Challenge to $40 Million Contingency Fee Now in Referee’s Hands
Attorney for client’s estate argued that three Graubard Miller lawyers were in a ‘conspiracy of silence’ regarding monetary gifts from the client
Nate Raymond
December 17, 2009
New York Law Journal
http://www.law.com/jsp/article.jsp?id=1202436397729&Challenge_to__Million_Contingency_Fee_Now_in_Referees_Hands
The question of whether Graubard Miller deserved a $42 million contingency fee from a settlement it obtained just five months after its client agreed to switch from paying hourly rates is now in the hands of a referee in New York.

In closing arguments Wednesday in Manhattan Surrogate’s Court, Mark Zauderer, an attorney for the law firm, contended that Graubard Miller deserved the full 40 percent contingency fee on the $104.8 million settlement for Alice Lawrence, the widow of a New York real estate magnate.

But Daniel Kornstein, who represents Mrs. Lawrence’s estate, insisted Mrs. Lawrence “did not understand the ramifications” of changing her fee arrangement because of medication she was using after knee surgery that made her “spacey” and “dizzy.”

Kornstein, of Kornstein Veisz Wexler & Pollard, also argued that the fee should be canceled because the three Graubard Miller lawyers accepted monetary gifts from Lawrence in violation of New York law.

“This is a case that drags the legal profession through the mud,” said Kornstein.

Closing arguments followed two months of trial and four years of litigation between the law firm and its former client of 22 years.

Graubard Miller represented Lawrence in litigation surrounding the estate of her husband, Sylvan Lawrence, who co-owned a New York real estate empire once valued at more than $1 billion.

After billing more than $18 million on an hourly basis and recovering more than $350 million for their client, Graubard switched to a contingency fee relationship with Lawrence in January 2005, with the anticipation by both sides for small recoveries going forward. But five months later the parties settled for $104.8 million following production of a bombshell document in discovery.

Lawrence refused to pay the firm, arguing the contingency fee was “unconscionable.” In December 2008, the New York Court of Appeals unanimously ruled in Lawrence v. Graubard Miller, 11 NY 3d 588, that more facts were needed “to evaluate the agreement’s unconscionability,” paving the way for trial.

“The fee is not unconscionable when you take into account all the factors in this case,” argued Zauderer, of Flemming Zulack Williamson Zauderer. “It was high because the recovery was high.”

But Kornstein said Lawrence confided to her son that she had “made a mistake” after signing the contingency agreement. He also said Graubard Miller exerted undue influence on Lawrence, who was on pain medication following surgery.

Both sides faced a challenge in proving their cases due to the 2008 death of Lawrence, a primary witness. Lawyers for Graubard Miller did not get to depose her before she died.

At the beginning of Wednesday’s hearing, the referee, Howard Levine, a retired New York Court of Appeals judge, denied a motion to introduce additional medical evidence that Zauderer contended showed Lawrence knew she was dying and should have taken steps to preserve her testimony. Levine called his argument an “imaginative, albeit macabre, theory.”

The only eyewitness testimony to large portions of the case was C. Daniel Chill, Graubard Miller’s lead partner in the estate litigation. Kornstein tried to cast doubt on whether Chill could be trusted to give truthful accounts of his interactions with Lawrence.

Kornstein is seeking the return of the $7.2 million in gifts that were given to the three individual lawyers — Chill, Elaine Reich and Steven Mallis. Levine restricted Kornstein from seeking their return from the firm itself. But the estate contends that under New York state ethics rules it would be entitled to the return of all fees the firm earned after the lawyers accepted the gifts.

Kornstein said the three attorneys were engaged in a “conspiracy of silence,” declining to disclose the gifts to their law firm, even though they owed the firm a fiduciary duty. Nor did the lawyers tell Lawrence’s children, who were also the firm’s clients, about the gifts, he said. The three should have advised Lawrence to hire an advisor to review the ethics of the gifts, he added.

“We’re not dealing with young attorneys right out of law school who make a mistake because they don’t know better,” Kornstein contended.

GIFTS AT ISSUE

Michael Carvin at Jones Day is counsel to Chill and Reich. Mallis represents himself.

On Wednesday, Carvin said there was no evidence that Chill solicited the gifts or that they were anything other than voluntary. Lawrence’s own accountant swore to the IRS in 1999 that the gifts were made out of her generosity, he said.

Lawrence also told the attorneys not to tell her children about the gifts, Carvin said, adding that she “would have gone ballistic” if they had.

Carvin did not dispute that the lawyers had a fiduciary duty to Graubard Miller to inform the other partners about the gifts.

But he called that issue irrelevant to whether the gifts should be returned to the estate.

He argued that the estate only raised the issue of the gifts as a litigation tactic.

“Everyone in this courtroom knows why she waited seven years” to raise the issue, Carvin said.

Carvin said the lawyers would have been foolish to try to cheat their client when the firm stood to earn $7 million to $8 million as executor of her estate.

Mallis argued his firm represented Lawrence “zealously” for 22 years.

“Every single thing these people wanted, we gave them,” he said.

Lawrence had a long history of firing lawyers, he added, noting that Graubard Miller came into the litigation after she had already fired two previous firms. Had she been upset with Graubard, there was no doubt she would have done the same, he said.

As for the contingency fee, Mallis said it was “the last thing we wanted, that’s something she wanted,” a point echoed by Zauderer.

The evidence, Zauderer added, supported only one conclusion: “She didn’t want to pay the fee.”

A decision by Levine is not expected for at least another two months. Post-trial briefs are due Feb. 1. Responses are due Feb. 12.