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Retainer Agreements: The Importance of Clarity

Shaw v. Manufacturers Hanover Trust Co.,  68 N.Y.2d 172, 499 N.E.2d 864(App. Div.1986)

NY: Underlying  Personal Injury Action–Fee Dispute

Student Contributor: Candice L. Deaner

Facts: The Plaintiff brought a personal injury claim and retained the law firm  on a contingent fee basis. The agreement did not mention appeals. After the trial ended in a verdict for the defendant, the Plaintiff wanted to appeal. The law firm agreed, on the condition that Plaintiff advance the litigation expenses. Plaintiff refused and retained new counsel and eventually obtained an award of $1.5 million in the retrial. The original law firm then sought to collect on the award and the client objected.

Issue: Whether an attorney can collect on a contingency fee agreement when the terms of representation were not clearly stated?

Ruling: The New York State Court of Appeals denied the fee request.

1)  Retainer agreements should be clear on the scope of representation. The Court said,

"The importance of an attorney’s clear agreement with a client as to the essential terms of representation cannot be overstated. The client should be fully informed of all relevant facts and the basis of the fee charges, especially in contingent fee arrangements.”

2) The contract should be viewed in a light most favorable to the client. The court held “Had the client maintained that the retainer agreement required respondent’s representation through conclusion of the matter, that would have been the mandated interpretation. But here, the client has asserted that the contract terminated upon entry of an adverse judgment. We hold that the agreement must be construed so to provide."

3) The court found that the agreement only spoke of adjudicating the claim. Even if the contract applied to an appeal, the law firm breached the contract by insisting on an additional term for handling the appeal; namely, advancing  expenses. The retainer agreement only addressed the computation of the ultimate fee, it made no provision for expenses.

The Lesson: Retainer agreements should contain clear language stating the legal services to be provided. The attorney should be sure that the client understands the scope of the attorney’s representation.. Attorney’s can safeguard themselves by including any and all limitations in writing, so that there is no question as to what the scope of employment was from the beginning of the attorney/client relationship.

Note: From a malpractice viewpoint, a clear "scope of the engagement" clause is critical to protecting the lawyer from liability for services that are beyond the scope of the engagement.

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Posted in: Attorneys Fees, Litigation, New York, Torts/Personal Injury