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Bounkhoun v. Barnes

United States District Court, W.D. New York

April 11, 2017

Chandy Bounkhoun, Plaintiff,
Steven E. Barnes, Esq. et al., Defendants.


          Hugh B. Scott, United States Magistrate Judge


         Plaintiff Chandy Bounkhoun suffered permanent blindness in one eye when she was struck by a rock thrown from a lawnmower that her landlord was using. Plaintiff retained defendants Steven E. Barnes, Esq., Ross M. Cellino, Esq., Christopher D. D'Amato, Esq., and Cellino & Barnes, P.C. to pursue a personal injury action against the landlord. The case went to trial and ended in a defense verdict; under the terms of a high-low agreement, plaintiff was awarded $25, 000 minus costs and fees.

         The above summary sounds simple enough, but plaintiff asserts that she could have obtained a much higher settlement award if her attorneys had listened to her instructions to pursue settlement negotiations. Instead, according to plaintiff, defendants ignored her instructions and concealed the landlord's insurer's willingness to continue settlement talks, all in an effort to obtain a trial verdict large enough to give them the fees that they wanted. Plaintiff also believes that defendants pushed her to sign the high-low agreement for their own benefit. Plaintiff consequently filed suit here, asserting claims of conversion, conversion conspiracy, misrepresentation, a violation of New York Judiciary Law § 487, legal malpractice, and a violation of New York General Business Law §§ 349 and 350. Defendants asked plaintiff to withdraw all of the claims except the legal malpractice claim on the basis that the other claims were frivolous. When plaintiff refused, defendants filed two motions that now are pending: a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure (“FRCP”) (Dkt. No. 10); and a motion for sanctions under Rule 11. Despite refusing to withdraw any claims before defendants filed the motions, plaintiff withdrew most of the claims in question after defendants filed the motions. The parties continue to disagree over the legal sufficiency of plaintiff's claims under Judiciary Law § 487.

         The Hon. Richard J. Arcara referred this case to this Court under 28 U.S.C. § 636(b)(1)(B). (Dkt. No. 12.) The Court has deemed the motions submitted on papers under FRCP 78(b). For the reasons below, the Court respectfully recommends granting the motions in part.

         II. BACKGROUND[1]

         This diversity[2] case concerns allegations that defendants spiked a settlement in plaintiff's personal-injury case to pursue a verdict that would bring higher attorney fees, without keeping plaintiff informed of their decisions. On June 7, 2008, plaintiff's landlord was using a lawnmower, presumably at or near plaintiff's residence. The lawnmower threw a rock that struck plaintiff and blinded her in one eye. A few days later, on June 11, 2008, plaintiff signed a retainer agreement and retained defendants on a contingency basis. The last sentence of the retainer agreement read, in all caps, “NO SETTLEMENT SHALL BE MADE WITHOUT FULL KNOWLEDGE AND CONSENT OF BOTH ATTORNEY AND CLIENT.” (Dkt. No. 11-4 at 2.) Defendants proceeded to commence litigation in New York State Supreme Court, Erie County. When litigation commenced or what might have happened during early proceedings is not clear from the amended complaint.

         The events that led to this case began around January 27, 2012, the date of a certain pretrial conference in state court. On that date, the state court apparently set a trial date of July 9, 2012. Around the same time, plaintiff's landlord's insurer informed defendants that it would be willing to settle the state litigation for $100, 000. Defendants informed plaintiff's family accordingly; defendants had to communicate with plaintiff through family because plaintiff is Laotian and does not speak English. The amended complaint does not contain any information about what response plaintiff or her family ever gave defendants about the insurer's offer. The amended complaint instead asserts that plaintiff and defendants had no communication between approximately January 27 and June 4, 2012. Around June 4, 2012, plaintiff, through family, advised defendants that she would be willing to settle the state litigation for $150, 000. Defendants ignored the apparent request to explore settlement and responded only by telling plaintiff that the litigation was scheduled to proceed to trial on July 9, 2012. The litigation did in fact proceed to trial as scheduled. After jury selection, defendants had plaintiff sign a high-low agreement. The high-low agreement does not appear to be part of the record, and the description of its operation in the amended complaint is a little vague. Nonetheless, the gist of the agreement appears to have been that plaintiff was guaranteed a payout of $25, 000 even with a defense verdict, while the insurer was guaranteed a cap of $750, 000 in the event of a verdict for plaintiff. The jury returned a defense verdict, and plaintiff received the award of $25, 000 minus costs, fees, and liens, for a net payout of $7, 256.30. (Dkt. No. 15 at 21.)

         The events outlined above do not capture plaintiff's beliefs about what was occurring behind the scenes at defendants' office as the case headed to trial. According to the amended complaint, when plaintiff informed defendants of her desire to settle the state litigation for $150, 000, defendants rejected that valuation as only a fraction of their own. Defendants did not tell plaintiff, however, that they considered her valuation too low; they also did not make any communication to persuade her to reconsider her desire to settle. Instead, and without telling plaintiff, defendants sent counsel and the insurer in the state litigation a settlement demand letter for $1 million. (Dkt. No. 15 at 14-16.) The insurer rejected the demand a few days later and, at least on the face of the document, left the door open for continued negotiations. (Id. at 18-19.) Defendants did not inform plaintiff of the insurer's response.

         As asserted in the amended complaint, plaintiff believes that defendants' handling of her state litigation makes sense only when seen from the perspective of self-dealing. Plaintiff has accused defendants of conspiring “to manipulate the outcome of the plaintiff's case in such a manner so as to maximize their own potential return by minimizing their own risk and maximizing the risk to the plaintiff without advising the plaintiff of their conspiratorial actions and the risks their actions created for the plaintiff.” (Dkt. No. 9 at 3.) With respect to the high-low agreement, plaintiff believes that defendants “conspired to secure a high-low agreement from the insurance carrier on terms that were favorable to the carrier and very detrimental to the plaintiff so that they could attempt to secure a larger attorneys fee by trying plaintiff's case and limit their risk on any outstanding litigation expenses by agreeing to a very low amount for the lower limit on the high-low agreement.” (Id. at 5.) Plaintiff contends that another factor affecting defendants' conduct is the way in which their law firm uses attorneys as independent contractors despite marketing a different relationship. (Id. at 2.) Finally, plaintiff believes that defendants' lack of concern for her state litigation included a lack of concern about poor translation of her testimony at trial. (Id. at 5.)

         Plaintiff filed the original complaint in this case on July 13, 2015 and the amended complaint on November 16, 2015. The amended complaint contains five counts. In Count I, plaintiff accuses defendants of conspiring to convert, and actually converting, “the plaintiff's complaint in the underlying action into their own property and to prosecute that for their own purposes without any regard to the requests of the client.” (Dkt. No. 9 at 5.) In Count II, plaintiff accuses defendants of misrepresentation, specifically misrepresenting “the fact that the case could have been settled by the defendants by engaging in competent settlement negotiations.” (Id. at 6.) In Count III, plaintiff accuses defendants of violating New York Judiciary Law § 487 because they “engaged in a course of conduct to deceive and defraud the plaintiff of her rightful monies, being untruthful and nefarious in accomplishing their own ends to the prejudice of the plaintiff.” (Id. at 7.) In Count IV, plaintiff accuses defendants of legal malpractice. In Count V, plaintiff accuses defendants of violating New York General Business Law §§ 349 and 350 by engaging in deceptive and misleading business practices. Defendants violated the statute in that “the firm by using the term ‘team of trial lawyers' at Cellino and Barnes is attempting to project a relationship that does not in fact exist and the actual relationship between the assigned attorney, the firm and client creates an irrevocable conflict of interest for the assigned attorney. The assigned attorney has dual loyalties to the firm as an independent contractor and to the client, and those dual loyalties in the underlying case giving rise to this action, were never disclosed to the plaintiff and are never disclosed to the public at large.” (Id. at 8.)

         Defendants filed their pending motions on November 16, 2015. With respect to the motion to dismiss, defendants are not seeking to dismiss Count IV of the amended complaint. Defendants seek to dismiss all of the other counts and any request for punitive damages. According to defendants, the conversion and conspiracy allegations fail because New York does not recognize civil conspiracy and because plaintiff has not pled all of the elements of a conversion claim. Plaintiff's claim for misrepresentation would fail because New York law does not allow a misrepresentation claim that duplicates a claim for legal malpractice. Defendants assert that claims under the Judiciary Law must show conduct constituting a criminal misdemeanor (Dkt. No. 10-3 at 12), and that plaintiff in contrast has pled legal malpractice at most. Defendants argue against any assertions under the General Business Law on the basis that any internal organization at defendants' law firm has no impact on the product that the law firm offers to the public. Finally, defendants argue that plaintiff has not shown the kind of wantonness or malice that would support punitive damages. In defendants' view, plaintiff's inability to plead the necessary elements for most of her claims makes most of her claims frivolous to the point of warranting Rule 11 sanctions. Defendants argue further that even a modest research effort would have shown plaintiff that many of her allegations are unsustainable under New York law.

         Plaintiff takes a mixed approach in opposing defendants' motions. Plaintiff has withdrawn Counts I, II, and V, focusing instead on defending Count III and opposing Rule 11 sanctions. (Dkt. No. 15 at 1 ¶ 2; Dkt. No. 16 at 4.) To that end, plaintiff has filed extensive factual affidavits with numerous exhibits that consist of email messages and other documents (Dkt. Nos. 14 and 15). As for arguments, plaintiff argues that she has adequately pled a Judiciary Law violation by pleading that self-interest permeated both the $1 million settlement demand letter and the structure of the high-low agreement. Plaintiff also asserts that she has good reason to believe that the insurer's file for the state litigation will uncover communications from defendants that confirm the real reason for the high-low agreement-that “by securing that agreement the plaintiff's case could be tried knowing that any trial expenditures to be incurred would be covered.” (Dkt. No. 16 at 8.) Plaintiff tried unsuccessfully to obtain the insurer's file during the state litigation and now asks the Court for an opportunity to pursue it during discovery here.


         Of the two pending motions, the Court will address the motion to dismiss first. Whether Count III survives dismissal will affect whether sanctions might be appropriate under Rule 11.

         A. Motion to Dismiss

          i. Motions to ...

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