North Carolina Lawyers Weekly
A retainer agreement that appeared to impose a “back-door’ contingency fee for alimony and child support work has been struck down by the Court of Appeals as violating public policy.
In a second issue, the court upheld Rule 11 sanctions against the attorney who drafted the agreement because the lawyer attempted to enforce a lien for his fee against property that was protected by a temporary restraining order.
The Jan. 7 decision is Williams v. Garrison (North Carolina Lawyers Weekly No. NA0041 – 6 pages). The opinion was written by Judge John B. Lewis Jr., with Judges Hugh Wells and Ralph Walker concurring.
The attorney agreed to represent a woman in a series of domestic actions. Their written agreement provided that the lawyer’s fee in the alimony and child support actions would be included as a percentage of his client’s recovery in a subsequent equitable distribution case.
The Appeals Court said that while contingency agreements are acceptable in equitable distribution actions, they are improper in other divorce proceedings. An agreement that lumps various actions under one contingency fee is unenforceable as well, the court held.
An attorney with the state’s largest legal malpractice insurer says the opinion offers a cautionary lesson.
‘Fee agreements are critical in any legal matter, and this is especially true in domestic cases,’ said John Hester, vice-president of Lawyers Mutual Liability Insurance Company. ‘This decision mandates that lawyers must be very careful when drawing up fee contracts.
Void Agreement
When he accepted the case, the attorney sent the client a retainer letter that read as follows:
“It was a pleasure visiting with you. After studying your case, I believe that a fair and reasonable fee would be 15 percent of your share of the equitable distribution for all items except the items of cash…. On these items that 20 percent is reasonable. This fee would include a hearing for permanent child support and temporary and permanent alimony hearings and trial as well as equitable distribution. It will be necessary for you to pay out of pocket expenses such as court reporter fees for depositions, expert witness fees, appraisals, photocopies, long distance telephone costs, etc., as we go along. Cost does not include mileage for me. If this arrangement is satisfactory, would you please sign below….”
The attorney appeared on his client’s behalf in actions for child support, alimony and equitable distribution. He also took on a partition suit involving lake front property that his client owned jointly with her husband. That property was subject to a standing restraining order issued by the trial court. The attorney tried to assert a charging lien against the property to protect his fee despite the TRO.
A Superior Court judge refused to enforce the lien and declared the fee arrangement void as against public policy. The judge also charged the attorney with court costs, attorney’s fees, and other expenses pursuant to Rule 11, for violating the TRO.
On appeal, the attorney pointed out that the agreement did not specifically call for a fee to be paid out of any alimony or child support recovery. He contended the contingent fee provision applied only to the equitable distribution proceeds, and not to the other services rendered.
No Contingent Contracts
The appeals panel said North Carolina law is clear that a contingent fee contract in a divorce is prohibited.
“This is true even though such contingent fee can not be based on the amount of money received in a divorce proceeding proper because no money is at issue,’ Judge Lewis wrote. ‘Such contracts are void regardless of how the contingent fee is calculated. The law of this state is clear that a contingent fee contract covering representation for alimony or child support subsequent to a divorce proceeding is likewise void.
‘Where it is indisputable that a contingent fee contract for divorce based on the amount of equitable distribution is void, and where the law of this state is clear that contingent fee contracts for alimony and child support are also void, we hold that a contingent fee contract for alimony and child support based on the amount of an equitable distribution is void as against public policy.”
