Opinion
DOCKET NO. A-5629-11T4
08-13-2014
SERRINS & ASSOCIATES, LLC and LAW OFFICES OF ERIC FRANZ, PLLC, Plaintiffs-Respondents/Cross-Appellants, v. HANOVER DIRECT, INC., Defendant-Appellant/Cross-Respondent.
Louis A. Modugno argued the cause for appellant/cross-respondent (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. Modugno, of counsel and on the brief; Greg Trif and Kristoffer S. Burfitt, on the brief). Charles J. Sciarra argued the cause for respondents/cross-appellants (Sciarra & Catrambone, LLC, attorneys; Mr. Sciarra, of counsel and on the brief; Deborah Masker Edwards, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sapp-Peterson, Lihotz and Hoffman. On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3711-09. Louis A. Modugno argued the cause for appellant/cross-respondent (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. Modugno, of counsel and on the brief; Greg Trif and Kristoffer S. Burfitt, on the brief). Charles J. Sciarra argued the cause for respondents/cross-appellants (Sciarra & Catrambone, LLC, attorneys; Mr. Sciarra, of counsel and on the brief; Deborah Masker Edwards, on the brief). PER CURIAM
This is an appeal and cross-appeal of the trial court order awarding plaintiffs, Serrins & Associates, LLC, and the Law Offices of Eric Franz, PLLC, $290,789.40 in unpaid legal fees based upon a claim of breach of contract arising out of their representation of defendant in a series of complex employment litigation matters. We affirm, although we do so based upon quantum meruit rather than breach of contract.
I.
In July 2009, plaintiffs filed a four-count complaint against defendant, alleging breach of contract, unjust enrichment, equitable estoppel/detrimental reliance, and quantum meruit, in an effort to recover counsel fees and costs against defendant. Defendant denied the allegations and asserted these five affirmative defenses: plaintiffs were negligent and performed defective work; plaintiffs failed to properly represent them, to include failing to remove certain litigation to federal court; and plaintiffs were barred from recovering counsel fees and costs based upon the equitable doctrines of waiver, estoppel, and unclean hands. After denying plaintiffs' motion for summary judgment, the court conducted a four-day bench trial during which the following evidence was presented.
Alan Serrins is a New York attorney admitted to the bar in 1974. He practices primarily in the area of employment law. In 1999, he formed the law firm of Dienst & Serrins, LLP, and the following year the firm merged with a medical malpractice firm, Queller & Fisher, to form Queller, Fisher, Dienst, Serrins, Washor & Kool, LLP (the Queller firm). Prior to the merger, Queller & Fisher had been leasing space to Joseph Tacopino, a criminal defense attorney who employed Eric Franz, whom Serrins had known since the early 1990s.
In 2004, Franz, who by then was a solo practitioner, subleased office space in the Queller firm's office suite and became "of counsel" to, but in no manner an employee of, the Queller firm. Franz maintained his own health and legal malpractice insurance, his own accounting and phone systems, and hired his own associate and part-time secretary. He used all of the Queller firm's other resources, including its computerized research system and conference rooms. According to Serrins's testimony, Franz was included as part of the firm's functions. "You know, he was, you know, if we bought a table at a dinner for some organization, he was included. We didn't have many ["]of counsels["] and we included them in our family."
Eventually the Queller firm added Franz's name to its letterhead, with the "of counsel" designation. Serrins described the relationship as follows:
Well, we had Eric Franz as ["]of counsel["] on our letterhead. We had a
relationship where we would have right of first refusal on cases that were within our area of expertise and we would provide the same courtesy to our ["]of counsel["] lawyers. We would give them the right of first refusal on cases that they had expertise in. You know, we had another criminal lawyer who was ["]of counsel["] to our firm . . . .
. . . .
. . . [H]e was with us for a number of years, he left and we had the need. So we brought Eric Franz in to fill that need.
The Queller firm and Franz also maintained a mutual referral system in which Franz would refer medical malpractice, personal injury, and employment matters to the Queller firm, who, in turn, would provide Franz's firm with a right of first refusal for criminal matters. Thus, for example, the Queller firm represented police unions, who did not want the firm to represent individual police officers charged with criminal offenses. As such, while the Queller firm would represent a charged police officer through arraignment, in accordance with its contractual obligation with the union, it would thereafter refer the matter to Franz, although the client was not obligated to retain Franz. Likewise, if Franz had an employment matter, he would ascertain whether the Queller firm had any interest in representing the client and, if so, with the client's consent, he would refer the matter to the Queller firm. Under this mutual referral arrangement, the referring firm would receive a referral fee equal to twenty percent of the fees earned on the referred matter. However, in cases where there was a true conflict of interest, no referral fee was paid, and a waiver was obtained from the client if necessary. Franz used the fees he received under this relationship to offset rental payments to the Queller firm. Serrins further described the relationship between the two firms as "very collaborative."
This referral system led to the Queller firm's representation of defendant in 2005. Franz maintained a social relationship with defendant's owner, Stuart Feldman. Feldman shared with Franz his concerns related to certain employment litigation matters involving the company. At Feldman's request, Franz introduced him to Serrins. Thereafter, defendant retained Serrins to handle its litigation, with Franz and his associates assisting. According to Franz, Feldman knew that Franz and his associates would be assisting the Queller firm in representing defendant. Retainer agreements were drawn up on three cases, and Serrins discussed the agreements with Dan Barsky, who at the time was defendant's senior vice-president and general counsel. The agreements contained the hourly rates and the name of the attorneys who would be working on the case. Franz and his associate, Liane Chinwalla, were listed individually in the retainer agreements because they were not part of the Queller firm. Apart from identifying the name of the particular case, the agreements were identical and included the following language:
This letter constitutes our fee agreement for this firm's representation on your behalf regarding [name of case and docket number].
We acknowledge receipt of Ten Thousand Dollars ($10,000.00) as a retainer payment in connection with our representation of you in this action. You understand that the rate for senior partners is $425.00 an hour and partners at $375.00 an hour. An associate attorney's time will be billed at $275.00 an hour and paralegal's time at $175.00 an hour. Eric Franz'[s] rate is $350.00 an hour, and Liane Chinwalla [Franz's associate] is $175.00 an hour (subject to change after her admission to the Bar, application currently pending).
In 2007, Serrins exercised a buyout provision with the Queller firm and formed Serrins & Associates, while remaining "of counsel" to the Queller firm and retaining the same office and practice. Serrins continued to serve as lead counsel on behalf of defendant in the employment litigation matters, and Franz became "of counsel" to Serrins & Associates. However, also in 2007, defendant went on a payment plan, paying plaintiffs $50,000 per month because its bills in the underlying litigation, which had been hotly contested, started to fall behind. In addition, at the direction of Feldman, Franz's bills were separated out from the uniform bills Serrins had previously been submitting for all attorney services provided.
According to Barsky, who testified on behalf of plaintiffs, as senior vice-president, general counsel, and corporate secretary, he was authorized to sign the retainer agreements with Serrins, as managing partner of the Queller firm, in the underlying employment matters. Although he thought some of the relationships among the attorneys working on defendant's matters were unusual, such as the fact that Franz's associate would work on the file, Barsky did not find the situation problematic, as Serrins answered all of his questions. He never got the impression anyone was trying to hide anything in terms of relationships amongst and between the attorneys and defendant. He was, however, unaware of the referral arrangement between Franz and the Queller firm. In his opinion, in large part, all of the work was done well.
Barsky also examined all of the bills submitted to defendant. When he raised billing questions, Serrins would review bills with him, line by line, if necessary. He explained that as part of his responsibilities as corporate counsel, at times he wanted Serrins to make adjustments to the bills submitted. Nonetheless, he was largely satisfied with the work performed and approved the bills, though he was not authorized to actually pay them. He never saw anything in the billings that he would characterize as fraudulent billing. Since Franz was a criminal attorney, he did question Franz's working on the files, but Serrins adjusted the bills to eliminate part of Franz's time.
Barsky stated that although he approved the bills submitted for payment, at some point someone "above him" decided not to pay anymore. Despite not being paid, plaintiffs continued to work on defendant's matters for a period of time. They were, however, unable to resolve the billing dispute with defendant. As a result, in September 2008, plaintiffs moved to be relieved as counsel. The court granted the application.
Upon completion of the bench trial, the court issued a written opinion. The court found that it was undisputed defendant entered into a retainer agreement with the Queller firm while Serrins was a member of that firm, and that when he severed his relationship with the firm, Serrins, as well as Franz and his associate, continued to represent defendant without incident, despite the absence of a substitution of attorney or new retainer agreement. Consequently, the court found there was a "valid and enforceable" contract, "albeit not written." The court found the terms of the oral agreement with respect to rates of compensation and who would be handling the litigation had previously been set in the written retainer agreement the parties executed when Serrins was still a member of the Queller firm. The court reasoned plaintiffs, therefore, had a "valid theory on which [they] can recover." The court concluded that RPC 1.5(b), which requires a written communication confirming the basis or rate of fee, did not apply in the context of this attorney-client relationship because plaintiffs regularly represented defendant.
Rules of Professional Conduct.
The court next concluded that "[e]ven without a breach of contract claim, plaintiffs would still be entitled to recover under equitable theories of relief." Specifically, the court found that plaintiffs satisfied the requirements for recovery under the theory of quantum meruit.
The court also found Franz maintained an "of counsel" relationship with the Serrins firm. The court noted the designation of Franz's "of counsel" relationship on the Serrins's firm letterhead and also noted that the relationship was not a one-time interaction. Rather, the court found "[t]hey had an ongoing collaborative relationship and worked on more than one matter together." The court further found the testimony demonstrated Franz was not purely a "forwarder" of clients to Serrins. The court additionally found Serrins had not referred any legal or ethical conflict work to Franz, beyond the specific situation with Serrins's police union clients who chose not to expend law enforcement funds for Serrins to represent police being prosecuted for criminal offenses. The court found that this referral was not a referral born out of any legal or ethical conflict on the part of Serrins.
Addressing the claim that plaintiffs impermissibly participated in fee sharing, contrary to RPC 1.5, the court found this rule inapplicable because Franz maintained an "of counsel" relationship, first with the Queller firm at the time defendant initially retained the Queller firm, and later with the Serrins firm. The court, citing the language of the RPC, noted it applied solely to lawyers "who are not working together as 'of counsel' in the same firm." The court distinguished the advisory opinions defendant proffered to support its contention that the relationship between Franz and Serrins was akin to a business affiliation. The court credited Franz's testimony that defendant was fully aware of the nature of the relationship between his firm and the Serrins firm, and that the "of counsel" relationship "did not implicate any conflict of interest between any previous or current clients." The court also found that "extensive legal services" were performed on behalf of defendant and, at the time the services were performed, "there [were] no allegations that these services were improper, inadequate, or the services were negligently performed."
Finally, the court found plaintiffs never made any false or misleading statements regarding their professional relationship or held themselves out as partners in violation of the RPCs. The court noted the Serrins law firm was the attorney of record at all times and Franz's firm was always designated as "of counsel." The court specifically found "[t]hese parties knew each other's relationship from the beginning of the representation. There was no pulling the wool over the multi-million dollar corporation and its sophisticated benefactor, Stuart Feldman." Turning to the billings, the court found no "uniform inflation or markup of plaintiff[s'] fees," the hourly rates submitted for Serrins, Franz, and Franz's associate generally fair and reasonable, but it disallowed $46,314.10 in fees.
On appeal, defendant contends the court erred in finding defendant breached its agreement with plaintiffs because there was no agreement, and plaintiffs are precluded from recovering unpaid fees based upon their equitable claims because of their unclean hands. Defendant further asserts the court's opinion and judgment was against the weight of the evidence. We agree the court erred in finding a breach of contract, but are satisfied there is substantial, credible evidence in the record to support the court's award of counsel fees and costs on the basis of quantum meruit.
II.
Our standard of review of the findings of the court in a bench trial requires that we uphold the trial judge's factual findings, provided they are "supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc., v. Investors Ins. Co., 65 N.J. 474, 484 (1974). Thus, "we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011) (citations and internal quotation marks omitted). Credibility determinations receive "particular deference," RAB Performance Recoveries, LLC v. George, 419 N.J. Super. 81, 86 (App. Div. 2011), because of the position of the trial judge to observe witnesses and hear them testify, Cesare v. Cesare, 154 N.J. 394, 412 (1998). Moreover, in the context of a fee dispute surrounding legal services, as are the issues implicated here, we particularly accord "traditional deference . . . to a trial court's conclusions on credibility." Cohen v. Radio-Elecs. Officers Union, 146 N.J. 140, 157 (1996). However, whether certain conduct violates a disciplinary rule is a question of law, subject to plenary review. J.G. Ries & Sons, Inc. v. Spectraserv, Inc., 384 N.J. Super. 216, 222 (App. Div. 2006) (citing United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980)). In that regard, the "trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).
At trial, the parties agreed that if there was an "of counsel" relationship between Serrins and Franz, that relationship would not violate the RPCs, specifically, RPC 1.5(e) and 7.3(d). Under such a relationship, plaintiffs would be considered lawyers in the same firm, and attorneys within the same firm may share fees in any way they see fit. Thus, we first address whether the trial judge erred in finding an "of counsel" relationship between the parties.
Defendant challenges plaintiffs' purported "of counsel" relationship as a "sham," and contends plaintiffs' attempts to otherwise validate the parties' relationship is legally deficient. We disagree.
No RPC directly addresses "of counsel" relationships. The term "of counsel" has been characterized as a "ubiquitous and ambiguous term" raising numerous questions in the world of attorney ethics and advertising. Opinion 21, 147 N.J.L.J. 979 (Feb. 24, 1997). The term "of counsel" has been used to indicate a continuing relationship with a law firm other than as partner or associate. Although case law addressing "of counsel" relationships is sparse, we have had the occasion to consider the nature of such a relationship in Staron v. Weinstein, 305 N.J. Super. 236 (App. Div. 1997). There, we stated: "A lawyer is ["]of counsel["] if designated as having that relationship with a firm or when the relationship is regular and continuing although the lawyer is neither a partner in the firm nor employed by it on a full-time basis." Id. at 241 (citing Restatement (Third) of the Law Governing Lawyers, § 203, cmt. c(ii) (Proposed Final Draft No. 1, 1996)) (emphasis added).
The Advisory Committee on Professional Ethics (ACPE) has addressed the "of counsel" relationship in several of its published opinions. In Opinion 443, 104 N.J.L.J. 561 (Dec. 27, 1979), the ACPE determined there was neither a legal nor ethical prohibition against a lawyer, including a retired judge, serving as "of counsel" to more than one firm, so long as the relationship otherwise complied with all applicable disciplinary rules. In Opinion 444, 104 N.J.L.J. 567 (Dec. 27, 1979), the ACPE determined two partners in a firm could be designated as "of counsel" on the letterhead of a sole practitioner whose office was located in another county, and the sole practitioner could be similarly designated on the two partners' firm's letterhead. In rendering its decision, the ACPE was asked to assume the attorneys designated as "of counsel" would be available to clients of the separate firms, and any division of fees would not offend the then-applicable disciplinary rules. Ibid. Because the proposed designation appeared to accurately portray the attorneys' relationship to the public, the ACPE found it was in no way misleading, and, therefore, was proper. Ibid.
The ACPE had jurisdiction over issues concerning attorney advertising and solicitation prior to the creation of the Committee on Attorney Advertising (CAA).
In Opinion 522, 112 N.J.L.J. 384 (Oct. 6, 1983), however, the ACPE denied a New Jersey firm's request to designate a Pennsylvania firm, or the individual members of the Pennsylvania firm, on its letterhead as "of counsel" because the relationship between the firms was one of each firm referring legal matters to the other. The ACPE stated the proposed listings would be misleading "by indicating that the Pennsylvania firm has some relationship with the [New Jersey] firm, which is not the case. We can see no valid reason for attorneys to include on their letterheads referral attorneys or firms in other jurisdictions to whom they refer legal matters." Ibid.
In Opinion 689, 161 N.J.L.J. 225 (July 17, 2000), the ACPE reviewed earlier opinions describing the relationship as "close, ongoing, and regular," but separate from typical partner or associate status. The ACPE concluded one firm may name another firm "of counsel" if the second firm "will regularly have hands-on responsibility for, or will frequently render advice on, the [first] firm's matters." Ibid. The ACPE also observed the "of counsel" designation on the firm's letterhead alerts clients that the designated attorney or firm may be performing work on their matters. Ibid.
The CAA has formally approved a law firm's designation of an attorney as "of counsel" on the firm's letterhead and other communications "as long as an attorney's relationship with a law firm is close, ongoing, and involves frequent contact for the purpose of providing consultation and advice." Opinion 21, supra, 147 N.J.L.J. 979. Noting the nature of arrangements that may qualify as "of counsel" relationships is ever-changing, the CAA has provided a non-exhaustive list of attorneys for whom the designation would be appropriate:
1. "Special" counsel who has developed an expertise in a particular field of law, such as complex toxic tort or employment discrimination law, and willThe common thread is that "[i]n each instance the attorney designated as [']of counsel['] will have hands-on responsibility for, or will frequently render advice on, a law firm's matters." Ibid. Consequently, the attorney may be designated as "of counsel" on the firm's letterhead, business cards, advertisements, and related communications "as long as an attorney's relationship with a law firm is close, ongoing, and involves frequent contact for the purpose of providing consultation and advice[.]" Ibid. (emphasis added).
provide advice to, or handle such cases for, a law firm on a recurring basis.
2. A prospective partner, more often than not an attorney who will be a lateral hire, who will handle matters for and work with a law firm during an "engagement" period.
3. A retired judge or partner in a law firm who will be providing advice and guidance to members of the firm on more than an occasional or as needed basis.
4. An attorney who, due to personal or non-law related business interests, will be practicing law part-time.
5. A permanent senior associate who is not on a partnership track.
[Ibid.]
Most recently, in an ACPE and CAA joint opinion, the committees noted an "affiliation" between firms, pursuant to which they shared office space and referred some cases to each other, did not "fit into the common understanding of the 'of counsel' concept" because of each firm's lack of "hands-on responsibility for the other firm's matters." Opinion 694, Comm. on Attorney Advertising, Opinion 28, 174 N.J.L.J. 460 (Nov. 3, 2003). This is consistent with the American Bar Association's (ABA) position that it is not ethically permissible to use the term "of counsel" to designate a relationship involving only an individual case, a relationship of forwarder or receiver of legal business, a relationship involving only occasional collaborative efforts among otherwise unrelated lawyers or firms, or a relationship of an outside consultant. ABA Standing Comm. on Ethics & Prof'l Responsibility, Formal Opinion 90-357 (May 10, 1990). The CAA has endorsed the ABA's position. Opinion 21, supra, 147 N.J.L.J. 979.
It is with these guiding principles that we examine the trial court's determination Franz was properly designated as "of counsel" first to the Queller firm and then to Serrins & Associates. The trial court found "Serrins explained, in a very credible way, the nature of the 'of counsel' relationship they had. Serrins described the relationship as very collaborative, collegial and cooperative." The court noted the referral arrangement in place and that Franz's sub-leased office was in the Queller firm's office suite. The court also found Franz to be credible, noting his testimony supported and was consistent with Serrins' testimony with respect to the "of counsel" arrangement. In concluding there was an "of counsel" relationship, the trial court reasoned:
In the present matter, plaintiffs had an "of counsel" relationship. Alan Serrins and Eric Franz testified that Franz was "of counsel" to the Queller Firm and that same was memorialized on the Queller firm's letterhead. In the Queller retainer agreement, signed by defendant, Franz is listed as an individual who will be working on the file. Further, Franz's hourly rate is also explicitly set forth in this document. Thereafter, Franz and Serrins worked together on files, including defendant's lawsuits. This was not a one time interaction between the plaintiffs. They had an ongoing collaborative relationship and worked on more than one matter together. The testimony has demonstrated that Franz was not purely a "forwarder" of clients to Serrins.
Under cross-examination, Serrins was asked to identify one deposition, outside of the Hanover litigation, where Franz appeared on behalf of Serrins. Serrins could not recall any specific case. Beyond that question, he was not asked to further elaborate on the relationship. In his direct testimony, he testified about the collaborative and consultative nature of the relationship, pointing out, for example, that although Franz maintained separate telephone lines, Serrins's system was set up to provide Franz with an internal line to their offices so he could be "buzzed" directly, which is indicative, in our view, of a close, personal, regular, and continuing or semi-permanent relationship involving regular and frequent, if not daily, contact with the office of the law firm. Serrins further described the "of counsel" relationship as "very collaborative," in that "whoever was [']of counsel['] we wo[u]ld collaborate with in terms of their knowledge and experience[.]" Similarly, Franz testified "[t]he dealings with people in the firm [were] constant, on a regular basis," and "[i]t was as if I was a part of the firm, but I maintained my own practice." Defendant urges the evidence did not reflect Franz's "hands-on" responsibility for the firm's matters. "Hands-on" responsibility is a factor to consider in determining whether a true "of-counsel" relationship exists. Opinion 689, supra, 161 N.J.L.J. 225. It is, however, not dispositive. Equally relevant and persuasive to the determination is frequency of the advice rendered to the firm. Ibid.
The common thread in the testimony presented by plaintiffs was that Franz "frequently rend[ered] advice on the [Serrins's] firm's matters," ibid., which both Franz and Serrins characterized as "collaborative" and "consultative." The court credited this testimony. Further, the "of counsel" designation on the firm's letterhead alerted clients that Franz may be performing work on their matters. Ibid. Moreover, Franz's work on behalf of defendant was not merely limited to one case, but involved multiple cases. The court credited the testimony presented in this regard and its findings are not so wide of the mark that they should be rejected in favor of a different outcome. State v. Yohnnson, 204 N.J. 43, 62 (2010). This is true, even if we were to reach a different outcome had we sat as the trier of fact. State v. Bogan, 200 N.J. 61, 80 (2009). Therefore, we conclude the trial court's conclusion the parties had a valid "of counsel" relationship should not be disturbed. Because we conclude the court did not err in finding an "of counsel" relationship between the parties, we need not address defendant's contention plaintiffs engaged in improper fee sharing.
III.
Defendant argues the trial court "erred in concluding that Hanover breached its agreement with plaintiffs because the record clearly revealed that no such agreement existed." The trial court held, and all parties agree, the written retainer agreements between defendant and the Queller firm in the three underlying employment matters could not serve as the basis of plaintiffs' breach of contract claim against defendant because only the Queller firm, not plaintiffs, was a party to the contract. Although there was no formal, written retainer agreement between plaintiffs and defendant, the trial court found the possibility of an oral contract was not foreclosed. Concluding plaintiffs were entitled to relief under such a theory, the court explained:
Here, based on the testimony during the trial, there is no question that Serrins, as a member of Queller firm, entered into a written contract with defendants. Serrins then left the Queller firm and started his own firm, Serrins & Associates, LLC. Serrins, and Franz, and their associates, continued to work on the file to the satisfaction of defendants. Although there was never a substitution of attorney—or new retainer agreement—the parties continued to perform under the original retainer agreement, and therefore, the contract—albeit not written—was valid and enforceable. Defendants then stopped paying some of the bills, which caused a loss to plaintiffs. Therefore, the breach of contract claim—based on an oral contract—the terms of which as to rates of compensation and attorneys handling the litigation are set forth in the Queller written retainer agreement executed by Serrins and Hanover—is a valid theory on which plaintiffs can recover. RPC 1.5(b), which requires a written communication confirming the basis or rate of fee "when the lawyer has not regularly represented the client," does not bar [p]laintiff[s'] claim based on breach of contract in this case.
Defendant argues the court erred in finding an oral contract existed between it and plaintiffs, as the four elements thereof — a meeting of the minds, offer and acceptance, consideration, and certainty — had not all been adequately established by the evidence in the record. See Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992). Specifically, defendant contends the requirement of certainty was not satisfied, as there was nothing in the record setting forth the terms of the alleged oral contract, and the retainer agreement between the Queller firm and defendant could not so provide. According to defendant, the retainer agreement and the continuation of services cannot serve as the basis of the parties' understanding.
"Agreements between attorneys and clients concerning the client-lawyer relationship generally are enforceable, provided the agreements satisfy both the general requirements for contracts and the special requirements of professional ethics." Cohen v. Radio-Elecs. Officers Union, 146 N.J. 140, 156 (1996). See also Pellettieri, Rabstein & Altman v. Protopapas, 383 N.J. Super. 142, 150 (App. Div. 2006) (citations omitted) (explaining contracts for legal services are not like other contracts due to the unique and special relationship between an attorney and a client). Moreover, to fulfill his or her fiduciary obligations to a client, an attorney "must explain at the outset the basis and rate of the fee," and must advise the client of "the scope of representation, and the implications of the agreement." Ibid. An agreement violating the ethical rules governing the attorney-client relationship may be declared unenforceable. Tax Authority, Inc. v. Jackson Hewitt, Inc., 187 N.J. 4, 15 (2006).
Pursuant to RPC 1.5(b), "[w]hen the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation." Neither the RPCs nor the comments define "regularly," and it is understood that "the exception is intended only for situations in which an understanding as to the basis or rate of the fee has already evolved between the attorney and the client." Michels, N.J. Attorney Ethics 816 (2013). Thus, an attorney violates the rule when he or she enters into an oral agreement with a client whom he or she has never before represented. DeGraaff v. Fusco, 282 N.J. Super. 315, 319-20 (App. Div. 1995).
There is a dearth of case law regarding the extent of prior representation necessary to satisfy the regularity condition. Here, however, the record is replete with evidence that both Serrins and Franz were heavily involved in the representation of defendant for over a year after the initial retainer agreements were signed. When Serrins ended its relationship with the Queller firm, the relationship with defendant continued, with defendant's full knowledge that the relationship between the Queller firm and Serrins and Franz had changed. None of the terms of the retainer agreement, however, as it related to fees charged or services provided to defendant, changed. The trial court concluded plaintiffs continued to "regularly" represent defendant, notwithstanding the change of firm. As plaintiffs note, the only thing that really changed was the formal association Serrins had with the Queller firm.
However, no substitution of attorney was filed, as required by Rule 1:11-2. It is also unclear from the record whether, upon leaving the Queller firm, Serrins adequately informed defendant of its option to follow Serrins, remain with the Queller firm, or seek new counsel.
Many lawyers practice as partners, members, or associates of law firms. When a client retains a lawyer with such an affiliation, the lawyer's firm assumes the authority and responsibility of representing that client, unless the circumstances indicate otherwise . . . and the firm is liable to the client for the lawyer's negligence. Should the lawyer leave the firm, the client may choose to be represented by the departing lawyer, the lawyer's former firm, neither or both.Because plaintiffs failed to comply with R. 1:11-2, the Queller firm remained counsel of record, with the only retainer agreement in effect being that which was executed between the Queller firm, Franz, and defendant. Therefore, any recovery of counsel fees and costs cannot be premised upon a claimed breach of contract to which Serrins, Franz, and defendant were no longer a party. Having continued with their relationship with defendant, it was the responsibility of plaintiffs to file the appropriate substitution of attorney and enter into a new retainer agreement with defendant. Since they failed to do so, the trial court erred when it concluded plaintiffs were entitled to counsel fees and costs based upon defendant's breach of contract.
[Restatement (Third) of the Law Governing Lawyers § 26 cmt. h. (citations omitted).]
The fact that plaintiffs may not prevail based upon breach of contract does not foreclose recovery. They are entitled to recover the reasonable value of their services under the theory of quantum meruit. Starkey v. Estate of Nicolaysen, 172 N.J. 60, 67 (2002) (citations omitted).
Defendant argues plaintiffs should be precluded from recovering on their equitable claim for quantum meruit "[a]s a result of their numerous and continuing violations" of the ethics rules. Defendant contends that in light of plaintiffs' improper fee sharing agreement and sham "of counsel" relationship, and the fact that "their financial arrangement was paramount to their representation of [defendant,] . . . their hands are unclean and they should not be permitted to come to the court seeking equity." Because we conclude plaintiffs maintained a valid "of counsel" relationship, we reject these contentions as a basis to deny plaintiffs relief premised upon quantum meruit. In reaching this conclusion, we similarly reject defendant's claim that plaintiffs have "unclean hands" and therefore should not be entitled to equitable relief.
The doctrine of unclean hands, which we find inapplicable here, "merely gives expression to the equitable principle that a court should not grant relief to one who is a wrongdoer with respect to the subject matter in suit." Faustin v. Lewis, 85 N.J. 507, 511 (1981).
Quantum meruit is a form of quasi-contractual recovery resting on the equitable principle that one should not be permitted to unjustly enrich himself at the expense of another. Goldberger, Seligsohn & Shinrod, P.A. v. Baumgarten, 378 N.J. Super. 244, 252 (App. Div. 2005) (citing Weichert Co. Realtors v. Ryan, 128 N.J. 427, 437 (1992)). To recover under a theory of quantum meruit, a plaintiff must establish: "(1) the performance of services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services." Starkey, supra, 172 N.J. at 68 (citations and internal quotation marks omitted). "The proper measure of compensation under quantum meruit is 'as much as is deserved.'" Bruno v. Gale, Wentworth & Dillon Realty, 371 N.J. Super. 69, 74 (App. Div. 2004) (quoting La Mantia v. Durst, 234 N.J. Super. 534, 537 (App. Div.), certif. denied, 118 N.J. 181 (1989)). Because it is an equitable remedy, merely listing the hours expended is insufficient, as it may lead to an inequitable result. Ibid.
Where an attorney seeks recovery from a client on the basis of quantum meruit, the "crucial factor in determining the amount of recovery is the contribution which the lawyer made to advancing the client's cause." Glick v. Barclays De Zoete Wedd, Inc., 300 N.J. Super. 299, 311 (App. Div. 1997).
Thus, if a retiring lawyer cedes to his successor a substantially prepared case which resulted from an extensive investment of time, skill and funds, the retiring lawyer might be entitled to compensation greater than the standard hourly rate. In comparison, if a ceding lawyer's work contributed to a recovery by the client, but the new attorney was crucial in the success of the case, then the predecessor's compensation should be based, at most, upon a standard hourly rate. Finally, if the predecessor's work, no matter how extensive, contributed little or nothing to the case, the ceding lawyer should receive little or no compensation.
[Ibid. (citations omitted).]
The testimony in this case unquestionably demonstrated that plaintiffs were entitled to recover under quantum meruit. The underlying employment litigation was "hotly contested," and Serrins and Franz were always responsive to client demands, resulting in the expenditure of significant hours of service. Plaintiffs performed the legal services in good faith, and the trial court found they were not trying to hide anything from their client. Defendant continued to accept the legal services plaintiffs were providing, even after they had stopped making payments. Plaintiffs obviously continued to provide these legal services with the expectation they would be compensated. Furthermore, the trial court found the hourly rates for Serrins, Franz, and Franz's associates were all fair and reasonable.
In determining the reasonable value of the services rendered, the trial court disallowed a portion of the fee based upon duplicative and unnecessary billings by Franz and his associates, such that when both met with Serrins to discuss a case, for example, they could not both bill for the entire time spent. The fact that these fees were disallowed does not mean plaintiffs failed to act in good faith in the provision of legal services to defendant. The trial court found plaintiffs acted in good faith and these findings are entitled to our deference. Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 386 (2009). Accordingly, there was substantial credible evidence in the record to support the trial court's alternative finding that plaintiffs were entitled to recover counsel fees based upon quantum meruit.
IV.
Defendant argues "the bench opinion and judgment is against the weight of the evidence as to the fairness and reasonableness of plaintiffs' fees and those fees should be reduced accordingly." Defendant raises two issues in this respect. First, defendant contends Serrins's hourly rate should be reduced by twenty percent to account for the referral payments made to Franz, and Franz's hourly rate should be reduced by twenty percent as well because his rate could not reasonably be higher than Serrins's. Second, defendant contends the balance due to plaintiffs should be reduced by the total amount charged for office conferences, as such would not have been necessary but for the "undisclosed arrangement" in which multiple firms worked on defendant's matters.
The "weight of the evidence" standard is not used in non-jury trials. Fanarjian v. Moskowitz, 237 N.J. Super. 395, 406 (App. Div. 1989). The proper standard is whether the judge's findings are supported by sufficient, credible evidence in the record. Rova Farms, supra, 65 N.J. at 484.
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Courts have the inherent power to review the reasonableness and propriety of an attorney's fee, even in the presence of an agreement between the attorney and client, and to adjust the fee in any matter before the court. Rosenberg v. Rosenberg, 286 N.J. Super. 58, 69 (App. Div. 1995). An attorney's bill for services must be reasonable both as to the hourly rate and as to the services performed. Gruhin & Gruhin, P.A. v. Brown, 338 N.J. Super. 276, 280 (App. Div. 2001). The agreement between attorney and client "ordinarily controls unless it is overreaching or is violative of basic principles of fair dealing or the services performed were not reasonable or necessary." Id. at 281. Accordingly, the court should ordinarily defer to the agreement and the fee charged thereunder "if it appears . . . that they meet a prima facie test of fairness and reasonableness, the client utterly fails to come forward with anything of substance to rebut that prima facie showing, and no expert is produced to challenge the bill rendered as unreasonable." Ibid. (citing Cohen v . Radio-Elecs . Officers Union, 146 N . J . 140, 156 (1996)). The attorney, however, bears the burden of establishing the fairness and reasonableness of the fee by a preponderance of the evidence. Cohen, supra, 146 N . J. at 156 (citations omitted); Saffer v . Willoughby, 143 N . J . 256, 264 (1996). The determination of reasonableness is made based upon the non-exhaustive list of factors set forth in RPC 1.5(a), which includes:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services;
(8) whether the fee is fixed or contingent.
Defendant argues the twenty percent payments to Franz "call into question the individual billing rates that [p]laintiffs contend are reasonable because of Serrins's and Franz's purported expertise in the areas of law applicable to the underlying employment case." According to defendant, "[i]f 20% of those rates are solely to compensate for referral payments, it cannot be said that they are reasonable for the services provided." Regardless of whether the referral fee was proper, defendant contends the $340 (hourly rate of $425 less twenty percent) was Serrins's "effective hourly rate," i.e., the "amount that Serrins believed was fair and reasonable to compensate him for his time," and, therefore, Serrins's bills should be reduced by twenty percent. Further, defendant argues because Serrins "had all the experience and responsibility," Franz's hourly rate ($350) for services provided cannot be higher than Serrins's ($340 after adjustment), and Franz's rate should also be reduced by twenty percent (to $280 per hour).
As a threshold matter, defendant's continued insistence it was unaware of the twenty percent referral payment must be rejected because the trial judge found otherwise from plaintiffs' testimony, which the court credited. In his written opinion, the judge, having already found no ethical violation resulting from the referral fee paid to Franz, also found no merit to defendant's argument that plaintiffs' claim should be reduced because of its "unreasonable 20% mark-up," explaining he "found no uniform inflation or markup of plaintiffs' fees." The court went on to find the hourly rates charged were fair and reasonable.
Defendant cites no authority to support its assertion that an attorney's fair and reasonable fee for services rendered cannot include an amount paid by the attorney to another as compensation for the referral. The lack of authority on the issue likely stems from the fact that referral fee litigation is almost always between attorneys, and the client typically is not involved. Although no reported New Jersey case has addressed this issue, out-of-state cases have tackled the issue.
In Booher v. Frue, a North Carolina court held a client's claim of undisclosed fee-sharing between attorneys stated a cause of action for constructive fraud and unjust enrichment against the forwarding attorney, and the client could recover the paid referral fee from him. 358 S.E.2d 127 (N.C. Ct. App. 1987), aff'd, 364 S.E.2d 141 (N.C. 1988). A Pennsylvania court has similarly recognized the possibility of an unjust enrichment claim by a client against the forwarding attorney who receives a referral fee. Buntz v. Peperno, 2007 Pa. D. & C. 456 (Pa. Dist. & Cnty. Dec. 2007) (citing Restatement (Third) of the Law Governing Lawyers § 47 cmt. i. (2000) (noting a client who has not been appropriately informed of a referral fee agreement may seek "restitution of the portion of the fee paid to the forwarding lawyer" via a claim for unjust enrichment)).
Unlike these cases, however, based upon the trial court's factual findings to which we defer, defendant was in fact aware of and consented to the referral fee payment to Franz. As plaintiffs allude in their briefs, the record does not contain any evidence Serrins inflated his hourly rate by $85, nor any other evidence their business arrangements influenced what they considered to be a reasonable and fair rate to charge defendant. In light of the trial court's finding that plaintiffs' hourly rates were reasonable, and that there was no evidence establishing "that the fee distribution between the plaintiffs had any bearing on the services performed or the fees charged[,]" notwithstanding defendant's contrary argument, we conclude this record provides no basis upon which to deviate from the findings of the trial court on this issue.
Defendant contends the balance due to plaintiffs should be reduced by the total amount charged for office conferences, as such would not have been necessary but for the "undisclosed arrangement" in which multiple firms worked on the Hanover matters. Without citing a single example from the hundreds of bills included in the record, defendant argues "[t]his undisclosed arrangement unquestionably had a negative impact on the efficiency of plaintiffs' representation of [defendant] and resulted in excess billings for attorney meetings and conferences." As plaintiffs note, defendant never questioned plaintiffs regarding these interoffice conferences at trial, nor offered any testimony as to the unreasonableness of these billings. Serrins testified, and Barsky confirmed, that he reviewed all billing and was responsive to any disputes raised by Barsky.
Although these interoffice conferences would likely be unreasonable to the extent each lawyer who attended the meeting also charged their full hourly rate, the trial court disallowed those fees it found unreasonable by virtue of unnecessary and duplicative joint meetings. Defendant simply offers no basis for this court to find the trial court abused its discretion by failing to further reduce plaintiffs' fees.
V.
In their cross-appeal, plaintiffs argue their demand amount "should not have been reduced as [d]efendant failed to offer any evidence or testimony at trial regarding the inefficiency of the services rendered, excessive billing, or duplicative billing." Plaintiffs contend the trial court did not cite to specific unnecessary and duplicative billing, nor articulate its reasoning as to how it determined what meetings were duplicative and unnecessary. We disagree.
The trial court properly exercised its discretion in scrutinizing plaintiffs' billing records before disallowing $46,314.10 of Franz's and his associates' fees. Courts are expected to "scrutinize contracts between attorneys and clients to ensure that they are fair." Cohen, supra, 146 N.J. at 155. The scrutiny extends beyond the four corners of the contract, as "a lawyer's bill for services must be reasonable both as to the hourly rate and as to the services performed." Gruhin, supra, 338 N.J. Super. at 280. A bald assertion that hours billed are excessive will not defeat a claim for payment due for legal services rendered at an agreed upon hourly rate. Ibid.
Here, however, the court identified particular billing practices with which it took issue, such as the interoffice conferences. The court found "several instances where there were unnecessary and duplicative joint meetings with two or three attorneys, including Franz or his associates, discussing routine proceedings when the input of Franz or his associates was unnecessary and resulted in an overbilling." The court provided numerous examples, such as a general, one-hour meeting between Serrins, Franz, and Franz's associate, where all three attorneys had billed for the entire hour. In that instance, the court disallowed the hour billed by Franz's associate.
Further, plaintiffs, not defendant, had the obligation to establish the reasonableness of the fees they claimed were owed. Plaintiffs failed to present any testimony to support their position that billing by all three attorneys in that situation or similar situations was reasonable, despite the issue clearly being raised during the course of plaintiffs' representation of defendant.
Notably, they do not set forth any argument as to why the trial court's conclusion that those billings were unnecessary and duplicative was inaccurate, such that the court abused its discretion in disallowing them. Instead, plaintiffs focus heavily on defendant's failure to establish unreasonableness.
Contrary to plaintiffs' argument in their brief, defendant had no obligation to produce expert testimony challenging the reasonableness of the bills. In short, with respect to a certain portion of Franz's fees, plaintiffs failed to establish a prima facie case of fairness and reasonableness. See Cohen, supra, 146 N.J. at 156.
Next, plaintiffs contend the trial court erred when it disallowed pre-judgment interest. On July 3, 2012, plaintiffs filed a proposed final order of judgment, which included an application for included pre-judgment interest. Plaintiffs noted the trial court had disallowed court costs in its order, but both the opinion and judgment were silent as to pre-judgment interest. Defendant opposed plaintiffs' proposed revised final order of judgment, asserting:
In this case, after hearing the testimony and reading the post-trial submissions, and for the reasons set forth in the [c]ourt's bench decision dated June 20, 2012, the [c]ourt entered final [j]udgment in favor of plaintiffs for the total sum of $290,789.40 without court costs. The final [j]udgment did not award
interest to plaintiffs. Notwithstanding this [c]ourt's entry of final [j]udgment, plaintiffs are now attempting to circumvent the [j]udgment, as well as the manner in which this [c]ourt exercised its discretion with respect to the award of prejudgment interest, by submitting a revised final [j]udgment that includes interest. Plaintiffs' submission is procedurally improper, and substantively baseless. Accordingly, the revised final [j]udgment as proposed and submitted by plaintiffs should not be entered.
After reviewing plaintiffs' submission and defendant's opposition, the trial court notified the parties via e-mail that for the reasons set forth in defendant's opposition, the court would not entertain plaintiffs' proposed revised judgment. Plaintiffs responded with a letter to the court in which they stated:
This morning Your Honor's clerk, Mr. Goldman, spoke to Ms. Edwards of my office and advised that the [c]ourt's [j]udgment of [o]rder dated June 20, 2012 provided for no pre-judgment interest as the order stated "without court costs." Mr. Goldman advised that it was within the [c]ourt's discretion to preclude pre-judgment interest and that the "without court costs" meant without interest.Plaintiffs advised they were now accepting the court's ruling of no pre-judgment interest in this matter "as having been included in 'without court costs,'" but were preserving the issue for appeal. Plaintiffs now argue "[n]ot only have [they] been deprived of payment for their legal services but they also have had to defend against frivolous claims of unethical impropriety that was asserted to forestall the payment of the fees."
Pre-judgment interest in tort actions is expressly governed by Rule 4:42-11(b), which states: "[T]he award of prejudgment interest on contract and equitable claims is based on equitable principles." Litton Industries, supra, 200 N.J. at 390 (citations and internal quotation marks omitted). Whether to award pre-judgment interest in a contract or a quantum meruit case, and if so, the rate at which the interest is calculated, is left to the trial court's sound discretion. Ibid. In awarding prejudgment interest,
[t]he basic consideration is that the defendant has had the use, and the plaintiff has not, of the amount in question; and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled.Unless the court's decision "represents a manifest denial of justice, an appellate court should not interfere." Litton Industries, supra, 200 N.J. at 390 (citations and internal quotation marks omitted).
[Rova Farms, supra, 65 N.J. at 506.]
Although the trial court failed to articulate the basis for its conclusion that the request for pre-judgment interest was "substantively flawed," plaintiffs have not demonstrated the decision to deny the application for pre-judgment interest constituted a manifest denial of justice. Contrary to plaintiffs' view, the record does not show defendant's challenge to plaintiffs' fees was other than in good faith.
Appeal and cross-appeal affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELATE DIVISION