Appeal from an order of the United States District Court for the Southern District of New York, Louis L. Stanton, Judge, staying action pending final resolution of a related proceeding in state surrogate's court. Reversed and remanded.
Feinberg and Kearse, Circuit Judges, and Robert J. Ward, District Judge.*fn*
Plaintiff United States appeals from an order of the United States District Court for the Southern District of New York, Louis L. Stanton, Judge, denying the government's motion to amend its complaint and staying this action pending resolution of a related action in the New York State ("State") Surrogate's Court. The government seeks in the present action to foreclose tax liens filed against defendant Richard Pikna in 1982-1985 and to obtain payment from an escrow fund held by defendant LeBoeuf, Lamb, Leiby & MacRae ("LeBoeuf Lamb") containing fees earned by Pikna. On motion of defendants L. Ruth Beers and Louis H. Ahrensfeldt, who, along with defendants New York State Department of Taxation and Finance ("DOTF") and The Client Security Fund, also had claims against Pikna, the district court stayed the action on the ground that the competing claims of all the parties could be adequately resolved in surrogate's court. For the reasons below, we vacate the stay and remand for further proceedings.
The events pertinent to the present controversy do not appear to be in dispute. During the years 1981-1984, Pikna practiced law, though not lawfully, in New York. For various tax periods during that time, he failed to pay federal withholding and income taxes; notices of federal tax liens were filed with the New York County Clerk's Office in October 1982, June and December 1983, August 1984, and April 1985. As of March 11, 1988, Pikna owed the government $72,704; interest and penalties have continued to accrue.
A. The Karr-Pikna Fee Proceeding
In 1981, Pikna was retained by Evia Freiberg Karr ("Karr"), widow of David Karr, to represent her in connection with claims she wished to assert against David Karr's estate. If successful, Pikna was to receive 23 percent of Karr's recovery. This representation resulted in a settlement in 1982, awarding Karr one-sixth of the residue of David Karr's estate. Karr subsequently learned that Pikna was not in fact duly licensed to practice law, and she retained LeBoeuf Lamb, who in July 1985 commenced a proceeding in surrogate's court seeking to rescind the retainer agreement. By this time, Pikna was in prison.
In the meantime, Beers and Ahrensfeldt, two of Pikna's former clients, had sued Pikna for embezzlement of funds entrusted to him in connection with a real estate transaction. In August 1985, they obtained a judgment against Pikna for $304,800 plus interest. When they discovered that Pikna's only asset was his claim to his fee from Karr, they moved to intervene in the surrogate's court proceeding brought by Karr for rescission of her fee agreement with Pikna. Beers and Ahrensfeldt stated that they did not seek to have the surrogate's court order payment of Pikna's fee to them but sought only to "preserve Pikna's Interest by opposing [Karr's] Petition" The court instead appointed a guardian ad litem to represent Pikna's interests.
The dispute between Karr and Pikna was settled at a pretrial conference in December 1987. The United States, though it had been informed of the proceeding and attended this conference, was not a party to either the proceeding or the settlement agreement. The settlement required Karr, out of her recovery from the estate, to pay Pikna $77,500 and to pay his guardian ad litem a fee of $7,500. In addition, the court stated:
It is further stipulated and agreed that the moneys, with the exception of the guardian ad litem's fee, will be held either in a separate estate account that will draw interest or in an attorney's escrow account that will draw interest, until the Court resolves the issue of who is entitled to this money.
That issue can be resolved in this court if all of the parties agree. If not, it can be decided in any other forum.
Pikna's fee has been held in escrow by LeBoeuf Lamb.
In January 1988, the Surrogate held a conference, attended by representatives of Beers/Ahrensfeldt and the United States, and proposed that they settle their competing claims to Pikna's fee by splitting Pikna's fee equally. Some weeks thereafter, the government rejected the proposed compromise. Its letter to the Surrogate pointed out, inter alia, that Pikna's federal tax liability exceeded the total amount of the fee and that all of the government's liens on Pikna's assets had been filed months before Beers and ...