A retainer agreement

On Aug. 30, in Balducci v. Cige, the Appellate Division affirmed a Law Division judgment which declared defendant-attorney's retainer agreement with plaintiff “unenforceable and void,” and dismissed his counterclaim for fees and costs. As a result, the attorney's recovery for legal services in representing plaintiff on a claim filed under the New Jersey Law Against Discrimination (LAD) was based on quantum meruit. The court found that the attorney “violated his professional responsibility to explain the Agreement's material terms” so that his client “could make an informed decision about retaining him.” Thus, he “did not explain the effect [the retainer agreement] would have on any recovery” or the “alternatives to such an agreement.” Nor did he tell his client about “the tens of thousands of dollars in expenses she would have to pay as the case progressed.”

Various disputes arose between the parties and when plaintiff terminated the attorney's services for lack of preparation and attention to the matter, he told her that she owed him approximately $250,000 based on his hourly rate and certain other charges about which she had been unaware. The retainer agreement provided that the attorney's fee would be calculated based on one of three methodologies that would yield the highest fee: (1) his $475 hourly rate; (2) a contingent fee equaling 37½ percent of the net recovery, including any attorney fee award; or (3) statutory fees awarded by the court under LAD's fee-shifting provision. Other aspects of the attorney's billing practices were also disturbing. For example, the attorney charged one dollar for every fax and every email he sent in addition to charging for his time, and 25 cents for every page photocopied. One of his bills included $1,700 for emails. Moreover, amazingly, he told his client that he was “padding his bills” so that when the defendants are “found guilty” they will have to pay for it. And the agreement required payment of a percentage of the client's wages for one year upon her reinstatement to her job, if that were the remedy obtained.

Although the Appellate Division found the agreement to be “problematic” because it was “ambiguous if not misleading,” it held it to be unenforceable not because of its questionable provisions but because the attorney had not adequately informed his client about its “ramifications,” a failure that it said was unethical. Thus, the court found that the attorney did not explain that, based on his hourly rate and “liberal billing practices,” his services “could approach or exceed plaintiff's recovery.” Moreover, there was credible evidence that the attorney had told plaintiff “he would not charge her his hourly rate.”

The court's stern rebuke to the attorney and nullification of his fee agreement was influenced by the fact that this was an LAD case, as to which strong policy reasons exist for including fee-shifting in favor of a prevailing plaintiff. As the court explained, the LAD is “remedial social legislation” with a goal of eradicating the “cancer of discrimination.” Toward that end, fee-shifting provisions were included to attract competent counsel “to advance the public interest through private enforcement of statutory rights that the government alone cannot enforce.” The fee-shifting provisions also advance LAD's policy that persons suffering discrimination receive damages because, by shifting payment of counsel fees to a defendant, injured parties' damages are not diminished by having to pay counsel fees. An hourly fee arrangement, said the court, undermines both the LAD policy of compensating victims and the policy of attracting competent counsel—and “can be financially devastating to a client.”

According to the court, most fee agreements in LAD cases do not include an hourly rate component. Thus, the court held that an attorney whose fee in an LAD case includes such component must “explain both the consequences on a recovery and the availability of other competent counsel likely willing to undertake the same representation based on a fee without an hourly component.” Such explanation should include the fact that the fee may approach or exceed the client's recovery, that other attorneys represent clients in similar cases on a contingent fee basis without an hourly component, and that the client may have to advance costs. The court warned that to comply with RPC 1.4(c), examples of such costs in other cases must be included, as must “full and complete disclosure of all charges which may be imposed.”

There can be reasonable debate about the details the Balducci court required in a LAD retainer agreement, especially the requirement to advise about fee practices of other counsel. Moreover, although the court did nullify this fee agreement because the attorney did not explain it sufficiently, we believe that its opinion would have been strengthened by an even stronger finding that the agreement itself was unreasonable and a violation of RPC 1.5(a).

Finally, even though it is an opinion about a case arising under a fee-shifting statute, Balducci v. Cige should be read by lawyers as a more general reminder of ethical obligations related to billing. The ethics implications are nicely highlighted by the court's statements that a “contract for legal services is not like other contracts” since “maximizing fees charged to clients should not be an attorney's primary aim.” Rather, the court warned, an attorney “must never lose sight of the fact that the profession is a branch of the administration of justice and not a mere money-getting trade.” This is a lesson all attorneys should keep in mind when preparing fee agreements or devising their billing practices.

Editorial Board member Harriet Derman recused from this editorial.