SC Lawyer, May 2005, #3. Charging fair fees.

• Author: By John Freeman

South Carolina Lawyer

Ethics Columns.

SC Lawyer, May 2005, #3.

Charging fair fees

South Carolina LawyerMay 2005Ethics Watch Charging fair feesBy John Freeman The biggest single air tragedy to strike this country pre-9/11 occurred on May 25, 1979, when the left engine dropped off American Airlines Flight 191 shortly after the flight took off out of O'Hare Airport. There were 273 fatalities, including two killed when the jet crashed near the airport.

I will always remember the dry response an aviation official gave when a reporter asked whether something was amiss with Flight 191's equipment: "Sir, engines do not normally drop off multi-million dollar jet aircraft." Of course they don't. And railroad trains do not normally plow into other trains owned by the same company and parked on the same track, either. As with Flight 191, something went seriously awry for Norfolk Southern in Graniteville on January 6, 2005.

The Graniteville disaster has the makings of a personal injury lawyer's dream: clear-cut liability, a deep pocket defendant and, in many cases, very serious injuries. The ethical challenge is to not mess up such an inviting opportunity. Here are two ways to mess up: charge an unfairly high fee and fail to inform the client of key facts.

What will be an unfairly high fee for legal services rendered related to the Graniteville disaster? It is early in the game right now, and hence difficult to judge, but there is reason to believe that standard contingent fee contracts of one-third or 40 percent may turn out to yield excessive fees when all is said and done. A major reason for contingent fees is to compensate the lawyer for being willing to defer receipt of fees and bear the risk of a poor result. Exactly how much risk is there in a case where liability is clear and damages are substantial? Because the risk is lower, the fee should be, too.

I am not crusading against lawyers, lawsuits or contingent fees. I am urging Bar members to think through the consequences of treating slam dunk winning cases as deserving standard size contingency percentages. They don't. Sophisticated clients who bring contingent fee commercial cases customarily negotiate for discounted fees where the lawyer's risk of going unpaid is small and the likely damage numbers are very high.

A story about the recent IPO litigation yielding around $6 billion that just ended in New York with J.P. Morgan Chase agreeing to pay $2 billion to settle referenced the "deep and broad" smiles on the plaintiffs' lawyers' faces over the payday they earned. According to the story, those very pleased lawyers "will eventually split more than $330 million in fees." See Roderick Boyd, J.P. Morgan Chase To Pay $2 Billion In WorldCom Case, Baltimore Sun, March 17, 2005, available at http://www.nysun.com/article/10701. Three hundred and thirty million dollars is a large fee number, but it is far less than one-third of $6 billion or $2 billion. The point is that there is nothing sacred about normal fee benchmarks. They may be fine for normal cases, but the Graniteville disaster does not represent business as usual for lawyers or their clients.

Of course, defendants have a role to play in determining the reasonableness of plaintiff's counsel's fees. Discovery abuse has flourished as a means of thwarting inquiry and frustrating or demoralizing the other side. How Norfolk Southern and other defendants choose to handle themselves in extricating themselves from the Graniteville tragedy remains to be seen. The Amtrak train derailment in Lugoff led to offers by the train company to admit liability in return for victims waiving their right to seek punitive damages.

If Norfolk Southern or other defendants offer the same deal in connection with the Graniteville tragedy, plaintiffs' lawyers need to bear in mind two key ethics rules. The first is SCACR 407, Rule 1.2. It holds that the decision whether to settle is for the client to make, not the lawyer. Rule 1.4 demands that the lawyer "explain a matter to the extent reasonably necessary to permit the client to make informed decisions." Oral waivers of important rights breed malpractice claims. Any waiver of any client right, including those stemming from possible conflicts of interest, needs to be written and accompanied by a reasonably complete explanation of the benefits and potential drawbacks facing the waiving client.

Lawyers willing to cut their standard fees in the wake of the Graniteville tragedy stand to do well by also doing good. Even with fee reductions, the tragedy holds much potential for cost savings through consolidated investigative efforts. The pooling of resources should promote efficiency and provide added financial benefits, yielding additional reason for viewing standard contingent fee percentages as ethically suspect in unusual cases. Substantial cost savings should be shared with clients. The failure to do so can lead to bloated fees, disciplinary review and attack through malpractice or fiduciary duty lawsuits.