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Pazuniak Law Office LLC v. Pi-Net International, Inc.

Superior Court of Delaware

August 25, 2017

PAZUNIAK LAW OFFICE LLC and GEORGE PAZUNIAK, Plaintiffs,
v.
PI-NET INTERNATIONAL, INC. and LAKSHMI ARUNACHALAM, Defendants. LAKSHMI ARUNACHALAM, Counterclaim Plaintiff and Third-Party Plaintiff,
v.
PAZUNIAK LAW OFFICE LLC and GEORGE PAZUNIAK, Counterclaim Defendants, and O'KELLY AND ERNST, LLC Third-Party Defendant.

         Upon Joint Motion to Dismiss All Counterclaims and Third-Party Claims Filed by Defendant Arunachalam GRANTED in Part and DENIED in Part

          Dr. Lakshmi Arunachalam, Menlo Park, California, Defendant Pro Se

          George Pazuniak, Esquire, Pazuniak Law Office, LLC, Wilmington, Delaware, Attorney for Plaintiffs/Counterclaim Defendants Pazuniak Law Office LLC and George Pazuniak

          Ryan M. Ernst, Esquire, Sean T. O'Kelly, Esquire, O'Kelly & Ernst, LLC, Wilmington, Delaware, Attorneys for Third-Party Defendant O'Kelly and Ernst, LLC.

          Eric M. Davis, Judge

         I. INTRODUCTION

         This is a declaratory judgment action brought by Plaintiffs Pazuniak Law Office LLC and George Pazuniak (collectively, "Pazuniak Law") against Defendants Pi-Net International, Inc. ("Pi-Net") and Lakshmi Arunachalam, Ph.D. Through the Second Amended Complaint, Pazuniak Law seeks a declaration regarding the distribution of certain funds held in an IOLTA trust account. Pazuniak Law also seeks a declaration as to its right to recover costs for providing files to Pi-Net upon the termination of Pazuniak Law's services to Pi-Net and Dr. Arunachalam. Dr. Arunachalam answered the Second Amended Complaint and counterclaimed (the "Answer and Counterclaim") against Pazuniak Law and a new third party, O'Kelly and Ernst, LLC (the "O'Kelly Firm").

         On April 13, 2017, Pazuniak Law and the O'Kelly Firm filed the Joint Motion to Dismiss all Counterclaims and Third-Party Claims Filed by Defendant Arunachalam (the "Motion to Dismiss"). Through the Motion to Dismiss, Pazuniak Law and the O'Kelly Firm seek dismissal of all counterclaims and third-party claims asserted by Dr. Arunachalam. Dr. Arunachalam responded to the Motion to Dismiss on May 3, 2017 with Opposition to Plaintiffs' and Third Party O'Kelly & Ernst Joint Motion to Dismiss all Counterclaims and Third-Party Claims Filed by Defendant; with New Claims Per Rules 13(b) and 17; Leave to Amend Counterclaims in the Interest of Justice Per Rules 15, 13, and 17 (the "Opposition").[1] On May 15, 2017, Pazuniak Law and the O'Kelly Firm filed their Reply Brief in Support of Joint Motion to Dismiss all Counterclaims and Third-Party Claims filed by Arunachalam (the "Reply").

         Upon review, the Court has determined that no hearing is necessary on the issues and arguments raised in the Motion to Dismiss, the Opposition and the Reply. This is the Court's decision on the Motion to Dismiss. For the reasons set forth below, the Court GRANTS in Part and DENIES in Part the Motion to Dismiss.

         II. RELEVANT FACTS

         Pazuniak Law Office LLC is a law firm organized under the laws of the State of Delaware with its principal place of business in Wilmington, Delaware.[2] George Pazuniak is an attorney licensed to practice law in the State of Delaware, and is the owner of Pazuniak Law Office LLC.[3] O'Kelly and Ernst, LLC is a law firm organized under the laws of the State of Delaware with its principal place of business in Wilmington, Delaware.[4]

         Pi-Net International, Inc., a California corporation, is the assignee of certain patents invented by Lakshmi Arunachalam.[5] Lakshmi Arunachalam, a California resident, is the principal owner and chief executive officer of Pi-Net and a related entity, WebXchange, Inc. ("WebX").[6]

         A. Pazuniak Law represents Pi-Net, WebX, and Dr. Arunachalam

         On January 25, 2012, Pazuniak Law entered into a retainer agreement (the "Retainer Agreement") with Dr. Arunachalam, Pi-Net, and WebX.[7] Dr. Arunachalam hired Pazuniak Law to litigate a series of WebX and Pi-Net patent infringement cases in the United States District Court for the District of Delaware (the "Delaware District Court").[8] Pursuant to the Retainer Agreement, recoveries for alleged patent infringement obtained by Pazuniak Law on behalf of Pi-Net and Dr. Arunachalam would be placed into Pazuniak Law's IOLTA escrow trust account.[9] Thereafter, a portion of the recoveries would be retained in escrow and the remainder distributed to Pi-Net, Dr. Arunachalam, and Pazuniak Law in accordance with the terms of the Retainer Agreement's contingent fee schedule.[10]

         Over the next two years, Pazuniak Law represented Dr. Arunachalam and Pi-Net in a series of patent infringement cases in the Delaware District Court.[11] After a series of disagreements, however, Pi-Net and Dr. Arunachalam terminated Pazuniak Law as counsel on August 12, 2014.[12] After the termination, Pazuniak Law attempted to make a final distribution of the funds in the IOLTA trust account.[13] Pi-Net and Dr. Arunachalam contested and ultimately rejected Pazuniak Law's accounting of the funds.[14]

         Thereafter, Pi-Net and Dr. Arunachalam filed a series of complaints with the Delaware Office of Disciplinary Counsel ("DODC"). The DODC did not find any error in Pazuniak Law's legal representation of Dr. Arunachalam and Pi-Net. However, DODC advised Pazuniak Law to clear the trust account, even if it required filing an interpleader action.

         B. Pazuniak Law seeks declaratory judgment as to the funds in its IOLTA trust account

         On September 19, 2014, Pazuniak Law filed an action in the Court of Common Pleas seeking a declaratory judgment regarding the distribution of the trust funds (the "Initial Complaint"). The Initial Complaint sought declaratory judgment against Pi-Net only, as Dr. Arunachalam disputed only those expenses related to Pi-Net patent litigations.

         On November 14, 2014, Dr. Arunachalam filed a complaint against Pazuniak Law in the U.S. District Court for the Northern District of California (the "California District Court"). The complaint asserted claims for malpractice, breach of fiduciary duty, theft, blackmail, elder abuse, sexual and ethnic harassment, intoxication, and mental instability. By motion of Pazuniak Law, the California District Court transferred the case to the Delaware District Court (the "Delaware District Court Action").[15] The Delaware District Court Action remains active and is pending before the Delaware District Court.[16]

         Based on the claims in the Delaware District Court Action, on December 1, 2014, Pazuniak Law filed a First Amended and Supplement Complaint (the "First Amended Complaint"). The First Amended Complaint added claims against both Pi-Net and Dr. Arunachalam for libel and tortuous interference with prospective business opportunities. Pazuniak Law also moved to transfer this action to this Court under 10 Del. C. § 1902 ("Section 1902"). The Court of Common Pleas entered an order transferring this action on December 19, 2014. Dr. Arunachalam filed an initial answer to the First Amended Complaint on October 7, 2016.

         C. Litigation in this Court

         Since receiving this civil action, the Court has issued dozens of orders on various issues raised by the parties, few of which addressed or resolved any dispositive issue.[17] Most notably, the Court denied multiple requests by Dr. Arunachalam to substitute herself for Pi-Net or otherwise act on behalf of Pi-Net.[18] The Court explained that Pi-Net, as a corporation, had to be represented by a licensed attorney and could not appear pro se. Despite this explanation, Pi-Net never answered the Initial Complaint or the First Amended Complaint. Consequently, on October 24, 2016, Pazuniak Law filed a motion for entry of default judgment against Pi-Net.[19]On February 21, 2017, the Court entered default judgment against Pi-Net, but reserved judgment as to distribution of the IOLTA funds until the other claims in this case are resolved.[20]

         On February 23, 2017, the Court granted Pazuniak Law leave to file a second amended complaint (the "Second Amended Complaint").[21] The Second Amended Complaint, filed on March 8, 2017, dismissed the tort claims against Pi-Net and Dr. Arunachalam and added a new claim for declaratory judgment against Dr. Arunachalam.[22] The Second Amended Complaint now seeks declaratory judgment as to Pi-Net (Count I) and Dr. Arunachalam (Count II) regarding distribution of the trust funds and Pazuniak Law's right to recover costs for providing certain files to Pi-Net.

         On April 7, 2017, Dr. Arunachalam filed the Answer and Counterclaim and asserted counterclaims against Pazuniak Law and the O'Kelly Firm as a third-party defendant.[23] Dr. Arunachalam counterclaims against Pazuniak Law for: Malicious Abuse of Process (Count I); Perjury (Count III); Honest Services Fraud (Counts IV); Honest Services Fraud and Elder Financial Abuse (Count V); Indifference to Obstructing Justice (Count VI); and Conspiracy (Count VII). Dr. Arunachalam also counterclaims against Pazuniak Law and the O'Kelly Firm for: Intentional Infliction of Emotional Distress (Count II); Defamation (Count XI); False Light (Count XII); and Misappropriation of Client Funds and IOLTA Account Funds and Breach of Contract (Count XIII).[24]

         Now, through the Motion to Dismiss, Pazuniak Law and the O'Kelly Firm move to dismiss the ten counterclaims.

         III. PARTIES' CONTENTIONS

         Pazuniak Law and the O'Kelly Firm move to dismiss the counterclaims pursuant to Rule 12(b)(6) of the Superior Court Civil Rules ("Civil Rule 12(b)(6)"). Pazuniak Law and the O'Kelly Firm argue that Dr. Arunachalam does not plead facts to support the counterclaims against either party, or demonstrate that the counterclaims are cognizable under the facts of this case.

         Dr. Arunachalam claims that she alleges conduct by Pazuniak Law and the O'Kelly Firm, in prior and current legal proceedings, that gives rise to and supports the counterclaims. Dr. Arunachalam also contends that the counterclaims are legally cognizable claims based on Pazuniak Law and the O'Kelly Firm's representations and actions.

         IV. STANDARD OF REVIEW

         Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[25] However, the Court must "ignore conclusory allegations that lack specific supporting factual allegations."[26]

         Here, because Dr. Arunachalam is proceeding pro se, the Court must "liberally construe" the pleadings filed by Dr. Arunachalam, meaning that the Court must hold the pleadings, however, unartfully pleaded, "to less stringent standards than formal pleadings drafted by lawyers."[27]

         V. DISCUSSION

         A. Count I: Malicious Abuse of Process against Pazuniak Law

         Dr. Arunachalam's malicious abuse of process claim touches upon two separate causes of action: malicious prosecution and abuse of process. The Court must liberally construe Count I and so it will address each cause of action in turn.

         i. Malicious Prosecution

         To sustain a malicious prosecution claim, the aggrieved party must establish: (i) the institution of civil proceedings; (ii) without cause; (iii) with malice; (iv) termination of the proceedings in the aggrieved party's favor; and (v) damages which were inflicted upon the aggrieved party by seizure of property or other special injury.[28] Dr. Arunachalam does not plead facts to sustain a malicious prosecution claim. Dr. Arunachalam does not allege that Pazuniak Law initiated a prior proceeding against her, much less that that proceeding was terminated in Dr. Arunachalam's favor. Dr. Arunachalam briefly mentions the Court of Common Pleas action;[29] however, transferring a case from the Court of Common Pleas to this Court under Section 1902 does not constitute "termination of the proceedings in the aggrieved party's favor" for purposes of a malicious prosecution claim. Instead, this civil action was transferred under a Delaware statute from the Court of Common Pleas to this Court.

         ii. Abuse of Process

         To redress this "procedural pitfall" of a malicious prosecution claim-that an aggrieved litigant cannot bring an action until a prior action terminated in his favor-the tort of abuse of process was created. [30] Abuse of process concerns "perversion[s] of the process after it has been issued."[31] The elements of abuse of process are: (i) an ulterior purpose; and (ii) a willful act in the use of process not proper in the regular conduct of the proceeding.[32] Delaware courts have made clear, however, that these two elements require "some definite act or threat not authorized by the process . . . Merely carrying out the process to its authorized conclusions, even though with bad intentions, will not result in liability."[33] In other words:

Some form of coercion to obtain collateral advantage, not properly involved in the proceeding itself, must be shown, such as obtaining the surrender of property or the payment of money by the use of the process as a threat or club. In other words, a form of extortion is required."[34]

         The pleaded facts, even when viewed in a light most favorable to Dr. Arunachalam, do not support an abuse of process claim. Count I states that Pazuniak Law engaged in abuse of process by willfully and intentionally failing to attach and provide a copy of the Retainer Agreement in the Initial Complaint and First Amended Complaint.[35] Count I also refers to Pazuniak Law's alleged deceit in "adding the Trust Agreement into his 1st Amended Complaint."[36] On a whole, the Answer and Counterclaim make allegations of bad faith against Pazuniak Law in initiating the action based on Pazuniak Law's misinterpretation of the Retainer Agreement.[37] However, these facts, even if true, do not support a finding that Pazuniak Law acted with the required malice, improper motive, or wanton disregard for the rights of Dr. Arunachalam. The case law makes clear that an abuse of process claim contemplates some overt act done in addition to the initiating of a lawsuit.[38] The mere filing of a lawsuit, even if done with an improper motive or based upon an unjustified reading of an agreement, is insufficient to sustain a claim for abuse of process.[39] Dr. Arunachalam complains of actions taken during the litigation with respect to attachments to pleadings. Such claims do not rise to the level of a cognizable claim for abuse of process.

         Therefore, whether Dr. Arunachalam pleads a malicious prosecution or an abuse of process claim, the Court will dismiss Count I against Pazuniak Law.

         B. Count II: Intentional Infliction of Emotional Distress against Pazuniak Law and the O'Kelly Firm

         Dr. Arunachalam next brings a counterclaim for intentional infliction of emotional distress ("IIED") against Pazuniak Law and the O'Kelly Firm.

         In Delaware, an IIED claim is defined by Section 46 of the Restatement (Second) of Torts.[40] An IIED claim arises when "[o]ne who by extreme and outrageous conduct intentionally or recklessly causes severe emotion distress to another is subject to liability for such emotional distress, and if bodily harm to the other results from it, such bodily harm."[41] Courts interpret extreme and outrageous conduct to be that which "exceeds the bounds of decency and is regarded as intolerable in a civilized community."[42]

         To constitute extreme and outrageous conduct, it is not enough that the defendant has acted with tortious or criminal intent or even that his conduct involved malice sufficient to sustain a claim for another tort.[43] Instead, courts have found liability "only where the conduct has been so outrageous in character and extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community."[44]Whether the defendant's conduct may reasonably be regarded as so extreme and outrageous as to permit recovery is a determination for the court in the first instance.[45] However, if reasonable minds may differ on this determination, the question is left for the jury.[46]

         Count II pleads IIED based on Pazuniak Law's conduct in transferring the case from the Court of Common Pleas to this Court. Dr. Arunachalam points to Pazuniak Law's "arrogantly lawless and outrageous propounding of lies uttered to the lower court that the agreed upon escrow account was below $50, 000; and to the Superior Court that the agreed upon escrow account was above $50, 000" to support the claim.[47] Furthermore, Dr. Arunachalam alleges that this conduct compromised "the integrity of the courts, and confidence of the public's trust and reasonable expectation of a minimum standard of lawfulness."[48] Dr. Arunachalam does not plead any facts to assert IIED against the O'Kelly Firm.

         Pazuniak Law may have erred when filing this action in the Court of Common Pleas. Upon the filing of the First Amended Complaint, it became necessary for Pazuniak Law to move this civil action from the Court of Common Pleas to this Court because the Court of Common Pleas no longer had subject matter jurisdiction. Pazuniak Law remedied that by transferring the civil action to this Court under Section 1902. Pazuniak Law's conduct was not impermissible or otherwise fraudulent; in fact, it is expressly contemplated by Section 1902.[49] The Court does not find that instituting civil proceedings in the first instance, when instructed by the DODC to do so, or later transferring the civil action to this Court under Section 1902 constitutes extreme or outrageous conduct which would warrant civil liability. No reasonable mind could disagree. Therefore, the Court will dismiss Count II against Pazuniak Law and the O'Kelly Firm.

         C. Counts III, VI, and VII: Perjury, Obstruction of Justice, and Conspiracy against Pazuniak Law

         Dr. Arunachalam next counterclaims against Pazuniak Law for perjury, obstruction of justice, and conspiracy. Because these claims and the facts in support thereof are interrelated, the Court will address the claims together in turn.

         i. Perjury

         Perjury is a criminal offense statutorily defined in 11 Del. C. § 1221. Generally, a person is guilty of perjury when the person swears falsely under oath.[50] A person "swears falsely" when the person "intentionally makes a false statement or affirms the truth of a false statement previously made, knowing it to be false or not believing it to be true, while giving testimony or under oath in a written instrument" or in certain types of declarations.[51]

         Dr. Arunachalam's perjury counterclaim is difficult to discern. It appears Dr. Arunachalam is arguing that Pazuniak Law committed perjury by altering a material court document, which in this case appears to be the Retainer Agreement and other "court filings."[52]Dr. Arunachalam does not explain how Pazuniak Law altered the Retainer Agreement or any other documents presently before the Court. Even if she did, Dr. Arunachalam does not plead any false statement made by Pazuniak Law while giving testimony under oath or in a declaration. Neither the Retainer Agreement nor any pleading or document produced by Pazuniak Law was signed or submitted by Pazuniak Law under oath.

         ii. Obstruction of Justice

         Obstruction of justice is defined under 18 U.S.C. § 1501-21 and encompasses many different criminal offenses. For example, an individual may be guilty of obstruction of justice if the individual obstructs a court order or state or local law enforcement or if the individual tampers with or retaliates against a witness, victim, or informant.[53]

         Dr. Arunachalam's obstruction of justice claim is again difficult to decipher. Dr. Arunachalam alleges that Pazuniak Law obstructed justice by "trick[ing] the Superior Court into changing the terms of [Pazuniak Law's] own contract retaining agreement" and by placing before the Court "knowingly false assertions."[54] These allegations lack any factual support. Dr. Arunachalam does not identify which "false statements" are presently before the Court, how those statements are false, or why those statements give rise to an obstruction of justice claim. In addition, despite litigating numerous issues in this case, the Court has not yet substantively ruled upon any issues related to the Retainer Agreement. Accordingly, there is no basis for Dr. Arunachalam's claim that the Court altered the terms of the Retainer Agreement in favor of Pazuniak Law.

         iii. Conspiracy

         Conspiracy is a criminal offense defined in 11 Del. C. § 521. Generally, a person is guilty of conspiracy when, "intending that another person engage in conduct constituting" a misdemeanor or felony, "the person, solicits, requests, commands, importunes, or otherwise attempts to cause the other person to engage in conduct which would constitute" the misdemeanor or felony.[55]

         There are no facts in Count VII to support a conspiracy claim. Dr. Arunachalam's entire basis for Count VII appears to be Pazuniak Law's unlawful retention of the trust funds for four years in violation of the Retainer Agreement.[56] Dr. Arunachalam accuses Pazuniak Law of laundering the IOLTA account funds, and asks the Court to issue a "bench warrant for plaintiff."[57] There is no accusation that Pazuniak Law solicited another person to engage in criminal conduct or any other facts that remotely support the criminal offense of conspiracy.

         As a final point, aside from the ambiguity of the foregoing claims, Dr. Arunachalam does not articulate how, under Delaware law, she is able to assert a criminal offense of perjury, obstruction of justice, or conspiracy against Pazuniak Law in a civil proceeding. The claims are simply not actionable as civil claims under the facts of this civil action and as ...


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