Michael B. Schulman & Assoc., P.C. v Luryi
Annotate this CaseDecided on November 21, 2007
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE TERM: 9th and 10th JUDICIAL DISTRICTS
PRESENT: : RUDOLPH, P.J., McCABE and TANENBAUM, JJ
2006-1346 S C.
Michael B. Schulman & Associates, P.C., Appellant,
against
Dr. Serge Luryi, Respondent, -and- Multicolor Systems, Inc., Defendant.
Appeal from a decision of the District Court of Suffolk County, First District (James P.
Flanagan, J.), dated June 23, 2005, and a judgment of the same court, dated November 29, 2005.
The decision, after a hearing on the issue of sanctions, awarded defendant Dr. Serge Luryi costs
in the form of attorney's fees in the sum of $15,221.48. The judgment, entered pursuant to the
decision, awarded defendant Dr. Serge Luryi the principal sum of $15,221.48 as against the
plaintiff.
Appeal from decision dismissed. No appeal lies from a decision (see UDCA 1702).
Judgment affirmed with $25 costs.
In 1996, Dr. Serge Luryi, three of his colleagues at Stony Brook University, and Sidney Braginsky, then president of Olympus America, decided to form a corporation, Multicolor Systems, Inc., to explore the commercialization of an invention which had been developed by Dr. Luryi and two of those colleagues. It was agreed that Dr. Luryi and his three colleagues would be involved in the technical aspects of the corporation, and that Mr. Braginsky's son, Philip Braginsky, an attorney then associated with plaintiff Michael B. Schulman & Associates, P.C. ("Schulman"), would handle the corporation's legal work. Ultimately, the corporation was [*2]dissolved.
On or about October 21, 1999, plaintiff law firm commenced the instant action to recover attorney's fees from the individual defendant, Dr. Serge Luryi, and the corporate defendant, Multicolor Systems, Inc. The complaint, verified by Michael B. Schulman, Esq., alleged that in November 1996, defendants retained Schulman to represent them "with regard to general business plans, patents and other business related to the defendants;" that Schulman rendered legal work, labor and services on behalf of defendants, and that defendants breached the retainer agreement by failing to pay for said services. After both defendants failed to appear or answer, a default judgment was entered against them in the principal sum of $12,551.81, on May 22, 2000.
By order to show cause dated December 9, 2003, Dr. Luryi moved for an order vacating the default judgment entered against him. He alleged that he had not been served either with the pleadings or with the judgment, and that he had never been responsible for the debts of the corporate defendant. In further support of the motion to vacate, he annexed the affidavits of three of the other founders of the corporate defendant (with the exception of Sidney Braginsky), who confirmed that Dr. Luryi was not responsible for the corporate debts, and that Schulman had never been retained to perform legal work for the corporate defendant. Ultimately, the parties stipulated that the judgment would stand as security pending resolution of the action, that Dr. Luryi would waive any objections to personal jurisdiction, and that Dr. Luryi would serve and file an answer to the complaint. In his answer, Dr. Luryi asserted two counterclaims against Schulman, and, along with his answer, he served Schulman with a demand for a verified bill of particulars and a notice to produce for discovery and inspection. Subsequently, Dr. Luryi moved for an order dismissing the complaint and vacating the judgment against him, based upon Schulman's failure to respond to the demand for the bill of particulars and notice to produce. He also sought an order granting him a default judgment on the two counterclaims asserted against Schulman due to Schulman's failure to serve a reply to the counterclaims. The court dismissed the counterclaims but granted that branch of Dr. Luryi's motion which sought to dismiss the complaint based on Schulman's failure to respond to his discovery demands, unless Schulman served and filed a bill of particulars and responded to Dr. Luryi's notice to produce within 20 days of the mailing of the order. When Schulman still failed to respond to the discovery demands, Dr. Luryi again moved for dismissal of the complaint and vacatur of the default judgment entered against him, as well as for the imposition of sanctions and costs pursuant to Part 130 of the Rules of the Chief Administrator (22 NYCRR 130-1.1 et seq.), alleging that Schulman had engaged in frivolous conduct, in that it had falsely asserted that Dr. Luryi had retained the firm. Moreover, despite its knowledge that there had never been any basis to hold Dr. Luryi individually liable for the debts of the corporation, Schulman nonetheless pursued the action against him. Although Schulman opposed the motion, it neither addressed Dr. Luryi's contentions nor mentioned its failure to respond to Dr. Luryi's discovery demands. The court granted Dr. Luryi's motion, dismissing the complaint against him, vacating the default judgment previously entered against him, and ordering a sanctions hearing.
Both Mr. Schulman and Dr. Luryi testified at the hearing. Mr. Schulman testified that Philip Braginsky, who was no longer associated with his firm, had told him that Dr. Luryi was responsible for the corporate debts. Dr. Luryi denied the allegation. Mr. Schulman did not subpoena Mr. Braginsky to testify in plaintiff's behalf. Nor did he offer an affidavit from Mr. [*3]Braginsky or any documentation in support of plaintiff's claim. The court found that plaintiff had engaged in frivolous conduct within the meaning of 22 NYCRR 130-1.1, in that there was no legal or factual basis for plaintiff's having instituted the action against Dr. Luryi. The court stated that it should have been clear to plaintiff that Dr. Luryi had no personal liability for the obligations of the corporate defendant. Nevertheless, even after Dr. Luryi's lack of responsibility for the corporate obligations was manifestly brought to plaintiff's attention, and the lack of a legal and factual basis became or should have become apparent to plaintiff, the action was continued and pursued. The court did not impose sanctions against plaintiff, but instead awarded Dr. Luryi costs in the form of attorney's fees in the sum of $15,221.48. A judgment in the principal sum of $15,221.48 was entered, in Dr. Luryi's favor, and plaintiff appealed.
At the outset, we note that we reject Dr. Luryi's contention that the appeal must be dismissed. Defendant Luryi argues that plaintiff waived its right to appeal from the judgment by entering into a stipulation after judgment was entered in which plaintiff agreed to pay Dr. Luryi the amount of the judgment. However, the stipulation merely set forth the means by which plaintiff was to satisfy the judgment, and nowhere in the stipulation did plaintiff agree not to pursue the appeal. The payment of a judgment by a party against whom a judgment has been rendered does not terminate that party's right to appeal unless payment is made by way of compromise or agreement not to pursue an appeal (see Matter of Seagroatt Floral Co. [Riccardi], 78 NY2d 439, 448 n [1991]; Hayes v Nourse, 107 NY 577 [1887]).
In determining whether conduct is frivolous within the meaning of 22 NYCRR 130-1.1 (c), "the court shall consider, among other issues the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct, and whether or not the conduct was continued when its lack of legal or factual basis was apparent, or should have been apparent, or was brought to the attention of counsel or the party." In our opinion, the court below properly imposed costs under Part 130 of the Rules of the Chief Administrator in the form of $15,221.48 in attorney's fees against plaintiff. The verified complaint appears to have asserted material factual statements, including as to the existence of a retainer agreement between the parties, which were false (Rules of the Chief Administrator [22 NYCRR] § 130-1.1 [c] [3]; see also Bridgeport Capital Servs., Inc. v Ruby Tuesday, Inc., 6 Misc 3d 50 [App Term, 2d & 11th Jud Dists 2004]). Indeed, at no point during the litigation process or even during the sanctions hearing did plaintiff proffer either a retainer agreement or any itemized bills to demonstrate that there was a legal or factual basis for instituting the suit against Dr. Luryi. Moreover, once Mr. Schulman was informed by Dr. Luryi, as well as by three of the other founders of the corporate defendant, that Dr. Luryi was not individually responsible for the obligations of the corporate defendant, there was ample time for plaintiff to investigate whether there was a legal or factual basis for the claim. Instead, plaintiff doggedly pursued its claim, and, as a result, Dr. Luryi was forced to expend attorney's fees in order to defend the claim against him, as evidenced by the legal bills offered at the sanctions hearing. It is noted that to this date, plaintiff has proffered no nonhearsay or documentary proof in support of its allegations. Accordingly, contrary to plaintiff's contentions, the award of attorney's fees was warranted and was not excessive.
Furthermore, this court declines to grant defendant's application for the imposition of sanctions and costs, pursuant to Rules of the Chief Administrator (22 NYCRR) § 130-1.1, for [*4]plaintiff's having prosecuted the instant appeal. While it appears that plaintiff may have misled Dr. Luryi's counsel regarding its intention to bring the appeal, plaintiff's conduct in pursuing the appeal may not be characterized as frivolous within the meaning of 22 NYCRR 130-1.1, since not all of the points raised on the appeal were baseless or completely devoid of merit. In view of the lengthy history of this litigation, however, costs on appeal are awarded to Dr. Luryi, pursuant to UDCA 1910 (a) (2).
Rudolph, P.J., McCabe and Tanenbaum, JJ., concur.
Decision Date: November 21, 2007
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