Ruta & Soulios LLP v Litman & Litman, P.C.

[*1] Ruta & Soulios LLP v Litman & Litman, P.C. 2005 NY Slip Op 51756(U) [9 Misc 3d 1123(A)] Decided on September 12, 2005 Supreme Court, New York County Kornreich, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 12, 2005
Supreme Court, New York County

RUTA & SOULIOS LLP, Plaintiff,

against

LITMAN & LITMAN, PC, EUGENE LITMAN, JEFFREY LITMAN, ROBERT A. LITMAN, KENNETH S. LITMAN, MICHAEL P. LITMAN and STUART RISSOFF, Defendants.



603322/03

Shirley Werner Kornreich, J.

This is an action to recover fees for legal services rendered. In December 2002, plaintiff was retained by Aura L. Garcia, a pedestrian who was hit by a car. Ms. Garcia executed a retainer agreement with a contingent fee of 1/3 of any recovery. Subsequently, Ms. Garcia discharged plaintiff, and retained defendant Rissoff, and thereafter substituted defendant Litman & Litman, PC ("L&L") for Rissoff. The parties were unable to agree as to plaintiff's compensation for work performed prior to his discharge. Subsequently, L & L obtained a settlement for Ms. Garcia from the driver's insurer, in the amount of $550,000. Plaintiff's complaint seeks compensation for legal services rendered to Ms. Garcia and asserts a cause of action against defendants for tortious interference with contract.[FN1]

Summary Judgment

Plaintiff now moves for partial summary judgment. Plaintiff submits the affirmation of Joseph Ruta, appearing on behalf of his firm, together with copies of the complaint and answer, the retainer agreement, correspondence between plaintiff and L & L, a time-sheet of hours worked for Ms. Garcia, and other documents. In opposition, the Litman defendants submit the affidavit of Jeffrey Litman, and the affirmation of L & L's attorney, Michael Markowitz, together with documentary evidence.

I.Factual Background

Mr. Ruta affirms as follows. Pursuant to a written agreement dated December 3, 2003, Ms. Garcia retained his firm to represent her in her claim for personal injury damages sustained in an accident on November 22, 2002. Affirmation of J. Ruta, para. 2. The retainer agreement provided that plaintiff would receive "one-third (1/3) of the gross recovery" received by Ms. Garcia, "whether recovered by suit, settlement or otherwise." Id., Ex. B. At the outset, Mr. Ruta [*2]"spent a great deal of time not only investigating the case but helping Ms. Garcia with her medical and housing issues." Id. Ms. Garcia did not have money to pay her rent and, thus, Mr. Ruta had "numerous conversations with hospital social workers and staff," attempting to find her suitable accommodations, and preventing her from being transferred to a shelter. Id. Additionally, Mr. Ruta "had numerous conversations with Ms. Garcia in order to discern the facts and determine a theory of liability." Id. at 3. Ruta made a settlement demand of the driver's insurer; obtained and examined the police report; "held numerous phone conversations with ... social workers, insurance representatives, an accountant, hospital staff, and the client's employment agency, doctors and friends"; and "prepared a summons and complaint, which were ready to be filed in the Supreme Court of New York, Bronx County." Id. A copy of the summons and complaint is attached to Mr. Ruta's affirmation.

Plaintiff's complaint states that on January 10, 2003, he "received a facsimile from defendant Stuart M. Risoff stating in substance that he had been retained by the client and that the firm of Ruta & Soulios LLP should take no further action on her behalf." Cmplt., para. 34. Two days later, plaintiff received a letter from defendant Eugene Litman stating that his firm "had been retained by the plaintiff and that Ruta & Soulios LLP should take no further action on her behalf." Id. at 35. The Complaint alleges that Ms. Garcia "switched to defendant Stuart Risoff after being offered a monetary sum and the promise of a free place to stay on January 9, 2003." Id. at 46. The Complaint further alleges that Ms. Garcia then switched to Litman & Litman, two days later, because "they offered more money and a place for her to stay. They also promised the client that the would solve all of her financial problems and give her whatever else she needed, including a place to stay, until her case settled." Id. at 47. Subsequently, Ms. Garcia allegedly "stated that she would be willing to return to Mr. Ruta if he was willing to make te same promise as defendant Litman & Litman, P.C. Mr. Ruta refused to make the promise and told the client that he could only promise to represent her legal interests to the best of his ability." Id. at 48.

According to Mr. Litman, his firm was contacted on or about January 11, 2003, by Olga Mieres, who worked as "a cleaning woman for the defendant Kenneth S. Litman." Affidavit of J. Litman, para. 5. Ms. Mieres stated that Ms. Garcia was hospitalized and was "looking for another attorney." Id. L & L sent a Spanish-speaking representative to the hospital to interview Ms. Garcia, who stated that she was "unhappy with plaintiff's representation," because plaintiff had not provided her any relief from her economic problems. Id. at 6. L & L advised Ms. Garcia that "once litigation commenced, she could borrow money from an independent agency using the lawsuit as collateral." Id. at 7. Ms. Garcia elected to retain L & L,[FN2] and signed a consent to change attorney form dated January 11, 2003. Id. at 8. The form, written in English, stated: "I want my previous attorney to stop working on my accident case at once and to turn over my file to my new attorneys, L & L, P.C. I do not want my previous attorney to contact me or members of my family." Id., Ex. 1. L & L sent the signed form to plaintiff, with a cover letter dated January 14, 2003, demanding that plaintiff stop work for Ms. Garcia, and turn over the file. Id. Simultaneously, L & L commenced an action on behalf of Ms. Garcia in Supreme Court, Bronx [*3]County. Id. at 10.

Mr. Ruta "spoke with Ms. Garcia's new lawyers, L & L, and tried to make arrangements to transfer the file." Ruta Aff., para. 5. Ruta sent a letter, dated February 18, 2003, stating: As per our discussion, my office was retained by Ms. Garcia Caceres soon after her accident, on the above referenced date, to represent her with regard to her injuries.As you know, Ms. Garcia Caceres did not have a residence in New York City after the accident. As such, my office spent numerous hours dealing with the no-fault aspects of this case, including trying to find suitable housing for the client.Our office is willing to turn our file over to your office upon the receipt of a check in the amount of $84.66 covering our disbursements.It is the desire of this office to work out a mutually agreeable percentage for legal fees at this point, rather than getting into a fee dispute at the end of the case.Please contact me at your convenience so that we can resolve the above stated issues.

Ruta Aff., Ex. D.

By letter dated March 17, 2003, Mr. Ruta reiterated that his firm was "entitled to recover the fair and reasonable value of [its] legal services rendered to Ms. Garcia Caceres..." Ruta Aff., Ex. D. The letter requested that L & L sign and return it to plaintiff, as an acknowledgment of plaintiff's entitlement to recovery. The letter repeated the demand for $84.66 in exchange for the transfer of the file, and stated: "[w]e shall resolve the value of the legal services at the conclusion of this matter either amicably or submit same to the Court." Id.

In a third letter, dated March 27, 2003, Mr. Ruta stated that L & L had not responded to the two previous letters, and therefore, was on notice that plaintiff possessed a lien for the legal services rendered to Ms. Garcia Caceres, and reserved its rights to have the court determine, at the end of the case, the "fair and reasonable value" of the legal services rendered. Id.

L & L responded by facsimile dated March 27, 2003. The handwritten communication stated: "Mr. Ruta, according to NY State Law, McKinney's Judiciary Law § 475 and case law attached, you are not entitled to receive any legal fee. You did not start any action nor did you file a proper notice of lien prior to the commencement of an action." A copy of the referenced statute followed, with case note citations to Jaghab & Jaghab v. Marshall, 256 AD2d 342 (2d Dept. 1998), and O'Grady v. Schmidt, 22 Misc 2d 974, 975 (Sup. Ct. Queens Co. 1959).

By letter dated July 28, 2003, L & L told plaintiff: "Pleased [sic] be advised This [sic] case has been settled. Please note under MCKINNEY'S JUDICIARY LAW SECTION 475 YOU ARE ENTITLED TO ZERO." Litman Aff., Ex. 5 (emphasis in original). "As per prior conversations you had with Ken Litman Esq. I [Eugene Litman] will honor his offer to you in the amount of $1000. Please find check in the amount of $1000 representing your payment in full." Id. A check for $1,000 made out to plaintiff was included with the letter. Id.

By letter dated September 3, 2003, plaintiff stated that he "advised [Eugene Litman] in a [*4]telephone conversation in early August of 2003, that your settlement offer of $1,000.00 was rejected." Litman Aff., Ex. F. Plaintiff enclosed the uncashed check and promised to "seek redress of all issues in this matter in a court of law." Id. This action followed.

Plaintiff submits a copy of the release executed by the owner and driver of the car, dated May 27, 2002; a check in the amount of $550,000 made out by the insurer to Ms. Garcia and L & L, as "full and final payment any and all claims"; and the closing statement of defendants, dated August 1, 2003, stating that they received $179,872.07 in attorney's fees, and paid $1,000 in "contingent compensation" to plaintiff and Mr. Rissoff. Ruta Aff., Ex. E. Plaintiff also submits copies of his billing records reflecting 64.7 hours of work for Ms. Garcia from December 2, 2002 to January 9, 2003, and 6.2 hours thereafter, dealing with matters in connection with his discharge and discussions with Mr. Rissoff and L & L. Ruta Aff., Ex. G. Defendants' attorney opines that the number of hours reported in the time sheets "is grossly exaggerated." Affirmation of M. Markowitz, para. 10. "Without plaintiff's explanation through a deposition," Markowitz affirms, "the Litman Defendants do not have the necessary facts to oppose a quantum meruit claim." Id. L & L submits no evidence as to the time it spent on the matter.

II.Conclusions of Law

A.Summary Judgment

In order to prevail on a motion for summary judgment, the moving party must establish its cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in its favor. Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851 (1985); Zuckerman v. City of New York, 49 NY2d 557 (1980). If the movant makes out a prima facie case, the opponent must come forward and "lay bare his proofs" of any alleged triable issues of fact. See In re Dissolution of Rencor Controls, Inc., 263 AD2d 845 (3rd Dept. 1999) citing Hanson v. Ontario Milk Producers Coop., Inc., 58 Misc 2d 138 (Sup. Ct. Oswego Co. 1968). Defendants argue that summary judgment should be denied because: (1) plaintiff has no charging lien pursuant to Judiciary Law § 475, as he was discharged prior to commencing an action; and (2) plaintiff is not entitled to quantum meruit recovery because he failed to turn over the client file, and did no work benefiting defendants. The Court disagrees, as set forth below.

B.Charging Lien under Judiciary Law § 475

"A charging lien is a security interest in the favorable result of litigation giving the attorney equitable ownership interest in the client's cause of action and ensuring that the attorney can collect his fee from the fund he has created for that purpose on behalf of the client." Chadbourne & Parke, LLP v. AB Recur Finans, 18 AD3d 222, 223 (1st Dept. 2005) citing LMWT Realty Corp. v. Davis Agency, 85 NY2d 462, 467-468 (1995); Butler, Fitzgerald & Potter v. Gelmin, 235 AD2d 218 (1st Dept. 1997). The Court agrees with defendants that plaintiff has no charging lien under Judiciary Law § 475, because he was discharged prior to commencing an action. See Jaghab & Jaghab v. Marshall, 256 AD2d 342, 343 (2d Dept. 1998) (citations omitted). However, the absence of a charging lien is not dispositive of an outgoing attorney's claim to recovery of the reasonable value of legal services rendered. See Ling Cheng v. Modansky Leasing Co., 73 NY2d 454, 458 (1989). Thus, the Court turns to the issue of plaintiff's quantum meruit recovery.

C.Quantum Meruit Recovery of Reasonable Value of Legal Services Rendered

Where one attorney is replaced by another during the representation of a client: [*5] [t]he outgoing attorney may elect to take compensation on the basis of a presently fixed dollar amount based upon quantum meruit for the reasonable value of services or, in lieu thereof, the outgoing attorney has the right to elect a contingent percentage fee based on the proportionate share of the work performed on the whole case. The percentage may be fixed at the time of substitution but, as several courts have recognized, is better determined at the conclusion of the case when such factors as the amount of time spent by each lawyer on the case, the work performed and the amount of recovery can be ascertained.

Lai Ling Cheng, 73 NY2d at 458 (1989) (citations omitted).

The facts of Lai Ling Cheng are mostly identical to those at bar. An individual was badly injured in a car accident. She retained an attorney for a contingent fee of one-third of the recovery. The attorney performed various "preliminary services," but was discharged, without cause, prior to commencing an action. The second attorney was also promised a contingent fee. The attorneys could not agree as to the fee due the first attorney upon discharge. The second attorney sent a letter to the first, requesting that he turn over the file and "acknowledging that he had a 'lien for prior legal services rendered ... the amount of which shall be subsequently determined at the conclusion of the litigation.'" Lai Ling Cheng, 73 NY2d at 456. The outgoing attorney agreed, and delivered the file. The client received a settlement of $1,800,000, and the trial court held back $540,000 to be apportioned between the attorneys. The Court of Appeals held that the first attorney was entitled to a contingent fee to be determined taking into account "the recovery and the relative contributions of the lawyers..." Id. at 459. The court reasoned that the first attorney had "elected a contingent percentage fee," rather than a "fixed fee," because the letter agreement between the attorneys provided that his fee would be "'determined at the conclusion of the litigation'". Id.

The only significant difference here is the sharp practice of the defendants. Plaintiff was discharged, without cause, prior to filing an already drafted summons and complaint. Like the first attorney in Lai Ling Cheng, plaintiff was ready to turn over the file upon L & L's payment for disbursements, and acknowledgment of his right to recover for services rendered, as provided under the law. Defendants' response that plaintiff was entitled to nothing because he had no charging lien under Judiciary Law § 475 was unsupportable and discourteous, to say the least.[FN3] In Lai Ling Cheng, the Court of Appeals made it abundantly clear that even in the absence of a charging lien, the outgoing attorney is entitled to "elect between a fixed fee, measured by [*6]quantum meruit, or a contingent percentage fee, also measured by quantum meruit." Id. (emphasis supplied); see also Chadbourne & Parke LLP v. AB Recur Finans, 18 AD3d 222, 223 (1st Dept. 2005) (attorney was entitled to quantum meruit recovery despite "absence of a charging lien"). As defendants would have it, plaintiff could not elect any recovery except with their approval. Obviously, this interpretation subverts the meaning of "elect," i.e., "to choose (as a course of action) esp. by preference." Merriam-Webster's Collegiate Dictionary 371 (10th ed. 1993). See also Cordes v. Purcell, Fritz & Ingrao, 89 AD2d 870 (2d Dept. 1982) ("the outgoing attorney has the right to elect whether he will take his compensation on the basis of a presently fixed quantum meruit dollar amount, or whether, still on the basis of quantum meruit, he will take a contingent percentage to be determined at the conclusion of the case.") citing Paulsen v. Halpin, 74 AD2d 990 (4th Dept. 1980); Kern v. Karnbach, 27 AD2d 954 (2d Dept. 1967); Reubenbaum v B. & H. Express, 6 AD2d 47 (1st Dept. 1958).

On the other hand, defendants argue that plaintiff is not entitled to quantum meruit recovery because he "never transferred the client's file," and because "L & L never benefited from plaintiff's work." See Memorandum of Law in Opposition to Partial Summary Judgment, p. 8. These arguments are without merit. Plaintiff's right to a retaining lien on the client file (which secures the attorney's right to be compensated for disbursements) is separate and distinct from his right to quantum meruit recovery for the value of legal services. See Schneider, Kleinick, Weitz, Damashek & Shoot v. City of New York, 302 AD2d 183, 186 (1st Dept. 2002) (citation omitted) ("an attorney who is discharged without cause has three remedies to recover the value of his or her legal services: the retaining lien, the charging lien, and the plenary action in quantum meruit. These remedies are not exclusive, but cumulative.") (emphasis added). Nor is it relevant whether L & L benefited from plaintiff's services. Plaintiff's recovery is based on the value of his services to the client, not to L & L. See id. at 189 (quantum meruit recovery measures "the value of the attorney's services provided to the client prior to discharge"). Thus, plaintiff is entitled to partial summary judgment on its claim for the value of its costs and legal services.[FN4]

In light of the foregoing, the Court concludes that plaintiff is entitled to recover for the reasonable value of his services to Ms. Garcia, together with his costs and disbursements in that matter. See Lai Ling Cheng, 73 NY2d at 459. The Court further concludes that plaintiff has elected a contingent fee recovery. His first letter to Litman & Litman proposed to negotiate a "mutually agreeable percentage for legal fees at this point, rather than getting into a fee dispute at the end of the case." Ruta Aff., Ex. D (emphasis added). Had plaintiff sought to elect a fixed [*7]fee, his reference to a "percentage" would have been nonsensical. Thus, this matter will be referred to a Special Referee to hear and report, with recommendations as to the contingent percentage fee due plaintiff, in accordance with the authorities cited herein. More specifically, the Special Referee is directed to determine, based on quantum meruit, principles, a percentage of the legal fees awarded to L & L to which plaintiff is entitled.[FN5] Accordingly, it is

ORDERED that the issue of the amount of attorney's fees and costs due plaintiff is referred to a Special Referee to hear and report with recommendations, in accordance with this opinion, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further

ORDERED that this motion is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the designated referee; and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Reference Part (Room 119) to arrange a date for the reference to a Special Referee; and it is further

ORDERED that the Clerk shall notify all parties of the date of the hearing on the issue of damages.

The foregoing constitutes the decision and order of the Court.

Date: September 12, 2005

New York, New York

SHIRLEY WERNER KORNREICH Footnotes

Footnote 1:Plaintiff's claims against defendant Rissoff have been discontinued, with prejudice.

Footnote 2:Prior to retaining L & L, Ms. Garcia apparently retained defendant Rissoff, for two days. Affirmation of J. Ruta, para. 4.

Footnote 3:The Court notes that, if the allegations in the complaint regarding the promise of financial assistance to Ms. Garcia are accurate, defendants (who offer a different account of how Ms. Garcia retained them) may have violated the Code of Professional Responsibility DR 5-103 (B). Rule 5-103 prohibits, with certain exceptions, an attorney from advancing or guaranteeing financial assistance to a client. See 22 NYCRR § 1200.22(b). Such conduct may be grounds for censure or suspension from practice. See In re Cellino, __A.D.3d__ (4th Dept. 2005).

Footnote 4:In its motion papers, plaintiff does not address its claim for tortious interference with contract. There is no evidence that defendants induced plaintiff to breach his retainer agreement with Ms. Garcia. Thus, plaintiff has not established a prima facie case of tortious interference with contract. See Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 424 (1996) ("Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom.").

Footnote 5:For example, if the Referee determines that plaintiff's services to Ms. Garcia were equal to those of L & L, in terms of the value of the services to Ms. Garcia, then the Referee should determine that plaintiff is entitled to 50 % of the total fee awarded L & L. In such a scenario, plaintiff would be entitled to an award of $89,436.04 (half L & L's award, less $1,000 paid out to Mr. Rissoff), with interest, from July 8, 2003.