terminated by claimant for good cause. Nor did he unilaterally withdraw while claimant’s matter was pending. Rather, he performed the requested services and the matter was fully resolved.” 942 P.2d at 1316.

A provision permitting a lawyer to terminate a contingent fee agreement and collect a quantum meruit fee when the client refuses to settle is generally unenforceable. In Jones v. Feiger, Collison & Killmer, 903 P.2d 27, 34 (Colo. App. 1994) rev’d on other grds, Feiger, Collison & Killmer v. Jones, 926 P.2d 1244 (Colo. 1996), the Colorado Court of Appeals held that any provision in an agreement to provide legal services that would deprive a client of the absolute and unqualified right to control (accept or reject) settlement is void as against public policy, citing Colo.RPC 1.2(a). The clause held void provided that if the client unreasonably refused settlement, the law firm could withdraw and recover costs and fees equal to the law firm’s normal hourly rates for the work it had performed. It did not advise the client that the approval of the Court was necessary in order for the law firm to withdraw.

If the parties mutually abandon representation under a contingent fee agreement which provides for compensation to the attorney in that circumstance, the attorney may recover alternative compensation in accordance with the agreement; otherwise the attorney cannot recover compensation. Joyce v. Elliott, 857 P.2d 549, 552 (Colo. App. 1993), aff’d, 889 P.2d 43 (Colo. 1994).

So-called “conversion clause” provisions in a contingent fee agreement that convert the fee due from the agreed contingent fee to an alternative fee if the agreement is terminated before the contingency occurs are discussed at length in CBA Formal Op. 100, Use of Conversion Clauses in Contingent Fee Agreements (adoption pending) (June 21, 1997). The Ethics Committee notes that the alternative fee set under the conversion clause could be (a) a lodestar fee, derived from the lawyer’s hourly rate and multiplied by the number of hours devoted to the case, (b) a percentage of the highest settlement amount offered before termination, (c) a fee to be determined under quantum meruit principles, or (d) some other fee formulation. The committee notes that the rules do not per se prohibit the use of conversion clauses in contingency fee agreements, but concludes that whether such clauses comply with the rules must be evaluated on a case-by-case basis. Specifically, the committee notes that a conversion clause might interfere impermissibly with the client’s absolute right to terminate the lawyer’s services as set forth in Colo.RPC 1.16(a)(3) and Committee Comments to Rules 1.2 and 1.16. Similarly a conversion clause might result in an unreasonable fee in violation of Rule 1.5, or might cause the fee agreement not to comply with the requirements of the rules governing contingent fees, which are incorporated into Rule 1.5(c).

The committee lists relevant factors in assessing whether a particular fee agreement violates the rules as including:

1. Whether the clause provides for conversion even if the client terminates the contingent fee agreement with cause or if the attorney terminates the agreement without cause;

2. Whether the clause provides for conversion to fees based on quantum meruit principles or defines the alternative basis for fees, e.g., a fixed amount, a lodestar fee, a percentage of the highest settlement offer, or some other basis;

3. Whether the fees computed on the alternative basis are unreasonable in amount, either on their face or under the circumstances that develop in the particular case;

4. Whether the clause provides for immediate payment on an alternative basis, before the contingency occurs and even in the absence of the contingency occurring;

5. Whether the clause provides for a cap, under which the alternative basis for fees cannot exceed the contingency amount; and

6. The sophistication of the client.

The practitioner considering the use of a conversion clause should carefully review the analysis in CBA Formal Op. 100.

1.5:240      Fee Collection Procedures

Although controversies and lawsuits with clients concerning compensation are to be avoided, a lawyer may ethically seek recovery of a fee for services rendered to which the client has agreed and which the client has promised but failed to pay, either by lawsuit against the client in the lawyer’s own name or by assignment of the claim against the client to a collection agency. CBA Formal Op. 20, Fee Collection (June 23, 1961, addendum issued 1995),The Opinion was originally based upon Canon 14 of the Canons of Professional Ethics, with further recognition of the statutory attorneys’ liens provided by CRS §§ 12-5-119-120. The Committee suggested that the lawyer should reach the conclusion that he cannot recover his fees without suing the clients in his own name or assigning the bill to a collection agency before embarking on either course. “Only where circumstances imperatively require it should the lawyer resort to either of these means to compel payment.” The 1995 addendum suggested that the Opinion could continue to provide guidance although the Code of Professional Responsibility had been replaced by the Colorado Rules of Professional Conduct. The Committee noted that Rule 1.5 (Fees) and 1.6 (Regarding Confidential Information) should be reviewed along with CBA Formal Op.  82 and CRS §§ 12-5-119-120.

With respect to contractual provisions establishing an attorney’s fees, in Waterman v. Silverman, 397 P.2d 739 (Colo. 1964), the court said “. . . the plaintiff was entitled to recover attorney’s fees only upon showing that such fees had been paid or incurred and were reasonable.” The Court cited DR 3-102(A) regarding not sharing legal fees with nonlawyers. This is followed by Rule 5.4, Sharing Legal Fees with Non-Lawyer.

Generally, an attorney should provide an accounting of fees upon request. People v. Banman, 901 P.2d 469, 471 (Colo. 1995) (citing DR 9-102(B)(3)). The courts require proof of reasonableness and of a free and full disclosure of rights, beyond a mere statement of an account, when a lawyer sues to recover. See Rupp v. Kuhl, 362 P.2d 396, 398 (Colo. 1961); Enyart v. Orr, 238 P. 29, 33 (Colo. 1925).

CBA Formal No. 66, Imposition of Interest or Finance Charges on Client Accounts (October 20, 1984), defines that a lawyer may not unilaterally impose interest on delinquent fee accounts or charge a finance fee unless there has been prior agreement between the attorney and the client that interest will be charged if a fee is unpaid for more than a specific period of time. This ethics opinion was preceded by CBA Informal Op. Y (Jan. 25, 1975, withdrawn Oct. 1991) which opined that it was ethical for a lawyer to charge his client interest, providing that the client is advised that the lawyer intends to charge interest and that the client agrees beforehand to the payment of interest on accounts that are delinquent for more than a stated period of time. CBA Informal Op. Y “overruled” CBA Informal Op. E (Dec. 3, 1971, withdrawn Jan. 25, 1975), which opined that it was unethical for a lawyer to charge interest on overdue accounts for professional services rendered.

Acceptance of payment for legal fees by a credit card charge was opined as ethical in CBA Formal Op. 99 (May 10, 1997). However, the Committee qualified its opinion in that certain protective measures must be implemented by the lawyer, and that the lawyer consults with the client prior to acceptance of payment by credit card. Prior, CBA Informal Op. Y (Jan. 25, 1975, withdrawn Oct. 1991) reached a similar result. That Opinion “overruled” CBA Informal Op. E (Dec. 3, 1971, withdrawn Jan. 25, 1975) which stated: “It is unethical for a lawyer to charge interest on overdue accounts for professional services rendered.”

An attorney cannot refuse to withdraw as counsel of record in order to collect an unpaid fee, although he may pursue collection of the fee even after withdrawal, including by the assertion of a statutory lien. CBA Informal Op. T (Nov. 17, 1973).

Attorney Liens.

Colorado has two statutory attorneys liens as security for fees owed to lawyers: The charging lien and the retaining lien. CRS §§ 12-5-119 and 120. See Cowden & Herscovici, “Perfection and Enforcement of Attorneys Liens in Colorado,” 26 Colo. Law. 57 (Mar. 1997); Klein and Todd, “The Treatment of Attorney’s Liens in Colorado,” 16 Colo. Law. 623 (1987).

On the other hand, the CBA Ethics Committee has defined nine circumstances in which a lawyer may not assert a retaining lien on a client’s papers when the client is financially able to pay outstanding fees, but refuses to do so:

1. There is no legal basis for the assertion of the lien.

2. The lawyer has been suspended or disbarred.

3. The lawyer is guilty of misconduct in the particular matter.

4. The representation is in a contingency fee case prior to completion of the case.

5. The client furnishes adequate security.

6. The client’s papers are essential to the preservation of an important personal liberty interest.

7. The lawyer has withdrawn without just cause or reasonable notice.

8. The lawyer is validly discharged for professional misconduct or prohibited conduct.

9. The client is financially unable to post a bond or pay the fees, unless such inability is a result of fraud or gross imposition by the client.

CBA Formal Op. No. 82, Assertion of Attorney’s Retaining Lien on Client’s Papers, (April 15, 1989 addendum issued 1995).

1.5:250      Fee Arbitration

Both the Colorado Bar Association and the Denver Bar Association have legal fee arbitration committees. Non-lawyers sit on most panels that hear the disputes and render decisions. There is no charge, and the arbitrators are not paid. Provided that the parties so agree, decisions are enforceable under applicable Colorado arbitration law. Arrangements for bar association arbitration can be arranged by contacting the bar associations.

1.5:260      Forfeiture of Lawyer's Compensation

An unlicensed attorney is not entitled to recover compensation for legal services, even if associated with a licensed attorney. Hittson v. Browne, 3 Colo. 304, 309-310 (1877). However, a suspended or disbarred attorney may recover fees earned prior to suspension or disbarment. Rutenbech v. Grossenbach, 867 P.2d 36, 37 (Colo. App. 1993), cert. denied, Feb. 7, 1994. See also CBA Informal Op. G (Dec. 8, 1971).

An attorney may not receive compensation for both serving as administrator and as lawyer for an estate. Doss v. Stevens, 59 P. 67 (Colo. App. 1899). Similarly, persons associated in the same law firm may not charge separate fees as an estate fiduciary and as attorney for their respective services to the estate. CBA Formal Op. No. 21, Fee to Estate (Aug. 11, 1961, amended July 20, 1962, addendum issued 1965). The 1995 addendum recognized the continued vitality of the Opinion under Rule 1.5 as well as other rules.

CBA Formal Op. No. 26, Real Estate Commission for Attorney-Executor (Sept. 28, 1962, addendum issued 1995), opines that an attorney who is an executor or administrator of an estate or who is attorney for an estate may not ethically charge or receive or participate in a commission on the sale of real estate or other property of the estate whether or not he has a real estate broker’s or agent’s license. The Opinion relied on Murray v. Stewart, 247 P. 187 (Colo. 1926). See also In re Macky’s Estate, 213 P. 131 (Colo. 1923) (executor cannot receive commission on premiums paid for his bond as executor).

An attorney’s conflict of interest does not automatically result in a loss of all rights to compensation, but it may result in a denial of or reduction in compensation. Seeman v. Gumbiner, 841 P.2d 403, 405 (Colo. App. 1992); In re King Resources Co., 20 B.R. 191 (D. Colo. 1982).

See also Section 1.5:230, Fees on Termination of Contingent Fee Agreement.

1.5:270      Remedies and Burden of Persuasion in Fee Disputes

Itemization of charges is not a condition precedent to collection of fees. VanCise, Phillips and Goldberg v. Jelen, 593 P.2d 973, 974 (Colo. 1979). But see People v. Nutt, 696 P.2d 242 (Colo. 1984). In order to recover fees, the lawyer must show that the fee agreement was fairly and openly made and that he gave the client full knowledge of the facts and of his legal rights. Jenkins v. District Court, 676 P.2d 1201, 1204-5 (Colo. 1984). The burden of proof of the validity of a fee agreement, particularly a contingent fee agreement, is on the lawyer. Fasing v. LaFond, 944 P.2d 608, 611 (Colo. App. 1997), cert. denied, Oct. 20, 1997. Similarly, the burden of proving the reasonableness of the fees is on the attorney. People v. Nutt, 696 P.2d 242, 248 (Colo. 1984).

As to the attorney’s lien remedy, see 1.5:240.

1.5:300   Attorney-Fee Awards (Fee Shifting)

Primary Colorado References: CO Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA § 41:301, Wolfram § 16.6

1.5:310      Paying for Litigation: The American Rule

Colorado follows the American rule that unless a statute or private contract provides otherwise, parties are responsible for their own costs of litigation, including attorney fees. Kuhn v. State, 924 P.2d 1053, 1057 (Colo. 1996); Buder v. Sartore, 774 P.2d 1383, 1290 (Colo. 1989). However, the courts and legislature have made notable exceptions to the rule. Examples of instances in which the Colorado legislature has dictated that the prevailing party may recover attorneys’ fees are set out at 1.5:330. Common law exceptions to the American Rule are discussed at 1.5:320.

Contractual provisions shifting legal fees of one party to another (typically, from the “prevailing party” to the Losing Party) are valid and enforceable. However, the amount of fees, if specifically defined, are subject to judicial scrutiny, and, if not specifically defined, are determined by the court. See Rufkin v. Steele Platt, 824 P.2d 32, 35 (Colo. App. 1991).

In determining the amount of fees to be recovered, the court should consider the factors enumerated in Colo.RPC 1.5(a). Tallitsch v. Child Support Services, Inc., 926 P.2d 143, 147 (Colo. App. 1996), cert. denied, Nov. 12, 1996. See Rufkin v. Steele Platt, 824 P.2d 32, 36 (Colo. App. 1991), referring to the factors set forth in DR 2-106 of the former Code of Professional Responsibility. The amount of damages recovered is only one of those factors, and therefore it is not required that the fee award bear a defined relationship to the recovery. Id.

A party who employs an attorney on a salaried basis may recover the reasonable value of that lawyer’s services from an opposing party when a statute or contractual provision permits recovery of professional services. Cf., CBA Formal Op. 72 (April 19, 1986, revised January 19, 1991, addendum 1995). The fee must be based upon the cost of the salary and benefits, and adequate time records must be maintained. Id.

It is ethical in Colorado for an attorney employed by a lender on a salaried basis to seek recovery of an attorney fee on behalf of the lender as part of a bid in a public trustee’s foreclosure of a deed of trust, or in a legal action seeking recovery on a promissory note, where the attorney employed by the lender in the collection effort claims only a pro rata portion of those amounts actually paid in the form of salary or benefits to the attorney. CBA Formal Op. 72, Recovery of Attorney Fee by Lender Using In-House Counsel (adopted April 19, 1986, revised January 19, 1991, addendum issued 1995).

1.5:320      Common-Law Fee Shifting

As set forth above, Colorado follows the American Rule that unless a statute or private contract provides otherwise, parties are responsible for their own costs of litigation, including attorneys fees. However, the courts have developed certain exceptions to the rule, the principal ones being the following:

Common Fund or Common Benefit.

The common fund doctrine applies where a suit involving an individual or representative plaintiff results in a monetary fund for a class of people situated similarly to the plaintiff. Under this exception, the plaintiff’s attorney’s fees are paid from the fund. Kuhn v. State, 924 P.2d 1053, 1058 (Colo. 1996). Under this exception, fees are not shifted from the prevailing party to the losing party; rather, the fees are extracted from the predetermined damage recovery obtained for “class members” who are not individually plaintiffs. Id. The fees are thus shared among those benefiting from the litigation.

Disobedience of a Court Order.

The United States Supreme Court held in Toledo Scale Co. v. Computing Scale Co., 261 U.S. 399 (1923), that a party enforcing a final judgment through a contempt action can collect attorney’s fees incurred. This rule was applied by the Tenth Circuit Court of Appeals in Martinez v. Roscoe, 100 F.3d 121 (10th Cir. 1996).

1.5:330      Statutory Fee Shifting

Colorado legislation allows the prevailing party to recover legal fees from the losing party in numerous instances. Examples of this legislation include:

CRS §      Fee Provision

   6-1-113   Attorneys’ Fees Recoverable in Successful Action Under
      the Colorado Consumer Protection Act
   6-15-103   Recovery of Attorneys’ Fees for Successful Action
      Under Consignment of Fine Art Statute
   12-14-113(1)(L)   Recovery of Attorneys’ Fees of for Violation of Fair
      Debt Collection Practices
   12-14.5-110   Recovery of Attorneys’ Fees by the Administrator or
      District Attorney in Enforcement Proceedings under the
      Colorado Credit Services Organization Act
   12-29.5-109(2)   Recovery of Attorneys’ Fees in Certain Actions against
      an Acupuncturist
   12-36-129(5)(b)   Recovery of Attorneys’ Fees by Doctors Discriminated
      Against by Medical Specialty Society, by Association of
      Physicians or by Licensed Physician
   12-36.5-106(11)   Recovery of Attorneys Fees by the Committee on
      Anti-Competitive Conduct of the Board of Medical
      Examiners
   13-16-123   Recovery of Attorneys’ Fees by Garnishee if
      Proceedings Frivolous, Groundless or Without a
      Reasonable Basis
   13-17.5-106   Limitation on Recovery of Attorneys’ Fees in Action by
      Prison Inmate
   13-17-102   Recovery of attorneys’ fees from an attorney or party
      who has brought or defended a civil action that lacked
      substantial justification, or was substantially frivolous,
      substantially groundless or substantially vexatious
   13-17-201   Recovery of Attorneys’ Fees by a Defendant Who
      Obtains a Rule 12(b) Dismissal of Certain Death or
      Injury Actions Prior to Trial
   13-21-105.5(8)(b)   Plaintiff’s Recovery of Attorneys’ Fees in Action for
      Violation of Infant Crib Safety Act
   13-21-109(6)   Recovery of Attorney Fees by Prevailing Party in an
      Action for Recovery of Damages for Checks, Drafts and
      Orders Not Paid Upon Presentment
   13-21-109.5   Recovery of Attorneys Fees by an Aggrieved Individual
      Who Prevails in an Action for Fraudulent Reuse of
      Social Security Numbers
   13-40-115(2)   Recovery of Attorneys’ Fees for Unlawful Detainer -
      Restitution Actions
   13-40-123   Recovery by Prevailing Party of Attorneys’ Fees in
      Forcible Entry and Detainer Actions
   13-54.5-110(2)   Recovery of Attorneys’ Fees for Wrongful Discharge of
      Employee by Reason of Garnishment
   13-71-133   Recovery of Reasonable Attorneys’ Fees by Juror
      against Employer Willfully Violating the Colorado
      Uniform Jury Selection and Service Act
   13-80-119   Recovery of Attorneys’ Fees in Action Arising Out of
      Course of a Commission of Felony or Flight Therefrom
   18-17-106(7)   Recovery of Attorney Fees by Person Injured by
      Violation of the Colorado Organized Crime Control Act
   24-10-110(5)   Recovery of Attorneys Fees by Public Employee when
      Plaintiff Fails to Prove Alleged Acts or Omissions of
      Public Employee Were Willful and Wanton
   24-34-506.6(6)   Recovery of Attorneys’ Fees in Action to Enforce
      Discriminatory Housing Statute
   24-72-307(4)   Recovery of Attorneys’ Fees When Arbitrary and
      Capricious Denial of Correction of Criminal Justice
      Records
   25-4-1812   Colorado Department of Public Health and Environment
      May Collect Reasonable Attorneys’ Fees in Civil
      Actions to Recover Penalties Assessed Under Shellfish
      Dealer Certification Act
   33-41-105.5   Recovery of Attorneys’ Fees by Prevailing Party in any
      Civil Action by a Recreational User for Damages
      Against the Landowner Who Allows the Use of the
      Landowner’s Property for Public Recreational Purposes
   35-11-116(2)   Recovery of Attorneys’ Fees by Department of
      Agriculture in Proceedings to Enforce Colorado
      Chemigation Act
   35-38-109(1)   Recovery of Attorneys’ Fees by Equipment Dealer in
      Action Against Supplier for Damages Suffered by
      Reason of Supplier’s Violation of CRS Chp. 35,
      Article 38
   35-50-145.1   Recovery of Attorneys’ Fees by the State Agriculture
      Commission for Designee in Action to Collect Civil
      Penalties under CRS Ch. 35, Article 50 (Agricultural
      Disease Prevention and Eradication of Disease in
      Animals)
   35-52-101(3)   Right of Commissioner of Agriculture to Recover
      Attorneys’ Fees in Connection with Collection of Civil
      Penalties for Violations of the Prevention and
      Eradication of diseases Act
   38-1-122   Recovery of Attorneys’ Fees From Petitioner in Eminent
      Domain Who Is Not Authorized to Acquire the Real
      Property or Interest Therein
   38-27-103   Recovery of Attorneys’ Fees Incurred by Hospital
      Enforcing Lien for Fees Owed to Hospital
   38-35-109(3)   Recovery of Attorneys’ Fees from Person Who Records
      or Files Document Purporting to Create a Lien Knowing
      or Having Reason to Know that Such Document Is
      Forged, Groundless, Contains Material Misstatement or
      False Claim, or Is Otherwise Invalid
   38-35-126(3)   Attorneys’ Fees Recoverable In Action to Void Contract
      for Deed to Real Property Which Fails to Designate
      Public Trustee as Escrow Agent for Deposit of Property
      Tax Monies or for Which No Notice Is Filed.

Where reasonableness of fees is not defined by statute, the amount of the award must be determined in light of all the circumstances based upon the time and effort reasonably expended by the prevailing party’s attorney. Factors that may be considered include the amount in controversy, necessary length of representation, complexity of the case, value of the legal services to the client, and awards in similar cases. While the existence of a fee arrangement as contingent or fixed is a factor to be considered, the court is not required to award the amount agreed upon between the attorney and client. Tallitsch v. Child Support Services, Inc. 926 P.2d 143, 147 (Colo. App. 1996), cert. denied, Nov. 12, 1996 (awarding plaintiff legal fees under the Colorado Organized Crime Control Act).

In Tallitsch, the court started with the number of hours reasonably expended multiplied by a reasonable hourly rate to determine the lodestar amount. Then, that basic amount was adjusted up or down by the factors set forth in Rule 1.5, including the degree of success achieved, the amount of damages recovered, the amount in controversy, and the amount of damages considered. The court rejected the proportionality rule under which attorneys’ fee awards are entered in proportion to the damages award obtained. Id. at 148.

1.5:340      Financing Litigation [see 1.8:600]

Colo.RPC 1.8(e) provides that in connection with litigation, a lawyer may not advance or guarantee financial assistance to the client, except that the lawyer may advance or guarantee expenses of litigation, provided that the client remains ultimately liable for such expenses. However, a lawyer may forego reimbursement of some or all of the litigation expenses if it is or becomes apparent that the client is unable to pay such expenses without suffering substantial financial hardship. Rule 5 of the Rules Governing Contingent Fees, CRCP Ch. 23.3, incorporates this standard, and requires that the contingent fee client stipulate to such liability for expenses.

In CBA Formal Op. 34, Advancement of Living Expenses for a Personal Injury Client (Mar. 27, 1965, addendum issued 1995), the CBA Ethics Committee opined that it was improper for a lawyer in a personal injury case to advance living expenses to or for the benefit of his injured client. The 1995 Addendum indicated that the Committee considered the Opinion to continue to provide guidance to the attorneys under Colo.RPC, referring to Colo.RPC 1.8 and CRCP Ch. 23.3 (Contingent Fee Agreements).

1.5:400   Reasonableness of a Fee Agreement

Primary Colorado References: CO Rule 1.5(a)
Background References: ABA Model Rule 1.5(a), Other Jurisdictions
Commentary: ABA/BNA § 41:301, ALI-LGL § 46, Wolfram § 9.3.1

The reasonableness of attorneys’ fees are subject to scrutiny by the court, notwithstanding that the parties have agreed to the amount, the rate or terms of the fee. Law Offices of J. E. Losavio, Jr. v. Law Firm of Michael W. McDivitt, P.C., 865 P.2d 934, 935 (Colo. App. 1993); People v. Nutt, 696 P.2d 242, 248 (Colo. 1984).

Generally, the courts apply the factors of Colo.RCP 1.5 in determining the reasonableness of a fee agreement, as well as the amount when attorney fees are awarded. E.g., Tallitsch v. Child Support Services, Inc., 926 P.2d 143 (Colo. App. 1996), cert. denied, Nov. 12, 1996.

The degree to which the work was a benefit to the client is clearly a substantial factor in determining reasonableness. See People v. Boyle, 942 P.2d 1199, 1202 (Colo. 1997).

CBA Formal Op. 16, Fees as Guardian Ad Litem (Dec. 2, 1960, withdrawn Jan. 25, 1997), opined that a court-appointed guardian ad litem in probate or similar proceedings who renders only the service normally required by this office is entitled to a reasonable fee for his services, but not a fee based solely upon the size of the estate involved. However, this opinion was withdrawn.

Similarly, CBA Formal Op. 19, Lower Fees May Be Improper Solicitation (March 17, 1961, withdrawn), defined that a lawyer who habitually and deliberately performs legal services for less than the customary charges of the bar for similar services or less than the fees recommended in the minimum fee schedule adopted by his local bar association is engaged in the improper solicitation of business, which is unethical. This opinion was withdrawn with the demise of the legality of fee schedules - - a prime example of the evolution of ethical standards.

1.5:410      Excessive Fees

In People v. Radinsky, 490 P.2d 951 (Colo. 1971), the court held that excessive fees are the basis for disciplinary action. The factors listed in Colo.RPC 1.5 provide a basis for an evaluation of the reasonableness of a contingent fee, as well as for determining the reasonable value of an attorney’s services based upon quantum meruit. Law Offices of J.E. Losavio, Jr. v. Law Firm of Michael W. McDivitt, P.C., 865 P.2d 934, 936 (Colo. App. 1993).

If a lawyer fails to comply with contingent fee rules, he cannot alternatively recover under a promissory estoppel theory. Fasing v. LaFond, 944 P.2d 608, 612 (Colo. App. 1997), cert. denied, Oct. 20, 1997.

Where the lawyer undertook a “no risk” minimal work recovery, he could not enforce a one-third contingent fee agreement. People v. Robertson, 908 P.2d 96, 97 (Colo. 1995). Specifically, the client retained the attorney to pursue a wrongful death action. The client had already been informed by the insurance carrier for the defendant that it would not dispute liability or damages and that it would tender the policy limits of $15,000. The attorney indicated that he might be able to get more. One month later, the policy limits were tendered and accepted. The lawyer retained one-third of the recovery ($5,000). The Supreme Court said:

The respondent . . . collected a $5,000 contingency fee when there was effectively no risk of nonrecovery and little work performed on the client’s behalf . . . [T]he respondent’s conduct violated DR 2-106(A) . . . .

CBA Formal Op. 54, Fees Charged in Foreclosure Redemption (undated, addendum issued 1995), issued under the Colorado Code, provides that:

1. It is unethical for a lawyer to enter into an agreement for, charge or collect an illegal or clearly excessive fee for services performed in the management of a foreclosure procedure. The lawyer is not relieved from this ethical obligation because the promissory note or security instrument specifies a fee which is excessive, nor is the lawyer relieved from this obligation when the entity paying the fee is one other than the client for whom the service is ultimately performed.

2. It is unethical for an attorney to enter into an arrangement whereby the debtor upon curing or at redemption, or the purchaser at foreclosure sale, would be charged an attorney’s fee greater in amount than that which otherwise properly would be charged to the attorney’s client.

3. It is unethical for a lawyer to share with the client any portion of the fee received in a foreclosure action.

1.5:420      "Retainer Fees:" Advance Payment, Engagement Fee, or Lump-Sum Fee

See also Section 1.5.230.

1.5:430      Nonrefundable Fees

An attorney has a duty to return unearned portions of advance fee payments. People v. Johnson, 199 Colo. 248, 612 P.2d 1097 (1980); Colo.RPC 1.16(d); In re Printcrafters, Inc., 208 Bankr. 968 (Colo. 1997) See Olsen and Brown v. City of Englewood, 889 P.2d 673 (Colo. 1995).

In Mutter v. Burgess, 290 P. 269 (Colo. 1930), the client agreed to pay the lawyer a $1,000 retainer, with an additional payment contingent upon the outcome of the case. The client paid $200, and the attorney sued for the remaining $800 after retainer, and prevailed. However, the viability of the court’s holding upholding the enforcement of the agreement may be subject to question given the holding in Olsen and Brown v. City of Englewood, 889 P.2d 673 (Colo. 1995).

1.5:500   Communication Regarding Fees

Primary Colorado References: CO Rule 1.5(b)
Background References: ABA Model Rule 1.5(b), Other Jurisdictions
Commentary: ABA/BNA § 41:101, ALI-LGL § 50, Wolfram § 9.2.1

See prior sections.

1.5:600   Contingent Fees

Primary Colorado References: CO Rule 1.5(c)
Background References: ABA Model Rule 1.5(c), Other Jurisdictions
Commentary: ABA/BNA § 41:901, ALI-LGL §§ 46, 47, Wolfram § 9.4

Contingent fee arrangements are generally valid in Colorado, except in criminal and divorce cases. People v. Nutt, 696 P.2d 242, 247 (Colo. 1984) (citing former Code EC 2-20 and DR 2-106(c)). Contingent fee agreements for the collection of future child support or spousal maintenance payments may also be unethical. Infra, this section. Nevertheless, such arrangements are recognized as a potential source of a conflict of interests for the attorney, and hence may be entered into only when the arrangement will be beneficial to the client. Id. at 248, citing former Code EC 5-7. Pursuant to its supervisory power over attorneys as officers of the court, a court may and should scrutinize contingent fee agreements and determine the reasonableness of their terms. Id. at 248.

The Colorado Supreme Court has promulgated Rules Governing Contingent Fees. Colo.RPC 1.5(c) provides that a fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is otherwise prohibited. A contingent fee agreement must meet all of the requirements of Chapter 23.3 of the Colorado Rules of Civil Procedure, “Rules Governing Contingent Fees.”

The Supreme Court defines the term “contingent fee agreement” as a written agreement for legal services of an attorney (including any associated counsel) under which compensation is to be contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement. Rule 1. Rule 2 provides that except as expressly prohibited, no written contingent fee agreement shall be regarded as champertous if made in an effort in good faith reasonably to comply with the rules. The Colorado Rules of Professional Conduct may be considered in reviewing a disputed contingent fee agreement. Rule 3 prohibits contingent fee agreements in four circumstances:

• In respect to the procuring of an acquittal upon any favorable disposition of a criminal charge,

• In respect of the procuring of a dissolution of marriage, discrimination of invalidity of marriage or legal separation,

• In connection with any case or proceeding where a contingency of a determination of attorneys fees is otherwise prohibited by law, the Colorado Rules of Professional Conduct, or governmental agency rule, or

• If the agreement is unconscionable, unreasonable and unfair.

Before a contingent fee agreement is entered into, the attorney must disclose to the prospective client the following:

(i) The nature of other types of fee arrangements;

(ii) The nature of specially awarded attorneys’ fees;

(iii) The nature of expenses and estimated amount of expenses to handle the matter to conclusion;

(iv) The potential for an award of costs and attorneys’ fees to the opposing party;

(v) What is meant by “associated counsel”; and

(vi) What is meant by “subrogation” and the effect of any subrogation interest for lien.

CRCP Ch. 23.3, Rule 4(a).

Each contingent fee agreement must be in writing, in duplicate, executed by the attorney and each client. One signed duplicate copy must be mailed or delivered to each client within 10 days after the making of the agreement. The attorney must retain one copy with proof of mailing, for six years after completion or settlement of the case or termination of services, whichever first occurs. CRCP Ch. 23.3, Rule 4(b).

Lastly, a written disbursement statement must issue to the client at the time of final disbursement. CRCP Ch. 23.3. Rule 4(c).

Once the disclosure is made to the client, a contingent fee agreement may be entered into. Under Rule 5, it must contain the name and address of each client, the name and mailing address of the attorney or attorneys to be retained, a statement of the nature of the claimed controversy or matters with reference to which the services are to be performed, a statement of the contingency upon which the client is to be liable to pay compensation, otherwise than from amounts collected for him by the attorney, a statement of the precise percentage to be charged subject to the limitation that it not be unconscionable, unreasonable or unfair, and a stipulation that the client, except as permitted by the Rules of Professional Conduct, including Rule 1.8(e), is to be liable for expenses, such stipulation including an estimate of such expenses, authority of the attorney to incur the expenses and make disbursements, and a maximum limitation not to be exceeded without the client’s further written authority. CRCP Ch. 23.3, Rule 5.

The final disbursements statement shall reflect the amounts received, expenses incurred in handling of the case and computation of the contingency fee.

The Rules contain forms that are deemed sufficient for the disclosure statement and for a contingent fee agreement.

No contingent fee agreement shall be enforceable by the involved attorney unless there has been substantial compliance with all of the provisions of the rule. CRCP Ch. 23.3, Rule 6.

If a lawyer fails to comply with contingent fee rules, he cannot alternatively recover under a promissory estoppel theory. Fasing v. LaFond, 944 P.2d 608, 612 (Colo. App. 1997), cert. denied, Oct. 20, 1997.

The courts have voided the percentage of the contingent fee when convinced that it is unreasonable in light of the circumstances to be considered. See Anderson v. Kenelly, 547 P.2d 260 (Colo. App. 1976); People v. Robertson, 908 P.2d 96 (Colo. 1995).

In CBA Formal Op. 67, Contingent Fee Arrangement in Child Support and Spousal Maintenance Cases (March 16, 1985, addendum issued 1995), the CBA Ethics Committee opined that a lawyer may ethically enter into a contingent fee arrangement to collect past due child support or past due spousal maintenance (support). However, the Committee distinguished contingent fee arrangements for the collection of future child support or future spousal maintenance, opining that such arrangements were unethical. The Committee noted that because of the human relationships involved and the unique character of the proceedings, under then applicable EC 2-20, contingent fee arrangements in domestic relation cases were rarely justified. The Committee reiterated that the courts have uniformly held that negotiation or litigation of a property settlement or property division in a divorce decree cannot be undertaken on a contingent fee basis, citing, inter alia, Wall v. Lindner, 410 P.2d 186 (Colo. 1966). The Committee expressed that contingent fee agreements based upon a percentage of expected child support, spousal maintenance or property award create tension between an attorney’s ability to earn a fee in that particular case, and society’s desire to preserve the integrity of the marriage. However, since collection of past due child support or past due maintenance can occur only after a court has determined the status of the marriage or the existence of the parent-child relationship, attorneys pursuing such a collection on a contingent fee basis would not be placed in a position in conflict with the public policy or the law’s requirement. While this opinion was decided under the Code of Professional Conduct, the 1995 addendum indicated that the Committee considers the opinion to provide guidance under the Colo.RPC.

The use of contingent fee agreements with medical legal consultant firms was considered in CBA Formal Op. 77, Participation with Medical Legal Consulting Firms: Contingent Fee (March 19, 1988). In brief, a medical legal consulting service (firm/consultant) provides technical services for the plaintiff in a medical malpractice or a personal injury case. There may be a fixed fee for an initial evaluation of a case, and, if the case is deemed meritorious, the consultant may perform additional services in return for a certain percentage of the plaintiff’s gross recovery. These services may include medical research, analysis of medical records, assisting plaintiff’s counsel with discovery on the medical issues, formulating questions for the medical experts and defendants to answer, and assisting plaintiff’s counsel during depositions and at trial. The consultant does not testify at any time in the proceeding. However, the consultant does assist in locating expert witnesses for the trial, usually retained from the consultant’s independent consulting staff, who are not employees and have no knowledge of the contract between the consultant and the plaintiff. The expert witness is paid on an hourly rate basis, and normally in advance through the consultant. The fees are not contingent.

Such a contract may typically specify a percentage of 20% to be paid to the consultant, although some are higher.

CBA Ethics Committee opined that the use of medical legal consulting services on a contingent fee or modified contingent fee basis in a medical malpractice or personal injury case raises serious ethical concerns and may violate the Code of Professional Responsibility. These areas of concern include (1) whether the lawyer’s fee is excessive, (2) whether the expert witnesses are compensated contingent upon the content of their testimony or the outcome of the case, (3) whether restrictions on the selection of expert witnesses in the future affect the lawyer’s obligations to future clients, and (4) whether the arrangement erodes the lawyer’s exercise of independent professional judgment.

The concern over the reasonableness of the lawyer’s fee is that if the total contingent fees of the lawyer and the consultant are a total of 50%, the lawyer’s fee might be excessive in the circumstances. Thus, if the consultant reduces the necessary services of the lawyers, the lawyer’s fee should be reduced.

Concern is also indicated that the expert witnesses on the consultant’s independent consulting staff may in fact not be independent; if regularly used by the consultants, they may be substantially dependent upon the consultants. This is particularly true if there is a contract provision prohibiting plaintiff’s counsel from contacting those same witnesses in other cases without the consultant’s written consent.

The Opinion concluded that whether a lawyer may recommend, participate in or acquiesce in the use of a medical consulting firm on a contingent fee or modified contingent fee basis depends upon all of the facts and circumstances of the particular case. The substantial risk for the lawyer and possible violations of the Code include questions as to the reasonableness of the lawyer’s fee, given that the client is paying two contingent fees, compensation to the expert witnesses that might be construed as being contingent upon the content of their testimony or the outcome of the case, restrictions affecting the lawyer’s obligations to other clients insofar as contacting expert witnesses, and an erosion of the lawyer’s exercise of independent professional judgment by reason of the role undertaken by the consultants.

This Opinion has not been reaffirmed by addendum after adoption of Colorado Rules of Professional Conduct.

See discussion of 1.5:600. A lawyer is barred from recovery of a contingent fee if the lawyer does not comply with the contingent fee rules. Beeson v. Industrial Claims Appeal Office, 942 P.2d 1314, 1316 (Colo. App. 1997), cert. denied, Sept. 8, 1997; Elliott v. Joyce, 889 P.2d 43, 45 (Colo. 1994).

A contingent fee percentage cannot be so high that it ceases to be a measure of due compensation for services and makes the lawyer a partner in the lawsuit. People v. Nutt, 696 P.2d 242, 248 (Colo. 1984). The lawyer has the burden of proving that the services to be performed were reasonably worth the amount stated in the agreement. Id. In reviewing the percentage, the court will test the contract against a quantum meruit standard and determine from all of the facts and circumstances the amount of time spent, the novelty of the questions of law and the risk of non-recovery to the client and attorney. Id. For example, a one-third contingent fee was held unconscionable, unreasonable and unfair where a dispute over payment of $26,373 in insurance proceeds was resolved in one week and without litigation when the correct date of decedent’s enlistment in the military was discovered. Id., discussing Anderson v. Kenelly, 547 P.2d 260 (Colo. App. 1975). Moreover, the services must be legal in nature, and have a reasonable correlation to the amount of the contingent fee. Id., citing Brillhart v. Hudson, 455 P.2d 878 (Colo. 1969), after remand, Hudson v. Park Development Co., 493 P.2d 379 (Colo. App. 1972). A contingent fee of one-fourth of fireman’s recovered pension has been upheld, Bryant v. Hand, 404 P.2d 521 (Colo. 1965).

There are specific statutory provisions governing contingent fee agreements with workers’ compensation claimants. CRS § 8-43-403.

1.5:610      Special Requirements Concerning Contingent Fees

See discussion of 1.5:600. A lawyer is barred from recovery of a contingent fee if the lawyer does not comply with the contingent fee rules. Beeson v. Industrial Claims Appeal Office, 942 P.2d 1314, 1316 (Colo. App. 1997), cert. denied, Sept. 8, 1997; Elliott v. Joyce, 889 P.2d 43, 45 (Colo. 1994).

A contingent fee percentage cannot be so high that it ceases to be a measure of due compensation for services and makes the lawyer a partner in the lawsuit. People v. Nutt, 696 P.2d 242, 248 (Colo. 1984). The lawyer has the burden of proving that the services to be performed were reasonably worth the amount stated in the agreement. Id. In reviewing the percentage, the court will test the contract against a quantum meruit standard and determine from all of the facts and circumstances the amount of time spent, the novelty of the questions of law and the risk of non-recovery to the client and attorney. Id. For example, a one-third contingent fee was held unconscionable, unreasonable and unfair where a dispute over payment of $26,373 in insurance proceeds was resolved in one week and without litigation when the correct date of decedent’s enlistment in the military was discovered. Id., discussing Anderson v. Kenelly, 547 P.2d 260 (Colo. App. 1975). Moreover, the services must be legal in nature, and have a reasonable correlation to the amount of the contingent fee. Id., citing Brillhart v. Hudson, 455 P.2d 878 (Colo. 1969), after remand, Hudson v. Park Development Co., 493 P.2d 379 (Colo. App. 1972). A contingent fee of one-fourth of fireman’s recovered pension has been upheld, Bryant v. Hand, 404 P.2d 521 (Colo. 1965).

There are specific statutory provisions governing contingent fee agreements with workers’ compensation claimants. CRS § 8-43-403.

1.5:620      Quantum Meruit in Contingent Fee Cases

A valid contingent fee agreement must be in writing and state “the precise percentage to be charged.” CRCP Ch. 23.3, Rules 1 & 5. There is no provision for the amount of the contingent fee to be a quantum meruit amount. However, in certain circumstances when a contingent fee agreement is terminated prior to completion of the undertaking, the attorney can recover on a quantum meruit basis. See 1.5:230. If a lawyer fails to comply with contingent fee rules, he cannot alternatively recover under promissory estoppel. Fasing v. La Fond, 944 P.2d 608, 612 (Colo. App. 1997), cert. denied, Oct. 20, 1997. However, in some circumstances he can recover in quantum meruit for services actually performed.

To recover in quantum meruit, the attorney must prove that benefit was conferred by him on his client, the benefit was appreciated by the client, and the benefit was accepted in circumstances making it inequitable for the benefit to be retained without payment. The factors to be considered in determining the amount of quantum meruit recovery include those set forth in Colo.RPC 1.5(a). Law Offices of J.E. Losavio, Jr. v. Law Firm of Michael W. McDevitt, P.C., 865 P.2d 934, 936 (Colo. 1993).

1.5:700   Unlawful Fees

Primary Colorado References: CO Rule 1.5(d)
Background References: ABA Model Rule 1.5(d), Other Jurisdictions
Commentary: ABA/BNA §§ 41:901, ALI-LGL § 48, Wolfram §§ 9.3.2; 9.4

1.5:710      Contingent Fees in Criminal Cases

The Rules Governing Contingent Fees provide that no contingent fee agreement shall be made in respect of the procuring of an acquittal upon any favorable disposition of a criminal charge. CRCP Ch. 23.3, Rule 3(a).

1.5:720      Contingent Fees in Domestic Relations Matters

The Rules Governing Contingent Fees provide that no contingent fee agreement shall be made in respect of the procuring of a dissolution of marriage, determination of invalidity of marriage or legal separation. CRCP Ch. 23.3, Rule 3.

See Section 1.5:600 and discussion of CBA Formal Op. 67, Contingent Fee Arrangement in Child Support and Spousal Maintenance Cases (March 16, 1985, addendum issued 1995); Wall v. Lindner, 410 P.2d 186 (Colo. 1966); People v. Nutt, 696 P.2d 242, 247 (Colo. 1984).

1.5:730      Other Illegal Fees in Colorado

In addition to the prohibition of contingent fee agreements with respect to procuring an acquittal upon any favorable disposition of a criminal charge and The Rules Governing Contingent Fees also prohibit contingent fee agreements in connection with any case or proceeding where the contingency method of determination of attorneys’ fees is otherwise prohibited by law, the Colorado Rules of Professional Conduct or governmental agency rules, or if the agreement is unconscionable, unreasonable or unfair. CRCP Ch. 23.3, Rule 3.

A lawyer may not enter into an agreement for, charge or collect an illegal or clearly excessive fee for services performed. That prohibition remains even if a promissory note or security agreement specifies the fee. CBA Formal Op. 54 (undated, addendum issued 1995).

A provision in a contingent fee agreement providing that the client agrees not to refuse unreasonably to settle his claims, and allowing the attorney to withdraw for a violation and be paid an hourly rate for services performed violates Colo.RPC 1.2(a). A client’s right to reject settlement is absolute and unqualified. Jones v. Feiger, Collison & Killmer, 903 P.2d 27, 34 (Colo. App. 1994), rev’d on other grds, 926 P.2d 1244 (Colo. 1996).

Today, any fee that purports to be nonrefundable may be void. It does not make any difference whether the payment is denominated, a general retainer to secure availability of the lawyer’s future services, a retainer for a specific job or a flat fee. See “Attorney B,” 26 Colo. Law. 202 (June 1997); “Attorney A,” 26 Colo. Law. 202 (June 1997); Olson and Brown v. City of Englewood, 889 P.2d 673, 675 (Colo. 1995). Cf. Mutter v. Burgess, 290 P. 269 (Colo. 1930).

1.5:800   Fee Splitting (Referral Fees)

Primary Colorado References: CO Rule 1.5(e)
Background References: ABA Model Rule 1.5(e), Other Jurisdictions
Commentary: ABA/BNA § 41:701, ALI-LGL § 59, Wolfram § 9.24

Colo.RPC 1.5(e) expressly prohibits payment of referral fees. See also CBA Formal Op. 38 (June 4, 1966, addendum issued 1995). See also People v. Shipp, 793 P.2d 574, 575 (Colo. 1990) (under DR 2-103(B)). On the other hand, Colo.RPC 1.5(d) allows the division of the fees between lawyers not in the same firm if certain conditions are fulfilled. See also CBA Formal Op.  54, Fees Charged in Foreclosure or Redemption (Undated, addendum issued 1995); Rutenbech v. Grossenbach, 867 P.2d 36, 37 (Colo. App. 1993), cert. denied, Feb. 7, 1994.

An attorney cannot use a fee division agreement as a de facto method of precluding a departing associate from taking clients with him by making the division of fees other than in proportion to the services performed and responsibilities assumed by the attorney and the departed associate. People v. Wilson, 953 P.2d 1292 (Colo. 1998).