For those of you who represent representatives of decedent’s estates, the ISBA Advisory Committee (“Committee”) Opinion No. 13-01 issued January 2013 (“Opinion”), is a must-read. The Committee issued its opinion “that an agreement that a client shall pay fees disallowed by the Probate Court, regardless of the reason for disallowance, is a violation of the Rules of Professional Conduct 1.5.” (emphasis added).
The question posed to the Committee was whether it is ethically permissible for a lawyer for a representative of a decedent’s estate to enter into a fee agreement, or to collect a fee, for an amount in excess of the amount of fees allowed by a Probate Court as reasonable.1 The Committee cites the Illinois Probate Act of 1975, several cases, the Illinois Rules of Professional Conduct, and other ethical opinions to support its conclusion that such an arrangement is a violation of the Rule of Professional Conduct 1.5. This article is designed as an in depth review of the Opinion and the references cited by the Committee to support its conclusion.
II. Committee’s Analysis
The Committee proposes a hypothetical fact scenario between an attorney and client to begin the discussion. Under the facts assumed, the attorney is hired by an individual client to represent the client as representative of a decedent’s estate. The attorney’s engagement letter, accepted by the client, provides for the attorney to be paid on an hourly basis from the estate and provides that if any part of the attorney fee is disallowed by the Probate Court for any reason, the estate shall pay the “allowed portion” and the client shall pay the “disallowed portion” from the client’s individual funds. The attorney prepares a bill for $10,000 total. The Probate Court allows an attorney fee of $7,500 to be paid from the estate and disallows the balance of $2,500 for unstated reasons. Pursuant to the engagement letter, the attorney requests the client to pay the “disallowed portion” in the amount of $2,500 from the client’s individual funds.
The Committee poses this question: whether it is a violation of the Rules of Professional conduct, governing the reasonableness of attorney fees, for an attorney to contract with a client for payment of fees in excess of an amount approved2 by the Probate Court.
The Committee first examines the Probate Act that provides the well known provision that the attorney for a representative is entitled to reasonable compensation for his services.3 The Committee acknowledges that “while such compensation normally is to be paid with estate assets, that is not always the case.” The Committee also cites In re Elias,4 “there is no provision in the Probate Act requiring that the executor’s attorney fees and costs be exclusively paid from the estate.”
The Committee does not discuss the differences in the Probate Act provisions between attorney and executor fees. The court in the case In re Elias5 held that unlike attorney fees, executor and administrator fees are limited to being paid from the assets of the estate. The Probate Act does not require an attorney fee for an estate representative to be paid exclusively from estate assets.
B. Illinois Case Law.
The Committee returns to In re Elias for the proposition that a Probate Court, a court of general jurisdiction, has the authority to apportion the payment of attorney fees to other parties, other than just to the estate.6 The court in Elias first made a determination that the attorney fees charged to the estate were reasonable.7 Then the court examined whether it would be fair for the estate beneficiaries to bear the burden of the entire fee. Instead of charging the estate the entire fee, the court applied the equitable theory of equitable contribution and allowed for only a part of the requested attorney fee to be charged to the estate. The court ordered the “disallowed portion” to be charged to a third party.
The court held that “attorney fees for an executor can be assessed against a party in a probate proceeding based on equitable contribution or as punitive damages where there was willful or outrageous conduct due to evil motive or a reckless indifference to the rights of others.”8 In re Elias therefore stands for the proposition that a reasonable attorney fee may be allocated by a court between an “allowed portion” to be charge to the estate and a “disallowed portion” to be charged to an individual, over that individual’s objections.
Similarly, in Roe v. Estate of Farrell,9 the Supreme Court allocated an attorney fee between and “allowed portion” to be charged to the estate, with the “disallowed portion” to be charged to the owner of joint asset that passed outside the estate. The trial court allocated the fee based evidence concerning the time and service required by the attorney of the administrator to attend to jointly held assets.10 Using its equitable powers the court entered an order directing the “disallowed portion” of the attorney fee to be paid by the individual receiving the joint property, over that individual’s objections.
Both cases support the position that a “disallowed portion” of attorney fees may be reasonable, but as a matter of fairness and equity, the “disallowed portion” was charged to a third party, not to the estate. Neither of the individuals responsible for payment of the “disallowed portion” consented to the payment of the representative’s attorney fee.
The Committee also cites In re Estate of Bitoy11 for the premise that a retainer agreement between a lawyer and representative is irrelevant to the determination as to the “reasonableness” of an attorney fee. In other words, a properly executed engagement letter between an attorney and client is not controlling if the fee charged were not reasonable. An attorney fee must always be reasonable under case law as well as under the Rules of Professional Conduct, regardless of the terms of the engagement letter.
C. Ethics Opinions (IL)
The Committee then incorporates the Illinois Rule of Professional Conduct Number 1.5(a) (“Rule 1.5”) and the subsequent comments into its analysis. Rule 1.5 states that an attorney may not charge or collect an unreasonable attorney fee. The Committee cites comment 9 of Rule 1.5 to support several propositions:
 Disputes over Fees: If a procedure has been established for resolution of fee disputes, such as an arbitration or mediation procedure established by law or rule, the lawyer must comply with the procedure when it is mandatory, and, even when it is voluntary, the lawyer should conscientiously consider submitting to it. Law may prescribe a procedure for determining a lawyer’s fee, for example, in representation of an executor or administrator, a class or a person entitled to a reasonable fee as part of the measure of damages. The lawyer entitled to such a fee and a lawyer representing another party concerned with the fee should comply with the prescribed procedure. (“Comment 9”)12
Comment 9 directs attorneys to use procedures, established by laws or rules, for resolution of fee disputes, such as arbitration or mediation. However, neither the Probate Act, nor the Probate Court, offers such procedures to resolve fee disputes. In fact, if two parties disagree on the attorney fee asserted by the representative, the only option is to litigate the issue in Probate Court.
Comment 9 also directs attorneys to comply with any prescribed procedure to determine the amount of the lawyer’s fee in representing an estate representative. However, the Probate Act does not provide a procedure that governs the determination of a lawyer’s fee in representing an estate representative. The lawyer is only entitled to a “reasonable” fee based on all the relevant facts and circumstances of the estate.13
Unlike the Probate Act, other areas of practice have statutes that set forth detailed procedures for addressing attorney fees. See the provisions for attorney fees set forth in The Illinois Marriage and Dissolution of Marriage Act14 and Workers’ Compensation Act15 as examples of detailed statutory provisions governing attorney fees for these areas. Certain states like Florida and California also have detailed statutes that determine estate attorney fees based on formulas incorporating the value of probate and non-probate assets.16 Both Florida and California statutes also include provisions for attorneys to seek additional compensation in supplementing the statutory fee schedule for extraordinary services rendered by the attorney for the estate representative.17
However, neither the Probate Act, nor the Probate Court, set forth procedures to determine the amount of an attorney fee for services rendered in a decedent’s estate.18 The Probate Act’s only provision addressing attorney fees is contained in one sentence: “[A]n attorney for a representative is entitled to reasonable compensation for his services.”19
The Committee then makes two assumptions in the Opinion regarding attorney fees for executors and administrators:
1. In order for a lawyer to collect any fee at all for work on behalf of an executor, the lawyer must apply to a Probate Court.
2. It is evident that the required judicial scrutiny is designed to prevent overreaching, as in Rule 1.5.
The Probate Act, under Independent Administration, does not require a lawyer to apply to the Probate Court before collecting fees on behalf of an executor. In fact, the exact opposite is true. The Probate Act allows the attorney to collect a fee for representing an executor if all interested parties approve the fee requested.20 If all parties consent to the attorney fee requested, the attorney fee is not subject to judicial review.
Even Supervised Administration has a procedure of avoiding judicial review of attorney fees. If the parties can agree to all disputed matters, the representative may convert the Supervised Administration to Independent Administration for purposes of closing the estate, without filing an account or petition for attorney fees. Probate Court judges routinely grant this petition if all parties consent.21 By converting the administration to Independent, the representative avoids judicial review of attorney fees and of the accounting.
The Committee’s rationale is difficult to follow. The Committee does not cite any authority nor does it offer an argument to support its conclusion that “the required judicial scrutiny is designed to prevent overreaching.” If overreaching were a concern, then the statute and judiciary actions that allow for beneficiaries to approve attorney fees without any judicial review are not consistent with this concern. In fact, the only time the judiciary is involved in reviewing attorney fees in a decedent’s estate is when an interested party files a timely objection, compelling the court to be involved. Otherwise, the judiciary exercises absolutely no oversight of attorney fees.
E. Ethics Opinions
After these assumptions, the Committee then turns to citing other ethics opinions to support its position.
The Committee cites In re Dvorak,22 to support the proposition that a fee in excess of the amount authorized by court order is unreasonable. Dvorak was an attorney before the Supreme Court in Minnesota for misconduct. In one matter, Dvorak represented clients in a bankruptcy proceeding. She charged the bankrupt estate over $11,000, even though the Bankruptcy Court only authorized her to charge $10,000.
Charging a bankrupt estate more than allowed by court order is obviously an ethical problem. These facts are not related to the hypothetical considered by the Committee, as Dvorak was in direct contempt of a court order.
2. Kentucky Bar Association.
The Committee then cites a 1962 Kentucky Bar Association (“KBA”) ethics opinion dealing with an attorney representing clients under the Kentucky Workmen Compensation Act.23 Attorney fees in workman compensation cases in Kentucky are fixed by statute. The KBA opined that a lawyer who is practicing in this area may not charge more than is allowable by this statute.
However, the KBA opinion also makes an exception, “[w]hen the judgment is ’towards’ [the total] attorney fee, [then] there is nothing to preclude a lawyer from charging the client a fee in excess of that ordered by the judge ‘toward’ the total fee, as long as the total fee is reasonable.” In other words, the KBA expressly allows an attorney to charge a client an additional amount, in excess of the fee awarded by the court, as long as the total fee is reasonable.
3. New York State Bar Association.
The Committee also cites a New York State Bar Association (“NYSB”) opinion from 1972.24 The NYSB considered the situation of an attorney representing a wife in a divorce action. The court entered an order allowing a certain amount of the wife’s attorney fee to be charged against the husband. The wife’s attorney then charged the wife the balance due. The NYSB opined that, “[w]here a court fixes a fee as reasonable, it is improper to make an additional charge.”
The very next sentence limits this opinion to certain circumstances, “[t]his rule applies only in the event the Court intended by its order to determine what was a reasonable fee for the services performed.” The NYSB concludes its opinion by stating “[since] the Court does not purport to fix the reasonable value of the services, the attorney is free to negotiate an additional fee from the wife, provided that she is fully informed of the Court’s order and that the aggregate fee is not excessive.”
Like the KBA, the NYSB also allows an attorney to bill his client an amount in excess of the court order, as long as the client is fully informed of the court’s order and the fee is not unreasonable. It is difficult to follow the Committee’s argument that these bar association opinions support the Committee’s conclusion, as both opinions expressly bless the arrangement that the Committee condemns.
III. Committee’s Conclusion
The Committee concludes its Opinion by finding:
1. [A]n agreement that the client shall pay legal fees disallowed by a Probate Court, regardless of the reason for the disallowance is violative of RPC 1.5;
2. A lawyer may not enter into an agreement intended to provide fees to the lawyer in excess of the amount found reasonable by a Probate Court;
3. The opinion is limited to circumstances involving excessive legal fees for probate work and is not addressed to other situations, such as those involving fee agreements of litigation in which a fee shifting statute is applicable.
The universal application of the Opinion set forth in the first paragraph above to all fees disallowed “regardless of the reason” appears to conflict with the limitation set forth in the third paragraph, that this Opinion applies only to “circumstances involving excessive legal fees for probate work.” However, if the Committee assumed that any portion of an attorney fee not allowed by a Probate Court is by definition “unreasonable,” the two provisions may be read harmoniously.
The Committee arrives at that conclusion by following this line of reasoning. The representative’s attorney is entitled to “reasonable” attorney fees under the Probate Act. By disallowing a portion of the total fee requested, the court has ruled that a portion of the fee is unreasonable or excessive. Since an attorney may not charge his client an unreasonable fee, an attorney charging a client this “disallowed portion” would be a violation of the Rules of Professional Conduct. An engagement letter with a client agreeing to pay any “disallowed portion” is not relevant, as the disallowed portion is excessive by definition.
Since the Committee views the “disallowed portion” as per se unreasonable, the Committee rendered the opinion that a probate attorney is prohibited from entering into an agreement with a client that would obligate the client to pay a “disallowed portion” of an attorney fee.
IV. Authors’ Analysis
The question posed to the Committee was whether it is ethically permissible for a lawyer for a representative of a decedent’s estate to enter into a fee agreement, or to collect a fee, for an amount in excess of the amount of fees allowed by a Probate Court as reasonable. As referenced in the question posed, the Court must determine whether the fee requested is reasonable and whether the fee requested will be allowed as a claim against the estate assets.
The first determination of whether the attorney fee for the executor is reasonable, is generally in response to the opposing party’s objections. If the fee requested were not reasonable, then neither the estate, nor the client would be responsible for payment.
The second determination is whether the entire attorney fee may be “allowed” or “disallowed” as a claim against the estate.25 In making this determination, the court has broad discretionary powers in awarding attorney fees for a representative.26 Inherent in the process of deciding whether to allow attorney fees to be charged to the estate, is a determination of whether it would be fair and equitable for the beneficiaries of the estate to have to bear the entire burden of attorney fees requested.
These two determinations are separate and distinct. For example, a Court may make a determination that the attorney fee requested is reasonable, but disallow a portion of the fee from being charged against the estate. However, an order disallowing a portion of the total fee requested, does not necessarily render that “disallowed portion” to be excessive or unreasonable.27
In Elias28 and Roe,29 both courts determined that the attorney fees requested were reasonable, but neither court “allowed” the entire fee to be charged against the estate. Both courts determined that it would not be fair and equitable for the estate beneficiaries to have to bear the entire burden of the attorney fee for different reasons. Using equitable powers, both courts apportioned the total attorney fee between an “allowed portion” charged against the assets of the estate and a “disallowed portion” charged to third party, notably over that third party’s objection. These cases highlight the two-step judicial review of attorney fees and that a disallowance of a portion of a fee, does not render that “disallowed portion” unreasonable per se.
In the hypothetical examined by the Committee, the client of the representative willingly agreed to be responsible for any “disallowed portion” of the attorney fee, regardless of the reason for disallowance. If the court disallowed a portion of the total fee, on the basis the fee was unreasonable or excessive, then the attorney would be prohibited from seeking payment from the client or the estate, regardless of the terms of the agreement. This ethical prohibition applied well before the issuance of the Opinion.
Prior to the Opinion, an attorney could ethically seek payment from the client for this “disallowed portion,” as long as the total amount requested was reasonable. The Opinion expands the general prohibition of charging unreasonable fees, to a prohibition of charging fees disallowed by the Probate Court. As attorneys in this area well know, the reasons for disallowance are as varied as the personalities of the judges who hear probate cases. In fact, not every fee disallowed is unreasonable or excessive, like in Elias and Roe. However after the Opinion, even if a “disallowed portion” of an attorney fee were determined to be reasonable and a client were willing to pay the fee as agreed, the Committee’s Opinion effectively prohibits the attorney from seeking payment. As a result, the “disallowed portion” of the total bill, even if it were considered reasonable, would be a reasonable fee that the attorney would be prohibited from seeking payment.
V. Authors’ Conclusion
An attorney is always prohibited from charging an unreasonable fee. Since a court has broad discretionary powers, an attorney fee could be disallowed because it is unreasonable, but it could also have been disallowed for many other reasons, ranging from technical theories of equitable apportionment to arbitrary limitations on hourly rates imposed by individual judges. Unfortunately, the Opinion rendered by the Committee condemns attorneys from seeking payment of any “disallowed portion” of a fee petition, even if the fee is reasonable and the client is willing to pay. This prohibition conflicts with the Probate Act that entitles attorneys to be paid reasonable compensation for services.30
Part II of this article will be published in the June 2013 Trusts & Estates Newsletter and shall address the ramifications of this Opinion and suggestions for attorneys to implement in their practice in response to this opinion.