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Joseph DelGreco & Co., Inc. v. DLA Piper L.L.P. (U.S.)

United States District Court, S.D. New York

October 1, 2012

JOSEPH DELGRECO & COMPANY, INC., et al., Plaintiffs,
v.
DLA PIPER L.L.P. (U.S.), Defendant.

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[Copyrighted Material Omitted]

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Hartley T. Bernstein, Joel Martin Shafferman, New York, NY, for Plaintiffs. Jeffrey Schreiber, Howard Scott Davis, New York, NY, James P. Ulwick, Jean E. Lewis, Kramon & Graham, P.A., Baltimore, MA, for Plaintiffs.

Jeffrey Schreiber, Howard Scott Davis, New York, NY, James P. Ulwick, Jean E. Lewis, Kramon & Graham, P.A., Baltimore, MA, for Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

Defendant DLA Piper LLP (" DLA" ), a law firm, moves for summary judgment against the Complaint of plaintiffs Joseph DelGreco and DelGreco & Co. (collectively, " DelGreco" or " plaintiffs" ), which alleges tat DLA committed various acts of legal malpractice while representing plaintiffs. For the following reasons, DLA's motion is GRANTED.

I. Background[1]

A. The Parties

Joseph DelGreco (" Mr. DelGreco" ) is the sole shareholder of Joseph DelGreco &

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Company, Inc. (" DelGreco" ),[2] a New York corporation that sold high-end outdoor furniture. DLA is a Maryland limited liability partnership.

B. DLA's Representation of DelGreco

DelGreco's claims of malpractice arise out of DLA's representation of DelGreco in connection with (1) a transaction between DelGreco & Co. and East-West-International (Taiwan) Enterprises (" Eastwest" ); and (2) a lawsuit with Eastwest over that transaction.

1. The September 2007 Transaction

On or about September 14, 2007, Mr. DelGreco and DelGreco & Co. retained DLA to assist in the transaction with Eastwest, a Taiwan-based corporation. [3] Def.'s 56.1 ¶ 3; Pls.' 56.1 ¶ 3; Bernstein Decl. Ex. 7.

The transaction was aimed at creating an ongoing supplier/distributor relationship between DelGreco and Eastwest. As part of this transaction, DelGreco & Co. was to receive a $1 million loan from Eastwest. Lewis Decl. Ex. 4. The transaction consisted of four distinct agreements: (1) a promissory note in which DelGreco & Co. committed to repay the $1 million loan from Eastwest; (2) a security agreement, which pledged the assets of DelGreco & Co. as collateral for the loan; (3) a personal guarantee by Mr. DelGreco on the loan; and (4) a manufacturing and license agreement, which delegated responsibilities for the manufacturing, distribution, and sales of the furniture, and granted to Eastwest the right to use the DelGreco name and particular furniture designs. Def.'s 56.1 ¶ 5; Pls.' 56.1 ¶ 5; Bernstein Decl. Exs. 9-12.

DLA worked with Mr. DelGreco and Eastwest to draft these agreements. On September 21, 2007, Mr. DelGreco executed signature pages for the transaction documents, in advance of the actual closing. Def.'s 56.1 ¶ 17; Pls.' 56.1 ¶ 3; Lewis Decl. Ex. 18. On or around September 26, 2007,

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the transaction closed and Eastwest wired $1 million directly to Mr. DelGreco. Def.'s 56.1 ¶ 18; Pls.' 56.1 ¶ 18; Lewis Decl. Ex. 19; Bernstein Decl. Ex. 23. At the time of closing, Mr. DelGreco was not provided with final copies of the transaction documents themselves.[4]

The promissory note required DelGreco to make an initial interest payment upon delivery of the note. Lewis Decl. Ex. 10, ¶ 5.1. Specifically, it required that DelGreco pay $767.12 in interest at the time the transaction closed, reflecting the interest due for the period from September 26, 2007 (the date of closing) and the first day of the next month. Neither Mr. DelGreco nor DelGreco & Co. paid the initial interest payment at the time of closing, nor did DLA specifically notify them in writing that they were required to. Eastwest did not notify DelGreco about this missed payment until July 2, 2008, and DelGreco ultimately never paid the $767.12. See Oral Arg. Tr. 13. This missed initial interest payment forms the foundation of several of plaintiffs' malpractice claims.

2. Eastwest Declares Default

Between October 2007 and July 2008, DLA did not represent DelGreco in any relevant transactions. See Deposition of Joseph DelGreco (" DelGreco Dep." ), Lewis Decl. Ex. 22, at 150-51.

During that same period, the relationship between DelGreco and Eastwest deteriorated. On or about June 23, 2008, DelGreco's orders from Eastwest were " frozen." Def.'s 56.1 ¶ 34; Pls.' 56.1 ¶ 34; Lewis Decl. Ex. 29.

On or about June 27, 2008, goods the parties had planned to sell were shipped from Belgium to the United States. Eastwest and DelGreco disagreed about who actually owned the Belgian goods, Bernstein Decl. Exs. 36, 37, and Mr. DelGreco rerouted the goods to a different warehouse than Eastwest had agreed upon. Lewis Decl. Exs. 31, 32.

On June 30, 2008, counsel for Eastwest sent a letter making several demands, including that plaintiffs reroute the Belgian shipment and immediately repay an unrelated $850,000 loan.[5] Bernstein Decl. Ex. 36. This letter did not claim that DelGreco was in default as to any of the agreements, nor did it mention DelGreco's missed initial interest payment from the previous year. Id. On July 1, 2008, DelGreco, through counsel, replied by letter, stating that Eastwest's demands were unfounded and that it would not comply with any of them. Bernstein Decl. Ex. 37.

On July 2, 2008, counsel for Eastwest sent a second letter to DelGreco, making various demands. The letter was captioned " Notice of Material Breaches of

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Various Agreements." See Letter from David Frazee to DelGreco & DLA Piper (" July 2 Letter" ), Bernstein Decl. Ex. 38. In the July 2 Letter, Eastwest declared for the first time that DelGreco was in default on multiple agreements: the licensing agreement, the security agreement, the $850,000 loan, and the promissory note for the $1 million loan. Id. at 3. As to the promissory note, Eastwest stated that DelGreco was in default for two reasons: (1) failure to pay the initial interest payment of $767.12; and (2) failure to pay monthly interests payments on time for at least five different months. Id. This was the first time that Eastwest had noted, let alone protested, the missed initial interest payment to DelGreco. Eastwest declared a default on the promissory note and declared that the entire unpaid balance on the $1 million loan was " immediately due and payable." Id. at 4. DelGreco retained DLA again soon thereafter, this time to represent it in connection with the dispute with Eastwest. Def.'s 56.1 ¶¶ 44, 49; Pls.' 56.1 ¶¶ 44, 49.

3. Eastwest's Lawsuits Against DelGreco and the Ensuing Arbitration

On July 3, 2008, Eastwest filed a complaint against DelGreco & Co. and Mr. DelGreco in United States District Court for the Southern District of New York. Bernstein Decl. Exs. 40, 41. Eastwest alleged conversion of the Belgian goods, breach of the distribution agreement, and a claim for foreclosure on the collateral under the security agreement. Bernstein Decl. Ex. 40. The missed initial interest payment was not mentioned in the complaint; only one allegation referred obliquely to DelGreco's " fail[ure] to make certain payments as those obligations came due under the Note." Id. ¶¶ 15-16. The majority of the allegations of default on the promissory note dealt with DelGreco's refusal to allow Eastwest access to its book and records, id. ¶ 16, and DelGreco's failure to preserve the collateral of the September 2007 transaction. Id. ¶ 17.

As the suit moved forward, DLA recommended that DelGreco pursue arbitration, and on September 5, 2008, DLA filed a demand for arbitration on plaintiffs' behalf. Lewis Decl. Ex. 42, 43. The parties agreed to one arbitrator instead of three. Def.'s 56.1 ¶ 58; Pls.' 56.1 ¶ 58; Lewis Decl. Ex. 53.

DLA assisted DelGreco in preparing for the arbitration, Def.'s 56.1 ¶¶ 54-55; Pls.' 56.1 ¶¶ 54-55, but DelGreco was having difficulty paying its legal fees. Over the course of preparing for the arbitration, a DLA partner spoke directly to Mr. DelGreco about the need to pay overdue legal fees if DLA was going to continue to represent him in the dispute. Def.'s 56.1 ¶ 56; Pls.' 56.1 ¶ 56; Lewis Decl. Exs. 48, 49. DLA helped DelGreco apply, unsuccessfully, for litigation financing at least twice. Def.'s 56.1 ¶¶ 59, 61; Pls.' 56.1 ¶¶ 59, 61; Lewis Decl. Exs. 54, 55. By May 18, 2009, DLA's records indicated that DelGreco owed $275,000 in outstanding legal fees; the estimated cost of the arbitration going forward was an additional $605,000. Bernstein Decl. Ex. 68.

Eventually, DLA decided to withdraw from representing DelGreco and Mr. DelGreco. On June 22, 2009, on behalf of DLA, a DLA attorney emailed Mr. DelGreco seeking to confirm that he " under[stood] DLA is withdrawing as counsel effective as of the call tomorrow ...." Def.'s 56.1 ¶ 64; Pls.' 56.1 ¶ 64; Lewis Decl. Ex. 57. DLA also sought confirmation that Mr. DelGreco had " chosen to pursue the arbitration pro se as [his] own counsel ...." Id. The following day, Mr. DelGreco sent an email to DLA stating:

Please be advised that given the restricted finances available, I shall need

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to proceed with the case with Eastwest International (Taiwan) Enterprises " pro se" . I do not want a postponement as time has become critical, and I will ask [the arbitrator] and opposing counsel to agree to move forward without depositions.

Lewis Decl. Ex. 58.

During the conference call on June 23, 2009, the arbitrator questioned Mr. DelGreco about representing himself pro se. Although that colloquy was not transcribed, Mr. DelGreco testified in his deposition in this case that he replied to the arbitrator, " I guess I have to" and that he " didn't have an option." DelGreco Dep. 226. It is undisputed that the arbitrator approved DLA's withdrawal at that time. Def.'s 56.1 ¶ 66; Pls.' 56.1 ¶ 66; DelGreco Dep. 227; Oral Arg. Tr. 29.

DelGreco proceeded to arbitration pro se. On September 16, 2009, the arbitrator issued an award. Bernstein Decl. Ex. 80. The arbitrator ruled against DelGreco on all its claims and in favor of Eastwest on all but one. Id. The ...


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