In a case that seeks to raise questions about the limits of arbitration clauses in law firm retainer agreements, a New Jersey judge has declined to invalidate such a clause used by Sills Cummis & Gross in a bid to recover upward of $400,000 in allegedly unpaid fees.
Essex County General Equity Judge Walter Koprowski Jr. on Thursday denied an application to stay arbitration proceedings in Delaney v. Dickey, where the plaintiff, a former client of Sills Cummis and other firms, contends that his pursuit of legal malpractice claims against the firm should move the whole dispute to court.
Koprowski, in ruling from the bench, disagreed. “There’s very broad language used in the retainer agreement … regarding services and fees, not only fees,” the judge said. “Broad enough to encompass all disputes.”
There’s also no evidence that the plaintiff signed it under duress, or in any other condition that would ordinarily void an otherwise enforceable contract, Koprowski said, noting that the Federal Arbitration Act and related case law place arbitration provisions “on equal footing with all contracts.”
The plaintiff, Brian Delaney, contended that retainer agreements should not be treated like other contracts. His attorney, Glenn Bergenfield, argued in court papers that allowing disputes beyond fee fights to be the subject of arbitration clauses effectively jeopardizes the state Supreme Court’s authority to regulate the practice of law through court rules and ethics strictures, some of which govern lawyer-client relationships.
Koprowski based his ruling on the contract itself, and didn’t reach those policy assertions, though he did note, “there is no New Jersey case that we could find … that prohibits enforcement of an arbitration provision in a legal retainer agreement.”
“Based on the case law, I find that the arbitration provision in this case is valid and enforceable,” the judge said in court.
Sills Cummis partner Joshua Howley, who is representing the firm in its dispute with Delaney, declined to comment outside the courtroom. In its papers, the Newark-based firm has accused Delaney of lodging the legal malpractice claim in a last-ditch effort to put off arbitration proceedings.
Bergenfield, a Lambertville solo, said during Thursday’s court proceedings that he intends to appeal.
Reached by phone afterward, Bergenfield said “every lawyer in New Jersey would put [an arbitration clause] into their contracts” if doing so would mean avoiding litigation on any lawyer-client dispute. “The Supreme Court hasn’t said that’s OK,” Bergenfield said. “It’s really important that the Supreme Court address that.”
According to court papers, the underlying case arose from disputes that Delaney, a Sparta real estate developer with ownership interests in entities called CC Holdings LLC and CCSV LLC, had with his onetime business partners. In 2014, Delaney filed an action against two other CC Holdings principals in Morris County, and, the next year, was the subject of a Sussex County lawsuit by one of those principals. In September 2015, Delaney hired Sills Cummis to represent him, replacing Trenk, DiPasquale, Della Fera & Sodono.
The Sills Cummis retainer presented to Delaney contained a section titled “Arbitration,” which provided that, “in the event that we and you are unable to come to amicable resolution with respect to any dispute (including, without limitation, any dispute with respect to the Firm’s legal services and/or payment by you of amounts to the Firm), we and you agree that such dispute will be submitted to and finally determined by Arbitration[.]” The provision also noted that the rights to jury trial were waived, and provided that each side of the dispute pay half the arbitration fees.
According to the court documents, Delaney, represented by Sills Cummis partner Trent Dickey, settled the Morris County suit in April 2016. Three months later, Delaney “ terminated Sills by email with no explanation,” the firm claims in its filings.
Sills Cummis alleges that it sent a 30-day fee arbitration notice to Delaney, which got no response, and then initiated arbitration proceedings with JAMS and obtained a charging lien in connection with $439,685 in unpaid fees.
Delaney then hired an attorney to represent him in the arbitration proceedings: Patrick Galligan of Donnelly Minter & Kelly in Morristown, who would later urge that the arbitration be adjourned pending the court proceedings initiated by Delaney, according to his certification.
Delaney’s court filings assert that, in a six-month period, Sills Cummis racked up about $1 million in fees. The $439,685 figure represents the unpaid portion, according to the papers.
In late 2016, the parties agreed to attempt mediation with retired Superior Court Judge Thomas Olivieri, which didn’t succeed, after which Sills Cummis restarted the JAMS proceedings, and an October 2017 hearing was set.
Last August, Delaney filed a legal malpractice action in the Essex County Law Division. Sills Cummis claims that Delaney first threatened a legal malpractice action in January 2017. The complaint alleges that Dickey failed to hire experts and obtain crucial documents in Delaney’s underlying litigation. It also claims the Morris County settlement never was finalized.
Also named in Delaney’s legal malpractice action is Brach Eichler of Roseland and its partner, Robert Kasolas. The suit claims Brach Eichler, which represented Delaney and his companies from 2007 to 2014, “switched sides and began representing [CC Holdings] and … other partners in [CC Holdings] and CCSV who were adverse to Delaney.”
Brach Eichler partner Charles Gormally, who is representing that firm in connection with Delaney’s suit, didn’t return a call seeking comment on the matter.
Late last September, Delaney filed another action in court: A proposed order to show cause and complaint seeking declaratory relief, in the Essex County Chancery Division. Koprowski previously granted a temporary restraint, preventing the arbitration proceedings from moving forward.
In his brief, Bergenfield argued that, “This is no longer a dispute about fees,” and the filing of the legal malpractice action should have put the arbitration on hold. “Sills has refused to adjourn the arbitration it organized, seeking its legal fee now despite the claim of legal malpractice that would deny it a legal fee,” Bergenfield wrote, contending that Delaney is “entitled to discovery” and a jury trial. The brief also said the fee dispute and malpractice claim should be adjudicated together, in court.
Howley, in responding, wrote that Delaney “is no babe in the woods. He is a sophisticated businessman and no stranger to lawyers and litigation,” and “has tried at every turn to delay his day of reckoning[.]”
“ Enough is enough,” the Sills Cummis brief continues. “Lawyers are entitled to be paid for their services provided pursuant to a signed engagement letter. Delaney has delayed the fee arbitration for the last year and should not be heard at the eleventh hour to raise a novel argument that simply ignores the clear arbitration and jury waiver language in the engagement letter.”
It appears Sills Cummis has paid Delaney’s share of the JAMS arbitration fee, which the firm pointed to as evidence of Delaney’s delay tactics, and which Delaney pointed to as evidence that the firm “seeks its fee so ardently” that it is rushing the proceedings.
In a letter to the court, Bergenfield urged that Koprowski invalidate Sills Cummis’ retainer agreement on policy grounds, warning that upholding such a clause, and its application to a legal malpractice claim, would cause the Supreme Court to “lose its ability to regulate the conduct of lawyers in favor of private arbitrators—or, more bluntly—lawyers would, through this contrivance, begin to regulate themselves.”
In ruling Thursday, Koprowski steered clear of the policy arguments and denied the application for a stay of the arbitration proceedings based on the contract itself, which he said was clearly written.
Koprowski noted that Delaney returned the signed Sills Cummis retainer agreement 22 days after receiving it. “It’s not like we have the argument he was under some compulsion to sign it,” Koprowski said in court. “Clearly plaintiff had time to review the document and consult others. … I have to conclude that he agreed to arbitrate.”
The judge dispensed with Delaney’s contention that Sills Cummis, as a fiduciary, had a duty to explain that the arbitration provision clearly favored the firm over the client.
Bergenfield asked the judge to dismiss the case, so that there would be a final order to appeal, though the judge said the attorneys should discuss that issue before making a decision.