Farber v HSBC Bank, USA

[*1] Farber v HSBC Bank, USA 2005 NY Slip Op 51754(U) [9 Misc 3d 1123(A)] Decided on October 21, 2005 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 21, 2005
Supreme Court, Kings County

SETH J. FARBER, Plaintiff,

against

HSBC BANK, USA, Defendant.



SETH J. FARBER, Plaintiff, -against-

against

J.P. MORGAN CHASE BANK, Defendant.



6379/03



Attorney for Plaintiff was: Alfred E. Smith, Esq., 60 East 42nd Street, Suite 2501, New York, New York 10017.

Attorney for Defendant firm Greenberg, Trager, Toplitz and Herbst was: Kalvin Kamien, Esq.Greenberg, Trager & Herbst, 767 Third Avenue, New York, New York 10017.

Attorney for Defendant Banks HSBC and J.P. Morgan Chase was: Anthony DiPaolo, Esq., Phillips Lytle, LLP, 437 Madison Avenue, New York, New York 10022.

Carolyn E. Demarest, J.

The instant actions joined for trial involve claims brought by Plaintiff, a former associate at the Third-Party Defendant law firm of Max E. Greenberg, Trager, Toplitz & Herbst ("Greenberg"), against HSBC Bank, ("HSBC") the depository bank, and JP Morgan Chase Bank("Chase"), the drawee bank, based upon payment to Greenberg of the entire proceeds of a check drawn to the order of both Greenberg and Plaintiff without Plaintiff's endorsement thereon. It has previously been determined by Decision and Order of this Court dated November 17, 2004, under Index No. 6379/03, that HSBC is liable to Plaintiff, and by Order dated June 8, 2005, under Index No. 2229/05, that Chase is also liable to Plaintiff, pursuant to UCC§ 3-419. While HSBC, as depository bank, is entitled to refute Plaintiff's claim of entitlement to the face amount of the check, Chase, as drawee of the check, is absolutely liable for the face amount, but may be entitled to a setoff "where the payee has received all or part of the proceeds of a converted instrument". See Lawyers' Fund for Client Protection v. Bank Leumi, 94 NY2d 398, 406 (2000), quoting Mouradian v. Astoria Federal Savings & Loan, 91 NY2d 124, 129 (1997). In any event, pursuant to UCC §§ 3-417 and 4-207, Third-Party Defendant Greenberg will be liable for any sums paid to Plaintiff by virtue of its endorsement and deposit warranting to HSBC, its own depository, that it was entitled to the entire proceeds of the check. Perez v. Charter One FSB, 298 AD2d 447, 448 (2d Dep't, 2002). Chase, though absolutely liable for the full face amount, less any set-off, may recover any payment to Plaintiff from HSBC, also pursuant to UCC §§ 3-417 and 4-207. Leonard Smith, Inc. v. Merrill Lynch, 129 AD2d 397 (3d Dep't, 1987). The only issue, which was reserved for trial, is the extent to which Chase is entitled to offset sums which were actually received by Plaintiff and the extent to which HSBC is able to establish that Plaintiff was not entitled to such proceeds. See Mouradian v. Astoria Federal Savings, supra.[FN1]

FINDINGS OF FACT

Plaintiff was associated with the Greenberg firm from April 29, 1996 to September 11, 2001, when the attack upon the World Trade Center interrupted the business of the firm. The check at issue for $68,561.36 was written by the Trustee in Bankruptcy for a firm client named Energy Control which Plaintiff had brought into the firm. As an employee of the firm, Plaintiff did most of the work on the case and, pursuant to Rule 9011(a) of the Bankruptcy Court, was individually identified as the attorney of record, in addition to the Greenberg firm. It was for this reason that the check was made payable, at the direction of Bankruptcy Court Judge Conrad [*2]Duberstein, to both "Applicants" as compensation "for services rendered as attorneys for the debtor Energy Control Systems, Inc. for the period from December 10, 1997 through March 16, 2001", inclusive of $5,438.06 for disbursements, all of which were paid exclusively by Greenberg. The Order of the Bankruptcy Court further provided "that the Trustee is to disburse said amount to Applicants [Plaintiff] and [Greenberg], jointly, only upon subsequent written direction to Trustee executed by both Applicants." (See Order of the United States Bankruptcy Court dated June 27, 2002- Plaintiff's Ex.I). There is no evidence of a "subsequent written direction executed by both Applicants."

Subsequent to Plaintiff's termination from the firm, in January and February of 2002, at the firm's request, Plaintiff prepared the fee application for Energy Control. At this point, the substantive work on the account had been done, mostly by Plaintiff, during the period in which he was compensated as an employee of the firm. Under cover of letter dated February 25, 2002, upon the Greenberg letterhead, signed by Kalvin Kamien of Greenberg, the Application for Final Allowance of Compensation and Reimbursement of Expenses, bearing the signature of Seth J. Farber, was submitted to the Trustee. Plaintiff testified that he spent between forty and fifty hours on work for Greenberg after his termination in September, 2001, but it is not clear that all of that time related to Energy Control and Plaintiff admitted he kept no time records. In any event, this action is not against Greenberg directly, but is based exclusively on the check from the Trustee in Bankruptcy for Energy Control which does not include compensation for any time subsequent to March 16, 2001, when Plaintiff was still a salaried employee of Greenberg.

By letter dated March 4, 2002, to Greenberg, Trustee Richard McCord advised Mr. Kamien that the bankrupt estate was insufficient to pay the full $207,635.50 that had been requested as compensation for professional services and requested Mr. Kamien's consent to a reduction. There is no indication that this request was ever directed to Plaintiff. On March 11, 2002, Mr. Kamien responded to the Trustee on behalf of Greenberg ("this office") agreeing to a pro-rata distribution of the proceeds.

By letter dated May 24,2002, addressed to Kalvin Kamien at Greenberg (Defendants' Ex. A), Plaintiff proposed a 50% split of any fees recovered on Energy Control after deduction of all disbursements. Plaintiff's letter makes reference to a hearing scheduled for June 13 regarding legal fees in the bankruptcy proceeding and to an agreement by Greenberg to pay him 20% of all fees "received from client business that [he] brought into the firm". This letter suggests that Plaintiff knew of the fee reduction before the subject check was written on June 20, 2002. It is also clear that Greenberg knew that Plaintiff expected to receive some portion of the proceeds before it deposited the check for collection without Plaintiff's endorsement. Moreover, in August, Greenberg sent Plaintiff a check written on their trust account for $7537 in settlement of his claims, which was rejected and returned.

Substantial evidence was proffered concerning the 20% fee sharing agreement with respect to business Plaintiff brought into the firm. Although it contends that the 20% was to be based only on profit to the firm, and, since the Energy Control matter resulted in a loss, no such commission is payable here, Greenberg did not deny that an oral agreement to share 20% of the fees generated by Plaintiff's client had been made with Plaintiff when he was hired as an associate, but the totality of the evidence, including Defendants' Exhibit I, a letter from Plaintiff to Greenberg dated June 11, 2002, indicates that the arrangement was discontinued sometime in [*3]1999 or 2000. However, the Energy Control account was brought in by Plaintiff well prior to 1999 and Plaintiff is therefore entitled to receive 20% of the proceeds of the check payable to himself and Greenberg jointly as compensation for legal services, less the $5438.06 paid out-of-pocket by Greenberg for expenses and charges, a total of $12,624.66.

Chase is entitled to a set-off of $50, 498.64 in compensation paid to Plaintiff by Greenberg as salary during the period of his employment and deemed to be a portion of the proceeds actually received by Plaintiff. Similarly, HSBC has successfully rebutted the presumption that Plaintiff was entitled to the full face amount of the check. See Montgomery Melhuish v. Questex Corp., 159 Misc 2d 126 (CCCNY, NY Co., 1993), aff'd 160 Misc 2d 244 (App. T., 1st Dep't, 1994) (bank only liable for co-payee's interest in proceeds of converted check). Any additional payment of the proceeds to Plaintiff would be extremely inequitable, given that Greenberg will have received less than 25% of the sum billed for services rendered by the firm, including those rendered by Plaintiff, for which he was paid a salary.

All of the evidence relating to other clients brought to the firm by Plaintiff and other work performed by Plaintiff after his separation from Greenberg is irrelevant to the issues before this Court. This is not an action brought against Greenberg for breach of a contract with Plaintiff, but is limited to the Defendant banks' liability for the proceeds of the check, representing the totality of the compensation to both payees for legal services rendered to the bankrupt Energy Control prior to Plaintiff's termination from Greenberg, which was wrongfully negotiated through HSBC and Chase without Plaintiff's signature. In the context of this action, Greenberg's liability runs only to the banks as a Third-Party Defendant.

Plaintiff is awarded judgment jointly against Chase and HSBC in the sum of $12,624.66 with interest from July 24, 2002, the date the check was paid by HSBC, and costs. Each Defendant is entitled to recover the entire sum it pays to Plaintiff from Third-Party Defendant Greenberg with interest from the date payment is made to Plaintiff by Defendants.

The foregoing constitutes the decision and order of the Court.

E N T E R :

J.S.C. Footnotes

Footnote 1: There has never been a claim that Greenberg was acting as agent for Plaintiff in endorsing the check.