The Court of Appeals will be reviewing contingent fees in Matter of Lawrence, deceased.   McCallion & Assoc., LLP v Dyche  2014 NY Slip Op 32254(U)  August 20, 2014  Supreme Court, New York County  Docket Number: 157793/13  Judge: Joan A. Madden is Supreme Court’s look at the same issue.  When a client retains an attorney on a contingent basis, and the recovery is big, really big, what happens?

"In this action, M&A seeks to recover attorneys’ fees arising out of its representation of Ms. Dyche in the matters of Olsen v. Dyche and An v. Dyche. Defendant SD Assets, LLC (SD Assets) is a limited liability company owned by Ms. Dyche. Defendant Empire Gateway LLC ("Empire") is a an entity from which SD Assets was designated to received quarterly distributions pursuant to a settlement agreement in the matter of Olsen v. Dyche (hereafter "the Settlement Agreement"). The complaint asserts causes of action for breach of contract, quantum meruit, an accounting, declaratory relief and injunctive relief. In connection with Olsen v. Dyche, M&A and Ms. Dyche entered into a retainer agreement providing that M&A would receive a [* 1]contingency fee of20% "of any amounts received by (Ms. Dyche) by way of settlement, judgment or award" on the counterclaim and third-party complaint, plus $250/hour for legal work related to the defense of the case. Subsequently, the contingency amount was increased to 30% as evidenced by an email exchange between M&A and Ms. Dyche. The complaint alleges that the increase in fee was "in recognition not only of the increased work load by M&A in the Olsen v. Dyche matter, but also in recognition of the tremendous amount of legal work that M&A was performing in An v. Dyche matter without compensation under the An v. Dyche fee agreement1" (Complaint, if 36). Ms. Dyche admits in the defendants’ answer that she agreed to the increase the contingency fee from 20% to 30%, but maintains she only agreed to the increase because she was afraid M&A would withdraw as counsel if she did not consent. The dispute in Olsen v. Dyche centered on whether Ms. Dyche had an ownership interest
in Empire, and the extent of such interest. Empire owns 55% of the New York City Regional
Center (NYCRC) which collects investment funds from overseas investors pursuant to a program
administered by the U.S. Office of Homeland Security and invests the fund in various construction projects. It is alleged that NYCRC had contracts involving four projects that would "be producing $50,187, 500 income to NYCRC, and since Empire … owned 55% ofNYCRC, this would yield interest income of fees to Empire of $27 ,604,225 in five years" (Complaint, ,; 21 ).
according to the complaint, the Settlement Agreement, which was entered into in June 2012, amends the Empire Operating Agreement to confirm Ms. Dyche’s ownership interest in Empire, provides for cash payments to Ms. Dyche for income received by Empire in 2011 and the first two quarters of 2012, and provides for payments to Ms. Dyche (through SD Assets) of future quarterly distributions based on Ms. Dyche’s percentage interest in Empire.

The complaint seeks attorneys’ fees based, in part, on the 30% of these quarterly distributions alleging that "the primary component of the consideration that Ms. Dyche received via the Settlement Agreement was a specific percentage equity interest in Empire, which entitled her to receive quarterly distributions during the five year term of the three or four identified contracts [and that] the overwhelming majority of M&A’s contingency fee was linked to future quarterly payments to Ms. Dyche contemplated by the Settlement Agreement, since M&A was
entitled to receive its contingency percentage of the entire amount ‘of any judgment, settlement
or award,’ not just the initial lump payments due Ms. Dyche on a retrospective basis."  (Complaint,~ 28).

The proposed counterclaim seeking rescission of the retainer agreement alleges that the retainer agreement in Olsen v. Dyche "initially included a 20% interest (which M&A partner Kenneth McCallion alleges was later increase to 30%) in Ms. Dyche’s Empire Gateway stock dividends … [and therefore] is "excessive within the meaning of l.5(a) of the New York Rules of Professional Responsibility" (Proposed Amended Answer, rs 23, 80(a). It further alleges that when M&A entered into the retainer agreement it entered into a "business transaction" with a client, within the meaning of Rule 1.8, but failed, as required by that rule to, inter alia, inform Ms. Dyche that under the retainer agreement he was entitled to 20% of the Empire stock dividends and later 30% of the dividends, to advise her to seek advice of counsel, or to receive Ms. Dyche’s consent in writing (Id.,~ 80(b)-(d). The other proposed counterclaim seeks a declaration that retainer agreement is null and void and should be set aside modified and/or vacated based on M&A’s violation of Rules 1.5(a) and 1.8 of the New York Rules of Professional Responsibility (Id., il’ s 129-13 3 ).

Although there is no assertion of prejudice or surprise related to the proposed amendment, the Dyche defendants have not adequately demonstrated the merit of the proposed counterclaims. First, contrary to the allegations relating to proposed counterclaim for rescission, neither the complaint nor the relevant retainer agreement seek to recovery a percentage of Ms. Dyche’s ownership in Empire stock dividends. Instead, the contingency portion of retainer agreement bases M&A’ s fee on "any amounts received by (Ms. Dyche) by way of settlement, judgment or award." Moreover, the complaint seeks to recover attorneys’ fees equivalent to 30% of future quarterly distributions based on Ms. Dyche’ s percentage interest in Empire, rather than 30% of "Empire stock dividends," as alleged in the proposed counterclaim. Furthermore, while there may be legal issues relating to M&A’s basing its fee on the distributions from Empire, absent allegations with respect to such distributions, leave to amend to add a counterclaim for rescission must be denied. Such denial, however, is without prejudice to renewal upon proper pleadings.
As for the proposed counterclaim related to M&A’s alleged violation of 1.5(a) and 1.8 of the New York Rules of Professional Conduct, such counterclaim is without merit as such violation "does not, in itself, give rise to a private cause of action" Weintraub v. Phillips, Nizer, Benjamin, Krim & Ballon, 172 AD2d 254, 254 (1st Dept 1991 ). However, the alleged violations may be properly asserted with respect to other causes of action. "