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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.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

1.5 Rule 1.5 Fees

1.5:100 Comparative Analysis of New Mexico Rule

“A.      Determination of reasonableness.  A lawyer shall not make an agreement for, charge or collect an unreasonable fee or an unreasonable amount for expenses.  The factors to be considered in determining the reasonableness of a fee include the following:

            (1)        the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

            (2)        the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

            (3)        the fee customarily charged in the locality for similar legal services;

            (4)        the amount involved and the results obtained;

            (5)        the time limitations imposed by the client or by the circumstances;

            (6)        the nature and length of the professional relationship with the client;

            (7)        the experience, reputation, and ability of the lawyer performing the services; and

            (8)        whether the fee is fixed or contingent.

B.        Basis or rate of fees.  The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate.  Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.

C.        Contingency fees.  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 prohibited by Paragraph D or other law.  A contingent fee agreement shall be in writing signed by the client and shall 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 agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party.  Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

D.        Prohibited fee arrangements.  A lawyer shall not enter into an arrangement for, charge, or collect:

            (1)        any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or

            (2)        a contingent fee for representing a defendant in a criminal case.

E.         Fee splitting.  A division of a fee between lawyers who are not in the same firm may be made only if:

            (1)        the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

            (2)        the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

            (3)        the total fee is reasonable.”

1.5:101   Model Rule Comparison

There are no material differences between NMR 16-105 and Comment, and MR 1.5 and Comment.

The 2008 amendments adopted evolution in the Model Rule from “a lawyer’s fee shall be reasonable,” to a lawyer shall not deal in an unreasonable fee or amount for expenses.

1.5:102   Model Code Comparison

Concerning NMR 16-105(A), DR 2-106(A) provides that a “lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.”  DR 2-106(B) provides that a “fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.”  DR 2-106(B) outlines numerous factors to be considered in determining the reasonableness of a fee, including ability to pay.  See also EC 2-16, EC 2-17, and EC 2-18.

There is no counterpart to NMR 16 105(B) in the Disciplinary Rules of the Code.  EC 2-19 states that it “is usually beneficial to reduce to writing the understanding of the parties regarding the fee, particularly when it is contingent.”  With regard to NMR 16 105(C), DR 2-106(C) prohibits a “contingent fee in a criminal case.”  See also EC 2-20, and EC 5-7.

Concerning NMR 16 105(E), DR 2-107(A) permits division of fees only if the client consents to the employment of another lawyer after disclosure that there will be division of fees, the division is in proportion to the services performed and responsibility assumed, and the total fee is not unreasonable.  NMR 16 105(E) permits division without regard to the services rendered by each lawyer if they assume joint responsibility for the representation.  See also EC 2-22.

1.5:200 A Lawyer's Claim to Compensation

Although NMR 16-105 recognizes the ability of attorneys to recover a fee for legal services, the first obligation of a lawyer is to his client, even at the expense of a fee.  Pineda v. Grande Drilling Corp., 111 N.M. 536, 807 P.2d 234 (Ct. App. 1991), see also NMR 16-105 Comments [4] and [5] (discussing terms of payment).

1.5:210   Client-Lawyer Fee Agreements

No New Mexico authority indicates that a fee agreement made prior to commencement of the lawyer’s representation of a client, is anything other than a contract which is enforceable and interpreted in accordance with the usual principles of contract law. 

See Diaz v. Paul J. Kennedy Law Firm, 289 F.3d 671 (10th Cir. 2002) (under New Mexico law, attorneys’ retention of their agreed-upon flat fee for representation in a criminal case after they were fired without cause did not give rise to a valid claim of unjust enrichment, absent any evidence of legal malpractice); and Rhodes v. Martinez, 122 N.M. 439, 925 P.2d 1201 (Ct. App. 1996) (pursuant to contract between attorney and client, attorney’s charging lien for fees accrued in settling property damage claim arising from client’s automobile accident attached to funds recovered in personal injury lawsuit arising from same accident, even though substitute counsel represented client in personal injury suit; agreement stated that client was hiring attorney to represent him for “all claims I may have arising out of the above accident,” and reach of charging lien was not limited to funds created by attorney’s efforts); Walters v. Hastings, 84 N.M. 101, 500 P.2d 186 (1972) (when attorney and client sign a formal fee agreement, client maintains burden of proving attorney’s services were deficient; and even in situations where fee may seem excessive, arrangement will normally be upheld unless plaintiff meets this burden); and Citizens Bank v. C&H Const. & Paving Co., 93 N.M. 422, 600 P.2d 1212 (1979).

Once a client consents to a fee to her attorney in accordance with the Worker’s Compensation Act, the client cannot withdraw the consent in order to frustrate the attorney’s entitlement to a fee out of the award.  State Bar Advisory Opinion 1988-10.

However, a modification to a fee agreement made during the course of legal representation may be viewed as a business transaction with a client, requiring the lawyer to follow the directives of NMR 16-108(A).

See section 1.5:240 infra regarding the relationship between attorney charging liens and client-lawyer fee agreements.  See also State Bar Advisory Opinion 1986-7 (discussing lawyer’s duties regarding lien which client granted to lawyer in client-lawyer fee agreement, under former Code of Professional Responsibility).

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

Attorneys generally may recover under a quantum meruit theory the reasonable value of their services rendered under a void contract with the client, Calderon v. Navarette, 111 N.M. 1, 800 P.2d 1058 (1990), or presumably, under a non-existent agreement.  Thus, while unwritten contingency fee contracts violate the New Mexico Rules of Professional Conduct and will not be enforced, an attorney who provided services under an unwritten contingency fee contract should be entitled to a fee award that is reasonable under the circumstances.  U.S. v. 36.03 Acres of Land, 70 F. Supp.2d 1272 (D.N.M. 1999) (where law firm’s voluntary termination of its representation of client in condemnation action was for justifiable cause, in light of client’s refusal of reasonable settlement offer, law firm was not precluded from quantum meruit recovery of reasonable value of its services).  See also Garrick v. Weaver, 888 F.2d 687 (10th Cir. 1989) (magistrate did not abuse his discretion in awarding attorney a fee based on reasonable value of his legal services, rather than fee based on alleged contingency agreement; correspondence did not unambiguously indicate parties had arrived at common understanding concerning terms of contingency fee agreement).

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

Generally, an attorney’s voluntary withdrawal from representation precludes quantum meruit recovery if the attorney does not establish justifiable cause for withdrawing.  U.S. v. 36.06 Acres of Land, 70 F. Supp.2d 1272 (D.N.M. 1999) (stating client’s refusal to accept a reasonable settlement offer can constitute justifiable cause for withdrawal, for purposes of attorney’s ability to recover fee in quantum meruit).  An attorney who abandons a client cannot retain any money the client paid as a fee.  Matter of Chowning, 100 N.M. 375, 671 P.2d 36; Matter of Trujillo, 110 N.M. 180, 793 P.2d 862 (1990).

1.5:240   Fee Collection Procedures

Fee disputes are addressed in NMR16-105 Comment [9].  In general, a lawyer should use any established procedure for resolution of fee disputes.  See 1.5:250 infra.

A lawyer may use a commercial collection agency, paid on a contingent basis, to collect unpaid, earned fees, after pursuing all other reasonable alternatives to collect the fee, and provided the lawyer first determines the unpaid fee is reasonable in amount and the referral to the collection agency is appropriate.  The lawyer may not, however, report the client’s unpaid account to a credit bureau for the sole purpose of impeding the client’s ability to obtain credit.  State Bar Advisory Opinion 1998-7.

In Estate of Antonio Roybal, 2008-NMCA-110, 144 N.M. 679, 191 P.3d 537, the Court of Appeals affirmed a district court order upholding an attorney lien against a former client’s property, holding that a lawyer is not barred from enforcing a fee agreement because he acquired a proprietary interest in the subject matter of the litigation.  The court raised, but did not decide, the question of whether, as a policy matter, an attorney should be permitted to obtain an interest in the real property recovered instead of a money judgment based on the fair market value of that property when there is a contingency fee contract at the outset of litigation seeking recovery of real property.

In New Mexico an attorney charging lien will not be imposed absent an express or implied contract between the attorney and client.  Computer One, Inc. v. Grisham & Lawless, 144 N.M. 424, 188 P.3d 1175 (2008).

Numerous other New Mexico cases discuss attorney charging liens for services rendered.  See, e.g., Northern Pueblos Enterprises v. Montgomery, 98 N.M. 47, 644 P.2d 1036 (1982) (stating attorney’s charging lien is defined as attorney’s right to recover his fee and money expended on behalf of client from fund recovered by attorney’s efforts; plus right to have court interfere to prevent payment by judgment debtor to creditor in fraud of attorney’s right to same, and to prevent or to set aside assignments or settlements made in fraud of his right; also stating attorney’s charging lien is not created by statute but has its origin in common law, and is governed by equitable principles); Philipbar v. Philipbar, 127 N.M. 341, 980 P.2d 1075 (Ct. App. 1999) (holding attorney charging liens are governed by common law equitable principles, and are intended to protect attorneys from unscrupulous clients looking to evade their responsibility for attorney fees; also stating notice of an attorney’s charging lien is untimely if it is asserted after the proceeds of the judgment have been disbursed); Sowder v. Sowder, 127 N.M. 114, 977 P.2d 1034 (Ct. App. 1999) (identifying four requirements for imposition of attorney charging lien: a valid contract, either express or implied, between attorney and client (although contract need not explicitly assert a lien against client’s recovery); a fund recovered by the attorney; clear and unequivocal notice to appropriate parties of the intent to assert the lien; and timely assertion of the lien before distribution of the proceeds recovered for the client); Cherpelis v. Cherpelis, 125 N.M. 248, 959 P.2d 973 (Ct. App. 1998) (although attorney’s charging lien may be asserted when there is no explicit provision for lien in attorney’s agreement with client, it is better practice to contain explicit provision for attorney’s charging lien provision in contract with client; and further, attorney’s charging lien is solely an equitable remedy administered by court in its discretion); U.S. v. 36.06 Acres of Land, 70 F. Supp.2d 1272 (D.N.M. 1999) (a “legal charging lien” applies to funds in the attorney’s possession as a result of his efforts in a particular case, while an “equitable charging lien” gives the attorney the right to be paid out of a fund in court which resulted from his skill and labor in a particular case).

In addition, as held in Thompson v. Montgomery & Andrews, P.A., 112 N.M. 463, 816 P.2d 532 (Ct. App. 1991), a “general lien” or “retaining lien” gives an attorney the right to retain papers or other property that comes into his possession, or money that he has collected in course of his professional employment, until all his costs and charges against his client have been paid.

According to Matter of Grand Jury Proceedings, 727 F.2d 941 (10th Cir. 1984) (New Mexico law), client files belong to the client, and the court may order them surrendered to the client or the attorney on the request of the client, subject only to the attorney’s right to be protected in receiving compensation from the client for work done; the attorney’s interest is only that of a retaining lien and his interest at best is a pecuniary one, not an interest of ownership or property.

A lawyer employed or associated with a firm cannot assert a lien against one of the firm’s clients if the lawyer worked on the client’s case and was not paid by the firm, even if the client was aware that the attorney was working on her case.  Martinez v. Blake’s Lotaburger, LLC , 674 F. Sup.2d 1286 (D.N.M. 2009) (New Mexico law).

 

1.5:250   Fee Arbitration

The State Bar of New Mexico provides a fee arbitration program for out-of-court resolution of fee disputes.  The program is a free service of the State Bar.  Disputes involving less than $25,000 are decided by a single arbitrator, while disputes involving more than $25,000 are decided by a three-member arbitration panel.

1.5:260   Forfeiture of Lawyer's Compensation

A discharged attorney may not recover an attorney’s fee based on quantum meruit for his representation in a malpractice action that was ultimately settled while the client was represented by new attorneys, where the request was for an equitable division of attorney’s fees under a claimed attorney charging lien that had been held invalid.  Moffat v. Branch, 132 N.M. 412, 49 P.3d 673 (Ct. App. 2002).

However, the court declined to find the lawyer forfeited a fee where he represented two plaintiffs with adverse claims in connection with an automobile accident, he may have acted improperly in failing to adequately inform the plaintiffs of the conflict of interest, but where there was no actual or substantial prejudice to the clients’ interests.  Garrick v. Weaver, 888 F.2d 687 (10th Cir. 1989) (New Mexico law) (also stating magistrate did not abuse his discretion in setting aside attorney contingency fee agreement and awarding fees on quantum meruit basis on the ground that attorney had failed to adequately outline ramifications of conflict of interest to plaintiffs).

1.5:270   Remedies and Burden of Persuasion in Fee Disputes

The attorney has the burden of proving the value of the services rendered by him and for which he claims payment or credit.  Van O. Nelson, 78 N.M. 11, 427 P.2d 896 (1967), reversed on other grounds 80 N.M. 119, 452 P.2d 188 (1969)See also Matter of Dawson,  129 N.M. 369, 8 P.3d 856 (2000) (attorney has burden to prove value of legal services rendered); Matter of O’Brien, 130 N.M. 643, 29 P.3d 1044 (2001) (same); Calderon v. Navarette, 111 N.M. 1, 800 P.2d 1058 (1990) (court erred by placing burden on client to disprove reasonableness of attorney’s fees, rather than on attorney to prove it, because attorney bears burden of proving value of legal services rendered); and Hinkle, Cox, Eaton, Coffield & Hensley v. Cadle Co. of Ohio, Inc., 115 N.M. 152, 848 P.2d 1079 (1993) (where attorney and client agreed to hourly rate but did not agree to the number of hours expended, attorney had burden of establishing reasonableness of terms not expressly agreed to and of showing that time expended was reasonable and was fairly and properly used).

1.5:300 Attorney-Fee Awards (Fee Shifting)

 

1.5:310   Paying for Litigation: The American Rule

The equitable exception for an award of attorney fees without authorization from statute, rule, or contract, recognized in the common fund cases, is consistent with the American rule because a losing litigant does not pay attorney’s fees in addition to the amount of recovery; thus, a losing litigant is no better or worse off as a result of the common fund doctrine’s application.  Gonzales v. Lopez, 132 N.M. 558, 52 P.3d 418 (Ct. App. 2002)See section 1.5:400 infra.

1.5:320   Common-Law Fee Shifting

Attorney’s fees may be awarded to the prevailing party in litigation only with authorization from statute, rule, or contract.  Thus, a successful plaintiff in an attorney malpractice action is not entitled to attorney’s fees incurred for preparation and prosecution of that action. First Nat. Bank of Clovis v. Diane, Inc., 102 N.M. 548, 698 P.2d 5 (Ct. App. 1985).  However, legal fees incurred by the client to defend a prior action proximately resulting from the attorney’s negligence, as well as fees incurred on appeal from an unfavorable summary judgment, could be awarded to the client in the malpractice action against the lawyer, not as costs, but as an item of special damages.  Further, for purposes of ascertaining the amount of those fees, the fact that the client agreed to pay a fixed amount rather than an hourly rate was not necessarily determinative.  Id.

In New Mexico, a court determines the reasonableness of attorney fees in class actions by applying the factors found in NMR 16-105 even when the fee application is unopposed.  Rivera-Platte v. First Colony Life Ins. Co., 2007-NMCA-158, 143 N.M. 158, 173 P.3d 765. The Court of Appeals remanded an attorney fee award to the district court to determine whether the fee award in that case was reasonable. 

1.5:330   Statutory Fee Shifting

A number of New Mexico statutes provide that a plaintiff who is successful in litigation may recover the value of his attorney’s fees.  See, e.g., § 57-12-10 (unfair trade practices), § 35-12-16 (garnishment actions), § 52-1-54 (worker’s compensation actions), § 48-2-14 (liens), § 39-2-2.1 (collection of open accounts), and § 38-1-10 (actions against unauthorized insurers).

In Wagner v. AGW, 2005-NMSC-016, 137 N.M. 734, 114 P.3d 1050, the Supreme Court reviewed a Court of Appeals decision certifying the constitutionality of a limit on attorney’s fees in workers’ compensation actions.  In order to have standing it must be shown that reasonable attorney’s fees would have exceeded the amount actually awarded, but for the limitation.  The Court held that a worker represented by an attorney who continues to honor her ethical duty to represent him pursuant to NMR 16-116 is not precluded from standing because the worker has a significant risk of injury resulting from his inability to compensate the lawyer on appeal. 

1.5:340   Financing Litigation [see 1.8:600]

See section 1.8:600 infra.

1.5:400 Reasonableness of a Fee Agreement

Under New Mexico law, merely noting that work was done and submitting a corresponding billing statement stating only “billable time,” ordinarily will not suffice to justify the fee charged.  Also, client files must contain work to justify the fee, and whether the evidence of work is in notations of research, time sheets, copies of depositions, or indications of time spent in hearings or meetings, such evidence is essential.  Matter of O’Brien, 130 N.M. 643. 29 P.3d 1044 (2000) (stating attorney’s deceit as to time spent on estate matter B and resulting failure to provide competent representation, failure to act with reasonable diligence, charge of unreasonable fee, conduct involving dishonesty or misrepresentation, and conduct that adversely reflected on fitness to practice law B violated attorney disciplinary rules; attorney charged for time that was greater than reasonably necessary to complete form based pleadings and review files, and did not reasonably expedite administration of estate).

Under the “common fund doctrine,” an attorney who creates a pool of funds for a group has the right to seek payment from the pool, or to seek proportional contribution from those who accept the benefits of the attorney’s efforts.  Wright v. First Nat. Bank in Albuquerque, 123 N.M. 417, 941 P.2d 498 (1997).

The “common fund doctrine” extends to insurance cases in which the insured incurs attorney’s fees in recovering a judgment or settlement that benefits a subrogated insurer.  Further, under the “active participation” exception to application of the common fund doctrine to insurance cases, the trial court may reduce or waive the insurer’s proportionate contribution to the insured’s attorney’s fees and costs if the insurer demonstrates that it actively participated in or substantially contributed to the recovery.  Amica Mut. Ins. Co. v. Maloney, 903 P.2d 834, 120 N.M. 523 (1995).

The “common fund doctrine” should not be applied to an amount remaining in the court registry from policy limits deposited by a personal injury defendant’s insurer, nor should the court give the patient’s attorney a proportionate share of his attorney’s fee from the amount due to a public hospital under its lien.  Schroeder v. Memorial Medical Center, 123 N.M. 719, 945 P.2d 449 (1997).

Regarding attorney’s fees in “common fund” and class action cases, New Mexico recognizes that there are two generally-accepted means for awarding attorney’s fees in such suits:  the so-called lodestar method, determining fees based on the hours worked and a reasonable hourly fee, and the percentage-of-the-fund method, awarding fees based on a reasonable percentage of the overall award.  Ramah Navajo Chapter v. Babbitt, 50 F. Supp.2d 1091 (D.N.M. 1999).

For purposes of the percentage of the fund method, courts should review the following factors: (1) the time and labor involved; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) any prearranged fee; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.  Under the percentage of the fund method of awarding attorney’s fees in common fund cases, an appropriate starting point is a 25% benchmark, with adjustments to be made up or down based on the applicable factors.  Id.

A lawyer may not recover expert and miscellaneous expenses out of the common fund created by securities fraud litigation, where the lawyer fails to show that the expenses benefitted the class.  Further, once a petition to divide the common fund created in a securities fraud class action is filed, the court must assume the role of fiduciary and protect the beneficiaries against the claims of their counsel which are now, in a strict sense, adverse to those of the clients.  Matter of Horizon/CMS Healthcare Corp. Securities Litigation, 3 F. Supp.2d 1208 (D.N.M. 1998).

1.5:410            Excessive Fees

Attorneys in New Mexico are guided by A Creed of Professionalism of the New Mexico Bench and Bar, which says “I will charge only a reasonable attorney’s fee for services rendered.”  See also NMR 16-105 Comment [1], which addresses the reasonableness of fees and expenses.

It is within the jurisdiction of the Disciplinary Board and the Disciplinary Counsel to enforce the Rules of Professional Conduct, which provide that where the Board finds that an attorney has charged illegal or grossly excessive fees, disciplinary action is appropriate.  Matter of Jones, 119 N.M. 229, 889 P.2d 837 (1995).  Likewise, it is within the equitable power of the court to consider and reduce excessive attorney fees.  Robison v. Katz, 94 N.M. 314, 610 P.2d 201 (Ct. App. 1980).

 Numerous cases recognize that a fee is excessive when it is disproportionate to the amount of work performed.  See, e.g., Matter of O’Brien, 130 N.M. 643. 29 P.3d 1044 (2001) (any fee is excessive when absolutely no services are provided, and it is equally true that exaggerating time spent on a task to increase a fee is dishonest and makes that fee excessive); Matter of Cherryhomes, 115 N.M. 734, 858 P.2d 401 (1993) (illegal charges include keeping a fee for a criminal matter where the charges are dismissed without any action by the lawyer); Matter of Roberts-Hohl, 116 N.M. 700, 866 P.2d 1167 (1994) (by accepting a $5,000 retainer and taking no discernable action apart from filing a complaint, the attorney charged a clearly excessive fee in violation of this rule; while client-attorney fee agreement provided for a reasonable fee for the services to be performed, even a minimal fee becomes excessive when no service is provided); and Matter of Jones, 119 N.M. 229, 889 P.2d 837 (1995) (“any fee is excessive when absolutely no services are provided,” so while disciplinary authorities do not have jurisdiction to regulate fees charged by attorneys, they are to enforce the Rules of Professional Conduct, such that when a fee charged is illegal or grossly excessive, it is appropriate for the Disciplinary Board to take action).

Other similar cases include Matter of Bloomfield, 121 N.M. 605, 916 P.2d 224 (1996) (charging $500 for writing a one-page demand letter, or charging $700 plus a roof re-shingling for filing one motion and appearing at one hearing, but then failing to follow through with subsequent required legal services, both qualify as excessive charges for little work); Matter of Rivera, 112 N.M. 217, 813 P.2d 1015 (1991) (collecting $300 for a promise to file an answer on behalf of a client and then failing to fulfill the promise constitutes an excessive charge); Matter of Silverberg, 108 N.M. 768, 779 P.2d 546 (1989) (charging an unreasonable fee, “churning” to generate legal fees, and other misconduct justify censure and suspension); Matter of Righter, 126 N.M. 730, 975 P.2d 343 (1999) (where attorney files lawsuit on behalf of client, and charges over $21,000 in fees and costs but does not include on billings any detail of legal work performed, and subsequently cannot provide documentary evidence to justify the fees, an excessive fee has been charged); Matter of Atencio, 106 N.M. 334, 742 P.2d 1039 (1987) (fees awarded to lawyer by federal judge in civil rights action were far in excess of what he could have collected from client under terms of a contingency agreement, and represented complete payment for his services; thus, attorney’s subsequent efforts to collect amounted to a clearly excessive double fee and violated NMR 16-105); Matter of Hyde, 124 N.M. 363, 950 P.2d 806 (1997) (lawyer’s conduct in falsifying billing entries and charging unreasonable fees warranted severe discipline); and Matter of Hamar, 123 N.M. 795, 945 P.2d 1013 (1997) (lawyer’s conduct in mingling client trust funds violated rule regarding charging excessive fees).

The excessiveness of a fee is relative to the circumstances.  It has been found that a large fee, such as a 33 1/3 % contingency fee, which may seem excessive, is not extreme in a risky appeal situation where the parties, dealing at arm’s length, have clearly and unambiguously agreed on the fee and expert testimony supports the amount.  Citizens Bank v. C&H Const. & Paving Co., 93 N.M. 422, 600 P.2d 1212 (1979). Also, when an attorney and the client sign a formal fee agreement, the arrangement will normally be upheld, even if it seems excessive, unless the plaintiff meets his burden of proving that the attorney’s services were deficient.  Walters v. Hastings, 84 N.M. 101, 500 P.2d 186 (1972).

Charging legal fees for non-legal services, such as driving a client to the doctor or pharmacy or talking to a client’s care-providers, constitutes a violation of NMR 16-105; such fees must be reasonably calculated to reflect the non-legal nature of the services rendered.  Matter of Sheehan, 130 N.M. 485, 27 P.3d 972 (2001).

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

Lawyers must refund any advance payment of fee that has not been earned, upon termination of the representation.  Matter of Dawson, 129 N.M. 369, 8 P.3d 856 (2000).  An attorney may not use one client’s funds to benefit another client, and must at all times keep unearned or settlement funds untouched in a trust account until the monies are properly disbursed in accordance with the Rules.  Matter of Hamar, 123 N.M. 795, 799, 945 P.2d 1013, 1017 (1997).  A casual approach to bookkeeping” is not permitted.  Matter of Rawson, 106 N.M. 172, 173, 740 P.2d 1156, 1157 (1987).

Because retainer fees must be kept in a separate trust account until the fees have been earned, stating to a client that the retainer fee is non-refundable does not absolve an attorney of his procedural duties to maintain separate accounts for client funds and to refund unearned portions of fees paid.  Matter of Dawson, 129 N.M. 369, 8 P.3d 856 (2000); see also Matter of Norton, 113 N.M. 56, 823 P.2d 298 (1991); Matter of Sparks, 108 N.M. 249, 771 P.2d 182 (1989); Matter of Benavidez, 107 N.M. 520, 760 P.2d 1286 (1988).  However, there does not appear to be New Mexico authority which expressly prohibits attorneys and clients from contracting for a lump sum fee which qualifies as “reasonable” under NMR 16-105(A).

1.5:430            Nonrefundable Fees

The New Mexico rules do not permit attorneys to charge unearned non-refundable fees, regardless of the forewarning an attorney may give a client.  Matter of Dawson, 129 N.M. 369, 8 P.3d 856 (2000) (also stating that claim by lawyer that flat fee or retainer was non-refundable, will not suffice to justify a failure to deposit unearned client funds in a trust account, a withdrawal of client funds from a trust account to pay fees that have not yet been earned, or a failure to promptly return unearned funds to a client upon termination of the representation); see also Matter of Silverberg, 108 N.M. 249, 771 P.2d 182 (1989); and section 1.5:420 supra.

1.5:500 Communication Regarding Fees

NMR 16-105(B) requires the lawyer to communicate the basis or rate of a fee to a client whom the lawyer does not regularly represent before commencing the representation, or shortly thereafter.  In addition, attorneys in New Mexico are guided by A Creed of Professionalism of the New Mexico Bench and Bar, which provides that “I will keep my client informed about the progress of the work for which I have been engaged or retained, including the costs and fees.”  See also State Bar Advisory Opinion 1990-4 (lawyer must advise client of hourly rates to be charged by non-lawyer employees of lawyer, and may not include such services within the time billed by the lawyer without full disclosure to client), and NMR 16-105 Comment [2] (discussing the basis or rate of attorney fee).

New Mexico attorneys must keep clients informed about the calculus involved in fee-computation by clearly documenting the services for which fees are being collected.  Matter of Dawson, 129 N.M. 369, 8 P.3d 856 (2000).  Mere submission of billing statements, which read that work was done under the heading “billable time,” is insufficient.  Matter of O’Brien, 130 N.M. 643, 29 P.3d 1044 (2001).  Further, “client files must contain work to justify the fee. Whether the evidence of work is in notations of research, time sheets, copies of depositions, evidence of time spent in hearings or meetings, such evidence is essential.”  Id.

1.5:600 Contingent Fees

Contingency fee arrangements generally are permitted under New Mexico law.  NMR 16-105(C), and  Comments [3] and [6].  In general, they are not permitted in domestic relations and criminal cases.

1.5:610   Special Requirements Concerning Contingent Fees

While contingency fee arrangements generally are permissible, they must be in writing and they must clearly express the method by which the fee is to be determined.  Also, at the conclusion of a contingency fee matter the lawyer must provide specific financial information to the client. NMR 16-105(C).  A contingent fee must be reasonable.  NMR 16-105 Comment [3].

Several cases discuss these requirements for contingency fee arrangements.  In U.S. v. 36.03 Acres of Land, 70 F. Supp.2d 1272 (D.N.M. 1999), the court stated that an unwritten contingency fee contract violates this rule and will not be enforced; the attorney’s fee award will then be fixed based on what is reasonable under the circumstances.  In Matter of Hamar, 123 N.M. 795, 945 P.2d 1013 (1997), the court stated that “An attorney’s failure to provide a client with a written statement regarding the distribution of funds in a contingency fee case [at its conclusion] violates Rule 16-105(C) of the Rules of Professional Conduct;” it further found the attorney failed to provide the client with a written statement regarding distribution of funds, thus committing violation of the rule requiring written fee agreements in contingency fee cases.  See also Matter of Greenfield, 121 N.M. 633, 916 P.2d 833 (1996) (violation of any mandatory rule such as requirement to put contingency fee agreements in writing should never be considered minor offense, no matter how deplorable the other surrounding circumstances).

A contingency fee agreement may not contain a provision that rewards the lawyer for failing or refusing to carry a matter to conclusion.  State Bar Advisory Opinion 1995-2 (discussing entitlement to fees when contingency fee agreement is terminated). 

1.5:620   Quantum Meruit in Contingent Fee Cases

A contingency fee agreement may state that the lawyer has a quantum meruit claim if the attorney has “cause” to withdraw based on the behavior of the client.  However, recovery in quantum meruit can be no more than what the lawyer would have received under the contingency fee agreement.  State Bar Advisory Opinion 1995-2 (discussing entitlement to fees when contingency fee agreement is terminated, and stating a contingency fee agreement may not contain provision that reward the lawyer for failing or refusing to carry a matter to conclusion).

An attorney bears the burden of proving the value of the services he rendered.  Van Orman v. Nelson, 78 N.M. 11, 427 P.2d 896 (1967), rev’d on other grounds 80 N.M. 119, 452 P.2d 188 (1969).  

1.5:700 Unlawful Fees

 

1.5:710   Contingent Fees in Criminal Cases

A contingent fee for representing a defendant in a criminal case qualifies as a “prohibited fee arrangement” and is not allowed.  NMR 16-105(D). An attorney will not be permitted to keep illegal charges, an example of which is a fee for a criminal matter where the charges are dismissed without any action by the lawyer.  Matter of Cherryhomes, 115 N.M. 734, 858 P.2d 401 (1993).

1.5:720   Contingent Fees in Domestic Relations Matters

A fee in a domestic relations matter, “the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof,” qualifies as a “prohibited fee arrangement” and is not allowed.  NMR 16-105(D).

The prohibition against contingency fees in domestic relations matters does not apply to post-decree proceedings to enforce a judgment and to collect arrears.  Thus, a lawyer may represent an ex-wife on a contingency fee basis in trying to obtain part of the husband’s military retirement at the time of divorce.  However, a contingency fee basis is not proper if the representation would involve an attack on the underlying divorce decree.  State Bar Advisory Opinion 1988-4R.

1.5:730   Other Illegal Fees in New Mexico

1.5:800 Fee Splitting (Referral Fees)

NMR 16-105(E) permits a division of fee among lawyers who are not in the same firm, but only under certain specified circumstances.  Section 36-2-31 NMSA 1978 (1991 Repl. Pamp.) makes it unlawful for a person to divide with a lawyer the lawyer’s fee “as an inducement for placing or in consideration of being placed” the lawyer’s employment in “a claim or demand of any kind.”  See also State Bar Advisory Opinion 1985-12 (discussing fee splitting with former partner who will no longer be licensed to practice), and NMR 16-105 Comment [7].