Anthony Davis, writing in the New York Law Journal [subscription] writes of the recent appellate decision concerning the absence of an engagement letter:
"• Failing to Provide an Engagement Letter. In Rubenstein v. Ganea, No. 24483/04, 2007 N.Y. App. Div. LEXIS 4267 (2d Dept. April 3, 2007), concerning an engagement letter as required by 22 NYCRR 1215.1.
The case presented two issues for determination: "First, . . . whether an attorney who fails to obtain a written retainer agreement or letter of engagement with a non-matrimonial client, in violation of 22 NYCRR 1215.1, may nevertheless recover the reasonable value of professional services rendered on a quantum meruit basis. Second, . . . whether an attorney who was awarded fees in a guardianship proceeding from the allegedly incapacitated person pursuant to Mental Hygiene Law §81.16(f) is barred by res judicata from recovering additional fees from the client who sought the appointment of the guardian."
In April 2002, the defendant, Cynthia Ganea (Ms. Ganea), retained the plaintiff, Seth Rubenstein PC (Mr. Rubenstein), to represent her in a proceeding for her appointment as guardian for her husband, Dinu Andre Ganea, under Mental Hygiene Law article 81. Terms were agreed upon that Mr. Rubenstein would be compensated at a rate of either $450 or $325 per hour, depending on the identity of the attorney performing the work, plus disbursements. The parties also agreed that Mr. Rubenstein’s attorney’s fees would be reduced by any amount awarded by the judge in the guardianship proceeding paid from the estate of the allegedly incapacitated person, Dinu Andre Ganea (the AIP). It was undisputed that no written retainer agreement or letter of engagement was prepared or executed, notwithstanding that several weeks earlier, 22 NYCRR 1215.1 had become effective.
Mr. Rubenstein then commenced an action on Ms. Ganea’s behalf entitled In the Matter of the Application of Cynthea Ganea for the Appointment of a Guardian for Dinu Andre Ganea, an Alleged Incapacitated Person in Supreme Court, Kings County, (the Guardianship Proceeding). 22 NYCRR 1215.1 requires engagement letters explaining the scope of services, fees, billing practices, and the right to arbitration for any representation where the fees are likely to exceed $3,000.
In discussing the proper interpretation of 22 NYCRR 1215.1, the court points out that the provision
contains no express penalty for noncompliance . . . .Indeed, the intent of Rule 1215.1 was not to address abuses in the practice of law, but rather, to prevent misunderstandings about fees that were a frequent source of contention between attorneys and clients. This intent was described by Chief Administrative Judge Jonathan Lippman upon the rule’s adoption, that ‘this [rule] is not about attorney discipline in any way, shape or form, and we certainly do not expect in any significant degree there to be a large number of disciplinary matters coming out of this rule.’ . . . The purpose of the rule therefore is to aid the administration of justice by prodding attorneys to memorialize the terms of their retainer agreements containing basic information regarding fees, billing, and dispute resolution which, in turn, minimizes potential conflicts and misunderstandings between the bar and clientele. (Citations omitted).
The court next explains why Rule 1215.1 should be distinguished from Rule 1400.3, the engagement letter rule that applies to matrimonial cases:
Whereas Rule 1215.1 was not intended to address abuses, Rule 1400.3 was specifically ‘promulgated to address abuses in the practice of matrimonial law and to protect the public’ . . . . The requirement that attorneys execute written retainer agreements with matrimonial clients is found not only in Rule 1400.3, but also in Code of Professional Responsibility DR 2-106(c)(2)(b), which forbids attorneys from ‘collect[ing] . . . any fee in a domestic relations matter . . . unless a written retainer agreement is signed by the lawyer and client’ (see 22 NYCRR 1200.11). Predictably, therefore, an attorney’s noncompliance with Rule 1400.3 and concomitant breach of Code of Professional Responsibility DR 2-106(c)(2)(b) typically preclude the attorney’s recovery of fees in domestic relations matters. Since Rule 1215.1 is not underscored by a specific Disciplinary Rule and is not intended to protect clients against abusive practices, it lacks the ‘bite’ of 22 NYCRR 1400.3 and Code of Professional Responsibility DR 2-106(c). (Citations omitted).
Lower Court Decisions
The court reviewed the array of lower court decisions on these issues, and noted that these have fallen into three categories:
The first category permits the quantum meruit recovery of attorney’s fees notwithstanding noncompliance with 22 NYCRR 1215.1 (Citations omitted) . . . .The second category of cases takes a ‘middle ground,’ permitting the noncompliant attorney to keep money already received from the client for services, while prohibiting the recovery of additional fees. (Citations omitted) . . . . The third category includes cases from New York, Bronx and Nassau counties, holding that the noncompliance with 22 NYCRR 1215.1 is an absolute bar to recovery of attorney’s fees . . . . (Citations omitted) . . . In other words, ‘no engagement letter, no fee’ (see Davis, ‘Engagement Letters: Can’t Live Without Them, Can’t Change Them,’ NYLJ, Jan. 5, 2004, at 3, col 1).
Accordingly, the central holding of the court is 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." The court notes that its 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). However, the Court also points out that
Mr. Rubenstein, as the attorney who failed to properly document the fee agreement in writing as required by 22 NYCRR 1215.1, bears the burden of establishing that the terms of the alleged fee arrangement were fair, fully understood, and agreed to by Ms. Ganea . . . .Providing that Mr. Rubenstein establishes the client’s knowing agreement to pay for legal fees not fully compensated by an award from the AIP’s estate, Mr. Rubenstein may recover in quantum meruit the fair and reasonable value of the services rendered on behalf of Ms. Ganea prior to his discharge as counsel.
Following a discussion of prior case law, the court also concludes that "the guardianship court’s award of reasonable compensation to Mr. Rubenstein pursuant to Mental Hygiene Law 86.16(f) does not bar Mr. Rubenstein’s efforts to recover additional fees from Ms. Ganea on a quantum meruit basis. Mr. Rubenstein bears the burden of establishing that he reached a clear agreement with Ms. Ganea that she would be responsible for fees incurred in the guardianship proceeding, including the amount that the fair value of legal services exceeds the amount awarded by the guardianship court. Any misunderstanding or lack of clarity arising from Mr. Rubenstein’s failure to provide a letter of engagement or enter into a signed retainer agreement shall be resolved in favor of the client, Ms. Ganea."
Lest the bar treat this decision as some kind of free pass, the court importantly noted that
attorneys continue to have every incentive to comply with 22 NYCRR 1215.1, as compliance establishes in documentary form the fee arrangements to which clients become bound, and which can be enforced through Part 137 arbitration or through court proceedings. 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. 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. (Emphasis added).