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KELLY v. MD BUYLINE

March 31, 1998

JOHN QUINLAN KELLY, ESQ., Plaintiff,
v.
MD BUYLINE, INC., a/k/a MDB INFORMATION NETWORK, LARRY MALCOLMSON, GALEN ROBBINS, M.D., and HENRY MARRIOTT, M.D., Defendants.



The opinion of the court was delivered by: WOOD

OPINION and ORDER

 WOOD, U.S.D.J.

 Plaintiff John Q. Kelly, Esq. sues MD Buyline, Inc. ("MDB"), a Texas corporation, for breach of a three-year retainer agreement. Plaintiff also asserts claims related to this retainer agreement against the individual defendants. I referred this case to Magistrate Judge Michael H. Dolinger for pre-trial supervision and to make recommendations on dispositive motions. Defendants have moved to dismiss the complaint on several different grounds. In a Report and Recommendation dated February 3, 1998 ("the Report"), Magistrate Judge Dolinger recommended that defendants' motion be granted in part and denied in part. Defendant MDB and Lawrence Malcolmson have filed timely objections to portions of the Report, *fn1" to which plaintiff has filed a timely response. Pursuant to 28 U.S.C. ยง 636(b)(1)(B), I review de novo those portions of the Report to which defendants object. For the reasons stated below, I adopt the Report, attached hereto. *fn2"

 I. Discussion

 A. The Report and Defendants' Objections

 In Magistrate Dolinger's excellent, extensively researched and carefully prepared Report, he made the following recommendations. He recommended that defendants' motion to dismiss for lack of personal jurisdiction be granted as to plaintiff's tortious interference claim against individual defendants Galen Robbins, Larry Malcolmson, and Henry Marriot, and denied as to plaintiff's contract claim against MDB and fraud claim against Malcolmson. He recommended that defendants' motion to dismiss plaintiff's remaining claims pursuant to Rule 12(b)(6) of the Federal Rules of the Civil Procedure be denied. He also recommended that defendants' motion to dismiss on grounds of improper venue and forum non conveniens be denied. Defendants' principal objection is to the recommendation that their motion to dismiss plaintiff's contract claim be denied. Defendants also argue that if the contract claim is dismissed, the fraud claim should be dismissed as well. Defendants seek interlocutory appeal to the Second Circuit Court of Appeals if the Court adopts the recommendation in the Report that plaintiff has a viable contract claim. Defendants also object to the recommendation that plaintiff's fraud claim survive defendants' motion to dismiss. Because plaintiff's allegations are summarized in the Report, (see Report at 3-5), I shall proceed directly to defendants' objections.

 1. Plaintiff's Contract Claim

 Defendants' principal argument is that under In re Cooperman, 611 N.Y.S.2d 465, 83 N.Y.2d 465, 633 N.E.2d 1069 (1994), the retainer agreement between plaintiff and defendant MDB is unenforceable. Defendants also argue that the retainer agreement is invalid under contract law, that the retainer agreement's termination agreement invalidates the retainer agreement, and that there is no other basis upon which to sustain plaintiff's contract claim.

 a. Contract Enforceability under In re Cooperman

 The central question before the New York Court of Appeals in Cooperman was whether an attorney's repeated use of special nonrefundable retainer fee agreements with his clients violated the Code of Professional Responsibility. Cooperman, 611 N.Y.S.2d at 466-67, 83 N.Y. at 469-70. The retainer agreements provided for a minimum fee that was not refundable regardless of when the client decided to discontinue the attorney's services. Id. The Court of Appeals held that "use of a special nonrefundable retainer fee agreement clashes with public policy because it inappropriately compromises the right to sever the fiduciary services relationship with the lawyer." 83 N.Y.2d at 473-74, 611 N.Y.S.2d 468.

 In his Report, Magistrate Judge Dolinger examined Cooperman against the background of the law governing retainer agreements between attorneys and clients. As the Report explains, the Court of Appeals has held that an attorney's right to compensation for services rendered prior to his or her termination is not limited to the fees the attorney deserves (in quantum meruit) "where an attorney is employed under a general retainer for a fixed period of time to perform legal services in relation to matters that may arise during the period of the contract." See Martin v. Camp, 219 N.Y. 170, 176, 114 N.E. 46, 48 (1916) (emphasis added). Such general retainer agreements provide that the attorney will be available for a period of time, whereas in "special" retainer agreements the attorney is hired to handle a specific case or matter. With special retainer agreements, an attorney's right to compensation for services rendered prior to his or her termination is limited to the fees the attorney deserves. Id.

 In the instant action, plaintiff asserts that he signed a three-year contract with MDB. In this contract, plaintiff agreed to perform legal services as need by the company for a three-year period. In exchange, MDB agreed to pay plaintiff $ 165,000.00 for the first year, payable in monthly installments, and $ 180,000.00 for each of the second and third years, also in equal monthly installments. (Complaint at P 16-17.) Magistrate Judge Dolinger found that this agreement was a general retainer agreement. (See Report at 64) I agree.

 Magistrate Judge Dolinger concluded that the New York Court of Appeals's decision in Cooperman applied only to nonrefundability provisions in special retainer agreements, not to non-refundability provisions in general retainer agreements. (See Report at 60-61.) In his analysis, Magistrate Judge Dolinger confronted the language in Cooperman that defendants claim mandates granting their motion to dismiss. That language is as follows:

 
Our holding today makes the conduct of trading in special nonrefundable retainer fee agreements subject to appropriate professional discipline. Moreover, we intend no effect or disturbance with respect to other types of appropriate and ethical fee agreements (see, Brickman and Cunningham, Nonrefundable Retainers Revisited, 72 NCLRev 1, 6 [1993]). Minimum fee arrangements and general retainers that provide for fees, not laden with the nonrefundability impediment ...

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