How To Lose Your Legal Fee, Part 1: Excessive Fees

For the most part, lawyers in New York are free to set their own fees. Except for particular areas where specific court or ethics rules govern—most notably, personal injury and medical malpractice—lawyers have wide latitude in setting the financial terms of their engagements with clients. Courts generally will enforce those terms, no matter how unfair to the clients they may seem. Still, there are limits. Applying ethics rules, other court rules and the law of contracts and fiduciary duty, courts have, in certain circumstances, found reasons to declare client-attorney fee agreements unenforceable, resulting either in a quantum meruit recovery or, worse, no recovery at all.

This is the first in a three-part series discussing ways lawyers can lose their right to collect their contractual fee. In this article, we will discuss excessive fees. In future issues, we will address fee forfeiture (Part 2) and unique New York rules limiting fee agreements (Part 3).

The Law of Contracts and Excessive Fees

New York courts generally determine claims of excessive legal fees under the law of contracts. (The ethics rule for excessive fees, New York Rule of Professional Conduct (RPC) 1.5(a), will be discussed below.) This comports with N.Y. Jud. Law §474, which states, in pertinent part, "[t]he compensation of an attorney or counsellor for his services is governed by agreement, express or implied, which is not restrained by law..." (emphasis added). Thus, courts will ordinarily enforce a fee agreement unless it is somehow deemed illegal—for example, by exceeding statutory or court-imposed limits on certain kinds of contingent fees (see, e.g. N.Y. Jud. Law §474-a (setting limits on contingent fees for medical, dental and podiatric malpractice cases)) or by charging usurious interest rates on unpaid fees (see, e.g., Bryan L. Salamone, P.C. v. Cohen, 40 Misc. 3d 338, 342–43 (Sup. Ct. Suffolk Co. 2013)).

But, as with any contract, an attorney-client fee agreement may not be enforced if it is unconscionable. "In general, an unconscionable contract has been defined as one [in] which ... [there is] an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." King v. Fox, 7 N.Y.3d 181, 191 (2006) (hereafter, King) (citation omitted). In making this determination, courts "give particular scrutiny to fee arrangements between attorneys and clients, casting the burden on attorneys who have drafted the retainer agreements to show that the contracts are fair, reasonable and fully known and understood by their clients." Shaw v. Manufacturers Hanover Trust Co., 68 N.Y.2d 172, 176 (1986), (citing Jacobson v. Sassower, 66 N.Y.2d 991, 993, (1985)).

Procedural Unconscionability

The New York Court of Appeals has recognized two types of unconscionability relating to fee agreements. The first is "procedural unconscionability." "To determine whether an agreement is procedurally unconscionable, we must examine the contract formation process for a lack of meaningful choice. The most important factor is whether the prospective client was fully informed upon entering the agreement." In re Lawrence, 24 N.Y.3d 320, 337 (2014), rearg. denied, 24 N.Y.3d 1215 (2015) (citing King, 7 N.Y.3d at 192). This in turn involves several considerations. One is the clarity of the agreement, with the understanding that "an agreement between lawyer and client [shall] be construed most favorably for the client." Shaw, 68 N.Y.2d at 177 (citation omitted) (lawyer required to continue representing the client through appeal and to advance all expenses because retainer agreement failed to...