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Klehr, Harrison, Harvey, Branzburg & Ellers LLP v. Spencer Trask Specialty Group

October 6, 2009

KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP,
v.
SPENCER TRASK SPECIALTY GROUP, LLC



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM AND ORDER

This is a contract dispute brought by a law firm against a former client over an alleged failure to pay a bill for legal services. It was removed to this Court on June 2, 2008, and designated for non-binding arbitration under this Court's Local Rule 53.2. In the intervening sixteen months, arbitration and pre-arbitration discovery have been repeatedly delayed because of difficulties that the defendant, Spencer Trask Specialty Group, LLC, ("Spencer Trask Specialty"), has had in retaining counsel.

On September 15, 2009, the Court ordered Spencer Trask Specialty to obtain new counsel by September 29, 2009, and warned that if counsel were not retained, the Court would consider the plaintiff's motion for discovery sanctions, which sought to strike Spencer Trask Specialty's defenses and have judgment entered in the plaintiff's favor. In a letter dated September 30, 2009, Spencer Trask Specialty informed the Court that it would not be able to obtain counsel to represent it in this action, but asked that sanctions not be imposed. After considering the parties' arguments and the factors set out in Poulis v. State Farm Fire & Casualty Co., 747 F.2d 863 (3d Cir. 1984), the Court concludes that judgment should be entered against the plaintiff and in favor of the defendant.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This action was filed by plaintiff Klehr, Harrison, Harvey, Branzburg & Ellers LLP ("Klehr Harrison") in the Court of Common Pleas of Philadelphia County on April 28, 2008. The complaint alleged that defendant Spencer Trask Specialty had breached a contract for legal services with Klehr Harrison by failing to pay an invoiced amount of $94,432.23. The complaint also sought interest of 1% per month, as allowed under the parties' contract, amounting to an additional $4,077.94 as of April 28, 2008, for a total of $98,510.17. Compl. ¶¶ 3-9.

Spencer Trask Specialty removed the case to this Court on June 2, 2008, on the basis of diversity jurisdiction. On its own motion, the Court required supplemental submissions by the parties concerning the citizenship of each defendant. In a Memorandum and Order, filed under seal on August 22, 2008, the Court found that it had jurisdiction over this action and, in a subsequent order issued November 19, 2008, scheduled this case for an arbitration hearing to take place on March 19, 2009.

On December 30, 2008, counsel for Spencer Trask Specialty moved to withdraw. After a hearing on January 21, 2009, the Court granted counsel leave to withdraw and referred the case for a settlement conference.

On February 10, 2009, Klehr Harrison moved to compel responses from Spencer Trask Specialty to its interrogatories and requests for production, which had been served December 24, 2008, but to which Spencer Trask Specialty had not responded. The Court granted the motion on February 11, 2009, ordering Spencer Trask Specialty to respond on or before February 23, 2009. On February 25, 2009, Klehr Harrison moved for sanctions because Spencer Trask Specialty had failed to respond to discovery and had failed to produce a 30(b)(6) witness who had been noticed for a deposition on February 23, 2009.

The Court held a status conference with counsel for the plaintiff and a representative of Spencer Trask Specialty on March 13, 2009, to discuss the motion for sanctions. After the conference, the Court postponed the scheduled arbitration hearing for sixty days to allow defendant Spencer Trask Specialty to obtain counsel and respond to discovery. The Court denied Klehr Harrison's motion for sanctions, but did so without prejudice to its ability to file a later sanctions motion if Spencer Trask Specialty continued to fail to respond to discovery. The arbitration hearing was subsequently rescheduled for May 19, 2009.

On May 11, 2009, Klehr Harrison filed a second motion for sanctions on the ground that Spencer Trask Specialty had failed to comply with this Court's Order of March 13, 2009, because no counsel for Spencer Trask Specialty had as yet entered their appearance and Spencer Trask Specialty had still not responded to Klehr Harrison's interrogatories or requests for production or produced a witness for a 30(b)(6) deposition. As a sanction, Klehr Harrison sought entry of judgment in its favor in the amount of $98,510.17.

The Court held telephone conferences on May 12 and May 15, 2009, to discuss the issues raised by Klehr Harrison's sanctions motion. The May 12, 2009, conference was attended by counsel for Klehr Harrison and a representative and an in-house lawyer for Spencer Trask Specialty. At that conference, the representatives for Spencer Trask Specialty stated the company's desire to proceed with arbitration. The Court explained that, because Spencer Trask Specialty was an artificial entity, it could not appear pro se in federal court, but could appear only through licenced counsel.*fn1 Because in-house counsel for Spencer Trask Specialty was not licenced in this district, the Court explained that it would have to retain local counsel before in-house counsel could appear pro hac vice.*fn2

The representatives for Spencer Trask Specialty stated that they were unsure whether the company could afford to retain counsel, as it was now insolvent. The Court noted that Spencer Trask Specialty would have to make a business decision as to whether its continued defense of this action was worth the cost of the required counsel. The Court adjourned the May 12 teleconference to allow Spencer Trask Specialty to consider the issue and scheduled another conference on May 15. The Court warned in closing that Spencer Trask Specialty had "to see what you all want to do, knowing that if I don't get counsel and this time keeps going, you're eventually going to get a judgment against you because I'm not going to have a choice." 5/12/09 Tr. at 17.

At the subsequent call on May 15, 2009, counsel for both parties told the Court that Spencer Trask Specialty had provided some documents in response to Klehr Harrison's outstanding requests and was preparing responses to interrogatories, but that Spencer Trask Specialty intended to obtain counsel, but would be unable to do so before the scheduled arbitration date. At the parties' suggestion, the Court entered an order on May 15, 2009, postponing the arbitration and giving Spencer Trask Specialty one week to obtain counsel and stating that, if counsel were not retained, the Court would proceed to decide Klehr Harrison's motion for sanctions.

New counsel for Spencer Trask Specialty entered his appearance on May 21, 2009, and the Court held another status conference with counsel on May 28, 2009. After this conference, the Court entered an order requiring Spencer Trask Specialty to respond to discovery on or before June 19, 2009, requiring Spencer Trask Specialty's 30(b)(6) witness to be deposed on or before July 6, 2009, and scheduling arbitration for the last week of July. In this order, the Court ...


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