Paul G. Marshall, P.C. v Alpha Zenith Media, Inc.

[*1] Paul G. Marshall, P.C. v Alpha Zenith Media, Inc. 2008 NY Slip Op 50464(U) [19 Misc 3d 1101(A)] Decided on February 28, 2008 Supreme Court, New York County York, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 28, 2008
Supreme Court, New York County

Paul G. Marshall, P.C. d/b/a The Marshall Firm, Plaintiff,

against

Alpha Zenith Media, Inc. and Charles F. Harris, Defendants.



114522/06



Appearances:

Attorneys for Plaintiff:The Marshall Firm

271 Madison Ave. 20th Floor

New York, NY 10016-1001

Tele. No. (212) 382-2044

Attorneys for Defendant:Ginsburg & Misk, Esqs.

21548 Jamaica Avenue

Jamaica, NY 11428

(718) 468-0500

Louis B. York, J.

This is an action to recover money allegedly due to Plaintiff under a retainer agreement. As explained in detail in this decision, Plaintiff seeks $48,450.00 in legal fees and another $33,000, or 15% of the $220,000 that Defendants received under a book contract. Thus, Plaintiff asserts that Defendants owed it $81,450.00 or approximately 37% of the amount Defendants received under the book contract that Plaintiff allegedly negotiated on Defendants' behalf. In addition, Plaintiff states that it was entitled to a share of additional money received relating to the book and to other ventures of Defendants, and that Defendants wrongfully failed to insert a clause to that effect into their book contract. Currently, Plaintiff moves for summary judgment. For the reasons that follow, [*2]the Court denies Plaintiff's motion.

Plaintiff is a legal and sports management firm. Defendants are Charles F. Harris, a longtime book publisher and editor, and the founder of both Howard University Press and Amistad Press; and, Alpha Zenith Media, Incorporated, which Harris founded after he left HarperCollins. On January 3, 2006, Defendantss signed an "Engagement Agreement for Legal Services" with Plaintiff, relating to (1) Plaintiff's efforts to obtain financing for Defendants and their ventures, and (2) Plaintiff's efforts to negotiate the sale of a literary property named The Pictorial History of the African American Athlete. Section 1 of the Agreement outlines the billing and payment scheme for Plaintiff's legal services. Plaintiff's range of hourly rates is set forth as between $250 and $650 depending upon the nature of the work and the attorney who completes it. Further, the Agreement directs Defendants to pay invoices immediately upon receipt, and states that Plaintiff will "assume that [Defendants] have raised all questions You might have (if any) about a particular invoice within twenty . . . days after Your receipt thereof." Jan. 3, 2006 Agreement, at ¶ 1(c)("the Agreement").

Despite the mandate that Defendants make immediate payment, there is a provision stating that Plaintiff agreed to delay collection of the fees for 120 days from January 1, 2006. The Agreement further states that Plaintiff would assess "reasonable interest charges and collection costs" on this amount. Id. The Agreement also states that, as "consideration" for this delay in collection, not only is Plaintiff entitled to interest charges and collection costs but to 15% of any funds paid to Defendants "or any company affiliated" with Defendants for the book The Pictorial History of the African American Athlete, regardless of whether Plaintiff negotiated the deal or deals, as long as the negotiation was concluded within 18 months of the Agreement date. Id. at ¶¶ 1(c), 2(a).

Finally, parties also agreed that, if Plaintiff assisted Defendants in obtaining capital and/or business partners for Defendants' future business transactions, Defendants would pay Plaintiff a "Success Fee of 15% of the gross amount of all investments, advances, loans and other monies which shall be payable to [Defendants] . . ." as long as Defendants obtained the money from these partners within a year of the date of any discussions in which Plaintiff was involved. On top of that, the Agreement gave Plaintiff a 15% equity interest in any entities, affiliates, or funds created as a result of any "contemplated" transaction. Id. at ¶ 2(b). To ensure that Plaintiff received these 15% fees, the Agreement provided that Defendants would include a provision to that effect in any of Defendants' transaction agreements.

One more fact that all parties mention is that, at the time of the Agreement, Defendant Harris was having financial difficulties. In particular, he had been served with a notice of eviction. Plaintiff states that, through his firm, he contacted Harris' landlord, and persuaded the landlord not to evict Harris on the ground that Harris would receive a substantial sum as a result of the forthcoming book deal. Plaintiff states, and Defendants do not deny, that he did not charge Harris for this service. Defendants and Plaintiff debate the amount of work that was involved in this undertaking.

In the current action, Plaintiff asserts account stated and breach of contract claims for the unpaid invoices. The invoices, which Defendants concededly received, cover services between December 20, 2005 to April 24, 2006. The amount due under the annexed invoices totals $48,450.00. However, Plaintiff also annexes duplicates of several of the invoices to its memorandum; these contain notations by Defendants, which crossed out items and also replaced [*3]certain sums allegedly due with lower dollar amounts. After they received the May 10, 2006 invoice, Defendants rejected the Agreement and Plaintiff's right to send additional bills. The total due, as recalculated by Defendants, is $21,533.00.

On June 14, 2006, Defendants paid Plaintiff $16,250.00 by check. Under Plaintiff's computation, this leaves an outstanding balance of $32,200.00. By Defendants' computation, Defendants paid all but $5283.00 of their legal fees.

Plaintiff bases its summary judgment motion on its account stated and contractual claims. Recovery on an account stated claim will fail if the defendant shows that it disputed the statement of account in a timely fashion. Farley v. Promovision Video Displays Corp., 198 AD2d 122, 123, 603 NYS2d 476, 477 (1st Dept. 1993). In the present case, Defendants, through their notations on the invoices, objected to the account. According to Defendant Harris, although he received these invoices several months after the dates of service, he objected immediately "both over the telephone and when [he] was in the office for several meetings. . ." (Aff. in Opp. at 11). Plaintiff counters that Defendants did not question the invoices which they regularly received, but this argument does not resolve the dispute. Instead, and especially as the contract itself does not mandate that objections to the account need be in writing, it results in a triable issue as to whether Defendants timely objected to the account stated. See Ween v. Dow, 35 AD3d 58, 61, 822 NYS2d 257, 260 (1st Dept. 2006)(finding issues of fact as to whether defendant's oral and written objections sufficed to defeat the claim); Construction and Marine Equipment, Inc. v. Thomas, 195 AD2d 535, 601 NYS2d 832 (2nd Dept. 1993).

There is another reason summary judgment is improper here. Summary judgment is inappropriate on an account stated claim if the plaintiff does not support its claim with clear, itemized billing statements. Scheichet & Davis, P.C. v. Steinger, 183 AD2d 479, , 583 NYS2d 407, 408 (1st Dept. 1992). In Scheichet, the plaintiff sought to recover unpaid legal fees pursuant to a retainer. The court denied the plaintiff's summary judgment motion, finding questions of fact as to the value of services rendered because plaintiff's billing statements indicated the amount of the alleged debt but "did not recite the nature of the services rendered." Id. Here, as Defendants have indicated, Plaintiff's invoices are incomplete in several respects. Not one invoice indicates which attorney completed the work being billed. This is critical because the hourly billable rate is dependant in part on which attorney performed the work. Additionally, several entries use the terms "meeting," "various telephone calls" and "document review" without further, more detailed description. These vague entries prevent adequate evaluation of Defendant Harris' contention that Plaintiff overbilled for its work. See id.; Herbert Paul, P.C. v. Coleman, 236 AD2d 268, 269, 654 NYS2d 295, 296 (1st Dept. 1997). The conclusory affirmations of various attorneys who worked for Plaintiff, which Plaintiff submits in support of this motion, are not sufficient or sufficiently particularized to remedy this problem.

This is not to say that Defendants will be deemed to have paid their debts in full. Even under Defendants' computation, a $5283.00 debt remains. Moreover, the mere assertion of an objection is not enough to eliminate the debt. It may well be that Plaintiff, a top firm in legal/sports management, was entitled to higher fees than Defendants contend. However, Plaintiff apparently has rejected every single one of Defendants' challenges, and it may turn out that the proper charge should be adjusted to reflect at least some of these challenges. In light of the ongoing disputes and the paucity of substantiation, a hearing is appropriate. [*4]

Next, Plaintiff asserts that it is entitled to summary judgment based on Defendants' failure to pay a Success Fee. As mentioned, Defendants were not in strong financial shape when they entered into the Agreement. Therefore, they were unable to pay Plaintiff's legal fees when they normally would have been due. In addition, at this time, Defendants were hoping to develop their business. The parties envisioned that Plaintiff would help Defendants make various professional contacts who would, in turn, provide additional business and financial opportunities to them. As a result, Section 2 of the Agreement includes a Success Fee. Essentially, as written, in return for allowing Defendants a four-month grace period for paying their legal fees, Plaintiff was entitled to receive 15% of any funds Defendants received for any successful agreement pertaining to the Literary Property, and to receive 15% of any capitalization Defendants received as a result of Plaintiff's efforts. Moreover, part 2(c) of the Agreement requires Defendants to "cause a provision to be inserted in any Transaction Agreements to the effect that the Firm shall receive directly, as a third-party beneficiary, [its] Success Fee."[FN1] It is Plaintiff's argument that Defendants breached part 2(c) of the contract when they failed to pay 15% of the $220,000 received from their book deal with ESPN for the Literary Property, and when they did not insert the required provision into the ESPN contract.

Defendants oppose this portion of the motion as well. They argue that the Agreement is ambiguous with respect to the Success Fee and it therefore should be construed in favor of Defendants. "The law requires that an agreement between the client and the attorney be construed most favorably for the client. Bizar, 228 AD2d at 589, 644 NYS2d at 754. As for the Success Fee, Plaintiff contends that the Agreement clearly devised two distinct 15% Success Fees; one with respect to successful agreements pertaining to the Literary Property and the other with respect to successful assistance with capitalization. With regard to the Literary Property Success Fee, Paragraph 2(a) of the Agreement states as follows:

[. . . I]n the event that you successfully conclude one or more agreements relating to [the Literary Property] within eighteen (18) months of the date hereof, then the Firm shall be entitled to fifteen percent (15%) of any and all funds paid to you or on your behalf . . . . in connection with any such agreements.

In Paragraph 2(b) of the Agreement, the capitalization Success Fee is set forth as follows:

[. . . I]f (i) the Firm shall engage in any discussions with any individuals or business entities concerning providing a business relationship and/or financing,. . . . and (ii) within twelve (12) months after the date of any such discussions you shall enter into any such [relationship], then you will be obligated to (i) pay the Firm a fee (the "Success Fee") in the amount of fifteen percent (15%) of the gross amount of all [capitalization]. . . .

Although Defendants argue that any contractual ambiguities would be construed in their favor, the Court concludes that the above language is clear and unambiguous, with clear temporal limitations. The meaning comports with Plaintiff's interpretation, and Defendants have not [*5]successfully pointed out any ambiguities. Plaintiff notes that Mr. Harris is an intelligent man with an obvious facility for language, and this undeniably is correct. For all these reasons, this portion of the argument must fail.

In addition, however, Defendants counter Plaintiff's motion by stating that, when considered in conjunction with the high fees Plaintiff charged for its hourly work, the Success Fee is unconscionable. Defendants also claim they relied on Plaintiff, their attorney, to craft a fair fee arrangement. Plaintiff points to defendant Harris' sophistication and intelligence, stating that he was perfectly capable of understanding the Agreement and negotiating its terms. It also states that the fees are fair and reasonable. In evaluating this issue, the Court is mindful of the unique fiduciary relationship that exists between an attorney and client, "stemming from people hiring attorneys to exercise professional judgment on a client's behalf." In re Cooperman, 83 NY2d 465, 472, 611 NYS2d 465, 467 (1994). Fee agreements are "affected by lofty principles different from those applicable to commonplace commercial contracts," id. at 472, 611 NYS2d at 468, and therefore scrutinized more carefully as well.

It is helpful, initially, to define the nature of the Success Fee. Essentially, Plaintiff argues, the 15% Success Fee is a contingent fee agreement. However, in a traditional contingent fee arrangement, no hourly fees are assessed. Instead, the attorney contracts to take a reasonable share of any judgment or settlement the client may receive in lieu of rather than in addition to hourly fees. Defendants argue that the arrangement is more properly categorized as a general-special hybrid agreement because of the combination of the hourly fees and the contingent fee and that, as such, it is subject to close scrutiny. See Agusta & Ross v. Trancamp Contracting Corp., 193 Misc 2d 781, 786, 751 NYS2d 155, 159 (Civ. Ct. NY County 2002). In Agusta, for example, the attorney agreed to a discounted contingent fee of 22%, as opposed to the usual 33% or, approximately 67% of the usual contingent fee, along with a hourly rate of $140.00 per hour instead of $250.00 per hour that is, 56% of its usual hourly fee. Id. at 782, 751 NYS2d at 156.

The Court finds that the Agreement is more in the nature of the special hybrid agreement and thus is subject to higher scrutiny. It appears that, unlike the Agusta contract, no discount was applied to the hourly fees. Instead, as worded, the contingent fee arrangement is itself contingent, an additional charge to be levied if and only if Defendants fail to make timely payments of their monthly statements. Although the Court does not believe that this was Plaintiff's intent, there is a sense in which the Success Fee reads as a liquidated damages clause. For this reason, too, the Agreement should be strictly reviewed.

In conducting its review, a trial court must weigh "whether the attorney fee sought is reasonable based upon such factors as the amount of time spent by the lawyer on the case, the work performed, the difficulty of the question involved, and the skill required to handle the problem." Kutner v. Antonacci, 16 Misc 3d 585, 588, 837 NYS2d 859, 861 (Dist. Ct. Nassau County 2007). Here, the parties dispute whether and to what extent Plaintiff facilitated the contract. According to Plaintiff, the firm's connection to ESPN and work on the transaction was instrumental. According to Defendants, at most Plaintiff put the ESPN and Defendants together, but Defendants did all of the work after that point. Moreover, Defendants appear to argue whether Plaintiff introduced them in the first place. For this reason, as well, it is not clear whether the additional 15% Success Fee is conscionable under the circumstances. [*6]

Defendants were in dire financial straits at the time the parties entered into the Agreement. Plaintiff has mentioned this as a justification of the existing arrangement. It is probable that Plaintiff, an established firm which has made extensive efforts to help emerging musicians,[FN2] devised the Arrangement in a way that enabled Defendants to avail themselves of Plaintiff's services without owing immediate legal fees. However, there is no discount to the legal services provided and in fact, as worded, this is an extra charge on top of the high legal fees already assessed. Plaintiff has placed a higher than average burden on Defendants as the cost of a four-month deferral of payment. In light of Defendants' somewhat urgent position, there is an issue as to whether Defendants agreed to this provision because of their situation.

Here, the two fees together are equal to approximately 37% of the amount realized by Defendants from the contract. The Court notes that this does not render them unconscionable on their face. Indeed, even a fee of 50% may be enforceable in the absence of evidence showing the contrary. Ransom v. Cutting, 188 NY 447, 450; 81 N.E. 324, 324 (1907); see Walker v. Weinstock, 173 Misc 2d 1, 5, 658 NYS2d 167, 170 (Sup. Ct. Kings County 1997). Nevertheless, issues of fact exist and the Court is required to conduct a fuller scrutiny. See Lawrence v. Miller, AD3d , , NYS2d , (1st Dept. Nov. 27, 2007)(avail at 2007 WL 4178506, at *3)(relating to contingent fee agreement of 40%); Walker v. Weinstock, 173 Misc 2d 1, 5, 658 NYS2d 167, 170 (Sup. Ct. Kings County 1997).

For the reasons given above, it is therefore

ORDERED that Plaintiff's motion is denied.

Dated: February 28, 2008

ENTER:

____________________________

Louis B. York, J.S.C. Footnotes

Footnote 1: Part 2(c) applied to transactions entered into within 18 months of the January 3, 2006 Agreement, and therefore has lapsed at this time. The parties agree that, except for the Literary Property, no other transactions are at issue here.

Footnote 2: Mr. Marshall received a Grammy lifetime achievement award for these efforts.