Lawrence v. Miller

• Decision Date: 02 December 2008
• Docket Number: No. 76.,76.
• Citation: 11 N.Y.3d 588,901 N.E.2d 1268
• Parties: Richard S. LAWRENCE et al., as Preliminary Executors of Alice Lawrence, Deceased, Appellants, v. Graubard MILLER et al., Respondents. In the Matter of the Estate of Sylvan Lawrence, Deceased. Graubard Miller, Respondent; Richard S. Lawrence et al., as Preliminary Executors of Alice Lawrence, Deceased, et al., Appellants. In the Matter of the Estate of Sylvan Lawrence, Deceased. Graubard Miller et al., Respondents; Richard S. Lawrence et al., as Preliminary Executors of Alice Lawrence, Deceased, Appellants.
• Court: New York Court of Appeals Court of Appeals

901 N.E.2d 1268

11 N.Y.3d 588

Richard S. LAWRENCE et al., as Preliminary Executors of Alice Lawrence, Deceased, Appellants, v. Graubard MILLER et al., Respondents.

In the Matter of the Estate of Sylvan Lawrence, Deceased.

Graubard Miller, Respondent;

Richard S. Lawrence et al., as Preliminary Executors of Alice Lawrence, Deceased, et al., Appellants.

In the Matter of the Estate of Sylvan Lawrence, Deceased.

Graubard Miller et al., Respondents;

Richard S. Lawrence et al., as Preliminary Executors of Alice Lawrence, Deceased, Appellants.

No. 76.

Court of Appeals of New York.

December 2, 2008.

Greenberg Traurig, LLP, New York City (Leslie D. Corwin, Israel Rubin and Rachel Sims of counsel), for Richard S. Lawrence and another, as preliminary executors

of Alice Lawrence, deceased, appellants.

Greenfield Stein & Senior, LLP, New York City (Norman A. Senior, Gary B. Freidman and Jeffery H. Sheetz of counsel), for Richard S. Lawrence, individually and as executor of the estate of Sylvan Lawrence, deceased, appellant.

Berchem, Moses & Devlin, P.C. (Robert L. Berchem, of the Connecticut bar, admitted pro hac vice, of counsel), Kim Koopersmith, P.C., New York City, and Akin Gump Strauss Hauer & Feld LLP (Elizabeth H. Raskin of counsel), for Marta Jo Lawrence and another, residuary legatees.

Flemming Zulack Williamson Zauderer LLP, New York City (Mark C. Zauderer of counsel), Steven Mallis, pro se, and Jones Day, Washington D.C. (Michael A. Garvin of counsel), for respondents.

OPINION OF THE COURT

JONES, J.

Sylvan Lawrence died testate in 1981, leaving his estate to his wife, Alice Lawrence, and three children. In 1982, decedent's will was admitted to probate and decedent's brother, Seymour Cohn, was named executor.¹ In 1983, Mrs. Lawrence retained the law firm of Graubard Miller, on an hourly basis, to represent her in matters related to decedent's estate, including her lawsuit regarding Mr. Cohn's administration of decedent's estate. Mrs. Lawrence's retention of Graubard was confirmed in a letter dated August 4, 1983. Over the next 21 years, more than $350 million in distributions were made to the beneficiaries of the estate, and the firm billed Mrs. Lawrence over $18 million in legal fees. Mrs. Lawrence also paid, unbeknownst to the firm, over $5 million in "bonuses" or "gifts" to three of the firm's partners and approximately $2.7 million in taxes on those bonuses or gifts.

In November 2004, Mrs. Lawrence, facing legal bills which, according to her, had increased to almost $1 million per quarter, asked the firm about the possibility of entering a new fee arrangement. By letter dated January 14, 2005, shortly before commencement of trial in connection with decedent's estate, Mrs. Lawrence and Graubard entered a revised retainer agreement, providing that (1) for one year commencing January 1, 2005, Mrs. Lawrence would pay the firm a flat fee not exceeding $300,000 per quarter, (2) hourly billings would be capped at $1.2 million and (3) if additional monies were distributed to beneficiaries of decedent's estate, or if Mrs. Lawrence settled her case against Mr. Cohn's estate, Mrs. Lawrence was to pay from her share 40% of the total distributed to the beneficiaries, minus any amount she had already paid the firm under the revised retainer agreement.

On May 18, 2005, five months after the revised retainer agreement became effective, the firm, on behalf of Mrs. Lawrence, reached a settlement by which Mr. Cohn's estate agreed to pay decedent's estate approximately $104.8 million. Under the terms of the revised retainer agreement, Mrs. Lawrence was required to pay legal fees in excess of $40 million. She refused to pay and on August 5, 2005, Graubard commenced a proceeding in Surrogate's Court to compel payment of its legal fees. Four days later, the firm amended its petition which further alleged that appellant Richard Lawrence is liable to Graubard for its legal fees both individually, under a theory of tortious interference with contractual relationship, and as successor executor pursuant to Surrogate's Court Procedure Act § 2110 and other applicable law. By order dated September 12, 2005, Surrogate Renee R. Roth referred Graubard's contract enforcement proceeding to the Honorable Howard A. Levine (the Referee) to hear and report.

On September 13, 2005, Mrs. Lawrence brought suit in Supreme Court against the Graubard firm and three individual partners who had received over $5 million in bonuses or gifts from Mrs. Lawrence. This suit seeks rescission of the revised retainer agreement, return of all fees paid to Graubard Miller during the entire 22-year period it represented Mrs. Lawrence, as well as the monies she paid separately to the three partners, on the ground that the revised retainer agreement is unconscionable as a matter of law. By order of Supreme Court dated December 14, 2005, Justice Helen E. Freedman directed that Mrs. Lawrence's rescission action be removed to Surrogate's Court pursuant to CPLR 325(e). Thereafter, Surrogate Roth referred this action to the Referee, who also had before him the firm's contract enforcement proceeding.

Meanwhile, on or about October 24, 2005, Alice Lawrence and Richard Lawrence, individually and as successor executor to decedent's estate, each moved before the Referee to dismiss Graubard's petition under CPLR 3211. The firm countered by cross-moving for partial summary judgment dismissing Mrs. Lawrence's counterclaim for a refund of all fees previously paid to Graubard and three of its partners.

Taking into account the standard of review applicable to CPLR 3211 motions to dismiss, the Referee recommended denying the motions to dismiss the petition. In support of this recommendation, the Referee, noting the general rule that retainer agreements must be fair and reasonable to the client, explained that determining whether the revised retainer agreement is unconscionable "will require evidence concerning all factors relevant to Mrs. Lawrence's capacity, her understanding of the terms of the revised agreement, the completeness of the attorneys' disclosure and whether they exploited their preexisting confidential relationship with her to obtain the favorable terms of the agreement," and that an "excessive fee" determination pursuant to Code of Professional Responsibility DR 2-106 (22 NYCRR 1200.11) shall be made "after a review of the facts." The Referee further noted the presence of numerous questions of fact, which cannot be resolved on a pre-answer motion to dismiss. By decision dated July 10, 2006, Surrogate Roth granted motions to confirm the Referee's report and adopted his recommendations in their entirety.

By decision and order entered November 27, 2007, the Appellate Division, in a 4-1 decision, affirmed (see 48 A.D.3d 1, 853 N.Y.S.2d 1 [1st Dept.2007]). The majority, noting that unconscionability determinations require a showing of both procedural and substantive unconscionability, found that

"while at first blush [the revised retainer] 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" (48 A.D.3d at 4, 853 N.Y.S.2d 1).

Similarly, the majority found that

"Mrs. Lawrence's claims that the so-called `bonuses' or `gifts,' as well as the agreement itself, violated attorney disciplinary rules against self dealing, etc., cannot be resolved without determining [certain factual issues, i.e.,] Mrs. Lawrence's capacity ...; what she was advised; and whether she understood the ramifications of the revised agreement" (id. at 8, 853 N.Y.S.2d 1).

The dissenting...