(Inquiry No. 452 )
Demanding payment for disbursements advanced on behalf of former client.
Subject to certain restrictions, a lawyer may demand and seek payment from a former client for appropriate “legal disbursements.”
Inquiring counsel was attorney of record in the prosecution of a medical malpractice action. The trial ended in a verdict for the defendant and the client did not wish to appeal. Pursuant to the “standard and recommended contingent, sliding scale retainer agreement for medical malpractice actions”, inquiring counsel had advanced and incurred some $5,000.00 in legal disbursements, for which the client has made no payment.
May a law firm demand payment, or commence an action for payment, from a former contingent fee client for whom the law firm had advanced legal disbursements?
Subject to certain restrictions, a lawyer may demand and seek payment from a former client for appropriate “legal disbursements”.
Disciplinary Rule 2-106(D) states that promptly after a lawyer has been employed in a contingent fee matter, the lawyer shall provide the client with a writing stating the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter, and if there is a recovery, showing the remittance to the client and the method of its determination. It is presumed that this has been done; because if it was not, the right of recovery becomes a legal question rather than an ethical one. It is also presumed that the contingent fee retainer met the requirements of Section 474-2 of the Judiciary Law and Rule 691.20 (e) of the Rules of the Appellate Division, Second Department.
Regarding disbursements, they may be demanded and the attorney may even turn the matter over to a collection agency. This Committee’s Opinion # 90-25 states that “[t]here is no prohibition by an attorney, whose client has manifested an unwillingness to pay the outstanding balance of his/her account, from referring the client’s account to a collection agency, but may not report same client to a credit bureau.” Indeed, this Committee has recently emphasized that “[t]he client always must remain ultimately liable for these disbursements … ” (Nassau County Opinion # 92-31, citing EC 5-8 [“the ultimate liability for … costs and expenses (of litigation) must be that of the client)], and DR 4-101(C) in fact permits the attorney to actually reveal client “Confidences or secrets necessary to establish or collect the lawyer’s fee …. ”
It is important, however, Ethical Consideration 2-23 in mind. to keep the admonitions of That is:
“A lawyer should be zealous in efforts to avoid controversies over fees with clients and should attempt to resol ve amicably any differences on the subject. A lawyer should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client.”
Regarding further precedent on this matter, Opinion # 608 (1990) of the New York state Bar Association Committee on Professional Ethics states: “A lawyer may use a collection agency to collect unpaid legal fees if all other reasonable efforts short of litigation have been exhausted. The lawyer is legally and ethically responsible for the conduct of the agent in the collection process. The lawyer may reveal client confidences and secrets that are necessary to establish or collect fees.”
[Approved by the Executive Subcommittee on 1/12/93] [Approved by the Full Committee on 1/27/93].
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