My workers' comp retainer agreement takes a one-third fee on the gross settlement even when the insurer splits the payment into a 'scarring award' and a separate 'attorney's fee' line item. Is that okay, and can I also put a 15% lien on the file if a client fires me after a settlement offer is on the table?

Plain-English summary

An attorney whose office required every workers' compensation client to sign a retainer agreement asked the panel about a recently revised fee provision covering settlements reached outside the Workers' Compensation Commission. In some cases the insurance company pays a specific amount, such as $2,100, as a scarring award, making the one-third fee an obvious $700. But sometimes the insurer adds a smaller separately designated amount, for example $300 labeled "attorney's fee," bringing gross proceeds to $2,400. The attorney revised his retainer agreement to make clear that in such cases the fee is one-third of the gross proceeds however denominated, and asked whether that provision was ethically permissible.

The panel stated it is not equipped to "embark on the task of editing" documents and cannot give general approval to a document as a whole, citing its own Opinion 87-3. It noted, however, that an attorney may use any reasonable business practice in fixing fee terms so long as the client understands and agrees, citing the ABA/BNA Manual of Professional Conduct 41:601. The panel held that, provided the client understands and agrees, it is permissible for the firm to receive one-third of the total sum received from the insurance company in an outside-Commission settlement, regardless of how the insurer designates those funds.

The panel took issue, however, with another provision of the submitted retainer agreement: that if a settlement offer is tendered before the client removes the case from the firm, the client agrees the firm will place a 15% lien on the file based on the settlement offer amount. Quoting Rule 1.5(a), requiring a lawyer's fee to be reasonable, and Rule 1.5(e), governing fee divisions between lawyers not in the same firm, the panel explained it is well settled that when a client who retained an attorney on a contingent-fee basis discharges that attorney before a settlement is reached, the discharged attorney is entitled only to payment on a quantum meruit basis, citing Philadelphia Bar Association Professional Guidance Committee Opinions 80-92 and 81-79. An agreement providing otherwise would violate the requirement that a fee be reasonable, and if a second firm took over the representation, the provision would also violate Rule 1.7(e).

Currency note

This opinion was issued in December 1989, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.5 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process. 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 mentioned here.

Common questions

Q: Can I take a one-third contingent fee on the full settlement amount even if the insurer splits it into separate line items like a "scarring award" and an "attorney's fee"?

A: Yes, according to this opinion, so long as the client understands and agrees, the panel held it permissible to take one-third of the total gross proceeds regardless of how the insurance company designates the payment.

Q: Can my retainer agreement impose a flat percentage lien on the client's file if I'm discharged after a settlement offer comes in?

A: No. The panel took issue with a 15% file-lien provision triggered by discharge after a settlement offer, holding that a discharged contingent-fee attorney is entitled only to quantum meruit, and that an agreement providing a fixed percentage instead would violate the requirement that a fee be reasonable.

Q: Will the panel review my whole retainer agreement and approve it as written?

A: No. The panel stated it is not equipped to "embark on the task of editing" documents and cannot give general approval to a document as a whole, though it can address specific provisions raised in the inquiry.

Background and rules framework

The opinion applies Rule 1.5 of the Rhode Island Rules of Professional Conduct, as adopted effective November 15, 1988, requiring that a lawyer's fee be reasonable and governing fee divisions, to a workers' compensation retainer agreement's gross-proceeds fee provision and its separate discharge-triggered file-lien provision.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees)
• RI RPC 1.5(a) (fee must be reasonable, as adopted November 15, 1988)
• RI RPC 1.5(e) (division of fees between lawyers not in the same firm)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• RI EAP Opinion 87-3, cited for the panel's position that it will not edit a submitted document as a whole.
• Philadelphia Bar Association Professional Guidance Committee Opinions 80-92 and 81-79, cited for the quantum meruit rule on discharge of contingent-fee counsel, reported at ABA/BNA Manual of Professional Conduct 801:1103.

See also

• RI EAP Opinion 2001-03: Escrowing Disputed Fees Owed to Predecessor Counsel
• RI EAP Opinion 88-33: Purchasing Corporate Surety Bonds for Clients Through a Relative's Insurance Agency

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2089-21.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

DIGEST OF ETHICS ADVISORY PANEL
OPINION #89-21, REQUEST #68
Issued December 7, 1989

An attorney seeks Panel advice as to the propriety of certain fee arrangements under the circumstances he describes.

The attorney advises the Panel that every client who retains his office in connection with a workers compensation matter signs a retainer agreement. The attorney states that he has recently revised the agreement in an attempt to make the fee arrangement as clear as possible. This agreement, a copy of which the attorney has submitted for Panel review, covers both the simple situation in which the Commission awards benefits and sets the attorney's fee and the more problematical situation in which a case is settled outside of the Commission. It is this later scenario with which the attorney is most concerned.

The attorney advises the Panel that in some circumstances the insurance company in question will pay a specific amount: $2100, for example, as a scarring award. The attorney states that in this circumstance, the one-third (1/3) fee agreed upon is obviously $700. The attorney adds, however, that sometimes an insurance company will add a smaller amount which is designated "attorney's fee." If, for example the insurance company paid $2100 as a scarring award and $300 as an "attorney's fee" then the gross proceeds would be $2400. The attorney advises the Panel that he has revised the retainer agreement to make it clear that the fee in such a case will be 1/3 of the gross proceeds, however denominated. The attorney asks whether the retainer agreement, and specifically this provision thereof, is ethically permissible.

The Panel is not equipped to "embark on the task of editing" documents, and therefore cannot give general approval to a document as a whole. See Digest of Ethics Advisory Panel Opinion 87-3. It is well established, however, that an attorney may utilize any reasonable business practice in fixing the terms of a fee arrangement "so long as the client understands and agrees . . ." ABA/BNA Manual of Professional Conduct 41:601. The Panel takes the position that provided the client understands and agrees, it is permissible for the inquiring attorney's firm to receive one third of the total sum received from the insurance company in a settlement which takes place outside the Commission regardless of how the insurance company has designated those funds.

The Panel must take issue, however, with one other portion of the retainer agreement which the attorney has submitted. The agreement provides that if a settlement offer is tendered prior to the client removing his or her case from the inquiring attorney's firm, the client agrees that the inquiring attorney's office will place a lien on the file of fifteen percent (15%) of the amount of the settlement offer.

Rule 1.5 provides, in pertinent part that:

(a) A lawyer's fee shall be reasonable.

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) The division is in proportion to the services performed by each lawyer . .

(2) The client is advised of and does not object to the participation of all the lawyers involved; and

(3) The total fee is reasonable.

It is well settled in this and other jurisdictions that when a client who has retained an attorney on a contingent fee basis discharges that attorney prior to reaching an agreement as to settlement, the discharged attorney is only entitled to payment for services rendered on a quantum meruit basis. See, e.g. Opinions 80-92 and 81-79 rendered by the Philadelphia Bar Association Professional Guidance Committee and reported at ABA/BNA Manual of Professional Conduct 801:1103. An agreement which provided otherwise would be contrary to the requirement that a fee be "reasonable." If a second firm commenced representation of the client, then the provision at issue would also violate Rule 1.7(e).

Ethics Advisory Panel advice is protective in nature. There is no requirement that an attorney abide by a Panel opinion, but if he or she does, he or she is fully protected from any charge of impropriety.