New York Law Review

Tag: contingent fee

  • Cohen v. Grainger, Tesoriero & Bell, 75 N.Y.2d 720 (1989): Attorney’s Lien on Settlement Proceeds After Discharge

    Cohen v. Grainger, Tesoriero & Bell, 75 N.Y.2d 720 (1989)

    A discharged attorney has a statutory lien on the client’s cause of action, attaching to any ultimate recovery, regardless of whether the recovery is obtained in the same court where the attorney initially filed the action; absent explicit election of quantum meruit, the attorney is presumed to desire a contingent fee based on their contribution.

    Summary

    This case addresses whether a discharged attorney who initiated a personal injury action in state court has a lien on a settlement obtained by successor counsel in federal court, and when a discharged attorney must elect their method of fee computation. The Court of Appeals held that the attorney’s lien attaches to the cause of action itself, regardless of where the recovery is ultimately obtained. Furthermore, the Court established a presumption that a discharged attorney intends to pursue a contingent fee based on their pro rata share of the work unless they explicitly elect to receive immediate compensation based on quantum meruit.

    Facts

    Attorney Cohen was retained by Staffer on a contingency basis to represent him in a personal injury claim against his employer. Cohen commenced an action in New York State Supreme Court. Staffer discharged Cohen and retained a new firm, Wertheimer, P.C., who then filed a separate action in U.S. District Court based on the same claim. Wertheimer eventually obtained a judgment for Staffer. Cohen, upon learning of the federal judgment, initiated a proceeding to enforce his attorney’s lien.

    Procedural History

    The Supreme Court initially ruled that Cohen’s lien was limited because the recovery occurred in federal court where Cohen was not the attorney of record, awarding him a fee based on quantum meruit. The Appellate Division modified the judgment by increasing the fee, but otherwise affirmed. The New York Court of Appeals granted further review.

    Issue(s)

    1. Whether a discharged attorney who commenced a personal injury action in state court has a statutory lien on a recovery obtained by successor counsel on the same claim in federal court?

    2. Whether attorney Cohen lost his right to a contingent fee by failing to promptly elect that method of computing his fee?

    Holding

    1. Yes, because the attorney’s lien attaches to the client’s cause of action and follows the proceeds, regardless of where the recovery is obtained.

    2. No, because absent an explicit election of quantum meruit, a discharged attorney is presumed to desire a contingent fee based on their proportionate share of the work performed.

    Court’s Reasoning

    The Court reasoned that Judiciary Law § 475 creates a lien on the client’s cause of action from the commencement of the action, which attaches to any judgment or proceeds, “in whatever hands they may come.” This lien cannot be affected by any settlement between the parties. The Court adopted the prevailing view of the Appellate Division that the lien follows the cause of action, even if recovery occurs in a different action or court. To hold otherwise would allow clients and successor attorneys to easily circumvent the statute’s purpose.

    Regarding the fee election, the Court acknowledged the general rule that a client can discharge an attorney at any time, and the discharged attorney is generally entitled to the fair and reasonable value of their services (quantum meruit). However, when the dispute is between attorneys, the discharged attorney can elect either immediate compensation based on quantum meruit or a contingent percentage fee based on their proportionate share of the work.

    The Court established a presumption that if a discharged attorney doesn’t explicitly elect quantum meruit, they are presumed to want a contingent fee. This presumption serves practical purposes, as quantum meruit is best determined at discharge, while a contingent fee is better calculated at the litigation’s conclusion. This presumption also prevents a discharged attorney from claiming a quantum meruit fee even if the litigation is ultimately unsuccessful.

    The Court emphasized that “[w]here an election is not made or sought at the time of discharge, the presumption should be that a contingent fee has been chosen.” This approach avoids belated claims when proof of services is difficult to rebut and prevents the inequity of allowing an attorney to wait until the case is lost and then demand a quantum meruit fee. The Court reversed the Appellate Division’s order and remitted the matter for further proceedings to determine Cohen’s pro rata share of the contingent fee.

  • People v. Romero, 78 N.Y.2d 355 (1991): Hearsay and Interpreted Testimony

    People v. Romero, 78 N.Y.2d 355 (1991)

    Testimony by a witness about statements made to them through an interpreter is inadmissible hearsay if the interpreter had a motive to mislead or a reason to be inaccurate in their translation.

    Summary

    Defendant Romero, who only spoke Spanish, was convicted of drug sales to an undercover officer who only spoke English. A paid informant acted as the interpreter. At trial, the officer testified about what the informant said the defendant had said. The New York Court of Appeals reversed the conviction, holding that the officer’s testimony was inadmissible hearsay. The court reasoned that the informant’s paid status and involvement in setting up the drug buys created a motive to mislead, undermining the reliability of the translations and the admissibility of the officer’s testimony repeating those translations.

    Facts

    Defendant Romero, a Spanish speaker, was arrested for selling drugs to an undercover officer, Tillery, who only spoke English. The sales were arranged by Davila, a paid informant fluent in both languages, who acted as the interpreter. Davila received payment contingent on the success of the prosecution. Tillery testified about the English translations Davila provided during their interactions with Romero.

    Procedural History

    Romero was convicted of criminal sale of a controlled substance. The Appellate Division affirmed the conviction. Romero appealed to the New York Court of Appeals, arguing that Tillery’s testimony was inadmissible hearsay and that Davila’s contingent fee arrangement violated his due process rights. The Court of Appeals reversed the Appellate Division’s order and remanded for a new trial.

    Issue(s)

    Whether an undercover officer’s testimony, repeating statements made by a paid informant acting as an interpreter during a drug transaction, constitutes inadmissible hearsay when the informant had a motive to mislead.

    Holding

    Yes, because the informant’s role and compensation structure created a motive to mislead, undermining the reliability of the translated statements and rendering the officer’s testimony inadmissible hearsay.

    Court’s Reasoning

    The court determined that Tillery’s testimony about Davila’s translations was hearsay because it was an out-of-court statement offered to prove the truth of the matter asserted—that Romero agreed to sell drugs. While the agency exception to the hearsay rule allows interpreted testimony when the interpreter acts as the party’s agent, this exception does not apply when the interpreter has a motive to mislead. The court distinguished this case from cases like United States v. Da Silva, where the interpreter was considered a mere “language conduit.” Here, Davila’s payment was contingent on a “prosecutable case,” creating a clear motive to ensure Romero’s conviction, thus undermining his neutrality and the reliability of his translations. The court emphasized that the probative value of Tillery’s testimony hinged entirely on the truthfulness of Davila’s translations. Repeating potentially false translations does not enhance the underlying reliability. As the court stated, “All that Davila’s testimony could have ‘verified’ is that Tillery remembered and repeated Davila’s supposed falsehoods correctly.” The court rejected the argument that Davila’s in-court testimony “verified” his prior translations because his motive to lie remained. The court concluded that admitting Tillery’s testimony was not harmless error, as it bolstered the credibility of a key witness whose credibility was very much in question. The court declined to address the due process argument because it was not preserved for review.

  • Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38 (1990): Limiting Recovery for Legal Malpractice to Actual Damages

    Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38 (1990)

    In a legal malpractice action, a plaintiff’s recovery is limited to actual damages, which are intended to make the plaintiff whole, and should not include unearned legal fees the defendant law firm would have received had they properly performed their services.

    Summary

    Campagnola sued her former attorneys, Mulholland, Minion & Roe, for malpractice related to their handling of a personal injury claim. The key issue was whether the law firm was entitled to an offset for the legal fees they would have earned had they successfully prosecuted the underlying personal injury case. The New York Court of Appeals held that the law firm was entitled to such an offset, reasoning that the goal of damages in a malpractice case is to restore the plaintiff to the position they would have been in absent the malpractice, and that allowing recovery of the full potential settlement without deducting the unearned fees would result in a windfall.

    Facts

    Plaintiff Campagnola retained Mulholland, Minion & Roe to represent her in a personal injury action against GEICO. The law firm allegedly committed malpractice in handling the case. Campagnola then hired a second attorney to pursue the claim against GEICO. The GEICO claim had not yet been adjudicated, and damages had not been determined at the time of this action. Campagnola sought to strike an affirmative defense asserted by Mulholland, Minion & Roe, which sought to reduce her potential recovery by the amount of the legal fees they would have earned under their contingent fee agreement.

    Procedural History

    The trial court granted Campagnola’s motion to strike the law firm’s affirmative defense. The Appellate Division affirmed. The New York Court of Appeals reversed, reinstating the law firm’s affirmative defense.

    Issue(s)

    Whether, in a legal malpractice action arising from a contingent fee arrangement, the defendant law firm is entitled to an offset for the legal fees they would have earned had they properly performed their services, thereby limiting the plaintiff’s recovery to actual damages.

    Holding

    Yes, because the purpose of damages in a legal malpractice case is to make the plaintiff whole and to award the plaintiff the full amount of the potential recovery without deducting the unearned legal fees would result in a windfall.

    Court’s Reasoning

    The Court of Appeals reasoned that the goal of damages in a legal malpractice case is to restore the injured party to the position they would have been in had the attorney not been negligent. “Had defendants discharged their professional responsibility, and furnished the contracted-for legal services, plaintiff would have pocketed roughly $67,000 (the balance representing compensation for defendants’ services).” Allowing the plaintiff to recover the full potential settlement amount without deducting the legal fees that would have been paid would place the plaintiff in a better position than they would have been in absent the malpractice. The court rejected the argument that denying the offset would encourage attorneys to settle malpractice claims quickly. The court stated that such speculation was not supported by the facts, as the case had already been before three courts at the pleading stage. Judge Kaye, in her concurrence, highlighted that the defendant law firm rendered no legal services regarding the claim against GEICO. She emphasized that the focus of damages inquiries must be on the injured plaintiff, not on whether damages will unduly harm the wrongdoer defendant. She argued that plaintiff should be able to seek the full maximum recovery against the allegedly negligent lawyers as that is the only way the plaintiff can be made whole. The dissent argued that attorneys may choose to settle malpractice claims to retain goodwill or avoid adverse publicity, and that deducting unearned fees could leave plaintiffs uncompensated even when malpractice is proven. The majority dismissed this concern, noting that the law can be trusted to respond sensibly in calculating and awarding damages should a future case present different facts where lawyers promptly settle such cases.

  • People v. Winkler, 74 N.Y.2d 704 (1989): Contingency Fee Impact on Counsel Effectiveness

    People v. Winkler, 74 N.Y.2d 704 (1989)

    A claim of ineffective assistance of counsel based on a contingent fee arrangement requires a hearing to determine if the fee arrangement actually prejudiced the defendant’s representation.

    Summary

    The New York Court of Appeals reversed the Appellate Division’s order for a new trial, reinstating the original judgment. The court held that the Appellate Division erred in finding ineffective assistance of counsel based on a contingent fee arrangement without first holding a hearing to determine if the fee agreement prejudicially impacted the attorney’s representation. The case was remitted for a hearing on the defendant’s CPL article 440 motion to determine whether the contingent fee arrangement affected counsel’s decisions.

    Facts

    Defendant Winkler was convicted. He moved to set aside the verdict, arguing ineffective assistance of counsel because his attorney had worked under a contingent fee agreement. The Appellate Division initially granted the motion without a hearing.

    Procedural History

    The Court of Appeals initially reversed the Appellate Division’s order, which had granted the motion to set aside the verdict without a hearing (People v. Winkler, 71 NY2d 592). The Court of Appeals remanded the case. On remand, the Appellate Division again ordered a new trial, finding that the fee arrangement prejudicially impacted counsel’s representation (144 AD2d 404, 405). The People appealed this decision.

    Issue(s)

    Whether the Appellate Division properly granted the defendant’s motion for a new trial based on ineffective assistance of counsel due to a contingent fee arrangement, without first conducting a hearing to determine if the fee arrangement prejudiced the defendant’s representation.

    Holding

    No, because there was no concession by the People or unquestionable documentary proof that trial counsel’s decisions were affected by the contingent fee arrangement, a hearing was required to determine whether the contingent fee arrangement affected counsel’s decisions.

    Court’s Reasoning

    The Court of Appeals reasoned that a contingent fee arrangement, by itself, does not automatically constitute ineffective assistance of counsel. Following its prior decision in People v. Winkler, 71 NY2d 592, the court reiterated that a conviction can only be set aside if the defendant demonstrates that the contingency fee agreement “affected the manner in which his attorney conducted the defense prejudicially to the defendant.” The court found that the Appellate Division erred in ordering a new trial without first holding a hearing to determine if the contingent fee arrangement actually prejudiced the defendant’s representation. The court emphasized the absence of a concession from the prosecution or conclusive documentary proof that counsel’s decisions were affected by the fee arrangement. The decision underscores the need for a factual inquiry to establish a causal link between the fee arrangement and the alleged ineffectiveness of counsel, and prevents decisions made without sufficient justification.

  • Murtaugh v. Murtaugh, 74 N.Y.2d 48 (1989): Fee Division Between Attorneys After Discharge

    Murtaugh v. Murtaugh, 74 N.Y.2d 48 (1989)

    When a client discharges an attorney without cause and hires a new attorney, the discharged attorney may elect to receive compensation based on a fixed dollar amount for services rendered (quantum meruit) or a contingent percentage fee based on their proportionate share of the work performed.

    Summary

    This case addresses the proper method for determining attorney’s fees when a client discharges their attorney without cause and hires a new attorney, and the attorneys dispute the fee division after a settlement. The Court of Appeals held that the outgoing attorney could elect to receive compensation based on either the reasonable value of services rendered (quantum meruit) or a contingent percentage fee based on the proportionate share of work performed. The court emphasized that the agreement between the attorneys dictated the type of fee, not whether the outgoing attorney was the attorney of record or possessed a statutory lien.

    Facts

    Teresa Wong sustained severe injuries in a car accident. Her family initially retained attorney Edward Murtaugh on a contingent fee basis (one-third of the recovery). Murtaugh began work on the case, including initiating conservatorship proceedings and gathering evidence. Before Murtaugh filed a lawsuit, the family discharged him without cause and hired the Lipsig firm, also on a contingent fee basis. The attorneys agreed Murtaugh had a lien and the fee amount would be determined later. The Lipsig firm settled the case for $1.8 million.

    Procedural History

    The Supreme Court initially awarded Murtaugh 20% of the total attorney’s fee based on his proportionate contribution to the case. The Appellate Division modified this decision, holding that Murtaugh was only entitled to the reasonable value of his services ($35,000) because he was not the attorney of record and thus lacked a charging lien under Judiciary Law § 475. Murtaugh appealed to the Court of Appeals.

    Issue(s)

    Whether an outgoing attorney, discharged without cause, must be the attorney of record and possess a charging lien under Judiciary Law § 475 to elect a contingent percentage fee based on the proportionate share of work performed, as opposed to a fixed fee based on quantum meruit.

    Holding

    No, because the agreement between the outgoing and incoming attorneys, not the outgoing attorney’s status as attorney of record or possession of a statutory lien, determines the method of evaluating the fee. The outgoing attorney may elect between a fixed fee based on quantum meruit or a contingent percentage fee based on proportionate work performed.

    Court’s Reasoning

    The Court of Appeals stated that while a client has the right to discharge an attorney at any time, with or without cause, the discharged attorney is entitled to compensation. When the dispute is between the attorneys, the outgoing attorney may elect to take compensation based on a fixed dollar amount (quantum meruit) or a contingent percentage fee. The court disagreed with the Appellate Division’s requirement that the outgoing attorney must be the attorney of record to elect a contingent fee. The court reasoned that Murtaugh possessed a common-law retaining lien on the client’s file, securing his right to the reasonable value of his services. By surrendering the file in exchange for a contractual lien from the Lipsig firm, Murtaugh did not relinquish his right to a fee. The method of evaluating the fee (fixed or contingent) is independent of the security. The Court construed the language of the agreement, “determined at the conclusion of the litigation,” as evidencing an intent for a contingent percentage fee. “A fixed dollar fee based on the reasonable value of his services easily could have been calculated at the time of discharge without reference to the outcome of the litigation or the proportionate share of work performed by each lawyer.” The court noted that interpreting the agreement as providing only for a fixed dollar amount would mean that Murtaugh received no consideration for turning over his file. The court also invoked the principle that ambiguous contract terms are strictly construed against the drafter, Lipsig, Sullivan and Liapakis. Thus, the Court of Appeals reversed the Appellate Division’s order and remitted the matter for further proceedings to determine Murtaugh’s contingent percentage fee.