| Kasowitz, Benson, Torres & Friedman, LLP v Duane Reade |
| 2012 NY Slip Op 05889 [98 AD3d 403] |
| August 7, 2012 |
| Appellate Division, First Department |
| Kasowitz, Benson, Torres & Friedman, LLP,Appellant, v Duane Reade et al., Respondents. |
—[*1] McKenna, Long & Aldridge LLP, New York (Charles E. Dorkey III of counsel), forrespondents.
Judgment, Supreme Court, New York County (Paul Wooten, J.), entered April 7, 2011,dismissing the complaint, affirmed, without costs. Appeal from order, same court and Justice,entered March 18, 2011, dismissed, without costs, as subsumed in the appeal from the judgment.
This is a dispute over whether plaintiff Kasowitz law firm is entitled to a success fee inaddition to the flat $1 million fee it has already received in connection with its representation ofdefendant Duane Reade. The issues are whether the parties' emails established a binding feeagreement, and whether the fee was to be limited to the moneys Duane Reade received insettlement of the underlying Cardtronics litigation, or was to encompass all of the benefits DuaneReade received from the termination of its ATM placement contract with Cardtronics, includingincreased revenues from Duane Reade's new ATM contract with JP Morgan Chase (Chase).
"To establish the existence of an enforceable agreement, a plaintiff must establish an offer,acceptance of the offer, consideration, mutual assent, and an intent to be bound (22 NY Jur 2d,Contracts § 9)" (Kowalchuk vStroup, 61 AD3d 118, 121 [2009]). An exchange of emails may constitute anenforceable agreement if the writings include all of the agreement's essential terms, including thefee, or other cost, involved (see MarkBruce Intl., Inc. v Blank Rome, LLP, 60 AD3d 550, 551 [2009]; Williamson v Delsener, 59 AD3d291 [2009]; see generally Cobble Hill Nursing Home v Henry & Warren Corp., 74NY2d 475, 482 [1989], cert denied 498 US 816 [1990]).
On September 8, 2006, Kasowitz (by attorney Goldberg) emailed a proposed fee arrangementto Duane Reade's in-house counsel, Bergman, which provided in relevant part:
"We can do the Cardtronics case for a flat $1 million, payable over 10 months as yousuggested (exclusive of disbursements), plus 20% of amounts recovered above some number, asopposed to a percentage payable from dollar one.
"Based on the numbers we have, which obviously are [*2]approximations, we actually think the damages could be between$10 and $11 million over the life of the contract. So, I'm thinking of 20% of everything above $4million as the success fee portion. Thus, if we get $10 million, the total fee would be $2.2 million(with you keeping $7.8 million obviously). That's $1 million in flat fee, plus $1.2 million insuccess fee.
"That's actually a bit lower than what I had previously suggested of a discount off of timeplus 20%. That is, if we did 60% of time plus 20% contingency from dollar one, and we recover$10 million, our total fee would be $2.9 million (assuming our actual hourly would come to $1.5million, 60% of which is $900,000; leaving $900,000 in time charges, plus $2 million in successfee). Even if the recovery is $5 million (settlement or what have you), the total fee would be $1.2million, which still is a discount of a few hundred thousand based on 'splitting the baby.' What doI need to do to put you in a new lawsuit today?
"By the way, as to our discussion about it being a 'binary' case of either we win it all or lose itall, though in large part that's true, the damage question is not entirely irrelevant. We're sayingthat we should get paid based on the actual amount of transactions; figuring that out likely will bedisputed before we're done."
On September 19, 2006, Goldberg sent an email to Bergman in which he stated, in relevantpart, "I would love to have our fee arrangement in place by then so I can just tear into theseguys." In an email response to Kasowitz that same day, Bergman wrote "Go."
These three emails constitute an integrated fee agreement (see Nolfi Masonry Corp. vLasker-Goldman Corp., 160 AD2d 186, 187 [1990] ["a binding agreement may be assembledfrom more than one writing"]). By the plain language employed, they demonstrate that Kasowitzmade an offer to represent Duane Reade in the Cardtronics case for a flat $1 million, plus asuccess fee equal to 20% of the amounts recovered above $4 million in that litigation,and that Duane Reade accepted that offer. Kasowitz is not entitled to a success fee under theterms of the fee agreement, since Duane Reade received total compensation of approximately$1.75 million—well below the $4 million threshold—as a result of the settlement ofthe Cardtronics action.
The dissent believes that the fee agreement is ambiguous as to the scope of the fee. Thedissent reasons that the term "recover," as used in the September 8, 2006 email, may reasonablybe interpreted to encompass noncash resolutions, i.e., any value received as a result of thesettlement of the Cardtronics action. However, in adopting this position, the dissent fails toconsider the term "recovered" or "recovery" in the context of the email as a whole, andimproperly relies on extrinsic evidence, including Bergman's affidavits, in order to findambiguity where none exists.
"The fundamental, neutral precept of contract interpretation is that agreements are construedin accord with the parties' intent[, and that] [t]he best evidence of what parties to a writtenagreement intend is what they say in their writing" (Greenfield v Philles Records, 98[*3]NY2d 562, 569 [2002] [internal quotation marks and citationomitted]). "Whether a contract is ambiguous is a question of law and extrinsic evidence may notbe considered unless the document itself is ambiguous" (South Rd. Assoc., LLC v International Bus. Machs. Corp., 4 NY3d272, 278 [2005]; see RM RealtyHoldings Corp. v Moore, 64 AD3d 434, 437 [2009]). A contract is unambiguous if thelanguage it uses has "a definite and precise meaning, unattended by danger of misconception inthe purport of the [agreement] itself, and concerning which there is no reasonable basis for adifference of opinion" (Breed v Insurance Co. of N. Am., 46 NY2d 351, 355 [1978])."Mere assertion by one that contract language means something to him, where it is otherwiseclear, unequivocal and understandable when read in connection with the whole contract, is not inand of itself enough to raise a triable issue of fact" (Unisys Corp. v Hercules Inc., 224AD2d 365, 367 [1996] [internal quotation marks omitted]).
The language in the fee agreement does not contain any ambiguity, since it states the precisefee arrangement and explains the specific limited circumstances under which Kasowitz would becompensated by Duane Reade for legal services provided in the Cardtronics action. As evidencedby the examples set forth in the September 8, 2006 email, the only reasonable interpretation ofthe language employed is that Kasowitz based its fee proposal on the expected recovery orpotential earnings of $10 million from the surcharge fees that Cardtronics had withheld andwould owe over the "life of the contract" between Duane Reade and Cardtronics. Indeed,Kasowitz clearly stated that "[w]e're saying that [Duane Reade] should get paid based on theactual amount of transactions."
There is no basis for attributing to plaintiff the value of the termination of the ATMagreement, given the fee agreement's silence on that issue (see Greenfield v PhillesRecords, 98 NY2d at 569). The fee agreement makes no reference to any new or potentialagreement that Duane Reade might thereafter enter into with Chase or any other entity if theCardtronics agreement was terminated, nor does it indicate that the success fee would be basedon any such agreement. As Supreme Court found, "[i]f Kasowitz wanted to ensure that it wouldbe receiving a contingency fee based on any developments with any other ATM machineproviders, Kasowitz should have explicitly written such in its contingency fee." An omission oreven a mistake in a contract does not constitute an ambiguity (see Reiss v FinancialPerformance Corp., 97 NY2d 195, 199 [2001]; Gladstein v Martorella, 71 AD3d 427, 429 [2010]).
The existence of the valid and enforceable fee agreement precludes the causes of actionsounding in quasi contract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382,388 [1987]).
We have considered plaintiff's remaining contentions and find them without merit.Concur—Andrias, J.P., Renwick and Román, JJ.
Saxe and Catterson, JJ., dissent in a memorandum by Catterson, J., as follows: I amcompelled to dissent because I believe that the contingent fee agreement is ambiguous and thatthere are issues of fact over the intent of the parties. The brief exchange of emails that formed thesubstance of the fee agreement is susceptible to more than one interpretation. Thus, I believe thatsummary judgment is particularly inappropriate in this case.
Plaintiff law firm Kasowitz, Benson, Torres & Friedman, LLP (hereinafter referred to as[*4]Kasowitz) commenced this action to recover contingent feesallegedly owed as a result of legal services it performed for defendants Duane Reade and DuaneReade, Inc. (hereinafter collectively referred to as Duane Reade). In order to put the fee dispute incontext, a recitation of the facts is warranted.
In August 2003, Duane Reade entered into an agreement with Cardtronics, an operator ofautomated teller machines (ATMs), for the placement, maintenance and management of ATMsin Duane Reade's stores. The agreement entitled Duane Reade to half of all transactionsurcharges collected from customers using the ATMs. In December 2003, the parties amendedtheir agreement to reflect "bank branding" of Cardtronics ATM machines by a "large well-knownfinancial institution" and to extend the term to December 2014 (the Cardtronics agreement).
In March 2005, Cardtronics entered into a branding agreement with JP Morgan Chase toplace Chase's name and trademark on the ATMs in Duane Reade's stores. Prior to the branding,all customers paid a surcharge for each ATM transaction. As a result of the branding, Chasecustomers were no longer required to pay the user transaction surcharge. To compensate DuaneReade for the surcharge fees lost as a result of the branding, Cardtronics agreed to pay DuaneReade using a different calculation method.
Sometime thereafter, a fee dispute arose over Duane Reade's claim of underpayment of thesurcharge fees under the Cardtronics agreement. Cardtronics sought to pay Duane Reade basedon a fixed number of transactions for the remaining life of the contract, whereas Duane Readesought to determine the amount of transactions on a month-to-month basis.
In March 2006, Michelle D. Bergman, Esq., Duane Reade's senior vice-president and generalcounsel, asked Daniel P. Goldberg, an attorney with Kasowitz, to represent Duane Reade in anaction against Cardtronics to recover the surcharge fees. On September 8, 2006, Goldbergemailed Bergman a proposed fee arrangement by which Kasowitz would charge a flat fee of $1million, payable in 10 installments, plus disbursements, for the potential Cardtronics litigation.The email also provided for a "success fee," which was a contingency fee equal to 20% of thedamages Duane Reade recovered against Cardtronics "over the life of the [Cardtronics contract]"in excess of $4 million (hereinafter referred to as the fee agreement). The email, in part, stated:
"We can do the Cardtronics case for a flat $1 million, payable over 10 months as yousuggested (exclusive of disbursements), plus 20% of amounts recovered above some number, asopposed to a percentage payable from dollar one.
"Based on the numbers we have, which obviously are approximations, we actually think thedamages could be between $10 and $11 million over the life of the contract. So, I'm thinking of20% of everything above $4 million as the success fee portion. Thus, if we get $10 million, thetotal fee would be $2.2 million (with you keeping $7.8 million obviously). That's $1 million inflat fee, plus $1.2 million in success fee.
"That's actually a bit lower than what I had previously suggested of a discount off of timeplus 20%. That is, if we did 60% of time plus 20% contingency from dollar one, and we recover$10 million, our total fee would be $2.9 million (assuming our actual hourly would come to $1.5million, 60% of which is $900,000; leaving $900,000 in time charges, plus $2 million in successfee). Even if the recovery is $5 million (settlement or what have you), the total fee would be $1.2million, which is still a discount of a few [*5]hundred thousandbased on 'splitting the baby.' What do I need to do to put you in a new lawsuit today?
"By the way, as to our discussion about it being a 'binary' case of either we win it all or lose itall, though in large part that's true, the damage question is not entirely irrelevant. We're sayingthat we should get paid based on the actual amount of transactions; figuring that out likely will bedisputed before we're done."Bergman responded that it was an "interesting proposal," and that she would talk to Rick(referring to Duane Reade's then-chief executive officer, Rick Dreiling).
On September 19, 2006, Goldberg sent an email to Bergman in which he stated, in relevantpart, "I would love to have our fee arrangement in place by then so I can just tear into theseguys." In an email response to Kasowitz that same day, Bergman wrote "Go." These emails arethe total written communication of the parties concerning the fee agreement prior to thecommencement of the representation.
In October 2006, Kasowitz filed a new complaint on Duane Reade's behalf seeking damagesfrom Cardtronics for its miscalculation and underpayment of the surcharge fees; it did not seekrescission or termination of the Cardtronics agreement. On September 21, 2007, the court grantedCardtronics' motion to dismiss and denied Duane Reade's motion for summary judgment(Duane Reade, Inc. v Cardtronics, LP, 17 Misc 3d 1101[A], 2007 NY Slip Op 51785[U][Sup Ct, NY County 2007]). Kasowitz filed an appeal on behalf of Duane Reade in which itstated in its appellate brief that the Cardtronics action was "a straight-forward commercialdispute over the meaning of discrete contractual language." We reversed the motion court's orderdismissing the Cardtronics action, finding that the provision at issue in the Cardtronics agreementwas ambiguous (54 AD3d 137 [1st Dept 2008]). In October 2007, Duane Reade made its final$100,000 installment payment to Kasowitz, completing payment of the $1 million flat fee.
In September 2008, Duane Reade sought Kasowitz's legal advice on whether the Cardtronicsagreement could be terminated. In an email dated September 18, 2008, Kasowitz stated that ithad reviewed the Cardtronics agreement "in search of any provisions that Duane Reade mightutilize to cancel the Cardtronics relationship." In that email, Kasowitz advised that the complaintwould need to be amended in order to terminate the Cardtronics agreement through the lawsuit.
By letter dated October 24, 2008, Duane Reade advised Cardtronics that it was in defaultunder the terms of the Cardtronics agreement, and that it would "pursue . . . its rightto terminate the ATM Placement Agreement" unless Cardtronics remedied its defaults.
In November 2008, Duane Reade replaced Bergman as general counsel. The new generalcounsel began negotiating directly with Cardtronics on matters concerning the parties'relationship, including a possible reassignment of the ATM machines to Chase. It is undisputedthat Kasowitz was not involved in these negotiations.
On February 13, 2009, Duane Reade and Cardtronics agreed to settle the Cardtronicslitigation. The terms of the settlement included payment by Cardtronics of $1 million to DuaneReade by March 2009, dismissal of the pending Cardtronics action, and termination of theCardtronics agreement. Although Kasowitz was not involved in the settlement negotiations,Duane Reade contacted Kasowitz and requested that it draft the final [*6]settlement agreement.
On February 18, 2009, Goldberg emailed Duane Reade's general counsel the draft settlementdocuments. He also inquired about the "success fee" that Kasowitz was to receive, indicating thatthe litigation had been used to effect the result of termination and that Duane Reade's direct dealwith Chase was "far more profitable" than the Cardtronics deal. On March 23, 2009, generalcounsel emailed Goldberg, informing him that Duane Reade still did not have a deal with Chase,and that the litigation was being settled on the basis of the $1 million payment from Cardtronicsto Duane Reade, as agreed to on February 13, 2009.
On May 8, 2009, Duane Reade and Cardtronics finalized their settlement agreement and, onthe same date, entered into a third amendment of the Cardtronics agreement, which created afive-month transition period for the removal of Cardtronics' ATM machines from Duane Reade'sstores. During this five-month period, the ATM surcharges for non-Chase users were increasedfrom $0.99 to $1.99, and Duane Reade received $1 per ATM transaction, as opposed to itsprevious receipt of $0.50 per transaction.
In addition, on May 8, 2009, Duane Reade and Chase entered into an ATM licenseagreement by which Chase would place its own ATMs in Duane Reade stores, in place ofCardtronics' ATMs. Under the terms of the new agreement, Duane Reade received $3 million asthe first installment of the "Initial Term License Fee," and would receive $3.5 million in the sixthyear, a license fee for the five-year renewal term of $3.5 million inflated by either the consumerprice index or 3% each year, and monthly payments of a fee equal to the product of $0.99multiplied by all "Allpoint Network Withdrawals" made each month at "Agreement ATMs."Thus, the original agreement with Cardtronics was entirely supplanted by an agreement betweenDuane Reade and Chase.
Ultimately, Kasowitz demanded that Duane Reade compensate Kasowitz for a portion of thesuccess fee and Duane Reade refused. This litigation ensued. Both parties moved for summaryjudgment and the motion court ruled in favor of Duane Reade. The motion court concluded thatthere was a success fee agreement between the parties and that the action was settled in DuaneReade's favor. Furthermore, the settlement entitled Duane Reade to the $1 million in cash andtermination of the original Cardtronics agreement. The court also agreed with Kasowitz thatKasowitz was responsible for achieving that result. The court found that Kasowitz was notentitled to a success fee on the grounds that the $4 million threshold described in the originalemail from Goldberg to Bergman was simply not reached.
The motion court reasoned that "Kasowitz argues that it should be compensated for the'packaged deal' between Duane Reade, Chase and Cardtronics that occurred as a result of DuaneReade terminating with Cardtronics." The motion court rejected the argument that the Chaseagreement was part and parcel of the Cardtronics agreement and thus denied Kasowitz anysuccess fee attributable to the Chase agreement. Unfortunately, in my view, the motion court andthe majority misapprehend Kasowitz's argument. Such confusion requires reversal.
The question presented by the appeal is twofold: whether the exchange of emails constitutesa unitary agreement, and, if the exchange does indeed constitute a unitary agreement, are theterms of that agreement unambiguous?
I agree with the motion court and the majority on the former question that the exchange ofemails constitutes a unitary fee agreement. The original September 8th email proposed a flat feeof $1 million payable in installments by Duane Reade, "plus 20% of amounts recovered abovesome number, as opposed to a a [sic] percentage payable from dollar one." Bergman's [*7]response, although not referenced to the September 8 email, was asimple "Go." Bergman submitted an affidavit in support of Kasowitz's motion for summaryjudgment wherein she stated that "Go" was tantamount to Duane Reade's acceptance ofKasowitz's proposed terms. It must be recognized that at the very outset, it was necessary toresort to extrinsic evidence to establish that "Go" constituted Duane Reade's acceptance. Themajority posits that I have "improperly reli[ed] on extrinsic evidence, including Bergman'saffidavits, in order to find ambiguity where none exists." There are several problems with thiscontention. First, as pointed out above, Bergman's affidavit is necessary to interpret themonosyllabic command "Go."[FN*]There is no other way to attribute "Go" to acceptance of Goldberg's emails. Only Bergman, theauthor of "Go" could establish that "Go" constituted Duane Reade's acceptance.
Secondly, when read together as Bergman's affidavit and Duane Reade's argument on appealpropose, the emails evince an intent on the part of both parties to be bound to some fee for legalservices. Based on the actual text of the emails, the scope of that fee is, in my view, uncertainbecause the language is ambiguous. The key term at issue is "recover." Kasowitz urges that "theterm is not limited to monetary recovery alone and expressly contemplates equivalent valueachieved as a result of a settlement or otherwise." In support of this contention, Kasowitz cites aseries of decisions permitting a contingent fee as against noncash resolutions. (See e.g. Beatiev DeLong, 164 AD2d 104 [1st Dept 1990] [contingent fee arrangement for vindicating rightsto five different patents].)
Kasowitz also relies on the Bergman affidavit submitted in support of Kasowitz's summaryjudgment motion. In that affidavit, Bergman maintained that Duane Reade understood that thevalue of the termination of the Cardtronics litigation was more than simply getting out of itscontractual obligations. Bergman stated that the "actual value of such termination. . . would hinge on the deal we were able to obtain to replace the Cardtronicsagreement." Further, Bergman stated that the actual value would be "worked out and calculatedat the appropriate time, if a termination ended up being part of a resolution."
The motion court rejected the Bergman affidavit as "self-serving." In my view, this was clearerror for many reasons. It is undisputed that Bergman was not only Duane Reade's generalcounsel and senior vice-president at the time the agreement was negotiated, but she was also thesole employee of Duane Reade who negotiated the very agreement at issue. Bergman was theonly person on Duane Reade's side with personal knowledge who was involved in thetransaction. Bergman's first affidavit was provided pre-litigation and the second affidavit, whichwas submitted in support of the motion for summary judgment, reaffirmed Bergman's view of theelements of the agreement.
It is beyond dispute that Bergman's affidavit cannot be categorized as "self-serving."Bergman is not a party to the action, is not employed by either party, and on the facts of thisrecord, has no interest in the outcome of the litigation, financial or otherwise. Most importantly,Duane Reade has offered no sworn testimony from anyone to contradict either Bergman affidavit.The only evidence put forward by Duane Reade was the affirmation of its own counsel which[*8]was not based on personal knowledge; counsel's firstinvolvement with the case was over three years after the agreement was negotiated. At the veryleast, it is reversible error to have refused to consider the Bergman affidavits because of thecharacterization of them as "self-serving."
Finally, on the question of the veracity of the Bergman affidavits, it is hornbook law thatBergman's credibility can only be tested through a trial, not on a motion for summary judgmentwhere, as here, factual averments are uncontested. (Santos v Temco Serv. Indus., 295AD2d 218 [1st Dept 2002].)
The majority's only possible justification for rejecting Bergman's affidavits is the contentionthat the terms of the contingent fee agreement were unambiguous. The motion court found thatGoldberg's use of the expressions "numbers" and "life of the contract" could only refer to"damages based purely on litigating with Cardtronics to enforce the contract with Duane Readeand Cardtronics in Duane Reade's favor."
The majority adopts this analysis, holding that "[the language in the fee agreement] states theprecise fee arrangement." There is simply nothing in the Goldberg emails that is "precise." Onceagain, the language of the emails is important. What is "precise" about the email exchange is thatneither Goldberg nor the monosyllabic Bergman ever settled on what would be the basis for thecontingent fee. Goldberg wrote about calculating the fee based on damages to Duane Reade, notsimply the amount claimed in the contract action. Indeed, after discussing various calculationsbased on different "recovery" scenarios, Goldberg asked, "What do I need to do to put you in anew lawsuit today?" That question, as well as the permutations on the contingent fee question,was answered by "Go."
Even were I to agree with the motion court and the majority that "numbers" and "life of thecontract" were susceptible of only one meaning, Kasowitz persuasively argues that "recovery"can mean many things. In Kass v Kass (91 NY2d 554, 566 [1998]), the Court of Appealscautioned that we must examine "the entire contract and consider the relation of the parties andthe circumstances under which it was executed" (internal quotation marks omitted). Furthermore,in parsing the actual words used by the parties, we must necessarily consider the written word "inthe light of the obligation as a whole and the intention of the parties as manifested thereby."(Kass, 91 NY2d at 566.) Thus, a dispute over the meaning of "recovery" can only beresolved through the prism of the parties' intent at the time.
Bergman's and Goldberg's affidavits, when read in conjunction with the disjointed languageof the emails, create issues of fact that surely survive a motion for summary judgment. [PriorCase History: 33 Misc 3d 1209(A), 2011 NY Slip Op 51821(U).]
Footnote *: It is also interesting to note thatDuane Reade originally argued to the motion court that the agreement was ambiguous. Onappeal, however, Duane Reade now argues that the agreement is "a clear, complete andunambiguous statement of the intent of the parties." In part, I agree.