Sherrets, Smith & Gardner v. MJ OPTICAL

• Decision Date: 12 May 2000
• Docket Number: No. S-98-1263.,S-98-1263.
• Citation: 259 Neb. 424,610 N.W.2d 413
• Parties: SHERRETS, SMITH & GARDNER, P.C., now known as Smith & Gardner, Inc., appellee and cross-appellant, v. MJ OPTICAL, INC., and Optical Illusions, Inc., appellants and cross-appellees.
• Court: Nebraska Supreme Court

610 N.W.2d 413

259 Neb. 424

SHERRETS, SMITH & GARDNER, P.C., now known as Smith & Gardner, Inc., appellee and cross-appellant, v. MJ OPTICAL, INC., and Optical Illusions, Inc., appellants and cross-appellees.

No. S-98-1263.

Supreme Court of Nebraska.

May 12, 2000.

David Geier, of Healey & Wieland Law Firm, Lincoln, for appellants.

H. Daniel Smith, of Dwyer, Smith, Grimm, Gardner, Lazer, Pohren & Rogers, Omaha, for appellee.

WRIGHT, GERRARD, STEPHAN, and MILLER-LERMAN, JJ., and HANNON, Judge.

STEPHAN, J.

This is an action brought by the law firm of Sherrets, Smith & Gardner, P.C., subsequently known as Smith & Gardner, Inc. (the firm), to recover attorney fees allegedly owed by MJ Optical, Inc. Although Optical Illusions, Inc., was named as a codefendant, the record does not reflect any legal services provided to that corporation, and we therefore make no further reference to it in this opinion. The district court for Douglas County, Nebraska, entered summary judgment in favor of the firm. MJ Optical appealed from this order, and we moved the appeal to our docket on our own motion, pursuant to our obligation to regulate the caseloads of the appellate courts. See Neb.Rev.Stat. § 24-1106 (Reissue 1995). We conclude that the record reflects genuine issues of material fact which preclude summary judgment, and therefore reverse, and remand for further proceedings.

BACKGROUND

In its operative amended petition, the firm alleged that it entered into an oral contract with MJ Optical whereby legal services were to be provided on an "hourly basis." The firm alleged that "[a] dispute has arisen regarding the legal services requested and the corresponding amount due for such legal services." It alleged that it charged MJ Optical a total of $86,861.75, of which $26,500 had been paid, and it sought judgment for the alleged balance due in the amount of $60,361.75, as well as prejudgment interest and costs. MJ Optical filed an answer consisting of a general denial.

Following discovery, the firm filed a motion for summary judgment. Evidence offered in support of and in opposition to the motion reflects that at all relevant times, Paul J. Gardner, a principal in the firm, was an attorney licensed to practice law in the State of Nebraska, and that Michael J. Hagge was the sole shareholder of MJ Optical. Gardner began performing legal services for MJ Optical in approximately 1986 and was responsible on behalf of the firm for the billings which are the subject of this action.

In March 1993, after various services had been performed, the unpaid balance on MJ Optical's account with the firm was approximately $13,699.26. A billing statement dated April 1993 added $27,712.13 to the balance for services relating to the acquisition by MJ Optical of the assets of a company known as Commercial Optical. Beginning in June 1993, and continuing until June 1994, additional charges for services rendered primarily in connection with the defense of a federal court lawsuit relating to the Commercial Optical acquisition increased the firm's billed amount to $85,821.67. MJ Optical made payments in the amount of $10,000 on December 8, 1994, $10,000 on December 21, 1994, and $6,500 on February 28, 1995.

In deposition testimony, Hagge stated his understanding that all legal work in connection with the acquisition of Commercial Optical was to be done for a flat fee of $25,000. In Gardner's deposition, he denied any such agreement. The record contains no engagement letter or other document constituting an agreement as to how billing for legal services was to be accomplished. Hagge stated in an affidavit that he was never certain how the fees were calculated, and Gardner testified that the only documents reflecting how the fees were to be determined were the monthly billing statements. In this regard, the record includes two sets of billing statements dating from February 1992 to February 1995. There are several discrepancies between the two sets of statements, including different interest charges, work entries included on one statement but not the other, and identical work entries having different listed dates of performance. In his deposition, Gardner could not explain the existence of the two sets of statements or the discrepancies between them.

The billing statements vary as to the specificity with which the legal services are described. None of the work entries contain a corresponding notation of the time spent, the attorney who performed the work, or the hourly rate charged. Furthermore, none of the work entries on billing statements dated before August 1993 reflect the date on which the services were performed. Some, but not all, of the billing statements include a printed statement that provides in part: "While the Firm uses `standard' hourly rates which change from time to time without notice, nonetheless, other rates may be used depending on degree of complexity, intensity of effort, potential liability, or result achieved." Although Gardner testified in his deposition that this represented the policy of the firm, his testimony was disputed by James D. Sherrets, the senior member of the firm during the period in question, who testified by deposition that the method of billing was discretionary with each attorney.

In Gardner's deposition testimony, he could not testify with certainty as to his hourly rate during 1993 and 1994, or whether his rate ever increased. He could only speculate as to his hourly rate at that time. Gardner admitted that Hagge was never asked to sign an engagement letter and that no document existed specifying the hourly rate to be charged for legal services provided to MJ Optical or any other information regarding the manner in which the firm would determine its fees.

Sherrets described Gardner's billing practice in a deposition offered in opposition to the motion for summary judgment. Sherrets stated that he occasionally reviewed Gardner's bills to MJ Optical and noticed that Gardner

had a habit of stripping out all of the underlying data, specifically who had worked on the account, how much had been logged-in time, what the billing rates were, the days on which the service was performed, all of which would allow someone to go back if you had even a portion of it and figure out how much you were really being billed for something.

Sherrets also testified that Gardner thought he could optimize his income by generating clients and then delegating the actual work to the associates in the firm rather than performing the work himself. During the period in question, Sherrets became concerned regarding Gardner's billing practices "because of the bills he was sending out relative to the time he was actually working." As a result of these concerns and others, Sherrets severed his business relationship with Gardner in 1995.

Rodney A. Halstead, a former associate with the firm, testified by deposition that he performed legal work for MJ Optical between 1992 and 1994. Halstead was able to identify several entries on billing statements sent to MJ Optical between 1992 and 1994 for work he was reasonably certain that he had performed. Halstead disputed the billing for over $27,000 in attorney fees during April 1993 for work done on the Commercial Optical acquisition. Halstead stated that Gardner would have been required to work 40 hours per week for 5 weeks at $125 per hour in order to generate a fee of that amount. Halstead testified that he worked on the transaction with Gardner and did not believe that it involved that amount of time.

In his affidavit and deposition testimony, Hagge indicated that he was personally involved in dealings with Gardner. Hagge stated that the comptroller of MJ Optical received the bills from the firm and would discuss with Hagge those fees which the comptroller felt were excessive. Hagge stated that until June 1992, he never questioned the bills received from the firm, which he paid in full. However, he disagreed with the amounts which the firm billed to MJ Optical in 1993 and 1994.

In a letter to Hagge dated June 8, 1994, Gardner outlined a proposal to settle their fee dispute by reducing the outstanding balance to $60,000 if Hagge would agree to pay six $10,000 monthly installment payments before the end of the year. In this letter, Gardner reminded Hagge of his statement in a previous conversation that "`this has gone on long enough and I will get you (us) paid soon, I give you my word of honor.'" Hagge testified that he remembered this conversation with Gardner, but that his statement was, "I will pay you what I owe you." The letter directed Hagge to sign in the space provided and return it to Gardner if he agreed to the settlement offer. Hagge testified that he did not accept the settlement offer but paid the firm the amount he believed to be owed by MJ Optical.

In its order dated November 25, 1998, the district court concluded:

Defendants' partial payments toward the entire amount shows defendants' knowledge, agreement and acceptance of the greater sum.

Defendants were aware of the complexity and protracted nature of plaintiff's representation in all of its aspects. Although the hourly charges may not have been discussed and even may have changed, the defendants never inquired or complained about the plaintiff's billing. Defendants' partial payments and lack of stated concern for over 3 years demonstrates defendants' acceptance of plaintiff's billings as fair and reasonable.

The attorney fee billings in this case constitute an account stated. And further, the evidence shows as a matter of law that plaintiff's legal fees were fair and reasonable.

ASSIGNMENTS OF ERROR

MJ Optical contends that the district court erred in (1) granting summary judgment to the firm, (2) holding that the firm was entitled to judgment based upon a theory of account stated when the pleadings do not allege a cause of action on that basis, (3) holding that the firm had established an account stated,...