Aba Formal Opinion 94-389 and Contingent Fee Agreements
| Publication year | 1996 |
| Pages | 65 |
| Citation | Vol. 25 No. 7 Pg. 65 |
1996, July, Pg. 65. ABA Formal Opinion 94-389 and Contingent Fee Agreements
On December 5, 1994, the American Bar Association ("ABA") Ethics Committee issued Formal Opinion 94-389. In effect, the Opinion holds that it is ethical to charge a contingent fee as long as the fee is appropriate and reasonable and the client is fully informed of the availability of alternate billing arrangements. The Opinion discusses a number of aspects of contingent fee agreements. This article discusses one aspect of the Opinion and how it applies in Colorado.
The Opinion holds that a contingent fee is permissible even where liability is clear and some recovery is certain. This is based on the proposition that in all cases a range of recovery is possible, depending on the lawyer's knowledge, skill, experience and time expended.
The Opinion also recognizes that early settlement is often prompted by the defendant's recognition of the ability of the plaintiff's lawyer to value and try the case effectively. On the other hand, the Opinion states that if a lawyer is reasonably confident that as soon as the case is filed, the defendant will offer the amount the client would accept---that is, there is very little risk of nonrecovery---at the very least the contingent fee agreement should recognize the likelihood of early settlement by providing for a significantly smaller percentage.
The Opinion further recognizes that the lawyer is being compensated for the risk the lawyer assumes that the client will terminate the lawyer, a right a client may exercise at any time.(fn1)
DR 2-106 of the Code of Professional Responsibility, which was in effect in Colorado until the adoption of the Colorado Rules of Professional Conduct ("Rules") on January 1, 1993, provided as follows: "A lawyer shall not enter into agreement for, charge or collect an illegal or clearly excessive fee."
When the Rules were adopted, Rule 1.5 modified this language so that now the Rules require only that a lawyer's fee be reasonable. The remainder of this article is a discussion of the applicability of Formal Opinion 94-389 to Colorado as it pertains to the appropriateness and reasonableness of the fee, and when that determination should be made---at...
To continue reading
Request your trial