Contingency fee representation uncertain

July 26, 2011
By MARK D. DEBOFSKY

DeBofsky is a name partner of Daley, DeBofsky & Bryant. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law.

The contingency fee is often described as the "poor man's key to the courthouse door" and the availability of representation on a contingency fee basis is "rooted in our commitment to equal justice for both those of moderate means and the wealthy." Leonard C. Arnold Ltd. v. Northern Trust Co., 116 Ill.2d 157, 164 (1987). However, where a client has retained an attorney on a contingency fee basis, as Ward v. Retirement Board of Bert Bell/Pete Rozelle NFL Player Retirement Plan, 2011 U.S.App.LEXIS 12596 (11th Cir. June 22, 2011) illustrates, the inability to enforce a lien for fees makes the contract worthless. Ward involved a claim brought by Kurt Ward, an attorney, who successfully represented two retired NFL players in appealing disability benefit denials issued by the NFL's benefit plan. Both players had entered into contingency fee representation contracts with Ward, promising to pay him a percentage of their recovery. Despite the players' agreement, they refused to pay and Ward subsequently secured judgments in state court against both of his clients for his unpaid fees. Ward then sought to collect on the judgments by serving garnishments upon the plan. However, the plan refused to satisfy the garnishments, citing the plan's spendthrift provision, which states:

"Spendthrift" Provision. No benefit under the plan will be subject in any manner to anticipation, pledge, encumbrance, alienation, levy or assignment, nor to seizure, attachment or other legal process for the debts of any player or beneficiary, except pursuant to (a) a qualified domestic relations order under [ §] 414(p) of the [tax] code, (b) a domestic relations order entered before Jan. 1, 1985, that the retirement board treats as a qualified domestic relations order or (c) an exception required under [ §] 401(a)(13) of the [tax] code.

Because the benefit plan was governed by the Employee Retirement Income Security Act, Ward had to sue in federal court and both Ward and the plan sought a declaratory judgment as to whether the plan was required to pay the fees that were owed. The district court ruled the anti-alienation provision in the plan was valid and enforceable; the court of appeals affirmed.

Ward maintained that the plan was ambiguous and that the spendthrift provision did not encompass welfare benefits such as disability payments. The court of appeals disagreed, finding no ambiguity existed. Ward also asserted that while the ERISA statute prohibits assignment of retirement benefits, the law is silent with respect to welfare benefits. The court found, however, that even though ERISA may be silent about welfare benefits, the plan terms would still control. In addition, binding 11th Circuit precedent had concluded, "an unambiguous anti-assignment provision in an ERISA-governed welfare benefit plan is valid and enforceable." Physicians Multispecialty Grp. v. Healthcare Plan of Horton Homes Inc., 371 F.3d 1291, 1296 (11th Cir. 2004). The rationale for that ruling was that "[b]ecause ERISA-governed plans are contracts, the parties are free to bargain for certain provisions in the plan — like assignability." Id. Since the NFL plan was collectively bargained, the court ruled the failure to collectively bargain for assignable benefits in order to attract contingency fee attorneys rendered the court powerless to alter the agreement.

This is an unfortunate outcome for Ward and an unfair result since his clients cheated their attorney out of fees they had contracted to pay. However, the ERISA law does contain a requirement that pension benefits are not assignable to creditors (29 U.S.C. § 1056(d)) and the plan at issue is primarily a retirement benefit plan. Although attorney liens are well-recognized and the Supreme Court has ruled "a contract for a contingent fee out of a fund awarded constituted a lien upon the fund" (Barnes v. Alexander. 232 U.S. 117, 120 (1914)), the anti-alienation provision of the NFL benefit plan trumped that lien in this case. Indeed, in a ruling involving Social Security disability benefits, which are also protected against alienation by 42 U.S.C. § 407, an attorney was denied the ability to collect a fee that was approved by Social Security in a bankruptcy proceeding. In Binder & Binder, P.C. v. Handel (In re Handel), 570 F.3d 140, 145 (3rd Cir. 2009), the court explained, "attorneys remain responsible for protecting their rights regarding the private fee obligations of the claimants they represent." That lesson was taught in this case as well.

There are limited means for attorneys to protect their rights in this situation. Advance retainers are nearly impossible to obtain from disabled clients who, by definition are unable to work and generate income and hourly fee payments are equally unrealistic. Fortunately, the vast majority of clients recognize their obligation to pay their attorneys — otherwise, they can be assured that if their entitlement to benefits is challenged again in the future, they will no doubt be without representation.