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An author must honor a literary agency agreement with her former lawyer despite his noncompliance with the rule on lawyer-client business deals, a federal judge in Manhattan held Aug. 9 ( Friedman v. Kuczkir , S.D.N.Y., No. 14-cv-9060 (JGK), 8/9/17 ).
Mary Kuczkir owes Martin Friedman more than $700,000 in unpaid commissions on top of what he already received—$1.5 million in commissions plus $195,000 in hourly fees—for his work as her literary agent over more than six years, Judge John G. Koeltl concluded after a bench trial in the U.S. District Court for the Southern District of New York.
Kuczkir is an 84-year-old author who has written dozens of bestselling romance and thriller novels under the pen name Fern Michaels.
Although Friedman won at trial, the case is a reminder that legal ethics rules in every state obligate lawyers to jump through certain hoops when they have business dealings with clients.
Kuczkir and her companies claimed that her commission agreement with Friedman was unenforceable because he didn’t comply with New York’s ethics rule governing business relationships between lawyers and clients.
The rule then in effect, DR 5-104 of New York’s former Code of Professional Responsibility, prohibited business dealings between a lawyer and a client who have differing interests, unless the lawyer satisfies three conditions. The current rule, New York Rule of Professional Conduct 1.8(a), is substantially the same, the court noted.
Friedman admitted he was unaware of the rule when he entered into the commission agreement with Kuczkir, the court said.
The court found that DR 5-104 applied to the commission agreement between Kuczkir and Friedman, who had previously been getting $325 per hour for his work as the author’s literary agent and for legal services that he provided to Kuczkir and her companies.
The commission agreement shifted him to an arrangement where he would receive an 11 percent commission as well as hourly fees, so he and Kuczkir had differing interests in the transaction, the court said.
The court also found that Friedman violated DR 5-104 by entering into the agreement without satisfying the conditions in the rule.
Friedman didn’t advise Kuczkir to seek the advice of independent counsel before entering into the commission agreement, and he didn’t specify in the agreement that Kuczkir would continue being billed $325/hour for the same work that would be subject to the commission agreement, the court said.
However, the court found that the rule violations didn’t make the agreement unenforceable. Friedman didn’t exploit his client’s confidence in him, and he didn’t take any affirmative steps to benefit himself at the expense of his client, it said.
Kuczkir was a savvy business person who had significant experience dealing with attorneys and literary agents, the court said. Also, she negotiated a below-market rate—an 11 percent commission rather than the standard 15 percent commission—and Friedman prepared a straightforward agent agreement patterned on the same contract Kuczkir had with prior literary agents, the court said.
Kuczkir also contended that the commission agreement was unenforceable because the total fees—the combination of the hourly fees and commissions—constituted an excessive fee in violation of New York ethics rules.
The court disagreed, saying the fee was plainly not excessive. Friedman procured lucrative publishing contracts that brought Kuczkir more than $12 million, and his total fee was lower than the customary fee for similar services, it said.
The court also found that Kuczkir ratified the agreement in that she personally received, reviewed, and paid the lawyer’s monthly invoices while she and Friedman were operating under the agreement for more than six years.
Kuczkir had full knowledge of the facts and could have terminated the commission agreement at any time but instead continued to accept its benefits, the judge said.
The court also concluded that Kuczkir didn’t have any viable claim against Friedman for malpractice or breach of fiduciary duty. Kuczkir didn’t prove that she suffered any damages from the lawyer’s violation of Rule 5-104, the court said.
Lane Sash & Larrabee LLP represented Friedman as plaintiff and counter defendant in his breach of contract suit. Melito & Adolfsen P.C. represented Friedman and McLaughlin & Stern LLP as defendants in Kuczkir’s malpractice suit. Simmons Jannace LLP; Blodnick, Fazio & Associates; and Rosen Law Firm LLC represented Kuczkir.
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