Goldston v. Bandwidth Tech. Corp., 52 A.D.3d 360, 859 N.Y.S.2d 651 (N.Y. App. 1 Dept. 2008)
Brief Summary
Based on a retainer agreement signed at the height of the dot-com boom, a non defunct law firm was awarded two percent of a technology company’s stock.
Complete Summary
Law firm Goldston & Schwab (“Goldston”) entered into a retainer agreement to represent Bandwidth Holdings Corporation and its wholly owned subsidiary Bandwidth Technology Corporation (collectively, “Bandwidth”). Executed by Bandwidth president Jonathan Star in September 1998, the agreement was for a fixed term of one year retroactive to June 1, 1998. Pursuant to its terms, Goldston and Bandwidth agreed that Goldston would be compensated by four shares of the closely held company’s outstanding stock — approximately two percent.
In November 1998, Goldston broke up. Bandwidth then refused to honor the retainer agreement on the grounds that president Star had no authority to issue stock without the approval of Bandwidth’s board of directors. Goldston brought the instant action for specific performance of the retainer agreement.
The state Supreme Court of New York County dismissed Goldston’s claim, finding that the retainer agreement was void and unenforceable. On appeal, the First Department unanimously reversed, reasoning that Star’s “apparent authority” to enter into the deal with Goldston rendered irrelevant any discussion of his actual authority.
On the principal issue of authority to enter into the agreement, the court noted that the president of a corporation was generally presumed to have the authority to retain counsel and negotiate the terms of that retention. Bandwidth did not contend that the retainer agreement was “so extraordinary or provid[ed] for such unusual compensation as to require board approval.” Id. at 655. Indeed, the company clearly accepted the benefits of the legal work — whether authorized or not — and effectively ratified the agreement by adopting a resolution terminating Goldston of any duties as “corporate attorney” for the company. Id. at 657.
The court also found it unimportant under the terms of the retainer agreement that Goldston performed little or no work after November 1998 since it had performed work before then. In sum, Bandwidth failed to set forth grounds upon which it should be relieved from performance.
Significance of Opinion
The court’s holding supports freedom of contract. Interestingly, the court did not discuss the ethical implications, if any, of NY DR 5-104(A) (similar to ABA Model Rule 1.8(a)), which governs business transactions between a lawyer and the lawyer’s client, including instances in which the lawyer accepts securities in lieu of fees.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.
Register Now for the Eighth Annual Legal Malpractice & Risk Management Conference and receive a 10% Early Bird Discount before December 1, 2008
March 4-6, 2009
The Westin Chicago River North Hotel
320 North Dearborn
Chicago, Illinois
Attend the industry's premier annual event focused on current and important developments in the law and litigation of malpractice claims, legal malpractice insurance and risk management strategies. Each conference panel examines recent case law and significant developments throughout the last year. One and one-half days will be devoted to legal malpractice (March 4-5), and one and one-half days will be devoted to risk management (March 5-6). The conference will be held in Chicago at The Westin Chicago River North Hotel.
Earn up to 13.75 hours of CLE credit including up to 5.50 ethics credit!
Conference Topics
Legal Malpractice Sessions (March 4-5)
• Guess Where You Are Being Sued — Bankruptcy Court
• What You Need to Know About Developments in Litigating Legal Malpractice Claims
• Beyond the Basics — Selecting and Using Expert Witnesses
• Insurance Law — Prior Knowledge and Additional Negligence Claims
• Statutory Causes of Action — Consumer Protection Statutes
• Can I Say What Really Happened?
• Stump the Panel
Legal Malpractice/Risk Management Cross-Over Sessions (March 5)
• In the Spotlight — The Exposure of Patent Lawyers
• The Insurance Marketplace
• How to Mitigate Your Damage Exposure as a Defendant
Keynote Address (March 5)
• The Debate Over the Billable Hour: A Rigorous Look at Competing Law Firm Profitability Models
Risk Management Sessions (March 5-6)
• The General Counsel Forum
• Plaintiff’s Perspective — Red Flags and Selection Criteria
• Risk Management and Electronic Advertising — Websites and E-mail
• Going, Going, Gone: Lawyers Who Leave and the Firms Left Behind
• On the Horizon — MJP, Alternative Business Structures, and Alternative Billing
Registration Fees
$1,300 for the Entire Conference — March 4-6
$925 for the Legal Malpractice Sessions Only — March 4-5
$925 for the Risk Management Sessions Only — March 5-6
Discounts (maximum 15% discount)
Returning registrants receive 5% off the conference price
Multiple registrants receive 15% off when another colleague from the same company registers (one full paid registrant required)
Early birds receive 10% until December 1, 2008
For more information, please visit www.LMRM.com or click here to Register Online Now! To speak with the Conference Planner, Katherine McCormack, please call 312-704-3329.
|