Grayson v. Ressler & Ressler

• Decision Date: 18 September 2017
• Docket Number: 15 Civ. 8740 (ER)
• Parties: Violet Elizabeth GRAYSON, Plaintiff, v. RESSLER & RESSLER, Ellen Werther, and Bruce Ressler, Defendants.
• Court: U.S. District Court — Southern District of New York

271 F.Supp.3d 501

Violet Elizabeth GRAYSON, Plaintiff,

v.RESSLER & RESSLER, Ellen Werther, and Bruce Ressler, Defendants.

15 Civ. 8740 (ER)

United States District Court, S.D. New York.

Signed September 18, 2017

Filed September 19, 2017

Violet Elizabeth Grayson, Violet Elizabeth Grayson, Atty., at Law 2, New York, NY, for Plaintiff.

Bruce Jeffrey Ressler, Ellen R. Werther, Ressler & Ressler, New York, NY, for Defendants.

OPINION AND ORDER

Ramos, D.J.:

Violet Elizabeth Grayson ("Plaintiff" or "Grayson") brings this action against Ressler & Ressler, a law firm, Ellen Werther ("Werther"), and Bruce Ressler ("Ressler") (together, "Defendants"). Before this Court is Defendants' motion to dismiss the Amended Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6), and Defendants' motion for sanctions pursuant to Rule 11.

For the reasons set forth below, Defendants' motion to dismiss is GRANTED in part and DENIED in part, and their motion for sanctions is DENIED without prejudice.

I. BACKGROUND

A. Factual Background¹

As relevant to the instant motions, Grayson, an attorney, represented TradeWinds Airlines Inc. ("TW Airlines") in a veil piercing case in the Southern District of New York ("TW Airlines Action"). Am. Compl. ¶¶ 2, 13. Werther and Ressler, partners in the law firm Ressler & Ressler, represented Coreolis Holdings ("Coreolis") and TradeWinds Holdings ("TW Holdings") in a separate but parallel veil piercing case in the Southern District of New York ("Coreolis Action"). Id. at ¶¶ 3–5, 27. Coreolis wholly owned TW Holdings, which in turn was the former corporate parent of TW Airlines. Id. at ¶ 15. Grayson invokes diversity jurisdiction in the instant action as she is a citizen of California, all Defendants are citizens of New York, and the amount in controversy exceeds $75,000. Id. at ¶¶ 2–5, 7.

In 2005, prior to Grayson's representation of TW Airlines, Grayson represented Jet Star Airlines in a different veil piercing action against George Soros ("Soros") and Purnendu Chatterjee ("Chatterjee") ("Jet Star Action"). Id. at ¶¶ 9–11. Jet Star sought to recover the amount of a default judgment it had obtained against the defunct C–S Aviation Corporation ("C–S Aviation") by piercing C–S Aviation's corporate veil and reaching its principals, Soros and Chatterjee. Id. at ¶ 10. The parties settled shortly thereafter, executing a settlement agreement and a confidentiality agreement. Id. at ¶¶ 11, 16, 50.

Separately, two years later, on June 27, 2008, TW Airlines' North Carolina counsel, Tuggle Duggins P.A. ("Tuggle Duggins"), obtained a default judgment of approximately $54 million against C–S Aviation in North Carolina state court.² Id. at ¶ 13. On June 30, 2008, Grayson commenced the TW Airlines Action, seeking to recover the amount of TW Airline's default judgment against C–S Aviation from Soros and Chatterjee, the same defendants as in the Jet Star Action. Id. at ¶¶ 12–13. United States District Judge John F. Keenan presided over the case. Id. at ¶ 13.

On July 25, 2008, TW Airlines filed a petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Florida. Id. at ¶ 14. It was subsequently converted to a Chapter 7 bankruptcy on October 30, 2008. Id. at ¶ 17. On October 31, 2008, Barry E. Mukamal was appointed as the Chapter 7 trustee (the "Trustee") and Grayson sought to be retained as special litigation counsel for TW Airlines. Id. at ¶¶ 17, 21.

Grayson faced several objections to her continuing as counsel for TW Airlines. In late September 2008, Soros' counsel told Grayson that she had violated the terms of the Jet Star confidentiality agreement and/or the settlement agreement by representing TW Airlines in the TW Airlines Action. Id. at ¶ 16.

On November 26, 2008, the Defendants, acting as counsel for Coreolis and TW Holdings, opposed the Trustee's motion to retain Grayson as special litigation counsel for the TW Airlines Action, which he had filed in the bankruptcy case. Id. ¶ 21; see Objection to Trustee's Application, In re TradeWinds Airlines Inc., No. 08–bk–20394 (AJC) (Bankr. S.D. Fla. Nov. 26, 2008), Doc. 231. Coreolis and TW Holdings argued that Grayson should not be retained because Soros was attempting to disqualify her from representing TW Airlines. Am. Compl. ¶ 21. On January 7, 2009, the bankruptcy court granted Grayson's retention over this objection. Id. ; see Order Granting Application to Employ J Nathan Duggins III and Violet Elizabeth Grayson as Special Litigation Counsel, In re TradeWinds Airlines Inc., No. 08–bk–20394 (AJC) (Bankr. S.D. Fla. Jan. 7, 2009), Doc. 258. However, Grayson alleges that Defendants' opposition to her appointment gave the Trustee "leverage" to lower Grayson's contingency fee. Am. Compl. at ¶ 22. Prior to the opposition, the agreed upon contingency fee was 50% of the first $15 million recovered, and 33% of any recovery in excess of $15 million.³ Id. at ¶ 14. After the opposition, the Trustee modified the contingency fee to 40% of the first $14 million recovered, and 33% of any recovery in excess of $14 million. Id. at ¶ 22.

On February 2, 2009, Soros moved to disqualify Grayson as counsel in the TW Airlines Action for violating her confidentiality obligations arising from the Jet Star Action. Id. at ¶ 23; Tradewinds Airlines, Inc. v. Soros , No. 08 Civ. 5901 (JFK), 2009 WL 1321695, at *3 (S.D.N.Y. May 12, 2009). Specifically, Soros argued that Grayson's participation in the TW Airlines Action violated and will cause further violations of the Jet Star protective order and settlement agreement. Tradewinds Airlines , 2009 WL 1321695 at *1, 3, 5–7. On May 12, 2009, Judge Keenan denied Soros' motion. See id. at *10 ; Am. Compl. at ¶ 23. However, he noted that certain of Grayson's disclosures in the original and amended complaints and a declaration filed in the TW Airlines Action "plainly violat[ed] her confidentiality obligations under the [Jet Star ] Settlement Agreement." Tradewinds Airlines , 2009 WL 1321695 at *6–7. He also noted that her prospective re-discovery of information originally produced in the Jet Star Action could constitute an arguable violation of the Jet Star protective order. Id. at *9. Nonetheless, he concluded that these violations did not necessitate disqualification because they did not sufficiently "taint" the proceeding, and because the specified contractual remedy for the violations is disgorgement of the Jet Star settlement funds, not disqualification. Id. at *7–10.

On October 28, 2010, Coreolis and TW Holdings filed the Coreolis Action, seeking to recover on the default judgment they obtained against C–S Aviation in North Carolina state court against Soros and Chatterjee. Id. at ¶ 27. Judge Keenan subsequently consolidated this action with the TW Airlines Action (together, the "Consolidated Actions"). Id.

1. Consolidated Actions

In the autumn of 2010, Grayson and Defendants allegedly reached an oral agreement to work together, "forming a special confidential relationship of trust." Id. at ¶¶ 28, 30. The oral agreement provided that the parties would "work together cooperatively to successfully prosecute their parallel veil piercing cases, and each benefit from their respective contingency fee." Id. at ¶ 101. This agreement was "developed by [the parties'] subsequent conduct and dealing" and was "to some degree evidenced by, but not fully embodied by, the Joint Prosecution, Common Interest, and Confidentiality Agreement" executed by the parties and other lawyers in June 2013. Id. at ¶ 30.

The Consolidated Actions were subject to a partial stay over the course of three years because Soros and Chatterjee, acting on behalf of C–S Aviation, had appealed the two North Carolina default judgments.⁴ Id. at ¶ 31. During that time, however, Judge Keenan permitted depositions of five witnesses who were elderly or ill, and production of documents authored by or sent to the deponents. Id. ; see Stipulation and Order Regarding Modification of Stay and Number of Depositions at 1–2, TradeWinds Airlines, Inc. v. Soros, No. 08 Civ. 5901 (JFK) (S.D.N.Y. Feb. 27, 2013), Doc. 103. One of the deponents was C–S Aviation's first President, Bharat Bhise ("Bhise"). Am. Compl. at ¶ 32. Grayson took the lead in deposing Bhise and "elicited much useful testimony" from him. Id. However, Grayson complains that Werther, who also took part in deposing Bhise, sought to prove an unnecessary point at the deposition, that C–S Aviation had no assets and was insolvent, and spent an inordinate amount of time on this issue. Id. at ¶ 33. Grayson also complains that Werther also sought to hire her friend, attorney Martin Bienenstock ("Bienenstock"), to render an expert opinion regarding C–S Aviation's financial condition, and demanded that Grayson pay for half of Bienenstock's bill. Id. at ¶ 34. Grayson avers that the point Werther sought to make was moot because the last president of C–S Aviation, James Walsh, had already filed a declaration stating that C–S Aviation never had any assets. Id. at ¶ 33.

On July 10, 2013, the partial stay of discovery was lifted. Id. at ¶ 35. Grayson immediately suggested that Werther subpoena all the deposition transcripts Grayson had from the Jet Star Action. Id. Grayson thereafter delivered the original deposition transcripts to Werther pursuant to those subpoenas with the express understanding that they would be copied and returned. Id. However, Werther never returned either the originals or copies. Id.

Grayson further states that Werther was determined to have as co-counsel a law firm that would be able to finance her "lavish and unnecessary expert witness hiring plan," and at one point persuaded "a reluctant Grayson" to ask the Trustee to fund the litigation expenses. Id. at ¶ 36. The Trustee declined, and became "needlessly anxious about litigation costs, even though Grayson assured him that she could fund normal and necessary litigation expenses." Id. Thereafter, Grayson alleges that Werther resolved to...