CHAPTER 11 - 11-2 FEE DISPUTES WITH CLIENTS

• Jurisdiction: United States

11-2 Fee Disputes with Clients

11-2:1 Where There Is a Written Fee Agreement

A fee dispute against a client typically, like other collection actions, sounds in breach of contract and quantum meruit. Rule 1.5 of the Rules of Professional Conduct require a fee agreement in most cases. The quality and specificity of the fee agreement makes a significant difference in the outcome of the fee dispute. In many of the collection cases that are tried to a jury, the attorneys and firms suffer a sizeable haircut on their fee awards.

In Updike, Kelly, Spellacy v. Beckett,² the firm brought an action to collect its fees against many of its clients arising out of litigation representing pilots in an action against an airline and union. The pilot clients counterclaimed for legal malpractice and a variety of other claims.³ The firm that commenced the action was not the firm that was retained by the pilots.⁴ Instead, the pilots retained a smaller firm in what has been termed a hybrid or evergreen arrangement where the hourly rate is reduced but the firm is permitted to recover a contingency in a lesser percentage than the usual third.⁵ The hourly rate for the attorneys was $100. But the agreement did not differentiate between partners and associates, and was silent about the rate for paralegals.⁶ The agreement also permitted the firm to associate with other counsel with very vague language about what the fee arrangements would be with the other counsel, but with the suggestion that they would be the same.⁷ The underlying case turned out to be a lot more expensive than anticipated and ended up unsuccessful for both the firms and the pilots.⁸ In the collection action, one major unresolved issue was outstanding paralegal fees.⁹ In the trial of that collection case, the firm recovered less than 50% of the attorneys' fees it was seeking, and no paralegal fees.¹⁰

When the client has discharged the attorney before the case is concluded, attorneys are only entitled to recover on the basis of quantum meruit. In Cole v. Myers,¹¹ the attorney brought an action to recover his fees. The attorney was hired on a contingency fee basis to obtain a reduction in tax assessments. The client discharged the attorney and hired successor counsel who obtained a settlement.¹² The court in Myers held that the discharged attorney was entitled to recover only on a quantum meruit basis. He could not recover under a breach of contract action.¹³ The court stated that "[a]n attorney at law is an officer of the court; a minister of justice. He is entitled to fair compensation for his services, but since, because of the highly confidential relationship, the client may discharge him even without just cause, he should receive reasonable compensation for the work he has done up to that point. . . . This rule is not unfair to the attorney. He will receive fair compensation for what he has done; his position as an officer of the court does not entitle him to receive payment for services he has not rendered."¹⁴

Quantum meruit and unjust enrichment are common-law doctrines that provide restitution for the services that benefit another. "Quantum meruit is usually a remedy based on implied contract and usually relates to the benefit of work, labor or services received by the party who was unjustly enriched, whereas unjust enrichment relates to a benefit of money or property and applies when no remedy is available based on the contract."¹⁵

11-2:2 Contingency Fee Cases

Contingency fee agreements based on a one-third recovery of the judgment or settlement are standard in Connecticut. Rule 1.5 of the Rules of Professional Conduct applies to all fee agreements and determinations regarding the reasonableness of fees. That it does so seems at odds with the nature of contingency recoveries. There are contingency fee cases that are resolved via settlement, arbitration, trial or after an appeal. There are cases where a handsome fee is recovered after a half hour of an attorney's time is spent. Sometimes, large insurance policy limits are paid as a result of a few phone calls and a demand letter to the insurer. And, by contrast, there are cases which require many years of litigation and millions in unpaid attorneys' fees and expense that end up with very small verdicts or an unfavorable verdict resulting in no fee at all. How can you analyze the reasonableness of fees in a contingency fee case when the amount of the fee is unrelated to the amount of work performed to obtain the fee?

The nature of the contingency relationship was cogently explained by the court in Mall v. West Haven,¹⁶

It is the nature of contingency fees that the amount of the fee is unrelated to the amount of work performed to secure the recovery. Although the relationship between amount and effort is the sine qua non of reasonableness in ordinary fee calculations, the uncoupling of the amount of the fee from the amount of the services rendered does not render contingency fees per se unreasonable because other factors provide such fees with their reasonableness, those factors being the contingencies and risks involved in collecting a fee. The most obvious contingency is that the attorney risks not being paid if he fails to obtain any recovery for the client. Additional significant risks facing the attorney are the uncertainty over the amount of the recovery and uncertainty as to the amount of time and effort it will take to obtain a recovery. In fee structures involving such risks, it is reasonable for the lawyer often to collect a fee that is a premium for his services in return for assuming those risks.¹⁷

Rule 1.5(c) specifically allows that a fee may be contingent on the outcome of the matter for which the service is rendered.¹⁸ In Burrell v. Yale University,¹⁹ the court awarded a firm $1.2 million in fees, finding that a one-third contingency fee in an employment case is not unusual.²⁰

Under Connecticut law, any analysis of a contingency fee dispute case must begin with the agreement itself before there can be any issue of reasonableness of such fees. In the case of Schoonmaker v. Brunoli,²¹ the Court held that a contingent attorney's fee agreement governs the court award of reasonable attorney's fees if the agreement by its terms is reasonable. The court held that "[w]e conclude that the trial court abused its discretion in its attorney's fee determination by improperly departing from the contingency fee agreement."²² The Court...