New York lawyers are governed by a seemingly endless array of rules and regulations, among them is 22 NYCRR 1215.1 which directs attorneys to provide clients with a written letter of engagement when the value of work to be performed will equal or exceed the sum of $3,000. This letter should review, among other things, the scope of the services to the be performed, the fees to be charged, the lawyer's billing practices, and, the client's right to arbitrate in the event of a dispute over those charges.
May a lawyer still collect fees and charges for services performed on a client's behalf if this letter is not given or if a comparable document, like a retainer agreement, is not executed?
According to an Appellate Division decision released last week (April 3, 2007), the answer is a resounding yes -- unless the dispute is one which involves a "domestic relations matter" in the Supreme or Family Courts.*
In Seth Rubenstein, P.C. v. Ganea , a lawfirm sought to collect some $65,954.14 which had chiefly been incurred on Ms. Ganea's behalf during the course of a hotly contested guardianship case. At the conclusion of the dispute, the Kings County Supreme Court awarded Ganea "reasonable compensation" of those fees in the lowly amount of $18,375. When the lawfirm later attempted to recover the balance of the legal charges incurred, Ganea challenged the firm's claim on two grounds:
- the firm's conceded noncompliance with the "letter of engagement rule;" and
- the Supreme Court's determination within the guardianship dispute that only $18,375 of Ganea's fees were recoverable.
While lower court decisions have been all over the map on the issue, the Appellate Division, Second Department, noted that the "engagement letter rule" does not contain a penalty in the event of noncompliance. In fact, the AD2 is of the opinion that this particular rule only seeks to encourage attorneys to document all fee arrangements reached with their clients (rather than penalize counsel for their nonobservance). Here's how the AD2 put it:
The purpose of the rule therefore is to aid the administration of justice by prodding attorneys to memorialize the terms of their retainer agreements containing basic information regarding fees, billing, and dispute resolution which, in turn, minimizes potential conflicts and misunderstandings between the bar and clientele.
In the absence of an explicit penalty (outside of the domestic relations context), the AD2 was of the opinion that a forfeiture of fees for an attorney's noncompliance with the "engagement letter rule" would "create unfair windfalls for clients, particularly where clients know that the legal services they receive are not pro bono and where the failure to comply with the rule is not willful ...."
According to the AD2, attorneys who do not comply with the rule, still "place themselves at a marked disadvantage," as the recovery of their charges will require a higher burden of proof (should disputes arise as to the client's understanding of, and agreement with, the terms of the retention). As the court warns:
There is never any guarantee than an arbitrator or court will find this burden met or that the fact-finder will determine the reasonable value of services under quantum meruit to be equal to the compensation that would have been earned under a clearly written retainer agreement or letter of engagement.
Additionally, at the conclusion of a contested matter (like the guardianship dispute described above), when a court awards the client a fee recovery that is less than what that client agreed to pay the attorney, that balance remains recoverable "pursuant to the attorney-client fee arrangement." However, the absence of a writing could impinge upon the attorney's ability to recover those sums. As the AD2 observed:
[The attorney] bears the burden of establishing that he reached a clear agreement with [the client] that [the client] would be responsible for fees incurred in the guardianship proceeding, including the amount that the fair value of legal services exceeds the amount awarded by the guardianship court .... Any misunderstanding or lack of clarity arising from [the lawyer's] failure to provide a letter of engagement or enter into a signed retainer agreement shall be resolved in favor of the client ....
And the battle for fees wages on!
"En garde!"
For a copy of the Appellate Division's decision, please use this link: Seth Rubenstein, P.C. v. Ganea
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*When the representation involves divorce, separation, annulment, custody, visitation, maintenance, child support or alimony, then a completely different set of rules will apply. For additional information, please use this link: Rule 1400.3