Lawrence v. Miller

• Decision Date: 27 November 2007
• Docket Number: 603257/05.,439.,440N.,441N.,175/82.
• Citation: 48 A.D.3d 1,2007 NY Slip Op 09348,853 N.Y.S.2d 1
• Parties: ALICE LAWRENCE, Appellant, v. GRAUBARD MILLER et al., Respondents. In the Matter of the Estate of SYLVAN LAWRENCE, Deceased. GRAUBARD MILLER, Respondent; ALICE LAWRENCE et al., Appellants. In the Matter of the Estate of SYLVAN LAWRENCE, Deceased. GRAUBARD MILLER et al., Respondents; ALICE LAWRENCE, Appellant.
• Court: New York Supreme Court — Appellate Division

48 A.D.3d 1

853 N.Y.S.2d 1

2007 NY Slip Op 09348

ALICE LAWRENCE, Appellant, v.GRAUBARD MILLER et al., RespondentsIn the Matter of the Estate of SYLVAN LAWRENCE, DeceasedGRAUBARD MILLER, RespondentALICE LAWRENCE et al., AppellantsIn the Matter of the Estate of SYLVAN LAWRENCE, Deceased. GRAUBARD MILLER et al., Respondents; ALICE LAWRENCE, Appellant.

603257/05.

175/82.

439.

440N.

441N.

Appellate Division of the Supreme Court of the State of New York, First Department.

November 27, 2007.

Greenberg Traurig LLP, New York City (Leslie D. Corwin, Israel Rubin and Stephanie R. Feldman of counsel), for Alice Lawrence, appellant.

Greenfield Stein & Senior, LLP, New York City (Norman A. Senior, Gary B. Friedman and Jamie R. Dyce of counsel), for Richard Lawrence, appellant.

Flemming Zulack Williamson Zauderer LLP, New York City (Mark C. Zauderer of counsel), for Graubard Miller, respondent.

Graubard Miller, New York City (C. Daniel Chill, Elaine M. Reich and Steven Mallis of counsel), respondents pro se.

OPINION OF THE COURT

ANDRIAS, J.P.

In these appeals arising from a Surrogate's Court proceeding to determine what legal fees are due to the law firm of Graubard Miller for its representation of Alice Lawrence and her son Richard Lawrence in connection with the estate of her late husband, the principal issue presented is whether a 2005 revised retainer agreement calling for Mrs. Lawrence to pay a contingency fee of 40% of any future monies distributed to the beneficiaries of the estate is unconscionable on its face.We find that while at first blush such agreement might arguably seem excessive and invite skepticism, before any determination regarding unconscionability can be made, the circumstances underlying the agreement must be fully developed, including any discussions leading to the agreement, as well as the prospects at that time of successfully concluding the litigation in favor of Mrs. Lawrence.

Sylvan Lawrence, the husband of respondentAlice Lawrence, died in 1981.His will left his estate to his wife and three children and was admitted to probate on January 29, 1982.Mr. Lawrence's brother was named executor and served in that capacity until his death in late 2003, after which the decedent's son, Richard Lawrence, succeeded him.In 1983, Mrs. Lawrence retained the Graubard firm to represent her in connection with her deceased husband's estate on an hourly fee basis, which retention was confirmed by letter dated August 4, 1983.Thereafter, the Graubard firm billed Mrs. Lawrence over $18 million in legal fees incurred in litigation instituted against the executor of the estate concerning his administration of the estate, as well as other matters.During that period more than $350 million in distributions were made to the beneficiaries of the estate.In addition, in December 1998, Mrs. Lawrence paid three of the firm's partners bonuses or gifts totalling over $5 million, plus approximately $2.7 million in gift taxes on such payments.

In November 2004, according to Mrs. Lawrence, she noticed that her legal bills were increasing to almost $1 million per quarter and asked about the possibility of entering into a new fee arrangement.As a result, in January 2005, a modified retainer agreement was entered into which provided, in pertinent part, that, commencing January 1, 2005, the firm would continue to bill Mrs. Lawrence on an hourly basis for services rendered with an annual cap of $1.2 million, exclusive of disbursements.In the event any additional monies were distributed to the beneficiaries of the estate, or Mrs. Lawrence settled the litigation with the executor's estate, the Graubard firm was to be paid from Mrs. Lawrence's share of such monies 40% of the total distributed to the beneficiaries, minus the total amount previously paid by her pursuant to the one-year, $1.2 million retainer.Prior to the revised retainer agreement, Mrs. Lawrence had personally negotiated with her nephew, the late executor's son, and received a $60 million offer from the executor's estate, but such offer did not result in a settlement.

On May 18, 2005, about 4½ months after the modified retainer agreement was entered into, the Graubard firm reached a settlement in the litigation against the former executor's estate in which it agreed to pay the Lawrence estate approximately $104.8 million.Shortly thereafter, Mrs. Lawrence retained new counsel and refused to pay the Graubard firm's fee.

On August 5, 2005, the Graubard firm filed a petition in Surrogate's Court to compel payment of its legal fees, asserting claims against Mrs. Lawrence for breach of the 2005 retainer fee agreement in the amount of 40% of not less than $110.3 million plus 40% of any additional sums paid to the estate, less $348,272.78 paid by Mrs. Lawrence to Graubard on May 6, 2005, together with statutory interest, or alternatively, quantum meruit legal fees in the same amount.The petition also asserted claims against the current executor, Richard Lawrence, for tortious interference with contract in inducing his mother's breach of the retainer agreement and to recoup for legal services benefitting the estate.

By order dated September 12, 2005, Surrogate Roth referred the petition to compel payment of legal fees to a Referee to hear and report.The next day, Mrs. Lawrence brought suit in Supreme Court for, inter alia, rescission of the revised retainer agreement, unjust enrichment, conversion, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, an accounting, and declaratory relief.By order entered December 16, 2005, that action was removed to Surrogate's Court where it was also referred to the Referee.In the meantime, respondents Alice and Richard Lawrence moved before the Referee to dismiss the petition pursuant to CPLR 3211 and the Graubard firm cross-moved for partial summary judgment dismissing Mrs. Lawrence's counterclaim for a refund of all fees previously paid to the Graubard firm and three of its partners.

Alice Lawrence appeals from those orders that removed her Supreme Court action to Surrogate's Court, confirmed the Referee's report and denied her motion to dismiss the petition, and directed her to appear for her deposition.Richard Lawrence appeals from the order confirming the Referee's report.

Supreme Court appropriately removed Alice Lawrence's action for contract rescission, unjust enrichment, and related causes of action against her former attorneys to Surrogate's Court, which clearly has subject matter jurisdiction over the matter.The complaint in that action stems from her retention of the Graubard firm to represent her in litigation, spanning over 22 years, against the estate's former executor and her claims against the individual defendants relate to "bonuses" or "fees" paid in relation to the estate administration and litigation.Moreover, there was already pending in Surrogate's Court the special proceeding brought by defendants against her to enforce their 2005 amended retainer agreement, in which proceeding she specifically raised the affirmative defense of unconscionability and sought, among other things, rescission of the retainer agreement, a declaration that it was unenforceable, and the return of over $18 million previously billed for services from 1983 through 2004 in connection with their representation of her in the matter of her late husband's estate.Although CPLR 325 (e) does not mandate removal, as noted by Supreme Court, the interests of judicial economy dictate a strong preference for removal to Surrogate's Court of all matters affecting the administration of a decedent's estate (seeRosenman & Colin v Winston,205 AD2d 451[1994];Birnbaum v Central Trust Co.,156 AD2d 309[1989]).

As to appellants' claims that the revised retainer agreement is unconscionable on its face, the foregoing operative facts are not in dispute.What is in dispute are the circumstances surrounding the revision of the parties' retainer agreement and the value of the Graubard firm's services in effecting a final settlement of the decades-old litigation involving the distribution of the estate.

It is well settled that

"[a] determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.

"The procedural element of unconscionability requires an examination of the contract formation process and the alleged lack of meaningful choice"(Gillman v Chase Manhattan Bank,73 NY2d 1, 10-11[1988][citations and internal quotation marks omitted]).

As concluded by the Referee, there is no authority for finding a 40% contingent fee unconscionable on its face.Generally, before a determination of unconscionability can be made, a full trial of the issues is required.As to Mrs. Lawrence's claim that such fee is unconscionable because the entire amount was to be paid out of her share of the estate, the Referee found: "If Mrs. Lawrence understood this provision of the revised agreement and agreed to it, there is no reason why it should now provide a basis for finding the agreement invalid."The basic requirement in any retainer agreement is that it be fair and reasonable.In the case of an amended agreement, the attorney has the burden of showing that the client understood the terms of the agreement and that the attorney did not exploit the client's confidence in negotiating the terms of the agreement.As the Referee found: "Resolution of those issues will require evidence concerning all factors relevant to Mrs. Lawrence's capacity, her understanding of the terms of the revised agreement, the completeness of her attorneys' disclosure and whether they exploited their preexisting confidential relationship with her to obtain the favorable terms of the...