No Thanks For Not Sharing

The New York Appellate Division for the Second Judicial Department affirmed the dismissal of a breach of contract claim

With respect to the merits of the appeal, Judiciary Law § 491 prohibits any person, partnership, or corporation from sharing any fee or compensation charged or received by an attorney-at-law, in consideration of having placed in the hands of such attorney-at-law a claim or demand of any kind (see Judiciary Law § 491[1]; Matter of Ungar v Matarazzo Blumberg & Assoc., 260 AD2d 485, 486). Violation of this section is punishable as a misdemeanor (see Judiciary Law § 491[2];  Matter of D’Emic, 111 AD3d 158).

Under the purported fee-sharing agreement, the plaintiffs would provide the defendant attorneys with proprietary information regarding potential clients, investigate claims, interview potential plaintiffs, and otherwise assist with litigation. In exchange, the defendant attorneys would pay the plaintiffs 20% of their fee for each case. This purported fee-sharing agreement whereby the plaintiffs attempt to recover from the defendant attorneys is illegal, and the plaintiffs are proscribed from seeking the assistance of the courts in enforcing it (see Bonilla v Rotter, 36 AD3d 534, 535; Prins v Itkowitz & Gottlieb, 279 AD2d 274; Matter of Ungar v Matarazzo Blumberg & Assoc., 260 AD2d at 486). The plaintiffs’ contention that they are entitled to equitable relief is without merit, since the contract was criminal in nature and not merely prohibited by statute (cf. Katz v Zuckermann, 119 AD2d 732, 733).

The Supreme Court order explains the claim. 

Defendant Sirota & Sirota, LP, a law firm located at 125 Beach 128th Street, Belle Harbor, New York, engages in litigation. Defendant Howard Sirota, acting on behalf of himself and the other defendants, entered into an agreement with plaintiff Corporate Surveys whereby the latter provided the defendants with proprietary information pertaining to potential clients, investigated claims, interviewed potential plaintiffs, and otherwise provided the defendants with assistance in securities litigation.

In exchange for the services of Corporate Surveys, the defendants promised to pay twenty (20%) percent of the law firm’s fee on a case. Corporate Surveys provided services to the defendants on hundreds of cases during the course of their business relationship. Without the specialized knowledge and efforts of Corporate Surveys, the defendants would not have been able to begin many of the lawsuits that they prosecuted over twenty-three years.

The defendants utilized the services of Corporate Surveys in connection with a lawsuit filed in the federal court for the Southern District of New York, entitled Richard Hirsch v. Priceline.com, Inc., which was subsequently consolidated with other cases and recaptioned In Re: Priceline.com Initial Public Offering Securities Litigation.

The services provided by Corporate Surveys resulted in the federal court’s appointment of defendant Sirota & Sirota as one of the lead counsel in the class action litigation. The federal court ultimately awarded defendant Sirota & Sirota attorney’s fees in the amount of $12,067,377.96. However, the defendants refused to pay Corporate Surveys its twenty (20) per cent share of the fees.

The plaintiffs brought this action seeking to recover twenty (20%) percent of the $12,067,377.96 fee awarded by the federal court. According to the plaintiffs: “It was not until Defendants’ continued refusal to make payment to Plaintiffs upon the final resolution of the Priceline Litigation that Plaintiffs were made aware the long-standing agreement between Plaintiffs and Defendants was prohibited by both the New York and Florida Bar Rules.” (Complaint, ¶74.)

There are courts that decline to permit lawyers to argue against enforcing illegal contracts that they have entered into on public policy grounds. (Mike Frisch)