Ethics Opinion

Summary: Where it is clear at the outset that recovery of the amount requested for a client is as a practical matter certain--as may be true of some personal injury protection (P.I.P.) claims--it is improper to charge a contingent fee, and the fee must be based on the factors listed in DR 2-106(B). But if there is uncertainty as to whether the requested claim will be paid in full, or if a single retainer is to cover several claims, in one or more of which recovery of the amount requested is uncertain, a contingent fee agreement is proper. The size of the fixed or percentage fee which may be charged on a contingent basis in such a case must reflect the extent to which it is probable that a substantial portion of the total claim can be collected without much effort.

Facts: A lawyer asks whether the Code of Professional Responsibility permits an attorney to charge a contingent fee for collecting a claim against his client's own insurance carrier under the personal injury protection (P.I.P.) coverage. He also asks whether it makes any difference whether the lawyer represents the client only to collect the P.l.P. benefit, or also represents him in a personal injury claim against a third party.

Discussion: The subject of "Fees for Legal Services" is regulated by DR 2-106. This disciplinary rule sets forth as a general principle that "A lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee." It also itemizes a variety of "factors to be considered as guides in determining the reasonableness of a fee." The final section of the rule, DR 2-106(C), as adopted in Massachusetts, prohibits all contingent fees "except as permitted by Supreme Judicial Court General Rule 3:14."

Rule 3:14 defines a "contingent fee agreement" as
an agreement, express or implied for legal services of an attorney ... under which compensation, contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement, is to be an amount which is fixed or is to be determined under a formula. The term 'contingent fee agreement' shall not include an arrangement with a client, express or implied, that the client in any event is to pay to the attorney the reasonable value of his services and his reasonable expenses and disbursements."

The rule's basic provision is that "Unless expressly prohibited by this rule, no written contingent fee agreement shall be regarded as champertous if made in an effort in good faith reasonably to comply with this rule." See Rule 3:14(2). Contingent fee agreements are prohibited in domestic relations cases, criminal prosecutions, etc., see Rule 3:14(3). All contingent fee agreements are required to be in writing and in substantial accord with a suggested form. See Rule 3:14(4)(5) and (7). Specifically, the agreement must set forth "a statement of the contingency upon which compensation is to be paid ... ." See Rule 3:14(5).

If it is clear at the outset that there is no real "contingency" involved in the collection of a P.I.P. claim--in other words, that recovery without suit of the requested amount is as a practical matter certain--it would be improper under Rule 3:14 (and hence under DR 2-106(C)) to charge a contingent fee for the collection. Of course, if a contingent fee cannot be charged, the attorney is entitled to reasonable compensation for services rendered in presenting the P.I.P. claim to his client's insurer. The amount of such a fee should be based on the factors enumerated in DR 2-106(B) (e.g., time spent, difficulty of matter, etc.).

If on the other hand there is uncertainty as to whether the requested P.I.P. claim will be paid in full, or if a single retainer is to cover both the P.I.P. claim and a personal injury claim against a third party, a contingent fee would appear to be proper.

Under DR 2-106(A), it is unethical for a lawyer to "enter into an agreement for, charge or collect an illegal or clearly excessive fee," whether contingent or not. To the extent that collection of a substantial portion of the total claim is probable without much effort, because based on P.I.P. coverage, the size of the fixed or percentage fee which may properly be charged on a contingent basis must be reduced to comply with the rule. In Cameron v. Sullivan 1977 Adv. S. March 8, 1977, the Supreme Judicial Court held that the reasonableness of a contingent fee agreement was subject to court review under Rule 3:14(6).