Opinion
NO. CV 00-11542 GAF(RNBx)
December 12, 2000
ORDER RE: PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
I. INTRODUCTION
Defendant Metech entered into a contract with a law firm to represent Plaintiff Zyburra in connection with a federal criminal investigation into his activities as a Metech employee. During the course of the investigation, Metech terminated Zyburra's employment and gave notice to the law firm that Metech would no longer pay for Zyburra's representation. Because the criminal investigation is ongoing, Zyburra sues Metech for breach of contract (as an implied third party beneficiary), and seeks a preliminary injunction ordering Metech to continue paying his legal fees.
This Court concludes that Zyburra has neither shown a likelihood of success on the merits nor a balance of hardships in his favor to warrant the requested preliminary relief. Accordingly, his motion for a preliminary injunction is DENIED.
II. FACTUAL BACKGROUND
In July 1999, when the United States Attorney's Office for the District of Connecticut began an investigation of Metech and its employees, Zyburra was identified as a potential target of the probe. At the suggestion of Metech, who offered to pay the fees and costs of an attorney, Zyburra retained the firm of Bird, Marella, Boxer Wolpert (hereinafter Bird Marella) to represent his interests. (Zyburra Decl. ¶ 3). Bird Marella drafted a retainer agreement, which was signed by Metech's in house counsel in August of 1999. (Gluck Decl. Ex. A). That agreement provided the rate structure and billing practices of Bird Marella, and indicated that Bird Marella would represent "Michael Zyburra in connection with a criminal investigation pertaining to Metech . . . conducted by the United States Attorney's Office in New Haven, Connecticut." (Id.)
On September 18, 2000, Metech terminated Plaintiff, and three days later, contacted Bird Marella and gave notice that Metech would cease paying for any services rendered after October 31, 2000. (Gluck Decl. Ex. D). Bird Marella, and hence Zyburra, thus received 40 days notice of Metech's intent to cease payments. In the meantime, the investigation continues, and Zyburra believes that the United States Attorney will decide whether to charge Plaintiff by the end of the year. (Gluck Decl. ¶ 13).
Zyburra and Bird Marella have responded to Metech's actions with this lawsuit. Bird Marella, as the recipient of attorneys fees under the retainer agreement, represents Zyburra, the intended beneficiary of Bird Marella's legal services, in what amounts to a suit to specifically enforce the contract. Thus, Bird Marella has a financial interest in the outcome of the dispute which gives rise to a potential conflict of interest problem that, in some respects, is at the heart of the issue before this Court. In short, but for Bird Marella's unwillingness to assume the risk of failure in its own action for breach of contract against Metech, there would be no issue of irreparable harm to Zyburra.
"A member shall not accept or continue representation of a client without providing written disclosure to the client where: . . . (4) The member has or had a legal, business, financial, or professional interest in the subject matter of the representation." Cal. Prof. Conduct Rule 3-310.
III. ANALYSIS
A. THE LEGAL STANDARD UNDER RULE 65
Because a preliminary injunction is an extraordinary remedy, courts require the movant to carry its burden of persuasion by a "clear showing." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). "In this circuit, preliminary injunctive relief is available to a party who demonstrates either (1) a combination of probable success and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardship tips in its favor." Prudential Real Estate v. PPR Realty, 204 F.3d 867, 874 (9th Cir. Feb 23, 2000) citing Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). "Under this last part of the alternative test, even if the balance of hardships tips decidedly in favor of the moving party, it must be shown, as an irreducible minimum, that there is a fair chance of success on the merits." Sony Computer Entertainment of America v. Chaddon, 87 F. Supp.2d 976, 983 (N. D. Cal. 1999) citing Stanley v. University of Southern California, 13 F.3d 1313, 1319 (9th Cir. 1994). The alternative standards are not separate tests but rather the opposite ends of a single continuum in which the required showing of harm varies inversely with the required showing of meritoriousness. Sony, 87 F. Supp.2d at 983; citing Republic of the Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir. 1988).
B. LIKELIHOOD OF success ON THE MERITS
Since, Plaintiff proceeds exclusively on a contract theory and Defendant does not dispute the validity of the contract between Plaintiff and Defendant, the only issue is whether that contract has been breached by Defendant. (Memo at p. 11). Plaintiff is not a party to the contract, and therefore must be proceeding under an implied third party beneficiary theory.
Plaintiff argues that Metech promised to pay for Zyburra's legal services throughout the duration of this investigation. Although Plaintiff does not point to any provision of the contract that so indicates, the Court notes that the engagement letter provides that Bird Marella will represent Zyburra "in connection with a criminal investigation pertaining to Metech." (Gluck Decl. Ex. A). Yet, this lone sentence is insufficient to support Plaintiff's claim, since it fails to reference any obligation or promise by Metech. It also contains no durational language, such as "for so long as," "until" "during" or "while." This term merely distinguishes between matters for which Metech is willing to furnish legal services, and matters for which Metech is unwilling to furnish legal services.
Since the contract contains no term pertaining to its duration, "the court determines whether one can be implied from the nature and circumstances of the contract. If neither an express nor an implied term can be found, the court will generally construe the contract as terminable at will." Zee Medical Distributor Association v. Zee Medical, Inc., 94 Cal.Rptr.2d 829, 835 (July 12, 2000). Here, Plaintiff presents no evidence of the "nature and circumstances" of the contract, and therefore the Court must treat it as an at-will arrangement at this stage in the proceedings. An at-will contract can be terminated after a reasonable time with reasonable notice. Id., see also Varni Bros. Corp. v. Wine World, Inc. 41 Cal.Rptr.2d 740, 746 (1995); Carpenter Paper Co. v. Kellogg, 114 Cal.App.2d 640, 652 (1953). Metech furnished legal services to Zyburra for thirteen months, and provided forty days notice before it ceased paying Bird Marella.
Metech presents the declaration of Richard Hodgson, counsel for Metech, which indicates that it was not the intent of the contracting parties to create a permanent obligation on the part of either Metech or Bird Marella. (Hodgson Decl. ¶¶ 3-5). Plaintiff makes boilerplate objections to this evidence on the grounds of relevance, foundation and speculation. Naturally, the evidence is relevant insofar as it addresses the nature and circumstances of the contract. Foundation is established because Hodgson represented Metech in the decision to hire Bird Marella. Plaintiff's objection based on speculation is nonsensical.
Nonetheless, Zyburra urges the Court to find that the contract is not "at will" on the basis of the California appellate court ruling in Lura v. Multaplex, 129 Cal.App.3d 410 (1982). Having reconsidered that decision, this Court is not persuaded. Lura was a salesman who agreed to solicit customers for Multaplex in exchange for a sales commission. Through Lura's efforts, Multaplex obtained several customers and paid Lura's commissions for a period of time, but then decided that it had paid enough for his services and ceased sending him commission checks. Lura sued and lost at trial because the trial judge concluded that the contract was of no definite duration and therefore was "at will." The appellate court correctly concluded that the duration of the contract was easily defined to last until Lura's customers stopped buying from Multaplex. The situation is readily distinguishable since, in that case, Multaplex continued to receive benefits under its contract with Lura. Had Multaplex been permitted to terminate its commission obligation, it would have been unjustly enriched at Lura's expense. There is no such issue present in this case.
Since Plaintiff has provided no persuasive evidence that this contract is anything but an at-will arrangement, and since Metech provided legal fees for a reasonable period of time and gave reasonable notice prior to ceasing payments, Plaintiff has not made a clear showing that there is even a possibility of success on the merits.
C. BALANCE OF HARDSHIPS AND IRREPARABLE HARM
The Court addresses these two elements simultaneously, since Plaintiff sets forth the same theory for both and since the Circuit has recognized their similarity. See Prudential Real Estate, 204 F.3d at 874. Plaintiff argues that as a result of Metech's alleged breach of contract he will suffer indictment, an irreparable harm that vastly outweighs any hardship which Defendant would suffer if it continued to pay Zyburra's legal fees.
Yet, the Court notes that Plaintiff seeks to connect Metech's actions to indictment with the following causal chain: (1) Zyburra cannot afford Bird Marella's fees; (2) if Metech fails to pay Bird Marella for its legal services, then Bird Marella will cease to represent Plaintiff; and therefore (3) if Plaintiff loses Bird Marella's representation then he will be indicted by the United States Attorney.
Both steps of this causal chain are fraught with speculation and unsupportable inferential leaps. Two flaws plague the first link in this chain. First, Metech's failure to pay Bird Marella's fees need not result automatically in the termination of Bird Marella's representation. Instead, Bird Marella's representation would come to an end only after Bird Marella made an independent decision to cease its involvement with Plaintiff. Bird Marella has no reason to cease its representation if it truly believes that Metech has a contractual obligation to continue to make payments. Bird Marella can bring a contract action in its own name and seek recovery of the fees due and owing which is an adequate legal remedy for breach. Likewise, if Plaintiff decides to pay for all or part of his legal expenses, then he may be entitled to the legal remedy of compensatory damages at the conclusion of the case at bar. In either event, Metech's actions could only amount to a claim for monetary damages to Plaintiff or his counsel.
To the extent Bird Marella does not believe it is entitled to fees from Metech, this motion should be denied and Bird Marella should be sanctioned pursuant to Rule 11. See Fed.R.Civ.P. 11. ("by presenting to the court a pleading . . . an attorney . . . is certifying that . . . (2) the claims, defenses, and other legal contentions therein are warranted by existing law").
Second, even if the Court takes at face value Plaintiff's contention that the Assistant United States Attorney will decide to indict him before the first of the year, the Plaintiff has presented no evidence to support his claim that he is unable to pay for Bird Marella's legal services for two more months. While it does appear that Bird's total legal expenses to date have exceeded Zyburra's annual salary, quite often criminal defendants pay for legal services from income sources other than income, such as loans and mortgages. (Zyburra Decl. ¶ 7, Gluck Decl. ¶ 10).
Plaintiff's second link is also flawed, since Plaintiff offers no support for his assertion that indictment turns on Bird Marella's representation. Plaintiff's counsel is of the belief that if the United States Attorney decides to prosecute, he will be able to sway her from that decision. (Lincenberg Decl. ¶ 5). Perhaps so, but such a connection is too tenuous to amount to a clear showing as required at the preliminary injunction stage.
In sum, Plaintiff has failed to make a clear showing of irreparable harm or that the balance of hardships favors him.
IV. CONCLUSION
Although the Court is sympathetic to Plaintiff's counsel's claim that it would prefer not to bear the risk that its interpretation of the contract is erroneous, counsel's aversion is no reason to force a similar risk on Metech. Since Plaintiff has established neither a combination of probable success and the possibility of irreparable harm or serious questions coupled with a balance of hardships that favors him, Plaintiff's motion for a preliminary injunction is DENIED.
IT IS SO ORDERED.