September 30, 2014 Top Story

Lodestar Multiplier Rejected in "Routine" Divorce Case

Lack of a written agreement led to multi-million dollar fee dispute

Theresa A. Vitello

Think twice before handling a so-called routine matter for a friend without a written fee agreement. The Court of Appeal of California, Second Appellate District in Chodos v. Borman recently slashed a jury’s $7.8 million fee award to a lawyer who handled an “unremarkable family law dispute” with no written fee agreement. The appellate court knocked the fee award down to $1.8 million after finding the jury’s application of a lodestar multiplier was inappropriate.

In Chodos, an attorney represented a client in two underlying divorce cases and a related Marvin action. The client originally retained the attorney in 2007 to defend against a divorce action filed by her husband. The couple reconciled for a brief period; then, in 2008, the attorney initiated a second divorce action at his client’s request. The attorney also brought a Marvin action, asserting a property claim on his client’s behalf to a beach home acquired outside of the couple’s marriage.

The attorney, an experienced business litigator who routinely charged $1,000 an hour, represented his client for over two years, in all three actions, despite never getting paid and not having a written fee agreement. The three matters were finally resolved when the client accepted a settlement valued at $26 million. The attorney and client could not agree on the amount of his attorney fees. Accordingly, the attorney brought a quantum meruit action claiming the value of his services was $9 million.

At trial, the attorney called a family law expert, who testified that the attorney was entitled to a multiplier of six for his work. The trial court instructed the jury that it could use a lodestar adjustment, including a multiplier, to calculate a reasonable fee. Ultimately, the jury decided in favor of the lawyer and applied a multiplier of five to his $1,000 an hour rate, increasing it to $5,000 per hour and awarding him a $7.8 million fee for his estimated 1,800 hours of work.

The court of appeal reversed and instructed the trial court to enter judgment in the amount of $1.8 million. Based on the testimony at trial, the appellate court found that $1,000 an hour was a reasonable hourly rate and 1,800 hours was a reasonable amount of time to have spent on the divorce actions. However, applying a multiplier to a lodestar sum was inappropriate in this case because the lawyer had not assumed any contingent risk nor did the matters handled require the need for an exceptionally skilled attorney.

The Lodestar Method

The appellate court relied primarily on Ketchum v. Moses and Serrano v. Priest in its analysis of the lower court’s instruction to use a lodestar method with a multiplier. In Ketchum, the California Supreme Court clarified the basis for calculating attorney fees using the lodestar adjustment method which was previously detailed in Serrano. Under Serrano, the lodestar is a preliminary determination of the amount of the fee based upon a reasonable hourly rate multiplied by a reasonable number of hours of work. The lodestar may be adjusted up or down based on four main factors: (1) the level of difficulty of the issues involved; (2) the attorney’s skill level and experience in handling such issues; (3) the extent to which the matter consumed the attorney’s time and precluded him or her from working on other matters; and (4) whether the attorney assumed any contingent risk in handling the case.

Rejection of the Multiplier

In Chodos, the appellate court rejected the jury’s application of a multiplier for three main reasons. First, “while this was a complex case involving a large estate, the attorney did not specialize in family law. He [the attorney] hired a family law specialist, and he was not an expert in the field,” notes Helen E. Casale, Norristown, PA, cochair of the ABA Section of Litigation’s Family Law Litigation Committee.

Second, “Application of a multiplier hinges on having a contingency fee agreement. It was never agreed upon in this case. There was no assumed risk by the attorney,” says Eileen M. Letts, Chicago, IL, cochair of the ABA Section of Litigation’s Ethics and Professionalism Committee.

Finally, the lack of any written fee agreement also weighed heavily in the court’s decision to reject the multiplier. “The court felt the whole relationship started off incorrectly. In the interest of equity, the court felt it would be unfair to apply a multiplier and essentially reward the lawyer for his failure to put the fee agreement in writing,” adds Oran Whiting, Chicago, IL, cochair of the Section of Litigation’s Ethics and Professionalism Committee.

Family Law Attorneys Can Still Be “Exceptionally Skilled” 

The appellate court in Chodos focused on the fact that the case was a seemingly routine divorce matter and did not require an “exceptionally skilled attorney.” However, Section leaders agree that this does not eliminate the possibility of a multiplier in all future family law cases. “That is too general. There are times when family law cases present unique issues, such as constitutional law and public interest issues. For example, sperm and egg donor issues could be exceptional or a divorce in a same sex marriage in a state that does not recognize it,” Casale points out.

However, the client’s role in selecting his or her attorney to handle even the most mundane legal task should not be overlooked. For example, “celebrities hire fancy lawyers to fight traffic tickets all of the time. If the client is willing to pay the lawyer to do it then he [the lawyer] shouldn’t be punished,” Whiting concludes.

Get Your Fee Agreement in Writing

The biggest lesson from Chodos is clear: Get your fee agreement in writing from the very beginning. “Contingency fee agreements have to be in writing,” explains Letts, noting that it is unethical not to reduce the agreement to writing. “In corporate work there’s generally not the same requirement, but the hourly rate and the scope of the work should be in writing,” Letts instructs. “I would never take on a case that way. Doing someone a favor does not work out. Having a written agreement is a must to avoid situations like this,” Casale adds.

In fact, California Business and Professions Code sections 6147 and 6148 require that at the outset of the representation, in either a contingency fee arrangement or where the value of the attorney’s services is expected to exceed $1,000, there must be a written fee agreement. Without a written agreement, “your focus shifts to your own interests in getting paid and off of your client’s interests. This can lead to ethical violations. You shift into damage control and only get yourself deeper in the hole. The whole thing could have been avoided by having a written agreement from the beginning,” Whiting warns.

Theresa A. Vitello is a contributing editor for Litigation News.

Keywords: lodestar, multiplier, attorney fees, divorce, fee agreement

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