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The Hollow Promise

May a co-op board dispute legal fees that were paid long ago? The answer was a clear "no" in Amalgamated Dwellings Inc. v. Szold & Brandwen, P.C. when barred by the statute of limitations. In this case, the court noted that precious few marriages last for 65 or so years, and even fewer attorney-client relationships last as long. So, it was not surprising that the break-up of this attorney-client partnership would engender the same acrimony as that of a long-term divorce.

The plaintiff was a housing cooperative on the Lower East Side of Manhattan. Pioneers of the cooperative movement, the buildings were completed in the mid-1930s. The defendant was a law firm, and records of the firm indicated that the present firm's predecessors were active in the planning and development of the cooperative from its inception. The parties went their separate ways in the fall of 1995 with three outstanding unpaid invoices.

In July 2001, the Szold firm began an action in the civil court of the New York City to recover from Amalgamated Dwellings $11,354.42, representing the total of the unpaid balances. The civil court matter was unresolved.

In March 2002, the co-op brought this action against the Szold firm. The complaint alleged common law fraud arising out of the very same transactions and "for decades" before. Additionally, the co-op sought to recover treble damages under Section 349 of New York's General Business Law.

The fraud alleged was that Szold allegedly overbilled the co-op on three occasions in 1995. Specifically, Szold failed to provide the backup materials to its invoices detailing hourly rates and the number of hours expended on the matters. In the absence of this material, the co-op nonetheless paid the invoices, without knowledge that it was being overcharged. The Szold firm moved to dismiss on the grounds that the actions were time barred.

At the outset, the court noted that the co-op had conceded that the cause of action, brought under the General Business Law Section 349, was time-barred and, accordingly, that branch of the motion to dismiss was granted. Of greater complexity were the issues presented by the allegations of fraud arising out of the hundreds of transactions spanning the 60 years of the parties' relationship. The complaint was woefully deficient in that there was literally no detail as to the circumstances of any transactions other than three invoices presented in the civil court. Rather, the co-op argued that, if there were fraud involved in the three contested bills from 1995, there must have been fraudulent conduct in the past.

Under the CPLR, the statute of limitations for fraud is six years from the date of the fraud or within two years after the fraud was discovered or could have been discovered with reasonable diligence. From the papers presented here, it appeared that, although plaintiffs received the three contested billing statements from Szold in 1995, they did not discover the fraud until February 2002, when Szold provided backup documentation for those billing statements. Since the fraud as to these three invoices was first discovered in 2002, it was clear that, as to these transactions, the statute of limitations was not a bar.

However, as to the prior "decades" of invoices that the co-op now sought to dispute, it was the court's opinion that these claims were barred by time. Although the co-op and the Szold firm had an established relationship whereby that firm provided numerous legal services over a prolonged period of time, the co-op still had an obligation to diligently review any bills generated as a result of Szold's services prior to tendering payment. Review of the papers indicated that, over the past 60 years of the parties' relationship, all but the three billing statements at issue were paid without question. Without a reliable factual basis that would indicate a likelihood of fraudulent conduct over the entire relationship of the parties, the court would not sanction a fishing expedition to allow the co-op to see if, over 60 years of billing invoices, all of which have been long paid for but for the three invoices of late 1995, other improper overcharges existed.

Accordingly, it was ordered that the Szold motion to dismiss co-op's complaint was granted on the condition that Szold firm permit the co-op to amend its answer in the civil court action to include the defense of fraud as to the three disputed billing statements of 1995,

Comment: The message here is to review invoices for legal services promptly when submitted after the services are rendered or disbursements incurred. The court was not sympathetic to the co-op's efforts to question the appropriateness of legal fees paid many years ago before there was some estrangement in the attorney-client relationship.

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