Court Invalidates Contingent Fee Arrangement and Finds Attorney Liable Under Chapter 93A for Charging an Excessive Fee Under the Agreement

Carly Goldstein, Esq.
September 21, 2009 — 1,313 views  
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In Landry v. Haartz, et al., Lawyers Weekly No. 12-105-09, the Superior Court ruled the plaintiff’s conduct in securing a contingent-fee agreement calling for exorbitant legal fees, constituted unfair trade practices in violation of G.L. c. 93A (“Chapter 93A”).

The defendants, Elizabeth Haartz and Walter Davis had used the plaintiff, Thomas Landry, as their attorney for upwards of 15 years. Not only did they entrust Landry with all their personal legal needs as well as their personal and financial matters, but they also considered him a friend.

In February 2001, Haartz asked Landry to help her with a simple sale of stock in a closely-held family corporation.  Haartz previously informed Landry that the value of her shares in the corporation fell somewhere between $30 and $40 million. In March 2001, Landry, who had always billed the defendants an hourly rate of $150 to $200 for his legal work, had the defendants sign a one page contingentfee agreement. The agreement provided that Landry would receive a fee of no more than 1.5 percent of the proceeds of the sale. Landry represented to the defendants that such fee agreements were customary, despite the fact he had never used one for a corporate transaction nor was he aware of any other attorney who had done so.

In January 2002, a final agreement to sell Haartz’ stock for $20 million was reached. Landry collected approximately $120,000 of the more than $300,000 owed him under the agreement. In the spring of 2004, the defendants’ accountant informed them that a contingent fee agreement on a corporate transaction like the stock sale was highly unusual. He also informed them that legal fees for such work typically costs between $30,000 and $60,000.  The defendants immediately ceased paying Landry.

In July 2004, Landry filed a complaint against the defendants seeking to enforce the fee agreement. The defendants counterclaimed, alleging the agreement violated Chapter 93A and Landry charged an excessive fee in violation of the Rules of Professional Conduct.

In October 2008, after a six-day trial, a jury found in favor of the defendants on the contractual claim and awarded the defendants $71,689.00. The court thereafter ruled the fee agreement violated Chapter 93A.

The court found Landry utilized the fee agreement for his own financial benefit in conflict with what he knew was best for his clients. In so holding, the court rejected Landry’s assertion that the defendants were sophisticated clients who knowingly and intelligently entered into the agreement. Instead, the court found the defendants lacked any experience with lawyers and legal matters aside from their dealings with Landry and believed Landry would act in their best interests.

The court also found Landry violated Rules 1.4 and 1.5 of the Massachusetts Rules of Professional Conduct. Landry violated Rule 1.4 by failing to explain the agreement to the defendants to the extent reasonably necessary to enable them to make an informed decision. Landry violated Rule 1.5 by charging, and collecting a clearly excessive fee. The court explained Landry did little to earn his fee. The work he performed in connection with the sale of the stock was neither time-consuming nor complex. Indeed, the court stated if Landry had charged $200 per hour, it was unlikely that he would have billed even $20,000 for the time he actually spent on the transaction.

Having found the plaintiff violated Chapter 93A and the Rules of Professional Conduct, the Court trebled the defendants’ damages and also awarded them $250,000 in attorneys’ fees.

Landry v. Haartz is a reminder that all attorneys have to be cognizant of their obligations to their clients, including the obligation to charge a reasonable fee.

Carly Goldstein, Esq.

LeClair Ryan