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Ostrolenk Faber LLP v. Lagassey

United States District Court, S.D. New York

January 2, 2020

PAUL J. LAGASSEY, Defendant.


          Ronnie Abrams United States District Judge

         Plaintiff Ostrolenk Faber LLP brings this action against Defendant Paul J. Lagassey, who is appearing pro se. Plaintiff asserts several claims, including breach of contract, fraud, and unjust enrichment. Now before the Court is Defendant's motion to dismiss. For the following reasons, the Court construes Defendant's motion as one to compel arbitration and grants that request.


         Plaintiff is a New York limited liability company "engaged in the practice of law specializing in intellectual property, including the protection of patents, trademarks, and copyrights." Compl. ¶ 5. Defendant, whose primary residence is in Florida, is "an inventor and entrepreneur." Id. ¶ 6. To manage his inventions and related patents and trademarks, Defendant established several corporate entities in Florida and Alaska. These corporate entities, Plaintiff alleges, were formed "to avoid personal liability" and are "mere alter-egos of [Defendant]." Id. ¶¶ 12-13.

         In 2010, Defendant "opened various accounts with [Plaintiff], for his supposed corporate entities." Id. ¶ 15. According to Plaintiff, entities that it had relationships with included Great Northern Research LLC, Conceptual Speech LLC, Eastern Investments LLC, Shrunken Heads Enterprises LLC, KoolLight LLC, Coolsoft LLC, Speechvibe LLC, and Hurricane LLC. Through 2017, Plaintiff - primarily through a former partner, Steven M. Hoffberg, see Def.'s Mot. ¶ 3 -provided these corporate entities with legal services, including "appl[ying] for and obtain[ing] patents rights ... for several inventions" and "register[ing] at least one trademark." Compl. ¶ 7, Each month, Plaintiff sent an invoice to "[Defendant] and his various corporate alter-egos" for this legal work. Id. ¶ 21.

         "[S]eparate written retainer agreements" governed the relationship between Plaintiff and each of Defendant's corporate entities. Def.'s Mot. ¶ 7; see also Def.'s Mot., Ex. A, Hoffberg Deck ¶ 9. Although Defendant signed each agreement on behalf of the corporate entity, he did so in the capacity as that respective entity's manager.[2] Def.'s Mot. ¶ 2-3; see also Def.'s Mot., Ex. B. Defendant submitted one of these agreements with his motion. See Def.'s Mot., Ex. B. Defendant states - and Plaintiff has not disputed - that this retainer agreement is "representative of the retainers Plaintiff has with the other Defendant managed entities."[3] Def.'s Mot. ¶ 5. The submitted agreement, as well as the other agreements, includes the following arbitration clause:

Subject to precedence of any administrative rules or other legal obligations, any dispute concerning fees and disbursements due and/or services rendered shall be submitted to, and settled by arbitration by at least one (1) arbitrator. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association ("AAA") ... If an arbitration is commenced by the Firm, then the Firm shall pay the cost of arbitration through judgment, subject to the following. The arbitrator shall, in the Award, allocate all of the costs of the arbitration (and the mediation, if applicable), including the fees of the arbitrator and the reasonable attorneys' fees of the prevailing party, against the party who did not prevail, unless the arbitrator determines that a different allocation is equitable.

Def.'s Mot, Ex. B.

         Defendant explains that he negotiated for this arbitration clause because it was "intended to provide the Defendant managed entities (and also Defendant himself) with established rules for settling disputes that insulated the entities (and Defendant) from the cost of civil litigation in Court[.]" Def.'s Mot. ¶ 20; see also Def.'s Reply ¶¶ 18-19 ("The intent of the negotiated language of arbitration provision that required Plaintiff to pay for the cost of arbitration if the action is initiated by the law firm, was to level the playing field by protecting the small entities with minimal financial resources from the cost of an arbitration[.]"). Mr. Hoffberg confirms that Plaintiff negotiated for this provision and that Plaintiffs managing partner approved it. See Hoffberg Decl. ¶12.

         On February 20, 2018, Plaintiff brought this action against Defendant, alleging material breach of the contract, account stated, quantum meruit, unjust enrichment, and fraud. The causes of action all stem from Defendant's alleged failure to pay Plaintiff for legal services and disbursements made pursuant to its accounts with Defendant's entities. Plaintiff asserts that Defendant owes it, "at minimum, $141, 893, plus interest." Compl. ¶ 32. It further alleges that several of these corporate entities, including Eastern Investments LLC, Conceptual Speech LLC, and Shrunken Head Enterprises LLC, were involuntarily dissolved either before or during its legal representation. Defendant does not dispute that some of the corporate entities have been dissolved but insists it "is not deliberate ... but the result of bad economic circumstances for the entity." Def.'sMot.¶73.

         After Plaintiff filed its complaint, Defendant did not appear. Therefore, in September 2018, Plaintiff moved for a default judgment. The Court scheduled a hearing for January 8, 2019, where Defendant was ordered to show cause as to why a default judgment should not be entered against him. Several days prior to that hearing, Defendant wrote to the Court, indicating his intent to appear and be heard in this action. He requested that the Clerk of Court's entry of default be set aside for good cause pursuant to Federal Rule of Civil Procedure 55(c). In June, the Court granted this request.

         On August 9, Defendant filed the present motion to dismiss this action on several grounds, including the existence of an arbitration clause in the written retainer agreements, lack of subject matter jurisdiction, improper venue, and failure to state a claim. On August 21, Plaintiff filed its opposition, and Defendant replied on October 10.


         The Federal Arbitration Act ("FAA") provides that "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Enacted to "revers[e] centuries of judicial hostility to arbitration agreements," Bird v. Shearson Lehman/Am, Exp., Inc., 926 F.2d 116, 119 (2d Cir. 1991) (citation omitted), the FAA "embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts," Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006). "[T]his policy is founded on a desire to preserve the parties' ability to agree to arbitrate, rather than litigate, disputes." Nicosia v., Inc., 834 F.3d 220, 229 (2d Cir. 2016) (citation omitted).

         "A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration" may petition a district court "for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C, § 4. "In deciding motions to compel arbitration, courts apply a standard similar to that applicable for a motion for summary judgment." Nicosia, 834 F.3d at 229 (citation omitted). A court, therefore, must "consider all relevant, admissible evidence submitted by the parties and contained in pleadings" and "draw all reasonable inferences in favor of the non-moving party." Id. (citation omitted).


         Defendant seeks to dismiss this action on several grounds, including lack of subject matter jurisdiction, improper venue, laches, and failure to state a claim. Although the Court need not address most of these arguments, it notes, as an initial matter, that it does have subject matter jurisdiction over this action. See Steel Co. v. Citizens for a Better Env't,523 U.S. 83, 94 (1998) ("Without jurisdiction the court cannot proceed at all in any cause."). Diversity jurisdiction exists "where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between .. . citizens of different States." 28 U.S.C. § 1332(a). Here, Plaintiff alleges approximately $141, 893 in damages, that its primary place of business is in New York, and that Defendant is a citizen of Florida. Compl. ¶¶ 1-2, 25. While Defendant disputes that the amount in controversy is met because of alleged accounting errors that would lower the damages, a "rebuttable presumption [exists] that the face of the complaint is a good faith representation of the actual amount in controversy." Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166 F.3d 59, 63 (2d Cir. 1999). Defendant's allegations are insufficient "[t]o demonstrate a filing in bad faith" because "[i]t must appear to a legal ...

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