§8.2 Contingency Fees

The Case: White v. McBride, 937 S.W.2d 796 (Tenn. 1996).

The Basic Facts: This case concerns issues of whether the contingency fee agreement between lawyer and client is clearly excessive and if so, whether the attorney may recover fees on a quantum meriut basis.

The Bottom Line:

• "The first issue for our consideration is whether the contingency fee contract itself and the subsequent attempt to enforce that contract contravened DR 2-106. That rule provides:
  1. A lawyer shall not enter into an agreement for, charge, or attempt to collect an illegal or clearly excessive fee.
  2. A fee is clearly 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. Factors to be considered as guides in determining the reasonableness of a fee include the following:
     1. The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.
     2. The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
     3. The fee customarily charged in the locality for similar legal services.
     4. The amount involved and the results obtained.
     5. The time limitations imposed by the client or by the circumstances.
     6. The nature and length of the professional relationship with the client.
     7. The experience, reputation, and ability of the lawyer or lawyers performing the services.
     8. Whether the fee is fixed or contingent.
  3. A lawyer shall not enter into an arrangement for, charge, or collect a contingent fee for representing a defendant in a criminal case."
  937 S.W.2d at 800.
• "Although these factors are to be used as guides, Connors v. Connors, 594 S.W.2d 672, 676 (Tenn. 1980), ultimately the reasonableness of the fee must depend upon the particular circumstances of the individual case. Hail v. Nashville Trust Co., 31 Tenn. App. 39, 212 S.W.2d 51 (1948)." Id.
• "...we have no doubt that the probate court was correct in holding that the fee contract violated DR 2-106. Although this estate matter was not without problems, it was, in the scheme of things, not terribly complicated or novel. Certainly it did not require any special skill or expertise, DR 2-106(B)(1), and White does not hold himself out as a probate specialist, worthy of an extraordinarily high fee. DR 2-106(B)(7). There is no indication that this matter prohibited White from undertaking other employment. DR 2-106(B)(2). Furthermore, the results obtained by White were not particularly good, DR 2-106(B)(4), as Kasper had received nothing from Leigh's estate as of the date of his death. Finally, and most dramatically, we note that if White were to be paid in accordance with the fee contract, he would have earned approximately $950 per hour. This figure is grossly in excess of the $150 hourly rate, which, judging from the expert testimony, we consider to be at the upper end of 'the fee customarily charged in the locality for similar legal services.' DR 2-106(B)(3)." Id. at 801.
• "The next issue for our consideration is whether White may recover fees on a quantum meruit basis despite the fact that the fee contract is violative of DR 2-106 and, thus, unenforceable. White argues that settled Tennessee law provides that an attorney may recover fees on the theory of quantum meruit even if the fee contract itself is determined to be unenforceable. He cites three cases in support of this proposition: Planters' Bank v. Hornberger, 44 Tenn. (4 Cold.) 531 (1867); Cooper & Keys v. Bell, 127 Tenn. 142, 153 S.W. 844 (1912); and Cummings v. 802 Patterson, 59 Tenn. App. 536, 442 S.W.2d 640 (1968)." Id. at 801-02.
• "The estate, for its part, concedes that Tennessee law does sanction a recovery in quantum meruit even if the fee contract were deemed to be unenforceable. However, it argues that this rule is flawed and that attorneys who attempt to charge a fee that is clearly excessive under the disciplinary rules of this court should not be permitted to recover on a theory of quantum meruit if that fee is disallowed. To allow such a practice, the estate contends, encourages unscrupulous attorneys to try and exact unreasonable fees from their clients, confident that they will receive a reasonable amount of compensation if their unethical efforts are thwarted." Id. at 802.
• "Initially, we note that the parties are correct in their assessment of Tennessee case law on this point. These decisions, however, have been almost entirely devoid of any supporting rationale for the rule. For example, in Hornberger this Court invalidated an ambiguously worded contract that would have allowed practically unlimited fees to be collected by the attorney. After a very extensive discussion of the attorney's duty to deal fairly with the client and a vigorous condemnation of the fee contract, which it characterized as "appalling" and 'astonishing,'Hornberger, 44 Tenn. at 575, the court concluded, without any discussion, that 'the recovery of the attorney should be scaled and brought to quantum meruit.' Id. at 578." Id.
• "Similarly, in Cooper & Keys two attorneys attempted to collect a $2,500 fee, pursuant to a vaguely drafted contingency contract, for services rendered to the defendant in the course of divorce litigation. Noting that the defendant could have had the services of another very reputable attorney for $250, one-tenth of the amount demanded by the plaintiffs, this Court refused to enforce the contract, reasoning that:

  The relationship of attorney and client is an extremely delicate and fiduciary one, so far as the duty of the attorney toward the client is concerned. The attorney is an officer of the courts in which he is a practitioner, and courts jealously hold him to the utmost good faith in the discharge of his duty. This is true where his advice and direction are required in dealings between his client and a third party, and also where the dealing is between the attorney and his client.
  
  ... [W]here an attorney deals with his client for further professional services, and the contract between them is reduced to writing, and the attorney seeks to enforce it, he must show that the client fully understood its meaning and effect, and that each of them understood it in the same sense; otherwise the contract cannot be enforced. He must also show that his contract is just and reasonable and free from all exorbitancy of demand.
  
  Such a rule tends to prevent, in a measure at least, such unseemly contests as the present suit. Tested under the above rule, the contract set out in complainants' bill is unenforceable. It is, upon its face, unreasonable, exorbitant, and improbable. It calls for a fee out of all proportion to the amount and value of the service rendered... .

  Cooper & Keys, 127 Tenn. at 150-51, 153 S.W. at 846-47 (citations omitted.)
  However, as in Hornberger, after sharply criticizing the contract and holding it unenforceable, the court summarily concluded that:

  ... [T]he measure of the complainants' recovery would be the fair and reasonable value of the services rendered by them to the defendant in the divorce suit, not upon the basis of the contingent fee, but upon the basis of an implied agreement to pay a fair and reasonable fee, and the balance due, if any, under this measure of recovery should be ascertained as an issue of fact.

  Id. at 847." Id.
• "In fact, the only justification for the rule is to be found in Cummings v. Patterson, where the Court of Appeals considered the validity of a fee contract which included a provision prohibiting the client from settling the case without the attorneys' consent. Although the attorneys admitted that such provisions were void as against public policy, they argued that they did not know that the provision was illegal at the time they drafted the contract and that the settlement provision was severable from the remainder of the contract. The defendant, on the other hand, argued that the attorneys were not entitled to any fee, either under the contract or quantum meruit, under the circumstances. The Court of Appeals rejected both arguments, explaining that:

  It is not material that the attorneys at that time were unaware of this rule of law. On the other hand, we consider it inequitable and unjust to permit the client to profit by an innocent inclusion of this obnoxious provision in the contract. We conclude that the Chancellor rightly refused to enforce the contract and rendered a decree on the basis of quantum meruit.

  Cummings, 442 S.W.2d at 643 (emphasis added.)" Id. at 802-03.
• "Therefore, whereas Hornberger and Cooper & Keys contain but a bare statement of the rule, with absolutely no supporting rationale, Cummings relies upon the principle of fairness to support an award of fees on a quantum meruit basis. The Cummings court believed that attorneys should not be deprived of a reasonable fee when their fee contracts, although violative of public policy, had nevertheless been entered into in an innocent manner." Id. at 803.
• "The rule fashioned by the Cummings court is, in our view, completely acceptable. We agree that attorneys should not be penalized for innocent snafus, such as an oversight in drafting that might render their fee contracts unenforceable. To do so would be unfair to the lawyer who had otherwise diligently pursued the client's interests, and it would result in a windfall to the client who had benefitted from these services. Thus, a recovery under a theory of quantum meruit is warranted in these situations." Id.
• "We are of the opinion, however, that an attorney who enters into a fee contract, or attempts to collect a fee, that is clearly excessive under DR 2-106 should not be permitted to take advantage of the Cummings rule. A violation of DR 2-106 is an ethical transgression of a most flagrant sort as it goes directly to the heart of the fiduciary relationship that exists between attorney and client. To permit an attorney to fall back on the theory of quantum meruit when he unsuccessfully fails to collect a clearly excessive fee does absolutely nothing to promote ethical behavior. On the contrary, this interpretation would encourage attorneys to enter exorbitant fee contracts, secure that the safety net of quantum meruit is there in case of a subsequent fall." Id.
• "We do not agree with White's dire prediction that this holding will have a chilling effect on attorneys' willingness to enter contingent fee contracts. Disciplinary Rule 2-106 is not a weapon that a recalcitrant client can employ at will to nullify the fee contract and thereby escape all liability for legal services. Rather, by its very terms the rule condemns only those fees that a lawyer of ordinary prudence would definitely and firmly believe to be excessive and sets forth a list of factors to determine when a fee is reasonable. Because of the high threshold embodied in the rule, we are confident that DR 2-106 will serve to deny recovery only to those who truly deserve it." Id.
• "Having so concluded, we reverse that portion of the lower courts' judgment awarding fees on a quantum meruit basis. Any prior authority in conflict with this opinion is hereby expressly overruled." Id.

Other Sources of Notes: Alexander v. Inman , 974 S.W.2d 689 (Tenn. 1998), reh'g denied, (Sept. 21, 1998) (addressing enforceability of non-contingency contract for attorney fees);McDonnell Dyer, P.L.C. v. Select-O-Hits, Inc., No. W2000-00044-COA-R3-CV, 2001 WL 400386 (Tenn. Ct. App. Apr. 20, 2001) (declining to extend White v. McBride, 937 S.W.2d 796 (Tenn. 1996) to bar high or excessive fees finding instead that fees must be "clearly excessive" under the circumstances).