King v. Fox

• Decision Date: 02 August 2005
• Docket Number: Docket No. 04-0815-CV.
• Citation: 418 F.3d 121
• Parties: Edward C. KING, Appellant, v. Lawrence A. FOX, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 121

418 F.3d 121

Edward C. KING, Appellant, v. Lawrence A. FOX, Appellee.

Docket No. 04-0815-CV.

United States Court of Appeals, Second Circuit.

Argued: May 25, 2005.

Decided: August 2, 2005.

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Fred R. Profeta, Jr., Esq., Profeta & Eisenstein, New York, NY, for Appellant.

Richard M. Maltz, Esq., Richard M. Maltz, PLLC, New York, NY, David S. Hammer, Esq., New York, NY, for Appellee.

Before: CALABRESI and B.D.PARKER, Circuit Judges, and MUKASEY, District Judge.^*

MUKASEY, District Judge.

Edward King appeals from the District Court's grant of summary judgment to his former attorney Lawrence Fox in a dispute over Fox's fees. See King v. Fox, No. 97 Civ. 4134, 2004 WL 68397, 2004 U.S. Dist. LEXIS 462 (S.D.N.Y. Jan. 16, 2004). King argues that the District Court erroneously dismissed his collateral estoppel claim, that the fee agreement at issue was substantively unconscionable, and that the District Court's bases for granting summary judgment — ratification and laches — were improper. Because of ambiguities in New York law regarding client ratification of attorney fee agreements, we certify three questions relating to that issue to the New York Court of Appeals. We retain jurisdiction so that, upon receiving a response from the New York Court, we may rule on this appeal.

I. Background

A. Attorney-Client Relationship Between Fox and King

In 1972, appellant Edward King became a member of Lynyrd Skynyrd, a rock band that achieved great success in the 1970s and whose music is still well known today. While a member of Lynyrd Skynyrd, King played guitar and co-wrote several of the band's biggest hits, such as the southern anthem "Sweet Home Alabama." The band's 1973, 1974, and 1975 albums each went gold, and MCA signed Lynyrd Skynyrd to an exclusive recording agreement in 1974. (Joint Appendix (J.A.) 540) But eventually the band's hard partying and physically violent internal conflicts became too much for King to bear. One night in May 1975, when Lynyrd Skynyrd was on tour, King quit the band and left the tour, telling only the road manager about his decision. (J.A. 228-29)

Under Lynyrd Skynyrd's recording agreement with MCA, King was entitled to writer's and artist's royalties, because he had both written and performed songs for the band. While with the band, King received a weekly salary of around $300 (J.A. 232), in addition to writer's royalties, which he continued to receive after he left, through May 1976 (J.A. 231-34). However, King's artist's royalties, along with those of the other Lynyrd Skynyrd members, had been used to buy out the band's former manager Al Cooper for $1 million. (J.A. 231) King did not receive artist's royalties while he was with the band, nor did he receive them after he left.

In August 1975, in need of money, King consulted with New York entertainment lawyer Allen Grubman about the status of his artist's royalties. King believed that because the band had been so successful, the buyout of Cooper likely was complete, and it was time for him to start receiving his artist's royalties. Grubman secured for King an advance on his writer's royalties (J.A. 541), but informed King that he would need to retain a litigator in order to determine his entitlement to artist's royalties (J.A. 240). Grubman collected one-third of the advance he secured for King as his fee (J.A. 238-39), and referred King to his law school classmate Lawrence Fox for help with the artist's royalties issue. Grubman did not request any further payment from King. (J.A. 239)

Fox was a litigator by training, but when he first met with King, his practice consisted primarily of personal injury cases, and admittedly he "knew nothing about [the entertainment] field." (J.A. 62) King explained his predicament to Fox and noted that he was not sure exactly how much money he was due to receive from Lynyrd Skynyrd. He told Fox that he suspected he was entitled to his artist's royalties, and that there was a "log jam" somewhere (J.A. 461, 543). However, King had no paperwork or documentation specifying his rights under the MCA recording agreement to justify this hunch (J.A. 460). After their initial meeting, Fox investigated King's situation by calling Ina Meibach, Lynyrd Skynyrd's attorney, who informed Fox that King was not entitled to anything because he had quit the band, and that King actually owed the band money (J.A. 60). Meibach also refused to give Fox any information on King's contract with MCA (J.A. 61). Fox met with King for a second time and notified him that he believed "something was wrong," and that he would need to pursue the matter by getting the relevant documentation and perhaps initiating a lawsuit (J.A. 61, 73).

At that second meeting, Fox discussed his fee with King. At the time, King informed Fox that he was in "dire financial straits and had no money for a retainer." (J.A. 74, 460) As a personal injury lawyer, Fox was accustomed to working on a contingency basis (J.A. 74), so he offered such an arrangement to King, and King "was thrilled about that" (J.A. 73). According to Fox, he explained to King that the retainer agreement would give Fox one-third of all of King's future royalties in addition to the recovery of any royalties past due. (J.A. 77) King claims that he understood the agreement to cover "the accumulated royalties of whenever he was to settle the dispute," but no further or future royalties. (J.A. 248, 251, 545)

Fox testified that the contingency agreement with King was a risky proposition for him, because King had not received any artist's royalties in years, because King was not sure exactly what his rights were under the MCA agreement, and because Meibach was claiming that King owed the band money (J.A. 74). However, according to King, Fox could not reasonably have thought their agreement was unduly risky, because King had informed Fox at their first meting that the band's debts had been paid, and because the band had earned more than $1 million annually in both 1974 and 1975, one seventh of which King was due to collect. (J.A. 544, 566-67)

Fox sent a formal contingency fee agreement to King in November 1975¹ which read:

This is a retainer agreement authorizing us to proceed as your attorneys in the lawsuit against Lynyrd Skynyrd, Inc. and Ronnie Van Zant.

Our fee for services in this matter will be a contingency fee, based upon any money recovered from the defendants. Our fee for representing you will be 1/3 of the recovery, whether by way of settlement, trial, judgment or other method. You will be responsible for any out of pocket expenses incurred for your benefit.

(J.A. 588) King signed this agreement.

By February 10, 1976, Fox had secured a copy of the exclusive recording agreement between MCA and Lynyrd Skynyrd and its members. (J.A. 120) The agreement contained a provision allowing King to order MCA to pay his royalties directly to him, bypassing the band and its agent (J.A. 65-66, 668), as well as a provision stating that breach by or termination of a band member was not grounds for suspension of royalty payments (J.A. 121). Fox decided to sue MCA on King's behalf even though the agreement on its face appeared to entitle King to royalty payments. King filed a complaint on September 30, 1976 (J.A. 123), MCA answered in January 1977 (J.A. 125), and in April 1977, MCA impleaded Lynyrd Skynyrd's manager Sir Productions, which was claiming that it was entitled to twenty percent of King's royalties (J.A. 128, 82). According to Fox, MCA "put in a very vigorous defense" (J.A. 80, 82) to King's lawsuit, claiming that King's departure from the band ended his entitlement to the benefits of the contract. There was a summary judgment motion in the case, but King's deposition was not taken. (J.A. 128, 546 n. 3) During the course of the litigation, in May 1976, King's writer's royalties, which had never been in question, stopped being paid. (J.A. 546) Eventually, in fall 1978, the parties came to a settlement agreement in which MCA agreed to pay King everything that he was owed, which totaled $213,000. (J.A. 85, 163-64) King later settled with Sir Productions, allowing it to collect 10 percent of the money due to him. (J.A. 85, 131)

In late fall 1978, when a tentative settlement agreement had been reached but before it had been signed, Fox and King had a telephone conversation in which Fox mentioned that under the retainer agreement, Fox would be receiving one-third of King's royalties in perpetuity. (J.A. 251-52) King was "shocked and surprised" by this information, but he "put it on the back burner" because getting the settlement funds was of the "utmost importance" to him. (J.A. 253) King asked Fox to send the settlement agreement and the retainer agreement to his wife's attorney, John Groon, to review. Groon did so, and wrote Fox with several questions, one of which was whether the retainer agreement entitled Fox to fees deducted from future royalty payments. (J.A. 528-29) Fox replied that the retainer agreement covered "all royalty money Ed is entitled to resulting from his involvement with Lynyrd Skynyrd . . .," and urged King to call him if he disagreed. (J.A. 530)

In this correspondence, Fox also emphasized to Groon that time was of the essence, and that if King did not sign the settlement agreement with MCA by November 11, 1978, Fox would have to serve a complaint against Sir Productions, and MCA would deposit King's settlement money "into court as a stakeholder with the City of New York." (J.A. 526) If this happened, according to Fox, King would be liable for MCA's attorney's fees, the settlement money would not earn interest, and it would "take a long time plus a fee on Ed's behalf to receive the money back from the New York City Treasury." (J.A. 526) Groon shared this information with King, and King "panicked." (J.A. 259) His wife was about to have a baby, and he needed the settlement money. He did not want to risk liability for MCA's...