Can a lawyer pass surplus class-action attorney fees to the injured class members or donate them to charity?

Plain-English summary

A lawyer who had sought to represent damaged Michigan individuals as a class received funds allocated as attorney fees from an Illinois class action, after the Michigan case was stayed and folded into the larger Illinois proceeding. The funds were not designated as to the requesting lawyer in the payment. The lawyer, who the opinion presumed did not technically represent the individuals to whom the fees would go, asked how the funds could be disposed of, preferring either to use a portion to fully compensate the Michigan plaintiffs for their damages, or to contribute the excess to a charity.

The Committee analyzed the question under MRPC 5.4, which bars a lawyer from sharing legal fees with a nonlawyer absent an applicable exception. It identified the policies behind the rule: that the lawyer's independent professional judgment may be impaired (RI-163), that the lawyer may "cut corners" to maximize profits, and that the practice encourages nonlawyers to practice law (RI-104). It also noted that payments to nonlawyers have been criminally proscribed as solicitation in the personal-injury area, citing the Woll cases and MCLA 750.410.

The Committee found those factors absent here. It had previously opined that a lawyer may advertise that a portion of fees will be donated to charity (RI-163), and reasoned that a prospective arrangement would be more likely to offend the rule than the after-the-fact disposition the lawyer proposed. It concluded that dividing the fees with the injured class members is acceptable provided there is no scheme to solicit further business, and that division with a charitable organization would also be acceptable under RI-163. The Committee rendered no opinion on the tax consequences.

Currency note

This opinion was issued in 2001 and interprets the Michigan Rules of Professional Conduct as they then stood. The MRPC have since been amended, and later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer give surplus class-action attorney fees to the injured class members?

A: The opinion concluded that the lawyer may divide such fees with the injured parties, provided there is no prior fee-sharing agreement and no scheme to solicit further business through the payments.

Q: Can the lawyer instead donate the surplus fees to charity?

A: Per the opinion, yes; division of the fees with a charitable organization would also be acceptable, consistent with RI-163, which permitted a lawyer to advertise that a portion of fees would be donated to charity.

Q: Why doesn't this count as improper fee-sharing with nonlawyers?

A: The opinion reasoned that the policies behind MRPC 5.4, impaired judgment, cutting corners for profit, and encouraging nonlawyers to practice law, were not present, and that the after-the-fact disposition was less likely to offend the rule than a prospective arrangement would be.

Background and rules framework

The opinion interprets MRPC 5.4 / Model Rule 5.4 (a lawyer or firm shall not share legal fees with a nonlawyer, subject to exceptions). The analysis turns on whether the payments serve the purposes the rule guards against, impaired independent judgment, profit-driven corner-cutting, or solicitation, rather than on the bare fact of a payment reaching a nonlawyer.

Citations and references

Rules of Professional Conduct:

• MRPC 5.4 / Model Rule 5.4 (sharing fees with a nonlawyer)

Statutes:

• MCLA 750.410; MSA 28.642 (criminal proscription of solicitation in the personal-injury area)

Cases:

• Woll v. Attorney General, 116 Mich App 791; 233 NW2d 560 (1982), solicitation in the personal-injury area.
• State Bar of Michigan v. Woll, 387 Mich 154; 194 NW2d 835 (1972), solicitation in the personal-injury area.

Other opinions cited:

• RI-3: court-awarded fees as a matter of contract between lawyer and client.
• RI-104, RI-163: policies behind the fee-sharing rule and donating a portion of fees to charity.

See also

• Mich Ethics Op. RI-86: Restrictions on Departing Lawyers
• Mich Ethics Op. RI-321: Referring Tort Clients to a Venture-Capital Litigation Funder

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=1194&Type=6

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

RI-324

July 11, 2001

SYLLABUS

A lawyer may distribute fees among damaged individuals sought to be represented as a part of a class action, out of a fund designated as attorney fees, provided there is no prior agreement for the sharing of fees, and provided there is no scheme to solicit further actions as a result of the payments.

References: RI-3, RI-104, RI-163; MCLA 750.410; MSA 28.642; Woll v. Attorney General, 116 Mich App 791; 233 NW2d 560 (1982); State Bar of Michigan v. Woll 387 Mich 154; 194 NW2d 835 (1972); MCLA 750.410; MSA 28.642.

TEXT

A lawyer regarding the disposition of funds received as part of a class action resolution has requested an opinion. The lawyer sought to represent damaged Michigan individuals, as a class. The class was subsequently found to be part of a larger class action in an Illinois court, and the Michigan case was stayed as a result. The funds were awarded by an Illinois court, and provided to counsel through an agreement with counsel for the lead plaintiff. The funds were allocated as attorney fees awarded in the Illinois proceedings, but not designated in any manner in the payment to the requesting lawyer. The requesting lawyer inquires as to the options that exist for disposition of these funds. The lawyer desires to dispose of the funds by one of following means, listed in order of the lawyer's preferences: - To use a portion of the attorney fees to see to it that the Michigan plaintiff's are fully compensated for their damages (this option was objected to by the lead lawyer as a fee splitting arrangement); or

• To contribute fees that are in excess of those thought to be reasonable to a charity of the lawyer's choosing.

Certain factual matters are assumed. The court awarded the total fund of attorney fees, and therefore it is presumed the total fee is reasonable. It is assumed that the requesting lawyer was not certified as lawyer for the Michigan class members. If the lawyer represents the individuals as a party to the class, the disposition of the fund is entirely a matter between the lawyer and the client. Absent objection by the client, the arrangement would not be objectionable. RI-3. (Court awarded attorney fees and/or sanctions are a matter of contract between lawyer and client). This opinion presumes that the lawyer involved does not technically represent the individuals to whom the fees would be given.

MRPC 5.4 provides that, unless an exception not applicable to the current facts is triggered: "A lawyer or law firm shall not share legal fees with a non-lawyer . . . ." The factors that led to the rule do not appear to be present. They include concerns that the lawyer's independent professional judgment may be impaired (RI-163); that the lawyer may "cut corners" in order to maximize profits; and, the practice encourage non-lawyers to practice law. (RI-104). Payments to non-lawyers have also been criminally proscribed as "solicitation" in the personal injury area. Woll v. Attorney General, 116 Mich App 791; 233 NW2d 560 (1982); State Bar of Michigan v. Woll 387 Mich 154; 194 NW2d 835 (1972); MCLA 750.410; MSA 28.642.

There is nothing to suggest that the payments would be for purposes proscribed under this rule. The Committee has previously opined that a lawyer may communicate and/or advertise that a portion of legal fees will be donated to a charity. RI-163. Such an arrangement if prospective in nature would be much more likely to be contrary to the purposes underlying the rule than the arrangement sought by the lawyer in this case. It is concluded that the division of fees with injured parties to the class action is acceptable provided there is no scheme to solicit further business. The division of fees with a charitable organization would also be acceptable under RI-163. Of course no opinion is rendered with regard to the tax ramifications of such a division of fees to the individuals, or the charitable organization.