Comer v Krolick   2015 NY Slip Op 32274(U)  December 2, 2015  Supreme Court, New York County  Docket Number: 651767/2014   Judge: Shirley Werner Kornreich is a fascinating look at the world of big investments in the banking field, and how a Wisconsin guy got roped into a huge investment that either unluckily or fraudulently went sour. We’ll look at the intersection of fraud and legal malpractice.

“Plaintiff Colin E. Comer lives and works in Milwaukee, Wisconsin. He owns and operates plaintiff Classic Auto, L.L.C. (Classic), a business that purchases and renovates classic cars. Krolick is a New York licensed attorney and a licensed securities broker. In 2004, Comer • I I f [* 1] and Krolick met when Krolick contacted Comer to purchase a classic car. Since then, and until the events giving rise to this action, they had a close personal friendship that included vacationing together and spending time with each other’s friends and family. They also provided professional services for each other without charge, described by plaintiffs as a “bartering arrangement”. For instance, Krolick assisted Comer with legal matters, such as a mortgage refinancing and pre-nuptial agreement, and Comer would not charge Krolick his usual commissions and fees for brokering classic car transactions. The instant dispute arose from an investment Comer made in a bank holding company, which was solicited by Krolick in February 20 I 0. Comer allegedly had reservations regarding the investment, but “Krolick specifically advised Comer that he would not need to worry about the financial and legal complexities of investing in a bank because Krolick was an insider, and would be acting to protect Comer’s interests as his attorney and investment advisor, as he had always done.” Complaint~ 35 (emphasis added). 1 The complaint states that Krolick advised Comer to invest in Modern Capital Holding (MCH), which would be the general partner of Modern Capital Partners (MCP). 2 Krolick and Del Giudice were principals of MCP. They also worked for defendant MCM, and allegedly solicited the subject transactions from MC M’s office.”

“Plaintiffs assert causes of action against Krolick for malpractice, fraud, breach of r fiduciary duty, negligent misrepresentation, conversion, and unjust enrichment. These claims seek redress for two sets of alleged wrongs. To begin, plaintiffs allege that Comer’s first investment of $1 million was induced by Krolick’s misrepresentations about the nature of the investment. Next, plaintiffs allege that Comer’s subsequent $2 million investment was induced by Krolick’s representation that it would be a bridge loan, not additional equity. Plaintiffs claim both investments were made as a product of legal malpractice and fraud. They contend Krolick, allegedly acting as Comer’s attorney, did not accurately portray the nature of the investments, what the moneys would be used for, or the contractual terms that would govern repayment. Plaintiffs further contend that but for these misrepresentations, they never would have invested. Krolick seeks dismissal of both the malpractice and fraud claims. He argues that he did not serve as Comer’s attorney with respect to the subject investments, that the terms governing the contracts (e.g., the merger clauses) preclude Comer’s claims of extra-contractual representations and oral agreements, and that plaintiffs suffered no proximately caused losses. On this motion to dismiss, Krolick’s arguments fail. ”

“Next, Krolick argues that plaintiffs fail to state a claim for fraud. He further argues that, at best, the malpractice and fraud claims are duplicative and plaintiffs should not be allowed to simultaneously maintain both claims. “The elements of a cause of action for fraud [are] a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 (2009); see Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc., 115 AD3d 128, 135 (1st Dept 2014). Pursuant to CPLR 3016(b), “the circumstances constituting the wrong shall be stated in detail.” Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 (2008). The complaint states a claim for fraud. Simply put, plaintiffs allege that but for Krolick’s alleged misrepresentations about the nature of the investment, misrepresentations which are set forth with particularity, they would not have invested. Contrary to Krolick’s contentions, plaintiffs have adequately pleaded damages, even though they received the shares provided for in the subscription agreements. Plaintiffs, however, contend that the First Subscription Agreement was represented to be an entirely different investment and the second was represented to be a loan, not an equity investment. In suing for fraud, Comer is seeking what he thought he bargained for. To the extent plaintiffs’ damages should be discounted by the value of the shares plaintiffs received, that is an issue beyond the scope of this motion. Krolick also contends that even if plaintiffs pleaded actual reliance on his representations, the fraud claim nonetheless fails because such reliance was unreasonable as a matter of law. See Stuart Silver Assoc. v Baca Dev. Corp., 245 AD2d 96, 98-99 (1st Dept 1997) (“Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant’s misrepresentations”). Krolick avers that if Comer would have read the subscription agreements, he would have understood that his investment was much different than represented by Krolick. The argument fails since, according to the complaint, Comer did not read the agreements at Krolick’s urging and as a result of his trust in Krolick as his close friend and lawyer. Comer alleges he was hesitant to invest in a bank holding company because of its complexity, but Krolick assured him that the terms would be explained to him so Comer would not, on his own, have to figure out the details. He allegedly was further assured that his lawyer and advisor, Krolick, would protect the investment, and Krolick sent him separate signature pages. For Krolick to now complain, essentially, that Comer should not have listened to him, is simply not a tenable argument on a motion to dismiss. At best, it presents questions of fact, since “[t]he question of what constitutes reasonable reliance is not generally a question to be resolved as a matter oflaw on a motion to dismiss.” ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d 1043, 1045 (2015).

It should be noted that, as Krolick observes, the line between malpractice and fraud is not clear in a case such as this. That is, Krolick’s alleged failure to accurately inform Comer of the investment terms is, as even Krolick admits, an allegation of outright fraud. However, since the elements of fraud are more exacting than malpractice (a negligence claim), that Krolick’s alleged wrongdoing may actually have been undertaken with fraudulent intent is not a reason to foreclose, on a motion to dismiss, the possibility ofrecovery on a negligence theory. See Vermont Mut. Ins. Co. v McCabe & Mack, LLP, 105 AD3d 837, 840 (2d Dept 2013) (“Where, as here, tortious conduct independent of the alleged malpractice is alleged, a motion to dismiss a cause of action as duplicative is properly denied”); see also On the Level Enterprises, Inc. v 49 E. Houston LLC, 104 AD3d 500, 501 (1st Dept 2013) (CPLR 3014 permits a party “to plead inconsistent theories of recovery”).”