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Category: Fee Agreements

Know the Statutory Limits on Attorney Fees

October 5, 2017

A recent CEB blog article, “Know the Limits on Attorney Fees” by Julie Brook explores the statutory limits on attorney fees in California and federal statutes.  This article was posted with permission.  The article reads:

Attorneys can’t always get what they want in attorney fees.  There are statutory limitations, fees subject to court approval, and fee agreements that violate public policy.

Statutory Limitations on Fees. In many instances the ability to negotiate attorney fees is prohibited or limited by statute.  For example:

  • Probate proceedings. Attorney fees in a probate proceeding are strictly statutory and don’t arise from contract.  See Prob C §§10800, 10810, 13660.  An attorney can’t charge more than the statutorily-permitted amount, but may agree to charge or receive less than that amount.
  • Indigent defendants. Attorney fees for counsel assigned to represent indigent criminal defendants are set by the trial court (Pen C §987.2) or by the court of appeals in appellate matters (Pen C §1241).
  • Judicial foreclosures. Attorney fees in judicial foreclosure matters are set by the trial court, regardless of any contrary provision in the mortgage or deed of trust. CCP §730.
  • Workers’ compensation. Attorney fees for representation in Workers’ Compensation Appeals Board matters are set by the Appeals Board (Lab C §5801) and by a court or Appeals Board in third-party matters (Lab C §3860(f)).  But fee agreements for a reasonable amount will be enforced if the amount agreed on coincides with the Appeals Board’s determination of a reasonable fee. Lab C §4906.
  • Contingent fees under federal law. An attorney-client agreement with a plaintiff under the Federal Tort Claims Act calling for a contingent fee in excess of 20 percent of any compromise, award, or settlement, or more than 25 percent of any judgment is not only void, but is an offense punishable by a fine of $2000, or 1 year in jail. 28 USC §2678. See also 42 USC §406 (maximum fee for representing plaintiff in Social Security Administration proceedings is 25 percent of past due benefits; attempt to collect fee in excess of maximum is misdemeanor).
  • Contingent fees in medical malpractice cases. Maximum fee limits have been set under Bus & P C §6146.

This is just a sampling—many statutes limit attorney fees.  When you take on a matter in an unfamiliar area of law, investigate possible limitations on the ability to negotiate fees.

Fees Subject to Court Approval. Court approval of fee agreements is required in some instances. For example:

  • fees for the compromise of the claim of a minor or a person with a disability (Prob C §3601(a));
  • fees for representing a special administrator (Prob C §8547); and
  • fee agreement in workers’ compensation third-party actions (Lab C §3860(f)).

Agreements Violating Public Policy or Ethical Standards. Attorney-client fee agreements that are contrary to public policy, even if not explicitly in violation of an ethical canon or rule, won’t be enforced.  Similarly, fee agreements that violate California Rules of Professional Conduct aren’t enforceable.  The Rules include prohibitions against charging an unconscionable fee (Cal Rules of Prof Cond 4–200), agreeing to share fees between an attorney and a nonattorney (Cal Rules of Prof Cond 1–320), and nonrefundable retainer fees that fail to meet the classification of a “true retainer fee which is paid solely for the purpose of ensuring the availability of the [Bar] member for the matter” (Cal Rules of Prof Cond 3–700(D)(2)).

Texas Law Firms Sue to Keep Contingency Fees

September 25, 2017

A recent Texas Lawyer story by Brenda Sapino Jeffreys, “Two Texas Firms Sue to Keep Contingency Fees,reports that two Texas firms are seeking a declaratory judgment that they are entitled to keep a contingency fee from a Travis County lawsuit they settled in July.  In separate petitions filed on Sept. 18 in Harris County, Chris L. Gilbert Law of Dallas, which does business as Gilbert PC, and Prebeg, Faucett & Abbott of Houston, allege that Austin-based The Yoga Lounge (TYL), which does business as Vosea Advisors, and five unnamed individuals tortiously interfered with a legal contract they had with some clients, and aided and abetted and/or conspired to tortiously interfere with the contract.

Gilbert and Prebeg Faucett each seek a declaratory judgment that TYL is not a party to their agreement with the clients, they owe no duties to TYL, TYL is entitled to no part of the contingency fee, the agreement is valid and enforceable, and they satisfied their contractual obligations to their clients.  Each firm seeks up to $500,000 in damages, including actual and punitive damages, from the defendants.

As alleged in Chris L Gilbert Law PC v. The Yoga Lounge LLC, two Texas companies and two individuals at the companies hired Gilbert on March 19, 2015, with a contingency fee agreement, to investigate a potential lawsuit and file it if the firm determined there was a basis to do so.  On July 31, 2015, Gilbert filed a suit in Travis County on behalf of the corporate clients.

Gilbert alleges in the petition that on June 6, 2016, TYL bought a minority interest in the corporate clients "but did not assume any rights in, or control over, the clients' lawsuit that was the subject of the agreement."

Gilbert alleges that on Feb. 22, the client retained Prebeg Faucett for the underlying suit and entered into an amended joint representation agreement that provided that once the suit was resolved, both firms would be entitled to a contingency fee.  The firm alleges TYL had knowledge of the agreement but was not a party to it.

Gilbert alleges the underlying suit was settled on a confidential basis on July 14, 2017, and both firms collected a confidential contingency fee.  On Sept. 15, Gilbert alleges in the petition, a lawyer purporting to represent TYL sent a demand letter to both firms and the clients, demanding, among many things, that the contingency fee be placed in a constructive trust.  Gilbert alleges the demand "threatens to somehow mollify the months-old settlement."

Gilbert alleges that other individuals acting on behalf of TYL have conspired to tortiously interfere with the agreement and the firms' fee.  Prebeg Faucett makes similar allegations in Prebeg, Faucett & Abbott v. The Yoga Lounge.

John Browning, an attorney at Passman & Jones in Dallas who represents Gilbert, said his client "absolutely" contends the firms are entitled to the contingency fee.  "Mr. Gilbert and his firm look forward to vigorously defending their hard-won reputations," Browning said.

Fee Allocation Dispute in NCAA Concussion Case

September 21, 2017

A recent American Lawyer story by Roy Strom, “High-Powered Plaintiff’s Lawyers Battle Over Fees in NCAA Concussion Case,” reports that a group of prominent plaintiff’s lawyers are battling for their cut of potentially $21 million in legal fees related to a pending concussion settlement with the National Collegiate Athletic Association, one of the many litigation battles that the governing body for collegiate sports now faces.  The dispute between Chicago-based Jay Edelson and Steve Berman, a co-founder of Seattle-based plaintiffs powerhouse Hagens Berman Sobol Shapiro, began as a strategy disagreement as late as 2014.

That’s when an Edelson client objected to a class action settlement led by Berman’s firm and others that would have the NCAA create a $70 million medical monitoring program for current and former college athletes, as well as put $5 million toward concussion research.  Edelson’s objection sought to preserve personal injury claims on behalf of former student athletes in a variety of sports, including football.

As part of the settlement, the lead counsel at Hagens Berman and Joseph Siprut, the founder and managing partner of Chicago’s Siprut PC requested $15 million in fees for themselves and about 10 other firms.  The fee request was made in January with the firms stating that they had worked 18,000 hours on the case and reached 4.2 million people to alert them to a preliminary approval of a settlement in July 2016.

Edelson’s firm objected to that amount last week in a court filing that takes aim at various aspects of the lead counsels’ work and argues for no more than $8 million in fees to be awarded to Hagens Berman and Siprut.  The Edelson objection states that the requested fees, which represent 21 percent of the amount of the settlement, are too high.  It also argues the lead counsels’ request takes credit for $50 million in settlement value that Edelson claims his objector added when a judge agreed to knock out a “reversion” provision that would have returned to the NCAA unused money in the concussion monitoring program.

Berman’s firm, which is disputing Edelson’s request for $6 million in fees, argues the reversion provision would not have added anything close to $50 million in value to the settlement and that U.S. District Judge John Zee decided to knock it out of the deal for reasons that had little to do with Edelson’s objections.

Edelson’s firm had originally sparred with the lead counsels’ tactics in the case by saying they were not providing monetary benefits for potentially injured college athletes.  Unlike the National Football League’s $1 billion class action settlement with retired players, which continues to have its own unique issues ahead of resolution, the NCAA’s accord does not provide a fund to compensate injured athletes.

Fearing the settlement would bar athletes from pursuing personal injury claims, Edelson objected to create a “carve-out” for those claims.  His firm, working with Sol Weiss of Philadelphia’s Anapol Weiss, is now leading a series of nearly 50 class action suits on behalf of athletes who played the same sport at the same school.  For instance, the widow of a former University of Texas football player is the named plaintiff in a class action on behalf of all Longhorns football players who played between 1952 to 2010.

In a filing last week, Berman’s firm argues that Edelson’s firm should receive fees in the NCAA settlement case that represent a “pro rata portion” of his fees tied to the issue of arguing for a personal-injury carve out in the case.  That amount would be something less than $1.4 million.

Mark Mester, global chair of the consumer class action practice at Latham & Watkins in Chicago, is representing the NCAA in the litigation. The Indianapolis-based organization paid nearly $8.2 million to Latham—and another $5.8 million to Skadden, Arps, Slate, Meagher & Flom—during 2014-15, according to the NCAA’s most recent federal tax filing.

When Fee-Splitting Breaks Rules, Who Pays the Price?

September 20, 2017

A recent Legal Intelligencer story by Lizzy McLellan, “When Fee-Splitting Breaks Rules, Who Pays the Price?,” reports that lawyers for a Philadelphia securities litigation firm and a consulting company sparred over who should suffer the losses when a payment arrangement between the two is alleged to be improper.  Arguing before the Pennsylvania Supreme Court in SCF Consulting v. Barrack, Rodos & Bacine, a lawyer for SCF Consulting said his client should not be punished for a fee arrangement if the nonlawyer was unaware of the limitations set by Rule of Professional Conduct 5.4.

"An inquiry needs to be made as to what it is the nonlawyer understands the arrangement to be," said George Bochetto of Bochetto & Lentz, who represented SCF.  He said his client was not aware that the fee arrangement was impermissible.

In a nonprecedential ruling issued last year, a Superior Court panel ruled 2-1 that SCF was not entitled to an allegedly promised cut of the firm's profits from cases it worked on because that type of fee-splitting agreement violates state ethics rules.  In its appeal to the state's highest court, SCF argued that it's entitled to be paid under the alleged agreement even if the agreement violated the Rules of Professional Conduct.

Raymond Quaglia of Ballard Spahr, who represents Barrack, Rodos & Bacine, said they "vigorously dispute there was any deal."  During Bochetto's argument, Justice Christine Donohue pointed out that the case involves a "pure commercial deal" between an attorney and a referred nonlawyer.  In that case, she said, the court should only seek a resolution that protects the client.

Bochetto said other policies are at issue as well.  He said lawyers are bound to be honest in their dealings with laypeople, and therefore should face the consequence if they fail to follow through with a fee agreement.

Justice David Wecht suggested that Disciplinary Board actions could deter lawyer dishonesty, but Bochetto said that may not be enough.  Even if a contract is not found to be valid, he said, the nonlawyer should be entitled to equitable relief.

Quaglia said, even though there was no fee-sharing deal between SCF and Barrack Rodos, a nonlawyer party to such a deal should only be entitled to recovery in "truly extreme occasions."

Despite Quaglia's contention about the alleged agreement, Justice Kevin Dougherty suggested the two firms had consistently conducted business together, and it wasn't until the firm won a major verdict that there was any problem with fees.

At the Superior Court level, Senior Judge James J. Fitzgerald III, writing for the majority, said the alleged arrangement in which Scott C. Freda—SCF Consulting's sole member—was to receive 5 percent of the firm's annual profits generated by cases he assisted with violated Rule 5.4, which bars, with few exceptions, attorneys from sharing legal fees with nonlawyers.

According to the opinion, SCF alleged it was induced by Barrack Rodos to work exclusively on the firm's behalf in securities class actions in exchange for both a fixed annual consulting fee and a 5 percent cut of any profits gained from cases SCF worked on.

SCF alleged that the firm subsequently refused to make the profit-share payments, however, according to the opinion. Following discovery, the firm moved for summary judgment and Philadelphia Court of Common Pleas Administrative Judge Gary S. Glazer granted the motion, finding that the fee-sharing aspect of the alleged payment arrangement ran afoul of Rule 5.4.

Texas Attorney Sues Former Firm Over His Share of Fees

September 18, 2017

A recent Law 360 story by Michelle Casady, “Texas Atty Sues Firm Over Slice of Possible Million Dollar Pie,reports that a Houston-area lawyer has sued his former firm Walne Law PLLC for allegedly violating a fee agreement and denying his right to a share of fees from an underlying contract dispute that could yield millions of dollars in damages.

Andrew Raish, who now works in the legal department for Texas convenience store chain Buc-ee's, alleges in his Sept. 8 petition in Texas court that when he started at Walne Law in August 2013, he entered into an agreement with principal Tracy Walne where Raish would receive 75 percent of the resulting fees if he did the work for clients and 25 percent of the resulting fees if other lawyers at Walne Law or elsewhere did the work.

In September 2014, Raish allegedly brought Charles Dresser IV and Highmark Production Co. LLC to the firm as clients and performed work for them on oil and gas transactional matters and in a commercial dispute.  On the Dresser commercial case, Raish worked closely with Tracy Walne's son, Kelly Walne, and determined Dresser would be better served by teaming up with a larger law firm, Porter Hedges LLP, the petition says.

Raish left Walne Law in July 2015 but was assured by Tracy Walne that the fee agreement would continue to apply to the Dresser case even after his departure, and Walne's son left the firm a few months later to start his own firm, according to the petition.

“Upon information and belief, Kelly Walne negotiated with Tracy Walne for Walne Law to terminate its representation of Dresser on the Dresser matter so Kelly Walne alone could engage and represent Dresser and attempt to secure the anticipated fee from the Dresser matter for himself alone,” the petition alleges.  “To that end, and unbeknownst to Raish, defendant drafted a termination letter.  The termination letter purports to 'confirm' the termination of Dresser as a client of Walne Law and the understanding that Dresser intends to engage Kelly Walne as separate legal counsel to pursue the Dresser matter.”

Raish alleges that once he found out Kelly Walne was handling the Dresser matter, he contacted Walne Law to confirm it intended to honor the agreement to pay Raish 25 percent of any fee collected on the Dresser matter.  The firm indicated it would not and “did not believe Raish had any interest in the Dresser matter," the petition says.

The case is Raish v. Walne Law PLLC, case number 2017-58913, in the 11th Judicial District Court of Harris County, Texas.