Opinion
INDEX NO. 507014/2018
11-07-2018
CHRISTIAN JOHN WOODCOCK, Individually and Derivatively, Plaintiff, v. ROBBY H. BIRNBAUM AND GREENSPOON MARDER, LLP., Defendants, And UNITED CREDIT SOLUTIONS, INC.
NYSCEF DOC. NO. 48 Decision and order MS # 2 PRESENT: HON. LEON RUCHELSMAN
The defendants Robby Birnbaum and Greenspoon Marder LLP have moved seeking to dismiss the complaint pursuant to CPLR §3211 on various grounds. The plaintiff opposes the motion. Papers were submitted by the parties and arguments held. After reviewing all the arguments, this court now makes the following determination.
During the fall of 2011 the plaintiff and Ingo Nowottny incorporated an entity called Century First Credit Solutions Inc., [hereinafter 'CFCS'] and each was a fifty percent owner of that entity. On December 22, 2011 Ingo Nowottny formed nominal defendant United Credit Solutions, Inc., [hereinafter 'UCS']. On March 1, 2012 Woodcock purchased half the shares of UCS and thus became equal shareholders in both corporations. On November 6, 2014 Nowottny's sister formed another entity, the similarly called United Credit Solvers, Inc., and then entered into an agreement to purchase some of the assets and book of business of UCS. The relationship between Nowottny and Woodcock soured and Woodcock formed another entity Named Priority Capital LLC to compete with Nowottny without Nowottny's ownership interests. Indeed, both Nowottny and Woodcock accused the other of stealing proprietary information from their joint corporations and utilizing the information in their wholly owned corporations. First, on August 25, 2015 Woodcock through counsel sent Nowottny a cease and desist letter accusing Nowottny of representing to clients that United Credit Solvers is really UCS and demanding Nowottny discontinue this activity. A few days later a lawsuit was filed in an action entitled Century First Credit Solutions Inc., v. Priority Capital LLC, Christian Woodcock and John Amato, Index Number 653287/2015 in New York County. In that action, the plaintiff Century First Credit Solutions Inc., owned by Nowottny, sued Woodcock, alleging he misappropriated trade secrets, converted corporate funds and tortuously interfered with contractual relations, among other claims. Specifically, the complaint alleged Woodcock and John Amato, a former sales representative and independent contractor of CFCS, formed Priority Capital LLC and utilized the information misappropriated in the new entity. Woodcock filed a third party complaint against Nowottny and his brother William Nowottny alleging they interfered with Priority and actually fraudulently represented themselves as employees of Priority to steal Priority's business for their own businesses.
In that lawsuit while the third party complaint was dismissed the court held in an order dated January 25, 2017 that Greenspoon Marder LLP [hereinafter 'GM'] was disqualified from representing CFCS. The court noted that Woodcock established that GM "personally represented him both previously and currently, and thus represents him individually in addition to in his capacity as a 50% shareholder in both Century and Solutions" (see, Decision of Justice Bannon, dated January 25, 2017). The court concluded that Woodcock established he maintained an attorney client relationship with GM, that his relationship with GM was substantially related to the lawsuit between Century and Priority and that such interests are materially adverse. The court disqualified GM's representation in the underlying lawsuit on the grounds such representation was "rife with conflict" (id).
Woodcock instituted the within lawsuit alleging four causes of action. The first two allegations are that GM and Robbie Birnbaum, the GM attorney who dealt with Woodcock, breached their fiduciary duties and duties of loyalty to Woodock derivatively and Woodcock personally. The third and fourth causes of action allege GM and Birnbaum violated Judiciary Law §487 to Woodcock derivatively and personally.
The defendants have moved seeking to dismiss the lawsuit. First, Birnbaum argues that he has no connection with the State of New York sufficient for the court to assert any personal jurisdiction over him. Substantively, the motion argues the complaint has failed to establish the necessary elements sufficient to state any cause of action.
Conclusions of Law
A non-domiciliary may be subject to the jurisdiction of New York courts where that individual "transacts any business within the state or contracts anywhere to supply goods or services in the state" (CPLR §302(a)). "Although it is impossible to precisely fix those acts that constitute a transaction of business" case law has established that "it is the quality of the defendants' New York contacts that is the primary consideration" (see, Fischbarg v. Doucet, 9 NY3d 375, 849 NYS2d 501 [2007]). Thus, it is generally true that electronic mail or telephone communications, actions undertaken by Birnbaum in this case, are generally insufficient to constitute 'transacting business' sufficient to confer jurisdiction (Dukes Bridge LLC v. Security Life of Denver Insurance Company, 2016 WL 1700383 [E.D.N.Y. 2016]). However, in Cutco industries Inc., v. Naughton, 806 F2d 361 [2d Cir. 1986] the court held that individuals that comprise a partnership or a joint venture are agents of each other. Therefore, jurisdiction upon Birnbaum would be proper if it can be established that GM acted as his agent in New York. Thus, Birnbaum can be "said to have transacted business in New York through partnership activities in New York (see, Durkin v. Shea, 957 F.Supp 1360 [S.D.N.Y. 1997]). In this case, the initial letter of engagement sent by Birnbaum to UCS dated April 29, 2013 was written on GM letterhead. Further, the letter confirmed "the engagement of Greenspoon Marder, P.A." and Birnbaum signed the letter "for the Firm" (see, Letter of Engagement). Thus, while Birnbaum might have acted in Florida, there can be no dispute that he did not act in an individual capacity but as a member of GM. The parties have not presented any evidence how Woodcock or Nowottny, for that matter, came to learn of GM or Birnbaum and whether any solicitation was conducted by GM in New York sufficient to subject Birnbaum as agent of GM to New York courts. Similarly, the Letter of Engagement mentions billing information, hourly rates, and monthly invoices. The motion papers do not reveal whether such information was presented to the client by GM from a New York office or some other state. Further, there has been no evidence presented that no other attorneys from GM conducted any work for any of the parties who were present in New York. Thus, there are significant factual questions whether Birnbaum can have reasonably expected to be subject to New York courts and consequently the motion seeking to dismiss the complaint for lack of jurisdiction is denied.
Turning to the substantive grounds seeking to dismiss the complaint, it is well settled that "[a] motion to dismiss made pursuant to CPLR §3211[a][7] will fail if, taking all facts alleged as true and according them every possible inference favorable to the plaintiff, the complaint states in some recognizable form any cause of action known to our law" (see, e.g. AG Capital Funding Partners, LP v. State St. Bank and Trust Co., 5 NY3d 582, 808 NYS2d 573 [2005], Leon v. Martinez, 84 NY2d 83, 614 NYS2d 972, [1994], Hayes v. Wilson, 25 AD3d 586, 807 NYS2d 567 [2d Dept., 2006], Marchicnni v. Drexler, 22 AD3d 814, 803 NYS2d 196 [2d Dept., 2005]. Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a pre-discovery CPLR §3211 motion to dismiss (see, EBC I, Inc. v. Goldman Sachs & Co., 5 NY3d 11, 799 NYS2d 170 [2005]).
First, Business Corporation Law §626(c) states that no derivative lawsuit may be commenced unless the complaint alleges "with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making the effort" (id). As the Supreme Court noted, for a stockholder to sue derivatively "he must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court" (see, Hawes v. City of Oakland, 104 US 450, 14 Otto 450 [1881]).
The defendants argue the plaintiff failed to comply with that provision and that consequently the plaintiff has no standing to pursue the lawsuit. The plaintiff counters that specific evidence such notice would have been futile has been presented.
To succeed upon an assertion that notice would have been futile and hence not required, specific facts must be presented that the individuals at issue were self-interested in the transactions (see, Bansbach v. Zinn, 1 NY3d 1, 769 NYS2d 175 [2003]. Thus, the plaintiff must establish that if a demand would have been filed with the Board of Directors they could not have exercised independent and disinterested business judgement (id). Thus, the individual defendants will be considered incapable of being disinterested if facts support a personal benefit to them regarding the transaction being challenged (id). In that instance the business judgement rule is inapplicable and demand futility is established.
In this case, the complaint alleges that defendants had material interests in the issues that comprise the causes of action, namely the representation of Binrbaum and GM. Thus, demand would obviously have been futile.
The defendants argue the standard for demand futility has not been met since the futility has not been presented with sufficient particularity. However, particularity governs the totality of the futility and as long as such futility can be discerned by the court then the particularity will naturally suffice. Thus, where the directors are accused of self-dealing then obviously futility has been presented (see, Soho Snacks Inc., v. Franaioudakis, 129 AD3d 636, 13 NYS3d 31 [1st Dept., 2015]). While Nowottny has been directly accused of self dealing the entire lawsuit presented here conflicts directly with activities undertaken by Nowottny, most notably his hiring of GM in the New York lawsuit. Thus, demand futility has been established.
To succeed on a claim for breach of a fiduciary duty, a plaintiff must establish the existence of the following three elements: (1) a fiduciary relationship existed between plaintiff and defendant, (2) misconduct by the defendant, and (3) damages that were directly caused by the defendant's misconduct (Kurtzman v Bergstol, 40 AD3d 588, 835 NYS2d 644, 646 [2d Dept., 2007], see, Birnbaum v. Birnbaum, 73 NY2d 461, 541 NYS2d 746 [1989] stating individuals jointly managing a limited liability corporation creates a fiduciary duty among the members analogous to that of partners).
It is well settled that the violation of a Disciplinary Rule does not, by itself, give rise to a claim of breach of a fiduciary duty (Schwartz v. Olshan Grudman Frome & Rosenzweiq, 302 AD2d 193, 753 NYS2d 482 [1st Dept., 2003]). Therefore, the allegations of the complaint must be examined. The complaint alleges various breaches of fiduciary duties including "advising in the misuse, misappropriation, removal and/or destruction of UCS assets and property" (see, Summons and Complaint, ¶ 114(b)). Of course, the plaintiff will be required to prove these allegations at trial, however, at this stage of the proceedings, accepting the allegations of the complaint as true, they allege breaches of duty sufficient to survive a motion to dismiss, based upon other allegations besides the breach of any disciplinary rules (see, Summons and Complaint, ¶ 114(a)). For similar reasons the requisite causation required to plead and prove a breach of fiduciary duty is satisfied. The plaintiff has alleged that if GM would not have committed the various breaches enumerated above and in the complaint then the plaintiff would not have been harmed in the manner in which he was harmed. The specific harms could include compensatory damages or perhaps forfeiture of legal fees. Again, while the plaintiff will be required to prove those losses and harms, at this stage a prima facie presentation of a breach of duty has been made. Consequently, the motions seeking to dismiss the breach of fiduciary duty claims are denied.
Lastly, concerning Judiciary Law §487, it is well settled that to establish such a cause of action the plaintiff must present evidence an attorney acted "with intent to deceive" either the court or any party (see, Moormann v. Perini Hoerger, 65 AD3d 1106, 886 NYS2d 49 [2d Dept., 2009]). The allegations concerning the deception must be pled with particularity (Betz v. Blatt, 160 AD3d 696, 74 NYS3d 75 [2d Dept., 2018]).
First, it must be noted that the Second Department no longer maintains a cause of action pursuant to Judiciary Law §487 based upon an attorney's egregious, extreme or chronic delinquent activities. Rather, "the only liability standard recognized in Judiciary Law §487 is that of an intent to deceive" (Dupree v. Vorhees, 102 AD3d 912, 959 NYS2d 235 [2d Dept., 2013]).
Second, considering the intent to deceive, such intent can hardly be demonstrated. Indeed, GM acknowledged to the court as well as to the plaintiff that such representation was being undertaken. In Judge Bannon's decision dated January 25, 2017, she noted that in opposition to the motion to disqualify the plaintiff there, CFCS argued that "Woodcock is only a former client of Greenspoon Marder, that any representation of Woodcock in Florida was only provided in connection with Woodcock role as a 50% owner of Century, that personal representation of Woodcock by Greenspoon Marder in Florida, if any, was not substantially related to the instant matter" (supra). Thus, GM's representation in the New York matter was not 'deceptive' in any manner, rather, GM simply argued the representation was not legally proscribed. While they failed to prevail upon such argument, which comprises the causes of action as noted, they did not engage in any deception or any deceptive practices. Therefore, the motions seeking to dismiss the claims based upon Judiciary Law §487 are hereby granted.
So ordered.
DATED: November 7, 2018
Brooklyn N.Y.
ENTER:
/s/_________
Hon. Leon Ruchelsman
JSC