Ethics Docket No. 2017-05
Scope of Prohibition on Acceptance of Contingency Fees in Bankruptcy Matter Which Could Modify Effect of Order of Divorce
You have requested an opinion from the Committee concerning the scope of the prohibition on contingent fees in domestic relations matters. You indicate that you represent a client, in the United States Bankruptcy Court for the District of Maryland, who is a debtor in a pending bankruptcy.
Your client is also a party in a divorce in Maryland Circuit Court, for which you have not been engaged. In that divorce, your client and the spouse reached a settlement, incorporated but not merged into a judgment of absolute divorce, prior to the filing of the bankruptcy. The relevant terms of that settlement included child support, and a use and possession order for your client’s ex- spouse to remain in the former marital home for a period of years, with each spouse paying half of the mortgage and retaining a one-half ownership interest, until sold.
Your client indicates that he has been unable to meet his financial obligation to pay half of the mortgage on the marital home. You have initiated an adversarial proceeding in the Bankruptcy Court to determine the bankruptcy trustee’s powers to sell the former marital home, notwithstanding the terms of the divorce settlement.
In addition, because of financial conditions, your client has sought a child support modification due to an alleged change in circumstances with the Circuit Court.
You have posed two questions of the Committee:
- Would a fee agreement, in the bankruptcy adversary proceeding, charging a contingent fee based on successfully forcing a sale of the former marital home violate Maryland Rule of Professional Conduct 1.5(d)(1)?
- Would a fee agreement, in the bankruptcy adversary proceeding, containing a clause providing that the contingent fee be paid if the child support is modified, even where there is no sale of the former marital home, violate Maryland Rule of Professional Conduct 1.5(d)(1)?
Preliminarily, the Committee notes that it provides no legal advice or comment with regard to the fee disclosure and approval requirements of the Bankruptcy Court or the validity of your proposed strategy. Additionally, the Committee cannot comment on the reasonableness of the fee as insufficient information has been presented to be able to address the specific requirements of other provisions of Rule 1.5, including section (a). Finally, the Committee does not, by the specific fact pattern, intend to indicate that a contingent fee in a bankruptcy matter is inappropriate.
Maryland Rule 19-301.5(d)(1)( Maryland Rule of Professional Conduct 1.5(d)(1)) generally prohibits “any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or custody of a child or upon the amount of alimony or support or property settlement, or upon the amount of an award pursuant to Md. Code, Family Law Article, §§ 8-201 through 8-213”. Md. Rule 19-301.5. In Ethics Docket 1979-42, we determined that a contingent fee for a divorce was unethical. Further, we opined in Ethics Docket 1995-15 against forming a collection business to collect child support as it appeared to be an attempt to circumvent Rule 1.5(d)(1).
The propriety of contingent fees in matters arising after the entry of an order of divorce has been addressed by the Committee. See Ethics Dockets 1997-39 and 1998-07. The results are reflected in Note 6 to Rule 1.5 which does not prohibit contingent fees for representation in collection of “post-judgment balances due under support, alimony or other financial orders.”
Most notably, in Ethics Docket 1997-39, the Committee determined that Rule 1.5(d)(1), in its current form, did not prohibit a contingent fee to collect on property rights determined in and arising from a divorce. The Committee noted that “the prohibition attaches to the services rendered to establish the initial determination of either alimony, support or property settlement, and the modification thereof, and not to the disposition of property already subject to either final judgment or divorce decree.”
We respond to your questions in reverse order. As to your second question, the Committee has little hesitation concluding that the proposed contingent fee expressly based on a modification of child support violates, and is prohibited under, 1.5(d)(1).
As to your first question, regarding a contingent fee based on successfully procuring sale of the former marital home, we recognize that there may be circumstances where contingent fee representation in unrelated litigation could result in modification of a divorce decree, without a violation of the Rules of Professional Conduct. However, given the state of your knowledge and the strategy being pursued, we believe that the contingent representation, under the circumstances you have presented, also violates the prohibitions of Rule 1.5(d)(1).
What is most concerning about your proposed representation aimed at selling the home is your knowing acknowledgement that your representation is aimed at and primarily intended to modify the rights of the parties by extinguishing the use and possession order and the financial obligation to pay the mortgage as ordered in the divorce decree. We direct your attention to Knott v. Knott, 146 Md. App. 232, 248-250 (2002), wherein the Court of Special Appeals found that mortgage payments were in the nature of child support, noting that the “use and possession statute’s sole purpose is for the benefit of the child or children of the family” and concluding that the mortgage payments made in connection with use and possession “should be considered child support payments.” Id. While, on its face, the rule prohibits contingent fees “in a domestic relations matter,” we believe that the collateral attack on that judgment through other judicial means, via contingent fee representation, expressing aimed at decreasing child support, falls within the purview of the Rule. In that regard, your contingent fee efforts are not within the safe harbor parameters of mere enforcement or post-judgment collection reflected in Ethics Dockets 1997-39 and 1998-07, and annotated in Note 6. Your proposed conduct would more closely resemble “the modification thereof” referenced in Ethics Docket 1997-39, and the circumvention we counseled against in Ethics Docket 1995-15.