Unequal Protection: Children and Attorney Fees Survey of Contingency Fee Limitations for Minor Clients

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1 Unequal Protection: Children and Attorney Fees Survey of Contingency Fee Limitations for Minor Clients April 2003 Civil Justice Association of California The Civil Justice Association of California (CJAC) is a coalition of citizens, taxpayers, businesses, local governments, professionals, manufacturers, financial institutions, insurers and medical organizations. Founded in 1978, CJAC is the only statewide association dedicated solely to improving California s civil liability system. John H. Sullivan, President Jeffrey R. Sievers, Vice President-Legislation Laura Borden Ridell, Legislative Advocate Ronnie Corrick, Executive Assistant Fred J. Hiestand, General Counsel 1201 K Street, Suite 1960, Sacramento, California Telephone (916) , Facsimile (916) Internet Excerpts from this report may be reprinted without permission but credit should be given to the Civil Justice Association of California. 1

2 Overview The well being of children has long been an important concern of the California Legislature and s. An area where both branches of government have shared in protecting these vulnerable members of our society has been in their representation before the court. While law generally does not regulate the fees attorneys may charge their clients 1, various limits are placed on the percentage of contingency fees taken by attorneys representing minors in personal injury matters. The limits vary from county to county. Because of the way plaintiffs attorneys compute contingency fees, the limits can play an important role in determining what a child client realizes from a settlement or judgment after all the bills and fees are paid. Usually, the attorney calculates his or her fee on the gross award. Costs are then paid from the client s remaining share. For example, consider a hypothetical damage award of $90,000 in a case where the attorney has set a 33 1/3% fee. The client s initial share would be $60,000 and the attorney s $30,000. If they attorney also billed for $20,000 in costs, the client s net recovery would drop to $40,000 less than half the total award. In this context it becomes obvious why special rules have developed to protect clients who lack the capacity to be anything near equal participants with their attorney in negotiating a fee agreement. (Although attorneys have a fiduciary duty to the clients, this duty does not arise prior to consummation of the attorneyclient representation agreement.) Although the fee protection for minors does not usually attract attention, it was a matter of public dispute in the much-publicized Erin Brockovich story of the pollution lawsuit against Pacific Gas & Electric that led to a $333 million arbitration award against the utility. Not part of the movie version of the story was the subsequent dispute over late and allegedly inadequate distribution of the award to the plaintiff residents of Hinckley and the attorney fees awarded for representation of the approximately 100 children named in the case. It was reported that the arbitrator ruled that children who turned 18 in the year the award was settled would not be entitled to the contingency fee protection. 2 The Civil Justice Association of California (CJAC) surveyed counties and 1 Exceptions also include the Medical Injury Compensation Reform Act (MICRA) where fees are limited on an inverse sliding scale based on the amount of the recovery and in Workers Compensation Law where the attorneys fee is limited by administrative regulation. 2 See: Erin Brockovich : The real story, Salon.Com, April, 14,

3 found considerable variation in the rules protecting children from excessive attorney fees. For the most part, these limits and guidelines are set out in county rules of court. The table at the end of this document summarizes these rules as they exist currently and in 1995 and Not only do the rules vary from county to county, but some counties have changed their rules during these periods. Evolution of Child Protection Fee Limits Court regulation of attorney contingency fees in child plaintiff cases is based on Family Code section and Probate Code The authority of a court to determine the reasonableness of attorney fees in a variety of contexts is also set out in California law (See Code of Civil Procedure Sec et seq.). Special protection for minors appears to have first appeared in the codes in 1913 in the Code of Civil Procedure, then over time moved into the current Family and Probate codes. Courts utilize both codes today, in part because Family Code Section 6602 refers only to judgments, while the Probate Code Section 3302 is broader, reaching settlements as well. 5 Disparities Among Counties In setting or approving the contingency fee a plaintiffs attorney charges a minor, Superior Courts in most counties either use the California Rules of Court A contract for attorney's fees for services in litigation, made by or on behalf of a minor, is void unless the contract is approved, on petition by an interested person, by the court in which the litigation is pending or by the court having jurisdiction of the guardianship estate of the minor. If the contract is not approved and a judgment is recovered by or on behalf of the minor, the attorney's fees chargeable against the minor shall be fixed by the court rendering the judgment (a) The court making the order or giving the judgment referred to in Section 3600, as a part thereof, shall make a further order authorizing and directing that such reasonable expenses (medical or otherwise and including reimbursement to a parent, guardian, or conservator), costs, and attorney's fees, as the court shall approve and allow therein, shall be paid from the money or other property to be paid or delivered for the benefit of the minor or incompetent person. (b) The order required by subdivision (a) may be directed to the following: (1) A parent of the minor, the guardian ad litem, or the guardian of the estate of the minor or the conservator of the estate of the incompetent person. (2) The payer of any money to be paid pursuant to the compromise, covenant, or judgment for the benefit of the minor or incompetent person. 5 Padilla v. McClellan (2001) 93 Cal.App 4 th

4 or a sliding scale under which the fee percentage increases as the litigation process proceeds. The court in Sacramento is typical of the latter category: 25% contingency fee if the case is settled before trial, 33 1/3% if settled during trial, and 40% of an appeal has. Courts in 18 counties use a /3-40 formula identical or very similar to this. Courts in 17 counties usually the smaller counties state they follow the California Rules of Court. Although these counties rules do not expressly specify the rule to be followed, the Judicial Council states that it is Rule (Attorney fees for services to minors and incompetent persons) 6 that applies in these situations. Courts in eight counties use a 25% limit but permit a judge to approve a higher fee for good cause shown (Los Angeles, Kern, San Francisco), unusual circumstances (Alameda, Riverside), extraordinary circumstances (Imperial), substantial justification (Marin), or strong showing of reasonableness (Inyo). A firm 25% with no exceptions is the rule in seven counties. In El Dorado County 25% is a guideline, not a limit. In Santa Cruz County, 25% is a limit which may be reduced in appropriate cases. Even more disparity is thrown into the treatment of minors fees by the description of the amount to which the percentage factor is applied. Some courts (in Los Angeles, for example) apply the limit to the gross recovery. Others (such 6 Rule Attorney fees for services to minors and incompetent persons In all cases under Code of Civil Procedure section 372 or Probate Code sections , the court must use a reasonable fee standard when approving and allowing the amount of attorney fees payable from money or property paid or to be paid for the benefit of a minor or incompetent person. The court may approve and allow attorney fees under a contingency fee agreement made in accordance with law, provided that the amount of fees is reasonable under all the facts and circumstances. Rule adopted effective January 1, Advisory Committee Comment (2003) This rule requires the court to approve and allow attorney fees in an amount that is reasonable under all the facts and circumstances, under Probate Code section The rule is declaratory of existing law concerning attorney fees under a contingency fee agreement when the fees must be approved by the court. The facts and circumstances that the court may consider are discussed in a large body of decisional law under section 3601 and under other statutes that require the court to determine reasonable attorney fees. The rule permits, but does not require, the court to allow attorney fees in an amount specified in a contingency fee agreement. The amount of attorney fees allowed by the court must meet the reasonableness standard of section 3601 no matter how they are determined. That standard may support the court's allowance of attorney fees that are higher or lower than fees determined by applying the formulas in some current local rules. 4

5 as courts in San Mateo) specify net recovery. The rules in the majority of courts appear silent on this issue. Conclusions It is obvious from the above summary (and the table following) that the fees an attorney may charge a child in California vary significantly depending upon the county. Where exceptions to a stated fee percentage are permitted, the rules and guidelines provided for judges called upon to approve a fee also vary substantially. The result is that a child s compensation through the civil justice system for a negligently-caused injury is in great part determined by which county was the site of the injury. The wide range of compensation allows for very different recoveries for identical injuries depending on the location of the incident. The table following also identifies changes in the rules in some counties over the past five years. Some courts have lowered the amount a lawyer can collect from a child while other s have increased the amount. No justification for these differences has been identified. With state funding of the trial courts now in place, there is an even stronger basis for the Legislature to consider addressing the disparities with a uniform rule in the interests of children in every part of the state. At the same time, that it reviews the benefits of uniform fee protections for children, the Legislature may wish to consider extending these protections to elder Californians. A number of commentators have joined the two groups in assessing the need for additional legal protections, noting that...children and the elderly are the most defenseless among us because of their more limited physical, mental, and emotional condition. 7 Good arguments may be made that the elderly merit this statutory protection even more than children because they are less likely to have a legal guardian or close family member nearby who can assist with legal issues such as attorney fees. 7 Protecting the Unprotected, Sharon J. Arkin, Forum magazine, June

6 Summary of Local Rules of Court Governing Recoveries of Children in Cases Where They Are Represented by an Attorney on a Contingency Fee Basis The table below summarizes the rules of court for the various counties in California. Three sets of data are present; the rules in 1995, the rules in 2000 and the rules today. The rules in bold type indicate a change in policy during the last five years. County Rules in 1995 Rules in 2000 Rules in 2003 Alameda prior to assignment to a department. After trial begins, the fee is determined according to the circumstances prior to assignment to a department. After trial begins, the fee is determined according to the circumstances 25% prior to assignment to department for trial; during and after substantial part of plaintiff s case introduced, fees determined according to particular circumstances; in unusual circumstances, fees subject to variation by court Alpine of Amador Butte Calaveras Rules 1/3% if after trial commenced; 40% after appeal filed before trial 33 1/3% during trial has prior to trial 6

7 Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Imperial Inyo before trial 33 1/3% during trial has before trial 33 1/3% during trial has of Rules of Court 25% of Net Settlement 25% of net settlement is the guideline, but court may order reasonable fees in all cases and sole discretion in awarding attorneys fees remains with court of the Court of Absent extraordinary circumstances, no more than 25% of 1/3% during trial; has Rules of the Court Rules Absent extraordinary circumstances, no more than 25% Court shall award reasonable attorneys fees; claims for fees that exceed 25% of the net proceeds must be supported by a strong 7

8 Kern Kings Lake Lassen Los Angeles Madera Marin Mariposa Mendocino Unless good cause is shown, no more than 25% showing of reasonableness Unless good cause is shown, no more than 25% of Rules more than two weeks before trial; two weeks before or during trail 33 1/3%; 40% after appeal begins of Shall not exceed the 25% of amount Court recovered 25% of gross recovery or, if Shall not exceed applicable, limited by 25% of gross MICRA recovery, except for good cause shown 1/3% during trial; has 25% of net proceedings Shall not exceed 25% of net proceeds, without substantial justification for a higher fee of t Rules before trial; 33 1/3% during trial; 40% after appeal has ; in MICRA actions, may not exceed amount authorized by 8

9 Merced Modoc Mono Monterey Napa Nevada Orange Placer Plumas Riverside Sacramento San Benito San Bernardino 25% of the gross recovery 25% of the gross recovery If after trial begins, then reasonable fees statute 25% of the gross recovery 25% of gross recovery of Rules of Rules of Rules of Rules 25% of net recovery Shall not exceed 25% of amount recovered 25% of gross recovery Shall not exceed 25% of gross settlement 25% of gross recovery 25% of the gross recovery of Rules 25% of the gross recovery If after trial begins, then before assigned to reasonable fees trial, absent unusual 25% of gross recovery if settled 2 weeks prior to trial circumstances 1/3% during trial; has Rules 25% of gross recovery if settled 2 weeks prior to trial; 33 1/3% within 2 weeks or during trail San Diego 25% of gross recovery 25% of gross recovery Shall not exceed 25% of gross settlement San Francisco 25% of net recovery 25% of net recovery Shall not exceed 25% of gross 9

10 San Joaquin recovery except for good cause shown 1/3% during trial; has San Mateo 25% of net recovery 25% of net recovery Not in excess of 25% of net settlement San Luis Obispo Santa Barbara 25% of gross recovery 25% of net recovery Should not exceed 25% of net recovery 1/3% during trial; has Santa Clara 25% of gross recovery 25% of gross recovery 25% of gross recovery Santa Cruz 25% of gross recovery 25% of gross recovery If appropriate, fees may be reduced Shasta Sierra Siskiyou of 25% of recovery; may be reduced in appropriate cases 1/3% during trial has Rules 1/3% during trial; has Solano 1/3% during trial; has Sonoma 25% of net recovery 25% of net recovery Stanislaus 33 1/3% during or post trial Rules 1/3 % during or post 10

11 trial Sutter of Follows Uniform Rules for the Third Appellate District (25% 1/3 during trial or after judgment; ) Tehama of Rules Trinity of Rules Tulare 25% of gross recovery 25% of gross recovery 25% of gross settlement Tuolumne Rules Ventura Yolo Yuba of of 25% if more than two weeks before trial; 33 1/3% if within two weeks before trial, during or after trial; 40% after appeal has Follows Rule 7.8 of the Uniform Local Rules of the Third Appellate District Superior Courts (25% 1/3 during trial or after judgment; ) Shall not exceed 25% of recovery w:\research\2003\minorfeesstudy-april2003.wpd 11

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