Articles Posted in Legal Fees

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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.

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Recently, the Illinois Appellate Court reversed a legal fee award because the lawyers who obtained the award failed to retain copies of their written timesheets after they entered the data into a computer program. Aliano v. Sears, Roebuck & Co., 2015 IL App (1st) 143367.

The plaintiff sought recovery under the Consumer Fraud Act alleging that Sears had wrongfully collected sales tax on the entire sale price of certain digital-to-analog converter boxes even though a portion of the price was subsidized by a federal program which provided coupons that were exempt from Illinois sales tax.

Plaintiff was unsuccessful in obtaining class certification and opted to go to trial. At trial, plaintiff prevailed and won a judgment of $3.10. Plaintiff then filed a fee petition seeking $252,402.08 in legal fees. The circuit court conducted a hearing on the petition for legal fees and awarded $157,813.53. Sears appealed. Opinion ¶ 3.

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The case at issue here, Tuggle Schiro & Lichtenberger, P.C., v. Country Preferred Insurance Company, 2015 IL App (4th) 141036-U is an unpublished opinion of the Illinois Appellate Court for the Fourth District.

The fee dispute arose out of an automobile accident case. The plaintiff, Carroll Watson, who was insured by County Preferred suffered injuries as a result of an automobile accident. Watson hired Tuggle Schiro & Lichtenberger (Tuggle) to represent him in the litigation. Watson also submitted medical bills to County Preferred, which made payments directly to medical providers. The medical payments made by County Preferred exhausted the policy’s $50,000 limit of medical payments.

The Tuggle firm obtained a settlement of $100,000 from the party that caused the auto accident. Additionally, the Tuggle firm obtained a payment of $150,000 from County Preferred on Watson’s uninsured motorist coverage. County Preferred asserted its right to take a credit of $50,000 for payments it made for medical payments for Watson.

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The case is captioned Illinois State Bar Association Mutual Insurance Company v. Thomas W. Burkhart, et al., 2015 IL App (4th) 140936-U.

An attorney, Thomas Burkhart, represented Robert and Elizabeth Wilson in a real estate transaction and related litigation. That litigation ultimately resulted in a jury verdict of $30,000 for the Wilsons. Opinion ¶ 9. The proceeds were deposited with the Bank of Edwardsville.

In 2005, trouble arose when Burkhart filed a motion in the state court case seeking $35,806.85 in legal fees, apparently $5,806.85 more than the amount of the jury verdict. The Wilsons responded with a counterclaim for negligence and legal malpractice. Burkhart tendered the defense of the claims to ISBA Mutual, which agreed to pay for Burkhart’s defense.