Matter of Swartz
1984 Ariz. LEXIS 256, 686 P.2d 1236, 141 Ariz. 266 (1984)
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Rule of Law:
An attorney's fee, even if based on a contingent fee agreement that was reasonable when made, violates ethical rules if it becomes clearly excessive by the conclusion of the representation. In such cases, the attorney has an affirmative duty to reduce the fee to a reasonable amount.
Facts:
- Steven Sarge was severely injured in a work-related accident when he was hit by an intoxicated driver.
- While Sarge was in intensive care, his family hired attorney John F. Swartz to handle his workmen’s compensation claim and a personal injury claim against the driver.
- Swartz and Sarge's family entered into a written contingent fee agreement for the personal injury claim, stipulating that Swartz would receive one-third of all sums recovered.
- Liability in the case was clear, and the driver was covered by two insurance policies totaling $150,000.
- With minimal negotiation and without filing a lawsuit, the insurance carriers offered their combined policy limits of $150,000. An expert estimated Swartz spent no more than 20-30 hours on the case.
- Sarge's workmen's compensation carrier, the State Compensation Fund (Fund), had a statutory lien for benefits paid that would consume almost the entire settlement after Swartz's fee.
- Swartz collected his $50,000 fee, the Fund was paid approximately $90,000 to satisfy its lien, and the remaining $10,000 was credited against Sarge's future benefits, resulting in Sarge receiving no direct monetary benefit from the settlement.
Procedural Posture:
- A Local Administrative Committee of the State Bar of Arizona filed a complaint against John F. Swartz, alleging he charged a clearly excessive fee.
- After hearings, the Committee concluded Swartz violated disciplinary rules and recommended he be suspended from practice.
- Swartz objected to the Committee's findings.
- The State Bar Disciplinary Board reviewed the matter, accepted the Committee's findings, but recommended a shorter suspension.
- Swartz objected to the Board's recommendation, bringing the matter before the Supreme Court of Arizona for final disposition.
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Issue:
Does a one-third contingent fee, which was reasonable when agreed upon, become a 'clearly excessive fee' in violation of DR 2-106 if a quick settlement is reached with minimal attorney effort and the client receives no net monetary benefit from the recovery?
Opinions:
Majority - Feldman, Justice
Yes. A contingent fee that was reasonable when agreed upon becomes a 'clearly excessive fee' if subsequent events render it disproportionate to the services performed and the results obtained. A fee agreement between a lawyer and a client is not an ordinary business contract; lawyers have a professional obligation to charge reasonable fees, which must be assessed at the conclusion of the representation. In this case, there was no real contingency as liability was clear and recovery was limited to known insurance policies. The minimal work required (20-30 hours) and the lack of any net benefit to the client made the $50,000 fee 'clearly excessive and shocking.' The court held that when a fee becomes excessive, the attorney has a duty to reduce it, rather than stand on the original contract. Furthermore, Swartz's failure to negotiate with the Fund to potentially reduce its lien and provide a benefit to his client, in order to protect his own full fee, constituted conduct prejudicial to the administration of justice.
Analysis:
This case establishes the critical principle that the reasonableness of a contingent fee is not fixed at the time the contract is signed but is subject to review at the conclusion of the case. It imposes an affirmative duty on attorneys to reduce a contractually agreed-upon fee if circumstances, such as a quick, low-risk settlement, render the fee disproportionate to the work performed and the benefit provided to the client. The decision moves the analysis of attorney's fees from a pure contract law framework to one governed by overriding ethical obligations of fairness, reinforcing the judiciary's role in supervising attorney conduct. This precedent significantly impacts personal injury practice by warning lawyers they cannot collect a windfall fee just because the initial agreement allowed it.
