Case ID: ad_152/html/0642-01.html
Source: Caselaw Access Project
Author: {"author": "Hirschberg, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Daniel B. McCoy, Appellant, Respondent, v. Gas Engine and Power Company and Others, Respondents, Appellants.
    Second Department,
    October 4, 1912.
    Attorney and client — contract of retainer — violation of Penal Law, section 274, subdivision 2 — rescission—corporations — stockholder’s action—failure to excuse demand that corporation sue.
    Where a contract retaining an attorney to represent a corporation in proceedings to procure an assessment of damages caused by a change in the grade of a street provides for compensation on a sliding scale based upon the amount recovered, an agreement by the attorney “to pay all expenses of every kind whatsoever ” is a promise of a valuable consideration to the corporation as an inducement for placing the claim in his hands, and renders the contract invalid under subdivision 2 of section 274 of the Penal Law.
    In a stockholder’s action against the parties to such a contract to set it aside on the ground that it is unconscionable and in violation of subdivision 2 of section 274 of the Penal Law, the defendant corporation was allowed to amend its answer by asking the same relief against the • defendant attorney as sought by the plaintiff.
    Held, that a judgment dismissing the complaint upon the ground that the plaintiff had not demanded that the corporation bring the action, but granting the defendant corporation’s prayer for relief by setting aside the contract of retainer as in violation of subdivision 2 of section 274 of the Penal Law, and awarding the defendant attorney a reasonable sum for his services, should be affirmed.
    The judgment should be modified by striking therefrom a provision that the defendant attorney perform without additional compensation any future services necessary in the collection of the award.
    Cross-appeals by the plaintiff, Daniel B. McCoy, and the defendants, Gas Engine and Power Company and others, from, parts of a judgment of the Supreme Court, entered in the office of the clerk of the county of Westchester on the 26th day of August, 1911, upon the decision of the court rendered after a trial at the Westchester Special Term, as amended by an order of said court dated September 23, 1911.
    The defendant Joseph A. Flannery by his appeal brings up for review an interlocutory order of the Supreme Court, entered on the 1st day of April, 1910, granting leave to defendants Gas Engine and Power Company and Charles L, Seabury & Company, Consolidated, to amend their answers. •
    
      
      Charles D. Millard, for the administrators of Daniel B. McCoy.
    • John F. Brennan [ John J. Crennan with him on the brief], for the defendants Gas Engine and Power Company and Charles L. Seabury & Company, Consolidated.
    
      Benjamin Trapnell, for the defendant Joseph A. Flannery.
   Hirschberg, J.:

The defendant corporation on or about the 22d day of May, 1906, retained the defendant Joseph A. Flannery, an attorney and counselor at law, to perform certain legal services. The contract of retainer was in writing, in form as follows:

“Matter of Claim of Gas Engine & Power Company for Damages under Chapter 634, Laws of 1905.
“ We hereby retain Joseph A. Flannery, Attorney, to represent us in the above-éntitled proceeding, and for his services and expenses we agree to pay said Flannery, 25 per cent, of any award and interest recovered up to and including $50,000. If said award and interest amounts to more than $50,000 and less than $100,000 said Flannery is to receive 33% per cent, of the full amount recovered. If said award and interest amounts to $100,000 and less than $150,000 said Flannery is to receive 40 per cent, of the full amount recovered. ■ If said award amounts to $150,000 or over said Flannery is to receive one-half of the full amount recovered. It being understood and agreed that said Flannery is to pay all expenses of every kind whatsoever including expert witness fees, surveyors’ fees, engineers’ fees, etc., said fee is not to be paid until said award is paid,
“Dated New York, May 2%nd, 1906.”

The defendant Flannery, pursuant to this contract of retainer, conducted proceedings- on behalf of the corporation before the board of assessors of the city of New York, resulting in an award to the defendant corporation of $306,000, no part of which award has yet been paid. This action was instituted by the plaintiff as a stockholder of the defendant corporation, to set aside the foregoing contract of retainer on the ground that the same is unconscionable, and on the further ground that the contract is in violation of section 74 of the Code of Civil Procedure. There have been two trials of the action. The first trial resulted in a judgment at the Special Term setting aside the contract on both grounds and awarding Flannery .$15,000 for his services. We reversed that judgment (McCoy v. Gas Engine & Power Co., 135 App. Div. 771) because the plaintiff had not demanded that the corporation bring the action, and had failed to allege any facts constituting an excuse for not making such demand. After that reversal the defendant corporation obtained an order at the Special Term authorizing it to amend its answer by setting forth therein substantially the same cause of action against the defendant Flannery as the plaintiff had attempted to allege in his complaint. We affirmed that order on appeal'. (See McCoy v. Gas Engine & Power Co., 139 App. Div. 938.) The judgment now appealed from has been entered after a trial of the issues so joined, and dismisses the complaint herein pursuant to otir previous decision, and also grants ■ the defendant corporation’s prayer for relief as contained in its amended answer by setting aside the defendant Flannery’s contract of retainer on the ground that it violates section 74 of the Code of Civil Procedure. The judgment awards Flannery the sum of $30,000 as the reasonable value of the services performed by him, and provides that the same is to be paid out of the award when collected, and the judgment further provides that the defendant Flannery shall render such further legal services in behalf of the defendant corporation as may be needed to collect the award, without further compensation, if the defendant corporation elect to have him do so. All parties have appealed from this judgment, but the defendant corporation asks in its brief, and asked upon the oral argument, that the judgment be affirmed.

Manifestly so much of the judgment as dismisses the complaint upon the authority of our former decision must be affirmed. We are also of opinion that the learned Special Term (71 Misc. Rep. 537) was right in.deciding that the contract of retainer violated section 74 of the Code of Civil Procedure.. That section, as it existed at the time the contract was executed, prohibited an attorney or counsel from promising or giving, or procuring to be promised or given “a valuable consideration to any person, as an inducement to placing, or in consideration of having placed, in his hands, or in the hands of another person, a demand of any kind, for the purpose of bringing an action thereon.” That section has since been amended so as to extend its inhibition to special proceedings. (See Laws of 1907, chap. 700; now Penal Law, § 274.) It is undoubtedly true, as conceded by the parties to this action, that the promise contained in the last paragraph of the contract of retainer, whereby Flannery agreed “ to pay all expenses of every kind whatsoever,” was the promise of a valuable consideration to the corporation as an inducement for the placing of the claim in his hands. The appellant Flannery contends, however, that his retainer did not violate the terms of former section 74 of the Code of Civil Procedure because the prosecution of the corporation’s claim before the board of assessors was not the prosecution of an action and because the parties to the retainer did not contemplate the bringing of an action. It is true that the prosecution of the claim before the board of assessors was not the prosecution of ah action. If the legal effect of the retainer was that. Flannery was merely under obligation to prosecute that claim before the board of assessors, then we should reverse the judgment in so far as it holds his contract a violation of section 74. It seems, however, that the only method of collecting the award after the same has been made by the board of assessors, should the city refuse payment, is by action against the city. While it may very well be that the parties at the time the contract was made did not believe that the city would refuse to pay the award when made, nevertheless it appears certain from the testimony of Flannery himself that he knew the agreement obliged him to collect the award by action if necessary. 'The language of the retainer was chosen by Flannery, and in case of ambiguity would, in accordance with well-known canons of construction, be construed most strongly against him. An examination of the agreement shows that the amount of the contingent fee to be paid was based entirely upon the amount of the damages recovered by the corporation and not upon the amount awarded. Thus Flannery is to receive twenty-five per cent of any award and interest “ recovered ” up to and including $50,000. If the award is more than $50,000 and less than $100,000, he is to receive “33% per cent, of the full amount recovered.” If the award and interest amount to $100,000 and less than $150,000, he is to receive “40 per cent, of the full amount ' recovered.” If the award amounts to $150,000 or over, he is to receive “one-half of the full amount recovered.” Thus in each instance the contract carefully distinguishes between the amount of the award that may be made and the amount of it that may be recovered and bases the fee exclusively upon the amount of the recovery. It further provides that Flannery’s fee is not to be paid until the award is paid:

The judgment appealed from, in addition to fixing the value of Flannery’s fees at $30,000, provides that the sum so fixed is to be a lien upon the award and that Flannery shall, at the option of the defendant corporation, perform without additional compensation any future services necessary in the collection of the award. We are of opinion that the Supreme Court has no power to rescind a contract at the instance of the defendant corporation, and provide that Flannery,'the other party to the contract, must perform additional services after such rescission. The power of the court would seem to be exhausted with the rescission of the contract and the fixing of the value of the services, and it, therefore, follows that the judgment should be modified by striking out the provision requiring the performance of future services on Flannery’s part and by fixing the value of the services as heretofore performed, on. the evidence adduced, at the sum of $30,000, and as so modified the judgment should be affirmed, without costs.

Burr, Thomas, Carr and Rich, JJ., concurred.

Judgment modified in accordance with opinion and as so modified affirmed, without costs. .