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Cole, Schotz, Meisel, Forman and Leonard, P.A. v. Kleiman

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


March 17, 2010

COLE, SCHOTZ, MEISEL, FORMAN AND LEONARD, P.A., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
BRIAN KLEIMAN AND RIVKA CHAYA KLEIMAN, HUSBAND AND WIFE, STEVEN KLEIMAN AND RIVKA BASYA KLEIMAN, HUSBAND AND WIFE, HD MANAGEMENT HEALTHCARE, LLC, HAPPY DAYS ADULT HEALTHCARE, LLC, AND NEW HORIZONS BEHAVIORAL HEALTHCARE CENTER, LLC, DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1745-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 24, 2010

Before Judges Axelrad, Sapp-Peterson and Espinosa.

Plaintiff Cole, Schotz, Meisel, Forman & Leonard, P.A. ("Cole Schotz" or "the law firm") filed this lawsuit to collect unpaid legal fees arising from the representation of the defendants in certain litigation. Defendants did not dispute the reasonableness of the fees or that the work billed was performed. Their position was that only the "corporate defendants" and not the "individual defendants" were responsible for the legal fees incurred. Following a non-jury trial, the trial court dismissed the complaint against the individual defendants and concluded that, pursuant to the equitable doctrine of quantum meruit, plaintiff was entitled to recover $116,104.56 plus prejudgment and post-judgment interest from the corporate defendants. Plaintiff appealed and defendants cross-appealed. We reverse that part of the final judgment that dismissed the complaint against the individual defendants and remand for entry of judgment against all defendants, jointly and severally, and affirm the remainder of the judgment, including the awards of prejudgment and post-judgment interest.

Cole Schotz filed a complaint to recover unpaid legal fees from all defendants in March 2006. One answer and counterclaim was filed on behalf of all defendants. Summary judgment was granted to Cole Schotz, entering judgment on its collection claim and dismissing defendants' answer and counterclaim. Defendants appealed and, in an unpublished opinion, this court affirmed the dismissal of the counterclaim and reversed the dismissal of the answer. Cole, Schotz, Meisel, Forman & Leonard, P.A., v. Kleiman, No. A-6519-06 (App. Div. July 16, 2008). The trial that was conducted as a result produced the following pertinent evidence.

On or about February 2, 2005, an order to show cause and complaint was filed in chancery court in Essex County, 300 Broadway Healthcare Center, LLC v. Happy Days Adult Healthcare, LLC, No. C-25-05 (the underlying litigation). All of the defendants here, brothers Brian and Steven Kleiman*fn1 and their wives, Rivka Chaya Kleiman and Rivka Basya Kleiman, respectively (collectively, the "individual defendants"); HD Management Healthcare, LLC; Happy Days Adult Healthcare, LLC; and New Horizons Behavioral Healthcare Center, LLC (collectively, the "corporate defendants");*fn2 were named as defendants. The lawsuit concerned a dispute over the control and ownership of a large nursing home, 300 Broadway Health Care Center d/b/a New Vista Nursing Home and Rehabilitation Center ("New Vista" or "the nursing home"), that was located at 300 Broadway in Newark. There were two factions in that dispute, the defendants here (the Kleiman faction) and a group of investors led by George Weinberger (the Weinberger faction). When the attorney representing defendants had to withdraw from the case as a result of a conflict of interest, he referred the matter to Michael Meisel of Cole Schotz.

Meisel met with Brian and Steven in the early part of February. At the time of their meeting, there had been months of negotiations between the two factions regarding a proposal in which the Kleiman faction would buy out the Weinberger faction. However, as Meisel described it, the Weinberger faction had "forced the issue" and "put a gun to their head" by filing an order to show cause and complaint to terminate the Kleimans and their management company as the manager of the nursing home. There were, then, two tracks for the representation sought from Cole Schotz, a defense in the litigation and continued negotiation on behalf of the Kleiman faction's efforts to buy out the Weinberger faction.

Meisel testified that, in their first meeting, Brian and Steven asked if the nursing home could pay the legal fees. Meisel responded:

I explained to them it was a derivative suit that the nursing home was a plaintiff in the case bringing claims against them and their management company and that we were representing the Kleiman interests, not the nursing home, and it would be inappropriate for us to accept checks from the nursing home, and it would be inappropriate and it would be objectionable for the other side[.]

Meisel testified further that he told Brian and Steven that Cole Schotz would have to be paid by the Kleimans. Although Meisel never had any conversations with Rivka Chaya Kleiman or Rivka Basya Kleiman, it was undisputed that Brian Kleiman acted as the spokesman for all the defendants.

Approximately one month after Cole Schotz first began work for defendants, Meisel wrote a letter, dated March 16, 2005 (the retainer letter), to Brian Kleiman. Pursuant to Brian's instructions, the letter was sent to the address for the nursing home. However, neither the address nor anything in the letter indicated that the letter was sent to Brian in his capacity as a member of any LLC. The letter stated that it "confirm[s] our retention and authorization to represent you, Steven, Happy Days Adult Healthcare, LLC and the other named defendants in this litigation [and in] the parallel effort to conclude the purchase of the Weinberger Group interests." In discussing responsibility for fees and costs, the letter states:

In addition to our fees, you are also responsible for reimbursing us on out-of-pocket disbursements we advance on your behalf, and we will provide you with an itemized monthly invoice showing the time, activity, and expenses. [(Emphasis added).]

The letter discussed the retainer agreed upon as follows:

You've paid an initial retainer of $5,000 and are delivering a check for an additional $10,000. This $15,000 retainer will be held as security and applied to your last bill or refunded at the end of our representation. In the meantime, you are required to pay our monthly invoices as they are rendered. I have kept our retainer to a minimum, based on our understanding that you will pay our invoices promptly upon receiving them. [(Emphasis added).]

Meisel closed the letter by stating, "If you have any questions now or later concerning our billing practices or any particular charge, please let me know immediately." Although there were comments from time to time about the cost of the representation, none of the defendants ever questioned any of the bills, billing practices or raised any questions regarding this letter.

Notwithstanding his instructions to Brian and Steven that Cole Schotz's legal fees were not to be paid by the nursing home, Meisel learned that several checks drawn on the nursing home account had been sent to pay the law firm's fees.*fn3 He called Brian and reiterated that he was not permitted to pay the fees with nursing home checks. Several months after the first incident, Meisel learned that another nursing home check had been sent to the law firm. His testimony reflects his frustration at this disregard of his instructions:

[I]t came to my attention that despite the initial conversation, despite sending them back a check and reminding them that they were not to do this, in about November . . . they had submitted a check for $25,000 from the nursing home account.

He asked the accounting department to notify the bank that the check should not be credited to the Cole Schotz account but the check had already cleared. Meisel called Brian and advised that the funds should be wired immediately. Meisel testified that the firm did not care if payments were made from a personal account or from a corporate account "so long as it was a Kleiman account."

One answer was filed on behalf of all defendants in the underlying litigation. Cole Schotz represented defendants through discovery and trial preparation. However, after the chancery court granted summary judgment to the Weinberger faction, finding that cause had been established for the termination of the Kleiman faction as managers, Cole Schotz's representation of defendants ceased. At the time representation was terminated, Cole Schotz had been paid a total of $267,500 and had an outstanding balance of $123,387.31 for unpaid fees and expenses.

Meisel testified that the various defendants had a "unity of interests" in the underlying litigation. As Brian Kleiman described it, Rivka Chaya Kleiman and Rivka Basya Kleiman each had investments of $500,000 in cash in the nursing home. Kleiman testified that there was a claim in the lawsuit that their shares should be less than what they were. Brian Kleiman had negotiated a $500,000 reduction in the price of the nursing home when it was in bankruptcy, for which he asserted that the Kleimans were entitled to a credit of $500,000 as "additional capital." When the chancery court judge initially granted the order to show cause to remove the Kleimans from the management of the nursing home, the "fundamental position" of the defendants was that the removal destroyed the reasonable expectations of the Kleiman family. Meisel explained that part of the compensation and distributions the Kleimans received was through the direct interest of the wives from their 45.46% interest and part consisted of the management fee of 15% of distributions received through the management company.

Brian Kleiman was the only witness for the defendants. Kleiman testified that Meisel's insistence that Cole Schotz not be paid with nursing home funds was the result of a threat from adverse counsel as opposed to any other reason. Although he had no ownership interest in the nursing home, Kleiman believed that the nursing home should be responsible for the legal fees based upon an indemnification provision in the operating agreement of 300 Broadway Healthcare Center, LLC (the nursing home), and, accordingly, issued checks to Cole Schotz drawn on the nursing home's funds. Kleiman testified that he never promised that he or any of the other individuals named as defendants would be personally liable for the bills generated by Cole Schotz. He also denied that there had been any conversations with Meisel that the nursing home could not pay the law firm's bills.

Asked about the representation to be provided, Kleiman testified, "Cole Schotz was going to represent the management company, essentially via the nursing home, in this lawsuit by the other investors who were trying to remove the management, and to defend that removal of management." When pressed by the court as to the fact that he, his brother and their wives were all named as defendants in the lawsuit, Kleiman responded:

Well, clearly, obviously he would have to answer on behalf of all of them, but essentially I looked at those as bogus defendants, or as defendants that in any case the nursing home had the obligation to defend, because they were a - - they were derived at from the management company. So, the nursing home was responsible.

Kleiman identified the services Cole Schotz provided to Happy Days Adult Health Care, LLC and New Horizons Behavioral Health Care, LLC, as answering the complaint, answering discovery and representing them in depositions regarding the tenancies. Brian and Steven Kleiman were the only members of both LLCs.

On cross-examination, Kleiman acknowledged that each of the defendants had something to care about in the underlying litigation and each needed representation. The tenants were concerned about their leases; Rivka Chaya Kleiman and Rivka Basya Kleiman each were concerned about their investments; the management (Brian and Steven) cared about fighting removal. Kleiman also acknowledged that Cole Schotz provided each of the individuals with the representation needed. He stated that if Cole Schotz had not done so, defendants would have hired someone else to answer the complaint or to otherwise avoid default.

The trial court concluded that the March 16, 2005 retainer letter from Meisel to Kleiman did not constitute an enforceable contract. The court also concluded that Cole Schotz had failed to prove that Brian Kleiman, Steven Kleiman, Rivka Chaya Kleiman and Rivka Basya Kleiman had agreed to be responsible for the legal fees and costs incurred in the underlying representation. However, he determined that Cole Schotz was entitled to legal fees and costs from the corporate defendants under the equitable doctrine of quantum meruit. The trial court rejected defendants' argument that Cole Schotz had committed violations of the Rules of Professional Conduct (RPCs 1.6, 1.7 and 1.5) and that, therefore, it should be estopped from collecting any fees. Judgment was entered in favor of Cole Schotz against the corporate defendants, jointly and severally, in the amount of $116,104.56 plus costs and prejudgment and post-judgment interest.

In this appeal, Cole Schotz argues that the court committed reversible error in failing to enter judgment against all defendants jointly and severally. In their cross-appeal, defendants argue that Cole Schotz should be estopped from obtaining any fee recovery because the nursing home, New Vista, is responsible for the fees and because of its alleged violations of RPC 1.5, 1.6 and 1.7. In addition, defendants argue that Cole Schotz is not entitled to prejudgment or post-judgment interest.

I.

We first dispose of the cross-appeal. The arguments raised by defendants regarding estoppel and the award of interest lack sufficient merit to warrant discussion in a written opinion, R. 2:11-3(e)(1)(E), except for the following brief comments. First, we agree with the trial court that the evidence fails to establish any violation of the Rules of Professional Conduct by Cole Schotz. The estoppel argument also fails as to payments from the nursing home checking account. It is true that at least some of the defendants*fn4 may have an argument for seeking reimbursement of legal fees from New Vista based upon the indemnification clause in the operating agreement. However, the record is devoid of evidence that Cole Schotz agreed to limit responsibility for its fees to amounts paid or reimbursed by New Vista pursuant to this indemnification clause. The acceptance of some checks drawn on the nursing home's checking account cannot be construed as such an agreement.

Finally, contrary to defendants' argument, prejudgment interest is available on judgments based upon the doctrine of quantum meruit, LaMantia v. Durst, 234 N.J. Super. 534, 544 (App. Div.), certif. denied, 118 N.J. 181 (1989), and the trial court did not abuse its discretion in awarding prejudgment and post-judgment interest here. See Musto v. Vidas, 333 N.J. Super. 52, 74 (App. Div., certif. denied, 165 N.J. 607 (2000); Lehmann v. O'Brien, 240 N.J. Super. 242, 249 (App. Div. 1989).

II.

The scope of our review of factual findings made by the trial court is limited. Such findings are entitled to deference so long as they are supported by sufficient credible evidence. Real v. Radir Wheels, Inc., 198 N.J. 511, 527 (2009); State v. Locurto, 157 N.J. 463, 472 (1999). However, we review the law de novo and owe no deference to the trial court's interpretation of the law and the legal consequences that flow from established facts. Zabilowicz v. Kelsey, 200 N.J. 507, 512-513 (2009); Manalapan Realty, L.P. v. Manalapan Twp. Planning Bd., 140 N.J. 366, 378 (1995).

We see no reason to disturb the trial court's determinations that the March 16, 2005 retainer letter from Meisel to Brian Kleiman was not an enforceable contract or that the doctrine of quantum meruit applies here. However, we conclude that the trial court erred in its application of that doctrine and, as a result, erroneously failed to enter judgment against the remaining defendants for the fees owed to Cole Schotz.

The basis for recovery on quantum meruit is "the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another." Weichert Co. Realtors v. Ryan, 128 N.J. 427, 437 (1992). Recovery is permitted in quasi-contract because one party has conferred a benefit on the other and it would be unjust to deny recovery under the circumstances. Ibid. As the trial court recognized, there are four elements a plaintiff must satisfy to recover pursuant to this doctrine: 1) that the services were performed in good faith, 2) the services were accepted by the person for whom they were rendered, 3) plaintiff reasonably expected compensation for performing the services, and 4) the value of the services is reasonable. Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, 172 N.J. 60, 68 (2002).

We agree with the trial court that it was "clearly proven" that Cole Schotz "performed services in good faith, that there was an expectation of compensation and that the fee charged for the value of the services was reasonable." Indeed, defendants do not dispute any of these facts.

The error here concerned whether Cole Schotz provided sufficient proof that the services were accepted by persons for whom they were rendered, i.e., the individual defendants. The trial court found that Cole Schotz fell short on this element because it failed to show that all "defendants agreed to be liable for the obligation to the plaintiff." The fatal deficiency in the proofs cited by the trial court was the fact that the March 16, 2005 retainer letter was ambiguous and should have been signed by all defendants.

The application of contract principles supports the trial court's finding that the letter was not an enforceable contract because proof of affirmative consent to the terms of the retainer letter by each defendant was absent. County of Morris v. Fauver, 153 N.J. 80, 96 (1998). However, as the trial court correctly concluded, the applicable theory of recovery here was quantum meruit, a form of quasi-contractual recovery that is available when the requirements of an enforceable contract are not met. See Starkey, supra, 172 N.J. at 68 (although contingent fee agreement was unenforceable, attorney entitled to recover the reasonable value of his services under a quantum meruit theory); Glick v. Barclays De Zoete Wedd, Inc., 300 N.J. Super. 299, 313 (App. Div. 1997) (quantum meruit recovery permitted where attorney was retained and rendered services in good faith but failed to obtain written fee agreement pursuant to Rule 1:21-7 or RPC 1.5(c)). And, the pertinent required element is that the client accepted the services under circumstances where there was an expectation of compensation, not that the client agreed to be liable for that compensation.

As a practical matter, we note that if proof of a client's agreement to pay for services rendered was required for recovery under quantum meruit, the application of that equitable doctrine would be extremely limited, requiring the proofs for a breach of contract claim and more. The purpose of the doctrine, however, is to provide a remedy where there is no contract, the client fails to recognize an obligation to fairly compensate the attorney and, as a result, is unjustly enriched. See Weichert, supra, 128 N.J. at 437. Recovery is permitted despite the absence of an enforceable contract "because one party has conferred a benefit on the other and, in the circumstances, it would be unjust to deny recovery." Goldberger, Seligsohn & Shinrod, P.A. v. Baumgarten, 378 N.J. Super. 244, 252-253 (App. Div. 2005).

There is no evidence that the individual defendants expected that Cole Schotz would not receive compensation for its services. In fact, defendants do not deny that Cole Schotz deserves to be compensated for its services. Their argument is that, although services were rendered on their behalf, the responsibility for payment lies elsewhere. Even if sincerely held, that belief does not defeat recovery against the individual defendants. Quantum meruit recovery "provides compensation in circumstances in which it would be contrary to the parties' expectation to deprive the lawyer of all compensation." Starkey, supra, 172 N.J. at 69 (emphasis added) (quoting Restatement (Third) of the Law Governing Lawyers § 39 cmt. b(i) (1998)). Similarly, the lack of an understanding as to how the law firm will be remunerated does not preclude recovery. See Glick, supra, 300 N.J. Super. at 310 ("Where an attorney performs legal services for another at his request, but without any . . . understanding as to the remuneration, the law implies a promise on the party who requested such services to pay a just and reasonable compensation.")(emphasis added). To satisfy the element in question, it is only necessary to establish that the defendants accepted the benefit of the services; Cole Schotz was not required to show that each defendant intended to pay for the services rendered.

The evidence here clearly established that the individual defendants accepted the services rendered by Cole Schotz. It was undisputed that Brian Kleiman was the spokesman for his brother and their wives. At trial, he was the only witness for defendants and even ventured to testify as to facts that would have been within the personal knowledge of the other defendants. Kleiman acknowledged that each of the individual defendants had a stake in the litigation beyond that of the corporate defendants. Specifically, Rivka Chaya Kleiman and Rivka Basya Kleiman had a stake in defending their investments. As the only members of the LLC that managed the nursing home and received 15% off the top of all disbursements, Brian and Steven had a stake in defending against the effort to oust them as managers. Kleiman also acknowledged that Cole Schotz provided each of the individual defendants with the services needed to represent his or her interest. He stated that if Cole Schotz had not done so, the individual defendants would have hired someone else to answer the complaint or to otherwise avoid default. This testimony reflects a recognition by the individual defendants' spokesperson that each of them received appropriate legal services of value. Further, the admission that, in the absence of Cole Schotz's services, defendants would have "hired someone else" reflects an understanding that compensation was customarily required for such services.

We therefore conclude that Cole Schotz proved that it was entitled to a judgment against all defendants, jointly and severally, for unpaid legal fees pursuant to the quantum meruit doctrine. We remand to the trial court to vacate the judgment and for entry of a judgment consistent with this opinion.

Affirmed in part, Reversed in part and remanded.


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