This matter came before the court on a motion for determination of counsel fees by Stein, Bliablias, McGuire & Pantages, attorneys for plaintiffs John and Timothy Anderson. This fee dispute between New Jersey and New York counsel raises four issues for determination by the court: first, New Jersey courts' jurisdiction over the fee dispute; second, determination of the overall counsel fee; third, Aaron J. Broder's application for an increased fee pursuant to R. 1:21-7(f); and fourth; the division of fees between New Jersey and New York counsel.
John and Timothy Anderson sustained serious injuries as a result of an automobile accident which occurred on December 20, 1982. The Anderson brothers, ages 18 and 19 respectively, were passengers in a car driven by their friend Kenneth J. Conley. The car was owned by John H. Conley Jr., Kenneth's father. At approximately 12:30 a.m., while traveling along Colonial Avenue in Union, New Jersey, the car went out of control striking a retaining wall and telephone pole. This was a one car accident. Earlier that evening, Kenneth was served alcoholic beverages by at least two bars in Union County, New
Jersey. He was not of legal drinking age and his blood alcohol level contributed to the occurrence of the accident.
Timothy Anderson fractured his right ankle and sustained multiple lacerations to his face. John Anderson fractured the vertebrae in his cervical spine which led to a spinal cord contusion. As a result, John is now a quadraplegic. These injuries became the basis for the brothers' claims and the claims of their parents for damages against defendants Kenneth J. Conley, John H. Conley Jr., Club Elmour, and Orchard Tavern Association. At the time of the accident, the Anderson family lived and have continued to live in Union, New Jersey. The ultimate defendants were New Jersey residents or corporations.
In February 1983, the Anderson family retained the New Jersey law firm of McDonough, Murray & Korn (Korn firm) to pursue their damage claims arising out of the accident. The Andersons executed retainer agreements which provided that the Korn firm would be paid on a contingent fee basis in accordance with R. 1:21-7(c), as effective in February 1983.
In May 1983, the Andersons discharged the Korn firm and retained Aaron J. Broder (Broder firm) of New York City. The court concludes that the Andersons' change in counsel was motivated by their desire for a cash settlement which was advocated by the Broder firm. Whereas, in light of John Anderson's permanent injuries, a structured settlement was suggested by the Korn firm. The Andersons executed New York retainer agreements which provided that the Broder firm would be paid on a 25% contingent fee basis. Albeit these retainer agreements provided for a fee less than the Broder firm's usual 33 1/3%, they yield a fee far above that allowable under the New Jersey court rules. Pursuant to R. 1:21-7(c), as effective in May 1983, the counsel fee would be $169,205.75. In contrast, the counsel fee under the New York retainer agreement would be $336,847.70.
Prior to releasing the file, the Korn and Broder firms discussed the payment of the Korn firm's fee. A letter from Peter L. Korn to G. Michael Simon of the Broder firm dated May 11, 1983, memorialized their understanding. The letter provided in pertinent part as follows:
You have agreed to recognize our possessory lien on the file; in consideration of our willingness to transfer the title to you before we receive any fee, you have agreed to transfer that lien to any proceeds, either of settlement or verdict, which you may receive through the handling of these matters. Once the cases have been resolved and the proceeds forwarded to you, we will either mutually agree upon what this office's fee will be or, absent agreement, submit the matter to a New Jersey court for determination of the appropriate fee in a summary fashion. In the event that an action is pending in New Jersey at the time that the fee is to be determined, we agree that that case will serve as the vehicle to submit the matter to the court for determination. In the event that no law suit has been filed as of the time that you receive proceeds, we have the right to institute a separate action in New Jersey and you have agreed to submit to the jurisdiction of New Jersey Courts for such a decision. I have one additional request that I did not discuss with you on the telephone. Because I am not aware of your relationship to the law firm, nor of the particular corporate identity of the firm, we will require a statement from a principal of the firm either acknowledging this understanding or authorizing you to so acknowledge.
This understanding was acknowledged by Simon as managing attorney on May 18, 1983.
After receiving the file, the Broder firm retained the New Jersey firm of Stein, Bliablias, McGuire & Pantages (Pantages firm) on an hourly basis to act as local counsel. On June 15, 1983 a complaint was filed against the various defendants in the Superior Court of New Jersey, Law Division, Union County, on behalf of John and Timothy Anderson by the Pantages firm.
In August 1984, a cash settlement was achieved at $1,350,000. The Broder firm contends that the total settlement represented separate settlements as follows: $1,000,000 on behalf of John Anderson, $275,000 on behalf of William and Theresa Anderson (the parents), and $75,000 on behalf of Timothy Anderson. As reflected in the Broder firm's closing statement, their fee after compensating the Pantages firm, was $329,879.03. A stipulation of dismissal with prejudice was entered on October 2, 1984. These settlement monies have been distributed
and the fee charged by the Broder firm has not been held in escrow pending this review. The Pantages firm has been paid by the Broder firm for services rendered on an hourly basis.
At this juncture, the Korn firm's fee had to be addressed. The Korn firm objected to the Broder firm charging the Andersons a fee far in excess of that allowable under the New Jersey court rules. The Korn firm stated that they would not and could not participate in any share of a fee in excess of what is allowable. Thus, the Pantages firm, as counsel of record for plaintiffs, properly brought this matter to the court for a determination of the overall counsel fee and the Korn firm's fee.
This court heard oral argument on December 14, 1984. Subsequently the various parties filed additional briefs, affidavits and certifications in support of their positions. The Broder firm has retained Walter L. Leib of the New Jersey firm of Leib, Kraus & Grispin to represent them in this fee dispute. Leib filed a cross-motion for an increase in the Broder firm's fee pursuant to R. 1:21-7(f).
To date, the Broder firm has not been admitted pro hac vice, nor have they applied for such status. The Korn firm argues that the briefs and other supporting documents submitted by the Broder firm should not be considered by the court. Furthermore, the Korn firm argues that the Broder firm's position should be presented to the court only through Leib. The court finds it necessary to review the positions of all of the parties concerned. Therefore, the court has considered all the papers filed by the various parties.
In addition, the court realized that the Anderson family was left without counsel to represent their interests in this fee dispute. Therefore, the court appointed Edwin J. McCreedy of the New Jersey firm of McCreedy & Cox to represent the Andersons.
The threshold issue in the resolution of this matter is whether the New Jersey courts have jurisdiction. The Broder firm argues that the New Jersey courts have no jurisdiction to entertain the present motion. They view their fee arrangements with the Andersons as separate New York contracts somehow independent from the New Jersey litigation. Both the Korn firm and the Andersons take the position that the New Jersey courts have jurisdiction.
The court finds that its jurisdiction over this fee dispute is unquestionable. Clearly, the underlying lawsuit and derivative issues have a significant nexus with New Jersey. This litigation arose from an automobile accident which occurred in this State. The Andersons were New Jersey residents and all defendants were either New Jersey residents or corporations. Furthermore, the complaint was filed in the Superior Court of New Jersey, Law Division, Union County by the Pantages firm.
As local counsel retained by the Broder firm, the Pantages firm prosecuted the case in New Jersey. The affidavit of services submitted by the Pantages firm reflects that extensive pretrial work was conducted in the following areas: pleadings, interrogatories, review of medical records, motion work, legal research, court appearances, numerous telephone conferences and correspondence with the various parties.*fn1 Furthermore, the Pantages firm appeared at the only deposition taken in this case. This deposition of plaintiffs was conducted at the offices of the New Jersey firm of Conway & Reisman on April 24, 1984.
It is well settled that our State Supreme Court can regulate fee arrangements between attorneys and their clients pursuant
to its rule-making power. This rule-making power is vested in the Supreme Court by N.J. Const. (1947), Art. VI, § II, par. 3, which provides:
The Supreme Court shall make rules governing the administration of all courts in the State and, subject to the law, the practice and procedure in all such courts. The Supreme Court shall have jurisdiction over the admission to the practice of law and the discipline of persons admitted.
American Trial Lawyers Assoc. v. N.J. Supreme Court, 126 N.J. Super. 577, 586-587 (App.Div.1974); aff'd 66 N.J. 258 (1974). Contingent fees in tort actions have been subject to strict judicial supervision. Id., 126 N.J. Super. at 588. Furthermore, our court rules regarding contingent fees do not abridge the right to freedom of contract or violate equal protection under the law. Id., 126 N.J. Super. at 591-92.
In Elder v. Metropolitan Freight Carriers, Inc., 543 F.2d 513, 515 (3 Cir.1976), the circuit court affirmed the district court's reduction of a New York fee award in accordance with New Jersey rules. The circuit court commented: "In the exercise of its paramount concern with its courts, New Jersey is free to provide that no party may be required to pay an excessive contingent fee to utilize its legal process." Id. at 519.
The Broder firm argues that they do not fall within the province of our State Supreme Court's regulatory powers because they were not admitted pro hac vice nor did they appear otherwise prior to this motion. The reality of the situation, however, is that the Broder firm avoided the direct application of our court rules by hiring "local counsel." This device of hiring local counsel on an hourly basis and then charging a contingent fee above that allowable under our rules is frequently employed by out-of-state firms. The frequency of the use of this device does not lend it credibility. The abrogation of our court rules in this manner by out-of-state attorneys will no longer be tolerated.
The Pantages firm was more than a mere foil for the Broder firm. As reflected in the Pantages firm's affidavit of services, substantial work was performed in New Jersey in the prosecution
of this litigation. To accept the Broder firm's argument would be tantamount to allowing the circumvention of R. 1:21-7. With this litigation's overwhelming New Jersey contacts, the device employed by the Broder firm does not operate to remove this matter from under our jurisdiction.
Although the Broder firm was not formally admitted to our courts, substance must prevail over form. The court finds that the Broder firm was "appearing" in our courts for purposes of applying R. 1:21-7 to this dispute. The Broder firm's decision to act through the admission privileges of the Pantages firm does not negate the attorney-client relationship with New Jersey residents in a New Jersey lawsuit. The court does not make this finding to curb the Broder firm's cupidity, but rather to enforce the integrity of our rules as promulgated by the New Jersey Supreme Court.
In support of its position the Broder firm advances two additional arguments. First, they contend that the stipulation of dismissal with prejudice terminates the court's jurisdiction. Second, they contend that the settlement on behalf of the Anderson parents is beyond the court's jurisdiction. The court finds both of these arguments unpersuasive.
Under the present circumstances, the stipulation of dismissal with prejudice does not terminate the court's jurisdiction over the payment of attorneys fees. R. 1:21-7 applies to contingent fees in cases which go to trial as well as those which are settled. The Broder firm attempts to distinguish Elder v. Metropolitan Freight Carriers, Inc., supra, on the fact that in Elder the parties voluntarily submitted to the court's jurisdiction. However, a reasonable reading of the letter, see 136 supra, dated May 11, 1983, between the Korn and Broder firms, demonstrates that the Broder firm acquiesced to the jurisdiction of our courts in the event of a fee dispute. The letter and the ...