| Matter of Lawrence |
| 2013 NY Slip Op 03759 [106 AD3d 607] |
| May 23, 2013 |
| Appellate Division, First Department |
| In the Matter of Sylvan Lawrence, Deceased. Richard S.Lawrence et al., Appellants-Respondents, v Graubard Miller et al.,Respondents-Appellants, and Richard S. Lawrence et al.,Intervenors-Appellants-Respondents. |
—[*1] Greenfield Stein & Senior, LLP, New York (Norman A. Senior of counsel), forRichard S. Lawrence, appellant-respondent. Berchem, Moses & Devlin, P.C., Milford, CT (Robert L. Berchem of the bar of theState of Connecticut, admitted pro hac vice, of counsel), for Suzanne LawrenceDeChamplain and Marta Jo Lawrence, appellants-respondents. Sullivan Papain Block McGrath & Cannavo P.C., New York (Brian J. Shoot ofcounsel), for Graubard Miller, respondent-appellant. Jones Day, Washington, DC (Michael A. Carvin of the bar of the District ofColumbia, admitted pro hac vice, of counsel), for Daniel Chill, Elaine M. Reich andSteven Mallis, respondents-appellants.
Amended decree, Surrogate's Court, New York County (Nora S. Anderson, S.),entered on or about October 14, 2011, which granted the intervenor children'sapplications to intervene in this proceeding, awarded defendant law firm a fee of$15,837,374.02, and directed the individual defendants to return to the plaintiff executorscash gifts in the amount of $5.05 million, unanimously modified, on the law, to reducethe law firm's fee award to the hourly fees due under the original retainer agreement,remand for further proceedings to determine that amount, and award interest on the lawfirm's fees from July 29, 2005, the date of the breach of the revised retainer agreement,and otherwise affirmed, without costs. Order, Surrogate's Court, New York County (TroyK. Webber, S.), entered on or about October 1, 2009, which, to the [*2]extent appealed from, confirmed that portion of theReferee's report dated October 30, 2008 recommending as a discovery sanction thewaiver of objections under the Dead Man's Statute (CPLR 4519) in lieu of the moresevere sanction of striking the widow's pleadings in both the contract enforcementproceeding and the rescission action, unanimously affirmed, without costs.
Beginning in 1983, defendant law firm represented the family of Sylvan Lawrence inlitigation concerning the administration of his estate. In 1998, Alice Lawrence, Sylvan'swidow, paid three of the firm's partners, the individual defendants, a bonus or gifttotaling $5.05 million and also paid the firm $400,000 as a bonus or gift. By the end of2004, the widow had paid, approximately $22 million in legal fees on an hourly feebasis.
In the hope of reducing her anticipated legal fees in the ongoing litigation, the widowentered into a revised retainer agreement with the law firm in January 2005. The revisedretainer agreement provided, inter alia, for a 40% contingency fee. In May 2005, theestate litigation settled with a payment to the estate of more than $111 million and, inaccordance with the revised retainer agreement, the firm sought a fee of 40% of thatamount. When the widow refused to pay the 40% contingency fee, this litigation resulted,in which, among other relief, the return of the gifts the widow made in 1998 is sought.
The claims relating to the gifts the widow made to the three individual defendants arenot time-barred. Rather, they were tolled under the doctrine of continuous representation(Glamm v Allen, 57 NY2d 87, 93-94 [1982]). Contrary to the individualdefendants' contention, the doctrine applies where, as here, the claims involveself-dealing at the expense of a client in connection with a particular subject matter(cf. Woyciesjes v Schering-Plough Corp., 151 AD2d 1014, 1014-1015 [4th Dept1989], appeal dismissed 74 NY2d 894 [1989]). As to the merits, the individualdefendants failed to meet their burden of showing by clear and convincing evidence thatthe widow gave the gifts willingly and knowingly (Matter of Clines, 226 AD2d269, 270 [1st Dept 1996], lv dismissed 88 NY2d 1016 [1996]). Indeed, thesecrecy surrounding the gifts, and their extraordinary amounts, which the individualdefendants accepted without advising the widow to seek independent counsel, preclude afinding in the individual defendants' favor (see Code of ProfessionalResponsibility EC 5-5).
The revised retainer agreement is both procedurally and substantivelyunconscionable (Lawrence vGraubard Miller, 48 AD3d 1, 6 [1st Dept 2007], affd 11 NY3d 588[2008]). The evidence shows that the widow believed that under the contingencyarrangement, she would receive the "lion's share" of any recovery. In fact, as it operated,the law firm obtained over 50% of the widow's share of proceeds. Thus, the law firmfailed to show that the widow fully knew and understood the terms of the retaineragreement—an agreement she entered into in an effort to reduce her legal fees(see Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 176 [1986]).
In considering the substantive unconscionability of the revised retainer agreement,the Referee correctly considered such factors as the proportionality of the fee to the valueof the professional services rendered (see King v Fox, 7 NY3d 181, 191 [2006]; see also Lawrence v GraubardMiller, 48 AD3d 1 [2007], affd 11 NY3d 588 [2008], supra;Gair v Peck, 6 NY2d 97 [1959], cert denied 361 US 374 [1960]), thesheer amount of the fee (see King at 192; see also Gair at 106), and therisks and rewards to the attorney upon entering into the contingency agreement (seeLawrence, 48 AD3d at 7-8). With regard to the last factor, the law firm hadinternally assessed the estate's claims to be worth approximately $47 million so that thecontingency fee provision in the revised retainer would have meant a fee of about $19million. [*3]Contrary to the law firm's assertion, on thisrecord it seems highly unlikely that the firm undertook a significant risk of losing asubstantial amount of fees as a result of the revised retainer agreement's contingencyprovision. Rather, the Referee accurately characterized this attempt by the law firm tojustify its action as "nothing but a self-serving afterthought."
The amount the law firm seeks ($44 million) is also disproportionate to the value ofthe services rendered (approximately $1.7 million) (see Lawrence v GraubardMiller, 11 NY3d at 596). The record shows that the law firm spent a total of 3,795hours on the litigation after the revised retainer agreement became effective, resulting inan hourly rate of $11,000, which, as the Referee stated, is "an astounding rate of returnfor legal services."
However, the remedy recommended by the Referee and adopted by theSurrogate—namely, a new "reasonable" fee arrangement for theparties—was improper. Where, as here, there is a preexisting, valid retaineragreement, the proper remedy is to revert to the original agreement (Matter of Smith[Raymond], 214 App Div 622 [1st Dept 1925], appeal dismissed 242 NY534 [1926]; Naiman v New York Univ. Hosps. Ctr., 351 F Supp 2d 257 [SD NY2005]). For the reasons found by the Referee, we reject the firm's suggestion that itreceive a reduced contingency fee. Accordingly, the matter is remanded for thedetermination of the fees due the law firm under the original retainer agreement. Giventhat the firm is entitled to fees under the original retainer agreement, it is also entitled toprejudgment interest from the date of the breach (see CPLR 5001).
Because the individual defendants acted alone, and in secret from the rest of the lawfirm, with respect to the gifts, we decline to rule that such conduct by the individualdefendants results in the firm's forfeiture of its lawful fees from the date the individualdefendants received the gifts.
The issue of the propriety of allowing the widow's children individually to intervenein the action is academic and need not be addressed. Even if we were to reach the meritsof the underlying claims, we would find them without merit.
Finally, the record shows that the court providently exercised its discretion inimposing a discovery sanction for the widow's wilful and contumacious conduct inavoiding her deposition. The sanction imposed sufficiently mitigated the prejudicearising from this misconduct (see CPLR 3126; see generally Sage RealtyCorp. v Proskauer Rose, 275 AD2d 11, 17-18 [1st Dept 2000], lv dismissed96 NY2d 937 [2001]). Concur—Friedman, J.P., Moskowitz, Freedman andRichter, JJ.