Motion For Directed Verdict (final)

COMMONWEALTH OF MASSACHUSETTS MIDDLESEX, ss.

SUPERIOR COURT CIVIL ACTION NO 04-4760

__________________________________________ THOMAS A. LANDRY, ) Plaintiff, ) V. ) ) ELIZABETH HAARTZ, individually and as ) Trustee of the Elizabeth Haartz Revocable ) Trust and WALTER E. DAVIS, II, as Trustee ) of the Elizabeth Haartz Revocable Trust, ) Defendants ) ) and ) ) HAARTZ CORPORATION, ) Third-Party Trustee. ) __________________________________________) ELIZABETH HAARTZ, individually and as ) Trustee of the Elizabeth Haartz Revocable ) Trust and WALTER E. DAVIS, II, as Trustee ) of the Elizabeth Haartz Revocable Trust, ) Plaintiffs-in-Counterclaim, ) ) V. ) ) THOMAS A. LANDRY, ) Defendant-in-Counterclaim. ) __________________________________________) MOTION FOR DIRECTED VERDICT INTRODUCTION The Plaintiff, Attorney Thomas A. Landry, seeks to recover legal fees totaling more than $300,000 plus interest for a simple sale of stock in a closely-held family business. The Defendants, in turn, pursuant to their counterclaims, seek reimbursement of some $90,000.1 On both his complaint and Defendant’s counterclaims, the burden of proof rests on Mr. Landry. See

1

Plus multiple damages and attorneys fees pursuant to M.G.L.c. 93A, which Defendants understand will be decided by the Court.

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p. 6. infra. While the Plaintiff did little to earn his fee, he already has been paid more than $121,000 for his efforts. He now seeks an additional sum in excess of $180,000 via his Complaint in this case. Defendants submit that the Plaintiff’s case in-chief demonstrates convincingly that he is entitled to nothing more than that which he already has been paid and that he has, inter alia, overcharged the Defendants. Accordingly, because the Plaintiff bears the burden of proof on both his claims and Defendants’ counterclaims, judgment should enter on the Defendants’ behalf on Plaintiff’s Complaint as well as Defendants’ counterclaims for breach of contract, violation of the implied covenant of good faith and fair dealing, and for declaratory relief. FACTUAL BACKGROUND 1.

The Contingent Fee Agreement The parties executed a Contingent Fee Agreement on March 26, 2001. The Contingent

Fee Agreement relates to the sale of stock by Defendants, Elizabeth Haartz and Walter Davis, as trustees to the Haartz Corporation. Id. Mr. Davis and Ms. Haartz are husband and wife. Ms. Haartz inherited (with her two brothers, Eric and Chris) her father’s ownership interest in Haartz Corporation. Thus, in 2001, the siblings each owned approximately one-third of the stock in Haartz Corporation, which manufactures engineered fabrics for automobiles. The Contingent Fee Agreement upon which the Plaintiff’s suit rests, recites that the Defendants engaged him to perform services described as the: “Valuation, negotiation, and contract for purchase and sale of all stock shares held in Haartz Corporation held [sic] by or on behalf of Elizabeth Haartz.”

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According to the literal language of the Contingent Fee Agreement: “Reasonable compensation on the foregoing contingency is to be paid by the client to the attorney, but such compensation (including that of any associated counsel) is not to exceed the following maximum percentages of the gross (net) [indicate which] amount collected. [Here insert the maximum percentages to charged in the event of collection. These may be on a flat basis or in a descending scale in relation to amount collected.] 1.5%.” Mr. Landry prepared the Contingent Fee Agreement on a form he utilized in his office for tort cases. He never before had used the form for a corporate transaction, nor has he ever used it since for such a matter. Before deciding upon the 1.5% fee, Mr. Landry did not know what others lawyers charged in the vicinity of his practice for representation similar to that which he provided to Ms. Haartz and Mr. Davis. For all other matters on which Mr. Landry had previously worked for Ms. Haartz and Mr. Davis, he had charged them an hourly rate of $150. Mr. Landry kept no time records for his work on the sale of Ms. Haartz’s and Mr. Davis’ stock to the Haartz corporation for which the Defendants to date have paid him $121,609.07. At the time the Contingent Fee Agreement was executed, Mr. Landry asked Ms. Haartz and Mr. Davis if they would like him to explain it to them; when they declined, he said nothing. Prior to the Contingent Fee Agreement, Mr. Landry was told that Ms. Haartz’s stock was worth $30-$40,000,000. He had also been told by Ms. Haartz and Mr. Davis that Eric Haartz had indicated that the Haartz corporation was committed to repurchasing Ms. Haartz’s and Mr. Davis’ stock. 2.

Mr. Landry’s Professional Background At the time the parties executed the Contingent Fee Agreement, Mr. Landry had had little

experience with corporate stock transactions. He had handled only one previous stock

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repurchase matter and that involvement was limited to drafting in 1985 a “limitation of sale agreement” and a simple contract for the purchase of shares pursuant to that agreement. Over the years, Mr. Landry’s practice involved civil and criminal litigation, wills, trusts, estates, contract drafting, real estate conveyancing, divorce and tax work. More recently, he dropped divorce and focused more and more on criminal defense work. In 2001, half of his practice consisted of criminal defense and the balance, trusts, estates, will drafting, real estate conveyancing and litigation; he did little or no corporate work. His practice was similarly composed in 2002, as he did more and more criminal defense work. 3.

Mr. Landry’s Professional Relationship with Ms. Haartz and Mr. Davis Prior to the Contingent Fee Agreement, Mr. Landry had handled a number of matters for

Ms. Haartz and Mr. Davis. He always billed Ms. Haartz and Mr. Davis hourly, including their discussions in 1996 about selling Ms. Haartz’s and Mr. Davis’ stock back to the Haartz Corporation. Even though Ms. Haartz and Mr. Davis had always paid their bills on time, Mr. Landry rationalizes that he created a contingent fee arrangement in this instance primarily because he might have to initiate litigation to force the Haartz Corporation to re-purchase Ms. Haartz’s and Mr. Davis’ stock. 4.

Mr. Landry’s Efforts on Behalf of Ms. Haartz and Mr. Davis with Regard to the Sale of Their Stock to the Haartz Corporation Mr. Landry’s activities with respect to the repurchase were minimal. He spoke with Ms.

Haartz and Ms. Davis a handful of times. He corresponded minimally about the transaction and he attended few meetings. He did little or no drafting and added little to the final repurchase agreement, the drafting and preparation of which was all done by Bingham, Dana, & Gould (predecessor to Bingham, McCutcheon).

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Even according to him, Mr. Landry was able to negotiate but two changes in the documentation Bingham drafted: (1) deletion of language in the promissory note and (2) additional language in paragraph 6 of the Repurchase Agreement, the latter of which Bingham drafted. 5.

Factors Impacting Mr. Landry’s Representation of Ms. Haartz and Mr. Davis When asked to describe the skills he brought to the task for which Ms. Haartz and Mr.

Davis engaged him, Mr. Landry related that he had been an attorney practicing law sufficiently to understand Ms. Haartz’s rights and duties. He acknowledged that his representation involved no novel issues and that he gave up no other work to attend to Ms. Haartz’s and Mr. Davis’ affairs. Mr. Landry related that Ms. Haartz and Mr. Davis imposed upon him no time limitations and that the only results he obtained on their behalf were the two changes in the Repurchase Agreement referenced above. He brought no particular abilities or experience to the task. APPLICABLE LEGAL STANDARDS A.

Burden of Proof

“Massachusetts has established that a lawyer always bears the burden of proof in any proceeding to resolve a billing dispute, whether the lawyer appears as a Plaintiff seeking to recover a fee or as a Defendant in suit for a refund.” Sears, Roebuck & Co. v. Goldstone & Sudalter, P.C., 128 F.3d 10, 17 (1st Cir. 1997) (citing First National Bank of Boston v. Brink, 372 Mass. 257 (1977); Smith v. Binder, 20 Mass. App. Ct. 21 (1985)). “Placing the burden of proof on the attorney is sensible in light of the difficulty of monitoring the attorney’s services,” Sears, Roebuck & Co., 128 F.3d at 17-18, and because “‘[a] lawyer…will usually have better access than a client to evidence about the lawyer’s own services…’” Id. (quoting Restatement (Third) of the Law Governing Lawyers §56(2), cmt. c.).

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B.

Reasonableness of the Fee Charges

The fee agreement at issue called for the payment of a “reasonable fee not to exceed 1.5%.” Emphasis added. The Supreme Judicial Court has construed Mr. Landry’s fee agreement form as establishing a “reasonable fee” standard as the operative measure. Cameron v. Sullivan, 372 Mass. 128 (1977) (“The text of the agreement establishe[s] reasonableness as the measure”); see also Brown, Rudnick, Freed & Gesmer v. Commonwealth, 16 Mass. L. Rep. 814 (Mass Super. Ct. 2003) (denying motion in limine to preclude evidence of reasonableness of 25% contingent fee and holding that “[c]contingent fee agreements are just as subject to a reasonableness requirement as any other arrangement between an attorney and his or her client”).2 The factors considered in determining whether a fee is reasonable include, but are not limited to: “(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular engagement will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.” Mass. R. Prof. Conduct, Rule 1.5(a); In the Matter of 2

To the extent that the terms of the fee agreement are ambiguous –which they are not—any ambiguities are to be construed against the attorney and in favor of the client. Garnick & Scudder, P.C. v. Dolinsky, 45 Mass. App. Ct. 925 (1998) (“As a general proposition, the meaning of a written document, if placed in doubt, is construed against the party that wrote it…and that ‘principle surely counts double when the drafter is a lawyer writing on his or her own account to a client’); Beatty v. NP Corp., 31 Mass. App. Ct. 606, 612 (1991) (same). The Massachusetts Bar Association’s publication entitled “Fees and Client Funds” states that “there is a common misunderstanding that contingent fee agreements always require payment of a fixed percentage of the recovery, regardless of the amount of the recovery or the time and effort required. The Comment to Rule 1.5 refutes this misunderstanding…‘the fee must be reasonable.’”). Massachusetts Bar Association, Fees and Client Funds, p. 47 (3d. ed. 2003).

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Laurence S. Fordham, 423 Mass. 481 (1996); see also Berman v. Linnane, 434 Mass. 301 (2001) (quoting Linthieum v. Archambualt, 379 Mass. 381, 388-389 (1979)) (“When determining a reasonable attorney’s fee” the court considers “‘the nature of the case and the issues presented, the time and labor required, the amount of damages involved, the result obtained, the experience, reputation and ability of the attorney, the usual price charged for similar services by other attorneys in the same area, and the amount of awards in similar cases.’”) C.

Breach of Contract

A party is entitled to judgment on a clam for breach of contract where there is (1) a valid and enforceable agreement; (2) the party performed its obligations under the agreement, or was ready, willing, and able to do so; (3) the other party breached an express promise; and (4) the party was damaged by the breach. See Singarella v. Boston, 342 Mass. 385, 387 (1961). The meaning of an unambiguous contract is a question of law that can be resolved by the court. Lawrence-Lynch Corp. v. Dep’t of Envitl. Management, 392 Mass. 681, 682 (1984); Auclair v. Thomas, 39 Mass. App. Ct. 344, 347 (1995) (citing Freelander v. G & K Realty Corp., 357 Mass. 512, 516 (1970). D.

Breach of Implied Covenant of Good Faith and Fair Dealing

An implied covenant of good faith and fair dealing is a component of every Massachusetts contract. Starr v. Fordham, 420 Mass. 178, 184, 648 N.E.2d 1261 (1995). That covenant prohibits a party to a contract from taking action which will injure the right of the other party to receive the benefit of the parties’ contract. Anthony’s Pier Four, Inc. v. HBC Associates, Inc., 411 Mass. 451, 471-72, 583 N.E.2d 806k (1991). In the context of an attorney-client fee agreement, the implied covenant of good faith and fair dealing requires that the attorney honor the fiduciary and ethical obligations he owes the client. GTE Gov’t Sys. Corp. v. Rackemann,

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Sawyer and Brewster, P.C., Civ. No. 90-1067-C (Middlesex Sup. Ct., April 4 1996) 1996 Mass. Super. LEXIS 509, *21-23 (McHugh, J.). A breach of those obligations which causes harm to a client amounts to a breach of the implied covenant of good faith and fair dealing. See Id. E.

Declaratory Relief

M.G.L.c. 231 §1 enables the Court to “make binding declarations of right, duty, status, and other legal relations sought thereby, either before or after a breach or violation thereof has occurred in any case in which an actual controversy has arisen and is specifically set forth in the pleadings and whether any consequential judgment of relief is or could be claimed at law in equity or not . . .” Henderson v. Axiam, Inc., 1999 Mass. Super. LEXIS 580 (Mass. Super. Ct 1999). Declaratory relief is appropriate where: (1) an actual controversy has arisen in the case presented; (2) the Plaintiff has an interest therein; and (3) and the granting of declaratory relief will terminate the controversy. See School Committee of Cambridge v. Superintendent of Schools of Cambridge, 320 Mass. 516, 518, 70 N.E.2d 298 (1946); Carlton Hotel v. Abrams, 322 Mass. 201, 202, 76 N.E.2d 666 (1948). F.

Chapter 93A Violations

(1)

Judgment in Favor of a Client is Appropriate on 93A claims

Judgment in favor of a client for over-billing is available in a Chapter 93A case where “the undisputed facts reveal that [the attorney’s] conduct falls within at least the penumbra of some common-law, statutory, or other established concept of unfairness or is immoral, unethical, oppressive or unscrupulous. Sears, Roebuck & Co., 128F 3d at 19 (quoting Cambridge Plating Co. v. NAPCO, Inc., 85F.3d 752, 769 (1st Cir. 1996) (quoting PMP Assoc., Inc. V.Globe Newspaper Co., 366 Mass. 593 (1975). (2)

An Ethical Violation May Amount to a Chapter 93A Violation

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“A practice or act [is] unfair under G.L.c. 93A §2, if it is (1) within the penumbra of a common law, statutory, or other established concept of unfairness; (2) immoral, unethical, oppressive, or unscrupulous…” Heller Financial v. Insurance Co. of North America, 410 Mass., 400, 408 (1991) (citing Datacomm Interface, Inc. v. Computerworld, Inc., 396 Mass. 760, 778 (1986); and PMP Assocs., 366 Mass. at 596). Ethical violations concerning attorneys fees may constitute violations of Chapter 93A. Doucette v. Kwiat, 392 Mass. 915 (1984) (finding that an attorney’s collection of a fee to which he was not entitled violated Chapter 93A); Guenard v. Burke, 387 Mass. 802, 809-10 (1982); Brown v. Gerstein, 17 Mass. App. Ct. 558 (1984) (finding that deceitful action by attorney could violate the Rules of Professional Conduct and Chapter 93A), Sears, Roebuck & Co., 128 F 3d at 19. In Guenard v. Burke, the Supreme Judicial Court held: “the Defendant’s reliance on an agreement made in violation of S.J.C. Rule 3:14 in these circumstances was, as a matter of law, an unfair or deceptive act of practice.” Id. The Court held that the attorney was only entitled to the reasonable value of his services and that the client could recover under Chapter 93A if the reasonable value of the lawyer’s services was less than the amount charged under an illegal fee agreement. Id. (3)

Clearly Excessive Fees

Rule 1.5 of the Massachusetts Rules of Professional Conduct prohibits an attorney from “enter[ing] into an agreement for, charg[ing] or collect[ing] an illegal or clearly excessive fee.” “[A]fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence, experienced in the area of the law involved, would be left with a definite and firm conviction that the fee is substantially in excess of a reasonable fee.” In The Matter of Laurence A. Fordham, 423 Mass. 481 (1996).

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ARGUMENT While Attorney Landry bears the burden of proof with regard to the reasonableness of his fee, the record demonstrates that the fee he charged and is attempting to collect from Ms. Haartz and Mr. Davis is manifestly unreasonable, breaches the parties’ Contingent Fee Agreement, constitutes a violation of the covenant of good faith and fair dealing and amounts to an unfair and deceptive practice in violation of M.G.L.c. 93A. A.

The Fee Mr. Landry Charged Was Unreasonable

By application of each and every applicable factor enumerated by the Supreme Judicial Court, the fee Mr. Landry seeks to recover from Ms. Haartz and Mrs. Davis is unreasonable. 1. The Time and Labor Required and the Novelty and Difficulty of the Questions Involved. Mr. Landry did little work on the Repurchase Agreement. He spoke with Ms. Haartz and Mr. Davis a handful of times, engaged in little or no correspondence, drafted 2-3 pages and satisfied himself with the valuation of Ms. Haartz’s and Mr. Davis’ stock as conveyed by the accountants for the Haartz Corporation. Mr. Landry conversed with Mr. Concannon but raised few issues. He reviewed red-lined versions of drafts he received from Bingham and did minimal research. He attended a meeting at Bingham McCutchen on January 8, 2002 and the closing the following day. Mr. Landry did little and accomplished almost nothing – and none of the issues involved in his representation were novel or difficult. Mr. Landry kept no time records and while his memory of the extent of his efforts is spotty, clearly his efforts were not taxing. Yet for those efforts, Mr. Landry seeks a total of more than $300,000 in legal fees. 2. Preclusion of Other Employment

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As Mr. Landry testified, to represent Ms. Haartz and Mr. Davis in the sale of their stock to Haartz Corporation, he was not precluded from doing other work on behalf of other clients. 3. The Fee Customarily Charged in the Locality for Similar Services Mr. Landry is unaware of the fee customarily charge in his geographical area of practice. 4. The Amount Involved and the Results Obtained Clearly, a great deal of money was involved in the redemption of Ms. Haartz’s and Mr. Davis’ stock by the Haartz Corporation. Mr. Landry understood prior to the Contingent Fee Agreement that the stock may have been worth between $30,000,000 and $40,000,000. While the trust Ms. Haartz and Mr. Davis administered received $17,882,100 for the stock, it cannot be said that the price paid, or to be paid by Haartz Corporation in installments, was not substantial. However, despite the arguably large sum of money involved, the results Mr. Landry achieved were unremarkable. He negotiated only two small changes in the only document the parties negotiated. 5. Time Limitations Imposed by the Client Neither Ms. Haartz nor Mr. Davis imposed any time limitations on Mr. Landry. 6. Nature and length of the Professional Relationship Between Ms. Haartz, Mr. Davis and Mr. Landry The parties enjoyed a long-term (albeit undistinguished) relationship, during which Mr. Landry handled several varied and relatively small matters for Ms. Haartz and Mr. Davis. 7. Experience, Reputation and Ability of the Attorney At the time of the Contingent Fee Agreement, Mr. Landry had little experience and only rudimentary ability as a corporate transactions lawyer. His reputation in the community of corporate lawyers was non-existent and he is not rated in publications such as MartindaleHubbell. 11 775468.1

8. Whether the Fee was Fixed or Contingent The fee was contingent; however, Mr. Landry’s purported grounds for employing a contingent fee agreement are vacant. Most notably his contention that he believed litigation might have been necessary to force the Haartz Corporation to purchase Ms. Haartz’s and Mr. Davis’ Stock is without merit because the well-established law in Massachusetts is that “[i]n the absence of an agreement among shareholders or between the corporation and the shareholder, or a provision in the corporation’s articles or organization or by-laws, neither the corporation nor a majority of shareholders is under any obligation to purchase the shares of minority shareholders when minority shareholders wish to dispose of their interest in the corporation.” Goode v. Ryan, 397 Mass. 90-91 (1986). In sum, none of the factors enunciated by the Supreme Judicial Court militate in favor of Mr. Landry. Applying each of them suggests that Mr. Landry cannot justify the fee he is attempting to extract for the sale of Ms. Haartz’s and Mr. Davis’ stock to the Haartz Corporation. Mr. Landry expended little effort on the matter, and it involved no novel or difficult questions. He was not precluded from doing other work, and while the amount involved was substantial, the results Mr. Landry obtained were at best minimal. Ms. Haartz and Mr. Davis put no limits on Mr. Landry’s time, and while Ms. Haartz and Mr. Davis had utilized Mr. Landry’s services for a number of years, nothing about the relationship suggests that because of it, Mr. Landry should be entitled to mark up the value of his services. Lastly, Mr. Landry had no particular experience, reputation or ability in the area in which he was representing Ms. Haartz and Mr. Davis.

B. Mr. Landry Breached his Contract with Ms. Haartz and Mr. Davis

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Regardless of how one construes it, the Contingent Fee Agreement unequivocally conveyed that Mr. Landry’s fee in this instance was to be “reasonable” and no more than 1.5% of the amount paid to Ms. Haartz and Mr. Davis. However, Mr. Landry is now attempting to extract from them the full 1.5% of that which Ms. Haartz and Mr. Davis have received (including interest paid to them). Without doubt and without justification, Mr. Landry has breached his contract with Ms. Haartz and Mr. Davis by seeking payment of 1.5% of that which they have been paid, a figure well beyond that which is at all reasonable.3 C.

Mr. Landry also Breached the Covenant of Good Faith and Fair Dealing

When the parties executed the Contingent Fee Agreement, Mr. Landry simply inquired of Ms. Haartz and Mr. Davis whether or not they had any questions about the agreement. As Mr. Landry recalls it, when neither Ms. Haartz nor Mr. Davis had any questions, the parties proceeded to sign the agreement. Mr. Landry’s failure to adequately explain the Contingent Fee Agreement and his expectation of fees in excess of $300,000 regardless of the amount of effort he put into the stock transaction manifests an absence of good faith and fair dealing. Mr. Landry’s assertion that he is due a full one and one-half percent of what has been paid to Ms. Haartz and Mr. Davis, despite the clear language in the Contingent Fee Agreement to the contrary, manifests and underscores his violation of the implied covenant of good faith and fair dealing. D.

Ms. Haartz and Mr. Davis are Entitled to Declaratory Relief

There is a case and controversy between Ms. Haartz and Mr. Davis, on the one hand, and Mr. Landry, on the other hand. Ms. Haartz and Mr. Davis have an interest in the controversy and, given Mr. Landry’s position with regard to fees he believes Ms. Haartz and Mr. Davis owe him, 3

He also breached the Contingent Fee Agreement in that the valuation work on behalf of Ms. Haartz and Mr. Davis was done by Howard Gordon while the Contingent Fee Agreement called upon him to do that work. Moreover, the Defendants - not Mr. Landry - paid Mr. Gordon’s fees.

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this matter is ripe for declaratory relief. Because Mr. Landry has violated Massachusetts Rules of Professional Conduct 1.5 and has breached his contract with Ms. Haartz and Mr. Davis (including the covenant of good faith and fair dealing), declaratory judgment in favor of Ms. Haartz and Mr. Davis is entirely appropriate. E.

Chapter 93A is Applicable in this Instance

By charging a clearly excessive fee, Mr. Landry’s conduct violated Rule 1.5 of the Massachusetts Rules of Professional Conduct. By attempting to extract a clearly excessive fee and by making no real effort to explain the Contingent Fee Agreement to Ms. Haartz and Mr. Davis, he has unequivocally violated M.G.L.c. 93A. F.

Remedy

Accordingly, judgment should enter on behalf of the Defendants and Plaintiff-inCounterclaim on all claims in this matter. Respectfully submitted, ELIZABETH HAARTZ AND WALTER E. DAVIS, II By their attorneys, ___________________________________ Richard D. Glovsky, Esq. (BBO# 195820) Joshua A. Lewin, Esq. (BBO# 658299) Prince, Lobel, Glovsky & Tye LLP 100 Cambridge St., Suite 2200 Boston, MA 02114 (617) 456-8000 Date: October ____, 2008

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CERTIFICATE OF SERVICE I, Richard D. Glovsky, attorney for the Defendants and Plaintiffs-in-Counterclaim in the above referenced matter, hereby certify that on the ____ day of October, 2008, I served the within document upon the Plaintiff and Defendant-in-Counterclaim by hand to their counsel of record: Valeriano Diviacchi, Esq. Diviacchi Law Office 111 Beach Street, #1A Boston, MA 02111-2532

______________________________ Richard D. Glovsky

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