In Margrabe v. Rusciano , Elizabeth Margrabe alleged her attorneys didn't properly represent her interests in a case.
Elizabeth and her brother, Tony, retained Sexter & Warmflash, P.C. (S&W) to represent them in a dispute involving the sale of a business. Elizabeth agreed to advance the legal fees and costs which Tony was to repay once the litigation was concluded.
As the litigation dragged on, Tony's debt to Elizabeth exceeded $400,000. When she cut him off, Tony borrowed $8,000 from one of S&W's attorneys.
Once the case finally settled, Elizabeth and Tony were due to receive more than $8,000,000 for their stake in the business, but when Elizabeth discovered S&W's loan to her brother, she refused to pay the firm's legal fees, believing the attorneys breached their fiduciary duty by lending money to Tony.
When S&W sought a lien on the settlement proceeds, the Westchester County Supreme Court agreed the disciplinary rules had been violated but, because Elizabeth hadn't been harmed and the fees were reasonable, the lawyers were still permitted to recoup their fees and charges.
On appeal, the Appellate Division, Second Department, was also unsympathetic to Elizabeth's position and held that although S&W knew, or should have known, the loan was a violation of the governing ethics' rules, its representation of Elizabeth for the four year period preceding that misconduct was otherwise unassailable. The AD2 also noted S&W was not seeking fees for work performed after the $8,000 loan, but for the four years preceding it.
Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
Hamlet Act 1, scene 3, 75-77
To download a copy of the Appellate Division's decision, please use this link: Margrabe v. Rusciano