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N.J. Superior Court, Appellate Division CIVIL PRACTICE � Contingency Fee � Burden of Proof Estate of F.W. et al v. State of New Jersey, Division of Youth and Family Services, et al, A-0376-06T1; Appellate Division; opinion by Gilroy, J.A.D., decided and approved for publication February 22, 2008. Before Judges S. L. Reisner, Gilroy and Baxter. On appeal from the Law Division, Essex County, L-83-05. [Sat below: Judge Patricia Costello.] DDS No. 04-2-9730 [23 pp.] This action arose from the failure of the Division of Youth and Family Services (DYFS) to properly provide for the care and custody of three minor boys, F.W., R.W., and T.H. (collectively, the plaintiffs). Plaintiffs suffered abuse and neglect by their mother and by other family members. F.W. was killed by the cousin’s son. The cousin then hid F.W.’s body and kept R.W. and T.H. locked in the basement of her home for an extended period of time where they were discovered near starvation, at seven and four years old, respectively. The law firm of Javerbaum Wurgaft Hicks & Zarin (the law firm) filed a complaint on behalf of plaintiffs, asserting negligence against DYFS. The court appointed two attorneys to serve as the guardians ad litem for R.W. and T.H. and a third attorney to serve as the administrator ad prosequendum for the Estate of F.W. The attorneys executed contingent fee retainer agreements in accordance with Rule 1:21-7(c). The parties reached a settlement in the gross amount of $7,500,000. An order was entered approving the settlements and directing counsel to file a separate application for an order setting reasonable attorneys’ fees and costs. The law firm filed a motion pursuant to Rule 1:21-7(c)(5), seeking a determination as to reasonable attorneys’ fees on the amount recovered in excess of $2,000,000. The motion was opposed by DYFS. The trial judge found that the permissible fee under R. 1:21-7(c) was adequate and that plaintiffs’ attorneys did not demonstrate that they were entitled to an additional fee under R 1:21-7(f). The judge stated that the absence of documentation of hours expended was fatal to the application and that increases beyond fees provided in R. 1:21-7(c) are reserved for “truly exceptional” situations. The law firm moved for reconsideration and submitted certifications from six personal injury attorneys, stating that attorneys litigating personal injury matters, pursuant to a contingent fee agreement, do not uniformly maintain time records of the hours devoted. The attorneys also certified that in every instance in which their firms had applied to the court to set a reasonable fee in like cases, a fee had been awarded. The trial judge issued an opinion, stating in part that awarding a fee on recovery in excess of $2,000,000 requires the application of the factors in R.P.C. 1.5., with the most critical factor being the time involved. Acknowledging that it is the usual practice of a plaintiff’s firm not to keep time records in this type of case, the trial judge nonetheless found that when a firm seeks a reasonable fee above a $2,000,000 recovery, or an enhanced fee, it is the firm’s burden to satisfy the Court of the appropriateness of awarding the fee. The law firm appealed, arguing that the lower court’s determination was patently unreasonable and not supported by a reading of the contingency fee rule, the RPC 1.5 factors, or the public policy considerations underlying the contingency fee system. DYFS countered that the law firm’s arguments undercut the court’s role in supervising contingent fees and the goal of RPC 1.5 that the lawyer’s fee must be reasonable. Held: When the trial court considered the application for a reasonable attorney fee on a personal injury recovery in excess of $2,000,000, it incorrectly placed the burden of proof on the law firm to establish that the contingent fee recovered on the first $2,000,000 of the settlement was inadequate. The Appellate Division reversed and remanded to the trial court to reconsider the law firm’s application pursuant to Rule 1:21-7(c)(5). The Appellate Division noted that the attorney prosecuting a personal injury tort action runs the risk that he will not receive anything if there is no recovery. A contingent fee agreement provides a method of compensation that has no direct relationship to the effort expended or the actual value of the services. To prevent overreaching, the Court adopted Rule 1:21-7(c) to establish “the outer limits of permissible contingent fees in tort litigation.” The rule sets forth a schedule of maximum fees that an attorney may collect on the first $2,000,000 of a recovery. The rule also permits an attorney to apply in two instances for fees in addition to those permitted by the schedule. First, an attorney may seek an increased or enhanced fee on the first $2,000,000 of a recovery, because under the circumstances of a given case, the fee permitted under the schedule is inadequate. The burden is on the attorney to show the fee permitted by the schedule is inadequate. The second kind of application is where an attorney seeks a “reasonable” fee on the amount of recovery in excess of $2,000,000. Unlike the first type of application, such fee is not prescribed by a fixed schedule; the amount of the fee is determined by the court. The Appellate Division found that when it considered the application for a reasonable fee, the trial court was required to exercise its discretion “in light of all the circumstances.” However, in reaching its decision, the judge placed almost exclusive emphasis on one factor, the time and labor expended by the law firm. The Appellate Division found that the trial judge incorrectly determined that the law firm’s failure to submit time records was fatal to its application for a reasonable attorney fee. The Appellate Division concluded that the trial judge mistakenly applied the wrong standard by placing the burden on the law firm to demonstrate that the fee received on the first $2,000,000 was inadequate. – By Debra McLoughlin For appellant � Javerbaum Wurgaft Hicks & Zarin, Daniel J. Pomeroy (Mortenson and Pomeroy; Pomeroy and Karen E. Heller, on the brief). For respondent � Karen L. Jordan, Deputy Attorney General (Anne Milgram, Attorney General; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Jordan, on the brief).

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