Judges uphold contingent fees award

The contingent fee contract a law firm entered into with a city regarding a sewer fee dispute, which ultimately led to the firm collecting nearly 10 times more than the city anticipated, was valid and reasonable, the Indiana Court of Appeals affirmed today.

In The City of New Albany v. K. Lee Cotner, Richard R. Fox, Steve Gustafson, and Law Offices of Fox & Cotner, No. 22A01-0904-CV-175, New Albany hired Fox & Cotner on a contingency fee basis in regards to its sewer fee dispute with the Town of Georgetown. The terms of the agreement with the firm said Fox & Cotner would get one third of whatever they ultimately collected from Georgetown in the dispute. The city later retained another attorney to help with regards to sewer litigation seeking back sewer fees and penalties from Georgetown.

Around this time, Fox & Cotner proposed a new fee contract because it thought it had lost the original one and wanted to ensure payment, as well as to avoid any argument related to the fee since the city was also paying the other attorney. The city rejected the new contract, which including recouping a one-tenth contingent fee on capital improvements, leaving the old one in place; the original contract was eventually located.

Georgetown ultimately settled with New Albany and agreed to pay $100,000 as payment for back sewer fees and $800,000 as payment for its remaining payment obligations. Over the city's objections, Fox & Cotner sought a third of the total amount, not just the $100,000 for back sewer fees. The trial court granted summary judgment for the firm and ordered the city to pay $300,000 plus interest.

New Albany argued the scope of the fee contract, whether estoppel applies, and the reasonableness of the fee were genuine issues of material fact, but the appellate judges disagreed.

The term "sewer fee dispute" in the original contract is ambiguous, but all of the designated evidence points to the fact that it generally involved the collection of back sewer fees, unpaid connection fees, and penalties for excess flow under the terms of the contract between the municipalities, wrote Judge Nancy Vaidik.

"The 'sewer fee dispute' encompassed the issue of penalties for excess flow and thus, in accordance with the sewage contract, also encompassed its alternative of monetary contributions toward capital improvements," she wrote.

The judges also rejected New Albany's argument that Fox & Cotner had a duty to tell the city at mediation that it was going to assert a claim for a third of the total amount of the settlement fees, not just the back sewer fees. But the city knew of the firm's claim for contingent fees on the capital improvement claims because the firm attempted to renegotiate its fees, including on capital improvements, but the city rejected the proposed contract.

Examining the contingent fee contract at the time it was entered into, the Court of Appeals ruled it was reasonable. The city claimed it was reasonable when it was entered into, but that the $300,000 the firm tried to recoup was unreasonable because it didn't expend enough effort to justify such a high fee. But the city's evidence doesn't address the dispositive issue of whether the contingent fee was unreasonable at the time the contract was entered in to, so "without more, 20/20 hindsight is simply not enough to overcome the presumption that the contingent fee is reasonable," wrote Judge Vaidik.