Opinion
99 Civ. 3741 (JSM)
May 31, 2000
Sean F. O'Shea, New York, New York, for Donald Adamson.
Mark E. Housman, Siller Wilk LLP, New York, New York, for Michael Bachner.
Martin P. Unger, Tenzer Greenblatt LLP, New York, New York, for Todd Nejaime.
MEMORANDUM OPINION AND ORDER
Plaintiff, Donald Adamson, has brought this action claiming breach of fiduciary duty, fraud, professional malpractice, breach of contract, and violation of New York Judiciary Law § 487 against his former lawyer, Michael Bachner, and his former stock broker, Todd Nejaime. Plaintiff alleges that due to an undisclosed conflict of interest and collusion between the defendants, Mr. Bachner failed to pursue indemnification claims on Plaintiff's behalf against Mr. Nejaime. The defendants have filed separate motions to dismiss the case for failure to state a claim. Because Mr. Adamson has alleged no damages resulting the defendants' alleged misconduct, the motions are granted.
In 1993 Plaintiff retained Mr. Nejaime, an employee of Reich Company, as his stock broker. Shortly thereafter, at Plaintiff's instruction, Mr. Nejaime placed an order to transfer Plaintiff's shares of Pentec International stock to Plaintiff's brokerage account at Reich. During the transfer Plaintiff's Reich account was mistakenly credited with shares of a different company, Pentech International. As a result of the error, Plaintiff's account showed over $900,000 worth of Pentech instead of the approximately $1900 worth of Pentec that should have been there.
Upon reviewing his account, Plaintiff told his broker, Mr. Nejaime, that there must have been a mistake and asked him repeatedly to reconfirm the purchase. Mr. Nejaime assured Plaintiff several times that he had double checked everything and that the account had been credited correctly. Finally, at Mr. Nejaime's urging, Plaintiff agreed to liquidate a portion of the Pentech shares and purchase other, more risky stocks with the proceeds. On September 28, 1994, Mr. Nejaime notified Plaintiff that the two clearing brokers in the transaction were suing Plaintiff to recover the stock erroneously credited to his account. Mr. Nejaime informed Plaintiff that he had already contacted a lawyer, Mr. Bachner, to represent Plaintiff. Plaintiff alleges that neither defendant ever informed him that Mr. Bachner was also Mr. Nejaime's attorney.
The clearing brokers then initiated successful attachment proceedings against all of Plaintiff's assets. By this time, the other, more risky investments had decreased in value so they could not be sold to repay the clearing brokers. Plaintiff and the brokers entered arbitration proceedings, and Mr. Bachner represented Plaintiff throughout. Several times, Plaintiff expressed to Mr. Bachner a desire to file a claim against Mr. Nejaime, whom he believed should be liable for any damages paid out in the arbitration proceedings. Each time, Mr. Bachner responded that they should concentrate on the pending action and consider any other claims at a later date. Ultimately, a judgment of $677,872.22 was entered against Plaintiff in the arbitration. Plaintiff paid the judgment primarily by refinancing his home.
In deciding a motion to dismiss, a court must "accept all of plaintiff's factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff." Desiderio v. National Ass'n of Sec. Dealers, 191 F.3d 198, 202 (2d Cir. 1999). A complaint should not be dismissed "unless it appears beyond a reasonable certainty that the plaintiff can prove no set of facts in support of his claim that would entitle relief." Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957).
All of Plaintiff's claims are based on Mr. Bachner's failure to pursue claims against Mr. Nejaime in the arbitration or while the arbitration was proceeding. According to the complaint, Mr. Nejaime aided and abetted Mr. Bachner and conspired with him in a scheme to prevent a lawsuit against Mr. Nejaime. All of the claims fail for the same reason — Plaintiff has not alleged any damages that were caused by the decision not to bring an action against Mr. Nejaime. In order to establish liability for breach of fiduciary duty, fraud, professional malpractice, breach of contract, or a violation of New York Judiciary Law § 487, a plaintiff must show that the alleged misconduct was an actual cause of his damages. See American Fed. Group v. Rothenberg, 136 F.3d 897, 907 (2d Cir. 1998) (breach of fiduciary duty and breach of contract); Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (fraud); Parker, Chapin, Flattau Klimpl v. Daelen Corp., 399 N.Y.S.2d 222, 224 (App.Div. 1991) (legal malpractice); Cresswell v. Sullivan Cromwell, 771 F. Supp. 580, 587 (S.D.N.Y. 1991) (§ 487)
In his complaint against Mr. Bachner and Mr. Nejaime, Plaintiff seeks damages of $677,872.22 for the arbitration award; interest on the award; over $350,000 in capital gains taxes he incurred when the Pentech stock was liquidated; attorney and accounting fees; and $4500 in fees paid to refinance his home in order to pay the award.
Accepting Plaintiff's allegations as true, Mr. Bachner clearly created an actual conflict of interest by representing both Plaintiff and Mr. Nejaime because the latter was and is potentially liable to the former as a result of the stock transfer mishap. Mr. Bachner and Mr. Nejaime may have even actively colluded to delay any action against Mr. Nejaime as Plaintiff has alleged. But the delay in bringing a lawsuit against Mr. Nejaime did not cause any of Plaintiff's alleged damages. Filing a concurrent indemnification action against Mr. Nejaime would have done nothing to change the outcome of the arbitration involving Plaintiff and the two clearing brokers. Plaintiff points out that he was forced to refinance his home and take other actions that caused great personal and financial distress in order to pay the arbitration award. While it is true that Plaintiff had to pay damages out of pocket for which he hopes to be indemnified, indemnification would not have altered his underlying liability to the clearing brokers.
Plaintiff contends that Mr. Bachner's causation and damages argument is really an argument that he has failed to mitigate his damages. As he correctly points out, a plaintiff has no duty to mitigate damages and need not plead mitigation in the complaint.See Mercer v. Jaffe, Snider, Raitt and Heur. P.C., 730 F. Supp. 74, 77 (W.D. Mich. 1990), aff'd, 933 F.2d 1008 (6th Cir. 1991). Damages and causation, however, must still be alleged in the complaint.
In this case the alleged misconduct was delaying a lawsuit against Mr. Nejaime that Plaintiff believes would have been successful. In order to state a claim against Bachner, Plaintiff has to establish that the delay in bringing the lawsuit was prejudicial to Plaintiff's ability to obtain indemnification from Mr. Nejaime. For example, had the statute of limitations expired during the period of the delay, so that the claims against Mr. Nejaime could not pursued, the requisite damages would be established. However, Plaintiff currently has an action pending against Mr. Nejaime, and he has made no allegation that Mr. Bachner's delay has prejudiced his chances of success in that litigation.
At argument counsel informed the Court that Plaintiff's claims against Mr. Nejaime based on the stock transfer mishap are the subject of an ongoing arbitration proceeding.
This does not mean, as Plaintiff argues, that he must mitigate his damages by bringing a cause of action against Mr. Nejaime before the statute of limitations has run. It simply means that there is no cause of action unless the defendants' misconduct caused the statute if limitations to expire or otherwise prejudiced his case against Mr. Nejaime. Plaintiff has alleged no damages flowing from Mr. Bachner's delay in pursuing the claim against Mr. Nejaime in the first instance. Mitigation is not the issue.
Ultimately, Mr. Adamson was harmed by the erroneous stock transfer, and his recourse is against those who intentionally or negligently caused the error. Mr. Bachner's alleged misconduct did not harm Plaintiff, and thus, the complaint fails to state a claim against him.
The only allegation in the complaint against Mr. Nejaime is that he aided and abetted and colluded in Mr. Bachner's misconduct. Since Mr. Bachner's conduct did not cause injury to Plaintiff, there is no basis for an aiding and abetting claim against Mr. Nejaime. Plaintiff's only claim against Mr. Nejaime is the one he is pursuing in an ongoing arbitration proceeding. Since Mr. Bachner and Mr. Nejaime's alleged scheme to keep Plaintiff from suing Mr. Nejaime was wholly unsuccessful, and Plaintiff retains his full legal recourse against Mr. Nejaime for the stock mishap, Plaintiff has not been damaged by any of the misconduct alleged in his complaint. Plaintiff's claims are therefore dismissed.
SO ORDERED.