V.W. v. J.B.

• Decision Date: 06 July 1995
• Citation: 629 N.Y.S.2d 971,165 Misc.2d 767
• Parties: V.W., Plaintiff, v. J.B., Defendant.
• Court: New York Supreme Court

Page 971

629 N.Y.S.2d 971

165 Misc.2d 767

V.W., Plaintiff, v. J.B., Defendant.

Supreme Court, New York County IAS Part 11.

July 6, 1995.

Richard A. Williamson, Flemming, Zulack & Williamson, L.L.P., New York City, for plaintiff.

Celia Goldwag Barenholtz, Kronish, Lieb, Weiner & Hellman, L.L.P., New York City, for defendant.

LEWIS R. FRIEDMAN, Justice.

Plaintiff seeks summary judgment on the fifth cause of action, for rescission. The application raises serious questions under the Code of Professional Responsibility ("CPR"), not previously addressed in the New York cases, concerning retainer agreements and "bonuses" in matrimonial cases.

In July 1992 plaintiff retained defendant to represent her in a matrimonial matter. The written retainer called for plaintiff to pay a fee determined solely by multiplying the number of hours expended on the case times the hourly rate charged for the service. ¹ Negotiations proceeded for over two years until a settlement was reached. Plaintiff's Husband ultimately agreed to pay her more than 20 times his original offer. Plaintiff has stated in her pleadings that defendant's legal work was "fabulous." On August 18, 1994 plaintiff, in New York, executed the separation agreement. The document was shipped by Federal Express to plaintiff's husband who was in California; he executed it on August 19. The parties were divorced by judgment entered August 30, 1994.

Defendant and her former firm were paid about $300,000 based on their time charges. On August 18, allegedly after plaintiff had executed the Separation Agreement, plaintiff and defendant executed the Performance Fee Agreement ("PFA") which is at issue here. In the PFA, plaintiff "in light of the results achieved by [defendant] * * * has graciously and generously agreed to pay a performance fee of $2,000,000" in three installments. ² Defendant agreed to waive her outstanding bill for $41,000 in fees and expenses. The first installment of the performance fee, $1,000,000, was due "upon transfer to [plaintiff] of the equitable distribution payment" in the separation agreement. That part of the fee was paid on August 29, 1994. Plaintiff retained new counsel in early January 1995, refused to pay the second installment, due January 15, and demanded repayment of the $1,000,000 already paid. This action for rescission and restitution followed. Defendant counterclaimed for the balance of her fee.

In the fifth cause of action plaintiff contends that the PFA violated the CPR. There is no doubt that a retainer agreement with counsel is invalid if it violates the CPR (cf Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 99-101, 551 N.Y.S.2d 157, 550 N.E.2d 410 [1989]; Matter of Cooperman, 83 N.Y.2d 465, 472, 611 N.Y.S.2d 465, 633 N.E.2d 1069 [1994]. Specifically plaintiff alleges a violation of DR 2-106[C][2] (22 NYCRR 1200.11[C][2] which at the relevant time provided that an attorney "shall not enter into an arrangement for, charge or collect: [2] any fee in a domestic relations matter (i) the payment or amount of which is contingent upon the securing of a divorce or upon the amount of maintenance, support, equitable distribution or property settlement * * *."

The rule against contingent fees in domestic relations cases in this state is deep seated and well established. Long prior to the adoption of the CPR and the equitable distribution law (DRL § 236[B] the courts consistently held that an agreement between a spouse and counsel to pay "a percentage or any part of her alimony is void as against public policy" (Levine v. Levine, 206 Misc. 884, 885, 135 N.Y.S.2d 304 [Sup Ct, Queens Co. 1954]; Matter of Dangler, 192 App.Div. 237, 182 N.Y.S. 471 [1st Dept 1920]; Matter of Brackett, 114 App.Div. 257, 99 N.Y.S. 802 [3rd Dept 1906] aff'd 189 N.Y. 502, 81 N.E. 1160 [1907]; Van Vleck v. Van Vleck, 21 App.Div. 272, 47 N.Y.S. 470 [4th Dept 1897]. The same rule applied to lump sum payments to resolve future alimony claims (Dougherty v. Burger, 133 Misc. 807, 808, 234 N.Y.S. 274 [Sup Ct, NY Co. 1929]. ³

When New York adopted the CPR it modified the Model Code of Professional Responsibility promulgated by the American Bar Association to adopt the clear prohibition on contingent fees in domestic relations cases contained in DR 2-106[C][2]. The original ABA Ethical Consideration [EC 2-20] as adopted in 1970 by the New York State Bar Association did not contain a flat prohibition on contingent fees in matrimonial cases but noted that "because of the human relationships involved and the unique character of the proceedings contingent fee arrangements in domestic relations cases are rarely justified."

The policy reasons for the restrictions in matrimonial cases on the use of fees which are contingent on the outcome has been that this kind of fee might induce lawyers to discourage reconciliation and encourage bitter and wounding court battles (see Restatement, Contracts § 586 [1932]; Wolfram, Modern Legal Ethics § 9.4.4, pp. 538-41 [1986]; Speiser, Attorney's Fees § 2.6, pp. 83, 89 [1973]; Comment, Professional Responsibility-Contingent Fees in Domestic Relations Actions: Equal Freedom to Contract for the Domestic Relations Bar, 62 NCLRev 381, 387 [1984]; cf. Restatement, [Second] Contracts § 190, comment c; Restatement, [Third] Law Governing Lawyers, § 47, comment d [Tent Draft 4] [1991]. Another often expressed policy reason to preclude contingent fees in matrimonial actions is that they are not necessary. Since the court may award attorney's fees to a non-monied spouse (DRL § 237; see e.g. Newman v. Freitas, 129 Cal. 283, 61 P. 907, 910 [1900]; McDearmon v. Gordon & Gremillion, 247 Ark. 318, 445 S.W.2d 488 [1969] any party should be able to retain counsel.

The question whether the PFA violates the CPR requires analysis of whether the payment or amount was "contingent" on the result. Plaintiff correctly notes that DR 2-106[C][2] does not use the term "contingent fee", which is used in DR 2-106[C][1] banning those fees in criminal cases. Clearly the fee here could not be called a "contingent fee" in its traditional sense. The CPR does not define "contingent." One common definition of a "contingent fee" between attorney and client is

an agreement express, or implied, for legal services ... under which compensation, contingent in whole or in part upon the successful accomplishment or disposition of the subject matter of the agreement, is to be in an amount which either is fixed or is to be determined under a formula ... (New England Tel. & Tel. Co v. Board of Assessors of Boston, 392 Mass 865, 870-1, 468 NE2d 263, 266-7 [1984].

That is consistent with the definition in Black's Law Dictionary, 553 [5th ed 1979]. The usual meaning of a "contingent fee" is that the attorney will be paid only if the case is won (e.g., Pocius v. Halvorsen, 30 Ill.2d 73, 78, 195 N.E.2d 137, 139 [1963]; City of Burlington v. Dague, 505 U.S. 557, 561, 112 S.Ct. 2638, 2640, 120 L.Ed.2d 449 [1992]. There is no doubt that by its terms the PFA was a fixed, binding agreement that did not turn on the outcome of the case or on the amount received by plaintiff. The attorney had no risk that the fee would not be paid if the case was lost.

Plaintiff suggests that because the first payment of the fee was to be paid from a specified equitable distribution payment it was "contingent" for payment on the completion of the case. In Shanks v. Kilgore, 589 S.W.2d 318, 321 [Mo.Ct.App.1979] the court found that since the $60,000 fee was to be paid partially from each equitable distribution installment it was based on a prohibited contingency, the receipt of payment. This court rejects that analysis; once the fee has been firmly fixed the uncertainty of actual payment does not make it invalid. It has long been an accepted practice in this jurisdiction, even where the entire fee is fixed at an hourly rate, for counsel to agree to await payment until the ultimate resolution of the case. Neither the fee nor the obligation to pay it turn on the outcome. Only the timing of the payment is uncertain. Bar Ethics Committees appear to support that view. (cf. Philadelphia Bar Assn, Prof. Guid. Comn, op 90-15, 1990 WL 303931). The court cannot conclude that such a provision makes a fixed fee into a "contingent fee."

A more troubling question is presented because the language of DR6-102[C][2] uses the term "contingent * * * upon the amount of * * * equitable distribution." "Contingent" means "possible, but not assured; doubtful or uncertain; conditional upon the occurrence of some future event which is itself uncertain, or questionable." (Black's Law Dictionary, 290 [5th ed. 1979]. The PFA based the fee on "the results achieved." The CPR, following well established New York law (e.g. Matter of Freeman, 34 N.Y.2d 1, 9, 355 N.Y.S.2d 336, 311 N.E.2d 480 [1974], provides that one of the "factors to be considered as guides in determining the reasonableness of a fee * * * [is] the amount involved and the results obtained." (DR 2-106[B][4]; 22 NYCRR § 1200.11[b][4]. Thus the question before this court becomes whether the use of the "results obtained" to set the final fee necessarily makes the fee "contingent" on the ultimate amount. The answer to that question has divided the courts which have considered it.

In Head v. Head, 66 Md.App. 655, 668, 505 A.2d 868, 874-5 [1986] the court found no violation of DR 2-106[C][2]. In that case there had been a judicial determination by the lower court of a legal fee which included a "bonus" based on the result. ⁴ The fee was held not to be contingent because "the fee was not directly related by percentage or formula to the amount recovered or protected." The court supported its conclusion by noting that the fee did not serve the usual purpose of a contingent fee since the parties could afford counsel and no res was created since the party involved was the monied spouse. In In re Marriage of Malec, 205 Ill.App.3d 273, 288, 150 Ill.Dec. 207, 217-18, 562 N.E.2d 1010,...