    13-397
    Shukla v. Sharma

                                 UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                            SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007,
is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court’s Local Rule 32.1.1. When citing
a summary order in a document filed with this court, a party must cite either the Federal Appendix or an electronic
database (with the notation “summary order”). A party citing a summary order must serve a copy of it on any party not
represented by counsel.

            At a stated term of the United States Court of Appeals for the Second Circuit, held at the
    Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
    7th day of October, two thousand and fourteen.

    PRESENT:
                       DEBRA ANN LIVINGSTON,
                       GERARD E. LYNCH,
                       CHRISTOPHER F. DRONEY,

                            Circuit Judges.
    _______________________________________________

    DEVENDRA SHUKLA,

                       Plaintiff-Counter-Defendant,

                       - v. -                                                    No. 13-397

    SAT PRAKASH SHARMA, Individually and as Director of
    VISHVA SEVA ASHRAM OF NEW YORK, GEETA SHARMA,
    Individually and as Director of VISHVA SEVA ASHRAM OF
    NEW YORK, VISHVA SEVA ASHRAM OF NEW YORK DBA
    SARVA DEV MANDIR,

                       Defendants-Counter-Claimants-Appellants,

    CHITTUR & ASSOCIATES P.C.,

                Non-Party Appellee.
    _______________________________________________


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                                          DANIEL H. RICHLAND, Paykin, Richland & Falkowski, P.C.,
                                          New York, NY, for Defendants-Counter-Claimants-
                                          Appellants.

                                          KRISHNAN S. CHITTUR, Chittur & Associates, P.C., Ossining,
                                          NY, for Non-Party Appellee.

           UPON DUE CONSIDERATION, it is hereby ORDERED, ADJUDGED, and DECREED

that the judgment of the district court is AFFIRMED in part and VACATED AND REMANDED

in part.

           Defendants-appellants Sat Prakash Sharma, Geeta Sharma, and Vishva Seva Ashram of New

York (“defendants-appellants”) appeal from a judgment of the United States District Court for the

Eastern District of New York (Amon, C.J.) awarding non-party appellee Chittur & Associates P.C.

(“Chittur”) $179,615.82 in attorney’s fees as well as $16,080 in additional fees for time spent

litigating its fee application. Chittur withdrew as counsel for defendants-appellants on the basis of

their failure to pay outstanding fees following a jury trial at which defendants-appellants were found

liable to plaintiff Devendra Shukla (“Shukla”) for violating the Trafficking Victims Protection Act.

See Shukla v. Sharma, No. 07-cv-2972 (CBA) (CLP), 2012 WL 481796 (E.D.N.Y. Feb. 14, 2012).

This appeal exclusively concerns the fee dispute between defendants-appellants and Chittur, and not

the underlying litigation between Shukla and defendants-appellants. We assume the parties’

familiarity with the underlying facts and procedural history of the case, and with the issues on appeal.

           Defendants-appellants argued below that the district court lacked subject matter jurisdiction

over the fee dispute, and they renewed this argument in their opening brief on appeal, although their

current counsel (who appeared after that brief was filed) no longer presses it. Regardless, the district

court correctly found that it had jurisdiction. For a district court to exercise supplemental



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jurisdiction over a fee dispute, the dispute must form part of the same “case or controversy” as a

dispute over which the district court has original jurisdiction. 28 U.S.C. § 1367(a). That standard

is satisfied when the two disputes “derive from a common nucleus of operative fact.” Achtman v.

Kirby, McInerney & Squire, LLP, 464 F.3d 328, 335 (2d Cir. 2006) (quoting Promisel v. First Am.

Artificial Flowers, Inc., 943 F.2d 251, 254 (2d Cir. 1991)) (internal quotation marks omitted). We

have held, in an “unbroken line of cases,” that a fee dispute between a party and its attorneys shares

a common nucleus of operative fact with the underlying action. Id. at 336; see, e.g., Alderman v.

Pan Am World Airways, 169 F.3d 99, 101-02 (2d Cir. 1999); Itar-Tass Russian News Agency v.

Russian Kurier, Inc., 140 F.3d 442, 445-48 (2d Cir. 1998); Cluett, Peabody & Co. v. CPC

Acquisition Co., 863 F.2d 251, 256-57 (2d Cir. 1988). Because the district court indisputably had

jurisdiction over the underlying litigation pursuant to 28 U.S.C. § 1331, it properly exercised

supplemental jurisdiction over the fee dispute.

       Turning to the merits, defendants-appellants argue that the district court erred in awarding

fees to Chittur on an account stated theory because their retainer agreement with Chittur was

unenforceable, and under New York law, an account stated cannot be based on an unenforceable

contract. See Rimberg & Assocs., P.C. v. Jamaica Chamber of Commerce, Inc., 837 N.Y.S.2d 259,

260 (App. Div. 2007); see also Gurney, Becker & Bourne, Inc. v. Benderson Dev. Co., 394 N.E.2d

282, 283 (N.Y. 1979) (“[A]n account stated cannot be made the instrument to create liability when

none exists . . . .”). Defendants-appellants argue that the retainer agreement was unenforceable (1)

because it contained a non-mutual fee shifting clause providing that Chittur was entitled to fees

incurred in litigating a fee dispute, and (2) because it charged two percent monthly interest on past-

due amounts in violation of New York’s prohibition on usury. See N.Y. Gen. Oblig. Law § 5-501;


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N.Y. Banking Law § 14-a(1).

       As defendants-appellants concede, they did not present their two enforceability arguments

to the district court. As a general matter, “a federal appellate court does not consider an issue not

passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120 (1976). However, “the rule against

considering claims for the first time on appeal ‘is prudential, not jurisdictional’ and the Court has

‘discretion to consider waived arguments.’” Commack Self-Serv. Kosher Meats, Inc. v. Hooker, 680

F.3d 194, 208 n.11 (2d Cir. 2012) (quoting Sniado v. Bank Austria AG, 378 F.3d 210, 213 (2d Cir.

2004)). A waived argument may properly be considered on appeal as a matter of discretion under

two circumstances: (1) when consideration of the argument is necessary to avoid “manifest

injustice,” or (2) when the waived argument presents a pure question of law and there is “no need

for additional fact-finding.” Id.; see Baker v. Dorfman, 239 F.3d 415, 420 (2d Cir. 2000); Readco,

Inc. v. Marine Midland Bank, 81 F.3d 295, 302 (2d Cir. 1996).

       Here, we are able to discern without great difficulty—and indeed, Chittur conceded at

argument—that the non-mutual fee-shifting provision in the retainer agreement was unenforceable

under New York law, and that the district court therefore erred when it granted Chittur $16,080 in

fees associated with litigating the fee dispute. See Ween v. Dow, 822 N.Y.S.2d 257, 261 (App. Div.

2006) (“[W]e find . . . the very nature of the provision, which permits the recovery of attorneys’ fees

by the attorney should he prevail in a collection action, without a reciprocal allowance for attorneys’

fees should the client prevail, to be fundamentally unfair and unreasonable.”); see also In re Ernst,

382 B.R. 194, 198 (S.D.N.Y. 2008) (relying on Ween); Arfa v. Zamir, 869 N.Y.S.2d 390, 391 (App.

Div. 2008) (same). The district court, without the benefit of briefing on the issue, looked to cases

indicating that while “[a] general agreement for the payment of counsel fees does not generally


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include counsel fees in the suit to collect those fees,” parties can contract around that rule by using

“specific language.” F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1266-67 (2d Cir.

1987) (quoting Swiss Credit Bank v. Int’l Bank, Ltd., 200 N.Y.S.2d 828, 830-31 (Sup. Ct. 1960)).

Those cases, however, involve two-sided fee-shifting provisions, as opposed to one-sided ones, and

ordinary commercial contracts, as opposed to retainer agreements.               In New York, “[f]ee

arrangements between an attorney and [a] client are scrutinized with particular care.” Revson v.

Cinque & Cinque, P.C., 221 F.3d 59, 67 (2d Cir. 2000). For these reasons, we vacate the portion

of the district court’s award granting $16,080 to Chittur based on the non-mutual fee-shifting

provision.1

        Defendants-appellants would have us further hold that the non-mutual fee-shifting provision

renders the entire retainer agreement unenforceable and thus undermines the basis for Chittur’s

account stated claim. This argument, however, is contrary to the principle that unenforceable

contract provisions are severable. See Restatement (Second) of Contracts § 184(1). Indeed, in the

leading New York case on non-mutual fee-shifting provisions, the court invalidated such a provision

and held that the plaintiff attorney could not recover for time spent litigating his fee application. But

it also assumed that the attorney could recover on an account stated claim predicated on the same

retainer agreement. See Ween, 822 N.Y.S.2d at 260. Accordingly, the invalid fee-shifting provision

does not provide a reason for disturbing the district court’s conclusion that Chittur had established


        1
          Chittur argues that we should nonetheless award it fees incurred while litigating the fee
dispute, pointing to cases holding that time spent on a fee application is compensable. E.g., Gagne
v. Maher, 594 F.2d 336, 343-44 (2d Cir. 1979). Given that we have denied Chittur these fees on the
basis of the retainer agreement, we will not address, in the first instance, its entitlement to them on
some other basis. On remand, Chittur is free to argue to the district court that it should receive these
fees, although as Chittur recognized at argument, the cases on which it relies were federal question
cases involving statutes that provide for fee-shifting.

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an account stated in the amount of $179,615.82.

       Finally, we exercise our discretion and deem defendants-appellants’ argument based on New

York’s usury statute waived. In arguing that their retainer agreement with Chittur is a “loan” or

“forbearance” subject to the usury statute, see N.Y. Gen. Oblig. Law § 5-501(2), defendants-

appellants cite only one appellate decision, Eikenberry v. Adirondack Spring Water Co., 480 N.E.2d

70 (N.Y. 1985). Eikenberry involved an independent repayment agreement for delinquent amounts

already owed by an attorney’s client, not a retainer agreement charging interest on past-due amounts

as they arose. See id. at 72. Defendants-appellants concede that applying the usury statute to retainer

agreements like Chittur’s would require an extension of Eikenberry. We decline to address this state

law claim with potentially significant ramifications for attorney-client relations in New York, given

that the argument was not raised or passed upon below, and that defendants-appellants have not

shown a need to do so to avoid manifest injustice.2

       We have reviewed defendants-appellants’ remaining contentions and find them to be without

merit. For the foregoing reasons, the district court’s judgment is VACATED AND REMANDED

with respect to the portion of its award predicated on the unenforceable fee-shifting provision. In

all other respects, the judgment is AFFIRMED.

                                                       FOR THE COURT:
                                                       Catherine O’Hagan Wolfe, Clerk




       2
          Defendants-appellants’ opening brief lodged a number of conclusory procedural objections
to the district court’s approach to the fee dispute. These arguments, too, were not raised below, and
we deem them waived as well.

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