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July 28, 2008

a big bow to Judge Hellerstein re contingency fees

Filed under: lawyer news or ethics,viewpoint — David Giacalone @ 2:13 pm

. . Thank you, Judge Alvin K. Hellerstein . .

In a post at Overlawyered.com, I learned this morning that Judge Hellerstein, of the Manhattan federal district court, refused last Thursday to approve a legal fee of $7 million for representing four Pentagon workers’ families, because it “would reflect a very large windfall,” given that the firm’s “entire strategy seems to have been to coast on the work of others.” The decision was part of the In Re September 11 Litigation proceedings and the firm was Maryland’s Azrael, Gann & Franz.

SlicingThePie See “Judge Overturns Accords in 4 Suits by 9/11 Victims” (New York Times, July 25, 2008); “Judge nixes ‘rich’ 9/11 deal” (New York Daily News, July 25, 2008); “Judge Blasts Md. Law Firm for Seeking ‘Windfall’ Fees in Sept. 11 Cases” (ABAJournalNews, July 25, 2008).

As Dan Slater reported at the WSJ Law Blog (July 25, 2008), “Here are some reasons why, according to Hellerstein:”

  • “[Jonathan Azrael] did not function in a liaison capacity.” noloShark
  • “Neither he nor any lawyer in his firm appeared, according to my memory, to argue any motion or present any pleading. He or another member of his firm attended most conferences, but rarely spoke.”
  • “Although the description of his services contains self-flattering statements of his contributions to the common effort, they are all conclusory and I have no perception of any contributions on his part.”
  • “Azrael’s entire strategy seems to have been to coast on the work of others, and to wait for last position before entering into any meaningful settlement discussions with respect to his clients. Azrael’s strategy made little contribution to the progress of the cases before me, or to the settlements that largely have resolved this litigation. . . And he sought, as well, to advantage his clients by leveraging on Motley Rice’s settlements.”

Bravo to Judge Hellerstein for refusing to automatically approve the Azrael fees and reminding the p/i bar of the principles to be applied to contingency fees. As we have long argued [at length, with many citations and links, in our essay “contingency fees: risk matters“]:

The reasonableness of a contingency fee in a particular case will depend on how much risk the lawyer assumed of working extensive hours and incurring expenses without adequate compensation, and how much skill and exertion it will take to perform the tasks involved. The validity of the fee arrangement will also depend on whether the client was adequately informed (given his or her level of sophistication and knowledge) of the relevant factors when negotiating the fee level with the lawyer. The necessary corollary is that applying a “standard” fee to each client [be it 25%, one-third, or more] without taking the degree of risk into account is unethical, because it will inevitably overcharge many clients. [For more detail, see our 4-part essay on the ethics of contingencies fees, including the importance of risk and the lawyer’s duties; and our post on related fiduciary duties.]

These principles are particularly relevant in the vast majority of personal injury cases that are not part of multi-plaintiff, very public litigation, but instead involve everyday cases with typical clients (e.g., car accidents, slip-n-falls, etc.) — the “bread and butter” of the typical p/i practice. Such cases are virtually never scrutinized by a judge and are ripe for over-reaching by lawyers and over-looking by disciplinary authorities.

So far, the only actual discussion of Judge Hellerstein’s decision in the “blawgisphere” has been in the Comment section of the posting “Judge Hellerstein Lambastes 9/11 Law Firm over Fee Request,” at the WSJ Law Blog (by Dan Slater, July 25, 2008). [but see July 29 update below] The WSJ comments contain many of the old excuses foisted on the public by p/i lawyers for their refusal to vary fees with the risk involved in a particular case. I will be keeping an eye peeled to see whether p/i lawyers and legal ethics experts will be mentioning, discussing and opining on Hellerstein’s action.

As in my post last December, “unconscionable silence over Graubard’s $42 million contingency fee,” re Graubard v. Miller, I’m afraid that the Contingency Fee Omerta rule will kick in (the One-Third-Third Rail), preventing and averting talk in public about the judge’s refusal to accept a 25% fee automatically [or even the 15% he was applying to other lawyers in the 9/11 Litigation]. Why? As I said in December:

Any discussion about the possible invalidity, unreasonableness, or unethical nature, due to inadequate risk [or work] in a particular case, of a [25% or] one-third or 40% fee charged to any particular client, presupposes that contingency fees are supposed to relate to the actual perceived risk in each separate case. It directly undermines the attitude of the p/i cartel that the existence of any risk justifies any percentage rate that is permitted in the jurisdiction, or any rate agreed-to by the client (absent, perhaps, actual fraud or felony on the lawyer’s part, or the extreme mental incompetence of the client). And, it particularly condemns the near-universal practice of presenting as a fait accompli a “standard” percentage rate to virtually every client — a rate that is usually the maximum permitted in the State absent special judicial consent to go higher.

This is another instance when I would love to be pleasantly surprised by my brethren at the Bar.

p.s. As I said in a comment at the WSJ Law Blog: This is not a “Tort Reform” issue (which limits the ability to sue or the amount of damages) as much as a Legal Ethics and Client’s Rights issue (assuring that the client gets all he deserves from the damages awarded, and the lawyer only takes what he deserves). If the Azrael firm succeeded in obtaining a larger award than other firms, it should be compensated by getting a fair percentage of that larger award, not by taking an unreasonably large share of it.

update (July 29, 2008):  When trying to find online discussion of this case yesterday, I missed Carolyn Elefant’s posting “Judge Overturns 9/11 Settlements” (Legal Blog Watch, July 25, 2008).  Carolyn questions Judge Hellerstein’s reasoning, saying:

“Huh?  How can the lawyers have coasted on the work of others, if they managed to achieve settlements well in excess of similar cases?  The judge’s ruling seems internally inconsistent.  While I agree that it’s appropriate to cut contingency fees to reflect a firm’s reduced risk in bringing a case forward, any reduced risk that Azrael may have achieved while waiting to file its clients’ claims was counterbalanced by the extraordinary results that the firm obtained presumably as a result of holding out.  Why should the firm be penalized?”

My response to Carolyn is something like this:

Risk is by far the primary factor in determining the reasonableness of a contingency fee.  By filing late in this 9/11 Proceeding, the Azrael firm removed at least three of the primary risks when taking a p/i case: Are we going to win a significant amount of money for the client? Will the “defendant” have deep enough pockets so that we can expect to collect? And, are we likely to have to do major amounts of work (motions, pleadings, trial prep, etc.) in order to prove our case and secure an award?

Therefore, if 25% was the maximum permitted in these cases, Azrael should have asked for a number significantly less than that from the start.  Even the 15% contingency fee allowed most of the other firms seems high, compared to the limited risk involved, but 15% should have been the ceiling.  Remember, the risk is what justifies asking for a fee that is significantly higher than a reasonable hourly rate.  (Which reminds me: Once you know you have a valid 9/11 plaintiff, with a healthy payout guaranteed, why is any fee other than an hourly or flat fee justified other than habit and the p/i bar’s refusal to offer clients the ethical option of different fee structures?)  When setting a reasonable hourly rate, the firm’s experience and superior skills certainly allows it to charge more than the hourly rate of less talented lawyers, but wouldn’t normally permit it to double the customary rate nor ask for a bonus the size of the one sought here.

In general with contingency fees, the ability to get a bigger award for you client is compensated by taking a fair share of the bigger award.  The lawyer is not the client’s partner in a business enterprise; he is a skilled worker helping the client to get a good result.

For example, if Azrael got twice as much for a particular client as most plaintiffs were getting — say $3.5 rather than $7 million — a 15% contingency fee would be $1,050,000, which is $525,000 more than the typical lawyer handling a comparable client [15% of the typical $3.5 million award is $525,000].

Isn’t half a million dollars enough of a skill-and-strategy bonus for this law firm for the amount of services performed and risk taken? If, instead the firm takes 25% of the full $7 million, its $1,750,000 fee would be three times as much (well over a million dollars more) than the typical firm in this proceeding received for representing a comparable client.  That eats away an awful lot of the improved award accomplished for the client.  Who deserves that extra million dollars, the client whose injury is the whole basis of the enterprise, or the lawyer, who was taking very little risk and apparently did very little work?  In addition, we don’t even know if it was procrastination or some other unimpressive factor (the clients’ delay), rather than strategy that caused the late entry into this case.  There is nothing illogical or inconsistent with Judge Hellerstein saying both that the awards seem too large and the fees seem excessive.

noloShark followup (August 28, 2010): “NY judge blocks interest in Sept. 11 litigation” (Associated Press, by Tom Hays, August 28, 2010); and  “Already Under Fire, Lawyers for 9/11 Workers Are Ordered to Justify Some Fees” (New York Times, Aug. 27, 2010).  The AP story reports that, on August 27, Judge Hellerstsein “barred lawyers representing Sept. 11 responders exposed to World Trade Center dust from billing them $6.1 million in financing fees for the litigation, saying their fees are already ‘too much’.”  The Judge told the firms Worby Groner Edelman and Napoli Bern Ripka “In the context of $150 million, I believe you can absorb $6 million,” and “What you’re getting is too much.”  AP notes that:

“[T]he lawyers took two law professors to court to tell the judge that the arrangement was legal and ethical.  The attorneys also argued they were already making concessions: Under a compromise reached in a revised settlement, they were taking a 25 percent cut of the deal rather than the usual 33 percent.

“But the judge wasn’t swayed. ‘Beyond legality and beyond ethics, it’s important to have a sense of balance,’ the judge said.”

One of the lawyers, William Groner whined that the judge had ruled against them “for no other reason than it’s 9/11.”  I would like to hope that, thanks to Judge Hellerstein’s example, cases with a lower profile will also get similar scrutiny from state and federal judges.

1 Comment

  1. […] “A federal judge in Manhattan took the unusual step on Thursday of overturning settlements in four lawsuits filed on behalf of victims of the Sept. 11 attacks, saying the firm that negotiated the deals was seeking excessive legal fees and that the settlement amounts themselves were unreasonable.” Judge Alvin Hellerstein declared that to give the Maryland-based firm, Azrael, Gann & Franz $7 million for representing four Pentagon workers’ families “would reflect a very large windfall,” given that the firm’s “entire strategy seems to have been to coast on the work of others.” Hellerstein also noted that the settlement figures, averaging $7 million per victim, seemed out of line with earlier 9/11 awards for the families of modest wage earners. (Benjamin Weiser, “Judge Overturns Accords in 4 Suits by 9/11 Victims”, New York Times, Jul. 26). More: David Giacalone. […]

    Pingback by Overlawyered.com — July 28, 2008 @ 4:07 pm

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