UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 94-21
An attorney ("the second attorney") was contacted by a prospective client regarding representation in a workers' compensation case. At the initial meeting with the client, the second attorney became aware that the client had been represented by another attorney ("the first attorney") whom she had discharged. In the file was evidence that the first attorney had done an extensive amount of work on the file. It also included a contingency fee agreement with the first attorney. Shortly after accepting the case, the second attorney was able to negotiate a settlement with the attorney for the employer/carrier after performing little work.
Questions:
What obligations does the second attorney have to the first attorney with regard to the fee? What should the second attorney do if the two attorneys are not able to agree as to the division of the fees?
Summary:
The second attorney, being aware of the contingency agreement with the first attorney, has an obligation to determine what, if any, amount is owed under the contingency fee arrangement upon termination. If indeed the first attorney has a lien on the file or a right to a portion of the proceeds of the settlement, Rule 1.15 obligates the second attorney to hold the settlement funds, notify the first attorney of receipt of the funds and deliver to that first attorney what he is entitled to receive. Because the second attorney owes an obligation of candor to the tribunal, Rule 3.3, and because it is incumbent upon the Workers' Compensation Commission to approve attorney's fees, that attorney is obligated to disclose the first attorney's agreement and seek the Commission's approval of all the fees. The Commission will likely resolve any disputes as to division of fees.
Opinion:
Although the facts as presented do not indicate the reason for termination or the terms of the contingency fee agreement with the first attorney, the first attorney may have an interest in the settlement funds by virtue of South Carolina law or by virtue of the contingency fee agreement. See Rule 1.8(j) (a lawyer may ethically acquire a lien to secure fees and expenses.) See also, Wilcox, South Carolina Legal Ethics, § 3.3.4 (1992). If so, the second attorney has a duty to hold the settlement funds and to notify the first attorney that he has received the funds (Rule 1.15(b). Furthermore, Rule 1.15(b) requires that the second attorney promptly deliver to the third person any funds that that third person is entitled to receive and, upon request, to render a full accounting. The comments to Rule 1.15 impose upon the second attorney a duty "to protect such third party claims against wrongful interference by the client, but also instruct the second attorney not to unilaterally assume to arbitrate such a dispute". Comment, Rule 1.15.
Additionally, because this is a workers' compensation matter, the Commission is required to approve all attorney's fees. S.C. Code Ann. § 42-15-90. Because Rule 3.3 requires the attorney to approach the tribunal with candor, it would be incumbent upon the second attorney to inform the court of the first attorney's work, the contingency fee agreement, and any claim or dispute between the two attorneys as to the division of the fees. In certain circumstances the "failure to make a disclosure is the equivalent of an affirmative misrepresentation." See In Re: James, 267 S.C. 474, 229 S.E.2d 594 (1976) (Executor deliberately failed to disclose to court where attorney's fees were approved, that he also served as lawyer for the estate. Cited in Wilcox, South Carolina Legal Ethics, § 8.21 (1992)). If the attorney's are unable to resolve the dispute as to fees, the Workers' Compensation Commission will.