Day on Torts - New Post: Court clarifies factors to consider for fraud allegation related to attorney-client fee agreement.

Court clarifies factors to consider for fraud allegation related to attorney-client fee agreement.

Posted: 12 Mar 2021 05:58 AM PST

Where plaintiff alleged that defendant attorney fraudulently charged a higher hourly rate than what was agreed upon, the trial court should have engaged in a three-factor analysis to determine whether the written fee agreement could be used to defeat the fraud claim.

In Vazeen v. Sir, No. M2019-01395-COA-R3-CV (Tenn. Ct. App. Mar. 4, 2021), plaintiff filed a fraud claim against defendant attorney who had represented him for a portion of plaintiff’s previous divorce case. Plaintiff asserted that defendant had engaged in fraudulent billing and that defendant had “charged a higher hourly rate than agreed.” After an initial appeal and remand, the trial court held a bench trial where plaintiff and defendant were the only witnesses. The trial court ultimately ruled for defendant on all claims, and this ruling was affirmed in part and reversed in part on appeal.

All of plaintiff’s claims fell under the umbrella of fraud, also known as intentional misrepresentation. A plaintiff seeking to recover for intentional misrepresentation must show:

(1) That the defendant made a representation of a present or past fact; (2) that the representation was false when it was made; (3) that the representation involved a material fact; (4) that the defendant either knew that the representation was false or did not believe it to be true or that the defendant made the representation recklessly without knowing whether it was true or false; (5) that the plaintiff did not know that the representation was false when made and was justified in relying on the truth of the representation; and (6) that the plaintiff sustained damages as a result of the representation.

(internal citation omitted). “Fraud involves a question of fact, and the facts must show an intent to deceive on a material matter.” (internal citation omitted). By its nature, fraud claims “often require[] the actual hearing and viewing of witnesses whose credibility is of paramount concern for the trier of facts.” (internal citation omitted).

Looking first to the allegations that defendant fraudulently engaged in double billing, the Court noted that defendant had admitted that a few billing items had been mistakenly duplicated, but that defendant had already reimbursed plaintiff for those entries with interest. Defendant had testified that this was simply an error and that he sent client bills in an itemized form so that clients could look over them and bring any errors to his attention. The trial judge in this case specifically found defendant to be a credible witness, and the Court ruled that “[g]iving due deference to the trial court’s credibility determination, the record supports the trial court’s conclusion that [plaintiff] failed to prove that [defendant] intentionally misrepresented the amounts owed.”

Plaintiff also argued that, in addition to the doubled billed entries, defendant’s invoices were fraudulent as a whole. Plaintiff “point[ed] to various other billing entries and miscellaneous facts in an attempt to portray [defendant] as dishonest,” as plaintiff asserted that defendant had “made poor decisions while representing him in the divorce case” and had been involved in other litigation. While the Court noted that fraud “may be properly proved by wholly circumstantial evidence,” it ruled that the circumstances cited by plaintiff did “not lead…to the conclusion that fraud occurred with respect to these remaining issues” related to the invoices. (internal citation omitted).

Plaintiff also asserted that defendant committed fraud by charging him more per hour than plaintiff had agreed to pay. Plaintiff claimed that he agreed to a rate of $250/hour, but that while the first few months were charged at that rate, the rate was then changed to $350/hour for both defendant and his associate. Plaintiff also alleged forgery in connection with the fee agreement produced by defendant. Defendant relied on the fee agreement that bore plaintiff’s signature, which stated that the associate time would be $350/hour and defendant’s time would be $375/hour, and the trial court found that this contract was valid, as plaintiff had no proof of the alleged forgery.

In its analysis of this issue, the Court of Appeals noted that when allegations of forgery are related to an attorney-client fee agreement, “a higher level of scrutiny” comes into play because the agreement “creates a fiduciary and confidential relationship between the parties.” (internal citation omitted). The Court looked to the considerations cited by the Tennessee Supreme Court in Alexander v. Inman, 974 S.W.2d 689 (Tenn. 1998), where an attorney was seeking to enforce a fee agreement and found that the same considerations should be applied here. The Court explained:

We likewise find it appropriate to apply the Alexander criteria to this hourly rate dispute in the context of a client’s fraud claim regarding the formation of the fee agreement. …If the criteria are appropriately applied in a suit filed by an attorney to recover fees pursuant to a fee agreement, we find them equally appropriate in a suit filed by a client alleging fraud in connection with the formation of the fee agreement. And, …if the fee agreement is enforceable under the Alexander factors, then the client could not have a claim for fraud based on the hourly rate because he was not billed more than the rate the agreement provided.

(internal citations and quotation omitted).

The three Alexander factors are whether “(1) the client fully understands the contract’s meaning and effect, (2) the attorney and client shared the same understanding of the contract, and (3) the terms of the contract are just and reasonable.” (citing Alexander). In this case, the trial court never mentioned the Alexander factors and very “little evidence was introduced regarding the execution of the fee agreement.” Accordingly, the Court of Appeals remanded the “limited issue regarding the hourly rate to the trial court for further proceedings to include consideration of the Alexander criteria.”

The trial court’s ruling that there was no fraud related to the double billing was thus affirmed, but the issue regarding the hourly rate was reversed and remanded.

The reasoning of this pro se case is limited to very specific factual scenarios. It is important to note, however, that pursuant to this opinion, the Alexander factors will likely be considered anytime the issues in a case relate to an attorney-client agreement, whether the theory is contract-based and brought by the attorney or tort-based and brought by the client.

NOTE: This opinion was released three months after this case was assigned on briefs.