Opinion No. 1997-9

(Inquiry No. )

Illegal or excessive fee-Propriety of seeking additional fees for services rendered to alleged incompetent where attorney has already sought court approval of the requested fees and the court has reduced them
It is unethical to charge or collect a fee from client in excess of fee determined by court to be fair and reasonable after seeking court’s approval of higher fee.
Code Provisions:
DR 1-102(A)(5)
DR 2-106(A), (B)
Facts Presented:
Inquiring attorneys were retained by a client to revoke a power of attorney given to his former attorney and for related legal services. Inquiring attorneys accordingly prepared and served papers upon the former attorney.

The former attorney then commenced a proceeding in the N.Y. Supreme Court as petitioner under Mental Hygiene Law Article 81 to declare the inquiring attorneys’ client an incapacitated person and for related relief. Inquiring attorneys prepared and served papers and legal memoranda to dismiss the proceeding. The court denied this motion without opinion. Inquiring attorneys then prepared and served an answer and counterclaim against petitioner — the former attorney.

Attorneys for the former attorney, inquiring attorneys themselves and local counsel appearing for the client, and a court-appointed court evaluator appeared before the court for approval of a possible settlement. First, the former attorney agreed to withdraw his petition on various conditions, including that he would transfer the client’s assets to one of the inquiring attorneys and would request his fees be paid by the client upon submitting an affidavit to the court setting forth his services and fees incurred for a specified period for the court’s approval; the counterclaim against the former attorney was withdrawn on the merits and with prejudice. The court-appointed court evaluator also agreed to submit an affidavit of services for determination of his fees. Nothing was stated on the record at that time about inquiring attorneys’ and local counsel’s fees to be charged the client.

Inquiring attorneys and local counsel then prepared and submitted a proposed consent order for the courts approval and signature, containing the same decretal provisions stipulated before the court, leaving blank for the court’s insertion the amount of fees to be approved for the former attorney, specifying the amount to be paid the court evaluator in the same amount that he requested, and approving specific amounts to be paid local counsel and inquiring attorneys. The court directed inquiring attorneys (and local counsel) to furnish an affidavit in support of their fees and they did so, stating that the amount they requested was based on an existing agreement between them and the allegedly incompetent client.

The court signed the proposed consent order, approved and inserted a substantially reduced amount for the former attorney, and struck the amounts requested by local counsel and inquiring attorneys and approved and inserted substantially reduced amounts for them. In an accompanying letter, the court explained that, “Given the fact that neither [the client’s ] attorneys nor [the former attorney] had a retainer agreement with [the client] showing that [he] had been informed, understood and agreed to how he would be billed for their legal services, and due to the nature of this proceeding which alleged that [he] is an incapacitated person, the court must carefully scrutinize the fee applications, to ensure that the fees being requested are fair and reasonable.” The court also explained it took into account, in determining the “fair and reasonable amount of legal services, . . . the nature of the proceeding, the complexity and novelty of the issues addressed, the professional standing and expertise of the attorney, the time expended and the results obtained.” The court concluded that the fees requested by the inquiring attorneys and local counsel exceeding $32,000 “are neither fair nor reasonable,” containing “substantial duplication” and because there were only two court appearances, no protracted discovery nor a full evidentiary hearing. (The inquiring attorneys submitted to this committee a brief letter stating some of the facts and attaching copies of the transcript setting forth the attorneys’ stipulation of settlement, the court order and the court’s accompanying letter.)
Assuming the client, an alleged but never adjudicated incapacitated person, wishes to pay inquiring attorneys the “entire agreed amount due,” may they, “despite the sua sponte court reduction,” accept that higher amount?
No, not under the facts and circumstances set forth above, in which inquiring attorneys requested the court’s approval of the fee to be charged and collected from their client and the court determined that the fees requested were not fair and reasonable and reduced their fee accordingly and inquiring attorneys neither moved for reconsideration nor took a timely appeal from the court’s order.
An ethical inquiry on similar, but distinguishable, facts was recently decided by the NYSBA Professional Ethics Committee in its Opinion # 689. There the State Bar opined whether a lawyer may ethically “accept fees from a petitioner in a guardianship proceeding in addition to any legal fees awarded by the court under Article 81 of the Mental Hygiene Law.” The general principles of the Code of Professional Responsibility set forth in that opinion are particularly relevant here:

Lawyers’ fees are always subject to the restriction against “excessive fees” of DR 2-106(A). DR 2-106(B) states that fees are 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.”

DR 2-106(B) sets forth the following “[f]actors to be considered as guides in determining the reasonableness of a fee”: time and labor required, novelty and difficulty of issues, likelihood that acceptance of employment by this client would preclude other employment, the customary, local legal fee for such service, amount involved, results obtained, time limitation, relationship with client, and whether fee is fixed or contingent. These factors have been adopted in New York courts in determining certain fee dispute, e.g., In re Ralph Lauren Womenswear, Inc ., No. 95 B 43100, 1997 Bankr. LEXIS 22 (S.D.N.Y. Jan. 9, 1997); In re Sherbunt , 134 A.D.2d 723 (3d Dep’t 1987).

In making the determination of reasonableness, the attorney should include all compensation for the particular services. If there is a court award and compensation by the petitioner, the total compensation must be weighed against DR 2-106(B)’s factors.

Whether accepting a fee from petitioner in addition to that awarded by the court from the incompetent person’s estate constitutes a violation of law, court rules, or a particular court order is beyond the jurisdiction of this Committee. If accepting such a fee is unlawful or violates a court rule or order, it would also be unethical. DR 1- 102(A)(5) (prohibition against engaging in conduct prejudicial to the administration of justice); DR 1-102(A)(8) (prohibition against conduct that adversely reflects on lawyer’s fitness to practice law); DR 2-106(A) (prohibition against charging an illegal fee); DR 7-102(A)(8) (prohibition against knowingly engaging in illegal conduct in the representation of a client). If acceptance of a separate fee from the petitioner is lawful, we see no ethical bar to accepting both the court-awarded fee and a supplement from the petitioner provided the total fee received is not excessive, as discussed above.

Additionally, a lawyer must consider disclosing such a fee arrangement to the court presiding over the guardianship proceeding before the court fixes its award. The lawyer must decide if under the particular facts and circumstances of the case a failure to disclose the fee arrangement with petitioner would constitute deceitful or misleading conduct in violation of DR 1-102(A) (4).

The affirmative answer given in the above opinion would not apply here for three reasons. As stated in that opinion, “the statute authorizes the court to award legal fees to the petitioner’s counsel payable from the assets of the incompetent” and the inquiring attorney asked whether, after obtaining a court-approved fee award from the incompetent’s estate, the attorney could also obtain an additional amount from the petitioner. Here, however, it is (1) the alleged incapacitated person’s attorneys, (2) who are seeking to collect a fee higher in amount than the amount which the court had fixed and determined to be “fair and reasonable” to be paid by the alleged incapacitated person and (3) after the inquiring attorneys had themselves submitted a proposed court order providing for the court’s express approval of the fee allegedly agreed to by the alleged incapacitated person.

Most of the disciplinary rules set forth above would be violated by charging and collecting a fee higher in amount than a court has already determined to be “fair and reasonable,” upon the attorney’s submission of the amount of that fee for the court’s approval.

Whether the court has statutory jurisdiction and authority to determine and fix the amount of attorney’s fees for an alleged incapacitated person after a settlement without having determined the issue of the person’s competency is a question of law beyond the customary jurisdiction of this Committee; however, this statutory issue is moot and academic in that here the inquiring attorneys and their local counsel representing the alleged incapacitated person submitted the issue of the reasonableness of the fee to the court for its approval in their proposed order. Thus, they, as officers of the court, are ethically, if not legally, bound by the court s determination. Ignoring or flouting the court’s determination in these circumstances would certainly violate DR 1-102(A)(5) (conduct prejudicial to the administration of justice); DR 2-106(A) (charging an illegal or excessive fee); and DR 7-102(A)(8) (knowingly engaging in illegal conduct in representing a client), as noted in the State Bar’s opinion. See also DR 7-102(A)(7) (counseling or assisting client in conduct that lawyer knows to be illegal or fraudulent).

Inquiring attorneys had two immediate avenues of recourse if aggrieved by the courts decision: a motion for reargument based on the same facts or legal arguments or for renewal based on new facts; or an appeal. They may still move to vacate the court’s order in part as to the fee award based on various statutory grounds. Not having done so, this Committee cannot sanction conduct as ethical that would violate a court order already determining the legal issue which predetermines the ethical issue.

[Approved by the Executive Committee on December 9, 1997; Approved by the Full Committee on December 17, 1997]