Discovery of payment or promise of payment to opposing party attorney

Author: LegalEase Solutions

QUESTION PRESENTED

 Where an ex-husband believe that the ex-wife and her significant other have made payment, or promise or guarantee of payment, to ex-wife’s attorney, are those payments, records of those payments, or promises/guarantees discoverable?  Or would they be protected by privilege?

SHORT ANSWER

Generally, the attorney-client privilege applies in an attorney-client relationship when the communications between the parties are primarily and chiefly of legal character. But those communications furnishing legal services may be referred to as non-privileged matters. For instance, fee arrangements between attorney and client do not lie under the scope of attorney-client privilege. The legal fee paid to an attorney does not constitute confidential communication because such communications has no direct relevance to the legal advice to be given and are just subjects of attorney’s professional employment, and so are not privileged. Thus the payments and record of payments are discoverable, since it does not come within the scope of the privilege. Moreover, neither the attorney’s bills nor the payment of legal fee by a third person invokes the attorney-client privilege. Disclosure of information concerning fee arrangement and client identity comes under the scope of the substantial disclosure exception.

RESEARCH FINDINGS

Attorney-Client Privilege

(a) General

In common law, “[f]or the privilege to apply when communications are made from client to attorney, they must be made for the purpose of obtaining legal advice and directed to an attorney who has been consulted for that purpose.” Rossi v. Blue Cross & Blue Shield of Greater New York, 73 N.Y.2d 588, 593, 540 N.E.2d 703, 706 (1989). “The communication itself must be primarily or predominantly of a legal character.” Spectrum Sys. Int’l Corp. v. Chem. Bank, 78 N.Y.2d 371, 377-78, 581 N.E.2d 1055, 1060 (1991). “Non-privileged information is included in an otherwise privileged lawyer’s communication to its client” Id. “In transmitting legal advice and furnishing legal services it will often be necessary for a lawyer to refer to non-privileged matter.” Id.

(b) Attorney’s Payments/Guarantees

But specifically, “[a]ttorneys’ fee arrangements and bills are not within the scope of the attorney-client privilege.” Margolin v. Grossman, 254 A.D.2d 158, 158, 679 N.Y.S.2d 20, 20 (1998). “[F]ee arrangements between attorney and client do not ordinarily constitute a confidential communication and, thus, are not privileged in the usual case.” Priest v. Hennessy, 51 N.Y.2d 62, 69, 409 N.E.2d 983, 986 (1980). “Whether an attorney was consulted and who paid the legal fees do not ordinarily constitute such confidential communications.” Matter of Grand Jury Subpoena of Stewart, 144 Misc. 2d 1012, 1019, 545 N.Y.S.2d 974, 979 (Sup. Ct.) aff’d as modified sub nom. In re Stewart, 156 A.D.2d 294, 548 N.Y.S.2d 679 (1989). Thus, “[d]isclosure of the client’s identity and the fee information . . . do not amount to divulging a confidential communication.” Vingelli v. U.S., Drug Enforcement Agency, 992 F.2d 449, 453 (2d Cir. 1993). Moreover, “[w]hile consultation with an attorney, and payment of a fee, may be necessary to obtain legal advice, their disclosure does not inhibit the ordinary communication necessary for an attorney to act effectively, justly, and expeditiously.” Vingelli v. U.S., Drug Enforcement Agency, 992 F.2d 449, 454 (2d Cir. 1993). Thus, “[a] communication concerning the fee to be paid has no direct relevance to the legal advice to be given. It is a collateral matter which, unlike communications which relate to the subject matter of the attorney’s professional employment, is not privileged.” Priest v. Hennessy, 51 N.Y.2d 62, 69, 409 N.E.2d 983, 986 (1980).

Also,

the New York interpretation of CPLR 4503, and predecessor Sections under the Civil Practice Act construe the attorney-client privilege more broadly’, nonetheless would limit such disclosure in fee arrangement situations to cases where the ‘underlying theory of the action turned on the fee arrangements and the attorney, for all practical purposes, was one of the parties.

Lincoln First Bank of Rochester v. Miller, 89 Misc. 2d 727, 729, 392 N.Y.S.2d 542, 544 (City Ct. 1977).

Thus, “courts of New York have uniformly held that Fee arrangements (emphasis supplied) between attorneys and clients were not privileged.” Lincoln First Bank of Rochester v. Miller, 89 Misc. 2d 727, 729-30, 392 N.Y.S.2d 542, 544-45 (City Ct. 1977).

(c) Payment by Third Party

Similarly, “[n]or does the payment of legal fees by a third person, in and of itself, create an attorney-client relationship between the attorney and his client’s benefactor sufficient to sustain a claim of privilege.” Priest v. Hennessy, 51 N.Y.2d 62, 69-70, 409 N.E.2d 983, 987 (1980).

Moreover, [w]here a third-party benefactor has paid for the legal representation of the client, counsel should be aware that fee information is not privileged and the attorney is under a duty to explain to the client the conflict of interest arising from this fee arrangement and the potential for subsequent disclosure of this arrangement and disqualification of the attorney.

Matter of Grand Jury Subpoena of Stewart, 144 Misc. 2d 1012, 1018, 545 N.Y.S.2d 974, 978 (Sup. Ct.) aff’d as modified sub nom. In re Stewart, 156 A.D.2d 294, 548 N.Y.S.2d 679 (1989).

Additionally, “no attorney-client relationship arises out of the payment of another’s attorney’s fees. The fortuitous circumstance that the attorney had on occasion represented the payor on other matters is of no consequence, since such representation has no relation to the confidential communication which is claimed to be privileged.” Priest v. Hennessy, 51 N.Y.2d 62, 70-71, 409 N.E.2d 983, 987 (1980).

Apart from that, “[a]ttorneys’ bills and communications regarding retainer agreements are not privileged.” Duttle v. Bandler & Kass, 127 F.R.D. 46, 52 (S.D.N.Y. 1989). “The terms of the retainer, as to attorney’s compensation were not privileged within the meaning of section 353 of the Civil Practice Act.” Lincoln First Bank of Rochester v. Miller, 89 Misc. 2d 727, 729, 392 N.Y.S.2d 542, 544 (City Ct. 1977). “The name of the person retaining an attorney for another and the amount of the retainer paid are quite simply not the confidences which the privilege was intended to protect.” Priest v. Hennessy, 51 N.Y.2d 62, 70, 409 N.E.2d 983, 987 (1980).

Attorney Payments when Privileged

Generally, “client’s fee arrangement may be privileged where the attorney can show that disclosure of such information would implicate the client in the very criminal activity for which legal advice was sought.” Matter of Grand Jury Subpoena of Stewart, 144 Misc. 2d 1012, 1019, 545 N.Y.S.2d 974, 979 (Sup. Ct.) aff’d as modified sub nom. In re Stewart, 156 A.D.2d 294, 548 N.Y.S.2d 679 (1989). Until the attorney shows that such disclosure would incriminate the client in the very criminal activity for which legal advice is sought, the “client identity and fee arrangements must be revealed, called the substantial disclosure exception.” Vingelli v. U.S., Drug Enforcement Agency, 992 F.2d 449, 453 (2d Cir. 1993).

However, “the potential for disclosure of fee arrangements is present in every attorney-client relationship and that neither counsel nor the defendant can rest upon a claim that disclosure might chill their relationship of trust. This is a self-imposed problem that very well could have been avoided”. Matter of Grand Jury Subpoena of Stewart, 144 Misc. 2d 1012, 1018, 545 N.Y.S.2d 974, 978 (Sup. Ct.) aff’d as modified sub nom. In re Stewart, 156 A.D.2d 294, 548 N.Y.S.2d 679 (1989). Therefore “[w]e can find no authority which requires such a restrictive construction of the attorney-client privilege in the case of an attorney’s fee arrangement, when the legal propriety of that arrangement is drawn into issue by the pleadings.” Lincoln First Bank of Rochester v. Miller, 89 Misc. 2d 727, 729, 392 N.Y.S.2d 542, 544 (City Ct. 1977).

In short, “[r]evealing the fee payment information does not thwart or prejudice the attorney-client relationship, which remains at the heart of the privilege.” Vingelli v. U.S., Drug Enforcement Agency, 992 F.2d 449, 454 (2d Cir. 1993).

Mechanisms under the NY State Civil Procedure Rules

(a) Subpoena

In Priest v. Hennessy, 51 N.Y.2d 62, 409 N.E.2d 983 (1980), the case involved an ongoing Grand Jury investigation for which the Grand Jury sought to obtain information regarding the nature of fee arrangements between petitioners who were attorneys and their former clients by serving Grand Jury subpoenas duces tecum which required them to provide the Grand Jury with any and all records of amounts billed and payments made for services rendered to (various prior clients) including fee arrangements and retainer agreements. Id. at 984. But the petitioners contended that the fee arrangements between petitioners and their former clients were privileged and that they should not be compelled to disclose such information. However, the court refused to quash the subpoenas and ordered petitioners to appear before the Grand Jury. Id. The petitioners then testified before the Grand Jury that although they had represented certain named individuals, they kept no written records of fees charged or payments made on behalf of these clients. As a result the court put across questions like: “what written or oral agreement was made regarding fees between the parties and were the payments for legal services made on behalf of the named clients” and accordingly the court issued judicial subpoenas to effectuate its order. Id. at 985.Thus even though, the petitioners argued, that the testimony sought to be adduced was protected by the attorney-client privilege, the appellate division unanimously denied petitioner’s motion to quash subpoena. Id.

Likewise, in the instant case also, the ex-husband may invoke judicial subpoenas duces tecum to discover information about the promise to pay to the attorney of the opposing party.

The procedure for subpoena provides that:

Rule 5224. Subpoena; procedure

(a) Kinds and service of subpoena. Any or all of the following kinds of subpoenas may be served:

  1. a subpoena requiring attendance for the taking of a deposition upon oral or written questions at a time and place named therein; or
  2. a subpoena duces tecum requiring the production of books and papers for examination at a time and place named therein; or
  3. an information subpoena, accompanied by a copy and original of written questions and a prepaid, addressed return envelope. Service of an information subpoena may be made by registered or certified mail, return receipt requested. Answers shall be made in writing under oath by the person upon whom served, if an individual, or by an officer, director, agent or employee having the information, if a corporation, partnership or sole proprietorship. Each question shall be answered separately and fully and each answer shall refer to the question to which it responds. Answers shall be returned together with the original of the questions within seven days after receipt. Where the person serving the subpoena is a judgment creditor, other than where the state, a municipality or an agency or officer of the state or a municipality is the judgment creditor, the following additional rules shall apply:

(i) information subpoenas, served on an individual or entity other than the judgment debtor, may be served on an individual, corporation, partnership or sole proprietorship only if the judgment creditor or the judgment creditor’s attorney has a reasonable belief that the party receiving the subpoena has in their possession information about the debtor that will assist the creditor in collecting his or her judgment. Any information subpoena served pursuant to this subparagraph shall contain a certification signed by the judgment creditor or his or her attorney stating the following:

I HEREBY CERTIFY THAT THIS INFORMATION SUBPOENA COMPLIES WITH RULE 5224 OF THE CIVIL PRACTICE LAW AND RULES AND SECTION 601 OF THE GENERAL BUSINESS LAW THAT I HAVE A REASONABLE BELIEF THAT THE PARTY RECEIVING THIS SUBPOENA HAS IN THEIR POSSESSION INFORMATION ABOUT THE DEBTOR THAT WILL ASSIST THE CREDITOR IN COLLECTING THE JUDGMENT.

By signing the certification, the judgment creditor or attorney certifies that, to the best of that person’s knowledge, information and belief, formed after an inquiry reasonable under the circumstances, that the individual or entity receiving the subpoena has relevant information about the debtor.

(ii) if an information subpoena, served on an individual or entity other than the judgment debtor, does not contain the certification provided for in subparagraph (i) of this paragraph, such subpoena shall be deemed null and void.

(iii) if an information subpoena, served on an individual or entity other than the judgment debtor, does contain the certification provided for in subparagraph (i) of this paragraph, the individual, corporation, partnership or sole proprietorship receiving the subpoena, may move to quash the subpoena pursuant to section twenty-three hundred four of this chapter, except that such motion shall be made in the court that issued the underlying judgment.

(iv) failure to comply with an information subpoena shall be governed by subdivision (b) of section twenty-three hundred eight of this chapter, except that such motion shall be made in the court that issued the underlying judgment.

 N.Y. C.P.L.R. 5224

 “The plaintiff [attorney] met his burden of proving that the subpoenaed documents were protected by the attorney-client privilege.” Straus v. Ambinder, 61 A.D.3d 672, 672, 878 N.Y.S.2d 70, 71 (2009).

(b) Scope of Discovery

In New York, with regard to the scope of discovery, the courts were of the view that, revealing the client identity and fee information of an attorney, does not hinder the attorney in providing legal advice and therefore, such information does not come under the category of attorney- client privilege.

  • 3101. Scope of disclosure

(a) Generally. There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof, by:

(1) a party, or the officer, director, member, agent or employee of a party;

(2) a person who possessed a cause of action or defense asserted in the action;

(3) a person about to depart from the state, or without the state, or residing at a greater distance from the place of trial than one hundred miles, or so sick or infirm as to afford reasonable grounds of belief that he or she will not be able to attend the trial, or a person authorized to practice medicine, dentistry or podiatry who has provided medical, dental or podiatric care or diagnosis to the party demanding disclosure, or who has been retained by such party as an expert witness; and

(4) any other person, upon notice stating the circumstances or reasons such disclosure is sought or required.

(b) Privileged matter. Upon objection by a person entitled to assert the privilege, privileged matter shall not be obtainable.

(c) Attorney’s work product. The work product of an attorney shall not be obtainable.

N.Y. C.P.L.R. 3101

The enactment of CPLR 3101 broadened the scope of disclosure by mandating full  disclosure of all evidence material and necessary in the prosecution or defense of an action, regardless of the burden of proof, with three specific exceptions: (1) privileged matter (CPLR 3101, subd. [b] ); (2) attorney’s work product (CPLR 3101, subd. [c] ); and (3) material prepared for litigation (CPLR 3101, subd. [d] ).

Barber v. Town of Northumberland, 88 A.D.2d 712, 712-13, 451 N.Y.S.2d 291, 293 (1982.)

Therefore, it is well-established that any person, upon receipt of a notice of the circumstances and reasons for a disclosure, shall disclose all matter material except for privileged matters and attorney’s work product. But it is unanimously held by the courts of New York that fee arrangements between attorneys and clients are not privileged matters and it falls neither under privileged matter nor under attorney’s work product. So under that circumstance the opposing party is in a position to reveal the information regarding fee arrangements or promise of pay under the New York Civil Practice Law and Rules.

Thus, “the burden of demonstrating that particular records are immune from discovery is on the party asserting such immunity. This burden is so placed by virtue of the strong policy in favor of full disclosure.” Zimmerman v. Nassau Hosp., 76 A.D.2d 921, 429 N.Y.S.2d 262, 263 (1980). But unlike, if “the party seeking to prevent disclosure makes the required showing that the documents were prepared solely for litigation, the burden shifts to the party seeking disclosure to establish that there is a substantial need for the materials and they cannot be obtained elsewhere without undue hardship.” Straus v. Ambinder, 61 A.D.3d 672, 673, 878 N.Y.S.2d 70, 72 (2009).

CONCLUSION

Based on the foregoing, it is evident that, disclosure of attorney fee through discovery is possible in every attorney client relationship. Moreover, the attorney-client privilege is not restrictively constructed in the matter of attorney’s fee arrangement. The substantial disclosure exception is applied here and therefore, even though attorney-client privilege remains at the heart of the privilege, disclosure of fee payment information does not spoil the attorney-client relationship.