There has been an animated discussion about this case on the Solomarketing listserv over the past week, and in light of that discussion and Ben Glass' comment over the weekend, I thought the case was worth a bit of further discussion here.
There are a lot of questions that need to be asked about what the terms of the agreement were between the firm and the client at the time the new agreement was signed and what discussions were held between lawyer and client at that time in order to determine whether the fee was 'reasonable' - and whether the method of calculating the fee was reasonable under the circumstances.
Some other questions to consider: what did the chances of recovery look like at the time the new fee agreement was made? Why was it that the original $60 million offer did not result in a settlement? Did the lawyers explain to the client what the effect would be if they negotiated a higher settlement under the new fee agreement? Were there other conditions to the original offer that the client refused to accept? Was the offer rescinded at some time? Did the lawyers have some reason to think that they could recover substantially more or less than they did?
The fee was renegotiated so that the firm could continue to represent the client and get paid for that representation. What would the cost have been if the client had to change lawyers? If this was a new firm instead of the one that had handled the case for 22 years and the new firm had to get up to speed, what would that have cost the client? What was disclosed to the client? Is there documentation to support those conversations (aside from just the terms of the change themselves)?
Value is determined first at the time the agreement was made – what was the value to the client of continuing to be represented by this firm? What risk were the lawyers undertaking at the time? Would it have been 'reasonable' if the lawyers couldn't get the other side to come off of their $60 million offer and the lawyers worked 2 more years to settle the case for that number? Would the fee have been considered unconscionable if it took another 10 years to reach the $100 million settlement, or is it only unconscionable because it only took another five months?
Would it have been unconscionable if the firm’s contingency was set at only 30%? Would it have been OK to have a 40% recovery by the lawyer if they hadn’t already been paid the fees for the first part of the case? Or if the firm reduced the ultimate fee by what they were already paid? The article isn’t that clear, but the decision itself seems to indicate that the prior fees paid weren’t just for this particular matter, but covered other matters as well. Also, according to the decision, during the representation over $350 million was distributed from the estate, so that $100 million wasn’t the only financial outcome of the matter - perhaps the entirety of the fees were reasonable considering the entirety of the money that was paid out. These are all things that should be examined.
Let's assume it was a 'new' case to the attorneys and the client had 'negotiated' a settlement of $60 million on her own but for whatever reason, that settlement didn't occur. At that point, the client hires the lawyer. If the negotiated fee agreement says that the attorney gets a specific percentage of the total recovery, is it unconscionable, or must the fee agreement exclude the previous offer? What if there was no settlement at all, but the case was tried and the ultimate verdict was less than the
previous settlement offer? Does that mean the attorney shouldn't get paid at all?
We also have to think about value in terms of the value of the *service being provided by the lawyers* - not just in terms of the value of the financial outcome to the client at the end of the case. Value billing relies heavily on the expectations set with the client and the disclosures made by the lawyer throughout the engagement, so all of these issues would be important before making a judgment about whether this was ‘good’ billing practice or whether the fees were, in fact, reasonable.
Finally, regardless of the fee structure, the lawyer always has the option of not taking the full fee on the case (which obviously the firm didn’t do here). Using an alternative or ‘value billing’ fee structure that results in a particularly high fee doesn’t necessarily mean the lawyer has to take the fee if the lawyer feels that the value provided doesn't merit the fee. But don't blame the way the lawyer negotiated for the fee if the fee turns out to be unreasonable - at least until there's a thorough examination of the circumstances surrounding the fee agreement.