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Illinois Court Affirms Arbitration Award That Legal Fees Were Excessive

The case is captioned Walter Duemer v. Edward T. Joyce and Associates, P.C., 2013 IL App (1st) 120687.

This case involved a fee dispute between Joyce, the attorney, and his former clients. In 2002, Joyce agreed to represent the plaintiffs in securities litigation with Deloitte & Touche, Jeffries Company, EPS Solutions and Enterprise Profit Solutions Corporations in connection with plaintiffs’ purchase of EPS stock. The fee agreement provided for “a contingent fee equal to twenty-five (25) percent of any and all money or other benefits recovered on the claims.”  In the underlying case, plaintiffs obtained settlements with some defendants and obtained an arbitration award against EPS. However, EPS’s insurers refused to pay the arbitration award.

In 2007, Joyce retained Morgan Lewis to file suit against the insurers of EPS.

Prior to the filing of the lawsuit, Joyce informed some of his clients in a conference call that the 2002 retainer agreement had ended,  that Morgan Lewis would be lead counsel in the insurance case and that Morgan Lewis expected Joyce to render some assistance in the insurance coverage litigation, for which he would charge a contingent hourly fee. There was no written agreement. The opinion refers to these discussions as the 2007 agreement.

Eventually, the insurance litigation was settled.

Shortly thereafter, plaintiffs claimed that they had been overcharged by Joyce. They asserted that “the defendant failed to follow the formula for calculating the fees contained in the 2002 retainer agreement and charged the plaintiffs hourly fees, local counsel fees and unlimited expenses. Despite its assertion that the 2002 retainer agreement did not apply to the insurance coverage case, the defendants also charged the plaintiffs a 25% contingency fee of the insurance settlement proceeds under that agreement.” Opinion p. 4.

The arbitrator, retired Justice Robert E. Rose, found in favor of the plaintiffs and against Joyce. He held that it was not until January 30, 2008 (when Joyce wrote a memorandum to the plaintiffs) that the plaintiffs were “informed in writing that (1) defendant considered it had fulfilled its obligations under the 2002 retainer agreement, (2) Morgan Lewis was the lead counsel in the suit against the EPS insurers and working on an hourly basis, and (3) the defendant was charging the plaintiffs a contingent hourly fee for its work in connection with the insurance case.”

The traditional rule is that the lawyer cannot change an existing fee agreement with a client once the matter has started. To do so, the lawyer must overcome the presumption of undue influence that arises when the attorney benefits from the modification of an existing fee agreement. The presumption can be overcome if the lawyer informs the client to obtain an independent legal opinion before the client signs the new modified fee agreement.

Here, Arbitrator Rose found that Joyce did not overcome the presumption of undue influence. Further, the January 30, 2008 Memorandum prepared by Joyce did not make it clear to the plaintiffs that a new fee agreement was being reached and did not advise them that they could seek independent legal advice to review the proposed agreement. The arbitrator allowed the the plaintiffs to void the new (2007) retainer agreement. He held that the plaintiffs were responsible for 75% of the fees charged by Morgan Lewis and that Joyce was responsible for 25% of those fees.  Ultimately, Arbitrator Rose awarded the plaintiffs $555,802.02  equal to 25% of the Morgan Lewis fees they paid and a refund of fees paid under the 2007 agreement.

Comment: The most basic lesson of this case is that any communication regarding attorney fees should be reduced to writing and signed by the clients. Had the 2007 agreement been set forth in writing (and had Joyce explained that the plaintiffs had to pay for the legal fees of Morgan Lewis), the result might well have been different.

The second lesson is that it is never a good idea to renegotiate a contingency fee agreement once the matter has started, unless the client has independent counsel.

The third lesson is that the Illinois courts will enforce arbitration agreements between lawyers and clients, even when the lawyer loses.

In sum, this is an interesting and complex fee dispute that deserves close study.

Edward X. Clinton, Jr.