Contingency fee award upheld

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A La Crosse attorney will be able to collect most of the attorney fees due him in a personal injury action, where his client fired him without good cause.

In an Aug. 5 opinion upholding the circuit court’s award of fees to attorney Gregory J. Egan, of O’Flaherty Heim Egan Ltd., in La Crosse, the Court of Appeals wrote, “Because Egan was not discharged due to any failure to perform consistent with the standard of care required of attorneys, he was not discharged for cause, and he was not barred from recovering a fee under his contract.”

Egan had been retained by Joy Dip Das to pursue a personal injury action, with a one-third contingency fee.

Das later filed for bankruptcy, and Egan agreed to represent the bankruptcy trustee in addition to Das.

Egan informed Das of the dual representation, and Das did not object, but Egan did not get a written waiver to that effect.

Roughly a year and a half after retaining Egan, Das discharged him and hired Attorney Mark N. Stageberg, a Minnesota attorney not licensed to practice in Wisconsin.

Stageberg was admitted to practice pro hoc vice, but Egan continued to represent the trustee. Egan also drafted and signed the complaint against the tortfeasor on behalf of both Das and the trustee.

The case ultimately settled for $300,000, which was apportioned $265,000 to Das, and $35,000 to the trustee. That was below the tortfeasor’s policy limits of $500,000.

Egan and Stageberg then disputed before the circuit court who was entitled to what share of the $83,333.33 contingency fee available from Das’ share. Trempeleau County Circuit Court Judge John A. Damon awarded it to Egan, less $22,500 for the time Stageberg spent on the case.

Stageberg appealed, but, in a per curiam opinion, the Court of Appeals affirmed.

Apportionment of contingency fees in such cases is governed by the Wisconsin Supreme Court’s opinion in Tonn v. Reuter, 6 Wis.2d 498, 95 N.W.2d 261 (1959).

Tonn holds that, when an attorney is discharged without cause or fault before performing services, the client has breached the contract, and the measure of the attorney’s damages is “the amount of the contingent fee based upon the amount of the settlement or judgment ultimately realized by the client, less a fair allowance for the services and expenses which would necessarily have been expended by the discharged attorney in performing the balance of the contract.” Id. at 505.

At attorney is at fault when he objectively fails to reasonably perform services consistent with the standard of care required of attorneys. McBride v. Wausau Ins. Cos., 176 Wis.2d 382, 388, 500 N.W.2d 387 (Ct.App.1993).

The Court of Appeals agreed with the circuit court that Egan was not discharged for cause, rejecting Stageberg’s argument that cause should be determined by the client’s subjective state of mind, rather than the attorney’s objective conduct.

The court also rejected Stageberg’s argument that Egan should get no fee, because he failed to obtain Das’ consent to dual representation in writing.

Supreme Court Rule 20:1.7(a)(2008) provides that a conflict of interest must be waived in writing by the client.

However, the court declined to determine whether a conflict of interest existed at all, despite the dual representation of Das and the trustee. The court found that if there was any breach, it was not material.

It was undisputed that Das was not harmed by the dual representation, and did not object to it. The court thus concluded that any objection to dual representation was waived.

The court wrote, “the alleged breach was not raised during Egan’s performance of the contract. Instead, it is an after-the-fact issue created by Stageberg for the purpose of this fee dispute. Further, Stageberg and Das continued to take advantage of Egan’s services after the alleged conflict arose and after Egan’s discharge.”

Attorney Egan was represented by Bruce J. Brovold, of Kostner, Koslo & Brovard, LLC, in Arcadia, who stated in an interview, “The Court of Appeals and the trial court both agreed Egan did nothing wrong and fulfilled his obligations to his client. As a result, he was entitled to the contingency fee. The holding confirms the law in Wisconsin.”

Brovold said it was disappointing that Attorney Stageberg never claimed Egan did anything wrong, but still brought up the fee dispute: “I’m very pleased the courts concluded the claim lacked merit.”

Analysis

The court’s opinion faithfully applies the law as established in Tonn, and breaks no new ground (which is why it will not be published).

Nevertheless, attorneys should be aware of it for two reasons.

First, the result could possibly be different if the client’s damages had exceeded the tortfeasor’s available insurance.

Stageberg conceded that Das could not have been harmed by the conflict because the claims were settled for much less than the policy limits.

However, were this not the case, there could be a dispute between the trustee and the client over who gets how much of the settlement or judgment. Attorneys must take care not to engage in dual representation between a client and the client’s bankruptcy trustee without a written waiver.

In this case, the court summarily determined that any objection was waived by the client.

However, had there been a real conflict and potential harm, it is highly unlikely that the court would have reached this same conclusion in such a cursory fashion.

Second, attorneys should pay attention to a footnote discussing the relationship between the Rules of Professional Conduct for Attorneys and civil liability.

Footnote 3 of the opinion emphasizes that a violation of the Rules cannot be used to define standards of care for the purpose of civil liability, citing Peck v. Medi-Care Ambulance Corp., 156 Wis. 2d 662, 673, 457 N.W.2d 538 (Ct. App. 1990).

Attorneys should be aware that they have more authority than just this on which to rely, should anyone ever try to deny them their just fees because of a Rules violation.

The Preamble to the new Rules drafted by the Supreme Court last year explicitly state as follows:

“Violation of a rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached. In addition, violation of a rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a lawyer in pending litigation. The rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the rules can be subverted when they are invoked by opposing parties as procedural weapons. The fact that a rule is a just basis for a lawyer's self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the rule. Nevertheless, since the rules do establish standards of conduct by lawyers, a lawyer's violation of a rule may be evidence of breach of the applicable standard of conduct.” WI SCR Ch.
20 Preamble, par. 20.

Pursuant to the penultimate sentence in this paragraph, the Court of Appeals could have summarily rejected Stageberg’s arguments regarding Rule 20:1.7(a) on standing grounds, without addressing waiver or non-materiality at all.