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United States District Court, S.D. New York

January 16, 2004.

EDWARD C. KING, Plaintiff -against- LAWRENCE A. FOX, Defendant

The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge Page 2


Defendants Lawrence A. Fox ("Fox"), Lenre, Lapidus & Franquinha, P.C., ("LLF") and Legal Vision, Inc. ("Vision") (collectively, "Defendants") and have moved for summary judgment, pursuant to Fed.R.Civ.P. 56, and have moved to strike plaintiff Edward C. King's ("King") jury trial request. King, in turn, has cross — moved for summary judgment, pursuant to Fed.R.Civ.P. 56, and for an order directing Fox to disgorge monies and fees. For the reasons set forth below, Fox's summary judgment motion is granted, and King's motion is denied.

The Parties

  King is domiciled in and a citizen of the State of Tennessee and a former member of the rock band Lynyrd Skynyrd.

  Fox is a New York resident a lawyer retained by King to obtain certain royalties. LLF is a New York law firm. Vision is incorporated under the laws of and transacting business in the State of New York.

 Prior Proceedings

  King commenced this action against Defendants on June 4, 1997, filing a complaint alleging a breach of fiduciary duty, Page 3 unjust enrichment, undue influence, conversion, and a violation of New York Judiciary Law § 487. Defendant Fox answered and counterclaimed for an accounting of monies owed.

  On May 8, 1998, Defendants filed a summary judgment motion, based upon King's violation of the statute of limitations for bringing an action in 1997 predicated upon a retainer agreement executed in 1976 and a representation that ended in 1990. Summary judgment was granted and King's action was dismissed with prejudice. See King v. Fox, No. 97 Civ. 4134, 1999 U.S. Dist. LEXIS 2795 (Mar. 9, 1999). Following discovery, Fox's counterclaim proceeded to jury trial before the Honorable Magistrate Judge James C. Francis, IV, and the counterclaims were dismissed.

  Meanwhile, King appealed the summary judgment decision, and the Second Circuit concluded that "King has raised a genuine issue of material fact as to whether Fox continued to represent him, thus tolling the statute of limitations on King's claim." King v. Fox, 28 Fed. Appx. 95, 99 (2d Cir. 2002) — *fn1 The Second Circuit thus vacated the summary judgment order and remanded for further proceedings. Id. Upon remand, the parties conducted further discovery, including additional depositions. Page 4

  The instant motions were heard and marked fully submitted on October 8, 2003.

 The Facts

  The facts are set forth based upon the Local Rule 56.1 statements of the parties and supporting declarations.

  From 1972 to 1975, King was a member of the rock band Lynyrd Skynyrd ("the Band"). King left the Band in 1975.

  In 1974, King and the Band entered into various written agreements with MCA Records, Inc. ("MCA") providing for the payment of royalties. By written agreement, dated November 26, 1976, King retained attorney Fox to pursue King's rights to royalties from MCA stemming from his association with the Band. This agreement set out that:

[The] fee for services in this matter will be a contingency fee, based upon any money recovered from the defendants. Our fee for representing you will be 1/3 of the recovery, whether by way of settlement, trial, judgment, or other method.
  Fox represented King's interests in connection with the pursuit of royalties from MCA, including the commencement of two lawsuits in New York, one in 1976 and one in 1982, against MCA which were respectively settled in 1978 and 1989. The terms of the Page 5 settlement of the 1976 lawsuit required MCA to pay King a sum of money, and to make payment of future royalties and provide royalty statements. One third of the settlement amount was paid to Fox's then law firm, and the balance was remitted to King pursuant to their agreement. Thereafter, royalty payments from MCA were remitted to Fox, who deposited them into his firm's escrow account, remitting two — thirds to King and paying one — third to his firm. This practice continued uninterrupted from 1979 until 1995.*fn2

  In the late 1970's, John K. Groon ("Groon"), an attorney representing King, reviewed both the settlement of the first lawsuit against MCA and the scope of the one — third fee agreement between Fox and King. On October 18, 1978, Groon informed Fox that he advised King that Fox's reading of the retainer was correct. On October 25, 1978, Groon sent Fox the settlement documents which were executed by King, and neither Groon nor King raised any further question with respect to the scope of the retainer agreement.

  Beginning in April 1995, King has received royalty payments relating to the Band directly from MCA, and has not remitted to Fox a one — third share. Page 6

  On June 4, 1997, King filed suit against Fox for taking a one — third share of King's royalties, alleging claims for breach of fiduciary duty, unjust enrichment, undue influence, conversion, and a violation of New York Judiciary Law § 487.

  I. Motion for Summary Judgment

  A. The Summary Judgment Standard

  Summary judgment is granted only if there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see generally 6 James Wm. Moore, et al., Moore's Federal Practice ¶ 56.15 (2d ed. 1983). The court will not try issues of fact on a motion for summary judgment, but, rather, will determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one — sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).

  The moving party has the burden of showing that there are no material facts in dispute, and the court must resolve all ambiguities and draw all reasonable inferences in favor of the party opposing the motion. Bickhardt v. Ratner, 871 F. Supp. 613 (S.D.N.Y. 1994) (citing Celotex Corp. v. Catrett. 477 U.S. 317 (1986)). Thus, "[s]ummary judgment may be granted if, upon Page 7 reviewing the evidence in the light most favorable to the non — movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law." Richardson v. Selsky, 5 F.3d 616, 621 (2d Cir. 1993).

  A material fact is one that would "affect the outcome of the suit under the governing law," and a dispute about a genuine issue of material fact occurs if the evidence is such that "a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; R.B. Ventures, Ltd, v. Shane, 112 F.3d 54, 57 (2d Cir. 1997).

  B. Discussion

  1. Fox's Failure to File a Retainer Agreement is Insignificant

  King argues that he is entitled to summary judgment since Fox did not file a retainer with the New York State Office of Court Administration ("OSC") and is thus not entitled to legal fees. Under 22 N.Y.C.R.R. § 603.7(a)(1):

  Every attorney who, in connection with any action or claim for damages for personal injuries or for property damages or for death or loss of services resulting from personal injuries . . . accepts a retainer or enters into an agreement, express or implied, for compensation for services rendered or to be rendered in such action, claim or proceeding, whereby his compensation is to be dependent or contingent in whole or in part upon the successful prosecution or settlement thereof, shall, Page 8 within 30 days from the date of any such retainer or agreement of compensation, sign personally and file with the Office of Court Administration of the State of New York a written statement of such retainer or agreement of compensation . . .

 Thus, pursuant to the Uniform Rules of Court, New York attorneys are required to file retainer agreements in personal injury and property damage cases, neither of which is applicable here.

  The instant case revolves around a contractual dispute, and does not present a tort for either personal injury or property damage. To adopt King's expansive interpretation and perceive this as a property damage case would require a filing for every contingency fee, eviscerating the rule's property damage limitation. All available caselaw refers only to personal injury and tort cases, even the cases King cites in support of his argument. See Rodriguez v. City of New York, 66 N.Y.2d 825 (1985) (wrongful death); Rabinowitz v. Counsins, 219 A.D.2d 487 (1st Dep't 1995) (medical malpractice). Subdivisions (e) and (f) of 22 N.Y.C.R.R. § 603.7 reflect the concerns of typical tort cases, referring to medical records, loss of time from employment or loss of income, repair bills, and repair estimates.

  Thus, 22 N.Y.C.R.R. § 603.7(a)(1) is inapplicable to the instant case, and Fox's failure to file a retainer agreement is insignificant. Page 9

  2. The Special Verdict Form Did Not Establish that the Fee Arrangement Was Unconscionable

  King further argues that the special verdict submitted on Fox's counter — claim established that the fee arrangement was unconscionable, and that it governs here as either "law of the case" or by collateral estoppel. King points out that to the question: "has Mr. Fox established by a preponderance of the evidence that his gain from the contingency fee was not so large in proportion to the services he rendered as to make the contract between him and Mr. King unconscionable," the jury answered no. Thus, the jury found that Fox did not establish by a preponderance of evidence that contingency fee was not unconscionable.

  However, the jury verdict stated a double negative, and that the fee arrangement was not not unconscionable by a preponderance of evidence does not necessarily mean that it was unconscionable. In fact, to the question: "has Mr. Fox established by a preponderance of the evidence that the contract was made in good faith without unfairness or overreaching, that is, it was fair, reasonable and fully known and understood by Mr. King as Mr. Fox's client," the jury was deadlocked.

  Thus, neither the law of the case, nor collateral estoppel is applicable here. Under the law of the case, when a court decides upon a rule of law, this ruling governs in the same Page 10 case. DiLaura v. Power Authority of the State of New York, 982 F.2d 73 (1992). "The doctrine of collateral estoppel, or issue preclusion, bars subsequent litigation of an issue if the issue in the second action is identical to an issue that was raised, necessarily decided and material in the first action, provided that the party against whom the defense is raised had a full and fair opportunity to litigate the issue in the earlier action." Schweizer v. Mulvehill, 93 F. Supp.2d 376, 389 (S.D.N.Y. 2000).

  Here, there is no identity of issues. Furthermore, Fox's counterclaim sought damages for the non — payment of royalties between 1995 to the time of trial in 2000 and into the future, while King's claims concern recovery of legal fees paid to Fox from 1978 until 1995. Unconscionability in the fee arrangement here may well go to the length of time under consideration.

  3. The Retainer Agreement Was Proper under the Circumstances

  a. King Has Not Established a Breach of Fiduciary Duty

  As both sides concede, Fox stood in a fiduciary relationship to King as his attorney. However, in order for King to claim the breach of a fiduciary duty by Fox, he must allege and prove misconduct. Simply because a fee arrangement was not ultimately advantageous to the client does not translate into a Page 11 breach of a fiduciary duty. This is the case as "disappointment at having made a bad deal . . . does not translate into fraud or breach of fiduciary duty without proof of misconduct." Fuchs v. Schick, No. 01 Civ. 10224, 2003 WL 21283461, at *2 (June 4, 2003). "Courts will protect counsel's right to an agreed — upon contingent — fee percentage, unless counsel has forfeited his right to compensation by misconduct, or the agreement was induced by fraud, or the attorney has taken some unconscionable advantage of his client, or the agreement is illegal." Schweizer, 93 F. Supp.2d at 403-04.

  Here, the terms of the retainer agreement were not per se a breach of fiduciary duty. The retainer agreement provided for a legal fee of one — third of all monies recovered, which fits within the purpose and standards of contingency fee agreements commonly used across the country. For instance a one — third contingency fee is specifically provided for by New York Court Rules in personal injury and property damage cases. 22 N.Y.C.R.R. § 603.7. Nationally, the contingency fee range is from 33% to 50%, and the Schweizer court considered a one — third contingency fee presumptively valid. Schweizer, 93 F. Supp.2d at 403.

  Contingency fees account for the risk taken in representing a client. Here, King first came to Fox without any documents, not knowing how much he would be entitled to, whether debt owed by group members would subsume some or all of any Page 12 recovery, and whether a recovery would entail extensive litigation or simply negotiation. There was also no way of knowing the amount of royalties ultimately to be recovered over the years. Furthermore, King had no money and no ability to pay a retainer or hourly fees. Here, litigation was successful, and both parties were rewarded handsomely with King receiving in excess of a million dollars due to Fox's efforts.

  King further alleges that Fox failed to disclose to him the true terms of the retainer, that Fox prevented him from understanding its terms, and that he would not have agreed to the retainer had he understood its terms.

  Fox conveyed the terms of the retainer to King in writing, explicitly stating:

[The] fee for services in this matter will be a contingency fee, based upon any money recovered from the defendants. Our fee for representing you will be 1/3 of the recovery, whether by way of settlement, trial, judgment, or other method.
Furthermore, in 1978, Groon, an attorney representing King, reviewed both the settlement of the first lawsuit against MCA and the scope of the one — third fee agreement between Fox and King. Neither King nor Groon raised any questions as to the retainer agreement at the time. In fact, in a 1978 letter, Groon advised King that Fox's reading of the retainer was correct. Page 13

  Moreover, the fact that Fox was in New York and King in Alabama erodes the credibility of King's claim that Fox prevented him from understanding the terms of the retainer agreement. King was an experienced musician by the time he came to Fox. He had been in the music business for fifteen years by 1976 when the retainer was signed. He co-founded Strawberry Alarm Clock, a group that distributed five albums and had a number one hit, and he hired two lawyers for various legal problems. King also had experience with attorneys in other realms, hiring attorneys to assist him with a publishing company, bankruptcy, and a matrimonial matter.

  Furthermore, in 1982, King had additional problems with MCA's royalties and again contacted Fox. Fox agreed to pursue the matter, and King did not ask for a retainer or even discuss the fee arrangement. King testified under oath that he assumed the same arrangement as in his first case would govern. Fox had settled the first MCA case in 1978, and by 1982, he had paid King royalties for four years in accordance with the retainer. Six years after the first retainer agreement was entered in 1976, the parties entered into precisely the same arrangement.

  King further claims that he phoned Fox in or around 1986, requesting that Fox stop taking one — third of his artist's royalties. King claims that Fox responded that he could not change the fee arrangement because it was tied to the settlement or original court order. Fox denies that such a discussion took Page 14 place. King, however, alleges that he never saw language in the settlement documents indicating that legal fees were tied to the settlement; that Groon never mentioned any connection; that he was in possession of the settlement documents in 1986; and that he never contacted a lawyer to determine whether there was a court order controlling legal fees. King also testified at trial that he did not want to deal with the fee issue until after settlement, thereby undermining his subsequent claim that he thought they were connected. No one told King that the settlement would not go forward if he did not consent to a fee arrangement at the time. After being allegedly told of this connection in 1986, King did nothing. Moreover, as the alleged conversation took place approximately ten years after the retainer was signed in 1976 and eight years after settlement was completed in 1978 (by that point, King had received royalties for eight years), it is irrelevant to King's original understanding of the retainer.

  King additionally attacks the scope of the retainer agreement, claiming that it only referred to artist's royalties, as his writer's royalties were still being paid at the time he retained Fox. However, as King concedes, soon afterwards, King's writer's royalties were no longer paid. The retainer agreement refers to "any money recovered from the defendants" and does not limit itself to artist's royalties. King also accepted royalty payments under the agreement for years — since settlement in 1978 Page 15 — without raising this distinction; litigation in this case only commenced in 1997.

  b. King Has Not Established Undue Influence

  King contends in his third cause of action that he was the subject of undue influence carried through until 1995. He alleges that undue influence was exerted because he was in a desperate finance situation, a distraught emotional state, inexperienced in dealings and affairs, and because he lacked an independent advisor. King asserts that Fox continued to exert undue influence for 17 years by "falsely representing that plaintiff had agreed to the undisclosed terms, falsely representing the amount of work done under the agreement and directing plaintiff to repose trust and confidence in him, all the while that defendants exercised absolute control over plaintiff's royalty payments." (Compl. ¶ 66.)

  However, dire financial straits represents no basis to set aside the retainer agreement. Rather, contingency fees are employed for precisely this reason. King may have been in a distraught mental state, but he was not incapacitated, institutionalized, or under the care of a psychiatrist, and there is no evidence to establish his incompetence. Furthermore, as discussed above, King was not inexperienced in legal matters. Even if he were, however, this does not state a basis for recision of a Page 16 retainer agreement, and no authority has been set forth for such a proposition. Additionally, there is no obligation for an attorney to ensure that a potential client has an "independent advisor" upon the signing of a retainer agreement. Here, King could have sought independent advice from his contacts in the music industry, but did not, and later on the retainer agreement was, in fact, reviewed by Groon in 1978. As a practical matter, it would have been difficult for Fox to exert undue influence over King for 17 years since they hardly saw each other and lived in different parts of the country. No material fact has been presented to establish undue influence.

  c. King Has Not Established that the Agreement Was Unconscionable

  There is further no evidence that the retainer agreement was unconscionable. The standard for setting aside a contract based upon the doctrine of unconscionability is extremely high. As the Second Circuit noted in Doctor's Assocs. v. Jabush, 89 F.3d 109, 113 (2d Cir. 1996), "An unconscionable bargain is one which `no man in his senses and not under delusion would make on the one hand, and . . . no honest and fair man would accept on the other.'" (quoting Hume v. United States, 132 U.S. 406, 411 (1889)). Accord Morris v. Castle Rock Entm't, 246 F. Supp.2d 290, 294-95 (S.D.N.Y. 2003). "Unconscionability is determined by reference to the relative benefit of the bargain to the parties at the time of its making, the nature of the methods employed in negotiating it and the relative bargaining power of the parties." Id. (quoting United Page 17 States v. Bedford Assocs., 657 F.2d 1300, 1312-13 (2d Cir. 1981)). New York Court of Appeals cases employ similar language, explaining that to support a finding of unconscionability, there must be a showing that the contract was "both procedurally and substantively unconscionable when made." Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10 (1988). Substantive unconscionability is not triggered because a contract provision in a case happens to benefit one side. Allstate Ins. Co. v. Jacobs, 208 A.D.2d 578, 579 (2d Dep't 1994).

  Here, at the time the retainer agreement was entered, King had no idea what he might recover from the record company, and had no money to pay an attorney. Fox agreed to represent him without any idea of the potential value of the case. A one — third contingency fee is standard throughout the state and country. There was also no procedural unfairness as Fox did not employ deceptive fine print or high — pressure tactics.

  d. King Has Not Established a Violation of Judiciary Law § 487

  Under Judiciary Law § 487:

  [A] n attorney who willfully receives any money for or allowance for or on account of any money which he has not laid out, or becomes answerable for, is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by penal law, he forfeits to the party injured treble damages, to be recovered in a civil action. Page 18

  There is a very high burden of proof to establish this violation. As the court explained in Schweizer, 93 F. Supp.2d at 408, relief under the statute "must be carefully reserved for the extreme pattern of legal delinquency." See also Mackley v. Sullivan & Liapakis PC, No. 98 Civ. 4860, 1999 WL 287362, at *3 (S.D.N.Y. May 7, 1999). In Scheizer, the attorney intentionally withheld facts from his client and from a Surrogate Court about the legal fee, and the court found there was insufficient evidence to establish a violation of the statute. Id. at 409. In the instant case, conduct is not even comparable because there was no deceit, and King had full knowledge of the fee arrangement.

  There further must be a chronic, extreme pattern of legal delinquency. Gonzalez v. Gordon, 233 A.D.2d 191 (1st Dep't 1996); Nobile v. Schwartz, 2000 WL 1753036 (S.D.N.Y. 2000). Thus, even egregious misconduct will not rise to the level of a violation of 487 if there is no pattern of intentional deceit or wrongdoing. For instance, in Liebert v. Gelbwaks, 234 A.D.2d 164 (1st Dep't 1996), even though the lawyer violated his fiduciary duty to the client and misdirected escrow monies, there was insufficient proof to establish a violation. King can point to no pattern of egregious conduct.

  e. King Has Not Established Conversion Page 19

  King claims in his Fifth Cause of Action that Fox converted his money by receiving his legal fee pursuant to a retainer agreement. "The elements of conversion under New York Law are: (1) the party charged has acted without authorization, and (2) exercised dominion or a right of ownership over property belonging to another, (3) the rightful owner makes a demand of the property, and (4) the demand for the return is refused." Fabry's S.R.L. v. IFT Int'l, No. 02 Civ. 9855, 2003 WL 21203405, at *3 n.3 quoting Seanto Exports v. United Arab Agencies, 137 F. Supp.2d 445, 451 (S.D.N.Y. 2001)). Here, the elements of conversion have not been established. Fox did not take fees without authorization since they were taken in accordance with the retainer agreement. Furthermore, there was no demand made and refused. King never demanded repayment of fees taken.

  4. Fox Has Established Ratification

  Fox further has established that King ratified the fee agreement. King accepted payment of his royalties from Fox without protest for approximately 17 years. A party must act promptly to repudiate a contract or will be deemed to have elected to affirm it. Edison Stone Corp. v. 42nd Street. 145 A.D.2d 249, 253 (1st Dep't 1989). In fact, a party who executes a contract under duress and then acquiesces to the contract for any "considerable" length of time, ratifies the contract. Sheindlin v. Sheindlin, 88 A.D.2d 930 Page 20 (2d Dep't 1982) (deeming ratified an agreement that was partially complied with for almost three years).

  At the time of the first settlement with MCA in 1978, King consulted a lawyer, Groon, about the scope of the retainer agreement. Groon confirmed to King that according to the retainer agreement, Fox could recover one third of his royalties as long as he received them from MCA. King's own sworn statements indicate that he was fully aware in 1978 how the retainer agreement would be enforced by Fox. Nevertheless, King acquiesced to Fox taking one third of his royalties as legal fees from 1978 until 1995. King only brought suit in 1997.

  5. This Case is Barred

  Moreover, this case is barred. Critical events took place over twenty years ago. The signing of the retainer took place twenty — seven years ago. Groon, the attorney who reviewed the retainer agreement in 1978 for King, died many years ago. Fox's litigation files pertaining to King's cases were also culled when the litigations were completed.

  Neglect in promptly asserting a claim for relief, if such neglect causes prejudice to the adverse party, invokes the doctrine of laches, barring enforcement. Dwyer v. Mazzola, 171 A.D.2d 726 (2d Dep't 1991); Skrodelis v. Norbergs, 272 A.D.2d 316 (2d Dep't Page 21 2000) ("The doctrine of laches is an equitable doctrine which bars the enforcement of a right where there has been unreasonable and inexcusable delay that results in prejudice to a party."). Whether laches bars an action is a question addressed to the discretion of the court. E. Armata, Inc. v. David Lee's Produce Serv. Corp., No. 99 Civ. 20422002 WL 31834451, at *7 (S.D.N.Y. Dec. 17, 2002).

  Here, Fox has been asked to defend a lawsuit, commenced in 1997, that centers around a retainer agreement executed in 1976. To defend himself, Fox would have to reconstruct conversations, meetings, and negotiations that occurred over twenty years ago. Fox points to a loss of memory by relevant witnesses in support of a finding of prejudice. Fox further culled his files after each litigation was completed, and thus he would now have to defend himself on a partial record. The destruction or loss of documents also supports a finding of prejudice due to delay. O'Dette v. Guzzardi, 204 A.D.2d 291, 292 (2d Dep't 1994). Finally, Groon died years ago, and the death of a witness is a serious prejudice caused by delay.

  6. King Has Not Established a Claim for Punitive Damages

  As the retainer agreement was proper under the circumstances, King does not establish a claim for punitive damages. Page 22

  II. Motion to Strike the Jury Trial Request

  Fox further moves to strike King's jury trial request, arguing that as King's claims and relief sought are equitable in nature, there is no entitlement to a jury trial. However, as summary judgment is granted in Fox's favor, the issue of a jury trial need not be dealt with here.


  For the reasons set forth, summary judgment is granted in Fox's favor.

  Enter judgment on notice.

  It is so ordered.

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