Client seeks return of taxable gifts made to her lawyers
Law.com carried an interesting story recently, “Widow’s Suit Seeks Return of $50M in ‘Excessive’ Fees and Gifts“:
A Manhattan law firm has been hit with a suit claiming some of its partners tried to extract almost $50 million in “gifts” and unearned fees from a longtime client, the 80-year-old widow of one of New York City’s largest real estate developers. In a suit filed Tuesday in Manhattan Supreme Court, Alice Lawrence, the widow of developer Sylvan Lawrence, who died in 1981, claims three partners at 26-lawyer Graubard Miller, which had represented her in a decades-long battle over her late husband’s estate, talked her into paying them $5 million in individual, taxable gifts, a practice they allegedly described as typical of longstanding attorney-client relationships….
Rubenstein and a number of other lawyers said they had never heard of a case where individual partners received a bonus directly from the client separate from fees paid to the firm. Ms. Lawrence wrote personal checks to the three Graubard Miller partners. Chill received $2 million. Reich received $1.55 million and Mallis received $1.5 million. According to the suit, they specifically told her not to pay this money to the firm, but to each of them individually. Chill allegedly instructed her to denote the payment as a “gift” on each check’s memo line. The following April, Chill allegedly told Ms. Lawrence she would need to pay gift taxes on the bonuses to the three partners or else their bonus payments would be dramatically reduced. She then paid $2.7 million in gift taxes to the federal government.
