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November 10, 1999


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 first transaction was Catizone's sale of a controlling stock interest in CGS Units, Inc. ("CGS"), a publicly-held shell company, to Pioneer International, Ltd. ("Pioneer"), a company represented by a businessman named John Figliolini ("Figliolini"). Catizone retained a minority interest in CGS. According to Catizone, he and Figliolini agreed that in conjunction with Catizone's sale of the CGS shares to Pioneer, CGS would acquire Direct Marketing Services, Inc. ("DMS"), in a stock-for-stock deal under which the then-current shareholders of CGS would retain a 5% total stock interest in CGS. Catizone insisted that the pre-acquisition shareholders of CGS retain a 5% stock interest in the post-acquisition company. The agreement between Catizone and Figliolini for the 5% CGS deal was never reduced to writing.

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 Wolff. (Def.Ex.20.)


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 ...

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