In some cases, a client’s recovery involves payments that will be received on a periodic basis. While an attorney’s fees generally can be calculated in advance and paid in full, what happens if the amount of the client’s payments varies and the duration of the payments is unknown? How much does the attorney receive and for how long? The Supreme Court of Appeals of West Virginia recently addressed these issues in a case involving attorney’s fees on royalty payments under a coal mining lease.
In Schrader, Byrd & Companion, P.L.L.C. v. Marks, 2007 WL 1039070 (W.Va.), the clients appealed the summary judgment in their attorneys’ favor as to the applicability of a contingency fee arrangement to royalty payments under a coal mining lease. In affirming the judgment, the Supreme Court of Appeals of West Virginia held: "an attorney fee arrangement whereby the attorney receives a percentage of funds as they are periodically received by the attorney’s client is not, as such, either suspect or impermissible."
The law firm filed suit for the plaintiffs in 1988 against some coal companies. In 1998, the plaintiffs and the defendants reached a settlement whereby the plaintiffs would receive $3.5 million, of which slightly over $1 million was paid to their lawyers pursuant to a 30% contingency contract entered into in 1988. As of 1998, the lawyers had spend 4,062.45 lawyer hours and 920.35 paralegal hours on the case, which worked out to roughly $250.00 per hour for the attorneys and $100.00 per hour for the paralegals, rates that were not excessive, given the difficulty and prolonged nature of the case.
However, the fee dispute arose as to increased royalty payments that were negotiated as part of the settlement. The plaintiffs’ royal payments increased from $6,000.00 per year to $30,000.00 per year, and the attorneys took the position that they were entitled to their 30% contingency fee on the increased share of the royalties ($24,000 per year) as they were received, with no limitation on the duration of the payments.
The plaintiffs argued, apparently without much support in the record, that they did not intend for their attorneys to keep receiving fees on the increased royalties. The plaintiffs characterized the contingency fee arrangment as making the law firm a 30% owner of the property.
The Supreme Court found that such a contingency fee arrangement did not create an impermissible relationship or entanglement between the law firm and its clients. Rather, the Court identified two factors to be considered in determining an attorney’s entitlement to receive fees under such an arrangement: first, the terms of the fee agreement between the attorney and the client, and second, whether, when viewed in the context of the entire representation of the client by the attorney, the fees are fair and reasonable.
Interestingly, the Court pointed out that the fee agreement provided that the plaintiffs owed "30% of the amount collected." The Court seemed to suggest that the if the fee agreement had said "collected and paid at the time of settlement," the plaintiffs’ argument against continuing payments to their lawyers would have had more merit.
The Supreme Court also rejected the plaintiffs’ argument that the amount of fees that could be collected by the law firm in the future could be "huge." The plaintiffs apparently did not attempt to quantify the amount of fees, and the Court dismissed the argument as having no merit. Because the original action brought by the law firm was a declaratory judgment, the Supreme Court’s affirmance of the summary judgment ends the litigation.