In re Lawrence: What the Court of Appeals Says About Gifts from Client to Lawyer
February 19, 2015
On October 28, 2014, the Court of Appeals rendered its long awaited decision in In re Lawrence, 2014 NY Slip Op 07291, reversing the decision by the Appellate Division in which it was held that (1) a revised retainer agreement, under which the law firm received 40% of the net recovery (i.e. $44 million) was procedurally and substantively unconscionable and that fees should be determined under the original retainer; and (2) the claim to recover gifts made by the client to her attorneys was timely.
In upholding the revised retainer agreement, the Court stated that the most important factor in determining whether it was procedurally unconscionable was whether the client was fully informed upon entering into the agreement, in that the client had “full knowledge of all of the material circumstances known to the attorney” (Slip Op. at 18). The hearing evidence demonstrated that Mrs. Lawrence, who was involved in every detail of the case, fully understood the revised retainer agreement, and that layperson could comprehend the mathematical calculations used to arrive at the 40% contingency fee. Refusing to engage in a “hindsight analysis” of the revised retainer agreement, the Court concluded that the revised retainer agreement was not substantively unconscionable in light of the risks taken by the attorneys, and the value of their services over two decades of contentious litigation during which there was a lengthy trial and several appeals.
Regarding the gifts, the Court found that the claim was time-barred, and that the statute of limitations was not tolled by the continuous treatment doctrine, which, the Court reiterated, applies only where there is a claim for professional misconduct, and the professional’s ongoing representation directly relates to the specific transaction giving rise to the malpractice claim. The Court specifically distinguished between a dispute concerning an attorney’s malpractice in rendering services and a dispute over a client’s payment of a bill or making of a gift; a critical distinction for purposes of the policy underlying the continuous representation rule. The rule exists because “the client should not be burdened with the obligation to identify the professional’s errors in the midst of the representation as the client is hardly in a position to know the intricacies of the practice or whether the necessary steps in the action have been taken” and thus, “cannot be expected to jeopardize his pending case or his relationship with the attorney handling that case during the period that the attorney continues to represent the person” (Slip Op. at 27). With respect to a gift or fee dispute, however, the Court held that the giving of a gift is “not the subject of any prior or ongoing representation,” and therefore, disputing it would not “force a lay person to undertake actions that he is ill-equipped to carry out” or place the client at risk for interrupting corrective efforts.
Applying those principles to the facts before it, the Court found that the client’s voluntary gifts were unrelated to the lawyers’ provision of any legal services. Importantly, there was no underlying claim of malpractice against the attorneys who received the gifts. Thus, the seminal requirement to apply the continuous representation rule was missing. The Court further determined that there was no need for the lawyers to have any future representation vis-à-vis the gifts or to take any “corrective action.” It then concluded, “the purpose underlying the continuous representation rule would not be served by its application” (Slip Op. at 29).