Peck v Milbank LLP 2025 NY Slip Op 30180(U) January 17, 2025 Supreme Court, New York County Docket Number: Index No. 152290/2022 Judge: Andrew Borrok is a claim involving breach of fiduciary duty and violation of Judiciary Law 487. Several issues were recently decided.

“Upon the foregoing documents and for the reasons set forth below, Ian Peck and Stubbs Holdings, LLC (collectively, Ian Peck)’s motion for leave to file a second amended complaint (the SAC; NYSCEF Doc. No. 123) is DENIED.

Reference is made to a prior Decision and Order of this Court, dated July 29, 2024 (the Prior Decision; NYSCEF Doc. No. 107). The facts of this case are set forth in the Prior Decision, and familiarity is presumed. Pursuant to the Prior Decision, the Court granted Milbank LLP, Milbank, Tweed, Hadley & Mccloy, LLP (collectively, Milbank)’s and Georgiana Slade’s motion to dismiss (Mtn. Seq. No. 002) as to Ian Peck’s claims sounding in fraud and breach of fiduciary duty and denied dismissal as to the claim sounding in violation of Judiciary Law § 487.

The Court held that Ian Peck failed to state a cause of action for breach of fiduciary duty because “the FAC does not adequately identify statements or omissions to the Trustee when a duty was owed” (id. at 9). Significantly, the Court dismissed the fraud and breach of fiduciary duty claims without prejudice because Liliane Peck (the Trustee) had not yet been deposed, and the deposition might have potentially formed the basis for the claims (id.).”

“Ian Peck argues, in sum and substance, that Ms. Slade is liable for breach of fiduciary duty as a fiduciary to Ian Peck’s fiduciary, the Trustee, because Ms. Slade’s failed to disclose an alleged conflicts of interest based on certain investments that her father had with Norman Peck when the Trustee made certain decisions and received certain advice. But, the Trustee knew of Ms. Slade’s father’s investments and considered them de minimus and immaterial and testified in sum and substance that Ms. Slade did not influence her allocation decisions.”

“However, these new allegations do not allege an act or omission that is separate and apart from the statements and omissions to the tribunal that underpin the Judiciary Law claim. As such, these proposed amendments would not remedy the deficiencies in the first amended complaint as to the breach of fiduciary duty claim.”

Xiuwen Qi v Hang & Assoc., PLLC 2025 NY Slip Op 30306(U) January 24, 2025 Supreme Court, New York County Docket Number: Index No. 151821/2023 Judge: Mary V. Rosado discusses the exception to mandatory arbitration of attorney fee claims. Here, Plaintiff sued the law firm, and the law firm counterclaimed for fees. Is that counterclaim subject to mandatory arbitration or not? Answer: it is not.

“Plaintiff, who was a former client of Defendants, is seeking damages arising from Defendants’ alleged malpractice in a wage and hour lawsuit. In response to Plaintiff’s Complaint, Defendants asserted a counterclaim alleging quantum meruit damages arising from 134 hours of labor representing Plaintiff in his wage and hour dispute and $1,172.70 in costs (see NYSCEF Doc. 10). In Motion Sequence 001, Plaintiff moved to dismiss Defendants’ counterclaim arguing that this Court lacks subject matter jurisdiction over the quantum meruit counterclaim pursuant to the mandatory arbitration requirements of the Attorney Fee Dispute Resolution Program. In opposition, Defendants argued that the quantum meruit counterclaim is not subject to arbitration as resolution of the quantum meruit counterclaim involves resolving legal issues which are intertwined with Plaintiffs non-arbitrable malpractice claim. At oral argument dated October 31, 2023, this Court declined to rule on the motion to dismiss until the parties’ retainer agreement was produced. In a Decision and Order dated May 2, 2024 (NYSCEF Doc. 55), this Court denied the motion to dismiss, without prejudice, with leave to renew upon production of the retainer agreement. Plaintiff has produced the retainer agreement and seeks leave to renew his motion to dismiss. Defendants oppose Plaintiffs renewed application and argues nothing in the retainer agreement should change this Court’s decision to deny dismissal of Defendants’ counterclaim.”

“Claims and counterclaims involving substantial legal questions, including professional malpractice or misconduct, are not subject to arbitration under 22 NYCRR 137.l(b)(3) (see also Peters v Collazo Florentino & Keil LLP, 117 AD3d 432 [1st Dept 2014]). Whether Defendants have a quantum meruit claim necessarily hinges on whether they were terminated for cause, which is inextricably intertwined with the issues being litigated in this legal malpractice case (see also Brill & Meisel v Brown, 113 AD3d 435, 436 [1st Dept 2014]). Because the counterclaim’s existence is dependent on the resolution of the legal malpractice claim being litigated in this Court, the Court retains subject matter jurisdiction, and upon renewal, Plaintiff’s motion to dismiss is denied. The branch of Plaintiff’s motion seeking leave to reargue is denied as Plaintiff has failed to show that the Court overlooked any dispositive issues of fact or l”aw.

Dixie v Scheer 2025 NY Slip Op 30167(U) January 11, 2025 Supreme Court, New York County Docket Number: Index No. 654690/2022 Judge: Andrea Masley is a primer on how one corporate entity can take over another. Candidly, the level of detail is greater than can be summarized in this blog. Here are some of the details.

“Plaintiff Dino Dixie brings this action individually and derivatively on behalf of New Amsterdam Distributors, LLC (NAO) and Terriodiol Ohio LLC (TO). Dixie alleges that he was a founding member of NAO, which through NYCI Holding, LLC (NYCI) ,m 2, 20, 28.) NAO is the sole shareholder of NYCI. (Id. ,i 28.) Dixie’s ownership interest in NAO is 13%. (Id. ,i 2.) In May 2015, NAO and nonparty EPMMNY, LLC discussed the formation of a partnership to jointly pursue a medical cannabis license.2 (Id. ,i 9.) NAO retained defendants Sheer and BSK to provide legal services, including the formation of NYCANNA for the purpose of pursuing the license. (Id. ,i 10.) Upon NYCANNA’s formation, Scheer and BSK “simultaneously became attorneys for NAO, NYCI, and NYCANNA.” (Id.)

On November 20, 2016, Scheer sent NAD’s principals notice that NYCANNA was merging with nonparty NY Medicinal Research and Caring, LLC (NYMRC) to assist with financing. (Id. ,i 13.) NYMRC was owned by nonparty High Street Capital Partners (High Street). (Id.) High Street is Acreage’s predecessor.3 This merger allegedly diluted Dixie’s equity interest as it substantially divested NAD’s members of their ownership interests. (Id. ,i 14.) Specifically, Dixie alleges that Scheer and BSK conspired with the incoming investors, including NYMRC, NYCI, and Acreage, to divest NAO of its interest in NYCANNA. (Id.)

In May 2017, the New York State Department of Health awarded a medical marijuana license to NY CAN NA. (Id. ,i 16.) Thereafter, Scheer introduced Dixie to Dai no, who had an existing relationship with Scheer. (Id. ,i 17.) At Scheer’s recommendation, Daina became a member and manager of NAO despite not having experience in the industry. (Id.) Dixie alleges he was sidelined as Scheer and Dai no essentially took over NAO. (Id. ,i 19.)

“In May 2018, NYCI sold its fifty percent interest in NYCANNA to High Street.” (Id. ,i 20.) Dixie alleges that Scheer structured the transaction so that High Street/Acreage acquired all of NYCANNA’s equity. (Id.) NAD’s officers, including Dixie were removed as NYCANNA’s management, leaving it a mere shell company. (Id.) This transaction came about after Daina met with representatives from High Street. After this meeting, Daina informed Dixie “that there was going to be a $2 million cash call, and that if he did not meet the call by investing the necessary cash, his percentage ownership in NYCANNA would be reduced.” (Id. ,i 22.) Daina then presented an alternative to the cash call – selling NYCANNA to High Street/Acreage Holdings. (Id. ,i 23.) “Daina said that the transaction needed to be approved by the NYCANNA shareholders within 8 hours” and represented that the value of the “transaction would be approximately $40 million based on the stock valuation.” (Id.) The consideration for the sale of NYCl’s interest in NYCANNA to High Street/Acreage was cash and stock in Acreage. (Id. ,i 20 [NYCI sold its in interest “in exchange for cash and class D units of High Street”].)

Dixie alleges that Scheer violated his fiduciary duty to the NAO members by falsely advising that the transaction was favorable to NYCANNA, NYCI and NAO, and immediate approval was necessary, depriving them “of the opportunity to conduct a proper due diligence investigation of the proposed transaction.” (Id. ,I 25.) Dixie and the other NAO members approved the transaction based upon Daina and Scheer’s representations. (Id.) On September 25, 2018, High Street/Acreage announced it would go public in Canada by performing a reverse takeover of a publicly traded entity, nonparty Applied Inventions Management Corp. (Id. ,I 27.) “As a part of the transaction, a 6-month lockup period governed High Street/Acreage shares.” (Id.) On November 15, 2018, High Street/Acreage went public, starting the lockup period. (Id. ,I 28.) The lockup period had three phases, “ending on May 15, 2019, as follows: (a) First 2 months (until January 15, 2019): all Acreage shares were to be locked up; (b) Next 2 months ( January 15, 2019 to March 14, 2019): 5% of Acreage shares could be transferred; and (c) Next 2 months (March 15, 2019 to May 14, 2019): Another 15% of Acreage shares could be transferred.” (Id. ,I 34.) Scheer estimated Acreage’s stock “would be worth about $24 per share during the course of this redemption period.” (Id. ,I 35.) However, right before the first tranche of stock was eligible for release, Scheer informed the NAO members that their shares were not going to be released, blaming such on the failure by some NAO members to sign additional necessary paperwork. (Id. ,I 36.) Those members signed the additional documents but delays still occurred. (Id. ,I,I 37-38.) On March 25, 2019, NYCl’s board of managers held a special meeting to authorize the transfer of 20% of Acreage’s shares from NYCI to NAO. (Id. ,I 39.) They also “authorized the transfer of all Acreage shares due to Daina (through an entity) from NYCI to the entity’s name.” (Id.) After further delay, on April 16, 2019, Scheer emailed Acreage, seeking transfer of the Acreage shares to the NAO members. (Id. ,I 39.) Acreage responded that “more than a letter was needed before a transfer of shares could be approved.” (Id. ,I 43.) On April 25, 2019, Scheer sent an email to NYCl’s board of managers “stating that the initial NYCI authorization to transfer shares did not meet Acreage’s requirements, and that that the NYCI Board of Directors needed to specifically approve the distribution directly from NYCI to the NAO members.” (Id. ,I 44.) Dixie alleges further delay in the transfer, which caused him to miss the opportunity to sell his shares during an Acreage stock rally in April 2019. (Id. ,I,I 45-48.) The stock reached a high of $24.13 per share, but it was not until September 2019 that Dixie received 50% of his shares; the stock value at that point was around $2 a share. (Id. ,I,I 48, 50.) “Only in March 2022 did Dixie receive the balance of his stock transfer at barely over penny stock value.” (Id. ,I 55.)”

“Breach of Fiduciary Duty

Dixie alleges that Scheer and BSK owed a fiduciary duty to Dixie and NAD’s other members and breached that duty by (1) “failing to diligently pursue the necessary process for transferring Acreage shares from NYCI to Dixie and other individual members of NAO once the NYCI Board of Managers authorized it” and (2) giving Acreage stock into their own individual names.” (NYSCEF 1, Complaint “erroneous tax advice regarding the purported tax consequences of transferring the ,m 65-66.) Scheer and BSK assert that this cause of action is time barred as any claim in connection with the alleged delay in the transfer of Acreage stock accrued on May 15, 2019. There is a dispute whether the three- or six-year statute of limitations applies. “New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging “injury to property” within the meaning of CPLR 214 (4), which has a three-year limitations period. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies. Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8).” (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009] [ citations omitted].)

Dixie asserts that the six-year limitations period applies, because his claim for unjust enrichment is equitable. However, the only relief sought in the complaint is monetary. (See NYSCEF 1, Complaint at 23.) Dixie argues that he will be seeking disgorgement of profits and legal fees as the result of the breach, but he has not amended his complaint to include such relief. A three-year statute of limitations applies where a plaintiff “seeks purely monetary relief, not equitable relief for which an award of monetary damages would not be adequate.” (VA Mgt., LP v Estate of Valvani, 192 AD3d 615, 615 [1st Dept 2021 ]. ) Where a plaintiff uses “the term ‘disgorgement’ instead of other equally applicable terms such as repayment, recoupment, refund, or reimbursement,” it “should not be permitted to distort the nature of the claim so as to expand the applicable limitations period from three years to six.” (Access Point Med., LLC v Mandell, 106 AD3d 40, 44 [1st Dept 2013]; see also VA Mgt., LP, 192 AD3d at 615 [stating that “[p]laintiff’s characterization of that relief as ‘disgorgement’ of [defendant’s] compensation does not convert it into a claim for equitable relief to which the six-year statute of limitations would apply” (citations omitted)].) Also unavailing is Dixie’s assertion that the breach of fiduciary claim is rooted in fraud. The breach of fiduciary duty claim is based on two alleged actions – “failing to diligently pursue the necessary process for transferring the Acreage shares” and giving “erroneous tax advice.” (NYSCEF 1, Complaint ,m 65-66.) Although Dixie argues in his opposition brief that Scheer and BSK induced Dixie to authorize and sign off on the mergers without informing him of the terms or conditions of such, that conduct is not alleged in connection with the breach of fiduciary duty claim. The conduct that is alleged involves “allegedly impaired professional judgment;” this claim as plead is not essentially a fraud claim. (See Access Point Med., LLC, 106 AD3d at 44 [citation omitted].) Nevertheless, despite alleging a separate cause of action for fraud, the complaint is devoid of any allegation that Dixie “justifiably relied on any misrepresentation.” (VA Mgt., LP, 192 AD3d at 616 [citation omitted] [declining to apply the six-year limitations period where plaintiff failed to allege justifiable reliance]; see also Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 [1996] [stating elements of fraud cause of action are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” (citations omitted)].) Thus, the three-year statute of limitations applies.”

Mazzone v Alonso, Andalkar & Facherhttp://chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.nycourts.gov/reporter/pdfs/2025/2025_30147.pdf, P.C. 2025 NY Slip Op 30147(U) January 15, 2025 Supreme Court, New York County Docket Number: Index No. 152735/2019 Judge: Andrew Borrok is a fascinating look at the pre-trial motion practice and how it can shape a trial.

“Preclusion of evidence that Rosa Mazzone was concerned about being terminated is not appropriate Ms. Mazzone argues that the defendants should be precluded from introducing evidence that she was going to be terminated from RBC due to having insufficient assets under management and that the defendants should be precluded from preferring expert testimony that she would have been fired if she did not maintain more than a certain level of assets under management (AUM). In their opposition papers, the defendants argue that they were entitled to consider Ms. Mazzone’s expressed concerns over potential termination in rendering the advice that they gave. As to this point, they are correct. This relevant background information forms the context in which they rendered the advice they gave and is proper for consideration by the fact finder as to whether such advice was reasonable. However, to the extent that the defendants argue in the papers, that their proffered expert can testify on subjects that are either not within his personal knowledge as a fact witness or that are not proper expert testimony or otherwise outside the scope of his area of expertise, this is not permissible. In People v. Wesley, the Court explained “that expert testimony based on scientific principles or procedures is admissible but only after a principle or procedure has ‘gained general acceptance’ in its specified field.” (83 NY2d 417, 422 [1994] [citing to Frye v US, 293 F 1013 [App DC 1923]). Brian Neville is not being offered as a fact witness. He did not work for RBC and he does not purport to have any personal knowledge as to any level of AUM required for continued employment at RBC. He is being offered as an expert in the securities industry. He does not purport to have relied on any scientific principle or procedure or to have reviewed any studies that could form the basis for an opinion as to required AUM to maintain employment at RBC or whether there is a general industry wide level of required AUM for employment at places like RBC. As such, he can not give an opinion, which at bottom amounts to mere speculation based on his unverifiable anecdotal experience, as to required AUM to maintain employment at RBC or whether Ms. Mazzone was at risk of losing her job based on the level of AUM that she had at RBC.

II. Introduction of Extrinsic Evidence for the purpose of modifying the Shusterman Mazzone Agreement is impermissible Ms. Mazzone correctly argues that the defendants may not introduce extrinsic evidence that predates the Shusterman Mazzone Agreement for the purpose of modifying the Agreement of Schusterman/Mazzone Group (the Shusterman Mazzone Agreement; NYSCEF Doc. No. 126), dated April 20, 2017. However, she is not correct that introduction of the extrinsic evidence for all other purposes is not appropriate. As the Appellate Division held, the issues for trial include whether AAF’s advice was reasonable under the circumstances and in accordance with Bessemer Trust. Depending on the advice at issue and when such advice was rendered, extrinsic evidence may well be relevant to the fact finder’s consideration of the reasonableness of the advice and thus can not be summarily precluded at this stage on a motion in limine. This requires individual consideration at trial by the Court as to whether consideration by the fact finder is appropriate.

III. Preclusion of testimony as to how FINRA Arbitrations work generally is not appropriate Ms. Mazzone argues that the defendants should be precluded from having an expert offer an opinion that FINRA panels generally split decisions and otherwise explain the FINRA panel’s decision that was actually rendered in the Shusterman/Mazonne matter. In their opposition papers, the defendants argue that expert testimony regarding FINRA panels and industry practice provides appropriate context to the fact finder in understanding whether the advice the defendants gave Ms. Mazzone under the circumstances was reasonable. As to this point, they are correct. However, the plaintiffs are correct that the defendant’s expert can not speculate as to why the FINRA panel issued the decision in the Schusterman/Mazzone matter that it issued. The decision speaks for itself and speculation as to the basis for the decision is inappropriate for expert testimony.

In Amoia v Mandelbaum Barrett, P.C. 2025 NY Slip Op 30175(U) January 17, 2025 Supreme Court, New York County Docket Number: Index No. 150936/2024 Judge: Paul A. Goetz, a fairly common scenario is depicted. This oft-repeated trope is found in medical malpractice settings, especially when the need for an expert arises.

In medical malpractice claims, a Certificate of Merit is required, and that Certificate requires a physician to review the materials and assert that there is merit to the medical malpractice claim. This is much less involved and lesser than a CPLR 3101 expert. Many law firms seek to be relieved at the time that a CPLR 3101 trial expert is necessary, as they may not find one, or don’t wish to pay the expense.

Here, the law firm filed the case and then told the client that they would not serve the complaint, nor find a physician to make the Certificate of Merit. Who, then, is at risk?

“Plaintiff, Kristen Amoia retained defendant law firm, Mandelbaum Barrett, P.C. (the
“firm”) to represent her following the death of her husband, Patrick Amoia on May 1, 2020. Defendant claims that the firm was unable to obtain expert support for plaintiff’s claims of wrongful death and medical malpractice and concluded there was no reasonable basis to commence the action. Defendant did however, file the action on plaintiff’s behalf to protect her interests while she sought new counsel (Kristen Amoia v. Good Samaritan Hospital Medical Center et al., Index No 616626/2022, Suffolk County Supreme Court) [the “Underlying Action”]. On August, 23, 2022 defendant informed plaintiff that it would not be taking any further actions in the case and informed her to notify her new counsel, about the time frame toserve the complaint (NYSCEF Doc No 12).

As of at least January 6, 2023, Plaintiff was represented by her attorney in this action, in the underlying action. Plaintiff’s present attorney served the defendants in the underlying action on April 18, 2023 (Index No 616626/2022; NYSCEF Doc Nos 3 – 17). The defendants in the underlying action moved to dismiss based on lack of personal jurisdiction, and the court granted the unopposed motions (Index No 616626/2022; NYSCEF Doc Nos 53 – 55). Plaintiff’s current counsel then moved to vacate the dismissals but the motion was denied on September 11, 2023 (NYSCEF Doc No 93).”

“Plaintiff’s second theory is that defendant was negligent by failing to serve the
defendants in the underlying action with the pleadings within 120 days after filing as required by CPLR § 306-b. Defendant argues that immediately upon commencing the action, plaintiff was informed that defendant would be terminating its representation of plaintiff and that it would not be serving the underlying action defendants.

Defendant submits an e-mail sent to the firm by plaintiff on August 18, 2022 where she stated that she was working with new counsel who wanted to commence the action the next day (NYSCEF Doc No 11). Defendant also submits an email sent by firm partner, Michael F. Bevacqua Jr. to plaintiff on August 23, 2022 (NYSCEF Doc No 12). In that e-mail Bevacqua states that after consulting with a physician, defendant he believed that he “could not provide the attestation that I believe there is a reasonable basis for the commencement of the action, as required under CPLR 3012-a(1)” and thus would be terminating the firm’s representation of plaintiff (id.). He goes on to state that defendant filed the complaint as a courtesy to plaintiff in order to preserve her claims, but the firm “will not be serving the Complaint upon the defendants, filing a Certificate of Merit, or performing any further services of any kind or nature for [plaintiff]” (id.). Plaintiff does not dispute the authenticity of these emails.

Defendant also notes that the three motions in the underlying action which dismissed the claims against all the underlying defendants because they were not served, and the court lacked personal jurisdiction over them, were unopposed by plaintiff’s new counsel (NYSCEF Doc Nos 15 – 17). Nor did plaintiff’s new attorney make any effort to serve the underlying defendants, or move for an extension in time to effectuate service. Further, after plaintiff’s new counsel made a motion to vacate the dismissals, he failed to present the argument that the statute of limitations had been tolled, and therefore the wrongful death claim was not time-barred. The court in the underlying action ultimately denied the motion to vacate because plaintiff’s counsel was “unable to demonstrate that the action is meritorious” (NYSCEF Doc No 18). Therefore, “the documentary evidence utterly refutes the plaintiff’s factual allegations, thereby conclusively
establishing a defense as a matter of law” (Phillips, 152 AD3d at 806).”

We have discussed Island Consol. v Grassi & Co., Certified Public Accountants PC 2025 NY Slip Op 30094(U) January 7, 2025 Supreme Court, New York County Docket Number: Index No. 451469/2023 Judge: Margaret A. Chan twice now. It’s very unusual to see a “gross negligence” claim make and rarer still to see it upheld.

“In this professional malpractice action, plaintiffs Island Consolidated, Eastern Materials Corp., Island International Exterior Fabricators Del LLC, and Island Exterior Fabricators LLC (hereinafter collectively referred to as “Island” or “Plaintiffs”) allege professional malpractice and gross negligence against their accountant, defendant Grassi & Co., Certified Public Accountants PC for the sales tax advice it gave plaintiffs in 2015. In reliance on defendant’s 2015 sales tax advice, plaintiffs sustained monetary damages through tax penalties and interests on repayment costs to the New York State Department of Taxation and Finance, costs, and lost profits. Defendant moves to dismiss plaintiffs’ Amended Complaint for failure to: (1) comply with the condition precedent before bringing a suit against defendant; (2) timely bring their claims within the three-year statute of limitations; and (3) state a cause of action with sufficiency. Alternatively, defendant urges dismissal of damages on the grounds that they are not recoverable and is limited by the parties’ agreement. Plaintiffs oppose the motion. For the reasons stated below, defendant’s motion is denied.”

“Gross Negligence Defendant argues that because gross negligence is different from ordinary negligence in that it is conduct that ‘smacks of intentional wrongdoing’, plaintiffs have failed to plead any facts that would arise to the level of gross negligence as a matter of law. It is true that in the context of liability, “‘gross negligence’ differs in kind, not only degree, from claims of ordinary negligence [and] evinces a reckless disregard for the rights of others” (see Colnaghi, U.S.A. v Jewelers Protection Servs, 81 NY2d 821, 824 [1993]). Where a plaintiffs cause of action merely repeats the allegations for a negligence cause of action and simply adds a claim that the defendant recklessly disregarded facts, this allegation will be insufficient to meet any special pleading standards that may be required (see Credit Alliance Corp. v Arthur Andersen & Co, 65 NY2d 536, 554 [1985] [holding that where a cause of action for fraud repeats the allegations for negligence and merely adds a claim that defendant recklessly disregarded facts which would have apprised it that its reports were misleading, this allegation was insufficient under the special pleading standards required under CPLR 3016[b] and the case should have been dismissed]). Claims of gross negligence and recklessness have been found to be sufficiently particularized under CPLR 3016(b) where the complaint alleges that the defendant failed to independently verify provided information, despite having notice of particular circumstances raising doubts as to the verity of such information (see Foothill Capital Corp. v Grant Thornton LLP, 276 AD2d 437 [1st Dept 2000]). Plaintiffs here have sufficiently pleaded their claim of gross negligence with sufficient particularity so as to survive the motion to dismiss. In their complaint, plaintiffs specifically allege that defendant acted with not just reckless disregard but that defendant provided different and correct sales tax advice and guidance to other similarly situated clients, while failing to notify plaintiffs of its error or take any remedial steps to mitigate the damage. Plaintiffs further allege that defendant took steps to intentionally conceal any such negligence by falsely representing to plaintiffs in 2020 that their newfound conclusions were a result of a change in law. Thus, plaintiffs have gone beyond merely adding a claim that defendant acted with a reckless disregard for plaintiffs’ right and have specifically enumerated factual allegations, which if taken as true as the court must do at the pleading stage, could reasonably be found by a fact-finder to evince an utter indifference to plaintiffs’ rights. Plaintiffs’ claim for gross negligence withstands defendant’s motion to dismiss.”

Island Consol. v Grassi & Co., Certified Public Accountants PC 2025 NY Slip Op 30094(U) January 7, 2025 Supreme Court, New York County Docket Number: Index No. 451469/2023 Judge: Margaret A. Chan came as somewhat of a surprise to read. Not only did a statute of limitations defense in an accounting malpractice suit fail, but “gross negligence” and a fraud claim was found not duplicative of a malpractice claim.

Here are more of the holdings:

“Condition Precedent INDEX NO. 451469/2023 RECEIVED NYSCEF: 01/08/2025 Defendant argues that because plaintiffs failed to comply with the terms of the Engagement Letters by failing to give defendant requisite notice of claim within one year of completion of subject services and failing to seek mediation as a condition precedent to bring suit, the complaint should be dismissed (NYSCEF # 39 – Deft’s MOL at 5-9). Defendant contends that the Engagement Letters signed by both parties are binding and dispositive (id. at 5). Defendant states that plaintiffs agreed that written notice of the dispute was required to be provided within one year from the date of completion of the subject services and that mediation was a condition precedent to bringing suit (id. at 6-8). Defendant informs that while the alleged advice and services rendered occurred in 2015, plaintiffs’ notice of a potential claim came on June 6, 2022, and their request for mediation followed five months thereafter (id. at 8). Plaintiffs assert that the Engagement Letters attached as defendants’ exhibits C-M (NYSCEF #’s 61-71) do not apply to the 2014-2015 sales tax advice because other “written communications” sufficiently document the advice and the subject services are not covered by any Engagement Letters (Pltfs’ MOL at 6). The sales tax advice at issue is evidenced in written communications and in emails from April 2015 and 2020-2021 (id. at 7). Thus, plaintiff concludes that the condition precedent in the Engagement Letters do not apply to the 2014-2015 sales tax advice. In any event, plaintiffs address the required one-year notice of claims upon completion of services. Plaintiffs assert that in December 2021 they had asked defendants to let their insurer know to expect claims to be forthcoming, and in June 2022, defendant was put on notice of plaintiffs’ claim against it with the summons with notice for this suit (id. at 9; NYSCEF # 59, Exh A- Summons). Plaintiffs claim that the notice was timely because until at least October 28, 2021, defendant was working on the tax appeal on the 2015 sales tax advice. Hence, plaintiffs conclude that the “completion of services” was at the end of October 2021 (Pltfs’ MOL at 9). Contractual provisions that place a requirement on plaintiffs to file a notice of claim or to seek mediation before they can bring suit are commonly approved and upheld by New York courts as valid conditions precedent (see A.H.A. General Const., Inc. v New York City Housing Authority, 92 NY2d 20, 31-32 [1998] [holding a provision requiring plaintiffs to serve a timely notice of claim was a valid condition precedent, and not an exculpatory clause]). Failure to comply has often been found as a reason for dismissal of a plaintiffs’ complaint (see Archstone Dev. LLC v Renval Constr. LLC, 156 AD3d 432, 433 [1st Dept 2017] [holding lower court correctly dismissed breach of contract claim on the ground that plaintiff failed to satisfy a condition precedent of pursuing mediation prior to bringing suit]; see also Centennial Elevator Industries, Inc. v JRM Construction Management, LLC, 212 AD3d 457, 458 [1st Dept 2023] [same]. If a condition precedent operates to potentially waive a claim before the applicable statute of limitations has expired, it may be examined as to whether it serves to make the time for bringing suit “unreasonably short” (see Planet Constr. Corp. v Board of Educ. of City of N. Y., 7 NY2d 381, 385 [1960]). At the same time, CPLR § 201 itself allows for written agreements to prescribe a shorter time within which an action is to be commenced (see CPLR §201). New York courts have thus upheld contractual limitations waiving claims not brought within a period of time as short as one year or even 90 days (see Assured Guar. (UK) Ltd. v J.P. Morgan Inv. Mgt. Inc., 80 AD3d 293, 304 [1st Dept 2010] [holding a 90 day limit for asserting objections set forth in the parties’ investment management agreement was reasonable as a matter of law]; see also APR Energy Holdings Ltd. v Deloitte Tax LLP, 209 AD3d 402, 403 [1st Dept 2022] [upholding a provision in engagement letter that required suits to be commenced within 1 year of accrual]). Here, the Engagement Letters from 2012 to 2020 include provisions requiring plaintiffs to provide notice of claim within one year from the date of the completion of the subject services and to pursue mediation within 90 days after (see e.g. Exhs C through M). These provisions make it such that noncompliance renders a plaintiffs claim as waived (see David Fanara!, Inc. v Dember Const. Corp., 195 AD2d 346, 348 [1st Dept 1993]). However, none of these Engagement Letters cover the sales tax advice service. Thus, plaintiffs’ point that the condition precedent in the Engagement Letters does not cover the sales tax service is well taken. In any event, even if the condition precedent were to apply, dismissal is not appropriate at this point when the parties disagree over when “completion of subject services” occurred. Defendant argues that “completion of subject services” was limited and completed in 2015 and points to provisions within the Engagement Letters that caution plaintiffs that advice may change over time and not be applicable at a future date. However, plaintiffs point out that defendant continued services directly related to the advice at issue until 2021 when the subject services were completed. As such, despite plaintiffs request to exclude the Engagement Letters in defendant’s exhibits C through M, these exhibits raise a question of fact as to whether they apply to the sales tax advice and subsequent work thereon. Thus, defendants’ motion to dismiss the amended complaint for plaintiffs’ failure to comply with a condition precedent is denied.”

Island Consol. v Grassi & Co., Certified Public Accountants PC 2025 NY Slip Op 30094(U) January 7, 2025 Supreme Court, New York County Docket Number: Index No. 451469/2023 Judge: Margaret A. Chan came as somewhat of a surprise to read. Not only did a statute of limitations defense in an accounting malpractice suit fail, but “gross negligence” and a fraud claim was found not duplicative of a malpractice claim.

“In this professional malpractice action, plaintiffs Island Consolidated, Eastern Materials Corp., Island International Exterior Fabricators Del LLC, and Island Exterior Fabricators LLC (hereinafter collectively referred to as “Island” or “Plaintiffs”) allege professional malpractice and gross negligence against their accountant, defendant Grassi & Co., Certified Public Accountants PC for the sales tax advice it gave plaintiffs in 2015. In reliance on defendant’s 2015 sales tax advice, plaintiffs sustained monetary damages through tax penalties and interests on repayment costs to the New York State Department of Taxation and Finance, costs, and lost profits. Defendant moves to dismiss plaintiffs’ Amended Complaint for failure to: (1) comply with the condition precedent before bringing a suit against defendant; (2) timely bring their claims within the three-year statute of limitations; and (3) state a cause of action with sufficiency. Alternatively, defendant urges dismissal of damages on the grounds that they are not recoverable and is limited by the parties’ agreement. Plaintiffs oppose the motion. For the reasons stated below, defendant’s motion is denied.”

“Statute of Limitations Defendant argues that plaintiffs’ causes of action based on malpractice for its sales tax advice in 2015 are barred by the three-year statute of limitations for professional malpractice (id. at 9-11). And because such a claim accrues when the malpractice is initially committed, plaintiffs’ claims for professional malpractice expired in 2018 (id. at 10). Defendant adds that the continuous representation doctrine did not toll the statute of limitations here because the recurrence of any professional relationship between the parties was limited to incidental and general advising and not specific to the 2015 advice (id. at 11). In opposing defendant’s statute of limitations argument, plaintiffs contend that the parties had an understanding that more work is needed and that defendant had to engage in corrective measures or remedial measures (id. at 18). Citing Shumsky v Eisenstein (96 NY2d 164, 168 [2001]), plaintiffs assert that “[f]or accounting malpractice, the statute of limitations begins to run when the accounting representation is completed. The continuous representation doctrine tolled the statute of limitations for plaintiffs’ cause of action such that their complaint is timely” (id. at 18-19). Plaintiffs contend that defendant continued to provide their professional advice and guidance on the sales tax issues from 2015 through late 2021 and dealt with tax authorities to try to avoid the very sales taxes that defendant had claimed were not taxable (id.). Plaintiffs claim that defendants were engaged in continuous representant which tolls the statute of limitations for accounting malpractice (id. at 18 citing Lemle v Regen, Benz & MacKenzie, CPA, PC, 165 AD3d 414, 415 [1st Dept 2018]). Pursuant to CPLR 214[6], the statute of limitations for accounting malpractice is three years. New York courts have held that a professional malpractice claim accrues at the time “the malpractice is committed, not when the clients discover it” (Williamson ex rel. Lipper Convertibles, L.P. v PricewaterhouseCoopers LLP, 9 NY3d 1, 8 [2007]); see also Lemle 165 AD3d at 414 [finding professional malpractice accrued when the client filed tax returns, not when client discovered they were wrong]). However, the continuous representation doctrine will toll a statute of limitations on a professional malpractice action when there is a continuing professional relationship between parties that specifically pertains to the matter in which the alleged malpractice was committed in the first place (see Shumsky, 96 NY2d 164). The continuous representation doctrine does not apply in cases where the professional relationship merely continues with later services that are not related to the original services (see Ackerman v PricewaterhouseCoopers, 252 AD2d 179 [1st Dept 1998]; see also CLP Leasing Co., LP v Nessen, 12 AD3d 226 [1st Dept 2004]). However, the continuous representation doctrine has been found to toll a statute of limitations where defendant undertook to defend or explain earlier advice they had provided or where the defendant represented plaintiffs in audited investigations by the IRS (see Ackerman, 252 AD2d 179 [holding defendants’ repeated use of an improper accounting method, repeated failure to disclose risks associated with it, and representations that it was handling an IRS audit in relation was enough evidence to support the application of continuous representation]; see also Lemle, 165 AD3d 414 [holding continuous representation doctrine tolled statute of limitations where without any new engagement by plaintiff, defendants undertook to respond to audit letter and defend or explain the treatment given on an earlier 2012 return and service was related to the alleged malpractice in 2012]; cf. Apple Bank for Sau. v PricewaterhouseCoopers LLP, 70 AD3d 438, 438 [1st Dept 2010] [holding continuous representation doctrine did not toll statute of limitations even where defendant audited plaintiffs year-end financial statements, prepared its tax returns and provided ad hoc tax advice to plaintiff because the parties never had an express, mutual agreement to advise plaintiff after the original advice]). Here, plaintiffs have alleged sufficient facts establishing that the continuous representation doctrine tolled the statute of limitations for professional malpractice in this case. While the follow-up June 16, 2020, memorandum and follow-up 2021 emails do repeat, clarify, and elaborate on the advice first given, this alone is likely not sufficient to rise to what is needed to trigger the continuous representation doctrine (see Apple Bank for Sau., 70 AD3d at 438). However, plaintiffs here also allege and demonstrate that defendant continued to provide their professional advice and guidance regarding sales taxes by defending a tax appeal on the exact issues through late 2021 (see Lemle, 165 AD3d at 414). These allegations support a reasonable inference that the parties’ professional relationship was not just comprised of a recurrence of general duties. Accordingly, defendant’s motion to dismiss the amended complaint as barred by the statute of limitations is denied.”