New York Law Review

Tag: Discharged Attorney

  • 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.

  • 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.