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September 2, 2010 |
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| August 03, 2009 |
By: Nate Raymond |
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or about 25 years, Capital Properties Associates turned to Bingham McCutchen for legal advice on everything from real estate deals to litigation.
But that relationship is no more following a months-long fee dispute that has now found its way into litigation in New York state court. Bingham filed an arbitration claim last month against Capital Properties seeking $760,000 in unpaid legal fees.
Capital Properties, in a petition to stay the arbitration filed in Manhattan Supreme Court, calls Bingham’s past fees “excessive” and claims it never signed the firm’s last engagement letter and is not a party to arbitration.
The fee dispute had been simmering for months. E-mail attached as court exhibits show Capital founder Richard Cohen had grown concerned by last October about Bingham’s fees for handling Connecticut litigation that had already earned the firm about $3 million. The company resisted paying Bingham the next $750,000, and the general counsel tried to negotiate a discount and staffing restrictions. The dispute “threatened to permanently terminate their decades-old relationship,” according to Capital.
For a time, both sides appeared to settle their disagreements with Bingham agreeing to discounts and Capital paying its past invoices. But the fee dispute arose again this year when Bingham claimed it was not being paid. This time, the firm asked to get out of the Connecticut litigation.
The argument over fees and others like it come as clients have been moving aggressively to cut legal costs during the recession. Among the steps clients are taking is to review how much they spend on outside counsel, which can threaten long-time relationships, said Lauren Chung, a consultant with Hildebrandt International.
“Law departments now more than ever are really trying to re-evaluate the entire package,” she said. “While there’s history and relationships that they value and want to maintain, I think there’s a bigger goal driving a lot of these decisions, which is cost savings.”
Capital Properties’ general counsel, David Carp, and its lawyer on the case, Daniel Connolly of Bracewell & Giuliani, could not be reached for comment by deadline.
Bingham spokeswoman Claire Papanastasiou issued a statement saying the firm “commenced the arbitration to collect substantial unpaid fees for the reasons stated in its arbitration claim.”
Cohen is a prominent real estate developer who in 2007 had a net worth of $249 million, according to a term sheet filed with the Securities and Exchange Commission on a commercial mortgage-backed securitization he sponsored. He became gossip fodder in the New York Daily News the same year after reports surfaced that his wife, former CNN anchor Paula Zahn, had been having an affair.
Client Demands
Cohen’s privately held Capital Properties was founded in Boston in 1977. Since then, the company claims to have developed, acquired and managed more than 17,000 apartment units and 8 million square feet of office space.
For much of its existence, Capital turned to Bingham McCutchen in Boston for legal advice. Some Bingham real estate partners in Boston still list Capital as a client on the firm’s Web site.
In 2004, Cohen chose Bingham to represent the company in litigation in Connecticut Superior Court spilling out of the proposed $150 million Adriaen’s Landing retail and housing development in Hartford. Capital Properties signed an agreement in 2002 to develop the area. But two years later, frustrated at Capital’s pace, a state-supported economic development authority dropped the company and went looking for a new developer.
The disagreement resulted in lawsuits between Capital and Connecticut agencies. The state sought more than $42 million in damages. The litigation, which Bingham said in its arbitration claim has been pursued “aggressively” by both sides, is now in its fifth year.
The terms of Bingham’s representation of Capital in the Connecticut litigation were never put in writing, Carp said in the company’s petition to stay Bingham’s arbitration.
Cohen grew concerned “the billings on the project have been on auto-pilot” and “the vast majority of time is therefore in question,” according to an e-mail from Carp to Bingham partner Edward Saxe last November.
Bingham, on the other hand, said it had grown concerned that Capital had fallen “far behind” in its payments, according to its arbitration claim.
By mid-November, according to Carp, Bingham and Capital completed negotiations and orally agreed to revised attorney-client terms. Capital agreed not to fire Bingham from the Connecticut litigation and pay the firm a $125,000 retainer, Carp said. Bingham agreed to Capital’s fee demands generally and to “endeavor to limit its staffing in order to control fees.”
Bingham partner Stuart Rosen sent a proposed engagement letter, but Carp claimed the proposal contained “materially different” terms.
Capital never signed the agreement but paid Bingham $775,000 to settle its past bills and for a retainer.
After the dispute arose again, Capital told Bingham in April that it was handing over the Connecticut litigation to Bracewell & Giuliani. Bingham stopped representing Capital in May with $764,000 in unpaid fees.
Bingham now is pressing ahead with its arbitration claim. But Capital argues it never signed the engagement letter, which included the arbitration clause.
Nate Raymond reports for the New York Law Journal, an ALM Media affiliate of the Daily Business Review.
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