Ethics Opinions

ETHICS OPINION NO. 92
OF THE MISSISSIPPI BAR

RENDERED Friday, March 23, 1984

CONTINGENT FEES- Calculation of fee in structured settlement of personal injury case.

The Ethics Committee of the Mississippi State Bar has been asked to render an opinion on three questions which the requester says often arise when a lawyer has a standard contingent fee contract in a personal injury case and a structured settlement is reached whereby the plaintiff will receive a lump-sum payment plus periodic payments for the remainder of his life.

1. How should the contingent fee be calculated?

The determination as to how a contract should be applied when there is a result that was not provided for in the contract is a legal, not an ethical, subject. However, the Code of Professional Responsibility does contain ethical guidance which should be helpful in preventing problems in this regard.

EC 2-17 explains that a lawyer should not charge more than a reasonable fee. DR 2-106 lists factors to be considered as guides in determining the reasonableness of a fee. EC2-19 states that it is desirable that the lawyer reach a clear agreement with his client as to the basis of the fee as soon as feasible after the lawyer has been employed and points out that it is beneficial for the agreement to be reduced to writing.

In serious personal injury cases in which claims for substantial future damages are being made, structured settlements are becoming more common. Therefore, to prevent misunderstandings with a client, we suggest that in such cases a provision relating to the method of calculating the lawyer's fee in the event of a structured settlement be included in a contingent fee contract. But, if a contingent fee contract does not explain the method of calculating the lawyer's fee under a structured settlement, it is suggested that the lawyer discuss the matter with his client and agree upon the method of calculating a contingent fee in the event of such a settlement as soon as the question of periodic payments becomes involved in settlement negotiations, or as soon as it occurs to the lawyer or client that a structured settlement might be proposed.

EC 2-23 states: "A lawyer should be zealous in his efforts to avoid controversies over fees with clients and should attempt to resolve amicably any differences on the subject." If the method of calculating the fee in event of a structured settlement is agreed upon in advance, there is less likelihood of a controversy over the fee. However, when the calculation of the fee in the event of a structured settlement is not prescribed in the contingent fee contract, a lawyer should be zealous in his efforts to be fair with the client and should make an earnest effort to resolve the matter to the client's satisfaction.

2. Should the percentage mentioned in the standard fee contract be applied to the total amount to be received by the plaintiff in a structured settlement, to a discounted present value of the total to be received by the plaintiff, or to the total cost of the settlement to the defendant?

The answer to this question would require a legal interpretation of the wording of the agreement between the lawyer and client and we can only express an opinion relating to matters to be considered from an ethical viewpoint.

For the purpose of responding to this question, we assume that the lawyer is to receive his fee in a lump sum at or about the time of settlement.

In the ordinary structured settlement the defendant is, in effect, investing money for the plaintiff's benefit. Unless the contingent fee agreement entitles the lawyer to receive a portion of the future income from the investment of the client's share of a lump-sum settlement, in the absence of unusual circumstances we do not believe the lawyer should expect to receive a portion of the future income from the client's share of a structured settlement. Keeping in mind the teachings of EC 2-17, we suggest that when the lawyer's fee is to be paid in a lump sum as part of a structured settlement, in the absence of unusual circumstances the fee should be based upon the present value or upon the cost to the defendant, whichever is agreed upon between the lawyer and client.

3. Is it ethical for the plaintiff's lawyer to require that a structured settlement include a lump-sum cash payment of his fee?

Ethical Consideration 7-7 states in part:

In certain areas of legal representation not affecting the merits of the cause or substantially prejudicing the rights of a client, a lawyer is entitled to make decisions on his own. But otherwise the authority to make decisions is exclusively that of the client and if made within the framework of the law, such decisions are binding on his lawyer. As typical examples in civil cases, it is for the client to decide whether he will accept a settlement offer--.

This question points up the advantage of a lawyer having a clear agreement in advance with the client. If the client has agreed that the lawyer's fee is to be paid in a lump sum at the time of a structured settlement, there is nothing ethically wrong with the lawyer insisting that a structured settlement include that provision. But, where there is no clear agreement with the client, EC 7-7 makes it clear that a lawyer may not ethically include that requirement if such requirement would substantially prejudice the plaintiff's chance of a settlement.