Opinion
2924/98.
Decided April 7, 2009.
Philip Sanchez, Esq., Goldstein, Goldstein, Rikon Gottlieb, New York, NY and Frank S. Vigliarolo, Esq., Jericho, NY.
Upon the foregoing papers, non-party Goldstein, Goldstein, Rikon Gottlieb, P.C. (the Firm) moves for an order awarding it legal fees and disbursements in accordance with the retainer agreement executed by claimants Joseph Vigliarolo and Frank J. Vigliarolo and the closing statement that it prepared. Claimants cross move for an order: (1) directing the Firm to turn over the entire disputed amount of $11,506.46, plus interest; (2) directing the Firm to pay the bill of costs awarded to the City of New York Law Department with respect to the NYCTL 1998-1 Trust appeal in the amount of $1,860; and (3) awarding sanctions in the amount of $2,500 pursuant to 22 NYCRR 130-1.1(a).
Facts and Procedural Background
Claimants are the former owners of properties described as Block 7561, Lots 12, 15, 20, 23, 25, 32 and 35 located in Richmond County. The City of New York (the City) took title to the properties in this condemnation proceeding on July 16, 1996 as part of the Mill Creek Phase I, Staten Island Bluebelt Project. By agreement dated January 16, 1996, claimants retained the Firm to represent them with regard to the taking. On August 6, 1998, the Firm filed and served a Notice of Claim on claimants' behalf. On August 2, 2001, the City made an advance payment of $23,000; the payment was not collected until November 2001 as the result of title objections that had to be settled. The Firm then arranged for an appraisal to be prepared for the properties, which were valued at $155,000 as of the date of vesting of title; the report was exchanged with the City on June 18, 2004.
On January 14, 2004, the NYCTL 1998-1 Trust and Bank of New York, as Collateral Agent and Custodian (the Trust), filed a motion seeking an order compelling the City to release and turn over to them the amounts due and owing under a tax lien recorded against the subject property, which included interest at the rate of 18%. On January 29, 2004, the Firm filed an affirmation in opposition to the motion on claimants' behalf. On June 18, 2004, the Trust withdrew its motion. On June 23, 2004, the City authorized a supplemental advance payment based on claimants' appraisal; the payment was released in December 2004. On January 14, 2005, the Trust filed a second motion seeking an order compelling the City to turn over the supplemental advance payment to the Trust. The Firm filed an affirmation in opposition to that motion. On March 18, 2005, the Trust withdrew its motion, with prejudice.
In April 2005, the Trust filed a third motion, seeking interest on its lien at the rate of 18% per annum. On August 9, 2005, this court rendered a decision denying the Trust's motion and holding that it was entitled to recover interest at the rate of 6% from the date that the City took title through the date that the tax lien is paid ( Matter of City of New York , 9 Misc 3d 896 ). The City appealed. By decision dated March 13, 2007, the Appellate Division, Second Department, held that this court properly determined that the interest rate on the Trust's lien should be 6% after the date of the taking, reasoning that a tax lienor in a condemnation proceeding may assert only an equitable lien when the condemnation award is apportioned and is accordingly entitled to recover interest at the same rate as any other lienholder in a condemnation proceeding ( Matter of Mill Cr. Phase 1 Staten Is. Bluebelt Sys. , 38 AD3d 665 ). The City then moved to have the matter heard by the Court of Appeals; the Court of Appeals granted leave to appeal. By decision dated June 10, 2008, the Court of Appeals reversed the decision of the Appellate Division and held that the Trust was entitled to have an 18% interest rate applied to its tax lien from the date title vested in the City until the date the tax lien is paid ( Matter of Mill Cr. Phase 1 Staten Is. Bluebelt System , 10 NY3d 898 ). During the appeal process, the Firm sent claimants 27 letters, dated between January 29, 2004 and June 16, 2008, updating them on the progress of the matter.
Although the relationship between the Trust and the City is not addressed in the papers submitted to this court, the Corporation Counsel appeared on behalf of the Trust on the appeal to the Appellate Division and to the Court of Appeals.
Settlement conferences were held on September 29, 2005 and on March 20, 2006. A settlement of $109,000 was approved by claimants in March 2006.
The Parties' Contentions
The Firm
In support of its motion, the Firm argues that it did a significant amount of legal work on the instant matter on claimants' behalf. Nonetheless, and although the settlement reached was more than a 500% increase over the advance payments, claimants refuse to pay legal fees in the amount of $7,500 and disbursements in the amount of $4,006.46, for a total of $11,506.46, incurred on the appeals. Moreover, claimants waited until the litigation was at an end to object to the fee charged. The Firm also argues that it has a retaining lien on the file and a charging lien on the fund created by the award.
For purposes of this decision, the court assumes that the contingency fee has been paid to the satisfaction of both parties, since neither seeks any relief with regard to that portion of the fee charged. Accordingly, it is further assumed that only the amount of the legal fees, costs, disbursements and bill of costs incurred in defending the appeals which the Firm alleges that it is entitled to recover, in addition to the contingency fee, remain in issue.
Claimants
In opposition to the motion and in support of their cross motion, claimants argue that the Firm took 13 years to see the matter to conclusion, during which time it committed many costly errors. Claimants contend that this delay is significant in that interest was continuing to accrue on various liens against the properties, including the lien that was the subject of the appeal. More specifically, by notice dated December 7, 1998, J.E. Robert Company, Inc., advised claimants that a tax lien in the amount of $1,978.05 had been filed against one of the parcels, Block 7561, Lot 20. Claimants forwarded a copy of this notice to the Firm. Claimants contend that thereafter, the Firm failed to address the issue of the outstanding tax lien, despite knowledge of its existence and several inquiries with regard thereto.
Claimants also note that as is of particular relevance to the instant dispute is a letter dated August 6, 2001 in which the Firm advised claimants that one of its attorneys met with an attorney from the Corporation Counsel's Office and was advised that "the only title objection remaining is the payment of real estate tax arrears for Block 7561, lot 25;" no mention was made of any taxes due on lot 20. Thereafter, by letter to the Firm dated August 15, 2001, claimants wrote "[p]ursuant to our telephone discussion, kindly have the outstanding taxes deducted from the advance payment award." Despite the direction set forth in this letter and the filing of the motions made by the Trust to collect the amount due and owing as tax arrears, which clearly establish that the Firm was aware of the existence of the liens, the lien on Lot 20 was not paid.
By the time that the Court of Appeals rendered its decision, the amount of the lien had increased to $12,771.28; the City was also awarded a bill of costs in the amount of $1,860. Moreover, when the final payment was made in 2008, an additional $2,317.34 was deducted for taxes; no verification of this amount was ever provided to claimants.
Claimants further allege that the Firm agreed to accept a contingency fee to represent them in this matter and that the retainer agreement provided that the fee included the cost of defending any appeal taken by the condemnor. Accordingly, claimants did not object to the Firm's decision to continue to litigate the issue of the amount of interest due on the lien because they did not believe that they were incurring any costs. Moreover, claimants contend that they would not have agreed to pay $11,500 to oppose the appeal, since the lien would have been reduced by only $8,000 if they had been successful. It is their opinion that the Firm chose to use the instant proceeding as a test case in an effort to establish that the interest rate applicable to a tax lien is 6%, and not the 18% claimed by the lienor. Further, since the additional interest that accrued was only $5,200, while the lien at the time of the commencement of the appeal was $7,000, the financial benefit of pursuing such an appeal was minimal. Claimants also contest the amount of numerous expenses for which they are billed, i.e., $1,143.69 for Lexis info; $1,035.65 for filing fees; $321.43 for travel; and $882.66 for Acro copies.
The Retainer Agreement
The retainer agreement provides, in pertinent part, that claimants retained the Firm:
"to represent them in the above referenced condemnation proceeding and agree to pay and hereby assign to said attorneys, for their services, thirty three and one-third (33 1/3%) percent of the total award and interest that may be made or paid as is in excess of the final written offer made for property by the City of New York. In the event no offer is made, the advance payment. The attorneys' fee shall be computed on the gross amount recovered. The client shall pay any and all expenses, disbursements, appraisers and experts fees.
"This retainer relates to amounts obtained by suit, settlement or otherwise and shall include the defense of any appeal taken by the condemnor but does not include appeals taken by the client for which, if the attorneys agree to their retention for that purpose, additional compensation will be required. It is understood that the attorneys are retained solely for obtaining just compensation in the condemnation proceeding and any additional work the attorneys may be asked to do and agree to do, including, but not limited to clearing objections to title, shall be charged at their usual hourly rate."
The Law
It is well established that:
"Public policy dictates that courts pay particular attention to fee arrangements between attorneys and their clients, as it is important that a fee contract be fair, reasonable, and fully known and understood by the client ( see Jacobson v Sassower, 66 NY2d 991, 993; Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 176; Matter of Bizar Martin v U.S. Ice Cream Corp., 228 AD2d 588). If the terms of a retainer agreement are not established, or if a client discharges an attorney without cause, the attorney may recover only in quantum meruit to the extent that the fair and reasonable value of legal services can be established ( see Matter of Cohen v Grainger, Tesoriero Bell, 81 NY2d 655, 658; Campagnola v Mulholland, Minion Roe, 76 NY2d 38, 43; Matter of Estate of Schanzer, 7 AD2d 275, affd 8 NY2d 972).
" 22 NYCRR 1215.1, otherwise known as the letter of engagement rule,' was promulgated by joint order of the Appellate Divisions, and applies to all civil actions where the amount in controversy is $3,000 or more. The rule requires attorneys to provide all clients with a written letter of engagement explaining the scope of legal services, the fees to be charged, billing practices to be followed, and the right to arbitrate a dispute under Part 137 of the Rules of the Chief Administrator ( see 22 NYCRR 1215.1[b]; see generally Grossman v West 26th Corp. , 9 Misc 3d 414 )."
( Seth Rubenstein, P.C. v Ganea , 41 AD3d 54 , 60). Further:
"While, in the law generally, equivocal contracts will be construed against the drafters, 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 ( Jacobson v Sassower, 66 NY2d 991, 993; Gair v Peck, 6 NY2d 97, 106, cert denied 361 US 374; see also, 1 Speiser, Attorneys' Fees §§ 2:3, 2:9)."
( Shaw, 68 NY2d at 176-177; accord Ween v Dow , 35 AD3d 58 [with regard to attorney fee arrangements, the courts, as a matter of public policy, give particular scrutiny to the reasonableness of the arrangements pursuant to their interest in, and statutory power, to regulate the practice of law]; Bizar Martin, 228 AD2d 588 [the reasonableness of attorney's fees is always subject to court scrutiny, an attorney has the burden of showing that a fee contract is fair, reasonable, and fully known and understood by the client and the law requires that an agreement between the client and the attorney be construed most favorably for the client]).
"[A]ttorneys are held to the highest standards when dealing with clients over fee matters" ( In re Estate of Jackson, 120 AD2d 309, 316, appeal denied 69 NY2d 608). From this it follows that the "attorney has the burden of showing that a fee contract is fair, reasonable, and fully known and understood by the client" ( Bizar Martin, 228 AD2d at 588-589, citing Shaw, 68 NY2d 172, 176; Jacobson, 66 NY2d at 993; Smitas v Rickett, 102 AD2d 928, 929; Cohen v Ryan, 34 AD2d 789, 790).
Accordingly, "[i]n cases of doubt and ambiguity, an agreement between a client and the attorney must be construed most favorably to the client" ( Matter of Kunicki , 35 AD3d 742 , 742-743, appeal denied 8 NY3d 816, citing Jacobson, 66 NY2d 991; Trief v Elghanayan, 251 AD2d 123, 674; Bizar Martin, 228 AD2d 588; accord Sims v Schantz (In re Seigel), 300 AD2d 668, 669 [to the extent that the provisions of the retainer agreement upon which he relied applied to cash or property recovered by the estate was ambiguous, it must be construed against the attorney and in favor of the client]). "Overbilling and padding of costs can constitute a breach of contract and can give rise to a cause of action in favor of a client and against an attorney" ( O'Connor v Blodnick, 295 AD2d 586, 587, citing Graphic Offset Co. v Torre, 78 AD2d 788; U.S. Ice Cream v Bizar, 240 AD2d 654]). "Allegations by the client, as here, that he did not understand the terms or the effect of the agreement are sufficient, if proven, to entitle him to rescission unless the attorney can convincingly show that [the client] was fully and fairly informed of the consequences of the agreement and the special advantages it gave to [him]'" ( Schlanger v Flaton, 218 AD2d 597, 602, quoting Greene v Greene, 56 NY2d 86, 92).
Discussion
Herein, the Firm's retainer agreement with claimants unquestionably provides that the contingency fee agreed to "shall include the defense of any appeal taken by the condemnor but does not include appeals taken by the client for which, if the attorneys agree to their retention for that purpose, additional compensation will be required." It is equally clear that the appeal at issue herein was taken by the City and defended by claimants. From this it follows that the Firm is not entitled to charge additional fees to defend the appeal ( see generally Abreu v Ferrer, 239 AD2d 249 [where it was unclear whether the retainer agreement provided that representation was to terminate upon entry of an adverse judgment, as appellant argues, or was to persist through conclusion of the matter, including appeal, as plaintiff client urges, the law mandates a construction in accordance with the client's understanding]).
In so holding, the court rejects the Firm's contention that the appeal should be construed to relate to clearing objections to title, so that the work performed should be billed at an hourly rate. In the first instance, to the extent that the Firm argues that the retainer permits it to charge an hourly rate to defend any appeals pertaining to title objections, the language is ambiguous, since the preceding paragraph discussing appeals is not so limited. Accordingly, the ambiguity must be resolved in favor of claimants, as clients. Further, it is not clear that the amount of interest payable to the City on a tax lien is properly characterized as an objection to title, and not as a matter going to the issue of the just compensation to be paid. Again, any ambiguity in this language must similarly be resolved in favor of the client. In this regard, the court also notes that while the Firm now seeks to bill for the appeal on the ground that the issue pertains to clearing a title objection, it did not seek to so characterize its opposition to the underlying motions made in this court, since it does not seek to be paid at an hourly rate for opposing those motions.
In addition, the court notes that the retainer agreement also refers to "additional work the attorneys may be asked to do and agree to do" as work that shall be billed at an hourly rate. The Firm, however, presents no evidence to establish that claimants asked them to defend the appeal. In fact, the letter dated August 15, 2001 from claimants to the Firm in which claimants directed the Firm to "kindly have the outstanding taxes deducted from the advance payment award" compels the contrary conclusion, i.e., claimants wished to pay the taxes due and receive any payment due to them at that time. In this regard, the Firm's assertion, as made in its affirmation in opposition to the cross motion, that claimants did not direct it to proceed in any other way or to terminate the appeal does not establish that claimants requested that the Firm oppose the appeal in the first instance or that they would be billed at an additional hourly rate if they elected to do so.
The Firm also points to no discussions and/or correspondence with claimants that could lead the court to conclude that claimants agreed to retain the Firm at an hourly rate, since no agreement with regard to the fee to be charged is offered by the Firm in support of its demand for fees. Further, the letters sent to claimants with regard to the status of the matter make no mention of additional fees. In this regard, it must also be noted that although the Firm now seeks to recover $7,500 in legal fees that it claims were incurred based upon the hourly billing rates of those attorneys who performed work on the appeal, no statements were sent to claimants at any time during the appeal to either the Appellate Division or to the Court of Appeals and no affirmation or services is annexed in support of the motion. The failure of the Firm to send claimants any bills between the time that the August 9, 2005 decision of this court was appealed and the closing statement that was prepared in September 2008 lends further credence to claimants' contention that they believed that they were not incurring additional legal fees in defending the appeal. Finally, claimants contention that the amount of money that they would have received if they had prevailed on the appeal does not justify an expenditure of $11,500 in attorneys' fees is persuasive.
From this it follows that the Firm fails to establish that the fee arrangement that it now seeks to rely upon with regard to defending the appeals at issue herein was "fair, reasonable, and fully known and understood by the client." Accordingly, the court holds that the Firm is not entitled to recover any additional attorneys fees, costs or expenses expended in opposing the subject appeal. The court therefore does not reach the issue of the propriety of the costs billed to claimants.
Sanctions
As is relevant herein, pursuant to Rule 130-1.1(a), "[t]he court, in its discretion, may award to any party or attorney in any civil action or proceeding before the court, except where prohibited by law, costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct as defined in this Part." Rule 130-1.1(c)(1) provides that conduct is frivolous if "it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law."
Although the court has concluded that the Firm is not entitled to recover any attorneys' fees, costs or disbursements incurred in opposing the subject appeal, it is beyond dispute that the Firm performed the legal services for which it now seeks to be compensated. Inasmuch as resolution of the issue of the amount of the fee, if any, to which the Firm is entitled required the interpretation of the parties retainer agreement, which was found herein to be ambiguous, the court declines to find that the Firm's efforts to seek to obtain payment for services that were indisputably rendered is completely without merit.
From this it follows that claimants' request for the imposition of sanctions is denied.
Conclusion
Accordingly, for the above stated reasons, the Firm's motion is denied. Claimants' cross motion is granted only to the extent of directing that the Firm turn over to them the entire disputed amount of $11,506.46, plus interest, and to pay the bill of costs awarded to the City of New York Law Department with respect to the NYCTL 1998-1 Trust appeal in the amount of $1,860, within 14 days of service upon it of a copy of this order with notice of entry. All other relief requested is denied.
The foregoing shall constitute the order and decision of this court.