Thursday, February 9, 2017
The New York Court of Appeals resolved a dispute among attorneys over fees in a case involving an $8 million settlement
In February 2009, Menkes engaged Manheimer to act as co-counsel and provide advice in the action. Their written agreement provided that Manheimer would receive 20% of net attorneys' fees if the case settled before trial and 25% once jury selection commenced. Neither attorney informed the clients of Manheimer's involvement, although Manheimer believed Menkes had done so.
The co-counsel relationship fell apart
In August 2009, Menkes wrote to Manheimer unilaterally discharging him and advising him that his portion of the fees would be determined on a quantum meruit basis. Manheimer did not respond to Menkes; he did no further work on the case.
The court here affirmed the Appellate Division for the First Department.
We conclude that Menkes's agreements with Manheimer are enforceable and entitle Manheimer to 20% of net attorneys' fees. Menkes's attempt to use the ethical rules as a sword to render unenforceable, as between the two attorneys, the agreements with Manheimer that she herself drafted is unavailing. Her failure to inform her clients of Manheimer's retention, while a serious ethical violation, does not allow her to avoid otherwise enforceable contracts under the circumstances of this case (see Samuel v Druckman & Sinel, LLP, 12 NY3d 205, 210 ). As we have previously stated, "it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on 'ethical' grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits" (Benjamin v Koeppel, 85 NY2d549, 556  [citation omitted]). This is particularly true here, where Menkes and Manheimer both failed to inform the clients about Manheimer's retention, Menkes led Manheimer to believe that the clients were so informed, and the clients themselves were not adversely affected by the ethical breach.
The court applied general contract principles in allocation of fees. (Mike Frisch)