Attorney may not Include Statutory Fee Award when Calculating Contingent Fee Unless Specifically Included by the Retainer Agreement

On April 3, 2014, the Court of Appeals issued a decision in Albunio v. City of New York, 2014 NY Slip Op. 02325, addressing the proper calculation of an attorney’s contingent fee award in an action under the New York City Human Rights Law.

In Albunio, the plaintiffs, who were former NYPD officers, were awarded $986,671 in compensatory damages in their civil rights action. The plaintiffs' counsel was awarded a statutory fee of $296,826.04 for her trial work and an additional $233,965 for her successful appellate work. The issue presented by the Court of Appeals was how the fee awards would factor into the plaintiffs' 1/3 contingent fee agreement with their counsel. Because the parties had separate retainer agreements for the trial and the appeal, the two awards are considered separately. The trial award discussion is of greater significance, and occupies the bulk of the opinion.

The trial retainer agreement provided only that the attorney would receive a contingent fee equal to 33% percent "of the sum recovered, whether recovered by suit, settlement, or otherwise." The First Department agreed with the attorney, and found that the statutory fee awards constituted part of the "sum recovered," and included them in its calculation of the fee. The Court of Appeals reversed:

The terms of the Trial Agreement do not unambiguously provide that any statutory fees are part of the 'sum recovered' and therefore subject to the one-third contingency fee. The subsequent phrase, 'by suit, settlement or otherwise' (emphasis added), might support an interpretation that 'sum recovered' is broad enough to encompass a statutory award. However, in ordinary parlance, a plaintiff's 'recovery' denotes the amount payable by the defendant as compensation for the plaintiff's injury, that is, the damages award or settlement. Moreover, the Trial Agreement does not so much as mention the possibility of statutorily awarded fees, the existence of which the average client is presumably unaware. The general rule that 'equivocal contracts will be construed against the drafters' is subject to particularly rigorous enforcement in the context of attorney-client retainer agreements . . . .

(Internal citations omitted.)

After holding that the trial retainer agreement was ambiguous, the Court of Appeals determined that the extrinsic evidence submitted by the attorney in support of her interpretation was insufficient, and announced that New York would follow the prevailing rule that "absent a contractual provision to the contrary . . . . the attorney should be entitled to receive either the contingent fee calculated on the amount of the damage recovery exclusive of any court-awarded fees, or the amount of the court-awarded fee, whichever is greater." (Emphasis added).

In light of this decision, litigators in an action where statutory fees may potentially be awarded should explicitly address whether any statutory fees awarded will be considered part of the "recovery." The Court of Appeals noted in passing that they "need not decide whether a retainer agreement entitling an attorney to court-ordered counsel fees in addition to the full contingency fee would be enforceable [but] such an arrangement would be subject to requisite scrutiny under applicable law and rules controlling the reasonableness of attorney compensation," suggesting that courts might take a dim view of attempts by attorneys to obtain both a contingent fee on the recovery and statutory fees in the same action.