## Facts

- Two Arizona attorneys represented a mother in a medical-malpractice case under a 40% contingency fee agreement.
- The case’s value increased after counsel developed an alternative theory that improved settlement prospects despite weaknesses in the negligence claim.
- During court-supervised settlement negotiations, the defense proposed a structured settlement that included a separate, specified amount for attorneys’ fees.
- The settlement judge questioned whether the 40% contingent fee was excessive and discussed how separate defense fee offers can create attorney-client tension.
- While negotiations were ongoing and immediately before trial, the attorneys privately proposed an additional fee arrangement requiring the client to pay them extra from her cash recovery beyond the amount allocated for fees in the settlement proposal.
- The attorneys told the client she could seek independent advice; the client verbally agreed at the conference.
- When presenting the settlement to the settlement judge, the attorneys did not disclose the additional fee arrangement, asserting they would address fee approval later with the trial court and fearing disclosure could jeopardize the settlement.
- After the conference, the client contacted the settlement judge to ask whether she was legally bound by the additional fee agreement.
- The settlement judge removed the attorneys from the case and referred the matter for bar discipline.
- A hearing committee and the disciplinary commission found ethical violations and recommended discipline; the attorneys sought review by the Arizona Supreme Court.

## Issues

1. Whether attorneys violate professional duties by seeking a mid-settlement fee increase from a current client and failing to disclose the arrangement during court-supervised settlement proceedings.
2. What public discipline is appropriate when the misconduct involves fee-related conflict and nondisclosure, but the representation also produced a substantial recovery and other mitigating factors exist.

## Decision

- The Arizona Supreme Court found professional misconduct based on the additional fee arrangement and the failure to disclose it to the settlement judge during judicially supervised settlement discussions.
- The court determined the added fee proposal created or intensified a conflict between counsel’s financial interests and the client’s interest in maximizing her recovery at a critical stage.
- The court concluded the client’s assent was not sufficiently informed given timing, pressure, and the client’s dependence on counsel’s advice during settlement.
- The court held nondisclosure was material and inconsistent with the candor expected in court-supervised settlement, particularly after the judge raised fee concerns.
- The court imposed public discipline and modified the disciplinary commission’s recommended sanction.

## Legal Principles

- Mid-representation modifications to fee arrangements, especially during settlement negotiations, are subject to heightened scrutiny and must be objectively fair and fully explained to the client.
- A lawyer may not pursue fee terms that create a significant divergence of interests with a current client at a moment when the lawyer’s advice must remain detached and client-centered.
- In court-supervised settlement proceedings, lawyers must disclose material fee arrangements affecting the settlement’s fairness; withholding such information can constitute professional misconduct even if later disclosure is contemplated.
- The absence of proven intent to defraud and the client’s ultimate recovery may mitigate sanction, but do not excuse conflict-creating fee conduct or material nondisclosure in a judicial settlement process.

## Conclusion

The Arizona Supreme Court disciplined counsel for proposing an additional fee from the client during settlement and for not disclosing that arrangement to the settlement judge, holding that fee modifications under settlement pressure and material nondisclosure in court-supervised negotiations violate core duties of loyalty, informed consent, and candor.


In re Fee, 898 P.2d 975 (Ariz. 1995)