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Cluett, Peabody & Co. v. CPC Acquisition Co.

decided: December 15, 1988.

CLUETT, PEABODY & CO., INC., PLAINTIFF,
v.
CPC ACQUISITION COMPANY, INC., PAUL A. BILZERIAN, AND BILZERIAN AND BRODOVSKY, DEFENDANTS. PAUL A. BILZERIAN, BILZERIAN AND BRODOVSKY, A CALIFORNIA PARTNERSHIP, AND CPC ACQUISITION COMPANY, INC., A DELAWARE CORPORATION, PLAINTIFFS, V. CLUETT, PEABODY & CO., INC., A NEW YORK CORPORATION, GORDON E. ALLEN, ROBERT E. ALLEN, RICHARD Q. ARMSTRONG, HOWARD L. CLARK, JOHN C. EMERY, JR., E. HERVEY EVANS, JR., RICHARD L. GELB, FLOYD D. HALL, HENRY H. HENLEY, JR., ROBERT J. MCDONALD, WILLIAM T. SEAWELL, PHILLIP L. SMITH, AND JOHN L. WEINBERG, DEFENDANTS. PAUL A. BILZERIAN, BILZERIAN AND BRODOVSKY, A CALIFORNIA PARTNERSHIP, AND CPC ACQUISITION COMPANY, INC., A DELAWARE CORPORATION, APPELLANTS, V. LATHAM & WATKINS, APPELLEES



Appeal from a judgment entered after a jury trial in the United States District Court for the Southern District of New York, Leonard B. Sand, Judge, in favor of appellee Latham & Watkins in the amount of $354,569 for legal services rendered to appellant Paul A. Bilzerian and related entities. Affirmed.

Meskill, Kearse and Mahoney, Circuit Judges.

Author: Mahoney

MAHONEY, Circuit Judge:

Appellants Paul A. Bilzerian, Bilzerian & Brodovsky and CPC Acquisition Company, Inc. (Collectively "Bilzerian") appeal from a judgment of the United States District Court for the Southern District of New York, Leonard B. Sand, Judge, entered in favor of appellee Latham & Watkins in the amount of $354,569 for legal services rendered in connection with that law firm's representation of Bilzerian during his attempted takeover of Cluett, Peabody & Co., Inc. ("Cluett").

We affirm.

Background

This action arises from a dispute concerning the legal fees charged to Bilzerian by the law firm Latham & Watkins, a California partnership with offices in Los Angeles and Manhattan, among other locations, for services rendered in connection with Bilzerian's bid to acquire control of Cluett. In May, 1985, Bilzerian retained Latham & Watkins in connection with his acquisition of Cluett stock. Bilzerian and Latham & Watkins entered into a verbal agreement whereby Latham & Watkins was to be paid at the unitary rate of $150 per hour for legal services related to the takeover.*fn1

Between May and November, 1985, Latham & Watkins rendered a variety of legal services commonly performed during the course of an attempted acquisition of a corporation. These services included the preparation and filing of a voluminous number of documents with the appropriate state and federal governmental agencies, the preparation and control of all press releases and advertisements, negotiations with certain subordinated debtors, review of credit arrangements with various financial institutions, and litigation related thereto.

On October 16, 1985, in attempting to carry out his plan to take control of Cluett, Bilzerian initiated a tender offer for the acquisition of Cluett's outstanding shares. On that same day, in connection with Bilzerian's tender offer, Latham & Watkins commenced an action in the United States District Court for the Eastern District of California against Cluett, which was opposed to the tender offer, seeking both to enjoin Cluett from implementing a "poison pill" defensive tactic and damages from Cluett's directors for breach of fiduciary duty in attempting to implement the "poison pill." Approximately one week later, Cluett filed suit in the United States District Court for the Southern District of New York to enjoin Bilzerian's tender offer. Shortly thereafter, Bilzerian's California action was transferred to the Southern District of New York and the two actions were consolidated. The parties cross-moved for temporary and permanent injunctive relief in the district court. The district court issued a temporary restraining order against all parties.

On November 4, 1985, prior to the disposition of the remaining motions, Cluett agreed to be acquired by a third party, West Point-Pepperell, Inc. As part of the acquisition, West Point-Pepperell agreed to purchase all Cluett shares held by Bilzerian. The effect of that agreement was thus to moot the Bilzerian-Cluett litigation. Bilzerian realized a $7.5 million profit on his sale of Cluett stock, and also received $5 million in reimbursement for fees and expenses incurred during his attempted acquisition of Cluett, including Latham & Watkins' legal fees. On January 14, 1986, the parties entered into a stipulation dismissing with prejudice the actions related to the tender offer.

On or about November 15, 1985, however, a dispute arose over the amount Latham & Watkins had billed Bilzerian for services rendered. On that date, Latham & Watkins received a letter from David A. Tallant, Bilzerian's personal attorney, which stated that Bilzerian would pay only approximately sixty percent of Latham & Watkins' fees and disbursements billed through October 31, 1985, based upon Bilzerian's belief that he had been charged excessively. The letter further stated that such payment would constitute full satisfaction of all sums due and owing, including November attorney time and disbursements not yet billed, and charges for continued representation until all matters concerning the transaction were completed.

On November 19, 1985, Job Taylor III, a member of Latham & Watkins, informed Mr. Tallant that despite the existence of several outstanding matters connected with the Cluett transaction, Latham & Watkins would no longer continue to represent Bilzerian without payment of the fees and disbursements previously incurred and assurance satisfactory to Latham & Watkins with respect to the payment of future fees and disbursements. On November 27, 1985, Latham & Watkins moved for permission to withdraw as Bilzerian's counsel in the Southern District litigation. The district court granted that motion on December 3, 1985.

On December 10, 1985, Bilzerian filed a declaratory judgment action in California state court seeking a determination of the amount of legal fees owed to Latham & Watkins. Shortly thereafter, Latham & Watkins moved that the district court in the instant action exercise its ancillary jurisdiction over the fee dispute and determine the fees owed. That motion was referred to a magistrate by Judge Sand. On May 1, 1986, the district court adopted the magistrate's report, which recommended, as a matter of discretion, that ancillary jurisdiction be exercised over the fee dispute.

Following lengthy motion practice, the action was tried to a jury in May, 1987. The jury returned a verdict in favor of Latham & Watkins in the amount of $354,569, and judgment was ...


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