• Attorney Stripped of Entire Fee for Overcharge of Client
  • April 1, 2009
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • Chen v. Chen Qualified Settlement Fund, 552 F.3d 218 (2d Cir 2009)

    Brief Summary
    The Second Circuit denied all legal fees to an attorney because he had attempted to overcharge his client. The attorney’s explanation that the overcharge was due to a typo on the retainer agreement was held not plausible.

    Complete Summary
    Attorney Steven Goldman represented a mother and her infant son in a medical malpractice case. Goldman procured a $2.4 million settlement and then filed an infant compromise order seeking approval of his $408,000 fee, plus $20,000 in expenses. Goldman’s filing merely provided a generalized list of his services and stated (falsely) that he had obtained all medical reports. Because Goldman failed to provide sufficient information with which the district court could assess the reasonableness of the settlement, the court appointed a special master, Steven North, to recommend whether to approve the compromise.

    North twice requested further information from Goldman. Goldman’s response to the first request indicated he had not obtained medical records related to some of the infant’s recent health issues. Goldman also indicated that his fee was calculated pursuant to the statutory sliding scale for medical malpractice fees in New York. In his second response, Goldman lowered his fee calculation noting the formula in his retainer agreement differed from the statutory formula due to a typographical error.

    North reported to the court that based on the inadequacy of what Goldman submitted it was impossible to assess the reasonableness of the settlement or of Goldman’s fee. And because of inconsistencies in Goldman’s submissions, North surmised that Goldman’s initial fee calculation may have been more than simply a mistake. For example, North applied the formula set out in the retainer agreement and still did not come up with Goldman’s initial fee request. Finally, North cited expert opinion for the proposition that it was highly unreasonable to file for an infant compromise without obtaining all relevant medical records.

    In response to North’s report, the court retained its own medical expert and appointed a guardian ad litem, Ronald Schwartz, for the infant. The court finally approved settlement after receiving materials from the expert and Schwartz. Goldman then applied for his fees. The court denied Goldman’s fee request based on his “total[] incompeten[ce]” and his deliberate attempt to overcharge his client.

    On appeal, the Second Circuit upheld the decision under an abuse of discretion standard. The court first noted a general rule that an attorney who violates the Disciplinary Rules is not entitled to legal fees. The New York Disciplinary Rules prohibit charging an illegal or excessive fee. The Second Circuit therefore analyzed whether the district court’s finding of Goldman’s deliberate attempt to overcharge his client was clearly erroneous. The facts presented a close case according to the court because Goldman’s counsel submitted a plausible explanation for the inflated fee. But Goldman himself had never adopted his counsel’s explanation and had instead adhered to his “typo on the retainer” story, which, according to the court, did not add up. Because Goldman himself had not offered a plausible explanation for his fee request, and because the district court’s account of the evidence was plausible, the Second Circuit affirmed.

    Significance of Opinion
    The opinion is notable in two respects. First, the attorney’s alleged attempt to overcharge by $20,000 (i.e. five percent over the statutory maximum) resulted in a loss of 100 percent of his fee. Second, neither the Second Circuit nor the district court clearly articulated the means of assessing Goldman’s mental state or the mental state for which Goldman was penalized. The district court gave Goldman’s conduct seemingly conflicting labels: careless, deliberate and incompetent. And as Goldman argued, the district court may have improperly inferred a more culpable mental state from the fact that Goldman had a history of extensive, albeit unrelated, ethical issues.