Attorney s Fees in Trust and Estate Matters: The Search for the Fair and Reasonable

Transcription

1 Attorney s Fees in Trust and Estate Matters: The Search for the Fair and Reasonable Sophisticated Estate Planning Techniques September 8-9, 2005 Boston, Massachusetts Hanson S. Reynolds Rackemann, Sawyer & Brewster One Financial Center Boston, MA Tel: (617) Fax: (617) hsr@rackemann.com

2 Table of Contents I. Introduction... 1 II. The Engagement Letter: Provisions for Fees... 2 Record Keeping... 5 The Use of Consultants... 8 The Expert Witness Excessive Litigation...16 Appendix 1. On Probate Fees, Paul B. Sargent, Boston Bar Journal, May The Proper Fee, or to Reach his Own, Paul B. Sargent, Boston Bar Journal, 1950 s 3. Affidavits and Time Entries: (a) The G. Case (b) The A. Case (c) The A. Case No. 2 (d) Pizziferri 4. Report of Expert 5. Court Opinions: (a) In the Matter of Laurence S. Fordham, Mass. 423, 481 (b) In re: Estate of George S. Halas, Jr., 159 Ill. App. 3d 818 (c) Lucille Gordon Shanus, etc., v. Robin Shanus and Susan Shanus Liucci, Etc., 15 th Judicial Circuit in and For Palm Beach County, Florida, Case No AF, Oct, 2000 (d) Mukerjee v. Chatterjee, 44 Mass. App. Ct. 1102; 688 N.E.2d 475; 1997 Mass. (e) App. Lexis 566 Grendel s Den v. John P. Larkin, et al; 749 F.2d 945; 1984 U.S. App. Lexis (f) Chase v. Pevear, 383 Mass. 350 (1981) (g) Campbell v. Toner, 2003 Mass. App. Div. 17, Feb. 6, 2003 (h) Campbell v. Toner No. 2, 2004 Mass. App. Div. 7, Feb. 2, California Codes business and Professions; Code 6148 i

3 Attorney s Fees in Trust and Estate Matters: The Search for the Fair and Reasonable I. Introduction Lawyers fees are much in the news these days. They became an issue in last year s presidential campaign. Two states, Florida and Nevada, enacted laws which limit attorneys fees in medical malpractice actions. In Massachusetts, the attorney general hired several private law firms to litigate an action against cigarette companies, and agreed upon a 25% contingent fee. When the state s share turned out to be $8.3 billion, the AG reneged and paid $775 Million to five firms. The firms sued, and a jury awarded another $100 Million, or 10.5% of the total settlement. Two recent ABA Journal articles focused on the filing of fee claims and fee disputes.1 Does this attention to legal fees, primarily in areas unrelated to trusts and estates, have any relevance or impact on the practices of trust and estate lawyers? It does, for two reasons: first, in the public perception, lawyers are lawyers, and even in the eyes of more sophisticated clients, there is often an inability or unwillingness to distinguish between a tort lawyer and a tax lawyer, a criminal lawyer and an estate planner. Second, court decisions on lawyers fees, regardless of the area of practice in which the fees were charged (criminal, civil rights, torts) may have a significant impact on the practices of trust and estate lawyers. I hope, in my presentation, to give you food for thought as you write your next engagement letter, prepare your next bill or decide on a strategy for your next fee dispute (whether the fees be yours or someone else s). These materials begin by looking at what should be the genesis of the fee process, the engagement letter: the focus will be on those paragraphs of the engagement letter which discuss the fees to be charged, how they are established and calculated, how you will bill the fees (and how often), and whether the client can expect changes in the course of the representation. Second, the materials will look at the fee application process both before one goes to court and in court, and we will review some actual examples of affidavits and computer billings which have been filed with petitions for fees (beware if you have not raised the possibility of an increased rate mid-case). 1 It s not Just about Money: Keeping Fee Disputes to a Minimum can be Key to Reducing Risks of Malpractice Claims and Disciplinary Complaints May 2004 ABA Journal, pp Fitting the Bill: When it s Time to Collect, Clients Appreciate Clarity and Detail. December 2004 ABA Journal, p. 30.

4 Third is the question of the use of consultants or expert witnesses in fee disputes. How does one determine whether a consultant or expert witness will be helpful? How do you select such a person? Can an affidavit or report be preferable to testimony in Court? Can it be useful in a motion for summary judgment? Again, I will provide you with some samples used in actual cases. Finally, the materials will look at cases of excessive litigation. What are your alternatives if you are mired in a case where the costs and fees are spiraling out of control? To what extent is the court willing to be helpful? Is ADR a possibility? How about a fee arbitration board? What duty do you as a lawyer have to explore settlement? An appendix of useful examples and cases is at the end of these materials. II. The Engagement Letter: Provisions for Fees In June of 1999, The American College of Trust and Estate Counsel published Engagement Letters: A Guide for Practitioners. It was described as a useful tool for the practitioner who either chooses to or is required by applicable law to use engagement letters in situations that are routinely encountered in daily practice. As recently as 1975, engagement letters were used by fewer than half the lawyers actively involved in trust and estate practice. This has changed dramatically in the last thirty years. Several states require engagement letters 2, and lawyers attitudes have moved from reluctance, and fear that the client would not like such a letter, to a view that the engagement letter affords an opportunity to explain the legal process to thc client, and to establish the fee for services and how it will be billed. Informal polls have shown that the large majority (75-80%) of trust and estate lawyers now use engagement letters. The ACTEC Guide contains six broad categories of engagement letters: spousal representation; representation of multiple generations; multiple party representation in business context; estate planning lawyer serving as a fiduciary; representation of fiduciaries; and client under a disability. Each section has useful references to the ACTEC Commentaries. These documents are available to all on the ACTEC website ( In the section of the ACTEC Guide dealing with Multiple Party Representation in Business Context (p. 29), there is a paragraph on Fee Arrangements (e.g. hourly, with or without an estimate, or a cap). This is a critical part of your engagement letter. 2 California Business and Professions Code Section 6148 is an example. A copy of the statute is included in the Appendix. 2

5 Have you or your firm decided on a fixed fee for a variety of estate plans or for an estate administration? This seems to be a popular method of charging legal fees in these two areas, and it has been accepted by many clients. If you do charge a fixed fee, it is important to spell out in detail what the client should expect to be done. In addition, you should explain any exceptions to the fixed fee: for example, if the client decides she wants an additional trust to hold her real estate, or decides that she wants an irrevocable insurance trust, these new parts of her estate plan may well require additional work and an additional fee. There are two facets to the exceptions to the fixed fee arrangement: (1) spell out in detail in the letter what is covered and what is not; and then (2) if the client requests something beyond the terms set forth in the letter, make sure you communicate that this will require extra work and an extra fee before you do the work. The ACTEC Guide suggests the fee arrangement may be fixed or hourly and with or without an estimate. It is preferable that the engagement letter set forth an estimate of what the entire representation will cost the client. Remember, this is an estimate, it is not written in stone, and it should be subject to adjustment. Many clients will not know, or be able to estimate on their own, the reasonable cost of the preparation, revision and execution of a sophisticated estate plan, or the cost of the administration of a $10 million estate. At least one court has said a client is entitled to have an estimate of the cost of the legal representation at the outset. 3 The ACTEC Guide suggests the engagement letter review the factors which might cause the fee to be different than the estimate. These factors might include: (1) enlarged responsibilities; (2) intervention by a government agency (an IRS audit, EPA claim of an environmental hazard on real estate, a title defect); (3) or litigation (claims against an estate, a will contest, a trust contest, a contested account). The engagement letter should give warning of these factors. When one or more of the factors occur, it is the duty of the lawyer to alert the client, refer to the engagement letter and make a new estimate of the fee. It is preferable that the client be asked to give his or her written consent that the lawyer proceed on the new basis and new fee estimate. There is a significant danger for the lawyer who does not warn the client the fee is going to exceed the original estimate, and for the lawyer who does not bill regularly (preferably monthly where there is regular, ongoing work being performed). The bill which is significantly larger than the lawyer s estimate in the engagement letter, or which comes after a six-month hiatus of no bills, may come as a particularly unpleasant surprise to the client. Several client reactions may occur: (1) this can t be right; (2) this isn t what your engagement letter says; or (3) I talked with two other lawyers about this and they said this fee 3 Matter of Fordham 423 Mass 481 (1996) This is the curious case of a distinguished lawyer who took on a drunk driving case although he had no experience in the field or in District Court practice. He won the case with an inventive argument, but only after extensive research and two trials. He charged $50,000, and the state supreme court held that to be excessive. The case is instructive and is included in the Appendix. 3

6 is excessive, and, furthermore, the only reason there was an IRS audit was because of your mistake. The engagement letter should set forth the lawyer s billing policies in considerable detail. First, is a retainer required? It is recommended that it should be required and it should be large enough to be a test of the client s commitment. If the client balks at the retainer or wants to negotiate the retainer down, this should be a warning signal and the lawyer should give serious consideration to declining the engagement. Once agreed upon, the retainer should be returned with the signed copy of the engagement letter, indicating that the client has read the letter, understands it, and agrees to its terms. Second, if the bills are to be based on an hourly time charge, the engagement letter should set forth the names of the persons who will be working on the matter (at least the lawyer in charge; titles such as associate or paralegal may suffice for the others) and the time charge or range of time charge for each person. If your office adjusts time charges on an annual or semi-annual basis and you intend to use that new rate in billing this client, you should explain that in the engagement letter. When the rate change becomes effective, you should notify the client explicitly, at the very least on the first bill which uses the new rate. Third, the engagement letter should set forth how often the lawyer will bill the client. If the fee is a fixed amount, there may be specific periods after a certain level of work has been completed. For example, in an estate plan, there may be: (1) a retainer; (2) a payment due after the first draft is sent to the client; and (3) a final payment after the documents are signed. In the administration of an estate, there may be: (a) a retainer, or a payment of a third of the fixed fee after the probate of the will and the appointment of the fiduciary; (b) a payment of another third after the filing of the estate tax returns; and (c) a payment of the final third after the completion of the final account, or if no account is required, after the receipt of closing letters from the taxing authorities and receipts and releases from all beneficiaries. If the fee is based on hourly time charges, it is recommended that bills be sent out on a monthly basis unless there is no work or a minimal amount of work done during a specific month. This serves the purpose of informing the client what work has been performed during the month and the status of the case at the end of the month. The bill itself should have enough detail to be self-explanatory, but where it is not, the lawyer should consider sending an explanatory letter along with the bill. Finally, the engagement letter should establish the lawyer s expectations with respect to payment of the bill. Commonly, the statement indicates that payment is expected within 30 days after receipt. In some cases, lawyers may wish to assess interest on any bill unpaid after the 30 day period, although I personally find that practice offensive. Other lawyers will recognize that any lengthy period of non-payment may be a warning of a problem and a signal that there should be a reassessment of whether the lawyer wants to continue the 4