New York Law Review

Tag: Ratification

  • 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.

  • New York State Medical Transporters Assn. v. Perales, 77 N.Y.2d 126 (1990): Estoppel Against Government Agencies

    77 N.Y.2d 126 (1990)

    Estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties, except in the rarest of cases, and ratification of an agent’s acts requires knowledge of material facts concerning the allegedly binding transaction.

    Summary

    New York State Medical Transporters Association, Inc. sought to compel the Commissioner of the Department of Social Services (DSS) to process claims for Medicaid transportation services without prior approval, arguing the agency had established a practice of “retroactive prior approval.” The Court of Appeals held that estoppel could not be invoked against a government agency to prevent it from discharging its statutory duties and that the DSS had not ratified its agent’s actions because it lacked knowledge of the material facts. This ruling upholds the statutory requirement of prior approval for Medicaid transportation services, reinforcing the principle that those dealing with the government are expected to know the law and comply with its requirements.

    Facts

    The New York State Medical Transporters Association, Inc. provided nonemergency transportation services to Medicaid recipients. New York law requires prior approval from DSS for such transportation, except in emergencies. Due to a high volume of requests, DSS’s fiscal agent adopted a practice of granting “retroactive prior approvals” after services were rendered. In May 1987, DSS sent a letter to transportation providers reiterating the prior approval requirement and limiting retroactive requests to within 30 days of service.

    Procedural History

    The Association sought to compel DSS to reinstate the retroactive prior approval practice and process claims lacking prior approval. The Supreme Court granted the petition, finding DSS had ratified the irregular procedure. The Appellate Division reversed, concluding there was no basis for estoppel or ratification. The Court of Appeals affirmed the Appellate Division’s decision, dismissing the petition.

    Issue(s)

    1. Whether estoppel can be invoked against a governmental agency to compel the processing of Medicaid claims lacking prior approval, based on the agency’s prior informal practice of granting retroactive approvals.
    2. Whether DSS ratified its agent’s practice of granting retroactive prior approvals by failing to end the practice within a reasonable time and retaining the benefits of the transportation services.

    Holding

    1. No, because estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties, except in the rarest of cases.
    2. No, because ratification of an agent’s acts requires knowledge of material facts concerning the allegedly binding transaction, which was not demonstrated here.

    Court’s Reasoning

    The Court of Appeals emphasized the principle that estoppel against a governmental agency is disfavored, especially when it could result in public fraud. It found that the transporters were aware of the prior approval requirement and could not claim “manifest injustice” due to their failure to comply with the law. Quoting Rock Is., Ark. & La. R. R. Co. v United States, 254 US 141, 143, the court stated, “Men must turn square corners when they deal with the Government.”

    Regarding ratification, the court found no evidence that DSS knew of and intentionally condoned the agent’s practice of retroactive prior approvals. Moreover, the court held that DSS could not ratify an act that it itself could not have authorized. Since the statute requires prior approval, DSS could not ratify its agent’s act of excusing compliance with that requirement. The court distinguished between administering a statute humanely and allowing service providers to circumvent measures designed to prevent fraud on the public. The dissent argued that DSS had acquiesced in the retroactive approval policy and that the provision of transportation services inured to DSS’s benefit by fulfilling its statutory obligation. The majority rejected this, holding that the statutory requirement of prior approval must be enforced to prevent potential collusion and fraud, underscoring the importance of adhering to legal requirements when dealing with government agencies.

  • Matter of Gaynor-Stafford Industries, Inc. v. Mafco Textured Fibers, 42 N.Y.2d 897 (1977): Ratification of Arbitration Agreements Through Conduct

    Matter of Gaynor-Stafford Industries, Inc. v. Mafco Textured Fibers, 42 N.Y.2d 897 (1977)

    A party can be bound to an arbitration clause in a contract, even without explicitly agreeing to it, through ratification by retaining the contract, accepting delivery of goods under it, and acknowledging the contract’s existence.

    Summary

    Gaynor-Stafford Industries (buyer) sought to avoid arbitration with Mafco Textured Fibers (seller), arguing it never expressly agreed to the arbitration clause in the contract. A broker, acting for both parties, sent a sale note with an arbitration clause. The seller then sent a contract form containing a similar clause, and the buyer accepted goods delivered under the agreement. The New York Court of Appeals held that the buyer’s retention of the documents, acceptance of delivery, and subsequent acknowledgment of the contract constituted ratification of the entire agreement, including the arbitration clause, thus requiring the buyer to proceed with arbitration.

    Facts

    A broker, Associated Textile Brokers Co., acted as an intermediary for Gaynor-Stafford Industries (buyer) and Mafco Textured Fibers (seller). The broker sent both parties a memorandum sale note that included a broad arbitration clause, pursuant to the rules of the General Arbitration Council of the Textile Industry. The seller then sent the buyer a contract form with the same date and contract number as the sale note, also containing a similar arbitration clause. The seller commenced delivery of the goods. The buyer retained both the sale note and the seller’s contract form and subsequently accepted delivery of, and paid for, the goods.

    Procedural History

    The seller demanded arbitration based on the clause in the sale note and contract form. The buyer sought to avoid arbitration, arguing it never explicitly agreed to it. The Appellate Division held that the buyer was obligated to proceed to arbitration. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether a buyer is bound by an arbitration clause in a contract when the buyer retains the contract documents, accepts delivery of goods pursuant to the contract, and acknowledges the existence of the contract, even if the arbitration clause was never expressly discussed.

    Holding

    Yes, because retention by the buyer of the sale note and the seller’s contract form, along with the subsequent acceptance of delivery and payment for goods as contemplated by the sale note, constituted ratification of the agreement made on their behalf by the broker, including the provision for arbitration.

    Court’s Reasoning

    The court reasoned that the broker acted as an intermediary for both the buyer and seller. By retaining the sale note and contract form, accepting delivery of the goods, and paying for them, the buyer manifested assent to the terms of the agreement, including the arbitration clause. The court cited Matter of Huxley [Reiss & Bernhard], 294 NY 146 in support of its decision. The court also emphasized the buyer’s subsequent conduct in acknowledging the contract by number and objecting to late delivery as further evidence of ratification. As the court stated, the buyer addressed a letter to the seller identifying their contract by number and objecting to late delivery of one “portion of the above contract.” This acknowledgment further solidified the buyer’s agreement to the terms, including arbitration. The court found that this conduct was sufficient to bind the buyer to the arbitration agreement, even if it was never expressly discussed. The court distinguished this case from instances involving an exchange of different contract forms, emphasizing that the broker served as an intermediary and the seller’s contract form mirrored the terms of the sale note. There were no dissenting or concurring opinions.

  • Just In-Materials Designs, Ltd. v. I.T.A.D. Associates, Inc., 61 N.Y.2d 882 (1984): Ratification of Arbitration Agreement Through Conduct

    Just In-Materials Designs, Ltd. v. I.T.A.D. Associates, Inc., 61 N.Y.2d 882 (1984)

    A party can be bound by an arbitration clause in a contract even if the clause was never expressly discussed, if the party ratifies the agreement through its conduct, such as retaining the contract, accepting delivery of goods, and making payments.

    Summary

    Just In-Materials Designs, Ltd. (buyer) appealed a decision compelling it to arbitrate a dispute with I.T.A.D. Associates, Inc. (seller). A broker negotiated a sale between the parties, sending a sale note with a broad arbitration clause to both. The seller then sent the buyer a contract form with a similar clause. The buyer retained both documents, accepted delivery of goods, and made payments. When a dispute arose, the seller demanded arbitration, which the buyer resisted. The Court of Appeals held that the buyer’s conduct constituted ratification of the agreement, including the arbitration clause, even though it was never expressly discussed. The buyer’s letter acknowledging the contract further confirmed the agreement.

    Facts

    1. Associated Textile Brokers Co. acted as a broker for both Just In-Materials Designs, Ltd. (buyer) and I.T.A.D. Associates, Inc. (seller).
    2. The broker negotiated a sale between the buyer and seller and sent a memorandum sale note to each party.
    3. The sale note included a broad clause for arbitration pursuant to the rules of the General Arbitration Council of the Textile Industry.
    4. The seller then forwarded a contract form to the buyer bearing the same date and contract number as the sale note, also containing a similar broad arbitration clause.
    5. The seller commenced delivery of the goods as contemplated by the sale note.
    6. The buyer retained both the sale note and the seller’s contract form.
    7. The buyer accepted delivery of, and made payment for, the goods.
    8. Three months later, the buyer sent a letter to the seller referencing the contract by number and complaining about late delivery of one portion of the contract.

    Procedural History

    1. The seller demanded arbitration of a dispute arising from the contract.
    2. The buyer refused to arbitrate.
    3. The lower court ordered the buyer to proceed with arbitration.
    4. The Appellate Division affirmed the lower court’s decision.
    5. The buyer appealed to the Court of Appeals of the State of New York.

    Issue(s)

    1. Whether the buyer, by retaining the sale note and contract form, accepting delivery of goods, and making payments, ratified the agreement negotiated by the broker, including the arbitration clause, even though the arbitration clause was never expressly discussed.

    Holding

    1. Yes, because the buyer’s conduct constituted ratification of the agreement made on their behalf by the broker, including the provision for arbitration.

    Court’s Reasoning

    The Court of Appeals reasoned that the broker acted for both the buyer and seller in negotiating the agreement. The sale note, sent to both parties, evidenced this agreement and included the arbitration clause. The seller’s subsequent contract form further solidified the terms. The court emphasized that this wasn’t merely an exchange of different contract forms, but a negotiated agreement memorialized in two documents, both containing arbitration clauses.

    The court relied on the principle that a party can ratify an agreement through conduct. Here, the buyer’s retention of the sale note and contract form, acceptance of delivery, and payment for goods demonstrated an intent to be bound by the agreement. The court stated, “Retention by the buyer of the sale note and the seller’s contract form and the subsequent acceptance of delivery of and payment for goods as contemplated by the sale note constituted ratification of the agreement between the parties made on their behalf by the broker, including the provision therein for arbitration, even though the latter provision had never been expressly discussed with either party.”

    Furthermore, the buyer’s later letter referencing the contract by number and complaining about late delivery confirmed its acknowledgment of the agreement. The court concluded that, in these circumstances, the buyer was obligated to arbitrate the dispute as demanded by the seller. The court cited Matter of Huxley [Reiss & Bernhard], 294 N.Y. 146 to support the holding that express discussion of the arbitration clause is not required for it to be binding when the agreement is ratified through conduct.

  • Marine Midland Bank v. Greenfield, 486 N.E.2d 116 (N.Y. 1985): Authority Required for Partnership Guarantee

    Marine Midland Bank v. Greenfield, 486 N.E.2d 116 (N.Y. 1985)

    A general partner’s authority to guarantee the debts of others on behalf of a partnership must be either expressly granted in the partnership agreement or demonstrably apparent through the conduct of the partnership; neither implied authority nor an individual partner’s actions are sufficient to bind the partnership.

    Summary

    Marine Midland Bank sued to enforce a partnership’s guarantee of a loan to Lincoln Plaza, Inc. The New York Court of Appeals held that the guarantee was unenforceable because the partner who executed it lacked actual or apparent authority to bind the partnership. The partnership agreement didn’t authorize guarantees, and the partner acted alone without the required consent of the corporate general partner. The Court found no basis to imply authority or to establish apparent authority. The presence of another partner’s attorney at a closing where part of the loan was rolled over was insufficient to demonstrate ratification of the guarantee by the partnership.

    Facts

    A partnership guaranteed a loan to Lincoln Plaza, Inc. in 1973. The lawsuit arose when Marine Midland Bank sought to enforce this guarantee. The partnership agreement didn’t explicitly grant general partners the authority to guarantee debts of others. One partner, Greenfield, executed the guarantee without seeking consent from LPT Inc., the corporate general partner. Mr. Saiman, an attorney for the partnership and assistant secretary of LPT Inc., was present at a closing where a portion of the loan was rolled over.

    Procedural History

    The trial court initially denied the defendant’s motion to dismiss at the end of the trial. The Appellate Division reversed, concluding that the motion to dismiss should have been granted. Marine Midland Bank appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the partnership agreement granted the general partners authority to guarantee the debts of others.
    2. Whether Greenfield had authority to act alone without seeking the consent of LPT Inc., the corporate general partner.
    3. Whether the partnership’s conduct vested Greenfield with apparent authority to execute the guarantee.
    4. Whether there was sufficient evidence of ratification of the guarantee by the partnership to present the issue to a jury.

    Holding

    1. No, because the partnership agreement did not explicitly grant the general partners authority to guarantee the debts of others.
    2. No, because Greenfield didn’t seek the consent of LPT Inc., the corporate general partner, and therefore lacked authority to act alone.
    3. No, because there was no factual showing of conduct on the part of the partnership that would vest Greenfield with apparent authority.
    4. No, because the evidence of Saiman’s knowledge and the partnership’s receipt of loan proceeds was insufficient to present a jury issue of ratification.

    Court’s Reasoning

    The Court reasoned that authority to execute the guarantee could not be implied as a matter of law, citing First Nat. Bank v Farson, 226 NY 218, 223. It emphasized the absence of conduct by the partnership that would suggest Greenfield had apparent authority, referencing Greene v Hellman, 51 NY2d 197, 204, and Ford v Unity Hosp., 32 NY2d 464, 472-473. The Court found Saiman’s presence at the closing, in his capacity as the partnership’s attorney, insufficient to establish ratification. His simultaneous role as assistant secretary of LPT Inc. did not give him authority to ratify the guarantee on behalf of the partnership. The Court also noted the evidence of Saiman’s knowledge was “so equivocal as to be insufficient to present a jury issue of ratification,” citing Holm v C. M. P. Sheet Metal, 89 AD2d 229. The court in essence held that express authorization or a clear pattern of partnership conduct is needed to bind the entity to such guarantees.

  • Gerber v. Gerber, 69 A.D.2d 958 (N.Y. App. Div. 1979): Enforceability of Separation Agreements and Defenses of Duress and Incapacity

    69 A.D.2d 958 (N.Y. App. Div. 1979)

    A separation agreement, even if entered into during a period of emotional strain, is enforceable if the party alleging duress or incapacity was represented by counsel, approved the agreement’s terms, and ratified the agreement through subsequent conduct.

    Summary

    This case addresses the enforceability of a separation agreement challenged on the grounds of duress and incapacity. The New York Appellate Division affirmed the lower court’s decision, holding that the plaintiff failed to establish a legal basis for finding duress in the procurement of the agreement. The court emphasized that the plaintiff was represented by an attorney throughout the negotiation process, implicitly approved the agreement’s terms, and ratified the agreement by accepting its benefits during its effective period. The court found that persistent phone calls, as alleged, did not constitute duress. Further, any claim of incapacity was nullified by the plaintiff’s ratification of the agreement during the period of its performance.

    Facts

    The plaintiff sought to invalidate a separation agreement, alleging she signed it under duress and while incapacitated due to emotional strain. She claimed the defendant persistently called her, urging her to sign the agreement. However, during the months the agreement was drafted, the plaintiff was represented by an attorney who handled negotiations. The plaintiff signed the agreement in her attorney’s office, with her attorney present, before the defendant signed it at his attorney’s office. The agreement was effective for two years, during which the defendant fully performed its terms, and the plaintiff received the benefits.

    Procedural History

    The plaintiff brought an action to rescind the separation agreement. The lower court ruled against the plaintiff. The Appellate Division affirmed the lower court’s order, finding the plaintiff’s pleadings insufficient to establish duress or incapacity. The Court of Appeals affirmed the Appellate Division’s decision.

    Issue(s)

    1. Whether the defendant procured the separation agreement through duress, given the plaintiff’s emotional state and the defendant’s persistent phone calls.

    2. Whether the plaintiff had a valid cause of action to rescind the separation agreement based on an alleged incapacity to contract.

    Holding

    1. No, because the plaintiff was represented by counsel during the negotiations and implicitly approved the terms of the agreement; the alleged persistent phone calls did not constitute duress.

    2. No, because even if the plaintiff had been incapacitated, she ratified the agreement by accepting its benefits during the two years it was in effect and fully performed by the defendant.

    Court’s Reasoning

    The court reasoned that the plaintiff’s representation by an attorney throughout the negotiation process was critical. The attorney’s approval of the agreement’s terms and the plaintiff’s signing of the agreement in her attorney’s presence undermined the claim of duress. The court implied that having independent legal counsel shields the party from later claims of being forced or unduly pressured to sign the document. The court held that persistent phone calls alone do not amount to duress in this context.

    Further, the court held that even if the plaintiff had a valid claim of incapacity at the time of signing, her subsequent conduct ratified the agreement. The court stated, “Under such circumstances, plaintiff must be deemed to have ratified the agreement.” This ratification occurred because the plaintiff accepted the benefits of the agreement for two years while the defendant fully performed his obligations. Citing Sternlieb v Normandie Nat. Securities Corp., 263 NY 245, 247-248, the court emphasized that a party cannot claim incapacity and simultaneously retain the benefits of the contract.

    The court implicitly reinforced the importance of stability in contractual agreements, especially in the context of separation agreements. Allowing a party to rescind an agreement after a period of performance would create uncertainty and undermine the purpose of such agreements. By emphasizing the ratification doctrine, the court signals the need for a party seeking to avoid a contract based on incapacity to act promptly and unequivocally.