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Sanford v. Bracewell & Guiliani, LLP

United States District Court, E.D. Pennsylvania

March 20, 2014

CRAIG SANFORD and MARY JO SANFORD, Plaintiffs,
v.
BRACEWELL & GUILIANI, LLP, Defendant

Page 569

[Copyrighted Material Omitted]

Page 570

For CRAIG SANFORD, MARY JO SANFORD, Plaintiffs: CLIFFORD E. HAINES, LEAD ATTORNEY, DANIELLE M. WEISS, HAINES & ASSOCIATES, PHILADELPHIA, PA.

For BRACEWELL & GUILIANI, LLP, Defendant: PETER C. BUCKLEY, LEAD ATTORNEY, FOX ROTHSCHILD, LLP, PHILADELPHIA, PA; STEVEN M. SCHNEEBAUM, LEAD ATTORNEY, PRO HAC VICE, FOX ROTHSCHILD LLP, WASHINGTON, DC.

OPINION

Page 571

Slomsky, J.

TABLE OF CONTENTS

I. INTRODUCTION

II. FINDINGS OF FACT

A. Events Leading To the Hiring of Defendant

B. Defendant is Retained as Counsel

III. STANDARD OF REVIEW FOR EVALUATING A MOTION TO COMPEL

ARBITRATION

IV. CRAIG SANFORD'S CLAIMS MUST BE PURSUED IN ARBITRATION WHILE

MARY JO SANFORD IS ENTITLED TO A JURY TRIAL ON WHETHER SHE IS

A CLIENT OF THE FIRM AND ON THE ARBITRABILITY OF HER CLAIMS

A. Craig Sanford is Bound by the Arbitration Agreement

1. Applicable Standard of Review

2. The Complaint and Supporting Documents Establish tat Craig Sanford

Entered Into a Binding Arbitration Agreement with Defendant

a. The Federal Arbitration Act

b. The Federal Arbitration Act as Applied to Craig Sanford

c. Arbitration Clauses in Fee Agreements

d. The Arbitration Agreement is Enforceable Against Craig Sanford

B. Mary Jo Sanford is Entitled to a Jury Trial to Determine Whether She is

a Client of the Firm and Whether She is Required to Arbitrate Her Claims

1. Applicable Standard of Review

2. Issues of Fact Exist as to Whether Mary Jo Sanford is a Client of

the Firm and Whether She is Required to Arbitrate Her Claims

V. CONCLUSION

I. INTRODUCTION

Under the guise of moving money to an offshore bank account, purported Navy Seal and CIA operative Jamie Smith absconded with $12.5 million belonging to Craig and Mary Jo Sanford (" Plaintiffs" ). To investigate the fraud perpetrated by Smith on Plaintiffs and to recover their funds, Plaintiffs hired the law firm of Bracewell & Guiliani (" Defendant" or " the Firm" ). The Firm, however, failed to locate Smith or any of Plaintiffs' money. Dissatisfied with the Firm's work, Plaintiffs terminated the relationship and hired a new attorney. This attorney was able to locate Smith but failed to recover any money.

On February 8, 2013, Plaintiffs brought suit against Defendant in the Court of Common Pleas of Bucks County, Pennsylvania for professional negligence and breach of contract. Plaintiffs allege that the Firm failed to properly investigate Smith and the whereabouts of their money, thereby delaying their ability to find Smith and, ultimately, to recover their funds. Plaintiffs are suing for damages for the unrecovered funds.

On March 6, 2013, Defendant removed the case to this Court. (Doc. No. 1.) On

Page 572

March 13, 2013, Defendant filed a Motion to Stay Pending Arbitration pursuant to § 3 of the Federal Arbitration Act. 9 U.S.C. § 3. (Doc. No. 3.) In the Motion, Defendant argues that the Firm established an attorney-client relationship with Craig Sanford when he signed the Firm's engagement letter. Defendant further argues that the engagement letter contains an enforceable arbitration clause covering all matters arising out of the Firm's representation. For this reason, Defendant contends that the Federal Arbitration Act requires that Craig Sanford's claim be stayed pending the outcome of arbitration. As to Mary Jo Sanford, Defendant claims that she was never a client of the firm, but that if she was, she too would be bound by the arbitration clause.

Hearings on the Motion to Stay Pending Arbitration were held on May 2, 2013, July 15, 2013, July 31, 2013, and September 18, 2013. After extensive briefing and oral argument, Defendant's Motion is now ripe for disposition.[1] For reasons that follow, the Court will stay Craig Sanford's claims pending the outcome of arbitration, but will allow Mary Jo Sanford's claims to go forward in this Court with a jury trial to determine whether she was a client of the firm, and if so, whether she is required to arbitrate her claims.

II. FINDINGS OF FACT

A. Events Leading To the Hiring of Defendant

Plaintiffs are husband and wife and reside in Bucks County, Pennsylvania. (Doc. No. 1-1 at 15.) Plaintiffs owned and operated a medical waste disposal business for a number of years until they sold the business for over $14 million in 2005. Id. After the sale, Plaintiffs sought to move $12.5 million to an offshore bank account. Id.

In September 2007, Craig Sanford met Jamie Smith through a mutual acquaintance. (Doc. No. 1-1 at 16.) Smith claimed to be the owner and CEO of the corporate entity SCG International, LLC (" SCG" ). Id. Smith also professed to be a former Navy Seal, Harvard graduate, and CIA operative. Id. For a small service charge, Smith offered to place Plaintiffs' money in an offshore interest-bearing account and to return it to them in eighteen months. Id.

In November 2007, Plaintiffs transferred the $12.5 million to Smith and/or SCG. Id. Plaintiffs were to earn interest on the money until it was repaid on May 27, 2009. Id. Smith provided Plaintiffs with a promissory note to document the transaction. (Id. at 17, 27.) During the term of the note, Craig Sanford repeatedly attempted to contact Smith to confirm that the money

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was secure. (Id. at 17.) Sanford was unable to reach Smith for over eighteen months. Id. In the spring of 2009, Smith's attorney contacted Sanford to advise him that Smith wished to renegotiate a payback agreement with Plaintiffs. Id. At that point, Sanford demanded return of the full $12.5 million. When the note came due in May 2009, Plaintiffs received neither payback of their money nor a new payback agreement. Id. The Sanfords then sought legal counsel to help them recover their money.

B. Defendant is Retained as Counsel

The events surrounding the retention of the Firm begin in the summer of 2009. At that time, while vacationing in the Pocono Mountains, Craig Sanford spoke with his neighbor, David Stockwell, about his problems with Smith and the failed attempts to recover his money. (Id. at 18.) Stockwell is a partner in the Firm's New York and Dubai offices. Id. According to the Complaint, Stockwell " assured [Plaintiffs] that his firm would be able to assist them in getting a return of their money from Smith and/or SCG." Id. After their initial conversation, Mr. Sanford participated in a conference call with Stockwell and his partner, Jonathan Halpern. (Doc. No.16 at 36:15-19.) Halpern is a partner in Defendant's New York office and specializes in white collar criminal defense work. (Doc. No. 24 at 42:20-23; 45: 9.) During the call, Mr. Sanford was informed that the Firm would require a retainer fee of $50,000 for their representation.

At some point after this call, Plaintiffs gave Stockwell a check for $50,000 drawn from their joint bank account. Mrs. Sanford testified that she personally wrote the check and handed it to Stockwell. (Id. at 89:2-5; 93:13-15.) Mrs. Sanford testified that after Stockwell received the retainer, he told her that " [Bracewell & Giuliani] would take the case. We will find your money. . . . We will start the proceedings to get your money . . . ." (Id. at 94:8-11.) She described this conversation as an " oral agreement" that the firm would represent both herself and her husband in their efforts to locate and recover their money. (Id. at 92:7-11; 94:23.)

On September 9, 2009, attorney Halpern sent Mr. Sanford an engagement letter (" Engagement Letter" or " Letter" ). The Letter was addressed only to Mr. Sanford and stated that he was the client of the firm.[2] (Doc. No. 1-1 at 32.) Attached to the Letter was a document titled " Bracewell & Giuliani LLP Terms of Engagement," which contained the following section:

Client of the Firm
Since B& G has been engaged to represent the client only, the engagement does not include the client's affiliated or related entities, or their respective individual partners or employees.
* * *
For example . . . for individuals, our representation does not include employers, partners, spouses, siblings, or other family members. In the event we are asked to undertake representation of any other entity in connection with this engagement, we will do so only by agreement defined in the Engagement Letter.

(Id. at 36.)

The Engagement Letter also contained the following arbitration clause, which is set forth in pertinent part:

Agreement Concerning Arbitration
Client and B& G agree that any controversy, dispute or claim, including any

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dispute as to B& G's fees for legal services, arising out of or relating to the engagement described in this Engagement Letter or any future engagement of B& G, shall be resolved by arbitration in New York County before the International Institute for Conflict Prevention and Resolution (the " IICPR" ), an arbitral forum outside Part 137 of the Rules of the Chief Administrator of the Courts (22 NYCRR). Such arbitration shall be governed by IICPR Rules for Non-Administered Arbitration (the " IICPR Rules" ).
* * *
By signing this Engagement Letter, Client and B& G agree to waive their rights with regard to arbitration pursuant to Part 137, which includes the right to reject the arbitrator's award by commencing an action on the merits (trial de novo) in a court of law.
* * *
Client and B& G acknowledge that by entering into this agreement, they waive their rights to a trial by jury and the procedural rights related thereto.
* * *

Consultation with Independent Counsel

Under the terms of this Engagement Letter and the attached Terms of Engagement, Client has specific obligations to B& G (for example the obligation to provide complete and accurate information to the firm). Moreover, there are limits to the rights that Client might otherwise have (for example the agreement to resolve any dispute with B& G by arbitration rather than by jury trial). If you wish to obtain independent advice concerning these or any other provisions of this Engagement Letter or Terms of Engagement, we encourage you to contact counsel of your choice.

Please call me if you wish to discuss any aspect of this engagement.
If this letter and the Terms of Engagement accurately reflect our agreement, please sign the enclosed copy of this letter and return it to me.

(Id. at 34-35.)

Mr. Sanford signed the Engagement Letter sometime between September 9, 2009 and December 8, 2009.[3] Mrs. Sanford testified that she never read the Engagement Letter or knew of its existence. (Doc. No. 24 at 89:12-19; 90:1-7.)

On or about March 22, 2010, Craig Sanford terminated the representation. (Doc. No. 1-1 at 18.) According to Plaintiffs, the legal work done by Defendant was " incomplete, inconclusive, and inadequate." Id. They claim that Defendant " failed to employ the necessary and appropriate legal skill to obtain a return of [Plaintiffs'] money." (Id. at 18-19.)

Following the termination, Plaintiffs hired another attorney who successfully located Smith. (Id. at 19.) By the time Smith was discovered, however, he had disposed of the funds. (Id. at 20.) Plaintiffs argue that " as a result of the firm's failure to locate and secure [their] money, Smith was able to control it into 2012 and dissipate the funds entirely." (Id.) Plaintiffs have yet to recover any portion of the $12.5 million. (Id.)

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As noted previously, on February 8, 2013, Plaintiffs brought suit against Defendant in the Court of Common Pleas of Bucks County, Pennsylvania for professional negligence and breach of contract. On March 6, 2013, Defendant removed the case to this Court. (Doc. No. 1.) On March 13, 2013, Defendant filed the pending Motion to Stay Pending ...


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