Opinion
04-CV-1507(ERK).
July 19, 2006
MEMORANDUM
On February 21, 2006, I denied in its entirety the request for legal fees of Steven F. Goldman, who until April 21, 2005 was admitted to practice in New York. On April 21, 2005, Mr. Goldman was removed from the roll of attorneys by the Appellate Division of the First Judicial Department. In re Goldman, 17 A.D.3d 64 (1st Dep't, 2005). Mr. Goldman's voluntary resignation from the practice of law acknowledged that the disciplinary investigation against him involved complaints that he "received settlement monies on behalf of four clients, which funds he withdrew without his clients' knowledge or consent and used for his own purposes, before remitting those funds to the clients."Id. at 65. Additionally, Mr. Goldman acknowledged that he had failed to retain full records for three separate attorney trust accounts.
This memorandum is intended to formally set out the reasons for the oral decision that I rendered on February 21, 2006. I indicated I would do so if Mr. Goldman intended to appeal. Since he has now filed a notice of appeal and taken steps to perfect it, I provide this memorandum "in aid of the appeal." United States v. Nichols, 56 F.3d 403, 411 (2d Cir. 1995) (internal citation omitted). In the instant case, Mr. Goldman had been retained by Z.C. to represent her and her infant son, D.F., in a medical malpractice action arising out of D.F.'s premature birth. The parties agreed to settle the case in July, 2004, for $2,400,000. Mr. Goldman sought $408,000 in legal fees and $20,000 in disbursements. I denied the motion for legal fees in its entirety, because it was $20,000 over the maximum permitted under New York law, because Mr. Goldman never gave a credible explanation for the overcharge, and because the absence of an explanation (along with equally suspect claims for disbursements) led me to conclude that the overcharge was deliberate. Indeed, I did not catch it myself. Instead, because the application to approve the agreement infant's compromise was so utterly inadequate, I appointed a Special Master, Steven E. North, to serve without fee, to evaluate the settlement and make a recommendation as to whether I should approve it.
Mr. North, who would later describe the infant's compromise papers submitted by Mr. Goldman as "the worst such papers that I have ever seen" and who "considered them an embarrassment," Letter of Steven North, dated April 6, 2005 (Docket # 45), checked the fee calculation against the sliding scale percentage provided for by N.Y. Judiciary Law § 148(a), and discovered the overcharge. When Mr. North asked Mr. Goldman for "[p]articulars concerning your calculation of [the] legal fee." Mr. Goldman replied:
In calculating our legal fee, the $20,000.00 in disbursements were deducted from the $2,400,000.00 settlement leaving a net settlement of $2,380,000.00. Based on the medical malpractice sliding scale prescribed by the Office of Court Administration in the Appellate Division, our fee was calculated to be $408,000.00;
Letter of September 21, 2004, Aff. of Arnold Di Joseph, dated November 11, 2005, Ex. A.
After the receipt of this letter, Mr. North addressed another letter to Mr. Goldman dated September 30, 2004 which again sought additional information relating to the issue of the reasonableness of the settlement. Mr. North also addressed Mr. Goldman's response to the calculation of the latter's fee. Specifically, Mr. North made it clear to Mr. Goldman that "[w]hen I ask for `particulars concerning computation of the legal fee', I mean particulars concerning your computation of the legal fee. Please do not be cavalier about the requests." Letter dated September 30, 2004 (Docket # 24). On October 21, in response to Mr. North's letter, Mr. Goldman, acknowledged that the appropriate fee under N.Y. Judiciary Law § 148(a), resulted in a fee of $388,000:
1) Computation of legal fee: Mr. North, I was not trying to be cavalier. I was simply made the assumption that the med/mal sliding scale retained was well recognized. I apologize. The computations I made were as follows:Total recovery: $2,400,000.00 Expenses: $20,000.00 Net recovery: $2,380,000.00 Attorney's fees: 30% of the first $250,000.00 = $75,000.00 25% of the next $250,000.00 = $62,500.00 20% of the next $500,000.00 = $100,000.00 15% of the next $250,000.00 = $37,500.00 10% of $1,130,000.00 = (amount over $1,250,000.00) $113,000.00 Total = $388,000.00 Letter dated October 21, 2004; Aff. of Arnold Di Joseph, Ex B. Mr. Goldman, however, did not explain how he had initially calculated the fee at $408,000, although he alluded to the fact that the retainer that he used in Z.C./D.F. was a mistake. Specifically, he said that he was "aware of the sliding scale for medical malpractice cases set forth under Section 474-a of the Judiciary Law. [I] have now filed an amended retainer statement with the Judicial Conference." Id. Nevertheless, Mr. Goldman did not acknowledge that the total was $20,000 less than the claim he had submitted for counsel fees, nor did he explain how the amended retainer statement filed with the Judicial Conference contributed to the error.
The issue was finally addressed at a hearing held on December 2, 2005, at which Mr. Goldman offered an explanation that did not add up and his attorney, Arnold Di Joseph, offered an explanation that Mr. Goldman repudiated. Specifically, Mr. Goldman claimed that he utilized two documents, "the initial retainer that the client signs when they come into the office and that sets forth the judiciary law percentages," Tr. 7, December 2, 2005, and a retainer agreement that is filed with the Office of Court Administration, "which is actually the judicial retainer statement." Id. According to Mr. Goldman, "[w]hat happened in this case when the secretary printed the retainer, the one that we file with the judicial conference, she misprinted the percentages that are set forth in Section 474 of the judiciary law." Id. Presumably, although Mr. Goldman barely said so explicitly, his initial calculation of his fees at $408,000 was based on the use of the misprinted percentages.
The "judicial retainer statement" to which Mr. Goldman referred was never made part of the record.
The problem with this explanation, as Mr. North explained, was that, notwithstanding the erroneous percentages in the retainer agreement on which Mr. Goldman presumably relied, a calculation based on those percentages does not come out to a fee of $408,000. Tr. 17, 32, December 2, 2005. Indeed, even Mr. Goldman's attorney conceded that the error in the retainer agreement could not have justified a fee of $408,000. Tr. 31, December 2, 2005. As he told Mr. Goldman: "But it doesn't add up, Steve." Id. at 32.
Under these circumstances, Mr. Goldman's counsel suggested an alternative explanation for the $20,000 overcharge. According to this theory, Mr. Goldman correctly calculated the fee at $388,000 and then mistakenly added the $20,000 in disbursements to the fee. This resulted in a fee of $408,000, to which Mr. Goldman then added a request for $20,000 in disbursements. Tr. 6. Under this analysis, Mr. Goldman billed twice for his disbursements. The problem with this explanation was twofold. First, Mr. Goldman rejected it, id. at 7, and second, taken at its face, it plainly involved double billing for disbursements which could not be discovered from a reading of the fee application.
Nor do I accept the conclusion of Mr. Goldman's attorney that this was an accidental error. Indeed, aside from the facts that Mr. Goldman rejected the explanation and that Mr. Goldman's explanation was dismissed by his attorney because it did not add up, Mr. Goldman's disbursements likewise did not add up. According to his attorney, the disbursements of $20,000 were overstated by almost $1,000. Moreover, after stonewalling the Special Master for over a year, Mr. Goldman's attorney finally submitted documentation for disbursements of $19,196.49, which cast even more doubt on his honesty. Letter of Arnold Di Joseph dated December 20, 2005 (Docket # 83). The letter, which was not accompanied by an affidavit or even a letter of Mr. Goldman, stated that it described Mr. Di Joseph's "breakdown of disbursements in this matter." More significantly, canceled checks reflecting payment of the disbursements were not provided for $14,900 of claimed disbursements. Beyond that, at least $4,000 of that amount, which was reflected on invoices of the forensic neurologist, Dr. Charash, "smells like it was prepared after the fact in an effort to justify the disbursements." Tr. 5, February 21, 2006. As I explained in my oral ruling:
Particularly that bill dated February 2005 in the amount of $4,000 is for detailed review of the file, a detailed review of literature, multiple conferences and preparation for trial, on call.
Now, of course, exactly why he is preparing for trial, on call, in February of 2005 when the case settled in the summer of 2004 or when the parties agreed to settle in 2004 is not clear to me. And it's also interesting that in January of '05, if I read the date correctly, there's a bill for 1/10/05 for a review of the file, conference and report in the amount of $200. So, there's a bill on 1/10/05 for $200 for a review of the file, conference and report and then a month later, there's a $4,000 bill for detailed review of the file, among other things, in preparation for trial on call and of course, there's no check to indicate that this bill has been paid.
So, these disbursements requests, particularly in light coming as they did — this is in a submission that was made on December 20, 2005, I would say despite repeated requests over perhaps a year to justify the disbursements, this application for disbursement smells.
In sum, I find that Mr. Goldman knowingly submitted false and inflated claim for counsel fees and disbursements. Because "[i]t is well settled that an attorney who engages in misconduct by violating the Disciplinary Rules is not entitled to legal fees for any services rendered," Quinn v. Walsh, 18 A.D.3d 638 (2d Dep't 2005) (citing Matter of Winston, 214 A.D.2d 677 [internal quotations omitted]), I denied Mr. Goldman's application for fees. Indeed, had he not already been removed from the roll of attorneys admitted to practice in New York, I would have taken steps to bring his conduct to the attention of the appropriate disciplinary committees.
The Special Master had suggested another formula, albeit equally suspect, that Mr. Goldman had used to calculate a fee of $408,000. Whether it was the product of an innocent mistake or a deliberate attempt to inflate the fee was the subject of considerable argument. In finding that Mr. Goldman deliberately and improperly inflated his fee, I do not rely on any particular theory on how Mr. Goldman calculated a fee of $408,000. Instead, I rely on all of the circumstances outlined above and my assessment of his credibility.
Nevertheless, to complete the record for appeal, I also set forth the amount of counsel fees I would have awarded if it were not for Mr. Goldman's misconduct. Specifically, I stated that, absent any proof of ethical misconduct of the kind I described above, I would have reduced Mr. Goldman's fee application from $388,000 to $100,000, for the reasons I had indicated on the record of December 2, 2005. I summarize those reasons here. They principally turn on the grossly incompetent and inexplicable manner in which Mr. Goldman conducted himself after an agreement had been reached in principle to settle the case for $2.4 million.
Under a cover letter dated July 29, 2004, Mr. Goldman advised me that the parties had settled the case for $2,400,000, enclosed a stipulation of settlement and an Infant's Compromise Order. "[U]pon approval," he asked me to forward an executed copy to his office. Letter of Steven Goldman, dated July 29, 2004 (Docket # 12). After reviewing Mr. Goldman's application it became obvious that it did not contain any of the information necessary to make a judgment on the reasonableness of the settlement agreement. Moreover, it provided for the creation of a Special Needs Trust for the bulk of the settlement. Although the utility of such a trust depended on an assessment of the child's disability and his needs for Medicaid and other governmental assistance, Mr. Goldman's application failed to provide such an assessment. Nor did it contain any information about the ability of the child's mother, who was to be the sole trustee of the Special Needs Trust, to manage such a large source of money. In addition, Mr. Goldman failed to provide me with a draft of a Special Needs Trust.
I called Mr. Goldman and advised him of my concerns. Mr. Goldman responded with an affidavit dated September 10, 2004. The affidavit was equally unhelpful. While it provided a chronology of the events that led to the infant's premature birth along with the observation that the infant was born with "the usual problems associated with premature delivery which included respiratory distress and lack of organ development," Aff. ¶ 11, it contained nothing from which I could determine the nature of the malpractice or the strength of the case or the adequacy of the settlement amount.
Those were not the only deficiencies. Mr. Goldman advised that after "an extensive stay at NYU Medical Center, the infant was transferred to Mount Sinai Medical Center" where "he received an organ transplant, was stabilized and discharged under his mother's care." Aff. ¶ 12. Mr. Goldman did not disclose which organ was transplanted, nor did he indicate the relevance of this transplant to the underlying malpractice claim. While Mr. Goldman did say that "Ms. C. has been advised that D.F. will require individual occupational, physical and speech therapy until he is about three years old" Aff. ¶ 13, the source of this assessment was not provided. Moreover, its implication that the infant's need for special care would be terminated at the age of three was ludicrous. The child has serious neurological problems for which he will need care for the rest of his life. Setting aside these deficiencies, Mr. Goldman again failed to provide me with a draft of the Special Needs Trust or the information necessary to determine its utility or information relating to the competence of the proposed trustee.
On September 15, 2004, after receiving this affidavit, I appointed Steven North, one of the leading malpractice attorneys in New York, as Special Master. Mr. North was a law school classmate who agreed to take the appointment without fee. On December 13, 2004, in the concluding paragraph of a devastating report, Mr. North detailed the efforts he undertook to determine the reasonableness of the settlement and he wrote:
In conclusion, I must respectfully and regrettably find that: plaintiffs' counsel has failed to demonstrate that its legal fee is justified; there is insufficient basis to justify reimbursement of the alleged disbursements; there has been an inadequate assessment of the potential liability; the infant's present medical condition and future health care and related needs have not sufficiently been presented. Naturally, the settlement value of the case is directly related to the strength of the merits of the case and the extent of damages which cannot be adequately assessed on the materials that have been provided.
Letter of Steven North, dated December 13, 2004 (Docket # 16).
On December 15, 2004, I ordered Mr. Goldman to respond to the letter and to show cause why he should not be removed as counsel for the plaintiff. I also asked the attorney for the defendant to provide me with a letter justifying the settlement. Such a letter was provided on January 5, 2005, and while I viewed it with the skepticism that an adversarial presentation deserves, it provided me for the first time with some idea of the nature of the malpractice claim and the extent of the infant's long-term needs. Letter of Robert Whitaker dated January 5, 2005 (Docket # 21).
The order to show cause also succeeded in generating some additional information from Mr. Goldman. Letter from Steven Goldman, dated December 24, 2004 (Docket # 35). Nevertheless, the information was again not sufficient for me to make a judgment on the reasonableness of the settlement. Indeed, I was ultimately forced to retain my own expert, Dr. Ian R. Holzman, who was Chief of Newborn Medicare and Professor of Pediatrics, Obstetrics, Gynecology and Reproductive Services of Mount Sinai Hospital. Ultimately, I obtained sufficient information about the nature of the case and the infant's needs to make a reasonable judgment about the adequacy of the settlement.
Moreover, during this period I also addressed the issue of the Special Needs Trust. In discussing this issue with Mr. Goldman, I discovered that he lacked any understanding of the purpose of such a trust. Specifically, in a telephone conversation in which Robert T. Whitaker, the defendant's lawyer, was a participant, Mr. Goldman advised me that a Special Needs Trust was unnecessary because the Medicaid lien only amounted to approximately $100,000, which would be paid out of the settlement proceeds. Tr. 37-38, December 2, 2005. This statement indicated a fundamental ignorance about either the purpose of the Special Needs Trust or the needs of the infant. The purpose of a Special Needs Trust is to ensure that the proceeds of the trust are available for the needs of the beneficiary that are not covered by Medicaid or SSI.See David Goldfarb Jeffrey G. Abrandt, Use of Trusts in Medicaid and Planning and Medicaid Liens and Rights of Recovery in New York, Practicing Law Institute, 156 PLI/NY 131, March 1, 2006. When the beneficiary dies, the proceeds of the trust are used to satisfy the liens that have accrued. A Special Needs Trust is necessary if the beneficiary is likely to avail himself of Medicaid and SSI benefits over the course of his life. If such a trust is not created, the beneficiary would not be eligible for those benefits and the corpus of the settlement would be depleted. Id. On the other hand, if the beneficiary is not likely to receive Medicaid and SSI benefits, then there is obviously no need for a Special Needs Trust. The fact that the Medicaid lien totaled approximately $100,000 at the time was totally irrelevant to the issue of whether a Special Needs Trust was necessary.
Mr. Goldman's failure to ever prepare a Special Needs Trust and his ignorance of the infant's needs and the purpose of the trust is not the only relevant fact relating to the Special Needs Trust. Ultimately, the guardian ad litem advised me that the child's mother, who Mr. Goldman proposed as the sole trustee, "does not speak English and would not have the capability of managing any of the proceeds that she or her son D.F. will receive from the settlement of the case. [She] is a good mother but it's obvious that she lacks the knowledge and understanding of the financial system required to protect the settlement and make wise investments for the benefit of her son or herself. In addition, she does not hold U.S. citizenship." Interim Report of the Guardian Ad Litem at p. 12, ¶ 2 (Docket #42). Moreover, the guardian ad litem reported that the same was true of D.F.'s father: "[He] does not speak English and is also not a United States citizen. He is currently unemployed. He has minimal education and obviously does not have the capability of advising his wife in methods of financial investment and the protection of settlement proceeds." Id. In sum, Mr. Goldman's incompetence could have placed at risk the benefits of the settlement that the infant desperately needed.
In response to all of this, Mr. Goldman's attorney conceded that Mr. Goldman's initial post-settlement submissions were "sloppy," although he asserted they "were corrected." Letter of Arnold Di Joseph, dated February 16, 2006 (Docket # 85). Of course, they were never satisfactorily corrected by him and it took an extraordinary effort by myself, the Special Master and the guardian ad litem (who ultimately prepared a Special Needs Trust) to obtain information necessary for me to make a reasonable judgment about the adequacy of the settlement and to protect the corpus of the settlement to provide for his life long needs. Again, to quote the Special Master, the infant's compromise papers were "the worst such papers I have ever seen." Letter of Steven North, dated April 6, 2005 (Docket # 45).
On this record, Mr. Goldman's attorney sought to justify the post-settlement behavior of his client by suggesting that if "you have a case that went along and it gets settled . . . [its] natural . . . for any attorney in the personal injury field to take their foot off the accelerator when that happens." Tr. 48, December 2, 2005. Moreover, he sought to explain his selection of the infant's mother by suggesting that Mr. Goldman subordinated the interests of the infant to the practical necessity of accommodating his mother.
This argument lends force to the suggestion of counsel for the guardian ad litem that "[w]hat happened here is that [Mr.] Goldman had a seriously injured infant case fall into his lap and by all indicia, he viewed this as a windfall in which he would do the least work to justify the largest fee possible." Objection of Guardian Ad Litem at p. 3.
It is a very difficult thing to then go to the mother that has retained you and who you represented through the whole case, even if in this case maybe she's not qualified and tell her, you're not qualified and I can't put in a statement that you're qualified and I am going to have to go to somebody else to appoint someone else to represent the money.
Tr. 38, December 2, 2005.
Of course, as the attorney for the guardian ad litem explained, there was a practical and ethical way to address this problem. "The notion that the potential conflict between the mother and the child would deter the submission of a Special Needs Trust is quite absurd. I mean, think of it as a practical matter, you go to the mother [and say to her] . . . [t]he Court will not approve a settlement that gives you unfettered control of this money because it wants to make sure that your child is protected. I'm sure you want that, too. Let's come up with a plan that the Court will approve." Tr. 41-42, December 2, 2005.
Over the last 21 years, I have overseen a fair number of infant's compromise cases, ranging from trip and fall cases to those involving serious brain damage with settlements reaching into the millions of dollars. The lawyers in those cases earned their fees by the settlements they achieved and by post-settlement work that Mr. Goldman failed to provide. I am not going to allow him to be compensated in the same way as attorneys who do their job. Moreover, assuming that my conclusion regarding the deliberate fabrication of Mr. Goldman's initial application for fees and disbursements is not sustained, the utter carelessness in the calculation nevertheless warrants an additional sanction. In re David Goldstein, 430 F.3d 106 (2d Cir. 2005), provides ample support for significantly reducing Mr. Goldman's fee. In that case, Judge Gleeson adopted the recommendation of the U.S. Magistrate Judge recommending that the attorney's fees be reduced from $94,869.58 and that his expenses be reduced from $20,521.66 to $12,500. The basis for the reduction in fee involved post-settlement incompetence. Among other things, "when asked to provide evidence of his disbursements, [the attorney] did not do so." Id. at 111. Moreover, the Court of Appeals held that this "failure and the treatment of his client, who had to personally seek the court's aid in forcing Goldstein to complete the settlement, alone justify reducing the award." The post-settlement conduct of Mr. Goldman here was egregious, and I have ample supervisory authority to reduce his fee to an amount that may be even more generous than he deserves for the 188 hours he expended to achieve the settlement. This will also have the effect of sending a message to other attorneys that there is a price to be paid for taking their "foot off the accelerator," particularly in infant's compromise cases where the attorney arguably has a greater obligation to his client than in other cases. Under all the circumstances, a fee of $100,000 (or $20,000 per week) is not unreasonable, assuming Mr. Goldman's ethical lapses do not disqualify him from obtaining any fee.
The Second Circuit relied on the "inherent powers," courts possess to inquire into fee arrangements. While that source of authority is sufficient to address the issues in this case, the power of a district court in a case involving an infant's compromise is even broader, because it derives from the fact that the guardian ad litem does not have the power to enter into a compromise or a fee arrangement that binds the infant. Such arrangements must be approved by the judge "who truly stands in a guardian/ward relationship with the infant." Anderson v. SAM Airlines, 1997 WL 1179955, *8 (E.D.N.Y. 1997) (internal citations omitted).
In an unsworn statement of hours expended by Mr. Goldman, which were not based on contemporaneous records, his attorney calculated that Mr. Goldman expended 188 hours from the inception of the case until the middle of July 2004, when the settlement was reached. Aff. of Arnold Di Joseph, dated June 2, 2005, Ex. B. At the hearing, the Special Master offered the following assessment of Mr. Goldman's pre-settlement efforts: "So I think the result is a good one. I think that superficially at least, Mr. Goldman, did the right things as far as commencing an action, doing the deposition, serving the bill of particulars, consulting with a doctor, I think it was thin as far as the comprehension of the medicine was concerned. I believe it may have been thin as far as the work of the case is concerned . . ." Tr. 61, December 2, 2005.