July 17, 2019

Ben Aisenberg: Reasonableness of a Contingent Fee – A Prospective or Retrospective Approach

In assessing the reasonableness of a contingent fee on completion of the contingency, must the reasonableness of the fee be judged as of the time the contingency fee agreement was entered into, pursuant to ABA Formal Opinion 94-389, or does the attorney have the obligation to take a retrospective approach to determine whether the fee is reasonable?  See ABA Formal Opinion 94-389 and Contingent Fee Agreements, Bennett S. Aisenberg, Colorado Lawyer, July, 1996 at pg. 65.

In what would appear to be the most definitive appellate declaration to date as to whether the reasonableness of a contingent fee should be determined prospectively or retrospectively, the Colorado Court of Appeals in Berra v. Springer & Steinberg, 251 P.3d 567 (Colo. App. 2010) held that it is incumbent for a reviewing Court to scrutinize a contingent fee agreement to determine its enforceability.  The Appellate Court found that the reasonableness of a contingent fee agreement is subject to a retrospective approach, i.e. it must be assessed not only in light of the circumstances which existed at the time the agreement was entered into, but also retrospectively as to whether the services were reasonably worth the percentage amount set forth in the agreement, in effect, a quantum meruit approach using the factors set out in Colo. RPC 1.5(a).  The approach followed by the Court in affirming the trial court was to multiply the number of hours plaintiff’s counsel reasonably spent, times his hourly rate, and then multiply that figure by, in this case, 2.5, pursuant to Colo. RPC 1.5(a)(8), the fact that it was a contingency and the potential risk this involved.  The multiplier approach is consistent with Brody v. Hellman, 167 P.3d 192 (Colo. App. 2007) (multiplier of 2.3 times lodestar amount permitted in a common fund case).

It is noteworthy that the trial court and the Appellate Court only considered counsel’s contemporaneously documented hours and rejected some 50 to 100 additional hours to which plaintiff’s counsel testified, but which were not documented.  The final result was the contingent fee was cut by more than half.  The Supreme Court denied certiorari.  If there is a message to be learned from Berra v. Springer & Steinberg, it is to keep contemporaneous timesheets.

Berra was essentially a collection case which went on for six years.  In 2006, when the judgment debtor discovered he had terminal cancer, he decided to sell all his assets and pay his debts.  The Court of Appeals further held that it was this fortuitous circumstance that brought about the payment of the judgment to the exclusion of Springer & Steinberg’s efforts to collect it.  Query, will the holding in Berra open a floodgate of litigation whereby a contingent fee pursuant to a settlement is contested, based on the fact that other circumstances played into the defendant’s decision to settle the case?  Does this put the contingent fee attorney in a situation similar to a real estate broker, where the broker must be the “procuring cause” of the transaction?

Bennett S. Aisenberg practices law in Denver. He has served as a member of the Colorado Bar Association Ethics Committee since 1986. In 2003, he received the Denver Bar Association Award of Merit. Ben is a past president of the Colorado Bar Association, the Denver Bar Association, and the Colorado Trial Lawyers Association. He blogs at coloradoethics, where this post originally appeared on August 22, 2011.
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