Attorneys cannot double dip on contingency fees to settle third party liens or claims. In Ethics Opinion RO-2015-01, the Disciplinary Commission of the Alabama State Bar addressed whether or not a lawyer representing a client on a contingency fee basis could enter into an agreement for an additional contingency fee related to efforts to reduce any existing third party liens or claims where the third party liens or claims are related to and satisfied from the gross settlement of that matter.
Answering in the negative, the Disciplinary Commission stated that “[a]bsent extraordinary circumstances, a lawyer may not enter into an agreement for, charge, or collect an attorney’s fee based on the gross recovery or settlement of a matter, and in the same matter charge an additional fee for the negotiation of a reduction of third party liens or claims, where the liens or claims are related to, and to be satisfied from, the gross settlement proceeds from that matter.”
In reaching this conclusion, the Disciplinary Commission cited Rule 1.5(a) of the Alabama Rules of Professional Conduct, which requires “[a] lawyer shall not enter into an agreement for, or charge, or collect a clearly excessive fee…” The Commission walked through the nine factors of Rule 1.5, which are considered when determining whether a fee is “clearly excessive.” In reviewing those factors, the Disciplinary Commission noted that contingent fee arrangements are customary, especially in plaintiffs practice, and the negotiation and reduction of third party liens or claims are normal to such representation. “[A] lien reduction granted by a medical provider or lienholder to facilitate the global settlement of the underlying claim, or consistent with the common fund doctrine, is the result of action already practically and ethically required of the lawyer and not the result of an additional service.” The Commission also pointed out that negotiation and reduction of third party liens or claims generally occurs before a final settlement is reached.
In a contingency fee arrangement, it is extremely important to be cognizant of the scope of your representation. According to the Disciplinary Commission of the Alabama State Bar, the scope of a contingent fee arrangement is to include the negotiation and reduction of any third party liens or claims, and that it is unethical to set up a separate contingent fee arrangement with a client to negotiate and reduce the amount of a third party lien or claim, when it is related to the gross settlement of that lawsuit.