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DURKIN v. SHEA

March 6, 1997

RONALD L. DURKIN, Trustee of the Benchmark Irrevocable Trust, Plaintiff, against PATRICIA A. SHEA, as Executrix of the Estate of William A. Shea, et al., Defendants.


The opinion of the court was delivered by: HAIGHT

 HAIGHT, Senior District Judge:

 Defendants have moved to dismiss plaintiff's first amended complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and with respect to certain defendants, for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). In the alternative, defendants request a stay of these proceedings until related litigation in the Southern District of California is completed. Plaintiff opposes both applications. For the reasons stated below, defendants' motion to dismiss is denied, with the exception of plaintiff's claim for malpractice stemming from Shea & Gould's alleged failure to file a timely claim in the Drexel Burnham Lambert bankruptcy ("the Drexel claim"). Defendants' motion to dismiss this Drexel claim is granted, without prejudice to a later motion by plaintiff to amend his complaint. However, any motion to amend by plaintiff and all further litigation in this matter are stayed pending the resolution of the related litigation in the Southern District of California.

 STANDARD OF REVIEW

 On a motion to dismiss under Rule 12(b)(6), the trial court's function "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." Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980); see Ricciuti v. N.Y.C. Transit Authority, 941 F.2d 119, 124 (2d Cir. 1991). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The district court should grant a Rule 12(b)(6) motion "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)).

 Except in certain circumstances, consideration of a motion to dismiss the complaint must focus on the allegations contained on the face of the complaint. See Cortec Industries, Inc. v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 503 U.S. 960, 112 S. Ct. 1561, 118 L. Ed. 2d 208 (1992); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991). A district court must accept plaintiff's well-pleaded factual allegations as true, Papasan v. Allain, 478 U.S. 265, 283, 92 L. Ed. 2d 209, 106 S. Ct. 2932 (1986), and the allegations must be "construed favorably to the plaintiff." LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991).

 BACKGROUND

 The following facts are derived from plaintiff's first amended complaint, taken to be true on this motion. In addition, the Court will take judicial notice of various documents filed in the related litigation in California. *fn1" See Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993) (matters of which judicial notice may be taken can be considered when reviewing a Rule 12(b)(6) motion); Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir. 1991) (noting that courts routinely take judicial notice of documents filed in other courts).

 Round One: The ICA Shareholder Litigation

 In 1986, the Directors and Officers of Imperial Corporation of America (ICA) purchased, sold, and issued junk bonds and other high-risk debt in cooperation with Drexel Burnham Lambert and Michael Milken. When the market for such financial instruments declined rapidly, ICA suffered millions of dollars in losses. As a result, in 1989 several ICA shareholders initiated both derivative and class actions lawsuits against certain ICA Directors and Officers, Drexel and Milken in the United States District Court for the Southern District of California. The law firm of Baker & McKenzie was retained as lead litigation counsel for ICA, and Shea & Gould was hired to assist. Sheldon Camhy and Kurt Hunciker were the Shea & Gould partners primarily responsible for assisting as counsel to ICA in connection with the shareholder lawsuits.

 Settlement proposals were exchanged throughout mid-to-late 1989. By 1990, the parties had reached a settlement in which ICA released its claims against certain ICA directors and Officers, Drexel, and Milken in exchange for, inter alia, a cash settlement of approximately $ 13,000,000.00 ("the ICA settlement"). On February 22, 1990, a Magistrate Judge held a fairness hearing on the proposed settlement. At the conclusion of that hearing, the Magistrate Judge signed an order approving the settlement and dismissing the shareholder actions with prejudice.

 That same day, the Office of Thrift Supervision seized ICA's largest subsidiary, Imperial Savings Association, and placed it into conservatorship under the auspices of the Resolution Trust Corporation. On February 28, 1990, ICA itself filed a bankruptcy petition in the United States Bankruptcy Court for the Southern District of California. Shea & Gould, acting through Camhy and Hunciker, was hired to serve as special corporate and litigation counsel to ICA in its bankruptcy. Around the same time, Drexel also filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.

 Pursuant to ICA's bankruptcy reorganization plan, its assets were transferred to a liquidating trust called the Benchmark Irrevocable Trust. In January 1991, Ronald L. Durkin, the plaintiff in this case, was appointed as trustee for the trust. After reviewing records from the ICA settlement, Durkin concluded that the parties involved in the settlement had released valuable derivative claims for insufficient consideration.

 Round Two: Durkin Sues the ICA Settlement Participants

 On February 21, 1992, plaintiff filed a complaint in United States District Court for the Southern District of California alleging claims against the shareholder plaintiffs, their lawyers, and certain ICA directors and officers for, inter alia, breach of fiduciary duty and legal malpractice stemming from the ICA settlement. On the same day, plaintiff entered into a tolling agreement with Shea & Gould and Camhy, in which the statute of limitations on any claim arising out of their representation of ICA was tolled indefinitely. On October 9, 1992, plaintiff filed his first amended complaint in the California action, adding Shea & Gould and Camhy as defendants. The first amended complaint alleged that Camhy and the partnership had committed malpractice by negligently advising ICA to enter into the ICA settlement.

 Around the same time, Durkin discovered that no claim had been filed against the Drexel Bankruptcy Estate on ICA's behalf prior to the bar date of November 15, 1990. Although he sought permission to file a late claim from the Bankruptcy Court, that request was denied on April 28, 1994. In the same month, Shea & Gould entered dissolution and became insolvent. As a result, plaintiff filed a third amended complaint in the California action on October 10, 1994, adding the former partners of Shea & Gould as individual defendants and alleging that they were vicariously liable for Camhy's and Hunciker's malpractice. *fn2" Plaintiff also included an additional malpractice claim against Shea & Gould and the former partners based on Camhy's and Hunciker's allegedly negligent failure to advise ICA to file a timely proof of claim in the Drexel bankruptcy ("the Drexel claim").

 On November 7, 1994, the former partners of Shea & Gould, with the exception of Camhy, moved to dismiss the California complaint against them on two grounds: 1) that plaintiff's claims were time-barred; and, 2) that the Court lacked personal jurisdiction over certain of the former defendants who were not involved in the ICA litigation and had insufficient contacts with California. In an opinion filed January 12, 1995, Judge Gonzalez granted the former partners' motion to dismiss for lack of personal jurisdiction. Durkin v. Shields, No. 92-1003, at 15 (S.D. Cal. Jan. 12, 1995). However, since Hunciker and another former partner named Robert Ruben were both subject to personal jurisdiction in California, the Court continued to consider whether plaintiff's malpractice claims were time-barred against these defendants.

 As a threshold matter, Judge Gonzalez concluded that California's one-year statute of limitations for attorney malpractice claims applied to plaintiff's malpractice claims against the former partners. Durkin, January 12, 1995 opinion at 11. Since plaintiff's Drexel claim did not accrue under California law until the Bankruptcy Court denied his request to file a late claim on April 28, 1994, and this claim was added to plaintiff's complaint just six months later, the Court held that plaintiff's Drexel claim was not time-barred. Id. However, the Court also held that plaintiff's ICA settlement malpractice claims against the former partners were time-barred, since they did not relate back to the filing of plaintiff's original complaint and had accrued over one year prior to the joinder of the former partners as individual defendants. *fn3" Id. at 12-14.

 Round Three: The Instant Action

 In March 1995, plaintiff essentially refiled his California complaint in this Court, naming as defendants the former Shea & Gould partners who were dismissed from the California action for lack of personal jurisdiction. Plaintiff's first amended complaint alleges that the defendants herein are vicariously liable for the legal malpractice, breach of contract, and breach of fiduciary duty committed by Camhy and Hunciker during the course of their representation of ICA. The facts alleged to support this claim are substantially the same facts that were alleged in the California complaint. Accordingly, plaintiff's malpractice claims against the defendants stem from two separate factual scenarios: first, Shea & Gould's allegedly negligent advice to ICA regarding the ICA settlement; and second, Shea & Gould's alleged failure to advise ICA to file a timely proof of claim in the Drexel bankruptcy.

 Defendants have now moved to dismiss this complaint on the grounds of collateral estoppel, statute of limitations, and for certain defendants, lack of personal jurisdiction in this district. In the alternative, defendants request a stay of these proceedings until the related litigation in California is completed. Plaintiff opposes both applications.

 DISCUSSION

 I. Personal Jurisdiction over the D.C. & Florida Partners

 The former partners from the Washington D.C. and Florida offices of Shea & Gould move to dismiss plaintiff's claim on the ground that this Court does not have personal jurisdiction over them pursuant to New York's long-arm statute, N.Y. Civ. Prac. L. & R. § 302. *fn4" The plaintiff disagrees with this conclusion, arguing that personal jurisdiction over the D.C. and Florida partners can be established vicariously through Camhy's and Hunciker's activities in New York on behalf of ICA. I agree with the plaintiff and conclude that this Court has personal jurisdiction over the D.C. and Florida partners.

 Prior to discovery and an evidentiary hearing, a plaintiff may defeat a jurisdiction-testing motion by asserting legally sufficient allegations of jurisdiction. Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, 498 U.S. 854, 112 L. Ed. 2d 116, 111 S. Ct. 150 (1990). This prima facie case may be established through the plaintiff's pleadings and affidavits. Cutco Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986); Walsh v. Maryland Bank, N.A., 806 F. Supp. 437, 440 (S.D.N.Y. 1992). All jurisdictional allegations should be construed in the light most favorable to plaintiff, with all doubts resolved in his favor. Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994); Cutco Indus., Inc., 806 F.2d at 365; Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).

 In a diversity action, personal jurisdiction over a defendant is determined by the law of the forum in which the court sits, in this case, New York. Beacon Enters., Inc. v. Menzies, 715 F.2d 757, 762 (2d Cir. 1983); Walsh, 806 F. Supp. at 440. Plaintiff alleges personal jurisdiction over the D.C. and Florida partners pursuant to New York's long-arm statute, CPLR § 302(a)(1). *fn5" This statute gives a court personal jurisdiction over a non-resident if two conditions are met: "first, the nondomiciliary must transact ...


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