Fee arbitration a remedy if your lawyer cheated you.

Sunday, June 5th, 2011
By: Jonathan MontagJ.D.

Today’s blog addresses an issue that arises all to often in the attorney-client interaction realm – fee disputes. Like love, how many ways do fee disputes arise? – to the depth and breadth and height an imagination can conjure.

Fee disputes go in two directions – attorneys not being paid by clients for work done and clients paying and there being dissatisfaction with the work product. At the outset, let me disclose that I volunteer as a fee arbitrator for the San Diego County Bar and so have some experience with the process.

It is rare that an attorney brings a client to fee arbitration. When an attorney has a fee grievance with a client the issue is most likely non-payment. There are thus no factual issues to be resolved other than whether fees were paid, at least from the attorney’s prospective. Further, for attorneys fee arbitration is mandatory. If the client seeks arbitration, the attorney must participate. Clients do not have to participate. Finally, if a client is awarded fees by an arbitrator and the decision becomes final, if the attorney does not pay what is due, the State Bar of California sanctions the attorney by suspending him or her from practice. There is no equivalent sanction to a client. Thus, winning an award from an arbitrator does not relieve the attorney from enforcing the award, which puts him or her in the same position as before the arbitration.

From the client’s perspective, fee disputes can arise when the client asserts that the attorney did not do the work promised, the attorney did work but it had no value, or the attorney grossly overcharged for the work he or she did. The first scenario is easy to arbitrate. The client shows proof that he or she paid money for a service and it was not provided. The second scenario is a little more complicated. The attorney takes a fee to do something useless – like file for divorce for a client whose spouse died. Dying terminates a marriage, so filing for divorce is a silly, wasteful thing to do. The attorney argues what he was doing was sensible or was a way to expand the law – challenge a bad status quo. The third scenario is most complicated. The client shows the work product and the contract and shows there is a mismatch. I have seen an attorney charge a client $5000 to write one sentence (and a very simple and uncreative one at that) on a form and mail it.

In this scenario, the attorney argues that there was a contract and the client did not have to sign it. He exercised his right to enter into a contract and should be bound to it. We live in a free market economy and the contract should be binding. The client argues that he does not know anything about the law, trusts implicitly the words of the attorney about what needs to be done and the attorney’s assertions about what a reasonable fee is, and that for the attorney to gouge the client is a violation of the attorney’s implicit vow to be honorable, fair, and “professional,” to which the attorney answers, “What vow (implicit or otherwise) to be honorable, fair, and professional.”

Another consideration in the issue of whether the fee was too high for what was actually done, besides the fundamental difference of opinion as to the role of the attorney as a fee negotiator, is the problem of valuation. Forgetting the extreme example of $5,000 for a simple sentence, perhaps a scant-looking work product for a large fee is actually the product of a lot of behind-the-scenes leg work. Perhaps the attorney had to travel around a lot to gather documents consuming a lot of time. Perhaps the client called the attorney every day for a month consuming a half hour of time each call? Perhaps the attorney has a very high hourly fee. I once saw an invoice where a client hired a very expensive law firm with branches around the world who billed out their attorney time at $600 an hour. Two partners at opposite ends of the country talked on the phone about the case for an hour and the client, unhappily for the client, got billed $1200.

When contesting the value of work, a starting point for an arbitrator in California is California Rules of Profession Conduct Rule 4-200(B), which discusses unconscionability: The statute says:

Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into except where the parties contemplate that the fee will be affected by later events. Among the factors to be considered, where appropriate, in determining the unconscionability of a fee are the following:
(1) The amount of the fee in proportion to the value of the services performed.
(2) The relative sophistication of the member and the client.

(3) The novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly.

(4) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the member.

(5) The amount involved and the results obtained.

(6) The time limitations imposed by the client or by the circumstances.

(7) The nature and length of the professional relationship with the client.

(8) The experience, reputation, and ability of the member or members performing the services.

(9) Whether the fee is fixed or contingent.

(10) The time and labor required.

(11) The informed consent of the client to the fee.

When I went to law school, my contracts law professors were very hostile to the concept of unconscionability. [Bear in mind, my law school has a “Center” dedicated to the beatification of Antonin Scalia, though I may be overstating its purpose. If a municipality needs help with its “tar and feathering” punishment statute, you know whom to call.]  The case we discussed, if memory serves, was one where a lady in Washington, DC, bought a stereo through credit. A term of the agreement was that if the lady missed one payment, the stereo store would come and repossesses the stereo. The lady made all of her payments on time until one of the last ones – the stereo was nearly paid for. The company came and repossessed the stereo. The court found the contract unconscionable. My professor stressed that the lady was free to negotiate a different contract or go to another store, that if she was a bad credit risk, this may have been the only way she could get a stereo, and that she went into it with her eyes open. Voiding the contract was actually voiding her civil right to contract and was paternalistic to boot. Plus, it threatened an essential pillar of free enterprise. Though the lady won, the professor believed that Adam Smith lost.

The United States is now in an economic crisis. One cause is the failure of the home mortgage market. Lenders made available mortgages to people who could not afford them. At the time it seemed marvelous that home ownership was expanding and people from all socio-economic walks of life were “finally” being given the chance to own their own homes. It was seen as the democratic (small “d”) thing to do. Only with 20-20 hindsight can we say that a little less free market and a little more “conscience” – conscience for the economy as a whole if not for the poor people to whom money was lent – would have saved the country a lot of hurt.

All this being said, if you are a client of an attorney and you fee ripped off, you should look into fee arbitration. If your attorney did nothing, you will get your money back. If he did something, but it was worthless, you should be able to get your money back. If he did something, but what he did and what he charged seem completely disconnected, you may be able to get your money back.

A word of caution. I have arbitrated several fee disputes. Attorneys won a fair number of them – I do not have statistics. Arbitration is not a remedy if your attorney did what he said, put up the good fight, but lost. In most legal battles, there is a winner and a loser. Just because you lost does not mean you deserve your money back. Lawyers cost money. Cases take unpredictable turns which consume a lot of time. To a lawyer, time is money. For a client, time is money too.

The State of California has a link to fee disputes on its first page  or you can go right to it here. In San Diego, the arbitration program is run by the San Diego County Bar Association. You can get information here.



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