| Samuel v Druckman & Sinel, LLP |
| 2008 NY Slip Op 03073 [50 AD3d 322] |
| April 8, 2008 |
| Appellate Division, First Department |
| Steven B. Samuel, Esq., et al.,Respondents-Appellants, v Druckman & Sinel, LLP, et al.,Appellants-Respondents. |
—[*1] Daniel J. Dillon, Lido Beach, for respondents-appellants.
Order, Supreme Court, New York County (Debra A. James, J.), entered April 4, 2007, whichdenied defendants' motion and plaintiffs' cross motion for summary judgment as well asplaintiffs' effort to have the matter referred to the judge who had approved the compromisesettlement for award of legal fees in the underlying medical malpractice case modified, on thelaw, defendants' motion for summary judgment on its first counterclaim granted to the extent itseeks one third of the $805,767.30 legal fee awarded under Judiciary Law § 474-a (2) inthe underlying medical malpractice action, plaintiffs' cross motion for summary judgmentdeclaring the rights of the parties granted to the same extent and otherwise affirmed, withoutcosts. The Clerk is directed to enter judgment in favor of defendant Druckman & Sinel andagainst plaintiff Samuel & Ott in the principal amount of $268,589, with statutory interest fromApril 7, 2007.
Following settlement of a medical malpractice action for $6.7 million in May 2005, the trialcourt issued an infant's compromise order directing the defendant therein to pay legal fees(including disbursements) of $1,137,826.41 to the plaintiff's law firm (Samuel & Ott) and$762,173.59 to cocounsel Pegalis & Erickson. This was greater than the $805,767.30 to whichSamuel & Ott would have been entitled under the statutory sliding scale. Attorney Samueljustified the enhanced fee by pointing out that his firm was required to pay out of its portion boththe Pegalis firm, which had joined in performing extraordinary services, as well as Sinel, thereferring attorney, and that if limited to the fee under the statutory sliding scale, his and thePegalis firms would not be adequately compensated for the thousands of hours expended indeveloping and trying this complex case. Attorney Pegalis offered his own statement citing hisexpert contribution to the successful settlement of the case, which involved brain injury sufferedby an infant in the course of childbirth.
When Sinel insisted on one third of the entire enhanced amount awarded to Samuel andPegalis, Samuel commenced the instant action, alleging that any award to Sinel's firmwould be prohibited under Code of Professional Responsibility DR 2-107 (22 NYCRR 1200.12)and requesting that the court declare the parties' respective rights. Sinel counterclaimed for$588,832.08, which was approximately one third of the combined, enhanced fees awarded to the[*2]Samuel and Pegalis firms, net of disbursements, plus $3,000in disbursements. Plaintiffs cross-moved for an order declaring that Sinel and his firm were notentitled to any portion of the legal fee awarded. The motion court denied the parties' respectivemotions on the ground that the papers submitted were inadequate. We find that the recordpermits, and indeed requires, summary resolution of this dispute on the merits (State of NewYork v Metz, 241 AD2d 192, 196-202 [1998]).
Contrary to plaintiffs' contention, Sinel demonstrated that he "actually contributed to thelegal work" through initial investigation, and there is no claim that he ever refused a request tocontribute more substantially (Benjamin v Koeppel, 85 NY2d 549, 556 [1995]). Further,by disclosing to the client in writing that he was bringing in Samuel & Ott as trial counsel tohandle the bulk of the work, and that no additional fee would be charged to the client as a result,Sinel demonstrated sufficient compliance with DR 2-107 (a). Consistent with the parties'fee-sharing and retainer agreements, the Sinel firm is thus entitled to its one-third share of theamount recovered by the Samuel firm under the statutory sliding scale applicable in malpracticecases, without regard to any arrangement made between the Samuel and Pegalis firms (seeBorgia v City of New York, 259 AD2d 648 [1999]; Gair, Gair & Conason v Stier,123 AD2d 556 [1986], lv denied 69 NY2d 606 [1987]).
However, Sinel made no contribution to the extraordinary services provided by Samuel andPegalis that resulted in the trial court granting their application for an enhanced award of legalfees over the normal sliding scale. Under the circumstances, allowing Sinel to share in anyportion of the enhanced award would result in a fee grossly disproportionate to the servicesrendered. It would result in defendants, the referring attorneys, being awarded a fee larger thanplaintiffs, the attorneys who did the bulk of the work. Clearly, this could not have been the intentof the attorneys when they entered into their agreement nor can it be consistent with this Court'sobligation to oversee the reasonableness of legal fees (see Dugan v Dorff Constr. Co.,281 AD2d 158 [2001], lv denied 98 NY2d 606 [2002]; Code of ProfessionalResponsibility DR 2-106 [22 NYCRR 1200.11]).[FN*]Concur—Lippman, P.J., Mazzarelli and Sweeny, JJ.
Gonzalez and McGuire, JJ., dissent in a memorandum by McGuire, J., as follows: I agreewith the majority that, for the reasons it states, Supreme Court erred in not deciding the motionand cross motion and that defendant Sinel's law firm is entitled to a share of the $1.9 millionlegal fee awarded in the medical malpractice action. I also agree that the right of Sinel's law firmto a share of the fee is not affected by the arrangement made between plaintiff Samuel's law firmand the Pegalis law firm (see Borgia v City of New York, 259 AD2d 648 [1999]). Irespectfully disagree with the majority's determination not to enforce as written the agreementbetween Sinel's law firm and Samuel's law firm providing that the former "will be compensatedat the rate of one-third of the entire legal fee recovered for our participation in this [*3]matter, upon its conclusion by settlement, verdict or otherwise." Ineffectively rewriting the agreement, the majority contradicts controlling and well-settledprecedent dealing with such fee agreements and with contract law generally. Moreover, themajority establishes a precedent that will encourage—and enmesh the judiciaryin—needless and standardless litigation.
What the Court of Appeals stated in Benjamin v Koeppel (85 NY2d 549, 556 [1995])applies with equal force in this case. There, a law firm sought to avoid its contractual obligationto pay to an attorney who referred work to the firm one third of any fees the firm earned on theground that the attorney had not complied with mandatory registration requirements. Afterholding that precluding the attorney from recovering on his contract was "wholly out ofproportion to the requirements of public policy" (id. at 556 [internal quotation marksomitted]), the Court went on to state as follows: "In closing, we also note our rejection ofdefendants' contention that the fee-sharing agreement plaintiff seeks to enforce is invalid as amatter of professional ethics (see, Code of Professional Responsibility DR 2-107). It haslong been understood that in disputes among attorneys over the enforcement of fee-sharingagreements the courts will not inquire into the precise worth of the services performed by theparties as long as each party actually contributed to the legal work and there is no claim thateither 'refused to contribute more substantially' (Sterling v Miller, 2 AD2d 900,affd 3 NY2d 778; see, Witt v Cohen, 192 AD2d 528; Oberman v Reilly,66 AD2d 686; Rozales v Pegalis & Wachsman, 127 AD2d 577; Jontow v Jontow,34 AD2d 744, 745; Fried v Cahn, 239 App Div 213; Carter v Katz, Shandell,Katz & Erasmous, 120 Misc 2d 1009, 1018-1019; see also, Stissi v Interstate & OceanTransp. Co., 814 F2d 848, 852). Moreover, it ill becomes defendants, who are also bound bythe Code of Professional Responsibility, to seek to avoid on 'ethical' grounds the obligations ofan agreement to which they freely assented and from which they reaped the benefits (ABAComm on Professional Ethics, Informal Opn No. 870)." (Id.) This Court has repeatedlyfollowed that "well[-]settled" rule (see e.g. Stinnett v Sears Roebuck & Co., 201 AD2d362 [1994]; Gore v Kressner, 157 AD2d 575 [1990], lv denied 76 NY2d 701[1990]). So, too, have the other Departments (see e.g. Reich v Wolf & Fuhrman, P.C., 36 AD3d 885 [2d Dept2007], lv denied 9 NY3d 812 [2007]; Matter of Cohen Swados Wright HanifinBradford & Brett v Frank R. Bayger, P.C., 269 AD2d 739 [4th Dept 2000]).
The majority's approach also is contrary to first principles of contract law. "Freedom ofcontract prevails in an arm's length transaction between sophisticated parties . . .and in the absence of countervailing public policy concerns there is no reason to relieve them ofthe consequences of their bargain" (Oppenheimer & Co. v Oppenheim, Appel, Dixon &Co., 86 NY2d 685, 695 [1995]; see also Miller v Continental Ins. Co., 40 NY2d 675,679 [1976] ["It is well to remember too that 'the right of private contract is no small part of theliberty of the citizen, and the usual and most important function of courts of justice is rather tomaintain and enforce contracts, than to enable parties thereto to escape from their obligation onthe pretext of public policy, unless it clearly appears that they contravene public right or thepublic welfare' "], quoting Baltimore & Ohio Southwestern R. Co. v Voigt, 176 US 498,505 [1900]). Obviously enough, lawyers who practice in a specialized field like medicalmalpractice are sophisticated parties. [*4]When they enter intowritten agreements that govern their compensation, they do not become bumpkins. Yet, themajority does not permit freedom of contract to prevail.
Another fundamental precept of contract law is that in the absence of ambiguity, writtenagreements should be enforced according to their terms (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470,475 [2004] ["when parties set down their agreement in a clear, complete document, their writingshould . . . be enforced according to its terms"]). The relevant terms of thisagreement ("one-third of the entire legal fee recovered for our participation in this matter, uponits conclusion by settlement, verdict or otherwise") are clear and unambiguous (see CohenSwados, 269 AD2d at 741 ["The letter agreements between Cohen Swados and Baygerunambiguously provide that Cohen Swados is to receive 16% of any settlement or verdict in theunderlying action"]). Nonetheless, the majority does not enforce it according to its terms. To theextent that the majority believes that enforcing the agreement in accordance with its terms wouldbe unfair to plaintiff Samuel's law firm, the majority also errs (see Greenfield v PhillesRecords, 98 NY2d 562, 570 [2002] ["a court is not free to alter the contract to reflect itspersonal notions of fairness and equity"]; Breed v Insurance Co. of N. Am., 46 NY2d351, 355 [1978] ["This court may not make or vary the contract . . . to accomplishits notions of abstract justice or moral obligation"]).
Similarly, the majority's approach is at odds with the principles that govern the interpretationof written contracts entered into between sophisticated parties negotiating at arm's length: "Insuch circumstances, courts should be extremely reluctant to interpret an agreement as impliedlystating something which the parties have neglected to specifically include. Hence, courts may notby construction add or excise terms, nor distort the meaning of those used and thereby make anew contract for the parties under the guise of interpreting the writing" (Vermont Teddy BearCo., 1 NY3d at 475 [internal quotation marks and citations omitted]). The majority errs byreading into the written, fee-sharing agreement a term that is not in the agreement. The agreementspecifies that plaintiff Samuel's law firm "will be compensated at the rate of one-third of theentire legal fee recovered," not that the firm "will be compensated at the rate of one-third of theentire legal fee recovered other than any portion thereof reflecting an enhanced award forextraordinary services provided by it or by any other attorneys it may engage."
The majority also errs in expressly relying on the belief that enforcing the agreement aswritten (or, to put it as the majority does, "allowing Sinel to share in any portion of the enhancedaward") would result in a fee "grossly disproportionate to the services rendered." Whether the feeto Sinel would be disproportionate to the services rendered is irrelevant. The majority's error isapparent when one considers that the majority can come to this conclusion only after doing thatwhich it has "long been understood" a court will not do: "inquire into the precise worth of theservices performed . . . as long as each party actually contributed to the legal workand there is no claim that either refused to contribute more substantially" (Benjamin vKoeppel, 85 NY2d at 556 [internal quotation marks omitted]). The recent decision by theSecond Department in Robert P. Lynn,Jr., LLC v Purcell (40 AD3d 729 [2007]) is right on point: "[DR 2-107 (a) (2) (22NYCRR 1200.12 [a] [2])] thus allows an attorney, in a situation involving joint representation byattorneys from different firms, to [*5]recover a feedisproportionate to the value of the services provided if the attorneys have assumed jointresponsibility for the representation, the client has been advised in writing of the jointrepresentation and the attorneys have agreed to the amount of the fee. 'In short, if lawyers indifferent firms have taken joint responsibility and have given the client a writing to that effect,then they may divide the fees in any way they wish as long as the total fee is reasonable' (Simon,New York Code of Professional Responsibility Annotated at 341 [2006 ed])" (40 AD3d at730-731 [emphasis added]).
The majority notes that enforcing the agreement as written "would result in defendants, thereferring attorneys, being awarded a fee larger than plaintiffs, the attorneys who did the bulk ofthe work." According to the majority, this "[c]learly . . . could not have been theintent of the attorneys when they entered into their agreement nor can it be consistent with thisCourt's obligation to oversee the reasonableness of legal fees." First of all, however, nothing inthe agreement itself supports this conclusion about the parties' intent, and this conclusion isinconsistent with another basic precept of contract interpretation (see Slamow v Del Col,79 NY2d 1016, 1018 [1992] ["The best evidence of what parties to a written agreement intend iswhat they say in their writing"]). Second, without the referral made by defendants, plaintiffswould not have had any work to do on the malpractice action. The majority's conclusionabout the parties' ostensibly "clear" intent rests in part on an implicit appraisal by the majority ofthe relative unimportance to the sophisticated attorneys who practice in the medical malpracticefield of getting as compared to working on cases. The majority's conclusion falls apart once it isrecognized that at least some practitioners may have a different view. As discussed below,moreover, judges do not have any special competence to make this or any of the relatedevaluations that inform the decisions of attorneys who enter into fee-sharing agreements. Third,the judiciary's "obligation to oversee the reasonableness of legal fees" is irrelevant. Regardless ofhow this dispute between the attorneys about how the fee should be shared is resolved, the feepaid by the client will not change. Finally, the judiciary has another responsibility that is relevanthere: not to permit attorneys "to seek to avoid on 'ethical' grounds the obligations of anagreement to which they freely assented and from which they reaped the benefits"(Benjamin, 85 NY2d at 556).
The lone case the majority cites in support of its position, Dugan v Dorff Constr. Co.(281 AD2d 158 [2001], lv denied 98 NY2d 606 [2002]), is distinguishable. There, firmA, which originally handled the underlying personal injury action, retained firm B and the twofirms entered into a fee-sharing agreement pursuant to which firm B was to receive two thirds ofthe fee ultimately received. Firm B, however, was discharged shortly after it was retained "afterhaving performed minimal preliminary work on the case" (281 AD2d at 159), and the case wastransferred back to firm A. Thereafter, firm B sought to recover two thirds of the fee received byfirm A. In the course of refusing to uphold firm B's claim under the agreement, this Courtadverted to its "inherent power to ensure that a fee charged by a firm be commensurate with thereasonable services rendered to a client" (id.). There, as in this case, however, the amountof the fee paid by the client was not affected by the dispute between the attorneys. In refusing touphold firm B's contract claim, moreover, this Court did not write a new agreement for theparties. Rather, it essentially invalidated the contract and left firm B with a quantum meruit claim(id. ["we limit . . . firm (B) to a pro rata recovery of the value of the work itactually performed"]). [*6]And this Court did so because theagreement "clearly contemplated that . . . firm [B] would try the case to completion,not that the litigation would be returned to [firm A] after less than a month" (id.). Thus,Dugan should be viewed as a mutual mistake of fact case (see Matter of Gould vBoard of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993]), not as ananomaly or trail-blazing precedent.
The precedent the majority establishes, however, will take attorneys and courts down anunfortunate path. The litigation the majority encourages will be needless because thesophisticated parties who are the subject of the majority's solicitude are fully capable ofprotecting themselves. The litigation the majority encourages will be standardless because eachcase will turn on nothing other than an ad hoc judgment as to whether, all things considered, ajudge regards the particular fee to be "too much." The competence of judges to make thesejudgments—given that the attorneys who enter into fee-sharing agreements consider a slewof variables, including their particular economic circumstances at the time, tolerance for risk andappraisal of the likelihood of success—is at least questionable. Perhaps some benefits maybe obtained from time to time when fee-sharing agreements are judicially modified in a quest tosatisfy the nebulous goal of ensuring that each attorney's share is sufficiently proportionate to theservices rendered. But there will be countervailing costs. The litigation costs that will be incurredas fee-sharing agreements are attacked on the basis of subsequent events may be substantial. Themajority's decision certainly creates powerful incentives for attorneys to cry foul. Whatever theprecise extent of the unnecessary litigation costs, the majority's decision introduces a measure ofuncertainty into many if not all fee-sharing agreements.[FN*]
One of the virtues of the "long[-]understood" rule acknowledged and approved inBenjamin v Koeppel is that it implicitly recognizes that courts are not well suited to makethe kind of judgments that the majority's approach requires. As this Court recently stated in asimilar context, "[t]hat the terms of an agreement may strike a court as unfair may reflect only aninadequate or incomplete appreciation of the complexities or commercial realities of atransaction" (RM 14 FK Corp. v BankOne Trust Co., N.A., 37 AD3d 272, 274 [2007]). In this regard, I note that the majoritydirects that Sinel's law firm receive a fee that is almost $100,000 less than the amount offered byplaintiff Samuel (one third of the amount of his firm's fee rather than the entire fee received) afterthe malpractice action settled.[*7]
For these reasons, I would enforce the agreement aswritten and grant defendants' motion for summary judgment.
Footnote *: The dissent's concern that bythis decision we are encouraging further litigation is misplaced. None of the cases cited by thedissent, and in fact, none of the authorities those cases relied on, dealt with anything other thanthe usual statutory awards.
Footnote *: The majority seeks both todistinguish all the cases that are at odds with its position and to limit the precedent it sets byarguing that none of the cases "dealt with anything other than the usual statutory awards." Evenassuming that to be so, the rationale of those decisions (see e.g. Benjamin v Koeppel,supra) cannot be confined to cases involving only "the usual statutory awards." Similarly, therationale offered by the majority—the ostensible need to prevent a fee the majority regardsas "grossly disproportionate to the services rendered"—cannot be confined to casesinvolving only enhanced awards.