For years and years, we over here at Cal Biz Lit have been reading that the hourly fee arrangement was a thing of the past, that the only way to avoid conflicts with corporate, insurance and other institutional litigation clients was alternative fee agreements. These can be flat fee agreements, or for the more adventurous, defense contingency fees, where the law firm's compensation is based, in whole or in part, on the results achieved.
We, and more specifically our law firm, Adams Nye Becht LLP love contingent deals, because they allow us to share risks with clients and share in the financial rewards of good work. We hope we can do more of them.
But today's new case reports brought a reminder (to us, and, hopefully, to every California law firm) that if we have any kind of contingency arrangements, we need to follow the same rules as plaintiff attorneys with contingency fee arrangements.
The cautionary tale comes in the case of Arnall v. Superior Court of Los Angeles County (Liker, Real Party In Interest) (November 22, 2010) ___Cal.App.4th___ (2nd Dist., B225264). Simple facts: lawyer does a deal with Ameriquest Mortgage to provide advisory services in such a way as to reduce its tax liability. He has a written agreement that in addition to a monthly flat fee, he'll get a "success fee" of 2% of the tax savings up to $2 million. Lawyer saves them a whole bunch of money. They decide not pay him and declare the agreements void. He sues them.
The Court of Appeal says ixnay to the success fee. Why? Well, because of this little thing called California Business and Professions Code section 6147, which provides in part:
(a) An attorney who contracts to represent a client on a contingency fee basis shall, at the time the contract is entered into, provide a duplicate copy of the contract, signed by both the attorney and the client, or the client's guardian or representative, to the plaintiff, or to the client's guardian or representative. The contract shall be in writing and shall include, but is not limited to, all of the following:
(1) A statement of the contingency fee rate that the client and attorney have agreed upon.
(2) A statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client's recovery.
(3) A statement as to what extent, if any, the client could be required to pay any compensation to the attorney for related matters that arise out of their relationship not covered by their contingency fee contract. This may include any amounts collected for the plaintiff by the attorney.
(4) Unless the claim is subject to the provisions of Section 6146 [dealing with medical malpractice], a statement that the fee is not set by law but is negotiable between attorney and client.
. . . .
(b) Failure to comply with any provision of this section renders the agreement voidable at the option of the plaintiff . . . .
Here, the attorney did not include the "not set by law" language in the fee agreement. Presumably, he thought the requirement applied to only plaintiffs' personal injury practice, or at least only to litigation matters. Wrong on both counts. Good-bye $2 million success fee. Ouch.
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