By Samson Habte
A purported oral contract in which a corporation promised to give its attorney an ownership interest in the venture is unenforceable where the lawyer did not follow the requirements of ethics rules on fees and business deals with clients, the U.S. District Court for the Southern District of California ruled Sept. 14 (Gurvey v. Legend Films Inc., S.D. Cal., No. 3:09-cv-00942 AJB (BGS), 9/14/12).
The lawyer did not prove that an actual meeting of the minds was reached, Judge Anthony J. Battaglia said. Even if there were a contract, he added, the lawyer could not recover on it due to the lawyer's noncompliance with the ethics rules.
In addition, Battaglia said that because the alleged deal also would have given the lawyer a two-year term of employment, the statute of frauds required a written contract to make it enforceable.
Legend Films Inc. (now known as Legend3D Inc.) is a California-based firm that specializes in the restoration and colorization of old black-and-white movies and television shows. The company was created in 2001 by Barry Sandrew, a former Harvard neuroscientist and imaging expert, and Jeffrey Yapp, an MTV executive.
Attorney Amy R. Gurvey alleged that Sandrew and Yapp retained her services in connection with their formation of Legend. Gurvey was identified as Legend's general counsel in regulatory filings and business plans, she contended, and a two-year contract that she entered in 2001 provided that she would receive a $125,000 salary and a 3 percent ownership stake in Legend.
Legend terminated Gurvey in 2002. “Since then, Yapp has allegedly admitted that the company terminated Plaintiff because it lacked funds to pay her,” Battaglia noted. “In September of 2008, however, it was reported that Legend had successfully raised $13 million in venture capital funding,” he added.
Gurvey filed suit against Legend, Yapp, and Sandrew in 2009. She asserted several contract-related claims in the complaint, which sought damages that included her equity stake under the purported employment agreement.
None of Gurvey's claims survived summary judgment.
“Plaintiff cannot prove that a contract existed between the parties, and even if it did, the claim is barred by the statute of frauds,” Battaglia declared. “Additionally, if the parties entered into any agreement, such an agreement would be in violation of the professional rules of conduct and unenforceable.”
The court first ruled that Gurvey failed to show that a valid contract existed between her and any of the defendants.
The parties did not dispute that they did not enter a written contract. Instead, Gurvey claimed that they reached an oral agreement.
But absence of a written contract doomed Gurvey's claims, Battaglia said, because she did not produce enough evidence to demonstrate that the parties reached a “meeting of the minds” as to several material terms of the bargain.
Even if an oral contract existed, the court continued, Gurvey's breach of contract claim is barred by the statute of frauds. Gurvey claimed that she was hired as Legend's counsel for an initial two-year term, the court noted. But under the statute of frauds any contract that cannot be completed within one year must be reduced to writing, and failure to document such an agreement renders the contract void ab initio, Battaglia said.
Another flaw in Gurvey's lawsuit is her noncompliance with ethics rules on fees and business deals with clients, Battaglia stated.
A lawyer who accepts a client's stock as compensation for rendering legal services has engaged in a business transaction with that client, Battaglia observed. Such transactions, he added, are prohibited under New Jersey Rule of Professional Conduct 1.8 unless:
(1) the transaction and terms in which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner and terms that should have reasonably been understood by the client; (2) the client is advised of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent counsel of the client's choice on the transaction; and (3) the client consents in writing thereto.
These same restrictions apply under analogous ethics rules in New York and California--the two other jurisdictions in which Gurvey arguably could have brought suit, the court noted.
Gurvey's alleged stock-for-fee arrangement is unenforceable because she failed to comply with the requirements of Rule 1.8, the court ruled. The lawyer did not advise Legend to seek independent counsel, did not obtain the client's written consent to the arrangement, and did not produce a written document indicating that she rendered that advice and secured that consent, Battaglia said.
Gurvey also did not comply with Rule 1.5, the court said, which required her to “communicate the basis, rate and fees to the Defendants in writing.” In fact, the court said, Gurvey admitted that she never received a retainer agreement from the defendants.
Legend3D, Sandrew and Yapp were represented by Fred M. Plevin and Douglas R. Clifford of Plevin, Sullivan & Connaughton, San Diego.
Sandrew was also represented by Michael T. Conway of LeClair Ryan, New York.
Gurvey appeared pro se.
Full text at http://op.bna.com/mopc.nsf/r?Open=jros-8yaksm.
Copyright 2012, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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