Monday, May 20, 2019

Tennessee Supreme Court imposes sanctions for improper contingency fee

A few days ago I saw a report on a case out of the Tennessee Supreme Court on a topic that you don't see that often:  an unreasonable contingency fee agreement.  The practice of using contingency fees is, of course, common; and the practice of structuring the contingency itself as a percentage of the recovery is standard.  In most cases, the percentage is about 33%.  That is also pretty standard.  And that is why I don't think we see many cases on this topic.  Everybody pretty much does the same thing because the market regulates itself.

Yet, here we have a new case with a twist on the practice of using contingency fees.

The lawyer in the case entered into a contingent fee agreement with his client, which provided that if the client refused to accept a settlement offer that the lawyer advised was reasonable and should be taken, the client would be required to pay the lawyer the contingency fee “on the basis of that offer” unless waived by the lawyer.

As you would expect given the end result of the case, the defendant made an offer, the lawyer advised the client to take it, but the client refused.  The lawyer then withdrew from representation and asked for a lien against his client’s eventual recovery in her personal injury case for fees and expenses based on the original agreement.

The court agreed with the hearing panel that the contingent fee agreement was unreasonable and violated the Rules of Professional Conduct because the Rules only allow a contingency fee on the outcome of the matter. The Court also agreed with the hearing panel that the contingency fee agreement violated the Rules of Professional Conduct because it gave the lawyer a proprietary interest in any settlement offer arising in the case.  Thus, the Court affirmed the judgments of the trial court and the hearing panel imposing a public censure.

As it is often the case, whether public censure, one of the lightest possible sanctions out there, was the correct measure of discipline is debatable.  But I supposed reasonable people can disagree on that and it is the subject of a different conversation.

The case is Moore v. Board of Professional Responsibility and you can read the opinion here.

Faughnan on Ethics has a comment on the case here.  As he clearly explains, "[a]t its core, this case explains the limits on the ability of a plaintiff’s attorney to try to guard against what happens if their client rejects the attorney’s advice on whether to accept a settlement offer. There do, in fact, have to be limits on the ability to hedge against that because the ethics rules establish explicitly that the decision whether to settle a civil case or not is the client’s decision. RPC 1.2(a)."

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