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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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South Carolina Legal Ethics
1.5:100 Comparative Analysis of SC Rule
South Carolina Rule 1.5 follows Model Rule 1.5 with the following changes: SC Rule 1.5(a)(2) deletes the following language found in the Model Rule: "if apparent to the client."provided that a lawyer may charge a contingency fee in collection of past due alimony or child support."
The South Carolina comment follows the comments to Model Rule 1.5 with the following additions:
Basis or Rate of Fee
. . .
The South Carolina version of the rule differs from the Model Rule by making the test in paragraph (a)(2) objective rather than subjective because clients may not fully understand why a lawyer who accepts one case may thereby be precluded from other employment. In paragraph (d)(1) the South Carolina rule makes clear that contingency fees are specifically approved in collection of arrearages in domestic relations matters.
Terms of Payment
. . . Note, further, however, that in certain circumstances the client and lawyer may have entered into an arrangement under which there is a nonrefundable retainer fee. This nonrefundable retainer fee may be retained if it is reasonable under the factors listed in Rule 1.5. See Rule 1.16(d).
. . .
Disputes Over Fees
Upon application by a client or fellow member of the South Carolina Bar, an attorney shall submit to the proceedings of the Resolution of Fee Disputes Board.
1.5:200 A Lawyer's Claim to Compensation
A prompt agreement between lawyer and client at the outset of the representation regarding the fee to be charged is not only a good business practice but may be an ethical requirement. If there is no prior, regular representation of the client, the lawyer must notify the client of the "basis or rate of the fee" before or within a reasonable time after the outset of the representation. Rule 1.5(b). The comment to Rule 1.5 notes that it "is not necessary to recite all the factors that underlie the basis of the fee, but only those that are directly involved in its computation." Written notification of the fee arrangement is preferable in all cases. Rule 1.5(b). If a contingent fee is to be charged, the agreement must be in writing. Rule 1.5(c).
Among the types of legal fees charged to clients are flat fees for a particular service, hourly fees, contingency fees, and combinations of two or more of these methods. See S.C. Bar Ethics Adv. Op. # 84-11 (lawyer may charge contingency fee on claim and hourly rate for defending any counterclaim). See John Freeman, A-B-C's of Legal Fees, S.C. LAW., July-Aug. 1996, at 10.
With the client's consent, a lawyer may impose a monthly service charge on an unpaid balance or accept a promissory note or credit card payment. S.C. Bar Ethics Adv. Op. # 81-01. A lawyer and client may agree that a preauthorized amount will be charged to a client's credit card, but the client should have an opportunity to review the bill before the charge is submitted. S.C. Bar Ethics Adv. Op. # 96-06.
South Carolina appellate courts have indicated in dictum that in the absence of a fee agreement, a lawyer is still entitled to recover in quantum meruit for the reasonable value of the lawyer's services. In Lester v. Dawson, 327 S.C. 263, 268, 491 S.E.2d 240, 242 (1997) the Supreme Court referred to the client's "quasi-contractual obligation to pay the reasonable value of services." Similarly, in Eleazer v. Hardaway Concrete Co., Inc., 281 S.C. 344, 315 S.E.2d 174 (Ct. App. 1984), the Court of Appeals stated, "An attorney is entitled to the reasonable value of the services performed for his client in the absence of a controlling contract, statute, or rule of court fixing the amount of compensation . . .." Id. at 350, 315 S.E.2d at 178.
Generally, a third party is not liable for a lawyer's fees. When the lawyer's services create a common fund, however, third parties who benefit from the lawyer's services may, in some circumstances, be liable for the reasonable value of the services rendered. See Peppertree Resorts, Ltd. v. Cabana Ltd. Partnership, 315 S.C. 36, 431 S.E.2d 598 (Ct. App. 1993). But see Bonaparte v. Bonaparte, 317 S.C. 256, 452 S.E.2d 836 (1995) (estate of minor children not liable in quantum meruit for attorney fees incurred by attorney who represented decedent's father in interpleader suit with decedent's wife and children disputing payment of life insurance proceeds, in absence of evidence that children knew firm would expect payment from them).
1.5:230 Fees on Termination [see 1.16:600]
There is little South Carolina law discussing a lawyer's right to compensation upon termination of a representation. In South Carolina Public Service Authority v. Weeks, 201 S.C. 199, 22 S.E.2d 249 (1942), the Supreme Court stated that "generally where an attorney is discharged without cause by his client after they have entered into a contingent fee agreement, he is entitled to compensation." Id. at 203, 22 S.E.2d at 250. Weeks was a condemnation proceeding in which the landowner agreed to pay his attorneys a contingent fee equal to one-half of the amount recovered in excess of what the authority offered. After commencing the proceeding, the Public Service Authority exercised its statutory right to abandon the action. On these facts, the court held that the attorneys could not recover under the contingent fee contract, because the contingency had not occurred. The court also ruled that the attorneys could not recover in quantum meruit because the landowner had not terminated the attorney-client relationship. In Getzen v. Law Offices of James M. Russ, 323 S.C. 377, 475 S.E.2d 743 (1996), the Supreme Court applied Florida law in finding that a lawyer hired on an hourly rate basis is entitled to hourly fees for work earned prior to discharge. Several ethics advisory committee opinions have indicated that on termination or withdrawal from representation an attorney may be entitled to compensation on a quantum meruit basis. See S.C. Bar Ethics Adv. Op. # 96-05 (in absence of written contingency fee agreement fees on termination of representation would be determined on quantum meruit basis); S.C. Bar Ethics Adv. Op. # 90-13 (disqualified lawyer may seek recovery on quantum meruit basis); S.C. Bar Ethics Adv. Op. # 83-25 (contingent fee lawyer who withdraws at request of client is only entitled to recover on quantum meruit basis).
Unless the client is financially unable to pay, the lawyer is not directly prohibited from using a collection agency to collect from a client who is attempting to work an injustice by not paying. S.C. Bar Ethics Adv. Op. # 81-21. However, a civil suit against the client may be more appropriate. Id.
South Carolina has no law expressly indicating whether a lawyer may include a provision in the fee agreement requiring arbitration of fee disputes. However, South Carolina Appellate Court Rule 416 does permit a client to elect arbitration of certain fee disputes by the Resolution of Fee Disputes Board of the South Carolina Bar. The board also has authority to arbitrate disputes among lawyers regarding the division of a fee. The jurisdiction of the board is limited to situations in which the amount in dispute is less than $50,000. The comment to Rule 1.5 requires that, if a client or another lawyer applies to the board, the lawyer with whom the applicant has a dispute must submit to the jurisdiction of the board. Rules governing the organization and procedures of the board are found in S.C. App. Ct. R. 416.
A client who pursues arbitration of a fee dispute and receives a final judgment by the board may not subsequently sue the lawyer on different theories of liability arising out of the same fee dispute. Cowart v. Poore, 337 S.C. 359, 523 S.E.2d 182 (Ct. App. 1999). The completion of arbitration was treated as an election of remedies, precluding a later civil action alleging breach of contract and violation of the Unfair Trade Practices Act. The arbitration, however, does not apparently preclude an action for malpractice. See John Freeman, Resolving Fee Disputes, S.C. Law., Jan.-Feb. 2000, at 10.
Submission of a fee dispute to arbitration does not insulate a lawyer from later disciplinary proceedings for charging excessive fees. See In re Fox, 327 S.C. 293, 490 S.E.2d 265 (1997) (lawyer publicly reprimanded despite having refunded portion of fee in settlement of pending fee arbitration). However, cooperation with the Fee Disputes Board may be a relevant factor in those proceedings. See In re an Anonymous Member of the South Carolina Bar, 287 S.C. 250, 335 S.E.2d 803 (1985) (lawyer's cooperation with the Resolution of Fee Disputes Board and ultimate reduction of fee warranted dismissal of grievance).
Rule 7(b)(7) of the Rules for Lawyer Disciplinary Enforcement, S.C. App. Ct. R. 413, permits the court to require "repayment of unearned or inequitable attorney's fees" as a sanction for lawyer misconduct. The court may, however, elect to leave resolution of the question of whether a fee should be disgorged to a civil action brought by the client against the lawyer. See In re Hanna, 301 S.C. 310, 313, 391 S.E.2d 728, 729 n.4 (1990).
An action by a lawyer against the client for recovery of fees allegedly owed under a fee contract is an action at law, with the parties having a right to a jury trial. Lester v. Dawson, 327 S.C. 263, 491 S.E.2d 240 (1997). An action by the lawyer to enforce a lien on the proceeds of a judgment obtained on the client's behalf is, however, an action in equity. Id. at 270, 491 S.E.2d at 243.
1.5:300 Attorney-Fee Awards (Fee Shifting)
South Carolina follows the American rule. Attorney fees are not recoverable unless authorized by contract or statute. See Blumberg v. Nealco, Inc., 310 S.C. 492, 427 S.E.2d 659 (1993) (lease providing for recovery of attorney fees).
South Carolina common law did not provide for recovery of attorney fees by a successful litigant. See Collins v. Collins, 239 S.C. 170, 122 S.E.2d 1 (1961).
Numerous South Carolina statutes provide for recovery of attorney fees. See, e.g., attorney fees for frivolous proceedings, South Carolina Frivolous Civil Proceedings Sanctions Act, S.C. Code Ann. §15-36-10; attorney fees in state-initiated actions, S.C. Code Ann. §15-77-300; sanctions under South Carolina Tort Claims Act for frivolous pleadings, S.C. Code Ann. §15-78-120(c); suit money in divorce actions, S.C. Code Ann. §20-3-120; actions to enforcement liens on real estate, S.C. Code Ann. §27-1-15; actions against landlords, S.C. Code Ann. tit. 27, ch. 40; derivative actions against business organizations, S.C. Code Ann. §33-42-1840; consumer credit sales or leases, S.C. Code Ann. §37-2-413; unfair trade practices, S.C. Code Ann. §39-5-140; failure to pay wages by employers, S.C. Code Ann. §41-10-80; motor vehicle manufacturers, distributors, and dealers, S.C. Code Ann. §56-15-110.
In Jackson v. Speed, 326 S.C. 289, 486 S.E.2d 750 (1997), the court held that when determining the reasonableness of attorney's fees under a statute mandating the award of attorney's fees, any contract between the client and the attorney does not control the determination of a reasonable hourly rate. Instead, the court will look at six factors in determining whether a fee is reasonable. The court will consider:(1) the nature, extent and difficulty of the case; (2) the time necessarily devoted to the case: (3) professional standing of counsel; (4) contingency of compensation; (5) beneficial results; and (6) customary legal fees for similar services. Further, on appeal, an award for attorney's fees will be affirmed so long as sufficient evidence in the record supports each factor. Id. at 308, 486 S.E.2d at 760.
Rules of civil procedure also provide for recovery of attorney fees. See Rule 11 (signing of pleadings); 30 (depositions); 37 (failure to make or cooperate in discovery); 45 (subpoenas); 56 (summary judgment).
1.5:340 Financing Litigation [see 1.8:600]
In Osprey, Inc. v. Cabana Ltd. Partnership, 333 S.C. 323, 509 S.E.2d 275 (Ct. App. 1998), the Court of Appeals held that South Carolina continues to recognize the common law doctrine of champerty:
Champerty is defined as "a bargain by a champertor with a plaintiff or defendant for a portion of the matter involved in a suit in case of a successful termination of the action, which the champertor undertakes to maintain or carry on at his own expense." . . . It is also necessary, however, that the alleged champertor's participation in the litigation be "clearly officious and for the purpose of stirring up strife and continuing litigation."
Id. at 330, 509 S.E.2d at 278-279. South Carolina also recognizes the crime of barratry. S.C. Code Ann. §16-17-10 et seq.
Assuming that a transaction to finance litigation is not illegal under South Carolina law, an attorney may ethically counsel a client of the availability of opportunities to finance litigation when the client asks for such information or when the attorney in his professional judgment concludes that a client's legal and economic position warrants advice about such an opportunity. An attorney should render candid advice to the client about the advantages and disadvantages of the proposed transaction. S.C. Rule of Prof. Conduct 2.1. If a client decides to proceed with a financing transaction, the attorney should inform both the client and the financing entity in writing that the client retains the right to control all aspects of the litigation and that the attorney will maintain confidentiality of client communications. Cf. S.C. Rule of Prof. 1.8(f) and 5.4(c). S.C. Bar Ethics Adv. Op. # 94-04.
1.5:400 Reasonableness of a Fee Agreement
The current rules governing the amount that may be charged as a fee are similar in substance, although different in wording from the prior Code of Professional Responsibility. Rule 1.5 requires simply that a fee "shall be reasonable." Old DR 2-106 took a different route to generally the same position by prohibiting any "clearly excessive fee." The current rule includes the same eight factors for determining reasonableness as were set forth in the old code. Compare Rule 1.5(a)(1-8) with DR 2-106(B)(1-8).
When it becomes apparent during the course of a representation that, because of developments during the representation, a fee estimate made at the outset will be "substantially inaccurate," the lawyer should provide a revised estimate. Rule 1.5, cmt. However, the lawyer should not estimate a fee that is foreseeably inadequate at the outset. For example, unless the client is made fully aware of the circumstances, an agreement to provide services only up to a stated amount, "when it is foreseeable that more extensive services probably will be required," unfairly places the client at risk of having to negotiate for more services in the middle of a matter. Rule 1.5, cmt.
An agreement that the client will pay a fee in property is permitted, but the comment to Rule 1.5 notes the potential for abuse if the lawyer claims an unreasonable amount of property. "[A] fee paid in property instead of money may be subject to special scrutiny because it involves questions concerning both the value of the services and the lawyer's special knowledge of the value of the property."
A lawyer who charges an excessive fee is subject to discipline, including disbarment in egregious cases. See In re Warder, 316 S.C. 249, 449 S.E.2d 489 (1994) (lawyer admitted that fee of $2,500 to review appropriateness of a criminal sentence and additional $10,000 to review the transcript of a plea proceeding was excessive); In re Solomon, 307 S.C. 1, 413 S.E.2d 808 (1992) (in worker's compensation case respondent collected $1,700 from temporary checks and then received commission approval for 1/3 of final settlement without informing commission of prior fee payments); In re Hanna, 301 S.C. 310, 391 S.E.2d 728 (1990) (although respondent committed other serious misconduct, a fee of 85% on a recovery of $175,000 in a personal injury case alone warrants disbarment); In re Burgess, 275 S.C. 315, 270 S.E.2d 436 (1980) (no specific information in opinion as to why fee was excessive); In re Burr, 265 S.C. 84, 217 S.E.2d 143 (1975) (fee for services not required).
A lawyer who charges an excessive fee is unlikely to avoid discipline even if the lawyer claims good faith or negligence. See In re Lempesis, 293 S.C. 510, 362 S.E.2d 10 (1987) (lawyer improperly charged an excessive fee by charging more that permitted under federal law, although lawyer alleged a good-faith interpretation of the law and court found no evidence of fraud or deceit by the lawyer); In re Screen, 318 S.C. 367, 458 S.E.2d 39 (1995) (lawyer negligently calculated excessive fee and overcharged client by $35,000); In re Morris, 270 S.C. 241 S.E.2d 911 (1978) (fee greater than allowed by federal law).
When an hourly rate or similar basis for charging is used, contemporaneous billing is advisable. The court noted in In re Nida, 297 S.C. 541, 377 S.E.2d 580 (1989), that it did not "condone" a lawyer's attempt to reconstruct bills by reviewing case files several years after work was performed. Lawyers billing on an hourly basis may not charge two clients for the same hours or bill for hours not worked. For example, if a lawyer bills a client for travel time while on an airplane, it is improper also to bill another client for work performed during that same travel time. Similarly, when work is billed to one client and the same work can be used for a second client, a lawyer billing on an hourly basis cannot charge the second client again for the time already billed. See ABA Formal Op. # 93-379 (addressing proper practices for billing professional fees, disbursements, and other expenses).
The improper billing of costs, as well as of legal fees, may lead to discipline. For example, in In re Craig, 317 S.C. 295, 454 S.E.2d 314 (1995), the court disciplined a lawyer who acted also as title agent and failed to prevent an "appearance on impropriety" because the lawyer did not document the reasons for charging a client a residential rather than construction premium rate. The court suggested several times in that opinion that a lawyer may be disciplined for creating an appearance of impropriety, although that language from the prior Code of Professional Responsibility does not appear in current rules.
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South Carolina rules appear to allow the use of nonrefundable retainers, with the concern focusing more upon the reasonableness of the amount of the fee than upon its nonrefundable character. Although some jurisdictions have indicated that any special nonrefundable retainer is per se improper, see In re Cooperman, 633 N.E.2d 1069 (N.Y. 1994), South Carolina Rule 1.16(d) states, "The lawyer may retain a reasonable nonrefundable retainer." The comment to Rule 1.5 also provides that a nonrefundable fee "may be retained if it is reasonable" under the traditional tests for reasonability. In In re Miles, 335 S.C. 242, 516 S.E.2d 661 (1999), respondent collected a number of nonrefundable retainers from various clients. Respondent then failed to complete the work on these cases, and refused to refund any portion of the purportedly nonrefundable retainers. The court noted that "[a] 'lawyer may retain a reasonable nonrefundable retainer.' The fee, however, must be reasonable under the factors outlined in the rules and any unearned portion must be returned to the client." See also In re Anonymous Member of the Bar, 317 S.C. 10, 451 S.E.2d 391 (1994) (private reprimand for lawyer's failure to disclose to court receipt of nonrefundable retainer without discussion of such retainers in general).
1.5:500 Communication Regarding Fees
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1.5:600 Contingent Fees
Contingency fees have long been treated differently from fees based on other methods of calculation since a contingency fee gives the lawyer a proprietary interest in the outcome of litigation. Rule 1.8(j), however, specifically permits a lawyer to charge a contingency fee in a civil case, notwithstanding those concerns. Rule 1.5 more completely addresses the issue, permitting contingency fees except in criminal defense cases, most domestic relations cases, and any case in which such a fee is prohibited by law. "When there is doubt whether a contingent fee is consistent with the client's best interest, the lawyer should offer the client alternative bases for the fee and their implications." Rule 1.5, cmt.
Contingent fee agreements must be in writing under S.C. Rule 1.5(c). See In re Hall, 333 S.C. 247, 509 S.E.2d 266 (1998) (respondent failed to secure written contingency agreement for slip and fall case). See also In re Watson, 319 S.C. 437, 462 S.E.2d 270 (1995); In re Houston, 314 S.C. 94, 442 S.E.2d 175 (1994). The contingent fee agreement must set forth the method of determining the fee, the percentages to be applied, whether expenses are to be deducted from the recovery, and, if so, whether they will be deducted before or after calculating the fee. Id. See also S.C. Bar Ethics Adv. Op. # 91-32. Rule 1.5(c) contemplates that a lawyer may properly charge a different percentage depending upon whether the matter is settled, tried, or appealed, but each such percentage shall be set forth in the fee agreement.
At the end of a matter in which a contingency fee is charged, the lawyer also must give to the client a written statement setting forth "the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination." Rule 1.5(c). A problem may arise for the lawyer if the matter is settled and the client later repudiates the settlement. According to an advisory opinion issued under the prior code, if the fee agreement provides for a percentage payment upon settlement, the lawyer may bill the client for a fee earned. S.C. Bar Ethics Adv. Op. # 86-01. Even in matters not involving a contingency fee, the client may request an itemized statement of fees and a lawyer may be disciplined for failure to comply with the request. See In re Larkin, 320 S.C. 512, 466 S.E.2d 355 (1996).
Normally funds recovered under personal injury protection (PIP) coverage should not be considered in setting a contingency fee. The South Carolina Supreme Court has indicated that a lawyer representing a client on a contingency fee basis in a personal injury or wrongful death action may not charge a fee for collecting personal injury protection (PIP) benefits, unless the benefits are disputed or denied. In re Hanna, 294 S.C. 56, 362 S.E.2d 632 (1987); see also S.C. Bar Ethics Adv. Op. # 83-03.
When a lawyer represents both an insured party and a subrogee insuror in a contingency fee case, the lawyer should "subtract the subrogated amount from the entire amount recovered" before calculating the insured's fee. The lawyer then may charge the subrogee a percentage of the subrogated amount. In re Jones, 313 S.C. 9, 437 S.E.2d 10 (1993).
Lawyers must exercise care in determining the amount of fees in structured settlements. See In re Williams, 336 S.C. 578, 521 S.E.2d 497 (1999) (lawyer misappropriated funds and calculated contingency fee in personal injury action without discounting annuity to its present value). When the structured settlement is funded through the purchase of an annuity from a life insurance company, the attorney's fee is computed based on the cost of the annuity plus any cash paid at the time of settlement. See In re Fox, 327 S.C. 293, 490 S.E.2d 265 (1997).
1.5:700 Unlawful Fees
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While the use of contingency fees in domestic cases is generally barred, there are exceptions under Rule 1.5. The rule bars contingency fees if the fee is contingent upon securing a divorce or upon the amount of any alimony, support, or property settlement in lieu of alimony or support. Rule 1.5(d). It generally is argued that the allowance of a contingency fee in such matters would be inconsistent with state interests in encouraging reconciliation and in providing fair support for families. See S.C. Bar Ethics Adv. Op. # 87-04. Since those policies are less at stake once the divorce is final and the support amounts have been fixed, a lawyer hired to collect past due alimony or child support may charge a contingency fee. Rule 1.5(d)(1).
A South Carolina Bar Ethics Advisory Opinion has interpreted Rule 1.5(d) to permit a lawyer to charge a contingency fee to collect funds due under a previously ordered property division. The committee based its advice upon the fact that, as in cases to collect past due support, the divorce already was final and the amount of the property award had been established. S.C. Bar Ethics Adv. Op. # 92-05.
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1.5:800 Fee Splitting (Referral Fees)
It is not uncommon for lawyers from more than one firm to work on a matter for a client. A single lawyer or law firm retained by the client may not be able to handle all aspects of a transaction and may retain assistance from another lawyer. The initial lawyer must notify the client prior to retaining another lawyer to ensure the client's awareness that the fee will be divided among several lawyers. Rule 1.5(e)(2). The rules do not require that the client affirmatively consent to a division of fees between lawyers. However, the client must not object to the arrangement. Id. (Consent, however, probably should be obtained in any case in order to protect the confidentiality interests of the client.) The rules do not require disclosure to the client of the proportion of the fee to be received by each lawyer. Rule 1.5, cmt.
If the client does not object and the total fee charged is reasonable, lawyers may divide a legal fee in proportion to the services performed by each lawyer. Rule 1.5(e)(1). If the fee is to be divided in any manner other than proportionately to the services performed, the lawyers and the client also must enter into a written agreement in which "each lawyer assumes joint responsibility for the representation." Id.
The current rule, therefore, clearly contemplates that a division of fees among lawyers may be disproportionate to the services performed if each lawyer is responsible for the matter. The prior code was less clear. The language of old DR 2-107 required that any division of fees be in proportion to services performed and responsibility assumed, suggesting that a division disproportionate to services was not allowed. Older opinions rendered under the code should be read with that distinction in mind, although at least one South Carolina opinion from the period concluded that, notwithstanding the conjunction, a disproportionate division was allowed even under the prior code. See S.C. Bar Ethics Adv. Op. # 86-03. See also In re Shelley, 313 S.C. 144, 437 S.E.2d 86 (1993) (fee arrangement found to be "questionable" under code when lawyer did 80% of work, but paid 80% of fee to lawyer-legislator); In re Houston, 314 S.C. 94, 442 S.E.2d 175 (1994) (details of fee arrangement not set forth by court in opinion).
When a lawyer leaves a law firm with a client matter and agrees with the former firm to protect its fees and expenses, the lawyer should comply with Rule 1.5. S.C. Bar Ethics Adv. Op. # 98-32(a).