Opinion
602082/08.
Decided September 12, 2008.
O'Shea Partners, New York, NY, Petitioner.
New York, NY, Respondent.
In this proceeding involving a dispute over legal fees, petitioners Connectu, Inc., Howard Winklevoss, Cameron Winklevoss, Tyler Winklevoss and Divya Narendra move for an order, pursuant to CPLR 7503 (b), staying the arbitration commenced by respondent-law firm Quinn Emanuel Urquhart Oliver Hedges, LLP (Quinn Emanuel) before the American Arbitration Association (AAA), entitled Quinn Emanuel Urquhart Oliver Hedges, LLP v Howard Winklevoss, et al., No. 13 194 Y 00995 08. The arbitration seeks REDACTED in attorneys' fees allegedly owed by petitioners to Quinn Emanuel pursuant to an engagement letter whereby Quinn Emanuel was retained on a contingent fee basis to represent petitioners in litigation with Facebook, Inc. concerning ownership of the social networking website, Facebook.com.
BACKGROUND
In 2007, petitioners contacted Quinn Emanuel seeking potential representation in the Facebook litigation. That litigation had been pending for several years, during which time, petitioners were represented by a nationally-known law firm. After lengthy discussions between Quinn Emanuel and petitioners, a contingency fee agreement was reached. In September 2007, a Quinn Emanuel partner forwarded an engagement letter to Howard Winklevoss, which he, on behalf of all of the petitioners, then forwarded to independent counsel for review. Petitioners' attorney, Jonathan Tropp, had several conversations and negotiations with Quinn Emanuel, concerning the terms of the draft letter agreement. Eventually, the terms were agreed upon, and the final engagement letter (Engagement Letter) was executed.
In negotiating the Engagement Letter and the arbitration provision contained therein, petitioners were represented by independent counsel. Said counsel did not object to the arbitration provisions in the Engagement Letter, and, in fact, proposed changes relating to the powers of the arbitrators. The Engagement Letter contains the following clause pertaining to the arbitration of disputes:
Dispute Resolution: Although unlikely, it is possible that a dispute may arise that cannot be resolved by discussions between us. We believe that some disputes can be resolved more expeditiously and with less expense by binding arbitration than in court. Any dispute regarding or arising out of our representation will be resolved by binding arbitration under the Commercial Rules of the American Arbitration Association ("AAA") before three arbitrators appointed from the AAA's Large Complex Commercial Case Panel. The arbitrators will have the authority to determine whether the dispute is arbitrable. The arbitration will be governed by both the procedural and substantive provisions of the Federal Arbitration Act. The arbitration will be held in the County of New York.
As provided by New York law, you may, under certain circumstances, elect not to arbitrate disputes concerning the amount of fees owed to us. A copy of the relevant rules will be provided upon request. Any disputes concerning the amount of fees owed to us that are not arbitrated will be subject to the jurisdiction of courts located in the County of New York.
Quinn Emanuel thereafter represented petitioners in the Facebook litigation, and a settlement was achieved through mediation in February 2008. Petitioners did not pay the attorneys' fee Quinn Emanuel claimed was owed, but instead terminated Quinn Emanuel's representation, hired new counsel and attempted (without success) to attack the settlement in the federal court.
In April 2008, Quinn Emanuel initiated the subject arbitration proceedings before the AAA. In the demand for arbitration, Quinn Emanuel seeks $REDACTED million allegedly due from petitioners pursuant to the Engagement Letter. The "claim description" in the arbitration demand states:
"Claimant seeks attorneys' fees of not less than REDACTED, as well as unpaid expenses, pursuant to its letter agreement with Respondents, dated September 17, 2007. Claimant represented Respondents on contingency. Claimant secured a highly favorable result for Respondents, but Respondents have terminated Claimant and refuse to pay or acknowledge Claimant's full fee."
Counsel for the parties thereafter exchanged letters pertaining to, inter alia, the arbitrability of the fee dispute. Counsel for petitioners took the position that the fee dispute was not arbitrable, and threatened to seek a court order enjoining the AAA from proceeding.
In the interim, petitioners commenced a separate action attempting to challenge the enforceability of the settlement agreement. During the pendency of that action, Quinn Emanuel informed the AAA to "hold the arbitration in abeyance, reserving [its] right to compel arbitration." Quinn Emanuel maintains that it never intended to, and never did, waive its right to arbitrate the dispute pursuant to the terms of the Engagement Letter. In June 2008, when the Facebook settlement agreement was held by a federal court in California to be enforceable, Quinn Emanuel instructed the AAA to reinstate proceedings and then move the arbitration process forward. Counsel for petitioners countered that reinstatement was improper because the arbitration had been discontinued.
The AAA confirmed, on July 3, 2008, that it had only temporarily held off on administrative steps pursuant to the parties' request and that the matter remained "alive."
DISCUSSION
Petitioners present a long list of arguments to support their position that Quinn Emanuel's claims are not subject to arbitration and that a stay of arbitration, pursuant to CPLR 7503, is warranted. Among other things, they argue that the arbitration clause is invalid and not enforceable because: (a) the arbitration clause was obtained without petitioners' knowing consent; (b) the arbitration clause violates the public policy of the state of New York because it was obtained in breach of respondent's duties to its clients and attorney disciplinary rules; (c) the arbitration clause does not comply with the fee-dispute resolution rules promulgated by the Chief Administrator of the Courts, 22 NYCRR 137, et seq. (Part 137). Petitioners also claim that Quinn Emanuel, by its actions, waived its right to resort to arbitration.
Part 137 provides, in relevant part:
Section 137.0. Scope of program
This Part establishes the New York State Fee Dispute Resolution Program, which provides for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation. In accordance with the procedures for arbitration, arbitrators shall determine the reasonableness of fees for professional services, including costs, taking into account all relevant facts and circumstances. Mediation of fee disputes, where available, is strongly encouraged.
In opposition, Quinn Emanuel submits that: (a) petitioners entered into the agreement to arbitrate fully understanding and knowingly consenting to the terms thereof; (b) the arbitration clause is facially valid, was not obtained through fraud, duress or misrepresentation, and complies in all respects with New York law; (c) Part 137 does not apply here because, by its terms, it does not apply where the amounts in dispute are less than $1,000 or more than $50,000; and (d) Quinn Emanuel never waived its right to demand arbitration. For these reasons, Quinn Emanuel submits that petitioners are contractually obligated to proceed with arbitration, and may not now attempt to avoid and/or obfuscate a clear and valid contract.
It is well settled that "[a] written agreement that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms" ( Borovina Marullo, PLLC v Structured Assets Sales Group, LLC , 17 AD3d 387, 388 [2d Dept 2005], citing Greenfield v Philles Records, Inc., 98 NY2d 562, 569; W.W.W. Assoc., Inc. v Giancontieri, 77 NY2d 157, 162; Civil Serv. Employees Assn., Inc. v Plainedge Union Free School Dist. , 12 AD3d 395 [2d Dept 2004]). No showing has been made that the arbitration clause was obtained without petitioners' consent, or that it was the result of fraud, misrepresentation or duress. Accordingly, the court rejects petitioners' assertion that the arbitration clause was obtained without their consent or as a result of some sort of overreaching or other improper action on Quinn Emanuel's part.
Petitioners' reliance on Part 137 is misplaced, as that section is not applicable here. Section 137.1 (b) (2), provides that Part 137 shall not apply to "amounts in dispute involving a sum of less than $1,000 or more than $50,000, except that an arbitral body may hear disputes involving other amounts if the parties have consented" ( Eiseman Levine Lehrhaupt Kakoyiannis, P.C. v Torino Jewelers, Ltd. , 44 AD3d 581 [1st Dept 2007]; Borovina Marullo, PLLC, 17 AD3d 387, supra).
As explained by the First Department in Eiseman Levine Lehrhaupt Kakoyiannis, P.C.:
"Part 137 of the Rules of the Chief Administrator of the Courts establishes the New York State Fee Dispute Resolution Program [the Program], which provides for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation. In accordance with the procedures for arbitration, arbitrators shall determine the reasonableness of fees for professional services' ( 22 NYCRR 137.0). The Program appl[ies] where representation . . . commenced on or after January 1, 2002, to all attorneys admitted to the bar of the State of New York who undertake to represent a client in any civil matter' ( 22 NYCRR 137.1 [a]). It does not apply, however, to amounts in dispute involving a sum of less than $1,000 or more than $50,000' ( 22 NYCRR 137.1 [b] [2]), unless the parties agree otherwise."
( 44 AD3d at 583).
Similarly, in Borovina Marullo, PLLC, the Second Department stated:
"The relevant provisions of the subject written agreement and the rider annexed thereto provide that the right to seek arbitration to resolve fee disputes is pursuant to court rules,' referring to the Rules of the Chief Administrator of the Courts ( 22 NYCRR part 137). Part 137 of the Rules of the Chief Administrator of the Courts, which establishes the New York State Fee Dispute Resolution Program, shall not apply' where, as here, the amounts in dispute involve a sum of more than $50,000' ( 22 NYCRR 137.1 [b] [2])."
( 17 AD3d at 388).
Accordingly, Quinn Emanuel's multi-million dollar claim for legal fees is not subject to Part 137.
Even if this court were to reach the merits of petitioners' claim, the Engagement
Letter is enforceable and valid on its face. Neither the fact that the Engagement Letter shortens the statute of limitations for claims arising out of the engagement to one year, nor the fact that it charges a 1.5% per month late fee for legal fees owed to Quinn Emanuel after the client is in receipt of a settlement or award for 60 days or more, establishes any impropriety or grounds for not enforcing the arbitration clause ( see e.g. John J. Kassner Co., Inc. v City of New York, 46 NY2d 544 [contractually shortening the statute of limitations is not improper]).
Nor has there been any factual showing to support petitioners' claim that Quinn Emanuel modified or waived its right to arbitrate. Rather, all of the facts support the conclusion that Quinn Emanuel reserved its rights to proceed with the arbitration.
CONCLUSION
It is ORDERED and ADJUDGED that the application by the petitioners to stay the subject arbitration is denied in all respects, and the petition is dismissed, with costs and disbursements to respondent; and it is further
ORDERED that parties are directed to proceed to arbitration and to serve a copy of this decision and order upon the arbitral tribunal.
This constitutes the JUDGMENT of the court.