Sue One Firm, Arbitrate With The Other

in a huge note-issuance transaction, Stonebridge Capital LLC hires Brown Rudnick LLP to prepare the documents.  The attorney handling the case moves from BR to Stroock & Stroock & Lavan LLP and, of course, the transaction goes sour.  The wrinkle here is that BR and a typical retainer agreement with plaintiff while SS&L had an arbitration clause in theirs.

How to proceed?  In Stonebridge Capital, LLC v Brown Rudnick LLP  2014 NY Slip Op 32174(U)
August 12, 2014  Sup Ct, NY County  Docket Number: 152259/2012  Judge Eileen A. Rakower decided to allow the Plaintiff to arbitrate with SS&L first, and then if necessary, litigate with BR.

Brown Rudnick's third-party complaint alleges that that Brown Rudnick "continuously represented" Plaintiff through the Transaction's closing, and that,  "when [Plaintiff] retained [Brown Rudick] to provide legal services in connection  with the Transaction, attorney Boris Ziser ("Ziser"), then a partner of [Brown  Rudnick], was responsible for providing those services to Plaintiff." Brown
Rudnick's third-party complaint further alleges that, on or about June 4, 2007, Ziser left Brown Rudnick to join Stroock, as a partner. The third-party complaint alleges that, Ziser, in his capacity as a partner for Stroock, also continued to represent Plaintiff in the Transaction, from the time Ziser joined Stroock through the Transaction's closing, that Ziser, in his capacity as a partner for Stroock, actively participated in the negotiation and drafting of the final versions of documents for the
Transaction. Brown Rudnick claims that Stroock had an attorney-client relationship with Plaintiff, that Plaintiff executed the final documents for the Transaction on Stroock's advice, and that, as a result, Stroock is responsible for any alleged negligence or malpractice respecting the transaction.

The Statement of Claim alleges that Plaintiff incurred damages, "[a]s a direct and proximate result of the negligence of [Stroock] in connection with the advice, drafting, negotiation, preparation, editing and review of the Transaction documents." CPLR § 2201 provides, "[e]xcept where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just."

Here, Brown Rudnick and Stroock do not dispute that both law firms represented Stonebridge in connection with the Transaction, or that the Arbitration relates to the legal advice and services that Plaintiff allegedly received in connection with the Transaction. Although Brown Rudnick is not a signatory to the arbitration agreement between Stroock and Stonebridge, a stay of litigation that includes non-signatories to the subject arbitration agreement may be appropriate where "the
determination of the pending arbitration proceeding may well dispose of or limit the
issues to be determined in this action." (Oxbow Calcining USA Inc. v. American Indus. Partners, 96 A.D.3d 646, 652 [1st Dep't 2012])."

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