The underlying facts of the litigation are tragic. Mark Pellegrin and his friend and co-worker, Kelly McKiernan, got together at Mark Pellegrin's home on New Year's Eve, December 31, 2005. The gentlemen both worked for KCI Technologies in a crew that inspected communications towers. On that evening, Kelly came to Mark's house to check equipment in advance of an upcoming inspection. Kelly drove a KCI issued truck to this meeting. After doing their work, the two men began drinking alcohol to celebrate New Year's Eve. At some point, Kelly decided he wanted to drive home, when Mr. Pellegrin came out to the driveway in an effort to stop him from doing so, he struck him with the truck without ever seeing him.

As a result of the incident, Mark Pellegrin can no longer walk or talk; he can communicate by facial expression but is dependent on others for all daily activities. His father, as his guardian, brought an action against KCI Technologies' insurer, National Union Fire Insurance, who denied coverage for the incident based on the fact that Kelly McKiernan was intoxicated at the time of the incident.

In order to file this claim, Mr. Pellegrin obtained counsel in Louisiana—where his family is from—namely the firm of St. Martin, Williams, and Bourque. This firm then arranged for Abrams & Abrams P.A. to serve as Plaintiff's counsel to bring this action in North Carolina, and the firms had a fee-splitting arrangement. The firms took this matter under a standard contingency fee basis, entitling the attorneys to one-third of any recovery. The firm obtained an $18 million settlement agreement, and under the fee arrangement was entitled to $6 million in payment.

The District Court was asked to approve the settlement because it was a settlement between defendant and an incapacitated person. The District Court approved the settlement, but reduced the $6 million attorneys' fees as it found that amount to be unreasonable in light of the facts of the matter. The District Court took Plaintiffs' approximation of the time put into the case, around 2000 hours, and multiplied by an hourly fee it deemed reasonable, $300/hour for this kind of personal injury work. Therefore, the attorneys' fees were reduced to $600,000.

The Fourth Circuit held that the District Court abused its discretion in this matter. Although it agreed that a Court must review an agreement for attorneys' fees in a case of a minor or incapacitated person, it determined that the District Court did not follow the Fourth Circuit's established law for determining a reasonable award of attorneys' fees.

The Fourth Circuit first noted that there is a twelve factor test for evaluating whether attorney compensation is reasonable. The test was adopted by the Fourth Circuit in Barber v. Kimbrell's Inc., 577 F.2d 216, 226 (4th Cir. 1978). The Fourth Circuit determined that the District Court failed to give adequate consideration to three of these factors: (1) the contingency of a fee, (2) the award involved and the results obtained, and (3) the fee awards made in similar cases.

The Court noted that the District Court spent little to no time evaluating the fact that the Plaintiffs' firms took this matter on a contingency. Such an arrangement was likely the only way in which Mr. Pellegrin could have obtained adequate representation in a serious personal injury matter with complex issues regarding the insurer's responsibilities under the policy. Further the Court noted that in addition to being a benefit to potential plaintiffs, the contingency is also a risk on the part of the attorney who invests a great deal of time knowing that it will be compensated only with a successful result.

Second, the Court found that the District Court did not properly consider the results obtained. First, it found the $18 million recovery to be a success for Plaintiff by any standard. Moreover, Mr. Pellegrin was extremely pleased with the services provided by the attorneys, appreciated the respect and dignity with which they treated his son, and openly opposed the District Court's reduction in their fees.

Third, the Court determined that a contingency fee is a standard practice in personal injury matters; the one-third contingency was less than the 40 percent that other North Carolina or Louisiana firms might have charged to handle the matter. The Court noted that the District Court should have considered whether the contingency percentage of any potential recovery was reasonable compensation, not what hourly rate would be reasonable for providing services in a personal injury action generally.

Therefore, the Fourth Circuit remanded the matter to the District Court with instructions to pay proper consideration to the twelve factors of Barber, and particularly these three.