PART 137 AND SURROGATE COURT FEE APPLICATIONS

 

MATTER OF HART, 2022 NY Slip Op 22018 - NY: Surrogate's Court, Rockland 2022:

"I. Motion for Summary Judgment for Failure to Comply with Part 137

The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient admissible evidence to eliminate any material issues of fact from the case. See Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 (1957). The movant bears the burden of proving entitlement to summary judgment, and the failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. See Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851 (1985). Once sufficient proof has been offered, the burden then shifts to the opposing party who, in order to defeat the motion for summary judgment, must proffer evidence in admissible form that raises a triable issue of fact. See Zuckerman v. City of New York, 49 NY2d 557 (1980).

Here, Counterclaimants allege that Petitioner failed to comply with the notice provisions of 22 NYCRR § 137, which divests the Court of jurisdiction and requires dismissal of the fee petition. In the initial petition filed in this matter on December 10, 2014, the proposed engagement letter was attached as Exhibit D to the attorney affirmation. The "Agreement to Provide Legal Services" does not include the required Part 137 language. The answer with counterclaims does not specifically raise the failure to include Part 137 language in the proposed engagement letter as an affirmative defense or objection. Instead, in the first objection and point of law, the Counterclaimants allege that "Petitioner, admittedly a New Jersey law firm, is not authorized to practice law in New York State and failed to meet its responsibility to obtain from the Estate and/or administrator either a written retainer agreement and/or a letter of engagement as it was required to by NYCRR § 1215.1." Amended Verified Answer, Affirmative Defenses, and Respondents' Counterclaims to Petition at ¶6. The same issue is raised as the first affirmative defense. See id. ¶7. The second affirmative defense also cites the failure to obtain a letter of engagement in violation of NYCRR § 1215.1 and argues that Petitioner may only recover (if at all) on the basis of quantum meruit. The answer does not raise the issue that is the focus of this motion, the failure to provide the notice required by 22 NYCRR § 137.6(a)(1).

Petitioner does not claim that the Part 137 notice was sent. Instead, Petitioner argues that the Part 137 arbitration rules do not apply in this case because the Surrogate's Court Procedure Act provides an alternate process per SCPA §2110. Therefore, there is no dispute on the one fact issue raised by Counterclaimant in the motion (whether the notice was sent), making it appropriate for a ruling on summary judgment.

A. History of SCPA § 2110

Warren's Heaton on Surrogate's Practice reviews the history of the Surrogate's authority to fix attorney's fees. See 8 Warren's Heaton on Surrogate's Court Practice § 106.01. Prior to 1916, if a fiduciary disputed the fees charged by the estate's attorney, the attorney would bring an action at law against the fiduciary in their individual capacity. However, in In re Rabell, 175 A.D. 345 (2d Dept. 1916), the Appellate Division held that if a fiduciary refused to pay the full compensation of the attorney, the Surrogate's Court had jurisdiction to fix the amount of the fee and direct its payment from the estate in a special proceeding. In a subsequent matter, the New York County Surrogate's Court found that it had jurisdiction to determine the value of the services an attorney rendered to an estate and direct payment of fees out of the estate assets. In re Shipman, 116 Misc. 405 (Surr. Ct. NY Co. 1921), aff'd, 200 A.D. 896 (1st Dept. 1922), aff'd, 234 NY 499 (1922). In 1923, the Legislature enacted former Surrogate's Court Act § 231-a (the predecessor to SCPA § 2110), which embodied the procedure set forth in Rabell and Shipman.

SCPA § 2110 authorizes the Court to fix and determine the compensation of an attorney at any time during the administration of the estate. SCPA § 2110(2) directs that the proceeding shall be instituted by petition of, inter alia, an attorney who has rendered services to the estate. The Uniform Rules for Surrogate's Court require that an attorney file an affidavit of services in any proceeding to determine attorney's fees. See 22 NYCRR § 207.45(a). The Court bears the ultimate responsibility for approving legal fees that are charged to an estate and has the discretion to determine what constitutes reasonable compensation for legal services rendered in the course of the administration of an estate. See Matter of Stortecky v. Mazzone, 85 NY2d 518 (1995); Matter of Vitole, 215 AD2d 765 (2d Dept. 1995); Matter of Verplanck, 151 AD2d 767, 767 (2d Dept. 1989) (surrogate "bears the ultimate responsibility to decide," the reasonableness of compensation for legal services rendered to an estate); SCPA § 2110(3) (allowing Court to direct attorney to refund fees in excess of fair value of services rendered).

This power of the Surrogate to set fees is superior to the parties' consent to a requested fee. See Stortecky, 85 NY2d at 526 ("[T]he Surrogate had the authority to inquire into the reasonableness of counsel's fee even though agreed upon by the executor and assented to by the beneficiaries."). The Court is not bound by the terms of a retainer agreement. See Matter of Williams, 168 AD3d 753, 753 (2d Dept. 2019) ("the Surrogate bears the ultimate responsibility of deciding what constitutes a reasonable legal fee, regardless of the existence of a retainer agreement"); In re Guattery, 278 AD2d 738 (3d Dept. 2000) (absence of written retainer agreement did not prevent Surrogate from fixing attorney's fees); Estate of Paula M. Venezia, 2008 NY Misc. LEXIS 6644, 240 N.Y.L.J. 77 (Surr. Ct. Kings Co. 2008) (citing Matter of Schanzar, 7 AD2d 275 (1st Dept. 1959)).

The Surrogate also has the jurisdiction to determine attorney malpractice issues in a SCPA § 2110 proceeding to fix attorney's fees. See In re Estate of Tarka, 293 AD2d 396, 396 (1st Dept. 2002) ("The court's jurisdiction extended to . . . allegations of malpractice inasmuch as such claims allegedly arose in connection with the administration of the estate."); Haskel & Lancaster, 2001 NYLJ LEXIS 160, NYLJ, Jan. 5, 2001 at Pg. 2, (col. 6) (Surr. Ct. Nassau Co. 2001) (Radigan, J.).

B. History of 22 NYCRR § 137

Effective March 4, 2002, the Rules of the Chief Judge were amended to require attorneys to provide clients with a written letter of engagement. See NYCRR § 1215.1.^[2] The regulation instructs that the engagement letter address three topics: the scope of services to be provided; an explanation of the fees to be charged; and, "where applicable," a notification that the client may have a right to arbitrate fee disputes pursuant to 22 NYCRR § 137.^[3] Part 137 contains the regulations for the New York State Fee Dispute Resolution Program, which "provides for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation." 22 NYCRR § 137.0. To ensure that clients are aware of their right to arbitrate, 22 NYCRR § 137.6(a)(1) requires an attorney to forward a written notice to their client called "Notice of Client's Right to Arbitrate."

Certain matters are exempted from the Part 137 rules. Included among the exemptions are "claims involving substantial legal questions, including professional malpractice or misconduct" and "disputes where the fee to be paid by the client has been determined pursuant to statute or rule . . . or where the fee has been determined pursuant to a court order." §137.(b)(3),(5). Failure to provide the client with written notice of their right to elect to submit the fee dispute to arbitration, and the failure to allege in the complaint that either the notice was served or that arbitration is inapplicable, has been held to require dismissal of the complaint. See Zisholtz & Zisholtz, LLP v. Mandel, 165 AD3d 1312 (2d Dept. 2018); Pascazi Law Offices, PLLC v. Pioneer Natural Pools, Inc., 136 AD3d 878 (2d Dept. 2016). However, dismissal is without prejudice to refile after the proper service of the notice, should the offer of fee arbitration not be accepted by the client.

Incredibly, only three published cases have considered the interplay of SCPA § 2110 and the Part 137 Rules. In the Estate of Marie A. Henriques, the New York County Surrogate's Court dismissed without prejudice a fee petition filed by a law firm that had represented a respondent party, Antonio Henriques, because the estate and the firm agreed to pursue arbitration per Part 137. See 2014 NYLJ LEXIS 2051, NYLJ, Aug. 20, 2014 at Pg. p.22, col.1 (Surr. Ct. NY Co. 2014). A second case found the Part 137 Rules inapplicable because the fees in dispute were over $50,000, and therefore exempt from the Dispute Resolution Program. See Estate of Clarke, 2004 NYLJ LEXIS 3128, NYLJ, Jul. 15, 2004 at Pg. 21, col. 3 (Surr. Ct. Bronx Co. 2004). Finally, in a Surrogate's Court case in New York County, the Court denied a client's motion to compel arbitration of a fee dispute. See Estate of Julia Elizabeth Taschereau, 2006 NY Misc. LEXIS 6303 (Surr. Ct. NY Co. July 31, 2006). The Taschereau decision noted that the attorney's retainer agreement referred to the option for arbitration per Rule 137 but did not have all of the required language. See id. *11. However, the Court also noted that arbitration would not be available because there were claims of malpractice. See id. *12. Finally, the Court dismissed the attorney's cross-motion for determination of his fees because he had not brought the petition per SCPA § 2110. See Taschereau *13.

In a matter more akin to the one before this Court, the Kings County Surrogate's Court rejected a respondent's argument that the petitioning law firm was required to submit to fee dispute arbitration prior to filing an SCPA § 2110 application. See Estate of Rose Mary McGushin, 2013 NYLJ LEXIS 7294, NYLJ, Apr. 1, 2013 at p.23, col.4 (Surr. Ct. Kings Co. 2013). The Court distinguished between a fee dispute and "a petition that is an application to determine the reasonableness of the petitioner's compensation," noting that the Surrogate's Court had both the authority and the obligation to determine legal fees. Id. at *7. The opinion did not specifically mention the Part 137 Rules, but flatly rejected the argument that any type of mandated fee arbitration must precede filing of a SCPA § 2110 petition.

Finally, the treatise most frequently cited on Surrogate's Court practice, Warren's Heaton, concludes that SCPA § 2110 fee petitions should be exempt from Part 137. See 9 Warrren's Heaton on Surrogate's Court Practice § 119.04[8] "Legal Fees Not Subject to Arbitration." The treatise notes that enforcement of an arbitration award for legal fees performed on behalf of an estate would likely be referred to Surrogate's Court, where an independent inquiry into the reasonableness of the award would be conducted. The treatise concludes that it is "unlikely that the Surrogate's Court would defer to the arbitrator's award for legal fees." Id. (citing Raymond v. Davis, 248 NY 67 (1928)).

C. Conclusion

While this Court certainly appreciates the benefits of alternative dispute resolution, and in fact, routinely orders matters to mediation per the 2020 Presumptive Mediation rules, this Court must agree with the Kings County Surrogate's Court that failure to comply with the Part 137 Rules for arbitration of fees disputes does not require dismissal of a SCPA § 2110 petition nor divest this Court of subject matter jurisdiction over the petition. First, as that Court pointed out, Part 137 Rules are aimed at "fee disputes" filed by complaint. A fee petition in Surrogate's Court is not necessarily a fee dispute at all. It is a petition for the setting of fees, which is frequently uncontested.

Second, § 2110 gives the Surrogate the obligation to ensure that fees charged to an estate are fair and reasonable, regardless of the fiduciary's consent to the fees. Given the Surrogate's obligation to supervise the fees paid by an estate to its attorneys, the requirement that the matter be sent to arbitration would directly conflict with the Surrogate's duty. In fact, there are a number of subjects where an arbitration agreement is not enforceable because arbitration would be improper delegation of the Court's authority. See Matter of Aimcee Wholesale Corp. (Tomar Prods.), 21 NY2d 621(1968) (enforcement of NYS antitrust laws); Bidermann Indus. Licensing v. Avmar N.V., 173 AD2d 401(1st Dept. 1991) (disqualification of an attorney from representing a particular party); Durst v. Abrash, 22 AD2d 39 (1st Dept. 1964), aff'd 17 NY2d 445 (1965) (usury claims asserted by borrowers); Glauber v. Glauber, 192 AD2d 94 (2d Dept. 1993) (custody of and visitation with children). Specifically within the field of trusts and estates, the probate of a will, distribution of the estate, appointment of an administrator, accounting proceedings generally, kinship proceedings, will construction, guardianships, and controversies relating to the conduct of a fiduciary are all areas where New York Courts have held arbitration agreements unenforceable. See 9 Warren's Heaton on Surrogate's Practice § 119.04[1]-[7].

Arbitration of a matter that ends in an unenforceable settlement does not serve the goals of a "more efficient, affordable and meaningful civil justice process." "Court System to Implement Presumptive, Early Administrative Dispute Resolution for Civil Cases," Unified Court System Press Release, May 14, 2019. This Court concludes that since it has the duty to review and approve fees even in the face of the consent of the parties, an arbitration agreement on fees would be similarly unenforceable. Therefore, a party cannot be penalized for failure to offer participation in an alternate dispute resolution process that would still require application to the Surrogate's Court for approval of fees.

Finally, the Court finds that even if the Part 137 Rules did apply to Surrogate's Court fee petitions, Counterclaimants cannot raise failure of the Petitioner to comply with the Part 137 Rules at this late date in this matter. The purpose of Part 137 is to provide an informal and expeditious resolution of disputes. This matter has been before the Court for seven years. The fee dispute has already been to the Appellate Division and has been the basis for eight motions before this Court. The failure to provide the Part 137 Notice was first raised in the last year. It was not mentioned in the Answer or in the many, many prior motions. Dismissing the fee petition because the Petitioner failed to serve a notice for optional arbitration, which would have been declined by the Counterclaimants so that they could pursue their malpractice claims, and which would have resulted in an unenforceable agreement, if accepted, would be a waste of time, money, professional resources, and paper of almost epic proportions. In fact, the Court suspects that this entire motion is an effort at wasting Petitioner's time and money.^[4] Therefore, even if the Part Rule 137 applied, in the interest of justice, the Court declines to dismiss this SCPA § 2110 fee petition for failure to provide notice of the Part 137 Rules."