Opinion
No. 511287/2014.
06-09-2015
ALKSOM REALTY LLC and Alexander Komolov, Plaintiffs, v. Roman BARANIK, Mila Baranik, Rom Bar Accounting Inc., Defendants.
Roman Popik, Esq., New York, NY, for Plaintiff. Lisa Geraghty, Esq., Starr, Gern, Davison & Rubin, P.C., Roseland, NJ, for Defendant.
Roman Popik, Esq., New York, NY, for Plaintiff.
Lisa Geraghty, Esq., Starr, Gern, Davison & Rubin, P.C., Roseland, NJ, for Defendant.
Opinion
CAROLYN E. DEMAREST, J.
Defendants Roman Baranik (“Roman”), Mila Baranik (“Mila”) (collectively, the “Baraniks”), and Rom Bar Accounting, Inc. (“Rom Bar”) move, pursuant to CPLR § 3211(a)(1), dismissing the first through twelfth causes of action of the complaint, based upon alleged fraud, as subject to arbitration, and, pursuant to CPLR § 3211(a)(5) and CPLR § 214(6), dismissing the thirteenth through eighteenth causes of action for accounting malpractice as time-barred.
BACKGROUND
Plaintiff Alexander Komolov (“Komolov”) is the managing member and ten percent owner of Alksom Realty LLC (“Alksom”). The Baraniks are owners of Rom Bar, an accounting firm. Plaintiffs' causes of action arise from two separate fact patterns, the first having to do with a stock purchase agreement and the second relating to accounting malpractice. Defendants' motion to dismiss is only based on the limited grounds that the parties' dispute relating to sale of stock is subject to arbitration and that plaintiffs' claims for accounting malpractice is time-barred based on the applicable statute of limitations.
The Stock Purchase Agreements
Plaintiffs' first through twelfth causes of action stem from two stock purchase agreements executed between the plaintiffs as purchasers and the Baraniks as sellers. Komolov claims that the Baraniks, who were known to him personally and professionally for over twenty years, represented to Komolov that they owned one hundred shares of Southern State Realty, Inc. (“SSR”), a Florida corporation, which was actively involved in real estate investments throughout Florida and managed several shopping malls. According to records maintained by the Florida Department of State, SSR was formed on or about July 22, 2002 and lists Mila Baranik as the president and registered agent and Roman Baranik as the secretary of SSR.
On or about March 20, 2010, Komolov entered into an agreement to purchase fifty shares of SSR from the Baraniks (“Agreement 1”). On or about the same date, Komolov entered into an agreement to purchase one hundred shares of SSR from the Baraniks (“Agreement 2”). Komolov claims that both of these agreements were prepared by Roman. On or about March 22, 2010, pursuant to Agreement 1, Alksom tendered a check to the Baraniks in the amount of $197,930, made payable to SSR. On or about April 20, 2010, pursuant to Agreement 2, Alksom tendered a check to the Baraniks in the amount of $227,100, made payable to SSR. Both Agreement 1 and Agreement 2 provided that “[SSR] is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida.” However, Komolov claims that in the summer of 2014, he learned that, according to the Florida Department of State Division of Corporations, SSR had been deemed inactive and administratively dissolved for failure to file required annual reports since 2005.
Florida Business Corporation Act § 607.1420 provides that the Department of State may administratively dissolve a corporation if a corporation “has failed to file its annual report and pay the annual report filing fee by 5 p.m. Eastern Time on the third Friday in September”. Florida Business Corporation Act § 607.1421(3) provides, in pertinent part, that “[a] corporation administratively dissolved continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs”. Plaintiffs claim that no annual reports were filed for SSR in the years 2005 through 2010. Plaintiffs claim that when Komolov demanded the return of the money paid for the shares of SSR, the Baraniks refused. Based on these facts, plaintiffs bring causes of action for fraudulent concealment, intentional misrepresentation, unjust enrichment, breach of fiduciary duty, breach of contract, and fraudulent inducement, against the Baraniks.
Accounting Malpractice
Plaintiffs' thirteenth through eighteenth causes of action originate from Rom Bar's provision of tax and accounting services to the plaintiffs. Plaintiffs claim that Roman and Rom Bar provided accounting and tax related services to Komolov from 1985 to 2014 and to Alksom from 2005 to 2014, and that Komolov's engagement of Rom Bar's services was based to a great extent on the fact that Roman was fluent in Russian and that all communications between Komolov and Roman were conducted in Russian.
In or about May 2007, Alksom contracted to sell apartment 58G at 25 Columbus Circle, New York, New York (the “Contract” and the “Apartment”, respectively) to Artique Multinational, LLC (“Artique”) for the purchase price of $4.1 million. Upon execution of the Contract, Artique paid $41,000 as a down payment to Alksom. At the closing of title, Artique did not pay the balance of the purchase price. Nevertheless, Alksom transferred title to the Apartment on September 10, 2007 based on the managing member of Artique, David Segal's (“Segal”), assurances that payment of the balance was forthcoming. Plaintiffs claim that they were never paid the full purchase price. This chain of events gave rise to an action in New York County styled Komolov v. Segal, Index No. 651626/2011, in which plaintiffs seek a money judgment for conversion of the Apartment (the “Segal Action”).
Based on Roman's deposition testimony in the Segal Action, plaintiffs claim that Roman and Rom Bar committed accounting malpractice by reporting receipt of full consideration for the sale of the Apartment on Alksom's 2007 Federal tax return (the “Original Return”), even though Alksom had never received the balance of the $4.1 million purchase price. Plaintiffs claim that Roman and Rom Bar impermissibly relied on representations from Segal that full consideration was paid to Alksom, as well as a single page facsimile from Segal that contained Segal's recollection of the amount paid by Alksom when it first purchased the Apartment from Segal in 2005. Plaintiffs claim that Roman failed to collect any supporting documentation and did not have “closing statements” from either Alskom's 2005 purchase of the Apartment or the September 2007 sale of the Apartment. Plaintiffs further claim that Roman and Rom Bar knew that no consideration was received in plaintiffs' bank accounts because Roman had full access to these accounts. Plaintiffs assert that Roman and Rom Bar relied on incomplete information and failed to verify this information with the client before filing the Original Return. Plaintiffs further assert that although Roman and Rom Bar knew that the Original Return was inaccurate by the fall of 2010, Roman and Rom Bar waited until 2012 to file an amended tax return, even though the deadline to amend the Original Return would have been April 2011. Based on these allegations, plaintiffs assert causes of action for accountant malpractice, negligence, and gross negligence.
DISCUSSION
Defendants argue that the first through twelfth causes of action must be dismissed, pursuant to CPLR § 3211(a)(1), because plaintiffs' claims are subject to binding arbitration. CPLR 3211(a)(1) enables a party to move to dismiss a cause of action based upon documentary evidence. The court may dismiss a cause of action under CPLR 3211(a)(1) “only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law” (Leon v. Martinez, 84 N.Y.2d 83, 88 [1994] ). Section 8 of Agreement 1 and Agreement 2 provides:
While plaintiffs annex two separate stock purchase agreements, Agreement 1 for the purchase of 50 shares and Agreement 2 for the purchase of 100 shares, defendants annex a single stock purchase agreement for the purchase of 200 shares of SSR by Komolov. The arbitration clause in all of the annexed stock purchase agreements is identical.
Arbitration. The parties hereby agree that any dispute arising under or in connection with this Agreement shall be resolved by binding arbitration before a mutually selected arbitrator. In the event that the parties cannot mutually agree upon an arbitrator, the dispute shall be submitted to the American Arbitration Association in New York County, each party hereby submitting to the personal jurisdiction thereof. In the event of any such dispute the prevailing party shall be entitled to expenses of such action, including reasonable attorney fees. The “prevailing party” shall be determined by the arbitrator.
New York public policy favors arbitration as a means of conserving judicial resources and courts should interfere as little as possible with agreements to arbitrate (see Matter of Nationwide General Ins. Co. v. Investors Ins. Co., 37 N.Y.2d 91 [1975] ; see also Shah v. Monpat Construction, Inc., 65 AD3d 541 [2d Dept 2009] ). “Generally it is for the courts to make the initial determination as to whether the dispute is arbitrable, that is whether the parties have agreed to arbitrate the particular dispute” (id. at 95, quoting Steelworkers v. American Mfg. Co ., 363 U.S. 564, 570–571 [1960] ). The countervailing consideration is that by agreeing to arbitrate, a party waives many of its normal rights under the procedural and substantive law of the state, and for that reason, a party will not be compelled to arbitrate absent evidence that affirmatively establishes that the parties expressly agreed to arbitrate their disputes (see Shah v. Monpat Construction, Inc., 65 AD3d at 543 ).
Plaintiffs argue that the Arbitration Clause is invalid because Agreement 1 and Agreement 2 were predicated on fraud. “The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was part of a grand scheme that permeated the entire contract” (Anderson Street Realty Corp. v. New Rochelle Revitalization, LLC, 78 AD3d 972, 974 [2d Dept 2010], quoting Matter of Weinrott [Carp], 32 N.Y.2d 190, 197 [1973] ). “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm's length negotiation” (id. ). In an arm's length transaction, the parties are typically sophisticated businesspeople, are represented by counsel, and have the opportunity to fully negotiate the terms of the agreement (see Cem Uzan v. 845 UN Limited Partnership, 10 AD3d 230, 240 [1st Dept 2004] ).
Plaintiffs argue that the agreement to purchase stock of SSR was not an arm's length transaction in that Komolov was not represented by counsel and because both Agreement 1 and Agreement 2 were prepared by Roman in English, which Komolov claims he is not fluent in. Plaintiffs further argue that the entire transaction was a “grand scheme to defraud” because the plaintiff were fraudulently induced to purchase stock in a corporation that was no longer active and did no business, rendering the Arbitration Clause invalid. However, plaintiff does not dispute that he signed both Agreement 1 and Agreement 2. “[A]n arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud. Thus, as a general rule, the issue of fraud in the inducement should be determined by the arbitrator” (Anderson Street Realty Corp. v. New Rochelle Revitalization, LLC, 78 AD3d at 974 ). Here, although plaintiffs allege fraud in the inducement, there is no allegation that the arbitration clause itself was induced by fraud. The language of the arbitration clause is broad and does not specifically exclude fraud in the inducement from the issues to be determined by arbitration. Therefore, the arbitration clause should be enforced and plaintiffs are directed to submit the first through twelfth causes of action to arbitration.
Defendants argue that plaintiffs' thirteenth through eighteenth causes of action must be dismissed as time-barred. CPLR § 214(6) sets forth a three-year statute of limitations for accounting malpractice. “A claim accrues when the malpractice is committed, not when the client discovers it” (Williamson v. PricewaterhouseCoopers LLP, 9 NY3d 1, 7–8 [2007] ). Defendants claim that because the Original Return was filed on April 14, 2008, plaintiffs' claims for accounting malpractice, negligence, and gross negligence are time-barred because this action was commenced on December 1, 2014, over three years from when plaintiffs' cause of action accrued. However, plaintiffs correctly argue that the statute of limitations here is tolled because of the continuous representation doctrine.
“[U]nder the continuous treatment doctrine, when the course of treatment which includes the wrongful acts or omissions has run continuously and is related to the same original condition or complaint,' the limitations period does not begin to run until the end of the treatment” (id. at 8, quoting Borgia v. City of New York, 12 N.Y.2d 151, 155 [1962] ). Although the continuous representation doctrine originally derived from the continuous treatment concept in medical malpractice cases, it has been applied to other professionals, such as accountants (see Zaref v. Berk & Michaels, P.C., 192 A.D.2d 346 [1st Dept 1993] ). For the continuous representation doctrine to apply, plaintiff must “assert more than simply an extended general relationship between the professional and the client in that the facts are required to demonstrate continued representation in the specific matter directly under dispute” (id . at 348). After filing the Original Return in 2008, Roman filed an amended return in 2012 in order to correct the erroneous information in the Original Return. Here, plaintiff has demonstrated continuous representation by defendants relating to the specific matter of the inaccuracies reported by Roman and Rom Bar in the Original Return such that the statute of limitations is tolled. Accordingly, plaintiffs' accounting malpractice claims are timely.
Although the complaint states that the amended return was filed in 2012, plaintiffs' memorandum of law states that the amended return was filed in 2013. Nevertheless, this action, commenced on December 1, 2014, would be timely under the continuous representation doctrine whether the cause of action accrued in 2012 or 2013.
However, plaintiffs' claims for negligence and gross negligence must be dismissed as duplicative of the accounting malpractice claims as they arise from the same factual allegations (see Lieblich v. Pruzan, 104 AD3d 462, 463 [1st Dept 2013] ). Moreover, plaintiffs' negligence claims are time-barred based upon a three-year statute of limitations because the continuous representation doctrine does not apply to causes of action for negligence (see CPLR § 214 ; Schrank v. Lederman, 52 AD3d 494, 496 [2d Dept 2008] ).
Defendants also seek sanctions and attorneys' fees against the plaintiffs pursuant to 22 NYCRR § 130–1.1. In light of the decision herein, plaintiffs' commencement of this action clearly was not frivolous conduct so as to warrant sanctions.
CONCLUSION
Defendants' motion to dismiss the first through twelfth causes of action is granted to the extent that litigation of those claims is stayed pending arbitration. Plaintiffs are directed to promptly serve a demand for arbitration within 20 days of entry of this order. Defendants' motion to dismiss the thirteenth and fourteenth causes of action is denied. Plaintiffs' fifteenth through eighteenth causes of action are dismissed as duplicative. Defendants' request for sanctions is denied.
This constitutes the Decision and Order of the Court.