Bank Unhappy With Court-Approved Legal Fees in Claim Against Estate

August 11, 2011 | Erin C. Herbold-Swalwell

The plaintiff sued, alleging he had properly exercised an option to purchase Nebraska real estate, but that the title holder refused to honor the option. The fair market value was substantially more than the option price of $5,700,000. The plaintiff asked the court to order specific performance on the option contract. Before the matter was resolved, the plaintiff died. The administrators of the estate continued the litigation with the same law firm. In 2008, the bank filed a claim against the estate based upon an unsatisfied judgment they had obtained against the estate. 

Unfortunately, the estate did not have enough assets to pay the bank’s claims. Thus, the bank began to look at the potential value of the Nebraska litigation. In 2009, the bank asked the court for an order stating that the administrators of the estate did not have the authority to settle or dismiss the Nebraska litigation without prior court approval. The co-administrators asked the court whether they should continue with the current law firm to pursue the litigation. The court ordered the administrators to move forward with the law firm and suit, but did encourage the administrators and law firm to submit an “attorney fee and litigation expense agreement” to the court. The parties subsequently filed a contingent fee agreement with the court.  Under that agreement, the law firm would obtain one-third of the proceeds of the sale of the property if the litigation was successful and there was not appeal and 40 percent if there was an appeal. 

The bank resisted the fee agreement, claiming that the fees were “extraordinary,” unethical, and did not comply with the Iowa Court Rules. Despite the bank’s resistance, the trial court approved the contingent fee arrangement. Was the fee unreasonable? The Iowa Court of Appeals stated that the “critical factors” in assessing the reasonableness of a contingent fee in Iowa are the percentage and the amount against which the percentage will be taken. The appellate court found the fee arrangement to be reasonable, because the law firm was taking a substantial risk- they had to succeed in the litigation to get paid. Here, the contingency fee was the only fair way the estate could compensate the attorneys for their work. In re Estate of Horne, No. 1-432/10-1882 (Iowa Ct. App. Aug. 10, 2011)