SC Lawyer, May 2007, #3. Fee agreement enforceability.

• Author: By John Freeman

South Carolina Lawyer

Ethics Columns.

SC Lawyer, May 2007, #3.

Fee agreement enforceability

South Carolina LawyerMay 2007Fee agreement enforceabilityBy John FreemanOn October 5, 2006, the Court of Appeals issued an unpublished opinion that turned out to be, among lawyers at least, one of the most discussed opinions of the year. The case was Tillmanv. Grant, No. 2006-UP-340 (Ct. App. 2006), available at www.judicial.state.sc.us/opinions/unpublishedopinions/index.cfm?fuseaction=displayOpinion&caseNo=2006UP340. The case involved a problem every experienced attorney has dealt with at one time or another, efforts to collect under the fee contract from a recalcitrant client.

A basic rule of lawyering is that you should not sue a client over fees. The risks you run are huge, starting with the strong likelihood, if not the inevitability, that you will be on the receiving end of a counterclaim filed on behalf of the client. In Tillman, the suing lawyer, Wheeler Tillman of North Charleston, did not get tagged with a counterclaim. He actually collected the contingent fee set according to his fee contract. Further, he received a fee award for suing to collect his fee, also in accordance with his retainer agreement. Nonetheless, the outcome left Tillman unhappy and has been viewed with some concern by various lawyers.

The reason lawyer Tillman was not pleased with the Court of Appeals' ruling is he wanted more than the $36,000 his 40 percent contingent fee would have yielded based on his client's $90,000 settlement. Specifically, Tillman sought a $61,915 fee based on time spent on the matter at his hourly rate of $175 per hour. Tillman contended he was entitled to the extra money because a clause in his contract required his client, Grant, to pay him either the contingent fee or a fee based on hours invested at $175, "whichever amount is greater," in the event the client fired him before settlement or verdict.

The $90,000 recovery in question flowed from a personal injury settlement that was agreed to at the close of the first day of trial. At that time, in open court, the "terms of the settlement were placed on the record and the parties acknowledged their consent to settle." The insurance company subsequently tendered a settlement check and a release. Up to this point, things were fine, but then the situation changed.

Evidently suffering from buyer's remorse, Grant refused to sign the release and fired Tillman. This led to Tillman suing Grant under the hourly fee proviso, seeking $61,915 plus $8,320.12 in costs. Grant failed to answer. Though he was in default, paving the way for Tillman to recover a 2/3 fee plus costs of collection, the trial court refused to give Tillman his "whichever is greater" relief, which would have yielded a 50+ percent increase over the 40 percent contingent fee.

The trial court ruled that the amount Tillman was seeking under the hourly rate was excessive, unreasonable and unconscionable.It applied the following five factors customarily weighed in evaluating fee petitions: "(1) nature, extent, and difficulty of the case; (2) time necessarily devoted to the case; (3) professional standing of counsel; (4) contingency of the compensation; (5) beneficial results obtained; and (6) customary legal fees for similar services."

The Court of Appeals upheld the trial court's fee reduction focusing on the issue of public perception. The reviewing court prefaced its ruling by calling attention to fiduciary nature of the relationship between an attorney and client, citing Hotz v. Minyard, 304 S.C. 225, 230, 403 S.E.2d 634, 637 (1991). Relying on Weatherford v. Price, 340 S.C. 572, 582, 532 S.E.2d 310, 315(Ct. App. 2000), the reviewing court emphasized that this relationship has an "exacting and confidential character, requiring a high degree of fidelity and good faith." The court then emphasized that courts will "examine agreements between attorneys and clients with the utmost care to avoid any improper advantage to the attorney," citing Royal Crown Bottling Co. v. Chandler, 226 S.C. 94, 105, 83 S.E.2d 745, 750 (1954). Quoting from Bank of Enoree v. Yarborough, 120 S.C. 385, 393, 113 S.E. 313, 315 (1922), the court added that "the court has the jurisdiction 'to see that an attorney will not lower his profession by cheapness, nor promote his own interest by extortion, as well as to the safeguarding of the trust relation which an attorney bears to the public.'"In summing up, the court observed it "will not allow attorneys to impose excessive charges on their clients because attorneys owe the public a duty of trust."

Several things are odd about the Tillman case. For one thing, it is strange that lawyer Tillman was viewed as eligible to invoke the hourly fee clause at all since, by its terms, the provision only applied if he was fired "before settlement." Grant's recalcitrance occurred after the case had been settled, with the parties putting their settlement on the record in open court. At that point there was an enforceable settlement, with the paperwork completion to follow. It was in processing the paperwork that Grant balked. Perhaps this objection to invoking the "either/or, whichever is greater" clause was never made because Grant had lost his right to object due to going into default. Another objection that could have been raised to the "either/or, whichever is greater" fee provision is that it is contrary to public policy because it paves the way for punishing a client for asserting a right the client indisputably has, namely, to fire his or her lawyer at any time without cause.

In any event, the key to understanding the case is found in footnote five of the opinion. There the Court of Appeals observed, "Tillman originally sought only the contingency fee.It was not until Grant refused to release Tillman's payment from the settlement that Tillman sought the hourly fees. It is apparent from the record that Tillman grew frustrated with Grant, and this suit arose out of that frustration." The implication is that the appellate court viewed Tillman as satisfied with his $36,000 fee, thereby affirming its reasonableness, until he lost patience with his recalcitrant client.

Some lawyers may read Tillman and argue from it that lawyer Tillman was treated unfairly in comparison to other bargaining parties for whom "a contract is a contract." The Court of Appeals minced no words in suggesting there is a double standard when it comes to lawyer-client contracts. It expressly stated it was holding lawyers to a high standard. It also made clear its policy view that lawyers deserve to be held to high standards. After all, unlike most contracting parties, lawyers alone hold monopoly licenses to practice law. Lawyers, above used car and aluminum siding salesmen, are expected to always put their clients' interests first. And this ranking holds even where the client is recalcitrant or pig-headed.

Though he lost much of what he sought in suing Grant, lawyer Tillman still deserves credit for giving us a case that drives home to the Bar the utility of key retainer agreement provisions. First, as Tillman did, always include in your retainer agreement a provision giving yourself a right to fair compensation in the event you are fired without cause. You can specify some fair payment method, such as payment at an hourly rate or based on the contingent fee percentage applied against on the last offer made prior to being fired, or based on some other formula. But the smart lawyer must always make sure that whatever method is chosen will yield a reasonable fee. Next, always back up your payment right with a provision giving you a charging lien securing your right to payment. Accompany this charging lien right with a provision whereby the client acknowledges your right to notify third parties of your lien rights after you are dismissed. Finally, always include a provision giving you a right to fees and costs arising from collection efforts in the unfortunate event that you, like lawyer Tillman, are unlucky enough to end up in a fee dispute with the client.

One final point worth noting in the opinion is that Grant was not Tillman's only client in the accident case. Tillman also represented Grant's brother-in-law whose personal injury case was settled for $12,000. As with Grant, the settlement was put on the record in open court, and the brother-in-law refused to execute the release. He also was sued by Tillman, and he also defaulted. As with client Grant, Tillman also had a "whichever is greater" clause in the brother-in-law's fee contract and invoked it. Like Grant, the brother-in-law went into default; unlike Grant, the brother-in-law never subsequently contested the fee escalation in court.

The net yield from the brother-in-law's personal injury action for Tillman was a judgment for an hourly fee of $12,800 (versus a contingent fee of $4,800), meaning the recalcitrant brother-in-law client's net return from his personal injury case in which $12,000 was recovered was minus $800. No appeal was ever taken from this result.

A contract may be a contract, but a lawyer's retainer agreement invokes strong ethical and fiduciary obligations. Rule 1.5's command that fees be reasonable applies to, and is an implied term in, every single contract between a lawyer and a client. No matter what the contract's verbiage, the size of the lawyer's fee is always subject to being second-guessed in court.