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$42 Million Fee – Inherently Unreasonable? That Depends, But Here, It Was

by Carolyn Elefant on November 30, 2007 · 1 comment

in Ethics & Malpractice Issues, Ethics Issues, Setting and Collecting Fees

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Over at Legal Blog Watch, I’ve posted my view on the $42 million fee collected by a law firm in a multi-million dollar estate matter. Basically, the lawyers originally had a fee agreement with the client; when she found her legal fees mounting (to the tune of $1 million per quarter), she asked her lawyers what they could do. The proposal? The client would pay an additional $1.2 million after which the lawyers would take 40 percent of the total proceeds recovered in the matter. At the time the fee agreement was renegotiated, the lawyers had already collected $18 million (not clear how much related to this precise matter) and there was a $60 million offer on the table. Five months later, the lawyers settled the case for $100 million and with their 40 percent, the client took…$60 million, the same amount she’d been offered earlier.

There are more details in my other post, particularly about some of the facts that make this case particularly egregious. The court didn’t approve the fee, just said it wasn’t inherently unconscionable and set the case for trial. And if you’re wondering what I’d consider fair in this case, let’s just say that had the lawyers’ renegotiated fee agreement allowed them 40 percent of the difference between $60 million and the amount eventually recovered, I’d not be writing this post.

There’s one more important issue here. Some believe that when lawyers negotiate a fee agreement with a potential client, they have not ethical or fiduciary duty to ensure that the agreement is fair, beyond the bare minimum that ethics rules require. Fair enough. But that argument doesn’t apply here. When theses lawyers renegotiated the fee, they already represented the client; and they had a duty to look out for her best interest and ensure that the new fee agreement was fair. These lawyers certainly looked out for someone; let’s just say that it wasn’t their client.

  • http://blogs.law.harvard.edu/ethicalesq/ david giacalone

    Thanks for focusing on this important issue, Carolyn. For the record, I believe the lawyer’s fiduciary duties to the client exist before any fee agreement is signed. And, a good standard for fairness is what the fee agreement would have looked like if a competent lawyer had negotiated it with the retained lawyers on behalf of the client. The arrangement in this case could never pass muster under that test.

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