Opinion
No. 50105/99.
2012-12-7
Aryeh GUTMAN, Plaintiff, v. A TO Z HOLDING CORP., A to Z Capital Corp., Zalman Klein, and Washington Greene Association, Defendants.
Savad Churgin, Nanuet, for Plaintiff. Lebensfeld Borker, Sussman & Sharon LLP, Mount Vernon, for Defendant.
Savad Churgin, Nanuet, for Plaintiff. Lebensfeld Borker, Sussman & Sharon LLP, Mount Vernon, for Defendant.
DAVID SCHMIDT, J.
The following papers numbered 1 to 3 read herein:
+-----------------------------------------------------------------------------+ ¦Papers Numbered ¦ +-----------------------------------------------------------------------------¦ ¦Notice of Motion/Order to Show Cause/Petition/Cross Motion and ¦1–2 ¦ ¦Affidavits (Affirmations) Annexed ¦ ¦ +---------------------------------------------------------------------+-------¦ ¦Opposing Affidavits (Affirmations) ¦3 ¦ +---------------------------------------------------------------------+-------¦ ¦Reply Affidavits (Affirmations) ¦ ¦ +---------------------------------------------------------------------+-------¦ ¦Affidavit (Affirmation) ¦ ¦ +-----------------------------------------------------------------------------+
Other Papers
Upon the foregoing papers, in this action by plaintiff Aryeh Gutman (Gutman) against defendants A to Z Holding Corp., A to Z Capital Corp., Zalman Klein (Klein), and Washington Greene Association (collectively, defendants) to recover damages for breach of fiduciary duty and for an accounting, Gutman moves, by order to show cause, for an order: vacating this court's order of December 6, 2002, which dismissed his complaint and his reply to defendants' counterclaims, and vacating the judgment of liability based upon that order, which was entered in this action, pursuant to the inherent authority of the court to vacate its own orders and judgments in the interests of justice so that this action can be decided on its merits.
BACKGROUND
This action is one of several actions between Gutman and Klein, as well as their family members and various entities involved in their long term business relationship. This action was filed by Gutman on December 30, 1999. In his complaint, Gutman alleged, among other things, that he and Klein were the sole and equal owners of three business entities, i.e., A to Z Holding Corp., A to Z Capital Corp., and Washington Greene Associates, and that, since 1984, Klein had failed to pay him a share of the income and profits of these businesses. In their answer, defendants interposed counterclaims, which, in essence, charged Gutman with misappropriating funds from 11 other named entities and “numerous other [unnamed] entities” with which Klein and Gutman were associated.
Defendants' first counterclaim, which sought damages, alleged that Klein and Gutman were shareholders in these corporate entities which owned real property, and that Gutman engaged in fraudulent conduct in violation of his fiduciary responsibilities to Klein by allegedly pocketing rents and proceeds from the properties. Defendants' second counterclaim sought an accounting from Gutman with respect to the assets of these various entities in which Klein allegedly had an interest and any entity which Gutman purchased with monies misappropriated from him and placed in Gutman's own name or names unknown to him. Defendants' third counterclaim sought a declaratory judgment, declaring Klein's rights in the entities, as well as the real property. Defendants' fourth counterclaim sought an injunction, enjoining Gutman from misappropriating any further funds or from transferring or encumbering through a mortgage or otherwise any interest in property in which Klein has an interest.
In an order dated June 6, 2002, the court directed the conditional dismissal of Gutman's complaint unless he complied with defendants' outstanding discovery demands on or before June 20, 2002, and appeared for the continuation of his deposition on July 2, 2002 and July 3, 2002. Gutman failed to appear for the continuation of his deposition on those days. Consequently, by an order dated December 6, 2002, the court granted an absolute order dismissing Gutman's complaint and his reply to defendants' counterclaims, and precluding Gutman from offering any evidence at the trial on the issue of defendants' counterclaims. In its December 6, 2002 order, the court noted that before issuing the conditional order of dismissal, it had warned Gutman orally and as part of that order that violation would result in dismissal. The court also noted, in that December 6, 2002 order, that Gutman had claimed that he could not attend the deposition because he was actually engaged at a hearing in front of Justice Leon Ruchelsman, which was untrue.
Thereafter, Gutman moved for leave to renew his opposition to defendants' motion to dismiss his complaint and to strike his reply to the counterclaims. Gutman claimed that the defaults were attributable entirely to his former counsel, James Klatsky, Esq. (Klatsky), who had not informed him of any of the court orders, or any directive to attend the June 6, 2002 conference, or the directive to appear on July 2, 2002 and July 3, 2002 for the continuation of his deposition on penalty of dismissal. Gutman also claimed that Klatsky, without his knowledge or consent, had told the court and defendants' counsel that he could not attend the July 2, 2002 continuation of his deposition because he was testifying in another matter. In a decision and order dated August 7, 2003, the court, in effect, granted leave to renew, and, upon renewal, vacated the determination in its order dated December 6, 2002, and reinstated Gutman's complaint and his reply to the counterclaims on the condition that he pay the sum of $5,000 to defendants.
The court, in so holding in its August 7, 2003 decision and order, found that since Gutman was apparently unaware of the prior discovery orders, it would be inequitable not to consider the matter anew. It further found that Gutman had appeared on two occasions for depositions and provided almost 2,000 pages of documents, and that there was no showing that he was guilty of a deliberately evasive, misleading, or uncooperative course of conduct to justify that he be deprived of his day in court. It determined that there was no willful failure by Gutman to provide discovery, and vacated its prior dismissal of Gutman's complaint and the reply to defendants' counterclaims on this basis. It further determined that defendants had not been prejudiced and that dismissal would be unduly harsh, and, therefore, merely a financial sanction was warranted.
Upon an appeal by defendants of the court's August 7, 2003 order, the Appellate Division, Second Department, in a decision and order dated January 17, 2012 (Gutman v. A to Z Holding Corp., 91 AD3d 718, 718 [2d Dept 2012] ), modified that order, on the facts and in the exercise of discretion, by deleting the provisions thereof, which, upon renewal, denied defendants' motion to dismiss Gutman's complaint, struck the reply to the counterclaims on the condition that Gutman pay the sum of $5,000 to defendants, and vacated this determination in the order dated December 6, 2002, and substituted therefor a provision, upon renewal, adhering to the determination in the court's December 6, 2002 order, which granted defendants' motion to dismiss Gutman's complaint and to strike the reply to the counterclaims. As so modified, the Appellate Division, Second Department, affirmed this court's order dated August 7, 2003 insofar as appealed from, with costs to defendants ( id.).
In so ruling, the Appellate Division, Second Department, found that upon Gutman's failure to comply with the conditional order of dismissal entered on June 6, 2002, that order became absolute, and that, as a result, Gutman, in opposing defendants' motion to dismiss the complaint and to strike the reply to the counterclaims, was required to demonstrate both that he had a reasonable excuse for the default and a potentially meritorious cause of action ( Id. at 719, citing Matter of Denton v. City of Mount Vernon, 30 AD3d 600, 600–601 [2d Dept 2006] ). It determined that Gutman had failed to establish a reasonable excuse for his defaults since the defaults on the part of his former attorney, Klatsky, were imputed to him despite Klatsky's alleged failure to inform him of the outstanding discovery issues and the court's conditional order of dismissal (Gutman, 91 AD3d at 719, citing Greenwald v. Zyvith, 23 A.D.2d 201, 203 [2d Dept 1965] ). It further noted that “[w]hen a default results not from an isolated, inadvertent mistake, but from repeated neglect, as here, there is no requirement that the court grant the requested relief” ' (Gutman, 91 AD3d at 719, quoting Chery v. Anthony, 156 A.D.2d 414, 417 [2d Dept 1989] ). It thus held that it was an improvident exercise of discretion for this court to vacate the determination in the December 6, 2002 order granting defendants' motion to dismiss the complaint and the reply to the counterclaims and to reinstate the complaint and the reply (Gutman, 91 AD3d at 719).
The Appellate Division, Second Department, in its January 17, 2012 decision and order, however, did not reinstate the order of preclusion set forth in the December 6, 2002 order, but (as noted above) affirmed this court's August 7, 2003 decision and order as so modified. In addition, the Appellate Division's decision and order did not provide that it was with prejudice and it never addressed the issue of defendants' counterclaims on the merits.By an order dated March 28, 2012, prepared by defendants and signed by the court following the Appellate Division's January 17, 2012 decision and order, the court: (1) awarded defendants judgment against Gutman dismissing Gutman's complaint on the merits, (2) awarded Klein damages on the first counterclaim for fraud with the amount of damages to be determined after an inquest to be scheduled by the court, (3) awarded Klein a judgment on the third counterclaim declaring the extent of his ownership interest in the following entities: Paz Jersey Corp., Paz Holding Corp., Paz Franklin Corp., 32 Little Nassau St. Corp., 185 Marcy Corp., Springfield Meadows Estates, Spring Gardens Corp., KGM Homes, Inc., 372 De Associates Corp., and Good Paz Company, with the amount of these interests to be determined after a hearing before Richard Allman (to whom this issue was referred), (4) awarded Klein a judgment on the second counterclaim and directed Gutman to provide an accounting of the assets of the aforesaid entities following the determination after the hearing, and (5) awarded Klein, with respect to the fourth counterclaim, a judgment permanently enjoining Gutman from transferring or encumbering, through sale, mortgage, or otherwise, any interest in property belonging to any of the aforementioned entities.
DISCUSSION
In support of his instant motion, Gutman points to the fact that on or about July 17, 2002, George S. Meissner (Meissner), of Meissner, Kleinberg & Finkel, LLP, the then counsel for defendants, had submitted an affirmation to this court in support of defendants' motion to dismiss his complaint in this action for alleged willful failure to comply with discovery. In his affirmation, Meissner had stated that “[a]s a result of the apparently willful and deliberate avoidance by [Gutman] and his counsel to comply with the numerous discovery orders issued since this case was commenced ... defendants have been frustrated and prevented from properly preparing for the defense of this action and from establishing their right to the relief sought by their counterclaims.” Gutman argues that this constituted a misrepresentation to the court because Meissner omitted to mention that he had made substantial compliance with discovery by providing over 2,000 pages of documents and appearing on two separate occasions to be deposed. Gutman additionally asserts that Meissner, in his affirmation, also omitted to mention that Klein had repeatedly and willfully failed to comply with the court's various discovery orders. Gutman states that this included Klein's failure to produce signed tax authorizations on or before June 20, 2002 as required, and his failure to submit to a deposition on or before a July 24, 2002 deadline set forth in the court's June 6, 2002 order. Gutman contends that based upon the assertions in Meissner's affirmation, the court had issued an August 8, 2002 conditional order of dismissal.
Gutman further asserts that Klein, on or about September 12, 2002, made a motion to reargue the court's conditional order, in which Meissner submitted an affirmation dated September 10, 2002. In that affirmation, Meissner had stated that Gutman's willful failure to comply with the conditional order of dismissal required that a final order of dismissal and preclusion be granted in this action. Gutman contends that this was also a misrepresentation by Meissner, which resulted in another conditional order. Gutman states that thereafter, Meissner submitted yet another affirmation which stated that he had failed to comply with defendants' discovery demands, and had argued that an absolute and final order dismissing his complaint and reply to defendants' counterclaims should be granted. As noted above, the court, on December 6, 2002, granted such an absolute dismissal.
Gutman points out that the court's August 7, 2003 order, which modified its December 6, 2002 order, noted that he “had apparently appeared on two occasions for depositions and provided almost 2,000 pages of documents.” He contends that this shows that he had not willfully failed to comply with discovery.
Gutman argues that in Klein's appeal of the August 7, 2003 order, Klein and his attorneys misleadingly argued to the Appellate Division that this court abused its discretion by vacating the December 6, 2002 order because Gutman did not offer both a reasonable excuse and a meritorious defense, and that the alleged law office failure was insufficient to excuse his numerous defaults that eventually led to the dismissal of his claims. Gutman contends his former counsel, Lebensfeld Borker Sussman & Sharon, LLP (the Lebensfeld firm), did not focus on the real issue on the appeal. Specifically, Gutman argues that the real issue which should have been argued before the Appellate Division, Second Department, was not whether there was law office failure by his attorney sufficient to demonstrate a reasonable excuse to support vacating the dismissal of his complaint and the reply to the counterclaims, but, instead, was whether there was a willful failure by him to comply with discovery such that his complaint and the reply to the counterclaims should have been dismissed as a discovery sanction.
Gutman asserts that the Lebensfeld firm failed to properly make the argument that his motion to renew the December 6, 2002 order should be construed as being treated, by the August 7, 2003 order, as a motion to vacate the dismissal of his complaint and the reply to the counterclaims because, pursuant to CPLR 3126(3), there was no willful failure by him to provide discovery since he had substantially complied with discovery. Gutman contends that because the Appellate Division was not effectively presented with the argument that there had been no willful failure by him to provide discovery and that he had substantially complied with discovery, and, instead, was presented only with the arguments that he had failed to offer a reasonable excuse sufficient to vacate the dismissal of his complaint and the reply to the counterclaims, it did not determine whether his defaults were willful, and it issued its decision reversing the August 7, 2003 order on the basis that he had failed to establish a reasonable excuse for his default.
Gutman argues that this court should exercise its inherent authority in the interests of resolving this action on the merits and vacate the December 6, 2002 order dismissing his complaint and the reply to the counterclaims and the judgment of liability which was entered in this action based upon the alleged misrepresentations committed by Klein
and his attorneys, and the failure by the Lebensfeld firm to raise the correct arguments before the Appellate Division.
Gutman also points to Klein's conduct in spoliating evidence in a federal action in support of his contentions that Klein has engaged in misconduct ( see Gutman v. Klein, U.S. Dist Ct, ED NY, 03 Civ 1570, Cogan, J.).
There is a strong public policy in favor of resolving cases on their merits ( see generally Friedman, Harfenist, Langer & Kraut v. Rosenthal, 79 AD3d 798, 800 [2d Dept 2010] ). “The court possesses inherent discretionary power to vacate its judgments and orders for sufficient reasons and in the interests of justice” (Correa v. Maimonides Med. Ctr., 165 Misc.2d 614, 616 [Sup Ct, Kings County 1995]; see also Ruben v. American & Foreign Ins. Co., 185 A.D.2d 63, 67 [4th Dept 1992] ). “The enumerated grounds in CPLR 5015 [for relieving a party from a judgment or order] are neither preemptive nor exhaustive and were not intended to limit that power” (Ruben, 185 A.D.2d at 67).
However, while a court possesses this inherent power to vacate its own judgment, an order by this court may not be vacated by it after the Appellate Division has already modified or affirmed it ( see Title Guar. & Trust Co. v. Winklers Catering Corp., 256 App.Div. 960, 961 [2d Dept 1939] ). This court is prohibited from issuing an order which has the effect of “undermining” an order of the Appellate Division ( see Schmitt v. City of New York, 50 AD3d 1010, 1010 [2d Dept 2008] ). The “decisions of the Appellate Division made in a case, whether correct or incorrect, are the law of the case until modified or reversed by a higher court,” and “[t]he trial court ... is bound by what is decided” by the Appellate Division (Bolm v. Triumph Corp., 71 A.D.2d 429, 434 [4th Dept 1979], lv dismissed50 N.Y.2d 928 [1980];see also Matter of Oyster Bay Assoc. Ltd. Partnership v. Town Bd. of Town of Oyster Bay, 21 AD3d 964, 966 [2d Dept 2005] [the decision on the prior appeal constitutes the law of the case, and is thus binding on the Supreme Court]; Ingelston v. Francis, 217 A.D.2d 843, 845 [3d Dept 1995] [the Supreme Court's order of preclusion which was affirmed by the Appellate Division was the law of the case and binding upon courts of lower jurisdiction in the action]; Rohring v. City of Niagara Falls, 185 A.D.2d 685, 685 [4th Dept 1992], lv denied82 N.Y.2d 662 [1993] [the Appellate Division's prior decision in a case is the law of the case and the trial court is bound by its decision] ).
Thus, the validity of the court's December 6, 2002 order, to the extent that it was upheld by the Appellate Division, constitutes the law of the case and such order cannot be disturbed by this court to the extent that it would undermine the order of the Appellate Division ( see Matter of Oyster Bay Assoc. Ltd. Partnership, 21 AD3d at 966;Ingelston, 217 A.D.2d at 845;Rohring, 185 A.D.2d at 685;Bolm, 71 A.D.2d at 434). Consequently, this court is without the authority to vacate the determination in the December 6, 2002 order to the extent that it granted defendants' motion to dismiss Gutman's complaint and the reply to the counterclaims and it cannot reinstate the complaint and the reply since to do so would ignore the law of the case and undermine the order of the Appellate Division.
Although the court is constrained to uphold the Appellate Division's order and cannot vacate its own December 6, 2002 order, it is not required to misconstrue the directive of the Appellate Division, in its January 17, 2012 order, so as to consider such order as reinstating the order of preclusion, as opposed to merely striking Gutman's reply to the counterclaims. In this regard, the court notes that its August 7, 2003 decision and order, as modified and otherwise affirmed, did not constitute a judgment on the merits so as to entitle Klein to summary judgment against Gutman in the action entitled Klein v. Gutman (Sup Ct, Kings County, index No. 47485/01) (the Klein v. Gutman action).
Klein's motion for summary judgment in the Klein v. Gutman action has been denied in the court's decision and order dated December 7, 2012, which has been decided herewith. In that decision and order, the court has determined that the dismissal of this action on the ground of noncompliance with discovery requests was not a determination on the merits so as to bar commencement of that action on the ground of res judicata as this dismissal was not the result of an order of preclusion and there was no indication that the dismissal was with prejudice ( see Maitland v. Trojan Elec. & Mach. Co., 65 N.Y.2d 614, 615–616 [1985];Daluise v. Sottile, 40 AD3d 801, 802–803 [2d Dept 2007]; Aguilar v. Jacoby, 34 AD3d 706, 707 [2d Dept 2006]; Stray v. Lutz, 306 A.D.2d 836, 836–837 [4th Dept 2003], lv dismissed100 N.Y.2d 615 [2003];Bullock v. Wehner, 263 A.D.2d 739, 740 [3d Dept 1999] ).
The court further notes that its order dated March 28, 2012, did not provide a determination on the merits, with prejudice, as to Klein's interest in 185 Marcy Corp. (which is at issue in the Klein v. Gutman action) or the other entities. Rather, it awarded Klein a judgment as to the first counterclaim if he were found to have been damaged after a determination as to the extent of his ownership interests following a hearing which was referred for determination. Notably, defendants' first counterclaim did not plead fraud as to 185 Marcy Corp. with the detail and particularity required by CPLR 3016(b). Moreover, a party seeking a default judgment must generally present prima facie proof of a claim ( see Silberstein v. Presbyterian Hosp. in City of NY, 96 A.D.2d 1096, 1096 [2d Dept 1983] ). Furthermore, “[w]hile a default admits all factual allegations of the [pleading] and all reasonable inferences therefrom, it does not admit legal conclusions which are reserved for the court's determination ( see id.).
In addition, as to the second counterclaim, Klein was awarded judgment only to the extent that an accounting of the assets of the entities was to be provided after all assets were declared. As to the third counterclaim, judgment was awarded declaring only that the extent of the amount of Klein's ownership interest in 185 Marcy Corp. and the other entities would be determined following the hearing, and the judgment on the fourth counterclaim enjoined Gutman from transferring or encumbering any interest in the property belonging to these entities at issue. No where in the Appellate Division's decision and order was it determined that the striking of Gutman's reply constituted a judgment on the merits of defendants' counterclaims and such a judgment was not required to comply with the directive of the Appellate Division's order. To the extent that the March 28, 2012 order signed by the court may have the unintended effect of being construed as such or as being in any way dispositive of the Klein v. Gutman action, the court, pursuant to its inherent authority to vacate its own orders and in the interests of justice, vacates such order to that extent ( see Ruben, 185 A.D.2d at 67;Correa, 165 Misc.2d at 616).
CONCLUSION
Accordingly, Gutman's motion is denied insofar as it seeks an order vacating the court's December 6, 2002 decision and order, and it is granted to the extent indicated above with respect to the March 28, 2012 order signed by the court.
This constitutes the decision and order of the court.