Brown Rudnick Berlack Israels LLP v Zelmanovitch
Annotate this CaseDecided on March 14, 2006
Supreme Court, Kings County
Brown Rudnick Berlack Israels LLP, Plaintiff,
against
Zindel Zelmanovitch, Defendant.
4996/04
David I. Schmidt, J.
Upon the foregoing papers in this action to recover legal fees, plaintiff Brown Rudnick Berlack Israels LLP (BRBI) moves for summary judgment in its favor on all claims as against defendant Zindel Zelmanovitch (Zelmanovitch). Defendant Zelmanovitch cross-moves for summary judgment dismissing BRBI's complaint as against him, or, in the alternative, staying this action, pursuant to CPLR 2201, pending the determination of an earlier filed legal malpractice action entitled East Coast Venture Capital, Inc. v Brown Rudnick Berlack Israels LLP (Sup Ct, NY County, Index No. 603234/03) (the Legal Malpractice Action), which is currently pending in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court).
Zelmanovitch is the chairman of East Coast Venture Capital, Inc. (East Coast). On May 21, 2001, an action entitled Bruno Magli S.p.A. v Atwood Richards, Inc. (01-CV-4290 [SDNY]) (the Bruno Magli Action), alleging trademark infringement, trademark dilution, and [*2]unfair competition, was brought against East Coast, Zelmanovitch, and other defendants. The complaint alleged that Zelmanovitch was an owner, officer, employee, or authorized agent or representative of East Coast. The causes of action asserted with respect to Zelmanovitch are only asserted as against him as a representative of East Coast and are asserted as against all of the defendants therein. BRBI alleges that in May 2001, Zelmanovitch had contacted it concerning representing him in the Bruno Magli Action. Zelmanovitch claims that East Coast made the arrangement with BRBI to have it defend him in the Bruno Magli Action. East Coast was represented by a different law firm in that action. No written retainer agreement was entered into between BRBI and Zelmanovitch. BRBI asserts, however, that Zelmanovitch agreed to compensate it for its legal services based on its usual hourly rates and to reimburse it for appropriate disbursements.
In conjunction with BRBI's representation of Zelmanovitch in the Bruno Magli Action, BRBI performed certain legal services, including the negotiating of a favorable resolution of that action, and it incurred related disbursements. From July 2001 through May 2003, BRBI sent invoices, totaling $31,242.04, and billed for fees and disbursements in the Bruno Magli Action, to "Zelmanovitch c/ East Coast" at East Coast's address. During this time, Zelmanovitch caused to be remitted to BRBI five payments, totaling $24,800.62. Zelmanovitch alleges that East Coast paid these legal bills. The May 29, 2003 invoice reflects a balance due and owing of $6,441.42 for the Bruno Magli Action. A statement as of April 1, 2004 reflects a balance due of $1, which BRBI claims is a typographical error.
In May 2002, Zelmanovitch, along with the other East Coast board members, i.e., Fred Schulman, Jeanette Berney, Veritas Financial Corporation (Veritas), Z. Zindel Corporation, and East Coast (which is Veritas' wholly-owned subsidiary corporation), were sued by Meyer Appel (Appel) and the Chaps Group Corporation (Chaps), individually and as shareholders of East Coast, in a stockholders' derivative action entitled Appel v Zelmanovitch (Sup Ct, NY County, Index No. 610861/02) (the Stockholders' Derivative Action). The pleadings reflect that this action was a "strike suit" by Appel and Chaps arising from a corporate transaction involving East Coast.
The prior corporate transaction originated in early 1998, when Veritas and East Coast had retained Stuart Neuhauser (Neuhauser), an attorney at BRBI, to prepare a registration statement under the Securities Act covering the proposed public offering and sale of securities of East Coast. BRBI filed a registration statement and amendments for East Coast, which contained a prospectus bearing a legend which stated that East Coast securities could not be sold prior to the time that the registration statement became effective. In June 1999, while East Coast's registration statement was pending, but not yet effective, Appel and his company, Chaps, sought to invest a collective $2.5 million in East Coast. Neuhauser of BRBI allegedly assured Zelmanovitch that he could structure a transaction in such a way that the sale of shares of East Coast stock back to Appel and Chaps would conform with Federal securities laws. Pursuant to the transaction devised by Neuhauser and BRBI, on July 28, [*3]1999, shares of East Coast stock owned by Veritas was surrendered to East Coast and East Coast then immediately issued an equal number of newly issued common shares to Appel and Chaps in a purported private offering. Veritas and East Coast later determined that East Coast's private offering, made while East Coast was in registration for a public offering, did not qualify for any safe harbors from or exceptions to the requirement that such offering be registered pursuant to Federal securities laws. East Coast, by this transaction, therefore, violated Federal Securities laws because it made an offer to Appel and Chaps without securing an effective registration statement or qualifying under an exemption from registration.
BRBI asserts that in March 2002, Zelmanovitch had requested that BRBI represent him in the Stockholders' Derivative Action. Zelmanovitch asserts that at a Special Meeting of the Board of Directors, East Coast's board determined that BRBI should defend all of the individual and corporate defendants in the Stockholders' Derivative Action and that the legal bills would be paid by East Coast. No written retainer agreement was entered into with respect to this matter. BRBI performed legal services in the Stockholders' Derivative Action, which resulted in a dismissal of that action by a stipulation of discontinuance. BRBI also incurred disbursements. From June 2002 through October 2002, BRBI sent two invoices addressed solely to East Coast. The invoices billed a total of $36,757.03 for legal fees and disbursements in connection with the Stockholders' Derivative Action. BRBI alleges that Zelmanovitch caused it to be paid $20,000 of this sum, but that $16,757.03 is still due and owing to it.
In June 2002, Veritas and East Coast were sued by Appel and Chaps in the United States District Court for the Southern District of New York in an action entitled Appel v East Coast Venture Capital, Inc. (the Appel action). The Appel action alleged that East Coast and Veritas had violated the Securities Act by selling Appel and Chaps unregistered shares of East Coast stock. This dispute was settled between the parties.
BRBI alleges that in May 2002, Zelmanovitch requested it to bring an action on his and East Coast's behalf against Appel and Chaps. In this regard, as set forth in the Minutes of a Special Meeting of East Coast's Board of Directors on June 11, 2002, held at BRBI's offices and at which two BRBI members were present, i.e., Neuhauser and Andrew Dash, a motion was carried that "the Company [i.e., East Coast] initiate a slander and libel action, in its name and in the name of . . . Zelmanovitch, against . . . Appel and Chaps . . . and that the Board invoke its discretionary ability to expand the indemnification provisions of the Company's charter and Delaware law to cover . . . Zelmanovitch since he would not have been defamed but for his position as President and Chairman of East Coast." On July 12, 2002, BRBI, on behalf of East Coast and Zelmanovitch as plaintiffs, commenced an action against Appel and Chaps, entitled East Coast Venture Capital v Appel (Sup Ct, NY County, Index No. 115607/02) (the Defamation Action), alleging claims of slander, breach of fiduciary duty, and tortious interference. No written retainer agreement was executed. BRBI performed legal services and incurred disbursements in the Defamation Action. [*4]
From October 2002 through May 2003, BRBI sent six invoices, totaling $154,442.94, for fees and disbursements in connection with the Defamation Action. These invoices were addressed to "Zelmanovitch c/ East Coast" at East Coast's address. BRBI alleges that during this time, Zelmanovitch caused to be remitted to it two payments totaling $65,000, but that he still owes BRBI $89,442.94 for fees and disbursements incurred in the Defamation Action.
In October 2003, Veritas and East Coast commenced the Legal Malpractice Action against BRBI and Neuhauser. In the Legal Malpractice Action, East Coast and Veritas seek to recover compensatory, consequential, and punitive damages arising from the alleged wrongful conduct, negligence, professional malfeasance, and legal malpractice during the course of the representation by BRBI and Neuhauser, which caused them to be exposed to claims by Appel and Chaps. They also seek a declaration that they have no obligation to pay outstanding invoices issued by BRBI related to BRBI's representation of East Coast and Veritas.
BRBI did not interpose counterclaims to recover legal fees in the Legal Malpractice Action. Instead, in March 2004, BRBI commenced an action for recovery of legal fees and disbursements against East Coast in the Supreme Court, New York County (the East Coast Fee Collection Action). On March 10, 2004, BRBI brought the instant action (which is largely duplicative of the East Coast Fee Collection Action) against Zelmanovitch, seeking recovery of the unpaid legal fees and disbursements in the Bruno Magli Action, the Stockholders' Action, and the Defamation Action. BRBI's complaint alleges causes of action for an account stated, breach of contract, and quantum meruit.
Zelmanovitch and East Coast have refused to pay these additional monies sought by BRBI herein for legal work because they claim it was engendered by BRBI's negligence and malpractice. In the East Coast Fee Collection Action and the present action, East Coast and Zelmanovitch have alleged, as affirmative defenses, that the legal work, which BRBI purportedly performed and for which it seeks fees, had to be done because of its negligence and breach of fiduciary duty in performing legal services, and that any amount owed by East Coast or Zelmanovitch to BRBI are vastly exceeded by amounts that BRBI owes to East Coast. In both of these two actions, East Coast and Zelmanovitch have also interposed counterclaims for legal malpractice and breach of fiduciary duty. East Coast has moved in the Supreme Court, New York County, to stay the East Coast Fee Collection Action as against it, pending the resolution of the Legal Malpractice Action, and that motion is presently pending.
After BRBI filed the East Coast Fee Collection Action and the present action, East Coast and Veritas filed a motion to consolidate these actions with the Legal Malpractice Action on the basis that they contained common questions of law and fact. This motion was resolved by stipulation dated June 18, 2004, executed by BRBI, wherein it agreed to consolidate these three actions. However, although this stipulation was set forth in a writing subscribed by BRBI and it is, therefore, binding upon it (see CPLR 2104), no order with respect to this stipulation was ever entered and this case has not been transferred for [*5]consolidation to New York County. Instead, both parties have moved for relief in the instant action in this court.
On February 10, 2005, Veritas filed for Chapter 11 bankruptcy protection in the Bankruptcy Court. Veritas' bankruptcy petition reflects that disputed legal fees are owed by it to BRBI, as a creditor in the amount of $211,000. Veritas' petition also reflects that Veritas' claim in the Legal Malpractice Action (estimated at $30 million) constitutes its largest asset. On February 15, 2005, upon Veritas' filing of a Notice of Removal, the Legal Malpractice Action was removed to the Bankruptcy Court. The Bankruptcy Court denied a motion by BRBI to remand the Legal Malpractice Action to State court.
In addressing BRBI's motion for summary judgment, the court rules that it is well established that where an attorney demonstrates that a bill was issued to a client and held by him or her without objection for a reasonable period of time, an account stated is established (see O'Connell & Aronowitz v Gullo, 229 AD2d 637, 638 [1996]; Shea & Gould v Burr, 194 AD2d 369, 371 [1993]). In addition, "[a]n agreement to pay an indebtedness may also be implied if the debtor makes partial payment" (Kramer, Levin, Nessen, Kamin & Frankel v Aronoff, 638 F Supp 714, 719 [SD NY 1986]). BRBI argues that with regard to its legal services and disbursements in the Bruno Magli Action, the Stockholders' Derivative Action, and the Defamation Action, it has established an account stated because it regularly sent invoices for the work it performed, Zelmanovitch never timely protested these invoices, and partial payment was made on these bills.
BRBI's argument must be rejected. "An account stated is an agreement between the parties to an account based upon prior transactions between them" (Shea & Gould, 194 AD2d at 370 [emphasis supplied]). Here, BRBI has not shown that the accounts rendered were based upon prior transactions between it and Zelmanovitch in his individual capacity. Rather, as discussed above, in the Bruno Magli Action and the Stockholders' Derivative Action, Zelmanovitch was sued solely in his capacity as a corporate officer and (as further discussed below) there is no showing that he personally entered into an agreement to pay BRBI's fees and disbursements. Similarly, in the Defamation Action, the June 11, 2002 Minutes of the Special Meeting of East Coast's Board of Directors reflect that it was East Coast's decision to commence that action, and there is no showing that Zelmanovitch individually transacted with BRBI with respect to his representation therein.
Moreover, in order for an account stated to be established, the invoices must be addressed to the party responsible for payment (see Kramer, Levin, Nessen, Kamin & Frankel, 638 F Supp at 718). In the case at bar, the invoices at issue were not addressed to Zelmanovitch in his individual capacity, as required, in order to support its claim of an account stated (see generally Morrison Cohen Singer & Weinstein, LLP v Brophy, 19 AD3d 161, 161-162 [2005]). Rather, as discussed above, the invoices were addressed solely to East Coast in the Stockholders' Derivative Action and, thus, these invoices cannot establish an account stated. Similarly, in the Bruno Magli Action and the Defamation Action, the invoices were only addressed to "Zelmanovitch c/ East Coast" and sent to East Coast's [*6]address, reflecting that they were sent to him only in his capacity as a corporate officer of East Coast. These invoices do not reflect that Zelmanovitch ever undertook to be the party responsible for payment of these fees and disbursements or that BRBI was looking to Zelmanovitch individually for payment of the legal services rendered (compare O'Connell & Aronowitz, 229 AD2d at 638; Marchi Jaffe Cohen, Crystal, Rosner & Katz v All-Star Video Corp., 107 AD2d 597, 598 [1985]).
In addition, there is no showing that Zelmanovitch personally acquiesced in the bills sent or that he personally made partial payment from his own funds against the outstanding balance (compare Kramer, Levin, Nessen, Kamin & Frankel, 638 F Supp at 720). Zelmanovitch, in his affidavit, explains that he has authorized hundreds of thousands of dollars to be paid to BRBI for regulatory, corporate, and litigation services, including the legal services referenced in the BRBI invoices at issue in this case. In response, BRBI has produced no evidence whatsoever that Zelmanovitch ever personally paid BRBI from his own funds or that he ever agreed to do so. Instead, it appears that the payments received by BRBI were only made from East Coast or other companies, and that no payments were ever made from Zelmanovitch's personal funds. Thus, BRBI cannot establish its account stated cause of action, and summary judgment dismissing this cause of action is required (see CPLR 3212[b]).
With respect to BRBI's claim for breach of contract, BRBI alleges that in each of the three actions, Zelmanovitch entered into an agreement with it to be represented by it and that he agreed that he would pay its legal fees and disbursements. Zelmanovitch denies the existence of any such contract between him and BRBI.
It is well settled that contracts between an attorney and client are of special interest and concern to the courts (see Cohen v Ryan, 34 AD2d 789, 790 [1970]). " An attorney has the burden of proving that the arrangement for compensation was fair and reasonable and fully comprehended by the client" (Carey v Mui-Hin Lau, 140 F Supp 2d 291, 296 [SD NY 2001]). Consequently, a law firm who seeks recovery of legal fees based upon breach of a contract must establish that a contract actually existed between it and the party from whom it seeks recovery. Summary judgment must be "granted in favor of [an] individual defendant in the absence of any direct and explicit evidence of actual intent' by him [or her] to be held personally liable for the corporate defendant's debts'" (Summit Rovins & Feldesman v Fonar Corp., 213 AD2d 201, 202 [1995], quoting Salzman Sign Co. v Beck, 10 NY2d 63, 67 [1961]; see also Arrow, Edelstein & Gross, P.C. v Rosco Productions, 581 F Supp 520, 525 [SD NY 1984]).
In the instant case, there is no written retainer agreement in the Bruno Magli Action. It is noted, as pointed out by BRBI, that this representation occurred prior to March 4, 2002, the effective date of Professional Disciplinary Rules (22 NYCRR) § 1215.1, which mandates that an attorney who undertakes to represent a client and charges a fee from the client "provide to the client a written letter of engagement before commencing the representation, or within a reasonable time thereafter." However, irrespective of this fact, BRBI must still [*7]sustain its burden of establishing that a valid contract for legal services existed between it and Zelmanovitch, wherein he personally undertook to pay for legal services rendered to him in his corporate capacity.
BRBI argues that since Zelmanovitch and East Coast had separate counsel in the Bruno Magli Action, there can be no dispute that BRBI represented Zelmanovitch in that action, and that it is, therefore, entitled to summary judgment on its breach of contract claim therein on this basis. Such argument is rejected. As discussed above, Zelmanovitch was sued in the Bruno Magli Action solely in his capacity as a corporate officer, and the allegations in that action are directed against him only in that capacity. Zelmanovitch further asserts, in his affidavit, that East Coast agreed to pay his legal fees in the Bruno Magli Action and that East Coast made the arrangement with BRBI to defend him in that action. He also states that East Coast paid his legal bills in the Bruno Magli Action. There is no proof to the contrary submitted by BRBI.
With respect to the Stockholders' Derivative Action and the Defamation Action, it is noted that BRBI's legal services were provided after the effective date of 22 NYCRR 1215.1. However, no written retainer was executed with respect to the representations by BRBI in either of these two actions.
It has been held that a law firm is precluded from being reimbursed for legal fees for representations where it failed to comply with 22 NYCRR 1215.1 (see Klein Calderoni & Santucci, LLP v Bazerjian, 6 Misc 3d 1032 [A], 2005 NY Slip Op 50274 [U], *3; Feder, Goldstein, Tannenbaum & D'Errico v Ronan, 195 Misc 2d 704, 707 [2003]). BRBI asserts, however, that Zelmanovitch did not raise the lack of a written retainer agreement as an affirmative defense in his answer and that this defense should, therefore, be deemed waived. It further relies on 22 NYCRR 1215.2 (b), which provides that 22 NYCRR 1215.1 "shall not apply to . . . representations where the attorney's services are of the same general kind as previously rendered to and paid for by the client." It argues that its representation of Zelmanovitch in the Stockholders' Derivative Action and the Defamation Action are of the same general kind as previously rendered to Zelmanovitch and paid for by him in the Bruno Magli Action, which representation occurred prior to the effective date of 22 NYCRR 1215.1.
This exception of 22 NYCRR 1251.2, however, cannot resolve this issue. As previously discussed, Zelmanovitch asserts that the services rendered in the Bruno Magli Action were not paid for by him, but by East Coast. Furthermore, BRBI has not established that the legal services provided by it in the Bruno Magli Action, which involved trademark infringement claims, were of the same general kind as rendered by it in the Stockholders' Derivative Action or the Defamation Action, which involved entirely different claims and defenses.
In any event, regardless of the applicability of 22 NYCRR 1215.2, BRBI, to successfully oppose Zelmanovitch's cross motion for summary judgment, must still raise a triable issue of fact, by evidentiary proof in admissible form, that Zelmanovitch agreed to [*8]undertake personal responsibility to pay for the legal services and disbursements at issue. Here, the documentary evidence reflects that the Stockholders' Derivative Action does not constitute a personal matter on behalf of Zelmanovitch. This action was related to the corporate defendant, East Coast, and Zelmanovitch was a litigant in that action solely in his capacity as an officer of the corporation. Indeed, as noted above, the invoices in that action were addressed solely to East Coast. In addition, the Minutes of the Special Meeting of East Coast's Board of Directors evidence that East Coast was the entity responsible for payment of Zelmanovitch's legal fees in the Defamation Action regardless of the fact that the scope of BRBI's representation included representing Zelmanovitch. Thus, there is no proof of any assumption or acknowledgment of liability by Zelmanovitch to pay the legal fees and disbursements in these actions.
BRBI further contends that Zelmanovitch, as a corporate officer of East Coast, should nevertheless be held jointly and severally liable with East Coast for its services. Such contention is without merit since there is no evidence whatsoever of any agreement by Zelmanovitch to pay for any share of the legal fees (compare Philips Nizer Benjamin Krim & Ballon, LLP v Chu, 240 AD2d 231, 232 [1997]). Therefore, inasmuch as there is no evidence that Zelmanovitch ever agreed to be liable to BRBI for his corporation's legal bills, he cannot be held jointly and severally liable with it for payment of such bills (see Summit, Nevins & Feldesman, 213 AD2d at 202). Consequently, summary judgment dismissing BRBI's breach of contract cause of action is required (see CPLR 3212 [b]).
BRBI also seeks recovery based upon quantum meruit. Quantum meruit, however, can only exist when there is no express contract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2 382, 388 [1987]). Here, it has not been shown that there was no express contract between East Coast and BRBI. Moreover, no implied contract that either BRBI expected to be paid by Zelmanovitch in his individual capacity or that Zelmanovitch impliedly promised to personally pay for the legal services rendered, can be inferred. Summary judgment dismissing BRBI's quantum meruit cause of action is, therefore, mandated (see CPLR 3212 [b]).
Accordingly, BRBI's motion for summary judgment in its favor on all of its claims as against Zelmanovitch is denied. Zelmanovitch's cross motion for summary judgment dismissing BRBI's complaint as against him is granted. In view of this disposition, Zelmanovitch's alternative cross motion for a stay of this action, pending resolution of the Legal Malpractice Action, is rendered moot.
This constitutes the decision, order, and judgment of the court.
E N T E R,
J. S. C.
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