The opinion of the court was delivered by: CARTER
Plaintiff pro se Kramer, Levin, Nessen, Kamin & Frankel ("Kramer Levin"), a Manhattan law firm, brings this diversity action
to recover $110,507.86 for legal services it allegedly rendered to Arnold Y. Aronoff ("Aronoff") and the JDL Trust (the "Trust"). This matter is now before the Court on plaintiff's motion for summary judgment, pursuant to Rule 56, F.R.Civ.P., on all of Kramer Levin's claims and on all of Aronoff's affirmative defenses and counterclaims. Plaintiff also moves to strike the answer and counterclaim filed by Aronoff's attorneys allegedly in the name of defendant Castle Bank and Trust Ltd. ("Castle Bank" or the "Trustee"), as Trustee for the Trust, and moves for a default judgment to be entered against the Trust. Lastly, plaintiff moves for sanctions, pursuant to Rule 11 and the court's equitable powers, against Aronoff and his attorneys for allegedly filing papers with this court solely to harass, delay and impose expense on plaintiff.
Defendant Aronoff, a real estate investor, had a trust created in the Cayman Islands for the benefit of his children and parents. Aronoff Deposition at 84-85, 337, 370. According to Aronoff's June-August 1985 deposition, the Trustee of the Trust was and is Castle Bank. Id. at 86-87. Aronoff acted as "advisor" to the Trust and was familiar with its activities and the activities of Castle Bank as Trustee. Plaintiff's Exhibit 5, paras. 8, 9. Before paying any legal fees or disbursements to Kramer Levin from the Trust, Castle Bank always requested Aronoff's approval. Id. at para. 9.
After the Trust was created, Aronoff caused the Trust to acquire an option on approximately 12,500 acres of real estate (the "Caravelle property"), which the Trust later purchased for $5.7 million. The Trust then sold approximately 5500 acres of the property to Penn-Dixie Industries, Inc. ("Penn-Dixie"), a publicly traded company headquartered in New York, for approximately $5.9 million.
On November 15, 1976, the Securities and Exchange Commission ("SEC") filed suit against Aronoff, the Trust and others in the United States District Court for the District of Columbia, alleging that Aronoff, the Trust, Castle and Penn-Dixie had violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 by defrauding Penn-Dixie's shareholders in the Caravelle property transaction. Plaintiff's Exhibit 9.
Daniel Levitt, a partner at Kramer Levin, with substantial experience in both securities litigation and criminal law, Levitt Deposition at 8-10, represented Aronoff before the SEC on December 8, 1975, while Levitt was an attorney at Paul, Weiss, Rifkind, Wharton & Garrison ("Paul Weiss"). When Levitt joined Kramer Levin on September 1, 1976, Kramer Levin took over the representation of Aronoff from Paul Weiss. Aronoff Deposition at 18-19.
During the period between December 1, 1976, and August 30, 1979, plaintiff acted as counsel or co-counsel to defendants in connection with an inquiry and civil litigation by the SEC, and in private lawsuits instituted by Penn-Dixie and certain of its shareholders. Rule 3(g) Response at para. 8. The interests of Aronoff and the Trust in these matters were substantially identical, and Kramer Levin's dual representation was undertaken at Aronoff's request to avoid duplicative legal expenses. Aronoff Deposition at 18-19; 68-72.
Initially, Kramer Levin sent its bills directly to Aronoff but later addressed its bills to the Trust with copies to Aronoff. All of Kramer Levin's bills expressly stated that they were for professional services rendered on behalf of Aronoff, and Aronoff regarded plaintiff's services as legal services performed for him. Id. at 73. Moreover, Levitt specifically informed the Trustee by letter that the bills sent to the Trust were for legal services performed for Aronoff, and the Trustee obtained specific authorization from Aronoff to pay those bills. Plaintiff's Exhibits 33, 37-39. Three payments were made without protest in January 1977, September 1977, and February or March 1979 by either Aronoff or the Trust.
The bills, based on plaintiff's hourly charges for professional services, and for disbursements advanced, were submitted on or about the following dates: April 11, 1977; July 1, 1977; August 25, 1977; September 19, 1977; February 28, 1978; September 15, 1978; December 21, 1978; and September 19, 1979. Complaint, Exhibits A-H. The final statement, dated September 19, 1979, showed a balance due of $110,507.86.
On May 21, 1979, Aronoff pled guilty to one count of mail fraud, Plaintiff's Exhibit 4, and was sentenced to two years' imprisonment, which was subsequently reduced to a year and a day. He commenced serving his sentence in October, 1979, and was released in June, 1980.
In January, 1980, the Trustee wrote to Aronoff regarding the need to raise cash because of "substantial fees" the Trust owed to Paul Weiss and Kramer Levitt. Plaintiff's Exhibit 57. On March 29, 1982, Levitt wrote Aronoff requesting payment of Kramer Levin's final bill. Plaintiff's Exhibit 58. In reply, Aronoff - for the first time - disputed the propriety of the bill. Plaintiff's Exhibit at 59. On March 1, 1985, Kramer Levin commenced this action.
In a diversity case, a federal district court applies 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). Under New York choice of law rules, this court must apply the law of the state with "the most substantial interest in the issue to be resolved." Wheeler v. Standard Tool & Manufacturing Co., 359 F. Supp. 298, 301 (S.D.N.Y. 1973) (Duffy, J.), aff'd 497 F.2d 897 (2d Cir. 1974); Haag v. Barnes, 9 N.Y. 2d 554, 559-60, 216 N.Y.S.2d 65, 68-69, 175 N.E.2d 441 (1961). Although Aronoff is a resident of Michigan and the Trust is organized under the laws of the Cayman Islands, where a New York law firm is seeking attorney fees for legal work and representation performed mostly in New York, and by attorneys who are duly admitted to practice in New York, New York has the paramount interest in the matter and the applicable law regarding the right to payment of attorney fees and the value of such services is that of New York. Arrow, Edelstein & Gross v. Rosco Productions, 581 F. Supp. 520 (S.D.N.Y. 1984)(Cannella, J.).
I. Summary Judgment Against Defendant Aronoff
Under the doctrine of an "account stated," plaintiff asserts that it has established its right to payment for its legal services. An account stated is "an agreement between the parties to an account based upon prior transactions between them with respect to the correctness of the separate items composing the account and the balance due, if any, in favor of one party or the other." Chisholm-Ryder Co., Inc. v. Sommer & Sommer, 70 A.D.2d 429, 431, 421 N.Y.S.2d 455, 457 (4th Dept. 1979). Under this doctrine, "where an account is made up and rendered, he who receives it is bound to examine the same, or procure some one to examine it for him; if he admits it to be correct, it ...