Sanna v Polizzotto ;2010 NY Slip Op 51496(U) ;Decided on August 23, 2010 ;Supreme Court, Richmond County ;Minardo, J.  discusses several interesting aspects of legal representation, contingent fees, what is unconscionable in contingencies, and legal malpractice.
 

Plaintiffs and their family were in a dispute over property.  Attorneys were retained to represent one of the feuding sides, and successfully concluded the case with a cooperative effort to sell the property and divide the proceeds.  All good, so far.  The rub occurs when fees come into play.  Attorneys:  we offered to do this on an hourly basis.  Client could not pay, so we went to a contingency.  Client:  25% is way too much!

In this decision, the court considered:  how large may a contingency be and what must plaintiff do when they enter into a contingent fee arrangement with the attorneys? 

"According to the retainer agreement, plaintiffs had agreed to pay defendants as consideration for their legal services "twenty-five (25%) of the property or sum recovered, whether recovered by suit, settlement or otherwise" (see Defendants’ Exhibit "E", emphasis supplied).

On the basis of these facts, plaintiffs commenced this action against the defendants on or about April 22, 2008 asserting causes of action for conversion, breach of contract, fraud, breach of fiduciary duty and punitive damages, each arising out of their retainer agreement with defendants and the amount of the legal fees payable thereunder "
 

"Attorney-client fee agreements are a matter of special concern to the courts and, while enforceable, are affected by "lofty principles" different from those applicable to commonplace commercial contracts (Law Off of Howard M. File, Esq., PC v. Ostashko, 60 AD3d 643, 644 [2nd Dept 2009] quoting Matter of Cooperman, 83 NY2d 465, 472 [1994]; Malamut v. Doris L. Sassower, PC, 171 AD2d 780 [2nd Dept 1991]). "

"Contingent fee agreements between attorneys and their clients generally operate to allow a client without sufficient financial means to obtain access to the justice system (see Law Office of Howard M. File, Esq., PC v. Ostashko, 60 AD3d at 644). However, for attorneys entering into such arrangements, there is always the risk that their time and resources will be expended in the pursuit of legal endeavors that may ultimately prove fruitless (see King v. Fox, 7 NY3d 181, 192 [2006]). In addition, it is well settled that while the attorney is obligated to comply with the terms of the agreement, the client may unilaterally terminate the contingent fee arrangement at any time, leaving the lawyer with no cause of action for breach of contract and a recovery limited to quantum meruit (id.). Case law also provides that circumstances arising after contract formation can render a contingent fee agreement unenforceable, even though it was not unconscionable [*3]when entered into, e.g., where the agreed percentage of the recovery allocated to legal fees is deemed disproportionate to the value of the services rendered (see Lawrence v. Miller, 11 NY3d 588 [2008]). In this regard, it is not only the agreed-upon percentage of the recovery that can render a contingent fee agreement unconscionable."

"Assuming arguendo that the defendants have demonstrated prima facie that (1) the legal services which they performed on the plaintiffs’ behalf were rendered in good faith; (2) plaintiffs knowingly accepted those services; and (3) they were fully informed of the terms of the contingency, plaintiffs’ present assertion that they did not fully understand its terms is insufficient to generate a triable issue. There is no evidence to indicate the plaintiffs are under some type of disability which would prevent them from understanding a one (1) page retainer agreement which clearly and unambiguously indicated it was a 25% contingency agreement whether recovered in suit, settlement or otherwise."

In Brackman v Medical Liab. Mut. Ins. Co. ; 2010 NY Slip Op 51432(U); Supreme Court, Nassau County , Winslow, J. we see an unusual but doctrinaire situation in which a doctor sues his defense attorneys for settling a case in which he was sued.  The decision lays bare the method by which medical malpractice insurers settle cases.  if the carrier wants to settle and the doctor does not [and there is a consent provision in the policy], then the parties engage in binding arbitration over whether to settle the case with plaintiff or not. 
 

In two different actions, Brackman was sued for medical malpractice.  MLM wanted to settle both; he did not want to settle either.  After an arbitration in one, that case was settled.  An arbitration is scheduled, or has been held, in the other.

"Although the pro se complaint is not a model of clarity, Brackman alleges in relevant part that MLM: (1) breached the policy since it allegedly had no right to compromise either the Jones or the Diresta malpractice claims without his unconditional consent; (2) that the Angel defendants committed legal malpractice and breached their fiduciary duty in the Jones action; and (3) both MLM and the Angel defendants conspired together to bully, coerce and pressure Brackman into accepting the proposed settlement over his objection in the Jones case (Cmplt., ¶¶ 37-38, 45-48). There is no allegation made, to the effect that the Jones arbitration proceeding was corrupt and/or that the decision reached by the medical advisor was made in bad faith. "

"With respect to damages, the plaintiff maintains that by virtue of defendants’ wrongful conduct and MLM’s cancellation of his malpractice coverage, he was forced to close his New York practice. Moreover, he lost income and sustained emotional distress since he was unemployed for some six months and could not secure "traditional" medical malpractice insurance — although he eventually secured a license and surgery privileges in, inter alia, Florida (Cmplt., ¶¶ 15, 17-18, 32).

"It is settled that malpractice claims grounded upon contingent or hypothetically projected injuries are generally insufficient to establish liability (Bauza v. Livington, supra; Brooks v. Lewin, supra, at 734-735; Pellegrino v. File, 291 AD2d 60, 63). Indeed, while the plaintiff alleges, inter alia, that the Angel defendants’ conduct was coercive and that he was damaged thereby, the plaintiff’s pleaded factual claim is that, in fact, he never succumbed to any alleged pressure or coercion(Cmplt., ¶¶ 37, 45-48). Rather, he alleges that he refused to consent and that his injuries flowed from MLM’s decision to refer the matter to a medical [*8]advisor over his express objection.

Nor does the complaint contain anything other than vague factual allegations supporting the theory that the delays supposedly generated by the Angel defendants were causally related to, or facilitated, MLM’s subsequent decision to refer the Jones dispute to a settlement medical advisor (e.g., Cmplt., ¶¶ 15, 34). "

Bankruptcy and legal malpractice have a special relationship.  There are special rules, there are collateral estoppel dimensions to fee requests, and the mere filing of bankruptcy may end a plaintiff’s right to a cause of action.  Here, in GREENSTREET FINANCIAL, L.P., against- GREENSTREET FINANCIAL, L.P.,  UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; 2010 U.S. Dist. LEXIS 84827 we see  the principal that all elements of a legal malpractice case, incliuding damages must be in place before the case is ripe.

"In the instant case, "actual damages" have not been determined, since judgment has not been entered against Smul and the Smul Trust in this action, and, according to the fourth-party defendants, litigation is also pending in Florida, that might affect the amount, if any, for which Smul is liable to the plaintiff and/or the third-party plaintiffs. Therefore, to the extent the fourth-party defendants move for summary judgment, their motion must be denied, without prejudice, as premature, since the issue of "actual damages" has not yet been determined. See id. at 214 (finding that adjudication of a legal malpractice claim was "premature" when the plaintiff could not "establish actual damages absent a final judgment or resolution in the still pending controversy"). As a result, the fourth-party defendants’ request, that the claims [*7] made against them in the Fourth-Party complaint be stayed, pending resolution of the claims against Smul and the Smul Trust, is granted. See id (noting that "a legal malpractice claim may not be asserted until the matter on which the claim is based has been concluded," and determining that the legal malpractice claim would be tried after a verdict was rendered, if still appropriate). The motion to sever is denied, as moot."

It being a Friday in the Summer, we bring you legal malpractice news from the Jersey Shore, by way of Law.Com.  Legal malpractice issues arise wherever attorneys represent clients.  Clients sometimes bear some portion of the blame when cases/transactions go sour.  Here is a description of one, from Law.Com.

Charles Toutant writes: "Warning clients of their own duty to read critical documents, a New Jersey appeals court held Wednesday that a malpractice suit over Sills, Cummis & Gross’ drafting of a bank-merger agreement was time-barred and meritless.

The panel found in Sullivan v. Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, A-4805-07, that the plaintiffs were experienced in the world of banking and failed to follow their lawyers’ advice to look over the agreement.

At issue was the suit by four directors of the former West Jersey Community Bank in Fairfield, N.J., who claimed they were shortchanged when Sovereign Bank of Wyomissing, Pa., bought their institution in 1995. They said their lawyers failed to incorporate into the merger agreement Sovereign’s oral promises to form a post-merger advisory board and, as a result, the plaintiffs lost out on stock options and fees they would have received from serving on the board.

The bank retained Sills Cummis in 1995 to represent it in the Sovereign negotiations. Soon after, the law firm instructed the plaintiffs and other board members in a letter that their duty of care included "carefully reviewing all documents and other items presented" and that "blind reliance on the opinions of legal or financial advisors without independent fact gathering or decision-making" was "viewed unfavorably by courts."

The merger agreement was approved on Sept. 29, 1995. It called for formation of the advisory board and for members of that board to receive stock options if the bank were to adopt a stock option plan for its main board of directors.

But Sovereign never formed the advisory board, and when it created a stock options plan for its board of directors in 1997, it never gave that benefit to the plaintiffs — John Sullivan, Peter Stewart, Raymond Durkin and Leonard Schneider.

In December 1999, the plaintiffs and two other former West Jersey directors sought to enforce the oral promises in a suit against Sovereign in federal court in Newark. Sovereign moved for dismissal for failure to state a claim on which relief could be granted, and the case was dismissed in January 2001.

The plaintiffs then filed their malpractice suit against Sills Cummis and lawyers Steven Gross, Frederick Tudor and Victor Boyajian on Jan. 21, 2003. Hudson County Superior Court Judge Maurice Gallipoli granted summary judgment to the defendants, finding the suit time-barred and meritless."

In Garnett v. Fox Horan & Camerini LLP the unusually but by no means novel situation arises where a "liquidating trustee" sues the debtor’s pre-petition attorney for acts that may have led to the Chapter 11 bankruptcy.  Here, in a decision by Justice Jane Solomon, of Supreme Court, New York County

Boylan International, Inc. was an entity that ran into trouble.  It was assessed with additional rent in the nature of tax escalation costs and hired Fox Horan to litigate the $ 275,000 issue.  The law firm did so for three years which ended in a stipulation of settlement.  Shortly thereafter, Boylan filed for Chapter 11 relief and the trustee determined the settlement to be improvident and onerous.  The stipulation was vacated and a new arrangement made with the landlord.

Supreme Court found the legal malpractice claim to be that "a better lawyer would have been able to eliminate the increased amount of tax escalation rent.  that claim is unsound, and defeats the malpractice claim."

Landau P.C. v. Goldstein is the latest chapter in the Morris Eisen saga.  Once king of the Woolworth Building, Morris Eisen PC was perhaps the largest/most powerful plaintiff’s personal injury law firm in NYC.  The firm had a full floor there, comprising half a city block.  Mornings (6am) saw a gathering of trial attorneys having breakfast and being sent to the boroughs, inner and outer each day for a new multi-million dollar trial.

It ended badly, of course, with disgrace and jail.  But, attorney fee litigation, resilient and agile as money its self, lives on.  Here, some 15 years after the disgrace, is more litigation over division of fees.

"Defendant Lloyd F. Goldstein ("Goldstein") moves for an order dismissing this action, with prejudice, on the grounds that it is time barred. He also seeks costs and sanctions. The underlying complaint claims that prior to the time, Morris J. Eisen (‘Eisen"), an attorney, was disbarred from practicing law in 1992, he referred certain cases to Goldstein, pursuant to an understanding that Goldstein would pay Eisen a "percentage of the legal fees earned as remuneration for [Eisen’s] uncompensated work, disbursement expended, labor and services performed in connection with said cases prior to the disbarment of [Eisen]." Eisen and his alleged successor in interest have asserted causes of action for breach of contract (first cause of action), unjust enrichment (second cause of action), under Judiciary Law §475 (third cause of action) and an accounting (fourth cause of action). Goldstein interposed an answer denying the material allegations of the complaint and asserting various affirmative defenses, including the statute of limitations.

The parties agree that a six year statute limitations applies in this case. They differ on when the statute of limitations accrued. Goldstein argues that these matters date back 20 years or more and are therefore barred by the applicable statute of limitations. Plaintiffs, however, are no strangers to this issue, having litigated it in at least one prior case brought by them against other attorneys. The rule of law is that the statute of limitations for the breach of contract claims accrue when defendants received fees for the referred cases and refused demands for payment and that the statute of limitations for any quantum meruit recovery began to run when such cases were disposed of. Eisen v. Feder, 47 AD3d 595 (1s dept. 2008).

At bar, the only demand for payment was made to Goldstein by letter dated January 10, 2003. The demand included some, but not anywhere near the number of, cases that are the subject of he underlying action. The action was brought within six years of the demand. Consequently, the first cause of action, for breach of contract, is not barred by the statute of limitations. Goldstein argues that the demand itself was made many years after the alleged operative events. This argument may go to Goldstein other defenses, like laches, (see: Charles v. Charles, 296 AD2d 547 [2nd dept. 2002]; Bailey v. Chernoff, 45 AD3d 1113 [3rd dept. 2007]). It does not affect the accrual of the statute of limitations."

Ableco Finance LLC v. Hilson,  Ippolito and Paul, Hastings, Janofsky & Walker LLP; Supreme Court, New York County, [Justice Kornreich ]is a case we reported on last year.  Now, Justice Kornreich has dismissed some parts of the case, and retained some other causes of action.  "1This malpractice action arises from a 2008 transaction in which plaintiff, Ableco Finance LLC (Ableco), retained defendant attorneys, John F. Hilson and Mario J. Ippolito, and their law firm, defendant Paul, Hastings, Janofsky & Walker LLP, (collectively, Paul, Hastings) in connection with a loan transaction. Defendants now move to dismiss the First Amended Complaint (seq. no. 002) pursuant to CPLR 3211(a)(1) (documentary evidence) and (a)(7) (failure to state a claim)."
 

"Paul Hastings has not shown, with conclusive documentary evidence, that it accurately advised Ableco regarding the terms of the underlying acquisition documents and their impact on the security for its Loan. Any negligence on the part of Ableco in reviewing the underlying documents is merely a factor to be assessed in mitigation of damages. See Arnav Indus. Inc. Retirement Trust v. Brown, Raysman, Millstein, Felder & Steiner, 96 NY2d 300, 305 n2 (2001). Ableco’s additional allegations of attorney negligence also are sufficient. According to the complaint, Paul Hastings advised Ableco that it was not necessary to include, in the Funds Flow, a certification that the borrower (BH) would have merchandise "having an aggregate Cost Value…of no less than $183,700,000 immediately after giving effect to the Acquisition," because it was already a condition of the LC Letter. ¶31, Ex. E. Questions of fact remain as to the "aggregate cost value" of the S&B assets that BH did acquire.

Further, it is not incontrovertible that Ableco understood, or should have understood, from the Agency Agreement and the APR, that S&B would retain control over certain credit card receivables. It is apparent from statements by Ippolito in a November 21, 2008 e-mail that Paul Hastings was unaware of this fact prior to the Loan closing. The first Security Agreement specifically provides that Ableco has a security interest in BH’s accounts, its interest in any Deposit Account, and General Intangibles, "whether now owned or hereafter acquired." S&B thereafter exercised control and took credit card receivables from accounts in which Ableco alleges it had a security interest. Questions remain as to whether Paul Hastings was negligent in not being aware that S&B had the right to do this and in failing to disabuse Ableco of the notion that the Security Agreement somehow protected its interest in ensuring that credit card receivables deposited into these accounts would be used to repay the Loan."

"Paul Hastings argues that Ableco has not sufficiently pled that its attorneys’ negligence proximately caused it specific damages. Ableco, however, has repeatedly alleged that if Paul Hastings had properly advised it (as to matters discussed above), then it would not have closed on the Loan and would not have lost $55 Million, including the monies taken by S&B. This is sufficient. A complaint for malpractice need allege only that the defendants should have been able to foresee that some injury might result from their acts [see Singer v. Jefferies & Co., Inc., 160 AD2d 216, 219 (1st Dept 1990)],and that "but for" their negligence, the alleged loss would not have been suffered. See Fielding, 65 AD3d 439-440 (reversing dismissal of malpractice complaint where plaintiff alleged that but for attorney negligence in failing to advise of certain tax consequences in signing stipulation, plaintiff would not have suffered damages). "Specific" damages need not be pled. It is sufficient if some injury can reasonably be inferred from the attorney’s conduct. Id."

We report mostly on New York cases, but on ocassion, our net is more widespread.  Today, a story from Massachussets.  Its a big number legal malpractice case in which no appeal was filed.  From Law.Com and Sheri Qualters at The National Law

"Massachusetts’ high court has ruled that Jackson Lewis and Winokur Serkey & Rosenberg of Plymouth, Mass. are liable for a $1 million-plus verdict against a telecommunications company in an employment discrimination case.

On Aug. 9 in Global NAPS Inc. v. Awiszus, the Massachusetts Supreme Judicial Court ruled that Global NAPS could recover damages from its former attorneys and their firms for missing the deadline for appealing a jury verdict in an the case. Martha Awiszus of Winokur Serkey and David Kerman of Jackson Lewis’ Boston office were Global NAPS’ lawyers on the case.

Global sued the lawyers and firms for negligence, breach of contract and loss of chance.

Sandy Stephens, a former housekeeper for Global NAPS, originally sued the company alleging a violation of the Massachusetts Maternity Leave Act because the company fired her while she was on maternity leave.

State law requires eight weeks for maternity leave, but Stephens alleged that a company supervisor told her she would receive two additional weeks if she gave birth by Caesarean section.

Guidelines issued in April 2000 by the Massachusetts Commission Against Discrimination on the state’s maternity leave law called for employers to notify workers in writing if the company does not intend to offer full maternity leave rights for more than eight weeks.

The jury’s July 2004 verdict against Global totaled more than $2.5 million, including punitive damages. "