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Saturday, October 25, 2008

Reluctantly, Lawyers Accepted $40 Million Contingent Fee

Fee Deal Provokes Skepticism
The New York Law Journal by Joel Stashenko - October 24, 2008

ALBANY - Graubard Miller did not like a contingent fee agreement that produced a $40 million payoff in just five months, but it accepted the arrangement to keep a 22-year client with the firm, lawyers told the Court of Appeals yesterday. Members of the Court appeared skeptical during an hour of oral arguments about the size of the fee and several questioned the propriety of Graubard Miller seeking to collect the entire amount. Judge Robert S. Smith echoed several of his colleagues when he wondered whether a legitimate contingency agreement, "where it works out so favorably to the lawyer, where it is so much money for so little work," could be considered unconscionable.

Attorneys for Graubard Miller's late client, Alice Lawrence, argued that the law firm is seeking to collect an unconscionable amount for little work and after assuming little or no risk under the arrangement. The contingency arrangement, under which the firm was to receive 40 percent of a final settlement sought by Ms. Lawrence in a legal battle over her late husband Sylvan's real estate empire, was Ms. Lawrence's idea, attorney Mark Zauderer told the judges yesterday. "The firm did not want to undertake this on a contingency arrangement," Mr. Zauderer, of Flemming Zulack Williamson Zauderer, argued on behalf of Graubard Miller. "They didn't request it. They're not a contingency law firm. They don't do that kind of work. She said, 'Put your money where your mouth is.'" The agreement signed by Ms. Lawrence and Graubard in January 2005 replaced an hourly arrangement under which the firm had billed her $18 million over 21 years. Five months later, a $100 million settlement was reached to end Ms. Lawrence's dispute with the estate of Seymour Cohn, Sylvan Lawrence's brother and former business partner, over real estate holdings of the two men that were once valued at more than $1 billion.

Ms. Lawrence subsequently refused to pay the contingent fee. Mr. Zauderer suggested that Graubard Miller brought a complex and contentious case to a close and that the $40 million fee only looks questionable in retrospect because a settlement was reached unexpectedly in a short period of time. Mr. Zauderer said Graubard Miller assumed considerable risk in going from an hourly fee agreement with Ms. Lawrence to the contingency arrangement because of how long the case had dragged on before 2005 and a setback Ms. Lawrence had just suffered in the case in Surrogate's Court in Manhattan. "Many lawyers would not have taken this case in January 2005 on a contingency basis. . . . It was not a slam dunk," Mr. Zauderer said. But judge after judge yesterday kept returning to the sheer size of the fee and, no matter the agreement Graubard Miller signed with Ms. Lawrence, whether the firm was entitled to it. Judge Smith said he could understand that Graubard Miller may well not have expected to see the Lawrence case settle so quickly. "You never anticipated anything like this," he told Mr. Zauderer. "You anticipated a much smaller amount, much more work, much higher risk of recovery. This was a complete surprise. Are you still entitled to take 40 percent of a $100 million surprise"

"Yes, you are," Mr. Zauderer replied. "What case says that?" Judge Smith asked. "There's no case that says you can't. I would infer from all the cases that have addressed what is an unconscionable fee in terms of a percentage," Mr. Zauderer said. Chief Judge Judith S. Kaye repeatedly asked Mr. Zauderer and Graubard Miller partner Steven Mallis, who also appeared yesterday to defend the fee, what precisely the firm's attorneys had done from January to May 2005 to justify the $40 million fee. "It had to do with skill and negotiating strategy and bluffing," Mr. Mallis told the Court. "It had to do with a whole lot of factors." With some exasperation, Chief Judge Kaye kept trying to push for more details. "You're not even giving us a clue," she told Mr. Mallis. "All you're saying is 'skill' and 'risk.'" "What else is there?" Mr. Mallis said. Mr. Mallis also faced sharp questioning from the Court about his acceptance of a $1.5 million gift from Ms. Lawrence in 1998 and about her payment of $2.7 million to cover gift taxes for Mr. Mallis and two other Graubard Miller partners who received a total of $3.5 million in gifts. "Why wouldn't you mail the check back and say, 'You can't give me a gift, I'm your lawyer?'" Judge Eugene F. Pigott Jr. asked.

"I was satisfied, for reasons which do not appear in the record, that this was utterly and totally voluntary and I am perfectly happy to have a full evidentiary exposition of all the facts and circumstances surrounding it," Mr. Mallis responded. "Based upon what I knew at the time, there was absolutely no impropriety and I can tell your honor that if I thought there was one iota of impropriety, that check would have gone back to Mrs. Lawrence in a heartbeat." Ms. Lawrence's estate is also seeking the return of the 1998 gifts from Graubard Miller. Leslie D. Corwin of Greenberg Traurig, attorney for Ms. Lawrence's estate, told the Court the contingent arrangement was unconscionable both when the agreement was signed and when it became clear how large the fee payment would be. "Under both of those circumstances . . . at the time that it was signed and also at the time when the fee was requested and the Court looks in hindsight at that fee, under both scenarios this revised fee agreement could never pass muster," Mr. Corwin argued. The Court of Appeals had originally scheduled the case on an expedited basis on its March calendar, but it was moved back to yesterday following the Feb. 16 death of Ms. Lawrence. She was 83. Ms. Lawrence first retained Graubard Miller, then known as Graubard Moskovitz McGoldrick Dannett & Horowitz, in 1983 to represent her in matters related to Mr. Lawrence's estate.

When Mr. Lawrence died in 1981, he and his brother held a real estate portfolio that included several Wall Street office towers and the former Port Authority building at 111 Eighth Ave. Over the course of the long dispute, before the $100 million settlement, another $350 million had been paid out of the estate. Litigation over the property dragged on for more than 20 years, with Ms. Lawrence seeking the sale of the portfolio and Mr. Cohn opposing her. A 1983 retainer called for an hourly billing arrangement under which Ms. Lawrence ultimately paid Graubard Miller $18 million. Ms. Lawrence's estate is seeking rescission of the contingent fee agreement as well as the return of all previous fees on the grounds of unjust enrichment and breach of fiduciary duty (NYLJ, Sept. 15, 2005). A former member of the Court of Appeals, Howard Levine, reviewed the fee arrangement at the direction of Manhattan Surrogate Renee Roth. He concluded that as a referee, he did not have the authority to find the contingent fee unconscionable without knowing more about the circumstances of how it came to be substituted for the long-standing hourly billing arrangement between Ms. Lawrence and Graubard Miller. The Appellate Division, First Department, affirmed by a 4-1 vote, holding that while the fee might "seem excessive and invite skepticism," it was not unconscionable on its face (NYLJ, Nov. 28, 2007).

The First Department majority observed that before any determination regarding unconscionability could be made, "the circumstances underlying the agreement must be fully developed," including any discussions leading to the agreement as well as the prospects of successfully concluding the litigation in Ms. Lawrence's favor. However, a sternly worded dissent from Justice James A. Catterson referred to the fee as "nothing short of greed" and said he would have referred the firm to the Departmental Disciplinary Committee. Mr. Corwin urged the Court yesterday to find the contingent fee arrangement unconscionable without further court proceedings. Messrs. Zauderer and Mallis told the court Graubard Miller has never adequately been allowed to present the facts, from the firm's standpoint, that support the fee arrangement. Norman A. Senior and Robert L. Berchem appeared on behalf of Ms. Lawrence's three children. Joel.Stashenko@incisivemedia.com

13 comments:

a grandmother said...

You have to give some lawyers credit in that they are so full of bull that they actually believe the things that dribble out of their mouths. They are quite creative, in a crooked, greedy kind of way.

Anonymous said...

Sort of amazing really when one looks at the wide disparities in the way cases and lawyers are treated. In the Third Deptartment if the lawyer is on the wrong list you can have fees of less than $300 or $100 getting examined by the Committee and the like but in other cases with other attorneys you do not even get a response.

What about those firms including the one in Albany Thuillez Ford Gold and Johnson that got something like $40 million chunk of the State settlement in the tobacco deal?? Everyone knew that Dale Thuillez was Governor Pataki's lawyer for his 1995 Transition team. When scrutiny over the Tobacco fees was made by a State Supreme downstate it got squashed by the Spitzer AG's office. Yet I believe it showed the lawyers were getting upwards of $3000 an hour or so if it was calculated on an hourly basis. What scrutiny did those lawyers get up here from the Committees?

read and weep said...

Dear anonymous/previous comment(at 10:23am)

Exactly what do you find so objectionable about a lawyer getting $3000. per hour? It sounds like you're pretty knowledgeable, maybe even an insider. So you should know that it's all politics. That's how the payments are made. Get used to it. It's been going on a long time, and it will continue that way.

Anonymous said...

Dear Read and Weep:

Sounds like maybe you were one of the beneficiaries of the $3000 an hour fees? If so or if not, what do you find to be ok about this? You think it is ok for some to get windfalls with no scrutiny? Do you think this is ok just because it is politics? Whether it has been going on a long time has no relevance here at this site. And sorry, no, that is exactly what many at this blog are trying to change and it will and it is being changed as this is written and will be in the process of being changed as you are reading.

Will be interesting to see where your IP is tracked to?

at least you admitted it is all about politics.

Anonymous said...

Saint Andrew knows lawyers deserve $3,000 per hour, because they must daily face the moral hazard in NY courts. Please have Saint Andrew's compassion; do you know what it is like to see $3,000 an hour and not take it? These lawyers went to Law School with such high ideals and then confronted with irresistible temptation gave in. Please have Saint Andrew's compassion for those unable to resist this temptation.

wondering said...

Am I the only person that thinks the abuse within our courts by EVERYONE involved is DISGUSTING???

Anonymous said...

Wondering, no.

old employee of OCA said...

Don't waste your stamps on OCA IG Sherril "the hack" Spatz. She's done a wonderful job as the "Master Cleaner" of OCA. She has yet to come upon a criminal act be connected people that can't be whitewashed. Nice job Sherril, you've helped ruin the court system in NY. I bet your family is quite proud of that!

Anonymous said...

OCA'S OIG is the placement of a do good agency for show..to whom, I have yet to figure out!

The OIG contracted with the state court's employee unions...CSEA.. back in 1998 to encourage the unions to HAVE THE EMPLOYEES COME FORTH TO THEM , to give OCA information about any concerns or complaints the employees had with OCA, regarding bias and discrimination especially... and in the guise of correction...but instead, it utilized the private revelations, to gather information for OCA to use against the union member!

If that is not blatant union and court trickery..both agencies work in collusion, if OCA determines that the facts revealed, disgrace and manifest bold abuses by OCA , that are well embedded within the system, so then both agencies develop lies and seal the fate of and remove the employee, using made up issues, to then rid the courts of their obligation to reveal the real bias and discrimination issues, that OCA participates in!

To make that even more interesting, OCA has a written policy..which I may have possession of.. that outlines the exact procedure that both the union, CSEA, and the courts MUST follow, determined by LEGAL negotiations signed by both parties...OCA and CSEA. This procedure demands privacy, which both ignore, unless it is the employee...hacks get a free pass to discuss the entire event and investiagtion, they must conclude the investigation before they terminate or sanction the discriminated employee, funny... they should terminate the people that are being accused and found guilty, and not the person who accuses the bias...hmmm Jan Plumadore does that sound like due process to you?... and the employee has the right to appeal the decision that must be made known to that employee, before any final decision is made!

Well..the OIG not only violated their legal obligation, but JAN PLUMADORE says sue me for the results....YOU ARE FIRED AND WE SHALL NEVER PROVIDE YOU WITH THE INVESTIGSTION OR THE RESULTS..NO MATTER HOW ILLEGAL IT IS BY LAW OR CONTRACT... BECAUSE REMEMBER...I AM THE CHIEF ADMINISTRATIVE JUDGE IN THE NY COURT SYSTEM...BIG MAN IN THIS STATE!

Maybe Jan...you could find those papers you hide for OCA AND THE OIG, in your basement...next to the rotten potaoes and rusty lawn tools. I guess moldy results are just as pure as the clean and sanitized ones...no difference!

OIG is another COURT SYSTEM SCAM AND MONEY WASTE for the people of NY, and employees of this system.... and I can prove all of it!

Anonymous said...

hmmmm... one might compare the CSEA process in other places... ie schools etc.. to tell whether the union members in the Courts are getting a bummmmmm ride...

Is Dan(?) still pres of the union???

Anonymous said...

Dan the drunk is still there and he spends little money defending his members...admissions per his local presidents..he needs to take lots of time off, travel and drink and dine his fat ass into corruption!
Albany feeds this loser's lifestyle and none of the members seems to care, because as the union told me personally...all you members want is your raises..so all the other crap they insert in the contract is to benefit the union scum leaders and OCA..because CSEA just believes, that the members are just greedy money grubbing raise seekers...exclusively..fact from the CSEA union's mouth!

Anonymous said...

very curious about the OIG myself and seems like what you are saying is consistent with the experience others have received. lets share info.

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See Video of Senator John L. Sampson's 1st Hearing on Court 'Ethics' Corruption

The first hearing, held in Albany on June 8, 2009 hearing is on two videos:


               Video of 1st Hearing on Court 'Ethics' Corruption
               The June 8, 2009 hearing is on two videos:
         
               CLICK HERE TO SEE Part 1
               CLICK HERE TO SEE Part 2