Hello everyone and welcome to this Ethics Alert blog which will discuss the Bar Professional Ethics Committee’s (PEC) Proposed Advisory Opinion 16-1, which concludes that a lawyer can forgive advanced costs at the conclusion of a negligence case when the lawyer also does not take a fee and inform lien holders and the lawyer advises third parties with an interest in the settlement. The proposed advisory opinion is here: Proposed Advisory Op. 16-1.
The PEC considered the issue at its June 17, 2016 meeting at the Bar’s Annual Convention in Orlando. The underlying circumstances were as follows: the lawyer had a contingency fee contract with the client and agreed to advance the costs of litigation. After the case was filed, an appellate decision in another matter eliminated the cause of action. The parties later reached a settlement, but the settlement amount only slightly exceeded the lawyer’s costs and was about 1/2 of the client’s total medical bills and the costs.
The lawyer waived the contingency fee and then asked the Bar ethics department if he could reduce the amount of the advanced costs so that the client could receive some of the settlement proceeds after the outstanding medical liens and other interests were resolved.. The Bar ethics department opined that this was prohibited under the Bar rules; however, a request was made for the PEC to review it.
The underlying circumstances potentially implicate Florida Bar Rule 4-1.8(e), which prohibits financial assistance to clients “in connection with pending or contemplated litigation” (except for an initial agreement to advance of litigation costs which is contingent upon the outcome (no recovery, no costs), or paying the costs and expenses of an indigent client).
The proposed advisory opinion states the lawyer’s forgiveness of the advanced costs is permitted under the Bar rules since the fee agreement did not make the lawyer unconditionally responsible for the costs “at the outset of the representation”, the cost forgiveness occurred after the settlement of the case, and the lawyer has waived the fees. The advisory opinion concludes:
In summary, the committee is of the opinion that the inquirer’s proposal not to seek reimbursement for some of the costs the inquirer has advanced on behalf of the client is permissible under these specific circumstances: where there has been no agreement for the inquirer to be unconditionally responsible for the costs at the outset of representation, the cost “forgiveness” occurs after settlement, and the inquirer will receive no fees for the representation. The committee believes that the rule’s prohibition is inapplicable because there was no agreement at the outset of representation for the inquirer to be responsible for the costs, and the committee believes that application of the exception to Rule 4-1.8(e) leads to the same result, as the recovery is insufficient to cover all medical bills and litigation costs and the repayment of the costs is therefore “contingent on the outcome of the matter” under the rule.
The proposed opinion also states that “(i)n negotiating liens, the inquirer must disclose to lien holders that the inquirer will not be taking a fee, will not seek reimbursement for some of the inquirer’s costs, and is seeking to disburse some of the recovery to the client.” The proposed advisory opinion was published on the Bar’s website and the PEC will consider any comments from Bar members when it meets in October 2016.
Bottom line: This proposed advisory opinion is clearly a correct result based upon both the language and intent of Florida Bar Rule 4-1.8(e). In my opinion, the forgiveness of advanced costs after a matter is settled should never be considered to be financial assistance “in connection with pending or contemplated litigation.”
Be careful out there.
Disclaimer: this Ethics Alert is not an advertisement and does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.
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Joseph A. Corsmeier, Esquire
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