Can a lawyer bid a fixed annual fee to defend a company's cases when the firm must pay any litigation expenses that exceed the bid out of its own pocket?

Plain-English summary

The Committee considered a national manufacturing client that asked a firm to submit a "bid" to render legal services and pay litigation expenses on an annual basis to defend products liability actions. The bid would be based on three years of historical cost data and would cover both pending and newly filed suits. The successful bidder would have to pay litigation expenses as they occurred (expert witness fees, deposition costs, case-specific testing up to $10,000, and the like); if the bid amount proved insufficient, the firm would pay the shortfall out of its own pocket.

The opinion concluded that Rule 1.7(b) addresses the question: a lawyer may not represent a client if the representation may be materially limited by the lawyer's own interests unless the lawyer reasonably believes the representation will not be adversely affected and the client gives knowing, informed consent after consultation. It concluded that a lawyer's own interest is affected and could be limited if, having submitted a low bid, the lawyer would either incur substantial expenses payable out of pocket or forego taking essential action on the client's behalf to avoid those costs.

The opinion also recognized that Rule 1.1 requires competent representation (the legal knowledge, skill, thoroughness, and preparation reasonably necessary) and that Rule 1.3 requires reasonable diligence and promptness, irrespective of the effect of a low bid on a matter that requires substantially more time and effort than anticipated.

In practice

The opinion holds that, under the Mississippi rule as it stood at the time of the opinion, an arrangement in which a lawyer bids a fixed annual fee and must personally absorb litigation expenses exceeding the bid is impermissible, because the lawyer's financial exposure creates an own-interest conflict under Rule 1.7(b) that pits the cost of essential litigation steps against the lawyer's own pocket. The opinion frames the concern through the competence and diligence requirements of Rules 1.1 and 1.3 as well.

Common questions

Q: Can a lawyer agree to a fixed annual fee that covers all litigation expenses?

A: The opinion concluded that a lawyer may not enter such an agreement where the low-bidding firm must absorb expenses beyond the bid, because the lawyer's own interest in avoiding out-of-pocket costs could materially limit the representation (Rule 1.7(b)).

Q: Why is absorbing the expenses a conflict?

A: Per the opinion, a lawyer who bid low would have to either incur substantial expenses out of pocket or forego essential action for the client to avoid those costs, which is the kind of own-interest limitation Rule 1.7(b) addresses.

Q: How do the competence and diligence rules fit in?

A: The opinion recognized that Rule 1.1 requires competent representation and Rule 1.3 requires reasonable diligence and promptness, regardless of whether a low bid leaves a matter needing more time and effort than anticipated.

Background and rules framework

The opinion centers on Mississippi Rule of Professional Conduct 1.7(b) (a representation that may be materially limited by the lawyer's own interests), which it quotes, and frames the duty through Rules 1.1 (competence) and 1.3 (diligence); these track the same-numbered Model Rules.

Citations and references

Rules of Professional Conduct (Mississippi; cf. Model Rules):

• MRPC 1.7(b) (representation materially limited by the lawyer's own interests) (cf. Model Rule 1.7)
• MRPC 1.1 (competence) (cf. Model Rule 1.1)
• MRPC 1.3 (diligence) (cf. Model Rule 1.3)

See also

• MS Bar Ethics Op. 246: Insurer Billing Audits
• MS Bar Ethics Op. 229: Suing an Insurer's Insured
• AL Ethics Op. 1997-02: Paying Expert and Fact Witnesses

Source

• Landing page: https://www.msbar.org/ethics-discipline/ethics-opinions/formal-opinions/225/
• Original PDF: https://www.msbar.org/media/1065/et_op_225-amended.pdf

Original opinion text

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

ETHICS OPINION NO. 225

OF THE MISSISSIPPI BAR

RENDERED April 10, 1995

AMENDED April 06, 2013

CONFLICT OF INTEREST- An attorney may not enter into an agreement to provide legal services for a party on an annual fee basis if the court costs and expenses are to be absorbed by the attorney who submits the low bid.

The Ethics Committee of The Mississippi Bar has been requested to render an opinion as to the following factual situation presented in the request for an Opinion:

A national client engaged in manufacturing has asked this office to submit a "bid" for the rendering of legal services and payment of litigation expenses on an annual basis for defending products liability actions. The bid would be based on historical data of the cost of payment of legal fees and litigation expenses over the past three years. The bid would cover both cases presently pending as well as new suits filed during the contract period. The proposed contract would provide that it would be the obligation of the successful bidder to pay as they occur, with certain exceptions, all expenses of litigation such as expert witness fees, deposition costs, cost of case specific testing (up to $10,000.00), etc. If the amount included in the bid was not sufficient to defray all such litigation expenses, then the firm would have to pay these out of its own pocket.

The question posed and addressed by this Committee is whether an attorney may submit a bid for rendering legal services and payment of litigation expenses on an annual basis, with the caveat that if the bid is not sufficient to defray all such litigation expenses, that the firm will have to pay those expenses out of its own pocket.

Rule 1.7(b), the Mississippi Rules of Professional Conduct addresses the question wherein it is stated that:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless the lawyer reasonably believes:

(1) the representation will not be adversely affected; and

(2) the client has given knowing and informed consent after consultation. The consultation shall include explanation of the implications of the representation and the advantages and risks involved.

This Committee is of the opinion that a "lawyer's own interest" is affected and could be limited if he submitted a low bid and was required to either incur substantial expenses that would have to be paid out of his own pocket, or forego taking essential action on the part of his client to avoid those costs.

The Committee recognizes that Rule 1.1 of the Mississippi Rules of Professional Conduct sets forth:

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.

The Committee also recognizes that Rule 1.3 requires that the lawyer shall act "with reasonable diligence and promptness in representing a client," irrespective of the effect of a low bid on a matter which requires substantially more time and effort than anticipated.