MULTIPLE REPRESENTATION AND DRAFTING CONTINGENCY FEE AGREEMENTS

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1 MULTIPLE REPRESENTATION AND DRAFTING CONTINGENCY FEE AGREEMENTS ADVANCED PERSONAL INJURY LAW COURSE CLE TEXAS STATE BAR 2013 S AM J OHNSON S COTT, DOUGLASS & MC C ONNICO, L.L.P. A TTORNEYS A T L AW WWW. SCOTTDOUG. COM

2 Driver, Passenger 1 and Passenger 2 are driving down the road into an intersection Truck runs a red light at the intersection and hits Driver s car The collision causes Driver, Passenger 1 and Passenger 2 severe injuries 2

3 Can you represent Driver, Passenger 1 and Passenger 2 against the truck driver? The two primary rules to consider are State Bar Ethics Rule 1.05 and

4 Rule 1.06(a) A lawyer shall not represent opposing parties to the same litigation. 4

5 Rule 1.06(b) provides: A lawyer shall not represent a person if representation of that person 1) involves a substantially related matter in which that person s interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer s firm; or 2) reasonably appears to be or become adversely limited by the lawyer s or law firm s responsibilities to another client or to a third person or by the lawyer s or law firm s own interests 5

6 Rule 1.06(c) provides: A lawyer may represent a client in the circumstances described in (b) if 1) the lawyer reasonably believes the representation of each client will not be materially affected; and 2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any. 6

7 Lawyer can represent Driver, Passenger 1 and Passenger 2 if Passenger 1 and Passenger 2 agree they do not want to sue Driver. 7

8 What if Driver was sober, but Passenger 1 and Passenger 2 were heavily intoxicated? 8

9 What if Driver, Passenger 1 and Passenger 2 have sustained horrible injuries and the truck only has $50,000 in insurance? 9

10 Rule 1.08(g) The Aggregate Settlement Rule A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients... unless each client has consented after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the nature and extent of the participation of each person in the settlement. 10

11 There are cases where an attorney has been sued over allegedly improperly taking on the representation of multiple clients even when the lawyer has written consent. 11

12 The plaintiff will contend that no reasonable attorney would have concluded the joint representation would not be materially affected. Therefore, the attorney allegedly should not have sought consent to the joint representation. 12

13 The Second Important Rule on Joint Representation of Clients is Rule 1.05 the Confidential Information Rule 13

14 Rule 1.05(a) defines confidential information as follows: Confidential Information includes both privileged information and unprivileged client information. Privileged information refers to the information of a client protected by the lawyer-client privilege rule of Rule 503 of the Texas Rules of Evidence or of Rule 503 of the Texas Rules of Criminal Evidence or by the principles of the attorney-client privilege governed by Rule 501 of the Federal Rules of Evidence for United States courts and magistrates. Unprivileged client information means all information relating to a client or furnished by the client other than privileged information acquired by the lawyer during the course of or by reason of the representation of the client. 14

15 When considering possibly representing multiple parties, the most self-protective practice is 1) inform each client that you ordinarily must keep that client s information confidential and not share it with third parties 15

16 2) inform each client that, because of the joint representation, you must be able to freely share all information that you receive from one client with the other clients who are part of the representation. 16

17 3) inform each client that, if each client had his own attorney there would not be such sharing of confidential information 17

18 4) obtain the client s consent to the sharing of confidential information between the clients to the joint representation 18

19 Attorneys Fees Rule 1.04(a) addresses unconscionable attorney fees. It provides: A lawyer shall not enter into an arrangement for, charge, or collect an illegal or unconscionable fee. A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable. 19

20 In other words, if any competent lawyer could form a reasonable belief that an applicable contingent fee is reasonable, then the fee is not unconscionable. 20

21 Rule 1.04(d) discusses contingent fees in depth. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined. 21

22 Rule 1.04(d) If there is to be a differentiation in the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, the percentage for each shall be stated. 22

23 Rule 1.04(d) The agreement shall state the litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. 23

24 Rule 1.04(d) Upon the conclusion of a contingent fee matter, the lawyer shall provide the client a written statement describing the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination. 24

25 Rule 1.04(f) concerns referral arrangements where two lawyers not in the same firm divide a fee. In March 2005 this rule had extensive revisions 25

26 Rule 1.04(f) (f) A division or arrangement for division of a fee between lawyers who are not in the same firm may be made only if 26

27 Rule 1.04(f) The division is: (i) in proportion to the professional services performed by each lawyer; or (ii) made between lawyers who assume joint responsibility for the representation; and 27

28 Rule 1.04(f) (2) the client consents in writing to the terms of the arrangement prior to the time of the association or referral proposed, including 28

29 Rule 1.04(f) (i) the identity of all lawyers or law firms who will participate in the fee sharing agreement; 29

30 Rule 1.04(f) (ii) whether fees will be divided based on the proportion of services performed or by lawyers agreeing to assume joint responsibility for the representation; 30

31 Rule 1.04(f) (iii) the share of the fee that each lawyer or law firm will receive or, if the division is based on the proportion of services performed, the basis on which the division will be made 31

32 Rule 1.04(f) 3) the fee cannot be unconscionable 32

33 Rule 1.04(g) Consent by a client or a prospective client without knowledge of the information specified in subparagraph (f)(2) does not make a confirmation within the meaning of this rule. ((f)(2) is (a) identity of lawyers, (b) proportion of services or joint responsibility, (v) share of fee) 33

34 Rule 1.04(g) No attorney shall collect or seek to collect fees or expenses in connection with any such agreement that is not confirmed in that way except for: 1) reasonable value of legal services provided to that person; and 2) the reasonable and necessary expenses actually incurred on behalf of that person. 34

35 Thus, arguably, if a client signs off on a referral agreement, but the agreement does not set out 1) the identity of the lawyers involved; 2) if the division is based (i) on proportion of services or (ii) joint responsibility; and 3) the share of the fee to each attorney The lawyers recovery is limited to the reasonable value of the legal services and to the reasonable expenses. 35

36 Comment 12 to Rule 1.04 makes clear 1) that if the joint fee is to be divided in proportion to the professional services performed; 2) both attorneys have performed substantial legal services; then 3) the Bar will not second guess the division agreed to by the attorneys 36

37 Comment 13 to Rule 1.04 defines joint responsibility as used in the fee division rule. 37

38 Rule 1.04, Comment 13 Joint Responsibility for the representation entails ethical and perhaps financial responsibility for the representation. The ethical responsibility assumed requires that a referring or associating lawyer make reasonable efforts to assure adequacy of representation and to provide adequate client communication. 38

39 Rule 1.04, Comment 13 Adequacy of representation requires that the referring or associating lawyer conduct a reasonable investigation of the client s legal matter and refer the matter to a lawyer who, referring or associating lawyer reasonably believes is competent to handle it. 39

40 Rule 1.04, Comment 13 Adequate attorney-client communication requires that a referring or associating lawyer monitor the matter throughout the representation and assure that the client is informed of those matters that come to that lawyer s attention and that a reasonable lawyer would believe the client should be aware. 40

41 Rule 1.04, Comment 13 Attending all depositions and hearings or requiring that copies of all pleadings and correspondence be provided a referring or associating lawyer is not necessary in order to meet the monitoring requirement proposed by this rule. Those activities may increase the transactional costs, which ultimately the client will bear and unless some benefit will be derived by the client, they should be avoided. 41

42 Rule 1.04, Comment 13 The monitoring requirement is only that the referring lawyer be reasonably informed of the matter, respond to client questions, and assist the handling lawyer when necessary. Any referral or association of other counsel should be made based solely on the client s best interest. 42

43 Texas Ethics Opinion 610 (August 2011) says that it violates Ethics Rule 1.08(h) for an attorney representing a client on a claim to take a lien on that claim. 43

44 This ethics opinion is not binding on the Texas Supreme Court. There have been certain legal articles that have criticized this opinion. 44

45 As A General Matter, Attorney Fee Agreements Are Often Construed Against the Attorney See Anglo-Dutch Petroleum v. Greenberg Peden, P.C., 352 S.W.3d (Tex. 2011). 45

46 In Anglo-Dutch Petroleum, attorney Swonke at law firm 1 signed a contingent fee representation agreement to represent Anglo-Dutch as plaintiffs. The fee agreement was on the letter head of law firm 1. 46

47 Swonke left law firm 1 and went to law firm 2. At law firm 2, Swonke continued to work on the Anglo- Dutch case. 47

48 With Swonke s help, the case was tried. After a plaintiff s verdict, the case was settled for $51,000,000. Swonke sought to enforce his contingent fee. 48

49 Anglo-Dutch sued for a declaratory judgment that the attorney contract was with law firm 1 and not with Swonke. 49

50 The trial court held that the contract was ambiguous over whether it was with attorney Swonke or law firm 1. The jury found for attorney Swonke and awarded him $1 million in attorneys fees. 50

51 The Texas Supreme Court reversed and held the contract unambiguously was between Anglo-Dutch and law firm 1. The court held that attorney fee agreements must be construed from the perspective of a reasonable client. 51

52 Construing client-lawyer agreements from the perspective of a reasonable client in the circumstances imposes a responsibility of clarity on the lawyer that should preclude a determination that an agreement is ambiguous in most instances. Id. at

53 Lawyers appreciate the importance of words and are more able than most clients to detect and repair omissions in client-lawyer contracts. Id. 53

54 PJC Breach of Fiduciary Duty Did Don Davis comply with his fiduciary duty to Paul Payne? Attorney Don Davis owed Paul Payne a fiduciary duty. To prove he complied with his duty, Don Davis must show: a) the transaction[s] in question [was/were] fair and equitable to Paul Payne; b) Don Davis made reasonable use of the confidence that Paul Payne placed in him; c) Don Davis acted in the utmost good faith and exercised the most scrupulous honesty toward Paul Payne; d) Don Davis placed the interests of Paul Payne before his own, did not use the advantage of his position to gain any benefit for himself at the expense of Paul Payne, and did not place himself in any position where his self-interest might conflict with his obligations as a fiduciary; and e) Don Davis fully and fairly disclosed all important information to Paul Payne concerning the transaction[s]. 54

55 Top Ten Sources of Disciplinary Complaints 1) Representing both sides in a supposedly uncontested divorce; 2) Representing co-defendants in criminal cases; 3) Representing multiple heirs in an estate; 4) Not having a clear idea of whom your client is (e.g., the corporation or its officers, especially in non-litigation); 5) Representing an organization and its principals; 6) Providing free legal advice to charitable boards or organizations when your interests are involved; 7) Entering into a business relationship with a client; 8) Committing malpractice and not promptly telling your client; 9) Once a conflict develops, not terminating an attorneyclient relationship that was properly commenced; and 10) Entering into a sexual relationship with a client. 55

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