NY Firm Can Sue Client for Contingency Fee After Billing $18 Million, Getting $5 Million in "Gifts"

By Anthony Lin
New York Law Journal
New York Lawyer
November 28, 2007

A 40-percent contingent-fee agreement between New York law firm Graubard Miller and Alice Lawrence, the 83-year-old widow of real estate developer Sylvan Lawrence, was not unconscionable on its face, an appellate court said yesterday, even though the agreement was executed in the final months of a decades-long estate litigation in which the firm had already received $18 million in hourly fees and three partners had further requested and received $5 million in "gifts."

In Lawrence v. Graubard Miller et al., 603257/05, 4-1 majority of the Appellate Division, First Department, denied Ms. Lawrence's motion to dismiss Graubard Miller's petition to compel payment of the contingent fee and said further proceedings would be needed to determine the propriety of the arrangement.

"[W]hile at first blush such agreement might arguably seem excessive and invite skepticism, before any determination regarding unconscionability can be made, the circumstances underlying the agreement must be fully developed, including any discussions leading to the agreement, as well as the prospects at that time of successfully concluding the litigation in favor of Mrs. Lawrence," Justice Richard T. Andrias wrote for a majority that included Justices David Friedman, George D. Marlow and Eugene Nardelli.

But in a blistering dissent, Justice James M. Catterson said he would not only have found the fee agreement invalid on its face but would also have referred the Graubard Miller lawyers to the Departmental Disciplinary Committee.

"Regardless of the procedural aspects of the parties' negotiations, no court can condone such an exorbitant fee," Justice Catterson wrote.

Ms. Lawrence first retained the law firm then known as Graubard Moskovitz McGoldrick Dannett & Horowitz in 1983 to represent her in a suit against Seymour Cohn, her late husband's brother, business partner and executor.

At the time of Mr. Lawrence's death in 1981, the brothers held a 12-million-square-foot real estate portfolio that included the former Port Authority building at 111 Eighth Avenue and a number of Wall Street office towers. It was estimated to be worth over $1 billion. Ms. Lawrence, who inherited 75 percent of her husband's interest, sought the portfolio's sale, but Mr. Cohn, who died in 2003, long opposed her.

Over the next 20 years, some $350 million was distributed from the estate, but the litigation dragged on until a final settlement was reached in May 2005 by which the estate of Mr. Cohn would pay Ms. Lawrence and her children $105 million. Graubard Miller is seeking 40 percent of this amount, or around $42 million. Ms. Lawrence has sought rescission of the agreement as well as the return of all previous fees on the grounds of unjust enrichment and breach of fiduciary duty.

Though contingent fees of such magnitude are not uncommon in personal injury cases, they are rarer in estate cases. Moreover, such deals normally date from the beginning of the litigation and are in lieu of hourly fees, meaning a law firm bringing a case on a contingent-fee basis normally faces a risk of non-recovery.

But Graubard Miller's contingent-fee deal was signed in January 2005, only months before the settlement. The 1983 retainer agreement in effect prior to that only specified hourly billing. In his dissent, Justice Catterson said the contingent fee might have been reasonable if agreed upon at the beginning of the case or if the firm had agreed to refund its previous fees.

"Without the costs and risks generally associated with contingency fee arrangements, such a fee agreement is nothing short of plain greed," he wrote.

The contingent-fee arrangement was proposed to Ms. Lawrence by Graubard Miller partner C. Daniel Chill. In 1998, Mr. Chill had also allegedly asked Ms. Lawrence to pay him and two other partners multi-million-dollar "gifts," telling her that such payments were typical in longstanding attorney-client relationships.

Ms. Lawrence subsequently wrote a personal check to Mr. Chill for $2 million and also wrote $1.6 million and $1.5 million checks respectively to Graubard Miller partners Elaine Reich and Steven Mallis. At Mr. Chill's alleged request, she also paid $2.7 million in gift taxes. She is also seeking the return of these payments.

But the appellate court majority said the propriety of both the retainer agreement and the gifts depended upon Ms. Lawrence's capacity at the time she entered into it, and that her advanced age was not dispositive of the issue. In its decision, the court cited the recommendation of a referee appointed by former Manhattan Surrogate Renee Roth.

The referee, former Court of Appeals Judge Howard Levine, had concluded that there was no legal authority for finding a contingent fee unconscionable solely on the basis of its size and without any inquiry into the discussions between client and attorney.

Mr. Levine was also last month appointed one of the administrators of the late Brooke Astor's estimated $190 million estate. Yesterday, the Manhattan District Attorney's Office announced criminal fraud and larceny charges against Ms. Astor's son and his former lawyer.

In Ms. Lawrence's court filings, she claimed her capacity at the time she agreed to the contingent fee was diminished because of a recent surgery, for which she was taking pain medication.
Graubard Miller's lawyer, Mark Zauderer of Flemming Zulack Williamson Zauderer, said yesterday that Ms. Lawrence was sophisticated woman who had entered into the fee agreement with full knowledge. He said the firm was delighted with the First Department's decision.

"They affirmed Graubard's right to a hard-earned fee in a very complex case," he said.

Leslie D. Corwin of Greenberg Traurig, the lawyer for Ms. Lawrence, said yesterday that he strongly agreed with Justice Catterson's dissent and felt the case should be decided on the law, with no need to elicit further facts. Though he said he was still conferring with his client on her options, he said the likelihood of an appeal was strong.

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