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In re Li

Supreme Court of New York, Second Department

March 22, 2017

In the Matter of Feng Li, an attorney and counselor-at-law. Grievance Committee for the Ninth Judicial District, petitioner; Feng Li, respondent. (Attorney Registration No. 4201208)

         APPLICATION by the Grievance Committee for the Ninth Judicial District pursuant to former 22 NYCRR 691.3 to impose discipline on the respondent based upon disciplinary action taken against him by the Supreme Court of New Jersey. The respondent was admitted to the Bar in the State of New York at a term of the Appellate Division of the Supreme Court in the Third Judicial Department on January 28, 2004.

          Gary L. Casella, White Plains, NY (Faith Lorenzo of counsel), for petitioner.

          Feng Li, New York, NY, respondent pro se.

          RANDALL T. ENG, P.J., REINALDO E. RIVERA, MARK C. DILLON, RUTH C. BALKIN, CHERYL E. CHAMBERS, JJ.

          OPINION & ORDER

          PER CURIAM

         By order dated May 21, 2013, the Supreme Court of New Jersey disbarred the respondent for, inter alia, knowing misappropriation of client funds, agreeing with the majority in a 4-3 decision by the Supreme Court of New Jersey Disciplinary Review Board (hereinafter DRB). The core controversy in this matter concerns the respondent's entitlement to legal fees from a judgment he recovered on behalf of a group of investor clients, in particular, his disbursement of the funds recovered when the parties disagreed as to the method of calculation of the respondent's share of the recovery. The controversy spawned disciplinary proceedings in New Jersey, two disciplinary proceedings in this Court, and litigation in multiple jurisdictions and venues, both state and federal.

         Procedural History in the Second Department

         Initially, by decision and order on motion dated November 23, 2010, this Court authorized the Grievance Committee for the Ninth Judicial District to institute and prosecute a disciplinary proceeding against the respondent based on a verified petition dated August 9, 2010, containing seven charges of professional misconduct regarding the core controversy in this matter, and referred the issues raised to the Honorable William A. Wetzel, as Special Referee, to hear and report. By the same order, this Court denied that branch of the Grievance Committee's motion which sought the respondent's immediate suspension. Thereafter, the Grievance Committee filed motions: (1) for the respondent's immediate suspension (second request), (2) for leave to serve and file a supplemental petition dated January 31, 2011, and a second supplemental petition dated June 10, 2011, and (3) to collaterally estop the respondent from relitigating facts forming the basis of charge two in a proposed second supplemental petition. By decision and order on motion of this Court dated December 22, 2011, those motions were denied, and the parties were directed to proceed with the disciplinary proceeding previously authorized.

         Meanwhile, a disciplinary proceeding was commenced in New Jersey concerning the same controversy. As a consequence, at the request of the respondent, by decision and order on motion dated April 4, 2012, this Court stayed the disciplinary proceeding commenced in this Court pending the outcome of the parallel disciplinary proceeding in New Jersey. The New Jersey disciplinary proceeding concluded with the order dated May 21, 2013, disbarring the respondent for, inter alia, knowing misappropriation of client funds. Whereupon, the Grievance Committee moved, pursuant to former 22 NYCRR 691.3, to impose reciprocal discipline upon the respondent based on the disciplinary action taken against him by the Supreme Court of New Jersey, and the respondent made a demand for a hearing, asserting all three defenses enumerated in former 22 NYCRR 691.3. The Grievance Committee also moved to continue the stay of the disciplinary proceeding authorized by the decision and order on motion of this Court dated November 23, 2010, pending determination of its application to impose reciprocal discipline.

         By decision and order on motion dated January 6, 2014, on the Court's own motion, this Court held in abeyance the Grievance Committee's application to impose reciprocal discipline, and its motion to stay the disciplinary proceeding, pending the outcome of an action entitled Peng v Feng Li, pending in the United States District Court, District of New Jersey, under Case No. 13-5991, as it appeared that issues to be decided in the federal action might impact on the core controversy between the parties.

         Upon termination of the proceedings in federal court, which were concluded adversely to the respondent, by decision and order on motion dated June 2, 2015, this Court, inter alia, vacated so much of the prior order as held in abeyance the application to impose reciprocal discipline and directed that a hearing pursuant to former 22 NYCRR 691.3 be conducted before the Honorable William A. Wetzel, as Special Referee, to hear and report, with respect to the findings of the Supreme Court of New Jersey and the respondent's proffered defenses to the imposition of reciprocal discipline.

         In advance of the hearing, the respondent filed two motions, both of which were denied. By decision and order on motion dated September 22, 2015, this Court denied the respondent's motion for a predetermination of two issues of law regarding the New Jersey order of discipline. By decision and order on motion dated December 7, 2015, this Court denied the respondent's motion, in effect, to dismiss the reciprocal disciplinary proceeding as jurisdictionally defective.

          Summary of Basic Underlying Facts

         In 1990, Alfred T. C. Peng, Tzu Li Hsu, Joseph Huang, Stephen Huang, Pen Fa Lee, and Veronica Wan, as administrator of the estate of Chee C. Wan (hereinafter collectively the clients), victims of a fraudulent investment scheme, commenced an action against Dr. Fabian A. Sy, FAS Development Co., Inc., and 225 Associates, in the Supreme Court, Queens County, for an accounting and to recover damages for fraud and breach of fiduciary duty. The lawsuit languished for 15 years without progress. In 2005, the clients were referred to the respondent. Although only recently admitted to the Bar, the respondent agreed to represent them.

         The respondent executed a retainer agreement on or about September 27, 2005, which provided that his fee would be based on a percentage of the net recovery: "33 % on the first $500, 000 recovered; 30% on the next $50, 000 [sic] net recovered; 25% on the next $500, 000 net recovered; and 20% on the next $500, 000 recovered." Net recovery was defined as the total recovered on each client's behalf, minus costs and expenses and minus any prejudgment interest. Unbeknownst to the respondent, the retainer agreement used by him, which he downloaded off the Internet, was intended for use in New Jersey, and only in personal injury actions, not a commercial business action.

         The action proceeded to a nonjury trial, which lasted from September 17, 2007, through October 22, 2007. In 2008, the respondent successfully obtained a substantial judgment in favor of his clients. The defendants appealed the judgment, depositing funds with the Commissioner of Finance of the City of New York to secure the appeal. The judgment was affirmed on appeal, and on July 23, 2009, the trial court entered an order allowing the respondent to take possession of the funds on deposit. The respondent received a check dated August 14, 2009, made payable to him as attorney for his clients, in the amount of $3, 548, 506.91 (hereinafter the Sy judgment) and deposited the same into his trust account.

         Prior to obtaining the check, on August 1, 2009, the respondent met with the clients to discuss expenses and how the funds would be distributed. There was a disagreement between the respondent and the clients as to the amounts to be disbursed to each client, specifically with respect to the amount of the respondent's legal fees. The respondent took the position that his fees should be calculated based on the New York contingency fee rules, which included prejudgment interest, and that reference to the New Jersey rule in the retainer agreement was a mistake. Under the New York rule, the respondent would be entitled to approximately $1.1 million in fees (approximately one-third of the recovery), whereas, pursuant to the retainer agreement, the respondent's fees would be approximately $325, 000 (8% of the recovery). No agreement was reached.

         The Sy judgment cleared the respondent's trust account on or about August 17, 2009. The respondent had also received an additional $516, 000 on behalf of the clients prior to that time. The $516, 000, referred to as the Rabine funds, represented sale proceeds rightfully belonging to the clients, which were being held in trust by Sy's attorney, Joel Rabine. Through the respondent's efforts in filing a turnover motion, the Rabine funds were released. Thus, the total amount of funds entrusted to the respondent was approximately $4 million. With regard to the Rabine funds, the respondent and his clients also disagreed as to whether they should be included in the recovery for purposes of calculating the respondent's legal fees, the respondent taking the position that they should be included and his clients taking the position that those funds should not be included, because the Rabine funds were not the product of the litigation against Fabian Sy.

         On or about August 18, 2009, the respondent disbursed from his attorney trust account approximately $525, 034.85, representing his legal fees. In addition, on or about August 27, 2009, he disbursed from his attorney trust account approximately $734, 908, representing the balance of his legal fees. These funds were deposited in various bank accounts maintained in the respondent's wife's name, of which two were for the benefit of the parties' two minor children under the New Jersey Uniform Transfers to Minors Act. On or about September 8, 2009, the respondent distributed to each of the clients their share of the award, calculated according to the New York rule, which amounted to approximately $2.8 million.

         On or about September 11, 2009, the clients commenced an action against the respondent in the Superior Court of New Jersey, Middlesex County, seeking a declaratory judgment determining the amount of legal fees owed to the respondent. The clients moved for and obtained a temporary restraining order prohibiting the respondent from dissipating the funds. The respondent informed the Superior Court that he had already used the disputed funds to pay various debts owed to creditors in China. Although directed by the Superior Court to return the funds and to render an accounting, the respondent did not comply with the order.

         On or about October 5, 2009, the respondent filed an order to show cause in the Supreme Court, Westchester County, to enjoin the clients from litigating the New Jersey action. After a hearing, on December 30, 2009, the motion was denied.

         On or about January 26, 2010, the respondent filed a bankruptcy petition with the United States Bankruptcy Court in the District of New Jersey, naming his clients as creditors (Case No. 10-12109). The clients thereafter filed an adversary complaint seeking a judgment denying ...


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