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OBA Ethics Counsel

Ethics Opinion No. 26

Adopted April 29, 1932

The Board of Governors is in receipt of the following request for an Advisory Opinion:

"When an attorney enters into a contingent fee contract on a fifty-fifty basis, and the cause is disposed of by recovery, either by compromise or suit, can the attorney take from the client's portion of such recovery all his expenses and costs advanced, or shall he deduct these costs, expenses, etc., from the total recovery and divide the residue;

The second question is, can an attorney enter into a contract by which he requires his client to agree that the attorney shall have fifty per cent of the gross recovery, the client to pay all expenses, costs, etc."

Preliminary to the response to the questions, it must be said that in the rendering of Advisory Opinions it is not the province of the Board of Governors to render opinions upon justiciable matters--that is to say, matters which are properly to be decided by the courts. Advisory Opinions of the Board of Governors should be restricted to questions involving the professional ethics and professional conduct of members of the bar as prescribed by the rules of professional conduct and the causes for disbarment; and while the questions propounded do involve the professional conduct of the members of the bar they also involve the construction of Section 4101, C.O.S.1921, 5 Okl. St. Ann. § 7, which is as follows:

"It shall be lawful for an attorney to contract for a percentage or portion of the proceeds of a client's cause of action or claim not to exceed fifty per centum of the net amount of such judgment as may be recovered or such compromise as may be made."

In the absence of a construction by the courts of this statute as to the matters involved, the Board of Governors is reluctant to appear as invading the province of the courts. Accordingly, whatever views are expressed in connection with the subject-matter should be considered more as a suggestion of ideas than as an opinion.

The statute seems to be plain. An attorney is given a lien upon the client's "cause of action" not to exceed fifty per centum of the "net" amount of the judgment or compromise. The right to recover costs does not of itself constitute a "cause of action" but is merely incidental thereto. Again, it would seem that the amount of a judgment is one thing while the "net" amount of a judgment would seem to suggest another. In our opinion the legislature intended by the use of the phrase "net amount" of the judgment to limit the amount upon which the maximum of fifty per cent would operate to an amount less than the gross amount. The word "net" has been defined as "clear of all proper deductions and charges and implies a gross sum from which allowances are to be taken." (See Words and Phrases.)

Upon these considerations it seems that the proper construction of the statute would be that the fifty per cent maximum should operate upon the amount of the actual net recovery by the client, to-wit, the amount of the judgment less the costs incurred or expended in obtaining it.

In this connection, see Rule 44 of the Rules of Professional Conduct which provides:

"A lawyer may not properly agree with a client that the lawyer shall pay or bear the expenses of the litigation; he may in good faith advance expenses as a matter of convenience but subject to reimbursement."

In view of the foregoing, the questions propounded may be disposed of by stating that the attorney should deduct the amount of the costs, etc., from the gross recovery, the residue to be equally divided.

To amplify:

(a) If the client had expended fifty dollars as costs, and the attorney had advanced an additional sum of $75.00 as costs and the total sum collected on the judgment is $5,100.00, there should first be deducted from the gross amount collected the sum of $125.00, out of which the attorney should be reimbursed to the extent of $75.00, the client reimbursing himself in the sum of $50.00. The remainder of the gross sum collected, to-wit, $4,975, the "net amount" of the judgment, should be divided equally, to-wit, the sum of $2,487.50 to each. This is within the statute referred to.

(b) Using the same figures, if the gross amount of the judgment is first divided, to-wit, $2,550.00 to each and the client reimburses the attorney out of his one-half to the extent of $75.00, the attorney would, of course, net $2,550.00 or $62.50 more than the maximum of fifty per cent of the "net amount" of the judgment, which would be in contravention of the statute.

It follows that the second question "can an attorney enter into a contract by which he requires his client to agree that the attorney shall have fifty per cent of the gross amount, the client to pay all expenses, costs, etc.," is answered in the negative.