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Ethics Opinion

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THIS OPINION IS LIMITED BY RI-350

RI-342

June 8, 2007

SYLLABUS

    When a lawyer undertakes representation at the request of a fiduciary in a situation involving an estate, trust, conservatorship or guardianship, his or her client is the fiduciary, not a fictional entity to which the fiduciary owes its duties. To the extent that RI-304 contradicts this proposition, it is amended to reflect that the prior authorities have uniformly held that for purposes of defining a lawyer's ethical duties, the client in these cases is the fiduciary.

    References: RI-304; R-10; RI-213; MCL 700.484; MCL 700.5423; Steinway v. Bolden; 185 Mich App 234, 460 NW2d 306 (1990); Reconstruction Finance Corp v. Lee, 290 Mich 328, 287 NW 757 (1939)

    THIS OPINION MODIFIES PRIOR OPINION RI-304

TEXT

The Committee has been asked to reconsider informal Opinion RI-304. The person making the request asserts that RI-304 is in conflict with the Committee's formal opinion in R-10 and informal opinion in RI-213. Further, the person believes that in one aspect a proposition of professional ethics contained in RI-304 is faulty and results from a misapplication of substantive law contained in Steinway v. Bolden, 185 Mich App 234 (1990).

In order to evaluate the concerns raised by the inquirer, it is necessary to review the particulars of each of the recited authorities that are claimed to create the conflict. RI-304 was an inquiry as to the ethical propriety of conduct framed in this fashion:

    Whether "a lawyer may enter into a 'one-third' contingent fee agreement on behalf of a fiduciary for a legally incapacitated person, regarding a dispute concerning insurance benefits for payments to a health care provider or facility . . . ."

The analysis assumed, although the facts did not explicitly state, that the fiduciary in question was a conservator appointed under the provisions of the probate code then in effect. A fair reading of the inquiry seems to be that the lawyer was concerned because in addition to entering into a "one-third" contingent fee contract with the fiduciary in proceeding against the health care insurer for unpaid past expenses that it was perceived the insurer should have provided for the legally incapacitated person, there was also an agreement with the health care facility that the lawyer would also receive one-third of the future benefits paid if the proceeding was successful. This payment would be made to the lawyer by the health care facility reducing its charges by one-third for the services provided to the legally incapacitated person. This was presumably to induce the lawyer to pursue the case for the past and future benefits claimed. In RI-304, the Committee concluded that such a contingent fee contract between the lawyer and fiduciary was permissible so long as it was entered in compliance with the other rules governing contingent fee agreements. The Committee also opined that the contractual agreement by the health care facility to reduce the charges to the legally incapacitated person by one-third and pay that sum to the lawyer did not elevate the facility to client status, creating a conflict of interest requiring waiver from both the fiduciary and the facility.

The Committee began the analysis in RI-304 by seeking to answer the question: "Who is the client?" The Committee opined that the client was an "entity" - the conservatorship - relying on Steinway v. Bolden, 185 Mich App 234 (1990).[1] In doing so, the Committee analytically conflated guardianships, conservatorships, estates or trusts as "entities" that would be the client of a lawyer when the fiduciary (guardian, conservator, personal representative or trustee) of the "entity" retained the services of the lawyer. The Committee did this while acknowledging that under Michigan law, a conservator has the power, without court authorization or confirmation, to employ a lawyer.[2] Based on Steinway, however, the Committee concluded that the lawyer represented the entity, not the conservator, and the lawyer's ethical obligations flowed to the entity directly, and not derivatively through the entity's fiduciary representative.

There are a number of problems with this analysis on the face of it. First, a fiduciary has legally defined obligations to the cestui que trust, and those obligations are not interchangeable between the various forms of fiduciary relationships created in the law. For example, the personal representative of an estate has fiduciary obligations not only to beneficiaries, but also to creditors and others, and in a similar fashion the trustee of a trust has fiduciary obligations to beneficiaries, not "the trust".[3] In a guardianship or conservatorship setting, however, a fiduciary's obligation is to the person to be protected, as is the agent to the principal in a durable power of attorney situation. It is submitted that there is a distinction in the kind and nature of fiduciary obligations that one has to a defined individual as opposed to the interests of a group of people who are entitled to certain derivative rights. Further, constructing the lawyer's ethical obligation to run to an amorphous entity, rather than to the fiduciary that has retained the lawyer, could place the lawyer in a position of conflict with the fiduciary in guardianship and conservatorship cases. It is easily possible to consider situations where the fiduciary would believe that a certain course of action would be advantageous for the ward or protected person, but the lawyer might disagree that the proposal was the best course of action. The fiduciary, for whom the care and protection of the ward is the primary obligation, could then be in conflict with the lawyer who he or she has hired to pursue what the fiduciary determined to be the best course of action for the ward.[4] In sum, the "entity" analysis in RI-304 is not at all satisfactory in guardianship and conservatorship cases.

More than that, this analysis is contradicted by prior opinions of this Committee in R-10 and RI-213, both of which more directly considered the question of who the lawyer represents in cases where the lawyer is retained by a fiduciary. In both of those opinions, the Committee concluded that the fiduciary is properly to be considered the client. It is unnecessary to repeat those analyses in this opinion as those works speak for themselves, but it is noteworthy that neither was considered or distinguished in RI-304. R-10 did, however, cite and acknowledge Steinway v. Bolden, while distinguishing that case in an intellectually honest manner.

Finally, the conclusion that the lawyer represents the conservatorship "entity" is unnecessary for the result reached in RI-304. It is respectfully submitted that the Committee's result would be exactly the same if the Committee had determined that the client was the fiduciary. In an over-simplified fashion, the analysis in RI-304 would then run something like the following:

  1. A Conservator may hire a lawyer on a one-third contingent fee agreement to represent the conservator in pursuit of the conservator's duty to protect the interests of the incapacitated person.
  2. Such an agreement would need to be in writing and comply with the other provisions governing contingent fee agreements.
  3. The contingent fee agreement between the lawyer and the conservator could provide that the lawyer would seek relief against the ward's health care insurer not only for past expenses, but also for future expenses that the conservator believed necessary to properly care for the ward.
  4. The lawyer, on behalf of his client, the conservator, could enter into a contract with the health care facility, the terms of which would provide that the health care facility would waive one-third of the cost to provide the full level of care for the protected person, both past and future, and those sums would be paid over to the lawyer from the amounts collected from the insurer. The health care facility would not, by reason of that contract, be a client of the lawyer.
  5. There would be no conflict of interest in this situation because the conservator would be the lawyer's client to the exclusion of the protected person or the health care facility, and no waiver of a conflict of interest would be necessary, as no such conflict would exist.

Thus, the result in RI-304 would not be impacted by the determination that the Conservator was the client and the opinion would be consistent with the other opinions of the Committee, and the majority of substantive law opinions that have examined this issue.

SUMMARY

The Committee believes that the request to reconsider RI-304 is well-founded. That opinion is modified as reflected in this opinion, and to the extent that it holds that a lawyer retained by a fiduciary represents the "entity" which underlies the fiduciary appointment, is rejected. The client of a lawyer retained by a fiduciary is the fiduciary.


[1] Steinway v. Bolden involved a decedent's estate, misconduct by the personal representative of that estate, and an attempt to impose liability on the lawyer who had filed the petition to appoint the personal representative. To allow the successor personal representative to proceed against the lawyer for the losses occasioned by the personal representative's misconduct, the court perceived that it needed to find an attorney-client relationship between the estate and the lawyer, to the exclusion of an attorney-client relationship between the lawyer and the personal representative.

[2]MCL 700.484 in the Revised Probate Code; see now MCL 700.5423(2)(z) in the Estates and Protected Individuals Code. Arguably the language of the newer statute ("Employ an attorney to perform necessary legal services or to advise or assist the conservator in the performance of the conservator's administrative duties") even more strongly implies that the lawyer represents the conservator.

[3] Reconstruction Finance Corp v. Lee, 290 Mich 328, 287 NW 757 (1939)

[4]This point - the potential for conflict between the judgment of the fiduciary and the lawyer as to a course of action for the benefit of the ward - is discussed in both R-10 and RI-213, and is, in fact, central to the conclusion reached in RI-213.

 
     

 

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