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When Someone Else Pays the Legal Bills

March 7, 2017

A recent CEBblog article by Julie Brook, “When Someone Else Is Paying Your Fees,” writes about when a third party pays some of all of your legal fees in California.  This article was posted with permission. The article reads:

When, in a noncontingent matter, a third party is paying all or some of the attorney fees for your client, do you know how to deal with the issues that can arise?  Short answer: Address them upfront in your fee agreement.  Here are sample provisions to get you started.

You should be aware that Cal Rules of Prof Cond 3-310(F) requires informed written consent of your client when someone else is paying for his or her attorney fees.  In explaining this requirement to your client, advise him or her of the potential problems that might arise with this arrangement.

Here are two alternative sample provisions you can use in your fee agreement, depending on whether the third person will be a party to the agreement:

[Alternative 1: If the person/entity responsible for payment of fees and costs isn’t a party to the fee agreement]

Another person or entity may agree to pay some or all of Client’s attorney fees and costs.  Any such agreement will not affect Client’s obligation to pay attorney fees and costs under this agreement, nor will Attorney be obligated under this agreement to enforce such agreement.  Any such amounts actually received by Attorney, however, will be credited against the attorney fees set out in this agreement [or delivered to Client if there is no balance due Attorney].  The issue raised by having a third party pay the fees is the potential or perceived potential that the third party may try to influence the prosecution of the case to minimize costs or to achieve other goals.  However, the fact that another [person/entity] may agree to pay some or all of Client’s attorney fees will not make that [person/entity] a client of Attorney and that [person/entity] will have no right to instruct Attorney in matters pertaining to the services Attorney renders to Client.  Unless Client gives written permission to discuss all or a portion of Client’s matters with [the person/the entity] paying all or a portion of the attorney fees, Attorney will not disclose any confidential information to [him/her/it].  By signing this agreement, Client consents to this arrangement and acknowledges that Attorney has advised Client of the advantages and disadvantages of this arrangement.

[Alternative 2: If the person/entity responsible for payment of fees and costs will be a party to the fee agreement]

[Name] agrees to pay attorney fees for services performed and costs incurred in the representation of Client under this agreement.  [Name] acknowledges that [his/her/its] agreement to pay attorney fees and costs does not make [him/her/it] a client of Attorney.  Unless Client gives written permission to discuss all or a portion of Client’s matters with [name], Attorney will not disclose any confidential information to [him/her/it].

Alternative 1 avoids potential ethical issues posed by such arrangements by making it clear that the party paying the bills isn’t the client and isn’t party to the confidential attorney-client relationship.

But if you want a remedy against the third party if he or she stops paying, you must have an agreement with that individual or entity.  One way to do that, illustrated in Alternative 2, is to make the payor a party to the fee agreement.  It’s best, however, to have a separate written agreement with the payor rather than having him or her sign the same engagement letter as the client; this will preserve the attorney-client privilege of the fee agreement with the client.

Also, consider doing the following when a third party is paying the bills:

  • Give notice of fee dispute arbitration.  Even though the party assuming responsibility for payment doesn’t become your client in the sense of directing the representation or becoming privy to confidential information, you should send notice of the right to compel arbitration of a fee dispute to this individual or entity as well as to the client. Wager v Mirzayance (1998) 67 CA4th 1187.
  • Refund advanced fees at end of case.  To the extent funds advanced by a third party remain after the case is concluded, you should refund the balance to the payor, not the client.  See California State Bar Formal Opinion No. 2013-187.

Read This Before You Go the Contingency Fee Route

March 3, 2017

A recent CEBblog article by Julie Brook, “Read This Before You Go the Contingency Fee Route,” discusses some of the pitfalls of contingency fees in California.  This article was posted with permission.  The article reads:

Among the several alternatives to the traditional hourly fee arrangement, contingency fees have been commonly used for decades.  Under a contingent fee agreement, the attorney and client agree that the attorney will receive a particular percentage of the client’s recovery or of the savings obtained for the client as a fee for legal services, if there is a recovery.  The attorney takes on the risk with the potential for significant reward.  Not surprisingly, there are statutory requirements for these types of agreements—and failing to comply with them is risky, too.

Follow these statutory requirements whenever you enter into a contingent fee agreement:

  1. Put it in writing. Contingent fee agreements must be in writing to be enforceable, except those for the recovery of workers’ compensation benefits or certain merchants’ claims. Bus & P C §§6147-6147.5.
  2. Include certain specific provisions.  In addition to a description of the contingencies entitling the attorney to a fee, the agreement must specify such matters as (Bus & P C §6147(a)):
    • The fee rate agreed on;
    • How the costs of prosecuting and settling the case will affect the fee and the client’s recovery (e.g., in the event of a structured settlement, whether the attorney is paid from first funds);
    • A statement as to what extent the client is required to pay compensation for related matters arising out of his or her relationship with the attorney that aren’t covered by the contingency fee agreement; and
    • A statement that the fee is negotiable.
  3. Follow additional requirements for medical malpractice claims.  If the claim is for medical malpractice and is subject to the maximum fee limits on contingent fees (see Bus & P C §6146), then the fee agreement must include a statement that the rates set out in §6146 are the maximum limits for the contingent fee arrangement and that the attorney and the client may negotiate a lower rate.  Bus & P C §6147(a)(5).  You may want to attach a copy of Bus & P C §6146 to the fee agreement to ensure that the client is informed of its content.
  4. Specify the contingent fee rate.  Contingent fee agreements must specify the contingent fee rate (Bus & P C §6147(a)(1)) and how disbursements and costs in connection with the prosecution or settlement of the claim will affect the contingent fee and the client’s recovery (Bus & P C §6147(a)(2)).  Unless the claim is for medical malpractice and the agreement is thus subject to Bus & P C §6146, the agreement must also include a statement that the fee isn’t set by law but rather is negotiable between the attorney and the client.  Bus & P C §6147(a)(4).
  5. Provide an hourly rate just in case.  The agreement should provide an hourly rate so that the attorney may establish a baseline to recover quantum meruit in the event the attorney is discharged by the client before the completion of the representation.  The hourly rate will also assist the attorney in providing a basis for attorney fee recovery in any potential attorney fee motion.
  6. Anticipate deferred payments or structured settlements.  Whenever payment of the recovery, or any part of it, may be deferred, the fee agreement should specify when the attorney fees must be paid and, when appropriate, how they should be calculated.  Otherwise, the agreement invites dispute and may be subject to being voided by the client for failing to fully comply with Bus & P C §6147.  If the award for future damages in an action for injury or damages against a health care provider is at least $50,000 and either party requests that the award be paid by periodic payments, then the court must order that the future damages be paid, in whole or in part, by periodic payments rather than by a lump-sum payment. CCP §667.7.  In that event, the court must also place a total value on the periodic payments and include that amount in computing the total award from which attorney fees are calculated for purposes of determining the statutory maximum fee. Bus & P C §6146(b).
  7. Provide for noncash awards.  When the award might be partially or entirely in a form other than cash (e.g., reinstatement in a wrongful termination action), the fee agreement should provide for that possibility.  This might be done by providing for a specified hourly fee if the award is not entirely in cash and a contingent fee if it is.  It may also be accomplished by providing for a method for valuing noncash awards.

Failure to include any of the required items makes the agreement voidable at the option of the client (but you would still be entitled to a reasonable fee). Bus & P C §6147(b).  See, e.g., Arnall v Superior Court (2010) 190 CA4th 360, 366 (failure to state in fee agreement that fees were negotiable rendered fee agreement void; fees recoverable by way of quantum meruit).

NALFA Podcast Interview with Law Professor Brian Fitzpatrick

February 15, 2017

NALFA hosts a podcast series on attorney fee issues.  We talk with thought leaders, attorney fee experts, and attorney fee newsmakers who've helped shape and influence the jurisprudence of reasonable attorney fees.  NALFA interviews members, faculty, judges, law professors, in-house counsel, and others on a range of attorney fee and legal billing issues.  All NALFA Podcasts are free.

In its inaugural podcast, NALFA interviewed Brian T. Fitzpatrick, Professor of Law at Vanderbilt Law School.  The NALFA podcast with Professor Fitzpatrick focused on his seminal research on class action attorney fee awards and his study of professional fee objectors in the class action model. This podcast talked about his background, explored his research, and considered what his work means for the plaintiffs’ bar and the future of class actions. 

The podcast discussion centered around the economics of class action fee awards and the current politics in the class action world.  Professor Fitzpatrick's scholarly work on attorney fees includes, An Empirical Study of Class Action Settlements and Their Fee Awards, Do Class Action Lawyers Make Too Little? and The End of Objector Blackmail?  This research was discussed in the podcast.

"These podcasts are the perfect broadcast format to discuss attorney fee and legal billing issues," said Terry Jesse, Executive Director of NALFA.  "Professor Fitzpatrick went beyond his research and shared his personal views, the current politics at play in class actions, and even proposed a new fee calculation method for class actions.  He also talked about his future research and his plans to write a book on the subject," Jesse said.  Click on the link below to listen to the NALFA podcast:

https://soundcloud.com/thenalfa/interview-with-law-professor-brian-fitzpatrick

How to Get Reciprocal Contractual Attorney Fees in California

February 6, 2017

A recent CEBblog article, “How to Get Reciprocal Contractual Attorney Fees,” by Julie Brook, reports on reciprocal attorney fee shifting provisions under California’s § 1717.

This material is reproduced from the CEBblog™, How to Get Reciprocal Cotractual Attorney Fees (https://blog.ceb.com/2017/02/06/how-to-get-reciprocal-contractual-attorney-fees/) copyright 2017 by the Regents of the University of California.  Reproduced with permission of the Continuing Education of the Bar - California.  (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our Web site CEB.com).

This article was posted with permission.  The article reads:

It’s like magic: California’s CC §1717 transforms a unilateral attorney fee provision in a contract into a reciprocal one!  When the contract provides for attorney fees to either a particular party or the prevailing party, the prevailing party “on the contract” is entitled to recover reasonable attorney fees regardless of whether that party was the party specified in the contract.  But taking advantage of this statute depends on meeting the following five requirements.

  1. There must be an attorney fees provision.  Section §1717 can convert a one-way attorney fee clause into a mutual and reciprocal clause, but it can’t create an attorney fee provision out of thin air.  The contract at issue must include at attorney fee provision for the statute to have any effect.
  2. Only the prevailing party gets fees.  A party’s right of recovery depends on whether that party is determined by the court to be the prevailing party.  There’s no prize just for participating.
  3. The action must be “on the contract.”  When it comes to CC §1717, courts have construed “on a contract” broadly to apply to any action that involves a contract.  But it doesn’t apply to tort claims such as fraud if the lawsuit doesn’t also seek to enforce or avoid enforcement of the contract.  And it also doesn’t apply to promissory estoppel claims, because they’re based on equitable principles.
  4. The fees recovered must be “reasonable.”  One of the purposes of CC §1717(a) is to assure uniform treatment of attorney fee recoveries in actions on contracts with attorney fee clauses and to eliminate disparities based on whether the recovery was authorized by contract or by statute.  PLCM Group, Inc. v Drexler (2000) 22 C4th 1084.  So §1717(a) limits the amount of fees recoverable to “reasonable” fees as “fixed by the court,” even if the contract clause doesn’t limit recovery to reasonable levels.
  5. Attorney fee clause applies to the whole contract.  If a contract has an attorney fee clause, that provision will be construed to apply to the entire contract unless each party was represented by counsel in the negotiation and execution of the contract and the fact of that representation is specified in the contract. CC §1717(a).

For more on recovery of attorney fees by contract, check out CEB’s California Law of Contracts, chap 9.  And when deciding whether to include an attorney fee provision in a contract, turn to CEB’s Drafting Business Contracts: Principles, Techniques and Forms §§15.18-15.20.

Other CEBblog™ posts you may find useful:

CEB is a self-supporting program of the University of California that is cosponsored by the State Bar of California.  CEB is the go-to source for lawyers on information about the law, and the practice of law, in California.  For more on CEB, visit https://blog.ceb.com/

Paper: Restraining Lawyers: From ‘Cases’ to ‘Tasks’

February 3, 2017

A forthcoming Fordham Law Review article, “Restraining Lawyers: From ‘Cases’ to ‘Tasks (pdf),’” by Morris A. Ratner, Professor of Law at the University of California Hastings College of Law, argues that law practice is experiencing two parallel shifts: civil procedure amendments are focusing on cost and resource drain, and the private market is giving in-house departments more options to unbundle legal work for lower costs.  A draft version of this article was posted with permission.  The abstract reads:

Developments in the domains of procedure and private contract highlight a continuing shift in authority away from lawyers and towards courts and clients accomplished by a conceptual downshift from “cases” to “tasks.”  The 2015 amendments to the Federal Rules of Civil Procedure limit attorney and party discretion by further empowering the trial court judge to dissect, assess the value of, and sequence case activity, including discovery.  At the same time, in the private sphere, sophisticated clients aided by advances in project and information management are controlling legal spend by unbundling cases into tasks.  From that position, they can source projects to low-cost providers.  Clients are also increasingly demanding litigation budgets and seeking value-based pricing, both of which work best if there is heightened communication between lawyer and client regarding the means to be pursued to achieve litigation aims.  These regulatory and market restraints on lawyers and lawyer-driven adversarialism, while pointing in a similar direction, differ fundamentally in terms of their reach, efficacy, and fairness.  Despite their differences, these developments in tandem have the potential to inspire the creation of new norms and duties calling on litigators to think more deeply and inclusively about the value of litigation tasks from the perspective of court and client.

Attorney Fee Awards in the Lanham Act

January 19, 2017

A recent law firm blog post, “Attorney Fees Awards in Lanham Act,” by James Bikoff and Holly James of Smith Gambrell & Russell LLP in Washington, DC report on attorney on attorney fee awards...

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Fee Analysis: Energy Bankruptcy Cases

January 9, 2017

A recent Texas Lawbook article, “Exclusive: Legal & Financial Advisers Feast on Bankruptcy Fees from the Oil Patch,” reports that, when times were good in the oil patch and crude was selling...

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