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Scarola Ellis LLP v. Skyworks Venutres

September 1, 2010

SCAROLA ELLIS LLP, PLAINTIFF,
v.
SKYWORKS VENUTRES, INC. AND SKYWORKS INTERACTIVE, INC., DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

This action arises out of the efforts of plaintiff Scarola Ellis LLP ("Scarola"), a New York law firm, to recoup certain fees that it alleges a New Jersey-based client has not paid. The defendants have moved to dismiss the action or, in the alternative, to transfer the action pursuant to 28 U.S.C. § 1404(a) to New Jersey. For the following reasons, the motion is granted in part.

BACKGROUND

Defendant Skyworks Ventures, Inc., f/k/a "Anedom Company, Inc." ("Ventures") is a Delaware corporation with its principal place of business in New Jersey. Defendant Skyworks Interactive, Inc. ("Interactive" and together with Ventures, the "defendants"), a wholly-owned subsidiary of Ventures, is a New Jersey corporation with its principal place of business in New Jersey. Ventures acquired Interactive's predecessor-in-interest in December 2007.*fn1

Interactive sells applications ("apps") for various platforms, e.g., the Apple iPhone and Nintendo, who, in turn, sell these apps to third parties. Interactive does not make any direct sales to any entity or customer in New York. None of Interactive's geographically-targeted advertising has ever been directed at New York and Interactive is not registered to transact business in New York. Neither Ventures nor Interactive has any office in New York; owns, leases, or has any property, real or personal, in New York; has any employee or any direct customers in New York. None of Ventures' or Interactive's revenues come directly from New York.

On June 4, 2007, Ventures signed a retainer agreement with Scarola to assist with its capital raising efforts.

Interactive, which did not even exist at the time, was not a party to the retainer agreement. Between June 2007 and July 2009, Scarola invoiced Ventures approximately $1.2 million for legal services. All invoices from Scarola were sent to Ventures and referenced Ventures as the client. Interactive never executed an engagement letter with Scarola, or paid any monies to Scarola. Ventures ceased paying its bills in a timely way sometime in early 2009. Ventures claims that it has paid Scarola approximately $921,896 in legal fees.

On September 30, 2009, Scarola filed a complaint against Ventures and Interactive in the Southern District of New York. See Scarola Ellis LLP v. Skyworks Ventures Inc., No. 09 Civ. 8309(DLC) (S.D.N.Y. filed Sept. 30, 2009). The case was assigned to this Court. After the defendants were granted two extensions of time to respond to the complaint -- once at the behest of the defendants, the other by stipulation of the parties -- Scarola dismissed its claims without prejudice on December 1, three days before defendants were due to respond and, apparently, file counterclaims against Scarola.

Six days later, on December 7, Scarola re-filed the identical complaint against the defendants. See Scarola Ellis LLP v. Skyworks Ventures Inc., No. 09 Civ. 10003(DLC) (S.D.N.Y. filed Dec. 7, 2009). Scarola admits that it "determined to refile the action --- this case --- so as to be sure no preemptive action was filed against it in a different jurisdiction." On December 14, this case was accepted as related to No. 09 Civ. 8309. From December 7, 2009 to March 31, 2010 (114 days after filing), Scarola took no steps to serve the complaint on either Ventures or Interactive.

By letter dated March 31, Scarola advised this Court that "an involuntary bankruptcy petition has been filed against the defendants in this case" in the District of New Jersey on March 31. Scarola was not initially a petitioning creditor against Interactive, but later joined the petition against Interactive on May 3. Scarola requested that the Rule 16 pretrial conference in this action, scheduled for April 2, be adjourned. Scarola's request was granted and the parties were directed to submit a status letter by September 15. Scarola now admits that its March 31 letter was incorrect and misleading. Scarola was aware at the time that the involuntary bankruptcy petition had been filed only against Interactive, not Ventures. Scarola has "apologize[d]" to the Court and admitted that it "should have written a clarification or correction to this Court."

On May 11 (155 days after the complaint was filed), Scarola filed an involuntary bankruptcy petition against Ventures in the District of New Jersey. On May 14, Ventures, but not Interactive, filed a lawsuit against Scarola in New Jersey state court (the "New Jersey action"). In the New Jersey action, Ventures alleges, inter alia, that Scarola over billed Ventures for its services and breached its fiduciary duties to Ventures by, among other things, using Ventures' proprietary investor lists to solicit business for itself. On May 21, Scarola filed a notice of removal of the New Jersey action to United States District Court for the District of New Jersey, where the case is currently pending.

On June 7, the bankruptcy court overseeing the involuntary bankruptcy petitions against Interactive and Ventures, dismissed the petition against Interactive. Scarola never advised this Court of the dismissal. On June 14, Scarola purportedly served the summons and complaint against Interactive on Sharon Fordham ("Fordham"), a director of both Ventures and Interactive, at her office. According to Fordham, the process server "handed [her] papers without identifying them and told [her] to give them to Tom Fordham." Thomas Fordham is Sharon's husband and is also a director of both Ventures and Interactive. Fordham "sign[ed] a sheet acknowledging receipt."

On June 28, the bankruptcy court dismissed the involuntary bankruptcy petition filed by Scarola against Ventures. Scarola did not advise this Court of the dismissal. On July 1, Scarola purportedly served the summons and complaint on Ventures. On July 15, the bankruptcy court found that Scarola had filed the petition against Ventures "in bad faith in a two-party dispute as a litigation tactic to force a settlement" and held that punitive damages would be awarded after hearing further evidence. See In re Skyworks Ventures, Inc., 431 B.R. 573, 574 (Bankr. D.N.J. 2010). Specifically, the bankruptcy court found that Scarola's petition was an attempt to force Ventures to settle the disputed claim of Scarola Ellis by impeding the dismissal of the Interactive case and throwing Ventures into bankruptcy. ...


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