MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2002-28
Reasonable fee for processing PIP flat origination fee in conjunction with a contingent fee
You present the following fact pattern: You enter into contingent fee arrangements with your clients. Included in the letter of representation is a "reasonable" fee for processing PIP. The agreement also authorizes the firm to advance expenses when necessary and the client is required to fully reimburse the firm.
Before turning to your inquiry concerning a "flat origination fee," we turn first to your comment that your letter of representation includes a "reasonable" fee for processing PIP. Reference is made to Ethics Docket 76-1, 77-4 and 92-31. In sum, these opinions suggest that in routine undisputed PIP claims, service to collect these fees should be done gratis as an accommodation to the client or should be subject to nothing more than a nominal charge. In a case where there is a genuine dispute to the scope of coverage or the carrier's approval, a reasonable fee is permissible based on the factor set forth in Rule 1.5.
You ask whether, in addition to the two arrangements set out in your letter of representation, the firm may also institute a "flat origination fee." The purpose of this fee is to reimburse the firm for costs such as postage, telephone service, stationary, etc. You also note that in the event there is no recovery, none of the above expenses are applicable or billed.
You then summarize the questions in the following manner:
- "Is seeking a set fee for such costs of business impermissible in a contingent fee agreement, as those figures were presumably built into the percentage charged?
- Is it permissible to charge each client a flat fee for expenses that are not itemized (like those described above)?
- Would it be acceptable to insert a specific provision in the agreement which authorizes the firm to charge a set fee for such expenses?
- Must such provisions spell out the actual amount charged?"
Rule 1.5(c), of the Rules of Professional Conduct holds:
A fee may be contingent on the outcome of the matter for which the service is rendered… The terms of a contingent fee agreement shall be communicated to the client in writing. The communication shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter, and, if there is a recovery, showing the remittance to the client and the method of its determination.
Your inquiries under questions (1), (2) and (3) ask basically the same question. While Rule 1.8(e)(I), authorizes a lawyer to advance court costs and expenses of litigation, and further authorizes the prepayment of these expenses contingent on the outcome of the case, a lawyer may not charge a client for overhead expenses generally associated with properly maintaining staffing and equipping an office. Items such as copying, long distance telephone calls, computer research, special deliveries, and other similar services may be charged to the client so long as the charge reasonably reflects the lawyer's actual cost. The lawyer may not charge a client more than the expense incurred for services provided by third parties, for example, court reporters, unless the lawyer incurs expenses in addition to the direct cost of the third party's services. (See for example ABA Formal Opinion 93-79.)
As noted above, Rule 1.5(c) requires an itemization of all expenses, so, therefore, flat fees and/or set fees may not be included in an engagement letter.
The answer to the first three questions answers the fourth, that is to say, any fee charged to a client must be itemized.