The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
This case presents a perfect example of why lawyers should always have clear retention agreements with their clients. Two law firms engaged in sloppy business practices and now one seeks to require payment from clients who had only the vaguest idea of what was going on. Flemming, Zulack and Williamson, LLP ("FZW")*fn1 sues under the equitable theories of quantum meruit and unjust enrichment to recover legal fees.
This case was tried to the Court on December 11-12, 2007. From the record as a whole, including the trial testimony, exhibits, and witness demeanor, the Court makes the following findings of fact.
1. Information Super Station, LLC ("ISS") was formed in 1997 by Dennis J. Dunbar. When Mr. Dunbar developed the idea of broadcasting live proceedings from the federal executive branch, he turned to his long-time corporate lawyer, Jim Hagerty, for help in obtaining investment capital. Mr. Hagerty and/or Haig V. Kalbian, friend and future law partner of Mr. Hagerty, put Mr. Dunbar in contact with Bart S. Fisher and J. Patrick Dowd, partners in Capital House Merchant Banking, LLC. Mr. Fisher and Ann Riley Dowd, wife of Mr. Dowd, invested in ISS and became "Members" of the LLC, with approximately 20% interest each. Mr. Dunbar was the Managing Member of ISS and exercised exclusive authority to act for or bind ISS in the ordinary course of business. Ann Riley Dowd acted by and through her husband, who was not a Member because of a prior conviction for perjury, which would have interfered with ISS federal licensing from the Federal Communications Commission.
2. Pursuant to the ISS Operating Agreement, no Member was required to contribute additional capital or to have personal liability for any obligations of ISS. The Agreement also provided that ISS "shall indemnify each Member for any act performed by the Member with respect to Company matters, except for willful misconduct or recklessness." Def. Bart S. Fisher's Trial Ex. (hereinafter, "Def.'s Ex.") 1 (Amended and Restated Operating Agreement of Information Super Station) at 11 (§ 5.52).
3. With direct assistance from Messrs. Fisher and Dowd, ISS and Ampex Corporation entered into a joint venture agreement in 1999 to broadcast events of the executive branch of the federal government over the Internet.*fn2 As a result, Ampex invested more than $1,000,000 in ISS and its subsidiary, Executive Branch Webcasting Corporation ("EBWC"). The joint venture failed. ISS became concerned that Ampex was stealing ISS's intellectual property and retained Haig V. Kalbian & Associates to sue Ampex. Pursuant to this representation, in December 1999, ISS signed a written fee agreement with Haig V. Kalbian & Associates ("Kalbian & Associates") for legal services at a rate of $260/hour for partner time and $185/hour for associate time. Def.'s Ex. 3.
4. A lawsuit was filed on January 7, 2000, naming Ampex and two of its principals as defendants. That complaint was never served; instead, Kalbian & Associates filed a First Amended Complaint on February 10, 2000*fn3 (the "D.C. Litigation"). However, on or about February 1, 2000, Ampex had filed its own lawsuit in New York against ISS and EBWC (the "New York Litigation"). Ampex also named Messrs. Dunbar, Fisher and Dowd as defendants.
5. In February 2000, Kalbian & Associates became Kalbian & Hagerty, LLP ("KH"), which continued to operate as ISS's counsel. In that same month, KH retained FZW to serve as local counsel for the New York Litigation. This was casually accomplished by Mr. Kalbian merely calling a friend from college, Jim Lynch of FZW, and asking him to be local counsel. On February 15, 2000, Mr. Kalbian forwarded the summons and complaint to Mr. Lynch and indicated that an associate at KH would prepare a motion to transfer the New York Litigation to the District of Columbia based on forum non conveniens. Mr. Lynch assured Mr. Kalbian that FZW could readily draw up, from forms in its computer files, such a motion and file it quickly. Thus, it was agreed that the work would be done in New York.
6. On February 23, 2000, Mr. Kalbian sent a letter to Mr. Dunbar, with regard to a strategy for the New York Litigation that had been laid out in an e-mail (not in evidence) dated February 17, 2000. He promised to forward courtesy copies of all filings and recent correspondence. Mr. Kalbian asked Mr. Dunbar to deposit an additional $25,000 on account with KH because: I expect March to be as busy as February in light of the New York filing and our plans to seek dismissal or a stay of that case. Jim Lynch, our New York local counsel, advises that the Court will likely schedule a hearing that will involve travel to New York. While Jim's firm has done very little to date, I also expect his firm to play an expanding role over the next few weeks. Therefore, the $25,000 is reasonable in terms of expected activity in the immediate future.
Def.'s Ex. 5 (Feb. 23, 2000 Letter from Haig V. Kalbian to Dennis Dunbar at 1-2).
7. Neither Mr. Kalbian's letter to Mr. Lynch nor his letter to Mr. Dunbar was sent to Messrs. Fisher or Dowd.
8. On April 11, 2000, Mr. Hagerty sent a fee statement from KH to Mr. Dunbar. His cover letter noted:
I have also enclosed an invoice from our local counsel in New York, Flemming, Zulack & Williamson, LLP[,] for the amount of $5,452.82. You will find this amount listed on your March 2000 invoice Kalbian Hagerty invoice [sic] as a local counsel fee. I will reimburse the attorneys at Flemming, Zulack & Williamson for their time.
Def.'s Ex. 8 (Apr. 11, 2000 Letter from James R. Hagerty to Dennis J. Dunbar at 1). Again, this letter went only to Mr. Dunbar; Messrs. Fisher and Dowd were not copied or alerted. No money was sent to FZW.
9. Six "timekeepers" at FZW, with hourly rates ranging from $170 to $335, threw themselves into the research and preparation of a motion to dismiss or transfer the New York lawsuit brought by Ampex. This was a complicated legal maneuver, trying to persuade a federal district court to transfer the case to the Superior Court of the District of Columbia, and it generated several filings by lawyers for both sides on that procedural issue, without ever touching the merits of the underlying dispute between the joint venture partners. During March 2000, FZW timekeepers amassed a bill of $60,476.75 in fees and $778.98 in expenses. A fee statement to this effect was sent by Mr. Lynch to Mr. Kalbian on May 2, 2000 ("FZW March Bill"). Def.'s Ex. 9.
10. The lawsuit filed by KH in D.C. was dismissed and immediately appealed. The motion to transfer the New York case to D.C. was filed by FZW on April 4, 2000.
11. When, on May 11, 2000, Mr. Hagerty sent a legal bill to Mr. Dunbar, he made no mention of the FZW March Bill. He said only: Note that there is a previous balance due on the . . . Ampex Litigation account for $19,656.11[,] which brings the total balance due on [this] account to . . . $20,940.05 . . . . Also note that $5,452.82 of the balance due for the Ampex Litigation includes the February invoice from our New York counsel, Flemming, Zulack & Williams [sic].
Def.'s Ex. 10 (May 11, 2000 Letter from James R. Hagerty to Dennis J. Dunbar at 1). Again, no copy of this letter was sent to Messrs. Fisher or Dowd.
12. Perhaps this is no surprise because there had been a meeting of the ISS Board of Directors, which included Mr. Fisher and Ms. Dowd, in March 2000, at which time Mr. Hagerty asked Messrs. Fisher and Dowd to make further capital contributions to ISS to pay for attorney fees in the two ISS/Ampex cases or to otherwise share in the cost. Both men refused. Mr. Fisher and Ms. Dowd were thrown out of the room and they were thrown out of the corporation without compensation for their shares. Mr. Hagerty had suspiciously little recollection of this dramatic meeting when he appeared in court to testify.
13. On June 15, 2000, Mr. Hagerty sent Mr. Dunbar a billing statement for May 2000, with copies of previous invoices that remained unpaid. This time, Messrs. Fisher and Dowd were copied. However, Mr. Hagerty again flinched on forwarding the FZW March Bill. He wrote: "Included in the Ampex invoice is a single fee for $5,542.82 from our New York local counsel which represents February time only. We expect to receive additional invoices from New York soon in amounts greater than the current amount Kalbian Hagerty currently owes the local counsel." Def.'s Ex. 11 at 1 (emphasis added). Mr. Hagerty also referred to the March meeting and the "discussion regarding our legal fees and the willingness of ISS and its members to fund the Ampex litigation. Pat Dowd was particularly vocal about the amount of the hourly rates you agreed to pay us at that meeting." Id. at 1-2. Mr. Hagerty offered a 15% reduction in fee rates in exchange for "ISS (and its members) pay[ing] us the entire amount due now as well as commit[ing] to pay all future invoices within ten days of receipt." Id. at 2. Because KH was treating the FZW bills as "reimbursable expenses" on its own bills to ISS, fully paying KH would, in theory, also fully pay FZW.
14. Neither Mr. Fisher nor Mr. Dowd ever accepted the proposal that they personally contribute funds for the legal fees.
15. On June 21, 2000, FZW submitted its invoice for fees and expenses for the months of April and May, plus additional time for March, in the total amount of $18,283.57. KH sent ISS its own invoice for June 2000 on July 13, 2000, with a line item under reimbursable expenses for FZW's June 2000 invoice but Mr. Hagerty again omitted mention of the fees and expenses for the FZW March Bill.
16. At an unspecified time, Mr. Bramson from Ampex contacted Mr. Fisher and initiated negotiations to end the litigation between Ampex and ISS. Mr. Fisher negotiated a settlement of both the D.C. and the New York lawsuits, which Mr. Hagerty then drafted. FZW reviewed the Settlement Agreement before it was executed.
17. ISS and Ampex executed the Settlement Agreement on July 19, 2000, whereby the lawsuits were dismissed with prejudice in exchange for $200,000 paid by Ampex to the IOLTA Trust Account at KH on behalf of the "ISS Group," i.e., ...