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.