430 Mass. 472 | Mass. | 1999
A judge in the Superior Court granted summary judgment to the defendant law firm, Hanify & King Professional Corporation (H & K), in connection with a controversy between H & K and the plaintiffs, Cambridge Trust Company
The facts and procedural background of the case may be summarized as follows. In early December, 1994, a director of CTC, who is a lawyer, made contact with H & K on CTC’s behalf to explore the possibility of H & K’s representing CTC in litigating claims it had against NCR concerning alleged defects in software and software services furnished by NCR to CTC. There was discussion of fees, with H & K indicating that the firm occasionally took cases on a contingent fee basis, but recommending that the firm be engaged to pursue the matter on an hourly fee basis. H & K was so retained.
CTC’s claims were subject to an arbitration agreement between CTC and NCR, which mandated that all disputes be arbitrated, and CTC and H & K understood that CTC’s claims would be resolved in arbitration. H & K began to prepare the claims and billed for its legal work on an hourly basis.
As the matter progressed, H & K and CTC revisited the possibility of H & K prosecuting the arbitration on a contingent fee basis. There was extensive correspondence and negotiations concerning a contingent fee arrangement. CTC was aware during the negotiations that one of its claims in arbitration would assert violations by NCR of G. L. c. 93A, and that recovery under that claim would include not only damages (possibly multiple), but also an award of attorney’s fees and costs. On November 7, 1995, CTC and H & K executed a contingent fee agreement which provided as follows:
“Hanify & King (‘H & K’) will look to the proceeds of the arbitration claim to be filed by CTC against AT&T/ NCR in satisfaction of all fees accrued after September 1, 1995 and subject to the following additional terms and conditions:
*474 “1) All expert and H & K expenses to be paid by CTC as they accrue;
“2) H & K to keep its time;
“3) H & K to receive compensation for its services on the net amount of the settlement; 25% of such amount recovered after settlement or arbitration up to $1 million; 30% of such amount above $1 million and up to $2 million; and 35% of such amount in excess of $2 million. (Reference is made to the spread sheet dated September 13, 1995 and column three thereof which illustrates the application of the formula set forth in this agreement on the basis of assumed expenses totalling ¡>zc] $200,000.[2 ]
“The net amount shall be calculated by subtracting from the gross settlement $100,000[3 ] plus all expenses paid under paragraph one. Expenses associated with the consulting services of [named consultants] or other consultants not retained by H & K as experts in the arbitration shall be excluded from paragraph one.”
The demand for arbitration was thereafter filed and a lengthy arbitration hearing was held. H & K submitted to the arbitrator in connection with CTC’s claim for damages under G. L. c. 93A, § 11, an affidavit for the recovery of attorney’s fees in the amount of $442,422. The arbitrator issued a written award ordering NCR to pay CTC $2,032,301 in compensatory damages; finding a violation of G. L. c. 93A, but declining to award multiple damages; and directing that CTC recover attorney’s fees of $409,200. CTC subsequently entered a written settlement agreement with NCR, and NCR paid $2,464,988.19 to resolve the award. CTC and H & K could not agree, however, on the calculation of fees due under the agreement. H & K took the position that the agreement unambiguously allowed it to apply the percentages to the aggregate of the settlement amount,
CTC subsequently filed an action in the Superior Court asserting that H & K had violated the contingent fee agreement by basing its fee on the entire amount of the settlement and seeking a declaration pursuant to G. L. c. 231A that the contingent fee agreement was unenforceable. Cross motions for summary judgment were filed. The judge denied CTC’s motion and allowed H & K’s motion, stating the following reasoning in his memorandum of decision:
“The [contingent fee] agreement here is not ambiguous: [H & K] was to receive a percentage of ‘the net amount of the settlement,’ that is, the amount recovered, less $100,000 and certain expenses.
“Nothing in the agreement differentiated between amounts recovered as damages and amounts recovered as attorneys’ fees. The parties knew that the claim [H & K] was to prosecute included such fees. If the parties had contemplated treating the two types of proceeds differently they could (and should) have said so.
“The signatories were experienced, sophisticated entities who labored through several proposed versions before they finally reached the final draft. Under the circumstances, a court should not re-do their product.”
A judgment declaring the rights of the parties was entered, and this appeal followed.
1. In Benalcazar v. Goldsmith, 400 Mass. 111, 114 n.10 (1987), we left open the question “whether a contingent fee contract which includes as one component a percentage of attorney’s fees awarded by the court would be enforceable.”
At the time of their understanding, S.J.C. Rule 3:05, as appearing in 382 Mass. 762 (1981), specifically permitted CTC and H & K to enter a contingent fee agreement to provide for the payment of H & K’s attorney’s fees for its work on CTC’s claim against NCR.
We also do not accept CTC’s arguments that the agreement is
CTC was adequately informed about, and understood or should have understood, the scope of the contingent fee agreement. CTC’s president and representatives were not naifs or innocents. H & K advised them before the contingent fee agreement was signed that CTC’s G. L. c. 93A claim would seek recovery of damages and attorney’s fees, which H & K viewed as an element of damages. CTC was expressly warned by H & K that a contingent fee agreement, once a successful result is reached, often leaves the client unhappy.
All of these circumstances were detailed in an affidavit by H & K (supported with correspondence and documents) which was not rebutted by CTC’s representatives claiming confusion or lack of knowledge. No direct claim of misrepresentation has been made. The controversy instead has focused on the meaning of the contingent fee agreement. Thus, in the special circumstances of the case, we conclude that there was adequate information made available to CTC, so that the contingent fee agreement could be understood. Because the negotiations were fairly and equitably conducted, with no allegations of misrepresentation or concealment, and CTC had independent legal advice throughout, we are satisfied that there was no breach of H & K’s fiduciary duty here. See Cleary v. Cleary, ATI Mass. 286, 290-291 (1998), and cases cited. For the reasons given by the judge, summary judgment in favor of H & K was proper.
2. What has been said resolves the controversy before us. We turn now to the broader issue of the future status of contingent fee agreements that may relate to court-awarded attorney’s fees. We can find no authority that makes it per se unreasonable for an attorney and client to agree that the attorney is to be paid a percentage of a total award, which may include damages as well as court-awarded attorney’s fees. We conclude, however,
There is no question that contingent fee agreements constitute a valid and vital legal resource which enable plaintiffs with meritorious causes of action, but who lack funds to pay a lawyer, to obtain justice for themselves, and, in many cases, for others similarly situated. Moreover, there are a wide range of statutes and laws that permit or mandate the recovery of attorney’s fees by plaintiffs who seek to enforce private rights alone or together with broader public rights. The provision for the award of attorney’s fees in G. L. c. 93A and Federal and State civil rights and discrimination laws are just some examples. Generally, when a court award of attorney’s fees is made pursuant to such laws, the right to the award belongs to the client, who may waive, settle, or negotiate with respect to that right. See Evans v. Jeff D., 475 U.S. 717, 730-731 (1986). Contingent fee agreements and court-awarded attorney’s fees may coexist independently of one another. See Venegas v. Mitchell, 495 U.S. 82, 88 (1990); American Trucking Ass’ns v. Secretary of Admin., 415 Mass. 337, 352 n.16 (1993); Smith v. Consalvo, 37 Mass. App. Ct. 192, 198-199 (1994). A contingency fee agreement does not impose a ceiling on the amount of attorney’s fees a court may properly award, see Blanchard v. Bergeron, 489 U.S. 87, 96 (1989); nor does a court-awarded attorney’s fee limit what a plaintiff must pay a lawyer under a contingency fee agreement.
The real question is how court-awarded attorney’s fees should be allocated when a contingent fee agreement has been executed that is either ambiguous or silent on the matter. At least one court, interpreting an. ambiguous contingent fee contract, has allowed court-awarded fees to be added to the damages and the contingent fee applied to the aggregate. See Carmichael v. Iowa State Highway Comm’n, 219 N.W.2d 658, 662-664 (Iowa 1974). This approach, however, is subject to the serious criticism that the client may have been unaware of the possibility of court-awarded fees when he signed the contingent fee agreement and thus cannot be said to have meaningfully negotiated with regard to it. Courts have generally permitted the same result, so long as the contingent fee agreement clearly makes reference to the possibility of court-awarded attorney’s fees and expressly provides for their aggregation with the damages.
This approach prevents unfair surprise to a plaintiff who agrees to a payment of attorney’s fees in the belief that his attorney will look to such fees as the sole source of compensation. “The client expects that the fee agreement will provide the sole source of income for the attorney. The attorney, on the other hand, has the technical knowledge and experience to be able to anticipate awards of attorneys’ fees.” Hamilton v. Ford Motor Co., 636 F.2d 745, 749 (D.C. Cir. 1980). The “offset” approach also comports with the principle that contract ambiguities should be interpreted against the drafter,
3. What has been said in Part 2 of this opinion provides a framework for accommodating contingent fee agreements in
Judgment affirmed.
This spreadsheet provided examples as to how the gross amount of a settlement would be divided according to different formulas. The sheet did not distinguish between damages and attorney’s fees.
The amount of this credit reflected a compromise between CTC and H & K on the $170,000 H & K had earned and been paid based on hourly billing between the date of its retention and September 1, 1995, when the contingent fee agreement by its terms became effective to cover legal fees accruing thereafter.
The contingent fee agreement in Benalcazar v. Goldsmith, 400 Mass. 111, 113 (1987), contained a provision calling for application of a one-third contingency percentage to the aggregate of damages and court-awarded attorney’s fees. Because the one-third of the aggregate of damages and court-
Supreme Judicial Court Rule 3:05 was superseded by S.J.C. Rule 3:07, the new Massachusetts Rules of Professional Conduct, effective January 1, 1998, which in Mass. R. Prof. C. 1.5 (c)-(f), 426 Mass. 1315 (1998), provides for contingent fees in much the same way as S.J.C. Rule 3:05.
When the prospect of a contingent fee agreement was being discussed, John D. Hanify, a partner in H & K, advised CTC’s president in a letter that such agreements may result in client dissatisfaction because “at harvest time, some business people take the recovery for granted and become fixated on the apparent richness of the fees. This happens even when the options available to a client are fully and fairly discussed.”
CTC also argues that H & K violated S.J.C. Rule 3:07, Canon 9, DR 9-102 (A) (2), as appearing in 419 Mass. 1303 (1995), because it paid its entire fee from the funds received from NCR in the settlement, thereby not complying with the portion of the rule which states that “[i]f the right of the . . . law firm to receive [the] portion [of funds belonging to it] is disputed by the client, the disputed portion shall not be withdrawn [by the firm from its trust account] until the dispute is resolved.” The record does not establish whether H & K violated this rule in letter or spirit. CTC authorized H & K to sign the settlement agreement with NCR. The agreement called for H & K to receive the entire payment on behalf of CTC, which the firm did, thereafter remitting the net amount due CTC (according to H & K’s calculations). The transmittal letter from H & K “note[d] [CTC’s] reservation of rights” as to the fee, and a prior note to H & K from CTC’s president expressed the “hope that the difference of opinion [over the fee] can be resolved speedily and amicably.” H & K may not have been required to segregate the disputed funds, and, from all we know, may have held the funds apart. In any event, this aspect of the case provides no basis to invalidate the contingent fee agreement.
We agree, as a general rule, that the existence of “a [contingent] fee agreement is irrelevant to the issue of entitlement [to court-awarded fees] and should not enter into the determination of the amount of a reasonable fee. A private fee arrangement is not in itself ‘special circumstances which would render an award unjust,’ and unless the court finds such circumstances, it [should] not deny fees . . . .” Sargeant v. Sharp, 579 F.2d 645, 649 (1st Cir. 1978).
Courts have held, however, that a dual recovery of both the court-awarded attorney’s fee and the contingent amount owing under the contract is an “unwarranted windfall . . . which constitutes an unreasonable attorney fee in violation of [the applicable rule of professional conduct].” State ex rel. Okla. Bar Ass’n v. Weeks, 969 P.2d 347, 352 (Okla.), cert. denied, 525 U.S. 1042 (1998). See also Venegas v. Skaggs, 867 F.2d 527, 534 n.7 (9th Cir. 1989), aff’d sub nom. Venegas v. Mitchell, 495 U.S. 82 (1990); Wilmington v. J.I. Case Co., 793 F.2d 909, 923 (8th Cir. 1986); International Travel Arrangers, Inc. v. Western Airlines, Inc., 623 F.2d 1255, 1278 (8th Cir.), cert, denied, 449 U.S. 1063 (1980). We agree with this result.
It must be acknowledged that an impecunious layperson, concerned primarily with obtaining a lawyer willing to pursue the claim on a contingent basis, without true bargaining power to negotiate over such an arrangement, might be quick to accept any proposal made by the lawyer. This situation exists to a degree with any lawyer-client fee arrangement and the protection is the same; the contingent fee must be reasonable to be enforced against the client and may not be clearly excessive in order to avoid violating our rule of professional conduct governing contingent fee agreements. Mass. R. Prof. C. 1.5, 426 Mass. 1315 (1998).
Under the “offset” approach an attorney would usually, although not always, see Benalcazar v. Goldsmith, 400 Mass. 111, 113 (1987), collect a lesser amount than had the court-awarded attorney’s fees first been added to the damages, and a percentage taken on the aggregate sum.