Read Article 20 and 21 included below. What did you learn? Explain your impressions of these recent events in legal fees regulation.

ARTICLE 20:

ETHICS

ABA issues new guidance for splitting fees in contingency cases when a lawyer is replaced

BY DENNIS RENDLEMAN

JUNE 18, 2019, 4:45 PM CDT

On Tuesday, the ABA's Standing Committee on Ethics and Professional Responsibilityreleased Formal Opinion 487, which addresses fee splitting arrangements when a lawyer in a separate firm replaces the first counsel rather than works together on a contingency-fee case.

Formal Opinion 487 clarifies that a lawyer, who is a successor counsel in a contingency-fee matter, must notify the client, in writing, that a portion of any fees recovered may be paid to the original counsel. Theopinionaddresses a common misunderstanding about which model rules apply to successor relationships in contingency-fee agreements, and the duties of successor counsel.

The original lawyer in a contingency-fee matter will often assert a lien on the proceeds. But if the client retains new counsel, they may not understand there is a continuing obligation to pay the original lawyer for the value that lawyer contributed or was entitled to under the original contract.

Often the original lawyer and the successor counsel mistakenly believe Model Rule 1.5(e) governs in these situations. But 1.5(e) only applies when there is division of fees between lawyers from different firms who are simultaneously representing a client or maintaining responsibility for the matternot in the case of sequential representation. Rule 1.5(e) specifically requires that lawyers who are dividing a fee in a matter either split the fee in proportion to the services delivered or assume joint responsibility for the representation.

Comment 13 states, in part, "A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist."

Where lawyers are original and successor lawyers, respectively, joint responsibility is not appropriate as the original lawyer is no longer representing or retaining responsibility to the client in any manner.

Instead, Rule 1.5(b) and (c) apply to the successor lawyer in the fee relationship with the client. As Comment 2 to the Rule states, "[A]n understanding as to fees ... must be established." Moreover, there is not a specific time frame in which that understanding must occur. The opinion notes that under 1.5(a), client consent must be obtained before the fee is dividedthat includes up to the conclusion of the matter and prior to disbursement of any money.

The opinion presents a hypothetical where the client has a written contingency-fee agreement with a lawyer under which the lawyer is entitled to one-third of any recovery. Without cause, the client terminates the original lawyer and retains successor counsel on the same termsa written contingency-fee agreement for one-third of any recovery. This successor agreement is silent on any obligation to the original lawyer. Opinion 487 notes that the duty to disclose the original lawyer's potential claim and entitlement to some portion of the recovery does not constitute an "unreasonable burden" on the successor counsel.

While a client may discharge a lawyer at any time for any reason, they may be unaware of obligations to pay not only the successor lawyer, but also the original lawyer. Opinion 487 requires successor counsel to clear up any confusion and inform the client, in writing, that their original attorney may have a claim against the contigency fee.

In many jurisdictions, the original lawyer may be entitled to, at a minimum, quantum meruit, for the value added to the case or payment under a "termination" or "conversion" clause in the original client agreement. And while the exact recovery and division may not be known until the end of the case, successor counsel still has a duty to inform the client about a potential fee split.

The opinion notes that in many instances, the fees paid to both attorneys will not affect the client's recovery, as a client cannot be exposed to more than one contingency fee when switching attorneys, under Rule 1.5(b). However, in a situation where the client's original counsel was terminated for cause, they may not have any claim to recovered fees.

If the successor lawyer needs to negotiate fees with the original lawyer on the client's behalf, the successor lawyer must advise and obtain a waiver from the client to avoid Rule 1.7 personal conflict of interest regarding the distribution of the funds.

And if a dispute arises regarding any distribution of the recovery, the successor lawyer has the obligation under Rule 1.15(e) to retain the funds in the client trust account pending resolution.

ARTICLE 21:

'Outrageously excessive' requests for attorney fees can be altogether denied, 3rd Circuit says

BYDEBRA CASSENS WEISS

SEPTEMBER 17, 2018, 6:05 AM

A federal appeals court has upheld a federal judge's decision to deny as "grossly excessive" a request for more than $900,000 in attorney fees based on a $100,000 punitive award.

When a request under a fee-shifting statute is "outrageously excessive," a judge may deny the award altogether if the statute gives the judge discretion in awarding fees, the Philadelphia-based 3rd U.S. Circuit Court of Appeals said.

TheLegal Intelligencerhas coverage of theSept. 12 decision, written by Judge Joseph Greenaway Jr.

Lawyers seeking the fees had admittedly tasked one lawyer with recreating time records that included vague descriptions and excessive hours, the appeals court said. Sixty-four hours were billed for "transcripts/clips" and 562 hours were billed to prepare for a week-long trial. There were only five witnesses for both sides.

The appeals court ruled in the case of Bernie and Nicole Clemens, who had sued New York Central Mutual Fire Insurance Co. in Pennsylvania state court for bad faith handling of an uninsured motorist claim. The case was removed to federal court, where the uninsured motorist claim was settled for $25,000.

After trial on the bad faith claim, jurors awarded $100,000 in punitive damages. The plaintiffs' lawyers at the Pisanchyn Law Firm in Scranton, Pennsylvania, sought more than $900,000 in attorney fees under a fee-shifting statute.

U.S. District Judge Malachy Mannion of Scrantondenied the requestin August 2017, calling it "astounding" and "exorbitant." Mannion had examined the fee request, reduced it by 87 percent, then awarded no fee because it was excessive.

Bernie Clemens appealed.

The 3rd Circuit said Mannion's decision "was entirely appropriate under the circumstances of this case."

The 3rd Circuit said lawyers for Clemens didn't maintain contemporaneous time records for most of the litigation, instead recreating the records for the fee petition. "Even worse," Greenaway wrote, "the responsibility of reconstructing the time records was left to a single attorney, who retrospectively estimated not only the length of time she herself had spent on each individual task, but also the amount of time others had spent on particular tasks, including colleagues who could not be consulted because they had left the firm by the time the fee petition was filed."

"Astonishingly," the appeals court said in a footnote, "counsel then attempted to recover attorney's fees in the amount of $27,090 for the 64.5 hours it supposedly took to reconstruct the time records."

The appeals court said reconstructed time records don't necessarily justify complete disallowance of a fee award, but require more exacting scrutiny. Exacting scrutiny isn't even required, however, to uncover further problems with the fee record, the court said.

"Even worse, the responsibility of reconstructing the time records was left to a single attorney, who retrospectively estimated not only the length of time she herself had spent on each individual task, but also the amount of time others had spent on particular tasks, including colleagues who could not be consulted because they had left the firm by the time the fee petition was filed."

Judge Joseph Greenaway Jr., 3rd U.S. Circuit Court of Appeals.

Time entries with descriptions such as "other" and "communicate" were vague, and descriptions such as "attorney review" didn't indicate the nature of the subject being reviewed, Greenaway said. Other entries were "unnecessary and excessive."

Greenaway described as "staggering" the hundreds of hours billed for trial preparation, which would have meant counsel prepared for trial for about 70 days. "Counsel certainly have an obligation to be prepared," the court said, "but we simply cannot fathom how they could have reasonably spent such an astronomical amount of time preparing for trial in this case."

Lawyer Mike Pisanchyn told the Legal Intelligencer that the fee request was not excessive and his clients "are extremely happy with the representation." He said his firm had litigated the case for eight to nine years, and the firm had obtained "a $100,000 award on a zero written offer."

Hat tip toLaw360.

What did you learn? Explain your impressions of these recent events in legal fees regulation.