The opinion of the court was delivered by: POLLAK
This case arises out of two previous pieces of litigation. The first was an action brought in federal court in New Jersey by Lightning Lube, Inc. against Witco Corporation, in which Lightning Lube alleged violations of RICO and federal antitrust law, as well as fraud, breach of contract, and tortious interference.
In that action, Lightning Lube was represented by Steven Kramer and Jeffrey Nowak of the law firm Steven M. Kramer & Associates. Lightning Lube ultimately recovered a judgment in the sum of $ 11.5 million. The second action was a malpractice suit brought by Ralph Venuto, Lightning Lube's President, against Mr. Kramer. This action, apparently, was resolved through arbitration. Although the parties to the present lawsuit have not submitted any description or documentation of the malpractice action, and thus this court does not know the scope of the issues involved or whether it was submitted to court-annexed or private arbitration, the action appears to have focused on an allegation that Kramer negligently represented Lightning Lube, preventing it from recovering a significantly larger judgment in its suit against Witco. According to Kramer, the malpractice claim resulted in an arbitral award against him in the sum of $ 440,000.
Following Kramer's defeat in the malpractice action, he filed the present action, a suit against his former associate Jeffrey Nowak. The complaint asserts federal jurisdiction on the basis of diversity of citizenship, in that Kramer is domiciled in New York and Nowak is domiciled in Pennsylvania. The complaint alleges that the arbitral judgment "was based upon conduct engaged in by Mr. Nowak while he was an independent contractor for the plaintiff in the case entitled Lightning Lube, Inc. v. Witco Corp., 802 F. Supp. 1180 (DNJ). The conduct consisted of miscalculation of prejudgment interest." Complaint, P 5. Based on this description of Nowak's alleged misconduct, Kramer asserts a claim for contribution, in which Kramer seeks to shift a portion of the arbitral award onto Nowak. Kramer further asserts claims for negligence and for breach of contract.
On its face, Nowak's motion appears to seek dismissal under Rule 12(b)(6) on each of the claims, while seeking summary judgment under Rule 56 solely on the issue of whether Nowak was Kramer's employee. Despite this appearance, Nowak has submitted numerous exhibits, including several affidavits and various documents, which he relies on in support of his arguments for dismissal of the individual claims. Under Rule 12, these exhibits are material only if the motion to dismiss is converted into a motion for summary judgment. Rule 12 provides:
If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
It is possible that Kramer construes Nowak's motion as seeking summary judgment on all claims, not merely the independent contractor issue. In opposing the dismissal of the individual claims, Kramer, too, relies on the exhibits submitted by Nowak. Moreover, Kramer has submitted an affidavit of his own, which he relies on in opposition to all of Nowak's arguments. This affidavit, however, is the only submission Kramer has produced. Under the circumstances, in which it is unclear whether the movant intended to seek dismissal or summary judgment, and in which it is similarly unclear how the motion was construed by the nonmovant, I believe that the best course is to follow the dictates of Rule 12 and to notify the parties that I intend to treat the motion as one for summary judgment. Kramer will have two weeks following the issuance of this opinion in which he may, if he so elects, submit (1) a further response to the motion and (2) additional exhibits and affidavits.
Because both parties treated the motion as seeking summary judgment, not dismissal, on the independent contractor issue, this issue is now ripe for resolution, and I address it below. In addition, I discuss the doctrinal framework which -- as I currently understand the matters in dispute -- seems likely to provide the setting for the disposition of the remaining issues in the case.
The factual allegations contained in the complaint are extremely skimpy, consisting of the single sentence quoted in full above: "The conduct consisted of the miscalculation of prejudgment interest." Nonetheless, affidavits submitted by both parties flesh out the background and details of this event.
According to Nowak, the two parties first met in July 1988, while Nowak was in his final semester at Rutgers University Law School in Newark, New Jersey. Kramer was a practicing lawyer with offices in Philadelphia and New York and had placed an advertisement seeking a law student to work on a large antitrust matter -- Lightning Lube, Inc. v. Witco Corp. -- pending in federal court. Nowak responded to the advertisement, was interviewed by Kramer in Kramer's Philadelphia office, and was hired by Kramer. At Kramer's instruction, Nowak then began working out of the client's office in Mt. Laurel, New Jersey. Nowak worked at Lightning Lube's office from June 1988 until shortly after the conclusion of the litigation sometime in 1993 or 1994.
Among the many papers Nowak prepared for the Lightning Lube litigation was a motion for prejudgment interest. This motion was prepared after the jury returned a judgment of approximately $ 11.5 million in compensatory damages and $ 50 million in punitive damages in favor of Lightning Lube. Both Kramer and Nowak agree that Kramer instructed Nowak to prepare the motion. Kramer claims that he "completely delegated the task to Mr. Nowak." Plaintiff's Ex. 1, P 2. Nowak disputes this characterization:
I prepared a draft of the Motion and faxed it, and a copy of the underlying New Jersey authority, . . . to Mr. Kramer for his review and approval. Mr. Kramer reviewed the Motion and approved of the prejudgment interest figure and method of calculation. Moreover, Mr. Kramer was fully aware of New Jersey's Rules of Civil Procedure regarding pre and post judgment interest rates and the method of calculation.
Def.'s Reply Certification, P 4. Despite the disagreement over the degree of supervision exerted by Kramer over the prejudgment interest motion, it is agreed that Kramer directed Nowak to prepare it. Further, the motion bears Kramer's name, Nowak having signed it, as was the usual procedure between them.
The motion prepared by Nowak sought approximately $ 4 million in prejudgment interest. It was submitted while Witco's motion for judgment as a matter of law was pending. In an opinion addressing Witco's motion, Judge William G. Bassler of the District of New Jersey reduced the damages award, declining to accept the punitive damages award and cutting down the compensatory damages award by $ 2 million. As a result of these decisions, Judge Bassler approved prejudgment interest in the amount of $ 2 million, rather than the $ 4 million requested by Lightning Lube. Lightning Lube, Inc. v. Witco Corp., 802 F. Supp. 1180, 1203 (D.N.J. 1992). Represented by Kramer, Lightning Lube appealed several aspects of the district court ruling, but did not appeal the determination of prejudgment interest. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993).
IV. The Relationship Between Kramer and Nowak
Kramer's complaint characterizes Nowak as an independent contractor. Nowak has moved for summary judgment on the ground that he was Kramer's employee, not an independent contractor. According to Nowak's memorandum in support of this motion, "Plaintiff's entire action is premised upon a theory that the Defendant was an independent contractor hired by the Plaintiff. Plaintiff's entire claim rises or falls on this legal theory." Def.'s Mem., at 15. No authority was cited by either party to explain the legal consequences that flow from Nowak's status as an independent contractor or, in the alternative, as an employee. Accordingly, on September 22, I directed the parties to supplement their memoranda to explain the importance of this distinction. Although I conclude that Nowak has established that he was Kramer's employee, the additional materials submitted by the parties persuade me that this conclusion does not mandate dismissal.
A federal court sitting in diversity must apply the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). I therefore apply Pennsylvania choice-of-law rules to the determination of Nowak's employment status. The relationship between the parties -- under either the independent contractor theory or the employee theory -- was contractual in nature. Under Pennsylvania's choice-of-law principles for contract disputes, the state with the greatest interest in the controversy, and which is most intimately concerned with the outcome, provides the substantive law governing the dispute. See In re Complaint of Bankers Trust Co., 752 F.2d 874, 881-82 (3d Cir. 1984). In making this determination, a court must examine the following three factors: "(1) the place of negotiation, contracting, and performance of the contract in question; (2) the location of the subject matter of the contract; and (3) the parties' citizenship." Shannon v. Keystone Information Systems, Inc., 827 F. Supp. 341, 343 (E.D. Pa. 1993) (citing Reading Metal Craft Co. v. Hopf Drive Associates, 694 F. Supp. 98, 104 (E.D. Pa. 1988)).
The first of these three factors favors New Jersey. On the record that has been established, it is unclear where the contract was formed. It was advertised in New Jersey, while the interview took place in Pennsylvania. Nonetheless, it was Kramer's intention that Nowak work on the litigation at Lightning Lube's office in New Jersey. Thus, New Jersey was the site of performance of the contract. The second factor also favors New Jersey. The subject of the contract was the Lightning Lube litigation, a case filed in federal court in New Jersey by a New Jersey corporation. The third factor favors neither party, in that Kramer is a resident of New York, while Nowak is a resident of Pennsylvania. On these facts, it is clear that New Jersey law governs the nature of the contract between the parties. New Jersey has a strong interest in having its law govern a relationship such as this one that was centered primarily in New Jersey. In contrast, the two other states with relevant contacts -- Pennsylvania and New York -- have far weaker interests. Pennsylvania's only contacts are that Nowak is now a Pennsylvania resident and that the original interview between the parties occurred in Pennsylvania. Kramer's law firm, Steven M. Kramer & Associates, has a Philadelphia office, but it also has offices in New Jersey and New York. Kramer may have performed some of his work on the Lightning Lube litigation from the Philadelphia and New York offices, but this fact is largely irrelevant to the contractual relationship between Kramer and Nowak, which focused on Nowak's work in New Jersey.
B. Application of New Jersey Law
Under New Jersey case law, "An independent contractor is one who, carrying on an independent business, contracts to do a piece of work according to his own methods and without being subject to the control of his employer as to the means by which the result is to be accomplished but only as to the result of the work." Wilson v. Kelleher Motor Freight Lines, Inc., 12 N.J. 261, 96 A.2d 531, 533 (N.J. 1953). In contrast, "the relationship of master and servant exists 'whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished, or in other words, not only what shall be done, but how it shall be done.'" Id. (quoting Cappadonna v. Passaic Motors, Inc., 136 N.J.L. 299, 55 A.2d 462 (N.J. Super. Ct. 1947)). In short, "the determinative factor, according to all the adjudications, is the control retained." Id.
Nowak has produced considerable evidence that Kramer maintained control over Nowak's work. According to Nowak, Kramer required that he keep a log of the work he did for Lightning Lube and that Nowak fax this log to Kramer daily. Kramer also required that Nowak show him drafts of all work he prepared. Further, Nowak has introduced copies of written instructions given to him by Kramer, explaining how he was to proceed on different projects. Def.'s Ex. C-1, C-2, C-3, E-1, E-2, F-1, and F-2. Moreover, the letterhead for Steven M. Kramer & Associates listed Nowak as his "associate," and Kramer told both Lightning Lube and Judge Bassler that Nowak was his associate. Def.'s Ex. F-9, F-10, F-15, F-16, and F-36. A law firm associate is generally considered the firm's employee. See Leonard Gross, ...