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Judge Tosses Challenge to Contingency Fee for Retiring Partner
New Jersey Law Journal
August 19, 2008
A New Jersey state judge's ruling Monday in a $1.3 million fee fight highlights the importance of spelling out the role of retiring partners and their share in contingency fees.
Bergen County Chancery Judge Peter Doyne summarily dismissed a suit alleging that an agreement to share fees with a former partner would violate an ethics rule against fee-splitting by lawyers who are not in the same firm.
Doyne found that the partner never withdrew from the firm. But he denied a request for sanctions against the plaintiff, Nathan Wolf, and his lawyers at Day Pitney in the case, Wolf v. Rosenblum, BER-C-230-07.
Wolf, Edward Rosenblum and John Lloyd were once partners in the now-defunct Rosenblum Wolf & Lloyd, a Teaneck, N.J., firm that focused on real estate tax appeals. Their 1993 partnership agreement gave Rosenblum 85 percent of the stock, Wolf 10 percent and Lloyd, 5 percent. It also provided that Wolf and Lloyd would pay Rosenblum $2.5 million for his interest upon his retirement.
Falling revenues led to a revised agreement in 2002, which was made retroactive to Jan. 1, 2001.
The preamble referred to Rosenblum's desire to withdraw from the firm and sell his stock. It stated that, as of Jan. 1, 2001, Rosenblum would become a consultant to the firm on existing legal matters, client relations and business issues. He was barred from taking on any new legal matters after that date and he could decide how much time he would spend consulting.
Under the new deal, Rosenblum would receive 50 percent of the net pre-income tax cash available for distribution.
The agreement also addressed fees from the firm's biggest case, an ongoing tax appeal on behalf of Great Bay (Sands) Casino, filed in 1996. They were to be split 50-25-25, respectively, among Rosenblum, Wolf and Lloyd.
The agreement was to run until Dec. 31, 2007, at which time Wolf and Lloyd were to buy out Rosenblum for $1,000, but that never occurred.
In July 2005, Wolf went to WolfBlock in Roseland, N.J. Lloyd made his own exit in October 2006, and is now with Nowell Amoroso Klein Bierman in Hackensack, N.J.
Wolf took the Sands case with him and continued to work on it until it settled in February 2007, yielding $2.6 million in legal fees, of which he paid Rosenblum $1.3 million. He claims he had doubts about the enforceability of the 2002 agreement but paid Rosenblum half because of "intimidation tactics."
On July 9, 2007, Wolf filed a declaratory judgment action challenging the validity of the agreement.
He alleged that Rosenblum withdrew from the firm as of Dec. 31, 2000, and that sharing fees with him for services after that date would violate Rule of Professional Conduct 1.5(e), which generally bars splitting fees with lawyers who are not "in the same firm."
Wolf later shifted position, claiming the cutoff date for sharing fees was June 15, 2004, based on discovery showing work done by Rosenblum after 2000.
Rosenblum contended he never withdrew from the firm and still owns 85 percent because he never sold his interest.
After 2000, he continued to use firm letterhead, personally guaranteed the firm's $300,000 line of credit, negotiated leases, filed tax returns and maintained malpractice insurance, said Doyne.
He also worked on several cases, including the Sands appeal, reviewing transcripts, filing briefs and discussing settlement.
Wolf admitted discussing the Sands case with Rosenblum after 2000 but claimed Rosenblum called him to keep tabs on it because of his financial interest and did not provide legal services, except for one conversation billed by Wolf as a conference on trial strategy.
In granting Rosenblum's motion for summary judgment, Doyne found he remained a member of the firm through 2006 and thus RPC 1.5(e) did not apply.
He rejected Wolf's argument that Rosenblum lacked sufficient contact to be considered "in the same firm" as Wolf after June 2004, stating RPC 1.5(e) does not require that lawyers perform continuing and frequent service after they sign a fee-splitting agreement.
New Jersey case law encourages contracts spelling out the rights of departing lawyers to avoid litigation over fees, said Doyne.
Wolf also argued that the Sands matter, a series of tax appeals filed each year from 1996 to 2007, was not a single ongoing case but 11 separate cases. New Jersey law requires a new appeal for each disputed tax year. Under that argument, Rosenblum would have no interest in cases filed after he withdrew from the firm.
Doyne said he did not have to decide whether it was a single, consolidated case because Rosenblum never left the firm.
In deciding the sanctions motion, Doyne noted Wolf admitted that he gave his lawyer, Richard Plotkin, erroneous information about Rosenblum's post-2000 activity and that Rosenblum's proofs "are so overwhelming and irrefutable that no one would have the audacity to have made the allegations I made but for the circumstance of mistake or failure to recollect."
Doyne said he could not accept the "perverse contention" that Wolf's claim so obviously lacked a factual basis that he must have been mistaken rather than lying because it would preclude sanctions in the most egregious situations.
But he denied sanctions based on mitigating factors, including the reference to withdrawal in the 2001 agreement and the undecided issue of whether there were 11 tax appeals or one. He even faulted Rosenblum's counsel for not specifying Rosenblum's post-2000 legal services in the sanctions notice he sent to Wolf.
Wolf and Plotkin did not return a call for comment. Neither did Rosenblum's lawyer, Robert Novack of Edwards Angell Palmer & Dodge in Madison, N.J.
Herbert Klein, the lawyer for Lloyd, who was also a defendant, says the ruling will be of "great benefit to the bench and the bar because it clarified an important issue regarding the sharing of fees for partners who are retiring or contemplating retirement." Klein is with Nowell Amoroso Klein Bierman in Hackensack, N.J.
Wolf terminated Day Pitney's representation on July 21, 2008, and argued the summary judgment and sanctions motions pro se. Day Pitney's Robert Hollingshead argued on its behalf against the imposition of sanctions.
