Opinion
10013/2012
01-11-2019
S.D., an Infant by His Mother and Natural Guardian, Jennifer Trelles, Plaintiffs, v. ST. LUKE'S CORNWALL HOSPITAL, Johanna Triegel, M.D. and RoseAnn Savaglio, R.N., Defendants.
The Fitzgerald Law Firm, P.C., Yonkers (James P. Fitzgerald of counsel), for plaintiff. Feldman, Kleidman, Coffey, Sappe & Regenbaum LLP, Fishkill (Kathryn Collins of counsel), for St. Luke’s Cornwall Hospital, defendant. Kaufman Borgeest & Ryan LLP, New York City (Andrew S. Kaufman of counsel), for RoseAnn Savaglio, R.N., defendant. Steinberg, Symer & Platt, LLP, Poughkeepsie (Jonathan E. Symer of counsel), for Johanna Triegel, M.D., defendant.
The Fitzgerald Law Firm, P.C., Yonkers (James P. Fitzgerald of counsel), for plaintiff.
Feldman, Kleidman, Coffey, Sappe & Regenbaum LLP, Fishkill (Kathryn Collins of counsel), for St. Luke’s Cornwall Hospital, defendant.
Kaufman Borgeest & Ryan LLP, New York City (Andrew S. Kaufman of counsel), for RoseAnn Savaglio, R.N., defendant.
Steinberg, Symer & Platt, LLP, Poughkeepsie (Jonathan E. Symer of counsel), for Johanna Triegel, M.D., defendant.
Paul I. Marx, J. This matter is presently before the Court on an application for an Infant's Compromise Order approving the distribution of the proposed settlement of a portion of this medical malpractice action involving a brain damaged infant. The application presents significant issues of first impression which warrant consideration and discussion.
The issues raised concern whether: (1) Public Health Law ("PHL") § 2999 requires a second settlement involving an infant who has previously been accepted into the New York Medical Indemnity Fund ("the Fund") to be allocated between "Fund Damages" and "Non Fund Damages"; (2) an agreement which requires payment to a litigation funding company of "Assumption of Risk" fees initially charged at 65% of the amount advanced for disbursements for the first six months and increasing at a rate of 1.5% monthly until re-paid, is valid; (3) appellate counsel fees should be awarded where counsel failed to obtain a separate written retainer agreement for such services; and (4) settlement proceeds should be used to repay an advance taken by the infant's mother for non litigation expenses pursuant to a separate purchase and sale agreement where the mother has no claims of her own.
The Court held a hearing on September 11, 2018 at which plaintiff's counsel, James P. Fitzgerald, Esq., appeared in support of the application.
For the reasons set forth herein, the Court holds that:
Allocation of settlement proceeds of a subsequent settlement involving a child enrolled in the Fund is required by statute, subject to the Court's discretion and authority to approve counsel fees in matters involving infants. Payment of "Assumption of Risk Charges" to the litigation funding company, under the circumstances presented herein, is improper. Separate appellate counsel fees can be awarded but only on a quantum meruit basis. Monies secured in partial settlement of an infant's medical malpractice claims cannot be used to pay non-litigation related advances obtained by the infant's mother.
Background and Procedural History
On January 27, 2008, the infant plaintiff, S.D., was born at St. Luke's Cornwall Hospital ("St. Luke's") at a gestational age of 30-31 weeks. S.D., who weighed just 3.4 pounds, was the second of twins born to Ms. Trelles. S.D. suffered a birth related neurological injury resulting from, or associated with, respiratory distress syndrome. This led to an intracranial hemorrhage rendering him, inter alia , a spastic quadriplegic with profound brain damage resulting in impaired motor skills, language delays and visual impairment.
Generally stated, in the three actions brought by her, Ms. Trelles claimed that S.D.'s injuries were caused because her obstetrical and/or S.D.'s neonatal care did not comport with good and accepted medical practice. Consequently, on March 15, 2011, Ms. Trelles filed a medical malpractice action in S.D.'s behalf against Andrei Munzer, M.D. ("Munzer") , Custodio Borgueta, M.D. ("Borgueta"), Women's Medical Care of Hudson Valley, P.C. ("Women's Medical"), and St. Luke's. (Orange County Index No.2674/2011). Because the statute of limitations as to any claim Ms. Trelles might have had for her own or her derivative damages had expired by the time this action was filed, Ms. Trelles asserted only claims seeking damages for S.D.
The action against Munzer, Women's Medical, and Cestari was discontinued on September 20, 2017.
The action against Borgueta was discontinued on August 15, 2012.
On December 7, 2012, Ms. Trelles instituted a second action against Prabhakar Kocherlakota, MD ("Kocherlakota"), Johanna M. Triegel, M.D. ("Triegel") and Children's and Women's Physicians of Westchester LLP ("Children's and Women's Physicians"). (Orange County Index # 10013/2012).
By Decision and Order dated May 7, 2013, the two actions were consolidated by the Hon. Elaine Slobod, JSC under Index # 10013/2012.
Ms. Trelles commenced a third action for S.D. against Stephen Cestari, M.D. ("Cestari"), RoseAnn Savaglio, R.N. ("Savaglio") and Norma Kay DiMarco, R.N. ("DiMarco") on April 21, 2015. (Orange County Index # 3056/15).
On October 23, 2015, Justice Slobod approved the settlement of a portion of the consolidated action against Kocherlakota and Children's and Women's Physicians for a cash payout of $1,000,000. In addition, Justice Slobod made a specific finding that S.D. suffered a birth related neurological injury, thereby making him eligible for enrollment in the Fund established by Public Health Law § 2999-j.
At the direction of then Administrative Judge of the Ninth Judicial District, the Hon. Alan D. Scheinkman, trial of the remaining actions was assigned to this Court. By So Ordered Stipulation, the actions pending under Index numbers 10013/2012 and 3056/2015 were consolidated under the earlier index number and the caption was amended as set forth above. The Prior Infant Compromise Order
Applying the Medical Indemnity Fund Law, PHL § 2999, to determine plaintiff's counsel fees, Justice Slobod determined that the $1,000,000 cash payout was the equivalent of a settlement in the sum of $1,681,818.18 if the damages were allocated equally to S.D.'s claim for pain and suffering, lost wages and non-medical damages, generally referred to as "Non Fund Damages" and future "medical and qualifying healthcare costs", generally referred to as "Fund Damages".
Under Public Health Law § 2999, defendants or their insurers pay only the amount of the award or settlement attributed to Non Fund Damages. They do not pay out the amount attributed to Fund Damages. However, they do pay the legal fee on the portion of the settlement or award allocated to Fund Damages. See Public Health Law § 2999-j. Hence, although the settlement amount was $1,000,000, using an equal allocation resulted in a settlement viewed as if it were for $1,681,818.18.
Of the $1,000,000 settlement proceeds, Justice Slobod authorized payment of counsel fees in the amount of $369,414.53, inclusive of disbursements of $56,925.24, to The Fitzgerald Law Firm, P.C. ("The Fitzgerald Firm"). Consistent with the allocation of the settlement, approximately one half of the legal fees, $153,398.38, was allocated to Non Fund Damages and approximately one half of the legal fees was allocated to Fund Damages. A social services lien of $143,937.83 was repaid from the proceeds, as required. In addition, the Court authorized payment of $6,406.28 to Cardinal Litigation Resources, Inc. ("Cardinal"), a litigation funding company, representing repayment of two advances obtained by Ms. Trelles for non litigation related expenses. The advances were ostensibly used to pay for replacement of Ms. Trelles' motor vehicle, rent, two car payments, phone bill and purchase of food. Finally, $480,241.36 was paid into a Supplemental Needs Trust for S.D's benefit.
The "disbursements" included $10,000 for appellate legal services rendered by John M. Daly, Esq. Additional fees for Mr. Daly are sought as part of the disbursements in this application.
For some unexplained reason, the division of counsel fees awarded in the prior ICO was not exactly equal, as one might have expected.
The Court questions whether a Supplemental Needs Trust was even needed. Generally, Supplemental Needs Trusts are created to protect an injured party's recovery from claims made by Medicaid while ensuring the injured party's Medicaid eligibility. Since the child's medical needs are being met through the Fund, there should be no such expenses paid by Medicaid. Creation of a Supplemental Needs Trust results in any asset purchased to assist the child (such as a house or vehicle) being acquired in the name of the Trust. Thus, at the infant's death, those assets are available for seizure by Medicaid. Without a Supplemental Needs Trust, the assets pass to the child's heirs free and clear. A Spendthrift Trust would have served adequately to protect the infant's money.
The action continued against St. Luke's, Savaglio and Triegel and proceeded to trial in January, 2018 before this Court. On January 12, 2018, during the trial, plaintiff agreed to settle the claims against St. Luke's and Savaglio for a cash payout of $500,000, to be paid $250,000 from Savaglio's professional liability insurer and $250,000 to be paid from St. Luke's insurer. On January 30, 2018, the jury returned a verdict in favor of Triegel. As a result, the remaining vicarious liability claims against St. Luke's also failed. The Instant Application
Plaintiff alleged that Savaglio was negligent and that St. Luke's was vicariously liable, as her employer, for her negligence. Savaglio had her own professional liability insurance policy and was also covered as an employee of St. Luke's. The $500,000 was a combined offer from the two insurers.
Ms. Trelles now moves for an order: (1) granting leave to compromise the action against St. Luke's and Savaglio for a payout of $500,000, (2) allocating the proceeds equally between Fund Damages and Non Fund Damages, such that the $500,000 payout equates to a settlement of $909,090.89 for the purposes of determining counsel fees, (3) approving payment of legal fees in the amount of $75,219.01 to her counsel, (4) approving payment of "disbursements" in the sum of $156,900.81 and (5) authorizing payment of $5,580.00 to Cardinal for an advance (including interest charges) obtained by her against the infant's recovery.
Counsel proposes the following fee calculation:
More specifically, plaintiff seeks to have the Court direct St. Luke's to pay from its portion of the settlement: (1) $116,059.91 to The Fitzgerald Firm for fees and disbursements, (2) $5,580.00 to Cardinal to repay the advance made by it to Ms. Trelles, and (3) $128,360.09 to Orange Bank & Trust Company to be added to the corpus of the S.D. Supplemental Needs Trust. Ms. Trelles also seeks to have the Court direct that the Savaglio portion of the settlement proceeds be distributed by her insurer paying (1) The Fitzgerald Firm the amount of $116,059.91, inclusive of disbursements, and (2) $133,940.09 to Orange Bank & Trust Company to be added to the corpus of the S.D. Supplemental Needs Trust. Under the proposed distribution of the settlement, the sum of $262,300.18 would be added to the S.D. Supplemental Needs Trust, $75,219.01 would be paid to the Fitzgerald Law Firm for fees and $156,900.81 would be used to pay claimed disbursements, including appellate counsel fees and Assumption of Risk Charges to Cardinal. The balance of $5,580 would be used to pay Cardinal for the advance it made to Ms. Trelles for non litigation expenses.
The requested legal fee of $75,219.01 plus requested "disbursements" of $156,900.81 = $232,119.81. Allocating the legal expenses and disbursements equally between Fund and Non Fund Damages pursuant to PHL § 2999-j(14) = $116,059.91 payable from each settling defendant.
Approval of the Settlement Amount
As noted above, during the trial of the action, plaintiff agreed to settle her claims against Savaglio and St. Luke's (to the extent that such claims arose from Savaglio's alleged negligence), for a payout of $500,000. This sum, which had been offered in settlement well before trial commenced, was represented as being the highest and best amount that could be secured for S.D. from the settling defendants. Having had the opportunity to observe S.D. in court during the trial, it is clear to the Court that the nature and type of the injuries suffered by him can scarcely be adequately compensated. Nevertheless, having heard the testimony in support of and in opposition to the claims asserted, the Court believes that settlement of the action against St. Luke's and Savaglio is appropriate.
St. Luke's remained a party defendant to the extent that plaintiff claimed that it was vicariously liable for Triegel.
The record of the proceedings on January 12, 2018 reflects that the Court indicated its intent to sign an Order approving the settlement as required by CPLR § 1207. The Court allocuted Ms. Trelles as to her understanding and approval of the settlement. Hence, her and S.D.'s appearances at the hearing held on September 11, 2018 on the instant application were waived. During the proceedings on January 12, 2018, plaintiff's trial counsel noted for the record that the $500,000 payout would be viewed as if it were the equivalent of a settlement in a then unknown amount equally allocated between Fund Damages and Non Fund Damages.
The Court believed then, as it does now, that $500,000 was the highest and best offer of settlement that could be achieved from Savaglio and St. Luke's for its alleged vicarious liability for Savaglio. The Court recognized then, as it does now, that the likelihood of a verdict for plaintiff against the settling defendants was not high given the myriad of circumstances that surrounded S.D.'s birth and neonatal course in the hospital. Indeed, the verdict in favor of Triegel supports that view. Consequently, the Court re-affirms its approval of the settlement for the cash payment of $500,000.
However, the Court has reflected upon the effect and propriety of the requested allocation between Fund Damages and Non Fund Damages. Thus, before approving the application, the Court takes the opportunity to discuss the impact of PHL § 2999 on the second settlement and how counsel fees should be determined in cases where an infant is already enrolled in the Fund.
As will be discussed herein, allocating the proceeds as requested by counsel serves to benefit only counsel. The infant derives no additional or greater benefit from the Fund.
Thus, the issue presented is whether allocation of subsequent settlements between Fund and Non Fund Damages where a child has already been enrolled in the Fund is required by the Public Health Law. A concomitant question, if such an allocation is required, is whether plaintiff's counsel is entitled to a fee on the portion of the second or subsequent settlement which is allocated to Fund Damages. This case appears to be the first to consider these questions. A brief discussion of the Medical Indemnity Fund is in order.
The Medical Indemnity Fund
In 2011, the New York State Legislature enacted Public Health Law § 2999 creating the New York State Medical Indemnity Fund. As stated by the legislature,
"The purpose of the fund is to provide a funding source for future health care costs associated with birth related neurological injuries, in order to reduce premium costs for medical malpractice insurance coverage." McKinney's Public Health Law § 2999-g.
As described in the New York State Medical Indemnity Fund 2017 Legislative Report:
"The Fund ... provides funding for future health care costs of children with birth-related neurological injuries. The Fund was created to provide a funding source for future health care costs associated
with birth-related neurological injuries and reduce medical malpractice insurance premiums. Enrollees of the Fund have been plaintiffs in medical malpractice actions who have received either court-approved settlements or favorable judgments.
Under the statute, a "birth-related neurological injury" is "an injury to the brain or spinal cord of a
live infant caused by the deprivation of oxygen or mechanical injury occurring in the course of labor, delivery or resuscitation, or by other medical services provided or not provided during the delivery admission." To be eligible, these injuries must result in a "permanent and substantial motor impairment" or a "developmental disability" or both.
"Once enrolled, a qualified plaintiff will remain in the Fund for his or her lifetime. The Fund pays or reimburses the cost of qualifying health care services. "Qualifying health care costs" include future medical, hospital, surgical, custodial, home modifications, transportation to health care appointments, prescriptions, and similar costs related to the child's care."
The two chief purposes of the Medical Indemnity Fund, as stated in PHL § 2999-g, were to: (1) ensure that those most vulnerable of society, neurologically injured children, have their medical and other needs met, and (2) maintain the viability of medical liability insurers by reducing the amounts required to be paid by them in these types of cases. To accomplish these goals, the law provides that the "Fund Damages" are not paid out in cash by the insurer, but rather are paid on an "as incurred" basis from the Fund. However, in order to recognize that the enrollment in the Fund was the result of the injured infant plaintiff's lawyers' efforts, legal fees on Fund Damages remain collectible from the medical liability insurers.
Legal Fees Under The Public Health Law
Pursuant to PHL § 2999-j(14) :
The determination of the qualified plaintiff's attorney's fee shall be based upon the entire sum awarded by the jury or the court or the full sum of the settlement, as the case may be. The qualified plaintiff's attorney's fee shall be paid in a lump sum by the defendants and their insurers pursuant to section four hundred seventy-four-a of the judiciary law; provided however that the portion of the attorney fee that is allocated to the non-fund elements of damages shall be deducted from the non-fund portion of the award in a proportional manner.
By its terms, the law is applicable to both cases which are resolved by settlement and which result in jury verdict awards. In both instances, the parties responsible to pay the damages, whether by settlement or verdict, pay the total Non Fund Damages, which include the counsel fees attributable to that portion of the award/settlement. In addition, the payor pays the counsel fees attributable to the Fund Damages. The actual amount of the Fund Damages is not paid by the insurer, rather, those damages are paid on an as incurred basis by the Fund. In both instances, counsel fees are determined by applying the sliding scale retainer authorized by Judiciary Law § 474-a. In cases where a jury has rendered a verdict in favor of the injured child and the Court determines that the infant is eligible to be included in the Fund, the total amount awarded by the jury is subject to the reductions mandated by CPLR § 5031 and CPLR § 4545 to determine the amount of the judgment to be entered. The responsible defendants and/or their insurers are required to pay the Non Fund Damages which are set out in the Judgment and the legal fees attributable to the Fund Damages. The actual Fund Damages will have been eliminated from the judgment by virtue of CPLR § 4545 because those damages will, "with reasonable certainty, be replaced or indemnified, in whole or in part" through the Fund as a collateral source. The amount actually received by the infant for Non Fund Damages remains unaffected. Only the defendant's or insurer's payment is affected by the award of an attorney fee on the Fund Damages.
Under Judiciary Law § 474-a, subject to Court approval, plaintiff's counsel in malpractice cases are entitled to a sliding scale contingency of 30% of the first $250,000 recovered, 25% of the next $250,000, 20% of the next $500,000, 15% of the next $250,000 and 10% of any award or recovery over $1,250,000. On the prior ICO, plaintiff's award was determined to be the equivalent of $1,681,818.18 and the legal fee was calculated based on the sliding scale of that amount, less approved disbursements. Plaintiff's counsel agrees that the fee on the additional recovery obtained through the instant settlement should be calculated at a rate of 10% since the instant settlement is money recovered beyond $1,250,000.
PHL § 2999-j(14) specifies that counsel fees on Non Fund Damages be paid out of that portion of the award.
Cases which are settled, however, are somewhat different depending on whether the parties agree to a gross settlement amount and leave the issue of allocation to the Court or they agree to a sum certain payout inclusive of all fees. In all cases which are settled, plaintiff's counsel's fee is still required by PHL § 2999 to be determined using the sliding scale percentages authorized by Judiciary Law § 474-a based on the "full sum of the settlement". However, when the parties agree to a gross settlement amount, without allocation between Fund and Non Fund Damages, and leave the allocation to the Court, the Court must determine the actual amount to be paid and an application is filed for the child to be accepted into the Fund. See generally, Mendez v. New York and Presbyterian Hospital, 34 Misc. 3d 735, 934 N.Y.S.2d 662 [Sup. Ct. Bronx County 2011]. In cases where the parties agree to a sum certain payout, as here, they usually also agree to a specified division between Fund Damages and Non Fund Damages so that plaintiff's counsel's fees can be projected. Doing so allows them to calculate the amount of an equivalent gross settlement to submit to the Court for approval. Where the settlement is the first (or only) settlement involving the injured infant, allocation between Fund and Non Fund Damages is proper in order that counsel's efforts in securing the child's enrollment into the Fund be recognized.
There are various on line calculators and tables available to assist in determining the value of a settlement given a particular allocation or payout. See, e.g . www.KipnesCrowley.com/resources/tools.
Mendez, the first reported decision involving the Fund, differed factually from the instant matter. In Mendez , the parties agreed to a gross settlement amount, which, in the absence of an agreed upon allocation, rendered the actual amount to be paid indefinite. The Court was asked to determine both the allocation of the settlement under PHL § 2999 and the actual payout. In the intervening years, lawyers who practice in the medical malpractice field have recognized a benefit to agreeing to a sum certain to be paid and to reverse engineer the gross settlement amount from that amount.
Where a prior partial settlement was approved and resulted in the child being accepted into the Fund, there is no requirement for any further application to secure or continue coverage under the Fund. Once a brain damaged infant is enrolled in the Fund, all future "qualifying health care costs", i.e. "Fund Damages", are paid directly by the Fund. This is true regardless of the amount of the settlement. The amount of money earmarked in the state budget for the Fund is not dependent on the amount of any individual settlement or all settlements involving brain injured infants. Similarly, the benefits paid by the Fund for the injured child is not a function of the amount allocated to those damages. It is sufficient that the child be determined to have suffered a qualifying injury as a result of his/her birth and that a medical malpractice action be commenced and either settled or resolved favorably by verdict for the child.
The Medical Indemnity Fund is not funded from settlement proceeds or jury awards. The Fund has a separate funding mechanism.
A second or subsequent settlement involving the same infant generates no increased revenue for the Fund and the infant secures no greater benefits from the Fund. Because the infant has already received the benefit of admission into the Fund by that point, any allocation between Fund Damages and Non Fund Damages inures to the sole benefit of plaintiff's counsel who receives a fee on the Fund Damages portion. Indeed, any award for counsel fees for Fund Damages on a second (or subsequent) settlement for the same infant would comprise a fee based on a fictional recovery, benefitting only the attorney. This outcome appears not to have been considered by the legislature in crafting PHL § 2999-j(14), which does not address partial or multiple settlements within a single action.
The instant matter illustrates this point.
The prior settlement in this case was for the cash payment of $1,000,000. On application to the Court, it was determined that this amount represented the cash required to pay a settlement of $1,681.818.18 when allocated equally between Fund and Non Fund Damages. The Court also found that S.D. suffered a birth related neurological injury as a result of which he was accepted into the Fund. The Fund thus became responsible for the "Fund Damages", all "qualifying health care costs". Plaintiff's counsel received fees totaling $312,489.29, allocated $159,090.91 to the Fund Damages and $153,398.38 to the Non Fund Damages. These fees were calculated using the sliding scale contingency authorized by Judiciary Law § 474-a applied to a hypothetical $840,909.05 settlement for each category of damages, Fund and Non Fund. There can be no dispute that, having secured acceptance into the Fund for the infant as part of the prior settlement, plaintiff's counsel was entitled to a fee on the Fund Damages.
Payment of disbursements of $56,925.24 was also authorized by the Court.
Plaintiff's counsel now seeks to have this subsequent cash settlement of $500,000 viewed as the equivalent of a settlement of $909,090.80, allocated equally between Fund Damages and Non Fund Damages for the purposes of establishing his fees. This would result in counsel's fee being based on the net recovery from $909,090.81, not the net recovery from the actual payout of $500,000. This, despite the fact that no additional benefit related to Fund Damages was obtained for the infant by counsel.
Nevertheless, counsel contends that an allocation of the equivalent settlement amount is required by the language of PHL § 2999-j(14), because it provides that plaintiff's counsel's fee be determined on the "the entire sum awarded by the jury or the court or the full sum of the settlement, as the case may be." He contends, therefore, that the Court should apply the 50/50 allocation previously employed by Justice Slobod to determine the equivalent settlement amount that would yield a payout of $500,000. Since the law requires counsel fees to be predicated on "the full sum of the settlement", counsel argues, he is entitled to an allocation based on the equivalent settlement amount. As counsel admits, he is the only one who benefits from such allocation because doing so increases counsel's fees.
It must be noted that this issue arose earlier in this case in a different context. Prior to jury selection, defendants Savaglio, St. Luke's and Triegel moved for an order prohibiting plaintiff from offering proof of any future medical expenses at trial. Defense counsel contended that by virtue of S.D.'s enrollment into the Fund, there was no possibility of any future expenses being incurred and that submission of any such evidence to the jury would be misleading. Plaintiff's counsel argued in opposition to that motion that because PHL § 2999-j(14) requires that his fee be determined "on the entire sum awarded by the jury", he was required necessarily to establish the value of S.D.'s future care. This Court denied the defendants' motion and held that, notwithstanding that S.D. was already accepted into the Fund, evidence of future medical and similar expenses was admissible pursuant to Public Health Law § 2999-j(14) because the law provides that plaintiff's counsel's fee be determined on "the entire sum awarded by the jury or the court or the full sum of the settlement, as the case may be." In so ruling, the Court noted that the only practical reason the proof would be admitted would be to determine counsel's fee, because any award made for future medical expense damages would likely be eliminated at a collateral source hearing held pursuant to CPLR § 4545 post verdict. If plaintiff had been successful at trial, the evidence of future medical and similar expenses would have allowed the jury to render a definitive determination of the value of the Fund Damages. The concomitant legal fee on the full award could then have been calculated. Without the proof of these damages being presented to the jury, counsel's fee could not be calculated as provided for in the statute.
Utilizing counsel's approach of reverse engineering the $500,000 cash payout to equate to a $909,090.80 settlement, allocated equally between Fund and Non Fund Damages, has an effect similar to a hypothetical jury awarding Fund Damages of $454,045.40 at trial. Counsel's proposal results in the defendants being required to pay the full amount of the Non Fund Damages ($454,045.40) plus the legal fee owed on the Fund Damages (10% of $454,045.40 = $45,404.60), yielding a payout of $500,000. Thus, an allocation of this second settlement as requested by plaintiff's counsel would yield an increase in plaintiff's counsel's fees of $45,404.60, without counsel obtaining any greater result for the child as to those damages. But is this proper, equitable or fair? Clearly, allocation of any portion of the second settlement to Fund Damages is purely fictional, allowing counsel to be paid without having obtained any greater recovery as to those types of damages.
Disregarding any deduction for disbursements, for the moment.
There can be little doubt that the application by counsel to have any portion of the settlement with St. Luke's and Savaglio allocated to Fund Damages for the purpose of increasing his fee creates a conflict of interest which could have resulted in the Court appointing a guardian ad litem to protect the infant's interests. Rather than appoint such an individual and have the child's recovery reduced by the fees of a guardian ad litem , the Court believes it can adequately protect the child's interests. Having evaluated the merits of the allocation proposed by plaintiff's counsel and weighing them against the interests of the infant, this Court declines to endorse a proposal that elevates counsel's fees over the interests of a brain damaged child.
Here, there is an agreed upon payout and the child derives no increased benefit from the Fund by allocating monies from this second settlement to Fund Damages. Yet, the language of the statute appears to mandate its application to those injured children who are eligible for acceptance into the Fund. As noted, the statute provides that "[t]he determination of the qualified plaintiff's attorney's fee shall be based upon the entire sum awarded by the jury or the court or the full sum of the settlement , as the case may be." (Emphasis added). Consequently, application of the statute to determine the legal fee allocable to each category of damages appears unavoidable. Whether the Court ultimately awards a fee on both categories and the percentage allocated to each category depends on the circumstances of the case. But for the obligatory language of the statute, this Court would have simply declined to allocate the second settlement between Fund Damages and Non Fund Damages. Of course, it can be argued that because the legislature provided that the attorneys' fees be predicated on the full sum of the "settlement ", singular, it intended that only the settlement that resulted in the child being accepted by the Fund be considered under PHL § 2999-j(14) for determining counsel fees. Unfortunately, the legislative history provides no insight into how, if at all, multiple settlements of claims brought on behalf of the same Fund eligible infant are to be treated. The inclusion of the words "entire sum" and "full amount" suggests that all monies recovered should be considered. That PHL § 2999-j(14) does not specify that it is applicable to multiple settlement does not mean that it is not, for General Construction Law § 35 provides that "words in the singular include the plural". However, it simply cannot be that the legislature intended that successive settlements in one case be allocated in such a way as to mandate fees for counsel for Fund Damages once the child has been accepted into the Fund. Indeed, it appears that the legislature may not have considered the effect of a partial settlement resulting in an infant being accepted into the Fund and the resulting impact on the determination of counsel fees for subsequent settlements.
Where there has not been a jury award, as here, the allocation between the two categories of damages is nearly entirely arbitrary. The testimony at trial as to S.D.'s medical and other covered expense needs demonstrated that the value of these damages ran into multiple millions of dollars. Yet, on each settlement achieved in this case, the Court has been asked to allocate the damages equally, ostensibly to establish the amount of legal fees earned. This Court has no basis upon which to disagree with the proposed allocation, except for the net distribution that follows it. Clearly, the settlement payout of $500,000, even if viewed through the imaginative magnifying glasses of allocation as an illusory $909,090, is inadequate to constitute an award commensurate with the actual damages suffered by S.D. Yet, that is the nature of settlements, acceptance of an amount which does not fully compensate for the damages suffered but considers all relevant factors, including the likelihood of success of the action.
After an analysis of appellate awards in brain damaged infant cases, Justice McKeon, in Mendez, supra, justified a 50/50 allocation of a gross amount of $5,500,000 in an action involving a child who suffered cerebral palsy as a result of medical malpractice. His analysis demonstrated that in the cases reviewed, well in excess of 50% of the monies awarded in any given case constituted what are now known as Fund Damages. Yet, he applied a 50% allocation to the settlement to determine the net amount payable by the defendants' insurers. That percentage seems to be applied in most cases involving brain damaged infants. Here, Justice Slobod adopted plaintiff's counsel's request for a 50% allocation as well. This being the case, this Court also adopts the hypothetical allocation requested by plaintiff to establish the payout as the equivalent of a settlement of $909,090. But the analysis does not end there.
To be sure, the law does not require the Court to rubber stamp an allocation under PHL § 2999 that results in counsel receiving fees which have not been earned or an outcome which is injurious to the infant plaintiff. Nothing contained in PHL § 2999 deprives the Court of its inherent authority established by CPLR § 1207 and Judiciary Law § 474 to award suitable compensation in cases involving brain injured infants. "Consequently, in rendering a determination as ‘suitable compensation’ within the meaning of Judiciary Law 474, the court must determine the reasonable value of the legal services provided in light of all of the facts and circumstances, with consideration given to any agreement as to compensation, and award an amount consistent with such determination and with the court's duty to ensure fair and adequate compensation for the infant." White v. DaimlerChrysler Corp ., 57 A.D.3d 531, 534, 871 N.Y.S.2d 170 [2nd Dept. 2008].
Plaintiff's counsel received nearly $160,000 from the prior settlement as fees attributable to the $840,909 allocated to Fund Damages (as well as a similar amount attributable to Non Fund Damages). The Court believes that this represented adequate compensation for securing S.D.'s enrollment into the Fund in this case in light of the totality of the circumstances. Thus, considering all of the facts and circumstances of this case, including the amounts of each settlement, the fees paid to counsel on the prior settlement and the services provided, legal fees of $43,286.65 are approved from the current settlement as "suitable compensation" for the result achieved as to Savaglio and St. Luke's. This amount is 10% of the net sum recovered after deduction for approved disbursements. Approved disbursements, as set forth below, amount to $67,133.48. Deducting this amount from the $500,000 obtained by this settlement yields a net sum recovered of $432,866.52, 10% of which is $43,286.65. Any other award of fees would comprise fees that are excessive.
The Court recognizes that this decision may have some persuasive effect on other Courts to which the question of how to determine fees on second or subsequent settlements in Fund cases is presented. This Court is not holding that an award of counsel fees for Fund Damages on a second or subsequent settlement or trial for a child who had previously been enrolled into the Fund is never proper. If courts were to adopt an approach which eliminated counsel fees based on Fund Damages in subsequent settlements where an infant was already accepted into the Fund, there would likely be a chilling effect on partial settlements. Hence, a blanket prohibition should not be embraced. Rather, courts should consider all relevant factors to settlements in Fund eligible cases, to determine counsel fees. While not an exhaustive list, this Court believes that these factors include: the amount of the settlement(s), amount of fees previously awarded, extent and quality of the legal work performed and the difficulty of the case.
The likelihood of a plaintiff's attorney pursuing an initial partial settlement in a case involving a Fund eligible child against a defendant whose liability is more uncertain or comparatively less than that of other defendants would diminish if counsel thought that doing so would serve to cap the attorneys' fees attributable to Fund Damages. Plaintiff's counsel would have no incentive to consider settlement with a defendant whose liability might be more tenuous than other defendants or for whom the damage claim is lesser if he or she thought that doing so would limit his/her fees on the entirety of the Fund portion of the damages. A hypothetical $250,000 settlement, allocated equally between Fund Damages and Non Fund Damages would yield a payout of $162,500, of which counsel's fee would be $75,000. Neither the party nor counsel would be inclined to resolve the case if they knew that doing so capped the recovery for Fund Damages and fees on future awards or settlements. This runs counter to the goals of judicial economy and best use of resources. The number of trials which included nominal defendants would increase.
Further, defendants, their insurers or their counsel, might be inclined to manipulate settlements in order to reduce the total payout. These parties would, no doubt, seek to reduce the overall payout by attempting to coax a relatively small settlement amount in order to eliminate the obligation to pay fees on any portion of any subsequent settlement which might have otherwise been allocated to Fund Damages. The resulting gamesmanship would be inconsistent with the public policy behind General Obligations Law § 15-108, which is designed to encourage settlements. Rather, this Court believes that such determinations must be made on a case by case basis, giving due regard to all of the relevant circumstances, including the amounts of the settlements involved and counsel fees previously awarded.
Evaluation of Counsel's Claim for Reimbursement of Disbursements and Appellate Counsel Fees
While determination of the amount of disbursements to be re-paid should have been a simple matter, it was not. This was so because of the failure of plaintiff's counsel to fully and transparently reveal significant information pertaining to the amounts sought. Indeed, it was not until counsel made his third submission and appeared before the Court for a hearing that the Court was able to piece together a complete picture of the amount of legitimate disbursements sought. This lack of transparency has resulted in the Court expending a great deal of time drilling to get to the bedrock of the claims and to determine the proper amount of disbursements to be repaid from the settlement.
First, the initial papers submitted in support of the application for infant's compromise did not include the date on which each claimed disbursement was incurred. Rather, the single page submitted listed only the payee of the disbursement and the amount incurred, totaling a whopping $156,900.81. Counsel did not provide support for any of the items sought to be repaid nor did he even state the date on which each claimed disbursement was incurred. Given that there had been a prior settlement approved by the Court, this information was relevant to allow the Court to determine if there was any overlap of expenses sought with those previously approved. Consequently, the Court requested further information about the claimed disbursements. This resulted in two further submissions by plaintiff's counsel.
Disbursements equaled 31.38% of the amount recovered in the settlement.
Second, plaintiff's counsel did not reveal in the initial submission that the disbursements claimed included significant "Assumption of Risk" fees charged by Cardinal pursuant to a Non Recourse Funding Agreement. Indeed, nowhere in the initial submission was there any indication that Cardinal had financed the disbursements or that they had been marked up to account for "Assumption of Risk" fees charged by Cardinal. Rather, the amount sought was described as "disbursements, when in reality, a significant portion of the money sought was for financing fees. As stated above, the Assumption of Risk charges began at 65% of the amount advanced if not repaid within the first six months after the advance was made and then increased by 1.5% per month thereafter.
Third, counsel did not advise the Court that Cardinal is owned by his brother, a non practicing lawyer. Significantly, it does not appear that Ms. Trelles was advised of the familial relationship between the owner of the funding company and her counsel, and even if she had been, presumably she was not advised of a conflict of interest that might arise from that familial relationship. Indeed, there is no evidence that Ms. Trelles appreciated the significance of that conflict.
Given that plaintiff's attorney's brother owned the funding company which had significant monies at risk on a non recourse basis, an unbiased observer might conclude that counsel's recommendations with respect to whether to accept or reject a settlement offer might have been influenced by counsel's desire to ensure that his brother's money was not placed at risk by the rejection of a particular settlement offer. Conversely, counsel might be inclined to recommend against accepting a particular settlement if it was believed that some portion of the advancements might not be recovered.
Fourth, the amount sought by counsel as disbursements includes charges for appellate counsel for whom no written retainer with plaintiff was provided and by whom there was no retainer statement filed with the Office of Court Administration as required by Court Rule § 691.20. Further, those charges indicate that appellate counsel sought to charge one fee if he was unsuccessful and another, 400% of that amount, if successful.
Finally, the list of disbursements included several hundred dollars for client travel expenses and overnight delivery expenses which this Court does not approve on infant compromise orders.
The Court notes that Justice Slobod approved expenses for attorney and client travel on the prior application in the amount of $702.15 and $172.50, respectively. Such approval is a matter of discretion.
Disbursements
In this matter, actual disbursements of $87,125.50 were incurred after the prior ICO. Nevertheless, plaintiff's counsel submitted a request for "reimbursement" of $156,900.81 from this settlement. Upon further inquiry by the Court, it was revealed that included in this amount was $40,000 of claimed appellate counsel fees and "Assumption of Risk" costs of $41,726.28 charged pursuant to a litigation funding agreement. Not only was the amount claimed to be disbursements inflated to include costs which were not disbursements (appellate counsel fees and Assumption of Risk costs), plaintiff's counsel sought reimbursement of disbursements incurred after the instant settlement was reached and in connection with the unsuccessful trial against Triegel. This, despite the fact that the litigation funding agreement signed by Ms. Trelles is a non recourse agreement. Counsel knew, or should have known, that the terms of the non recourse funding agreement provided that in the event the suit was not successful, repayment was not required. Nevertheless, numerous disbursements incurred in the failed effort to secure a verdict against Triegel after the settlement with Savaglio and St. Luke's are included in the amount sought. Here, the settlement with Savaglio and St. Luke's was achieved on January 12, 2018. Thus, this is the dividing line for pre and post settlement disbursements. For the reasons discussed herein, the Court will address these separately. Prior to doing so, however, a discussion of the financing agreement itself is warranted.
A review of the disbursements sought indicates that several items actually pre-date the prior ICO. Why they were not included with that application is unknown.
This figure does not include the amounts for reimbursement of disbursements, appellate counsel fees or assumption of risk costs approved by Justice Slobod in the prior ICO.
Appellate counsel fees are addressed below.
The Request For Assistance Agreement
In response to the Court's request for further information, plaintiff's counsel provided a document entitled "Request For Assistance In Financing Disbursements Addendum To Contingent Fee Agreement" ("the Request for Assistance Agreement") and copies of "Non Recourse Financing Agreements" between Ms. Trelles and Forensic Resources, Inc. ("Forensic") and Ms. Trelles and Cardinal.
The addendum was not provided with the initial application made. Counsel could not explain why it was omitted. The Court is troubled by the failure of plaintiff's counsel to be forthcoming in connection with this application and the one made to Justice Slobod. This appears to be his modus operandi.
The Request For Assistance Agreement recites that Ms. Trelles informed The Fitzgerald Law Firm that she could not afford to finance the litigation and that she desired it to "advance disbursements or arrange for financing of disbursements". The Request for Assistance Agreement provides: "Client also requests that financing of the expenses on the case be done on a non- recourse basis. Non-recourse means that in the event the case is dismissed or closed without recovery of money, Client is not obligated to pay the expenses advanced." The agreement continues, "Client authorizes [The Fitzgerald Law Firm] to seek such non-recourse financing from a firm that provides non-recourse financing of litigation expenses on personal injury lawsuits. Client understands that case expenses are significantly increased when a financing entity assumes the risk of not being reimbursed when a case is dismissed." The Request for Assistance Agreement is dated March 6, 2014, the same date as the contingent retainer entered into by Ms. Trelles and The Fitzgerald Law Firm.
The Litigation Funding Agreements
Also provided were copies of a "Non Recourse Financing Agreement" between Ms. Trelles and Forensic dated March 6, 2014 as well as a "Master Agreement for Litigation Funding" ("the Master Agreement") dated August 6, 2014. The Master Agreement provides that "[i]f and when Forensic advances any litigation expenses, then each of those advances will have a specific litigation expense agreement (SLE) which will provide for non-recourse funding of that expense. Each SLE shall require plaintiff's approval. In the alternative, plaintiff may grant Power of Attorney to plaintiff's attorney to authorize non-recourse funding of SLEs."
The Court cannot help but wonder who presented the agreement to Ms. Trelles on March 6, as it would have been a remarkable coincidence for a representative of Forensic to have been present in the law firm's office on the exact day Ms. Trelles signed the retainer. If the agreement was presented by Mr. Fitzgerald or his staff, the Court is caused to wonder whose interests the firm was representing.
The Court notes that the Non Recourse Financing Agreement provides that in the event the client changes law firms, all sums advanced become immediately due and owing. Since plaintiff's counsel approved the agreement, he can be said to have approved this provision as well. The provision may very well create an improper and impermissible restraint on a client's ability to change counsel.
Hence, plaintiff's counsel had nearly unfettered authority to incur debts for disbursements for the infant, pursuant to authority ostensibly conferred by a power of attorney by the infant's mother.
The Master Agreement continues, "Under each advancement by Forensic for an SLE, there shall be an Assumption of Risk Charge ("ARC") added to the amount advanced. The ARC is a one time charge and is currently 65% of the SLE advancement. The ARC may be higher or lower on future SLEs depending on Forensic's experience with costs and losses. The ARC will be set forth in each SLE advanced under this Master Agreement." The ARC is described as "an all inclusive charge for the first six months on each SLE. It includes file and medical review; any contacts with plaintiff's attorneys and/or Forensic's attorney; and processing fees. It also includes the use charge for the first six months. The only other charges on the SLE will be the monthly use charges beginning in the seventh month of 1.5% per month." A later provision indicates that the charge is compounded monthly.
The Master Agreement states that "Forensic is NOT MAKING A LOAN to plaintiff." (Emphasis in original). The transaction is described as "Forensic making an investment in the proceeds of the settlement or collection of a judgment." Notably, "Plaintiff's attorneys ... guaranty the full payment of Forensic's investment and return on investment in cases involving infants, incompetents, or estates in the event that a court does not award full costs of litigation expenses financed by Forensic."
Plaintiff's counsel advised that after Forensic ceased doing business, Cardinal assumed that role in connection with this case, albeit initially without a written agreement.
The Pre-Settlement Disbursements
There can be little question that legitimate disbursements actually incurred after the prior ICO and prior to the settlement with Savaglio and St. Luke's can be reimbursed from the settlement. The question presented is what constitutes the proper amount of disbursements to be reimbursed.
The actual pre-settlement disbursements incurred by The Fitzgerald Law Firm claimed hereunder is $27,633.75. The actual amount advanced by Cardinal for disbursements (without any financing charges) is $59,491.35, of which $39,499.73 was advanced prior to the instant settlement and $19,991.62 after. The amount sought by Cardinal for Assumption of Risk Charges on the pre-settlement monies is $28,731.73. The amount sought by Cardinal for Assumption of Risk Charges on the post settlement advances was $12,994.55. Plaintiff's counsel advised at the hearing that, at his request, his brother waived the Assumption of Risk Charges claimed on the post settlement advances.
The Court hereby approves reimbursement of disbursements in the total amount of $67,133.48, consisting of pre-settlement disbursements of $27,633.75 made by The Fitzgerald Law Firm and $39,499.73 made by Cardinal, which The Fitzgerald Law Firm re-paid to it. Cardinal's Assumption of Risk Fees of $28,731.73 on the pre-settlement advances are disallowed as excessive, unreasonable and unauthorized. In this regard, the Court notes that litigation risk fees could have been avoided entirely given the prior ICO.
To be sure, had plaintiff's counsel simply requested Justice Slobod to approve a litigation set aside from the prior settlement, the infant would not have incurred any risk litigation expenses on any disbursements that followed that settlement. When queried by the Court why he did not request the Court to allow a portion of the prior settlement to be set aside, plaintiff's counsel indicated that doing so would have put the infant's money at risk, rather than Cardinal's. While this is so, a litigation set aside approved by the Court would have avoided the infant being exposed to exorbitant "Assumption of Risk Costs" while ensuring that the litigation was adequately funded.
Moreover, using a portion of the proceeds of the earlier settlement to finance the ongoing litigation would go a long way towards equalizing the respective "war chests" of the parties and to eliminating the oft heard statement from defense counsel that "plaintiff can not afford to try the case". Indeed, establishing a litigation fund from one settlement to finance ongoing litigation against non settling parties would seem to be consistent with the goal of encouraging parties to settle. The Court notes that the Master Financing Agreement anticipates that in the case of an infant, the Court might not approve the total Assumption of Risk Charges. As noted above, the Master Agreement provides that "[p]laintiff's attorneys, by acceptance indicated below, guaranty the full payment of Forensic's investment and return on investment in cases involving infants... in the event that a court does not award the full costs of litigation expenses financed by Forensic." Master Agreement ¶ 25. Further, having been asked by the Court "what happens" if the Court disallows the agreement, Mr. Fitzgerald submitted a letter from his brother, Dr. Fitzgerald, in which the latter asks the Court to recognize the risks it took and to award some return on its money.
At the hearing on September 11, counsel advised that in order to stop the increase in interest while this application was pending, he paid Cardinal. Dr. Fitzgerald has offered to refund to counsel any amount not approved by the Court. See Exhibit 3 to Third Supplemental Affirmation.
The Court holds that the Master Financing Agreement with Ms. Trelles is voidable and, under these circumstances, is void as to the Assumption of Risk Charges levied. Simply put, if the infant's mother lacks authority to settle the infant's case without a Court's approval, it is manifest that she cannot bind the infant to a financing arrangement. Moreover, it cannot be disputed that the Court has the inherent authority to approve or disapprove disbursements and fees in infant compromise cases. That authority extends to nullifying agreements which over-reach and attempt to exact exorbitant fees in the guise of Assumption of Risk costs at the expense of the unsuspecting or incompetent. The Assumption of Risk Charges amount to 74% by the end of the first year, 92% by the end of the second year and 110% by the end of the third year.
In addition, the Court is concerned about the ethical issues created by plaintiff's counsel's referral of clients to a funding company owned by his brother, also a lawyer, without revealing that relationship. Moreover, even when that relationship is revealed, the Court maintains a healthy skepticism concerning the propriety of the referral.
Clearly concerned about this Court's more in depth inquiry into the ethical issues raised by the funding arrangement in this case, Mr. Fitzgerald submitted ethics opinions concerning the propriety or lack of propriety of a lawyer arranging for litigation funding under certain circumstances, asserting that his firm's relationship with Cardinal, and referral of clients to it, is proper, despite the fact that Cardinal is owned by a family member. He relies on two opinions of the New York State Bar which limit the conditions under which a lawyer may refer a client to a litigation funding company to obtain a loan for living expenses and/or litigation expenses contingent on the client's recovery in a personal injury action. He offers no opinions, however, that specifically address whether a lawyer may refer a client to his brother's company for that purpose. The first opinion, NY State Bar Ethics Opinion 666 (1994), permits the referral provided that the lawyer does not own an interest in the business. The second opinion, NY State Bar Ethics Opinion 855 (2011), prohibits such an arrangement if the lawyer's spouse owns the funding company. Mr. Fitzgerald also attempts to distinguish In Re Cellino , 21 A.D.3d 229, 798 N.Y.S.2d 600 [4th Dept.2005], in which the Appellate Division held that it was improper for an attorney to refer clients to a litigation financing company owned by his cousin but established, funded and controlled by the attorney.
The Court finds little refuge for plaintiff's counsel in the opinions he submitted. Further, the Court rejects plaintiff's counsel's suggestion that he may, with impunity, refer clients to a litigation funding company owned by his brother without revealing that fact to the client and without ensuring that the client is aware of the potential conflicts of interest that may result, simply because he claims not to derive any financial benefit from the company. It should have been manifestly clear to counsel, as he claims to have now recognized, that full disclosure of the relationship and potential conflicts were warranted ab initio .
The Post Settlement Disbursements
Significantly different than those disbursements incurred prior to the settlement are those which were incurred after the settlement. These amount to $19,991.62. Simply put, none of the post settlement disbursements by Cardinal are subject to reimbursement. This cannot be reasonably disputed, for they were funded pursuant to a "non recourse" funding agreement. By the terms of the agreement, Cardinal agreed that in the event there was no recovery, Cardinal would not seek reimbursement. It is manifest that the disbursements incurred after the settlement with St. Luke's and Savaglio did not result in any recovery. Rather, what followed those expenditures was a defense verdict. Hence, there was no recovery from which Cardinal could seek to collect the amounts advanced. Cardinal's decision to continue to finance the trial after the subject settlement was undertaken at its own risk. Thus, reimbursement of any monies disbursed by Cardinal after the instant settlement was agreed upon to finance the unsuccessful continuation of the case against Triegel is denied. The Claims for Advances Taken by Ms. Trelles Against the Infant's Recovery
Apparently anticipating that this Court might question the effort to be paid monies advanced after the settlement, while this application was pending, plaintiff's counsel convinced his brother to waive the nearly $13,000 in Assumption of Risk Charges assessed to the post settlement advances.
The proposed infant compromise order seeks Court authorization to pay, from the infant's portion of the net proceeds, the sum of $5,580.00 to Cardinal for an advance obtained by Ms. Trelles. This request is denied.
In the initial submission, plaintiff's counsel represented this amount to be "to repay a loan made by Cardinal Litigation Services to Jennifer Trelles to secure an apartment." This "loan" was memorialized in a Purchase and Sale Agreement. Notably, in her affidavit submitted in support of the application, Ms. Trelles attested that the monies secured from Cardinal was for "payment of rent, car insurance, two car payments and phone bill and purchase of food." See ¶ 12 of Trelles' affidavit dated March 13, 2018. When queried, counsel advised that the affidavit mis-stated the purpose of the "loan". Regardless, for the reasons stated herein, the request is improper. Indeed, the Purchase and Sale Agreement specifically denies the monies advanced being a loan.
Rather, the Purchase and Sale Agreement revealed that on February 9, 2016, Ms. Trelles received $4,500 from Cardinal as an advance against a settlement of "her" claims. Ms. Trelles is identified as the "Seller" and Cardinal is identified as the "Buyer". The agreement recites that "Seller is the plaintiff/claimant in a lawsuit/claim, which has been settled either in part or in full. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, a portion of Seller's interests in the amount equal to $5,580.00." The agreement provides that Ms. Trelles would receive $4,500.00 and agreed to pay a "one time flat rate of 24%". The agreement indicated that Ms. Trelles had consulted with her attorney who attested, at the end of the agreement, that he had "reviewed the contract and explained to plaintiff its terms, including the annualized rate of return applied to calculate the amount to be paid by the plaintiff." Exhibit 11.
Although plaintiff's counsel identifies the transaction as a "loan", it is evident from the Purchase and Sale Agreement that Cardinal purchased a portion of proceeds from whatever claim Ms. Trelles possessed at the time. In fact, Ms. Trelles was not a plaintiff/claimant and had no claims that she could sell/assign to Cardinal. Rather, her status was as representative of the infant plaintiff. She had no claims of her own, thus, she had no claims to sell to Cardinal. She could not legally sell a portion of the infant's claim to Cardinal. That Cardinal's owner, a lawyer, accepted the assignment of a non existent claim to advance money to Ms. Trelles, does not change that fact. Hence, since she had no rights to assign any portion of S.D.'s claim to Cardinal, the prayer for re-payment of the advance is denied.
The Court recognizes that the money advanced by Cardinal was to address financial difficulties which Ms. Trelles was experiencing at the time. However, plaintiff's counsel and Cardinal should have known that she possessed no claim to assign to Cardinal. Clearly, Ms. Trelles was unaware that she was selling something she did not own and which had no value. The same cannot be said for Cardinal or plaintiff's counsel, both of whom seem to have been content to use the brain damaged infant's claims as an improper source of revenue.
Appellate Counsel Fees
The retainer agreement between Ms. Trelles and The Fitzgerald Law Firm excluded appellate legal work. Excluding appellate legal services from contingent fee retainer agreements in personal injury actions is permissible. See Stewart v. New York City Transit Authority , 125 A.D.3d 129, 998 N.Y.S.2d 370 [1st Dept. 2014]. The retainer agreement in this matter provides:
Curiously, the retainer provides that if the Fitzgerald Law Firm provides appellate services, Ms. Trelles agrees to support an application for an enhanced fee. Counsel apparently wants it all ways.
"FLF [The Fitzgerald Law Firm] is not obligated to take Appeals or defend against Appeals. FLF agrees to assist Client(s) in locating and retaining appellate counsel. Fees charged by appellate counsel shall be paid by Client(s) and in the event appellate
counsel agrees to a contingent fee or to defer collection of fees, these appellate fees shall be treated as liens and not expenses." Retainer dated March 6, 2014.
In accordance with its retainer agreement with Ms. Trelles, The Fitzgerald Law Firm "located" the law firm of John M. Daly to act as appellate counsel in this matter. Mr. Daly submitted briefs on two appeals, described more fully below. Significantly, there was no written retainer entered into between Ms. Trelles and Mr. Daly. Rather, Mr. Daly confirmed his agreement to handle the appeals in this matter by letters dated March 20, 2013, March 2, 2014 and November 19, 2014 to Mr. Fitzgerald.
To say that The Fitzgerald Law Firm located Mr. Daly is misleading, at best, as Mr. Daly's office is located within the offices of The Fitzgerald Law Firm and the two have a long standing, ongoing relationship. Indeed, the line between the two firms is barely discernable.
The letters are identical except for the dates and the Orders to be appealed. As stated, each letter is addressed to Mr. Fitzgerald and recites the above quoted paragraph. In addition, the letters provide:
"The Law Office of John M. Daly agrees to handle this appeal in part on a contingent fee basis as follows: The charge for the legal appellate counsel services in this case will be $40,000.00 if the appeal is succesful [sic]. In the event the appeal is not succesful [sic], the charge will be $10,000.00."
The verbiage used is curious. Plaintiff was the respondent on St. Luke's appeal of the denial of its motion for summary judgment. Thus, a successful appeal would be one in which plaintiff lost and summary judgment was awarded to defendant. Probably what was intended by Mr. Daly was that if plaintiff prevailed on the appeal, the higher rate would apply. One might expect appellate counsel to choose his words more carefully and precisely.
Thus, the agreement between Mr. Daly and the Fitzgerald Law Firm includes a multiplier bonus of 400% for "successful" appeals. The amounts specified are irrespective of any hourly rate, amount of time expended, and without regard to the complexity of the issues presented.
The March 20, 2013 letter agreement between Mr. Fitzgerald and Mr. Daly applied to a Notice of Appeal of a Decision and Order filed by St. Luke's of Justice Slobod's Decision and Order dated February 15, 2013, which denied summary judgment to the hospital and permitted plaintiff to supplement her Bill of Particulars. The March 2, 2014 letter agreement between Mr. Fitzgerald and Mr. Daly applied to an appeal taken by St. Luke's of Justice Slobod's Decision and Order which, upon re-argument and renewal of its prior motion, adhered to the decision denying summary judgment. The November 19, 2014 letter agreement between Mr. Fitzgerald and Mr. Daly pertained to an appeal taken by Mr. Fitzgerald of the Decision and Order of Justice Slobod which precluded opinion testimony at trial concerning alleged departures from good and accepted practice by St. Luke's nursing staff because they were not pleaded in the Bill of Particulars.
Although three identical letters of engagement were exchanged between Mr. Fitzgerald and Mr. Daly, only two appeals were perfected.
Notably, although Messrs. Fitzgerald and Daly contend that they are separate law firms, the Notice of Appeal filed reflects that it was filed by "The Fitzgerald Law Firm, P.C. Of [sic] counsel to Fitzgerald & Fitzgerald, P.C., Attorneys for Plaintiff(s) [sic], By: John M. Daly, Esq." Further, although Mr. Daly presents himself as a separate law firm, his office is located within the offices of The Fitzgerald Law Firm, his phone is answered by the latter's staff, his email address is JohnDaly@FitzgeraldLaw.com and the materials submitted by them, including numerous engagement letters in other appellate matters, clearly reflects an ongoing symbiotic relationship between the two.
Significantly, it does not appear that Ms. Trelles was ever consulted concerning Mr. Daly's engagement, nor was there ever any communication advising her that Mr. Daly had been engaged or of the contingent bonus included in the engagement letter. If she was consulted concerning Mr. Daly's retention, there is no writing that evidences that is so. In fact, there is no written agreement between Ms. Trelles and Mr. Daly whatsoever. Rather, as stated, the agreement is between Mr. Fitzgerald and Mr. Daly.
The sine qua non of an attorney client relationship is a written retainer between the parties. Indeed, a Court Rule requires a written agreement between counsel and client for fees to be collected. The rule, 22 NYCRR § 1215.1, which has been in effect since 2002, requires an attorney who undertakes to represent a client and enters into an arrangement for or charges or collects any fee from a client to provide the client a written letter of engagement before commencing the representation, or within a reasonable time thereafter if otherwise impracticable or if the scope of services to be provided cannot be determined at the time of the commencement of representation. The letter of engagement must include an explanation of the scope of the legal services to be provided and an explanation of attorney's fees to be charged, expenses and billing practices; and, where applicable, shall provide that the client may have a right to arbitrate fee disputes under Part 137 of the Rules of the Chief Administrator. Hence, unless one of the exceptions applies, a written agreement between Daly and Ms. Trelles was required. Under 22 NYCRR 1215.2, written retainers are not required where the fees are expected to be less than $3,000, there was a prior relationship between counsel and client and the services are of like kind.
Here, there is no retainer between Ms. Trelles and Mr. Daly and none of the exceptions applies. Rather, Mr. Daly provided services pursuant to a letter agreement between himself and The Fitzgerald Law Firm. As stated, it does not appear that Ms. Trelles ever signed an agreement with Mr. Daly, but rather, that Mr. Daly was engaged by Mr. Fitzgerald. Thus, it is apparent that notwithstanding the exemption from the retainer with Ms. Trelles for appellate services, Mr. Daly can be viewed as a subcontractor for those services. Since there is also no retainer agreement between Ms. Trelles and the Fitzgerald Law Firm pertaining to the appellate services provided, as required, no fees are awarded for those services pursuant to the letter agreement between The Fitzgerald Law Firm and Mr. Daly. The law is clear that the Court has the "inherent authority over attorneys' fees in 'two situations: (i) an attorney asking the court to approve a fee, or (ii) a client complaining about a fee." State of New York v. Philip Morris Inc., 308 A.D.2d 57, 68-69, 763 N.Y.S.2d 32 [1st Dept. 2003], lv. denied 1 N.Y.3d 502, 775 N.Y.S.2d 239, 807 N.E.2d 289 [2003]. See also Stewart v. New York City Transit Authority , supra. The law is equally clear that a lawyer cannot charge a fee that is excessive or unreasonable. To do so violates the Rules of Professional Conduct. 22 NYCRR 1200, Rule 1.5[a]. The Court holds that assessing a multiplier of four times to a fee if counsel prevails on an appeal is excessive. Consequently, the bonus feature of the appellate fees sought by plaintiff is disallowed.
However, the Court recognizes that counsel can be awarded quantum meruit fees even in the absence of a written retainer. Rubenstein v. Ganea , 41 A.D.3d 54, 833 N.Y.S.2d 566 [2nd Dept. 2007]. Here, the record is sufficient for this Court to hold that the value of the appellate services provided by Mr. Daly is $10,000. Indeed, that is the value ascribed by Mr. Daly to that work, albeit without the excessive bonus payment if the appeal was "succesful" [sic]. Payment of this amount is conditioned on Mr. Daly filing a retainer statement as required by Court Rule § 691.20(a)(3). No payment shall be made to him until a retainer statement number is obtained by him.
SUMMARY
The Court is extremely troubled by the approach of plaintiff's counsel to this matter. There can be no dispute that counsel has attempted to elevate consideration of his fees and costs and the fees of his appellate counsel and the litigation fees of his brother's litigation funding company above those of his brain injured infant client. This Court refuses to stand idly by and allow counsel to skirt the fringes of the ethical rules pertaining to these matters and to profit therefrom.
Simply put, brain injured children should not be treated by their lawyers (or lawyer's relatives or colleagues) as cash cows to be milked with excessive, unwarranted and undisclosed fees. Hence, the request for reimbursement of Assumption of Risk Charges asserted by Cardinal is denied and the financing agreement is voided as to those charges. Ms. Trelles lacked authority, absent Court approval, to pledge such exorbitant percentages of any recovery away.
The obvious avarice and lack of transparency employed by plaintiff's counsel in this matter is astounding. It is clear that counsel's failure to reveal to the Court the fact that a substantial portion of the litigation expenses was funded by a company owned by his brother at exorbitant fees was designed to conceal that fact. It is apparent to this Court that had it not specifically requested information that substantiated the claimed disbursements sought, counsel would not have revealed that the claimed disbursements had been significantly marked up. Perhaps more egregious is the failure of counsel to reveal, until asked, that the funding company is owned by his brother, a non practicing lawyer, counsel's assertion of lack of ownership or interest notwithstanding. Indeed, it appears that this was the case with respect to the prior ICO submitted to Justice Slobod. In fact, plaintiff's counsel attested at the hearing that unless he is asked, he does not disclose financing agreements. This is improper. Counsel's reliance on the minor differences between In Re Cellino , supra , and the instant matter to justify the efforts to secure exorbitant financing fees for his brother's company is unpersuasive. While each denies an interest in the other's business, the fact that plaintiff's counsel was able to have his brother waive nearly $13,000 in fees without much difficulty and that they have agreed to revisit the amounts owed to Cardinal after this Court's decision reflects that there is more than an arm's length relationship here. At bare minimum, the familial relationship should have been disclosed to Ms. Trelles in writing when Cardinal first began involvement with S.D.'s case and to this Court on the initial application. Plaintiff's counsel conceded at the September 11, 2018 hearing that such disclosure ought to have been made. However, that admission comes only because of this Court's inquiries. The Court notes that it was only after this Court challenged whether plaintiff's counsel informed Ms. Trelles that Cardinal was owned by his brother that counsel initiated a policy to advise all clients who he referred to Cardinal of that fact.
In addition, counsel's attempt to have the Court approve appellate counsel fees which included an enormous bonus if "succesful" [sic] where he knew, or should have known, that there was no written retainer, as required, is equally dubious. So, too, is Mr. Daly's pursuit of those fees.
The Court directs that plaintiff's counsel advise all existing and future clients for whom litigation financing has been or is secured through Cardinal, in writing, of the familial relationship between him and the owner of Cardinal. The Court further directs that, in all applications submitted by plaintiff's counsel seeking approval of settlements and/or reimbursement of disbursements in which such litigation costs have been financed, counsel shall clearly and unequivocally state the terms of the financing agreements and provide a copy of the agreement(s) to the Court for consideration.
Disbursements in the amount of $27,633.75 shall be paid from the settlement proceeds to The Fitzgerald Law Firm. Repayment to the Fitzgerald Law Firm of advances for disbursements by Cardinal which have been re-paid to Cardinal it in the amount of $39,499.73 is authorized. Legal fees in the amount of $43,286.65 to The Fitzgerald Law Firm are approved. Mr. Daly shall be paid the sum of $10,000 for appellate counsel services upon filing of a retainer statement as required. The balance of the settlement proceeds of $379,579.87 shall be deposited into the S.D. Supplemental Needs Trust. This Court respectfully calls on the Chief Judge of the Court of Appeals and the Chief Administrative Judge and Presiding Justices of the Appellate Divisions to amend Court Rule § 202.67 to require disclosure of any litigation financing agreements used to finance disbursements in personal injury and medical malpractice claims involving infants and to require that in all cases involving infants, full disclosure of all terms of the agreements and relationships between counsel and the financing companies, financial and otherwise, be disclosed in writing to the client at inception and to the Court in connection with any application for leave to compromise such cases. Only where such information is presented to the Court can a fair evaluation of the propriety of fees and disbursements be made.
Plaintiff's counsel shall submit an Order compromising the action consistent with the determinations made herein within 30 days of the date hereof.
The foregoing constitutes the Decision and Order of the Court.
Gross Recovery (assuming a 50/50 allocation $909,090.89 as requested) Less Disbursements (assuming approval in - $156,900.81 the amount sought) Net Recovery $752,190.08 Legal fee of 10% (as per retainer and $75,219.01 Judiciary Law § 474-a)