When a contingency-fee lawyer wins a structured settlement paid over years, can the lawyer collect the full fee up front and without discounting the future payments to present value?

Plain-English summary

A client retained a lawyer on a medical malpractice claim under a 40% contingent fee. The lawyer negotiated a structured settlement that would pay the client a substantial sum in each of the next ten years. The inquiry asked whether any ethical consideration prevented the lawyer from collecting his entire fee immediately rather than taking a percentage of each annual payment, and, if he could collect immediately, whether he could calculate the fee without discounting the client's settlement to present value.

The opinion answered through Rule 2.6(a), which bars a lawyer from entering into an agreement for, charging, or collecting an illegal or clearly excessive fee. The committee explained that whether a fee is "clearly excessive" generally requires examining all relevant facts and circumstances, and that for that reason it has generally refrained from adopting per se rules prohibiting particular agreements or methods of computation.

The committee nonetheless concluded that where a lawyer is entitled to a contingent fee calculated as a percentage of the amount recovered, and the recovery is arranged as payment of sums certain over a prolonged period in a structured settlement, the lawyer may collect immediately only the prescribed percentage of the total settlement reduced to its present value.

Currency note

This opinion was issued in 1992, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments or 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 Treat this page as historical context, not current guidance.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 contingency lawyer collect the full fee up front when the client is paid through a structured settlement?

A: Only on a present-value basis. The opinion held the lawyer may collect immediately only the prescribed percentage of the total settlement reduced to its present value.

Q: Can the lawyer calculate the fee on the undiscounted total of the future payments?

A: No. The opinion concluded that an immediate fee taken on the undiscounted sum of deferred payments is not permitted; the total must be reduced to present value.

Q: Did the committee adopt a flat rule against any structured-settlement fee arrangement?

A: No. The opinion stated the committee generally refrains from per se rules and assesses fees on all the facts under the "clearly excessive" standard of Rule 2.6(a).

Background and rules framework

The opinion applied North Carolina Rule 2.6(a), which prohibited an illegal or clearly excessive fee (corresponding to Model Rule 1.5(a)). The analysis turns on the time value of money: a percentage fee collected up front against payments spread over years must be measured against the settlement's present value rather than its nominal future total.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees; reasonableness)
• North Carolina Rule 2.6(a) (illegal or clearly excessive fee)

See also

• NC Ethics Op. RPC 155: contingent fees in child support cases
• NC Ethics Op. RPC 145: lawyer approval of settlement

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-141/

Original opinion text

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

Inquiry:

Client hired Lawyer to represent him concerning a medical malpractice claim and agreed to pay him 40% of the amount recovered. Lawyer negotiated a structured settlement which will pay Client a substantial amount of money in each of the next ten years. Are there any ethical considerations which would prevent Lawyer from collecting his entire fee immediately, rather than taking a percentage of each annual payment to the Client? If Lawyer may collect his entire fee immediately, is it proper for Lawyer to calculate his fee without discounting Client's settlement to present value?

Opinion:

Rule 2.6(a) provides that, "A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee." Generally speaking, it is necessary to examine all relevant facts and circumstances relating to a fee and the legal services for which it is charged in order to make a determination as to whether it is "clearly excessive." For that reason, the Ethics Committee has generally refrained from adopting per se rules prohibiting certain types of agreements or methods of computation. Nevertheless, the committee is of the opinion that where an attorney is entitled to receive a contingent fee calculated as a percentage of any amount recovered and arrangements are made for the payment of sums certain over a prolonged period of time in the form of a structured settlement, the attorney may collect immediately only the prescribed percentage of the total settlement reduced to its present value.