THE FOLLOWING IS A TRANSCRIPT OF THIS VIDEO. FOR MORE INFORMATION, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  I want to talk to you about contingency fees, and how they can give access to some beneficiaries who don’t have the ability to pay lawyers on an hourly basis.  The traditional way that many people hire lawyers is they give that lawyer a retainer (for example, $10,000-$20,000 retainers are common), and then the lawyer bills against that retainer, according to their hourly rate. When that retainer runs out, the lawyer asks for more money.

However, beneficiaries are not in a position where they can pay lawyers to represent them in a trust contest or a will contest case. So, there is an option for contingency fee.  Now, keep in mind, you generally do better overall to hire a layer on an hourly basis, if you can, because you’ll spend less overall on a case than you will if there’s a successful outcome in a contingency fee case, as far as attorney’s fees go.

Let’s give an example.  You hire a lawyer to handle a case for you.  You’ve got a million dollars at stake and you pay that lawyer $100,000 in hourly fees to get you your access to that million dollars.  Well, that’s a pretty good result for you. You paid $100,000 in hourly fees to that lawyer and you end up getting the million dollars that was supposed to come to you.

If you didn’t have the money to pay the lawyer on an hourly basis, you could hire that same lawyer on a contingency fee basis, which is a percent of the recovery.  Generally speaking, most cases are going to be 40% in California.  So, using the same example, a lawyer works the case for a year and a half or two years, and just before trial, the case settles and it’s a million-dollar recovery to you.  If you apply the math at 40%, that would be a $400,000 attorney’s fee and the balance would go to you.  You can see the difference.

It generally makes sense to hire a lawyer on an hourly basis, versus a contingency fee basis, but if you don’t have the ability to hire a lawyer on an hourly basis, then the best option for you to do is to consider the contingency fee, which is a way to recover something for you that you normally couldn’t get access to if you didn’t have a lawyer willing to take your case on a contingency fee basis.  So that’s just a little bit on how a contingency can work to return assets to you that are rightfully yours.

Part 2 – Litigation Costs.

I read in Senator Harry Reed’s autobiography about a criminal defense attorney who practiced law in the 1960’s and 1970’s who would say when asked how much he will cost to defend a felony murder case “everything you’ve got!”  Well that sounds a bit excessive!  But many clients fear just that, and for good reason because attorneys’ fees in litigation matters are a complete mystery—even to most attorneys.

So the best way to look at litigation fees is what services are you receiving for the money you are paying.  There’s no way around it, lawyers are expensive.  But what you want to do is obtain as much in services as you can for the money you pay.  In other words, as a client you should be looking for value.  If you pay a lot, but in exchange you receive aggressive representation that moves your case along and positions your side for either a good settlement or as much chance of winning at trial as is possible, then that’s money well spent.  If you pay the same amount and merely receive a stack of letters and emails between attorneys, then that’s a waste of money.

To move your case along and put you in the best position possible, takes work…and work is money.  Things like depositions, subpoenas, expert opinions, written document demands of your opponent (and motions to compel when your opponent refuses to respond properly) are necessary to prepare your case for trial.  And a prepared case gives you the best shot of winning or obtaining a great settlement.  If you are not prepared, then you are in big trouble.

So what does preparation cost you?  Well let’s break it down into different levels based on the amount of time your matter spends in Court before reaching either a settlement or a trial court decision.

Level 1: $15,000 to $20,000.  I always say that everyone who enters the litigation arena will spend a MINIMUM of $15,000 to $20,000 even if your case settles early.  What do you get for this money?  Well if you are the party initiating the lawsuit, it will cost around $5,000 to draft up the initial petition (I am talking Will and Trust cases here, but civil cases are similar).  The filing fee and service of the petition will cost around $500 to $750 in hard costs.  You then have your first Court hearing, initial round of discovery and maybe your first deposition and you hit the $15,000 to $20,000 mark.

Level 2: $20,000 to $50,000.  If you case does not settle early, then its on to level two where you get into far more depositions and maybe a few discovery disputes.  As part of discovery you can subpoena bank and medical records and demand documents from the opposing party.  If someone objects to what you are doing, or refuses to comply, then its on you to take them to Court on a Motion to Compel.  A typical Motion requires the initial filing, and then a reply when the other side files their opposition, plus a court hearing on the Motion.  All told a single Motion can cost from $4,000 to $8,000 or more in time.

As for depositions, those are pricey too.  It can cost from $4,000 to $6,000 per deposition.  That includes the court reporter fee, which can be anywhere from $600 to $1,500 per deposition (court reporters charge by the page, so the longer the deposition, the more expensive).

And maybe you have a mediation or Mandatory Settlement Conference, which requires a brief be prepared and attorneys spending all day in a mediation setting.

All told, level two usually will get you through mediation.

Level 3: $50,000 to ???.  If your case does not settle after mediation, then its off to the races.  That means trial.  And trial preparation is time consuming, if done right.  You can easily spend $25,000 or more on trial preparation.  Then there are usually additional motions at this stage, and maybe one of the party files a Motion for Summary Judgment, which can cost from $25,000 to $50,000 to either prepare or defend against in its own right.

And then there is trial, which can cost from $10,000 on up depending on how long trial takes.  For most cases that are litigated through trial, you will spend (from start of the case to finish of trial) from $80,000 to $150,000 or more.  This last phase is by far the most expensive because this is when the cards are down and you’re either “all-in” for trial or you get out.  There’s no way to do trial on a half-hearted effort, not if you hope to win.

Well there you have it.  Litigation is an expensive proposition.  But sometimes you have little choice but to stick up for your rights, and our Court process is the only forum you have to force a decision in your case.  The key is to properly value your case (are you investing wisely in your legal claim), and get the appropriate level of service for your money.

Part I here:
How Much do California Lawyers Cost? The Taboo Question for Trust and Will Lawyers–Part 1 Transactional Fees

The tangled web of litigation can cause some pretty funny alliances at times.  Emily Green of the Daily Journal reported on February 28, 2013 that the estate of Mark R. Hughes, founder of Hebalife, Ltd., who died in 2000, is still being litigated in the appellate court.  The latest turn of events comes from a claim for $3 million in attorneys’ fees made by the law firm of Mitchell Silberberg & Knupp LLP and attorney Hillel Chodos (Mitchell Silberberg & Knupp LLP and Hillel Chodos vs. Suzan Hughes, et. al., A130802).

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The $3 million fee is for services provided to the guardian (Suzan Hughes) of Mr. Hughes’ minor son, Alex.  At the time of the litigation, Alex was a minor and Suzan Hughes was fighting to remove the Trustees of Mr. Hughes’ Trust, which had an estimated value of $300 million.  The Guardian’s attorneys (Mr. Chodos and company) were allegedly paid $3 million for their services, but they had outstanding fees due of another $3 million.  Apparently, the lawsuit to remove the Trustees was unsuccessful.

Once the $3 million bill was asserted, both the guardian (Suzan Hughes) and the Trustees objected to payment of the fees—bringing these former enemies into alliance.  At the trial court level, the $3 million fee was denied because the Judge reasoned that the litigation was unsuccessful and was carried out primarily for the personal gratification of the guardian and NOT for the benefit of the minor.  Mr. Chodos and company disagreed, saying that during their representation they were following the instructions of the guardian and fighting a lawsuit that they honestly believed was in the best interests of the minor.

The First District Court of Appeal in San Francisco heard arguments and is expected to rule later this year.

Just goes to show that fee issues are a universal truth, the only difference being the amounts.  Most people don’t have to argue over $3 million in fees because not everyone has a Trust worth $300 million.  While the amounts may be large, the underlying arguments are no different.  Fiduciaries of all types, be they Trustees, guardians, executors, or agents under a power of attorney, owe a duty to act reasonably and only take action that is in the best interest of their beneficiaries and wards.  Violate that universal truth, and fees may be denied—not just attorney’s fees, but Trustees’ fees too (and executor fees, guardian fees, agent fees, etc).

Notice I said “may” be denied.  Why not “must” be denied?  Because so much is left to the discretion of the trial court.  If you can convince a Judge that your actions were reasonable, even if unsuccessful, then you have a chance of getting those fees approved.  Not so black and white after all. 

 

Lawyers have rules that we must follow (no, seriously we do), and one of them is that any engagement where we estimate the fees to the client will exceed $1,000 must be documented by a written fee agreement—sometimes called retainer agreement or engagement agreement.  See Bus. & Prof. Code Section 6148.   The California Court of Appeals clarified last year that written fee agreement are not required, however, where an attorney is representing the executor of a probate estate.

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First, let’s sort out who the attorney is, and is not, representing in a probate estate.  Any probate has three potential groups of interested people: (1) the executor (or administrator, both are referred to as the Personal Representative); (2) the beneficiaries; and (3) the creditors of the decedent.

When a client enters my office to discuss a possible probate, they are usually the person named as the executor under a decedent’s Will.  They are asking me to represent them and handle the probate estate; who do I represent?  The answer is I represent the client in his or her capacity as executor.  Technically they are not an executor of the estate yet—not until the Court orders their appointment—but they are the proposed or named executor and that is the capacity in which I would represent them.

More important question: who am I NOT representing?  I do not represent the “estate”—which only exists through an executor—the beneficiaries or the creditors of the decedent.  This is a common misconception, many beneficiaries believe that an attorney for the executor represents the estate and, therefore, also represents the beneficiaries—not true.  The attorney represents the executor, and only the executor.

So why does a lawyer not need a written fee agreement for representing an executor?  According to the California Court of Appeals (in Estate of Dennis Wong) it’s because the client (i.e., the person acting as executor) will not incur any fees whatsoever in the representation.  Therefore, the requirements of Section 6148 are not triggered. 

Let me explain.  Section 6148 states that a written agreement is required whenever the “client” will incur fees in excess of $1,000.  In a probate estate, the executor does not pay the attorneys’ fees, the estate does.  In other words, the executor, as an individual, is never liable for payment of fees—but the estate assets are. 

You can think of the estate as a pool of assets guarded by the Court.  Before the estate is closed, the Court decides who gets paid and by how much.  For attorneys, the fee is set by statute, which is calculated by a percentage of the estate.  And the statute also sets the procedure by which the attorney asks for those fees.  Once granted by the Court, the fees are paid from the pool of assets and the rest is distributed to the estate beneficiaries.

I know what you’re thinking, if the executor is one of the estate beneficiaries, then isn’t the executor paying some portion of the attorneys’ fee?  Well yes, but not directly.  Remember the estate assets are not really assets of the beneficiaries until the very end of the probate process when the assets are distributed out to them.  Before that, the assets belong to the decedent’s estate and the Court has say on who gets paid and how much.  That’s true for creditors too.  But the executor pays nothing from his or her own individual wallet, so Section 6148 is never implicated, so a written fee agreement is not required.

Now that we know that it is perfectly legal NOT to obtain a written fee agreement, should we throw out our engagement agreements?  No.  I have always used written fee agreements even in probate matters, and why not use them?  In my experience, surprising clients about fees is a bad idea (“You owe me $20,000…SURPRISE”).    Better to put it all down in writing up front so there are no surprises down the road.  Each side knows what to expect and knows that the fees will not be paid until ordered by the Court.

For those of you (attorneys and clients alike) not using fee agreements in probate, however, you can no longer be surprised that fees will be paid…it’s just the amount that might catch you off guard.  You’ve been warned.

Beneficiaries have all the legal rights, and none of the legal obligations, when it comes to California Trusts and Wills.  But beneficiaries, at times, have one very practical obligation—paying to enforce their rights.

For beneficiaries of California Trusts, it’s every beneficiary for him or herself.  That means there is no governmental oversight of  Trustees until the matter is brought to Court.  And every Trust has the potential to wind up in Court if not managed properly.  But just because you may have the right to challenge a Trustee in court does not mean that it comes free of charge.

Most beneficiaries don’t know this, but our judicial system follows the “American Rule” when it comes to attorneys’ fees.  That means each party to a lawsuit pays his or her own fees and generally does NOT get them reimbursed even if successful in the lawsuit.  You read that right, you can win your lawsuit, but still be out the attonreys’ fees it took to get you there.  Seems unjust, and un-American (remember “justice for all”), but that’s the American Rule for attorneys’ fees. 

Contrast that with the English Rule (used in Great Britain and many other Countries) where the losing party to a lawsuit pays the winner’s attorneys’ fees and costs. 

There are a few exceptions to the American Rule even in our own judicial system.  For example, parties in a contract can agree that the winner gets his attorneys’ fees.  There are also a few statutes that only apply to very limited cases where fees can be shifted so the winner is compensated.  Such as with Trust accountings, where the losing party can be forced to pay the winner’s fees if the losers acted in “bad faith” (which can be a tricky standard to prove in court).

The problem is that California Courts are reluctant to shift fees even where doing so is authorized by statute.  In other words, the default rule that everyone pays their own fees, actually weighs against fee shifting even where authorized.  It’s just human nature, when everyone pays their own fees, why should the Court shift the burden of paying in a particular case?  And where the Court can exercise discretion and award fees to the winner, the Court typically will not do that because it goes against the norm. 

What does that mean to you, the Trust or Will beneficiary?  It means you have rights, but it may cost you to enforce those rights.  And you may as well assume that you will not be reimbursed for your attorneys’ fees. 

Given the American Rule, is it still worth enforcing your rights as a beneficiary?  Only you can decide that question.  It obviously is worth it to some people or else there wouldn’t be a backlog of Trust and Will cases congesting our Court system.  But before you go head-long into litigation, be sure to consider your own practical burden of being a beneficiary.  

Marc Alexander’s and William M. Hensley’s outstanding blog on California attorney’s fees recently commented on Estate of Fernandez, where Justice O’Leary discussed the difference between “ordinary” and “extraordinary” attorney’s fees in the probate arena.

So, what is the difference between “ordinary” and “extraordinary” attorney’s fees that you pay an attorney to “probate” your loved ones estate?

Let’s take “ordinary” attorney’s fees first. California law sets the maximum amount an attorney may be paid for “probating” an estate (referred to as “ordinary fees” or “statutory fees”) as follows:

  • 4 % of the first $100,000 of estate value
  • 3 % of the next $100,000
  • 2 % of the next $800,000
  • 1 % of the next $9,000,000
  • ½ % of the next $15,000,000

Let’s take an example. If your parents’ estate (after they have both died) is worth $1,000,000, then the ordinary fee for probating your parents’ estate would be:

  • 4 % x $100,000 = $4,000
  • 3 % x $100,000 = $3,000
  • 2 % x $800,000 = $16,000

Thus, the ordinary fee would be $4,000 plus $3,000 plus $16,000 for a total ordinary fee of $23,000.

 “Extraordinary fees” are fees paid to an attorney probating an estate for extraordinary services—that is services that fall outside of the routine services required for a typical probate.   Extraordinary fees are based on:

(1)   the value of the estate,

(2)   the difficulty of the extraordinary tasks performed and time spent,

(3)   the results achieved, and

(4)   whether those results benefitted the estate.

Most extraordinary fees arise due to probate litigation (i.e., a Will Contest), the sale of real property, or handling difficult tax issues arising in a probate administration.

For example, if a Will Contest is filed by a beneficiary, lawyers will likely be retained to represent the estate and their fees will be paid as extraordinary fees—in addition to the ordinary fees.   

If the Will Contest litigation resulted in extraordinary attorneys’ fees of $30,000, then the total attorneys’ fees for the estate could equal $53,000, which is $23,000 for the ordinary fees and an additional $30,000 for the extraordinary fees. Of course the Probate Court would have to approve both the ordinary and extraordinary fees, but it is likely the Probate Court would approve such fees as outlined above.