A deal is a deal, right? That is not always true when the deal is a fee agreement between a lawyer and a client. With interest in alternative fee arrangements growing among lawyers and clients, Indiana law firms should keep in mind that their fee agreements remain subject to scrutiny of the Indiana Supreme Court.
A recent disciplinary decision of the Indiana Supreme Court teaches Indiana lawyers two lessons about non-hourly fee arrangements: First, a deal is most definitely NOT a deal when a lawyer would obtain an unconscionable windfall. Second, a lawyer may be required to renegotiate a fee agreement that would otherwise produce an unconscionable benefit for the lawyer.
In In re Everett E. Powell, II, No. 49S00-0910-DI-426, the Indiana Supreme Court suspended a lawyer for charging an unreasonable contingent fee. The client, T.G., engaged Powell to seek the removal of a trustee of a trust established for T.G.’s benefit. The trust was put in place by T.G.’s first lawyer, Ross, to hold the proceeds of a personal injury settlement for T.G. The trust was created to keep T.G. (and her domineering partner) from quickly wasting the settlement proceeds, about $42,000. Ross was the trustee (because he could not find another qualified person to do it) and had refused T.G.’s earlier, repeated demands for the money in the trust.
When Powell contacted Ross, he readily agreed to resign as trustee and handover those duties to Powell. Soon after he became successor trustee, Powell withdrew the trust funds, paid two-thirds of the funds to T.G., and kept his one-third contingent fee. As a result, Powell received a contingent fee of over $14,000 for 15 hours of work.
In his disciplinary case, Powell argued his contingent fee was reasonable considering the client was a “difficult” one, there was a heightened threat of a future malpractice suit, and there was uncertainty at the time the fee agreement was made both about the amount of funds left in the trust and whether Ross would resist giving up control of the trust. The Court rejected that argument. The Court observed that Powell learned very quickly the amount left in the trust and Ross’ willingness to step aside as trustee. The Court stated:
We do not suggest that a contingent fee must be reduced every time a case turns out to be easier or more lucrative than contemplated by the parties at the outset. But collection of a fee under the original agreement is unreasonable when it gives the attorney an unconscionable windfall under the totality of the circumstances. On the evidence before us in this case, we conclude that Respondent violated the Indiana Professional Conduct Rule 1.5(a) by collecting a fee that was clearly excessive and unreasonable under the totality of the circumstances.
The vulnerability of the client in Powell was certainly an important aspect of the case that would distinguish it from one involving a sophisticated client. Yet, Powell is an important reminder for Indiana attorneys to think twice before keeping a contingent fee that is grossly disproportionate to the amount of legal work performed.