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LEIGHTON v. NEW YORK

August 18, 1969

Leon LEIGHTON, Plaintiff,
v.
NEW YORK, SUSQUEHANNA & WESTERN RAILROAD COMPANY, Defendant


Lasker, District Judge.


The opinion of the court was delivered by: LASKER

LASKER, District Judge.

In this diversity action the plaintiff, a New York attorney, sues to recover the fair and reasonable value of legal services rendered by him to defendant, a New Jersey railroad. Defendant contends that the court should, in the exercise of its discretion, relinquish jurisdiction to a New Jersey court. As specific defenses, the defendant alleges: (1) that N.J.S.A. 2A:13-6 is a bar to plaintiff's suit; (2) that under the terms of the contract plaintiff is not entitled to further payment; (3) that accord and satisfaction has occurred or that plaintiff has waived further claim for past services; and (4) that plaintiff forfeited his right to compensation by voluntarily withdrawing from the case. Finally, defendant asserts a counterclaim.

 The instant trial, without jury, related to liability alone. *fn1" For the reasons set forth below, the court holds that defendant is liable to plaintiff for legal fees in an amount to be determined by the court in a separate trial.

 I. FACTUAL BACKGROUND

 A. PLAINTIFF'S RETENTION BY DEFENDANT

 In the early 1950s the defendant railroad suffered enormous losses in its passenger operations. The financial picture was such that the continuance of the railroad was in jeopardy, and the parties stipulate that it would be impossible for the passenger service ever to make money. *fn2" In the face of these dire conditions, various members of the management of the railroad discussed with the plaintiff the possibility of retaining him as counsel to take action to eliminate or reduce these losses by discontinuance of passenger operations. Early contacts occurred in March 1955 between the plaintiff and Walter Florsheimer, a director of defendant, who with his family owned abot 50% of the preferred stock of the company, as well as with William Gregory, the owner of 90% of the common stock. Florsheimer and Gregory brought the matter of plaintiff's retention before the company's board of directors.

 At the meeting of the board of directors on April 7, 1955, plaintiff was elected a member of defendant's board of directors and a member of its executive committee. The board appointed the plaintiff Special Counsel to handle the passenger service problem and the so-called "Seatrain" problem. *fn3" (Plaintiff has been paid in full for services rendered in the Seatrain matter and the subject is not before the court.)

 B. HISTORY OF DISCONTINUANCE OF DEFENDANT'S PASSENGER SERVICE

 In the early fall of 1955, plaintiff submitted a memorandum to defendant's board of directors regarding abandonment of Susquehanna's passenger traffic. The memorandum pointed out that the success of an application for the elimination of passenger service would depend upon the availability of other means of transportation which could serve the needs of the traveling public presently using Susquehanna's passenger service. It was therefore plaintiff's recommendation that he be authorized to contact bus companies in the area to encourage them to provide alternative means of transportation for Susquehanna passengers. Plaintiff would subsequently, when he believed the time to be "ripe," file an application with the New Jersey Board of Public Utility Commissioners for elimination of all passenger service on the Susquehanna.

 While there is no dispute that the most salutary result would have been the complete elimination of passenger service, there began to emerge discussions of dropping as much passenger service as possible if approval of complete elimination could not be secured. On January 27, 1956, the plaintiff submitted a memorandum to defendant's president and to the chairman of its executive committee in which the plaintiff pointed out that the defendant must be prepared, in presenting its case to the Board of Public Utility Commissioners, "to consider all possible alternatives other than complete abandonment." Plaintiff still believed that defendant should seek complete abandonment, but, in view of the railroad's obligation to render transportation service in areas where there was no other common carrier service available, plaintiff urged consideration of possibilities less than complete abandonment. Extracts from minutes of the defendant's board of directors meetings on February 23 and March 15, 1956, contain reports by plaintiff that it might not be possible to secure elimination of all passenger trains. The minutes of April 5, 1956, state:

 
"Mr. Leighton stated that the petition to the New Jersey Board of Public Utility Commissioners regarding passenger train abandonment was ready for submission. He stated that each director would receive a copy of same. Mr. Leighton then outlined the salient points of the petition which includes a request for complete abandonment of passenger traffic with two alternatives in case full abandonment will not be considered by the Commissioners.
 
"Upon motion duly made and seconded, it was
 
"RESOLVED, that the petition to be submitted to the Board of Public Utility Commissioners of New Jersey for abandonment of passenger traffic, as outlined by Mr. Leighton be, and hereby is, approved for immediate submission to the Commissioners." *fn4"

 Plaintiff was thereafter authorized by the executive committee (by telephone on April 10, 1956, ratified at its meeting May 23, 1956) *fn5" to submit, along with the petition for abandonment of passenger trains, the alternative of operating on weekdays three trains in each direction between Butler and Jersey City and one train in each direction between Paterson and Jersey City.

 The question of plaintiff's compensation for his services in the passenger case was taken up by defendant's executive committee at its meeting on April 27, 1956. The resolution which was passed contained the following language which is at issue in this case:

 
"Leighton will not claim any compensation in the passenger case unless definite financial benefits are realized by Susquehanna as a result of the proceedings. Leighton shall then receive such compensation commensurate with the benefits realized as shall be fixed by the Executive Committee, whose decision shall be final."

 The sense of the agreement was expressed by Mr. Gregory, by that time chairman of the board of directors, who indicated his willingness to pay if results were achieved but not otherwise. Gregory further assured plaintiff that Susquehanna would be fair if plaintiff was willing to let defendant fix the fee. *fn6"

 The resolution was orally passed by the executive committee and drafted by plaintiff in the above quoted language, based upon plaintiff's best recollection of the substance of the agreement. The minutes of the executive committee meeting, including the resolution drafted by plaintiff, were sent to the entire board of directors, and at the next meeting of the directors, July 20, 1956, the resolution was unanimously approved.

 After adoption of the resolution concerning his compensation, the plaintiff instituted various proceedings with the objective of obtaining curtailment of defendant's passenger service. Plaintiff filed a petition before the New Jersey Board of Public Utility Commissioners, and the first hearing on the petition was held on June 11, 1956. At that hearing, plaintiff presented the petition for complete abandonment, but also stated to the Public Utility Commissioners that, as an alternative, defendant was prepared to furnish four trains in each direction on weekdays. When advised of the foregoing, Mr. Ralph Sease, who had been president of defendant since the beginning of 1956, approved of plaintiff's submitting alternatives to the ideal goal of complete elimination of passenger service. *fn7"

 Since, as appears below, defendant contends that the plaintiff was not to be paid unless he brought about complete (rather than partial) elimination of passenger service, it is important to note that plaintiff's authorization from the executive committee to submit alternatives to complete abandonment was again ratified by the board of directors at the meeting on July 20, 1956, the same meeting at which the board approved of the resolution concerning plaintiff's compensation in the passenger cases.

 On numerous occasions during the years from 1956 through 1959, the defendant approved the actions of plaintiff which might lead to reduction of passenger service but not to complete elimination. For example, - (1) At the meetings of defendant's board of directors or executive committee on September 25, October 4, October 17 and October 26, 1956, plaintiff was authorized to agree to the operation of more than eight weekday trains if the Board of Public Utility Commissioners would grant the remaining relief being sought. *fn8" (2) On December 13, 1957, defendant's board of directors was informed that the Board of Public Utility Commissioners had authorized curtailment which was less than the amount requested, and the board thereupon authorized plaintiff, on appeal from the foregoing order, to argue for the operation of fourteen weekday trains. *fn9" (3) Prior to the decision on the appeal, defendant's executive committee, at its meeting on February 6, 1959, authorized defendant's president to apply to the Board of Public Utility Commissioners to reduce the service to six weekday trains. *fn10"

 When plaintiff was retained defendant was operating sixty passenger trains on weekdays, thirty-six on Saturdays and thirty-four on Sundays and holidays. By May 1959, the train service required of the defendant was reduced to six trains on weekdays and none at other times. *fn11"

 At the meeting of defendant's board of directors on May 21, plaintiff advised that there was no prospect of securing elimination of the six remaining trains because of the lack of alternative common carrier service, and no further reduction was in fact accomplished while plaintiff acted as attorney for the defendant.

 C. HISTORY OF PLAINTIFF'S COMPENSATION

 Prior to May 1959, Susquehanna advanced to plaintiff $43,500, and at the meeting of the executive committee on May 21, 1959, it was resolved by a unanimous vote (plaintiff not being present) to pay plaintiff an additional $2,000 as an advance on payment for handling the passenger train case, and up until June 30, 1960 further advances of $6,000 were paid to plaintiff.

 On January 14, 1960, William Gregory wrote to Ralph Sease, president of the defendant railroad, instructing Sease to make no further advances to Leighton except $500 a month and, at Sease's discretion, $500 a month for expenses in connection with the passenger case. Sease sent a copy of Gregory's letter to plaintiff, and on February 1, 1960 plaintiff replied to Gregory's letter, sending copies to Mr. Sease and to Stephen Florsheimer, chairman of defendant's executive committee. Plaintiff attached to his letter detailed schedules of the services he had performed for Susquehanna and the net annual cash savings which resulted from the curtailment of passenger service. He concluded by asking to meet with Gregory, Sease and Stephen Florsheimer to discuss his compensation and to have them determine a fair and reasonable fee. No written answer was ever made to plaintiff's letter of February 1st prior to the institution of this lawsuit.

 However, on April 26, 1960, plaintiff met with Gregory to discuss his compensation. Plaintiff asked Gregory to call a meeting of the executive committee to fix the fee, pointing out the benefits which had accrued to Susquehanna as enumerated in his letter of February 1st. Gregory replied that Susquehanna had experienced financial reverses and he therefore requested plaintiff to defer the matter until the defendant's finances improved. Plaintiff agreed to hold the matter in abeyance for the time being.

 On June 29, 1960, plaintiff (then a director but no longer a member of defendant's executive committee) was asked to attend a meeting of the executive committee to report on the passenger cases, and presented himself for attendance. However, in plaintiff's abscence (that is, before he was invited into the committee room), the committee resolved:

 
"* * * that effective July 1, 1960, Mr. Leighton be retained at a salary of $500 per month and that if Mr. Leighton handles any large legal case where the fee involved is in excess of $500 per month the matter of payment shall be taken up with the board for approval." *fn12"

 After receiving a copy of the foregoing resolution, plaintiff discussed its contents with Sease on July 7, 1960. Plaintiff advised Sease that he could not afford to work for $500 a month, but would require payment of $25 an hour, which would include any remaining services in the passenger cases.

 Clearly, the resolution of June 29th was intended by the board to establish a new rate of compensation effective July 1st. When plaintiff submitted bills pursuant to this new arrangement, plaintiff did not make any reservation about claims for amounts due for passenger service cases prior to June 29, 1960.

 Plaintiff's bills for July and August were paid pursuant to the new arrangement at the rate of $25 an hour. Bills for September and October were declined, with the request that they be revised by plaintiff. At its meeting on December 20, 1960, defendant's executive committee unilaterally reduced plaintiff's rate of compensation for certain services to $15 per hour.

 As a result of this reduction, plaintiff spoke to Gregory on January 6, 1961. Gregory expressed the view that plaintiff had been overpaid throughout his association with Susquehanna. The next day plaintiff wrote to Sease stating that he regarded the action of the executive committee which purported unilaterally to reduce plaintiff's rate of compensation as constituting a repudiation of the agreement between the parties, saying: "Under these circumstances, I do not care to represent Susquehanna any further. Please consider this my formal withdrawal from all pending matters in which I appear as Susquehanna's counsel." Plaintiff included in this letter a request that the executive committee take up the matter of fixing his compensation in the passenger case, "commensurate with the benefits received," as provided in the resolution of April 27, 1956. Plaintiff thereafter received a brief note from Sease merely acknowledging plaintiff's withdrawal as Susquehanna's counsel.

 Defendant's executive committee took no action with respect to determining plaintiff's compensation in the passenger cases before the institution of this action on February 21, 1962.

 Several years after the commencement of this litigation, that is, on May 14, 1964, defendant's executive committee adopted the following resolution:

 
"RESOLVED, that it is the decision of this Committee that Leon Leighton has been more than adequately compensated for the legal services for which he is suing, and that this committee recommends no further payment be made to him in relation to such services." *fn13"

 On December 16, 1965, defendant's executive committee passed a resolution which referred to the May 14, 1964 resolution and stated:

 
"RESOLVED, that if the Court decides that the executive committee's opinion was erroneous and that it was or is required to fix Leighton's fee, this executive committee will promptly and in all good faith proceed to do so, and Leighton will be given an opportunity to appear before it and present his case." *fn14"

 * * *

 Before determining the rights and obligations of the parties under the contract, we dispose of other ...


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