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BARATTA v. S. D. COHN & CO.

February 11, 1985

VINCENT J. BARATTA, et al., Plaintiffs,
v.
S. D. COHN & CO., et al., Defendants


Griesa, J.


The opinion of the court was delivered by: GRIESA

GRIESA, J.

This opinion deals with the amount to be awarded to defendant Cowen & Company on its cross-claim against defendant S. D. Cohn & Co. For the reasons set forth hereafter, it is determined that Cowen should recover $ 15,000 paid in settlement to plaintiffs, as well as $207,000 attorney's fees and $34,827 disbursements.

 The extensive prior proceedings will be briefly summarized. Plaintiffs sued Cohn and Cowen and certain individuals, including one John T. Zukas, claiming that defendants' wrongdoing resulted in securities trading losses of about $350,000. Plaintiffs sued under the federal securities laws and under state law theories. Various cross-claims were made among the defendants.

 The controversy arose because of the fact that plaintiff Vincent Baratta was involved in securities trading with Zukas, and Baratta and Zukas arranged for Zukas to be employed at the Cohn office in order to facilitate Baratta's trading and minimize commissions. Cowen acted as clearing broker for Cohn. The trading carried out by Zukas at Cohn resulted in substantial losses to Baratta and to his son, the other plaintiff.

 Certain issues in the case were tried to a jury and certain issues were reserved by agreement for the court. The trial was held from February 6 to March 2, 1984.

 Prior to the commencement of trial, Cowen settled with plaintiffs for $ 15,000. The case went to trial on plaintiffs' claims against Zukas, S. D. Cohn & Co. and certain individuals associated with Cohn. The jury could not agree on whether Zukas had defrauded plaintiffs, and the issue of Zukas' liability remains open. As to the Cohn defendants, the combined effect of the jury's answers to questions and the rulings of the court was to exonerate these defendants. See transcript of March 15, 1984 pp. 144-179.

 Proceedings and submission of papers pertaining to Cowen's cross-claim extended into December 1984. *fn1" Although there has never been any serious challenge to Cowen's claim for the $15,000 settlement payment, Cowen's claim for attorney's fees has been hotly contested both as to basic liability and amount.

 The legal services performed by Cowen's attorneys occurred during three time periods: 1) From the commencement of the action in 1981 through December 30, 1983, when plaintiffs settled with Cowen; 2) from January 1, 1984 until the end of the trial on March 2, 1984; and 3) from the end of the trial until July 19, 1984. *fn2" The total amount claimed by Cowen for attorney's fees is $348,463, and for disbursements $53,283. Cowen also claims prejudgment interest.

 Cohn contends that there should be no recovery whatever of amounts related to the second and third periods. As to the first period, Cohn argues that the amount claimed is excessive.

 The basis for the claim of Cowen for attorney's fees and disbursements is Paragraph Fourteenth of the Clearing Agreement, which provides:

 
FOURTEENTH: Errors, misunderstandings or controversies, except those specifically otherwise covered in this Agreement, between customers of Introducing Broker and Introducing Broker or its employees, which shall arise out of the acts or omissions of Introducing Broker or its employees, shall be the responsibility and liability of Introducing Broker and are to be adjusted accordingly. If such error, misunderstanding or controversy shall result in the bringing of an action or proceedings against Cowen, we will notify Introducing Broker, and if Cowen so requires, Introducing Broker agrees at its own cost and expense to defend any action or proceeding brought against Cowen by reason thereof, or Cowen may defend such action or proceeding, but in either event Introducing Broker shall indemnify and hold Cowen harmless from any loss, liability, damage and expense, including attorneys' fees, which Cowen may incur or sustain in connection therewith or under any settlement thereof and Introducing Broker shall satisfy of record any final judgment or judgments rendered against Cowen in such action or proceeding.

 Cohn was the "Introducing Broker" referred to in this paragraph. As applied to the present case, the paragraph provides that a controversy between Cohn and its customers, which arises out of acts of Cohn or its employees, shall be the responsibility and liability of Cohn. If such controversy shall result in the bringing of an action against Cowen, Cohn shall indemnify Cowen against any loss or expense, including attorney's fees, which Cowen may incur or sustain in connection therewith or under any settlement thereof.

 The attorney's fees sought to be recovered by Cowen fall into two categories -- (1) fees expended to defend a suit against Cowen, and (2) fees expended on the cross-claim by Cowen against Cohn to recover fees in category (1). On July 19, 1984 I ruled that Paragraph Fourteenth of the Clearing Agreement permitted Cowen to recover fees in category (1) subject to further submissions regarding the amount. In the further submissions the issue about category (2) was given additional discussion, and is now being decided in the present opinion.

 Both sides have cited case authority on the question, although they both agree that the issue rests upon the interpretation of Paragraph Fourteenth of the Clearing Agreement. As already discussed, that paragraph provides that, if a controversy between Cohn and a customer "shall result in the bringing of an action or proceedings against Cowen, . . . [Cohn] shall indemnify and hold Cowen harmless from any . . ...


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