Wednesday, August 2, 2017

A Non-Consentable Conflict Leads To Loss Of Fee

The New York Appellate Division for the Second Judicial Department held that an agreement of a law firm to act as both counsel and broker to a sale violated ethics rules

Here, the plaintiffs established, prima facie, that the defendants acted as both attorney and broker in connection with the possible sale of the plaintiff company (see Byrnam Wood, LLC v Dechert LLP, 50 AD3d 455, 456), and that the retainer agreement provided for a contingency fee to compensate them in the event a sale of the company was completed. In opposition, the defendants failed to raise a triable issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562). Accordingly, the Supreme Court properly determined that the retainer agreement is unenforceable because it created a nonconsentable conflict of interest under the Rules of Professional Conduct (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.7[a][2]; NY St Bar Assn Comm on Prof Ethics Op 1015 [2014]; Matter of Cooperman, 83 NY2d at 475; Law Off. of Howard M. File, Esq., P.C. v Ostashko, 60 AD3d 643, 644). The fact that the defendants are seeking to recover under the hourly fee provision of the retainer agreement, instead of the contingency fee provision, does not alter this result. The conflict created by the contingent fee existed during the representation, regardless of whether a sale of the business was ultimately completed. Accordingly, upon renewal, the Supreme Court properly awarded the plaintiffs summary judgment dismissing the defendants’ first counterclaim to recover fees under the retainer agreement.

An attorney who violates a disciplinary rule may be discharged for cause and is not entitled to fees for any services rendered...

(Mike Frisch)

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