When Does Failure to Inform Tip Over Into Judiciary Law 487?
AQ Asset Mgt., LLC v Levine 2014 NY Slip Op 05244 Decided on July 10, 2014 Appellate Division, First Department is a big commercial case with lots of overspill into legal malpractice and claims of Judiciary Law 487 violations.
"By an amended stock purchase agreement (SPA) effective December 9, 2005, defendants Habsburg and Patrizzi (together the Sellers) agreed to sell half of the shares in a group of companies (the Antiquorum entities) to Artist House Holdings, Inc. (Artist House), predecessor to plaintiff AQ Asset Management, LLC (AQ)[FN1]. The Antiquorum entities included plaintiffs Antiquorum, S.A. (ASA) and Antiquorum USA, Inc. (AUSA). Defendant Michael Levine, an attorney, provided legal counsel to the Sellers, drafted the SPA and other transaction documents, and served as the escrow agent for the deal. Plaintiff Evan Zimmermann, also an attorney, helped broker the transaction and is alleged by the Sellers to have been their legal counsel throughout.
The SPA provided that the Sellers would receive $30 million dollars in cash, as well as proceeds from the sale of certain inventory held by the Antiquorum entities. In order to pay the book value of the inventory, the SPA provided that ASA was to execute a promissory note obligating it to pay, to an unspecified third party, the sum of 16 million Swiss Francs (CHF) within six months of the SPA's execution date. The SPA further provided that, "[a]lternatively, Patrizzi may become personally responsible [for payment of the CHF 16 million] to any Stockholder which is entitled thereto."
"Patrizzi alleges that Levine and Zimmermann purposely misrepresented the contents of the SPDA to induce him to sign it. According to Patrizzi, because he does not fully comprehend written English, he did not read the document and instead relied on Levine and Zimmermann to inform him of its contents. Patrizzi alleges that Levine and Zimmermann falsely told him that Zimmermann would receive Patrizzi's shares after a period of three years. The SPDA, however, states that the shares would be transferred to an entity jointly owned by Patrizzi and Zimmermann without a three-year delay. Patrizzi further alleges that Levine and Zimmermann did not tell him that the SPDA gave Zimmermann rights to half of Patrizzi's share of the inventory sale proceeds, or that Levine had an economic interest in part of those monies. Finally, Patrizzi claims that he was never told that he should retain independent counsel."
"The Sellers contend that after the $2 million was transferred to Levine's escrow account, Artist House, Levine and Zimmermann wrongfully conspired to oust the Sellers from ASA. At a shareholders meeting held in August 2007, Artist House and Zimmermann relied on the SPDA's purported grant to Zimmermann to vote half of Patrizzi's shares. Using this power, Artist House and Zimmermann gained control of the company, Patrizzi and Verhoeven were removed from the board of directors, and Zimmermann ultimately became the new CEO.
In January 2008, Levine wrote to Habsburg, Patrizzi, Zimmermann and Artist House asking whether they consented or objected to his returning the $2 million to ASA. Levine stated that he would not release the funds absent consent of all necessary parties or a judicial direction to do so. Both Patrizzi and Habsburg wrote back to Levine objecting to release of the money. In August 2010, Zimmermann notified Levine that the $2 million had nothing to do with the sale of inventory and requested its return to ASA. In October 2010, Levine released the $2 million to ASA and/or Zimmermann.
"The motion court correctly dismissed the ninth and tenth causes of action in the fourth-party complaint alleging legal malpractice against Levine, and the seventeenth counterclaim alleging legal malpractice against Zimmermann, as barred by the three-year statute of limitations (see CPLR 214; Champlin v Pellegrin, 111 AD3d 411 [1st Dept 2013]). These claims accrued no later than August 2007, when the Sellers became aware of Levine's and Zimmermann's alleged betrayal and any attorney-client relationship had come to an end. Since the claims were not brought until, at the earliest, December 2010, when this action was commenced, they are untimely."
"The sixth interpleader counterclaim and seventh cause of action in the fourth-party complaint, which allege that Levine violated Judiciary Law § 487 by bringing his interpleader claims without informing the court of his purported business relationship with Zimmermann, were properly dismissed. The absence of such information in Levine's interpleader pleading does not rise to the level of "withholding of crucial information from a court" or "conceal[ing] from a court . . . a fact . . . required by law to [be] disclose[d]" (see Melcher v Greenberg Traurig, LLP, 102 AD3d 497 [1st Dept 2013], revd on other grounds __ NY3d __ )."