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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


New Jersey Legal Ethics

1.5   Rule 1.5 Fees

1.5:100   Comparative Analysis of New Jersey Rule

Primary New Jersey References: NJ Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary:
NJ Commentary:

1.5:101      Model Rule Comparison

New Jersey adopted paragraph (a) of the ABA Model Rule 1.5 as written. RPC 1.5(b) is a more stringent version than that proposed by the ABA. See Debevoise Committee Report, 112 N.J.L.J. July 28, 1983, supp. at 11. RPC 1.5(b) requires that the basis or rate of the fee be communicated in writing. The Model Rule, by contrast, requires only that this information be communicated to the client “preferably in writing.” ABA Model Rules of Professional Conduct Rule 1.5(b) (1989).

1.5:102      Model Code Comparison

There is no direct counterpart in the New Jersey RPCs.

1.5:200   A Lawyer's Claim to Compensation

Primary New Jersey References: NJ 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
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:210      Client-Lawyer Fee Agreements

The RPCs and Court Rules directly address the formation of the fee agreement only in a limited range of situations. RPC 1.5(b) provides that when a lawyer has not regularly represented a client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation. RPC 1.5(d) and New Jersey Court R. 1:21-7 establish fee caps and requirements for contingency fee agreements in nonbusiness tort matters, and New Jersey Court R. 1:21-7A applies to retainer agreements in matrimonial actions. The only rule explicitly covering all fee agreements is RPC 1.5(a), which requires, inter alia, that a fee be “reasonable.” Nonetheless, clear communication about the basis of the fee and the services it will cover should be the objective of every fee agreement. See Cohen v. ROU, 146 N.J. 140, 156 (1996). See Section 33:1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

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

[The discussion of this topic has not yet been written.]

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

[The discussion of this topic has not yet been written.]

1.5:240      Fee Collection Procedures

[The discussion of this topic has not yet been written.]

1.5:250      Fee Arbitration

The fee arbitration system was established by the New Jersey Supreme Court, effective April 1, 1978, to enable clients who dispute attorneys’ fees to avoid litigation and to engage in a relatively quick, inexpensive proceeding before a panel of arbitrators. The policy underlying the system was described by the New Jersey Supreme Court thus:

If it is true--and we believe it is--that public confidence in the judicial system is as important as the excellence of the system itself, and if it is also true--as we believe it is--that a substantial factor that erodes public confidence is fee disputes, then any equitable method of resolving those in a way that is clearly fair to the client should be adopted.... The least we owe to the public is a swift, fair and inexpensive method of resolving fee disputes.

In re LiVolsi, 85 N.J. 576, 601-602 (1981).

Consistent with its purpose, the fee arbitration system gives clients certain procedural advantages. Thus, the right to initiate arbitration belongs only to the client (or to the person obligated to pay the fee). Attorneys cannot initiate arbitration.

Attorney participation, however, is mandatory. Once arbitration has been requested by the client the attorney must defend, or the equivalent of a default judgment will be entered. Thus, for example, administrative fees are required from both the client and attorney, but the consequences of failure to pay are very different for the client and the attorney. If the client does not pay, no arbitration will begin. If the attorney does not pay, the arbitration will proceed uncontested, with the attorney barred from participation. Similarly, the attorney is required to file a response to the client’s request for arbitration. If the attorney does not file the response within the time allotted, the arbitration will proceed uncontested. The consequences of an uncontested proceeding are severe because the arbitrator’s decision is essentially unappealable. Moreover, in the arbitration action, the attorney bears the burden of proving the reasonableness of the fee.

Further, a client may pursue fee arbitration regardless of whether the disputed fee has already been paid. The client may pursue an ethical complaint or a legal malpractice action in addition to disputing the fee. Finally, the client is free to forego the arbitration and, instead, initiate an action in court against the attorney. Court action is the only route available for attorney enforcement of a fee, and it cannot be pursued until the client has been given an opportunity to choose the alternative of arbitration. See Report of the Committee on Family Practice, 125 N.J.L.J. 385, 404 (Feb. 15, 1990), indicating that the fee arbitration system may seriously disadvantage attorneys.

On the other hand, because the system is designed to achieve a swift and final resolution, there is little forgiveness in it for the client who does not act promptly and decisively. In the ordinary situation, the client has only a certain period of time in which to decide to request arbitration. If the request is not made within that time, the option is thereafter barred. The request must include a stipulation that any fee determined by the arbitrator to be owed to the attorney may be entered as a judgment against the client. If the client will not so stipulate the arbitration cannot proceed. Once arbitration has been requested, the client has a certain period of time within which to withdraw. If withdrawal does not take place within that period, the client will be bound by the decision of the arbitrator. If the client does withdraw, he has no later recourse to arbitration. And finally, appeal from the arbitrator’s decision is extremely limited.

The system is governed by New Jersey Court R. 1:20A-1 through -6. Prior to promulgation of these rules, attorney-client fee disputes were heard by the Office of Attorney Ethics. Although the fee committees are now independent of the Office of Attorney Ethics, the system is administered by the Office of Attorney Ethics Director, New Jersey Court R. 1:20-2(b)(8), and in general its procedures conform to those applicable to district ethics committees. See Pressler, Current N.J. Court Rules (Gann), Comment to New Jersey Court R. 1:20A. See Section 38:1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:260      Forfeiture of Lawyer's Compensation

[The discussion of this topic has not yet been written.]

1.5:270      Remedies and Burden of Persuasion in Fee Disputes

[The discussion of this topic has not yet been written.]

1.5:300   Attorney-Fee Awards (Fee Shifting)

Primary New Jersey References: NJ Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA § 41:301, Wolfram § 16.6
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:310      Paying for Litigation: The American Rule

[The discussion of this topic has not yet been written.]

1.5:320      Common-Law Fee Shifting

[The discussion of this topic has not yet been written.]

1.5:330      Statutory Fee Shifting

[The discussion of this topic has not yet been written.]

1.5:340      Financing Litigation [see 1.8:600]

[The discussion of this topic has not yet been written.]

1.5:400   Reasonableness of a Fee Agreement

Primary New Jersey References: NJ 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
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:410      Excessive Fees

An attorney’s fees must be reasonable. RPC 1.5(a) lists a number of factors to consider in determining whether a fee is reasonable.

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

The basis or rate of a fee shall be communicated in writing to any client whom the lawyer has not regularly represented. This written statement must disclose all charges for which the client will be financially responsible. See Section 33:4-1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:430      Nonrefundable Fees

One way in which an attorney may earn a retainer is by working on the client’s matter. Matter of Spagnoli, 115 N.J. 504 (1989). A retainer also may be deemed earned when the lawyer “stands ready” to provide the requested representation, and/or if the lawyer turns down other employment because of a conflict of interest or anticipated time constraints. Cohen v. ROU, 146 N.J. 140, 158, 160 (1996); Conover v. West Jersey Mortgage Co., 96 N.J. Eq. 441, 451 (Ch. 1924); N.J. Advisory Comm. on Professional Ethics Op. 644 (Oct. 4, 1990).

A retainer may be fully earned, and therefore is nonrefundable, when the attorney stands ready to provide the anticipated representation, whether it actually materializes. See Advisory Comm. Op. 644 (Oct. 4, 1990). See Sections 34:3-2 and 34:3-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:500   Communication Regarding Fees

Primary New Jersey References: NJ 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
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:600   Contingent Fees

Primary New Jersey References: NJ 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
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:610      Special Requirements Concerning Contingent Fees

RPC 1.5(c) requires a writing in every contingent fee matter. The Rule prescribes that the writing in all such matters state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated

The reasonableness requirement of RPC 1.5(a) applies to all fees, including contingent fees. See New Jersey Court R. 1:21-7(e).

Contingency fees in nonbusiness tort matters are subject to percentage caps set forth in the New Jersey Court R. 1:21-7. In other contingent fee cases, the reasonableness requirement is the only constraint applicable. Fees charged in non-tort cases, or in cases involving business torts such as fraud, interference with contractual relations, or accounting malpractice, must conform only to RPC 1.5(a), and can otherwise be structured in any way agreeable to the attorney and client. Notice to the Bar, 95 N.J.L.J. 341 (1972); and H. Rosenblum, Inc. v. Adler, 221 N.J. Super. 507 (App. Div. 1987). See Section 35:1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:620      Quantum Meruit in Contingent Fee Cases

When a contingent matter is transferred from one firm to another, the allocation of the fee may be based on the quantum meruit doctrine when there is no agreement. In La Mantia v. Durst, 234 N.J. Super. 534, 539-40 (App. Div.), certif. den. 118 N.J. 181 (1989), the appellate court considered the following factors for such a distribution: (1) the length of time spent on the matter by each attorney or firm, relative to the total amount of time expended to conclude the client's case; (2) the quality of each firm/attorney's representation -- which would include the result of each firm's efforts as well as the reason the client changed attorneys; (3) the viability of the claim at the time of transfer -- "if the case was initially speculative but concrete by the time the cause of action moved to the second firm, that factor should bear upon the distribution (citing Soper v. Bilder, 87 N.J. Eq. 564, 569 (Ch. 1917)); (4) the amount of the final recovery on behalf of the client; (5) when the first and second attorneys were affiliated at the time the representation began, but had ended that affiliation by the time of the transfer, any preexisting partnership agreement between them would be taken into account; (6) the "rainmaker" factor, i.e., whose efforts and/or reputation secured the client in the first place -- in La Mantia, for example, as noted, the client originally came to the firm because of family recommendations; (7) when the attorney handling a case leaves a firm and takes the case with him, there should be taken into account the compensation that attorney received while employed by the first firm in developing the case, during a time when the case did not generate any income to the firm; (8) the quality of the firm's initial investment of time, skill and funds in investigation, construction of pleadings, discovery, choice of experts, research and other foundational services which allowed exploration of the viability of the claim and supported its development. La Mantia, supra at 540-543. See Section 36:6-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:700   Unlawful Fees

Primary New Jersey References: NJ 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
NJ Commentary:

[The discussion of this topic has not yet been written.]

1.5:710      Contingent Fees in Criminal Cases

[The discussion of this topic has not yet been written.]

1.5:720      Contingent Fees in Domestic Relations Matters

Contingent fees are prohibited in domestic relations matters. RPC 1.5(d)(1). Attorneys handling “family actions” must abide by the fee agreement requirements in New Jersey Court R. 1:21-7A. This rule requires that “all agreements for legal services by an attorney or attorneys in connection with family actions shall be in writing signed by the attorney and client.” In addition, a duplicate copy of the agreement must be furnished to the client. Id. These requirements do not apply to family cases handled free of charge. Id. See Section 33:5-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.5:730      Other Illegal Fees in New Jersey

[The discussion of this topic has not yet been written.]

1.5:800   Fee Splitting (Referral Fees)

Primary New Jersey References: NJ 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
NJ Commentary: Sections 36:5-1 and 36:5-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000)

A referral fee is a fee paid to anyone, who may or may not be an attorney, solely for the recommendation of counsel, without the performance of services. Referral fees are generally prohibited by RPC 7.2(c) and RPC 7.3(d).

By way of exception, a certified attorney may divide a fee for legal services with a referring attorney or the estate of the referring attorney without regard to services performed or responsibility assumed by the referring attorney, except in the case of a referred matrimonial matter. See New Jersey Court R. 1:39-6(d). The total fee charged to the client must relate only to the matter referred and cannot exceed reasonable compensation for the legal services rendered. See id. There is no specific guideline as to the apportionment of the fee between the certified attorney and the referring attorney.

Certification of specialty by any entity other than the New Jersey Supreme Court Board on Attorney Certification does not bring the certified attorney within the scope of New Jersey Court R. 1:39 for purposes of allowing payment of referral fees.

Attorneys not within the same firm may share fees if: (1) the division corresponds with the services performed; or (2) by written agreement with the client, each lawyer assumes joint responsibility for the representation; provided that in either instance, the client consents and the total fee is reasonable. RPC 1.5(d).