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Schafrann v. Karam

United States District Court, S.D. New York
Feb 7, 2003
No. 01 Civ. 0647 (KNF) (S.D.N.Y. Feb. 7, 2003)

Opinion

No. 01 Civ. 0647 (KNF)

February 7, 2003


OPINION AND ORDER


In this action, predicated on the court's diversity jurisdiction, plaintiff Jay H. Schafrann ("Schafrann") seeks to recover attorney's fees for services he allegedly rendered to the defendant, Edmond Karam ("Karam"), in connection with the purchase and operation of a condominium complex located in Aruba. Plaintiff asserts claims for breach of contract, quantum meruit, unjust enrichment and detrimental reliance. He contends that he is entitled to recover $162,000 in attorney's fees, together with prejudgment interest from the date he first demanded payment from the defendant, or, alternatively, the reasonable value of his services.

Pursuant to 28 U.S.C. § 636(c), the parties consented to having the non-jury trial of this action presided over by a United States magistrate judge. A non-jury trial commenced on July 22, 2002, and was adjourned to and completed on July 23, 2002. By order of the Court, all direct examination testimony was presented to the Court via affidavits and only testimony elicited through cross-examination of witnesses was received orally in open court. The following are the Court's findings of fact and conclusions of law, made pursuant to Rule 52 of the Federal Rules of Civil Procedure.

I. FINDINGS OF FACT

Plaintiff is an attorney who was admitted to the practice of law in the State of New York in 1943. Plaintiff was a founding partner of the law firm Brinsmade Schafrann, which had partners in Latin America who provided legal services under the name Arismendi, Brigard Parraga. Plaintiff also served, inter alia, as legal counsel to the Venezuelan Consulate in New York. Currently, the firm Arismendi, Brigard Parraga has its office at 277 Park Avenue, New York, New York. Plaintiff's domestic law firm, Jay H. Schafrann, Esq., also operates out of the office at 277 Park Avenue.

The defendant was a client of the plaintiff's for a period of approximately twenty-five years. During that time, plaintiff performed services for companies in which Karam has or had a controlling interest.

In 1977 or 1978, plaintiff entered into an agreement with the defendant pursuant to which plaintiff became the managing director of N.V. Floresta, Inc. ("Floresta"), a Netherlands Antilles corporation controlled by the defendant. As managing director of Floresta, plaintiff's responsibility was to manage a warehouse located in Elmsford, New York. The warehouse was owned by Floresta. Plaintiff testified that, pursuant to the terms of his agreement with the defendant, his annual compensation for managing the warehouse was $70,000. Plaintiff also testified, however, that in certain years his actual compensation for managing the warehouse was less than $70,000.

Plaintiff testified that in 1991 or 1992, while he continued to serve as managing director of Floresta, he entered into an oral contract with the defendant pursuant to which plaintiff was to provide certain legal and business services in connection with the purchase and operation of The Mill Condominium Resort ("The Mill Resort"), a condominium complex located in Aruba. Plaintiff testified further that the defendant agreed to compensate him for these services at a rate of $250 per hour, based on a quarter-hour minimum, and that his compensation for these services was to be separate from, that is, over and above, his annual salary as managing director of Floresta. Plaintiff averred that, since The Mill Resort was insolvent at the time he was retained, he agreed to defer payment of compensation for his services until The Mill Resort became profitable.

Plaintiff explained that he entered into The Mill Resort agreement in good faith and with the expectation of payment, and that the defendant repeatedly promised to pay him for his services as soon as The Mill Resort became profitable. Plaintiff acknowledged that he had been reimbursed for the expenses he incurred in connection with the services he provided to The Mill Resort and that the expenses had been paid from Floresta's bank account. The reason for this, plaintiff testified, was that Floresta, at that time, was the only business owned by Karam that had the requisite funds.

Plaintiff recalled that the services he performed for the defendant in connection with the purchase and operation of The Mill Resort included: (i) preparation and review of contracts; (ii) consultation with attorneys in Aruba; (iii) preparation and review of financial documents; (iv) telephone communications; (v) attendance at condominium meetings on the defendant's behalf (vi) representation of the defendant in the purchase of the shares of The Mill Resort; (vii) representation of the defendant in a bankruptcy proceeding involving The Mill Resort; and (viii) frequent travel to Aruba and Curacao.

In 1998, the warehouse owned by Floresta was sold and plaintiff was dismissed from his position as managing director. Plaintiff testified that, after he was dismissed, he sent the defendant a bill for $150,000 in an attempt to recover his attorney's fees. According to plaintiff, this sum represented the cost of twenty (20) business trips to Aruba and Curacao at $7,500 per trip. During the trial, in response to cross-examination by counsel for the defendant about the basis for his determination that $7,500 per trip was the reasonable value of his services, plaintiff stated, "I took that out of the air as a bargain price for [the defendant] because I think I earned a lot more than that based on the hours I spent."

At trial, plaintiff asserted that the reasonable value of the legal services rendered by him to the defendant was actually $162,000. According to plaintiff, this amount represented eighteen (18) trips to Aruba and Curacao, comprising eighty-one (81) days, at a rate of $2,000 per day. Plaintiff testified that he was entitled to $2,000 per day for his services because he typically worked eight hours a day and his hourly fee was $250.

Plaintiff conceded that, during his representation of the defendant, he kept no contemporaneous time records in connection with any of the services rendered and that his United States passport was his only record of the trips he took to Aruba and Curacao. Plaintiff also testified that, on occasion, he would perform services for free because of his close personal relationship with the defendant. However, plaintiff maintained that he always had an expectation of payment for the services rendered in connection with The Mill Resort because the defendant promised to compensate him for these services.

Hy Bloom ("Bloom") testified on behalf of plaintiff Bloom stated that he first met plaintiff and Karam at The Mill Resort in Aruba and that he had known them for approximately ten years. At the time, Bloom stated, he and his wife owned a condominium at The Mill Resort and were members of the board of The Mill Resort Cooperative Association of Condominium Owners. Bloom testified that he and his wife would meet occasionally with plaintiff and Karam, and that Karam would praise plaintiff "as the best attorney he ever knew," and state that he was going to pay plaintiff when The Mill Resort began to make money. Bloom testified further: that he was present with plaintiff and Karam when The Mill Resort held an auction of its furnishings, that he was present when plaintiff attended condominium meetings on Karam's behalf, that on at least three occasions he accompanied plaintiff on airline flights to Aruba and there observed plaintiff reviewing and correcting documents, that he was present when plaintiff and Karam discussed converting The Mill Resort into time-shares, and that he had often observed plaintiff and Karam working together in the main office of The Mill Resort. Bloom acknowledged that he did not know how much time plaintiff had spent providing legal services for Karam, or the exact nature of those legal services.

Rhoda Schafrann, plaintiff's wife, also testified on his behalf. Rhoda Schafrann recalled that, for approximately twenty years, she was responsible for bookkeeping, record keeping and file management for the plaintiff's law firm and the law firm Arismendi, Brigard Parraga, and also was responsible for record keeping for Floresta. According to Rhoda Schafrann, her duties as bookkeeper included compiling a record of expenses incurred by the plaintiff during his trips to Aruba and reviewing these records with Karam's accountant, James Dinnerman ("Dinnerman"), and compiling a record of plaintiff's telephone and postage expenses, which she also reviewed with Dinnerman. Pursuant to Karam's instructions, she or plaintiff would write checks on the Floresta bank account to cover these and other expenses and plaintiff would sign the checks; all of the expenses for The Mill Resort were paid out of the Floresta account because that was the only company owned by Karam that had sufficient funds.

Rhoda Schafrann testified further that she was responsible, with plaintiff, for maintaining plaintiff's legal files and that she maintained The Mill Resort legal file, which was kept at plaintiff's law office. She stated that, on numerous occasions, she was present when Karam promised to pay plaintiff for his services when The Mill Resort began to make money.

Rhoda Schafrann acknowledged that, as far she knew, Karam had never specified an amount to be paid to plaintiff as compensation for his legal services in connection with The Mill Resort or a date upon which such compensation was to be paid. In addition, although plaintiff was supposed to have received $70,000 per year for his work as managing director of Floresta, there were several years in which he was paid less than $70,000.

Karam, who was a client of the plaintiff's, testified that for a period of approximately twenty-five years plaintiff performed services for companies in which Karam has or had a controlling interest. Karam also testified that, except for the first year of the twenty-five-year period, plaintiff received an annual fee of $70,000, which covered all of the services rendered to the defendant by the plaintiff. Specifically, Karam claimed that he never offered to compensate plaintiff separately for any services that plaintiff may have rendered in connection with The Mill Resort over and above the fee that he received annually from Floresta. According to Karam, the payment, if any, of additional compensation to plaintiff was at Karam's sole and exclusive discretion. Moreover, Karam maintained, plaintiff always understood that to be the case.

The defendant also contended that no "meeting of the minds" occurred between plaintiff and defendant with respect to the material terms of any alleged oral contract between plaintiff and the defendant concerning compensating plaintiff for services rendered in connection with The Mill Resort, or with respect to the defendant being bound by such a contract.

II. CONCLUSIONS OF LAW

A federal court sitting in diversity must apply state substantive law and federal procedural law. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 416, 116 S.Ct. 2211, 2214 (1996); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938). Accordingly, New York substantive law is applicable to this action.

Breach of Contract

Under New York law, in order to form a valid contract, there must be an offer, acceptance and consideration. See Feldman v. Talon Paint Products, Inc., No. 01 Civ. 5657, 2002 WL 31385826, at *4 (S.D.N.Y. Oct. 22, 2002). In addition, there must be a showing of "a meeting of the minds, demonstrating the parties' mutual assent and mutual intent to be bound." Renner v. Chase Manhattan Bank, No. 98 Civ. 926, 1999 WL 47239, at *15 (S.D.N.Y. Feb. 3, 1999) (quoting Oscar Prods., Inc. v. Zacharius, 893 F. Supp. 250, 255 [S.D.N.Y. 1995]). To prevail on a claim for breach of contract, a plaintiff must prove: (1) the existence of a contract between the plaintiff and defendant; (2) performance of the contract by the plaintiff; (3) breach of the contract by the defendant; and (4) damages resulting from the breach. See First Investors Corp. v. Liberty Mutual Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998); Feldman, 2002 WL 31385826, at *4.

In general, under New York law, no enforceable contract is formed where a material term of the contract is left for future negotiations. See Rule v. Brine, Inc., 85 F.3d 1002, 1010 (2d Cir. 1996). Thus, a purported contract that leaves the compensation term to be determined by future negotiations is "a mere agreement to agree" and is considered too indefinite to be enforceable. Mar Oil, S.A. v. Morrissey, 982 F.2d 830, 840 (2d Cir. 1993) (quoting Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d 247, 249); see also Ellenberg v. Schneider, 109 Misc.2d 1058, 1062-63, 441 N.Y.S.2d 581, 585 (Sup.Ct. Nassau Cty. 1981). However, a court should find an agreement too indefinite only when it is apparent that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard, e.g., commercial practice or trade usage. See Mar Oil, 982 F.2d at 840; Rule, 85 F.3d at 1010. If a compensation term can be determined by referring to industry practice, the court may supply such a term where, at the time of agreement, the parties manifested an intent to be bound. See Mar Oil, 982 F.2d at 840.

"If the fee term of a purported attorney-client contract cannot be inferred by reference to industry practice, making the contract unenforceable, the attorney is nonetheless entitled to recover the reasonable value of his services." Id. Hence, even where a plaintiff fails to prove a valid contract, a court may allow recovery in quantum meruit "to assure a just and equitable result." Rule, 85 F.3d at 1011 (quoting Bradkin v. Leverton, 26 N.Y.2d 192, 196, 309 N.Y.S.2d 192, 195). If the complaint asserts claims sounding in both contract and quantum meruit, and there is a genuine dispute as to the existence of a contract, the plaintiff need not choose between these theories prior to trial. See id.

It is apparent, and plaintiff acknowledges, that no written agreement between the parties has been shown. However, plaintiff asserts the existence of an oral contract pursuant to which plaintiff agreed to provide legal and business services in connection with the purchase and operation of The Mill Resort and the defendant agreed to compensate plaintiff for those services. Plaintiff claims that, although he was then earning up to $70,000 per year as managing director of Floresta, his agreement with the defendant concerned compensation over and above that amount.

Plaintiff has not stated the basis for an oral understanding or agreement. At trial, plaintiff testified that the agreement was made in 1991 or 1992, during a meeting held either at plaintiff's law office in New York or at The Mill Resort in Aruba. Thus, plaintiff is unable to state with certainty when or where the purported oral agreement was made. As to the element of compensation, testimony at trial established, at most, "an agreement to agree." According to testimony by plaintiff, Rhoda Schafrann and Bloom, the defendant promised to pay plaintiff the reasonable value of his services when The Mill Resort began making money. Even assuming arguendo that the defendant made the oral representations he is alleged to have made, nevertheless, an essential element of the contract was left for future negotiations. Consequently, under the circumstances, the parties' alleged agreement was too indefinite to amount to an enforceable contract. See Ellenberg, 109 Misc.2d at 1064, 441 N.Y.S.2d at 586 (finding that, where a purported oral agreement lacked the essential element of compensation, the agreement was merely an agreement to agree to compensate in the future and, thus, unenforceable as a matter of law); Freedman v. Pearlman, 271 A.D.2d 301, 303, 706 N.Y.S.2d 405, 408 (App.Div. 1st Dep't 2000) ("[T]he alleged promises made early in the parties' relationship to provide `fair compensation' . . . were too indefinite to be enforced.") (citations omitted).

Moreover, although, under New York law, a court may supply a compensation term by reference to industry practice, such a course requires, inter alia, that the parties manifested their intent to be bound at the time the agreement was made. However, the evidence adduced at trial failed to establish the requisite manifestations of intent. On the contrary, the defendant testified that no "meeting of the minds" occurred between the parties concerning their alleged oral contract and that the payment, if any, of additional compensation to the plaintiff was at the defendant's discretion.

The Court finds, therefore, that plaintiff has not proved the existence of a valid oral contract concerning payment for legal services rendered by the plaintiff to the defendant in connection with The Mill Resort. Accordingly, since a contract between the parties has not been shown, plaintiff cannot prevail on his claim for breach of contract.

Quantum Meruit

As noted above, even where a plaintiff fails to prove a valid contract, a court may allow recovery in quantum meruit. Under New York law, a party seeking recovery in quantum meruit must prove "(1) the performance of the 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."LeBoeuf, Lamb, Greene MacRae, L.L.P. v. Worsham, 185 F.3d 61, 66 (2d Cir. 1999) (quoting Martin H. Bauman Assocs., Inc. v. H M Int'l Transp., Inc., 171 A.D.2d 479, 484, 567 N.Y.S.2d 404, 408 [App. Div. 1st Dep't 1991]) (internal quotation marks omitted).

In assessing the reasonable value of an attorney's services, courts have considered the following factors: (a) the difficulty of the questions involved; (b) the skill required to perform the services; (c) the time and labor required; (d) the lawyer's experience, ability and reputation; (e) the customary fee charged by the Bar for similar services; (f) the benefit to the client from the services; and (g) the amount involved. See Mar Oil, 982 F.2d at 840-41; Feldman, 2002 WL 31385826, at *5.

The rule in this circuit is that a party seeking an award of attorney fees must support that request with contemporaneous time records that show, "for each attorney, the date, the hours expended, and the nature of the work done." New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1154 (2d Cir. 1983). However, in cases governed by state law, such as diversity cases, where the allocation of attorneys' fees constitutes a substantive issue, state law governs the distribution. See General Star Indemnity Co. v. Custom Editions Upholstery Corp., 940 F. Supp. 645, 653 (S.D.N.Y. 1996). Under New York law, although attorneys' fees may be awarded in the absence of adequate contemporaneous time records, a court should not award the full amount requested. See id.: Mar Oil, 982 F.2d at 841; F.H. Krear Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1265 (2d Cir. 1987) ("The burden is on counsel to keep and present records from which the court may determine the nature of the work done, the need for it, and the amount of time reasonably required; where adequate contemporaneous records have not been kept, the court should not award the full amount requested."). However, even if contemporaneous records are not required under New York law, courts cannot rely on records that are admittedly speculative to set compensation. See General Star Indemnity Co., 940 F. Supp. at 653.

Plaintiff argues that he is entitled to recover the reasonable value of his services because, as he testified at trial, he performed those services in good faith, defendant accepted those services and plaintiff expected payment for them. Even if plaintiff's testimony, standing alone, were sufficient to establish the first three elements of his claim for recovery in quantum merit, plaintiff has failed to satisfy the fourth element of his claim.

Plaintiff acknowledges that he kept no contemporaneous time records in connection with any of the services he claims to have rendered to the defendant, and that his United States passport is his only record of the trips he took to Aruba and Curacao. Based on the information contained in his passport, plaintiff initially proposed $150,000 as the reasonable value of the legal services he had performed for the defendant in connection with The Mill Resort project. As noted above, this amount represented twenty (20) trips to Aruba and Curacao at $7,500 per trip. However, when questioned about the basis for his determination that $7,500 was the reasonable value of his services, plaintiff could only respond that he had taken the number "out of the air as a bargain price." At trial, plaintiff claimed, again based on the information contained in his passport, that the reasonable value of the legal services rendered by him to the defendant was $162,000. As noted above, this sum represented eighteen (18) trips to Aruba and Curacao, comprising eighty-one (81) days, for which plaintiff claims he earned $2,000 per day, that is, eight hours at the rate of $250 per hour.

The relevant information contained in plaintiff's passport consists of stamped visas, each indicating a date and place of entry or departure. Absent from plaintiff's submissions is any retainer or fee agreement regarding the legal services he was to perform or for whom they were to be performed. Plaintiff has described the types of services he claims to have provided to the defendant, for example, preparation and review of contracts and consultation with attorneys in Aruba, but has offered no proof about: (a) the time expended on each activity; (b) whether the services were to be compensated over and above plaintiff's annual salary as managing director of the defendant's corporation; or (c) whether the services were performed at all. Consequently, the Court has no basis upon which to determine the hours, if any, reasonably spent in representing the defendant in connection with The Mill Resort project.

Accordingly, since plaintiff has failed to submit any proof about the value of his services, he is not entitled to the attorney's fees he allegedly incurred in connection with the purchase and operation of The Mill Resort. See Freedman, 271 A.D.2d at 304, 706 N.Y.S.2d at 408 (finding that plaintiff's allegation that he performed services greater than defendants deserved for the compensation he actually received was not sufficient to state a cause of action in quantum meruit where none of the services was so distinct from the duties of his employment that it would be unreasonable for the employer to assume they were rendered without expectation of further pay); Dresses for Less, Inc. v. Lenroth Realty Co., Inc., 260 A.D.2d 220, 221, 688 N.Y.S.2d 50, 51 (App.Div. 1st Dep't 1999) (finding that evidence was insufficient to carry the burden of establishing the reasonable value of attorney's services where landlord's attorney kept no contemporaneous time records but simply estimated the percentage of his time devoted to work on the matter).

Having determined that the evidence adduced at trial was insufficient to establish plaintiff's claims for breach of contract or, alternatively, quantum meruit, and that essentially the same analysis would be applied to plaintiff's claim of unjust enrichment, it is unnecessary for the Court to address that claim at length. See, e.g., Newman Schwartz v. Asplundh Tree Expert Co., Inc., 102 F.3d 660, 663 (2d Cir. 1996) (finding that claims for quantum meruit and unjust enrichment were properly subsumed by the district court into a single claim for restitution); see also Rule, 85 F.3d at 1011. In like manner, given plaintiff's failure to establish any manifestation of intent by Karam to pay legal fees in connection with The Mill Resort, and Karam's unequivocal denial of such intent, there is no basis for recovery by plaintiff on a theory of detrimental reliance; hence, the Court need not dwell on this claim. See P.A. Bergner Co. v. Martinez, 823 F. Supp. 151, 160 (S.D.N.Y. 1993) (finding that recovery based on a claim of detrimental reliance, which is construed as a claim for promissory estoppel in the absence of a valid oral agreement, requires, inter alia, "a clear and unambiguous promise").

Based on the above, the Court finds that the defendant is not liable to plaintiff for any damages plaintiff sought to recover through this action. Accordingly, the Clerk of Court is directed to enter judgment for the defendant.

SO ORDERED


Summaries of

Schafrann v. Karam

United States District Court, S.D. New York
Feb 7, 2003
No. 01 Civ. 0647 (KNF) (S.D.N.Y. Feb. 7, 2003)
Case details for

Schafrann v. Karam

Case Details

Full title:JAY H. SCHAFRANN, Plaintiff, v. EDMOND KARAM, Defendant

Court:United States District Court, S.D. New York

Date published: Feb 7, 2003

Citations

No. 01 Civ. 0647 (KNF) (S.D.N.Y. Feb. 7, 2003)