Mar Oil, S.A. v. Morrissey, s. 1710

Citation982 F.2d 830
Decision Date05 January 1993
Docket NumberD,Nos. 1710,1843,s. 1710
PartiesMAR OIL, S.A., Plaintiff-Appellee-Cross-Appellant, v. Francis X. MORRISSEY, Jr., Defendant-Appellant-Cross-Appellee. ockets 92-7166, 92-7234.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Lawrence J. Bowles, New York City (Maria L. Alonso, Nourse & Bowles, on the brief), for plaintiff-appellee-cross-appellant.

Peter E. Fleming Jr., New York City (Curtis, Mallet-Prevost, Colt & Mosle, Alfred Ferrer III, Piper & Marbury, on the brief), for defendant-appellant-cross-appellee.

Before: NEWMAN, KEARSE, and WALKER, Circuit Judges.

KEARSE, Circuit Judge:

Defendant Francis X. Morrissey, Jr., appeals from so much of a final judgment entered in the United States District Court for the Southern District of New York, following a bench trial before Bernard Newman, Judge *, as awarded plaintiff Mar Oil, S.A. ("Mar Oil"), $807,675.38 plus interest and costs against Morrissey, its former attorney, for breach of fiduciary duty in his payment to himself, as his purported fee, of $925,675.38 from funds in his custody belonging to Mar Oil. The trial court found that the parties had agreed that Morrissey's fee would be based on time spent, that reasonable fees for the services performed by Morrissey totaled $240,000, and that Morrissey had improperly caused Mar Oil to sign a document that Morrissey contended approved his demanded fee of $925,675.38. On appeal, Morrissey contends that the trial court erred in not finding (a) that the parties, by their

                conduct, had agreed to a contingent-fee arrangement;  (b) that Mar Oil had approved his demanded fee;  and (c) that the fee demanded was fair and reasonable.   Mar Oil has cross-appealed, contending principally (a) that $240,000 far exceeded any reasonable fee payable to Morrissey;  (b) that in light of Morrissey's fiduciary breaches and litigating posture, Mar Oil was entitled to awards of punitive damages, attorneys' fees, and sanctions;  and (c) that Mar Oil was entitled to prejudgment interest for a longer period.   For the reasons below, we reject the contentions made by Morrissey on his appeal, we find merit in certain of Mar Oil's challenges to the calculation of Morrissey's fee, and we vacate and remand for additional proceedings with respect to that fee and for recalculation of prejudgment interest
                
I. BACKGROUND

The present controversy has its origins in a dispute between Mar Oil, a Spanish corporation, and one of its insurers, in connection with part of which Mar Oil retained Morrissey, a New York attorney. The following description of the controversy between Mar Oil and Morrissey is taken largely from the facts found by the trial court in its opinion published at 782 F.Supp. 899 (S.D.N.Y.1992).

A. Mar Oil's Insurance Litigation

In March 1980, a supertanker owned by Mar Oil exploded and sank. Insured for the equivalent of some $42 million, Mar Oil promptly collected from all of its insurers except one, New Hampshire Insurance Company ("New Hampshire"), a United States company that had provided some $10.6 million of the coverage. Mar Oil commenced an action against New Hampshire in Spain (the "Spain action"), the agreed exclusive jurisdiction for suit on the insurance policy. Some months later, Mar Oil managing director Carlos Garcia-Monzon ("Monzon") began seeking an attorney in the United States who might recommend other legal steps that could expedite collection of the $10.6 million. George A. Spyrou, an attorney son of one of Monzon's business acquaintances, recommended Morrissey.

Morrissey, who had been admitted to the New York Bar in 1973 and had briefly been an associate with two Wall Street law firms, was employed from 1980 to 1982 as an associate by single practitioner Peter Van Dyke Berg, Esq. During the years 1980 to 1983, Morrissey was also employed by a trust or trusts. He had rarely been involved in litigation and had never been involved in litigation involving maritime insurance matters. When contacted by Mar Oil, he sought the assistance of Spyrou and of an attorney who had previously advised him on accident claims involving insurance.

At the outset, Morrissey proposed to represent Mar Oil on a contingent-fee basis that would entitle him and his advisors to one-third of any recovery. Mar Oil, however, "flatly rejected any form of contingency fee agreement." 782 F.Supp. at 902. The parties then agreed, in an October 31, 1980 contract drafted by Morrissey (the "Fee Agreement"), that Morrissey and his advisors would be paid at "an agreed hourly rate" and be reimbursed for all "reasonable" expenses. The Fee Agreement also provided that it was to be interpreted in accordance with New York State law, that it could be modified only by a writing signed by the parties, and that "[i]f a lawsuit or litigation is authorized outside of Spain, a separate retainer is to be negotiated before commencement."

Morrissey thereafter recommended that Mar Oil file complaints with various administrative agencies and seek assistance from diplomatic officials and others in order to "pressure" New Hampshire to settle; none of these efforts was productive. "Essentially, all of the numerous non-litigation pressure tactics recommended by Morrissey and [his advisors] were ineffective and without any positive outcome." 782 F.Supp. at 902.

Morrissey also believed that Mar Oil could bring a suit in the United States, and in or about December 1980 he brought in the New York maritime law firm of Healy & Baillie. Healy & Baillie researched whether Mar Oil could sue New Hampshire's Mar Oil appealed, and as a result of conferences with staff counsel for the court of appeals, one of which was attended by the principals, New Hampshire and the New York action defendants eventually agreed to a global settlement of their disputes with Mar Oil. Accordingly, in May 1983, Mar Oil and New Hampshire entered into a settlement agreement providing for the termination of all litigation between them in New York and Spain in exchange for New Hampshire's payment to Mar Oil of $8,060,000. For fiscal reasons, Mar Oil allowed this amount to be paid into and remain in a New York escrow account of which Morrissey was the custodian ("Mar Oil escrow account").

                parent corporation in New York, and the firm ultimately recommended suing the parent for tortious interference with contractual relations.   In July 1981, Mar Oil filed such a suit against the parent and its chief executive officer in the United States District Court for the Southern District of New York (the "New York action").   The district court in that action allowed limited discovery, following which Healy & Baillie informed Mar Oil that the defendants would likely prevail on a motion for summary judgment.   Accordingly, the firm advised Mar Oil to discontinue the New York action and to rely instead on the Spain action, which was apparently proceeding favorably.   Morrissey, on the other hand, urged that the New York action be pursued, and Mar Oil followed his advice.   In January 1983, as Healy & Baillie had predicted, the district court dismissed the complaint
                
B. Morrissey's Fee Demands and Self-Help

Morrissey's first bill to Mar Oil, sent in January 1981 on behalf of himself and his advisors, was for fees totaling $75,000; Monzon complained that it was too high and declined to pay it without an elaboration as to actual time spent. No such statement was ever provided, and this bill was not paid. Later payments, totaling $61,000 in fees and $14,619.96 in disbursements, were made to Morrissey either as advances or pursuant to bills "[f]or all services" for stated periods. The last such bill submitted to Mar Oil by Morrissey stated that it was "[f]or all services ... since April 1, 1982," and was dated January 26, 1983. Though the Fee Agreement had provided that a separate retainer was to be negotiated before the commencement of any litigation outside of Spain, no such separate agreement was ever negotiated or entered into. Based on the $61,000 billed and paid for Morrissey's services through January 26, 1983, and on expert testimony estimating that between October 27, 1980, and that date Morrissey had spent approximately 510 hours on Mar Oil's behalf, the trial court stated that "[t]he fees billed and received by Morrissey of $61,000 through January 26, 1983 appeared to have been charged by defendant at an average rate of approximately $120 an hour." 782 F.Supp. at 906.

In mid-June 1983, at about the time of New Hampshire's settlement payment, Morrissey renewed his original request to be paid on a contingent-fee basis, and he named a fee of $960,000. He also claimed that he had provided 5,205 hours of service to Mar Oil. Monzon rejected Morrissey's request for several reasons. Mar Oil paid fees of only $126,250 to Healy & Baillie and the equivalent of $242,500 to its attorneys handling the Spain action for all of their respective services in connection with the underlying dispute; Morrissey's demand was wholly disproportionate, especially considering (a) that Healy & Baillie had done virtually all of the litigation work with respect to the New York action, and (b) that the work of the Spanish attorneys had "constituted vital, if not major, reason for the ultimate settlement." Id. at 905. The trial court found that

there was never an agreement between plaintiff and defendant to a contingency arrangement whereby Morrissey would be paid a percentage of the ultimate recovery, if any, although Morrissey insists--among other things--that such a percentage agreement had been reached. Morrissey never submitted any such supporting document.

Id. The court also found that Monzon had no reason to believe that Morrissey had spent the claimed 5,205 hours on Mar Oil's behalf, and that even if Morrissey had spent that amount of time, the fee demanded would approach or exceed $200 an hour, to which Mar Oil had never agreed. Monzon demanded an accounting of...

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