ATTORNEY FEE DISPUTES

As a note: I am a Part 137 Arbitrator for over ten years and I have never encountered the situation where the attorney or firm did not appear for the arbitration. So this case did spark my interest.

CONCORD AM. AUTOSALES, INC. v. Nussbaum, 2021 NY Slip Op 50847 - NY: Appellate Term, 2nd Dept. 2021:

"Plaintiff, a Canadian corporation, previously employed defendant attorney to represent it in an action in federal court (Concord American Auto Sales, Inc. v USA Intercargo LLC, index No. 15-CV-00487 [D NJ] [the federal court action]). In 2017, the federal court action was settled but the parties to this action were unable to agree about the fee to which defendant was entitled. Plaintiff contended, in pertinent part, that, under the parties' retainer agreement, defendant was entitled to be paid 30% of the net settlement sum after subtracting plaintiff's litigation costs and expenses. Defendant, on the other hand, asserted that, under the agreement, he was entitled to 30% of the gross settlement sum. On May 31, 2017, plaintiff requested arbitration of the parties' fee dispute before the Brooklyn Bar Association (BBA) pursuant to the New York State Fee Dispute Resolution Program (see Rules of Chief Admin of Cts [22 NYCRR] Part 137). The BBA's notice of arbitration hearing dated August 17, 2018 stated that the parties' fee dispute would be arbitrated on September 17, 2018 at the BBA, and that: "Within ten (10) days of receipt of this notice you must confirm your attendance at this hearing with the administrative office of the [BBA]. . . ." Plaintiff never responded to the notice and failed to appear on the scheduled arbitration date, whereupon the arbitrators rendered an award dismissing its claim.

Within 30 days of the mailing of the arbitrators' decision, plaintiff commenced this action, seeking de novo review of the parties' fee dispute and a judgment against defendant. Defendant moved to dismiss the complaint, arguing that, because plaintiff had defaulted at the arbitration, it was barred under the Rules of the Chief Administrator of the Courts (22 NYCRR) Part 137 from seeking de novo review of the arbitral award in court. Defendant further asserted that the action should be dismissed because it was precluded under CPLR 3211(a)(1) and (5) by the arbitration and award; under CPLR 3211(a)(2) because plaintiff, having defaulted at the arbitration, was barred from commencing an action in court; under CPLR 3211(a)(5) because the issue of defendant's fee had been resolved in the federal court action; and under CPLR 3211(a)(7) because the parties' retainer agreement disproved plaintiff's cause of action and mandated the dismissal of the complaint.

In opposition to defendant's motion, plaintiff submitted the affidavit of its president, Gennady Tcherny, who provided documents showing that, between May 31, 2017 and the arbitration date, he had repeatedly inquired of the BBA concerning the arbitration date. Tcherny asserted that he had not received the notice of arbitration in advance of the arbitration date; that because of such nonreceipt he had not confirmed that he would attend the arbitration hearing, as the notice required; and that he had first learned of the September 17, 2018 arbitration date on October 3, 2018, when he received an email from the BBA which informed him of the arbitration award. Tcherny provided the court with a printout of his October 9, 2018 email to the BBA, in which Tcherny stated that the BBA's August 17, 2018 letter, informing plaintiff of the arbitration date, and its September 25, 2018 letter, informing plaintiff of the arbitration award, had both been misdelivered to a next-door tenant who had been absent until October 9, 2018, and who, upon his return, had brought the misdelivered mail to Tcherny. Tcherny's emails also demonstrated that, upon learning of the arbitrators' award dismissing plaintiff's claim, he had unsuccessfully requested that the arbitration be rescheduled. Tcherny argued that, because there had been good cause for plaintiff's default, plaintiff was entitled to bring an action for de novo review of plaintiff's claim in the Civil Court. He also asserted that, under the terms of the parties' retainer agreement, defendant was only entitled to base his fee on the net settlement sum. Tcherny denied that there had been a final determination of the parties' fee dispute in the federal court.

By order dated April 8, 2019, the Civil Court granted defendant's motion to dismiss the complaint, without prejudice, upon a finding that plaintiff should have moved to vacate the BBA award and its dismissal of plaintiff's claim, rather than bringing a plenary action in the Civil Court for the same relief.

The Civil Court failed to cite a basis upon which plaintiff could have sought vacatur of the BBA arbitration award. CPLR 7511 sets forth grounds for seeking the vacatur of an arbitration award, which grounds do not, however, include vacatur on the ground that there was good cause for a default. The rules governing the mandatory submission of actions to arbitration also include a specific provision for the vacatur of awards rendered on default (see Rules of Chief Judge [22 NYCRR] § 28.7]). By contrast, the rules for the Fee Dispute Resolution Program, through which the present matter was submitted to arbitration, do not contain any provision for the vacatur of awards rendered on default (see Rules of Chief Admin of Cts [22 NYCRR] Part 137).

The rules for the Fee Dispute Resolution Program do, however, provide that "[a] party aggrieved by the arbitration award may commence an action on the merits of the fee dispute in a court of competent jurisdiction within 30 days after the arbitration award has been mailed" (Rules of Chief Admin of Cts [22 NYCRR] § 137.8[a]), but foreclose de novo review to any party who failed to participate in the arbitration hearing, "absent good cause for such failure to participate" (Rules of Chief Admin of Cts [22 NYCRR] § 137.8[b] [emphasis added]; accord Standards and Guidelines promulgated by the Board of Governors of the New York State Attorney-Client Fee Dispute Resolution Program § 12[c]). The rules provide no guidance as to when, how, where, or even whether, in the first instance, a defaulting party must demonstrate "good cause" for its failure to participate in the arbitration. Given the 30-day time constraint to commence an action for de novo review of an arbitration award rendered under the Rules of the Chief Administrator of the Courts (22 NYCRR) Part 137, together with the lack of prior judicial involvement in such a proceeding, we conclude that a finding of "good cause" for the failure to participate in the arbitration is not a precondition for bringing an action on the merits of a fee dispute in a court of competent jurisdiction after an arbitration award has been rendered.

On a motion to dismiss a complaint, a defendant must demonstrate, prima facie, a basis for dismissal, whereupon the burden shifts to the plaintiff. Since a defaulting party is not entitled to seek a trial de novo of a fee dispute under the Rules of the Chief Administrator of the Courts (22 NYCRR) Part 137 absent "good cause" for its default (see Rules of Chief Admin of Cts [22 NYCRR] § 137.8[b]), we find that plaintiff's undisputed nonparticipation at the arbitration hearing was a sufficient basis to establish, prima facie, defendant's entitlement to dismissal of the complaint, and to shift the burden to plaintiff both to demonstrate the existence of "good cause" for defaulting at the arbitration hearing and that it had a meritorious cause of action (cf. Landa, Picard & Weinstein v Ruesch, 102 AD2d 813 [1984]).

We conclude that the Civil Court erred in determining defendant's motion to dismiss the complaint on the sole basis that plaintiff had failed to seek vacatur of the arbitration award, since there was no statutory or regulatory avenue by which plaintiff could have sought such vacatur. The applicable rule did entitle plaintiff to seek de novo review in a court of competent jurisdiction, provided that it had "good cause" for its default at the arbitration hearing—an issue defendant implicitly raised by his motion to dismiss the complaint, and which issue plaintiff addressed in its opposition papers, but which the Civil Court failed to determine."