Court Opinion

ID: 9735095
Source: CourtListenerOpinion
Date Created: 2023-08-26 18:01:14.508338+00
Date Added: 2024-06-11T18:26:55.235065
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 46. {concurring). I agree with the majority that upon remand the circuit court must determine the reasonable cost of collection. I also agree with the majority that the sum of reasonable attorney fees and costs does not necessarily equal the "reasonable costs of collection." I write separately, however, to provide further context to the majority's contingent fee discussion.
¶ 47. The majority aptly describes the statutory formula under Wis. Stat. § 102.29 for distribution of proceeds from a third-party recovery. Citing Diedrick v. Hartford Accident & Indemnity Co., 62 Wis. 2d 759, 766-67, 216 N.W.2d 193 (1974), it notes that the statute contemplates a deduction for costs of collection, and *93that the deducted amount must be reasonable. Majority op., ¶ 33. The majority also recognizes that the task to determine the reasonable cost of collection is made more complicated here because two firms are seeking attorney fees and because a determination of the reasonable cost of collection encompasses both an hourly fee and a contingent fee. Id., ¶ 35.
¶ 48. Last term in Kolupar v. Wilde Pontiac Cadillac, Inc., 2004 WI 112, 275 Wis. 2d 1, 683 N.W.2d 58, we addressed the proper analytical framework for determining reasonableness of a fee when it is based on an hourly rate. We adopted the lodestar method. Id., ¶ 30. This court acknowledged that the underpinnings of the analysis include the assessment of the reasonable number of hours worked multiplied by a reasonable hourly rate. Id., ¶ 29. After determining that amount, we observed that the application of the factors set forth in SCR 20:1.5 may alter the result of the rate-X-hours equation. See id., ¶ 33-35.
¶ 49. The majority here fails to discuss the underpinnings of the contingent fee agreement and merely directs that the non- exhaustive list of factors set forth in SCR 20:1.5 are to be applied. Majority op., ¶ 37. The problem with the majority's approach is twofold: (1) a discussion of the underpinnings of the contingent fee is necessary to provide the context for the reasonableness determination; and (2) most of the factors set forth in SCR 20:1.5 are not relevant to a contingent fee reasonableness determination.
¶ 50. The underpinnings of the contingent fee are distinct from those of the hourly fee.1 The normal *94hourly fee purchases the services of an attorney at a predetermined rate. Under a contingent fee, a client purchases more than just services. The contingent fee also provides a form of financing. When using an hourly rate, a client typically pays some amount at the beginning or is billed as the work progresses. By its nature, the contingent fee is normally not collected until the case is finished. As a result, the contingent fee attorney ends up financing the case.
¶ 51. The contingent fee may also provide a form of insurance. That is, if no money is collected, then often the client is liable for nothing, not even the expenses. The contingent fee agreement in this case serves as an example of this type of insurance. The first sentence of the agreement states: "If no amount is collected on your case, the attorney will be entitled to no fee for services and you will not be required to pay out-of-pocket expenses incurred by the attorney." (Underlined in original.)
¶ 52. The contingent fee plays a vital role in our civil litigation system. It serves a gatekeeping function. Cases with little merit will not be brought because they are not worth taking the risk. Attorneys will screen out cases with a low probability of recovery. It also serves, however, as an important tool for access to justice. It opens the courthouse doors to people who could not otherwise afford to bring their cases.
¶ 53. With the differences in background and function, there comes also a difference in the focus of the reasonableness analysis. The focus of the reasonableness inquiry for the contingent fee is not so much tied to the individual hours or efforts spent on a particular case, but rather it encompasses a broader focus. The basic idea behind use of the contingent fee is that in some individual tort cases the attorney may get *95what seems like a windfall, but in other cases the attorney can take the case through a long trial and appeal and get nothing. Sometimes the risk pays off, and sometimes it does not. A broader focus is important when assessing the reasonableness of the contingent fee.
¶ 54. In a study of the financial risks attendant to the use of the contingent fee agreement, one commentator explained the broader focus as follows: "The profits from contingency fee work come not from the individual case but from the portfolio of cases that a lawyer handles. Some of the 'investments' in that portfolio do poorly (some are disasters), many do okay and a few do extremely well. As with any type of investment strategy, one must look at the returns from the portfolio as a whole rather than focus on single investments (or cases)." Herbert M. Kritzer, Investing in Cases: Can You Profit From Contingency Fee Work1?, 70 Wis. Lawyer 10, 45 (August 1997).
¶ 55. Although the majority recognizes that there are differences between a contingent fee and an hourly fee, it fails to discuss the differences in the reasonableness analysis. It instructs the circuit court to evaluate Anderson's fee by applying the factors set forth in SCR 20:1.5 and cites to Meyer v. Michigan Mutual Insurance Co., 2000 WI App 53, 233 Wis. 2d 493, 609 N.W.2d 167.
¶ 56. The majority fails to observe that the court of appeals in the Meyer case struggled mightily in trying to fit a reasonableness of contingent fee analysis (a square peg) into SCR 20:1.5(a) (a round hole). To accomplish this task, the Meyer court stated that courts did not have to consider all the factors, and determined that the trial court, in the exercise of its discretion, had *96considered three factors: (1) the time and labor required; (2) the amount of money involved; and (3) the attendant risks. Id., ¶ 16.
¶ 57. The problem with the Meyer court discussion underscores the dilemma a court faces when relying on SCR 20:1.5 to assess the reasonableness of a contingent fee. The factors readily apply to an hourly fee determination, but provide little guidance for the determination of the reasonableness of the contingent fee.
¶ 58. To begin, the "risk" factor which played a prominent role in the Meyer court's reasonableness determination does not even appear in the factors listed in SCR 20:1.5. Like both the trial court and court of appeals in Meyer, I believe that a consideration of "risk" does and should play a prominent role in the reasonableness determination of a contingent fee.
¶ 59. Next, the Meyer court recognized, as should this majority, that the "time and labor" factor does not always readily fit the contingent fee analysis. See id., ¶ 18. In an effort to make it fit, it had to redefine the "time and labor" factor.
¶ 60. The Meyer court indicated that what it meant by the "time and labor" factor of SCR 20:1.5(a) did not focus on the "substantial hours and efforts expended by Meyer's attorneys" in this particular case, but in their "hundreds and hundreds of hours in litigation such as this and in worker's compensation." Id. Thus, the court redefined the "time and labor" factor to mean the time and effort expended to acquire expertise in this area of practice.
¶ 61. Finally, the Meyer court emphasized that the trial court's determination of reasonableness of the contingent fee is not based on hours worked or time sheets, but on whether the terms of the contingent fee *97were reasonable. It then quoted with approval the basis of the trial court's reasonableness determination:
[ T]he [§] 102.29 phraseology of reasonable costs of collection is not meant nor is it to be interpreted as that. .. attorneyfs] must prove on an hourly basis or a work time sheet that they had put in that time and that effort to equal that amount that had been gained under the contingent fee contract. Reasonable costs of collection for attorney fees includes whether the arrangement that had been made between the client and the lawyer was reasonable.
And I can take judicial notice that it is reasonable to have a contingent fee agreement....
Id., ¶ 21.
¶ 62. Given the underpinnings of the contingent fee agreement, I agree with the Meyer court that the reasonable costs of collection inquiry includes the threshold inquiry of whether the contingent fee arrangement between the attorney and client was reasonable. Like the court in Meyer, I too conclude that it is reasonable to have a contingent fee here.
¶ 63. Ultimately, I do not think that many of the factors of SCR 20:1.5(a) even apply to a reasonableness of contingent fee analysis. The factors in SCR 20:1.5(a) are as follows:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
*98(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.2
¶ 64. Although the listed factors seem relevant to a determination of the reasonableness of a fee based on an hourly rate, many seem irrelevant to the reasonableness inquiry for a contingent fee. Except as redefined by the Meyer court, the reasonableness of a contingent fee does not normally depend on the time and labor required in a case, as set forth above in (1).
¶ 65. Likewise, the (2) inquiry, which addresses whether the particular employment will preclude other employment by the lawyer, seems to have little or nothing to do with the reasonableness of a contingent fee. The same can be said for the factors set forth in (5), (6), and probably (7).
¶ 66. Upon remand, I think that SCR 20:1.5 (a) will be of limited assistance to the circuit court in its reasonableness determination of the contingent fee. Accordingly, although I join the opinion of the majority, for the forgoing reasons I respectfully concur.

 For a more in-depth discussion of this topic, see Herbert M. Kritzer, The Wages of Risk: The Returns of Contingency Fee Legal Practice, 47 DePaul L. Rev. 267 (Winter 1998).

 For further discussion of the eight factors set forth in the ABA Model Code Rule 1.5, which are identical to the eight factors set forth in SCR 20:1.5., see Ankur Parekh and Jay R. Pelkofer, Lawyers, Ethics, and Fees: Getting Paid Under Model Rule 1.5, 16 Geo. J. Legal Ethics 767 (Summer 2003).