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ETHICS OPINION 689-1991 Contingent fee; expenses of litigation.
NEW YORK COUNTY LAWYERS’ ASSOCIATION
Committee on Professional Ethics
Opinion No. 689
TOPIC: Contingent fee; expenses of litigation.
DIGEST: As a general rule, a lawyer may be reimbursed from the award of damages for expenses and disbursements incurred on behalf of the client in a personal injury action, including postage, long distance telephone calls, facsimile transmissions and receipts, photocopying and travel, if the expenses are reasonable in amount and necessary to the diligent conduct of the litigation. However, disbursements in contingent fee actions and in other matters covered by court rule must be assessed as provided in the court rule.
CODE: DR 2-106(D), DR 5-103(B), EC 5-8.
QUESTION:
May a lawyer properly be reimbursed from the award of damages for expenses and disbursements incurred on behalf of the client in a personal injury action, including postage, long distance telephone calls, facsimile transmissions and receipts, photocopying and travel?
OPINION:
Certain Contingency Fee Matters
It is not the function of this Committee to pass upon questions of law. However, we note that certain court rules may affect the answer to this question with respect to some types of cases. For example, the Appellate Division Rules for the First and Second Department govern fees and disbursements in contingent fee actions or claims involving personal injury, malpractice, wrongful death, condemnation and grade change proceedings. See 22 N.Y.C.R.R. Section 603.7(e) (3) (First Dep’t), 22 N.Y.C.R.R. Section 691.20(e) (3) (Second Dep’t). In particular, such rules provide that the contingency percentage must be computed on the net sum recovered after deducting, from the amount recovered, the expenses and disbursements for expert testimony, investigative or other services properly chargeable to the enforcement of the claim or prosecution of the action. Similarly, there may be other rules of court that bear on the question of disbursements. For example, particular court rules may characterize some expenses (e.g. postage or photocopying) as non-reimbursable normal overhead rather than reimbursable disbursements.
Although, as noted below, the common law has generally allowed reimbursement for reasonable out-of-pocket disbursements other than normal operating overhead costs, a specific court rule clearly takes precedence of the more general rule in those cases where the court rule by its terms applies.
Other Contingency Fee Matters
DR 2-106(D) provides that a lawyer who has been employed in a contingent fee matter must provide the client with a writing that states, among other things, the amount of “litigation and other expenses to be deducted from the recovery and whether such expenses are to be deducted before or after the contingent fee is calculated”. Consistent with this provision, a lawyer may provide in the lawyer’s retainer agreement or fee disclosure statement to the client that expenses of litigation will be deducted from any judgment before calculation of the contingent fee, or, alternatively, may provide that expenses will be deducted from the client’s share of the recovery after calculation of the lawyer’s contingent fee. We note, however, that such a contractual provision could not be included in the retainer agreement for a contingency fee matter covered by the above-cited rules of the Appellate Divisions, since the more specific prescription of the court rule would apply.
Matters Not Handled on a Contingency Fee Basis
A lawyer is generally entitled to be reimbursed for “such reasonable expenditures as the diligent prosecution or defense of a lawsuit may require. . . . However, such disbursements are not deemed to include expenditures which are a necessary part or adjunct of a properly equipped lawyer’s office”. Rao v. Noferi, 50 Misc. 2d 60, 269 N.Y.S.2d 534 (1st Dep’t 1966); see Estate of Muccini, 118 Misc. 2d 173, 460 N.Y.S,2d 684 (Sup. Ct. N.Y. Co. 1983) (“The out-of-pocket disbursements made by an attorney, other than normal operating overhead costs, may be refunded to the said attorney”); Application of Weiss, 196 N.Y.S.2d 255 (1959), rev’d on other grounds, 11 A.B.2d 63, 201 N.Y,S.2d 725 (1st Dep’t 1960) (lawyer entitled to recover travel expenses if incurred “in interest of obtaining advantageous result for client” and where not for “personal benefit”); see also Alabama Opinion No. 89-109 (lawyer may categorize expenses, including photocopying, telephone charges and postage costs, and bill client in a mutually agreeable manner).
A client is liable for such disbursements even in the absence of an express agreement with respect to payment of disbursements. Dreyer v. Dondorf, 143 Misc. 2d 760, 542 N.Y.S.2d 135 (Sup. Ct. Albany Co, 1989) (client liable for disbursements although contingency fee agreement did not specify who would pay expenses if suit was not successful); see generally, 7 N.Y. Jur. 2d Attorneys At Law, §127 at pp. 15-18. Indeed, the Code expressly prohibits a lawyer from assuming ultimate liability for the costs and expenses of litigation. DR 5-103(B) provides:
While representing a client in connection with a contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client, except that . . . a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses.
See also EC 5-8. See generally N.Y. County 654 (1977); N.Y. State 464 (1977). In fact, an agreement by a lawyer to pay for a client’s disbursements would be champertous under Section 288 of the New York Judiciary Law (formerly Section 274 of the Penal Law). See Application of Weiss, 196 N.Y.S. 2d 255 (1959).
CONCLUSION:
As a general rule, a lawyer may properly be reimbursed from the award of damages for expenses and disbursements incurred on behalf of the client in a personal injury action, including postage, long distance telephone calls, facsimile transmissions and receipts, photocopying and travel, so long as such expenses are reasonable in amount and necessary to the diligent conduct of the litigation. However, this general rule does not apply in contingent fee actions and in other matters which are specifically governed by court rule.
November 7, 1991