Kelly v. Md Buyline, Inc.
| Decision Date | 01 April 1998 |
| Docket Number | No. 97 Civ. 0096 (KMW) (MHD).,97 Civ. 0096 (KMW) (MHD). |
| Citation | 2 F.Supp.2d 420 |
| Parties | John Quinlan KELLY, Esq., Plaintiff, v. MD BUYLINE, INC., a/k/a MDB Information Network, Larry Malcolmson, Galen Robbins, M.D., and Henry Marriott, M.D., Defendants. |
| Court | U.S. District Court — Southern District of New York |
John Quinlan Kelly, John Quinlan Kelly & Associates, P.C., New York City, for Plaintiff.
David Kittay, Kittay, Gold & Krebsbach, White Plains, NY, for Defendant.
Plaintiff John Q. Kelly, Esq. sues MD Buyline, Inc. ("MDB") a Texas corporation, for breach of a three-year retainer agreement. Plaintiff also asserts claims related to this retainer agreement against the individual defendants. I referred this case to Magistrate Judge Michael H. Dolinger for pre-trial supervision and to make recommendations on dispositive motions. Defendants have moved to dismiss the complaint on several different grounds. In a Report and Recommendation dated February 3, 1998 ("the Report"), Magistrate Judge Dolinger recommended that defendants' motion be granted in part and denied in part. Defendant MDB and Lawrence Malcolmson have filed timely objections to portions of the Report,1 to which plaintiff has filed a timely response. Pursuant to 28 U.S.C. § 636(b)(1)(B), I review de novo those portions of the Report to which defendants object. For the reasons stated below, I adopt the Report, attached hereto.2
A. The Report and Defendants' Objections
In Magistrate Dolinger's excellent, extensively researched and carefully prepared Report, he made the following recommendations. He recommended that defendants' motion to dismiss for lack of personal jurisdiction be granted as to plaintiff's tortious interference claim against individual defendants Galen Robbins, Larry Malcolmson, and Henry Marriot, and denied as to plaintiff's contract claim against MDB and fraud claim against Malcolmson. He recommended that defendants' motion to dismiss plaintiff's remaining claims pursuant to Rule 12(b)(6) of the Federal Rules of the Civil Procedure be denied. He also recommended that defendants' motion to dismiss on grounds of improper venue and forum non conveniens be denied. Defendants' principal objection is to the recommendation that their motion to dismiss plaintiff's contract claim be denied. Defendants also argue that if the contract claim is dismissed, the fraud claim should be dismissed as well. Defendants seek interlocutory appeal to the Second Circuit Court of Appeals if the Court adopts the recommendation in the Report that plaintiff has a viable contract claim. Defendants also object to the recommendation that plaintiff's fraud claim survive defendants' motion to dismiss. Because plaintiff's allegations are summarized in the Report, (see Report at 428-429), I shall proceed directly to defendants' objections.
Defendants' principal argument is that under In re Cooperman, 83 N.Y.2d 465, 611 N.Y.S.2d 465, 633 N.E.2d 1069 (1994), the retainer agreement between plaintiff and defendant MDB is unenforceable. Defendants also argue that the retainer agreement is invalid under contract law, that the retainer agreement's termination agreement invalidates the retainer agreement, and that there is no other basis upon which to sustain plaintiff's contract claim.
The central question before the New York Court of Appeals in Cooperman was whether an attorney's repeated use of special nonrefundable retainer fee agreements with his clients violated the Code of Professional Responsibility. Cooperman, 83 N.Y.2d at 469-70, 611 N.Y.S.2d at 466-67, 633 N.E.2d 1069. The retainer agreements provided for a minimum fee that was not refundable regardless of when the client decided to discontinue the attorney's services. Id. The Court of Appeals held that "use of a special nonrefundable retainer fee agreement clashes with public policy because it inappropriately compromises the right to sever the fiduciary services relationship with the lawyer." 83 N.Y.2d at 473-74, 611 N.Y.S.2d at 468, 633 N.E.2d 1069.
In his Report, Magistrate Judge Dolinger examined Cooperman against the background of the law governing retainer agreements between attorneys and clients. As the Report explains, the Court of Appeals has held that an attorney's right to compensation for services rendered prior to his or her termination is not limited to the fees the attorney deserves (in quantum meruit) "where an attorney is employed under a general retainer for a fixed period of time to perform legal services in relation to matters that may arise during the period of the contract." See Martin v. Camp, 219 N.Y. 170, 176, 114 N.E. 46, 48 (1916) (emphasis added). Such general retainer agreements provide that the attorney will be available for a period of time, whereas in "special" retainer agreements the attorney is hired to handle a specific case or matter. With special retainer agreements, an attorney's right to compensation for services rendered prior to his or her termination is limited to the fees the attorney deserves. Id.
In the instant action, plaintiff asserts that he signed a three-year contract with MDB. In this contract, plaintiff agreed to perform legal services as need by the company for a three-year period. In exchange, MDB agreed to pay plaintiff $165,000.00 for the first year, payable in monthly installments, and $180,000.00 for each of the second and third years, also in equal monthly installments. (Complaint at ¶ 16-17.) Magistrate Judge Dolinger found that this agreement was a general retainer agreement. (See Report at 449.) I agree.
Magistrate Judge Dolinger concluded that the New York Court of Appeals's decision in Cooperman applied only to nonrefundability provisions in special retainer agreements, not to non-refundability provisions in general retainer agreements. (See Report at 447-448.) In his analysis, Magistrate Judge Dolinger confronted the language in Cooperman that defendants claim mandates granting their motion to dismiss. That language is as follows:
Our holding today makes the conduct of trading in special nonrefundable retainer fee agreements subject to appropriate professional discipline. Moreover, we intend no effect or disturbance with respect to other types of appropriate and ethical fee agreements (see, Brickman and Cunningham, Nonrefundable Retainers Revisited, 72 NCLRev 1, 6 [1993]). Minimum fee arrangements and general retainers that provide for fees, not laden with the nonrefundability impediment irrespective of any services, will continue to be valid and not subject in and of themselves to professional discipline.
Cooperman, 83 N.Y.2d at 476, 611 N.Y.S.2d at 470, 633 N.E.2d 1069 (Report at 448). Magistrate Judge Dolinger carefully explained why, despite the language emphasized in this passage, the prohibition in the Cooperman decision is limited to nonrefundability provisions in special retainer agreements. Defendants urge that the emphasized language clearly establishes that a general retainer with a nonrefundability provision is invalid.
In view of the fact that the Cooperman court scrupulously (and consistently) identifies the issue before the court as the use of "special" nonrefundable retainer free agreements, see Cooperman, 83 N.Y.2d at 469, 471, 473, 475, 476, 611 N.Y.S.2d at 466, 467, 469, 470, 633 N.E.2d 1069, it is not plausible to read the Cooperman decision as overruling, sub silencio, the line of authority that establishes the difference in damages available for special and general retainer provisions. For this reason, and the other reasons set forth in the Report, (see Report 447-450), which more than adequately addresses the issues raised in defendants' objections to the Report, I find that Cooperman does not compel dismissing plaintiff's contract claim.
Defendants argue that the retainer agreement between plaintiff and defendant MDB is unenforceable, as a matter of law, under contract principles. In support of this contention, defendants principally rely on Joel R. Brandes, P.C. v. Zingmond, 573 N.Y.S.2d 579, 586, 151 Misc.2d 671 (Sup.Ct. 1991). In Brandes, the court held that a nonrefundable matrimonial retainer agreement was not enforceable. Id. Among other grounds, the Court reasoned that enforcing the agreement, which provided for a $15,000 nonrefundable fee, would significantly chill the right of the client to discharge his or her lawyer. Id. at 583, 151 Misc.2d 671.
However, the retainer agreement at issue in the instant case is not controlled by Brandes. Outside the context of disciplinary actions, the New York courts continue to treat general retainer agreements differently from special retainer agreements in contract actions. Cf. Ehrlich v. Rebco Ins. Exchange Ltd., 198 A.D.2d 58, 58, 604 N.Y.S.2d 729, 729 (App.Div. 1st Dep't 1993) (). Accordingly, general contract principles do not invalidate the retainer agreement at issue here.
Defendants also argue that under Cohen v. Radio-Electronics Officers Union, 146 N.J. 140, 679 A.2d 1188 (1996), the retainer agreement is unenforceable because the notice of termination provision is excessive. In Cohen the Supreme Court of New Jersey held that, in the circumstances of that case, a provision for six-months notice of termination excessively burdened the client's right to hire and to discharge his lawyer. Cohen, 146 N.J. at 160, 679 A.2d at 1198. However, the Cohen court still allowed Cohen to recover in quantum meruit for the reasonable value of the services that he provided. 146 N.J. at 164-65, 679 A.2d at 1200. The Cohen court held that in quantum meruit services included...
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