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Samuel v. Druckman & Sinel, LLP

Supreme Court of New York, Appellate Division, First Department

April 8, 2008

Druckman & Sinel, LLP

Pollack, Pollack, Isaac & De Cicco, New York Brian J. Isaac of counsel, for appellants-respondents.

Daniel J. Dillon, Lido Beach, for respondents-appellants.

Lippman, P.J., Mazzarelli, Gonzalez, Sweeny, McGuire, JJ.

Order, Supreme Court, New York County (Debra A. James, J.), entered April 4, 2007, which denied defendants' motion and plaintiffs' cross motion for summary judgment as well as plaintiffs' effort to have the matter referred to the judge who had approved the compromise settlement for award of legal fees in the underlying medical malpractice case modified, on the law, defendants' motion for summary judgment on its first counterclaim granted to the extent it seeks one third of the $805,767.30 legal fee awarded under Judiciary Law § 474-a(2) in the underlying medical malpractice action, plaintiffs' cross motion for summary judgment declaring the rights of the parties granted to the same extent and otherwise affirmed, without costs. The Clerk is directed to enter judgment in favor of defendant Druckman & Sinel and against plaintiff Samuel & Ott in the principal amount of $268,589, with statutory interest from April 7, 2007.

Following settlement of a medical malpractice action for $6.7 million in May 2005, the trial court issued an infant's compromise order directing the defendant therein to pay legal fees (including disbursements) of $1,137,826.41 to the plaintiff's law firm (Samuel & Ott) and $762,173.59 to co-counsel Pegalis & Erickson. This was greater than the $805,767.30 to which Samuel & Ott would have been entitled under the statutory sliding scale. Attorney Samuel justified the enhanced fee by pointing out that his firm was required to pay out of its portion both the Pegalis firm, which had joined in performing extraordinary services, as well as Sinel, the referring attorney, and that if limited to the fee under the statutory sliding scale, his and the Pegalis firms would not be adequately compensated for the thousands of hours expended in developing and trying this complex case. Attorney Pegalis offered his own statement citing his expert contribution to the successful settlement of the case, which involved brain injury suffered by an infant in the course of childbirth.

When Sinel insisted on one third of the entire enhanced amount awarded to Samuel and Pegalis, Samuel commenced the instant action, alleging that any award to Sinel's firm would be prohibited under Code of Professional Responsibility DR 2-107 (22 NYCRR 1200.12) and requesting that the court declare the parties' respective rights. Sinel counterclaimed for $588,832.08, which was approximately one third of the combined, enhanced fees awarded to the Samuel and Pegalis firms, net of disbursements, plus $3,000 in disbursements. Plaintiffs cross-moved for an order declaring that Sinel and his firm were not entitled to any portion of the legal fee awarded. The motion court denied the parties' respective motions on the ground that the papers submitted were inadequate. We find that the record permits, and indeed requires, summary resolution of this dispute on the merits (State of New York v Metz, 241 A.D.2d 192, 196-202 [1998]).

Contrary to plaintiffs' contention, Sinel demonstrated that he "actually contributed to the legal work" through initial investigation, and there is no claim that he ever refused a request to contribute more substantially (Benjamin v Koeppel, 85 N.Y.2d 549');">85 N.Y.2d 549, 556 [1995]). Further, by disclosing to the client in writing that he was bringing in Samuel & Ott as trial counsel to handle the bulk of the work, and that no additional fee would be charged to the client as a result, Sinel demonstrated sufficient compliance with DR 2-107(A). Consistent with the parties' fee-sharing and retainer agreements, the Sinel firm is thus entitled to its one-third share of the amount recovered by the Samuel firm under the statutory sliding scale applicable in malpractice cases, without regard to any arrangement made between the Samuel and Pegalis firms (see Borgia v City of New York, 259 A.D.2d 648 [1999]; Gair, Gair & Conason v Stier, 123 A.D.2d 556 [1986], lv denied 69 N.Y.2d 606 [1987]).

However, Sinel made no contribution to the extraordinary services provided by Samuel and Pegalis that resulted in the trial court granting their application for an enhanced award of legal fees over the normal sliding scale. Under the circumstances, allowing Sinel to share in any portion of the enhanced award would result in a fee grossly disproportionate to the services rendered. It would result in defendants, the referring attorneys, being awarded a fee larger than plaintiffs, the attorneys who did the bulk of the work. Clearly, this could not have been the intent of the attorneys when they entered into their agreement nor can it be consistent with this Court's obligation to oversee the reasonableness of legal fees (see Dugan v Dorff Constr. Co., 281 A.D.2d 158');">281 A.D.2d 158 [2001], lv denied 98 N.Y.2d 606 [2002]; Code of Professional Responsibility DR2-106 [22 NYCRR 1200.11]).[1]

All concur except Gonzalez and McGuire, JJ. who dissent in a memorandum by McGuire J. as follows:

McGUIRE, J. (dissenting)

I agree with the majority that, for the reasons it states, Supreme Court erred in not deciding the motion and cross motion and that defendant Sinel's law firm is entitled to a share of the $1.9 million legal fee awarded in the medical malpractice action. I also agree that the right of Sinel's law firm to a share of the fee is not affected by the arrangement made between plaintiff Samuel's law firm and the Pegalis law firm (see Borgia v City of New York, 259 A.D.2d 648 [1999]). I respectfully disagree with the majority's determination not to enforce as written the agreement between Sinel's law firm and Samuel's law firm providing that the former "will be compensated at the rate of one-third of the entire legal fee recovered for our participation in this matter, upon its conclusion by settlement, verdict or otherwise." In effectively rewriting the agreement, the majority contradicts controlling and well-settled precedent dealing with such fee agreements and with contract law generally. Moreover, the majority establishes a precedent that will encourage - and enmesh the judiciary in -needless and standardless litigation.

What the Court of Appeals stated in Benjamin v Koeppel (85 N.Y.2d 549');">85 N.Y.2d 549, 556 [1995]) applies with equal force in this case. There, a law firm sought to avoid its contractual obligation to pay to an attorney who referred work to the firm one third of any fees the firm earned on the ground that the attorney had not complied with mandatory registration requirements. After holding that precluding the attorney from recovering on his contract was "wholly out of proportion to the requirements of public policy" (id. at 556 [internal quotation marks omitted]), the Court went on to state as follows:

"In closing, we also note our rejection of defendants' contention that the fee-sharing agreement plaintiff seeks to enforce is invalid as a matter of professional ethics (see, Code of Professional Responsibility DR 2-107). It has long been understood that in disputes among attorneys over the enforcement of fee-sharing agreements the courts will not inquire into the precise worth of the services performed by the parties as long as each party actually contributed to the legal work and there is no claim that either refused to contribute more substantially' (Sterling v Miller, 2 A.D.2d 900, affd 3 N.Y.2d 778; see, Witt v Cohen, 192 A.D.2d 528; Oberman v Reilly, 66 A.D.2d 686; Rozales v Pegalis & Wachsman, 127 A.D.2d 577; Jontow v Jontow, 34 A.D.2d 744, 745; Fried v Cahn, 239 App Div 213; Carter v Katz, Shandell, Katz & Erasmous, 120 Misc2d 1009, 1018-1019; see also, Stissi v Interstate & Ocean Transp. Co., 814 F.2d 848, 852). Moreover, it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on ethical' grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits (ABA Comm on Professional Ethics, Informal Opn No. 870)."

This Court has repeatedly followed that "well[-]settled" rule (see e.g. Stinnett v Sears Roebuck & Co., 201 A.D.2d 362 [1994]; Gore v Kressner, 157 A.D.2d 575 [1990], lv denied 76 N.Y.2d 701 [1990]). So, too, have the other Departments (see e.g. Reich v Wolf & Fuhrman, P.C., 36 A.D.3d 885 [2nd Dept 2007], lv denied 9 N.Y.3d 812 [2007]; Matter of Cohen Swados Wright Hanifin Bradford & Brett v Frank R. Bayger, P.C., 269 A.D.2d 739');">269 A.D.2d 739 [4th Dept 2000]).

The majority's approach also is contrary to first principles of contract law. "Freedom of contract prevails in an arm's length transaction between sophisticated parties ... and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain" (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 695 [1995]; see also Miller v Continental Ins. Co., 40 N.Y.2d 675, 679 [1976] ["It is well to remember too that the right of private contract is no small part of the liberty of the citizen, and the usual and most important function of courts of justice is rather to maintain and enforce contracts, than to enable parties thereto to escape from their obligation on the pretext of public policy, unless it clearly appears that they contravene public right or the public welfare'"], quoting Baltimore v Ohio Ry. Co. v Voight, 176 US 498, 505 [1900]). Obviously enough, lawyers who practice in a specialized ...

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