Avalon Risk Management Insurance Agency, L.L.C. v. Taylor et al
Filing
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ORDER AND OPINION re: 136 REPORT AND RECOMMENDATION. For the reasons stated above, the Report is adopted in its entirety. Accordingly, the Chalos Firm's application to fix a retaining lien is DENIED. (Signed by Judge Lorna G. Schofield on 4/20/2015) (kgo) Modified on 4/21/2015 (kgo).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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AVALON RISK MANAGEMENT INSURANCE :
AGENCY, L.L.C.,
:
Plaintiff,
:
:
-against:
:
:
:
GREGORY TAYLOR, et al.,
:
Defendants. :
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04/20/2015
12 Civ. 3934 (LGS)
ORDER AND OPINION
LORNA G. SCHOFIELD, District Judge:
On July 7, 2014, attorneys George M. Chalos and Katherine N. Christodoulatos (the
“Chalos Firm” or “Firm”), counsel of record for non-parties Philip and Iva DiChiara in the
above-captioned case, sought leave to withdraw as the DiChiaras’ counsel. The DiChiaras are
witnesses in the action and had retained the Chalos Firm in connection with subpoenas for their
bank records. By Order dated July 17, 2014, the motion to withdraw was granted. The Chalos
Firm also asked that a retaining lien be placed on the DiChiaras’ file. The DiChiaras, through
new counsel, filed a brief in opposition to the motion for a retaining lien. On January 26, 2015,
Magistrate Judge Debra Freeman issued a Report and Recommendation (the “Report”),
recommending that the Court decline to exercise supplemental jurisdiction over this ancillary
retaining lien dispute. No objections to the Report were filed. For the following reasons, the
Report is adopted in its entirety.
I.
STANDARD
A district court “may accept, reject, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). The district court
“may adopt those portions of the report to which no ‘specific, written objection’ is made, as long
as the factual and legal bases supporting the findings and conclusions set forth in those sections
are not clearly erroneous or contrary to law.” Adams v. N.Y. State Dep’t of Educ., 855 F. Supp.
2d 205, 206 (S.D.N.Y. 2012) (citing Fed. R. Civ. P. 72(b); Thomas v. Arn, 474 U.S. 140, 149
(1985)).
II.
BACKGROUND
Findings of fact are set out in the Report and summarized here.
On July 11, 2013, Plaintiff Avalon Risk Management Insurance Agency, L.L.C. served
J.P. Morgan Chase Bank with a subpoena out of the United States District Court for the Southern
District of Florida, commanding the production of the DiChiaras’ bank records. The DiChiaras
hired the Chalos Firm to challenge the subpoena, which was successfully quashed. The
agreement between the Chalos Firm and the DiChiaras was made by telephone; no written
retainer was signed. The Chalos Firm contends the DiChiaras agreed to an hourly billing rate,
while the DiChiaras contend -- and the Firm denies -- that the Chalos Firm agreed to place a cap
on the fees at $10,000. The Chalos Firm billed the DiChiaras $20,441.38 for quashing the
Florida subpoena, and the DiChiaras made a payment of $1,497.60.
On February 18, 2014, Plaintiff served a second subpoena out of the Southern District of
New York, again seeking the DiChiaras’ bank records. Again representing the DiChiaras, the
Chalos Firm challenged the subpoena, which was also quashed. The Firm and the DiChiaras
continued to dispute the nature of their fee agreement. The Chalos Firm billed $7,596.77 for its
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work on the second subpoena, and the DiChiaras made a payment of $5,000. The Chalos Firm
then filed its motion to withdraw as counsel, based on the non-payment of legal fees, and asked
that a retaining lien be placed on the DiChiaras’ file. Subsequently, the DiChiaras sent the Firm
a check in the amount of $3,505.00, marked “full and final settlement of legal fees.” The Firm
deposited the check “without prejudice and under protest.” Both the Chalos Firm and the
DiChiaras advised Judge Freeman that they intended to participate in fee arbitration under the
New York State Court Fee Dispute Resolution Program (“FDRP”).
III.
DISCUSSION
The Report recommends that the Court decline to exercise supplemental jurisdiction over
the Chalos Firm’s application to fix a retaining lien, in light of the fact that there are “exceptional
circumstances” that give rise to “compelling reasons” to decline jurisdiction under 28 U.S.C.
§ 1367(c)(4). First, the Report finds that the nature of the present fee dispute does not lend itself
to a summary determination. As the agreement between the Chalos Firm and the DiChiaras was
oral, the terms of the agreement could not easily be deduced without taking witness testimony
and assessing credibility. Additionally, although a court has the “responsibility to protect its own
officers in . . . fee disputes,” Cluett, Peabody & Co. v. C.P.C. Acquisition Co., 863 F.2d 251, 256
(2d Cir. 1988), the Report finds that the Chalos Firm “failed to take appropriate steps to protect
itself” by neglecting to provide the DiChiaras with a written engagement letter. Second, the
Report finds that it would “not serve the ends of judicial efficiency” for the Court to resolve this
dispute, given the lack of familiarity with the events that took place in connection with the
Florida subpoena, which are at the heart of the dispute. Third, the Report finds that the parties’
participation in FDRP fee arbitration precludes supplemental jurisdiction over the claim, as the
two proceedings would be substantially similar. Finally, the Report finds that the fixing of a
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retaining lien would not best serve the interests of the parties because, at this stage in the
litigation, neither party has any need for the documents being withheld. The Report finds that
resolution of the dispute through FDRP arbitration would best serve the interests of the parties.
Although the Report provides a sound analysis of the relevant factors under 28 U.S.C.
§ 1367(c), it is worth noting that this analysis may not have been necessary. Neither the Chalos
Firm nor the DiChiaras are parties to the above-captioned case. Section 1367 provides that
courts may exercise “supplemental jurisdiction over all other claims that are so related to claims
in the action . . . that they form part of the same case or controversy under Article III of the
United States Constitution.” 28 U.S.C. § 1367(a) (emphases added). Although the Chalos
Firm’s representation of the DiChiaras is undoubtedly related to the underlying action, it is
doubtful that the dispute between the Firm and the DiChiaras is “sufficiently related to the
underlying dispute to warrant the exercise of ancillary jurisdiction.” Kenyon & Kenyon v.
Advanced Eng’g Research & Dev. Corp., No. 97 Civ. 5909 (DC), 1998 WL 318712, at *2
(S.D.N.Y. June 16, 1998) (emphasis added) (finding that dispute between defendants and former
attorneys was insufficiently related to underlying dispute between defendants and “other,
unrelated business entities”); accord Pay Television of Greater New York v. Sheridan, 766 F.2d
92, 94 (2d Cir. 1985) (“[T]he district court is limited to setting fees that arise from the underlying
action; it may not set fees for work done on unrelated actions.”); Wing v. E. River Chinese Rest.,
884 F. Supp. 663, 667 (E.D.N.Y. 1995) (“Petitioner has not cited any authority, and this Court
knows of none, that extends ancillary jurisdiction to an application by an attorney in the main
action for fees from an entity other than a party to that action.”); Petition of Rosenman & Colin,
752 F. Supp. 178, 180-81 (S.D.N.Y. 1990) (“Petitioner has cited no case, and I have found none,
that extends ancillary jurisdiction to an application by an attorney in the main action for fees
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from someone other than a party to that action.”), vacated on other grounds sub nom. Nat’l
Foods, Inc. v. Rubin, 936 F.2d 656 (2d Cir. 1991). Courts must address the factors specified by
section 1367(c) only after concluding that “the asserted claim arises out of ‘a common nucleus of
operative facts’ as the main federal claim.” York Research Corp. v. Landgarten, No. 89 Civ.
5556 (PNL), 1992 WL 373268, at *3 (S.D.N.Y. Dec. 3, 1992) (quoting United Mine Workers of
America v. Gibbs, 383 U.S. 715 (1966)). Here, it is doubtful that the dispute between the Firm
and the DiChiaras arises out of “a common nucleus of operative facts” as the underlying action.
Even if analysis of the section 1367(c) factors was unnecessary, the result is the same.
IV.
CONCLUSION
For the reasons stated above, the Report is adopted in its entirety. Accordingly, the
Chalos Firm’s application to fix a retaining lien is DENIED.
SO ORDERED.
Dated: April 20, 2015
New York, New York
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