NY Judiciary Law Section 470 Found Unconstitutional, and Out-of-State Lawyers Lick Their Chops

Tue, 09/20/2011 - 18:36

For over 100 years, New York law has required non-resident attorneys admitted to practice in New York to maintain an office for the practice of law in the state if they practice here. The law has withstood numerous constitutional challenges through the years it has been in force. A few weeks ago, however, a federal judge in the Northern District of New York ruled that the office requirement, found at New York Judiciary Law section 470, violates the Privileges and Immunities Clause of the U.S. Constitution. Schoenefeld v. State of New York, U.S. Dist. LEXIS 100576 (N.D.N.Y. Sept. 7, 2011). This decision contradicts several New York state court decisions finding the law constitutional under the Privileges and Immunities Clause – raising the interesting question of what, exactly, the state of the law actually is given these inconsistent rulings. See, e.g., Lichenstein v. Emerson, 251 A.D.2d 64 (1st Dep’t 1998).

While I take no position here on whether section 470 is or is not constitutional, it is important to note a consequence of the Schoenefeld decision not discussed in the court’s opinion – i.e., how the decision affects New York regulations relating to attorney-client retainer agreements.

Since March 2002, New York regulations have required New York lawyers representing clients in New York to provide their clients, in almost all cases, with written retainer agreements or engagement letters that provide clear information concerning the most important aspects of the attorney-client relationship, including fees, billing and, importantly, disclosure of clients’ potential rights to bar-sponsored, non-binding arbitration in the event of a dispute over fees. The retainer agreement rule – as well as rules relating to when and how a client can be asked to waive the right to non-binding fee-dispute arbitration and/or a jury trial – apply except where the attorney is admitted in another jurisdiction and maintains no office in New York. These rules were obviously written with the New York office requirement of section 470 in mind, which, again, states that all non-resident attorneys must maintain an office in New York to practice here. Thus, the exception in the retainer and arbitration rules would work to exempt only out-of-state attorneys, whether or not admitted in New York, if they do not practice in New York.
With section 470 potentially off the books, however, regulations concerning retainer agreements and fee-dispute arbitration need to be revised, and soon, to clarify that they apply to any attorney representing a New York client in New York. Otherwise, non-resident, New York-admitted attorneys can practice in New York without maintaining an office, and they can argue that the exemption relating to retainer agreements and disclosure of fee-dispute arbitration rights do not require them to provide New York clients with the same type of retainer agreements and disclosures that attorneys based in New York would have to provide. In other words, a New York client hiring a non-resident New York attorney to represent him in a New York matter could potentially have fewer rights against his attorney than a New York client hiring a New York-based attorney. That result makes no sense.

All of this raises the question, why should clients care? The reason is that clients hiring out-of-state attorneys to provide representation in New York may find themselves at a serious disadvantage if a dispute arises with their counsel. Many lawyers are inserting provisions purporting to waive the right to non-binding fee-dispute arbitration and a de novo jury trial in favor of private binding arbitration into retainer agreements. Indeed, in some cases, lawyers with offices in one state that provide services to clients in another state have sometimes argued that the Federal Arbitration Act “pre-empts” state bar rules and regulations providing clients with rights to non-binding fee-dispute arbitration. Shockingly, a few courts have agreed, meaning that hiring a lawyer across state lines could lead to the client being treated like any other consumer instead of as a beneficiary of a fiduciary relationship, in which the lawyer is bound to put the client’s interests first. The client could find himself bound to arbitrate a fee dispute or malpractice claims out-of-state in an expensive private arbitration forum and face the risk of having to pay his former attorney’s arbitration and attorney’s fees if he loses. New York, and many other states, has erected a regulatory scheme to prevent just such overreaching on the part of attorneys.

In short, whether or not the law office requirement of section 470 survives, clients need to be extremely vigilant when hiring out-of-state lawyers, and New York bar authorities need to immediately revise the rules governing retainer agreements and fee-dispute arbitration to make it explicit that they apply whenever a New York attorney represents a New York client in a matter that has a substantial connection with New York.

New York Labor Law Section 198(1-a) Held Retroactive … Or Not

Tue, 09/20/2011 - 14:01

Part of my practice involves representing employers and employees in employment disputes. Many of these cases involve disagreements about whether the employer paid the employee all compensation the employee believes was due. New York law provides several statutory causes of action for employees who are not paid compensation, including New York Labor Law section 198(1-a). That section, until recently, provided a cause of action to an employee for unpaid “wages” that, if successful, included “liquidated damages” (a bit of a misnomer) of 25% of the unpaid wages, plus the unpaid wages, plus attorney’s fees.

On December 10, 2010, the New York Legislature amended section 198(1-a) to increase the “liquidated damages” available to wronged employees to 100% of the unpaid wages, bringing the available damages in line with federal legislation. In essence, the statute now provides for double damages for unpaid wages. The recent amendment made no other substantive changes to section 198(1-a) and took effect on April 9, 2011.

A major issue that always gets played out in the courts with such amendments is whether the increased damages should be available to claimants whose claims accrued prior to the effective date. The general rule in New York law is that legislative amendments are forward-looking only and do not apply retroactively unless the Legislature explicitly provides for retroactive application. However, where an amendment is deemed “remedial” only, rather than substantive, the presumption is that the amendment should be given retroactive effect. The test is whether the amendment creates a new cause of action, diminishes or eliminates defenses, or creates new substantive obligations for those regulated by the statute. Where the change only modifies available damages without imposing new or different legal obligations, however, courts generally apply such amendments to claims that accrued prior to the effective date of the amendment.

Two recent court cases have now considered whether the recent amendment to section 198(1-a) should be applied retroactively or prospectively only, and the two courts (one state, one federal) have come to opposite conclusions.

In Wicaksono v. XYZ 48 Corp., 2011 U.S. Dist. LEXIS 55771 (S.D.N.Y. May 2, 2011), a federal magistrate judge held that the recent amendment to section 198(1-a) should only apply prospectively to claims for unpaid wages accruing on or after April 9, 2011. Noting that the legislative history of the amendment gave no insight into the Legislature’s intent, the court recited the general rule against retroactive application of statutory amendments and found that nothing in the legislative history expressed or implied any intent to make the increased damages available to claimants whose injuries occurred prior to April 9, 2011, the effective date of the amendment. The court did not discuss the well-known exception providing for retroactive application of purely remedial statutes.

A few months later, Justice Solomon of the New York County Supreme Court reached the opposite conclusion in Ji v. Belle World Beauty, Inc., Index No. 603228/2008 (N.Y. Co. Sup. Aug. 22, 2011). Justice Solomon found the amendment increasing available damages for a violation of section 198(1-a) to be a purely remedial change and subject to the general presumption in favor of retroactive application for such amendments.

Employers and employees, in these cases and others winding their way through New York courts, will no doubt clash on this issue until an appellate court hears and decides the question. Each side has non-trivial arguments to brandish in their favor. One thing to note, however, is that the New York Legislature could have easily stated its intent, either for or against retroactive application, in the act that amended section 198(1-a). The importance of this question could not have escaped the various committees that drafted and studied the amending act. The Legislature’s failure to address the issue explicitly in the act could only lead to time-consuming, pointless litigation that could have easily been avoided. A direct expression of intent would also have avoided putting courts in the position of guessing about what the Legislature intended. It is an abdication of the legislative role to leave such questions to judicial guesswork.

LOGLS Establishes "Of Counsel" Relationship with Summers & Schneider, P.C.

Fri, 01/21/2011 - 17:40

I am happy to announce the establishment of an "of counsel" relationship with the new firm of Summers & Schneider, P.C. (www.summersandschneider.com). They are friends and trusted colleagues. Our respective clients will benefit greatly from this relationship.

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