The opinion of the court was delivered by: Cedarbaum, District Judge.
Pasquale Catizone sues Gary Wolff for legal malpractice, fraud,
breach of fiduciary duty and constructive trust in connection
with two corporate transactions in which Catizone contends Wolff
acted as his lawyer. Wolff denies that he represented Catizone
personally in the transactions, and counterclaims for extortion
and conversion. Plaintiff is a resident of New Jersey and
defendant is a resident of New York. Catizone seeks damages in
excess of $75,000.
At the three-day bench trial, two witnesses testified: Catizone
and Wolff. After examining all the evidence, observing the
demeanor of the witnesses, and considering the plausibility and
credibility of the testimony, I conclude that Catizone has failed
to meet his burden of proving his claims against Wolff by a
preponderance of the credible evidence, and that Wolff has failed
to prove his counterclaims against Catizone by a preponderance of
the credible evidence.
Catizone and Wolff have known each other professionally since
at least 1982. During the course of this professional
relationship, Wolff performed legal services for corporations in
which Catizone was the principal shareholder. He also represented
Catizone personally in a few matters. This case concerns the
legal services provided by Wolff in connection with two corporate
deals that Catizone entered into and completed in 1994.
The second transaction was Catizone's sale of a portion of his
shares in Taris Inc., another publicly-held shell company, to an
individual named Werner Heim. According to Catizone, he and Heim
agreed that in conjunction with the stock sale, Taris would
acquire one of Heim's other companies in a stock-for-stock
acquisition under which the pre-acquisition shareholders in Taris
would retain a 5% total stock interest in Taris. Catizone
testified that he entered into the Taris deal because he had
Heim's agreement that the pre-acquisition shareholders would
retain a 5% interest in the post-acquisition company. The
agreement with Heim was not reduced to writing.
Catizone testified that he was personally represented by Wolff
in undertaking to sell CGS stock to Figliolini's company and to
sell Taris stock to Heim.
Catizone complains that Wolff's legal services were inadequate
in a variety of ways. His main complaints are that Wolff did not
put his agreements with Figliolini and Heim into writing, and
that, in advance of the acquisitions, Wolff advised Catizone to
resign as director and officer of CGS and Taris and to sign
agreements to vote his CGS and Taris shares to approve the
acquisitions, thus depriving Catizone of the means to object to
subsequent changes in the terms of the acquisitions. Catizone
complains that after he followed Wolff's advice — by resigning
and agreeing to vote his shares to approve the acquisitions — CGS
and Taris issued pre-acquisition shares to Wolff. This issuance
of shares to Wolff reduced Catizone's share of the 5% stock
interest that the pre-acquisition shareholders were supposed to
retain. Because Wolff's shares constituted part of the 5% pie to
be divided among the pre-merger shareholders, Catizone argues
that Wolff's receipt of the shares benefitted Wolff at Catizone's
expense, and was a breach of Wolff's fiduciary duty to Catizone.
He also argues that Wolff's failure to disclose his intention to
acquire the stock interest in the companies was fraudulent.
Wolff had asked to buy shares in CGS on a prior occasion, and
Catizone had refused Wolff's request.
Wolff testified that he did not represent Catizone in the 1994
CGS and Taris matters, but rather, after Catizone sold
controlling interests in CGS and Taris, Wolff became corporate
counsel to CGS and Taris. Wolff testified that, as counsel for
CGS and Taris, he performed some due diligence and drafted the
acquisition agreements, notices of special meetings of
shareholders for approval of the acquisitions, proxy statements,
board minutes, and related documents.
According to Wolff's uncontroverted testimony, because both CGS
and Taris lacked cash, the corporations paid him for his legal
services with newly issued pre-acquisition CGS and Taris
shares.*fn1 Thus, issuing stock to Wolff was in lieu of cash
compensation for his legal work in connection with the
acquisitions. Wolff was never an officer or director of CGS or
Taris. Figliolini, as the sole director of CGS, authorized the
issuance of CGS stock to Wolff. (Pl.Ex.71.) Heim, as president of
Taris, authorized or ratified the issuance of Taris stock to
A. Was Wolff Catizone's Lawyer?
An action for malpractice is generally available only to the
party who retained the services of the lawyer being sued. Haight
v. Grund, 87 Civ. 8857, 1990 WL 63795, at *2 (S.D.N.Y. May 10,
1990); Crossland Sav. FSB v. Rockwood Ins. Co., 700 F. Supp. 1274,
1280-81 (S.D.N.Y. 1988); Cohen v. Goodfriend, 665 F. Supp. 152,
158 (E.D.N.Y. 1987); Grenoble Mills, Inc. v. Drinker,
Biddle & Reath, 84 Civ. 3514, 1986 WL 8697, at *2 (S.D.N.Y. July
30, 1986). In this case, Catizone had the burden of proving by a
preponderance of the credible evidence that he had retained Wolff
to act as his lawyer in connection with the CGS and Taris deals.
"Under New York law, `the relationship of an attorney and
client is contractual, and the rules governing contract formation
determine whether such a relationship has been created.'" Heine
v. Colton, Hartnick, Yamin & Sheresky, 786 F. Supp. 360, 365-66
(S.D.N.Y. 1992) (quoting Hashemi v. Shack, 609 F. Supp. 391, 393
(S.D.N.Y. 1984)). "Thus, `an attorney-client relationship arises
only when one contacts an attorney in his capacity as such for
the purpose of obtaining legal advice or services.'" Id. at 366
(quoting Priest v. Hennessy, 51 N.Y.2d 62, 68-69, 431 N.Y.S.2d 511,
409 N.E.2d 983 (1980)). However, formality is not an
essential element in the employment of an attorney, and since the
initial arrangements for representation are often informal, it is
necessary to look at the words and conduct of the parties. Id.
As set out in First Hawaiian Bank v. Russell & Volkening,
Inc., 861 F. Supp. 233, 238 (S.D.N.Y. 1994), the factors that
many courts have considered in determining the existence of an
attorney-client relationship include: "1) whether a fee
arrangement was entered into or a fee paid; 2) whether a written
contract or retainer agreement exists indicating that the
attorney accepted representation; 3) whether there was an
informal relationship whereby the attorney performed legal
services gratuitously; 4) whether the attorney actually
represented the individual in an aspect of the matter (e.g., at a
deposition); 5) whether the attorney excluded the individual from
some aspect of a litigation in order to protect another (or a)
client's interest; 6) whether the purported client believed that
the attorney was representing him and whether this belief was
reasonable." (internal citations omitted).
1. No fee arrangement or fee paid. There is no evidence that
Catizone paid Wolff for legal services after 1989. When asked at
trial if he had paid Wolff from his own account in recent years,
Catizone replied that he would have to consult his checkbook.
Since this litigation has been pending for three years, and
Catizone is a sophisticated party, his failure to produce copies
of any such checks supports an inference that Catizone made no
personal payment to Wolff from 1990 through 1994. Nor is ...