CI-647

June 10, 1981

SYLLABUS

Attorney fees on a contingent basis that are to be charged a client for a recovery in a personal injury action are governed by the limitations of Michigan Court Rule 928.1 and any proposed fee in excess of that permitted by the court rule is excessive and in violation of DR 2-106(A).

Multiple attorneys may not stack contingent fees that would total in excess of that permitted by MGCR 928.1 for a single recovery.

A full disclosure of contingent attorney's fees to be charged a client is required and contingent fee contracts must be in writing with a copy provided the client.

References: DR 2-106(A), DR-107, DR 5-107; GCR 9281.

TEXT

The factual situation portrayed arises under the following facts:

"A law firm has a retainer agreement with a personal injury client for the payment of a fee of either twenty five percent or one third of any recovery made. The law firm successfully obtains a judgment against a defendant, but the defendant does not have insurance, and the defendant does not appear to be collectable. The law firm does not do any collection work, but instead, refers the matter to an attorney who specializes in collections. When the attorney who handles the collection of the judgment obtains some satisfaction of that judgment, the attorney charges to the original attorney, a fee of twenty five percent of the recovery."

The question of the inquiry is whether or not the original attorney may deduct from monies recovered by the original collection attorney, its fee plus the twenty-five percent charged by the collection attorney. The answer is requested to cover two circumstances:

1. One circumstance would be where the attorney informs the client that it is necessary to obtain a collection lawyer, and the client agrees to pay the original fee, plus the actual legal fees for collection;
2. The second situation would be where the attorney does not inform the client of the necessity of employing a collection attorney, but, simply deducts from monies recovered, the costs of collection, plus the fees of the original attorney.

GCR 928.1 states:

"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 successful prosecution or settlement or 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 Canon2, DR 2-106(A) of the Code of Professional Responsibility and Canons."

GCR 928.1 sets forth the fee schedule of reasonable fees set forth in 928.1 and the maximum percent allowable on any amount is not to exceed 40% of the first $5,000.00 recovered. The percentages then decrease as the amount of recovery increases up to "not to exceed 10% of any amount recovered over $500,000.00."

GCR 928.6 requires all contingent fee agreements to be reduced to writing with a copy provided the client.

DR 2-106(A) states:

"A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee."

DR 2-107(A0(1) and (3) states:

"A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of his or law firm or law office, unless:

"(1) The Client consents to employment of the other lawyer after a full disclosure that a division of gees will be made.

"(3) The total fee of the lawyers does not clearly exceed reasonable compensation for all legal services they rendered the client."

DR 5-107(A)(1) states:

"Except with the consent of his or her client after full disclosure, a lawyer shall not:

"(1) Accept compensation for his or her legal services from one other than his or her client."

Under the factual situation presented, the amount of the judgment is not revealed so that it is not possible to ascertain in accord with GCR 928.2 what fee is reasonable. However, it is clear that anything exceeding 40% total fee for a combined representation would be clearly excessive in consideration of DR 2-106(A) and DR 2-107. Dependent upon the amount of the recovery, a lesser fee may be excessive.

DR 2-107 makes full disclosure mandatory as does DR 5-107(A) where the compensation that one of the attorneys receives is not received directly from the client but is paid by another attorney.

Under the situations posed by the inquiry the contemplated charges would be prohibited as excessive and the proposed non-disclosure is offensive and improper.