PACE LAW SCHOOL
ETHICS AND PROFESSIONALISM
February 7, 2004
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)
C. OPTING OUT OF TRIAL DE NOVO
................................................. 4
E. ARBITRATION PROCEDURE
AND FORMS ................................... 5
F. ARBITRATION HEARING
PROCEDURE ........................................ 6
G. OPTIONAL MEDIATION ................................................................... 6
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.
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.