Katz v Beil  2016 NY Slip Op 05977  Decided on September 14, 2016  Appellate Division, Second Department is an unusually long Appellate Division case which is unusually full of discussion of the various standards for motions, amendments and summary judgment.  Read it as a primer on litigation standards.

1.”Contrary to the plaintiffs’ contention, the Supreme Court, in the order entered January 11, 2013, properly directed the dismissal of the cause of action to recover damages for accounting malpractice asserted against the Finkle defendants. In considering a motion to dismiss pursuant to CPLR 3211(a)(7), a court is required to accept the facts as alleged in the complaint as true, accord the plaintiffs the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Leon v Martinez, 84 NY2d 83, 87-88). Applying that standard here, the amended complaint failed to adequately allege the existence of actual privity of contract between the plaintiffs and the Finkle defendants, or a relationship so close as to approach that of privity, sufficient to impose a professional duty upon the Finkle defendants for the benefit of the plaintiffs (see Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 551; Signature Bank v Holtz Rubenstein Reminick, LLP, 109 AD3d 465, 466-467; Ideal Steel Supply Corp. v Anza, 63 AD3d 884, 885). Inasmuch as the amended complaint failed to adequately allege the existence of a duty owed by the Finkle defendants to the plaintiffs, it failed to state a cause of action against [*3]the Finkle defendants for accounting malpractice.”

2.”The plaintiffs also contend that the Supreme Court, in the order entered November 4, 2013, should have granted those branches of their motion which were pursuant to CPLR 3025(b) for leave to amend the amended complaint to assert shareholders’ derivative causes of action on behalf of the Operating Corp., derivative causes of action on behalf of the Partnership, and causes of action against the individual defendants to recover damages for breach of a partnership agreement and for certain declaratory and injunctive relief. CPLR 3025(b) provides that leave to amend a pleading “shall be freely given.” Accordingly, “leave should be given where the amendment is neither palpably insufficient nor patently devoid of merit, and the delay in seeking amendment does not prejudice or surprise the opposing party” (US Bank, N.A. v Primiano, 140 AD3d 857, 857; see HSBC Bank v Picarelli, 110 AD3d 1031, 1032). “[T]he legal sufficiency or merits of a claim need not be examined unless such insufficiency or lack of merit is clear and free from doubt” (Edwards v 1234 Pac. Mgt., LLC, 139 AD3d 658, 659). “A determination whether to grant such leave is within the Supreme Court’s broad discretion, and the exercise of that discretion will not be lightly disturbed” (Gitlin v Chirinkin, 60 AD3d 901, 902; see Galanova v Safir, 127 AD3d 686, 687).”

3.”Contrary to the Supreme Court’s conclusion, the remaining proposed derivative causes of action, which were directed against the individual defendants, were not palpably insufficient nor patently devoid of merit (see Business Corporation Law § 626[a]; Partnership Law § 115; see also Bremond Houses, Inc. v Lemle & Wolfe, Inc., 129 AD3d 584, 584-585; Caprer v Nussbaum, 36 AD3d 176, 187-188; Benedict v Whitman Breed Abbott & Morgan, 282 AD2d 416, 418; Shea v Hambro Am., 200 AD2d 371, 371-372; Zacma Cleaners Corp. v Gimbel, 149 AD2d 585, 586; cf. Walsh v Wwebnet, Inc.,116 AD3d 845, 847-848). Furthermore, contrary to the contention of the individual defendants, the plaintiffs were not required to submit evidence to demonstrate the merit of their proposed causes of action since “[n]o evidentiary showing of merit is required under CPLR 3025(b)” (Lucido v Mancuso, 49 AD3d 220, 229; see Clarke v Laidlaw Tr., Inc., 125 AD3d 920, 922-923). If the defendants “wish[ ] to test the merits of the proposed added cause[s] of action . . . [they] may later move for summary judgment upon a proper showing” (Lucido v Mancuso, 49 AD3d at 229). In light of the individual defendants’ failure to establish that they were prejudiced or surprised by the plaintiffs’ delay in seeking these amendments, the court should have granted leave to amend the amended complaint to assert shareholders’ derivative causes of action on behalf of the Operating Corp. and derivative causes of action on behalf of the Partnership with respect to the first, third, fourth, fifth, sixth, seventh, and ninth proposed causes of action in the [*4]proposed second amended complaint against the individual defendants (see generally Blue Diamond Fuel Oil Corp. v Lev Mgt. Corp., 103 AD3d 675, 676).

4.”The plaintiffs next contend that the Supreme Court erred in granting the Finkle defendants’ motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty, which was asserted against the Finkle defendants by the plaintiffs in their individual capacities. “A claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach” (Kaufman v Cohen, 307 AD2d 113, 125; see Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 893-894; AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 23). Here, the Finkle defendants established, prima facie, their entitlement to judgment as a matter of law by submitting evidence which demonstrated that they did not knowingly induce or participate in the alleged breaches of fiduciary duty (see IDX Capital, LLC v Phoenix Partners Group LLC, 19 NY3d 850, 851-852; Parklex Assoc. v Royal Capital Mkts. Corp., 118 AD3d 972). In opposition, the plaintiffs failed to raise a triable issue of fact (see generally Alvarez v Prospect Hosp., 68 NY2d 320, 324). Accordingly, the court properly granted the Finkle defendants’ motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty. In light of our determination on this point, we need not reach the Finkle defendants’ contention that the court erred, in the order entered January 11, 2013, in declining to dismiss that cause of action pursuant to CPLR 3211(a).”

5.”The Supreme Court’s application of the summary judgment standard constituted legal error. In the context of this pretrial motion for summary judgment, the individual defendants, as the moving parties, had the initial burden of proof (see CPLR 3212[b]; Hecker v Liebgold, 130 AD3d 572, 573). Accordingly, “[w]hile the ultimate burden of proof at trial will fall upon the plaintiff[s], a defendant seeking summary judgment bears the initial burden of demonstrating its entitlement to judgment as a matter of law by submitting evidentiary proof in admissible form” (Collado v Jiacono, 126 AD3d 927, 928; see Zuckerman v City of New York, 49 NY2d 557, 562). “On a summary judgment motion, a moving defendant does not meet its burden of affirmatively establishing its entitlement to summary judgment by merely pointing to gaps in the plaintiff’s case; rather, it must affirmatively demonstrate the merit of its defense” (Vanderhurst v Nobile, 130 AD3d 716, 717; see Spota v Love, 140 AD3d 730, 730-731; Setter v Fire Is. Ferries, Inc., 139 AD3d 840; Vaughn v Veolia Transp., Inc., 138 AD3d 979, 981). “It is equally well established that the motion should not be granted where the facts are in dispute, where conflicting inferences may be drawn from the evidence, or where there are issues of credibility” (Scott v Long Is. Power Auth., 294 AD2d 348, 348; see Ruiz v Griffin, 71 AD3d 1112, 1115).”