We found this story in the NYLJ by Christine Simmons shocking. Law firm charged hourly rates of $ 300 per hour (combined for all attorneys) PLUS a 40% contingency. Parents were billed $ 104,000, paid more than $ 75,000 and the settlement was only for $ 17,500.
"A federal magistrate judge has referred a Long Island law firm to an attorney disciplinary committee after finding the firm’s fees were excessive for the amount of work performed and that it failed to disclose critical facts to support a settlement agreement.
Eastern District Magistrate Judge Gary Brown (See Profile) chastised Leeds Brown Law’s conduct in an infant compromise case—a proceeding to obtain court approval of a settlement of a child’s claim.
"It is simply astonishing that the Leeds firm would propose an infant compromise in which the fees paid were more than four times the settlement amount, and fail to disclose that fact to the Court," Brown said in C.M. v. Syosset, 11-cv-01402.
Upon Brown’s recommendation, the Leeds firm has agreed to return about $70,000 in fees, he said.
The firm in a Nov. 8 letter to the court defended its actions and said nothing unethical occurred and that it was confident that once all the facts were examined the firm would be exonerated from any allegation of wrongdoing.
Leeds Brown Law, a discrimination and civil rights firm with about 10 attorneys, represented C.M., a child whose parents claimed that defendants Syosset Central School District and a school principal, Joanne Mannion, discriminated and retaliated against C.M., who has life threatening food allergies.
In a proposed settlement agreement, the district’s insurers would pay $17,500 to C.M.
The parents’ attorney, Rick Ostrove, a partner with Leeds, told the court that no attorney fees or disbursements are due or will be paid from the settlement, according to Brown.
Ostrove also wrote that once the settlement money is deposited in C.M.’s bank account, which is linked to his parents’ accounts, the funds will be used to pay an outstanding home equity loan his parents took out to cover litigation expenses.
In an August report and recommendation, Brown said the settlement papers failed to say what portion of the settlement fund would be used to offset the loan for legal expenses.
When asked for the figure, the Leeds firm said "the entire amount of the proposed settlement" would be used to pay the loan "as the legal fees substantially exceeded the settlement amount."
Brown asked to see the firm’s retainer agreement, which showed the parents were to pay a retainer fee of $15,000, would "replenish" the retainer in increments of $10,000, and that the firm would receive a 40 percent contingency fee based on a certain formula.
In August of this year, Brown said the parties failed to demonstrate the settlement amount is fair and reasonable. "Even though the defendants would pay $17,500, C.M. would receive absolutely nothing, as the entire corpus would be diverted to reimburse attorneys’ fees and costs, a fact revealed only upon Court inquiry," Brown said.
Overall, Brown said "several instances" of conduct by Ostrove and Leeds "may have run afoul" of the Rules of Professional Conduct.
Brown said there are serious doubts that a contingency fee was appropriate.
He said Ostrove argued that the hybrid fee arrangement was justified based on the firm’s expertise, write-off of blocks of time and "discounted" hourly rate of $300.
"I cannot credit the contention that $300 per hour for all attorneys in the firm represented a significant discount justifying the draconian contingency arrangement," Brown said.
But "perhaps the most troubling aspects of this matter arise from the failure by Ostrove to comply" with the settlement procedures, Brown said, including the failure to disclose material information.
"The seriousness of these deficiencies, considered together with the surrounding circumstances, raise the specter of whether these omissions and misstatements represent stratagems rather than oversights," Brown said.
"By failing to disclose the attorneys’ fees charged and paid, and revealing only that certain of the funds would be used to pay off a loan that had been for legal costs and fees, the application filed by Ostrove clearly evaded dictates of state and federal law requiring that the Court review attorneys’ fees arrangements entered in connection with a claim by a minor plaintiff," Brown said.
He said these failings taken together may implicate Rule 3.3, which provides that a lawyer shall not knowingly make a false statement of fact or law to a tribunal or fail to correct a false statement.
The Leeds firm agreed to return all fees except for $5,000, about 28.6 percent of the settlement. The remainder, $12,500, will be deposited into an account for the child’s benefit, to be held until he reaches a suitable age, Brown said in the October report, which must be approved by U.S. District Judge Margo Brodie. (See Profile)
The magistrate judge said he was mindful that the Leeds firm voluntarily agreed to refund about $70,000."