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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 Defendant Lakshmi-Arunachalam Ph.D.'s Renewed Motion in 14-Point Font for Summary Judgment to Dismiss Counts I and II of Plaintiffs' Second Amended Complaint and to Vacate Default Judgment against Pi-Net as Plaintiffs Got That by Fraud on the Court and Perjury DENIED

          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 (the "Answer") and counterclaimed against Pazuniak Law and a new third party, O'Kelly and Ernst, LLC (the "O'Kelly Firm"). Pi-Net never filed an answer and the Court entered default judgment against Pi-Net on February 21, 2017.

         Dr. Arunachalam now seeks summary judgment on Counts I and II of the Second Amended Complaint. Dr. Arunachalam also seeks to vacate the default judgment entered against Pi-Net. On April 11, 2017, Dr. Arunachalam filed Defendant Lakshmi Arunachalam, Ph.D.'s Renewed Motion in 14-Point Font for Summary Judgment to Dismiss Counts I and II of Plaintiffs' Second Amended Complaint and to Vacate Default Judgment against Pi-Net as Plaintiffs got that by Fraud on the Court and Perjury (the "Motion"). Pazuniak Law responded to the Motion with the Answering Brief in Opposition to Motions for Summary Judgment and to Vacate Default Judgment Filed by Defendant Arunachalam; and Cross Motion for Summary Judgment (the "Opposition"). Pazuniak Law filed the Opposition on May 2, 2017.[1] Dr. Arunachalam replied on May 15, 2017 with Defendant Lakshmi Arunachalam, Ph.D.'s Reply Brief to Plaintiffs' Opposition to Defendant's Motions for Summary Judgment and to Vacate Default Judgment; Opposition to Plaintiffs' Cross Motion for Summary Judgment; Defendant's Motion to Intervene Pursuant to Rules 17, 19, and 24; and Motion to Substitute Parties Pursuant to Rules 17 and 25(c) (the "Reply").

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

         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]

         Pi-Net International, Inc., a California corporation, is the assignee of certain patents invented by Lakshmi Arunachalam.[4] Lakshmi Arunachalam, a California resident, is the principal owner and chief executive officer of Pi-Net and a related entity, WebXchange, Inc. ("WebX").[5]

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

         On January 25, 2012, Pazuniak Law entered into a retainer agreement (the "Retainer Agreement") with Dr. Arunachalam, Pi-Net, and WebX.[6] 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").[7] 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.[8] 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.[9]

         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.[10] After a series of disagreements, however, Pi-Net and Dr. Arunachalam terminated Pazuniak Law as counsel on August 12, 2014.[11] After the termination, Pazuniak Law attempted to make a final distribution of the funds in the IOLTA trust account.[12] Pi-Net and Dr. Arunachalam contested and ultimately rejected Pazuniak Law's accounting of the funds.[13]

         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").[14] The Delaware District Court Action remains active and is pending before the Delaware District Court.[15]

         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.[16] Most notably, the Court denied multiple requests by Dr. Arunachalam to substitute herself for Pi-Net or otherwise act on behalf of Pi-Net.[17] The Court explained that Pi-Net, as a corporation, had to be represented by a licensed attorney and could not appear pro se. Specifically, in an Order dated June 30, 2016, the Court explained:

Pi-Net cannot proceed pro se in this civil action. A corporation is regarded as an artificial or fictional entity, and not a natural person. This is true even though a corporation, like Pi-Net, is a legally recognized entity. A natural person may represent himself or herself in this Court even though he or she is not a licensed attorney. However, a corporation, being an artificial entity, can only act through its agents and, before this Court only through an agent duly licensed to practice law. Going forward, the Court will not accept pleadings filed by Pi-Net unless such pleadings are filed by a licensed attorney.[18]

         Later in an Order dated October 19, 2016, the Court explained that even if Pi-Net was now "defunct, " as argued by Dr. Arunachalam, Pi-Net still could not appear pro se:

Even if Dr. Arunachalam dissolved Pi-Net in compliance with California law, the Court cannot substitute Dr. Arunachalam for Pi-Net and allow Dr. Arunachalam to proceed on behalf of Pi-Net pro se. Regardless of who wound up and dissolved Pi-Net, that person, as an individual, cannot represent Pi-Net pro se in court. The Court noted in the June 30, 2016 Order that a corporation can only act through its agents, and, before this court only through an agent duly licensed to practice law. This principle still applies. Dr. Arunachalam is not licensed to practice law and cannot act on behalf of Pi-Net in this Court in a pro se capacity.[19]

         No attorney ever entered an appearance on behalf of Pi-Net, and 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.[20] On February 21, 2017, the Court entered a default judgment (the "Default Judgment Order") against Pi-Net, but reserved judgment as to distribution of the IOLTA funds as between Pazuniak Law and Pi-Net until the other claims in this case are resolved.[21]

         On February 23, 2017, the Court granted Pazuniak Law leave to file a second amended complaint (the "Second Amended Complaint").[22] 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.[23] 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 asserted ten counterclaims against Pazuniak Law and the O'Kelly Firm.[24] On April 13, 2017, Pazuniak Law and the O'Kelly Firm moved to dismiss the counterclaims and third-party claims.[25] By opinion issued concurrently with this Opinion, the Court granted in part and denied in part the motion to dismiss. The Court allowed the counterclaim for breach of contract against Pazuniak Law to proceed. The Court denied all other counterclaims and dismissed the O'Kelly Firm from this civil action.

         Dr. Arunachalam now seeks summary judgment on the declaratory judgment Counts I and II. Dr. Arunachalam also seeks to vacate the Default Judgment Order entered against Pi-Net, and, in the Reply, raises for the first time a request to "intervene pursuant to Rules 17, 19, and 24" and "substitute parties pursuant to Rules 17 and 25(c)."

         III. ...


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