Collier, Halpern, Newberg, Nolletti & Bock, LLP v Andrew Carothers, M.D., P.C.

[*1] Collier, Halpern, Newberg, Nolletti & Bock, LLP v Andrew Carothers, M.D., P.C. 2010 NY Slip Op 51438(U) [28 Misc 3d 1223(A)] Decided on July 2, 2010 Supreme Court, Westchester County Giacomo, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 2, 2010
Supreme Court, Westchester County

Collier, Halpern, Newberg, Nolletti & Bock, LLP, Plaintiff,

against

Andrew Carothers, M.D., P.C., ANDREW CAROTHERS, M.D., MEDTRX CAPITAL, LLC, MEDTRX PROVIDER SOLUTIONS, LLC and MEDTRX HEALTH CARE SOLUTIONS, LLC., Defendants.



25754/2007



Collier, Halpern, Newberg, Nolletti & Bock, LLP

Pro Se, Plaintiff

One North Lexington Avenue

White Plains, NY 10601

Smith Valliere, PLLC

Attorneys for Defendants

509 Madison Avenue, 15th Floor

New York, NY 10022

William J. Giacomo, J.

Based on the foregoing submissions, the plaintiff's motion for summary judgment is DENIED and defendants' motion to amend their answer is GRANTED.

Factual and Procedural Background

Defendant Andrew Carothers is a medical doctor and Andrew Carothers MD, PC ("ACMDPC") is a professional corporation and medical provider of magnetic resonance imaging services. Defendants Medtrx Capital, LLC, Medtrx Provider Solutions, and Medtrx Health Care Solutions, LLC ("the Medtrx defendants") are in the business of providing loans, financing, collection services, billing services, and medical management services to medical providers including ACMDPC. The Medtrx defendants entered into financing, lending, billing and management agreements with ACMDPC and Carothers. Pursuant to these agreements the Medtrx defendants lent money to ACMDPC and Carothers against ACMDPC's accounts receivables. The Medtrx defendants billed insurance companies and collected the accounts receivables on [*2]behalf of ACMDPC and Carothers. The Medtrx defendants then deposited the funds collected into accounts controlled by defendant Medtrx Capital and repaid themselves for loans made to ACMDPC and Carothers. These agreements were personally guaranteed by Carothers.

Plaintiff entered into three retainer agreements dated October 5, 2006, November 15, 2006 and February 26, 2007 to represent ACMDPC in first party benefit no-fault actions where the no-fault provider was refusing to reimburse ACMDPC for MRI services provided to patients. Carothers signed each retainer agreement twice, once on behalf of ACMDPC and once in his individual capacity. In the October 5, 2006 retainer agreement, plaintiff agreed to represent ACMDPC in a lawsuit captions Progressive Group Insurers v. Schepp (Index # 15471/2006). In the November 15, 2006 retainer agreement, ACMDPC retainer plaintiff to represent its interests in Unitrin Auto and Home Insurance Company v. McNair (Index # 30637/2006); Unitrin Advantage Insurance Company v. Andrew Carothers, MD, PC (Index # 114851/2006); Unitrin Advantage Insurance Company v. Trujillo (Index # 21801/2006); ; Unitrin Advantage Insurance Company v. Page (Index # 21798/2006); and Unitrin Advantage Insurance Company v. Centeno (Index # 7919/2006). In the February 26, 2007 retainer agreement plaintiffs agreed to represent ACMDPC in Kemper Independence Insurance Company v. Jeune (Index 18863/2006); Unitrin Advantage Insurance Company v. Ambrose (Index # 24170/2006); and an appeal in the case of In the Matter of Andrew Carothers, MDPC v. Insurance Companies (Index # 002217/2006). Plaintiff represented ACMDPC in Unitrin Auto and Home Insurance Company v. Balidemaj (Index # 6843/2007); Kemper Independence Insurance Company v. Ibadullayeva (Index # 11678/2007); Unitrin Advantage Insurance Company v. Muniz (Index # 8814/2007); and Kemper Independence Insurance Company v. Lora (Index # 4397/2007), for which there was no written retainer agreements.

The total amount of potential financial loss from the eleven cases in which Kemper/Unitrin sought to prevent ACMDPC from recovering no-fault payment was $47,937.60. Plaintiff, however, contends that the potential loss to ACMDPC and Carothers from these actions was several hundred thousand dollars. Plaintiff billed ACMDPC more than $500,000.00 for their legal services in these eleven Kemper/Unitrin cases.

During its representation of ACMDPC, plaintiff issued bills to ACMDPC in the amount of $763,63.50 for legal services and $128,627.49 in disbursements for a total of $892,190.99. The Carothers defendants were given a courtesy discount of $11,865.45.

Thus far, plaintiff has been paid $477,689.10. ACMDPC has refused to pay the alleged outstanding balance of $402,626.44.

On December 19, 2007, plaintiff commenced this action seeking payment of $402,626.44 in legal fees. On March 19, 2008, plaintiff served defendants with an amended complaint. The amended complaint asserted six causes of action: breach of written retainer agreement; breach of oral contract; account stated; quantum meruit; fraud; and attorney's fees.

On January 28, 2008, defendants moved to dismiss the complaint. On June 18, 2008, Judge Frances Nicolai issued an order which, among other things, granted [*3]dismissal in its entirety to defendants Medtrex Capital, LLC, Medtrex Provider Solutions, and Medtrex Health Care Solutions, LLC. With respect to defendants ACMDPC and Carothers, the Court dismissed the quantum meruit and fraud causes of action.

On July 18, 2008, defendants ACMDPC and Carothers ("the Carothers defendants") interposed an answer which denied the allegations of the complaint and asserted nine affirmative defenses.

Plaintiff now moves for summary judgment on the grounds of breach of the retainer agreement and account stated and also seeks an award of attorneys fees. In support of its motion, plaintiff contends that there are no issues fact to preclude summary judgement because at his deposition when asked by plaintiff why its invoices were not paid Dr. Carothers's replied "Because we don't have the money." Further, when asked if there was any other reason why plaintiff was not being paid, Dr. Carothers answered "No." (See Deposition of Dr. Carothers page 253). Plaintiff contends that it properly performed its obligations under the terms of the retainer agreement and the Carothers defendants have breached the terms of the retainers agreements by failing to pay the invoices. Plaintiff also contends that although it represented ACMDPC in the actions, Carothers's signing the retainer agreements in his individual capacity rendered him a guarantor of ACMDPC's obligations under the terms of the retainer agreements.

Plaintiff argues further that between March 1, 2007 and May 31, 2007, it represented ACMDPC in the four additional Kemper/Unitrin cases, without the benefit of a retainer agreement, at the express request of the Carothers defendants as well as Mr Paladino the General Counsel for the MedTrx defendants. Thus, plaintiff contends that a written retainer agreement was not required for these four additional cases since they were similar or exactly the same as the previous Kemper/Unitrin actions and the legal services rendered were of "the same general kind as previously provided."

With respect to its account stated claim, plaintiff contends that between October 1, 2006 and November 30, 2007 it sent ACMDPC and Carothers a full and true account of the legal services provided. According to plaintiff, the Carothers defendants accepted the invoices and did not raise any objection to plaintiff's billing. Further, ACMDPC made partial payments of $477,689.10 without objection. Plaintiff relies on the deposition testimony of Carothers who stated that he saw the invoices through Medtrx and he did not object to them.

With respect to it claim for attorneys fees, plaintiff refers to that portion of its retainer agreement which allows for an award of attorneys fees connected with the collection of the balance due for legal services provided.

In opposition to the motion, the Carothers defendants contend that there are issues of fact which preclude summary judgment. Specifically, the Carothers defendants contend that plaintiff's fees are unreasonable on their face and that alone raises an issue of fact regarding whether there was a material breach of the retainer agreement. Further, they assert that there is a question of fact as to whether Carothers is personally liable for the debt to ACMDPC. The Carothers defendants contend that plaintiff cannot succeed on a breach of contract claim because it does not have written retainer agreements for the entire period of the representation.

The Carothers defendants also contend that plaintiffs claim for an account stated [*4]must be denied because there was no underlying contractual liability of Carothers. Although Carothers signed the retainer agreements twice no one ever explained to him the legal significance of that act. Further, since plaintiff did not send bills directly to Carothers, but rather to Medtrx Capital, its action for an account stated against him must fail. Finally, Carothers argue that in view of the fact that there is a dispute regarding the breach of plaintiff's retainer agreement, that dispute precludes the grant of summary judgment on an account stated theory.

For their part, the Carothers defendants move to amend their answer pursuant to CPLR 3025 to assert four counterclaims against plaintiff based upon its "gross overbilling" of the Carothers defendants. The counterclaims are breach of contract, unjust enrichment, breach of fiduciary duty, and fraud. The Carothers defendants claim that since there is no dispute that there are three retainer agreements its claim for breach of contract based upon over billing and overpayment is meritorious. The Carothers defendants also contend that they have a meritorious claim for unjust enrichment because there is a question regarding why plaintiff seeks $900,000 in legal fees for cases worth $48,000. With respect to the breach of fiduciary duty claim, the Carothers defendants contention that plaintiff as attorneys owned them a fiduciary duty which was breached when it over billed them. The Carothers defendants contend that in view of the fact that they allege plaintiff misstated the number of hours expended on various matters and marked up out-of-pocket expenses when only the actual cost of the expenses were to be charged, there is a valid claim for fraud.

In opposition, plaintiff contends that the Carothers defendants do not offer a reasonable excuse for the delay in bringing their motion to amend. Further, it claims that none of the proposed counterclaims are meritorious. Plaintiff also argues that the proposed amendment is prejudicial because the case is trial ready and the counterclaims require additional discovery. Further, the counterclaims seek affirmative relief and monetary recovery which are new theories of liability predicated on alleged improper billing.

Discussion

Plaintiff's Motion for Summary Judgment

A party seeking summary judgment bears the initial burden of affirmatively demonstrating its entitlement to summary judgment as a matter of law. (See Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Alvarez v Prospect Hospital, 68 NY2d 320 [1986]). "Once this showing has been made ... the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (see Zuckerman v. City of New York, 49 NY2d 557 [1980]).

Here, there are significant questions of fact regarding the reasonableness of the legal fees billed in this case. There is no dispute that plaintiff charged approximately $900,000 in legal fees for cases worth about $48,000. Notably, the legal fees are about 20 times the value of the no-fault cases! While the Court is mindful of the fact that the [*5]avoidance of particular outcome in first party benefit no fault cases can be worth more than the medical reimbursement at stake, to wit, a finding that the health care provider was unlicensed or fraudulently licensed providers (see State Farm Mut. Auto. Ins. Co. v. Robert Mallela, 4 NY3d 313 320-22 [2005][Such a determination renders these entities "not eligible" for reimbursement .], it still seems to this Court that legal bills in excess of 20 times value of the no-fault cases warrants denial of summary judgment as the reasonableness of attorney's fees is always subject to court scrutiny. (See Matter of First Natl. Bank v Brower, 42 NY2d 471 [1977]; D'Antoni v. Ansell, 184 AD2d 678 [2nd 1992]; Reisch & Klar v Sadofsky, 78 AD2d 517 [2nd Dept 1980]).

As the First Department noted in Collier, Cohen, Crystal & Bock v. MacNamara, 237 AD2d 152 [1st 1997]), a similar case in which a law firm was trying to collect fees which seemed on their face to be unreasonable, "[f]urther militating against summary disposition of this matter is the question of the reasonableness of the fees the firm is attempting to collect, to wit, $155,000 for less than six months work for defendant's interest in a partnership valued at less than $30,000. It is recognized that the courts possess the traditional authority "to supervise the charging of fees for legal services under the courts' inherent and statutory power to regulate the practice of law" (id at 152; see also Gair v Peck, 6 NY2d 97 [1959], cert denied 361 US 374 [1960]; Finkelstein v Kins, 124 AD2d 92, 100 [1st Dept 1987], appeal dismissed 69 NY2d 1023 [1987]).

Based on the foregoing, summary judgment is DENIED because "[t]he reasonableness of plaintiff's fees can be determined only after consideration of the difficulty of the issues and the skill required to resolve them; the lawyers' experience, ability and reputation; the time and labor required; the amount involved and benefit resulting to the client from the services; the customary fee charged for similar services; the contingency or certainty of compensation; the results obtained and the responsibility involved." (Morgan & Finnegan v. Howe Chemical Co., Inc., 210 AD2d 62 [1st Dept 1994]; see also Matter of Freeman, 34 NY2d 1, 9 [1974]; Marshall v New York City Health & Hosps. Corp., 186 AD2d 542, 543 [2nd 1992]; Gutin v Gutin, 155 AD2d 586, 587 [2nd 1989]; cf., Kramer, Levin, Nessen, Kamin & Frankel v Aronoff, 638 F Supp 714 SDNY 1986]).

Further, plaintiff's claim for an account stated must is also DENIED since a party cannot succeed on an account stated where there may be no liability for the alleged indebtedness. Here, in view of the fact that there is to be a trial on the issue of the reasonableness of attorneys fees, plaintiff cannot recovery on an account stated where no liability may exist. (See M. Paladino, Inc. v. J. Lucchese & Son Contracting Corp., 247 AD2d 515 [2nd Dept 1998]). Notably, a cause of action alleging an account stated cannot be utilized simply as another means to attempt to collect under a disputed contract. (See Ross v. Sherman, 57 AD3d 758, 759 [2nd Dept 2008]; Grinnell v. Ultimate Realty, LLC, 38 AD3d 600 [2nd Dept 2007]; Erdman Anthony & Assoc. v Barkstrom, 298 AD2d 981 [4th Dept 2002]).

The Carothers Defendants's Motion to Amend its Answer [*6]

CPLR 3025 permits this Court to freely grant leave to amend "upon such terms as may be just". CPLR 3025(b). Thus, absent prejudice or surprise, "motions for leave to amend are liberally granted". (Ricca v. Valenti, 24 AD3d 647, 648 [2nd Dept 2005]). "It is likewise true that the merits of a proposed amendment will not be examined on the motion to amend-unless the insufficiency or lack of merit is clear and free from doubt." (Norman v. Ferrara, 107 AD2d 739, 740 [2nd Dept,1985](citations omitted). Thus, only in cases "where the proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit" should leave be denied. (Id.)

Here, although the note of issue has been filed there can be no doubt that the allegations raised in the Carothers defendant's counterclaims are not a surprise to plaintiff. The amount and propriety of legal fees billed by plaintiff is the heart of the dispute between the parties. Therefore, the four proposed counterclaims arguable have merit.

Accordingly, the Carothers defendants' motion to amend their answer is GRANTED. The Carothers defendants shall serve the amended answer within 20 days of the date of this order. Further, in view of this determination, the note of issue filed in the case is stricken and the parties are directed to appear in the Compliance Part, on August 23, 2010, Room 800, for further proceedings.

Dated: White Plains, New York

July 2, 2010

HON. WILLIAM J. GIACOMO, J.S.C.