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ETHICS
EXTRA
BY KIMBERLY GLEESON
I
n
Goesel v. Boley International (H.K.)
LTD.
, the United States Court of
Appeals for the Seventh Circuit held
that the district court abused its discre-
tion in rewriting a contingent fee retainer
agreement in a minor-settlement case. 806
F.3d 414 (7th Cir. 2015). The Seventh
Circuit found that the district court’s
belief that “fairness and right” required
that the plaintiffs receive a larger share of
the settlement than that called for in the
retainer agreement did not justify rewriting
the fee agreement.
Background
In 2009, the law firm of William, Bax &
Saltzman, P.C. (the William firm) filed
a personal injury lawsuit in Illinois state
court for plaintiffs Andrew and Christine
Goesel on behalf of their son, Cole, a
minor whose injury led to the lawsuit.
The defendants removed the case to federal
court, and after four years of litigation the
parties settled on the eve of trial.
The products liability case had cer-
tain procedural complexities because the
complaint alleged that defendant Boley
International’s toy robot shattered and
punctured 5-year-old Cole’s eye, and
the defendant is headquartered in Hong
Kong. Discovery focused on experts such
as chemists, toy-safety specialists, ophthal-
mologists, and rehabilitation counselors.
Depositions were taken in seven states, and
a video conference deposition was taken
with the defendant in Hong Kong.
Under the Goesels’ retainer agreement,
the William firm was to receive one-third
of the gross settlement amount and the
Goesels were to cover litigation expenses.
The court was required to approve the
settlement due to Cole’s minor status.
Concerned that the Goesels would end up
with only 42% of the total recovery, the
district court modified the contingent fee,
invoking “fairness and right reason.” The
judge deducted litigation expenses from
the settlement before the William firm
was distributed its one-third fee, leaving
the Goesels with 51% of the total recovery.
The firm appealed in its own right.
Appellate Court Reasoning
The Seventh Circuit found that Illinois
law governed because judicial approval of
minor-settlements is a matter of substan-
tive law. Although a district court’s award
of attorney’s fees is reviewed under a
“highly deferential abuse of discretion stan-
dard,” its discretion is not without limits.
The court used two guidelines in its abuse
of discretion analysis: the reasonableness
of the fee and the interests of the minor.
In assessing the reasonableness of the
fee, the court first determined that the fee
agreed to by the Goesels was consistent
with the prevailing market rate for similar
legal services. Next, the court found that
the fee was reasonable under Illinois Rule
of Professional Conduct 1.5. Illinois courts
have incorporated Rule 1.5’s eight enumer-
ated factors in their analysis of reasonable-
ness, suggesting that:
The trial court should consider a vari-
ety of additional factors such as the
skill and standing of the attorneys,
the nature of the case, the novelty
and/or difficulty of the issues and
work involved, the importance of the
matter, the degree of responsibility
required, the usual and customary
charges for comparable services, the
benefit to the client, and whether
there is a reasonable connection
between the fees and the amount
involved in the litigation.
Noting the district court’s acknowledg-
ment that the firm did a “terrific job for
the client” and the “extensive time spent
by plaintiffs’ counsel in the hard-fought
battle,” the Seventh Circuit held that the
complex issues and the large amount of
time and labor expended could not justify
the district court’s decreasing the contin-
gent fee.
After deciding the fee was reasonable,
the Seventh Circuit considered public
policy for protecting minors’ interests,
noting that Illinois courts conceptualize
minors’ interests in two ways: (1) the indi-
vidual minor’s tangible well-being and (2)
the courts’ duty to safeguard the interests
of minors as a class. First, the district court
failed to determine whether the settlement
amount was insufficient to compensate the
minor. Instead, the district court criticized
the firm for opining that the settlement
would provide adequate compensation for
the minor’s pain and suffering. The Seventh
Circuit found this criticism unwarranted,
as the firm was fulfilling its responsibility
to advise the court on issues concerning
the minor’s interests.
Second, the court acknowledged that
minors as a class would likely be deprived
of quality legal representation if reasonable
contingent fee agreements were at risk
of retrospective judicial modification in
minor-settlements. Consequently, a court
should only modify a retainer’s terms if it
has good reason to do so.
Moreover, the Seventh Circuit found
that the district court’s ruling rested on
“nothing more than a series of unwar-
CBA RECORD
49
Abuse of Discretion in Rewriting a
Contingent Fee Agreement
Kimberly Gleeson, a Francis
D. Morrissey Scholar at the
John Marshall Law School,
anticipates receiving her J.D.
in May 2017.
continued on page 56