Equitable Recoupment: A Shield To Attorneys’ Recovery Of Legal Fees

August 9, 2016 | Professional Liability

The Appellate Division, Second Department, recently issued a decision, Lewis, Brisbois, Bisgaard & Smith, LLP v. Law Firm of Howard Mann, addressing the concept of equitable recoupment in the context of attorneys’ actions for legal fees against former clients.

Pursuant to a written retainer agreement, Howard Mann of the Law Firm of Howard Mann retained Lewis Brisbois Bisgaard & Smith, LLP in June 2009 to represent Mann in an action commenced in New York Supreme Court, Rockland County.  The attorney-client relationship terminated in December 2009 and over three years later, in or about January 2013, Lewis Brisbois filed an action against the Law Firm of Howard Mann to recover approximately $40,000 in unpaid legal fees, asserting causes of action for breach of contract, an open-book account, account stated, quantum meruit and unjust enrichment.

On March 1, 2013, Mann counterclaimed (and commenced a third-party action against individual Lewis Brisbois attorneys) for legal malpractice, breach of fiduciary duty, breach of contract and violations of Judiciary Law § 487 (for alleged deceitful practices).

 

In its motion to dismiss the counterclaims, Lewis Brisbois argued, among other things, that since the attorney-client relationship ended in December 2009, the claims premised upon legal malpractice and violations of Judiciary Law § 487 were time-barred by the three-year statute of limitations provided in CPLR 214.  Lewis Brisbois averred that Mann’s counterclaims arose out of Lewis Brisbois’ representation of Mann in the underlying action for which legal fees were being sought.

The Appellate Court found that the Supreme Court had improperly dismissed Mann’s counterclaims as time-barred.  The court reasoned that even though an affirmative legal malpractice claim would be time-barred, Mann’s counterclaims for legal malpractice and violations of Judiciary Law § 487 were not time-barred because they arose out of the same transaction upon which Lewis Brisbois’ Complaint depended (i.e., Lewis Brisbois’ representation of Mann).

The court concluded that the counterclaims were not time-barred “to the extent of the demand in the complaint.”  The court’s reasoning tracks the language of CPLR 203(d), which provides in relevant part that a counterclaim is not barred:

if it was not barred at the time the claims asserted in the complaint were interposed, except that if the counterclaim arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends, [the counterclaim] is not barred to the extent of the demand in the complaint notwithstanding that it was barred at the time the claims asserted in the complaint were interposed.

Therefore, Mann’s counterclaims could function only as an offset to Lewis Brisbois’ requested damages and Mann could not recover an amount greater than the damages sought in Lewis Brisbois’ complaint ($40,000 for unpaid legal fees).  This concept of equitable recoupment, which is different than an affirmative defense, is often used to shield a defendant from a plaintiff’s recovery of fees.

Attorneys bringing an action for the recovery of unpaid legal fees after the expiration of the three-year statute of limitations for legal malpractice claims must be aware that former clients can still assert equitable recoupment counterclaims for legal malpractice to offset the damages sought in the complaint.  Attorneys must be ready to address the applicability of CPLR 203(d) if such counterclaims are asserted, especially since the counterclaims will likely arise out of the same transaction upon which the attorney’s complaint depends (i.e., the attorney’s representation of its former client) and, therefore, will not necessarily be time-barred even if the statute of limitations to pursue a first-party legal malpractice claim has expired.  Generally speaking, attorneys seeking to recoup their unpaid legal fees against a client should always give full consideration of the implications associated with suing their former clients because inevitably the former client will counterclaim the attorney for legal malpractice.

For more information about the court’s decision, please contact Jonathan Bruno or Anna Mandel.

 

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