Opinion 2115

Facts

The inquiring attorney presents three hypotheticals all directly or indirectly addressed to the lawyer’s obligations under a contingent fee agreement. Only the first hypothetical presents an “ethical” question properly posed to this committee. The other two hypotheticals present questions of how the contingent fee agreement should be applied to varying circumstances, which are more properly considered legal questions. Therefore, we answer only the first hypothetical. It should be noted that the inquiring attorney requests a “formal” ethics opinion. This committee can issue only an “informal” opinion in this setting.

By way of background, under Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632 (1998), an attorney representing a plaintiff under a contingent fee agreement is obligated, upon settlement of a personal injury claim, to, among other things and under certain circumstances, reimburse his/her client’s PIP insurer for amounts recovered from the defendant that have already been paid on behalf of the client under PIP. That reimbursement obligation is for the full amount of PIP payment, less the insurer’s pro rata share of attorneys fees and costs. The pro rata share is calculated according to a formula that has as one of its elements, the total attorneys fees charged the client – (Attorneys fees + costs) x (PIP amount / Total Settlement) .

The key question under Hypothetical #1 is whether the attorney operating under the contingent fee agreement may ultimately charge his client less than the specified 1/3 percentage, while at the same time charging the client’s PIP carrier an amount calculated on the assumption that the full 1/3 share was charged. In this hypothetical, following disbursement of the proceeds of the settlement, the client requested the attorney to waive $600 of the fees earned. By this time the lawyer had already retained the PIP insurer’s share of the fees and costs, calculated using 1/3 contingent fee amount as the “attorneys fees” element of the equation. The effect of granting the client’s request would be to reduce the lawyer’s contingent fee share to less than 1/3. The question is whether the attorney may waive the $600 without disclosing such to the PIP carrier and/or extending the same fee waiver to the PIP carrier.

Under Hypothetical #2, the client asserts an underinsured motorist claim against his own UIM carrier. Prior to settlement, the client received PIP benefits from the same insurer providing the UIM coverage. The total settlement is $40,000, with $10,000 of that coming under the PIP coverage. Under this scenario, even when the PIP carrier and the UIM carrier are the same, the PIP carrier is entitled to less than full reimbursement of the expenses paid. That reimbursement is subject to the pro-rata share of attorneys fees and costs. Upon execution of the settlement, the UIM carrier issues a check for $33,833.33 (representing the full $40,000, less $6,166.67 it retains as the PIP carrier’s reimbursement.) The question posed is whether the lawyer may calculate his/her 1/3 contingent share based upon the gross settlement of $40,000 or the disbursement settlement of $33,83.33.

Hypothetical #3 presents the same type of “legal” question as posed in hypothetical #2. A case settles with a tortfeasor for $25,000 (tortfeasor’s carrier’s liability limit). The client also receives $10,000 in PIP benefits. Since the client is not made whole by the collective recovery, the PIP provider waives its right to any reimbursement from the $25,000 settlement. The question is whether the attorneys fees: (a) may be based on the total settlement of $35,000; (b) must be based on the $25,000 received on behalf of the tortfeasor; or (c) may be based upon the $25,000, plus the PIP reimbursement that the attorney saved the client.

Discussion

Hypothetical #1:

The ethical question presented in this hypothetical is not one between the attorney and the client (the party the attorney has been representing to the point of settlement). The attorney properly disbursed the proceeds of the settlement to his client pursuant to the terms of the Contingent Fee Agreement. On behalf of the client, the lawyer also properly disbursed the “reimbursement to the PIP carrier pursuant to Mahler v. Szucs. There is also nothing unethical about agreeing to take less in attorneys fees than he/or she is entitled to receive under the fee agreement. RPC 1.5(a) provides only that a “lawyer’s fee shall be reasonable,” and there is nothing to suggest that taking $600 less that the $8,333.33 to which the attorney was entitled makes the fee “unreasonable.” Furthermore, RPC 1.5(c) allows for contingent fees in the type of representation addressed in the hypothetical, and by all indications, the contingent fee was properly based upon the actual cost of the settlement, as required by RPC 1.5(c)(2)(ii).

The ethical issue focuses rather on the relationship between the attorney and the PIP carrier. The Mahler court specifically found no attorney/client relationship between the attorney and the carrier. Mahler v. Szucs, 135 Wn.2d at 427. Therefore, there is no technical violation of the conflict of interest rules of RPC 1.7 or the fee provisions of RPC 1.5. However, RPC 4.1 provides that “[i]n the course of representing a client, a lawyer shall not knowingly: (a) Make a false statement of material fact or law to a third person.” In calculating the sum being retained from the PIP carrier out of its reimbursement, a material factor is the amount of fees being charged the client. While the reduction in fees below the “contingent fee” occurred after the proper disbursement of the settlement monies, the fact remains that the actual fee charged the client ended up being less than the fee used in calculating the amount retained from the carrier’s reimbursement amount. Therefore, to comply with RPC 4.1, it would appear that the inquiring attorney must disclose the fee waiver and, if requested, extend the same fee waiver “percentage” to the PIP carrier. Another provision applicable to this action is RPC 8.4(c), dealing with conduct involving dishonesty, deceit or misrepresentation.

Hypotheticals #2 and #3:

In contrast with first hypothetical, Hypotheticals #2 and #3 ask the committee to interpret Mahler v. Szucs. This is neither the role nor function of this committee. Therefore, it is our recommendation that we refer the inquiring attorney to RPC 1.5(a) and RPC 1.5(c)(2), and impose upon the attorney the responsibility to determine “the actual cost of the settlement.”