Fees Still Possible in Absence of Retainer Letter, N.Y. Appellate Panel Says
Tom PerrottaNew York Law Journal
04-09-2007
An attorney who violates the state's official Codes, Rules and Regulations (NYCRR) by failing to obtain a written retainer agreement or letter of engagement from a client in a nonmatrimonial case can still recover fees, an appeals court held last week in a ruling of first impression.
An unanimous panel of the Appellate Division, 2nd Department, said its interpretation of the rule, 22 NYCRR 1215.1, would not render it "impotent and unenforceable," as the appellant in Seth Rubenstein, P.C. v. Ganea, 2005-07813, had alleged.
"Attorneys who fail to heed Rule 1215.1 place themselves at a marked disadvantage, as the recovery of fees becomes dependent upon factors that attorneys do not necessarily control, such as meeting the burden of proving the terms of the retainer and establishing that the terms were fair, understood, and agreed upon," Justice Mark C. Dillon wrote for the court. "There is never any guarantee that an arbitrator or court will find this burden met or that the fact-finder will determine the reasonable value of services under quantum meruit to be equal to the compensation that would have been earned under a clearly written retainer agreement or letter of engagement."
Since 2002, attorneys have been required to obtain retainer agreements or letters of engagement from all non-matrimonial clients under 22 NYCRR 1215.1, a rule that was created by the four Appellate Divisions (matrimonial cases are governed by a stricter rule, 22 NYCRR 1400.3).
The 2nd Department examined the implications of the 2002 rule after numerous trial courts reached different conclusions about its meaning.
Some cases, including Matter of Feroleto, 6 Misc 3d 680, and Grossman v. West 26th Corp., 9 Misc 3d 414, permitted quantum meruit recovery of fees despite noncompliance. Others allowed attorneys to keep fees already received, but barred them from seeking additional money (Beech v. Gerald B. Lefcourt, P.C. 12 Misc 3d 1167, and Lewin v. Law Offs. of Godfrey G. Brown, 8 Misc 3d 622). A third line of cases ruled that a violation of the rule was a bar to the recovery of fees, as is the case with the matrimonial rule, 22 NYCRR 1400.3 (Nadelman v. Goldman, 7 Misc 3d 1011, and Klein Calderoni & Santucci, LLP v. Bazerjian, 6 Misc 3d 1032).
The 2nd Department sided with the first batch of holdings after considering the case of Cynthia Ganea, who hired Seth Rubenstein in April 2002 to represent her in a proceeding for her appointment as a guardian for her husband, Dinu Andre Ganea, under Mental Hygiene Law article 81.
The parties agreed, without a retainer, that Rubenstein's firm would be paid at a rate of $450 or $325 an hour, depending on the identity of the attorney performing the work, plus disbursements. They also agreed that Rubenstein's fees would be reduced by any amount awarded by the court from the estate of the allegedly incapacitated husband.
Mr. Ganea's adopted daughter was named his guardian after a contentious proceeding. Supreme Court Justice L. Priscilla Hall awarded Rubenstein $18,375 in fees to be paid from Mr. Ganea's estate.
Rubenstein then sought the balance of his fees -- $48,000 -- from Ms. Ganea. She refused to pay, arguing that the judge's fee award represented full payment, and that she had no retainer agreement with Rubenstein, as required by 1215.1.
NO PENALTY LANGUAGE
Acting Supreme Court Justice David Schmidt ruled that "blind adherence" to the rule, which was enacted a month before Ms. Ganea hired Rubenstein, could result in unfair windfalls to clients. However, the judge found that the guardianship fee award of $18,375 barred further recovery under the doctrine of res judicata.
The 2nd Department modified that ruling and said Rubenstein could seek further recovery.
Dillon noted that 22 NYCRR 1215.1 contained no penalty language for noncompliance, and that courts do not have the authority to impose a penalty or sanction absent enabling legislation or a court rule.
"We find that a strict rule prohibiting the recovery of counsel fees for an attorney's noncompliance with 22 NYCRR 1215.1 is not appropriate and could create unfair windfalls for clients, particularly where clients know that the legal services they receive are not pro bono and where the failure to comply with the rule is not willful," Dillon wrote.
He left no doubt that courts should hold matrimonial cases to a more exacting standard. "Our holding would be different were this matter a matrimonial action governed by the more stringent disciplinary requirements of 22 NYCRR 1400.3 and Code of Professional Responsibility DR 2-106(c)(2)," Dillon wrote.
Anthony E. Davis, an expert on legal ethics and a partner at Hinshaw & Culbertson, said the court's ruling was sensible and well reasoned.
"They are taking the middle ground," said Davis, a New York Law Journal columnist who has written extensively on the implications of 1215.1. "In appropriate cases, failure will not preclude a fee. But there's got to be a clear underlying understanding that the client knew it was going to pay fees. If the client thought it was going to be pro bono, you wouldn't collect."
Justices William F. Mastro, Anita R. Florio and Steven W. Fisher concurred on the ruling.
Alan C. Trachtman of Nourse & Bowles represented Ms. Ganea. Rubenstein represented himself.