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Fredericks v. Chemipal

May 3, 2007

BARRY I. FREDERICKS, PLAINTIFF,
v.
CHEMIPAL, LTD., DEFENDANT.
CHEMIPAL, LTD., THIRD-PARTY PLAINTIFF,
v.
DERSHOWITZ, EIGER & ADELSON, P.C., AND NATHAN Z. DERSHOWITZ, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Gerard E. Lynch, District Judge

OPINION AND ORDER

In this three-party litigation, plaintiff trial attorney Barry I. Fredericks ("Fredericks") sues for non-payment of what he claims is a contingent fee owed to him by his former client, defendant Chemipal, Ltd. ("Chemipal"). Chemipal has in turn impled its appellate attorney, Nathan Z. Dershowitz ("Dershowitz"), and his firm, Dershowitz, Eiger, & Adelson, P.C. ("DEA" or the "Dershowitz firm"), charging them with malpractice and breach of contract. Plaintiff and defendant Chemipal cross-move for summary judgment on the non-payment claim. Third-party defendants Dershowitz and DEA move to dismiss the third-party claim, or in the alternative for summary judgment, and also seek sanctions against Chemipal pursuant to Rule 11 of the Federal Rules of Civil Procedure. Chemipal's motion for summary judgment on the non-payment claim will be granted and the impled third-party claims will correspondingly be dismissed. Third-party defendants' motion for sanctions will be denied.

BACKGROUND

In April 2003, defendant Chemipal, an Israeli corporation, hired Fredericks to pursue an action against Slim-Fast Nutritional Foods International, Inc. in the United States District Court for the District of Delaware. The parties entered into a retainer agreement (Fredericks Aff. Ex. A), under which Chemipal agreed to pay a $40,000 "total suit fee," as well as a contingent fee of 35% "of the monies recovered from any source in connection with the . . . matter", which was to be paid whether the matter is settled after the commencement of legal proceedings, or whether the case goes to trial, whether or not appeals are required and without any regard to the amount of time, effort and expense which may be expended by us and without regard to whether the case or claim are concluded by direct settlement or otherwise. (Id. at 2.) Under the heading "Post Trial Fees," the agreement goes on to note that "[t]his letter of engagement relates to legal work on the trial level only and does not obligate this law office to undertake any appellate work." (Id. at 3.) There is then a specific agreement with respect to what happens in the event of an appeal by the defendant in the underlying suit: while Fredericks is not required to undertake to defend the judgment, he may do so if he and Chemipal so agree, in which case he will be paid additional fees. If either party elects for an attorney other than Fredericks to handle the appeal, Chemipal will bear the expense of hiring the new lawyer, which will not affect Fredericks's entitlement to 35% of whatever is ultimately recovered. (Id. at 3.)

The agreement makes no specific provision for what happens if Chemipal loses in the trial court and recovers money after an appeal, and of course that is exactly what happened. The District Court in Delaware granted summary judgment to Slim-Fast in the underlying suit. Chemipal Ltd. v. Slim-Fast Nutritional Foods Int'l, Inc., 350 F. Supp. 2d 582 (D. Del. 2004). Chemipal decided to appeal, and Fredericks filed a notice of appeal with the United States Court of Appeals for the Third Circuit. (Compl. ¶ 14.) Though Chemipal sought to retain Fredericks for the appellate proceedings, Fredericks opted not to take on that task. Chemipal then hired DEA, and executed another retainer agreement. (Benkel Aff., Ex. D; Chemipal Summ. J. Mem. 5). According to Fredericks and Dershowitz, the three parties agreed that Fredericks would be available to consult on the appeal, and he did provide some services in this regard.*fn1 (Fredericks Summ. J. Mem. 3; Dershowitz Aff. ¶¶ 4, 5, 7, 8).

The appeal was never consummated. At the prodding of the Third Circuit's dispute resolution staff, the underlying action was settled for $250,000. Before signing off on the settlement, however, Chemipal asked Dershowitz to confirm with Fredericks that Fredericks was not owed any money from the settlement. Chemipal would accept the settlement if it would actually net $250,000, but not if it would get $250,000 minus fees to Fredericks and/or Dershowitz. (Chemipal Summ. J. Mem. 6). As to whether Fredericks had any claim on the settlement money, one of Dershowitz's associates talked to Fredericks, after which Dershowitz confirmed to Chemipal that Fredericks had said he was not owed any money. (Chemipal Summ. J. Mem. 6-7; Fredericks Aff. Ex. K). The parties agree that Dershowitz told Chemipal that Fredericks had "confirmed that he is not owed anything." (Benkel Aff. Ex. E). There is a factual dispute, though, about what Fredericks actually said or meant.

Fredericks says that he understood he was being asked if he was at that moment "owed" any money on outstanding expense reimbursements (which he was not), not whether he would disclaim any entitlement to his contingent fee (which he was not yet "owed" but which according to him would become due when the settlement went through). Fredericks therefore claims that he never disavowed an interest in his contingent fee. (Fredericks Summ. J. Mem. 10; Fredericks Aff Ex. K). Dershowitz and Chemipal, however, both took his statement to indicate he was not expecting any contingent fee payment. (Fredericks Aff. Ex. J; Chemipal Summ. J. Mem. 7-8; Dershowitz Mot. to Dismiss Mem. 7).

Chemipal, believing it had covered its bases, signed the settlement. After Slim-Fast wrote a check (which was deposited into DEA's escrow account), Fredericks advised Dershowitz that he had a lien on the proceeds for the amount of his contingent fee. Dershowitz disbursed the undisputed portion of the settlement proceeds to Chemipal, but retained the 35% claimed by Fredericks in escrow pending resolution of the dispute. Fredericks then brought this action against Chemipal, contending that he is owed 35% of the Slim-Fast settlement under his original retainer agreement.

Chemipal has denied the allegations of the complaint, and asserted various affirmative defenses, including a claim that Fredericks is estopped by virtue of his alleged representation to Dershowitz that he would not seek additional fees from Chemipal. Chemipal also impled Dershowitz, asserting in the alternative that if Fredericks did not provide the assurances alleged in their answer, then Dershowitz was guilty of malpractice for having ineptly questioned Fredericks or inaccurately reported his answers.

DISCUSSION

I. The Primary Action for Recovery of Contingent Fees

A. Summary Judgment Standards

Summary judgment must be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A fact is "material" if it "might affect the outcome of the suit under the governing law," and an issue of fact is genuine where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). On a motion for summary judgment, the evidence must be viewed in the light most favorable to the nonmoving party, and the Court must resolve all ambiguities and draw all reasonable inferences in its favor. Id. at 255.

To defeat summary judgment, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "[C]onclusory allegations or unsubstantiated assertions" will not suffice. Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Rather, the nonmoving party must "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). See Matsushita, 475 U.S. at 587 ("Where the record taken as a whole could ...


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