CSG Law Alert: NJ’s Highest Court Reverses Ethical Requirements Imposed on Retainer Agreements by Attorneys Handling Fee-Shifting Cases

The Supreme Court of New Jersey reversed the “ethical pronouncements” from the 2018 decision in Cige v. Balducci, pursuant to which an appellate panel found that a retainer agreement entitling the attorney to the greater of three fee calculation methods was invalid. Although the Court upheld the finding that the retainer agreement was unenforceable, it ruled that ethical obligations imposed by the appellate court in fee-shifting cases were either too broad, unsound or “worthy of the deliberate process” by which ethical rules are generally promulgated. The Court directed the formation of an ad-hoc committee to address the ethical issues arising from the case.

Ms. Balducci hired Attorney Cige to handle a bullying case under New Jersey’s Law Against Discrimination against her son’s school district. The retainer agreement stated that Cige was entitled to the greater of (i) his hourly rate; (2) 37.5% of any recovery; or (3) statutory attorneys fees. Balducci testified at the trial level that she questioned these terms in Cige’s office before signing, at which point he told her that he would never charge her his hourly rate and that the school district would pay her legal fees. Balducci further testified that she never would have retained Cige if she knew she would have to pay his hourly rate even if the case was unsuccessful.  Cige denied telling his client anything other than what was written in the contract.

The trial court invalidated the retainer agreement, finding Cige had violated RPC 1.4(c) by failing to adequately explain the fee arrangement to his client. The appellate court upheld the finding of invalidity on that basis, but imposed other obligations on lawyers entering into fee agreements in fee shifting cases.  Specifically, if the attorney in a LAD case wanted to charge an hourly rate, the attorney is obligated to inform the client that the hourly rate could exceed the recovery, inform the client how much the hourly fees have totaled in similar cases, and that other attorneys in similar cases advance litigation costs. The Supreme Court questioned the wisdom or practicality of these rules, and directed that a committee be formed to study them and make recommendations.

Importantly for all lawyers, whether handling fee-shifting cases or otherwise, the Court ruled that the review of a retainer agreement is not limited by the parol evidence rule because of the ethical and professional principles at stake in the attorney-client relationship. Moreover, to the extent a retainer agreement is vague or unclear, the ambiguity is to be read in the client’s favor.

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