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March 29, 2000


The opinion of the court was delivered by: Motley, District Judge.


Plaintiffs, Harish and Indira Pal, filed this legal malpractice action against defendants, Gary Sinclair ("Sinclair") and Swift, Popuch & Sinclair ("Swift") on March 27, 1998. Plaintiffs, New York residents, are former clients of defendants, who represented plaintiffs in proceedings before the United States District Court in the Northern District of Illinois and in administrative proceedings before the Commodity Futures Trading Commission ("CFTC"). Defendant Swift is a law firm with offices in Chicago, Illinois. Defendant Sinclair is a named partner in the Swift law firm. Plaintiff alleges legal malpractice and fraud on the part of defendants. Defendants counterclaim for fraud and unpaid legal fees. Defendants filed a motion for summary judgment as to all of plaintiffs' claims and as to defendants' claim for unpaid legal fees. The court now grants defendants' motion, dismissing plaintiffs' claims with prejudice, and awarding the unpaid legal fees to defendants.


A. Factual Background

Plaintiffs retained the defendants on June 28, 1995 on a mixed hourly fee and contingency fee basis to represent them in an action filed against plaintiffs in the United States District Court in the Northern District of Illinois. Defs.' Mem. Supp. Summ. J. Ex. 1. The underlying action involved a commodities futures account ("the Refco Account") held in the names of both plaintiffs, who are husband and wife. Am. Compl. ¶¶ 1-7. Prior to the underlying proceedings, plaintiffs maintained a commodities account with Refco, Inc. ("Refco"). Am. Compl. ¶¶ 12. In 1995, the account became undermargined and plaintiffs failed to satisfy the margin call. Pls.' Resp. Defs.' 56.1 Stmt. ¶ 25.*fn1 Refco then liquidated the account, causing a loss to plaintiffs of approximately $1.2 million in capital and leaving a deficit balance in the Refco account of approximately $347,787.50. Pls.' Mem. Opp'n Summ. J. at 1. When plaintiffs failed to pay the deficit, Refco filed a breach of contract action against plaintiffs to collect the debit balance in the U.S. District Court of the Northern District of Illinois. Am. Compl. ¶ 26.

Plaintiffs retained defendants to defend them in the collection suit. Am. Compl. ¶ 29. Additionally, plaintiffs asked defendants to pursue churning and wrongful liquidation claims against Refco and related parties to recover the losses resulting from the liquidation of the Refco account. Def's Mem. Supp. Summ. J. at 2. Originally, plaintiffs intended to assert their claims in an arbitration proceeding before the National Future Association ("NFA") and attempt to stay the collection suit pending the outcome of the arbitration, or, alternatively, to remove the matters pending in federal court to the NFA and consolidate the cases. Pls.' Resp. Defs.' 56.1 Stmt. ¶ 30. The parties ultimately agreed that Refco would withdraw its civil complaint in the U.S. District Court and that the parties would instead bring the matters before an administrative law judge at the Commodity Futures Trading Commission ("CFTC"). Pls.' Resp. Defs.' 56.1 Stmt. ¶ 32; Am. Compl. ¶ 41.

Defendants then filed a reparations complaint with the CFTC on plaintiffs' behalf against respondents Refco, Reifler Trading Corporation and Bradley Reifler ("Refco, et al.", alleging churning and high pressure sales tactics, and seeking $1.2 million in damages. Am. Compl. ¶¶ 37-42. The respondents, in turn, filed a counterclaim for the $347,787.50 debit balance, interest as prescribed by the customer agreement and attorney fees and costs. Am. Compl. ¶ 41.

Defendants represented plaintiffs in a hearing at the CFTC on August 21, 199-3. After the hearing and submission of posthearing briefs by the parties. Administrative Law Judge George H. Painter dismissed plaintiffs' complaint, awarded respondents the debit balance with interest and denied respondents' counterclaim for costs and attorneys fees. Defs.' Mem. Supp. Summ. J. Ex. B. Thereafter, plaintiffs discharged defendants and hired a new law firm to proceed with the CFTC appeal. Am. Compl. ¶ 73. On appeal, the dismissal of plaintiffs complaint was affirmed and the denial of attorneys' fees and costs was reversed. Defs.' Mem. Supp. Summ. J. Ex. C. Subsequently, plaintiffs filed this suit against defendants alleging fraud and malpractice.

B. Procedural History

Plaintiffs filed the complaint in this action on March 27, 1998, alleging several claims of malpractice against defendants. On April 9, 1998. plaintiffs filed an amended complaint, adding fraud claims and additional malpractice causes of action. In their amended complaint, plaintiffs invoke jurisdiction pursuant to 28 U.S.C. § 1332. alleging that there is complete diversity between plaintiffs and defendants and that the amount in controversy exceeds $100,000.*fn2 On June 15, 1998, defendants filed an answer and counterclaim, alleging counterclaims for breach of contract and fraud.

Defendants filed a motion for summary judgment on July 9, 1999, seeking summary judgment with respect to the entire amended complaint and the counterclaim for breach of contract. The case was transferred from Judge Wood to this court on August 28, 1999. Both parties have fully briefed the motion and have appeared before this court in a hearing. In accordance with the discussion below, the court hereby grants defendants' motion for summary judgment, dismissing plaintiffs' claims with prejudice and ordering plaintiffs to repay legal fees owed to defendants.


A. Summary Judgment Standard

Summary judgment is instrument which allows a court to "[s]treamline the process for terminating frivolous claims and to concentrate its resources on meritorious litigation." W.A. Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 12 (2d Cir. 1986). Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is proper where "[t]he pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 8.Ct. 2548, 91 L.Ed.2d 265 (1986); Lipton v. Nature Company, 71 F.3d 464, 468 (2d Cir. 1995). A genuine issue of material fact is present if the fact "[w]ill affect the outcome of the suit under governing law" and the supporting evidence is "[s]uch that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d ...

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