Utilisave, LLC v Fox Horan & Camerini, LLP  2018 NY Slip Op 33284(U)  December 18, 2018  Supreme Court, New York County  Docket Number: 652318/2014  Judge: Kathryn E. Freed is a complicated case involving rotating ownership of a party in litigation, purchases from the liquidating trustee and 10 lawsuits in multiple states.  Judge Freed eventually rules on summary judgment in what is otherwise a summary decision.

“Utilisave is a limited liability company organized in Delaware with its principal place of business in this state (affirmation of James G. McCamey [McCamey affirmation], exhibit P [complaint] 1 6). Nonparty Michael H. Steifman (Steifman) founded Utilisave’s predecessor in 1991 and served as a Utilisave employee (id.,  9, 14). Nonparty MHS Venture Management  Corp. (MHS), an entity wholly owned by Steifman, was one of Utilisave’s two managing members (id.,  13). Mikhael Khenin (Khenin), the second managing member, was Utilisave’s CEO (id.) In 2007, Steifman and MHS brought an action against Khenin and Utilisave, Stefman v Khenin, Supreme Court, Westchester County Index Number 8271/2007 (the Prior Action), for wrongfully withholding distributions and salary payments and for removal of Khenin as CEO (complaint 15-16). Fox, a law firm based in New York, and Rivkin, a former partner at Fox, represented Utilisave from January 2008 through July 2011, when a judgment was entered against Utilisave after a bench trial (id.,  7-8, 19 and 32).
Plaintiff alleges that, during the pendency of the Prior Action, Khenin’s term as CEO expired in 2009, as set forth in his employment agreement. Nonetheless, under defendants’ counsel, Khenin renewed his employment agreement without MHS’s knowledge, irrespective of the terms in Utilisave’s operating agreement that required the consent of both managing members (id.,  57). Khenin then paid himself unauthorized distributions and excessive compensation, misappropriated Utilisave’s confidential information, and undertook other actions that caused Utilisave harm (complaint,  26-32, 45). Ultimately, the judgment in the Prior Action included a declaration that Khenin’s renewed employment agreement was void (id., 57-58). ”

“”The doctrine of collateral estoppel … precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same” (Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984] [internal citations omitted]). Thus, the two elements necessary to invoke collateral estoppel are “an identity of issue which has necessarily been decided in the prior action and is decisive of the present action” and “a full and fair opportunity to contest the decision now said to be controlling” (Buechel v Bain, 97 NY2d 295, 303-304 [200 I], cert denied 535 US 1096 [2002] [internal citation omitted]). “[T]he burden rests upon the proponent of collateral estoppel to demonstrate the identicality and decisiveness of the issue, while the burden rests upon the opponent to establish the absence of a full and fair opportunity to litigate the issue in the prior action or proceeding” (Ryan, 62 NY2d at 501 ).
The court finds that the Disqualification Order has no preclusive effect on the present action. First, with respect to the element of identicality of issues, the Disqualification Order did not determine any issue that would have precluded a legal malpractice claim against defendants (see Wachtel!, Lipton, Rosen & Katz v CVR Energy, Inc., 143 AD3d 648, 648-649 [I st Dept 2016]). To state a cause of action for legal malpractice, a plaintiff must plead “the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and actual damages” (Leder v Spiegel, 31 AD3d 266, 267 [1st Dept 2006], a.ffd 9 NY3d 836 [2007], cert denied, 552 US 1257 [2008] [citations omitted]). The two issues necessarily decided in the Disqualification Order related to whether the court should (I) disqualify Butler, Fitzgerald, Fiveson & McCarthy P.C. and Tibbets, Keating & Butler, LLC from representing Utilisave because of purported conflicts of interest and (2) order Khenin to consult with and obtain Steifman’s consent on the selection and retention of counsel for Utilisave. Whether defendants were negligent in providing Utilisave with advice was not at issue in the Prior Action. Likewise, the Prior Action did not determine whether defendants breached their contract to Utilisave, whether defendants aided and abetted Khenin’s breach of his fiduciary duty to Utilisave, and whether defendants were unjustly enriched because they were paid for the legal services rendered.

Furthermore, defendants were not in privity with Utilisave, Steifman, MHS or Khenin in the Prior Action. Privity is an “amorphous concept not easy of application” (D ‘Arata v New York Cen. Mut. Fire Ins. Co., 76 NY2d 659, 664 [1990] [citation omitted]). A nonparty to a prior litigation may be deemed in privity with a party in a prior litigation if “his [or her] own rights or obligations in the subsequent proceeding are conditioned in one or another on, or derivative of, the rights of the party to the prior litigation” (id. [citations omitted]). Plainly, Utilisave’s claims are not derivative of or conditioned upon the rights of any party in the Prior Action. More importantly, the language in thepisqualification Order does not absolve defendants of any a_llegedly negligent actions they may have taken. Indeed, the complaint alleges that Utilisave was harmed by defendants’ representation of it in the Prior Action, not that Khenin’s selection of defendants as Utilisave’s counsel was improper. “