How Mighty Law's Fee Reduction Rewires Incentives Ethically

July 8, 2022

The Mighty Team

Mighty Law is unique in many ways, but arguably no more so than for its Code of Conduct, which puts forth best practices and standards that put the best interest of the injured person first and work to align the interests of Mighty Law lawyers with that of their customers.

Part of the Code mandates Mighty Law’s legal fee be lower than the PI industry standard, but even beyond that, Mighty Law also lowers its fee by 10% of certain costs incurred by the client that are paid for out of the client’s settlement, namely medical treatment on lien or letter of protection, interest and fees on cash advances, and direct case costs.

Mighty Law is the first law firm we know that has such a model of giving clients back a percentage of costs from the settlement. There are good reasons for this unique fee structure: it incentivizes getting clients the most cost-effective care, working with plaintiff financing companies that have the lowest fees and rates, and keeping case costs low.

But because the uniqueness of this fee structure also may lead some to ask, is it ethical?

There are two ethical rules potentially implicated by this type of structure. First, under ABA Model Rule 1.8(e) a lawyer generally cannot give money to their client. Second, under ABA Rule 5.4 a lawyer may not share legal fees with a nonlawyer.

So how does Mighty Law’s fee reduction interact with these rules?

First of all, reducing a fee, even prospectively, is not the same as putting cash in a client’s pocket. In fact, it happens all the time. Anyone who has hired a lawyer might first think of the awkward conversation they have at the end of an engagement – “Hey, this got really expensive, how about a break?” Similarly, in personal injury, it's common for an attorney to reduce their fees if a recovery comes in below what is expected and there are medical and other liens that eat up the settlement; Mighty has seen this firsthand across hundreds of PI law firms.

In short, it’s not uncommon or not allowed for a lawyer to reduce their fee, and why should it be, it’s clearly pro-client. As explained by Megan Zavieh, one of the ethics attorneys that Mighty consults with, “The focus of ethics regulators is always on the raising of fees to clients, not the reduction. Discounts are absolutely permitted.”

Ethical rules prohibit an attorney from giving money to a client, in part, because of the concern that when the lawyer is funding the client’s personal expenses, it is no longer clear where the attorney-client relationship ends and a more personal financial relationship begins. The lawyer’s independent judgment may be compromised, and it certainly gives the appearance of impropriety. Where the amount of any fee reduction to the client depends on the eventual outcome of the client’s case (as here) that concern is also not present. The client only receives the fee reduction if the case proves successful.

Second, while sharing a fee with a non-lawyer might be considered impermissible fee splitting, that prohibition applies to third parties, and not the client. “A fee split occurs when the law firm directs part of the fee it earns to a third party non-lawyer,” Zavieh said. “This can be in the form of the law firm sending a check to a third party or the law firm directing the party paying the legal fees to send part of the fee to which the lawyer is entitled to a third party. It does not mean the law firm reducing the fee it receives and the client receiving the balance of the amount to which the law firm would otherwise have been entitled.” Said plainly, there is no such thing as fee splitting with the client paying the fee.

Moreover, the prohibition on fee-splitting with non-lawyers is based upon a concern that the lawyer’s independent judgment may be impaired by the financial incentive being received by someone who should have no input on the handling of the lawyer’s work. “This concern is not present with the client, who of course has sway in the handling of the matter,” Zavieh said.

While Mighty Law’s unique fee structure might at first glance look unusual, it is completely consistent with ethics rules, and structured specifically to rewire incentives to be unequivocally pro-client.

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How Mighty Law's Fee Reduction Rewires Incentives Ethically

Mighty Law is the first law firm we know that has such a model of giving clients back a percentage of costs from the settlement. There are good reasons for this unique fee structure: it incentivizes getting clients the most cost-effective care, working with plaintiff financing companies that have the lowest fees and rates, and keeping case costs low. While Mighty Law’s unique fee structure might at first glance look unusual, it is completely consistent with ethics rules, and structured specifically to rewire incentives to be unequivocally pro-client.