Court: $5,700 per hour is unreasonable fee

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The Wisconsin Court of Appeals on Jan. 23 upheld a trial court’s refusal to “rubber-stamp” a $137,000 contingency fee, after finding the attorney only monitored a class action, and did not contribute to the client’s recovery.

According to the court’s decision, in 1998, Maynard Steel Casting Company was involved in an antitrust class action against UCAR International. Displeased with a settlement offer it received, it hired attorney Michael T. Sheedy to get UCAR to improve the offer and get a settlement in cash, rather than product.

Sheedy and Maynard Steel agreed that Sheedy would work on a contingency-fee basis, and the attorney forwarded an agreement to Maynard Steel, to that effect. In November 1998, Maynard Steel signed the agreement.

However, in September 1998, Maynard Steel had received notice that UCAR and another defendant had agreed to settle all claims, and Maynard Steel and the other class members were invited to submit claims.

Maynard Steel prepared the claim forms and sent them to Sheedy, who forwarded them.

Maynard Steel recovered more than $500,000, but 15 percent went to class counsel, leaving net proceeds to Maynard Steel of $427,385. Sheedy retained about $137,000 as a one-third contingency fee.

Maynard Steel ultimately brought suit against the attorney for disgorgement, claiming the attorney fees were unreasonable. After a bench trial, Milwaukee County Circuit Judge Richard J. Sankovitz ruled in favor of Maynard Steel, holding that a reasonable attorney fee was only $4,200, and ordering Sheedy to disgorge the difference of $132,800.

He appealed, but the Court of Appeals affirmed in a decision by Judge Daniel P. Anderson.

The court first held that the circuit court had authority to determine the reasonableness of the fee: “It is established that courts have the inherent power to determine the reasonableness of attorney’s fees and to refuse to enforce any contract that calls for clearly excessive or unreasonable fees,” quoting Herro, McAndrews and Porter, S.C. v. Gerhardt, 62 Wis. 2d 179, 182, 214 N.W.2d 401 (1974).

Turning to the merits, the court concluded that, under SCR 20:1.5(a), the contingency fee was unreasonable.

Although the rule lists eight factors, and the circuit court addressed all eight, the Court of Appeals found that only three were needed to support a conclusion that the fee was unreasonable.

First, the court agreed with the circuit court that, because Sheedy had “very little experience with class actions and no experience with antitrust litigation,” he lacked the skill and experience to prosecute the claim on his own. The court found this factor alone to be sufficient to support the conclusion that the fee was unreasonable.

Second, the court found that the amount of the recovery did not justify the award. The court noted that the class counsel who actually prosecuted the action took only 15 percent of the settlement, yet Sheedy was seeking 33 percent on top of that.

The court wrote, “It strikes us as peculiar that Sheedy is seeking to retain a contingency fee of thirty-three percent when he did not contribute legal expertise, time or his own funds to the class action; on the other hand, class counsel who contributed legal expertise, time and their own funds are keeping a fifteen percent fee. The disparity in the investment and return is further evidence that the contingent fee agreement in this case is unreasonable.”

The court iterated and agreed with the trial court’s analysis: “[T]he results obtained for Maynard [Steel] seem impressive, but Mr. Sheedy cannot be given credit for achieving them. I cannot point to any service performed by Mr. Sheedy of which it can be said that, but for such effort, Maynard [Steel] would not have obtained this recovery.”

The court noted that the trial court found that the attorney spent less than 24 hours working on the case. In addition, the defendant settled the class action before Sheedy was retained. Also, the contingency fee would result translate to an hourly fee of $5,700 per hour.

Finally, the court found that there was no risk to Sheedy involved. The trial court found, and the Court of Appeals agreed, that, given his lack of expertise in antitrust law, there was no risk that Maynard would opt out of the class and prosecute its own antitrust action.

Accordingly, after concluding that expert testimony was unnecessary to conclude the fee was unreasonable, the court affirmed.

Case analysis

Regardless of how unreasonable the contingency fee may be, it is inexplicable that the opinion does not even mention the voluntary payment doctrine.

This is not a case in which an attorney filed suit against a client to recover fees that the client claims are unreasonable. Nor is it a case in which a party claimed in the action itself that the fees sought are unreasonable, and the circuit court must decide how a recovery is to be distributed.

According to the record, the settlement in this case was reached in 1998. In June 1999, Maynard Steel began receiving periodic payments from the settlement.

The checks were made out to Maynard Steel, which would then endorse the checks to Sheedy. The attorney would then write a check to himself for one-third of the check and a second check to Maynard Steel for the balance.

This went on until 2003, by which point, the attorney had retained about $137,000 in fees.

The voluntary payment doctrine “places upon a party who wishes to challenge the validity or legality of a bill for payment the obligation to make a challenge either before voluntarily making the payment, or at the time of making the payment.” Putnam v. Time Warner Cable of Se. Wis., Ltd. P’ship, 2002 WI 108, ¶ 13, 255 Wis.2d 447, 649 N.W.2d 626.

There are only three limited exceptions to the rule: fraud; duress; and mistake of fact. Id., at par. 36. None appear to be present in this case, regardless of how unreasonable the contingency fee may be.

Maynard Steel entered into a contract, however unwisely, and it voluntarily made payments pursuant to that contract for several years. There is no apparent reason why its disgorgement suit should not have been dismissed pursuant to the doctrine.

It could be argued that the doctrine does not apply if its application would be inequitable.

However, the results in both Putnam, and the most recent Wisconsin case to apply the doctrine, were both far more inequitable than would be the case if Sheedy were allowed to keep an unreasonably high attorney fee.

In Butcher v. Ameritech Corp., 298 Wis.2d 468, 727 N.W.2d 546, 557 (Ct.App.2006), the plaintiffs argued for a “balancing of the equities,” but the Court of Appeals concluded, “We recognize the merit in this argument, but whether it should result in an exception to the voluntary payment doctrine, given the principles underlying the doctrine, is a policy judgment that should be addressed to the supreme court. We are bound by Putnam, and we see no basis in that case, or any other Wisconsin case cited by the plaintiffs, that would support the creation of such an exception by this court.”

As a result, should a client voluntarily pay a contingency fee, and then later bring suit, contending the fee is unreasonable, attorneys ca
n try to distinguish the case at bar, no matter how high the fee may be; but the voluntary payment doctrine must be raised as a defense.