The state Supreme Court has upheld the invalidation of a retainer agreement between a paralegal-client, Lisa Balducci, and her then-lawyer, Brian Cige, in a suit brought under the New Jersey Law Against Discrimination. But the court has said the underlying issue needs a closer look from an ad hoc committee.

On a broader level, Balducci v. Cige centered on whether lawyers in LAD and certain fee-shifting cases must inform clients about aspects of their fees or refer them to attorneys who may represent them for less money.

Justice Barry Albin wrote in Wednesday's opinion that the Appellate Division and trial court for the most part got it right, but the appellate panel may have "exceeded the bounds of its charge" by creating new professional standards for fee-shifting cases.

"Although the Appellate Division's concerns over the retainer agreement in this case are understandable, the ethical pronouncements issued in its opinion may have far-reaching and negative effects, not only on employment-law attorneys and attorneys handling fee-shifting claims, but also on their clients," Albin said.

Chief Justice Stuart Rabner and Justices Jaynee LaVecchia, Anne Patterson, Faustino J. Fernandez-Vina, Lee Solomon and Walter Timpone joined in Albin's 42-page opinion.

Among the new mandates imposed by the appeals court in its August 2018 decision was that lawyers who wish to charge hourly fees in fee-shifting cases must inform their clients that other counsel would be willing to accept such cases on a pure contingency basis and willing to advance any litigation costs; and skilled LAD attorneys, who have not handled a "similar" case, should refer the client to a certified civil trial attorney who may have less experience and expertise in LAD matters.

Albin said the court reserved further review of the directives by a soon-to-be-formed special ad hoc committee composed of experienced lawyers and judges subject to approval by the court.

"With the valuable input and insight from the committee, this court then will be able to carefully survey all viewpoints and deliberate before considering any new rule of general applicability to the bar," Albin wrote.

Cige, a solo from Somerville who represented himself, called the decision disappointing.

"It is disappointing to the extent the Supreme Court did not address issues raised regarding bias of the trial judge to reach the goal of voiding my retainer agreement so the court could force my fee to be compromised to settle the underlying claim," Cige said in an email. "I am pleased the court recognized the significant [overreaching] by the Appellate Division and its process to resolve the important issues raised by this case."

"I'm very pleased with the result, certainly for my client," Jay Rice of Nagel Rice in Roseland, who represented Balducci, said in a phone call Wednesday. "I am also pleased the Supreme Court came to the conclusion that this particular retainer agreement was invalid and didn't meet ethical standards, and the court acknowledged that lawyer retainer agreements are different from typical contracts in that lawyers are held to a higher standard when entering into a retainer agreement with a client.

"It is great that they are forming this ad hoc committee for future rule-making as well," Rice said.

Last March, the Supreme Court agreed to hear Cige's appeal but limited his challenge to the invalidation of the agreement and his claim that the Appellate Division retroactively applied new rules of professional conduct.

The case attracted three amici: the New Jersey State Bar Association, the National Employment Lawyers Association of New Jersey, and the New Jersey Association for Justice.

Those groups appeared before the justices last fall, contending that the appellate panel was trying to rewrite the RPCs, which was outside its purview and reserved exclusively for the Supreme Court, while providing little to no guidance on fulfilling the new mandates. On Oct. 24 before the Supreme Court, Edward Zohn argued on behalf of the State Bar Association that the Appellate Division ruling "will have a substantial impact on lawyers who practice in solo and small firms, as they are often on the front line of advocating for clients in fee-shifting cases, including discrimination matters, consumer fraud and many others."

The same groups lauded Wednesday's ruling.

"The New Jersey Supreme Court decision today on Balducci v. Cige concurs with the New Jersey State Bar Association's amicus argument that there needs to be a more robust decision-making process to address what it considers the Appellate Division's new mandates imposing ethical requirements that could significantly impact the ability of attorneys to retain and serve their clients," NJSBA president Evelyn Padin, who heads a Jersey City firm, said in a statement to the Law Journal. "The NJSBA hopes to play a role in that process."

"The New Jersey Association for Justice, our leadership, and I are very pleased with the New Jersey Supreme Court's decision in Balducci," said Benjamin Folkman of Folkman Law Offices in Cherry Hill who represented the NJAJ. "We believe that the decision correctly upheld the Appellate Division's decision invalidating the retainer agreement and properly relegating construction issues related to fee agreements to the appropriate Supreme Court committee."

Albin said "hourly billing, contingent-fee arrangements, and fee-shifting provisions intersect in the retainer agreement in this appeal."

Like the appeals court and trial court, the justices ruled there was sufficient evidence that Cige failed to explain material terms of the retainer agreement to Balducci, thus rendering the agreement unenforceable.

"At its core, the dispute between Cige and Balducci amounted to a credibility contest," Albin wrote in the opinion.

According to the decision and prior documents, Balducci retained Cige in September 2012 to represent her in a bullying suit on behalf of her minor son against a school district brought under the state's LAD, which provides fee-shifting for prevailing plaintiffs.

Balducci later claimed that Cige procured the agreement in violation of the Rules of Professional Conduct. She terminated Cige as her counsel and hired another lawyer three years later. But not before Cige presented her with a bill for $286,746 in fees and expenses, according to documents.

The retainer agreement posed three ways to pay Cige: (1) an hourly rate multiplied by hours worked, regardless of whether the lawsuit prevailed; (2) a contingent fee 37.5% of the net recovery combined with any statutory attorney fees awarded under the LAD; or (3) the statutory attorney fees under the LAD awarded by judgment or settlement, according to court documents.

"The Appellate Division found the written retainer agreement here problematic because the attorney benefited from the greater of a contingent fee, a statutory award of attorney's fees, and the attorney's hourly fee, win or lose," Albin wrote. "Under that agreement, all the risk was borne by the client."

Albin pointed out that none of the amici came to the defense of Cige's retainer agreement.

Cige admitted that he did not inform Balducci of the potential value of the case, its potential expenses, or the estimated financial obligation she would bear if she lost. Nor did he detail the billing rates for expenses, such 25 cents per page for photocopies, and $1 per email sent or received by Cige, documents said.

"In sum, we hold that sufficient credible evidence in the record supports invalidating the retainer agreement and limiting Cige to the quantum meruit value of his services," Albin said.

In 2015 Balducci terminated Cige's representation and retained another lawyer to handle the case. In 2016, Balducci filed a declaratory judgment action seeking to have the retainer agreement voided. Somerset County Superior Court Judge Yolanda Ciccone said the agreement was unenforceable.

The Appellate Division panel—Judges William Nugent, Carmen Alvarez and Richard Geiger—agreed. Its published opinion in August 2018 that stated the new directives. The panel said a lawyer undertaking an LAD case whose agreement includes an hourly component is obligated to explain to the client "both the consequences on a recovery and the ability of other competent counsel likely willing to undertake the same representation based on a fee without an hourly component," Nugent wrote. "There is no dearth of competent, civic-minded attorneys willing to litigate LAD and other statutory fee-shifting cases under fee agreements that do not include an hourly component," he added.

On Wednesday, Albin said the administrative director of the courts will select the ad hoc committee members to review the mandates. One issue it may revisit, Albin said, is a cap on contingent fees in statutorily based discrimination and employment claims. The ad hoc committee then is to issue recommendations to the court.