Can a lawyer take a contingent fee out of the part of a workers' comp settlement that represents the client's hospital bill?

Plain-English summary

An attorney represented a workers' compensation claimant whose claim included a substantial hospital bill. After the carrier appealed the Industrial Accident Board award and the case settled in district court, the attorney had agreed with his client not to charge a contingent fee on the portion of the settlement representing the hospital bill. The carrier paid the whole settlement to the claimant and his attorney; the attorney forwarded a check to the hospital but deducted his 30% contingent fee from the hospital-bill portion, despite having no contract or fee arrangement with the hospital.

The Committee, assuming the district court entered judgment approving the settlement and fixing the attorney's fee, held that it would be unethical for the attorney to deduct and retain any amount from the hospital payment in excess of the agreed fee; in doing so he would be disbursing his client's money and would violate Canon 10 by keeping any part of it for his own use. It also held that retaining a total fee in excess of the court-allowed fee would be unethical, since the Committee believed such an excess fee would be illegal under the Workmen's Compensation Law.

The Committee added that if the court-fixed fee was 30% of the entire settlement (including the hospital bill), that would suggest the court allowed a larger fee than the client had agreed to pay, which would be improbable had the court known of the fee agreement. If the attorney obtained such a judgment without disclosing his fee agreement to the court, he would violate his duty to the court under Canons 1 and 19, as well as his duty to his client. The ruling was 9-0.

Currency note

This opinion was issued in 1966, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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 Treat this page as historical context, not current guidance.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 the lawyer take a contingent fee from the hospital-bill portion of a comp settlement?

A: Not beyond what was agreed. The Committee held that deducting and keeping more than the agreed fee from money owed to the hospital is disbursing the client's money and violates Canon 10.

Q: Can the lawyer keep a fee larger than what the court allowed?

A: No. The Committee said retaining a total fee in excess of the court-allowed fee would be unethical, because it believed such an excess fee would be illegal under the Workmen's Compensation Law.

Q: What if the lawyer got the court to approve a larger fee without mentioning the fee agreement?

A: The Committee said concealing the fee agreement to obtain court approval of a fee larger than agreed would violate the lawyer's duty to the court under Canons 1 and 19, as well as his duty to his client.

Background and rules framework

The opinion interprets former Texas Canon 1 and Canon 19 (a lawyer's duty of candor to the court) and Canon 10 (handling a client's money). The modern analogs are ABA Model Rule 1.5 (fees), Model Rule 1.15 (safekeeping property), and Model Rule 3.3 (candor toward the tribunal).

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees), as the modern analog
• MR 1.15 (safekeeping property), as the modern analog
• MR 3.3 (candor toward the tribunal), as the modern analog
• Texas Canons 1, 10, and 19 (former canons)

Statutes:

• Texas Workmen's Compensation Law (court approval of attorney's fees)

See also

• TX Ethics Op. 341: Suing a Client for a Fee and the Use of Confidences
• TX Ethics Op. 348: Appointed Counsel Taking a Partial Fee From Family and County
• TX Ethics Op. 311: Habitual Undercharging Below a Minimum Fee Schedule

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-310/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_310.pdf

Original opinion text

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

QUESTION PRESENTED

An attorney represented a workman's compensation claimant in connection with a claim in which there was a substantial hospital bill. The insurance carrier denied liability and appealed from a decision of the Industrial Accident Board awarding weekly compensation to the claimant for a number of weeks and approving the hospital bill. After the case reached the District Court it was settled. The attorney for the claimant agreed with his client that he would not charge a contingent fee on the portion of the settlement representing the hospital bill. The insurance company paid the entire settlement to the claimant and his attorney and the attorney forwarded his check to the hospital but deducted his 30% contingent fee from that portion of the settlement representing the hospital bill. The attorney for the claimant had no contract or arrangement with the hospital and no agreement concerning the payment of any fee. Our question is whether or not it is ethical for the attorney to deduct the contingent fee from the portion of the settlement representing the hospital bill.

23 Baylor L. Rev. 830 (1972)

We assume that the District Court entered a judgment approving the settlement and fixing the amount of the attorney's fee. It would be unethical for the attorney to deduct and retain any amount from the payment to the hospital, such amount being in excess of the agreed fee. In such event, he would be disbursing his client's money, and he would violate Canon 10 by retaining any part thereof for his own use. Furthermore, it would be unethical for the attorney to accept or retain as his fee a total amount in excess of the fee allowed by the court, if we assume, as we believe, that such excess fee would be illegal under the Workmens' Compensation Law.

If the attorney's fee allowed by the court and fixed in the judgment was 30% of the total amount of the settlement (including the hospital bill), then it would appear that the court allowed the attorney a larger fee than his client had agreed to pay and he had agreed to accept, which would be highly improbable if the court was informed of the fee agreement. If the attorney obtained such a judgment without disclosing his fee agreement to the court, it is the opinion of the committee that he would violate his duty to the court under Canons 1 and 19 as well as his duty to his client. (9-0.)

ATTORNEY'S FEE - WORKMEN'S COMPENSATION SETTLEMENT - HOSPITAL BILL - DISBURSING CLIENT'S MONEY - ILLEGAL FEE
It is unethical for a workmen's compensation claimant's attorney (1) to retain as his fee, out of settlement money and by deduction from hospital bill payment, an amount in excess of the fee agreed to by the client and allowed by the court or (2) to obtain the court's approval, by concealment of the fee agreement, of a fee in excess of the agreed fee.

Canons 1,10, 19.

Tex. Comm. On Professional Ethics, Op. 310 (1966)