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Delaware Legal Ethics
1.5 Rule 1.5 Fees
1.5:100 Comparative Analysis of Delaware Rule
Model Rule 1.5(e)(1) imposes a requirement on lawyers that when a lawyer is splitting a fee with a lawyer from another firm, this fee division must be “in proportion to the services performed by each lawyer,” or each lawyer is required to assume “joint responsibility for the representation.” DLRPC 1.5(e) does not require that the fee split be in proportion to the services rendered or that the lawyer take “joint responsibility for the representation.” Model Rule 1.5(e)(1). Model Rule 1.5(e)(2) requires that the client agree to the portion of the fee that each lawyer will receive. DLRPC 1.5(e) does not require this, but like Model Rule 1.5(e), does require that the client be notified of the fee agreement in writing and not “object to the participation of all the lawyers involved.” DLRPC 1.5(e)(1). Both rules require that the lawyers’ fees be reasonable.
Comment 7 of DLRPC 1.5 states that it is not necessary to disclose how much of the fee each lawyer will receive, as compared to Comment 7 of Model Rule 1.5, which requires that the client acquiesce to the amount of the fee that each lawyer will receive.
DLRPC 1.5(f) does not have a counterpart in the Model Rules. This provision allows a lawyer to collect advance fees as long as the lawyer advises the client, in writing, that “the fee is refundable if it is not earned.” This writing must advise the client how the lawyer will determine that the fees are earned, with unearned fees being required to stay in the lawyer’s trust account. DLRPC 1.5(f). A client must be furnished with a statement when money is withdrawn from the account. DLRPC 1.5(f)(3).
Comments 9 through 13 correspond to the requirements in DLRPC 1.5(f) and do not have corresponding comments in the Model Rules.
DR 2-106 corresponds to DLRPC 1.5(a) and prohibits a lawyer from charging a client a “clearly excessive fee.” DR 2-106(B) lists the factors to be considered in determining whether a fee is reasonable and these factors are identical to the factors listed in DLRPC 1.5(a).
Although there is no disciplinary rule in the Model Code that prescribes communication of the fee agreement to the client, directly corresponding to DLRPC 1.5(b), EC 2-19 does suggests that it is “usually beneficial to reduce to writing the understanding of the parties regarding the fee, particularly when it is contingent”.
DR 2-107(A), like the Model Rules, requires that fee divisions be in proportion to the legal services rendered. This is different from DLRPC 1.5(e) which does not impose this requirement.
DR 9-102 is distinguishable from DLRPC 1.5(f)(3) which requires that advance payments which are not yet earned by the lawyer be deposited in the client trust account. DR 9-102 allows a lawyer to deposit advance payments in the lawyer’s personal account. DR 9-102 does not require a statement to be issued upon withdrawal of client funds, as does DLRPC 1.5(f)(2). However, the code provision does prohibit commingling, as does Comment 13 of DLRPC 1.5.
1.5:200 A Lawyer’s Claim to Compensation
Absent a written fee agreement, a court will allow an attorney to recover in quantum meruit if there is evidence that services have been rendered. Heiman, Aber & Goldlust v. Ingram, No. 96C-05-047 HDR, 1999 Sup. Ct. Del. WL 1240904 (Aug. 18, 1999) at *2. In Heimen, Aber & Goldlust v. Ingram, the attorney intended to charge the client on an hourly basis and the client argued that the parties had agreed that the client would not be charged in return for referrals. Id. at *1. The court held that there was not sufficient evidence to prove a contract for fees but since the client admitted that the attorney performed services, the attorney was entitled to recover the reasonable value of those legal services. Id. at *2.
An attorney is permitted to “recover compensation for his services from a fund recovered by his aid” by charging a lien. DiLoreto v. Tiber Holding Corp., No. 16564, 2001 Del. Ch. WL 221001 (Feb. 23, 2001) at *4 aff’d 804 A.2d 1055 (Del. 2001) quoting Royal Ins. Co. v. Simon, 174 A. 144 (Del. Ch. 1934). If the lawyer and client agree that the lawyer will receive the fee from the recovery, then the lawyer has the right to collect this fee before other creditors under a “first in time equals first in right” rationale. DiLoreto. 2001 Del. Ch. WL 221001 at *4. However, an attorney will not receive this priority if the attorney entered into a contingency fee agreement with the client. Id. at *5.
If an attorney represents a plaintiff who receives a judgment from a worker’s compensation board along with attorneys’ fees, if the defendant fails to pay in a reasonable time, the attorney can file a claim under the Delaware Wage Collection Act, 19 Del. Code. Ann. §1113, to recover the fee. Konkiel v. Wilmington Country Club, No. Civ.A.03C-04-284PLA, 2004 Del. Super. Ct. WL 1453250 (July 6, 2004) at *8.
Comment 14 of DLRPC 1.5 recommends using arbitration to resolve fee disputes. The arbitrator has the obligation to examine the attorneys’ fees according to the factors in DLRPC 1.5(a) to determine reasonableness. Blank Rome v. Vendel, No. C.A. 19355, 2003 Del. Ch. WL 21801179 (Aug. 5, 2003) at *8.
1.5:300 Attorney-Fee Awards (Fee Shifting)
Under the American rule, the party who wins the litigation pays his own attorneys’ fees unless there is a statute that prescribes a fee-shifting scheme or there is an applicable common law rule. Tandycrafts v. Initio, 562 A.2d 1162, 1163 (Del. 1989).
Common Fund and Corporate Benefit Doctrines
In order to shift attorneys’ fees, the resolution of the action must have created a common fund or the resolution must have conferred a benefit on the corporation. Tandycrafts v. Initio Partners, 562 A.2d 1162, 1164 (Del. 1989). The following elements must be fulfilled to permit recover of attorneys’ fees under both the common fund doctrine and corporate benefit doctrine: “(a) the claim was meritorious when filed; (b) the action was benefiting the corporation or a class was created prior to judicial resolution of the suit; and (c) the benefit was causally related to the lawsuit.” Id. at 1167.
Under the common fund doctrine, “a litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole.” Goodrich v. E.F. Hutton Group, 681 A.2d 1039, 1044 (Del. 1996), quoting, Boeing Co. v. Van Gemert, 444 U.S. at 478. A stockholder’s victory in litigation which grants an entitlement to examine books and records does not constitute the creation of a common fund. CM & M Group v. Carroll, 453 A.2d 788, 796 (Del. 1982).
A corporate benefit is broadly construed to include not just monetary benefits, but other improvements in the corporation which will likely save money. Tandycrafts, 562 A.2d at 1165. If after the suit is filed, the case becomes moot because the corporation takes the action desired by the plaintiff, the burden is on the defendant to show that the action was not caused by the lawsuit. United Vanguard Fund v. Takecare, 693 A.2d 1076, 1080 (Del. 1997). The Delaware Supreme Court, in Waterside Partners v. Brewer and Co., held that litigation challenging a rejected merger proposal was not causally related to the benefit obtained since the proposal was rejected in a proxy contest before resolution of the litigation. 739 A.2d 768, 769 (Del. 1999). In Seinfeld v. Coker, the court awarded the plaintiff attorneys’ fees from a common fund when the litigation which addressed payments made to directors caused the corporation to settle with the directors and save money for the corporation. 847 A.2d 330, 332 (Del. 2000).
For recovery under this doctrine, a single stockholder can recover; there is no requirement that there be a class action or a derivative suit. Tandycrafts, 562 A.2d at 1165 . The court identified the proper test as not “the status of the plaintiff but the nature of the corporate or class benefit which is causally related to the filing of the suit.” Id. at 1166. In Tandycrafts v. Initio Partners, the court allowed a single stockholder to recover under the corporate benefit doctrine when the court determined that the stockholder’s suit caused the corporation to correct its proxy. 562 A.2d at 1167.
In Fisher v. Council of the Devon, the court declined to extend the corporate benefit doctrine when the plaintiff sued a condominium association to induce them to improve the lobby and before resolution of the suit, the owners approved the improvements. No. 17190, 1999 Del. Ch. WL 1313661 (Dec. 17, 1999) at *2. The court crafted a more stringent test for the application of the common benefit doctrine to a condominium association where “(i) the legal right involved is an important one and plaintiff has shown a clear entitlement to the relief sought, (2)…plaintiff made substantial efforts to obtain the agreement of the governing body to the relief requested, and (3)…plaintiff made substantial efforts to secure the agreement of other unit owners to his or her position or their participation in the litigation.” Id. at *3. The court then said that the costs incurred by the condominimum association must be “reasonably necessary to achieve an important objective.” Id.
Bad faith exception
In order to shift attorney’s fees under the bad faith exception to the American Rule, “the party against whom the fee award is sought must be found to have acted in subjective bad faith...” Williams v. Spanagel, No.14488, 2000 Del. Ch. WL 1336728 (Sept. 14, 2000) at *7 aff’d 787 A.2d 101 (Del. 2001) (Table) quoting, Arbitrium (Cayman Islands) Handels AG et al. v. Johnson 705 A.2d 225, 231-232 (Del. Ch. 1997) aff’d 720 A.2d 542 (Del. 1998). The party attempting to shift the fee must have “clear evidence” of the other party’s bad faith. Williams, 2000 Del. Ch. WL 1336728 at *7 quoting, Arbitrium (Cayman Islands) Handels AG et al, 705 A.2d at 231-232. Fees are awarded under the bad faith exception “only in the most egregious instances of fraud or overreaching.” In Re Carver Bancorp, No. 17743-NC, 2000 Del. Ch. WL 1336722 (Aug 28, 2000) at *1 quoting, Arbitrium (Cayman Islands) Handels AG et al, 705 A.2d at 231.
In Williams v. Spanagel, although the court determined that the Spanagels breached a fiduciary duty to Mrs. Brugmann when handling her financial affairs, it was unable to determine that “their conduct, though wrongful, was so egregious that an injustice would result if they were not ordered to pay their adversary’s attorneys’ fees.” Williams, 2000 Del. Ch. WL 1336728 at *8. The court in In Re Carver held that a company did not act in bad faith even though the affidavit on which they relied was “replete with half-truths and misleading statements.” In Re Carver Bancorp, 2000 Del. Ch. WL 1336728 at *3. While the company could have been subject to Rule 11 sanctions which could result in the award of attorneys’ fees, this case did not rise to the level of bad faith since there was “at least a colorable legal argument.” Id. at *4. In Kirkpatrick v. Caines Landing Wildlife Preserve Ass., plaintiff asserted that a partnership agreement continued to exist after a partner gave notice, even though the agreement stated a prescribed method for giving notice to terminate the partnership. No. 11833, 1992 Del. Ch. WL 332104 (Nov. 12, 1992) at *4 aff’d Caines Landing Wildlife Preserve Ass’n v. Kirkpatrick, 633 A.2d 369 (Del. 1993) (Table). The partner gave notice of the termination but not in the manner prescribed in the agreement. Id. However, since the other partners acted as if the given notice was effective, the defendant asserted that the plaintiff’s claim that the partnership still continued was brought in bad faith. Id. at *6. Though the court was not pleased with the plaintiff’s conduct, since there was “an at-most-barely-arguable legal basis,” then this did not rise to the level of bad faith. Id. In Savitch v. Paolino, the court determined that a plaintiff who demanded payment on a loan when neither the loan amount nor the dates that the payments were due were documented in writing, could not recover attorneys’ fees under the bad faith exception. Savitch v. Paolino, No. Civ. A. 19563, 2003 Del. Ch. WL 22594463 (Oct. 31, 2003) at *3. In DuPont v. Admiral Ins. Co., the court held that an insurer’s failure to pay a claim after an investigation, even if the investigation is inadequate, does not in itself constitute bad faith. No. 89C-AU-99, 1994 Del. Super. Ct. WL 465547 (Aug. 3, 1994) at *5.
The following statutes shift fees to a party in a manner similar to the common law bad faith exception to the American Rule, although the tests do not seem as stringent as the common law rule. In a suit brought by a plaintiff under the False Claims and Reporting Act, if the defendant prevails in the action and the court determines that the plaintiff filed the suit in order to harass the other party, filed a frivolous suit, or based the suit on facts which were not supported, then the court may order the plaintiff to pay the defendant’s attorneys’ fees. Del. Code Ann. tit. 6, §1205 (2000). If a court determines that a payment for building construction was delayed in bad faith, then the winning party may be awarded attorneys’ fees. Del. Code Ann. tit. 6 § 3506 (2004). However, also under this statute, if a claim or defense is asserted in litigation which is not in good faith, that party may be obligated to pay attorneys’ fees for the opposing party. Id. If a plaintiff brings an action for discrimination in a public place in order to harass a party, the defendant may be awarded attorneys’ fees. Del. Code Ann. tit. 6 § 4508 (1996). Similarly, a plaintiff who brings an action under the Fair Housing Act in order to harass the other party may be ordered to pay the other party’s attorneys’ fees. Del. Code Ann. tit. 6 § 4615 (1992). If a plaintiff sues for breach of an automobile warranty in bad faith, the defendant may be awarded attorneys’ fees. Del. Code Ann. tit. 6 § 5005 (1987-88). An insurer who withholds payment to an insured in bad faith will be ordered to pay attorneys’ fees to the insured. Del. Code Ann. tit. 21, §2118B (1993). The winning party “in an order either upholding a notice of pendency or canceling a notice of pendency…” may be awarded attorneys’ fees if the other party asserted a claim or defense in bad faith. Del. Code. Ann. tit. 25 § 1611 (1989). A defendant may be awarded attorneys’ fees if the plaintiff who brought suit under the Freedom of Information Act brought the suit to harass the other party or the suit was frivolous. Del. Code Ann. tit. 29 §10005 (1987-88). If a plaintiff asserts “a claim of misappropriation [of trade secrets]…in bad faith,” or files “a motion to terminate an injunction…in bad faith,” the winning party may be awarded attorneys’ fees. Del. Code. Ann. tit. 6 § 2004 (1981-82).
If the insurance commissioner is sued for libel or slander and the plaintiff is not “substantially justified” in bringing the suit, the Commissioner may be awarded attorneys’ fees. Del. Code. Ann. tit. 18 § 330 (1991). This is a slight modification of the common law bad faith standard. Id.
The following statutes shift attorneys’ fees in order to be punitive. If a party is found to be in “willful or wanton” violation of the statute which regulates motor vehicle franchising, then that party may be ordered to pay the injured party’s attorneys’ fees. Del. Code Ann. tit. 6 § 4916 (1991). Similarly, a customer who successfully brings suit against a car repair company and that company is in violation of certain car repair fraud laws, then the customer may be awarded attorneys’ fees. Del. Code Ann. tit. 6 § 4909A (1996). If a court holds that a lease is “unconscionable,” then “the court shall award reasonable attorney’s fees to the lessee.” Del. Code Ann. tit. 6 § 2A-108 (1992). If the court finds that a party misappropriated trade secrets in a “willful and malicious” manner, then the court may grant attorney’s fees to the winning party. If a party has participated willfully “in a deceptive trade practice,” the court can order them to pay the winning party’s attorneys’ fees. Del. Code Ann. tit. 6 § 2533 (1994). If a party has been found to be in violation of the statute regulating payment for building construction, then that party will award fees to the winning party unless the parties contracted otherwise. Del. Code Ann. tit. 6 § 3509 (2002). Delaware procedural rules allow a court to sanction a party who has violated the rules of Delaware procedure. E.g., Del. R. Civ. P. Rule 33 (1993).
The following statutes carve out exceptions for factual circumstances without regard to bad faith. If a plaintiff wins a derivative suit against a partnership, a limited partnership, or a limited liability company, a court may award attorneys’ fees to the plaintiff. Del. Code Ann. tit. 6 §15-405 (1999), Del. Code Ann. tit. §17-1004 (1994), Del. Code Ann. tit. 6 §18-1004 (1992). Similarly, a plaintiff who prevails in a derivative suit to recover from a statutory trust may receive attorneys’ fees. Del Code Ann. tit. 12 § 3816 (1990). In a suit by a customer against a car manufacturer for breach of “express warranty made in connection with the sale of such automobile…”, the prevailing plaintiff may be awarded attorneys’ fees. Del. Code. Ann. tit. 6 § 5005 (1987-88). A court may award attorneys’ fees from a trust if the trust is in contention in the suit. Del. Code Ann. tit. 12 § 3584 (2000). A plaintiff who sues his employer for wages and is successful will also receive attorneys’ fees. Del. Code Ann. tit. 19 § 1113 (1983-84). A court may award attorneys’ fees to a plaintiff who is discharged by his employer when the plaintiff notifies the authorities of the employer’s violation of the law. Del. Code Ann. tit. 19 § 1704 (2004). A school who sues an athlete who violates the Delaware Uniform Athlete Agents Act and prevails may receive attorneys’ fees. Del. Code Ann. tit. 24 § 5416 (2001). A plaintiff who sues a state agency for a violation of the Freedom of Information Act and prevails, may be awarded attorneys’ fees. Del. Code Ann. tit. 29 §10005 (1987-88). In a divorce case, it is within the court’s discretion to award attorneys’ fees after taking into consideration each of the parties’ finances. Del. Code Ann. tit. 13 §1515 (1915).
1.5:400 Reasonableness of a Fee Agreement
A lawyer will be disciplined under DLRPC 1.5(a) for charging an unreasonable fee. In Re Hull, 767 A.2d 197, 200 (Del. 2001), In Re Fox, No. 17 (Dec. 28, 1995), aff’d, 676 A.2d 902 (Del. 1996) (Table) No. 484 Del. WL 21033 (Jan. 2, 1996). A lawyer’s fee was deemed unreasonable when her original agreement did not discuss the fee for personal injury protection benefits. Id. The lawyer persuaded the client to amend the agreement to allow her a 35% contingency fee of the benefits received when not much work was required, simply sending information to an insurance company. Id. Another attorney was disciplined for violating DLRPC 1.5(a) and charging an unreasonable fee when the lawyer charged $1,000 for what amounted to about 3 hours of work, according to an attorney who reviewed the client’s file. In Re Rodriguez, Board Case No. 38, (1998) aff’d by 793 A.2d 310 (Del. 2002) (Table), Nos. 186 and 386 Del. WL 4332019 (Mar. 14, 2002). In another matter, the lawyer violated 1.5(a) when she was paid $950 and failed to respond to the ex-husband’s motion or contact the client spouse about the matter. In Re Rodriguez, Board Case No. 41, (1998). In an additional case, the lawyer admitted that she charged an unreasonable fee when she charged a client $150 and did not do the promised work. In Re Rodriguez, Board Case No. 81, (1998). Similarly, an attorney was disciplined for charging an unreasonable fee for minimal work that he never finished. In Re O’Neal, Board Case No. 33, 34, 67 (1998), aff’d, 712 A.2d 476 (Del. 1998) (Table) No. 195 1998 Del. WL 309799 (May 14, 1998). The attorney also admitted that he violated 1.5(a) when he collected a fee from a client for work that he never performed. Id.
Another attorney was disciplined for charging an unreasonable fee when the attorney charged $41,000, and another lawyer who actually performed the work, only charged $20,000. In Re Benge, 783 A.2d 1279, 1282 (Del. 2001).
Courts apply the factors articulated in DLRPC 1.5 in divorces, class actions and worker’s compensation fee awards to determine reasonableness of fee applications. DiPasquale v. Heller, No. 98C-09-040 WLW 1999 Sup. Ct. Del. WL 1238146 (Oct. 28, 1999) at *1. The amount of hours may be reduced in a fee application if the court determines that in light of the attorney’s experience, the number of hours spent is unreasonable. Bureau for the Visually Impaired v. Lawrence, No. Civ. A. 97A-11001-RSG 1999 Sup. Ct. Del. WL 1568341 (Nov. 18, 1999) at *1. In Aiken v. General Motors Corp., in determining a reasonable fee, the court decided that the issues were complex but the court considered that most of the research from the lower court argument could be used for the Supreme Court and thus set the number of hours. No. C.A. 95A-07-011 RSG 1998 Del. Sup. Ct. WL 1469739 (Oct. 1998) at *2. Time spent on the case is one factor but “is not controlling.” Catalytic v. McNelly, 1989 Sup. Ct. Del. WL 112010 (Sept. 8, 1989) at *1. The lawyer’s expertise is also important and how that affects the case. Id. In State v. Pepper, the court took into consideration how long each party had been practicing worker’s compensation law along with the number of hours worked to determine what fee was reasonable. 1988 Del. Sup. Ct.. WL 90546 (Aug. 9, 1988) at *2 aff’d Pepper v. State, 561 A.2d (Del. 1989) (Table). The court said that it is reasonable for a less experienced attorney to bill more time than a more experienced attorney, as long as this less experienced attorney’s hourly rate is lower. Id. However, the amount of hours must be reasonable and the client must not be made to pay for a lawyer to be trained. Id.
A Board’s explanation of a fee award in a worker’s compensation matter must give reasons for the decision based on the factors in DLRPC 1.5. Ohrt v. Kentmore Home, No. C.A. 96A-01-005 RRC 1996 Sup. Ct. Del. WL 527213 (Aug. 9, 1996) at *3. The Board’s reasons were sufficient where they discussed the time spent on each issue, whether the issue was contested and whether there was sufficient legal precedent, even though the Board seemed to focus on time spent. Id. at *6. In another worker’s compensation case, the Board awarded attorneys’ fees, finding them reasonable, but specific factors were not discussed. Branch v. Chrysler Motors Corp., No. C.A. 95A-08-006-RRC 1996 Sup. Ct. Del. WL 527283 (May 20, 1996) at *6. Because no factors were stated, the decision was reversed. Id. at *1. If the party in a worker’s compensation case is the appellee and cannot control what issues are included on appeal, the attorney can recover for issues for which he is unsuccessful. However, when the party is the appellant and can control the issues, and chooses to focus on issues that are likely to be unsuccessful, it may not be reasonable to award fees for the work on those issues. Pollard v. Placers, No. 95A-09-021 RRC 1996 Sup. Ct. Del. WL 527211 (Aug, 1996) at *2 aff’d 703 A.2d 1211 (Del. 1997). A fee can be more than the award as long as it is reasonable. Id. at *4. However, in Nassau Gallery v. Nationwide Mutual Fire Ins. Co, which is not a worker’s compensation matter, the court expressed a different view, noting an attorney’s fee should correspond to the amount recovered. Nassau Gallery v. Nationwide Mutual Fire Ins. Co., No. Civ. A,. 00C-05-034 2003 Sup. Ct. Del. WL 22852242 (Nov. 18, 2003) at *4.
In a family law case, where a party is award fees, the DLRPC 1.5 analysis to determine reasonableness must be on the record. R.P.M. v. M.A.M., No. CN02-09708, 02-29221 2004 Del. Fam. Ct. WL 3245801 (Nov. 4, 2004) at *10. In J.J.H. v. D.A.H., the court found that the wife’s requested attorneys’ fees were reasonable in light of the attorney’s experience, the paralegal’s experience in family law, and testimony from the husband’s attorney that he charged the same fee as the wife was requesting. No. CN98-11650 2001 Del. Fam. Ct. WL 1857145 (Dec. 10, 2001) at *2. The court also noted how prepared the attorney was. Id. In Halko v. Halko, in determining the reasonable amount of attorneys’ fees to award, the court reduced the fee because there was nothing particularly unusual or new about the issue and two attorneys were requesting to be paid when only one was actually necessary. No. CN97-06103 1997 Del. Fam. Ct. WL 878692 (July 17,1997) at *2.
The presence of a fee agreement does not eliminate the necessity of the court to determine that the fee is reasonable, but if there is an agreement between a lawyer and a sophisticated client, this can effect the determination. Blank Rome v. Vendel, N0. C.A. 19355 2003 Del. Ch. WL 21801179 (Aug. 5, 2003) at *8.
An attorney was disciplined for the violation of DLRPC 1.5(a) when not having performed the work, he billed one client 150 hours amounting to $18,125, billed another client 60 hours amounting to $9,649, billed 40.6 hours to an additional client totaling $6090, and $4500 to yet another. In Re Lassen, 672 A.2d 988, 992 (Del. 1996).
An attorney will be disciplined for depositing unearned retainer fees in the attorney’s personal bank account as a violation of DLRPC 1.5(f), and for refusing to refund a fee that has not yet been earned. Comment 9, In Re Garrett, 835 A.2d 514, 521 (Del. 2003). The attorney in In Re Rodriguez, No. 368 (Del. 2002), represented a client in a custody dispute and when the child at issue died, the lawyer refused to return the retainer fee and failed to keep accurate records. The attorney was disciplined for charging an unreasonable fee under Rule 1.5(a), because 1.5(f) was not yet enacted. Id., See In re Garrett, 835 A.2d at 521. The same attorney charged a $1500 retainer, followed by a $750 charge, yet would not return the client’s phone calls. A lawyer reviewing the file recommended that $1,350 was owed to the client as an unearned fee. In Re Rodriguez, No. 368 (Del. 2002). The fee, deposited in the lawyer’s personal account and spent, was deemed unreasonable. Id. This same attorney again requested a retainer from another client and stopped responding to the client. Id. Determined by a third party that $540 of the $750 retainer was not earned, the lawyer violated 1.5(a) when she deposited the entire fee and refused to pay it back. Id. Similarly, the attorney charged a $1500 retainer in another case which a third party suggested should have been $350. Id. Rodriguez violated 1.5(a) and was unable to return this retainer because it was deposited in her personal bank account and spent. Id.
Perhaps as a response to this problem, DLRPC 1.5(f) also requires that when an attorney charges a client an advance fee, the attorney is required to provide the client with a “written statement [which] shall state the basis under which the fees shall be considered to have been earned…” An attorney received a private reprimand for failing to provide a client in a criminal matter with such a written statement. Board Case No. 24 (Dec. 6, 2002). As a result, when the client pled guilty, the attorney deemed the fees earned, but the client wanted to appeal and thought that the fees were not earned until after the appeal. Id. Other attorneys have been disciplined for not providing their clients with written statements detailing how advanced fees would be earned. In Re Autman, No. 434 (June 3, 2002), In Re Becker, No. 235 (July 31, 2001), Board Case No. 9 (Oct, 4, 2000).
Comment 9 of DLRPC 1.5 states that “[a]ll fees paid in advance are refundable until earned.” Therefore, until the fee has been earned by the lawyer it must remain in the attorney’s client trust account. Comment 9. Whether a fee is deemed to be earned depends in part on the size of the fee. Comment 10, Comment 11. Small fees “may be considered earned in whole upon some identified event, such as upon commencement of the attorney’s work on the matter or the attorney’s appearance on the record.” Comment 10. The comment distinguishes between earning upon beginning the work and “earning upon receipt” of the funds. Comment 10. For larger fees, often one event will not be sufficient for those fees to be deemed earned and the attorney has an obligation to disclose to the client how fees will be earned. Comment 11. Once the fee is earned, the attorney must withdrawal the fee from the client trust account, or the attorney may be disciplined for commingling funds. Comment 13.
1.5:500 Communication Regarding Fees
An attorney was disciplined for violating DLRPC 1.5(b) for not sufficiently communicating the fee arrangement to the client. The attorney requested a flat fee, but never discussed whether this would include other costs. Board Case No. 9 (Oct. 4, 2000). The board determined that in this case, “a written fee agreement should have been used.” Id. This suggests that though a written fee is not generally required, in some circumstances, an attorney may be disciplined for failure to communicate the fee arrangement if oral communications are not sufficiently clear and comprehensive. Id.
In a fee dispute, when an attorney has orally communicated the fee arrangement to a client, the attorney has the “burden to establish that the fee arrangement as communicated to his clients clearly entitled him to seek additional fees.” In Re Estate of Green, No. 93948, 1993 Del. Ch. WL 93384 (March 5, 1993) at *3. In this case, the fee agreement was not in writing and the clients testified that the attorney limited the amount of his fee to 2.8% of the estate. Id. at *2. The court admonished the attorney for not reducing the fee agreement to writing and capped the attorney’s fee at 2.8%. Id.
When an attorney has not reduced the fee agreement to writing, if there is evidence that the client knew that the attorney was representing the client, this is sufficient to show that there is an oral fee agreement. Bouchard Margules and Friedlander v. Gaylord, No. Civ. A. 01C-10-131CLS, 2003 Del. Super. Ct. WL 22852615 (Dec. 1, 2003) at *2.
1.5:600 Contingent Fees
An attorney will be disciplined for violating DLRPC 1.5(c) for failing to put a contingency fee agreement in writing. In Re Maguire, 725 A.2d 417, 418 (Del. 1999), Board Case No. 30 (Dec. 31, 1997), Board Case No. 2 (June 21, 1995), Board Case No. 20 (Aug. 9, 1994), Board Case No. 5 (July 28, 1993), Board Case No. 15 (Feb. 11, 1991). A lawyer was disciplined for violating DLRPC 1.5(c) when the lawyer asked the client which type of fee was preferable, contingent or hourly, and the clients never answered. Months later, the clients decided that they wanted a contingent fee arrangement and the lawyer never put this arrangement in writing. Board Case No. 20 (Aug. 9, 1994). In another case a lawyer was disciplined when he did not put the contingency fee agreement in writing and the client terminated the representation. Eleven months later, the client wanted the lawyer to represent him again and the lawyer conditioned this representation on putting this contingency fee in writing. The eleven month period when the agreement was not in writing was a violation of DLRPC 1.5(c). Board Case No. 30, (Dec. 31, 1997). Another lawyer was disciplined for failure to put a contingency agreement in writing when he withheld 1/3 of the recovery for attorneys’ fees, even though the client believed that the fee would be 30% of the recovery. Board Case No. 43 (Dec. 21, 1998).
a client ends the representation without cause, before the
contingency has occurred, the attorney is permitted to recover
quantum meruit limited by the amount specified in the contingent fee
agreement. Webb v. Harleysville Ins. Co., No. 92C-01-017,
1995 Del. Super. Ct. WL 716757 (Oct. 23, 1995) at *3. In Webb v.
Harleysville Ins. Co., the client discharged the lawyer before
trial and subsequently recovered at trial. Id. at *1. The
court determined that the attorney who had been discharged without
cause was entitled to receive a reasonable hourly fee, plus an
additional one third of that hourly fee. Id. at *3.
1.5:700 Unlawful Fees
A lawyer will be disciplined for violating DLRPC 1.5(d)(2) if the lawyer enters into a contingency fee agreement with a client while representing that client in a criminal case. Board Case No. 9 (Oct. 17, 1990).
An attorney will be disciplined under DLRPC 1.5(a) if the attorney enters into an agreement in contravention of a statute limiting attorney’s fees. Board Case No. 25 (Nov. 6, 1996). An attorney received a private reprimand for collecting a contingency fee which was above the limit set by a statute limiting attorneys’ fees in worker’s compensation matters. Id.
If an attorney enters into an agreement with a client in a worker’s compensation case and the agreement provides for payment over the limit of $2,250, the Board will not allow the fee. Huff v. Industrial Accident Board, 430 A.2d 796, 797 (Sup. Ct. Del. 1981).
An attorney is not permitted to charge a client for overhead costs. Kennedy v. Kennedy, 1989 Del. Fam. Ct. WL 133242 (Oct. 17, 1989) at *20.
1.5:800 Fee Splitting (Referral Fees)
DLRPC 1.5(e) sets forth the requirements for splitting fees for lawyers in different firms. DLRPC 1.5(e) requires that the client be notified in writing that the lawyers are splitting fees, that the client does not object to this, and that the fee be reasonable. As is noted above, DLRPC 1.5(e), unlike the Model Rules, has no requirement that the split be in proportion to the legal services rendered or the responsibility assumed. As distinguished from Model Rule Comment 7, DLRPC 1.5 Comment 7 does not require that the client know what share of the fee each lawyer will receive. DLRPC 1.5(e) was revised in 2003 to eliminate the requirement that the fees be split in proportion to the services performed by each lawyer.
A lawyer who admits that he did not comply with the requirements of DLRPC 1.5(e) in agreeing to split a fee with an out of state attorney may not use this non-compliance to render the agreement void. In Potter v. Pierce, the out-of-state lawyer’s state did not have a similar rule so the out-of-state lawyer did not violate his state’s ethics rule. Potter v. Pierce, 688 A.2d 894, 895 (Del. 1997).
If the fee-splitting agreement is between a former associate of a law firm and the law firm, DLRPC 1.5(e) does not apply to the agreement. Comment 8, Tomar, Seliger, Simonoff, Adourian & O’Brien v. Snyder, 601 A.2d 1056, 1059 (Sup. Ct. Del. 1990).