<b>Counsel Concerns</b>Royalty Contingency-Fee Arrangements

The New York Court of Appeals has answered several certified questions sent to it by the U.S. Court of Appeals for the Second Circuit, in a contingency-fee dispute between former Lynyrd Skynyrd guitarist Ed King and his former litigator Lawrence Fox. King v. Fox, No. 27. In 1978, Fox had negotiated a settlement of King's artist's and writer's royalties suit against MCA Records. Under a fee arrangement with King, Fox kept a one-third share of King's past-due and future royalties from MCA. In 1987, Fox agreed to not take a share of King's future writer royalties. In 1995, MCA began directly sending artist and writer royalties to King. In 1997, King sued Fox, alleging that the fee arrangement had been unconscionable. A Manhattan federal district court granted summary judgment for Fox on the ground that King had ratified the fee arrangement by accepting the royalty split with Fox for 17 years. The Second Circuit found, in part, that King's suit wasn't time-barred under a 6-year statute of limitations governing the fee agreement because Fox had continued to represent King until 1991 (in matters involving King's membership in the 1960s band Strawberry Alarm Clock).

The New York Court of Appeals responded to the Second Circuit's questions regarding the validity of the fee arrangement by noting: '[A]lthough continuous representation may in some cases toll the statute of limitations, it cannot preclude ratification of an attorney fee agreement. Ratification may occur at any time, so long as a client has full knowledge of the relevant facts (including the terms of the agreement and the choice to disavow it) and has acquiesced. The fact that the agreement's terms may be more advantageous to the attorney does not change the result. Nor is the result necessarily different if misconduct occurs during the period of continuous representation, so long as the client's acquiescence is not procured as a result of the misconduct. '

'Besides the sheer amount of the fee, another factor to consider ' and perhaps the most important ' in determining the unconscionability of a contingent fee agreement, is whether the client was fully informed upon entering into the agreement with the attorney. Here, the Second Circuit says there exists a dispute as to whether Fox explained the full ramifications of the agreement [to King] at the time it was signed. However, ratification by definition occurs only after the initial agreement was made. Because of the special protections given to clients in dealing with their attorneys, it will be a rare case where an unconscionable agreement may be ratified by the client, but we are not prepared to say it can never occur. Where a fully informed client with equal bargaining power knowingly and voluntarily affirms an existing fee arrangement that might otherwise be considered voidable as unconscionable, ratification can occur so long as the client has both a full understanding of the facts that made the agreement voidable and knowledge of his or her rights as a client.'

The New York Court of Appeals has answered several certified questions sent to it by the U.S. Court of Appeals for the Second Circuit, in a contingency-fee dispute between former Lynyrd Skynyrd guitarist Ed King and his former litigator Lawrence Fox. King v. Fox, No. 27. In 1978, Fox had negotiated a settlement of King's artist's and writer's royalties suit against MCA Records. Under a fee arrangement with King, Fox kept a one-third share of King's past-due and future royalties from MCA. In 1987, Fox agreed to not take a share of King's future writer royalties. In 1995, MCA began directly sending artist and writer royalties to King. In 1997, King sued Fox, alleging that the fee arrangement had been unconscionable. A Manhattan federal district court granted summary judgment for Fox on the ground that King had ratified the fee arrangement by accepting the royalty split with Fox for 17 years. The Second Circuit found, in part, that King's suit wasn't time-barred under a 6-year statute of limitations governing the fee agreement because Fox had continued to represent King until 1991 (in matters involving King's membership in the 1960s band Strawberry Alarm Clock).

The New York Court of Appeals responded to the Second Circuit's questions regarding the validity of the fee arrangement by noting: '[A]lthough continuous representation may in some cases toll the statute of limitations, it cannot preclude ratification of an attorney fee agreement. Ratification may occur at any time, so long as a client has full knowledge of the relevant facts (including the terms of the agreement and the choice to disavow it) and has acquiesced. The fact that the agreement's terms may be more advantageous to the attorney does not change the result. Nor is the result necessarily different if misconduct occurs during the period of continuous representation, so long as the client's acquiescence is not procured as a result of the misconduct. '

'Besides the sheer amount of the fee, another factor to consider ' and perhaps the most important ' in determining the unconscionability of a contingent fee agreement, is whether the client was fully informed upon entering into the agreement with the attorney. Here, the Second Circuit says there exists a dispute as to whether Fox explained the full ramifications of the agreement [to King] at the time it was signed. However, ratification by definition occurs only after the initial agreement was made. Because of the special protections given to clients in dealing with their attorneys, it will be a rare case where an unconscionable agreement may be ratified by the client, but we are not prepared to say it can never occur. Where a fully informed client with equal bargaining power knowingly and voluntarily affirms an existing fee arrangement that might otherwise be considered voidable as unconscionable, ratification can occur so long as the client has both a full understanding of the facts that made the agreement voidable and knowledge of his or her rights as a client.'