MUNGER, REINSCHMIDT & DENNE, L.L.P., Appellee, vs. ROSEANNE M. LIENHARD PLANTE and CHAD L. PLANTE, Appellants.
No. 19–0519
IN THE SUPREME COURT OF IOWA
Filed March 6, 2020
Appeal from the Iowa District Court for Woodbury County, Nancy L. Whittenburg, Judge.
Defendants seek review of the district court’s order granting plaintiff summary judgment. AFFIRMED.
Bruce Johnson of Cutler Law Firm, P.C., West Des Moines, for appellants.
Stanley E. Munger of Munger, Reinschmidt & Denne, L.L.P., Sioux City, for appellee.
Joel E. Fenton of Law Offices of Joel E. Fenton, PLC, West Des Moines for amicus curiae Iowa Association for Justice.
The only certainty about litigation is uncertainty. Depending on how the litigation unfolds, a contingency fee contract is a gamble for both attorney and client. A contingency fee contract allots to the attorney the risk of much work with little reward and allots to the client the risk of little work with substantial fees. The question presented in this case is whether we will reevaluate the risk of a contingency fee contract from a position of hindsight.
After a severe car accident with a city bus left a motorist in critical condition, the motorist’s family sought legal representation. A Sioux City law firm agreed to represent the motorist’s interests. Pursuant to this agreement, a contingency fee contract required the motorist to pay one-third of the recovery, if any, to the law firm for attorney fees. Sixteen months later, the city suggested mediating the case. The motorist was offered $7.5 million to settle the case. This offer was accepted.
When the motorist failed to pay the one-third contingency fee, the law firm filed a petition to enforce its payment under the contingency fee contract. The motorist argued the one-third contingency fee was in violation of
I. Background Facts and Proceedings.
We view the record in the light most favorable to the Plantes, against whom the district court granted summary judgment. Phillips v. Covenant Clinic, 625 N.W.2d 714, 717 (Iowa 2001) (en banc). On November 15, 2016, Chad Plante’s vehicle collided with a city bus. The collision left Chad in critical condition. Due to the severity of his injuries, Chad’s wife, Rosanne, sought legal representation the day after the collision. Rosanne, a long-time Iowa attorney with twenty years of experience, chose Stanley Munger of the law firm Munger, Reinschmidt & Denne, L.L.P., (MRD). Munger verbally accepted Rosanne’s request and immediately began to work the case.
Iowa State Trooper Olesen led the investigation of Chad’s accident. Munger, Rosanne, and Trooper Olesen met on December 8 to review Trooper Olesen’s technical collision investigation report. According to his report, Chad was traveling southbound through an intersection on Highway 75 when the northbound Sioux City bus failed to yield the right of way while attempting to make a left-hand turn, colliding with Chad’s vehicle. The report indicated Chad did not act improperly, although Trooper Olesen determined he was traveling approximately 52–53 mph in a 50 mph zone.
After the December 8 meeting, Rosanne was offered and signed a contingency fee contract with MRD for the “[p]ersonal injury suit against the City of Sioux City.” Paragraph 3 detailed the contingency fee terms.
3. CONTINGENT FEE. In the event of recovery, Client(s) shall pay Attorney the following fee based on the amount of the recovery: a fee equal to 33 1/3% of the recovery regardless of whether a case is filed; a fee equal to 40% after notice of appeal and before the case is sent back down for re-trial; a fee equal to 45% if the case is re-tried; and a fee equal to 45% if there is a notice of appeal after the re-trial. IN THE EVENT NO RECOVERY IS MADE, ATTORNEY SHALL RECEIVE NO FEE FOR SERVICES PERFORMED UNDER THIS CONTRACT. In the event of a “structured settlement” Attorneys shall receive the above percentage of the present day value of the settlement on the date of the payment of the first installment. In the event the court awards attorney fees, the Attorneys shall recover the greater of: the above percentages applied to the total recovery (which is award plus attorneys fees awarded) or the amount of the court-ordered attorneys fees, whichever is greater. EXPENSES ARE ALL PAID BY CLIENT AND ARE NOT DEDUCTED IN ANY WAY IN FIGURING RECOVERY.
Fees more than thirty days past due were subject to simple interest.
15. INTEREST. Attorney charges simple interest on all past due amounts for fee, expenses and/or advances more than thirty (30) days past due. This is 1% interest per month on all unpaid
amounts due, including interest due (12.683% A.P.R.). Client(s) agrees to pay this interest and understands that this paragraph is a vital part of this Attorney Fee Contract.
Prior to filing a suit, Sioux City suggested mediating the case. Mediation took place on May 7, 2018, approximately eighteen months after Chad’s accident and the execution of the contingency fee contract. For the purposes of mediation only, Sioux City accepted fault and offered the Plantes $7.5 million on the first day of mediation. The Plantes accepted the offer from Sioux City and a final agreement was subsequently executed.
Munger’s representation of the Plantes in the underlying case led to the present suit for attorney fees. MRD filed a petition on September 4, 2018, seeking one-third of the Plantes’ recovery in attorney fees and interest owed pursuant to the contingency fee contract. The Plantes counterclaimed, seeking declaratory judgment that the contingency fee contract was unreasonable within the meaning of
The Plantes appealed the district court’s grant of summary judgment, and we retained their appeal.
II. Standard of Review.
A ruling on summary judgment is reviewed for correction of errors at law. Slaughter v. Des Moines Univ., 925 N.W.2d 793, 800 (Iowa 2019). Summary judgment is appropriate when the record shows no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.
III. Analysis.
This court has long recognized the validity of a contingency fee contract generally. Iowa Supreme Ct. Bd. of Prof’l Ethics & Conduct v. Hoffman, 572 N.W.2d 904, 908 (Iowa 1997) (“[C]ontingent fee contracts are an accepted and enforceable manner of charging and determining attorney fees.“); Wunschel Law Firm, P.C. v. Clabaugh, 291 N.W.2d 331, 333 (Iowa 1980) (“We have long recognized the validity of contingent fee contracts generally.“); Stoebe v. Kitley, 249 N.W.2d 667, 669 (Iowa 1977) (“Ordinarily a contract between attorney and client, providing for the payment of a fee for legal services contingent upon the results obtained by the attorney, without more, is not an illegal contract, but one that is enforceable.” (quoting In re Sylvester’s Estate, 195 Iowa 1329, 1332–33, 192 N.W. 442, 443 (1923))); Wallace v. Chi., Milwaukee & St. Paul Ry., 112 Iowa 565, 567–68, 84 N.W. 662, 663 (1900) (holding a contingency fee contract for “one-half of the amount recovered” was not illegal or void).
A contingency fee contract performs three valuable functions. The Restatement of the Law explains it best.
First, they enable persons who could not otherwise afford counsel to assert their rights, paying their lawyers only if the assertion succeeds. Second, contingent fees give lawyers an additional incentive to seek their clients’ success and to encourage only those clients with claims having a substantial likelihood of succeeding. Third, such fees enable a client to share the risk of losing with a lawyer, who is usually better able to assess the risk and to bear it by undertraining similar arrangements in other cases.
Restatement (Third) of the Law Governing Lawyers § 35 cmt. b, at 257 (Am. Law Inst. 2000). The amicus brief filed by the Iowa Association for Justice cites further authority supporting the value of a contingency fee contract. See In re Abrams & Abrams, P.A., 605 F.3d 238, 245 (4th Cir. 2010) (“[C]ontingency fees provide access to counsel for individuals who would otherwise have difficulty obtaining representation.“); Wells v. Sullivan, 907 F.2d 367, 371 (2d Cir. 1990) (“Many claimants . . . cannot afford to retain counsel at fixed hourly rates, yet they are willing to pay a portion of any recovery they may receive in return for successful representation.” (Citation omitted.)); Kirchoff v. Flynn, 786 F.2d 320, 325 (7th Cir. 1986) (“The contingent fee uses private incentives rather than careful monitoring [of an attorney’s input of time] to align the interests of lawyer and client. The lawyer gains only to the extent his client gains.“); Ga. Dep’t of Corrs. v. Couch, 759 S.E.2d 804, 816 (Ga. 2014) (“Entering such a contract is a gamble for both the lawyer and the client, because the value of the professional services actually rendered by the lawyer may be considerably higher or lower than the agreed-upon amount, depending on how the litigation proceeds.“); see also
A contingency fee contract allots to the attorney “the risk that the case will require much time and produce no recovery,” and it allots to the client “the risk that the case will require little time and produce a substantial fee.” Restatement (Third) of the Law Governing Lawyers § 34 cmt. c, at 250. “Events within that range of risk, such as a high recovery, do not make unreasonable a contract that was reasonable when made.” Id.
In 2005, the Iowa Code of Professional Responsibility for Lawyers was replaced by the Iowa Rules of Professional Conduct. Iowa Supreme Ct. Att’y Disciplinary Bd. v. Wagner, 768 N.W.2d 279, 281 n.1 (Iowa 2009) (per curiam). Relevant here, current
Former rule DR 2–106(A) prohibited a lawyer from collecting “an illegal or clearly excessive fee.” Iowa Code of Prof’l Responsibility for Lawyers DR 2–106(A). The prohibitive rule also provided a list of factors to be considered as guides in determining the reasonableness of a fee.
- The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.
- The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
- The fee customarily charged in the locality for similar legal services.
- The amount involved and the results obtained.
- The time limitations imposed by the client or by the circumstances.
- The nature and length of the professional relationship with the client.
- The experience, reputation, and ability of the lawyer or lawyers performing the services.
- Whether the fee is fixed or contingent.
Id. DR 2–106(B). It is significant that the factors listed in former rule DR 2–106(B) remain unchanged and are identical to the factors listed in current
We also concluded the thrust of the reasonableness standard under current
Two of our cases, McCullough and Hoffman, provide the best precedential review on how this court has determined whether a contingency fee is reasonable under former rule DR 2–106, and by extension, how we will proceed to determine whether a contingency fee is reasonable under current
We rejected the commission’s approach. Id. The lawyer’s success in the claim “was far from a sure thing,” and we could not find the one-third contingency fee to be unreasonable. Id. The McCullough court expressly reiterated that the factors under DR 2–106(B) applicable to noncontingent fees could not be used to reexamine the contingency fee contract “at the conclusion of successful litigation.” Id.
Six years after McCullough, we came to a different conclusion in Hoffman. It was Hoffman’s failure to perform any work relevant to the claim that rendered his one-third contingency fee “unreasonable and excessive” in violation of DR 2–106. Hoffman, 572 N.W.2d at 908. The contingency fee contract provided Hoffman with 25 % of the recovery if made without filing a suit, but the contingency fee increased to one-third if Hoffman recovered after filing a suit. Id. at 905. Hoffman sent a workers’ compensation petition and proof of service to the industrial commissioner after the insurance provider advised him that his client’s claim was covered by the workers’ compensation policy. Id. The insurance provider later submitted a written admission of liability, which it filed with the deputy industrial commissioner. Id.
A month after the insurance provider admitted liability, Hoffman and his client filed a petition for partial commutation of the workers’ compensation benefits. Id. The client stated the partial commutation of $62,446 was needed because “[she] ha[d]
On review, the Hoffman court again “recognized that contingent fee contracts are an accepted and enforceable manner of charging and determining attorney fees” and acknowledged the one-third contingency fee contract in McCullough was not an unreasonable fee. Id. at 908. The Plantes zero in on one statement in the Hoffman court’s analysis to support their position that contingency fee contracts must be evaluated for reasonableness from a position of hindsight under
While the fee agreement entered into by [Hoffman] and [his client] may have been reasonable at the time of its inception, changes in the attending circumstances by the time the petition for partial commutation was filed rendered the thirty-three percent contingency fee unreasonable and excessive.
Id.
We do not read the Hoffman court’s statement as wholesale endorsement for mandating a reasonableness review in hindsight under every contingency fee contract. The court explained that the recovery of the workers’ compensation claim “was in no manner due to [Hoffman’s] work as [the client’s] lawyer.” Id. Because “none of his work affected at all the decision by [the insurance provider] to pay the workers’ compensation claim,” Hoffman could not rely on a successful prosecution of the claim to pay his fee as a basis for the contingency fee’s acceptance. Id. Although the contingency fee contract was reasonable at the time of its inception, we determined Hoffman’s attempt to collect a fee, to which he was not entitled, was excessive and in violation of DR 2–106. Id. at 909. The holding specifically noted it was “particularly important” that nothing Hoffman did prompted the insurance provider “to voluntarily admit compensability and begin payment.” Id. Hoffman is a narrow exception to the general rule that we evaluate the reasonableness of a contingency fee contract at the time of its inception.
The Plantes rely on a recent New Jersey superior court case that decided a fee contract was unenforceable under New Jersey’s
Clark v. General Motors, LLC, 161 F. Supp. 3d 752 (W.D. Mo. 2015), is another case the Plantes cite in support of their claim that a contingency fee contract, as applied to the recovery, is unreasonable and in violation of
Some states, such as New York, narrowly apply a hindsight review where the contingency fee standing alone and unexplained may show an unfair advantage was taken of the client. See In re Lawrence, 23 N.E.3d 965, 978 (N.Y. 2014). Yet, “[a]bsent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written.” Id. In New York, the power to invalidate contingency fee contracts in hindsight is exercised with great caution because it is not unconscionable for a lawyer to recover more than what could have possibly been earned on an hourly basis. Id. Regardless, the Plantes make no claim that an unfair advantage was taken of them.
Our caselaw cautions against the reevaluation of a contingency fee contract from a position of hindsight, which suggests the litigation was simple and the success was easy. See e.g., McCullough, 468 N.W.2d at 461. Instead, a contingency fee contract will be evaluated for reasonableness at the time of its inception. Noncontingency fee factors under
A typical one-third contingency fee contract, when the success of litigation to be pursued is very uncertain or far from a sure thing, is presumptively reasonable. See id. A contingency fee contract up to 50 % will be reasonable when the chance of success is little and the complexity of the case is great. King, 518 N.W.2d at 338
We will not, in this case, review the Plantes’ one-third contingency contract from a position of hindsight under
Munger’s work on Plantes’ case was no different. The day after Chad’s accident, Munger hired a private investigator to immediately investigate the case, and Munger himself inspected the scene of the accident and communicated with a driver of the tow truck company. Munger communicated with Sioux City about obtaining videos, photographs, and 911 recordings.
During this time, Munger and his paralegal put forth significant time and effort in negotiating three separate Payment Assistance Agreements between Rosanne and Sioux City, which resulted in substantial presettlement payments to the Plantes. Munger continued to counsel Rosanne, coordinate and prepare a video of Chad’s daily life, gather witness statements, and perform legal research. After Sioux City agreed to mediate, Munger performed extensive premediation work, and he ensured all postmediation matters were properly handled following the proposed settlement. Simply put, the Plantes’ case does not resemble Hoffman where there was a complete lack of work that had no effect on recovery.
The Plantes’ case is more akin to McCullough. All of the “well-recognized reasons” for a contingency fee contract existed at the time the Plantes and MRD entered into the contract. McCullough, 468 N.W.2d at 460. Rosanne, a long-time Iowa attorney with twenty years of experience, admitted that the one-third contingency was reasonable at the time of its inception. It was not until after Sioux City offered to settle the case for $7.5 million—nearly a year and a half after Rosanne signed the contract with MRD—that the Plantes raised concerns with the one-third contingency fee contract. Candidly, the Plantes acknowledged at oral arguments that their position is a one-way street and they do not support a claim for attorney fees above what was provided in the contingency fee contract. We also do not overlook the fact that MRD offered the Plantes three different fee options. The Plantes declined to hire MRD on an hourly fee basis and declined a 35 % contingency fee with MRD advancing expenses. Instead, the Plantes chose to enter into the one-third contingency fee contract and agreed to pay expenses.
MRD’s expert witness also testified that the one-third contingency fee contract, together with the 1 % per month interest, is common and routinely approved. Furthermore, at the inception of the contingency fee contract, the chances of the Plantes
The Plantes also challenge the reasonableness of the 1 % per month interest rate applied to unpaid fees; however, this issue is not preserved for appellate review. The Plantes did not challenge the reasonableness of the interest rate in their resistance to MRD’s summary judgment motion, the district court did not rule on the interest rate issue, and the Plantes did not file a motion requesting the district court rule on the interest rate issue. Moreover, the Plantes provided no resistance to MRD’s March 12 motion, which corrected the interest rate applicable to unpaid fees. A fundamental doctrine of appellate review is that issues “be both raised and decided by the district court before we will decide them on appeal.” Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002). In this case, we do not have the benefit of a full record or a lower court ruling on whether the interest rate is reasonable. See id. Accordingly, the issue is waived.
IV. Conclusion.
The one-third contingency fee agreement entered into by the Plantes and MRD was reasonable at the time of its inception. Consistent with our existing caselaw, we will not use the noncontingency fee factors under
AFFIRMED.
All justices concur except Wiggins and Oxley, JJ., who take no part.