Articles Posted in Legal Fees

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The case is pending in New York. A divorce firm sued its former client for fees. She promptly brought a legal malpractice claim. The trial court refused to dismiss the counterclaim. It held: “With respect to the proposed counterclaim for legal malpractice, defendant Ms. Parada alleges that as a result of plaintiff’s failure to complete certain tasks in the underlying divorce proceeding, Ms. Parada was forced to enter into an unfavorable settlement agreement with her ex-husband. Affirmation of Peter Hanschke dated February 26, 2019, Exh. C, ¶ 22. Although plaintiff argues that Ms. Parada’s allegations are speculative and that she will not be able to show that plaintiff’s actions caused Ms. Parada to enter into this agreement, it cannot be said at this stage that the proposed counterclaim is palpably insufficient or completely devoid of merit so as to warrant denial of her motion to amend. Cruz v. Brown, 129 A.D.3d 455, 456 (1st Dep’t 2015). Further, Ms. Parada provided a reasonable excuse for her delay in asserting this claim as the underlying divorce proceeding finally settled in December 2018 and defendant moved promptly thereafter to amend her counterclaims.”

Comment: My point here is that it if you sue for fees, you should expect to litigate a malpractice counterclaim every now and then. I make no comment on the merits of the allegations, which do appear quite speculative and difficult to prove.

See Davidoff Hutcher & Citron v. Maria Del Pilar Nava Parada, 2019 NY Slip Op 31121(U).

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One issue that arises frequently is whether an agreement between two lawyers to share fees on a case is enforceable.

Rule 1.5(e) provides that:

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

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The case is captioned Robert Iuffues Webb II v. Janice Holmes, 2018 IL App (3d) 170167. Webb, who is not licensed to practice law, alleged that he had assisted Holmes with certain federal litigation. It is not clear exactly what the federal litigation involved. He alleged that he entered into an oral agreement with Holmes that he would assist her with the federal litigation in exchange for $150 plus 10% of any settlement.  Eventually, after the case was filed, Holmes retained an attorney and settled her case.

The trial court dismissed Webb’s complaint and the Appellate Court affirmed. The court based its decision on the Illinois Attorney Act 705 ILCS 205/1 which prohibits a nonlawyer from earning compensation as a lawyer.

Conclusion: obviously the court reached the correct result. What is somewhat remarkable is that these allegations resulted in a published opinion given the well-settled law.

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One question which comes up frequently is whether a client can sue his former lawyer for legal malpractice based on what the client believes is an inflated legal bill.

A legal fee dispute is essentially a breach of contract case filed by the lawyer against the former client. Here the specific complaint was that the lawyer did not explain that, under the fee agreement, the lawyer was not required to refund any portion of the client’s deposit.

“Plaintiff next argues defendants breached a fiduciary duty to plaintiff by failing to properly advise him as to the non-refundable aspect of the retainer agreement. “In entering a contract at the outset of a representation, the lawyer must explain the basis and rate of the fee . . . and advise the client of such matters as conflicts of interest, the scope of the representation, and the contract’s implications for the client. . . .” Restatement (Third) of the Law Governing Lawyers § 18 cmt. d (Am. Law Inst. 2000). RPC 1.4(c) states, “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

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An estate hired a lawyer to act as the co-executor of the estate. The lawyer was paid on a percentage basis – 3% of the gross amount of the Estate. (In Illinois this type of payment arrangement is illegal. However, in Kentucky is it is perfectly legal). Of note is that the maximum fee in Kentucky is 5% – the lawyer only charged 3%. For those with an understanding of economics, that would indicate a working market in Kentucky where there is bargaining power on both sides of the transaction. In addition, the lawyer’s firm charged over one million in legal fees to the estate. These were apparently hourly charges.

As a result of the fee agreement, the lawyer/executor collected a large fee, in excess of $300,000. The executor then sued the lawyer for legal malpractice for charging excessive fees. (The executor could not sue for breach of contract because the lawyer complied with the terms of the contract and the court approved the payments).

Result: summary judgment for the lawyer. This passage of the opinion sets out the key issues in the dispute:

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This issue comes up every now and then. An attorney files a collection lawsuit against a client and obtains a judgment against the client. (Here the client did not appear and a default judgment was entered). Later, the client reviews the attorney’s work and files a legal malpractice lawsuit. May the lawyer argue that the legal malpractice case is barred by the doctrine of res judicata? Here the answer is “No.”

The court includes a discussion of res judicata:

The purpose of this common law doctrine is to “relieve the parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.” Allen v McCurry, 449 US 90, 94; 101 S Ct 411; 66 L Ed 2d 308 (1980). “For the sake of repose, res judicata shields the fraud and cheat as well as the honest person. It therefore is to be invoked only after careful inquiry [as to whether foreclosing plaintiff’s case would protect] the interests served by res judicata.” Brown v Felsen, 442 US 127, 132; 99 S Ct 2205; 60 L Ed 2d 767 (1979). “The burden of establishing the applicability of res judicata is on the party asserting the doctrine.” Richards v Tibaldi, 272 Mich App 522, 531; 726 NW2d 770 (2006).

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This case (which is merely a complaint now that has not been proven) is a reminder that an attorney can be prosecuted by the ARDC for failing to safeguard client funds when he personally did not convert the funds. In this case, the allegations are that the lawyer’s partner converted funds and that the lawyer failed to prevent it. There are also allegations that suggest that the lawyer had reason to know that his partner might convert funds because he had converted funds in the past. The complaint alleges violations of Rule 1.15 and Rule 5.1(a). I have attached a link to the ARDC’s complaint. Again, the important thing to remember is that you can be prosecuted even if you did not convert funds.

Edward X. Clinton, Jr.

http://www.iardc.org/17PR0053CM.html

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This is case is worth reading because it involved a law firm that did legal work for a client for a period 12 years, but never billed the client. The firm claimed that it had entered into an oral agreement with the client to defer billing until a parcel of real property was sold. When the property was sold, the lawyers delivered a legal bill for $274,850.64 to the client.

One can speculate that the client, who had not received any bills before that time, was enraged to receive a huge bill after that amount of time. She refused to pay.

The firm sued for (a) breach of contract, and (b) equitable estoppel. The client filed a motion to dismiss the breach of contract claim based on the statute of limitations and the statute of frauds. The motion to dismiss was denied.

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The case involves a fee dispute between a law firm and its former clients. The law firm took the underlying case on a contingent fee basis. The law firm inserted the following provision in its engagement letter, which requires arbitration of any fee disputes:

4. FEE ON TERMINATION. If Client terminates Firm’s employment before, conclusion of the case without good cause, Client shall pay Firm a fee and expenses based on the fair and reasonable value of the services performed by Firm before termination. If any disagreement arises about the termination fee, the client may choose two persons from a service profession, and the firm may choose one person. The firm will be bound by a majority decision of the three persons as to a fair fee. If the Firm terminates the representation, then it shall receive no fee or expenses.

The plaintiff law firm was terminated after it had received settlement offers from the other parties in the underlying lawsuit. (It is likely the lawyers felt that they had been unfairly terminated where they had been on the brink of achieving a settlement for their client).

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This case and the opinions it has spawned proves that truth is stranger than fiction. The most recent opinion details the results of two trials and two appeals. The Appellate Court twice reversed trial court judgments that were incredibly lawyer friendly, that allowed the estate of a lawyer to retain funds that never belonged to the lawyer.

In 2006, Catherine Gombach deposited $504,889.29 in the trust account of her lawyer. Gombach was apparently attempting to protect some of her funds from creditor claims.

In 2010, Laurie began spending Gombach’s money and made improper withdrawals from the trust account. Gombach sued Laurie, who passed apparently passed away while the case was pending.