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Seventh Circuit Rejects An Effort To Rewrite A Contingent Fee Contract

Source: GOESEL v. BOLEY INTERNATIONAL (HK) LTD., Court of Appeals, 7th Circuit 2015 – Google Scholar

This case concerns an appeal by a law firm of a decision by the district court to reduce a contingent fee award.

The parties agreed to a contingent fee under which the lawyers would receive one-third of any award and the expenses would be covered by the clients.

The district court modified the agreement and required that litigation expenses be deducted before the legal fee was calculated. This reduced the legal fee to the lawyers who appealed.

The Seventh Circuit sided with the law firm on the ground that the written contract between the parties was clear. The court held that the fees charged were reasonable under Illinois law and reasonable under prior Illinois caselaw. The court explained:

The first measure of the objective reasonableness of an arrangement for attorney’s fees is its consistency with the prevailing market rate. See Palm v. 2800 Lake Shore Drive Condo. Ass’n, 988 N.E.2d 75, 86 (Ill. 2013) (“The phrase `reasonable attorney fees’ has generally been interpreted to require use of the prevailing market rate in calculating a fee award.”). In the contingent-fee context, this inquiry can take the form of a side-by-side comparison between the fee ultimately recovered and the lodestar, or what the client would have been charged under a fixed hourly billing arrangement. Watson v. S. Shore Nursing & Rehab. Ctr., LLC,965 N.E.2d 1200, 1213 (Ill. App. Ct. 2012) (“Under the lodestar approach, the starting point for calculating the amount of a reasonable attorney fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.” (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983))).

No one contends that the firm’s fee exceeded the market value of its services. Before the district court intervened, the firm would have been entitled to $229,166.67. The firm pegs the relevant lodestar comparator at $283,554, calculated by multiplying the 1,194.9 hours billed at a rate of $300 for partners and $180 for associates. The amicus did not contest this figure, which the firm asserts is actually “below the market for Chicago.” The judge acknowledged that he had “looked at the lodestar” and on that basis concluded that the attorney’s fee “would be justified in ordinary terms.” Thus, as a purely empirical matter, there was nothing unreasonable about the fee as calculated under the terms of the retainer agreement.

The court acknowledged that the fees sought by the law firm were also reasonable under the standards set forth in Illinois Rule of Professional Conduct 1.5, which contains an 8 factor test.

Ultimately the Seventh Circuit held that the district court abused its discretion in rewriting the fee agreement.

Accordingly, a court should depart from the terms of a retainer agreement only when it has a good reason for doing so. Here, the firm’s representation was competent, conscientious, and ultimately successful; the judge made no factual findings that the minor’s recovery was inadequate; and the fee was unquestionably reasonable under both the marketcomparison and professional-responsibility rubrics. Among the criteria that Illinois courts have enumerated to govern attorney’s fees in general and minor settlements in particular, none support abrogating the retainer agreement and rewriting the terms of the representation after the fact.

The Seventh Circuit also rejected the district court’s holding that the contingent fee agreement was a contract of adhesion.

In sum, the Seventh Circuit held that the contingent fee agreement was reasonable under Illinois law and that the fees charged were reasonable.

The appeal for the law firm was handled by Peter Donoghue.

Edward X. Clinton, Jr.