Lai Ling Cheng v. Modansky Leasing Co.

Citations: 73 N.Y.2d 454; 539 N.E.2d 570; 541 N.Y.S.2d 742; 1989 N.Y. LEXIS 475

Court: New York Court of Appeals; May 4, 1989; New York; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The court addressed a dispute between two law firms over attorney fees related to a personal injury claim for Teresa Wong, who suffered severe injuries in a vehicle accident. Edward Murtaugh, the outgoing attorney, was initially retained on a contingent fee basis of one-third of any recovery but was discharged without cause before filing a lawsuit. The incoming firm, Lipsig, Sullivan and Liapakis, also agreed to a one-third contingent fee and sought to determine Murtaugh's compensation after the case settled for $1,800,000, with a set attorney's fee of $540,000.

Murtaugh claimed entitlement to a contingent fee based on his contributions, whereas the Lipsig firm argued he should receive a fixed amount for his services. Their dispute led to a court hearing, where the Supreme Court ruled in favor of Murtaugh, awarding him 20% of the total fee ($108,000) plus interest. However, the Appellate Division modified this decision, asserting that Murtaugh was not entitled to a contingent fee because he was not the attorney of record, as his name did not appear in the official case documents, and thus lacked a lien under Judiciary Law § 475. The Appellate Division limited Murtaugh’s recovery to the reasonable value of his services, deeming $35,000 appropriate.

The court ultimately reversed the Appellate Division's decision, emphasizing that under New York law, a discharged attorney can recover compensation for services rendered based on their fair and reasonable value, irrespective of the original fee agreement.

Either attorney may choose to receive compensation as a fixed dollar amount based on quantum meruit at discharge, or alternatively, agree to a contingent percentage fee determined at either the time of substitution or case conclusion. In disputes solely between attorneys, the outgoing attorney can opt for compensation based on quantum meruit or a contingent percentage fee reflecting their proportionate contribution to the case. The percentage is typically better assessed at case conclusion due to the ability to evaluate time spent, work performed, and recovery amount. However, the Appellate Division stated that to elect a contingent percentage fee, the outgoing attorney must be an attorney of record entitled to a lien under Judiciary Law § 475. Murtaugh, who concedes he lacks rights under this statute, claims he has a contractual lien securing his fee for prior services. The central issue pertains to how his fee is measured. Upon discharge, Murtaugh had a common-law retaining lien on the client’s file, which entitled him to compensation based on quantum meruit before relinquishing the file. While establishing the fee, the court may consider the original retainer agreement but cannot factor in the recovery size at the time of discharge. Murtaugh's security evolved when he agreed to transfer the file for a contractual lien from the Lipsig firm. His right to choose between a fixed fee or a contingent percentage fee is independent of the source of his security and hinges on his agreement with the Lipsig firm, which he asserts included an election for a contingent fee to be determined at the litigation's conclusion.

The language in the agreement indicates that the individual was to receive a percentage of the recovery rather than a fixed dollar fee, which could have been calculated independently of the litigation outcome. A contingent percentage fee is appropriately assessed at the litigation's conclusion when both the recovery amount and each lawyer's contributions are clear. Lipsig’s interpretation, suggesting a fixed dollar amount, fails to account for Murtaugh’s surrender of his file, as it offers no compensation for this action. While the contract did not explicitly specify a "contingent percentage" fee, the context implies such an arrangement. Any ambiguity in the letter's terms must be construed against the drafter, Lipsig, Sullivan, and Liapakis. Consequently, the order is reversed, with costs, and the case is sent back to the Appellate Division, Second Department, for further action. Chief Judge Wachtler and Judges Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa agree with this decision.