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New York's Contingency Fee System Upheld in Fee Dispute Case

November 24, 2014 | Posted in : Contingency Fees / POF, Fee Agreement, Fee Award Factors, Fee Dispute, Fee Issues on Appeal, Fee Jurisprudence, Hourly Rates

A recent New York Law Journal story, “$44 Million Contingency Fee Upheld Graubard Miller,” reports that a contingency fee agreement that netted Graubard Miller $44 million for five months’ work was valid and must be adhered to, the state Court of Appeals ruled.  The law firm took substantial risk by making the agreement with Alice Lawrence in January 2005, and the fact that the real estate matter on which it had long represented Lawrence unexpectedly settled in May 2005 did not make it unconscionable, the court decided.

Judge Susan Phillips Read wrote that it was “dangerous business” to assess the fairness of a contingency fee arrangement, especially when the objection is that “the size of the fee seems too high to be fair.”  “It is the nature of a contingency fee that a lawyer, through skill or luck (or some combination thereof), may achieve a very favorable result in short order; conversely, the lawyer may put in many years of work for no or a modest reward,” Read wrote in Matter of Lawrence, Deceased, 149.

She added, “Absent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written.”  Read said invalidating agreements in hindsight should be done 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.”

“Whether $44 million is an unreasonably excessive fee depends on a number of factors, primarily the risk to the attorneys and the value of their services in proportion to the overall fee,” she wrote.  Here, Read said, Graubard spent nearly 4,000 hours preparing for trial in May 2005 that was averted by the surprise settlement, and the firm risked several more years on litigation with no guarantee of payments beyond the hourly fees guaranteed during the first year of the agreement.

NALFA also reported on this case in “New York Fee Dispute Case Can Effect State’s Contingency Fee System”