A Failed Attempt to Avoid Legal Fees

Matrimonial attorneys often have trouble collecting their fees from clients. This can be especially true when the case has been resolved and the client is dissatisfied with the outcome. Clients may get very creative in their efforts to avoid making payment. Case in point: A suit brought by a law firm against a nonpaying client was recently decided in the firm's favor, in spite of the defendant client's unusual attempt to be excused from his obligation. The case, Paul, Weiss Rifkind, Wharton & Garrison v. Koons, 2004 N.Y. Misc. LEXIS 667 (Sup. Ct., N.Y. Cty. 5/14/04) (Acosta, J.) presented the novel issue of whether a party could defeat a properly pleaded account-stated cause of action in an attorney-client relationship by claiming that the legal fees were excessive pursuant to DR 2-106, therefore rendering the agreement to pay the outstanding fees illegal and unenforceable.

An account stated is an agreement between the parties to an account based on prior transactions between them acknowledging the correctness of the separate items and agreeing that a balance is due by one party to the other. An implicit agreement to pay arises when the party that owes money to the other fails to object to the bill within a reasonable time or makes partial payments on it. Evidence warranting summary judgment in the creditors favor “will arise from either the absence of any objection to a bill within a reasonable time or a partial payment of the outstanding bills.” Chisholm-Ryder Co. Inc. v. Sommer & Sommer, 70 A.D.2d 429, 431, 421 N.Y.S.2d 455 (4th Dept. 1979). In addition, an affirmance by the debtor that the money is owed will make it difficult for a court later to hold that the debt is not legitimate.

The Facts

The issue in the Koons case arose in the context of fees incurred in a hotly contested custody dispute between a wealthy and prominent artist and his equally prominent wife, Ilona Staller, an Italian citizen involved in politics and pornography. Their divorce and custody battles, which were drawn out and vigorously fought on both sides of the Atlantic, caused the defendant to run up some hefty bills with his law firm, Paul, Weiss, Rifkind, Wharton & Garrison.

During the course of the litigation, each party removed the child to another jurisdiction, in direct defiance of court orders. For instance, in January 1994, the parties were ordered by the court not to remove their son from his New York residence, but in June 1994, despite the constant presence of bodyguards hired to prevent it, the child's mother was able to secret him out of the United States and back to her native Italy. In December 1994, after extensive litigation, during which defendant instructed Paul Weiss to “leave no stones unturned” and to work “full-speed-ahead in every front that could be pursued,” defendant was granted a divorce in New York and was awarded sole custody. For the next 4 years, the divorce and custody issues were re-litigated in the Italian courts, with the child's mother eventually gaining legal custody. Although the defendant father had Italian counsel in Italy, he continued to retain the plaintiff law firm to work with his Italian team.

A series of letters from defendant to Paul Weiss chronicle defendant's desire that the law firm use every means at its disposal to regain custody of defendant's son, including communicating with the then-President of the United States. As a result, firm attorneys made contact with the Assistant Secretary of State, the United States Ambassador to Italy, federal prosecutors, and members of Congress in order to further defendant's aim of having his son brought back to the United States. From 1993 to 1999, plaintiff billed defendant a total of $3,942,024 in legal fees. Defendant paid his first 16 monthly bills on time, and although he then started to pay his bills more erratically, he never objected to the monthly bills. In fact, in 1994, when his debt had grown to $951,620 and the firm requested prompt payment, defendant, through his assistant, offered his highly valued artwork as collateral for the debt. When plaintiff declined the collateral, defendant made two payments for $100,000 each. In 1995, the defendant made payments in April, June and September, totaling $400,000, but has made no further payments since then. In all, defendant paid a total of $2,064,207.

In response to plaintiff's request that defendant memorialize his oral assurances of payment in writing, defendant signed a letter Nov. 2, 1995, stating that he believed the bills to be “fair and reasonable” and that he intended to pay the outstanding bills eventually. Defendant also acknowledged his debt to plaintiff in both his “accounts payable” list of Jeff Koons Productions Inc., in 1994 and 1995, and in interrogatory answers and deposition testimony. As of the filing of the instant motion, defendant maintained an outstanding debt to plaintiff of $1,877,818.

Motion for Summary Judgment

After presenting its case, the law firm moved for summary judgment, arguing that it was entitled to have its motion granted because the defendant never objected to the legal fee bills within a reasonable time, he made partial payments, and he even explicitly promised to pay the outstanding balance of the debt, both orally and in writing.

The defendant, rather than contesting the validity of the account-stated doctrine, instead argued that under DR 2-106 of the Code of Professional Responsibility, 22 N.Y.C.R.R. ' 1200.11, which states that a lawyer shall not charge an illegal or excessive fee, the court should exercise its discretion by not enforcing the debt on the grounds that it represented excessive fees for legal services. Koons pointed out that in Chisholm-Ryder Co. Inc. v. Sommer & Sommer, the court had found the account-stated doctrine was conclusive “in the absence of fraud, mistake or other equitable consideration.” 70 A.D.2d at 431, 421 N.Y.S.2d 455 (4th Dept. 1979). He therefore produced affirmations from two matrimonial law experts who stated that plaintiff's bills were so high that they were excessive within the meaning of DR 2-106, a situation, defendant asserted, that called for the court to decline to enforce the debt.

But the court was unconvinced by the defendant's argument, stating, “While plaintiff is not relieved of its ethical obligation to charge a reasonable fee, see DR 2-106, the fact is that no such issue has been raised.” Specifically, the defendant failed to bring any evidence that would indicate he was overcharged for the services he received. For instance, he made no complaint that he was charged an unreasonable fee for the time associates assigned to the case had to watch pornographic videos, a necessary part of preparing to litigate the underlying custody dispute between defendant and his former wife. He also did not charge that the firm billed him for unnecessary services. In fact, the defendant authorized and encouraged the firm's all-out assault on his former wife in the underlying custody litigation.

In sum, the court found that the high cost of litigating Koons' divorce and custody issues was due not to the law firm's overcharging in violation of DR 2-106, but to the defendant's desire to spare no expense in an effort to gain custody of his child. “Such extravegance is costly,” said the court. Thus, the plaintiff firm, which had established the validity of the defendant's debt under the account-stated doctrine, was entitled to summary judgment.

The Lessons

Could this gambit have worked in another setting? Possibly. For instance, a court might find that a law firm overcharged a client for services that he did not authorize, but that he later felt bullied into saying he would pay for, perhaps fearing that the firm would not diligently move the case forward if he did not pay. If the client later affirmed his intention to pay the debt or made partial payments, a court might invoke DR 2-106 to find that he was not liable to make further payments despite the account-stated doctrine. The missing element in Koons' defense was that he failed adequately to show that the services he received weren't worth what he paid for them. This case cost him more to litigate than most divorce and custody proceedings because he was wealthy enough to pay a great deal in hopes of gaining what he wanted. The court in this case simply found that DR 2-106 is not meant to give the courts the authority to “police the conduct of wealthy litigants who choose to share their wealth with counsel through extravagant litigation.”

Matrimonial attorneys often have trouble collecting their fees from clients. This can be especially true when the case has been resolved and the client is dissatisfied with the outcome. Clients may get very creative in their efforts to avoid making payment. Case in point: A suit brought by a law firm against a nonpaying client was recently decided in the firm's favor, in spite of the defendant client's unusual attempt to be excused from his obligation. The case, Paul, Weiss Rifkind, Wharton & Garrison v. Koons, 2004 N.Y. Misc. LEXIS 667 (Sup. Ct., N.Y. Cty. 5/14/04) (Acosta, J.) presented the novel issue of whether a party could defeat a properly pleaded account-stated cause of action in an attorney-client relationship by claiming that the legal fees were excessive pursuant to DR 2-106, therefore rendering the agreement to pay the outstanding fees illegal and unenforceable.

An account stated is an agreement between the parties to an account based on prior transactions between them acknowledging the correctness of the separate items and agreeing that a balance is due by one party to the other. An implicit agreement to pay arises when the party that owes money to the other fails to object to the bill within a reasonable time or makes partial payments on it. Evidence warranting summary judgment in the creditors favor “will arise from either the absence of any objection to a bill within a reasonable time or a partial payment of the outstanding bills.” Chisholm-Ryder Co. Inc. v. Sommer & Sommer , 70 A.D.2d 429, 431, 421 N.Y.S.2d 455 (4th Dept. 1979). In addition, an affirmance by the debtor that the money is owed will make it difficult for a court later to hold that the debt is not legitimate.

The Facts

The issue in the Koons case arose in the context of fees incurred in a hotly contested custody dispute between a wealthy and prominent artist and his equally prominent wife, Ilona Staller, an Italian citizen involved in politics and pornography. Their divorce and custody battles, which were drawn out and vigorously fought on both sides of the Atlantic, caused the defendant to run up some hefty bills with his law firm, Paul, Weiss, Rifkind, Wharton & Garrison.

During the course of the litigation, each party removed the child to another jurisdiction, in direct defiance of court orders. For instance, in January 1994, the parties were ordered by the court not to remove their son from his New York residence, but in June 1994, despite the constant presence of bodyguards hired to prevent it, the child's mother was able to secret him out of the United States and back to her native Italy. In December 1994, after extensive litigation, during which defendant instructed Paul Weiss to “leave no stones unturned” and to work “full-speed-ahead in every front that could be pursued,” defendant was granted a divorce in New York and was awarded sole custody. For the next 4 years, the divorce and custody issues were re-litigated in the Italian courts, with the child's mother eventually gaining legal custody. Although the defendant father had Italian counsel in Italy, he continued to retain the plaintiff law firm to work with his Italian team.

A series of letters from defendant to Paul Weiss chronicle defendant's desire that the law firm use every means at its disposal to regain custody of defendant's son, including communicating with the then-President of the United States. As a result, firm attorneys made contact with the Assistant Secretary of State, the United States Ambassador to Italy, federal prosecutors, and members of Congress in order to further defendant's aim of having his son brought back to the United States. From 1993 to 1999, plaintiff billed defendant a total of $3,942,024 in legal fees. Defendant paid his first 16 monthly bills on time, and although he then started to pay his bills more erratically, he never objected to the monthly bills. In fact, in 1994, when his debt had grown to $951,620 and the firm requested prompt payment, defendant, through his assistant, offered his highly valued artwork as collateral for the debt. When plaintiff declined the collateral, defendant made two payments for $100,000 each. In 1995, the defendant made payments in April, June and September, totaling $400,000, but has made no further payments since then. In all, defendant paid a total of $2,064,207.

In response to plaintiff's request that defendant memorialize his oral assurances of payment in writing, defendant signed a letter Nov. 2, 1995, stating that he believed the bills to be “fair and reasonable” and that he intended to pay the outstanding bills eventually. Defendant also acknowledged his debt to plaintiff in both his “accounts payable” list of Jeff Koons Productions Inc., in 1994 and 1995, and in interrogatory answers and deposition testimony. As of the filing of the instant motion, defendant maintained an outstanding debt to plaintiff of $1,877,818.

Motion for Summary Judgment

After presenting its case, the law firm moved for summary judgment, arguing that it was entitled to have its motion granted because the defendant never objected to the legal fee bills within a reasonable time, he made partial payments, and he even explicitly promised to pay the outstanding balance of the debt, both orally and in writing.

The defendant, rather than contesting the validity of the account-stated doctrine, instead argued that under DR 2-106 of the Code of Professional Responsibility, 22 N.Y.C.R.R. ' 1200.11, which states that a lawyer shall not charge an illegal or excessive fee, the court should exercise its discretion by not enforcing the debt on the grounds that it represented excessive fees for legal services. Koons pointed out that in Chisholm-Ryder Co. Inc. v. Sommer & Sommer, the court had found the account-stated doctrine was conclusive “in the absence of fraud, mistake or other equitable consideration.” 70 A.D.2d at 431, 421 N.Y.S.2d 455 (4th Dept. 1979). He therefore produced affirmations from two matrimonial law experts who stated that plaintiff's bills were so high that they were excessive within the meaning of DR 2-106, a situation, defendant asserted, that called for the court to decline to enforce the debt.

But the court was unconvinced by the defendant's argument, stating, “While plaintiff is not relieved of its ethical obligation to charge a reasonable fee, see DR 2-106, the fact is that no such issue has been raised.” Specifically, the defendant failed to bring any evidence that would indicate he was overcharged for the services he received. For instance, he made no complaint that he was charged an unreasonable fee for the time associates assigned to the case had to watch pornographic videos, a necessary part of preparing to litigate the underlying custody dispute between defendant and his former wife. He also did not charge that the firm billed him for unnecessary services. In fact, the defendant authorized and encouraged the firm's all-out assault on his former wife in the underlying custody litigation.

In sum, the court found that the high cost of litigating Koons' divorce and custody issues was due not to the law firm's overcharging in violation of DR 2-106, but to the defendant's desire to spare no expense in an effort to gain custody of his child. “Such extravegance is costly,” said the court. Thus, the plaintiff firm, which had established the validity of the defendant's debt under the account-stated doctrine, was entitled to summary judgment.

The Lessons

Could this gambit have worked in another setting? Possibly. For instance, a court might find that a law firm overcharged a client for services that he did not authorize, but that he later felt bullied into saying he would pay for, perhaps fearing that the firm would not diligently move the case forward if he did not pay. If the client later affirmed his intention to pay the debt or made partial payments, a court might invoke DR 2-106 to find that he was not liable to make further payments despite the account-stated doctrine. The missing element in Koons' defense was that he failed adequately to show that the services he received weren't worth what he paid for them. This case cost him more to litigate than most divorce and custody proceedings because he was wealthy enough to pay a great deal in hopes of gaining what he wanted. The court in this case simply found that DR 2-106 is not meant to give the courts the authority to “police the conduct of wealthy litigants who choose to share their wealth with counsel through extravagant litigation.”