{"id":9669,"date":"2008-07-28T14:13:35","date_gmt":"2008-07-28T19:13:35","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/ethicalesq\/2008\/07\/28\/a-big-bow-to-judge-hellerstein-re-contingency-fees\/"},"modified":"2011-08-05T14:53:23","modified_gmt":"2011-08-05T18:53:23","slug":"a-big-bow-to-judge-hellerstein-re-contingency-fees","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/2008\/07\/28\/a-big-bow-to-judge-hellerstein-re-contingency-fees\/","title":{"rendered":"a big bow to Judge Hellerstein re contingency fees"},"content":{"rendered":"<p><img decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/files\/2008\/07\/hat-tip-small.gif\" alt=\"\" \/>. .  Thank you, <a href=\"http:\/\/www1.nysd.uscourts.gov\/judge_info.php?id=86\">Judge<\/a> <a href=\"http:\/\/en.wikipedia.org\/wiki\/Alvin_Hellerstein\">Alvin K. Hellerstein<\/a> . .  <img decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/files\/2008\/07\/hat-tip-small-flip.gif\" alt=\"\" \/><\/p>\n<p><em><strong>In <\/strong><\/em>a post <a href=\"http:\/\/overlawyered.com\/2008\/07\/judge-911-settlements-fees-exorbitant\/\">at <em>Overlawyered<\/em>.com<\/a>, I learned this morning that Judge Hellerstein, of the Manhattan federal district court, refused last Thursday to approve a legal fee of  $7 million for representing four Pentagon workers\u2019 families, because it \u201cwould reflect a very large windfall,\u201d given that the firm\u2019s \u201centire strategy seems to have been to coast on the work of others.\u201d  The <a href=\"http:\/\/online.wsj.com\/public\/resources\/documents\/911.pdf\">decision<\/a> was part of the <em>In Re September 11 Litigation <\/em>proceedings and the firm was Maryland\u2019s <a href=\"http:\/\/agflaw.com\/index.cfm\" target=\"_blank\">Azrael, Gann &amp; Franz<\/a>.<\/p>\n<blockquote><p><span style=\"font-family: Times New Roman,Times,Serif;font-size: x-small\"><span style=\"font-family: Times New Roman,Times,Serif;font-size: x-small\"><span style=\"font-family: Arial;font-size: x-small\"><span style=\"font-size: xx-small\"><span style=\"font-size: xx-small\"><span style=\"font-family: Geneva,Arial,Sans-Serif;font-size: x-small\"><span style=\"font-family: Geneva,Arial,Sans-Serif;font-size: x-small\"><span style=\"font-family: Geneva,Arial,Sans-Serif;font-size: x-small\"><span style=\"font-family: Geneva,Arial,Sans-Serif;font-size: x-small\"><span style=\"font-family: Geneva,Arial,Sans-Serif;font-size: x-small\"><span style=\"font-family: Arial;font-size: x-small\"><span style=\"font-family: Arial;font-size: x-small\"><span style=\"font-family: Times New Roman,Times,Serif;font-size: x-small\"><span style=\"font-family: Times New Roman,Times,Serif;font-size: x-small\"><span style=\"font-family: Arial;font-size: x-small\"><span style=\"font-family: Times New Roman\"><em><img decoding=\"async\" src=\"http:\/\/media-cyber.law.harvard.edu\/blogs\/static\/ethicalesq\/SlicingThePie.gif\" alt=\"SlicingThePie\" \/> <\/em><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span>See &#8220;<a href=\"http:\/\/www.nytimes.com\/2008\/07\/25\/nyregion\/25settle.html?_r=1&amp;oref=slogin\">Judge Overturns Accords in 4 Suits by 9\/11 Victims<\/a>&#8221; (<em>New York Times<\/em>, July 25, 2008); &#8220;<a href=\"http:\/\/www.nydailynews.com\/ny_local\/2008\/07\/24\/2008-07-24_judge_nixes_rich_911_deal.html\">Judge nixes &#8216;rich&#8217; 9\/11 deal<\/a>&#8221; (<em>New York Daily News<\/em>, July 25, 2008); &#8220;<a href=\"http:\/\/www.abajournal.com\/news\/judge_blasts_md_law_firm_for_windfall_fees_in_sept_11_cases\/#When:12:31:00Z\">Judge Blasts Md. Law Firm for Seeking \u2018Windfall\u2019 Fees in Sept. 11 Cases<\/a>&#8221; (<em>ABAJournalNews<\/em>, July 25, 2008).<\/p><\/blockquote>\n<p>As Dan Slater reported at the <a href=\"http:\/\/blogs.wsj.com\/law\/2008\/07\/25\/judge-hellerstein-lambastes-911-law-firm-over-fee-request\/\"><em>WSJ Law Blog<\/em><\/a> (July 25, 2008), &#8220;Here are some reasons why, according to Hellerstein:&#8221;<\/p>\n<ul>\n<li>\u201c[<a href=\"http:\/\/agflaw.com\/Jonathan_A_Azrael.cfm\" target=\"_blank\">Jonathan Azrael<\/a>] did not function in a liaison capacity.\u201d  <a href=\"http:\/\/www.buy.com\/prod\/poetic-justice-the-funniest-meanest-things-ever-said-about-lawyers\/q\/loc\/106\/30416769.html\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/shlep\/files\/2006\/08\/NoloSharkS.gif\" alt=\"noloShark\" width=\"46\" height=\"37\" \/><\/a><\/li>\n<li>\u201cNeither he nor any lawyer in his firm appeared, according to my memory, to argue any motion or present any pleading. He or another member of his firm attended most conferences, but rarely spoke.\u201d<\/li>\n<li>\u201cAlthough the description of his services contains self-flattering statements of his contributions to the common effort, they are all conclusory and I have no perception of any contributions on his part.\u201d<\/li>\n<li> \u201cAzrael\u2019s entire strategy seems to have been to coast on the work of others, and to wait for last position before entering into any meaningful settlement discussions with respect to his clients. Azrael\u2019s strategy made little contribution to the progress of the cases before me, or to the settlements that largely have resolved this litigation. . . And he sought, as well, to advantage his clients by leveraging on Motley Rice\u2019s settlements.\u201d<\/li>\n<\/ul>\n<p><strong>Bravo to Judge Hellerstein<\/strong> for refusing to automatically approve the Azrael fees <em>and <\/em>reminding the p\/i bar of the principles to be applied to contingency fees.  As we have long argued [at length, with many citations and links, in our essay &#8220;<a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/contingency-fees-pt-2-risk-matters\/\">contingency fees: risk matters<\/a>&#8220;]:<\/p>\n<blockquote>\n<blockquote><p>The reasonableness of a contingency fee in a particular case will depend on how much risk the lawyer assumed of working extensive hours and incurring expenses without adequate compensation, and how much skill and exertion it will take to perform the tasks involved. The validity of the fee arrangement will also depend on whether the client was adequately informed (given his or her level of sophistication and knowledge) of the relevant factors when negotiating the fee level with the lawyer. The necessary corollary is that applying a \u201cstandard\u201d fee to <em>each<\/em> client [be it 25%, one-third, or more] without taking the degree of risk into account is unethical, because it will inevitably overcharge many clients. [For more detail, see our <a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/contingency-fees-pt-1-of-4-market-failures\/\">4-part<\/a> essay on the ethics of contingencies fees, including the <a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/contingency-fees-pt-2-risk-matters\/\">importance of risk<\/a> and the <a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/contingency-fees-pt-4-ethical-duties\/\">lawyer\u2019s duties<\/a>; and our post on <a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/2007\/09\/04\/contingency-fees-and-the-clueless-fiduciary\/\">related fiduciary duties<\/a>.]<\/p><\/blockquote>\n<p>These principles are particularly relevant in the vast majority of personal injury cases that are not part of multi-plaintiff, very public litigation, but instead involve everyday cases with typical clients (e.g., car accidents, slip-n-falls, etc.) &#8212; the &#8220;bread and butter&#8221; of the typical p\/i practice.  Such cases are virtually never scrutinized by a judge and are ripe for over-reaching by lawyers and over-looking by disciplinary authorities.<\/p><\/blockquote>\n<p><img decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/files\/2007\/12\/threemonkeys.jpg\" alt=\"\" \/> So far, the only actual discussion of Judge Hellerstein&#8217;s decision in the &#8220;blawgisphere&#8221; has been in the Comment section of the posting  &#8220;Judge Hellerstein Lambastes 9\/11 Law Firm over Fee Request,&#8221; at the <a href=\"http:\/\/blogs.wsj.com\/law\/2008\/07\/25\/judge-hellerstein-lambastes-911-law-firm-over-fee-request\/\"><em>WSJ Law Blog<\/em><\/a> (by Dan Slater, July 25, 2008). [but see July 29 update below] The <em>WSJ<\/em> comments contain many of the old excuses foisted on the public by p\/i lawyers for their refusal to vary fees with the risk involved in a particular case.  I will be keeping an eye peeled to see whether p\/i lawyers and legal ethics experts will be mentioning, discussing <em>and opining<\/em> on Hellerstein&#8217;s action.<\/p>\n<p>As in my post last December, &#8220;<a href=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/2007\/12\/11\/unconscionable-silence-over-graubards-42-million-contingency-fee\/\">unconscionable silence over Graubard\u2019s $42 million contingency fee<\/a>,&#8221; re <em><a href=\"http:\/\/www.nycourts.gov\/reporter\/3dseries\/2007\/2007_09348.htm\">Graubard v. Miller<\/a><\/em>, I&#8217;m afraid that the Contingency Fee Omerta rule will kick in (the One-Third-Third Rail), preventing and averting talk in public about the judge&#8217;s refusal to accept a 25% fee automatically [or even the 15% he was applying to other lawyers in the 9\/11 Litigation].   Why?  As I said in December:<\/p>\n<blockquote>\n<blockquote><p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/files\/2007\/12\/omertapuzo.jpg\" alt=\"\" width=\"63\" height=\"71\" \/> <em><strong>A<\/strong>ny<\/em> discussion about the possible invalidity, unreasonableness, or unethical nature, <em>due to inadequate risk [or work] in a particular case<\/em>, of a [25% or] one-third or 40% fee charged to any particular client, presupposes that contingency fees are supposed to relate to the actual perceived risk in each separate case. It directly undermines the attitude of the p\/i cartel that the existence of <em>any <\/em>risk justifies any percentage rate that is permitted in the jurisdiction, or any rate agreed-to by the client (absent, perhaps, actual fraud or felony on the lawyer\u2019s part, or the extreme mental incompetence of the client). And, it particularly condemns the near-universal practice of presenting as a <em>fait accompl<\/em>i a \u201cstandard\u201d percentage rate to virtually every client \u2014 a rate that is usually the maximum permitted in the State absent special judicial consent to go higher.<\/p><\/blockquote>\n<\/blockquote>\n<p>This is another instance when I would <em>love<\/em> to be pleasantly surprised by my brethren at the Bar.<\/p>\n<blockquote><p><strong><em>p.s.<\/em><\/strong> As I said in a <a href=\"http:\/\/blogs.wsj.com\/law\/2008\/07\/25\/judge-hellerstein-lambastes-911-law-firm-over-fee-request\/#comment-268693\">comment at the <em>WSJ Law Blog<\/em><\/a>: This is not a \u201cTort Reform\u201d issue (which limits the ability to sue or the amount of damages) as much as a Legal Ethics and Client\u2019s Rights issue (assuring that the client gets all he deserves from the damages awarded, and the lawyer only takes what he deserves).  If the Azrael firm succeeded in obtaining a larger award than other firms, it should be compensated by getting a fair percentage of that larger award, not by taking an unreasonably large share of it.<\/p><\/blockquote>\n<p><em><strong>update<\/strong> <\/em>(July 29, 2008):\u00a0 When trying to find online discussion of this case yesterday, I missed Carolyn Elefant&#8217;s posting &#8220;<a href=\"http:\/\/legalblogwatch.typepad.com\/legal_blog_watch\/2008\/07\/judge-overturns.html\">Judge Overturns 9\/11 Settlements<\/a>&#8221; (<em>Legal Blog Watch<\/em>, July 25, 2008).\u00a0 Carolyn questions Judge Hellerstein&#8217;s reasoning, saying:<\/p>\n<blockquote><p><img decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/ethicalesq\/files\/2008\/07\/abacus.jpg\" alt=\"\" \/><em> <\/em>&#8220;Huh?\u00a0  How can the lawyers have coasted on the work of others, if they managed  to achieve settlements well in excess of similar cases?\u00a0 The judge&#8217;s  ruling seems internally inconsistent.\u00a0 While I agree that it&#8217;s  appropriate to cut contingency fees to reflect a firm&#8217;s reduced risk in  bringing a case forward, any reduced risk that Azrael may have achieved  while waiting to file its clients&#8217; claims was counterbalanced by the  extraordinary results that the firm obtained presumably as a result of  holding out.\u00a0 Why should the firm be penalized?&#8221;<\/p><\/blockquote>\n<p>My response to Carolyn is something like this:<\/p>\n<blockquote>\n<blockquote><p><em><strong>R<\/strong><\/em>isk is by far the primary factor in determining the reasonableness of a contingency fee.\u00a0 By filing late in this <em>9\/11 Proceeding<\/em>,  the Azrael firm removed at least three of the primary risks when taking  a p\/i case: Are we going to win a significant amount of money for the  client? Will the &#8220;defendant&#8221; have deep enough pockets so that we can  expect to collect? And, are we likely to have to do major amounts of  work (motions, pleadings, trial prep, etc.) in order to prove our case  and secure an award?<\/p>\n<p>Therefore, if 25% was the maximum permitted in these cases, Azrael should have asked for a number <em>significantly less<\/em> than that<em> from the start<\/em>.\u00a0  Even the 15% contingency fee allowed most of the other firms seems  high, compared to the limited risk involved, but 15% should have been  the ceiling.\u00a0 Remember, the risk is what justifies asking for a fee that  is significantly higher than a reasonable hourly rate.\u00a0 (Which reminds  me: Once you know you have a valid 9\/11 plaintiff, with a healthy payout  guaranteed, why is <em>any <\/em>fee other than an hourly or flat fee  justified other than habit and the p\/i bar&#8217;s refusal to offer clients  the ethical option of different fee structures?)\u00a0 When setting a  reasonable hourly rate, the firm&#8217;s experience and superior skills  certainly allows it to charge more than the hourly rate of less talented  lawyers, but wouldn&#8217;t normally permit it to double the customary rate  nor ask for a bonus the size of the one sought here.<\/p>\n<p><em>In general with contingency fees, the ability to get a bigger  award for you client is compensated by taking a fair share of the bigger  award<\/em>.\u00a0 The lawyer is not the client&#8217;s partner in a business  enterprise; he is a skilled worker helping the client to get a good  result.<\/p>\n<blockquote><p>For example, if Azrael got twice as much for a particular  client as most plaintiffs were getting &#8212; say $3.5 rather than $7  million &#8212; a 15% contingency fee would be $1,050,000, which is <em>$525,000 more<\/em> than the typical lawyer handling a comparable client [15% of the typical $3.5 million award is $525,000].<\/p><\/blockquote>\n<p><em>Isn&#8217;t half a million dollars enough of a skill-and-strategy bonus  for this law firm for the amount of services performed and risk taken? <\/em> If, instead the firm takes 25% of the full $7 million, its $1,750,000  fee would be three times as much (well over a million dollars more) than  the typical firm in this proceeding received for representing a  comparable client.\u00a0 That eats away an awful lot of the improved award  accomplished <em>for the client<\/em>.\u00a0 Who deserves that extra million  dollars, the client whose injury is the whole basis of the enterprise,  or the lawyer, who was taking very little risk and apparently did very  little work?\u00a0 In addition, we don&#8217;t even know if it was procrastination  or some other unimpressive factor (the clients&#8217; delay), rather than  strategy that caused the late entry into this case.\u00a0 There is nothing  illogical or inconsistent with Judge Hellerstein saying both that the  awards seem too large and the fees seem excessive.<\/p><\/blockquote>\n<\/blockquote>\n<p><a href=\"http:\/\/www.buy.com\/prod\/poetic-justice-the-funniest-meanest-things-ever-said-about-lawyers\/q\/loc\/106\/30416769.html\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/blogs.law.harvard.edu\/shlep\/files\/2006\/08\/NoloSharkS.gif\" alt=\"noloShark\" width=\"46\" height=\"37\" \/><\/a><em><strong> f<\/strong><\/em><em><strong>ollowup<\/strong><\/em> (August 28, 2010): &#8220;<a href=\"http:\/\/www.google.com\/hostednews\/ap\/article\/ALeqM5hbFu_USPHXmnxTOR0tOnrbYrckcwD9HS3H281\">NY judge blocks interest in Sept. 11 litigation<\/a>&#8221; (Associated Press, by Tom Hays, August 28, 2010); and\u00a0 &#8220;<a href=\"http:\/\/www.nytimes.com\/2010\/08\/27\/nyregion\/27lawsuit.html?_r=1&amp;pagewanted=all.\">Already Under Fire, Lawyers for 9\/11 Workers Are Ordered to Justify Some Fees<\/a>&#8221; (<em>New York Times<\/em>, Aug. 27, 2010).\u00a0 The AP story reports that, on August 27, Judge Hellerstsein &#8220;barred lawyers representing Sept. 11 responders exposed to World Trade Center dust from billing them $6.1 million in financing fees for the litigation, saying their fees are already &#8216;too much&#8217;.&#8221;\u00a0 The Judge told the firms Worby Groner Edelman and Napoli Bern Ripka &#8220;In the context of $150 million, I believe you can absorb $6 million,&#8221; and &#8220;What you&#8217;re getting is too much.&#8221;\u00a0 AP notes that:<\/p>\n<p style=\"padding-left: 30px\">&#8220;[T]he lawyers took two law professors to court to tell the judge that the  arrangement was legal and ethical.\u00a0 The attorneys also argued they were  already making concessions: Under a compromise reached in a revised  settlement, they were taking a 25 percent cut of the deal rather than  the usual 33 percent.<\/p>\n<p style=\"padding-left: 30px\">&#8220;But the judge wasn&#8217;t swayed. &#8216;Beyond legality and beyond ethics, it&#8217;s important to have a sense of balance,&#8217; the judge said.&#8221;<\/p>\n<p>One of the lawyers, William Groner whined that the  judge had ruled against them &#8220;for no other reason than it&#8217;s 9\/11.&#8221;\u00a0 I would like to hope that, thanks to Judge Hellerstein&#8217;s example, cases with a lower profile will also get similar scrutiny from state and federal judges.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>. . Thank you, Judge Alvin K. Hellerstein . . In a post at Overlawyered.com, I learned this morning that Judge Hellerstein, of the Manhattan federal district court, refused last Thursday to approve a legal fee of $7 million for representing four Pentagon workers\u2019 families, because it \u201cwould reflect a very large windfall,\u201d given that [&hellip;]<\/p>\n","protected":false},"author":94,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[3513,900],"tags":[],"class_list":["post-9669","post","type-post","status-publish","format-standard","hentry","category-lawyer-news-or-ethics","category-viewpoint"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6kP1R-2vX","_links":{"self":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/9669","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/users\/94"}],"replies":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/comments?post=9669"}],"version-history":[{"count":3,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/9669\/revisions"}],"predecessor-version":[{"id":12220,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/9669\/revisions\/12220"}],"wp:attachment":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/media?parent=9669"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/categories?post=9669"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/tags?post=9669"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}