Contract Provision For Renegotiation Of Fees Too Vague To Be Enforced

On December 10, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Spielman Koenigsberg & Parker, LLP v. Taxi Club Management, Inc., 2014 NY Slip Op. 33282(U), dismissing a breach of contract claim because the provision to be enforced was unenforceably vague.

In Spielman Koenigsberg & Parker, the principal dispute concerned the amount of money owed by the defendant to its accountants, SKP. Pursuant to a letter of engagement ("LOE"), the defendant was to pay $20,000 per month for accounting services. The LOE also provided that "both parties agree that at the end of 2011 a discussion will be held to analyze the amount of time actually incurred in regard to the engagement and compare to the amount paid by the monthly retainers – and see if a 'true up' in regard to fees is appropriate."

SKP billed Defendant $280,000 for fourteen months' worth of accounting services—the contract rate—but also demanded a further $285,866 under the 'true up' provision, which Defendant refused to pay.

The court granted summary judgment to the defendant on the grounds that the "true-up" provision was unenforceably vague:

The LOE fails to explain how the amount of time actually incurred was to be analyzed at this discussion, how and by whom the time was to be calculated or valued, how the purported true-up was to be performed, and what circumstances would render a true-up in regard to fees appropriate. Rather, the appropriateness of the true-up was left to the subjective interpretation of either party at the time of the discussion. Nor does the LOE identify a fee structure that would apply to the purported true-up, such as an hourly fee, a flat fee, or some other arrangement. In essence, this provision lacks definitiveness to render it enforceable, and constitutes an unenforceable agreement to agree.

This conclusion is supported by other provisions of the LOE. For example, the parties agreed in the LOE that, for projects undertaken by SKP beyond the regular services contemplated in the agreement, SKP would obtain defendants’ agreement in advance on a reasonable billing rate for the projects. The LOE also provided that SKP will notify [defendant] immediately of any circumstances that would significantly affect these estimated fees.

The court held that "it could not have been the parties' reasonable expectation" that defendant would be expected to pay double the contract price despite never having received the immediate notification or providing the agreement in advance called for by the LOE.

The court also rejected SKP's account stated argument, holding that "the evidence makes clear that defendants objected to SKP's invoices."

The lesson of this decision is that, even if the parties understand that the specified fee is a down payment or estimated fee subject to adjustment, that fact must be clearly stated, and the adjusted fee must be readily calculable.