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A Manhattan judge has applied a longstanding rule on when an attorney-client relationship begins to a requirement that fee disputes go to arbitration. The rule says the relationship begins with the contract between attorney and client, not with the payment of a retainer. Civil Court Judge Arthur F. Engoron applied it to decide whether a relationship started before or after Jan. 1, 2002, when the mandatory-arbitration rule went into effect. The case is Gottlieb, Rackman & Reisman v. Marusya, 59559 CVN 2003. In Gottlieb, the Manhattan intellectual property firm Gottlieb, Rackman & Reisman sued its clients Marusya, Inc., a tableware designer, and its founder, Mary Bulger, for unpaid fees. The law firm sought about $16,000, according to the defendants’ attorney, Eric Vaughn-Flam of Rubin, Bailin, Ortoli, Mayer & Baker. Bulger claimed that the firm failed to provide the legal services or provided them incorrectly, according to Vaughn-Flam. Under Part 137 of the Rules of the Chief Administrator, all fee disputes for actions in which the representation began on or after Jan. 1, 2002, require arbitration. Failure to comply with the provision bars plaintiffs from seeking damages at trial. Bulger contended that her relationship with Gottlieb Rackman began on Jan. 8, 2002, one week after the commencement of the arbitration provision, when she delivered the retainer check and a signed retainer agreement to the firm. Gottlieb Rackman argued that the relationship started in the previous month, just before the start date, when the parties met face to face and the firm sent out its retainer agreement. The court found that no “hard and fast rule” sets out the start date of legal representation. Rather, the relationship begins when a contract is formed and, since “formality is not essential to the formation of the contract, it is necessary to look to the words and actions of the parties to ascertain if an attorney-client relationship was formed.” Here, the court deemed the New York Codes, Rules and Regulation controlling. Under the NYCRR, the exchange of a written agreement may occur at a reasonable time after the commencement of representation, Engoron wrote. Though he does not tag the official commencement to a specific date or meeting, the relationship must therefore have begun before the exchange on Dec. 12, 2001. So it must have started before Jan. 1, 2002, Engoron held. Part 137, therefore, did not preclude Gottlieb Rackman from pursuing its claim in court, the judge ruled. Because the disputed debt totalled only $16,000, the defense did not appeal, according to Vaughn-Flam. Since the November ruling, the parties have settled for an undisclosed amount. Vaughn-Flam said he disagreed with the theory underlying the decision. “There should be different standards of when the attorney-client relationship exists, whether it’s for attorney-client privilege or something else,” he said. The definition in Gottlieb prevents clients from using the arbitration statute, he said. “It should be viewed in the client’s favor,” he said. The attorney for Gottlieb Rackman, Steven Stern, did not return a call for comment.

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