“A novation is a mutual agreement by the parties concerned for the discharge of a valid existing obligation by the substitution of a new valid obligation.”
How later courts described this case
- “A novation is a mutual agreement by the parties concerned for the discharge of a valid existing obligation by the substitution of a new valid obligation.”
Written by the judges who cited it.
The opinion
DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
STUART N. BORNSTEIN, an individual, and GRANADA, LLC, a Florida
Limited Liability Company,
Appellants,
v.
IRA MARCUS, an individual, and IRA MARCUS P.A.,
a Florida Corporation,
Appellees.
No. 4D18-277
[May 8, 2019]
Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Carlos A. Rodriguez, Judge; L.T. Case No. 10-046657
(14).
Xavier A. Franco, George E. McArdle and Michael A. Mullavey of
McArdle, Pérez & Franco P.L., Coral Gables, and John P. Seiler of Seiler
Sautter Zaden Rimes & Wahlbrink, Fort Lauderdale, for appellants.
Robert M. Klein, Mark J. Sullivan and Andrew M. Feldman of Klein
Glasser Park & Lowe, P.L., Miami, for appellees.
METZGER, ELIZABETH A., Associate Judge.
Appellants, Granada, LLC and Stuart Bornstein, appeal the trial court’s
final judgment entered in favor of appellees, Ira Marcus and Ira Marcus,
P.A., following a bench trial. We affirm the final judgment and write solely
to address the court’s conclusions regarding appellants’ breach of contract
claims.
As set forth in our previous opinion concerning this case:
In 2009, appellant Stuart Bornstein, Alan Potamkin, and their
company Granada, LLC, entered into a retainer and
contingent fee agreement with appellee Ira Marcus, P.A., for
legal representation with a claim against the City of Coral
Gables. Pursuant to the fee agreement, the firm would be
entitled to 40% of the gross recovery. Additionally, the firm
was to be paid two retainers totaling $50,000 . . . [which]
would be applied as a credit against any recovery.
Bornstein v. Marcus, 169 So. 3d 1239, 1241 (Fla. 4th DCA 2015) (emphasis
added).
The retainer and contingency fee agreement (“Fee Agreement”) included
the following hypothetical, which showed how the $50,000 retainer credit
would affect Ira Marcus, P.A.’s (the “firm”) take-home fee amount if there
was a recovery from the City of Coral Gables:
Ex: Gross recovery: $1,000,000.00
Less Fees (40%) $400,000.00
$600,000.00
Credit client +$50,000.00
Net Attorneys Fees $350,000.00
Adjusted Gross to client $650,000.00
Less Outstanding costs: -$ 3000.00
Net to Client: $647,000.00
In 2007, Granada, LLC sued the City of Coral Gables. Ultimately, the
City offered to settle Granada, LLC’s claims for $1.45 million. Per the Fee
Agreement, the firm was entitled to retain $530,000 of the settlement
proceeds (after accounting for the $50,000 retainer credit). To assist
appellants in reaching a settlement agreement with the City, the firm
agreed to reduce its attorney’s fees. To that end, the firm sent Mr.
Bornstein, among others, a distribution sheet, which outlined how the
$1.45 million settlement from the City would be divided (“Distribution
Agreement”). The Distribution Agreement specifically noted, among other
things, that Granada, LLC would “net” $880,816.01 and the firm would
retain $450,000 in “Adjusted Attorneys Fees”.
Appellant Bornstein signed the Distribution Agreement both as
principal of Granada, LLC and in his individual capacity. In doing so,
Bornstein acknowledged he “[r]eviewed, accepted and agreed to” the
Distribution Agreement. Thereafter, Granada, LLC accepted the City’s
$1.45 million settlement offer. The firm distributed the settlement
proceeds exactly as outlined in the Distribution Agreement.
It is undisputed Granada, LLC netted $880,816.01 of the settlement
proceeds received from the City per the terms of the Distribution
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Agreement. Despite this, Bornstein complained the settlement
distribution was incorrect. Specifically, Bornstein asserted the firm was
contractually obligated to refund appellants the $50,000 retainer initially
addressed in the Fee Agreement. Appellee Marcus and the firm disagreed,
maintaining the Distribution Agreement controlled, noting it clearly set
forth the firm’s entitlement to retain a flat $450,000 in attorney’s fees.
The parties were unable to work out their differences regarding the
$50,000 retainer paid to the firm. As a result, appellants filed a complaint
against appellees for breach of contract, breach of fiduciary duty,
conversion, and civil theft. The case proceeded to a non-jury trial. Both
sides presented evidence regarding the events leading up to Granada,
LLC’s settlement with the City, the Fee Agreement, and the creation of the
Distribution Agreement. Mr. Potamkin, a nonparty, and Bornstein
testified, claiming the $50,000 “retainer credit” noted within the Fee
Agreement was owed by the firm to appellants as a refund. At the same
time, both Potamkin and Bornstein admitted the $50,000 retainer was
“nonrefundable” under the terms of the Fee Agreement.
Marcus testified that the parties agreed his firm would net $450,000
from the City settlement proceeds as a fee after consideration of the
retainer. Marcus also testified that all of the parties intended for the
Distribution Agreement to supersede the contingency fee and retainer
credit portions of the Fee Agreement. Marcus conceded the parties
intended for the remainder of the Fee Agreement to remain intact.
At the conclusion of the trial, the court entered final judgment in favor
of appellees. With respect to the breach of contract claims, the court found
there was no breach as the Distribution Agreement created a new flat fee
agreement, via novation, which unambiguously provided that the firm was
entitled to retain $450,000 for attorney’s fees from the settlement
proceeds.
Appellants argue that the Distribution Agreement did not qualify as a
novation based on the parties’ lack of intent to completely replace the Fee
Agreement and, therefore, the court’s ruling on the breach of contract
claim was erroneous. At best, appellants argue that the evidence at trial
established the Distribution Agreement constituted a modification of the
Fee Agreement which left the $50,000 retainer credit provision intact.
We first consider whether the Distribution Agreement constituted a
novation. “A novation is a mutual agreement between the parties
concerned for the discharge of a valid existing obligation by the
substitution of a new valid obligation . . . .” Miami Nat’l Bank v. Forecast
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Constr. Corp., 366 So. 2d 1202, 1204 (Fla. 3d DCA 1979). Under Florida
law, four elements are required to effectuate the novation of a binding
contract: “(1) the existence of a previously valid contract; (2) the agreement
to make a new contract; (3) the intent to extinguish the original contractual
obligation; and (4) the validity of the new contract.” S.N.W. Corp. v. Hauser,
461 So. 2d 188, 189 (Fla. 4th DCA 1984).
In contrast, a modification merely replaces some terms of a valid and
existing agreement while keeping those not abrogated by the modification
in effect. See Franz Tractor Co. v. J.I. Case Co., 566 So. 2d 524, 526 (Fla.
2d DCA 1990). “It is well established that the parties to a contract can
discharge or modify the contract, however made or evidenced, through a
subsequent agreement.” St. Joe Corp. v. McIver, 875 So. 2d 375, 381–82
(Fla. 2004). This includes contracts for attorney’s fees. Lugassy v. Indep.
Fire Ins. Co., 636 So. 2d 1332, 1335 (Fla. 1994).
Here, although the court’s novation finding is entitled to great
deference, we are compelled to disagree with such finding as all parties
testified that the Distribution Agreement was meant to modify, not
completely replace, the Fee Agreement. The question then becomes
whether the trial court reached the right result on appellants’ breach of
contract claims, but for the wrong reasons. See Dade Cty. Sch. Bd. v.
Radio Station WQBA, 731 So. 2d 638, 644–45 (Fla. 1999). We answer that
question in the affirmative because the record evidence shows the parties
intended to modify the contingency fee and retainer credit provisions
together.
When determining the scope of a modification to a contract, the
following principles control: (1) “individual terms of a contract are not to
be considered in isolation, but as a whole and in relation to one another”;
(2) “the proper resolution of any inconsistency . . . is best determined by
the manner in which the parties actually perform under it”; and (3) “an
amendment to an agreement is designed to serve some useful function,
and its existence is strong evidence, therefore, that the contract was
changed from what the parties believed and intended was provided before.”
S. Fla. Beverage Corp. v. Figueredo, 409 So. 2d 490, 495–96 (Fla. 3d DCA
1981). “When it is clear from the language or overall scheme or plan of a
contract that the parties intended for various provisions to operate
independently of each other, the court must enforce the contract as
written.” Moore v. State Farm Mut. Auto. Ins. Co., 916 So. 2d 871, 875 (Fla.
2d DCA 2005).
In the instant case, the contingency fee provision, read in conjunction
with the retainer fee credit provision of the Fee Agreement, served as an
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initial rubric for determining the net compensation the firm would be
entitled to be paid from the litigation proceeds. In turn, the subsequent
Distribution Agreement specifically removed any reference to use of a
contingency fee or application of a retainer credit and clearly delineated
that the firm was entitled to net $450,000 from the litigation proceeds.
The parties’ performance affirms that the Distribution Agreement governed
the firm’s total fee compensation. The Distribution Agreement clearly and
unambiguously modified both the contingency fee and retainer credit
provisions of the Fee Agreement.
Accordingly, even though the trial court found the Distribution
Agreement constituted a novation versus a modification of the Fee
Agreement, we find, pursuant to the tipsy coachman doctrine, that the
court did not err when it concluded appellees did not breach the contract
entered into with appellants regarding attorney’s fees. See Dade Cty. Sch.
Bd., 731 So. 2d at 644–45.
Affirmed.
GERBER, C.J., and CONNER, J., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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