IV. LEGAL FEE COLLECTION METHODS: CLIENTS LOSE AGAIN
While clients may be left with only one impractical and expensive way to enforce their award — by paying an attorney to go to court — attorneys themselves have devised a variety of legal, if questionable, means to secure fees ostensibly due from their clients. In particular, the use of promissory notes, confessions of judgment, and holding clients’ files until fees are paid stacks the deck against the layperson.
We found a pattern in which wives were unable to pay legal fees — near-destitute homemakers with children, for example — being financially carried by their lawyers who hoped to collect their fees from the proceeds of the eventual settlement. The women would borrow $5,000 or $10,000 to pay the retainer, and, when that was consumed, the lawyers would wait for the settlement to pay for the rest of their fee. However, if the financial outcome of the settlement became doubtful — if the husband declared bankruptcy, or refused to pay legal fees ordered by the court, or if the settlement was smaller than the legal fees — lawyers still expected payment. If the wife could not come up with the outstanding balance, which had often mushroomed, lawyers would rely on a variety of collection methods to secure payment.
A. Getting the client to relinquish control of the settlement award
If clients don’t carefully read retainer agreements, they may unwittingly agree to hand over settlement proceeds to their lawyer. Family Advocate, an ABA publication for divorce lawyers, advises its readers how to obtain the client’s cash settlement before it ever reaches the client: “When the financial outcome is in doubt and the retainer(s) may be insufficient to cover the total cost, the lawyer may retain the right to require additional security. One simple method is to funnel all assets and cash through the attorney’s office, to be applied to the unpaid balances before disbursement to the client.”
One client said she still doesn’t understand what fees she is paying, a year after her divorce judgment was entered, because her very prominent attorney funnels her monthly settlement checks through his office, taking his fees off the top. While lawyers certainly should be paid their legitimate fees, the problem with this practice is that the client is left with virtually no leverage to contest them. It’s an open invitation to fee abuse. Yet funneling the settlement award through the law firm, in order to take legal fees off the top before it reaches the client, appears to be common practice. But it is unclear if lawyers give their clients a choice of other options or explain that other payment methods are possible.
B. Getting the client to sign a confession of judgement
A highly questionable method of securing payment is to get the client to sign a Confession of Judgment for the outstanding balance owed. If the client doesn’t pay, the Confession of Judgment can be immediately entered as a court judgment. If the client signs such a document, he or she is legally locked into paying and automatically relinquishes the right to dispute the fee in court. This procedure allows the lawyer to automatically seize property — like a personal bank account or even a family home. (See Appendix B for an example.) In addition, a client will then have a difficult time discharging a lawyer with whom they may have problems.
Securing a Confession of Judgment from a matrimonial client is legal, but ethically questionable, according to Steve Liebman, Special Referee for matrimonial matters at State Supreme Court (NY County), and Howard Benjamin, former Deputy Counsel of the Disciplinary Committee, First Department. They maintain that asking a client to execute a Confession of Judgment raises the concern that the lawyer may be violating his or her fidicuary responsibilty to the client by being more interested in collecting fees than serving the client.
C. Getting the client to sign a promissory note
A promissory note in effect says “I promise to pay you what I owe.” It makes it easier for the lawyer to sue the client. “If the lawyer doesn’t have the note, the client can say that services were not rendered as alleged,” according to Liebman, who added that promissory notes are frequently obtained in matrimonial cases.
One of the more disturbing promissory note situations we heard of involved Connie, a Brooklyn housewife, who claims that her lawyer pressured her into signing a $100,000 promissory note the day before her trial, when Connie felt she had no feasible alternative if she wanted her day in court. (See Appendix C for a copy of this note.) Billing records confirm that the promissory note was obtained within a few days of the trial.
D. Placing a lien or mortgage on the home
Some lawyers place mortgages or liens on clients’ homes. Non-monied spouses who do not have access to large sums to pay their lawyer to continue the case are especially vulnerable to losing their homes through such liens. According to Manhattan attorney Adria Hillman, a 20-year veteran of the profession and co-chair of the NY State Coalition on Legal Issues For Women, divorce lawyers “coerce clients who can’t pay them to give them mortgages on their homes. It’s very common.”
If the bill isn’t paid, the lawyer can sometimes then force the sale of the home. “The family home is a particularly juicy target for forced sale to pay attorney fees,” according to Whitney North Seymour, Jr., former New York State Bar Association President. One of the most prominent divorce lawyers in this region told us, at a meeting we attended of the Association of the Bar of the City of New York, that he has “a hundred mortages” which he has taken to secure payment. While he says he has not foreclosed on these mortgages, holding them encumbers these properties. However, there are lawyers like Laurence Spelman of the prominent firm Robinson, Silverman, Pearce, Aronsohn & Berman, who said his firm’s policy is not to sue their divorce clients for legal fees.
In June ’91, Justice William Thompson of the Appellate Division, 2nd Department, held a forum at a meeting of the Matrimonial Section of the Brooklyn Bar Association, where he complained that lawyer fees were “getting out of hand.” He said some lawyers were forcing their clients to surrender their homes and even their personal possessions. “I told them [the Bar], ‘you can’t take the wife’s jewelry. You can’t take deeds. You can’t do things like that. You can’t take x amount of money up front without earning it.” But, based on our conversation with judges and divorce clients, “things like that” happen frequently.
E. Keeping the clients files
A lawyer can effectively hold a client’s file hostage until the bill is paid, a process known as a “retaining lien.” The file of documents is crucial because, lacking it, the client often can’t proceed with the divorce case. Even if the client disputes the bill, judges typically still do not ask outgoing attorneys to hand over files until there is a hearing to determine the value of the services rendered.
Retaining liens are typically used when the client is attempting to switch lawyers — either after the client’s lawyer withdraws from the case because the client can’t pay and keeps files until the client comes up with the money, or when the client becomes dissatisfied with the lawyer and decides to switch. Special Referee Steve Leibman told us that, since clients change attorneys in an estimated 40% of contested divorce cases, failure to turn over files is a serious concern. If the client believes her lawyer is compromising her interests or “running the meter,” she still must pay the bill or retain an attorney to represent her in the fee hearing proceeding.
However, judges can convert a retaining lien into a “charging lien,” in which the lawyer must wait to collect the outstanding amount owed from the proceeds of the future settlement. Justice Gangel-Jacob said she routinely converts retaining liens to charging liens so that clients can retrieve their documents.
According to Hal Lieberman, the attorney who oversees lawyer discipline in Manhattan, retaining liens are nevertheless a serious problem. He has personally reprimanded lawyers who will not even return basic personal documents, such as a passport. Apparently many judges do not convert them to charging liens. One homemaker we interviewed said she was billed $76,013 for just thirteen weeks of preparation work, after she was told that the entire case, including trial, would cost no more than $50,000. She requested a copy of her retainer agreement so she could review its terms. But her lawyers said they would not provide one until she paid her balance. Even after paying, she said, “They never sent it.”
The case Rosen v. Rosen (468 N.Y.S. 2d 723, 97 A.D. 2d 837) illustrates the dilemma created when a lawyer withdraws from a case and refuses to turn over the client’s file to the client. Mrs. Rosen’s attorney put a retaining lien on her file until she paid. She told him she was unable to pay. The fee dispute was heard in Nassau County State Supreme Court, which directed the attorney to turn over the file and granted him a charging lien on the settlement proceeds to be received by Mrs. Rosen after trial. This decision was upheld at the Appellate Division, which noted that if the attorney had retained Mrs. Rosen’s papers, it would be “almost impossible” for her new attorney to prepare her case for trial.
The practice of withholding documents is not limited just to clients who won’t pay because they are disputing their bills. Some divorce lawyers regularly withhold documents to ensure that future bills be paid. A recent survey of members of the American Academy of Matrimonial Lawyers found that this coercive practice occurs particularly in New York. According to Associate Dean Rob H. Aronson of the University of Washington School of Law, who analyzed the survey results, a proposal for a new rule to stop this practice was overruled by New York lawyers. “Clients should be given all documents in the course of the case,” Aronson told us. “But several New York attorneys said that’s the way they assure their fees.”
F. Getting the client to settle prematurely if more big fees appear unlikely
Sometimes, lawyers will avoid charging more fees by pressuring their client to settle quickly, even prematurely, because the client appears to be running out of money.
In one of two common scenarios, the wife has her lawyer draw up a proposed settlement with terms she finds fair. This proposal is sent to her husband’s lawyer. He rejects it (as is typically the case with such initial proposals), but the wife’s lawyer nonetheless subsequently pressures her to agree to a far less favorable proposal. The negotiation process is aborted largely because the lawyer knows that the wife can’t afford to continue paying fees of $200 to $400 an hour, and there are few other marital assets in sight that the lawyer might be able to apply to additional fees.
In the second scenario, the wife is asked to sign the husband’s initial proposal, without her own lawyer being willing to pursue any further negotiations.
One of the complaints we received came from Marilyn, a battered wife who expected her case to be tried in court. All parties appeared at the courthouse as scheduled, but the trial was never held. Why? Her lawyers — of a prominent New York law firm — and her husband’s attorney spent two days “bickering in the court halls” and then pressured her into settlement without trial. She told us some crucial financial documents from her husband were not available at the time her lawyers pressured her to sign.
Her investigative accountant confirmed to us that certain crucial documents were still missing at the time of the settlement; he found that the husband’s income was about $100,000 a year higher than claimed. “I was certainly concerned by the fact that we didn’t have certain documents. Without examination of those documents, it’s impossible to know if it would have made a difference in the outcome [of a trial],” he said. Marilyn protested that she didn’t even understand the settlement, partly because changes were illegibly scribbled througout it. (This was confirmed by a copy of the settlment we obtained.)
A first trial date in February, 1990 was postponed when experts subpoenaed to testify failed to appear. A second trial date was set for August, 1990, but, according to Marilyn, “They argued and argued for two days in the halls and said the judge will not give you anymore, and told me I was the worst witness he ever saw in his life because I was ‘too emotional.'” Marilyn said her lawyer had the second trial date postponed because he had a convention to attend. A third trial was supposed to be held in March 1991: “I thought we were really going to trial but he was trying to convince me to sign the same agreement presented in August. That’s when he said to me: ‘I need $35,000 right now in court to try the case.'”
V. HOW SOME LAWYERS GET AWAY WITH FEE ABUSE
A. Attorneys have a psychological advantage
A contested divorce can put clients in a psychologically vulnerable position and the lawyer at an inherent psychological advantage.
To begin with, the attorney possesses special knowledge of the law and complicated court rules and procedures. Professor Austin Sarat of Amherst College, who has studied the relationship between divorce attorneys and their clients, says that the lawyer’s power is enhanced when the lawyer positions him/herself as superior to the client through “law talk.” These are discussions of the legal system that characteristically take place between client and divorce lawyer in which the lawyer portrays him or herself as an insider with access to the right connections.
The high personal stakes involved in these matters put divorce clients in an even weaker position when dealing with their lawyer. Divorce clients need to believe their lawyers will protect their financial interests because their economic futures are at risk. “Their dependence [on their lawyers] is not over a trivial item,” notes NYU Law Professor Stephen Gillers. “Divorce can mean a fall of substantial magnitude in their lives. It’s not like they’re giving up a Mercedes for an Audi. The risk is real.”
The stakes are highest for older homemakers who gave up careers to raise families and may be less able to effectively compete in the job market. Many such women, at the time they hire their lawyers, are risking the loss of such necessities as medical insurance, pensions, money for gas and electric bills, and children’s tuition. Because their attorneys looked respectable, had prestigious credentials, nice offices, and an air of professional propriety, the women placed their trust in them.
Financial desperation puts the lawyer in a powerful position. “I would have given him anything at the time,” said Harriet Krim, of her ex-lawyer, who would not take her case unless Krim agreed to give him a $10,000 lien on her home. “I didn’t have any money at the time, and my husband was pressuring me to sign an unfair settlement.” Clients who have been divorced from their affluence as well as from their husbands, may be facing a kind of “class” shock which only exacerbates their vulnerability.
Besides the economic uncertainties, wives who are battered may turn to the lawyer for psychological strength — to have the lawyer emotionally take care of her. In the New York State Department of Social Services Handbook for Abused Women, battered women are warned not to use their lawyers as a “social worker, psychologist or confessor.”
Even if the husband is not violent, the break-up of the family unit still puts the entire family in a state of psychological upheaval. In fact, aside from the death of a relative or close friend, divorce is considered one of the biggest stress factors in people’s lives. Dr. Scott Monroe, Associate Professor of Psychology at the University of Oregon and a recognized authority on stress research, told us: “It’s clearly one of the most stressful experiences people go through. Divorce is a long drawn out process — it’s a prolonged stressful period. There’s a lot that goes into the breaking down process.” Dr. Monroe adds that for wives without financial resources, the stress would be even worse:
A spouse who was going through a divorce and had supported the other spouse, put them through school, and really had no training for themselves and little common property– when we rated them [for stress] it would be more likely that this would have a more pernicious effect down the road. If they were not the primary wage-earner and they were losing the potential of income, and a way of generating income, it would increase the stress rate. . . This class of stresser has been shown to greatly increase clinical depression, which clearly impairs functioning.
Because of economic reasons and because the legal standard for evicting a spouse from the marital abode is high, and because judges do not generally grant applications for exclusive possession of the home pending trial, many spouses are forced to live together under the same roof, making matters even worse.
B. Problems start with vague retainer agreements
In our examination of retainer agreements from some of the top firms in New York City, we found vague and ambiguous language. One such retainer, signed by Susan, reads:
We have agreed to accept a retainer payment of $10,000. As we have discussed, your matter is somewhat unusual. It may be necessary to spend substantial amounts of time in obtaining the file. The amount of our eventual fee will include consideration of such factors as the nature of the work done, and the result accomplished, and will be based on our regular schedule of established hourly time charges. The rate presently applicable to the services of the various members of our matrimonial department in our firm presently ranges from $85 to $250 per hour, and I am billed at $175 per hour.
Typically, retainers, such as this one, do not itemize possible expenses. Such vague wording tells the client virtually nothing useful about what total fees to expect. What does “substantial amount” mean? What types of motions might be needed? What’s the usual cost range for such motions? While such agreements do not fully disclose or detail what the client may be charged, the lawyer — who has detailed financial information about the client — does have a rough idea of how high the fees in the case could go. According to Manhattan matrimonial attorney Adria Hillman, lawyers typically assess the dollar worth of a case to themselves before accepting it. Why not share some of this thinking with the client?
Another problem is that hourly rates quoted in an agreement can change, without advance warning. This is reflected in Merilee Miller’s retainer, which includes the following statement: “Because of mounting costs, it may be necessary from time to time for the applicable time charges to be increased, and such adjustments will be reflected in your billing.”
New York has no statutes governing lawyer fee agreements, with the exception of a court rule applying to personal injury lawyers. In California, however, in a new precedent, the State Court of Appeal ruled last November that law firms must notify clients of rate increases if the firms have previously quoted hourly rates.
Although the Code of Professional Responsibility encourages fee disclosure, many clients told us that they still did not understand the total costs involved in their cases. The problem is that, while the Code specifically says that lawyers should clearly communicate the basis of their fees, that’s about all it says. Lawyers need not disclose all costs, provide itemized expense lists, provide monthly bills, warn clients of foreseeable costs, or provide estimated fees. Indeed, in New York, lawyers aren’t even legally required to offer written retainer agreements.
However, pressure is building within the profession to require written retainers, as a first step toward better client communication, specifically in matrimonial cases. Last year, a national commission that evaluated lawyer discipline for the American Bar Association, concluded: “. . . A written fee agreement, especially in contingent fee and domestic relations cases and with all new clients, is important [to reduce] potential disputes between lawyer and client.” In addition, the new Bounds of Advocacy guidelines for matrimonial lawyers issued by the American Academy of Matrimonial Lawyers also encourage written agreements.
Myra Freed, co-chair of the Matrimonial Section of the New York State Women’s Bar Association, told us: “I think most responsible matrimonial bar groups and organizations support written retainer agreements between clients and attorneys. I see nothing wrong with requiring all attorney client relationships being reduced to writing, no matter what field it is. I think it helps.”
C. Lack of legal standards for fees opens the door to abuse
Since no statutes curb divorce lawyer fee abuse, “lawyer greed is perfectly legal,” according to Whitney North Seymour Jr. And with no pertinent laws or legal standards, there is often confusion and disagreement over ethical issues that directly bear on billing.
The Code of Professional Responsibility is not an adequate safeguard. For example, Section DR 2-106B reads: “A fee is excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.” The wording allows for wide latitude in interpreting the terms “reasonable,” “excessive” and “ordinary prudence.”
The new ethical guidelines of the American Academy of Matrimonial Lawyers, The Bounds of Advocacy, addresses billing and other areas of potential client abuse. The Academy is depending on lawyers to voluntarily comply with the new rules, which may be naive. For at a seminar last October on ethical issues, Sanford Dranoff, President of the Academy’s New York Chapter, told his colleagues: “You can’t be kicked out of the Academy if you don’t follow this.”
D. The adversarial system multiplies the costs and tensions of divorce
In our adversarial legal system, polarization occurs in all litigation — not just matrimonial cases. Nevertheless, it takes a special toll on families in divorces because it heightens often great emotions on both sides and creates “an ease with which lawyers can exploit their clients,” according to legal ethics scholar Professor Stephen Gillers. In divorce cases, obstruction is rewarded; an attorney’s success is measured on his or her ability to use the law and court procedures to outwit and wear out the other side. Professor Gillers describes the traditional perspective of a lawyer in the adversarial system this way: “My job is to help my client achieve the best possible results. If my client wants to dance around procedural rules and stall to make his or her opponent desperate, I’m going to do it.” Consequently, legal costs can then soar wildly out of control and a fair and equitable economic outcome for the unmonied spouse and children too often suffers.
Is this really the best way to get divorced? Even if a case doesn’t reach the murderous extreme of the movie War of the Roses, the adversarial system not only increases fees but also worsens hostilities between already clashing spouses. Pitting divorcing couples against each other can lead to severe psychological consequences for both parties and their children.
E. The equitable distribution law helps drive up fees
Sponsors of the New York Equitable Distribution Law (EDL) claimed, when it was enacted in 1980, that it would benefit wives. Theoretically, it gives both spouses the right to an “equitable” share of marital property, based on the theory that marriage is an economic partnership. But according to an article appearing in the Buffalo Law Journal, “There is no evidence that the reform was connected to a desire to facilitate, assist, or ensure substantial equality in family life or economic justice.”
In fact, a last-minute amendment to the Justification section in the Memorandum in Support of the legislation ensured that the law would not be interpreted to produce equality by specifically deleting the words, “modern marriage should be viewed as a partnership of co-equals.” A letter by the Assembly’s Deputy Minority Leader, Gordon W. Burrows, advising interested parties of this deletion, said, “I wish to make it quite clear that all concerned want ‘equitable distribution’ and not ‘equal distribution’ in the State of New York.” This alteration dramatically altered the frame of reference for judges, who often look at the legislative intent behind a bill to interpret its meaning. At the time, women’s advocates urged a presumption that marital assets be divided equally, but this approach did not prevail.
The public was given the impression that the EDL was a breakthrough for women — and the matrimonial bar was aware that it was a breakthrough for lawyers. According to a New York Daily News account (January 13, 1980), Raoul Felder “felt the new law will increase the number of divorces and increase the amount of money lawyers make.” Felder was quoted as saying, “‘Instead of just handling a divorce, the lawyer will be asked to help split up large amounts of money and property. When this happens, a lawyer becomes a kind of partner in the litigation and makes considerably more money.”
New Jersey had previously enacted equitable distribution, and in a 1978 letter to Governor Brendan T. Byrne, The Organization of Women for Legal Awareness, complained that the law was causing lawyers to drag out cases and “perpetuate exorbitant fees in matrimonial matters.”
At first glance, the new law had some attractive features. Most importantly, it eliminated the “title” basis of dividing property. The old divorce law denied wives the right to share property that was in the husband’s name — such as real estate, bank accounts, and businesses — despite their contributions as homemakers. “Because wives rarely had assets in their own names, and because few assets other than the marital home were jointly held, property accumulated during the marriage usually went solely to the husband after divorce,” concluded the Report of the New York Task Force on Women In the Courts. The new law opened up this sharing possibility.
The problem, however, is that the EDL eliminated alimony, resulted in very limited maintenance awards, and has not really resulted in equitable distribution of the marital assets, according to many legal experts. Brooklyn Law Professor Marsha Garrison’s recent study, Good Intentions Gone Awry: The Impact of New York’s Equitable Distribution Law on Divorce Outcomes, showed that “women receive about the same as what they did before equitable distribution.”
The reasons? The law encourages costly litigation by forcing the non-monied spouse to prove the marital assets exist through the discovery process. The non-monied spouse also has to hire an expert to prove the value of the marital assets. And, costs are driven higher because there is no presumption that the marital assets should be divided qually — which has the effect of encouraging costly litigation to prove what percentage of assets each spouse is entitled to receive. Because husbands usually still hold the purse strings at the end of the marriage, this task can be daunting for wives, particularly when the husband is self-employed. Even if the burden of proving assets is accomplished, there is still no guarantee that the assets will be divided equitably, as the 1985 Task Force on Women In the Courts revealed.
Not surprisingly, divorce now takes much longer — on average one year or more. And the EDL has made it easier for divorce lawyers to financially take advantage of clients in new ways, described earlier.
Shortly after New York’s EDL was enacted, fees did start soaring. According to the New York Times, “Six months after major changes in New York’s divorce law went into effect, many of the state’s matrimonial lawyers say they are raising their fees because their work is now more complex and time-consuming.” Two years later, a follow-up story confirmed the trend toward big fees: “Lawyers say that in a contested case involving the division of substantial property… fees are generally 25 percent to 50 percent higher than they were under the old law.” Raoul Felder was quoted in this article bearing out his earlier prediction when he said his fees “‘have now increased four to tenfold.'”
The vast amount of money that can be made because of this new law has become an inside joke among lawyers. “We call it ERA — Economic Recovery Act For Appraisers, Accountants and Lawyers,” Court Referee Steve Liebman told us. “Before July 1980 [when the EDL went into effect] a contested divorce case would maybe add up to $6,000 in total fees for both sides. The exact same case today would run $50,000 — easily.”
The extra costs involved in proving that assets exist and how they should be divided are pricing the middle class and even many upper-middle class individuals from such proceedings. Just one afternoon of deposition-taking cost one Manhattan wife $1,400 for the lawyer and $1,000 for the transcript, which are typical expenditures.
“It [the EDL] has made matrimonial an extremely profitable practice,” said Howard Benjamin, “to the extent that many mid-size and larger firms that wouldn’t take matrimonial cases pre-equitable distribution now have full matrimonial departments.” Exacerbating the situation is a complaint voiced by many matrimonial lawyers that judges fail to order reasonable and adequate interim counsel and expert fees from the monied-spouse when they are representing the non-monied spouse. Holding off until the end of trial to determine counsel fees is often too late to effectively sustain the litigation and obtain a just result. This happens, even though under the existing statute (DRL Sec. 237) the courts are amply endowed with the authority to grant appropriate awards of counsel fees where a party has secured high-quality representation. According to the NOW Legal Defense and Education Fund’s Statement on A. 7433-B (proposed amendment to the EDL), “In many cases the court unjustifiably refuses such an award; in other cases, the court orders attorneys fees but requires that the award be taken out of the dependent spouse’s share of the marital property.” Until such time as judges routinely order adequate interim counsel and expert fees, the non-monied spouse will not be in a position to get her or his fair share of the marital assets.
F. Untruthful discovery also inflates cost
There’s no guarantee that the financial information provided in discovery by the spouse or spouse’s lawyer will be truthful. Particularly in New York City, the non-monied spouse has little protection against fraudulent information obtained in the process; our overburdened courts routinely take discovery-produced information at face value.
Not surprisingly, then, one of the main complaints we received from former wives was that their husbands lied in court or made false statements in affidavits, interrogatories, and during depositions in order to conceal assets. Lies supposedly included the under-reporting of income, omission of investments, the secret transfer of accounts to relatives and then the omission of the accounts from the list of marital property, and the devaluation of businesses.
Justice William Rigler of Kings County State Supreme Court said he observes perjury in connection with assets valuation “a great deal of the time,” but notes, “it’s very difficult to prove.” Discovering assets is necessary to determine the size of the “marital pot.”
When a spouse lies or conceals assets, the other spouse may have to hire a private investigator, an investigative accountant and other experts to pursue the money trail. This, of course, is an expensive proposition.
Lillian Kozak, a certified public accountant who has 15 years of investigative accounting experience, is the former Chairperson of NOW New York State’s Domestic Relations Task Force. She talked to us about asset undervaluation:
It’s very common that when an investigator goes out that all the records aren’t there; sometimes the owner of the business won’t be there. . . They can lie and not be under oath. They can tell me they’ve got five autos used for business. When I ask for the registration they don’t have it. All these avoidance and delay tactics create confusion. In every case where you have a self-employed person, you encounter these tactics. Every person in his own business resents the intrusion, so you don’t have an environment of cooperation, you have a hostile environment or a ‘try and find it’ [attitude].
A salaried wage-earner typically gets a payroll check every other week, and it’s reflected in tax statements. But doctors, contractors, entrepreneurs, entertainers, and other self-employed people can manipulate the books. Kozak explains:
When a business is valued, it’s valued on the basis of what it earns. If you’re showing very low earnings, it affects the valuation of the business. The income is reduced if he’s got a business that affords him cash or he loads up his costs and expenses so that his income is less. All of these things are done to minimize taxes. The process of minimizing taxes over the years leads perfectly into a divorce case. It’s a preparation for divorce without intent. Other things are hard to discover.
Justice Rigler adds that, “You can’t get a fur coat and drive an expensive car and sign an income form that says your husband is making $10,000. Most people in private business don’t report what they actually make.”
Kozak and several attorneys told us that because self-employed people frequently manipulate earnings to pay less taxes, there is special pressure not to divulge that in court. Kozak said in one court case in which she was present, a judge stopped the wife from giving testimony by giving a subtle warning not to pursue information about false tax returns.
Lawyers and Kozak also told us that there is a certain degree of hypocrisy in women who went along with fraudulent taxes. Says Kozak:
She’s in a double bind because he’s been cheating [on their taxes] even if she doesn’t know how. She has a vague knowledge and has been benefiting from a high standard of living and now he wants to walk out and take the whole accumulation with him. She’s vulnerable because she signed the returns — she doesn’t want to harm him and harm herself. On the other hand he knows she’s frightened so he isn’t going to have to make a deal with her. It affects the middle class — anyone who has been in business for himself. Two guilty parties — one active and one passive and upon divorce — the active beneficiary ends up keeping all of the spoils.
Although perjury is a felony — punishable by fine and/or imprisonment — it is seldom prosecuted as a criminal offense, and to the best our knowledge never in connection with testimony given in a divorce. That’s because the court system, severely backlogged with prosecutions for violent crime, puts this felony low on the priority list. Michael Cherkasky, Chief of the Investigation Division of the Manhattan District Attorney explains:
The bottom line is that the city doesn’t have the ability to put violent people in jail. We are very selective [about prosecution]. If there is ongoing civil litigaton and it can be resolved with civil litigation — we defer to civil litigation.
One example of a divorce lawyer allegedly suborning perjury involved a Westchester wife who told us that her husband forged her name onto two bond assignment transfer forms after he stole the bonds in one of several burglaries at her home during the divorce. She said that his lawyer must have known about these forgeries, because a first discovery demand from her husband’s lawyer requested these documents, while a second omitted them. She did not know that these bonds were stolen at the time of the second request, but apparently the husband and his lawyer must have. The District Attorney’s Office has investigated, but indicates the case is not worth pursuing.
In a study of lawyers and clients in the Yale Law Journal, Professor Austin Sarat found that lawyers suggest that their clients settle for less than they initially perceived as fair because “legal rights are ‘absolute’ to the extent that clients ‘want to invest the time, effort, energy and money’ necessary to assert or defend them, but, at the same time, clients are often advised that they cannot afford to do so.” When monied-spouses are less than forthright about their income and assets, the amount of “time, effort, energy and money” skyrockets.
Sloppy discovery also can result in higher fees. Justice Glen told us that some trials that should have taken half a day are needlessly prolonged when “lawyers do bad or inadequate discovery.”
A large number seem to not be really skilled at preparing cases and at trying cases and therefore they end up using both an excessive amount of discovery time and excessive amount of trial time. I’ve spent years now really trying to force lawyers to do their discovery properly, but it doesn’t seem to be successful even though I’ve had the same lawyers over and over.
Special Referee Steve Liebman said that, while the Equitable Distribution Law encourages discovery, the overburdened judicial system in New York City does not. “The disposition of cases is the primary concern for everything, including matrimonial,” said Liebman. “Compromise is the name of the game. Is it fair? Probably not. Is it justice? Probably not.”
G. Lawyers can forsee many expenses, but fail to alert clients
In contested divorces, fees climb as the lawyers’ hours mount. Cases get easily can get stuck on two key issues: property/money matters and child custody/visitation rights. The clusters of legal tasks needing attention usually involve these issues, making certain tasks forseeable. Divorce lawyers we interviewed told us they can gauge, during the opening moves of a case, how cooperative the opposing spouse will likely be — and how much the divorce will likely cost. Manhattan attorney Adria Hillman notes that seasoned attorneys always assess the potential value of a case because this is a major factor in their decision to accept it, unless they have taken the case as pro bono work. Why can’t this intuition also be applied to estimating case costs?
For example, if a spouse has been abandoned, one of the first tasks of the wife’s lawyer is to apply in court through a pendente lite motion to get funds to live on. This may be an extremely expensive procedure, the cost of which varies dramatically from lawyer to lawyer. Some lawyers charge up to $5,000 for such a motion, while others may charge in the tens of thousands of dollars. While the varying circumstances of each case explains some of cost differences, they do not explain all of them. Some lawyers justify the high fees, saying that the client is paying for their extensive experience. But shouldn’t a more experienced attorney be able to prepare such a motion faster and with fewer billable hours? All matrimonial lawyers know that such motions can be expensive, yet we found that, in many cases, lawyers do not feel obligated to warn clients about possible costs.
Brooklyn wife Madeline Bennett, who heads a divorce rights group, Coalition For Family First Justice, said she protested her lawyer’s request for a pendente lite motion because her husband was already financially supporting the family, and she did not want to harass him.
I went to see the lawyer and he said we should make a pendente lite motion when my husband was already sending me money. By this time I had learned a lot about matrimonial litigation and I knew this was counter-indicated in my divorce. And I had told this lawyer I didn’t want to go to court unnecessarily. I fired him, but I didn’t get my money back. I lost $5,000 but it would have cost me $10,000 to $15,000 if I had to do what he suggested.
VI. THE PROBLEM OF CONFLICTS OF INTEREST
There is much debate in the legal profession over what degree of friendship or enmity between lawyers constitutes a conflict of interest. Some lawyers whose friends are representing the opposing sides maintain that their feelings do not interfere because they can stay detached, as if “playing a tennis game.” The Bounds of Advocacy guidelines advise: “Attorneys are expected to maintain personal relationships with other attorneys, but must be sensitive to the threat to independent judgment and the appearance of impropriety when an intimate relationship exists with opposing counsel. . .”
One relevant complaint we received was from a 48-year-old Brooklyn ex-wife who said she left a violent 18-year marriage but was told by her attorney that she could not ask for the house or any other marital asset because she was the one who physically left. The former wife, a menial worker with an 8th grade education, said she will never know if she could have qualified for her husband’s pension or social security because the lawyer — who admitted to her that he was a high school buddy of her husband’s — told her not to ask for it from the judge.
In the case of a Manhattan wife, Peggy Hammond (married to a famous guitarist), the family lawyer was a long-time friend of both Peggy and her husband, John. Peggy said she related much emotional and financial information to the lawyer during the time he represented the couple, from 1980 through 1988. He represented both of their financial and legal dealings. At the end of 1988, the time of the abandonment, the lawyer undertook to represent John. It is considered unethical for a lawyer representing a couple to then represent the interests of one side against the other. New York Newsday reported that the lawyer withdrew from representing the husband when it appeared that litigation was inevitable.
The Bounds of Advocacy states that attorneys who are engaged in representing a “closely held enterprise in which both spouses own an interest” should disqualify themselves to ‘avoid the risk of disclosure of confidential information, that the attorney’s testimony might be necessary at trial, and the unfair tactical advantage for the spouse whose attorney is in possession of the books and other important documents.”
A major conflict of interest situation came to light recently among Manhattan’s top divorce lawyers after Alvin Ashley, former President of the New York Chapter of the American Academy of Matrimonial Lawyers, pleaded guilty in September, 1990 to defrauding colleagues and others of more than $1 million in phony restaurant schemes. Some of the lawyers who were in partnership with Ashley were at the same time acting as Ashley’s legal adversaries in divorce cases.
Can a lawyer represent the client’s best interest when the adversary attorney is the lawyer’s financial partner? Manhattan Justice Gangel-Jacob thinks not. She said she believes those lawyers who were opposing Ashley on divorce cases while serving as his financial partners may have jeopardized their clients’ interests. Justice Gangel-Jacob said the clients might “move to vacate the stipulation of settlement,” meaning that they could renegotiate new settlements.