Opinion 458

Statement of Facts Discussion Conclusion

A medical-legal consulting firm has engaged in substantial advertising involving the use of contingent fee contracts wherein the firm enters into a contingent contract with a particular plaintiff and in return provides various services including the providing of expert testimony.

There are four basic issues which must be considered in light of the Texas Code of Professional Responsibility. First, is the contingent fee agreement a mere subterfuge for fee splitting with non-lawyers? Second, is the attorney giving up complete or partial control of the case? Third, does the contingency contract result in the payment of excessive fees by the client? And fourth, does the contract result in the payment of a contingent fee to a witness in exchange for his or her testimony?

Opinions from various jurisdictions, while showing that a slight majority of states allow such contracts, tend to fall on two sides of a very narrow line. Those jurisdictions allowing such contracts do so hesitantly, expressing concern over possible violations of the Code of Professional Responsibility. Such seems to be the rule in Indiana (Opinion 1 of 1981); Arizona (Opinion 84- 9), and Connecticut, (Informal Opinion 82-7). The ABA Informal Opinion 1375 (1976) is fairly representative in this area. The ABA would allow such an arrangement so long as:

"(1) the lay person or agency (medical-legal consulting service and experts provided by the same) is not to engage in the unauthorized practice of law, DR 3-101(A); (2) the lawyer does not share legal fees with the lay person or agency, DR 3-102(A)(1)(3); and (3) the contingent fee is not payable for the testimony of the lay person or agency, DR 7-109(C)."

All of the jurisdictions which allow such fee arrangements have expressed similar reservations for attorneys who recommend or participate in such arrangements. These states see these as potential violations and not as violations per se. These states seem to have come to the conclusion that with careful contracting and diligence on behalf of the attorney in maintaining control of the case, ethical violations can be avoided.

Other states, however, have seen these problems as too serious to be completely avoided. In Opinion 5-72 of the New York State Bar Association Committee on Professional Ethics, the Committee concluded that there were serious ethical problems in relation to the 20%-30% contingent fee in addition to the attorneys contingent fee. This was especially true in light of the fact that the consulting firm performs many of the functions normally done by the attorney for his or her fee alone.

But the most troubling problem in this area comes in light of DR 7-109(C) which states:
"A lawyer shall not pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of his testimony or the outcome of the case. But a lawyer may advance, guarantee, or acquiesce in the payment of:

1. (1) Expenses reasonably incurred by a witness in attending or testifying;
2. (2) Reasonable compensation to a witness for his loss of time in attending or testifying;
3. (3) A reasonable fee for the professional services of an expert."

In Idaho Formal Opinion 104, the ethics committee found that the paying of a contingent fee to a "finder" was the functional equivalent of paying a contingent fee to a witness. There does exist a financial incentive to influence the testimony of the witnesses provided. Idaho found these contingent fee contracts to violate DR 7-109(C) and therefore prohibited attorneys from participating in or recommending such contracts.

Several states have heeded the warnings of other states and have held such contingent fee arrangements to be unethical. Beyond the problem presented in the areas of (1) fee splitting, (2) excessive fees, (3) loss of attorney control, (4) preventing the unauthorized practice of law (not dealt with by this committee), and (5) payment of contingent fees in exchange for expert testimony, the entire arrangement gives the appearance of impropriety.

Thus, an attorney who aids, assists, or permits a client to enter into such a contract violates DR 7-109(C). It would seem to be the only logical conclusion available, that when you pay a fee based on a percentage of the recovery to a consulting firm providing expert witnesses, in essence you are paying for testimony. Theoretically, the better the testimony, the larger the recovery and hence, the larger the fee to the witness. Under 7-28, "witnesses should always testify truthfully and should be free from any financial inducements that might tempt them to do otherwise."

This Committee does not offer an opinion on the legitimacy or enforceability of a contract between a client and a medical-legal consulting firm. It merely addresses the issue of an attorney's participation in such an agreement and the ethical implications arising therefrom.