Plaintiff agrees to buy a newly constructed home, so long as the builder can produce a Certificate of Occupancy.  Of course, there is no C of O at the closing, and everyone goes into a song and dance.  Escrows, title insurance promises and monies paid to the attorneys cloud the story.  Now, after a slew of litigation the case is essentially starting over, with sanctions against plaintiff.      Johnson v Law Off. of Kenneth B. Schwartz  2016 NY Slip Op 08931  Decided on December 29, 2016  Appellate Division, First Department describes a hectic litigation setting.   “In December 2006, plaintiff entered into a contract with defendant Giles whereby plaintiff agreed to buy, for $995,000, a house built by Giles. The contract provided, inter alia, that closing would occur on or about February 7, 2007, provided that Giles obtained a final certificate of [*2]occupancy from the Department of Buildings. It also stated that “title will not close without purchaser’s consent until a final certificate of occupancy has been issued.” Plaintiff retained defendant Law Office of Kenneth Schwartz to act as his attorney in the proposed purchase. The firm assigned defendant attorney Helene Stetch to the matter.”   ”

The allegations that Mr. Diaz is the sole owner of Giles and that he also used Diaz Group Design Build Corp., “another corporate alter ego,” in his dealings with plaintiff are far too conclusory to support piercing Giles’s corporate veil to reach Mr. Diaz and then impute his liability to Diaz Group Design Build Corp. (see e.g. East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775 [2011]). Plaintiff’s plea that he needs discovery is unavailing (see e.g. East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 66 AD3d 122, 128-129 [2d Dept 2009], affd 16 NY3d 775 [2011]).

To the extent the fourth cause of action can be read as alleging civil conspiracy, it must be dismissed as well, since conspiracy to commit a tort is not a cause of action (see Alexander & Alexander of N.Y. v Fritzen, 68 NY2d 968 [1986]).

To the extent the fourth cause of action can be read as alleging fraudulent inducement, it is insufficiently pleaded; it does not allege that the Diaz defendants or Builders Mutual made any misrepresentations to induce plaintiff to sign the document that supposedly released Builders Mutual in exchange for $45,000. Plaintiff’s affidavit indicates that he dealt only with his former attorneys regarding the release.

Although the sixth cause of action purports to be against the Diaz defendants, it in fact alleges a cause of action against the attorney defendants for converting the $45,000.

The December 2006 contract between Giles and plaintiff merged into the September 2007 deed (see e.g. TIAA Global Invs., LLC v One Astoria Sq. LLC, 127 AD3d 75, 85 [1st Dept 2015]). Plaintiff alleges that Giles breached the contract because the property did not have a final certificate of occupancy (C of O) and was deficiently constructed. However, the provisions of the contract regarding those items did not survive delivery of the deed.

The fourth cause of action appears, based on the demand for damages, to relate to plaintiff’s supposed agreement to release Builders Mutual in exchange for $45,000. Since this agreement is between Builders Mutual and plaintiff, any claim that Giles breached the covenant of good faith and fair dealing implied in the release fails (see Duration Mun. Fund, 77 AD3d at 474-475).

As to Builders Mutual, accepted as true, the complaint and its exhibits indicate that plaintiff agreed to release Builders Mutual in return for $45,000. However, plaintiff does not allege that Builders Mutual failed to pay the money; instead, he alleges that the money was paid to the attorney defendants, who refused to remit it to him.

The fifth cause of action fails to state a claim against Builders Mutual (see Harris v Seward Park Hous. Corp., 79 AD3d 425, 426 [1st Dept 2010]). Although it alleges that Builders Mutual breached its “contract with Plaintiff,” Builders Mutual had no such contract. The [*4]allegations show that the fifth cause of action refers to Giles’s breach of its December 2006 contract with plaintiff. Even if, arguendo, Builders Mutual insured Giles, its contract was with Giles, not plaintiff.

As to defendant Stetch, she contends that all claims against her are time-barred. Although couched as contract claims, the first and second causes of action are essentially malpractice claims, and they are not time-barred. Plaintiff alleges that the attorney defendants should not have allowed him “to purchase the premises without a Final C of O” or to enter into the escrow agreement. Since plaintiff purchased the premises on or about September 24, 2007, and entered into the escrow agreement on that date, the first and second causes of action accrued at that time (see Glamm v Allen, 57 NY2d 87, 93 [1982]). Absent the continuous representation doctrine, the statute of limitations would have run in September 2010 (CPLR 214[6]; see also Matter of R.M. Kliment & Frances Halsband, Architects [McKinsey & Co., Inc.], 3 NY3d 538, 539, 541-543 [2004]). Plaintiff did not sue until March 2013. However, in opposition to Stetch’s motion to dismiss, plaintiff submitted an affidavit saying that he was continually represented by Stetch up to and including February 2012. The only matter for which plaintiff retained the attorney defendants was the purchase of his home. Thus, as required for the application of the doctrine, Stetch’s continuous representation related “to the matter upon which the allegations of malpractice are predicated” (Serino v Lipper, 47 AD3d 70, 76 [1st Dept 2007] [internal quotation marks omitted], lv dismissed 10 NY3d 930 [2008]).

The gravamen of the sixth cause of action is that the attorney defendants converted the $45,000 that plaintiff was slated to receive from Builders Mutual. The three-year statute of limitations runs from the date that the conversion takes place (see Vigilant Ins. Co. of Am. v Housing Auth. of City of El Paso, Tex., 87 NY2d 36, 44-45 [1995]). “[I]t is well settled that, where the original possession is lawful, a conversion does not occur until after a demand and refusal to return the property” (D’Amico v First Union Natl. Bank, 285 AD2d 166, 172 [1st Dept 2001], lv denied 99 NY2d 501 [2002]). Stetch argues that the conversion occurred before February 23, 2010, so the statute of limitations would have run on or about February 22, 2013. According to Stetch, plaintiff’s $45,000 conversion claim is time-barred because plaintiff sued on or around March 15, 2013, nearly one month after the supposed statute of limitations had run. However, there is nothing in the record to support this contention. The email from plaintiff’s current counsel indicating that the $45,000 was released to plaintiff’s former attorneys, including Stetch, before February 23, 2010 is insufficient to establish when plaintiff actually demanded the $45,000 from the attorney defendants and when the attorney defendants refused to remit the money to plaintiff. Therefore, the precise date of conversion is unclear.

Similarly, the gravamen of the third cause of action, which is couched as a fraud claim, is that the attorney defendants stole the $100,000 escrow. However, this cause of action is not subject to CPLR 3211 dismissal as time-barred, as there is no clear indication in the record when the supposed $100,000 escrow was released. If discovery establishes that the $100,000 was converted more than three years before March 15, 2013, then Stetch may move for summary judgment based on the statute of limitations.

Stetch is correct that the first and second causes of action fail to state a claim for breach of contract. However, as they can be construed as legal malpractice claims, they need not be dismissed (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]).

The complaint says the fourth cause of action is for breach of the duty of good faith and fair dealing, presumably in connection with the $45,000 that plaintiff was supposed to get from [*5]Builders Mutual. As Stetch is not a party to the alleged agreement to pay $45,000, she cannot be sued for breach of the implied covenant of good faith and fair dealing (see Duration Mun. Fund, 77 AD3d at 474-475).

To the extent the fourth cause of action can be construed as a claim that Stetch fraudulently induced plaintiff to release Builders Mutual, it is inadequately pleaded. However, in his affidavit, plaintiff says he accepted Builders Mutual’s supposed offer upon the advice of his attorneys. As this indicates that plaintiff might be able to allege a specific misrepresentation by Stetch, the dismissal of the fourth cause of action as against her is without prejudice.

On the fifth cause of action, plaintiff requests legal fees in addition to damages. Stetch correctly points out that plaintiff is not entitled to attorneys’ fees due to the American rule (see e.g. Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 [1989]).

The complaint must be dismissed as against Stewart Title. It is undisputed that Stewart Title did not issue title insurance when plaintiff purchased his property. The issues of fact that plaintiff tried to create in opposition to Stewart Title’s motion for summary judgment are not genuine, but feigned; they are speculative and contradicted by documentary evidence (see e.g. Cillo v Resjefal Corp., 16 AD3d 339, 340-341 [1st Dept 2005]).

Plaintiff’s plea that he needed discovery is unavailing, especially since there is no evidence in the record that he served any discovery requests (see e.g. Meath v Mishrick, 68 NY2d 992, 994 [1986]).

Moreover, Stewart Title’s motion for costs against plaintiff due to his frivolous conduct should be granted (see Borstein v Henneberry, 132 AD3d 447 [1st Dept 2015]). In his affidavit in opposition to Stewart Title’s motion, which was sworn to on January 7, 2015, plaintiff asserted a material factual statement that was false (see 22 NYCRR 130-1.1[c][3]). He said that, with the exception of various documents — none of which was the title insurance policy for the purchase of his home — “I do NOT have any other documents.” However, on or about December 23, 2014, plaintiff had produced nonparty First American Title Insurance Company’s policy for said purchase.

Moreover, plaintiff should have known that Stewart Title did not issue the title insurance policy for the purchase of his home. The contract whereby plaintiff agreed to buy a house from Giles said, “Purchaser . . . acknowledges that [nonparty] Judicial Title Insurance Agency has issued or will issue a policy of title insurance insuring title to the land upon which the subject premises are to be built” (emphasis added). The deed for plaintiff’s property was presented for recording by Judicial Title Insurance Agency as agent for First American Title; in addition, the metes and bounds description of the property is on a page headed “The Judicial Title Insurance Agency LLC — Title Number: 93163FA-B.” Both the contract and the deed are exhibits to the complaint.

Plaintiff’s conduct is also frivolous under 22 NYCRR 130-1.1(c)(1), because, even if Stewart Title had issued a title insurance policy for plaintiff’s house, it would not have been liable for the lack of a final C of O, as Stewart Title’s attorney pointed out to plaintiff’s counsel in an attempt to have him withdraw the claims against Stewart Title (see Voorheesville Rod & Gun Club v Tompkins Co., 82 NY2d 564, 571 [1993]). Voorheesville was one of the cases that Stewart Title’s attorney sent to plaintiff’s attorney. “In determining whether the conduct undertaken was frivolous, the court shall consider . . . whether or not the conduct was continued [*6]when its lack of legal or factual basis . . . was brought to the attention of counsel or the party” (22 NYCRR 130-1.1[c]; see also Borstein, 132 AD3d at 452).”

Arbor Realty Funding, LLC v Herrick, Feinstein LLP  2016 NY Slip Op 08935  Decided on December 29, 2016  Appellate Division, First Department is certainly a case about money.  Note the level of defense attorney players here…Davis Polk & Wardwell LLP, Steptoe & Johnson LLP, Blank Rome, LLP, Paul, Weiss, Rifkind, Wharton and Garrison LLP, New York.

Were these guys just playing around in discovery?  We don’t know, but it will cost someone $ 10,000 to keep this case in play.

“Order, Supreme Court, New York County (Carol R. Edmead, J.), entered on or about October 14, 2014, amending order (same court and Justice), entered on or about October 6, 2014, which denied plaintiffs East 51st Street Development, LLC, 968 Kingsman, LLC, and 964 Associates, LLC’s application to reinstate their complaint and dismissed the complaint with prejudice, unanimously reversed, on the law, the facts, and in the exercise of discretion, without [*2]costs, the complaint reinstated, and plaintiffs directed to, within 30 days, respond to defendants’ discovery requests in the form requested and pay defendants a fine of $10,000 for their willful failure to comply with the trial court’s discovery.

In this legal malpractice action, consolidated with two other actions, although plaintiffs produced responsive material, it was imbedded in large amounts of otherwise irrelevant documents. Over 30,000 documents were produced. The trial court then gave plaintiffs ample time and opportunity to further produce the documents in an electronically searchable format and to organize its responses in the form that defendant requested them. Plaintiffs failed to comply with the court’s directions. Under these circumstances, the trial court properly concluded that plaintiffs’ failure to comply with its orders was willful (Merrill Lynch, Pierce, Fenner & Smith v Global Strat Inc., 94 AD3d 491 [1st Dept 2012], mod 22 NY3d 877 [2013]). Given, however, plaintiffs’ partial compliance and the strong public policy in favor of disposing of cases on the merits, we find that dismissal of the action is too severe a sanction at this time and that a less severe sanction, of a monetary fine in the amount of $10,000 plus costs is appropriate, along with a final 30-day opportunity for plaintiffs to provide the discovery in the format ordered by the trial court on February 19, 2014.”

It’s our last blog for the year, and it is a classic situation.  We leave you ’till January with this story.

Copeny v George T. Peters, PLLC  2016 NY Slip Op 32501(U)  December 16, 2016  Supreme Court, Kings County  Docket Number: 501818/14  Judge: Larry D. Martin is all about a car accident, and the selection of the absolutely wrong court, coupled with what appears to be a poor application to get into the right court.  Note how current plaintiff’s attorney deftly stayed out of the mess, and then came in to sweep up.

“This action arises from defendants’ representation of plaintiff Tarsheema M. Copeny (“plaintiff’) in an underlying personal injury action. On or about July 17, 2012, plaintiff was in an automobile accident involving a vehicle operated by plaintiff and a vehicle owned by New York Office of Children and Family Services (“OCFS”) and operated by Michael Jackson (“Jackson”), an OCFS employee.  Plaintiff then retained defendants to represent her.  On or about May 7, 2013 defendants filed a summons and complaint, on behalf of plaintiff, against OCFS and Jackson under Index No. 502376 in the Kings County Supreme Court (the “underlying personal injury action”). Subsequently, defendants learned that claims against OCFS had to be made in the Court of Claims. Thereafter, on or about, June 6, 2013, defendants filed a stipulation of discontinuance dated May 31, 2013 with the Kings County Supreme Court for the discontinuance of the underlying personal injury action. On or about August 12,2013, defendants, on behalf of plaintiff, filed a motion for permission to file a late claim against OCFS in the Court of Claims. By letter dated August 20,2013, plaintiff, among other things, terminated defendants’ services on her behalf and advised that she had retained the law firm Sinel & Associates, PLLC to represent her. By decision and order (Soto, J.) dated October 7,2013, the motion for permission to file a late claim against OCFS was denied in the Court of Claims. By letter dated February 27, 2015, Sinel & Associates, PLLC advised defendants that they would not be substituting in as counsel in the underlying personal injury action. On or about March 3, 2014, plaintiff commenced the instant action against defendants asserting causes of action sounding in legal malpractice. Defendants now move for the relief requested herein.”

“The Court notes that plaintiff’s current counsel, Sinel & Associates, PLLC, treats the instant motion as one for dismissal pursuant to CPLR 3212 rather than dismissal pursuant to CPLR 3211. Plaintiff also requests that the instant motion be converted into one for summary judgment and, upon conversion, she be granted judgment as a matter of law on her claims in the complaint. Pursuant to CPLR 3211, the Court, upon adequate notice to the parties, may treat a CPLR 3211 (a) motion to dismiss as a motion for summary judgment where the parties deliberately chart a summary judgment course (see CPLR 3211 [c]; see Mihlovan v Grozavu, 72 NY2d 506, 508 [1988]; compare Kaplan v Roberts, 91 AD3d 827, 828 [2d Dept 2012]). The Court declines to grant plaintiff’s request to convert the instant motion to one for summary judgment and, upon conversion, granting judgment as a matter of law in her favor. Nevertheless, based upon a review of the record submitted by the parties and the relevant law, the Court denies defendants’ motion to dismiss. Here, plaintiff alleges in the complaint that defendants breached the duty of care by, among other things, (1) failing to file a notice of intention to file a claim with the Court of Claims within the statutory 90-day time period, (2) failing to timely move for permission to file a late notice of claim pursuant to Court of Claims Act Article II, Section 10 (6) and (3) failing to submit an affidavit from plaintiff establishing that she has a valid cause of action or to submit any medical records regarding her claims pursuant to Insurance Law 9 5102 (d) (Complaint, ¶ 27). As a result, plaintiff claims that she would have been able to “prove[]a case of liability” against OCFS and Jackson and also that her claims in the Court of Claims would not have been dismissed leaving her “no remedy at law for her personal injuries” (Complaint, ~ 28). The Court finds that these claims are sufficient to state a cause of action for legal malpractice (see CPLR 32 I I [a][7]). As such, that branch of defendants’ motion to dismiss the complaint for failure to state a cause of action is denied. Moreover, the documents submitted by defendants did not conclusively establish a defense as a matter of law. Defendants’ submissions fail to utterly refute plaintiffs allegations so as to warrant dismissal of the complaint herein (see CPLR 321 I [a][I]; see also Randazzo, 128 AD3d at 937). Plaintiff correctly points out that Jackson was never served with the summons and complaint in the underlying personal injury action. In addition, a review of the Court’s record indicates that a request for judicial intervention was never filed in the underlying personal injury action. In this regard, that branch of defendants’ motion to dismiss the complaint on the grounds of documentary evidence is denied.”

This case mentions legal malpractice, and is a variant of the classic “you did me wrong, so I’m suing” trope.  Here, an international investor, is accused of defamation of a well-regarded law firm and its principal.

Morelli v Wey  2016 NY Slip Op 32487(U)  December 16, 2016  Supreme Court, New York County
Docket Number: 153011/16  Judge: Carol R. Edmead.  “In this defamation action, plaintiffs Benedict P. Morelli,(Morelli), Arlene B. Morelli (Mrs. Morelli), and The Morelli Law Firm, PLLC f/k/a Morelli Alters Ratner, LLP (Morelli Law Firm) allege that defendants Benjamin Wey (Wey), FNL Media LLC (FNL), and NYGG Capital  LLC d/b/a New York Global Group (NYGG) have waged a campaign to defame them through the publication of numerous false and defamatory statements in their online magazine, blogs, and  social media, in order to injure their professional reputations. Plaintiffs allege that these attacks were prompted by the Morelli  Law Firm’s representation of a former NYGG employee, Hanna Bouveng (Bouveng), in a federal action asserting sexual harassment, retaliation, and defamation claims against defendants herein (see: Bouveng v NYGG Capital LLC, 175 F Supp 3d 280 [SD NY 2016]). Defendants now move, pursuant to CPLR 3211 (a) (1), (5), and (7), to dismiss the complaint in its entirety. ”

“Beginning in 2015 and continuing through the present, defendants allegedly repeatedly published over 600 separate false and defamatory statements and images about plaintiffs (id.,¶s 20, 26-72; appendix A to verified complaint). Specifically, defendants accused plaintiffs of numerous criminal or repugnant: acts, including but not limited to, extortion, bank fraud, falsifying evidence, witness intimidation, conspiracy to commit fraud, sexual harassment, and professional misconduct (id.). According to plaintiffs, defendants perpetrated these attacks in order to injure plaintiffs in their profession, business, and livelihoods, though defendants were initially motivated to compromise plaintiffs’ representation of Bouveng (id.,¶¶21, 30, 73). To maximize the damage to plaintiffs’ reputations and livelihoods, defendants or their agents performed internet search engine “optimization” to increase the exposure of their false and defamatory .articles to users of Google and other internet search engines (id, if 23). ”

“Here, contrary to defendants’ contention, as alleged by plaintiffs, defendants did not merely make “a statement that there is an investigation.” Rather, the complaint alleges that defendants published an article entitled “The FBI investigation targets BENEDICT MORELLI [and] ARLENE MORELLI” (verified complaint,¶ 39 [b]), stated that plaintiffs committed “bank fraud” and “massive bank fraud” (id.,¶¶40; 42, 43 [a]), and made statements indicating that plaintiffs are “law violators” with a “long history of committing fraud” (appendix A to verified complaint). 1 In addition, in light of plaintiffs’ allegations that defendants stated that Morelli, a partner of the law firm, was a member of the Ku Klux Klan (verified complaint, irir 4, 72 [c], [d]), plaintiffs have sufficiently stated a cause of action for defamation per se (see Sheridan v Carter, 48 AD3d 444, 446-447 [2d Dept 2008] [domestic worker’s published statements which depicted couple that formerly employer her as racists were defamatory per se]; Herlihy v Metropolitan Museum of Art, 214 AD2d 250, 261 [1st Dept 1995] [complaint stated cause of action for slander per se where it stated that volunteers made statements that former coordinator was anti-Semitic and was biased in her treatment of Jewish,volunteers]): Moreover, plaintiffs’ allegations that defendants stated that plaintiffs.were members of the Mafia or a “gang” and were guilty of a serious crime are sufficient to state a cause of action for defamation per se (see Harris v Queens County Dist. Atty’s Office, 2012 WL 832837, *9 [ED NY 2012] [statement that attorney was security threat to the courthouse was defamatory per se]). For example, defendants allegedly stated that “[t]he court accuses the Morelli mafia of fabricating evidence that resulted in extortion of a Texas based chemical company,” “City National Bank charges the Morelli ‘gang’ members with orchestrating a multi-year money laundering scheme and massive loan frauds,” “Benedict Morelli and his fellow ‘gang members at Morelli Alters Ratner conspired with Morelli’ s wife, Arlene B. Morelli and David Ratner to swindle City National Bank; Batik: United and the Esquire Bank,” “Benedict Morelli and, the con man’s wife Arlene were sued for money laundering,  bank fraud and suspected mafia affiliation,” “[t]he gang at Morelli Alters Ratner is wantonly defrauding City National out of millions of dollars,” “shady lawyers Benedict Morelli, David Ratner, Martha McBrayer extortion ‘mob’ members were finally captured” (verified complaint,¶ 28 [b], 31 [a], 33 [c], 35 [a], 37 [b], 43[c]). Therefore, plaintiffs’ allegations are sufficient to state a cause of action for defamation per se.”

We continue with the cases:

7.  Neroni v Follender  2016 NY Slip Op 01527 [137 AD3d 1336]  March 3, 2016  Appellate Division, Third Department is the story of a defendant who was sued and lost, then turned around and sued the plaintiffs and their attorneys not unlike a poster-child for the principle of privity.  It is, and has always been, the judiciary’s fear that relaxing rules in legal malpractice would lead to wholesale suit after suit.  Here, the plaintiff was eventually enjoined from filing any other suits.

8.  Manhattan Sports Rests. of Am., LLC v Lieu  2016 NY Slip Op 01617 [137 AD3d 504]
March 8, 2016  Appellate Division, First Department    Defendant might have said that she did not want “ghetto people from the Bronx” in the restaurant, and may have kept the restaurant from moving its perishable foods out of the building, and she may have been an attorney, but the affidavits she submitted were those of a fact witness, not an attorney, and were not susceptible of JL 487.

9.   Lipin v Hunt  2016 NY Slip Op 01746 [137 AD3d 518]  March 10, 2016  Appellate Division, First Department.  Perhaps a little too energetic in bringing actions, Plaintiff was enjoined from commencing more cases.  The material upon which the JL 487 claims was based was “absolutely privileged.”  Query:  are deceitful utterances made in litigation always absolutely privileged?

Vol.2 of all the Judiciary Law Cases of 2016:

  1. Hudson v Hahn Kook Ctr. (USA), Inc.  2016 NY Slip Op 00882 [136 AD3d 459]  February 9, 2016  Appellate Division, First Department . Plaintiffs agreed to allow non-party attorney to withdraw while a motion to dismiss for discovery failures was pending.  Their claim that he committed deceit was dismissed and affirmed on appeal, no reason given.
  2. Katz v Essner  2016 NY Slip Op 01268 [136 AD3d 575]  February 23, 2016  Appellate Division, First Department is another in the First Department line of cases where plaintiff is non-suited in part because of a settlement allocution in which Plaintiff says that he is satisified with the work of his attorney.  JL 487 claim dismissed and affirmed without any discussion other than it was “conclusory.”
  3. Lin Shi v Alexandratos 2016 NY Slip Op 01560 [137 AD3d 451]  March 3, 2016  Appellate Division, First Department.  In a residential contract of sale downpayment case, the JL 487 claim against the escrow holder was dismissed after contemplation of the escrow terms, and a finding that the escrow agent acted correctly in accordance.

 

Legal malpractice litigation is all about mistakes, significant mistakes, made by attorneys.  The loss of a legal malpractice case via an unopposed motion to dismiss ranks high on the irony scale.  Thus, Goss v DiMarco  2016 NY Slip Op 08506  Decided on December 21, 2016  Appellate Division, Second Department is instructive on two levels.  First, don’t allow motions to be submitted without opposition; second, apply the proper procedure once it happens.

“In July 2009, the plaintiff commenced this action, inter alia, to recover damages for legal malpractice against, among others, Gary Salatto (hereinafter the defendant). The defendant moved pursuant to CPLR 3211(a)(5) and (7) to dismiss the fourth and fifth causes of action asserted against him. In an order dated December 7, 2009, the Supreme Court granted the defendant’s motion, which was unopposed. The court’s decision contained a directive to “settle order,” but the defendant failed to settle the order in compliance with 22 NYCRR 202.48(a). Thereafter, the plaintiff moved pursuant to 22 NYCRR 202.48(b) to deem the defendant’s prior motion abandoned, and the defendant cross-moved for an extension of time to settle the order dated December 7, 2009. In an order dated October 10, 2014, the court denied the plaintiff’s motion and granted the defendant’s cross motion.

The plaintiff failed to submit papers to the Supreme Court in opposition to the defendant’s motion pursuant to CPLR 3211(a)(5) and (7) to dismiss the fourth and fifth causes of action. Since no appeal lies from an order or judgment granted upon the default of the appealing party (see CPLR 5511; Morgan Stanley Mtge. Loan Trust [2007-8XS] v Harding, 141 AD3d 511), the appeal from the order dated December 7, 2009, must be dismissed (see T. Mina Supply, Inc. v Clemente Bros. Contr. Corp., 139 AD3d 1038; Lillian H. Assoc., LLC v Halal, 137 AD3d 873, 874; Yuan v Kaplan, 129 AD3d 714; HCA Equip. Fin., LLC v Mastrantone, 118 AD3d 850, 851).

Furthermore, the Supreme Court providently exercised its discretion in denying the plaintiff’s motion to deem the defendant’s prior motion abandoned, and in granting the defendant’s cross motion for an extension of time to settle the order dated December 7, 2009 (see Campbell v Campbell, 107 AD3d 929, 930; Matter of Loeffler v New York State Dept. of Envtl. Conservation, 37 AD3d 470, 471; Delahanty v DeGuire, 280 AD2d 638, 639).”

Judiciary Law § 487 is (perhaps) the oldest statute in existence here in New York.  It descends from the first Statute of Westminster, which was adopted by the Parliament summoned by King Edward I of England in 1275.  It has been in effect from the founding of our country.  The statute reads:

“Misconduct by Attorneys

An attorney or counselor who:

Is guilty of any deceit of collusion, or consents to any deceit or collusion, with intent to deceive the court or any party, or,

  1. Wilfully delays his client’s suit with a view to his own gain, or wilfully receives amy money or allowance for or on account of any money he has not laid out, or becomes answerable for,

is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.”

We plan to review the 30 JL § 487 cases decided in 2016.  Here are the first three (by date):

  1.  Melcher v Greenberg Traurig LLP  2016 NY Slip Op 00274 [135 AD3d 547]  January 19, 2016  Appellate Division, First Department

This is likely the most important JL 487 case of the year, and it was decided first.  The Appellate Division, First Department determined that a JL 487 case may be brought in a separate action, rather than in the specific action where the deceit is alleged to have taken place.   This practice is not “claim-splitting” even when the question of deceit was raised in the underlying case.  The central question is whether the JL 487 claim seeks to “collaterally attack any prior adverse judgment”  In Melcher the court determined that no collateral attack was shown.

2.   Klein v Rieff,  2016 NY Slip Op 00482 [135 AD3d 910]  January 27, 2016  Appellate Division, Second Department where the AD reversed the dismissal of the JL 487 claim and reinstated it.  The claim was that an attorney knowingly submitted a witness statement containing material misrepresentations and thereafter knowingly submitted false affirmations and false affidavits. The attorney was unable (on summary judgment) to show that no damages were suffered.

3.  O’Neal v Muchnick Golieb & Golieb, P.C. 2016 NY Slip Op 30268(U) February 11, 2016 Supreme Court, New York County Docket Number: 154898/2013 Judge: Shlomo S. Hagler  Here the supreme court judge determined that factual evidence of “chronic and extreme pattern of legal delinquency” was required.  As Professor Anita Bernstein recently cataloged in her comprehensive Outside Counsel column, the First Department has inserted this particular phrase, although none of the other Appellate Divisions agree, and the phrase nowhere appears in the statute.  She asks:

“Yet while all the adjectives in the statute are either neutral or plaintiff-favoring, one court—the Appellate Division, First Department—has written adjectival criteria that make it hard for plaintiffs to win. There’s more: First Department cases say that plaintiffs must show a “pattern” of attorney misconduct, and assert that redress for this wrong must be “not lightly given.”

These hurdles do not appear anywhere in the statute. Judiciary Law §487 codifies a crime and declares a right of action for what it calls “the party injured,” a capacious category. Intent to deceive a party to litigation suffices for liability, no repetition or pattern needed. Section 487 omits defenses, excuses, and mitigating conditions that make life easier for defendants.

“Chronic, extreme,” “egregious.” Redress for injured people “not lightly given.” The “pattern” criterion. Where did the First Department’s discouraging-to-plaintiffs words come from?”

The family is large, and the husband has been married at least twice.  There are adult children from the first marriage, and the husband has significant sums of money.  What is this?  It is a recipe for internecine war;  of course, it is over money.   Did Dad fraudulently and wrongfully give the adult kids money that belonged to wife #2?  Did the accountants help out?

Swartz v Swartz  2016 NY Slip Op 08390  Decided on December 14, 2016  Appellate Division, Second Department looks into this question.

“In April 2009, the plaintiff, Starnette Swartz, commenced an action for a divorce and ancillary relief against her husband, Jerome Swartz (hereinafter the matrimonial action). In connection with the matrimonial action, Starnette Swartz and Jerome Swartz entered into a so-ordered stipulation, which, inter alia, restricted their ability to transfer or dispose of certain assets. The plaintiff then commenced this action against Jerome Swartz; James P. King and James P. King & Associates, LLC (hereinafter together the King defendants), who were the accountants for the plaintiff and Jerome Swartz during their marriage; Shanah Swartz-Gordon and Nikola Swartz-Hennes, who are Jerome Swartz’s two daughters from a prior marriage (hereinafter together the Swartz daughters); Joshua Swartz, who is Jerome Swartz’s son from the prior marriage; and 27 trust, partnership, and corporate entities that Jerome Swartz allegedly had an interest in or controlled (hereinafter collectively the corporate defendants). In an amended summons and complaint, 3 partnerships and 1 corporate entity were added as defendants (hereinafter collectively the added defendants). The plaintiff contended that Jerome Swartz, with the help of the King defendants, transferred assets to his children, the corporate defendants, and the added defendants in order to hide these assets and to deprive the plaintiff of her right to equitable distribution in connection with the matrimonial action.”

“The plaintiff moved for a preliminary injunction, inter alia, enjoining the corporate defendants, the Swartz daughters, and Joshua Swartz (hereinafter collectively the Swartz defendants), and the King defendants from transferring or disposing of assets or funds to the extent that they received such assets or funds from Jerome Swartz beginning on January 1, 2009, until the present. The King defendants moved, inter alia, to dismiss the amended complaint insofar as [*3]asserted against them pursuant to CPLR 3211(a)(7), or to stay the action pending resolution of the matrimonial action. The Swartz defendants separately moved, inter alia, to dismiss the amended complaint insofar as asserted against them pursuant to CPLR 3211(a)(4) and (7), and for sanctions pursuant to 22 NYCRR 130-1.1 from the plaintiff. The plaintiff cross-moved for sanctions pursuant to 22 NYCRR 130-1.1 against all of the defendants.”

“With respect to that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the sixth cause of action, which alleged breach of fiduciary duty insofar as asserted against them, ” [t]he elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct'” (Stortini v Pollis, 138 AD3d 977, 978-979, quoting Deblinger v Sani-Pine Prods. Co., Inc., 107 AD3d 659, 660, and Rut v Young Adult Inst., Inc., 74 AD3d 776, 777). A cause of action sounding in breach of fiduciary duty must be pleaded with particularity under CPLR 3016(b) (see Deblinger v Sani-Pine Prods. Co., Inc., 107 AD3d at 660; Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 AD3d 804, 808). Here, affording the amended complaint a liberal construction, accepting the facts alleged therein to be true, and granting the plaintiff the benefit of every possible favorable inference, the amended complaint failed to plead with the requisite particularity the existence of a fiduciary duty between the plaintiff and the King defendants and a breach thereof (see Theaprin Pharms., Inc. v Conway, 137 AD3d 1254, 1255). Accordingly, the Supreme Court properly granted that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging breach of fiduciary duty asserted against them.”

“The Supreme Court properly granted those branches of the motions of the King defendants and the Swartz defendants which were pursuant to CPLR 3211(a)(7) to dismiss the first cause of action, which alleged fraud insofar as asserted against the King defendants, the Swartz daughters, and the corporate defendants. The elements of a cause of action to recover damages for fraud are (1) a misrepresentation or a material omission of fact which was false, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance by the plaintiff, and (5) damages (see Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 892). To sustain a cause of action alleging fraudulent concealment, the plaintiff must allege that the defendant had a duty to disclose the material information (see Bannister v Agard, 125 AD3d 797, 798). Pursuant to CPLR 3016(b), where a cause of action is based on fraud, the “circumstances constituting the wrong” must be “stated in detail,” including “specific dates and items” (Orchid Constr. Corp. v Gottbetter, 89 AD3d 708, 710 [internal quotation marks omitted]; see Doukas v Ballard, 135 AD3d 896, 898).

With respect to the King defendants, although the amended complaint alleged that they made a statement to the plaintiff to transfer her interest in certain real property for tax purposes, there was no factual support for the plaintiff’s assertion that this statement was false or a misrepresentation of fact (see Nanomedicon, LLC v Research Found. of State Univ. of N.Y., 112 AD3d 594, 598; Caldwell v Gumley-Haft L.L.C., 55 AD3d 408). The remaining allegations in the amended complaint regarding alleged misstatements that the King defendants made to the plaintiff, including that they issued false financial statements and accounting reports to the plaintiff, were not pleaded in accordance with CPLR 3016(b). The amended complaint also failed to allege a basis for imposing a duty on the King defendants to disclose to the plaintiff the alleged transfers that Jerome Swartz made because they did not have a fiduciary or confidential relationship with the plaintiff. Additionally, the amended complaint failed to allege that the Swartz daughters made any material misrepresentations of fact to the plaintiff or that they owed a duty to the plaintiff to disclose the transfers that Jerome Swartz allegedly made (see Nafash v Allstate Ins. Co., 137 AD3d 1088, 1090; Sanford/Kissena Owners Corp. v Daral Props., LLC, 84 AD3d 1210, 1211). Similarly, there were no allegations in the amended complaint that the corporate defendants made any misrepresentations of fact to the plaintiff or that they owed a duty to disclose information to the plaintiff.

“The elements of a cause of action alleging aiding and abetting fraud are an underlying fraud, [the] defendants’ knowledge of this fraud, and [the] defendants’ substantial assistance in the achievement of the fraud'” (Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 894, quoting High Tides, LLC v DeMichele, 88 AD3d 954, 960-961), and, pursuant to CPLR 3016(b), the “circumstances constituting the wrong” must be “stated in detail” (Doukas v Ballard, 135 AD3d at 898 [internal quotation marks omitted]). Here, the Supreme Court properly granted those branches of the motions of the King defendants and the Swartz defendants which were pursuant to CPLR 3211(a)(7) to dismiss the ninth cause of action alleging aiding and abetting fraud insofar as asserted against the King defendants, the Swartz daughters, and the corporate defendants (see McBride v KPMG Intl., 135 AD3d 576, 579; High Tides, LLC v DeMichele, 88 AD3d at 960-[*4]961; CRT Invs., Ltd. v BDO Seidman, LLP, 85 AD3d 470, 472; Stanfield Offshore Leveraged Assets, Ltd. v Metropolitan Life Ins. Co., 64 AD3d 472, 476).”

“The King defendants were not entitled to dismissal pursuant to CPLR 3211(a)(7) of the eighth cause of action, which alleged unjust enrichment insofar as asserted against them. “The elements of a cause of action to recover for unjust enrichment are (1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered'” (GFRE, Inc. v U.S. Bank, N.A., 130 AD3d 569, 570, quoting Mobarak v Mowad, 117 AD3d 998, 1001). A cause of action alleging unjust enrichment requires the plaintiff to set forth that the defendant possessed property or assets of the plaintiff (see Roslyn Union Free School Dist. v Barkan, 71 AD3d 660, 661, mod 16 NY3d 643). Here, construing the amended complaint liberally, as augmented by the plaintiff’s affidavit, the plaintiff sufficiently alleged that her assets were used to compensate the King defendants for their accounting services, and that they were unjustly enriched at her expense when they failed to perform or negligently performed these services on her behalf. Accordingly, the Supreme Court erred in granting that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging unjust enrichment insofar as asserted against them.”

 

Yesterday, we spoke about commercial litigation, intra-company claims and how minority shareholders can bring claims that attorneys for the corporation or the majority shareholders have wronged them.  Yesterday, it was “legal malpractice.”  Today it’s “breach of fiduciary duty.”

Exeter Law Group LLP v Wong  2016 NY Slip Op 32425(U)  December 9, 2016 Supreme Court, New York County Docket Number: 161667/2014 Judge: Eileen A. Rakower.

“A client can state a claim for breach of fiduciary duty against an attorney by alleging “the existence of a fiduciary relationship, misconduct by the defendant, and damages that were caused by the defendant’s misconduct.” (Harbor Consultants Ltd. v Roth, 907 N.Y.S.2d 100, 100 [N.Y. Sup. Ct. 2010]). “As a fiduciary, an attorney is charged with a high degree of undivided loyalty to his [or her] client.” (Harbor Consultants, 907 N.Y.S.2d at 100). The second counterclaim alleges that Exeter and Wong, as the attorney of Day, Eisner, Immortalana and Salvaragen, “owed them a duty of undivided and undiluted loyalty” and “were required to keep certain information privileged and confidential.” It alleges that Exeter and Wong breached their fiduciary duty to them “by disclosing confidential and privileged information with A. Richard Golub (“Golub”), a known associate oflmmortalana’s principals … for the sole purpose of coercing one oflmmortalana’s owners, Kelly Day, to provide payment to Exeter.” More specifically, it alleges in April 2014, at Wong’s “instigat[ing], “Wong and Golub contacted Day by telephone” at which point “Golub began screaming and reprimanding Day for not paying Exeter and Wong” and “shouted at Day in an aggressive tone that Day’s ‘partners’ were ‘screwing her’ and that the company they had formed was a sham.” It alleges that “[t]he information Golub referred to in the telephone call with Day was information Wong and Exeter obtained while representing Counterclaim Plaintiffs” which Wong and Exeter disclosed to Golub “in order to coerce payment for monies they believe are owed to them.”

“Exeter and Wong seek to dismiss the second counterclaim under CPLR 321 l(a)(l) on the grounds that the engagement letter signed by the Day and Eisner in 2012 explicitly authorizes Exeter to confer with Mr. Golub. Here, the 2012 engagement, which is signed by Eisner and Day, letter provides, “Additionally, I will be consulting with Aaron Richard Golub, Esq., from the law office of Aaron Richard Golub, Esquire, P.C., whom You [Day and Eisner] already know.” While the 2012 engagement letter may permit Wong to consult with Mr. Golub on certain matters, it does not flatly contradict Eisner and Day’s allegations that Mr. Golub may have disclosed confidential communications that Day and Eisner did not – authorize. Furthermore, the alleged coercive nature of the communication may rise to the level of a breach of a fiduciary duty. Alternatively, Exeter and Wong seek to dismiss the second counterclaim under CPLR 321 l(a)(7) on the grounds that New York Rules of Professional Conduct (“NYRPC”) l.6(b)(4) and 1.6(b)(5)(ii) authorized Exeter and Wong to reveal client confidences in consulting with other lawyers. NYRPC l .6(b) provides, in relevant part, that a lawyer “may reveal or use confidential information to the extent that the lawyer reasonably believes necessary: (4) to secure legal advice about compliance with these Rules or other law by the lawyer, another lawyer associated with the lawyer’s firm or the law firm; ***[or] (5)(i)(ii) to establish or collect a fee . .. “(emphasis added). NYRPC 1.6, Comment 14, states “[p ]aragraph (b) permits disclosure only to the extent the lawyer reasonably believes the disclosure is necessary to accomplish one of the purposes specified in paragraphs (b )( 1) through (b )( 6).” Comment 14 to NYRPC 1. 6 further states that “[b ]efore making a disclosure, the lawyer should, where practicable, first seek to persuade the client to take suitable action to obviate the need for disclosure.” Here, while Exeter and Wong may have a defense based on NYRPC 1.6, it does not provide a basis to dismiss the Complaint based on a failure to state a claim at this juncture. Lastly, Exeter and Wong argues that the second counterclaim fails to state a claim because “[t]here is no private right of action for a violation of the Code of Professional Responsibility” under controlling First Department law.” “The violation of a disciplinary rule does not, without more, generate a cause of action.” (Schwartz v. Olshan Grundman Frame & Rosenzweig, 302 A.D.2d 193, 199 [1st Dep’t 2003]). However, a claim for breach of fiduciary duty can be stated where the defendant lawyer is alleged to have used confidential information to disadvantage a former client even though it was also a violation of disciplinary rules. (Sharbat v Law Offs. of Michael B. Wolk, P. C., 2011 WL 197825 (N.Y. Sup. Ct. Jan. 12, 2011).

Accordingly, Movants have failed to establish a basis for dismissal of the second counterclaim for breach of fiduciary, and the claim stands.”