DONALD A. GAGNON & another [Note 1] vs. DONALD SHOBLOM & another. [Note 2]

NOLAN, J. On June 9, 1988, at 1 P.M., a truck operated by Donald Shoblom crashed into a parked trailer, killing Susan

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J. Thompson and severely injuring Donald Gagnon. Gagnon retained Attorney Alan R. Goodman in pursuit of his claim against Shoblom and Shoblom's employer, and for his workers' compensation claim. Gagnon and Mr. Goodman signed a contingent fee agreement in which Gagnon agreed that Mr. Goodman's compensation would amount to 33 1/3% of the recovery in his personal injury claim. The entire contingent fee agreement is set forth as an appendix to this opinion.

Mr. Goodman commenced an action and, after extensive discovery and investigation, a structured settlement of $2,925,000 (present cash value) was reached, [Note 3] subject to approval by the court under the statute discussed below.

A Superior Court judge conducted a hearing and indicated his approval of the terms of the settlement agreement except the provision for the fee of 33 1/3% of the settlement, which amounted to $975,000. The judge called this fee unconscionable. There was an evidentiary hearing on the reasonableness of the settlement agreement. Gagnon testified that he voluntarily signed the contingent fee agreement and that he was satisfied that Mr. Goodman had earned his agreed fee. Additionally, a leading member of the bar who specializes in prosecuting personal injury claims for plaintiffs testified as to the reasonableness of the fee. The attorney who defended the action in the case testified as to the impressive work performed by Mr. Goodman. There was no evidence tending to prove that the fee was anything but reasonable.

However, the judge filed a carefully crafted memorandum and order in which he ordered payment of legal fees to Mr. Goodman as follows: "Mr. Goodman handled the case expeditiously and well. He obtained what I consider to be a very fine result. As stated above, he is entitled to handsome compensation.

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"Taking those factors into account, as well as Mr. Goodman's ability and reputation (both of which are good) the demand for his services by others, the time reasonably spent, the expenses reasonably incurred by him and the charges usually made for similar services by others in Western Massachusetts, I am satisfied that the 33 1/3% maximum rate provided for in his contingent fee agreement should only be applied to the first $300,000.00 of the recovery. A rate of 25% of the next $1,200,000.00, plus a rate of 20% of all amounts in excess of $1,500,000 would be reasonable. At those rates Mr. Goodman is entitled to an attorney's fee of $695,000.00, which I consider to be `handsome' compensation. Anything in excess of that amount would be unreasonable and excessive."

We allowed Mr. Goodman's request for direct appellate review of the correctness of the judge's order regarding the fee. We hold that it was error for the judge to disapprove the agreed fee.

In reaching this conclusion, we have examined G. L. c. 152, Section 15, [Note 4] set forth in full in the margin, and S.J.C. Rule 3:05, as appearing in 382 Mass. 762 (1981).

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We need not dwell on the validity of the contingent fee agreement per se. It is not an issue; only the amount of the fee is before us and more especially, the authority of the judge in the circumstances of this case to nullify the amount of the fee.

Turning to Section 15, we find no support for the judge's action in this statute. Within the very recent past, and after the judge's ruling in this case, we spoke to the limits of Section 15 in DiMartino v. Quality Indus. Propane, Inc., 407 Mass. 171, 175-176 (1990), where we said that the only purposes of requiring a judge's approval after a hearing on the merits of the settlement are to make sure that "(1) the employee's interests referenced in the statute are protected from being disregarded or unfairly dissipated by a settlement entered into by the insurer, and (2) the insurer's interests referenced in the statute receive similar protection with respect to a settlement entered into by the employee." DiMartino, supra at 176.

There is nothing in this language which permits a judge to substitute his evaluation of the legal services rendered pursuant to a contingent fee agreement. This case does not involve a dispute between the employee and the insurer arising out of the settlement by the insurer. Nor does this case trench on the insurer's rights with respect "to a settlement entered into.

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by the employee." DiMartino controls, and, hence, Section 15 does not apply.

Rule 3:05 does not apply because no one is challenging the contingent fee agreement. Gagnon, the client, has intelligently and freely testified that he was satisfied with the amount of the fee.

The courts are not powerless to act in disapproving a fee which exceeds the percentage in the agreement, Matter of Kerlinsky, 406 Mass. 67, 73-74 (1989), a fee to which the client never agreed, see DeSautels, petitioner, 1 Mass. App. 787, 793-795 (1974), or a fee which is plainly unreasonable. On objection by a party entitled to challenge the lawfulness or reasonableness of a fee, a judge has inherent power to act. However, we need not discuss the court's inherent power in this case because no one is challenging the fee.

Accordingly, an order shall enter approving the entire settlement, including the amount of compensation due to Mr. Goodman under the contingent fee agreement.

So ordered.

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APPENDIX TO THE OPINION OF THE COURT.

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GREANEY, J. (concurring). I do not agree with the court's conclusion that the judge lacked authority (apart from the Superior Court's inherent power) to examine the attorney's fees pursuant to G. L. c. 152, Section 15 (1988 ed.).

That statute required a judge, when the settlement of a third-party action occurs during trial (as it did here), to examine the merits of the settlement to ensure "the protection of the rights and interests of the employee." Surely, it is not a violation of this statutory language to permit a judge, when appropriate, to examine the reasonableness of the employee's attorney's fees and any agreement pertaining thereto, particularly where the fee amounts to a sizeable portion of the settlement. The language quoted from the court's opinion in DiMartino v. Quality Indus. Propane, Inc., 407 Mass. 171, 176 (1990), in my view, is not decisive. The DiMartino case concerned the sole issue whether an insurer, who was not a party to the employee's third-party action, could challenge the allocation of the proceeds of the settlement when the insurer's lien under Section 15 was satisfied in full. The passage relied on by the court was written to reject the insurer's argument that, notwithstanding full satisfaction of its financial interests, it was entitled to an offset against possible future workers' compensation benefits that might be due Gagnon. The question of attorney's fees obviously was not raised or considered in DiMartino, so to say, as the court does, that the quoted language forecloses the judge's authority under Section 15 to evaluate the reasonableness of the attorney's fee is an unjustified extension of the decision's holding. The attorney's fee in a case like this can constitute a very large deduction from the settlement, is an integral part thereof, and, when appropriate, should be examined by the judge under the statutory mandate that the court must review all the components of the settlement "to . . . protect [ ] . . . the rights and interests of the employee."

I agree with the court that the attorney's fee in this case should not have been reduced. The evidence before the judge sufficiently indicated that the contingent fee agreement was reasonable "in light of the circumstances prevailing at the

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time of [the] making [of the agreement]." S.J.C. Rule 3:05 (6), as appearing in 382 Mass. 762 (1981). This conclusion is reinforced by the fact that the client, Gagnon, has made no objection to the contingent fee agreement and has affirmatively stated his satisfaction both with the work done and the percentage charged by Goodman. It is also a consideration that the one-third percentage has become institutionalized in the practice of the litigation bar as the minimum rate to be charged in the typical tort case. Change, if it is to come, should not come suddenly and to the disappointment of long-standing expectations.

The judge, however, has touched upon a larger issue. His memorandum frames that issue in this manner:

"Contingent fee agreements made in a good faith effort reasonably to comply with Rule 3:05 are no longer regarded as champertous, and they have become an important part of the administration of justice. They serve a very beneficial public purpose. They have been said to be the `poor man's key to the courthouse' because they do provide a method whereby civil claims can be filed and litigated by persons who would otherwise be unable to afford the assistance of counsel. They are, nevertheless, a matter of special judicial concern and subject to strict supervision by the court . . . . "I am satisfied (both on the basis of my own experience as a practicing attorney and as a trial judge as well as by the evidence presented at the hearings) that in the case of a civil tort action in which damages are sought for personal injuries a contingent fee of 33 1/3% of the amount recovered is reasonable to a point, depending (among other factors of course) upon the size of the recovery ultimately obtained. I am also satisfied, however, that as the size of the recovery (and hence the size of the fee) increases, the spread between the attorney's fee and the fair value of the time, effort and skill that he devoted to earning that fee widens -- and at some point the fee becomes unreasonable and even (if the spread

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becomes wide enough) outrageous or unconscionable. "One should not lose sight of the fact that under our law a recovery for a personal injury is limited, at least in theory, to the fair and reasonable value of the pain and suffering, mental anguish, reasonable medical expenses, disfigurement, disability and lost earning capacity, both past and future, sustained by the client . However, attorney's fees incurred by the client are not recoverable in such a case, either as part of or in addition to his damages. Any fee that the attorney exacts from the client under a contingent fee agreement must therefore reduce the client's compensation for his injury below what is fair and reasonable. When, as in this case, the injury sustained by the client is catastrophic, the amount of the reduction can become enormous unless some rule of reason is applied to the application of the contingent fee. It is, after all, Mr. Gagnon and not Mr. Goodman who must spend the remainder of his life confined to a wheelchair with no bowel or bladder control and with constant dependence upon others to assist him in the normal tasks of day-to-day living . . . ."

(Emphasis in original; citation omitted.)

As the judge noted, the Legislature has dealt with this problem in the area of medical malpractice. General Laws c. 231, Section 60I, added by St. 1986, c. 351, Section 27, became effective on July 23, 1986. That statute provides, in pertinent part, that an attorney may not contract for, or collect, a contingent fee in a medical malpractice action in excess of the following limits: (1) 40% of the first $150,000 recovered; (2) 33 1/3% of the next $150,000 recovered; (3) 30% of the next $200,000 recovered; and (4) 25% of any amount by which the recovery exceeds $500,000. The statute goes on to provide that nothing therein shall preclude a court from assessing reasonable attorney's fees at any amount below these specified limits, or from determining that attorney's fees below such limits are unreasonably high in a particular case.

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At a time when the gap between the service and the fee in tort cases appears to be becoming more and more pronounced, there may be a need to establish a better sense of proportion. This case is illustrative of the problem. [Note Concur-1] The question raised by the judge deserves honest debate.