Abcon Assocs., Inc. v. Haas & Najarian & Haas & Najarian, LLP

• Decision Date: 29 February 2016
• Docket Number: 12-CV-0928
• Citation: 166 F.Supp.3d 266
• Court: U.S. District Court — Eastern District of New York
• Parties: Abcon Associates, Inc., Plaintiff, v. Haas & Najarian and Haas & Najarian, LLP, Defendants.

166 F.Supp.3d 266

Abcon Associates, Inc., Plaintiff,

v.Haas & Najarian and Haas & Najarian, LLP, Defendants.

12-CV-0928

United States District Court, E.D. New York.

Signed February 29, 2016

HAMBURGER, MAXSON, YAFFE & McNALLY, LLP, By: Richard Hamburger, Esq., Andrew K. Martingale, Esq., 225 Broad Hollow Road, Suite 301E, Melville, NY 11747, Attorneys for Plaintiff.

WACHTEL MISSRY LLP, By: Jeffrey T. Strauss, Esq., Sara Spiegelman, Esq., One Dag Hammarskjold Plaza, 885 Second Avenue, New York, NY 10017, Attorneys for Defendants.

MEMORANDUM AND ORDER

WEXLER, DISTRICT JUDGE

Plaintiff Abcon Associates, Inc. (“Abcon” or “Plaintif”) brings this action to recover legal fees it paid its attorneys, the Defendants Haas & Najarian and Haas & Najarian LLP (“H&N” or “Defendants”) for its representation of Abcon in an action against the United States Postal Service (“USPS”). Abcon claims that H&N breached the legal services agreement and its amendments agreed to by the parties and seeks return of legal fees paid in connection with those agreements. Defendants bring counterclaims of quantum meruit to recover fees for services provided. Following a bench trial before this Court, and having considered the parties' post-trial submissions, the Court makes the following findings of fact and conclusions of law on Plaintiff's and Defendants' claims.

FINDINGS OF FACT

I. The Parties

1. Plaintiff Abcon is a project management firm, and Michael Zenobia (“Zenobia”) is Abcon's President.

2. Defendant H&N is a law firm retained by Abcon on April 14, 1998 in connection with a dispute it had with the USPS. Louis Haas (“Haas”) is one of the founding partners of H&N. Pursuant to the terms of the original retainer agreement (“1998 Retainer Agreement”), Abcon was to pay H&N on an hourly basis for services provided. See Plaintiff's and Defendants' Joint Exhibits (“JX”), 7.

II. The USPS Default Termination

3. Prior to being represented by H&N, in May 1996, Abcon was awarded a contract by the USPS to perform work at the USPS Distribution Center in Queens, New York. On or about December 31, 1997, USPS terminated Abcon's contract for default because it was dissatisfied with Abcon's performance.

4. After initially hiring another law firm to represent it, in April 1998, Abcon retained H&N in connection with the USPS termination. JX 7.

5. As part of that representation, H&N brought an action on Abcon's behalf in the U.S. Court of Federal Claims. By order dated June 29, 2001, the U.S. Court of Federal Claims determined that the USPS had terminated Abcon for convenience rather than cause, and that Abcon was entitled to recover damages. More legal work was required to obtain those damages. In addition, USPS appealed that order.

6. In connection with the defaulted contract with USPS, Abcon's surety, United States Fidelity & Guaranty Company (“USF&G”), obtained a judgment against Abcon, and Zenobia and his wife Theresa (“Theresa”) in the amount of $ 1.7 million on January 24, 2001. Trial transcript (“Tr.”), 27:11-28:5; 33:25-34:17.

7. To pay off that judgment, Zenobia, Theresa and South Setauket Associates (“SSA”), an entity controlled by Zenobia, took out a loan with Roslyn Savings Bank (“Roslyn”) in the amount of $2 million on March 12, 2002. The loan was secured by a mortgage on the personal home of Zenobia and Theresa, as well as a mortgage on a commercial piece of property owned by SSA, and an assignment by USF&G of its entitlement to any sums pursuant to the judgment it obtained in connection with the USPS matter. JX 49, at 1.

III. The Legal Services Agreement and Its Amendments

Legal Services Agreement-2002

8. Around that time, Haas was concerned about how H&N would get paid for the remaining work to be done on the action against USPS. On December 18 and 19, 2002, H&N and Abcon executed a legal services agreement (“LSA”). JX 42. In the LSA, the parties acknowledged that H&N was owed fees in the amount of $183,489.64 for services provided through December 31, 2001, and further acknowledged that additional fees would continue to be incurred.

9. By the LSA, Abcon granted H&N a lien upon any amount of money it recovered from the USPS, (other than fees recovered on the Equal Access to Justice Act (“EAJA”), which permits payment of the prevailing parties' attorneys' fees), and stated that “the parties agree that H&N's lien shall be subordinate to the lien securing the loan by Abcon and its principals to Roslyn Savings Bank in the approximate amount of $2,000,000.” JX 42, at 2.

10. The USPS appeal was decided in Abcon's favor before the Letter Agreement was signed.

11. In May 2005, the USPS contracting officer issued a final decision granting Abcon termination for convenience costs in the amount of $2,405,150.32 (“May 2005 Order”). Rather than pay this money to Abcon and its creditors, USPS initiated an interpleader action in this Court on June 28, 2005. Tr. 160:24-161:5: USA v. Abcon Associates, Inc., et al. , 05–CV–3178 (LDW). Accordingly, that money was deposited with the Court (“Interpleader Fund” or “Fund”). See JX 55, at 3-4.

First Amendment-2005

12. After the interpleader action was started, the parties executed an amendment to the LSA effective August 15, 2005 (“First Amendment”). The First Amendment states that Abcon requested H&N represent it on an appeal of the May 2005 Order, that Abcon acknowledged that H&N was owed $260,000 in fees and that the Interpleader Funds were subject to a charging lien in favor of H&N, and provided that H&N could recover additional fees on a continency basis if additional money was recovered by the appeal. JX 29, at 2.

13. The First Amendment also states that H&N agreed that any sums due it pursuant to the First Amendment “shall be subject to and subordinate to any sums due to Roslyn Savings Bank” as stated in the LSA. The First Amendment acknowledges and affirms the other provisions of the LSA. JX 29, at 2.

14. H&N filed the appeal contemplated by the First Amendment. While that appeal was pending, on December 18, 2006, this Court in the interpleader action issued an order granting New York Community Bank (“NYCB”), as successor to Roslyn, a priority lien against the Interpleader Fund. JX 55.

Modification of the First Amendment-2007

15. Thereafter, on July 20, 2007, the parties executed a letter agreement (“Letter Agreement”) from Haas to Zenobia dated June 27, 2007, outlining a distribution plan for the Interpleader Funds and modifies the First Amendment to the LSA. It

outlines how Abcon's creditors were to be paid out of the Fund, and states that H&N would receive $263,000, and that NYCB would receive the balance of the Interpleader Funds. It also provides that H&N would receive a percentage of any additional money recovered in the USPS proceedings. JX 21.

16. The Letter Agreement states that “the above distribution agreement is contingent upon your satisfaction with the resolution you are able to achieve with NYCB concerning the balance of Abcon's debt to NYCB as guaranteed and collateralized by you.” It is written on H&N letterhead and signed by Haas, and “[a]greed to and accepted by” Zenobia as President of Abcon. JX 21, at 2.

IV. Distribution of the Interpleader Funds

17. Following execution of the Letter Agreement, a stipulation concerning the agreed distribution of the interpleader funds was “so ordered” by this Court on August 12, 2007. Pursuant to that stipulation and as agreed in the Letter Agreement, H&N was paid $263,000.00 (“First Distribution Order”). JX 13, at 2.

18. Following a determination on the administrative appeal, the USPS deposited additional money into the Interpleader Fund, which was distributed amongst the various creditors by order of this Court dated December 15, 2008 (“Second Distribution Order”). $200,000 was paid to H&N and the balance of $655,416.60 was paid to NYCB. JX 14, at 4. This represented a payment to H&N in the amount of 40% of the first $500,000 received by Abcon, as provided for in the Letter Agreement.

Second Circuit Decision

19. On May 9, 2009, the Second Circuit reversed this Court's decision of December 18, 2006, which held that NYCB had a priority lien, invalidating that priority. Plaintiff's Exhibit (“PX”) 15.

20. Thereafter, on June 30, 2009, this Court held a conference with Abcon and all the creditors entitled to payment from the Interpleader Funds. A settlement was reached (“2009 Settlement”). Pursuant to the 2009 Settlement, NYCB returned $904,129 of the money it received pursuant to the First and Second Distribution Orders, which was then distributed amongst the other creditors. JX 10, 11, 12 and 1. As a result, the outstanding debt owed to NYCB increased from $257,361.12 to $1,161,490.12. JX l, at 4.

21. At the conference, Abcon's lawyers objected to the terms of the 2009 Settlement agreed by the creditors, stating that because of the Roslyn subordination, “[w]e don't believe Hass (sic) should be getting paid all the money they are getting paid.” JX 10, at 7. This Court overruled that objection. Abcon's lawyers did not appeal that ruling. This action was filed on February 27, 2012. JX 51.

V. The Mortgage Held by NYCB

22. As noted above, in 2002, Michael and Theresa Zenobia and SSA took out a loan from Rosyln (NYCB). That loan was secured by mortgages on the Zenobias' personal property and commercial property owned by SSA, and the assignment of USF&G's interest. In 2004, NYCB initiated an action in New York state court to foreclose on the mortgages securing the loan. In December 2007, the court there granted NYCB summary judgment. A referee report determined that by May 11, 2012, with interest, the debt owed to NYCB was $1,493,839.44. JX 1, at 4.

23. Following extensive negotiations in an effort to prevent foreclosure, in July 2013, a group of Zenobia's relatives formed and funded Duboc Realty Corp., which purchased the note and mortgage from NYCB for $850,000.00. There were no further foreclosure proceedings.

VI. Quantum Meruit

24. H&N brings a claim for quantum meruit to recover

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