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The Association of the Bar of the City of New York
Council on Judicial Administration

Recommendation Concerning Mandatory Arbitration of Fee Disputes in all Matters

Introduction

Various institutions including this Association have long recognized that disputes over attorneys’ fees are a major source of attorney-client conflict, of grievance filings and of public dissatisfaction with the profession; and this Association has previously urged the adoption of an alternative to grievance filings and litigation as mechanisms for resolving fee disputes in New York.

Effective November 1993 arbitration of fee disputes in domestic relations matters involving less than $100,000 has been mandatory at the election of the client, pursuant to 22 NYCRR Part 136 and 22 NYCRR 1400.7. Surveys of participants in domestic relations fee arbitrations show a high level of satisfaction with the process. Arbitration has proven to be a speedy, effective means to the confidential resolution of fee disputes. Mandatory fee arbitration in other jurisdictions, such as California and New Jersey, has likewise proven fair and expeditious.

The Council on Judicial Administration urges the Office of Court Administration to promulgate a rule, applicable to fee disputes arising in all forms of representation, calling for the mandatory arbitration (at the election of the client) of all fee disputes involving less than $100,000.

Prior Recommendations

In 1991 the American Bar Association’s Committee on Evaluation of Disciplinary Enforcement (the "McKay Commission"), commenting on the flood of fee-based grievances before professional discipline groups, highlighted the absence of effective remedies for the disposition of fee disputes and recommended the establishment of mandatory arbitration of fee disputes in all jurisdictions. (Recommendation 3.1).

In August 1992 the Committee on Professional Discipline of the Association of the Bar of the City of New York undertook a study of existing systems for resolving lawyer-client fee disputes in New York. The Committee issued its recommendations in a Report, dated November 5, 1993, which suggested using the then-proposed rule for binding arbitration of fee disputes in matrimonial cases as a pilot program or, if the proposed rule was not implemented, creating a pilot program. In making its recommendations, the Committee was persuaded by the fact that, even at that time, more than 30 states had adopted special lawyer-client fee dispute programs, primarily providing for arbitration of such disputes; that the New Jersey and California programs for mandatory arbitration had proven effective in accomplishing prompt disposition of cases in a manner satisfactory to participants; and that the availability of some ADR mechanism for the disposition of fee disputes serves an important function because, among other things, it diverts from the disciplinary agencies the many filings that primarily stem from fee complaints.

In 1993 the Committee appointed by the Chief Judge of the State of New York to Examine Lawyer Conduct in Matrimonial Actions (the "Milonas Committee"), after examining the mandatory arbitration programs in California, New Jersey and Erie County, New York, recommended, among other things, the creation of a program of arbitration to resolve attorneys fee disputes in domestic relations cases. Effective November 30, 1993, Part 136 of the Rules of the Chief Administrator and 22 NYCRR 1400.7 were added or amended to require, at the client’s election, mandatory arbitration in such cases of fee disputes involving less than $100,000, with the results binding on the parties subject to review under Article 75.

The Program For Domestic Relations Fee Disputes

22 NYCRR Part 136 and 1400.7, which require arbitration of attorney-client disputes in domestic relations matters, are attached. The arbitration program is administered by the Administrative Judge of each judicial district. Jurisdiction is granted to hear fee disputes involving not more than $100,000. In addition, the Administrative Judge may decline to hear a dispute in which substantial legal questions are raised (apart from the fee dispute) or in which no services have been rendered for at least two years.

The proceedings are confidential. The rules require that when a fee dispute has arisen, the attorney notify the client that the client has 30 days in which to elect to resolve the dispute by binding arbitration, to be conducted according to a prescribed procedure. If the client does not so elect, the attorney may commence an action. If a client elects to arbitrate, a hearing is set within 60 days, before a single arbitrator (if less than $3,000 is involved) or a three-member panel.1 Rules of evidence need not be observed and a transcript is optional. Testimony is under oath. Subpoenas may be issued. The attorney has the burden of proving the reasonableness of the fee by a prepondence of the evidence.2 Within 30 days after the hearing, an award is to be made.3 Either side may seek review of the award under CPLR Article 75.

Post-1993 Recommendations

In November 1995 a Final Report was issued by the Committee on the Profession and Courts created by Chief Judge Kaye (the "Craco Committee"). Among the recommendations made by the Craco Committee to address public dissatisfaction with the legal profession was the extension of the rule for mandatory arbitration of fee disputes to all attorney-client fee disputes.

By Letter of Comment dated February 12, 1996 setting forth the Association’s views on the Craco Committee’s recommendations, the Association expressed its general support for such an expansion but urged that before effecting any new rule, the Court first collect and analyze the data from the matrimonial fee arbitration program. The Association also urged the Court to consider expanding the rights of appeal from fee arbitration awards beyond the scope of Article 75. 4

Analysis of the Domestic Relations
Fee Arbitration Program

In December 1996, the Report of the Tracking Committee addressed the history of the rules and reported both on routine activity reports maintained by program coordinators as well as a survey and study specially conducted of participants in the arbitration program (attorneys, clients, arbitrators and program coordinators). Overall, there was a substantial level of satisfaction with the program. Interestingly, attorneys were more positive about the overall quality of the program than were clients (76% vs 52%) and more satisfied with the outcome (68% vs. 44%). That variation may be seen as consistent with the overall finding that statewide, on average, attorneys received 72% of the total amount in dispute, and often the attorneys received the full amount claimed.5 In addition, the Tracking Committee reported that the overwhelming majority of disputes (96%) were resolved after only a single hearing, and more than two-thirds of the hearings lasted less than three hours. More than 85% of the hearings were held within 60 days of the filing of the request for arbitration.

The Report recommended that changes be made to program brochures and/or instructional materials to clarify procedures and standards for participants. In addition, the Committee noted that the requirement of using Article 75 to enforce an award creates confusion and dissatisfaction among clients (who are generally unrepresented) and recommended both the issuance of a brochure to advise as to the process for procuring Article 75 confirmation and/or implementation of a simplified and expedited procedure for post-award review. 6

Other New York Pilot Programs

Since 1996, studies have been made by the Tracking Committee of various pilot or existing local bar-sponsored programs, in an effort to test the efficacy of various different procedural approaches to such issues as post-award review. These studies are not publicly available.

New Jersey and California

The New Jersey and California mandatory arbitration programs, while differing in certain procedural respects from one another and from the New York domestic relations model, in common with New York’s program have proven to provide (a) for the expeditious determination of disputes, (b) for confidential decisions, and (c) a high satisfaction rate among attorney and clients. In New Jersey the full fees claimed are awarded more than 50% of the time, in Los Angeles County more than 40% of the time. Saxe, David B, "Fee Arbitration Can Work in Matrimonial Cases," New York Law Journal, August 12, 1993, p. 1.

Recommendation

The benefits of a broad fee arbitration program to the bar as a whole, to the client community and to the public perception of the profession now seem to have been demonstrated. The domestic relations program has been in effect for more than five years, and studies of the program show arbitration to be an effective, efficient and well-received method for the confidential disposition of fee disputes. Specifically, arbitration provides a much faster means of resolving fee claims than does litigation. The time from the filing of a request until the conduct of a hearing is typically 60 days or less. Furthermore, the hearings themselves consume far less time than would a judicial trial: 96% of the hearings take one day or less, with most taking less than three hours. This expeditious processing of claims reduces the cost (be it in lost time or out-of-pocket legal fees) of the participants. Further, because quality of representation issues are not before the arbitrator(s), the malpractice counterclaims which are often almost reflexively interposed in litigated fee matters are not heard in arbitrations, resulting in streamlined processing. Because the proceedings are confidential, no issues of public disclosure need dissuade lawyers from claiming their fees. Fee arbitration also relieves the courts of the burden of resolving such matters, provides a more appropriate vehicle for resolving client discontent as to fee matters than currently exists in the disciplinary forums, and positively addresses a cause of public dissatisfaction with the profession. Based on the high level of satisfaction among participants in the New York domestic relations fee arbitrations as well as in other states’ similar programs, the Council urges the Office of Court Administration to implement a rule requiring all fee disputes involving less than $100,000 to be submitted to binding arbitration at the election of the client. The Council further suggests that the detailed procedural structure of such arbitrations, including such questions as the manner and extent of post-award review, be left open to local rule, to be issued by the Administrative Judge of each Judicial District or to be delegated by him/her to the court administrators or bar groups conducting the arbitrations, so as to accommodate procedures which have gained acceptance in different parts of the State and other particular local needs.

April, 1999

COUNCIL ON JUDICIAL ADMINISTRATION

Robert L. Haig, Chair
Sarah Layfield Reid, Secretary

Paul H. Aloe
John L. Amabile
Richard T. Andrias
Steven J. Antonoff
Jacob Aschkenasy
Robert E. Bailey
Paris R. Baldacci
Celia Goldwag Barenholtz
Helaine M. Barnett
Gary S. Brown
Nancy A. Brown
Dierdre A. Burgman
Austin V. Campriello
Roy H. Carlin
P. Kevin Castel
Ellen M. Coin
Brendan M. Connell, Jr.
Melanie L. Cyganowski
William M. Dallas, Jr.
George B. Daniels
Julia R. Davis
Charles E. Dorkey III
Joan L. Ellenbogen
Linda A. Fairstein
Gerald J. Fields
John E. Finnegan
Steven G. Foresta
Amanda J. Gallagher
Paula Galowitz
John L. Gardiner
David R. Gelfand
Lenore Gittis
Thomas H. Golden
Erika D. Gorrin
Salvatore J. Graziano
James W. Harbison, Jr.
Alexander W. Hunter, Jr.
Debra A. James
Robert Jossen
Barry M. Kamins
Beth L. Kaufman
Norman C. Kleinberg
Marilyn C. Kunstler
Deborah E. Lans*
Craig Leen
Robert J. Levinsohn
  Robert P. LoBue
Mitchell A. Lowenthal
Jerianne E. Mancini
Frank Maas
Maria Milin
Jonathan W. Miller
Charles G. Moerdler
David M. Morris
Brian J. Noonan
Marilyn G. Ordover
Steven R. Paradise
Sheryl L. Parker
Jane W. Parver
Gerald G. Paul
Ann T. Pfau
Richard Lee Price
Porfirio F. Ramirez, Jr.
William C. Rand
Claudia E. Ray
Roy L. Reardon
Anne Reiniger
Steven A. Reiss
Rosalyn Heather Richter
Eric Rieder
Stephen G. Rinehart
David Rosenberg
David E. Ross
Jay G. Safer
Shira A. Scheindlin
Stella Schindler
Edward T. Schorr
Marcia Lynn Sells
Steven B. Shapiro
Jacqueline W. Silbermann
George Bundy Smith
Debra B. Steinberg
Andrew W. Stern
Guy Miller Struve
Eric A. Tirschwell
Paul A. Tumbleson
Mark Walfish
Eric D. Welsh
Aviva O. Wertheimer
John S. Willems
Ronald P. Younkins

* Principal author of this report.


Notes

1 The pool of arbitrators is appointed; it consists of lay people and lawyers all of whom serve without compensation; and training is provided for the arbitrators.

2 Three-member panels consist of one lay person, one lawyer and a third person selected from the full pool of arbitrators. The panel is chaired by a lawyer. During training, arbitrators are instructed that they are to disregard quality of representation issues (such as, but not limited to, malpractice claims), in assessing the reasonableness of the fee. See, A Report to The Chief Judge and Administrative Judge, issued by the Committee to Track the Matrimonial Rules in December 1996 ("Report of the Tracking Committee"), discussed below, at 27.

3 Rules of evidence need not be observed and a transcript is optional. Testimony is under oath. Subpoenas may be issued. The attorney has the burden of proving the reasonableness of the fee by a preponderance of the evidence.

4 Letter of Comment by the Association of the Bar of the City of New York Addressing Recommendations in the November 1995 Report of the Committee on the Profession and the Courts, at 16-17.

5 In about 30% of cases, the lawyer received the entire amount claimed. Spencer, Gary, "Average 72% is Won By Divorce Lawyers in Fee Arbitrations," New York Law Journal, December 16, 1996 (p. 1).

6 The Report did not address, but attention may also be necessary to the interplay between, the fee arbitration process and the mechanisms for fixing retaining liens in on-going litigation matters.