Large Settlement Led to a Big Plot Reveal: The Agreement was Never Executed

Rule 1.5(c) of the North Carolina Rules of Professional Conduct provides protection to clients with its requirement that “[a] contingent fee arrangement shall be in a writing signed by the client.”  In Rossabi Law PLLC v. Greater Greensboro Ent. Grp., LLC, 2021 NCBC 31, the Business Court considered what happens when a client turns the rule against its lawyer to block recovery of a fractional share of a settlement.

Plaintiff represented a defendant entity that operated the Cone Denim Entertainment Center (CDEC), a concert venue in downtown Greensboro. In summer 2017, the City of Greensboro advised that it had purchased property behind CDEC and intended to condemn the access easement and terminate the public parking arrangement that benefitted the property owned by defendant N Club, LLC on which CDEC operated. ¶ 12.  The key dispute before the Business Court arose from a latent dispute about the lawyer-client relationship formed to defend against the condemnation.

The City and N Club entered a review agreement under which the City would reimburse N Club as much as $45,000 for expenses associated the City’s condemnation plan, including potential attorneys’ fees. When the City took its proposed actions a few months later, its Council adopted a resolution that included payment of attorneys’ fees.  Id. ¶¶ 14, 16.  The lawyer-client dispute revolved around the nature of their relationship after the City’s condemnation action.

The Rossabi law firm believed after that point it represented defendants on a contingent basis in legal action against the City over the condemnation and parking termination. The Business Court’s opinion recites that a member of defendant Greater Greensboro Entertainment Group (GGEG) – Rocco Scarfone – asked for the contingent structure, told Plaintiff he would execute the Contingency Agreement that was delivered to him, later indicated he had signed it, and acknowledged the arrangement at a mediation. Id. ¶¶ 19, 22-24.

Scarfone and plaintiff’s managing partner, Amiel Rossabi, had agreed not to tell the City about the contingent arrangement over fears it would dampen their potential recovery at mediation. Thus, they negotiated for the City to pay $85,000 in attorneys’ fees as a term of settlement, with the parties to bear the costs of any other fees and expenses. Id. ¶¶ 25-27. Yet, after the parties reached a mediated settlement of approximately $1 million, the contingent arrangement was promptly more illusory than celebratory.

Defendants alleged that Scarfone could not approve the contingency agreement without agreement of another member, Jeffrey Furr, and stated that neither of them had, in any event, signed it. The about-face was especially notable because Rossabi was also a member of GGEG and had been its legal counsel for more than 10 years. Id. ¶¶ 8, 11. Yet, financial warfare in the entertainment industry is hardly a new script.  As legendary television executive Don Ohlmeyer once observed:

“The answer to all your questions is: Money.”

The Court was thus faced with (i) defendants who allegedly suborned the belief of their counsel and fellow LLC member in a non-existent contingency agreement, and (ii) its own precedent that non-compliance with ethical Rule 1.5 likely dooms a contingent fee arrangement.  See Dunn v. Dart, 731 S.E.2d 274 (N.C. App. 2012) (affirming a Business Court decision that a fee agreement was unenforceable absent Rule 1.5 compliance).

Judge Robinson noted as “erroneous” the claim by defendants that it was undisputed there was no signed contingency agreement. ¶ 51.  The Court observed that whether Scarfone signed the agreement “is a genuine issue of material fact that the Court is unable to resolve without considering the credibility of Rossabi and Scarfone, which is inappropriate” at the summary judgment stage. While Judge Robinson confirmed that plaintiff would still need “to establish the execution and validity” of a contingency agreement, the Court allowed the breach of contract and perhaps more important quantum meruit claims to proceed.  ¶¶ 55-56.

Epilogue:  The Business Court has set a July 8, 2021 video hearing to consider defendants’ reconsideration motion that contends the Court committed “clear error” in interpreting GGEG’s Operating Agreement to grant Scarfone the authority to have executed, alone, a binding contingency agreement that may or may not ever be discovered. Popcorn is optional for that one.

Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.