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Revised Retainer Agreement, Which Changed the Fee Arrangement from Hourly to a 40% Contingency, Was Not Unconscionable/the Continuing Representation Doctrine Will Not Extend the Statute of Limitations for an Action Seeking the Return of Gifts Made by a Client to Her Attorneys Where the Sole Basis for the “Continuing Representation” Is a Fee Dispute

The Court of Appeals, in a full-fledged opinion by Judge Read, determined that, under the facts, a 40% contingent-fee retainer-agreement was not unconscionable.  The court further determined the six-year statute of limitations for an action seeking the return of gifts given to attorneys by their client was not tolled by the continuing representation doctrine because the doctrine is not applicable if the “continuing representation” is a fee dispute between the attorneys and client.  The underlying action was a suit by the beneficiaries of an estate worth $1 billion against the executor of the estate.  The estate litigation went on for more than 20 years.  The wife of the decedent, Alice Lawrence, after paying some $18 million in attorneys' fees under a retainer agreement, sought and negotiated a new contingent-fee agreement (40% of the amount recovered).  Lawrence was actively involved in the litigation and was apparently very savvy concerning financial affairs.  After the contingent-fee agreement was entered, the case took a sudden turn when the executor agreed to settle for more than $100 million, entitling Lawrence's attorneys to a fee of more than $40 million. Reversing the appellate division, the Court of Appeals determined the contingent-fee retainer agreement must be enforced:

Courts “give particular scrutiny to fee arrangements between attorneys and clients,” placing the burden on attorneys to show the retainer agreement is “fair, reasonable, and fully known and understood by their clients” … . A revised fee agreement entered into after the attorney has already begun to provide legal services is reviewed with even heightened scrutiny, because a confidential relationship has been established and the opportunity for exploitation of the client is enhanced … . …[A]n unconscionable contract is generally defined as “one which is so grossly unreasonable as to be unenforceable according to its literal terms because of an absence of meaningful choice on the part of one of the parties [procedural unconscionability] together with contract terms which are unreasonably favorable to the other party [substantive unconscionability]” … . * * *

Absent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written … . …”[T]he power to invalidate fee agreements with hindsight should be exercised only with great caution” because it is not “unconscionable for an attorney to recover much more than he or she could possibly have earned at an hourly rate” … . * * *

We have never endorsed continuous representation tolling for disputes between professionals and their clients over fees and the like, as opposed to claims of deficient performance where the professional continues to render services to the client with respect to the objected-to matter or transaction. Nor do the rationales underlying continuous representation tolling support its extension beyond current limits. Matter of Lawrence, 2014 NY Slip Op 07291, CtApp 10-28-14

 

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