Tag: contingent fee

Fired Lawyer Can Recover Pre-Firing Fees Under Quantum Meruit – No Evidentiary Hearing is Required – IL Appeals Court

 

The estate of a young woman killed in a car crash hired an attorney (Lawyer 1) to file a personal injury suit against the drivers involved in the crash. The estate representatives entered into a 1/3 contingent fee arrangement with the attorney who placed an attorney’s lien on any recovery by the estate.

About 2 years later, the estate fired Lawyer 1 and hired Lawyer 2.  Lawyer 2 eventually facilitated a settlement for the estate in the amount of $75,000 and filed a motion to adjudicate the Lawyer 1’s attorney lien.

Lawyer 1 claimed he was entitled to $25,000 – 1/3 of the settlement amount.   After considering his affidavit and time records, but without an evidentiary hearing, the trial court awarded Lawyer 1 a fraction (about $14K less) of what he sought on a quantum meruit basis (number of hours times hourly rate).

On appeal, Lawyer 1 argued the trial court denied him due process by not holding a formal hearing and erred by not awarding him more fees given the settlement’s proximity in time to his firing.

That’s the procedural backdrop to Dukovac v. Brieser Construction, 2015 IL App (3d) 14038-U, a recent unpublished Third District decision that addressed whether a fee petition requires an evidentiary hearing and the governing standards that guide a court’s analysis when assessing fees of discharged counsel.

The Third District upheld the trial court’s fee award and in doing so, relied on some well-settled fee award principles.

In Illinois, a client has the right to fire an attorney at any time. Once that happens, any contingency fee agreement signed by the client and attorney is no longer enforceable.

After he is discharged, an attorney’s recovery is limited to quantum meruit recovery for any services rendered before termination.

In situations where a case settles immediately after a lawyer is discharged, the lawyer can recover the full contract price.

In determining a reasonable fee under quantum meruit principles, the court considers several factors including (i) the time and labor required, (ii) the attorney’s skill and standing, (iii) the nature of the case, (iv) t he novelty and difficulty of the subject matter, (v) the attorney’s degree of responsibility in managing the case, (vi) the usual and customary charge for the type of work in the community where the lawyer practices, and (vii) the benefits flowing to the client.

A trial court adjudicating a lawyer’s lien can use its knowledge acquired in the discharge of its professional duties along with any evidence presented at the lien adjudication hearing.

Here, the appeals court that the trial court properly considered discharged Lawyer 1’s time records and affidavit in making its quantum meruit award. Even though there was no evidentiary hearing, the time sheets and affidavit gave the trial court enough to support its fee award.

Afterwords:

This case provides a good synopsis of the governing rules that apply where an attorney is discharged and the case soon after settles. A trial court has wide discretion in fashioning a fee award and doesn’t have to hold an evidentiary hearing with live witness testimony.

A clear case lesson is that a discharged petitioning attorney should be vigilant in submitting detailed time records so that the court has sufficient evidence to go on in making the fee award.

Fired Pittsburgh Law Firm Entitled to Over $500K In Attorneys’ Fees for Pre-Settlement Services (PA Court Rules)

 

A special thanks to Adam Brandolph (Twitter: @brandolph_trib) of the Pittsburgh Tribune-Review for alerting me to this one.

In In re Estate of Schaab, a Pennsylvania court awarded over $500K in legal fees to a law firm that negotiated the settlement of a planned wrongful death suit  on behalf of the parents of a murder victim.  The plaintiffs’ son was a counselor at a Pittsburgh mental hospital and was killed during a patient’s shooting spree in May 2012.

The plaintiffs retained a law firm (the First Firm) under a contingency fee agreement that provided a 35% recovery in the event formal litigation ensued or a 33% recovery if no litigation was filed.  

The First Firm negotiated a $1.5M settlement after mediation with the University of Pittsburgh – the entity that sponsored the psychiatric facility and the plaintiffs’ son’s employer.  The parties documented the $1.5M settlement at the mediation.

After the parties reached the settlement, the First Firm sent a release to the plaintiffs for them to sign.  Before the plaintiffs signed the release, the First Firm agreed to reduce its contingent fee from $500,000 to $350,000 so that the plaintiffs could pay some of the settlement funds to their deceased son’s fiancé. 

The plaintiffs then did an about-face and decided they wanted to sue the shooter’s parents and estate (they previously said they didn’t want to).  The First Firm then referred plaintiffs to their current firm (the “Second Firm”) to sue the shooter’s parents and his estate.  The plaintiffs fired the First Firm and hired the Second Firm.

Plaintiffs finally signed the release in May 2013 – about eight months after the First Firm first presented it to them.  About six months later, plaintiffs received about $1M in settlement funds and the remaining $500,000-plus was put into escrow pending resolution of the fees issue. 

When the Second Firm claimed the right to the entire half a million in fees, the First Firm intervened and claimed the fees belonged to it since the First Firm’s efforts culminated in the $1.5M settlement agreement.

Incredibly, the Second Firm argued that the First Firm wasn’t entitled to any fees since the plaintiffs terminated the First Firm before the settlement was paid.  The Court quickly rejected this argument and held that under Penn. law, where a law firm’s services result in the creation of a fund, that firm is entitled to be paid from the fund. 

Here, the First Firm clearly created the settlement fund in July 2012 when the parties memorialized the $1.5M settlement at mediation.  As a result, it was entitled to a third of the settlement payout  under the contingency fee agreement it reached with the plaintiffs.

The Court held that the Second Firm’s argument that no “recovery” was had while the First Firm was representing the plaintiffs was absurd.  The plaintiffs’ right to receive the funds accrued in July 2012 when the $1.5M settlement agreement was signed. 

The fact that the funds weren’t paid until over a year later was irrelevant.  The plaintiffs received $1.5M from the University based on the skilled services and negotiating acumen of the First Firm. As a result, the Court awarded the First Firm over $500,000 and the remaining funds went to the decedent’s estate.

Afterword: A fair, common sense result.  Where a fired attorney plays a crucial role in consummating a settlement agreement before his termination, he should share in the proceeds; even where the settlement  isn’t paid until after a new lawyer is hired.

 It’s clear the First Firm was the procuring cause of the $1.5M settlement.  The Court properly held that it was unfair to prevent the First Firm from receiving any of the proceeds based solely on the defendant paying the settlement after he fired the First Firm.

See link to opinion here: Judge O’Toole’s Decision

 

Recovering Litigation Costs in Illinois State Court – What About Westlaw Research?

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In a small dollar case, a plaintiff’s recoverable “costs” typically include filing fees and service fees. See Household Int’l v. Liberty Mutual, 195 Ill. 2d 578 (2001).  This amount is usually negligible (usually less than $500) and not worth fighting over. However, where a fee-shifting provision in a contract provides for prevailing party “litigation expenses” or “costs of collection” (as many commercial contracts do) and the case drags on one or more years, the litigation costs can be substantial.

In Illinois, “[c]osts are allowances in the nature of incidental damages awarded by law to reimburse the prevailing party, to some extent at least, for the expenses necessarily incurred in the assertion of his rights in court.” Galowich v. Beech Aircraft Corp., 92 Ill. 2d 157, 165-66 (1982).

Code sections 5-108 and 5-109 – allow the a winning party to recover costs. The First District, in  analyzing a Federal Truth in Lending claim, held that any expenses paid to a third party including expert witness expenses, special process server expenses, deposition expenses, filing and messenger fees and computerized legal research costs can all be recovered by the prevailing plaintiff. Johnson v. Thomas, 342 Ill.App.3d 382, 401-402 (1st Dist. 2003).

By contrast, “overhead expenses” – costs a lawyer incurs independent of a specific case – are generally not recoverable.  Overhead costs include: telephone charges, in-house delivery charges, in-house photocopying, check processing, newspaper subscriptions, and in-house paralegal and secretarial assistance. Id. at 401-402.

The reason: overhead costs, at least in theory, are already reflected in an attorney’s hourly rate. See Harris Trust & Savings Bank, 230 Ill. App. 3d 591, 599 (1st Dist. 1992).

Whether a prevailing party can recover for computerized legal research expenses will turn on the winning side’s billing method.  Where the attorney’s fee is contingent or fixed – computer research expenses are not allowed.  The theory being that the computer research benefitted the contingent fee lawyer by reducing his research time and increasing his efficiency.  Because of this, the contingent lawyer should not be able to shift the computer research costs to a losing party. 

In contrast, for an attorney charging by the hour, the saved time resulting from computer research actually works against him – he will bill for fewer hours than if he researched the “old fashioned way” (does anyone remember Shepardizing?). 

With hourly billing, “the attorney should not be required to absorb the additional expense engendered by computer research fees in light of the diminished billable hours that result from such computer assistance”. Id.

Johnson does caution that computer research expenses are properly denominated “fees”; not costs. This is because computer research is part of the attorney’s overall effort in prosecuting or defending his client’s case. Id. So, if the statute or contract allows for recovery of fees and costs, computerized research expenses will be recoverable.  Conversely, if the contract only provides for winning party “costs”, computer research charges can’t be recovered under Johnson‘s rationale.

The take-away: I’ve been involved in more than a few multi-year cases where the litigation expenses (aside from the attorneys’ fees) exceeded $10,000.  As a consequence, a working knowledge of what litigation expenses an Illinois court will and will not permit is essential for practitioners engaged in protracted commercial litigation.