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SEWARD & KISSEL v. SMITH WILSON CO.

March 2, 1993

Seward & Kissel, Plaintiff,
v.
Smith Wilson Co., Inc., Defendant.



The opinion of the court was delivered by: CHARLES H. TENNEY

 TENNEY, District Judge:

 This case arose out of a dispute over unpaid legal fees charged by the plaintiff, Seward & Kissel ("Seward & Kissel"), a New York law firm, to the defendant, Smith Wilson Co., Inc. ("Smith Wilson"), an Illinois corporation. The court has diversity jurisdiction pursuant to 28 U.S.C. § 1332 (1988). The case was initially assigned to Kevin T. Duffy, J., who entered a default judgment. Defendant moved to vacate that judgment, and plaintiff cross-moved for summary judgment. Following these motions, the case was transferred here pursuant to local rules. For the reasons stated below, the plaintiff's motion for summary judgment is granted. *fn1"

 Smith Wilson retained Seward & Kissel from May of 1989 through September of 1991. Seward & Kissel billed Smith Wilson approximately $ 210,000 for legal services from May of 1989 through January of 1991; there were additional expenses of $ 11,000 incurred in connection with legal services by Seward & Kissel from January to September of 1991. Smith Wilson made a partial payment of $ 72,000; Seward & Kissel continued to represent Smith Wilson on various matters despite Smith Wilson's failure to bring its outstanding debt to a current status.

 However, during the above period, a dispute arose over the collection of the unpaid fees. In December of 1990, Smith Wilson's chairman, Geoffrey Flagstad ("Flagstad"), negotiated a payment schedule with the plaintiff to be fulfilled over the course of the next year. Letter from Geoffrey L. Flagstad, Chairman, Smith Wilson, to James Hancock, attorney for plaintiff, dated December 4, 1990. By mid-January of 1991, Seward & Kissel had not received either the December or January payments. Letter from Hancock to Flagstad dated January 17, 1991. Once again, the parties negotiated a revised payment plan, *fn2" which involved the signing of an agreement and two promissory notes by Smith Wilson.

 The standard promissory notes, provided by Seward & Kissel, were amended at the request of Smith Wilson's in-house counsel to reflect that plaintiff would not attempt to enforce the notes before September of 1991. Complaint, Exh. A. The notes were payable on demand; they each contained a provision that Smith Wilson would pay all costs incurred by Seward & Kissel in collecting the stated amount, including attorneys' fees, in the event of default. Finally, the notes provided (in bold face type):

 
THIS PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [SMITH WILSON] HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES FEDERAL COURTS SITTING IN THE STATE OF NEW YORK AND TO THE EXTENT PERMITTED BY LAW WAIVES ALL RIGHT TO OBJECT TO THE JURISDICTION OF SUCH COURTS AND CONSENTS TO THE ENTRY OF JUDGMENT BY SUCH COURTS ON EX PARTE MOTION BY THE HOLDER HEREOF IN THE EVENT OF A DEFAULT HEREUNDER.

 Complaint, Exhs. B, C.

 The amended notes and agreement were executed in July of 1991. *fn3" Again, however, Smith Wilson failed to make any payments. Seward & Kissel attempted repeatedly to collect some part of the fees. Smith Wilson responded by seeking to negotiate a new payment plan yet again. Flagstad wrote: "We request a payment plan to retire our outstanding balance to your firm." Letter from Flagstad to Hancock dated November 6, 1991.

 On November 19, 1991, the plaintiff made formal demand for payment, requesting that Smith Wilson send an affidavit committing to a payment plan. Letter from Hancock to Flagstad dated November 19, 1991. Smith Wilson requested that the November payment of $ 16,000 be carried over for one month, so that a total of $ 32,000 would be due in December; Seward & Kissel consented to this change. Letter from Hancock to Flagstad dated November 21, 1991. Smith Wilson made no response. In mid-December, however, the plaintiff received a letter from an attorney then representing Smith Wilson, who expressed the opinion that the promissory notes signed by Smith Wilson were voidable because Seward & Kissel did not advise Smith Wilson to seek independent counsel to assist in negotiating the notes. Letter from James Potter to Hancock dated December 19, 1991.

 Hancock responded, stating that "the existing documentation was reviewed, commented on, revised in accordance with comments from, and finally approved by, independent counsel for Smith Wilson Company, Inc. . . . The role of that independent counsel is evidenced by the correspondence related to that documentation. We suggest that you consult your client for details." Letter from Hancock to Potter dated December 20, 1991. Hancock also pointed out that the documents were reviewed by Smith Wilson's president, Kent Crombie ("Crombie"), and its chairman, Flagstad. Hancock received no response to that letter.

 On January 14, 1992, Seward & Kissel filed a complaint seeking to enforce the notes or recover on accounts stated or breach of contract. On January 21, a summons was served on Smith Wilson at its offices in Buffalo Grove, Illinois, via hand delivery by George Bringe, a process server duly authorized in that state. Bringe had attempted service on January 17, but was unsuccessful. Affidavit of George A. Bringe, sworn to July 1, 1992, attached to Notice of Cross Motion ("Bringe Aff."), at 2, P 3. When he went back on the January 21, none of the corporate officers were at Smith Wilson's office. Bringe spoke with a Smith Wilson secretary, Diane Carter. Bringe claims that he was told that those authorized to accept service would not return any time soon. Id.

 Carter claims that she told Bringe that one of the company's officers would return within an hour. Declaration of Diane Carter in Support of Motion, sworn to June 16, 1992 ("Carter Dec."), at 2, P 4. Carter asserts that Bringe asked her what her position was, and that when she told him she was a secretary, he told her that she could sign for the documents. Id. Carter does not state whether she ever told Bringe that she was not authorized to accept service. Bringe left the summons with Carter, however; she states that "he left and I gave the envelope to my supervisor." Id.

 The procedural history of the case becomes somewhat tortuous at this point. Smith Wilson did not file an answer within the required time. On February 20, 1992--ten days after the answer was due--the Clerk entered default against Smith Wilson. The same day, Judge Duffy signed the default judgment order. The entry of default noted by the clerk and the judge's signed default judgment order were included in the same document.

 On February 24--before the default entry and default judgment were filed or docketed--Smith Wilson filed the answer, which was docketed the same day. The order was filed on February 25, and docketed on February 27. At that time the case was closed. As a result of the delay in filing time of the judgment, according to the docket sheet the answer preceded the default judgment. On February 28 Smith Wilson's counsel filed an affirmation in opposition to plaintiff's application for default judgment. On June 19, 1992, Smith Wilson moved to vacate the default judgment, after which Seward & Kissel filed the cross motion for summary judgment.

 DISCUSSION

 I. Service of Process

 A. Waiver of Insufficiency of Service of Process ...


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