Matter of Garfunkel Wild P.C. v Estate of Kaplan
Annotate this CaseDecided on September 30, 2013
Sur Ct, Bronx County
In the Matter of the Application of Garfunkel Wild, P.C., Petitioner,
against
The Estate of Edward Kaplan, Unitrust and Credit Shelter Trust established u/w/o Edward Kaplan; Penny Kaplan, in her capacity as Executrix of the Estate of and Co-trustee of Testamentary Trusts; and Bank of NY Mellon, NA, in its Capacity as Co-Trustee of Testamentary Trusts, Respondents.
321837/J
Stephen J. Silverberg, Esq. (for respondents)
185 Roslyn Road
Roslyn Heights, NY 11577
Colleen M. Tarpey, Esq. (for petitioner)
Garfunkel Wild, P.C.
111 Great Neck Rd.
Great Neck, NY 11021
Terence E. Smolev, Esq. (for BNY Mellon, N.A.)
80 Cutter Mill Rd., Ste. 410
Great Neck, NY 11021
Edward W. McCarty III, J.
This is a miscellaneous proceeding under SCPA 2110 for the fixation of attorney compensation. The petitioner, Garfunkel Wild, P.C. (hereinafter "Garfunkel") seeks legal fees for services rendered to the estate of Edward Kaplan. The respondent, Penny Kaplan, has now moved for summary judgment for an order relieving her of any liability for legal fees alleged to be due Garfunkel. Garfunkel has cross-moved for sanctions against Penny and her counsel, Stephen J. Silverberg, Esq.
BACKGROUND
The decedent, Edward Kaplan, died on December 7, 2001. He was survived by his wife, Penny, and two children, Heather and Lee. In 2004, the decedent's estate was sued, jointly and severally, with three other defendants, for over $120,000,000.00 stemming from the defendants' sale and operation of several adult homes and assisted living facilities. In addition to the [*2]decedent's estate, the other defendants were the decedent's sister, Deborah Kaplan Brooks, Robert Kaplan (the decedent's father), and the estate of Barton Kaplan (the estate of the decedent's brother).
In 1995, the decedent, his sister, his brother and his father were co-owners of a number of adult homes. On July 13, 1998, the Kaplan family members entered into a Purchase Agreement in which they sold their interests to Carematrix for more than $100 million. The family also entered into an Operating Agreement whereby they agreed to operate the facilities in exchange for management fees. A dispute thereafter arose concerning the Purchase Agreement and Operating Agreement and it was settled by agreement dated March 30, 2001. An amendment to the Operating Agreement was signed on July 25, 2001. Garfunkel represented the Kaplan family up until the 2001 settlement.
As noted above, Edward died on December 7, 2001. Edward's sister, Deborah, and his wife, Penny, received letters testamentary as co-executors. Letters of trusteeship with respect to a QTIP trust for Penny's benefit and a credit shelter trust also issued to Deborah and Penny. Each of Deborah and Penny, as fiduciaries, retained their own counsel. Deborah was represented by Garfunkel and Penny was represented by Certilman Balin (hereinafter "Certilman"), specifically Stephen J. Silverberg, Esq. and Thomas McNamara, Esq., partners at the firm.
In July 2004, Carematrix filed suit in the Federal Court, Southern District of New York (hereinafter "the SDNY action"), alleging violation of the Purchase Agreement, the Operating Agreement and the amended Operating Agreement. By that time, the decedent's brother, Barton, had also passed away. Suit was brought against Robert, Barton's estate and Deborah, on behalf of Edward's estate and individually. Penny was not named as a defendant on behalf of Edward's estate. Garfunkel represented Deborah, in her individual capacity and as executor of the estate, as well as Barton's estate and Robert in the SDNY action. Robert paid all expenses of Garfunkel's representation of the defendants because he did not want his children or their estates to bear the costs of the litigation. The SDNY action was ultimately dismissed on January 3, 2005 based upon a forum selection clause.
On June 30, 2005, Carematrix commenced an action in the Federal Court, Eastern District of New York (hereinafter "the EDNY action"), for $120,000,000.00 against Deborah, individually, and as executor of the decedent's estate, and as executor of Barton's estate, and Robert. In addition, a notice of claim was filed by Carematrix against the decedent's estate in the amount of $85,000,000.00. Robert once again paid all costs associated with EDNY action at this point.
In April 2005, litigation had also been commenced in this court concerning the decedent's estate. Penny commenced litigation regarding underproductive assets in the QTIP trust. Eventually, as part of a settlement in that proceeding, Deborah resigned as executor. In addition, Deborah resigned as trustee and the QTIP trust sold its interest in other Kaplan family business entities. The settlement was embodied in an agreement dated March 19, 2007.
Garfunkel claims that the settlement agreement provided for the QTIP trust to pay 25% of the Carematrix litigation expenses from that point on. Penny disputes this. A copy of the stipulation is annexed to Penny's papers. Paragraph 12 of the stipulation provides that "[n]othing contained herein is intended to affect, release or waive any rights or obligations of the parties hereto with respect to the Carematrix lawsuit, except no claim shall be made against the E/O of [*3]Edward Kaplan or the QTIP trust for any legal fees incurred to date."
In any event, after the litigation in this court, Garfunkel claims it continued to represent the "estate" in the Carematrix litigation. Garfunkel asserts that it consistently kept Penny, now the sole executor of the decedent's estate, advised of the Carematrix litigation, and also had done so with respect to the earlier SDNY action. In fact, in October 2004, Garfunkel sent Mr. Silverberg copies of the pleadings. In July 2005, Garfunkel sent Mr. Silverberg the complaint in the EDNY action. Garfunkel sought and received Penny's consent to pay technology experts and forensic accountants. She also paid invoices presented by local counsel in Delaware. In March of 2008, Garfunkel sent Penny a status report and sent letters regarding the estate's share of fees to Thomas McNamara, Esq. at Certilman. In August 2008, Garfunkel sent a letter to Mr. McNamara advising him that if the firm did not hear from Penny the firm would move to be relieved. Thereafter, the firm received a call from Penny asking them not to withdraw. Penny then came to a meeting at Garfunkel's office and attorneys at the firm went over the litigation with her. In November 2008, Garfunkel sent all invoices to Penny, with copies to Mr. Silverberg. It was after this meeting that Penny made partial payments of Garfunkel's fee in the amount of $20,000.00. Garfunkel attorneys and Penny then communicated by e-mail, and copies of engagement letters were sent to Penny for the experts.
In January 2010, Garfunkel sent Penny copies of the pleadings so that she could discuss them with Mr. Silverberg. Garfunkel arranged a meeting with Penny in March 2010, but she canceled the meeting. In April 2010, after not receiving a response from Penny, Garfunkel told Penny the firm was going to commence a proceeding to have her removed as executor. Garfunkel petitioned for Penny's removal in January 2011. Court conferences were held at which Mr. Silverberg appeared on Penny's behalf. That petition was ultimately withdrawn.
The Carematrix litigation was taken over by Cullen & Dykman in December 2011, and the Carematrix litigation settled in November 2012. Garfunkel filed this proceeding for payment of the decedent's estate's share of its fees in the amount of $182,448.38.
Penny has now moved for summary judgment on the basis that Garfunkel is not entitled to any fee because (i) it failed to disclose a conflict of interest in violation of the professional rules and (ii) Garfunkel failed to enter into a retainer agreement with Penny after Deborah resigned as executor and co-trustee. In support of her motion, Penny submits her own affidavits and two affidavits of her counsel, Stephen J. Silverberg. Deborah describes the litigation in this court between herself and Deborah as "bitter." Penny states that at no time did she sign a retainer agreement with Garfunkel. She also claims that at no time was she advised, either orally or in writing, that a potential conflict of interest existed, although Penny admits that Mr. McNamara did advise her to continue to allow Garfunkel to represent her after conclusion of the Surrogate's Court litigation. Penny also claims that she "wanted little to do with the Carematrix action as it constantly reminded [her] of [her] late husband." She was suffering from "great anxiety" and "depression." When Garfunkel brought the proceeding to remove Penny, it was at that point that Mr. Silverberg started to ask Penny questions about her involvement in selecting Garfunkel as her attorneys in the Carematrix action.
Garfunkel argues that there was never a conflict of interest, but rather Penny has concocted a "theoretical" conflict to avoid paying the firm's fee. Garfunkel claims that neither the complaint in the SDNY action or the complaint in the EDNY action attributed different [*4]culpability to the defendants. None of the family members ever asserted a conflict. Penny and her counsel were consistently kept apprised of the litigations. Moreover, Penny admits that she discussed Garfunkel's continued representation with Mr. McNamara after Deborah's resignation. Penny also made payments on account of the firm's fee, as well as expert fees, evidencing her participation in the litigation and her affirmation of Garfunkel's representation. Neither Penny nor Mr. Silverberg raised the issue of a conflict until the issue of the firm's fee came up.
SUMMARY JUDGMENT
Summary judgment may be granted only when it is clear that no triable issue of fact exists (see e.g. Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; Phillips v Joseph Kantor & Co., 31 NY2d 307, 311 [1972]). The court's function on a motion for summary judgment is "issue finding" rather than issue determination (Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]), because issues of fact require a hearing for determination (Esteve v Abad, 271 App Div 725, 727 [1st Dept 1947]). Consequently, it is incumbent upon the moving party to make a prima facie showing of entitlement to summary judgment as a matter of law (CPLR 3212 [b]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065, 1067 [1979]; Zarr v Riccio, 180 AD2d 734, 735 [2d Dept 1992]). If there is any doubt as to the existence of a triable issue, the motion must be denied (Hantz v Fishman, 155 AD2d 415, 416 [2d Dept 1989]).
If the moving party meets his or her burden, the party opposing the motion must produce evidentiary proof in admissible form sufficient to establish the existence of a material issue of fact that would require a trial (see Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). In doing so, the party opposing the motion must lay bare his or her proof (see Towner v Towner, 225 AD2d 614, 615 [2d Dept 1996]). "[M]ere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to overcome a motion for summary judgment (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; see Prudential Home Mtge. Co., Inc. v Cermele, 226 AD2d 357, 357-358 [2d Dept 1996]).
CONFLICT OF INTEREST
At the time Deborah resigned and Peggy became the sole executor, the Lawyers Code of Professional Responsibility was in effect. The New York Rules of Professional Conduct[FN1], the [*5]current rules governing attorney conduct, did not become effective until April 1, 2009. Disciplinary Rule ("DR") 5-105 of the Lawyers Code of Professional Responsibility, Canon 5 provides as follows: "(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR-5-105(C).(B) A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105 (C).(C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each."
The only difference between current NYRC 1.7 and former DR 5-105 is that the current rule requires a written waiver of the conflict. Penny states that when the Carematrix action was commenced in the Eastern Distict of New York in June 2005, Garfunkel was representing Deborah in the action commenced by Penny against Deborah as trustee in this court. In addition, Penny claims that Garfunkel did not advise her of the potential for cross-claims among the defendants in the Carematrix litigation. Penny argues that the simultaneous representation of Deborah in the Carematrix action and the action in this court, as well as the potential for cross-claims, without disclosure, relieves her of liability for Garfunkel's fees.
With respect to the conflict of interest concerning multiple defendants in the Carematrix action, the ethical rule in effect at the time of Deborah's resignation did not require a written waiver of the conflict. Garfunkel argues that Penny premises this supposed conflict upon:
"an erroneous fact - that the supposed growing animosity between Penny Kaplan and the rest of the Kaplan family after her husband's death, of which Garfunkel was aware, insinuated a conflict of interest into Garfunkel's simultaneous representation of all of the Carematrix defendants, utterly ignoring the plain and simple fact that Penny Kaplan was never named as a Carematrix defendant, and [the firm] only represented her after the action in which she was adverse to her [*6]former sister-in-law, Deborah, was over."
In addition, Garfunkel points out that the defendants were aligned and that all of the defendants had a common interest defending against Carematrix.
Here, there was no reasonable anticipation of cross-claims among the Carematrix defendants. Moreover, at the time of the litigation in this court, Garfunkel had only represented Deborah in the Carematrix action, both as executor and individually. Garfunkel did not begin representing Penny in the Carematrix litigation until after the Surrogate's Court litigation was resolved. The court also notes that Penny admitted that she was advised by her counsel, a partner of Mr. Silverberg's former firm, to allow Garfunkel to continue its representation in the Carematrix action.
Accordingly, Penny's motion for summary judgment relieving her of any liability with respect to Garfunkel's fee on the basis of a conflict of interest is denied.
RETAINER AGREEMENT
22 NYCRR 1215.1 provides as follows: "(a) Effective March 4, 2002, an attorney who undertakes to represent a client and enters into an arrangement for, charges or collects any fee from a client shall provide to the client a written letter of engagement before commencing the representation, or within a reasonable time thereafter:
(1) if otherwise impractible [sic] ; or (2) if the scope of services to be provided cannot be determined at the time of the commencement of representation.For purposes of this rule, where an entity (such as an insurance carrier) engages an attorney to represent a third party, the term client shall mean the entity that engages the attorney. Where there is a significant change in the scope of services or the fee to be charged, an updated letter of engagement shall be provided to the client.
(b) the letter of engagement shall address the following matters:
(1) explanation of the scope of the legal services to be provided; (2) explanation of attorney's fees to be charged, expenses and billing practices; and(3) where applicable, shall provide that the client may have a right to arbitrate fee disputes under Part 137 of this Title.(c) Instead of providing the client with a written letter of engagement, an attorney may comply with the provision of subdivision (a) of this section by entering into a signed written retainer agreement with the client, before or within a reasonable time after commencing the representation, provided that the agreement addresses the matters set forth in subdivision (b) of this section."
Here, Garfunkel assumed representation of Penny in 2007 after the Surrogate's Court litigation was resolved. It is well-settled that an attorney represents the "executor" and not "the estate." As Surrogate Holzman stated in Matter of Harris (NYLJ, at 34, col 5 [Sur Ct, Bronx County]): "Estates, unlike corporations or other recognized legal entities, may not litigate in their [*7]own name but, instead, can only appear in litigation by a personal representative (see EPTL 11-3.1, see also CPLR 1015 [a]). Consequently, when attorneys state they are appearing on behalf of an estate, such a statement is technically incorrect because the attorney is representing the personal representative of the estate, and not the estate itself or the beneficiaries of the estate (see CPLR 4503 [1] [2]; Matter of Hof, 102 102 AD2d 591, 593 [1984]; Matter of Schrauth, 249 App Div 847 [1937]; Matter of Scanlon, 2 Misc 2d 65, 69 [1956])."
Thus, Garfunkel's position that it continued its representation of the estate after Deborah resigned and Penny became the sole executor is incorrect, and the firm, under the professional rules, should have entered into a retainer agreement with Penny, as executor.
Non-compliance with 22 NYCRR 1215 does not, however, prevent an attorney from seeking legal fees since payments may be sought under a theory of quantum meruit (see Rubenstein v Ganea, 41 AD3d 54, 58 [2d Dept 2007]). In order to recover under the theory of quantum meruit, the attorney must prove: (i) the performance of services conducted in good faith; (ii) the acceptance of services by the person to whom they are rendered; (iii) an expectation of compensation; and (iv) the reasonable value of services allegedly rendered (Davidoff Malito & Hutcher, LLP v Sheiner, 38 Misc 3d 1201 (A) [Sup. Ct, New York County 2012); AHA Sales, Inc. v Creative Bath Products, Inc., 58 AD3d 6, 19 [2d Dept 2008]; Tesser v Allboro Equipment Co., 302 AD2d 589, 590 [2d Dept 2003]; Wehrun v Illmensee,74 AD3d 796 [2d Dept 2010]).
Thus, even if Garfunkel failed to enter into a retainer agreement with Penny Kaplan, summary judgment on the issue that Penny Kaplan is not liable for any legal fees to Garfunkel is denied on the basis that she may still be liable under the theory of quantum meruit. Accordingly, the motion for summary judgment is denied in its entirety.
The cross-motion for costs is also denied.
Counsel are directed to appear for a conference on October 16, 2013 at 9:30 a.m.
This constitute the decision and order of the court.
Dated; September 30, 2013
EDWARD W. McCARTY III
Judge of the
Surrogate's Court
Footnotes
Footnote 1:The current Model Rules provide NYRPC 1.7 as follows:
"(a) Except as provided in paragraph (b), a lawyer shall not represent a client if a reasonable lawyer would conclude that either:
(1) the representation will involve the lawyer in representing differing interests; or
(2) there is a significant risk that the lawyer's professional judgment on behalf of the client will be adversely affected by the lawyer's own financial, business, property, or other personal interests.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing."
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