Double-dipping lawyers taking big slice of injury settlements

It’s called “double dipping” and one judge’s ruling called it a breach of the law.

A Star investigation has found the practice to be widespread and as a result many Ontario residents have been overcharged thousands of dollars and likely do not know it.

“It just feels like you’re being screwed,” said accident victim Michelle Francis. “Is there anyone you can honestly trust?”

In simple terms, a lawyer representing an accident victim on contingency gets paid only if he or she is successful. The lawyer’s fee is usually a percentage of the money awarded for damages. But many lawyers, the Star found, routinely take — on top of their fee — a second payment called “costs” that under Ontario law belongs to the client.

The Star found two dozen examples of personal injury law firms in the province, from small outfits to well known downtown Toronto firms, using retainer agreements that state they will take, in addition to their fee, costs, or a portion of costs. That’s in contravention of Ontario’s Solicitors Act, the legislation governing the practice of law in the province.

Malcolm Mercer, the chair of the Law Society of Upper Canada committee looking into advertising and fee issues, said he believes “that there’s a genuine problem to be worked through.”

The double-dipping issue is at the centre of a case in March before the Ontario Court of Appeal. Lawyers will argue whether between 4,000 and 6,000 clients may join together in a class-action lawsuit over the cost issue against one Toronto personal injury firm, Neinstein & Associates.

“A contingency fee agreement shall not include in the fee payable to the solicitor . . . any amount arising as a result of an award of costs or costs obtained as part of a settlement.”

— Solicitors Act of Ontario

Ontario legalized contingency fees in 2004. It was an attempt by then-attorney general Michael Bryant to regulate an already informal practice and improve access to justice for accident victims who couldn’t afford to pay a lawyer up front to take on a case.

Here’s how it is supposed to work. When a lawyer negotiates a settlement with an insurance company, the accident victim is awarded money to cover damages (pain and suffering, loss of future earnings), and a sum of money to cover at least some of the costs of bringing the case forward. The victim’s lawyer is entitled to a percentage of the damages agreed upon in their contingency fee retainer with their client, usually between 15 and 35 per cent, but not more than 50 per cent.

When lawyers are working on contingency, the Solicitors Act forbids them from taking any part of the “costs” award, unless there are “exceptional circumstances” and they have a judge’s approval. The theory is that the lawyer’s cut of the damages already pays his legal bill and so the portion called costs belongs to the client.

During the negotiation, the lawyer and insurer usually go back and forth about how much to allot for damages and costs, plus an amount for disbursements, such as photocopies and medical reports. According to insurance insiders the Star spoke to, insurers are really only concerned about the entire amount they will have to pay out, and will often opt to settle for one “all in” sum. That can leave the lawyer to divide up the settlement before taking it back to the client.

Most personal injury lawyers the Star contacted refused to provide a copy of their contingency fee agreements. The Star spent several months sifting through hundreds of public court files and found a series of improper agreements.

Chester Kupnicki was headed home from Mississauga on his Harley-Davidson one hot summer Saturday night when a Buick sedan approaching in the opposite direction crossed into his lane.

With no time to stop, Kupnicki, 54 at the time, collided with the Buick and was thrown 25 metres onto the pavement and knocked unconscious. Five days later doctors amputated his badly damaged left leg below the knee.

He bounced around from lawyer to lawyer, until Harry Steinmetz of Fireman Wolfe took his case and helped him obtain a settlement in 2009.

Of the $1.86 million settlement paid by the insurance company for Kupnicki’s catastrophic injury, his lawyers received roughly $480,000. The statement of account does not break down the legal fees. According to the retainer agreement Kupnicki signed with Steinmetz, the lawyer was working on contingency and would take 25 per cent of the settlement, plus “an amount equal to costs awarded by way of counsel fees.”

If Kupnicki had known about the Solicitors Act, he would have realized lawyers working on contingency cannot take costs and a percentage of damages.

When the Star went over the bills with him, Kupnicki, a Polish immigrant with English as his second language, said he was baffled by the whole process.

“Costs? What kind of costs? I didn’t know what the hell is going on,” Kupnicki said.

Since the settlement was a lump sum or “all in” payment, it is not clear how much the lawyer took in costs.

In an email to the Star, lawyer Steinmetz said, “as a matter of practice and out of respect for our clients,” he does not discuss specific details of any case, but noted his clients “often come to us in difficult circumstances and we work tremendously hard to fight on their behalf.”

“When it comes to our fees, we work to ensure those fees are, above all, fair and reasonable. In many cases, these fees are approved by the courts. We have thousands of satisfied clients because we are fair, act with integrity and promote justice on their behalf,” he wrote.

In its research, the Star found two dozen cases where contingency fee agreements stated lawyers would take costs or a portion of the costs, in addition to a percentage of the damages award.

“You’re reading this stuff and it’s like hieroglyphics,” said Michelle Francis, who dealt with two law firms after the vehicle she was driving was rear-ended in Pickering in 2009, causing her to suffer chronic pain.

In a letter to Francis explaining her fee agreement, the first firm, Singer Kwinter, stated that its fee would be 20 per cent of any amount she received from the at-fault party, plus “we will receive an amount from the insurance company known as ‘partial indemnity costs’ which represents the balance of our fee.”

Unhappy with how the case was progressing, she switched to another lawyer, Leslie Dorrett.

The retainer she signed with Dorrett stated that the firm was entitled to costs. In the end, lawyer Dorrett negotiated a $42,500 settlement for Francis. Dorrett deducted about $21,500 for disbursements and payments to third parties, including rehabilitation clinics, and $6,780 as her cut of the damages. The lawyer also took $3,500 in costs. That left Francis with approximately $10,700 — just 25 per cent of the total settlement.

Sensing something wasn’t right, Francis wrote above her signature on one of the settlement documents: “This is signed out of obligation not agreement . . . questionable process committed to arrive here.”

Dorrett would not respond to questions from the Star.

Alfred Kwinter, founding partner of Singer Kwinter, Francis’s original lawyer, told the Star in an email that “contingency fees are essential to give the public access to the justice system” and that his firm’s accounts “have always been fair and reasonable and where there is any concern or dispute from the client, we have endeavoured to ensure that the client is satisfied.”

In another example, a contingency fee retainer used by Toronto law firm Wolf Kimelman states that the firm’s legal fees will consist of “25% of all damages or monies recovered, plus HST, plus costs and disbursements.”

Kevin Wolf, a partner at Wolf Kimelman, said the case is in litigation and the firm could not comment.

Other retainer agreements are confusing and also omit information required by the Solicitors Act.

For example, a retainer agreement from Sandra Zisckind Law P.C., which operates “in association with Diamond & Diamond,” states that the legal fee will be “equal to 33 per cent (1/3) of the gross fees including party to party costs.”

It is unclear what “gross fees” mean. Zisckind did not clarify this term when asked by the Star.

The retainer does not include a statement telling the client that they have a right to ask a judge to review and approve her bill, as stipulated by the Solicitors Act.

In an email to the Star, Zisckind, who is married to lawyer Jeremy Diamond, the subject of a recent Star investigation, said: “I can confirm that we have always intended to operate in total compliance with the Solicitors Act as well as regulations and guidelines set by the Law Society of Upper Canada, and we believe that our retainer agreements with all our clients do so.”

She said it appeared the Star had “drawn conclusions based on incomplete factual and legal information. As such, we would caution you against publishing any of the claims you have made above.”

In a letter to the Star, Zisckind’s lawyer, Julian Porter, said the Star’s questions “involve matters of legal statutory interpretation, which are not as straightforward as you suggest.”

Another regulation under the Solicitors Act requires lawyers acting on contingency to call their contracts with clients “contingency fee retainer agreements.” The Star found many retainers that bear the hallmarks of such contracts, namely that the client will not pay unless their lawyer is successful, but were not properly labelled.

For instance, a retainer agreement from Sokoloff Lawyers is not labelled as a contingency fee agreement. It states: “If your case is unsuccessful and you have listened to our advice, then there will be no legal fee from us to you.”

The Sokoloff retainer states the firm’s fee will be “33% of the total of damages, interest and costs received.”

Lawyer Wendy Sokoloff told the Star in an email that it is a practice at her office to “have our retainer agreement explained to clients in detail so they understand the terms of the agreement” and that the firm endeavours “to be fair and reasonable with our fees — client satisfaction is paramount.”

The contingency fee case in front of Ontario’s Court of Appeal centres on Cassie Hodge, a mother of two from Brooklin, Ont., who developed chronic pain after a December 2002 car accident.

Originally, a Superior Court judge refused to certify the case as a class action, then the Divisional Court of Justice reversed that decision and said the case should proceed as a class action. The lawyer involved, Gary Neinstein, is appealing that decision and the case will be heard in March.

In an affidavit Hodge swore, she states that Neinstein settled her case with the insurance company and $150,000 was paid out. Of that amount she says she received only $10,000.

The majority of the money, she alleges in her filings, went to Neinstein for his fee, including an amount for costs, disbursements and the payout of a high-interest loan the lawyer helped arrange for Hodge.

Around that time, Hodge retained lawyer Peter Waldmann. In his court submissions, class counsel Waldmann alleges that Neinstein and his firm took from their clients both a percentage of the damages and the costs — and the costs should be repaid.

Chris Paliare, the lawyer for the Neinstein firm, argued in his factum that the case should not be certified as a class. In a letter to the Star, Paliare said “there have been no legal determinations on the allegations raised by Ms. Hodge, nor have there been any factual findings in her case against the Neinstein firm.”

In one of the rare cases where a judge was asked to weigh in on a disputed contingency fee agreement, the judge in the Ottawa-area matter declared void an agreement that stated the lawyer would take a percentage of damages, plus costs. The judge said the agreement “breaches the Solicitors Act.”

A June 2016 report by a law society working group notes that it has been told by personal injury lawyers that when it comes to complying with the rules regarding contingency fee agreements, “strict compliance” has been the “exception.”

The law society’s Mercer said the current contingency fee system presents two problems. One is a question about whether lawyers are following the rules in the Solicitors Act. The other is a question about whether the rules work in practice “in the interests of all the stakeholders.”

“The law society is properly concerned about whether or not fees charged to clients are fair and reasonable,” Mercer said.

Two lawyers have recently been disciplined for not following contingency fee rules. One lawyer was suspended for a month after, among other infractions, he took $5,750 in costs without court approval. The other was reprimanded for failing to advise a client of the rule that contingency fee agreements must get judicial approval to allow the lawyer to take costs. Both are general practitioners.

George Argyropolous, who spent almost eight years as a provincial fee assessment officer adjudicating lawyers bills, said he saw double dipping often.

“It’s common among the personal injury bar,” Argyropoulos told the Star. “Lawyers who are aware that they shouldn’t be keeping the costs do so because they’ve done a risk assessment respecting how often they’ll be caught . . . . The vast majority of clients are not aware of the assessment process in Ontario, and that costs belong to the client.”

Only a judge can interpret and nullify a retainer agreement but the process is time consuming, Argyropolous said. In many cases, if the parties consented, he said he would mediate a resolution where often the costs were returned to the client.

Adam Wagman, president of the Ontario Trial Lawyers Association, a group representing 1,600 lawyers and staff associated with Ontario’s personal injury industry, said whether or not cost-taking is against the rules depends on the form of the agreement between the lawyer and client.

There are many agreements, he said, which are “perfectly fine.” However, his organization believes the Solicitors Act needs to be rewritten to allow lawyers working on contingency to keep the costs, which he said, enable lawyers to cover the high price of litigation and “maximize access to justice.”

“How does a lawyer properly take on a modest-value case on a contingency fee basis knowing that the amount of work that they are going to have to do is going to far exceed the value of the case?” he said. “At the end of the day, it’s not the form of the fee agreement that matters. It’s the substance. It’s the result. Is the fee fair and reasonable or not?”

Allan Hutchinson, an Osgoode Hall law professor commissioned to write a report about problems with the contingency fee system for the Insurance Bureau of Canada, called double dipping “egregious” and noted that personal injury lawyers mounted “concerted opposition” to his attempts to write the report.

In his report, he said “there is suggestive evidence that lawyers are cashing in on the opportunities for enhancing their fees afforded by contingency fee agreements.”