Legal Malpractice Law Review : Professional Responsibility Case Summaries & Commentary : Bennett J. Wasserman : LegalMalpractice.com : Lawyer Malpractice & Legal Ethics

Diaz v. Paul Kennedy Law Firm, 289 F.3d 671 (10th Cir. 2002).

N.M.: Underlying criminal matter

Student Contributor: Manju Sunny

Facts: Plaintiffs, clients in the matter, brought suit against defendants, their attorneys. Plaintiffs retained defendants to represent them in criminal cases filed in the New Mexico state court. Defendants charged plaintiffs a flat fee of $15,000. There was no written fee agreement. Clients became unhappy with attorneys’ representation especially with regards to clients accepting a plea offer that attorneys believed to be highly favorable. As a result, plaintiffs rejected the plea offer, discharged the attorneys, and demanded the retainer fee back claiming ineffective representation.

Issue: Does  a court have the power to reduce the amount fixed by a contract between a client and attorney, if there is no showing of misconduct or neglect on the part of the lawyer?

Ruling: No. Under New Mexico law, if the parties have reached a contract of retainer that fixes the amount of the attorney’s compensation, and the attorney has not offended it , either through misconduct or neglect in providing professional services, the court does not have the power to reduce the amount fixed by the contract.

Lesson: Although the laws vary state to state, in New Mexico, where the attorney has not committed misconduct or neglect, a client cannot simply change the retainer fee agreement, and only pay the attorney for services rendered up to the discharge. If this were allowed, there would be no purpose in a client and attorney contracting, and would thus put the attorney at an unfair disadvantage.

Editor's Note: Interestingly, the Court must have felt that the flat fee  charged for the underlying defense services was reasonable under the circumstances, since  it did not mention that all attorneys fees are required to be reasonable, under RPC 1.5. 

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Kamaratos v. Palias, 360 N.J. Super. 76 (App. Div. 2003)

Student Contributor:  Melissa Goldberg

NJ Underlying Commercial Action

Facts: The Plaintiff was a minority shareholder in a corporation and retained Defendant attorney to represent its interests in  a dispute with the majority shareholder. The retainer agreement included an arbitration provision whereby  Plaintiff agreed that any dispute regarding fees would be resolved by binding arbitration between the parties in accordance with the New Jersey Uniform Arbitration Act. As litigation continued, Plaintiff challenged bills submitted by the attorney. Defendant filed an attorney’s lien to recover the unpaid legal fees. Plaintiff filed for fee arbitration  provided by NJ Court Rule 1:20A, but the fee arbitration committee declined  to hear it given the amount in controversy (usually more than $100,000.)  Plaintiff then argued that the retainer clause mandating arbitration of a fee dispute was against public policy and unenforceable.

Issue: Is a mandatory arbitration clause for fee disputes in a retainer agreement  enforceable?

Ruling: Yes. The attorney-client relationship does not inherently mandate a blanket preclusion of the arbitration of fee disputes. However, in the instant case, the arbitration clause was not binding on the Plaintiff, since the court did not believe that the retainer agreements clearly articulated the consequences of an agreement to arbitrate a dispute over legal fees.

Lesson:  In making a decision concerning the enforceability of arbitration clauses in retainer agreements, courts will consider:

•  the circumstances in which the agreement was made;
• the parties’ past practices and agreements
• the extent to which the parties actually negotiated the agreement; and 
• the client's level of sophistication or experience in retaining and compensating lawyers.

In addition, the prospective effect of an agreement to arbitrate must be clear to the client before it will be held to be binding upon him, e.g.,

• no right to a jury trial,
• no right to appeal,
• the binding nature of the arbitration award.

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