Case Number: BS146289    Hearing Date: July 24, 2014    Dept: 82

Jeff S. Westerman
v.
Milberg LLP

Tentative Decision Granting, in part, Respondent’s Motion to Seal, and Denying Petitioner’s Application for Writ of Attachment

Petitioner Jeff S. Westerman seeks a right to attach order and writ of attachment against Respondent Milberg LLP, a New York limited liability partnership, to secure $1,095,534. Milberg moves to seal portions of Petitioner’s memorandum of points and authorities, supporting declaration, exhibits, and reply memorandum. Having reviewed the pleadings, court file, and the parties’ briefs, the Court rules as follows:

Evidentiary Objection

The Court overrules Petitioner’s objection to the declaration of Sanford P. Dumain.

Factual and Procedural Background

Petitioner joined Milberg, a New York law firm, in 1991. (Westerman Decl., ¶ 3). In 1996, Petitioner became a partner; he became a full equity partner in 1999. (Id., ¶ 2). When he was elevated to partner, Petitioner became a party to Milberg’s Partnership Agreement. (Id., ¶ 2; see Dumain Decl., ¶ 5, Exhibit 1). Although Milberg maintains that the partnership agreement has remained in its current form since 1991 (Dumain Decl., ¶ 5, Exhibit 1), Petitioner claims that the Agreement has been amended several times since that date. (See Westerman Decl., ¶ 2; see also Id., ¶ 6, Exhibit A [“the Employer and the Employee are each parties to the Partnership Agreement forming a limited liability partnership under the name “Milberg LLP,” dated as of January 1, 1991, as such agreement has been previously amended”]).

As a result of a federal criminal investigation, Milberg and several of its partners were indicted by the federal government. (Westerman Decl., ¶ 5). In 2008, the law firm settled the criminal proceeding and agreed to pay a substantial fine. (Id., ¶ 5). In February 2008, prior to the firm’s settlement with the federal government, Milberg changed its business structure. (Id., ¶ 6, Exhibit A; Dumain Decl., ¶ 6). In doing so, each Milberg equity partner was required to execute an Equity Partners Employment Agreement (“Employment Agreement”) through which the equity partners agreed to become “employees” of Milberg. (See Westerman Decl., ¶ 6, Exhibit A).

By executing the February 2008 Employment Agreement, Milberg’s former equity partners, including Petitioner, granted Milberg’s Executive Committee the sole discretion to defer payment of their salaries provided that “in no event shall the Base Salary . . . paid to Employee be less than $1,000 per week.” (See Westerman Decl., ¶ 6, Exhibit A [§5]). In addition to guaranteeing a base salary, the February 2008 Employment Agreement rendered each employee covered by its terms eligible to earn bonuses as determined by Milberg’s Executive Committee. (See Id., ¶ 6, Exhibit A [§5]). The Employment Agreement also deemed each employee covered by its terms eligible to participate in Milberg’s Bonus Plan. (See Id., ¶ 6, Exhibit A [§5]).

Important here, the Employment Agreement contains arbitration and governing law provisions that affect the parties’ rights to pursue legal disputes arising out of this Agreement. (Id., ¶ 6, Exhibit A [§§ 14, 17]). The arbitration provision provides in pertinent part:

Except with respect to an action for injunctive relief pursuant to Section 11 hereof, which may be brought in the state or federal courts located in the State of New York or in arbitration pursuant to this Section, at the discretion of the Executive Committee, all Arbitrable Claims . . . shall be settled by arbitration held in the City of New York or such other place as the parties thereto may agree . . . . For purposes hereof, the term “Arbitrable Claims” shall mean any dispute, disagreement, claim or other legal controversy arising, under or in connection with this Agreement and/or the Partnership Agreement (including, without limitation, those relating to its construction or interpretation and/or payment or performance thereunder), including, but not limited to, any claims, whether past, present, or prospective, arising under federal, state or local employment discrimination or labor statutes . . . .

(Id., ¶ 6, Exhibit A [§ 14]). The governing law provision provides as follows:

This Agreement, its enforcement and performance of the parties hereunder, and all suits and special proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of New York, without regard to its conflict of laws principles. The parties agree that if for any reason the arbitration provisions hereof are found to be unenforceable, any action with respect to or arising out of this Agreement shall be brought and maintained in a state or federal court of competent jurisdiction located in New York County, New York. The parties irrevocably consent to the personal jurisdiction of and venue in such court and expressly waive such party’s right to a trial by jury.

(Id., ¶ 6, Exhibit A).

In July 2009, Petitioner signed a personal guarantee in support of a credit line obtained on Milberg’s behalf. (Westerman Decl., ¶ 9). Petitioner and other employees were assured by members of Milberg’s Executive Committee that their guarantees would only be enforceable for a single year and that they would be allowed to execute new guarantees after one year if Milberg borrowed additional money. (Id., ¶ 9, Exhibit B).

On December 31, 2010, Petitioner signed an amendment to the February 2008 Employment Agreement (“Amendment”). (Westerman Decl., ¶ 10). The Amendment set Petitioner’s Base Salary for the 2011 fiscal year at the same level as his 2010 salary; however, the Amendment provided that 50% of Petitioner’s 2011 salary would be deferred. (Id., ¶ 10, Exhibit C). The Amendment defines Milberg’s obligation to pay Petitioner’s 2011 deferred salary as follows:

Subject to the following provisions, your Net Deferral and your Year End Deferral shall be obligations of the Firm.

a. In the event you leave the firm during the year 2011, except with the written permission of the Executive Committee, your Net Deferral shall be canceled at no cost to the Firm and you will have no further salary entitlement for 2011.

b. Your Year End Deferral shall be an obligation of the Firm that is subordinate to the 2012 Base Salary of all Partners, but is senior to any future deferrals and any payments under the Bonus Plan.

c. In the event that you leave the Firm after year-end 2011, except with the written consent of the Executive Committee, your Year End Deferral shall be cancelled at no cost to the Firm and you will have no further salary entitlement.

(Id., ¶ 10, Exhibit C).

According to Petitioner, all of the employees subject to the February 2008 Employment Agreement executed a wage-deferral amendment for the 2011 fiscal year. (Westerman Decl., ¶ 12). Petitioner claims that Milberg executed the wage-deferral amendments as a response to the firm’s then-deteriorating financial condition. (Id., ¶ 12).

In late 2011, Petitioner learned that Milberg had used his and Milberg’s other employees’ 2009 personal guarantees to borrow an additional $5 million without first obtaining new guarantees from Petitioner and the other employees. (Westerman Decl., ¶ 14).

In November 2012, Petitioner received only $2,000 of the $33,100 allegedly owed to him for that month. (Westerman Decl., ¶ 15). According to Petitioner, Milberg characterized the remaining $33,100 as deferred salary. (Id., ¶ 15).

On December 26, 2012, members of Milberg’s Executive Committee informed Petitioner that the firm was reducing his 2013 Base Salary and terminating his participation in the firm’s Bonus Plan as a result of his refusal to sign a new guarantee to support Milberg’s plans to borrow additional money. (Westerman Decl., ¶ 16). Later that day, Petitioner, sent a letter of resignation to Milberg’s Executive Committee giving notice that he planned to resign effective April 26, 2013. (Id., ¶ 16, Exhibit E). The resignation letter also asked the Executive Committee to grant Petitioner permission to resign effective January 16, 2013. (Id., ¶ 16, Exhibit E). On January 4, 2013, Sanford Dumain, the Chair of Milberg’s Executive Committee, granted Petitioner’s request to resign effective January 16, 2013. (Id., ¶ 16, Exhibit E).

At the time Petitioner resigned from Milberg, the firm allegedly owed him $449,767 in deferred salary for the 2011 and 2012 fiscal years. (Westerman Decl., ¶ 18, Exhibit F). According to Petitioner, he has yet to be paid the $449,767 in deferred salary. (Id., ¶ 19). Petitioner claims that under Paragraph 6.05 of the 1991 Partnership Agreement, as a result of his resignation, he is entitled to Base Amount payments at a minimum of $6,000 per month for an agreed payout period of 72 months. (See Id., ¶ 20, Exhibit G). Petitioner has not received any Base Amount payment from Milberg since he resigned from the firm. (Id., ¶ 21).

In the spring of 2013, Petitioner raised a claim for unpaid wages with members of Milberg’s Executive Committee. (Westerman Decl., ¶ 21). In response to Petitioner’s wage claim, Milberg filed a Notice of Demand for Arbitration in New York on December 3, 2013. (Gluck Decl., ¶ 5, Exhibit 2). In turn, on December 9, 2013 Petitioner sent Milberg an arbitration demand requesting that Milberg agree to arbitrate in Los Angeles. (Westerman Decl., ¶¶ 23-24).

On December 13, 2013, Petitioner filed the underlying petition to compel arbitration in Los Angeles with the Los Angeles Superior Court. The case was assigned to Judge Deirdre H. Hill.

On December 20, 2013, Petitioner filed a verified petition and motion to stay arbitration in the Supreme Court of the State of New York. (Gluck Decl., ¶ 6, Exhibit 3). In essence, Petitioner sought to stay arbitration of his wage claim in New York to allow the parties to arbitrate in Los Angeles. (Id., ¶ 6, Exhibit 3).

On January 15, 2014, Milberg filed a cross-petition in the California action seeking to compel arbitration in New York. On March 3, 2014, in Petitioner’s New York lawsuit, Milberg filed a motion to compel arbitration in New York City. (Gluck Decl., ¶ 7, Exhibit 4).

At issue before this Court is Petitioner’s May 13, 2014 application for right to attach order and writ of attachment. On June 5, 2014, the Court continued the writ of attachment hearing and requested supplemental briefing.

On June 24, 2014, Judge Hill denied Petitioner’s petition and granted Milberg’s cross-petition to compel arbitration. Accordingly, Petitioner was ordered to seek employment-related compensation by way of arbitration in New York as required by the February 2008 Employment Agreement. Notwithstanding Judge Hill’s ruling ordering the parties to arbitrate their dispute in New York, Petitioner still seeks a writ of attachment against Milberg in this lawsuit.

Milberg’s motion to seal and Petitioner’s application for a writ of attachment were argued and submitted on July 24, 2014.

Discussion

1. Motion to Seal

Consistent with First Amendment principles, California has a long-standing tradition of open civil proceedings. In re Marriage of Nicholas, (2010) 186 Cal.App.4th 1566, 1568. However, trial courts may redact or seal certain documents to protect private information implicating an overriding privacy interest. See Cal. Rules of Court, rules 2.550 and 2.551. Still, “[u]nless confidentiality is required by law, court records are presumed to be open.” Cal. Rules of Court, rule 2.550(c).

Here, Milberg moves for an order sealing portions of Petitioner’s opening and reply memoranda of points and authorities, portions of Petitioner’s declaration, and certain exhibits submitted with Petitioner’s declaration. Milberg’s motion to seal is granted with regard to the following:

a. Petitioner’s memorandum of point and authorities—p. 1 (lines 19, 20-23), p. 4 (lines 4-7), p. 11 (lines 25-28), and p. 13 (lines 3-8);
b. Westerman Declaration—p. 4 (lines 1-9), p. 9 (lines (2-5);
c. Petitioner’s reply brief—p. 5 (lines 5-7), p. 6 (line 27) through p. 7 (line 2).

The Court finds that sealing these portions of the pleadings is necessary to safeguard attorney-client confidences. Further, the Court finds that: there exists an overriding interest that overcomes the right of public access to the record; the overriding interest supports sealing the record; a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; the proposed sealing is narrowly tailored; and no less restrictive means exist to achieve the overriding interest. Cal. Rules of Court, rule 2.550(d)(1); see also Huffy Corp. v. Superior Court, (2003) 112 Cal.App.4th 97, 104.

The remainder of Milberg’s motion to seal is denied because it has failed to show that there exists an overriding interest that overcomes the right of public access to the remaining portions of the documents, or that the proposed sealing is narrowly tailored. Notably, in the publicly filed Gluck declaration, Milberg discusses Petitioner’s compensation and the deferral of a portion of the base salary for all employees in 2011 and 2012. (Gluck Decl., ¶¶ 2, 18).

2. Application for Writ of Attachment

Under Cal. Code of Civil Procedure section 1281.8(b), “[a] party to an arbitration agreement may file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief.” New York has a similar statute. See N.Y. C.P.L.R. section 7502(c). “The logical reason for the requirement that an applicant be required to show that an arbitration award may be rendered ineffectual is to ensure that the court does not invade the province of the arbitrator—i.e., the court should be empowered to grant provisional relief in an arbitrable controversy only where the arbitrator’s award may not be adequate to make the aggrieved party whole.” Woolley v. Embassy Suites, Inc., (1991) 227 Cal.App.3d 1520, 1527.

On June 24, 2014 Judge Hill denied Petitioner’s petition to compel arbitration in Los Angeles and, instead, ordered Petitioner to pursue arbitration in New York as required by the terms of the February 2008 Employment Agreement. Notwithstanding Judge Hill’s ruling, and despite the fact that Milberg filed a Notice of Demand for Arbitration in New York on December 3, 2013, Petitioner argues that it is appropriate for the Court to issue a writ of attachment against Milberg as a provisional remedy for Petitioner’s claim that will be arbitrated in New York. The Court disagrees with Petitioner’s contention and denies his application for the reasons set forth below.

First, the Employment Agreement’s governing law provision provides that enforcement and performance of the agreement and all disputes arising out of its alleged breach must be construed in accordance with and under New York law. Because Petitioner’s application for writ of attachment is a dispute arising out of Milberg’s alleged breach of the Employment Agreement, it is subject to New York law, not California law. As such, Cal. Code of Civil Procedure section 1281.8(b) is not relevant to the pending application for writ of attachment.

Second, Petitioner has not shown that an arbitration proceeding is “pending” in Los Angeles County within the meaning of Cal. Code of Civil Procedure section 1281.8(b). Here, an arbitration proceeding has been pending in a county other than Los Angeles County as a result of Milberg’s filing of the demand to arbitrate in New York on December 3, 2013. See Cohen v. Cohen (N.Y. App. Div. 1962) 17 A.D.2d 279, 283 (an arbitration proceeding authorized by the parties’ agreement “may be instituted . . . by the making of a “demand for arbitration”); see also Cal. Code Civ. Proc., § 1281.8(b). Even if an arbitration proceeding may be pending in more than one county under section 1281.8(b), as a result of Judge Hill’s June 24, 2014 ruling, there is no arbitration proceeding currently pending in Los Angeles County as of the hearing date on the writ of attachment.

Third, Petitioner has failed to demonstrate, under both New York and California law, that any arbitration award he would be entitled to would be rendered ineffectual without issuance of a writ of attachment from the Court. See California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group, (2011) 193 Cal. App. 4th 849. Unlike in California Retail, Petitioner has not offered evidence that amounts to “compelling evidence that [Milberg] was running out of money and, if it was not already there, would soon be unable to pay its debts.” 193 Cal. App. 4th at 860. Although Petitioner has presented evidence that Milberg has had significant financial problems in the past, there is no evidence that the firm is currently experiencing financial problems. Indeed, the evidence is to the contrary. For example, Gluck testified that all of Milberg’s lawyers and staff are paid currently. (Gluck Decl., ¶ 10). In addition, Gluck testified that Milberg is current on all of its business obligations and expenses, including rent due under three separate lease agreements. (Gluck Decl., ¶¶ 10-13). In light of the lack of recent evidence of Milberg’s insolvency, considered together with Milberg’s proffered evidence which tends to show it remains solvent, the Court finds that Petitioner’s evidence is insufficient to meet its burden to show an arbitration award would “be rendered ineffectual” unless the Court issues a prejudgment writ of attachment. Cal. Civ. Proc. Code § 1281.8(b); N.Y. C.P.L.R. section 7502(c).

Finally, with respect to his argument that New York law authorizes a California trial court to issue a writ of attachment in an arbitration proceeding that is pending in New York and is governed by New York law, Petitioner has directed the Court to no authority supporting this contention. N.Y. C.P.L.R. section 7502(c) provides in relevant part: “The supreme court in the county in which an arbitration is pending or in a county specified in subdivision (a) of this section, may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration that is pending or that is to be commenced inside or outside this state . . . .” As Petitioner acknowledges, N.Y. C.P.L.R. section 7502(c) makes no reference to initiating a proceeding in a court outside of the State of New York; rather it authorizes initiation of an attachment action in a New York court when an arbitration proceeding is pending outside of New York. See N.Y. C.P.L.R., § 7502(c). Petitioner directs the Court to no authority interpreting N.Y. C.P.L.R. section 7502 to authorize litigants to initiate an attachment action subject to New York law in another state. Petitioner also directs the Court to no other New York statute or case law that authorizes a party to a claim governed by New York law to pursue provisional relief in a different state. To the extent California law is controlling, Petitioner’s argument is contrary to California’s primary rights theory. That is, even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. Slater v. Blackwood, (1975) 15 Cal.3d 791, 795. In determining whether a cause of action has been split, the relief sought by the injured party should not be confused with the cause of action; “[t]he violation of one primary right constitutes a single cause of action, though it may entitle the injured party to many forms of relief.” Allstate Ins. Co. v. Mel Rapton, Inc., (2000) 77 Cal.App.4th 901, 907-908. Here, Petitioner’s claim for relief may not be split between California and New York.

Disposition

Milberg’s application to seal portions of the record is granted in part and denied in part. The clerk, however, shall hold and not file the lodged documents for 10 days to allow Milberg to file redacted documents reflecting the Court’s ruling. Thereafter, the clerk shall return the lodged documents to Milberg. Milberg shall file the redacted documents within ten days.

Petitioner’s application for a writ of attachment is denied.