Scott E. Mollen

Co-Ops—Attorney Fees Significantly Reduced—Factors to Consider in Determining “Reasonable” Fees—Court Stated $464,164 in Legal Fees Could Be Viewed as “Shocking and Disturbing, Highway Robbery Without a Six Gun”—Court Acknowledged Attorneys' Papers Were “Beautiful, Well-Organized, Well-Written and Well-Reasoned; They Were Excellent Papers” and They “Prevailed”—Given the Circumstances, Partner Rates, Some of which “Topped $1,000 Per Hour” Were Reasonable—“Block-Billing” was Permissible—Attorneys had Collaborated, Not Duplicated Work—Use of Partners Acceptable, Since Experienced Attorneys “Charge More But Work Quicker”

A respondent owns a well-known Manhattan cooperative housing complex (co-op). The petitioners are “middle class” “cooperators” who, previously had “long-term, relatively inexpensive licenses to park their cars in [co-op's] garage.” The co-op's board of directors (board) voted to change “from a 'park-and-lock' system to a 'valet parking' system” and to have a parking company operate the garage. After the board voted to approve the change and a proposed contract with the parking lot operator (contract), the petitioners filed the subject Article 78 proceeding, seeking “to annul the board's decisions.” The petitioners alleged that “the board failed to provide proper advance notice of the votes,” had “exceeded its authority; and…the contract is illegal.”

The respondents had moved to dismiss, “primarily on the grounds that the petition was untimely and that the business judgment rule insulated the board's actions.” The petitioners had cross-moved for sanctions, alleging frivolous litigation and that the respondents had committed “various alleged bad acts.” The court had dismissed the petition on “the ground of untimeliness, while also addressing the business judgment rule and other issues” and referred the respondents' request for attorney fees, “for which petitioners' proprietary leases provided, to a referee to hear and report.”

The respondents' attorneys (Attorneys) requested $254,000 in attorney fees “for all work, including pre-hearing letter briefs and preparing for the hearing, up to, but not including, the one-day hearing” before a special referee. The referee recommended that the respondents “be awarded $161,000.” The referee reduced the requested legal fees based on “double billing, block billing, lack of complexity, failure to use more associate (as opposed to partner) time, and other miscellaneous grounds.” The referee found that the Attorneys' hourly rates were reasonable and they had performed the work that they alleged was performed. The Attorneys disagreed with the reductions based on “double and block billing and the other grounds for reducing the fee award.” The co-op's by-laws provided that the respondents were “entitled to 'fees on fees,' and the Attorneys had requested “an additional $166,396 for…the fee hearing itself and post-hearing submissions ($39,124) and…to analyze the referee's report and move to confirm/reject” the report (($127,272).

The petitioners argued that the litigation involved “neither novel nor difficult questions;…the reductions for block and double billing were correct;…the award should be further reduced by $40,000 because [Attorneys'] hourly rates were excessive and [the Attorneys] used partners, rather than associates, for the bulk of the work.” The respondents had also requested an additional $37,827, for their services. In total, the respondents sought “$464,164 ($254,000 + $39,124 + $127,272 + $37,827 + $5,941 in disbursements).”

The court noted that a determination of reasonable legal fees is generally based upon “time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved. Significant in the inclusion is the factor of the amount involved.”

The court stated that “one perspective” is that for a law firm to request “the staggering sum of $464,164, based upon winning a motion to dismiss on the grounds that a claim was untimely…is shocking and disturbing, highway robbery without the six gun. Society cannot devote such huge resources to such a simple court proceeding (which, after all, accomplished nothing) and survive, much less prosper. Such an outrageous figure sounds like a typographical error or an April Fool's joke; if it is not, it merits 'fee shaming,' public humiliation, and possible sanctions. For such egregious overreaching, a court could, and maybe should, award nothing. After all, these days, that same $464,164 (incidentally, significantly more than twice the $208,000 annual salary of a New York State Supreme Court justice;…) could buy you a one-bedroom co-op apartment on the Upper East Side of Manhattan,…with a 24-hour doorperson, live-in resident manager, concierge, laundry room, and on-site parking garage….” The court also noted that “$450,000 could buy a four-bedroom private house in Nassau County. The court observed “we are not talking mere Monopoly money here!”

However, the court offered “another perspective.” The court described the Attorneys' papers as “long, and they are beautiful: well-organized, well-written, and well-reasoned. They are predictable, but in the best sense of that term; [the Attorneys] argued just what you would expect, just what it had to, and just how it had to. They were lengthy of necessity, because petitioners' original attorney (who was not on the fee request) made life difficult for respondents, with unfounded accusations of improprieties, the request for sanctions, and matters that, if not strictly relevant, no lawyer worth his or her salt would ignore. Fish gotta swim, birds gotta fly, and lawyers gotta litigate. Arguments made in moving papers could also be found in reply papers, ad nauseum, etc., but that is how lawyers usually argue, and sometimes win, cases. In short, [respondents' attorneys] did what lawyers do, submitted excellent papers, and prevailed.”

The court found that the Attorneys had performed the work that they had claimed they had performed. Additionally, the court declined to reduce the legal fees because of “double billing,” since it appeared that “the attorneys were collaborating, not duplicating.” Moreover, the court found that the block billing was not improper, since “determining what work [the Attorneys] did, and that the work was on this case, was easy enough.” The court also rejected the argument that the Attorneys “should have used more associate time,” since “experienced partners charge more but work quicker.” The court did, however, challenge “the time spent on respondents' cross-motion to dismiss,” for the work other than the work done on the Statute of Limitations [SOL] argument.

The court explained that since the respondents' motion to dismiss “did not seek dismissal based upon an objection in point of law, but instead sought relief on the merits,” the trial court had properly “denied those branches of the motions.” The court noted that “courts frown on the making of a motion by a respondent on the presumably narrow ground of a single defense while at the same time including on the motion all the evidence the respondent has on the merits and asking that it be allowed to serve an answer if the motion is denied. It amounts to the respondent's attempt to get two bites at the apple.”

The court further stated that the respondents' SOL defense was “based on a point of law (and succeeded). However, its business judgment rule defense was more of a factual defense on the merits.” The court opined that the “[r]espondents would have achieved the same result—dismissal with prejudice” had the SOL argument been their only argument. The court noted that if the SOL defense failed, the “respondents could have served an answer asserting the business judgment rule defense” and other defenses. The court reasoned that “[h]ad respondents' defense been limited to untimeliness, the savings would have been considerable.”

The court was “troubled, almost haunted, by the idea of awarding almost half a million dollars to attorneys who simply prevailed upon a court to dismiss an untimely proceeding, and not in the context of industrial or technological behemoths battling each other for market supremacy, but in the context of a handful of middle-class cooperators upset with a board of directors' decision (and who presumably paid their own two sets of attorneys).” The court further stated that “[b]y requesting astronomical fees, attorneys are in danger of killing the goose that laid the golden egg. Litigation tends to be lengthy and expensive.… Courts, attorneys and litigants can all take steps to prevent civil cases from becoming pricey boondoggles.… [Attorney's fees should be] at a cost that [is] proportionate to the nature of disputes.” The court noted that the New York City Bar has requested that attorneys “eschew litigation tactics like asserting defenses…that could…burden the parties.” Additionally, the court noted that the United States Court of Appeals (Second Circuit), had stated that “a litigation loser 'should not have to pay for a limousine when a sedan could have done the job.'”

In sum, the court believed that the case “should have been litigated, and would have been dismissed, solely on [SOL] grounds. Even if that had not succeeded, respondents would have prevailed on their business judgment rule defense; the limitations argument was not life-or-death; gold-plated lawyering was not needed.” The court acknowledged that the respondents' attorneys “probably needed two partners to do everything it did as well as it did. But another approach could have achieved the same result: the partner in charge could have walked out into the hallway, grabbed the first mid-level litigation associate that walked by, and said, 'Our client is being sued; it's untimely; get it dismissed.' Such an approach would, the Court finds, have resulted in fees, including disbursements, of not more than $175,000 (which may not seem like an awful lot of money, but could buy you a 55-foot yacht, equipped with multiple staterooms; a salon/galley/dining area; a washer-dryer; and stall showers).” Thus, the court held that $175,000 was the reasonable amount of fees, including disbursements.

Comment: This decision addresses several issues that often arise with respect to claims for legal fees. As this decision illustrates, “block billing” is not per se improper. Block billing involves lawyers aggregating multiple smaller tasks into a single “block” entry, for which a single time value is assigned. Some matters may lend themselves to many discrete time entries and such separate time entries may be necessary to permit a client or court to evaluate the reasonableness of legal fees.

However, with respect to many types of matters, a plethora of separate time entries for each technically separate act could result in attorneys constantly interrupting their overall work so that they could spend time filling out contemporaneous time records. This may impede their ability to remain focused upon addressing the clients' immediate needs. Thus, New York courts, including the subject court, have held that “block billing” is permissible, as long as the court and/or client can reasonably determine what work was performed.

The subject court also recognized that using partners, rather than associates, is also not necessarily improper. The court noted that partners may bill more, but usually work faster. In many cases, a partner's experience and skills best serve the interests of the client. Of course, in many situations, e.g., when dealing with less complex or repetitive matters or basic research, it may make sense to use mostly associates rather than partners.

Some clients complain that their bills are too high, because there was too much partner time on a matter. However, some clients complain when they receive an unsuccessful result, that they did not receive enough partner time and attention. Staffing decisions will often depend on many factors, including without limitation, the nature of the matter, the size of the controversy, the complexity of the issues, the preferences and financial strength of the client, pertinent time constraints, as well as the expertise, experience and availability of partners and associates, etc.

The subject decision also recognized that more than one lawyer in the room or on a telephone call is not necessarily duplication. It may represent “collaboration” that is beneficial to the client. Many clients seek to use firms that have multiple lawyers precisely because they want a firm that has a “deep bench” of attorneys with different areas of expertise, skill sets, relationships and billing rates. Moreover, since lawyers do not control the schedules of the court, adversaries or clients, or the professional demands of their other matters, it is often necessary to staff larger matters with more than one experienced attorney.

Furthermore, when dealing with significant commercial matters, clients expect their lawyers to communicate with each other and know that they would be ill served if the lawyers functioned like separate “silos.” Of course, in certain instances, matters may be overstaffed and overworked.

Here, the court acknowledged that the adversary's parties' attorneys made it “difficult” for the respondent's attorneys. Although clients and attorneys may be reasonable and highly professional, some adversarial parties and counsel may employ tactics which cause legal fees to “skyrocket.” In such cases, if a party without proper justification, caused a large expenditure of legal fees, they should not be heard to complain that their adversary's legal fees were excessive. They caused the problem.

Some courts believe that attorneys could have limited their arguments or claims and still achieved a successful result. This court made that observation. In many situations, that is absolutely correct. However, there are also times when attorneys and clients believe that it is prudent to advance multiple claims, defenses and arguments based on the positions advanced by the adversary and the inability to know which positions will resonate with the court. Some will say that experienced lawyers should have enough experience to know which argument will be enough to achieve a favorable court decision.

While that may be true in many situations, one need only to look at appellate decisions that include dissenting and/or concurring opinions or decisions that reach a result based on a procedural or substantive ground that was not advanced by either party, to see that even experienced lawyers may not know how a judge will view a legal argument or a factual record. Attorneys may be criticized for failing to advance a viable argument, without a reasonable justification for such omission. Obviously, lawyers should not advance frivolous arguments.

In the underlying case, the board apparently believed that the parking contract was very important and should be defended by its chosen law firm. However, the court expressed concern that some “middle class” corporate shareholders would be liable for approximately $460,000 in fees, on top of the fees that they had paid to their own lawyers and believed that the requested fees were high, given the subject legal issues.

This case illustrates why co-op shareholders and boards (and many other parties) should strive to resolve their differences without resorting to litigation. Although co-op boards often prevail (usually based on the business judgment rule) and recover legal fees, a court's view of reasonable legal fees is not necessarily the same amount reflected on the law firm's invoices. Thus, a co-op board that wins a case against a shareholder may still be “out of pocket” for significant legal fees. Moreover, shareholders who sue their boards and lose, may have to pay the legal fees for both their attorneys and the attorneys for their co-op board.

Accordingly, in most cases, “feuding” co-op boards and shareholders should view litigation as a last resort. They should endeavor to resolve their issues through negotiation and/or mediation. However, there are times when some people are so unreasonable, that litigation is the most viable path to a resolution. In many cases, the courts have been very helpful by encouraging the parties to engage in settlement discussions.

Additionally, with respect to co-op/condo board disputes with individual apartment owners, the parties should bear in mind that prospective purchasers do not want to buy apartments in buildings that are encumbered with law suits. Prospective purchasers may be concerned about prospective assessments for unpredictable legal fees and significant damage awards. Moreover, some litigations highlight problems relating to a building's structural or operational problems. Such litigation may cause lenders to reject mortgage and/or refinance applications and thereby materially decrease the value of all apartments in a building.

Cruz v. Seward Park Hous. Corp., Sup. Ct., N.Y. Co., Index No. 155244/2016, decided July 6, 2018, Engoron, J.

Scott E. Mollen is a partner at Herrick, Feinstein.