Wednesday, June 13, 2012

Law Firm May Represent Itself In Suit For Unpaid Fees

The New York Appellate Division for the First Judicial Department affirmed the denial a former client's motion to dismiss to suit for legal fees, other than a claim of fraudulent inducement. The court also affirmed the denial of a motion to disqualify the plaintiff law firm from representing itself in the litigation.

The majority concluded:

It is well settled that "[t]he public policy of New York which permits a
client to terminate the attorney-client relationship freely at any time,
notwithstanding the existence of a particularized retainer agreement between the
parties, would be easily undermined if an attorney could hold a client liable
for fraud on the theory that the client misrepresented his or her true intent
when the retainer was executed" (Demov, Morris, Levin & Shein v
, 53 NY2d 553, 557 [1981]). Accordingly, the motion court erred in
failing to dismiss plaintiff's cause of action for fraudulent inducement against
both the corporate and the individual defendant (Kaplan v. Heinfling, 136
AD2d 34, 39 [1988], lv denied 72 NY2d 810 [1988]).

The court correctly declined to dismiss the complaint pursuant to CPLR
3211(a)(4), because "[t]he three remedies of an attorney discharged without
cause — the retaining lien, the charging lien, and the plenary action in quantum
meruit — are not exclusive but cumulative" (see Levy v Laing, 43 AD3d 713, 715 [2007]), and the attorney "does not waive her right to commence an immediate plenary action for a
judgment against her client by commencing a proceeding to fix the amount of her
charging lien" (Butler, Fitzgerald & Potter v Gelmin, 235 AD2d 218, 219 [1997]). Moreover, "an attorney may enforce his lien in a court other than that before which his services were rendered" (see Nickel Rim Mines Ltd. v Universal-Cyclops Steel Corp., 202 F Supp 170, 176 [D NJ 1962]).

Contrary to the dissent's contention, the court also correctly declined to
dismiss plaintiff's cause of action for quantum meruit pursuant to CPLR
3211(a)(7). Plaintiff alleges that it was terminated without cause by
defendants, and received no compensation whatsoever for the three years of work
it performed on the case and the value it brought to the case. Specifically,
within its complaint, plaintiff pleaded that it "fully and faithfully performed
legal services for BanxCorp and Mehl," that when it "performed those legal
services for BanxCorp and Mehl, it reasonably expected to be compensated for
those services," that "BanxCorp and Mehl encouraged the [plaintiff] to provide them with legal services, participated in the [plaintiff's] provision of such services, and accepted the
benefits of the legal services the [plaintiff] provided to them," and that the
services "were rendered under circumstances in which BanxCorp and Mehl knew that
the [plaintiff] expected to be compensated for those services." Since a
plaintiff pleads a cause of action for quantum meruit when he alleges that (1)
services were performed in good faith, (2) the acceptance of the services by the
person to whom they were rendered, (3) an expectation of compensation therefor,
and (4) the reasonable value of the services (Fulbright & Jaworski, LLP v Carucci, 63 AD3d 487,
489 [2009]; Nabi v Sells, 70 AD3d 252, 252 [2009]; Soumayah v Minnelli, 41 AD3d 390, 391 [2007]), based on the foregoing, plaintiff has adequately pleaded a cause of action for quantum
meruit against all the defendants. Fulbright doesn't avail Mehl since
there we dismissed plaintiff's cause of action for quantum meruit against the
corporate defendant's president insofar as plaintiff in that case failed to
allege three elements critical to a cause of action for quantum meruit
(Fulbright at 489).

From the dissent in part:

Plaintiff, a law firm, seeks to recover the reasonable value of services it
rendered while representing defendant BanxCorp, the plaintiff in BanxCorp v
Bankrate, Inc
., an antitrust action that was filed in the United States
District Court for the District of New Jersey (Civil Action No. 07-3398).
Plaintiff rendered its services pursuant to a written contingency fee agreement
that was executed on behalf of BanxCorp by Mehl, its principal. The motion court
declined to dismiss the complaint as against Mehl on the sole ground that "a
corporate officer who participates in the commission of a tort can be held
personally liable even if the participation is for the corporation's benefit." Although it might have applied to the now dismissed fraud cause of action, the motion court's reasoning
has no application to the quantum meruit claim, the only remaining cause of
action. This is because quantum meruit is not a theory of tort liability.

Plaintiff's rationale for piercing BanxCorp's corporate veil is equally
unavailing. "The party seeking to pierce the corporate veil must establish that
the owners, through their dominion, abused the privilege of doing business in
the corporate form to perpetrate a wrong or injustice against that party such
that a court in equity will intervene" (Matter of Morris v New York State
Dept. of Taxation & Fin.,
82 NY2d 135, 142 [1993]). An inference of
abuse, however, does not arise "where a corporation was formed for legal
purposes or is engaged in legitimate business" (Credit Suisse First Boston v Utrecht-America Fin. Co., 80 AD3d 485, 488 [2011] [citation omitted]). Here, plaintiff makes no claim of
such illegality or illegitimacy with respect to BanxCorp's formation or
business. In fact, it is alleged in the antitrust complaint, drafted by
plaintiff, that BanxCorp is in the business of providing bank rate tables
listing interest rates for financial institutions (see BanxCorp v Bankrate,
US Dist Ct, D NJ, 07 Civ 3398, Wigenton, J., 2008). Plaintiff seeks to
pierce the corporate veil on the basis of assertions that Mehl dominated
BanxCorp and used its credit lines for his personal needs. These allegations do
not amount to anything that can be construed as the use of BanxCorp's corporate
form to perpetrate a wrong against plaintiff. This case is similar to Fulbright & Jaworski, LLP v
(63 AD3d 487
[2009]), in which this Court found that a quantum meruit claim against its corporate client's president was not stated. Here, as in Fulbright, there is no allegation of facts from which it can be inferred that Mehl, as an individual, accepted services from plaintiff or that  plaintiff had a reasonable expectation of compensation by Mehl. Without doubt, Mehl himself could not collect on any judgment that might be entered in favor of BanxCorp in the antitrust action as a result of plaintiff's services.

(Mike Frisch)

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These allegations do not amount to anything that can be construed as the use of BanxCorp's corporate form to perpetrate a wrong against plaintiff.

Posted by: Tom Henry | Jun 21, 2012 11:53:23 PM

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