-- because the property at issue, the proceeds of the insurance policy, may not have existed before that point -- none of the other claims were choate prior to the fire or became choate at the time of the fire; their amount had not been determined. Thus, the federal government has priority over the other claimants.
LMWT Realty Corp. v. Davis Agency, Inc., 85 N.Y.2d 462, 626 N.Y.S.2d 39, 649 N.E.2d 1183 (1995), a case recently decided by the Court of Appeals and cited by Zimring, Custom Editions' public adjuster, does not mandate a different conclusion. In LMWT, the Court of Appeals held that despite the apparent statutory priority of a city tax lien; "the attorney's services created the fund at issue, and under those circumstances the attorney's charging lien must be given effect, even though a prior lien against the specific fund exists." 626 N.Y.S.2d at 42. The case is inapplicable here because the claimant is the federal government, not a city government. Thus, as noted above, federal law governs the priority of a federal tax lien and state law cannot override a federal statute. Further, Zimring is a public adjuster, not an attorney, and much of the Court of Appeals' reasoning relied on the special nature of an attorney's charging lien. Id. at 42-43.
However, there is a factual dispute as to the amount of the federal taxes owed to the government. Custom Editions claims that it paid a portion of the taxes owed and that the government overstates its liability. Accordingly, I find that the undisputed amount only, $ 3,343.29, should be paid to the government, and the amount of the remaining alleged liability be placed in an escrow account pending resolution of the disputed tax bill.
The claimant with the next level of priority is Zimring, Custom Editions' current public adjuster. Zimring was retained on November 3, 1995, through a retainer agreement which required that Custom Editions pay Zimring 10% of the adjusted loss proceeds. (Yablon Aff. P 3) Custom Editions does not dispute that Zimring is entitled to its 10%. The only issue relating to Zimring's payment is whether it may recover 10% of proceeds attributable to damage to the personal property of customers within Custom Editions' control at the time of the fire. Many customers have made claims arising from property destroyed by the fire, and such claims likely will amount to at least $ 85,000.
In New York, a public adjuster cannot recover from a party absent a written agreement with that party establishing its fee. See New York Insurance Law § 2108(p) (McKinney's 1985); Weg & Myers v. Banesto Banking Corp., 175 A.D.2d 65, 67, 572 N.Y.S.2d 321, 323 (1st Dep't 1991). Zimring has no signed agreement with the customers to act as their adjuster.
However, this case presents an additional complication. The customers have no independent claims to policy proceeds. Their claims to such proceeds arise only when such proceeds reach Custom Editions; they derive entirely from Custom Editions' rights under the policy. The policy provides that in the event of a loss any payments for the personal property of others "will only be for the account of the owner of the property." (Macrae Aff., Ex. 1) The customers' claims in this interpleader are against Custom Editions rather than against General Star. When the proceeds ultimately are distributed, all funds paid to customers for their personal property will be considered as having been paid by Custom Editions, not by General Star. Zimring therefore may receive a fee on any recovery for personal property of customers because it has a signed agreement with Custom Editions. However, the customers' claims against Custom Editions will not be reduced by the amount of the fee because they have no obligation to Zimring.
Because the adjustment process is not yet complete, Zimring's entitlement to its commission, and the sum of the full payment, is not yet fixed. Thus, any payments to Zimring must await final resolution of this matter.
C. Weg & Myers, P.C.
The next issue is whether Weg & Myers, Custom Editions' original attorneys in this matter, can recover any of the proceeds of this claim. Weg & Myers was retained on October 27, 1995 pursuant to a retainer agreement which provided that it would be paid 10% of any recovery if the case was settled within 60 days of the firm's retention. (D'Antonio Aff., Ex. D) Weg & Myers was discharged on November 13, 1995. (Yablon Aff., Ex. C) In subsequent letters, Weg & Myers demanded its fee based on an hourly rate. It sent Custom Editions a "reconstructed hourly bill" for $ 3,845.37. (D'Antonio Aff., Exs. E & H) However, in its Answer, filed on June 4, 1996, Weg & Myers claimed that it was owed $ 94,279.50 or, according to its calculation, 10% of the proceeds. Apparently in aid of collecting a percentage-based fee that is about 25 times higher than its estimated hourly charges, Weg & Myers has demeaned its own "reconstructed hourly bill" as "speculative" because the firm does not have contemporaneously prepared billing records. (D'Antonio Aff. P 7)
Custom Editions disputes the quality of Weg & Myers' work and claims that the firm was discharged for cause. (Yablon Aff. P 4) Weg & Myers denies this assertion, and claims that it provided valuable legal services. (Dunbar Reply Aff. P 9) "[A] client is permitted to discharge an attorney at any time without cause." In re Montgomery's Estate, 272 N.Y. 323, 326, 6 N.E.2d 40 (1936).
When a client discharges an attorney without cause, the attorney is entitled to recover compensation from the client measured by the fair and reasonable value of the services rendered whether that be more or less than the amount provided in the contract or retainer agreement. . . . As between them, either can require that the compensation be a fixed dollar amount determined at the time of the discharge on the basis of quantum meruit . . . or, in the alternative, they may agree that the attorney, in lieu of a presently fixed dollar amount, will receive a contingent percentage fee determined either at the time of substitution or at the conclusion of the case.
Lai Ling Cheng v. Modansky Leasing Co., 73 N.Y.2d 454, 457-58, 541 N.Y.S.2d 742, 744, 539 N.E.2d 570 (1989) (emphasis added); see also 520 East 72nd Commercial Corp. v. 520 East 72nd Owners Corp., 691 F. Supp. 728, 738 (S.D.N.Y. 1988), aff'd, 872 F.2d 1021 (2d Cir. 1989) ("An attorney employed pursuant to a contingent fee retainer is entitled, however, to recover in quantum meruit for the fair and reasonable value of his or her services up to the point of discharge.").
This rule differs from the one that controls fee disputes between attorneys, where the outgoing attorney may, at his discretion, elect recovery at the end of the case based on a contingency fee. See Lai Ling Cheng, 541 N.Y.S.2d at 744. In a fee dispute between attorney and client, "only if the client and attorney agree may the attorney receive a fee based on a percentage of the recovery." Cohen v. Grainger, Tesoriero & Bell, 81 N.Y.2d 655, 658, 602 N.Y.S.2d 788, 790, 622 N.E.2d 288 (1993). In determining the value of counsel's services in quantum meruit, the following factors will be relevant: "(1) the difficulty of the questions involved; (2) the skill required to handle the problem; (3) the time and labor expended; (4) counsel's experience, ability and reputation; (5) the customary fee charged for similar services; and (6) the amount involved." Wong v. Michael Kennedy, P.C., 853 F. Supp. 73, 81-82 (E.D.N.Y. 1994). Where an attorney is discharged with sufficient cause, the attorney has no right to recovery. See Montgomery's Estate, 272 N.Y. at 326 (emphasis added); Teichner v. W & J Holsteins, Inc., 64 N.Y.2d 977, 979, 489 N.Y.S.2d 36, 37, 478 N.E.2d 177 (1985).
Here, the parties put in issue whether Weg & Myers was discharged for cause. Further, if Weg & Myers was discharged without cause, the client, Custom Editions, never agreed to pay Weg & Myers a contingency fee. Thus, Weg & Myers would be entitled at most to quantum meruit and an issue of fact would remain as to the reasonable value of Weg & Myers' services. Further, Weg & Myers' "reconstructed hourly bill" does not establish the reasonable value of its services. The rule in this Circuit is that attorneys may not be awarded fees without presenting contemporaneous records. See New York Assoc. for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir. 1983). However, some courts have held that in cases governed by state law, such as diversity cases, where the allocation of attorneys' fees is a substantive issue in the case, state law should govern the distribution. See Banca Della Svizzera Italiana v. Cohen, 756 F. Supp. 805, 808-09 (S.D.N.Y. 1991). Under New York law, the absence of contemporaneous records will not doom a fee request, although it may result in a decreased award. See F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1265 (2d Cir. 1987). However, even if contemporaneous records are not required, this court cannot rely on an admittedly "speculative," "reconstructed hourly bill" to set compensation. Thus, summary judgment on Weg & Myers' claim is denied.
D. Ben Gruber, Inc.
The next issue is whether Ben Gruber, Inc., Custom Editions' original public adjuster in this matter, can recover a fee from the proceeds. Gruber was retained on March 27, 1995 pursuant to a retainer agreement in which Custom Editions agreed to pay Gruber 10% of adjusted loss proceeds. (Gruber Aff., Ex. A) On November 29, 1995, Gruber was discharged. (Yablon Aff., Ex. C) The parties dispute whether Gruber adequately performed its services. (Gruber Aff. P 11; Ginsburg Affirm. P 3) Regardless, Gruber was discharged before General Star and Custom Editions reached any agreement regarding payment of Custom Editions' claim. The controlling regulation in that circumstance reads,
25.10 Right to compensation