Friday, July 8, 2011

Unreasonable Legal Fees: How Much is Too Much?

What makes a flat fee for a lawsuit so large that it is unreasonable?  A recent news article makes me wonder if a flat fee would be unreasonable just because it may be two or three times higher than any other law firm would charge.  According to THIS post from the Wall Street Journal Law Blog, Joe Nacchio, the former CEO of Qwest Communications, the high speed internet company, has sued his former lawyers in New Jersey state court for malpractice, claiming that they were negligent for grossly over billing him. 

His lawsuit alleges that his lawyers breached their fiduciary duties because they charged him a flat fee of $5 million to defend him on insider trading charges and an additional $20 million to defend him in several related civil suits.  The full complaint is linked HERE.  The complaint is pretty short on facts relating to the underlying litigation.  Mr. Nacchio does not even state how many different civil suits there were.  Nor does he allege the scope of the litigation or the time frame.  He doesn't really state why the fees were excessive, he just concludes that they were. 

If the Nacchio case had happened in Illinois, and if we knew a little bit more about it, we could analyze it under Illinois Rule of Professional Conduct 1.5, which prohibits lawyers from collecting an unreasonable fee or an unreasonable amount for expenses.  Under Rule 1.5, the factors to be considered in determining the reasonableness of a fee include the following:
  • the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
  • the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
  • the fee customarily charged in the locality for similar legal services;
  • the amount involved and the results obtained;
  • the time limitations imposed by the client or by the circumstances;
  • the nature and length of the professional relationship with the client;
  • the experience, reputation, and ability of the lawyer or lawyers performing the services; and
  • whether the fee is fixed or contingent.
I don't disagree with anything in the Illinois rule, but the sophistication of the client should also be a factor.  The CEO of multi-billion company who is facing 25 years in prison and potential civil liability into the hundreds of millions may set out to hire a specific law firm even at an increased cost. The client may wish to secure a particular lawyer or law firm's reputation, skills, experience with the judge, etc.  The client always has the option to seek a competitive bid from another law firm, but sometimes people are not simply looking for the cheapest lawyer.

In this case, the client signed on the dotted line with a particular lawyer, Herbert J. Stern.  Mr. Stern was a federal judge for 13 years.  He's a former U.S. Attorney.  He charges a lot of money.  Clients know that before they call him.  I'm guessing Joe Nacchio didn't pick his name out of the yellow pages.  I don't see how Mr. Nacchio can now claim that a flat fee to which he already agreed is unreasonable.  Sounds like a case of buyer's remorse following his 70 month sentence and $63.6 million in fines and restitution.

4 comments:

Medical Malpractice Lawyers said...

A lawyer's fee shall be reasonable. One of the factors to be considered in determining the reasonableness of a fee is the the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal
services properly.

personal injury lawyer las vegas said...

The lawyer's job is not easy. It involves a lot of analysis and critical thinking. Therefore, it is just enough to pay too much for his service for as long as the lawyer delivers the best for his clients.

Helen said...

before a person becomes a lawyer, he/she has to study a pre-law course, enter law school, review and pass the bar exam. Now that's a lot of time spent(effort and money too, of course) to get that degree. I thinks it's only reasonable for lawyers to give us fees even if sometimes we think its absurd.
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dog bite attorney orlando said...

To be fair with lawyers, I think there is no such thing as unreasonable legal fees. Just like a business, these fees are meant for operational expenses of a firm as well as personal use of lawyers.