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Shtauber v. Gerson

United States District Court, District of Columbia

March 10, 2017

ZVI SHTAUBER, Plaintiff,
v.
ALLAN GERSON, Defendant.

          MEMORANDUM OPINION

          JOHN D. BATES, UNITED STATES DISTRICT JUDGE

         Allan Gerson, the defendant and an attorney, contracted with Zvi Shtauber, the plaintiff, for Shtauber to provide services to assist Gerson in a lawsuit. Their contract specified a fee-sharing arrangement, where Gerson would share with Shtauber a portion of any contingency fee he earned from the lawsuit. Shtauber alleges that Gerson failed to pay, and now sues for enforcement of that contract, or alternatively for recovery in quantum meruit, and for a declaratory judgment that he is entitled to a portion of Gerson's fees in the future. Gerson moves to dismiss, arguing that the contract is unenforceable as contrary to public policy because a fee-sharing contract between a lawyer and a nonlawyer violates the D.C. Rules of Professional Conduct, and that Shtauber cannot pursue a claim for quantum meruit when there is a contract between the parties. The Court will deny Gerson's motion.

         BACKGROUND

         The facts relating to the contract's formation are largely undisputed, although it seems that the facts regarding performance on the contract are hotly disputed. What follows is the plaintiff's version of events. According to Shtauber, Allan Gerson is a well-known D.C. attorney. Complaint [ECF No. 1] ¶ 5. In 2004, Gerson explored the possibility of suing Arab Bank and other financial institutions “on behalf of victims of genocide and terrorism in Israel and in territories administered by the Palestinian Authority.” Id. Gerson hired Shtauber to assist in the lawsuit. Id. ¶ 6. Shtauber, a resident of Israel, has experience in relevant fields of national security and has served as both the Foreign Policy Advisor to the Israeli Prime Minister and as Israel's Ambassador to the United Kingdom. Id. Shtauber connected Gerson to an Israeli attorney, David Mena, to help litigate the case against Arab Bank, and provided additional “consulting services” in connection with Gerson's suit. Id. ¶ 7.

         Gerson and Shtauber entered into an Agreement on April 21, 2005 regarding payment for Shtauber's services. Id. ¶ 8; see Agreement [ECF No. 1-2]. The Agreement provides that Gerson and another attorney (together, the “Gerson Group”) had entered into a joint counsel arrangement with another law firm, Motley Rice LLC, to litigate the claims against Arab Bank. Agreement ¶ 2; Compl. ¶ 9. The Agreement acknowledges that Shtauber had provided valuable services already, and states that “Shtauber's primary responsibility in the future shall be . . . consultative work with regard to investigative/political/public affairs aspects” of the case, and to “assist in liaising with” Mena. Agreement ¶ 3; Compl. ¶¶ 10-11. The Agreement also states that Shtauber is entitled to 20% of any contingent fees paid to the Gerson Group from claims referred to them by Mena. Agreement ¶¶ 3-4; Compl. ¶ 12. It also requires Gerson to provide monthly status reports to Shtauber regarding the fees, and states that Shtauber was not required to incur any expenses. Agreement ¶¶ 8, 10; Compl. ¶¶ 15-16.

         Shtauber alleges that Gerson has breached the Agreement by failing to pay him the required fees. Id. ¶ 18. (The underlying litigation against Arab Bank reached a partial settlement in 2016, and thus Gerson and his co-counsel are entitled to fees. Def.'s Mot. to Dismiss [ECF No. 5] at 2. Further, Shtauber alleges that Gerson has failed to provide the required status reports, and has required Shtauber to incur expenses (namely, legal fees) in breach of the Agreement. Compl. ¶¶ 19-20. In Count I, Shtauber seeks to recover damages under the contract, which he estimates at $160, 000 plus interest. Id. ¶ 23. In Count II, he seeks quantum meruit, i.e. compensation for the reasonable value of his services, estimated at $720, 000 plus interest. Id. ¶ 29. In Count III, he seeks a declaratory judgment that he is entitled to 20% of all contingent fees that the Gerson Group is paid on claims referred by Mena. Id. ¶ 34.

         Gerson, unsurprisingly, disputes Shtauber's claims. He has filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Gerson agrees that the two entered into a contract for Shtauber to provide consulting services related to Gerson's litigation against Arab Bank. He argues, however, that Counts I and III must be dismissed because the contract is unenforceable as against public policy because the D.C. Rules of Professional Conduct for attorneys bar fee-sharing with non-lawyers. See Mot. to Dismiss at 3 (citing D.C. Rules of Prof. Conduct Rule 5.4(a) (2005)). Count II, he argues, must be dismissed as well because it is not plead with sufficient particularity, and because under D.C. law quantum meruit can only be sought when there is no valid contract. Id. at 5, 7.

         LEGAL STANDARD

         When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court presumes the truth of a complaint's factual allegations, though it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks omitted). The court then asks whether the facts alleged suffice “to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). On a motion to dismiss, the court considers “facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which [the court] may take judicial notice.” Mpoy v. Rhee, 758 F.3d 285, 291 n.1 (D.C. Cir. 2014) (internal quotation marks omitted). Because the Agreement was attached to Shtauber's complaint, it will be considered in connection with Gerson's motion to dismiss.

         Here, the District of Columbia's contract law applies, as per the terms of the Agreement. See Agreement ¶ 11. “When deciding state-law claims under diversity or supplemental jurisdiction, federal courts apply the choice-of-law rules of the jurisdiction in which they sit.” Mastro v. Potomac Elec. Power Co., 447 F.3d 843, 857 (D.C. Cir. 2006) (internal quotation marks omitted). Under District of Columbia law, the parties to a contract may agree upon the law they wish to apply, so long as there is some reasonable relationship with the state specified. Ekstrom v. Value Health, Inc., 68 F.3d 1391, 1394 (D.C. Cir. 1995) (citing Norris v. Norris, 419 A.2d 982, 984 (D.C. 1980)). Despite some quibbling over this issue in the parties' briefs, the contract itself clearly states that it “shall be governed by the law of the District of Columbia.” Agreement ¶ 11.

         ANALYSIS

         I. Counts I and III

         Gerson argues that the fee sharing arrangement is forbidden by the D.C. Rules of Professional Conduct (“Rules”) in effect at the time, and therefore is unenforceable as against public policy. Shtauber responds that the Agreement is not contrary to the Rules, but even if it is, it's still enforceable.

         The Agreement was signed in 2005. At the time, Rule 5.4(a) of the D.C. Rules of Professional Conduct stated: “A lawyer or law firm shall not share legal fees with a nonlawyer” and then provided four exceptions.[1]See also D.C. Code § 11-2501 (attorneys admitted to the D.C. bar are subject to the Rules). The first two exceptions concern payments to an attorney's estate after death. The third exception states a “lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit sharing arrangement.” Rule 5.4(a)(3). The fourth states that fee sharing “is permitted in a partnership or other form of ...


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