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Exhibit E
FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023
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THE ARBITRATION TRIBUNALS OF THE
AMERICAN ARBITRATION ASSOCIATION
NAPOLI SHKOLNIK, PLLC and MANSON Case No. 01-22-0004-6761
JOHNSON CONNER PLLC,
Claimants,
-vs-
UPFRONT MEGATAINMENT, INC., f/k/a
UPFRONT ENTERTAINTMENT, INC. and
DARRICK STEPHENS p/k/a DEVYNE
STEPHENS,
Respondents.
RESPONDENTS’ ANSWERING STATEMENT
By: MITCHELL SILBERBERG & KNUPP LLP
Jeffrey M. Movit (jmm@msk.com)
Elaine Nguyen (eln@msk.com)
437 Madison Avenue, 25th Floor
New York, New York 10022
Tel.: (212) 509-3900
Fax: (212) 509-7239
Attorneys for Respondents
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Respondents Upfront Megatainment Inc. (“Upfront”) and Darrick Stephens (“Stephens”)
(together, “Respondents”) assert this Answering Statement in response to the Demand for
Arbitration of Claimants Napoli Shkolnik, PLLC (the “Napoli Firm”) and Manson Johnson
Conner PLLC (together, the “Firms”). Respondents emphatically deny the allegations and
claims in the Demand for Arbitration and expressly reserve the right to assert any and all
applicable affirmative defenses. In the remainder of this Answering Statement, Respondents
explain why the Firms’ claims are precluded by res judicata and collateral estoppel, and thus
should be dismissed summarily by the Arbitrator, without the need for a burdensome and
unnecessary evidentiary hearing.
PRELIMINARY STATEMENTS
1. As the Firms are fully aware, their Demand for Arbitration is barred,
unequivocally, by the doctrines of res judicata and collateral estoppel. This is because the
Firms’ claims for fees from Respondents were already denied on the merits by the New York
County Supreme Court. Specifically, the Supreme Court held that Respondents properly
terminated the Firms for cause, because the Firms violated multiple Rules of Professional
Conduct, and thus the Firms are not entitled to further compensation from Respondents. The
Firms are bound by the holdings of the Supreme Court, and they cannot re-litigate them in this
Arbitration. 1
2. Nonetheless, the Firms commenced this Arbitration purely out of spite for their
former clients, the Respondents, and in disregard of black-letter New York law. Although the
Firms already pocketed approximately $1 million in contingent fees from Respondents since
1
In addition to res judicata and collateral estoppel, there are numerous other grounds upon
which the Demand for Arbitration fails on the merits. Respondents reserve the right to assert any
and all of these additional grounds.
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2018, they are angered that Respondents defeated their recent attempts to grab an additional,
unmerited windfall through the filing of unwarranted charging liens which the Supreme Court
properly vacated. In retaliation, the Firms persist in burdening Respondents with frivolous legal
proceedings including, without limitation, the instant Arbitration. Respondents respectfully
request that the Arbitrator summarily dismiss the Firms’ baseless claims.
3. Clearly, intervention is warranted to abate this campaign of harassment.
Accordingly, pursuant to Commercial Arbitration Rules 47(c) and 47(d)(ii), Respondents hereby
demand the attorneys’ fees and costs (including but not limited to fees paid by Respondents to
the AAA and the arbitrator) that Respondents have incurred and will incur in connection with
this Arbitration. The Firms’ prosecution of this Arbitration constitutes quintessential frivolous
conduct, because it is both legally meritless and was maliciously filed for purposes of harassment
(i.e., to force Respondents to unnecessarily incur substantial attorneys’ fees and arbitration
expenses). Thus, this Court should grant Respondents a full award of their fees and costs.
FACTUAL AND PROCEDURAL BACKGROUND
A. Origins of the Underlying Dispute
4. Respondent Stephens, a renowned music-industry executive and personal
manager, is the founder and CEO of Respondent Upfront. Non-party Aliaune Thiam p/k/a Akon
(“Akon”) is an R&B singer, who, thanks to Stephens’s management and guidance, developed
and maintained a highly successful music career.
5. In or about 2000, Stephens and Akon began working together professionally,
when Stephens signed Akon to his music production company and songs Akon recorded with
Stephens were brought to the attention of Universal’s Imprint SRC Records. On or about
September 18, 2006, Upfront and Akon entered into an operating agreement (the “Operating
Agreement”) to operate a limited liability company called Upfront/Konvict for purposes set forth
2
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more fully in the Operating Agreement, including but not limited to: (i) administering the
recording agreement for Akon’s recordings and the accompanying proceeds; (ii) administering a
record label agreement; and (iii) overseeing/assisting with the activities of Akon pursuant to the
recording and label agreements. .
B. Akon Improperly Refuses to Pay Respondents and Respondents Commence
the First Action against Akon
6. In or around 2017, Akon improperly refused to pay Respondents under the
Operating Agreement. Accordingly, on May 1, 2017, Upfront commenced an action against
Akon and other defendants in the Supreme Court of the State of New York (the “First Action”).
On October 23, 2017, the complaint was amended and the First Action discontinued as to all
defendants except Akon. The amended complaint asserted claims against Akon for breach of
contract, quantum merit, and unjust enrichment.
C. Respondents Are Represented in the First Action by the Napoli Firm
7. Upfront was represented in the First Action by attorney Paul Napoli of the Napoli
Firm. The Napoli Firm’s representation was memorialized by a Retainer Agreement dated April
13, 2018 (the “Retainer Agreement”). The Retainer Agreement contemplated a contingency fee
relationship as follows:
FEE PERCENTAGE: As consideration for legal services rendered
and to be rendered by the Attorneys in carrying out the purpose
hereof, Client agrees to pay Law Firm 33 1/3% (thirty-three and
one-third percent) of all amounts recovered. All, expenses, costs,
any liens and subrogation, are to be deducted after the contingent
fee is calculated.
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The Conner Firm was also purportedly a party to the Retainer Agreement, although Respondents
do not have a copy of the Retainer Agreement signed by the Conner Firm. The Conner Firm has
never appeared as counsel of record for Respondents in any action. 2
D. The Firms Violate New York’s Rules of Professional Conduct
8. The First Action was resolved pursuant to the Settlement Agreement dated
October 25, 2018. The Settlement Agreement was drafted and negotiated on behalf of Akon by
Jonathan Davis, Esq., a highly experienced entertainment litigator. In contrast, Paul Napoli
negotiated the Settlement Agreement on behalf of Respondents, even though he appeared to lack
experience with or knowledge of the complicated and highly specialized area of music
accounting—a key issue in the First Action. According to the Napoli Firm, “[t]he settlement
agreement was also vetted by co-counsel, Isaac Conner of Manson Johnson Conner, PLLC, an
experienced contract attorney.”
9. The Settlement Agreement contains two separate payment tranches. The First
Payment Tranche required Akon to pay Respondents $3.25 million pursuant to the following
schedule:
(i) Upon the full execution and delivery of this Agreement, but no later than
October 31, 2018, the amount of One Million Five Hundred Thousand
Dollars and No Cents ($1,500,000).
(ii) Not later than October 31, 2019, the amount of Five Hundred Thousand
Dollars and No Cents ($500,000).
(iii) Not later than October 31, 2020, the amount of Five Hundred Thousand
Dollars and No Cents ($500,000).
2
In 2020, the Napoli Firm briefly litigated another action on behalf of Respondents against
Akon, captioned Upfront Megatainment, Inc. et al v. Aliaune Thiam, Index No. 650398/2020
(the “Second Action”). The Second Action quickly settled, and the Conner Firm never appeared
as attorney of record in it.
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(iv) Not later than October 31, 2021, the amount of Seven Hundred and Fifty
Thousand Dollars and No Cents ($750,000).
10. The Second Payment Tranche requires Akon to pay Respondents specified
royalties for the term of four “album cycles” during which Akon is signed to a “major label.”
Most pertinent, in the event that Akon’s then-existing recording agreement with his former label
(Atlantic Records) was not amended or extended, or was earlier terminated by Atlantic,
Respondents’ entitlement to receive royalties under the Second Payment Tranche would be
applied to such number of additional album cycles between Akon and other “major” record
labels (a term undefined by the Settlement Agreement), “such that Stephens shall receive the
benefit of four album cycles in the aggregate (those album cycles with Atlantic and those with
other ‘major’ record labels).” In other words, Respondents are entitled to continue receiving
royalties under the Second Payment Tranche until such time as Akon has completed four album
cycles, in the aggregate, with Atlantic and/or with other “major” record labels.
11. Owing to the Napoli Firm’s and Conner Firm’s lack of competence, the
Settlement Agreement is rife with serious problems that continue to adversely affect
Respondents. For example, the Settlement Agreement’s use of the undefined, ambiguous term
“‘major’ record label” has given Akon an (incorrect) argument that he can avoid payments under
the Second Payment Tranche because his current label is purportedly not a “major” label, and
has given him grounds to argue that he has a counterclaim against Respondents for
approximately $100,000 in “overpayments” he made for nearly a year under the Second Payment
Tranche after signing with his new label.
12. In addition, the First Payment Tranche was to be secured by an Affidavit of
Confession of Judgment. The Settlement Agreement provided that Akon was required to sign
this Affidavit at the time the Settlement Agreement was executed. This was to allow
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Respondents, in the event of a default by Akon, to file the Affidavit and immediately execute a
judgment of $1,750,000 (less any payments made under the Settlement Agreement), plus interest
and reasonable attorneys’ fees.
13. The Napoli Firm and Conner Firm were both on notice that Akon had not signed
the Affidavit and needed to. On October 26, 2018, Akon’s attorney emailed the Napoli Firm and
Conner Firm, stating in relevant part: “The signed Confession of Judgment will be provided.
Akon must appear before a notary, which could not be accomplished yesterday.”
14. Nonetheless, the Napoli Firm and Conner Firm failed to obtain the signed
Affidavit from Akon until 2020, two years after the Settlement Agreement was executed. By the
time Akon signed the document, New York law (specifically, CPLR 3218) changed such that
Affidavits of Confessions of Judgment like the one at issue are no longer enforceable against
non-New York residents such as Akon.
E. Respondents Commence the Third Action against Akon
15. On or about April 1, 2021, Respondents commenced a third lawsuit against Akon
in New York County Supreme Court, Upfront Megatainment, Inc. et al. v. Thiam, Index No.
652156/2021 (the “Third Action”). The Napoli Firm and the Conner Firm are not, and never
have been, attorney of record in the Third Action. Rather, at the commencement of this action,
Respondents were represented by an unrelated firm, Reitler Kailas & Rosenblatt LLP.
Respondents’ original complaint in the Third Action did not seek any payments under the First
Payment Tranche, given that, at the time of commencement, Akon was up-to-date on the
payments due under the First Payment Tranche. Rather, the original complaint solely asserted
claims for payment under the Second Payment Tranche, given that, since January 2020, Akon
improperly has failed (and continues to fail) to make any further payments under the Second
Payment Tranche.
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F. The Napoli Firm Waived Its Right to a Contingent Fee from Proceeds
Obtained by Respondents in the Third Action
16. In late 2020, Paul Napoli of the Napoli Firm agreed in writing with Respondents
that another law firm would recover further funds owed by Akon under the Settlement
Agreement. Thus, the Napoli Firm waived any claim to a contingency payment from the Third
Action.
17. The material facts are as follows: By late 2020, Akon owed substantial sums to
Respondents under the Settlement Agreement. Given the Napoli Firm’s lack of experience with
the music industry, Stephens asked Mr. Napoli in writing in November 2020 if Respondents
could “bring in a different law firm in this matter” that was “an expert” in music publishing to
assert claims against Akon. Mr. Napoli responded in writing: “Go ahead.” Crucially, Mr.
Napoli did not inform Respondents that his firm would nonetheless seek a contingency payment
for any recovery on claims that would be solely prosecuted by Respondents’ new lawyer. Based
upon Mr. Napoli’s conduct, Stephens reasonably believed that the Napoli Firm would not seek
any portion of payments recovered by another law firm.
18. With Mr. Napoli’s blessing, Respondents hired a new lawyer, Paul LiCalsi, of the
firm Reitler Kailas & Rosenblatt LLP. Mr. LiCalsi commenced this lawsuit but was later
replaced by the undersigned counsel at Mitchell Silberberg & Knupp LLP.
G. Respondents Terminate the Napoli Firm and the Conner Firm for Cause
19. On January 13, 2022, the undersigned sent a letter to the Napoli Firm enclosing a
letter from Stephens terminating Respondents’ engagement of both the Napoli Firm and the
Conner Firm.
H. The Supreme Court Holds That the Napoli Firm Was Terminated for Good
Cause, and Thus It Is Not Entitled to a Charging Lien or Other
Compensation
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20. On March 7, 2022, Respondents, through the efforts of their current counsel at
Mitchell Silberberg & Knupp LLP, moved for an attachment against Akon of the $750,000 due
under the First Payment Tranche (plus an additional $100,000 in attorneys’ fees and costs). After
the Supreme Court stated verbally at a hearing that it would grant the attachment, Akon agreed to
pay $850,000, which was received by Akon’s counsel on April 13, 2022.
21. After Akon made a $750,000 payment to Respondents, the Napoli Firm filed an
improper charging lien (the “Napoli Charging Lien”) with the New York County Supreme Court.
On June 1, 2022, the Supreme Court granted Respondents’ motion to vacate the improper Napoli
Charging Lien. In its Decision and Order, the Court correctly held that Respondents
terminated the Napoli Firm for cause, based upon its violations of the New York Rules of
Professional Conduct, thereby forfeiting its right to compensation. The Supreme Court also
held that Napoli waived his right to further compensation:
Upon the foregoing documents, it is hereby ordered that plaintiffs’
motion to vacate the charging lien of non-party Napoli Shkolnik
PLLC (“Napoli”) is granted.
In this hotly contested litigation, familiarity with which the Court
will assume, non-party Napoli, the former attorney for plaintiff,
filed a charging lien seeking to recover one-third of a $750,000
payment recently obtained by plaintiff in this action.
Plaintiff now moves to vacate Napoli’s charging lien, asserting,
inter alia, that because Napoli was terminated for cause it is not
entitled to recover any additional funds from plaintiff.
In support of its motion, plaintiff attaches an affidavit of its
principal, Darrick Stephens, who details the actions (or more aptly,
inactions) of Napoli that led to plaintiff terminating its relationship
with the firm. NYSCEF Doc. No. 121. Plaintiff asserts that Napoli
violated several New York Rules of Professional Conduct while
representing plaintiff. In particular, plaintiff asserts that Napoli
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violated Rules 1.3(a) 3, 1.3(b) 4, 1.4(a)(1)(iii), and 1.4(a)(3) 5 by
neglecting to obtain defendant’s signature on the Affidavit of
Confession of Judgment until two years after the settlement
agreement was signed, during which time such affidavits became
unenforceable under New York law against out-of-state litigants.
Napoli also failed to notify plaintiff of this dispositive change in
the law.
A client has “an absolute right, at any time, with or without cause,
to terminate the attorney-client relationship by discharging the
attorney.” Where the discharge is without cause, the attorney may
recover the reasonable value of his or her services in quantum
meruit. In contrast, “[a]n attorney who is discharged for cause...
is not entitled to compensation or a lien.” An attorney who
violates a disciplinary rule may be discharged for cause and is
not entitled to fees for any services rendered.
Schultz v Hughes, 109 A.D.3d 895, 896-97 (2nd Dep’t 2013)
(internal citations omitted).
Napoli asserts that it should be entitled to a hearing to determine
whether or not it was fired for cause. The law is clear that “[w]here
there are conflicting claims as to the whether an outgoing attorney
was discharged with or without cause, a hearing is necessary to
resolve such dispute.” Byrne v Leblond, 25 A.D.3d 640, 642 (2nd
Dep’t 2006). However, Napoli fails to submit an affidavit of
anyone with personal knowledge, namely Mr. Napoli, to rebut
plaintiffs affidavit that Napoli was fired for cause, and its failure
to do so is fatal to its claim. Zuckerman v City of New York, 49
N.Y.2d 557, 560 (1980) (“the party opposing the motion must
demonstrate by admissible evidence the existence of a factual
issue... and the submission of a hearsay affirmation by counsel
alone does not satisfy this requirement”). Accordingly, Napoli
cannot overcome plaintiff’s prima facie demonstration that the
charging lien should be vacated.
As a separate and independent ground, Napoli waived any right
it might otherwise have had to a fee and charging lien. When
plaintiff indicated that it wanted to hire a different specialized
3
Rule 1.3(a): A lawyer shall act with reasonable diligence and promptness in representing a
client.
4
Rule 1.3(b): A lawyer shall not neglect a legal matter entrusted to the lawyer.
5
Rule 1.4(a)(3): A lawyer shall keep the client reasonably informed about the status of the
matter.
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attorney for the work at issue, Napoli consented. Plaintiff
obviously was not intending to pay two sets of lawyers for one set
of work.
The Court has considered Napoli’s other arguments and finds them
to be unavailing and/or non-dispositive.
Thus, for the reasons stated herein, plaintiff’s motion to vacate the
charging lien of non-party Napoli Shkolnik PLLC is granted, and
the Clerk is hereby ordered to vacate the charging lien filed on
April 14, 2022.
See Decision and Order, Exhibit A hereto (emphasis added).
22. In a further act of harassment, the Napoli Firm thereafter filed a baseless motion
for reargument and renewal of the Supreme Court’s Order vacating its charging lien. This
motion merely, and improperly, repeated arguments that the Supreme Court already considered
and rejected. The Napoli Firm eventually withdrew this motion, but only after Respondents
incurred the substantial expenses of preparing and filing papers opposing the motion.
I. The Supreme Court Holds That the Conner Firm Was Terminated for Good
Cause, and Thus It Is Not Entitled to a Charging Lien or Other
Compensation
23. Shortly after the Supreme Court vacated the Napoli Charging Lien, the Napoli
Firm brazenly filed yet another Notice of Charging Lien on June 10, 2022, this time on behalf of
the Conner Firm (the “Conner Charging Lien”). Respondents were forced to file a separate
motion to vacate that frivolous charging lien, which motion the Supreme Court granted, for the
same reasons that the Napoli Charging Lien was vacation—i.e., violations by the Conner Firm of
New York Rules of Professional Conduct that entitled Respondents to discharge the Conner Firm
for Cause. See Decision and Order dated July 18, 2022 (Exhibit B hereto); Transcript of Oral
Argument on Motion to Vacate the Conner Charging Lien, dated July 15, 2022 (Exhibit C
hereto).
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THE FIRMS’ CLAIMS AGAINST RESPONDENTS IN THIS ARBITRATION
ARE BARRED BY RES JUDICATA AND COLLATERAL ESTOPPEL
A. Termination for Cause Is the Standard Both for Vacating a Charging Lien
and for Precluding Claimants from Obtaining Further Fees from
Respondent
24. It is well settled in New York that when attorneys are discharged for cause, they
have “no right to compensation . . . notwithstanding a specific retainer agreement.”
Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 44 (1990) (emphasis added); see also
Dagny Mgmt. Corp. v. Oppenheim & Meltzer, 199 A.D.2d 711, 712 (3d Dep’t 1993) (holding
that attorney was discharged for cause and forfeited any right to fees based because attorney
frustrated and interfered with client’s attempt to settle); Williams v. Hertz Corp., 75 A.D.2d 766,
767 (1st Dep't 1980) (“[A]n attorney who is discharged for cause or misconduct has no right to
the payment of fees[.]”). Moreover, “[i]t is well settled that [a]n attorney who engages in
misconduct by violating the Disciplinary Rules is not entitled to legal fees for any services
rendered.” Matter of Satin, 265 A.D.2d 330 (1999) (internal quotation marks omitted).
25. The authority therefore could not be clearer: whether an attorney was discharged
for cause is the standard for determining whether that attorney is entitled to any compensation,
be it through a charging lien or based on a retainer agreement with a client. As set forth herein,
because the Firms both were discharged for cause, neither is entitled to any compensation from
Respondents, whether under their Retainer Agreement, or pursuant to a theory of unjust
enrichment/quantum meruit. See Siskin v. Cassar, 122 A.D.3d 714, 716 (2d Dep’t 2014)
(“While an attorney who is discharged without cause before the completion of services may
recover the reasonable value of his or her services in quantum meruit, an attorney who is
discharged for cause is not entitled to any compensation or lien”).
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B. Claimants’ Causes of Action Are Barred By the Doctrines of Res Judicata
and Collateral Estoppel
26. The Supreme Court already determined that the Firms were terminated for cause
by Respondents. This finding by the trial court bars the instant Arbitration based on the
doctrines of res judicata and collateral estoppel, for the reasons set forth below.
1. Res Judicata
27. In order to apply res judicata and bar a claim, a defendant must prove that a prior
proceeding: (1) resulted in a final judgment on the merits; (2) arose out of the same transaction
or occurrence as the claim to be precluded; and (3) was between the same parties or their privies
as the current proceeding. Genaro Partners, Inc. v. Somwaru, 200 A.D.3d 858 (2021).
28. Here, elements two and three are obviously satisfied; this Arbitration and the
underlying action both relate to Claimants’ efforts to (improperly) obtain payment from
Respondents for legal services rendered, and both actions unquestionably involved the same
parties.
30. With respect to element one, the Supreme Court’s underlying orders constitute
final judgments on the merits for purposes of res judicata. “The requirement of finality for
purposes of res judicata does not necessarily mean a final judgment in an action.” Hennessy v.
Cement & Concrete Worker's Union Local 18A, 963 F. Supp. 334, 338 (S.D.N.Y. 1997). As the
Court of Appeals held in Bannon v. Bannon, “[t]he scope of the words ‘final judgment,’. . .
should not be confined to a final judgment in an action. They may include any judicial decision
upon a question of fact or law which is not provisional and subject to change and modification
in the future by the same tribunal.” 270 N.Y. 484, 489 (1936) (emphasis added). Courts
applying New York law employ this reasoning to find that orders such as those entered by the
Supreme Court here are final judgments for purposes of res judicata. See Lehman v.
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Piontkowski, 135 A.D.2d 792, 794 (2d Dep't 1987) (res judicata barred new complaints because
claim had been dismissed on summary judgment, even though the action was not “finally
concluded” because counterclaims remained); Slater v. American Mineral Spirits Co., 33 N Y.2d
443, 446-447 (1974) (holding that that res judicata effect should be given to orders dismissing
third party complaints, even where no final judgment had been entered, because the court found
“no occasion [] to reach a different result because the record [did] not disclose the formal entry
of a final judgment”). 6
31. The Supreme Court’s finding that the Firms were terminated for cause therefore
constituted a final judgment on the merits for purposes of res judicata. Both Firms inserted
themselves into the Third Action in order to assert charging liens and seek attorney’s fees. Their
involvement therefore was limited to this particular issue. Their attempts were then thwarted by
the Supreme Court’s orders, which found that they were not entitled to any compensation
because they had been discharged for cause. There is therefore nothing more for the Supreme
Court to do, and the issue has been fully and finally resolved. Accordingly, res judicata applies.
2. Collateral Estoppel
32. Collateral estoppel bars re-litigation of an issue determined in a prior proceeding
if it can be shown that: (1) the issue was resolved by a prior final judgment; (2) the issue was
actually litigated and necessarily decided in reaching the judgment; (3) the issue decided in the
first action is decisive of an issue decided in the later action; and (4) the party to be estopped had
a full and fair opportunity to contest the issue. Schwartz v. Public Adm’r of Bronx County, 24
N.Y.2d 65, 69-70 (1969).
6
Additionally, the mere fact that the Firms have noticed (unperfected) appeals of the Supreme
Court’s orders vacating the charging liens does not affect the applicability of res judicata here.
Plaza PH2001 LLC v. Plaza Residential Owner LP, 98 A.D.3d 89, 98 (1st Dep’t 2012).
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33. Here, collateral estoppel applies to the issue of whether the Firms were discharged
for cause, because the foregoing elements are easily satisfied by the facts at hand. As set forth
above, the issue was decided by a prior final judgment (the Supreme Court’s orders vacating the
purported charging liens). The Firms unquestionably had the opportunity to litigate the issue via
briefing and oral argument, and the issue actually was litigated and clearly dealt with by the
Court in its orders. And, most crucial of all, the question of whether the Firms were discharged
for cause is decisive of an issue to be decided in this action, because their discharge for cause
precludes them from obtaining the damages they are seeking in this Arbitration.
34. Accordingly, application of collateral estoppel is mandated on these facts as well.
CONCLUSION
35. Respondents respectfully request that the Arbitrator summarily dismiss the Firms’
baseless claims, and award Respondents the attorneys’ fees and costs (including arbitration fees)
that Respondents have been and will be forced to incur in defense of this harassing Arbitration
which never should have been commenced. Respondents additionally request that the Arbitrator
award them such other and further relief as the Arbitrator deems just and proper.
DATED: New York, New York MITCHELL SILBERBERG & KNUPP LLP
November 21, 2022
By: /s/ Jeffrey M. Movit
Jeffrey M. Movit (jmm@msk.com)
Elaine Nguyen (eln@msk.com)
437 Madison Ave., 25th Floor
New York, New York 10022-7001
Telephone: (212) 509-3900
Attorneys for Respondents
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FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 Exhibit E FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 THE ARBITRATION TRIBUNALS OF THE AMERICAN ARBITRATION ASSOCIATION NAPOLI SHKOLNIK, PLLC and MANSON Case No. 01-22-0004-6761 JOHNSON CONNER PLLC, Claimants, -vs- UPFRONT MEGATAINMENT, INC., f/k/a UPFRONT ENTERTAINTMENT, INC. and DARRICK STEPHENS p/k/a DEVYNE STEPHENS, Respondents. RESPONDENTS’ ANSWERING STATEMENT By: MITCHELL SILBERBERG & KNUPP LLP Jeffrey M. Movit (jmm@msk.com) Elaine Nguyen (eln@msk.com) 437 Madison Avenue, 25th Floor New York, New York 10022 Tel.: (212) 509-3900 Fax: (212) 509-7239 Attorneys for Respondents 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 Respondents Upfront Megatainment Inc. (“Upfront”) and Darrick Stephens (“Stephens”) (together, “Respondents”) assert this Answering Statement in response to the Demand for Arbitration of Claimants Napoli Shkolnik, PLLC (the “Napoli Firm”) and Manson Johnson Conner PLLC (together, the “Firms”). Respondents emphatically deny the allegations and claims in the Demand for Arbitration and expressly reserve the right to assert any and all applicable affirmative defenses. In the remainder of this Answering Statement, Respondents explain why the Firms’ claims are precluded by res judicata and collateral estoppel, and thus should be dismissed summarily by the Arbitrator, without the need for a burdensome and unnecessary evidentiary hearing. PRELIMINARY STATEMENTS 1. As the Firms are fully aware, their Demand for Arbitration is barred, unequivocally, by the doctrines of res judicata and collateral estoppel. This is because the Firms’ claims for fees from Respondents were already denied on the merits by the New York County Supreme Court. Specifically, the Supreme Court held that Respondents properly terminated the Firms for cause, because the Firms violated multiple Rules of Professional Conduct, and thus the Firms are not entitled to further compensation from Respondents. The Firms are bound by the holdings of the Supreme Court, and they cannot re-litigate them in this Arbitration. 1 2. Nonetheless, the Firms commenced this Arbitration purely out of spite for their former clients, the Respondents, and in disregard of black-letter New York law. Although the Firms already pocketed approximately $1 million in contingent fees from Respondents since 1 In addition to res judicata and collateral estoppel, there are numerous other grounds upon which the Demand for Arbitration fails on the merits. Respondents reserve the right to assert any and all of these additional grounds. 1 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 2018, they are angered that Respondents defeated their recent attempts to grab an additional, unmerited windfall through the filing of unwarranted charging liens which the Supreme Court properly vacated. In retaliation, the Firms persist in burdening Respondents with frivolous legal proceedings including, without limitation, the instant Arbitration. Respondents respectfully request that the Arbitrator summarily dismiss the Firms’ baseless claims. 3. Clearly, intervention is warranted to abate this campaign of harassment. Accordingly, pursuant to Commercial Arbitration Rules 47(c) and 47(d)(ii), Respondents hereby demand the attorneys’ fees and costs (including but not limited to fees paid by Respondents to the AAA and the arbitrator) that Respondents have incurred and will incur in connection with this Arbitration. The Firms’ prosecution of this Arbitration constitutes quintessential frivolous conduct, because it is both legally meritless and was maliciously filed for purposes of harassment (i.e., to force Respondents to unnecessarily incur substantial attorneys’ fees and arbitration expenses). Thus, this Court should grant Respondents a full award of their fees and costs. FACTUAL AND PROCEDURAL BACKGROUND A. Origins of the Underlying Dispute 4. Respondent Stephens, a renowned music-industry executive and personal manager, is the founder and CEO of Respondent Upfront. Non-party Aliaune Thiam p/k/a Akon (“Akon”) is an R&B singer, who, thanks to Stephens’s management and guidance, developed and maintained a highly successful music career. 5. In or about 2000, Stephens and Akon began working together professionally, when Stephens signed Akon to his music production company and songs Akon recorded with Stephens were brought to the attention of Universal’s Imprint SRC Records. On or about September 18, 2006, Upfront and Akon entered into an operating agreement (the “Operating Agreement”) to operate a limited liability company called Upfront/Konvict for purposes set forth 2 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 more fully in the Operating Agreement, including but not limited to: (i) administering the recording agreement for Akon’s recordings and the accompanying proceeds; (ii) administering a record label agreement; and (iii) overseeing/assisting with the activities of Akon pursuant to the recording and label agreements. . B. Akon Improperly Refuses to Pay Respondents and Respondents Commence the First Action against Akon 6. In or around 2017, Akon improperly refused to pay Respondents under the Operating Agreement. Accordingly, on May 1, 2017, Upfront commenced an action against Akon and other defendants in the Supreme Court of the State of New York (the “First Action”). On October 23, 2017, the complaint was amended and the First Action discontinued as to all defendants except Akon. The amended complaint asserted claims against Akon for breach of contract, quantum merit, and unjust enrichment. C. Respondents Are Represented in the First Action by the Napoli Firm 7. Upfront was represented in the First Action by attorney Paul Napoli of the Napoli Firm. The Napoli Firm’s representation was memorialized by a Retainer Agreement dated April 13, 2018 (the “Retainer Agreement”). The Retainer Agreement contemplated a contingency fee relationship as follows: FEE PERCENTAGE: As consideration for legal services rendered and to be rendered by the Attorneys in carrying out the purpose hereof, Client agrees to pay Law Firm 33 1/3% (thirty-three and one-third percent) of all amounts recovered. All, expenses, costs, any liens and subrogation, are to be deducted after the contingent fee is calculated. 3 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 The Conner Firm was also purportedly a party to the Retainer Agreement, although Respondents do not have a copy of the Retainer Agreement signed by the Conner Firm. The Conner Firm has never appeared as counsel of record for Respondents in any action. 2 D. The Firms Violate New York’s Rules of Professional Conduct 8. The First Action was resolved pursuant to the Settlement Agreement dated October 25, 2018. The Settlement Agreement was drafted and negotiated on behalf of Akon by Jonathan Davis, Esq., a highly experienced entertainment litigator. In contrast, Paul Napoli negotiated the Settlement Agreement on behalf of Respondents, even though he appeared to lack experience with or knowledge of the complicated and highly specialized area of music accounting—a key issue in the First Action. According to the Napoli Firm, “[t]he settlement agreement was also vetted by co-counsel, Isaac Conner of Manson Johnson Conner, PLLC, an experienced contract attorney.” 9. The Settlement Agreement contains two separate payment tranches. The First Payment Tranche required Akon to pay Respondents $3.25 million pursuant to the following schedule: (i) Upon the full execution and delivery of this Agreement, but no later than October 31, 2018, the amount of One Million Five Hundred Thousand Dollars and No Cents ($1,500,000). (ii) Not later than October 31, 2019, the amount of Five Hundred Thousand Dollars and No Cents ($500,000). (iii) Not later than October 31, 2020, the amount of Five Hundred Thousand Dollars and No Cents ($500,000). 2 In 2020, the Napoli Firm briefly litigated another action on behalf of Respondents against Akon, captioned Upfront Megatainment, Inc. et al v. Aliaune Thiam, Index No. 650398/2020 (the “Second Action”). The Second Action quickly settled, and the Conner Firm never appeared as attorney of record in it. 4 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 (iv) Not later than October 31, 2021, the amount of Seven Hundred and Fifty Thousand Dollars and No Cents ($750,000). 10. The Second Payment Tranche requires Akon to pay Respondents specified royalties for the term of four “album cycles” during which Akon is signed to a “major label.” Most pertinent, in the event that Akon’s then-existing recording agreement with his former label (Atlantic Records) was not amended or extended, or was earlier terminated by Atlantic, Respondents’ entitlement to receive royalties under the Second Payment Tranche would be applied to such number of additional album cycles between Akon and other “major” record labels (a term undefined by the Settlement Agreement), “such that Stephens shall receive the benefit of four album cycles in the aggregate (those album cycles with Atlantic and those with other ‘major’ record labels).” In other words, Respondents are entitled to continue receiving royalties under the Second Payment Tranche until such time as Akon has completed four album cycles, in the aggregate, with Atlantic and/or with other “major” record labels. 11. Owing to the Napoli Firm’s and Conner Firm’s lack of competence, the Settlement Agreement is rife with serious problems that continue to adversely affect Respondents. For example, the Settlement Agreement’s use of the undefined, ambiguous term “‘major’ record label” has given Akon an (incorrect) argument that he can avoid payments under the Second Payment Tranche because his current label is purportedly not a “major” label, and has given him grounds to argue that he has a counterclaim against Respondents for approximately $100,000 in “overpayments” he made for nearly a year under the Second Payment Tranche after signing with his new label. 12. In addition, the First Payment Tranche was to be secured by an Affidavit of Confession of Judgment. The Settlement Agreement provided that Akon was required to sign this Affidavit at the time the Settlement Agreement was executed. This was to allow 5 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 Respondents, in the event of a default by Akon, to file the Affidavit and immediately execute a judgment of $1,750,000 (less any payments made under the Settlement Agreement), plus interest and reasonable attorneys’ fees. 13. The Napoli Firm and Conner Firm were both on notice that Akon had not signed the Affidavit and needed to. On October 26, 2018, Akon’s attorney emailed the Napoli Firm and Conner Firm, stating in relevant part: “The signed Confession of Judgment will be provided. Akon must appear before a notary, which could not be accomplished yesterday.” 14. Nonetheless, the Napoli Firm and Conner Firm failed to obtain the signed Affidavit from Akon until 2020, two years after the Settlement Agreement was executed. By the time Akon signed the document, New York law (specifically, CPLR 3218) changed such that Affidavits of Confessions of Judgment like the one at issue are no longer enforceable against non-New York residents such as Akon. E. Respondents Commence the Third Action against Akon 15. On or about April 1, 2021, Respondents commenced a third lawsuit against Akon in New York County Supreme Court, Upfront Megatainment, Inc. et al. v. Thiam, Index No. 652156/2021 (the “Third Action”). The Napoli Firm and the Conner Firm are not, and never have been, attorney of record in the Third Action. Rather, at the commencement of this action, Respondents were represented by an unrelated firm, Reitler Kailas & Rosenblatt LLP. Respondents’ original complaint in the Third Action did not seek any payments under the First Payment Tranche, given that, at the time of commencement, Akon was up-to-date on the payments due under the First Payment Tranche. Rather, the original complaint solely asserted claims for payment under the Second Payment Tranche, given that, since January 2020, Akon improperly has failed (and continues to fail) to make any further payments under the Second Payment Tranche. 6 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 F. The Napoli Firm Waived Its Right to a Contingent Fee from Proceeds Obtained by Respondents in the Third Action 16. In late 2020, Paul Napoli of the Napoli Firm agreed in writing with Respondents that another law firm would recover further funds owed by Akon under the Settlement Agreement. Thus, the Napoli Firm waived any claim to a contingency payment from the Third Action. 17. The material facts are as follows: By late 2020, Akon owed substantial sums to Respondents under the Settlement Agreement. Given the Napoli Firm’s lack of experience with the music industry, Stephens asked Mr. Napoli in writing in November 2020 if Respondents could “bring in a different law firm in this matter” that was “an expert” in music publishing to assert claims against Akon. Mr. Napoli responded in writing: “Go ahead.” Crucially, Mr. Napoli did not inform Respondents that his firm would nonetheless seek a contingency payment for any recovery on claims that would be solely prosecuted by Respondents’ new lawyer. Based upon Mr. Napoli’s conduct, Stephens reasonably believed that the Napoli Firm would not seek any portion of payments recovered by another law firm. 18. With Mr. Napoli’s blessing, Respondents hired a new lawyer, Paul LiCalsi, of the firm Reitler Kailas & Rosenblatt LLP. Mr. LiCalsi commenced this lawsuit but was later replaced by the undersigned counsel at Mitchell Silberberg & Knupp LLP. G. Respondents Terminate the Napoli Firm and the Conner Firm for Cause 19. On January 13, 2022, the undersigned sent a letter to the Napoli Firm enclosing a letter from Stephens terminating Respondents’ engagement of both the Napoli Firm and the Conner Firm. H. The Supreme Court Holds That the Napoli Firm Was Terminated for Good Cause, and Thus It Is Not Entitled to a Charging Lien or Other Compensation 7 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 20. On March 7, 2022, Respondents, through the efforts of their current counsel at Mitchell Silberberg & Knupp LLP, moved for an attachment against Akon of the $750,000 due under the First Payment Tranche (plus an additional $100,000 in attorneys’ fees and costs). After the Supreme Court stated verbally at a hearing that it would grant the attachment, Akon agreed to pay $850,000, which was received by Akon’s counsel on April 13, 2022. 21. After Akon made a $750,000 payment to Respondents, the Napoli Firm filed an improper charging lien (the “Napoli Charging Lien”) with the New York County Supreme Court. On June 1, 2022, the Supreme Court granted Respondents’ motion to vacate the improper Napoli Charging Lien. In its Decision and Order, the Court correctly held that Respondents terminated the Napoli Firm for cause, based upon its violations of the New York Rules of Professional Conduct, thereby forfeiting its right to compensation. The Supreme Court also held that Napoli waived his right to further compensation: Upon the foregoing documents, it is hereby ordered that plaintiffs’ motion to vacate the charging lien of non-party Napoli Shkolnik PLLC (“Napoli”) is granted. In this hotly contested litigation, familiarity with which the Court will assume, non-party Napoli, the former attorney for plaintiff, filed a charging lien seeking to recover one-third of a $750,000 payment recently obtained by plaintiff in this action. Plaintiff now moves to vacate Napoli’s charging lien, asserting, inter alia, that because Napoli was terminated for cause it is not entitled to recover any additional funds from plaintiff. In support of its motion, plaintiff attaches an affidavit of its principal, Darrick Stephens, who details the actions (or more aptly, inactions) of Napoli that led to plaintiff terminating its relationship with the firm. NYSCEF Doc. No. 121. Plaintiff asserts that Napoli violated several New York Rules of Professional Conduct while representing plaintiff. In particular, plaintiff asserts that Napoli 8 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 violated Rules 1.3(a) 3, 1.3(b) 4, 1.4(a)(1)(iii), and 1.4(a)(3) 5 by neglecting to obtain defendant’s signature on the Affidavit of Confession of Judgment until two years after the settlement agreement was signed, during which time such affidavits became unenforceable under New York law against out-of-state litigants. Napoli also failed to notify plaintiff of this dispositive change in the law. A client has “an absolute right, at any time, with or without cause, to terminate the attorney-client relationship by discharging the attorney.” Where the discharge is without cause, the attorney may recover the reasonable value of his or her services in quantum meruit. In contrast, “[a]n attorney who is discharged for cause... is not entitled to compensation or a lien.” An attorney who violates a disciplinary rule may be discharged for cause and is not entitled to fees for any services rendered. Schultz v Hughes, 109 A.D.3d 895, 896-97 (2nd Dep’t 2013) (internal citations omitted). Napoli asserts that it should be entitled to a hearing to determine whether or not it was fired for cause. The law is clear that “[w]here there are conflicting claims as to the whether an outgoing attorney was discharged with or without cause, a hearing is necessary to resolve such dispute.” Byrne v Leblond, 25 A.D.3d 640, 642 (2nd Dep’t 2006). However, Napoli fails to submit an affidavit of anyone with personal knowledge, namely Mr. Napoli, to rebut plaintiffs affidavit that Napoli was fired for cause, and its failure to do so is fatal to its claim. Zuckerman v City of New York, 49 N.Y.2d 557, 560 (1980) (“the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue... and the submission of a hearsay affirmation by counsel alone does not satisfy this requirement”). Accordingly, Napoli cannot overcome plaintiff’s prima facie demonstration that the charging lien should be vacated. As a separate and independent ground, Napoli waived any right it might otherwise have had to a fee and charging lien. When plaintiff indicated that it wanted to hire a different specialized 3 Rule 1.3(a): A lawyer shall act with reasonable diligence and promptness in representing a client. 4 Rule 1.3(b): A lawyer shall not neglect a legal matter entrusted to the lawyer. 5 Rule 1.4(a)(3): A lawyer shall keep the client reasonably informed about the status of the matter. 9 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 attorney for the work at issue, Napoli consented. Plaintiff obviously was not intending to pay two sets of lawyers for one set of work. The Court has considered Napoli’s other arguments and finds them to be unavailing and/or non-dispositive. Thus, for the reasons stated herein, plaintiff’s motion to vacate the charging lien of non-party Napoli Shkolnik PLLC is granted, and the Clerk is hereby ordered to vacate the charging lien filed on April 14, 2022. See Decision and Order, Exhibit A hereto (emphasis added). 22. In a further act of harassment, the Napoli Firm thereafter filed a baseless motion for reargument and renewal of the Supreme Court’s Order vacating its charging lien. This motion merely, and improperly, repeated arguments that the Supreme Court already considered and rejected. The Napoli Firm eventually withdrew this motion, but only after Respondents incurred the substantial expenses of preparing and filing papers opposing the motion. I. The Supreme Court Holds That the Conner Firm Was Terminated for Good Cause, and Thus It Is Not Entitled to a Charging Lien or Other Compensation 23. Shortly after the Supreme Court vacated the Napoli Charging Lien, the Napoli Firm brazenly filed yet another Notice of Charging Lien on June 10, 2022, this time on behalf of the Conner Firm (the “Conner Charging Lien”). Respondents were forced to file a separate motion to vacate that frivolous charging lien, which motion the Supreme Court granted, for the same reasons that the Napoli Charging Lien was vacation—i.e., violations by the Conner Firm of New York Rules of Professional Conduct that entitled Respondents to discharge the Conner Firm for Cause. See Decision and Order dated July 18, 2022 (Exhibit B hereto); Transcript of Oral Argument on Motion to Vacate the Conner Charging Lien, dated July 15, 2022 (Exhibit C hereto). 10 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 THE FIRMS’ CLAIMS AGAINST RESPONDENTS IN THIS ARBITRATION ARE BARRED BY RES JUDICATA AND COLLATERAL ESTOPPEL A. Termination for Cause Is the Standard Both for Vacating a Charging Lien and for Precluding Claimants from Obtaining Further Fees from Respondent 24. It is well settled in New York that when attorneys are discharged for cause, they have “no right to compensation . . . notwithstanding a specific retainer agreement.” Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 44 (1990) (emphasis added); see also Dagny Mgmt. Corp. v. Oppenheim & Meltzer, 199 A.D.2d 711, 712 (3d Dep’t 1993) (holding that attorney was discharged for cause and forfeited any right to fees based because attorney frustrated and interfered with client’s attempt to settle); Williams v. Hertz Corp., 75 A.D.2d 766, 767 (1st Dep't 1980) (“[A]n attorney who is discharged for cause or misconduct has no right to the payment of fees[.]”). Moreover, “[i]t is well settled that [a]n attorney who engages in misconduct by violating the Disciplinary Rules is not entitled to legal fees for any services rendered.” Matter of Satin, 265 A.D.2d 330 (1999) (internal quotation marks omitted). 25. The authority therefore could not be clearer: whether an attorney was discharged for cause is the standard for determining whether that attorney is entitled to any compensation, be it through a charging lien or based on a retainer agreement with a client. As set forth herein, because the Firms both were discharged for cause, neither is entitled to any compensation from Respondents, whether under their Retainer Agreement, or pursuant to a theory of unjust enrichment/quantum meruit. See Siskin v. Cassar, 122 A.D.3d 714, 716 (2d Dep’t 2014) (“While an attorney who is discharged without cause before the completion of services may recover the reasonable value of his or her services in quantum meruit, an attorney who is discharged for cause is not entitled to any compensation or lien”). 11 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 B. Claimants’ Causes of Action Are Barred By the Doctrines of Res Judicata and Collateral Estoppel 26. The Supreme Court already determined that the Firms were terminated for cause by Respondents. This finding by the trial court bars the instant Arbitration based on the doctrines of res judicata and collateral estoppel, for the reasons set forth below. 1. Res Judicata 27. In order to apply res judicata and bar a claim, a defendant must prove that a prior proceeding: (1) resulted in a final judgment on the merits; (2) arose out of the same transaction or occurrence as the claim to be precluded; and (3) was between the same parties or their privies as the current proceeding. Genaro Partners, Inc. v. Somwaru, 200 A.D.3d 858 (2021). 28. Here, elements two and three are obviously satisfied; this Arbitration and the underlying action both relate to Claimants’ efforts to (improperly) obtain payment from Respondents for legal services rendered, and both actions unquestionably involved the same parties. 30. With respect to element one, the Supreme Court’s underlying orders constitute final judgments on the merits for purposes of res judicata. “The requirement of finality for purposes of res judicata does not necessarily mean a final judgment in an action.” Hennessy v. Cement & Concrete Worker's Union Local 18A, 963 F. Supp. 334, 338 (S.D.N.Y. 1997). As the Court of Appeals held in Bannon v. Bannon, “[t]he scope of the words ‘final judgment,’. . . should not be confined to a final judgment in an action. They may include any judicial decision upon a question of fact or law which is not provisional and subject to change and modification in the future by the same tribunal.” 270 N.Y. 484, 489 (1936) (emphasis added). Courts applying New York law employ this reasoning to find that orders such as those entered by the Supreme Court here are final judgments for purposes of res judicata. See Lehman v. 12 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 Piontkowski, 135 A.D.2d 792, 794 (2d Dep't 1987) (res judicata barred new complaints because claim had been dismissed on summary judgment, even though the action was not “finally concluded” because counterclaims remained); Slater v. American Mineral Spirits Co., 33 N Y.2d 443, 446-447 (1974) (holding that that res judicata effect should be given to orders dismissing third party complaints, even where no final judgment had been entered, because the court found “no occasion [] to reach a different result because the record [did] not disclose the formal entry of a final judgment”). 6 31. The Supreme Court’s finding that the Firms were terminated for cause therefore constituted a final judgment on the merits for purposes of res judicata. Both Firms inserted themselves into the Third Action in order to assert charging liens and seek attorney’s fees. Their involvement therefore was limited to this particular issue. Their attempts were then thwarted by the Supreme Court’s orders, which found that they were not entitled to any compensation because they had been discharged for cause. There is therefore nothing more for the Supreme Court to do, and the issue has been fully and finally resolved. Accordingly, res judicata applies. 2. Collateral Estoppel 32. Collateral estoppel bars re-litigation of an issue determined in a prior proceeding if it can be shown that: (1) the issue was resolved by a prior final judgment; (2) the issue was actually litigated and necessarily decided in reaching the judgment; (3) the issue decided in the first action is decisive of an issue decided in the later action; and (4) the party to be estopped had a full and fair opportunity to contest the issue. Schwartz v. Public Adm’r of Bronx County, 24 N.Y.2d 65, 69-70 (1969). 6 Additionally, the mere fact that the Firms have noticed (unperfected) appeals of the Supreme Court’s orders vacating the charging liens does not affect the applicability of res judicata here. Plaza PH2001 LLC v. Plaza Residential Owner LP, 98 A.D.3d 89, 98 (1st Dep’t 2012). 13 14959454.1 FILED: NEW YORK COUNTY CLERK 08/13/2023 10:37 AM INDEX NO. 653732/2023 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 08/13/2023 33. Here, collateral estoppel applies to the issue of whether the Firms were discharged for cause, because the foregoing elements are easily satisfied by the facts at hand. As set forth above, the issue was decided by a prior final judgment (the Supreme Court’s orders vacating the purported charging liens). The Firms unquestionably had the opportunity to litigate the issue via briefing and oral argument, and the issue actually was litigated and clearly dealt with by the Court in its orders. And, most crucial of all, the question of whether the Firms were discharged for cause is decisive of an issue to be decided in this action, because their discharge for cause precludes them from obtaining the damages they are seeking in this Arbitration. 34. Accordingly, application of collateral estoppel is mandated on these facts as well. CONCLUSION 35. Respondents respectfully request that the Arbitrator summarily dismiss the Firms’ baseless claims, and award Respondents the attorneys’ fees and costs (including arbitration fees) that Respondents have been and will be forced to incur in defense of this harassing Arbitration which never should have been commenced. Respondents additionally request that the Arbitrator award them such other and further relief as the Arbitrator deems just and proper. DATED: New York, New York MITCHELL SILBERBERG & KNUPP LLP November 21, 2022 By: /s/ Jeffrey M. Movit Jeffrey M. Movit (jmm@msk.com) Elaine Nguyen (eln@msk.com) 437 Madison Ave., 25th Floor New York, New York 10022-7001 Telephone: (212) 509-3900 Attorneys for Respondents 14 14959454.1