Arkin Kaplan LLP v Jones

[*1] Arkin Kaplan LLP v Jones 2006 NY Slip Op 50979(U) [12 Misc 3d 1160(A)] Decided on April 18, 2006 Supreme Court, New York 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 18, 2006
Supreme Court, New York County

Arkin Kaplan LLP, Plaintiff,

against

Thomas W. Jones, Defendant.



110412/2005

Karen S. Smith, J.

Plaintiff Arkin Kaplan LLP's motion for partial summary judgment is denied in part and granted in part as more fully set forth below.

In this action, plaintiff seeks to recover fees from defendant Thomas W. Jones pursuant to a "Success Fee" retainer agreement between the parties. Defendant has imposed three separate counter-claims against plaintiff for damages allegedly arising from plaintiff's legal representation of defendant.

The relevant facts are contained in the moving papers and are not in dispute unless otherwise noted. Prior to October 2004, defendant was employed by Citigroup, Inc. ("Citigroup") as Chairman and Cheif Executive Officer of its Global Investment Management Division. On October 19, 2004, Citigroup's Chief Executive Officer, Charles O. Prince, informed defendant that his employment would be terminated. Prior to this meeting, the Japanese government had barred Citigroup from conducting private banking operations in Japan. Shortly after defendant learned of his termination, Citigroup issued public statements indicating that defendant was responsible for Citigroup's expulsion from Japan.

On October 28, 2004, defendant met with Stanley Arkin, a senior partner with plaintiff, to retain plaintiff's services in connection with his termination. On October 29, 2004, plaintiff and defendant executed a retainer agreement. In the agreement, defendant agreed to pay a $100,000 retainer and to pay plaintiff's fees and expenses at the prevailing rate, up to $1,000,000. The parties also agreed that defendant would pay a portion of the amount recovered from Citigroup as a "Success Fee." The specific amount of plaintiff's Success Fee would be determined from the following formula: 10% of the amount recovered by defendant from Citigroup between $1,000,000 and $10,000,000; 15% of the amount recovered between $10,000,000 and $20,000,000, 20% of the amount between $20,000,000 and $30,000,000, 25% of the amount between $30,000,000 and $40,000,000, 30% of the amount between $40,000,000 and $50,000,000, and one-third of any amount above $50,000,000. The contract further contains the following language, "The Success fee will be computed only on amounts in excess of current vested entitlements, or entitlements to be vested by January 2006. As to amounts to which the Success Fee applies, it will be computed on the gross value to which you are entitled, regardless of form (e.g. stock, cash, etc.) or timing (e.g. lump sum, payment over time, etc.)" The contract provided that, for purposes of calculating the Success Fee any amounts defendant actually paid plaintiff as fees would be credited against the total recovery from Citigroup, and that the Success [*2]Fee would be calcuated from that amount.[FN1]

After negotiation, defendant and Citigroup reached a settlement wherein Citigroup agreed to pay defendant a lump sum of $5,000,000. Plaintiff also alleges that, pursuant to the settlement, Citigroup agreed to publicly state that there was never any allegation of wrongdoing or illegal conduct on the part of defendant and further agreed to invest $50,000,000 in an investment fund created by defendant. Plaintiff alleges that, based upon this investment, defendant will recover fees in a minimum amount of $3,750,000. Defendant does not deny that Citigroup has made such an investment. However, defendant alleges that any fees he recovered from Citigroup's investment in his fund are not a result of his settlement with Citigroup and instead are compensation for services provided.

Plaintiff commenced this action on July 27, 2005. In its first cause of action, plaintiff seeks payment of the Success Fee from defendant based upon the $5,000,000 cash payment. In the second and third causes of action, plaintiff seeks payment of the Success Fee from defendant based upon defendant's income from Citigroup's investments in his fund. In the fourth cause of action, plaintiff seeks payment of actual legal fees and expenses, separate from the Success Fee, in the amount of $5,038.50, that plaintiff alleges defendant has failed to pay. In his answer, defendant asserts three separate counter claims. In his first counterclaim, defendant alleges that plaintiff, without prior consultation with or approval from defendant, unilaterally informed counsel for Citigroup that a February 22, 2005 "Termination Date" was acceptable to defendant and then induced defendant to accept the date by stating that "Citigroup promised this would not in any way affect other issues being negotiated." Defendant alleges that Citigroup used this date to compute the cessation of the vesting of defendant's Restricted Stock and Stock Options, causing defendant $3,200,000 in damages. In his second counterclaim, defendant alleges that, without prior consultation with or approval from defendant, plaintiff unilaterally suggested in negotiations that defendant would make an initial public statement concerning his discharge, to which Citigroup would respond. Defendant alleges that this caused Citigroup to subsequently refuse to issue a press statement on its own, thus costing defendant a valuable opportunity to clear his reputation. Defendant seeks unspecified damages for the consequent injury to his reputation. In his third cause of action, defendant alleges that, during the negotiations, plaintiff engaged in an inappropriate and potentially unethical communication directly with Charles O. Prince, Citigroup's Chief Executive Officer. Defendant alleges that this communication compromised defendant's negotiating position. Defendant seeks unspecified damages for a breach of ethical standards and conflict of interest resulting from the communication.

Plaintiff now seeks summary judgment on its first cause of action and dismissing [*3]defendant's counterclaims in their entirety. The court will first consider plaintiff's motion for summary judgment on its first cause of action.

Plaintiff contends that it is entitled to judgment as a matter of law in the amount of $366,621.25, as defendant received a cash payment of $5,000,000 from Citigroup. Plaintiff derives this figure as follows. Citigroup agreed to pay defendant a lump sum of $5,000,000. From this amount, plaintiff has deducted $333,787.50, the amount it alleges constitutes its hourly fees for the services it provided defendant, leaving $4,666,212.50. As the success fee only applies to amounts recovered above $1,000,000, plaintiff applies the success fee formula to $3,666,212.50. As the formula calls for payment of ten percent of any amount between $1,000,000 and $10,000,000, plaintiff determines the amount owed to be $366,621.25.

Defendant argues that he is not obligated to pay plaintiff any success fee. Defendant does not contest that he received a $5,000,000 lump sum payment from Citigroup. Rather, defendant argues that $5,000,000 lump sum payment from Citigroup falls well below the amount of defendant's "currently vested entitlements or entitlements to be vested by January 2006." Specifically, defendant contends that "currently vested entitlements and entitlements to be vested by January 2006," means all the compensation he would have received but did not from the date of his termination to January 2006. Defendant alleges this includes a performance bonus for 2004 in the amount of $5,000,000, base salary of $700,000 for 2005, a cash bonus of $5,000,000 for 2005, Restricted Stock that would have vested between February 22, 2005 and January 31, 2006, totaling $2,400,000 in value, and Stock Options that would have vested in August of 2005, totaling $800,000. As this total amount, approximately $13,900,000, is well above the $5,000,000 Citigroup actually paid, defendant argues that plaintiff is not entitled to any Success Fee. Defendant has submitted a breakdown of his 2003 compensation, which indicates that defendant received a base salary of $700,000, as well as a bonus in the amount of $5,100,000 and various stock awards and stock option awards totaling approximately $1,887,000. Defendant alleges that he informed plaintiff at the outset of negotiations that he was seeking a settlement of between $30,000,000 and $75,000,000, and that he only agreed to the addition of the Success Fee portion of the retainer agreement after insisting that it exclude from computation the amounts of entitlements that he would have received by January 2006.

Plaintiff responds by arguing that the phrase "current vested entitlements and entitlements scheduled to vest by January 2006," clearly refers solely to entitlements that actually vested. Plaintiff concedes certain stock option grants that defendant received after he was informed of his termination are not included in its calculation of the Success Fee, because those had actually vested. However, as defendant was fired before he would have received his 2004 bonus or any of his 2005 compensation, plaintiff argues that compensation never vested. Therefore, plaintiff concludes, it is entitled to a Success Fee based upon the entire $5,000,000 lump sum payment.

The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence in an admissible form to demonstrate the absence of any material issues of fact (Guiffrida v. Citibank 100 NY2d 72, 81 [2003]). Once the movant has made such a showing the burden shifts to the party opposing the motion to produce evidence in an admissible form sufficient to establish the existence of any material issues of fact requiring a trial of the action (Id). To set forth a valid cause of action for breach of contract, the plaintiff must show the terms of the agreement, consideration, performance by the plaintiff, and the basis of defendant's alleged breach. (Furia v. Furia, 116 AD2d 694, 695 [2nd Dept 1986].) When the language of a contract is subject to varying [*4]reasonable interpretations and intent must be gleaned from disputed evidence or from inferences outside the written words, a trier of fact should determine its meaning. (Time Warner Entertainment Co., L.P. v. Brustowsky, 221 AD2d 268, [1st Dept 1995].) The discernible purpose of the agreement and the circumstances surrounding its execution may serve to resolve ambiguities contained therein. (Hotel Credit Card Corp. v. American Express Co., 13 AD2d 189, 193 [1st Dept 1961].) Evidence of the surrounding circumstances, including negotiations and contemporaneous statements, may be considered to resolve ambiguities, without doing violence to the parole evidence rule. (Id.)

In the instant case, while plaintiff has made a prima facie showing of entitlement to judgment, defendant has raised a material issue of fact concerning the meaning of the phrase "entitlements to be vested by Janury 2006." Specifically, it is unclear from the four corners of the contract whether it means entitlements that would have vested by January of 2006 if defendant had not been discharged, or entitlements that did vest by January of 2006, despite defendant's termination. The phrase is never defined, and there is no language in the contract that would suggest that the plaintiff's definition of the phrase is correct or that defendant's is erroneous. Defendant has submitted evidence that would suggest that he intended that plaintiff receive a Success Fee from amounts above what he would have been paid by Citigroup as of January of 2006, had he not been fired. As there is an issue concerning interpretation of the contract that cannot be resolved without reference to outside evidence concerning the intent of the parties, summary judgment on this matter is inappropriate at this time.

Plaintiff's argument that language in the contract supports its interpretation is without merit. Plaintiff argues that, because the hypothetical award used to illustrate the calculation of the Success Fee (see supra fn. 1) does not contain deductions from the lump sum payment for amounts defendant would have earned in 2005, the contract clearly does not exclude those amounts from calculation of the actual Success Fee. While the illustration does not contain a deduction from the hypothetical lump sum payment, the absence of the deduction does not clearly indicate that no such deductions can be made from the award. The contract itself clearly provides for the exclusion of a certain portion of payment from Citigroup in calculation of the Success Fee. The hypothetical award merely serves to illustrate the operation of the sliding scale aspect of the Success Fee. Plaintiff's remaining arguments are without merit.

The court will now consider plaintiff's motion for summary judgment dismissing defendant's counterclaims, considering each cause of action in turn. On the first counterclaim, plaintiff contends that the claim as pleaded fails to state a cause of action. Specifically, plaintiff contends that defendant has failed to allege plaintiff departed from the standard of due care expected of attorneys and that such a departure was a proximate cause of damages suffered by defendant. Plaintiff further argues that, as defendant ultimately agreed to settle his claim, defendant cannot now claim that plaintiff's actions caused defendant damage.

While plaintiff seeks summary judgment dismissing the first counterclaim pursuant to CPLR § 3212, the grounds plaintiff raises on this portion of its motion are typical of the grounds asserted on a motion to dismiss for failure to state a cause of action, pursuant to CPLR § 3211 (a) (7). Accordingly, the court will treat this portion of plaintiff's motion as a motion under CPLR § 3211 (a) (7), in which the court's role is to determine whether plaintiffs' pleadings set forth cause of action. (511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 151-152 [2002]). If any cause of action can be discerned from the pleading's four corners, the motion must be dismissed. (Id.) The complaint is liberally construed and any factual allegations contained [*5]therein are accepted as true. (Id.) On a claim for legal malpractice, the plaintiff must establish (1) conduct by an attorney that fell below the ordinary and reasonable skill and knowledge commonly possessed by a member of the profession, (2) that the attorney's conduct was the proximate cause of plaintiff's loss, and (3) actual damages. (Prudential Life Insurance Company of America v. Dewey Ballantine, Bushby, Palmer, and Wood, et. al, 170 AD2d 108, 114 [1st Dept 1991], aff'd 80 NY2d 377). To establish the proximate cause element, plaintiff must show that the attorney's alleged malpractice was the "but for" cause of his injury. (Carmel v. Lunney, 70 NY2d 169, 173 [1987].) A claim of legal malpractice is viable despite settlement of the underlying action if it is alleged that the party agreed to settle the action based on mistakes made by his counsel. (Bernstein v. Oppenheim & Co., 160 AD2d 428, 430 [1st Dept 1990].)

Defendant has failed to sufficiently set forth a cause of action for legal malpractice on its first cause of action, as defendant has failed to allege that plaintiff's conduct departed from the requisite standard of care, or that, but for plaintiff's alleged negligence, defendant would have recovered the $3,200,000 he seeks as damages. In his first counterclaim, defendant alleges that plaintiff unilaterally offered to Citigroup to fix defendant's termination date at February 22, 2005 and then induced defendant to accept that date. However, defendant does not allege that plaintiff induced him to accept February 22 termination date by offering erroneous advice. Rather, the complaint alleges that plaintiff stated that Citigroup promised that the February 22 termination date would not affect other issues being negotiated. The complaint then states that Citigroup later proceeded to use the February 22 date to cease the vesting of certain stock entitlements. Absent is any allegation that plaintiff offered advice concerning the affect of fixing the termination date, or that plaintiff knew or should have known that fixing the termination date would negatively affect defendant's entitlement to the stock options he now seeks. Rather, it appears from the complaint that it was Citigroup's unilateral actions that cost defendant his stock options. Accordingly, this cause of action is dismissed.

As for defendant's second counterclaim, which alleges that plaintiff unilaterally offered to have defendant issue an initial press release to which Citigroup would respond, thus costing defendant a valuable means to clear his reputation, plaintiff has submitted an e-mail from Lewis Kaden, an attorney representing Citigroup in the negotiations, to Arkin. In that e-mail, Kaden states as follows: Attached is an alternative draft of the reference. This version is acceptable to my clients. Let's talk about it and about whether another alternative course might be to drop the attempt to agree on reference language in favor of a press story on the investment that your client initiates and mine responds with brief statement confirming the investment and wishing TJ well with his future endeavors.P

laintiff argues this e-mail establishes that it was Citigroup's attorneys, and not Arkin, that suggested defendant issue a press release to which Citigroup would respond.

With this e-mail, plaintiff has established a prima facie showing of entitlement to judgment as a matter of law dismissing the second counter claim, as it shows that Kaden, and not plaintiff, initially offered the idea of a press release by defendant and a response from Citigroup. In response, defendant has only offered a conclusory statement in his affidavit that, despite the e-mail, it was Arkin who initiated the concept of a press release issued by defendant to be followed by a response from Citigroup. Since defendant has offered no basis to establish his personal knowledge of such an allegation (i.e. that he was present when Arkin made the suggestion or that Arkin stated he had made the suggestion), the allegation has no probative value. (See Hansel'n Gretel Brand, Inc. v. [*6]Allstates Food Corp., 86 AD2d 858, 859 [2nd Dept 1982].)

Turning finally to defendant's third counterclaim, which seeks damages for an unauthorized and potentially unethical e-mail communication between Arkin and Charles O. Prince during negotiations, plaintiff has submitted a copy of the e-mail from Prince to Arkin. It reads as follows "Dear stanley nice profile (and picture!) in today's new york sun. Best, Chuck." Plaintiff has also submitted an article from the New York Sun, profiling Arkin. Plaintiff alleges that this is the article the e-mail references.

While the e-mail was sent during the negotiations, there is nothing in it that appears to pertain to the negotiations or that would suggest that it improperly influenced Arkin in the negotiations. Moreover, while defendant alleges that the e-mail communication "compromised [his] position" he has not alleged that it caused him any injury. A violation of an ethical rule, in and of itself, will not give rise to a cause of action that would not otherwise exist at law. (Shapiro v. McNeill, 92 NY2d 91, 97 [1998].) Thus, this cause of action must be dismissed. Accordingly, it is hereby

ORDERED that plaintiff's motion for summary judgment is granted to the extent that defendant's counterclaims are dismissed in their entirety, and is denied in all other respects, and the Clerk is directed to enter judgment accordingly, and it is further

ORDERED that the parties are directed to appear for a preliminary conference on May 5, 2006, at 9:30 a.m., at 111 Centre Street, Room 581, New York, New York.

This constitutes the decision and order of the court.

Dated:April 18, 2006 ENTER:

New York, New York

KAREN S. SMITH, J.S.C. Footnotes

Footnote 1:The contract contains the following language concerning calculation of the "Success Fee": "By way of illustration, if Citigroup agrees to pay you $45 million dollars [sic], and you have paid us $1 million in fees, our Success Fee will be $8.1 million, computed on the basis of net-of-fee recovery of $44 million, as follows: $ 900,000 (10% of amount between $1 and $10 million) $1,500,000 (15% of amount between $10 and $20 million) $2,000,000 (20% of amount between $20 and $30 million) $2,500,000 (25% of amount between $30 and $40 million) $1,200,000 (30% of $4 million) $8,100,000"