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PA Court: Email Can Memorialize Contingency Fee Agreement

August 23, 2016 | Posted in : Contingency Fees / POF, Ethics & Professional Responsibility, Expenses / Costs, Fee Agreement, Fee Dispute, Fee Issues on Appeal, Quantum Meruit

A recent Legal Intelligencer story, “Court: Email Can Cement Contingent Fee Arrangement,reports that an email sent by an attorney to his client memorializing a contingent fee arrangement was enforceable, despite the now-former client's protests that there was never a signed document, the state Superior Court ruled.

A three-judge panel in Flaherty Fardo v. Keiser unanimously affirmed an Allegheny County trial court's nearly $40,000 judgment in favor of Pittsburgh personal injury firm Flaherty Fardo, finding that the firm had an enforceable contingent fee agreement with its former client, Thomas A. Keiser.

Keiser claimed an email sent to him by Flaherty Fardo memorializing the fee arrangement was invalid because it was not signed by him, but Senior Judge Eugene B. Strassburger III said the basis for this argument was incorrect.

"In support of this contention, Keiser cites to two Pennsylvania Supreme Court cases, both of which hold that in the context of the statute of frauds, a writing is not valid unless it is signed by the parties," Strassburger said.  "Importantly, Keiser points us to no case law that indicates that a contingent fee agreement must comply with the strict requirements of the statute of frauds."

Keiser was a financial advisor for Citigroup Inc., according to Strassburger's opinion.  When he joined the company, he was given an employee forgivable loan of about $1.5 million under a nine-year arrangement in which Citigroup agreed to deduct a portion of what Keiser owed on the loan for every year he continued to work there.

Keiser left the company after only three years, however, and Citigroup sued to recover the remaining $1,032,000, plus interest and attorney fees, according to Strassburger.  Keiser retained Flaherty Fardo to represent him in the suit.

While Keiser initially agreed to pay the firm on an hourly basis, he eventually realized that arrangement would be too expensive and instead proposed a contingent fee arrangement in which he would pay a $32,000 flat fee up front, plus 10 percent of any savings the firm was able to realize for him from the total amount Citigroup was demanding in arbitration, Strassburger said.

Flaherty Fardo's managing partner, Noah Fardo, memorialized the fee arrangement in an Oct. 31, 2011, email, according to Strassburger. Keiser issued a $32,000 check to Flaherty Fardo in December 2011.

The arbitration hearing was delayed until 2014 and lasted four days, at the end of which Citigroup was still asking for $1,032,000 on the principal loan amount, plus nearly $400,000 in interest and attorney fees, Strassburger said.

The arbitrators eventually awarded Citigroup the entire $1,032,000 but no interest or attorney fees.  Flaherty Fardo, believing it had successfully saved Keiser about $400,000, sent him an invoice for about $40,400, which included 10 percent of the savings plus litigation costs, according to Strassburger.

In March 2014, Keiser fired Flaherty Fardo as his attorney.  That April, the firm  filed a complaint against Keiser in the arbitration section of the Allegheny County Common Pleas Court for breach of contract and quantum meruit in the alternative, Strassburger said.  In September 2014, arbitrators awarded the firm $19,000 and Keiser appealed to the trial court, which entered a verdict in the firm's favor for about $39,680.

On appeal to the Superior Court, Keiser argued that Fardo's email memorializing the contingent fee arrangement was unenforceable because it was not a "'signed writing to reflect the terms of the parties' agreement,'" according to Strassburger.

Keiser relied on Pennsylvania Rule of Professional Conduct 1.5(c), which states that a "'contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated.'"

But Strassburger said this argument failed because, under the state Supreme Court's 1984 ruling in In re Estate of Pedrick, the Rules of Professional Conduct do not have the effect of substantive law but are instead to be used only in disciplinary proceedings.

Regardless, even if an alleged violation of the rules could form the basis of a civil action, Keiser's argument would still fail, Strassburger said, because he did have the contingent fee agreement in writing—Fardo's email.

Keiser's attorney, James R. Cooney of Pittsburgh, said he was unhappy with the ruling but doubted he and his client would appeal to the Supreme Court.

"The Rules of Professional Conduct require a written agreement when there’s a contingent fee.  We thought that means exactly what it says," Cooney said, adding that typically the requirement of a writing means there has to be a signed document, not merely an email.