Legal Commentary

a big bow to Judge Hellerstein re contingency fees

By David A. Giacalone

. . 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.

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.?
• ?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). 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.

Full post as published by f/k/a . . . on July 28, 2008 (boomark / email).