Jacoby Donner, P.C. v. Aristone Realty Capital, LLC

• Decision Date: 27 August 2020
• Docket Number: CIVIL ACTION NO. 17-2206
• Parties: JACOBY DONNER, P.C., Plaintiff, v. ARISTONE REALTY CAPITAL, LLC, TODD M. LIPPIATT, and PATRICK M. MCGRATH, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

JACOBY DONNER, P.C., Plaintiff, v. ARISTONE REALTY CAPITAL, LLC, TODD M. LIPPIATT,and PATRICK M. MCGRATH, Defendants.

CIVIL ACTION NO. 17-2206

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

August 27, 2020

DuBois, J.

MEMORANDUM

I. INTRODUCTION

This action arises out of alleged nonpayment of legal fees. Plaintiff Jacoby Donner, P.C., filed suit in this Court against defendants Aristone Realty Capital, LLC ("Aristone"), and Aristone principals Todd M. Lippiatt, and Patrick M. McGrath, seeking recovery of outstanding fees owed for legal services provided to Aristone (the "Collection Claims"). Defendants answered and asserted counterclaims against Jacoby Donner for malpractice in connection with the legal services that Jacoby Donner performed (the "Malpractice Claims").

Presently before the Court are the following motions: (1) Jacoby Donner's Daubert motion to exclude expert testimony regarding billing practices; (2) Jacoby Donner's motion to pierce the corporate veil; (3) Jacoby Donner's motion for partial summary judgment on the Collection Claims; (4) Aristone, Lippiatt, and McGrath's motion for summary judgment on the Collection Claims; (5) Jacoby Donner's Daubert motion to exclude the expert testimony of Peter W. Leibundgut, Esquire ("Attorney Leibundgut"), on the Malpractice Claims; (6) Jacoby Donner's Daubert motion to exclude the expert testimony of John Agogliati, III, CFA, ASA, on malpractice damages; (7) Aristone's Daubert motion to exclude the expert testimony of James L. Griffith, Esquire ("Attorney Griffith"), on the Malpractice Claims; and (8) Jacoby Donner's motion for summary judgment on the Malpractice Claims. For the reasons stated below, the motions are granted in part and denied in part.

II. BACKGROUND¹

The Court summarizes the relevant factual background in connection with Jacoby Donner's claims, the Collection Claims, and Aristone's claims, the Malpractice Claims.

A. Jacoby Donner's Collection Claims

Defendant Aristone is a New York-based real estate development and investment company, in which defendants Lippiatt and McGrath are principals. Pl.'s Statement Material Facts ("Pl.'s SMF") ¶ 1; Defs.' Statement Undisputed Material Facts ("Defs.' SUMF") ¶ 1. For each of its real estate projects, Aristone established a so-called "single-purpose LLC"² ("SPL")—a distinct legal entity—to carry out the project. Pl.'s SMF ¶ 2. Between February of 2010 and April of 2016, Aristone retained plaintiff Jacoby Donner to provide transactional legal services for Aristone and its various SPLs. Pl.'s SMF ¶ 3. Aristone did not retain Jacoby Donner to perform any litigation work. Countercl. Def.'s Statement Uncontested Material Facts ("Countercl. Def.'s SUMF") ¶ 175. Eric Diaz, Esquire ("Attorney Diaz"), a Jacoby Donner partner, was the law firm's primary point of contact with Aristone, through McGrath and Lippiatt. Defs.' SUMF ¶ 2.

On June 25, 2015, after Aristone accumulated multiple outstanding invoices, Jacoby Donner and Aristone entered into a written Fee Agreement that established payment terms forfuture invoices. Pl.'s SMF ¶ 4. The Fee Agreement was a two-page letter written by Attorney Diaz and addressed to McGrath. According to the Fee Agreement, Aristone retained Jacoby Donner to "represent Aristone Realty Capital, LLC and its affiliates, successors and assigns (collectively, 'Aristone') in connection with various commercial real estate and financial transactions." Pl.'s Mot. Partial Summ. J. Ex. 2, Ex. A ("Fee Agreement") 1. The Fee Agreement also provided, in relevant part:

This letter will supersede all prior agreements between Aristone and [Jacoby Donner], confirm that Aristone has engaged [Jacoby Donner] in connection with the Existing Matters, owes [Jacoby Donner] outstanding fees on the existing Matters in the approximate current amounts of $450,000 (204 South Galena), $100,000 (66 East 11^th), and $175,000 (Paradiso), and set forth the arrangement pursuant to which [Jacoby Donner] will continue to represent Aristone on the Existing Matters and on any new matters (the "New Matters").

As a general matter, unless otherwise specified in this engagement letter, the terms of [Jacoby Donner's] engagement will be in accordance with [Jacoby Donner's] Standard Terms and Conditions of Engagement ("Standard Terms"), a copy of which is attached. . . .

As a condition, and in consideration, of our continuing to represent Aristone on the Existing Matters and on any new Matters, Aristone [a]grees to pay legal fees and costs due to [Jacoby Donner] in connection with New Matters in accordance with the Standard Terms, and in connection with the Existing Matters in amounts consistent with Aristone's available cash from revenue, as may [sic] audited and confirmed by [Jacoby Donner] from time to time, but in no event less than $10,000 per month."

Id. The Fee Agreement was executed on Aristone's behalf by McGrath and on Jacoby Donner's behalf by Attorney Diaz. Id. In the Complaint, Jacoby Donner alleges, inter alia, that defendants breached the Fee Agreement and owe a balance of $942,119.26 for legal services performed on Existing³ and New Matters.

Central to the Collection Action is the parties' dispute over the terms of their fee arrangement prior to June 25, 2015, and how the Fee Agreement altered Aristone's payment obligations on Existing Matters. Pointing to the testimony of Attorney Diaz and McGrath, Aristone contends that, before executing the Fee Agreement, Aristone and Jacoby Donner were engaged in an unwritten "hybrid contingency" arrangement in which Aristone's payment of invoices for a particular project was contingent upon the project generating a profit. See Defs.' Mot. Summ. J. 18 n.8. Attorney Diaz stated that "because of my relationship with Patrick McGrath . . . we had more of something that approached a contingency. . . . [T]he arrangement was that, if the deal doesn't print, then we don't get paid from that deal, because there isn't any money to get paid from." Diaz Day 1 Dep. 50:1-12, 50:23-51:2. Similarly, McGrath testified that "the reality is that a deal that doesn't close doesn't generate any revenue . . . which means the legal bill doesn't get paid." McGrath Dep. 74:15-22. Based on this testimony, defendants further contend that after issuing an invoice, the parties reviewed and negotiated the fees to be paid, and "[w]hen there was insufficient capital in a transaction, legal fees would be reduced or waived." Defs.' Mot. Summary J. 5. Jacoby Donner denies that it ever operated under such an arrangement with Aristone. Pl.'s Resp. Defs.' SUMF ¶¶ 4, 7.

In or around early April of 2016, Attorney Diaz left Jacoby Donner and joined the law firm of LareDiaz. Pl.'s Resp. Def.'s SUMF ¶ 10. Shortly thereafter, Jacoby Donner transferred its files in Aristone matters to LareDiaz and the relationship between Jacoby Donner and Aristone ended. Id. As of January 4, 2019, Aristone still retained Attorney Diaz for transactional legal work. Id. Jacoby Donner ceased business operations shortly before the Collection Claims were filed on May 12, 2017.

B. Aristone's Malpractice Claims

In response to Jacoby Donner's Collection Claims, defendants filed counterclaims alleging that Jacoby Donner committed legal malpractice in connection with two Aristone matters: (1) a real estate project to develop a restaurant and lounge in Aspen, Colorado (the "Rocky Aspen Claim"); and (2) the purchase of CS Paradiso Holdings LLC ("CS Paradiso") and its portfolio of properties and loans.

Defendants' malpractice allegations arise from Jacoby Donner's work on behalf of two SPLs that are legally distinct from Aristone: AH DB Kitchen Aspen Investors, LLC ("AH DB"), and Flatiron Acquisition Vehicle, LLC ("Flatiron Acquisition"). Critically, AH DB and Flatiron Acquisition are not parties to the Malpractice Claims.

1. The Rocky Aspen Claim

Aristone first alleges that Jacoby Donner mishandled a series of transactions involving a joint venture between AH DB and Rocky Aspen Management 204, LLC ("RAM"). Countercl. Def.'s SUMF ¶ 10. On April 29, 2013, AH DB and RAM formed Rocky Aspen, LLC, to develop a restaurant and lounge in Aspen. Id. ¶ 32. Between 2013 and 2016, AH DB was owned in part by Aristone. Id. ¶ 13. RAM was owned entirely by a separate company, Watershed Ventures, LLC ("Watershed"). Id. ¶ 12.

Pursuant to the joint venture agreement, AH DB was required to provide the capital for the restaurant and RAM was to provide restaurant management expertise. Defs.' SUMF ¶ 29. In addition, McGrath was named a co-manager of Rocky Aspen. Counterclaim Def.'s SUMF ¶ 88.

By early December of 2014, the Rocky Aspen project was over-budget. Counterclaim Def.'s Mot. Summ. J. 11; Def.'s SUMF ¶ 33. In addition, on or about December 4, 2014, the owner of the building in which the restaurant was located sued Rocky Aspen and defendantMcGrath for non-payment of rent and construction costs. Countercl. Def.'s SUMF ¶ 72. In response to the increasing costs, AH DB and RAM entered into an amended joint venture agreement on December 1, 2014. Id. ¶ 36. The amended joint venture agreement required, inter alia, that AH DB make additional "capital contributions," failing which RAM was entitled to exercise an option (the "Watershed Option") for additional shares in the venture. Id. ¶¶ 36, 47-49. Under the amended joint venture agreement, if AH DB made the required capital contributions, its interest in Rocky Aspen would increase to 60 percent. Id. ¶ 49. Conversely, if AH DB failed to make the required capital contributions, its interest in Rocky Aspen would drop from 50 percent to five percent. Id. ¶¶ 47-48.

AH DB took the following steps to secure more capital for Rocky Aspen. First, on December 1, 2014, in connection with executing the amended joint venture agreement, AH DB obtained a $700,000 loan from Watershed ("Watershed Loan") as a temporary solution until AH DB could secure long-term financing. Id. ¶¶ 55, 57. AH DB failed to repay the Watershed...