Opinion
No. 2022-50485 Index No. 2016-810115
06-08-2022
Samuel J. Capizzi, Plaintiff, v. Brown Chiari LLP, James E. Brown, and Donald B. Chiari, Defendants.
WEBSTER SZANYI LLP Kevin Szanyi, Esq., Thomas S. Lane, Esq., Steven R. Hamlin, Esq., RUPP BAASE PFALZGRAF CUNNINGHAM LLC R. Anthony Rupp, III, Esq., James Graber, Esq., HODGSON RUSS LLP Benjamin M. Zuffranieri, Jr., Esq., Marissa A. Coheley, Esq., James E. Brown
Unpublished Opinion
WEBSTER SZANYI LLP
Kevin Szanyi, Esq.,
Thomas S. Lane, Esq.,
Steven R. Hamlin, Esq.,
RUPP BAASE PFALZGRAF CUNNINGHAM LLC
R. Anthony Rupp, III, Esq.,
James Graber, Esq.,
HODGSON RUSS LLP
Benjamin M. Zuffranieri, Jr., Esq.,
Marissa A. Coheley, Esq.,
James E. Brown
Timothy J. Walker, J.
Both Plaintiff, Samuel J. Capizzi, and Defendants, Brown Chiari LLP ("BCLLP", James E. Brown, and Donald B. Chiarai, have applied for partial summary judgment in connection with the extent of Capizzi's interest in BCLLP at the time he resigned from the law firm.
Defendants' motion (Motion 18; Doc. 346) seeks an order,
finding Plaintiff's interest in BCLLP is limited to his right to a share of income commensurate with and while he is making contributions to the firm and that Plaintiff has no interest in the files remaining at the firm when he departed.
Capizzi's motion (Motion 19; Doc. 375) seeks an order,
providing that Capizzi's equity interest is 33 and 1/3rd % because Defendants contend the parties never agreed on ownership percentages, and because 33 and 1/3rd % (equal shares) is the default provision mandated by New York Partnership Law when partners have not agreed on different percentages. Alternatively, an Order providing Capizzi's equity interest is 20% as Capizzi has testified.
BACKGROUND
Capizzi commenced this action on September 13, 2016, seeking, inter alia, an order declaring that BCLLP
was dissolved effective January 8, 2016 and that Defendants are required to wind up the affairs of [BCLLP] and to provide a full and complete accounting of [BCLLP's] assets, liabilities, income and expenses to [Capizzi].
(Doc. 94, Wherefore Clause [a]).
On September 13, 2019, this court issued a Decision and Order which,
ORDERED AND DECLARED that, as of the date of his resignation from Brown Chiari LLP on January 8, 2016, Plaintiff, Samuel J. Capizzi, was an equity partner in the Brown Chiari LLP law firm.(Doc. 141, p. 15) (capitalization and emphasis in original). The Appellate Division, Fourth Department ("Fourth Department") affirmed the September 13, 2019 Decision and Order (Capizzi v. Brown Chiari LLP, 194 A.D.3d 1457 [4th Dept 2021]).
On October 15, 2019, this court issued a Decision and Order which held, inter alia,
that... the Court hereby declares that... [BCLLP] was dissolved, effective January 8, 2016, upon Samuel Capizzi's resignation from the law firm...
(Doc. 159, p. 3). Defendants appealed from the October 15, 2019 Decision and Order (Doc. 162), and the Fourth Department affirmed (Capizzi v. Brown Chiari LLP, 194 A.D.3d 1460 [4th Dept 2021]).
On January 20, 2022, this court issued a Decision and Order, which
ORDERED, that the chart at page 10 of Plaintiff's Response Memorandum of Law (Doc. 337) reflects the manner in which the unresolved contingency fee cases shall be valued as of the Valuation Date (with the caveat that Plaintiff may ultimately decide to make a different election under Partnership Law §73); and it is further
ORDERED, that the valuation of Plaintiff's interest in the Dissolved Firm shall otherwise proceed consistent with this Decision and Order.
(Doc. 342, p. 10) (capitalization and emphasis in original). There were no appeals from the January 20, 2022 Decision and Order.
The next step in the progression of this matter is for the court to determine and declare the extent of Capizzi's interest in BCLLP at the time he resigned from the law firm on January 8, 2016.
The parties have stipulated to the identity of a referee who shall review the disputed contingency fee files at BCLLP as of January 8, 2016 ("Disputed Files" or "Files"), and make a report and recommendation to the court in connection with Capizzi's claims ("Referee"). However, before doing so, this court must decide the pending applications to provide guidance to the Referee.
DISCUSSION
According to Capizzzi, at the time he resigned from BCLLP on January 8, 2016 (resulting in the immediate dissolution of BCLLP), "more than 1, 600 contingent fee cases... existed" at the dissolved firm (Doc. 417, p. 6). Capizzi seeks a 33.33% interest in the Disputed Files. Defendants, on the other hand, contend that Capizzi has no interest in such Files, because the parties had agreed (prior to Capizzi's resignation) that "if one of them departed the firm, they could take their files with them and they had no interest in on-going files at the firm after they left" ("Alleged Agreement") (Doc. 374, p. 11).
Absent any agreement between the partners, the default provisions of Partnership Law ("PL") §40 apply, which provide, in relevant part, as follows:
Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied...
(PL §40[1]; see also 220-52 Assocs. v. Edelman, 253 A.D.2d 352, 352 [1st Dept 1998]).
An agreement with respect to the division of profits does not conclusively establish an agreement with respect to equity. The absence of a clear agreement on equity leads to the default partnership rules and requires a distribution of all partnership assets equally (220-52 Assocs., 253 A.D.2d 352 [partners shared equally in equity of partnership notwithstanding agreement to divide income 90%/10%; "the precise rights of father and son in the partnership had remained ambiguous and unstated. In light of its finding that there was no actual agreement to the contrary, the trial court properly held that the partnership assets would be distributed equally"]).
Partners may agree to depart from the default rules set forth in New York's Partnership Law (Congel v. Malfitano, 31 N.Y.3d 272, 287-88 [2018]). However, they must do so,
in language that is clear, unequivocal and unambiguous. No particular magic words need be recited, provided that the parties' intent is clear.(Id.) (quotations and citations omitted) (see also, Verizon New York, Inc. v. Barlam Const. Corp., 90 A.D.3d 1537, 1538 [4th Dept 2011] ["[T]he burden of proving the existence, terms and validity of a contract rests on the party seeking to enforce it"]).
Whether the Alleged Agreement Exists and Is Enforceable
It is undisputed that no writing exists confirming the Alleged Agreement or otherwise stating its essential terms. The lack of a writing, however, is not fatal to Defendants' position, because it is well settled that the terms of a partnership agreement may be the product of an oral agreement (Moses v. Savedoff, 96 A.D.3d 466, 469 [1st Dept 2012]). That said, in order for an oral agreement to be enforceable, the party seeking enforcement (here Defendants) have the burden of demonstrating a manifestation of mutual assent and that the oral agreement's terms are clear and sufficiently definite (Charles Hyman, Inc. v. Olsen Indus. Inc., 277 A.D.2d 270, 275 [1st Dept 1996]; Ruppert v. Long Island R. Co., 281 A.D.2d 466, 467 [2d Dept 2001];); Express Indus. & Terminal Corp. v. New York State Dep't of Transp., 93 N.Y.2d 584, 589 [1999]).
Defendants have failed to sustain their burden, because they have failed to: (i) explain the Alleged Agreement's precise terms; (ii) show when the Alleged Agreement was made (a precise date or even a year); (iii) identify the parties to the Alleged Agreement when it was originally made, or the circumstances under which the parties made it; (iv) overcome Capizzi's testimony that the Alleged Agreement was just an "understanding" of his rights as an employee /non-equity partner in Brown, Chiari, Capizzi & Frascogna, LLP ("Frascogna Firm"), a different law firm that pre-existed BCLLP; and (v) dispute Capizzi's testimony that the four "partners" in the Frascogna Firm never discussed this understanding or explained how there can be an "agreement" under such circumstances. In ths regard, Capizzi testified: "We never had discussions amongst the four of us" (Doc. 352, pp. 82-84) (Gyabaah v. Rivlab Transp. Corp., 102 A.D.3d 451, 452 [1st Dept 2013] aff'd, 22 N.Y.3d 1018 [2013] ["it is essential in any bilateral contract that the fact of acceptance be communicated to the offeror"] citing D'Agostino Gen. Contrs. v. Steve Gen. Contr., 267 A.D.2d 1059 [4th Dept.1999]).
The Frascogna Action
The Frascogna Firm was established on December 16, 1997, and on April 21, 2004, Frank Frascogna resigned from it. In August 2004, Frascogna commenced an action against Brown, Chiari, Capizzi & Frascogna LLP, and those individuals whom he characterized as the law firm's individual partners namely, Capizzi and the individual defendants in this action - Brown and Chiari ("Frascogna Action").
Frascogna contended that, inter alia, he was a general partner in the Frascogna Firm; the partnership underwent a dissolution upon his withdrawal from it on April 21, 2004; and that he was entitled to both a dissolution of it, pursuant to PL sections 62 and 63, and an accounting.
[Then] Supreme Court Justice, Eugene M. Fahey, conducted a nonjury trial in June and July 2006 relative to the following question: "Was Plaintiff Frascogna a general partner in the [Frascogna Firm]?" (Doc. 349, p. 2; Fahey Decision, dated December 22, 2006; "Fahey Decision").
During the trial of the Frascogna Action, Capizzi testified regarding his status at the Frascogna Firm, prior to, and through Frascogna's resignation in April 2004. Capizzi testified that he was not a full equity partner; that he was merely an income partner, which is inconsistent with the position he takes in the instant matter before this court.
Justice Fahey disagreed with Capizzi's testimony and, in determining that Frascogna was a general partner, made detailed findings of fact, which he applied equally to Capizzi (Id., at p. 35).
Defendants rely on Capizzi's testimony in the Frascogna Action - that he was not a full equity partner; that he was merely an income partner with no equity interest in the Frascogna Firm - in support of their contention in the instant matter that Capizzi has no interest in the Disputed Files remaining at BCLLP when he departed. Specifically, Capizzi testified, as follows, at the trial of the Frascogna Action:
[T]he arrangement amongst the partners in the event one of them wanted to leave the firm... [was that] you could leave with your files, the clients you brought in. That's it.
(Doc. 352, pp. 81-82).
Defendants, however, may not rely on Capizzi's testimony in the Frascogna Trial, because this court already held that,
Capizzzi's testimony in the Franscogna Action (with which Justice Fahey disagreed) is irrelevant. It is the Fahey Decision that is controlling, not the testimony upon which it is based (and, importantly, with which Judge Fahey largely disagreed). Capizzi's prior testimony is also irrelevant, because it pertained to a different law firm - Brown, Chiari, Capizzi & Frascogna, LLP [i.e., the Frascogna Firm], which was dissolved in 2007.
(Doc. 141, p.12).
In affirming this court's Decision and Order, dated September 13, 2019, the Appellate Division, Fourth Department, also held, in relevant part, as follows:
[W]e reject the contention of defendants that, based upon plaintiff's past sworn statements, plaintiff is judicially estopped from taking the position that he is a partner in the firm. 'The doctrine of judicial estoppel provides that where a party assumes a position in a legal proceeding and succeeds in maintaining that position, that party may not subsequently assume a contrary position because [the party's] interests have changed' (Jones v. Town of Carroll, 177 A.D.3d 1297, 1298, 110 N.Y.S.3d 766 [4th Dept 2019] [internal quotation marks omitted]). Here, the elements of judicial estoppel are lacking. Although plaintiff previously took the position that he was not a partner in the prior firm, that position did not prevail (see id.; Grove v. Cornell Univ., 151 A.D.3d 1813, 1817, 54 N.Y.S.3d 260 [4th Dept 2017]). Even if it had prevailed, we conclude that plaintiff's position here is not contrary to his position in the Frascogna litigation. Plaintiff testified at trial that he changed his opinion of his ownership status around the time of the formation of defendant firm based upon his understanding of the Frascogna decision. In our view, plaintiff acted reasonably in doing so.(Capizzi, 194 A.D.3d at 1459-60).
In addition, Defendants fail to consider the context in which Capizzi testified in the Franscogna Action. At that time, Capizzi considered himself (incorrectly) to be an employee (not an owner) of the Franscogna Firm. Thus, Capizzi's testimony (and understanding regarding the Alleged Agreement) relates to what would happen in the event an employee (not an equity partner) left the law firm. Such testimony - that the employee could take his files and nothing more, is consistent with what the common law provides when a non-owner attorney leaves a law firm and the departing lawyer's clients seek to follow him or her.
It is for these same reasons that Defendants' reliance on the following statement made by Capizzi's then counsel, James M. Mucklewee, Esq., in his May 10, 2007 Affidavit is misplaced:
[I]t has consistently been the position of the defendants that in the circumstances of this case, and based upon the understandings that were had among the parties to this dispute at the time the firm [i.e., the Franscogna Firm] was established, the plaintiff has no interest in any file that remained at the firm subsequent to his departure.(Doc. 367, ¶4).
Defendants Waived Reliance on the Alleged Agreement
Defendants failed to plead the Alleged Agreement as an affirmative defense. Thus, it is waived (Goodwin v. Empire City Subway Co., Ltd., 124 A.D.3d 559 [1st Dept 2015]). Nor have Defendants sought to amend their Answer to assert such an affirmative defense.
There is no support in the record for Defendants' contention that Capizzi has been aware of Defendants' reliance on the Alleged Agreement since the inception of this matter. Defendants did not raise the Alleged Agreement as an affirmative defense until after the court issued the September 13, 2019 Decision and Order holding that Capizzi was an equity partner of BCLLP at the time of his resignation (which marked the completion of Phase I of this litigation).
The June 30, 2014 "Memo"
Chiari authored a "memo," dated June 30, 2014, to Brown and Plaintiff, addressing the manner in which they agreed to change the method of calculating their compensation at BCLLP, going forward ("Memo") (Doc. 355). The Memo is relatively short and addresses the new method of calculating compensation in the context of Brown's winding down and reduced role at the BCLLP, including a potential buyout. The Memo provides, in relevant part, as follows:
It was then generally discussed that if Jim's value is going to be evaluated, then that should apply to everyone, including Sam and l.
The method in which this would be accomplished, at least in my eyes, was a little confusing. After further discussion, it was determined that this method of evaluation would take place at a time when I made a determination that there was enough cash to distribute. At that time, instead of distributing the profit in accordance with prior years, we would instead evaluate each contribution and distribute accordingly. If after that evaluation, there are funds not distributed, then those funds would go into a profit pool to be distributed by percentage at the end of the year.(Doc. 355) (emphasis added).
Thus, according to the Memo, the key metric in determining the distribution of net distributable income ("NDI") was contributions to BCLLP. The new method addressed that Brown intended to work less and phase out after approximately five (5) years, and that his reduced efforts would result in reduced compensation.
Capizzi testified at the Phase I trial of this matter that he agreed that the Memo set forth "a new method for compensation and distribution of income" to which the three (3) of them agreed (Doc. 351, p. 1060). Such testimony and the Memo, however, do not relate - as Defendants contend - to Capizzi, Brown, and Chiari's ownership interest in BCLLP. Rather, the Memo was limited to setting forth a proposed method for evaluating one another's contributions at BCLLP and allocating profits; there being a marked distinction between ownership and year-end profits.
Based on the foregoing, Defendants have failed to meet their burden to demonstrate that the Alleged Agreement exists and is enforceable. Indeed, the opposite is true. Capizzi has sufficiently demonstrated that there was no enforceable Alleged Agreement.
Capizzi Had a 20% Interest in BCLLP as of January 8, 2016 (Dissolution Date)
Having determined that Capizzi has an interest in the approximate 1, 600 Disputed Files, the court finds that Capizzzi's interest is twenty percent (20%), not thirty-three and one-third percent (33.33%), based on the following:
• Capizzi has testified consistently in this action that he has a twenty percent (20%) equity interest in BCLLP (Doc. 377, pp. 209-10; Doc. 400, pp. 58-59);
• The parties always had an agreement that Capizzi would receive 20% of BCLLP's profits. (Doc. 141, p. 13);
• BCLLP's tax returns for 2007 through 2015 indicate that no partner owned fifty percent (50%) or more of the partnership, and the 2008 BCLLP tax return specifically listed Capizzi's ownership interest as 20.19% (Doc. 378);
• Prior to Defendants' withholding Capizzi's share of profits, commencing in 2014, the partners' K1 returns reflecting distribution of NDI reflected Capizzi's twenty percent (20%) ownership interest (Doc. 379; Doc. 380);
• BCLLP's 2014 and 2015 K-1's reflect recourse liabilities continued to be allocated with Brown and Chiari both at forty percent (40%) and Capizzi at twenty percent (20%), similar to the allocations from 2007 through 2013 (Doc. 379; Doc. 399);
• Capizzi paid twenty percent (20%) of the settlement of the Frascogna Action (Doc. 141, p. 5.);
• BCLLP's primary accountant stated in a letter to M & T Bank that Capizzi "is the owner of 20% of the law firm partnership of" BCLLP (Id.; Doc. 381);
• In a FAFSA application submitted before his resignation, Capizzi stated, under oath, he owned 20% of BCLLP (Doc. 141, p. 10; Doc. 382); and
• The draft BCLLP death agreement (Doc. 383) drafted by Brown (Doc. 384, p. 492) referred to Brown, Chiari and Capizzi as "members" of BCLLP and proposed thirteen (13) years of payments to each "member's" estate, with Capizzi's estate to receive twenty percent (20%) in the first three (3) years with decreasing percentages through the remaining years.
In light of the overwhelming amount of evidence in support of 20% (including his having conceded the percentage is 20% on numerous occasions), it was disingenuous for Capizzi to have claimed otherwise.
While not determinative of the parties' competing motions, the court addresses the issues of whether Defendants solicited Capizzi's clients and the effect, if any, of Defendants' counterclaim, in order to provide the parties with a complete record.
Whether Defendants Solicited Capizzi's Clients
Capizzi contends it is incongruous for Defendants to rely on the existence of the Alleged Agreement, because Chiari's actions at the time Capizzi resigned from BCLLP amounted to a breach of the Alleged Agreement. Capizzi further contends that despite Defendants' contention that the partners were free to leave with their cases in return for surrendering their interest in the value of the Disputed Files as of the dissolution date, Chiari sent solicitation letters to at least twelve (12) clients Capizzi "originated" at BCLLP (Doc. 396), including at least one (1) after Capizzi advised she would be retaining Collins & Collins (Doc. 397).
In response, however, Defendants contend that (i) Capizzi never notified Brown or Chiari that he was leaving prior to January 8, 2016, despite planning his departure for months; (ii) at no time did Capizzi ever notify Brown or Chiari of a list of clients that he intended to take; (iii) Capizzi never informed Brown or Chiari concerning what files he believed to be files that he originated; and (iv) three (3) weeks after Capizzi's departure, BCLLP did not know the status of several cases. For these reasons, Chiari sent letters to twelve (12) clients to address on-going cases that required an attorney's attention and remained BCLLP's legal and ethical responsibility.Defendants further contend that it was not until days, and in some cases weeks, after Chiari's letters, that Capizzi advised BCLLP that he was taking such files. Thus, Defendants characterize their actions in sending the letters not as inconsistent with the Alleged Agreement, but simply as a conscientious effort by BCLLP to fulfill its legal and ethical responsibilities to its clients.
Defendants' explanation of why Chiari sent letters to Capizzi's clients (who were also ongoing clients of BCLLP at the time the letters were sent) is sound, and the sending of such letters would not have constituted a breach of the Alleged Agreement, assuming it existed; it did not. The result may have been different had Capizzi notified Defendants about his resignation ahead of time and sought to work out an orderly transition.
The Effect of Defendants' Counterclaim
In their Answer (Doc. 95) to Capizzi's Amended Complaint (Doc. 94), Defendants asserted a counterclaim against Capizzi to recover legal fees that Capizzi may recover at his new law firm, in order to reduce BCLLP's line of credit ("Counterclaim"). Both Brown and Chiari conceded during the Phase I trial of this matter (resulting in the September 13, 2019 Decision and Order) that such action was inconsistent with their contention that Capizzi's status at BCLLP was limited to that of an "income" (not equity) partner.
Capizzi relies on the Counterclaim as evidence there is no Agreement.
However, Defendants assert that the Counterclaim relates to their right to recover their share of attorneys' fees from the transferred cases pursuant to attorney liens obtained under Judiciary Law §475. In such fee disputes, firms seek compensation for the work performed on a case before the case was transferred to a different firm or attorney. In this regard, the fee disputes (that are the subject of the Counterclaim) have nothing to do with Capizzi's undeterred right to have taken the cases with him upon departing BCLLP. Thus, Defendants are merely seeking compensation for work performed - and are not seeking an interest in those cases as "assets" of the dissolved firm.
In light of the foregoing, it is hereby
ORDERED, that Defendants' motion for partial summary judgment is denied in all respects; and it is further
ORDERED, that Plaintiff's motion for summary judgment is granted, and the court hereby DECLARES that Capizzi's equity interest in the Disputed Files as of January 8, 2016 (the dissolution date of BCLLP) is twenty percent (20%).
This constitutes the Decision and Order of this court. Submission of an order by the parties is not necessary. The delivery of a copy of this Decision and Order by this court shall not constitute notice of entry.
HON. TIMOTHY J. WALKER, A.S.C.J.