A law firm’s financial arrangement for representing Duane Reade in terminating its contract with an automated teller machine supplier did not provide for payment of a “success fee” above the $1 million flat fee, a divided state appeals court decided yesterday.
The Appellate Division, First Department, ruled 3-2 that Kasowitz, Benson, Torres & Friedman’s agreement with Duane Reade provided only for the $1 million flat fee and a 20 percent success fee on any money the drug store chain recouped over $4 million on its settlement with its old ATM supplier, Cardtronics.
“Kasowitz is not entitled to a success fee under the terms 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 of the Cardtronics action,” Justices Richard Andrias (See Profile), Dianne Renwick (See Profile) and Nelson Roman (See Profile) wrote in an unsigned opinion in Kasowitz, Benson, Torres & Friedman v. Duane Reade, 101547/10.
The majority noted that in a September 2006 email to Duane Reade attorneys, Daniel Goldberg of Kasowitz had speculated that there might be as much as $10 million in surcharge fees withheld by Cardtronics that Duane Reade—and, by extension, the law firm—stood to gain.
Meanwhile, Kasowitz also claimed it was entitled to a portion of revenues Duane Reade received from JPMorgan Chase, which succeeded Cardronics on the ATM contract.
But the majority noted that Goldberg’s email, which formed the basis of Duane Reade’s contract with Kasowitz, made no explicit mention of fees the firm might have been entitled to from a new holder of the ATM contract.
JPMorgan Chase took over some ATMs in Duane Reade stores beginning in 2005. Duane Reade and Cardtronics did not agree to a settlement terminating their agreement until 2009, according to yesterday’s decision.
“The fee agreement makes no reference to any new or potential agreement that Duane Reade might…enter into with Chase or any other entity if the Cardtronics Agreement was terminated, nor does it indicate that the success fee would be based on any such agreement,” the majority said.
The judges said they agreed with Manhattan Supreme Court Justice Paul Wooten (See Profile), who in April 2011 rejected the law firm’s claim for a success fee.
“As Supreme Court found, ‘[i]f Kasowitz wanted to ensure that it would be receiving a contingency fee based on any developments with any other ATM machine providers, Kasowitz should have explicitly written such in its contingency fee,’” the panel said, quoting Wooten. “An omission or even a mistake in a contract does not constitute an ambiguity.”
In dissent, however, Justice James Catterson (See Profile), joined by Justice David Saxe (See Profile), said the contingency fee agreement is “ambiguous” and that issues of fact exist “over the intent of the parties.”
Catterson agreed with the majority in finding that Goldberg’s email outlining the terms of the agreement between Kasowitz and Duane Reade—and the brief e-mails in acceptance by then-Duane Reade general counsel Michelle Bergman—constituted a binding, unitary fee agreement.
But Catterson said an affidavit submitted by Bergman on Kasowitz’s behalf shows Duane Reade recognized that it could be responsible for payments above the flat fee and any possible contingency fees.
“In that affidvait, Bergman maintained that Duane Reade understood that the value of the termination of the Cardtronics litigation was more than simply getting out of its contractual obligations,” Catterson wrote. “Bergman stated that the ‘actual value of such termination…would hinge on the deal we were able to obtain to replace the Cardtronics agreement.’”
Catterson said it was “clear error” for Wooten to dismiss Bergman’s comments as “self-serving.”
“Bergman is not a party to the action, is not employed by either party, and on the facts of this record, has no interest in the outcome of the litigation, financial or otherwise,” Catterson wrote.
He also noted that Duane Reade has offered no sworn testimony to contradict Bergman’s statements.
Catterson said it is “hornbook law” that the proper way to test Bergman’s credibility is at trial, not on a motion for summary judgment.
Appeals of 3-2 rulings in civil cases are automatically subject to review by the Court of Appeals, should one of the parties request it.
Aaron Marks, a partner at Kasowitz, who handled the case for the firm, said yesterday that the firm is reviewing its options on whether to pursue an appeal and declined further comment.
Charles Dorkey of McKenna, Long & Aldridge represented Duane Reade.
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