BAR ASSOCIATION OF NASSAU COUNTY

COMMITTEE ON PROFESSIONAL ETHICS

 

 

 

Opinion No. 2006-03

(Inquiry No. 715)

 

 

 

TOPIC:   Conflict of interest of attorney solicited by a medical service provider to represent patients in disputes with insurance carriers over failure to pay the provider's fees for medical services where the attorney is paid a percentage of the settlement or litigation proceeds by the provider and the parties may subsequently have divergent interests.

 

 

DIGEST:  Under what circumstances may an attorney, solicited by a medical services provider, represent an insured patient in a dispute with the insurance carrier for payment of the provider’s fee, where the attorney is to be paid a contingency fee by the provider and where the patient remains liable to the provider for fees not paid by the carrier.

 

CODE PROVISIONS:        

            DR 2-110(B)(2)                      EC 2-21

            DR 2-103(B)                           EC 5-1

            DR 4-101                                EC 5-2

            DR 5-101(A)                           EC 5-14

            DR 5-105(A), (C)                   EC 5-21

            DR 5-107(A)(1), (2)                EC 5-22

            DR 5-107(B)                           EC 5-23

            Model Rule 1.7, Comment 13

 

 

FACTS PRESENTED:   The inquiring attorney (“Inquiring Attorney”) represents a client who is a medical services provider ("Provider").  The Provider is a non-participating provider with respect to certain medical insurance carriers ("Carriers").  The Provider's patients (the "Insured") are fully responsible for the fees charged by Provider in connection with the provision of medical services.  The Inquiring Attorney's letter indicates that the Carriers may cover a portion of the Provider’s fees charged to the Insured’s and that the remaining balance either must be paid by the Insured or the Insureds may proceed against the Carrier for payment of the balance due.  The Provider would like to collect these fees directly from the Carriers; however, the Inquiring Attorney states that almost all Carriers have non-assignment clauses in their contracts which prevent the Insureds from assigning their rights to the Provider and there is no privity of contract between the Provider and the Carriers.  The Provider desires to design a permissible procedure whereby, as a condition to the provision of medical services to the Insureds, the Provider has the ability to require the Insureds to sue the Carriers for payment of the Provider’s fees.  The Inquiring Attorney states that under this agreement, the Provider would have a lien on any proceeds that may be forwarded to the Insureds by the Carriers as a result of such lawsuit.

 

                        The Inquiring Attorney has presented two alternative procedures under which the Provider would obtain the Insureds' agreement:

 


                                    (1)  At the initial consultation between the Provider and an Insured, the Provider would advise the Insured that he or she is fully responsible for the payment of fees charged by the Provider because the Provider does not participate in the Carrier's plan.  The Provider also would inform the Insured that the Provider could recommend a law firm (i.e., the Inquiring Attorney) to represent the Insured in prosecuting an action against the Carrier for any portion of the Provider’s invoice not paid by the Carrier.

 

OR

 

                                    (2)  At the time that an invoice for the portion of the fees not previously paid by the Carrier is sent to the Insured, the Provider would suggest that the Insured proceed against the Carrier for payment.  The Provider would recommend the Inquiring Attorney's law firm.

 

                        Under either procedure, the Inquiring Attorney would employ a signed retainer letter with the Insured which would detail fees, costs, and disbursements.  Any settlement or litigation proceeds would be paid by the Carrier to the Inquiring Attorney as attorney for the Insured and then remitted to the Provider.  The Inquiring Attorney's relationship with the Provider would be disclosed to the Insured. The Inquiring Attorney would be paid a contingency fee out of any proceeds recovered.[1]

 

INQUIRY:   May an attorney represent a patient (the Insured) of an existing client (the Provider) who has recommended the Inquiring Attorney, in an action against the Insured’s insurance company (Carrier) for payment of charges for medical services rendered by the Provider in a situation where the Inquiring Attorney will be paid a contingency fee out of the proceeds of the action, and the Insured is otherwise fully liable for payment of the Provider’s charges for the medical services?

 

DETERMINATION:  An attorney may be retained by a medical services Provider to represent the Provider’s patients in disputes with a medical insurance Carrier for the payment of the Provider's fee, and paid a contingency fee by the Provider from the recovery, provided:  (1) the attorney makes full disclosure to the client Insured of the extent and nature of the relationship, financial and otherwise, between the attorney and the Provider, as well as the implications of such relationship; (2) to the extent that there is dual representation of the Insured and Provider, full disclosure is made of the implications, advantages and risks of the arrangement, including the fact that the parties’ interests may differ because the Patient remains liable to the Provider for amounts not paid by the Carrier; (3) the client Insured consents to the payment of the attorney's fee by the Provider; (4) nothing of value is given to the Provider by the attorney as consideration for the referrals; (5) the attorney exercises independent professional judgment and does not permit the soliciting Provider to impose any condition on the representation that would compromise the attorney’s ability to exercise professional judgment on behalf of the client Insured, that would effect, direct or regulate the attorney’s professional judgment, or that would remove control from the Insured over decision-making on issues affecting the merits of the action; and (6) the attorney maintains the Insured's confidences in accordance with DR 4-101. The arrangement is impermissible, however, if the attorney determines that his/her representation of the client-Patient will be adversely affected by the attorney’s relationship with the Provider.

 

 

 

 

ANALYSIS:  At issue in this situation is whether an attorney may represent multiple clients, who could potentially have differing interests at some point in the proceeding, where the attorney's independent judgment may be affected by his or her own financial and business interests due to his relationship with the source of the client referral who is also the attorney’s client and/or the payment of the attorney’s fee by the other client.

 

                        DR 5-101(A) governs conflicts of interest between a client’s interests and the attorney’s own interests:

 

“A lawyer shall not accept or continue employment if the exercise of professional judgment on behalf of the client will be or reasonably may be affected by the lawyer's own financial, business, property or personal interests, unless a disinterested lawyer would believe that the representation of the client will not be adversely affected thereby and the client consents to the representation after full disclosure of the implications of the lawyer's interest.”

           

            DR 5-105(A) and (B) regulate representation of multiple clients:

 

            “A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer’s representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105(C).”

 

            DR 5-105(C) establishes the following exceptions to the prohibitions of DR 5-105(A)

and (B):

 

“In the situation covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved....”

                       

                        In addition, DR 5-107(A) states:

            “A.      Except with the consent of the client after full disclosure a lawyer shall not:

            1.         Accept compensation for legal services from one other then the client.

            2.         Accept from one other than the client anything of value related to his or her representation of or employment by the client.”

 

                        Finally, DR-107(B) provides that:

 

            “Unless authorized by law, a lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal service for another to direct or regulate his or her professional judgment in rendering such legal services, or to cause the lawyer to compromise the lawyer’s duty to maintain the confidences and secrets of the client under DR 4-101(B).”

 

                        A number of Ethical Considerations[2] are relevant to this analysis and reinforce the Disciplinary Rules quoted above.  According to Ethical Consideration (“EC”) 5-1,

 

“. . . The professional judgment of a lawyer should be exercised, . . . solely for the benefit of the client and free of compromising influences and loyalties.  Neither the lawyer’s personal interests, the interests of other clients, nor the desires of third person should be permitted to dilute the lawyer’s loyalty to the client.”

 

           

Moreover, EC 5-2 provides:

 

            “A lawyer should not accept proffered employment if the lawyer’s personal interests or desires will, or there is reasonable probability that they will, affect adversely the advice to be given or services to be rendered the prospective client.  After accepting employment, a lawyer carefully should refrain from acquiring a property right or assuming a position that would tend to make his or her judgment  less protective of the interests of the client.”

 

Furthermore, EC 5-21 states:

 

            “The obligation of a lawyer to exercise professional judgment solely on behalf of the client requires disregarding the desires of others that might impair the lawyer’s free judgment.  The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political or social pressures upon the lawyer.  These influences are often subtle, and a lawyer must be alert to their existence. A lawyer subjected to outside pressures should make full disclosure of them to the client; and if the lawyer or the client believes that the effectiveness of the representation has been or will be impaired thereby, the lawyer should take proper steps to withdraw from representation of the client.”

 

Finally, EC 5-22 cautions attorneys  that where someone other than the client is paying the attorney’s fee, “the lawyer may feel a sense of responsibility to someone other than the client.”[3]

 

                        This Committee and other bar association ethics committees have had occasion to consider the issue of whether the payment of fees by one other than the client is permissible and whether an attorney may represent a client where the attorney's own financial interests may cloud the attorney's professional judgment.  While the factual situations are somewhat different from those presented by the Inquiring Attorney, they do provide insight into many of the issues raised.

 

                        In BANC[4] 94-7 (1994), we recognized the permissible acceptance by an attorney of the payment of fees from one other than the client.  In that situation, the Committee concluded that the Code of Professional Responsibility permitted a lawyer in a criminal case to accept payment from a defendant’s sister, provided the attorney adhered to the mandates of DR5-107(A) and (B), that the client consented, after full disclosure, and the attorney exercised his or her independent professional judgment solely for the benefit of the client.

 

            In BANC Op.  98-13 (1998), this Committee concluded that an attorney, on a list of

attorneys maintained by a home builder for referral to purchasers, may represent purchasers of homes sold by the builder where the builder referred the attorney to the purchaser and where the builder paid the attorney’s fees, provided the attorney complied with DR 5-107.  In reaching this conclusion, the Committee emphasized that the attorney must make full disclosure to the client of the attorney’s relationship with the builder, obtain the client’s consent, and not permit the builder “to direct or regulate” the attorney’s professional judgment in rendering services to the client. 

 

            Similarly, in BANC Op. 03-2 (2003), we concluded that, provided the attorney can

determine that the representation of the client would pass the "disinterested lawyer" standard, and that the attorney make full disclosure of the relationship between the attorney and the payor and did not permit the payor to regulate or direct the attorney's professional judgment, the attorney would be permitted to accept the representation.  In BANC Op. 01-05 (2001), this Committee placed particular emphasis on this  lawyer’s ability “to represent the interests of the client irrespective of the source of payment of the lawyer’s fees.”

 

                        On the other hand, this Committee determined, in BANC Op. 97-11 (1997), that an attorney could not participate in a “Make a Will” fund-raising - program for the benefit of a non-profit organization where the client would pay a fee directly to the sponsoring organization.  In addition to being concerned that such a program violated DR-2-103(B) (which prohibits a lawyer from giving anything of value to a third party for recommending the lawyer’s employment), the Committee also expressed concern that the lawyer “might be reluctant to seem disloyal to the fundraising organization by recommending against a gift to the organization, even if advising against such a gift would be in the best interest of the testator.”

 

                        In N.Y. State Bar Op. 705 (1998), the state bar association cautioned the inquiring attorney in a tax certiorari case to keep in mind that the "client" was the property owner and not the

non-attorney firm that engaged the attorney in a tax grievance matter.  The non-attorney firm's agreement with the property owner provided that if a grievance was denied, the firm could engage counsel to represent the property owner in court proceedings.  The opinion stated that the lawyer "may not accept the representation if the company imposes conditions on the representation that would require compromising the exercise of professional judgment on behalf of the property owner."  Furthermore, citing EC 7-7, the opinion stated that the property owner must make the decisions affecting the merits of the case, such as whether to settle the action. 

 

                        Other bar associations have considered arrangements between attorneys and third-party fee payors and determined that where the attorney has a strong incentive in promoting the payor’s interests, the attorney may not accept or continue in the representation.  Suffolk County Bar Op. 99-1 (1999) concluded that an attorney’s placement on an “Attorney List” provided by a company and given to prospective clients contemplating entering into transactions with the company, violated DR-101(A) because economic pressures “may arise” if the attorney “becomes the beneficiary of a sizeable amount of client referrals” which might affect the attorney’s “ability to exercise independent judgment” on behalf of his or her clients referred by the company.  The opinion concluded that the attorney’s financial interests would be clearly intertwined with the provider’s referral list (in that the amount of income received by the attorney would be decreased if the number of referrals was decreased) and “could easily be deemed to affect the attorney’s ability to exercise his or her independent professional judgment in representing a client” in any manner involving the referral source.  See also N.Y. County Lawyers’ Op. 729 (2000) (attorney may represent witness even though his or her fee is to be paid by someone other than the client, provided the attorney exercises his or her professional judgment solely for the benefit of the client; but if the “lawyer’s connections to or relationship with” the referring party “will affect adversely” the advice to be given to his or her client, the lawyer may not undertake the representation).

 

                        In N.Y. State Bar Op. 694 (1997), that committee determined that an attorney may not participate in a program operated by a real estate broker which offered prospective home purchasers reduced closing costs if the purchasers used an attorney selected by the real estate broker to represent both the lender and the purchaser.  In reaching its conclusion, the New York State Committee determined that the attorney had a conflict of interest under DR5-101(A) which could not be cured by the client’s consent, cited the attorney’s “strong interest” in the success of the broker, and concluded that “the personal financial incentive for the attorney to use his or her influence over the purchaser to secure an enforceable contract of sale and to close the transaction is sufficiently great that it is not at all obvious that the attorney can adequately represent the interests of the purchaser and the lender as well.” 

 

                        The instant situation described by the Inquiring Attorney presents two issues.  First, although the client Insured’s and the Provider's interests in an action against the Carrier may be identical initially, it is reasonably foreseeable that at some point in the future they may have divergent interests (e.g., with respect to settlement of the action or if the Provider institutes proceedings against the Insured).  Second, because the Provider conceivably could become a significant referral (and, thus, income) source for the Inquiring Attorney, it is possible that the attorney's own financial interests could adversely affect the attorney's ability to exercise independent professional judgment in favor of the client Insured.  As we stated in BANC Op. 01-05 (2001) and we emphasize here:  “Of paramount importance is the lawyer’s ability to represent the interest of the client irrespective of the source of payment of the lawyer’s fees.” 

            Whether it is the attorney’s exercise of independent professional judgment that may

be affected by personal and financial interests which might cause the attorney to accommodate the interests of the person paying the fee, or because of differing interests between multiple clients or otherwise,[5]  the test for the attorney to accept or continue in the employment is that of the disinterested lawyer.  As we have previously held:

 

“. . . the lawyer must determine whether it is ‘obvious’ in view of the differing interests, again viewed through the eyes of a ‘disinterested lawyer’ that the lawyer can competently represent the interests of each.  Only if the answer to this is in the affirmative may a lawyer continue the dual representations and even then, only if each client consents after full disclosure.”

 

 

BANC Op. 01-05, citing N.Y. County Op. 707 (1995). 

 

                We caution that since the possibility that the paying client Provider’s

interests and the client Insured’s interests may eventually differ is reasonably foreseeable at the inception of the representation, the attorney must disclose to both the clients, in writing, this possibility and its foreseeable ramifications, and the possible prejudice the clients might each suffer if the potential differences turn into actual differences, and the attorney should also disclose the advantages on each of the multiple representations and the attorney is required to withdraw to avoid violating a Disciplinary Rule.  See DR 2-110(B)(2) (mandating withdrawal where the lawyer’s “continued employment will result in violation of a Disciplinary Rule”).

 

                                In conclusion, for all of foregoing reasons, this Committee is of the view that the Inquiring Attorney may accept the representation of the Insureds as clients with payment of the fees by the Provider, provided that the attorney determines in the first instance, pursuant to the disinterested lawyer test enunciated in DR 5-101 (and DR 5-105(C) if there is a dual representation), that the representation of the client will not adversely be affected by the attorney’s own interests or by the influence of the Provider and that he or she can competently represent the interests of the client Insured, and provided there is compliance of all of the following:  (i) the attorney makes full disclosure to the Insured client of the nature and extent of the relationship, financial and otherwise, between the attorney and Provider, as well as the implications of the lawyer’s interests; (ii) to the extent there is dual representation of both Provider and the Insured, full disclosure is made to each client of the implications of the simultaneous representation and the advantages and risks involved; (iii) the client Insured consents to payment of the attorney’s fees by the Provider and, if there is dual representation, both the Insured and the Provider consent to both representations by the Inquiring Attorney; (iv) nothing of value is given by the attorney to the Provider for the referrals; (v) the attorney exercises independent professional judgment and does not permit the payor Provider to affect, direct or regulate the attorney’s professional judgment on behalf of the Insured; and (vi) the attorney maintains the Insured clients’ confidences and secrets in accordance with DR 4-101.

 

 (Approved by the Full Committee on June 28, 2006)



[1]  It is not clear from the Inquiring Attorney’s letter whether the Provider is willing to accept the settlement or litigation proceeds less the Inquiring Attorney’s contingency fee as payment in full for the services rendered to the Insureds or would proceed against the Insureds for the balance due. This opinion assumes the former-that is, that the Provider would accept the net litigation recovery funds as full satisfaction of the obligations of the Insured to the Provider.

 

[2]  While the DRs are mandatory and are binding on all attorneys in New York, the Ethical Considerations are “aspirational”.

[3]  While not yet adopted in New York, ABA Model Rule 1.7 further reinforces the New York Disciplinary Rules by providing that, except under certain circumstances, a lawyer shall not represent a client if there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a third person or by a personal interest of a lawyer.  Comment 13 to Model Rule 1.7 states that if there is a significant risk that the lawyer’s representation of the client would be materially limited by either (i) the lawyer’s own interests in accommodating the person paying the lawyer’s fee or by (ii) the lawyer’s responsibilities to a payer that is also a co-client, then the lawyer must determine whether the conflict is consentable, and if so, whether the client has adequate information about the material risks of the representation prior to waiving the conflict. 

[4]  Bar Association of Nassau County, Committee on Professional Ethics.

[5]  According to 22 NYCRR § 1200.1, (1) “‘Differing interests’ include every interest that will adversely affect either the judgment or the loyalty of a lawyer to a client, whether it be a conflicting , inconsistent, diverse, or other interest.’”


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