Home » Publications & Outlines » Kathleen Donelli, White Plains Divorce Lawyer, Retainer Agreements and Fee Disputes - 2-4-06

Retainer Agreements and Fee Disputes

Pace University School of Law

February 4, 2006

Kathleen Donelli, Esq.*

McCarthy Fingar LLP

11 Martine Avenue

White Plains, New York 10606

I. Retainer Agreements and Fee Disputes

Background

Wife ("W") and Patricia Partner ("P") signed a Retainer Agreement on December 10, 2004 (Exhibit A). By letter dated December 15, 2004, P notified W's husband ("H") that her firm had been retained to resolve Wife's matrimonial dispute with H and asked that H have his attorney contact P on or before January 6, 2005. On January 6, 2005, H called P and told her that he and W had reconciled. P immediately called W who told P that she was reconsidering her decision to get divorced. W told P she would call her in a few weeks. Wife received an invoice for legal fees dated February 15, 2005 (Exhibit B).

W did not call P again until June 15, 2005, when she told P that H had been arrested for pushing W out the front door of the marital residence. W was afraid that H would be furious when he returned from the police station. P explained to W that she had a court appearance on another matter scheduled in the afternoon but that her colleague, Ann ("A") could meet W at family court to obtain a temporary order of ___________

* Kathleen Donelli is a partner with McCarthy Fingar LLP and concentrates her practice in the areas of matrimonial law and commercial litigation. She is the Co-Chair of the Westchester County Bar Association's Grievance Committee, the immediate past President of the Westchester Women's Bar Association and a former President of the White Plains Bar Association.

protection, directing H to "stay away" from W and the marital residence. W agreed to meet A at family court that afternoon.

While in family court, W told A that H controlled all of their money and she was afraid that if she obtained a temporary order of protection directing H to "stay away" from W and the marital residence, H would stop paying the household bills. A told W that if W commenced a divorce action in Supreme Court, W immediately could seek an order directing H to maintain the parties' "financial status quo" pending the resolution of their divorce action.

After obtaining the temporary order of protection ("TOP") in family court on June 15, 2005, W and A returned to the law office and met with P for 3 hours, during which time they started drafting documents so W could obtain temporary support. A also arranged to have a process server serve the TOP upon the H at his job. On June 17, 2005, W returned to the office to sign her Statement of Net Worth and affidavit in support of her pendente lite motion.

On June 20, 2005, after A submitted the Order To Show Cause to the supreme court, W left a telephone message for P explaining that she and H had celebrated Father's Day together on June 19, 2005 and W had changed her mind about obtaining a divorce. When P returned W's call, P told W that she should wait a few days before making a decision to permit H back into the marital residence.

On June 21, 2005, H's attorney called A to discuss the family court case but did not tell A that W was considering a reconciliation. A drafted a Stipulation transferring the family court offense proceeding to the Supreme Court divorce action. When A called W to discuss her conversation with H's attorney, W angrily told A that the day before, W had notified P that she was reconciling with H and wanted to stop all of the court proceedings.

On June 22, 2005, W called P to discuss her legal fees and to confirm that she did not want to divorce her H.

After W received her July 10, 2005 billing statement (Exhibit B), she called P complaining about her legal fees and demanding the return of her $7,500 retainer. P told W that she would not refund the unbilled balance of W's retainer because $7,500 was a minimum fee.

QUESTIONS

During the fee dispute arbitration between W and the firm, the following issues were raised:

1. W refused to pay for the time charged on the family court offense proceeding because there was no retainer agreement.

2. W refused to pay P's hourly rate of $375 even though P had notified W in writing that as of March 1, 2005, her hourly rate would increase from $350 to $375.

3. Wife refused to pay for P's telephone call from H on January 6, 2005.

4. Wife claimed that P had promised her that the maximum cost for W's divorce would be $7,500.

5.a. Wife refused to pay A's expenses for traveling to family court.

b. Wife refused to send a payment directly to the process server for serving the TOP.

c. Wife refused to pay the expense for the family court transcript.

6. W claimed that P should refund her $7,500 because P did not send billing statements to W at least once every 60 days.

7. Could P have charged W interest on unpaid legal fees?

8. W refused to pay for her call to P complaining about her legal fees.

9. P claimed that her firm did not have to refund to Wife the unused balance of W's $7,500 retainer because it was a "minimum fee."

10. Assuming W had proceeded with her divorce action, would the firm be required to appeal the Supreme Court's decision denying W maintenance?

11. W refused to pay for A's time, claiming she retained P, not A.

12. Could the firm have stopped representing W in the family court proceeding if W refused to pay?

13. Could the firm seek a charging lien for Wife to pay her outstanding legal fees from her award of child support arrears?

14a. Does the firm have the right to compel W to arbitrate their fee dispute?

b. Does W or P have the right to seek a de novo trial after the arbitrator's award?

15. H files a grievance against P & A for lying when they included in the family court petition that H was in a drunken rage and violently pushed his W out of the front door of the marital residence. Can P submit W's affidavit supporting W's request for an order of protection?

EXHIBIT D FEE DISPUTE ARBITRATION:

Part 137 of the Rules of the Chief Administrator

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

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") 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 to the Corrected Retainer Agreement (Exhibit 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."

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 (Exhibit D).

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 to the Corrected Retainer (Exhibit 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."

EXHIBIT E 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

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.

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), 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. 

· 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. 

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

EXHIBIT F RETAINER AGREEMENTS IN DOMESTIC RELATIONS MATTERS:

Part 1400 of the Joint Rules of the Appellate Division (22 NYCRR 1400)

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;

· have a written retainer agreement complying with the conditions and containing the information set forth in §1400.3;

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

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, 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.

FAILURE TO OBTAIN A RETAINER AGREEMENT IN DOMESTIC RELATIONS MATTERS BARS AN ATTORNEY FROM COLLECTING LEGAL FEES

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.

B. 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.