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
RICHARD S. LAWRENCE and PETER A. VLACHOS, as Executors
of the Estate of Alice Lawrence, Deceased,
C. DANIEL CHILL, ELAINE M. REICH and STEVEN MALLIS,
RICHARD S. LAWRENCE, SUZANNE LAWRENCE DECHAMPLAIN
and MARTA JO LAWRENCE,
BRIEF FOR RESPONDENTS-PLAINTIFFS-RESPONDENTS
To Be Argued By:
Daniel J. Kornstein
Time Requested: 30 Minutes
KORNSTEIN VEISZ WEXLER
& POLLARD, LLP
Attorneys for Respondents-
757 Third Avenue
New York, New York 10017
Ina R. Bort
Amy C. Gross
Date Completed: December 27, 2013
Table of Contents
CURBING ATTORNEY CONDUCT "CONTRARY TO THE
STANDARDS . . . THE PROFESSION SHOULD UPHOLD" . . . . . . . . . 2
QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . 5
STATEMENT OF FACTS: THE "DUBIOUS"
AND "SUBTERRANEAN" CIRCUMSTANCES . . . . . . . . . . . . . . 10
1. Huge Secret Cash Gifts . . . . . . . . . . . . . . 11
2. Unconscionable Revised Retainer . . . . . . . . . . 13
RELEVANT PROCEDURAL HISTORY . . . . . . . . . . . . . . . . . 15
Referee's Report . . . . . . . . . . . . . . . . . . . . 16
Surrogate's Decision . . . . . . . . . . . . . . . . . . 18
Appellate Division Decision . . . . . . . . . . . . . . 19
ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART ONE -- INVALID GIFTS . . . . . . . . . . . . . . . 22
I FAILURE TO MEET VERY "HEAVY"
BURDEN OF PROVING VALIDITY OF GIFTS . . . . . 22
A. The Rule: Presumptive Invalidity . . . . 22
B. Failure to Satisfy the Rule . . . . . . . 25
1. Failure to Tell Alice
to Seek Independent Advice . . . . . 27
2. Extraordinary Size of Gifts . . . . 39
3. Conspiracy of Silence . . . . . . . 41
4. Failure to Advise
About the Gift Tax . . . . . . . . . 44
5. $400,000 Reluctant
"Gift" to Firm . . . . . . . . . . . 46
6. Lack of Forthrightness . . . . . . . 47
C. Were the Gifts Solicited? . . . . . . . . 47
II THE CLAIMS TO VOID THE GIFTS WERE TIMELY . . . 49
A. Policy Rationale . . . . . . . . . . . . 49
B. Not Limited to Negligence Claims . . . . 51
C. Sufficiently Related . . . . . . . . . . 51
III SURROGATE ACTED WITHIN HER AUTHORITY . . . . . 54
PART TWO -- UNCONSCIONABLE REVISED RETAINER . . . . . . 57
IV REVERSION TO ORIGINAL
RETAINER APPROPRIATE . . . . . . . . . . . . . 57
A. Applicable Precedent . . . . . . . . . . 58
B. Policy Favoring Standards . . . . . . . . 63
C. Time Charges Plus
Interest Are Fair . . . . . . . . . . . . 64
D. No Impact on Future
Valid Contingency Fees . . . . . . . . . 65
V PROCEDURAL UNCONSCIONABILITY . . . . . . . . . 66
A. Not Fully Understood . . . . . . . . . . 68
B. Alice Was Not Fully Informed . . . . . . 71
1. Failure to Disclose
Potential Upside . . . . . . . . . . 71
2. Failure to Discuss
Case Status . . . . . . . . . . . . 74
3. Graubard's Breach of
Its Fiduciary Duty . . . . . . . . . 75
C. Failure to Get Written Consent
to Law Firm Conflict . . . . . . . . . . 77
D. Chill "Wore [Alice] Down" . . . . . . . . 79
VI SUBSTANTIVE UNCONSCIONABILITY . . . . . . . . 81
A. Virtually No Risk . . . . . . . . . . . . 83
1. Existing Claims Had High Value . . . 83
2. The Hybrid Contingency
Reduced the Risk . . . . . . . . . . 84
3. 95 Wall Street Decision
Created No Risk . . . . . . . . . . 85
4. Graubard's Prior Work and Paid Fees 85
5. 1983 Agreements With Lawrence
Children Further Reduced Risk . . . 86
B. Disproportionality . . . . . . . . . . . 87
C. Sheer Amount of Fee Too High . . . . . . 88
D. Case Law Supports Findings of Referee,
Surrogate and First Department . . . . . 89
E. Mistaken Policy Arguments . . . . . . . . 89
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . 91
Table of Authorities
520 E. 72nd Commercial Corp. v. 520 E. 72nd Owners Corp.,
691 F. Supp. 728 (S.D.N.Y. 1988) . . . . . . . . . . 60, 76
1 Wend. 108 (Sup. Ct. of Judicature of N.Y. 1828) . . . 43
Armstrong v. Morrow,
166 Wis. 1, 163 N.W. 179 (1917) . . . . . . . . . . 50, 54
Automatic Bedding Corp. v. Ortner,
26 A.D.2d 664, 272 N.Y.S.2d 628 (2d Dep't 1966) . . . . 57
Barrett v. Stone,
236 A.D.2d 323, 653 N.Y.S.2d 598 (1st Dep't 1997) . . . 55
Bercow v. Damus,
5 A.D.3d 711, 776 N.Y.S.2d 289 (2d Dep't 2004) . . . . . 62
Borgia v. City of New York,
12 N.Y.2d 151, 237 N.Y.S.2d 319 (1962) . . . . . . . . 53
Boyle v. Waters,
206 Mich. 515, 173 N.W. 519 (1919) . . . . . . . . . . 60
Brown v. Allen,
344 U.S. 443 (1953) . . . . . . . . . . . . . . . . . . 63
Campagnola v. Mulholland, Minion & Roe,
76 N.Y.2d 38, 556 N.Y.S.2d 239 (1990) . . . . . . . . . 57
Cappelli v. State Farm Mut. Auto. Ins. Co.,
259 A.D.2d 581, 686 N.Y.S.2d 494 (2d Dep't 1999) . . . . 61
Chen v. Chen Qualified Settlement Fund,
552 F.3d 218 (2d Cir. 2009) . . . . . . . . . . . . . . 57
Christian v. Gordon,
43 V.I. 179, 2001 WL 883551
(Terr. V.I. June 20, 2001) . . . . . . . . . . . . . . . 61
City of Burlington v. Dague,
505 U.S. 557 (1992) . . . . . . . . . . . . . . . . 64, 65
Cohen v. Hallmark Cards, Inc.,
45 N.Y.2d 493, 410 N.Y.S.2d 282 (1978) . . . . . . . . . 56
Connors v. Wildstein,
271 A.D.2d 633, 706 N.Y.S.2d 189 (2d Dep't 2000) . . . 7, 59
Cortesi v. R&D Constr. Corp.,
73 N.Y.2d 836, 537 N.Y.S.2d 475 (1988) . . . . . . . . . 61
Cowee v. Cornell,
75 N.Y. 91 (1878) . . . . . . . . . . . . . . . . 5, 23, 24
Cuthbert v. Heidsieck,
364 S.W.2d 583 (Mo. 1963) . . . . . . . . . . . . . . . 46
Eadie v. Town Bd. of North Greenbush,
7 N.Y.3d 306, 821 N.Y.S.2d 142 (2006) . . . . . . . . . 19
Fischoff v. Hamilton,
2012-Ohio-4785, 2012 WL 4903096
(Ohio Ct. App. Oct. 17, 2012) . . . . . . . . . . . . . 61
Forest Park Assocs. Ltd. P'ship v. Kraus,
175 A.D.2d 60, 572 N.Y.S.2d 317
(1st Dep't 1991) . . . . . . . . . . . . . . . . . . 26, 68
6 N.Y.2d 97, 188 N.Y.S.2d 491 (1959) . . . . . 10, 82, 88-90
Galfand v. Chestnutt,
402 F. Supp. 1318 (S.D.N.Y. 1975) . . . . . . . . . . . 61
Galiber v. Previte,
40 N.Y.2d 822, 387 N.Y.S.2d 561 (1976) . . . . . . . . . 55
Gamache v. Steinhaus,
7 A.D.3d 525, 776 N.Y.S.2d 310 (2d Dep't 2004) . . . . . 65
Genger v. Genger,
21 Misc. 3d 1132(A), 875 N.Y.S.2d 820,
2008 WL 4938269 (Sup. Ct. N.Y. Co. 2008) . . . . . . . . 76
Glamm v. Allen,
57 N.Y.2d 87, 453 N.Y.S.2d 674 (1982) . . . . . . . . 7, 50
Glenbriar Co. v. Lipsman,
5 N.Y.3d 388, 804 N.Y.S.2d 719 (2005) . . . . . . . . . . 4
Gordon v. Bialystoker Center & Bikur Cholim, Inc.,
45 N.Y.2d 692, 412 N.Y.S.2d 593 (1978) . . . . . . 6, 22-24
Greene v. Greene,
56 N.Y.2d 86, 451 N.Y.S.2d 46
(1982) . . . . . . . . . . . . . . . 7, 51-53, 66, 67, 75-77
Gurvey v. Legend Films, Inc.,
No. 3:09-cv-00942 AJB (BGS), 2012 WL4061773
(S.D. Cal. Sept. 14, 2012) . . . . . . . . . . . . . . . 78
Gutierrez v. Direct Marketing Credit Servs., Inc.,
267 A.D. 427, 701 N.Y.S.2d 116 (2d Dep't 1999) . . . . . 65
Howland v. Smith,
9 A.D.2d 197, 193 N.Y.S.2d 140 (3d Dep't 1959) . . . 24, 42
In re Beatty's Will,
206 Misc. 542, 133 N.Y.S.2d 651
(Surr. Ct. Suffolk Co. 1954) . . . . . . . . . . . . . . 61
In re Bond & Mortgage Guarantee Co.,
303 N.Y. 423 (1952) . . . . . . . . . . . . . 6, 23, 67, 82
In re Cooperman,
83 N.Y.2d 465, 611 N.Y.S.2d 465 (1994) . . . . . . . . . 75
In re Doss,
367 Ill. 570, 12 N.E.2d 659 (1938) . . . . . . . . . . . 43
In re Estate of Schneiderman,
105 A.D.3d 602, 963 N.Y.S.2d 250
(1st Dep't 2013) . . . . . . . . . . . . . . . . 23, 35, 36
In re Fitzsimons,
174 N.Y. 15 (1903) . . . . . . . . . . . . . . . . . . 60
In re Himmel,
125 Ill. 2d 531, 533 N.E.2d 790 (1989) . . . . . . . . . 43
In re Howell,
215 N.Y. 466 (1915) . . . . . . . . 66, 71, 73, 75, 77, 81
In re Kindberg's Will,
207 N.Y. 220 (1912) . . . . . . . . . . . . . . . . . . 38
In re Putnam,
257 N.Y. 140 (1931) . . . . . . . . . . . . . . . . . . 38
In re Stamell,
252 B.R. 8, 16 (Bankr. E.D.N.Y. 2000) . . . . . . . . . 78
In re Van Den Heuvel's Will,
76 Misc. 137, 136 N.Y.S. 1109
(Surr. Ct. N.Y. Co. 1912) . . . . . . . . . . . . . . . 42
In the Matter of David Gross,
Dkt. No. DRB 09-186
(Sup. Ct. N.J. Disciplinary
Review Board Dec. 18, 2009) . . . . . . . . . . . . . . 42
Israel v. Sommer,
292 Mass. 113, 197 N.E. 442 (1935) . . . . . . . . . . . 38
Jacobson v. Sassower,
66 N.Y.2d 991, 499 N.Y.S.2d 381 (1985) . . . . . . . 66, 67
Kaufman v. Cohen,
307 A.D.3d 113, 760 N.Y.S.2d 157 (1st Dep't 2003) . . . 76
King v. Fox,
7 N.Y.3d 181, 818 N.Y.S.2d 833
(2006) . . . . 8, 9, 66, 71, 73, 75, 76, 79, 81, 82, 88, 89
Lawrence v. Graubard Miller,
106 A.D.3d 607, 965 N.Y.S.2d 495
(1st Dep't 2013) . . . . . . . . . 2, 19, 20, 24, 69, 83, 88
Lawrence v. Graubard Miller,
11 N.Y.2d 588, 873 N.Y.S.2d 517
(2008) . . . . . . . . . . . . . . . 3, 8, 9, 66, 82, 87, 89
Lawrence v. Graubard Miller,
48 A.D.3d 1, 853 N.Y.S.2d 1,
aff'd, 11 N.Y.3d 588, 873 N.Y.S.2d 517 (2008) . . . . . 16
Lawrence v. Graubard Miller,
48 A.D.3d 1, 853 N.Y.S.2d 1
(1st Dep't 2007) . . . . . . . . . . . . . 3, 66, 73, 75, 86
Leinwand v. Swan Coin-o-Matic Laundry, Inc.,
115 A.D.2d 302, 496 N.Y.S.2d 118 (4th Dep't 1985) . . . 61
Lowrey v. Will of Smith,
543 So. 2d 155 (Miss. 1989) . . . . . . . . . . . . . . 39
Luk Lamellen U. Kupplungbau GmbH v. Lerner,
166 A.D.2d 505, 560 N.Y.S.2d 787
(2d Dep't 1990) . . . . . . . . . . . . . . . . . . . . 51
M.W. Realty Assocs. v. 805 Third Ave. Co.,
125 Misc. 2d 1077, 480 N.Y.S.2d 674
(Sup. Ct. N.Y. Co. 1984) . . . . . . . . . . . . . . . . 61
Marcus Brothers Textiles, Inc. v. Avondale Mills, Inc.,
78 A.D.2d 800, 433 N.Y.S.2d 114
(1st Dep't 1980) . . . . . . . . . . . . . . . . . . . . 61
Marron v. Bowen,
235 Iowa 108, 16 N.W.2d 14 (1944) . . . . . . . . . . . 39
Matter of Buchyn,
300 A.D.2d 739, 751 N.Y.S.2d 625 (3d Dep't 2002). . . . 33
Matter of Clines,
226 A.D.2d 269, 641 N.Y.S.2d 277
(1st Dep't 1996) . . . . . . . . . . . . . . . . . 6, 23, 24
Matter of Cooperman,
83 N.Y.2d 465, 611 N.Y.S.2d 465 (1994) . . . . . . 2, 90-92
Matter of Coughlin,
221 A.D.2d 676, 633 N.Y.S.2d 610 (3d Dep't 1995) . . . . 59
Matter of Cousins,
80 A.D.3d 99, 909 N.Y.S.2d 421
(1st Dep't 2010) . . . . . . . . . . . . . . 28, 36, 37, 46
Matter of Delorey,
141 A.D.2d 540, 529 N.Y.S.2d 153 (2d Dep't 1988) . . . . 38
Matter of Estate of Rothko,
43 N.Y.2d 305, 401 N.Y.S.2d 449 (1977) . . . . . . . . . 62
Matter of Friedman,
136 A.D. 750, 121 N.Y.S. 426 (2d Dep't 1910) . . . . . . 59
Matter of Goliger,
58 A.D.3d 732, 871 N.Y.S.2d 689 (2d Dep't 2009) . . . . 59
Matter of Guattery,
278 A.D.2d 738, 717 N.Y.S.2d 764 (3d Dep't 2000) . . . . 59
Matter of Hefron,
771 N.E.2d 1157 (Ind. 2002) . . . . . . . . . . . . . . 78
Matter of Henderson,
80 N.Y.2d 388, 590 N.Y.S.2d 836
(1992) . . . . . . . . . . 5, 22, 23, 25, 27, 30-32, 36, 40
Matter of Musso,
227 A.D.2d 404, 642 N.Y.S.2d 322 (2d Dep't 1996) . . . . 61
Matter of Schanzer,
7 A.D.2d 275, 182 N.Y.S.2d 475 (1st Dep't 1959) . . . . 60
Matter of Sherbunt,
134 A.D.2d 723, 520 N.Y.S.2d 885 (3d Dep't 1987). . . . 33
Matter of Smith,
214 A.D. 622, 212 N.Y.S. 577 (1st Dep't 1925) . . 7, 58, 60
Matter of Smith,
95 N.Y. 516 (1884) . . . . . . . . . . . . . . . . . . . 23
Matter of Winckler,
234 A.D.2d 307, 651 N.Y.S.2d 69 (2d Dep't 1996) . . . . 61
McDonald v. Hewlett,
102 Cal. App. 2d 680, 228 P.2d 83
(Cal. Dist. Ct. App. 1951) . . . . . . . . . . . . . . . 42
McGrath v. Toys "R" Us, Inc.,
3 N.Y.3d 421, 788 N.Y.S.2d 281 (2004) . . . . . . . . . 65
Meinhard v. Salmon,
249 N.Y. 458 (1928) . . . . . . . . . . . . . . . . . . 91
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 (1977) . . . . . . . . . 19
Naiman v. New York Univ. Hosps. Ctr.,
351 F. Supp. 2d 257 (S.D.N.Y. 2005) . . . 7, 59, 60, 77, 78
Nesbit v. Lockman,
34 N.Y. 167 (1866) . . . . . . . . . . . . . 5, 6, 22-24, 28
Nicholson v. Shockey,
192 Va. 270, 64 S.E.2d 813 (1951) . . . . . . . . . . . 42
Northern Westchester Prof'l Park Assocs.
v. Town of Bedford,
60 N.Y.2d 492, 470 N.Y.S.2d 350 (1983) . . . . . . . . . 55
Perdue v. Kenny A. ex rel. Winn,
559 U.S. 542 (2010) . . . . . . . . . . . . . . . . 64, 65
Quinn v. Walsh,
18 A.D.3d 638, 795 N.Y.S.2d 647 (2d Dep't 2005) . . . . 57
Radin v. Opperman,
64 A.D.2d 820, 407 N.Y.S.2d 303
(4th Dep't 1978) . . . . . . . . . . 23, 24, 28, 34, 40, 46
Reilly v. McAuliffe,
331 Mass. 144, 117 N.E.2d 811 (1954) . . . . . . . . . . 38
Reoux v. Reoux,
3 A.D.2d 560, 163 N.Y.S.2d 212 (3d Dep't 1957) . 28, 34, 35
Schlanger v. Flaton,
218 A.D.2d 597, 631 N.Y.S.2d 293
(1st Dep't 1995) . . . . . . . . . . . . . . . . 26, 51, 68
Shaw v. Mfrs. Hanover Trust Co.,
68 N.Y.2d 172, 507 N.Y.S.2d 610 (1986) . . 8, 66, 67, 71, 77
Shumsky v. Eisenstein,
96 N.Y.2d 164, 726 N.Y.S.2d 365 (2001) . . . . . . . . . . 7
Sterling Nat'l Bank v. Israel Disc. Bank of N.Y.,
305 A.D.2d 184, 762 N.Y.S.2d 584
(1st Dep't 2003) . . . . . . . . . . . . . . . . . . . . 75
Stroud v. Tunzi,
72 Cal. Rptr. 3d 756, 160 Cal. App. 4th 377
(Cal. Ct. App. 2008) . . . . . . . . . . . . . . . . . . 61
Ten Eyck v. Whitbeck,
156 N.Y. 341 (1898) . . . . . . . . . . . . . . . . . 22-24
Toomey v. Moore,
213 Or. 422, 325 P.2d 805 (1958) . . . . . . . . . . . . 39
Veneski v. Queens-Long Island Med. Group, P.C.,
18 Misc.3d 1118(A), 856 N.Y.S.2d 503,
2007 WL 4754349 (Sup. Ct. N.Y. Co. 2007) . . . . 28, 36, 40
Webster v. Kelly,
274 Mass. 564, 175 N.E. 69 (1931) . . . . . . . . . . . 38
Wendt v. Fischer,
243 N.Y. 439 (1926) . . . . . . . . . . . . . . 23, 67, 82
Whitehead v. Kennedy,
69 N.Y. 462 (1877) . . . . . . . . . 66, 71, 73, 75, 76, 81
Yannitelli v. D. Yannitelli & Sons Constr. Corp.,
247 A.D.2d 271, 668 N.Y.S.2d 613 (1st Dep't 1998) . . . 57
York Mortgage Corp. v. Clotar Constr. Corp.,
254 N.Y 128 (1930) . . . . . . . . . . . . . . . . . . . 55
Statutes and Rules
22 N.Y.C.R.R. § 605.13(c) . . . . . . . . . . . . . . . . . . 33
CPLR 4403 . . . . . . . . . . . . . . . . . . . . . . . . 55, 56
DR 5-104 . . . . . . . . . . . . . . . . . . . . . . . . . 77-79
EC 2-20 . . . . . . . . . . . . . . . . . . . . . . . . . 66, 77
EC 5-5 . . . . . . . . . . . . . . . . . . . . . . 27-29, 31, 34
EC 7-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
N.Y. Judiciary Law § 90(6-a)(a) . . . . . . . . . . . . . . . 33
SCPA 506(4) . . . . . . . . . . . . . . . . . . . . . . . . . 55
1 New York County Lawyers' Association Ethics Institute (eds.),
The New York Rules of Professional Conduct:
Rules and Commentary 180 (2010) . . . . . . . . . . . . 25
24 A.L.R.2d 1288 . . . . . . . . . . . . . . . . . . . . 50, 54
38 Am. Jur. 2d, Gifts § 33 . . . . . . . . . . . . . . . . . 39
Undue Influence in Nontestamentary Gift
from Client to Attorney,
24 A.L.R.2d 1288 (1952) . . . . . . . . . . . . . . 23, 39
I James Kent,
Commentaries on American Law 320-21 (1826) . . . . . . . 63
Joseph M. Perillo,
The Law of Lawyers' Contracts is Different,
67 Fordham L. Rev. 443, 444 (1998) . . . . . . . . . . . 90
Attorney-Client Relationships -- Undue Influence --
Fiduciary Duty Mandates That Attorney Advise Client to
Secure Independent Advice and Counsel Before Accepting
Benefit from Client,
60 Miss. L.J. 657, 669 (1990). . . . . . . . . . . . . . 38
Lawrence J. Vilardo & Vincent E. Doyle III,
Where Did the Zeal Go?, 38 Litigation 53 (2011) . . . . 70
Contingency Fees Without Contingencies:
Hamlet Without the Prince of Denmark?,
37 UCLA L. Rev. 29, 92 (1989) . . . . . . . . . . . . . 84
NYSBA Committee on Prof. Ethics,
Opinion 697 - 12/30/97 (41-97),
Legal fees; combination of hourly
and contingency fee . . . . . . . . . . . . . . . . . . 85
Addicted to the Apocalypse,
N.Y. Times, Oct. 25, 2013 . . . . . . . . . . . . . . . 65
Restatement (First) of Contracts . . . . . . . . . . . . . . 61
Restatement (Second) of Contracts . . . . . . . . . . . . . . 61
Restatement (Third) of Law
Governing Lawyers . . . . . . . . . . . . . 5, 6, 22, 23, 30, 39
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, :
RICHARD S. LAWRENCE and PETER A. VLACHOS,
as Executors of the Estate of : APL-2013-00264
Alice Lawrence, Deceased,
Respondents, : N.Y. Co. Surr. Ct.
File No. 175/82
- against - :
GRAUBARD MILLER, :
C. DANIEL CHILL, ELAINE M. REICH,
and STEVEN MALLIS, :
RICHARD S. LAWRENCE, SUZANNE LAWRENCE :
DECHAMPLAIN and MARTA JO LAWRENCE,
CONSOLIDATED BRIEF OF RESPONDENTS
RICHARD S. LAWRENCE AND PETER VLACHOS
AS EXECUTORS OF THE ESTATE OF ALICE LAWRENCE
This case is about an attorney-client relationship that
soured in the brine of lawyer overreaching and deception. It
raises important issues of legal ethics concerning client gifts
to attorneys and midstream retainer changes. In a unanimous
decision, the Appellate Division, First Department ruled that the
1 Lawrence v. Graubard Miller, 106 A.D.3d 607, 608-09, 965
N.Y.S.2d 495, 497-98 (1st Dep't 2013).
2 Matter of Cooperman, 83 N.Y.2d 465, 472, 611 N.Y.S.2d
465, 468 (1994).
3 These are the words of Referee Howard Levine. Vol. I,
A128a n.12. (References to the Joint Appendix are indicated by
the appropriate volume of the Joint Appendix followed by the
relevant page number.)
4 As one Appellate Division Justice put it on an earlier
attorney-defendants in this case failed to carry their burden to
prove the validity of those transactions.1 The Appellate
Division's resolution of those questions of law is amply
supported by the record and securely anchored in decades of
decisions by this Court addressing the attorney-client
relationship, "so special and so sensitive in our society."2 The
Appellate Division's decision should be affirmed. By doing so,
this Court will guide the bench, bar and public on these serious
CURBING ATTORNEY CONDUCT "CONTRARY TO THE
STANDARDS . . . THE PROFESSION SHOULD UPHOLD"3
This Court should not disturb the Appellate Division's
decision because it was the proper response to what happened
here. The appeals by the law firm, Graubard Miller ("Graubard"),
and the individual attorney defendants, C. Daniel Chill, Elaine
M. Reich, and Steven Mallis (collectively, the "Attorneys"), from
a Decision and Order of the Appellate Division entered May 23,
2013, seek to upend that court's well-founded, legally sound
reaction to overreaching by Graubard and the Attorneys.4
appeal, the repeated attorney misconduct in this case was rooted
in "nothing short of plain greed." Lawrence v. Graubard Miller,
48 A.D.3d 1, 20, 853 N.Y.S.2d 1, 15 (1st Dep't 2007) (Catterson,
J., dissenting). He further described their conduct as
"outrageous" and "well beyond the limits of all propriety." Id.,
48 A.D.3d at 18-19, 853 N.Y.S.2d at 13-14. He wanted to "refer
the defendants to the Departmental Disciplinary Committee." Id.,
48 A.D.3d at 9, 853 N.Y.S.2d at 7.
5 Lawrence v. Graubard Miller, 11 N.Y.2d 588, 596, 873
N.Y.S.2d 517, 521 (2008) (affirming denial of motion to dismiss).
One aspect of the overreaching involves secret cash gifts,
totaling $5.05 million, from longtime Graubard client Alice
Lawrence ("Alice") to the Attorneys. The other is an eve-of-
trial retainer revision between Graubard and Alice (an elderly
widow) that would have modified a time-charge arrangement and
resulted in a $44 million contingency fee for four-and-a-half-
months' ordinary and unexceptional work. That contingency fee
would have been over and above the $22 million in time charges
Graubard had already received from Alice over 22 years.
When this case was last before this Court on a pre-answer
motion to dismiss, the revised retainer was deemed suspect "[o]n
its face."5 The proof at trial has since confirmed this Court's
initial suspicion many times over. A 15-day bench trial produced
abundant evidence of the impropriety of the gifts and the
modified fee agreement. The Referee (Hon. Howard Levine) found
that the Attorneys' testimony was not credible, that they acted
inappropriately and unethically, and that the revised retainer
was substantively unconscionable.
The Referee's findings were only the beginning. With every
6 The Appellate Division's decision is based on findings of
fact by the Surrogate not reviewable by this Court. Glenbriar
Co. v. Lipsman, 5 N.Y.3d 388, 804 N.Y.S.2d 719 (2005).
post-trial decision in this case, the Estate and the public
interest have been further vindicated. The Surrogate voided the
gifts and affirmed the Referee's rejection of the $44 million
contingency fee under the unconscionable revised retainer. The
Appellate Division affirmed the Surrogate's decision on the
gifts, found the revised retainer procedurally as well as
substantively unconscionable, and rejected the fee calculation
method used by the Referee and Surrogate, instead reverting to
the time-charge basis under the original agreement.
On the facts established by the tribunals below,6 the
questions of law before this Court are:
1. Did the Appellate Division correctly rule that the
Attorneys failed to meet their burden of proof to rebut, by clear
and convincing evidence, the presumption that the gifts were the
product of undue influence? Yes.
2. Did the Appellate Division correctly rule that the
Estate's claim for return of the gifts was timely? Yes.
3. In light of the revised retainer agreement's
unconscionability, did the Appellate Division properly award
Graubard fees based on the time-charge arrangement in its
original retainer with Alice? Yes.
4. Did the Appellate Division correctly rule that Graubard
7 See, e.g., Matter of Henderson, 80 N.Y.2d 388, 394, 590
N.Y.S.2d 836, 840 (1992) (internal quotation marks omitted);
Cowee v. Cornell, 75 N.Y. 91, 99-100 (1878); Nesbit v. Lockman,
34 N.Y. 167, 169 (1866).
failed to meet its burden to show that the revised retainer
agreement was not procedurally unconscionable? Yes.
5. Did the Appellate Division correctly rule that Graubard
failed to meet its burden to show that the revised retainer was
not substantively unconscionable? Yes.
SUMMARY OF ARGUMENT
Since the Appellate Division's decision cures the ill
effects of the Attorneys' misconduct, redresses the harm done to
their client, and protects the public by deterring future
attorney misconduct, this Court should affirm. This case turns
on whether the Attorneys and Graubard met their burden of proof
to demonstrate the propriety of the transactions at issue. The
facts brought forth at trial were not enough to sustain their
burden for either transaction.
1. Gifts Correctly Voided. A gift from a client to a
lawyer, particularly a substantial gift, is "presumed void" and
is "scrutinized with extreme vigilance."7 According to the
Restatement (Third) of Law Governing Lawyers, "The law of undue
influence treats client gifts as presumptively fraudulent, so
that the lawyer-donee bears a heavy burden of persuasion that the
gift is fair and not the product of overreaching or otherwise an
8 Restatement (Third) of Law Governing Lawyers § 127 cmt. a
9 Matter of Clines, 226 A.D.2d 269, 270, 641 N.Y.S.2d 277,
278 (1st Dep't 1996).
10 Nesbit, 34 N.Y. at 169. See also, e.g., Gordon v.
Bialystoker Center & Bikur Cholim, Inc., 45 N.Y.2d 692, 698, 412
N.Y.S.2d 593, 596-97 (1978); Clines, 226 A.D.2d at 270, 641
N.Y.S.2d at 278.
11 In re Bond & Mortgage Guarantee Co., 303 N.Y. 423, 431
imposition upon the client."8 To rebut this presumption, the
attorney has the burden of proving by "clear and convincing"9
evidence that the client gave the gift voluntarily, with
"perfect underst[anding]" and without any undue influence.10
This rule is applied with "uncompromising rigidity."11
The facts, not subject to review in this Court, show that
the Attorneys failed to tell Alice to seek independent advice
before she gave the gifts. They kept the gifts a secret from
their partners and their co-clients, the Lawrence children. They
failed to tell Alice that she would be legally responsible for
the gift tax and that the amount of the gift tax would be $2.7
million. At the same time the Attorneys obtained the gifts for
themselves personally, they also solicited from a reluctant Alice
a $400,000 bonus to Graubard. The Referee found their testimony
about these events not credible. These facts, raising genuine
doubts about the genesis of the gifts, made the Attorneys' burden
2. Timeliness of Gift Claim. The Appellate Division, as
have all prior decision makers, correctly found that Alice's
12 Shumsky v. Eisenstein, 96 N.Y.2d 164, 167-68, 726
N.Y.S.2d 365, 368 (2001); Glamm v. Allen, 57 N.Y.2d 87, 93, 453
N.Y.S.2d 674, 677-78 (1982); Greene v. Greene, 56 N.Y.2d 86, 94-
95, 451 N.Y.S.2d 46, 51 (1982).
13 Matter of Smith, 214 A.D. 622, 624-25, 212 N.Y.S. 577,
580-81 (1st Dep't 1925); Connors v. Wildstein, 271 A.D.2d 633,
634, 706 N.Y.S.2d 189, 190 (2d Dep't 2000); Naiman v. New York
Univ. Hosps. Ctr., 351 F. Supp. 2d 257, 265 (S.D.N.Y. 2005).
claim to invalidate the gifts was timely. The continuous
representation doctrine, which recognizes the difficulty for a
client to sue her lawyer as long as the representation goes on,
applies here and tolls the statute of limitations while the
Attorneys continued to represent Alice on the same or related
3. Remedy for Unconscionable Retainer. Inasmuch as the
revised retainer was found unconscionable (as explained below),
the Appellate Division correctly determined Graubard's fee by
looking to the original retainer agreement.13 The original time-
charge retainer governed the parties' relationship for over 20
years during which Alice paid Graubard $22 million in fees. The
Appellate Division's fee determination was consistent with the
rules governing contracts and wills, where the original document
controls if a later modification is voided. Only where there is
no prior valid retainer does a court have the discretion to set a
reasonable fee. The Appellate Division's remedy eliminated any
arbitrariness or excessive discretion.
4. Procedural Unconscionability. Attorney fee agreements
can be unconscionable on procedural and substantive grounds,
especially where there is "deception or overreaching in their
14 Lawrence, 11 N.Y.3d at 596 n.4, 873 N.Y.S.2d at 521 n.4.
15 King v. Fox, 7 N.Y.3d 181, 190, 818 N.Y.S.2d 833, 839
16 Shaw v. Mfrs. Hanover Trust Co., 68 N.Y.2d 172, 176, 507
N.Y.S.2d 610, 612 (1986) (citations omitted).
making."14 Graubard did not meet its burden to show that Alice
agreed to the revised retainer "with full knowledge of all the
material circumstances known to" Graubard, and without any
The importance of an attorney's clear
agreement with a client as to the essential
terms of representation cannot be overstated.
The client should be fully informed of all
relevant facts and the basis of the fee
charges, especially in contingent fee
arrangements . . . . [C]ourts as a matter of
public policy give particular scrutiny to fee
arrangements between attorneys and clients,
casting the burden on attorneys who have
drafted the retainer agreements to show that
the contracts are fair, reasonable, and fully
known and understood by their clients.16
The revised retainer was therefore procedurally unconscionable.
Here, Alice erroneously believed that by entering into the
revised retainer, she would reduce her overall legal fees and
receive most of the proceeds from any recovery. Graubard failed
to explain to her that it, not she, would receive the largest
amount in any recovery, and also failed to review the status of
the case with her before she signed. Graubard also failed to
inform her that it had calculated a likely recovery of almost $50
million, when Graubard knew that Alice believed she would recover
a few million dollars, at most. Graubard further failed to
17 Lawrence, 11 N.Y.3d at 596, 873 N.Y.S.2d at 521
18 King, 7 N.Y.3d at 192, 818 N.Y.S.2d at 841.
obtain from Alice in writing, as it should have, a waiver of the
law firm's conflict of interest in entering into the revised
5. Substantive Unconscionability. An attorney fee
agreement can be substantively unconscionable either from the
start or in hindsight (or both). As this Court has already held
in this action, "[o]ur case law clearly provides that
circumstances arising after contract formation can render a
contingent fee agreement -- not unconscionable when entered into
-- unenforceable where the amount of the fee, combined with the
large percentage of the recovery it represents, seems
disproportionate to the value of the services rendered."17
"Besides the sheer amount of the fee, another factor to consider
-- and perhaps the most important -- in determining the
unconscionability of a contingent fee agreement, is whether the
client was fully informed upon entering into the agreement with
the attorney."18 This includes an examination of "the facts and
circumstances surrounding the agreement, including the parties'
intent and the value of the attorney's services in proportion to
the fees charged, in hindsight."19 It also requires an analysis
of the level of risk assumed by the attorneys that their work may
20 Gair v.Peck, 6 N.Y.2d 97, 102, 188 N.Y.S.2d 491, 494
The facts show that the revised retainer here was
substantively unconscionable both from the beginning and
retrospectively. On its face, the revised retainer greatly
limited or even eliminated Graubard's risk. Graubard knew,
though Alice did not, that it assumed no additional risk by
converting to a hybrid contingency arrangement. As also found by
the Referee and Surrogate, the huge $44 million fee Graubard
sought was wildly disproportionate to the amount or the quality
of work performed over the remaining four and a half months of
STATEMENT OF FACTS: THE "DUBIOUS"
AND "SUBTERRANEAN" CIRCUMSTANCES
The trial revealed the Attorneys' repeated disregard of
their legal and ethical duties and of well-established
requirements for attorney-client transactions. Not surprisingly,
given their conduct, two of the three Attorneys testified that
they had never read the Code of Professional Responsibility in
its entirety, and the third had not read it since law school in
the 1970s. Vol. V, A365-66; Vol. VI, A717, A1043-44.
The attorney-client relationship at issue here started in
1983. Vol I, A88a. It was then that Alice and two of her grown
children (Richard and Marta Jo Lawrence) signed time-charge
retainers with Graubard. Vol. I, A89a; Vol. XVI, A6318, A6319.
The purpose of that retention was for Graubard to represent their
interests in litigation concerning the estate of Alice's late
husband (and the children's father) Sylvan Lawrence against the
executor, Sylvan's brother Seymour Cohn. Vol I, A88a.
Alice and the children (including Suzanne Lawrence
DeChamplain along with Richard and Marta Jo Lawrence) had
conflicting interests in the estate litigation. The conflict was
over the relative fractional shares Alice and the children would
receive. Based on information received from Graubard, the
children waived the conflict (Vol. I, A130a-131a), but that did
not relieve Graubard of the obligation to keep them informed. In
light of new information, the children could later choose to
revoke that consent.
1. Huge Secret Cash Gifts
In November 1998, after receiving a significant distribution
from her husband's estate in the litigation handled by the
Attorneys, Alice met with Chill at her Connecticut home. As a
result of that meeting, Alice wrote three checks totaling $5.05
million to the Attorneys personally. Vol. I, A90a, A100-102a,
None of the Attorneys told Alice, as required by law and
ethics, to seek independent, disinterested advice before she gave
the checks. Vol. I, A114a, A117a-119a. None of the Attorneys
perceived "any" ethical issues about the gifts, and they "did not
review the Code [of Professional Responsibility], consult ethics
counsel as they had done on other estate representation issues,
nor did they undertake any independent research." Vol. I, A115a.
When the Attorneys received the gifts, Chill solicited an
additional $400,000 "bonus" for Graubard, in which he, Reich, and
Mallis shared as members of the firm (without telling the firm
that they had also obtained the $5.05 million in gifts). Alice
did not want to give the bonus to the firm, as the accompanying
cover note made clear: "Danny- I'm not sure just what I should be
thanking the firm for. (Keeping me on as a client?) You write my
thank yous. A." Vol. XV, A6035. No one at the firm thanked her
or otherwise acknowledged the bonus. Vol. I, A77a, A119a.
Not only did the Attorneys not inform their partners about
the individual gifts, one did not even tell her spouse, an Acting
Supreme Court Justice. Nor did they tell the Lawrence children,
their other clients on the same matter, even though a known
conflict existed between Alice and the children over the
allocation of Sylvan's estate. The Attorneys also did not inform
Alice, before receiving the gifts, that she would have to pay
almost $3 million in gift tax, though they were acutely aware of
it. Vol. I, A80a, A127a-128a n.11.
After writing the gift checks, Alice expressed remorse to a
close friend. She referred to Chill's "Svengali-like" influence
over her when she equivocated over paying the gift tax. Vol. I,
A78a; Vol. VIII, A1912-14, A2107. And one of the Attorneys
referred to Alice's "thank you" notes accompanying the checks as
notes "we got Alice to write." Vol. I, A78a; Vol. VIII, A1931-
2. Unconscionable Revised Retainer
The Attorneys who obtained the $5.05 million in secret gifts
also created the second issue, an eve-of-trial modification of
the retainer arrangement. In December 2004, Alice felt
discouraged about the prospects for her case (a pessimism
Graubard encouraged but secretly did not share) shortly after
what she understood was an adverse ruling on one of her claims.
At that time, Alice expressed concern about the size of
Graubard's endless legal bills and asked Chill about the
possibility of entering into a new fee arrangement. By this time
Alice had paid to Graubard $22 million in time charges since
1983. Chill responded by proposing a contingency fee. Vol. I,
A137a-138a, A185a n.27. He did so after Graubard advised Alice
to reject a $60 million settlement offer in the underlying case.
Vol. V, A507-08; Vol. XVI, A6361-62.
In January 2005, as a trial date was being set, Alice and
Graubard entered into a revised retainer, a hybrid contingency
arrangement that called for a cap of $1.2 million in time-charge
fees for only the first year, as well as a 40% contingency of any
recovery, taken out of Alice's share. Vol. I, A138a-139a; Vol.
X, A2985-86. The revised retainer also required Alice to pay
disbursements and sought to have her negotiate with Graubard if
the total recovery through settlement fell short of Graubard's
time charges. Vol. X, A2985-86. It was, for Graubard, a "heads-
I-win, tails-you-lose" revised retainer.
When drafting the revised retainer, Graubard expected an
21 Graubard's valuation of the claims is reflected in a
document Graubard prepared "well before" (Graubard Br. at 102)
the revised retainer, as well as in a letter to the Referee after
the revised retainer was signed. Vol. I, A170a-171a; Vol. XVI,
A6374; Vol. X, A2992-2997. Graubard shared neither the memo nor
its conclusions with Alice.
upside recovery of almost $50 million, while encouraging Alice in
her mistaken belief that the maximum recovery would be only "a
few mil." Vol. I, A170a-179a, A184a-186a.21 Although Graubard
knew Alice wanted the "lion's share of any recovery" and to be
the "senior partner," as Alice told Graubard, Graubard assumed
that role, as it stood to receive more from any recovery than did
Alice herself. Vol. I, A301a; Vol. VI, A699, A701, A803, A833.
Shortly after Alice signed the revised retainer (when she
was almost 80 years old and suffering from health problems) (see,
e.g., Vol. VIII, A1927-1930; Vol. XV, A5866), she promptly told
her best friend that Chill "wore [her] down" and that she
"probably shouldn't have signed what she did." Vol. VIII, A2108-
12. Other testimony corroborated these statements. Vol. VIII,
Graubard did not inform the Lawrence children of the revised
retainer, and in fact inserted a clause binding the children (as
heirs) to the agreement without their knowledge, even though as
clients they had a right to know this information that might bear
on a decision whether or not to revoke their consent to the known
conflict. Vol. I, A132a-133a. Thus did the Attorneys continue
their "subterranean" pattern, begun with the secret gifts, of
deliberately not informing their co-clients of vital information.
Four months after the revised retainer was signed, the
underlying litigation settled for approximately $106 million,
largely as a result of "smoking gun" documents (the "Epps
documents") produced in response to routine document requests
served well before the revised retainer was signed. Vol. I,
A89a, A139a-140a, A179a-184a, A187a. Graubard sought a fee of
approximately $44 million (Vol. I, A89a-90a, A136a), which would
have exceeded Alice's share of the recovery by more than $2.4
million. Vol. I, A151a, A301a. Alice objected, and this dispute
RELEVANT PROCEDURAL HISTORY
Graubard first sued Alice for its fee in Surrogate's Court,
New York County in August 2005. Vol. I, A90a. Soon thereafter,
Alice sued Graubard and the Attorneys in Supreme Court, New York
County seeking to void the revised retainer and for return of the
$5.05 million in gifts. Id. The two cases were consolidated in
Surrogate's Court. Id.
In her complaint, Alice alleged that Chill came to her home
and told her that, after obtaining favorable litigation results,
the Attorneys were "each entitled to receive a bonus," that "he
was entitled to the amount of $2 million for his efforts" and
that Reich was entitled to $1.55 million and Mallis $1.5 million,
and that "this type of bonus payment was routinely made." Vol.
I, A341a-342a, ¶ 15. Her complaint stated further that, "relying
upon the advice of her [three Graubard] attorneys," Alice wrote
the three requested checks not to the Graubard firm "but rather
22 Lawrence v. Graubard Miller, 48 A.D.3d 1, 853 N.Y.S.2d
1, aff'd, 11 N.Y.3d 588, 873 N.Y.S.2d 517.
to each of the three attorneys individually." Vol. I, A342a,
¶ 17-18. See also Vol. IV, A1452a-1453a, ¶¶ 9-13 (Aff. of Alice
Lawrence sworn to Sept. 8, 2005).
Alice promptly moved to dismiss Graubard's claims, arguing
that the revised retainer was void as a matter of law. Vol. I,
A90a-91a. The motion was denied, and that decision was affirmed
based on the need for factual development.22 Alice died in
February 2008, and the executors of her estate were substituted.
Vol. I, A93a. The parties engaged in pre-trial discovery, and
the Referee held a trial and issued his Report. Vol. I, A100a.
The Referee found that Graubard and the Attorneys had acted
"contrary to the standards we believe the profession should
uphold." Vol. I, A128a n.12. He concluded that the lawyers
acted unethically in receiving more than $5 million in cash gifts
from a client, and that they breached their fiduciary duties by
keeping the gifts a secret from their partners and their three
other clients, the Lawrence children. Vol. I, A117a-120a, A127a-
The Referee concluded that the Attorneys violated Ethical
Consideration 5-5 by failing to advise Alice to seek independent
advice before she gave the gifts. He said that the Attorneys'
"unprecedented acceptance of gifts in the millions of dollars
without compliance with the client safeguards incorporated in EC
5-5 could well give the appearance of impropriety, which could
adversely reflect on the Attorneys' fitness to practice law and
provide a basis for charging a violation of Disciplinary Rule 1-
102(a)(7)." Vol. I, A117a, A119a-120a.
He found the $44 million contingent fee sought by Graubard
to be "unreasonable" and "unconscionable." Vol. I, A170a, 187a.
He also deemed Graubard's inserting a clause in the revised
retainer binding Alice's "heirs, executors, successors and
assigns" to be unethical and an act of disloyalty to the Lawrence
children. Vol. I, A132a-133a.
The Referee expressly "disbelieved" testimony of two of the
Attorneys, calling it "incredible," "implausible,"
"inconsistent," "contrive[d]," and "nothing but a self-serving
afterthought." Vol. I, A117a, A119a, A173a-174a, A176a, A179a.
He went on to describe their testimony as "so obviously erroneous
that it casts doubt on the bona fides" of its assertion. Vol. I,
A176a. At trial, two former Graubard partners -- one a name
partner (Scott Mollen) and one a managing partner -- testified
that they would not believe Chill even if he were under oath.
Vol. VIII, A2169, A2182-83. Chill, whose testimony the Referee
did not believe, was the only witness to key conversations with
Alice. Even though his testimony could not be contradicted by
the deceased Alice, the Attorneys could not mask their
Although he made amply supported findings of lawyer
misconduct, the Referee then made certain recommendations that
did not address -- much less redress or cure -- the ethical
problems he found, and were based on a misinterpretation of the
law. Disregarding the lawyers' misconduct, the Referee
recommended that: (1) Graubard receive $15,837,374.02 in
arbitrarily calculated fees, amounting to almost ten times its
hourly charges, or $4,200 an hour, for four-and-a-half months'
ordinary work under a substantively unconscionable revised
retainer, and (2) gifts of more than $5 million to the Attorneys
who violated legal and ethical rules were valid. Vol. I, A190a-
The Surrogate rejected the Referee's recommendation about
the gifts. Vol. I, A82a. Finding that the "dubious" and
"subterranean" circumstances surrounding the gifts "emit an odor
of overreaching too potent to be ignored" (Vol. I, A80a-81a), she
ordered the $5.05 million returned to the Estate. "Simply put,"
the Surrogate stated, "a lawyer's covert enjoyment of a benefit
derived from a client, thereafter explained by the lawyer in
sworn testimony that is not wholly to be credited, are not the
attributes of a stainless gift nor the ingredients of a
successful defense of it." Vol. I, A81a. The Surrogate
confirmed the Referee's recommendation as to the revised
retainer. Vol. I, A83-A85a.
The Surrogate issued an Amended Decree ordering the Estate
to pay Graubard a fee of $15,837,374.02 (without prejudgment
interest) and ordering the Attorneys to return the gifts (also
23 In voiding the gifts, the Appellate Division mentioned
only some of the facts and arguments advanced by the Estate to
justify that result, see infra, but in affirming, this Court is
not limited to the grounds relied on by the Appellate Division.
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
without prejudgment interest). Vol. I, A64a-A65a. Following the
Amended Decree, Chill and Reich fully repaid the $3.55 million
they had received, but Mallis has repaid only $500,000 of his
$1.5 million gift.
Appellate Division Decision
On appeal by all parties, the Appellate Division affirmed
the Surrogate's decision requiring the Attorneys to return the
gifts, explaining that the Attorneys "failed to meet their burden
of showing by clear and convincing evidence that [Alice] gave the
gifts willingly and knowingly." 106 A.D.3d at 608, 965 N.Y.S.2d
at 497. "Indeed," the Appellate Division stated, "the secrecy
surrounding the gifts, and their extraordinary amounts, which
[the Attorneys] accepted without advising [Alice] to seek
independent counsel, preclude a finding in [their] favor."23 106
A.D.3d at 608-09, 965 N.Y.S.2d at 497. The Appellate Division
found the Estate's claim for return of the gifts timely under the
continuous representation doctrine. 106 A.D.3d at 608, 965
N.Y.S.2d at 497.
The Appellate Division also found that the revised retainer
was "both procedurally and substantively unconscionable." 106
A.D.3d at 609, 965 N.Y.S.2d at 497. In finding substantive
unconscionability, the Appellate Division affirmed the
Surrogate's decision, which had in turn adopted the Referee's
recommendation. The Appellate Division approved the Referee's
consideration of both: (1) the lack of real risk faced by
Graubard in converting to the hybrid contingency arrangement, and
(2) the disproportionate value of the fee sought to the services
rendered. 106 A.D.3d at 609, 965 N.Y.S.2d at 498.
In finding procedural unconscionability, the Appellate
Division held that Graubard had not shown that Alice, who sought
to reduce her legal fees, "fully knew and understood the terms of
the retainer agreement." 106 A.D.3d at 609, 965 N.Y.S.2d at 497.
In particular, the Appellate Division was persuaded by the
evidence that Alice "believed that under the contingency
arrangement, she would receive the 'lion's share' of any
recovery," but that the way the revised retainer actually worked,
"the law firm obtained over 50% of [Alice's] share of proceeds."
The Appellate Division also differed from the Surrogate and
Referee in calculating the amount of fees due Graubard. It found
that the formula created by the Referee and adopted by the
Surrogate was "improper," and that in light of the "preexisting,
valid retainer agreement, the proper remedy is to revert to the
original agreement." 106 A.D.3d at 609-10, 965 N.Y.S.2d at 498.
The Surrogate issued a Decree on Remand requiring the Estate
to pay Graubard $2,919,605.15, representing Graubard's time
charges from January to May 2005, plus interest. Vol. XVII,
A7303-04. The Estate paid that judgment.
Graubard and the Attorneys sought and received leave from
the Appellate Division to appeal its decision to this Court.
Vol. XVII, A7388-90.
24 See Restatement (Third) of Law Governing Lawyers § 127
cmt. a (2000).
25 Nesbit, 34 N.Y. at 169. See also Matter of Henderson,
80 N.Y.2d at 394, 590 N.Y.S.2d at 840; Gordon, 45 N.Y.2d at 698,
412 N.Y.S.2d at 596-97; Ten Eyck v. Whitbeck, 156 N.Y. 341, 353
PART ONE -- INVALID GIFTS
The Appellate Division's decision voiding the gifts should
be affirmed because: (a) the Attorneys failed to meet their
"heavy" burden of proof to rebut the presumption that the gifts
were void; (b) Alice's claim was timely; and (c) the Surrogate
and the Appellate Division acted within the scope of their
FAILURE TO MEET VERY "HEAVY"
BURDEN OF PROVING VALIDITY OF GIFTS
A. The Rule: Presumptive Invalidity
The legal standard governing gifts to lawyers, in New York
and most other American jurisdictions,24 is well settled. As
this Court stated in 1866 and has repeated ever since, the law
regards a client's gift to a lawyer "with great suspicion," so
that, "where persons, standing in a confidential relation . . .
receive benefits from . . . the persons for whom they are counsel
. . . the transaction is scrutinized with the [most extreme]
vigilance, and regarded with the utmost jealousy."25 Where the
donee is a lawyer and the donor is his client, "[t]he law . . .
26 Matter of Smith, 95 N.Y. 516, 523 (1884). See also
Cowee, 75 N.Y. at 99-100 (special rule applies where parties "do
not deal on terms of equality but that either on the one side
from superior knowledge of the matter derived from a fiduciary
relation, or from overmastering influence, or on the other from
weakness, dependence, or trust justifiably reposed, [because]
unfair advantage" is "probable").
27 In re Bond & Mortgage Guarantee Co., 303 N.Y. at 431
(quoting Wendt v. Fischer, 243 N.Y. 439, 444 (1926)).
28 Henderson, supra; Gordon, supra; Ten Eyck, supra; Cowee,
supra; Nesbit, supra; In re Estate of Schneiderman, 105 A.D.3d
602, 963 N.Y.S.2d 250 (1st Dep't 2013); Clines, supra; Radin v.
Opperman, 64 A.D.2d 820, 407 N.Y.S.2d 303 (4th Dep't 1978);
Restatement (Third) of Law Governing Lawyers § 127 cmt. a. "[I]n
England the rule appears to be that the gift is absolutely void."
C.S. Patrinelis, Undue Influence in Nontestamentary Gift from
Client to Attorney, 24 A.L.R.2d 1288 (1952).
29 Restatement (Third) of Law Governing Lawyers § 127 cmt.
30 Vol. I, A75a (Surrogate's Decision).
wisely . . . adjust[s] the quality and measure of proof to the
circumstances, to protect the weaker party and, as far as may be,
to make it certain that trust and confidence have not been
perverted or abused."26 "Only by this uncompromising rigidity
has the rule of undivided loyalty been maintained against
Based on such serious concerns, an unbroken line of
decisions reaching back to the mid-nineteenth century establishes
the following controlling standard:
a. A gift from a client to an attorney is presumed void.28
This presumption is rebuttable only under specific conditions.
b. The attorney has the burden of proof, which is
"heavy"29 and "daunting."30
31 Gordon, 45 N.Y.2d at 698, 412 N.Y.S.2d at 596-97 ("clear
proof") (quoting Ten Eyck, 156 N.Y. at 353); Nesbit, 34 N.Y. at
169 (the "clearest evidence is required"); Clines, 226 A.D.2d at
270, 641 N.Y.S.2d at 278 ("clear and convincing"); Howland v.
Smith, 9 A.D.2d 197, 200, 193 N.Y.S.2d 140, 144 (3d Dep't 1959)
("strong, convincing and satisfactory proof").
32 Radin, 64 A.D.2d at 820, 407 N.Y.S.2d at 305.
33 Lawrence, 106 A.D.3d at 608, 965 N.Y.S.2d at 497.
34 Clines, 226 A.D.2d at 270, 641 N.Y.S.2d at 278.
35 Radin, 64 A.D.2d at 820, 407 N.Y.S.2d at 305.
36 Howland, 9 A.D.2d at 200, 193 N.Y.S.2d at 144.
37 Nesbit, 34 N.Y. at 169.
38 Cowee, 75 N.Y. at 100.
c. To meet that burden, the quantum of proof must be
"clear and convincing."31 (Significantly, although the Attorneys
acknowledge that they have the burden of proof, nowhere in their
64-page brief do they say what level of proof that burden
requires. Their brief mistakenly reads as if the Estate has the
burden of proving there was undue influence.)
d. The clear and convincing proof, "usually through
disinterested persons,"32 must show that the client gave the
gifts "willingly and knowingly,"33 that the gift was "voluntary
and understandingly made by the donor, uninfluenced by fraud,
duress or coercion,"34 that the gift was "fair and fully intended
by the client,"35 "entirely honest, legitimate and free from
taint,"36 that "there was no fraud, influence, or mistake; that
the transaction was perfectly understood"37 by the client, that
"all was fair, open, voluntary and well understood."38
40 1 New York County Lawyers' Association Ethics Institute
(eds.), The New York Rules of Professional Conduct: Rules and
Commentary 180 (2010).
41 Matter of Henderson, 80 N.Y.2d at 394, 590 N.Y.S.2d at
840 (judicial scrutiny essential "particularly in light of the
size of the bequest").
This test was "well settled" in this Court's decisions as
early as 1878.39 Since then, it has lost neither its value nor
its rigor, and continues to serve its important and beneficial
purpose. The rule regularly applied by lower courts, means that
lawyers act at their peril and should "exercise extreme caution"
when they accept a gift, especially a large gift, from a
client.40 As the size of the gift increases, so does the need
for more precaution and scrutiny.41
The Attorneys do not challenge the rule, but they fail to
satisfy it. They exercised the opposite of "extreme caution" --
they acted recklessly.
B. Failure to Satisfy the Rule
The Attorneys did not meet their heavy burden to prove, by
clear and convincing evidence, that there was no undue influence,
duress, or deception and that the gifts were voluntary, open and
well understood. In the Surrogate's words, the Attorneys did not
"show by the strong, convincing and satisfactory proof required
by the authorities . . . that the conveyance to [them] was
entirely honest, legitimate and free from taint." Vol. I, A77a
(internal quotation omitted).
42 Schlanger v. Flaton, 218 A.D.2d 597, 602, 631 N.Y.S.2d
293, 297 (1st Dep't 1995).
43 Forest Park Assocs. Ltd. P'ship v. Kraus, 175 A.D.2d 60,
62, 572 N.Y.S.2d 317, 319 (1st Dep't 1991).
The Surrogate went on: "[I]t is far from clear" that Alice
"was acting in accordance with her own volition, as opposed to"
the Attorneys' when she made the gifts. Vol. I, A77a. The
Surrogate agreed that Alice was "sophisticated and intelligent"
but also noted that "in a post-Madoff world," such a person "is
not unquestionably beyond victimization." Vol. I, A76a n.4. The
applicable legal and ethical rules regarding gifts do not vary
with the client's character or level of sophistication. The
courts have rejected the argument that an attorney discharged his
duty by making "such disclosure as was appropriate to a
sophisticated businessman,"42 and held that a lawyer's ethical
duties exist "irrespective of the sophistication of the
client.'43 Nor are the standards looser for clients who are
domineering, mean and abusive, as the Attorneys disrespectfully
describe Alice. Even if she were the person they describe, their
ethical obligations remain the same. The Surrogate accordingly
found "a combination of dubious circumstances that emit an odor
of overreaching too potent to be ignored." Vol. I, A80a.
The Surrogate ruled that "[s]everal factors prevent the
conclusion that the gifts in this case have been proved freely
given by the donor." Vol. I, A77a. Those factors -- those
"dubious circumstances" -- include: (a) the failure to advise
Alice to get independent advice, (b) the size of the gifts, (c)
44 Henderson, 80 N.Y.2d at 394, 590 N.Y.S.2d at 839-40.
45 EC 5-5 states: "A lawyer should not suggest to the
client that a gift be made to the lawyer or for the lawyer's
benefit. If a lawyer accepts a gift from the client, the lawyer
is peculiarly susceptible to the charge that he unduly influenced
or overreached the client. If a client voluntarily offers to make
the secrecy surrounding the gifts, (d) the failure to advise
about the gift tax, (e) Alice's reluctant $400,000 bonus to
Graubard, and (f) the Attorneys' lack of forthrightness.
Any one of these facts is enough to demonstrate the
Attorneys' failure of proof; together they compel affirmance of
the decisions of the Surrogate and Appellate Division voiding the
1. Failure to Tell Alice to Seek Independent Advice
The Attorneys' most glaring failure was their failure to
tell Alice, in the words of the Code of Professional
Responsibility (EC 5-5), to "secure disinterested advice from an
independent, competent person who is cognizant of all the
circumstances" regarding the gifts. This requirement, which the
Court has described as "crucial,"44 is not only a bulwark of New
York law, but of American jurisprudence in general. The
Appellate Division's decision did not retroactively create a new
ethical or legal requirement. On the contrary, it simply applied
long-established common law rules regarding client gifts.
a. EC 5-5 Violated. "I do find," ruled the Referee, "that
the Attorneys violated EC 5-5 in failing to advise Alice" to get
independent advice.45 Vol. I, A117a. He expressly rejected
a gift to the lawyer, the lawyer may accept the gift, but before
doing so, should urge that the client secure disinterested advice
from an independent, competent person who is cognizant of all the
circumstances. Other than in exceptional circumstances, a lawyer
should insist that an instrument in which the client desires to
name the lawyer beneficially be prepared by another lawyer
selected by the client."
46 See, e.g., Nesbit, 34 N.Y. 167; Radin, 64 A.D.2d 820,
407 N.Y.S.2d 303; Reoux v. Reoux, 3 A.D.2d 560, 163 N.Y.S.2d 212
(3d Dep't 1957); see also Veneski v. Queens-Long Island Med.
Group, P.C., 18 Misc.3d 1118(A), 856 N.Y.S.2d 503, 2007 WL
4754349 (Sup. Ct. N.Y. Co. 2007); Matter of Cousins, 80 A.D.3d
Chill's contrary testimony as incredible. Moreover, "Reich and
Mallis testified that Chill never told them of his advice to
Alice and they never gave such advice themselves. . . . Reich
and Mallis accepted their gifts without any assurance whatsoever
that the mandates of EC 5-5 were complied with." Vol. I, A118a-
This unequivocal failure casts a long, dark shadow over the
Attorneys' position. From the Referee's perspective, it gave
"the appearance of impropriety, which could adversely reflect on
the Attorneys' fitness to practice law and provide a basis for
charging a violation of Disciplinary Rule 1-102(a)(7)." Vol. I,
b. Common Law Violated. The Attorneys' failure also
violated common law. Contrary to what the Attorneys say, the
rule in EC 5-5 is neither just an "aspirational" goal, nor merely
a technicality. It is a basic, salutary, preventive requirement.
The common law recognized it long before it was incorporated in
EC 5-5.46 Whether or not EC 5-5 exists, and even in its absence,
99, 909 N.Y.S.2d 421 (1st Dep't 2010).
47 Contrary to what the Attorneys argue (Attorneys' Br. at
49-50), the Rules of Professional Conduct, which replaced the
Code of Professional Responsibility in 2009, did not do away with
the "independent advice" requirement found in the common law and
EC 5-5 regarding gifts. The New York State Bar Association's
Official Comment 6 to Rule 1.8(c) repeats verbatim the
independent advice language of EC 5-5.
failure to tell a client to seek disinterested advice beforehand
invalidates a gift under the common law.47
The case law and EC 5-5 create a bright-line rule -- a
figurative Rubicon -- that the Attorneys improperly crossed.
Nothing Alice said or did after that critical moment when the
warning should have been given should or could retroactively
validate the gifts. The Attorneys incorrectly assert that
Alice's consultation with her accountant after giving the gifts
satisfied their obligation. Attorneys' Br. at 16-17, 50-51. Not
so. That was after the fact. The key is to urge a client to get
independent advice before making the gift.
c. No "Gap" in the Law. Confronted with the Attorneys'
serious legal and ethical violations, the Referee incorrectly
thought the law provided no remedy. He erroneously thought, and
the Attorneys argue here, that neither disciplinary nor non-
disciplinary cases permitted him to invalidate the gifts. Vol.
I, A119a-121a. They are mistaken. The Referee misperceived a
"gap" between the common law and the Disciplinary Rules that
supposedly "allows gifts to attorneys, such as the ones in the
present case, to be found valid although most would find them
48 See also Restatement (Third) of the Law Governing
Lawyers § 127 cmt. a (2000) ("Sanctions for a violation of this
rule include [that] . . . [a] client can rescind a gift to the
client's lawyer . . . .").
49 80 N.Y.2d 388, 590 N.Y.S.2d 836.
contrary to the standards we believe the profession should
uphold." Vol. I, A128a n.12. In other words, he mistakenly
believed that the courts were required to enforce an unethical
There is no gap, and there is a remedy. Relevant case law
requires a court to invalidate gifts to attorneys where, as here,
the attorneys violate applicable legal and ethical principles,
particularly the requirement to tell the client to obtain
independent advice. Relying on the inherent authority to
regulate lawyers it licenses, which it has exercised for more
than a century, this Court should invalidate the gifts.48
d. Matter of Henderson. The Court underscored the
importance of independent advice in Matter of Henderson.49 In
that case, decedent's sister objected to the probate of the will
because of a large bequest to the testator's attorney, allegedly
obtained by fraud and undue influence made possible by a long
professional relationship. The question on appeal from a
dismissal of the objection was whether there were triable issues
of fact. The Court held that an evidentiary hearing was
necessary, even though the attorney/beneficiary did not draft the
will (indeed refused to do so), told the client to consult
another independent attorney (referring the client to the bar
50 80 N.Y.2d at 393, 590 N.Y.S.2d at 839.
51 80 N.Y.2d at 392, 590 N.Y.S.2d at 838 (quoting EC 5-5).
52 80 N.Y.2d at 393-94, 590 N.Y.S.2d at 839.
54 80 N.Y.2d at 394, 590 N.Y.S.2d at 839-40 (emphasis
association referral service) to prepare the will, and wrote the
client a four-page memorandum to give to the other attorney
explaining the circumstances and analyzing the client's assets.
Despite the precautions taken by the attorney/beneficiary,
the Court in Henderson ruled that there may be "other facts and
circumstances" of potential relevance.50 The Court explicitly
cited and quoted EC 5-5, stating: "the Code of Professional
Responsibility suggests that an attorney who accepts a
substantial gift from a client ‘is peculiarly susceptible to the
charge that he [or she] unduly influenced or overreached the
client.'"51 The Court went on to point out that the attorney who
drew the will "never seriously inquired into [the client's]
reasons" for making the bequest, met with her only briefly, and
made no "independent review" of her personal situation.52
"Consequently," wrote the Court with EC 5-5 in mind, "it
could be inferred that Henderson did not receive the benefit of
counselling by an independent attorney."53 It further held, "In
such circumstances, the crucial element of discrete independent
representation by disinterested counsel may be lacking."54
Explaining the policy underpinning its rationale, the
55 80 N.Y.2d at 394, 590 N.Y.S.2d at 840.
Henderson Court quoted its precedents articulating the need to
"scrutinize" fiduciary transactions "with extreme vigilance." In
words directly applicable to this case, the Court wrote:
Such scrutiny is especially important when
attorney-beneficiaries are involved, since
the intensely personal nature of the
attorney-client relationship, coupled with
the specialized training and knowledge
attorneys have, places attorneys in positions
that are uniquely suited to exercising a
powerful influence over their clients'
decision. While most attorneys exercise that
power with scrupulous honesty, the risk of
undue persuasion is sufficiently substantial
as to justify judicial inquiry, at least
where, as here, there may have been no
meaningful consultation or intervention by
Henderson thus emphasizes both the need for extremely close
scrutiny of the gifts in this case and the importance of the
Attorneys' failure to advise Alice to get independent advice. It
is against this instructive background that the relevant case law
should be analyzed.
e. Disciplinary Cases Distinguished. The Referee
misplaced his reliance, as do the Attorneys in their brief, on
disciplinary cases, in which only the attorney's fitness to
practice law is at issue, and the burden of proof is reversed.
The available remedies in disciplinary proceedings are
distinct from those sought here. According to the Referee, the
56 300 A.D.2d 739, 751 N.Y.S.2d 625 (3d Dep't 2002).
57 134 A.D.2d 723, 520 N.Y.S.2d 885 (3d Dep't 1987).
58 Sherbunt, 134 A.D.2d at 724, 520 N.Y.S.2d at 887.
59 Buchyn, 300 A.D.2d at 740, 751 N.Y.S.2d at 627.
60 See 22 N.Y.C.R.R. § 605.13(c) (Office of the Chief
Counsel of the Disciplinary Committee "shall have the burden of
courts in Matter of Buchyn,56 and Matter of Sherbunt57 -- two
disciplinary cases -- found ethical violations relating to inter
vivos gifts, but did not invalidate the gifts. Vol. I, A120a.
But in disciplinary proceedings, restitution may be sought and
ordered only where there is willful misappropriation, N.Y.
Judiciary Law § 90(6-a)(a), which is not the standard here.
In Sherbunt, moreover, rescission was not even sought, and
the attorney had "urged his client to seek disinterested
advice."58 The Buchyn court had no reason to address the issue
of restitution or rescission of the disputed gifts because the
disciplinary proceeding from which the appeal arose followed on
the heels of a settlement whereby the attorney had already given
back to the client an amount "roughly equivalent to the amounts
transferred to him."59
The burden of proof in disciplinary proceedings is also the
opposite of the burden of proof here. Buchyn and Sherbunt were
disciplinary proceedings in which the burden of proof was on the
Disciplinary Committee, not the attorneys accused of
misconduct.60 The Attorneys here, unlike the attorneys in Buchyn
and Sherbunt, did bear (but did not successfully carry) the heavy
61 64 A.D.2d 820, 407 N.Y.S.2d 303.
62 64 A.D.2d at 820, 407 N.Y.S.2d at 305.
63 64 A.D.2d at 821, 407 N.Y.S.2d at 305.
64 64 A.D.2d at 820-21, 407 N.Y.S.2d at 305.
burden of proving the propriety of the gifts.
f. Non-Disciplinary Cases. Many non-disciplinary cases,
most of which were not cited by the Referee, invalidate inter
vivos gifts where the attorney failed to comply with the common
law rule or EC 5-5. The only non-disciplinary case the Referee
discussed was Radin v. Opperman, in which the Fourth Department
affirmed the return of inter vivos gifts.61 The Referee
incorrectly found Radin inapplicable because it did not cite EC
5-5 as grounds for invalidation. Vol. I, A120a-121a.
But Radin involved facts that arose before EC 5-5, so the
court's analysis would not specifically refer to EC 5-5.62 The
Fourth Department, however, relied on the failure to comply with
the common law requirement (later embodied in EC 5-5) as a reason
for invalidating the gifts: "No lawyer should accept such
beneficence without meticulously adhering to the principles above
set forth," which include having the client seek disinterested
advice.63 The court indicated that this is mandatory: "Most
damaging to his position as a lawyer is that he has not indicated
that . . . he had decedent seek disinterested advice. . . ."64
The Referee overlooked, and the Attorneys misinterpret,
65 3 A.D.2d 560, 163 N.Y.S.2d 212.
66 Reoux, 3 A.D.2d at 564, 163 N.Y.S.2d at 216.
68 105 A.D.3d 602, 963 N.Y.S.2d 250 (1st Dep't 2013).
69 Id., 105 A.D.3d at 602, 963 N.Y.2d at 252.
Reoux v. Reoux,65 in which the Third Department invalidated inter
vivos gifts based on the common law requirements later embodied
in EC 5-5, which was not then in effect. Reoux held that the
attorney "was bound by the highest punctilios of honor . . . to
see to it that the defendant was meticulously advised as to her
rights and duties."66 The court pointed out that the attorney
"never suggested independent counsel."67
The Attorneys misperceive the importance and thrust of In re
Estate of Schneiderman.68 See Attorneys' Br. at 52-53. That
recent decision supports Alice, not the Attorneys, and
illustrates the relevant propositions of law. The Appellate
Division in Schneiderman reversed summary judgment dismissing a
claim against an attorney-defendant for undue influence in
connection with a $1 million gift created by means of a joint
bank account. "Under the circumstances presented," stated the
Appellate Division, "defendant failed to overcome the presumption
of undue influence and failed to eliminate any triable issue of
fact warranting dismissal."69 Moreover, "there was no meaningful
consultation with independent counsel that would support a
70 Id., 105 A.D.3d at 603, 963 N.Y.S.2d at 252.
71 18 Misc.3d 1118(A), 856 N.Y.S.2d 503, 2007 WL 475434.
72 2007 WL 4754349, at *3.
73 Matter of Cousins, 80 A.D.3d 99, 909 N.Y.S.2d 421.
finding that decedent was not unduly influenced by defendant."70
For this last proposition, the First Department cited Matter of
Henderson, which stressed the "crucial" importance of advising
the client to get pre-gift independent advice before making the
gift. Relying on Court of Appeals precedent, Schneiderman thus
highlights the essential requirement to tell the client to seek
g. The Veneski/Cousins Decisions. Neither the Attorneys
nor the Referee refer to Veneski v. Queens-Long Island Med.
Group,71 which invalidated a $450,000 gift based on the failure
to abide by EC 5-5. The court found it "incredible that [the
attorney] even sought to claim that his client gave him such a
large gift absent careful adherence to the procedures outlined in
the Code of Professional Responsibility. . . . The [clients]
were never advised . . . to obtain independent legal counsel, and
the disputed question whether such payment was a gift was
properly resolved against [the attorney]."72
The attorney in Veneski was disbarred primarily because he
took the $450,000 "gift."73 The facts in Veneski/Cousins,
detailed in the Cousins decision, are eerily similar to ours.
Here, however, the "gifts" amounted to $5.05 million, more than
ten times the gift in Veneski/Cousins. The attorney "did not
74 80 A.D.3d at 103, 909 N.Y.S.2d at 425 (internal
quotation marks omitted).
75 80 A.D.3d at 104, 909 N.Y.S.2d at 425.
76 Two of the Attorneys confessed at trial that they had
never read the Code of Professional Responsibility in its
entirety, and the third had not read it since attending law
school in the 1970s. Vol. V, A365; Vol. VI, A717, A1043-44.
take any of the precautions one would expect a lawyer to take
when accepting a 'gift' of this magnitude from a client."74 So
too here, with even greater force.
An "aggravating factor" in Veneski/Cousins was the
attorney's "lack of remorse, candor and insufficient appreciation
of the seriousness of the proceedings."75 Here, the Attorneys'
lack of remorse is shown in their brief, and their lack of candor
is emphasized by the Referee's rejection of their trial testimony
as "incredible" and "contrived."
The Attorneys' "insufficient appreciation of the
seriousness" of the ethical issues posed by the gifts is
extraordinary. None of the Attorneys perceived "any" ethical
issues about the gifts, and they "did not review the Code,
consult ethics counsel as they had on other estate representation
issues, nor did they undertake any independent research."76 Vol.
h. Will Cases. The Attorneys and the Referee also
mistakenly relied on cases that upheld will bequests to attorneys
despite ethical lapses. Vol. I, A121a. Challenges to
testamentary gifts carry a different burden of proof from cases
involving inter vivos gifts. A person seeking to invalidate a
77 In re Kindberg's Will, 207 N.Y. 220, 228-29 (1912). See
also In re Putnam, 257 N.Y. 140 (1931).
78 141 A.D.2d 540, 529 N.Y.S.2d 153 (2d Dep't 1988).
79 Kristina Crosswell, Attorney-Client Relationships --
Undue Influence -- Fiduciary Duty Mandates That Attorney Advise
Client to Secure Independent Advice and Counsel Before Accepting
Benefit from Client, 60 Miss. L.J. 657, 669 (1990).
80 See, e.g., Reilly v. McAuliffe, 331 Mass. 144, 117
N.E.2d 811 (1954); Israel v. Sommer, 292 Mass. 113, 197 N.E. 442
(1935); Webster v. Kelly, 274 Mass. 564, 175 N.E. 69 (1931).
bequest bears the burden of proving that the bequest was
improper, whereas, in contrast, the attorney has the burden of
proof regarding an inter vivos gift.
The rule that a transaction between an
attorney and client conferring a benefit or
advantage on the former is presumptively
invalid, and the burden of relieving himself
from that presumption rests on the attorney,
is confined to transactions or gifts inter
vivos, and does not apply in all strictness
to a gift by will.77
That is why will cases like Matter of Delorey78 are inapposite.
i. Independent Advice Rule "Widely Recognized". The
soundness of the rule requiring the attorney receiving a gift to
advise a client to get independent counsel is "widely recognized"
in "many" American jurisdictions.79 Indeed, it is often not
enough for the donee-attorney to have made sure the client has
obtained independent advice; the specificity and competence of
that advice will be closely scrutinized.80 One Mississippi court
held that advising the client to obtain independent counsel is
81 Lowrey v. Will of Smith, 543 So. 2d 155 (Miss. 1989).
See also Toomey v. Moore, 213 Or. 422, 325 P.2d 805 (1958);
Marron v. Bowen, 235 Iowa 108, 16 N.W.2d 14 (1944).
82 38 Am. Jur. 2d, Gifts § 33 ("primary consideration");
C.S. Patrinelis, Undue Influence in Nontestamentary Gift from
Client to Attorney, 24 A.L.R.2d 1288 at §§ 2, 7.
83 Restatement (Third) of the Law Governing Lawyers
the only way to rebut the presumption that a gift is void.81 As
a general proposition of American law, the single most important
factor, the "primary consideration," is whether the attorney has
made sure that the client has obtained disinterested and
independent advice.82 The Restatement makes clear that, "A
lawyer may not accept a gift from a client . . . unless . . . (c)
the client, before making the gift, has received independent
advice or has been encouraged, and given a reasonable
opportunity, to seek such advice."83
Contrary to what the Attorneys say (Attorneys' Br. at 6),
recommending independent advice is "a sine qua non of satisfying
that common-law standard." It is virtually a per se rule.
Failure to tell Alice to get independent advice would, then, have
been enough by itself to void the gifts. But there are still
other reasons to affirm.
2. Extraordinary Size of Gifts
Exacerbating the failure to tell Alice to seek independent
advice are the "extraordinary amounts" of the gifts. Vol. XVII,
A7394. The Court has stressed the need for heightened scrutiny
84 Matter of Henderson, 80 N.Y.2d at 394, 590 N.Y.S.2d at
85 Restatement (Third) of the Law Governing Lawyers § 127
cmt. f (2000). See also Veneski, 2007 WL 4754349, at *3
(scrutinizing attorney gift recipient's actions in light of
substantial nature of gift); Radin, 64 A.D.2d at 820, 407
N.Y.S.2d at 305 (same).
"particularly in light of the size" of a gift to an attorney.84
For gifts of such size, one would have expected the Attorneys to
have meticulously complied with all relevant legal requirements.
Gifts in excess of $5 million from a client to attorneys are
apparently unprecedented. As the Referee stated, "[t]he three
legal ethics experts called by both sides conceded that they knew
of no other occasion when a client had given a lawyer a gift of
[that] magnitude." Vol. I, A110a-111a.
The enormity of the gifts becomes even more important when
viewed in relation to the Attorneys' compensation. The gifts
were many times their annual income and admittedly "life
altering." Vol. I, A110a; Vol. VI, A895. As the Restatement
states, if a gift is "substantial in relation to the lawyer's
assets, it suggests a motivation on the part of the lawyer to
overreach the client-donor, or at least not to have fully advised
the client of the client's rights and interests. Under [such]
circumstances, the lawyer violates the client's rights by
accepting such a gift."85
The Surrogate rejected the Referee's conclusion that the
gifts "were not unprecedented for Mrs. Lawrence herself." Vol.
I, A78a. The Surrogate compared the "magnitude" of the gifts to
"the size of the few other major lifetime gifts" Alice gave to
others (Vol. I, A78a-79a), and concluded:
That there is some disparity between these
other gifts and the challenged ones (i.e.,
simultaneous gifts [totaling $5.05 million],
not to mention the $400,000 to the firm of
which each was a member) appears clearer in
light of the fact that by the time they
received such gifts the lawyers had already
collected millions of dollars from Mrs.
Lawrence in more than handsome legal fees.
Vol. I, A79a. The Attorneys' efforts to excuse their conspicuous
failures by pointing to Alice's other, dissimilar and smaller
gifts has already been rejected.
3. Conspiracy of Silence
A most damning fact, as the Surrogate found, "is the
sustained secrecy that defendants uniformly maintained with
respect to these gifts." Vol. I, A80a. The Attorneys, conscious
of their misconduct, told no one (except their tax accountants)
about the gifts, including "those persons . . . to whom
concededly they owed a fiduciary duty." Vol. I, A115a. They
failed to tell their other co-clients (Alice's children), their
law partners, and even one of their spouses. Id.; Vol. I, A80a.
"[T]he Attorneys concealed information," stated the Referee,
"which surely would have been of great interest to [their law
partners and the Lawrence children], to whom the Attorneys owed a
fiduciary duty." Vol. I, A111a. The secrecy of the Attorneys,
not the client (Attorneys' Br. 38-39), is what matters here. The
veil of secrecy used by the Attorneys is all but ignored by the
86 See Howland v. Smith, 9 A.D.2d 197, 199, 193 N.Y.S.2d
140, 143 (3d Dep't 1959) (attorney's estate failed to show
client's conveyance to him to be free of taint "because the
circumstances surrounding the transaction itself abound with
suspicious elements, secrecy and factors wholly inconsistent with
a bona fide transaction); In re Van Den Heuvel's Will, 76 Misc.
137, 153, 136 N.Y.S. 1109, 1120 (Surr. Ct. N.Y. Co. 1912)
("clandestine" will that drafting attorney kept "profoundly
secret" not product of voluntary act). Other states also view
secrecy surrounding a gift as a powerful indicator of undue
influence. See, e.g.,In the Matter of David Gross, Dkt. No. DRB
09-186 at 40 (Sup. Ct. N.J. Disciplinary Review Board Dec. 18,
2009) (attorney's "efforts to conceal his receipt of [alleged
gift] indicate his awareness of wrongdoing"), available at
McDonald v. Hewlett, 102 Cal. App. 2d 680, 685, 687, 228 P.2d 83,
86, 87 (Cal. Dist. Ct. App. 1951) (secrecy "quite significant"
and renders testimony of lawyer "subject to suspicion");
Nicholson v. Shockey, 192 Va. 270, 64 S.E.2d 813 (1951) (silence
contributed to failure to overcome presumption of undue
Attorneys in their brief, as it was by the Referee, who
erroneously focused instead on whether Alice kept the gifts
secret. Because Alice told her accountant and best friend, the
Referee incorrectly discounted the notion of any secrecy
The Surrogate was right to cite this cloak of silence -- a
recognized badge of guilt -- as a significant factor in
invalidating the gifts.86 If Alice requested that the Attorneys
keep the gifts secret (Attorneys' Br. 39), they should not have
accepted the gifts because of their conflicting fiduciary duties,
especially to their three other clients, the Lawrence children.
"There is no exception to fiduciary duty [to one client] because
of [another] client's insistence that you violate it." Vol. IX,
A2230-35 (testimony of Prof. Stephen Gillers). Disciplinary Rule
4-101(c)(2) states that "A lawyer may reveal . . . [c]onfidences
87 See also Anonymous, 1 Wend. 108 (Sup. Ct. of Judicature
of N.Y. 1828) (it is attorney's duty to do what he has no doubt
the court would order to be done, though his client instruct him
otherwise); In re Himmel, 125 Ill. 2d 531, 539, 533 N.E.2d 790,
792-93 (1989) (rejecting attorney's argument that he did not
comply with code of professional responsibility in deference to
client instruction and holding that "A lawyer, as an officer of
the Court, is duty-bound to uphold the rules in the Code. . . . A
lawyer may not choose to circumvent the rules by simply asserting
that his client asked him to do so."); In re Doss, 367 Ill. 570,
572, 12 N.E.2d 659, 660 (1938) (attorney cannot escape
responsibilities by "urging, as an excuse, that he is only
following his client's instructions").
or secrets when . . . required by law. . . ," as was the case
That Alice even told the Attorneys to keep the gifts secret
is open to serious doubt. The only evidence of such instruction
comes from the testimony of Chill, whom the Referee found to be
not credible on a number of issues.
The Attorneys seek to create the misimpression that they did
not hide the existence of the gifts. Although they did not tell
their law partners or the Lawrence children (their clients) about
the gifts, they now claim "they" told Alice's
accountant/financial adviser (Jay Wallberg) or his associate
(Paul Bishop) about the gifts, as if that revelation lifts the
shroud of secrecy. Attorneys' Br. at 7, 57. Not so.
Chill never spoke to Wallberg or Paul Bishop about the
gifts, and because Wallberg was already aware of the gifts before
any conversation with the Attorneys, they were not "disclosing"
the existence of the gifts to Wallberg. Reich and Mallis,
moreover, did not discuss the gifts with Wallberg or Bishop until
months later, and they only did so on a confidential basis in
connection with the preparation of their own personal tax
returns, which were being prepared by Wallberg and Bishop. Vol.
VIII, A1896, A1915, A1918; Vol. VI, A897; Vol. V, A361-62. As
with many of their actions here, too, the Attorneys were looking
out for their own interests, not those of their clients.
To claim that such facts show no secrecy about the gifts is
to blink reality. It is undisputed that the Attorneys did not
tell their law partners or the Lawrence children, and that is the
secrecy that matters. If the other partners at Graubard or the
Lawrence children knew, they likely would have asked
uncomfortable questions and taken action of some sort.
* * *
These three factors -- failure to advise Alice to get
independent advice, the extraordinary size of the gifts, and the
curtain of secrecy -- were discussed by the Appellate Division,
but the record established other factors that can be relied on by
this Court, too.
4. Failure to Advise About the Gift Tax
The Attorneys' secrecy also included failure to tell Alice
about the gift tax implicated by the gifts. Vol. I, A80a. For a
gift of $5 million to be "knowing" and "perfectly" or even just
"well" understood, as the law demands, the Attorneys were
required to advise Alice about the gift tax consequences -- which
added another $2.7 million to her total cash outlay -- before she
88 At the oral argument of the first appeal in this case to
this Court, Attorney Mallis, representing himself pro se, made
the following false and misleading statement to this Court: "I
was led to understand, one of my partners did have a
conversation, not at all what she [i.e., Alice] characterizes,
but had a conversation with her about the gift taxes, but it was
not me." At trial, Mallis admitted that the above statement to
this Court was incorrect and untrue. Vol. V, A401-06. "Q. Is it
a correct statement? A. It is not. Q. So isn't true then that
you told the Court of Appeals at an argument in this case you
made a statement that was untrue? A. I misspoke, yes." Id. at
made the gifts. None of them did so.88 The Surrogate expressly
rejected the Referee's conclusion that Alice was "aware" of the
gift tax consequences, finding:
[T]he record does not support the Referee's
conclusion that Mrs. Lawrence was
sufficiently "knowing" in relation to these
particular gifts. . . . Indeed, there is
evidence that suggests the contrary. Such
evidence comes in the form of testimony
concerning Mrs. Lawrence's distress when she
learned from her tax accountant -- but only
after the gifts had become a fait accomplis
-- the extent of the tax cost to her as a
Vol. I, A80a-81a.
The Surrogate and the Referee both recognized that, even
without a per se rule requiring advice about gift tax
implications, nothing prevented the Attorneys from
"volunteer[ing] such advice," and, moreover, they "might be
expected to" do so, "given the magnitude of the gifts in issue."
Vol. I, 81a. Aware that no fact could be viewed in isolation
from the rest of the evidence, the Surrogate properly recognized
that the Attorneys' failure to advise as to the tax consequences
89 80 A.D.3d at 103, 909 N.Y.S.2d at 424. See also Radin,
64 A.D.2d at 820, 407 N.Y.S.2d at 304 (filing of gift tax return
did not validate gift); Cuthbert v. Heidsieck, 364 S.W.2d 583,
587-88 (Mo. 1963) (voiding gift to attorney from client who had
filed gift tax return, stating gift tax return could have been
"planned by defendant [attorney] to secure" the gift "without his
payment of taxes on income earned").
of the gifts was highly suspicious and "of a piece with their
other subterranean conduct in relation to these gifts." Id.
The Referee also erred in finding that Alice's filing of a
gift tax return was evidence of the gifts' validity. Several
cases have held otherwise. In Veneski/Cousins, it did not even
matter that the client had signed a gift tax return and
"reaffirm[ed] the gift multiple times over the ensuing years
while represented by other counsel."89
5. $400,000 Reluctant "Gift" to Firm
The Surrogate correctly focused on the suspicious $400,000
bonus check to Graubard, which the Referee found Chill had
solicited from Alice. Vol. I, A119a. The Surrogate explained
that this "smaller gift obviously had gone against the grain of
the donor's feelings and judgment." Vol. I, A77a. "In light of
that purported 'gift' to the firm, it would take an unwarranted
leap of faith to conclude that the multi-million-dollar checks
written at about the same time to the lawyers had not likewise
been extracted from her by some degree of pressure, whether
express or tacit, patent or subtle, from at least one of the
three donees." Id. (emphasis added).
Moreover, the Attorneys, as partners in Graubard, shared in
that $400,000 bonus. They did so without informing their
partners that they had simultaneously received $5.05 million from
Alice for their "Estate Legal Services" and without informing the
6. Lack of Forthrightness
This avalanche of suspicious facts is too much for the law
to tolerate. "[I]n view of such overall [subterranean] conduct,"
the Surrogate concluded that "defendants played their cards too
close to the vest to satisfy the standard of strict
forthrightness to which lawyers have long been held in relation
to their clients." Vol. I, A81a. The Surrogate explained that,
"for purposes of gauging defendants' bona fides, it is somewhat
telling that . . . several aspects of their testimony [were] not
C. Were the Gifts Solicited?
Although the Attorneys claim that the gifts were
unsolicited, the only testimony to support that assertion came
from Chill, whom the Referee found had no credibility. Alice --
the only other party to the discussion with Chill -- died before
the trial, but she stated, both in her complaint and in an
affidavit, that Chill had indeed solicited the huge gifts. See
Vol. I, A341a-342a (Complaint ¶¶ 15-17); Vol. IV, A1452a-1453a
(Affidavit ¶¶ 9-13).
The allegations of the complaint and evidence at trial
undermine the Attorneys' claim that the Estate does not contend
90 "Danny- I'm not sure just what I should be thanking the
firm for. (Keeping me on as a client?) You write my thank yous.
A." Vol. XV, A6035.
the gifts were solicited. The circumstances surrounding the
simultaneous $400,000 bonus to Graubard, which the Referee found
Chill had "surely" solicited (Vol. I, A119a), and the sarcastic
wording of Alice's cover note90 with that $400,000 check raise
doubts about Chill's claim of non-solicitation. That cover note
to Chill also casts grave doubts on Chill's professed non-
involvement; Alice thanks Chill for suggesting that he would
distribute those checks: "Danny C You were kind to suggest you
distribute the enclosed envelopes for me." Vol. I, A106a. He
was no mere passive recipient.
As the Surrogate stated, it would "take an unwarranted leap
of faith" to conclude the gifts were not solicited. Vol. I,
* * *
Scrutinized, as the cases teach us it should be, with "great
suspicion" and with "the most extreme vigilance" to "make it
certain" that no impropriety exists, and applying the rule with
the needed "uncompromising rigidity," the totality of the
circumstances more than justifies affirming the Appellate
Division on the gifts. Rather than clear and convincing proof of
validity, at a minimum the evidence leaves deep, troubling doubts
about whether the gifts were: (a) voluntarily and knowingly made;
(b) "perfectly" or even "well" understood by Alice; (c)
uninfluenced by fraud, duress, or mistake; and (d) "entirely"
honest, legitimate, "open," fair and "free from taint."
THE CLAIMS TO VOID THE GIFTS WERE TIMELY
The Attorneys erroneously point to the passage of time
between the gifts (1998) and when Alice challenged them (2005)
for two purposes: first, as supposed evidence of the
voluntariness of the gifts, and second, as a time-bar to the
claim. Both arguments fail because of the "continuous
In light of their continuous representation of Alice, the
Attorneys cannot say that she asserted her gift claim too late.
Every decision-maker in this case -- Referee, Surrogate, and
Appellate Division -- has ruled that Alice's claim is timely due
to the continuous representation doctrine. That doctrine holds
that the statute of limitations otherwise applicable to a
client's claim against a professional is tolled while the
professional continues to represent the client on the same or a
Such a conclusion did not expand the continuous
representation doctrine. It met and applied the traditional
elements of that doctrine. No fundamental transformation or sea
change in the law resulted. Nor is there any conflict with prior
decisions of this Court.
A. Policy Rationale
The continuous representation rule exists to avoid
91 Glamm, 57 N.Y.2d at 93, 453 N.Y.S.2d at 677-78 (1982).
See also Shumsky, 96 N.Y.2d at 167-68, 726 N.Y.S.2d at 368
92 See also Armstrong v. Morrow, 166 Wis. 1, 163 N.W. 179
(1917); 24 A.L.R.2d 1288 at § 10 (client's delay in seeking to
void gift to attorney is not laches where "relationship of
disrupting the attorney-client relationship unnecessarily, and it
recognizes that a client cannot be "expected to jeopardize his
pending case or his relationship with the attorney handling that
case during the period that the attorney continues to represent
That pragmatic understanding of the attorney-client
relationship and its psychological and emotional components is
why the lapse of time does not bar Alice's gift claim either
procedurally or on the merits. Although the delay "loomed large"
in the Referee's view of the gifts, the Surrogate, relying on a
decision of this Court, disagreed:
After all, the courts have recognized that,
so long as a client is depending upon a
lawyer for representation in an on-going
matter, the client as a practical reality may
well feel obliged to forbear from assuming an
adversarial posture against the lawyer (cf.
Shumsky v. Eisenstein, 96 NY2d 164, 167-68).
Thus, this court does not agree that the
passage of years from the time of the gifts
to the time Mrs. Lawrence contested them is
itself evidence that undermines her estate's
undue influence claim.
Vol. I, A79a-A80a. The policy behind the continuous
representation doctrine, as articulated by this Court and the
Surrogate, justifies and explains any delay.92
attorney and client has been a continuing one, the presumption
being that the influence has also been continuing").
93 56 N.Y.2d 86, 451 N.Y.S.2d 46 (1982).
94 Id., 56 N.Y.2d at 94, 451 N.Y.S.2d at 51.
95 See, e.g., Schlanger v. Flaton, 218 A.D.2d 597, 631
N.Y.S.2d 293 (1st Dep't 1995) (applying doctrine to claims for
breach of fiduciary duty and violation of disciplinary rules);
Luk Lamellen U. Kupplungbau GmbH v. Lerner, 166 A.D.2d 505, 506,
560 N.Y.S.2d 787, 788-89 (2d Dep't 1990) (continuous
representation doctrine "equally applicable to causes of action
to recover damages for legal malpractice and to causes of action
alleging a breach of contract by an attorney").
B. Not Limited to Negligence Claims
The continuous representation doctrine applies to attorney-
client transactions and is not limited to malpractice claims.
The leading case from this Court is Greene v. Greene,93 a breach
of fiduciary duty case that did not involve a malpractice claim,
but did arise from an attorney-client transaction. Greene made
explicitly clear that the continuous representation doctrine is
not limited to malpractice cases. "Nor do we agree with the
defendant's suggestion," held the Court, "that the rule should be
confined to negligence cases where it originated."94 Greene has
been consistently interpreted that way by lower courts.95
C. Sufficiently Related
The Attorneys' legal representation of Alice was ongoing and
sufficiently related to the disputed gifts to trigger the
continuous representation doctrine. The legal work performed by
the Attorneys for Alice was the Sylvan Lawrence estate
litigation. It was in connection with that litigation that they
obtained the multi-million dollar gifts.
Thus, on the memo line on each gift check, Alice wrote:
"Estate Legal Services/Gift." Vol. I, A349a, ¶ 55; see also Vol.
Vol. XV, A6026. The Attorneys describe those gifts as "an
expression of her gratitude" for their help in the fight against
Cohn, the executor of the Sylvan Lawrence estate. Attorneys' Br.
at 12. They were made "immediately after the Attorneys had
achieved what to Alice was a major victory in her battle with
[Cohn]." Vol. I, A124a.
It does not matter that the Attorneys never gave Alice legal
advice -- that is, never represented her -- concerning the gifts.
There need only be a "substantial relationship" between the
matter in dispute and the ongoing representation. Put another
way, the ongoing representation can be on the "same or related"
matter as the subject of the dispute.
Greene again supplies the answer. The attorney in Greene
96 Greene, 56 N.Y.2d at 95, 451 N.Y.S.2d at 51 (emphasis
added, citation omitted). See also Borgia v. City of New York,
12 N.Y.2d 151, 155, 237 N.Y.S.2d 319, 321 (1962) ("We hold that
at least when the course of treatment which includes the wrongful
acts or omissions has run continuously and is related to the same
original condition or complaint, the 'accrual' comes only at the
end of the treatment") (emphasis added).
concocted an illusory distinction between the matter in dispute,
i.e., the management of the trust, and the area of
representation, i.e., the creation of the trust. In rejecting
that false distinction, this Court held:
It appears to be conceded that the defendants
performed legal services on the plaintiff's
behalf by creating the trust and continued to
act as her attorney in all legal matters
relating to its administration. In addition
the plaintiff alleges that this was an
integrated plan proposed by the defendants as
a solution to her concern over the proper
investment of her funds. If these
allegations are credited, the defendants'
various activities on plaintiff's behalf can
be seen as part of a course of continuous
representation concerning the same or a
The legal battle over Sylvan Lawrence's estate did
"continue" well after the Attorneys obtained their gifts. Alice
would not have wanted to jeopardize their handling of that battle
by taking any steps to revoke or scale back the gifts in the wake
of having made them.
Given these indisputable facts, the Referee and the
Surrogate aptly applied the doctrine. "[A]s a practical
reality," ruled the Surrogate, "[Alice] may well [have felt]
obliged to forbear from assuming an adversarial posture against
97 See also Armstrong, 166 Wis. 1, 163 N.W. 179 (rejecting
claim of laches where client waited four years before challenging
attorney who continued to represent him); 24 A.L.R. 2d 1288 at §
98 The policy behind the continuous representation doctrine
also explains Alice's "thank you" notes sent after giving the
gifts. At the time, the Attorneys were still in the midst of
representing Alice, and she wrote those notes to placate her
attorneys and, in turn, not jeopardize the pending Sylvan
Lawrence estate litigation. Jay Wallberg testified that Elaine
Reich told him that the Attorneys told Alice to write those
notes. Vol. VIII, A1931-32. The Surrogate found that Wallberg's
testimony that Reich said "we got Alice to write" the thank you
notes is "some further suggestion that the lawyers themselves --
and not the client alone -- had a hand in the making of these
gifts." Vol. I, A78a (emphasis added).
[her] lawyer[s]." Vol. I, A79a. The Appellate Division
agreed.97 106 A.D.3d at 608, 965 N.Y.S.2d at 497.
* * *
The Attorneys have shown no reason to disturb the
determination by all prior tribunals that Alice's gift claims
SURROGATE ACTED WITHIN HER AUTHORITY
The Attorneys' brief largely ignores the Surrogate's
decision. But the propriety of the Appellate Division's decision
is underscored by the care and meticulousness of the Surrogate's
decision covering the gifts.
In finding that the Attorneys had failed to meet their
"heavy" burden of proof, the Appellate Division and the Surrogate
acted well within their authority. The Surrogate was entitled to
make new findings regarding the gifts where the Referee's
99 See Galiber v. Previte, 40 N.Y.2d 822, 824, 387 N.Y.S.2d
561, 562 (1976) ("On its own initiative, Special Term had the
power to confirm or reject, in whole or in part, the report of
the referee . . . . ").
100 Barrett v. Stone, 236 A.D.2d 323, 324, 653 N.Y.S.2d 598,
598 (1st Dep't 1997) (internal quotation marks omitted) ("Under
CPLR 4403, the motion court could, with respect to the Special
Referee's report, make new findings with or without taking
101 See Northern Westchester Prof'l Park Assocs. v. Town of
Bedford, 60 N.Y.2d 492, 499, 470 N.Y.S.2d 350, 354 (1983)
(affirming Appellate Division holding that plaintiff had not met
burden of proof, even though trial court had found for plaintiff;
the authority of the Appellate Division "is as broad as that of
the trial court . . . and that as to a bench trial it may render
the judgment it finds warranted by the facts, taking into account
in a close case ‘the fact that the trial judge had the advantage
of seeing the witnesses.'") (quoting York Mortgage Corp. v.
Clotar Constr. Corp., 254 N.Y 128, 134 (1930)).
findings were unsupported by the record or against the weight of
the evidence. The Surrogate assessed the record as a whole, and
the Appellate Division, in turn, relied on her conclusions.
The Surrogate was not required to act as a mere rubber stamp
of the Referee. SCPA 506(4) and CPLR 4403 authorize her to
"confirm or reject, in whole or in part," the Referee's report,99
and to "make new findings with or without taking additional
testimony."100 She gave deference where deference was due, and
made her own determinations where she was allowed to and where,
in her view, the record evidence compelled her to do so.
The Surrogate was keenly aware of the "applicable standards"
of review, as is reflected in her decision. There, she points
out that her function resembled "that of an appellate court in
reviewing the trial court's determination."101 Vol. I, A74a
(internal quotation omitted). As a result, the "court may adopt
102 Cohen v. Hallmark Cards, Inc., 45 N.Y.2d 493, 498, 410
N.Y.S.2d 282, 285 (1978).
or reject the Referee's recommendations, in whole or in part."
Id. She goes on, "[w]here the findings below depend upon
credibility, the court must give the Referee's findings 'great
weight,' since he presided at the trial and was thus in the best
position to assess credibility. Nevertheless, it is still open
to the court to make new findings (CPLR 4403) to the extent, if
any, that the findings below are unsupported by the record or
against the weight of the evidence." Vol. I, A74a (citations
The Surrogate's compliance with the appropriate level of
review is further highlighted throughout the text of her
decision. She did not presume to revisit any of the Referee's
factual findings based on credibility. Instead, she found that
any such findings could not, as to the gifts, have led to the
conclusions he ultimately drew. Her analysis was the product of
careful attention to the limits of her authority. In any event,
"[i]n reviewing a judgment of Supreme Court, the Appellate
Division has the power to determine whether a particular factual
question was correctly resolved by the trier of facts."102
* * *
Based on the Attorneys' failure to carry their burden of
proof, the timeliness of Alice's gift claim, and the scope of the
authority of the Surrogate and the Appellate Division, the gifts
were properly ruled invalid, and that ruling should be affirmed.
103 Graubard was fortunate. The courts could have ruled
that forfeiture was appropriate due to improper behavior of the
Attorneys (partners in Graubard) in connection with the gifts and
their unethical treatment of the Graubard children. See, e.g.,
Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 44, 556
N.Y.S.2d 239, 242 (1990); Quinn v. Walsh, 18 A.D.3d 638, 638, 795
N.Y.S.2d 647, 648 (2d Dep't 2005); Yannitelli v. D. Yannitelli &
Sons Constr. Corp., 247 A.D.2d 271, 272, 668 N.Y.S.2d 613, 613
(1st Dep't 1998); Automatic Bedding Corp. v. Ortner, 26 A.D.2d
664, 665, 272 N.Y.S.2d 628, 629 (2d Dep't 1966); Chen v. Chen
Qualified Settlement Fund, 552 F.3d 218, 225 (2d Cir. 2009). Or,
as the revised retainer was procedurally unconscionable and
substantively unconscionable from day one (that is, not just in
hindsight), courts could have denied all fees for work
thereafter. The Appellate Division's determination was, in other
words, kind to Graubard, not "punitive" as amicus New York State
Trial Lawyers Association ("NYSTLA") claims.
PART TWO -- UNCONSCIONABLE REVISED RETAINER
Because the Attorneys also engineered a revised retainer
that was procedurally and substantively unconscionable (as shown
below), the Appellate Division correctly looked to the original
retainer to determine Graubard's compensation.103 In so doing, it
followed settled New York case law. Its decision also comports
with the general precept that time charges are a "reasonable" way
to determine a fee award.
REVERSION TO ORIGINAL RETAINER APPROPRIATE
The Appellate Division, the Surrogate, and the Referee all
agreed that the revised retainer was unconscionable and that
Graubard should not receive $44 million in fees. Only the
Appellate Division, however, applied the appropriate remedy: it
reverted to the terms of the original fee agreement, which
resulted, in addition to the $22 million in time charges Graubard
104 214 A.D. 622, 212 N.Y.S. 577.
received before 2005, in a recovery by Graubard of $2,919,605.15
more in time charges for the four a half months' work done since
January 2005. Vol. XVII, A7396. This is correct as a matter of
precedent, policy and fairness.
It was neither appropriate nor necessary to devise a
complex, arbitrary and discretionary formula to calculate
Graubard's fee. Such an approach misconstrues well-settled
authority, as it assumes that when a fee is found to be
unconscionable or unreasonable, the court may "either reduce the
contingent-based fee to a reasonable and fair amount, or strike
it entirely and award an amount on the basis of quantum meruit."
Vol. I, A187a (emphasis added, citations omitted). Rather, the
correct approach, regardless of whether the revised retainer is
unconscionable on procedural or substantive grounds, is to rely
on the surviving original agreement.
A. Applicable Precedent
The correct rule, adopted by the First and Second
Departments, is that where a revised fee agreement is
unenforceable, the prior fee agreement is used to calculate the
attorney's fee. For example, at issue in Matter of Smith,104
cited by the Appellate Division, were an original contingency fee
and a revised contingency fee in Surrogate's Court. The First
Department found the revised retainer inequitable and
unenforceable and, as a result, held that the original retainer
105 271 A.D.2d at 634, 706 N.Y.S.2d at 190.
106 351 F. Supp. 2d at 265.
107 Matter of Friedman, 136 A.D. 750, 752, 121 N.Y.S. 426,
428 (2d Dep't 1910).
108 See, e.g., Matter of Goliger, 58 A.D.3d 732, 871
N.Y.S.2d 689 (2d Dep't 2009); Matter of Guattery, 278 A.D.2d 738,
739, 717 N.Y.S.2d 764, 766 (3d Dep't 2000); Matter of Coughlin,
Similarly, in Connors v. Wildstein,105 the Second Department,
confronted with a revised contingency fee retainer that called
for a fee in excess of that Court's schedule of reasonable fees,
rejected the revised retainer and found that "the defendant was
entitled only to the amount authorized by the initial retainer
A federal court in Manhattan applying New York law reached
the same result. In Naiman v. New York Univ. Hosps. Ctr.,106 also
relied on by the Appellate Division, the court rejected a
modified retainer and ordered fees to be calculated based on the
The idea of a choice in fixing a fee arises from a
misinterpretation of an inapplicable line of authority finding,
in the absence of a prior fee agreement, that a court can reduce
an unconscionable or unreasonable fee to a fair and reasonable
fee.107 The cases that invoke this rule do not involve revised
retainers; rather, they involve original void retainer
agreements, and therefore, the courts had no previous agreement
to guide them.108
221 A.D.2d 676, 677, 633 N.Y.S.2d 610, 611-12 (3d Dep't 1995);
Matter of Schanzer, 7 A.D.2d 275, 278, 182 N.Y.S.2d 475, 480 (1st
Dep't 1959); 520 E. 72nd Commercial Corp. v. 520 E. 72nd Owners
Corp., 691 F. Supp. 728, 738-39 (S.D.N.Y. 1988).
109 174 N.Y. 15 (1903).
110 See, e.g., Boyle v. Waters, 206 Mich. 515, 523, 173 N.W.
519, 522 (1919) (finding, where counsel failed to show valid
In re Fitzsimons109 is not, as Graubard argues, in conflict
with the First Department in this case, or with Smith, Naiman or
Connors. Graubard mischaracterizes Fitzsimons. The case says
nothing about the remedy when unconscionability is found. The
case was remanded on the issue of unconscionability, in the event
of which a remedy would be decided. The case says nothing about
how the remedy will be computed. Fitzsimons, moreover, dealt
with an original, not a revised, retainer.
Graubard's other authority is equally inapplicable, as none
of it involves a valid original retainer purportedly replaced by
an invalid revision. Rather, it stands for the unremarkable
proposition that where a retainer agreement would result in an
attorney receiving an unconscionable fee, that fee should be
reduced. None of Graubard's authority confronts the most
important factual circumstance of this litigation: that the
unconscionable fee agreement replaced a valid 22-year arrangement
between the parties.
Use of a prior fee agreement when a revised agreement is
invalid has deep and widespread support in the law of sister
states.110 It is also consistent with the general rule regarding
modification of fee agreement, that counsel's "right to
compensation must be determined by their first contract of
hire"); Fischoff v. Hamilton, 2012-Ohio-4785, 2012 WL 4903096, at
*1 (Ohio Ct. App. Oct. 17, 2012) (enforcing original fee
agreement where modification found void for failure to perform);
Stroud v. Tunzi, 72 Cal. Rptr. 3d 756, 762, 160 Cal. App. 4th
377, 385 (Cal. Ct. App. 2008) (rejecting request for quantum
meruit instead of enforcement of original fee agreement where
modification of original fee agreement failed); Christian v.
Gordon, 43 V.I. 179, 2001 WL 883551, at *4 (Terr. V.I. June 20,
2001) (rescinding unconscionable revised fee agreement based on
contingency and declaring that original hourly fee agreement
111 See Leinwand v. Swan Coin-o-Matic Laundry, Inc., 115
A.D.2d 302, 302, 496 N.Y.S.2d 118, 118 (4th Dep't 1985); M.W.
Realty Assocs. v. 805 Third Ave. Co., 125 Misc. 2d 1077, 1080,
480 N.Y.S.2d 674, 676 (Sup. Ct. N.Y. Co. 1984); Galfand v.
Chestnutt, 402 F. Supp. 1318, 1329 (S.D.N.Y. 1975). See also
Restatement (Second) of Contracts § 279 cmt. b (1981) ("on
avoidance of the substituted contract the original duty is again
enforceable"); Restatement (First) of Contracts § 408 cmt. b
(1932) ("on avoidance of the second [contract varying the terms
of an original agreement between the parties,] the original
contract again comes into effect").
112 See, e.g., Matter of Winckler, 234 A.D.2d 307, 651
N.Y.S.2d 69 (2d Dep't 1996); Matter of Musso, 227 A.D.2d 404, 642
N.Y.S.2d 322 (2d Dep't 1996); In re Beatty's Will, 206 Misc. 542,
133 N.Y.S.2d 651 (Surr. Ct. Suffolk Co. 1954).
113 See Cortesi v. R&D Constr. Corp., 73 N.Y.2d 836, 838,
537 N.Y.S.2d 475, 475 (1988); Cappelli v. State Farm Mut. Auto.
Ins. Co., 259 A.D.2d 581, 582, 686 N.Y.S.2d 494, 494 (2d Dep't
1999); Marcus Brothers Textiles, Inc. v. Avondale Mills, Inc., 78
A.D.2d 800, 800, 433 N.Y.S.2d 114, 115-16 (1st Dep't 1980).
contracts under New York law,111 as well as the rule regarding
wills: If the most recent will is invalid, then the court looks
to the earlier will.112
The law is settled in New York that where modification of an
agreement fails, the original agreement's provisions govern.113
Alice never "abandoned" the original fee arrangement, nor did
Graubard. The revised retainer specifically states that it is a
114 See Bercow v. Damus, 5 A.D.3d 711, 712, 776 N.Y.S.2d
289, 291 (2d Dep't 2004) (no later agreement).
115 43 N.Y.2d 305, 323, 401 N.Y.S.2d 449, 457 (1977).
"modif[ication of] our existing retainer agreement," not an
abandonment of that agreement. Vol. X, A2985. Graubard's
relationship with Alice, the main subject of the retainer, was
unchanged. Only one aspect of that relationship -- payment --
was modified, and all other terms of the agreement remained
The "abandonment" authority cited by Graubard is not
controlling. Neither of those cases deals with attorney retainer
agreements, let alone midstream modifications like the one at
issue here. One does not even address what happens to the
original agreement when a later agreement fails.114
The only other case Graubard cites, Matter of Estate of
Rothko,115 is inapposite for two powerful reasons. First, and
most important, Rothko was not a case in which the Court was
reviewing the fiduciary duties of a lawyer to a client, which
receive special attention. Second, in Rothko, the gallery
colluded with the executors to cheat the estate. It reached a
deal with regard to the paintings that was voidable and was
voided. It then tried to get the right to sell the paintings
under the original agreement with Rothko made while he was alive.
The Court found the original agreement to have been abandoned and
refused to let a party who had tried to cheat the estate
resuscitate its original position via an earlier agreement. That
116 Brown v. Allen, 344 U.S. 443, 496 (1953).
117 I James Kent, Commentaries on American Law 320-21
is a far cry from this case, where the same parties sought to
modify a single provision of their earlier agreement, and the
modification specified that it was just that -- a modification of
the earlier agreement, not a repudiation.
Because the revised retainer was invalid, the terms of the
original retainer control.
B. Policy Favoring Standards
One major virtue of reverting to the original retainer is
the predictability of the outcome and avoidance of standardless
results. The law generally hesitates to give courts more leeway
than necessary when making decisions. As Justice Frankfurter
once said: "Discretion without a criterion for its exercise is
authorization of arbitrariness."116 And one of the greatest early
New York judges, Chancellor Kent, agreed that, without guidance,
"the courts would be left to a dangerous discretion, and to roam
at large in trackless fields of their own imagination."117
Fixing a lawyer's fee is one such situation. The Referee's
$15.8 million fee award had no basis in the record. Reverting to
a valid prior retainer, when such a retainer exists, provides
standards used by the parties themselves (in this case for 22
years). The Referee's award, by contrast, was wholly subjective
and cannot be justified under any standard of review.
118 Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 546
(2010). See also City of Burlington v. Dague, 505 U.S. 557, 562
119 Perdue, 559 U.S. at 551-52 (citation and quotation
C. Time Charges Plus Interest Are Fair
Awards based on attorney time charges are widely regarded as
fair and "reasonable," and there is no reason to disturb the
Appellate Division's determination. It is, after all, what the
parties agreed to and what Graubard relied on to charge and
collect from the client $22 million in fees for the prior 22
years. It is also fair in view of the law firm's fostering
Alice's impression that she could expect a recovery of only "a
The Appellate Division's approach is in accord with the
"lodestar method" of determining fee awards, which is often used
in fee-shifting analyses. Based on the number of hours worked
multiplied by prevailing hourly rates in the community, the
method has, according to the United States Supreme Court, a
"strong presumption" of being a sufficient measure of a
Among the benefits of the lodestar method are that it
roughly approximates the fee the attorney would have received
under an hourly billing arrangement, it is "readily
administrable," and it is "objective . . . and thus cabins the
discretion of trial judges, permits meaningful judicial review,
and produces reasonably predictable results."119 Quality of
120 Perdue, 559 U.S. at 554. See also McGrath v. Toys "R"
Us, Inc., 3 N.Y.3d 421, 429-30, 788 N.Y.S.2d 281, 284-85 (2004)
(applying lodestar method in determining fees in action based on
New York City Human Rights Law); Gamache v. Steinhaus, 7 A.D.3d
525, 527, 776 N.Y.S.2d 310, 311-12 (2d Dep't 2004) (Article 78
proceeding to compel county to make certain personnel
appointments and salary adjustments); Gutierrez v. Direct
Marketing Credit Servs., Inc., 267 A.D. 427, 427, 701 N.Y.S.2d
116, 117 (2d Dep't 1999) (FDCPA action); City of Burlington, 505
U.S. at 562.
121 "Once upon a time, walking around shouting ‘The end is
nigh' got you labeled a kook, someone not to be taken seriously.
These days, however, all the best people go around warning of
looming disaster." Paul Krugman, Addicted to the Apocalypse,
N.Y. Times, Oct. 25, 2013, at A27.
representation, results obtained, complexity of a case, and other
factors are normally reflected in the billable hours calculation,
and thus, except in "rare" or "exceptional" cases, the approach
will track a calculation based on hourly rates.120
D. No Impact on Future Valid Contingency Fees
The fee awarded by the Appellate Division should not be
disturbed because of imaginary scenarios conjured by Graubard.121
For example, it is never a "windfall" for a litigant to receive
proceeds from a valid settlement. Except for the fee, those
proceeds belong to the client. Graubard's hypothetical scenario
describing its possible recovery had the underlying dispute
settled before production of the Epps documents is also both
irrelevant and unsupported. See Graubard Br. at 121-22.
122 King, 7 N.Y.3d at 191, 818 N.Y.S.2d at 840 (quoting Shaw
v. Mfrs. Hanover Trust Co., 68 N.Y.2d 172, 176, 507 N.Y.S.2d 610,
612 (1986)); see also, e.g., Lawrence, 11 N.Y.3d at 595, 873
N.Y.S.2d at 520.
123 King, 7 N.Y.3d at 190, 818 N.Y.S.2d at 839 (quoting
Greene, 56 N.Y.2d at 92, 451N.Y.S.2d at 49). See also Jacobson v.
Sassower, 66 N.Y.2d 991, 993, 499 N.Y.S.2d 381, 382 (1985); In re
Howell, 215 N.Y. 466, 473 (1915); Whitehead v. Kennedy, 69 N.Y.
462, 466 (1877); Lawrence, 48 A.D.3d at 8, 853 N.Y.S.2d at 6; EC
124 Shaw, 68 N.Y.2d at 176, 507 N.Y.S.2d at 612.
The revised retainer is infected with procedural
unconscionability. The genesis of the revised retainer does not
To meet their burden to establish that the retainer
agreements they draft are not procedurally unconscionable,
attorneys must show that such agreements "'are fair, reasonable,
and fully known and understood by their clients.'"122 The
attorney must show that "the client acquiesced in the agreement
‘with full knowledge of all the material circumstances known to
the attorney,' and that such acquiescence was not brought about
by fraud on the attorney's part, or misconception on the part of
the client."123 "The importance of an attorney's clear agreement
with a client as to the essential terms of representation cannot
be overstated. The client should be fully informed of all
relevant facts and the basis of the fee charges, especially in
contingent fee arrangements."124 Here, too, the courts apply
"uncompromising rigidity" in analyzing the fairness of the
125 In re Bond & Mortgage Guarantee Co., 303 N.Y. at 431
(quoting Wendt, 243 N.Y. at 444).
126 See also, e.g., Shaw, 68 N.Y.2d at 176, 507 N.Y.S.2d at
612; Greene, 56 N.Y.2d at 92, 451 N.Y.S.2d at 49; Jacobson, 66
N.Y.2d at 993, 499 N.Y.S.2d at 382.
When a retainer agreement is revised during the course of
representation, the attorney bears the burden of establishing, by
more than a preponderance of evidence, that the revision is
reasonable and fair, that the client was informed of all material
facts known to the attorney, that it was fully understood by the
client, and that there was no undue influence. "The courts'
expression of heightened scrutiny given a midstream retainer
modification suggests that a higher standard of proof would
apply, and that clear and convincing evidence of conscionability
may be required." Vol. I, A153a (Referee's Report).126
Graubard's focus on who initially suggested the revised retainer
is misleading and irrelevant.
Equally irrelevant is Graubard's portrayal of Alice as
sophisticated. Whether or not Alice was as savvy and independent
as Graubard claims has no bearing on any disclosure obligations
to Alice under DR 5-104(A), and their obligation to have fully
informed Alice of the implications and consequences of the
revised retainer was unconditional.
[T]he Code of Professional Responsibility
places the burden upon counsel, irrespective
of the sophistication of the client, to
obtain his consent after full disclosure
before entering into a business transaction .
127 Forest Park, 175 A.D.2d at 62, 572 N.Y.S.2d at 319
(emphasis added). See also Schlanger, 218 A.D.2d at 602, 631
N.Y.S.2d at 297 (relying on Forest Park, rejecting attorney's
argument that he was excused from complying with DR 5-104(A)
because client was a "sophisticated businessman").
128 NYSTLA Br. at 11.
. . where the differing interests of counsel
and the client may interfere with the
exercise of professional judgment for the
As the facts at trial showed, Graubard failed to:
$ Ensure that Alice fully understood the revised
retainer, including addressing her misconception that
she, rather than Graubard, would receive the largest
amount in any recovery;
$ Fully inform Alice about all relevant circumstances,
including Graubard's view that recovery would likely be
nearly $50 million, while Graubard knew that Alice
expected a recovery of not more than a few million
$ Obtain Alice's written consent to the law firm's
conflict in entering the revised retainer.
These failures, coupled with the revised retainer's lack of risk
for Graubard, undercut the premise of the amicus brief. The
NYSTLA states that its position would be different if the law
firm had engaged in "misconduct" or "overreaching," but that is
exactly what happened here.128
A. Not Fully Understood
As the Appellate Division found, Graubard "failed to show
that [Alice] fully knew and understood the terms of the retainer
agreement -- an agreement she entered into in an effort to reduce
her legal fees." 106 A.D.3d at 609, 965 N.Y.S.2d at 497.
Alice's misconceptions about the revised retainer are shown by
the disconnect between what she thought she was getting under the
agreement and what she got. Alice wanted, according to Chill,
the "lion's share" of the recovery, "the bulk of the money," and
to be the "senior partner" in any arrangement with Graubard.
Vol. VI, A699, A701, A803. Graubard's insinuation that this
intent was irrelevant because Alice expressed it to Chill during
negotiations makes no sense; of course Alice's statements during
negotiations bear on her understanding of the agreement she was
But, as the Appellate Division and the Referee already
found, and as Chill admitted, it was Graubard, and not Alice,
that stood to recover the most under the revised retainer. Vol.
XVII, A7394, Vol. VI, A833.
The revised retainer agreement provides that
Graubard's 40% be paid from Mrs. Lawrence's
share of the settlement. . . . As of November
30, 1996, Mrs. Lawrence's interest in
Sylvan's Estate was fixed at 75.9378%.
(Report, p. 18). Consequently, using
Graubard's $110.3 figure for the settlement
amount, Mrs. Lawrence's 75.9378% share of
those funds would be approximately
$83,758,511. If Graubard's 40% fee is then
paid from those funds, the remainder left to
Mrs. Lawrence (and now her Estate) would be
approximately $41,638,511 -- $2,481,489 less
than the $44,120,000 Graubard would receive.
Vol. I, A301a (footnote omitted) (Sept. 23, 2009 Referee's
Report). Graubard should have explained this to Alice.
Graubard would actually recover more of any settlement than
129 See, e.g., EC 7-1 ("The duty of a lawyer . . . is to
represent the client zealously"); Lawrence J. Vilardo & Vincent
E. Doyle III, Where Did the Zeal Go?, 38 Litigation 53 (2011);
see also Vol. IX, A2250; Vol. V, A483. Graubard's suggestion,
and amicus NYSTLA's outright assertion, that a contingent fee
gives an attorney an extra incentive to perform zealously ignores
in disturbing fashion that this duty does not depend on how much
an attorney expects to be paid.
Alice. After doing the complicated calculation explained by the
Referee and deducting the 40% to Graubard, Alice's share would
only be 35%. Not only would Alice not be receiving the "lion's
share," but the percentage stated in the revised retainer (40%)
is misleading, because Graubard would, in fact, be receiving more
than 50% of Alice's recovery amount. In these circumstances, as
Professor Stephen Gillers testified, Graubard should have
recognized that Alice was mistaken in believing that she would
receive the largest share of the recovery. Vol. IX, A2258-59.
Graubard also failed to explain to Alice that the revised
retainer would not meet her stated fee objectives. Alice asked
to renegotiate the time-charge retainer "in an effort to reduce
her legal fees." Vol. XVII, A7394. The new agreement would not
reduce those fees.
Chill and Graubard failed to clarify another fundamental
misunderstanding: Alice's belief that increasing Graubard's share
to 40% from the 30% she proposed, would "give you [Graubard] some
incentive to work really hard for me." Vol. VI, A700. Alice,
like any client, was entitled to zealous advocacy regardless of
the fee arrangement.129 Graubard did not explain to Alice that
its obligations to her would not change, thereby leaving Alice
130 See,e.g., King, 7 N.Y.3d 181, 818 N.Y.S.2d 833; Shaw, 68
N.Y.2d 172, 507 N.Y.S.2d 610; Whitehead, 69 N.Y. 462; In re
Howell, 215 N.Y. 466.
with the misimpression that the increased percentage under the
revised retainer would somehow obligate Graubard to work harder.
B. Alice Was Not Fully Informed
Graubard failed to disclose material facts to Alice before
she signed the revised retainer. Ethicist Gillers testified that
the cases on attorney fee arrangements:
emphasize the importance of a fully informed
client using words like well understood or
perfectly understood or fully aware of the
consequences, or the material considerations
. . . you want a client who knows the
implications of what he or she is doing.
Vol. IX, A2215-16.130 Gillers explained that a client -- even a
somewhat sophisticated, independent client like Alice -- must
have full knowledge of the material consequences of the new
agreement, and must be able to evaluate its relative advantages
and disadvantages as compared to the existing agreement. Vol.
IX, A2250-56. Graubard did not give Alice that knowledge.
Graubard's failure to inform had three components: (a)
failure to disclose the potential upside under the revised
retainer; (b) failure to discuss the status of the case with
Alice; and (c) failure to honor its fiduciary duty.
1. Failure to Disclose Potential Upside
Graubard misled Alice about a potential large recovery.
Graubard had determined that the likely recovery on the remaining
claims was almost $50 million, but, as the Referee found, Alice
was under the misimpression, based on Graubard's encouragement,
that "any recovery would be in the single digit millions, 'a few
mil'" and "Chill did not express any disagreement." Vol. I,
A185a. Chill failed to "discuss with Alice any upside in the
range of recovery 'in the many tens of millions of dollars.'"
Vol. I, A171a, 184a-185a.
Knowing that Alice mistakenly understood her chances of
recovery to be so low, Chill and Graubard should have discussed
with Alice, but did not, what they viewed as a high-end recovery.
Thus, while Graubard had the benefit of more complete information
(including a memo analyzing possible outcomes, the revised
retainer, the status of the case, and the impact on the firm)
when it drafted and agreed to the revised retainer, it kept Alice
in the dark.
More accurately, Chill duped Alice into believing that a
contingency fee would be a reasonable way to proceed.
According to Chill, Alice thought that without the 95 Wall
Street claim (dismissed in a December 2004 decision), "all that's
left is a claim for a few mil[lion]." Vol. VI, A697. Although
the Attorneys' witnesses testified at trial that they believed
the 95 Wall Street decision would "cast a pall" on all of Alice's
other claims, the Referee rejected that alleged interpretation as
"patently erroneous." Vol. I, A173a, 179a. He did not think his
95 Wall Street decision "was in fact or even in the Firm's
131 See Lawrence, 48 A.D.3d at 8, 853 N.Y.S.2d at 6 (court
must determine "whether [client] understood the ramifications of
the revised agreement"); Whitehead, 69 N.Y. at 466 (attorney "is
bound to establish affirmatively that [the agreement] . . . was
in every respect free from . . . misconception on the part of the
client"); In re Howell, 215 N.Y. at 474 (same).
132 King, 7 N.Y.3d at 190, 818 N.Y.S.2d at 839.
contemplation a devastating blow" to the remaining claims. Vol.
I, A173a. Graubard wrongly let Alice believe that without the 95
Wall Street claim, the most she could hope for was "a few mil."
Graubard also did not present any evidence that Alice
understood that the contingency percentage would stay the same if
there were a recovery much beyond a few million dollars. That
information would have been material to her decision to accept
the contingency fee arrangement.131 According to Professor
Gillers, the revised retainer:
was reached without giving Alice Lawrence the
information . . . I've summarized as a number
crunching and predicting information about
the possible direction of the cases and the
outcomes. . . . [S]he was not provided by the
lawyers with the pros and cons . . . and the
absence of information . . . leads to my
conclusion it was not procedural[ly]
Vol. IX, A2542-43. As Gillers explained, Graubard hid key
information from Alice.
Because Graubard did not disclose to Alice "all the material
circumstances known to the attorney,"132 the Appellate Division
correctly found the revised retainer procedurally unconscionable.
2. Failure to Discuss Case Status
In early and mid-January 2005, when the revised retainer was
under discussion, Graubard never reviewed the status of the case
with Alice, either orally or in writing. No one discussed with
her the likelihood of success, the potential recovery, how long
the case could continue, or the benefits and risks of the revised
retainer compared with Alice's 1983 retainer. Vol. V, A473-75;
Vol. VI, A807-08.
The only communication from Graubard to Alice regarding the
case status at that time was Chill's January 10, 2005 letter to
the Referee (Alice was blind copied). Vol. X, A2989-91. That
letter asked for "a trial of the remaining objections" within a
matter of months. Vol. X, A2989. The letter also stated that
Graubard did "not anticipate making any additional summary
judgment motions" and that a "relatively manageable amount . . .
remains to be done." Id. Chill concluded that "all concerned
deserve closure." Vol. X, A2990.
Between November 2004 and March 2005, Graubard sent no
analysis of Alice's claims to her. Vol. V, A489-90. This
omission at a critical moment is particularly noteworthy in
contrast to the flurry of memos and letters Graubard sent to
Alice between 1997 and 2004 analyzing claims and potential
recoveries in the action. Vol. V, A489; Vol. X, A2903-39, A2963-
Alice was entitled to the same information that Graubard had
133 See King, 7 N.Y.3d at 190, 818 N.Y.S.2d at 839 (client
must have "'full knowledge of all the material circumstances
known to the attorney'") (quoting Greene, 56 N.Y.2d at 92, 451
N.Y.S.2d at 49); In re Howell, 215 N.Y. at 473 (same); Whitehead,
69 N.Y. at 466 (same); Lawrence, 48 A.D.3d at 8, 853 N.Y.S.2d at
6 (court must determine "what [client] was advised"); see also
(Vol. IX, A2263).
134 See In re Cooperman, 83 N.Y.2d 465, 472, 611 N.Y.S.2d
465, 467 (1994) (describing client's "unique fiduciary reliance"
on attorney, and including among an attorney's duties "honoring
the clients' interests over the lawyer's").
135 Sterling Nat'l Bank v. Israel Disc. Bank of N.Y., 305
A.D.2d 184, 186, 762 N.Y.S.2d 584, 586 (1st Dep't 2003)
when deciding whether to agree to the revised retainer.133 By
contrast, although Chill discussed with Graubard's managing
partner the pros and cons of the revised retainer (Vol. VI, A818-
19), he did not have any such conversation with Alice. Vol. VI,
A815, A817-18, A823. Due to Graubard's nondisclosures, Alice had
less information than her lawyers regarding the future course of
3. Graubard's Breach of Its Fiduciary Duty
As a fiduciary, Graubard had an absolute duty to inform
Alice of its view that she would likely recover much more than
the "few mil" she expected.134 That is particularly so because it
knew more than she did. New York applies the
rule of "superior knowledge" in an array of
contexts in which silence would at one time
have escaped criticism. It is no longer
acceptable, if it ever was, to conclude in
knowing silence, a transaction damaging to a
party who is mistaken about its basic factual
assumptions when . . . he would reasonably
expect a disclosure.135
(citations omitted; omission in original). See also Greene, 56
N.Y.2d at 92, 451 N.Y.S.2d at 49-50 (finding that, even absent
proof of fraud or undue influence, fiduciary relationship between
attorney and client means that agreement between them may be
invalid unless attorney can demonstrate "that the client was
fully aware of the consequences and there was no exploitation of
the client's confidence in the attorney"); Genger v. Genger, 21
Misc. 3d 1132(A), 875 N.Y.S.2d 820, 2008 WL 4938269, at *4 (Sup.
Ct. N.Y. Co. 2008) (party has duty to disclose material facts (1)
if there is fiduciary relationship, or (2) if one party has
superior knowledge); cf. Kaufman v. Cohen, 307 A.D.3d 113, 120,
760 N.Y.S.2d 157, 165 (1st Dep't 2003) (failure of fiduciary to
disclose material facts may constitute actual fraud).
136 691 F. Supp. 728 (S.D.N.Y. 1988), aff'd, 872 F.2d 1021
(2d Cir. 1989).
137 691 F. Supp. at 738.
139 See King, 7 N.Y.3d at 192, 818 N.Y.S.2d at 841 ("perhaps
the most important" factor in determining whether a fee agreement
In 520 E. 72nd Commercial Corp. v. 520 E. 72nd Owners
Corp.,136 an attorney who acted as general counsel to a co-op
board on a flat rate retainer was separately retained to sue on
the board's behalf under a contingency agreement, which the court
held to be unconscionable. The court noted that when the
attorney "executed the contingency agreement, he stood in a
fiduciary capacity vis-a-vis the Cooperative."137 The court held
that he "had a duty to present fairly and fully," among other
things, "the values at stake, and the likelihood of success," and
that he failed to do so.138 Similarly, here, Graubard had a
fiduciary duty to Alice and breached that duty when it failed to
disclose its assessment of the potential value of the
is unconscionable "is whether the client was fully informed upon
entering into the agreement with the attorney"); Whitehead, 69
N.Y. at 466 (attorney must show that client had "full knowledge
of all the material circumstances known to the attorney"); Shaw,
68 N.Y.2d at 176, 507 N.Y.S.2d at 612 ("client should be fully
informed of all relevant facts"); In re Howell, 215 N.Y. at 473
(attorney must provide evidence that the client signed the
agreement "with full knowledge of all the material circumstances
known to the attorney who drafted the same"); Greene, 56 N.Y.2d
at 92-93, 451 N.Y.S.2d at 49-50 (attorney must show that client
was "fully aware of" and "fully and fairly informed of the
consequences of the agreement"); see also EC 2-20 (lawyer may
enter contingent fee agreement with client otherwise able to
afford fixed fees if client is "fully informed of all relevant
140 351 F. Supp. 2d at 264.
C. Failure to Get Written Consent to Law Firm Conflict
A related but distinct aspect of procedural
unconscionability is DR 5-104, which bars attorney-client
business transactions unless: (a) the terms are fair and
reasonable to the client and fully disclosed in writing in a way
the client can understand; (b) the lawyer advises the client to
seek independent counsel; and (c) the client consents in writing
to the terms of the transaction and the lawyer's conflict, after
full disclosure. Graubard failed to obtain written consent from
Alice regarding its conflict in entering into the revised
retainer. Vol. V, A464; Vol. VI, A810-11, A916. If DR 5-104
covers midstream modifications of retainers, then the revised
retainer violated DR 5-104 and was procedurally unconscionable
for that reason as well.
DR 5-104 should apply. In Naiman v. New York Univ. Hosps.
Ctr.,140 the court stated that "a midstream modification that
141 See also Matter of Hefron, 771 N.E.2d 1157, 1162 (Ind.
2002) (applying the terms of DR 5-104, in the form of Indiana's
Professional Conduct Rule 1.8(a), to renegotiation of a fee
agreement); Gurvey v. Legend Films, Inc., No. 3:09-cv-00942 AJB
(BGS), 2012 WL4061773, at *11 (S.D. Cal. Sept. 14, 2012)
(applying the terms of DR 5-104, in the form of New York and New
Jersey's Rule of Professional Conduct Rule 1.8 and a similar
California rule, to negotiation of compensation of an attorney
with an existing relationship with the clients).
142 252 B.R. 8, 16 (Bankr. E.D.N.Y. 2000).
increases a contingency fee percentage may be a 'business
transaction' that creates a conflict of interest between the
attorney and the client."141 And in In re Stamell, the court
explained that DR 5-104 "appears to be the most applicable
provision" when a retainer is revised midstream.142
DR 5-104 reflects the common law factors in determining
whether an attorney retainer agreement is procedurally improper.
The extra precaution in DR 5-104 -- requiring the client to
consent to the conflict in writing -- is another protection for
the client that is easy for an attorney to comply with and should
be mandatory when the retainer agreement is changed in the middle
of the representation. As a matter of logic, public policy, the
thrust of Naiman and Stamell, and the parallel between the common
law and the Disciplinary Rules, DR 5-104 should apply to
midstream retainer modifications, and perhaps more so here
because it was not so much midstream as eve of trial/settlement.
Alice considered revising the retainer to be a business
transaction, as she described herself and the firm as "partners."
Vol. I, A147a, A151a, A156a. And Chill referred to revising the
retainer as an "arms' length" transaction. Vol. VI, A675, A701.
143 The Appellate Division did not discuss this issue as
part of its finding that the revised retainer was procedurally
144 King, 7 N.Y.3d at 190, 818 N.Y.S.2d at 839 (internal
quotation marks omitted).
In spite of these considerations, the Referee and Surrogate
thought that DR 5-104 should not apply.143 Vol I, A129a. Their
conclusions were not based on analysis, but merely on the absence
of precedent from a New York court squarely holding that DR 5-104
does apply. This Court can and should hold that DR 5-104 applies
here, and that Graubard violated it.
This conclusion, as Gillers testified, is reinforced by
Alice's genuine need for legal guidance in evaluating the revised
retainer. Vol. IX, A2257-60, A2546. Alice was not a lawyer, and
without information provided by Graubard or the advice of an
independent lawyer, she could not have had "full knowledge of all
the material circumstances known to the attorney."144
D. Chill "Wore [Alice] Down"
The genesis and execution of the revised retainer show that
the Attorneys exploited their long-term relationship with Alice
to wear her down and get her to sign the revised retainer, even
though she did not think it was a good idea.
Chill went to Alice's home and used his influence to get her
to sign the revised retainer. Barbara Kling, Alice's closest
friend (Vol. VIII, A2100), testified that, just before Alice
signed the revised retainer, Alice called her and told her "that
Chill was coming up to the house and he only came up to the house
145 Although the Referee found these witnesses to be biased,
the Surrogate cited their testimony, noting that the Referee "did
not make a finding to the effect that the witness's veracity or
accuracy of recall were to be doubted." Vol. I, A78a. The First
Department did not discuss this testimony.
if he wanted something." Vol. VIII, A2108-09. Just after
Chill's visit, Alice spoke to Kling again, and the first thing
Alice said was that Chill "wore her down." Vol. VIII, A2109-10.
Alice, who sounded very upset, also told Kling that she "probably
shouldn't have signed what she did." Vol. VIII, A2110-12. Angel
Rivas, Alice's full-time handyman, reported that Alice told him
she "signed something she shouldn't have," after Chill visited
her. Vol. VIII, A2050-51.145
Jay Wallberg, Alice's accountant and friend, observed
Alice's confusion about the revised retainer. In January 2005,
when Alice first talked to Wallberg about it, she said she did
not understand what it was. Vol. VIII, A1918-19. Alice told
Wallberg that she had received the document from Chill, and that
Chill had told her not to tell anyone about it or show it to
anyone. Vol. VIII, A1920-21. When Wallberg explained to her
that it would give Graubard 40% of any recovery, she said she was
not going to agree to it. Vol. VIII, A1919-20.
All these circumstances must be evaluated in light of what
Alice herself described as the "Svengali"-like influence Chill --
her attorney and closest, most trusted advisor for over 20 years
-- exercised over her. Vol. VIII, A1914. As Professor Gillers
explained, the long relationship between Alice and Graubard
cannot be ignored in determining the level of influence Graubard
146 See, e.g., King, 7 N.Y.3d at 190, 818 N.Y.S.2d at 839;
In re Howell, 215 N.Y. at 474; Whitehead, 69 N.Y. at 466.
had on her and the need for independent counsel. Vol. IX, A2259.
* * *
Graubard did not satisfy its high burden of proof to show
that it complied with all applicable legal and ethical
requirements in entering into the revised retainer with Alice.
Nor did it meet its burden to prove that there was no fraud or
undue influence, or that it did not exploit its superior
knowledge and fiduciary relationship with the client.146 The
parties lacked a mutual expectation of what would happen under
the revised retainer. Their different understandings of the
status of the case and prospects of recovery were worlds apart.
These basic facts should prompt the Court to affirm the Appellate
Division's correct conclusion that the revised retainer was
At every post-trial stage, the decisions have correctly
found the revised retainer substantively unconscionable and
reduced Graubard's requested fee. A fee agreement can be
substantively unconscionable, either from the start or in
hindsight (or both). This Court's "case law clearly provides
that circumstances arising after contract formation can render a
contingent fee agreement -- not unconscionable when entered into
-- unenforceable where the amount of the fee, combined with the
147 Lawrence, 11 N.Y.3d at 596, 873 N.Y.S.2d at 521.
148 King, 7 N.Y.3d at 192, 818 N.Y.S.2d at 841.
150 Gair, 6 N.Y. at 102, 188 N.Y.S.2d at 494.
151 In re Bond & Mortgage Guarantee Co., 303 N.Y. at 431
(quoting Wendt, 243 N.Y. at 444).
large percentage of the recovery it represents, seems
disproportionate to the value of the services rendered."147
"Besides the sheer amount of the fee, another factor to consider
-- and perhaps the most important -- in determining the
unconscionability of a contingent fee agreement, is whether the
client was fully informed upon entering into the agreement with
The inquiry looks at "the facts and circumstances
surrounding the agreement, including the parties' intent and the
value of the attorney's services in proportion to the fees
charged, in hindsight."149 Also key is the level of risk assumed
by the attorneys that their work may go uncompensated.150 This
examination of the appropriateness of a transaction between
lawyer and client is to be followed with "uncompromising
The facts show that the revised retainer here was
substantively unconscionable at the outset and grew more so in
light of later events. From the moment it happened, Graubard
took virtually no risk in switching to a revised retainer with
Alice. Furthermore, the $44 million fee Graubard demanded was
vastly disproportionate to the approximately four and a half
months of ordinary litigation work it performed under the revised
retainer. The staggering amount of the fee was simply
inappropriate and out of line with the parties' sharply
contrasting expectations. As a result, the Referee, the
Surrogate, and the Appellate Division all correctly found that
the revised retainer was substantively unconscionable.
A. Virtually No Risk
The Referee properly assessed Graubard's risk under the
revised retainer as "small" and "quite modest." Vol. I, A171a.
The Appellate Division agreed that "it seems highly unlikely that
the firm undertook a significant risk of losing a substantial
amount of fees" and further agreed that Graubard's description of
enhanced risk was "nothing but a self-serving afterthought." 106
A.D.3d at 609, 965 N.Y.S.2d at 498 (internal quotation marks
omitted). This conclusion follows given that: (1) Graubard knew
the existing claims had high potential value; (2) the revised
retainer had built-in reductions of risk; (3) Alice's loss on a
claim involving 95 Wall Street was not dispositive; (4) Graubard
accumulated most of its knowledge over the prior 22 years; and
(5) Graubard had existing time-charge retainers with two of
1. Existing Claims Had High Value
In examining the likelihood of success, the Referee focused
and relied on an internal case assessment memo, prepared by
152 Lester Brickman, Contingency Fees Without Contingencies:
Hamlet Without the Prince of Denmark?, 37 UCLA L. Rev. 29, 92
Graubard in 2004 "well before" (Graubard Br. at 102) the retainer
revision, in which Graubard predicted a recovery of close to $50
million. Vol. I, A170a-171a; Vol. XVI, A6374. Graubard made
this prediction months before it received the "smoking gun" Epps
documents. Graubard did not share this information with Alice.
After the revised retainer was signed, Graubard, in a March
3, 2005 letter to the Referee, applied the same or higher
potential damage figure to the remaining claims. Vol. X, A2992-
97; Vol. XVI, A6374. The Referee's Report approving the
settlement confirmed that Graubard's 2004 valuations of the
claims were well founded. Vol. XVI, A6353-58.
As Alice had turned down, on Graubard's advice, a $60
million settlement offer in 2004 (Vol. V, A507-08; Vol. XVI,
6361-62), Graubard knew there was very little risk in entering
into the revised retainer.
If there is a very high likelihood of
recovery (even though the amount of recovery
may be in doubt), and conversely an extremely
small possibility of nonrecovery, then there
is, from the points of view of both ethical
and fiduciary standards as applied to
contingent fees, no realistic risk of
2. The Hybrid Contingency Reduced the Risk
The Referee recognized the revised retainer itself shielded
Graubard by providing for hourly charges up to $1,200,000
153 NYSBA Committee on Prof. Ethics, Opinion 697 - 12/30/97
(41-97), Legal fees; combination of hourly and contingency fee
(also observing that such arrangements should have lower-than-
standard contingency fee to reflect this reduced risk); Vol. IX,
A2282 (testimony from Estate's expert); Vol. VII, A1454 and Vol.
VIII, 1795-96 (testimony from Graubard's expert).
($300,000 per quarter) for the first year, plus disbursements.
Vol. I, A166a. Such hybrid contingency agreements automatically
reduce the risk.153
3. 95 Wall Street Decision Created No Risk
The Referee rejected Graubard's assertion that his December
2004 95 Wall Street decision posed enormous risk to Graubard in
entering into the revised retainer. Vol. I, A173a. According to
the Referee, "Graubard's asserted interpretation . . . is so
obviously erroneous that it casts doubt on the bona fides of that
assertion," "is nothing but a self-serving afterthought," and
appears "contrived . . . after the fee dispute surfaced once the
settlement agreement closed in July 2005." Vol. I, A176a, 179a.
4. Graubard's Prior Work and Paid Fees
Under the typical contingency fee arrangement, a law firm
receives nothing until it makes a recovery. Graubard, in
contrast, had already received a king's ransom ($22 million) in
fees from Alice. These pre-2005 fees provided Graubard with yet
another safety net.
Unlike a firm taking a contingency case from the outset,
Graubard "was able to exploit work it did before January 
for which it had been fully compensated." Vol. IX, A2278.
154 Cf. Lawrence, 48 A.D.3d at 20, 853 N.Y.S.2d at 15
(dissent) (noting that if Graubard had refunded the fees already
paid, the risk assessment might be different).
Almost all the work that led to the large settlement was
performed before 2005 (Vol. I, A180a, A183a-184a), for which
Graubard had already been fully paid. Vol. X, A2723-25. The
revised retainer did not credit Alice for any of the fees she had
The key Epps documents that led to the settlement were
produced in response to routine pre-2005 document requests. The
Referee found that the claims settled in 2005 "had been the focus
of Graubard's litigation efforts since 2002," and Graubard began
working on those claims long before 2002. Vol. I, A180a, Vol. V,
A106-15. There was far less risk to Graubard as a result of that
extensive knowledge base. See, e.g., Vol. VII, A1456-57 and Vol.
VIII, A1800-02 (testimony from Graubard's expert); Vol. IX,
A2264, A2543-44 (testimony from Estate's expert).
5. 1983 Agreements With Lawrence
Children Further Reduced Risk
In the unlikely event the revised retainer's protections
somehow left Graubard facing a payment gap, Graubard could always
recover any shortfall in its hourly charges from Alice's adult
children, Richard and Marta Jo, with whom Graubard had existing
unmodified hourly-rate retainers. Vol. XVI, A6318-19. In
entering the revised retainer, the firm did not remind Alice that
it would still expect a fee from the children, further reducing,
if not eliminating, its risk.
155 Lawrence, 11 N.Y.3d at 596 n.4, 873 N.Y.S.2d at 521 n.4.
* * *
This virtual no risk aspect of the revised retainer is what
makes it substantively unconscionable from inception. This is
not a case where substantive unconscionability flows solely from
an unexpected windfall recovery. The revised retainer was
substantively tainted at its core from the start. Graubard's
focus on eliminating unconscionability in hindsight ignores this
aspect of the agreement, as well as the "deception [and]
overreaching"155 that accompanied it.
The Referee, the Surrogate, and the Appellate Division also
found that the $44 million contingent fee was disproportionate to
the four and a half months of ordinary and unexceptional work
performed by Graubard and that these services were not worth the
"astounding rate" of $11,000 per hour. Vol. I, A180a; Vol. XVII,
A7395-96. Nor was it worth the still "astounding rate" of $4,200
awarded by the Surrogate.
Regarding the size of the settlement, the Referee, who also
presided over the underlying case, explained that "Graubard's
legal services either played a negligible role or played a role
largely before the Revised Retainer Agreement was entered into."
Vol. I, A189a. As for the work actually performed by Graubard in
2005, the Referee found that it was quite "manageable" (Vol. I,
156 These findings by the Referee completely belie contrary
uninformed assertions by amicus NYSTLA, who did not attend the
trial. The Referee found Graubard's work in 2005 to be
unexceptional, not, as NYSTLA claims, excellent. And it is the
Referee's factual finding that Graubard's work was unexceptional,
rather than any words of courtesy about Graubard's work from
other counsel in the case, that is relevant to this question.
157 Gair, 6 N.Y.2d at 107, 188 N.Y.S.2d at 498. See also
King, 7 N.Y.3d at 192, 818 N.Y.S.2d at 841.
158 NYSTLA Br. at 4.
A171a n.24) and by no means "exceptional."156 Vol. I, 187a.
C. Sheer Amount of Fee Too High
The Appellate Division found that the Referee also correctly
considered the "sheer amount" of the contingent fee Graubard
sought. 106 A.D.3d at 609, 965 N.Y.S.2d at 498. As this Court
has made clear, "[T]here 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
Here, appropriately, the Referee, the Surrogate, and the
Appellate Division found $44 million for five months of work to
be unjustifiably high and well out of line with the parties'
intent or expectations. As NYSTLA states in its amicus brief,158
"[n]o one anticipated that the case would settle quickly" --
unlike the personal injury cases discussed in its brief, where
quick settlement appears to be a common outcome. Graubard was
not "penalized" from speedy recovery. Rather, the decisions
below recognized that the sudden large recovery was beyond the
expectations of either side and acted accordingly. As the
159 See Graubard Br. at 69. See also Lawrence, 11 N.Y.3d at
596, 873 N.Y.S.2d at 521 ("circumstances arising after contract
formation can render a contingent fee agreement -- not
unconscionable when entered into -- unenforceable where the
amount of the fee, combined with the large percentage of recovery
it represents, seems disproportionate to the value of the
160 See Lawrence, 11 N.Y.3d at 596, 873 N.Y.S.2d at 521;
King, 7 N.Y.3d at 192, 818 N.Y.S.2d at 841; Gair, 6 N.Y.2d at
107, 188 N.Y.S.2d at 498.
Referee found, neither Alice, nor even Graubard, expected a
recovery of over $100 million. In turn, they could not have
anticipated a $44 million fee award. Vol. I, A186a.
D. Case Law Supports Findings of Referee,
Surrogate and First Department
Graubard acknowledges that a fee agreement can be
appropriate when made (not this case) but unconscionable in
retrospect,159 but argues that no New York court has invalidated
an attorney-client contingency agreement based on hindsight.
Graubard, in essence, challenges the very concept of substantive
unconscionability in hindsight. Graubard's attempt to limit
substantive unconscionability is not persuasive, as courts
routinely hold that a retainer agreement can be deemed
unconscionable in hindsight.160 The facts here cry out, perhaps
more than in any other case, for such a finding.
E. Mistaken Policy Arguments
This case is no threat to the contingency fee system.
Graubard and amicus NYSTLA wrongly speculate, without any
empirical or other valid support, that by invalidating
161 Gair, 6 N.Y.2d at 110, 188 N.Y.S.2d at 500.
162 Matter of Cooperman, 83 N.Y.2d at 472, 611 N.Y.S.2d at
163 Joseph M. Perillo, The Law of Lawyers' Contracts is
Different, 67 Fordham L. Rev. 443, 444 (1998).
substantively unconscionable fee agreements, courts would
discourage attorneys from taking contingency cases. But all the
courts would thus discourage are unethical and abusive fee
arrangements, hardly an undesirable outcome. "All regulation of
improper practices has its consequences or should have in
curtailing the practices. That is the purpose."161
* * *
As this Court has found, "attorney-client fee agreements are
a matter of special concern to the courts and are enforceable and
affected by lofty principles different from those applicable to
commonplace commercial contracts."162 And while Graubard mentions
the attorney's common law lien as a means to protect lawyers
against the "knavery" of their clients (Graubard Br. at 71),
"[m]ore often, the courts' treatment of lawyers' contracts
reflects a policy of enforcing professionalism by showing their
scorn for the knavish conduct of scoundrels in the legal
164 Matter of Cooperman, 83 N.Y.2d at 472, 611 N.Y.S.2d at
165 Meinhard v. Salmon, 249 N.Y. 458, 464 (1928).
The decision of the Appellate Division should be affirmed in
all respects. The Attorneys failed to meet their heavy burden of
proof to rebut the presumption that the $5.05 million in gifts to
the Attorneys was void. The continuous representation doctrine
means Alice's claim was timely. As for the revised retainer,
because it was both procedurally and substantively unconscionable
(both from the outset and in hindsight), the Appellate Division
properly looked to the original retainer to determine Graubard's
Cases like this give lawyers a bad name. These distressing
circumstances fuel distrust of lawyers. "Because the attorney-
client relationship is recognized as so special and so sensitive
in our society,"164 the situation presented here is unacceptable
and should be corrected, as it was by the Appellate Division.
The Court should affirm and, in doing so, make clear that we
belong to an honorable profession whose members are obliged to
act with integrity.
If "the punctilio of an honor the most sensitive" is the
standard of conduct for commercial ventures,165 all the more so
does it govern the unique attorney-client relationship built on
special trust and confidence. "This unique fiduciary reliance .
. . is imbued with ultimate trust and confidence. . . . The
166 Matter of Cooperman, 83 N.Y.2d at 472, 611 N.Y.S.2d at
attorney's obligations, therefore, transcend those prevailing in
the commercial market place. . . . The duty to deal fairly,
honestly and with undivided loyalty superimposes onto the
attorney-client relationship a set of special and unique
duties."166 The conduct of Graubard and the Attorneys sunk far
below that high standard of professional behavior.
Affirming the decision of the Appellate Division is the only
way, in the Referee's words, to validate "the standards we
believe the profession should uphold" (Vol. I, A128a, n.12) and
transform an embarrassment to the legal profession into an
important positive lesson in professional ethics.
Dated: New York, N.Y.
December 27, 2013
KORNSTEIN VEISZ WEXLER
& POLLARD, LLP
Daniel J. Kornstein
Attorneys for Respondents-
Richard Lawrence and Peter
Vlachos, as Executors of the
Estate of Alice Lawrence
757 Third Avenue
New York, New York 10017
Ina R. Bort
Amy C. Gross