Volume 3, Number 1
MANDATORY FEE ARBITRATION UNDER NEW YORK'S MATRIMONIAL RULES
By Professor Lester Brickman
MANDATORY
FEE ARBITRATION UNDER
By:
Professor Lester Brickman*
I. INTRODUCTION
In
recent decades, public dissatisfaction with lawyers has mounted ceaselessly. A
significant portion of that dissatisfaction is attributable to concerns about
lawyers' integrity and fees.[1] Indeed, "[n]o single issue between
lawyer and client arises more frequently or generates more public resentment
than fee problems."[2] Despite the near ubiquity of fee disputes,
client complaints to disciplinary agencies about excessive fees are almost
always rejected because most disciplinary boards do not accept jurisdiction
over claims of excessive fees.[3]
To deal with
this failure of the disciplinary system[4]
and mounting public criticism of the bar, many states have instituted fee
arbitration programs;[5]
twelve states, including New York in the area of matrimonial law,[6]
have instituted mandatory fee arbitration programs[7]
empowering clients (and sometimes lawyers as well) to compel their attorneys to
arbitrate fee disputes.
In July 1992,
the Administrative Board of New York State, in reaction to the public outcry
generated by a report issued by the New York City Department of Consumer
Affairs detailing severe lawyer abuse of matrimonial clients, especially the
non-monied spouse in matrimonial cases,[8]
established a Committee to Examine Lawyer Conduct in Matrimonial Action. This
Committee set out to study the role of attorneys in matrimonial actions in
order to "lead to recommendations that will have a significant impact on
the ultimate ability of the court system to improve the providing of a fair and
effective tribunal for the hearing of matrimonial actions. . . "[9] One of the Committee's recommendations was to
give clients the right to elect to arbitrate attorney fee disputes in domestic
relations cases. This recommendation was premised on the findings that: (1) fee
arbitration resulted in the "expeditious and cost-effective resolution of
a potentially protracted dispute, and is, therefore, generally favored by
litigants and attorneys;" and (2) "[a]ttorneys who successfully
participate in mandatory fee arbitration have established a practice of
frequent billing, detailed fee statements, and better communication with their
client."[10] In 1993, the Appellate Divisions of the New
York State Supreme Court adopted new rules for attorney conduct in domestic
relations matters in response to the Committee's proposals. Among those rules
was a directive to the Chief Administrative Judge of the Courts to establish
and operate a fee arbitration program for attorney-client fee disputes in
domestic relations matters.[11]
Since the
inception of
II.
All
attorneys who undertake to represent a client in New York in a matrimonial
matter, that is, one involving divorce, separation, annulment, custody,
visitation, maintenance, child support, or alimony, or to enforce or modify a
judgment or order in connection with such matters, are governed by special
rules of court.[17] This article will discuss several of these
rules as well as principles to guide arbitrators engaged in arbitration of
matrimonial fee disputes.
A. What
Documents Must a Matrimonial Attorney Provide to a Client Prior to
Representation?
Section
1400.3 of the court rules, setting forth the "Procedure For Attorneys in
Domestic Relations Matters," (see Appendix C) requires that an attorney
"who undertakes to represent a party and enters into an arrangement for,
charges or collects any fee from a client shall execute a written agreement
with the client setting forth in plain language the terms of compensation and
the nature of services to be rendered . . . signed by both client and attorney.
. ."[18] Additionally, § 1400.2 requires that a
prospective client be furnished with a Statement of Client's Rights and
Responsibilities (see Appendix B) at the initial conference or first
consultation and prior to the signing of a written retainer agreement.[19]
B.
Statement of Client's Rights and Responsibilities
At
the initial meeting between the lawyer and the prospective matrimonial client,
and prior to the signing of a written agreement, the attorney must provide the
prospective client with a Statement of Client's Rights and Responsibilities, as
prescribed by the Appellate Divisions of the Supreme Court,[20]
and obtain a signed acknowledgment or receipt from the prospective or actual
client. If the attorney has failed to provide the requisite statement at the
initial conference or first consultation and prior to the signing of a written
retainer agreement, then the attorney is not entitled to any fee, irrespective
of any work done or results obtained.[21] Similarly, if the client has already paid a
fee and the attorney has failed to provide the requisite statements, and this
failure would have precluded the attorney from seeking a fee, the client should
be able to recoup any fees paid.[22]
Even if the initial meeting between a matrimonial attorney
and the prospective or actual client is solely for the purpose of a
consultation and not to represent the client in a matrimonial matter, the
attorney is nonetheless required to give that prospective or actual client a
copy of the Statement of Client's Rights and Responsibilities.[23]
C. The
Written Retainer Agreement
A
lawyer who agrees to be hired in a matrimonial matter must enter into a written
retainer agreement, signed by both the lawyer and the client, which sets forth
in plain language the purpose of the representation and the details of the fee
arrangement.[24]
If there is an action filed in the Supreme Court, then a copy of the signed
retainer agreement must be filed with the court (along with the statement of
net worth).[25]
In the event the attorney has not timely filed a copy of the signed retainer
agreement with the court, as required, along with the statement of his or her
client's net worth, then the attorney is not entitled to a fee.[26]
The required contents of the
written retainer agreement are set forth in detail in §1400.3 and are included
in Appendix A. If an attorney fails to enter into a written retainer agreement
with a client, then irrespective of the amount of work the attorney has
performed or the results obtained, the attorney is not entitled to a fee.[27]
However, if there was a written and signed retainer agreement, which did not
meet the precise requirements of §1400.3, as set out in Appendix A, the
attorney may nonetheless may be entitled to a fee, provided she substantially
complied with the Matrimonial Rules requirements and the client waived his
right to arbitration of the fee dispute.[28]
If the client has already paid a fee, then the attorney's
failure to provide the requisite statements should entitle the client to
recoupment.[29] However, at least one court[30]
has held that "where a retainer agreement fails to comply with the
provisions of the matrimonial rules, the court need not return fees properly
earned by an attorney" and that the cases holding that failure to comply
with the requirements of the Matrimonial Rules precluding a lawyer from
collecting fees, are not authority for the proposition that the client in such
a case may obtain disgorgement of any fees already paid.[31] Markard v. Markard is properly limited
to its facts: namely, that the violation of the Matrimonial Rules (a provision
in the retainer agreement waiving itemized billing in contravention of the
required terms of the retainer agreement, see Appendix A, ¶ 9, and of the
Statement of Client's Rights and Responsibilities) was not of sufficient
magnitude as to invoke the forfeiture outcome; that the client discharged the
lawyer without legal cause and therefore was obligated to pay the lawyer
quantum meruit for the work done up to discharge (which was determined to be
the substantial portion of the $10,000 retainer fee); and that had the client
sought arbitration of the fee instead of simply demanding the disgorgement of
the fee already paid, then the amount of the fee already paid would have been a
proper subject of the arbitration. To the extent that Markard is to be
read as distinguishing between fees already paid and fees to be paid for
purposes of protecting client's correlative rights under the Matrimonial Rules,
it should be rejected as inconsistent with the public policy articulated by the
New York Court of Appeals in In re Cooperman.[32] In that case, the Court of Appeals declared
that the policy articulated in Martin v. Camp,[33]
that a client could discharge an attorney at any time without cause and without
penalty, would apply both to fees yet to be collected as well as to fees
already collected and denominated as nonrefundable.[34]
It is incumbent on the arbitrator to make certain that these
court rules are adhered to – whether or not the client seeking arbitration has
raised the issue.
If
a prospective client hires a matrimonial attorney prior to the filing of a matrimonial
claim, action, or proceeding, then the attorney must comply with the
Matrimonial Rules.[35]
However, if the retention is for the sole purpose of consulting with that
attorney and not for the purpose – at that time – of hiring the attorney to
represent the client in a matrimonial matter, then the charging of a
consultation fee alone does not trigger the requirement that a signed retainer
agreement must have been first obtained.[36]
Even though there is no requirement that the fee agreement for the consultation
be in writing, it is the better practice for the attorney to enter into a
written retainer agreement even if the sole purpose of the meeting is for
consultation. Moreover, in the event that there is a fee dispute regarding such
a consultation and that dispute is included in the issues presented in a
matrimonial arbitration, the attorney would have the burden of establishing
that an agreement was entered into for a consultation as well as for the amount
of the fee claimed. If the client claims, and the attorney denies, that the
attorney agreed to provide a consultation without fee and there is neither
conclusive documentary evidence nor persuasive demeanor evidence, then the
failure of the attorney to meet the requisite burden of proof may be a basis for
denial of the attorney's claim for a consultation fee.
If
the initial meeting(s) are for consultation only, but the relationship changes
to one of representation, then the attorney must enter a written retainer
agreement with the client as soon as the change occurs.
D. Notice
of Right to Fee Arbitration
In
the event of a fee dispute between a matrimonial attorney and client, the
client has the right to seek binding arbitration of the dispute provided that
the amount in dispute – whether or not the attorney has already been paid – is
not in excess of $100,000.[37]
It is the attorney's duty to provide the client with written notice that the
client may submit the dispute to arbitration.[38]
If an attorney fails to give the client such notice, the client is entitled to
dismissal of an action brought by the attorney to recover a fee.[39]
Denial of fees sought in a suit against the client for nonpayment on the basis
of failure to give notice of the right to arbitrate, is consistent with the
intent of the Matrimonial Rules to empower clients to seek fee arbitration.[40]
If the dispute is about fees already paid and the attorney did not give the
client notice of the right to arbitrate, then it does not follow – as it does
in the cases where the attorney has failed to provide the client with a copy of
a Statement of Client's Rights and Responsibilities or of the retainer
agreement[41]
– that the attorney should have to disgorge the fee. Since there (presumably)
was no fee dispute when the advance fee payment was made, the client's rights
under the Matrimonial Rules have not been violated. However, once the client
disputes the attorney's fee as to fees already paid, the attorney at that point
should be required to notify the client of the right to arbitrate the dispute.
It is unclear whether failure to notify the client at that point of his right
to arbitrate should result in per se disgorgement. However, it is reasonably
clear under the Matrimonial Rules that if some or all of the fee is paid in
advance and, after services are rendered, the charges against that advance fee
are disputed, then the fee dispute is subject to arbitration under the
Matrimonial Rules.[42]
Upon receipt of notice of the
right to seek fee arbitration, the client then has 30 days to file the request
for arbitration; if the request is not filed within the 30-day period, the
attorney may commence an action to recover the fee and the client no longer has
the right to request fee arbitration.[43]
The lawyer, upon written consent from the client to submit the dispute to
arbitration, may also initiate arbitration.[44]
While
the consequences of failure to abide by the Matrimonial Rules by providing a
client with: (1) a Statement of Client's Rights and Responsibilities; (2) a
written retainer agreement; or (3) a notice of the right to fee arbitration,
have been discussed and spelled out, the Rules are silent about how these
requirements mesh with lawyers' rights to assert retaining and charging liens.
E.
Retaining and Charging Liens[45]
At common law, two kinds of liens are available to an
attorney to aid in collection of his fee. First, a general possessory lien,
also known as a retaining lien or a general lien, functions as a form of
security for an attorney's fees and affords an attorney the right to retain client
papers and property in the attorney's possession until the client has satisfied
all balances owed to the attorney.[46]
Second, a charging lien can be imposed by an attorney upon the proceeds of a
judgment realized by a client through the efforts of such attorney.[47]
While the legislature has codified and expanded the charging lien under
Sections 475 and 475-a of the Judiciary Law,[48]
the retaining lien is still governed by common law rules.[49]
Generally, an attorney has a common law retaining lien
upon papers, money,[50]
and other client property that comes into the attorney's hands during the
course of his professional employment.[51] The attorney may withhold the property until
the lien is satisfied or adequately secured.[52]
If the client seeks the attached property and does not agree with the
attorney's valuation of the lien, the client may petition the court for an
order to turn over the property, at which time the attorney is entitled to a
summary determination fixing the value of his services.[53]
New York courts, in the exercise of their authority to
define and effectuate the fiduciary obligation owed by an attorney to a client,
have declined to allow an attorney to enforce a retaining lien when a client
would be unfairly prejudiced by the attorney's continued retention of client
property.[54] In matrimonial decisions involving exigent
circumstances (usually client indigence and necessity of papers to preparation
or continuation of the representation), the courts have declined to enforce
retaining liens in appropriate circumstances.[55]
Retaining and charging liens are not directly germane to fee
arbitration under the Matrimonial Rules; arbitrators have no authority to rule
on the validity of either lien – the issue is one reserved to the courts.
However, several of the judicial decisions on the liens' validity in particular
cases directly address the scope and purposes of the Matrimonial Rules, and are
therefore of interest to matrimonial fee arbitrators. In particular, a series
of contradictory rulings address whether a matrimonial attorney can invoke a
common law retaining lien if the attorney has failed to provide the client with
written notice of the right to arbitrate the fee. Several courts have held that
DR2-106(e) of New York Code of Professional Responsibility, which states that
in domestic relations matters, "a lawyer shall resolve fee disputes by
arbitration at the election of the client,"[56]
is to be interpreted to abrogate the attorney's right to impose a retaining or
charging lien if she failed to provide the client with written notice of the
right to arbitrate the fee.[57]
However, other courts focusing on the fact that the Matrimonial Rules, as
initially drafted, contained a provision abrogating the common law retaining
lien, but noting that that provision was deleted from the Rules due to
opposition from the matrimonial bar, have held that there is no basis for
concluding that the Rules abrogate the retaining lien by implication.[58]
Both sets of rulings are based upon sound reasoning.
Ultimately, the New York Court of Appeals will have to resolve the issues of
(1) whether an attorney can be granted a charging lien if the attorney has
failed to comply with provisions of the Matrimonial Rules;[59]
and (2) whether an attorney can invoke a common law retaining lien so as to
effectively compel a client who has retained a new attorney, and who requires
immediate access to his file in order to proceed, to pay the discharged
attorney's fee, and thereby, essentially invalidate the client's right to
invoke the arbitration procedures created by the Matrimonial Rules.[60]
F. Rules
Regulating Types of Fees and Security Interests in Matrimonial Cases
Lawyers
are prohibited from charging a contingent fee in matrimonial matters, that is,
a fee which is a percentage of, or otherwise determined by, the amount of
maintenance, support, equitable distribution, or property awarded.[61]
All lawyers, but in particular, matrimonial lawyers, are
prohibited from charging nonrefundable retainers. Nonrefundable retainers are
fees paid in advance to secure a lawyer's commitment to provide matrimonial
services or for specific matrimonial services to be rendered, which the lawyer
is to keep even if the client thereafter terminates the lawyer's services
before the fee has been fully earned.[62] A
client may terminate a lawyer for any reason – what is known in the law as
"without cause"[63] –
at any time during the representation. If the client does so, he is obligated
to pay the lawyer the reasonable value of the services rendered to that point.
However, the client is not required to pay the lawyer any damages for breach of
contract or for fees that the lawyer expected to earn but which were denied to
the lawyer because of the termination.[64]
A matrimonial lawyer may not obtain a confession of judgment
or promissory note, take a lien on real property, or otherwise obtain a
security interest to secure his or her fee unless: (1) the retainer agreement
provides that a security interest may be sought; (2) notice of an application
for a security interest has been given to the other spouse; and (3) the court
grants approval for the security interest after submission of an application
for counsel fees.[65]
III.
CONDUCT OF THE ARBITRATION
A. Conduct
of a Matrimonial Fee Arbitration
After
the attorney, who has the burden of proof,[66]
has presented his case, then the client can present his or her views about the
services rendered and the time that the attorney claimed to have devoted to the
matter.[67] Each side may call witnesses in support of
their presentation,[68]
who are subject to cross-examination.[69]
The client has the right to present the final argument.[70]
Arbitrators are not required to apply formal rules of evidence and have the
right to issue subpoenas and administer oaths.[71]
B. Burden
of Proof
It
is a general proposition of law that "[a]n attorney has the burden of
showing that a fee contract is fair, reasonable and fully known and understood
by the client."[72]
"Even in the absence of fraud or undue influence, an agreement to pay a
legal fee may be invalid if it appears that the attorney got the better of the
bargain, unless [the attorney] can show that the client was fully aware of the
consequences and that there was no exploitation of the client's confidence by
the attorney."[73] The rules for conduct of matrimonial fee
arbitration expressly state that the attorney has the burden to prove by a
preponderance of the evidence[74]
that the fee is reasonable.[75]
In order to meet this burden, the attorney must present documentation of the
work performed and the billing history.[76]
Simply
conforming to the matrimonial rule requirements, so that the fee arrangement is
detailed in plain language and does not contain a nonrefundable fee clause,
does not establish that the fee is reasonable.[77] If the lawyer meets his or her initial burden
of proof with respect to the unpaid fee by presenting documentation
establishing: (1) the number of hours devoted to the representation; (2) that
the written retainer agreement sets forth an hourly rate; and (3) further
demonstrates that she has conformed to the requirements of the Matrimonial
Rules,[78]
then the burden shifts to the client. He can then seek to demonstrate that
either the hourly rate or the number of hours listed was excessive or that
other reasons exist for denying part or all of the fee claim, such as a breach
of the standards of care or conduct, or of the ethics code. If the arbitrator
concludes that the evidence is evenly balanced on both sides, then the attorney
has not established by a preponderance of the evidence that the fee is
reasonable.
C. Effect
of Account Stated
Frequently,
when seeking payment for legal services, lawyers will assert the legal rule of
an "account stated" in support of the right to a fee that has been
evidenced by sending bills for those fees to the client. The general rule for
enforcement of accounts stated is that where the client has not objected to the
bills sent by the lawyer, i.e., to the "account," then the client has
no defense to the action of the attorney to collect the outstanding fee.[79] The thrust of the "account stated"
argument in support of a claim for legal services is mitigated in judicial
proceedings by a competing principle, namely that courts carefully scrutinize
lawyer-client fee agreements.[80]
Moreover, a claim of fraud, mistake, or other equitable consideration, is
recognized as posing an exception to the account stated rule.[81]
Since arbitration is by its very nature an equitable
proceeding, the assertion by the lawyer of an "account stated" is not
accorded the same legal status as it would if brought in a court of law.
Indeed, the matrimonial fee arbitration rules displace the "account
stated" rule with regard to matrimonial fee arbitration.[82]
To hold otherwise would effectively negate the remedial purpose that underlies
the fee arbitration rules governing domestic relation matters. The fact that
the lawyer periodically submitted bills for legal services to the client, and
the client raised no objection to them at the time of receipt, may be taken
into account by the arbitrator in assessing the validity of the client's claims
that the fee is excessive; but the function of the arbitrator is to come to a
fair and reasonable determination. It may be that the effect of arguing an
"account stated" by the attorney in matrimonial fee arbitration is to
sustain the lawyer's initial burden of proof; even so, that does not preclude
the client from countering with evidence of the unreasonableness of the fee.[83]
D. Reason
for Arbitrator's Decision
Whether
an arbitrator decides to reduce a disputed legal bill or disbursement, or award
the attorney the full fee claimed, the arbitrator should include the reasons
for doing so in the decision. Failure to refer to evidence or other basis in
reason for the reduction of a fee or disbursement is grounds for overturning
the arbitrator's decision on appeal.[84]
The arbitral decision will be upheld, however, if the award has evidentiary
support and is neither arbitrary nor capricious.[85]
Accordingly, while recognizing that many matrimonial fee arbitrations under the
New York rules do not involve large sums,[86]
but also recognizing the applicable decisional law, the arbitrator should
include at least a few sentences in the report setting forth the reasons for
the decision.
E.
Confidentiality
All
proceedings under the fee arbitration program are confidential except to the
extent necessary to take ancillary legal action with respect to a fee matter.[87] If during the course of arbitration, an
arbitrator who is an attorney hears information leading him to believe that the
attorney seeking a fee has violated the Code of Professional Responsibility,
under DR 1-103(a) of the Code,[88]
the arbitrator-lawyer may then have a duty to report that violation to a court
or disciplinary agency.[89]
Doing so, however, would create a conflict between the confidentiality
requirement in the Matrimonial Rules and the Code requirement. While it would
be best for this conflict to be resolved anticipatorily by a ruling from the
Appellate Division, until such time, the attorney-arbitrator is best advised to
seek the advice of the Administrative Judge.[90]
IV. THE
ARBITRATOR'S SUBSTANTIVE TASK
In
fee arbitration, the beginning point for the arbitrator – after the ground
rules have been established – is the retainer agreement. Assuming all of the
procedural requirements have been met and the attorney is seeking a fee that is
in accord with the terms of the retainer agreement, is there more for the
arbitrator to consider? In a word, yes.
To
be sure, an arbitrator may reasonably presume that if there has been a knowing
and voluntary acceptance of the retainer agreement terms by an informed client,
then that establishes the presumptive validity of the fee being sought. This
presumption, however, is a beginning point for further inquiry. Attorney fees
are treated differently from prices negotiated in a commercial context between
a buyer and seller. Attorneys are fiduciaries for their clients, and their fees
are always subject to the imposition of a reasonableness requirement by courts.
To be sure, courts will enforce fee agreements to which the client has given
informed consent, and the more sophisticated the client, the more likely it is
a court will find the contract enforceable as written. Nonetheless, there are
thousands of examples in the judicial literature of courts voiding fee
agreements for a variety of reasons – mostly based on the attorney's fiduciary
status.
In
the paragraphs that follow, I will attempt to set forth some guiding principles
that highlight the types of circumstances that have precipitated judicial
invalidation of fee agreements or the fees generated by those agreements. In
doing so, I am not suggesting that arbitrators should start with a bias against
the enforceability of matrimonial fees. I do, however, seek to point out
instances in which it is appropriate for arbitrators to carefully examine and,
in some instances, look critically if not skeptically, at certain matrimonial
fees.
A
beginning point for such an approach is to consider what other fee arbitrators
have done. Unfortunately, little is known about the results of fee arbitration
programs – including New York's.[91]
What little data we have indicates that matrimonial fee arbitrators have
reduced fees sought in approximately two thirds of the matters submitted to
arbitration and that the average award approximates 75 percent of what the
attorney was seeking.[92] At best, however, while this provides some
limited perspective with which to approach the arbitration process,[93]
each arbitration presents a set of facts that must be evaluated on its own
merits.
A. The
Context of the Fee Dispute
Some
perspective in approaching the arbitrator's task is important, especially for
arbitrators without prior experience in matrimonial matters. It is probably
often the case that client complaints about fees are motivated at least in part
by emotional reactions to the break up of the marriage and by the litigation
process itself. Even a successful outcome from the perspective of one of the spouses
results in the termination of a marriage and consequent feelings of guilt and
anger.[94]
The propensity of a client caught up in a divorce proceeding may be to
use the process to inflict harm on the other spouse. One clear effect of such
efforts is an increased contentiousness in the litigation process that, in
turn, yields higher legal fees. Most experienced divorce practitioners seek to
minimize these propensities.[95] Some however, whether from inexperience or
indifference, allow these propensities to manifest in the form of protracted
litigation. Still, others may actively foment this propensity, using dilatory
tactics and overlawyering, for self-interested purposes. Moreover, it may be
hard to distinguish such motivation from "hardball" litigation tactics
designed to attain a tactical advantage.
The
arbitrator's impression of how the lawyer resolved the ubiquitous conflict of
interest, between the lawyer's self-interest in generating higher fees and
professionally responsible behavior that is self-disinterested and fully
determined by the client's needs, will necessarily color her determination of
whether the fee claimed is reasonable.
It
is also important for the inexperienced arbitrator to have some appreciation of
the practitioner's view of the financial realities of divorce representation,
where one of the spouses earns the bulk of the family's income. The attorney
for the moneyed spouse is usually paid monthly or bi-monthly. If a fee dispute
arises, then it is either in the context of the aftermath of the termination of
that lawyer's services or is limited to the final bill in the representation.
In either of these scenarios, the amount of the fee in dispute will usually be
only a small percentage of the total fees billed.
However,
while an attorney representing the non-moneyed spouse[96]
will usually require a retainer payment to take the case,[97]
often the bulk of that attorney's fee will not be available until the
conclusion of the case, when the division of the marital property has been
settled, or ordered, and the property actually distributed.[98]
In that circumstance, it was undoubtedly the expectation of both lawyer and
client that all, or a large portion of the fee, would be paid out of the
marital proceeds transferred to the non-moneyed spouse.
Thus,
while the attorney for the non-moneyed spouse is sending periodic billing
statements,[99]
there is no expectation of current payment. Indeed, in some realistic sense,
payment is contingent upon a successful outcome.[100] This
may encourage the client to demand that no expense be spared in obtaining the
fullest possible share of the marital proceeds. An attorney who does so may
then find that at the conclusion of the representation, the client has a more
jaundiced view of the value of the attorney's efforts.
From
the client's perspective, objecting to a periodic fee statement may be seen to
place in jeopardy the zealousness of the lawyer's efforts and may even lead to
a termination of services, which could adversely affect the client's strategic
position in the litigation. Thus, the muting of any fee issues may not reflect
acquiescence, let alone consent.
From
the attorney's perspective, however, after having rendered faithful service for
long periods of time, often years, in reliance on the client's silence as
constituting assent to the periodic billings, the implicit content of the
demand for arbitration of the fee – that the fee is unreasonably high – is seen
as an unfair act. But for the existence of the matrimonial fee arbitration
program, if the client failed to pay the fee, the attorney could sue, and
likely prevail, by showing that she had sent periodic bills to the client and
the client had not objected.[101]
The arbitrator must mold these
contradictory perspectives into an approach that neither penalizes the attorney
because she represents the non-monied spouse nor fails to effectuate the
objectives of the matrimonial fee arbitration program.
B. Guiding
Principles
"[A]ttorney-client
fee agreements are a matter of special concern to the courts and are
enforceable and affected by lofty principles different from those applicable to
commonplace commercial contracts."[102]
Although courts thus arrogate to themselves considerable discretion in the determination
of disputed attorney fees, arbitrators may be thought to have an even greater
range of discretion and are not bound to act as would a court when faced with
the same competing claims. In exercising such discretion, arbitrators and, in
particular, fee arbitrators, should resolve fee disputes according to
principles of justice and equity.[103]
Moreover, matrimonial fee arbitration is a consumer
protection remedy. Accordingly, the arbitrator should approach the fee issue
from the perspective of what is reasonable. In determining how to respond to a
client's claim that the fee is too high, the arbitrator should understand that
he or she is not necessarily deciding whether the lawyer's conduct is
unethical, but whether it has resulted in such an enrichment of the lawyer, at
the expense of the client, that it offends the decision maker's sense of
fairness and equity.[104]
If there is an ethical violation or breach of a lawyer's fiduciary obligation,
then that is also to be taken into account by the arbitrator in determining a
reasonable fee.[105]
V.
DETERMINATION OF REASONABLENESS OF FEE
A
fee shall be considered excessive when "after a review of the facts, a
lawyer of ordinary prudence would be left with a definite and firm conviction
that the fee is in excess of a reasonable fee."[106]
What constitutes a reasonable fee will vary from one set of facts to another
because there is no precise measure of reasonableness.[107]
Factors to be considered in determining the reasonableness of a fee include
(but are not limited to): (1) the time and labor required, the novelty and
difficulty of the questions involved and the skill requisite to perform the
legal service properly; (2) the likelihood, if apparent or made known to the
client, that the acceptance of the particular employment will preclude other
employment by the lawyer; (3) the fee customarily charged in the locality for
similar legal services; (4) the amount involved and the results obtained; (5)
the time limitations imposed by the client or by circumstances; (6) the nature
and length of the professional relationship with the client; (7) the
experience, reputation and ability of the lawyer or lawyers performing the
services; and (8) whether the fee is fixed or contingent.[108]
If
the arbitrator determines that the fee the lawyer is seeking to collect
according to the terms of the retainer agreement is excessive, then it will be
necessary to determine a reasonable fee. This calculation may involve: the
denial of some of the attorney's billing; the denial of some expenses claimed;
a more fundamental determination of a reasonable fee in light of the factors
listed above;[109]
or an essentially identical list of relevant factors set forth in a leading
case, as follows: Long tradition and
just about a universal one in American practice is for the fixation of lawyers'
fees to be determined on the following factors: time and labor required, the
difficulty of the questions involved, and the skill required to handle the
problems presented; the lawyer's experience, ability and reputation; the amount
involved and benefit resulting to the client from the services; the customary
fee charged by the Bar for similar services; the contingency or certainty of
compensation; the results obtained; and the responsibility involved.[110]
A.
Excessiveness of the Fee: The Hourly Rate
It
will usually be the case that the hourly rate fee set forth in the retainer
agreement will be accepted by the arbitrator because it is the product of a
voluntary agreement between the lawyer and client. However, the arbitrator can
determine that the hourly rate quoted was unreasonable even though the client
agreed to it when he or she signed the retainer agreement. For example, it
would be plausible to find that a substantial hourly rate, e.g., $300-$500,
which some lawyers may reasonably charge a wealthy client, would be
unreasonable if charged to someone of modest means, especially where it would
yield an amount equal to a substantial portion of that spouse's reasonable
expectation of the amount of marital assets to be awarded.[111]
Moreover, even though the client necessarily agreed to the hourly rate by
signing the retainer agreement, if the client was sufficiently unsophisticated
and did not realize that they were agreeing to pay top dollar and the lawyer
did not explain to them that this was so, that may also be a basis for a
reduction of the hourly rate.[112]
Finally, if the law firm has differential hourly rates for
senior partners, junior partners, associates, or contract lawyers, then the
arbitrator should examine whether, for example, specific services performed by
a partner were sufficiently routine or uncomplicated that they could have been
performed by an associate at a lower hourly billing rate. In that case, the
hourly rate fee should be reduced to the associate level.[113]
B.
Excessiveness of the Fee: Number of Hours Billed
In
the typical fee dispute, the number of hours expended is frequently at the core
of the dispute. The client will typically complain that the amount of time
being billed is excessive.
In
addressing this contention, the arbitrator should attempt to obtain an overall
assessment of the degree of protraction of the litigation. For example, did the
opposing party use dilatory tactics or otherwise engage in obstructionist
behavior?[114]
Was the case unduly litigated and, if so, did the attorney actively engage in
that protraction or were her efforts essentially responsive? If the attorney
was the aggressor in unduly protracting the litigation, was that sought by the
client? If so was the client informed of the effect of such a litigation
strategy on the attorney's fee?
In
addition, the arbitrator should seek to determine how much time was billed for
communicating with the client. Did the client have emotional needs that required
the attorney to properly devote significant amounts of time to meetings and
telephone calls with the client? Did the attorney make the client aware that
such activities would be reflected in the attorney's billings and that
therefore the client needed to balance his needs for information and perhaps
"hand-holding" against his budgetary constraints?
After
gaining some overall sense of whether the time spent was commensurate with the
complexity of the litigation, and appropriately attended to the client's
personal needs, the arbitrator should then focus on the accuracy of the
attorney's time records. If the attorney has failed to maintain adequate time
and billing records, that may require the arbitrator to disallow some of the
claimed charges based upon the inadequacy of the evidence supporting them.[115] The fact that the attorney actually expended
the time is not necessarily dispositive of the fee dispute. If the lawyer is
inexperienced and bills for time that most lawyers would not have needed to
expend because of their basic familiarity with matrimonial law, then it would
be appropriate to reduce the number of hours for purposes of calculating a
reasonable fee.[116]
Thus, it is necessary to determine whether the time spent was reasonable under
the circumstances.[117] If a portion of the time was improperly
spent, as for example, in the bringing of a frivolous motion, then it should be
disallowed.[118]
While a matrimonial attorney's fee is not dependent upon attainment of a
successful outcome for the client, the arbitrator should consider the benefit
to the client as a result of the services;[119]
that is, the hours spent must be of value to the client.[120]
For example, if a lawyer misses a court appearance and, as a consequence, has
to appear at a "show cause" hearing necessitated by the missed
appearance, the time spent doing so does not confer value on the client and
should not be counted towards the lawyer's fee. Indeed, by the same reasoning,
any time expended by the lawyer that would not have had to be expended but for
the lawyer's failure to meet a time deadline, file a pleading, etc., is not
properly chargeable to the client.
If
the attorney prepared a legal document that was not timely filed or otherwise
used on the client's behalf, that raises serious doubt that the client has
received the value of that service; fees may then be adjusted to be
commensurate with the actual value of the services to the client.
An
attorney may bill for travel time, for example, the time required to travel to
and from his office to a court or deposition provided that there is a
"portal to portal" provision in the retainer agreement. The absence
of such a provision should not necessarily disable the lawyer from charging for
travel time, but would then be a factor in determining the reasonableness of
the charges. Even if there is a provision in the retainer agreement providing
for billing for travel time at the full hourly rate fee set forth, and
extensive travel time is involved, e.g., air or train travel or extensive
driving time, in the event these charges are contested, then the reasonableness
of charging the full hourly rate for such travel time is appropriately
considered. The customary practice of lawyers in the community may be
considered,[121]
but customary practice is "not always reasonable."[122]
If the lawyer is part of a firm and confers with other
lawyers in the firm regarding the subject matter of the client's
representation, then it is appropriate to bill for that time. It may or may not
be appropriate, however, to bill for the time of the other lawyer or lawyers in
the firm who were consulted. If they have not been working on that matter, and
are asked to prepare a document, such time is appropriately billed. It is a
much closer question, however, if the conference is for the purpose of seeking
advice or discussing strategy. Billing for such time can easily be an abusive
practice and any such billings should be carefully scrutinized.
If
the lawyer appears in court at a scheduled time for a hearing but the hearing
is delayed, the lawyer is entitled to charge for the time spent waiting in
court. If during that time, the lawyer calls his or her office to check on
phone messages or to give instructions regarding scheduling other matters, that
time, if it is de minimus, can be included as part of "waiting
time" and is properly chargeable to the client. If, however, the lawyer
works on or transacts other clients' business while waiting for the judge,
whether by phone or by reading documents, that time is not properly chargeable
to the matrimonial client (though it may, and probably will, be charged to the
client on whose behalf that work was done). Charging both the matrimonial
client for the time spent waiting, and another client for some of that time productively
expended for the latter, constitutes unethical double billing.[123]
If the client simply asserts that the lawyer's total fee is
too high and points out, for example, that the spouse's lawyer's fee was 30 or
50 percent less than his or her own lawyer's fee and that the differential is
not mostly accounted for by a difference in the hourly rates, such evidence is
not dispositive of the claim that the fee is unreasonable; it would, however,
be a basis for questioning the lawyer as to why his or her total number of
hours was substantially greater than that expended by opposing counsel and
inquiring further into whether the time was spent in ways which were productive
and valuable to the client. It may be the case, for example, that the attorney
for the non-monied spouse properly devoted considerable time to the effort of
identifying the monied spouse's assets, thereby accounting for a significant
differential in the amount of hours billed.[124]
Essentially, the task of the
arbitrator is to determine whether the number of hours billed to the client was
time reasonably spent on behalf of the client or was reasonably necessary to
attain the client's objectives and provided the client with commensurate value.
Hours that are "excessive, redundant, or otherwise unnecessary"
should not be compensated.[125]
C.
Excessiveness of the Fee: Disproportionateness to the Financial Resources of
the Client or to the Relief Sought
If
the combination of the hourly rate and the number of hours actually expended
yields a fee that is grossly disproportionate to the limited financial
resources of the matrimonial litigants or to the value of the services, then
the fee may be deemed excessive. It may then be reduced to a reasonable amount
in light of the complexity of the matter and the amount of the marital assets.[126] However, the fact that the client complained
of a "lack of progress" in the matrimonial action is not, in and of
itself, a basis for reducing the fee.[127] The obligation of a client to pay the
attorney is not conditioned on the success of the lawyer's efforts.[128]
D. Bill
Padding
If
an attorney is highly competent and expends five hours of effort to accomplish
what most other attorneys would require ten hours to do, and the attorney then
bills for ten hours of time to reflect the proper value of the work done, that
would be illegal, unethical, and a breach of the lawyer's fiduciary obligation.[129]
The appropriate way for the attorney to obtain payment commensurate with his
value is to reflect that value in a higher hourly rate or fixed fee. If an
attorney has misstated his hours, then the arbitrator should, at a minimum,
disallow the padded hours.
If
the bill padding was found to be egregious, then the arbitrator should not only
eliminate the padded hours from the fee but may also diminish the fee by an
amount to reflect the egregiousness of violating both the lawyer's standard of
care[130]
and the fiduciary obligation to the client.[131]
If the arbitrator concludes that the attorney has billed for
more hours than should have been required to perform the work, then the
additional hours being charged may be disallowed[132]
and quantum meruit (the reasonable value of the services) would then be the
appropriate measure of recovery under such circumstances.[133]
E. Expenses
and Disbursements
It
is not uncommon for lawyers to bill clients for certain expenses that they
incur on behalf of the client. These expenses may include secretarial, travel,
long distance telephone calls, messenger, investigative, postage, overnight
mail, copying, computerized legal research, meals, and others. Some are
permissible expenses to be charged to the client and some are not.[134]
The
beginning point of the "expense" issue is the retainer agreement. The
lawyer must list with clarity in the retainer agreement the expense items that
will be billed to the client. If the retainer agreement confers authority on
the lawyer to hire an expert witness at the client's expense, then if the fee
of the expert is unusually high or high in relation to the value of the marital
estate, the attorney may be held to have nonetheless had an obligation to
notify the client in advance of the expert's fee and obtain consent.
If
a lawyer fails to identify costs that are to be paid by the client in the
retainer agreement, then it may be proper to deny reimbursement to the lawyer
for office costs such as long distance copying, faxing, and messengers.
However, the client must remain responsible for litigation costs such as filing
fees, expert witness fees (to which the client has consented), and court
reporter costs. Even if the lawyer is still allowed to charge the client
certain direct office-type costs despite not listing them in the retainer
agreement, e.g., copying, long distance, outgoing faxes, it is not appropriate
to mark up these items by adding a profit margin on top of actual costs.[135]
If copying costs are listed in the retainer statement as being billed at 25¢ a
page and faxes at $2.00 per page, then it is likely that the lawyer is marking
up these items by adding a profit margin.[136]
It is debatable whether these mark-ups are permissible.[137]
If these costs add up to substantial amounts, the arbitrator may determine that
such mark-ups are unreasonable.
Even
if certain expenses are listed in the retainer agreement as being the
responsibility of the client, that is not necessarily dispositive of the issue.
For example, it is traditionally understood that secretarial services, library
costs, rent, telephone, and utilities are a part of the lawyer's overhead – which
the attorney's hourly or fixed rate must cover – and therefore are not properly
billable to the client.
Some courts disallow separate billing for computerized legal research services such as LEXIS and WESTLAW – even at cost – because they see such research costs as part of a firm's overhead.[138] They compare such research costs to library costs that are not properly passed on to a client directly but rather are absorbed by the firm and paid for from hourly fee revenues. The trend, however, is to allow such separate billing of at least some part of these expenses,