This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters. To learn more, visit njsba.com.
Last week, the New Jersey Supreme Court adopted an Official Comment to Rule 1:21-7 to provide guidance to attorneys and the public regarding ethical issues related to retainer fee agreements in statutorily-based fee-shifting cases. The Court’s action follows its decision in Balducci v. Cige, 240 N.J. 574 (2020), in which it held that the issue was “worthy of the deliberative process by which new ethical rules are promulgated by this Court.” The New Jersey State Bar Association participated as amicus in Cige to encourage a more robust decision-making process to address mandates emanating from the Appellate Division’s decision interpreting ethical requirements relative to these types of agreements.
The Notice to the Bar issued on April 26 sets forth an official comment that requires lawyers who represent clients in statutorily-based discrimination cases to:
- Explicitly disclose in the retainer agreement all identifiable fees or costs that the clients may have to pay either up front or at the conclusion of the case;
- Provide an estimate of fees and costs and the range of value of the case at the initiation of representation, taking into consideration the “wide scope of potential paths litigation might take;”
- Maintain a continuing obligation to inform clients about additional fees and costs that may arise as the case progresses;
- Promptly inform the client when rising fees and costs are likely to result in little to no monies recovered by the client in the lawsuit.
Additional guidelines in the notice include:
- Retainer agreements are presumptively unreasonable when a lawyer charges the greater of a contingent fee or a regular hourly fee that is payable even if there is no recovery;
- A contingency fee agreement in which the damages award and the fee are combined, and a percentage is applied to the combined amount, is not presumptively unreasonable;
- There should be no cap on fees recoverable in a statutory fee-shifting case, but lawyers should notify clients in the retainer agreement or orally when the fee percentage is higher than 33⅓%;
- There is no need for proportionality between the lawyers’ fee award and the damages award.
In Cige, a plaintiff challenged the validity of a retainer agreement that proposed a fee of the greater of an hourly rate, 37.5% of the net recovery or the statutory fees, by settlement or award. Balducci terminated the attorney-client relationship and received a bill for fees and expenses for nearly $287,000. In addition to holding the agreement invalid, the Appellate Division held that Cige was also obligated by the Rules of Professional Conduct to communicate clearly that his fee structure was different, in that the plaintiff would be obligated to pay regardless of the success of her case. The court further held that attorneys must tell clients that if a case becomes too complex, an hourly rate-based fee could approach or even exceed any recovery and advise of other attorneys who would represent the client on a purely contingency fee basis.
The NJSBA took no position on the validity of the retainer agreement but took issue with the Appellate Division’s interpretations of the Rules of Professional Conduct. In reviewing the recommendations by the Appellate Division regarding providing comparative recovery to clients in similar cases or referrals to attorneys who may have experience in similar cases, the Supreme Corut too noted concerns with the recommendations. The Supreme Court concluded that the recommendations “require careful and thoughtful consideration and deliberation,” and that such professional standards governing attorneys are done “through the rulemaking process.” The Court referred the issue to a newly established ad hoc committee comprised of representatives of the Civil Practice Committee, the Professional Responsibility Rules Committee, and the Advisory Committee on Professional Ethics, and other representatives of the bar and bench with experience in these matters.
That committee issued nine recommendations in November 2021, one of which was not adopted in the official comment. A copy of that notice may be found here. The NJSBA signaled concerns over some of the recommendations, and recommended clarifications to others. The Official Comments take effect Sept. 1.