It's Been a Bleak House Kind of Week in Court

Little old ladies have much to fear from their lawyers, judging by this week's news.

First, came the indictment Tuesday of attorney-at-law Francis X. Morrissey Jr. on charges that he conspired with the son of Brooke Astor to persuade her to sign an amendment to her sizable will. The indictment said the move exploited her "diminished mental capacity," since the first lady of New York philanthropy was suffering from Alzheimer's disease.

A day later, a New York appeals court ruled that it needed more information before it could determine whether other lawyers were "unconscionable" in persuading an 80-year-old widow to agree to a 40 percent contingency fee in a fight over the estate of her deceased husband. The estate was worth more than $100 million; the lawyers' take totted up to about $42 million.

Big contingency fees are nothing new, of course. But they are usually associated with the risk-taking personal injury lawyers who go after Big Pharma and Big Tobacco.

In this case, the New York firm of Graubard Miller racked up $18 million in hourly fees over 22 years of litigation. (Alice Lawrence, the widow of real estate developer Sylvan Lawrence, was battling Seymour Cohn, her late husband's brother, business partner and executor.)

In addition, in December 1998, Mrs. Lawrence paid three of the firm's partners bonuses or gifts totaling more than $5 million, and paid $2.7 in gift taxes on those payments.

Finally, in November 2004, when Lawrence, then 80, noticed her legal bills were increasing to almost $1 million per quarter, she asked about another fee arrangement. The firm proposed a 50 percent contingency fee of the total amount eventually recovered—in addition to the $18 million she'd already paid.

When Lawrence balked at that offer, the firm agreed to lower it to 40 percent of the recovery in addition to the $18 million already paid. Told that the case may take many more years to litigate, Lawrence agreed.

At the time, a $60 million offer to settle the dispute was on the table, but it did not result in settlement. Just four and a half months later, however, Graubard Miller lawyers did settle the case for about $104.5 million.

Their client was not pleased. The difference between the $60 million settlement offer and the ultimate $104.5 million deal was entirely consumed by the new contingency fee arrangement. The net benefit to her was, essentially, zero. But Graubard Miller went from getting about one-third of a $60 million offer to banking one-half of a $100 million-plus agreement—all for a few months' work.

Lawrence hired a new lawyer and refused to pay the contingency fee. Graubard Miller pursued her in court. Lawrence was asking the appeal court to rule that the contingency fee was "unconscionable" on its face, and therefore unenforceable. A majority of the five-member panel of the court, the Appellate Division of State Supreme Court in Manhattan, said it didn't have enough evidence to decide the matter and told the lawyers to produce more evidence to back up their cases.

In a blistering dissent, though, Justice James M. Catterson wrote that he didn't think any more discovery was needed before finding the agreement "unconscionable."

"In other words," he wrote at one point, "having billed Alice for every hour expended on work in connection with the claim after Alice left the $60 million offer on the table, Graubard now seeks to retain every dollar over and above that amount as its contingency fee, essentially divesting Alice of any benefit she may have gained from Graubard's legal services."

Mark C. Zauderer, who represents the Graubard firm, crowed about the favorable majority ruling to the New York Times: "This is the third time a court or judge has affirmed the right of the Graubard firm to be paid a well-earned fee in which it got a tremendous result in a highly complex case."

Zauderer, however, may be claiming victory too early.

"No one won this; it was put off to another day," says Stephen Gillers, an ethics professor at New York University School of Law. "I found the conduct of the lawyers troubling, and it will be important for the conduct eventually to be thoroughly reviewed by the court, following the development of the information that the appellate division required."

The majority on the appeals court said it wanted to explore Lawrence's mental capacity at the time she entered into the contingency agreement. "[T]he fact that she was nearly eighty, by itself, is insufficient to put her mental capacity in question," the opinion notes.

Lawrence, now 83, is represented by Leslie D. Corwin of Greenberg Traurig, who said an appeal is likely.

by Karen Donovan