A Mistake Was Made In The Clients Favor But The Attorney Gets A Three-Year Suspension

An inexperienced attorney used a New Jersey retainer agreement form for a New York contingent fee matter and got disbarred in New Jersey for misappropriation of litigation proceeds.

He would have been entitled to what he took if he had used the proper form.

He now has been reciprocally suspended by the New York Appellate Division for the Second Judicial Department.

In 1990, Alfred T. C. Peng, Tzu Li Hsu, Joseph Huang, Stephen Huang, Pen Fa Lee, and Veronica Wan, as administrator of the estate of Chee C. Wan (hereinafter collectively the clients), victims of a fraudulent investment scheme, commenced an action against Dr. Fabian A. Sy, FAS Development Co., Inc., and 225 Associates, in the Supreme Court, Queens County, for an accounting and to recover damages for fraud and breach of fiduciary duty. The lawsuit languished for 15 years without progress. In 2005, the clients were referred to the respondent. Although only recently admitted to the Bar, the respondent agreed to represent them.

The respondent executed a retainer agreement on or about September 27, 2005, which provided that his fee would be based on a percentage of the net recovery: “33 % on the first $500,000 recovered; 30% on the next $50,000 [sic] net recovered; 25% on the next $500,000 net recovered; and 20% on the next $500,000 recovered.” Net recovery was defined as the total recovered on each client’s behalf, minus costs and expenses and minus any prejudgment interest. Unbeknownst to the respondent, the retainer agreement used by him, which he downloaded off the Internet, was intended for use in New Jersey, and only in personal injury actions, not a commercial business action.

The action proceeded to a nonjury trial, which lasted from September 17, 2007, through October 22, 2007. In 2008, the respondent successfully obtained a substantial judgment in favor of his clients. The defendants appealed the judgment, depositing funds with the Commissioner of Finance of the City of New York to secure the appeal. The judgment was affirmed on appeal, and on July 23, 2009, the trial court entered an order allowing the respondent to take possession of the funds on deposit. The respondent received a check dated August 14, 2009, made payable to him as attorney for his clients, in the amount of $3,548,506.91 (hereinafter the Sy judgment) and deposited the same into his trust account.

Then

 On or about August 18, 2009, the respondent disbursed from his attorney trust account approximately $525,034.85, representing his legal fees. In addition, on or about August 27, 2009, he disbursed from his attorney trust account approximately $734,908, representing the balance of his legal fees.

The clients sued and the bar got involved.

Notwithstanding a split decision before the New Jersey Disciplinary Review Board, the attorney was disbarred in New Jersey for intentional misappropriation.

That was deemed unduly harsh here, where the Appellate Division ordered a three-year suspension

In determining the appropriate sanction, we have taken the following mitigating factors into consideration: the respondent was an inexperienced attorney, who mistakenly used the wrong retainer provision; the parties understood throughout the proceedings that the respondent’s recovery would be one-third of the recovery; and the clients, only after the recovery and upon being made aware of the written terms of the retainer agreement, decided to capitalize on the respondent’s mistake and hold him to the terms of the written agreement. In addition, the respondent has no prior disciplinary history, and now concedes that the better course of conduct would have been for him to set aside the disputed funds, litigate the fee issue in court, and then disburse the funds. The following aggravating factors have also been considered: the respondent withdrew his legal fees prior to resolution of the disputed fee issue; the respondent put the funds out of the reach of the courts and his clients when he used the funds to pay debts he owed to creditors in China; and the respondent, to date, has not paid the 2015 judgment issued by the Superior Court of New Jersey.

(Mike Frisch)