October 15, 2017

Time Pressure Is Not A Reason To Violate Rules Of Conduct; In re Krasnoff

Category: Indiana Law Review | Author: | Share:

As attorneys, one of our jobs is to properly advise our clients, and this goes double when dealing with our own fee agreements. And while attorneys may sometimes want to cut corners in order to get things done, that’s no excuse for ethical lapses.

Douglas Krasnoff agreed to represent a client in an action against the client’s employer. The fee agreement provided that the client would pay a “retainer fee/fixed fee” of $10,000, with a “contingency fee bonus” of 40% of any recovery. The client paid Krasnoff $6,000. The case eventually settled for $3,000, and Krasnoff kept the entire amount, leaving the client owing him another $1,000.

The client then retained Krasnoff to represent him in a second claim against his employer. The fee agreement required the client to pay a $5,000 “retainer fee/fixed fee,” with another “contingent fee bonus” of 33-40%, depending on whether the case went to trial. A federal magistrate judge entered an adverse order against the client, and Krasnoff charged the client an additional $10,000 “appeal fee” to appeal the magistrate judge’s decision to the district judge. Krasnoff further charged the client an additional $8,000 “to add claims to his lawsuit,” but eventually released these claims against his client’s wishes.

The second claim settled for $30,000. After that settlement, Krasnoff had Client sign a “Settlement Agreement” that provided Krasnoff would receive $20,000 in attorney fees and the client would receive $10,000. The $5,000 retainer the client had paid was not credited to him. And Krasnoff did not advise the client of the desirability of seeking the advice of independent counsel regarding the modification or give the client a reasonable opportunity to do so.

In total, Krasnoff’s collected $43,000 in fees in the second case, and his client never received the remaining $10,000 due under the settlement agreement.

The Commission argued that Krasnoff charged an unreasonable fee “in several respects.” But the Court only addressed one of those arguments: the “appeal fee.” The Court found that the “appeal fee” Krasnoff charged to have a magistrate judge’s decision reviewed was unreasonable.

The action taken by Respondent was not an “appeal” in the traditional sense but rather an objection to a magistrate’s pretrial order lodged with the district judge pursuant to Rule 72(a) of the Federal Rules of Civil Procedure, and the parties accordingly dispute whether this work was encompassed within the scope of the original fee agreement. But however this work is characterized, its ultimate purpose was to challenge a pretrial order in the Second GM Case requiring Client to provide medical records that already had been provided by Client to GM in the First GM Case. In other words, Respondent charged Client $10,000 to try to avoid giving GM materials that Respondent knew GM already had.

It then moved on to dealing with whether Krasnoff violated Rule 1.8(a) by renegotiating his fee agreement with Client on terms more advantageous to Respondent without adhering to the safeguards required by the Rule. Krasnoff argued that “time was of the essence” in settlement discussions, and that following the Rule when settling with the client regarding his fee could have jeopardized the settlement. The Court found that this was no excuse, particularly when the need for swift action was only supported by Krasnoff’s self-serving testimony.

Finally, Krasnoff argued that he did not actually violate the Rule, because a settlement was better than losing the case outright. But the Court said that this is not how the Rule works.

The relevant inquiry, though, is not whether some recovery is better than no recovery, but whether the terms of a renegotiated fee agreement are more advantageous to the attorney than the terms of the original fee agreement.

And in this case, the new agreement was worse, as the client was not credited with the $5,000.

Krasnoff had some aggravating factors when the Court considered his discipline (prior suspensions and non-cooperation). Plus, as the Court said, “When all is said and done, between the two cases Respondent collected over $50,000 for himself and nothing for Client, and Respondent claims Client still owes him money.” This led to a 180-day suspension without automatic reinstatement.

Lessons:

  1. The need to resolve an issue quickly does not justify non-compliance with procedural requirements of Rule 1.8(a) intended to protect the client.
  2. Rule 1.8(a) asks whether a renegotiated fee agreement is better for the attorney than an old one, not whether the client would be better off in the aggregate if a fee agreement is renegotiated.