Legal Malpractice

Attorneys, Billing and Clients

By (Andrew Lavoott Bluestone)

The rules for attorney billing are different from those of any other profession.  While the general principals are the same, attorneys are required to utilize retainer agreements, or a similar document, while this is not true for accountants, dentists, etc.  There are consequences for the failure to use a retainer agreement, but Courts, especially the Second Department have permitted vast exceptions.  How does one understand the various factors?

One way is to read Constantine Cannon LLP v. Parnes,  2010 Slip Op  31956  a recent decision by Justice Edmead.  In this decision, she carefully dissects the various strands of claims and defenses.

"Plaintiff alleges that its invoices to defendants were carefully itemized, with each entry containing the date, amount of time, and a detailed description of the work performed, as well as the attorney's name and billing rate. Mr. Matz, as the billing partner on defendants' matters, reviewed each invoice before it was sent out, and his administrative assistant addressed and mailed each invoice to Ms. Parnes via first class mail (see the "invoices"). From September 2008 through February 2009, plaintiff provided defendants with approximately $630,000 worth of legal services, and defendants paid the invoices for those services without protest. "

"defendants' "first affirmative defense and counterclaim" allege that plaintiff failed to issue defendants a written letter of engagement, pursuant to 22 NYCRR §1215.1. Therefore, plaintiff is barred from collecting a fee, and defendants are entitled to judgment against plaintiff for the full amount of all fees paid: $627,845.31. Defendants' "second affirmative defense and counterclaim," allege that plaintiff "vastly overcharged" for its services, for example, charging for the time of persons apparently not admitted to the New York bar at the same hourly rate as admitted lawyers. "

The Court: "The rule covering engagement letters provides in relevant part: "[A]n attorney who undertakes to represent a client and enters into an arrangement for, charges or collects any fee from a client shall provide to the client a written letter of engagement before commencing the representation, or within a reasonable time thereafter" (22 NYCRR §1215.1). ""However, a law firm's "failure to comply with the rules on retainer agreements (22 NYCRR 1215.1) does not preclude it from suing to recover legal fees for the services it provided" (Miller v Nadler, 60 AD3d 499, 500 [Sup Ct New York County 2009], citing Egnotovich v Katten Muchin Zavis & Roseman LLP, 55 AD3d 462, 464 [1st Dept 2008]; Nicoll & Davis LLP v Ainetchi, 52 AD3d 412 [1st Dept 2008]; Seth Rubenstein, P.C. v Ganea, 41 AD3d 54, 63-64 [2d Dept 2007]). The First Department explains in Nabi v Sells (70 AD3d 252, 253-254 [1st Dept 2009]): "Against the client's unqualified right to terminate the attorney-client relationship is balanced the notion that a client should not be unjustly enriched at the attorney's expense or take undue advantage of the attorney, and therefore the attorney is entitled to recover the reasonable value of services rendered." Further, the caselaw does not distinguish between the recovery of fees under a theory of quantum meruit or an account stated. Instead, this Court has held that [22 NYCRR §1215.1] "contains no provision stating that failure to comply with its requirements bars a fee collection action. Indeed, the regulation is silent as to what penalty, if any, should be assessed against an attorney who fails to abide by the rule" (Morgan, Lewis & Bockius LLP v IBuyDigital.com, Inc., 2007 WL 258305, 1 [Sup Ct New York County 2007] [emphasis added]). Therefore, defendants' first affirmative defense fails to defeat plaintiff's account stated and quantum meruit claims."

"[Courts] have held that the client may [not] use the attorney's noncompliance [with 22 NYCRR §1215.1]…as a sword to compel disgorgement of fees already paid. This is particularly relevant with respect to plaintiff's claim against [the defendants] since it appears that she has paid only a portion of the fees billed… . The issue has yet to be addressed by the First Department… . The Second Department [in Seth Rubenstein, P.C. v Ganea, supra]…ruled that the attorney discharged without cause was not precluded from recovering in quantum meruit the fair and reasonable value of the legal services provided, but did not address the issue of whether fees already paid were disgorgeable. That issue was determined by the Appellate Term, 9th & 10th Judicial Districts, in [Jones] v. Wright… where the court held that "while an attorney's failure to comply with the provision does not entitle a client to a return of legal fees where the services have already been rendered…a client may seek to recover a fee already paid if it appears that the attorney did not properly earn said fee." This appears to be consistent with the well established principles that an attorney who is discharged for cause does not have the right to recover legal fees, provided "the misconduct relates to the representation for which the fees are sought."

(Most citations omitted) (Emphasis added).

The Court in Jones v Wright (2007 WL 2247199, 1 [App Term 9th & 10th Jud Dists 2007]), which is cited by the Matos Court, stated:

Indeed, while an attorney's failure to comply with the provision does not entitle a client to a return of legal fees where the services have already been rendered, a client may seek to recover a fee already paid if it appears that the attorney did not properly earn said fee [citing Beech v Gerald B. Lefcourt, P.C., 2006 NY Slip Op 51092U, 4 (Civ Ct New York County 2006) ("While a client cannot maintain a cause of action for return of a legal fee based on noncompliance with Rule 1215.1, a client may seek recovery of the already paid fee grounded in a breach of contract theory, if an attorney did not properly earn any part of such fee")]."

Full post as published by New York Attorney Malpractice Blog on July 29, 2010 (boomark / email).