f/k/a . . . the archives

December 11, 2007

unconscionable silence over Graubard’s $42 million contingency fee

Filed under: lawyer news or ethics,viewpoint — David Giacalone @ 3:26 pm

..SlicingThePie ……. Alice Lawrence v. Graubard Miller ……..

Note: For a comprehensive look at the “standard contingency fee”, see our 4-part essay on the ethics of contingencies fees, including the importance of risk and the lawyer’s ethical duties; and our post on related fiduciary duties.

Two weeks ago, a New York appeals court issued its 4-to-1 decision in Lawrence v. Miller (2007 NY Slip. Op. 09348; Nov. 27, 2007). In an opinion by presiding judge Richard T. Andrias, the First Department’s Appellate Division refused to declare a 40% contingent fee “unconscionable on its face.”

In a general dictionary, unconscionable means “Not restrained by conscience.” In legal terms, a contract or bargain is “unconscionable” when it is “so unfair to a party that no reasonable or informed person would agree to it.”

In Lawrence v. Miller, the appeals court held that a trial would be needed, in this probate case dating back to the death of real estate mogul Sylvan Lawrence in 1981, to determine whether the $42 million fee charged by the law firm Graubard Miller to 80-year-old widow Alice Lawrence in 2005 — for about four months’ work, and on top of $18 million in hourly fees and $5 million in “gifts” already paid, and a retainer for an added $1.2 million in hourly billing for that year — was unconscionable under the circumstances, or otherwise met criteria needed to be deemed fair and reasonable under ethical standards for lawyers.

In a lengthy, thoughtful dissenting opinion, Justice James Catterson dissented explained why he concluded that the fee was unconscionable as a matter of law, the agreement should be voided, and the defendants should be referred to the Department Disciplinary Committee.

update: See “N.Y. High Court Skeptical of $40 Million Payoff From Contingency Fee Deal” (New York Law Journal, Oct. 24, 2008), a lengthy news article, which describes oral argument in this case at the New York Court of Appeals on Oct. 23, 2008.  It notes that “Members of the court appeared skeptical during an hour of oral arguments about the size of the fee and several questioned the propriety of Graubard Miller seeking to collect the entire amount.” And, that “Judge Robert S. Smith echoed several of his colleagues when he wondered whether a legitimate contingency agreement, ‘where it works out so favorably to the lawyer, where it is so much money for so little work,’ could be considered unconscionable.” (via Overlawyered.com)

With greedy lawyers as villains, an octogenarian widow as victim, and sharply disagreeing jurists, it’s the kind of story that you’d expect to get lots of press — especially after the New York Times featured it in the article, “Court Calls a 40% Fee to Lawyers Defensible” (NYT, Nov. 29, 2007). Online, the Daily Brief column at the Conde Nast Portfolio noted “It’s Been a Bleak House Kind of Week in Court” (Nov. 30, 2007). The ABAJournal News quickly posted a nice summary, in the piece “Court Doesn’t Void $42M Contingency Deal Reached Before Settlement” (Nov. 29, 2007). And Law.com republished Anthony Lin’s excellent discussion of the case from the New York Law Journal, in “Late 40 Percent Retainer Pact Survives Widow’s Dismissal Bid” (Nov. 29, 2007).

Even more than a good story for the mainstream and legal press, Lawrence v. Miller would seem to be a perfect topic for the blawgisphere — the world of weblogs by and for lawyers, where attorneys, law professors and students, plus various ideologues, “reformists” and pundits, love to show their expertise and biases, engage in both scholarly and unruly debate, and boast of the important role of blawgs in educating the public about law and lawyers. As Allison Shields at Legal Ease noted, in “High Legal Fees May Not Be Unconscionable” (Nov. 29, 2007), the case involves “an issue near and dear to lawyers’ hearts – their fees.”

questionDude Lawrence v. Miller does indeed raise some very interesting questions to discuss and debate, preach and pontificate over, or educate and entertain with. Mark Zauderer, who represented the Grauber Miller law firm, told the NYT: “What the courts recognize is that a fee agreement is not unconscionable simply because it can produce a big fee. You have to look at the value rendered to the client.” Others involved in the case were a bit more specific:

In his opinion for the Lawrence majority, Judge Andrias noted that:

  • “circumstances underlying the agreement must be fully developed, including any discussions leading to the agreement, as well as the prospects at that time of successfully concluding the litigation in favor of Mrs. Lawrence. . . . What is in dispute are the circumstances surrounding the revision of the parties’ retainer agreement and the value of the Graubard firm’s services in effecting a final settlement of the decades-old litigation involving distribution of the estate.”
    • “Prior to the revised retainer agreement, Mrs. Lawrence had personally negotiated with her nephew, the late exector’s son, and received a $60 million offer from the executor’s estate, but such offer did not result in a settlement.”
  • “The basic requirement in any retainer agreement is that it be fair and reasonable. In the case of an amended agreement, the attorney has the burden of showing that the client understood the terms of the agreement and that the attorney did not exploit the client’s confidence in negotiating the terms of the agreement.”
  • “The issue of unconscionability . .. cannot be resolved without determining Mrs. Lawrence’s capacity (the fact that she was nearly eighty, by itself, is insufficient to put her mental capacity into question); what she was advised; and whether she understood the ramifications of the revised agreement.”
    • [The Court of Appeals recent decision in King v. Fox, 7 NY3d 181, 2006] “merely holds that it is inherently difficult to determine the unconscionability of contingent fee agreements and it is not necessarily the agreed-upon percentage or the duration of the recovery that makes such a fee arrangement unconscionable, but the facts and circumstances surrounding the agreement, including the parties’ intent and the value, in hindsight, of the attorney’s services in proportion to the fees charged (id. at 192).”

In his dissenting opinion, Judge Catterson argued that “Regardless of the procedural aspects of the parties’ negotiations, no court can condone such an exhorbitant fee,”

  • “where the risks taken be Graubard were virtually nonexistent (having been paid $18 million in legal fees already and negotiated another $1.2 million for the ensuing year, plus its disbursements)” . . .
  • “and the Graubard firm only added, at most, another seven months of legal work to its 22 years of service. . . .” and,
  • “Without the costs and risks generally associated with contingency fee arrangements, such a fee agreement is nothing short of plain greed.” See King, 7 N.Y.S.2d at 841 (policy behind allowing contingency fee arrangements is based upon providing access to the courts and the fact that attorneys risk their time and resources in endeavors that could prove fruitless).

Press coverage also echoed these questions. In her “Bleak House” column, Conde Nast‘s Karen Donovan noted that “Big contingency fees are nothing new, of course. But they are usually associated with the risk-taking personal injury lawyers who go after Big Pharma and Big Tobacco.” And she quoted New York University School of Law professor Stephen Gillers, who pointed out that “No one won this; it was put off to another day,” and added:

“I found the conduct of the lawyers troubling, and it will be important for the conduct eventually to be thoroughly reviewed by the court, following the development of the information that the appellate division required.”

Similarly, in the NYLJ article, Anthony Lin explained: noloShark

“Though contingent fees of such magnitude are not uncommon in personal injury cases, they are rarer in estate cases. Moreover, such deals normally date from the beginning of the litigation and are in lieu of hourly fees, meaning a law firm bringing a case on a contingent-fee basis normally faces a risk of nonrecovery.”

“But Graubard Miller’s contingent-fee deal was signed in January 2005, only months before the settlement. The 1983 retainer agreement in effect prior to that only specified hourly billing. In his dissent, Justice Catterson said the contingent fee might have been reasonable if agreed upon at the beginning of the case or if the firm had agreed to refund its previous fees.

“Without the costs and risks generally associated with contingency fee arrangements, such a fee agreement is nothing short of plain greed,” he wrote.

With such meaty issues and tasty facts, we’d expect pundits, scholars and practitioners to be salivating at their keyboards, eager to chew over and savor the Lawrence case and its lessons, and anticipating the next stage in the litigation. Even if they avoided drawing definitive conclusions on the appropriateness of the fees in question, blawgers could anticipate an eager audience. Just telling us how to think about the issues raised by Lawrence, and how thousands of practitioners deal with them every day across the nation, as they enter into contingency fee arrangements, would have enaged lawyers and clients alike, and made a great record for future reference.

However, when we look to see how Lawrence v. Miller has been treated over the past fortnight in the blawgisphere, we find it mentioned in only a handful of posts; we discover what I consider to be an unconscionable silence:

If educating the bench, bar and public about the ethics and equities of contingency fees is our goal as members of the legal profession, or as blawgers, we should be asking a lot of questions about the dearth of discussion on the issues raised by Lawrence v. Miller. We should be wondering who is benefiting from this conspiracy of silence, who is hurt by it, and just who is enabling it (hint: all of those within our profession who seem to worry more about tacky tv ads by p/i lawyers than about their strange demand for at least a third of every client’s damages, no matter how easy the case or how little their risk). The answers should shock our consciences into action.

Sadly, the silence is no longer surprising, given the subject matter. You see, the appropriateness of the particular contingency fee charged an individual client, and the notion that any “standard” percentage charged — such as 33 and 1/3rd or 40% — might be excessive, clearly fall within an unspoken Code of Omerta among lawyers (a Pin-Striped Barbed Wire Barricade similar to the police Blue Wall of Silence). The One-Third-Or-More Standard Fee is truly a Third-Rail Issue for any member of the legal profession who needs to win a popularity contest (like a judgeship or bar presidency), or who merely hopes to walk into the Lawyers Lounge at court without encountering a chilly rebuff from their brethren in the personal injury bar, or to operate a blawg without without facing charges of being an anti-consumer, anti-justice, pro-insurer, evil-doin’ “tort-reformer.”

In fact, it’s difficult to think of any comparable issue of legal ethics and client rights that is so adamantly and blatantly ignored by the practitioners directly involved in the practice. For example, try to find a p/i lawyer who is knowledgeable about, and willing to discuss the ramifications, of ABA Formal Ethics Opinion 94-389, which is described at length here). Although frequently mentioned by courts, the risk-percentage issue is also avoided by the regulators we’ve deputized to police lawyer conduct (see, e.g., “blame bar counsel for the Capoccia Scandal”); and even by lawyer-funded consumer advocates who focus on legal services issues (see our “Challenge to Public Citizen“).

FYI [since the contingency-fee bar won't tell you]: As we’ve stated previously, ABA Formal Ethics Op. 94-389 persuasively — and with no apparent philosophical or political axe to grind, nor financial conflicts of interest — takes into account the ethics history of contingency fee regulation (in Model Codes and Rules, as well as ABA ethics opinions, and legal scholarship), and the modern utilization and economic role of contingency fee arrangements. It sets forth two basic requirements for the ethical use of contingency fee arrangements. The lawyer must: (1) fully inform the client of all relevant factors, so that agreements can be entered into knowingly and intelligently; and (2) treat each case and client separately, when deciding on the appropriateness of the arrangement and the reasonableness of the agreed-upon fee.

Given their ethical and fiduciary duties, the expectation is that the lawyer will make a good faith, professionally-informed estimate of anticipated effort and risk (of non–recovery of costs or inadequate compensation), and explain the evaluation to the client, prior to their coming to an agreement on a contingency fee. [Go here to learn why this is not an unreasonable burden to ask of lawyers who clearly do assess risk before accepting a client and do an excellent job of rejecting the too-risky case.]

In addition, because these obligations are so often “honored in the breach” by the Bar, the authors of Op. 94-389 urged that the legal profession “redouble its efforts to assure that the ethical obligations associated with entering into a contingent fee arrangement are fully understood and observed.”

Since my toe is already on the Third Rail, I’ll summarize by saying that the reasonableness of a contingency fee in a particular case will depend on how much risk the lawyer assumed of working extensive hours and incurring expenses without adequate compensation, and how much skill and exertion it will take to perform the tasks involved. The validity of the fee arrangement will also depend on whether the client was adequately informed (given his or her level of sophistication and knowledge) of the relevant factors when negotiating the fee level with the lawyer. The necessary corollary is that applying a “standard” fee to each client without taking the degree of risk into aaccount is unethical, because it will inevitably overcharge many clients. [For more detail, see our 4-part essay on the ethics of contingencies fees, including the importance of risk and the lawyer's duties; and our post on related fiduciary duties.]

But, “wait a minute,” you might now be saying, why do you think there is a Taboo against mentioning the relationship of risk to the level of a contingency fee? Hasn’t f/k/a often reminded us that even the American Trial Lawyers Association (now humbly known as the American Association for Justice), agrees about the importance of risk? Indeed, we’ve quoted ATLA’s 2003 Statement to the Utah Supreme Court (at 12) that:

“Attorneys should exercise sound judgment and use a percentage in the contingent fee contract that is commensurate with the risk, cost, and effort required” and has explained that “The percentage charged in contingent fees may vary from case to case depending on the circumstances, including but not limited to, the risk of recovery, the impact of the expense of the prosecution, and the complexity of the case.”

“. . . Attorneys should discuss alternative fee arrangements with their clients. The passage is not merely information given to clients, but is taken verbatim from a resolution on professional ethics regarding the use of contingent fees, adopted by ATLA’s Board of Governors in 1986. This resolution continues to be ATLA’s policy regarding the ethical obligations of its members.”

. . . . . . . . . . . ATLA: the at least one third bar assoc.

Unfortunately, that passage — which was used by ATLA in its successful attempt to avoid limitations on fees under certain Early Offer Fee Proposals — has also been ignored by its members in their daily practice of law. At best, they cling to the word “risk” and act as if any risk at all justifies charging the maximum permitted percentage to every client.

So, why does the contingency fee gang impose and nurture ARTO (its anti-risk-talk Omerta rule) and a One-Third-Third-Rail policy?

In case the answer is not obvious, I’ll spell it out: Any discussion about the possible invalidity, unreasonableness, or unethical nature, due to inadequate risk in a particular case, of a one-third or 40% fee charged to any particular client, presupposes that contingency fees are supposed to relate to the actual perceived risk in each separate case. It directly undermines the attitude of the p/i cartel that the existence of any risk justifies any percentage rate that is permitted in the jurisdiction, or any rate agreed-to by the client (absent, perhaps, actual fraud or felony on the lawyer’s part, or the extreme mental incompetence of the client). And, it particularly condemns the near-universal practice of presenting as a fait accompli a “standard” percentage rate to virtually every client — a rate that is usually the maximum permitted in the State absent special judicial consent to go higher.

Similarly, to even ask whether a lawyer added sufficient value to the client’s case to warrant a contingent fee based on the entire award or settlement damages, undermines the contingent fee cartel’s fiction that the client’s case had no value until the lawyer does his or her magic and labors to produce the value, and that the outcome achieved automatically represents a good value for the client, well-worth applying not a tidy incentive bonus for doing the job they already should have been doing (their best job), but a significant portion of the entire pie, set at the maximum percentage rate permitted in the jurisdiction. (For more on the value issue, see our prior post)

So, in the wake of the decision in Lawrence v. Miller, who’s been talking about what makes a contingency fee conscionable, or fair and reasonable? Who hasn’t? And, why not?

another hot day
an old man scratches
his lottery ticket

…………. by Pamela Miller Ness

[the Omerta Game]…. [the Third Rail, band]

After an awful lot of web-surfing and Googling, I’ve discovered that a mere handful of blawgs have even bothered to mention Lawrence v. Miller, with only the “usual suspects” actually discussing the issues raised — and with none of the true experts on the use of contingency fees (the practitioners who use them constantly in their daily practice), nor those who promote the “value-billing” of clients, nor even ethics professionals, having deigned so far to explain which standards should apply in assessing the Lawrence fees, or any client’s contingency fee arrangement, and how to go about applying them.

Here’s who has, so far (the morning of December 11, 2007), discussed Lawrence v. Miller at their legal weblogs:

  1. Legal ethics guru Mike Frisch, fully summarized the case the day it was released, at Legal Profession Blog, in a posting titled “Nice Work If You Can Get It” (Nov. 27, 2007). He even stated, “This case is worth a close look and could be a very useful teaching example for inquiry into the ethics of charging and collecting fees for legal services.” But, the often-highly-opinionated Frisch offered no analysis or opinion of his own.

  2. At his Attorney Malpractice Blog, NY lawyer Andrew Bluestone had a little blurby post titled “40% Plus $23 Million Fee Permitted for Now” (Nov. 28, 2007), in which he quickly described the fee facts and, without offering an opinion, added “How did the AD react to this? They said that the fee was all right for now, and that they could not make a decision without further information.” Meanwhile, Peter Lattman, at the high-profile Law Blog of the Wall Street Journal, briefly outlined the facts of the case and the conclusions of the court, in “Court: $42 million legal bill not unconscionable on its face” (Nov. 29, 2007), but offered no analysis. The posting did gather a lot of spirited and eye-opening Comments.

  3. Allison Shields, who tries to prevent “Lawyer Meltdown” at Legal Ease, outlined the Lawrence facts on Nov. 29, 2007, noting that: “The main point for me is, once again, that it is important to establish expectations with clients clearly at the outset of the engagement and at any time when substantial changes (particularly changes to the fee agreement) are being made.”
  4. The courageous and client-centered Carolyn Elefant, discussed Lawrence v. Miller at two weblogs, asking hard questions and offering analysis and opinions. In “$42 Million Fee – Inherently Unreasonable? That Depends, But Here, It Was” (at MyShingle, Nov. 30, 2007), Carolyn asks about fiduciary duties and concludes that “These lawyers certainly looked out for someone; let’s just say that it wasn’t their client.” And, at Law.com‘s Legal Blog Watch (Nov. 29, 2007), Ms. Elefant wonders “Can Legal Fees Ever Be Per Se Unconscionable?,” if these weren’t, and tries hard to figure out what “value” Alice Lawrence could possibly have received, and what a win-win amended retainer might have looked like in this case. [She ends up, to my surprise, suggesting a compromise that would have allowed Graubard Miller to score an additional 8-figure fee, without a showing of any significant risk or value added.]
  5. On December 1, 2007, Ted Frank at Overlawyered.com lived up to expectations, given his blawg’s healthy skepticism on lawyers and litigation, posting “Lawrence v. Graubard Miller.” After outlining the facts, Ted points out that the New York Times article [like a post at TortDeform, which is discussed below] “doesn’t even begin to mention the fact that the ‘contingent fee’ didn’t provide any risk for the law firm.” Ted opines that “The question becomes whether the attorney-client relationship is at all fiduciary, or whether it’s purely contractual—in which case, one wonders why there is such an elaborate screening mechanism to permit prospective attorneys to participate in the guild in the first place.”

Finally, Kia Franklin at TortDeform is the only blawgger, so far, from the personal injury or “Civil Justice” lawyer community — the true experts on contingency fees — who has substantively addressed Lawrence v. Miller in a posting. On November 30, 2007, she wrote “Civil Justice… to Fee or Not to Fee?.” I was hoping to find some helpful analysis, because TortDeform calls itself “the civil justice defense blog” and has the tagline “protecting Americans’ access to the courts.” Ms. Franklin and her co-contributors appear to have the both the incentive and the knowledge to help us understand the issues raised in Lawrence. Furthermore, the integrity of the contingency fee system is very important to them.

After saying “Without knowing more, I can’t weigh in,” Here is what Ms. Franklin wrote (emphasis in the original):

The average contingency fee is somewhere around 30%. I want to know more: about the client, Mrs. Lawrence, her financial situation at the time the arrangement was made, whether it’s possible she could have been taken advantage of, how much work was involved for the lawyers, the level of complexity of the issues at hand, how long they estimated the whole thing would take, chances of winning, etc., etc., etc. The new lawyers for Mrs. Lawrence say they will probably continue to challenge the old lawyers’ fee, so perhaps they’ll have an opportunity to get into these details.

Some more general questions for us to explore: For those who oppose the fee: is it exorbitant/unconscionable because it’s 40%, or because it amounts to $40 million for the lawyers? What if the case had a 10 percent chance of success? What should be the determining factor in an attorneys fee’s unconscionability? For the proponents of the fee: at what point is enough enough, no matter how complex the issues, no matter how much time the case will take, no matter how many lawyers are working on the case? Is there a contingency, percentage-wise, that is just too high, regardless of the details at hand?

She then goes on to highlight a recent discussion by Brian F. LaBovick, Esq., at the Whistleblower Law Blog, titled “Shedding light on attorney contingency fees,” for its “insights about contingencies generally.” LaBovick says

“America awards risk and hard work. When an attorney takes personal resources, time and money, and invests in a case, the attorney deserves to be paid exactly what the employer (client) agreed to pay him. This is especially true if the employer (client) is making a large amount of money as well as a result of the attorney’s efforts.”

[Editor's Note: LaBovick's post continues with the assertion, "Contingency fees are the single greatest invention to permit the common man access to fight big corporations and government intrusion. It is simply bad public policy for the court to intervene in a contract between an employee and the employer." It ends with the plea to "Look at the whole picture. Contingency fees help the average person. Don't let a corporate propaganda lawsuit misinform you about what is best for you and for most Americans." His message: Because contingency fees can do good things we shouldn't ever question them. The sanctity of a contract trumps issues of reasonableness of the fee, and ethical or fiduciary duties to the client.]

Franklin ends her TortDeform post by saying: “As an aside, I wish there were a way to measure and compare the level of disdain for high attorneys’ fees for plaintiffs’ lawyers against disdain for the more uniform and predictable, and less risky high salaries of in-house lawyers and lawyers who work at corporate defense firms.” And by musing: “Hmmm…I wonder what kind of arrangement Mrs. Lawrence has with her new lawyers?”

Granted, the TortDeform treatment of Lawrence v. Miller is far from inspiring or illuminating. Despite her kitchen-sink approach to listing issues, Ms. Franklin seems to have missed a lot of important facts and factors (e.g., that the case had been going on for a couple decades when the retainer was amended to add a contingency fee, and that millions had already been paid in hourly fees). She also appears to fall back on “a contract is a contract” and “why pick on us and not high-paid defense lawyers,” as if the issue is not fairness and duties owed to the individual client. Nonetheless, TortDeform did at least throw out some issues for consideration — which suggests she acknowledges that risk and value and the facts of a particular case and client are relevant, at least in extreme cases involving potential unconscionability and a client who might be mentally incompetent. And, TortDeform, which Technorati says has been linked-to well over 600 times in the past six months, reaches many of the lawyers and blawggers most expert in the use of contingency fees.

As of December 1st, beyond its initial media attention, Lawrence v. Miller was mentioned in half a dozen weblog posts, including some very high-profile blawgs, with audiences who care about these issues. Did those postings precipitate a landslide of further analysis and debate as often happens among lawyer blogs? Actually, no. Not even a little slip and fall’s worth of discussion has followed in the blawgiverse.

And, no, I am not surprised. After years writing about the ethics of contingency fees from the client’s perspective, and dealing with the contingency-fee bar (mostly plaintiff’s personal injury firms, and debt-reduction specialists), I’ve learned that they have one or two universal reactions to questions about contingency fees and risk or value: 1) instant, self-righteous anger and insistence that the issue would only be raised by Satan (sort of like the Pope when questioned on women priests or gay marriage), or 2) a total refusal to address the issue.

As a blawger raising the topic, I originally saw a lot of the first reaction, but the past couple of years (despite great search engine positioning and a bunch of awards and accolades), I basically get ignored. Since lawyer bloggers normally love the chance to disagree with another blawger, I have come to believe that the p/i bar, and other lawyers who use contingency fees, now prefer not to talk about or link to the topic of contingency fees and risk assessments, for fear of drawing attention to the issue — and, possibly, having to deal with their own consciences and duties, with fellow lawyers who get religion and start offering (or worse, advertising) percentages that are based on risk, or with clients who start insisting on their rights when entering into contingency fee arrangements.

As so often happens with issues of lawyer ethics, I had hoped that my skeptical expectations about the likely reaction to the Lawrence case would prove wrong. I have hoped for years that consumers armed with enough information might be able to start breaking down the At-Least-a-Third standard contingency fee practices of the personal injury bar. But, that seems a long way off, given the apparent continuing strength of the cartel’s Omerta rule.

For what it’s worth, here are some of the weblogs and lawyers I had hoped, as a normal part of their blawgging activities, might discuss the issues raised by Lawrence — relating to unsconcionability and also to the broader ethical validity of the fees charged by Graubard Miller, and the standards we might expect the court and bar counsel to apply:

Not a word so far from: Public Citizen’s Consumer Law & Policy Blog; the gang at the Legal Ethics Forum; the “neighborhood” p/i lawyer Jonathan G. Stein (who once showed considerable interest in the ethics of contingency fees) at his California Small Business Blog; or his The Practice blog; and Robert A. Kraft at the Personal Injury and Social Security Disability Blog;

Nor yet from Miller & Zois, who have put together an extensive, and much-ballyhooed, cache of materials at their Personal Injury Help Center, and say that their Personal Injury Lawyer Blog offers “commentary on issues often facing personal injury victims.” [Indeed, although clients won't find anything about risk and fee levels, on their page of questions "that personal injury victims frequently ask their attorney," lawyers will find a Sample Retainer & Contingent Fee Agreement for lawyers that says a fee of "thirty-three and one-third percent (33-1/3%) of the gross amount received by way of settlement. In the event that a lawsuit is filed, or my case is submitted to binding arbitration, my Attorneys shall receive as their fee forty percent (40%) of the gross amount received."]

The often-thoughtful Eric Turkewitz at the New York Personal Injury Law weblog — who recently focused on doctors’ “White Coat of Silence” — has also ignored the New York court decision in Lawrence v. Miller. A couple weeks ago, while discussing the ABA Journal Blawg 100, Eric touted the excellence of many personal injury weblogs, so I checked out the six that he selected, and not one of them has mentioned Lawrence v. Miller either:

update: (Dec. 12, 2007): Our sleepy editor inadvertently cut out the pointer to Austin’s Perlmutter & Schuelke, LLC and their weblog; P&S was featured last August in our post “why do lawyers lie (about contingency fees?,” after they posted ““In Defense of the Contingent Fee.”

Of course, one ore more of these webloggers could have perfectly good reasons for not covering the issues raised by Lawrence v. Graubard since it was released (work or home duties, vacation, or an illness). But, not all of them — not if interesting topics that are important to lawyers and clients in their specialty areas are an important part of their blawgging beat. I’m afraid that the Omerta rule and the One-Third-Third-Rail policy is in place, with regard to the relevance of risk and value to the setting and charging of a contingency fee. That’s because the standard contingency fee racket — the use of an automatic formula and the dream of keeping a major share of every client’s jackpot — is just too good to jeopardize by treating each client and case individually and fairly.


crescent moon
the ex-con’s
friendly smile

“thirty-five.”
the caricature artist lengthens his nose

lunar eclipse
i fall for
the hidden ball trick

……………………………………………. ed markowski
“campfire” – Modern Haiku (Autumn 2006)

16 Comments

  1. David,

    Great, great post – it’s a classic like “The Graying of the Bar.” However, perhaps you might be happier with silence on the topic, than the alternative – lockstep support for the majority view. That’s what I encountered when I posted about this case on a listserve. Not a single lawyer (and there are 3000!) would agree that the fee was outrageous, and many chimed in with comments like “lawyers deserve to be paid” or (the worst, in my view) – “What’s the harm. The client wasn’t any worse off after the renegotiated fee – she still got $60 million?”

    Comment by Carolyn Elefant — December 11, 2007 @ 4:57 pm

  2. One more point. I have noticed that as blogs proliferate, there’s actually less discussion, rather than more. It’s unusual, except at blogs like Above the Law or WSJ Law Blog to see many comments and many bloggers now simply link to a story rather than post commentary. The academic blogs regularly offer good analysis, but many blogs are just summaries or links (except perhaps those dealing with Supreme Court issues or political type blogs). I think that this type of post would have generated many more comments 3-4 years ago.

    Comment by Carolyn Elefant — December 11, 2007 @ 5:11 pm

  3. Thanks for your thoughts, Carolyn, and your continued willingess to address this topic. I won’t be surprised by the Cartel’s knee-jerk, self-serving reactions. And I’ll will be pleasantly surprised to have an occasional, thoughtful admission from a lawyer using contingency fees that he or she should be attempting to treat each client’s case separately and fairly.

    Of course, I’m also hoping a few members of the public — or even bar counsel — will get some useful information and act on it.

    Comment by David Giacalone — December 11, 2007 @ 5:12 pm

  4. David, excellent post, even if you did criticize me in it. You should check my blog at http://www.pissd.com though, as that’s where I’m more likely to give opinions on such matters.

    My silence on this issue is for three reasons:

    1. Too busy with other stuff;
    2. This happened in New York, not my jurisdiction, and;
    3. This is an estate law matter, not an injury or disability case.

    From my read of your post it’s hard to disagree with your opinion that this fee is unconscionable. That said, I really am not familiar with the underlying case. I definitely do not think that every contingent fee is fair.

    Keep up the good work David. I may not always agree with you, but I do appreciate your hard work.

    Bob Kraft

    Comment by Bob Kraft — December 11, 2007 @ 5:57 pm

  5. Thanks for taking the time to Comment, Bob, and for your kind words. I’d love to hear your ideas on what makes a contingent fee fair (or, unfair). If you have a link to such a discussion, please let me know.

    Comment by David Giacalone — December 11, 2007 @ 6:09 pm

  6. David:

    I didn’t write up the story for several reasons.

    First, I am not only a practicing attorney, but have two small kids at home. My time is limited.

    Second, this is a complicated Surrogates Court matter, not PI. While I do venture outside my field sometimes, it is not where I prefer to be unless the topic has particular interest to me. Estate work is not the field I prefer to be in.

    Third, the only thing the court really did was note that there were disputed facts, and it isn’t appropriate to decide either a motion to dismiss or summary judgment when you have disputed facts. The court certainly didn’t find that 40% is appropriate, only that a fact finder should resolve the factual disputes before the issue gets addressed. I therefore didn’t find the case particularly interesting, even though others did.

    Finally, while I only skimmed the facts and therefore shouldn’t render an opinion (much less one in public that will stick around forever), I think that a fact finder is unlikely to award a legal fee of any kind on the $60M offer, but only on the $40M+ extra that the firm was able to obtain. If the court finds a retainer entered into at an arms length transaction, you would therefore see a top fee of 40% on the extra $45M, a total of $18M. That comes out to 17%.

    The reason I think that is because of this recent holding from the same court:
    http://www.nycourts.gov/reporter/3dseries/2007/2007_05655.htm

    Comment by Eric Turkewitz — December 11, 2007 @ 9:08 pm

  7. Thanks for the commenting, Erik. As this case progresses, I hope you will attend to it, since the law of contingency fees is rather important in your line of work and your thoughtful reactions will be worth considering.

    I sure hope you’re wrong about a court allowing GM to take 40% of the $45 million, for the extra four months of work, when GM had a guarantee of $1.2 in billable hours fees, and therefore only a tiny risk, if any.

    p.s. If the first $60 million on the table is not appropriate in computing any additional fee (and it surely should not be for numerous reasons, including the fact that GM had already been paid $18 million in billed hourly fees up to the point of that offer), then your fig-leaf math leading to the 17% figure is rather meaningless and misleading.

    Comment by David Giacalone — December 11, 2007 @ 9:22 pm

  8. David:

    Just to be clear, I’m only guessing at what the top end might be, not what will actually happen.

    And it was my impression from skimming the opinion that the $18M in prior fees was for other matters related to $350M in distributions. The estate was apparently much larger than the $105M at issue here.

    But I confess that I didn’t find the topic of estate work sufficiently interesting to get to the details, if they were all there. Of course, if I were a beneficiary, my interest level would likely change.

    Comment by Eric Turkewitz — December 11, 2007 @ 10:06 pm

  9. I can’t imagine that the issues raised in the Lawrence case don’t seem pretty darn interesting (and important) for a lawyer who earns his bread through contingency fees. But, I guess the Omerta tradition helps curb one’s enthusiasm.

    Comment by David Giacalone — December 11, 2007 @ 10:12 pm

  10. David, regarding your request that I give my opinion as to what makes a contingent fee fair or unfair, there are far too many variables to consider.

    However, one starting point is the amount, or percentage, the client nets out of the case. For 36 years now it has been my policy to never charge a percentage fee that would pay me more than the client puts in his or her pocket and takes home, after medical bills and expenses.

    If my standard contract would pay me more than the client nets, I reduce my fee. I frequently get far less than the client, but never more than the client.

    There are other reasons for reducing a contingent fee, but please remember that the original contract was fairly agreed to by the client. If potential clients don’t like my fee, they can hire someone else. Remember also that if a case turns out to require much more work than anticipated, we can’t go back and raise our fee.

    Bob Kraft

    Comment by Bob Kraft — December 12, 2007 @ 10:32 am

  11. Thanks for telling us more, Bob. I don’t see any mention of a connection between the perceived riskiness of the case and the percentage charged. Can I assume that you have a standard fee percentage that is charged to (almost) every client?

    As you surely know, I do not ascribe to the notion of a contingency fee arrangement being fine as long as “fairly agreed to by the client,” unless “fairly” means that the client has been fully informed of all the factors outlined in ABA Op. 94-389, and listed in this Bill of Rights.

    Unless the client knows he or she is allowed to negotiate over the fee, and that the fee should depend on the likelihood of success (which the lawyer truthfully discusses with the prospective client), it means little to say “they can hire someone else” from the same cartel that insists on a standard percentage rate. Each lawyer has the ethical obligation to offer a percentage rate that reflects the perceived riskiness of the case.

    Comment by David Giacalone — December 12, 2007 @ 11:06 am

  12. Fine post, David. The bar regulators need to start applying the ethical rules on fees as written:

    “Model Rules of Professional Conduct
    Client-Lawyer Relationship
    Rule 1.5 Fees

    (a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:

    (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

    (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

    (3) the fee customarily charged in the locality for similar legal services;

    (4) the amount involved and the results obtained;

    (5) the time limitations imposed by the client or by the circumstances;

    (6) the nature and length of the professional relationship with the client;

    (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

    (8) whether the fee is fixed or contingent.”

    So, as I read it, only four factors of eight (2, 3, 4, and 8) arguably support a non-negotiable, standard contingent rate in cases large enough to significantly impact the lawyer’s ability to perform other work.

    Why are the other factors ignored, especially in class actions, when the fees are so often grossly disproportionate both to the results obtained for individual class members (the coupon or small cash amount) and to time and effort expended?

    So, I don’t see risk as the only issue.

    And, though I’m quite ignorant of antitrust law, it would seem that proof that there is tacit, industrywide agreement on a standard percentage, presented to consumers as such, would be tantamount to unlawful price fixing.

    Comment by George Lenard — December 14, 2007 @ 11:19 am

  13. Hello, George. Thank you for the lengthy, thoughtful Comment. You are quite right that “risk” is not the only factor that we’d expect to go into calculating a reasonable contingent fee (although many of the other factors point to the degree of the risk assumed — of not being adequately paid for your efforts and expenses — by taking the case). As with any fee, and as I’ve noted often, the skill needed to deal with the issues, or negotiate with the other side, and the reputation and experience of the lawyer, are clearly relevant (and are other good reasons to wonder how virtually every p/i lawyer in a community can be charging the same percentage rate). It is the failure to take the degree of risk into account that makes using a standard fee iffy ethically.

    I do not believe that any of the factors warrant using a “standard” percentage fee with every client.

    Yes, an agreement to charge the same percentage fee — or not to advertise the percentage or your willingness to negotiate it — would indeed amount to price-fixing. Proving the existence of the conspiracy is the rub.

    Comment by David Giacalone — December 14, 2007 @ 12:09 pm

  14. [...] This week’s blawgisphere has a few postings that fall in that category.  Take for example the report about the personal injury lawyer who names actual accident victims in their blog posts in hopes of landing a gig.  Kevin O’Keefe thinks that’s going too far.  I agree.  Also noteworthy in an unrelated post is the $42 million contingency fee. [...]

    Comment by » Blog Archive » BLAWG REVIEW #139 — December 17, 2007 @ 6:32 am

  15. A missed duty in Tort reform is ethics. A bar complaint for Rambo law practice is meaningless to the public whom lawyers are supposed to serve. Until the practice of law moves to the ethical practice of law and enforcement of same expect the motif: “fully funded and fully employed” as theme governing all problems in the incosequential public in the practice of law. This is a quote from a law professor OUHSC as a guide for affecting the rules of tort reform change. This is what drives the resistance to change for lawyers.

    In Oklahoma there are only 2 investigators and one supervisor for on average more than 1,100. bar complaints a year. In 2006 as a result the bar only pulled 4 liceses. Murdock, the general counsel in Oklahoma said in an above the fold “Daily Oklahoman” interview that HALT said underfunding of bar associations is the cause for lack of prosecution of the unethical practice of law. The OBA raised their dues from 175 to 275 since, but none went for enforcement. So Murdock and the unethical crowd at the OBA continue the support of
    the practice of unethically presenting before the court facts an attorney knows untrue. This is at the heart of ethics avoidance and frivolous lawsuits. The public should take over ethical enforcement of lawyers as a part of Tort reform. (Tort Reform needs to move this issue up the list)

    Comment by John Graff — December 19, 2007 @ 12:42 pm

  16. Thank you for your thoughtful comment, John. I do not consider my advocacy on behalf of the contingency fee client to be part of “Tort Reform,” as I do not wish to limit the ability of plaintiffs to bring personal injury cases (except for frivolous ones), nor to cap damages. My goal is to assure that injured persons get “all that they deserve” by making sure lawyers only take what they deserve.

    Comment by David Giacalone — December 19, 2007 @ 2:08 pm

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