June 22, 1981
A Michigan lawyer representing a client in a personal injury action referred by an out of state lawyer may not enter into an agreement for, charge or collect a fee in excess of the percentages permitted by GCR 928.2 even though the client entered into a contingency fee agreement in a foreign jurisdiction which allows larger contingency fee contracts, however, it would not be unethical for the Michigan attorney to accept that portion of the total fee in excess of the percentage specified in the Court Rule on the condition that the Michigan attorney remitted to the client the difference between what he/she receives and what he/she would be entitled to receive had the total amount of the fee been governed by the Michigan General Court Rule.
A Michigan lawyer handling a referral personal injury action in the Michigan State Courts may not collect a gross fee in excess of the percentages allowed by GCR 928.2 even under circumstances where the non-resident client entered into a contingency fee contract with an out of state lawyer licensed in a jurisdiction that permits larger contingency fee agreements.
References: DR 2-106(A).
Attorney "X" contracts to represent a client in a personal injury action pursuant to a standard Michigan contingent fee agreement. Thereafter, attorney "X" discovers that Illinois attorney "Y" has successfully represented other plaintiffs in the State of Illinois in various similar cases against the proposed defendant, an Illinois corporation. Past recoveries have frequently exceeded one million dollars. Attorney "X" contacts attorney "Y" who is willing to represent the client in the state of Illinois on condition that the client agrees to retain attorney "Y" and execute a standard Illinois contingent fee agreement which provides for an attorney fee of on-third of the gross recovery. After discussion, the client consents to the referral to attorney "Y" and attorney "X" agrees to assist attorney "Y" with the local aspects of the case and to further participate in the conduct of the trial, if necessary, in the state of Illinois. Attorney "Y" is prepared to pay attorney "X" fifty percent of any fee attorney "Y" receives. Given this state of facts, you inquiry if attorney "X" may accept that portion of the fee which would exceed the permitted contingency fee percentages allowable under GCR 1963, 928.
A Michigan resident sustains personal injuries during an assault that occurs in Michigan. The victim subsequently moves to California where the victim retains an attorney to represent him in a case against his assailants - Michigan residents. The client enters into a contingent fee agreement with the California attorney providing for forty percent of the gross recovery. The California attorney has requested that you file a lawsuit in Michigan on behalf of the client. The California attorney has also offered to evenly divide the forty percent contingent fee with you and wish to know if this arrangement is acceptable taking into consideration the Code of Professional Responsibility and GCR 928.
Reduced to the most basic facts, case number one involves a Michigan resident who has entered into an Illinois fee agreement for a case to be tried in Illinois, whereas case two involves a California resident who has entered into a California fee agreement for a case to be tried in Michigan.
At the outset of this opinion we must advise you that the Committee has no authority to answer questions of law involving the interpretation of a Michigan General court Rule. This Committee will attempt to provide you with guidance within the framework of the Code of Professional Responsibility.
Canon 7 if the Code tells us that a lawyer should represent a client within the bounds of the law and DR 7-102(A)(8) prohibits a lawyer from knowingly engaging in "conduct contrary to a Disciplinary Rule."
On the subject of division of fees among lawyers, Michigan Code of Professional Responsibility prescribes specific limitations on fee splitting between lawyers who are not partners or associates of a law firm or law office. The relevant disciplinary rule is DR 2-107 that states:
"A A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of the lawyer's firm or law office, unless:
"(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made.
"(2) The division is made in proportion to the services performed and responsibility assumed by each.
"(3) The total fee of the lawyers does not clearly exceed reasonable compensation for all legal services they rendered the client."
This Disciplinary Rule would prevent you from accepting any fee without the client's consent to your employment after a full disclosure that a division of fees will be made between you and the out of state attorney. Furthermore, you have an ethical responsibility to see to it that any division of fees is done in proportion to the to the services performed and the responsibility assumed by each of the lawyers in both of the fact situations presented. Lastly, the total fee shared by the attorneys cannot exceed reasonable compensation for all legal services rendered the client.
The Code of Profession Responsibility places further restrictions upon the Michigan lawyer. DR 2-106(A) states:
"(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee."
Michigan General Court Rule 928.1 states as follows:
"In any claim or action for personal injury or wrongful death based upon the alleged conduct of another, in which an attorney enters into an agreement, express or implied, whereby his or her compensation is dependent or contingent in whole or in part upon the amount of recovery, the receipt, retention, or sharing by such attorney, pursuant to agreement or otherwise, of compensation which is equal to or less than the fees scheduled in subrule 928.2 is deemed to be fair and reasonable. The receipt, retention, or sharing of compensation which is in excess of such scheduled fees shall be deemed to be the charging of a 'clearly excessive fee' in violation of Canon 2, DR 2-106(A) of the Code of Professional Responsibility and Canons." Emphasis added.
Michigan General Court Rule 928.2 then sets forth a schedule of what the Michigan Supreme Court deems reasonable fees for representation in any claim or action for personal injury as follows:
"The following is the schedule of reasonable fees referred to in subrule 928.1:
"(1) Not to exceed 40% of the first $5,000.00 recovered,
Not to exceed 35% on the next $20,000.00 recovered,
Not to exceed 25% on the next $250,000.00 recovered,
Not to exceed 20% on the next $250,000.00 recovered,
And not to exceed 10% on any amount recovered over $5,000,000.00.
"(2) Alternatively, the attorney and client may agree to a contingent fee of one-third of the entire recovery that does not exceed $250,000.00 and 20% of the next $250,000.00 and not to exceed 10% of any amount recovered over $500,000.00."
You should also be aware that MGCR 928.3 explains how the attorney is to calculate the percentage referred to in subrule 928.2. This rule states:
".3 The percentages referred to in subrule 928.2 shall be computed on the net sum recovered after deducting from the amount recovered all disbursements properly chargeable to the enforcement of the claim or prosecution of the action. In computing the fee, the costs as taxed and any interest included in or upon the amount of a judgment, shall be deemed part of the amount recovered."
When considering the two fact situations presented it is important to understand that all attorneys licensed in this state are members of the Sate Bar or Michigan and subject to the rules and regulations prescribed by the Michigan Supreme court. See MCLA 600.904; MSA 278.901 and MCLA 600.904; MSA 27A.904. All attorneys practicing law in this state (including a non-resident attorney not licensed in this state who has been granted permission to practice in this state) must adhere to the Code of Professional Responsibility. See People v Bruinsma, 34 Mich App 167, 191 NW2d 108 (1971). The Michigan Supreme Court adopted the Code of Professional Responsibility on October 4, 1971. The Code's primary goal is for the benefit and protection of the public. DR 2-107 governing the division of fees between lawyers was formulated to prohibit brokering, to protect clients from clandestine employment of outside counsel and to prevent aggrandizement of fees. See Krajewski v Klawon, 84 Mich App 532, 270 NW2d 9 (1978). Application of the legislative enactment's and the rules and regulations adopted by the Michigan Supreme Court governing the practice of law, by Michigan attorneys, support the following conclusions with respect to your inquiry.
Assuming the one-third contingency fee agreement on recoveries in excess of $5000,000.00 was entered into in the state of Illinois and there is no substantive or procedural law impediment to such an agreement between an Illinois lawyer and a Michigan client, this Committee is of the opinion that your participation in the division of fees, with the Illinois lawyer, is governed by GCR 928 and DR 2-106(A) and DR 2-107(A)(1)-(3). Compensation in excess of the percentages allowed by GCR 928.2 are deemed to be the charging of a clearly excessive fee, in violation of DR 2-106(A). Accordingly, your "receipt, retention or sharing of compensation" in excess of the scheduled fees is a violation of Canon 2, DR 2-106(A) of the Code of Professional Responsibility. A Michigan lawyer cannot enter into an agreement for, charge, or collect an illegal or "clearly excessive fee" under any circumstances.
Having entered into an improper agreement on dividing fees, it is appropriate to comment upon the Michigan lawyer's ethical responsibility to the client. Assuming that the percentage division of the fee between the Michigan lawyer and the out of state lawyer is reasonable, the Committee is of the opinion that the Michigan attorney may collect the agreed upon percentage of the total fee from the Illinois attorney on the condition that the Michigan attorney remit to the client the difference between what the Michigan attorney actually receives and what the lawyer would be entitled to receive had the fees been governed by GCR 928. The Illinois attorney should not benefit at the expense of the client. The purpose of the Court Rule is to benefit and protect clients. By turning over the excessive portion of the fee to the client, the Michigan lawyer would in effect fulfill the purpose of the rule.
Once again assuming that the contingent fee agreement between the California attorney and the California resident, with respect to a personal injury action to be tried by a Michigan attorney in the state of Michigan, is in fact a valid California contract, your professional conduct is regulated by the Michigan Code of Professional Responsibility and you may not 'collect' a fee in excess of the allowable amount prescribed by GCR 928.2. GCR and DR 2-106(A) would be determinative of the total amount of the fee and you should so advise the California attorney. In this case, your inquiry does not indicate the extent to which the California attorney will participate in the handling of the case in Michigan. You are caution that any division of fees under DR 2-107(A) can only be made in proportion to the service performed and the responsibility assumed by each attorney. ABA Informal Opinion 1392 held that if fees were to be divided solely for referral, no division was permitted at all.