CBA Record Sept. 2016

ETHICS

EXTRA

BY KIMBERLY GLEESON

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

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