Newkirk v Fourmen Constr., Inc.

[*1] Newkirk v Fourmen Constr., Inc. 2006 NY Slip Op 50655(U) [11 Misc 3d 1082(A)] Decided on April 20, 2006 Supreme Court, Westchester County Smith, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 20, 2006
Supreme Court, Westchester County

Herbert Newkirk, Plaintiff,

against

Fourmen Construction, Inc., DMAC Contruction LLC, et al., Defendants.



3755/05



Wallace & Associates

Former Atty.

50 Main Street, Suite 1000

White Plains, New York 10017

Caro & Associates, PC.

Atty. For Pltf. Newkirk

399 Knollwood Road, Suite 216

White Plains, New York 10603

Mary H. Smith, J.

Pursuant to a Decision and Order signed by the Hon. Nicholas Colabella, dated March 1, 2006, a framed issued hearing was held before this Court on April 13, 17 and 18, 2006, to determine whether a contractual lien held by plaintiff's former attorney, Larry Wallace, Esq., was vitiated by his termination for cause. If not, the Court was to determine what fee in quantum meruit was due and owing Mr. Wallace.

Mr. Wallace had been retained by Herbert Newkirk on November 24, 2004, pursuant to a contingent fee retainer agreement, to recover damages for the destruction of his house due to ongoing excavation and construction activities undertaken by the defendants on the land situated below Mr. Newkirk's house. The house, which at this point had been vacated by Mr. Newkirk and his tenants due to its structural instability, was described as "falling down the hill"; its condition rendering the structure unmarketable. Indeed, condemnation proceedings apparently had been commenced with respect to the subject property. Moreover, Mr. Newkirk, who then was living in a motel, was still liable for mortgage and tax payments on the house, and was in dire financial straits. Defendants, who initially had denied any liability, in any event had no insurance to cover any damages alleged by plaintiff Newkirk.

Thereupon, Mr. Wallace embarked on a successful newspaper campaign to publicize Mr. Newkirk's plight. Since defendants had no liability insurance, Mr. Wallace opted, in lieu of a law suit, to pursue a settlement in the guise of a real estate sale contract with defendants to be executed over an 18-month period. Mr. Wallace negotiated with defendants to buy plaintiff's house and property for $700,000, with title passing to defendants on May 1, 2005, upon a partial payment of $280,000.[FN1]

Mr. Newkirk, who had demonstrated increasing antipathy towards defendants and Mr. Wallace during the protracted negotiations for a sale contract, which already had undergone two revisions, finally terminated Mr. Wallace on or about February 23, 2005. Neither the Contract of Residential Sale nor the Stipulation of Settlement had been executed. However, defendants at [*2]that time had admitted liability and had been willing to commit in writing to compensate plaintiff $700,000.00, with a $6,000.00 per month "living expense" payment to plaintiff until May 1, 2005, and $3,750.00 per month to be paid from June 1, 2005, until rendering final payment on $350,000.00, on or before June 1, 2006.

After terminating Mr. Wallace, Mr. Newkirk, with the aid of new counsel, subsequently had executed a different contract which will compensate him approximately $15,000.00 less than the Contract and Stipulation that had been negotiated by Mr. Wallace.[FN2] Mr. Newkirk has not yet closed on the property with defendants.

The Wallace Retainer Agreement (Pltf. Ex.3), according to Mr. Wallace, states that Mr. Wallace would receive a one-third contingency fee of the recovered damages above the appraised price for the proper the house and land.[FN3] If he was terminated prior to the completion of services, then he would hold a lien on the recovery and be paid an amount that would fairly compensate him for his efforts on behalf of plaintiff. (Id. ¶ 7).

The narrow issue before this Court is whether Mr. Wallace had been discharged for cause by plaintiff on February 23, 2005. An attorney's charging lien may be lost if he is guilty of misconduct, discharged for cause, or abandons the action without just cause. See Klein v. Eubank, 87 NY2d 459 (1996), rearg. den. 87 NY2d 156 (1996). However, an attorney who is discharged without cause by a client is entitled to quantum meruit recovery, regardless of whether that amount is more or less than amount provided for in retainer agreement. See Shalom Toy, Inc. v. Each And Every One, 239 AD2d 196 (1st Dept. 1997). In determining quantum meruit, this Court has broad discretion in determining what constitutes reasonable compensation for legal services, see In re Jakobson, 304 AD2d 579 (2nd Dept. 2003), and can consider a number of factors, including the nature of the litigation, the difficulty of the case, the amount of time spent, the amounts customarily charged, the professional standing of counsel and the results obtained. See Matter of McCann, 236 AD2d 405 (2nd Dept. 1997).

After this Court's careful consideration of the testimony, exhibits and parties' respective arguments, the Court finds that while Mr. Wallace had been terminated by plaintiff for cause on February 23, 2005, and that Mr. Newkirk is not liable in quantum meruit for Mr. Wallace's fees relating to the negotiation of and drafting of the Residential Contract of Sale and Stipulation of Settlement for the reasons hereinafter set forth, that Mr. Newkirk nevertheless is liable in quantum meruit for the reasonable value of Mr. Wallace's other services rendered up to February 16, 2005, which had resulted in a favorable settlement offer, notwithstanding that same ultimately was rejected by plaintiff.

In determining that Mr. Wallace is entitled to certain quantum meruit compensation, the Court finds that the negotiations that had been conducted by Mr. Wallace up to the drafting of [*3]the final proposed residential contract of sale and Stipulation of Settlement were in good faith and indeed paved the way for the current contract negotiated by new counsel. Mr. Wallace's initial services undoubtedly were valuable and his efforts aggressive in attempting to resolve his client's financial crisis. No one disputes that Mr. Wallace had achieved a tentative offer of settlement, as documented in defendants' counsel's January 24, 2005, memo letter to Mr. Wallace (Pltf. Exh. 11); Mr. Wallace's time in attempting to settle this action must be compensated. Having scrutinized Mr. Wallace's submitted and reasonably well-documented time sheets (Pltf. Exh. 1), the Court finds that plaintiff owes Mr. Wallace the total sum of $16,535.00, which sum shall be paid in full on or before June 30, 2006.

In arriving at this fee, Mr. Wallace has asserted an hourly fee rate of $350.00 per hour, which hourly rate has not been demonstrated by plaintiff to be unreasonable. The Court finds that Mr. Wallace reasonably had expended and is entitled to be paid his reasonable full professional compensation for 41.8 hours of work, which totals the sum of $14,647.50.

The Court also finds that while Mr. Wallace is entitled to additional reasonable compensation for his travel time, he is not entitled to full professional hourly reimbursement for same, particularly given that Mr. Wallace's office was at the time located in Manhattan and plaintiff resided in and a number of meetings were held in the Peekskill area, resulting in a charge of three hours of travel on each occasion, and the issue of travel reimbursement had not been addressed by the parties' Retainer Agreement. Accordingly, the Court further awards Mr. Wallace travel reimbursement for his stated 14.5 hours of travel time at $125.00 per hour, for a sum total of travel time in the amount of $1,812.50. The Court also has awarded Mr. Wallace $75.00 for his time associated with "preparing" his standard Retainer Agreement and the mailing of same.[FN4]

The Court further finds, however, that in the absence of any supporting case law having been proffered by Mr. Wallace to the contrary, and none having been located by this Court, Mr. Wallace is not entitled to recover legal fees from plaintiff for Mr. Wallace's incurred costs in bringing the motion to enforce his lien and/or the ensuing hearing held before the undersigned pursuant thereto, as it is well settled that a prevailing party may not recover attorneys' fees from the losing party except where authorized by statute, agreement or court rule, see Chapel v. Mitchell, 84 NY2d 345, 349 (1994), none of which here apply. Accordingly, no compensation has been awarded Mr. Wallace for any charged work incurred on and after September 19, 2005, as itemized in his submitted time sheet.

Notwithstanding the Court's foregoing finding that Mr. Wallace is entitled to certain quantum meruit compensation as heretofore set forth, the Court further is convinced that Mr. Wallace is not entitled to any additional compensation for his services related to the negotiating and reviewing of the third and final Contract of Sale and Stipulation of Settlement, which ultimately were rejected by plaintiff and finally had caused plaintiff to terminate Mr. Wallace for cause. This Court's careful review of these documents leads this Court to conclude that Mr. Wallace, in negotiating and helping to draft these documents and recommending plaintiff's [*4]execution of same, had neither effectively served plaintiff's wishes or needs. Notably, the Stipulation prepared by Mr. Wallace required, and Mr. Wallace had insisted, that Mr. Newkirk enter into a 50% ownership of a holding company with defendants, and that he pass title of his property to the holding company upon the payment of $280,000.00, notwithstanding that Mr. Newkirk had made it plain to Mr. Wallace that he distrusted and disliked defendants. Mr. Wallace was obligated to honor Mr. Newkirk's feelings, and yet there was testimony that Mr. Newkirk was pressured by Mr. Wallace to sign the documents despite his feelings. Such pressure raises suspicions that Mr. Wallace was anxious to obtain his fee, as evidenced by the fact that he had told Mr. Newkirk that he would immediately take $50,000.00, the lion's share of the $70,000.00, to be tendered as the down payment upon the execution of the Contract and Stipulation. It is apparent that Mr. Wallace, on and after January 17, 2005, no longer was trying to protect his client's interests, but instead focused on selling these flawed agreements to his client, to no avail.

The Court finds the proposed Contract and Stipulation seriously flawed for several reasons. Firstly, striking about the proposed Contract of Sale is the fact that the parties did not craft a residential sale agreement which accurately reflected the circumstances actually presenting, i.e., a sale of the property by Mr. Newkirk to defendants as a means to settle the underlying property damage claim caused by defendants' actions which had resulted in such extensive damage that the house was uninhabitable and imminently to be condemned, for which defendants, though admitting liability, were otherwise unable to compensate Mr. Newkirk. By relying instead upon a pro forma Contract of Residential Sale in this instance, which was anything but pro forma, plaintiff Newkirk would have been contractually obligated to perform an impossibility. That is, plaintiff, as seller, was contractually obligated to deliver a house in "broom clean" condition, together with the keys to the premises (Contract ¶16[d]), a Certificate of Occupancy (Contract ¶16[b]) and working plumbing, heating, electrical and mechanical equipment, as well as appliances (Contract ¶16[e]), none of which he actually could do given the actual and known condition of the premises. Although Mr. Wallace and his witness, Mathew A. Noviello, Esq ., defendants' counsel who actually had drafted this contract, had dismissed these conditions as "boilerplate" and of no consequence, such conditions could indeed have created an obstacle to Mr. Newkirk's receipt of the first $280,000.00 payment provided in the simultaneously to be executed Stipulation of Settlement.

Moreover, the Stipulation Of Settlement, devised by Mr. Wallace to further define the $700,000.00 Contract of Sale, required Mr. Newkirk, as previously noted, to enter into a 50% partnership with defendants in the creation of a holding company, 1410 Crompound Road LLC., which would obtain title of the subject property on May 1, 2005, for a price of $280,000.00, and which would also reflect payoff of the plaintiff's existing mortgage. At the time of the signing of both the Contract and the Stipulation, defendants would pay to Newkirk and Wallace & Associates a $70,000.00 "non-refundable down payment." In the event the Contract failed, no further liquidated damages would be paid.

The fact that the Stipulation specifically provides that the holding company would be able to mortgage the property to pay the required $280,000.00 to plaintiff, is extremely problematic and prejudicial to plaintiff. Indeed, it is not unforeseeable that if the holding company had fallen behind in its mortgage payments, the property would have been subject to foreclosure and plaintiff would have had no recourse since he no longer was the title holder. [*5]

Further, testimony before this Court established that, in a separate oral discussion with plaintiff, Mr. Wallace had demanded that he receive the $70,000 down payment, which was contractually to have been held in his escrow account, as his legal fee for services rendered, but that he later had agreed to reduce his fee to $50,000.00, with the remaining $20,000.00 to be paid Mr. Newkirk.

In these circumstances, it is clear that Mr. Wallace has put his desire to be paid his fee before the interests of his client, and that he was in favor of plaintiff's allowing the holding company to encumber the property with a new mortgage and lien to raise the $280,000.00 payment to Mr. Newkirk, which at the very least could have subjected Mr. Newkirk to litigation with the holding company's mortgagee if the contract failed and/or if the holding company did not pay the mortgage and the property was foreclosed upon. In that instance, plaintiff would be out title to his property, appraised by the City at approximately $410,000.00, and out any money except for the paltry sum of $20,000.00 balance from the down payment.

Moreover, it is apparent to the Court that Stipulation of Settlement further does not protect plaintiff to the extent that the Stipulation provides that the holding company and the defendants, not plaintiff, will be the "possessors" of the property after the $280,000.00 payment. (¶ 28 [c]). Plaintiff was scheduled, pursuant to the Stipulation of Settlement, to receive an additional $350,000.00 as compensation for selling his half interest in the aforementioned holding company on or before June 1, 2006. Plainly, there was no way that Mr. Newkirk could enforce that promise; he no longer held title, since the title was to have passed out of his name at the May 1, 2005 closing, the property subsequently could be encumbered by a new mortgage and there was no further liquidated damages provision if the purchaser ultimately reneged.

The Contract and Stipulation documents, in their convoluted passages, make one thing abundantly clear: defendants purchaser had no money to buy this property. They had to mortgage the property to make the first $280,000.00 payment, for which they would receive title. The holding company, according to Mr. Wallace's admissions at the hearing, had no assets except the title it would receive for $280,000.00. It had to be contemplated by Mr. Wallace that Mr. Newkirk, an admittedly poor man, would be selling his property for $260,000.00, when it was appraised by the City at $410,000.00, and then have no recourse against the holding company for the $350,000.00 balance on June 1, 2006.

Finally, with respect to the hearing on sanctions imposed by undersigned upon Mr. Wallace for his conduct during the course of the hearing, said counsel only shall appear at 10:30 a.m. on May 5, 2006.

Dated: April 20, 2006

White Plains, New York________________________

Mary H. Smith

J.S.C. [*6]

APPEARANCES: Footnotes

Footnote 1:An independent appraisal conducted by plaintiff in December, 2004, appraised solely the house at $253,000.00. The City's condemnation appraisal had valued the house at $260,000.00, with the land separately valued at $150,000.00, for a total value of $410,000.00.

Footnote 2:The new contract negotiated by plaintiff's successor counsel, Charles A. Caro, Esq., lists a purchase price of $685,000.00, with defendants tendering to plaintiff various other payments, for a contract total of $713,500.00. Closing was to have taken place on January 5, 2005 (sic, intended as 2006), but no closing has occurred to date.

Footnote 3:The Retainer Agreement itself, however, specifies that Mr. Wallace would receive a straight 33 1/3% of any recovery.

Footnote 4:According to his time sheets, Mr. Wallace is seeking professional rate compensation of $175.00 for these preparation/mailing services. The Court notes that no award is made herein for the charged Christmas Dinner, for which Mr. Wallace seeks compensation of $437.50.