To Be Argued By:
ROBERT L. BERCHEM
Time Requested: 10 Minutes
APL-2013-00264
New York Surrogate Court’s 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 INTERVENORS-RESPONDENTS MARTA JO
LAWRENCE AND SUZANNE LAWRENCE DECHAMPLAIN
ROBERT L. BERCHEM, ESQ.
BERCHEM, MOSES & DEVLIN, P.C.
75 Broad Street
Milford, Connecticut 06460
Telephone: (203) 783-1200
Facsimile: (203) 878-2235
KIM KOOPERSMITH, ESQ.
AKIN GUMP STRAUSS & FELD, LLP
One Bryant Park
New York, New York 10036
Telephone: (212) 872-1060
Facsimile: (212) 872-1002
Attorneys for Intervenors-Respondents
Marta Jo Lawrence and Suzanne Lawrence DeChamplain
December 27, 2013
i
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ............................................................................... 1
STATEMENT OF QUESTIONS PRESENTED ....................................................... 7
STATEMENT OF FACTS AND RELEVANT PROCEDURAL HISTORY .......... 8
1. The Attorney-Client Relationship Between Graubard and the
Lawrence Children. ............................................................................... 8
2. The Fractional Share Calculation Creates a Conflict of Interest for
Graubard. ............................................................................................... 9
3. The “Subterranean” 1998 Gifts to the Graubard Attorneys. ............... 10
4. Graubard Conceals the Revised Retainer Agreement from the
Lawrence Children. ............................................................................. 11
5. The Referee Finds That Graubard Acted “Contrary to the Standards
We Believe the Profession Should Uphold.” ...................................... 13
6. The Surrogate Orders a Return of the Gifts and Upholds the Fee
Award. ................................................................................................. 14
7. The Appellate Division Voids the Revised Retainer Agreement. ...... 14
ARGUMENT ........................................................................................................... 15
POINT I GRAUBARD AND THE GRAUBARD ATTORNEYS VIOLATED
THEIR PROFESSIONAL DUTIES TO THEIR INDEPENDENT CLIENTS, THE
LAWRENCE SISTERS. .......................................................................................... 16
1. The Graubard Attorneys’ Failure to Disclose the Gifts to the
Lawrence Children Was Improper. ..................................................... 17
2. Graubard Further Violated Its Professional Duties to the Lawrence
Sisters by Concealing the Revised Retainer Agreement and Inserting a
Provision Detrimental to Their Interests. ............................................ 20
a. Graubard intended to bind the Lawrence Children without their
knowledge. ................................................................................ 21
b. Graubard had a duty to disclose the RRA. ................................ 23
POINT II THE APPELLATE DIVISION PROPERLY DENIED GRAUBARD
ANY FEES BASED ON THE REVISED RETAINER AGREEMENT. .............. 24
CONCLUSION ........................................................................................................ 27
ii
TABLE OF AUTHORITIES
Page(s)
Cases
Brill v. Friends World Coll.,
133 A.D.2d 729, 520 N.Y.S.2d 160 (2d Dep’t 1987) ......................................... 25
Diamond v. Oreamuno,
24 N.Y.2d 494, 248 N.E.2d 910, 301 N.Y.S.2d 78 (1969) ................................ 26
Doviak v. Finkelstein & Partners, LLP,
90 A.D.3d 696, 934 N.Y.S.2d 467 (2nd Dep’t 2011) ......................................... 25
Eadie v. Town Bd. of North Greenbush,
7 N.Y.3d 306, 821 N.Y.S.2d 142 .......................................................................... 2
Excelsior 57th Corp. v. Lerner,
160 A.D.2d 407, 553 N.Y.S.2d 763 (1st Dep’t 1990) ........................................ 26
Feiger v. Iral Jewelry, Ltd.
41 N.Y.2d 928-929, 363 N.E.2d 350, 394 N.Y.S.2d 626 (N.Y. 1977) .............. 25
Ginther v. Ginther,
11 A.D.3d 977, 782 N.Y.S.2d 387 (4th Dep’t 2004) .......................................... 25
Lightman v. Flaum,
97 N.Y.2d 128, 761 N.E.2d 1027 (2001) ........................................................... 22
Matter of Cooperman,
83 N.Y.2d 465, 633 N.E.2d 1069, 611 N.Y.S.2d 465
(1994) ...........................................................................................................passim
Matter of Harris,
2010 WL 4400081 (N.Y. Sur., Bronx County, 2010) ........................................ 25
Matter of Winston,
214 A.D.2d 677, 625 N.Y.S.2d 927 (2d Dep’t 1995) ......................................... 25
McMahon v. Evans,
169 Misc. 2d 509, 645 N.Y.S.2d 753 (Sup. Ct. 1996)........................................ 25
N.Y. Times Co. v. City of N.Y. Comm’n on Human Rights,
41 N.Y.2d 345, 393 N.Y.S.2d 312 ........................................................................ 2
iii
Orendick v. Chiodo,
272 A.D.2d 901, 707 N.Y.S.2d 574 (4th Dep’t 2000) ....................................... 25
Pessoni v. Rabkin,
220 A.D.2d 732, 633 N.Y.S.2d 338 (2d Dep’t 1995) ......................................... 25
Quinn v. Walsh,
18 A.D.3d 638, 795 N.Y.S.2d 647 (2d Dep’t 2005) ........................................... 25
Rimberg & Assocs., P.C. v. Jamaica Chamber of Commerce, Inc.,
40 A.D.3d 1066, 837 N.Y.S.2d 259 (2d Dep’t 2007) ......................................... 25
Schweizer v. Mulvehill,
93 F.Supp.2d 376 (S.D.N.Y. 2000) .................................................................... 26
Smith v. City of N.Y.,
611 F. Supp. 1080 (S.D.N.Y. 1985) ................................................................... 16
South Shore Neurologic Assocs., P.C. v. Ruskin, 2011 WL 1743247, 4-5
(Sup. Ct. 2011) .................................................................................................... 25
Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 A.D.3d
1, 865 N.Y.S.2d 14 (1st Dep’t 2008) .................................................................. 16
Yannitelli v. Yannitelli & Sons Constr. Corp.,
247 A.D.2d 271, 668 N.Y.S.2d 613 (1st Dep't 1998) ......................................... 25
OTHER AUTHORITIES
Disciplinary Rule 5-101 ....................................................................................passim
Disciplinary Rule 5-105 .................................................................................. 2,16, 25
Disciplinary Rule 1-102(A)(7) ............................................................................. 2, 13
1
Marta Jo Lawrence (“Marta Jo”) and Suzanne Lawrence DeChamplain
(“Suzanne”) (collectively, the “Lawrence Sisters”), who together with their
brother, Richard S. Lawrence (“Richard”), separately represented (collectively, the
“Lawrence Children”), are the residuary legatees of the Estate of Sylvan Lawrence
("Sylvan's Estate”), submit this brief in opposition to the Appeal of Petitioner-
Defendant-Appellant, Graubard Miller (“Graubard”), from the decision of the
Appellate Division, First Department, entered May 23, 2013.
PRELIMINARY STATEMENT
Graubard hypocritically seeks to fashion itself both as a victim, whose
thankless clients cheated it out of the fruits of its supposed legal genius, and as a
crusader for the indigent who depend on the contingency fee system for their
access to the courts. This self-description is, to say the least, disingenuous
considering that Graubard seeks a contingency fee of $42 million for five months
of “unexceptional”1 work, from a client who had already paid it nearly $22 million
in fees. Graubard’s self-portrayal as a moral champion rings particularly hollow
when, as described below, each judicial tribunal before which its actions have been
judged has found its conduct unethical and contrary to an attorney’s duties as
counselor and officer of the court, and denied it the benefits of its unethical
bargain.
1 Joint Appendix, Vol. I: A187a. References to the Joint Appendix are to volume followed by
page number.
2
The Lawrence Sisters submit that the Appellate Division’s decision voiding
Graubard’s contingency agreement with Alice was proper, both for its stated
reasons that the agreement is procedurally and substantively unconscionable, as
well as on the alternate ground2 that Graubard violated the Code of Professional
Responsibility and its fiduciary duties to the Lawrence Sisters.3 Specifically,
voiding that agreement ab initio was correct because Graubard violated
Disciplinary Rules 5-1014, 5-1055 and DR 1-102(A)(7)6 by failing to disclose the
existence of both $5.05 million gifts and the agreement itself to the Lawrence
2 This Court may affirm the Appellate Division’s ruling on alternate grounds. Eadie v. Town Bd.
of North Greenbush, 7 N.Y.3d 306, 314, 821 N.Y.S.2d 142 145 (2006); N.Y. Times Co. v. City of
N.Y. Comm’n on Human Rights, 41 N.Y.2d 345, 348, 393 N.Y.S.2d 312, 315(1977).
3 The Lawrence Sisters also join in and adopt the arguments set forth in the Estate of Alice
Lawrence’s brief and Richard Lawrence’s brief.
4Disciplinary Rule 5-101 provided:
A lawyer shall not accept or continue employment if the exercise of professional
judgment on behalf of the client will be or reasonably may be affected by the
lawyer’s own financial, business, property, or personal interests, unless a
disinterested lawyer would believe that the representation of the client will not be
adversely affected thereby and the client consents to the representation after full
disclosure of the implications of the lawyer’s interest.
5 DR 5-105 provided:
A lawyer shall not continue multiple employment if the exercise of independent
professional judgment on behalf of a client will be or is likely to be adversely
affected by the lawyer's representation of another client, or if it would be likely to
involve the lawyer in representing differing interests.
6 DR 1-102(A)(7) provided that “[a] lawyer or law firm shall not… [e]ngage in any other
conduct that adversely reflects on the lawyer's fitness as a lawyer.”
3
Sisters, and also committed “an act of disloyalty” to them when it inserted a
provision detrimental to their interests.7
Each of the Lawrence Children is personally an intervening party to this case
and a direct participant in nearly three decades of acrimonious court proceedings.8
Soon after their father died in 1981, they, along with their mother, Alice Lawrence
(“Alice”), became enmeshed in protracted litigation with their father’s brother,
Seymour Cohn (“Seymour”), the executor of Sylvan’s Estate. In 1983, Alice
retained Graubard to represent her in the family’s ongoing dispute with Seymour.
Vol X: A2726. The Lawrence Children retained Graubard as well.
At all times from the inception of the attorney-client relationship between
Graubard and the Lawrence Children, through and including the 2005 settlement of
all claims with the Seymour Cohn Estate9, the Lawrence Children placed their
utmost trust in Graubard and, in particular, in the competence and integrity of C.
Daniel Chill, Steven Mallis and Elaine Reich (collectively, the “Graubard
Attorneys”). That trust was betrayed. In 1998, even as the Lawrence Children
waived the opportunity to retain independent legal representation in calculating the
7 If the Court were to search Graubard’s brief for any arguments regarding the Lawrence Sisters,
it would not find any. Rather, Graubard characteristically ignores the existence of the Lawrence
Sisters’ rights altogether.
8 The Referee granted the Lawrence Children’s motion to intervene after Graubard on the eve of
trial, having itself joined the Lawrence Sisters as interested parties in 2006 and treated them as
full-fledged parties thereafter, attempted to exclude the Lawrence Children from participating.
Vol. I: A7; Vol. XVII: A7143-A7144. The Surrogate affirmed. Vol. I: A74a.
9 Seymour served as executor of Sylvan’s Estate until his own death in 2003.
4
allocation of estate distributions between themselves and their mother, the
Graubard Attorneys concealed that Chill had obtained over $5 million in putative
gifts from Alice for himself, Reich and Mallis. The existence of these undisclosed
gifts was a fact materially relevant to the Lawrence Children’s initial decision not
to retain separate counsel.
Worse still, in 2005 when Graubard entered into a midstream modification
of its original hourly based fee agreement with Alice (the “Revised Retainer
Agreement” or “RRA”), Graubard deliberately concealed this modification as well
from the Lawrence Children. Compounding its ethical breaches, Graubard also
inserted a provision in the RRA specifically intended to be detrimental to, and limit
the rights of, the Lawrence Children, even though they remained Graubard’s
clients. That insertion was inherently antithetical to Graubard’s legal and ethical
obligations to the Lawrence Children.
At trial in 2010, when Graubard and its partners had the opportunity to
demonstrate their integrity and credibility, they fell far short.10 Former Court of
Appeals judge Howard Levine (the “Referee”) specifically found that Chill and
Mallis were not believable, calling their testimony “incredible,” “inconsistent,”
10 As Alice’s Estate was required to waive the Deadman’s Statute, the Graubard Attorneys were
able to testify about their one-on-one communications with Alice without any contrary firsthand
testimony.
5
“implausible,” “contrived,” and “patently erroneous.”11 Vol. I: A117a, A119a,
A173a, A174a. He stated that the Graubard Attorneys acted “contrary to the
standards we believe the profession should uphold” and found several fiduciary
breaches and violations of the Disciplinary Rules in regards to both the gifts and
the RRA. Most notably, with respect to the Lawrence Children, he held that
Graubard had engaged in a clear “act of disloyalty” in contravention of DR 5-101,
DR 102(a)(7) and EC 5-1 by making the RRA binding on them “behind their
backs.” Vol. I: A132a-A133a. Independently, he found the RRA substantively
unconscionable, thus warranting a “sharp reduction” in Graubard’s fee from $42 to
$16 million. Vol. I: A170a, A187a-A189a. He did uphold the gifts, not, however,
based on any finding of ethical fitness but rather because of a misperceived gap in
the law that purportedly left the Lawrences, although wronged, without redress.
Vol. I: A128a n. 12.
On cross-motions to confirm or reject, the Surrogate set aside the gifts. Vol.
I: A80a. Of particular weight in her decision was the Graubard Attorneys’
“uniform” and “sustained secrecy” with respect to the gifts, including their having
kept the existence of the gifts from the Lawrence Children. Id. However, the
Surrogate confirmed the Referee’s award of $16 million in fees based upon the
11 Also bearing on Chill’s credibility, it does not happen every day that two of an attorney’s
former law partners testify they would not believe him under oath. Vol. VIII: A2169 (Mollen),
A2182 (Weinberg).
6
very RRA that she found substantively unconscionable and “an act of disloyalty”
to the Lawrence Children. The First Department subsequently set aside the RRA
altogether as both substantively and procedurally unconscionable, finding that
Graubard had essentially let Alice believe she would obtain “the lion’s share” of
the settlement proceeds when in fact Graubard would receive the far bigger
payday. Vol. XVII: A7394.
The voluminous record in this case presents a unique set of facts:
Graubard’s representation of an elderly widow and her children during more than
twenty years of litigation over a real estate empire; receipt by Graubard of nearly
$22 million in hourly fees; a midstream modification of a retainer agreement just
months before the discovery of “smoking gun” evidence, and hidden “life
altering”12 cash gifts of unprecedented magnitude. Yet through this thicket the
Lawrence Sisters’ core claim has remained straightforward and uncomplicated.
Attorneys owe each of their clients equal fiduciary duties of loyalty and disclosure.
Attorneys are required to engage in full disclosure to their clients of all facts and
circumstances so that each client can make informed decisions; and attorneys are
prohibited from favoring one client or his own financial interests above another’s.
Deceit on the part of an attorney toward his client, whether for the purpose of
obtaining money or for any other cause, cannot be excused or tolerated.
12 Vol. VI: A895 (Reich).
7
Here, every tribunal to date has agreed that Graubard violated these
fundamental duties of loyalty and disclosure to the Lawrence Sisters, albeit with
varying consequences. This Court should affirm the Appellate Division’s decision
to set aside the RRA not only because it is both procedurally and substantively
unconscionable, but also because it is part and parcel of Graubard’s multiyear
professional misconduct with respect to the Lawrence Sisters. For this misconduct,
the law dictates that Graubard should be subject to real economic consequences.
As the Surrogate put it, “[t]he law is not so impracticable as to refuse to take notice
of the influence of greed and selfishness upon human conduct.” Vol. I: A81a.
STATEMENT OF QUESTIONS PRESENTED
1. Did the Appellate Division properly set aside the Revised Retainer
Agreement?
The Lawrence Sisters submit that the answer is “yes.”
2. Do Graubard’s breaches of duty to the Lawrence Children provide an
alternate basis for invaliding the Revised Retainer Agreement?
The Lawrence Sisters submit that the answer is “yes.”
3. Having set aside the Revised Retainer Agreement, did the Appellate
Division properly deny Graubard any fees based on it and instead revert to the
1983 retainer agreement?
The Lawrence Sisters submit that the answer is “yes.”
8
STATEMENT OF FACTS AND RELEVANT PROCEDURAL HISTORY
The following statement of facts and procedural history briefly summarizes
Graubard’s breaches of its professional duties to its clients, the Lawrence Sisters.13
1. The Attorney-Client Relationship Between Graubard and the
Lawrence Children.
Seymour Cohn and his brother, Sylvan Lawrence, were partners in Sylvan
Lawrence Co., which owned numerous properties in New York City worth
hundreds of millions of dollars. In 1983, Alice and the Lawrence Children retained
Graubard to represent them in their battle against Seymour, Sylvan’s Executor.
Alice, Richard and Marta Jo each signed separate time plus disbursements based
retainers with Graubard on or about August 4, 1983. Vol. X: A2726; Vol. XVI:
A6318-A6319. In addition, Graubard and its partners regularly corresponded with
Suzanne under the auspices of an attorney-client relationship. Although the
retainers with Richard and Marta Jo were at all times in full force and effect, and
Graubard sent bills to both Alice and Richard, the family agreed that Alice would
pay the legal fees on behalf of the four clients. By the commencement of this
action, Graubard had been paid approximately $22 million for its work. Chill,
Reich and Mallis were the exclusive attorneys for both Alice and the Lawrence
Children for nearly a quarter century.
13 Graubard, for its part, spends 50 pages recounting, or rather rewriting, history at the same time
it acknowledges that this Court has a limited scope of review of the facts affirmed below.
9
2. The Fractional Share Calculation Creates a Conflict of Interest
for Graubard.
In 1997, a conflict of interest arose between the Lawrence Children and
Graubard because of Graubard’s representation of both Alice and the Lawrence
Children in the proceedings against Seymour Cohn. Sylvan's will had divided his
residuary estate into two shares, one for Alice and the other for the Lawrence
Children. The calculation of their individual fractional shares was a "zero sum"
determination, as any gain for Alice was a corresponding loss to her children and
vice versa. Vol. I: A130a-A131a, n. 13; A91-A92 (Mallis). At trial, Mallis
summarized this inversely proportional relationship:
Under Sylvan’s will there was – there is what is known as a shifting
fraction, which means that expense of the estate, administration
expense, also legal fees, executor expenses, were charged solely
against the three children’s share, the B share. That meant every time
there was an...estate administrative expense, the [interest] of Alice
via her children’s shifted, theirs went down, hers went up, relative to
each other.
Id. Furthermore, the fractional share calculation was ongoing in that the shares had
to be continually readjusted over the years following Sylvan's death. Vol. I:
A130a-A131a n. 13. Graubard, therefore, recognized and disclosed that it was
unable to represent both Alice, who sought the largest fractional share for herself
(Vol. XV: A5931), and the Lawrence Children, on this one issue, while they could
(and did) remain Graubard’s clients in all other respects.
10
From 1997 to mid-1998, with the help of an outside ethics expert,14
Graubard sent the Lawrence Children repeated correspondence that detailed the
nature of the conflict and advised them of their options, to wit (1) waive the
conflict, remain Graubard’s clients in all other respects in the litigation and consent
to Graubard’s proposal in the accounting proceeding that Alice receive the largest
fractional share; or (2) obtain separate counsel, either fully or limited to the
accounting proceeding against Seymour Cohn, which might then entail challenging
the proposed fraction. Vol. XV: A6055, A6061, A6066, A6068, A6071; Vol.
XVI : A6332, A6346. The Lawrence Children chose the first option with Alice and
Graubard at the helm in order to present a “united front” against Seymour Cohn.
Id; Vol. IX: A1537, A1540. Their decision to remain Graubard’s clients in all other
respects besides the fractional share computation was based solely on the facts the
Graubard Attorneys presented to them at the time and their understanding of
Alice’s reliance upon and relationship with the Graubard Attorneys. This
relationship subsequently underwent marked changes which Graubard deliberately
withheld from the Lawrence Children.
3. The “Subterranean” 1998 Gifts to the Graubard Attorneys.
In 1998, contemporaneous with the initial setting of the fractional share,
Chill received three checks at his business office from Alice, $2 million for
14 Vol. XVI: A6320-A6330.
11
himself, $1.55 million for Reich, and $1.5 million for Mallis. Vol. I: A359a.
Several months later, Alice also paid a gift tax of approximately $2.7 million. Vol.
I: A361a. It is undisputed that at no time did the Graubard Attorneys disclose the
gifts to the Lawrence Children.
The details of the impetus for, as well as the solicitation and distribution of
the gifts are fully set forth in the Estate’s Brief. Suffice it to say that, with respect
to the Lawrence Sisters’ claim, the Surrogate found a “combination of dubious
circumstances that emit an odor of overreaching too potent to be ignored.” Vol. I;
A78a, A81a. Such circumstances included the “sustained secrecy that defendants
uniformly maintained with respect to these gifts,” the defendants having kept the
existence of the gifts from, among others with whom they held a confidential
relationship, “the Lawrence children.” Id. The Appellate Division affirmed. Vol.
XVII: A7394.
4. Graubard Conceals the Revised Retainer Agreement from the
Lawrence Children.
Graubard’s secrecy intensified in 2005 when Graubard and Alice drafted and
executed the Revised Retainer Agreement. Vol. X: A2985. According to Chill,
Alice was tired of paying millions in legal fees and sought to make Graubard her
“partner” in a contingency arrangement. Vol. VI: A699. Graubard and Alice
thereafter executed a modified contingency agreement on January 19, 2005
providing that: (1) Graubard would receive hourly fees for 2005 with a cap of $1.2
12
million ($300,000 per quarter) plus all disbursements; (3) if additional monies
were distributed to the beneficiaries of Sylvan's Estate, or if Alice settled the case
against Seymour Cohn's estate, she would pay from her share 40% of the total
settlement proceeds, minus any of the time charges the firm received under the
revised agreement; and (4) the Revised Retainer Agreement would be binding on
Alice's "heirs, executors, successors and assigns." Vol. X: A2985.
At this time, the Lawrence Children’s previous waivers with respect to the
issue of the fractional share calculation were still in effect. In all other respects,
Graubard had continued as and remained sole counsel for the Lawrence Children
and Alice. Despite that continued and undeniable relationship, Chill
acknowledged that he did not recognize his (or his partners’ or their firm’s)
responsibility to the Lawrence Children when drafting the RRA. He made no
mistake whatsoever at trial when he testified that Graubard inserted the "heirs,
executors, successors and assigns" provision to appease Alice, on the one hand,
and particularly to inhibit Richard, on the other, from exercising his rights as
Graubard’s independent client. Vol. VI: A705-A706.15 Indeed, in a bizarre self-
serving explanation for his conduct, Chill expressly denied at trial that the
15 Mallis too testified that he inserted the provision in the RRA in case Richard challenged the
agreement, even though he had ”never seen [that provision] in any other retainer letter by
Graubard to any Graubard clients, nor is it part of Graubard's standard retainer letter.” Vol. V:
A311.
13
Lawrence Children were coequal clients with Alice or that he owed them equal
fiduciary duties. Vol. VI: A779-A780.
It is undisputed that Graubard never disclosed to the Lawrence Children
either the existence of the RRA, or that Graubard had unilaterally become their
“partners” and inserted a provision in the RRA binding on them without their
knowledge. Certainly then it never advised them to again seek separate counsel to
reevaluate their prior fractional share waivers in light of Graubard's newfound
stake in the litigation. To the contrary, Marta Jo and Suzanne only became aware
of the "partnership" agreement with Graubard in the wake of the present action.
5. The Referee Finds That Graubard Acted “Contrary to the
Standards We Believe the Profession Should Uphold.”
On August 27, 2010, the Referee issued a 105 page report, sustaining the
gifts and finding that the RRA was substantively but not procedurally
unconscionable (the “Referee’s Report”). The Referee also found that Graubard
had not violated the Code of Professional Responsibility by failing to disclose the
gifts and the RRA to the Lawrence Children. He did find, however, that
Graubard’s unilateral insertion of the “heirs” clause was “an act of disloyalty”
designed to "secure [Graubard's] own financial interests at the expense of the
Lawrence Children's interests," which “could provide the basis for charging
violations of DR 5-101, DR 1-102(A)(7) and EC 5-1.” Vol. I: A132a-133a.
14
Notwithstanding his findings that the RRA was substantively
unconscionable and that Graubard violated its duty of loyalty to the Lawrence
Children, the Referee awarded Graubard over $15 million in fees based on a
sliding-scale formula he fashioned, and imposed no remedy to address Graubard’s
proven disloyalty to the Lawrence Children.
6. The Surrogate Orders a Return of the Gifts and Upholds the Fee
Award.
The Lawrence Sisters moved to modify or reject that portion of the
Referee’s Report that found no violations of the Code with respect to them and
which allowed Graubard to retain fees subsequent to the Graubard Attorneys’
acceptance of the 1998 gifts. The Surrogate issued a Decision and Order, dated
September 8, 2011, which ordered the Graubard Attorneys to return the $5.05
million gifts to the Estate, a decision based in part on the fact that the Graubard
Attorneys conspired to keep the gifts secret. Vol. I: A78a, A81a.
The Surrogate confirmed the remainder of the Referee’s Report, including
his finding that Graubard had committed an act of disloyalty to the Lawrence
Children. Again, however, Graubard was permitted to reap over $15 million in fees
under the tainted RRA.
7. The Appellate Division Voids the Revised Retainer Agreement.
The Appellate Division affirmed the Surrogate’s decision voiding the gifts,
but went even further and set aside the Revised Retainer Agreement entirely as
15
both procedurally and substantively unconscionable. Vol. XVII: A7394. Since the
RRA was therefore void ab initio, the Appellate Division rejected the Referee’s
methodology for calculating Graubard’s fees and instead reverted to the original
1983 retainer and awarded only time charges. Vol. XVII: A7396. The Appellate
Division did not reach the merits of the Lawrence Children’s supporting claims.
Id.
The Appellate Division granted Graubard’s and the Graubard Attorney’s
motions for leave to appeal to this Court. Vol. XVII: A7388–90. The Lawrence
Sisters ask this Court to affirm the First Department’s Decision and Order for the
reasons set forth in the briefs of Richard Lawrence and the executors of the Estate
of Alice Lawrence and for the additional reasons set forth below.
ARGUMENT
The First Department did not reach the merits of the Lawrence Sisters’
claims. The Lawrence Sisters submit that the undisturbed findings and conclusions
of the lower courts warrant setting aside the RRA on the alternate grounds
discussed herein.
16
POINT I
GRAUBARD AND THE GRAUBARD ATTORNEYS VIOLATED THEIR
PROFESSIONAL DUTIES TO THEIR INDEPENDENT CLIENTS, THE
LAWRENCE SISTERS.
This Court is clear that the attorney-client relationship is one of “unique
fiduciary reliance” which imposes on the attorney the duty to deal fairly, honestly
and with undivided loyalty, including “maintaining confidentiality, avoiding
conflicts of interest, operating competently, safeguarding client property and
honoring the clients' interests over the lawyer's.” Matter of Cooperman, 83
N.Y.2d 465, 472, 633 N.E.2d 1069, 1071, 611 N.Y.S.2d 465, 467 (1994); see
Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 A.D.3d 1, 9,
865 N.Y.S.2d 14, 21 (1st Dep’t 2008); Smith v. City of N.Y., 611 F. Supp. 1080,
1089-90 (S.D.N.Y. 1985). Disciplinary Rules 5-101 and 5-105 embody these
axioms. When an attorney provides a client with anything less than full disclosure
of all facts and circumstances relevant to a conflict, or favors another client or his
own interests above the client’s interests, the attorney violates DR 5-101 and DR
5-105 and the common law standards of fiduciary duty.
C. Daniel Chill flagrantly violated the duty he owed to the Lawrence
Children. When at trial the Estate’s counsel, Mr. Kornstein, asked him whether he
owed equal fiduciary obligations to each of the four Lawrence clients, he
responded:
17
Based on the assumption that I don’t believe is correct… Based on an
assumption that they were equal clients.
Mr. Kornstein inquired further, “You said they weren’t equal. Aren’t all clients
owed the highest degree of fiduciary duty by an attorney?”, to which Mr. Chill
answered:
Depending on the nature or the circumstances, the particular duty
owed. Depends on the circumstances. No general rule as to the
measure and degree of what you have to tell your client by way of a
fiduciary relationship on any given situation.
Vol. VI: A779-A780. Chill thereby admitted that he did not believe the Lawrence
Children were clients entitled to the same degree of loyalty, honesty, and
disclosure as Alice, the client who paid his bills. The Estate’s ethics expert,
Professor Stephen Gillers, confirmed what should be obvious, to wit, that the
Graubard Attorneys owed the Lawrence Children "the same fiduciary duty" they
owed Alice. Vol. IX: A2234-A2235.
As demonstrated below, Graubard indeed treated the Lawrence Children as
second class clients — second, that is, to Alice and its own wallet. The legal
remedy for this misbehavior is to void the RRA.
1. The Graubard Attorneys’ Failure to Disclose the Gifts to the
Lawrence Children Was Improper.
It is undisputed that the Graubard Attorneys failed to disclose the $5.05
million in gifts they received from Alice to the Lawrence Children. The Surrogate
specifically relied on this failure in invaliding the gifts, noting “the sustained
18
secrecy that defendants uniformly maintained with respect to the gifts, defendants
having kept the very fact of the gifts” from, among others, “the Lawrence
children.” Vol. I: A80a. The Appellate Division upheld the Surrogate’s
invalidation of the gifts, in part also because the Graubard Attorneys engaged in a
conspiracy of silence, notably with respect to the Lawrence Children. Vol. XVII:
A7394.
The Graubard Attorney’s concealment of the gifts was a violation of their
professional duties to the Lawrence Children. The 1997-1998 correspondence from
Graubard to the Lawrence Children indicates that the fractional share calculation
was an ongoing, direct conflict between Alice and the Lawrence Children in that
any gain for Alice (and she always sought the maximum gain for herself) was a
corresponding loss to her children. Vol. XV: A5931, A6055, A6061, A6066,
A6068, A6071 ; Vol. XVI: A6332, A6346. The Graubard Attorneys were required
to disclose the gifts to the Lawrence Children, at a minimum, because it was
germane to their continued decision to waive independent counsel on that issue and
continue to entrust Graubard as the leader of their "united front" against Seymour
Cohn. Had the Lawrence Children known that Alice had made the Graubard
Attorneys $5.05 million richer, they might well have decided that the Graubard
Attorneys were no longer appropriate champions of their personal interests.
Indeed, they could well have chosen to revoke their waivers and obtain
19
independent counsel to reset the fraction, or to terminate Graubard and obtain
independent counsel to represent them in the litigation altogether. By concealing
the gifts, the Graubard Attorneys deprived the Lawrence Children of all facts
necessary to make a meaningful choice with respect to their legal representation.
As demonstrated in Point II, infra, this deprivation provides an alternate ground for
the Court to set aside the RRA.
Chill claimed that he was only following Alice’s instructions to keep the
gifts a secret, as if this were exculpatory. Vol. VI: A676. To the contrary, his
deliberate favoritism of one client, Alice, in conflict with his others, the Lawrence
Children, only makes his breach of duty more egregious.
Professor Gillers was clear that the Graubard Attorneys had a duty to
disclose their acceptance of the gifts:
The children had a right to know, the children with its written retainer
agreement certainly, that another client of the law firm on the same
matter had made a gift of this size. Now, it is true that Alice
Lawrence was their mother and it may at the moment not have made
any difference to them, we don't know. But when one or two or more
co-clients makes such a sizeable gift to the common lawyer, the other
co-clients might apprehend, today, next year, that in the event of
differences of opinion on strategy, or in the event that their interests
might begin to diverge, that the lawyer will tilt towards the interests
of the donor client and against theirs. They have a right to make that
decision.
Vol. IX: A2231-A2233. Even the Defendants' expert, David Keyko, agreed that the
Graubard Attorneys had a duty to disclose the gifts:
20
The fact that a gift was being given and so forth. Anything that would
potentially cause—where there was this conflict, the lawyers to [side]
for the parent. And the concern I would have on a go forward basis is
if the gift was a quid pro quo to favor the parents over the children in
this conflict.
Vol. VII: A1434-A1435. Indeed, the Graubard Attorneys did favor Alice and their
own pecuniary interests, by concealing the material fact of the gifts from the
Lawrence Children at her alleged direction. To allow this behavior to go
unsanctioned encourages its repetition. Such encouragement violates public policy
and, if unchecked, threatens to undermine the very foundation of trust upon which
the attorney-client relationship is based.
2. Graubard Further Violated Its Professional Duties to the
Lawrence Sisters by Concealing the Revised Retainer Agreement
and Inserting a Provision Detrimental to Their Interests.
Graubard violated its professional duties to the Lawrence Children with
respect to the RRA in two distinct ways. First, as the Referee found, Graubard’s
insertion of a provision making the agreement binding on Alice’s “heirs,
successors, and assigns” was “an act of disloyalty” to the Lawrence Children. Vol
I: A132a-A133a. Second, Graubard deliberately withheld the very existence of the
RRA from the Lawrence Children when, again, it was a material fact necessary for
them to make an informed decision about their continued legal representation by
Graubard. As with the 1998 gifts, Graubard elevated Alice’s interests and its own
above its coequal clients, the Lawrence Children.
21
a. Graubard intended to bind the Lawrence Children without
their knowledge.
According to Chill, Alice was concerned that Richard would dishonor the
RRA in the event of her death. Vol. VI: A983. Thus, in an alleged effort to
appease one of its most lucrative clients and to enhance its ability to collect under
the RRA, Graubard included in the RRA a provision that it would be binding on
Alice's "heirs, successors and assigns," namely, the Lawrence Children. Vol. VI:
A705-A706, A983. Not only did Graubard include the provision to appease Alice
at the expense of the Lawrence Children, but also Chill was unequivocal at trial
that Graubard inserted the provision specifically to impede Richard’s and ipso
facto his sisters’ rights and safeguard its own:
Once again, the specter of Richard Lawrence appeared in my mind
and I was -- I was heedful of Mrs. Lawrence’s admonition that be
careful of Richard Lawrence’s possible interference in the matter and
if I die -- if I’m alive you don’t need to worry about it, but if I die and
this estate thing is not over, you will have to be protected from
Richard Lawrence.
And I discussed it with Miss Reich and [the provision] came about as
a result of that discussion. That’s why it is heirs, executors,
successors and assigns. It addressed that potential problem.
Id. Chill’s blatant attempt to subordinate the Lawrence Children’s interests
comes as no surprise, given his unique brand of ethics that holds that not all clients
are owed the highest fiduciary duty. Vol. VI: A779-A780.
22
Against this backdrop, the Referee found, and the First Department left
undisturbed, that Graubard's insertion of the “heirs” provision was "an act of
disloyalty" designed “to secure its own financial interests at the expense of the
Lawrence's Children's interests.” Vol. I: A132a-A133a.
The Referee was correct. Graubard’s inclusion of a provision in the RRA
that was intended to be detrimental to its clients’ interests, and to be binding upon
them without their knowledge, ran afoul of the fiduciary and ethical duties set forth
by this Court in Lightman v. Flaum, 97 N.Y.2d 128, 135, 761 N.E.2d 1027 (2001)
and Matter of Cooperman, 83 N.Y.2d at 472, both cited by the Referee. Vol. I:
A132a-A133a. As stated above, Cooperman highlights an attorney’s “duty to deal
fairly, honestly and with undivided loyalty superimposes onto the attorney-client
relationship a set of special and unique duties, including maintaining
confidentiality, avoiding conflicts of interest, operating competently, safe-guarding
client property and honoring the clients’ interests over the lawyer’s." 83 N.Y.2d at
472.16 In violation of these common law standards, the Referee expressly found
that Graubard acted to secure its own monetary gain at the expense of the
Lawrence Children. Id.
16 Gillers also testified that the Lawrence Children, as Graubard’s clients, had a right to know
about the “heirs” provision because it could be read as adversarial to them. Vol. IX, pp. A2271-
72. That was after all the undisputed intention of the provision.
23
b. Graubard had a duty to disclose the RRA.
The Referee could have simply stated that the Lawrence Children were
unaware of the RRA. Tellingly, however, he found that Graubard acted “behind
the Lawrence Children’s backs, apparently never intending to disclose the Revised
Retainer Agreement during litigation with Seymour and his estate.” Id. Graubard’s
failure to disclose the very existence of the RRA to the Lawrence Children was
improper.
In 2005, the direct conflict between Alice and the Lawrence Children
concerning the fractional interest calculation, and the Lawrence Children’s waivers
of independent counsel with respect to same, were still in effect. Graubard was
unquestionably required to disclose to the Lawrence Children all facts and
circumstances relevant to their waivers, including that Graubard had become a
40% stakeholder in the litigation. Professor Gillers explained:
[The RRA] also implicates the children because the children gave the
waiver they gave when the person calling the shots, and the only
other person in the interest in the corpus was Alice, but now the
children have to know there is another economic interest in the
division between the children and Alice. And that other economic
interest has an interest in not seriously diminishing Alice's share.
Therefore, if the -- the children have to know the advice Alice is
getting is not from a lawyer with no economic interest, but a lawyer
with an economic interest and yet it's an objectivity test and that
might affect the children's decision about whether to revisit the
waiver.
Vol. IX: A2269-A2271.
24
When then asked, “Does the law firm have an obligation to obtain a conflict waiver
from the children regarding the new retainer?” Gillers responded:
Yes...The children gave their consent in ’97 based on certain facts on
the grounds, consents to conflicts or to forgo independent counsel or
to be pro se, whatever the children did have [sic] to be fully informed.
The law firm went out and hired a person versed in this world and
secured a consent based on certain facts. Now, there is a new fact and
maybe the children wish that fact to influence their judgment.
Id.
Just as with the gifts, had the Lawrence Children known that Graubard had
secured a share in the litigation (not to mention a share even greater than their
mother’s!) they may have revoked their waivers and obtained independent counsel
to reset the fraction or represent them entirely. Graubard had no right to
unilaterally and surreptitiously make this decision for the Lawrence Children by
concealing the existence of the RRA.
POINT II
THE APPELLATE DIVISION PROPERLY DENIED GRAUBARD ANY
FEES BASED ON THE REVISED RETAINER AGREEMENT.
For the reasons stated in the Estate’s Brief, the Appellate Division correctly
set aside the Revised Retainer Agreement as procedurally and substantively
unconscionable, and reverted to the original 1983 retainer agreement which
provided for hourly time charges. Graubard’s misconduct toward the Lawrence
25
Children serves as an independent ground to void the RRA and deny Graubard any
fees based on its contingent terms.
The well-entrenched rule in New York is that an attorney who commits
professional misconduct toward his client is not entitled to fees, whether this
misconduct manifests itself as a violation of the Code or the public policy
emanating from it, a discharge for cause, or a breach of the attorney’s duty of
loyalty, such as Graubard’s “act of disloyalty” to the Lawrence Children.17
17 E.g.:
• Matter of Cooperman, 83 N.Y.2d at 471, 633 N.E.2d at 1071, 611 N.Y.S.2d at 467
(1994) (an attorney may not collect a fee pursuant to a special nonrefundable retainer
agreement that contravenes DR 2-110 and DR 2-106);
• Yannitelli v. Yannitelli & Sons Constr. Corp., 247 A.D.2d 271, 272, 668 N.Y.S.2d 613
(1st Dep't 1998) ("Where, as here, the attorney has admitted committing numerous
violations of the Code of Professional Responsibility in this case over a period of years,
we agree that the attorney has, as a result, forfeited any entitlement to fees");
• Doviak v. Finkelstein & Partners, LLP, 90 A.D.3d 696, 934 N.Y.S.2d 467 (2nd Dep’t
2011) (an attorney who violates a disciplinary rule is not entitled to any fees for services
rendered);
• Rimberg & Assocs., P.C. v. Jamaica Chamber of Commerce, Inc., 40 A.D.3d 1066, 1067,
837 N.Y.S.2d 259, 260 (2d Dep’t 2007) (same);
• Ginther v. Ginther, 11 A.D.3d 977, 978, 782 N.Y.S.2d 387, 388 (4th Dep’t 2004) (same);
• Matter of Winston, 214 A.D.2d 677, 677, 625 N.Y.S.2d 927, 927 (2d Dep’t 1995) (same);
• Pessoni v. Rabkin, 220 A.D.2d 732, 633 N.Y.S.2d 338 (2d Dep’t 1995) (calling the rule
“well-settled”);
• Quinn v. Walsh, 18 A.D.3d 638, 638, 795 N.Y.S.2d 647, 648 (2d Dep’t 2005) (appellant
who violated DR 5-105(a) by representing clients in a conflict of interest was not entitled
to fees for services rendered during the period of his representation);
• Orendick v. Chiodo, 272 A.D.2d 901, 902, 707 N.Y.S.2d 574, 575 (4th Dep’t 2000) (“an
attorney who is discharged for cause is not entitled to a fee”);
• Brill v. Friends World Coll., 133 A.D.2d 729, 730, 520 N.Y.S.2d 160, 161 (2d Dep’t
1987) (insofar as an attorney's conduct constitutes misconduct, he is not entitled to a legal
fee for any services rendered);
• Feiger v. Iral Jewelry, Ltd. 41 N.Y.2d 928-929, 363 N.E.2d 350, 351, 394 N.Y.S.2d 626,
626 (N.Y. 1977) (“One who owes a duty of fidelity to a principal and who is faithless in
the performance of his services is generally disentitled to recover his compensation….”);
26
Notably, this Court made clear in Diamond v. Oreamuno, 24 N.Y.2d 494, 498, 248
N.E.2d 910, 301 N.Y.S.2d 78 (1969), that a forfeiture of fees is proper even if the
client has not sustained direct economic loss. The reason is that “the function of
such an action…is not merely to compensate the plaintiff for wrongs committed by
the defendant but…to prevent them, by removing from agents and trustees all
inducement to attempt dealing for their own benefit in matters which they have
undertaken for others, or to which their agency or trust relates.” (Internal citations
and quotation marks omitted)(Underscoring in original); accord, Excelsior 57th
Corp. v. Lerner, 160 A.D.2d 407, 408-409, 553 N.Y.S.2d 763, 764 (1st Dep’t
1990); Schweizer v. Mulvehill, 93 F.Supp.2d 376, 401 (S.D.N.Y. 2000). The policy
of deterrence set forth in Diamond rings especially true in this case, in which the
Lawrence Sisters do not seek compensation for themselves, but instead only that
Graubard not be permitted to profit from its wrongdoing.
Simply stated, the law is that attorneys who violate their duties to their
clients are not entitled to fees; Graubard violated its duties to the Lawrence Sisters
• South Shore Neurologic Assocs., P.C. v. Ruskin, 2011 WL 1743247, 4-5 (Sup. Ct. 2011)
(same);
• McMahon v. Evans, 169 Misc. 2d 509, 516, 645 N.Y.S.2d 753, 758 (Sup. Ct. 1996) ("an
attorney may not collect a fee barred by the public policy expressed in the Code of
Professional Responsibility") (Internal citations omitted);
• Matter of Harris, 2010 WL 4400081, 6-7 (N.Y. Sur., Bronx County, 2010) (a breach of
the duty of loyalty is tantamount to a discharge for cause, resulting in a forfeiture of legal
fees).
27
with respect to the RRA; Graubard, therefore, must not collect a fee based on the
RRA. The Court should void the RRA on this alternate ground, a remedy which is
all the more appropriate where the record reflects a pattern of misconduct based on
an abhorrent concept that the Lawrence Children were somehow lesser clients than
Alice.
CONCLUSION
For all the foregoing reasons, the Intervenors-Respondents, Marta Jo
Lawrence and Suzanne Lawrence DeChamplain, respectfully request that this
Court affirm the May 23, 2013 decision of the First Department.
28
Dated: New York, New York
December 27, 2013
Respectfully submitted,
AKIN GUMP STRAUSS HAUER &
FELD LLP
By: __________________________
Robert L. Berchem (of the bar of
the State of Connecticut)
By permission of the Court
Michelle Devlin Long, Esq.
BERCHEM, MOSES & DEVLIN, P.C.
75 Broad Street
Milford, CT 06460
(203) 783-1200
Kim Koopersmith, Esq.
AKIN GUMP STRAUSS HAUER &
FELD LLP
One Bryant Park
New York, New York 10036
(212) 872-1060
Counsel for Intervenors-Respondents Marta Jo Lawrence and Suzanne Lawrence
DeChamplain
/s/ Kim Koopersmith