515 Ave. I Corp. v 515 Ave. I Tenants Corp.

[*1] 515 Ave. I Corp. v 515 Ave. I Tenants Corp. 2010 NY Slip Op 52079(U) [29 Misc 3d 1228(A)] Decided on December 1, 2010 Supreme Court, Kings County Battaglia, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 1, 2010
Supreme Court, Kings County

515 Avenue I Corp., Plaintiff,

against

515 Avenue I Tenants Corp., Gutman Management Co., Inc., Joshua Cheifetz, Betsy Lipschutz and John Leonard, Defendants.



65/05



Plaintiff was represented by Barry R. Fertel, Esq. Defendants were represented by Ezio Scaldaferri, Esq. of Feder Kaszovitz LLP.

Jack M. Battaglia, J.

Recitation in accordance with CPLR 2219(a) of the papers considered on Defendants' motion for an order granting them an award of attorney fees and expenses:

-Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses

Exhibits 1-5

-Affirmation in Opposition to Application for Attorneys' Fees

Exhibits A-E

-Reply Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses

Attachments

Plaintiff was represented by Barry R. Fertel, Esq. Defendants were represented by Ezio Scaldaferri, Esq. of Feder Kaszovitz LLP.

Plaintiff, the shareholder/lessee with respect to 19 apartments in a building owned by a cooperative corporation, defendant 515 Avenue I Tenants Corp., commenced this action in January 2005 against the corporation, several of its board members, and its managing agent. The action has been heavily litigated, yielding three decision and orders of Hon. Diana J. Johnson, dated, respectively, June 7, 2005, January 20, 2006, and May 15, 2006; two rulings by the Second Department, dated, respectively, December 12, 2007 (44 AD3d 707) and April 22, 2008 (50 AD3d 925); and a decision and order of Hon. Sylvia O. Hinds-Radix dated June 6, 2009. [*2]

In her June 6, 2009 decision and order, Justice Hinds-Radix, among other things, granted Defendants' motion to dismiss the complaint and for partial summary judgment on their counterclaim for attorneys' fees and expenses. Justice Hinds-Radix ordered a hearing to establish the amount due Defendants on their counterclaim, but, before the hearing could be held, Justice Hinds-Radix's inventory of pending actions, including this one, was transferred to this Court.

After several adjournments on the consent of the parties, the parties appeared before this Court on June 7, 2010. Because it appeared that a fundamental legal question is in dispute, the resolution of which would affect the nature, if not the necessity, of any live testimony and other evidence that might be presented at a hearing, the Court and counsel agreed to proceed, in the first instance at least, with written submissions. (See Diaz v Audi of Am., Inc., 59 AD3d 828, 830 [2d Dept 2008].)

Any award of attorneys' fees here is governed by the following provision in the Proprietary Lease:

"28.If the Lessee shall at any time be in default hereunder and the Lessor shall incur any expense (whether paid or not) in performing acts which the Lessee is required to perform, or in instituting any action or proceeding based on such default, or defending, or asserting a counterclaim in, any action or proceeding brought by the Lessee, the expense thereof to the Lessor, including reasonable attorneys' fees and disbursements, shall be paid by the Lessee to the Lessor, on demand, as additional rent." (Emphasis added.)

Defendants initially seek attorney fees' of $176,154 for services rendered through July 29, 2010, together with disbursements of $3,303.47. The fee was determined by multiplying "460 (rounded) hours of attorney time on the matter" by a "blended rate" of $383/hr. (Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ ¶ 21, 23.) Most of the work, 97%, was performed by an attorney whose ordinary hourly billing rate has varied during the representation from $345/hr in 2005 to $440/hr currently.

Defendants' counsel were retained for this action by Defendants' insurance carrier, National Union Fire Insurance Company of Pittsburgh, PA. As provided in counsel's agreement with the carrier, their services were to be billed at hourly rates of $190 for partners, $150 for associates, and $100 for paralegals pursuant to "Employment Practices Litigation Management Guidelines." The attorney who provided 97% of the services is a member of the firm.

Through June 2010, counsel have billed the carrier $93,123.50, of which all but $6,000 has been paid. There is a "deductible" under the policy of $2,500, which was paid by Defendants. With the "deductible" included, the total fee paid or payable through June 2010 is $95,623.50.

Plaintiff contends that, since the Proprietary Lease allows the recovery of an expense the [*3]corporation "shall incur . . . (whether paid or not)," recovery is limited to the $2,500 "deductible" under the National Union policy, or that amount and the $93,123.50 paid or owed by the carrier. Alternatively, Plaintiff contends that the amount of any fee due must be reduced by the amount paid to counsel by the carrier. (Plaintiff argues for a credit of $98,851.47, Affirmation in Opposition to Application for Attorneys' Fees ¶ 9, but derivation of the number is not clear.) In any event, Plaintiff maintains that "many of the charges claimed by defendants' attorneys are not reasonable and/or amounts which should not be charged to plaintiff." (Id., ¶1.)

"At the outset there should be recognition of the traditional authority of the courts to supervise the charging of fees for legal services under the courts' inherent and statutory power to regulate the practice of law." (First National Bank of East Islip v Brower, 42 NY2d 471, 474 [1977].) "Long tradition" establishes the factors that courts use in making "an independent determination of what it is reasonable":

"time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved." (Matter of Freeman, 34 NY2d 1, 9 [1974]; see also Matter of Massey, 73 AD3d 1179, 1179-80 [2d Dept 2010]; Diaz v Audi of Am., Inc., 59 AD3d at 830; Miller Realty Assocs. v Amendola Indus., 51 AD3d 987, 989-90 [2d Dept 2008]; Steiger v Dweck, 305 AD2d 475, 476 [2d Dept 2003].)

"[T]he award of reasonable counsel fees is within the sound discretion of the trial court." (Ebrahimian v. Long Island Railroad, 269 AD2d 488, 489[2d Dept 2000]; see also Matter of Massey, 73 AD3d at 1179].) The courts' authority, and the factors that guide the exercise of discretion, extend to the enforcement of contractual provisions that require the payment of attorneys' fees by one of the parties. (See First National Bank of East Islip v Brower, 42 NY2d at 474; Miller Realty Assocs. v Amendola Indus., 51 AD3d at 990; M. Sobol, Inc. v Wykagyl Pharmacy, Inc., 282 AD2d 438, 439 [2d Dept 2001]; Orix Credit Alliance, Inc. v Grace Industries, Inc., 261 AD2d 521, 521-22 [2d Dept 1999].)

Some New York courts have applied the Federal "lodestar" methodology. "Under this analysis, a fee is based on time expended multiplied by an appropriate hourly rate . . . , then adjusted upward or downward to take into consideration extraordinary circumstances, such as results achieved, the novelty of the issue, and other factors." (Matter of Karp, 145 AD2d 208, 215 [1st Dept 1989]; see also Ross v Congregation B'nai Abraham Mordechai, 12 Misc 3d 559, 570 [Civ Ct, NY County 2006]; Sidley Holding Corp. v Ruderman., 2009 US Dist LEXIS 126040, * 52- * 53 [SDNY 2009].) The "lodestar" is deemed "an objective basis on which to make an initial estimate of the value of a lawyer's services," which is then "augmented or reduced . . . to take into account . . . subjective factors." (Matter of Rahmey v Blum, 95 AD2d 294, 303 [2d Dept 1983]; see also Hensley v Eckerhart, 461 US 424, 430 n3 [1983].) The "subjective factors" are similar to the factors traditionally utilized by the New York courts, quoted above as articulated in Matter of Freeman (38 [*4]NY2d at 9-10.) Moreover, to the extent that the "lodestar" calculation utilizes the numbers of hours "reasonably" expended and a "reasonable" hourly rate (see Matter of Rahmey v Blum, 95 AD2d at 301-03), elements of indeterminancy, if not "subjectivity," creep into the initial estimate.

Because of the similarity in the factors traditionally utilized by New York courts and the factors applied to the lodestar by the Federal courts (see Matter of Karp, 145 AD2d at 215-16), the two methods may yield similar results in most cases. However, there is danger in incorporating wholesale into contractual fee-shifting the methodology developed, at least initially, in the context of attorneys' fees awards under the Federal civil rights laws with the purpose "to attract qualified and competent attorneys without affording any windfall to those who undertake such representation." (Matter of Rahmey v Blum, 95 AD2d at 305; see also McIntyre v Manhattan Ford, Lincoln-Mercury, Inc., 176 Misc 2d 325, 332 [Sup Ct, NY County 1997].)

A court "may consider its own knowledge and experience concerning reasonable and proper fees and in the light of such knowledge and experience, the court may form an independent judgment from the facts and evidence before it as to the nature and extent of the services rendered, make an appraisal of such services, and determine the reasonable value thereof." (Jordan v Freeman, 40 AD2d 656, 657 [1st Dept 1972); see also BDP Int'l Fin. Corp. v Castillo, 55 AD3d 451, 452 [1st Dept 2008]; Schoenau v Lek, 283 AD2d 200, 200 [1st Dept 2001]; Potts v Hines, 144 AD2d 189, 190 [3d Dept 1988]; Solow v Wellner, 150 Misc 2d 642, 653 [Civ Ct, NY County 1991].) Moreover, "[a]lthough time is one of the factors to be considered in arriving at a fee award, it [is] appropriate for the court not to place undue emphasis on the actual hours billed . . . [as] skilled long-experienced, conscientious attorneys . . . can render services in substantially less time by reason of their expertise, than could other attorneys of lesser . . . experience." (Matter of Mergentime, 207 AD2d 453, 454 [2d Dept 1994]; see also Matter of Karp, 145 AD2d at 216.)

Plaintiff contends that Defendants did not "incur" any attorneys' fees within the meaning and scope of paragraph 28 of the Proprietary Lease beyond the $2,500 that was paid by Defendants as a "retainer" to the law firm engaged by National Union to defend the action, in that Defendants "admittedly never became liable for any fees, as it was agreed, without reservation, that all legal fees and expenses (other than the $2,500.00 retention) would be paid by" the insurer. (Affirmation in Opposition to Application for Attorneys' Fees ¶ 4.) Neither Plaintiff nor Defendants have made the insurance contract a part of the record on Defendants' application for attorneys' fees. Defendants do not dispute that they "never became liable for any fees" after payment of the $2,500 "retainer." The only "written letter of engagement" (see 27 NYCRR §1215.1) is a letter dated January 21, 2005 from AIG Technical Services, Inc., on behalf of National Union, to the law firm representing Defendants in this action.

The Proprietary Lease does not define the term "incur," and there is no contention that the parties to the Proprietary Lease intended any particular or unusual meaning to the term.

"Where the lease provides that the successful party is entitled to be reimbursed for legal expenses incurred by him in the prosecution of a claim or counterclaim or a defense thereto, the [*5]successful party may seek to recover the legal expenses incurred; but only after the fees and related expenses have been paid. This concept views the obligation to pay the legal fees as a contract of indemnity whereunder the party who has incurred and paid the legal fees is entitled to reimbursement . . . On the other hand, where the lease provides, simply, that the successful party has the right to collect reasonable fees and expenses incurred, then the party seeking the legal fees may make demand therefor as soon as the obligation for the fees is incurred, whether or not payment of the fees has been made; and such legal fees may be recovered in the underlying summary proceedings." (William Manor Mgmt. Assocs. v Deutsh, 126 Misc 2d 1006, 1007 [Mount Vernon City Court 1984] [citing 379 Madison Ave., Inc. v Stuyvesant Co., 242 AD 567 (1st Dept 1934), aff'd 268 NY 576 (1935) and Columbia Corrugated Container Corp. v Skyway Container Corp., 37 AD2d 845 (2d Dept 1971), aff'd 32 NY2d 818 (1973)]; see also 930 Fifth Corp. v King, 54 AD2d 636, 636-37 [1st Dept 1976], aff'd 42 NY2d 886 [1977].)

That the obligation to pay is key is further evident from the Court of Appeals decision in Rubin v Empire Mut. Ins. Co. (25 NY2d 426 [1969]),relied upon by Defendants (see Reply Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ 4, 5.) In Rubin, the issue was "whether an insured under an automobile liability policy is entitled to receive payment of the amount of his medical expenses, under the medical expense provisions of the policy, despite the fact that such medical expenses were paid, pursuant to his employer's coverage under the Workmen's Compensation Law, to the persons rendering the medical services." (Id. at 427-28.) The automobile policy provided for payment for "all reasonable expenses incurred . . . for necessary medical . . . services."(See id. at 428.) The insurer contended that "where the insured's medical expenses have been satisfied out of compensation payments, he has not incurred' any expenses so as to be eligible under the policy." (See id.)

The Court of Appeals rejected the insurer's contention, holding in effect that "inasmuch as the expenses could be charged against the insured, he had incurred them." (See id. at 429.) "Certainly, there has to be some period of time between the initial treatment and the establishment of compensation liability and, regardless of who ultimately pays or where the bills are first sent, the insured has subjected himself to liability for payment simply by undergoing the treatment." (Id.) "[I]n differentiating between damage suffered and cost or damage incurred . . . : Suffered means paid; incurred means become liable for'." (Id. [quoting Beekman v Van Dolsen, 70 Hun. 288, 294 (1st Dept 1893)]; see also Todaro v GEICO, 46 AD3d 1086, 1088 [3d Dept 2007]; Greenspan v Travelers Ins. Co., 98 Misc 2d 43, 49 [Sup Ct, Queens County 1979]; Farr v Travelers Ins. Co., 84 Misc 2d 189, 192 [Sup Ct, Erie County 1975].)

Defendants here, however, do not demonstrate that they were ever "liable for" any of the fees National Union agreed to pay the law firm it engaged to represent Defendants. Again, there was no engagement letter between Defendants and the law firm, as would have been required if Defendants had engaged the law firm (see 27 NYCRR §1215.1), and Defendants cite no provision of the National Union policy or applicable law that would make Defendants "liable for" the law firm's fee in the first instance, or if the carrier did not pay. [*6]

Defendants rely on decisions applying Real Property Law §234 that allow tenants to receive attorney's fees where they have prevailed in actions against landlords, even though the tenant, "either because he represented himself or because he obtained free legal assistance, did not become legally obligated to pay the fees" (see Maplewood Mgt. v Best, 143 AD2d 978, 979 [2d Dept 1988]; see also Senfeld v I.S.T.A. Holding Co., Inc., 235 AD2d 345, 345 [1st Dept 1997]; 313 W. 100th St. Tenants Assn. v Kepasi Realty Corp., 143 Misc 2d 566, 567 [App Term, 1st Dept 1989]; Milman v Cataldi, 139 Misc 2d 1067, 1069-70 [Civ Ct, NY County 1988]; Scotia Assocs. v Bond, 126 Misc 2d 885, 888-91 [Civ Ct, NY County 1985].)

Real Property Law §234 provides, "Whenever a lease of residential property shall provide that . . . the landlord may recover attorneys' fees and/or expenses incurred as a result of the failure of the tenant to perform any covenant or agreement contained in such lease . . . there shall be implied in such lease a covenant by the landlord to pay the tenant the reasonable attorneys' fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease." "The overriding purpose of Real Property Law §234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense." (Duell v Condon, 84 NY2d 773, 780 [1995].)

The reciprocity mandated by Real Property Law §234 apparently requires that restrictions on a tenant's right to recover attorney's fees under the statute be applied as well to restrict a landlord's entitlement to attorneys' fees under the lease. (See Solow Mgmt. Corp. v Tanger, 19 AD3d 225, 226 [1st Dept 2005].) Reciprocity would appear also to require that a landlord benefit from a rule that allows a recovery of attorneys' fees even though the landlord did not become legally obligated to pay the fees because insurance was obtained to cover the risk - - insurance that, under other circumstances, might well have benefitted Plaintiff.

Neither Plaintiff nor Defendants have questioned the applicability of Real Property Law §234 to proprietary leases generally, or to Plaintiff's Proprietary Leases in particular. The shareholder/lessee's relationship with the cooperative corporation is sometimes analyzed by reference to corporate law principles (see 40 W. 67th St. v Pullman, 100 NY 147 [2003]) and sometimes according to landlord/tenant law principles (see Anderson v Nottingham Vill. Homeowner's Assn., 37 AD3d 1195 [4th Dept 2007].) In Zilberfein v Palmer Terrace Coop. (18 AD3d 742 [2d Dept 2005]), the Second Department enforced an attorneys' fee provision in a "proprietary lease/occupancy agreement," even though the dispute was resolved on corporate law principles (see id. at 744-45.) This Court predicts that, squarely faced with the question, the Second Department would hold that Real Property Law §234 applies to proprietary leases generally, and that is sufficient to require use of the statutory "reciprocity" principle here.

As to the amount of the fees recoverable, the logic of Rubin v Empire Mut. Ins. Co. (25 NY2d 426) would support Plaintiff's contention that the fees are limited to the amount the law firm agreed to accept from National Union in payment for services rendered, since Defendants never were "liable [*7]for" any additional amount. (See Metz v U.S. Life Ins. Co., 2010 US Dist LEXIS 96607, * 7- * 10 [SDNY 2010].) Defendants in effect "only incurred the fee that [its counsel] had contractually agreed to [accept] before performing such a service." (See id. at * 10.)

And so, in a mortgage foreclosure action, where the mortgagee/bank was given a "discount" by its law firm in the form of a "flat fee" of $1,250 "since the bank refers a volume of business to the firm," the bank was awarded only $1,250. (See Mfrs. & Traders Trust Co. v Dougherty, 192 Misc 2d 365, 367 [Sup Ct, Oneida County 2002], mod. 11 AD3d 1019 [4th Dept 2004].) But the court could have awarded the bank a higher fee, so long as the amount was not excessive. "Although a fee agreement between the attorney and his or her client may be indicative of what is a reasonable fee, it is not determinative." (Id. at 1020.)

The appellate decision most directly on point appears to be Brosnan v Behette (186 AD2d 165 [2d Dept 1992]), which involved attorneys' fees awarded on the landlord's default in an action by tenants to recover counsel fees pursuant to Real Property Law §234. The trial court had allowed a fee based upon an hourly billing rate of $250, but the tenant's counsel billed his clients at a rate of $150 per hour. The Second Department found the award at the higher rate to be "clearly excessive," and reduced the award to an amount based on the lower rate actually billed. (See id. at 167.) "The inequity [of the higher award] is apparent, and we will not allow such a result to stand, for to do so would be tantamount to granting the plaintiffs an open season' at the expense of a defaulting defendant." (See id.)

Giving an actual billing arrangement strong, but not determinative, effect is consistent with the approach taken in Federal decisions involving Federal statutory, nonconstitutional law, such as the Copyright Act or the Lanham Act, or a Federal civil rights statute. (See Ross v Congregation B'nai Abraham Mordechai, 12 Misc 3d at 565-69 [reviewing cases]; see also Blanchard v Bergeron, 489 US 87, 93 [1989]; Cresent Publ. Group, Inc. v Playboy Enters., Inc., 246 F3d 142, 151 [2d Dir. 2001].) "The lodestar method suggests that the prevailing market rate in the community should trump any agreement for a lower rate made between a client and its private counsel." (See id at 150-51 [footnote omitted].) "The actual billing arrangement certainly provides a strong indication of what private parties believe is the reasonable' fee to be awarded." (Id. at 151.) "[I]n no event should the fees awarded amount to a windfall for the prevailing party." (Id.)

The approach is also consistent with, if not required by, Real Property Law §234 and its governing principle of reciprocity, as described above. (See also Milman v Cataldi, 139 Misc 2d 1067, 1069-71 [Civ Ct, NY County 1988].)

Which does not obviate the burden of the prevailing party to establish the "reasonableness" of the fee award requested, including the prevailing market rate and other factors that would warrant a higher fee than that called for by the actual billing arrangement. (See Kaygreen Realty Co. v IG Second Generation Partners, L.P., ____ AD3d ___, 2010 NY Slip Op 8707, * 2 [2d Dept 2010].)

Before addressing Defendants' showing here, however, the Court must reject Plaintiff's [*8]contention that, should the Court determine that Defendants are entitled to a fee award in an amount greater than the amount billed to National Union, there should be deducted from the award (say, the $176,154 requested by Defendants for legal services through July 29) the amount billed Defendants and to the insurer for that period (i.e., $95,623.50) which, in this case at least, would yield an award at an amount less than the amount billed (i.e., $80,530.50.)

Plaintiff cites no authority for its contention, but some support might be found in Inchaustegui v 666 5th Ave. Ltd. Partnership (96 NY2d 111 [2001]), in which the Court of Appeals addressed the measure of damages due a landlord for a tenant's breach of its agreement to obtain liability insurance for the landlord's benefit. The Court held that "[a] landlord who has no knowledge of a tenant's failure to acquire the requisite insurance and is left uninsured may recover the full amount of the underlying tort liability and defense costs from the tenant." (See id. at 114.) But where "the landlord procured its own insurance covering the risk," it "sustained no loss beyond its out-of-pocket costs," and its recovery was "limited to out-of-pocket damages" and not "the full amount of the settlement and defense costs in the underlying tort claim." (See id. at 114-15.)

The Court rejected application of the common-law collateral source rule that "a personal injury award may not be reduced or offset by the amount of compensation that the injured person may receive from a source other than the tortfeasor." (See id. at 115 [quoting Oden v Chemung County Indus. Dev. Agency, 87 NY2d 81, 85 (1995)].) "[T]he common-law collateral source rule is inherently a tort concept . . . that does not comport with contract law." (Id. at 116 [footnote omitted].) "Contract damages, unlike tort damages, are limited to the economic injury caused by the breach." (Id.) In the case of a breach of an insurance provision where the landlord procured its own liability insurance, "damages are limited to its out-of-pocket expenses, including the premiums and any additional costs it may incur such as deductibles, co-payments, and increased future premiums." (See Mercado v 1710 Realty Assocs., 289 AD2d 207, 208 [2d Dept 2001].)

Inchaustegui has not been applied in any published decision in any context other than breach of an insurance provision. (See, for example, Federated Mut. Ins. Co. v Woodstock 99, LLC, 190 F Supp 2d 324, 329-30 [NDNY 2002] [failure to obtain waiver of subrogation].) More importantly, however, the caselaw enforcing lease provisions for attorneys' fees, discussed above, determines when such expenses are "incurred" without mention of the possibility of insurance coverage.

The distinction in remedies between contract and tort bears on this case as well on the question of subrogation. Generally, "when an insurer pays for losses sustained by its insured that were occasioned by a wrongdoer, the insurer is entitled to seek recovery of the moneys it expended under the doctrine of equitable subrogation." (Fasso v Doerr, 12 NY3d 80, 86 [2009].) Although the doctrine applies to allow an insurance carrier for a landlord to bring a subrogation action to recover "damages in tort for the tortious conduct of the lessee," where the insurer's claim is "based upon the lease and not upon a tort theory of liability," it appears that the insurer's entitlement to subrogation is determined by the terms of the lease. (See Preferred Mut. Ins. Co. v Pine, 44 AD3d 636, 638-40 [2d Dept 2007].) [*9]

Although here Defendants' counsel asserts that "the carrier is subrogated to defendant's rights with respect to the amount it paid and therefore any award must include, not exclude such amounts" (Reply Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ 8), the insurance policy is not before the Court, and there is no evidence as to its terms, if any, with respect to subrogation or assignment, or as to recovery by the carrier from the insured of amounts paid by the carrier should they be recovered by the insured from the lessee.

Indeed, the carrier itself is not before the Court, and there is no warrant on this record for any determination as to the respective rights, obligations, or liabilities between the carrier and Defendants or the carrier and Plaintiff. Suffice it to say that Plaintiff can be liable only once for any attorneys' fee award reduced to judgment on Defendants' counterclaim in this action.

Turning to Defendants' initial request for fees of $176,154 through July 29, 2010, as previously noted Defendants' law firm computes its "blended" rate for services at $383 per hour by dividing the total fees by 460 hours of attorney time. However, the total of the number of hours specified by counsel for the five phases of the litigation as described by counsel is 423 (see Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ ¶ 10 [153], 13 [97], 15 [75], 18 [98]), which would result in an hourly rate of $416. The difference between an hourly rate of $383, as computed by Defendants, and an hourly rate of $416, as computed by the Court based upon Defendants' breakdown, is not insignificant.

There is uncertainty as well as to the only basis for comparison in this record, that is, the hourly rates charged to the carrier. As noted above, the engagement letter from National Union to counsel specified hourly rates fo $190 for partners, $150 for associates, and $100 for paralegals. As counsel notes, however, the "hourly rate has ranged from $190 to $250 per hour" (Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ 29 n4.) Counsel attaches seven invoices, covering services rendered during the period January 10, 2005 through June 30, 2010. An invoice dated May 10, 2007, covering July 1, 2006 through April 30, 2007, is the first that shows an hourly billing rate of $250. The next invoice, however, dated May 6, 2008, covering the period May 1, 2007 through April 30, 2008, reverts to the $190 hourly rate. The next, and last, two invoices, dated, respectively, April 15, 2009 and July 27, 2010, covering in total the period May 1, 2008 through June 30, 2010, reverts again to the $250 hourly rate.

More problematic than these uncertainties is the absence of any evidence of the prevailing market rates for comparable services during the period of the representation. Counsel's statement alone that "we believe that our fees are usual and customary for the services rendered here" (Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ 28) is insufficient to support a conclusion that a reasonable fee would be based upon hourly rates above those that National Union agreed to pay. (See Kaygreen Realty Co., LLC v IG Second Generation Partners, L.P., 2010 NY Slip Op 8707, at * 2; Friedman v Miale, 69 AD3d 789, 791-92 [2d Dept 2010]; Matter of Gamache v Steinhaus, 7 AD3d 525, 527 [2d Dept 2004].)

Moreover, although the Court has no reason to question the experience, ability, or reputation [*10]of counsel, or the high quality of the representation, it was surprised to see, in review of the invoices, that virtually all of the time was billed at the highest rate, i.e., $190 per hour or $250 per hour. Counsel's firm is comprised of 16 attorneys, but of the 438.05 hours billed through June 30, all but 2.25 hours were billed at the partners' rate. "Hours which reflect . . . inefficiency . . . are to be disallowed." (Matter of Rahmey v Blum, 95 AD2d at 300-01.) Although the use of experienced attorneys is not necessarily inefficient (see Matter of Mergentime, 207 AD2d at 454), there is no explanation here for why virtually all of the services required the attention of the more experienced attorneys with the higher billing rates.

Finally, the Court is rather mystified by counsel's statement that the "contingency or certainty of compensation" factor (see Matter of Freeman, 34 NY2d at 9) "is a neutral or inapplicable factor here" (Affirmation in Support of Defendants' Application for Attorneys' Fees ¶ 28.) The likelihood of payment by National Union must have been considered greater than the likelihood of payment by Defendants, and that greater likelihood of payment, together with the prospect of additional engagements by National Union with satisfactory service, must have been taken into account by the law firm in agreeing to the billing rates National Union offered to pay.

Whatever the appeal from a policy standpoint for a rule that an agreed-upon fee or billing arrangement is but one factor in the assessment of a "reasonable" attorneys' fee award, it provides no additional assistance in determining the amount of the award. In this case, for example, there is no principle that suggests a fee between the $95,623.50 billed by the law firm for services through June 2010, perhaps adjusted for services rendered in July, and the $176,154 it claims for services through July (now at $180,675 through briefing on this application.)

Unlike fee-shifting pursuant to statute, there is no policy to encourage claims in furtherance of broader statutory or constitutional objectives or values. To the extent that Real Property Law §234 controls the operation of the contractual fee-splitting provision in a lease, its policy relates to process, a leveling of the negotiating field, and cannot fairly be applied to favor a higher, rather than a lower, award. Indeed, since a landlord can easily avoid the operation of Real Property Law §234 by not including an attorneys' fees provision in the lease, there seems little, if any, policy incentive to err in favor of the landlord.

The landlord, moreover, is much more likely, and financially able, to obtain insurance to cover the risk of attorneys' fees, at least in the case of a residential tenancy. It is at least arguable that where attorneys' fees are covered by insurance, the prevailing market rates are those found in the billing arrangements between insurers and the law firms they engage for the type of representation at issue. In other words, the transactions between insurers and defense counsel are sufficiently distinct from other attorney/client transactions that the rates prevailing in the market-at-large are not indicative of reasonableness.

All considered, where contractual fee-shifting is at issue, the agreed-upon fee or billing arrangement should control, unless there is compelling evidence of actual unfairness. And where the risk is covered by insurance, that evidence must include evidence of the rates prevailing in the [*11]market for legal defense services rendered on engagement by a carrier. Again, without suggesting any reservations here about the competence of counsel or the quality of the representation, such compelling evidence is not found in this record.

On this application, therefore, the award for Defendants' attorneys' fees will not exceed $95,623.50, with any appropriate additional amount for services rendered after June 30, 2010. The total "disbursements" billed to the carrier as of that date is $3,227.97; additional "disbursements" have accrued, and the total is $3,320.47 as of the end of briefing on this application. ("Disbursements" billed include copying, delivery services, car service, legal research, and dinner.) Plaintiff does not object to the amount claimed as disbursements.

Plaintiff does object to the law firm's billing of a total of 61.4 hours claimed as excessive or for work that should not be charged to Plaintiff. The time objected to was spent on "insurance issues" (17.5 hours); telephone and office conferences (25.2 hours); a prior "unsuccessful" fee application (14.6 hours); "unrelated issues such as tax issues and chain of title" (2.9 hours); as well as "duplicate entries" (1.2 hours). (Affirmation in Opposition to Application for Attorneys' Fees ¶ 11.)

The Court has reviewed the computerized time records submitted by the law firm, as well a counsel's response to Plaintiff's objections (Reply Affirmation in Support of Defendants' Application for Attorneys' Fees and Expenses ¶ ¶ 10-12.) Counsel concedes that 2.7 hours were improperly billed, and that number of hours will be deducted from the time spent after June 30, 2010. The Court finds no basis for further disallowance. The Court would only note that time spent on telephone or office conferences that amounts to less than 6% of the total hours billed is not "excessive." Also, it is customary for lawyers to bill time communicating with the client, including on billing issues; and although the carrier is not the client from a professional responsibility standpoint, Plaintiff can hardly object to time of approximately 4% of the total billed that has saved Plaintiff tens of thousands in attorneys' fees it might otherwise have become obligated to pay.

Based upon the Court's review of the computerized time records, the law firm logged 33.9 hours during July 2010, from which 2.7 hours should be deducted for prior duplicative billing. To the resulting 31.2 hours should be added the 12 hours counsel represents were spent since July (id. ¶ 13), for a total of 43.2 hours. Multiplied by $250, the highest rate billed to the carrier, yields $10,800 in fees since June 30, and when added to the $95,623.50 billed through June 30, yields total fees, exclusive of disbursements, of $106,423.50.

Defendants are, therefore, awarded attorneys' fees of $106,423.50, with attorneys' disbursements of $3,320.47, for a total award of $109,743.97.

The parties have not addressed pre-judgment interest (see Miller Realty Assocs. v Amendola Indus., 51 AD3d at 990) or costs and disbursements (see Diaz v Audi of Am., Inc., 50 AD3d at 832.)

No later than January 7, 2011, the parties shall each submit directly to Chambers a [*12]supplemental affirmation addressing pre-judgment interest, costs and disbursements. If either Plaintiff or Defendants should believe that any further proceedings are required on this application, a request for argument may be included with that submission.

December 1, 2010____________________

Jack M. Battaglia

Justice, Supreme Court