Attorney’s Fees

Ethical Limitations on Fees

and Fee Sharing

Attorneys’ Fees Types:

Hourly fee Flat fee Contingent fee Proportional fee Can be combination.

Contract, but ethical limitations. Rule 1.5 –

A lawyer shall not charge an unreasonable fee, or unreasonable expense amount.

Texas Rule 1.04 – A lawyer shall not charge an illegal fee or unconscionable fee.

Unconscionable if not reasonable.

Notes on Attorneys’ Fees Seen more in fee dispute context than in discipline. Distinguish contract unconscionability –

Can evaluate after the fact. Reasonableness determined by factors in rule. American rule on attorneys’ fees – each party pays for own

attorney – with exceptions Common fund exception – restitution Public policy – “private attorney general” Fee-shifting statute – one-way/two-way

Contingent fee agreements must be in writing – preferable for others.

Inherent conflict of interest Criminal defense – can’t accept “tainted money”

Cluck v. Commission for Lawyer Discipline

Smith paid Cluck $15,000 “non-refundable retainer” in divorce action.

Cluck deposited it (and additional $5,000 “retainer” in his operating account.

Smith fired Cluck. Demanded return of unearned fees. Cluck refused. Smith filed complaint.

Cluck questions

What kind of case is Cluck? What is the result?

Did Cluck violate the Rules? Unconscionable fee? Trust account? Prompt response to requests for information?

What is the basis for the court’s decision? Is the remedy appropriate?

Non-refundable retainers – Texas Ethics Opinion 431 Opinion 391 – may deposit non-refundable retainer in general

operating account. Q: Is non-refundable retainer allowed? True retainer – fee to secure services, pay for lost opportunity.

Still may need to refund if discharged before opportunities lost. Fee deposit – not retainer, not earned until earned.

Must refund if discharged. Does not matter if voluntarily withdraw or fired.

Potential problems: Interfere with client’s right to discharge attorney. Need to refund equitable portion. R 1.16 – refund unearned pmt. Fee may be excessive if just non-refundable.

In the Matter of Fordham

Disciplinary Proceeding Fordham charged with

charging excessive fee – $50,000 + for DUI

Board dismissed. Court imposed sanction – public censure. Factors here –

Pretty standard case – not justified by novel argument. Can’t charge client for time to learn the law. Customary fees much lower – $1,000 - $7500 – $15,000

max.

Factors for attorneys’ fees Time and labor required, novelty, difficulty, skill Likelihood will preclude other employment Customary fee in area for similar services Amount involved/results obtained Time limitations by client or circumstances Nature/length of professional relationship with client Experience, reputation and ability of lawyer Whether fee is fixed or contingent.

NOTE: factors used in awarding fees also – lodestar. Q: Is it okay to charge more if client agrees?

Notes

Learn on your own time! History of hourly fee.

Double billing issue – bill for “wait time” and working time? “Rounding up” issue

Pressure to bill hours – Conflict between attorney and client interests Negative effects on personal life How realistic are minimums?

Could forfeit entire fee for breach of fiduciary duty.

Culpepper & Carroll v. Cole

Cole hired Culpepper to handle will contest. Negotiated settlement offer of $21,000 +.

Cole rejected offer. Fired Culpepper. Handled case pro se. Lost.

Culpepper sued for $6950 “owed” to firm. T Ct awarded Culpepper the $6950. Appellate court affirmed.

Appeal to Louisiana Supreme Court. Q: Is Culpepper entitled to contingent fee under K?

Culpepper questions: Why does court reverse?

What are the arguments that he earned the fee? What are the arguments that he didn’t?

What are the “multiple and serious concerns” in the rules?

What if the agreement gave the attorney the right to approve or disapprove the settlement agreement?

What if Cole hired another attorney and recovered money? Would Culpepper be entitled to his 1/3? Would he be entitled if he had a 1/3 interest in the

recovery?

Augustson v. Linea Aerea Nacional-Chile S.A. (LAN-Chili)

Susan Augustson and her daughter were in a plane crash. Susan survived, but her daughter died. Susan and her husband Clyde hired Speiser Krause (SK).

Sued LAN-Chili. Ps refused $475,000 settlement offer. SK filed suit. Conducted mediation. Ps refused to ask for $625,000.

SK withdrew ( with court’s permission). Ps (w/ new lawyer) settled for $850,000.

SK sued for fee would have earned if had settled for $475,000. District Court awarded fee.

Appeal to 5th Circuit. Result?

5th Circuit opinion:

Attorney abandoned client. Court allowed, but over client’s objections. Permissive withdrawal, but still abandonment. Attorney must prove just cause for withdrawal – none here.

What would be just cause? Client has right to determine objectives of the

representation.

Attorney forfeited his right to compensation. Attorney is entitled to recover reasonable expenses.

Gagnon v. Shablom Settlement agreement provided for 1/3 of P/I

recovery to go to attorney per fee agreement. Trial court reduced attorney fee amount.

Client did not complain. Court said too much money for work done.

Appeal. Reversed. Approve

entire agreement, with fee. Contingent fee agreement valid. Do not disapprove unless party objects.

Concur agrees with result – But says don’t need client objection to disapprove.

Contingent fee

Relatively recent (late 1800’s) No longer real concern about stirring up litigation.

Mostly just in this country. Justification:

Makes legal services available to those who cannot otherwise afford attorney. (Other options???)

Compensates attorney for risk takes. (How much risk???) Concern in some cases that overcompensation to

attorney, and undercompensation to client. If court reviews, how should it review?

Ethical concerns/enforceability/reason for fee

Rule 1.8(i)

A lawyer shall not acquire a propriety interest in the cause of action or subject matter of the litigation, except for:(1) Lien authorized by law to secure fees or

expenses; and

(2) Contract with client for reasonable contingent fee in a civil case.

Other Contingent fee issues

Do all contingent fee agreements raise ethical concerns? If so, what?

Is it always appropriate to have a contingent fee agreement as long as

the client agrees and the case is the kind of case usually handled under a

contingent fee agreement? See Rule 1.5, comment [3]:

Consider the circumstances to decide if a contingent fee is reasonable, or if it is reasonable to have a contingent fee.

Notes Limitations on amount of contingent fee

Reasonableness Medical malpractice Other contingent fee cases

Writing requirement – signed by client Protects client State method of calculation Include percentages at various stages Include expenses to be deducted and Whether deducted before or after fee calculated. Tx: Gov’t Code 82.065

On conclusion, provide statement of outcome, any remittance, and method of calculation.

Time of deduction of fees

Assume 1/3 contingent fee agreement $150,000 recovery $30,000 in expenses to be deducted from recovery.

If deduct before calculate 1/3: $150,000 - $30,000 = $120,000 1/3 X $120,000 = $40,000 to attorney ($80,000 to client)

If deduct after calculate 1/3: $150,000 X 1/3= $50,000 to attorney ($70,000 to client) ($100,000 - $30,000)

Fogarty v. State Fogarty charged with kidnapping, assault . . . Wife hired attorney –

$25,000 advance, to be reduced to $10,000 if charges dismissed.

Charges not dismissed. Trial – convicted on 6 counts,

acquitted on 6. Fogarty appealed based on conflict

of interest due to fee agreement. Attorney had financial interest in charges not being dismissed. Court of Appeals: conflict – but no adverse effect. Affirmed. Georgia Supreme Court affirms – different reason.

Why are contingent fees not allowed in criminal cases?

Criminal cases do not produce a res to pay fee. Compare to personal injury case, which does.

Contingent fee creates a conflict of interest. Is there a conflict in this case?

If not, use Strickland, not Cuyler. Is this the kind of conflict contemplated in Cuyler? If there is a conflict, is there a conflict in hourly fee cases?

Is the fee in this case a contingent fee? Majority – No? Concur – Yes, but not improper. Escalating fee okay. Impermissible contingent fee if fee contingent on acquittal.

Contingent fees in criminal cases

A lawyer shall not charge a contingent fee for representing a defendant in a criminal case. Rule 1.5(d)(2) Texas Rule 1.04(e)

Why is this a conflict of interest? Aren’t interests of lawyer and client “perfectly

aligned?” What about contingent fee for private attorney

hired to prosecute a criminal defendant?

Barngrover v. Pettigrew

Mr. Pettigrew hired Barngrover (and detective) to investigate and represent him in divorce proceeding. To pay $25 in cash – Pay another $1,000 if secure

divorce (or if client prevents).

Barngrover and detective sue for payment under agreement (suit compromised) or quantum meruit.

Directed verdict for D. Ps appealed. Affirmed.

Contingent fees in domestic relations cases

Domestic relations matters Rule 1.5(d)(1) – a lawyer shall not charge a fee contingent on

securing a divorce, or on amount of alimony or support (property settlement in lieu thereof)

Texas – Not in the rules, but comments indicate “rarely justified.” Agreement conditioning payment on bringing about

dissolution of marriage is against public policy and void. Discourages reconciliation (or cooperation/harmony) No quantum meruit –

Do not imply promise against public policy. Agreement itself illegal – leave parties where find them. Forfeit fee due to rules violation.

King v. Young, Berkman, Berman & Karpf

King hired Young, Berkman to represent him in divorce proceeding. K provided for

$25,000 non-refundable retainer, hourly rate for attorneys + “bonus” for complexity and results.

King refused to pay bonus. Firm sued. Court awarded $525,000 bonus.

King appealed. Said bonus was improper contingent fee.

King result

Florida Appeals Court holds that bonus provision is unenforceable. Improper contingent fee. Refuse to enforce contingent fee provision entirely. Attorney keeps part of fee based on hourly rate.

What is view of concurring/dissenting J? Why doesn’t majority review the entire fee? Are fees considered reasonable if already paid?

Are there other concerns in domestic relations cases?

Galanis v. Lyons & Truitt

Suzanne Brown injured in auto accident. Hired . . . Attorney #1 withdrew due to conflict Attorney #2 – didn’t return phone calls – fired Attorney #3 (Truitt, of Lyons & Truitt)

1/3 contingent fee agreement – Represented for 2 ½ years. Brown fired Truitt.

Attorney #4 (Galanis ) – 40% contingent fee agreement, 50% if appealed.

Case settled for $200,000.

L & T claim for fees

Brown offered L & T $4000 to settle. L & T sought 1/3 of 1/3 of recovery –

1/9 of $200,000 = $22,200. Sued Brown.

Brown filed cross-claim v. Galanis – Said his responsibility.

T Ct held: L & T entitled to reasonable fee, based on hourly rate. Galanis responsibility.

Compensation of attorney discharged without cause.

Conventional rule – limit to quantum meruit recovery Value of services, not K agreement.

Attorney has right to discharge attorney at any time Not actually breach of K.

Balancing attorney’s right to compensation and client’s right to discharge attorney. K recovery may limit client freedom to discharge. Full contingent fee may overcompensate – windfall.

Determination of reasonable amount

Restitution. Generally based on hourly rate. Possibility of adjustment – fact Q for T Ct. What did attorney contribute to award? Time, quality?

Who pays? Client gets benefit if pays less for job. New attorney gets benefit if more money for less work. Client should pay only one contingent fee. Higher. Allocate among attorneys.

By agreement if possible. Second attorney has obligation to explain to client.

Must pay if didn’t do this. Galanis pays here.

Notes If voluntarily withdraw, not generally entitled to fee May forfeit fee for breach of fiduciary duty Most states allow fired lawyer to recover in quantum meruit Some require fee contract to spell out right to quantum meruit.

Example: client hired lawyer to represent him in wrongful termination suit on contingent fee basis – dismissed suit and accepted old job back in lieu of damages. Court denied recovery to attorney since not clear under K. Is this case distinguishable from cases discussed?

Without K, lawyer usually entitled to fair value of services. Is this inconsistent with the previous case?

Johnston v. California Real Estate Investment Trust Young boy was injured.

Parents hired attorney – 1/3 contingent fee. Fired attorney. Hired second attorney – 1/3 contingent fee.

Case settled for $75,000. Under Texas law (Mandell & Wright v. Thomas)

each attorney gets $25,000 for a total of $50,000. Injured child get < $20,000.

What does court think of this result? Why does it hold this way? What does it suggest first

attorney could have done? What other options were available?

Texas Law on discharged attorney.

Entitled to contract recovery. Attorney may choose quantum meruit recovery.

Only where attorney wrongfully discharged. Client has burden of proving cause. If is for cause, no K recovery.

Burrow v. Arce (Tex. 1999) May forfeit fee for breach of fiduciary duty, even if no

damage. Hoover Slovacek LLP v. Walton –

Unconscionable portion of fee agreement unenforceable Mandell & Wright still the law.

Hoover Slovacek v. Walton Contingent fee K – < 30%

If client terminates, agrees to immediately pay the then present value of contingent fee.

Client discharged firm. Hired Andrews Kurth Settled claim for $900,000 Client paid AK $283,000.

Refused to pay HS. HS sued Walton for $1.7 million

based on K provision. D Ct awarded HS $900,000 (mistake in calculation?) Ct App reversed. Take-nothing.

Fee agreement unconscionable as a matter of law. Appeal to Supreme Court.

Supreme Court opinion

Affirm Mandell & Wright – attorney discharged w/o cause can sue on K or in quantum meruit.

Termination agreement unconscionable: Does not distinguish w/ or w/o cause Assesses as % of present value Required immediate payment

Public policy favors client freedom of choice Provision puts unreasonable financial burden on client

Strike unconscionable portion – enforce remainder If discharged w/o cause, entitled to compensation.

Remand on cause issue (not reached by Ct/App).

Arthur Andersen & Co. v. Perry Equipment Corporation

Arthur Andersen

D assets PMaloney Pipeline PECO

$

PECO sued Arthur Andersen for accounting malpractice, and for violation of the DTPA.

Court dealt with attorney fee issue.Awarded under fee-shifting statute.Is a percentage award appropriate?

Fee Calculation – fee shifting Here, one-way fee-shifting (mostly).

Defendant must pay P attorney fees under statute. P had contingent fee K – Contingent fee justified

Allow those who can’t afford lawyer to hire lawyer. Compensate for risks on attorney.

Must determine fee defendant pays based on lodestar method – Consider factors from rule.

Fact that was reasonable fee for plaintiff does not make it reasonable under statute. Jury must determine if fee is in fact reasonable. Does not know what percentage will be, or if reasonable.

Levine v. Bayne, Snell & Krause, Ltd.

Ds house Ps

Smiths Levines $

Ps sued Smiths for failure to disclose foundation problems with the house.

Represented by Bayne/Snell – 1/3 contingent fee.

Question: whether 1/3 calculated before or after offset for counterclaim by Ds.

Trial court said before. Reversed.

Levine attorney fees J/Ps $243,644 (damages for defects) J/Ds $161,852 (balance due on mortgage)

81,792 (net) Smiths paid Levines $104,110 – Levines paid to firm.

Bayne/Snell billed $155,866. Should the percentage be applied to the full or the net recovery? Bayne/Snell:

Client got benefit of entire recovery – Is that true of all cases??

Should not get house for free. True, but fee agreement MUST be clear. Resolve all doubts against attorney.

Ford v. Albany Medical Center

P hired attorney Spada to represent daughter in a medical malpractice action.

P then retained attorney Harding. Harding agreed to pay Spada

1/3 of any attorney fee. Case settled.

Attorney fee of $99,701. Spada petitioned court for his 1/3. Court awarded 3% based on quantum

meruit – agreement not binding. Spada appealed.

Ford appeal

Agreement to split fees unenforceable. Violates Rule Affirm J.

Not entitled to 1/3 of recovery. Did not assume joint responsibility Did not do 1/3 of work.

Rule 1.5(e)

May share fees with lawyer not in same firm {within firm ok} only if: Division is in proportion to services performed OR

each assumes joint responsibility; Client agrees, in writing, to the arrangement, including the

share of each; AND The total fee is reasonable.

Texas now has substantially the same rule – no longer allows forwarding fee.

What considerations support rule? Forwarding fee?

Gorman v. Grodensky

Gorman sued for wrongful termination and payment of money owed under K with law firm. Entitled to percentage of profits.

Agreement unenforceable. Violates Rules What Rule?

Is this a discipline case? Why do Rules affect enforceability of agreement? Why is the agreement unenforceable? What is the effect of non-enforcement?

Rule 5.4 – Professional Independence of a Lawyer Shall not share legal fees with a nonlawyer except:

Agreement to pay $ after lawyer dies to estate, others; Pay estate or representative for purchase of law practice; Include in compensation or retirement plan, including profit-

sharing arrangement; May share court-awarded legal fees with nonprofit organization

that hired or recommended lawyer. Shall not form partnership with nonlawyer to practice law. . . . Shall not allow one paying, etc. to direct professional judgment Shall not form professional corporation to practice law for profit if

Nonlawyer owns interest, serves as director or officer or Can direct or control professional judgment.