What Makes A Fee Unreasonable?
Many lawyers (with this notable exception) believe that the 1/3 contingency fee is reasonable and that any fee agreed to between a willing client and an attorney is also reasonable. But in this recent story, Attorney’s 9/11 Fee Called “Shocking, Unconscionable” (law.com 8/28/06), lawyer Tom Troiano had a valid retainer agreement that provided for 1/3 contingency fee for settlement of his client’s 9-11 claim. Yet many lawyers, including Ken Feinberg, Master of the 9/11 fund, have vocally criticized Troiano’s fee as unreasonable.
Here are the details behind the story. When Laura Balemian’s husband was killed in the World Trade Center attack, she called Tom Troiano, a lawyer and trusted family friend for assistance. Troiano claims he took charge of the family’s numerous legal affairs, without seeking compensation. But he did have Balemian sign a retainer agreement on Oct. 15, 2001 with respect to representation of her claims in the 9-11 fund. Eventually, Troiano recovered over $6 million for Balemian, double the $3 million cap. And in February 2004, per the terms of the retainer, he collected his 1/3 share of the amount recovered.
Fast forward to 2006, in the probate proceeding over Balemian’s husband’s estate. A guardian appointed by the court challenged Troiano’s fee as excessive and not in the best interests of Ms. Balemian’s four children. In response, Troiano brought an action for declaratory judgment approving his fees.
Troiano argues that he deserves the fee because the client agreed and his extraordinary results justified his $2 million fee. Kenneth Feinberg, Special Master of the 9-11 Fund, commented that the fee was excessive; the fund recommended that attorneys collect no more than 5 percent. Feinberg also stated in an affidavit that:
I find it difficult to understand how any lawyer can request a 30 percent fee for simply filing a claim with the 9/11 fund,” he said. “It’s a non-adversarial process where the special master was working with families and family lawyers to find a way to legitimately give them this money.”
Hearings that led to higher awards were a routine part of the process, said Mr. Feinberg. In his affidavit, he noted that 68 percent of the claims involving deaths had a hearing at which evidence was presented.
One key question that was not addressed by the article, is why Troiano’s client waited to challenge the fees. According to the article, Balemian now argues that Troiano collected too much. But Balemian paid the fees in January 2004 and apparently, nothing was mentioned about them until March 2005 when the guardian first took issue with the fees on behalf of Balemian’s children. (see order here) To me, the answer to that question dictates the appropriate result. If Troiano told Balemian what other attorneys recovering for 9-11 litigation, explained that the risk of loss was low and that the fund had recommended a 5 percent fee and Balemian still agreed to pay 1/3, then I’d have to say that the fee is reasonable and Balemian should be stuck with the result. If, on the other hand (and what I suspect is the case), Troiano portrayed the 9-11 litigation as a standard contingency case and never told Balemian how other lawyers were handling the matter – and Balemian never figured that out until the guardian raised the issue – then, in my view, Troiano doesn’t deserve a fee at all, because he breached his fiduciary duty to his client. In my view, the end result Troiano achieved does not justify the means if he did not fully disclose to Balemian all of her other options.
So readers, what do you think about this one? And how would you have handled the situation?
I like your analysis of using the client’s knowledge and perception as the key insight. The article also states “[Balemian] told him that he was the only person she trusted to handle such matters,” and that her husband “had told her that if anything ever happened to him, she should turn to Tom Troiano for help.” She plainly relied on him completely, apparently unquestioningly, to act in her best interest. I believe he had a duty to at least inform her of the special master’s recommended 5% fee.
It should be up to the court now to determine whether the fee in this particular case was reasonable or excessive. Personally, I would have been hesitant to take such a case from a longtime personal friend and likely would have referred her to another attorney I trusted. If I had taken the case myself I would have either taken the case pro bono or agreed with the client that the administrative and filing fees for her case would be my only recovery.
A THIRD PRONG TO THE ANALYSIS: Informed consent with few options.
I think we need to consider a third prong in this analysis. It’s a dynamic that every PI & Bkcy lawyer should be very familiar with: Clients who are desperate for cash flow often make bad deals because they need to pay the mortgage, keep the lights on, and feed the kids today.
There are in fact several entire industries built upon the knowledge that people who are in desperate financial straights very often make informed, but still not ideal financial decisions that later come back & bite them. It’s not always the case that these people are stupid, or don’t know what their rights are.
In my experience, most of them know what they are doing, but they need the money so they make the best choice they can from amongst several bad options – how do you think so many smart lawyers end up with so many bad clients and big a/r problems?! (rhetorical question)
In this case, as much as the opposite conclusion tugs at my heartstrings, I have to come down on Troiano’s side.
A FOURTH PRONG: Greed
Let’s say for the sake of argument, that Troiano told Baleman what the procedure was, that the chance of recovering up to the $3M cap was high, and that she could find other lawyers to fill out the routine paperwork for only 5%. But for whatever reason, maybe even reasons we might disagree with or disrespect (like the prospect of getting $6M instead of just $3M), Baleman did the math & decided to pay Troiano 33% anyway in hopes of netting an extra $1.1M. Again, I come down on Troiano’s side, but without the heartstrings being tugged upon.
WAS THE CLIENT INFORMED?
Of course, this is the big question we don’t know the answer to from the article. The lesson for all lawyers reading this is to learn how to conduct a proper sales call in which you identify and understand the client’s problem in all three of its dimensions, and then document your understandings.
HOW I WOULD HAVE HANDLED THE SITUATION
If I were in Troiano’s shoes I would have not only sought to understand Balemian’s problem in all three dimensions, but recognizing the extraordinary circumstances (everything related to 9/11 was extraordinary) I would have gone beyond a standard retainer agreement and I would have recited the understandings between the parties to better document the “informed” part of the consent to the terms of the agreement.
Respectfully,
RJON ROBINS
http://www.HowToMakeItRain.com
Helping Small Law Firms Make ALOT More Money!
still allergic to (o)pine
We hope that won?t stop you from checking out Carolyn?s post What Makes a Legal Fee Unreasonable?,
Interestingly enough, I’ve been in e-mail correspondence with the attorney representing Troiano and he, without any additional discussion regarding the matter, as it was tangential to the purpose of our conversation,informed me the article was “unbalanced” which leads me to believe the shock value of the headline was meant to bias the reader.
In principle, however, I don’t think the “client” was uninformed. There is alot of conversation that the contingency concept is one of risk…the lawyer undertakes a case with a possibility of no return therefore the higher percentage is proportional to the risk. It is suggested in this case there was no risk, just a determination of how much the claimant would receive. I beg to differ. In a personal injury case, loss of consortium, future earnings etc. where responsibility is accepted, it also turns on damages yet noone suggests the contingency percentages should be reduced in that scenario. When the lawyer goes the extra mile as required by due diligence, should he expect his percentage to be reduced in that circumstance? If we strip away the emotions surrounding 9/11, this lawyer entered into a responsible retainer, the client received a compensation well beyond her expectation for her tragic loss as a result of the lawyer’s efforts. To now measure his fee in absolute dollars versus percentages is incorrect and prejudicial.
Had he received one third of the original settlement offer would everyone be as shocked his portion was $300,000+. It wouldn’t have been headline worthy.
If he has all his ducks in a row….he’s earned his fee as she is in a far better position for his efforts then if she went to a lawyer pro bono who got her the original 1.1 million. It is not for others to quantify his efforts based upon absolute dollars.
If I choose to do pro bono work, it is not for me to judge those who don’t make that choice.
She trusted her lawyer and I don’t think her trust was misplaced.
Susan,
Agreed that the headine was intended to shock readers. But there are two other issues that make me wary. First, in PI cases of this magnitude, not only does the lawyer risk non recovery, but also risks money. In an ordinary PI or med mal case, the lawyer typically needs to retain a medical expert, an economic expert, not to mention, depose various witnesses, subpoena documents etc…Here, Troiano did invest time in the case, there is no doubt about that. But the bulk of the expense was his time spent resarching and monitoring the matter which is a cost, but it’s not the same, for example, as taking out a mortgage on your house to pay for a case (as the lawyers did in the book A Civil Action). Troiano’s sole out of pocket expense was to hire the professor who performed an economic analysis of Mardovich’s expected earnings. What’s more, the absence of risk was known up front. Any lawyer who took a 9/11 matter knew that at most, they would have to prove damages, not causation or liability.
What I also find compelling is that Special Master Kenneth Feinberg prepared an affidavit testifying that Troiano’s work was not all that special. Feinberg oversaw the resolution of the hundreds of cases handled by the fund and I am not sure what motive he would have to criticize an attorney’s fee.
I would be interested in hearing the other side of this story.
Carolyn,
You mention Feinberg’s role:
“Kenneth R. Feinberg, the special master who oversaw the fund’s distribution of some $7 billion, submitted an April 21 affidavit in the federal case in which he called Troiano’s fee “shocking and unconscionable” in light of the fund’s purpose and its guidelines recommending attorney fees be kept under 5 percent.”
Chances are Mr. Feinberg acted altruistically and took a reduced fee or no fee for his work because he was motivated beyond dollars which is extraordinarily commendable. However, these were “guidelines” issued; not mandates meaning other arrangements could be made. (others took between 5 – 9 percent..is he offended by that?) If I was sitting in Mr. Feinberg’s shoes I would be offended, too, which is why I posted the comment, “If I choose to do pro bono work it is not for me to judge others who don’t.”
But if you look at the fund as an “insurance policy”, which in effect it functioned as, the “claims adjuster” should not be offended by how the recipient distributed their payout based upon a contractual arrangement that has nothing to do with the claims adjuster.
I think it is purely an emotional response, a legitimate and heartfelt one, but not a basis for negating the contract.
If there is another basis, such as being uniformed, or emotional duress that can stand up to scrutiny, then of course there could be a different scenario. And I don’t think Troiano just filed a paper and hired one expert. There has to be more that we are not privvy to.
I’m playing the devil’s advocate here, not really stating what I would have done representing Badamian. But I’m sure this case will be fodder for much scholarly debate.
If you read the entire article, Troiano says that he did a lot more than simply ‘filing a claim’, and that he got his client a greater award because he contested the initial finding.
If this were a claim for, say, bankruptcy in a products-liability case rather than a 9/11 case, would this even be controversial?
I think that what makes the case controversial is not that it is a 9-11 case, but rather, the circumstances unique to recovery from the 9-11 fund. In contrast to funds set up for insurance claimants or bankruptcy matters or other such cases, here the recommended guideline for the fund was 5 percent. In this case, special free trainings were set up to enable lawyers to handle 9-11 claims (see, e.g., http://www.familiesofseptember11.org/newsletter.aspx?item_id=55) And many attorneys voluntarily reduced their fees. Moreover, the free trainings and 5 percent guidelines were underway at the time that Troiano signed his retainer agreement (which was after the fund had already been created)
Does that make a difference? I believe yes. The reasonableness of a fee is judged by client expectations and prevailing commununity standards and rates. That’s why charging $600 an hour for a corporate bankruptcy flies, but would probably not be found reasonable if $600 hourly fee were charged to an individual debtor.
Again, to me, this all boils down to whether the client was informed of her options. If she was and agreed to the fee, I have no problem with the outcome.
$2 million 9/11 fee under fire
“Laura Balemian, whose husband Edward J. Mardovich died in the World Trade Center, received one of the largest awards paid out by the September 11th Victim Compensation Fund: $6.7 million. But she in turn paid…
I believe that the attorney is entitled to and should keep his fees. He was under no obligation to give advice about what other attorney’s were charging and the client obviously was pleased with the outcome of her case being that she recieved double the amount she was originall entitled to.
Playing devil’s advocate, I believe the fee was excessive and I would propose a more staggered fee structure.
The higher the recovery, then the lower the percentage. In such a case, a 10% limit plus expenses, sounds reasonable .
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