May 11, 1983
The amount of contingent fees chargeable to the client in personal injury actions is limited to a percentage of the entire recovery collected on behalf of the client.
Where one lawsuit is filed on behalf of a single client against two defendants alleging separate causes of action arising out of one tortious act resulting in two recoveries (one from each of the two joint tortfeasors), the maximum contingency fee chargeable to the client must be calculated on the total combined recovery and not separately.
A contingent fee may be calculated on the basis of cash and the present value of an annuity awarded as settlement to plaintiff. The amount of the fee, thus calculated, may be taken from the cash portions of the settlement.
The client must be informed and consent that the lawyer intends to take the entire contingent fee calculated on the present value of the structured settlement out of the cash portion of the settlement award.
References: MCPR DR 2-106; GCR 928.
A lawyer represents a client in a contingent fee matter against two defendants and has obtained a separate recovery for each client. The second recovery, a settlement, provides the client with an annuity of $3,000 per month for life.
- In calculating the contingent fee owed the lawyer, are the recoveries aggregated or figured separately?
- In calculating the contingent fee on the annuity, may the lawyer take the fee out of the cash award, or must the lawyer be paid over the term of the annuity?
In contingent fee cases, court rules have set guidelines and limits on fees which may be charged. Under GCR 928, a lawyer may assess "one-third of the entire recovery that does not exceed $250,000 and 20% of the next $250,000, and not to exceed 10% of any amount recovered over $500,000."
MCPR DR 2-106 provides:
"(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.
"(B) A fee is clearly excessive where, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of a fee include the following:
GCR 928 and MCPR DR 2-106 lead to the conclusion that the fee for the second settlement cannot be calculated without regard to the first settlement. GCR 928 speaks of the "entire recovery." These facts involve one lawsuit against allegedly joint tortfeasors whose single individual act resulted in the injuries sustained by plaintiff. Plaintiff's "entire recovery" for injuries is the total amount which he will receive from both defendants. Calculation of fees without aggregating the two settlements would result in a charge in excess of a reasonable fee.
In answer to the second question, receipt of a lump sum distribution based on the present value of the annuity in lieu of periodic payments appears to be a customary and acceptable practice. The inquirer may, therefore, include the present value of the annuity with the cash amounts of the settlements to calculate the fee and may take the full amount of the fee thus calculated from the cash portions of the settlements. It is important that the client be aware of the method by which a lawyer intends to calculate fees.