Saturday, October 24, 2015
An opinion authored by Judge Janice Rogers Brown of the United States Court of Appeals for the District of Columbia Circuit
“Hell hath no fury like a lawyer scorned.” Tom Gordon, Hell Hath No Fury Like a Lawyer Scorned, WALL ST. J., (Jan. 28, 2015), http://www.wsj.com/articles/tom-gordon-hell-hath-no-furylike-a-lawyer-scorned-1422489433. The problem with scorning a lawyer is that lawyers tend to sue. So it is here. A law firm based in the District of Columbia, Bode & Grenier, LLP, provided legal services to three Michigan-based companies owned and managed by Carroll Knight (“appellants”). More than ten years into the relationship, appellants stopped paying the bill. The predictable result? Litigation. The law firm prevailed in the district court, winning a judgment for $70,000 in overdue legal fees—plus $269,585.19 in legal fees for having to litigate over $70,000 in legal fees. We affirm the district court.
The law firm represented the client from 1994 to 2008
advising on taxation, gasoline contracts, petroleum futures and various regulatory enforcement and litigation matters. Throughout most of the relationship, no written agreement governed the terms of legal representation or manner of payment. Appellants paid the law firm monthly based on oral agreements...
On November 25, 2005, catastrophe struck. Approximately 100,000 gallons of petroleum spilled out of holding tanks owned by appellants in Toledo, Ohio. Appellants stopped the leak, but were powerless to stop the flood of regulatory actions that followed in its wake. A month after the spill, Knight called Bode & Grenier’s managing partner, William Bode, to request the firm’s services. The firm soon tackled regulatory enforcement proceedings in Ohio, a lawsuit in federal court in Ohio, and counseled the company on other regulatory issues. As before, the firm billed appellants monthly.
The suit came when the fees went unpaid.
The court applied D.C. law
Here, the factors weigh in favor of applying D.C. law, not Michigan law. The first two factors—the place of contracting and place of negotiation—are inconclusive. Mr. Knight negotiated from Michigan, and Bode & Grenier from D.C. Likewise, the fifth factor—domicil—weighs evenly on both ends. In a dispute over a service contract, no factor matters more than the place of performance.
Nearly all of the legal services at issue were performed in D.C. by attorneys licensed to practice in D.C. See Appellee Br. 28–30. While the representation required occasional travel outside D.C. (mainly to Ohio), we find no evidence suggesting the firm’s attorneys routinely practiced in Michigan. The firm managed the representation from its sole office, located in D.C. The fourth factor—the location of the subject matter of the contract— supports applying D.C. law for the same reasons. This contract called for legal services managed and performed in D.C.
As a result, the law firm was able to recover fees for representing itself in this litigation. (Mike Frisch)
Wednesday, October 14, 2015
An attorney must return $95,000 in fees paid by an estate, according to a recent decision of the North Dakota Supreme Court.
In August 2013, the beneficiaries of the Estate petitioned for court determination of reasonableness of fees and for settlement and distribution of estate. The petition objected to the fees charged by Magers and [attorney] Widdel for their services to the Estate and Trust. In September 2014, the district court found Magers had breached her fiduciary duty in several ways, which included paying Widdel large fees without question. The court also found administration of the Estate and Trust was not complicated and Widdel's fees were unreasonable in light of the nature of the work performed. The court ordered Widdel to return attorney's fees in the amount of $95,000.
The district court found that the estate was not complicated and that Widdel did not handle the litigation.
The attorney's "corporate veil" had been properly pierced
When a client engages the services of a lawyer, whether that lawyer is acting through the form of a professional organization or otherwise, the client has the right to expect preservation of a highly confidential relationship rooted in confidence, integrity, and professionalism. Such are the requirements expected of an officer of the court. Under the circumstances of this case, it would be inappropriate for Widdel to be allowed to hide behind the corporate veil and thus escape the professional and ethical requirements demanded by his profession.
And the district court properly found the fees unreasonable
In this case the district court considered the evidence and testimony before it and determined the fees collected by Widdel in his service to the Estate, as an attorney, were unreasonable. The district court did not abuse its discretion in determining the fees were unreasonable. The district court did not misinterpret or misapply the law in holding Widdel personally responsible for the unreasonable fees he charged.
Friday, August 21, 2015
An attorney prevailed in both a suit for legal fees and in dismissal of counterclaims of the former client in an opinion of the New York Appellate Division for the Second Judicial Department.
Here, the plaintiffs established, prima facie, their entitlement to judgment as a matter of law on the cause of action alleging breach of contract by submitting certain email exchanges between the parties, which demonstrated, "[b]y the plain language employed," that the plaintiffs made an offer to represent Landmark in each matter for a certain fee, and that Landmark accepted that offer (Kasowitz, Benson, Torres & Friedman, LLP v Duane Reade, 98 AD3d at 405). In one matter, the parties agreed that the plaintiffs would represent Landmark at a rate of $350 per hour. The invoices documenting the number of hours worked and the amount of disbursements paid out demonstrated, prima facie, the plaintiffs' entitlement to legal fees in the sum of $4,760 in connection with the services rendered for that matter. In the second matter, the agreement was for an initial retainer fee of $5,000, plus a 25% contingency fee with respect to any sums that Landmark ultimately recovered in that matter. Since it is undisputed that, shortly after the commencement of an action in connection with the second matter, Landmark entered into a stipulation of settlement whereby Landmark recovered $40,000, the plaintiffs established, prima facie, entitlement to their full fee of $5,000 plus a contingency fee of 25% of $40,000.
In opposition, Landmark failed to raise a triable issue of fact.
Landmark's counterclaim, which alleged tortious interference with contract and tortious interference with prospective business relations, was premised upon the plaintiffs' alleged contact with the third party with whom Landmark had entered into the stipulation of settlement in connection with the second matter. Specifically, Landmark alleged that, contrary to the terms of the stipulation, the plaintiffs requested that certain of the agreed-upon payments be made directly to them as Landmark's counsel, rather than to Landmark. The ostensible purpose of this communication was to ensure that the plaintiffs would be able to deduct their legal fees from the settlement funds.
The Supreme Court properly granted that branch of the plaintiffs' motion which was pursuant to CPLR 3211(a)(7) to dismiss so much of the counterclaim as alleged tortious interference with contract. A necessary element of such cause of action is the intentional and improper procurement of a breach and damages (see White Plains Coat & Apron Co., Inc. v Cintas Corp., 8 NY3d 422, 426). Here, Landmark failed to adequately plead facts that would establish that the plaintiffs, in communicating with the third party to secure their attorney's fees, intentionally procured that party's breach of the stipulation of settlement (see Dune Deck Owners Corp. v Liggett, 85 AD3d 1093, 1095).
To the extent that the counterclaim sought recovery based on a theory of tortious interference with prospective business relations, the Supreme Court properly granted that branch of the plaintiffs' motion which was pursuant to CPLR 3211(a)(7) to dismiss that portion of the counterclaim. A claim for tortious interference with prospective business relations does not require a breach of an existing contract, but the party asserting the claim must meet a "more culpable conduct" standard (NBT Bancorp. v Fleet/Norstar Fin. Group, 87 NY2d 614, 621). This standard is met where the interference with prospective business relations was accomplished by wrongful means or where the offending party acted for the sole purpose of harming the other party (see Carvel Corp. v Noonan, 3 NY3d 182, 190; Caprer v Nussbaum, 36 AD3d 176, 204). " Wrongful means' include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure" (Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183, 191, quoting Restatement [Second] of Torts §§ 768, Comment e and 767, Comment c). As a general rule, the offending party's conduct must amount to a crime or an independent tort, as conduct that is neither criminal nor tortious will generally be "lawful" and thus insufficiently "culpable" to create liability for interference with prospective business relations (Carvel Corp. v Noonan, 3 NY3d at 190 [internal quotation marks omitted]). The mere violation of an attorney disciplinary rule will only create liability if actual damages are incurred as a result of the violating conduct (see Tabner v Drake, 9 AD3d 606, 610). In addition, where the offending party's actions are motivated by economic self-interest, they cannot be characterized as solely malicious (see Out of Box Promotions, LLC v Koschitzki, 55 AD3d 575, 577). Here, contrary to the conclusion of our dissenting colleague, the allegations in the counterclaim do not establish the elements of tortious interference with prospective business relations. The allegations that the plaintiffs contacted a settling party to protect [*2]their attorney's fees after having been discharged as Landmark's counsel, while arguably alleging a violation of a disciplinary rule, do not, without more, allege that the plaintiffs' acts constituted a crime, or an independent tort, or that the plaintiffs acted solely for the purpose of harming Landmark (see Worldcare Intl., Inc. v Kay, 119 AD3d 554, 556-557; Adler v 20/20 Cos., 82 AD3d 915, 918).
A dissent by Justice Duffy on the tortious interference with business relations count
Although I agree with the majority's position that the plaintiff attorney was motivated by his desire to ensure that he received the fees he contended that Landmark owed him and that, with such motives, the plaintiff attorney's actions cannot be considered "solely malicious," the majority appears to require that, absent facts alleging that the plaintiffs engaged in conduct with the sole purpose of harming Landmark, Landmark failed to state a cause of action for tortious interference with prospective business relations. To the extent that the majority requires that, in order to avoid dismissal of this claim, Landmark had to set forth facts alleging that the plaintiffs engaged in conduct with the sole purpose of harming Landmark and that they did so by means that were unlawful or improper, I disagree. Such an analysis is more rigorous than that applied by the Court of Appeals (citations omitted) in evaluating the sufficiency of a cause of action alleging tortious interference with prospective business relations. To make out a claim for tortious interference with business relations where, as here, the alleged interference was with prospective contractual relationships, rather than existing contracts, the proponent must show that the other party interfered with the proponent's business relationships either with the sole purpose of harming the movant or by means that were unlawful or improper...I submit that Landmark's allegation that the plaintiff attorney interfered with Landmark's business relationships by means that were unlawful or improper—to wit, that he held himself out as counsel for Landmark when he no longer represented it—was sufficient to withstand that branch of the motion which was to dismiss the counterclaim...
The Court of Appeals has enunciated a general rule that, to be sufficiently "culpable" to create liability for tortious interference with prospective business relations, the alleged conduct must amount to a crime or an independent tort (Carvel Corp. v Noonan, 3 NY3d at 190). However, the Court of Appeals did not preclude "other instances of conduct which, though not a crime or tort in itself," are so culpable that they could be the basis of such a claim (id.). Here, the facts alleged by Landmark, that the plaintiff attorney held himself out to be Landmark's counsel when he no longer represented Landmark, in order to obtain money the plaintiffs contend was owed to him by Landmark, if true, would constitute a breach of fiduciary duty as well as a violation of the ethical rules that govern the conduct of attorneys (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.8[f] ["A lawyer shall not accept compensation for representing a client, or anything of value related to the lawyer's representation of the client, from one other than the client unless: (1) the client gives informed consent"]; see generally Matter of Cooperman, 83 NY2d 465, 472).
I also disagree with the majority's assertion that, without a concomitant allegation of actual damages, an allegation that, if true, may constitute a violation of an attorney disciplinary rule cannot meet the culpable conduct element required to plead tortious interference with prospective business relations sufficient to defeat the motion to dismiss in this matter. The analysis adopted by the majority is one applied in the context of determining whether a cause of action for legal malpractice has been established (see Tabner v Drake, 9 AD3d at 610), but is not the analysis this Court already has applied in determining the culpable conduct necessary to establish a claim of tortious interference with prospective business relations. In Lyons v Menoudakos & Menoudakos, P.C. (63 AD3d at 802), this Court held that an attorney's violation of a disciplinary rule and his professional obligations was sufficient to demonstrate the culpable conduct required for a claim of tortious interference with prospective business relations so as to withstand a motion for summary judgment. In that case, this Court noted that, to constitute "culpable conduct," the conduct must amount to a crime or an independent tort, and may include " [w]rongful means'" defined as " physical violence, fraud or misrepresentations, civil suits and criminal prosecutions, and some degrees of economic pressure'" (id. at 802, quoting Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d at 191, and citing Carvel Corp. v Noonan, 3 NY3d at 190-193, and Smith v Meridian Tech., Inc., 52 AD3d 685, 687). In Lyons, this Court took note of the various ethical obligations of the defendant in that matter, who had been the attorney for the seller in a real estate transaction and allegedly wished to purchase the property for himself (see Lyons v Menoudakos & Menoudakos, P.C., 63 AD3d at 802). This Court held that "[e]vidence of a violation of a [*4]disciplinary rule is relevant to the question of tort liability," and concluded that the defendant had failed to eliminate all triable issues of fact as to whether his judgment was affected by his personal interest in the transaction and whether he furthered that interest by making misrepresentations to the seller about the creditworthiness of the plaintiff, thereby wrongfully interfering with the prospective transaction (id.). Here, as in Lyons, the allegations of the plaintiff attorney's violations of his ethical obligations, if true, would meet the culpable conduct element necessary to state a cause of action for tortious interference with prospective business relations.
Friday, May 29, 2015
The Illinois Review Board has recommended a three-year suspension of an attorney who blogged about a probate court case
This case involves Respondent's statements on a blog impugning the integrity of certain judges, guardians ad litem ("GALs") and the lawyers involved in a case in the Probate Court of Cook County. The Hearing Board concluded that Respondent violated Rules 8.2(a) which provides that "a lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer or public legal officer"; 8.4(c) which prohibits lawyers from engaging in "conduct involving dishonesty, fraud, deceit or misrepresentation"; and 8.4(d) which prohibits "conduct that is prejudicial to the administration of justice."
The Administrator's Complaint alleged that Respondent made statements in violation of the above rules when she blogged about an adult guardianship of Mary G. Sykes ("Mary") pending in the Probate Division of the Circuit Court of Cook County ("the Sykes case"). In December 2009, the probate court had disqualified Respondent from representing Gloria Sykes ("Gloria"), one of Mary's daughters, in the case. Thereafter, Respondent published blogs related to the Sykes case. The Administrator's Complaint set forth ten excerpts taken from Respondent's blogs and alleged that the statements in the excerpts were made in violation of the Rules. The Hearing Board based its findings on these ten statements.
The board rejected the First Amendment defense
The First Amendment does not afford Respondent any protection. No ruling of the United States Supreme Court or any other court supports the conclusion that Rules 8.2(a) or 8.4(c) are unconstitutional, or that enforcing the rules in this case violates her First Amendment rights. The Respondent cites no case or authority that knowingly making false statements about a judge's integrity is protected under the First Amendment. Indeed, in a recent case cited by Respondent, Alvarez v. United States, 567 U.S. ___, 132 S.Ct. 2537 (2012), the Supreme Court pointed out that there are situations in which knowingly or recklessly made false statements are not protected under the First Amendment, citing Garrison v. Louisiana, 379 U.S. 64, 75 (1964) a case in which the district attorney was convicted of defamation for making disparaging statements about the judiciary (" the knowingly false statement and the false statement made with reckless disregard of the truth, do not enjoy constitutional protection.").
Similarly, the Illinois Supreme Court has routinely rejected attempts by respondents to argue that the First Amendment protects lawyers from making false accusations about judges and court proceedings that have no basis in fact and are false or made with reckless disregard to the truth.
The board further recommends that the attorney establish fitness for reinstatement.
At the risk of possible sanction, I blogged on the hearing committee report and opined
As a blogger who frequently finds it necessary to criticize disciplinary processes in D.C. and elsewhere, I confess that I find this proposed sanction excessive given the absence of prior discipline and the conceded sincerity of the attorney's beliefs, even if unfounded.
Corruption in our courts does exist and attorneys have an obligation to speak out when it occurs.
In my view, that conduct should be, if not encouraged, at least allowed.
Thursday, May 28, 2015
Incurred and future legal fees to defend criminal charges against former Massey Energy chief Don Blankenship must be paid by the company that acquired Massey, according to a Delaware Court of Chancery decision issued today.
This advancement action involves some unusual facts but an all too common scenario: the termination of mandatory advancement to a former director and officer when trial is approaching and it is needed most.
Plaintiff Donald L. Blankenship is the former Chief Executive Officer and Chairman of Massey Energy Company, which is now known as Alpha Appalachia Holdings, Inc. (“Massey”). Blankenship held those positions when there was a tragic explosion at a Massey subsidiary’s coal mine in West Virginia in April 2010, killing 29 miners. In June 2011, after Blankenship had retired from Massey, Alpha Natural Resources, Inc. (“Alpha”) acquired Massey. For several years after the explosion, Massey and Alpha (together, the “Defendants”) honored Blankenship’s rights to advancement and paid his legal expenses relating to various civil proceedings and a federal criminal investigation that had been launched as a result of the explosion.
Alpha paid his fees until he was indicted. The decision to stop paying counsel's bills came after Alpha had sought advice from Cleary Gottlieb
In the wake of the indictment, Alpha stopped paying Blankenship’s legal fees. Alpha management, with approval from Alpha’s board of directors, then initiated a process to review the company’s indemnification and advancement obligations to Blankenship. Alpha focused on an unusual undertaking Blankenship had signed in April 2011 (the “Undertaking”), which states, in relevant part, that Massey’s indemnification and advancement obligations to Blankenship are “contingent upon [certain] factual representations and undertakings,” including a representation that, in performing his duties as a director and officer of Massey, Blankenship “had no reasonable cause to believe that [his] conduct was ever unlawful.” In late January 2015, after a process described below, Philip Cavatoni, an Alpha officer and Massey director, determined that Blankenship had breached that representation (the “Determination”). Based on the Determination, Alpha asserts that Blankenship is no longer entitled to advancement of any of his legal expenses from Massey.
Alpha must pay
Defendants must (1) advance Blankenship’s unpaid legal expenses incurred in connection with the federal criminal investigation and the Criminal Proceeding and (2) pay his reasonable expenses of litigating this action. Counsel shall confer and submit an implementing order within five business days, providing for the foregoing payments to be made within ten business days of entry of judgment.
Defendants have not advanced any substantive argument that the aggregate fees that have not been paid (approximately $5.8 million as of April 1, 2015) are unreasonable. Nor have they identified, in my view, any “gross problem” or other legitimate reason that would warrant injecting a special master to “perform the task of playground monitor, refereeing needless and inefficient skirmishes in the sandbox.” Disputes over the reasonableness of Blankenship’s expenses in the Criminal Proceeding can ultimately be resolved when any determination on indemnification is made
Blankenship is represented by the Zuckerman Spaeder firm. (Mike Frisch)
Thursday, April 9, 2015
From the Indiana Supreme Court
The law firm Cohen & Malad, LLP ("C & M"), filed a quantum meruit claim for part of the contingent fees earned in cases that were handled first by C & M attorneys (including John P. Daly, Jr., when employed there as an associate) and later by Daly and his law firm after he left C & M. The trial court found that C & M attorneys – including Daly while employed there – worked a substantial number of hours on those cases and that most of those cases generated attorney fees. The court nevertheless denied C & M quantum meruit relief because it found Daly was not unjustly enriched where: (1) the client in each case at issue chose to continue with Daly when he left C & M, (2) C & M and Daly had no agreement about what would happen if they parted ways, (3) their employment agreement had no provision for file ownership and lacked a non-competition covenant, and (4) C & M made a "very shrewd deal" for Daly’s services when it employed him on a salary basis, and C & M was "very well compensated" for Daly’s time at C & M, as shown by the amount of fees Daly helped C & M generate on other cases while he worked there. (App. at 32-33.) C & M appealed. Citing the four enumerated findings above, the Court of Appeals affirmed, over Judge Crone’s dissent. Cohen & Malad, LLP v. Daly, 17 N.E.3d 940 (Ind. Ct. App. 2014). We grant transfer.
Absent agreement otherwise, "a lawyer retained under a contingent fee contract but discharged prior to the contingency is entitled to recover the value of services rendered if there is a subsequent settlement or award[,]" and in that case, "the fee is to be measured by the proportion of the total fee equal to the contribution of the discharged lawyer’s efforts to the ultimate result[.]" Galanis v. Lyons & Truitt, 715 N.E.2d 858, 860 (Ind. 1999). The trial court’s findings of fact and conclusions of law do not acknowledge Galanis or apply its standards. Accordingly, we reverse and remand with instructions to determine, in accordance with Galanis, what proportional contributions toward the results in the cases at issue were made by attorneys working for C & M, and to enter a corresponding judgment in C & M’s favor. We summarily affirm the part of the Court of Appeals opinion addressing whether C & M should have sued its former clients to recover attorney fees from them. see Ind. Appellate Rule 58(A)(2).
Opinion linked here. (Mike Frisch)
Tuesday, March 31, 2015
Herbert M. Kritzer (U. Minn., Law) has published a new volume Lawyers at Work, collecting and updating his 35 years of empirical and theoretical study of attorneys in action, including daily office work, use of expert witnesses, contingency fees, "professionalism," sanctions, and international comparisons. He's known as one of the most insightful and sustained researchers in law and political science on the legal occupation and professional literature. The book is published as part of my Quid Pro Books project and is found as such places as Amazon and Barnes & Noble, in print (hardcover and paperback) and ebooks. (Alan Childress)
Tuesday, February 24, 2015
A recent decision of the Connecticut Supreme Court deals with charging liens in domestic relations matters
The plaintiff, Ralph Olszewski, challenges the Appellate Court’s conclusion that equitable charging liens are permissible in marital dissolution actions in Connecticut. He claims that they are barred by the Rules of Professional Conduct, they are not supported by Connecticut precedent, and the public policy considerations that justify equitable charging liens in other contexts do not apply in marital dissolution actions. The defendants Carlo Forzani and Carlo Forzani, LLC. respond that equitable charging liens against marital assets are permissible in Connecticut because the Rules of Professional Conduct specifically provide for charging liens, the rules do not preclude the use of charging liens in marital dissolution actions, and public policy considerations support their use in domestic relations matters. We agree with the plaintiff and reverse the judgment of the Appellate Court.
in the eight jurisdictions in which the court explicitly held or determined that an attorney’s charging lien could be enforced against an award of alimony and/or child support, the courts in five jurisdictions based their holdings on statutory authority rather than the common law. Id., §§ 4a and 4b, pp. 613–17. We therefore conclude that attorneys are not entitled by operation of law to equitable charging liens on marital assets for fees and expenses incurred in obtaining judgments for their clients in marital dissolution proceedings in Connecticut.
Wednesday, February 11, 2015
Appeal Dismissed: Dissent Contends Dismissal Encourages Discovery Violations Against Law School Clinic Clients
The Ohio Supreme Court has dismissed an appeal and, according to a dissent, endorsed the proposition that fees for discovery violations cannot be awarded to law school clinics as such clinics charge no fees to their clients.
Justice Pfeifer's dissent
As can happen, something we said in one context, where it made sense, is being applied in another context, where it does not. In State ex rel. Citizens for Open, Responsive & Accountable Govt. v. Register, 116 Ohio St.3d 88, 2007-Ohio-5542, 876 N.E.2d 913, we stated that “an award of attorney fees as a sanction for a discovery violation must actually be incurred by the party seeking the award.” In that case, there was an ongoing dispute involving compensated attorneys, and an award of attorney fees made sense only if additional fees had actually been incurred. Nothing in that opinion suggests that we were deciding the issue with respect to every situation involving discovery sanctions that might possibly arise in Ohio.
Legal services can be rendered in Ohio by legal interns, including, as here, those working for a law-school clinic. Gov.Bar R. II. In that special context, legal fees are not allowed. Gov.Bar R. II(6) (“A legal intern shall not ask for or receive any compensation or remuneration of any kind from a financially needy client * * *.”)
The lower court’s opinion, as allowed to stand, holds that discovery sanctions can never be granted when the prevailing party is represented by a law-school clinic because attorney fees cannot be incurred by a clinic’s client. Such a conclusion reads too much into Register, an opinion that had nothing to do with law-school clinics and legal interns. Moreover, the holding allows parties to commit discovery violations with some level of impunity. It is also contrary to Gov.Bar R. II(6), which states that a law-school clinic “may be awarded attorney fees for services rendered by the legal intern consistent with the Ohio Rules of Professional Conduct and as provided by law.” Attorney fees as sanctions for discovery violations are attorney fees “provided by law.”
By dismissing the appeal as improvidently accepted, this court is implicitly endorsing a decision that allows attorneys opposing law-school clinics to commit discovery violations without fear of economic sanctions, subverting Gov.Bar R. II(6), and devaluing the efforts of hundreds of legal interns and licensed attorneys who provide pro bono legal services throughout this state.
I would reach the merits of the case before us and reverse the judgment of the court of appeals. I dissent.
Justices French and O'Neill joined the dissent. (Mike Frisch)
Tuesday, February 3, 2015
The New York Appellate Division for the First Judicial Department affirmed dismissal of a claim brought against O'Melveny & Myers
Plaintiffs alleged that defendant attorneys (OM & M), who represented their preparatory school in an earlier federal action alleging the school's negligent supervision and retention of a football coach, made intentional misrepresentations in the federal action that proximately caused plaintiffs' attorneys to spend unnecessary attorney hours to establish an equitable estoppel argument opposing the school's motion to dismiss on statute of limitations grounds. The parties to the federal action ultimately entered into a confidential settlement, and plaintiffs voluntarily discontinued their claims, with prejudice, as against all the named defendants therein. Plaintiffs' counsel in the federal action had a contingency fee arrangement with the plaintiffs, and was evidently compensated accordingly.
Even assuming any unwarranted attorney hours were, in fact, expended by plaintiffs' counsel on account of OM & M's challenged representations made to the court, any burden in rendering such additional attorney hours, and corresponding injury, was shouldered by plaintiffs' counsel, who worked pursuant to a contingency fee. Plaintiffs, upon settlement of their federal action, paid the same attorney fees to their counsel regardless of the hours their counsel had expended on the matter. Thus, plaintiffs have not alleged facts as would show OM & M's alleged misrepresentations proximately caused them any injury (see Strumwasser v Zeiderman, 102 AD3d 630 [1st Dept 2013]). Indeed, regardless of the alleged deceit by OM & M in federal court, the burden always remained with plaintiffs in such court to establish, in the first instance, a basis for their equitable estoppel argument, which warranted the pre-dismissal motion early discovery they conducted. To the extent plaintiffs' discovery was inhibited at all due to alleged lost notes prepared by one of the school's initial investigators, the attorney hours expended on such issue were not attributable to the alleged OM & M misrepresentations. Moreover, plaintiffs' spoliation motion was pending in the federal court, and a final determination of such motion was interrupted by plaintiffs' settlement of the action.
Plaintiffs' second cause of action, alleging OM & M was unjustly enriched by its receipt of attorney fees from its client, and that such fees should be disgorged in light of the alleged unwarranted attorney hours OM & M caused plaintiffs' counsel to expend in the federal action, fails to state a claim, as plaintiffs have not shown how OM & M's alleged fraud enriched OM & M at plaintiffs' expense (see Edelman v Starwood Capital Group, LLC, 70 AD3d 246, 250-251 [1st Dept 2009], lv denied 14 NY3d 706 ).
Law360 reported on the trial court disposition. (Mike Frisch)
Saturday, January 31, 2015
The United States Court of Appeals for the District of Columbia Circuit affirmed the dismissal of a law firm's suit for fees.
In August 2010, Stephen R. Berry of Berry Law advised Kraft that it might have an antitrust claim worth tens of millions of dollars against News Corporation, News America Marketing FSI LLC, and News America Marketing In-Store LLC (collectively “News Corp.” or “News”). (All referenced facts come from the complaint.) The claim related to possible monopolization and tying in the “sale of in-store promotion services and free-standing-insert coupons placed in newspapers.” Kraft’s chief litigation counsel, Douglas Cherry, asked Berry for further legal analysis of the possible claim.
Berry Law then prepared a 42-page evaluation memorandum for Kraft’s top management analyzing liability and damages issues. Berry alleges that he completed that memo by November 10, 2010. At about the same time, Cherry noted that the matter was “moving pretty fast” and that he wished to brief Kraft’s general counsel about the matter. The complaint says that “upon information and belief, [the evaluation memorandum] was forwarded at the very least to Kraft’s General Counsel in early 2011.” It was presumably Cherry who did the forwarding.
In response to an email from the law firm seeking a fee agreement, Kraft's counsel stated in part
we have never paid for that work as far as I know for any outside counsel.
The firm later claimed fees due in an amount over $191,000 on a theory of implied-in-fact contract,
To state a claim for breach of an implied-in-fact contract, Berry Law must plausibly allege that it rendered Kraft valuable services; that Kraft accepted, used, and enjoyed those services; and that the circumstances “reasonably notified” Kraft that Berry “expected to be paid” by Kraft...
Kraft told Berry that it would not compensate him for work completed prior to management approval. No compensation is due where the “plaintiff did not contemplate a personal fee, or the defendant could not reasonably have supposed that he did.” Bloomgarden, 479 F.2d at 212. Rather, in view of Kraft’s unequivocally expressed position on preliminary work, Berry cannot reasonably have contemplated a fee for work completed before Kraft moved forward, nor could Kraft reasonably have known Berry contemplated any such payment. Instead, Berry completed the memorandum and other legal work in the hope that Kraft would retain him as counsel in the event that Kraft “moved forward.” Because Berry Law’s “services were rendered simply in order to gain a business advantage,” its quasicontract claim fails. Id. at 211.
Thursday, November 20, 2014
An attorney was properly paid a fee of over half a million dollars for his work in a contested probate matter, according to a decision of the New York Appellate Division for the Second Judicial Department
Karen Cullin retained James Spiess to represent her in a contested probate proceeding. The parties entered into a contingent fee agreement, pursuant to which Spiess agreed to represent Cullin for an initial retainer of $5,000 plus 33 % of any proceeds he would recover on her behalf, by settlement or trial, up to a maximum fee of $600,000. Just before Cullin was to be examined by potential objectants pursuant to SCPA 1404, Cullin directed Spiess to settle the probate proceeding as expeditiously as possible. Spiess negotiated a settlement providing, inter alia, for the propounded instrument, which primarily benefitted Cullin, to be admitted to probate in exchange for a minimal payment to the objectants. Speiss thereafter was paid, from estate funds, fees in the amount of $585,000.
The court here relied upon a recent (and, in my view, shamefully pro-lawyer) decision of the Court of Appeals in affirming the reasonableness of the fee
Here, the evidence supports the Surrogate's conclusion that the fee paid to Spiess was reasonable in light of the difficulty of the issues involved, the favorable terms of the settlement to which Spiess's efforts and expertise contributed, and the significant risk that Spiess took that probate of the propounded instrument would be denied and that he would not earn any fees other than the initial retainer of $5,000 (see generally Matter of Lawrence, ______ NY3d ______, 2014 NY Slip Op 07291, 9-10 ). Under the circumstances, we perceive no basis upon which to disturb the Surrogate's determination with respect to Spiess's attorney's fee.
Tuesday, October 28, 2014
The long running and hotly-contested dispute between the heirs of real estate magnate Sylvan Lawrence and the Graubard Miller law firm has been resolved in favor of the law firm by the New York Court of Appeals.
The court enforced a revised contingent fee retainer agreement found "unconscionable" by the lower court that results in a fee of $44 million for five months work on top of $18 million paid in hourly fees.
The court noted that the underlying estate litigation unexpectedly settled when the firm uncovered "smoking gun" evidence shortly after entering into the revised agreement.
Beginning in 1983, defendant law firm Graubard Miller (Graubard or the law firm) represented Alice Lawrence (Lawrence) and her three children in litigation arising from the death of her husband and their father, Sylvan Lawrence (decedent), a real estate developer. At the time of decedent's death in 1981, his company owned commercial real estate in New York City valued at an estimated $1 billion. Decedent's brother and lifelong equal business partner, Seymour Cohn (Cohn), was executor of the estate. Cohn resisted selling decedent's properties and distributing the proceeds to Lawrence and the children, which caused Lawrence to bring suit in 1983. For over two decades, she and Cohn (and after he died in November 2003, his estate) battled in court (hereafter, the estate litigation)...
The estate litigation came to an abrupt and unexpected end on May 18, 2005, when the Cohn estate agreed to settle for over $100 million, a sum about twice what Graubard assessed the remaining claims to be worth. There quickly followed, though, this dispute between Lawrence and Graubard with respect to the law firm's fee, and the validity of certain gifts made by Lawrence to three Graubard partners in 1998. For the reasons that follow, we hold that the parties' revised retainer agreement was neither procedurally nor substantively unconscionable and is therefore enforceable; and that the Lawrence estate's claim for return of the gifts is time-barred.
The court found that a revised retainer that ended up substantially benefiting the firm was not unconscionable.
Further, the client was "no naif."
We agree with Graubard that a hindsight analysis of contingent fee agreements not unconscionable when made is a dangerous business, especially when a determination of unconscionability is made solely on the basis that the size of the fee seems too high to be fair...
It is in the nature of a contingency fee that a lawyer, through skill or luck (or some combination thereof), may achieve a very favorable result in short order; conversely, the lawyer may put in many years of work for no or a modest reward.
Notably absent from the court's opinion is any discussion of the ethics rules governing fees and gifts.
A concurring and dissenting opinion would find that the return of gift claim is not time-barred.
The court here reviewed the decision of the Appellate Division for the First Judicial Department remanding the matter to the Surrogate for further findings.
The Appellate Division described the situation
In 1983, Mrs. Lawrence retained the Graubard firm to represent her in connection with her deceased husband's estate on an hourly fee basis, which retention was confirmed by letter dated August 4, 1983. Thereafter, the Graubard firm billed Mrs. Lawrence over $18 million in legal fees incurred in litigation instituted against the executor of the estate concerning his administration of the estate, as well as other matters. During that period more than $350 million in distributions were made to the beneficiaries of the estate. In addition, in December 1998, Mrs. Lawrence paid three of the firm's partners bonuses or gifts totalling over $5 million, plus approximately $2.7 million in gift taxes on such payments.
In November 2004, according to Mrs. Lawrence, she noticed that her legal bills were increasing to almost $1 million per quarter and asked about the possibility of entering into a new fee arrangement. As a result, in January 2005, a modified retainer agreement was entered into which provided, in pertinent part, that, commencing January 1, 2005, the firm would continue to bill Mrs. Lawrence on an hourly basis for services rendered with an annual cap of $1.2 million, exclusive of disbursements. In the event any additional monies were distributed to the beneficiaries of the estate, or Mrs. Lawrence settled the litigation with the executor's estate, the Graubard firm was to be paid from Mrs. Lawrence's share of such monies 40% of the total distributed to the beneficiaries, minus the total amount previously paid by her pursuant to the one-year, $1.2 million retainer. Prior to the revised retainer agreement, Mrs. Lawrence had personally negotiated with her nephew, the late executor's son, and received a $60 million offer from the executor's estate, but such offer did not result in a settlement.
On May 18, 2005, about four and a half months after the modified retainer agreement was entered into, the Graubard firm reached a settlement in the litigation against the former executor's estate in which it agreed to pay the Lawrence estate approximately $104.8 million. Shortly thereafter, Mrs. Lawrence retained new counsel and refused to pay the Graubard firm's fee.
On August 5, 2005, the Graubard firm filed a petition in Surrogate's Court to compel payment of its legal fees, asserting claims against Mrs. Lawrence for breach of the 2005 retainer fee agreement in the amount of 40% of not less than $110.3 million plus 40% of any additional sums paid to the estate, less $348,272.78 paid by Mrs. Lawrence to Graubard on May 6, 2005, together with statutory interest, or alternatively, quantum meruit legal fees in the same amount. The petition also asserted claims against the current executor, Richard Lawrence, for tortious interference with contract in inducing his mother's breach of the retainer agreement and to recoup for legal services benefitting the estate.
It is my view that this dissenting opinion from Judge Catterson with respect to the Appellate Division remand got it exactly right.
Because I believe that as a matter of law a legal fee of $40 million for five months work following years of litigation which was fully compensated on an hourly basis, is unconscionable, I respectfully dissent and would void the agreement embodying that fee. Further, because of the allegations by plaintiff that the defendants violated certain provisions of the Code of Professional Responsibility, I would refer the defendants to the Departmental Disciplinary Committee.
I cannot agree with the majority's view that the undisputed facts of this case are insufficient for a ruling of unconscionability as a matter of law. Specifically, it is undisputed that, for almost the entire year prior to January 2005, Graubard focused on litigating an accounting claim after Alice Lawrence (Alice) declined a $60 million dollar settlement offer on that claim. It is also undisputed that five and half months after signing the modified retainer agreement containing the 40% contingent fee provision, Graubard finalized a settlement of approximately $100 million dollars on the claim. It then sought $40 million as its contingent fee.
In other words, having billed Alice for every hour expended on work in connection with the claim after Alice left the $60 million offer on the table, Graubard now seeks to retain every dollar over and above that amount as its contingent fee, essentially divesting Alice of any benefit she may have gained from Graubard's legal services. The majority's contention that the circumstances underlying the agreement must be further fully developed is incomprehensible in the face of this substantive unconscionability.
For these reasons as set forth more fully below, I believe that, the agreement embodying that fee should be declared void.
This decision is a huge win for the lawyers but a lamentably pro-lawyer view of unconscionable fees. (Mike Frisch)
Friday, October 24, 2014
A law firm was entitled to its legal fees, notwithstanding errors made by its original counsel, according to a decision of the New York Appellate Division for the First Judicial Department:
The motion court properly concluded that the varying figures given by R & M during this litigation, as to the total outstanding fees due, did not undermine R & M's prima facie case for an account stated, inasmuch as the discrepancies were plainly attributable to the incompetence of its original attorney in drafting the motion papers on its previous motions for summary judgment, which, inter alia, did not include R & M's complete billing invoices from the past, and records of off-sets that the parties had agreed to. The monthly invoices and records - the timely receipt of which Sakow never disputed - were never challenged by Sakow as to accuracy or reasonableness until the instant litigation was commenced years later. Such circumstances, including that Sakow continued to make payments towards the total fees accrued and billed, without reservation, belie the belated challenges to the reasonableness of the invoiced fees...
The record reflects that R & M represented Sakow on many legal matters since 1989, and that R & M would send regular, detailed monthly invoices to account for the fees claimed. The record also demonstrates that Sakow never denied receipt of invoices supporting the "balance forward" figure referenced in the March 7, 2002 invoice, that no objection was raised as to such invoices, and that Sakow continued to make regular payments towards the invoices.
Wednesday, October 1, 2014
When lawyers sue their former clients for unpaid fees, the result often is a return volley alleging legal malpractice.
The New York Appellate Division for the First Judicial Department dealt with such a situation in a decision issued yesterday.
The former client
The Dille Family Trust (the Trust), of which defendant is trustee, owned trademarks and copyrights for "Buck Rogers." Two of the Dille family members are beneficiaries of the trust; their grandfather's syndicate had obtained the Buck Rogers trademark and copyrights. The syndicate had hired Philip Nowlan to create comic strips based on the character, and his heirs started cancellation proceedings to terminate the syndicate's trademark rights and obtain the rights for themselves. The beneficiaries of the Trust retained plaintiff law firm to handle intellectual property matters, including the cancellation action.
The trial court erred in part
Contrary to the motion court's conclusion, there was a valid fee agreement between plaintiff and the Trust. The better practice would have been to send the engagement letter to the trustee, rather than only to the beneficiaries. However, the record, including email exchanges between the trustee and plaintiff, shows that the trustee was well aware of and approved of the beneficiaries' authority to act on the Trust's behalf with regard to plaintiff's retainer and representation (see Granato v Granato, 75 AD3d 434 [1st Dept 2010]). It is irrelevant that the original engagement letter was not signed by the client (see 22 NYCRR 1215.1[a]).
While the court found a triable dispute over the bill, the legal malpractice counterclaim failed
Regarding the legal malpractice counterclaim, assuming that plaintiff's conduct, in failing to complete a chain-of-title report or failing to resolve the underlying intellectual property disputes before withdrawing, amounts to negligence, the Trust failed to demonstrate causation. The Trust failed to show how it would have successfully opposed the underlying trademark cancellation proceeding, or would otherwise have protected its intellectual property rights, but for plaintiff's omissions.
In addition, the resulting inability to efficiently market the trademarks is too speculative to constitute the "actual ascertainable damages" required to support the malpractice counterclaim.
Beneficiary Flint Dille's bare allegation that he and plaintiff had agreed to a $25,000 fee cap is unsupported in the engagement letter sent to Dille listing an hourly rate or by anything else in the record, and therefore cannot establish a legal malpractice counterclaim. (citations omitted)
Thursday, September 4, 2014
The District of Columbia Court of Appeals has held that a suit initiated by a law firm for unpaid fees must be sent to the Bar's arbitration program on the former client's demand.
Judge Fisher noted that
BTP, a biotechnology firm, retained [Ludwig & Robinson] as counsel in March 2011 to help resolve a trade secret dispute. The dispute was settled in May 2012, L&R having billed BTP on a monthly basis during the course of its representation. By June 2012 L&R claimed that BTP owed approximately $1.7 million in outstanding legal fees, disbursements, and expenses. In January 2013 L&R brought suit to collect its fees.
Several weeks later, BTP responded to the complaint by filing a motion to stay the trial court proceedings and compel arbitration. In addition to claiming that L&R had expressly agreed to arbitrate the fee dispute, BTP argued that a binding agreement to arbitrate had been formed by operation of law. BTP cited Rule 8 of the D.C. Bar‟s Attorney/Client Arbitration Board ("ACAB"), which states that "if a client files a petition to arbitrate a fee dispute with a lawyer, the lawyer is deemed to have agreed to arbitrate."
Significantly, the court upheld the Bar's mandatory arbitration regime
L&R contends that this court lacked authority to promulgate Bar Rule XIII. Quite to the contrary, this court possesses broad authority to regulate the practice of law, deriving much of this power from the District of Columbia Court Reorganization Act of 1970. A portion of that Act, passed by Congress, provides that "[t]he District of Columbia Court of Appeals shall make such rules as it deems proper respecting the examination, qualification, and admission of persons to membership in its bar, and their censure, suspension, and expulsion." D.C. Code § 11-2501 (a) (2012 Repl.). Beyond this broad statutory grant of authority, the court possesses significant inherent authority as well. In Sitcov v. District of Columbia Bar, we relied upon the "almost universally accepted" proposition "that the highest court in the jurisdiction is imbued with the inherent authority to define, regulate, and control the practice of law in that jurisdiction." 885 A.2d 289, 297 (D.C. 2005) (quoting Brookens v. Comm. on Unauthorized Practice of Law, 538 A.2d 1120, 1125 (D.C. 1988)).
The court rejected the contention that arbitration violated the law firm's Seventh Amendment jury trial rights.
The trial court had erred in declining to enforce the valid arbitration agreement. (Mike Frisch)
Wednesday, August 27, 2014
In a fee dispute between an associate attorney and his former law firm over contingent fees, the Indiana Court of Appeals held that the associate was not unjustly by retaining the full fees generated by the cases.
The court majority relied on four actors
the clients chose to continue with the departing associate, there was no agreement between the firm and associate ("sophisticated parties") as to the consequences of his departure, there were no covenenants not to competeor provisions for file ownership, and the firm was well-compensated for the associate's work.
The majority rejected the trial court's suggestion that the firm could sue the clients.
A dissent by Justice Crone would remand to award the firm fees based on quantum meruit
I respectfully dissent. While it may be true that C&M was "very well compensated" for Daly’s time while he was a salaried associate at the firm, that compensation is simply irrelevant to C&M’s quantum meruit claim for the 1000-plus hours that C&M’s attorneys contributed to the twenty-four cases that Daly took with him to Golitko & Daly.
Tuesday, July 8, 2014
A lawyer who had consented to disbarment in Pennsylvania received a public censure as reciprocal discipline in New Jersey.
While that might seem unusual, there were some rather unusual circumstances
The record in the matter now before us reveals that respondent’s paralegal, Bonnie Sweeten, had intercepted and concealed from respondent the petition for discipline, the equivalent of our formal ethics complaint, sent to respondent by the Pennsylvania ethics authorities. Sweeten explained her actions in an affidavit, the partial contents of which are contained in an August 25, 2009 Joint Stipulations of Fact and Law between respondent and the Pennsylvania disciplinary authorities...
The affidavit of the paralegal admited to concealing the disciplinary matter from the attorney.
However, the Pennsylvania Supreme Court later vacated the resulting suspension and remanded the matter.
Thereafter, the attorney consented to disbarment of her own accord.
The paralegal achieved a level of notoriety by a false abduction claim and embezzling her way to Disney World and then Club Fed, as reported by the Huffington Post.
But no suspension for the attorney in New Jersey based on the Pennsylvania consent for reasons the Disciplinary Review Board ("DRSB") explains
In conclusion, respondent is guilty of two separate offenses each of which would, on its own, warrant the imposition of a reprimand: practicing law while on inactive status and failing to supervise non-attorney staff. In addition, she failed to communicate with a client, used misleading letterhead and business account checks, engaged in conduct prejudicial to the administration of justice and failure to safeguard client funds. We conclude that a censure sufficiently addresses the totality of respondent’s misconduct.
The Office of Attorney Ethics ("OAE") had sought a suspension with reinstatement conditioned on reinstatement in Pennsylvania, which would be tantamount to disbarment. Remarkably, the attorney did not even see fit to participate in the New Jersey proceedings.
I can understand the position of the OAE, which would not impose disbarment because there is no possibility of reinstatement in New Jersey. OAE's proposed sanction is thus quite reasonable.
The DRB's recommendation makes no sense to me at all. And the court just rubber-stamped it.
It is my experience that an attorney (particularly if represented by counsel) does not consent to disbarment unless disciplinary counsel has the goods. The idea of reciprocal discipline is basically that other jurisdictions respect and enforce a consent unless there is some grave injustice or due process violation.
I don't see any such suggestion here.
I find it quite disheartening that the New Jersey authorities would take a consent disbarment and convert it into no suspension at all as reciprocal discipline.
Notice to all Pennsylvania attorneys who are thinking about engaging in misconduct: join the New Jersey Bar. (Mike Frisch)
Friday, May 16, 2014
An Illinois Hearing Board has proposed a suspension of three years and until further order in a case involving misuse of entrusted funds.
The attorney's explanation?
His mother did it:
Although Respondent denied committing misconduct, he acknowledged using funds that had been improperly transferred from his IOLTA account into his business account. Respondent claimed his mother, who was 82 years of age at the time of the hearing, transferred the funds without his knowledge. Respondent also claimed his mother was responsible for fabricating the false bank statements he submitted to the ARDC.
The Hearing Board did not believe the testimony of Respondent and his mother and found Respondent committed all of the charged misconduct. Specifically, the Hearing Board found Respondent failed to promptly deliver to a client or third person funds that the client or third person is entitled to receive, engaged in conduct involving dishonesty, fraud, deceit or misrepresentation, knowingly made a false statement of material fact to a third person, knowingly made false statements of material fact in connection with a disciplinary matter, and engaged in conduct prejudicial to the administration of justice.
The Hearing Board found a substantial amount of aggravation, including Respondent's false testimony in this proceeding, pattern of dishonesty, and failure to recognize his misconduct. There was minimal mitigation. After considering the proven misconduct and case law, the Hearing Board recommended that Respondent be suspended for three years and until further order of the court and that he be required to pay restitution within six months of the final order of discipline.
Thursday, April 3, 2014
The New York Court of Appeals has held favorably to an attorney in a case that presented this issue
This appeal concerns the appropriate treatment of statutory counsel fees awarded under the New York City Human Rights Law where the contingency fee agreement does not explicitly mention statutory fees. We hold that, absent a contract term expressly providing for a different distribution, an attorney is entitled to the greater of either the contingency fee or the statutory award.
The case involved former police officer two clients who retained counsel to sue New York but later became dissatisfied. The attorney sought declatatory relief when a dispute arose with the clients over her fees.
...in light of their unequivocal terms, the Appellate [Fee] Agreements should be enforced as written. Because the statutory appellate fees exceeded the contracted-for minimum of $20,000 per appellant, per appeal, [attorney] Dorman is entitled to receive those court-ordered fees in their entirety. As for compensation owed to Dorman for her representation at trial, she is entitled to collect either one third of the jury award, or the statutory trial fees, whichever is greater.