Legal Malpractice

Attorney Fees in Medical Malpractice, Loans to a Client and Disbarment

By (Andrew Lavoott Bluestone)

The litigation funding industry either preys on, or aids clients who have significant damage cases that they cannot bring to trial, or when the clients need money during long litigation.  This story, while nominally that of a disbarred attorney, focuses a light on the lending practices of attorneys and clients.

There is a top tier of medical malpractice law firms, and they have vast brain-damaged medical malpractice experience.  A multi-million dollar damage case likely falls within those that would have been taken up by any of the top-tier firms. But this case was not handled by one of the big firms.   What happened here?  In Matter of Cousins
2010 NY Slip Op 07413 ;Decided on October 19, 2010 ; Appellate Division, First Department 
we see that a set of plaintiffs "retained respondent pursuant to a written retainer agreement which set forth the sliding fee scale mandated by Judiciary Law § 474-a. They also signed a litigation financing agreement under which they would borrow money from respondent for expenses and disbursements at an interest rate of 15% per year. To fund the Veneski action and other cases, respondent apparently borrowed several hundred thousand dollars from various litigation funding companies, including Core Funding Group, LLC (Core Funding) and Legal Asset Funding, LLC (LAF), pledging some of the same collateral to both entities. "

"After a jury awarded the Veneskis $4,215,300 in damages, Mr. Veneski signed an affidavit on February 26, 2000 in support of a potential application by respondent for increased compensation pursuant to Judiciary Law § 474-a, stating: "I intend to give [respondent] one third (1/3) of the net recovery he has obtained for me in this action whether it be denominated a fee, gift or gratuity (a tip)". Respondent did not file the affidavit or seek court approval for an increased fee until 2006.

After this Court ordered a new trial (285 AD2d 369), the malpractice action was settled in November 2002 for $3 million plus an annuity that would yield $750,000 over 20 years. On December 12, 2002, respondent wrote to Mr. Veneski that he was about to receive the first payment of $1 million, and that "[s]ubject to court approval (if required), the attorney fee is one-third of the net recovery." Respondent calculated that he was owed $154,011.26 in disbursements and $281,996.25 in attorney's fees from that payment. At some point the Veneskis paid respondent an additional $63,000 as interest on disbursements.

Thereafter, the malpractice defendants' main insurance carrier became insolvent and the remaining $2 million of the settlement was to be paid by the Liquidation Bureau. Respondent represented to the liquidation court that his attorney's fee on that payment was $212,500. In contrast, he wrote to Mr. Veneski in October 2003 that he was "owe[d]" $454,450.55, representing $666,524.73 in "attorney's fees" plus $425.82 in disbursements, less the $212,500 set aside for him by the Liquidation Bureau. After receiving the payment, Mr. Veneski gave respondent a check for $454,450.55 and, upon respondent's request, crossed out the words "attorneys fees" he had written on the memo line, and substituted "gift." At the same meeting, Mr. Veneski signed a gift tax return in blank, which respondent sent to respondent's accountant to fill in. When respondent received the first annuity payment of $20,000 in October 2005, he wrote to Mr. Veneski that he was applying it to disbursements and interest. "

"We agree with the Referee and Hearing Panel that disbarment is the appropriate sanction (see Matter of Harley, 298 AD2d 49 [2002]). Respondent charged a brain-damaged client over $500,000 more than the statutory maximum in attorney's fees. He tried to disguise those fees as a gift, and deceived his client to secure his assistance in the charade. Respondent has yet to satisfy the judgment directing him to return those fees and the over-billed disbursements, and he has a pending petition for Chapter 7 Bankruptcy relief. His other attempted and accomplished plans to obtain financing from clients demonstrate a pattern of conduct which, at best, reflects an indifference to his clients. "

Full post as published by New York Attorney Malpractice Blog on October 20, 2010 (boomark / email).