New York Law Review

Tag: Continuous Representation

  • Lawrence v. Graubard Miller, 11 N.Y.3d 588 (2008): Enforceability of Revised Attorney Retainer Agreements

    Lawrence v. Graubard Miller, 11 N.Y.3d 588 (2008)

    A revised attorney retainer agreement entered into after representation has begun is enforceable if it is not procedurally or substantively unconscionable, considering the client’s understanding, the risks assumed by the attorney, and the proportionality of the fee to the services rendered.

    Summary

    Alice Lawrence, after paying Graubard Miller approximately $18 million in legal fees related to a protracted estate litigation, entered into a revised retainer agreement for a 40% contingency fee. After a favorable settlement, Lawrence disputed the fee and sought to reclaim gifts she had given to the firm’s partners years earlier. The court found the revised retainer agreement enforceable because Lawrence understood its terms, the firm bore significant risk, and the fee, while substantial, was proportional to the result achieved. The claims regarding the gifts were deemed time-barred due to the lack of continuous representation tolling.

    Facts

    Alice Lawrence retained Graubard Miller in 1983 to litigate her late husband’s estate against his brother, Seymour Cohn. Over two decades, Lawrence paid the firm $18 million in hourly fees. In 2004, facing uncertain outcomes and high costs, Lawrence sought a new fee arrangement. Following an unfavorable ruling and settlement negotiations, she agreed to a 40% contingency fee. In 1998, after a large distribution from the estate, Lawrence gifted substantial sums to three Graubard partners. After the case settled in 2005 for over $100 million, Lawrence disputed the contingency fee and sought return of the gifts.

    Procedural History

    Graubard Miller sued in Surrogate’s Court to compel payment of its fees. Lawrence sued Graubard and the attorneys in Supreme Court, seeking rescission of the revised retainer agreement and return of fees and gifts; the Supreme Court action was removed to Surrogate’s Court. A Referee found the revised retainer agreement not unconscionable when made, but unconscionable in hindsight. The Surrogate affirmed the fee ruling but set aside the gifts. The Appellate Division modified, finding the revised retainer agreement unconscionable, reinstating the original hourly agreement, and upholding the return of the gifts. The Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    1. Whether the revised retainer agreement was procedurally unconscionable because Lawrence did not fully understand it?

    2. Whether the revised retainer agreement was substantively unconscionable because the fee was disproportionate to Graubard’s risk and effort?

    3. Whether the statute of limitations on the Lawrence estate’s claim for return of the gifts was tolled by the continuous representation doctrine?

    Holding

    1. No, because Lawrence was a sophisticated client who understood the agreement and sought it herself, and her accountant reviewed it.

    2. No, because Graubard undertook significant risk, and the $44 million fee was proportional to the $111 million recovery.

    3. No, because the gifts were a separate financial transaction, not the subject of ongoing legal representation.

    Court’s Reasoning

    The Court of Appeals found that the revised retainer agreement was not procedurally unconscionable, as Lawrence was fully informed and understood the agreement. The court emphasized that Lawrence was a sophisticated businesswoman, actively involved in the litigation, and had the agreement reviewed by her accountant. The court rejected the argument that Graubard exerted undue influence over Lawrence, noting her history of firing professionals at will.

    The court also determined that the agreement was not substantively unconscionable. It acknowledged that while $44 million was a large fee, Graubard undertook significant risk in entering the contingency fee arrangement, including the risk of Lawrence terminating the agreement or the litigation continuing for years without additional compensation. The court stated that “the contingency system cannot work if lawyers do not sometimes get very lucrative fees, for that is what makes them willing to take the risk.” Further, the court considered the value of Graubard’s services to be the $111 million recovery obtained for Lawrence.

    Finally, the court held that the statute of limitations on the claim for return of the gifts was not tolled by the continuous representation doctrine. The court reasoned that the gifts were a separate financial transaction, not the subject of ongoing legal representation. The court emphasized that the continuous representation doctrine applies only where there is a claim of misconduct in the provision of professional services and ongoing representation regarding the same matter. The court stated, “when an attorney engages in a financial transaction with a client…the attorney is not representing the client in that transaction at all.” Therefore, the claims seeking to recoup the gifts were time-barred.

  • King v. Fox, 7 N.Y.3d 181 (2006): Ratification of Attorney’s Fee Agreement During Continuous Representation

    7 N.Y.3d 181 (2006)

    A client can ratify an attorney’s fee agreement, even during continuous representation or if attorney misconduct occurred, provided the client is fully informed and acquiesces knowingly and voluntarily.

    Summary

    This case addresses whether a client can ratify an attorney’s fee agreement, even one that is potentially unconscionable or arises during ongoing representation where attorney misconduct occurred. Edward King, a musician, sued his attorney, Lawrence Fox, alleging the fee agreement was unconscionable. The Second Circuit certified questions to the New York Court of Appeals regarding ratification. The Court held that ratification is possible under these circumstances if the client had full knowledge of the facts, understood their rights, and voluntarily agreed to the terms. The burden is on the attorney to prove the client’s informed acquiescence, free from fraud or misconception.

    Facts

    Edward King hired Lawrence Fox in 1975 to recover royalties from his work with Lynyrd Skynyrd. Fox, a personal injury lawyer with limited entertainment law experience, agreed to a one-third contingency fee. King signed a retainer agreement reflecting this. In 1978, a settlement was reached, and Fox advised King that the one-third fee would apply to both past and future royalties. King was surprised but proceeded with the settlement. King’s wife wanted another lawyer to review settlement documents, but Fox misrepresented a deadline, leading King to accept. For years, MCA sent royalty payments to Fox, who deducted his fee and remitted the balance to King. This arrangement continued until 1995 when King started receiving full royalty checks directly. Fox then demanded his share, leading to the lawsuit.

    Procedural History

    King sued Fox in the Southern District of New York, alleging the fee agreement was unconscionable. The District Court initially granted summary judgment to Fox based on the statute of limitations, which was reversed and remanded by the Second Circuit. On remand, the District Court again granted summary judgment to Fox, finding King had ratified the agreement. King appealed, and the Second Circuit certified three questions to the New York Court of Appeals.

    Issue(s)

    1. Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation?
    2. Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation if attorney misconduct has occurred during that period? If so, can ratification occur before the attorney has committed the misconduct?
    3. Is it possible for a client to ratify an unconscionable attorney’s fee agreement?

    Holding

    1. Yes, because continuous representation does not preclude ratification if the client possesses full knowledge of relevant facts and acquiesces.
    2. Yes, because misconduct does not automatically invalidate ratification, so long as the client’s agreement is not procured by that misconduct. Ratification cannot occur *before* the misconduct takes place, since the client must be aware of the misconduct to knowingly ratify the agreement despite it.
    3. Yes, but with qualifications, because ratification of an unconscionable agreement is rare and requires a fully informed client with equal bargaining power who knowingly and voluntarily affirms the agreement, understanding the facts making it voidable and their rights.

    Court’s Reasoning

    The Court of Appeals held that New York law allows a client to ratify an attorney’s fee agreement even during continuous representation, despite potential attorney misconduct, or even if the agreement is unconscionable. The Court emphasized that for ratification to be valid, the attorney bears the burden of proving the client’s acquiescence was made with full knowledge of all material circumstances and was not induced by fraud or misrepresentation. The Court recognized the unique fiduciary duty attorneys owe their clients, requiring fee agreements to be fair, reasonable, and fully understood. Quoting Greene v Greene, 56 NY2d 86, 92 (1982), the court stated the attorney must show the client acquiesced “with full knowledge of all the material circumstances known to the attorney,” and that the client was not influenced by fraud or misconception. Even though the client’s continuous representation by the attorney may toll the statute of limitations for legal malpractice, it does not prevent the client from ratifying the fee agreement. The court noted, quoting Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 176 (1986), that “courts as a matter of public policy give particular scrutiny to fee arrangements between attorneys and clients, casting the burden on attorneys who have drafted the retainer agreements to show that the contracts are fair, reasonable, and fully known and understood by their clients”. The Court acknowledged that unconscionable agreements are generally voidable, but a fully informed client with equal bargaining power can knowingly and voluntarily affirm the agreement if they understand the facts that make the agreement voidable and know their rights as a client. The Court did not decide whether ratification occurred in this particular case, leaving that determination to the lower courts.

  • Glamm v. Allen, 57 N.Y.2d 87 (1982): Statute of Limitations Tolling in Legal Malpractice Cases Against Deceased Attorneys

    Glamm v. Allen, 57 N.Y.2d 87 (1982)

    In legal malpractice actions against the estate of a deceased attorney, the statute of limitations is tolled both by the continuous representation doctrine and by CPLR 210(b), which provides an 18-month tolling period after the attorney’s death if the malpractice cause of action existed prior to death.

    Summary

    Richard Glamm sued the estate of attorney Reinhart, alleging malpractice for failure to file a timely notice of claim against the City of Amsterdam. The alleged malpractice occurred when Reinhart failed to file a notice of claim within 90 days of Glamm’s injury in 1969. Reinhart died in 1976. The Court of Appeals held that the continuous representation doctrine tolled the statute of limitations until Reinhart’s death. Furthermore, CPLR 210(b) provided an additional 18-month tolling period after Reinhart’s death, because the cause of action accrued when the notice of claim filing deadline passed during Reinhart’s representation. Thus, the action, commenced in 1980, was timely.

    Facts

    Richard Glamm was injured in April 1969 while assisting Amsterdam firefighters. Glamm hired attorney Reinhart to represent him. Reinhart filed a claim under the Volunteer Firemen’s Benefit Law, believing this was the correct avenue for recovery, but did not file a notice of claim against the City of Amsterdam as required by General Municipal Law § 50-e. Glamm’s claim under the Volunteer Firemen’s Benefit Law was ultimately denied in November 1976. Reinhart died in October 1976. Successor attorneys filed a late notice of claim, but it was rejected. Glamm then sued Reinhart’s estate for malpractice in April 1980, alleging failure to file a timely notice of claim.

    Procedural History

    The trial court denied the estate’s motion for summary judgment based on the statute of limitations. The Appellate Division reversed, granting summary judgment to the estate, reasoning that the statute of limitations expired three years after the executrix was appointed and that CPLR 210(b) was inapplicable. Glamm appealed to the Court of Appeals.

    Issue(s)

    1. Whether the continuous representation doctrine tolled the statute of limitations in this legal malpractice action?

    2. Whether CPLR 210(b) applies to toll the statute of limitations for 18 months after the attorney’s death, given that the alleged malpractice occurred prior to death?

    Holding

    1. Yes, because the continuous representation doctrine tolls the statute of limitations until the attorney-client relationship ends, which occurred at Reinhart’s death.

    2. Yes, because the cause of action for malpractice accrued when Reinhart failed to file a timely notice of claim, which was prior to his death; therefore, CPLR 210(b) applies.

    Court’s Reasoning

    The court reasoned that a malpractice action accrues at the date of the malpractice. Here, it occurred when Reinhart failed to file the notice of claim within the statutory 90-day period. The continuous representation doctrine tolls the statute of limitations because a client should not be expected to sue their attorney while the attorney is still representing them. The court quoted Greene v. Greene, 56 NY2d 86, 94, stating that a client has “a right to repose confidence in the professional’s ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered.” The tolling ends when the representation ceases, in this case, at Reinhart’s death.

    Additionally, CPLR 210(b) tolls the statute for 18 months after the death of a person against whom a cause of action exists. The court emphasized that the malpractice cause of action must have existed before the attorney’s death for CPLR 210(b) to apply. Since the failure to file the notice of claim occurred before Reinhart’s death, the statute was tolled for 18 months after his death. “What is important is when the malpractice was committed, not when the client discovered it.” Therefore, combining the continuous representation toll and the CPLR 210(b) toll, Glamm’s action was timely.

  • Greene v. Greene, 56 N.Y.2d 96 (1982): Attorney’s Fiduciary Duty and Continuous Representation Tolling Statute of Limitations

    Greene v. Greene, 56 N.Y.2d 96 (1982)

    An attorney entering into a contract with a client, especially concerning the management of the client’s assets, must demonstrate that the client fully understood the agreement’s terms and that the attorney did not exploit the client’s confidence; the statute of limitations for challenging such an agreement may be tolled under the continuous representation doctrine.

    Summary

    Plaintiff sued her former attorneys seeking rescission of a trust agreement and an accounting for mismanagement of funds. The attorneys had drafted a trust agreement naming one of them as co-trustee and granting them broad investment powers. Plaintiff argued she didn’t understand the agreement and that the attorneys breached their fiduciary duty. The Court of Appeals held that the plaintiff stated a valid cause of action for rescission, as attorneys must prove contracts with clients are fair and fully understood. The court also found the statute of limitations was tolled under the continuous representation doctrine because the attorneys continued to represent her in matters related to the trust’s administration.

    Facts

    In 1964, Plaintiff was treated for mental illness. In 1965, while institutionalized, she signed a trust agreement giving substantial control of her inheritance to a family lawyer. In 1967, after release, Plaintiff hired the Defendant law firm to rescind the 1965 agreement, which they successfully did in 1969, with the court finding overreaching by the original attorney. In 1969, the Defendant law firm then drafted a new trust agreement for Plaintiff, naming Defendant Theodore Greene as co-trustee. This agreement gave Greene broad investment powers and limited his liability. In 1977, Plaintiff sought to terminate the 1969 trust and sued the Defendants.

    Procedural History

    Plaintiff sued seeking rescission of the 1969 trust and an accounting. The trial court dismissed the rescission claim as time-barred. The Appellate Division reversed, reinstating the rescission claim, finding the cause of action accrued when the plaintiff became aware of the breach and terminated the trust. The defendants appealed to the Court of Appeals by leave of the Appellate Division.

    Issue(s)

    1. Whether the plaintiff stated a cause of action for rescission of the 1969 trust agreement based on the attorney-client relationship.
    2. Whether the cause of action for rescission is barred by the statute of limitations.

    Holding

    1. Yes, because an attorney must affirmatively establish that a contract with a client was made with full knowledge of all material circumstances and free from fraud or misconception.
    2. No, because the continuous representation doctrine applies, tolling the statute of limitations until the attorney-client relationship terminated.

    Court’s Reasoning

    The Court emphasized the fiduciary nature of the attorney-client relationship, stating that “an attorney who seeks to avail himself of a contract made with his client, is bound to establish affirmatively that it was made by the client with full knowledge of all the material circumstances known to the attorney, and was in every respect free from fraud on his part, or misconception on the part of the client, and that a reasonable use was made by the attorney of the confidence reposed in him”. The Court found Plaintiff’s allegations of the Defendants taking unfair advantage of the relationship sufficient to state a cause of action for rescission. Regarding the statute of limitations, the Court applied the continuous representation doctrine, noting that a client “has a right to repose confidence in the professional’s ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered”. The Court rejected the argument that the creation of the trust and its management were discrete acts, finding that the defendants performed legal services on the plaintiff’s behalf by creating the trust and continued to act as her attorney in all legal matters relating to its administration; therefore, the statute of limitations was tolled until the termination of the relationship. The court clarified that its holding does not guarantee rescission, but only that the plaintiff has presented a viable claim not barred by the statute of limitations.