"Because We Don't Have the Money" -- Andrew Carothers and Former Counsel Fight Over Fees

NO-FAULT – MALLELA DEFENSE – ATTORNEYS' FEES – OVERBILLING – FRAUD
Collier, Halpern, Newberg, Nolletti & Bock, LLP v. Andrew Carothers, M.D., P.C.
(Sup. Ct., Westchester Co., decided 7/2/2010)

Someone should submit this case to Wikipedia as a footnote for its irony entry.

New York no-faulters will recall that in August 2008, a Richmond County (Staten Island) civil court jury rejected Andrew Carothers MD, PC's $23 million in consolidated claims for MRI services against 50 insurance companies, finding that the corporation rather than being owned by Dr. Carothers had been "fraudulently incorporated", i.e., the Mallela defense.

In Matter of Andrew Carothers, M.D., P.C. v Insurance Cos. Represented by Bruno Gerbino & Soriano, LLP, 26 Misc 3d 448 (NYC Civ. Ct., Richmond Co., decided 10/14/2009), Richmond County Civil Court Judge Peter Sweeney denied the plaintiff PC's post-trial motion to set aside the jury's verdict.  Those wishing to understand what a fraudulent incorporation or Mallela defense looks like should read Judge Sweeney's summary of the trial evidence in that case.  It is my understanding that the verdict has been appealed. 

The plaintiff law firm Collier, Halpern, Newberg, Nolletti & Bock, LLP did not represent Andrew Carothers, MD, PC (ACMDPC) in that case; the once über confident Mark W. Smith of Smith Valliere, PLLC, did (and is defending ACMDPC and Dr. Carothers in this action). Collier Halpern brought this action against ACMDPC, Dr. Carothers personally, and other defendants to recover $402,626.44 in legal fees and disbursements ACMDPC and Dr. Carothers allegedly failed to pay.  Collier Halpern had billed the PC and Dr. Carothers a total of $892,190.99 for defending them in 13 actions brought by various no-fault insurance companies.  The total amount of billings at issue in 11 of those 13 actions was $47,937.60. 

On defendants' motions to dismiss, the court dismissed the complaint against the Medtrex defendants and the quantum meruit and fraud causes of action against defendants ACMDPC and Carothers.  The Carothers defendants then answered and asserted nine affirmative defenses.  After discovery and the filing of a note of issue, plaintiff moved for summary judgment on the grounds of breach of the retainer agreement and account stated.  In support of their motion, plaintiff argued that there were no issues fact to preclude summary judgment because at his deposition when asked by plaintiff why its invoices were not paid Dr. Carothers replied "Because we don't have the money." Further, when asked if there was any other reason why plaintiff was not being paid, Dr. Carothers answered "No."

In addition to opposing plaintiff's motion on various grounds,the Carothers defendants cross-moved for leave to amend their answer to assert four counterclaims against the plaintiff for its alleged "gross overbilling" based on breach of contract, unjust enrichment, breach of fiduciary duty, and fraud.  In support of their cross motion, the Carothers defendants contended that in view of the fact that they allege plaintiff misstated the number of hours expended on various matters and marked up out-of-pocket expenses when only the actual cost of the expenses were to be charged, there was a valid claim for fraud.

In denying plaintiff's motion for summary judgment, Westchester County Supreme Court Justice William Giacomo ruled:

Here, there are significant questions of fact regarding the reasonableness of the legal fees billed in this case. There is no dispute that plaintiff charged approximately $900,000 in legal fees for cases worth about $48,000. Notably, the legal fees are about 20 times the value of the no-fault cases! While the Court is mindful of the fact that the avoidance of particular outcome in first party benefit no fault cases can be worth more than the medical reimbursement at stake, to wit, a finding that the health care provider was unlicensed or fraudulently licensed providers (see State Farm Mut. Auto. Ins. Co. v. Robert Mallela, 4 NY3d 313 320-22 [2005][Such a determination renders these entities "not eligible" for reimbursement .], it still seems to this Court that legal bills in excess of 20 times value of the no-fault cases warrants denial of summary judgment as the reasonableness of attorney's fees is always subject to court scrutiny. (See Matter of First Natl. Bank v Brower, 42 NY2d 471 [1977]; D'Antoni v. Ansell, 184 AD2d 678 [2nd 1992]; Reisch & Klar v Sadofsky, 78 AD2d 517 [2nd Dept 1980]).

As the First Department noted in Collier, Cohen, Crystal & Bock v. MacNamara, 237 AD2d 152 [1st 1997]), a similar case in which a law firm [a predecessor firm to the plaintiff?] was trying to collect fees which seemed on their face to be unreasonable, "[f]urther militating against summary disposition of this matter is the question of the reasonableness of the fees the firm is attempting to collect, to wit, $155,000 for less than six months work for defendant's interest in a partnership valued at less than $30,000. It is recognized that the courts possess the traditional authority "to supervise the charging of fees for legal services under the courts' inherent and statutory power to regulate the practice of law" (id at 152; see also Gair v Peck, 6 NY2d 97 [1959], cert denied 361 US 374 [1960]; Finkelstein v Kins, 124 AD2d 92, 100 [1st Dept 1987], appeal dismissed 69 NY2d 1023 [1987]).

Based on the foregoing, summary judgment is DENIED because "[t]he reasonableness of plaintiff's fees can be determined only after consideration of the difficulty of the issues and the skill required to resolve them; the lawyers' experience, ability and reputation; the time and labor required; the amount involved and benefit resulting to the client from the services; the customary fee charged for similar services; the contingency or certainty of compensation; the results obtained and the responsibility involved." (Morgan & Finnegan v. Howe Chemical Co., Inc., 210 AD2d 62 [1st Dept 1994]; see also Matter of Freeman, 34 NY2d 1, 9 [1974]; Marshall v New York City Health & Hosps. Corp., 186 AD2d 542, 543 [2nd 1992]; Gutin v Gutin, 155 AD2d 586, 587 [2nd 1989]; cf., Kramer, Levin, Nessen, Kamin & Frankel v Aronoff, 638 F Supp 714 SDNY 1986]).

The court also granted the Carothers defendants' cross motion to amend their answer to assert four counterclaims against plaintiff, holding:

Here, although the note of issue has been filed there can be no doubt that the allegations raised in the Carothers defendant's counterclaims are not a surprise to plaintiff. The amount and propriety of legal fees billed by plaintiff is the heart of the dispute between the parties. Therefore, the four proposed counterclaims arguable have merit. 

A fraudulent billings counterclaim being asserted by the Carothers defendants against the attorneys who defended them in actions alleging that Carothers fraudulently incorporated and billed under ACMDPC.  See the irony?