Wednesday, January 29, 2020

New Jersey Upholds Invalidation Of Fee Agreement: Creates Committee To Address Fee Ethics

The facts of a decision by the New Jersey Supreme Court are summarized in the headnote

Plaintiff Lisa Balducci instituted a declaratory-judgment action to invalidate the retainer agreement into which she entered with her former attorney, defendant Brian Cige, on the ground that Cige procured the agreement in violation of the Rules of Professional Conduct. A Superior Court judge voided the agreement, and the Appellate Division affirmed. But the Appellate Division also made a number of pronouncements about ethical obligations on attorneys handling fee-shifting claims. The Court considers Cige’s challenge to the judgment against him, as well as arguments that the professional obligations imposed by the Appellate Division are at odds with current practices and are not mandated by the Rules of Professional Conduct.

Balducci retained Cige to represent her son in a bullying lawsuit, brought under New Jersey’s Law Against Discrimination (LAD), against a school district. Three years later, she terminated Cige’s representation and retained another lawyer to handle the case. Balducci filed a declaratory-judgment action to void the retainer agreement, and a Superior Court judge conducted a hearing at which Balducci, her son, and Cige testified.

Balducci testified that, in September 2012, she approached Cige about bullying that her son had encountered in school. Cige presented her with what he described as a standard retainer agreement for a LAD case, and Balducci raised questions about language that seemingly made her the guarantor of all legal fees and costs, even if the lawsuit failed. Cige told her not to be alarmed by the “standard language” and assured her that the attorney’s fees would be paid by the school board, not by her. (That account was corroborated by Balducci’s son, who testified that he was present during the meeting.) Trusting Cige, Balducci signed the agreement, one key provision of which required her to “pay the Law Firm for legal services the greater of” Cige’s hourly rate, 37 1/2% of both the net recovery and any statutory fee award, or statutory attorney’s fees.

By early 2015, Balducci became dissatisfied with Cige’s handling of the case. The school board rejected her first settlement demand of $3,500,000. After consulting with an expert in bullying cases, Cige approximated the value of the case at somewhere between $500,000 and $700,000. Only when Balducci terminated his services did he inform her she was responsible for the payment of his hourly fees -- almost $271,000.

Cige gave a very different account, but admitted that he did not inform Balducci of the potential value of the case, of the potential litigation expenses, or of the estimated financial obligation she would bear if the litigation did not succeed. Nor did he detail the billing rates for expenses in the retainer agreement. The expenses for the emails -- $1.00 for every email sent or received -- amounted to just over $1700 and were in addition to the hourly rate he charged. Photocopying costs represented almost $12,000 of the nearly $16,000 in expenses owed at the time Cige’s services were terminated.

At the conclusion of the plenary hearing, the trial court invalidated the retainer agreement, crediting Balducci’s testimony over Cige’s. The Appellate Division affirmed, finding substantial and credible evidence in the record to support the trial court’s decision. 456 N.J. Super. 219, 234, 243-44 (App. Div. 2018).

The Appellate Division also articulated a set of ethical obligations, purportedly arising from the Rules of Professional Conduct, that must be followed by attorneys in fee-shifting actions when a retainer agreement includes an hourly fee component. Those obligations are discussed in numbered paragraphs 6-9 below.

The Court granted certification limited to Cige’s challenge of the invalidation of the agreement and his claim that the Appellate Division retroactively applied new rules of professional conduct. 236 N.J. 616 (2019).

The court affirmed the invalidation of the agreement but rather than adopt the expansive views of the Appellate Division regarding fee-shifting retainer agreement ethics

The invalidation of the retainer agreement is supported by sufficient credible evidence in the record. Although the Appellate Division’s concerns over the retainer agreement in this case are understandable, the ethical pronouncements issued in its opinion may have far-reaching and negative effects, not only on employment-law attorneys and attorneys handling fee-shifting claims, but also on their clients. Some of those pronouncements appear too broad and some unsound, and others are worthy of the deliberative process by which new ethical rules are promulgated by the Court...

The Court notes that those issues all require careful and thoughtful consideration and deliberation. The Court generally establishes professional standards governing attorneys through the rulemaking process. Several Supreme Court committees have overlapping jurisdiction over the professional-responsibility issues raised in this opinion: the Civil Practice Committee, the Professional Responsibility Rules Committee, and the Advisory Committee on Professional Ethics. The Court has decided that the study of the professional-responsibility issues should be addressed by a newly established ad hoc committee comprised of representatives of those three committees, and of other representative members of the Bar and Bench with experience in these matters. The Court therefore will ask the Administrative Director of the Courts to select members for this committee for the Court’s approval.

This committee of experienced judges and attorneys will make recommendations on the questions raised in this opinion. With the valuable input and insight from the committee, the Court then will be able to carefully survey all viewpoints and deliberate before considering any new rule of general applicability to the Bar. The committee may also consider whether to revisit a cap on contingent fees in statutorily based discrimination and employment claims. See R. 1:21-7(c). The Court expresses no ultimate opinion on the matters referred to the committee.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2020/01/a-decision-by-the-new-jersey-supreme-court-is-summarized-in-the-headnote-plaintiff-lisa-balducci-instituted-a-declaratory-ju.html

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