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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.

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Maryland Legal Ethics

1.5   Rule 1.5 Fees

1.5:100   Comparative Analysis of Maryland Rule

Primary Maryland References: MD Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary:

1.5:101      Model Rule Comparison

Paragraphs (a) and (b) of Maryland Rule 1.5 are substantively identical to the MR 1.5(a) and MR 1.5(b). Paragraph (c) is slightly more explicit than the MR 1.5(c) in that it requires that the "terms of a contingent fee agreement shall be communicated to the client in writing." Paragraph (d)(1) is also slightly different in that it expands the category of cases in which contingency fee agreements are prohibited to include child custody cases. In addition, paragraph (d)(1) expressly identifies the Maryland domestic law statutes under which contingency fee agreements are prohibited. Paragraph (d)(2) and paragraph (e) are substantively identical to the same Model Rule provisions. The comment to Maryland Rule 1.5 adds a paragraph entitled "Contingent Fees," which for purposes of Maryland Rule 1.5(c) and Maryland Rule 1.5(d), defines "contingent fee" arrangements. The comment to Maryland Rule 1.5 is otherwise substantively identical to MR 1.5's comment.

1.5:102      Model Code Comparison

Paragraph (a) is substantially identical to DR 2-106(b) and substantially similar to EC 2-17. There is no counterpart to Maryland Rule 1.5(b) in the Disciplinary Rules of the Model Code. However, EC 2-19 recognizes the benefit of having a written fee agreement, particularly when the fee is contingent. Paragraphs (c) and (d)(1) have no counterpart in the Model Code. Paragraph (d)(2) is substantially similar to DR 2-106(c). Paragraph (e) is substantially identical to DR 2-107(A), except that Maryland Rule 1.5(d) permits division of fees without regard to the services rendered by each lawyer, if they assume joint responsibility for the representation.

1.5:200   A Lawyer's Claim to Compensation

Primary Maryland References: MD 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

The Maryland Rules of Professional Conduct are statements of public policy that govern an attorney's actions and, in particular, control the fees that an attorney may receive. Alan F. Post Chartered v. Bregman, 349 Md. 142, 162-165 (1998). The touchstone is "reasonableness."

1.5:210      Client-Lawyer Fee Agreements

Maryland Rule 1.5 mandates that a lawyer's fee be reasonable and specifies eight "factors to be considered in determining" reasonableness. There is "no per se rule regarding the reasonableness of attorneys' fees -- each case is decided individually, on its facts." Fraidin v. Weitzman, 93 Md. App. 168, 191 (1992) (citing Attorney Grievance Comm'n v. Korotki, 318 Md. 646 (1990)).

Under Maryland Rule 1.5(b), when the lawyer has "not regularly represented" the client, "the basis or rate of the fee" must be communicated to the client, "preferably in writing, before or within a reasonable time after commencing the representation." As the comment to Rule 1.5 states, "a written statement concerning the fee reduces the possibility of misunderstanding."

A written agreement is essential if the attorney seeks to charge the client interest. An attorney may only charge a client interest on unpaid account balances and/or disbursements when those charges are disclosed and agreed to in writing by the client. MSBA Eth. Op. 98-23 (1998); MSBA Eth. Op. 77-48 (1977).

The terms of a contingency fee agreement must be in writing. Maryland Rule 1.5(c). Contingency fees are prohibited in criminal matters and in most domestic relations actions. MD Rule 1.5(d)(1) and (2). They are, however, permissible in most other contexts. For example, an attorney may charge a contingent fee for the collection of Personal Injury Protection ("PIP") benefits when a law suit is filed for the collection of such benefits. MSBA Eth. Op. 92-31 (1992). Alternatively, an attorney may charge a client on a time-expended basis for the uncontested collection of PIP benefits so long as the fee is reasonable. Id. Because the amount of time required for filling out a routine undisputed PIP claim is minimal, any such charge should be nominal. Id. [See also 1.5: 600 and 1.5:700 for discussions of contingent fees and unlawful fees, respectively.]

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

The comment to Rule 1.5 implies that a fee must be based on either an "evolved understanding" or a writing, but suggests that the writing need not be more formal than a "simple memorandum" or "fee schedule." In the absence of an agreement, an attorney "is entitled to be paid the reasonable value" of the legal services performed for the client. Head v. Head, 66 Md. App. 655, 669 (1986).

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

An attorney representing a client pursuant to a contingency fee agreement who is discharged without cause by the client prior to the occurrence of the contingency, may recover the reasonable value of the services performed prior to discharge, but no recovery may be had if the attorney is discharged for cause. See Skeens v. Miller, 331 Md. 331 (1993). In Vogelhut v. Kandel, 308 Md. 183 (1986), Judge Rodowsky, concurring, provided an expansive discussion of the right of an attorney to fees upon termination of the representation:

The authority of an attorney to act for a client is revocable at the will of the client. The client's power to revoke is an implied term of the retainer contract so that, by terminating the representation, with or without cause, the client does not breach the retainer contract. If the client discharges the attorney for cause, the prevailing rule is that the attorney may not recover any compensation. If the client terminates the representation without cause, the attorney is entitled to be compensated for the reasonable value of the legal services rendered prior to termination.

308 Md. at 191 [internal citations omitted].

In Skeens, the Court of Appeals, in a 4-3 decision, adopted the positions stated in Judge Rodowsky's concurring opinion in Vogelhut, specifically holding:

[W]here an attorney has been discharged without cause, the attorney's claim in quantum meruit accrues immediately upon discharge, notwithstanding the fact that the contingency has not occurred. [Further,] a client who without cause terminates a contingent fee agreement may not thereafter resurrect the contingency term as a defense when the discharged attorney files a fee claim.

331 Md. at 343-4. In so doing, the court adopted the so-called New York rule. Judge Eldridge authored a critical dissent for himself and two other members of the Maryland Court of Appeals. Id. at 344. [See also 1.5:600 for further discussion of contingent fees.]

1.5:240      Fee Collection Procedures

1.5:250      Fee Arbitration

There are no reported Maryland cases or Ethics Opinions on this particular issue. However, the comment to Rule 1.5 encourages lawyers to make use of any arbitration and mediation procedures that have been established to resolve fee disputes. In Maryland, state bar association and several county bar associations have together created a state-wide fee arbitration and mediation system that provides alternate means of addressing fee disputes. The Maryland State Bar Association ("MSBA") has a standing Committee on the Resolution of Fee Disputes that administers the MSBA's program for fee dispute resolution. Heavily weighted toward early consultation and mediation, it also provides a more formal arbitration process at the request of an aggrieved client. See Regulations Governing the Resolution of Fee Disputes, MSBA Proc. & Pol. Man. B (1998). The MSBA makes its fee dispute resolution service available throughout the state, but limits its jurisdiction where local bar associations have created fee arbitration systems of their own. MSBA Proc. & Pol. Man. B(7), B(8) (1998). As an example, the Bar Association of Baltimore City ("BABC") has a Fee Arbitration Committee that oversees arbitration panels whose members resolve fee disputes between an attorney and client or between attorneys sharing fees, primarily in Baltimore City. BABC Fee Arb. Comm. Rules, 1.1, 2.1. Like the MSBA program, the BABC fee arbitration system provides for both informal mediation and binding arbitration, subject to the Maryland Uniform Arbitration Act (Md. Code Ann., Cts. & Jud. Proc. 3- 201 et seq. (Repl. 1995)). MSBA Proc. & Pol. Man. B (21); BABC Fee Arb. Comm. Rules 5.2, 7.3. The BABC fee arbitration process differs from the MSBA program, however, in its requirement that the respondent attorney consent to arbitrate. BABC Fee Arb. Comm. Rules 7.1; (compare MSBA Proc. & Pol. Man. B(15), B(16). Details of the MSBA and various county and Baltimore City bar association fee arbitration programs may be obtained by contacting:

Mr. Brent Burry, Administrative Director   
The Maryland State Bar Association      
The Maryland Bar Center          
520 West Fayette Street         
Baltimore, MD 21201-1781         
410-685-7878
fax 410-837-0518

The Bar Association of Montgomery County
Committee on the Resolution of Fee Disputes
c/o Beverly C. Mondin, Executive Director
27 West Jefferson Street
Rockville, MD 20850-4200
301-424-3454
fax 301-217-9327

William C. Mitchell, Jr., Chair
MSBA Committee on Resolution of
Fee Disputes
Glenco Building, 410 Rowe Blvd
Annapolis, Maryland 21401-8013

The Bar Association of Baltimore City      
Fee Arbitration Committee         
Attn: Bernadette L. ("Lynn") Murray      
Public Services Coordinator         
627 Courthouse East            
111 N. Calvert Street            
Baltimore, MD 21202            
410-539-5418               
fax 410-685-3420

The Prince George's County Bar Association
Fee Disputes & Conciliation Committee
c/o Norma L. Coffren, Executive Director
Marlboro Professional Park
14330 Old Marlboro Pike
Upper Marlboro, MD 20772
301-952-1442
fax 301-952-1429

Jerald B. Lurie, Esquire, Chair
BABC Fee Arbitration Committee
Suite 600
2 Hopkins Plaza
Baltimore, MD 21201-2930
410-539-5195

The Baltimore County Bar Association
Fee Arbitration Committee
Chair (1998-99):
c/o Charles E. Kountz, Jr., Esquire
4367 Hollins Ferry Road, Suite 2C
Baltimore, MD 21227-3400
410-242-0100
fax 410-242-0212

alternate contact
Ms. Barbara J. Fiorino, Executive Director
The Baltimore County Bar Association
Fee Arbitration Committee
100 County Courts Building
401 Bosley Avenue
Towson, MD 21204-4491
410-337-9103
fax 410-823-3418

1.5:260      Forfeiture of Lawyer's Compensation

There is no reported Maryland case that has held that there is any duty of a lawyer or law firm to return to a client (disgorge) fees because of a lawyer's improper or unethical conduct. To the contrary, where a firm was found to have rendered valuable services to the client in a matter for which there was overbilling, "a law firm is not obliged to disgorge all fees." Fairfax Savings, F.S.B. v. Weinberg and Green, 112 Md. App. 587, 628 (1996) (citing with approval Arizona Elec. Power Co-op, Inc. v. Berkely, 59 F.3d 988, 992 (9th Cir. 1995) (the "better view" is that, even when an attorney has acted unethically, the attorney may still be allowed reasonable fees)).

1.5:270      Remedies and Burden of Persuasion in Fee Disputes

For more than a century, it has been the law of Maryland that the burden is on the lawyer to prove that any money claimed as a fee was for services authorized and actually rendered, and that the charge was reasonable and fair. Merryman v. Euler, 59 Md. 588 (1883). See also Buechner v. Goodman, 174 Md. 131, 136-7 (1938). In Attorney Grievance Comm'n v. Korotki, 318 Md. 646, 666 (1990), the Court of Appeals summarized counsel's burden, stating:

[t]he attorney has the burden of showing, not only that he used no undue influence, but that he gave his client all the information and advice which it would have been his duty to give if he himself had not been interested, and that the transaction was as beneficial to the client as it would have been had the client dealt with a stranger. [Citation omitted.] And "the fact that the client agreed to the [amount of the fee] does not relieve the attorney from the burden of showing that the amount agreed upon was fair and reasonable." [Citation omitted.]

1.5:300   Attorney-Fee Awards (Fee Shifting)

Primary Maryland References: MD Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA 41:301, Wolfram 16.6

Maryland follows the general "American Rule" that the expenses of litigation are borne by the respective parties and that the victor does not have a right to recover legal fees incurred in the proceeding. See, e.g., Empire Realty Co. v. Fleisher, 269 Md. 278, 285 (1974); Freedman v. Seidler, 233 Md. 39, 47 (1963). However, attorney's fees and other litigation costs may be "awarded based upon a contract between the parties." Reisterstown Plaza Assocs. v. General Nutrition Ctr., Inc., 89 Md. App. 232, 242 (1991); Johnson & Towers Baltimore, Inc. v. Vessel "Hunter," 824 F. Supp. 562, 574 (D. Md. 1992) (citing Maryland authorities). Certain statutes, too, allow imposition of the victor's attorney's fees upon the losing party and no contract may modify the statutory fee shifting provision. Milton Co. v. Council of Bentley Place, 121 Md. App. 100, 122 (1998). [See 1.5:330 on statutory fee shifting.]

1.5:310      Paying for Litigation: The American Rule

The "American Rule" divines the principle "that costs awarded to a prevailing party in litigation ordinarily do not include the counsel fees of the prevailing party." Blitz v. Beth Issac Adas Israel Congregation, No. 72, 1998 Md. LEXIS 731, at *11, n.7 (Md., Sept. 14, 1998). This rule has been "part of the jurisprudence of this country for nearly 200 years." Collier v. Md-Individuals Practice Ass'n, 327 Md. 1, 13 (1992). This rule, however, "refers primarily to compensatory damages." St. Luke Evangelical Lutheran Church, Inc. v. Smith, 318 Md. 337, 339 (1990). By a 4-3 vote, the court in St. Luke held that "whenever punitive damages are appropriate, the amount of reasonable attorney's fees incurred in the pending litigation may be considered by the jury." Id.

The St. Luke's rule was discussed and modified in Bowden v. Caldor, 350 Md. 4, 36-7 (1998). The court concluded that while "reasonable attorney's fees are admissible and could be considered by the jury in determining the amount of punitive damages," the punitive damages awarded must nonetheless "bear a reasonable relationship to the compensatory damages awarded." Bowden, 350 Md. at 36-37. The court emphasized that "substantial expenses [i.e., attorney's fees] incurred by the plaintif will not justify a punitive damages award which is disproportionate to the gravity of the defendant's tortious conduct or which is disproportionate to the defendant's ability to pay." Id. at 37.

In the limited areas of litigation, where the prevailing party may recover attorney's fees, the burden is on the prevailing party to establish the reasonableness of the fees. The Maxima Corp. v. 6933 Arlington Dev., 100 Md. App. 441, 454 (1994). The factors to be considered to establish reasonableness are those delineated in Maryland Rule 1.5(a). In Maxima, the court provided an extensive discussion of the burden and factors applicable to establishing reasonableness of attorneys' fees. 100 Md. App. at 453-7. The court concluded that any award "must be based on a record that includes information that sufficiently and competently supports" the reasonableness of the fees. Id. at 458.

1.5:320      Common-Law Fee Shifting

Maryland courts have been reluctant to shift the obligation to pay legal fees. [See 1.5:300 and 1.5:310.] Indeed, the Court of Appeals wrote, in Collier v. MD-IPA, Inc., 327 Md. 1, 17 (1992), "[w]ith the exception of cases involving liability of insurers and cost of defense, Maryland law has never recognized fee shifting in breach of contract actions, absent contractual provision, statute or rule". The court explained further in Hess Construction Co. v. Board of Education, 341 Md. 155, 159-161 (1996):

In Maryland, "the general rule is that costs and expenses of litigation, other than the usual and ordinary court costs, are not recoverable in an action for [compensatory] damages." [citations omitted.] Attorney's fees may be awarded . . . where parties to a contract have an agreement regarding attorney's fees . . . [citations omitted] Additionally, a plaintiff in a malicious prosecution action, who has incurred counsel fees in the defense of the criminal charge, may be awarded those fees as damages in the civil action. Tully v. Dasher, 250 Md. 424, 442 (1968); but cf. Solko v. State Roads Comm'n, 82 Md. App. 137, 153, cert. denied, 320 Md. 222 (1990) (holding that attorney's fees are not "just compensation" in condemnation proceedings).

But exceptions are quite rare under Maryland common law to the general rule that counsel fees, incurred by the prevailing party in the very litigation in which that party prevailed, are not recoverable as compensatory damages against the losing party. The principal exception is for counsel fees incurred by an insured in successful litigation with a liability insurer which denied coverage or a duty to defend. [Citations omitted.] In Collier we called this exception under Maryland common law an "anomaly." 327 Md. at 17.

1.5:330      Statutory Fee Shifting

More than 125 Maryland statutes provide for "reasonable attorney's fees" in certain instances. The Maryland General Assembly has provided for statutory attorney's fees in a wide variety of circumstances. For example, a sports agent is subject to reasonable attorney's fees incurred by an athlete who recovers under the statute. Md. Code Ann., Bus. Reg. 4-424 (1998). There are also approximately 20 Maryland rules that provide for reasonable attorney's fees in certain instances. See, e.g., Md. Rule 2-424(e) (a party may receive an award of reasonable attorney's fees where another party has failed to admit the genuineness of documents proven at trial to be genuine).

1.5:340      Financing Litigation [see 1.8:600]

Maryland Rule 1.8(j) prohibits a lawyer from acquiring "a proprietary interest in the cause of action . . . the lawyer is conducting for a client," except in certain limited circumstances, one of which is a contingent fee agreement. [See also Section 1.5:600]. In Attorney Grievance Commission v. Eisenstein, 333 Md. 464 (1994), the Court of Appeals addressed what an attorney is precluded from doing to facilitate a client's (particularly, a contingent fee client's) case:

Decisions of this Court have construed [the prior ethics rules] to prohibit an attorney from advancing money to a client while litigation is pending, whether or not the loans relate to the litigation, unless the funds are advanced for a purpose that falls into one of the exceptions enumerated in the rule. Attorney Grievance Comm'n v. Kandel, 317 Md. 274 (1989) (only costs directly associated with litigation may be advanced); Attorney Grievance Comm'n v. Harris, 310 Md. 197, 214-15 (1987), cert. denied, 484 U.S. 1062, 108 S. Ct. 1020, 98 L. Ed. 2d 985 (1988) (personal loans unrelated to contemplated litigation violated DR 5-103(b)); Attorney Grievance Comm'n v. Engerman, 289 Md. 330, 339-40 (1981) (attorney violated DR 5-103 by advancing money for food and household expenses while litigation was pending). Advancing non-litigation related expenses smacks of "purchasing an interest in the subject matter of the litigation" in which the lawyer is involved, and the majority view thus prohibits it.

333 Md. at 485-6.

It is to be noted, however, that the Court of Appeals implicitly approved the existence of "a licensed consumer loan company" that "makes loans to personal injury claim plaintiffs secured by assignments of any proceeds of the injury claims," when it allowed recovery by the loan company from the Clients' Security Trust Fund. Advance Finance Co. v. Clients' Security Trust Fund, 337 Md. 195, 197 (1995).

1.5:400   Reasonableness of a Fee Agreement

Primary Maryland References: MD 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

1.5:410      Excessive Fees

An attorney's fees were excessive and in violation of Maryland Rule 1.5 where the attorney charged: (1) a minimum of twenty minutes per telephone call, even if there was no answer; (2) forty-five minutes per page for documents he prepared; (3) $10,550.99 to probate an estate when expert testimony showed that $2,500.00 would have been a reasonable fee under the circumstances; (4) $1,444.93 to prepare a will when expert testimony showed that $400.00 would have been a reasonable fee; and (5) $1,273.97 for general services when expert testimony showed that $300.00 would have been a reasonable fee. Attorney Grievance Comm'n v. Richardson, 350 Md. 354 (1998).

An attorney's fee was unreasonable and in violation of Maryland Rule 1.5(a) where the attorney failed to do any work on the client's case, yet charged the client $1,500.00. Attorney Grievance Comm'n v. Milliken, 348 Md. 486 (1998). See 1.5:610. Furthermore, under MD Rule 1.5(b), the attorney was obligated to communicate, preferably in writing, the basis or rate of the fee to the client, who had not regularly been represented by the attorney. In this case, there was never any communication of any kind concerning the basis of the fee. Id.

An attorney was in violation of Maryland Rule 1.5 when he retained a $500.00 fee paid to him in a case where a default judgment was entered against his client as a direct result of the lawyer's own professional misconduct. Attorney Grievance Comm'n v. Dietz, 331 Md. 637 (1993). At a minimum, the loss suffered by his client included the expense incurred by having to engage counsel to appeal the default judgment and to appear in court to have the default judgment vacated. Id. The Court of Appeals stated: "Inasmuch as the harm to the client as a result of Dietz's violations equaled or exceeded the amount paid to Dietz, the entire fee became excessive and should be refunded." Id. at 647.

It is unethical for an attorney to put a client's money in an interest-bearing account and request that the client waive the interest unless the earned interest is credited directly against a specific fee already earned by the attorney. The passive act of holding a client's money while it earns interest does not justify the charging of a fee, and any fee charged for such passive conduct by the attorney is clearly excessive and in violation of Maryland Rule 1.5. MSBA Eth. Op. 89-19 (1989); MSBA Eth. Op. 88-84 (1988).

Similary, because it is not work actually undertaken by the lawyer, the lawyer may not bill a client for any amount greater than that which it actually paid to have an "independent contractor" perform legal research. MSBA Eth. Op. 92-19 (1992). Contractual research services should be billed as a cost, not as a legal fee. Id.

In addition, when an attorney has charged a full contingency fee based upon the full amount of a personal injury settlement, it is unreasonable to charge any additional fee based on a reduction of a workers' compensation lien. MSBA Eth. Op. 91-23 (1991).

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

An engagement fee is a fee for the attorney to accept a case, be available to handle it, and not represent another party. This type of fee is earned upon receipt and does not require that any additional legal services be rendered. The engagement fee must comply with the provisions of Maryland Rule 1.5, which require that a fee be reasonable. MSBA Eth. Op. 93-24 (1993). Because an engagement fee is earned upon receipt, the fee may be immediately placed into the firm's general account. On the other hand, an "advance fee retainer" is paid for legal services to be rendered in the future. The advance fee retainer remains the client's property until it is earned and payment is due. This type of retainer must be deposited into an attorney escrow account, and the costs of legal services at an hourly rate are billed against the deposit. Id. Any unused portion of the advance fee retainer is refundable to the client. A retainer cannot serve as both an engagement fee and an advance fee retainer. Id. See M. Hirshman, Aspects of Attorney's Fees: Engagement Fee, Non-Refundable Retainer, Limitations on the Ability of Counsel to Set a Fee, The Maryland Bar J., April, 1984, p. 12, for a detailed discussion of engagement fees and retainers in Maryland.

1.5:430      Nonrefundable Fees

In Maryland, a nonrefundable retainer is ethically proper so long as the amount involved is reasonable. MSBA Eth. Op. 87-9 (1987). See also M. Hirshman, Aspects of Attorney's Fees: Engagement Fee, Non-Refundable Retainer, Limitations on the Ability of Counsel to Set a Fee, The Maryland Bar J., April, 1984, p. 12.

1.5:500   Communication Regarding Fees

Primary Maryland References: MD 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

Miscommunication and misunderstandings regarding fees are a common source of dispute between lawyer and client. Consequently, Maryland Rule 1.5 emphasizes the lawyer's need to communicate the terms of the fee arrangement to the client. While most fee arrangements need not be in writing, contingency fee agreements and fee arrangements involving a division of fees with another lawyer must be in writing. See MD Rule 1.5(c) and (e). The communication, in whatever form, should include the disclosures appropriate to the attorney-client relationship. Attorney Griev. Comm'n v. Korotki, 318 Md. 646, 666 (1990) ("if the attorney relies on a special fee agreement in defense of a disciplinary complaint that a clearly excessive fee has been charged, the attorney must demonstrate that the arrangement was made 'after disclosures appropriate to the existing confidential relationship'").

A change in representation may give rise to the need to communicate with the client regarding the applicable fee arrangement. For instance, when an attorney is suspended from practice by the Attorney Grievance Commission and a new attorney steps in to administer the suspended attorney's cases, the new attorney is ethically obligated to enter into a new fee agreement with each client. Attorney Grievance Comm'n v. James, 340 Md. 318 (1995).

1.5:600   Contingent Fees

Primary Maryland References: MD 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

MD Rule 1.5(c) prescribes the requirements for contingent fees. [See 1.5:610 for special requirement for such fees.] Contingent fees, however, are expressly banned in certain specified matters by Maryland Rule 1.5(d) [see 1.5:710 and 1.5:720], as well as by statute in other instances [see 1.5:730].

1.5:610      Special Requirements Concerning Contingent Fees [See also 1.5:270, 1.5:340, 1.5:730, 1.5:800]

Under Maryland Rule 1.5(c), every contingent fee must be in a writing that specifies the method by which the fee is to be determined, including the percentages that will accrue to the attorney in the event of various occurrences, e.g., settlement, which are enumerated in the Rule. When a contingent matter is concluded, the Rule requires that the lawyer "provide the client with a written statement" that details the outcome of the matter and the remittance to the client, including "the method of its determination."

Contingent fees were discussed at considerable length in Attorney Grievance Commission v. Korotki, 318 Md 646, 663 (1990), wherein the court observed:

The ordinary rule of construction of contingent fee contracts is that, in the absence of an express provision which addresses possible appeal, services rendered by an attorney in upholding a judgment on appeal are within the undertaking under the contingent fee contract. The attorney is not entitled to any additional compensation for such appellate representation, even if the reasonable value of all of the services rendered through the successful, final outcome on appeal exceeds the fee calculated under the contingent fee agreement.

This "ordinary rule" may be modified by agreement between the attorney and client, but, in no event, may an attorney's interest in the case exceed that of the client. Korotki, 318 Md. at 665. The court characterized Korotki as "a clear warning to the bar," that it will not tolerate fee agreements that give the lawyer an excessive interest in the client's matter. Attorney Grievance Comm'n v. Harlan, 32 Md. 571, 581, n.10 (1990).

1.5:620      Quantum Meruit in Contingent Fee Cases

This section has not yet been completed.

1.5:700   Unlawful Fees

Primary Maryland References: MD 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

Maryland Rule 1.5(d)(2) prohibits "a contingent fee for representing a defendant in a criminal matter." The Rule is quoted and cited in Phillip Morris, Inc. v. Glendening, 349 Md. 660, 674 (1998).

1.5:720      Contingent Fees in Domestic Relations Matters

Maryland Rule 1.5(d)(1) bars contingent fees in domestic relations cases. The prohibition against contingent fees in domestic relations matters applies to the initial determination of either alimony, support or property settlement, and the modification thereof. (The term "support" in Maryland Rule 1.5(d)(1) includes child support as well as spousal support. MSBA Eth. Op. 95-15 (1995)). The prohibition does not apply to the disposition of property already subject to a final judgment or a final divorce decree. MSBA Eth. Op. 98-7 (1998); MSBA Eth. Op. 97-39 (1997).

Two Maryland cases have touched upon the issue of contingency fees in domestic relations matters, Attorney Grievance Commission v. Kerpelman, 292 Md. 228 (1981) and Head v. Head, 66 Md. App. 655 (1986). In Kerpelman, the court discussed an hourly rate agreement which, at the lawyer's insistence, became an excessive fee when the lawyer claimed a fee based on quantum merit. 292 Md. at 242-4. In Head, the intermediate appellate court discussed whether utilizing results as a factor in a domestic case makes the fee contingent, and, on the facts of that case, held the fee was not contingent. 66 Md. App. at 668.

1.5:730      Other Illegal Fees in Maryland

A fee paid to a lawyer solely for the referral of a client to a title insurance company is unreasonable per se, and a violation of Maryland Rule 1.5, since the lawyer is not providing or agreeing to provide any professional services. MSBA Eth. Op. 93-40 (1993).

It is also improper for an attorney to charge a contingency fee for simply transferring funds received by a client to a medical care provider. MSBA Eth. Op. 95-33 (1995).

1.5:800   Fee Splitting (Referral Fees)

Primary Maryland References: MD 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

Maryland Rule 1.5(e) constitutes a statement of public policy to which fee-sharing agreements by lawyers are subject. Enforcement of Maryland Rule 1.5(e) is not limited to disciplinary proceedings, but rather may extend to holding fee-sharing agreements that are in clear and flagrant violation of Maryland Rule 1.5(e) unenforceable. Alan F. Post Chartered v. Bregman, 349 Md. 142 (1998); Goldman v. Cooper, 122 Md. App. 29 (1998). Therefore, Maryland Rule 1.5 may be raised as a defense to an action on a contract. Id.

Although a fee-sharing agreement in violation of Maryland Rule 1.5(e) may be held unenforceable, the Rule is not a per se defense. Post, 349 Md. at 168. Goldman, 122 Md. App. at 42. When presented with a defense resting on Maryland Rule 1.5(e), the court must look to all of the circumstances -- whether the rule was, in fact, violated, and if violated: (1) the nature of the alleged violation; (2) how the violation came about; (3) the extent to which the parties acted in good faith; (4) whether the lawyer raising the defense is at least equally culpable as the lawyer against whom the defense is raised and whether the defense is being raised simply to escape an otherwise valid contractual obligation; (5) whether the violation has some particular public importance, such that there is a public interest in not enforcing the agreement; (6) whether the client, in particular, would be harmed by enforcing the agreement, and, in that regard, if the agreement is found to be so violative of the Rule as to be unenforceable, whether all or part of the disputed amount should be returned to the client on the ground that, to that extent, the fee is unreasonable; and (7) any other relevant considerations. Post, 349 Md. at 169; Goldman, 122 Md. App. at 42. A violation of Maryland Rule 1.5(e), whether regarded as an external defense or as incorporated into the contract itself, is an equitable defense, and principles of equity ought to be applied. Post, 349 Md. at 170; Goldman, 122 Md. App. at 42.

The Maryland ethics rules govern lawyers, not courts. Goldman, 122 Md. App. at 45. If a court, in the exercise of its equitable discretion, orders an attorney to abide by a contractual obligation that violates these rules, the order is valid and the ethical matter rests among the attorney, the client, and the disciplinary authority. Id.

A division of fees between lawyers not in the same firm may be made without reference to the allocation of work performed so long as such division is made by written agreement with the client, each lawyer assumes joint responsibility for the representation, the client is advised of and does not object to the participation of all the lawyers involved, and the total fee is reasonable. MSBA Eth. Op. 87-37 (1987). An agreement between an attorney and a law firm, regarding a division of fees in the event that the attorney departs the firm and undertakes to represent a client who had previously been a client of the firm, does not implicate Maryland Rule 1.5. MSBA Eth. Op. 89-29 (1989).

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