When Does a Landlord’s Flat Legal Fee Violate the New Jersey Consumer Fraud Act?

May a landlord charge a tenant a fixed rate each time the landlord has to consult its lawyers for matters related to a lease agreement, even if that fixed rate is higher than the costs the landlord actually incurs?

The Appellate Division of the Superior Court of New Jersey considered this issue in a recent decision. Green v. Morgan Properties, Superior Court of New Jersey: Appellate Division (A-3203-10). In that case, the plaintiffs – tenants of apartment complexes owned by the defendant and landlord, Morgan Properties – were subject to a lease provision that required them to pay attorney’s fees of $400 plus costs anytime the landlord used the services of an attorney for any lease-related matter. The $400 fee applied regardless of whether or not litigation was commenced or whether the attorney was a member of the landlord’s in-house counsel. The landlord owned 131 apartment complexes in 10 states and filed an average of 200 evictions a month in Camden County alone.

The plaintiffs were sued on eviction complaints. In addition to alleging wrongful eviction, the plaintiffs also brought a claim under the Consumer Fraud Act (“CFA”), claiming that the attorney’s fees provision was unconscionable and that the landlord misrepresented the nature of the fees. The Law Division of the Superior Court of New Jersey in Camden County granted the defendant’s motion to dismiss, holding that a landlord is allowed to collect reasonable legal fees incurred in an eviction. The Court found the $400 fee to be reasonable. The plaintiffs appealed.

The Appellate Division rejected the plaintiffs’ claim that the landlord was barred from collecting attorney’s fees from tenants because it is represented by in-house counsel. However, the Court also found that the plaintiffs stated a claim upon which relief could be granted when they alleged that the landlord acted unlawfully in seeking legal fees that exceeded the costs incurred.

The Rules of Professional Conduct bar a non-lawyer from sharing in the fees of an attorney. R.P.C. 5.4 (a). An agreement between a lawyer and non-lawyer regarding the sharing of fees is void and unenforceable “because it is founded upon prohibited activity and is against public policy.” Green at 5 (citing Infante v. Gottesman, 233 N.J.Super. 310, 315 (App. Div. 1989).

Citing a Professional Ethics Opinion that dealt with this Rule of Professional Conduct, the Court stated that the “only situations in which a lawyer may properly permit a client to receive and retain fees paid by others on account of his legal services are when such payments are to reimburse the client in whole or in part for the client’s legal expenses actually incurred in the specific matter for which they are paid.” N.J. Adv. Comm. On Prof’l Ethics Opinion 93, 89 N.J.L.J. 248 (1966).

Though an attorney’s violation of the Rules of Professional Conduct does not give rise to a private cause of action against an attorney, the plaintiffs’ claims were directed instead against the non-attorney defendants, resting on an alleged illegality of the lease’s fees provision and misrepresentation of the nature of the fees sought. The Court held that the plaintiffs adequately alleged misrepresentation of the nature of the fees by showing that the defendants required legal costs of $400 when they had actually incurred costs much smaller than that. While fee-shifting provisions that set fixed amounts are sometimes allowable, they are subject to court review for their reasonableness. Id. at 6. The Appellate Court reversed and remanded the lower court’s decision on that basis.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC