Brown & Sturm v. Frederick Road Ltd. Partnership

RAYMOND G. THIEME, Jr., Judge, Ret’d, Specially Assigned. This is an appeal from the judgment of the Circuit Court for Montgomery County rejecting the efforts of appellants to recover legal fees in the amount of $4,810,919.75 pursuant to a reverse contingency fee agreement for representation before the United States Tax Court during 1987 and 1988. Appellants, attorneys R. Edwin Brown and Rex L. Sturm, and their respective law firm of Brown & Sturm, represented and provided legal advice to the children of Lawson and Cordelia King (“the senior Kings”), who bought the 438-acre farm of their parents and subsequently incurred massive tax deficiencies after their parents died. Brown & Sturm had represented both the senior Kings in implementing that sale.

Appellants filed this action against their daughter Elizabeth J. Jacobs, 1 her sister Lois K. Aschenbach, and Frederick Road Limited Partnership (“Frederick Road”), a partnership involving Aschenbach (collectively, “appellees”). The case sub judice is related to a separate legal malpractice action filed against Brown & Sturm by Aschenbach and Frederick Road. That action is now pending in the Circuit ¹⁵⁷ Court for Montgomery County, following a decision by the Court of Appeals in Frederick Road Ltd. P’ship v. Brown & Sturm, 360 Md. 76 , 756 A.2d 963 (2000) (reversing summary judgment in favor of Brown & Sturm). This case is also related to Brown & Sturm’s claim in United States Bankruptcy Court for the District of Maryland to recover its fee from Jacobs’ and Aschenbach’s brother, William I. King, and Field Farms Limited Partnership (“Field Farms”), of which Jacobs was a member.

The Bankruptcy Court rejected Brown & Sturm’s claim, and the United States District Court and United States Court of Appeals for the Fourth Circuit affirmed. In the instant case, the court below rejected appellees’ motion for summary judgment and held a nine-day bench trial between January 12 and February 20, 1999. Following trial, the court issued a lengthy memorandum opinion and order favoring appellees on one of their three original theories, 2 that a confidential relationship existed between the parties at the time of the retainer agreement and Brown & Sturm failed to meet its burden of proving such fee agreement was voluntary and reasonable. Appellants now ask: 1.

Did the court below err when it found that the retainer agreement between the parties was not voluntary? ¹⁵⁸ 2. Did the court below err when it found that the retainer agreement between the parties was not reasonable? On cross-appeal, appellees ask: 1. Did the court below err when it found that collateral estoppel did not apply to this action? 2.

Did the court below err when it declined to rule that the fee was unethical and unreasonable as a matter of law? To these questions we answer “no” and explain. Facts The trial court issued the following findings of fact, which we paraphrase. Appellant R. Edwin Brown is an attorney licensed to practice in Maryland.

At the time of the trial below, he had been engaged in private practice for fifty-seven years, specializing in condemnation and other land valuation cases. Brown has handled 500 such cases during his career and has tried many of them before juries. Throughout his career, he has worked with appraisers in the process of determining land values. Appellant Rex L. Sturm is an attorney licensed to practice in Maryland, Nebraska, and the District of Columbia.

At the time of the trial, he had been engaged in the private practice of law for thirty years, twenty-nine of which had been as Brown’s partner in Brown & Sturm. Defendants at trial were Elizabeth J. Jacobs, Lois K. Aschenbach, and William I. King, all of whom are the children of the late W. Lawson and Cordelia E. King (collectively, “the King children” or “the King siblings”). Jacobs is also a general partner in defendant Field Farms, although neither Jacobs nor Field Farms is a party to this appeal. Aschenbach is a general partner in appellee Frederick Road.

Appellants also named as defendants the Frederick Road General Partnership, its partners, and the trustees of the Aschenbach Children’s Trust. As the trial court noted, however, no evidence was produced at trial regarding the liability of these defendants, and defendant Conrad V. Aschenbach, as personal representative of the Estate of Robert V. Aschenbach, pre ¹⁵⁹ vailed on summary judgment by showing that the claim against decedent had not been filed timely. A Sale of the King Farm In 1981 Lawson and Cordelia King owned a 438-acre farm in Montgomery County. During that year, August C. Bonsall, long-time certified public accountant to both William King and Lawson King, recommended that the elder King sell the farm to his children or to a partnership created by the children.

The purpose of the sale was to keep the property in the family and to reduce the enormous estate taxes that the children would pay if they inherited the farm from their parents. After changing his mind a few times, Lawson King finally decided to sell to the children. In late September 1981, Bonsall contacted Stanard Klinefelter, Esq., of the firm of Piper & Marbury and advised him of the proposed sale. Bonsall told Klinefelter that the land had been appraised “for farm use only” at $550,000, 3 and such price could be used as the sale price in this transaction, provided that a three-year agricultural easement was placed on the property.

Klinefelter informed Bonsall that his plan was badly flawed, for any tax liability would be based not on the parcel’s agricultural value, but instead on the fair market value for its highest and best use. 4 ¹⁶⁰ Accordingly, Bonsall authorized Klinefelter to investigate other alternatives, and he did. He approached G. Van Velsor Wolf, Esquire, a senior partner in Piper & Marbury’s Estates and Trusts Department, and they began researching other options. The senior Kings had a long association with Wolf, having depended upon his advice and representation in tax and estate planning matters for several years. After Wolf and his colleagues developed several alternatives, two meetings took place—one in November 1981, with Wolf, Bonsall and Lawson King, and the other on January 2, 1982, with Wolf, Bonsall and Klinefelter. 5 King approved one of the proposals during the November meeting, 6 but by January, he wavered in his intentions again, and Bonsall reported to the lawyers that he was reluctant to sell the farm.

Klinefelter heard nothing further from Bonsall after the January meeting. Unbeknownst to the Piper & Marbury attorneys, King— egged on by Bonsall—proceeded to sell the farm to his children pursuant to the “badly flawed” estate plan. Brown and his firm Brown & Sturm were retained to handle the settlement. Brown had known Lawson King since high school and had represented him during the 1970’s in a condemnation case.

Bonsall directed Brown to determine the sale price for the farm. Bonsall sent a contract of sale to Brown for review, covering 418 of the 438 acres of the parcel. (The senior Kings retained the family home and surrounding acreage.) Based on the parcel’s agricultural value and using appraisals of three different evaluators, Brown determined that the King children should pay nearly $600,000 for the farm. After Brown reviewed the contract, the senior Kings and King children signed it on February 3, 1982.

As Bonsall recommended, William King and Elizabeth Jacobs formed Field Farms and Lois Aschenbach formed Frederick Road to take title to the ¹⁶¹ farm. As part of the settlement, Sturm prepared assignments of the contract from the King siblings to their respective partnerships. The settlement took place on March 5. When Klinefelter did not hear back from Bonsall by late February or early March 1982 regarding King’s estate plan, he called the accountant.

Klinefelter then learned, for the first time, that a contract of sale had been executed and settlement was either imminent or had just taken place. Klinefelter and Wolf then sought to convince Lawson King and his children to reverse the transaction or “correct” the sale. Wolf met separately with Lawson King, the children, and Brown, then memorialized these meetings in three letters, all dated May 17, 1982. In his meetings with the members of the King family, Wolf emphasized that the IRS would not accept the agricultural value appraisals, and that it would require a new valuation of the farm reflecting fair market value based upon the highest and best use for the land.

In his meeting with Brown, Wolf learned that Brown had been thus far unable to record the deed from the senior Kings to the children’s partnerships, because Montgomery County taxing authorities believed that the sale price, upon which the County transfer tax would be imposed, was far below the fair market value of the farm. An assistant county attorney had advised Brown that the State Department of Assessments and Taxation (“SDAT”) appraised the farm, without improvements, as of March 16, 1982, at $9,746,100. Brown also had been advised that the County might “request a professional real estate appraiser to make an appraisal of the property.” Thus, at his meeting with Wolf, Brown agreed that he would “continue to pursue the new lead for obtaining a valid and viable ‘fair market value’ ” and that no further effort to record the deed would be made while he was negotiating with the County over that value. In his letter of May 17 to Brown, moreover, Wolf pointed out that the appraisals used to determine the sale price of the farm made a “clear distinction” between the agricultural use valuation and the fair market value.

He opined that “[i]n our ¹⁶² case ‘agricultural use’ would certainly not appear to represent the ‘highest and best use’ as contemplated by the current federal tax law.” Wolf concluded his letter with the following warning: But, as you know, the federal gift and estate taxes ... insist not only upon “fair market value” at the very highest and best use, but also require full disclosure with regard to any transfer either by gift or death, with very substantial monetary penalties for not making full disclosure, including the possibility of fraud penalties and possibly even criminal prosecution in what the Internal Revenue Service might consider an extreme case. Wolfs warning did not sit well with Lawson King, for soon thereafter, on June 23, 1982, he notified Piper & Marbury by letter that he hereby discharged Wolf and the firm as his attorneys. 7 Wolf wrote back, in a letter dated June 30, with the purpose of “alerting you to what well may be the perfectly calamitous financial situation into which you and Mrs. King may have fallen, due to the overwhelming tax liabilities to which you both may be subjected prior to your respective deaths.” Wolf cautioned that Bonsall’s plan “could not accomplish the tax benefits desired” and “could not possibly accomplish the goals that he and your other advisors had in mind.” Wolf copied the letter to Brown. William King also took a copy of the letter to Brown as well; however, Brown took no action. He told William King, in fact, that the letter simply expressed a difference of opinion regarding the transaction, Wolf was “out of place coming over and talking to Daddy [Lawson King],” and Brown & Sturm lawyers “were taking care of the deal.” Brown did not advise William King or any other family member to consult with another attorney regarding the issues raised by Wolfs letter.

Likewise, Brown never followed through with promises he made at the May meeting with Wolf. At that time, Brown ¹⁶³ understood that the purpose of selling the farm was to minimize taxes for all parties, and sale of the farm at its agricultural value would potentially raise serious estate or gift tax problems (or both) for the family. He also believed that Bonsall intended to file a gift tax return for the transaction. Brown, however, did not secure any new appraisals for the farm based upon fair market value at its highest and best use.

Moreover, there exists no credible evidence that Brown ever advised Bonsall for use in the gift tax return of the appraisal figures, including SDAT’s appraisal of nearly $9.75 million and an appraisal of $24.8 million prepared by John Gogerty and secured by the County during the transfer tax dispute. 8 Despite all that had transpired, in December 1982, the family allowed Brown & Sturm to handle the settlement for transfer by sale of the family home and the remaining 20 acres from the senior Kings to the King children’s partnerships for $248,100. That sale was based on the agricultural use valuations also used in the March 1982 transfer. Bonsall later changed his recommendation to the family regarding the gift tax return, and he never filed such a return on behalf of the senior Kings. 9 ¹⁶⁴ B Tax Litigation—Phase I Cordelia King died in 1983, and Lawson King followed her in death during 1985. In 1985 the IRS began investigating transfer of the farm in 1982 from the senior Kings to the children’s partnerships.

Not surprisingly, the federal taxation authorities claimed that substantial taxes were due because the children had purchased the farm at a price well below the fair market value for its development use. From 1985 to 1987, the IRS dealt exclusively with Bonsall, who had prepared the tax returns for the senior Kings’ estates. After it failed to reach a settlement by negotiating with Bonsall, the IRS issued deficiency notices, dated July 1, 1987, and August 28, 1987. These notices assessed liability for gift and estate taxes, as well as penalties for fraud and undervaluation, at $68 million, excluding interest.

The assessments were based upon the IRS’s determination that the farm had a fair market value of $60 million. On July 21, 1987, the King children retained Brown & Sturm “to represent us in all Tax Matters relative to the Estate of W. Lawson King and the Estate of Cordelia E. King pending before the Internal Revenue Service.” There was no oral or written agreement at the time between Brown & Sturm and the King children regarding the fee for this representation. In reference to the deficiency notices, Brown opined that the government’s valuation was “entirely too high” to the point of being “confiscatory.” Bonsall likewise declared that the government’s valuation was “ridiculous.” Brown believed that the deficiency claims could be defended on the basis of valuation and so advised the King children. James Jacobs, husband of defendant Elizabeth Jacobs, testified at trial that Brown had given the children “every indication ... that there ¹⁶⁵ should not be a real tax problem” and “that there would be, if any, a very minimis [sic ] tax.” Because Brown & Sturm had never before tried a case before the United States Tax Court 10 —indeed, Brown had never set foot in Tax Court—Brown secured permission from the family to retain Charles Burton, Esquire, an experienced tax litigator.

The King children agreed to compensate Burton and other attorneys from his firm at the rate of $125 per hour. Brown also obtained permission to hire two appraisers, Ron Lipman and Bud Dieudonne, as consultants 11 and secure retroactive fair market appraisals of the farm from two other appraisers, Adolph Rohland and Oscar Beasley, Jr. Brown received Rohland’s appraisal, which determined the fair market value of the farm to be $6.2 million, during October 1987. He forwarded this appraisal to William King, with a cover letter stating that the appraisal “appears to be well done.” Brown did not receive Beasley’s appraisal for $10.4 million until on or about February 29, 1988. Neither Brown nor Sturm testified at trial regarding the specific legal services, other than those outlined supra,, that they rendered for the King children between July 21, 1987, and January 20, 1988, while the fee agreement was under negotiation.

The firm kept no time records or other documents summarizing its legal services in the tax litigation. According to Burton’s billing statements, however, Brown & Sturm i. held four personal and ten telephone conferences with Burton or a member of his firm regarding the tax litigation; ¹⁶⁶ ii. prepared nine petitions for filing in United States Tax Court in response to nine IRS deficiency notices; iii. reviewed correspondence regarding Burton’s revisions to those petitions; and iv. reviewed the answers of the IRS to the petitions and decided to file replies to the same. On January 20, 1988, appellants executed a fee agreement with the King children. C The Fee Agreement Brown & Sturm proposed an initial fee agreement to the King children in September 1987.

This proposal was not limited to the tax litigation; instead, Brown & Sturm wanted the King children to retain them “on a continuing basis” for “all legal matters in any way touching upon the aforesaid lands and premises.” These legal matters were to include “development decisions, zoning problems, financing and refinancing problems, sales, lease negotiations, and many other related matters.” For these services, Brown & Sturm wanted eight percent of all money received from sales, rents, royalties, and license fees generated by sales, leases or development of the farm, except agricultural rentals or debt financing for taxes or development front money. The proposed agreement was to remain in effect as long as any of the King children retained an interest in the farm. Essentially, Brown & Sturm sought to become an eight-percent partner in the King children’s development ventures. The King children, not surprisingly, rejected this sweeping proposal, stating that they did not “feel it is in our best interest on a long-term basis to make the commitments detailed in your proposal.” They went on to request that Brown & Sturm develop a fee agreement that addressed the immediate concerns caused by the tax claims.

At some point between September 1987 and mid-January 1988, moreover, the King children requested that Brown & Sturm take their case on an ¹⁶⁷ hourly basis. The firm refused this request, stating that its services were not billed on an hourly basis, 12 but agreeing in principle to take a percentage of the tax savings achieved in litigation. Brown & Sturm thus submitted a second proposed fee agreement in which its fee would be ten percent of any savings achieved in the tax liability and fraud and undervaluation penalties, but not interest, measured from the amounts claimed by the IRS in the deficiency notices. When the King children complained that fraud was not a real issue in this case, Brown & Sturm reduced the fee percentage for any reduction in the fraud penalties to five percent.

All parties executed the fee agreement on January 20, 1988. 13 ¹⁶⁸ D Tax Litigation—Phase II As the tax litigation progressed, Brown & Sturm continued to develop evidence on the fair market value of the farm. Beasley delivered his appraisal in late February 1988, estimating the farm’s fair market value to be $10.4 million. Brown commissioned two additional retroactive fair market value appraisals, one from L.W. “Pat” Fey for $5.1 million, and the other from William Harps for $4.9 million. Both Brown and Sturm believed these appraisals were valid and would stand up under the Tax Court’s scrutiny.

The IRS likewise developed evidence on the farm’s fair market valid during the same time frame. One IRS expert, Anthony Reynolds, found the fair market value to be about $86.5 million. In a letter dated November 28, 1988, Brown opined that Reynolds’ analysis had been seriously flawed. He also, however, indicated a willingness to negotiate a compromise regarding the farm’s value, and shortly thereafter settlement negotiations ensued. 14 Prior to the trial, the parties reached a settlement agreement, and the King children signed off on it.

In the agree ¹⁶⁹ ment, the King siblings allowed the tax value of the farm to be set at $20 million; in turn, the IRS waived all penalties, as well as fraud, undervaluation, and other potential claims. The siblings’ total liability came to about $20 million. On January 20, 1989, Brown & Sturm sent the King children a statement quantifying the fee due pursuant to the retainer agreement. The total fee for Brown & Sturm’s representation, based upon the reduction in the tax value of the farm from $60 to $20 million and elimination of the penalties, came to $4,810,919.75.

The King children did not dispute the accuracy of the fee computation. In contrast, we note that the King children paid $30,000 to Burton, the tax expert, for his significant legal services during the tax litigation. To pay taxes and legal bills, the King children sought to sell the farm for development as quickly as possible. Unfortunately, the market for commercial development real estate was soft at the time, and without the sale of the farm, the children were unable to pay Brown & Sturm’s fee.

Thus, on March 2, 1989, the parties entered into an addendum whereby payment of the fee would be deferred until December 15,1990, and the children would pay interest at the rate of ten percent per annum dating from March 15, 1989. Over the next several years, the King children paid Brown & Sturm interest amounting to $1,637,000, but no payments were applied against the principal. Appellants filed the instant claim, for breach of contract, in September 1996. E The Bankruptcy Litigation Not surprisingly, the still-huge tax bill, sizable legal fees, and poor real estate market drove William King and his partnership, Field Farms, into Chapter 11 bankruptcy.

In the United States Bankruptcy Court for the District of Maryland, appellants filed two proofs of claim, one for approximately $6 million for work performed in connection with the tax litigation and one for $1 million representing other legal services. ¹⁷⁰ In June 1995, King and Field Farms filed adversary proceedings asserting various claims against Brown & Sturm for $50 million in damages. The Bankruptcy Court tried the case and found that the fee claim for the tax litigation exceeded the reasonable value of such services as analyzed under the Bankruptcy Code. See 11 U.S.C. § 502 (b)(4) (2000). As such, the court disallowed the claim.

The United States District Court and United States Court of Appeals for the Fourth Circuit affirmed that finding. Additional facts will be supplied infra as needed. Discussion In the case sub judice, we review the trial court’s findings on mixed questions of fact and law and questions of law. We review findings of fact in the trial court under the standard of review stated in Maryland Rule 8-131.

In a bench trial like this one, “the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8-131(c). The trial court is thus the gatekeeper for receiving and weighing the evidence. In contrast, we are bound by the trial court’s evidentiary findings, and we will not disturb those findings on appeal if they have support in any competent material evidence, even if we would have reached a different conclusion regarding that evidence.

Barnes v. Children’s Hosp., 109 Md.App. 543, 553 , 675 A.2d 558 (1996); Mayor & Council of Rockville v. Walker, 100 Md.App. 240, 256 , 640 A.2d 751 (1994). Likewise, for mixed questions of fact and law, such as the questions posed by appellants, we will affirm the trial court’s judgment when we cannot say that its evidentiary findings were clearly erroneous, and we find no error in that court’s application of the law. Bowers v. Eastern Aluminum Corp., 240 Md. 625, 626-27 , 214 A.2d 924 (1965). On questions of law alone, such as those raised by appellees on cross-appeal, where there is no dispute as to the facts, Rule 8-131(c) does not apply.

Pappas v. Modern Mfg. Co., 14 Md. ¹⁷¹ App. 529, 538, 287 A.2d 798 (1972). In the instant case, we hold on all questions that the court below did not err. The trial court’s analysis of whether the retainer agreement was valid was properly rooted in a well-settled proposition of law: Prior to retention, an attorney may bargain at arm’s length with a prospective client, but after that attorney has been hired, the parties stand in a confidential and fiduciary relationship, and the attorney bears the burden of showing that any subsequent transaction with his client is voluntary and fair.

Attorney Grievance Comm’n v. Korotki, 318 Md. 646, 666 , 569 A.2d 1224 (1990) (citing Attorney Grievance Comm’n v. Wright, 306 Md. 93, 106 , 507 A.2d 618 (1986); Tucker v. Dudley, 223 Md. 467, 473 , 164 A.2d 891 (1960); Etzel v. Duncan, 112 Md. 346, 350-51 , 76 A. 493 (1910); Merryman v. Euler, 59 Md. 588, 591 (1883)). Indeed, in such circumstances, the law makes a presumption against the attorney and in favor of the client. Merryman, 59 Md. at 591 ; see also Etzel, 112 Md. at 351 , 76 A. 493 . Here, the trial court found that a confidential relationship existed between the parties when the retainer agreement under dispute was executed on January 20, 1988.

We agree, finding no clear error. Indeed, were we the trial court, we would be hard-pressed to conclude otherwise from the facts in evidence, given that over the six-month period prior to execution of the retainer agreement, Brown & Sturm provided various services related to the management of litigation, which included hiring consultants, appraisers and other counsel; securing a retroactive fair market appraisal for the farm; consulting extensively with co-counsel specializing in tax litigation; preparing pleadings for filing in the United States Tax Court; and reviewing IRS pleadings in the litigation. Regardless of the good motives claimed by appellants for performing legal services prior to the execution of a retainer agreement, 15 under Maryland law, 16 appellants bear “the onus ¹⁷² ... to prove the entire bona fides and fairness of the transaction.” Merryman, 59 Md. at 591 . I Voluntariness of Retainer Agreement Given that a confidential relationship existed, Maryland’s law governing voluntariness in transactions between attorneys and clients applies to the fee agreement.

For a contract between attorney and client to be voluntary, i. the attorney must not use his dominant position in the relationship to take unfair advantage of the client, and ii. the attorney must provide full disclosure of all information and advice required of the attorney under the existing confidential relationship. ¹⁷³ Korotki, 318 Md. at 666 , 569 A.2d 1224 (“ ‘[T]he attorney has the burden of showing, not only that he used no undue influence, but that he gave his client all the information and advice which it would have been his duty to give if he himself had not been interested, and that the transaction was as beneficial to the client as it would have been had the client dealt with a stranger.’ ”) (quoting Etzel v. Duncan, 112 Md. at 350-51 , 76 A. 493 ). A Appellants’ Misuse of Their Dominant Position The evidence supports the finding that Brown & Sturm exercised dominance over the King children. The undisputed evidence shows that, although the firm’s lawyers lacked experience in handling appeals before the United States Tax Court, they clearly offered their clients in this case extensive expertise in the determination of land values. Indeed, condemnation and land valuation cases have been the cornerstone of Brown’s law practice for nearly fifty years.

Brown himself, in fact, testified that the King children needed counsel with vast experience in land valuation during the tax litigation, and he explained that he had handled hundreds of such cases over the past forty-five years. Brown & Sturm also had unique knowledge of the farm, having served as the settlement attorneys in 1982 and having performed various legal services for King family members between 1981 and 1994. The court thus found that Brown & Sturm, by virtue of its acknowledged expertise in matters of land valuation, exercised dominance vis-a-vis the King children in a tax litigation matter hinging upon valuation of the King Farm. Because Brown & Sturm’s lawyers were in a position of dominance over the King children, they had a duty to refrain from taking unfair advantage of the children’s dilemma.

The trial court’s findings of fact show that Brown & Sturm failed to exercise proper restraint. First, the court found as a fact that in their initial fee proposal to represent appellees, the appellants sought “to take unfair advantage of ¹⁷⁴ the [appellees] by overreaching.” The court’s findings of fact are supported by at least four undisputed facts: i. Appellants did not comply with appellees’ requested scope of representation by limiting their proposed representation to those matters pending before the Internal Revenue Service. ii. The agreement gave appellees no recourse to dismiss appellants should they prove to lack needed expertise or perform substandard legal work. iii.

The proposed compensation, which would have been based upon sales, leases or development of the farm, bore little relation to the actual work being done, and appellants could conceivably have received substantial sums of money for rendering few or no legal services. iv. The agreement required appellees to continue compensating appellants even if they eventually discharged them. Payment was contingent upon the King children’s continuing ownership or control of the farm, rather than the duration of representation. 17 Next, when the court found that when King siblings resisted appellants’ fairly patent efforts to become co-developers for the land and sought an hourly billing arrangement, they clung inappropriately to another non-standard fee arrangement, a reverse contingency fee agreement. Brown himself averred that the firm would have withdrawn from representation had ¹⁷⁵ appellees insisted upon hourly billing.

Moreover, the court heard expert testimony from a former Commissioner of the Internal Revenue Service, now a successful private practitioner, stating that reverse contingency arrangements are permissible, but that the client’s wishes govern when he asks that time and expenses form the basis for a billing agreement, as had the King children. 18 The court also acknowledged appellees’ “sense of desperation” in seeking legal services from Brown & Sturm, quoting their letter dated September 11, 1987, rejecting the initial fee proposal: “We urgently need your legal services .... We trust you will accept our request for services ... in accordance with our immediate needs. A prompt response will be appreciated.” By conditioning continued services upon a reverse contingency arrangement, the court found, appellants coerced appellees, “depriv[ing them] of the ability to choose a fee agreement that was in their best interests.” We see no clear error in the court’s findings of fact, and we also conclude that the court applied the law properly to those facts. Not only does the court’s opinion rely upon competent material evidence, but the weight of the evidence presented by both sides undergirds a finding for appellees.

Without question, Brown & Sturm continuously represented members of ¹⁷⁶ the King family for several years on matters related to the sale of the farm. Despite its breathtaking failure to safeguard the King children’s best interests by heeding warnings about the tax consequences of the sale, Brown & Sturm brought considerable land valuation experience to the table that obviously bolstered the King family’s confidence in and dependence upon the firm. After the initial flurry of criticism regarding Bonsall’s ill-advised plan to sell the farm, the King siblings had no reason to believe that Brown & Sturm’s valuation of the farm and analysis of the Tax Court’s claim were based upon any factors other than genuine diligence and concern. The court below did not err in finding that appellants misused their dominant position.

B Appellants’ Failure to Make Full Disclosure In negotiating the fee agreement, appellants not only took advantage of their dominant position vis-a-vis the King children, but they also failed to make full disclosure of all information and advice that the siblings would have required under the existing confidential relationship. In Maryland, whether an agreement between attorney and client is voluntary depends upon such disclosure. See Korotki, 318 Md. at 666 , 569 A.2d 1224 . “Consequently, if the attorney relies on a special fee arrangement in defense of a ... complaint that a clearly excessive fee has been charged, the attorney must demonstrate that the arrangement was made ‘after disclosures appropriate to the existing confidential relationship____’” Id. (quoting Wright, 306 Md. at 106 , 507 A.2d 618 ).

The undisputed evidence here shows that the reverse contingency fee was based on a reduction in the tax liability claimed by the IRS, which in turn, was premised upon the farm having a fair market value of $60 million, an inflated sum of more than double any other contemporaneous appraisal of the property. The court below found, based on the evidence presented at the trial, that Brown & Sturm failed to disclose to the family at the time of the agreement a more realistic worst-case market ¹⁷⁷ value of the farm for the purposes of federal taxation—and that information would have significantly reduced the amount agreed upon as a benchmark for tax liability in the retainer agreement. The trial court based its finding upon competent, material evidence, much of which was undisputed. Evidence adduced at the trial demonstrated that Brown & Sturm knew of other appraisals of the farm that had been performed during fee negotiations.

These appraisals were significantly shy of the $60 million appraisal upon which the IRS deficiency notice had been based. The court also applied the law correctly. It first cited Rule 1.5(c) of the Maryland Lawyers’ Rules of Professional Conduct, 19 which governs contingency fee arrangements in this State. Because Rule 1.5(c) is silent regarding reverse contingency fees, the court also relied upon the equivalent American Bar Association (ABA) Model Rules of Professional Conduct Rule 1.5(c) 20 and Formal Opinion 93-373 of the ABA Committee of Ethics and Professional Responsibility, which, we note, is the leading opinion on this issue.

Formal Opinion 93-373 states “that in a reverse contingent fee agreement, there must be a reasonable benchmark figure from which the savings are to be calculated.” The court thus concluded, on the basis of expert testimony regarding the standard practices in the ¹⁷⁸ setting of reverse contingency fees, that the benchmark in the case sub judice was unreasonably high. Formal Opinion 93-373 explains that the amount demanded by the plaintiff cannot automatically be selected as a benchmark figure, for the plaintiffs original claim may be unrealistic: A plaintiff may sue defendant for $1,000,000, but the fact that sum is named in the complaint does not necessarily mean that plaintiffs claim can fairly be said to be for that amount. Plaintiffs counsel often overstate the amount to which their client is entitled, and indeed have little incentive for restraint. Thus, the amount demanded cannot automatically be the number from which the savings resulting from a judgment or settlement can reasonably be calculated....

Whether or not a specific ad damnum figure is mentioned, for an unliquidated claim, it is incumbent on the defendant’s lawyer fairly to evaluate the plaintiffs claim and set a reasonable number as the amount from which the plaintiffs recovery will be subtracted to determine defendant’s savings. The sensitivity of this exercise becomes apparent when it is recognized that to the extent defendant’s lawyer exaggerates the value of plaintiff s claim, defendant’s lawyer enhances his or her prospect of recovering on the contingent arrangement. ABA Comm, on Ethics and Profl Responsibility, Formal Op. 93-373 at 1001:181-82 (1993) (emphasis added). The Committee goes on to suggest that though no per se rule applies and each case must be judged on its own facts, “the reasonableness of the amount of a ‘reverse’ contingent fee does depend on the degree to which savings from liability is reasonably ascertainable rather than a purely speculative one, which in turn may well depend on the character of the damages claim on which it is based.” Id. at 1001:182.

Expert witnesses for the appellees agreed that the government’s claim was unrealistic, and Brown & Sturm should not have presented it to clients as a basis for the fee. The court heard from John Marshall, Esquire, a prominent Atlanta ¹⁷⁹ attorney and frequent lecturer on ethics. Marshall told the court that a lawyer who wanted to charge a reverse contingency fee “is required at the outset of the case, at the time the fee arrangement is agreed to by the client, to make a reasonable estimate of what the real exposure may be.” The attorney, said Marshall, can “only ... earn money on a reverse contingency fee if the disposition of the case was less than that reasonable exposure.” When Commissioner Cohen testified, he agreed that the government’s original estimate did not reflect the King siblings’ actual exposure: “[T]here are deficiency notices and there are deficiency notices. There are some that are tight and ask for ... the maximum the Government realistically views it can get, and there are others where you know there’s water in them from the beginning.” Appellants, as land valuation specialists, knew that the government’s estimate in the deficiency notice was unrealistic—indeed, they had estimates in hand pertaining to State and County tax matters—and even if they lacked such knowledge, they had a duty, as appellees’ attorneys, to research the matter carefully before holding out $60 million as a benchmark figure.

Appellants thus failed to make the full disclosure to their clients that is required in a confidential relationship. Appellants attack the court’s use of the model rules and ABA ethics opinions interpreting them. 21 Maryland has, however, substantially adopted the ABA Model Rules into the Maryland Rules of Professional Conduct, including Rule 1.5, and the ABA’s opinions regarding the Model Rules, though not binding, Attorney Grievance Comm’n v. Gregory, 311 Md. 522, 531 , 536 A.2d 646 (1988), are highly persuasive authority in Maryland courts. Id. at 531-32 , 536 A.2d 646 (“As a practical matter, ... where an attorney can demonstrate reasonable reliance upon an ethics opinion on point, that fact is likely to have a significant effect on the initial decision of ¹⁸⁰ the Attorney Grievance Commission concerning the filing of a complaint, as well as upon the determination or disposition of those charges that may be filed.”); see, e.g., Attorney Grievance Comm’n v. Kemp, 335 Md. 1, 17 , 641 A.2d 510 (1994) (regarding Rule 1.1); Prahinski v. Prahinski, 321 Md. 227, 240 , 582 A.2d 784 (1990) (regarding the inalienability of a lawyer’s goodwill); Attorney Grievance Comm’n v. Martin, 308 Md. 272, 283 , 518 A.2d 1050 (1987) (regarding a lawyer’s involvement in a second profession). Appellants also argue that the court’s conclusion that the fee here was coercive in nature betrayed an “impermissible bias against contingent fees.” We do not see such bias here at all-the trial court neither said nor implied that contingency fees were impermissible.

Appellants instead fell under the weight of their own overreaching conduct and the competent, material, and often undisputed evidence regarding the same. In its opinion, the court stressed that, months into the representation, Brown & Sturm lawyers by their own admission threatened to withdraw as counsel unless the King siblings agreed to the reverse contingency arrangement. It is beyond dispute that had such a resignation occurred while the King siblings were in the midst of negotiations with the Tax Court, their chances of reaching a favorable outcome would have been prejudiced. As the trial court noted in its findings, moreover, the undisputed facts show that appellees at this time faced the loss of the family farm and even bankruptcy 22 and expressed to Brown & Sturm their clear sense of desperation about the dilemma.

The undisputed facts also show that when the parties finally signed the agreement, over four months into the representation, the King children believed that no attorneys were better suited to defend their interests, and they believed they had no other choice but to go along with the fee agreement. Appellants thus used their dominant position to take undue advantage of appellees, and they failed to disclose fully to appellees information they had regarding the fair market value of the farm and their realistic tax ¹⁸¹ liability. For these reasons, we affirm the finding of the trial court. II Fairness of Retainer Agreement We also affirm the trial court’s finding on appellants’ second issue, whether the retainer agreement was fair.

Under Maryland law, “the fact that the client agreed to the [amount of the fee] does not relieve the attorney from the burden of showing that the amount agreed upon was fair and reasonable.” Korotki, 318 Md. at 666 , 569 A.2d 1224 (quoting Tucker, 223 Md. at 473 , 164 A.2d 891 ). Instead, courts determine whether a contingent fee is reasonable using two indicia of fairness, both of which must apply. First, the agreement must have been reasonable in principle when the parties entered into it. Second, after the contingency has been met and the fee quantified, the agreement must be reasonable in operation, as tested against the factors set forth in the Maryland Lawyers’ Rules of Professional Conduct Rule 1.5(a).

Attorney Grievance Comm’n v. Pennington, 355 Md. 61, 74 , 733 A.2d 1029 (1999) (“Korotki teaches ... that an agreement, reasonable when made, may become unreasonable in light of changed facts and circumstances. Thus, as Korotki points out, ... the question of the reasonableness of a contingent fee agreement, or one with contingent features, must be revisited after the fee is quantified or quantifiable and tested by the factors enumerated in Rule 1.5(a).”) (citing Korotki, 318 Md. at 664-65 , 569 A.2d 1224 ) (citations omitted). As the Supreme Court of Arizona has stated, and the Court of Appeals cited with approval in Korotki, 318 Md. at 664-65 , 569 A.2d 1224 , We do not believe ... that recognition of the propriety of the initial fee arrangement gives the lawyer carte blanche to charge the agreed percentage regardless of the circumstances which eventually develop. Either a fixed or contingent fee, proper when contracted for, may later turn out to be excessive.

We realize that business contracts may be ¹⁸² enforced between those in equal bargaining capacities, even though they turn out to be unfair, inequitable or harsh. However, a fee agreement between lawyer and client is not an ordinary business contract. The profession has both an obligation of public service and duties to clients which transcend ordinary business relationships and prohibit the lawyer from taking advantage of the client. In re Swartz, 141 Ariz. 266 , 686 P.2d 1236, 1243 (1984) (citations omitted) (emphasis added).

The evidence supports a finding that the here was unreasonable, both at its inception and after it was quantified. A Unreasonableness at Inception The court below found the fee to be unreasonable at its inception under reasoning similar to that set forth supra to show appellants failed to make full disclosure when the fee agreement was negotiated, namely that appellants failed to communicate appellees’ reasonable exposure to liability under the IRS deficiency notices. Although appellants were clearly in a position to ascertain that exposure, the court found, they instead based the fee agreement upon the government’s inflated claim, which in turn, unreasonably inflated the potential fee. To support this conclusion, the court cited the following findings of fact, which it made based in large part on undisputed testimony: i.

Brown himself testified that from the time that representation began, he believed that the government valuation of the farm was “entirely too high.” He also knew that the Tax Court worked “like a condemnation jury; they split the difference and compromise.” 23 ¹⁸³ ii. Brown clearly knew of fair market value appraisals of the farm ranging from $6.2 million to $24.8 million, sums that were between 60 and 90 percent less than the valuation of $60 million asserted by the IRS. iii. In a letter dated August 20, 1990, Sturm stated that he and Brown believed that they could have convinced the Tax Court to accept appraisals in the range of $5 million as a fair market value of the farm in 1982. Additionally, Commissioner Cohen had testified that attorneys who represent persons before the Tax Court are entitled to view the documents that support government valuation claims.

The court found no evidence on the record that appellants sought out such information prior to execution of the retainer agreement. The court’s findings of fact thus have solid, indeed undisputed, support in the record. From the chasm that separates what appellants actually knew and what they told their clients, the court below could have with good cause inferred that appellants acted to take advantage of appellees and ignored their obligation to public service. B Unreasonableness When Quantified The trial court also found that appellants’ fee was unreasonable when it was quantified, ie., at the time the King children settled with the IRS.

We identify no clear error in its finding. To determine the reasonableness of the quantified fee, the court examined that fee under the criteria set forth in the Maryland Lawyers’ Rules of Professional Conduct Rule 1.5(a), as Pennington, 355 Md. at 74 , 733 A.2d 1029 , and Korotki, 318 Md. at 664-65 , 569 A.2d 1224 , direct. Its analysis of the facts under each criterion was extensive, and we summarize herein: i. As for “the time and labor required, the novelty and difficulty of