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D'JAMOOS v. GRIFFITH

May 9, 2005.

GABRIEL D'JAMOOS, Plaintiff,
v.
MICHAEL GRIFFITH, Defendant.



The opinion of the court was delivered by: I. LEO GLASSER, Senior District Judge

MEMORANDUM AND ORDER

This action concerns legal services provided by defendant attorney Michael Griffith ("defendant" or "Griffith") to plaintiff Gabriel D'Jamoos ("plaintiff") in connection with a commercial dispute. Plaintiff commenced a legal malpractice action against defendant and this Court granted summary judgment in favor of defendant dismissing the complaint in its entirety. Pending before the Court are various motions relating to defendant's counterclaims for attorney's fees.

FACTS

  In an order dated August 31, 2004, familiarity with which is assumed, this Court granted summary judgment in favor of defendant and dismissed plaintiff's complaint in its entirety. See Affidavit of Ann Marie Forte ("Forte Aff.") Ex. A (attaching D'Jamoos v. Griffith, No. 00-1361 (E.D.N.Y. 2004) ("D'Jamoos I")). The factual background of this dispute is set forth in detail in that Memorandum and Order. Briefly, for purposes of this motion, the Court details the following facts. Plaintiff retained defendant for legal representation in 1986. The parties had a retainer agreement that provided for a 20% contingency fee based on "settlement, trial or otherwise," in addition to an initial retainer and per diem fee in the event of trial. Id. at 7. Defendant represented plaintiff in a dispute between plaintiff and his brother-in-law, John Lucchese ("Lucchese"), concerning plaintiff's investment in Belmont Realty Corporation ("Belmont"). Defendant commenced an action on behalf of plaintiff against Lucchese and his wife, plaintiff's sister, which went to trial in February 1997. At the close of all the evidence, the parties placed an oral settlement on the record, which was never consummated. Plaintiff and Lucchese reached a second settlement agreement in March 1998 (the "1998 Settlement"), pursuant to which plaintiff was to receive 49% of the issued and outstanding shares of Belmont without regard to the amount of his investment. Second Amended Complaint ("Compl.") ¶ 7; Forte Aff. Ex. A., D'Jamoos I at 5. That settlement was memorialized in a written stipulation of settlement on September 27, 1998 (the "Restated Shareholders' Agreement" or "RSA").*fn1 See id. at 6. By 1999, plaintiff had not received the shares from the 1998 Settlement.*fn2 Plaintiff terminated defendant's legal services in December 1999. Id. On July 19, 2000, plaintiff commenced this action, in which he asserted various claims including: (1) legal malpractice; (2) that defendant represented plaintiff despite a conflict of interest in violation of N.Y. Judiciary Law § 487; (3) breach of fiduciary duty based on defendant's failure to disclose a conflict of interest created by counsel Griffith hired to represent him when he was sued in an unrelated action; and (4) common law fraud based on defendant's failure to disclose the conflict of interest. Plaintiff premised subject matter jurisdiction on diversity of citizenship pursuant to 28 U.S.C. § 1332.*fn3 Defendant answered the complaint*fn4 and asserted, inter alia, two counterclaims for (1) plaintiff's breach of his agreement to compensate defendant for legal services rendered and (2) a judgment in quantum meruit for the reasonable value of those services.

  After granting summary judgment in favor of defendant in D'Jamoos I, the Court administratively closed the case. Plaintiff thereafter filed a notice of appeal, which he withdrew by stipulation after the Court reopened the case in light of the defendant's pending counterclaims. See Affidavit of Todd J. Krouner ("Krouner Aff.") Ex. D.

  Pending before the Court are the following motions: (1) plaintiff's motion to dismiss the counterclaims for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1); (2) plaintiff's motion, in the alternative, for an order entering final judgment on the Court's order of summary judgment pursuant to Fed.R.Civ.P. 54(b); (3) an order setting a trial date for resolution of defendant's counterclaims; (4) defendant's cross-motion for permission to amend his counterclaims to assert the requisite amount in controversy under 28 U.S.C. § 1332; and (5) defendant's request that this action be referred to the assigned Magistrate Judge for establishment of a discovery schedule regarding damages. The Court will consider each motion in turn.

  DISCUSSION

  When deciding a motion to dismiss for failure to state a claim for relief under Fed.R.Civ.P. 12(b)(6), a court takes the facts as alleged in the counterclaims to be true, and must draw all reasonable inferences from those facts in favor of the defendant. See Ortiz v. Cornetta, 867 F.2d 146, 149 (2d Cir. 1989) (stating principles with respect to facts alleged in a complaint). "[M]otions to dismiss for [lack of] subject matter jurisdiction under Rule 12(b)(1) are reviewed under the same standards as motions to dismiss for failure to state a claim under Rule 12(b)(6)." Walker v. New York, 345 F. Supp. 2d 283, 286 (E.D.N.Y. 2004) (Hurley, J.) (citations omitted). A court must not dismiss the counterclaims "unless it appears beyond doubt that the [defendant] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  I. Plaintiff's Motion to Dismiss the Counterclaims

  A. Subject Matter Jurisdiction

  Plaintiff argues that defendant's counterclaims fail to satisfy the requisite amount in controversy for diversity jurisdiction under 28 U.S.C. § 1332. See Pl. Mem. at 2. Defendant in turn requests leave to amend his counterclaims to allege the amount in controversy under § 1332(a) and an order from the Court directing that expert discovery on damages commence.

  Courts have supplemental jurisdiction over compulsory counterclaims regardless of whether there is an independent basis for jurisdiction over those claims, i.e., diversity jurisdiction or federal question jurisdiction. Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1 (1974) ("If a counterclaim is compulsory, the federal court will have ancillary jurisdiction over it even though ordinarily it would be a matter for a state court); Moore v. New York Cotton Exchange, 270 U.S. 593, 608-10 (1926) (court had jurisdiction over compulsory counterclaim, notwithstanding that claim creating federal question jurisdiction over complaint was dismissed); Harris v. Steinem, 571 F.2d 119, 121-22 (2d Cir. 1978) (citing rule regarding supplemental jurisdiction over compulsory counterclaims); Corsearch, Inc. v. Thomson & Thomson, 792 F. Supp. 305, 333 (S.D.N.Y. 1992) (holding court had supplemental jurisdiction over compulsory state law counterclaims and that jurisdiction remained despite the fact that plaintiff's claims containing allegations which formed part of the same factual context as defendant's counterclaims were dismissed before trial). See also 10 James Wm. Moore, et al., Moore's Federal Practice § 13.110[3], 13-102 (3d ed. 2004) (hereinafter "Moore's Federal Practice") ("unless it falls within the supplemental jurisdiction of the court, a counterclaim . . . in an action based on diversity must satisfy the jurisdictional amount").

  Thus, whether an independent jurisdictional basis must exist in order for the Court to adjudicate defendant's counterclaims turns on the nature — compulsory or permissive — of those claims. According to Federal Rule of Civil Procedure 13(a), a compulsory counterclaim "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim. . . ." Courts interpret this standard broadly. See Moore, 270 U.S. at 610 ("`Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship."). Courts consider the following factors when deciding whether a counterclaim is compulsory or permissive: "(1) identity of facts between the original claim and counterclaim; (2) mutuality of proof; (3) logical relationship between original claim and counterclaim." Mirkin, Barre, Saltzstein, Gordon, Hermann & Kreisberg v. Noto, 94 F.R.D. 184, 187 (E.D.N.Y. 1982) (Glasser, J.) (quoting Federman v. Empire Fire & Marine Ins. Co., 597 F.2d 798, 811-12 (2d Cir. 1979)). "Although these factors or tests may be indicative in one sense or another of the compulsory character of a counterclaim, no one of them is conclusive, and should not be relied upon exclusively." Id. The crucial inquiry with respect to pleadings is "whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Harris, 571 F.2d at 123; see also Koufakis v. Carvel, 425 F.2d 892, 898-99 (2d Cir. 1970) (counterclaim found to be compulsory because allegations of wrongful termination of franchise in violation of franchise agreement arose out of the same facts as plaintiff's claim for breach of contract).

  In his first counterclaim, defendant alleges that he agreed to represent plaintiff in a commercial dispute and that plaintiff paid defendant an initial retainer fee of $10,000 and agreed to pay defendant the remainder on a contingency fee basis of 20% of any award after trial or settlement. Def. Answer ¶ 15. Additionally, plaintiff agreed to pay for all out-of-pocket expenses incurred by defendant on behalf of plaintiff. Id. Defendant alleges that plaintiff reimbursed him for the out-of-pocket expenses he incurred. By contrast, because plaintiff refused to execute and conclude the Restated Shareholders' Agreement and never recovered any amount in the litigation, defendant has not been compensated for the legal services he rendered and has suffered damages in an amount to be determined at trial. Id. ¶ 16-17. In his second counterclaim, defendant ...


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