In re Conservatorship of F.M.K., H.K., Conservator v. Hayes Lorenzen Lawyers, PLC ( 2021 )

IN THE COURT OF APPEALS OF IOWA
No. 20-1272
Filed August 4, 2021
IN RE CONSERVATORSHIP OF F.M.K.,
H.K., CONSERVATOR,
Plaintiff-Appellant,
vs.
HAYES LORENZEN LAWYERS, P.L.C,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Dubuque County, Michael J.
Shubatt, Judge.
The parents of F.M.K. appeal the district court decision awarding attorney
fees to Hayes Lorenzen Lawyers, P.L.C., which previously represented the parents
in a medical malpractice action. AFFIRMED.
Todd N. Klapatauskas of Reynolds & Kenline, LLP, Dubuque, and Benjamin
Novotny and Matt J. Reilly of Trial Lawyers for Justice, Decorah, for appellant.
David L. Brown and Tyler R. Smith of Hansen, McClintock & Riley, Des
Moines, for appellee.
Heard by Vaitheswaran, P.J., Schumacher, J. and Gamble, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2021)
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SCHUMACHER, Judge.
The parents of F.M.K. appeal the district court decision awarding attorney
fees to Hayes Lorenzen Lawyers, P.L.C., which previously represented the parents
in a medical malpractice action. The district court did not abuse its discretion by
concluding Hayes Lorenzen did not terminate the contract. The court did not
abuse its discretion in determining the reasonable amount of attorney fees for the
law firm’s representation. We affirm the decision of the district court.
I. Background Facts & Proceedings
Due to problems arising at the time of F.M.K.’s birth, the child’s parents
elected to pursue a medical malpractice action. On August 27, 2015, the parents
entered into a contingency fee contract with the law firm of Hayes Lorenzen, which
provided:
In the event of recovery, Client shall pay Attorney the following
fee based on the amount of the gross recovery without reduction for
any expenses, offset or counterclaim against Client’s recovery, a fee
equal to 40% of the recovery if settled without filing suit; a fee equal
to 40% of the recovery after suit is filed and before notice of appeal
to any appellate court; a fee equal to 40% of the recovery after notice
of appeal; and a fee equal to 40% of the recovery if retried. IN THE
EVENT NO RECOVERY IS MADE, ATTORNEY SHALL RECEIVE
NO FEE FOR SERVICES PERFORMED UNDER THIS
CONTRACT. If Client terminates Attorney’s employment before
conclusion of the case, Client shall pay Attorney a fee based on the
fair and reasonable value of the services performed by Attorney
before termination.
The medical malpractice action was filed. Hayes Lorenzen spent more than
three years building the case, including hiring fourteen experts. The parties
engaged in mediation on April 29, 2019, with mediator Peter Gartelos. The
defendants offered to settle for $1.5 million, and this offer was rejected by the
parents, who stated they would not accept less than $20 million. Gartelos stated,
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“At no time during the mediation did I observe any pressure exerted on [the
parents] by Mr. Hayes or his partners to settle for the amounts being offered.” A
subsequent offer to settle for $1.75 million was also rejected by the parents.
Because the mediation was unsuccessful, Hayes Lorenzen continued to prepare
for trial, which was scheduled for October 22.
Hayes Lorenzen informed the parents a guardian ad litem (GAL) should be
appointed for the child, but the parents were reluctant to involve a GAL, as they
wanted to retain control of the case. The parents began researching different law
firms and contacted a law firm.
On June 4, Hayes Lorenzen sent a letter to the parents stating a GAL should
be appointed for F.M.K. “because a formal offer has been made by the defense to
you and to [F.M.K.]. [F.M.K.] is unable to consider any offer, thus the need for
outside GAL.” The parents were given four options:
1. You will sign the Petition for Conservatorship and
Appointment of Guardian Ad Litem and we will continue to represent
you and [F.M.K.];
2. We will file the Motion for Appointment of Guardian Ad
Litem, a copy of which is attached, and we will continue to represent
you and [F.M.K.];
3. You may find other counsel at this time to whom we will
surrender the file, with cooperation; or
4. We will file a motion with the Court to withdraw from
representing you and [F.M.K.].
The parents selected the third option and informed Hayes Lorenzen they
would obtain new counsel. The parents retained Trial Lawyers for Justice, LLP,
for the medical malpractice action.1 Hayes Lorenzen transferred its file to Trial
1The contingency fee contract with Trial Lawyers for Justice provided the law firm
would receive forty-five percent of any recovery.
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Lawyers for Justice which used the same expert witnesses that had been hired by
Hayes Lorenzen and the same exhibits, including expert reports, developed in
preparation for trial.
On June 10, Hayes Lorenzen filed notice of an attorney’s lien under Iowa
Code section 602.10116 (2019). They stated the law firm had “invested significant
time and financial resources into pursuing Plaintiffs’ claim in this litigation.” They
stated that under the contingency fee agreement, they were entitled to the fair and
reasonable value of their services. A global settlement of $1.75 million was offered
to the parents, and forty percent of this amount is $700,000. Hayes Lorenzen
asserted that it was entitled to $700,000 in reasonable attorney fees.2 The parents
subsequently settled the case for an amount greater than $1.75 million.3
A petition for the appointment of a conservator for F.M.K. was filed on
November 27. H.K. was named as the conservator. F.M.K. was represented by
separate counsel and a GAL was appointed.
An application to approve the settlement agreement was filed on
December 10. The proposed settlement agreement requested that Hayes
Lorenzen be paid $50,000 for previous work. Hayes Lorenzen resisted the
application to approve the settlement agreement, stating that it was entitled to
attorney fees of $700,000. The settlement was approved with the exception that
$700,000 was set aside due to the dispute over attorney fees. Trial Lawyers for
Justice filed a response to Hayes Lorenzen’s resistance.
2 Hayes Lorenzen attached a bill of particulars, showing $167,540.87 in
unreimbursed expenses. This amount is not in dispute.
3 The terms of the settlement are confidential.
5
At the hearing on the attorney fee dispute, the parents testified they had an
oral agreement with Trial Lawyers for Justice to dispute the amount of attorney
fees awarded to Hayes Lorenzen. The parents and Trial Lawyers for Justice
agreed that any portion of the $700,000 that was not paid to Hayes Lorenzen would
be evenly split between Trial Lawyers for Justice and the parents.
On September 2, 2020, the district court ruled that the parents terminated
their contract with Hayes Lorenzen. The court stated,
Hayes Lorenzen had done virtually all of the work to prepare the case
for trial during several years of litigation and were prepared to go to
trial if [the parents] continued to hold to their demand of $20,000,000,
which was well above the settlement value determined by Hayes
Lorenzen, as well as the actual settlement that was eventually
reached.
Relying upon Munger, Reinschmidt & Denne, L.L.P. v. Lienhard Plante, 940
N.W.2d 361, 371–72 (Iowa 2020), the court found the fee contract between Hayes
Lorenzen and the parents was “reasonable at the time of its inception.” The court
also stated, “Hayes Lorenzen did almost all of the work to prepare this case for
trial and more than earned the fee it seeks.” The court concluded Hayes Lorenzen
should be paid $700,000 for its work. The parents appeal from the district court’s
decision.
II. Standard of Review
We review of an award of attorney fees in a case involving contingency fees
for an abuse of discretion. See King v. Armstrong, 518 N.W.2d 336, 337 (Iowa
1994) (addressing an award of attorney fees under a contingency agreement in
class action litigation). “An abuse of discretion occurs when ‘the court exercise[s]
[its] discretion on grounds or for reasons clearly untenable or to an extent clearly
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unreasonable.’” Eisenhauer ex rel. T.D. v. Henry Cty. Health Ctr., 935 N.W.2d 1,
9 (Iowa 2019) (citation omitted). “Grounds or reasons are clearly untenable if they
are not supported by substantial evidence or if they are based on an erroneous
application of law.” Id.III. Discussion
A. The parents appeal the district court decision awarding Hayes
Lorenzen $700,000 in attorney fees. On appeal, the parents assert that Hayes
Lorenzen is owed no attorney fees and argue this “is a simple contract dispute
case.” They claim Hayes Lorenzen constructively terminated the contract for legal
representation and, therefore, is not entitled to an award of any attorney fees. The
parents contend the June 4, 2019, letter gave them an ultimatum requiring them
to either consent to a low settlement offer or seek new counsel. They claim their
only viable option was to terminate the contract with the law firm. The district court
found the parents terminated the contract and that Hayes Lorenzen was prepared
to go to trial.
After the parents rejected the settlement offer of $1.75 million, Hayes
Lorenzen continued to engage in negotiations for settlement and simultaneously
prepare for trial.4 The evidence does not support the parents’ claim that the law
firm abandoned them after they rejected the settlement offer. Also, the parents
testified they had started to look for new legal representation even before they
received the June 4 letter. The district court did not abuse its discretion by
concluding that Hayes Lorenzen did not terminate the contract.
4The mother of F.M.K. testified that after mediation, she felt “relief” that Hayes
Lorenzen was going to continue to represent them.
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B. Alternatively, the parents claim that if they are bound by the terms of
the contract with Hayes Lorenzen, then the law firm is not entitled to the
contingency fee of forty percent of $1.75 million because there was no recovery
while the parents were represented by the law firm. The parents also assert that
to the extent the parents terminated the contract, Hayes Lorenzen failed to prove
the fair and reasonable value of its services. The contract provides, “If Client
terminates Attorney’s employment before conclusion of the case, Client shall pay
Attorney a fee based on the fair and reasonable value of the services performed
by Attorney before termination.” The parents state Hayes Lorenzen is only entitled
to the fair and reasonable value of their services. The parents assert that Hayes
Lorenzen did not meet their burden to prove the fair and reasonable value of their
services and, therefore, is not entitled to an award of attorney fees.
The court rejected the parents’ assertion that the fees awarded to Hayes
Lorenzen should be determined on a quantum meruit basis.5 Because the court
was not making a determination of the hours worked and a reasonable rate for
those hours, Hayes Lorenzen was not required to submit detailed billing records.
See Iowa Sup. Ct. Disciplinary Bd. v. Muhammad, 935 N.W.2d 24, 33 (Iowa 2019)
(noting billings were used for work performed in the absence of a contingency fee
agreement).
5 The district court found, “Hayes Lorenzen did almost all of the work to prepare
this case for trial and more than earned the fee it seeks.” The subsequent law firm
did not alter the expert designation that was completed by Hayes Lorenzen,
consisting of fourteen experts. Thus, even if the fees were calculated on a
quantum meruit basis, the court found the fees were reasonable. “Iowa courts
have recognized that the district court is an expert on the issue of reasonable
attorney fees.” King, 518 N.W.2d at 337.
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In this regard, the parents assert the district court’s reliance on Munger is
misplaced. In Munger, after receiving a settlement, a client refused to pay its law
firm under the parties’ one-third contingency fee contract. 940 N.W.2d at 365. The
Iowa Supreme Court determined that contingency fee contracts are generally
enforceable. Id. at 366. The court stated:
The [clients] overlook the risk allotted to both parties by the
contingency fee contract. Instead, we conclude the contingency fee
contract at issue was reasonable at the time of its inception.
Consistent with our existing caselaw, we will not use [Iowa Rule of
Professional Conduct] 32:1.5(a)’s noncontingency fee factors to
reevaluate this contingency fee contract from a position of hindsight.
This case does not fall within the narrow exceptions to that general
rule.
Id. at 365–66. The factors used to determine the reasonableness of attorney fees
outside a contingency fee contract are “not . . . used to reexamine the contingency
fee contract ‘at the conclusion of successful litigation.’” Id. at 368 (citation omitted).
There is an exception to this general principle when large fees have not
been earned “by either effort or a significant period of risk.” Id. at 367; see also
Iowa Sup. Ct. Disciplinary Bd. v. Hoffman, 572 N.W.2d 904, 908 (Iowa 1997)
(finding a contingency fee was excessive because the client’s recovery was not
due to the attorney’s work). This case does not come within the narrow exception
where a fee based on a contingency fee contract has been found to be
unreasonable. Hayes Lorenzen obtained expert witnesses and exhibits to support
the parents’ medical malpractice claims. The district court found the law firm
participated in mediation to settle the parents’ claims and did “virtually all the work
to prepare the case for trial during several years of litigation.” This is not a case
where the parents’ recovery was unrelated to the work of the law firm. Hayes
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Lorenzen argues if the forty-five percent contingency fee of Trial Lawyers for
Justice for four and a half months of negotiating is reasonable, the forty percent
contingency fee for three and a half years must also be reasonable and was
earned.
Because this case does not come within the exception, the general principle
that contingency fee contracts are valid should be applied. See Munger, 940
N.W.2d at 366. We consider whether the contingency fee contract “was
reasonable at the time of its inception.” Id. at 365. Contingency fee contracts
perform three functions:
First, they enable persons who could not otherwise afford
counsel to assert their rights, paying their lawyers only if the
assertion succeeds. Second, contingent fees give lawyers an
additional incentive to seek their clients’ success and to encourage
only those clients with claims having a substantial likelihood of
succeeding. Third, such fees enable a client to share the risk of
losing with a lawyer, who is usually better able to assess the risk and
to bear it by undertraining [undertaking] similar arrangements in
other cases.
Id. at 366 (quoting Restatement (Third) of the Law Governing Lawyers § 35 cmt.
b, at 257 (Am. Law Inst. 2000)). A high rate of return for an attorney does not
make a contingency fee contract unreasonable when it was made. Id.
In applying Munger, the district court found:
Using the legal analysis set forth therein, the Court concludes that
the fee contract between [the parents] and Hayes Lorenzen was
reasonable at the time of its inception. Although the case settled for
a significant amount of money, it was not without its complexities.
There was always a chance that a jury would return a full defense
verdict, in which case there would be no recovery for [the parents]
and no fee for the work put in over several years by Hayes Lorenzen.
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(Footnote omitted.) The court concluded, “a fee of $700,000, based on 40% of the
last settlement offer made to [the parents] before they terminated the contract, is
reasonable.”
We conclude the district court did not abuse its discretion by concluding
$700,000 was a reasonable amount of attorney fees based on the contingency fee
contract with the parents. The district court is an expert on the issue of reasonable
attorney fees. See King, 518 N.W.2d at 337. We affirm the decision of the district
court.
AFFIRMED.