Gair v. Peck
| Citation | 188 N.Y.S.2d 491,160 N.E.2d 43,6 N.Y.2d 97 |
| Parties | , 160 N.E.2d 43, 77 A.L.R.2d 390 Harry A. GAIR et al., Respondents v. David W. PECK et al., Individually and as Justices of the Appellate Division ofthe Supreme Court of the State of New York in and for the First JudicialDepartment, Appellants. |
| Decision Date | 28 May 1959 |
| Court | New York Court of Appeals |
Louis J. Lefkowitz, Atty. Gen. (James O. Moore, Jr., Buffalo, of counsel), for appellants.
Frank H. Gordon, Robert M. Benjamin, Philip W. Haberman, Jr., and W. Mason Smith, Jr., New York City, for the Association of the Bar of the City of New York, amicus curiae, in support of appellants' position.
Howard Hilton Spellman, Samuel G. Fredman and Henry A. Weinstein, New York City, for respondents.
David Stein and Harry Cohen, New York City, for Bronx County Bar Association, amicus curiae, in support of respondents' position.
Louis E. Schwartz and Louis M. Brass, Brooklyn, for Brooklyn Bar Association, amicus curiae, in support of respondents' position.
N. Le Van Haver, Kingston, for Federation of Bar Associations of the Third Judicial District, amicus curiae, in support of respondents' position.
Thomas Schleier, St. George, for Richmond County Bar Association, amicus curiae, in support of respondents' position.
Joseph F. O'Brien, Patchogue, for Suffolk County Bar Association, amicus curiae, in support of respondents' position.
Copal Mintz, New York City, for New York County Lawyers Association, amicus curiae, in support of respondents' position.
Joseph J. Perrini, Jamaica, for Queens County Bar Association, amicus curiae, in support of respondents' position.
James Dempsey, Peekskill, and Paul L. Bleakley, Yonkers, for Westchester County Bar Association, amicus curiae, in support of respondents' position.
This is an appeal from a judgment of the Appellate Division, Third Department, affirming a summary judgment in favor of plaintiffs, entered upon an order of the New York County Special Term. The appeal in the Appellate Division was transferred to the Third Department by the First Department. The judgment under review is a declaratory judgment, determining that the Appellate Division, First Department, lacked power to adopt a rule relating to 'Contingent Fees in Claims and Actions for Personal Injury and Wrongful Death.' 1 The record on appeal discloses that in recent years contingent fee agreements have been filed with the Clerk of the First Department at an annual rate of 150,000 or more, of which upwards of 60% have fixed the attorneys' compensation at 50% of the amount of the recovery. Ninety-five per cent of the actions brought have been settled and not more than one and one-half per cent of all claims of this nature have gone to judgment after trial. Canon 13 of the Canons of Ethics of the New York State Bar Association provides: 'A contract for a contingent fee, where sanctioned by law, should be reasonable under all the circumstances of the case, including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness.'
Taking cognizance of this situation, and noting that contingent fees are generally allowed in the United States because of their practical value in enabling a poor man with a meritorious cause of action to obtain competent counsel, the First Department adopted rule 4 with a preamble which concludes:
The complaint does not attack the reasonableness of this rule or its need. One of the plaintiffs' moving affidavits states: 'Whether the Rule is good or bad, necessary or unnecessary, desirable or undesirable, fair or unfair, responsive or not to the ethical and moral standards of the community, serving or damaging to professional and public interests, it is our contention that the Appellate Division was without power to adopt the Rule and is without power to enforce it.'
Plaintiffs have not put in issue and have thus recognized for the purposes of the action that the rule is good, necessary, desirable, fair, responsive to the ethical and moral standards of the community and serving professional and public interests. The power to adopt the rule is challenged, but the question of power has to be decided in the light of these circumstances. The issues before us have been drawn in this manner by the parties.
This rule was held to be invalid by the Third Department upon two grounds: (1) that it is inconsistent with section 474 of the Judiciary Law, Consol.Laws, c. 30 providing that the compensation of an attorney is governed by agreement, and (2) that the Appellate Division lacks power of discipline over attorneys regarding excessive fees except 'in the individual case and after the event.' Mention is not made in the Appellate Division's opinion of any other ground in the opinion at Special Term, such as that the rule is one of substantive law applying to only a segment of the State, or that disciplinary power over attorneys is unrelated to how much they charge their clients. Special Term did recognize that there may be such a thing as an 'unconscionable' contingent fee agreement, but remarked that this must be decided as a question of fact whereas rule 4 is said to establish it as a matter of law.
Special Term's criticism of the rule on the ground that it establishes substantive law applicable to but one segment of the State will first be considered. If this comment were well founded, it would be a fatal defect the Appellate Division cannot make substantive law by rules, and, acute as the problem is in the metropolitan counties, it could hardly be held that the attorney and client relationship is governed by different substantive law in New York City or in different parts of New York City. Upon the other hand, if rule 4 does not change the substantive legal relation between attorney and client, but merely supplies a procedure for determining on the basis of the real facts whether a lawyer is subject to discipline for charging more than he could collect in court from his client under law applicable to every part of the State, rule 4 was properly adopted under section 83 of the Judiciary Law, which enables a majority of the Justices in each Department to make rules not inconsistent with any statute or rule of civil practice. The rules that have been adopted in the different Departments show that within these limits rules regarding procedure or disciplinary matters do not have to be uniform in all Departments, just as investigations of attorneys may be conducted in one Department without being conducted in others (People ex rel. Karlin v. Culkin, 248 N.Y. 465, 162 N.E. 487, 60 A.L.R. 851).
It has been held by the judgment appealed from that rule 4 purports to alter the substantive law governing the relationship between attorney and client, and that in doing so it conflicts with section 474 of the Judiciary Law insofar as section 474 states that the compensation of an attorney is governed by agreement, express or implied. The Appellate Division, Third Department, and Special Term have both started with the assumption that rule 4 threatens disciplinary action against lawyers who make retainer agreements with clients that would otherwise be valid and enforcible under section 474 of the Judiciary Law. It follows from this false premise that the effect of rule 4 is to regulate fees of attorneys differently from the way in which they are regulated by statute. We find no basis for this assumption in the language of the rule, in its preamble, or in the evil which it proposes to remedy. The rule does not touch lawyers' fees except such as would be unenforcible in any event under section 474 of the Judiciary Law. It has been implied that rule 4 prevents lawyers from charging clients what they could otherwise legitimately charge, but that assumption overlooks that disciplinary action is not threatened except against exacting fees which could not legally be enforced in the absence of rule 4. Of course the threat of disciplinary action inhibits charging more than would be sanctioned under the rule, but that is not the test of its validity. That would have been true if the rule had simply announced that lawyers would be subject to disciplinary action for charging unconscionable fees. If the rule is limited, as we interpret it, to making provision for disciplining attorneys for receiving more from their clients than could legally be collected under retainer agreements, even with the aid of section 474 of the Judiciary Law, the judgment appealed from is without foundation. The standard of decision in disciplining a lawyer or in announcing that he will be subject to discipline for violation of this rule, is whether he has charged his client more than the client is legally obligated to pay that is to say, has charged what the courts will refuse to enforce as unconscionable in amount under a contingent fee agreement made with all the support which section 474 can supply.
It is not necessary to enter into an elaborate historical discussion of the origin of section 474 of the Judiciary Law. On the adoption of the Field Code (Code of Procedure; L.1848, ch. 379), and under successor statutes culminating in the present section 474 of the Judiciary Law, contingent fee contracts cease to be outlawed...
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