f/k/a archives . . . real opinions & real haiku

.. ……. Alice Lawrence v. Graubard Miller ……..

Note: For a comprehensive look at the “standard contingency fee”, see our 4-part essay on the ethics of contingencies fees, including the importance of risk and the lawyer’s ethical duties; and our post on related fiduciary duties.

Two weeks ago, a New York appeals court issued its 4-to-1 decision in Lawrence v. Miller (2007 NY Slip. Op. 09348; Nov. 27, 2007). In an opinion by presiding judge Richard T. Andrias, the First Department’s Appellate Division refused to declare a 40% contingent fee “unconscionable on its face.”

In a general dictionary, unconscionable means “Not restrained by conscience.” In legal terms, a contract or bargain is “unconscionable” when it is “so unfair to a party that no reasonable or informed person would agree to it.”

In Lawrence v. Miller, the appeals court held that a trial would be needed, in this probate case dating back to the death of real estate mogul Sylvan Lawrence in 1981, to determine whether the $42 million fee charged by the law firm Graubard Miller to 80-year-old widow Alice Lawrence in 2005 — for about four months’ work, and on top of $18 million in hourly fees and $5 million in “gifts” already paid, and a retainer for an added $1.2 million in hourly billing for that year — was unconscionable under the circumstances, or otherwise met criteria needed to be deemed fair and reasonable under ethical standards for lawyers.

In a lengthy, thoughtful dissenting opinion, Justice James Catterson dissented explained why he concluded that the fee was unconscionable as a matter of law, the agreement should be voided, and the defendants should be referred to the Department Disciplinary Committee.

update: See “N.Y. High Court Skeptical of $40 Million Payoff From Contingency Fee Deal” (New York Law Journal, Oct. 24, 2008), a lengthy news article, which describes oral argument in this case at the New York Court of Appeals on Oct. 23, 2008.  It notes that “Members of the court appeared skeptical during an hour of oral arguments about the size of the fee and several questioned the propriety of Graubard Miller seeking to collect the entire amount.” And, that “Judge Robert S. Smith echoed several of his colleagues when he wondered whether a legitimate contingency agreement, ‘where it works out so favorably to the lawyer, where it is so much money for so little work,’ could be considered unconscionable.” (via Overlawyered.com)

With greedy lawyers as villains, an octogenarian widow as victim, and sharply disagreeing jurists, it’s the kind of story that you’d expect to get lots of press — especially after the New York Times featured it in the article, “Court Calls a 40% Fee to Lawyers Defensible” (NYT, Nov. 29, 2007). Online, the Daily Brief column at the Conde Nast Portfolio noted “It’s Been a Bleak House Kind of Week in Court” (Nov. 30, 2007). The ABAJournal News quickly posted a nice summary, in the piece “Court Doesn’t Void $42M Contingency Deal Reached Before Settlement” (Nov. 29, 2007). And Law.com republished Anthony Lin’s excellent discussion of the case from the New York Law Journal, in “Late 40 Percent Retainer Pact Survives Widow’s Dismissal Bid” (Nov. 29, 2007).

Even more than a good story for the mainstream and legal press, Lawrence v. Miller would seem to be a perfect topic for the blawgisphere — the world of weblogs by and for lawyers, where attorneys, law professors and students, plus various ideologues, “reformists” and pundits, love to show their expertise and biases, engage in both scholarly and unruly debate, and boast of the important role of blawgs in educating the public about law and lawyers. As Allison Shields at Legal Ease noted, in “High Legal Fees May Not Be Unconscionable” (Nov. 29, 2007), the case involves “an issue near and dear to lawyers’ hearts – their fees.”

Lawrence v. Miller does indeed raise some very interesting questions to discuss and debate, preach and pontificate over, or educate and entertain with. Mark Zauderer, who represented the Grauber Miller law firm, told the NYT: “What the courts recognize is that a fee agreement is not unconscionable simply because it can produce a big fee. You have to look at the value rendered to the client.” Others involved in the case were a bit more specific:

In his opinion for the Lawrence majority, Judge Andrias noted that:

• “circumstances underlying the agreement must be fully developed, including any discussions leading to the agreement, as well as the prospects at that time of successfully concluding the litigation in favor of Mrs. Lawrence. . . . What is in dispute are the circumstances surrounding the revision of the parties’ retainer agreement and the value of the Graubard firm’s services in effecting a final settlement of the decades-old litigation involving distribution of the estate.”
  • “Prior to the revised retainer agreement, Mrs. Lawrence had personally negotiated with her nephew, the late exector’s son, and received a $60 million offer from the executor’s estate, but such offer did not result in a settlement.”

• “The basic requirement in any retainer agreement is that it be fair and reasonable. In the case of an amended agreement, the attorney has the burden of showing that the client understood the terms of the agreement and that the attorney did not exploit the client’s confidence in negotiating the terms of the agreement.”
• “The issue of unconscionability . .. cannot be resolved without determining Mrs. Lawrence’s capacity (the fact that she was nearly eighty, by itself, is insufficient to put her mental capacity into question); what she was advised; and whether she understood the ramifications of the revised agreement.”
  • [The Court of Appeals recent decision in King v. Fox, 7 NY3d 181, 2006] “merely holds that it is inherently difficult to determine the unconscionability of contingent fee agreements and it is not necessarily the agreed-upon percentage or the duration of the recovery that makes such a fee arrangement unconscionable, but the facts and circumstances surrounding the agreement, including the parties’ intent and the value, in hindsight, of the attorney’s services in proportion to the fees charged (id. at 192).”

In his dissenting opinion, Judge Catterson argued that “Regardless of the procedural aspects of the parties’ negotiations, no court can condone such an exhorbitant fee,”

• “where the risks taken be Graubard were virtually nonexistent (having been paid $18 million in legal fees already and negotiated another $1.2 million for the ensuing year, plus its disbursements)” . . .
• “and the Graubard firm only added, at most, another seven months of legal work to its 22 years of service. . . .” and,
• “Without the costs and risks generally associated with contingency fee arrangements, such a fee agreement is nothing short of plain greed.” See King, 7 N.Y.S.2d at 841 (policy behind allowing contingency fee arrangements is based upon providing access to the courts and the fact that attorneys risk their time and resources in endeavors that could prove fruitless).

Press coverage also echoed these questions. In her “Bleak House” column, Conde Nast‘s Karen Donovan noted that “Big contingency fees are nothing new, of course. But they are usually associated with the risk-taking personal injury lawyers who go after Big Pharma and Big Tobacco.” And she quoted New York University School of Law professor Stephen Gillers, who pointed out that “No one won this; it was put off to another day,” and added:

“I found the conduct of the lawyers troubling, and it will be important for the conduct eventually to be thoroughly reviewed by the court, following the development of the information that the appellate division required.”

Similarly, in the NYLJ article, Anthony Lin explained:

“Though contingent fees of such magnitude are not uncommon in personal injury cases, they are rarer in estate cases. Moreover, such deals normally date from the beginning of the litigation and are in lieu of hourly fees, meaning a law firm bringing a case on a contingent-fee basis normally faces a risk of nonrecovery.”

“But Graubard Miller’s contingent-fee deal was signed in January 2005, only months before the settlement. The 1983 retainer agreement in effect prior to that only specified hourly billing. In his dissent, Justice Catterson said the contingent fee might have been reasonable if agreed upon at the beginning of the case or if the firm had agreed to refund its previous fees.

“Without the costs and risks generally associated with contingency fee arrangements, such a fee agreement is nothing short of plain greed,” he wrote.

With such meaty issues and tasty facts, we’d expect pundits, scholars and practitioners to be salivating at their keyboards, eager to chew over and savor the Lawrence case and its lessons, and anticipating the next stage in the litigation. Even if they avoided drawing definitive conclusions on the appropriateness of the fees in question, blawgers could anticipate an eager audience. Just telling us how to think about the issues raised by Lawrence, and how thousands of practitioners deal with them every day across the nation, as they enter into contingency fee arrangements, would have enaged lawyers and clients alike, and made a great record for future reference.

However, when we look to see how Lawrence v. Miller has been treated over the past fortnight in the blawgisphere, we find it mentioned in only a handful of posts; we discover what I consider to be an unconscionable silence:

If educating the bench, bar and public about the ethics and equities of contingency fees is our goal as members of the legal profession, or as blawgers, we should be asking a lot of questions about the dearth of discussion on the issues raised by Lawrence v. Miller. We should be wondering who is benefiting from this conspiracy of silence, who is hurt by it, and just who is enabling it (hint: all of those within our profession who seem to worry more about tacky tv ads by p/i lawyers than about their strange demand for at least a third of every client’s damages, no matter how easy the case or how little their risk). The answers should shock our consciences into action.

Sadly, the silence is no longer surprising, given the subject matter. You see, the appropriateness of the particular contingency fee charged an individual client, and the notion that any “standard” percentage charged — such as 33 and 1/3rd or 40% — might be excessive, clearly fall within an unspoken Code of Omerta among lawyers (a Pin-Striped Barbed Wire Barricade similar to the police Blue Wall of Silence). The One-Third-Or-More Standard Fee is truly a Third-Rail Issue for any member of the legal profession who needs to win a popularity contest (like a judgeship or bar presidency), or who merely hopes to walk into the Lawyers Lounge at court without encountering a chilly rebuff from their brethren in the personal injury bar, or to operate a blawg without without facing charges of being an anti-consumer, anti-justice, pro-insurer, evil-doin’ “tort-reformer.”

In fact, it’s difficult to think of any comparable issue of legal ethics and client rights that is so adamantly and blatantly ignored by the practitioners directly involved in the practice. For example, try to find a p/i lawyer who is knowledgeable about, and willing to discuss the ramifications, of ABA Formal Ethics Opinion 94-389, which is described at length here). Although frequently mentioned by courts, the risk-percentage issue is also avoided by the regulators we’ve deputized to police lawyer conduct (see, e.g., “blame bar counsel for the Capoccia Scandal”); and even by lawyer-funded consumer advocates who focus on legal services issues (see our “Challenge to Public Citizen“).

FYI [since the contingency-fee bar won’t tell you]: As we’ve stated previously, ABA Formal Ethics Op. 94-389 persuasively — and with no apparent philosophical or political axe to grind, nor financial conflicts of interest — takes into account the ethics history of contingency fee regulation (in Model Codes and Rules, as well as ABA ethics opinions, and legal scholarship), and the modern utilization and economic role of contingency fee arrangements. It sets forth two basic requirements for the ethical use of contingency fee arrangements. The lawyer must: (1) fully inform the client of all relevant factors, so that agreements can be entered into knowingly and intelligently; and (2) treat each case and client separately, when deciding on the appropriateness of the arrangement and the reasonableness of the agreed-upon fee.

Given their ethical and fiduciary duties, the expectation is that the lawyer will make a good faith, professionally-informed estimate of anticipated effort and risk (of non–recovery of costs or inadequate compensation), and explain the evaluation to the client, prior to their coming to an agreement on a contingency fee. [Go here to learn why this is not an unreasonable burden to ask of lawyers who clearly do assess risk before accepting a client and do an excellent job of rejecting the too-risky case.]

In addition, because these obligations are so often “honored in the breach” by the Bar, the authors of Op. 94-389 urged that the legal profession “redouble its efforts to assure that the ethical obligations associated with entering into a contingent fee arrangement are fully understood and observed.”

Since my toe is already on the Third Rail, I’ll summarize by saying that the reasonableness of a contingency fee in a particular case will depend on how much risk the lawyer assumed of working extensive hours and incurring expenses without adequate compensation, and how much skill and exertion it will take to perform the tasks involved. The validity of the fee arrangement will also depend on whether the client was adequately informed (given his or her level of sophistication and knowledge) of the relevant factors when negotiating the fee level with the lawyer. The necessary corollary is that applying a “standard” fee to each client without taking the degree of risk into aaccount is unethical, because it will inevitably overcharge many clients. [For more detail, see our 4-part essay on the ethics of contingencies fees, including the importance of risk and the lawyer’s duties; and our post on related fiduciary duties.]

But, “wait a minute,” you might now be saying, why do you think there is a Taboo against mentioning the relationship of risk to the level of a contingency fee? Hasn’t f/k/a often reminded us that even the American Trial Lawyers Association (now humbly known as the American Association for Justice), agrees about the importance of risk? Indeed, we’ve quoted ATLA’s 2003 Statement to the Utah Supreme Court (at 12) that:

“Attorneys should exercise sound judgment and use a percentage in the contingent fee contract that is commensurate with the risk, cost, and effort required” and has explained that “The percentage charged in contingent fees may vary from case to case depending on the circumstances, including but not limited to, the risk of recovery, the impact of the expense of the prosecution, and the complexity of the case.”

“. . . Attorneys should discuss alternative fee arrangements with their clients. The passage is not merely information given to clients, but is taken verbatim from a resolution on professional ethics regarding the use of contingent fees, adopted by ATLA’s Board of Governors in 1986. This resolution continues to be ATLA’s policy regarding the ethical obligations of its members.”

. . . . . . . . . . . ATLA: the at least bar assoc.

Unfortunately, that passage — which was used by ATLA in its successful attempt to avoid limitations on fees under certain Early Offer Fee Proposals — has also been ignored by its members in their daily practice of law. At best, they cling to the word “risk” and act as if any risk at all justifies charging the maximum permitted percentage to every client.

So, why does the contingency fee gang impose and nurture ARTO (its anti-risk-talk Omerta rule) and a One-Third-Third-Rail policy?

In case the answer is not obvious, I’ll spell it out: Any discussion about the possible invalidity, unreasonableness, or unethical nature, due to inadequate risk in a particular case, of a one-third or 40% fee charged to any particular client, presupposes that contingency fees are supposed to relate to the actual perceived risk in each separate case. It directly undermines the attitude of the p/i cartel that the existence of any risk justifies any percentage rate that is permitted in the jurisdiction, or any rate agreed-to by the client (absent, perhaps, actual fraud or felony on the lawyer’s part, or the extreme mental incompetence of the client). And, it particularly condemns the near-universal practice of presenting as a fait accompli a “standard” percentage rate to virtually every client — a rate that is usually the maximum permitted in the State absent special judicial consent to go higher.

Similarly, to even ask whether a lawyer added sufficient value to the client’s case to warrant a contingent fee based on the entire award or settlement damages, undermines the contingent fee cartel’s fiction that the client’s case had no value until the lawyer does his or her magic and labors to produce the value, and that the outcome achieved automatically represents a good value for the client, well-worth applying not a tidy incentive bonus for doing the job they already should have been doing (their best job), but a significant portion of the entire pie, set at the maximum percentage rate permitted in the jurisdiction. (For more on the value issue, see our prior post)

So, in the wake of the decision in Lawrence v. Miller, who’s been talking about what makes a contingency fee conscionable, or fair and reasonable? Who hasn’t? And, why not?

another hot day
an old man scratches
his lottery ticket

…………. by Pamela Miller Ness

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