Shaw v. Manufacturers Hanover Trust Co., 68 N.Y.2d 172 (1986)

When a contingent fee retainer agreement drafted by an attorney is unclear regarding the scope of representation and responsibility for advancing litigation expenses, it will be construed most favorably to the client.

Summary

Plaintiff Shaw hired Fuchsberg & Fuchsberg to represent him in a personal injury claim under a contingent fee agreement. After an adverse jury verdict at trial, the firm refused to advance further litigation expenses for an appeal unless new terms were agreed upon. Shaw then obtained new counsel. The central issue was whether the retainer agreement terminated upon the initial adverse judgment and whether the firm was obligated to continue advancing litigation expenses for appeal. The New York Court of Appeals held that the ambiguous retainer agreement must be construed in favor of the client, terminating the agreement at the trial level. Therefore, the firm was not entitled to a fee for services rendered during the trial.

Facts

Leonard Shaw was injured during a bank robbery and retained Fuchsberg & Fuchsberg to represent him in a personal injury claim. The retainer agreement provided for a contingent fee of 33 1/3% of the sum recovered, after deducting disbursements. The agreement did not explicitly state whether representation extended through appeal or who was responsible for advancing litigation expenses.

Procedural History

The initial jury trial resulted in a verdict for the defendants. Fuchsberg & Fuchsberg informed Shaw that they would not advance costs for an appeal. Shaw then sought to substitute counsel. Special Term imposed a lien on any ultimate recovery for the firm on a quantum meruit basis. The Appellate Division affirmed. On appeal by Shaw’s new counsel, the Appellate Division reversed the initial judgment and ordered a retrial. Shaw then entered into agreements with both Fuchsberg & Fuchsberg and new counsel Max Toberoff to settle the fee dispute. The retrial resulted in a settlement, and the dispute over Fuchsberg & Fuchsberg’s fee reached the New York Court of Appeals.

Issue(s)

1. Whether the contingent fee retainer agreement terminated upon the entry of an adverse judgment after the initial trial, or whether the representation was to continue through the conclusion of the matter, including appeal.
2. Whether Fuchsberg & Fuchsberg breached the retainer agreement by refusing to proceed with the appeal unless Shaw agreed to new terms regarding the advancement of litigation expenses.

Holding

1. Yes, the retainer agreement terminated upon the entry of the adverse judgment because the ambiguous agreement must be construed in favor of the client.
2. Yes, Fuchsberg & Fuchsberg breached the agreement if the representation was to persist through appeal because the firm insisted on new terms for continued representation.

Court’s Reasoning

The Court emphasized the importance of clear attorney-client agreements, especially in contingent fee arrangements. It stated that ambiguous contracts are construed against the drafter, and courts scrutinize fee arrangements between attorneys and clients, placing the burden on attorneys to prove the contracts are fair and understood. The Court found the retainer agreement ambiguous regarding the term of representation and responsibility for advancing expenses. Because of this ambiguity, the court construed the agreement in favor of the client, holding that it terminated upon the adverse judgment. The Court stated, “From a reading of the language of the retainer agreement itself, both interpretations are reasonable. In such event the law requires that an agreement between client and attorney be construed most favorably for the client”. The court also noted that if the representation was to continue through appeal, the firm’s insistence on new terms constituted a breach, also precluding recovery of a fee. The court cited policy considerations, noting the difficult position the client was placed in, having to find new counsel while a lien was in place and the terms of the original agreement were uncertain. The court recognized the lawyer’s predicament but stressed the importance of clearly defined terms in retainer agreements to avoid such situations in the future. The court reiterated, “In order to avoid the consequences suffered here both by the client and by the lawyer, it is essential that the terms of representation — particularly in matters of fundamental, foreseeable and commonplace as those before us today — be set down with clarity. And the onus is upon the lawyers who draft such agreements to do so.”