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December 15, 2003

An Honest Lawyer Says Tobacco Fee Claim is Clearly Excessive

Filed under: pre-06-2006 — David Giacalone @ 4:33 pm



  • Update:  The jury awarded the Mass. Tobacco Case lawyers nearly $100 million in fees (on top of an arbitrator’s $775 million award), but not the full amount claimed under the original contract (over $2 billion dollars). (AP, “Law Firms Get Millions in Tobacco Case,” 12-19-03; thanks to Legal Reader for the pointer). The AP article points out that while the firms’ lawyer had used the repeated mantra that ‘a deal’s a deal,’ “The state argued that paying the firms the full amount would be a violation of the standard of reasonableness that governs all legal fees.” 


Thomas Sobol testified today in Massachusett’s $8.3 billion settlement with the tobacco industry that it would be “absolutely, clearly excessive” for lawyers to claim the 25 percent fee agreed upon in a 1995 pact with the state. Sobol served as lead attorney on the tobacco case for Brown Rudnick Berlack & Israels, which is seeking over $2 billion in fees.(AP/Providence Journal,”Attorney testified for third day in tobacco fees lawsuit,” 12-15-03)


small shark  The firms have already received $775 million after arbitration with the State over the fees, and the AP article states:



Sobol left Brown Rudnick in 2000 after questioning the wisdom of seeking additional money and is considered one of the state’s star witnesses against his former partners.


He said the $2 billion in fees would translate to $27 million per year for each attorney who worked on the case – more than the annual salary of the highest paid professional baseball player.


Overlawyered.com has covered this case over the years, including the announcement in early November that the firms would seek the entire $2 billion fee.   We were in our “dormant” period when that news broke.  However, we did notice with some disappointment that the ethical aspect of this fee grab was not covered by other weblawgers, not even those who promised to pinch hit after the demise of ethicalEsq?.  


On Nov. 4th, 2003, we sent the following message in an e-mail to a respected colleague who had opined privately that the firms should get the entire $2+ billion, since “a contract is a contract” and the client (the State) had competent counsel when it entered the contingency fee arrangement:



You make some good points.  I assume that the arbitration proceeding looked into the issues you raised and concluded that they only justify $775 million in fees.  But, your position seems to avoid the question whether an otherwise appropriate contingency fee arrangement can result in a fee that is unreasonably large — because no risk could justify the resultant hourly rate.  [Or, e.g., that it would have been unreasonable for the firm to insist on more than, say, $1 billion in potential fees at the time the arrangement was made.]

 

Put another way:  Even if a client is willing to agree to a pure contingency fee percentage arrangement that has no maximum level, is it ethical for the lawyer to fail to insert an explicit ceiling in the original contract or apply a maximum fee level [retrospectively] when the amount of damages creates an unfair windfall for the lawyer?   If the lawyer doesn’t impose the limit, should the courts or ethics committee impose an implied ceiling, because an amount far less than $2 billion would and should have been sufficient to balance the risk involved and entice the lawyer to enter the contract?   Taking more over-compensates the lawyer for their risk and their services, shortchanging their clients.  

 

Furthermore, a public policy issue might also exist as to whether State officials — especially state attorneys — can be allowed to enter into such an open-ended contingency fee arrangement, which takes the damages away from those injured (the taxpayers) and gives them to their spearholders.

Model Rule 1.5 says (emphasis added)  “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee.”  Doesn’t this suggest that a fee that is reasonable when the agreement is first made, could end up excessive and be unreasonable to collect?

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