Attorney Grievance Commission v. Korotki

RODOWSKY, Judge. This professional discipline matter arises out of the personal injury claims of five persons, asserted in a single action. Plaintiffs’ counsel in that action, the respondent herein, Abraham Paul Korotki (Korotki), charged his clients a contingent fee of seventy-five percent of the gross amount recovered after trial and appellate review. Two of the clients were charged fees totaling $471,424.36 on their combined gross recoveries of $628,565.81.

Their complaints to Bar Counsel led to charges against Korotki which were heard before Judge Dana M. Levitz of the Circuit Court for Baltimore County. He found “that the manner and circumstances surrounding the modification of the contingent fee agreement ... from 40 percent, [to 60 percent,] to 75 percent make the fee ultimately charged clearly excessive,” in violation of then governing Disciplinary Rules 2-106 and 5-103(A). See Maryland Rules (1986), Court Administration Rule 1230, Appendix F, Code of Professional Responsibility, DR 2-106 and DR 5-103(A). We shall sustain the findings and conclusion of Judge Levitz over Korotki’s exceptions.

Because this is a particularly aggravated case of greed overriding professionalism, this Court suspends Korotki from the practice of law for eighteen months. DR 2-106(A) provides that “[a] lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly ⁶⁵⁰ excessive fee.” Under subsection (B) of DR 2-106 “[a] fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.” The rule lists eight “[fjactors to be considered as guides in determining the reasonableness of the fee____” We set forth those guides in the margin. 1 DR 5-103(A) states: “A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation he is conducting for a client, except that he may: (1) Acquire a lien granted by law to secure his fee or expenses. (2) Contract with a client for a reasonable contingent fee in a civil case.” On the facts of the instant matter, there is essentially only one issue presented. If Korotki’s contingent fee was clearly excessive in violation of DR 2-106, then he also has failed to stay within the exception to the prohibition of DR 5-103(A) against acquiring a proprietary interest in the clients’ causes of action. ⁶⁵¹ Judge Levitz’s report is tightly written.

The vast majority of Korotki’s numerous exceptions to that report complain of the omission of details which Korotki deems to be favorable. In our statement of facts we shall include most of the matter sought by Korotki, thereby denying general readers the mercy shown to them by Judge Levitz. Korotki’s clients in the action underlying these grievances were Baltimore City fire fighters. 2 On February 27, 1979, there was a fire at the premises of Cambridge Iron & Metal Co. (Cambridge) in Baltimore City. Among the responding fire fighters were Henry A. Hartman, Jr. (Hartman), Lieutenant Charles H. Brown (Brown), Glenn Wilson (Wilson), Hance L. Morgan (Morgan) and Vernon G. Sauer (Sauer).

In the course of fighting the fire these individuals suffered personal injuries when an explosion occurred that apparently emanated from a metal yard box containing approximately 125 cubic feet of magnesium fines and scraps. It came to pass that Korotki was engaged to represent each of these five fire fighters as claimants for workers’ compensation. 3 Korotki obtained awards of workers’ compensation for his clients. Hartman, who was later to obtain a $300,000 third party action judgment against Cambridge, was award ⁶⁵² ed permanent partial disability benefits of $2,886. Brown, who recovered a $200,000 judgment against Cambridge, was awarded permanent partial disability benefits of $2,960. 4 Judge Levitz found on sufficient evidence that, after the workers’ compensation claims were concluded, Korotki “suggested to the firefighters that he file suit on their behalf against Cambridge Iron and Metal____ He told them that it would be a very difficult case to win.

He informed them that no other firemen had won such a case but this might be a chance to change the law of Maryland.” The five fire fighters filed suit through Korotki in the Eighth Judicial Circuit on May 6, 1980. Under Maryland law at that time a fire fighter who entered premises to put out a fire was “a licensee and not an invitee____ [Ojwners and occupants of property owe licensees only the duty of abstaining from wilful or wanton misconduct or entrapment____ [Ujnder Maryland law this encompassed a duty to warn of any hidden dangers, where there was knowledge of such danger and an opportunity to give warning.” Sherman v. Suburban Trust Co., 282 Md. 238, 243 , 384 A.2d 76, 79-80 (1978). “[S]o long as a fireman is injured by the flames or gases of the fire, apart from unusual factors operative after the fire began, and apart from a failure to warn of hidden dangers, hé cannot recover from the owner since fighting the fire, however caused, is his occupation.” Id. at 244 , 384 A.2d at 80 . Sherman derived the above-quoted statements of Maryland law from the only two prior decisions of this Court dealing with the “fire fighters’ rule,” Aravanis v. Eisenberg, 237 Md. 242 , 206 A.2d 148 (1965) ⁶⁵³ and Steinwedel v. Hilbert, 149 Md. 121 , 131 A. 44 (1925). The appellants in Sherman sought to present, but had failed to preserve for appeal, the argument that the duties owed by an occupier of premises should be based on ordinary negligence principles and not be based upon common law classifications of invitees, licensees and trespassers.

Two members of this Court, dissenting in Sherman , would have adopted the rule advocated by that appellant. When Korotki undertook the representation in the claim against Cambridge, he knew that the evidence would be that the plaintiffs entered the premises in order to fight a magnesium fire and that the defense would contend that the explosion was an explosion caused by magnesium. Thus, Korotki knew, or was chargeable with knowledge, that there were probably only three liability theories under which he could obtain judgment in favor of the plaintiffs in a contested case. First, there might be wanton and willful conduct on the part of Cambridge.

It was extremely doubtful, however, that the evidence measured up to that standard, and this evaluation was shared by other attorneys with whom Korotki reviewed the proof. Second, Korotki might effect a change in the law by convincing this Court to grant certiorari on a judgment adverse to his clients and then to hold that the duty owed by an occupier of land to fire fighters is determined by general negligence law. If Korotki succeeded in effecting a change in the law, a retrial would probably have been required in order to determine liability under the new standard and, if so determined, to fix damages. Third, there might be a recovery under existing law if the facts gave rise to a duty on Cambridge to warn of a hidden danger.

When undertaking the representation, Korotki entered into written fee agreements with his clients. In March 1984, approximately one month before trial, Korotki was unable to locate those agreements. He obtained confirmations of the fee agreements in the form of written powers of attorney which included the promise of each client “to pay unto said Attorney for his services the sum of 33-%% ⁶⁵⁴ of all monies collected by way of settlement before suit is instituted, or 40% of all monies collected after suit is instituted, plus unreimbursed legal expenses.” Trial to a jury presided over by Judge David Ross was had April 2-6, 1984. Four of the claims for loss of consortium and the issue of punitive damages were decided on motion in favor of the defendant. 5 Although Judge Ross commented that the evidence was “razor thin” to establish liability, he was satisfied that there was sufficient evidence from which the jury could find that the fire fighters should have been warned about magnesium in the yard box which was remote from the obvious fire, underneath a truck, which the fire fighters were seeking to extinguish.

Korotki, assisted by another attorney who had prepared the plaintiffs’ requested instructions, excepted to the jury’s having been instructed on distinctions between licensees and invitees. The jury returned verdicts totaling $618,000 consisting of $300,000 for Hartman, $200,000 for Brown, $100,000 for Wilson, $13,000 for Sauer, and $5,000 for Morgan. Post trial motions by Cambridge were denied, and judgment nisi on the verdicts was extended to judgment absolute. Had the judgments been paid at that moment, Korotki’s fee would have been $247,200.

Cambridge appealed to the Court of Special Appeals, and, on June 5, Korotki noted an appeal in order to claim error in the circuit court’s refusal to submit the issue of punitive damages to the jury. Korotki also called a meeting of his clients which was held in Korotki’s office on June 23. At that meeting the clients respectively signed documents headed “APPELLATE FEE AGREEMENT” which read: “WE, the undersigned, do hereby employ Abraham Paul Korotki to represent our interest with reference to an Appeal from the Circuit Court For Baltimore City, ⁶⁵⁵ case number 1980/716/22542, in which the Cambridge Iron & Metal Company was the Defendant. “WE AUTHORIZE AND EMPOWER our Attorney to prosecute and/or defend our interests in this Appeal to either the Court Of Special Appeals Of Maryland and/or Court Of Appeals Of Maryland. That in consideration of the services to be rendered on our behalf, we do agree to compensate him, in addition to the contingency fee agreed upon on the Circuit Court level, which was forty (40%) percent, an additional sum of twenty (20%) percent of those monies recovered on our behalf, plus all legal expenses incident thereto. “WE FURTHER UNDERSTAND that if the Appeal is unsuccessful or we do not recover any monies, then we would not be indebted to Mr. Korotki for any services rendered on our behalf except for those legal expenses provided in the prosecution and/or defense of the original case in the Circuit Court For Baltimore City and our Appeal to the Court Of Special Appeals Of Maryland and/or Court Of Appeals Of Maryland.” (Emphasis added).

Korotki obtained the clients’ signatures on these agreements by the means described by Judge Levitz which are set forth below. Those findings are supported by the testimony of Hartman and Brown. “17. The firefighters were reluctant to sign this agreement but were told that if they did not agree to the 20 percent increase the Respondent would no longer represent them. He told them that he would drop the case.

They were told that they would have to get another attorney who would charge them an additional 33V3 to 40 percent if they could even get another attorney to handle the case. In any event, they would still owe the Respondent the original 40 percent. The firefighters thought that they had no real choice but to sign the additional 20 percent agreement. “18. The Respondent never explained to the firefighters his obligation absent an appellate fee agreement to ⁶⁵⁶ protect their interests in the judgments entered on their behalf.” Interest at the rate of ten percent per annum was running on the judgment.

If successful on appeal, and if the judgment were paid precisely one year after its entry, Korotki would have received under the original fee agreement $24,720 over and above the $247,200 calculated on the principal amount of the judgment. The fifty percent increase in the fee (twenty percentage points) increased Korotki’s share of the principal amount of the judgment by $123,600 and increased Korotki’s share of the interest by $12,360 per year. In further pursuit of his alternative strategy involving the change of law advocated in the dissenting opinion in Sherman , Korotki petitioned this Court to hear the appeal directly and to bypass the Court of Special Appeals. That petition was denied in October 1984. 301 Md. 176 , 482 A.2d 501 .

Korotki had no prior experience in appellate brief writing. He engaged another attorney, his junior at the bar, to prepare the briefs for his clients as appellees and as cross-appellants. As appellees the briefs essentially argued the sufficiency of the evidence to support the hidden danger exception to the fire fighters’ rule. As cross-appellants the briefs argued that the issue of punitive damages should have been submitted to the jury and suggested, contrary to the instructions given to the jury by Judge Ross, that the jury had applied the wanton and willful conduct exception in finding for the plaintiffs.

Korotki reviewed and edited the drafts of the briefs prepared for him. There is an indication that Korotki paid the brief writer $2,000, but Judge Levitz made no finding on that point. After hearing argument, the Court of Special Appeals, in an ünreported opinion filed March 21, 1985, dismissed the appeal and cross appeal. The court ruled that there was no final judgment because it considered that the four consortium claims, as to which motions for directed verdict in ⁶⁵⁷ favor of Cambridge had been granted, were not disposed of by “judgment.” That interpretation of the Rules of Procedure was erroneous.

We so held in Houghton v. County Comm’rs of Kent County, 305 Md. 407 , 504 A.2d 1145 (decided February 25, 1986), motion for reconsideration denied, with opinion, 307 Md. 216 , 513 A.2d 291 (decided August 22, 1986). The parties to the action against Cambridge obtained from the circuit court an order which satisfied the requirements then being applied by the Court of Special Appeals for a final judgment. Cambridge and the fire fighters noted new orders of appeal. Meanwhile the Court of Special Appeals had, on March 7, 1985, decided another fire fighters’ rule case, Flowers v. Sting Security, 62 Md.App. 116 , 488 A.2d 523 .

That case involved a fire in a high-rise apartment building. The plaintiff fire fighter, while searching through smoke for persons who might have been trapped in the burning building, fell twelve stories down an open elevator shaft. The provider of security services for the building and the elevator manufacturer successfully demurred to the claims against them. The Court of Special Appeals affirmed, reasoning that the modern justification for the fire fighters’ rule lies in the doctrine of assumption of the risk.

This Court granted certiorari on June 28, 1985, 303 Md. 418 , 494 A.2d 211 , both in Sting Security and in a companion case against the building's owner which had been decided by unreported opinion, Flowers v. Rock Creek Terrace Ltd. Partnership (No. 1115, 1984 Term, Court of Special Appeals). Prior to prehearing conference in the Court of Special Appeals the clients instructed Korotki, over his advice to the contrary, that he was to accept an offer of $250,000 for all of the claims, if that offer were made. It was not. The appeals in the action against Cambridge proceeded on the same briefs and extract which had previously been filed, except that Korotki and counsel for Cambridge each filed a supplemental memorandum addressing the impact of Sting ⁶⁵⁸ Security on their positions.

Korotki prepared his memorandum without assistance from any other attorney. The Court of Special Appeals affirmed. Cambridge Iron & Metal Co. v. Hartman, 65 Md.App. 629, 501 A.2d 877 (1985). On the liability issue that court “refuse[d] to declare, as a matter of law, that because some magnesium is perceived to be burning, the owner is immunized from responsibility for the injuries caused by magnesium which is unseen and unknown to the firefighters.” Id. at 634 , 501 A.2d at 879 .

Cambridge petitioned this Court for a writ of certiorari which we issued on March 27, 1986. 305 Md. 683 , 506 A.2d 254 . Korotki requested that the fire fighters meet with him again. That meeting was held on April 22, 1986. At that time each of the fire fighters was asked to sign a paper writing headed “APPELLATE FEE AGREEMENT-COURT OF APPEALS.” That writing undertook to increase Korotki’s contingent fee by fifteen percentage points to seventy-five percent of the gross recovery. 6 Judge Levitz found that ⁶⁵⁹ “[t]he firefighters were very reluctant to sign this agreement.

One of the firefighters [Wilson] refused to sign and was told by the Respondent in the presence of the other firefighters that he no longer was represented and was asked to leave the office.” [ 7 ] In the discussion Korotki made oral promises to the fire fighters which were not incorporated into the writing. As found by Judge Levitz “[t]he Respondent told the firefighters that if they signed this agreement it would also obligate the Respondent to represent them in a new trial, if necessary, that he would negotiate their Workmen’s Compensation liens, guarantee that they would get 20 percent of the amount recovered in a new trial, and not require them to pay costs and expenses if the case was lost.”[ 8 ] With respect to the increase to seventy-five percent of the gross recovery, Judge Levitz made the following additional factual findings: “25. [T]he Respondent never informed the firefighters that under the original agreement or the modified 60 percent agreement, the firefighters would owe the Re ⁶⁶⁰ spondent nothing for legal services if no recovery were made. “26. The firefighters were told if they refused to sign this agreement the Respondent would no longer represent them. The Respondent told them that if they refused to agree to the additional 15 percent they would still owe him 60 percent of the verdict and another lawyer would charge a 33x/3 percent additional fee. “29.

The Respondent never advised the firefighters of his obligation to continue to represent them absent the additional 15 percent agreement. He never informed them of his obligation to protect their interests in the judgment absent their signing of this agreement. He never informed them of his obligation under the 60 percent agreement which specified representation in the Court of Appeals. “30. Firefighter Brown and Firefighter Hartman felt that they had no choice but to sign the agreement. “31. [T]he firefighters trusted the Respondent and depended on him to look out for their interests.

They expected that he would advise them of their legal rights and obligations. They put their full faith and confidence in the Respondent.” These findings are based on sufficient evidence presented by Bar Counsel through Hartman and Brown. By again increasing his fee, this time by twenty-five percent, Korotki sought a contingent fee of $463,500, based on the total principal amount of the five judgments. That was an increase of $216,300 over the contingent fee determined by the original agreement with his clients.

Under the seventy-five percent arrangement the five clients would have shared a gross of $154,500, from which workers’ compensation liens and the expenses of litigation would then be deducted. Had all five clients submitted and their judgments been upheld, they would have been earning interest on the combined judgments at the rate of $15,450 ⁶⁶¹ per year while Korotki was earning interest at the rate of $46,350 per year. Korotki prepared, with only “ministerial” assistance from another lawyer, the brief submitted to this Court. He included in the brief a motion to dismiss.

Based upon Houghton , he argued that the Court of Special Appeals had improperly dismissed the initial appeal by Cambridge and that the second order of appeal by Cambridge was too late. Korotki testified that it was he, personally, who conceived of the possible applicability of Houghton to his clients’ case. Oral argument in this Court was held on September 9, 1986. We had directed that the argument be confined to the motion to dismiss.

The next day we dismissed the writ of certiorari as improvidently granted. Cambridge Iron & Metal Co. v. Hartman, 307 Md. 430 , 514 A.2d 816 (1986). In January 1987, we affirmed the judgment which the Court of Special Appeals had rendered in Flowers v. Sling Security resting the fire fighters’ rule, as part of Maryland law, on the doctrine of assumption of the risk and on public policy grounds. Flowers v. Rock Creek Terrace Ltd. Partnership, 308 Md. 432 , 520 A.2d 361 (1987).

Korotki presented his clients with accountings. Out of Hartman’s gross recovery of $377,774.38, Korotki proposed distributing to Hartman $85,088.52, after deducting an attorney’s fee of $283,330.79, a compensation lien of $5,457.23 (negotiated down from $6,822.64, according to the settlement sheet) and $3,897.84 as Hartman’s forty-nine percent share of the expenses. Out of Brown’s gross recovery of $250,791.43, Korotki proposed distributing to Brown $55,-152.33, after deducting an attorney’s fee of $188,093.57, a compensation lien negotiated to $5,000 (from $8,140.73, according to the settlement sheet) and $2,545.53 to reimburse thirty-two percent of the expenses. Hartman and Brown would not accept the proposed distri ⁶⁶² butions and complained to the Office of Bar Counsel. 9 Korotki, meanwhile, placed the funds recovered from Cambridge in an interest bearing escrow account and cooperated fully in Bar Counsel’s investigation.

Thereafter the matter proceeded along parallel tracks. We are advised that Hartman and Brown engaged counsel to represent them in their contract dispute with Korotki and that, after the hearing in this Court on the exceptions to Judge Levitz’s report, the civil claims were settled. Resolution of the civil dispute, however, does not terminate this professional discipline proceeding. Korotki’s defense is that the fees are reasonable, or at least that they are not clearly excessive.

The argument is that the claims against Cambridge presented such unique problems that seventy-five percent of the gross amount actually recovered here was not clearly excessive. Korotki’s defense does not meet the substance of the analysis employed by Judge Levitz. Under the initial fee agreement Korotki undertook to pursue the claims of his clients through all appeals. Nothing in the agreement limited the representation to trial in the circuit court.

Under the original fee agreement, as confirmed in March 1984, each plaintiff appointed Korotki “to represent me (us) in connection with my (our) claim for personal injuries ... resulting from said accident.” The clients agreed to pay Korotki “40% of all monies collected after suit is instituted, plus unreimbursed expenses.” This agreement looked to Korotki’s creating a fund from which he would be paid. If he were successful at the circuit court level in creating that fund, this agreement, which is silent as to possible appeals, necessarily meant that Korotki must ⁶⁶³ be successful in retaining the judgment, if appealed, in order to be paid. The ordinary rule of construction of contingent fee contracts is that, in the absence of an express provision which addresses possible appeal, services rendered by an attorney in upholding a judgment on appeal are within the undertaking under the contingent fee contract. The attorney is not entitled to any additional compensation for such appellate representation, even if the reasonable value of all of the services rendered through the successful, final outcome on appeal exceeds the fee calculated under the contingent fee agreement.

See In re Laughlin, 265 F.2d 377 (D.C.Cir.1959); Salinger v. Mason, 194 F. 882 , 114 C.C.A. 300 (8th Cir.1912); Tuttle v. Claflin, 88 F. 122 , 31 C.C.A. 419 (2d Cir.1898) (contract for services in case pending on appeal in Second Circuit, with fee contingent on reversal, includes services on post-opinion motions and before United States Supreme Court); Jackson v. Campbell,