Not so fast. Lawyer Can’t Be Displaced by Client without Court Order.

The client was injured and hired a lawyer to prosecute his personal injury claim against various entities for negligence. The lawyer agreed to handle the personal injury claim for a one-third contingent legal fee. “Contingent fee” refers to an arrangement with an attorney for payment of a percentage of an amount recovered for the client through settlement or resolution of the claim; a one-third contingency is fairly standard in personal injury matters.

After being retained by the client, the lawyer took a number of steps towards prosecuting the claim, including (1) commencing an action (termed a “special proceeding” in the New York State Supreme Court) against a municipality to file a “late” notice of claim to sue that government entity; (2) representing the client in the related worker’s compensation claim before the New York State Worker’s Compensation Board; and (3) commencing an action for personal injuries against the potentially-liable company in the New York State Supreme Court.

After the action was started in the New York State court, the defendant “removed” the action to federal court (based on a concept known as “diversity,” because that defendant was an out-of-state company). In the federal court case, the action continued with discovery proceedings taking place between the parties. The defendant even made an offer to settle the personal injury claim for $50,000, which was rejected.

Displacement of the Attorney

Three days after the $50,000 settlement offer, the lawyer received a letter from another law firm enclosing a Consent to Change Attorney form for the lawyer to sign and return with the file. The letter indicated that the client had now retained the other law firm to continue litigating his personal injury claim and, effectively, terminated the lawyer’s representation in the federal court case.

It is not uncommon for a client to change attorneys midstream during litigation; the usual steps taken upon substitution of attorneys is for the outgoing attorney to deliver the client’s file to the incoming attorney and for the attorneys to come to an arrangement concerning the split of the contingency fee when and if the case settles or resolves. It is also common for the incoming attorney to pay the outgoing attorney’s expenses on the file, including court filing fees, process service fees, and the costs of medical records and investigators. Unfortunately, in this situation, the incoming attorney was unwilling to pay the outgoing attorney’s expenses; he also refused to negotiate any division of the one-third contingency legal fee with the outgoing attorney, claiming instead that the outgoing attorney was entitled to nothing.

Attorney Cannot Be Displaced without Court Order

The outgoing attorney contacted Richard A. Klass, Your Court Street Lawyer, about enforcing his rights to both his legal fee and reimbursement for expenses. The first step was to draft an Order to Show Cause seeking both a “charging” lien upon any future legal fee upon settlement of the case for the lawyer’s percentage and a “retaining” lien to hold onto the client’s file until the expenses were paid.

There is a rule in the United States District Court for the Eastern District of New York concerning the situation where an attorney withdraws or is displaced from a case:

Local Civil Rule 1.4. Withdrawal or Displacement of Attorney of Record.An attorney who has appeared as attorney of record for a party may be relieved or displaced only by order of the Court and may not withdraw from a case without leave of the Court granted by order. Such an order may be granted only upon a showing by affidavit or otherwise of satisfactory reasons for withdrawal or displacement and the posture of the case, including its position, if any, on the calendar, and whether or not the attorney is asserting a retaining or charging lien.

The Order to Show Cause stated that the lawyer was “displaced” from the case by his former client for no legitimate reason and that the lawyer could only be displaced by Order of the Court. Stated in the accompanying affirmation of the outgoing attorney was that the incoming attorney (and, presumably, his former client) were proposing to pay him $0 for two years’ worth of work on the file. It was urged that the federal judge uphold longstanding New York State law that protects attorneys who render legal services on behalf of their clients.

Charging and Retaining Liens

Under New York State law, an attorney who is discharged by his client is statutorily entitled to a charging lien on any monetary recoveries obtained by the former client in the proceedings in which the attorney had rendered legal services. See Judiciary Law § 475. In Mello v. City of New York, 303 AD2d 564 [2003], the court held that where an attorney’s services were provided on a contingent-fee basis, the court should determine the amount of the lien to be fixed in accordance with the attorney’s request, as a contingent percentage based on the proportionate percentage of work he performed, to be determined at the conclusion of the action (see Matter of Rosenblum, 121 AD2d 546 [1986]; see also Lai Ling Cheng v Modansky Leasing Co., 73 NY2d 454, 457-458 [1989]).

A discharged attorney is also entitled to a retaining lien on the former client’s papers and property that are in the attorney’s possession, under New York common law. See Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir.1991). This mean that the client’s file can be retained by an attorney until he is paid, similar to how a mechanic can hold onto a car until the car’s owner pays for the repairs.

A conference was held with the judge. The judge decided that the client’s file would be exchanged only upon payment of the file expenses and that the outgoing attorney’s percentage of the overall legal fee would be determined when the case settled or resolved. About six months later, the incoming attorney settled the case for $70,000. The charging lien was settled through negotiations between the attorneys, with the outgoing attorney being paid $16,000 for one third of the initial $50,000 settlement offer and the incoming attorney being paid $6,000 for one third of the next $20,000 settlement portion.

by Richard A. Klass, Esq.

copyr. 2012 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Summary Judgment Motion Should Be Denied When There Are Material Issues of Fact

On a motion for summary judgment, it is well-settled that the movant must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. If the movant fails to make such a showing, then the motion must be denied, regardless of the sufficiency of the opposing papers. Once a showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action. See Zuckerman v. City of New York, 49 NY2d 557 [1980]; SRM Card Shop v. 1740 Broadway Associates, 2 AD3d 136 [1 Dept. 2003]; Romano v. St. Vincent’s Medical Center of Richmond, 178 AD2d 467 [2 Dept. 1991].

R. A. Klass
Your Court Street Lawyer

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Defendant’s Statements Constitute Defamatory Statements of and Concerning Plaintiff

Point: “The Statements made by Defendant, as fully laid out in the Complaint, constitute false and defamatory statements of and concerning Plaintiff and its restaurant business.”

To prove commercial defamation, the plaintiff must demonstrate that the following elements are present:

  1. a false and defamatory statement of fact, that it not protected as an expression of opinion;
  2. of or concerning an existing business;
  3. that is published to a third party with the requisite degree of fault; and
  4. that is the proximate cause of damage to the reputation of that business.

See, e.g. Immuno AG v. Moor-Jankowski, 77 NY2d 235 (1991).

New York courts have long defined defamatory statements as those that “tend to expose the plaintiff to public contempt, ridicule, aversion, or disgrace, or induce an evil opinion of him in the minds of right-thinking persons, and to deprive him of their friendly intercourse in society.” Rinaldi v. Holt, Rinehart and Winston, Inc., 42 NY2d 369 (1977). In Kimmerle v. New York Evening Journal, 262 NY 99 (1933), the Court of Appeals held that defamation is that which “exposes an individual to public hatred, shame, obloquy, contumely, odium, contempt, ridicule, aversion, ostracism, degradation, or disgrace or…induces an evil opinion of one in the minds of right-thinking persons, and…deprives one of…confidence and friendly intercourse in society.”

A: Defamation of a business:

For businesses, a more specific test also has been articulated: whether the language is “of so defamatory a nature as to directly affect credit and to occasion pecuniary injury.” Harwood Pharmacal Co. v. National Broadcasting Co., 9 NY2d 460 (1961); Hornell Broadcasting Corp. v. A.C. Nielson Co., 8 AD2d 60 (4th Dept. 1960), affirmed, 8 NY2d 767 (1960). Courts have also addressed this issue by inquiring as to “whether the published statement relates to the plaintiff’s business so as to affect the confidence of the public and drive away its customers.” Reporters’ Association of America v. Sun Printing and Publishing Association, 186 NY 437 (1906).

In the commercial context, defamation is per se when the statement in question “impugns the basic integrity or creditworthiness of a business.” Hamlet Development Co. v. Venitt, 95 AD2d 798 (2d Dept. 1983), affirmed 60 NY2d 677 (1983), citing Ruder and Finn Inc. v. Seaboard Surety Co., 52 NY2d 663 (1981). The test as for whether the statement is defamatory per se is whether it represents a direct attack on the reputation of the business, as opposed to denigrating the quality of the business, its goods or services. See, Drug Research Corp. v. Curtis Publishing Co., 7 NY2d 435 (1960). As indicated in such case law, where a statement is defamatory per se, special damages need not be proved by the plaintiff and damages are presumed.

It is New York law that the false statements that a kosher business which sells kosher meat is selling non-kosher meat and goods is actionable per se because the words tend to injure such proprietors in their business. See, Cohen v. Eisenberg, 173 Misc. 1089 (Sup. Ct., NY Co. 1940), affirmed 260 AD 1014 (1st Dept. 1940), reargument denied 261 AD 890 (1st Dept. 1941); Braun v. Armour and Co., 228 AD 630 (2d Dept. 1929), affirmed 254 NY 514 (1930), certified question answered by 228 AD 698 (2d Dept. 1930).

B: Evaluation of the statement itself:

In evaluating the defamatory nature of a statement, the court must evaluate it in its context (James v. Gannett Co. Inc., 40 NY2d 415 (1976)), should be interpreted fairly and reasonably based on its effect (Armstrong v. Simon and Schuster Inc., 85 NY2d 373 (1995)), as it pertains to the average reader. The “average reader” standard has been interpreted as including at least a substantial minority in the relevant community. Gjonlekaj v. Sot, 308 AD2d 471 (2d Dept. 2003).

It has been established that opinions, false or not, libelous or not, are constitutionally protected and may not be the subject of private damage actions. Rinaldi v. Holt, Rinehart and Winston, Inc., 42 NY2d 369 (1977), citing to Buckley v. Littell, 539 F2d 882, cert. denied 429 US 1062. In the Rinaldi case, the Court of Appeals held that whether a particular statement constitutes fact or opinion is a question of law.

In Millus v. Newsday, Inc., 89 NY2d 840 (1996), the Court of Appeals stated: “Whether a potentially actionable statement is one of fact or opinion is a question of law, and depends on ‘whether a reasonable reader or listener would understand the complained-of assertions as opinion or statements of fact.” In that case, the Court of Appeals held that the facts that the complained-of assertion was made on the editorial page of the newspaper, surrounded by other opinion pieces, and had a general “tenor” of editorialism, the assertion could not have been alleged to be a statement of fact, but rather one of opinion.

The Court of Appeals held, in Brian v. Richardson, 87 NY2d 46 (1995), that factors to be considered to distinguish between assertions of fact and non-actionable expressions of opinion are: (1) whether the specific language in issue has a precise meaning which is readily understood; (2) whether the statements are capable of being proven true or false; and (3) whether either the full context of the communication in which the statement appears or the broader social context and surrounding circumstances are such as to signal to readers or listeners that what is being read or heard is likely to be opinion, not fact.

C: Publication to a third party:

In order to constitute actionable defamation, the defamatory statement must have been disseminated or published to a third party. Swinton v. Safir, 93 NY2d 758 (1999); Memory Gardens, Inc. v. D’Amico, 91 AD2d 1159 (3d Dept. 1983). The publishing and posting of statements on both a website and blog constitute dissemination and publication to third parties. The same are readily available to anyone who searches the internet.

D: Statements are “of or concerning the plaintiff”:

The defamatory statements must be “of or concerning the plaintiff.” Gross v. Cantor, 270 NY 93 (1936).

E: Proximate cause of injury:

Private corporations (and similarly limited liability companies) are generally deemed a private figure in terms of the degree of fault necessary to place the burden of proof upon a party in a defamation action. Carlucci v. Poughkeepsie Newspapers, Inc., 88 AD2d 608 (2d Dept. 1982), affirmed 57 NY2d 883 (1982).

Did the Defendant Commit Injurious Falsehood?

To prove injurious falsehood, the plaintiff must demonstrate that the following elements are present:

  1. a false statement of fact;
  2. published to a third party;
  3. with malice; and
  4. that is the proximate cause of damage to the reputation of that business.

See, e.g. Penn-Ohio Steel Corp. v. Allis-Chalmers Manufacturing Co., 7 AD2d 441 (1st Dept. 1959).

Case law has held that it is not necessary for the Complaint to allege that the sole motivation of the defendant was to injure the plaintiff; rather, it is enough if the falsehoods charged were intentionally uttered and did in fact cause the plaintiff to suffer actual damages in its economic or legal relationships. P. Kaufmann, Inc. v. Americraft Fabrics, Inc., 198 F.Supp.2d 466 (SDNY 2002).

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The Legal Standard on a Motion to Dismiss

In an action, a Defendant can move to dismiss a Plaintiff’s Complaint based upon the allegation that the Complaint fails to state a cause of action, pursuant to CPLR 3211(a)(1), (5) and (7). In deciding such a motion, the court must accept the facts as alleged in the Complaint as true, according the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Goldman v. Metropolitan Life Insurance Co., 5 NY3d 561, 807 NYS2d 583 [2005]. The Complaint in this action makes factual allegations which, for the most part, have already been established by the Order. These facts amply support the causes of action alleged in the Complaint.

Essentially, the court should impose a “four corners” test in liberally construing the four corners of the pleading to see whether they establish valid causes of action. Schwaner v. Collins, 17 AD3d 1068 [4 Dept. 2005]. As the Court of Appeals enunciated in Guggenheimer v. Ginzburg, 43 NY2d 268 [1977], on a motion to dismiss made pursuant to CPLR 3211(a)(7), “the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.” Further, “when evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one, and unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, again dismissal should not eventuate.” Guggenheimer, supra at 275.

R. A. Klass
Your Court Street Lawyer

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