Opinion
Case No: 94 B 44743 (CB), Chapter 7, Adversary Proceeding No. 96-8484A
July 24, 2001
ANES, FRIDMAN, LEVENTHAL, RUBIN Attorneys for Bower Gardner New York, New York 10007, By: CHARLES M. BALISTRERI, ESQ., Counsel.
Neil C. Raff, M.D. Westport, CT 06880, Defendant, pro se.
DECISION REGARDING UNPAID LEGAL FEES TO THE DEBTOR
Bower and Gardner ("Debtor" or "BG") herein seeks an order of this Court to directing Neil Raff M.D. ("defendant" or "Dr. Raff") to pay an alleged debt owed to the estate of the Debtor for legal services rendered from September of 1993 through March of 1994. The debt for legal fees and out of pocket disbursements total an aggregate amount of $31,416.91 plus interest.
STATEMENT OF FACTS
The court is very familiar with the facts of Bower Gardner's bankruptcy and this matter in particular, for which there was a hearing ("Hearing") on April 24, 1997. Further, there are substantial decisions, orders, and moving papers on record detailing the background of both the Debtor's bankruptcy and this adversary proceeding. Accordingly, the following is a brief recitation of the relevant facts in this matter.
After filing a petition for reorganization on October 11, 1994 under Chapter 11 of Title 11 of the United States Bankruptcy Code ("Bankruptcy Code" or the "Code"). Since that time, attorneys for the Debtor have attempted to collect hundreds of accounts receivable which Debtor alleges compromises a substantial portion of its estate. Counsel for Bower and Gardner herein alleges that the instant account, in the name of Neil Raff, M.D., be ordered due with payment to follow.
Dr. Raff engaged BG's services originally for the purpose of regaining hospital privileges at Norwalk Hospital in Connecticut, which had been revoked by the hospital administration. BG represented defendant at a hospital appeal's hearing ("Appeal's Hearing"). As the Appeal's Hearing was unsuccessful, BG commenced researching further potential causes of action for the defendant. Ultimately, BG focused their efforts on assisting Dr. Raff in gaining privileges at another hospital, St. Joseph's Hospital in Connecticut. Counsel for BG evidenced several letters regarding Dr. Raff's applying to St. Joseph's Hospital. Prior to its dissolution, Debtor had submitted billing statements to Dr. Raff in the amount of $31,416.91 which it claims defendant owes for legal research, representation at the Appeals Hearing, efforts to get Dr. Raff admitted at St. Joseph's Hospital., and disbursements accrued between September 1993 and April 1994.
Defendant claims that BG's failure to accomplish any substantive work leading to a resolution of his problems as well as BG's dissolution, forced him to obtain other counsel who came to a quick and economical conclusion of his case. Defendant testified that in about April of 1995, he retained the firm of Updike and Kelly. Dr. Raff testified that after about five weeks of work, counsel at Updike and Kelly informed him that he had no cause of action against Norwalk Hospital. Dr. Raff contends that these factors should preclude him from paying the debtor's estate or at least mitigate his liability to BG.
Debtor's attorneys commenced this adversary proceeding on April 25, 1996. At the Hearing both parties agreed to allow this court to enter a non-appealable decision in lieu of having formal evidentiary hearing. I instructed both parties to provide the Court with billing statements, copies of memoranda of law written by BG, bills from Updike Kelly, copies of transcripts from the Appeal's Hearing, and any other pertinent information to aid in making a decision on the matter. I then reserved decision.
DISCUSSION
Given that diverse parties have consented to this Court resolving this matter, this Court is to apply the choice of law rules to the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941). In a contract dispute, the case of Auten v. Auten, 308 N.Y. 155 (1954) is recognized as setting the standard for determining the choice of law in New York. Allstate Insurance Co. v. Stolarz, 81 N.Y.2d 219, 224 (193); State Tax Commission v. Havemeyer 17 N.Y.2d 216, 221 (1996); Global Commerce Corp. v. Clark-Babbitt Industries, 239 F.2d 716, 719 (2d Cir. 1956). New York State requires that courts apply the laws of the state with the most significant contacts to the pending issue. Auten, 308 N.Y. 155, 159 (1954). A state has more "significant contacts" than another when that state is more related to the pending legal issue or when that state has a paramount public policy concern. Auten, 308 N.Y. 155 at 159. Additionally, courts are to afford significant weight to the location and performance of the contract. Auten, 308 N.Y. 155 at 159.
Under the present facts, New York is the state where the contract for services between BG and Dr. Raff was entered into and where the bulk of the contract was performed. Bower Gardner was a New York law firm, its lawyers were New York practitioners, and most of the work took place in New York rather then Connecticut. From a policy standpoint, given that the liquidation of this New York Debtor's estate is in the Southern District of New York an the possibility of future litigations in this court room regarding the accounts receivables of Bower Gardner, judicial economy suggests uniform application of the law in each proceeding. Thus, applying the standard set forth in Auten, the applicable New York state law regarding attorney's fees shall apply.
Under New York state law, the present case aligns with the doctrine of an account stated. Kramer, Levin, Nessen, and Kamin Frankel v. Aronoff, 638 F. Supp. 714, 718 (S.D.N.Y. 1986). An "account stated" or "stated account" is "an agreement parties to an account based upon prior transactions between them with respect to the corrections of the account items and balance due." Jim-Mar Corporation v. Aquatic Construction, Ltd., 195 A.D.2d 868 (N.Y.App.Div. 1993). The agreement establishing the account stated may be express between parties or implied by failing to object to the service rendered for an unreasonable amount of time. Id.; Sisters of Charity Hospital of Buffalo v. Riley 231 A.D.2d 272, 281 (N.Y.App.Div. 1997); Kramer, Levin, Nessen, and Kamin Frankel v. Aronoff 638 F. Supp. 714, 718 (S.D.N.Y. 1986); Rosenman Colin Freund Lweis Cohen v. Neuman, 93 A.D.2d 745, 746 (N.Y.App.Div. 1983).
In the present case, neither litigant presented evidence of an express contract entered into between BG and Dr. Raff. In deciding whether or not an account stated is to be implied, a court must determine whether or not the alleged party in debt failed to make a timely objection to a bill for services rendered, which is tantamount to acceptance. Sisters of Charity Hospital of Buffalo v. Riley, 231 A.D.2d 272, 281 (N.Y.App.Div. 1997); Jim-Mar Corporation v. Aquatic Construction, Ltd., 195 A.D.2d 868 (N.Y.App.Div. 1993); Gurney, Becker Bourne, Inc., v. Benderson Development Company, 47 N.Y.2d 995 (1979); Rodkinson v. Haecker, et al., 248 N.Y. 480 (1928). In the attorney-client context, after retaining an attorney, if a client receives a bill for services rendered, the law places an obligation upon the client to scrutinize the bill and object to the account within a reasonable amount of time. Gurney, Becker Bourne, Inc., v. Benderson Development Company, 47 N.Y.2d at 995. If the client fails to assume this duty, he is deemed to have agreed to the bill. Id.
In the present case, it is undisputed that sometime around September 1, 1993, Dr. Raff sought the services of Bower Gardner. Debtor has supplied copies of statements of account sent to the defendant on a monthly basis for the legal services rendered from September 1, 1993 though March 29, 1994. One of these statements, the bill dated October 29, 1993 (the "first bill") in the amount of $20,177. 43, reflects a partial payment of $8,000.00 made by the defendant on December 3, 1993 to the Debtor. Although none of the five bills sent by BG to Dr. Raff from October 29, 1993 to April 21, 1994 were paid in full, there is no evidence of an objection, written or otherwise until the Hearing. It was not until commencement of this adversary proceeding that Dr. Raff came forth with an objection to the quality of BG's performance. This court finds that Dr. Raff's failure to object to the invoices received for three years constitutes an unreasonable delay pursuant to the applicable law. See Polygram v. 32-03 Enterprises, Inc., 697 F. Supp. 132 (E.D.N.Y. 1988) (holding in part that failure to object to bill for goods for over a year was unreasonable); Fink, Weinberger, Fredman, Berman, Lowell v. Petrides, 80 A.D.2d 781 (N.Y.App.Div. 1981) (holding in part that failure to the validity of attorneys fees for one year was unreasonable).
Defendant contends that he should not be held liable, or at least that this Court should reduce his liability to the Debtor's estate. At the hearing, defendant claimed that BG produced no substantive work product but kept billing him for several months. Dr. Raff alleges that after he lost his appeal to Norwalk Hospital, BG attorneys told him they were continuing to "develop strategies." Dr. Raff claims that he was never appraised as to what these strategies were nor of their likelihood of success in a potential litigation. Defendant also stated at the Hearing that he obtained other counsel, Updike Kelly, who after five weeks of work, presented a "comprehensive final report" of Dr. Raff's options. R-6. Counsel at Updike and Kelly informed defendant that he had no cause of action against Norwalk Hospital for revoking his privileges.
The law dictates that the indebted party must pay the balance of a stated account unless there is proof of fraud, deceit, undue influence, or that other equitable considerations exist. Kramer, Levin, Nessen, Kamin Frankel 638 F. Supp at 720; Rodkinson, 248 N.Y. at 487. None of the documents which this Court requested from Dr. Raff at the Hearing to evaluate the fees of Bower Gardner, such as bills from Updike Kelly or copies of the Appeal's Hearings, have ever been supplied. Further, defendant is a mature, well-educated professional with years of experience in a service-oriented practice. This Court finds it very unlikely, especially in the absence of any relevant evidence, that BG fraudulently induced defendant into paying for his legal services, especially in light of defendant's testimony that he hired two law firms, "one to watch over the first firm." R.9. Thus, since defendant has failed to supply any evidence to evaluate the fees charged by BG, the law dictates that the stated account must be paid. Kramer, Levin, Nessen, Kamin Frankel, 638 F. Supp at 720. However, as noted, this court can reduce the amount owed on a stated account, in this case attorney's fees, in light of other equitable considerations. Id.
In the present case, an analysis of the billing statements submitted to the Court by attorneys for Bower and Gardner allow the Court to break down the services rendered into three parts: the Appeal's Hearing Phase, the Research Phase, and the St. Joseph's Phase. First, from September 1, 1993, through September 21, 1993, BG prepared and attended Dr. Raff's Appeals Hearing at Norwalk Hospital in Connecticut. Notwithstanding defendant's failure to regain his privileges, in light of the fact that Dr. Raff did not call into question the adequacy of BG's representation at the Appeal's Hearing, this Court finds that the time spent in preparation for the Norwalk Hospital hearing was billed appropriately, and defendant is so liable.
The Research Phase of the services rendered by BG accrued during October 7, 1993 until; November 15, 1993. A close scrutiny of the billing statements from this period reveal that during this time BG focused primarily on determining whether or not Dr. Raff had a potential cause of action for either defamation, breach of contract, or antitrust. BG's staff billed most of its time performing research in these areas. Additionally, this time period, about six weeks, coincides with Dr. Raff's testimony of the amount of time it took Updike Kelly to conclude that he had no cause of action. The billing statements entered into evidence by counsel for BG show that on several occasions during this period Dr. Raff visited and spoke with attorneys from BG. On these occasions defendant could have easily demanded the research regarding his case from BG. Further, on these instances Dr. Raff could have terminated BG's services. Accordingly, this court holds the defendant liable for bills accrued during the Research Phase.
Billing from the St. Joseph's Phase accrued from the November 15, 1993 through March 29, 1994. From the BG billing statements, during this time period, it appears that BG was working with Dr. Raff to gain privileges at St. Joseph's Hospital in Connecticut, as evidenced by letters ("Letters") which BG sent to various persons attempting to facilitate Dr. Raff's application to St. Joseph's. Similarly, BG's billing statements for this period contain multiple entries of telephone conversations and research into strategies which would facilitate Dr. Raff's efforts to gain privileges at St. Joseph's.
However, in August of 1994, right after the St. Joseph's Phase, BG sent its dissolution letter to Dr. Raff. As this is familiar with BG's bankruptcy, at the time that BG was facilitating Dr. Raff's application to St. Joseph's, BG was experiencing serious problems which led to its filing for bankruptcy. During the St. Joseph's Phase, it is quite possible that the attention of the BG staff focused on internal problems rather than on Dr. Raff's case. It is therefore the opinion of the Court that Dr. Raff is only required to pay the estate of BG for the time which BG's attorneys spent preparing the letters written during the St. Joseph Phase which were submitted into evidence. The amount totals $952.50. Just over five hours of attorney time was spent writing these letters at a billing rate of around $175.00 per hour.
In as much as the law mandates payment of stated accounts, the N.Y. McKinney's CPLR § 5001 and § 5004 state that "interest shall be recovered upon a sum awarded because of breach of contract." Courts have interpreted this provision to apply to accounts stated. In re Bartlett's Estate, 272 A.D. 1068, 1069, 74 N.Y.S.2d 861, 863 (2d Dep't 1947); N. Bloom Son Limited v. Skelly, 673 F. Supp. 1260, 1268 (S.D.N.Y. 1987). Thus, the defendant is liable for each billing period as stated plus interest running from the date payment was demanded until commencement of this adversary proceeding.
CONCLUSION
Consistent with the above reasoning, this Court finds that the defendant, Neil Raff MD, is liable to debtor having established a stated account. Therefore, this court orders defendant to pay debtor the following:
I: Appeals Phase: September 1, 1993 — September 21, 1993 = $12,177.43 @ 9% (Interest from 10/29/93 — 4/25/96) = $15,119.06.
II: Research Phase: September 21, 1993 — November 15, 1993 = $10,295.02 @ 9% (Interest from 12/29/93 — 4/25/96) = $12,598.46.
III: St. Joseph's Phase:
1: $140.00 @ 9% interest from 12/28/93 — 4/25/96 = $171.32
2 : $105.00 @ 9% interest from 1/27/94 — 4/25/96 = $127.56
3 : $585.00 @ 9% interest from 3/17/94 — 4/25/96 = $700.25
4: $122.50 @ 9% interest from 4/21/94 — 4/25/96 = $145.54
Total Amount owed = $28,862.19.
Counsel for the Debtor is directed to settle an order consistent with the above ruling on five (5) days' notice.