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Letters of Engagement and Fee Dispute Arbitration

PACE LAW SCHOOL

ETHICS AND PROFESSIONALISM

February 7, 2004

Kathleen Donelli, Esq.*

McCarthy, Fingar, Donovan, Drazen & Smith, L.L.P.

11 Martine Avenue

White Plains, New York 10606

_________________________________________________________________________

"LETTERS OF ENGAGEMENT

AND

FEE DISPUTE ARBITRATION" **

_________________________________________________________________________

TABLE OF CONTENTS

Page

I. FEE DISPUTE ARBITRATION:

Part 137 of the Rules of the Chief Administrator (Ex. A)

A. APPLICATION ..................................................................................... 3

B. REQUIRING CLIENT TO SUBMIT TO ARBITRATION ........................ 3

C. OPTING OUT OF TRIAL DE NOVO ................................................. 4

D. SELECTING A DIFFERENT ARBITRAL FORUM ............................ 5

E. ARBITRATION PROCEDURE AND FORMS ................................... 5

F. ARBITRATION HEARING PROCEDURE ........................................ 6

G. OPTIONAL MEDIATION ................................................................... 6

___________

* Kathleen Donelli is a partner with McCarthy, Fingar, Donovan, Drazen & Smith and practices in the areas of matrimonial law and commercial litigation. She is the President of the Westchester Women's Bar Association and the former President of the White Plains Bar Association.

** Current information, including forms, can be obtained at: www.courts.state.ny.us

II. WRITTEN LETTERS OF ENGAGEMENT IN CIVIL AND CRIMINAL MATTERS WITH FEES OF $3,000 OR MORE:

Part 1215 to Title 22 of the Official Compilations of Codes, Rules and

Regulations of the State of New York (Ex. H) ....................................... 7

A. APPLICATION ............................................................................... 7

B. CONTENTS OF LETTERS OF ENGAGEMENT ............................ 7

III. RETAINER AGREEMENTS IN DOMESTIC RELATIONS MATTERS:

Part 1400 of the Joint Rules of the Appellate Division

(22 NYCRR 1400, Ex. I) ............................................................................ 8

IV. PRIOR CASE LAW THAT FAILURE TO OBTAIN A RETAINER

AGREEMENT IN DOMESTIC RELATION MATTERS BARS AN

ATTORNEY FROM COLLECTING LEGAL FEES HAS BEEN

APPLIED TO CIVIL ACTIONS ................................................................. 9

A. An Attorney Can Charge For An Initial Consultation

Without A Retainer Agreement But Must Have Signed

Statement of Client's Rights and Responsibilities ..................... 10

B. May Need A New Retainer Agreement When Partner

Changes Law Firms ....................................................................... 10

C. Need A New Retainer Agreement When Scope of

Legal Services Changes ................................................................ 12

D. Additional Cases Involving A Failure To Obtain a Retainer

Agreement and/or Comply With Additional Matrimonial

Rules ................................................................................................ 12

E. Retainer Agreement For Reduced Fee .......................................... 13

F. Misleading Retainer Agreements ................................................... 14

V. WRITTEN RETAINER AGREEMENT AND CLOSING STATEMENT

FOR CONTINGENCY FEES ........................................................................... 14

VI. WRITTEN TERMINATION LETTER ............................................................. 15

VII. FEE ARRANGEMENTS ................................................................................ 16

I. FEE DISPUTE ARBITRATION:

Part 137 of the Rules of the Chief Administrator (Ex. A)

A. APPLICATION

Applies to all attorneys retained in a civil matter on or after January 1, 2002 for fee disputes from $1,000 to $50,000 "except that an arbitral body may hear disputes involving other amounts if the parties have consented." §137.1(b)(2). All attorneys are required to participate and if they fail to do so without good cause, should be referred to the grievance committee." §137.11 (Ex. A at 12).

Applies to Domestic Matters and replaces Part 136: Fee Arbitration in Domestic Matters, which shall only apply to fee disputes in domestic matters where representation began prior to January 1, 2002.

Does not apply to:

"claims involving substantial legal questions, including professional malpractice or misconduct." §137.1(b)(3);

personal injury action because under §137(1)(b)(5) the fees in such disputes are determined pursuant to Judiciary Law §474-a.

"disputes where no attorney services have been rendered for more than two years" §137.1(b)(6);

criminal matters.

B. REQUIRING CLIENT TO SUBMIT TO ARBITRATION

The Client Always Has the Right To Fee Dispute Arbitration; The Attorney Only Has The Right To Fee Dispute Arbitration With The Client's Prior Written Consent.

Under §137.2(a), arbitration of disputed paid and/or unpaid legal fees is mandatory if requested by the Client. However, the Client does not have to participate in an arbitration requested by the attorney unless the attorney has obtained the Client's advance written consent "in a retainer agreement or other writing that specifies that the client has read the official written instructions and procedures for Part 137, and that the client agrees to resolve fee disputes under this Part." §137.2(b).

Section 6.B.1 of the Board of Governors' Standards and Guidelines (the "Board's Standards," attached as Ex. B at 4) states that the client's consent must be knowing and informed. The client's consent under §137.2(b) shall be stated in a retainer agreement or other writing specifying that the client has read the official written instructions and procedures for the local program designated to hear fee disputes between the attorney and client, and that the client consents to resolve fee disputes under Part 137.

Attached as Ex. C is UCS 137-13(11/01) "Consent To Resolve Fee Disputes By Arbitration Pursuant To Part 137.2(b) of the Rules of the Chief Administrator" which may be incorporated into a retainer agreement.

C. OPTING OUT OF TRIAL DE NOVO

The Client And Attorney Are Entitled To Commence A Trial De Novo, Within 30 Days After The Arbitration Award Is Mailed, Unless The Attorney Obtains The Client's Prior Written Consent That The Arbitration Award Will Be Final and Binding "In a Form Prescribed By The Board of Governors."

The De Novo Review procedure is set forth in §137.8 (Ex. A at 11).

Under §137.8 of the new Fee Dispute Resolution Program, either party is entitled to a de novo review of the arbitration award if an action is commenced "within 30 days after the arbitration award has been mailed."

Under §136.8 of the Fee Arbitration in Domestic Matters, the standard of review for an arbitration award was set forth in CPLR §7511, which basically requires a showing of corruption, fraud or misconduct to vacate an arbitration award or a "miscalculation of figures" or "mistake in the description of any person, thing or property referred to in the award" to modify an arbitration award. CPLR §7511.

However, under §137.2(c), which applies to matrimonial attorneys retained on or after January 1, 2002, the client and attorney are entitled to a de novo review unless the attorney makes the fee arbitration award "final and binding" with a client's prior written consent "in a form prescribed by the Board of Governors." (Ex. A at 3).

Section 6.B.2 of the Board's Standards states that in addition to complying with Section 6.B.1 of the Board's Standards, "the retainer agreement or other writing shall also state that the client understands that he or she is waiving the right to reject an arbitration award and subsequently commence a trial de novo in court." Ex. B at 4.

Attached as Ex. D is UCS 137-14(11/01) Form "Consent To Submit Fee Dispute To Arbitration Pursuant To Part 137.2(c) of the Rules of the Chief Administrator and to Waive Right To Trial De Novo." Also attached as Ex. F is a "Notice of Arbitration Award" subject to a trial de novo and a "Notice of Final and Binding Arbitration Award."

D. SELECTING A DIFFERENT ARBITRAL FORUM

Under §137.2(d), an attorney can select a different arbitral forum with the client's prior written consent also "in a form prescribed by the Board of Governors." (Ex. A at 13). Section 6.B.4 of the Board's Standards (Ex. B at 5) states that:

To be valid on the part of the client, such consent must be knowing and informed and must be obtained in a retainer agreement or other writing. Arbitration in an arbitral forum outside Part 137 shall be governed by the rules and procedures of that forum. The Board may maintain information concerning other established arbitral programs and shall provide contact information for such programs upon request.

Attached as Ex. G is UCS 137-16(11/01) Form "Consent To Final and Binding Arbitration In An Arbitral Forum Outside Part 137."

E. ARBITRATION PROCEDURE AND FORMS

The Arbitration Procedure (involving notice to the client and documents to be mailed to the client and submitted to the Court) is set forth in Section 137.6 (Ex. A at 7-10.) The following forms required to be sent to the client and/or used by the attorney or arbitrator are attached as Ex. E:

Notice of Client's Right to Arbitrate A Dispute Over Attorneys Fees

Notice of Client's Right to Arbitrate A Dispute Over A Refund Of Attorneys Fees

Standard Written Instructions and Procedures To Clients For The Resolution Of Fee Disputes Pursuant To Part 137 of the Rules of the Chief Administrator

Client Request For Fee Arbitration

Attorney Request For Fee Arbitration

Attorney Response To Request For Fee Arbitration

Client Response To Request For Fee Arbitration

Notice of Arbitration Hearing

Arbitrator's Oath or Affirmation

Mediator's Oath or Affirmation

Settlement

Arbitration Award.

F. ARBITRATION HEARING PROCEDURE

The Arbitration Hearing Procedure is set forth in Section 137.7 (Ex. A at 10-11).

Filing Fees may be required but must be "reasonably related to the cost of providing the service and shall not be in such an amount as to discourage use of the program." §137.9 (Ex. A at 12).

Proceedings and hearings should be confidential, "except to the extent necessary to take ancillary legal action with respect to a fee matter." §137.10 (Ex. A at 12).

Disputes involving a sum of less than $6,000 shall be submitted to one attorney arbitrator and of more than $6,000 shall be submitted to three arbitrators, which shall include at least one non-lawyer. Section 8 of the Board's Standards (Ex. B, at 6).

G. OPTIONAL MEDIATION

Arbitral bodies are strongly encouraged to offer mediation services as part of a mediation program approved by the Board of Governors. §137.12 (Ex. A at 12 and 13). Mediation is always voluntary for the client and for the attorney. Board's Standards, Section 11, Ex. B at 8.

Attached as Ex. F is UCS 137-15(11/01) "Consent To Submit Fee Dispute To Mediation" form.

II. WRITTEN LETTERS OF ENGAGEMENT IN CIVIL AND CRIMINAL MATTERS

WITH FEES OF $3,000 OR MORE:

Part 1215 to Title 22 of the Official Compilations of Codes, Rules and

Regulations of the State of New York (Ex. H)

A. APPLICATION

Effective March 4, 2002, all attorneys must have a written letter of engagement before commencing representation OR within a reasonable time after commencing representation of a client if it is impracticable at the time of commencement or if the scope of services cannot be determined at the time of the commencement of representation.

For purposes of Part 1215, where an entity (such as an insurance carrier) engages an attorney to represent a third party, the term "client" shall mean the entity that engages the attorney.

Where there is a significant change in the scope of services or the fee to be charged, an "updated letter of engagement" must be given to the client.

Part 1215 does not apply:

if legal fees are expected to be less than $3,000

where the attorney's services "are of the same general kind as previously rendered to and paid for by the client" [i.e., regularly existing clients]; or

to domestic relations matters which are still subject to Part 1400 of the Joint Rules of the Appellate Division (22 NYCRR 1400, Ex. I).

B. CONTENTS OF LETTERS OF ENGAGEMENT

Letters of Engagement Must Include:

(1) scope of legal services;

(2) attorney's fees to be charged, expenses and billing practices; and

(3) where applicable, notice of the client's right to arbitration of fee disputes under Part 137.

Letters of Engagement May Include:

Under §137.1(b)(2), Ex. A, an attorney may make fee arbitration apply to disputed amounts less than $1,000 or more than $50,000 "if the parties have consented. ..." Without the client's consent, fee arbitration does not apply to sums less than $1,000 or more than $50,000.

Under §137.2(b), Ex. A, an attorney may make fee arbitration mandatory for the client by obtaining the client's written consent in "a retainer agreement or other writing..." If not included in the retainer agreement, fee dispute arbitration commenced by a client is mandatory for the attorney but is not mandatory for the client if commenced by the attorney. Form attached as Ex. C.

Under §137.2(c), an attorney can make the arbitration award final, instead of subject to a de novo review, by obtaining the client's written consent. Form attached as Ex. D.

Under §137.2(d), an attorney can select a different arbitral forum for fee dispute arbitration, by obtaining the client's written consent. Form attached as Ex. G.

Although there is no requirement that a client sign a Letter of Engagement, obviously where the client's written consent is required, the "Letter of Engagement" must be signed by the client. Is a signed "Letter of Engagement" a "Retainer Agreement”?

III. RETAINER AGREEMENTS IN DOMESTIC RELATIONS MATTERS:

Part 1400 of the Joint Rules of the Appellate Division (22 NYCRR 1400, Ex. I)

Effective as of November 30, 1993, attorneys in domestic relations matters MUST:

give prospective clients a statement of clients rights and responsibilities under §1400.2, Ex. I;

have a written retainer agreement complying with the conditions and containing the information set forth in §1400.3, Ex. I;

if the attorney wants to charge a "minimum fee", this provision must be included in the retainer agreement under §1400.4, Ex. I; and

if the attorney wants the option of seeking a security interest for unpaid legal fees, this provision must be included in the retainer agreement under §1400.5, Ex. I.

Under DR 2-106(C)(2), attorneys must have a written retainer agreement in domestic relations matters.

Under §202.16(c) of the Uniform Rules for the New York State Trial Courts (Ex. J at 1), a signed copy of the retainer agreement must be attached to the Statement of Net Worth that under §202.16(f) is to be filed with the court 10 days prior to the preliminary conference which is to be held within 45 days after the matrimonial action has been assigned to a judge.

IV. PRIOR CASE LAW THAT FAILURE TO OBTAIN A RETAINER AGREEMENT IN DOMESTIC RELATIONS MATTERS BARS AN ATTORNEY FROM COLLECTING LEGAL FEES HAS BEEN APPLIED TO CIVIL ACTIONS

Feder, Goldstein, Tanenbaum & D’Errico v. Ronan, et al, 195 Misc.2d 704, 761 N.Y.S.2d, 463 (Sup. Ct. Nassau Co. 2003).

Inasmuch as the enactment of 22 NYCRR 1215.1 is relatively recent, this court was unable to find any cases that address the specific issue raised herein. However, 22 NYCRR 1215.1 is substantially similar to22 NYCRR 1400.3, the rule affecting attorneys who represent clients in Domestic Relations Matters…Since the enactment of 22 NYCRR 1400.3, the courts have repeatedly held that an attorney who fails to provide a client with a written retainer agreement is "precluded" from recovering legal fees… Inasmuch as the Plaintiff in this action acknowledged its failure to comply with the provisions of 22 NYCRR 1215.1, by failing to provide the Defendants with a written letter of engagement or written retainer agreement, this court finds that Plaintiff is precluded from recovering legal fees.

Domestic Relation Cases

Bishop v. Bishop, 743 N.Y.S.2d 724 2002 N.Y. App. Div. LEXIS 5976 (2d Dep't 2002):

It is well settled that a "[matrimonial] attorney is precluded from seeking fees from his or her client where the attorney has failed to comply with 22 NYCRR 1400.3, which requires the execution and filing of a retainer agreement that sets forth, inter alia, the terms of compensation and the nature of services to be rendered." (Mulcahy v. Mulcahy, 285 A.D.2d 587, 588, 728 N.Y.S.2d 90; see Kayden v. Kayden, 278 A.D.2d 202, 717 N.Y.S.2d 908; Potruch v. Berson, 261 A.D.2d 494, 688 N.Y.S.2d 897). Likewise, an attorney's failure to provide a prospective client with a statement of rights and obligations will also preclude collection of a fee (see Hunt v. Hunt, 273 A.D.2d 875, 876 , 709 N.Y.S.2d 744), as will the attorney's failure to provide itemized bills at least every 60 days (see Julien v. Machson, 245 A.D.2d 122, 666 N.Y.S.2d 147; Kaplowitz v. Newman, 185 Misc.2d 205, 206, 713 N.Y.S.2d 115). The failue to abide {**3] by these rules, "'promulgated to address abuses in the practice of matrimonial law and to protect the public,'" will result in preclusion from recovering such legal fees (Mulcahy v. Mulcahy, supra at 588, quoting Julien v. Machson, supra).

Settembrini v. Settembrini, Unpublished, Hon. Fred Shapiro (N.Y. Sup. Ct. August 19, 2002)

Attorney sought unpaid legal fees from client he represented in a matrimonial matter. Attorney represented client in prior estate and tax matters but did not ask the client to sign a retainer agreement. Attorney also did not ask client to sign a written retainer agreement until after beginning representation in the matrimonial action. Attorney was allowed to recover fees earned subsequent to the time he provided the client with a Statement of Client’s Rights and Responsibilities and executed a retainer agreement for the matrimonial action, because there was substantial compliance with the matrimonial rules, which is a prerequisite to recovering unpaid legal fees. The court disallowed fees of over $20,000 for work attorney completed prior to the date client signed the written retainer agreement.

A. AN ATTORNEY CAN CHARGE FOR AN INITIAL CONSULTATION WITHOUT A RETAINER AGREEMENT BUT MUST HAVE A SIGNED STATEMENT OF CLIENT’S RIGHTS AND RESPONSIBILITIES

NYSBA Opinion 685 3/19/97

Prospective clients in matrimonial matters must be provided with the Statement of Client’s Rights and Responsibilities, but need not be asked to sign retainer agreements, at consultations that occur before the attorney has agreed to undertake the representation. An attorney can charge the client for the initial consultation so long as he or she provides the client with a clear understanding of the cost of the consultation and the method by which it will be calculated.

B. MAY NEED A NEW RETAINER AGREEMENT WHEN PARTNER

CHANGES LAW FIRMS

Esanu Katsky Korins & Siger, LLP v. Stoessinger, N.Y.L.J. 9/20/01 at 17 (Civil Ct. N.Y. Co. September 2001)

Attorney was retained in June 1993, prior to the November 30, 1993 effective date of 22 NYCRR 1400 et seq. and Part 136.5(c) (the "Matrimonial Rules") and continued to represent the client when he changed law firms in 1995. The court denied his claim for legal fees in the amount of $17,613.61 incurred while at his former law firm, reasoning that the client had retained the attorney's former law firm and without evidence of an assignment of rights from his former law firm, the attorney lacked standing to pursue a claim for legal fees owed to his former law firm.

The court then denied his claim for legal fees in the approximate amount of $53,000 incurred while at his current law firm because the attorney failed to obtain a written retainer from the client after he changed law firms in 1995. Citing Flanagan v. Flanagan, 267 A.D.2d 80 (1st Dep't 1999) and Julien v. Machson, 245 A.D.2d 122 (1st Dep't 1997), the court reasoned that the attorney was not entitled to recover attorneys fees incurred at his new law firm because he had not substantially complied with the Matrimonial Rules.

Lesson: Get a written assignment of rights and a new retainer letter for each active client when changing law firms.

Koeth v. Koeth, 2002 NY Slip Op 40046U (Sup. Ct. Nassau Co. 2002)

Attorney sought enforcement of his charging lien. A retainer agreement had been executed between the attorney’s law firm and his client in 1995 in compliance with 22 NYCRR 1400.3 and client received a Statement of Client’s Rights and Responsibilities in compliance with 22 NYCRR 1400.2. Attorney left his law firm several months later and continued to represent client in her matrimonial action without executing a new retainer agreement or tendering a Statement of Client’s Rights and Responsibilities. The court held that the attorney was entitled to the fees earned after leaving his law firm. Client-defendant cited in support of its position Potruch v. Berson, (Supreme Ct., Nassau Co. Index No.29881/1997) [aff’d, 261 A.D.2d 494; 688 N.Y.S.2d 897 (2d 1999)], in which the plaintiff-attorney was denied legal fees for failing to comply with 22 NYCRR 1400.

The court distinguished Potruch from this case. In Potruch, the retainer agreement was signed between the law firm and the client before the attorney seeking the fees became affiliated with the firm. The attorney in Koeth, however, was employed at the firm at the time of the execution of the retainer agreement, which was executed on firm letterhead on which the attorney’s name was printed as a “name” partner. The attorney in Potruch transferred to second and third firms as well, and still no retainer was executed. In Koeth, the court found that the attorney’s second firm adopted the retainer of the former firm and that the attorney, in two subsequent motions filed on behalf of client, also adopted the original retainer agreement. In addition, the attorney sent out all bills to the client on his letterhead.

Finally, and most compelling, is that the client, on three occasions, ratified the original retainer agreement in her motions to the court and acknowledged her awareness of the status of the legal fees paid on account. The court, in allowing the fees, stated that the attorney’s conduct did not violate the “spirit and purpose” of the rules.

Distinguished: Esanu may be distinguished from Koeth, because in Esanu, the client never signed a Retainer Agreement, while in Koeth, the client signed a Retainer Agreement with the first firm.

NEED A NEW RETAINER AGREEMENT WHEN SCOPE OF LEGAL

SERVICES CHANGES

Hunt v. Hunt, 273 A.D.2d 875, 709 N.Y.S.2d 744 (4th Dep't 2000).

The Wife's motion papers were stricken due to her attorney's failure to file the requisite certifications pursuant to 22 NYCRR 202.16(e) and 130.1.1a.

Wife's attorney was not entitled to attorney's fees because the attorney also violated the Matrimonial Rules by not providing a statement of client's rights and responsibilities and a written retainer agreement. The court rejected the attorney's argument that the Matrimonial Rules did not apply because the attorney was retained before November 30, 1993, reasoning that the "motion brought by plaintiff was a new 'claim' within the meaning of 22 NYCRR 1400.1."

Lesson: Get a Statement of Clients Rights and Responsibilities, as well as a written retainer agreement, when representing a client on what a court might determine to be a new "claim" or a "substantial" change in the scope of legal services.

D. ADDITIONAL CASES INVOLVING A FAILURE TO OBTAIN A RETAINER AGREEMENT AND/OR COMPLY WITH ADDITIONAL MATRIMONIAL RULES

In the Matter of Melinda Pollard, 2001 N.Y. App. Div. Lexis 12186 (2d Dep't 2001)

Attorney suspended from the practice of law for one year because when she was retained in September 1998 to obtain an uncontested divorce for client, she failed to provide a written retainer agreement and did not file the necessary documents to procure the divorce until November 1999 (after the client filed a complaint).

Anne R. Mueller, Plaintiff v. Thomas Pacicca, Defendant, 179 Misc.2d 392, 684 N.Y.S.2d 753 (City Court of New York, White Plains) (1998) (Friia, J.).

Attorney directed to refund legal fees where she failed to serve a notice to arbitrate under 22 NYCRR 136.5(a) and (c) until 8 days after commencement of action for unpaid legal fees and where she failed to obtain a written retainer agreement under 22 NYCRR 1400.3.

K.E.C., Plaintiff v. C.A..C., Defendant, 173 Misc.2d 592, 661 N.Y.S.2d 175 (Sup. Ct., Kings Co.) (1997) (Yancey, J.).

Denying charging lien for failure to timely provide Statement of Rights to client and otherwise comply with Matrimonial Rules.

Susan Moraitis, Plaintiff v. Dean Morris, Defendant, 181 Misc.2d 510, 694 N.Y.S.2d 588 (Sup. Ct., Nassau Cty.) (1999) (Jonas, J.).

Denying retaining lien for failure to provide notice of right to arbitration. Denying charging lien, without prejudice to renew once notice of right to arbitration was served.

L.H., Claimant v. V.W., Defendant, 171 Misc.2d 120, 653 N.Y.S.2d 477 (Civil Ct., Bronx Cty.) (1996) (Ling - Cohan, J.C.C.).

Dismissing Civil Court action of matrimonial lawyer to recover fees for failure to plead compliance with the Matrimonial Rules.

George Phillips, Plaintiff v. Carlota Phillips, Defendant, 178 Misc.2d 159, 678 N.Y.S.2d 24 (Sup. Ct., Nass. Cty.) (1998) (Cozzens, J.).

Signature on retainer agreement by individual holding client's power of attorney does not comply with Matrimonial Rules. Charging lien denied.

E. RETAINER AGREEMENT FOR REDUCED FEE

NYSBA Opinion 739 4/16/01:

A lawyer who has agreed to represent a low or moderate income individual in a matrimonial action for a reduced fee may include in the retainer a provision contemplating an application to the court for counsel fees from the client's spouse at the lawyer's customary rate, provided that in the making of an application, the lawyer informs the court of the terms under which the lawyer has accepted the engagement.

F. MISLEADING RETAINER AGREEMENTS

NYSBA Opinion 719 7/28/99:

A lawyer may not incorporate into the retainer agreement additional grounds for withdrawal other than those specified in 22 NYCRR 1400 if the lawyer does not specify the requirements under DR 2-110 of the Code of Professional Responsibility. Specifically, DR 2-110 forbids a lawyer from withdrawing until the lawyer obtains the consent of the tribunal, if required, and takes appropriate steps to avoid foreseeable prejudice to the rights of the client. Withdrawing without doing so would contravene DR 2-110 by misleadingly implying that a lawyer may terminate the representation without complying with these requirements.

A retainer agreement is also misleading if the agreement contains grounds for withdrawal not specified in 22 NYCRR 1400 and incorporates the statement that such circumstances “shall be good cause for withdrawal.” The use of “shall” implies to the client that the lawyer has an absolute right, and perhaps even a duty, to withdraw under any of the additional enumerated circumstances. The statement “may be good cause for withdrawal” is less misleading.

Additionally, it is improper to enumerate in the retainer that in the event a client fails to pay a bill within 30 days, the client agrees that the firm may terminate the representation. Such clause does not address whether the client’s nonpayment was deliberate. Disciplinary rule DR 2-110(C)(1)(f) permits a lawyer to withdraw only if the client “[d]eliberately disregards an agreement or obligation to the lawyer as to expenses or fees.”

V. WRITTEN RETAINER STATEMENT AND CLOSING STATEMENT FOR CONTINGENCY FEES IN PERSONAL INJURY, CONDEMNATION AND CHANGE OF GRADE PROCEEDINGS MUST BE FILED WITH THE OFFICE OF COURT ADMINISTRATION (“OCA”)

Supreme Court Rules, Appellate Division, Second Department, §691.20 (not attached); First Department §603.7 (not attached).

Statement of Retainer must be filed with the OCA within 30 days of the commencement of the engagement of the initial attorney (691.20(a)(1)) and within 15 days of the engagement of an attorney retained by another attorney (691.20(a)(1)). See, Rabinowitz v. Cousins, 219 A.D.2d 487, 631 N.Y.S.2d 312 (1st Dep't 1995) (Plaintiff, the second attorney in a medical malpractice action, was precluded from receiving legal fees because he did not file a retainer statement as required under 22 NYCRR 603.7(a)).

Closing Statement must be filed with OCA within 15 days after any attorney receives, retains or shares any sum or, if there is no recovery, within 30 days after the disposition of the claim, action or proceeding or the termination of a retainer agreement. (691.20(B)(1).

VI. WRITTEN TERMINATION LETTER TO COMMENCE THREE-YEAR STATUTE OF LIMITATIONS FOR ATTORNEY MALPRACTICE; LAST INVOICE TO COMMENCE TWO-YEAR TIME PERIOD WITHIN WHICH A CLIENT MUST COMMENCE A FEE DISPUTE ARBITRATION

Shumsky v. Eisenstein, 96 N.Y.2d 164, ­750 N.E.2d 67, 726 N.Y.S.2d 365 (2001).

The rule of "continuous representation" tolls the three-year statute of limitations on legal malpractice actions, but only where the attorney's representation pertains specifically to the matter in which the malpractice was committed. In this case, an attorney was retained to sue a home inspector for breach of contract. The attorney failed to commence the action before the statute of limitations expired in March 1994. He thereafter failed to tell plaintiffs this, and when they called to inquire about the status of the case in October 1996, the attorney put off responding to the inquiry because he was embarrassed.

Fourteen months later, plaintiffs sued the attorney for malpractice. The attorney argued that the plaintiffs were time-barred because the malpractice occurred when the statute of limitations expired on plaintiffs' contractual claim against the home inspector (March 1994) and plaintiffs did not file their malpractice action until December 1997, more than 3 years later.

The Court of Appeals applied the continuous representation rule, stating that upon signing a retainer agreement, plaintiffs and defendant "reasonably intended that their professional relationship would continue." Plaintiffs' attempt to contact their attorney in October 1996 confirmed that understanding. Plaintiffs reasonably thought at the time that their attorney was working on their case. When he failed to return their calls, that put them on notice that their attorney's representation had ceased. This ended the "continuous representation" toll. Since plaintiffs commenced their malpractice action within the three-year limitations period for malpractice actions, their action was held to be timely.

Lesson: Consider ending a possible "continuous representation" toll by sending clients a letter formally terminating representation. Also consider that under the new fee dispute arbitration rules (§ 137.1(b)(6)), the client cannot commence an arbitration where “no attorney’s services have been rendered for more than two years” (i.e., two years after receiving the final invoice).

VII. FEE ARRANGEMENTS

Hourly Fees - must be used in all domestic relations matters.

Nonrefundable Retainers and Minimum Fees - under §1400.4 (Ex. I), a nonrefundable retainer cannot be used in domestic relations matters but a minimum fee is permitted. The difference is that to collect a minimum fee, the attorney must handle the case to its conclusion.

Flat Fee for a Specified Legal Service - may be appropriate for commercial transactions, real estate closings, foreclosure proceedings, administration of an estate drafting wills; should not be used in domestic relations matters because nonrefundable retainer fees are prohibited and an attorney could not collect a minimum fee if he or she doesn't handle the case to its conclusion.

Annual (or Periodic) Retainer - a specified sum usually paid on a periodic basis to retain an attorney's services for a specified time period: i.e., a town attorney, general corporate counsel, not-for-profit counsel.

Contingency Fee - normally associated with personal injury, wrongful death and condemnation proceedings.

Contingency fee cannot be charged in domestic relations matters (§1400.2, Ex. C).

The court must determine "suitable compensation" for the attorney who has an agreement with a guardian of an infant for compensation "dependent upon the success of the prosecution by said attorney of a claim belonging to said infant, or by which such attorney is to receive a percentage of any recovery or award in behalf of such infant or a sum equal to a percentage of any such recovery or award. ... (Judiciary Law §474)

Schedule for contingent fees in medical, dental or podiatric malpractice claims or actions:

30% on first $250,000

25% on next $250,000

20% on next $500,000

15% on next $250,000

10% on any amount over $1,250,000.

(Judiciary Law §474-a.)

Blended (or "Creative") Fee Arrangements - an attorney might charge an hourly fee up to a certain amount and thereafter charge a contingency fee or defer payment of fees until recovery, if any. For example, in an environmental litigation involving clean-up of a site and compensatory damages, the attorney might charge an hourly fee up to the point where the paid fees total $20,000, and thereafter a contingency fee; the fee arrangement could then require the client to pay hourly fees once the uncharged hourly fees exceed $40,000.

Obtaining Business or Ownership Interest for legal services in lieu of a monetary legal fee - a lawyer may perform legal services in exchange for an interest in a business, property or venture which interest may or may not be contingent upon the success of the lawyer's legal performance: e.g., obtaining subdivision approval for a real estate development. (See DR 5-104).



Contact Me

If you think you may require the assistance of Kathleen Donelli in any matter, email (kdonelli@mccarthyfingar.com) or phone her (914-385-1010) with any question you may have.