December 4, 2018
A recent New York Law Journal article by Christine Simmons, “Collection Lawsuits Bring Mixed Results in Law Firms; Quest for Fees,” reports on attorney fee collection lawsuits by law firms. The article reads:
It’s the time of year when may law firm managers are fretting about collections—and maybe even thinking of taking clients to court over unpaid bills. But while suing ex-clients to recover legal fees has become increasingly common, recent court decisions show that such lawsuits can be a gamble.
Take two recent cases, one brought by Arent Fox and another by Windels Marx Lane & Mittendorf. In the Windels Marx case, a Manhattan judge wound up sanctioning the firm for its lawsuit—potentially a substantial penalty—prompting Windels Marx to file a notice of appeal. Arent Fox, meanwhile, saw its breach of conflict claims dismissed against two of three defendants it targeted in a breach of contract suit over fees. While law firms often do obtain judgments against former clients in collection suits, the rulings show that success is hardly guaranteed, even when the firms are sophisticated business litigators.
Windels Marx was seeking $380,833 in unpaid legal fees in its collection suit against several entities in Manhattan Supreme Court. The midsize law firm in New York had defended a housing entity and a former officer in a civil lawsuit over control of several housing development fund corporations. Those funds own and manage residential real estate in West Harlem that is rented out to low-income tenants, according to court papers. Windels Marx, in court papers, said it was also retained to advise in multiple government investigations.
Windels Marx withdrew from the civil case and then sued its former client and the related housing development funds that it was adverse to in the underlying case, seeking unpaid fees. Ultimately, Manhattan Supreme Court Justice Gerald Lebovits granted summary judgment to the four housing development fund entities sued by Windels Marx.
Knocking out the breach of contract claim against the four funds, the judge took issue with the fact that the officer who signed the firm’s retainer agreement, Joednee Copeland, was not authorized to retain the firm on behalf of the funds. Copeland was previously president of the entity, formerly represented by Windels Marx, that had sought to control the four housing development funds.
The firm’s “billing records show that, at the time that plaintiff drafted the agreement, it knew that Copeland had been terminated from her position,” said Lebovits, in decision posted Nov. 7. In denying Windels Marx’s other claims against the four housing development funds, Lebovits said the law firm’s invoices showed work adverse to the interests of the housing development funds.
Lebovits granted only a default judgment of $380,833 for Windels Max against the entity that retained the firm and did not respond to the suit. It’s not clear whether that entity is still active or has assets to cover the judgment. Copeland, the president of the entity who signed the firm’s retainer agreement, has been criminally charged in Manhattan Supreme Court under felony counts, according to court records.
In allowing the housing development funds to pursue fees against Windels Marx, the judge said the funds’ “request for sanctions, in the form of payment of their attorney fees, incurred in defending this action … is amply justified, not merely by the lack of merit in [Windel Marx’s] complaint, but by [the law firm’s] attempt to collect attorney fees for work directly adverse to defendants’ interests.” The judge referred the decision on the amount of fees to a special referee.
William Fried, a Herrick Feinstein partner who represented the housing development funds pro bono, said his firm spent between $50,000 and $100,000 on the case. “We’re going to be seeking every dime that we spent,” he said. “We’re pleased with the judge’s decision. We thought the lawsuit never had any merit from day one,” Fried said. Windels Marx filed a notice of appeal Thursday, stating in court documents that attorneys’ fees were not warranted because Herrick Feinstein worked on a pro bono basis.
In the Arent Fox matter, the law firm saw a mixed result in a recent court ruling, holding on to some claims against an ex-client. The firm sued three car dealership entities, JDN AA, LLC; Subaru 46 LLC; and DCN Automotive LLC, seeking $278,128 in legal fees. The firm had represented JDN AA in a lawsuit against Volkswagen Group of America, Inc. challenging the attempted termination of JDN AA’s Audi dealership, according to court documents.
The ex-clients sought to dismiss Arent Fox’s claim for breach of contract, claiming the firm did not allege there was an executed retainer agreement between the parties. They argued that the March 2014 “engagement agreement” was with only one of the defendants, JDN AA, and was not signed, and that a 2015 “conflict waiver” letter did not involve all defendants and related to one specific engagement.
In a decision last month, Manhattan Supreme Court Justice Joel M. Cohen knocked out a breach of contract claim against two of the three defendants. Cohen said two defendants, Subaru 46 LLC and DCN Automotive LLC, are not referenced by name in any of the engagement documents submitted by Arent Fox. Nor did Arent Fox submit any evidence that describes the terms of any alleged contract between Arent Fox and either of those entities, the judge said. Cohen, in his November decision, called the firm’s allegations against the two entities “conclusory.”