Opinion
02 Civ. 8481 (SAS)
October 30, 2003
Jack S. Dweck, Esq., Robert W. Phelan, Esq., The Dweck Law Firm, L.L.P., New York, NY, for Plaintiff.
David B. Newman, Esq., Stephen L. Brodsky, Esq., Sonnenschein Nath Rosenthal, New York, NY, for Defendant.
OPINION AND ORDER
The Dweck Law Firm, L.L.P. ("Dweck") filed this diversity action against Cynthia Allen Mann ("Mann"), alleging breach of contract and damage to reputation. Mann now moves to dismiss the complaint or, in the alternative, stay the action pending resolution of an earlier filed state court action. Dweck cross moves for summary judgment.
The Dweck Firm purports to be appearing before this Court pro se. However, it is firmly established that "a corporation, partnership, or association may appear in federal court only through licensed counsel,"Rowland v. California Men's Colony, Unit II Men's Advisory Council, 506 U.S. 194, 217 (1993); see also Pridcren v. Andresen, 113 F.3d 391, 393 (2d. Cir. 1997). Because Jack S. Dweck, a member of The Dweck Firm and the signatory to Dweck's submissions to the Court, is admitted to the Bar of this Court and appears to have filed an appearance sheet in this action, I will assume, for purposes of the pending motions, that he is counsel to The Dweck Firm.
New York law does not recognize a cause of action for damage to reputation. See State v. General Elec. Co., 604 N.Y.S.2d 355, 357 (3d Dep't 1993) ("[T]here is no independent action for `damage to reputation.'"). Such a claim must be asserted through a "specific cause of action like libel, slander or malicious prosecution." Id. In its memorandum of law in opposition to defendant's motion to dismiss, plaintiff clarified that its "damage to reputation" claim is actually a claim for libel.
I. BACKGROUND
Dweck is a limited liability partnership organized under the laws of New York, with places of business in New York City and Westchester County. See Complaint ("Compl.") ¶ 2. Dweck is a law firm that specializes in employment and discrimination law. See id. ¶ 5. Defendant Mann is a citizen of Illinois. See id. ¶ 3.
B. The Retainer Agreement
In its amended complaint, Dweck alleges the following facts, all of which are deemed true for purposes of this motion. Prior to September 23, 1998, Mann engaged Dweck on an hourly basis to advise her with respect to various employment issues. See id. ¶ 7. When she first retained the firm, Mann worked at Worthheim Schroder, a financial institution. Subsequently, she was employed by First Union National Bank.See id. ¶ 6.
Mann eventually became concerned about her accumulating legal bills, and requested that her fee arrangement with the firm be changed from an hourly rate to a contingency agreement. See id. Thus, on September 23, 1998, the parties entered into a written retainer agreement, whereby the firm agreed to prosecute, negotiate, adjust or settle a claim for wrongful discharge, age and gender discrimination, harassment and mental anguish against First Union National Bank, on Mann's behalf. See id. ¶ 8. Pursuant to the retainer agreement, Mann was to pay $12,500 upon execution of the agreement, and, "[s]hould the action or proceeding result in a recovery, whether by suit, settlement or otherwise, thirty-three and one-third (33 1/3%) percent of all sums recovered against which shall be credited the Twelve Thousand Five Hundred ($12,500) Dollars advanced hereunder." See Retainer Agreement Between Cynthia Allen Mann and the Dweck Law Firm L.L.P. ("Retainer Agreement"), Ex. 1 to the Affidavit of Jack S. Dweck, a member of the Dweck Firm, in support of plaintiff's cross-motion for summary judgment.
The retainer agreement is not attached to the complaint, but was provided to the Court as an exhibit to defendant's motion to dismiss. Because it is referenced in the complaint, the court may consider it in ruling on a motion made pursuant to Fed.R.Civ.P. 12(b). See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (for purposes of Rule 12(b), the complaint includes "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference").
In connection with its obligations under the Retainer Agreement, Dweck rendered legal services on Mann's behalf, negotiating and attempting to settle Mann's claims against First Union National Bank. See Compl. ¶ 10. As a result of the firm's efforts, First Union made an initial settlement offer to Mann in the sum of $1,035,000.00, inclusive of out placement benefits. Mann accepted this offer on the condition that Dweck reduce its fee to $50,000. See id. ¶ 10(k). Thereafter, First Union made a second settlement offer to Mann in the amount of $1,350,000.00. Mann again accepted the offer conditionally, but this time the condition was that the Dweck Firm receive no fee. See id. ¶ 10(1). Subsequently, Mann informed Dweck that she no longer wished to pursue her negotiations with First Union, and discharged the firm.See id. ¶ 11.
C. The State Court Action
On November 5, 1999, the Dweck Firm commenced an action against Mann in New York Supreme Court, seeking (1) a declaratory judgment that the firm fully performed its obligations under the Retainer Agreement and that Mann discharged the firm without cause to avoid paying the firm's fee; and (2) a lien upon any settlement of any claims brought by Mann against First Union. See id. ¶ 15. Mann asserted a counterclaim against Dweck, alleging that the firm (1) attempted to coerce her into accepting a settlement offer that was not in her best interests solely so the firm could recover a fee; (2) coerced Mann into releasing confidential information to First Union; (3) released inaccurate or unauthorized information to First Union; and (4) subsequently interfered with Mann's attempts to negotiate a settlement with First Union. See id. ¶ 16. The Appellate Division of the New York Supreme Court dismissed the counterclaim, and Mann has not appealed that dismissal. See id. ¶ 19.
The Appellate Division of the New York Supreme Court interpreted the counterclaim to be an action for legal malpractice, see The Dweck Law Firm, L.L.P. v. Mann, 727 N.Y.S.2d 58 (1st Dep't 2001), and Dweck acknowledges that it was a malpractice claim, see Memorandum of Law in Support of Plaintiff s Motion for Summary Judgment and in Opposition to Defendant's Motion to Dismiss ("Pl. Mem.") at 3.
II. APPLICABLE LAW
A. Legal Standard
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a motion to dismiss should be granted only if "`it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief.'" Weixel v. Board of Educ. of New York, 287 F.3d 138, 145 (2d Cir. 2002) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (alterations omitted)). At the motion to dismiss stage, the issue "`is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'" Phelps v. Kapnolas, 308 F.3d 180, 184-85 (2d Cir. 2002) (quoting Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998)); see also In re Initial Public Offering Securities Litig., 241 F. Supp.2d 281, 322-24 (S.D.N.Y. 2003).
The task of the court in ruling on a Rule 12(b)(6) motion is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Pierce v. Marano, No. 01 Civ. 3410, 2002 WL 1858772, at *3 (S.D.N.Y. Aug. 13, 2002) (quotation marks and citations omitted). When deciding a motion to dismiss, courts must accept all factual allegations in the complaint as true, and draw all reasonable inferences in plaintiff's favor. See Chambers, 282 F.3d at 152. However, although the plaintiff's allegations are taken as true, the claim may still fail as a matter of law if it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief, or if the claim is not legally feasible. See Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers Lybrand, L.L.P., 322 F.3d 147, 158 (2d Cir. 2003); Stamelman v. Fleishman-Hillard, Inc., No. 02 Civ. 8318, 2003 WL 21782645, at *2 (S.D.N.Y. July 31, 2003).
B. Attorney Compensation
Under New York Law, a client has an absolute right to terminate the attorney-client relationship at any time, with or without cause. See Universal Acupuncture Pain Servs. v. State Farm Mut. Auto. Ins. Co., 232 F. Supp.2d 127, 130 (S.D.N.Y. 2002) (citing Cohen v. Grainger, Tesoriero Bell, 81 N.Y.2d 655, 658 (1993)). "An attorney, however, is not left without recourse for terminations lacking cause."Tops Mkts., Inc. v. Quality Mkts., Inc., No. 93 Civ. 0302, 2001 WL 392082, at *2 (W.D.N.Y. Apr. 4, 2001). If a client discharges an attorney after some services have been performed but prior to the completion of the services for which the fee was agreed upon, the attorney is entitled to recover compensation from the client measured by the fair and reasonable value of the completed services. See Universal Acupuncture, 232 F. Supp.2d at 130 (citing Tops Mkts., 2001 WL 392082, at *2).
A discharged attorney has two methods of recourse. First, the attorney is statutorily entitled to a charging lien on any recoveries obtained by the former client in the proceedings in which the attorney rendered services. See N.Y. Judiciary Law § 475 (McKinney's 2003); see also Universal Acupuncture, 232 F. Supp.2d at 131.Second, under New York common law, an attorney is entitled to a retaining lien on the client's papers and property that are in the attorney's possession until the attorney is reimbursed for expenses, the attorney's fee is determined under a quantum meruit theory, and it is either paid or secured. See Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir. 1991); Lai Ling Cheng v. Modansky Leasing Co., 73 N.Y.2d 454, 457-59 (1989). In contingency fee cases, the court has discretion to defer the calculation of appropriate attorney's fees until the conclusion of the litigation because the amount of the recovery is an element in the determination. See Universal Acupuncture, 232 F. Supp.2d at 131 (citing Tops Mkts., 2001 WL 392082, at *3).
Where the attorney in a contingency fee case is discharged but the client makes no recovery in the underlying action, however, the attorney's fees are limited to disbursements, and the attorney has no right to recover for the reasonable value of her services under quantum meruit. See Universal Acupuncture, 232 F. Supp.2d at 131-32 ("if there is no recovery, there will be no money from which to draw [the attorney]'s award and [the attorney] will be unable to recover attorney's fees") (citing Steves v. Serlin, 509 N.Y.S.2d 666, 667 (3d Dep't 1986) ("any amount owed [by the client] was limited to disbursements expended, since [the attorney] was retained on a contingency basis and no award had as yet been recovered by [the client]")); Tuff Rumble Mgmt., Inc. v. Landmark Distribs., Inc., 677 N.Y.S.2d 788, 788 (1st Dep't 1998) (holding that attorney's recovery is limited to disbursements because the client made no recovery in the underlying action, for which there was a contingent fee arrangement). In such circumstances, the attorney is limited to recovering disbursements and relying on the statutory charging lien pursuant to N.Y. Judiciary Law § 475.
C. Libel
Under New York law, libel, which is written or printed defamation, is defined as a false statement, published without privilege or authorization to a third party, that either causes special harm or constitutes libel per se. See Dillon v. City of New York, 704 N.Y.S.2d 1, 5 (1999); Peters v. Baldwin Union Free School Dist., 320 F.3d 164, 169 (2d Cir. 2003). It is a long-standing principle of New York law that "a statement made in the course of judicial proceedings is absolutely privileged so long as pertinent to the controversy," 55th Mgmt. Corp. v. Goldman, N.Y. Slip Op. 23505, 2003 WL 1906744, at *1 (1st Dep't Apr. 9, 2003), and may not be the basis for a libel action.
A counsel or party conducting judicial proceedings is privileged in respect to words or writings used in the course of such proceedings reflecting injuriously upon others, when such words and writings are material and pertinent to the questions involved. Within such limit, the protection is complete, irrespective of the motive with which they are used; but such privilege does not extend to matter having no materiality or pertinency to such questions.Youmans v. Smith, 153 N.Y. 214, 219 (1897) (quotingGilbert v. People, 1 Denio 45 (1845)); see also Mosesson v. Jacob D. Fuchsbercr Law Firm, 683 N.Y.S.2d 88, 89 (1st Dep't 1999) ("The absolute privilege rule is broad and liberal in order to protect counsel, witnesses and the parties to a judicial action . . . The privilege is broad enough to extend to all matters which would be libelous if not for their introduction into an action and which might become pertinent at any time during the proceedings.") (quotations and citations omitted); Lipin v. National Union Fire Ins. Co. of Pittsburgh, Pa., 202 F. Supp.2d 126, 137 (S.D.N.Y. 2002) ("All that is required for a statement to be privileged is a minimal possibility of pertinence."); Chimarev v. TD Warehouse Inv. Servs., 233 F. Supp.2d 615, 618 (S.D.N.Y. 2002) (same). "The absolute privilege embraces anything that may possibly or plausibly be relevant or pertinent, with the barest rationality, divorced from any palpable or pragmatic degree of probability. This test of pertinency is extremely liberal." Grasso v. Matthew, 564 N.Y.S.2d 576, 578 (3d Dep't 1991) (citation omitted); see also Singh v. HSBC Bank U.S.A., 200 F. Supp.2d 338, 340 (S.D.N.Y. 2002).
"The determination of the question of privilege is a question of law, and if it be determined that the language used was not impertinent, the privilege is absolute." People ex rel. Bensky v. Warden of City Prison, 258 N.Y. 55, 60 (1932); see also 55th Mgmt. Corp., 2003 WL 1906744, at *1; Chimarev, 233 F. Supp.2d at 618 (denying leave to amend complaint because the proposed defamation claim lacked merit as a matter of law where the purported defamation was made in the course of a legal proceeding); Singh, 200 F. Supp.2d at 340 (same). Thus, where it is clear from the pleadings that the allegedly defamatory statement was made in the course of a legal proceeding, the court must determine whether the statement was pertinent to the proceeding. If the statements is plausibly or possibly pertinent to the legal proceeding in which it was made, no defamation action may lie as a matter of law. Lipin, 202 F. Supp.2d at 138 (holding that complaint failed to state a cause of action for defamation where the allegedly defamatory statement was uttered in the course of a legal proceeding to which it was pertinent); O'Brien v. Alexander, 898 F. Supp. 162, 171-72 (S.D.N.Y. 1995) (dismissing cause of action where purportedly defamatory statements were made in course of legal proceedings and were plausibly pertinent to the proceeding).
III. DISCUSSION
A. Breach of Contract Claim
The Retainer Agreement between Dweck and Mann provides that Dweck is not entitled to legal fees beyond the $12,500 advance payment if there is no "recovery" on Mann's claims against First Union National Bank.See Retainer Agreement. The Agreement, therefore, sets forth a typical contingency fee arrangement. Pursuant to N.Y. Judicary Law § 475, Dweck is entitled to a lien on any recoveries Mann obtains in her proceedings against First Union. And Dweck has already secured such a lien in its state court action against Mann. See Pl. Mem. at 4.
In addition to the statutory charging lien, Dweck is entitled to recover its disbursements from Mann. See Universal Acupuncture, 232 F. Supp.2d at 131-32; Steves, 509 N.Y.S.2d at 667; Tuff Rumble, 677 N.Y.S.2d at 788. But because Mann and Dweck had a contingency fee agreement, Dweck is not entitled to recover for the reasonable value of its services unless and until Mann recovers in the underlying action against First Union.See Universal Acupuncture, 232 F. Supp.2d at 131-32;Steves, 509 N.Y.S.2d at 667; Tuff Rumble, 677 N.Y.S.2d at 788. In its complaint, Dweck pleads only that Manncould have recovered from First Union; it does not, and apparently cannot, plead that Mann actually did recover any money from First Union. As such, Dweck is not entitled to any fees for its services, and cannot recover on its breach of contract claim. That claim is therefore dismissed.
Dweck does not seek to recover its disbursements in this action.
The fact that Dweck may not, as a matter of law, maintain a breach of contract action against Mann in connection with the Retainer Agreement may not preclude Dweck from bringing an action for breach of the covenant of good faith and fair dealing. New York law does not recognize a separate cause of action for breach of the covenant of good faith and fair dealing when a breach of contract claim based on the same facts is also pled, because the two claims are considered redundant.See Harris v. Provident Life and Accident Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002). However, given that Dweck cannot bring a claim against Mann for breach of contract, see infra, it is possible that Dweck could maintain an action for breach of the covenant of good faith and fair dealing because there is no risk of redundant claims.
B. Libel
Dweck alleges that Mann committed libel by alleging that Dweck engaged in improper and unethical conduct. See Compl. ¶ 16. Specifically, in the New York state court action, Dweck sought a declaratory judgment that it was entitled to fees from Mann based on its representation of her in connection with her dispute with First Union National Bank. See id. ¶ 15. Mann counterclaimed, alleging that Dweck committed malpractice in the course of the same transaction from which it was seeking to recover fees from her. See id. ¶ 16. Dweck claims that Mann's counterclaim, and the facts alleged in support thereof, constitute libel. Because it is clear from the pleadings that the allegedly defamatory statement was made in the course of a legal proceeding, I must determine whether the statement was pertinent to the proceeding.
There is no doubt that the facts alleged in Mann's counterclaim against Dweck were "plausibly relevant or pertinent," see Grasso, 564 N.Y.S.2d at 578; Singh, 200 F. Supp.2d at 340, both to Mann's counterclaim and Dweck's action for a declaratory judgment. Presumably, Mann alleged that Dweck (1) attempted to coerce her into accepting a settlement offer that was not in her best interests solely so the firm could recover a fee; (2) coerced her into releasing confidential information to First Union; (3) released inaccurate or unauthorized information to First Union; and (4) subsequently interfered with her attempts to negotiate a settlement with First Union, see Compl. ¶ 16, to explain why Dweck was not entitled to fees from her, and to support her malpractice claim against Dweck. Given the extremely liberal pertinency test, see Grasso, 564 N.Y.S.2d at 578, and the fact that Mann's factual allegations were obviously related to Dweck's action and Mann's own counterclaim, I conclude that the factual allegations contained in Mann's counterclaim are privileged as a matter of law, and cannot form the basis for a libel action. See Bensky, 258 N.Y. at 60; 55th Mgmt. Corp., 2003 WL 1906744 at *1; Chimarev, 233 F. Supp.2d at 618; Singh, 200 F. Supp.2d at 340; Lipin, 202 F. Supp.2d at 138; O'Brien, 898 F. Supp. at 171-72. The libel claim is therefore dismissed.
IV. CONCLUSION
For the foregoing reasons, Mann's motion to dismiss is granted and Dweck's motion for summary judgment is denied. The Clerk of the Court is directed to close this motion and this case.
SO ORDERED.