ARDC Claims That A Fixed Fee For a Medicaid Application Was Unreasonable


The ARDC has brought a claim against a lawyer who handled a Medicaid application for an elderly client. The client, who was 78 and had dementia did have a power of attorney in place and an agent who agreed to pay the $12,500 fee for the Medicaid application.

The lawyer also obtained the agent’s signature on a promissory note, but, allegedly did not advise the agent to seek independent counsel.

The pertinent allegations are as follows:

19. As of April 24, 2015, Respondent had provided no significant services to Matheny other than the completion and submission of her Medicaid application.

20. On July 14, 2015, Matheny’s estate sold her home for $26,000. Respondent obtained $12,500 of the sale proceeds pursuant to the representation contract, promissory note and mortgage described in paragraphs 5 through 8, above.
21. The $12,500 fee that Respondent obtained for the completion and filing of Matheny’s Medicaid application was unreasonable considering the time and labor required, the novelty and difficulty of the questions involved, the skill requisite to perform the legal service properly, the likelihood that the matter would preclude other employment, the fee customarily charged for similar legal services, and the amount of Matheny’s assets involved.
22. At the time Respondent collected the $12,500 fee, he knew that he had provided no significant services to Matheny other than the completion and submission of her Medicaid application.
23. By reason of his conduct described above, Respondent has engaged in the following misconduct:
  1. making an agreement for, charging or collecting an unreasonable fee, by conduct including charging and collecting $12,500 for assisting in Twyla Matheny’s application for Medicaid benefits, in violation of Rule 1.5(a) of the Illinois Rules of Professional Conduct (2010); and
  2. knowingly acquiring an ownership, possessory, security or other pecuniary interest adverse to the client, by conduct including acquiring a promissory note from Twyla Matheny and Juston Vermost as Matheny’s agent, and acquiring a mortgage interest against Matheny’s home and recording the mortgage, without informing Matheny or her agent Vermost in writing that they may seek the advice of independent legal counsel and have a reasonable opportunity to do so, and without obtaining the informed consent of Matheny or Vermost, in a writing signed by Matheny or Vermost, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction, in violation of Rule 1.8(a) of the Illinois Rules of Professional Conduct (2010).

Comment: The ARDC is litigating a case that would not be cost-effective for most lawyers to litigate. A dispute over $12,500 is, unfortunately, too small for most lawyers to accept.

Please note that we are reporting allegations from a complaint, not a finding of fact by a tribunal.

Ed Clinton, Jr.

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New Mexico Court Rejects Bare Bones Arbitration Clause in Legal Fee Agreement

Castillo v. Arrieta, NM: Court of Appeals 2016 – Google Scholar:

The Court of Appeals of New Mexico has voided an arbitration clause on the ground that the client did not give his informed consent to arbitration. The clause was bare bones and stated:

“ARBITRATION CLAUSE: Should any dispute arise, Client and Attorney agree to submit their dispute to arbitration.”

The New Mexico Court found fault with this clause because it did not explain to the client that he was waiving his right to a jury trial and possibly waiving his right to broad discovery.  The court’s opinion provides in relevant part:

Plaintiff signed the fee agreement, affirming that he “read the foregoing terms and agree[d] to them without reservation.” There is no other language in the agreement that discusses the scope or meaning of the arbitration clause or provides any explanation of arbitration generally. There is no indication in the agreement that Plaintiff was waiving his right to a jury trial should he sue his attorney for malpractice. Nor is there any suggestion that Plaintiff seek advice of independent counsel before agreeing to such a waiver.
{24} Here, the text of the clause itself is no help. It declares in a single sentence only that client and attorney agree to submit “any dispute” to arbitration. We have already held that this is technically sufficient to apply to malpractice claims. However, it is not sufficient to inform the client “of the material advantages and disadvantages of the proposed course of conduct.” See id. If Plaintiff truly was never warned that he “was waiving [his] right to a trial by jury” if he sued his attorneys for malpractice, as he stated in his affidavit, then inclusion of such a broadly worded and unexplained material term was an overreach by his attorneys that will not be enforced in this Court.

The court remanded the case to determine if the lawyers sufficiently explained the arbitration clause to the client. 

For the practicing lawyer who wishes to use arbitration, this case is instructive. The case suggests that the arbitration clause needs to be more detailed and needs to explain what the client is giving up by agreeing to arbitration. Further, the clause should recommend that the client consult with another attorney before signing.

Edward X. Clinton, Jr.

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Illinois Appellate Court Rejects Referral Fee Claim Because Lawyers Failed to Comply with Rule 1.5

This type of case is, unfortunately, quite common in Illinois. A lawyer refers a case to another lawyer who handles the case and obtains a recovery. The referring lawyer then seeks a portion of the legal fee. The lawyer who received the referral disputes the claim noting that no referral fee agreement was signed.

The referring lawyer, Richard Naughton, then files suit against the lawyer who allegedly received the referral, here Bruce Pfaff.

Rule 1.5 of the Illinois Rules of Professional Conduct requires that any fee-splitting agreement between lawyers be documented in writing. Because Naughton did not obtain a written referral agreement, he was not eligible to collect a referral fee.

Two provisions of Rule 1.5 are pertinent:

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent
fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
 Subsection (e) provides:
 (e) A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer, or if the primary service performed by one lawyer is the referral of the client to another lawyer and each lawyer assumes joint financial responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.

In Naughton, the court followed the reasoning of a similar case from the 1st Appellate District,  Donald W. Fohrman & Associates, Ltd. v. Marc D. Alberts, P.C., 2014 IL App (1st) 123351  that held that the provisions of Rule 1.5 are mandatory and are designed to protect clients.

In sum, if you refer a case you should not expect to receive compensation unless you have a signed referral agreement with the lawyer who accepts the referral. This rule is appropriate because it makes matters clear for the client who can read the agreement and see who can make a fee claim against him. Further, by requiring a written agreement, the lawyer who wishes to collect a fee must accept professional responsibility for the matter. If an oral agreement is enforced, it becomes easy for the referring lawyer to collect a fee yet avoid professional responsibility if there is a breach of duty.

Edward X. Clinton, Jr.

Naughton v. Pfaff, Ill: Appellate Court, 2nd Dist. 2016 – Google Scholar:

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