Law Lessons from ALPERT, GOLDBERG, BUTLER, NORTON & WEISS, PC v. Quinn, App. Div., A-5503-07T2, November 24, 2009:

The nature of the attorney-client relationship:

There are few of the business relations of life involving a higher trust and confidence than that of attorney and client, or, generally speaking, one more honorably and faithfully discharged; few more anxiously guarded by the law, or governed by sterner principles of morality and justice; and it is the duty of the court to administer them in a corresponding spirit, and to be watchful and industrious, to see that confidence thus reposed shall not be used to the detriment or prejudice of the rights of the party bestowing it.

[Stock v. Ford, 52 U.S. (11 How.) 232, 247, 13 L. Ed. 676, 682-83 (1850).]

“It is well-established that `[a] lawyer is required to maintain the highest professional and ethical standards in his dealings with his clients.’” In re Humen, 123 N.J. 289, 299-300 (1991) (quoting In re Gavel, 22 N.J. 248, 262 (1956)). Because “of the unique and special relationship between an attorney and a client, ordinary contract principles governing agreements between parties must give way to the higher ethical and professional standards enunciated by our Supreme Court.” Cohen v. Radio-Electronics Officers Union, 275 N.J. Super. 241, 259 (App. Div. 1994), modified, 146 N.J. 140 (1996). Thus, “[a] contract for legal services is not like other contracts.” Ibid.

Transactions between an attorney and a client are subject to close scrutiny by the court, and “the burden of establishing fairness and equity of the transaction rests upon the attorney.” In re Gallop, 85 N.J. 317, 322 (1981). “Agreements between attorneys and clients concerning the client-lawyer relationship generally are enforceable, provided the agreements satisfy both the general requirements for contracts and the special requirements for professional ethics.” Cohen, supra, 146 N.J. at 155 (citing Restatement of the Law Governing Lawyers § 29A cmt. c (Proposed Final Draft No. 1 1996)). “An otherwise enforceable agreement between an attorney and client would be invalid if it runs afoul of ethical rules governing that relationship.” Id. at 156. “Consistent with the special considerations inherent in the attorney-client relationship,. . . the attorney bears the burden of establishing the fairness and reasonableness of the transaction . . . .” Ibid. (internal citations omitted).

An “[a]ttorney[] must never lose sight of the fact that the `profession is a branch of the administration of justice and not a mere money-getting trade.’” Kriegman v. Kriegman, 150 N.J. Super. 474, 480 (App. Div. 1977) (quoting Canons of Professional Ethics, No. 12). “[A]n attorney’s freedom to contract with a client is subject to the constraints of ethical considerations and [the Supreme Court's] supervision.” Cohen, supra, 146 N.J. at 155. Further, the Court has made it clear it is committed to “preserving the fiduciary responsibility that lawyers owe their clients.” Ibid.

“An agreement that violates the ethical rules governing the attorney-client relationship may be declared unenforceable.” Tax Auth. v. Jackson Hewitt, 187 N.J. 4, 15 (2006). A court should construe an agreement between an attorney and a client “as a reasonable person in the circumstances of the client would have construed it.” Restatement (Third) of the Law Governing Lawyers § 18 (2000).

An attorney then, when contracting for a fee, must act as a fiduciary and satisfy his or her fiduciary obligations to the client. Cohen, supra, 146 N.J. at 156. The lawyer must explain at the outset the basis and rate of the fee the lawyer intends to charge. Ibid.

That requirement is embodied in R.P.C. 1.5(b), which provides that “[w]hen the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation.” A.G. argues that is exactly what happened in this case. In the retainer letter dated January 6, 2006, it stated it would bill on an hourly basis and it set forth its hourly rates. A.G. argues that it literally complied with R.P.C. 1.5(b).

The ABA Comm. on Ethics and Prof’l Responsibility, Formal Op. 93-379 (1993), makes it clear that “[c]onsistent with the Model Rules of Professional Conduct, a lawyer must disclose to a client the basis upon which the client is to be billed for both professional time and any other charges.” (Emphasis added). The Committee stated “[a]t the outset of the representation, the lawyer should make disclosure of the basis for the fee and any other charges to the client.” Id. (emphasis added); see Michels, N.J. Attorney Ethics § 33:1 (2009) (“Thus, an attorney’s ethical obligations in the fee context extend beyond the literal notice required by the rules and include a substantial amount of disclosure.”); see also, Michels, N.J. Attorney Ethics § 33:4-1 (2009) (“The written statement required by R.P.C. 1.5(b) must disclose all charges for which the client will be financially responsible.” ).

This broad interpretation of the rule is consistent with the reasons supporting the existence of the rule. The writing requirement is intended to avoid misunderstandings and fraud. Starkey v. Estate of Nicolaysen, 172 N.J. 60, 69 (2002).

Full and complete disclosure of all charges which may be imposed upon the client is also necessitated by R.P.C. 1.4(c). That reads, “[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” If the client does not know what charges and costs beyond the hourly rate he may be exposed to, how can the client be expected to make an informed decision regarding representation. Merely directing the client to ask for another document that is not directly presented and explained to the client but will bind him or her does not fulfill the lawyer’s obligation pursuant to R.P.C. 1.4(c). This obligation to thoroughly explain all the terms of retention is particularly appropriate, given that the lawyer has a unique and fiduciary relationship with the client. Cf., F.G. v. MacDonell, 150 N.J. 550, 563-64 (1997).

R.P.C. 7.1(a) also supports the need to fully disclose at the time of retention the significant terms which may financially affect the client. R.P.C. 7.1(a) provides an attorney “shall not make false or misleading communications about the lawyer, [or] the lawyer’s services . . . . A communication is false or misleading if it: (1) contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading . . . .” Omitting significant costs and potential obligations that the client may owe his or her lawyer and referring to them as mere “details” in a standard policy statement may well be deemed materially misleading on an attorney’s part.

Given the unique relationship between an attorney and a client, the fiduciary duty owed by an attorney to a client, as well as the need for a client to have complete information at the time of retention concerning the fees, charges, and obligations to be owed by a client to the attorney, that R.P.C. 1.5(b) requires an attorney to present a client the attorney has not regularly represented, in writing, at the time of retention, all of the fees and costs for which the client will be charged, as well as the terms and conditions upon which the fees and costs will be imposed. In that manner, the client can truly assent to the retention. The client will then be able to make an informed decision as to whether he or she desires to retain the attorney, and the chances for misunderstanding and fraud will be greatly diminished. Absent such complete detailed written disclosure presented to and assented to by the client, we hold that the attorney may not, consistent with R.P.C. 1.5(b), collect such fees and costs.

Rule 4:42-9(a) provides that “[n]o fee for legal services shall be allowed in the taxed costs or otherwise, except” in certain circumstances enumerated in the rules or when fees are specifically authorized by statute. While counsel fees may be allowed where the parties have agreed thereto in advance in a contract, the strong public policy in New Jersey is against the shifting of counsel fees. See Litton Indus., Inc. v. IMO Indus., Inc., ___ N.J. ___ (2009) (slip op. at 13); In re Niles Trust, 176 N.J. 282, 293 (2003). Our Supreme Court has embraced that policy by adopting the “American Rule,” which prohibits recovery of counsel fees by the prevailing party against the losing party absent an enforceable contract. Niles Trust, supra, 176 N.J. at 294. There is, therefore, a strong public policy against the award of collection fees by plaintiff, absent an enforceable contract for same.

A contract is unenforceable where contrary to public policy. Manning Eng’g, Inc. v. Hudson County Park Comm’n, 74 N.J. 113, 138 (1977). While the best interests of society demand that persons should not be unnecessarily restricted in their freedom to contract, courts will not hesitate to declare void as against public policy contractual provisions which clearly tend to the injury of the public in some way. Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 403-04 (1960).

The court has balanced the policies emanating from the Rules of Professional Conduct in preserving strong confidence in attorneys and those supporting the “American Rule” against the public interest in the enforcement of the contractual provisions sought here and conclude that the provisions of A.G.’s Master Retainer sought to be enforced by plaintiff are unenforceable as violative of public policy because they were not disclosed in writing and given and explained to the client at the time of retention. See Briarglen II Condo. Ass’n, Inc. v. Twp. of Fairfield, 330 N.J. Super. 345, 355-56 (App. Div.), certif. denied, 165 N.J. 489 (2000), overruled in part on other grounds by Ramapo River Reserve Homeowners Ass’n, Inc. v. Borough of Oakland, 186 N.J. 439 (2006).

Rule 1:4-8(a) sets forth what constitutes frivolous litigation. It includes pursuing litigation that has no legal basis, filing papers to harass or cause unnecessary delay, and it prohibits attorneys and parties, appearing pro se, from engaging in such conduct.

Rule 1:4-8(d)(2) provides that

[a] sanction imposed for a violation of paragraph (a) of this rule shall be limited to a sum sufficient to deter repetition of such conduct. The sanction may consist of. . . an order directing payment to the movant of some or all of the reasonable attorneys’ fees and other expenses incurred as a direct result of a violation . . . . In the order imposing sanctions, the court shall describe the conduct determined to be a violation of this rule and explain the basis for the sanction imposed.

Rule 1:4-8(d)(2) is patterned on Fed. R. Civ. P. 11. Pressler, Current N.J. Court Rules, comment 1 on R. 1:4-8 (2009). In fact, the original pertinent language of Fed. R. Civ. P. 11 is identical to our rule.[7] The Eleventh Circuit as well as a number of state courts with similar sanction provisions have held that the language of the rule itself precludes an award to a pro se attorney for his fees. Massengale v. Ray, 267 F.3d 1298 (11th Cir. 2001). See Dipaolo v. Moran, 277 F. Supp. 2d 528 (E.D. Pa. 2003); Musaelian v. Adams, 198 P.3d 560 (Cal. 2009); and Mikhail v. Gallup, 2006 Ohio 3917 (Ohio Ct. App. 2006). We recognize that in a footnote in Port-O-San Corp. v. Teamsters Local Union, 363 N.J. Super. 431 (App. Div. 2003), we noted that Rule 1:4-8 “does not prohibit an award of attorneys’ fees to attorneys appearing pro se.” Id. at 441 n.5 (quoting Brach, Eichler, P.C. v. Ezeko, 345 N.J. Super. 1, 17 (App. Div. 2001) (dictum)). We disagree, however, with the comment in Port-O-San.

In Massengale, supra, 267 F.3d at 1302-03, the court found that under Fed. R. Civ. P. 11, an attorney could not recover legal fees when appearing pro se in a Fed. R. Civ. P. 11 application. The sanction imposed by Fed. R. Civ. P. 11 may include an “`order directing payment to the movant of some or all of the reasonable attorneys’ fees and other expenses incurred as a direct result of a violation.’” Id. at 1302 (quoting Fed. R. Civ. P. 11). The court noted that “[b]ecause a party proceeding pro se cannot have incurred attorneys’ fees as an expense, a district court cannot order a violating party to pay a pro se litigant reasonable attorneys’ fee as part of a sanction.” Id. at 1302-03. The court observed that the word “attorney” generally assumes some kind of agency relationship. Id. at 1303 (quoting Ray v. U.S. Dep’t of Justice, 87 F.3d 1250, 1251 n.2 (11th Cir. 1996)). The fees a lawyer might charge himself are not, strictly speaking, attorneys’ fees and where a lawyer represents himself, legal fees are not truly a cost of litigation — no independent lawyer has been hired (or must be paid) to pursue a complaint.

Rule 1:4-8(d)(2), which uses the original language of Fed. R. Civ. P. 11, requires that the fees must be “incurred.” See supra, note 7. The Federal Circuit, in construing Fed. R. Civ. P. 37, which was worded similarly to Fed. R. Civ. P. 11, noted incurred means “to have liabilities cast upon one by act or operation of law, as distinguished from contract, where the party acts affirmatively; to become liable or subject to.” Pickholtz v. Rainbow Techs., 284 F.3d 1365, 1375 (Fed. Cir. 2002) (quoting Black’s Law Dictionary (abridged 5th ed. 1983)). “Thus, one cannot `incur’ fees payable to oneself, fees that one is not obligated to pay.” Ibid.; see FMB-First Nat’l Bank v. Bailey, 591 N.W.2d 676, 680-83 (Mich. Ct. App. 1998).

While it is clear that Rule 1:4-8 has a punitive purpose in seeking to deter frivolous litigation, it also seeks to compensate a party that has been victimized by another party bringing frivolous litigation. Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 141 (Law Div. 1995). The rule, however, specifically permits only the reimbursement of attorneys’ fees and expenses incurred by a party. It does not permit the reimbursement of a party’s loss of income in dealing with frivolous litigation. If a person, other than a lawyer, such as a doctor, plumber, or unskilled laborer, is the subject of frivolous litigation, appears pro se, and succeeds in convincing the court that his adversary has acted in a frivolous fashion, the court cannot, under the rule, reimburse the doctor, the plumber, or the unskilled laborer, the income he did not receive from his job. This rule simply compensates a party for the legal fees and expenses it actually incurred and became obligated for as a direct result of the adversary pursuing frivolous litigation.[8]

Public policy also supports our reading. To compensate an attorney for his lost hours would confer on the attorney a special status over that of other litigants who may also be subject to frivolous claims and are appearing pro se. There is nothing to indicate that that was the intent of the rule. As stated in Aronson v. U.S. Dep’t of Hous. & Urban Dev., 866 F.2d 1, 15 (1st Cir. 1989),

[n]or are we impressed by the argument that a pro se lawyer should be awarded fees because of the time he/she must spend on the case. The inference is that the time so spent means the sacrifice of fees he/she would otherwise receive. But a lay pro se must also devote time to the case. If such a litigant is a professional person, such as an author, engineer, architect, etc.[,] the time expended may also result in loss of income. Lawyers are not the only persons whose stock in trade is time and advice.

This concept was also articulated in Lisa v. Strom, 904 P.2d 1239, 1243 (Ariz. Ct. App. 1995):

A non-lawyer pro se litigant, however, also suffers an “opportunity” cost, yet has no right to recover for his time spent preparing for litigation. Moreover, because of his unfamiliarity with the practice of law, a layman appearing pro se must spend more time preparing for the case than the lawyer appearing pro se. The time a layman spends in court preparing memoranda, investigating facts, is time when he cannot be practicing his own trade — but we do not allow him an award of fees for time spent working on the case because his recoverable attorney’s fees are those he is reasonably obligated to pay his attorney, not his “opportunity” costs.

The judicial system would be unfair if an attorney-litigant could qualify for a fee award without incurring the potential out-of-pocket obligation that the opposing non-lawyer party must bear in order to qualify for a similar award. Moreover, when both parties opt to litigate pro se, it would be palpably unjust for one of them (the pro se lawyer) to be eligible for an attorney’s fee award, while the other (the pro se layman) would not.

The plain language of the rule compensates a movant solely for reasonable attorneys’ fees and other expenses incurred as a result of the frivolous claim. If reasonable attorneys’ fees are not actually incurred by a litigant as a direct result of a frivolous claim, they are not compensable under the rule as presently written. We find, therefore, that an attorney appearing pro se is not entitled to fees unless they are actually incurred as opposed to imputed.

See my prior Blog Post: An award of counsel fees to a pro se law firm may be appropriate

See also: To qualify for an award of attorneys’ fees under the frivolous litigation statute, the party seeking fees must be a prevailing party

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

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