United States District Court, S.D. New York
For Ray Legal Consulting Group, Plaintiff: John H. Ray, III, Ray Legal Consulting Group, Hanover, MA.
For Stacey M. Gray, Stacey M. Gray, P.C., Defendants: Stacey M. Gray, Stacey M. Gray P.C., New York, NY.
OPINION AND ORDER
KATHERINE POLK FAILLA, United States District Judge.
On December 21, 2011, Defendants Stacey M. Gray and Stacey M. Gray, P.C. were terminated as counsel for Victor F. Caldwell. Since that termination, Defendants have attempted, in fits and starts, to obtain attorneys' fees for that representation,
one consequence of which has been to prevent Plaintiff from obtaining attorneys' fees for its subsequent representation of Caldwell. This fee dispute has engendered the instant action. Plaintiff Ray Legal Consulting Group seeks a declaratory judgment that Defendants have neither a statutory charging lien under New York Judiciary Law Sections 475 and 475-a, nor any other legally enforceable basis for a fee dispute and/or apportionment of fees with Plaintiff. Defendants have moved to dismiss this action. Because this action is barred by principles of res judicata -- specifically, an earlier decision of the New York State Supreme Court requiring Defendants and Caldwell to arbitrate any dispute concerning attorneys' fees -- Defendants' motion is granted, and this action is dismissed.
A. Factual Background
Plaintiff Ray Legal Consulting Group (" Ray Legal" ) is a professional services firm with its principal place of business in Massachusetts. (Compl. ¶ 6). Attorney John H. Ray, III (" Ray" ) is its principal. ( Id. at ¶ 7). Defendant Stacey M. Gray, P.C. (" Gray P.C." ) is a New York professional corporation engaged in the practice of law in the State of New York, with its principal place of business in New York. ( Id. at ¶ 9). Defendant Stacey M. Gray (" Gray" ) is an attorney with Gray P.C. ( See id. at ¶ 10).
It is no overstatement to note that the parties have had a tortured relationship regarding efforts to apportion attorneys' fees obtained from Victor F. Caldwell (" Caldwell" ), a current client of Ray Legal and a former client of Gray P.C. In fact, this action is just one of several state and federal actions seeking resolution of the fee dispute issue. In it, Plaintiff seeks a declaratory judgment holding that Defendants do not have a statutory charging lien under New York Judiciary Law Sections 475 and 475-a, whether considered before or after recent amendments to that law, or any other legally enforceable basis for either a fee dispute or any apportionment of legal fees with Plaintiff. (Compl. ¶ 1).
According to Plaintiff, on November 11, 2011, Caldwell retained Defendants to represent him in a settlement negotiation with his employer. (Compl. ¶ 10). To that end, Caldwell and Defendants entered into an Engagement Agreement. ( Id.; Ray Decl., Ex. 1). Plaintiff alleges that in the Engagement Agreement, Gray P.C. expressly disclaimed performance of any services that could support a charging lien under Section 475. That is, Gray P.C. agreed that it had not been retained for " the filing of a lawsuit or any documents in a court, city or state department," and it refused to " agree to represent [Caldwell] in any type of formal litigation including the filing of a complaint or taking of any other legal action in court." ( Id. at ¶ 15). According to Plaintiff, Gray P.C. in fact did not perform such services. ( Id. at ¶ ¶ 14, 16).
Caldwell's and Defendants' business relationship was short-lived, and on December 21, 2011, Defendants were terminated by Caldwell. (Compl. ¶ 11). Defendants did not perform any work for Caldwell after that date. ( Id. at ¶ 24). Plaintiff subsequently represented Caldwell in the negotiation for which Defendants were initially retained, as well as a related legal action. ( Id. at ¶ 12). Defendants never entered into any agreement with Plaintiff, whether concerning legal fees or for any other reason. ( Id. at ¶ 17).
2. The Attorneys' Fees Dispute
Evidence submitted by both sides in connection with Defendants' motion to dismiss makes clear that the present dispute principally arises out of a confidentiality agreement entered into on February 10, 2012 (the " Confidentiality Agreement" ), between Plaintiff and Defendants' then-attorney, Arnold DiJoseph, concerning the attorneys' fees that were sought by both Plaintiff and Defendants for legal services rendered to Caldwell. (Ray Decl. ¶ 2). These legal services had yielded an April 17, 2013 settlement agreement between Caldwell and his former employer (the " Settlement Agreement" ), to which Plaintiff (but not Defendants) was a party ( See Gray Decl., Ex. 3). Under the Confidentiality Agreement, an escrow account was created in which to
deposit the attorneys' fees that were withheld from Caldwell's settlement with his former employer. (Ray Decl. ¶ 3). The Agreement provided " [t]hat counsels Ray and Gray have a dispute regarding legal fees for legal services purportedly rendered to Mr. Caldwell," and further provided that " [t]he apportionment of the fees between Ray and Gray will be determined either by binding arbitration or by a court of competent jurisdiction." ( Id. at ¶ 4). Similarly, the Settlement Agreement provided that " [t]he apportionment of fees held in [an] Escrow Account between [Plaintiff] and [Gray P.C.] [would] be determined either though binding arbitration or a court of competent jurisdiction." (Gray Decl., Ex. 3). The funds remain in escrow.
B. Procedural Background
1. The Caldwell-Gray State Court Action
On February 15, 2012, Caldwell commenced an action against Gray and Gray P.C. in the Supreme Court of the State of New York, County of New York (the " State Court Action" ). (Gray Decl., Ex. 4). Plaintiff Ray Legal represented Caldwell in that action. ( Id.). In that action, Caldwell alleged nearly identical facts to those alleged here with respect to his retention of Gray to represent him in settlement negotiations. ( See id.). He claimed that he entered into the Engagement Agreement with Gray P.C., and that Gray did not engage in any conduct that could support a charging lien under Section 475. ( Id. at ¶ ¶ 12-14). Caldwell further alleged that he terminated Gray P.C. on December 21, 2011 ( id. at ¶ 19), and that Gray P.C. was due $11,500 in attorneys' fees for 28 hours of work ( id. at ¶ 24). Caldwell also alleged that Gray P.C. did not serve, and he did not sign, a notice of lien pursuant to Section 475-a. ( Id. at ¶ 33).
Also similar to the instant matter, Caldwell sought in the State Court Action a declaratory judgment that Gray P.C. was " not entitled to any statutory, contractual or other lien against any settlement proceeds and that any settlement funds may be lawfully released, without any liability to Gray P.C., as directed by [Caldwell] to [Plaintiff]." (Gray Decl., Ex. 4 at ¶ 4). Finally, Caldwell sought a protective order requiring the parties to maintain any evidence produced in the proceedings regarding the underlying settlement as confidential.
On August 24, 2012, Justice Doris Ling-Cohan dismissed the State Court Action. (Gray Decl., Ex. 1). In so doing, Justice Ling-Cohan relied on the provision in the Engagement Agreement that required Gray P.C. and Caldwell to arbitrate any fee dispute, such as the dispute on which the State Court Action was predicated. ( Id.).
Thereafter, Gray and Gray P.C. filed a motion to renew the court's August 24 decision; in response, Caldwell cross-moved for relief from the August 24 decision, and for a declaratory judgment that Gray and Gray P.C. had not established any enforceable statutory, contractual, or other lien against the escrowed funds. ( See Gray Decl., Ex. 2). Justice Ling-Cohan denied Gray's and Gray P.C.'s motion, holding that there was no basis for renewal because Gray and Gray P.C. had " failed to assert new facts not offered on the prior motion that would change the prior determination or ... demonstrate that there ha[d] been a change in the law that would change the prior determination." ( Id.). For the same reasons, Justice Ling-Cohan denied Caldwell's cross-motion; she also found that that Caldwell had not demonstrated that the court misapprehended the relevant law or facts. ( Id.). Accordingly, the court reiterated its
prior holding that ordered the parties to proceed to arbitration. ( Id.).
Caldwell filed a second motion to reargue or renew his cross-motion. ( See Gray Reply Decl., Ex. 1). In January 2014, Justice Ling-Cohan issued a final disposition in which she again denied Caldwell's motion, citing his failure to allege, much less prove, that the court had misapprehended the law or facts, as would be necessary to warrant the relief sought. ( Id.). She also noted that the proceeding involved two attorneys [i.e., Ray and Gray] and, in that vein, " encourage[d] the parties to resolve the  dispute amicably, or via private mediation." ( Id. (emphasis in original)).
2. The Gray-Ray Action and Its Removal to This Court
Prior to the commencement of this action, on July 29, 2013, Gray P.C. commenced an action in the New York State Supreme Court against Plaintiff, entitled Stacey M. Gray, P.C. v. Ray Legal Consulting Group, Index No. 156885/2013 (N.Y. Sup. Ct., N.Y. Co. 2013) (the " Gray-Ray Action" ). (Compl. ¶ 19). On September 9, 2013, Plaintiff removed the Gray-Ray Action to this Court, and it was assigned to the undersigned. Stacey M. Gray, P.C. v. Ray Legal Consulting Group, No. 13 Civ. 6336 (KPF). ( Id.). In the Gray-Ray Action, Gray P.C. alleged that its claims against Ray Legal for a charging lien and any purported fee dispute with Gray P.C. were based on the amended version of Section 475. ( Id. at ¶ 21). Gray P.C. also indicated in that complaint that Caldwell had terminated Gray P.C. as his attorney on or about December 21, 2011. ( Id. at ¶ 23).
Two days after the action's removal, on September 11, 2013, Ray Legal filed a pre-motion request to dismiss the Gray-Ray Action. (Ray Decl., Ex. 3). The next day, Gray P.C. voluntarily dismissed the action pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). ( Id. at ¶ 31). When Ray Legal inquired as to why Gray P.C. dismissed the action, counsel for Gray P.C. stated that it was ...