Opinion
96 Civ. 3231 (RPP)
April 25, 2000.
Counsel for Galaxiworld.com (formerly Gaming Lottery Corporation) and Jack Banks: The Law Office of Sheldon Eisenberger. By: Sheldon Eisenberger, Joe Zelmanovitz, Seth Eisenberger.
Former Counsel for Gaming Lottery Corporation and Jack Banks: Proskauer Rose LLP. By: Karen Clarke.
Counsel for Coutts Co. AG White Case LLP. By: David Hille.
OPINION AND ORDER
After having withdrawn as counsel for Jack Banks and GalaxiWorld.com Limited (formerly known as Gaming Lottery Corp.) ("Galaxi World") in the Gaming Lottery Securities action, 96 Civ. 5567 (RPP), and after a judgment of $762,611.34 was entered against Galaxi World and in favor of Proskauer Rose LLP ("Proskauer"), Proskauer moved to withdraw as attorney of record for GalaxiWorld.com Limited and Jack Banks in this litigation and to compel payment of outstanding fees and expenses in this litigation. At a hearing on February 17, 2000, Sheldon Eisenberger filed an appearance as counsel for Galaxi World and Jack Banks, and the Court granted Proskauer's motion to withdraw from the bench. Mr. Eisenberger requested the files in Proskauer's possession pertaining to the instant case, and Proskauer asserted a retaining lien against all files pertaining to Galaxi World and Banks in its possession until such time as its fees are paid in full.
In an Order dated March 4, 2000, the Court entered judgment in favor of Proskauer and against Galaxi World in the amount of $10,731.72 for services rendered in the instant case and an amended judgment in favor of Proskauer and against Galaxi World in the amount of $654,412.58 for services rendered in In re Gaming Lottery Securities Litigation, 96 Civ. 5567 (RPP). In paragraph two of the Order, the Court ordered and adjudged that "Proskauer has a retaining lien against Galaxi World and Jack Banks with respect to all the property, files, and papers pertaining to them in Proskauer's possession, pending full payment of the total outstanding fees and expenses incurred in all matters in which Proskauer has provided services to them." In paragraph four, the Court ordered and adjudged that "Galaxi World and Jack Banks shall not be permitted to proceed on their cross-claims and counterclaims in this action until they purge their prior contempts of this Court" by paying $422,113.43 to Proskauer, the amount outstanding for the judgment in this case and the judgment in In re Gaming Lottery Securities Litigation. (March 4, 2000 Order ¶¶ 2, 4.) Paragraph four further provides that (i) if this sum were not paid by March 13, 2000, Jack Banks would be ordered to appear before the Court "to be deposed as to all matters relevant to the satisfaction of the judgments in favor of Proskauer," (id. ¶ 4(b)); and (ii) if Mr. Banks and Galaxi World failed to pay the judgments and Mr. Banks did not appear for the deposition, the cross-claims and counterclaims asserted in this matter by Mr. Banks and Galaxi World would be subject to dismissal with prejudice by the Court. (Id. ¶ 4(c).)
Defendants were not formally held in contempt of court. The order will be amended such that "contempts of this Court" will be replaced by "failures to follow orders of this Court."
DISCUSSION
GalaxiWorld and Jack Banks move pursuant to Rule 59(e) of the Federal Rules of Civil Procedure to vacate paragraph four of the Order. They argue that the Court does not have the authority to prohibit Galaxi World and Jack Banks from proceeding on their cross-claims and counterclaims, because (i) the Court exceeded the scope of its authority when it entered judgment for Proskauer for outstanding legal fees and costs and (ii) the Court's Order denies defendants access to the courts, a right which may only be limited when a litigant engages in consistently harassing and vexatious conduct.
Defendants also argue that the Court should not have ordered that "Jack Banks shall cause Galaxi World to pay" the amount outstanding to Proskauer. (March 4, 2000 Order ¶ 4(a).) This argument is without merit. Jack Banks was the Chief Executive Officer and the controlling shareholder with his wife of GalaxiWorld. He was a named defendant in this action and it was his actions that gave rise to plaintiffs' claims of liability. Banks signed a retainer agreement with Proskauer as an individual, (Proskauer Letter to the Court dated 2/23/00, Ex. 1), and Banks and Galaxi World were billed separately (id., Ex. 2; Memorandum of Defendants Gaming Lottery Corporation and Jack Banks in Opposition to Proskauer Rose LLP's Motion to Withdraw as Counsel, Ex. A). Although Galaxi World and Banks paid those bills, GalaxiWorld's Officers and Directors insurance policy reimbursed them for Proskauer's fees of over 3 million dollars.
A. Court's Authority to Enter Judgment
The Court entered judgment for Proskauer based on its account stated causes of action both in this case and in the Gaming Lottery Securities action, after hearing from Mr. Weltman, Chief Financial Officer at Galaxi World, and in view of Galaxi World's offshore corporate status. "[T]he district court has a `responsibility to protect its own officers in such matters as fee disputes,'" Itar-Tass Russian News Agency v. Russian Kurier, Inc., 140 F.3d 442, 444 (2d Cir. 1998) (quoting Cluett. Peabody Co.. Inc. v. CPC Acquisition Co., Inc., 863 F.2d 251, 256 (2d Cir. 1988)), and particularly with clients not subject to personal jurisdiction by the courts of the state or federal government. Accordingly, the Court found that it had ancillary jurisdiction over the claim, See generally Joseph Brenner Associates. Inc. v. Starmaker Entertainment. Inc., 82 F.3d 55 (2d Cir. 1996); Cluett, Peabody, 863 F.2d 251 (2d Cir. 1988).
GalaxiWorld has been a Canadian corporation, a Bermuda corporation, and a Tortola corporation, and it presently is operating from Gibraltar.
Defendants argue that the Court did not have the authority to enter judgment for outstanding legal fees and expenses due Proskauer, because a retaining lien is a passive right which only entitles the attorney to retain the client's papers and files until the fees are paid. They assert that, under section 475 of the New York Judiciary Law, Proskauer should have been required to commence a separate plenary proceeding to recover its outstanding fees and expenses. Proskauer contends that the Court's entry of judgment was proper, because, under its ancillary jurisdiction, the Court had authority to adjudicate Proskauer's claim for fees and expenses, which was based on a theory of account stated and breach of a retainer agreement.
GalaxiWorld cites Sherrier v. Richard, 674 F. Supp. 107 (S.D.N.Y. 1987); Regan v. Frisone. Inc., 54 A.D.2d 1125, 388 N.Y.S.2d 798 (N.Y.App.Div. 1976), and Fox v. Gina Construction Corp., 22 Misc.2d 177, 198 N.Y.S.2d 789 (N.Y.Sup.Ct. 1960), which suggest that a court may fix the amount on which an attorney has a retaining or charging lien, but may not enter a money judgment against the client.
Proskauer relies on Joseph Brenner and Cluett, Peabody. InJoseph Brenner, 82 F.3d at 58, the Second Circuit held that the district court had the authority to enter a money judgment, finding that the district court properly exercised its ancillary jurisdiction because it "was familiar with the amount and quality of the work performed" by the attorney. Defendants attempt to distinguish the case by arguing that the Joseph Brenner decision involved a judgment for the purpose of a retaining lien only and that, in contrast, Proskauer is seeking a judgment against all of defendants' assets. (Defendants Galaxiworld.com's and Jack Banks' Memorandum of Law in Support of Their Motion to Alter or Amend This Court's March 6, 2000 Order at 8.) This attempt is misguided. Proskauer does not have, nor is it seeking a judgment against all of defendants' assets. The judgment entered in favor of Proskauer is for services rendered in this litigation and inIn re Gaming Lottery Securities Litigation. In Joseph Brenner, 82 F.3d at 58, the Second Circuit rejected the argument that the district court did not have the authority to enter a money judgment, finding instead that the district court had ancillary jurisdiction because "the fee dispute was related to the main action." Here, the disputed fees in the Silva Run matter were clearly related to the Silva Run litigation. Furthermore, the Gaming Lottery Securities Litigation is factually related to the Silva Run litigation in that the transactions in dispute in Silva Run are material to the claims in the Gaming Lottery Securities Litigation. The disputed fees in the Gaming Lottery Securities Litigation were clearly related to that litigation and perforce to the Silva Run litigation.
In Cluett, Peabody, the court found that the district court properly exercised ancillary jurisdiction with respect to a claim for attorneys' fees. The court noted the district court's familiarity with the amount and quality of the legal work performed and stated that "a court has a responsibility to protect its own officers in such matters as fee disputes."Cluett, Peabody, 863 F.2d at 256. Making no mention of the necessity of a separate, plenary proceeding in state court, the Second Circuit ruled that the client pay the attorney the amount due.
The decisions in Cluett, Peabody and Joseph Brenner demonstrate that there was authority for the Court's March 6, 2000 Order. The discussion in Itar-Tass suggests it would be an abuse of discretion not to enter such an order. Furthermore, the numerous cases which permit district courts to condition substitution of counsel on the payment of fees to the outgoing counsel are analogous to the scope of the Court's Order of March 4, 2000.See, e.g., Pomerantz v. Schandler, 704 F.2d 681, 683 (2d Cir. 1983); National Equipment Rental Ltd. v. Mercury Typesetting Co., 323 F.2d 784, 786 (2d Cir. 1963). It would be anomalous if the court had the power to make payment a condition of substitution, but had the power only to fix the amount owed and not to enter judgment if the request for fees is adjudicated subsequent to the substitution of counsel. Accordingly, and despite the conflicting authority cited by defendants, the Court grants defendants' motion to alter or amend the Order, but finds that Proskauer's claim is a plenary claim, severs it from the other claims inSilva Run Worldwide Ltd. v. Gaming Lottery Corp., et al, 96 Civ 3231 (RPP), and finding no just reason for delay, pursuant to Rule 54(b) orders entry of judgment for Proskauer in the amount of $10,731.72. The other terms of the Order entered on March 4, 2000 are not changed.
Given the conflicting authorities cited by Proskauer and defendants, it is noteworthy that the equities weigh heavily in favor of Proskauer. As stated in the Order, defendants have failed to appear in court and failed to comply with court orders several times during this litigation.
B. Defendants' Access to the Courts
Defendants argue that the provision in the Court's Order not permitting defendants to proceed with their cross-claims and counterclaims until they purge themselves of their failure to obey prior orders of the Court by having the judgments in favor of Proskauer paid or having Banks appear to be deposed on matters relevant to the satisfaction of the judgments will deny defendants access to the courts. This argument is premature; it will only become germane if Mr. Banks refuses to be deposed. In view of intervening events, the Order is amended so that the date of the deposition of Jack Banks is adjourned to a date to be determined by the Court at the next appearance of counsel for Proskauer and for Mr. Banks before the Court.
IT IS SO ORDERED.
Dated: New York, New York April 20, 2000
Robert P. Patterson, Jr. U.S.D.J.