C-238

May 9, 1986

SYLLABUS

Although a lawyer may advance the costs of litigation on behalf of a client, the client must remain ultimately responsible for the payment of such costs. As a result, an advertisement which communicates that there will be no "fee" unless there is a recovery is misleading in the absence of an additional disclosure that the client would still be responsible for "costs," in light of the close association between the terms "fees" and "costs" in ordinary usage.

References: MCPR DR 5-103(B); C-236; Op 66, Op 197; Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 US 626 (1985); Supreme Court Administrative Order 1978-4.

TEXT

A lawyer asks whether it is proper to circulate an advertisement which states a client will not be charged a fee unless there is a recovery.

In Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 US 626; 85 L Ed 2d 652 (1985), a lawyer was disciplined as a result, inter alia, of an advertisement providing, "If there is no recovery, no legal fees are owed by our clients." One of the issues before the court in Zauderer was whether the imposition of disciplinary sanctions was constitutionally permissible under an Ohio disciplinary rule prohibiting deceptive advertising, in the absence of an additional disclosure that the clients would remain responsible for the costs (as opposed to fees) of the litigation. The issue decided in Zauderer was whether the disciplinary rule, as interpreted and applied by the Supreme Court of Ohio, unconstitutionally infringed on the lawyer's rights of commercial speech. The court was not faced with the question of interpreting Ohio's disciplinary rules, but with the question of whether the interpretation applied in Zauderer passed constitutional muster. While the court ruled that it did, Michigan is not thus bound to apply the same interpretation to its rules.

The Ohio disciplinary rule at issue in Zauderer, which prohibited public communication "containing a false, fraudulent, misleading, deceptive, self-laudatory or unfair statement or claim," has no direct counterpart in our own disciplinary rules. Supreme Court Administrative Order 1978-4, however, permits public communication "that is not false, fraudulent, misleading, or deceptive." Ethics provision which conflict with the Administrative Order have been superseded.

The basic principles are well established. Advertising by lawyers falls within the realm of protected commercial speech, subject to the extent statements made are false, misleading or deceptive. Such advertising can include information as to fees, and pursuant to contingent fee arrangements, it is possible that a client might retain a lawyer to pursue a case, and owe no fees if the case is ultimately unsuccessful. In this scheme of things, however, a lawyer's fees are distinguished from the costs of litigation, and while a lawyer may advance costs on behalf of a client, the client must ultimately remain liable for payment of the costs. MCPR DR 5-103(B), Op 66 and Op 197.

Is an advertisement which truthfully proclaims that there will be "no fee unless recovery" false, deceptive or misleading because it omits disclosure of the fact that the client must still be responsible for potentially substantial costs even in the event that the litigation is unsuccessful? We are not unmindful of the fact that the bulk of current advertising does not include this additional disclosure. Such advertisements do communicate the most essential aspect of the contingent fee arrangement, and it will most often be true that the fees of the lawyer would exceed the potential costs. We also believe that, in most cases, a client will be made aware of his or her ultimate responsibility for payment of costs at the time a contingent fee agreement is signed.

At the same time, we are in agreement with Justice White's assessment of the issue of distinguishing "fees" and "costs":

"[T]o a layman not aware of the meaning of these terms of art, the advertisement would suggest that employing appellant would be a no lose proposition in that his representation in a losing case would come entirely free of charge. The assumption that substantial numbers of potential clients would be so misled is hardly a speculative one: it is commonplace that members of the public are often unaware of the technical meanings of such terms as 'fees' and 'costs' -- terms that, in ordinary usage, might well be virtually interchangeable." Zauderer, 85 L Ed 2d, at 673.

While lawyers are familiar with distinctions between "fees" and "costs," we do not assume the general public shares that knowledge. To the lay person considering retention of a lawyer, one of the principal concerns is an evaluation of how much money it will cost. In making this judgment, the public is almost certain to consider the questions of "fees" and "costs" together. In many personal injury cases, where the contingent fee is most likely to be used, the costs incurred by a client may be substantial. The retention of experts, production of medical records and deposition transcripts, and use of treating physicians, to name just a few, are usual costs associated with such a case and can quickly add up to thousands and even tens of thousands of dollars.

Based on the close association in ordinary usage of the otherwise distinct terms "fees" and "costs," we are of the opinion that the standards governing advertising by lawyers requires that an advertisement of a contingent fee arrangement with words such as "no fee if no recovery," or similar language, must in some manner indicate the potential client's liability for the costs of litigation even in the event there is no recovery, in order to prevent the advertisement from being misleading. We do not believe that advertisements which currently omit this disclosure are false, or even necessarily deceptive (at least intentionally so), but they are misleading to the extent they suggest a client can walk away without owing anything in the event of a lost case.

Certainly, every detail of the relationship between a lawyer and a potential client cannot be spelled out in an advertisement. Nor is there a general requirement that an advertisement say anything at all about fees or costs. Based on the ordinary usage of these terms, however, virtually indistinguishable to most people, we are of the opinion that an advertisement which addresses the benefits of a contingent fee must also, in some way, communicate that costs are not contingent.