MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-01
Provisions in a contingent retainer agreement permitting the attorney to collect and additional fee of fifty percent (50%) of all reductions in the amount of medical bills.
You state you are a lawyer performing the professional service to a law firm of drafting a retainer agreement for the law firm. The law firm would use the retainer with its client as an initial standard contingency agreement in representing clients as plaintiffs in personal injury cases.
You propose the following clause in that initial retainer agreement:
“In addition to pursuing the tortfeasor for damages, client hereby separately retains the firm to attempt to reduce medical bills client incurs as a result of the aforementioned tort, and agrees to pay the firm one-half (1/2) of any reduction of those bills it can achieve in addition to the contingency charged for the tort.”
You inquire whether such a fee agreement is ethical.
At the outset, the guidelines for the Committee on Ethics in rendering formal opinions do not permit the approval of specific language proposed in inquiries. However, the Committee will comment on the propriety of the fee arrangement proposed.
The Preamble of the Maryland Rules of Professional Conduct provides a general orientation of the rules and observes that a lawyer performs various functions in representing a client. For a personal injury client the lawyer initially functions as an advisor in providing the client with an informed understanding of the client’s rights and obligations, and explains their practical implications. In a competent manner contemplated by Rule 1.1, the lawyer should inform the client whether the law provides a cause of action whereby compensation is available. The lawyer should also inform the client of the client’s obligations to mitigate the damages suffered and, typically in personal injury cases, the client’s relations and obligations to health care providers and client’s insurers to who the client may owe duties through subrogation. Because the client’s subrogation obligations to his insurer may arise upon recovery from the tortfeasor, Rule 1.4(b) requires the lawyer to inform the client in order that the client is able to make informed decisions during the representation.
In relation to the tortfeasor, the lawyer also functions as an advocate zealously asserting the client’s position under the rules of the adversary system in an effort to maximize the client’s recovery. In personal injury cases, medical bills are one element of damages for which the law provides compensation. The amount of the client’s medical bill is important in evaluating the level of compensation sought through litigation or settlement. While pursuing compensation for the injured client or after recovery has taken place, the lawyer, in order to maximize the client’s recovery, may be required to perform the function of negotiator with the health care provider or an insurer having subrogation relations with the client. The Preamble further recognizes that as a negotiator the lawyer seeks a result advantageous to the client but consistent with requirements of honest dealings with others.
These various functions of the lawyer provide the basis for the lawyer earning a fee. Rule 1.5 of the Maryland Rules of Professional Conduct sets forth various ethical consideration for lawyer’s fees. The primary dictate is that a lawyer’s fee shall be reasonable. One of the factors listed in determining the reasonableness of a fee at 1. 5(a)(3) is “the fee customarily charged in the locality for similar legal services.”
In the opinion of the Committee, absent extraordinary circumstances involving the client’s relation to the health care providers or insurer subrogee, an initial contingency retainer agreement for personal injury representation which includes an additional separate contingency fee of one-half (1/2) the reductions of client’s obligations to a health care provider or an insurer subrogee is unethical for the following reasons:
1. Assuming a contingency fee basis of a percentage of total recovery, the additional separate contingency fee would amount to collecting two (2) fees from the same subject matter;
2. The function of negotiating with health care providers or insurer subrogee is necessary to delivering competent legal service for the case for which the lawyer already has an agreement for fees. This view is implicit in Attorney Grievance Committee of Maryland v. Harlan, 320 Md 571, 578 A. 2d 1196 (1990) where the Court stated that the savings negotiated on behalf of the injured client with a medical service provider or a subrogee is the client’s money;
3. Charging a separate contingency fee for reductions through negotiations on behalf of the client with health care providers or insurer subrogee is not customary practice in personal injury representation and, therefore, under Rule 1. 5(a)(3) may not be reasonable; and
4. This Committee, in Docket 92-31 and Docket 76-1, stated that contingency fee arrangements were an improper measure of legal compensation in collecting personal injury protection funds for personal injury clients because of the lack of risk and lack of uncertainty in obtaining these benefits for clients in these relatively routine situations. Similarly, effective October 1, 1999, Section 11-112 of the Courts and Judicial Proceedings Article of the Maryland Annotated Code speaks to reductions, under certain circumstances, of the amount payable in subrogation claims to the payor for health care benefits or services paid on behalf of the injured person. The reduction by statute, is directly related to attorney fees incurred by the injured person in obtaining recovery. Therefore, contingency fees where this statute effects the reduction could be an improper measure of legal fees.
This opinion, 01-01 makes references to opinions 92-31 and 76-01.
OTHER REFERENCES: Maryland Rules of Professional Conduct, Rules 1.1, 1.4(b), 1.5, 1.5 (a)(3)
CASE LAW: Attorney Grievance Committee of Maryland v. Harlan, 320 Md. 571, 578
STATUTE: Section 11-112, Courts and Judicial Proceedings Article, Maryland Annotated Code A.2d 1196 (1990)