Michigan

CI-566

November 14, 1980

SYLLABUS

It is not improper for a lawyer to cooperate with a lay person or agency in the preparation and presentation of a client's claim, where payment for such services is dependent upon the outcome of the client's case, so long as the lay person or agency is not engaged in the unauthorized practice of law, the lawyer does not share legal fees with the lay person or agency, and the contingent fee does not constitute payment for testimony of the lay person or agency.

It is not improper for an a lawyer to agree to be responsible for the payment of authorized expenses and expert witness fees in connection with the preparation and presentation of a client's claim regardless of the outcome of the case, or to accept the client's assignment directing payment of such expenses and fees out of the proceeds of the case, providing the client expects and agrees to reimburse the lawyer in the event the case is unsuccessful.

TEXT

I have been assigned to provide a response for an opinion concerning the propriety of certain contemplated professional conduct.

A statement of facts, questions raised and opinions thereon follow:

Medical Legal Consulting Service Inc. of Maryland (M-L) is a lay organization which provides technical medical research, investigations, evaluations and analyses of medical claims which may be the subject of litigation. M-L employs a contingent fee contract to be applied to the gross award for payment of its services.

The M-L contract, aside form the contingent fee provision, requires payment of its authorized expenses. The contract also provides that the fees and expenses incurred by expert witnesses who assist in the preparation and presentation of the client's case are not covered by the contract but are separate charges to be paid by the client regardless of the outcome of the case.

If the claim is successful, the client-executed M-L contract authorizes and directs the lawyer to pay M-L's fees and expenses and the fees and expenses of expert witnesses out of the proceeds of this case. In the event the claim is unsuccessful, the client is obligated to pay these expenses and fees.

Included in the M-L contract, for execution by the lawyer, is an "Assignment" clause by virtue of which the lawyer accepts the clients directive to pay M-L out of the proceeds of the case. Additionally, under this provision the a lawyer agrees to be responsible for the payment of M-L's authorized expenses, expert witness fees and expert witness expenses regardless of the outcome of the client's case.

Since this committee does not make findings of fact or law, certain assumptions are made which serve as a basis for this opinion. It is assumed the client is adequately counseled regarding all terms of the M-L contract in order to make an informed and independent decision to either enter into the contract or not. It is assumed the lawyer and client have an agreement whereby the client will reimburse the lawyer his case-related expenses in any event, whether or not the case is successful. It is assumed M-L is not engaged in the unauthorized practice of law. It is assumed the M-L contract is valid as between M-L and the client. It is assumed no testimony will be given by M-L's employees, representatives and agents. It is also assumed the lawyer will retain control of the case at all times.

The specific questions raised by this request for an opinion are these:

    1. Is it ethical for a Michigan lawyer to cooperate with M-L when the latter charges a contingent fee for its service?
    2. Is it ethical for a Michigan lawyer to make and acrry out the agreement expressed in the "Assignment portion of the M-L contract?
    3. Is acceptance by the lawyer of the client's authorization to pay M-L's fee out of monies recovered ethical, and not a form of fee-splitting?
    4. Is it ethical for the lawyer to agree to be responsible for payment of M-L's authorized expenses, expert witness fees and expert witness expenses without regard to the outcome of the case?

It is the opinion of this matter that each of the listed questions should be answered affirmatively.

Question No. 1: The contingent fee for services performed by M-L is a contractual agreement directly between the client and M-L and does not involve the Code of Professional Responsibility.

The contractual relationship between M-L and the client is not unlawful, and it would not be unethical for the lawyer to cooperate with M-Lon the client's behalf in the preparation and presentation of the client's case.

Question No. 2: If the client has made an informed decision to authorize and instruct the lawyer to fulfill the terms of the assignment, no unethical conduct on the part of the lawyer would appear to exist in carrying out the client's directive.

Traditionally, it has been considered ethical for the lawyer to advance, and even guarantee the costs and expenses of preparing and presenting the client's case so long as actual reimbursement therefore is contemplated and agreed to by the client.

Question No. 3: Payment of M-L's fees and expenses, and expert witness fees and expenses would not appear to be a form of fee-splitting any more than would payment by the lawyer for any other form of chargeable expense necessary to the preparation and presentation of the claim.

GCR 928.3 (Supreme Court Administrative Rules) requires the application of the lawyer's contingent fee percentage to the net recovery after first deducting from the gross amount "disbursements properly chargeable to the enforcement of the claim or prosecution of the action."

Deducting the amount of M-L's contingent fee and expenses, as well as expert witness fees and expenses from the gross award would be a proper expense item before application of the lawyer's contingent fee percentage and not a form of fee-splitting.

Question No. 4: It has been assumed that the lawyer has an arrangement of his own with the client providing for reimbursement of expenses reasonably chargeable to the preparation and presentation of the client's case without regard to the outcome of the claim. The lawyer's guarantee that the client will pay M-L's authorized expenses, expert witness fees, and expert witness expenses would not be unethical under these circumstances.

The questions listed above have been considered by ABA Informal Opinion 1375 (August 10, 1976), 1 "Participation with Lay Consulting Service Charging a Contingent Fee." On Pages 2 and 3 of that opinion, the following appears:

"Nothing in the Code of Professional Responsibility proscribes a lawyer from recommending that a client contract with a lay person on a contingent fee basis so long as: (1) the lay person or agency is not to engage in the unauthorized practice of law, DR 3-101(A); (2) the lawyer does not share legal fees with the lay person, or agency, DR 3-102(A)(1)-(3); and (3) the contingent fee is not payable for the testimony of the lay person or agency, DR 7-109(C)(1)-(3)."

The reasoning of the ABA informal opinion (1375) is acceptable, and, accordingly incorporated in this opinion.

In the case of Schackow vs Medical-Legal Consulting Service Inc (The Court of Special Appeals of Maryland, No. 1252, September Term, 1979; filed July 10, 1980) it was charged that arrangements like the one herein contemplated with M-L was champertous and void as against public policy. The Maryland Court of Special Appeals applied the above-quoted portion of the ABA informal opinion in rejecting the charge.

Finally, Annotated Code of "Professional Responsibility" (Olavi Maru, et. Al) published by the American Bar Foundation (1979), at Pages 133 and 149, citing ABA Informal Opinion 1375 includes the following:

(Page 133) "(On the other hand, DR 3-101(A) does not prohibit a lawyer from recommending that his or her client contract with a lay consulting service whose work does not involve the unauthorized practice of law, for example, one that specializes in research and investigation of medical-legal claims (Informal Opinion 1375, August 10, 1976).)" and (Page 149) "In matters of litigation, if a lawyer is asked by his or her client to pay a consultant who has performed certain services with reference to the client's claim from proceeds recovered from the claim, a lawyer may properly do this if the purpose of such an act is merely to reimburse the consultant for proper and authorized expenses (Informal Opinion 1375, August 10, 1976)."