Schonberger v. Serchuk

• Decision Date: 02 August 1990
• Docket Number: No. 89 Civ. 7094 (PKL).,89 Civ. 7094 (PKL).
• Court: U.S. District Court — Southern District of New York
• Parties: Milton SCHONBERGER, Plaintiff, v. Ivan SERCHUK, Benjamin Zelermyer, and Serchuk & Zelermyer (d/b/a Serchuk, Wolfe & Zelermyer and Serchuk, Pisani & Wolfe), Individually, Severably and Jointly, Defendants.

742 F. Supp. 108

Milton SCHONBERGER, Plaintiff, v. Ivan SERCHUK, Benjamin Zelermyer, and Serchuk & Zelermyer (d/b/a Serchuk, Wolfe & Zelermyer and Serchuk, Pisani & Wolfe), Individually, Severably and Jointly, Defendants.

No. 89 Civ. 7094 (PKL).

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

July 10, 1990.

On Motion for Reargument August 2, 1990.

Lum, Hoens, Conant & Danzis, New York City (Paul A. Sandars, of counsel), for plaintiff.

Serchuk & Zelermyer, White Plains, N.Y. (Frank A. Bress, Robert M. Kaplan, Ellen G. Margolis, of counsel), pro se.

OPINION AND ORDER

LEISURE, District Judge.

This is an attorney malpractice action with the jurisdiction of this Court based on diversity of citizenship. Defendants have moved for dismissal or for summary judgment on most of plaintiff's causes of action. Defendants have also moved for a stay of a portion of this action pending resolution of a related proceeding in state court. Plaintiff has cross-moved for permission to file a second amended complaint to add two additional causes of action to his claims. Finally, both parties have moved for the imposition of sanctions pursuant to Fed.R.Civ.P. 11.

BACKGROUND

Most of the facts in this action are in dispute. The Court will, however, provide a brief background of those facts that appear to be undisputed. Plaintiff Milton Schonberger ("Schonberger") established an attorney-client relationship in the mid-1970s with the defendant law firm, now known as Serchuk & Zelermyer. At that time, Schonberger, apparently an inventor by trade, had recently developed the idea of, and process for, a disposable clinical thermometer for hospital use. Defendants agreed to represent Schonberger in his early contract and corporate work related to this invention.¹ While some of this work was done without a request for or expectation of a fee, at some point during the early years of the relationship, Schonberger agreed to assign a small percentage of his royalties from the patents resulting from his invention to the law firm as compensation for work performed.

The instant action arises out of defendants' representation of Schonberger in litigation resulting from the effort to produce and market the invention. In 1977, Schonberger licensed Gambro, A.B., a Swedish manufacturing company, to produce products under his patent. A year later, Gambro cancelled the agreement. In 1980, Schonberger entered a new licensing agreement with Fairleigh S. Dickinson, Jr. ("Dickinson"). Dickinson, who had paid Schonberger $500,000 in advance royalties, in turn assigned his license to Science Development Corporation ("SDC"), an entity Dickinson had organized to produce and market products arising from Schonberger's patent. Schonberger agreed to work for SDC in order for the company to benefit from his knowledge and understanding of the technology.

Just before Schonberger entered into the agreement with Dickinson, Gambro began to manufacture a product which appeared to be based on Schonberger's technology. Defendants, at the instruction of Schonberger, filed suit against Gambro. That suit was apparently settled for $650,000. Schonberger does not allege any malpractice in relation to the Gambro suit.

In 1982, Schonberger identified a potential customer for SDC's product. That customer, a Swedish company called Tempro, S.A., was owned by Jacques Piquerez ("Piquerez"), who was introduced to Schonberger by a mutual acquaintance. At some point after Tempro came into contact with SDC, defendant Ivan Serchuk ("Serchuk") began representing Piquerez and Tempro in their legal affairs. The parties disagree about the origin and purpose of this representation. Later in 1982, Schonberger, who had become president of SDC, resigned that position, as well as his position on the Board of Directors of the company, because he felt there was a conflict between his role as a manager and as a licensor. The presidency of SDC was turned over to Edwin May ("May").

In 1983, SDC was finally ready to begin production of products based on Schonberger's patent. The company, however, needed financing before production could begin. Piquerez, Schonberger and Serchuk arranged for financing for Tempro which, in turn, ordered a substantial quantity of goods from SDC. It took approximately a year before SDC began to ship goods to Tempro. When it did, Tempro found the goods to be unsatisfactory. Evidently, Tempro contacted Schonberger regarding its dissatisfaction with SDC's product. Schonberger wrote to May and Dickinson in the spring of 1984 complaining about the lack of quality of the product. The dispute was not resolved on an amicable basis. In June 1984, Tempro filed suit against SDC and Dickinson, attacking the quality of SDC's product. SDC and Dickinson in turn filed a third-party complaint against Schonberger, alleging that Schonberger, as the licensor and former president of SDC, was responsible for SDC's failure to produce a sufficient product. Schonberger counterclaimed, alleging that SDC and Dickinson had breached the licensing agreement by, in essence, failing to produce an acceptable product. Schonberger also cancelled his licensing agreement with Dickinson and SDC. Defendants represented Schonberger in this action.

In March 1985, the Tempro action was settled amongst all the parties, and the claims and counterclaims arising out of the third-party complaint were dismissed without prejudice. Schonberger now alleges that he never approved the settlement of that action. Shortly after the conclusion of the Tempro action, Dickinson and SDC initiated arbitration proceedings against Schonberger due to Schonberger's cancellation of the licensing agreement. Schonberger again turned to defendants for representation. Over the next two and a half years, defendants represented Schonberger in what turned out to be extensive arbitration proceedings. On October 5, 1987, the arbitrators ruled in favor of Schonberger, dismissing all of SDC's and Dickinson's claims. The arbitrators also awarded Schonberger $750,000, although this was only a small percentage of the actual damages Schonberger had originally sought.

While plaintiff claims that the relationship between the parties to the case at bar had deteriorated before the beginning of the arbitration proceedings, it is clear that whatever relationship remained was destroyed by the battle over the compensation of defendants for their work on the arbitration. The parties disagree about what payment mechanism was agreed to for the representation. Regardless of what form it took, the record indicates that Schonberger had great difficulty making any payments. At least one check to defendants for $19,000 was returned for insufficient funds, and Schonberger defaulted on a loan he had received from a bank represented by defendants. Part of the proceeds from that loan went to pay defendants for their work on the arbitration proceedings. The loan was secured by a mortgage on Schonberger's son's house, and Schonberger's subsequent default resulted in the imposition of foreclosure proceedings against his son's house.

Meanwhile the arbitration proceedings continued. Defendants, on behalf of Schonberger, moved to confirm the arbitrator's award. That confirmation was rendered by Justice David Saxe of the New York State Supreme Court, New York County, in January 1988, and judgment was entered in April 1988. SDC and Dickinson appealed that award to the New York State Supreme Court, Appellate Division. At this point, Schonberger dismissed defendants and hired new counsel. Defendants in turn petitioned to have Justice Saxe determine and enforce a statutory lien that they had filed against plaintiff's arbitration award. That action is still pending. Meanwhile, SDC and Dickinson refiled their motion to dismiss the arbitrator's award, which was granted in November 1988.

Plaintiff makes a number of malpractice allegations in his twenty-four count amended complaint. Defendants have moved for dismissal of, or summary judgment on, most of plaintiff's claims. Defendants have also moved for a stay of this action, should their instant motion to dismiss be denied, pending resolution of the state action on their statutory lien. Plaintiff has cross-moved for permission to amend his complaint to add two new causes of action. Finally, both parties have moved for the imposition of sanctions.

DISCUSSION

A) Standards

1) Motion to Dismiss

Most of defendants' motion is presented as a motion to dismiss pursuant to Rule 12(b). A motion to dismiss under Fed.R. Civ.P. 12 must be denied "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Morales v. New York State Dep't of Corrections, 842 F.2d 27, 30 (2d Cir.1988). The Court must accept plaintiff's allegations of facts as true, together with such reasonable inferences as may be drawn in its favor. See Murray v. Milford, 380 F.2d 468, 470 (2d Cir.1967). See also Scheuer, supra, 416 U.S. at 236, 94 S.Ct. at 1686. Fed.R.Civ.P. 8(a) requires only a "`short and plain statement of the claim' that will give the defendant fair notice of what plaintiff's claim is and the ground upon which it rests." Conley, supra, 355 U.S. at 47, 78 S.Ct. at 103, quoting Fed.R.Civ.P. 8(a)(2), cited in Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984).

"The function of a motion to dismiss `is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir.1984) (citation omitted). "Dismissal of a complaint for failure to state a claim is a `drastic step.'" Meyer v. Oppenheimer Management Corp., 764...