CI-1097
July 8, 1985
SYLLABUS
A lawyer may not advance the fee of Canadian counsel, deduct the sum advanced from the gross proceeds recovered as an expense of litigation, and collect one-third of the net proceeds pursuant to a contingent fee agreement with the client.
References: MCPR DR 2-106(A), DR 2-107(A)(2), DR 2-107(A)(3), DR 5-103(B); Op 66, Op-198; CI-148, CI-227, CI-566, CI-647, CI-835, CI-938; MCR 8.121.
TEXT
A lawyer entered into a one-third contingent fee agreement with a client who was injured in an automobile accident in Toronto, Ontario, Canada. When negotiations with the potential defendant failed, the matter was referred to a lawyer in Toronto. The Canadian lawyer requires a $2,000.00 retainer and anticipates the total fee will be $5,000.00. The client lacks the funds and Canada does not permit contingent fee agreements. Consequently, the inquirer contemplates advancing the necessary fee, deducting it as a cost of litigation and enforcing the contingent fee agreement against the net proceeds recovered. The inquirer's role will be to assist the Canadian lawyer in gathering documents and information from the client.
The conditions under which a lawyer may advance financial assistance to a client are limited. MCPR DR 5-103(B) states:
"While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to his client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses."
Presuming that the Canadian lawyer's fee could be classified as an expense of litigation, nothing in the facts presented indicates the client's ability, willingness or agreement to remain ultimately liable for that expenditure in the event the case is unsuccessful. Without that condition being met, any advance is prohibited. Op 66, CI-148, CI-566.
Second, the Canadian lawyer's fee cannot be considered as an expense of litigation. The Rule enumerates the categories which define the phrase. Nothing in the language of the Rule or the Opinions of this Committee suggests that the definition could be extended to include a lawyer's fee. The Rule is deliberately restrictive and generally understood to encompass those items which fall naturally within the enumerated categories. See, Op 198.
The facts contemplates either referring the case to Canadian counsel or engaging Canadian counsel to act in the inquirer's stead, while the inquirer retains the maximum percentage allowed under a contingent fee agreement in Michigan. Each option is subject to the stricture of MCPR DR 2-107(A)(2), that the fee be divided between counsel in proportion to the services performed and the responsibilities assumed. ABA Op 204, ABA Op 265; CI-227, CI-835.
The inquirer proposes to gather information and documents from the client on behalf of Canadian counsel, suggesting that the Canadian lawyer would have primary responsibility for the case while the inquirer assists. Although the Committee cannot measure the services provided or the responsibilities assumed by each lawyer, the inquirer's proposed claim to one-third of the net proceeds against a flat fee of $5,000.00 to be paid the principal lawyer raises the possibility of a disproportionate division of fees.
If any recovery would be made in Ontario, arguably MCR 8.121 would not apply. CI-938. However, a Michigan lawyer entering into a contingent fee agreement in this state cannot ignore the affect the agreement would have on the limitation imposed by the court rule, or the fact that the total fee paid counsel cannot exceed reasonable compensation for all the legal services rendered. DR 2-106(A), DR 2-107(A)(3).
The proposal reserves to the inquirer the maximum recovery allowed a Michigan lawyer under a contingent fee agreement while permitting the inquirer to underwrite the additional fee paid Canadian counsel. Since the source of payment is the fund recovered, the percentage applied to the net proceeds is necessarily expanded to cover both fees. This distorts the stated one-third percentage and could result in fee sharing which is excessive for the combined representation of the client. Labeling the Canadian lawyer's fee as an expense of litigation does not alter the fact that fees are being stacked. Michigan counsel cannot ethically stack contingent fees which would total in excess of MCR 8.121. CI-647. Logically, one lawyer may not achieve the same result by prepayment.
A lawyer may not ethically advance the Canadian lawyer's fee, deduct the sum as a cost of litigation, and collect one-third of the net proceeds pursuant to a contingent fee agreement.