New Jersey Court Orders Lawyers to Disclose Competitors’ Billing Practices and to Use Data To Inform Clients of Likelihood of Success
Last week, the New Jersey Supreme Court granted certification to hear an appeal of the Appellate Division’s ruling in Balducci v. Cige, Docket No. A-3068-16T2 (August 30, 2018) which voided an attorney’s hourly fee agreement with a client for a discrimination action because the lawyer failed to advise the client that other firms could handle these matters on a purely contingency basis. The court went on to rule that in future cases, lawyers must advise clients of alternative billing options as well as their likelihood of prevailing in a case based on other cases and the attorney’s experience. The New Jersey Law Journal covers the full story.
At the outset, let me say that this the type of case that exemplifies the saying that bad facts – or more specifically, bad lawyering – make bad law. But the case is also instructive because many lawyers commit the sorts of gaffes that the irked the court. Finally, though I see some problems with requiring lawyers to disclose information on their competitors’ billing practices, I applaud the court’s stand against black-box fees by requiring lawyers to communicate to clients how much a case will cost and how those costs compare to expected recovery. What is sad is why lawyers don’t do this voluntarily.
First, a quick recap. In 2012, client Lisa Balducci engaged Somerville, New Jersey solo lawyer Brian Cige — who was also a friend — to represent her child in a discrimination action involving bullying under the New Jersey Law Against Discrimination (“LAD”). Cige’s retainer agreement provided that he would be paid the greater of his $475 hourly rate, a 37.5 percent contingency fee, or the statutory attorneys’ fees to be paid by defendants if Balducci’s claim was successful. The fee agreement also stated that “The Law Firm cannot predict or guarantee what your final bill will be. This will depend on the amount of time spent on your case and the amount of other expenses.” (duh). As a result, Balducci never had any idea of what her ultimate fee exposure might if the hourly fees were to apply. Cige’s cost billing practices were even worse – incredulously, he charged a flat $1 fee for every email sent or received along with his charges for preparing a response.
Sometime in 2015, as the case reached discovery, the attorney-client relationship began to deteriorate. Baldric testified that Cige offloaded deposition preparation on both her and his paralegal while he decamped to chess tournaments. Apparently, Cige also failed to respond to Balducci’s request about the cost to retain witnesses. Ultimately, Balducci terminated her agreement with Cige in October 2015 and retained new counsel. Thereafter, Cige sent various invoices totaling $286,746.67 in fees and expenses. Because the lien against the potential judgement recovery impeded meaningful settlement negotiations, Balducci filed a declaratory judgment action in New Jersey Superior Court to have the fee agreement declared void. The trial court granted the request and Balducci appealed.
The Appellate Division affirmed. The appeals court denounced the open-ended nature of the fee agreement, the $1-per-email charges and Cige’s failure to disclose to the client that she would be responsible for paying his billable rate irrespective of the outcome of the case. And no doubt to the delight of data-driven law practice aficionados, the court, in blasting Cige’s black-box fee practices, observed that:
Surely, such experienced counsel [as Cige] are able to estimate the time and expenses to litigate such claims through certain phases and to estimate the cost of events such as depositions and the fees of experts….[In future cases] the attorney should provide examples of how much hourly fees have totaled in similar cases, or if the attorney has no such experience with similar cases — in which case consideration should be given to referring the case to a certified civil trial attorney — how much hourly fees have totaled in the same types of cases found in case law.
In addition, the court ruled that:
The attorney must inform the client that if the case becomes complex and protracted, the hourly rate-based fee the client is responsible to pay can approach or even exceed his or her recovery. Further, the attorney must inform the client other competent counsel represent clients in similar cases solely on a contingent fee basis, without an hourly component, and might also advance costs.
The court’s decision to void the fee agreement in this case is admittedly harsh. At the same time, Cige racked up roughly 555 hours of time on the case ($250,000 in legal fees divided by the $475 rate) which seems awfully high even for a three year period (it amounts to roughly a month of time devoted to the case each year). It’s unclear to me why the case wasn’t resolved based simply on excessiveness rather than on the failure to disclose requirement. Nor is it clear why Cige pursued the matter so doggedly given that Balducci was a friend.
As for the broader rulings, the court’s ruling obligating attorneys to disclose alternative fee arrangements to clients raises some concerns. For starters, even in cases arising under the New Jersey discrimination statute, it’s not clear to me that contingency arrangements are as prevalent as the court suggested. In fact, when I googled the statute and attorney fee practices (and similar language), I could not find a single law firm website that clearly stated how it charges for these kinds of discrimination cases. By contrast, nearly every personal injury website prominently proclaims that if there’s no recovery, then clients don’t pay a fee. Given that New Jersey attorneys themselves are not very clear about pricing options for discrimination cases, it seems unfair to require lawyers to educate themselves about other firms’ practices to advise clients of their full range of options.
Moreover, how broad is the requirement to disclose alternative billing practices? Though the case concerns billing under the New Jersey Law against Discrimination, the court’s holding speaks broadly to a lawyers obligation to communicate “alternatives” to a proposed fee agreement without limitation as to the type of agreement. Could a family law client later seek to void a fee because the attorney failed to disclose that other firms charged lower rates, or that a pro se option was available? Are large law firms triple-teaming appeals obligated to tell clients that the solo down the road charges one third of the price? The court’s ruling on this point opens up a can of worms.
Other than that, I fully other aspects of the court’s ruling which would require lawyers to provide clients with sufficient information to make an informed decision on how to move forward in a case. A lawyer’s claimed inability to predict what might happen” should no longer serve as an excuse for lack of information. Lawyers who claim sufficient expertise to justify a $500/hr fee but who can’t offer at least a ballpark assessment of how a client might fare in a case, or how much the case is worth don’t deserve those kinds of fees. It’s just sad that in an era where we lawyers have access to the kind of data that enables us to help our clients make better decisions that it takes a court order to force lawyers to do the right thing.
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