In a fact pattern that could have come from a bar exam, Justice Bannon dissects the fraud-discovery-statute of limitations issues arising from a real-estate fraud scheme which is said to have involved attorneys, lenders, borrowers and developers.

D. Penguin Bros., Ltd. v City Natl. Bank  2017 NY Slip Op 31926(U)  September 8, 2017
Supreme Court, New York County  Docket Number: 158949/2014 is about some lenders who lost a large amount of money.

“The plaintiffs served the complaint in Action No. 1 on January 20, 2016, and the complaint in Action No. 2 on May 26, 2015, alleging that the defendants improperly diverted approximately $10 million rightfully belonging to the plaintiffs from numerous real estate investment accounts and escrow accounts maintained for the plaintiffs’ benefit. The Williams defendants moved to dismiss the complaint as against them (Action No. 1, SEQ 002) and Spiegelman moved to dismiss the complaint against him (Action No. 2, SEQ 002) but, by orders dated July 26, 2016, and July 20, 2016, respectively, the defendants were permitted to withdraw the motions when the plaintiffs filed amended complaints in both actions during the pendency of the motions.

The amended complaint in Action No. 1 asserts 52 causes of action and the amended complaint in Action No. 2 asserts 78 causes of action alleging, inter alia, conversion, fraud, forgery, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence, professional malpractice, and breach of contract, and also seeking an accounting.

The amended complaints allege that, in 2005 and 2008, the plaintiffs were induced to invest $4,500,000 with the defendants by false representations that the defendants were going to develop residential buildings for inclusion in federally subsidized housing programs, and that several of the defendants forged deeds and various approvals required from municipal agencies to falsely show the plaintiffs that closings on the sales of the buildings were effected in 2009, and that municipal approvals were acquired thereafter. The amended complaints further alleged that the Williams defendants and Spiegelman misappropriated the invested and escrowed funds without ever entering into actual development agreements or obtaining necessary governmental approvals. The plaintiffs also assert that Spiegelman, on behalf of the Williams defendants and himself, obtained unauthorized loans in the plaintiffs’ names in the sum of $2,200,000, and pocketed the loan proceeds, leaving the plaintiffs responsible for repayment. The plaintiffs aver that the defendants provided them with forged and fraudulent memoranda, thus concealing their scheme from the plaintiffs, and that the plaintiffs did not discover the thefts until February 3, 2011. ”

“”Under res judicata, or claim preclusion, a valid final judgment bars future actions between the same parties on the same cause of action.” Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 347 (1999); see Matter of Reilly v Reid, 45 NY2d 24 (1978). As a general rule, New York applies a “transactional approach” to analyzing the doctrine of res judicata, so that “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy.” O’Brien v Syracuse, 54 NY2d 353, 357 (1981). ” “Since the prior federal court actions were dismissed for failure to state a claim under federal law, and the federal court declined to exercise supplemental jurisdiction over the pendent state-law causes of action, and thus not on the merits, the causes of action asserted here against the Williams defendants, save NBUF, as well as the causes of action asserted against Spiegelman, are not barred by res judicata. See Bielby v Middaugh, 120 AD3d 896 (4th Dept. 2014). The plaintiffs correctly contend that the dismissal of the state-court action against NBUF on the ground that it was time-barred does not have a res judicata effect upon the causes of action asserted against the remaining Williams defendants or Spiegelman because the statute of limitations defense was personal to NBUF and there was no privity between NBUF and the other Williams defendants. See Israel v Wood Dolson Co., 1 NY2d 116 (1956); see also John J. Kassner & Co., Inc. v City of New York, 46 NY2d 544 (1979). “

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.