Ethics Opinion

Summary: Pursuant to SJC Rule 3:05, a lawyer operating under a contingent fee agreement must charge a client for those costs that fall into the category of "expenses and disbursements" and may charge the client for other costs pursuant to an agreement entered into in advance. The former category, by custom and tradition, comprises out-of-pocket expenses and the latter category comprises overhead. Whether the services of an investigator fall into the one category or the other depends upon the facts of each case.

Facts: An attorney has asked for the committee's advice as to whether it would be proper under SJC Rule 3:05 (contingent fees) and 3:07 (professional ethics) to charge a client with whom he has a contingent fee agreement an hourly fee for the services of an investigator who is on his law firm's staff. He has also asked whether such costs as telephone, copying, travel, filing fees, and the like could be passed on to the client.

Discussion: SJC Rule 3:05 provides an exception to the common law prohibitions on champerty and maintenance by allowing an attorney to enter into a contingent fee agreement with a client. Paragraph 5(f) of that rule provides that the contingent fee agreement must require the client "to be liable for expenses and disbursements." Paragraph 5(d) of the rule requires the contingent fee agreement to contain "a statement of the contingency upon which compensation is to be paid, and whether and to what extent the client is to be liable to pay compensation otherwise than from amounts collected for him by the attorney." Finally, paragraph (6) of the rule makes the whole agreement subject to judicial review.
We read these provisions as providing that there are two categories of costs, "expenses and disbursements," for which the client must be liable, and all other costs, representing items for which the client may be made responsible, aside from the contingency arrangement, by agreement in advance pursuant to paragraph 5(d).
We reach the foregoing conclusion in order to achieve a sensible reading of the two sections in relation to each other. The term "expenses and disbursements" in paragraph 5(f) is interpreted in a limited way so that the client is not obliged by the rule to pay everything that might, based upon a broad construction, be called an "expense" or ''disbursement.'' A broad construction might impede such arrangements to the disadvantage of prospective clients. On the other hand, to the same end, we think it is reasonable to construe the term "compensation" in paragraph 5(d) to include other items of cost not required to be paid by the client under paragraph 5(f), in order to enable the attorney to recover them by agreement with the client. An interpretation which did not enable these costs to be recovered by agreement as "compensation" might inhibit lawyers from entering into such arrangements, to the potential detriment of prospective clients.
The committee believes that the term "expenses and disbursements" by custom and tradition includes out-of-pocket expenses, such as filing fees, deposition costs, expert witness fees, or substantial and identifiable travel, printing or copying, and telephone charges incurred by a lawyer in the course of representing a client but do not include costs that would generally be viewed as overhead. If a charge is to be made for overhead, it may be made pursuant to paragraph 5(d) by a specific advance agreement with the client that discloses the basis for the charge. Of course all charges represented to be for "costs," whether pursuant to paragraph 5(f) or 5(d), should not exceed such costs.
Likewise, if the services of an outside investigator are needed for the purposes of this case, that would seem to represent an expense or disbursement required to be charged within the meaning of paragraph 5(f). If the investigator is a member of the lawyer's staff, however, that would appear to fall within the scope of permissive charges by agreement with the client under paragraph 5(d). The committee realizes that there are situations where the relationship between a firm and an investigator may be such that it will be difficult to tell whether the investigator should be regarded as "staff" or not. The conclusion will depend on the facts in each case. We do not know enough about this particular situation to make a judgment whether the arrangements do make the investigator a real member of the staff. If a lawyer wishes to charge for a staff investigator's services, however, there would appear to be no problem so long as he reaches an agreement with the client on this charge at the time the contingent fee agreement is made.