If a personal injury lawyer hires an outside firm to resolve a client's health care liens, can the cost be billed as a litigation expense or only as part of the contingent fee?

Plain-English summary

The Board addressed how a plaintiff's personal injury lawyer should bill a client when health care lien resolution on a settled matter (resolving Medicare, Medicaid, ERISA, or private insurance liens) is outsourced to another law firm that concentrates in that work. Building on Opinion 2009-6, which held that outsourcing is permitted subject to disclosure, supervision, and reasonable-fee requirements, the Board applied the same framework to this narrower billing question.

The Board concluded that the lawyer may use professional judgment to charge the outsourced service either as part of the contingent fee or as an expense of litigation. Either way, the client's consent to the outsourcing and the fee arrangement must be obtained before outsourcing; the fees and expenses must be reasonable and not excessive; the basis and rate must be disclosed; and under Prof. Cond. R. 1.5(c) the contingent-fee agreement must be in writing.

The Board identified two consequences that turn on the billing choice. If the outsourced legal fee is included within the contingent fee, there is a division of fees among lawyers not in the same firm, which triggers the requirements of Prof. Cond. R. 1.5(e). If the outsourced service is charged as a litigation expense, the contingent-fee rate must be set so the client is not charged a duplicative and excessive legal fee for a service billed separately as an expense.

In practice

The opinion holds that, under Ohio Prof. Cond. R. 1.5 as it stood at the time of the opinion, the choice between billing outsourced lien resolution as a fee or as an expense rests with the lawyer's professional judgment, conditioned on advance client consent, reasonableness, written disclosure of the fee basis, and a written contingent-fee agreement. Per the opinion, the billing choice carries a rule consequence: the fee route is a between-firm fee division governed by Rule 1.5(e), and the expense route requires adjusting the contingent-fee rate so the client does not pay twice for the same service.

Common questions

Q: Can a personal injury lawyer pass the cost of a lien-resolution firm to the client as a litigation expense?

A: Yes. The opinion concluded the lawyer may bill it as an expense, provided the client consented to the outsourcing and arrangement in advance, the charge is reasonable, and the contingent-fee rate is set so the client is not charged twice for the same work.

Q: What changes if the cost is folded into the contingent fee instead?

A: The opinion concluded that including the outsourced legal fee within the contingent fee is a division of fees between firms not in the same firm, which triggers the requirements of Prof. Cond. R. 1.5(e).

Q: Does the fee agreement have to be in writing?

A: Yes. The opinion concluded that under Prof. Cond. R. 1.5(c) a contingent-fee agreement must be in writing, and the basis and rate of the fee and expenses must be communicated to the client.

Background and rules framework

The opinion interprets Ohio Prof. Cond. R. 1.5(a) and (b) (reasonable fees and expenses; communication of the basis or rate), R. 1.5(c) (written contingent-fee agreement), and R. 1.5(e) (division of fees between lawyers not in the same firm) (Model Rule 1.5). It applies the outsourcing framework the Board set out in Opinion 2009-6.

Citations and references

Rules of Professional Conduct:

• Ohio Prof. Cond. R. 1.5(a), (b), (c), (e) (fees, contingent-fee writing, division of fees) (Model Rule 1.5)

Other opinions cited:

• Ohio BPC Op. 2009-6 (2009): ethical requirements for outsourcing legal and support services
• New York County Lawyers' Assn. Op. 739 (2008): charging an outside lien-resolution firm as a disbursement

See also

• Ohio BPC Op. 2009-006: Outsourcing Legal and Support Services

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op_09-009.pdf

Original opinion text

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

The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
(614) 387-9370 (888) 664-8345 FAX: (614) 387-9379
www.supremecourt.ohio.gov

                                  OFFICE OF SECRETARY




                             OPINION 2009-9
                          Issued December 4, 2009

SYLLABUS: If a plaintiff’s personal injury lawyer retains an outside law firm to
provide health care lien resolution services in a settled matter, the plaintiff’s lawyer may
use professional judgment as to whether to charge the client for the service as part of the
contingent fee or as an expense of litigation. Either way, the client’s consent to the
outsourcing and the fee arrangement must be obtained prior to outsourcing the service.
Either way, the fees and expenses must be reasonable, not excessive. Either way, the
nature and basis of the fee arrangement must be communicated to the client and pursuant
to Rule 1.5(c) a contingency fee agreement must be in writing. If the outsourced legal fee
is included as part of a contingency fee, there is a division of fee among lawyers not in
the same firm and that triggers the requirements of Rule 1.5(e). If the outsourced service
is charged to the client as a litigation expense, the contingency fee rate must be
appropriately set to not result in a duplicative and excessive legal fee charged to a client
for a service that is billed separately as an expense.

OPINION: This opinion addresses the proper way for a plaintiff’s personal injury
lawyer to bill a client when health care lien resolution services in a settled matter are
outsourced to another law firm.

   If a plaintiff’s personal injury lawyer retains an outside law firm to
   provide health care lien resolution services in a settled matter, is it proper
   for the plaintiff’s lawyer to charge the client for the outsourced services as
   an expense of litigation?

For years, plaintiff’s personal injury lawyers have been resolving Medicare, Medicaid,
employee health insurance, and private health insurance liens on settled lawsuits.
Customarily, health care lien resolution has been included in the legal services performed
by a personal injury attorney and covered by the contingent fee.

Now, some lawyers are limiting their law practices to or concentrating in health care lien
resolution services. And, some personal injury attorneys in some personal injury matters
may be interested in outsourcing to these lawyers who concentrate in health care lien
resolution services.
Op. 2009-9 2

Reasons for choosing to or not to outsource health care lien resolution services may vary
among personal injury lawyers. But, factors may include the time involved in resolving
liens, as well as the complexity of Medicare laws, Medicaid laws, Employee Retirement
Income Security Act (ERISA), and state insurance laws.

In New York, there is an advisory opinion addressing the issue of whether fees for
counsel retained to negotiate a plaintiff’s complex Medicare, Medicaid or private health
insurance lien may be charged to the settlement as a disbursement. In Op. 739, the
Professional Ethics Committee of the New York County Lawyers’ Association advised:
“It is ethically permissible for a plaintiff’s personal injury attorney to retain a specialty
firm to handle the resolution of a Medicare, Medicaid or private healthcare lien on a
settled lawsuit. Under the following conditions, the fee for said outside service may be
charged as a disbursement against the total proceeds of the settlement: (a) at the outset of
the representation, the Retainer Agreement with the client provides that the attorney may
do so, and the client has given informed consent thereto; (b) the actual charges are passed
on to the client at cost (without an overage or surcharge) and must be reasonable; (c) the
transaction results in a net benefit to the client on each lien negotiated; (d) the transition
complies with all the principles of substantive law, including the fee limitations on
contingent fees in the New York Judiciary Law and Appellate Division rules; and (e) the
referring attorney remains responsible for the overall work product.”1

In Ohio, the exact issue presented has not been addressed, but the issue of outsourcing
legal services has been addressed. In Op. 2009-6, the Board advised that “[t]he Ohio
Rules of Professional Conduct do not prohibit an Ohio lawyer or law firm from
outsourcing legal or support services domestically or abroad, either directly to lawyers or
nonlawyers or indirectly through an independent service provider, but applicable rules do
impose significant ethical requirements.”2

Opinion 2009-6 should be read in its entirety, but a recap of the significant ethical
requirements is provided herein. First, “[p]ursuant to Prof. Cond. Rules 1.4(a)(2), 1.2(a),
and 1.6(a), a lawyer is required to disclose and consult with a client and obtain informed
consent before outsourcing legal or support services to lawyers or nonlawyers.” Second,
“[p]ursuant to Prof. Cond. Rules 5.1(c)(1), 5.3(a), and 5.3(c)(1), a lawyer who outsources
legal or support services has responsibility for another lawyer’s violation of professional
obligations if the outsourcing lawyer orders, or with specific knowledge of the conduct,
ratifies the conduct involved; has responsibility to make reasonable efforts to ensure that
a nonlawyer’s conduct is compatible with the professional obligations of the lawyer; and
is responsible for a nonlawyer’s conduct if the outsourcing lawyer orders or, with
knowledge of the specific conduct, ratifies the conduct involved.” Third, “[p]ursuant to
Prof. Cond. Rules 1.5(a) and 1.5(b), a lawyer is required to establish fees and expenses
that are reasonable, not excessive, and to communicate to the client the basis or rate of
the fee and expenses.”

1
New York Lawyers’ Assn., Op. 739 (2008).
2
Ohio SupCt, Bd Comm’rs on Grievances & Discipline, Op. 2009-6 (2009).
Op. 2009-9 3

The advice offered in Op. 2009-6 helps guide the Board’s advice as to whether it is
proper for a plaintiff’s lawyer to charge a client for outsourced health care lien resolution
services as an expense of litigation or as part of the contingency fee. In Op. 2009-6, the
Board concluded that “neither the rules nor the comments to the rules direct that billing
be one way or the other” and advised that “[t]he decision as to whether to bill a client for
outsourced services as part of the legal fee or as an expense is left to a lawyer’s exercise
of professional judgment, but in either instance, if any amount beyond cost is added, it
must be reasonable, such as a reasonable amount to cover a lawyer’s supervision of the
outsourced services. The decision must be communicated to the client preferably in
writing, before or within a reasonable time after commencing the representation, unless
the lawyer will charge a client whom the lawyer has regularly represented on the same
basis as previously charged.”3

Thus, either way, whether charging the cost of outsourced lien resolution services as part
of the contingency fee or as an expense of litigation, the fees and expenses must be
reasonable, not excessive; the basis and rate must be disclosed to the client; and pursuant
to Prof. Cond. Rule 1.5(c) a contingency fee agreement must be in writing. Further, if the
outsourced service is charged to the client as part of a lawyer’s contingency fee, there is a
division of fees with attorneys not in the same firm triggering the requirements of Prof.
Cond. Rule 1.5(e). If the outsourced service is charged to the client as a litigation
expense, the contingency fee rate must be appropriately set to not result in a duplicative
and excessive legal fee charged to a client for a service that is billed separately as an
expense.

In conclusion, the Board advises as follows. If a plaintiff’s personal injury lawyer retains
an outside law firm to provide health care lien resolution services in a settled matter, the
plaintiff’s lawyer may use professional judgment as to whether to charge the client for the
service as part of the contingent fee or as an expense of litigation. Either way, the
client’s consent to the outsourcing and the fee arrangement must be obtained prior to
outsourcing the service. Either way, the fees and expenses must be reasonable, not
excessive. Either way, the nature and basis of the fee arrangement must be
communicated to the client and pursuant to Rule 1.5(c) a contingency fee agreement must
be in writing. If the outsourced legal fee is included as part of a contingency fee, there is
a division of fee among lawyers not in the same firm and that triggers the requirements of
Rule 1.5(e). If the outsourced service is charged to the client as a litigation expense, the
contingency fee rate must be appropriately set to not result in a duplicative and excessive
legal fee charged to a client for a service that is billed separately as an expense.

Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the
Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the
Ohio Rules of Professional Conduct, the Ohio Code of Judicial Conduct, and the
Attorney’s Oath of Office.
3
Id.