Ethics board listens to bar, opts not to issue opinion

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The Lawyers Professional Responsibility Board has decided not to issue an opinion specifically barring plaintiffs’ attorneys from charging a contingent fee when collecting uncontested no-fault insurance benefits.

Between January and April 2000, nine comments were submitted to the Lawyers Professional Responsibility Board in response to a request for input on a proposed opinion specifically banning attorneys from taking a contingent fee for collecting uncontested no-fault benefits.

One comment came from the Minnesota Trial Lawyers Association (MTLA), and the rest came from individual personal injury attorneys practicing in firms of all sizes. Five of the comments supported the issuance of an opinion in some form, while four of the comments either opposed the issuance of an opinion or questioned its necessity, including the MTLA comment.

While the majority of the comments submitted to the board supported regulating contingent fees in no-fault cases, enough questions were raised that the board ultimately declined to issue an opinion.

Minneapolis solo practitioner Brad C. Eggen submitted comments supporting an opinion prohibiting contingent fees when only a nominal service is provided to the client. While clients need to be protected from improper fees, attorneys need a financial incentive to do a good job, he observed.

Eggen’s comments suggested that the ethical concern should not be limited to whether no-fault benefits are “contested or disputed,” but should instead focus on whether the attorney has expended reasonable service, time, expertise or risk to justify the fee charged. Eggen pointed out that Minnesota Rule of Professional Conduct (MRPC) Rule 1.5(a) requires attorney fees to be reasonable and communicated to the client, and suggested that the opinion make it clear that no-fault fee agreements must be specific that contingent fees are claimed against any recovery.

According to Eggen, a lawyer’s fee should be “based on the amount of no-fault benefits recovered only when more than a nominal legal service has been provided and the recovery follows from the attorney’s labor.”

St. Cloud plaintiff attorney Timothy W. Nelson also submitted comments supporting an opinion in some form. Nelson remarked that common practice is to assist clients in obtaining no-fault benefits without charging a fee if the insurance company voluntarily pays, but to charge a reasonable fee if the situation proceeds to arbitration or a lawsuit. Nelson asked the committee to consider the fact that a plaintiff’s attorney often will contact the insurance carrier and negotiate a closeout settlement at the end of the case when the client has decided to discontinue treatment. Nelson emphasized that whatever fee is charged should be justified by the amount of expertise needed to negotiate a settlement.

Rochester plaintiff attorney Paul Dahlberg submitted comments favoring issuance of an opinion concerning contingent fees in no-fault cases, but with some reservations. Dahlberg commented that if the board were to issue an opinion, it should address the issue of insurers “suspending benefits” rather than disputing or denying them, and argued that suspended benefits should qualify for a permissible contingent fee.

Minneapolis plaintiffs’ attorney Charles T. Hvass Jr. and Hibbing plaintiffs’ attorney Darrold E. Persson both commented that attorneys should not charge a fee in uncontested no-fault claims, and would both support an opinion. Hvass, said he finds it “remarkable that anyone would charge attorney’s fees on uncontested cases.” He advocated an opinion prohibiting any fee in no-fault cases that fall short of arbitration or litigation — and even then would support a reduced or waived fee. Persson — who said he doesn’t charge a fee unless a claim is contested — emphasized that even in disputed cases, any opinion should require the contingent fee to be addressed in the retainer agreement.

Not necessary, not prudent

While Brooklyn Center plaintiff attorney Greg Malush agrees that fees should not be charged for uncontested no-fault claims, he questioned whether an opinion was necessary. According to Malush, it is possible to expend eight to 10 hours assisting a client in obtaining no-fault benefits. His firm’s retainer advises clients that contingent fees will be charged in contested no-fault claims.

Minneapolis solo practitioner John P. Mazzitelli commented that an opinion was not necessary because enough rules exist to cover cases where lawyers abuse clients with excessive fees. According to Mazzitelli, if a client wants assistance on a no-fault claim, the client should be able to get it via a contingent fee. Moreover, Mazzitelli pointed out that issuing an opinion could potentially cause even more confusion because there is a huge “gray area” over what constitutes a disputed no-fault claim.

Minneapolis attorneys Mark E. and Gregory F. Wersal would oppose issuance of an opinion, and advocate the ability of lawyers to charge contingent fees in all no-fault cases. Their comments pointed out that oftentimes the only money recovered by a client is from a no-fault claim, and that an opinion would limit a client’s right to hire an attorney until after a dispute. Moreover, an opinion would create an ethics nightmare concerning what is “contested,” they argued.

The MTLA also opposed an opinion on the ground that prohibiting contingent fees in no-fault cases would aid insurers and make it more difficult for no-fault claimants to get counsel. However, if the board were to issue an opinion, the MTLA cautioned the board to add a carefully crafted definition of “disputed.”

The MTLA also commented that the existing rule governing excessive fees is sufficient to address cases where lawyers charged unreasonable fees to handle no-fault claims.

— Alice Sherren Brommer

The board earlier this year announced that it might draft an opinion on the topic and solicited input from the bar through a variety of sources — including an advertisement in Minnesota Lawyer.

A number of attorneys and the Minnesota Trial Lawyers Association (MTLA) accepted the board’s invitation for feedback, submitting their comments in writing to the board. Based on these comments and the research of its Opinion Committee, the board opted not to issue an opinion on fees in uncontested no-fault cases.

Board chair Charles E. Lundberg told Minnesota Lawyer that “the board felt quite strongly from the outset that in the classic situation where there is no dispute about no-fault benefits it would be wholly inappropriate to charge a contingent fee.” However, after studying the concerns expressed by the MTLA and others, the board has concluded that the best course is to avoid promulgating a specific rule.

“When we first asked for comments we were expecting we would issue an opinion,” Lundberg acknowledged. “This was a surprise.”

Even though most of the comments supported an opinion of some sort, the feedback made it clear that definitional problems existed th
at could make any kind of formal opinion problematic, according to Lundberg. “We weren’t sure whether an opinion to that effect would have unforeseen consequences in practice,” he said.

Lundberg said that he was pleased with the number and quality of the responses that the board received, and the outcome demonstrates that the board was listening. He added that the entire process of gathering input on the rule was beneficial in raising awareness of potential ethical problems related to contingency fees in no-fault cases. He hopes that educating the bar will help reduce client complaints.

Contingent fees

The issue of the application of contingent fees to no-fault benefits arose because of the frequent practice of personal injury attorneys of accepting accident cases on contingency. Such agreements mean, of course, that the client authorizes the attorney to collect a percentage fee based upon the total amount recovered.

Charging a contingent fee is acceptable in most tort cases — and may be the only way some personal injury plaintiffs can afford representation. While the lawyer may receive a windfall if a case settles early, the conventional view is that the risk the lawyer takes (i.e. the lawyer gets nothing if the client loses) and the need for the lawyer’s special expertise justify the arrangement.

However, when no-fault benefits are not contested, a lawyer with a contingent-fee arrangement is not taking any risk (i.e. there will definitely be a recovery) and no special expertise is needed to collect.

A number of jurisdictions have therefore issued ethics opinions providing that charging a contingent fee to collect uncontested no-fault benefits is improper. The professional responsibility board became involved with the no-fault contingency fee issue after several clients complained that they were not aware that they would have to pay a percentage of their no-fault benefits to their attorneys.

The board studied authorities from other jurisdictions that had already addressed the issue, and then placed public notices inviting bar comment on whether it should issue a formal board opinion on the topic.

According to Lundberg, it is board policy to seek comment when the regulatory effect of an opinion may have a disproportionate impact on a particular section of the bar. For example, the board considered comments from the bar in issuing Opinion No. 18 prohibiting secret recording of conversations, and sought the views of family law attorneys before issuing Opinion No. 14 regarding homestead liens.

On the subject of a no-fault fee rule, the board received nine comments — eight from plaintiff personal-injury lawyers and one from the MTLA.

Although the consensus was that contingent fees should not be taken on uncontested no-fault benefits, a number of the comments expressed concern about the difficulties of formulating a rule or definition that would comprehensively address or clearly describe exactly when no-fault claims are “uncontested.” (See accompanying story on page 11for a summary of the bar’s comments and the text of the rule.)

“The comments pointed out that in the classic situation we already have the authority to discipline lawyers under [Minnesota Rule of Professional Conduct] Rule 1.5 [providing that fees must be reasonable]. We don’t need an opinion to cover that situation,” said Lundberg, adding that the board “couldn’t come up with language that would be clear in every case.”

At its April 28 meeting, the board considered the research of its Opinion Committee, as well as the submitted comments, and decided that a formal opinion regulating no-fault fees would not be issued.

Input changes minds

One of the most salient reasons for the board’s decision not to issue an opinion had to do with the difficulties in defining which no-fault claims are contested or disputed.

Additionally, while the board had received a handful of complaints about the charging of contingent fees in no-fault cases over the past several years, very few involved no-fault claims that were clearly uncontested.

Moreover, the MTLA indicated that very few of its members charge any type of fee in uncontested no-fault cases, leading the board’s Opinion Committee to conclude that the vast majority of lawyers representing no-fault claimants recognize the impropriety of contingent fees in uncontested matters.