Matter of Lohausen

[*1] Matter of Lohausen 2012 NY Slip Op 51233(U) Decided on July 2, 2012 Sur Ct, Queens County Kelly, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 2, 2012
Sur Ct, Queens County

In the Matter of the Application of Kristine Lohausen Dispensa to Fix and Determine the Compensation of Attorney's Fees for the Services rendered to the Estate of Otto Lohausen a/k/a Otto H. Lohausen, Deceased.



2010-415/B



Robert Abrams, Esq.

Abrams, Fensterman, Fensterman, Eisman,

Formato, Ferrara & Einiger, LLP

Attorney for Petitioner

Brian R. Heitner, Esq.

Seltzer, Sussman, Habermann & Heitner, LLP

Attorney for Respondent

Peter J. Kelly, J.

Kristine Lohausen Dispensa, decedent's only child and distributee and executor of his estate, instituted this proceeding seeking to fix and determine respondent's legal fees. Respondent Salvatore Diliberto, Esq. had represented petitioner's family in real estate transactions and estate matters over a period of approximately twenty years. More pertinently, respondent supervised the execution of decedent's will and later codicil, and was also a subscribing witness to the codicil.Shortly after her father's death on December 24, 2009, petitioner retained respondent "to do everything necessary to Probate the Estate," as memorialized in a letter agreement dated January 8, 2010. In addition to the preparation and filing of the petition and other documents necessary for probate, respondent agreed to prepare a list of assets, make required court appearances, marshal the assets, obtain an estate employer identification number, and review decedent's assets for estate tax return purposes. The fee for these services was set at five percent of the value of the gross taxable estate as defined by the Internal Revenue Code. The retainer letter did not contain the required provision that petitioner may have a right to arbitrate fee disputes under Part 137 of the Rules of the Chief Judge (see 22 NYCRR 1251.1[b][2]).

Decedent's will and codicil were quickly admitted to probate on March 18, 2010 upon submission of an uncontested petition. Pursuant to the terms thereof, two general bequests of $50,000.00 each were made to decedent's grandchildren, and the remainder of the estate was left to petitioner. The gross taxable estate was valued at $2,078,264.00, consisting of decedent's house, four stock accounts and one treasury account, five mortgages, two insurance policies, a joint bank [*2]account, an annuity and individual retirement account, and an automobile. The inventory of assets filed with the Court valued the probate estate at $1,549,166.00.

Petitioner was billed $103,913.00 by respondent for legal fees pursuant to the terms of the retainer letter. She paid a small portion of the bill with funds from her checking account and the balance out of estate funds. Payment was complete by July 6, 2010.

Petitioner commenced this proceeding in January 2012, alleging that respondent, seeing her palpable grief and recognizing her lack of knowledge of the customary and reasonable fees charged to handle the basic administration of an estate such as this, took advantage of her. She further alleges that the probate estate was significantly less than what was represented to her by respondent, and that respondent improperly classified assets that passed by operation of law as probate assets so as to give the perception that the probate estate was larger than it actually was. Based on her estimate of between twenty and twenty-five hours of required legal work and the routine nature of the assets being administered, petitioner alleges that the reasonable value of respondent's services should not exceed the sum of $10,000.00, and requests reimbursement of the amount paid in excess.

Respondent has now moved pursuant to CPLR 3211 to dismiss the petition. In his motion, respondent argues that since the estate has been fully administered, distribution has been made, and attorney's fees have been completely paid in accordance with the retainer, this Court no longer has jurisdiction over this matter. Respondent further argues that because petitioner executed the retainer in her individual capacity, the instant dispute is one between living persons and, therefore, the Court does not have the power to interfere with their contract.

In opposition, petitioner contends that the Court has jurisdiction pursuant to SCPA 2110 to fix and determine respondent's fee, notwithstanding the retainer and the filing of the inventory of assets. She argues that based upon her estimate of the number of hours spent on legal services, as stated above, the legal fee charged by respondent amounts to about $4,000.00 per hour. She contends that the fee she was charged was exorbitant considering the routine nature of the services rendered in this uncomplicated estate, and that its payment created a situation whereby respondent became a de facto significant beneficiary of the estate.

It is without question that the Surrogate's Court has the authority to determine issues concerning attorney's fees involving an estate. Pursuant to SCPA 2110, at any time during the administration of an estate and irrespective of any particular proceeding, the court may fix and determine the compensation of an attorney for services rendered to a fiduciary, beneficiary, or any other person interested in the estate. This determination is most frequently made in a simple estate, such as this, after the attorney's services have been completed.

Respondent primarily relies upon the phrase contained in the statute, "any time during the administration of an estate," as a strict time limitation on the Court's subject matter jurisdiction to determine and fix counsel fees herein. However, an analysis of the legislative history and precedents underlying the statute reveals otherwise.

Originally, an attorney could not be paid a fee from estate assets prior to an accounting. If a fee dispute arose, the attorney could bring an action at law in the Supreme Court or other court of general jurisdiction against the fiduciary individually. With the passage of the former Code of Civil [*3]Procedure Section 2692 [FN1], and after a series of appellate decisions, a rule emerged that the property of an estate was appropriate for the payment of attorney's fees and that the surrogate should fix the amount. Thereafter, Surrogate's Court Act § 231-a (the predecessor to SCPA 2110) was enacted, which not only was declaratory of the existing case law, but also gave legislative extension to the surrogate's jurisdiction over disputes between an attorney and non-fiduciaries of an estate.

Nevertheless, in a matter where the surrogate had ordered an attorney to return a portion of a fee fixed by agreement which the fiduciary had voluntarily paid in advance, a divided Court of Appeals, construing Surrogate's Court Act § 231-a, held that the Surrogate's Court did not have the power to order a refund where the disputed amount had been paid by the fiduciary, as distinguished from where there was a retention of the amount from estate funds by the attorney. The court stated that, except where an attorney is withholding money or property from a client which the attorney is otherwise bound to turn over to the client, the attorney had a right to have the claim for a refund established by an action at law (Matter of Rosenberg, 263 NY 357 [1934]).

In the wake of this decision, the Legislature promptly amended the statute to remove this limitation upon the authority of the Surrogate's Court to direct a refund (Laws of 1934, chap. 332).[FN2]

The phrase "any time during the administration of an estate," was carried over from Surrogate's Court Act § 231-a to SCPA 2110. Rather than serving to limit the surrogate's jurisdiction to determine attorney compensation as contended by respondent, this language statutorily extended the opportunity for any person interested in the estate, including the attorney, to have the issue of attorney's fees determined without the need of the fiduciary to first file an account or requiring a party to seek recourse in another court.

More importantly, however, is the fact that SCPA 2110 is not the only source of the Court's authority to supervise attorney's fees. SCPA 209(10) authorizes the Surrogate's Court to exercise "all the powers that the supreme court would have in like actions and proceedings," and it is well established that the Supreme Court has the inherent power to supervise fees attorneys charge for legal services (Matter of Stortecky v Mazzone, 85 NY2d 518; see also First Nat. Bank of East Islip v Brower, 42 NY2d 471). Moreover, the Surrogate's Court subject matter jurisdiction is derived from both the New York State Constitution (NY Const art VI, § 12[d], [e]) and SCPA Article 2 which confer full and complete jurisdiction extending over all actions and proceedings relating to estates and the affairs of decedents, or pertaining thereto (see Matter of Piccione, 57 NY2d 278).

Clearly then, a dispute as to an attorney's compensation for services rendered to a person in the probate of a will would fall within the subject matter jurisdiction of this Court.

In Matter of Anderson (136 Misc 110), the Surrogate had occasion to consider the question of whether an executrix and sole beneficiary under a will could recover from an attorney on a claim of having paid an excessive fee. The respondent in that case challenged the jurisdiction of the court to pass upon the question. The Surrogate held that ample authority existed for the court to determine [*4]the question so far as it concerned an alleged overcharge and payment for services rendered to the petitioner as executrix. In reaching the conclusion, the court chose not to rely upon the provisions of Surrogate's Court Act 231-a under which the proceeding was brought, but on the basis of the powers given pursuant to Surrogate's Court Act § 40 (which are now incorporated in SCPA 201). Although the court's ultimate finding in its determination of the reasonable value of the legal services was reversed, the Court of Appeals implicitly affirmed the jurisdiction of the Surrogate Court to determine the issue (see Matter of Anderson, 231 App Div 704, aff'd 257 NY 592; see also Matter of Duggan, 146 Misc 596). The implicit power of the surrogate to review the propriety of fees charged by attorneys appearing before the court continues to be the current state of the law (see Matter of Stortecky v Mazzone, 85 NY2d 518, 525-526).

Accordingly, the Court finds that there is no merit to respondent's contention that the Court does not have jurisdiction to determine the dispute over his fee. To the extent Matter of Ullmann, NYLJ, Dec. 9, 2011, at 24, col 5 [Sur Ct, New York County] holds otherwise, the Court respectfully disagrees and chooses not to follow its rationale.

Having addressed and confirmed the Court's subject matter jurisdiction, the Court turns to respondent's contention that since petitioner individually retained and voluntarily paid him, she is bound by the retainer and the court may not modify its terms.

A retainer agreement setting a fee based upon a percentage of the estate is not per se improper. As previously noted, however, the Court has the inherent and statutory power to supervise fees charged by attorneys. Agreements between an attorney and a client, as a matter of public policy, are of special concern to courts (Matter of Talbot, 84 AD3d 967; Matter of Lanyi, 147 AD2d 644; and see Matter of Cooperman, 83 NY2d 465). Therefore, retainer agreements are not always enforceable against a client in the same manner as an ordinary contract (Matter of Krulish, 130 AD2d 959).

This is not to say that the retainer is of no moment and can be ignored, but where it prescribes the legal fee to be paid, the attorney bears the burden of establishing that its terms were fully presented and understood by the client, and that the prescribed fee is fair and reasonable (King v Fox, 7 NY3d 181; Shaw v Manufactures Hanover Trust Co., 68 NY2d 172). Thus it has been held that " [even] in the absence of fraud or undue influence, an agreement to pay a legal fee may be invalid if it appears that the attorney got the better of the bargain, unless [she] can show that the client was fully aware of the consequences and that there was no exploitation of the client's confidence in the attorney' "(Jacobson v Sassower, 66 NY2d 991, 993, quoting Smitas v Rickett, 102 AD2d 928, 929). Clearly then, the existence of a retainer, while persuasive, is not prohibitive of the court's exercise of its review powers.

Also, an agreed fee may be disallowed in spite of a percentage retainer agreement where the amount of the fee becomes large enough to be out of all proportion to the value of the professional services that were rendered (see Gair v Peck, 6 NY2d 97,106). Consequently, even if a fee agreement is shown not to be unconscionable when entered into, circumstances arising after formation of the agreement can render the agreement unenforceable where the amount of the fee seems disproportionate to the value of the services rendered (see Lawrence v Miller, 11 NY3d 588, 596).

On a motion to dismiss a petition pursuant to CPLR 3211, the Court must accept the facts alleged in the petition as true, and petitioner must be afforded every possible favorable inference in [*5]determining whether the facts alleged by petitioner fit within any cognizable legal theory (Lawrence v Miller, 11 NY3d 588, 595; Leon v Martinez, 84 NY2d 83, 87-88). A dismissal is warranted only if it is established conclusively that petitioner has no cause of action or that there is a defense to the claim as a matter of law (Leon v Martinez, 84 NY2d at 88; see also Lawrence v Miller, 11 NY3d at 595; Rovello v Orofino Realty Co., 40 NY2d 633, 636).

Here petitioner alleges that she put her faith in respondent, who had been counsel to the family, that she lacked knowledge of the customary and reasonable fee charged for legal services in a basic, non-complex estate, that respondent took advantage of her in her grief, and that the fee charged was excessive and unreasonable in light of the services provided. Affording her pleading a liberal construction, petitioner has sufficiently demonstrated a cause of action.

In his supporting affidavits, respondent disputes the allegations set forth by petitioner. While the affidavits raise issues of fact as to the circumstances involved in the formation and acceptance of the retainer agreement, they do not conclusively establish as a matter of law that dismissal is warranted.

To the extent respondent raises the eighteen month delay in bringing this proceeding as a basis for dismissal, his papers do not set forth any statute of limitation which would bar the proceeding, nor has he demonstrated that the equitable defense of laches would defeat petitioner's claim.

Given the foregoing, the Court concludes that an evidentiary trial concerning the facts and circumstances surrounding the retainer agreement is necessary to determine whether it was fully known and understood by petitioner, and whether it was fair and reasonable.

Based upon the foregoing, the motion to dismiss the petition is denied. Respondent shall have ten days from the date of service upon him of a copy of this decision and order to serve and file an answer.

This is the decision and order of the Court.

Dated: July 2, 2012_____________________________

SURROGATE Footnotes

Footnote 1:This section was succeeded by Surrogate's Court Act § 222 and, subsequently, EPTL 11-1.1[22], the current statute.

Footnote 2:For a brief historical overview of the surrogate's authority to determine fee disputes, see, 8-106 Warren's Heaton on Surrogate's Court Practice § 106.01; 5-21 New York Civil Practice: SCPA P 2110App.02.