Matrimonial Fee Dispute Arbitration

Historically, attorneys have been fearful about suing clients for fees out of concern for what would be the inevitable frivolous counterclaim for malpractice. This reluctance, despite the clear difficulties in a client succeeding on most malpractice claims, results in properly earned fees going uncollected. Fee dispute arbitration, which is usually a condition precedent to suit, is an oft-underused vehicle to help secure payment of fees in a less formal environment where the client may see that resolution is the best option and where counsel can reduce mounting accounts receivable.

Substantial Compliance with the Matrimonial Rules

The ability to collect fees, begins, of course, with “substantial compliance” with the “Matrimonial Rules.” 22 NYCRR Part 1400, et seq.; See also Lee Rosenberg, Counsel Fees, Ethical Considerations, NYLJ Oct. 11, 2005 at 4, col. 4. Without substantial compliance, no outstanding fee will be collectible at Fee Arbitration. This starts with the Statement of Client's Rights and Responsibilities, which must be provided to the potential client at the initial consultation [22 NYCRR ' 1400.2; 22 NYCRR Part 1200, Rule 1.5(e)] and not thereafter. NYSBA Eth Op 685 (1997). The second requirement is a properly compliant written retainer agreement. 22 NYCRR ' 1400.3. The written retainer is mandatory. 22 NYCRR ' 1400.3; 22 NYCRR Part 1200, Rule 1.5(d)(5)(ii). The $3,000 minimum for a written agreement or letter of engagement in other practice areas (22 NYCRR Part 1215) is irrelevant to matrimonial matters which requires a retainer for all matters covered under the Matrimonial Rules in which compensation is to be paid, has no minimum, and is stricter in nature. Seth Rubenstein, P.C. v. Ganea, 41 AD3d 54 (2nd Dept. 2007). There cannot be a non-refundable fee retainer, although a “minimum” fee is permissible. 22 NYCRR ' 1400.4. There can be no contingency fees ' ever. 22 NYCRR ' 1400.2; 22 NYCRR Part 1200, Rule 1.5(d)(5)(i). There must be a new retainer agreement for each new matter or for any matter not covered under the existing retainer agreement ' excluded matters cannot be boot-strapped. Sherman v. Sherman, 34 AD3d 670 (2nd Dept. 2006). Of course, billing must be undertaken at least once every 60 days. 22 NYCRR ' 1400.3

Failure to substantially comply means no recovery of outstanding fees. Julien v. Machson, 245 AD2d 122 (1st Dept 1997). Noncompliance will also preclude recovery from the adverse spouse. Bentz v. Bentz, 71 AD3d 931 (2nd Dept 2010); Wagman v. Wagman, 8 AD3d 263 (2nd Dept 2008). An attorney's discharge “for cause,” however, will preclude recovery of outstanding fees even if there is substantial compliance. There will usually not be “disgorgement” of the fee at arbitration as long as the fee has been properly earned. Meyer, Suozzi, English & Klein, P.C. v. Jeroboam Co. Inc., N.Y. Slip Op. 33563(U) (Trial Order) (Note: A Part 136 case); c.f. In Re Serazio-Plant, 299 AD2d 696 (3rd Dept 2002). lv. den 100 AD2d 512 (2003); Mulcahy v. Mulcahy, 285 AD2d 587 (2nd Dept. 2001).

The Fee Dispute Arbitration Process

On matters in which counsel was retained before Jan. 1, 2002, the arbitration process is governed by 22 NYCRR Part 136 (now repealed, except as to matters prior to the effective date of Part 137). On matters in which counsel is retained on Jan.1, 2002 and after, the process is governed by 22 NYCRR Part 137. 22 NYCRR ' 137(a). (Given that we are now in 2011, this article will address only the Part 137 process. A significant difference between the two is that under Part 136, any malpractice sounding claims raised in arbitration by the client will foreclose such a claim in litigation by way of res judicata. Wallenstein v. Cohen, 45 AD3d 674 (2nd Dept. 2007). lv. den 10 NY3d 711 (2008); Altamore v. Friedman, 193 AD2d 240 (2nd Dept. 1993). Under Part 137, the arbitration addresses the “reasonableness of the fee” and not malpractice or other “substantial legal questions” so that a malpractice clam is not thereafter foreclosed or subject to collateral estoppel/res judicata preclusion. 22 NYCRR
' 137.1(b)(3) and (4).)

Arbitration does not apply to disputes less than $1,000 or over $50,000 unless the parties otherwise agree to extend the parameters. 22 NYCRR ' 137.1(b)(2). The fee dispute will be heard in the county in which the “majority of legal services were performed.” 22 NYCRR
' 137.5.

The protocols relating to the filing for arbitration must be adhered to and are as follows:

• Official Forms and Information must be provided to the client by certified mail or personal service. 22 NYCRR ' 137.6(a). This includes the Notice of Client's Right to Arbitrate (Forms UCS 137-1 or 137-2, depending on who is initiating the process), Client Request for Fee Arbitration (Form UCS 137-4a), and Written Instructions (Form UCS 137-3).
• The attorney must file for Fee Arbitration before suit can be filed even if the fee is not disputed. (There has been some dispute between the Appellate Departments as to whether or not offering arbitration first is required when the client is not paying, but also not challenging the fee owed. It is best practice, however, to proceed as if the amount is disputed and file for arbitration in advance of suit).
• The Request for Arbitration should be sent to the local administrator. 22 NYCRR ' 137.4. In Nassau County, for example, the form request is sent to
  the Office of Court Administration at Nassau County Supreme Court for processing.
• The responding party has 30 days to respond to the fee arbitration request. If the attorney files and the client does not file within the time limit, the attorney may sue. 22 NYCRR Part 137.6(b). If counsel is the respondent and does not file within the time limit, there may be a preclusion at the time of hearing and the Office of Court Administration may refer the matter to the Grievance Committee. 22 NYCRR ' 137.11.
• The client will file a Request for Fee Arbitration form outlining the claims (Form UCS 137-4a). Counsel will serve and file a Response to Request for Fee Arbitration (Form UCS 137-5a).
• Three arbitrators are selected if the amount in dispute is $6,000 or more; one is used if less than $6,000. 22 NYCRR Part 137, Appendix A, Section 8(B).
• A hearing is scheduled and held at the lead arbitrator's office. On a three-panel arbitration at least one arbitrator will be an attorney and at least one will be a non-attorney. 22 NYCRR Part 137, Appendix A, Section 8(B)(2).
• Thirty days are allotted for decision after hearing. 22
  NYCRR ' 137.7(f).
• If the matter is not settled before the hearing, and a decision is rendered, an application to confirm the decision must be made. CPLR ' 7510.
• There is a right to trial de novo unless waived. 22 NYCRR ' 137.8.

Application and Response

It is counsel's burden to show the reasonable value of their services by a preponderance of the evidence. 22 NYCRR ' 137.7(d). The first issue in this regard is identifying the “amount in dispute.” Whether initiating or responding to the process, the amount in dispute establishes that the matter is within the jurisdictional amount of the arbitration, and also how much is at issue.

The attorney's information packet, which is part of the Response to Request for Fee Arbitration, should contain a narrative of the case facts and should explain where the client's position is incorrect or disputed. Be clear and straightforward, and back up your points. 22 NYCRR ' 137.7(d). Also, attach the Client's Rights Statement, the Retainer Agreement, and the Bills/Invoices, even if the client has already attached them to his or her application. Sometimes the client leaves things out, so take no chances. In addition, attach any other items that may be relevant and on point ' e.g., correspondence from the client indicating that a billing issue was resolved, court orders granting counsel fees, an affidavit signed by the client on a counsel fee application or the transcript of an allocution indicating the client's satisfaction with your services and your compliance with the matrimonial rules. Again, you must respond or else face the consequences: preclusion and/or discipline. 22 NYCRR ' 137.11.

In next month's issue we will discuss the conduct of the arbitration hearing.

Lee Rosenberg is a partner at Saltzman Chetkof & Rosenberg LLP in Garden City, and a member of this newsletter's Board of Editors. He is a fellow of the American Academy of Matrimonial Lawyers.

Historically, attorneys have been fearful about suing clients for fees out of concern for what would be the inevitable frivolous counterclaim for malpractice. This reluctance, despite the clear difficulties in a client succeeding on most malpractice claims, results in properly earned fees going uncollected. Fee dispute arbitration, which is usually a condition precedent to suit, is an oft-underused vehicle to help secure payment of fees in a less formal environment where the client may see that resolution is the best option and where counsel can reduce mounting accounts receivable.

Substantial Compliance with the Matrimonial Rules

The ability to collect fees, begins, of course, with “substantial compliance” with the “Matrimonial Rules.” 22 NYCRR Part 1400, et seq.; See also Lee Rosenberg, Counsel Fees, Ethical Considerations, NYLJ Oct. 11, 2005 at 4, col. 4. Without substantial compliance, no outstanding fee will be collectible at Fee Arbitration. This starts with the Statement of Client's Rights and Responsibilities, which must be provided to the potential client at the initial consultation [22 NYCRR ' 1400.2; 22 NYCRR Part 1200, Rule 1.5(e)] and not thereafter. NYSBA Eth Op 685 (1997). The second requirement is a properly compliant written retainer agreement. 22 NYCRR ' 1400.3. The written retainer is mandatory. 22 NYCRR ' 1400.3; 22 NYCRR Part 1200, Rule 1.5(d)(5)(ii). The $3,000 minimum for a written agreement or letter of engagement in other practice areas (22 NYCRR Part 1215) is irrelevant to matrimonial matters which requires a retainer for all matters covered under the Matrimonial Rules in which compensation is to be paid, has no minimum, and is stricter in nature. Seth Rubenstein, P.C. v. Ganea , 41 AD3d 54 (2nd Dept. 2007). There cannot be a non-refundable fee retainer, although a “minimum” fee is permissible. 22 NYCRR ' 1400.4. There can be no contingency fees ' ever. 22 NYCRR ' 1400.2; 22 NYCRR Part 1200, Rule 1.5(d)(5)(i). There must be a new retainer agreement for each new matter or for any matter not covered under the existing retainer agreement ' excluded matters cannot be boot-strapped. Sherman v. Sherman , 34 AD3d 670 (2nd Dept. 2006). Of course, billing must be undertaken at least once every 60 days. 22 NYCRR ' 1400.3

Failure to substantially comply means no recovery of outstanding fees. Julien v. Machson , 245 AD2d 122 (1st Dept 1997). Noncompliance will also preclude recovery from the adverse spouse. Bentz v. Bentz , 71 AD3d 931 (2nd Dept 2010); Wagman v. Wagman , 8 AD3d 263 (2nd Dept 2008). An attorney's discharge “for cause,” however, will preclude recovery of outstanding fees even if there is substantial compliance. There will usually not be “disgorgement” of the fee at arbitration as long as the fee has been properly earned. Meyer, Suozzi, English & Klein, P.C. v. Jeroboam Co. Inc., N.Y. Slip Op. 33563(U) (Trial Order) (Note: A Part 136 case); c.f. In Re Serazio-Plant, 299 AD2d 696 (3rd Dept 2002). lv. den 100 AD2d 512 (2003); Mulcahy v. Mulcahy , 285 AD2d 587 (2nd Dept. 2001).

The Fee Dispute Arbitration Process

On matters in which counsel was retained before Jan. 1, 2002, the arbitration process is governed by 22 NYCRR Part 136 (now repealed, except as to matters prior to the effective date of Part 137). On matters in which counsel is retained on Jan.1, 2002 and after, the process is governed by 22 NYCRR Part 137. 22 NYCRR ' 137(a). (Given that we are now in 2011, this article will address only the Part 137 process. A significant difference between the two is that under Part 136, any malpractice sounding claims raised in arbitration by the client will foreclose such a claim in litigation by way of res judicata. Wallenstein v. Cohen , 45 AD3d 674 (2nd Dept. 2007). lv. den 10 NY3d 711 (2008); Altamore v. Friedman , 193 AD2d 240 (2nd Dept. 1993). Under Part 137, the arbitration addresses the “reasonableness of the fee” and not malpractice or other “substantial legal questions” so that a malpractice clam is not thereafter foreclosed or subject to collateral estoppel/res judicata preclusion. 22 NYCRR
' 137.1(b)(3) and (4).)

Arbitration does not apply to disputes less than $1,000 or over $50,000 unless the parties otherwise agree to extend the parameters. 22 NYCRR ' 137.1(b)(2). The fee dispute will be heard in the county in which the “majority of legal services were performed.” 22 NYCRR
' 137.5.

The protocols relating to the filing for arbitration must be adhered to and are as follows:

• Official Forms and Information must be provided to the client by certified mail or personal service. 22 NYCRR ' 137.6(a). This includes the Notice of Client's Right to Arbitrate (Forms UCS 137-1 or 137-2, depending on who is initiating the process), Client Request for Fee Arbitration (Form UCS 137-4a), and Written Instructions (Form UCS 137-3).
• The attorney must file for Fee Arbitration before suit can be filed even if the fee is not disputed. (There has been some dispute between the Appellate Departments as to whether or not offering arbitration first is required when the client is not paying, but also not challenging the fee owed. It is best practice, however, to proceed as if the amount is disputed and file for arbitration in advance of suit).
• The Request for Arbitration should be sent to the local administrator. 22 NYCRR ' 137.4. In Nassau County, for example, the form request is sent to
  the Office of Court Administration at Nassau County Supreme Court for processing.
• The responding party has 30 days to respond to the fee arbitration request. If the attorney files and the client does not file within the time limit, the attorney may sue. 22 NYCRR Part 137.6(b). If counsel is the respondent and does not file within the time limit, there may be a preclusion at the time of hearing and the Office of Court Administration may refer the matter to the Grievance Committee. 22 NYCRR ' 137.11.
• The client will file a Request for Fee Arbitration form outlining the claims (Form UCS 137-4a). Counsel will serve and file a Response to Request for Fee Arbitration (Form UCS 137-5a).
• Three arbitrators are selected if the amount in dispute is $6,000 or more; one is used if less than $6,000. 22 NYCRR Part 137, Appendix A, Section 8(B).
• A hearing is scheduled and held at the lead arbitrator's office. On a three-panel arbitration at least one arbitrator will be an attorney and at least one will be a non-attorney. 22 NYCRR Part 137, Appendix A, Section 8(B)(2).
• Thirty days are allotted for decision after hearing. 22
  NYCRR ' 137.7(f).
• If the matter is not settled before the hearing, and a decision is rendered, an application to confirm the decision must be made. CPLR ' 7510.
• There is a right to trial de novo unless waived. 22 NYCRR ' 137.8.

Application and Response

It is counsel's burden to show the reasonable value of their services by a preponderance of the evidence. 22 NYCRR ' 137.7(d). The first issue in this regard is identifying the “amount in dispute.” Whether initiating or responding to the process, the amount in dispute establishes that the matter is within the jurisdictional amount of the arbitration, and also how much is at issue.

The attorney's information packet, which is part of the Response to Request for Fee Arbitration, should contain a narrative of the case facts and should explain where the client's position is incorrect or disputed. Be clear and straightforward, and back up your points. 22 NYCRR ' 137.7(d). Also, attach the Client's Rights Statement, the Retainer Agreement, and the Bills/Invoices, even if the client has already attached them to his or her application. Sometimes the client leaves things out, so take no chances. In addition, attach any other items that may be relevant and on point ' e.g., correspondence from the client indicating that a billing issue was resolved, court orders granting counsel fees, an affidavit signed by the client on a counsel fee application or the transcript of an allocution indicating the client's satisfaction with your services and your compliance with the matrimonial rules. Again, you must respond or else face the consequences: preclusion and/or discipline. 22 NYCRR ' 137.11.

In next month's issue we will discuss the conduct of the arbitration hearing.

Lee Rosenberg is a partner at Saltzman Chetkof & Rosenberg LLP in Garden City, and a member of this newsletter's Board of Editors. He is a fellow of the American Academy of Matrimonial Lawyers.