Opinion
03 Civ. 8967 (SAS).
August 6, 2004
Jack S. Dweck, Esq., H.P. Sean Dweck, Esq., Richard Hubell, Esq., The Dweck Law Firm, L.L.P., New York, NY, Attorney for Plaintiff.
Aegis J. Frumento, Esq., Francine N. Nisim, Esq., Duane Morris, L.L.P., New York, NY, Attorney for Defendant.
OPINION ORDER
The Dweck Law Firm, L.L.P. ("the Dweck firm" or "the firm") filed this diversity action against Cynthia Allen Mann ("Mann"), a former client, alleging breach of the covenant of good faith and fair dealing. A bench trial began on August 3, 2004, and was scheduled to conclude on August 4, 2004. At the close of the defendant's case, the firm elected to withdraw its claim for breach of the covenant of good faith and fair dealing, and instead pursue a claim against Mann for fees based on quantum meruit. This decision was driven by the Second Circuit's decision in Universal Acupuncture Pain Servs., P.C. v. Quadrino Schwartz, 370 F.3d 259 (2d Cir. 2004), where the Court of Appeals held that under New York law,
[i]f a lawyer is discharged for cause, he or she is not entitled to legal fees. If the lawyer is discharged without cause and prior to the conclusion of the case, however, he or she may recover either (1) in quantum meruit, the fair and reasonable value of the services rendered, or (2) a contingent portion of the former client's ultimate recovery, but only if both of the parties have so agreed. . . . Recovery on a quantum meruit basis is called for even where the attorney discharged without fault was employed under a contingent fee contract.Id, 370 F.3d 259, 263 (2d Cir. 2004) (quotation marks and citations omitted). It is undisputed that Dweck was discharged without cause. Therefore, the only remaining issue is the calculation of the reasonable value of the services the firm provided to Mann.
This issue cannot be disputed because by order dated March 5, 2002, Justice Howard Tompkins of the New York Supreme Court entered a judgment in favor of the Dweck Law Firm, and against Mann, declaring that the firm performed all of its obligations under and pursuant to the retainer agreement. By order dated December 9, 2003, the Appellate Division of the New York Supreme Court affirmed Justice Tompkins's ruling. Moreover, the Appellate Division dismissed Mann's counter-claim against the firm for malpractice, concluding that as a matter of law, the firm did not commit malpractice. These judgments are entitled to full faith and credit in this Court.
I. BACKGROUND
Prior to September 23, 1998, Mann engaged the Dweck firm to advise her with respect to various issues involving her employment with First Union National Bank ("First Union" or "the Bank"). On September 23, 1998, the parties entered into a written retainer agreement, whereby the firm agreed to prosecute, negotiate, adjust or settle a claim for wrongful discharge, age and gender discrimination, harassment, failure to promote, and mental anguish against First Union and others, on Mann's behalf. Pursuant to the retainer agreement, Mann was to pay $12,500 upon execution of the agreement, and, "[s]hould the action or proceeding result in a recovery, whether by suit, settlement or otherwise, [Dweck] shall receive thirty-three and one-third (33 1/3%) percent of all sums recovered against which [Mann] shall be credited the Twelve Thousand Five Hundred ($12,500) Dollars advanced to [Dweck] hereunder." See Retainer Agreement Between Cynthia Allen Mann and the Dweck Law Firm L.L.P. ("Retainer Agreement"). Mann paid the $12,500.
In connection with its obligations under the retainer agreement, Jack Dweck, a principal of the firm, entered into negotiations with First Union on Mann's behalf. As a result of these negotiations, the Bank offered Mann $1 million, plus outplacement services. Mann declined the settlement offer. Thereafter, Mann and First Union agreed to mediate their dispute. During a February, 1999 mediation before the Honorable Richard Cohen, First Union offered Mann $1,035,000. Dweck recommended that Mann accept the offer, but she declined because she believed her claim was worth more. By letter dated March 22, 1999, Mann terminated her relationship with the firm, having paid no fees beyond the original $12,500.
The fact that Mann rejected the offer because she believed her claim was worth more (and not solely to deprive the firm of its fee) is the reason why Dweck could not prevail on its claim for breach of the covenant of good faith and fair dealing. It is therefore not surprising that the Dweck firm elected to pursue its claim seeking a quantum meruit recovery of attorneys' fees.
Sometime in 1999, Mann retained a new attorney to pursue her claim against the Bank. In February, 2000, acting through her new attorney, Mann filed suit against First Union in the United States District Court for the Northern District of Illinois, seeking $4 million in damages. The action was transferred to the Western District of North Carolina in June, 2000, and trial is scheduled for November, 2004.
II. APPLICABLE LAW
Under New York law, when a discharged attorneys seeks to recover fees in quantum meruit, courts consider "various factors in determin[ing] the reasonable value of the services rendered." Ingber v. Sabato, 645 N.Y.S.2d 918, 920 (3d Dep't 1996). These factors include, inter alia, "the difficulty of the matter, the nature and extent of the services rendered, the time reasonably expended on those services, the quality of performance by counsel, the qualifications of counsel, the amount at issue, and the results obtained (to the extent known)." Sequa Corp. v. GBJ Corp., 156 F.3d 136, 148 (2d Cir. 1998). See also General Star Indemnity Co. v. Custom Editions Upholstery Corp, 940 F. Supp. 645, 652 (S.D.N.Y. 1996); Smith v. Boscov's Dep't Store, 596 N.Y.S.2d 575, 576 (3d Dep't 1993); Meyer, Suozzi, English Klein, P.C. v. Albin Richman, 196 Misc.2d 159, 163 (Dist.Ct. Nassau Co. 2003). "The determination of the reasonable value of the attorney's services is a matter within the sound discretion of the trial court." Sequa Corp., 156 F.3d at 149 (quotation marks omitted).
It is undisputed that New York law governs this action.
Where the discharged attorney had a contingency fee contract with the client, the court may take that fact into account in calculating the reasonable value of the service rendered. See Ruggiero v. R.W. Gross Plumbing and Heating, Inc., 641 N.Y.S.2d 189, 191 (3d Dep't 1996) ("[I]n making the [ quantum meruit] award, [the lower court] correctly considered the contingency agreement as one fact in determining the value of services rendered."); Gurry v. Wellcome, Inc., No. 98 Civ. 6243, 2000 WL 1702028, at *1 (S.D.N.Y. Nov. 14, 2000) ("[T]he court may take into account the fact that services were rendered on a contingent basis."). However, "[a]lthough the contingency provisions of the terminated retainer agreement may be considered when determining the reasonable value of the services rendered, the magnitude of any recovery in quantum meruit does not depend upon the terms of the agreement." Realuyo v. Diaz, No. 98 Civ. 7684, 2000 WL 307407, at *3 (S.D.N.Y. Mar. 23, 2000). This is true even where the discharged attorney obtained a settlement offer for the client that was not consummated. See Ruggiero, 641 N.Y.S.2d at 189-91 ( quantum meruit fee should not be based exclusively on a percentage of the settlement offer the attorney obtained for the client); Smith, 596 N.Y.S.2d at 576 (same). Moreover, the recovery in quantum meruit may be "more or less than the amount provided for in the retainer agreement." Meyer, 196 Misc.2d at 162.
In undertaking a calculation of the fees to be awarded in quantum meruit, federal district courts may employ a "lodestar" analysis. Such an approach is not required, and a court employing the lodestar analysis must also "carefully consider all the factors relevant to a quantum meruit fee analysis . . ." Sequa Corp., 156 F.3d at 148-49. See also Casper v. Lew Lieberbaum Co., 182 F. Supp.2d 342 (S.D.N.Y. 2002) (Ellis, Magistrate J.) (employing lodestar approach to assist in calculating quantum meruit fee application).
In a lodestar analysis, the court estimates the attorney's fees by "multiplying the number of hours reasonably expended on the litigation times a reasonable hourly rate." Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 369 F.3d 91, 95 (2d Cir. 2004) (quotation marks omitted). This figure "is to be calculated according to the prevailing market rates in the relevant community." Id.
Finally, a discharged attorney seeking compensation in quantum meruit is entitled to interest on any recovery from the date of discharge. A "quantum meruit action is essentially an action at law, inasmuch as it seeks money damages in the nature of a breach of contract, notwithstanding that the rationale underlying such causes of action is fairness and equitable principles in a general rather than legal, sense . . . Thus, [the court is] required to award interest" pursuant to section 5001 of New York's Civil Practice Law and Rules ("N.Y.C.P.L.R."). Ogletree, Deakins, Nash, Smoak Stewart P.C. v. Albany Steel Inc., 663 N.Y.S.2d 313, 315 (3d Dep't 1997). See also Spanos v. Skuoras Theatres Corp., 235 F. Supp. 1, 17 (S.D.N.Y. 1964) (awarding interest on attorney's fees calculated in quantum meruit and citing C.P.L.R. § 5001 in support thereof) (rev'd in part on other grounds); Brent v. Keesler, 302 N.Y.S.2d 349, 351-52 (2d Dep't 1969); In re Montgomery's Estate, 284 N.Y.S. 5, 8 (4th Dep't 1935). The rate of interest is nine percent per annum. See N.Y.C.P.L.R. § 5004.
N.Y.C.P.L.R. § 5001 states, "Interest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property . . . [and] shall be computed from the earliest ascertainable date the cause of action existed[.]"
III. DISCUSSION
Because the Dweck firm was retained on a contingency basis, no contemporaneous time records were kept with respect to the number of hours the firm devoted to Mann's negotiations with the Bank. Jack Dweck testified that he estimates that the firm spent approximately 400 hours on Mann's action against First Union. See 8/4/04 Transcript ("Tr.") at 32. These hours include time expended drafting documents and correspondence, attending meetings, negotiating with the Bank, preparing for and attending a mediation session, and communicating with Mann via telephone and in person. See id. at 32-48.
Dweck further testified that at the time he represented Mann, his hourly rate for non-contingency cases was $350 per hour, and his son's rate was $175 per hour. Because Mann was a "high-maintenance" client, Dweck handled her case almost exclusively, with little assistance from his partners and associates. Specifically, Dweck estimates that he personally handled approximately 95 percent of the work done on Mann's behalf. This was true even in the evenings and on the weekends, when Dweck made sure that either he or his son were accessible to Mann at all times. See id. at 51-52.
Jack Dweck's son, H.P. Sean Dweck, was an associate at the Dweck Law Firm at the time the firm represented Mann. He is now a principal.
I find Dweck's testimony regarding the hours devoted to Mann's case to be credible, but because Dweck acknowledges that the total hours was nothing more than a "guesstimate," and because there are no records to support the testimony, a 25 percent discount of that guesstimate is appropriate. A review of the evidence submitted to the Court demonstrates that the Dweck firm prepared a number of documents on Mann's behalf, and attended several meetings and negotiation sessions. Moreover, based on Mann's testimony during trial, I conclude that she likely was a demanding client who required considerable attention. However, even giving Dweck the benefit of the doubt, his firm could not have spent more than 300 hours representing Mann between September, 1998 and March, 1999. Of these hours, 95 percent were performed by Dweck (285 hours), and five percent were performed by H.P. Sean Dweck (15 hours).
Based on all of the testimony, I further conclude that Jack Dweck is an extremely experienced attorney who specializes in employment law, and was highly qualified to represent Mann in her negotiations with the Bank. Though the underlying claim against First Union may have been typical, it was probably more difficult in this instance because of Mann's high salary (resulting in a high settlement demand) and her need for constant attention. In particular, Dweck testified that Mann micro-managed his actions, insisting on constantly overseeing every aspect of the representation and personally editing documents. See id. at 39. This likely made the representation somewhat more difficult than the typical employment case. Finally, although Mann failed to consummate a settlement during Dweck's representation, he did obtain a settlement offer of $1,035,000. Notably, had Mann accepted that offer, under the terms of the Retainer Agreement, the Dweck firm would have received $332,500.
Dweck submits that he is entitled to a fee of one-third of the offer he obtained. See Tr. at 6-7. I disagree. This offer was not accepted by the client because, according to Mann, both she and Dweck agreed that the bottom-line settlement figure was $1.55 million. If Dweck's argument were the rule, clients would be captives of their attorneys and could never obtain new counsel. Moreover, despite Dweck's claim to the contrary, I have found no case supporting the proposition that a terminated attorney is entitled to one-third of the last offer on the table. Indeed, the case law explicitly contradicts that contention. See Ruggiero, 641 N.Y.S.2d at 189-91 ( quantum meruit fee should not be based exclusively on a percentage of the settlement offer the attorney obtained for the client); Smith, 596 N.Y.S.2d at 576 (same).
Given all of these circumstances, I conclude that the value of the services the firm provided to Mann in connection with her claim against First Union is approximately $153,562. I begin with a lodestar analysis: 300 hours expended by Jack Dweck and his son, multiplied by their respective rates (285 hours multiplied by $350/hour for Jack Dweck, and 15 hours multiplied by $175/hour for H.P. Sean Dweck). This amounts to $102,375. Because of the risk involved in contingency representation, this figure should be increased by a factor of 50 percent, bringing the total to $153,562. See Ruggiero, 641 N.Y.S.2d at 191 ("[I]n making the [ quantum meruit] award, [the lower court] correctly considered the contingency agreement as one fact in determining the value of services rendered."); Gurry, 2000 WL 1702028, at *1 (same). Considering the "the difficulty of the matter, the nature and extent of the services rendered, the time reasonably expended on those services, the quality of performance by counsel, the qualifications of counsel, the amount at issue, and the results obtained," Sequa Corp., 156 F.3d at 148, this result is appropriate.
The $12,500 paid to the Dweck firm as a retainer must be subtracted from the fee award, bringing the total fees to $141,062. Finally, pursuant to N.Y.C.P.L.R. § 5001, the Dweck Law Firm is entitled to pre-judgment interest on this amount, accruing from March 22, 1999, the day the firm was terminated and continuing until the date of this order. Therefore, the firm is entitled to interest amounting to $83,115.
IV. CONCLUSION
For the foregoing reasons, Dweck is entitled to fees and pre-judgment interest amounting to $224,177. The parties are to bear their own costs. The Clerk of the Court is directed to prepare a final judgment and close this case.
SO ORDERED.