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ARROW, EDELSTEIN & GROSS, P.C. v. ROSCO PRODUCTION

February 28, 1984

ARROW, EDELSTEIN & GROSS, P.C., Plaintiff, against ROSCO PRODUCTIONS, INC., NAVEL ENGAGEMENTS, INC., MOONPIE MUSIC COMPANY, GARY ROSSINGTON and ALLEN COLLINS, Defendants.


The opinion of the court was delivered by: CANNELLA

CANNELLA, D.J.:

After a nonjury trial on the merits, the Court finds for plaintiff in part.

Defendants' motion for a directed verdict is denied. Fed. R. Civ. P. 50(a).

 FACTS

 Plaintiff, Arrow, Edelstein & Gross, P.C., a New York law firm, seeks attorneys' fees for services allegedly rendered to musicians Gary Rossington ["Rossington"] and Allen Collins ["Collins"]. Rossington and Collins contend that although plaintiff rendered the alleged services, they are not individually liable because the services were not rendered to them individually but, rather, were rendered to the three Florida corporate defendants -- Navel Engagements, Inc. ["Navel"], Rosco Productions, Inc. ["Rosco"], and Moonpie Music Company ["Moonpie"]. On April 9, 1982, at which time this action was before Judge Duffy, the Court held that no written contract existed between the parties for the recovery of attorneys' fees. See Memorandum and Order, 81 Civ. 5471 (KTD) (S.D.N.Y. Apr. 9, 1982) ["April Order"]. When defendants moved to dismiss the second amended complaint, Judge Duffy granted the motion insofar as it was consistent with the April Order and suggested that plaintiff proceed on a theory of quantum meruit. Memo Endorsed, 81 Civ. 5471 (KTD) (S.D.N.Y. Sept. 8, 1982). A nonjury trial was held on July 13 and 14, 1983 before Judge Cannella.

 The Court's findings of fact are: Collins and Rossington became acquainted with Allen Arrow, a partner of plaintiff, while they were members of the musical group Lynyrd Skynyrd, for whom plaintiff performed legal services. Lynyrd Skynyrd was disbanded as the result of an unfortunate plane crash in 1977 in which two members of Lynyrd Skynyrd were killed. *fn1" Thereafter, Rossington and Collins discussed plans of forming their own band -- the Rossington Collins Band ["the Band"] with Arrow. *fn2" A business relationship developed between Arrow and Rossington and Collins wherein plaintiff, with the assistance of Joseph Rascoff, an accountant and financial manager, organized the Band and formed three corporations to manage the Band's business affairs. The three corporations which were incorporated on October 17, 1979 were: Rosco, which was the recording company for the Band; Navel, which handled touring matters for the Band and became a subsidiary of Rosco; and, finally, Moonpie, which engaged in the business of song publication. *fn3"

 Plaintiff alleges it performed legal services which included: formation of the Band and incorporation of Navel, Rosco and Moonpie; the negotiation of a record contract with MCA Records for the Band; organization and execution of the Band's 1980 Tour; criminal matters; personal advice; and the "Mills" and "Contraband" matters. *fn4"

 A portion of the legal services performed by plaintiff were completed before the formation of the corporate defendants. Plaintiff considered Collins and Rossington as its clients rather than the Band or the corporate defendants. Arrow and Collins and Rossington discussed fee arrangements, as evidenced by a series of letters, but the 5% retainer contract proposed by plaintiff was never signed by Collins or Rossington. *fn5" In fact, these fee arrangements were first discussed in the fall of 1979, shortly before the formation of the corporate defendants. Thereafter the following procedure was employed for the billing of plaintiff's clients: Rascoff would direct plaintiff to send its bills to one of the three corporations. *fn6" The record indicates that the corporate defendants were the entities that paid plaintiff. *fn7"

 On September 15, 1980, the relationship between defendants and plaintiff was terminated. *fn8" On March 1, 1981, plaintiff made a demand for payment from Rossington, Collins, Rosco and Navel in the amount of $66,558.01. At trial, however, and in its post-trial brief, plaintiff sought $123,500 for attorneys' fees. Although the March demand and the post-trial brief seek attorneys' fees for the same services, the discrepancy in damages has not been adequately explained to the Court. *fn9" Rossington subsequently left the group and Collins formed the Allen Collins Band which is not involved in this action.

 While Arrow and Rascoff contend that they considered Rossington and Collins their clients, their actions and the evidence presented do not support such a finding. One of plaintiff's associates who performed work for Rosco and Navel testified that the corporate defendants were formed to shield Rossington and Collins from liability. *fn10" Furthermore, Rossington and Collins were never informed that they would be personally liable for attorneys' fees. *fn11" While Rossington and Collins controlled the corporate defendants, all the Band members received royalties from the corporations. *fn12" Finally, the work performed by plaintiff was rendered for the Band and the corporate defendants. The business records, including correspondence and invoices, refer to the corporate defendants rather than to Rossington and Collins. *fn13" The MCA contract, for example, was negotiated on behalf of the Band. Likewise, the Band's 19080 tour was organized for the Band in association with Navel. The corporate defendants clearly benefited from plaintiff's professional services.

 Rascoff testified that he never billed Rossington and Collins individually, but rather, billed the corporations as a matter of convenience. Having observed Rascoff's demeanor and acknowledging his expertise in the areas of accounting and evaluating the reasonable value of attorneys' fees, the Court does not credit his testimony. Likewise, the Court does not credit Arrow's testimony when he testified that the corporate defendants were billed merely as a convenience for Rossington and Collins. Having formed the corporate defendants, clearly, Arrow was on notice of Rossington and Collins' limited liability. *fn14" Thus, once the corporations were formed, they incurred the legal expenses associated with the Band that are the bulk of this litigation.

 DISCUSSION

 In a diversity action, a federal court must apply the substantive law of the state in which it sits, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), including the choice of law rules of the forum state, Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Thus, New York choice of law rules govern the instant action and require the Court to examine the interests of each state involved in the litigation, Babcock v. Jackson, 12 N.Y.2d 473, 191 N.E.2d 279, 240 N.Y.S.2d 743 (1963), and apply the law of the state with "the most substantial interest in the issue" to be resolved. Wheeler v. Standard Tool & Manufcturing Co., 359 F. Supp. 298, 301 (S.D.N.Y. 1973), aff'd, 497 F.2d 897 (2d Cir. 1974). The two interested states in this litigation are New York and Florida. While substantial contacts occurred in both states, Judge Duffy applied New York law to prior issues that arose in this action. Noting that there has been no suggestion that the law of any state other ...


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