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Application of David Kamerman v. United States


decided: May 10, 1960.


Author: Herlands

Before MOORE, Circuit Judge, and SMITH and HERLANDS, District Judges.

HERLANDS, District Judge.

The dispositive question upon this appeal is whether the appellant, an attorney, may have an attorney's lien for his professional services computed on the basis of quantum meruit despite the fact arguendo that his written retainer agreement with the respondent, pursuant to which he rendered the services, was champertous.

The appellant (referred to herein as the "petitioner") is a certified public accountant and a member of the Bar of the State of New York, with offices in New York City. The respondent, JBP Corporation (a Virginia corporation, hereinafter referred to as "JBP"), was one of the petitioner's accounting clients since 1946. As part of his accounting services, the petitioner prepared JBP's federal income tax return for the fiscal year ending February 28, 1951; and JBP paid the tax indicated therein.

In 1953, the Commissioner of Internal Revenue assessed a deficiency in income tax due for said period. With interest, this amounted to $17,491.77. On July 20, 1953, an application for claim for refund was prepared by the petitioner, as JBP's accountant, and filed by JBP. The claim for refund was rejected on April 5, 1956. On October 15, 1956, the Appellate Division of the Regional Commissioner's Office affirmed the rejection of the refund claim.

About October 22, 1956, JBP's president, Joseph Shapiro, signed a letter agreement retaining the petitioner as attorney to prosecute an action for tax refund. The retainer agreement read as follows:

"David Kamerman

"Certified Public Accountant

"27 William Street

"New York


"WHitehall 3-5616

"October 22, 1956

"Mr. Joseph Shapiro

"115 Central Park West

"New York, New York

"Dear Joe:

"We are planning to file suit for a refund of about $17,000.00 on account of taxes paid by J.P.B. This involves the issue of rent income and depreciation for 1951. The chief question involved is the valuation of the factory and in order to sustain our case, we expect to engage an expert who will be able to give convincing evidence in court.

"We would be willing to bring this suit on a contingent basis with our fee to be 50% of the total recovery. We will of course, bear the expense of the expert.


"We would appreciate your signing the original of this letter to signify your consent to this proceeding. Will you please return the signed letter as soon as possible, and retain the duplicate for your files.

"Very truly yours,

"David Kamerman

"By: Jerome Kamerman

"Jerome Kamerman

"(Sgd.) Joseph Shapiro

"Approved by. Joseph Shapiro subject to above deletion as discussed with Mr. David Kamerman



In December 1956, a tax refund action was commenced in the District Court for the Southern District of New York against The United States of America. On June 9, 1958, the action was settled for $7,822.23. A Government check for that amount, payable to JBP, was delivered to the petitioner, as attorney. The said sum of $7,822.23 represented the actual tax refund of $6,054.49, plus statutory interest thereon in the amount of $1,767.74. Pursuant to a stipulation of settlement and discontinuance, the tax refund action was dismissed.

The petitioner thereupon demanded, as his fee under the retainer, fifty percent of $7,822.23, the total amount recovered. JBP was willing to apply the retainer percentage of fifty percent on the actual tax refund of $6,054.49, but not on the interest of $1,767.74. Thus, the sum of $883.87 (fifty percent of $1,767.74) became the bone of contention.

On July 8, 1958, the petitioner applied to the court below for an order "making an allowance" to him "under section 475 of the Judiciary Law of the State of New York [McKinney's Consol.Laws, c. 30, § 475]."*fn1 He requested the court to determine his attorney's lien on the check to be $3,911.11 "on such terms and conditions" as the court "may deem just" and to permit the petitioner to issue execution for that sum, with interest thereon from June 9, 1958.

JBP opposed the petition and crossmoved for an order directing the petitioner to pay over the check to it. On September 17, 1958, the District Court denied the petition and granted JBP's cross-motion. Upon reargument the court adhered to its original determination.

The District Judge held sua sponte that the retainer agreement was champertous and that the petitioner's "action in entering into this champertous contract precludes his seeking equitable relief from this court" but that "this does not bar recovery on a quantum meruit basis" (166 F.Supp. at page 327). The view thus expressed may be taken to intimate that the petitioner's only remedy was to sue at law in a plenary action,*fn2 inasmuch as he was disentitled to any equitable relief in the District Court incidental to the tax refund case.

At this time, it is not necessary to decide whether the retainer agreement was champertous. If it be assumed arguendo that the agreement was champertous, in the particular circumstances of this case the petitioner would have a lien for the reasonable value of his services.

While the authorities are divided,*fn3 the more widely supported view is that an attorney may recover upon the basis of quantum meruit for professional services rendered by him under a champertous retainer agreement.

The next proposition - that the attorney has a lien for an amount computed on a quantum meruit basis, notwithstanding the champertous retainer agreement - was squarely adopted in McCoy v. Gas Engine & Power Co., 2d Dept. 1912, 152 App.Div. 642, 137 N.Y.S. 591, affirmed unanimously without opinion 1913, 208 N.Y. 631, 102 N.E. 1106. In McCoy, the attorney had been retained under a written agreement providing inter alia for the attorney to pay all expenses of every kind involved in the litigation, including fees of expert witnesses. The attorney succeeded in obtaining an award from the New York City Board of Assessors. The corporate client joined one of its stockholders in an equity action to rescind and annul the retainer on the ground that the retainer violated the champerty prohibition of section 74 of the then Code of Civil Procedure*fn4 [now section 274 of the New York Penal Law, McKinney's Consol.Laws, c. 40 § 274]. The retainer was set aside but the attorney was awarded $30,000. "as the reasonable value of the services performed by him" and "the sum so fixed" was "to be a lien upon the award" (152 App.Div. at pages 644, 646, 137 N.Y.S. at page 593).

Accordingly, the order denying petitioner-appellant's motion for an allowance of counsel fees under Section 475 of the Judiciary Law of the State of New York and granting the cross-motion of plaintiff-respondent is reversed and the case remanded to the district court for a determination of the amount, if any, of petitioner's lien on the basis of quantum meruit.

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