RI-373

May 8, 2015

SYLLABUS

Where a lawyer enters into a contingent-fee agreement with a client in a personal injury case—and charges the maximum one-third fee permitted by law—the lawyer may not ethically charge an additional contingent fee for resolving a related medical lien. Resolving a medical lien is part of the same "claim or action" as the underlying personal injury case under MRPC 1.5(c) and MCR 8.121 and is therefore covered by the original contingent fee.

References: MRPC 1.1; MRPC 1.4(b); MRPC 1.5(a), (c), & cmt.; MRPC 1.15(b)(3) & (c); MRPC 7.1(b); MCR 8.121; RI-11; RI-73; RI-114; RI-184; Illinois Opinion 97-08; NYCLA Ethics Opinion 739; Ohio Opinion 2009-9; Reed v. Breton, 279 Mich App 239 (2008); Doucette v. Kwiat, 467 NE2d 1374 (Mass 1984); MCL 400.106(3), (4); 42 USC § 1395y(b)(2)(B)(ii); 42 CFR §§ 411.23, 411.24(g), & 411.37.

TEXT

A lawyer entered into a written contingent-fee agreement with a client in a personal injury case, providing that the lawyer would receive one-third of any net recoveries. During the litigation, the State of Michigan asserted a lien to recoup Medicaid payments that the State had paid toward the client's medical expenses. Those medical expenses—and thus the State's medical lien—resulted from the same injuries at issue in the personal injury case.

When the personal injury case settled, the lawyer took his one-third fee (calculated without deduction of the lien amount). The lawyer then deposited the remaining money into a trust account to be applied to the medical lien. The lawyer disbursed the rest of the money to the client.

The lawyer and the client then entered into a second contingent-fee agreement, in which the lawyer agreed to negotiate a reduction in the medical lien. This second contingent-fee agreement provided that the lawyer would receive one-third of any reduction in the lien amount. Soon after signing the agreement, the lawyer contacted the State of Michigan, which agreed to reduce the medical lien. The lawyer paid the reduced medical lien from the money held in the trust account, disbursed two-thirds of the remaining amount to the client, and deposited the remaining one-third—the lawyer's contingent fee—into an interest-bearing trust

account. The lawyer now asks whether he is ethically permitted to receive that additional one-third fee.

I.

The Michigan Rules of Professional Conduct prohibit a lawyer from charging a "clearly excessive fee." MRPC 1.5(a). The rules further specify that for a contingent-fee agreement "in any claim or action for personal injury," a fee that exceeds "one-third of the amount recovered" is "deemed to be the charging of a 'clearly excessive fee' in violation of MRPC 1.5(a)." MCR 8.121(A)–(C); MRPC 1.5(c) (cross-referencing MCR 8.121).

The lawyer's inquiry here turns on whether resolving the client's medical lien is part of the same "claim or action" as the underlying personal injury case. MCR 8.121(A). If it is, then the lawyer's two contingent fees would violate MCR 8.121, because the lawyer's total fees would exceed one-third of the net settlement amount, as illustrated, by example, in the calculations below:

On the other hand, if resolution of the medical lien is not part of the same "claim or action" as the personal injury case, then the two fees would satisfy MCR 8.121.

II.

The Committee believes that resolving the medical lien is part of the same "claim or action" as the personal injury case, thus prohibiting the lawyer from charging an additional fee to resolve the medical lien. The Committee reaches that conclusion for three reasons.

First, the traditional understanding has been that a lawyer's obligations in a personal injury case include the resolution of any related medical liens. As other jurisdictions have explained, "the resolution of liens on recoveries" has long been "considered a routine part of case management." NYCLA1 Ethics Opinion 739 (July 10, 2008). Resolving medical liens has, therefore, customarily "been included in the legal services performed by a personal injury attorney and covered by the contingency fee." Ohio Opinion 2009-9. For that reason, at least one state ethics body has prohibited the very type of fee arrangement contemplated here, refusing to permit an additional contingent fee to resolve a lien related to the underlying litigation. Illinois Opinion 97-08; see also Doucette v. Kwiat, 467 NE2d 1374, 1376 (Mass 1984) ("In the normal course, in the absence of a special agreement on the point, discharge of unchallenged liens and other such claims against a tort claim is part of the services an attorney would perform in return for his contingent fee.").

Second, because a health insurer typically asserts its medical lien at the outset of any personal injury case, a lawyer cannot effectively represent the client without simultaneously accounting for the lien. As one court has explained, "the better time to discuss settlement of a claim with a lien holder or a subrogated insurer is before rather than after settlement of the tort action, because before settlement the lien holder or subrogated insurer will have to face the possibility of receiving no recovery at all." Doucette, 467 NE2d at 1377 n.5. Contemporaneous negotiations with the lienholder may also benefit the client because the lienholder may be more cooperative—and thus more willing to negotiate—if kept apprised of the personal injury case while the case is ongoing. A lawyer's failure to account for the lien during litigation could therefore result in harm to the client—solely because of the delay in negotiating with the lienholder. Further, if the medical lien is larger than the client's expected recovery from the personal injury case, it is difficult to imagine how a lawyer could ethically agree to go forward with the case without advising the client about the lien or taking the lien into account during litigation. See MRPC 1.1, 1.4(b), 7.1(b).

In many instances, the law requires the lawyer to work with the lienholder while litigating the personal injury case. When the lienholder is Medicaid or Medicare, for example, the lawyer must notify and cooperate with the lienholder so that the lienholder can assert its rights to any recovery. See MCL 400.106(3); 42 CFR § 411.23. The lawyer can be held personally liable for the client's medical expenses if the lawyer fails to ensure that the lien is paid. See MCL 400.106(4); 42 USC § 1395y(b)(2)(B)(ii); 42 CFR § 411.24(g); see also NYCLA Ethics Opinion 739 (July 10, 2008) (noting that the lawyer "faces . . . risks of liability associated with the lien resolution"). The Michigan Rules of Professional Conduct impose a similar obligation, requiring the lawyer to pay a valid third-party claim from the proceeds of a case before disbursing any remaining amounts to the client. MRPC 1.15(b)(3) and (c).

1 New York County Lawyers' Association

Moreover, after the personal injury litigation has concluded, a reduction in the medical lien often occurs automatically—with little additional effort from the lawyer. Medicare, for example, is required by regulation to subtract a patient's "procurement costs" from the medical lien amount where the patient is only able to pay the lien because of a judgment or settlement. 42 CFR § 411.37. It would be odd indeed if a lawyer were permitted to charge an additional fee—and exceed the one-third ceiling in MCR 8.121—for something that happened as a matter of course.

Third, in analogous circumstances, this Committee has construed a "claim or action" under MCR 8.121 to include similarly common or reasonably foreseeable components of the client's case. In RI-114, for instance, we held that a lawyer who was already charging a one-third contingent fee in a wrongful death case could not charge an additional fee for presenting the wrongful death proceeds to the probate court. In RI-184, we held that a lawyer's representation of a bankruptcy debtor under a contingent-fee arrangement encompassed a related adversary proceeding. And in R-11, we held that a lawyer could not charge an additional fee for pursuing an appeal if the lawyer was already charging the maximum one-third contingent fee for the underlying personal injury case. See also Reed v. Breton, 279 Mich App 239, 242–44 (2008) (citing R-11 with approval).

In contrast, we have opined that a lawyer may charge an additional fee where the client has retained the lawyer for a matter that is truly "new and different." RI-73. In RI-73, for example, we explained that the lawyer could ethically charge an additional fee for services such as "financial counseling, tax advice, or estate planning." RI-73. Each of those services, however, differs from a medical lien, because a medical lien integrally affects whether—and to what extent—the client receives any recovery or faces any additional litigation from the personal injury case. As the commentary to MRPC 1.5 explains, a lawyer may not enter into a fee agreement "whose terms might induce the lawyer improperly to curtail services for the client," such as where the agreement limits the lawyer's services "when it is foreseeable that more extensive services probably will be required." MRPC 1.5 cmt. A lawyer's failure to account for a medical lien creates precisely this problem—leaving the client with a foreseeable need for more extensive legal services that are intertwined with the underlying litigation.

In summary, where a lawyer enters into a contingent-fee agreement with a client in a personal injury case—and charges the maximum one-third fee permitted by law—the lawyer may not ethically charge an additional contingent fee for resolving a related medical lien. Resolving a medical lien is part of the same "claim or action" as the underlying personal injury case under MRPC 1.5(c) and MCR 8.121 and is therefore covered by the original contingent fee.