From today’s NYLJ by Anthony Lin:  Attorney loses case on summary judgment, and tells client that he is not obliged to handle appeal.  Client, chemical company, hires Nathan Dershowitz to handle appeal, which he does.  At appellate level, case settles for $ 250,000. 

Client pays Dershowitz a contingent fee, and original attorney sues client for his contingent fee.  Client inpleads Dershowitz on theory that he did not ascertain whether first attorney was due fees.

Result:  Attorney 1 gets no fee, Legal mal against Dershowitz dismissed.

 "A federal judge in Manhattan has ruled against a lawyer seeking to collect a contingent fee on a case he lost at the trial level but which his client settled after filing an appeal.

Lawyer Barry I. Fredericks represented Chemipal Ltd. in a 2003 suit against weight-loss company Slim-Fast, whose products Chemipal distributed in Israel. Israeli-based Chemipal, which agreed to pay Fredericks $40,000 and a 35 percent contingent fee, claimed Slim-Fast violated its contract with it by not providing adequate marketing and advertising support.

But a federal court in Delaware granted summary judgment to Slim-Fast. Fredericks declined to handle the appeal and Chemipal hired Nathan Z. Dershowitz of Dershowitz, Eiger & Adelson. After the appeal was filed, Chemipal accepted a $250,000 settlement offer.

Fredericks sued Chemipal last year, arguing that his contingent fee arrangement with the company applied to the settlement. But Southern District of New York Judge Gerard E. Lynch granted summary judgment to Chemipal last week, finding that, though Fredericks’ argument was plausible, New York law required an ambiguous retainer agreement to be read in favor of the client.

The agreement at issue specified the fees Fredericks would receive in the event of a successful result at the trial level. It also said Fredericks was not obligated to handle the appeal and his contingent fee would not be reduced by the costs necessary to defend a successful result on appeal. But the agreement was silent on the scenario that actually unfolded, with Chemipal losing at trial and recovering after its appeal.

Judge Lynch said Fredericks’ argument that the agreement limited his responsibility to the trial level but not his fee was "perfectly reasonable" and the parties would have been free to contract as such. But the judge said the agreement also was open to other interpretations.

"Chemipal’s argument that this was an unforeseen contingency, and that the agreement should be read as ending when the case was (temporarily) ‘lost’ is also not an impossible reading of the parties’ intentions," the judge wrote in Fredericks v. Chemipal, Ltd., 06 Civ. 966."

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).

Here is an article from the NYLJ [subscription]:

"High-low agreements in trials for civil damages constitute settlements and should be enforced as such, an appeals court in Brooklyn has ruled in a case of first impression.

A unanimous panel of the Appellate Division, Second Department, ruling in Cunha v. Shapiro, 2006-07880, further concluded that a plaintiff who wants to file a judgment in connection with a high-low agreement must first sign a general release and stipulation of discontinuance, which gives a defendant 21 days to pay an award. Justice Mark C. Dillon (See Profile) wrote the opinion.

The decision will be published Thursday.

High-low agreements set a low and high amount for damages in a civil trial. If a jury awards more than the specified amounts, the plaintiffs accept the high. If the jury awards less, the plaintiff accepts the low. If the jury finds for an in-between amount, that figure is awarded.

In Cunha, Frank Cunha sued Blanche S. Shapiro and the estate of Jesse Shapiro after allegedly sustaining injuries in a minor car accident. Mr. Cunha’s attorney, Eitan A. Ogen of Ogen & Associates, said Mr. Cunha needed arthroscopic surgery on his knee as a result of the accident.

Brooklyn Supreme Court Justice Lewis Douglass (See Profile) granted Mr. Cunha’s motion for summary judgment in July 2004. The case went to trial for damages in March 2006 before Justice Martin Schneier"

This week we have a raft of Texas Cases  Here attorney was appointed to represent convict father in a parental rights termination case.  Reading the facts, we believe that the court would have terminated the convict’s rights anyway, but it was really unhappy about the representation.

"In its opinion, the Court of Appeals noted that Wilson did not put on evidence at the hearing; did not consult with Brice; performed only a "perfunctory cross-examination of Denton," which led to the admission of evidence that Brice had been arrested for harassment, stalking, DWI, indecent exposure, and several cases of indecency with a child; did not request a writ of habeas corpus ad testificandum; did not interview potential witnesses; did not request a jury; and did not investigate the conviction that was the basis for termination. Id. at 140-42. The Court of Appeals also stated, "[N]othing in the record suggests that [Wilson] requested a continuance from the trial court." Id. at 142"

But, nevertheless, the legal malpractice case foundered.  "Brice subsequently filed suit against Wilson for legal malpractice. Brice alleged that Wilson was negligent or grossly negligent in failing to request a continuance; failing to consult with him to determine the facts and prepare a defense; failing to investigate the conviction that was the basis for termination; failing to challenge the pleadings and to present evidence favorable to him; failing to request a writ of habeas corpus ad testificandum; failing to investigate the facts of the case, including the failure to contact Brice’s mother and sister, who Brice asserts would have testified on his behalf; and failing to determine that Brice wanted a jury trial. Brice contended that he "suffered the severe damages of not having the effective assistance of counsel at the final hearing on the suit to terminate his parental rights to his two minor children[,]" as well as "physical injuries and the emotional pain and suffering from losing his parental rights to his two minor children." In supplemental petitions, Brice added MacLean, Boulware, and the law partnership of MacLean & Boulware as defendants under theories of agency; negligent hiring, supervision, or retention; and respondeat superior.

The trial court disposition
Wilson, MacLean, and Boulware filed no-evidence motions for summary judgment, in which they asserted that Brice lacked evidence of a breach of duty owed pursuant to the attorney-client relationship, and that Brice had failed to produce any evidence that the alleged breach of duty proximately caused the alleged harm. Brice filed responses, to which he attached copies of the opinion in which the Court of Appeals held that he received ineffective assistance of counsel, a notice from the Supreme Court stating that it had denied review of the case, and a portion of Tex. R. Civ. P. 166a. Brice also filed motions for issuance of a writ of habeas corpus ad testificandum to enable him to appear at the hearings on the motions for summary judgment filed by Wilson, MacLean, and Boulware. The trial court denied Brice’s motions for issuance of a writ of habeas corpus ad testificandum. The trial court granted the motions for summary judgment and ordered that Brice take nothing from Wilson, MacLean, and Boulware.

No evidence of damages fatal to claim. The Court of Appeals affirmed the summary judgment, finding that Brice had failed to present evidence of damages, which was an essential element of his legal malpractice claim and of each other claim he presented. "

While diversity of citizenship may be an appropriate base for jurisdiction,  42 USC 1983 is not, at least in Texas  There, the attorney is not a state actor:

"In Combs v. City of Dallas, 3:06-CV-0074-P, 2006 U.S. Dist. Lexis 92445 (N.D. Tex. 2006), the client sought to sue the attorneys who represented him during his state and federal criminal prosecutions. The court held that neither appointed nor retained counsel acts under color of state law in representing a defendant during criminal proceeding. See Polk County v. Dodson, 454 U.S. 312, 324 (1981) (public defender does not act under color of state law when performing a lawyer’s traditional functions as counsel to a defendant in a criminal case); Mills v. Criminal Dist. Court No. 3, 837 F.2d 677, 678 (5th Cir. 1988) (court appointed counsel are not official state actors); Russell v. Millsap, 781 F.2d 381, 383 (5th Cir. 1985) (retained counsel does not act under color of state law). The same rationale applies to appointed or retained counsel in a federal criminal case. McLeod v. Knowles, 2006 WL 1738286, *1 (5th Cir. 2006) (unpublished per curiam) (extends Polk County v. Dodson to a Bivens action against court-appointed counsel). As such the conduct of criminal defense attorneys in representing a federal criminal defendant is not cognizable under 42 U.S.C. § 1983 or as a Bivens action.

The client alleged that one of the attorneys had conspired with the prosecutors. Assuming that this sufficiently alleged action under color of law, the court nonetheless found that the legal malpractice claim was barred because it inherently challenged the validity of the client’s conviction:

In Heck v. Humphrey, 512 U.S. 477, 486-87 (1994), the Supreme Court held that a party may not maintain a civil rights action based on the legality of a prior criminal proceeding unless a state court or federal habeas court has determined that the terms of confinement are in fact invalid. This rule applies equally to Bivens actions. Stephenson v. Reno, 28 F.3d 26, 27 (5th Cir. 1994). The critical inquiry is whether a judgment in favor of the plaintiff in the civil action would "necessarily imply the invalidity of his conviction or sentence." Heck, 512 U.S. at 486-87. If so, the claim is barred unless the conviction has been reversed or declared invalid. Id.

[. . . Plaintiff’s criminal conviction has not been reversed on direct appeal, expunged by executive order, or called into question by a federal writ of habeas corpus. . . . ] "

As in New York, a criminal defendant may not successfully sue his criminal defense attorney absent a showing of "actual innocence"

Here is the Texas rule:

"In Butler v. Mason, No. 11-05-00273-CV, 2006 Tex. App. Lexis 10886 (Tex. App.—Eastland 2006), a convicted murderer attempted to bring a legal malpractice action against the attorney who represented him on direct appeal within the state court system and in state and federal habeas proceedings. The court found that the action was barred by Texas’ Peeler doctrine, under which plaintiffs who have been convicted of a criminal offense may negate the sole proximate cause bar to their claim for legal malpractice in connection with that conviction only if they have been exonerated on direct appeal, through post-conviction relief, or otherwise.

In 1998, the jury convicted Butler of murder and aggravated assault. Butler’s retained counsel, Harry Zimmerman, perfected an appeal but passed away before oral argument. Mason argued the appeals. Butler later retained Mason to file applications for both state and federal post-conviction writs of habeas corpus. The Texas Court of Criminal Appeals denied the application in 2001. The federal application was dismissed as being time-barred in 2003.

In 2004, Butler filed this suit alleging that Mason was negligent in his handling of the applications for writs of habeas corpus and that Mason breached his contract with Butler. Butler sought a total of $6,000,000 as compensation for lost employment and as punitive damages. The trial court dismissed the case; the court of appeals affirmed:

In Peeler v. Hughes & Luce, 909 S.W.2d 494 (Tex. 1995), the Texas Supreme Court held:

Because of public policy, we side with the majority of courts and hold that plaintiffs who have been convicted of a criminal offense may negate the sole proximate cause bar to their claim for legal malpractice in connection with that conviction only if they have been exonerated on direct appeal, through post-conviction relief, or otherwise. While we agree with the other state courts that public policy prohibits convicts from profiting from their illegal conduct, we also believe that allowing civil recovery for convicts impermissibly shifts responsibility for the crime away from the convict. This opportunity to shift much, if not all, of the punishment assessed against convicts for their criminal acts to their former attorneys, drastically diminishes the consequences of the convicts’ criminal conduct and seriously undermines our system of criminal justice. We therefore hold that, as a matter of law, it is the illegal conduct rather than the negligence of a convict’s counsel that is the cause in fact of any injuries flowing from the conviction, unless the conviction has been overturned (citation omitted). "

Another Texas case to illustrate the judgment rule in legal malpractice.

"Doing the best you can with what you have is a constant problem in unsettled areas of the law, particularly unsettled areas of statutory construction. Justice Keasler’s concurring opinion in this Court of Criminal Appeals case makes the point:

In Ex parte Chandler, we explained that “a reasonably prudent attorney in Texas is not constitutionally deficient if he relies upon pertinent judicial opinions in assessing the validity of a legal proposition.” Ex parte Chandler, 182 S.W.3d at 358. Moreover, because “‘what an attorney thinks the law is today may not be what a court decides tomorrow[,]’ . . . ‘the rule that an attorney is not liable for an error in judgment on an unsettled proposition of law is universally recognized.’“ Id. (quoting 3 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 18.1, at 2 (5th ed. 2000)). “[C]ounsel’s performance will be measured against the state of the law in effect during the time of trial and we will not find counsel ineffective where the claimed error is based upon unsettled law.” Ex parte Welch, 981 S.W.2d 183, 184 (Tex. Crim. App. 1998) (citing Vaughn v. State, 931 S.W.2d 564, 567 (Tex. Crim. App. 1996)). We also stated that “legal advice which only later proves to be incorrect does not normally fall below the objective standard of reasonableness under Strickland.” Ex parte Chandler, 182 S.W.3d at 359.

Roemer’s counsel’s legal advice was correct at the time he offered it. Counsel relied on the only available opinion dealing with the issue. “[T]he state of the law in effect during the time of trial,” Ex parte Welch, 981 S.W.2d at 184, consisted of a single opinion, which clearly resolved the issue against his client. Counsel thoroughly explained the legal issue and the effect of the court of appeals’ opinion to his client. But the final decision to accept the plea agreement was Roemer’s alone. It could not, therefore, be counsel’s judgment error. Roemer’s counsel’s actions fall squarely within our explanation of effective assistance of counsel in Ex parte Chandler.

Ex parte Roemer, 2007 Tex. Crim. App. Lexis 229 (Tex. Crim. App. 2007) (Keasler, J., concurring, joined by Hervey, J.). "

When a client comes to you to discuss a legal malpractice case, and mentions a bankruptcy, the first question to determine is whether the malpractice might have been pre- or post-petition.  If it was even arguably pre-petition, the bankrupt client must have listed a claim on the schedules.  If not, there can be no legal malpractice case, except by the trustee.

Here is a case from Texas:

"The bankruptcy court in San Antonio has rejected an attempt to bring an unscheduled legal malpractice claim post-confirmation:

It is undisputed that a bankruptcy debtor is required to schedule all assets and that there is a duty to amend which continues throughout the case. It is also undisputed that none of the Debtors scheduled a potential cause of action against Defendant in their bankruptcy schedules, even though Plaintiffs claim that their causes of action relate solely to prepetition conduct of Defendant. Although Plaintiffs contend that Defendant would not have scheduled causes of action against itself, the undisputed evidence shows that Plaintiffs were also represented by counsel other than Defendant at all relevant times. Not only were there outside counsel prior to and at the commencement of the bankruptcy cases, but on June 10, 2004, the Debtors filed an Application to Employ the Law Firm of Langley & Banack as Co-Counsel for the Debtors. The employment of Langley & Banack was approved by this Court’s Order on July 15, 2004. The Plan and Disclosure Statement were filed by Langley & Banack on or about December 29, 2004, and the confirmation hearing took place on March 2, 2005. If the directors, officers and non-Defendant attorneys of the Plaintiffs wished to assert claims against Defendant, they had ample opportunity to schedule such an asset and specifically reserve it in the Plan. Instead, a general retention clause was merely placed in the Plan and Disclosure Statement which purported to retain any claims which the Plaintiffs might have against any of their professionals. "