May 11, 1998
A lawyer is not ethically prohibited from re-negotiating a contingency fee agreement with a client.
A lawyer may accept assignment of the proceeds of another action as a charging lien for the lawyer's fees, if the client is fully informed and agrees in writing, but may not require such an assignment.
References: MRPC 1.2(a), 1.5(a) and (c), 1.8(a).
A lawyer represents a Canadian couple under a standard one-third contingency fee agreement in a lawsuit for personal injuries caused by an automobile accident in Michigan with a Michigan driver. The clients initially declined to retain the lawyer on an hourly basis. During discovery, it was determined that the Michigan driver had an auto insurance policy with $20,000/$40,000 limits. The clients also retained a Canadian lawyer to sue their own insurance carrier, a Canadian based company, for their no-fault benefits and a claim of underinsurance based upon the liability limits of the Michigan driver.
At the end of discovery, a settlement was reached with the Michigan driver's insurance company which the clients accepted as it appeared the Michigan driver had no substantial assets and was otherwise un-collectable. Prior to signing the release and dismissal, the lawyer was advised by the client's Canadian lawyer that the settlement could not be accepted as the clients were suing their own insurance company and that company refused to waive its subrogation rights against the Michigan driver. A release would apparently defeat the Canadian insurance company's right of subrogation. The Canadian company wants the case to proceed to trial and judgment, if any.
The lawyer asks if the contingency fee agreement can be ethically re-negotiated to an hourly fee agreement as it was not known at the time the fee agreement was entered into that the case would have to proceed to trial. The lawyer also asks whether the clients may assign a lien against their Canadian litigation to assure payment of the fees the lawyer would have received through the negotiated settlement.
Whether the Canadian insurance company can control the Michigan litigation is a question of law which is beyond the scope of this opinion.
MRPC 1.2(a) states in part:
"(a) A lawyer shall seek the lawful objectives of a client through reasonably available means permitted by law and these rules . . . . A lawyer shall abide by a client's decision whether to accept an offer of settlement or mediation evaluation in a matter . . . ."
MRPC 1.5, which governs fees, sets forth in subparagraph (a) the factors which must be considered in determining the reasonableness of a fee. Subparagraph (b) requires the fee to be communicated to the client, preferably in writing. Subparagraph (c) allows contingent fees under written fee agreements unless otherwise prohibited.
In RI-6, a fee agreement which mixes a contingency fee and an hourly rate whichever was greater was allowed if:
(1) the resulting fee was reasonable,
(2) the fee agreement is in writing,
(3) the client was kept advised of the hourly rate as the matter progressed,
(4) the percentage calculation was at a rate lower than maximum rate, since the lawyer had risked no fee, and
(5) the hourly rate was lower than that normally charged.
In a personal injury or wrongful death case the contingency fee agreement is also subject to MCR 8.121 and the total fee cannot exceed one-third of the net recovery. RI-6 states: ". . . the philosophy behind allowing a percentage fee which usually results in higher recovery for the lawyer is that the lawyer is willing to risk getting nothing if the lawyer is unsuccessful."
The inquiring lawyer ran the risk of possibly having to proceed to trial before the lawyer accepted representation of the clients under the contingency fee agreement.
Nothing in MRPC 1.8(a), however, prohibits a lawyer from renegotiating a contingency fee agreement. MRPC 1.8(a) states:
"(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
"(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;
"(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
"(3) the client consents in writing thereto."
The lawyer bears the burden of demonstrating that the renegotiated contingency fee agreement meets the requirements set forth above. This is particularly important, where as hear, the clients were offered and previously rejected an hourly fee arrangement.
Whether the clients can assign a lien against their Canadian litigation to pay the lawyer the fees that would have been produced by the settlement is also governed by MRPC 1.8. The lawyer may accept assignment of the proceeds of the Canadian litigation if the above conditions are met, but may not require it.