Practice Management


Practice Management:

Q&A: Is it proper for counsel to receive a fee for amounts offered to, or received by, the plaintiff/client prior to engaging counsel?

Steve Magas
Columbus, OH

​According to the Ohio Rules of Professional Conduct, “fee” paid to a lawyer has to be “earned” and must be “reasonable.” It may not be “excessive.” The Rules relating to “contingent fee” arrangements inherently require the lawyer to be engaged prior to the occurrence of the “contingency.”

If the lawyer was in no way involved in obtaining the offer —for example, a substantial injury case, small tortfeasor limits, full policy limits offered by the other insurance carrier without a big fight and before attorney is retained —then no, the lawyer cannot receive a “fee” based on the amount offered. The lawyer may be entitled to a fee, however, for important legal services provided after the offer is made or the funds are received by the client. A fee that is based on a percentage of the funds received may be deemed “excessive.”  

Ohio Rules of Professional Conduct: Rule 1.5 

“A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.” 

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by division (d) of this rule or other law. 

(1) Each contingent fee agreement shall be in a writing signed by the client and the lawyer and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial, or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement shall clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. 

(2) If the lawyer becomes entitled to compensation under the contingent fee agreement and the lawyer will be disbursing funds, the lawyer shall prepare a closing statement and shall provide the client with that statement at the time of or prior to the receipt of compensation under the agreement. The closing statement shall specify the manner in which the compensation was determined under the agreement, any costs and expenses deducted by the lawyer from the judgment or settlement involved, and, if applicable, the actual division of the lawyer's fees with a lawyer not in the same firm, as required in division (e)(3) of this rule. The closing statement shall be signed by the client and lawyer. 

How it works 

An example: Before a lawyer is engaged, the victim of a traffic crash obtains an offer of settlement of the full policy limits from the tortfeasor’s [other motorist’s] auto insurance carrier.  However, the claim has a value that far exceeds this offer and the victim has uninsured/underinsured motorist’s coverage available which could pay the remaining value of the claim. In that situation, the offer of policy limits from the tortfeasor’s carrier can create a trap for the victim. If the victim accepts the offer, cashes the settlement check and signs a release the next claim against the UM carrier is likely destroyed.  
If the victim retains a lawyer after receiving the policy limits offer but before signing the release and cashes the check, that lawyer should recognize the trap and understand that the situation requires some additional work. Under the Supreme Court's Republic-Franklin decision, the victim/client must obtain communicate with her/his UM carrier and obtain approval of the settlement from the UM carrier. The UM carrier must either allow its insured to accept the original offer or it must offer the same amount of money to the client. The reason for this is that the victim’s UM carrier has the right to go after the other motorist for any monies it may pay to its insured. If the victim accepts the offer and signs a release the claim is dead and the UM carrier cannot pursue the offending motorist. 
The lawyer would then analyze the situation and undertake efforts to negotiate with the UM carrier and secure either the UM carrier’s “OK” for the client to accept the offer and sign the check and sign a release, or get from the UM carrier a sum equal to the offer.  
In the auto crash case, the lawyer would also want to make sure that the offer of “policy limits” was truly the policy limits – that the driver did not have any other coverage available – that the motorist was not, for example, also covered by a parent’s or employer’s policy. If the initial offer is accepted, and a release is signed, then the case is likely over. 

Bottom line 

The lawyer cannot be paid for not doing anything or paid for “work” the client actually did, and should not be paid on a “contingency fee” basis where the “contingency” has already been accomplished by the client before the lawyer's involvement. If the lawyer did want to be paid for working the case to insure that the UM case was protected—paid something beyond a contingent fee on that recovery—then such should be laid out in writing ahead of time, and understood and agreed to by the client. If this work with the UM carrier is done incorrectly, then the client waives the UM recovery, so it is important work. 
A lawyer who is paid a percentage of money which was really obtained by the client could very well be deemed as receiving an unreasonable fee.