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Mitchell’s Article on Attorneys Fees Published

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The following summary of the law, “CONSIDERATIONS IN SEEKING UNPAID ATTORNEYS FEES” has been approved for publication by the Mercer County Bar Association in Volume 28 of its periodical entitled, “The Lawyer”

This is a summary review of the procedure, pertinent cases, and things to consider before attempting to collect unpaid attorneys’ fees. Although it is not required that there be any specific form of retainer agreement for hourly or other non-contingent matters, it is nonetheless a good idea to have one signed by the client for reasons that will become more apparent below. Contingent fee arrangements in tort, products liability cases, as well as claims among family members subject to Part V of the Court Rules must be in writing and signed by the client. R. 1:21-7. There are exceptions, but generally the Rule limits such fees to one-third of the recovery less costs.
In any case involving a demand for fees, R.1:20A-6 requires that a 30 day pre-action notice be sent to the client advising of the right to seek fee arbitration before a lawsuit to collect a fee may be filed. The notice requirements are specifically detailed in the rule and for those with offices in Mercer County, the Secretary of Fee Arbitration Committee VII is Patricia M. Graham, Esq., Herrick Feinstein LLP, 210 Carnegie Center, Suite 102 Princeton, NJ 08540, 609-452-3816. This procedure is part of the District Fee Arbitration Committee organization developed in 1978. Eventually, the Supreme Court of New Jersey determined that this major change in the Law was constitutional. In re LiVolsi, 85 N.J. 576 (1981)

In any event, the attorney must establish the reasonableness of the fee by a preponderance of the evidence. R. 1:20A-3(b) (1). Where the client chooses not to seek fee arbitration, or more likely, ignores the notice, a lawsuit must be filed for unpaid fees. The same standard applies, that is, the plaintiff attorney must establish the reasonableness of the fee sought to be collected.
The Rules of Professional Conduct set forth the test for reasonableness. RPC 1.5, entitled, “Fees,” provides as follows:
(a) A lawyer’s fee shall be reasonable. 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;
(8) whether the fee is fixed or contingent.
(b) When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation.
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by law or by these rules. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
(d) A lawyer shall not enter into an arrangement for, charge, or collect:
(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or
(2) a contingent fee for representing a defendant in a criminal case.
(e) Except as otherwise provided by the Court Rules, a division of fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer, or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; and
(2) the client is notified of the fee division; and
(3) the client consents to the participation of all the lawyers involved; and
(4) the total fee is reasonable.

The measure of a contingent-fee agreement counsel fee award under a fee-shifting statute is treated differently and should not be confused with claims for unpaid fees, but in any action or proceeding brought to determine reasonableness of attorneys’ fees, the first step is to determine the “lodestar”: the number of hours reasonably expended multiplied by a reasonable hourly rate.” Rendine v. Pantzer, 141 N.J. 292, 334-35, (1995). This is not a mechanical function, but rather requires the court to “evaluate carefully and critically the aggregate hours and specific hourly rates advanced by counsel…to support the fee application.” Id. at 335. “[N]o compensation is due for non productive time. For example, where three attorneys are present at a hearing when one would suffice, compensation should be denied for the excess time.” Ibid. (quoting from Copeland v. Marshall, 641 F.2d 880, 891 (D.C.Cir.1980)). Further, quoting from Rode v. Dellarciprete, 892 F.2d 1177, 1183 (3d Cir.1990), the Court noted:
[t]he … court should exclude hours that are not reasonably expended. Hours are not reasonably expended if they are excessive, redundant, or otherwise unnecessary. Further, the court can reduce the hours claimed by the number of hours spent litigating claims on which the party did not succeed and that were distinct in all respects from claims on which the party did succeed. The court also can deduct hours when the fee petition inadequately documents the hours claimed. (citations and internal quotes omitted):

As to the reasonableness of the hourly rates of participating attorneys, quoting from Rode, supra, 892 F.2d at 1183, the court noted:
Generally, a reasonable hourly rate is to be calculated according to the prevailing market rates in the relevant community. Thus, the court should assess the experience and skill of the prevailing party’s attorneys and compare their rates to the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation. Rendine, supra, 141 N.J. at 337.

Szczepanski v. Newcomb Med. Ctr., 141 N.J. 346, 358-359 (1995), explained:
The reasonable counsel fee payable to the prevailing party under fee-shifting statutes is determined independently of the provisions of the fee agreement between that party and his or her counsel….The agreement determines the fee payable by the prevailing party to counsel, and might reflect the risks inherent in the litigation, the complainant’s financial resources, and the prospect that counsel will receive a significant fee in the event of a large verdict but no fee at all if the suit is unsuccessful. …As our opinion in Rendine emphasizes, the focus of that determination is to ascertain what fee is reasonable, taking into account the hours expended, the lawyer’s customary hourly rate, the success achieved, the risk of nonpayment, and other material factors.

Turning to fee disputes, Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, 340 N.J.Super. 104, 106-107, (App.Div. 2001), illustrates the problems encountered where there is a failure to reduce the agreement to writing. In that case Judge Carchman, writing for the court, held that an attorney who failed to secure a timely written contingent fee agreement was barred from a contingent fee award but, under the circumstances, was entitled to quantum meruit relief. The attorney and the clients agreed on a contingent fee but did not reduce their agreement to writing for a period of 33 months after the commencement of representation. The belated execution of the contingent fee agreement was a violation of RPC 1.5(b) barring recovery of a substantial contingent fee, but because the work was beneficial, quantum meruit relief was warranted. The attorney took a severe haircut but was not barred a recovery.
In the case of non-contingent fee agreements, it is advisable to reduce them to writing if only to comply with RPC 1.5(b). Even where this is done, however, attorneys have a fiduciary duty to clients. This inevitably leads courts to construe the fee agreement against the attorney. In Cohen v. Radio-Electronics Officers Union, 146 N.J. 140 (N.J.,1996), Justice Pollock held that an automatically renewable, six months’ termination notice provision in a retainer agreement was unenforceable. It excessively burdened the client’s right to discharge its lawyer. On the other hand, the client’s three days’ notice of termination was both unfair and unreasonable.
The court accepted the finding below that the fee agreement was negotiated by experienced parties and that the notice provision was important to the attorney because the necessary travel on short notice conflicted with his teaching at a law school, limiting his employment opportunities. The trade-off the client obtained was a reduced fee of $100.00 per hour for 1,000 hours annually.
The agreement was nonetheless unenforceable because the Court held that a client possesses the right to discharge an attorney at any time with or without cause. The Court, citing authorities, recognized that the “modern rule,” is that the personal and confidential nature of the relation makes a difference in such a contract of employment. The client cannot be compelled to pay damages for exercising a right which is an implied condition of the contract, barring damages for the attorney’s premature discharge because the client’s right to discharge an attorney precludes the discharge from constituting a breach of contract. Id. at 167-169.

Interestingly, New Jersey courts authorize counsel fees for collecting unpaid overdue attorneys’ fees. Such fees may be awarded where provided for in the fee agreement. See, Hrycak v. Kiernan, 367 N.J.Super. 237, 240, (App.Div. 2004). In that case, the plaintiff attorney appealed from a denial of counsel fees incurred in enforcing a fee arbitration determination. The retainer between the parties provided:
Should attorney bring suit against client for fees due under this agreement, and after the requisite pre-action notice required by Rules Governing the Courts of New Jersey, client shall be responsible for all fees and attorney[‘s] fees with a minimum of $450.00 attorney’s fees for the filing of same.

The attorney invoiced the client for $8,922.52 for services rendered. The client paid $5,000.00, claiming that the attorney verbally promised the fee would not exceed that amount. The dispute was brought before a fee arbitration committee which determined the total reasonable charge was $7,231.57. This left the client still owing $2,231.57, which he refused to pay. The attorney filed a complaint in the Law Division for $2,747.04, which included the arbitration award, costs, prejudgment interest and a demand for $450.00 as the minimum attorney’s fee under the retainer agreement. In support of the counsel fee, the attorney detailed in his complaint the work performed in filing suit. The trial court entered judgment for the attorney but denied the $450.00 attorney’s fee, with only a vague rationale.

On appeal, the court distinguished Gruber & Colabella, P.A. v. Erickson, 345 N.J.Super. 248(Law Div.2001), holding unenforceable a retainer which added one-third of the outstanding legal fees to the client’s bill if the attorney was forced to file suit to collect. The court indicated that the potential for an attorney to receive an unreasonable fee if little work was necessary to enforce the additional fee claim was not presented because the attorney at hand was seeking fees for the actual time expended in his collection efforts. The minimum of $450.00 was said to be about two and a half hours at the attorney’s rate. After arbitration determined that the fees were reasonable, the client still refused to pay forcing the attorney to sue to collect. Under the circumstances the court could see no reason why he should be denied compensation for additional work required in enforcing the award as covered by the retainer agreement. The court reversed and ordered an amendment to the judgment to include the $450.00.
For an admonition on what not to do, you might want to read.Horowitz v. Weishoff 318 N.J.Super. 196, 206-207 (App.Div.,1999). There, two attorneys hassled over the Attorney’s Lien Act, N.J.S.A. 2A:13-5, which codified and expanded the common law “charging lien.” One claimed he was injured by a release of escrow funds by the other, who claimed that the suit was frivolous. In rejecting both claims the court reviewed the procedural history at length and found both attorneys responsible for a number of violations of the RPC’s. The court also stated that an attorney’s charging lien is a judicial device to protect the attorney’s right to proceeds of litigation whether produced by settlement or judgment, but only to the extent that attorney’s fees are owed. Prior to the adoption of R. 1:20A-1 et seq., establishing fee arbitration committees, the court would determine the amount of the fee, and now the fee arbitration committee, if invoked by the client, determines what, if anything, the client owes the attorney as a fee. In the case at hand, a fee arbitration committee determined that the plaintiff attorney asserting the lien had been paid in full by the client. Therefore, the attorney’s lien was zero. The plaintiff attorney was not entitled to any part of the escrow funds and consequently, he was not injured by their release.

The court agreed with the findings below that when the attorney instituted a suit which ignored these principles, then concealed and later misrepresented or obfuscated the facts of the arbitration, and withheld the arbitration award, he was maintaining frivolous litigation within the meaning of N.J.S.A. 2A:15-59.1. Under those circumstances, the other attorney complied with the procedural requirements of R. 1:4-8(b), the frivolous litigation rule. However, because of his own blatant disregard of rules of procedure and of professional conduct, the court modified the judgment below to provide that, in lieu of an attorney’s fee; a monetary sanction was to be assessed against the plaintiff attorney and paid to the Clerk of the Court.
One other caution should be mentioned. Claims for fees frequently lead to counterclaims for professional negligence. Saffer v. Willoughby, 143 N.J. 256 (1996). Insurance underwriters are interested in this subject and ask about it on insurance applications. There may be a correlation between the two, leading to the conclusion that clients unwilling to pay may have cause to be unsatisfied.

The bottom line is that agreements between attorneys and clients generally are enforceable, but the attorney must prove they are fair and reasonable. The attorney may also run the risk of malpractice claims and increased premiums as well.

April 22, 2009

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