Kasowitz, Benson, Torres & Friedman, LLP, Appellant,v.Duane Reade, et al., Respondents.

Brief

N.Y.March 19, 2013

Albany Atlanta Brussels Denver 230 Park Avenue @ Suite 1 700 New York, NY 10169 Orange County Rancho Santa Fe San Diego San Francisco Los Angeles New York Tel: 212.905.8300 mckennalong.com Washington, DC CHARLES E. DORKEY III (212) 905-8330 New York State Court of Appeals 20 Eagle Street Albany, New York 12207-1095 10,2012 Re: Kasowitz, Benson, Torres & Friedman, v. Duane Reade and Duane Reade, Inc. Your Honors: EMAIL ADDRESS cdorkey@mckennalong.com This firm represents Defendants-Respondents Duane Reade and Duane Reade, Inc. (collectively, "Duane Reade") in this appeal. This letter is respectfully submitted pursuant to section 500.11 of this Court's rules of practice in opposition to the appeal filed by Plaintiff-Appellant Kasowitz, Benson, Torres & Friedman, LLP (the "Kasowitz Firm"). This Court should affirm the Decision and Order (the "Appellate Decision"), 98 AD3d 403 [1st Dept 2012], of the Supreme Court of the State of New York, Appellate Division, First Department ("First Department"), entered August 7, 2012, which affirmed the March 17, 2011 Decision and Order (the "Motion Court Decision"), and related Judgment dated April 7, 2011, by the Honorable Paul Wooten, J.S.C., New York County (the "Motion Court"), which denied the Kasowitz Firm's pre-discovery motion for partial summary judgment and granted Duane Reade's cross-motion for summary judgment, and dismissed the Kasowitz Firm's Complaint dated February 4,2010 ("Complaint") in its entirety. Pursuant to section 500.1(t) of this Court's rules of practice, Defendant- Respondent Duane Reade, Inc. (improperly identified in the caption also as "Duane Reade") states that: it is wholly owned by its parent corporation, Duane Reade Holdings, Inc.; Duane Reade Holdings, Inc. is wholly owned by Walgreen Co.; and, Walgreen Co. has no parent corporation and no public corporation owns 10% or more of its stock. v. ano. 2 only issues in this appeal are application of ordinary principles of contract interpretation to a specific attorney retainer agreement between the Kasowitz Firm and its client, Duane Reade. holding the Kasowitz to the unambiguous language it chose in drafting the attorney fee agreement, the First Department denied the Kasowitz Firm's bid to pursue a multi -million dollar bonanza. Any "success fee" claimed by the law firm would be in excess of the already generous $1.0 million flat fee Duane Reade paid the Kasowitz Firm for its work in a routine breach of contract lawsuit. The Kasowitz Firm's time charges for its work totaled less than $500,000. This case is sui generis; and, as a result, it is hard to see how the resolution of this matter will have any precedential effect. As set forth below and in Duane Reade's appellate brief (incorporated herein by reference), the success fee was not triggered under the clear unambiguous terms of the 2006 attorney fee agreement (the "Fee Contract") drafted by the Kasowitz Firm. If this Court agrees with both the First Department and the Motion Court that the Fee Contract is unambiguous, it should affirm the First Department and conclude this lawsuit. Accordingly, Duane Reade respectfully requests that this Court summarily affirm the Appellate Decision of the First Department. In 2006, Duane Reade retained the Kasowitz Firm to file suit against Cardtronics, ("Cardtronics"). Duane Reade sought to enforce its agreement with Cardtronics (the "Cardtronics Agreement") concerning how fees would be calculated for the use of Automated Teller Machines ("ATMs") installed in Duane Reade's retail drugstores (the "Cardtronics Lawsuit"). (R.50-51; 59-61.) On September 8, 2006, the Kasowitz Firm sent Duane Reade the first e-mail comprising the Fee Contract. Both the Kasowitz Firm and Duane Reade agree -- and have never disputed -- that the Fee Contract consists solely of three e-mails and that those emails form a fully integrated, unitary fee agreement. (R. 7 (Duane Reade's Pre-Argument Statement: "The Contingency Arrangement consists of three emails .... "); Appellate Decision, 98 AD3d at 411 (Dissenting opinion (the (R.354) first etc. v. 2 ana. .............. u .... u constitutes a ' ..... 1i-~ ....... proposed (in relevant part): Well, the upshot is that I came up with something that I believe will be very attractive. We can do the Cardtronics case for a flat $1 million, payable over 10 months as you suggested (exclusive of disbursements), plus 20% of amounts recovered above some number, as opposed to a percentage payable from dollar one. Based on the numbers we have, which obviously are approximations, we actually think the damages could be between $10 and $11 million over the life of the contract. So, I'm thinking of 20% of everything above $4 million as the success fee portion. Thus, if we get $10 million, the total fee would be $2.2 million (with you keeping $7.8 million obviously). That's $1 million in flat fee, plus $1.2 million in success fee .... By the way, as to our discussion about it being a "binary case" of either we win it all or lose it all, though in large part that's true, the damage question is not entirely irrelevant. We're saying that we should get paid based on the actual amount of transactions; figuring that out likely will be disputed before we're done .... 3 Receiving no immediate response, the Kasowitz Firm sent a follow-up e- mail on September 19, 2006. Later that day, Duane Reade responded with the word "Go." (R. 357.) All agree (including the First Department majority (the "Majority") and the Dissent) that the September 19, 2006 e-mail constituted acceptance of the Kasowitz Firm's September 8, 2006 proposal. Performance also proves acceptance as evidenced by the undisputed fact that Duane Reade paid $1 million to the Kasowitz Firm over the course of ten months as set forth in the Fee Contract. (R. 51 (Complaint, ~ 12 ("Duane Reade partially performed under the v. payIng installments of $100,000.").)) ana. 4 prosecuted Cardtronics Lawsuit. the pleadings and filings the Kasowitz submitted in Cardtronics Lawsuit show that the goal and strategy of Duane Reade and its lawyers (i.e., the Kasowitz Firm) was to enforce Duane Reade's interpretation of the Cardtronics Agreement regarding the calculation of ATM fees. (See e.g. R. 372-379; 381-808; 812-815; 819-929.) None of these dozens of filings and correspondence prepared by the Kazowitz Firm evidence any intent or desire to terminate the Cardtronics Agreement. Two years after the Fee Contract was accepted and while the Cardtronics Lawsuit remained pending after a remand from the Appellate Division, Duane Reade began to consider terminating (rather than enforcing) the Cardtronics Agreement. In September 2008, Duane Reade first asked the Kasowitz Firm for its views on contract termination. (R. 1 76-1 77.) The Kasowitz Firm advised Duane Reade in a September 18, 2008 e-mail that, to terminate the Cardtronics Agreement as part of the Cardtronics Lawsuit, Duane Reade would need to amend its complaint, as the lawsuit did not seek termination of the Cardtronics Agreement as a remedy. (R. 176-177.) That e-mail "discussed ways of determining if Cardtronics violated any of its own provisions in the contract. There was no mention of how to successfully break relations with Cardtronics in order to move forward with another [ATM] provider, such as Chase. There was also no mention of how to entice Ch(;tse to work with Duane Reade directly." (R. 17 (Motion Court Decision).) Although Duane Reade sent a termination notice to Cardtronics, the Kasowitz Firm never amended the pleadings in the Cardtronics Lawsuit. Neither did the Kasowitz Firm request or attempt to revise or amend the Fee Contract to address a possible termination of the Cardtronics Agreement. In November 2008, Duane Reade began negotiating directly with Cardtronics about parts of the relationship beyond the ATM fee issue disputed in the Cardtronics Lawsuit. Although it "was not involved in these discussions[,]" the Kasowitz Firm was informed of the fact that there were on-going negotiations among the principals. (R. 930-933; see also 18-19 (Motion Court Decision).) etc. v. 2 Cardtronics agreed ana. Lawsuit on 13, 2009. were that Cardtronics pay $1 to Reade and that parties would agree to Cardtronics Agreement. 937-938; 19.) Reade told Kasowitz 5 the deal terms. Kasowitz drafted the settlement agreement and dismissal documents for the Cardtronics Lawsuit. On May 8, 2009, the settlement agreement between Cardtronics and Duane Reade was finalized. Also on May 8, 2009, Duane Reade and Morgan Chase ("Chase") entered into an A TM License agreement by which Chase would place its A TMs in Duane Reade stores, in place of Cardtronics' ATMs. (R. 943-962.) The Kasowitz Firm was not involved in negotiating or drafting the contract between Duane Reade and Chase. Duane Reade did not receive any cash or other consideration from Chase as part of the settlement of the Cardtronics Lawsuit. (R. 939-942.) From inception to the conclusion of the Cardtronics Lawsuit, the Kasowitz Firm incurred less than $500,000 in time charges. In accordance with the Fee Contract, Duane Reade had paid $1 million to the Kasowitz Firm for its services in suing Cardtronics -- a more than 100 percent premium. (R. 1020-1022.) The Kasowitz Firm filed this lawsuit on February 4, 2010, seeking damages from Duane Reade in the amount of no less than $7.1 million for a claimed "success fee" for securing the termination of the Cardtronics Agreement. (R. 47- 57.) Arguing that the Contract is clear, complete and unambiguous, and before any discovery was even served, the Kasowitz Firm filed a motion for partial summary judgment. In support of its motion, the Kasowitz Firm submitted an affidavit from Duane Reade's former general counsel, Michelle Bergman ("Bergman"), dated November 2, 2009, three years after the Fee Contract was agreed. (R. 259-262.) On June 8, 2010, Duane Reade cross-moved for summary judgment, arguing that the Kasowitz Firm was not entitled' to a success fee under the plain meaning of the Contract. On reply, the Kasowitz Firm submitted yet another sworn statement from Bergman, this one dated June 25,2010 (together with the affidavit dated November 2,2009, the "Bergman Affidavits"). (R. 1018-1019.) v. ano. 6 2011, parties that the Contract was clear, complete and unambiguous. the parol evidence rule, the Court disregarded (including all affidavits) and language within four corners of the Contract. Motion Court excluded the Bergman Affidavits because they are extrinsic to the Fee Contract. (R. 24 (quoting this Court as having held that, '''when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four comers of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing'" (quoting W W W Assoc. v Giancontieri, 77 NY2d 157, 162 [1990] and citing Duane Reade, Inc. v Cardtronics, 54 AD3d 137, 140 [1st Dept 2008]).) The Motion Court granted summary judgment in Duane Reade's favor, concluding, among other things, "There is no mention that the contingency fee was to be based on any sort of new A TM arrangement with Duane Reade and another provider, nor is there any mention of Chase. Every reference in the [Fee Contract] e-mail is to Cardtronics." (R. 25.) The case was thereafter dismissed. The Kasowitz Firm appealed. (R. 10-11.) Reversing its position on appeal, the Kasowitz Firm contended that the Fee Contract it drafted is ambiguous, and that affidavits written years later show what the Kasowitz Firm meant to say (but did not) in the Fee Contract. The First Department affirmed both the Motion Court's application of the parol evidence rule and the dismissal of the Kasowitz Firm's Complaint, holding in relevant part: The language in the fee agreement does not contain any ambiguity, since it states the precise fee arrangement and explains the specific limited circumstances under which Kasowitz would be compensated by Duane Reade for legal services provided in the Cardtronics action. As evidenced by the examples set forth in the September 8, 2006 email, the only reasonable interpretation of the language employed is that Kasowitz based its fee proposal on the expected recovery or potential earnings of $10 million from the surcharge fees that Cardtronics had withheld and would owe over the "life of the contract" between Duane Reade and Cardtronics. etc. v. '-"-'V<'"",,,"-. et ana. saylng of transactions." is no basis attributing to value of the termination of the agreement, given the fee agreement's silence on that issue (see Greenfield v Phillies Records, 98 NY2d at 569). The fee agreement makes no reference to any new or potential agreement that Duane Reade might thereafter enter into with Chase or any other entity if the Cardtronics agreement was terminated, nor does it indicate that the success fee would be based on any such agreement. As [the] Supreme Court found, "[i]f Kasowitz wanted to ensure that it would be receiving a contingency fee based on any developments with any other ATM machine providers, Kasowitz should have explicitly written such in its contingency fee." An omission or even a mistake in a contract does not constitute an ambiguity (see Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001]; Gladstein v Martorella, 71 AD3d 427,429 [2010]). 98 AD3d at 406-407. 7 Duane Reade respectfully submits that the First Department was correct in its holding and its Decision should be affirmed. None of the reasons set forth by the Dissent or the Kasowitz Firm compel a different result. First, the Motion Court and the Majority correctly applied the parol evidence rule by excluding consideration' of extrinsic evidence, such as the Bergman Affidavits, from deciding the meaning of the Fee Contract. The Dissent argues that extrinsic evidence is necessary to "establish that 'Go' constituted Duane Reade's acceptance [of the Fee Contract]," so it should be considered in interpreting the Fee Contract. 98 AD3d at 411. The premise of this argument is flawed. The Motion Court did not need to consider any extrinsic evidence regarding contract formation because, the Kasowitz Firm alleged in its own v. ano. 8 Contract is "valid, " both parties sought summary judgment discovery on basis. (See (Complaint ~ 22 stating: is a valid, binding enforceable contract as which was documented vanous writings between Duane Reade."); 23 (Motion Court stating: "Duane Reade does not dispute that the agreement, made via the September 8, 2006 e-mail, is a valid and binding contract .... ").) Duane Reade's acceptance of the terms in the Kasowitz Firm's September 8, 2006 e-mail was never in dispute. Additionally, it is undisputed that Duane Reade performed under the terms of the Fee Contract by paying the Kasowitz Firm $1 million in ten installments. See Jemzura v Jemzura, 36 NY2d 496, 503-504 [1975] ("A contract implied in fact may result as an inference from the facts and circumstances of the case, although not formally stated in words, and is derived from the 'presumed' intention of the parties as indicated by their conduct. It is just as binding as an express contract arising from declared intention, since in the law there is no distinction between agreements made by words and those made by conduct.") (citations omitted). Assuming arguendo that the Motion Court did need to look to the Bergman Affidavits to determine acceptance (which it did not), the law makes a distinction between considering extrinsic evidence as to the formation versus the meaning of a contract. See Polygram Holding, Inc. v Cafaro, 42 AD3d 339,340 [1st Dept 2007] (while "parol evidence rule precludes a party from offering evidence to contradict or modify an unambiguous contract ... , parol evidence may be offered 'to show that a writing, although purporting to be a contract, is, in fact, no contract at all. ''') (citations omitted); see also Crabtree v Elizabeth Arden Sales Corp., 305 NY 48, 57 [1953]. Even when reviewed to resolve issues of contract formation, "[ e ]xtrinsic and parol evidence are not admissible to create an ambiguity in a written agreement which is complete, clear and unambiguous on its face," and an '" omission or mistake in a contract does not constitute an ambiguity. '" Gladstein v Martorella, 71 AD3d 427, 429 [1st Dept 2010] (citation omitted). As found by both the Motion Court and the First Department (and previously argued by the Kasowitz Firm), the Fee Contract is clear and unambigous. Second, the Dissent states that the Fee Contract is ambiguous with respect to the term "recover." But, every reference in the Kasowitz Firm's e-mail relates to money that Cardtronics would pay Duane Reade based upon the Cardtronics v. ana. 9 calculation Contract a success "value" received, it wrote does not contain word "value." Ins~ead, Contract is explicit that success fee is triggered only based "amounts recovered." Under the clear and unequivocal terms of the Contract, the only way for the Kasowitz Firm to earn a success fee, on top of the $1 million flat fee, would be if it succeeded in enforcing Duane Reade's interpretation of the Cardtronics Agreement (by judgment or settlement), which sought to have Cardtronics pay more than $4 million in ATM fees to Duane Reade. this regard, the Majority correctly reasoned: The dissent believes that the fee agreement is ambiguous as to the scope of the fee. The dissent reasons that the term "recover," as used in the September 8, 2006 email, may reasonably be interpreted to encompass noncash resolutions, i.e., any value received as a result of the settlement of the Cardtronics action. However, in adopting this position, the dissent fails to consider the term "recovered" or "recovery" in the context of the email as a whole, and improperly relies on extrinsic evidence, including Bergman's affidavits, in order to find ambiguity where none exists. 98 AD3d at 405. Indeed, this Court requires examination of "'the entire contract and consider the relation of the parties and the circumstances under which it was executed.'" (Id. at 413 (citing Kass v Kass, 91 NY2d 554,566 [1998]).) Here, in context, the Contract undoubtedly refers only to dollars Cardtronics would pay to Duane Reade. Further, the definition of the word "recover" demonstrates that the Fee Contract does not contemplate termination of the Cardtronics Agreement. Black's Law Dictionary defines "recover" as: "To get back or regain in full or in equivalence, 'the landlord recovered higher operating costs by raising rent. '" Black's Law Dictionary, 1389 [9th ed 2009]. Cardtronics is the only party from which Duane Reade could "get" anything "back." There was nothing to "recover" from Chase; and, Chase was not party to the Cardtronics Lawsuit. Therefore, v. ana. 10 literally no ""-'-'u ....... ..., s agreement with Chase could have "recovered" by Cardtronics "recover" is coupled with the word "amount" (as it is in the Contract), meaning is further crystallized. The Kasowitz claims that "amounts recovered" should include intangible and indirect benefits stemming from termination of the Cardtronics Agreement. But, by definition, "amounts" refers to a "total number or quantity." Merriam Webster Online, http://www.merrialn-webster.com/dictionary/amounts [accessed Dec. 10, 2012]. "Amounts recovered," then, must refer to countable payments to Duane Reade. This definition further shows the Fee Contract would allow for a success fee only if (1) funds were received (2) from Cardtronics. While the Dissent is correct that contingency fees are permitted for non-cash resolutions in certain circumstances (98 AD3d at 412), the Fee Contract does not provide for this. The Fee Contract, which conditions a success fee (on top of the flat fee) on "amounts recovered" in excess of $4 million, is distinguished from the case cited by the Dissent, Beatie v DeLong, 164 AD2d 104 [1st Dept 1990]. There the contingency fee agreement specifically stated that the attorney would '''receive 30% of all revenues of any kind generated by the patents .... '" Beatie, 164 AD2d at 106. I-Iere, there is no such language. As this Court has held, the fact that a contract is silent on an issue, just as the Fee Contract is silent on the issue of termination, does not make the contract ambiguous. See Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001] ("Even where a contingency has been omitted, we will not necessarily imply a term since 'courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing. ''') (citations omitted); see Greenfield v Phillies Records, 98 NY2d 562, 569 [2002]. Furthermore, it is undisputed that, at the time Duane Reade engaged the Kasowitz Finn, both intended to pursue a claim for a monetary payment from Cardtronics. The Fee Contract's plain language supports that intent, as does the only two contemporaneous writings that specifically relate to the Fee Contract -- an email dated April 4, 2006 in which the lead attorney at the Kasowitz Firm expressly stated that Duane Reade was not seeking to terminate the Cardtronics Agreement and a September 21, 2006 e-mail internal to the Kasowitz Firm, reporting "a flat fee of $1 million, plus disbursements, plus 20% of any amount we recover above $4 million." (R.369-371; 118.) v. ana. even Fee Contract contained an ambiguity (which it does there are other grounds to affirm the Appellate Decision. While the Majority did not address these theories because it correctly found the Fee Contract to be unambiguous, the Motion Court Decision should also be upheld because: • The Kasowitz Firm is estopped from arguing that the Fee Contract is not complete and unambiguous because it argued the opposite to the Motion Court. See Maas v Cornell Univ., 253 AD2d 1, 5 [3d Dept 1999]; Karasik v Bird, 104 AD2d 758,758-59 [1st Dept 1984]. • Whenever any ambiguity exists in a retainer agreement, "the law requires that an agreement between client and attorney be construed most favorably for the client." Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 177 [1986]; see also Omansky v Anosike, 2002 WL 31506312, * 1 [App Term, 1st Dept 2002]. The Kasowitz Firm's submission of after-the-fact affidavits to explain the Fee Contract is inconsistent with its duty to make all provisions in its retainer agreements complete and clear. • The excluded evidence (if considered) does not support entitlement of a success fee. The Bergman Affidavits do not say that the Fee Contract calls for a success fee related to the termination of the Cardtronics Agreement. The initial Bergman affidavit confirms that the Fee Contract considered only money paid by Cardtronics as part of the Cardtronics Lawsuit in calculating a success fee. (R. 259 (speaking of incentivizing the Kasowitz Firm "to maximize the recovery from the [Cardtronics] litigation" and that Kasowitz would receive "20% of whatever amounts above $4 million Duane Reade received from the litigation . . . ."). In her subsequent 2010 affirmation, improperly submitted on reply on the motion for partial summary judgment, Bergman carefully avoids saying that the business deal with Chase could or did trigger a contingent fee. At most, she says that the actual value of termination would be "worked out and calculated at the appropriate time, a termination ended up being out" later, Contract '-'L,. ... , .... " ..... "'''"' ....... " ana. 12 101 actually been • The Bergman Affidavits are not binding on Duane Reade because Bergman is not an authorized Duane Reade representative. See Tyrrell v Wal-Mart Stores, 97 NY2d 650, 652 [2001]; Gilbert v State a/New York, 174 Misc 2d 142,148 [NY Ct CI 1997] (,"[T]hehearsay statement of an agent is admissible against his employer under the admissions exception to the hearsay rule only if the making of the statement is an activity within the scope of his authority. ''') (citations omitted). • As a matter of public policy, the Kasowitz Firm should not be permitted to recover over $7 million because such a fee would be wholly unreasonable for the work the Kasowitz Firm actually performed. See Rules of Professional Conduct [22 NYCRR 1200.5(a)]; see also Jacobson v Sass ower, 66 NY2d 991,993 [1985] ('" [A]n agreement to pay a legal fee may be invalid if it appears that the attorney got the better of the bargain .... "'); Gair v Peck, 6 NY2d 97, 106 [1 st Dept 1959] ("Contingent fees may be disallowed as between attorney and client in spite of a contingent fee retainer agreement, where the amount becomes large enough to be out of all proportion to the value of the professional services rendered."). *** Both the First Department and the Motion Court correctly interpreted the clear and unequivocal terms within the four comers of the Fee Contract This Court should affirm the Appellate Decision because the Fee Contract is unambiguous and does not, on its face, allow any success fee for allegedly procuring termination of a contract that the Kasowitz Firm was retained to enforce. To the extent there is any doubt about the meaning of the Fee Contract, the Court should affirm for the reasons listed above. In the unlikely event the Appellate Decision is reversed, Duane Reade respectfully requests that this Court remand the matter to the Motion Court in order to develop the factual record. Benson, etc. v. ana. 3 12 foregoing reasons, Duane respectfully requests that Court First Department's Decision and Order, which affirmed the denial of the Kasowitz s motion for partial summary judgment and granted Duane Reade's cross-motion for summary judgment, and award such other and further relief as is deemed just and proper. Respectfully submitted, Attorney for Defendant-Respondent cc: Aaron Marks, Esq. Kasowitz, Benson, Torres & Friedman LLP Attorneys for Plaintiff-Appellant 1633 Broadway New York, New York 10019-6799