On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-83-05.
The opinion of the court was delivered by: Gilroy, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges S. L. Reisner, Gilroy and Baxter.
The law firm of Javerbaum Wurgaft Hicks & Zarin appeals from the March 30, 2006, order of the Law Division, which denied its motion for an order setting a reasonable attorney fee on that part of a personal injury recovery exceeding $2,000,000, pursuant to Rule 1:21-7(c)(5). The law firm also appeals from the order of May 26, 2006, which denied its motion for reconsideration. The issue presented on appeal requires us to review the standard to be applied by the trial court when determining a reasonable attorney fee on a personal injury recovery in excess of $2,000,000. Because we determine that the trial court mistakenly applied the wrong standard, placing 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, we reverse and remand the matter for further proceedings consistent with this opinion.
This action arises from the failure of the Division of Youth and Family Services (DYFS) to properly provide for the care and custody of the three minor boys, F.W., R.W., and T.H. (collectively, the plaintiffs).*fn1 Plaintiffs suffered abuse and neglect by their mother. They also suffered severe abuse and neglect by their mother's cousin and the cousin's family members, after the mother left her boys in her cousin's care. 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 without proper food or bathroom facilities. In early January 2003, when R.W. and T.H. were discovered locked in the basement near starvation, they were seven and four years old, respectively. In December 2004, following a referral from another attorney, the law firm filed a complaint on behalf of plaintiffs, asserting negligence against DYFS and other named defendants.
Because of an inherent conflict, the trial court removed the mother from serving in a representative capacity on behalf of the Estate of F.W., and the two surviving boys. On August 5, 2005, the court appointed two attorneys to serve individually as the guardians ad litem for R.W. and T.H. By the same order, the court also appointed 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) in their representative capacities on behalf of the estate and the two surviving boys. Pursuant to the retainer agreements, the law firm advanced all costs and expenses to prosecute the action.
On October 25, 2005, the parties mediated the matter and reached a settlement in the gross amount of $7,500,000, allocated as follows: the claim of the Estate of F.W. was settled for $1,000,000; and the claims of R.W. and T.H. were settled for $2,750,000 and $3,750,000, respectively. In addition, the State of New Jersey waived its lien for medical services that had been provided to the boys under the Medicaid Program, until special needs trusts are funded with the settlement proceeds. The past medical costs were approximately $275,000 for each of the two surviving children.
On February 10, 2006, following a "friendly proceeding" to determine whether the settlements were fair and reasonable, R. 4:44-3, an order was entered approving the settlements and directing counsel to file a separate application for an order setting reasonable attorneys' fees and costs. On February 13, 2006, 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 on behalf of the two surviving boys in excess of $2,000,000.*fn2 In support of the motion, the law firm submitted a certification of counsel, stating that the law firm's efforts in prosecuting the matter resulted in a favorable resolution on behalf of the two boys, and requested a 20% attorney fee on the amount recovered in excess of $2,000,000 on behalf of the boys.*fn3
The application also included certifications of the guardians ad litem of the boys supporting the fee request. The motion was opposed by DYFS.
On March 30, 2006, the trial judge entered an order, supported by a written opinion, determining that the law firm was not entitled to an attorney fee on the amount recovered in excess of $2,000,000.*fn4 As to the denial of the application, the judge stated:
[T]here is a complete absence of any documentation of hours expended. This lack, under the circumstances presented here, is fatal to [the law firm's] application for additional fees. Its claims of inadequacy of fees must be substantiated and thoroughly documented and cannot rest merely on the claim of a successful result in a generally difficult type of litigation without a showing of the particular difficulty of a specific litigation in question . . . .
Increases beyond fees provided in R. 1:21-7(c) must be reserved for truly exceptional situations as where new law is established on appeal; or where a trial, appeal, and re-trial are required. Another situation that might warrant enhanced fees is a successfully negotiated settlement that produces documented tax-savings and security protection . . . .
[T]he record here does not demonstrate why the services rendered were so exceptional as to entitle the Plaintiffs' attorneys to an additional fee sought in the range of over a million dollars. There's nothing to indicate that the work performed was more difficult or time-consuming than that normally encountered in such an action. The bulk of the investigation was completed in less than four months, between the date the Complaint was filed and the date the Answer was filed. There was almost no motion practice. No depositions were taken. No interrogatories were served. This matter settled in a single mediation session. The State did not contest liability, and no trial or appeal was involved. The inescapable conclusion, especially in the face of the complete absence of time records, is that extensive time and labor were not required by Plaintiffs' counsel.
The permissible fee under R. 1:21-7(c) is adequate; the Plaintiffs' attorneys have not demonstrated that they are entitled to an additional fee under R. 1:21-7(f) for the amount recovered in excess of $2,000,000 . . . . [(citations omitted).]
On April 18, 2006, the law firm moved for reconsideration. In support of its motion, the law firm 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 to prosecuting the actions. The attorneys also certified that in every instance in which their firms had applied to the court to set a reasonable fee on the amount recovered in excess of $2,000,000, a fee had been awarded, usually in a range from 20% to 33%. On May 26, 2006, the trial judge issued a written opinion and entered a confirming order the same day, stating in part:
[A]warding a fee on recovery in excess of two million dollars requires the application of the factors in R.P.C. 1.5. The most critical factor, although not the only one, is the time involved. The cases cited involved personal injury attorneys who either kept, or made good faith reconstructions of time records. No doubt it is the usual practice of a plaintiff's firm not to keep time records in this type of case. However, when a firm seeks a reasonable fee above a two million dollar recovery, or even an enhanced fee, it is the firm's burden to satisfy the Court of the appropriateness of awarding a fee.
[T]he awarding of a reasonable fee must take into account the total fee earned. Here, without any certification as to hours, the firm has earned a fee on the first two million dollars pursuant to Court Rule in excess of $540,000. Even if they spent 200 hours in this case, a number that is hard to imagine, given the paucity of the description of work done, that would equate to a fee of $2,700 per hour. I am well aware that contingency fees are not hourly fees, but if the contrast is that striking, then the reasonableness of awarding an additional fee must be called into question.
The inescapable problem here is that the firm apparently needed to expend very few hours in achieving the result. There was almost no motion or discovery practice, and the case settled at the first mediation session. While the facts were horrific, no novel questions of law were presented. There's absolutely nothing in the papers to suggest that the firm devoted any significant time to this case. The firm argues that I am somehow punishing it for settling early in the case. I do not blithely or lightly reduce an attorney's expected recovery. However, I ...