Estate of re v. Kornstein Veisz & Wexler

Decision Date02 April 1997
Docket NumberNo. 94 Civ. 2369(SS).,94 Civ. 2369(SS).
Citation958 F.Supp. 907
PartiesESTATE OF Joseph RE (by Vivian R. Re and Patricia Re Coarsely, the personal representatives of the Estate of Joseph Re), and Vivian R. Re, John M. Re and Joseph O. Re, Plaintiffs, v. KORNSTEIN VEISZ & WEXLER, Daniel J. Kornstein, Howard S. Veisz and Marvin Wexler, Defendants.
CourtU.S. District Court — Southern District of New York

Ann L. Detiere, New York City, for Plaintiffs.

Coblence & Warner, Kenneth E. Warner, New York City, for Defendants.

AMENDED OPINION AND ORDER

SOTOMAYOR, District Judge.

Plaintiffs bring this action, advancing four claims arising out of defendants' allegedly inadequate representation of Joseph Re during arbitration proceedings held in connection with Mr. Re's removal from his position as a partner with Bear Stearns & Co. ("Bear Stearns"). Specifically, plaintiffs seek damages flowing from defendants' alleged breach of contract, breach of fiduciary duty, legal malpractice, and unjust enrichment. In an initial round of briefing, defendants moved for summary judgment as to the alleged breach of fiduciary duty and unjust enrichment claims, arguing that these claims are barred under an applicable three year limitations period. Though conceding that Mr. Re did not bring suit until four years after his claims accrued, plaintiffs responded that the applicable limitations period for a claimed breach of fiduciary duty, to the extent that it involves a relationship formed pursuant to a contract, is six years. Before the Court had an opportunity to resolve this issue, defendants submitted an omnibus motion for summary judgment, interposing numerous additional grounds for the dismissal of all four claims. Following the Court's receipt of voluminous materials submitted by the parties in connection with this new motion, New York's legislature amended the statute of limitations applicable in malpractice actions to three years, "regardless of whether the underlying theory is based in contract or in tort." See C.P.L.R. 214[6] as amended by chapter 623 of the Laws of 1996.

For the reasons that follow, the Court finds that plaintiffs' claims were timely when filed, and that it would offend notions of due process under New York law to dismiss those claims by the retroactive application of the amended limitations period. With respect to the merits of plaintiffs' claims, there is insufficient evidence either of negligence or of causation to support plaintiffs' theories of malpractice and breach of contract. There are sufficient factual questions, however, to preclude summary judgment as to the alleged breach of fiduciary duty.1

BACKGROUND

In February 1985, Mr. Re was asked to resign from his position as a general partner with Bear Stearns. He was told, in essence, that he was no longer making any contribution to the partnership. Given no real choice in the matter, Mr. Re did not resist the formal termination of his partnership interest on April 30, 1985. Several months later, in October 1985, Bear Stearns "went public." Mr. Re concluded that the partnership's earlier decision to remove him from their ranks had been motivated by their desire to deprive him of the financial benefits of participating in Bear Stearns' public offering.

In the Fall of 1987, Mr. Re contacted the law firm of Kornstein, Veisz & Wexler ("Kornstein Veisz"), to represent him in an action against Bear Stearns. Though advising Mr. Re that he was unlikely to succeed in any action against his former colleagues, defendant Wexler accepted Mr. Re's ultimate decision to proceed with a lawsuit. (Wexler 4/18/96 Aff. Ex. 6, Ltr. from Wexler to Re of 6/1/88.) Hoping to avoid a binding arbitration provision in the Bear Stearns partnership agreement, defendants filed a state court action on Mr. Re's behalf, in August of 1988, alleging breach of fiduciary duty against the individual members of the Bear Stearns Executive Committee. Under Mr. Wexler's theory of the case, defendants had breached their fiduciary duties by concealing from Mr. Re, as of the time they forced his resignation, their then existing intention to take Bear Stearns public.

As anticipated by defendant Wexler in his correspondence to Mr. Re, the Bear Stearns defendants resisted the state court action, through their counsel, Stroock & Stroock & Lavan ("Stroock"), by invoking an arbitration provision included in the partnership agreement. In February 1988, Bear Stearns succeeded on its motion to compel arbitration; the following month, defendants filed a Demand for Arbitration with the American Arbitration Association ("AAA"). (Wexler 4/18/96 Aff. Ex. 11.) Instead of requesting that Mr. Re's claims be heard before a panel three arbitrators, defendant Wexler elected to have the matter heard before a single arbitrator recommended by the AAA, Mr. Finley.

After considerable discovery, including depositions by defendant Wexler of the Bear Stearns defendants, the arbitration took place in December 1989. The proceedings lasted for three days, with defendant Wexler calling two witnesses on Mr. Re's behalf: Mr. Re as well as one of his former partners with Bear Stearns, Nicholas Purpura. Stroock called three witnesses for Bear Stearns, including two of the individual defendants, and Ernest Rubenstein, a partner with the law firm of Paul, Weiss, Rifkind, Wharton & Garrison ("Paul Weiss"). Paul Weiss had long been Bear Stearns' corporate counsel, and Mr. Rubenstein had advised Bear Stearns on the possibility of going public. Following the presentation of witnesses and evidence before Mr. Finley, defendant Wexler submitted a 93 page post-hearing brief, which prompted an opposition by Stroock, a reply by defendants, and a surreply by Stroock. (Wexler 4/18/96 Aff. Ex.'s 21, 22, 23, 24.)

At the conclusion of the arbitration proceedings, Mr. Finley complimented counsel for both sides on the "thoroughly professional" manner in which they conducted themselves. (Arbitration Hearing Tr. at 42 1.) Shortly thereafter, in February 1990, Mr. Finley ruled against Mr. Re. (Wexler 4/18/96 Aff. Ex. 26.) The ruling was issued without any written opinion. More than four years later, in April 1994, Mr. Re commenced this action, alleging that defendants failed to alert Mr. Re to a conflict of interest bearing upon their ability to provide him adequate representation, and that they made numerous tactical errors in connection with the arbitration. Mr. Re died during these proceedings, and his estate has been substituted as plaintiffs.

I. Defendants' Representation Of Plaintiffs During Arbitration
A. Alleged Conflict Of Interest

The alleged conflict of interest involves defendants' professional relationship with Bear Stearns' corporate counsel, Paul Weiss. Defendant Wexler, like the other individual defendants (all partners with Kornstein Veisz), had worked as associates at Paul Weiss at various times between 1973 and 1981. (Wexler 4/18/96 Aff. ¶ 36; Pl.'s 3(g) stmt. ¶ 11.) After leaving Paul Weiss, defendants continued work on approximately five matters in which they were involved while associates, and have since had approximately a dozen cases referred to them from their former firm. (Wexler 4/18/96 Aff. Ex. 31.) In at least one instance, during the same period that they represented Mr. Re, defendants served as co-counsel with Paul Weiss. (Detiere 5/16/96 Aff. Ex. 31.) None of these cases are alleged to have involved matters at issue in Mr. Re's dispute with his former partnership. These cases amounted to approximately $ 500,000 of business for defendants, with under $ 200,000 of this coming after 1986. (Wexler 4/18/96 Aff. Ex. 31.) Paul Weiss referrals thus accounted for approximately 2%-3% of defendants' business during the mid to late 1980's, the period during which Kornstein Veisz represented Mr. Re.

In their capacity as Bear Stearns' corporate counsel, Paul Weiss was consulted by the partnership during the time that it was contemplating going public, or otherwise reorganizing. (Wexler 4/18/96 Aff. Ex. 32.) Prior to the arbitration, in an effort at "informal discovery" into the specifics of this consultation, Mr. Wexler visited with Mr. Rubenstein. (Wexler 4/18/96 Aff. ¶ 36.) In a letter to Mr. Re, Mr. Wexler reported that Mr. Rubenstein "had tried to persuade" Mr. Wexler that there was "no merit" to Mr. Re's claim. (Wexler 4/18/96 Aff. Ex. 30.) Mr. Wexler characterized the specific information provided by Mr. Rubenstein as "not favorable" to Mr. Re, and reiterated his earlier concern that Mr. Re's claim was "highly problematic." (Id.)

Though Bear Stearns was not represented by Paul Weiss during the arbitration against Mr. Re, Mr. Rubenstein was one of only three witnesses called to testify on Bear Stearns' behalf. Mr. Rubenstein's testimony centered upon the timing and nature of Paul Weiss's involvement in Bear Stearns' decision to go public. (Arbitration Hearing Tr. 402-418.) Mr. Rubenstein further testified that he had recounted these same matters in a meeting with Mr. Re, which Mr. Re attended with an attorney (not one of the defendants), several months after Bear Stearns' public offering. Mr. Wexler did not cross examine Mr. Rubenstein. Plaintiffs contend that Wexler "may (or should)" have questioned Mr. Rubenstein, and that his failure to do so reflects defendants' friendly relationship with Paul Weiss. (Opposition and Cross Motion at 13.) Defendants insist that they had the greatest chance of neutralizing Mr. Rubenstein's testimony, not by refuting it, but by persuading the arbitrator that it was, as a matter of law, irrelevant. (Wexler 4/18/96 Aff. ¶ 35(c).)

B. Alleged Malpractice

In their amended complaint, plaintiffs point to numerous other examples of defendants' alleged "diminished rigor" in representing Mr. Re. The two most egregious errors, according to plaintiffs, concern defendants' failure to present the arbitrator with sufficient evidence as to Mr. Re's damages, and defendant...

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