Shaw v. Manufacturers Hanover Trust Co.

• Decision Date: 14 October 1986
• Citation: 68 N.Y.2d 172,507 N.Y.S.2d 610,499 N.E.2d 864
• Parties: , 499 N.E.2d 864 Leonard SHAW, Appellant, v. MANUFACTURERS HANOVER TRUST COMPANY et al., Defendants. Fuchsberg & Fuchsberg, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 610

507 N.Y.S.2d 610

68 N.Y.2d 172, 499 N.E.2d 864

Leonard SHAW, Appellant, v. MANUFACTURERS HANOVER TRUST COMPANY et al., Defendants Fuchsberg & Fuchsberg, Respondent.

Court of Appeals of New York.

Oct. 14, 1986.

William J. Thomashower, New York City, for appellant.

Irwin M. Berg, New York City, for respondent.

OPINION OF THE COURT

KAYE, Judge.

A contingent fee retainer agreement, on a form supplied by counsel, "to prosecute or adjust" a client's personal injury claim, with no provision regarding the advance of litigation expenses is--in the context of the present case--unclear, and will be read most favorably for the client. Here we conclude that, so construed, the retainer agreement ended upon an adverse judgment following trial and that, even if this agreement persisted through appeal, it required the attorney to continue advancing the client's litigation expenses. In either event counsel is entitled to no fee for services rendered during the trial.

Injured during a holdup that occurred as he waited in line at a bank teller's window, plaintiff engaged Fuchsberg & Fuchsberg (respondent) as his counsel. The agreement, on a form furnished by respondent, provided that plaintiff retained the firm "to prosecute or adjust a claim for damages arising from personal injuries". The agreement continued: "In consideration of the services rendered and to be rendered by [the firm], the undersigned hereby agrees to pay you, and you are authorized to endorse for the undersigned any checks that may be paid in settlement of this action, and to retain out of any monies that may come into your hand by reason of the above claim: thirty-three and one-third (33 1/3%) percent of the sum recovered, whether by suit, settlement or otherwise. Such percentage is computed on the net sum recovered after deducting and repaying to the attorneys disbursements incurred in accordance with the Rules of the Appellate Division, First and Second Departments."

A jury trial of plaintiff's damages action against the bank and others resulted in a defendants' verdict and judgment dismissing the complaint. Respondent thereafter advised plaintiff that, while prepared to proceed with an appeal and any retrial of the case, it would not continue to advance costs and disbursements, estimated to be several thousand dollars. After the parties' own efforts to resolve their differences failed, plaintiff moved to substitute William Thomashower as his attorney. While not opposing substitution, respondent maintained that it had no obligation to advance litigation expenses and that, because plaintiff had discharged the firm without cause, before surrendering the files it was entitled to a lien on any ultimate recovery on a quantum meruit basis as well as reimbursement for expenses. Special Term, without elaboration, imposed a lien on any ultimate recovery, to be fixed on a quantum meruit basis, and directed turnover of the records upon the filing of an undertaking for expenses. The Appellate Division affirmed, without opinion (90 A.D.2d 468, 455 N.Y.S.2d 310).

On appeal of plaintiff's damages action by new counsel, the Appellate Division reversed and directed a retrial (95 A.D.2d 738, 464 N.Y.S.2d 172). Plaintiff then concluded two agreements--one with respondent and a second with attorney Max Toberoff. The recited purpose of the first agreement, looking toward plaintiff's retention of Toberoff, was to fix the amount of respondent's lien. The parties agreed that, in the event of recovery, respondent would receive two amounts, each calculated as a percentage of the recovery: the first (in actual fact, $122,656.01), one third of Toberoff's fee, would be payable immediately and unconditionally upon recovery. The second amount ($38,888.88), one ninth of the first $350,000 recovered--on which Toberoff had agreed to charge no fee--would be held by Toberoff in escrow, subject to plaintiff's appeal to this court on respondent's right to any fee. Plaintiff's agreement with Toberoff acknowledged the contemporaneous agreement with respondent and further provided that if retrial "terminates in a verdict for the defendants and Leonard Shaw is desirous of taking an appeal, that Max Toberoff will relinquish the files to any appeals lawyer as Mr. Shaw selects and Mr. Shaw shall have the option of discharging Toberoff as his attorney, and in this event Toberoff shall not be entitled to any fee whatsoever for legal services rendered, except that he will have a lien for his disbursements, which shall include the disbursements of Fuchsberg & Fuchsberg which Toberoff returned to Fuchsberg & Fuchsberg."

Plaintiff's action was then retried and settled for $1.5 million. As agreed, $122,656.01--a third of Toberoff's fee--was immediately paid to respondent and is not in issue on this appeal; $38,888.88--calculated on the portion of plaintiff's recovery not subject to Toberoff's fee--was placed in an interest-bearing account and is the focus of this appeal, here by our leave (66 NY2d 604, 489 N.E.2d 769). Plaintiff advances two alternate grounds for denying respondent that recovery: first, the retainer ended with the adverse verdict and entry of judgment for defendants, entitling the firm to nothing under its agreement, and second, respondent breached its agreement by refusing to proceed with the appeal except on new terms. On both grounds we agree that the disputed amount of $38,888.88 is not owing to respondent, and therefore reverse the Appellate Division order and deny the application for a lien.

The importance of an attorney's clear agreement with a client as to the essential terms of representation cannot be overstated. The client should be fully informed of all relevant facts and the basis of the fee charges, especially in contingent fee arrangements (Code of Professional Responsibility, EC 2-19, EC 2-20; see generally, Wolfram, Modern Legal Ethics § 9.4). While, in the law generally, equivocal contracts will be construed against the drafters, courts as a matter of public policy give particular scrutiny to fee arrangements between attorneys and clients, casting the burden on attorneys who have drafted the retainer agreements to show that the contracts are fair, reasonable, and fully known and understood by their clients (Jacobson v. Sassower, 66 N.Y.2d 991, 993, 499 N.Y.S.2d 381, 489 N.E.2d 1283; Gair v. Peck, 6 N.Y.2d 97, 106, 188 N.Y.S.2d 491, 160 N.E.2d 43, cert. denied 361 U.S. 374, 80 S.Ct. 401, 4 L.Ed.2d 380; see also, 1 Speiser, Attorneys' Fees §§ 2:3, 2:9).

The first controversy between the parties is as to the term of the agreement: did the contract permit termination upon the entry of an adverse judgment after trial, or was the representation to continue through conclusion of the matter, including appeal? The real issue here is of course one of responsibility for fees rather than compelling either the client or the lawyer to continue the representation, for a client has the absolute right to discharge an attorney at any time (Teichner v. W & J Holsteins, 64 N.Y.2d 977, 979, 489 N.Y.S.2d 36, 478 N.E.2d 177; Crowley v. Wolf, 281 N.Y. 59, 65, 22 N.E.2d 234), and a lawyer in appropriate circumstances may withdraw (see, Code of Professional Responsibility, DR 2-110, DR 5-102, DR 5-105; N.Y. City Bar Ethics Opn. No. 1986-6, NYLJ, July 21, 1986, p. 2, col....