ALBANY – An attorney fee dispute that is making an encore appearance before the Court of Appeals this month could have a wide-ranging effect on the state’s contingency fee system, according to lawyers supporting a firm’s fee arrangement.
At the heart of the dispute is a contingency fee arrangement between the late Alice Lawrence and Graubard Miller for work the firm did in 2004 and 2005 on the lucrative real estate holdings left by Lawrence’s late husband, Sylvan.
The high court, on Tuesday, will hear the appeal of an Appellate Division, First Department, ruling that imposed an hourly fee approach to Graubard Miller’s payments.
In an amicus brief to the Court of Appeals, The New York State Trial Lawyers Association has urged the court to reinstate the contingency fee and argued that beyond the significant difference in the two calculations—about $3 million in hourly payments for Graubard Miller versus $16 million in contingency fees—the case presents an opportunity for the court to acknowledge that contingency fee agreements must be enforced appropriately.
“The contingency fee method of attorney compensation, we submit, eliminates the problem of evaluating the value of the services rendered by the attorney on a time basis,” the trial lawyers’ group said as amicus in Matter of Lawrence, Deceased, 149. “[The First Department's] decision upholding substantive and procedural unconscionability threatens the basis of the contingency fee system, which is designed to avoid that very problem.”
The trial lawyers’ brief was written by Brian Isaac, a partner with Pollack Pollack Isaac & DeCicco.
The association said Alice Lawrence was a sophisticated client who sought the fee arrangement which turned out to benefit Graubard Miller more than she or even the firm anticipated.
The arrangement, which came after Lawrence had paid Graubard Miller about $22 million through 20 years’ worth of hourly billings, called for the firm to get a 40 percent contingency of recovered funds.
The trial lawyers’ group argued that the firm should not be a victim of its own success, namely that it then secured an unanticipated settlement of $111 million over Sylvan Lawrence’s disputed holdings with his brother, Seymour Cohn, within about five months of reaching the contingency fee arrangement.
But the group also asked the court to view the case in a broader context, such as how contingency fee arrangements provide clients without Alice Lawrence’s financial means to secure expert legal help, especially in medical malpractice and other cases involving injured litigants.
“Apart from enabling clients who are not independently wealthy to hire the very best attorneys in the applicable field of law, the contingent fee retainer provides an attorney with an extra incentive to go the extra mile to maximize the recovery, for it is that recovery that will dictate the amount of their fee,” the group said.
It added, however, that the “desirability of the contingency fee from the attorney’s perspective is greatly lessened if the entire nature of the contract is retrospectively changed—from recovery-based to hourly-based—in those circumstances in which the attorney’s very success makes the first measure much larger than the second.”
The contingency fee has been in dispute since Alice Lawrence balked in 2005 at paying $44 million on the $111 million secured on her behalf. She said the fee was unconscionable.
In the same suit in Surrogate’s Court seeking rescission of the fee agreement, Lawrence also sought return of $5 million she paid to Graubard Miller partners Daniel Chill, Elaine Reich and Steven Mallis in bonuses or gifts.
The case reached the Court of Appeals in 2008, when it ruled in Lawrence v. Graubard Miller, 11 NY3d 588, that it did not have enough information to decide whether the contingency fee was unconscionable.
At a subsequent trial, former Court of Appeals Judge Howard Levine held that he could not justify the “astounding” $44 million fee for Graubard Miller’s work. He devised a new formula that set compensation at about $16 million. Levine also held that Chill, Reich and Mallis could keep their gifts.
The $16 million figure is now the amount at issue in the litigation.
In 2011, Manhattan Surrogate Nora Anderson largely adopted Levine’s determination, but said the three partners must return their bonuses (NYLJ, Sept. 13, 2011).
A unanimous First Department panel found the $16 million contingency fee “unconscionable” and set Graubard Miller’s fee based on the hourly work it did in the case at about $1.7 million, or a total of about $3 million with interest (NYLJ, May 28, 2013). The panel also said Chill, Reich and Mallis were not entitled to the bonuses.
Brian Shoot of Sullivan Papain Block McGrath & Cannavo and Mark Zauderer of Flemming Zulack Williamson Zauderer will argue for Graubard Miller.
In their brief, the two contended that the enforceability of contingency fee agreements could be in doubt if the Court of Appeals does not back Graubard Miller. “If a client can overturn a contingent fee agreement as procedurally unconscionable even in these circumstances simply by afterwards claiming that she did not fully understand the retainer agreement, if that can work even when there was a written agreement that was not claimed to be ambiguous … how would any attorney ever be protected from the knavery of a client?” the firm’s brief said (See also the firm’s reply brief).
Answering its own question, the brief continued, “The answer is that no attorney would ever be safe from an unscrupulous client who did very well in the lawsuit but could do still better by pocketing the attorney’s fees as well.”
Alice Lawrence died in 2008. Attorney Daniel Kornstein of Kornstein Veisz Wexler & Pollard will argue on her estate’s behalf.
In his brief, Kornstein referred to the long-standing relationship between Lawrence and Graubard Miller—the firm began working for her when it was known as Graubard Moskovitz McGoldrick Dannett & Horowitz—as having “soured in the brine of lawyer overreaching and deception.”
Kornstein said Lawrence was an “elderly woman” who was not as sophisticated as Graubard Miller has contended. At any rate, he argued, the firm did not meet its ethical obligation to appraise her of the disadvantages of shifting to a contingency fee payment.
“Whether or not Alice was as savvy and independent as Graubard claims has no bearing on any disclosure obligations to Alice under [ethical canon] DR 5-104(A), and their obligation to have fully informed Alice of the implications and consequences of the revised retainer was unconditional,” the Lawrence brief said.
Kornstein argued that the trial lawyers’ support of the $16 million contingency fee is undermined by what he contends was Graubard Miller’s failure to act in good faith.
“The [trial lawyers association] states that its position would be different if the law firm had engaged in ‘misconduct’ or ‘overreaching,’ but that is exactly what happened here,” Kornstein said.
The arguments are scheduled to begin at 3:15 p.m on Sept. 9. The court simulcasts oral arguments at https://www.nycourts.gov/ctapps/.