Equitable Considerations
The New York Appellate Division for the First Judicial Department held that a law firm was not entitled to interest on an arbitration award and had acted in contravention of duties regarding entrusted funds. The law firm was awarded $30,000 less than it had claimed but did not disburse the balance to the client. The court concluded that the law firm should not benefit from its conduct:
..[law firm] petitioner is not entitled to post-award, pre-judgment interestsince it was holding the $310,000 at issue in escrow and chose not toavail itself of the funds when the arbitrators’ award of $280,000became final. Although petitioner asserts that it could not pay itselffrom the escrowed funds without respondent’s consent and also assertsthat appellant never gave its consent, the relevant [ethics] rule…does not require client consent under thesecircumstances. To the contrary, it provides that the lawyer maywithdraw the funds being held upon final resolution of the dispute.Nonetheless, when the award became final, petitioner did not pay itselfthe amount of the award and transmit the balance (approximately$35,000) to respondent. Rather, in addition to seeking respondent’swritten authorization for payment of the award from the escrow account,petitioner improperly sought to obtain a benefit from its former clientby refusing to transmit the balance unless respondent and its principalexecuted releases. The balance belonged to respondent and petitionerhad no legal claim to it. Accordingly, petitioner was required to”promptly pay” to respondent the funds to which it was entitled afterthe arbitrators’ award became final…
In short, petitioner both deprived itself of the use of thefunds awarded to it and deprived respondent of the use of the balanceof the funds being held in escrow. Under settled law, petitioner’sstatutory right to interest is far from absolute. To the contrary, asthen Justice Bergan stated for a panel of this Court, “[t]he holder ofthe judgment may be estopped by equitable considerations, or by his ownacts, from enforcing the interest which the statute gives him” …Given the “special and unique duties”petitioner owed to respondent, including “safeguarding client propertyand honoring the client[‘s] interests over [its own]”…we think it would be particularly inequitable to require respondent topay statutory interest to petitioner and thus recompense petitioner forits own failure to pay itself. (citations omitted)
Because petitioner was holding more than the $280,000 it wasawarded by the arbitrators on the date the award became payable, March13, 2007, respondent is entitled to the balance that would haveremained in the escrow account after payment of the award on that date,with interest on such balance from that date. In addition, becauseSupreme Court erred in awarding interest to petitioner and respondentwas thereby required to pay an additional sum to petitioner to satisfythe judgment, respondent is entitled to the amount it paid over$280,000 to satisfy the judgment with interest from the date the sumwas paid.
(Mike Frisch)