$ 30 Million at Stake and Too Late For Legal Malpractice

AQ Asset Mgt. LLC v Levine  2014 NY Slip Op 30489(U) February 27, 2014  Sup Ct, New York County  Docket Number: 652367/2010  Judge: Shirley Werner Kornreich is the story of a big deal gone bad, and how that failure devolves into looking for suspects.  Put another way, the clients are now looking to see how and why they might get more money back.  In a case that has spanned 37 motions and more than 1200 documents the parties aren't even through depositions.  One thing is clear...it's too late to sue for legal malpractice.  The only question left is fraud and accounting for $30 Million.

"Pursuant to an order dated March 22, 2013, Levine deposited $3,420,787.01 into court, which he claimed represented the remaining balance of the escrow funds at issue in this action. By order dated April 9, 2013, he was directed to account for his handling of the escrow from the time of receipt until the time of deposit. Levine produced an affidavit of account, which he claims sets forth all of the transactions related to the escrow, with supporting exhibits attached. According to Levine's affidavit, the principal, original escrow amount remaining was $3,405,979.68; the amount
deposited with the court included accrued interest to which Levine claims he is entitled. By order dated October 16, 2013, pursuant to a decision by the Appellate Division, the court directed that the monies deposited by Levine be released to defendants' attorney (NYSCEF Doc No. 1053).
On April 22, 2013, plaintiffs served a reply to defendants' original counterclaims. On May 6, defendants served an amended answer, containing counterclaims against plaintiffs  and cross-claims against Michael Levine. Though the amended answer contained a demand that Levine answer (see amended cross-claims~ 305; CPLR 3011 ), Levine has refused to do so. "

"A. Default Judgment
As indicated at oral argument, the issue of Levine's responsive pleading shall be resolved by requiring him to serve an answer to defendants' cross-claims within twenty days. That branch of the motion seeking to hold him in default for failing to answer, therefore, is denied.

B. Cross-Motion to Dismiss
In their amended answer defendants allege that, acting in concert with Zimmermann and Artist House, Levine misled Patrizzi as to the contents of the Distribution Agreement, thereby inducing him to sign it. That agreement was later used to confer voting rights on Zimmermann, who in tum used his power to join with Artist House in removing Patrizzi from management and, later, in reducing defendants' shares in the Company to zero. Defendants also have called into question the final $300,000 payment Levine claims to have made from the escrow to procure a financing commitment from an entity known as Karastir LLC (Karastir), contending that they never authorized that disbursement. These allegations are sufficient to sustain defendants' third and fourth cross-claims against Levine for fraud and breach of his fiduciary duties as escrow agent. Similarly, defendants' first cross-claim for a declaratory judgment that they are entitled to all funds or shares that were delivered to or held by Levine as part of the stock transaction is viable, as is their demand for an accounting.
The other cross-claims challenged here lack merit. The second cross-claim seeks a declaration that defendants have satisfied all of their obligations under the stock purchase agreement and bear no further liability arising out of the stock transaction. Defendants do not explain how any controversy regarding their obligations thereunder could implicate Levine, who was not a party to the transaction. The second cross-claim is dismissed. Since the court has previously held that defendants cannot maintain any claim based on their supposed entitlement to a certain payment of $2 million that was made to Levine's escrow account in 2006 and released by him to  Antiquorum in 2010 (decision & order, Mar 28, 2013, 18-19), the eighth, eleventh and twelfth cross-claims (for constructive fraud, conversion and fraudulent concealment) are dismissed in their entirety, and the third cross-claim for fraud is also dismissed to the extent it relates to the transfer of these funds. Defendants are attempting to use their right to replead to improperly circumvent a decision on the merits which has not been reversed or modified and for which they did not seek reargument (DiPasquale v Sec. Mut. Life Ins. Co. of New York, 293 AD2d 394, 395 [1st Dept 2002] citing Societe Nationale d'Exploitation Jndustrielle des Tabacs et Allumettes v Salomon Bros. Intl., Ltd., 268 AD2d 373, 374 [1st Dept 2000] Iv denied 95 NY2d 762 [2000]; Romanov Kassebaum, 250 AD2d 661, 662 [2d Dept 1998]; see also The Plaza PH2001 LLC v Plaza Residential Owner LP, 98 AD3d 89, 98 [lst Dept 2012] [upholding dismissal of second action commenced prior to  modification of motion court's dismissal of first action on merits])."

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