An Improper Contingent Fee

I’ve used the past few Tuesdays to post on trust accounting.  I’m going off script today to call attention to a disciplinary case that strikes me as important.

Alberto Bernabe is a professor of law at the John Marshall Law School. Regular readers will recognize Professor Bernabe as a frequent member of this blog’s #fiveforfriday Honor Roll.  His Professional Responsibility Blog is a fantastic source of information on legal ethics & professional responsibility.

Yesterday, Professor Bernabe posted Tennessee Supreme Court imposes sanctions for improper contingency fee.  The opinion issued on May 13 and is here. The issue: whether a lawyer violated the rules by attempting to collect a fee that was based on a percentage of a settlement offer that the client rejected.

Before I get into the details, let’s review the rules that would apply if the issue arose in Vermont.

  • Rule 1.2(a) requires a lawyer to “abide by a client’s decision to settle a matter.”
  • Rule 1.5(a) prohibits a lawyer from agreeing to, charging, or collecting an unreasonable fee;
  • Rule 1.5(c) allows a fee that is contingent upon the outcome of a matter; and,
  • Rule 1.8(i) prohibits a lawyer from acquiring a proprietary interest in a client’s cause of action but allows (1) liens authorized by law to secure fees & expenses; and (2) contracts for reasonable contingent fees.

The facts of the Tennessee case:

Client filed a pro se complaint alleging that she’d been injured by the defendant’s negligence. Soon thereafter, Client retained Law Firm.  Client & Law Firm entered into a written fee agreement. Per the agreement, Client would pay Law Firm a contingent fee, plus expenses.  The amount: 40% if recovery were made before an appeal, 45% if recovery made after an appeal.  The fee agreement did not include any language that provided for an hourly fee.  It did, however, include this provision:

  • “Should [Client] refuse to make any settlement which my attorneys advise me is reasonable and should be taken, then I understand that I am responsible for their fee on the basis of that offer, unless they waive this provision.”

Following discovery, the defendant offered $12,500.  Attorney and another at Law Firm advised Client to accept. Client did not.

Attorney moved to withdraw.  In the motion, Attorney also requested a lien in the amount of $13,605 for fees, plus $2,4528.52 for expenses.  The motion asserted that Law Firm had put in 45.35 hours of work at $300 per hour.  The court granted the motion to withdraw but did not rule on the request for a lien.

Eventually, Client filed a disciplinary complaint.  By then, Attorney had filed two additional motions requesting a lien on any recovery.  The final request referenced the fee agreement and sought 40% of the settlement offer that Client had rejected.

At the trial level, a court concluded that Attorney violated Tennessee Rules 1.5(a), 1.5(c), 1.8(i).  The Tennessee Supreme Court affirmed and publicly reprimanded Attorney.

Some key points from the Tennessee Supreme Court’s opinion:

  • the “Settlement Offer Provision” created a fee that was contingent on Attorney recommending that Client accept a settlement offer, but not, as required by the rule, on the outcome of the matter;
  • the so-called “Settlement Offer Provision” was unreasonable in that had an impermissible “chilling effect” on Client’s decision whether to settle;
  • The “Settlement Offer Provision” impermissibly provided Attorney with a proprietary interest in any settlement offer that Attorney recommended Client accept; and,
  • The “Settlement Offer Provision” was unreasonable in that it by recommending that Client accept an offer, “Attorney thereby became entitled to a fee, regardless of whether [Client] accepted the offer and regardless of whether she obtained any recovery whatsoever.”

As noted by Professor Bernabe, Faughnan on Ethics blogged on the opinion here.  Like Bernabe, Faughnan is a terrific resources on professional responsibility.  The post notes:

  • “At its core, this case explains the limits on the ability of a plaintiff’s attorney to try to guard against what happens if their client rejects the attorney’s advice on whether to accept a settlement offer. There do, in fact, have to be limits on the ability to hedge against that because the ethics rules establish explicitly that the decision whether to settle a civil case or not is the client’s decision.”

The post goes on to remind us that, generally, the rules allow lawyers who withdraw “to assert a lien as authorized by statute and pursuant to either the terms of their contract or, perhaps, depending on how things turn out for payment in the form of quantum meruit.”

Again, this is a Tennessee opinion.  It’s worth noting, however, that the rules involved are identical to Vermont’s.

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Monday Morning Answers – #129

Happy Labor Day!

Is it hot & humid?  Yes!  But, you have a choice how you respond to the weather.  One choice is to bemoan it & sit on the couch all day.  Another is to smile at the thought of one more day to wear shorts, flip-flops, and to be outdoors!  Maybe even by the grill with a cold beverage . . . on a Monday!

I choose the latter.

Friday’s questions are here.  The answers follow the honor roll.  Also, you’ll recall that I asked readers to share the events seared into their memories.  I did so in the context of Friday being the anniversary of Princess Diana’s passing.  As always with my readers, the response was fantastic and significantly outnumbered entries into the quiz.

The most-cited events were to be expected:

  • 9/11
  • the space shuttle Challenger tragedy

A few others mentioned by at least 3 people:

  • JFK assassination
  • Sandy Hook
  • MLK assassination
  • the moon landing
  • Princess Diana
  • Boston Marathon bombings
  • Barack Obama elected

Interestingly, but perhaps not surprisingly given the frequent musical references on this blog, many of you will never forget where you were & what you were doing when you learned that a musician died.  Among the musicians whose deaths were mentioned more than once:

  • Kurt Cobain
  • Jerry Garcia
  • John Lennon
  • Jim Morrison
  • Elvis Presley
  • Prince
  • Tupac Shakur

Anyhow, thank you again for sharing. I love your stories.  Alas, to make the honor roll, you’ve got to answer the questions!

Honor Roll

(responses had to include quiz answers to make the honor roll)

Answers

Question 1

Lawyer called me with an inquiry.  My response included the following words and phrases:  “knowledge,” “violation,”  “substantial question,”  and “honesty, trustworthiness, fitness.”

What did Lawyer call to discuss?

  • A.  Informing a court that a client had testified falsely in a civil matter.
  • B.  Informing a court that a criminal defense client had testified falsely.
  • C.  Reporting another lawyer’s misconduct.  See, Rule 8.3(a).
  • D.  Whether reciprocal discipline would be imposed in Vermont as a result of Lawyer being sanctioned in another state.

Question 2

The conflicts rules are NOT relaxed for:

  • A.  Lawyers who transfer from one private firm to another.
  • B.  Lawyers who move from government practice to private practice.
  • C.  Lawyers who provide short-term pro bono services under the auspices of a program sponsored by a nonprofit or court.
  • D.  All of the above.

Vermont’s rules do not allow for the automatic screening of lateral transfers.  I’ve blogged on that issue here & here.  Later this month, the PRB will consider a rule change that I’ve recommended that would allow a new firm to screen a lateral transfer from another firm.

Our rules allow for screening when a lawyer moves from government practice to private practice.  In addition, Rule 6.5 relaxes the conflicts rules for lawyers who provide short-term pro bono services under the auspices of a program sponsored by a nonprofit or court.

Question 3

You’re at a CLE.   You hear me say:  “yes, it’s okay as long as  (1) your client gives informed consent; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to the representation of your client is protected as required by Rule 1.6.”

What did someone ask if it was okay to do?

  • A.  Accept compensation for representing a client from someone other than the client.  See, Rule 1.8(f).
  • B.  Request that guardian be appointed for the client.
  • C.  Represent co-defendants in a criminal matter.
  • D.  Talk to the media in a client’s case.

Question 4

Client provides Lawyer with an advance payment of $2,000.  Lawyer has yet to do any work for Client.

Which is most accurate?

  • A.  The fee agreement must be confirmed in writing.
  • B.  The fee agreement must be confirmed in a writing that is signed by Client.
  • C.  The $2,000 must go into Lawyer’s pooled interest-bearing trust account (“IOLTA”).
  • D.  Lawyer may treat the money as Lawyer’s own if Lawyer confirms in writing (i) that the fee is not refundable; and (ii) the scope of availability or services that Client will receive.    See, Rule 1.5(f) & (g).

Here, A & B are not correct.  The rules do not require standard fee agreements to be reduced to writing.  That being said, I think it’s a bad idea not to.

C is not correct. There’s not enough information in the question to know.  For instance, if the lawyer has complied with Rule 1.5(f) and (g), then the money cannot go into trust.

Many lawyers charge “flat fees” that are “earned upon receipt” and treat the funds as their own upon receipt.  This is ok ONLY IF THE LAWYER COMPLIES WITH RULE 1.5(f) and RULE 1.5(g).  Otherwise, the money must go in trust until earned.

Question 5

Speaking of the JFK assassination . .  .

. . . Jules Mayer was a lawyer in Dallas.  In 1950, Mayer drew up a will for a client.  The will named Mayer as the executor the client’s estate.

The client died in 1967.  A dispute quickly arose, as the client’s family contended that the client had changed his will on his deathbed to remove Mayer as executor.  Mayer refused to make the change and kept the original will.

In 1991, after a lengthy legal battle, a probate court granted the family’s petition to remove Mayer as executor after concluding that he had mismanaged the estate.

Central to the dispute was gun associated with the JFK assassination.  Mayer’s client bought the gun for $62.50.   After winning their legal battle with Mayer, the client’s family sold the gun for $220,000.  Fortunately for the family, Mayer had safeguarded the gun, holding it in trust for 24 years.

Two-part question:

  1. Who was Mayer’s famous client?
  2. Who was the famous victim of the client’s gun?

Mayer’s client was Jack Ruby.  The gun was used on Lee Harvey Oswald.  A story of the gun is in this article in the Las Vegas Sun.

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