Attorney Fee Disputes in New York and Part 137 de novo review.

So, you signed the retainer with an attorney, litigated a case or resolved the matter, but now have a fee dispute with your lawyer over fees, malpractice, or something else. You are considering a lawsuit against that attorney, or that attorney may have sued you to recover her fees. You look at your retainer agreement and see that in contains a provision requiring arbitration under Part 137 (22 NYCRR 137 et seq.). What is that, and if you win, does your attorney get the right to re-litigate the finding of the fee arbitrators.

The answer to whether an attorney may litigate the arbitration finding and request a new trial (“de novo“) in the courts is a complex issue that has actually been litigated by attorneys seeking to avoid the findings of the fee arbitrators. Try to follow the chain of thought:

First, either party may reject a Part 137 arbitration award and sue for a de novo trial.

22 NYCRR 137.8. De novo review.

(a) 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.

However, the parties can waive their right to a trial de novo in advance “in a form prescribed by the Board of Governors.” (emphasis added)

22 NYCRR 137.2. General.

(c) The attorney and client may consent in advance to arbitration pursuant to this Part that is final and binding upon the parties and not subject to de novo review. Such consent shall be in writing in a form prescribed by the Board of Governors.

But what did the Board of Governors intend for the word “form” to mean? A “written waiver form”, or a “style” or “manner”? The answer seems to appear in supplementary directives promulgated by the Board, as follows:

The Board of Governors is mandated to write “guidelines and standards”, essentially supplementary directives that provide further guidance as to the Part 137 rules.

22 NYCRR 137.3. Board of governors.

(g) The board of governors * * * shall adopt such guidelines and standards as may be necessary and appropriate for the operation of programs under this Part, […]

(emphasis added)

The introductory paragraph of the “Standards and Guidelines”, confirms that these are indeed the guidelines and standards mandated by 22 NYCRR 137.3(g) (quoted above).

Pursuant to Part 137 of the Rules of the Chief Administrator, Title 22 of the Official Compilations of Codes, Rules and Regulations of the State of New York, the following Standards and Guidelines are promulgated by the Board of Governors of the New York State Attorney-Client Fee Dispute Resolution Program (“Board”) to implement the Attorney-Client Fee Dispute Resolution Program and Part 137.

The Board of Governors, however, interpret 137.2(c)’s use of the word “form” to mean that an explicit waiver of de novo review is required only if the waiver is to bind the client.

B. Prior Written Agreements Between the Attorney and Client Under Section 137.2.

2. Under section 137.2(c), the attorney and client may consent in advance to submit to arbitration that is final and binding and not subject to a trial de novo. To be valid on the part of the client, such consent must be knowing and informed and obtained in the manner set forth in section 6(B)(1) of these Standards and Guidelines, except that the retainer agreement or other writing shall also state that the client understands that he or she is waiving the right to reject an arbitration award and subsequently commence a trial de novo in court.

There is no corresponding required wording for an attorney to explicitly waive his right to a de novo trial. The clear meaning of Standards and Guidelines 6.B.2. is that no client can be bound by an inadvertent and unknowing agreement to waive his rights to a new trial of the issue. From 6.B.2.’s silence with respect to attorneys, it seems fair to assume that they are expected to know the law and therefore are not similarly protected.

However, despite this seemingly clear chain of law, at least two Courts have ignored the wording of Standards and Guidelines 6.B.2. Instead, the Courts have ruled that 22 NYCRR 137.2(c)’s use of the word “form” refers to “written waiver form” Model Form UCS 137-14 (11/01), entitled: “Consent To Submit Fee Dispute To Arbitration Pursuant To Part 137.2(c) Of The Rules Of The Chief Administrator And To Waive Right To Trial De Novo”.

Further,in one case, the Court unilaterally expanded the protection against unknowing waiver explicitly given only to the client in 6.B.2. and decided that this protection also covered the attorney, permitting him to avoid the otherwise clear language he drafted for inclusion in his retainer agreement stating that the arbitration “will be binding” on both the client and the law firm.

A de novo review, however, may not be what the attorney seeking to avoid the arbitration award wants. Recall, the client may have had a concern about legal malpractice, breach of fiduciary duty or other claims under Judiciary Law Section 487. Is it really in the attorney’s best interest to avoid the arbitration award and seek de novo review?

Bottom line– under the existing loop hole, several courts have allowed attorneys who promised binding arbitration to avoid the binding arbitration promised.

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