Real Estate & Property Law

CFC: No Taking Of Attorney's Contingency Fee Agreement By Congressional Limitation Of Fees

By Robert Thomas (inversecondemnation.com)

In Zaid v. United States, No. 08-020C (Jan 22, 2009), the Court of Federal Claims held that an attorney who had a one-third contingent fee arrangement with his client did not have a claim for a taking when Congress placed a 10% fee limitation in two private bills.

Attorney Zaid represented two FBI informants who infiltrated the American Communist Party and assisted the FBI for 22 years. The were promised payment but received none. After unsuccessfully representing themselves, they retained Zaid and agreed that he would take 1/3 of any recovery as his fee.

The attorney was ultimately successful, procuring from Congress two private bills to pay the informants $1 million each. A private bill is special legislation providing some benefit to a specific individual. More about private bills here. Unfortunately for the attorney, in the private bills, Congress included a provision that capped his fee at 10%, upon pain of criminal fine. The informants refused to pay him even his 10% fee, and they attorney sued them and won. He then filed a takings claim in the CFC for $466,666 (the balance of his 1/3 contingent fee).

The CFC dismissed the complaint, hold that since "[t]he United States Supreme Court historically has approved of Congressional restrictions on attorney's fees in legislation," slip op. at 4, and "it was within Congress's discretion to enact the bills with fee restrictions without the use of eminent domain power." Slip op. at 6.

Thus, while private bills may have interfered with an agreement between Mr. Zaid and the Makuches, it was within Congress?s discretion to enact the bills with fee restrictions without the use of eminent domain power. Even if the fee restriction in the private bills were deemed invalid, there is nothing to indicate that Congress would have wanted the fee restriction to be construed as a taking, obligating the United States to make additional payments.

Slip op. at 6. The CFC relied on Paul v. United States, 687 F.2d 364 (Ct. Cl. 1982), cert. denied, 461 U.S. 927 (1983) for the proposition that:

Injunctive and declaratory relief may be available to prevent enforcement of the unconstitutional provisions, but a taking can hardly be found without some good indication that Congress would want that result if its handiwork turned out to be invalid without just compensation being paid. Congress might well be satisfied simply to have the offending provisions cut off and declared unenforceable, without more.

Id. at 370. The CFC did not address the government's argument that the contingent fee agreement was not "property" and the fee restrictions in the private bills merely frustrated contractual rights and did not take property because "as it was within Congress's discretion to enact the private bills with fee restrictions, without using its eminent domain power, the Court need not consider these positions." Slip op. at 7.

This reasoning strikes us as odd. First, Congress did not need to exercise the eminent domain power in order to provide compensation to the informants in the private bills, so it is not at all clear why the CFC thought that fact was important. Second, the attorney was not challenging Congress's power to enact the bills, and was not seeking compensation pursuant to the bills; he only claimed that by limiting his fee, Congress in effect confiscated the fee he was entitled to receive under the contingent agreement. Finally, it doesn't matter whether Congress "would want" just compensation paid to the attorney (apparently it didn't since it limited his fees to 10%), but what the Fifth Amendment requires and the Tucker Act allows. If the contingent fee contract was property but was rendered valueless by the government, compensation is owed regardless of Congress's desire, and irrespective of whether "Congress expressed its intention to take Mr. Zaid's rights." Slip op. at 6.

The CFC's holding seems more driven by the notion that since Congress could have provided the informants nothing (which would also make the attorney's fee zero), then the attorney should be glad he at least got something. The opinion is available here.

Full post as published by inversecondemnation on January 30, 2009 (boomark / email).