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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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No Privity Between Insured and Reinsurers Which Contracted Solely with the Insurer—Counterclaims by Insured Against Reinsurers Should Have Been Dismissed

The First Department, in a full-fledged opinion by Justice Freedman, reversed Supreme Court and dismissed counterclaims against reinsurers (NICO and Resolute) by the insured (Colgate) because no contract existed between the reinsurers and the insured. The contractual relationship was solely between the insurer (OneBeacon) and the reinsurers.  Colgate alleged that the actions of NICO and Resolute prevented Colgate from exercising control over lawsuits, including whether to settle or litigate. The underlying lawsuits alleged that talc produced by Colgate contained asbestos:

Colgate’s claims raise the issue of whether an insurance policyholder has rights against its carrier’s reinsurer, if the reinsurer administers the insured’s claims under the policy. In a typical reinsurance arrangement, where the carrier administers claims and the reinsurer merely indemnifies it in accordance with the “follow the fortunes” doctrine (see United States Fid. & Guar. Co. v American Re-Ins. Co., 93 AD3d 14, 23 [1st Dept 2012], mod 20 NY3d 407 [2013]), the insured can only state viable claims against the reinsurer in specific circumstances that do not pertain here. In this case, Colgate only holds the Policies with OneBeacon. The carrier’s reinsurer, NICO, and its affiliate, Resolute, both adjust Colgate’s Policy claims and indemnify OneBeacon for claim payouts. NICO’s and Resolute’s dual role does not, however, give rise to any liability to Colgate because Colgate lacks contractual privity with NICO and Resolute. In the absence of privity, Colgate’s breach of contract claims against NICO and Resolute fail. OneBeacon Am Ins Co v Colgate-Palmolive Co, 2014 NY Slip Op 07315, 1st Dept 10-28-14

 

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“But For” Causation Element of Tortious Interference with Contract and Prospective Business Relationship Not Present—Notwithstanding the Actions of the Defendants, there Was Evidence the Contract Was Cancelled for Financial Reasons

The Third Department, in finding the causes of action should have been dismissed, explained the “but for” element of tortious interference with contractual relations and prospective business relationships.  The complaint alleged that defendants made disparaging and false remarks about the plaintiff which caused plaintiff to lose a consulting contract.  However the evidence demonstrated the contract was cancelled for financial reasons.  Therefore the “but for” element was not present:

Causation is an essential element of a claim for tortious interference with contractual relations. Such a cause of action requires proof that, “but for” the defendants’ conduct, the plaintiff would not have breached its contract with a third party … .

In opposition to defendants’ motion for summary judgment, plaintiffs submitted a letter — not previously disclosed during discovery —… . * * * This letter established that, regardless of whether defendants acted in such a manner as to interfere with the consulting contract, the contract … was terminated for financial reasons … . Thus, it cannot be shown that “but for” defendants’ alleged interference, plaintiffs’ contractual relationship … would have continued … . Ullmanglass v Oneida Ltd, 2014 NY Slip Op 07234, 3rd Dept 10-23-14

 

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Surrogate’s Court Abused Its Discretion In Awarding Attorney’s Fees Greater than Those Called for by the Retainer Agreement—Evidence in Support of “Exceptional Circumstances” Justifying the Higher Fees Not Sufficient—Retainer Agreement Construed in Light Most Favorable to the Client

The Third Department determined Surrogate’s Court erred in awarding attorney’s fees in excess of those agreed to in the retainer agreement between the executors of an estate and the attorney hired to handle the estate.  Although the retainer agreement allowed for increased fees for “extenuating circumstances,” the Third Department found the proof of consultation and approval re: increased fees, required by the retainer agreement, lacking.  The court noted that a retainer agreement is construed in the light most favorable to the client:

Surrogate’s Court abused its discretion in fixing [the estate attorney’s] fee at $50,000. Surrogate’s Court is vested with broad discretion to fix the reasonable compensation of an attorney who renders legal services to a fiduciary of an estate, subject to modification only where that discretion has been abused (see SCPA 2110…). While the court is not bound by a retainer agreement when determining whether an unreasonable fee must be restricted …, a court “cannot award legal fees in excess of what has been agreed to by the parties in a retainer agreement” … . The attorney seeking fees bears the burden of establishing the reasonable value of the services rendered … . * * *

“The general rule that ‘equivocal contracts will be construed against the drafters’ is subject to particularly rigorous enforcement in the context of attorney-client retainer agreements,” such that we must construe the agreement in the light most favorable to the clients … . Matter of Benware, 2014 NY Slip Op 07218, 3rd Dept 10-23-14

 

1961 Royalties-Agreement Between Duke Ellington and Music Publishers Was Not Ambiguous and Could Not Be Interpreted to Refer to Parties (“Affiliates” of the Music Publishers) Which Did Not Exist In 1961—Therefore the Ellington Estate Was Not Entitled to a 50% Share of the Revenues Earned by Foreign Subpublishers With Which the Original Music Publishers Have Affiliated Since 1961

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over two dissenting opinions, determined that the terms of a 1961 royalties-agreement between Duke Ellington and music publishers were not ambiguous and must be applied as intended in 1961, even though the globalization of the music publishing business had a drastic effect on the royalty-revenues which could not have been anticipated in 1961.  The defendant music publishers which were parties to the 1961 agreement, in recent years, had become affiliated with a number of foreign subpublishers which did not exist in 1961.  The Ellington estate argued that the term “any other affiliate” (of the music publishers) in the agreement should be read to include all the recent foreign subpublishers so that the revenues earned by the foreign subpublishers would be shared by the estate. The Court of Appeals disagreed and held that only the “affiliates” contemplated by the agreement in 1961 were bound by the agreement:

Absent explicit language demonstrating the parties' intent to bind future affiliates of the contracting parties, the term “affiliate” includes only those affiliates in existence at the time that the contract was executed … . Furthermore, the parties did not include any forward looking language. If the parties intended to bind future affiliates they would have included language expressing that intent. Absent such language, the named entities and other affiliated companies of EMI's predecessor which existed at the time are bound by the provision, not entities that affiliated with EMI after execution of the Agreement. As it is undisputed that the affiliated foreign subpublishers at issue here were not affiliates at the time the Agreement was executed, they are not [parties to the agreement]. Ellington v EMI Music Inc, 2014 NY Slip Op 07197, CtApp 10-23-14

 

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The Prevailing Wage Statute Applies To All Work Reasonably Interpreted to Be Covered by the Statute—The Fact that the Application of the Statute Is Unsettled At the Time the Public Works Contract Is Entered Does Not Allow the Employer to Escape Its Reach Once the Law Is Settled

The Court of Appeals, in an opinion by Judge Smith, answered two certified questions posed by the Second Circuit about the application of the prevailing wage statute to workers engaged in the testing and inspection of fire protection equipment.  The statute requires employees doing construction, maintenance or repair on public works be paid not less than the prevailing rate of wages. The Second Circuit was asked to review the Labor Department Commissioner's ruling that the statute applied to the testing and inspection of fire protection equipment, but only prospectively.  The Second Circuit asked the Court of Appeals whether deference to the Labor Department's prospective application should be accorded, and further asked whether an employer who agrees to be bound to pay prevailing wages pursuant to section 220 has agreed to pay such wages for all work covered by the statute as the statute is reasonably interpreted, as opposed to only the types of work about which the law is settled at the time of the agreement.  The Court of Appeals determined the law should apply as it is correctly understood, not as the parties may have misunderstood it.  Ramos v SimplexGrinnell LP, 2014 NY Slip Op 07198, CtApp 10-23-14

 

Unambiguous Terms of a Release Must Be Enforced—Extrinsic Evidence of Intent Not Permitted

In affirming the dismissal of a complaint which was deemed barred by the terms of a release, the Second Department explained the criteria for the analysis of a release:

Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release … . A release is “governed by principles of contract law” …, and one “that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms” … .

The plain language of a release is controlling, “regardless of one party’s claim that he [or she] intended something else” … . Where the scope of the release is unambiguous, “the court may not look to extrinsic evidence to determine the parties’ intent” … . “Whether or not a writing is ambiguous is a question of law to be resolved by the courts” …. Sicuranza v Philip Howard Apts Tenants Corp, 2014 NY Slip Op 07143, 2nd Dept 10-22-14

 

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Release Given By Injured Party to a Tortfeasor Relieves that Tortfeasor of Any Liability for Contribution

The Second Department noted that a release given in good faith by the injured person to a tortfeasor relieves that tortfeasor from liability for contribution:

“A release given in good faith by the injured person to one tortfeasor as provided in [General Obligations Law § 15-108(a)] relieves him [or her] from liability to any other person for contribution as provided in article fourteen of the civil practice law and rules” (General Obligations Law § 15-108[b]).  United States Fire Ins Co v Raia, 2014 NY Slip Op 07146, 2nd Dept 10-22-14

 

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Landlord May Not Withhold Consent for Continued Operation of a Sidewalk Cafe Where the Lease Contemplated the Operation of the Cafe (Which Had Been in Operation for 50 Years) and Where the Implied Covenant of Good Faith and Fair Dealing Restricted the Landlord’s Ability to Withhold Consent/Erroneous Stipulated Fact Does Not Bind the Appellate Court

The First Department, in a full-fledged opinion by Justice Acosta, determined that a landlord could not terminate the tenant’s operation of a sidewalk cafe because the lease contemplated that use and the implied covenant of good faith and fair dealing restricted the landlord’s ability to deny consent to the continued operation of the cafe.  [The underlying ruling was made on stipulated facts which included the erroneous “fact” that the lease did not include the cafe as part of the leased premises.  The First Department noted that it is not bound on appeal by an incorrect stipulation of fact]:

The question presented on appeal is whether a landlord has an unfettered right to withhold or terminate its consent to a tenant’s operation of a sidewalk café, where the café has existed for at least 50 years and the lease contemplates the use of the sidewalk for that purpose. We hold that defendants may not withhold or terminate their consent, irrespective of whether they have a good-faith basis for doing so, because the lease expressly and unequivocally requires them to consent to plaintiff’s operation of the sidewalk café. In any event, we find that the implied covenant of good faith and fair dealing would otherwise restrict defendants’ ability to deny consent, and that they have failed to make a satisfactory showing of good faith in this case. * * *

Having determined that the lease allows plaintiff to use and occupy the sidewalk for the operation of a sidewalk café, it necessarily follows that defendants cannot withhold or revoke their consent to that use absent a good-faith basis. As the Court of Appeals has explained, “In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance. This covenant embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. While the duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship, they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included” (511 W. 232nd Owners Corp. v Jennifer Realty Co. , 98 NY2d 144, 153 [2002] [internal citations and quotation marks omitted]).

Because the stipulated facts demonstrate that the sidewalk café existed at the time of the lease’s execution, plaintiff (through its assignor) was justified in understanding that the landlord promised to refrain from unreasonably withholding its consent to operate the sidewalk café. DMF Gramercy Enters Inc v Lillian Troy 1999 Trust, 2014 NY Slip Op 07110, 1st Dept 10-21-14

 

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If a Contractual Representation or Warranty is False When Made, a Claim for Breach of Contract Accrues Upon Execution

The First Department noted that if a contractual representation or warranty is false when made, a claim for breach accrues at the time of the execution of the contract, even if the contract states that the “effective date” is earlier.  US Bank NA v DLJ Mtge Capital Inc, 2014 NY Slip Op 07093, 1st Dept 10-21-14

 

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