APL-2013-00264
New York County Surrogate’s Clerk File No. 175/82
Court of Appeals
STATE OF NEW YORK
In the Matter of a Petition to Compel Payment of Legal Fees
for Services Rendered in Connection with the Estate of
SYLVAN LAWRENCE,
Deceased.
RICHARD S. LAWRENCE and PETER A. VLACHOS, as Executors
of the Estate of Alice Lawrence, Deceased,
Respondents-Plaintiffs-Respondents,
against
GRAUBARD MILLER,
Petitioner-Defendant-Appellant,
C. DANIEL CHILL, ELAINE M. REICH and STEVEN MALLIS,
Defendants-Appellants,
and
RICHARD S. LAWRENCE, SUZANNE LAWRENCE DECHAMPLAIN
and MARTA JO LAWRENCE,
Intervenors-Respondents.
>> >>
BRIEF FOR PETITIONER-DEFENDANT-APPELLANT
GRAUBARD MILLER
To Be Argued By:
Brian J. Shoot
Time Requested: 30 Minutes
SULLIVAN PAPAIN BLOCK MCGRATH
& CANNAVO P.C.
120 Broadway, 18th Floor
New York, New York 10271
212-732-9000
bshoot@triallaw1.com
FLEMMING ZULACK WILLIAMSON
ZAUDERER LLP
One Liberty Plaza
New York, New York 10006
212-412-9500
mzauderer@fzwz.com
Attorneys for Petitioner-Defendant-Appellant
Graubard Miller
Date Completed: November 11, 2013
i
500.1(f) DISCLOSURE STATEMENT
Petitioner-Defendant-Appellant Graubard Miller is a general partnership and
has no parents, subsidiaries or affiliates.
ii
Table Of Contents
500.1(f) Disclosure Statement ................................................................................................. i
Preliminary Statement ..............................................................................................................2
Summary of The Case ............................................................................................................3
Jurisdiction To Hear The Appeal ........................................................................................9
Issues Presented ......................................................................................................................9
Preservation Of The Issues ................................................................................................11
Statement Of Facts ...............................................................................................................12
Alice Lawrence: By Her Own Assessment, “A Force To Be
Reckoned With” ........................................................................................................12
Mrs. Lawrence Fires Two Other Law Firms And Hires Graubard
........................................................................................................................................16
Graubard Prosecutes The First Phase Of The Estate Litigation,
Yielding The Lawrences More Than $350 Million ................................................18
Graubard’s Prosecution Of The Accounting Claims, Up Until
January Of 2004 ..........................................................................................................19
The So-Called $60 Million Settlement Offer of January 2004 ............................21
The “Very Disappointing And Unanticipated” Loss Of The “95
Wall Street Fraud” Claim In December 2004 .......................................................23
Mrs. Lawrence’s January 2005 Refusal To Continue With Hourly
Billing, And Graubard’s Agreement To Proceed On The Basis Of
A Contingent Fee Retainer ......................................................................................24
The Terms Of The Contingent Fee Retainer Agreement ..................................28
iii
The Frenetic Run-Up To The May 2005 Trial, And Graubard’s
Loss Of More Than A Million Dollars In Billings ..............................................31
The $111 Million Settlement Of The Underlying Action And The
Work That Precipitated That Settlement ...............................................................32
“It’s My Problem. I’ll Handle It” - Mrs. Lawrence’s Secret
Preparations To Sue Graubard Even As It Continued To Finalize
Her Unexpectedly Large Settlement .....................................................................35
The Dispute Concerning The Contractually Owed Attorneys’ Fees ............................37
The Commencement Of These Proceedings, And The Lawrence
Family’s First Set Of Inflammatory Accusations .................................................37
Mrs. Lawrence’s Refusal To Be Deposed ..............................................................39
Graubard’s Motion For Sanctions And The Lawrences’ Cross-
Motions To Instead Sanction Graubard ...............................................................42
The Trial Of Graubard’s Fee Claim ....................................................................................44
The Lawrences’ New-For-The-Trial Accusations of Graubard
Misconduct, All “Discovered” Posthumously and All Premised
Solely Upon Hearsay ................................................................................................45
Graubard’s Uncontroverted Proof That The Terms Of The
Contingent Fee Retainer, (1) Did Not Violate Any Identifiable
Rule Or Standard, And, (2) Were Wholly Consistent With The
Established Customs And Practices In The New York
Metropolitan Area .....................................................................................................49
The Estate’s Expert Testimony ................................................................................51
The Rulings Below ...............................................................................................................53
iv
The Special Referee Rejects The Estate’s Various Claims Of
Graubard Misconduct As Untruthful But Nonetheless
Recommends A Drastic Reduction Of The Contractually Agreed
Fee On The Stated Ground That No One Expected The Lawrences’
Recovery To Be So Large ..........................................................................................53
The Surrogate’s Ruling, Largely Adopting The Special Referee’s
Recommendations .....................................................................................................57
The Appellate Division’s Ruling, Crediting The Same
“Misunderstood The Retainer” Claim That The Special Referee
Had Emphatically Rejected .....................................................................................58
The Appellate Division Grants Leave To Appeal To Graubard
And The Individual Defendants ............................................................................59
The Lawrences Fail To Seek Or Obtain Leave To Appeal ................................59
The Entry Of Final Judgment On Remand .....................................................................60
ARGUMENT
The Applicable Standard of Review ..................................................................................61
POINT I
CONTINGENT FEE RETAINERS SERVE IMPORTANT POLICY
OBJECTIVES, EVEN IN COMMERCIAL CASES AND EVEN IN
CASES IN WHICH THE CLIENT CAN AFFORD HOURLY
BILLING. .............................................................................................................................63
POINT II
THE CLEAR-ON-ITS-FACE CONTINGENT FEE RETAINER
THAT MRS. LAWRENCE REQUESTED AND THEN SIGNED
SHOULD BE ENFORCED UNLESS IT WAS PROCEDURALLY
AND SUBSTANTIVELY UNCONSCIONABLE. .....................................................68
v
POINT III
THE APPELLATE DIVISION ERRED IN REJECTING THE
SPECIAL REFEREE’S FINDING THAT MRS. LAWRENCE’S
BELATEDLY CLAIMED INABILITY TO UNDERSTAND THE
CLEAR-ON-ITS-FACE CONTINGENT FEE AGREEMENT WAS
“NOT CREDIBLE” AND IN INSTEAD RULING THAT THE
CONTINGENT FEE RETAINER WAS PROCEDURALLY
UNCONSCIONABLE. .......................................................................................................73
A. A Contract Is Procedurally Unconscionable Only When
There Is “An Absence Of Meaningful Choice.” ......................................74
B. The Special Referee And Surrogate Had More Than Ample
Basis To Conclude That The Estate’s Newly Minted
“Misunderstood The Retainer” Defense Was “Not
Credible,” And The Appellate Division Therefore Erred In
Crediting The Claim. .....................................................................................79
C. Any Finding That The Agreement Was Procedurally
Unconscionable In The Circumstances At Bar Would
Significantly Deter Attorneys From Acceding To Client
Requests For Contingent Fee Representation ..........................................81
POINT IV
THERE WAS NEITHER ANY PROOF NOR EVEN ANY CLAIM
THAT THE REVISED RETAINER AGREEMENT WAS
SUBSTANTIVELY UNCONSCIONABLE AT THE TIME IT WAS
SIGNED. ..............................................................................................................................83
vi
POINT V
THE LOWER COURTS ERRED IN RULING THAT A
CONTINGENT FEE CONTRACT THAT WAS NOT
UNCONSCIONABLE WHEN MADE BECAME
UNCONSCIONABLE SIMPLY BECAUSE THE ATTORNEYS
OBTAINED A RECOVERY THAT WAS FAR GREATER THAN
ANYONE EXPECTED AND CAME MUCH SOONER THAN
ANYONE EXPECTED. ....................................................................................................85
A. The Contingent Fee Retainer Was Not Substantively
Unconscionable, Not Even In Hindsight, In The Context
of The Proof Actually Adduced At Trial. ..................................................89
1. The Value Of Graubard’s Services: Graubard
Obtained A $111 Million Settlement That Was, As
The Special Referee Acknowledged, More Than
Double The Case’s Full Worth At Time Of
Settlement ............................................................................................91
2. The Intent Of The Parties: Mrs. Lawrence Obtained
Exactly What She Sought When She Demanded An
Alternative Billing Arrangement — Continued
Pursuit Of A Potentially Large Recovery, But With
A Substantial Reduction Of Her Risk ...........................................98
3. Graubard’s Very Significant Risks In Acceding To
The Client’s Request That The Firm Work For A
Contingent Fee .................................................................................101
(a) The True Risks Of The Retainer: Potentially
Committing Graubard To Literally Years Of
Litigation In A Case That Suddenly Appeared
Problematic ..........................................................................101
(b) That Graubard Was Already More Than A
Million Dollars In The Hole And Was
Already Contributing More Than The Client
By The Time The Case Settled .........................................107
vii
4. The Real Public Policy At Issue Here .........................................109
POINT VI
THE APPELLATE DIVISION ERRED IN RULING THAT THE
SAME CLIENT WHO HAD REFUSED TO CONTINUE ON AN
HOURLY BASIS COULD RETROACTIVELY RETURN TO
HOURLY BILLING. ........................................................................................................111
A. Reversion To The Prior Retainer Agreement Runs
Contrary To General Principles Of Contract Law. ................................113
B. Reversion To The Prior Retainer Agreement Also Runs
Contrary To The Settled Law Governing Attorney-Client
Retainer Agreements. ..................................................................................115
C. The Appellate Division’s Ruling Was Not Supported By
Either Of The Decisions Cited In Its Opinion. ....................................117
D. The Reversion “Rule” Also Constitutes Bad Policy And
Would Lead To Illogical Consequences. ................................................119
1. Unwarranted Punishment And Indefensible Windfall
...............................................................................................................119
2. Illogical Consequences ...................................................................121
POINT VII
EVEN IF ONE WERE TO ASSUME THAT THE FEE WAS
UNCONSCIONABLE IN HINDSIGHT, THE FEE SHOULD NOT
HAVE BEEN REDUCED BELOW THE ONE-THIRD BASELINE
THAT IS PRESUMPTIVELY REASONABLE IN PERSONAL
INJURY ACTIONS INVOLVING FAR LESS TIME AND RISK. .......................123
CONCLUSION ..................................................................................................................126
Unreported Decision in Castellanos v. CBS, Inc., Bronx Co. Index No.
23018/05 [Sup Ct April 20, 2011], aff’d 89 AD3d 499 [1st Dept 2011] ......................A1
viii
Table Of Authorities
Table of Cases
Amend v Hurley,
293 NY 587 [1944] .....................................................................................................62
Americas Mining Corp. v Theriault,
51 A3d1213 [Del 2012], reargument denied (Sept. 21, 2012) ....................................92
Attorney Grievance Com’n of Maryland v Ashworth,
381 Md 561, 851 A2d 527 [2004] .......................................................................... 85n
Banque Indosuez v Sopwith Holdings Corp.,
98 NY2d 34 [2002] .....................................................................................................71
Belzer v Bollea,
150 Misc 2d 925 [Sup Ct 1990] ..............................................................................115
Bercow v Damus,
5 AD3d 711 [2d Dept 2004] ...................................................................................114
Blake v Biscardi,
62 AD2d 975 [2d Dept 1978] .................................................................................119
Castellanos v CBS, Inc.,
Bronx Co. Index No. 23018/05 [Sup Ct April 20, 2011], affd 89
AD3d 499 [1st Dept 2011] ..................................................................................... 70n
Cent. Hanover Bank & Trust Co. v Eisner,
276 NY 121 [1937] .....................................................................................................61
Emigrant Mortg. Co., Inc. v Fitzpatrick,
95 AD3d 1169 [2d Dept 2012] .................................................................................75
Dailey v Keith,
1 NY3d 586 [2004] .................................................................................................. 47n
Dullard v Berkeley Assoc. Co.,
606 F2d 890 [2d Cir 1979] .......................................................................................123
ix
Fairbairn v State,
66 NY2d 620 [1985] ............................................................................................ 62, 74
F.H. Krear & Co. v Nineteen Named Trustees,
810 F2d 1250 [2d Cir 1987] ......................................................................................94
Gabriel Indus., Inc. v Defiance Indus., Inc.,
22 NY2d 405 [1968] ...................................................................................................61
Gair v Peck,
6 NY2d 97 [1959] rearg denied, remitter amended, 6 NY2d 983, 161
NE2d 736 [1959] ...................................................................................... 64, 87n, 123
Gillman v Chase Manhattan Bank, N.A.,
73 NY2d 1 [1988] .......................................................................................................61
Glenbriar Co. v Lipsman,
5 NY3d 388 [2005] .....................................................................................................62
Goodrich v McDonald,
112 NY 157 [1889] .....................................................................................................71
Greene v Greene,
56 NY2d 86 [1982] .....................................................................................................76
Hecht v City of New York,
60 NY2d 57 [1983] .....................................................................................................59
In re Abrams & Abrams, P.A.,
605 F3d 238 [4th Cir 2010] ................................................................................ 63, 93
In re Brehm’s Estate,
37 AD2d 95 [4th Dept 1971] ....................................................................................66
In re Fitzsimons,
174 NY 15 [1903] ............................................................................................115, 123
x
In re Howell,
215 NY 466 [1915] .................................................................................................. 74n
In re Liquidation of Midland Ins. Co.,
16 NY3d 536 [2011] ...................................................................................................61
In re Smart World Tech, LLC,
552 F3d 228 [2d Cir 2009] .........................................................................................88
In re Stamell,
252 BR 8 [Bankr EDNY 2000] ............................................................................. 74n
Jacobs v Citibank, N.A.,
61 NY2d 869 [1984] ...................................................................................................75
Jacobson v Sassower,
66 NY2d 991 [1985] ............................................................................................ 69, 76
Kelly’s Rental, Inc. v City of New York,
44 NY2d 700 [1978] ...................................................................................................60
King v Fox,
7 NY3d 181 [2006] .....................................................................................................68
Lawrence v Miller,
11 NY3d 588 [2008] .............................................................................................passim
Level Expert Corp. v Wolz, Alken & Co.,
305 NY 82 [1953] .......................................................................................................77
Leonard C. Arnold, Ltd. v N. Trust Co.,
116 Ill 2d 157, 506 NE2d 1279 [1987] ....................................................................64
Matter of Potts,
213 AD 59 [4th Dept 1925], aff’d 241 NY 693 [1925] ..........................................93
Matter of Rothko’s Estate,
43 NY2d 305 [1977] .................................................................................................114
xi
Matter of Smith (Raymond),
214 AD 622 [1st Dept 1925] ...................................................................................117
McKenzie Constr., Inc. v Maynard,
823 F2d 43 [3d Cir 1987] ...........................................................................................95
Metzger v Aetna Ins. Co.,
227 NY 411 [1920] .....................................................................................................77
Naiman v New York Univ. Hospitals Ctr.,
351 F Supp 2d 257 [SDNY 2005] .................................................................74n, 118
Oden v Chemung County Indus. Dev. Agency,
87 NY2d 81 [1995] .....................................................................................................60
People v Caban,
70 NY2d 695 [1987] ...................................................................................................61
Shaw v Manufacturers Hanover Trust Co.,
68 NY2d 172 [1986] ............................................................................................ 76, 77
Simar Holding Corp. v GSC,
87 AD3d 688 [2d Dept 2011] ...................................................................................75
Slater-Moore v Goeldner,
113 So. 3d 521 [Miss 2013] .......................................................................................77
Sneed v Sneed,
1984 OK 22, 681 P2d 754 [Okla. 1984] ..................................................................64
Spiegel v Goldfarb,
66 AD3d 873 [2d Dept 2009] .................................................................................115
Stanton v Embrey,
93 US 548, 23 L Ed 983 [1876] ................................................................................63
xii
State v Wolowitz,
96 AD2d 47 [2d Dept 1983] .....................................................................................74
Std. Fruit & S.S. Co. v Waterfront Commn. of New York Harbor,
43 NY2d 11 [1977] .................................................................................................. 47n
Wade v Clemmons,
84 Misc2d 822 [Sup. Ct. 1975] .........................................................................70n, 94
Ward v Orsini,
243 NY 123 [1926] .................................................................................................. 88n
Yalango by Goldberg v Popp,
84 NY2d 601 [1994] .................................................................................................123
Statutes And Other Authorities
4B N.Y.Prac., Com. Litig. in New York State Courts § 73:15 [ed ed.] ........................114
22 N.Y. Jur.2d Contracts § 498 ..........................................................................................114
22 NYCRR § 603.7[e] ..........................................................................................................124
22 NYCRR § 691.20[e] ........................................................................................................124
28 N.Y. Prac., Contract Law § 6:28 .....................................................................................61
ABA Comm. on Ethics and Professional Responsibility, Formal Op. 94-
38 ......................................................................................................................... 64, 65, 99, 105
Adam Shajnfeld, A Critical Survey of the Law, Ethics, and Economics of
Attorney Contingent Fee Arrangements, 54 NYL Sch L Rev 773 [2010] ......... 105, 110
Code of Professional Responsibility DR 2-106(B) (22 NYCRR
1200.11[b]) ...............................................................................................................................90
CPLR § 5602[b][1] ....................................................................................................................9
xiii
Daniel F. Sullivan, Reasonableness Of Contingent Fee in Personal Injury
Action, 46 Am. Jur. Proof of Facts 2d 1, § 5 .....................................................................93
Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency
Fees, 80 Wash ULQ 739 [2002] .........................................................................................105
Herbert M. Kritzer, Advocacy and Rhetoric vs. Scholarship and
Evidence in the Debate Over Contingency Fees: A Reply to Professor
Brickman, 82 Wash U.L.Q. 477 (2004) .......................................................................... 104n
Judiciary Law § 474 ................................................................................................................63
I. Conte, Attorney Fee Awards, § 2:5 [3d Ed. 1994-2004] ..............................................92
I. Conte, Attorney Fee Awards, § 2:7 [3d Ed. 1994-2004] ..............................................94
Lester Brickman, Contingent Fees Without Contingencies: Hamlet
Without the Prince of Denmark?, 37 UCLA L Rev 29 [1989] ......................................104
New York Code of Professional Responsibility Rule 1.5[c] ............................................63
Oliver Twist, ch. 51 ............................................................................................................. 71n
Restatement (Second) of Contracts § 208 [1981] ............................................................114
Restatement (Third) of Law Governing Lawyers § 18 [2000]........................................116
Restatement (Third) of Law Governing Lawyers § 34 [2000] ................................ 89, 115
Richard M. Birnholz, The Validity And Propriety Of Contingent Fee Controls,
37 UCLA L. Rev. 949 [1990] ...................................................................................63, 65, 88
Robert L. Rossi, 1 Attorneys’ Fees, § 5:3 (ed.) ..................................................................66
Roy Simon, Simon’s New York Code of Professional Responsibility
Annotated (2012 ed.) ...................................................................................................... 67, 71
Stewart Jay, The Dilemmas Of Attorney Contingent Fees, 2 Geo. J. Legal
Ethics 813 [1989] ............................................................................................................. 65, 66
xiv
8 Williston on Contracts, § 18:12 [4th ed.] ................................................................. 69, 119
27 Williston on Contracts, § 70:5 [4th ed.] ..........................................................................69
COURT OF APPEALS
STATE OF NEW YORK
------------------------------------------------------------------------X
In the Matter of a Petition to Compel Payment of Legal
Fees for Services Rendered in Connection with the Estate
of
SYLVAN LAWRENCE,
Deceased.
------------------------------------------------------------------------X
RICHARD S. LAWRENCE and PETER A. VLACHOS,
as Executors of the Estate of Alice Lawrence, Deceased,
Respondents-Plaintiffs-Respondents,
-against-
GRAUBARD MILLER,
Petitioner-Defendant-Appellant,
C. DANIEL CHILL, ELAINE M. REICH and STEVEN
MALLIS,
Defendants-Appellants,
-and-
RICHARD S. LAWRENCE, SUZANNE LAWRENCE
DECHAMPLAIN and MARTA JO LAWRENCE,
Intervenors-Respondents.
------------------------------------------------------------------------X
BRIEF FOR PETITIONER-DEFENDANT-APPELLANT
GRAUBARD MILLER
Preliminary Statement
This case now appears before the Court of Appeals a second time. In its prior
decision in the case, the Court ruled that Graubard Miller’s (“Graubard’s”) 40%
contingent fee retainer was not unconscionable on its face. Lawrence v. Miller, 11
NY3d 588 [2008]. In so ruling, the Court pointedly stated that, (i) “the power to
invalidate fee agreements with hindsight should be exercised only with great caution,”
(ii) “[i]t is not unconscionable for an attorney [working pursuant to a contingent fee
retainer] to recover much more than he or she could possibly have earned at an hourly
rate,” (iii) the contingency fee system would otherwise not “work,” and, (iv) courts
should not become “too preoccupied with the ratio of fees to hours” in determining
whether an attorney’s contingent fee is unconscionable. Id. at 596 n.4.
The case is here once again because the lower courts disregarded all of that.
Far from applying the principles laid down by this Court in its 2008 decision, the
Appellate Division determined that the “value” of Graubard’s services was by definition
the sum that the attorneys would have billed if the client had not refused to continue
with hourly billing — in this case, “approximately $1.7 million” (XVII:A7395).1
Having thus conflated “value” with billable hours — precisely what this Court
said should not be done — the Appellate Division ultimately ruled that Graubard’s
very success in securing a settlement that was much larger than anyone expected and
1 All such citations correspond to volume and page numbers in the Joint Appendix.
2
came much sooner than anyone expected rendered its 40% fee unconscionable in
hindsight (XVII:A7395-A7396).
Graubard submits that the ruling was wrong legally and even worse as policy.
Summary Of The Case
It was undisputed in the courts below that client Alice Lawrence “insisted” on
abandoning the existing, hourly retainer (I:A188a; VI:A669-A670), undisputed that
the new contingent fee retainer conformed to industry norms in all respects
(VII:A1339, A1365), undisputed that the retainer was reduced to a writing that was
clear on its face (VIII:A1922, X:A2985-A2986), and undisputed that the client’s
personal accountant reviewed and critiqued the contract before Mrs. Lawrence signed
it (VIII:A1922-A1924, A2004).
It was also undisputed that, largely in consequence of “smoking gun” evidence
of executor self-dealing that Graubard discovered approximately two months after
entering into the new retainer (see pages 32 to 35, infra), Graubard settled the
accounting claims in the underlying Estate litigation for $111,856,468 (I:A189a).
Special Referee Howard A. Levine (the “Special Referee”), who presided at the
trial of this action, concluded that the sum paid in settlement was far more than
Graubard or Mrs. Lawrence could have hoped for just a few months earlier (I:A188a-
A189a) and was “at least double” what the case was actually worth when it settled
(I:A184a).
3
The client’s recovery after deduction of the attorneys’ contractually agreed fee
would have been approximately $67 million. In another case, with a different client,
the client’s natural reaction might have been to revel in his or her good fortune. That
is not what happened here.
In this case in which the client was about as sophisticated, imperious and
outright mean as any client could be — even according to her own children2 — the
client’s Estate, confidants, and the Estate’s counsel instead advanced an imaginative
array of stories upon trial of the dispute as to how Graubard had supposedly
overborne the client’s will. Such tales ranged from their assertion that Graubard’s
Daniel Chill exercised “Svengali-like” control over Mrs. Lawrence (XVII:A6855-
A6856, A6900, A7001-A7002) to their claim that Mrs. Lawrence’s knee surgery of
September 2004 caused her to have a “diminished capacity” when she signed the
retainer in January of 2005 (XVII:A6856-A6860, A7007).3
The learned Special Referee, who heard and saw the Estate’s witnesses relate
their respective tales, deemed their testimony “not credible” (I:A155a-A156a). The
Special Referee further concluded that, (i) Graubard “submitted extensive proof that
Alice was fully capable of understanding the revised Retainer Agreement and did not
enter into it because Graubard exploited its existing confidential relationship with
2 The proof concerning Mrs. Lawrence’s nature and abilities, especially including her
children’s testimony on that subject, is discussed at pages 12 to 16 of this brief.
3 The Lawrences’ trial claims are reviewed at pages 44 to 49 of this brief.
4
her” (I:A153a), (ii) Mrs. Lawrence was not “confused” about the terms of the retainer
agreement that she had in fact reviewed with her accountant (I:A146a, A156a), and,
(iii) that there was “no question” as to Mrs. Lawrence’s “anticipatory breach” of the
contingent fee retainer on which she had “insisted” (I:A136a, A188a).
Despite those factual findings, the Special Referee recommended reduction of
the contractually owed fees on the ground that Graubard’s success in obtaining a
settlement that was far more than had been anticipated (I:A188a-I:A189a) and far
more than the case was actually worth (I:A184a) rendered its 40% fee unconscionable
in hindsight precisely because the enormous size of the recovery was so unexpected
(I:A187a-A189a).
Based on that thesis, the Special Referee recommended that Graubard collect
its contractually owed 40% fee only as to “the first $10 million of the recovery,” that
it should then be allowed only 30% of the “less expected next $10 million,” and that it
should be permitted only 10% of the $91,856,468 remainder of the settlement
(I:A188a). The Special Referee’s rationale for allowing Graubard only 10% of the
$91.8 million remainder of the recovery was that Mrs. Lawrence “would never have
anticipated and Graubard would also not have anticipated [that portion of the
settlement] before the production of the critical [“smoking gun”] Epps documents”
(I:A188a). Per this analysis, which was adopted in full by the Surrogate (I:A83a-
A86a), Graubard’s fee was reduced from its contractual entitlement of approximately
$44 million to approximately $16 million (I:A187a-A188a).
5
Rather than correct the misapplication of this Court’s 2008 directives, the
Appellate Division then reduced Graubard’s fee still further. In doing so, the
Appellate Division rejected the Special Referee’s factual finding that Mrs. Lawrence
fully understood the contingent fee retainer (I:A146a, A156a). The Appellate Division
instead ruled that Mrs. Lawrence’s comment during negotiation of the retainer — to the
effect that she would have to receive the “lion’s share” of any recovery — should be
construed to mean that she may not have understood that her personal share of the
net settlement proceeds would be less than Graubard’s 40% fee (XVII:A7394).4 That
the oral agreement was afterwards reduced to a clear-on-its-face writing (X:A2979-
A2980) and that the writing was then reviewed and critiqued by the client’s personal
accountant before the client signed it (VIII:A1924, A2004-A2005) did not, evidently,
make any difference at all.
Adding injury to insult, the Appellate Division then went on to conclude that
the “proper remedy” was not to eliminate whatever portion of the contingent fee was
unconscionable in hindsight but was instead “to revert to the original agreement”
(XVII:A7396), an agreement that had called for hourly billing (X:A2726). So, in the
end, the client’s “penalty” for deliberately breaching the contract and for then
advancing an array of explanations that were either abandoned or deemed untrue was
4 As is explained below, Graubard’s 40% fee exceeded Mrs. Lawrence’s individual share of
the recovery only because, as per her practice for more than twenty years (V:A560, A660-
A661; VII:A1211-A1212), Mrs. Lawrence had decided to pay all the attorney’s fees from her
approximately 76% share of the recovery, leaving her children’s approximately 24% share
intact. See page 54, infra.
6
a return to the same hourly retainer on which she had refused to proceed when the
case was in doubt. And Graubard’s “reward” for agreeing to bear the risks of the
litigation and then obtaining a recovery that far exceeded both the client’s and its own
expectations was a return to the same retainer that the client had rejected when her
prospects seemed less promising.
Graubard herein submits that,
(1) the contingent fee retainer is vitally important to the civil justice
system and cannot work if the retainer is binding only if that is what
most benefits the client in hindsight (Point I, infra);
(2) although attorney fee contracts understandably are subject to
greater scrutiny, such contracts should be enforced when they are not
procedurally and substantively unconscionable (Point II, infra);
(3) the Special Referee and Surrogate had sound basis to reject as
untruthful the Lawrences’ various charges concerning the signing of the
contingent fee retainer, and to conclude that the Agreement was not
procedurally unconscionable (Point III, infra);
(4) there was no proof, nor even any claim, that the terms of the
contingent fee retainer were substantively unconscionable or contrary to
industry norms at the time of contract (Point IV, infra);
7
(5) the lower courts erred in equating “value” with billable hours, and
thus further erred in concluding that the contingent fee retainer was
substantively unconscionable in hindsight (Point V, infra);
(6) assuming, arguendo, the fee agreement should be deemed
unconscionable in hindsight, the legally correct remedy would be to
reduce the fee to a sum not unconscionable in hindsight; it would not be
to permit the same client who had insisted on alternative billing to
obtain a windfall by retroactively reverting to the hourly retainer she had
rejected when the litigation’s outcome was in doubt (Point VI, infra);
(7) even if deemed unconscionable in hindsight, the contingent fee
should not be reduced below the one-third baseline that is presumptively
reasonable in personal injury actions involving lesser complexity and risk
(Point VII, infra).
Most of all, Graubard submits that it is not ethically improper, nor a valid basis
for complaint, nor legal grounds for rescission, when a contingent fee attorney obtains
a recovery that is much larger and comes much sooner than client or counsel
expected.
Were this to now change, the settlement or other disposition of every
contingent fee case would be the prelude to a new litigation in each instance in which,
(a) the recovery is much greater, or comes much sooner, than had initially been
anticipated, and, (b) the plaintiff thereafter claims not to have fully understood the
terms of the written retainer agreement.
8
Jurisdiction To Hear The Appeal
The two actions that were joined for trial and appellate review respectively
originated in Surrogate’s Court, New York County (I:A308a-A316a) and Supreme
Court, New York County (I:A336a-A357a).
The Appellate Division order from which Graubard appeals was rendered and
entered on May 23, 2013 (XVII:A7391-A7397). Graubard timely moved on June 21,
2013 for reargument or leave to appeal to the Court of Appeals. The Appellate
Division granted the motion, by order dated and entered on September 10, 2013, to
the extent of granting Graubard leave to appeal to the Court of Appeals
(XVII:A7390).
Jurisdiction to hear the appeal exists pursuant to CPLR § 5602[b][1].
Issues Presented
1. Did the Special Referee (I:A143a-A158a) and the Surrogate (I:A84a) err in
rejecting the Estate’s most recent claims of Graubard misconduct and in concluding
that the contingent fee retainer vetted by both Mrs. Lawrence and her accountant was
not procedurally unconscionable?
Graubard submits that the answer should be No.
2. Did the Special Referee (I:A187a) and the Surrogate (I:A84a) err in concluding
that the contingent fee retainer was not substantively unconscionable at the time of
contract?
9
Graubard submits that the answer should be No.
3. Was the contingent fee retainer unconscionable in hindsight, simply as a result
of the enormity of the recovery Graubard obtained for the Lawrences, even though
the contract was not procedurally or substantively unconscionable at the time of
contract?
Graubard submits that the answer should be No.
4. Assuming for sake of argument that the contingent fee retainer was
unconscionable in hindsight, did the Special Referee (I:A187a-A188a) and the
Surrogate (A:84a-A85a) err in concluding that the correct remedy was to reduce the
fee to the maximum sum that would not have been unconscionable, this as opposed
to providing the client with a windfall return to the same hourly retainer agreement
that she had refused to accept when the recovery was still in doubt?
Graubard submits that the answer should be No.
5. Assuming for sake of argument that the contingent fee retainer was
unconscionable in hindsight, should the fee be reduced even beyond the one-third
share that is presumptively reasonable in personal injury actions, which involve far
less effort and risk?
Graubard submits that the answer should be No.
10
Preservation Of The Issues
Graubard contended that the contingent fee retainer was not procedurally
unconscionable at the following pages of the Joint Appendix: XVII:A6667-A6687
and XVII:A6733-A6749.
Graubard contended that the contingent fee retainer was not substantively
unconscionable at the following pages of the Joint Appendix: XVII:A6648-A6687
and XVII:A6749-A6760.
Graubard contended that if the contingent fee retainer were deemed
unconscionable the correct remedy was reduction to a not unconscionable sum, and
not a return to the hourly retainer on which Mrs. Lawrence had refused to proceed, at
the following pages of the Joint Appendix: XVII:A6785-A6789 and XVII:A6575-
A6578.
11
Statement Of Facts
Alice Lawrence: By Her Own Assessment,
“A Force To Be Reckoned With”
After sitting through trial and then sifting through more than 2,700 pages of
testimony, Special Referee Levine concluded that Graubard had “adduced substantial
evidence of [Mrs. Lawrence’s] intelligence, sophistication in financial matters, strong
willed personality and her hiring, micromanaging and firing of professionals, including
lawyers” (I:A144a). The Special Referee further noted that “Alice had described
herself as someone who trusted ‘nobody’” (I:A145a, citing VII:A1103, A1138) and
who “made her ‘own decisions’” (I:A145a, citing VII:A1174 and VIII:A1195).
Regarding Mrs. Lawrence’s experience with and understanding of legal matters,
the Special Referee noted that there was evidence “that Alice had experience
reviewing and negotiating contracts [citations omitted] and managing a very
substantial investment portfolio” (I:A145a).
Regarding Mrs. Lawrence’s nature and personality, the Special Referee wrote
that the Record was “replete with examples of her dominating, micromanaging,
vituperative behavior” (I:A109a).
If anything, the Special Referee’s findings understated the proof.
In prior proceedings in which she condescended to be deposed, Mrs. Lawrence
said that she “never” consulted with her attorneys on “business issues” and, instead,
12
kept her own counsel (VII:A1155-A1156). She also never consulted her children
because, “I am supposed to know more than my children” (VII:A1155).
She had a history of firing architects (VI:A639-A640, XV:A5987, XV:A5996-
A5998, XV:A6002), contractors (VI:A651, XV:A5681-A5982, XVI:A6607-A6608),
and stock brokerage firms (XV:A6013, XV:A6017, XV:A6015).
She repeatedly disregarded Graubard’s legal advice, often on “matters of great
significance” (I:A109a-A110a [Special Referee’s report]). For example, she rejected
Graubard’s written advice to hire a general contractor “pursuant to a fixed price
contract” that would contain her costs (VI:A635, A637; XV:A5977, A5981). She
instead served as her own general contractor — both for her 18,000 square foot
house in Connecticut (XV:A5993-A5994) and her East Hampton retreat (VI:A636).
Within the Estate litigation itself, Graubard advised Mrs. Lawrence that she
would save a substantial amount of money on estate taxes if she allowed a larger share
of her husband’s estate to pass directly to her children (VI:A611-A612). Mrs.
Lawrence nonetheless decided, as was contemporaneously noted in a 1998
memorandum, that her children could not “handle” “overly large sums of money”
and that she would “grow” the money “better than her children” (XV:A5931).
Similarly, even though the attorney in charge of Mrs. Lawrence’s case had never
before commenced a mandamus proceeding against a judge in 49 years of practice
and did not want to do so here, Mrs. Lawrence insisted that a mandamus proceeding
be brought against Surrogate Renee Roth so as to compel the Surrogate to
13
immediately decide a motion that had been pending longer than Mrs. Lawrence
preferred (VI:A615). The attorney who did so said that he had never before “had a
client that was pushing as hard with so much pressure” (VI:A615; XV:A5933-A5942).
Specifically with respect to Mrs. Lawrence’s experience in reading and
understanding contracts, the Court will find a proposed contract, between property
owner Alice Lawrence and architect Water David Brown, at pages XV:A6262 to
XV:A6272 of the Joint Appendix. The proposed contract was 12 pages long, most of
it single-spaced with double columns of print.5 The Court will find Mrs. Lawrence’s
seven pages of handwritten analysis of that contract, an analysis that speaks for itself,
at pages XV:A6273 to XV:A6279 of the Joint Appendix.
As for Mrs. Lawrence’s experience in managing a “very substantial investment
portfolio” (I:A145a), she was personally managing a portfolio containing more than
$200 million in marketable securities as of December 31, 2004 (XIV:A5155) — which
was virtually the same time that she was, according to the Estate’s counsel, incapable
of understanding the two-page retainer agreement that is here in issue (XVII:A6841-
A6843).
Mrs. Lawrence was also, to employ a euphemism, emphatic in dealing with
those who displeased her. For example, when one of her architects (the
aforementioned Walter Brown) wrote that his invoices were still outstanding, she
5 By comparison, the subject retainer was five paragraphs long, and that includes the
paragraph that Mrs. Lawrence added to the initial draft. See pages 28 to 30, infra.
14
forwarded the letter to Graubard with the handwritten directive, “KILL HIM
Please!!” (VI:A640-A641; XV:A5987).
Daniel Chill, one of the three attorneys who chiefly dealt with Mrs. Lawrence
during the years Graubard represented her (I:A104a), testified that Mrs. Lawrence
“constantly” threatened to “fire” the firm and that her tirades were typically “abusive”
and “replete with foul language” (V:A589-A590).
Elaine Reich, another of the Graubard attorneys who dealt with Mrs. Lawrence
on a daily basis (VI:A874-A875), testified that Mrs. Lawrence was “controlling down
to the details” and that “[s]he used profanities liberally” (VI:A876).
Mrs. Lawrence’s own children said much the same thing. When deposed,
Richard Lawrence testified that his mother liked to say that she “was a force to be
reckoned with” (VII:A1208). He also said that “[a]ny discussion I had with my uncle
[Seymour Cohn] or my mother was basically a monologue with me on the receiving
end, and so with all this many years I have tried as little as possible to discuss anything
with either of them” (VII:A1199).
Richard Lawrence further testified that he and his sisters would take turns
telephoning their mother specifically because they feared being the object of her ire
(VII:A1267-A1268):
Q. Is the reason you and your sisters took turns calling your
mother is because whoever called your mother could be the
subject of getting yelled at by your mother?
15
A [Richard Lawrence]. Yes.
Q. Is that why you took turns?
A. Yes.
* * *
Q. What did she yell at when she would yell?
A. Anything and everything.
Daughter Marta Jo Lawrence added that she had never in her entire life verbalized
any disagreement with anything her mother wanted to do (VII:A1526).
Mrs. Lawrence Fires Two Other
Law Firms And Hires Graubard
The events that led to this present moment began many years ago, in 1981 to
be precise.
Sylvan Lawrence died on December 8, 1981 (I:A340a). Mrs. Lawrence, his
widow, shortly afterwards retained counsel to represent her in what would ultimately
turn out to be decades of litigation.
Mrs. Lawrence first retained and then fired the firm of Patterson Belknap
(VII:A1186-A1187). When asked why she fired the Patterson firm, Mrs. Lawrence
testified (in a different proceeding) that the attorney handling her case “met my
children and myself at my home in the U.N. Plaza and he usually arrived drunk”
(VII:A1187).
16
Mrs. Lawrence next hired the firm of Dreyer & Traub (VII:A1153, A1204-
A1205). She fired it as well, later stating that the lead lawyer was not sufficiently
“forthcoming in explaining what they were doing, what they were planning to do”
(VII:A1154).
Mrs. Lawrence retained Graubard to represent her and her children in August
of 1983 (V:A74-A75). The retainer, which provided for hourly billing, is reproduced
at X:A2726 of the Joint Appendix.
During the more than twenty years in which Graubard would thereafter
represent the Lawrences, the “children,” who were actually adults at all pertinent
times, collected more than $90 million dollars from the Estate litigation (X:A2727).
However, they paid literally nothing in attorney’s fees (V:A560) because Mrs.
Lawrence had insisted from the outset that no bills be sent to her children (V:A660-
A661).6 As Richard Lawrence put it, his mother “drove the bus” and her children
were “the kids in the back of the bus” (VII:A1211-A1212).
6 She had also paid all of Patterson Belknap’s fees when it was counsel (A1213, A1203-
A1204) and all of Dreyer & Traub’s fees when it was counsel (VII:A1204-A1205).
17
Graubard Prosecutes The First Phase Of
The Estate Litigation, Yielding The
Lawrences More Than $350 Million
The history of the underlying litigation concerning Sylvan Lawrence’s estate
cannot be fairly described within the constraints of this brief. Mr. Lawrence had
presided over a real estate empire consisting of more than seventy commercial
properties within the City of New York (I:A88a). The will left the residuary estate to
his widow, Alice Lawrence, and their children (I:A88a). One problem amongst many
was that Sylvan’s wealth was in real estate that was owned in common with his
brother, Seymour Cohn. Another difficulty was that Seymour did not want to sell the
properties. Yet another problem was that Mrs. Lawrence and her brother-in-law
were, to put it mildly, antagonistic towards each other.
To give the Court some idea of the complexity and enormity of the underlying
Estate litigation, there were sixty-five (65) referee’s reports and court orders just
between December 7, 1990 and May 7, 2003 (XI:A3563-A3566, listing each report
and order). Surrogate Renee Roth described the case as “warfare” that “required
almost daily attention” (X:A2730). Special Referee Levine, who oversaw the end of
the case, noted that “[c]onstant litigation followed for more than 20 years concerning
virtually every aspect of the administration of the estate” (I:A88a).
By the end of 1997, Graubard had managed to work for Mrs. Lawrence for 14
years without being fired. During that same period of time, Graubard had also
obtained $196,077,142.01 in Estate distributions for the Lawrence family (X:A2727),
18
which may be why it had not been fired. The firm also represented Mrs. Lawrence
with respect to no fewer than twenty personal matters (II:A708a), matters that
included the purchase and sale of multiple pieces of real estate, the purchase and sale
of multiple condominiums, and “several” litigations with contractors (X:A2723).7
Then, in the single year of 1998, Graubard obtained an additional $124,799,500
in Estate proceeds, an enormous sum even for the Lawrences (X:A2727). Although
some of those proceeds went to her children, Mrs. Lawrence personally had a net
worth of $244,609,509 by March of 2000 (XIV:A5154).
By 2002, Graubard had obtained more than $350 million for Mrs. Lawrence
and her children (X:A2729-2730). But the Estate litigation had by then changed.
Graubard’s Prosecution Of The Accounting
Claims, Up Until January of 2004
Writing in 2002, Surrogate Roth observed that “all debts, estate taxes and pre-
residuary bequests have by now been satisfied …” (X:A2729). The only thing that
remained in the case were the accounting claims (IV:A1985a-A1989a; X:A2903-
A2918). Each rested on the contention that Seymour Cohn had in one respect or
another used his position as executor of the Sylvan Lawrence estate to engage in self-
dealing.
7 Although the proof indicated that Graubard had billed Mrs. Lawrence $21,950,673.10 from
1983 through the end of 2004 (X:A2725), that was for all twenty-plus matters, not just the
Estate litigation (X:A2723-A2725).
19
In August of 1997, Graubard sent Mrs. Lawrence a 15-page memo analyzing
each of the accounting claims and listing the “potential damages” for each claim
(X:A2903-A2918). The total “potential” recovery exclusive of “RICO” damages was
listed as $147,920,867.73 (X:A2918). The “95 Wall Street Fraud” claim — premised
on the theory that Seymour had breached a fiduciary duty in reserving an investment
in the subject building for himself — was estimated to have “potential” damages of
$31,952,515.96 (X:A2909).
In June of 2000, Graubard sent Mrs. Lawrence an updated analysis of the 95
Wall Street Fraud claim, reporting that it now hoped for an award of approximately
$55 million (X:A2931).
During this phase of the litigation, Graubard continued to keep Mrs. Lawrence
abreast of all significant and often insignificant developments, and did so in writing
(X:A2930-A2939, XI:A3408-A3611). The literally hundreds of pages of
correspondence included drafts of briefs, letters, and motion papers, updates on the
status of the suit, and analyses of the client’s prospects as circumstances changed. Id.
In November of 2003, Graubard sent Mrs. Lawrence a “Tentative Trial
Sequencing Plan” (X:A2936-A2939). The 95 Wall Street Fraud claim was first listed
amongst the “Matters Ripe for Summary Judgment” (X:A2937). But, as 2003 ended,
scarcely any discovery in the accounting proceeding had occurred.8
8 Discovery in the accounting proceeding began in earnest in June of 2004, with Graubard’s
receipt of approximately 150,000 pages of documents (V:A135; XI:A3753).
20
The So-Called $60 Million Settlement
Offer Of January 2004
One of the Lawrences’ central claims at various points in this litigation has
been that there was a $60 million dollar settlement offer in the underlying action.
Ignoring that the two claims are contradictory, the Estate argued in its post-trial brief
both that Graubard had little risk in entering into the contingent fee retainer inasmuch
as the $60 million offer that had been made directly to Mrs. Lawrence was
purportedly still on the table (XVII:6880) and that Mrs. Lawrence allegedly thought
that the accounting claims were worth no more than “a few million dollars” at that
same time (XVII:6846).
The proof established that there had never been a real $60 million offer, but
that the offer had been to pay a gross of $60 million at some unstated time that would,
whenever paid, then be netted against Cohn business liabilities that had yet to be
determined (VII:A1214-A1216). And there was no proof whatsoever that the offer
was still “on the table” after the Special Referee’s ruling (discussed below) of
December 2004.
The meeting that gave rise to the offer occurred in January of 2004
(VIII:A1857-A1858), shortly after Seymour Cohn’s death in November 2003
(XI:A3644). Richard Lawrence testified that the meeting occurred at Mrs. Lawrence’s
house (VII:A1214). Neither side’s attorneys attended (VII:A1214).
21
Marc Cohn, Seymour’s son, testified that Mrs. Lawrence made an “initial
demand” of $90 million, that he and she “continued just to talk,” and that they
eventually agreed upon $60 million (VIII:A1862). Cohn’s attorneys then disseminated
a “Proposal of Settlement” (reproduced at X:A2941-A2943) that was claimed to
incorporate the agreement (X:A2940).
Tasked with analyzing the proposal, Graubard strongly urged its rejection in a
17-page letter dated February 19, 2004 (reproduced at X:A2944-A2961). In
recommending that course, Graubard did not say that $60 million was inadequate
(X:A2944-A2961). The problem was that the offer was “illusory” (X:A2956). “How,
when and on what terms the $60 million [would] be paid” was “not specified”
(X:A2946). Further, the so-called “$60 million” offer was “subject to open-ended
give-backs” resulting from, inter alia, “pending third-party litigations against the
Lawrence/Cohn business interests” (X:A2946-A2947).
According to Richard Lawrence’s own testimony, his mother had the very same
opinion. She concluded that the $60 million carrot was a lure that would be nullified
by all of the “conditions and qualifications” attached to the offer and that she had
been down that road before (VII:A1219-A1221). Her conclusion was confirmed by
the Cohns’ rejection of Graubard’s Alternative Proposal.
Rather than merely urging rejection of the Cohns’ illusory offer, Graubard
drafted and disseminated an “Alternative Proposal,” reproduced in the Joint
Appendix, that would not have changed the amount of the settlement but would have
22
made the settlement offer real, that is, without open-ended give-backs (X:A2960-
A2961). When deposed, Marc Cohn admitted that he was “obviously not” successful
in convincing his co-executors to agree to the Alternative Proposal (VIII:A1871-
A1872).
The Record thus showed that the Cohn side was never willing to pay $60
million and was instead willing to promise $60 million, to be paid at an unstated time,
netted against still unknown liabilities. And that was in January of 2004 (VIII:A1857-
A1858), before the Special Referee recommended outright dismissal of the accounting
claim Graubard had by then deemed more valuable than all the other claims
combined (V:A142-A143)..
The “Very Disappointing And Unanticipated”
Loss Of The “95 Wall Street Fraud” Claim In
December 2004
In the aftermath of Mrs. Lawrence’s rejection of the illusory $60 million offer
(VII:A1219-A1221) and the Cohns’ rejection of an actual $60 million settlement
(VIII:A1871-A1872), Graubard continued to prepare the case for trial (X:A2968-
A2969) and Mrs. Lawrence continued to pay hourly-computed attorneys’ fees
(X:2723-2725).
In November of 2004, Graubard wrote Mrs. Lawrence that per her instructions
it had “developed a new pruned list of objection claims to be pursued” (X:A2967).
Enclosed was a two-page list of such objections (X:A2968-A2969). The 95 Wall
23
Street Fraud claim was first listed (X:A2971), just as it had been in November of 2003
(X:A2937).
Then, on December 16, 2004, Special Referee Levine issued a 25-page report
recommending outright dismissal of the 95 Wall Street Fraud claim (XIII:A4637-
A4661). The Special Referee later acknowledged that the recommendation was “very
disappointing” and “unanticipated” by Graubard or its client (I:A185a). With that,
the claim that Graubard had earlier said had a potential recovery of $55 million
(X:A2931) was now, absent reversal, worth nothing at all.
Within weeks, Mrs. Lawrence, not Graubard, wanted “to change the retainer
arrangement” (I:A330a, ¶ 19 [Lawrence Answer]).
Mrs. Lawrence’s January 2005 Refusal To
Continue With Hourly Billing, And Graubard’s
Agreement To Proceed On The Basis Of A
Contingent Fee Retainer
We now turn to January 2005 and how matters appeared as Graubard was
writing Special Referee Levine (by letter dated January 10, 2005, copied to Mrs.
Lawrence) for a trial date (V:A210-A212).
Mrs. Lawrence had personally tried to settle the case a year earlier and had
concluded that the other side was not “serious” about doing so (VII:A1219-A1220).
She next asked Graubard to prune the accounting claims so as to minimize her cost,
which Graubard did (X:A2973). Then, in December of 2004, the single largest of the
accounting claims came up empty (I:A171a).
24
Meanwhile, although Mrs. Lawrence and her family had reaped literally
hundreds of millions of dollars from the Estate litigation, they had not received any
dividends lately. And the hourly-computed fees were running well over $1 million per
year. The comparison of the billings from 2001 to 2004 with the distributions over
those same years follows:9
Distributions And Attorney’s Fees 2001-2004
Year Total Attorney’s Fees Total Distribution
2001 $2,500,648.00 $5,655,794.00
2002 $1,799,805.50 $ 833,056.00
2003 $1,730,677.50 $ 0
2004 $2,381,842.00 $ 0
Thus, while Mrs. Lawrence could plainly afford to pay hourly fees for many,
many years without any return on her investment, the last several years had been
costly. And the annual bill was plainly going to increase dramatically if the next year
included a trial.
Furthermore, absent settlement of matters that had thus far gone 22 years
without settling, the trial and the appeals from the trial would not finally determine
the action. The scheduled trial would not encompass all of the remaining issues in the
action (X:A2996), which is why Special Referee Levine concluded that it appeared in
January of 2005 that “several more years of full-blown litigation would be required to
reach … final disposition” (I:A184a).
9 The billings can be found at X:A2723-A2725. The distributions can be found at X:A2727.
25
Daniel Chill testified that Mrs. Lawrence was “explicit in stating that she did
not wish to pay hourly fees to continue with the litigation” and that she wanted the
fee to be “on a contingency basis” (VI:A699). He suggested 50%; she countered with
30%; they agreed upon 40% subject to the approval of his firm (VI:A669-A701).
Per testimony credited by the Special Referee (I:A147a), Chill further stated
that he told Mrs. Lawrence that there would likely be “[s]ome recovery that would
cover at least a million two [$1.2 million] that she was going to lay out” (VI:A802).
Daniel Chill’s description of the conversation that led to the contingent fee
retainer was as follows:
Q. And as best you can recall where did this conversation take
place?
A [Chill]. I’m not certain. It may have been on the telephone. It
may have been at her house. I’m just not certain. I remember the
conversation, but I do not remember where.
Q. Why don’t you describe to me how that conversation began
on the new fee arrangement?
A. Mrs. Lawrence was explicit in stating that she did not wish
to pay hourly fees to continue with the litigation. She told me that
she wanted to be my partner on a contingency basis and I should
-- and -- contingency basis and that is what she told me first.
Q. What, if anything, did you say in response to that?
A. I said what do you have in mind, Alice. And she said,
again, I think I said what do you have in mind 50/50, partners.
She said partner. And I responded partner 50/50, and she said
no, I’m always the senior partner.
26
I then asked her what she had in mind, because you don’t
tell her. And I asked her what she had in mind. And she said
70/30, 50 for -- 70 for her and 30 for the Graubard firm on a
contingency basis.
Q. What, if anything, did you say in response to that?
A. In response to that, I asked her if she would be willing to
consider giving us a cushion on the downside of a sum of money
which I picked out of my head, there was no rationale to it,
$1,200,000 which would be given back to her in the event there
was a recovery over and above that, only that amount of money.
And she readily agreed to that.
And then sua sponte on her own she said -- she said, why
don’t we make it 60/40.
VI:A699-A700.
Q. And in that conversation isn’t it true that Mrs. Lawrence said
that she is always the senior partner in any arrangement like that?
A [Chill]. Yes.
Q. And that it’s okay as long as she is still the senior partner
and gets the lion’s share of any recovery?
A. That’s correct.
VI:A803.
Chill sent Mrs. Lawrence a proposed retainer on January 12, 2005 via Federal
Express (VI:A704-705). Mrs. Lawrence asked for an additional paragraph that
specifically said that her obligations to make payments of up to $300,000 per quarter
“shall not extend beyond one year” (VI:A707-A708). At trial, Mrs. Lawrence’s
27
accountant reluctantly conceded that the new paragraph may have been his idea
(VIII:A2004-A2006).
Graubard added the new paragraph and sent the revised draft, dated January
14, 2005, to Mrs. Lawrence. The Federal Express receipt shows that she received it
on January 15, 2005 (X:A2984). She signed it on January 19, 2005 (VI:A708).
The Terms Of The Contingent Fee Retainer Agreement
The initial draft of the contingent fee contract, dated January 12, 2005, is
reproduced at pages A2979 to A2980 of the Joint Appendix. As the Court can see,
the facsimile banner at the top of the first page says, “Jan-13-2005 12:07pm From-
ALICE LAWRENCE” (X:A2987).
Jay Wallberg was Mrs. Lawrence’s accountant at the time of contract
(VIII:A2022-A2023) and co-executor of her will at the time of trial (VIII:A1972-
A1973). He testified that this particular copy (GP 23) of the initial draft of the
contingent fee contract came from his own file (VIII:A1922), that Mrs. Lawrence had
faxed it to him (VIII:A1922-A1924), and that the handwriting on the document was
his (VIII:A1924). The handwritten words just above and to the right of the first
numbered paragraph read, “and continuing thereafter” (VIII:A1924, A2004).
Wallberg claimed on direct examination by his own counsel that he had “no
idea” why he wrote the words “and continuing thereafter” (VIII:A1924). However,
on cross-examination, he admitted that the note “[p]resumably” related to the
28
sentence that was immediately below it (VIII:2004), a sentence that said that
Graubard could send quarterly invoices “[f]or the calendar year commencing January
1, 2005” (X:2979). Wallberg admitted that he had “possibly” been concerned that the
agreement did not clearly enough specify that such invoices could be sent only in 2005
and would not be “continuing thereafter” (VIII:A2004-A2005).
The executed contingent retainer that is the subject of this appeal is reproduced
at pages A2985 to A2986 of Volume X of the Joint Appendix. With the new
paragraph four and the “old” paragraph four now renumbered as paragraph five, the
retainer states:
1. For the calendar year commencing January 1, 2005,
the firm will continue to send you on a quarterly basis invoices for
services rendered for the quarter, plus disbursements. Against
each such invoice, you will pay the firm a flat sum of no more
than $300,000 for that quarter. If at the end of the calendar year
our invoices for services rendered for the calendar year, in the
aggregate, total less than $1,200,000, exclusive of disbursements,
the firm will either credit you with the overpayment or refund to
you such overpayment at your option. If at the end of the
calendar year, our invoices for the calendar year, in the aggregate
exceed $1,200,000, exclusive of disbursements, you shall have no
obligation or liability to the firm for any such excess.
2. Commencing January 1, 2005, with respect to any
monies distributed to the beneficiaries of the Estate of Sylvan
Lawrence, the Graubard firm will be paid from your share of such
monies 40% of the total distributed to the beneficiaries, minus the
total amount paid by you, including fees and disbursements,
pursuant to paragraph 1 above.
3. In the event you settle the litigation with the Cohn
estate, with respect to any monies distributed to the beneficiaries
pursuant to said settlement, the Graubard firm shall be paid on
the same basis as is set forth in paragraph 2 above. Should the
29
amount due to the Graubard firm pursuant to this paragraph 3 be
less than the amount of its actual time and disbursement charges
commencing January 1, 2005, it is agreed between us that we will
arrive at a fair resolution of the shortfall to the Graubard firm,
which in all events shall be entirely in your discretion.
4. Your obligation to make quarterly payments under
this agreement shall not extend beyond one year.
5. The above shall be binding upon our respective
heirs, executors, successors and assigns.
Thus, under the executed retainer, Graubard could bill up to $1.2 million
($300,000 per quarter) in the first year (¶ 1) and would obtain 40% of any recovery (¶
2). However, any billings from that first year would be deducted from the 40% fee (¶
2).
Per the new paragraph that Mrs. Lawrence had demanded, Graubard’s right to
bill up to $300,000 per quarter would not “extend beyond one year” (¶ 4), at which
point the risk would be borne solely by Graubard.10
In order to address Graubard’s concern that a settlement could well cause it to
earn less under the contingent fee retainer than it would have been able to bill under
the prior, hourly retainer, paragraph 3 provided that it could petition Mrs. Lawrence
for additional payment in that circumstance. However, it would then be “entirely in
your [Mrs. Lawrence’s] discretion” what she would do about any such shortfall (¶ 3).
If the case was instead lost either on liability or damages, Graubard would not have
even that recourse.
10 Graubard regarded Mrs. Lawrence’s paragraph merely as a clarification, not a change, from
the initial draft (V:A200).
30
The Frenetic Run-Up To The May 2005 Trial, And
Graubard’s Loss Of More Than A Million Dollars In Billings
As has been noted, Graubard wrote Special Referee Levine on January 10, 2005
(copy to Mrs. Lawrence), requesting a trial date (I:A139a). That request was granted.
At a conference held on February 22, 2005, Special Referee Levine directed
that trial would be held during the weeks of May 9th and May 16th with additional
trial dates to be set in June (X:A2992). The parties would try eleven listed issues
(X:A2992-A2996). Another seven issues would be “deferred” for a subsequent trial at
a not yet determined date (X:A2996).
Although “only” eleven of the remaining issues would be tried in May and June
(X:A299a-A2996), Graubard now had less than three months to prepare for trial of
an action in which document discovery was far from complete and many witnesses
remained to be deposed.
From January 1, 2005 until May 9, 2005, Graubard demanded and provided
documents, defended three depositions, took twelve depositions, retained and
prepared four expert witnesses, combed through literally tens of thousands of pages
of documents, propounded and answered interrogatories, and answered a summary
judgment motion with respect to one of the claims (XV:A5770-A5771).
During this period in which Graubard was now working for a contingent fee, it
still kept Mrs. Lawrence informed of all developments, large and small, in the case.
On March 3, 2005, Graubard sent her the scheduled dates for the next ten depositions
31
(XI:A3816). On March 9th, it sent her copies of the just-produced Epps documents
(XI:A3823). On March 24th, it sent her expert reports (XI:A3829). On March 26th,
it sent her eight deposition transcripts (XI:A3834).
Not surprisingly, Graubard’s legal work during this period far exceeded the
number of hours it was entitled to bill under the new retainer. During the first
quarter of 2005, Graubard’s attorneys had accumulated $763,664 in billable hours, but
could bill only $300,000 plus disbursements under the terms of the contingent retainer
(X:A3177, A3215). During the second quarter, Graubard accumulated $983,732.50 in
billable hours, but could again bill only $300,000 plus disbursements (X:A3262-
A3263).
Fortunately for the Lawrences if not for Graubard, the case did settle. It
settled largely in consequence of an ostensibly less significant claim that Graubard had
decided to pursue even in the face of an investigator’s negative report.
The $111 Million Settlement Of The Underlying Action
And The Work That Precipitated That Settlement
During the years 1984 to 1988, Seymour Cohn, as executor of the Sylvan
Lawrence estate, sold nine commercial properties to John E. Epps, a Bermudan
citizen (I:A140a; XIII:A4917). Graubard hired an investigator to ascertain if there was
some relationship between Epps and the Cohn family, but the report came up blank
(V:A112).
32
However, as Graubard’s Daniel Chill explained to Mrs. Lawrence by letter
dated December 10, 1998, Graubard discovered that the Sylvan Lawrence Company
was transmitting funds, channeled through three different companies, that paid for
the insurance on several of the Epps-owned buildings (X:A2921). “Why,” Chill wrote
Alice Lawrence, “is Seymour continuing to pay insurance in 1998 for properties he
ostensibly sold more than 10 years ago?” (X:A2921).
In November of 2004, Mrs. Lawrence, who was then still paying by the hour
and wanted to reduce the fees, directed Graubard to “prune” the list of accounting
claims (X:A2967). Notwithstanding that the Epps claim was smaller than most of the
others and still could not be proven, Graubard retained it as a “Matter As to Which
Determination Abides Discovery” (X:A2968).
The “smoking gun” proof emerged, post-agreement, on March 8, 2005. The
Cohns’ attorneys then wrote that they had “very recently” received documents that
convinced them to “discuss the possible resolution” of the Epps claims (X:A3139-
A3140). The documents showed that the subject buildings were owned by five
different companies incorporated in New York, Delaware, the United Kingdom, and
Liberia (X:A3072). All five corporations were owned by a Liberian company, which
was owned by an Isle of Man company, which was owned by an Isle of Man trust …
whose beneficiaries were Seymour Cohn’s children (X:A3072).
Confronted with the other side’s request to discuss settlement of the Epps
claim (X:A3139-A3140), Graubard decided to instead exploit the Epps documents as
33
a means of obtaining the global settlement that had eluded the parties for 22 years
(V:A253-A258).
Also, in lieu of seeking the difference between the market prices of the
buildings and Cohn’s artificially low sales prices, Graubard now decided to pursue a
constructive trust theory that traced the profits that Epps later realized on the
properties (V:A256-A257). In this manner, the damages could be estimated in the
range of $12 to $13 million dollars (V:A257). However, the point was not that the
damages were somewhat higher if assessed in that manner. Rather, tracking of the
monies that the Cohn family secretly earned and never declared on their tax returns could
“create a road map for the IRS somewhere down the road” (V:A263). This, Graubard
felt, could create a powerful incentive for the Cohn interests to settle before that
“road map” was memorialized in a trial transcript (V:A2063; see also I:A183a).
The trial began on May 9, 2005 (III:A951a). Graubard there made an
evidentiary presentation for admission of the Epps documents, this notwithstanding
that, as a result of Seymour Cohn’s death, it had no witness to authenticate them.
Norman Senior, who is still counsel for Richard Lawrence, contemporaneously stated
“that it was the best evidentiary presentation that he had ever seen at a trial”
(V:A284).
The case settled nine days later (XVI:A6444-A6445). Special Referee Levine
approved the settlement on May 18, 2005 (IV:A1985a-A1989a). Writing at a time
when neither Graubard nor the Special Referee was aware of any dispute concerning
34
the attorney’s fees, Special Referee Levine said that “[t]he attorneys for the respective
parties … ably and zealously represented their clients’ interests” and that it would
have “likely require[d] at least 30 additional trial days” to “hear and determine the
remaining unresolved issues” (IV:A1985a-A1986a). He further observed that the
issues were “in the main uncertain of outcome” (IV:A1989a).
The settlement called for an “immediate” payment of $100 million, plus
$11,856,468 in other payments, without any “strings” or future liabilities (XVI:A6444-
A6445).
Unbeknownst to Graubard, Mrs. Lawrence had no intention of paying the
contractually agreed contingent fee, or any attorney’s fee.
“It’s My Problem. I’ll Handle It” - Mrs. Lawrence’s Secret
Preparations To Sue Graubard Even As It Continued To
Finalize Her Unexpectedly Large Settlement
With respect to the approximately six-month period between Mrs. Lawrence’s
signing of the retainer (January 19, 2005 [V:A329]) and the closing (July 25, 2005
[V:A292]), there was no evidence or claim that Mrs. Lawrence told Graubard either
orally or in writing, (a) that she did not understand the retainer, or, (b) that she felt
Graubard had in some way taken advantage of her.
Richard Lawrence testified that he attended the trial on the day that “the issue
of potential settlement came up” and telephoned his mother to report the
development (VII:A1223). She responded with “words to the effect, ‘I think I made a
35
mistake’” (VII:A1223). She added, “It’s my problem, I’ll handle it” (VII:A1229-
A1230).
On July 7, 2005, still weeks before the closing, Mrs. Lawrence faxed her son a
copy of the amended retainer agreement (VII:A1227-A1229). Richard did nothing at
that time, he testified, because his mother had already said she would “handle it”
(VII:A1237).
On July 18, 2005, Mrs. Lawrence faxed a copy of the amended retainer
agreement to the firm of Greenberg Traurig, the firm that would later sue Graubard
on her behalf (VI:A1023).
On July 29, 2005, just four days after the closing, Greenberg Traurig’s Leslie
Corwin sent Daniel Chill a letter asking him or his counsel “to meet to discuss the
various issues which have been brought to our attention by Mrs. Lawrence regarding
your prior representation” (XII:A4453). It was the reference to “prior representation”
that told Chill that Graubard no longer represented the woman who had four days
earlier walked away with another $100-plus million (VI:A711-A712).
36
The Dispute Concerning The
Contractually Owed Attorneys’ Fees
The Commencement Of These Proceedings,
And The Lawrence Family’s First Set Of
Inflammatory Accusations
Having been apprised that Mrs. Lawrence had no intention of honoring the fee
agreement (VI:A711-A712), Graubard filed a Petition in the Surrogate’s Court
(I:308a-A316a). The Petition alleged the operative terms of the retainer, and that Mrs.
Lawrence had breached the agreement (I:A309a-A312a).
Mrs. Lawrence’s responsive answer denied most allegations of consequence,
but expressly admitted that it was she who “sought to change the retainer agreement”
(I:A330a, ¶ 9). Although she alleged that the retainer was “unconscionable on its
face” (I:A332a, ¶ 28), she made no claim that Graubard had misrepresented the value
of the case and no claim that it had exercised Svengali-like influence over her
(I:A330a-A333a). Nor did Mrs. Lawrence advance either claim in the two affidavits
she filed early in the case (IV:A1451a-A1455a, A1982a-A1984a).
The Lawrence Answer (I:A330a-A335a) and Affidavit in Opposition
(IV:A1451a-A1455a) employed a strategy that the Lawrences would continue to use
throughout the litigation. Unbeknownst to Graubard’s partners, back in 1998, Mrs.
Lawrence had made gifts totaling more than $5 million to the three Graubard
attorneys who had principally worked on her case from 1983 until 1998 (IV:A1452a-
A1453a). Although Mrs. Lawrence had not mentioned or complained about those
37
gifts at any time during the more than six years between the time of payment and the
time of settlement, she now did so and urged that alleged improprieties concerning
the 1998 gifts justified her breach of the 2005 contingent fee retainer (IV:A1452a-
A1453a).11 Indeed, the alleged improprieties concerning the 1998 gifts purportedly
dictated that Graubard receive no fees at all and that Graubard should also have to
refund all attorney’s fees it had collected since 1983 (I:A345a, I:A347a).
In the aftermath of the Surrogate Court’s denial of Mrs. Lawrence’s motion to
dismiss, Mrs. Lawrence and her son filed separate Appellate Division briefs, each
brimming with venom as to the purportedly heinous conduct of the Graubard firm.12
Amongst other allegations, Mrs. Lawrence and her counsel told the Appellate
Division that “Graubard was already in the midst of negotiations with the attorneys
for Mr. Cohn’s Estate regarding a possible settlement” when Graubard negotiated the
subject retainer agreement (II:A659a). Although the claim was created from whole
cloth and was later abandoned, the Appellate Division dissenter prominently noted
the contention in an opinion that was presumably read by a significant portion of the
legal community to which Graubard belongs (II:A846a-A847a).
11 The Special Referee would later write that the timing of Mrs. Lawrence’s first known
complaint regarding the 1998 gifts “suggests that the gifts validity challenge was only devised
as a defensive litigation tactic and not as a legitimate claim having merit on its own”
(I:A127a).
12 Mrs. Lawrence’s Appellate Division briefs with respect to the prior appeal are reproduced
at pages II:A638a-A726a and II:A727a-A786a of the Joint Appendix. Richard Lawrence’s
Appellate Division brief with respect to that appeal is reproduced at pages XVII:A7166-
A7216 of the Joint Appendix.
38
Mrs. Lawrence’s Refusal To Be Deposed
Mrs. Lawrence was never deposed and was therefore never questioned as to
her claimed-by-her-counsel inability to understand the written retainer agreement.
This was not due to any want of effort on Graubard’s part.
Special Referee Levine penned a 38-page review of Graubard’s efforts to
depose Mrs. Lawrence and of all the means that she and her counsel successfully
utilized to prevent that from occurring (I:A199a-A237a). We will here endeavor to
summarize some of the highlights, and lowlights, of that history.
Graubard’s first notice to depose Mrs. Lawrence was served on August 9, 2005,
almost immediately after commencement of these proceedings (II:A495a). Special
Referee Levine ruled over Mrs. Lawrence’s objection (II:A518a-A520a) that Mrs.
Lawrence’s deposition was “critical to a resolution of the issues” (II:A493a) and that
the deposition should proceed “on such dates as may be mutually agreed to by the
parties” (II:A493a-A494a).
After Mrs. Lawrence and her counsel then proceeded to ignore all attempts to
set a date for her deposition (II:A502a, A507a-A508a), Special Referee Levine finally
directed, by order dated August 1, 2006, that Mrs. Lawrence appear for deposition on
August 21, 2006 (II:A511a). Although no court granted Mrs. Lawrence a stay or
permission to ignore that directive, that is precisely what Mrs. Lawrence did. When
Graubard’s counsel arrived on the indicated date with a reporter, Mrs. Lawrence and
her counsel failed to appear (I:A205a).
39
Graubard was thus forced to make a motion to compel Mrs. Lawrence to do
what she had already been ordered to do (II:A425a-A443a). Mrs. Lawrence’s counsel
opposed the motion, stating (II:A636a):
The only possible purpose for which the Graubard Parties seek
the deposition of Mrs. Lawrence in this matter is in order to
further harass Mrs. Lawrence …
Mrs. Lawrence’s counsel did, however, pledge that “in the unlikely event that
the Appellate Division does not dismiss the Surrogate’s Court Petition,” Mrs.
Lawrence would appear for deposition “within thirty (30) days of the decision thereof,
at a date and time agreeable to all of the parties herein” (II:A636a). That promise was
repeated no fewer than six different times (I:A221a) and it helped win Mrs. Lawrence
an Appellate Division stay of discovery pending her appeal of the order denying her
motion to dismiss (II:A829a-830a).
The Appellate Division eventually affirmed the order denying the Lawrences’
motions to dismiss (II:A831a-A870a). That occurred on November 27, 2007 (id.).
Graubard’s counsel accordingly wrote Special Referee Levine, copy to Mrs.
Lawrence’s counsel, that “we ask Mrs. Lawrence to confirm to us and to your Honor
that she will appear and to provide us with dates she is available” (II:A894a).
Unknown to Graubard at the time, Mrs. Lawrence had the prior month been
diagnosed with lung cancer that “was found to have metastasized to her pleura, liver,
40
and lymph nodes” (II:A898a). Mrs. Lawrence’s counsel nonetheless responded to the
request for deposition dates with a December 5, 2007 letter that, (a) said nothing
about Mrs. Lawrence’s health, and, (b) declined to produce Mrs. Lawrence for a
deposition on the ground that Mrs. Lawrence’s just-filed motion for leave to appeal to
the Court of Appeals had effected an automatic continuation of her stay (II:A896a-
A897a). The repeated promises that Mrs. Lawrence would appear and be deposed
within 30 days of an affirmance were no longer operative.
Graubard moved in the Appellate Division for an order vacating the automatic
stay so it could depose Mrs. Lawrence. The motion was opposed both by Alice
Lawrence (II:A899a-A902a) and Richard Lawrence (III:A1013a-A1017a). Neither of
the opposing affirmations revealed that Mrs. Lawrence had terminal cancer. Mrs.
Lawrence’s counsel instead argued that “Graubard Does Not Show That Any
Prejudice Will Result if the Stay is Continued” (II:A901).
The Appellate Division vacated the stay by Order dated February 6, 2008
(II:A905a). On February 7, 2008 — that is, the very next day — Mrs. Lawrence, the
same party who had just a month before said that no prejudice would follow from
extension of the stay (II:A901), moved to renew or reargue on the ground that she
was “in the terminal stages of lung cancer” (II:A911a) and was “not physically,
mentally, or emotionally competent to be deposed” (II:A912a).
41
Mrs. Lawrence died on February 16, 2008 (I:A60a, A93a), approximately 18
months after the deposition that she had been ordered to attend (II:A511a) was
instead attended only by Graubard’s counsel and a reporter (II:A518a-A520a).
Graubard’s Motion For Sanctions And The Lawrences’
Cross-Motions To Instead Sanction Graubard
Graubard moved in March of 2008 for an order “striking [Mrs. Lawrence’s]
pleadings” (II:A817a). “As an alternative,” Graubard requested that the issues to
which Mrs. Lawrence’s testimony would have been relevant “be deemed resolved
[against her] for purposes of the action” (II:A818a, quoting CPLR § 3126[1]) and that
Mrs. Lawrence’s Estate be deemed to have waived the protection of “the Dead Man’s
Statute” (II:A818a).
The Estate cross-moved to sanction Graubard for the very making of the
motion (III:A1018a-A1040a). The Estate therein charged:
“Graubard’s dogged persistence in bringing this frivolous
motion” warranted “sanctions against them in the form of
attorneys fees and costs to be paid to the Estate for having to
defend” (III:A1040a);
Graubard had “essentially accuse[d] Mrs. Lawrence of deliberately
orchestrating her own terminal illness and death” and that such
“theme” was “offensive as well as baseless” inasmuch as “the true
outrage” was “their own conduct toward their client of more than
20 years” (III:A1134a); and,
“Graubard’s last-ditch accusation that Mrs. Lawrence deliberately
engaged in sanctionable behavior by becoming ill and dying at a
42
time that was inconvenient for Graubard” was “truly outlandish
and without merit” (III:A1145).
Special Referee Levine credited all of Graubard’s factual claims on the
sanctions motion but nonetheless granted Graubard the barest shadow of the relief it
had sought (I:A199a-A237a). He found:
First, “[t]he number of [Mrs. Lawrence’s applications to stay discovery] … the
weakness of the arguments submitted in support of them, and the acknowledgment
that the only purpose of the applications was to narrow the scope of the inquiry, all
support the inference that the real purpose of the successive applications … was
delay” (I:A218a).
Second, Mrs. Lawrence had represented “[o]n at least six occasions … that she
would appear for her deposition within thirty days of a decision by the Appellate
Division if that decision was not in her favor” (I:A221a). Those representations did
not “contain any qualifications or conditions” (I:A221a) and “were made for the
purpose of obtaining a stay of Mrs. Lawrence’s deposition” (I:A222a).
Finally, even if one were to assume that her counsel did not know that Mrs.
Lawrence was seriously ill, “[t]he implied representations by Mrs. Lawrence that she
knew of no medical condition that might significantly impair her ability to testify, set
forth in her counsel’s affirmation submitted more than a month after she learned that
she had lung cancer and had only a short time to live, constitute[d] a serious breach of
her obligations of veracity and candor” (I:A225a).
43
Yet, after having concluded that Mrs. Lawrence and her counsel had engaged in
“willful” and “contumacious” behavior (I:A233a-A234a) in depriving Graubard of
testimony that was “critical to a resolution of the issues” (I:A235a), the Special
Referee recommended only that “the Estate and all other parties having standing to
raise an objection under CPLR 4519 [the Dead Man’s statute]” be compelled to
“waive their right to assert such an objection” (I:A236a).
The Special Referee gave only one reason why that Estate’s pleadings should
not be stricken outright: “the strong policy favoring resolution of actions on the
merits whenever possible” (I:A236a). Surrogate Webber thereafter adopted the
Referee’s recommendations “in their entirety” (I:A196a).
The Trial Of Graubard’s Fee Claim
The trial generated a transcript of more than 2,700 pages with approximately
269 exhibits entered into evidence (I:A100a).
Graubard’s core contention was simple enough. It had a signed retainer
entitling it to 40% of the recovery less any payments already made. There was
nothing improper or unusual about the terms of the retainer. The firm therefore
wanted to be paid.
The Estate responded with three fact witnesses — Jay Wallberg, Angel Rivas
and Barbara Kling — each of whom told a different story about how Graubard had
purportedly taken advantage of the client. That testimony is summarized below (see
44
pages 45 to 49, infra), as is the expert testimony adduced by each side (see pages 49 to
51, infra).
The Lawrences’ New-For-The-Trial Accusations of
Graubard Misconduct, All “Discovered”
Posthumously and All Premised Solely Upon Hearsay
By trial, the Lawrences had abandoned the claim that Graubard had been
negotiating a settlement with the Cohn estate even as it negotiated the terms of the
contingent fee retainer. See page 38, above. However, the Estate now asserted new
factual claims, all premised on hearsay, as to why Graubard’s conduct was
reprehensible.
Jay Wallberg, formerly Mrs. Lawrence’s accountant (VIII:A1890), was co-
executor of her Estate at time of trial (VIII:A1889). He had already been paid about
$3 million in estate commissions (VIII:A1976) and expected “[p]robably another three
million dollars” (VIII:A1976). It was Wallberg who said that Mrs. Lawrence had said
that “Danny Chill” had a “Svengalli effect” on her (VIII:A1914).13
Wallberg testified on direct examination that Mrs. Lawrence received a “piece of
paper” in January of 2005, that she did not know what it was, and that she faxed it to
him (VIII:A1919-A1920). Wallberg told Mrs. Lawrence that the document called for
Graubard to receive “a forty percent bonus if the case … settled” (VIII:A1919-
13 The Estate’s theory was that such was not hearsay (VIII:A1900-A1908).
45
A1920). Mrs. Lawrence purportedly “heard forty percent” and said, “‘forget about it,
that’s crazy’” (VIII:A1920).
Wallberg’s direct version of the story did not include any mention of the
retainer being amended at his suggestion (VIII:A1920-A1921). On the contrary, he
supposedly thought the contingent retainer was a “dead issue” until June or July of
that year (VIII:A1924).
In June or July, Mrs. Lawrence faxed Wallberg a document that looked
“similar” to the one he had earlier reviewed, except that this document was signed.
Wallberg said that Mrs. Lawrence told him at that time, “‘I never signed it. I have no
recollection of signing this thing’” (VIII:A1925).
The above testimony notwithstanding, there was one difference between the
version of the retainer Wallberg reviewed on January 13th and the version that Mrs.
Lawrence signed on January 19th. The latter had a new fourth paragraph which read:
“Your obligation to make quarterly payments under this agreement shall not extend
beyond one year” (X:A2982-A2983, A2987-A2988). Wallberg grudgingly admitted on
cross-examination that his contemporaneously written note (“and continuing
thereafter” [X:2979]) “possibly” related to the very same point, the concern that the
initial draft of the Agreement could be misconstrued as allowing Graubard to bill
quarterly even after the Agreement’s first year (VIII:A2004-A2006).
Angel Rivas had worked as a handyman for Mrs. Lawrence (VI:A942-A943)
and had received $751,000 in “loans” from Mrs. Lawrence while in her employ
46
(VI:A942-A943; VIII:A2082-A2086; XVI:A5811-A5812). Her will had also left him
$50,000 and a house (VIII:A1992-A1993; XVI:A6190, A6191). Her Estate had, for
whatever reason, not yet given Rivas either the money or the house (VIII:A1992-
A1994).
Rivas was purportedly “unavailable” to testify at the trial on the stated ground
that, “He’s in Connecticut. Outside of the subpoena power” (VIII:A2042). The
Estate was thereby permitted to read excerpts from his deposition into evidence
notwithstanding that he was at the time of trial employed by the Estate (VIII:A1994-
A1995).14
Rivas testified that Mrs. Lawrence had knee surgery and that he remembered
Chill coming over to the Lawrence home “[w]hen I [Rivas] brought her home [from
the hospital]” (VIII:A2048-A2049, emphasis added). Mrs. Lawrence spoke to Rivas
just after Chill left (VIII:A2060-A2061) and told Rivas that “she signed a document”
that “she shouldn’t have done” because “she was medicated” and “wasn’t, you know,
in her right mind” (VIII:A2060-A2061).
The reality, however, was that the knee surgery had occurred on September 1,
2004 (XV:A5863) and that Mrs. Lawrence had actually been discharged from the
14 Dailey v. Keith, 1 NY3d 586, 587 [2004] (a party cannot read his or her own deposition into
evidence on the ground of unavailability); Std. Fruit & S. S. Co. v Waterfront Commn. of New
York Harbor, 43 NY2d 11, 15-16 [1977] (corporation that is itself subject to subpoena can be
required to produce officers and employees who are beyond the State).
47
Burke Rehabilitation Hospital back on September 10, 2004 (XV:A5869) … more than
four months before signing the contingent fee retainer (V:A201-A202).
Barbara Kling owned half of Lawrence Essentials (VIII:A2098-A2099, A2124-
A2125), a company to which Mrs. Lawrence had given $5.7 million in never repaid
loans (VIII:A2124-A2125).
Kling testified that she remembered Mrs. Lawrence stating “around 2004,
2005” that “Chill was coming up to the house” (VIII:A2109). Kling soon afterwards
had a second conversation with Mrs. Lawrence in which the latter purportedly stated,
“He [Chill] wore me down” (VIII:A2109).
At trial, Kling admitted that her perception at the time was that Mrs. Lawrence
was not confused (VIII:A2140). Kling also conceded that Mrs Lawrence
contemporaneously told her that the contract called for “40 percent of whatever
settlement there was” (VIII:A2112).
To summarize, the Estate called one witness (Wallberg) who said that Mrs.
Lawrence had no recollection of signing the retainer (XVII:A1925-A1926), another
(Rivas) who said that Mrs. Lawrence knew that she had signed it but had done so
because she was drugged out (VIII:A2060-A2061), and a third witness (Kling) who
said that Mrs. Lawrence knew she had signed it, was perfectly lucid at the time
(VIII:A2140), but did so because “Danny Chill” wore her down (VIII:A2109).
That at least two of those stories had to be untrue (since acceptance of the
testimony of any one of the three witnesses compelled rejection of the testimony of
48
both of the other witnesses) did not constrain the Estate from advancing all three
claims.
Graubard’s Uncontroverted Proof That The Terms Of
The Contingent Fee Retainer, (1) Did Not Violate Any
Identifiable Rule Or Standard, And, (2) Were Wholly
Consistent With The Established Customs And
Practices In The New York Metropolitan Area
Graubard called David G. Keyko as an expert witness concerning the Estate’s
claim that the contingent fee retainer agreement was unconscionable (VII:A1312-
A1812).
Keyko was a partner with the firm of Pillsbury Winthrop (VII:A1312), an
executive member of his firm’s Professional Responsibility Committee (VII:A1315-
A1316), a member of the Ethics Committee of the Bar of the City of New York
(VII:A1319-A1320), and a member of the First Department’s Disciplinary Committee
(VII:A1320). Part of his personal practice entailed counseling firms on matters of
legal ethics (VII:A1317-A1318). Keyko had written a large number of published
articles on subjects that included legal ethics and was also a regular columnist on that
subject for the New York Law Journal (VII:A1321).
Keyko testified that, as opposed to personal injury law firms “that have a steady
diet of handling contingency cases,” most commercial firms “are not able to spread
the risks” and are therefore leery of taking a case that would take its lawyers “out of
49
circulation” and prevent them from billing during the pendency of the case
(VII:A1327-A1329).
Apart from the near certainty of decreased income during the pendency of the
case, there are further risks, and not just the risk of ultimately losing on the merits
(VII:A1333-A1334). Because the client always has the right to fire the law firm and to
settle the case for a lower number than counsel may deem advisable, those too are
risks of contingent fee representation (VII:A1333-A1334). This sharply contrasts with
hourly billing in which the lawyer’s only risk is that the client will stop paying the bills
(VII:A1346-A1347).
Keyko testified that contingent fees in commercial cases in Manhattan range
from 20% to 50% of the recovery, that “[t]he bulk of the cases are between 33 and a
third and 40 percent,” and that a 40% fee is “the norm in the high percentage of
cases” (VII:A1339).
It was also not unusual for the contingency to be hedged against hourly fees
“on a time basis with a cap” in order to provide a “backstop” for the firm
(VII:A1339-A1340, A1365). The “backstop” here, allowing Graubard to bill up to
$300,000 a quarter during the Agreement’s first year, was “within what the firms in
New York were doing at the time” (VII:A1365).
When asked whether a completely unexpected event, such as the discovery of
the Epps documents, should cast doubt on the reasonableness of a fee that was
reasonable at the time of contract, Keyko testified that it should not because “all kinds
50
of things can happen, both positive and negative, witnesses can forget things they
don’t recall, documents that you are counting on you can’t get into evidence for
whatever reason” (VII:A1369-A1370). The very nature of litigation is that there may
be “substantial unexpected developments” (id.).
The Estate’s Expert Testimony
Prof. Stephen Gillers, the expert called by the Estate, testified that he taught
legal ethics and professional responsibility, amongst other subjects, at New York
University Law School (IX:A2204-A2205). He had also written two books in that field
and had lectured to various bar association groups on legal ethics (IX:A2205-A2206).
Although Gillers conspicuously avoided saying whether the terms of the
retainer were themselves unethical or even unusual, he testified that the $44 million
contractual fee was excessive in hindsight since, in his view, “it was no remarkable act
of lawyering genius that produced [the settlement]” (IX:A2273-A2279).
In sharp contrast to the position that the Estate would assert in its post-trial
papers and on appeal, the Estate’s expert testified that, unless the contract was also
procedurally unconscionable, the correct legal remedy when a retainer is substantively
unconscionable in hindsight is to reduce the fee to a not unconscionable sum
(IX:A2277-A2278):
… [Gillers] If I assume as I suppose I'm assuming that there is
not procedural unconscionability in how the firm got the
agreement, what does that mean if there is substantive
51
big to tolerate under our laws. Well, it means you reduce it.
[Objection Overruled]
A. You reduce it, and this is the point at which I don’t think I
can be of any further help because knowledge of the law firm’s
ingenuity in getting the documents introduced into evidence is a
factor for the trier of fact and for any appellate tribunal …
Emphasis added.
On cross-examination, Gillers was forced to admit that, (a) he had earlier
declined to render an opinion in this very case because “[c]ontests arising over
midstream fee agreements, especially a shift from an hourly rate to a contingency fee,
generally require a detailed command of the records” (IX:A2302), (b) he still did not
know, even as he was passing judgment on the Graubard firm, any of “the major
issues that were being litigated” in the underlying action (IX:A2305-A2306), and, (c)
his knowledge of the Graubard firm came solely from looking at its website
(IX:A2309).
Gillers further admitted that he had actually written in one of his books that
“contingent fees are the quintessential example of value billing” (IX:A2377). He had
also personally cited a New York case in which a contingent fee that reportedly
amounted to “an average of $13,000 an hour per lawyer regardless of experience” had
been upheld (IX:A2380-A2381).
52
Gillers further admitted that the documents that Graubard had sent Mrs.
Lawrence concerning the viability of the accounting claims — documents that he had
not been shown before rendering his opinions — actually contained “a lot of detail”
concerning the individual accounting claims (IX:A2549-A2553, IX:A2557-A2564).
He also conceded that he had no reason to “believe that the information that was
provided to Mrs. Lawrence” “was knowingly inaccurate or incomplete” (IX:A2559).
The Rulings Below
The Special Referee Rejects The Estate’s Various
Claims Of Graubard Misconduct As Untruthful But
Nonetheless Recommends A Drastic Reduction Of
The Contractually Agreed Fee On The Stated Ground
That No One Expected The Lawrences’ Recovery To
Be So Large
Special Referee Levine’s 105-page report (at I:A87a-A191a) sided with
Graubard on almost every contested factual issue, but nonetheless recommended that
Graubard receive only a fraction of its contractually agreed fee.
First and foremost, the Special Referee concluded that “it was Alice who
insisted on abandoning the prior hourly-rate fee arrangement” (I:A188a).
Regarding the Wallberg/Rivas/Kling testimony, Special Referee Levine found
that “[t]he Estate’s arguments and evidence that Alice was suffering from diminished
capacity, that Chill wore her down about the Revised Retainer Agreement and had a
Svengali-like influence on her are not credible” (I:A155a, emphasis added).
53
Regarding the Estate’s claim that Mrs. Lawrence had not understood the
contingent fee retainer, Special Referee Levine observed that “Alice … reviewed the
Revised Retainer Agreement with Wallberg” (I:A154a). Further, “[o]ne of Wallberg’s
handwritten notations” was “consistent with the change in the Agreement Alice asked
Reich to make on January 14, 2005” (id.). In all, the evidence showed that “Alice
understood the Agreement, understood Wallberg’s comment on that portion of the
Agreement, and sought and obtained a revision to reflect Wallberg’s concern” (id.).
As for the Estate’s argument that Mrs. Lawrence’s statement during negotiation
that she expected to be “senior partner” with the “lion’s share” of any recovery
demonstrated that she was “confused” as to the terms of the later-reduced-to-writing
fee agreement since her personal share of the recovery would of itself be less than
Graubard’s 40% fee (XVII:A6841-A6842),15 the Special Referee expressly wrote why
he was “unpersuaded,” stating (I:A156a):
Given all the proof in the record, I am similarly unpersuaded that
Alice’s statements, reported by Chill, that she expected to be the
senior partner, with the lion’s share and the bulk of the money,
shows she was confused about the terms of the Revised Retainer
Agreement. Those comments are consistent with her reduction
15 Mrs. Lawrence’s share of the recovery was 75.9378%, with the balance going to her three
children (I:A130a, n.4).
Had she merely paid her own proportional share of the attorney’s fees, Mrs.
Lawrence would have received an individual recovery of approximately 46% of the
settlement (60% of 75.9378% of the settlement), which would exceed Graubard’s share.
However, since Mrs. Lawrence had decided to pay all of the fees herself, she would
instead receive 75.9378% minus 40% of the recovery, amounting to 35.9378% of the
settlement.
54
of Graubard’s percentage, in the negotiations with Chill, from
50% to 40%. Moreover, the fact that Graubard’s 40% fee would
come out of her share of the settlement proceeds is consistent
with her insistence for decades that she, and not the Lawrence
Children, pay the attorney fees for the litigation (Tr. 1203-07,
1524, 1534).
Emphasis added.
Regarding the Estate’s claim that the contingent fee retainer was procedurally
unconscionable, Special Referee Levine noted that there was a legal dispute as to
whether Graubard bore a special, higher burden where the retainer was a “midstream”
change that had been requested by the client, not the lawyers (I:A153a). There was,
however, “no need to reach that question here” because Graubard had shown “by
both a preponderance and clear and convincing evidence, that the Agreement was not
procedurally unconscionable” (I:A153a). The Special Referee explained (I:A153a):
Graubard has submitted extensive proof that Alice was fully
capable of understanding the Revised Retainer Agreement and did
not enter into it because Graubard exploited its existing
confidential relationship with her … The proof also showed that
Alice was kept up to date on the status of the litigation and was an
active participant in charting its course.
Regarding the alleged substantive unconscionability of the retainer, the Estate
had not claimed, and Special Referee Levine did not find, that the retainer was
prospectively unconscionable. He instead credited Graubard’s proof that the 40%
contingency fee was within the norm for commercial cases (I:A187a).
55
In addition to finding in Graubard’s favor with respect to all of those issues,
the Special Referee further found that,
as of the time of contract, it appeared that “several more years of
full-blown litigation would be required to reach the final
disposition” (I:A185a, emphasis added);
“Alice was kept up to date on the status of the litigation and was
an active participant in charting its course” (I:A153a, emphasis
added);
Mrs. Lawrence “did not want anything of importance, and indeed
many things of little importance, to be done without her
knowledge and approval. She reviewed drafts of documents and
forcefully voiced her opinion on matters large and small …”
(I:A125a, emphasis added);
she “was deeply involved with the strategy and tactics of the
litigation” and engaged in “micromanagement of the litigation”
(I:A125a, emphasis added); and,
Mrs. Lawrence “frequently verbally abused the Attorneys and
threatened to fire them if they dared to not carry out her
commands” (I:A127a, emphasis added).
Yet, just as with the earlier sanctions ruling (where the Special Referee had
concluded that the Estate’s “willful” and “contumacious” conduct deprived Graubard
of “critical” evidence but declined to recommend striking of the Estate’s pleadings
[I:A233a-A234a]), Graubard won the battles but lost the war. The Referee deemed
Graubard’s contingent retainer substantively unconscionable in hindsight. In reaching
that conclusion, the Special Referee repeatedly relied upon circumstances that
seemingly weighed in Graubard’s favor as grounds for reduction of its fee.
56
For example, the fact that contingency fees were disfavored “by general
commercial and corporate litigating firms because the firms ‘are not able to spread the
risk’” (I:A187a, citing VII:A1327) did not mean that Graubard should be credited for
acceding to a request that many other firms would have resisted. It meant that the
unrebutted proof “that a 40% contingency is commonly charged for complex
commercial cases” was “not entitled to significant weight” (I:A187a).
Likewise, the fact that Mrs. Lawrence’s actual damages “could not nearly justify
a recovery worth $100 million” (I:A182a) was counted against Graubard and for the
client who had already obtained a windfall beyond her actual damages (I:A182a-
A183a). This was so even though it surely would not have been counted in
Graubard’s favor if the settlement were a poor one that compensated the clients for
only part of their actual loss.
In the end, the Special Referee decided that Graubard should obtain its
contractually agreed 40% fee … but only as to the first $10 million of the recovery
(I:A188a).
The Surrogate’s Ruling, Largely Adopting The
Special Referee’s Recommendations
With respect to the issues concerning the contingent fee retainer, Surrogate
Nora Anderson essentially adopted the Special Referee’s recommendations in toto,
including the aforementioned “sliding scale” (I:A83a-A84a). The Surrogate described
that result — namely, that the law firm would receive approximately 36% of its fee
57
with respect to a retainer that was not unconscionable at the time of the contract — as
“in effect a middle-ground remedy” (I:A84a).
The Appellate Division’s Ruling, Crediting The
Same “Misunderstood The Retainer” Claim That
The Special Referee Had Emphatically Rejected
The Appellate Division rejected the Special Referee’s emphatic findings that Mrs.
Lawrence was not “confused” as to the retainer’s terms (I:A156a-A157a). It also
rejected the Special Referee’s finding that Graubard had shown “by both a
preponderance and clear and convincing evidence, that the Agreement was not
procedurally unconscionable” (I:A153a).
The Appellate Division’s analysis of the issue of procedural unconscionability
consumed but a single paragraph and was premised on a single factual finding. The
court concluded that Mrs. Lawrence’s statement that she would always have to get the
“lion’s share” of any recovery (VI:A804) — a statement that she made during
negotiation and even before there was a written agreement for her to review
(VI:A699-A700, A807) — meant that she had not understood the retainer agreement
inasmuch as her individual share of the proceeds would actually be less than
Graubard’s by virtue of the fact that she had decided to pay the entire fee out of her
own share of the recovery (XVII:A7394).
The Appellate Division also ruled that the retainer agreement was substantively
unconscionable in hindsight (XVII:A7394-A7396). In so ruling, the Appellate
58
Division did not say that the terms themselves (40% inclusive of up to $1.2 million in
billings in the first year only) were unethical, unreasonable, or contrary to industry
custom. Rather, it was the recovery and the consequent size of the fee, “$44 million,”
that made the retainer substantively unconscionable.
The Appellate Division further ruled that rather than reducing Graubard’s fee
to a conscionable sum, the “proper remedy” was to “revert to the original [hourly]
agreement” (XVII:A7396). It “remanded for the determination of the fees due the
law firm under the original retainer agreement” (XVII:A7396).
The Appellate Division Grants Leave To Appeal To
Graubard And The Individual Defendants
In three separate orders rendered on the same day, the Appellate Division
granted leave to appeal to defendants Chill and Reich (XVII:A7388), defendant Mallis
(XVII:A7389), and petitioner-defendant Graubard (XVII:A7390).
The Lawrences Fail To Seek Or Obtain Leave To Appeal
Neither the Estate itself nor the adult children-intervenors sought or received
leave to appeal from the Appellate Division modification.
Accordingly, with respect to those issues that were resolved against them
(including that any improprieties concerning the gifts cannot be imputed to Graubard
[XVII:A7396]), such issues are not before the Court and the Court lacks jurisdiction
to award relief to the non-appealing parties. Hecht v City of New York, 60 NY2d 57, 61-
59
62 [1983]; Oden v Chemung County Indus. Dev. Agency, 87 NY2d 81, 89 [1995]; Kelly's
Rental, Inc. v City of New York, 44 NY2d 700, 701 [1978].
The Entry Of Final Judgment On Remand
A Decree on Remand was entered in Surrogate’s Court, New York County, on
July 29, 2013 (XVII:A7398-A7404). The Decree provides that “pursuant to its
original retainer agreement with Alice Lawrence dated August 4, 1983, Graubard is
entitled to a fee, including disbursements, of $1,597,415.29 plus interest”
(XVII:A7403-A7404).
60
ARGUMENT
The Applicable Standard of Review
This Court is not bound by any of the lower courts’ determinations regarding
issues of law. In re Liquidation of Midland Ins. Co., 16 NY3d 536, 548 [2011]; People v.
Caban, 70 NY2d 695, 697n.2 [1987].
This particularly includes the lower courts’ ultimate findings as to whether the
retainer was unconscionable inasmuch as such is an issue of law. Lawrence, 11 NY3d
at 595 (acknowledging that the issue was one of law, but ruling “that the facts and
circumstances surrounding the revised retainer agreement have not, at this time, been
sufficiently developed” to support a determination); Gillman v Chase Manhattan Bank,
N.A., 73 NY2d 1, 10-14 [1988]; 28 N.Y. Prac., Contract Law § 6:28 (“[t]he
determination of whether a contract is unconscionable is an issue of law for the court
to decide”).
With respect to the lower courts’ findings of fact, settled law holds that the
Court is bound to accept all of the Special Referee’s findings that were affirmed and
were supported by “substantial evidence.” Gabriel Indus., Inc. v Defiance Indus., Inc., 22
NY2d 405, 408 [1968] (the Referee’s “findings of fact, supported as they are by
substantial evidence and affirmed by the courts below, are beyond our review”); Cent.
Hanover Bank & Trust Co. v Eisner, 276 NY 121, 124 [1937] (same).
By contrast, where the Appellate Division reached factual determinations at
odds with those of the Special Referee and the Surrogate — this would notably
61
include the Appellate Division’s finding that Mrs. Lawrence was confused as to the
terms of the contingent fee retainer that she and her accountant vetted — the
standard of review calls for the Court to determine which finding “more closely
comports with the evidence.” Fairbairn v State, 66 NY2d 620, 622 [1985]; Glenbriar Co.
v Lipsman, 5 NY3d 388, 392 [2005]. In doing so, this Court should consider that the
Special Referee had the opportunity to see and hear the witnesses. Amend v Hurley,
293 NY 587, 594-595 [1944] (“[t]he advantages of the trial court who saw and heard
the witnesses should be considered and, when truth hangs upon the credibility of
witnesses, his decision should be given the greatest weight”).
62
POINT I
CONTINGENT FEE RETAINERS SERVE IMPORTANT POLICY
OBJECTIVES, EVEN IN COMMERCIAL CASES AND EVEN IN CASES
IN WHICH THE CLIENT CAN AFFORD HOURLY BILLING.
Contingent fee retainers have long been a part of the legal landscape. Stanton v
Embrey, 93 US 548, 557, 23 L Ed 983 [1876] (“Parties in such cases require advocates;
and the legal profession must have a right to accept such employment, and to receive
compensation for their services; nor can courts of justice adjudge such contracts
illegal, if they are free from any taint of fraud, misrepresentation, or unfairness”); In re
Abrams & Abrams, P.A., 605 F3d 238, 242, 245 [4th Cir 2010] (“contingency fees
provide access to counsel for individuals who would otherwise have difficulty
obtaining representation” and “are an acknowledged feature of our legal landscape,
approved by legislative and judicial bodies alike, that help secure for the impecunious
access both to counsel and to court”).
In New York, contingent fee retainers are expressly authorized both by statute
(Judiciary Law § 474) and by rule (New York Code of Professional Responsibility
Rule 1.5[c]).
Most obviously, “the contingent fee is the primary financing arrangement in
personal injury and other tort litigation …” Richard M. Birnholz, The Validity And
Propriety Of Contingent Fee Controls, 37 UCLA L. Rev. 949, 952 [1990]. However,
“[c]ontingent fees are no longer, if ever they were, limited to personal injury cases.
63
Nor are contingent fees limited to suits involving tortious conduct. Contingent fees
are now commonly offered to plaintiff-clients in collections, civil rights, securities and
anti-trust class actions, real estate tax appeals and even patent litigation.” ABA
Comm. on Ethics and Professional Responsibility, Formal Op. 94-38.
The contingent fee retainer is absolutely critical to the civil justice system
because, per the now familiar expression, it is the poor person’s key to the courthouse
door. Gair v Peck, 6 NY2d 97, 103 [1959] rearg denied, remittitur amended, 6 NY2d 983,
161 NE2d 736 [1959] (“contingent fees are generally allowed in the United States
because of their practical value in enabling a poor man with a meritorious cause of
action to obtain competent counsel”); Leonard C. Arnold, Ltd. v N. Trust Co., 116 Ill 2d
157, 164, 506 NE2d 1279, 1281 [1987] (“[c]ontingent fees are thus rooted in our
commitment to equal justice for both those of moderate means and the wealthy”);
Sneed v. Sneed, 1984 OK. 22, 681 P2d 754, 756 [Okla. 1984] (“[o]ften contingent fee
agreements are the only means possible for litigants to receive legal services …”).
Such is not the only policy objective served by contingent fee retainers.
Contingent fee retainers also aid the client who could afford to pay hourly-computed
bills but prefers not to pay significant legal bills that may be difficult to estimate in
advance. Formal Op. 94-38, supra:
… to state that contingent fees are only appropriate for the
indigent would ignore the reality of how expensive present day
litigation can be. It is not uncommon for expenses and legal fees
to total hundreds of thousands of dollars through trial. Also, it is
64
often difficult at the outset of a matter for the lawyer to estimate
accurately how much time will be expended. Therefore, it may
very well be in the client’s best interests, whatever the client’s
apparent ability to pay the fee, to agree to pay a fixed percentage
of any possible recovery, rather than assume liability for a possibly
prohibitively expensive legal bill that will be owed even if the
client recovers nothing.
See also Stewart Jay, The Dilemmas Of Attorney Contingent Fees, 2 Geo. J. Legal Ethics 813,
815 [1989]:
it must be recognized that in a sizeable percentage of contingent
fee cases today the plaintiffs could probably afford to finance the
litigation on an hourly basis. This does not mean that such
individuals actually would commit their own resources to pay for
attorneys’ fees if contingent arrangements were unavailable. On
the contrary, a significant portion would not accept the risk of an
unfavorable outcome, and even if they hired an attorney on an
hourly basis, they might be unwilling to devote the appropriate
amount of resources necessary to maximize their chances of an
optimal recovery.
The client also may prefer a contingent fee as a means of assuring that the
attorney is incentivized to maximize the recovery rather than the number of billable
hours. Formal Op. 94-38, supra (“[t]he use of contingent fees in these areas, for
plaintiffs and defendants, impecunious and affluent alike, reflects the desire of clients
to tie a lawyer’s compensation to her performance and to give the lawyer incentives to
improve returns to the client”); Birnholz at 954 (“because of the lawyer’s desire to
minimize the expense of the litigation he finances, the contingent fee ‘encourages
efficiency, economy, and speed’”).
65
Yet, as this Court earlier observed in this case, “the contingency system cannot
work if lawyers do not sometimes get very lucrative fees, for that is what makes them
willing to take the risk—a risk that often becomes reality—that they will do much
work and earn nothing.” Lawrence, 11 NY3d at 596 n.4; see also, Jay at 835:
[i]f attorneys were not allowed to justify fees in excess of
customary rates on these bases, then compensation for contingent
cases would be inadequate to encourage lawyers to take many
such cases. At a minimum, it would affect the quality of attorneys
gravitating toward the types of matters ordinarily handled on a
contingent basis.
Also, pre-occupation with the number of hours the attorney spent on the case
effectively penalizes the attorney who is more skilled or experienced and therefore
needs less time to accomplish a given task. In re Brehm's Estate, 37 AD2d 95, 97-98
[4th Dept 1971] (“[t]he Surrogate’s decision, in his words, places undue emphasis on
the ‘hours of time [which] were devoted to the estate’ … Skilled, long-experienced,
conscientious attorneys, who are leading members of the Bar, such as appellants, can
render the services in substantially less time, by reason of their expertise, than could
other attorneys of lesser probate experience”); Robert L. Rossi, 1 Attorneys’ Fees §
5:3 (ed.) (“[i]t has been said or indicated by some courts that the time spent by an
attorney is sometimes of minor importance in determining the reasonable value of his
or her services, since an experienced or skillful attorney might accomplish in a very
short time what another would require a much longer time to accomplish”); Roy
66
Simon, Simon’s New York Code of Professional Responsibility Annotated (2012 ed.),
p. 111 (“[a]ny artificial limit on the absolute dollar amount of a contingent fee would
be unfair to more skillful lawyers and would remove the incentive for lawyers to
recover as much as possible for seriously injured clients”).
It is therefore appropriate and necessary that courts “exercise great caution” in
employing hindsight reasoning to disallow a contingent fee retainer that was
appropriate at the time of contract. Lawrence, 11 NY3d at 596 n.4.
Here, the lower courts did just the opposite, even to the point of erroneously
equating the “value” of Graubard’s services with the amount that it could have billed
under the hourly retainer on which the client had refused to continue (XVII:A7395).
67
POINT II
THE CLEAR-ON-ITS-FACE CONTINGENT FEE RETAINER THAT
MRS. LAWRENCE REQUESTED AND THEN SIGNED SHOULD BE
ENFORCED UNLESS IT WAS PROCEDURALLY AND SUBSTANTIVELY
UNCONSCIONABLE.
The key issue in this case was whether the subject contingent fee retainer, a
retainer that Mrs. Lawrence reviewed with her accountant before signing (I:A148a;
VIII:A1922-A1924) and that was undisputedly consistent with industry norms
(VII:A2339, A1365), was nonetheless unconscionable.
“[A]n unconscionable agreement is one that no promisor (absent delusion)
would make on the one hand and no honest and fair promisee would accept on the
other.” King v Fox, 7 NY3d 181, 191 [2006].
In its last decision in this case, this Court said that it was “well settled” that “an
unconscionable contract” is “generally defined”:
“as one which is so grossly unreasonable as to be [unenforceable
according to its literal terms] because of an absence of meaningful
choice on the part of one of the parties [‘procedural
unconscionability’] together with contract terms which are
unreasonably favorable to the other party [‘substantive
unconscionability’]” (King v. Fox, 7 N.Y.3d 181, 191, 818 N.Y.S.2d
833, 851 N.E.2d 1184 [2006]; see Gillman v. Chase Manhattan Bank,
73 N.Y.2d 1, 10-11, 537 N.Y.S.2d 787, 534 N.E.2d 824 [1988]).
Lawrence, 11 NY3d at 595.16
16 The verbiage in the brackets was added by the Lawrence Court.
68
Even though these basic principles apply to any kind of contract, “as a matter
of public policy, courts pay particular attention to fee arrangements between attorneys
and their clients.” Jacobson v Sassower, 66 NY2d 991, 993 [1985]. In consequence, an
attorney’s fee agreement “can be deemed unconscionable when entered into or in
retrospect.” Lawrence, 11 NY3d at 595.
By contrast, all other contracts are judged solely as of the time of contract. 8
Williston on Contracts, § 18:12 [4th ed] (“The determination of whether a given clause or
contract is in fact unconscionable is to be made at the time of its making rather than
at some subsequent point in time …”). It is not, for example, a ground for rescission
that the stock that the buyer expected to appreciate instead depreciated. 27 Williston
at § 70:5.
Yet, while an attorney’s fee contract can be deemed unconscionable in
hindsight, the Court pointedly said in Lawrence that “the power to invalidate fee
agreements with hindsight should be exercised only with great caution,” that it is not
unconscionable for an attorney working for a contingency fee to recover “much more
than he or she could have earned at an hourly rate,” and that the contingent fee
system would otherwise not work. Lawrence, 11 NY3d at 596 n.4.
Indeed, while it is theoretically possible for an attorney’s fee retainer to be
appropriate at time of contract but unconscionable in hindsight, this Court has in its
history yet to find a contingent fee retainer fitting that description. Nor is this surprising
given the nature of contingent fee contracts.
69
Where the attorney is being paid by the hour, the fee is a function of the time
spent on the case. It does not matter whether the client won or lost. Where the
attorney is instead retained on a contingent basis, results are what matter. As Prof.
Gillers, the Estate’s own expert, said in a published writing that was not generated for
this case: “contingent fees are the quintessential example of value billing” (IV:A237).
One can still devise fact patterns in which enforcement of a contingent fee that
was reasonable at time of contract might be unreasonable in hindsight. One example,
essentially the antithesis of this case, might be the situation in which the recovery was
so much less than was warranted and so much less than the plaintiff’s true damages as
to make enforcement of the contract unconscionable.17 A second example might be a
situation in which, perhaps as a result of a lien, enforcement of the contract would
leave the client with little or no recovery.18
But, absent circumstances of that kind, whether the attorney took ten years or
ten days to obtain a $1,800,000 recovery, one-third of $1,800,000 will still yield a
17 A situation like that recently arose, but in the context of a fee dispute between two law
firms.
In Castellanos v. CBS, Inc., Bronx Co. Index No. 23018/05 [Sup Ct April 20, 2011],
aff’d 89 AD3d 499 [1st Dept 2011], one law firm was substituted for another firm in a
personal injury action. After the case settled for $350,000, the two firms disputed how the
one-third contingent fee should be divided between them.
Supreme Court ruled that incoming counsel should receive only 60% of the fee, in
part because it “appear[ed] that the case may have a larger monetary value than that for
which it settled” and that the incoming counsel had settled low as a result of their
misunderstanding of the law concerning the “recalcitrant worker” defense.
The Appellate Division affirmed that disposition as a proper exercise of discretion.
18 Wade v. Clemmons, 84 Misc2d 822, 824-826 [Sup. Ct. 1975] (where, absent reduction of the
attorney’s fee, the entire $10,000 settlement would have gone to the plaintiff’s attorneys and
the New York City Health and Hospital Corporation).
70
$600,000 fee. In fact, the client would undoubtedly prefer that the settlement occur
within ten days rather than ten years. Simon at p. 116 (“In hourly rate and fixed fee
cases, the results obtained cannot normally be considered unless the lawyer and client
have agreed at the outset of the case that the fee will depend on the results … In
contingent fee cases, in contrast, the result is everything”).
What is more, while a client who is paying hourly fees might be understandably
distressed (or angry) if the fees turned out to be five or ten times what the client had
been led to expect or if the fees were so large as to consume or exceed the client’s
recovery (the Bleak House scenario), the client who retains an attorney on a
contingency basis has little cause to complain if a case that was thought to be worth
$500,000 yields five times that amount and therefore five times the anticipated fee.
Equally to the point, while it is true that courts are protective of the attorney’s
clients, the law, to again reference Dickens, is not an ass.19 In a dispute between the
lawyer and client, it is not always the lawyer who acted badly or who afterwards bore
false witness. In fact, the attorney’s common law lien “‘was a device invented by the
courts for the protection of attorneys against the knavery of their clients …’” Banque
Indosuez v Sopwith Holdings Corp., 98 NY2d 34, 38 [2002], quoting Goodrich v McDonald,
112 NY 157, 163 [1889].
19 Oliver Twist, ch. 51 (“If the law suppose that,” said Mr. Bumble, “the law is a ass, a
idiot.”)
71
Here, Graubard pleads guilty to, (1) acceding to the client’s demand for
alternative billing (I:A188a; VI:A699), and, (2) obtaining the client a recovery that, as
the Special Referee found, was far more than either party had expected (I:A188a-
A189a) and far more than the case was really worth (I:A184a). However, for the
reasons explained in Points II, III and IV of this brief, the contingent fee retainer was
neither unconscionable at the time of contract nor in hindsight. Graubard therefore
submits that, as with most “agreements entered into between competent adults” that
are not tainted by “deception or overreaching in their making” (Lawrence, 11 NY3d at
596 n.4), the clear-on-its-face contract should be enforced.
72
POINT III
THE APPELLATE DIVISION ERRED IN REJECTING THE SPECIAL
REFEREE’S FINDING THAT MRS. LAWRENCE’S BELATEDLY
CLAIMED INABILITY TO UNDERSTAND THE CLEAR-ON-ITS-FACE
CONTINGENT FEE AGREEMENT WAS “NOT CREDIBLE,” AND IN
RULING INSTEAD THAT THE CONTINGENT FEE RETAINER WAS
PROCEDURALLY UNCONSCIONABLE.
Special Referee Levine meticulously examined the proof and claims advanced
by each side with respect to the issue of procedural unconscionability, devoting fifteen
pages of his report to that single issue (I:A143a-A158a). He concluded that Graubard
had demonstrated by “extensive” and “clear and convincing” evidence that “Alice was
fully capable of understanding the Revised Retainer Agreement and did not enter into
it because Graubard exploited its existing confidential relationship with her”
(I:A153a). His basis for so concluding was very straightforward. He deemed the
Estate’s latest claims of Graubard wrongdoing as “not credible” for reasons he
explained at length (I:A153a-A158a).
The Appellate Division then reached the opposite conclusion on the sole
ground that Mrs. Lawrence’s comment about receiving the “lion’s share” of the
recovery, a comment she made even before the agreement was reduced to writing and
reviewed by her accountant (VI:A803), supposedly showed that she did not fully
understand the terms of a written agreement that was never claimed to be, and is not,
ambiguous (XVII:A7394).
73
Graubard here maintains that the Special Referee’s finding “more closely
comports with the evidence.” Fairbairn, 66 NY2d at 622.
More than that, if the contingent fee retainer were deemed procedurally
unconscionable even in this instance in which a client who was intimately familiar
with the case actually reviewed the clear-on-its-face written retainer with her
accountant, then virtually every retainer would be subject to challenge since virtually
every client could afterwards claim (and with far more credibility than the Estate here
claimed) that he or she did not understand the terms of the retainer.
A. A Contract Is Procedurally Unconscionable Only When There Is
“An Absence Of Meaningful Choice.”
In the lower courts, the Lawrences argued that the attorney bears an enhanced
burden of establishing that the retainer agreement was not unconscionable when there
is a “midstream” modification of the retainer agreement. Yet, the cases they cited
were instances in which the initial retainer was modified at the attorney’s behest.20
There is no authority for the proposition that the attorney bears a greater burden of
negating unconscionability where the modification of the agreement was made at the
client’s request. Simon, p. 327.
20 In re Howell, 215 NY 466 [1915] (where an attorney who had agreed to represent the client
for a specified flat fee then wanted $1,000 more); Naiman v New York Univ. Hospitals Ctr., 351
F Supp 2d 257, 261-262 [SDNY 2005] (where the attorney sought to increase his fee from
one-third to one-half and tried to do so as part of the same negotiations in which the case
itself was settling); In re Stamell, 252 BR 8, 17 [Bankr EDNY 2000] (where it was the
attorneys who sought to modify the retainer, and they met their burden of proof).
74
Nor would imposition of an enhanced burden in those circumstances be good
for the bar, or for clients, or for the public generally. If an attorney who already has a
retainer agreement must meet a higher standard if he or she accedes to a client’s
request for a modification of the retainer, the attorney will have an incentive not to do
so. Such a rule would hurt clients who, unlike in the case at bar, could no longer
afford paying hourly rates. Nor would the interests of justice be served if a client is
compelled to seek new counsel, unfamiliar with the case.
That said, the matter is, as the Special Referee correctly noted, not outcome-
determinative in this case. The Special Referee here concluded that Graubard had
presented “clear and convincing evidence that the Agreement was not procedurally
unconscionable” (I:A153). He was right.
The sine qua non for a finding of procedural unconscionability is “an absence of
meaningful choice on the part of one of the parties …” Lawrence, 11 NY3d at 595,
quoting King, 7 NY3d at 191; Jacobs v Citibank, N.A., 61 NY2d 869, 872 [1984].
The court may consider, amongst other factors, whether deceptive practices or
language was used, any inequality of bargaining power, and any imbalance in
understanding and acumen. Emigrant Mortg. Co., Inc. v Fitzpatrick, 95 AD3d 1169, 1170
[2d Dept 2012], quoting Simar Holding Corp. v GSC, 87 AD3d 688, 689-690 [2d Dept
2011], quoting State v Wolowitz, 96 AD2d 47, 68 [2d Dept 1983].
This may also entail consideration of whether the client was, at one end of the
spectrum, a sophisticated businessperson, or, at the other end, mentally ill. See, e.g.,
75
Greene v Greene, 56 NY2d 86, 89-90 [1982] (where the client was “a college
sophomore” who was then receiving “treatment for a mental illness at a New York
City hospital” when she “was approached by a family lawyer … and at his urging
signed a trust agreement … in which she virtually surrendered to him all management
and control over her inheritance for her lifetime”). But the question in either instance
is whether consideration of all the pertinent factors warrants the conclusion that the
client lacked “meaningful choice.” Lawrence, 11 NY3d at 595. This was the very
opposite of that situation.
In the lower courts, the Estate seized on a phrase from this Court’s decision in
Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 176 [1986], where the Court said
that the attorney must show that the terms of the retainer were “fully known and
understood by the [] client.” The Estate construed that statement, which had also
figured in Jacobson, 66 NY2d at 993 amongst other cases, to mean that a written
retainer agreement, no matter how clear on its face, can afterwards be defeated by the
bare claim that the client did not understand the clear-on-its-face agreement. Indeed,
the Estate went a significant step further, arguing that the retainer can be defeated by
the client’s counsel’s representation that the client did not understand the agreement
where, as here, the client chose not to make herself subject to cross-examination
(VII:A6833-A6835). Of course, if that were true, then any retainer agreement could
afterwards be claimed to be procedurally unconscionable because any client could
afterwards say that he or she failed to understand some aspect of the agreement.
76
The point, however, is that while the attorney must show that the client “fully
knew and understood” the terms of the agreement, such is practically demonstrated
by proving, (1) that the retainer itself was in writing and was unambiguous, and, (2)
that the client was of sound mind and capable of understanding it.
Settled law has long held that “[one] who signs or accepts a written contract, in
the absence of fraud or other wrongful act on the part of another contracting party, is
conclusively presumed to know its contents and to assent to them, and there can be
no evidence for the jury as to his understanding of its terms.” Level Expert Corp. v.
Wolz, Alken & Co., 305 NY82, 87 [1953], quoting Metzger v Aetna Ins. Co., 227 NY 411,
416 [1920]; see also Moran v Erk, 11 NY3d 452, 457 [2008] (party should have
understood “the plain language of the contract”); Slater-Moore v Goeldner, 113 So 3d
521, 529 [Miss 2013] (where the client claimed that she was unaware of the meaning
of the retainer provision mandating arbitration of all disputes and that the clause was
therefore “procedurally unconscionable,” she was charged with “knowing the
contract’s contents”).
Nor do any of this Court’s prior rulings, or any of the cases previously cited by
respondents, in any way suggest that a client who has the opportunity and ability to
read the written agreement can seek rescission of a clear-on-its-face agreement on the
ground that he or she chose not to read it.
In Shaw itself, the retainer agreement contained “no provision regarding the
advance of litigation expenses” (68 NY2d at 174). This became problematic when the
77
client’s case was lost at trial and the question then arose whether the attorney was
required to advance the not inconsiderable expenses of an appeal. Noting that
“equivocal contracts will be construed against the drafters” and that such certainly
applied to attorney retainers (id. at 176), this Court held that both of the parties’
respective interpretations of the retainer contract were “reasonable” and that the
contract would therefore be construed in the client’s favor (id. at 177). But the Court
neither said nor suggested that the client could “beat” an unambiguous contract by
the simple expedient of “playing dumb.” Quite the opposite, it said that while it was
sympathetic to the attorney’s plight, the attorney could have avoided his predicament
by drafting an unambiguous contract:
But we are also not blind to respondent’s predicament … In order
to avoid the consequences suffered here both by the client and by
the lawyer, it is essential that the terms of representation … be set
down with clarity. And the onus is upon the lawyers who draft
such agreements to do so.
Shaw, 68 NY2d at 179.
Here, there was no question as to whether Mrs. Lawrence read the retainer
agreement. The testimony of her own accountant established that she and he each
reviewed the retainer agreement (VIII:A1919-A1920, A2004-A2006). The issue
instead devolved to the question of whether, as claimed by the Estate’s counsel, Mrs.
Lawrence and her accountant had not grasped that 100% of the recovery minus
Graubard’s 40% of the recovery left the Lawrences only 60% of the recovery. As we
78
now show, the proof comported with the Special Referee’s finding that Mrs.
Lawrence and her accountant were collectively capable of performing basic
subtraction and well understood what the Agreement meant (I:A156a-A157a).
B. The Special Referee And Surrogate Had More Than Ample Basis
To Conclude That The Estate’s “Misunderstood The Retainer”
Defense Was “Not Credible.” The Appellate Division Therefore
Erred In Crediting The Claim.
Although the Appellate Division impliedly rejected all of the Lawrences’ other
claims of procedural unconscionability (e.g., that Daniel Chill exercised a Svengali-like
influence over Mrs. Lawrence [I:A154a-A155a; VIII:A1925]), it concluded that Mrs.
Lawrence’s comment that she would have to receive the “lion’s share” of any
recovery (VI:A803) meant that she may not have fully “understood the terms” of the
later reduced-to-writing Agreement inasmuch as she would individually recover only
35.9378% of the proceeds (XVII:7394).
The Special Referee’s contrary finding (I:A156a-A157a) more closely
comported with the proof.
First, assuming for sake of argument that Mrs. Lawrence was not personally
capable of determining, (a) that 76% minus 40% equals 36%, or, (b) that 40% is
greater than 36%, it remains that the person with whom she consulted before signing
the retainer happened to be an accountant (VIII:A2005).
Second, the Estate’s own witnesses testified that Mrs. Lawrence was not confused
about the terms of the retainer. Estate witness Barbara Kling testified that she talked
79
to Mrs. Lawrence soon after Mrs. Lawrence signed the retainer (VIII:A2111-A2112),
that Mrs. Lawrence did not appear to be “confused” (VIII:A2140), and that Mrs.
Lawrence specifically said that “she signed an agreement to give the law firm 40 percent
of whatever settlement there was” (VIII:A2112).
Estate witness Jay Wallberg testified that he reviewed the initial draft of the
contingent fee retainer, that he provided Mrs. Lawrence with his views before she
signed the retainer (VIII:A2005), and that he specifically told her that it called for a 40%
fee “if the case … settled” (VIII:A1919-A1920).
Third, all of the testimony concerning Alice Lawrence’s character and
experience, including from her own witnesses, rendered the did-not-understand-the-
retainer argument utterly incredible. This was, after all, a woman who had
micromanaged the litigation and the building of two homes (I:A125a, A144a;
VI:A636; XV:A5993-A5994), who personally managed a portfolio of more than $200
million in marketable securities (XIV:A5155), and who had previously conducted
settlement talks without the presence or assistance of her counsel (VII:A1214). This
was also a client who had expertly analyzed contracts far more detailed than the five-
paragraph retainer agreement that was here in issue (XV:A6262-A6279). See page 14,
above.
Finally, Mrs. Lawrence had months to raise any questions or objections to the
retainer’s terms. During the period from January to May of 2005, she was, as usual,
overseeing every aspect of the litigation (XI:A3816, A3823, A3829, A3834). See pages
80
31 to 32, above. Yet, she raised no objection or question regarding the retainer’s
terms, not until after the case settled.
The Special Referee thus had sound basis to reject the Estate’s claim that Mrs.
Lawrence was confused as to the retainer’s terms and that the retainer agreement was
therefore procedurally unconscionable.
C. Any Finding That The Agreement Was Procedurally
Unconscionable In The Circumstances At Bar Would Significantly
Deter Attorneys From Acceding To Client Requests For
Contingent Fee Representation.
Most contingent fee clients, (i) do not have literally hundreds of millions of
dollars to pay hourly legal fees, (ii) are not intimately familiar with the litigation by
virtue of having micromanaged it for more than twenty years (I:A109a, A147a), and,
(iii) do not have a personal accountant to review the fee retainer before signing it
(I:A148a-A149a; VIII:A1972-A1974).
If a client can overturn a contingent fee agreement as procedurally
unconscionable even in these circumstances simply by afterwards claiming that she
did not fully understand the retainer agreement, if that can work even when there was
a written agreement that was not claimed to be ambiguous, and if that can work even
when the client refused to be deposed and her alleged confusion was discerned by her
counsel, how would any attorney ever be protected from the knavery of a client?
81
The answer is that no attorney would ever be safe from an unscrupulous client
who did very well in the lawsuit but could do still better by pocketing the attorney’s
fees as well.
The Special Referee was correct in finding (I:A153a-A158a) and the Surrogate
in ruling (I:A84a-A85a) that the retainer agreement was not procedurally
unconscionable. The Appellate Division erred in ruling otherwise.
82
POINT IV
THERE WAS NEITHER ANY PROOF NOR EVEN ANY CLAIM THAT
THE REVISED RETAINER AGREEMENT WAS SUBSTANTIVELY
UNCONSCIONABLE AT THE TIME IT WAS SIGNED.
At trial, Graubard’s expert witness, David Keyko, testified that firms in
Graubard’s position typically do not seek or want to handle commercial cases on a
contingent fee basis (VII:A1326-A1327). The reason is simple enough. If, as here, a
firm operates on a profit margin of 40% but 20% of the firm works solely on a
contingent fee case and is therefore not billing for the year in issue, then the firm’s
profit margin, and each partner’s draw, is thereby halved that year (40%-20% = 20%)
(VII:A1328-A1331).
Keyko further testified that where a commercial case is done on a contingent
fee basis, the fee range generally “is between 20 and 50 percent” and 40% is “the
norm in the high percentage of cases” (VII:A1339). The fact that the fee retainer
agreement in this case had a “backstop” (up to $300,000 per quarter for Year 1 only)
was “not unusual” and was “within what the firms in New York were doing at the
time” (VII:A1365).
Neither the Estate nor its allies offered any proof that a 40% retainer was not
“the norm in the high percentage of cases” or that the Year 1 “backstop” was unusual
or contrary to standard practice. Nor did they offer any proof, or even any claim, that
the terms of the retainer violated any court rule or ethical standard, or even any
83
unwritten standard. Quite the contrary, Estate expert Stephen Gillers grudgingly
admitted that there was “no case in New York” that would hold the hybrid fee
structure involved in this case “per se wrongful or unconscionable” (IX:A2333-
A2334).
The Referee and Surrogate therefore did not err in impliedly concluding that
the contract was not substantively unconscionable when made.
84
POINT V
THE LOWER COURTS ERRED IN RULING THAT A CONTINGENT
FEE CONTRACT THAT WAS NOT UNCONSCIONABLE WHEN MADE
BECAME UNCONSCIONABLE SIMPLY BECAUSE THE ATTORNEYS
OBTAINED A RECOVERY THAT WAS FAR GREATER THAN ANYONE
EXPECTED AND CAME MUCH SOONER THAN ANYONE
EXPECTED.
Let us suppose that an attorney is retained to prosecute a personal injury action
for a 25% contingent fee. The client either cannot afford to pay for hourly billing or
chooses not to do so; it matters not. The attorney settles the case a few days later,
after only two conferences with the putative defendant’s counsel, because the
defendant offers far more in settlement than could have been sustained by the proof.
Perhaps the defendant settles so high because it is intimidated by the attorney’s
reputation, or perhaps the defendant is concerned that adverse publicity at that
particular time could jeopardize a long sought merger, or perhaps it miscalculates its
potential exposure to the claim. Again, it matters not. Whatever the reason or
reasons for the defendant’s decision, a case that could have taken years to litigate
settles for more than full value after only 3.7 hours of work by the attorney. Would
the one-quarter fee be unconscionable in these circumstances? The Maryland Court
of Appeals thought not.21
21 Attorney Grievance Com'n of Maryland v Ashworth, 381 Md 561, 573-574, 851 A2d 527 [2004]
(where the case settled literally days after the attorney was retained following two meetings
that together lasted approximately 3.7 hours, and where client argued that 25% retainer
“became unreasonable when the matter settled within days of the new agreement and when
85
Here, the facts differ in two principal respects from the 3.7-hour settlement.
First, whereas we lacked information as to whether the personal injury plaintiff, (a)
was familiar with his or her prospects, and, (b) had the practical means to pay for
hourly billing or was even aware of that alternative, we here have a client who had
“micromanage[d]” the litigation for two decades (I:A125a [Special Referee’s report])
and was clearly capable of financing the litigation, but nonetheless “insisted on
abandoning the prior hourly rate fee arrangement” (I:A188a [Special Referee’s
report]).
Second, while the Maryland attorney worked only 3.7 hours on the case,
Graubard here devoted 4,683.55 post-retainer hours of its time (X:A3215, A3262-
A3263), most of which was not billable under the terms of the retainer. See pages 107
to 109, infra. Further, the exigencies of an oncoming trial forced Graubard to cram
that 4,638.55 hours of work into only five months, meaning that its attorneys were
spending approximately 232 hours per week, each week, for five months, just on the
Lawrences’ case.22
the contingency, litigation, did not occur,” the appellate court agreed with the hearing court’s
determination that the fee was not unreasonable because the argument ignored “the reality
that attorneys with excellent skills and reputations often can obtain satisfactory settlements
with the expenditure of less effort than those lawyers without such reputation and skill” and
also because the 25% fee was “both customary and reasonable”).
22 Former Code of Professional Responsibility DR 2-106(B) stated and current Rule 1.5(a) of
the New York Rules of Professional Conduct states that “[t]he time limitations imposed by
the client or by circumstances” should be considered in assessing the reasonableness of the
attorney’s fee.
86
So, if the Maryland lawyer’s one-quarter retainer does not become
unconscionable in hindsight (inasmuch as the same attorney may be left with no fee at
all in his or her next case), how could the result possibly be different here?
Admittedly, where the contract in issue is an attorney’s fee retainer, the
contract is subject to “hindsight” review. King, 7 NY3d at 192. Yet, as this Court
pointedly noted in its last decision in this case, “[i]n general, agreements entered into
between competent adults, where there is no deception or overreaching in their
making, should be enforced as written.” Lawrence, 11 NY3d at 594 n.4. It therefore
remains that “the power to invalidate fee agreements with hindsight should be
exercised only with great caution.” Id.
In fact, courts have exhibited such “caution” in those circumstances that there
has never been a New York case in which, (a) the retainer called for a contingent fee,
(b) the retainer was not procedurally or substantively unconscionable at the time of
the contract, but, (c) the agreement was nonetheless set aside as unconscionable in
hindsight simply because the recovery (and therefore the fee) turned out to be much
larger or was achieved much sooner than anticipated.23
23 While it is true that this Court was reviewing a contingent fee retainer in Gair v Peck when
it said that “it is recognized throughout that there comes a point where the amounts to be
received by attorneys under contingent fee contracts are large enough to be unenforceable
under the circumstances of the case” (16 NY2d at 107), the issue then before the Court was
whether the Appellate Division for the First Department lacked power to enact court rules
that effectively capped the percentage share that an attorney could charge in personal injury
and wrongful death actions.
87
The reason for this is perfectly obvious. Contingent fee retainers are hardly
novel; most personal injury cases are prosecuted pursuant to such retainers. They are
also “utilized in collection suits, shareholder derivative suits, antitrust suits for
damages, tax cases, will contests, and condemnation proceedings.” Birnholz at 952-
953.
It is the nature of the beast that some contingent fee cases settle before a
complaint is filed; some settle only after trial; some never settle at all; some are lost.
In some instances, as when a case of clear liability settles with a telephone call, the
attorney’s fee could never be justified in terms of the hours spent on the case. But the
point is that the next such case may involve three appeals or no recovery at all. In this
sense, just as the attorney risks that he or she may work many hours for nothing at all
or for much less than the attorney could have billed, the client risks that the case may
settle with a motion or a phone call. In re Smart World Tech., LLC, 552 F3d 228, 235
[2d Cir 2009] (“the fact that contingency fees may appear excessive in retrospect is
not a ground to reduce them because ‘early success by counsel is always a possibility
capable of being anticipated [citation omitted]’”).
Likewise, in Ward v Orsini, 243 NY 123, 128 [1926], where Judge Pound made the oft-
quoted observation that “‘It may well be that in a supposed case the amount received by the
client would be so completely out of proportion to the value of the attorney’s services that it
would be unconscionable as matter of law to permit him to enforce his contract,’” the
concern was not the dollar amount of the fee but instead that the attorney’s fee was 50% of
the recovery, a percentage that was there deemed reasonable under the circumstances of the
case.
88
It is, then, easy to understand why the applicable Restatement provision
specifically states that a higher than anticipated recovery is not grounds for reduction
of an attorney’s contingent fee. That the attorney expected to win and thus earn a
large contingent fee is surely not grounds for retroactive hourly billing if the case
instead fails. So too, that the recovery was greater than expected is not grounds for
rescission or reduction of the fee. Restatement (Third) of Law Governing Law § 34
[2000] Comment (c) (“[a] contingent-fee contract … allocates to the lawyer the risk
that the case will require much time and produce no recovery and to the client the risk
that the case will require little time and produce a substantial fee. Events within that
range of risks, such as a high recovery, do not make unreasonable a contract that was
reasonable when made”).
It was for this reason that the Estate and its allies tried so hard to find some
ethical transgression, any ethical transgression, even if seven years removed from the
events in issue, and even to the extent of advancing claims that some parties would be
too embarrassed to make (e.g., that Mrs. Lawrence was “Svengalied” by one of the
attorneys she had routinely abused).
A. The Contingent Fee Retainer Was Not Substantively
Unconscionable, Not Even In Hindsight, In The Context of The
Proof Actually Adduced At Trial.
Back in King, 7 NY3d at 192, this Court singled out three factors to be
considered in assessing whether a fee was substantively unconscionable in hindsight.
89
The variable that was “perhaps the most important” has already been addressed:
“whether the client was fully informed upon entering into the agreement with the
attorneys.” The two other factors that the Court particularly noted were “‘the parties’
intent and the value of the attorney’s services in proportion to the fees charged, in
hindsight.’” King, 7 NY3d at 192, quoted at Lawrence v. Miller, 11 NY3d at 596. The
Court added that the Code of Professional Responsibility DR 2-106(B) (22 NYCRR
1200.11[b]) may also “assist in determining at what point a contingent fee agreement
becomes unconscionable or unreasonable.”24 King, 7 NY3d at 192.
24 The factors listed in DR 2-106(B) were as follows:
1. The time and labor required, the novelty and difficulty of the questions
involved and the skill requisite to perform the legal service properly.
2. The likelihood, if apparent or made known to the client, that the
acceptance of the particular employment will preclude other employment by
the lawyer.
3. The fee customarily charged in the locality for similar legal services.
4. The amount involved and the results obtained.
5. The time limitations imposed by the client or by circumstances.
6. The nature and length of the professional relationship with the client.
7. The experience, reputation and ability of the lawyer or lawyers
performing the services.
8. Whether the fee is fixed or contingent.
The same factors are now listed in Rule 1.5(a) of the New York Rules of Professional
Conduct, which became effective on April 1, 2009.
90
Graubard did very well under the contingent fee retainer, far better than it
would have done if Mrs. Lawrence had stayed the course of her 1983 retainer.
However, when one reviews the case in terms of the factors that this Court has
identified as most critical to the inquiry, the contingent fee retainer was not
unconscionable.
1. The Value Of Graubard’s Services: Graubard Obtained A
$111 Million Settlement That Was, As The Special Referee
Acknowledged, More Than Double The Case’s Full Worth.
The King Court said that one factor that may be considered in assessing
whether an attorney’s fee was unconscionable is “the value of the attorney’s services
in proportion to the fees charged.” King, 7 N.Y.3d at 192.
Here, Graubard’s proof established, (a) that it obtained a recovery of
approximately $111 million for the clients (I:A185a-A186a), and, (b) that the
settlement far exceeded the case’s full value at time of disposition (V:A250-A275).
Special Referee Levine accepted that the Cohns paid more than double the full
value of the remaining accounting claims (I:A183a-A184a) but nonetheless denigrated
the “value” of Graubard’s services as not “exceptional by New York City high-stakes
commercial litigation standards” (I:A187a).25
The Appellate Division then went in an entirely different direction, ruling that
“the value of the services rendered” was “approximately $1.7 million” since that was
25 The Estate, which was made $111 million richer by virtue of the work, spun that to mean
that Graubard’s work was “ordinary.” Estate’s 2012 App. Div. Br. at 11.
91
what Graubard would have billed for its time if it had still been permitted to bill for all
the time it spent on the case (XVII:A7394-A7395).
The rulings were erroneous, each resting on a misconception as to what is
meant by “value.”
First, while the Appellate Division here concluded that “value” was one and the
same as billable time and the Special Referee instead treated “value” as a subjective
measure of the lawyers’ skill (I:A187a), “value” means just that. It is a measure of
what the client gained.
In a contingent fee case, the “value” of the services is typically measured by the
result: the client’s recovery. Americas Mining Corp. v Theriault, 51 A3d 1213, 1252-1255
[Del 2012], reargument denied (Sept. 21, 2012) (where the attorneys were awarded a 15%
fee that amounted to approximately $304 million of the approximately $2 billion
judgment, and where the defendants challenged the fee on the ground that it allowed
counsel “‘over $35,000 per hour worked and 66 times the value of their time and
expenses,’” the challenge was “without merit” inasmuch as, amongst other
considerations, the factor “assigned the greatest weight” was “the benefit achieved in
litigation” and “[t]ypically, a-percentage-of-the-benefit approach is used if the benefit
achieved is quantifiable”); I Conte, Attorney Fee Awards, § 2:5, p. 68 [3d Ed. 1994-2004]
(“[c]ourts have … ruled on the fairness of contingent-percentage fee in individual
litigations without regard to the hours expended or the effective hourly rate yielded by
the percentage fee approved. These results appear reasonable because contingent fee
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practitioners operate predominantly on and should be rewarded for achieving a
successful result as quickly and economically as possible”); Daniel F. Sullivan,
Reasonableness of Contingent Fee in Personal Injury Action, 46 Am. Jur. Proof of Facts 2d 1,
§ 5 (“the factor of the time and labor required ordinarily leads every listing of factors
to be considered in determining the reasonableness of an attorney’s fee … The
amount of an attorney’s fee under a contingent fee contract, however, is not
necessarily related to the time and labor required in the particular case”).
Where, as here, the attorney is working for a contingent fee, billable hours is
exactly what “value” is not. Matter of Potts, 213 AD 59, 62 [4th Dept 1925], aff’d 241
NY 693 [1925] (“I do not think items as to time actually employed in work on the
case are of much importance. It is the ability of the attorney and his capacity and
success in handling large and important matters and in commanding large fees
therefor, the amount involved and the result obtained, which are of prime importance
in determining what constitutes a just and reasonable charge”); In re Abrams &
Abrams, P.A., 605 F3d at 245 (“[f]ixing a lodestar fee in this contingency case was
error and threatens to nullify the considerable advantages of contingency
arrangements”).
To illustrate: if the attorneys run up $150,000 in time charges on a claim that is
worth $25,000, that would not make the “value” of the legal services $150,000. Even
if the attorney’s work in obtaining the $25,000 recovery included “the best evidentiary
93
presentation that [the observer] had ever seen at a trial” (V:A284),26 the services
would still be worth no more than $25,000. F.H. Krear & Co. v Nineteen Named
Trustees, 810 F2d 1250, 1264 [2d Cir 1987] (“New York courts have stated that, as a
general rule, they will rarely find reasonable an award to a plaintiff [for attorney’s fees]
that exceeds the amount involved in the litigation”); Wade v Clemmons, 84 Misc 2d at
825-826 (“If the plaintiff were to receive no part of the settlement proceeds, the
professional services rendered by her attorney would be of no benefit to her. His
alleged ‘diligence’ would benefit him, but not his client … Under all the
circumstances, it would be unconscionable to deny the plaintiff a fair share of the
proceeds of the settlement of her case”).
Indeed, while one commentator has observed that “[i]t matters little to the
client … how much his or her lawyer spends in time or money to reach a successful
result” (Conte at § 2:7, p. 102), the full truth is that most clients would prefer to obtain
their recovery sooner rather than later and are therefore disadvantaged by work that
serves only to delay disposition.
Nor, contrary to the Special Referee’s ruling, is “value” synonymous with
“skill” in a contingent fee case. Far from it, the lawyer who exercises Darrow-like skill
in litigating a matter as complex as the IBM antitrust case will earn no fee, and has
provided no “value,” if the retainer calls for a contingent fee and the case is lost.
26 Such was how Richard Lawrence’s counsel contemporaneously described Graubard’s
work at the trial before reaching the opposite conclusion for purposes of litigation (V:A284).
94
Conversely, where the contingent fee lawyer has successfully enriched the client, it ill
behooves the client to afterwards complain that the work was simple or mundane.
McKenzie Const., Inc. v Maynard, 823 F2d 43, 47 [3d Cir 1987] (where the client
unsuccessfully sought reduction of attorney’s one-third contingent retainer on the
stated ground that the attorney “merely carried out ‘mundane legal chores’ involving
nothing more than ‘debt collection’ in a case the government was ‘desperate to
settle’”).
Here, irrespective of whether Graubard was lucky or smart (or both), the
approximately $111 million achieved in settlement was still worth $111 million in
goods and services. The Special Referee thus committed legal error in attempting to
gauge “value” as a subjective measure of the attorneys’ skill. And the Appellate
Division committed an even greater error in equating value with billable hours,
especially after this Court explicitly cautioned it not to do so. Lawrence, 11 NY3d at
596 n.4.
Second, even if one were to analyze the “value” factor as a subjective measure of
the attorneys’ skill (as the Special Referee here attempted to do) and not as a measure
of what the client received, Graubard achieved the settlement only by virtue of a
series of tactically flawless decisions.
The first decision Graubard had to make in February of 2005 was whether to
continue pursuing the Epps claim at all. Up until that point, there had been no
indication that Graubard would ever be able to prove that Epps was tied to the
95
Cohns. The investigator’s report had come up negative (V:A112). Mrs. Lawrence had
wanted “to drop the Epps claim altogether” (XVI:A6375). In retrospect, it is easy to
understand why the Epps-Cohn connection had been so hard to find. The
connection was buried beneath four layers of corporate camouflage (X:A3072). See
page 33, above. No attorney could have been criticized for dropping the claim, but
Graubard refused to give up on it, even when it could not bill for the time spent
pursuing it.
Graubard was next confronted with the decision of whether to discuss a stand-
alone settlement of the Epps claim (X:A3139-A1340). No lawyer could have been
faulted for taking the surer and quicker stand-alone settlement. Graubard instead
made the right decision. It determined to use the Epps accounting claim as the means
to achieve a global settlement of all of the accounting claims.
Graubard was then confronted with the decision of how to best use the Epps
documents. No lawyer could have been faulted for pursuing the obvious path and
urging that the damages consisted of the differences between the market values of the
subject buildings and the lesser sums that Seymour Cohn realized from his insider
sales. It was only because Graubard devised a constructive trust methodology that
would allow it to track the unreported-to-IRS profits that Graubard achieved the $111
million settlement. See page 34, above.
There were three post-retainer decisions, each with two choices, and only one
set of choices — one out of eight possible paths — that led to the recovery being so
96
large that the client decided to renege literally within moments of learning of its size
(VII:A1229-A1230, A1237).
Finally, what makes the Estate’s present claims and this entire dispute so
difficult to understand is that it was here undisputed not only that Graubard obtained
a $111 million settlement but also that this was a phenomenal result.
There is an old adage amongst trial lawyers to the effect that the best way to
obtain a million dollar verdict is to start with a ten million dollar case. Here, if
Graubard had taken a case that was worth $150 to $200 million and turned it into a
settlement of $111 million, the Estate and its allies would have surely argued that such
should negatively impact on the lawyer’s fee. That the opposite occurred should have
been a factor in Graubard’s favor, not against it.
Ultimately, the Estate and its allies can make whatever claims they like about
Graubard’s skill in obtaining the settlement, even if such was not their view back in
May of 2005 (V:A284). It is, however, clear beyond argument that Graubard’s work
brought the clients a recovery of approximately $111 million (I:A189a) and that such
was a good deal more than what the case was actually worth (I:A182a-A184a; V:A250-
A275).
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2. The Intent Of The Parties: Mrs. Lawrence Obtained
Exactly What She Sought When She Demanded An
Alternative Billing Arrangement — Continued Pursuit Of A
Potentially Large Recovery, But With A Substantial
Reduction Of Her Risk.
Another King factor to be considered in assessing whether the retainer is
unconscionable in hindsight is the “intent of the parties.” King, 7 NY3d at 192.
In the Appellate Division, the Estate argued that Mrs. Lawrence had intended
to reduce the attorney’s fees and any fee that exceeded hourly billing was therefore
contrary to her intent. Estate’s 2012 App. Div. Br. at 25-26.
If that were what is meant by “intent,” then the contingent fee contract would
be a device by which the attorney could lose but never win. Per that reasoning, if the
contingent fee turns out to be more than what the attorney would have billed, such
would be grounds for rescission. If the contingent fee turns out to be less than what
the attorney would have billed, the client would magnanimously allow the retainer to
stand.
The Special Referee instead envisioned the “intent” factor as going to whether
the parties had intended or “anticipated” a “possible recovery of over $100 million”
(I:A186a). Because there were no such expectations at time of contract and the
settlement was instead “beyond any reasonable, mutual contemplation or expectation
of the parties” (I:A186a), this was grounds for reduction of Graubard’s fee.
The Appellate Division did not expressly address the intent factor and did not
say which, if either, rationale it credited.
98
In reality, the “intent” factor does not exist to guarantee that the client pays
whichever fee turns out to be less with the benefit of hindsight. Nor does it exist to
punish those attorneys who do far better for their clients than they or the clients
expected. The pertinent inquiry is whether the bargain struck was a reasonable choice
for the parties given their circumstances and objectives. Here, it plainly was.
Of course, the most common reason that the client may prefer and benefit
from a contingent fee arrangement is that he or she would otherwise not be able to
afford to bring suit. See pages 63 to 64, above. However, such is far from the only
reason why the client may rationally prefer a contingent fee retainer. Even a wealthy
client may simply prefer not to risk his or her capital on the case. Formal Op. 94-38,
supra; Jay at 815.
Quite apart from the understandable preference to shift some or all of the risk
to the attorney, the client may rationally feel that the attorneys working for a
contingent fee will be thus incentivized to work that much harder on the client’s
behalf. Formal Op. 94-38, supra (“The use of contingent fees in these areas, for
plaintiffs and defendants, impecunious and affluent alike, reflects the desire of clients
to tie a lawyer’s compensation to her performance and to give the lawyer incentives to
improve returns to the client. The trend also may reflect a growing dissatisfaction with
hourly rate billing”).
99
Here, from Mrs. Lawrence’s perspective, she had paid Graubard $8,766,983 in
fees in 2001 through 2004 (X:A2723-A2725). That figure could only go up as the case
reached the first of multiple trials.
Nor was there any expectation that the case would end with the first trial or any
time that year. This is why Special Referee Levine, who was obviously in a position to
know, said that it appeared in January of 2005 that “several more years of full blown
litigation would be required to reach … final disposition” (I:A184a). Further, while
any case can settle at any time, this was a case that had not settled in 22 years.
Moreover, even as it appeared that there were many miles still to go before a
resolution was reached, the prospects as to what that resolution would be had just
changed for the worse. While Graubard had once estimated in a memorandum sent
to Mrs. Lawrence that all of the accounting claims collectively had a potential in
excess of $100 million (X:A2903-A2918), the claim that had seemed most promising
(X:A2937, A2971) had just been lost outright (I:A185a; XIII:A4632-A4661).
By entering into the new retainer, Mrs. Lawrence forever capped her
investment at $1.2 million; yet, the case would now go to conclusion and she and her
family would still receive 60% of any recovery.
To be sure, if Mrs. Lawrence had known back in January of 2005 that the Epps
documents would appear and that Graubard would then use those documents to
secure a $111 million settlement, then it would have made sense for her to continue
footing the hourly bills, in which event she and her Estate would never have had to
100
pretend that she suffered from “diminished capacity” (XVII:A6856, A6859, A7007)
or that Graubard’s Daniel Chill was a modern day “Svengali” (XVII:A6855-A6856,
A6900, A7015, A7026). However, in terms of what the parties knew in January of
2005, Mrs. Lawrence’s decision was rational and reasonable.
3. Graubard’s Very Significant Risks In Acceding To The
Client’s Request That The Firm Work For A Contingent
Fee.
It was undisputed that commercial firms in Graubard’s position generally
neither seek nor want to represent their clients on a contingent basis since a single
loss can devastate the firm (VII:A1333-A1335). This notwithstanding, the Estate and
its allies argued that the accounting claims had “high value” and that Graubard
therefore had “no risk under the revised retainer” (XVII:A6874, A7007-A7008,
A7177, A7182, A7191).
The argument, which the Appellate Division credited, melded a
misunderstanding of the risk factor with a willingness to disregard documented facts.
(a) The True Risks Of The Retainer: Potentially
Committing Graubard To Literally Years Of Litigation
In A Case That Suddenly Appeared Problematic
The Estate’s argument concerning “risk” primarily rested upon a so-called
“internal memo” (Estate’s 2012 App. Div. Br. at 33), a memo that purportedly
reflected Graubard’s “own optimistic view” at the time of contract (id. at 22).
101
In reality, the so-called “internal memorandum” was a one-page, handwritten
worksheet, reproduced at XVI:A6374, that was written well before the December
2004 dismissal of the 95 Wall Street claim (V:A551-A555). This was established not
only by uncontroverted testimony (V:A551-A555) but also by the fact that the writer
had assigned the 95 Wall Street claim more than half of the total value of all the
claims (XVI:A6374).
Those “details” notwithstanding, the Appellate Division bought the Estate’s
argument hook, line and sinker. The court wrote that Graubard “had internally
assessed the Estate’s claim to be worth approximately $47 million,” that such meant
that Graubard was essentially guaranteed “a fee of about $19 million” (since attorneys’
predictions are, the court assumed, infallible), and that it was therefore “highly
unlikely that the firm took a significant risk of losing a substantial number of fees”
(XVII:A7395).
The reasoning was seriously flawed, logically and legally.
The argument advanced by the Estate and credited by the Appellate Division
assumed, (1) that the accounting claims were sure winners even without the Epps
documents, and, (2) that the risk of non-recovery — that is, that there may be no
recovery at all — is the only significant risk that the attorney assumes when he or she
agrees to a contingent fee retainer.
The fallacy of the first assumption, that the claims were sure winners with high
value, was graphically demonstrated by the circumstance that the single claim that
102
Graubard had assessed as worth more than all the others combined was ultimately
dismissed outright (V:A551-A555; XVI:A6374). Indeed, the Special Referee’s stated
view at time of settlement was that the case was “in the main uncertain of outcome”
(IV:A1989a).
That aside, the very assertion that the claims were sure winners, or that
Graubard thought them to be sure winners, was premised upon a misconception of
the nature of commercial litigation.
When the American Bar Association’s Committee on Ethics and Professional
Responsibility was asked “whether it is ethical for a lawyer to accept a matter on a
contingent fee basis when liability is clear and some recovery is certain,” its answer
was that the question itself ostensibly rested on a “faulty premise” concerning the
number of cases in which recovery is certain:
The argument put forward is that since the lawyer is sure that the
matter will result in some recovery, there is no real contingency;
thus, there is no justification for a contingent fee arrangement.
* * *
… the Committee is of the view that the argument may rest on a
faulty notion as to the number of cases regarding which at the
onset of the engagement the lawyer can say with certainty that the
client will recover. Defendants often vigorously defend and even
win cases where liability seems certain. Additionally, a previously
undiscovered fact or an unexpected change in the law can
suddenly transform a case that seemed a sure winner at the outset
of representation into a certain loser.
Emphasis added.
103
The second assumption underscoring the Appellate Division’s decision, that
the risk of non-recovery was Graubard’s only salient risk, was just as erroneous.
The Estate’s only authority for its view that the purported “high value” of the
claims means there was “little if any risk” was an article by Prof. Lester Brickman.
Lester Brickman, Contingent Fees Without Contingencies: Hamlet Without the Prince of
Denmark?, 37 UCLA L Rev 29, 92 [1989]. Brickman has established himself as a
staunch opponent of contingent fees.27 However, even he no longer contends that
the risk of nonrecovery is the only salient risk.28
The risk of nonrecovery — that the case will be lost — is merely one of many
risks the contingent fee lawyer confronts:
All contingent fee arrangements carry certain risks: the risk that the
case will require substantially more work than the lawyer
anticipated; the risk that there will be no judgment, or only an
unenforceable one; the risk of changes in the law; the risk that the
client will dismiss the lawyer; and the risk that the client will require
the lawyer to reject what the lawyer considers a good settlement or
otherwise to continue the proceedings much further than in the
lawyer’s judgment they should be pursued.
27 Herbert M. Kritzer, Advocacy and Rhetoric vs. Scholarship and Evidence in the Debate
Over Contingency Fees: A Reply to Professor Brickman, 82 Wash. U. L.Q. 477, 478 (2004)
(“Brickman had established himself as the leading proponent of the view that contingency
fees were a problem and that they needed to be substantially limited … Regrettably, while his
claims make good material for journalists, they also demonstrate his inclination to let his
advocacy distort his scholarship”).
28 Kritzer at 496 (“Brickman has finally acknowledged that the risks involved in the
contingency fee includes more than nonrecovery; however, he has largely continued to
ignore the denominator for the effective hourly rate equation”).
104
Formal Op. 94-38, supra; Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency
Fees, 80 Wash ULQ 739, 776 [2002] (“The most important of these contingencies
concern not whether the lawyer will be paid, but rather how much the lawyer will be
paid and how much time and other resources the lawyer will have to invest to obtain
that fee. The latter uncertainty has relatively little to do with the nature of the case --
or even the clarity of the case -- but rather with the actions of the opposing side”).
As a practical matter, “[t]he case may require years of effort and produce no
recovery. It may resolve itself within minutes of acceptance through no effort of the
attorney. It may, as most cases do, fall somewhere in between these two extremes.”
Adam Shajnfeld, A Critical Survey of the Law, Ethics, and Economics of Attorney Contingent
Fee Arrangements, 54 NYL Sch L Rev 773, 791 [2010].
Here,
(a) the case had thus far gone 22 years without settling and with
virtually every significant ruling going through one or two levels of
appellate review (X:A2728-A2740; XI:A3563-A3566);
(b) absent a settlement, the trial would not have resulted in a final
disposition of the case since seven different accounting objections had
been “deferred” for future resolution (X:A2996);
105
(c) there was no particular reason to believe that Graubard would
receive documents that would change the entire complexion of the case,
and,
(d) Graubard’s client could be counted on to do exactly as she liked,
whenever she liked, whether that entailed rejecting a settlement offer
that she was advised to accept, accepting a settlement offer that
Graubard deemed unwise, or firing her attorneys (I:109a).
In these circumstances, even if one were to reject the Special Referee’s contrary
finding (I:A185a-A186a) and instead credit the Appellate Division’s finding that
Graubard privately thought the remaining accounting claims were worth exactly $47
million even after outright dismissal of the 95 Wall Street Fraud claim (XVII:A7395),
the case could have continued on so long that Mrs. Lawrence’s win would be
Graubard’s loss. It could have been settled at any time for a pittance, especially if the
two sides of the family reconciled in the wake of Seymour Cohn’s death. The case
could have been settled for a pittance if Mrs. Lawrence lost patience, as was
apparently already occurring (X:A2973). The case could also have been a great victory
… for Mrs. Lawrence and her next set of attorneys. Alternatively, the case could have
gone the way of the 95 Wall Street Fraud claim, which Graubard had previously
estimated as having a 90% chance of success (XVI:A6375).29
29 In a classic example of “damned if you do and damned if you don’t,” whereas the
Appellate Division decided that Graubard privately expected a recovery of $47 million and
then reduced the contractually agreed fee on that ground (XVI:A7395), the Special Referee
106
The only thing that was certain was that nothing was certain, and the Graubard
attorneys would have been fools to believe otherwise.
(b) That Graubard Was Already More Than A Million
Dollars In The Hole And Was Already Contributing
More Than The Client By The Time The Case Settled
Amongst its other arguments, the Estate argued that the retainer’s $1.2 million
“cushion” “safeguarded” Graubard (Estate’s App. Div. Br. at 34). Admittedly, the
provision reduced Graubard’s risk by exactly $1.2 million, which was why Graubard
sought that provision in the first place (VI:A699-A700). Yet, the reality was that
Graubard’s billings had ranged from $1,730,677.50 to $2,400,648.00 per annum in
years 2001 to 2004 (X:A2723-A2725). That figure was plainly going up if Graubard
now had to do 15 depositions and multiple trials.
More to the point, Graubard was already losing money under the new retainer.
The left column of the chart below (“Dollar Value of Billable Hours”)
represents Graubard’s actual billable hours for the first two quarters of 2005
(X:A3177, A3215, A3262-A3263). The second column of the chart (“Billing”)
represents what Graubard was permitted to bill (i.e., $300,000 per quarter) or, put
found that Graubard would not have expected any recovery even approaching that figure …
but then reduced the contractually agreed fee for that reason.
After accepting that Graubard may have “sharply discounted” its prior estimates after
the outright dismissal of the 95 Wall Street claim (I:A171a), the Special Referee expressly
said that Graubard should receive only 10% of last $91 million of the recovery because “Alice
would never have anticipated and Graubard would also not have anticipated [a recovery in
excess of $20 million] before the production of the critical Epps documents …” (I:A188a).
107
differently, Mrs. Lawrence’s monetary contribution. The third column shows the
differences between those figures: the billable hours, in dollars, Graubard could not
bill and was therefore losing.
Graubard’s Out-Of-Pocket Loss Under The New Retainer
Dollar Value of
Billable Hours
Billing Dollar Value of
Unbilled Hours
First Quarter $763,664.00 $300,000 $463,664.00
Second Quarter $983,732.50 $300,000 $683,732.50
Total $1,747,396.50 $600,000 $1,147,396.50
Even with the case settling as early as it did, Graubard was already “down”
more than a million dollars and was already contributing more (“Dollar Value of
Unbilled Hours”) than the client was contributing (“Billing”). Had the trial gone
longer, the disparity would have been more pronounced.
Had the case gone into a second year, the figures in the second column
(“Billing”) would have been zeros for that entire year. Had the case gone into a third
year — which is what the Special Referee had expected (I:A184a) — Graubard would
have needed some good fortune to avert disaster.
Consider, if you will: Graubard was contributing $873,698 per quarter under
the new retainer (X:A3177, A3215, A3262-A263). That is equivalent to $3,494,793
per year. Graubard’s first year’s outlay would have been offset by $1.2 million in
108
billings, for a net outlay of “only” $2,294,793. But there would be no such cushion
after the first year.
If the case continued for three years at that rate — which understates the risk
inasmuch as Graubard’s second quarter outlay would have been much greater but for
the settlement — Graubard would have been out of pocket $9,284,379 after
deduction of the $1.2 million it could bill. It would have then needed a recovery of
$26,210,940 just to break even. If the case went on for four or five years at that rate,
Graubard would have been seriously below water.
4. The Real Public Policy At Issue Here
A client who knew exactly what she was doing and who spent her life doing
whatever she wanted to do very reasonably decided that she no longer wanted to foot
all the costs of a very expensive litigation that appeared as if it would continue for
years.
When the case thereafter settled for more than double what it was worth, Mrs.
Lawrence could have thanked the law firm that just won her another $67 million after
deduction of attorney’s fees. She instead secretly plotted to sue her attorneys even as
they continued to faithfully represent her (VII:A1227-A1230, A1237).
In the suit itself, the client and her allies could have made their legal argument
without artifice, but instead advanced inflammatory charges that they had to know
were untrue (e.g., the alleged secret negotiations with the Cohns) followed by even
109
more outlandish charges (the Wallberg-Kling-Rivas claims) that logically had to be
untrue since they were internally inconsistent, all the while advancing holier than thou
pronouncements about the ethics of the attorneys who had made their accusers so
wealthy.
There is a real public policy at issue. Contingent fee retainers serve important
functions. Such agreements are binding on the attorney even when the case goes
longer than the attorney expected and even if the recovery is less than was expected.
If the client can undo the deal in retrospect simply because the attorneys succeeded in
obtaining a recovery far larger than they or the clients had expected, attorneys would
be deterred from accepting such retainers. Such “view is akin to forcing life insurance
companies to return premiums to clients who do not die while covered -- a practice
that would spell the end of an industry that serves a useful social purpose.” Shajnfeld
at 791.
Similarly, if clients are rewarded with fee reductions when they violate court
orders, make misrepresentations to the courts, and invent charges of attorney
misconduct that, when exposed, are just replaced with newly manufactured charges of
attorney misconduct, that too would lead to predictable and less than desirable
consequences.
110
POINT VI
THE APPELLATE DIVISION ERRED IN RULING THAT THE SAME
CLIENT WHO HAD REFUSED TO CONTINUE ON AN HOURLY BASIS
COULD RETROACTIVELY RETURN TO HOURLY BILLING.
In the lower courts, the Estate and its allies variously argued that, (a) the
correct remedy for the “crime” of obtaining a recovery so large that it rendered the
fee unconscionable in hindsight was forfeiture of all fees earned under the new
retainer (XVII:A6909, A7052), (b) Graubard should forfeit all fees under the new
retainer and be forced to refund all fees earned after 1998 (XVII:A6833, A6909-
A6910, A7093, A7096, A7103), (c) Graubard should have to return all fees earned
since 1983, apparently including fees that were billed for matters unrelated to the
Estate litigation (I:A347a, A352a), and, (d) “at most” Graubard should get a fee
“based on time charges” (Estate’s 2012 App. Div. Br. at 37).
In arguing that the correct remedy (if there was to be no outright forfeiture)
should be a return to the very retainer that Mrs. Lawrence had rejected shortly after
the Special Referee recommended dismissal of the 95 Wall Street claim, the Estate
conceded that there were cases in which courts had reduced unconscionable fees to
sums that were not unconscionable. Estate’s 2012 App. Div. Br. at 43-44. However,
such may occur, the Estate urged, only when there was no prior fee retainer
agreement between the parties. If there was a prior fee agreement, then, according to
the Estate, “the court uses the prior fee agreement as the objective measure.” Id.
111
The Special Referee emphatically rejected the notion that the client who had
here decided to breach even before the settlement closed (VI:A1023; VII:A1229-
A1230) should be rewarded with a return to the hourly retainer that she had refused
when her prospects were less rosy (A:188a). In reaching that conclusion, he wrote
that a “fee reduction” rather than a fee reversion was appropriate because, amongst
other factors, “it was Alice who insisted on abandoning the prior hourly-rate fee
arrangement” (I:A188a). The Special Referee added that “it cannot be said that
[Graubard’s] risk was entirely eliminated in this complex multi-issue litigation” and
that “the favorable result, not only in monetary terms, but also in giving Alice a final,
full disposition separating her totally from any further legal entanglement with
Seymour’s Estate, justifies a fee exceeding quantum meruit” (id.). The Surrogate
thereafter agreed with the Special Referee’s recommendation (I:A84a).
However, the Appellate Division instead ruled that, “[w]here, as here, there is a
preexisting valid retainer agreement, the proper remedy is to revert to the original
retainer agreement” (XVII:A7396). There was no discussion or analysis apart from
the statement itself.
For the reasons stated in Points II, III and IV of this brief, the contingent fee
retainer was not unconscionable. However, if the Court should rule otherwise,
Graubard submits that the Appellate Division erred in rewarding the breaching client
with reversion to the same retainer that she refused back when the litigation took a
turn for the worse. Graubard further submits that,
112
(1) the ruling stands contrary to general contract law, which holds
that a finding of unconscionability does not dictate a return to an
“abandoned” prior contract (Point VIA, infra);
(2) the ruling runs contrary to the settled law specifically concerning
attorney fee contracts, which holds that the only correct remedy is
reduction to a sum that is not excessive (Point VIB, infra);
(3) the ruling is unsupported by the two precedents cited by the
Appellate Division (and previously cited by the Estate) (Point VIC, infra);
and,
(4) the ruling constitutes terrible policy inasmuch as it would, (a) lead
to patently illogical consequences, (b) encourage fee challenges by
offering clients a potential windfall that would extend well beyond mere
correction of any hindsight inequity, and, (c) affirmatively penalize
attorneys for conduct that was not improper at the time it occurred
(Point VID, infra).
A. Reversion To The Prior Retainer Agreement Runs Contrary To
General Principles Of Contract Law.
The Appellate Division credited the Lawrences’ argument that general
principles of contract law dictated a return to the prior contract in the event that the
subject fee retainer was deemed unconscionable (XVII:A7396). Yet, the Special
113
Referee specifically found that the parties had abandoned the hourly retainer and that
it was “Alice” who “insisted on abandoning” the hourly retainer (I:A188a).
It is well settled that, even under general contract law, courts should never
dictate a return to a contract that the parties themselves had abandoned. Matter of
Rothko's Estate, 43 NY2d 305, 323 [1977] (the Surrogate was correct in “reason[ing]
that the fact that the 1970 agreements for the sale and consignment of paintings were
voidable because of self-dealing did not revive the 1969 inter vivos agreements” and
correct in finding “that the parties by their conduct intended to abandon and abrogate
these 1969 agreements’”); Bercow v Damus, 5 AD3d 711, 711-712 [2d Dept 2004]; 22
N.Y. Jur.2d Contracts § 498 (“An abandonment of a contract by mutual consent is
effective to discharge its obligations, even when a new contract containing one or
more of the same terms is simultaneously entered into”).
Further, the general rule of contract law, both in New York and elsewhere, is
that any court that deems a contract unconscionable “may limit the application of any
unconscionable term as to avoid any unconscionable result.” Restatement (Second)
of Contracts § 208 [1981]; 4B N.Y.Prac., Com. Litig. In New York State Courts §
73:15 [3d ed.].
The Appellate Division’s decision to resurrect a contract that the client herself
had abandoned therefore ran counter to the general rules governing contracts.
114
B. Reversion To The Prior Retainer Agreement Also Runs Contrary
To The Settled Law Governing Attorney-Client Retainer
Agreements.
This Court and other courts of this state have specifically ruled that the correct
remedy when an attorney’s fee is deemed unconscionable is an appropriate reduction of
the fee, not wholesale voiding of the contract. In re Fitzsimons, 174 NY 15, 25 [1903]
(“If, after trial, when the question has been properly presented by proof, it shall be
shown that the amount claimed [by the attorney] was unconscionable, it is fair to
presume that the trial court will make such disposition of the matter and establish the
appellant’s lien to such an extent only as shall be legal in view of the agreement
between the parties”); Spiegel v Goldfarb, 66 AD3d 873 [2d Dept 2009] (where counsel
had improperly charged the client a full third of the recovery in a case that sounded in
medical malpractice, the correct remedy was reduction to the medical malpractice fee
schedule, not wholesale voiding of the retainer); Belzer v Bollea, 150 Misc 2d 925, 927-
929 [Sup Ct 1990] (where the retainer in the personal injury action called “on its face
… for compensation possibly greater than the permissible limit,” “the court will treat
any provision with calls for compensation greater than 33% a nullity”).
Such is also the rule nationally. Section 34 of the Restatement (Third) of Law
Governing Lawyers § 34 [2000], entitled “Reasonable and Lawful Fees,” provides, “A
lawyer may not charge a fee larger than is reasonable in the circumstances or that is
prohibited by law.” Comment (a) provides that a fee “will not be approved to the
115
that it violates this Section even though the parties had agreed to the fee”
(emphasis added).
Even the Estate’s own expert, Stephen Gillers, admitted that the correct
remedy when an attorney’s fee is substantively unconscionable in hindsight but was
not procedurally unconscionable is reduction, not rescission (IX:A2277-A2278).
The Lawrences nonetheless argued that the rule is different if there was a prior
retainer agreement and that the clients should in that instance do even better than an
after-the-fact reduction to a fee that is not unconscionable. However, that claim was,
in the parlance, a “Tuesday afternoon argument.” (“Yes, the cases say what they say,
but that rule doesn’t apply on Tuesday afternoons.”)
The Court will search in vain for any provision or comment to Restatement §
34 calling for a return to some previously abandoned contract in the event that the
attorney’s fee is deemed unconscionable. Nor does section 18 (“Client-Lawyer
Contracts”) of the Restatement (Third) of Law Governing Lawyers [2000], which
encompasses contracts “made beyond a reasonable time after the lawyer has begun to
represent the client in the matter,” in any way authorize court-ordered revival of
contracts abandoned by the client.
Nor will the Court find any caveat in Fitzsimons, Spiegel, et al. to the effect that
one returns to the prior, abandoned-by-the-client retainer if there was one and that a
fee deemed unconscionable is reduced to a not unconscionable sum only in the
absence of an abandoned-by-the-client retainer.
116
C. The Appellate Division’s Ruling Was Not Supported By Either Of
The Decisions Cited In Its Opinion.
The Estate (and, thereafter, the Appellate Division) cited two precedents for
the contrary proposition that “the proper remedy” is to “revert” to the prior,
abandoned agreement if there was a prior abandoned agreement.
Neither of the cited decisions was by this Court. Neither indicated any
awareness of the general contractual rule regarding abandoned contracts. Neither of
them indicated any awareness of Fitzsimons or of the general rule that an
unconscionable fee is reduced to such sum as is not unconscionable. Nor was either
ruling factually apposite.
In Matter of Smith (Raymond), 214 AD 622 [1st Dept 1925], the attorney had
agreed to challenge a will on the client’s behalf. The parties agreed that the attorney
would receive “one-half of the increase in the amount I [the client] shall receive over
and above the will provision” in the event of “a successful contest and the breaking of
the will” (214 AD at 623). If, however, the matter were to settle before trial, the
attorney would instead receive “one-quarter of the amount I receive as a result of the
settlement” (id.). The case thereafter settled without the will being set aside. It was
only after the case had settled that the attorney and the client reached a new
agreement that effectively raised the attorney’s compensation from 25% to 28%.
The Smith court held that the attorney was bound by the initial contract, but the
holding was premised upon the findings that the initial contract had already been fully
117
and that the new agreement was “without consideration” and was thus
never binding in the first place (214 AD at 625). The court did not knowingly
consider and depart from the rule previously set forth in Fitzsimons, supra (calling for
reduction of unconscionable fees).
Similarly, in Naiman, 351 F Supp 2d 257, the other decision cited by the Estate,
the attorney agreed to a one-third contingent fee and later insisted that his fee be
increased to 50% (351 FSupp2d at 259-260). The client denied having agreed to the
increase and the court ruled that the initial retainer controlled because the alleged
modification had not even been put in writing “until over seven months after the
parties allegedly entered into the agreement and over two months after the case
settled” (351 FSupp2d at 263). Such was a patent violation of the formal rule
requiring an attorney employed in a “contingent fee matter” to “promptly … provide
the client with a writing stating the method by which the fee is to be determined,
including the percentage or percentages that shall accrue to the lawyer in the event of
settlement, trial, or appeal” (id.).
As in Smith, the client in Naiman had never indicated any intent to abandon the
initial agreement. As in Smith, the modification was never valid in the first place. As
in Smith, the Court did not indicate any awareness of Fitzsimons and did not note any
intent to depart from the general rule governing unconscionable retainer agreements.
Thus, while the Estate characterized Smith and Naiman as constituting some
sort of deliberate departure from the rules generally governing attorney-client
118
retainers, that was not even arguably the case. The irony is that even if the cases
actually stood for the proposition for which they were cited, the two decisions, one an
almost century-old decision that was last followed in 1936 and the other a trial-level
decision, would surely not provide sufficient basis to displace contrary Court of
Appeals’ rulings.
D. The Reversion “Rule” Also Constitutes Bad Policy And Would
Lead To Illogical Consequences.
Apart from all else, the “rule” here advocated by the Estate and adopted by the
Appellate Division would punish attorneys for conduct that was not wrong at the
time it occurred while providing their clients with an indefensible windfall. It would
also lead to illogical results.
1. Unwarranted Punishment And Indefensible Windfall
Under general principles of contract law, “[t]he determination of whether a
given clause or contract is in fact unconscionable is to be made at the time of its
making rather than at some subsequent point in time …” 8 Williston at § 18:12. It is
not a ground for rescission that matters turned out differently than the parties had
expected. Blake v Biscardi, 62 AD2d 975, 976 [2d Dept 1978] (“no matter how hard
the bargain, a court will not deprive it of its validity without evidence of fraud or
deception”). If that rule had been followed here, there never would have been a trial
in the first place
119
In consequence, if the Court were to reduce an unconscionable-in-retrospect
attorney’s fee to whatever sum would not be unconscionable in retrospect, it would
already be granting the client a remedy to which she would not have been entitled
under general contract law. Correspondingly, the Court would already be imposing a
result on the attorneys that would not be imposed on any “ordinary” litigant.
So, what then is achieved if the Court goes beyond reduction of the
unconscionable-in-hindsight attorney’s fee and instead imposes the terms of the prior,
abandoned-by-the-client retainer?
First, a client who is already doing better than would be warranted under
general contract principles is, by definition, now obtaining greater relief than “mere”
reduction of the fee to an appropriate sum. Further, even assuming that hindsight
reduction to a “reasonable” fee is dictated by the equities, the added relief of
reduction to a still lesser fee is an indefensible windfall.
Second, if the Court reduces the fee even below whatever sum would be
permissible and appropriate even in hindsight, the difference from the attorneys’
perspective is pure punishment. Worse still, it is punishment for conduct that was not
improper at the time it occurred.
120
2. Illogical Consequences
A rule that dictates that the attorneys receive one fee if there had been no prior
retainer and a much lesser fee if there had been a prior retainer that the client
“insisted on abandoning” (I:A184a) would also lead to illogical consequences.
Consider what would occur if the most that the attorneys could ethically charge
in the circumstances of the subject case was one-third and if anything more was
unconscionable in hindsight. If that were so, an attorney whose retainer called for
one-third of the $111 million recovery could collect his or her entire fee of
approximately $37 million since, per the assumption we have made, such a sum would
not be unconscionable. If, however, the attorney instead charged ten dollars too
much in hindsight — say, $37,000,010 of the $111 million recovery — the remedy
would be a reduction to the prior retainer agreement, an agreement that could have
conceivably called for a fee of only $2 or $3 million. The penalty for being $10 too
high on the fee could, in this example, be more than $30 million. There is surely no
justification for such a penalty when the attorney’s “wrong” was that he or she
achieved a recovery that was so large and unexpected that it made the attorney’s fee
unconscionable in hindsight.
From a different perspective, consider what would have occurred if the Cohns
had offered, say, $20 million in settlement prior to Graubard’s discovery and
exploitation of the Epps documents. If, as the Estate here told the Appellate
Division, Mrs. Lawrence really believed the case was worth only “a few mil” by
121
January of 2005 (Estate’s 2012 App. Div. Br. at pp. 3-4), then she would presumably
have jumped at the chance of settling for $20 million. Had that occurred, Graubard
would have been entitled to $8 million under the retainer agreement, the Lawrences
would not have been able to complain that Graubard was earning $11,000 an hour,
and there would not have been any fee challenge.
Yet, precisely because the Appellate Division here provided the Lawrences with
a remedy that went beyond any arguable injury, Graubard’s fee under the Appellate
Division ruling is far less than the firm would have realized from a hypothetical $20
million settlement. Strictly in terms of its self-interest, Graubard would have been
better off obtaining the clients a settlement of “only” $20 million instead of the $111
million settlement that occurred.
The lesson regarding the heavy penalty that may follow from obtaining the
clients a much larger recovery than was anticipated will surely not be lost on the next
group of attorneys who find themselves with, (a) a case that is looking far better than
they anticipated, and, (b) a client who does not feel bound to comply with the same
norms of candor and conduct to which other people, the so-called “little people,”
generally subscribe.
122
POINT VII
EVEN IF ONE WERE TO ASSUME THAT THE FEE WAS
UNCONSCIONABLE IN HINDSIGHT, THE FEE SHOULD NOT HAVE
BEEN REDUCED BELOW THE ONE-THIRD BASELINE THAT IS
PRESUMPTIVELY REASONABLE IN PERSONAL INJURY ACTIONS
INVOLVING FAR LESS TIME AND RISK.
Assuming for sake of argument that the 40% fee was unconscionable in
hindsight and further assuming that the correct remedy is to reduce the fee to such
sum as is not unconscionable (In re Fitzsimons, 174 NY at 25), the question then arises
as to what fee would not be unconscionable in hindsight.
Given that the litigation entailed far greater risk and involved at least as much
expertise and skill than in the typical personal injury case, Graubard submits that its
fee cannot on any reasonable basis be reduced below the one-third contingent fee that
is presumptively reasonable in such cases.
Where, as is the case for personal injury actions, there is a court-adopted
schedule, settled law holds that a fee that conforms to the fee schedule is
“presumptively reasonable.” Yalango by Goldberg v Popp, 84 NY2d 601, 607 [1994]; Gair
v Peck, 6 NY2d 97, 114 [1959] rearg denied, remittitur amended, 6 NY2d 983, 161 NE2d
736 [1959], supra; Dullard v Berkeley Assoc. Co., 606 F2d 890, 895 n.5 [2d Cir 1979] (“we
note that in a wrongful death suit contingent fees of as much as one-third of the net
recovery [after deducting expenses] are presumptively permissible”). The court-
123
adopted rule in personal injury actions caps contingent fees at one-third of the
recovery. 22 NYCRR § 603.7[e]; 22 NYCRR § 691.20[e].
This was not a personal injury action, which was why the one-third cap did not
apply. The unrebutted proof was that the contingent fees in commercial litigation
ranged from 20% to 50% with “[t]he bulk” of those cases being between a third and
40% of the recovery (VII:A1339).
Yet, while the case was not a personal injury action, the risk to Graubard in
terms of the attorney-hours that could be lost was at least as great as that in the
average personal injury action even after one considers that Graubard was
contractually entitled to bill up to $300,000 in time charges per quarter during the first
year of litigation.
Graubard devoted $1,747,396.50 in billable hours to the case during the first
two quarters of 2005, but could bill only $600,000, or roughly a third of that sum
(X:A3177-A3215, A3262-3263). Put differently, approximately two-thirds of
Graubard’s 4,638.55 hours of work during that time frame (X:A3215, A3262-A6263)
could not be billed. That amounted to approximately 1,500 unbillable hours per
quarter.
Fifteen hundred hours per quarter is the mathematical equivalent of working
125 hours per week, every week, for the entire quarter. There are surely few personal
injury actions that compel that kind of time investment.
124
Similarly, while the Estate and its allies afterwards saw fit to denigrate the legal
work that enabled them to receive a recovery that was more than double the value of
their claims (I:A183a-A184a), the expertise that Graubard exercised on the Lawrences’
behalf was surely at least as skillful as that expended in the typical personal injury
action in which a one-third fee is presumptively reasonable.
To be clear, Graubard does not minimize the risks borne by personal injury
attorneys. Nor does Graubard mean to marginalize or criticize the highly skilled work
that may often prove the difference between full recovery and no recovery in such
actions.
That said, if one-third is presumptively reasonable in such actions, it is every bit
as reasonable in this case in which, (a) Graubard was looking at literally thousands of
hours that could not be billed, (b) a report had just recommended outright dismissal
of the accounting claim Gaubard had previously deemed most promising
(XIII:A4637-A4661; X:2931, 2937, 2971), and, (c) Graubard had agreed to the
contingent fee retainer at the client’s request (I:A188a; VI:A699) in circumstances in
which, in contrast to personal injury practice, Graubard could not diversify its
portfolio of litigation risks (VII:A1327-A1329).
125
CONCLUSION
For the reasons stated above, petitioner-defendant-appellant Graubard
respectfully submits:
(1) the Appellate Division’s Order of May 23, 2013 should be
reversed;
(2) the Surrogate’s Court Decree of October 14, 2011 and Order of
September 8, 2011 should be reinstated insofar as the Surrogate concluded that
the revised retainer was not procedurally unconscionable but should be
modified so as to further find that it was not substantively unconscionable in
hindsight; but,
(3) should the Court instead conclude that the revised retainer was
unconscionable in hindsight, the Court should then, (a) reduce the contractually
agreed attorneys’ fees to the maximum sum that would not be unconscionable
in hindsight, or, (b) remand the case to the Appellate Division so that it could
reduce the contractually agreed attorneys’ fees to the maximum sum that would
not be unconscionable in hindsight, and,
(4) in no event should Graubard’s contingent fee be reduced beyond
the one-third fee that is presumptively reasonable in personal injury actions that
generally involve far less attorney time and far less risk than in commercial
cases such as that at bar.
Dated: New York, New York
November 11, 2013
126
127
Respectfully submitted,
By: ______________________________
Brian J. Shoot
SULLIVAN PAPAIN BLOCK MCGRATH
& CANNAVO
Appellate Counsel for Petitioner-Defendant-
Appellant Graubard Miller
120 Broadway
New York, New York 10271
(212) 732-9000
bshoot@triallaw1.com
Of Counsel FLEMMING ZULACK WILLIAMSON &
ZAUDERER, LLP
Mark C. Zauderer Attorneys for the Petitioner-Defendant-
Appellant Graubard Miller
One Liberty Plaza
New York, New York 10006
(212)412-9500
mzauderer@fzwz.com
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procee·d.s of thi~: hl.:..itsuit:frv~: The Law·~~i~i't)g.iOro~p, (nc: tn·t&~.~fu6~n t :tif.$56;o06·.o~ ..Wiii.~h ~¢re :~.~~'uc~d·t:~, .
$45.•OO~·,O-O. ~nidditioti; 'plaintiffreceived:$34,33.9;4:1 iti- Wo.tk~rIs:C6~~e~~a1i~ri ~eri~ft~· i~bl~i0~::of ili'cd'i~'a('
and: lost wage~. PurS\J~iji.lO; th~ :r~tajne~ ~a~ement; .~~tot!).'eys" 'fees weri} 3$.:,ji3 ·pe~etl.t o~,~riy ~eiUi~~ni ~r' .....
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FftED Apr 252011 Bronx County Clerk
verdict: Therefore, the:attorneys'..fet;;s·jn this case.ardl1(i,.666·,OO,.
. .... :r~~. imde~l)'ing rna~t~r .is apeJ~ori<\i41jur); ·actioh. steuUning. fl'o.ni an accjdetito~ August 24 j . 2005 .
in whl~hP'l~!~tiit sl1pP'ed':~~d',fell":~hii~ '~~~~l~g :o~;:~~~,~i~: 4b·m~'·shap~d:~b¢f.' :~iajti~iff.dl~i~~·i~d:'~C~ldem ...
oc6~rr~4:~s a' ~ElUli ';i defendants f~iil~g:to prq\i'id~ l~~ with iotit1~g:~~~ket~;.~kwlirig: b¢'~~·,~;;6~:s~f~ty:· .
belts. Plaintiff brought the acti6p:pursu~t t~ theLab6tL~~, .AS,a r~sua:ofthe'~cci'd~til;'pj-a'lilili{~~stained :ll;~
qi~alkoliu' frac~r~ of th~ ri~ht ~~\<,len~cessitath~g.op~n;e·du~tiQ~·lntemitl~ad9~:wlih.'an·:jljJ.p:l~t:~fifiye~...
,~'. hole one-third tubular plate w!th four 3,5mrnbic.ortic~ ~~rews; dISplaced iater~l ~aiieoiUs ftaciti;!'; 'f~~~tdre' of
~::: the p~stetior·TriaileOlu~;. aistal fib~lar fract~e;an(i';'.l'~Pttu·e of:the~;'e4ial.d,eltoi(( Ai/~ 'res~li Qr~l1eiliiuries.
,;- s~stain~d., ~lai~tiriw~ unable.'to· r~tUI1l to work for appr~ximatdy :nlne'~o~ths, .' '.. ..:
.'r di. ..... : .... Plai~iiffiriltiauYte.tflined K~ri~gh.Cfis~i, P,C;' (here:inajJe;:~'m9y~ujf:lon S~ptcm.be'r1Sj 2005:
)~; ~r' Up6n': r~u~rltr:dnj:' ~~Y~nt' iiutj'ai~d;'~n rnvcStigati~~ ~. d'6te~niine th:~ 'pOteritid~' defend~~i; in ·this ~ctiOi\;. iri~l~di'~g
:':< " lh'e owner'~nh~ SU~jCOfP~emises where the ~<;cldCht ;c~urr~~, 'The~~~f1~rl movari(iu·stiWted:the ~C~i6~::l;lY.idihg· .
t.. ~d s~n;ice ot' a Summons and Complaint. ls~.uewas joined hy defeiida~t'~ serV'ice.: Movadt th~~:.c~;du~~e~. .'
f>, res'ear~h:'bn'th~' releVant c'aSela~:bliSeq Upon the facts ~nd ~lrc\lm~tance~:ih':~htsca~~j~ Cira~r topreP8.t~ ·fu~· ~m .
,. of }>artlcul~s ..'.Mov~nl argues·that based:o~ th¢tr ~xtensiye:an:d.ih6~ugh;r~s.elU'chth~y .Wer~:·aBi~ :ioi'c.iltabJislta
.i': cas~: of absoiute ii~bilitY ~gujnst the ~Qfenda±i~:.in::(l1e·.~~{~n;··Mt}v.~t a1sb .~t'a~t~ ·that~ey. P~it9i~~d·~~ .. ' . .
;. i~;:·:, ... e~d~nsi.v~ r¢viewot1h~ V¢lUn1uw~·Jticidicah¢·C6id:s ..ln"~rdi~:t6:~·;d~id~ ~yt~ilc~~~q~~i(~~:~1j~gatl'on~df~qie .
:.,:: \/;, h1j4d~$':~~~:~L~¢(fby,·prafriliff; :'M¢:y~fi~:~"lajn1s tI~at"~b~:leg~I;;vofk~~;f6~id :by,tbeir;6ifi~e.·~~~~(i':fuii· .':' ' .
;:::. . evid~nti.my.pt:o~fe~tabti~i~gri ~iillin 'df~;s~~~re liij;';ycihd :.p6rt~mn:ertt:dis~?.i)j;ty. ~itti\~iQgt.eS·sivdi~. .:., :.: :.:
!t::. deteri orat\~lg phy:sicll'~oJisequen'~esi .MbY~nfprep~r~d and ier:v.eia,Veri&e·~ B'ii{bf ~~r,tl~\tlaisi' : ' ..... : :
'::'. t· ·M~~il.ht·:w~ su~titute4 ~ cpt:m:sel'h16r llI'Oupd, Ja~ul'i'ry; 200·6."~heii.:pl~lri~ift'di~d~ged:ino'"aJ!-t ..
:'';: ::'. as' counsel ~nd ·.vetahied:'lhe:office of raub &.Mard~r '. Hsqs. (hdreinafter"'Taub;') to: ;ep~esent· hi~; ~h~ .()utg~ing .
" . . ,', .. , : -::.." .
. : 'Mo~arii 'contend's. {!i~('Ta~b. ina~~~tmtery repff~nt~'Plabtift~'actept~lr~ :seti.l·~ni~~d~· the,
amount ~f ~3:5:6';660\vheh '~he o.cli"onhitd: ci :mo~eti1'i~ahi~ 'hi t~~'tit~g~ ~t:$'I)OOO;O'O~q,. 'Mov~~t:~g~~'~: thrit:~iJe
Taub lliin~¢essafilYdelay'edthe ~ctiC}n' ~dpl~intifrs'deip6si;iori',\~~S ~ot'~~lci,\intii' f? il1(mths'i~~~the,: " .. :
comtnenc~~l~~'t ofthe .action ~n:~l:.here·od~Ti~:4~PO~i.~io~:~~g;~O~ h~19~:uiltli: t\:y~ unda: hiiity~ar~:ti~er'th'e' ,
cb:mm~nqerticnt ~fth~'~ct'i~n, 'T~~!b':~i'tO:Wdd'~'p~ribd off¢tij::ye~Ts:t6'elaps~'wi'thau{ 'e~erfilitig'a:N6ti of'1~sue
itl1d Certjfjq~e;of Reo.di~ess. M6reCi';e~7 niQVii~t:~ldimstha~'T~~b 'd~orie~uS1y·lloc~Pted 'a!3' ~aJ.i<;l' Ii d,efens~: th~t; ,
.:-., , • " ;.. •• '11 •.;' ... • • ',: • I,. .• i ',., .' :". .
was iiotapplicaole to':the 'Case and'rclied'up'bj1'th~~dnisjudgment as a-jU.slyficiition t~ii.:6~oin,rnend and ;aeeep(iiil
iria(.kq~~e S,ettlerrie.nl: Fgzihc.tmore, m'l3Vant"cPh~en,9~ th~t :TauQ filii~!i:tQ,te~.~ air~*Pc~, dur~;~' th~';4-S':fub~ths '
th~t ~h~y' ';rep;~~nte;d ~lai!1tiffand'liad'~~ ¢~Pd,~~~:~'hj'~li~Ii' to di~~iss"pia1ntifrs: pa~~\*jf~btit::th6h~iitif~of.'~~ ," '
aftld~~it: from' Ii q(j~H'ied ii~bi!ity eim¥rt: ·.tlie'~~{jb~ s~tti~d·iY.~ii€:~~:tll:otlon was pc;hdirig.. '8inal:iY;'1h6vih~' '.": ,
.argu~ ~.i tJ.'aub .c~g-agc¥i~"~ri~~~f~~~',titi~atlo~:BY'co~j~~hc4ig 4nQth~r ~tti b~: agciLni~ A~A R~$tot~ii¢~;;': .•.' '
C6tpi Whi6h:w~·wi~~U~iiy~ ~ri~ ~~~t&i~ ;~i..i~e~·,~ris ~~;,t¢g~;' :'~st$;to :hdJ4 't~eiti:-re;p,~n~ibl,if6~~p'jiintjir~, ;.
.nccidJ~~.... ' ' '. '.. ' ,.' ":' .. '~.. , '
, Movatlt's 'argUments h~Ve. sOIl1'e"m~,rrt.: It lippears th&t-:t1ie '·