March 7, 1975
Ethics Opinon 1975-4
SUBJECT: ADVISORY OPINION REGARDING ETHICS OF AMOUNT AND METHOD OF PAYMENT OF LEGAL FEES
An attorney has requested the opinion of the committee whether the fees charged under the circumstances set forth in paragraph two below comprise a violation of any ethical standards or canons.
A client, a corporation in the construction industry licensed as a general contractor, owed approximately $6,500.00 in unpaid attorney's fees prior to the events described below.
The attorney then recorded a mechanic's lien at the request of the client in the amount of $33,279.00 on a parcel of real property in Los Angeles County. This resulted from the client's having constructed a commercial building for which he was unpaid; the company with whom he contracted to do the construction was insolvent and subsequently went bankrupt, and his only remedy was the lien. At the time the mechanic's lien was prepared and filed, the client acknowledged that his lien was probably filed too late which, in fact, it was. At his request, the filing of the lien was delayed because he still had hopes of recovering the money from the other party to the contract, and he agreed to file the lien only when it became apparent that this would not be possible.
Following recordation of the lien, a Superior Court lawsuit to enforce the same was filed in Los Angeles County. The defendants, owners of the real property, answered. Following the answer, the attorney filed a set of interrogatories, and found it necessary to file and argue a motion for further answers, which was granted. Thereafter, in preparation for trial, the attorney prepared admission requests, pretrial statements and other documents. Approximately two days of depositions took place involving both officers of the client together with various owners of the real property. The main issue throughout the case was whether the lien was filed in a timely manner. The above proceedings, together with a meeting with the opposing counsel in his office in Los Angeles and an inspection of the building site, required approximately four (4) one-day trips, and appearances, all in Los Angeles.
Following the answer in the above lawsuit, the defendant property owners filed a quit title and slander of title action, naming the attorney's client. This was also a Los Angeles case, and in defending that action, the attorney demurred to the complaint, and ultimately moved for consolidation of the quit title action and the mechanic's lien matter. This involved approximately two (2) additional trips to Los Angeles, together with similar discovery and preparation as above.
As the trial date approached, the opposing counsel and the attorney entered into settlement negotiations, resulting in a settlement for one-half (1/2) of the mechanic's lien sum, or the amount of $16,639.65. Pursuant to this settlement, stipulated judgment was entered, foreclosing the lien and providing that the above sum would be paid from an escrow should the defendant property owners be unable to sell the property. The property was ultimately sold, and the funds were paid from an escrow, into which a mechanic's lien release was deposited. The client signed the compromise and release agreement reflecting the above sum.
The fee arrangement for the recordation of the mechanic's lien and the preliminary interviews and the like with the client was on an hourly basis. However, the client desired to make some other arrangement for the prosecution of the mechanic's lien action based upon various factors. The factors included the client's unfavorable financial position, and his acceptance of the questionable nature of the mechanic's lien due to its tardy filing. Therefore, it was agreed that the attorney would file and prosecute the mechanic's lien action and advance costs on the basis of a promissory note for the fees then in existence plus the fees incurred in handling of this case. The client also executed an assignment of sufficient funds from the recovery, if any, to pay the outstanding fees of approximately $6,500.00, which had accrued prior to the inception of this case, together with the hourly fees expected to be incurred in the prosecution of the mechanic's lien matter. In addition, other minor matters were performed for the client during the pendency of the mechanic's lien action, and these fees were added into the billing; they amounted to no more than a few hundred dollars. All hourly rates were computed upon an average of $65.00 per hour. All together, approximately 170 hours were devoted to the handling of the two lawsuits relating to the mechanic's lien, together with the other matters.
The assignment of funds included a Power of Attorney to collect the funds in the client's name. When the settlement was accomplished, a check from the escrow in the above amount of $16,630.65 was deposited into the client's trust fund, and was disbursed according to the assignment of funds agreement. The sum of $6,527.59 was allocated to the previously outstanding fee, and the balance to the fees accrued in the prosecution and defense of the two lawsuits relating to the mechanic's lien. However, the fees for the handling of those matters, together with costs advanced in the sum of approximately $1,000.00, came to approximately $11,000.00. Therefore, the client received no cash individually from the settlement, the proceeds having been exhausted by the previously accrued fees together with the fees incurred in the handling of the lawsuit.
POINTS AND AUTHORITIES
Rule 2-107 of the Rules of Professional Conduct list the factors to be considered in determining the reasonableness of legal fees. It is not the proper function of this subcommittee, however, to render opinions on the reasonableness of fees.
In the last seven years the San Diego County Bar Association has given no opinions regarding the reasonableness of fees. This is apparently a uniformly accepted rule. Both A.B.A. and other local opinions reflect that the reasonableness of fees is a matter for judicial determination and not ethics committees. Maru, 1970 Supplement Citations to the Digest of Bar Association Ethics Opinions, Sections 5869, 5963 and 6016; Maru and Clough, Digest of Bar Association Ethics Opinions, Section 2281. Ethics committees have passed on the reasonableness of fees in cases where the fees were "clearly excessive," "flagrant," or "unconscionable." A.B.A. Informal Opinion No. 1091, December 31, 1968; A.B.A. Informal Opinion No. 269 cited at Section 27; Maru and Clough, supra.
Without expressing any opinion as to the reasonableness of the fees charged here, it is the opinion of this subcommittee that the fees charged cannot be said to be unconscionable, based on the factors listed in Rule 2-107.
Although the attorney requested an opinion only concerning the amount of his fees, the members of the subcommittee feel that two potential problems with the attorney's fee arrangement should be pointed out, without expressing an opinion because one was not requested and further, we were not furnished with sufficient facts to give one.
First, it is not clear from the statement of facts that the attorney discharged his responsibility to be sure that his client had a clear understanding of the fee arrangement in advance or whether the client had been made aware that the "hourly fees expected to be incurred in the prosecution of the mechanic's lien matter" could amount to $10,000.00 and consume the entire balance of recovery. California Rules of Professional Conduct 2-107(B)(9); West Virginia State Bar Opinion No. 50 (Legal Ethics Case 45).
Second, although in the usual contingent fee arrangement there is no conflict of interest between the attorney and the client, it is possible that some conflict arises when, as there, the contingent fee arrangement includes an agreement that the client's prior debt to the attorney may also be discharged out of any settlement. The members of the subcommittee felt that a potential for conflict arose in this fact situation because of the attorney's own interest at the point of settling for an amount sufficient to discharge his prior bill and to cover expenses and time he had spent on the mechanic's lien case itself.
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.