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Taylor v. Scarborough

August 1, 1933


Appeal from the District Court of the United States for the Eastern District of New York.

Author: Swan

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

SWAN, Circuit Judge.

This suit was begun in the Supreme Court of the state of New York, county of Suffolk, and was removed into the District Court for the Eastern District of New York. It seeks to establish a lien in the amount of $20,000 for attorney's fees and $254.55 for disbursements, upon 1,000 shares of stock received in settlement of litigation and held in the custody of a depositary. The item for disbursements was not disputed. The fee claimed by the plaintiffs was based on a written agreement of the defendant, Scarborough, but the District Court set aside this agreement, determined that the fair and reasonable value of the plaintiffs' services was $18,500, of which $5,500 had previously been paid on account, and entered a decree in favor of the plaintiffs for only $13,254.55. They have appealed, contending (a) that the appellee's agreement should have been enforced; (b) that the agreed sum of $20,000, is the fair and reasonable value of the balance due them for services; (c) that an account was stated between the parties in this amount; and (d) that they are entitled to interest from July 10, 1931, on whatever balance is due them.

In January, 1927, Scarborough retained the plaintiffs, without discussion of fees, to represent him in contemplated litigation against the Aluminum Company of America. His claim was based upon his rights as a minority stockholder in Aluminum Dic-Casting Corporation, the majority of whose stock was owned by said Aluminum Company of America. After the dissolution of Aluminum DieCasting Corporation over Scarborough's protest, he instituted suit through the plaintiffs as his attorneys to compel the Aluminum Company of America and its subsidiary, the United States Aluminum Company, which became the purchaser at the dissolution sale, to account as trustees and to issue to him shares of their stock to represent the minority interest he had formerly held in the dissolved Aluminum Die-Casting Corporation. Although that suit had not been reached for trial, certain officers of the defendants had been examined and proceedings were pending for further examinations to be had in Pittsburg, Pa., on June 24, 1931. An offer of settlement had been made which Scarborough had rejected on June 3, 1931. That offer was to transfer to him 1,000 shares of stock of Aluminum Company of America, which at that time was quoted at $90 per share. The market price advanced, and on June 22, 1931, Scarborough consulted with his attorneys about reviving the offer of settlement. He asked what their fees would be, and was informed by Taylor that they would expect $25,000 in addition to the $5,500 they had already received. Scarborough protested that the fee was too high. Taylor then attempted to obtain from the attorneys for the defendants an increase in the number of shares they would offer, or a cash offer which would net Scarborough $100,000. The following morning Taylor informed Scarborough that this attempt had failed, but that the defendants' attorneys had suggested a settlement on the basis of 1,000 shares to be delivered at any time within a year. Scarborough was willing to accept a delivery within six months but again raised the question of fees, which Taylor finally reduced to $20,000 exclusive of what had been paid. After consulting his associates, Scarborough telephoned Taylor that they all thought the fee excessive, but Taylor refused to take less, or to allow the question of fees to remain open until after the settlement was closed, and Scarborough then agreed to make the settlement and to pay the $20,000 fee. Taylor requested that Scarborough confirm this by letter, and he did so on the afternoon of June 23rd, the letter reading as follows:

"My dear Win:

"At your request, I am confirming my statement made to you over the telephone today. If you can settle the Aluminum case for 1000 shares of Aluminum stock plus, I and my associate will give you $20,000.00 in cash, which is your requirement; this payment to be in full and final settlement without deduction for fees previously paid to you as our attorney.

"Very truly yours,

"W. B. Scarborough."

This is the letter relied upon as constituting Scarborough's agreement in writing to pay the fee sued for. Taylor replied by a letter of acknowledgment and confirmation on the same date.

The settlement was then closed with the attorneys for the defendants on the basis of 1,000 shares to be delivered on or before December 23, 1931, and Taylor so advised Scarborough by letter dated June 24th. Subsequently Scarborough consulted with Taylor in respect to signing various releases and at no time objected that he had been compelled to agree to the payment of excessive charges. On July 10, 1931, the plaintiffs sent him a copy of the settlement agreement and a bill for $20,254.55 for balance due for services and disbursements. Scarborough by telephone objected to paying the bill before the stock was received, but said nothing as to the amount of the fee. He requested delivery of the original of the settlement agreement, and on Taylor's refusal became angry. On July 17th the plaintiffs wrote requesting payment. To this letter Scarborough made no reply. After the telephone conversation of July 10th he did not communicate with the plaintiffs in any manner until November 17th. He then wrote them that "the manner in which you compelled me to accede to your charges in the Aluminum Die-Casting Corporation matter has been rankling with me ever since you insisted, only a day or two before the date set for trial in Pittsburg, on fixing your fee under threat that you would abandon the case if I did not comply with your demand." He asked that the fee be reconsidered. The plaintiffs replied, denying the charge, refusing reconsideration of the fee, and informing Scarborough that they were sending a notice of lien to the Aluminum Companies. The present suit was then commenced. On December 22, 1931, the stock was delivered to a depositary pursuant to stipulation. When the settlement was negotiated on June 23, 1931, the stock was quoted at about $130 per share. Thereafter it arose to $150, and then declined to about $70 in November when the defendant wrote the letter above mentioned. When delivered on December 22d, it was approximately $55 per share.

The District Court found that, although Taylor did not refuse to proceed with the case unless the fee was fixed at $20,000, he did refuse to proceed with the settlement unless such fee was agreed to. The appellants contend that we should reverse this finding of fact. The testimony on this point was in direct conflict. While it is true that on practically all other important points of contradiction the trial judge accepted the testimony of Taylor in preference to that of Scarborough, and while the latter's failure to complain that the agreement had been extracted from him by Taylor's threat until the serious decline in the market value of the stock rendered his settlement less attractive than at first, makes quite persuasive the argument that no such complaint would ever have been heard of but for the falling market, nevertheless we do not feel at liberty to reverse a finding based on conflicting testimony concerning a conversation not inherently improbable. We accept, therefore, the District Court's premise as to the circumstances which induced Scarborough to agree to the fee.

Starting with that premise, the District Court proceeded to apply the New York law as stated in Rodkinson v. Haecker, 248 N.Y. 480, 162 N.E. 493, 496. It was there said that "contracts between attorney and client must be fair and reasonable, and fully known and understood by the client," and Judge Crane's opinion proceeded at page 489 of 248 N.Y., 162 N.E. 493, 496, as follows:

"As a general principle, a lawyer may make a contract with his client either for future or past services. Such a contract for compensation will be enforced, unless it appears to have been procured by fraud, deceit, overreaching, undue influence, or through any other ...

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