Franchisee Loses Drug Store Case and Loses Attorney Fee Case

Attorney is hired to defend a case. What is the standard of care if the case is "unwinnable"? Justice Jaffe of Supreme Court, New York County discusses what happens when a franchisee who has signed personal guarantees falls behind in royalty payments to the franchisor.  It's not pretty.

In Pu v Mitsopoulos  2014 NY Slip Op 31038(U)  April 17, 2014  Sup Ct, New York County  Docket Number: 602986/06  Judge: Barbara Jaffe the facts are:  "In December 2004, defendant George Mitsopoulos contacted plaintiff, an attorney, to  discuss an ongoing dispute between him and his company, defendant Titan Pharmaceuticals and  Nutrition, Inc., in connection with a franchise agreement with franchisor Medicine Shoppe, Inc. The franchise agreement permitted Mitsopoulos to operate a pharmacy under franchisor's name and required him to pay royalties based on the pharmacy's gross income. The parties also agreed  that any disputes would be arbitrated and that franchisor was entitled to attorney fees in the event  of litigation. When Mitsopoulos first met with plaintiff, he told him that Titan was behind in paying franchisor and that on December 1, 2004, franchisor sued him, his parents, and Titan in federal court. Franchisor also commenced an arbitration proceeding in St. Louis, Missouri against Titan and Mitsopoulos. (Id, Exhs. I, J).
On or about December 15, 2004, Mitsopoulous, his parents, and Titan retained plaintiff,
and agreed to pay him $275 an hour, plus expenses. They also agreed that if plaintiff sued them
to recover his legal fees, they would compensate him for any fees incurred in connection thereof. "

"As plaintiff has submitted the parties' retainer agreement along with an affidavit detailing the work he performed and his itemized bills, he has established, prima facie, his entitlement to the attorney fees and expenses he seeks. (See eg Phillips Nizer et al. v Chu, 240 AD2d 231 [1st Dept 1997] [reasonable value of attorneys' services itemized in invoices annexed to complaint]).
Apart from the malpractice counterclaims, defendants advance the following arguments for why plaintiff is not entitled to some of his fees: (1) plaintiff billed defendants for services rendered during his suspension from practicing law in the federal courts; and (2) plaintiff billed for unnecessary and wasteful motions. (Mem. of Law, dated Oct. 2, 2013).

As defendants raise a triable issue as to whether plaintiff performed unnecessary work on the case or overbilled them for work he should not have performed, the reasonableness of plaintiffs fees must be determined at a hearing. (See eg Bomba v Silberfein, 238 AD2d 261 [1st Dept 1997] [factual issue as to reasonableness of attorney's fees precluded summary judgment as to damages]"

"Although it is not disputed that defendants had no viable defense to the arbitration as they owed franchisor money past due and possible larger sums, and that franchisor had every right to
enforce the parents' guaranty, there is no allegation that plaintiff recommended that defendants
litigate knowing that he could not prevail, leaving them owing franchisor damages as well as
additional legal fees. Rather, plaintiff was faced with defending two actions against defendants
with no viable defense to either, and having to choose a strategy whereby he could minimize
defendants' losses. That plaintiff was unable to win a conceitedly unwinnable case does not
establish that he was negligent. "

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