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Prudential Equity Group, LLC v. Ajamie

February 27, 2008

PRUDENTIAL EQUITY GROUP, LLC, PLAINTIFF,
v.
THOMAS R. AJAMIE ET AL., DEFENDANTS.



The opinion of the court was delivered by: Jed S. Rakoff, U.S.D.J.

OPINION AND ORDER

Defendants Robert Weiss and Robert H. Weiss & Associates, LLP (the "Weiss defendants") and Thomas R. Ajamie and Ajamie, LLP (the "Ajamie defendants") each move for summary judgment. For the reasons set forth below, the motion of the Weiss defendants is granted in part and denied in part, and the motion of the Ajamie defendants is likewise granted in part and denied in part.

This interpleader action arises from a conflict over how the attorneys' fees resulting from a successful arbitration should be divided among the attorneys who might have a claim to them and who, being litigators, were unable to resolve the dispute among themselves. In 2002, members of a family known as the Sahnis sought to arbitrate certain claims against Prudential Equity Group, LLC ("Prudential"). See Weiss Defendants' Statement of Material Facts Pursuant to Local Rule 56.1 ("Weiss 56.1") ¶ 1; Ajamie Defendants' Rule 56.1 Counterstatement and Statement of Additional Facts ("Ajamie 56.1") ¶ 1. The Sahnis first retained defendant Martin Kroll and his firm, defendant Kroll, Moss & Kroll LLP, but subsequently terminated the Kroll defendants and retained the Weiss defendants to pursue their claims. Weiss 56.1 ¶¶ 3-5; Ajamie 56.1 ¶¶ 3-5. Weiss then recruited Mr. Ajamie, a lawyer admitted only in Texas, to work on the arbitration, and entered into an original, and, later, an amended fee-sharing agreement with the Ajamie defendants. Weiss 56.1 ¶¶ 9, 11-12, 14, 20; Ajamie 56.1 ¶¶ 9, 11-12, 14, 20. Mr. Ajamie, in turn, sought assistance from two other attorneys, defendants Wallace Showman and John Moscow. Weiss 56.1 ¶¶ 25, 29; Ajamie 56.1 ¶¶ 25, 29.

Although the circumstances are disputed, it is clear that at some point Weiss ceased to play an active role in the arbitration. Weiss 56.1 ¶¶ 18-19; Ajamie 56.1 ¶¶ 19, B-2 to B-3, B-17. Eventually, the Sahni clients were successful in the arbitration against Prudential, and the arbitration award was confirmed in New York state court. Weiss 56.1 ¶¶ 42, 45; Ajamie 56.1 ¶¶ 42, 45. Prudential, in possession of the attorney's fee portion of the arbitration award, instituted this interpleader action when it became clear that the various attorneys involved in the arbitration could not agree on how the fees should be divided.

In the instant motion, the Weiss defendants argue, first, that the Ajamie defendants are not entitled to any fees; second, that, if the first argument fails, the fees should be split in accordance with the amended fee agreement; and, third, that the Ajamie defendants are solely responsible for the fees of the additional attorneys (Showman and Moscow) who were brought in to assist. Only the second argument has merit.

As to the first argument, the Weiss defendants contend that the fee-sharing agreement with the Ajamie defendants cannot be enforced -- and that the Ajamie defendants are therefore not entitled to any of the attorneys' fees -- because Ajamie engaged in the unauthorized practice of law by participating in an arbitration in New York even though he was not admitted to the New York bar. Given that it was Weiss who brought Ajamie into the arbitration, this argument wins the Oscar for chutzpah. But on the merits it fails.

Since there is no New York state authority definitively addressing the applicability of New York's unauthorized practice rules to the arbitration context, the Court must predict how the New York Court of Appeals would decide this issue. See Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 399 (2d Cir. 2001). But the Court is not reduced to reading entrails, because in Donald J. Williamson, P.A. v. John D. Quinn Construction Corp., 537 F. Supp. 613 (S.D.N.Y. 1982), Judge Edward Weinfeld -- perhaps the greatest judge ever to sit in this District -- held that a non-New York lawyer participating in an arbitration in New York did not commit unauthorized practice under New York law. Id. at 616. As Judge Weinfeld noted, there are material differences between an arbitration and a judicial proceeding, with the former being far more informal and applying much less stringent rules of evidence and procedure. Id. at 616.

Williamson has been followed by other courts in this District and elsewhere, see, e.g., Siegel v. Bridas Sociedad Anonima Petrolera Industrial Y Comercial, No. 90 Civ. 6108, 1991 WL 167979, *5 (S.D.N.Y. Aug. 19, 1991); Colmar, Ltd. v. Fremantlemedia N. Am., Inc., 344 Ill. App. 3d 977, 988 (App. Ct. 2003), and has been praised by commentators, see, e.g., Samuel Estreicher & Steven C. Bennett, Is Arbitration the Unauthorized Practice of Law?, N.Y.L.J., Jan. 6, 2005, at 3 (describing Williamson as "[o]ne of the earliest and most widely quoted authorities in this area"). It may also be noted that in 1975, and again in 1991, committees of the Association of the Bar of the City of New York found that participation in a New York arbitration by an out-of-state lawyer was not the unauthorized practice of law. See Committee Report, Labor Arbitration and the Unauthorized Practice of Law, 30 Rec. Ass'n B. City N.Y. 422, 428 (1975); Committee Report, Recommendation and Report on the Right of Non-New York Lawyers to Represent Parties in International and Interstate Arbitrations Conducted in New York, 49 Rec. Ass'n B. City N.Y. 47, 47-48 (1991).

Against this authority, Weiss relies principally on the controversial California decision in Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court, 949 P.2d 1 (Cal. 1998). In Birbrower, the California Supreme Court "decline[d] ... to craft an arbitration exception to [the California] prohibition of the unlicensed practice of law in this state." Id. at 9. Birbrower, however, was promptly overruled by the California legislature. See Cal. Civ. Proc. Code § 1282.4 (providing an arbitration exception to unauthorized practice rules). Moreover, even Birbrower itself took pains to distinguish Williamson, see Birbrower, 949 P.2d at 8-9, and thus is of little help in predicting how the New York Court of Appeals would decide this issue.

This Court finds Judge Weinfeld's reasoning wholly persuasive and is certain the New York Court of Appeals would find likewise. Although, in the quarter century since Judge Weinfeld wrote, arbitration proceedings have become more protracted and complex, not to mention costly, they still retain in most settings their essential character of private contractual arrangements for the relatively informal resolution of disputes. Indeed, the Court notes that the rules of the New York Stock Exchange, where the Sahni arbitration was held, do not require members of the arbitration panel to be lawyers at all. See N.Y. Stock Exch. Rule 607. It would be incongruous to apply a state's unauthorized practice rules in such an informal setting. Whatever beneficent purposes New York's prohibition against the unauthorized practice of law may serve in protecting clients and regulating lawyers' conduct, it is not designed as a trap for the unwary or as a basis on which New York lawyers can extend a monopoly over every private contractual dispute-resolving mechanism.

Accordingly, the Court concludes that Ajamie was not engaged in the unauthorized practice of law and, hence, that the Weiss defendants are not entitled to summary judgment denying the Ajamie defendants any recovery.*fn1 There is greater merit, however, to the Weiss defendants' fallback position, their second argument, that they are at least entitled as a matter of law to some recovery because their fee agreement with Ajamie is enforceable as a matter of law.

After the Weiss defendants were retained by the Sahni clients, they entered into a fee agreement with the Ajamie defendants that provided that:

This letter sets forth our agreement to work together on behalf of the Sahni Clients. We will jointly represent the Sahni Clients in connection with their securities claims against Prudential Securities, Inc. and all other associated parties with respect to [specific account numbers].

We [the Ajamie defendants] will work with you [the Weiss defendants] on behalf of the Sahni Clients in preparing and presenting their claims against the parties who have caused the Sahni Clients financial loss. We will contribute 50% and you will contribute 50% of the cost and expense necessary to bring these matters to arbitration or settlement, and we will receive 50% and you will receive 50% of ...


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