Opinion
INDEX NO. 154593/2018
01-04-2019
97 2ND LLC, A NEW YORK LIMITED LIABILITY COMPANY Plaintiff, v. GOLDBERG WEPRIN FINKEL GOLDSTEIN LLP, Defendant.
NYSCEF DOC. NO. 30 PRESENT: HON. ARLENE P. BLUTH Justice MOTION DATE __________ MOTION SEQ. NO. 001
DECISION AND ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 001) 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 were read on this motion to/for DISMISSAL.
The motion to dismiss by defendant is granted.
Background
This action arises out of an ownership dispute over plaintiff, a company that used to own property located at 97 Second Avenue in Manhattan. Initially plaintiff's sole member was Raphael Toledano. The complaint alleges that Toledano received financing in April 2015 from Lefko Funding LLC ("Lefko") for another one of his businesses ("West 16") and that these funds were secured by Toledano's membership interest in plaintiff. In other words, Toledano's interest in plaintiff was collateral for Lefko's loan.
In April 2017, West 16 defaulted and Lefko conducted an auction sale of Toledano's membership interest in plaintiff. Lefko successfully acquired Toledano's interest at the sale and assigned the bid to another entity ("22 Columbus"). After other transactions, 22 Columbus eventually appointed Michael K. Shah as sole manager of plaintiff on June 20, 2017.
On that same day, 22 Columbus executed a deed on behalf of plaintiff transferring ownership of the property to DS 97 2nd Avenue Property Owner LLC ("DS 97"), an affiliate of Shah, the owner of 22 Columbus. Allegedly, Toledano then called Shah and directed 22 Columbus to sell the premises to him. On July 10, 2017, DS 97 filed an order to show cause to restrain Toledano from interfering with the property.
In August 2017, defendant (a law firm) filed a Chapter 11 bankruptcy petition at Toledano's direction on behalf of plaintiff. Plaintiff (controlled by Shah in this action) claims that it never gave defendant permission to file the claim or appear on its behalf in bankruptcy court. Plaintiff contends that its sole member, at the time of the filing of the bankruptcy petition, was 22 Columbus and 22 Columbus never retained defendant. Plaintiff contends that defendant knew that it did not have authority to bring the bankruptcy case and brought the case anyway. The bankruptcy case was later dismissed after Shah intervened and filed a motion to dismiss. Plaintiff brings causes of action based on Judiciary Law § 487, malicious prosecution, professional negligence, malpractice, conversion and identity theft as well as slander of title based on the bankruptcy case.
Defendant characterizes this case as an attempt by Shah to recover legal fees from defendant based on the bankruptcy case. Defendant also disputes many of the facts in the complaint and contends that Toledano obtained a $2 million personal loan from Lefkowitz (owner of Lefko) secured by a Toledano's membership interest in plaintiff. Defendant claims that the auction sale was not performed in accordance with the Uniform Commercial Code and stresses that no one showed up at the sale except for Lefkowitz who simply declared himself the owner of plaintiff.
Defendant insists that Toledano disputed the validity of the auction and reached an agreement with Lefkowitz on June 19, 2017 that gave Toledano management authority over the property for 75 days. Defendant cites this agreement as the basis for filing the bankruptcy case. Defendant argues that Shah knew about the June 19 letter agreement when he executed a deed on behalf of plaintiff the very next day on June 20, 2017 that transferred title to the property to DS 97.
Defendant contends that the bankruptcy petition was filed to vindicate Toledano's rights under the June 19 letter agreement. Defendant attached an affidavit to the bankruptcy filing that noted the dispute between Toledano and Shah. Defendant claims that the bankruptcy court declined to award Shah attorneys' fees although it granted the motion to dismiss that proceeding.
Defendant moves to dismiss on the ground that collateral estoppel applies from the bankruptcy court. Defendant claims that judge declined to award attorneys' fees and retained jurisdiction to consider sanctions in the future. Defendant insists that it has not committed egregious conduct under Judiciary Law § 487 and that plaintiff failed to plead a cause of action for malicious prosecution, professional negligence and malpractice. Defendant also argues that plaintiff's claims for conversion and identity theft as well as slander of title must also be dismissed.
In opposition, plaintiff maintains that collateral estoppel is inapplicable and that the rest of its causes of action should not be dismissed. Plaintiff stresses that the bankruptcy filing was a "sham filing" that had serious consequences for plaintiff and intimates that defendant law firm's actions were particularly malicious.
Discussion
"On a CPLR 3211 motion to dismiss, the court will accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Nonnon v City of New York, 9 NY3d 825, 827, 842 NYS2d 756 [2007] [internal quotations and citation omitted]).
A motion to dismiss based on documentary evidence "may be appropriately granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of New York, 98 NY2d 314, 326, 746 NYS2d 858 [2002]). "Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19, 799 NYS2d 170 [2005]). "[T]o be considered 'documentary,' evidence must be unambiguous and of undisputed authenticity" (Fontanetta v Doe, 73 AD3d 78, 86, 898 NYS2d 569 [2d Dept 2010] [observing that affidavits and deposition testimony are not documentary evidence under CPLR 3211(a)(1)]).
Judiciary Law § 487Judiciary Law § 487 provides that "An attorney or counselor who: (1) Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or, (2) Wilfully delays his client's suit with a view to his own gain; or, wilfully receives any money or allowance for or on account of any money which 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."
A claim brought under Judiciary Law § 487 is properly dismissed where a plaintiff's "allegations do not amount to acts of deceit, and do not give rise to any inference that the defendant lawyers making the statements, which mainly consist of simple advocacy, acted with intent to deceive" (Seldon v Lewis Brisbois Bisgaard & Smith LLP, 116 AD3d 490, 984 NYS2d 23 [1st Dept 2014]).
As an initial matter, the Court finds that the doctrines of res judicata and collateral estoppel do not apply to the instant action. A review of the bankruptcy court hearing transcript fails to show that the bankruptcy judge made any findings about attorneys' fees or sanctions. The judge concluded that "I'm not making a ruling on any of the substantive aspects. The only thing I'm ruling today is that the person who signed this petition has no authority in the record to have done that on behalf of this Debtor. He had no authority to retain counsel and the Court has never retained counsel in this case" (NYSCEF Doc. No. 8 at 39-40).
The judge added that "If he files it again and I come out that way, then I'll keep jurisdiction on sanctions motion . . . I got to remember what I did as a lawyer and not try to run away from it. So I mean, we've all brought cases like this. I think if it's over now, yes, it caused your client some anxiety, but who told Lefkowitz to write that agreement, and you guys bought it and you knew it, so I'm going to leave it alone. I'm going to dismiss the case without prejudice. I'm not going to retain jurisdiction at this point. But if this case [is] filed again, the Court will consider this filing as well" (id. at 42).
Obviously, the judge did not seem inclined to award sanctions but he did not fully address the issue of whether defendant deceived the Court. However, the fact that the judge's discussion about defendant's actions is not binding in this proceeding does not compel the Court to completely ignore the judge's well-reasoned comments. The fact is that the judge perfectly captured the dispute by questioning why Lefkowitz entered into the letter agreement with Toledano. That agreement, on its face, appointed Toledano manager of the property (NYSCEF Doc. No. 13 at 2) and raised questions about the control of plaintiff.
The Court finds that this claim should be severed and dismissed because defendant's Local Bankruptcy Rule 10007-2 declaration lays out the dispute between Shah and Toledano (see NYSCEF Doc. No. 15). Defendant highlighted the dispute and acknowledged that Shah had "re-deeded" the property to DS 97 (id. at 4). Although defendant was unable to convince the bankruptcy judge that Toledano was the rightful owner of the property, the fact that defendant was ultimately unsuccessful on behalf of its client does not amount to deceit. As the bankruptcy judge observed, defendant "took a shot" (NYSCEF Doc. No. 8 at 42).
Malicious Prosecution
"The elements of the tort of malicious prosecution of a civil action are (1) prosecution of a civil action against the plaintiff, (2) by or at the instance of the defendant, (3) without probable cause, (4) with malice, (5) which terminated in favor of the plaintiff, and (6) causing special injury" (347 Central Park Assocs., LLC v Pine Top Assocs., LLC, 144 AD3d 785, 785-86, 41 NYS3d 99 [2d Dept 2016]).
Here, the complaint fails to state a cause of action for malicious prosecution because the complaint does not allege that the bankruptcy case was brought by, or at the instance, of defendant law firm. The complaint alleges that it was Toledano who threatened Shah, tried to break into the property, and Toledano who demanded $2 million from Shah (see NYSCEF Doc. No. 2, ¶ 70). But Toledano is not a defendant here. Alleging that defendant law firm was aware of Toledano's actions does not establish that defendant insisted that the bankruptcy proceeding should be commenced. It suggests that Toledano was upset with Shah and defendant brought the case based on the information provided by Toledano. Simply because the bankruptcy case was later dismissed does not state a cause of action for malicious prosecution by the attorneys who filed the case.
Professional Negligence & Malpractice
"New York courts impose a strict privity requirement to claims of legal malpractice; an attorney is not liable to a third party for negligence in performing services on behalf of his client. Thus, absent an attorney-client relationship, a cause of action for legal malpractice cannot be stated" (Federal Ins. Co. v North American Specialty Ins. Co., 47 AD3d 52, 59, 847 NYS2d 7 [1st Dept 2007]).
These causes of action are severed and dismissed because there was no privity between plaintiff (now controlled by Shah) and defendant. It is undisputed that Toledano hired defendant to bring the bankruptcy proceeding and that defendant cited to the June 19 letter agreement with Lefkowitz as the basis for Toledano's ownership interest in plaintiff. Toledano's position was that the auction sale by Lefkowitz was improper and hired defendant to bring a bankruptcy case that to help him regain his interest.
While Shah vehemently disagrees with the decision to bring the bankruptcy case, that does not state a cause of action for professional negligence or legal malpractice because he did not retain defendant. Shah intervened in the bankruptcy case through his own counsel, moved to dismiss and eventually won dismissal. An adversary cannot claim legal malpractice and, unlike the cases cited by plaintiff, defendant did not commit fraud or collusion or a malicious act. According to the documentary evidence submitted by defendant, defendant simply advocated on behalf of Toledano.
Conversion and Identity Theft (The Fifth Cause of Action)
Defendant asserts that this claim is not a valid cause of action under New York law. In opposition, plaintiff asserts that it is pursuing the common law cause of action for "conversation [sic] of intangibles" (NYSCEF Doc. No. 26 at 25). Conversion of intangibles is a recognized cause of action in New York (see Thyroff v Nationwide Mut. Ins. Co., 8 NY3d 283, 832 NYS2d 873 [2007] [holding that the common law tort of conversion applies to intangible property]).
"A conversion takes place when someone intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession. Two key elements of conversion are (1) plaintiff's possessory right or interest in the property and (2) defendant's dominion over the property or interference with it, in derogation of plaintiff's rights" (Colavito v New York Organ Donor Network, Inc., 8 NY3d 43, 49-50, 827 NYS2d 96 [2006]).
This cause of action is severed and dismissed because plaintiff does not allege that defendant exercised control over plaintiff. For this cause of action, the complaint alleges that filing the bankruptcy case in plaintiff's name was not authorized and "thereby constituted an appropriation and conversion of the ownership rights" and "an interference with the lawful interests of Plaintiff" (NYSCEF Doc. No. 2, ¶ 87).
This does not state a cause of action for conversion against defendant. There are no allegations that defendant interfered with plaintiff's right of possession or exercised control over plaintiff. Defendant brought a bankruptcy petition on behalf of Toledano. Commencing an action is not a sufficient basis to allege that defendant had dominion over plaintiff. If such a cause of action exists under these circumstances, it could only be pursued against Toledano—he insisted he had control over plaintiff and instructed defendant to file the bankruptcy petition on his behalf.
Slander of Title
To state a cause of action for slander of title, a plaintiff must allege "(1) a communication falsely casting doubt on the validity of the complainant's title, (2) reasonably calculated to cause harm and (3) resulting in special damages" (39 College Point Corp. v Transpac Capital Corp., 27 AD3d 454, 455, 810 NYS2d 520 [2d Dept 2006]).
Here, the Court finds that plaintiff has failed to state a cause of action. Although plaintiff claims that the bankruptcy petition cast false doubt on plaintiff's title to the property, the fact is that defendant's Local Bankruptcy Rule 10007-2 declaration details the dispute between Shah and Toledano (see NYSCEF Doc. No. 15). This declaration presents Toledano's version of events, but it does not contain a false communication. It presents a disagreement about the ownership interests in plaintiff. Moreover, because the basis for the slander of title claim is the bankruptcy litigation, those statements are subject to an absolute privilege (San-Dar Assoc. v Fried, 151 AD3d 545, 546, 54 NYS3d 273 [1st Dept 2017] [dismissing a counterclaim for slander to title based on statements made in a litigation because they were absolutely privileged]).
The Court also observes that the complaint alleges that Shah "re-deeded" the property to DS 97 on June 20, 2017, well before the bankruptcy petition was commenced. The Court questions how a slander of title claim can remain when the property was no longer an asset of plaintiff.
Summary
The Court stresses that the allegations in the complaint detail a dispute between Toledano and Shah; they do not claim that defendant law firm did anything other than bring the case on Toledano's behalf. And the documentary evidence supplied by defendant—the bankruptcy filings and the June 19 letter agreement—make clear that there was a basis to bring the bankruptcy petition. Defendant did not make up facts or invent a dispute. Even the bankruptcy judge noted that the June 19 letter agreement had caused Shah problems. Although Shah successfully defeated Toledano in bankruptcy court, that does not mean that Shah can go after defendant. Plaintiff cannot successfully allege the causes of action in its complaint simply because it won in bankruptcy court and defendant was the lawyer for the loser. Plaintiff is unhappy with having to spend money to dismiss the bankruptcy petition. But sometimes that is the cost of doing business. Bringing a case that is later dismissed does not automatically form the basis of a malicious act by an attorney for the losing party.
Accordingly, it is hereby
ORDERED that the motion to dismiss by defendant is granted and the complaint is dismissed in its entirety, with costs and disbursements to defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant. 1/4/19
DATE
/s/ _________
ARLENE P. BLUTH, J.S.C.