Opinion
020049/08.
May 10, 2010.
Jeffrey K. Brown, Esq., Leeds Morelli Brown, P.C., Attorney for Plaintiff, Carle Place, NY.
Fredric A. Powell, Esq., Bellmore, NY.
Roy J. Lester, Esq., Lester Associates, Attorney for Robin Powell, Garden City, NY.
The following papers have been read on this motion:
Notice of Motion, dated 4-5-10.......................1 Memorandum in Support, dated 3-3-10..................2 Affidavit in Opposition, dated 4-20-10...............3
This motion by the plaintiff pursuant to CPLR 3212 for summary judgment is granted as against defendant Frederick A. Powell to the extent indicated in this decision and order.
Notwithstanding the presence of eight separate causes of action against defendant Fredrick A. Powell ("Powell", sued here as "Frederick" Powell), sounding in negligence, legal malpractice, constructive trust, accounting, and several species of breach of fiduciary duty, this case is built on a rather simple key allegation: the misappropriation of loan repayment proceeds by Powell.
Powell was the attorney for the plaintiff ("BR") in its real estate transactions. One such transaction was a $450,000 loan that was made in November, 2006 jointly by the plaintiff and one Nathan Halequa, to one Roland Lyons. Each lending partner advanced $225,000. Both sent the funds to Powell, and the loan was made, secured by Lyons' shares in a cooperative apartment corporation and his proprietary lease. Powell advised Jeffrey Brown, a member of BR and affirmant on this motion, that Lyons would seek to refinance the loan within twelve months and pay off the loan.
The Court notes that although it has before it a copy of the loan security agreement, naming plaintiff and Halequa as the lenders, it has not been provided with a copy of the promissory note; the one found in exhibit "B" of the moving papers is for a loan in a different amount, states that the lender is Ray Anastos, and bears Powell's signature at the end. However, as the security agreement recites the $450,000 figure as the loan amount, the Court will not deem the absence of the note a fatal omission.
Brown, an attorney, has submitted an affirmation not as attorney but as a member of the plaintiff. Statements of an attorney who is also a party should be in affidavit form (CPLR 2106), and, if not, may be excluded from consideration. Lessoff v 26 Court Street Assocs., LLC, 58 AD3d 610 (2d Dept. 2009). However, as no objection has been raised, it will be forgiven (CPLR 2001), with the admonition that further submissions must be in proper form.
According to Brown, Lyons obtained financing and repaid the loan in June, 2007, giving the proceeds to Powell. The loan settlement and disbursement statement presented by the plaintiff indicate a repayment of $628,000 to Powell, a figure well above the loan amount, and one that is not explained. Also not explained is a reference to the loan as one from Emigrant Funding. These is no dispute, however, that the loan made by BR and Halequa was paid off that June, and that the proceeds were placed in Powell's hands.
Powell did not notify plaintiff that the loan had been repaid, nor of his possession of the proceeds. Instead, he continued to send plaintiff the monthly payments due from his attorney IOLA account, as if the loan were still outstanding and being paid to Powell as attorney under a payment schedule. Brown also states and provides copies of checks indicating that some of these payments were drawn on Powell's personal checking account, which was owned by both him and defendant Robin Powell, his wife. The Court notes that although no relief is sought against her on this motion, she vehemently denies any knowledge of her husband's affairs, including those relevant to the instant suit.
In January of 2008, plaintiff's lending partner, Halequa, "became impatient" and asked that his interest in the loan be bought out. The source of his impatience is not revealed, although it is reasonable to infer that not all payments were being made to him as he had expected them to be, because Brown states that in early 2008 plaintiff itself was experiencing that very problem. The other possibility was that Halequa expected repayment within 12 months of the loan, given Brown's statement that this was the loan's expected duration (again, the Court notes the absence of the note itself). Nevertheless, Powell contacted plaintiff and advised it to buy out Halequa, and convinced Brown that the loan was secure and offered a safe return. He again did not inform plaintiff that Lyons had already repaid the loan, obviously eliminating any possibility of proceeding against Lyons or his property.
In April, 2008 plaintiff paid Halequa $ 195,000 for his interest in the Lyons loan and security agreement. Powell drafted the related documents. Shortly afterwards, plaintiff received only partial payments for June and July, and none at all for August and September. On September 9, 2008 Powell called Brown, and informed him that the loan had been paid off in June 2007 and that he had spent the money on "other projects." He also told him he could no longer continue making the monthly payments. This law suit ensued, and the plaintiff now moves for summary judgment.
Generally speaking, to obtain summary judgment it is necessary that the movant establish its claim or defense by the tender of evidentiary proof in admissible form sufficient to warrant the court, as a matter of law, in directing judgment in its favor (CPLR 3212 [b]), which may include deposition transcripts and other proof annexed to an attorney's affirmation. Olan v Farrell Lines, 64 NY2d 1092 (1985). Absent a sufficient showing, the court should deny the motion, irrespective of the strength of the opposing papers. Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 (1985).
If a sufficient prima facie showing is made, however, the burden then shifts to the non-moving party. To defeat the motion for summary judgment the opposing party must come forward with evidence to demonstrate the existence of a material issue of fact requiring a trial. CPLR 3212 (b); see also GTF Marketing, Inc. v Colonial Aluminum Sales, Inc., 66 NY2d 965 (1985); Zuckerman v City of New York, 49 NY2d 557 (1980). The non-moving party must lay bare all of the facts at its disposal regarding the issues raised in the motion. Mgrditchian v Donato, 141 AD2d 513 (2d Dept. 1988). Conclusory allegations are insufficient ( Zuckerman v City of New York, supra), and the defending party must do more than merely parrot the language of a pleading or bill of particulars. There must be evidentiary proof in support of the allegations. Fleet Credit Corp. v Harvey Hutter Co., Inc., 207 A.D.2d 380 (2d Dept. 1994); Toth v Carver Street Associates, 191 AD2d 631 (2d Dept. 1993).
In performing its review of the record, the court must draw all reasonable inferences in favor of the nonmoving party. Nicklas v Tedlen Realty Corp., 305 AD2d 385 (2d Dept. 2003); Rizzo v. Lincoln Diner Corp., 215 AD2d 546 (2d Dept. 1995). It should not attempt to resolve matters of credibility. Heller v. Hicks Nurseries, Inc., 198 AD2d 330 (2d Dept. 1993).
The Court need not, however, ignore the fact that an allegation is patently false or that an issue sought to be raised is merely feigned. See Village Bank v Wild Oaks Holding, Inc., 196 AD2d 812 (2d Dept. 1993); Barclays Bank of N. Y. v Sokol, 128 AD2d 492 (2d Dept. 1987), such as when the affidavit in opposition clearly contradicts earlier deposition testimony. Central Irrigation Supply v Putnam Country Club Assocs., LLC, 27 AD3d 684 (2d Dept. 2006).
The Court finds that the Brown affirmation and the other proof submitted by plaintiff make out a prima facie case for judgment as a matter of law. One such piece of evidence is an email between Brown and Powell, dated September 22, 2008, in which Brown states to Powell that "Since the LYONS loan closed in or about May 2007 without my knowledge or consent, I write this email to confirm the interest owed on the loan . . . Please confirm in writing that this is accurate and that you are responsible to pay these additional interest payments, as well as the principal to B R Consolidated LLC." Powell wrote back in response, "WE ARE IN AGREEMENT. FRED".
As indicated above, the amended complaint is framed in terms of negligence, malpractice, and breach of fiduciary duty by Powell. This in turn is premised on bad advice from Powell as attorney and a failure to keep BR informed of the true status of its loan to Lyons. However, it is clearly the alleged misappropriation of funds that caused the damages alleged, and the Court finds that of all these theories the one that best fits the circumstances is simple breach of fiduciary duty.
In his deposition, and again in his affidavit in opposition to this motion, Powell contends that the proceeds were used for "other investments", but those investments failed and the funds were lost. According to the plaintiff, Powell's negligence and malpractice were responsible. However, this failure, the failure to keep the plaintiff apprised of the status of the loan, and the bad advice given were clearly not stand-alone errors by Powell. All were committed in the service of hiding the loss caused by the misappropriation, or, at best, constituted an excuse for the loss — an excuse that would not relieve Powell of liability in any event.
This is because there is no dispute about the rightful ownership of the funds generated by the Lyons refinance and the loss of the money by Powell. The only possible defense, and the one that is offered in Powell's four-paragraph affidavit in opposition, is that he had discussed with plaintiff what would happen in the event Lyons paid back the loan early, and that the loss was caused by others. Powell states,
"it was agreed that if there was another loan which I thought was safe that it would be fine to re-invest. When I gave the Plaintiff my opinion on buying out his partner in 2008, I was referring to the new investment property and the not the Lyons property which I now see was misunderstood by Plaintiff . . . In September, 2008 when Plaintiff and [I] were talking about his investment, I was stunned to discover that he had never received the documents concerning the re-investment and he thought the loan was still on the Lyons property . . . when we met on September 16, 2008 we discussed the reinvestment and I informed him that there was a problem with this loan as the builders who had borrowed the funds had committed a 'scam' and had absconded with much of the loan money and had improperly built two homes without building permits which would probably have to be re-built or torn down"
Powell Aff., at ¶¶ 2,3.
No documents supporting the existence of this additional, second loan are presented, nor proof that defendant had tried to provide the notice of the "new" investment that the plaintiff did not receive. Powell pointed to an error in his office at his EBT. See, Powell EBT, at 13. However, there is no affidavit from his secretary at the time, nor any proof of mailing, nor, as indicated, any proof that a further investment of any kind was made in the name of BR. Moreover, so much of his affidavit statement regarding an agreement with plaintiff to re-invest as Powell saw fit is effectively contradicted by his EBT testimony, where he stated, "I never gave BR Consolidated investment advice." There also is no response to the email he wrote acknowledging the debt to the plaintiff for the proceeds of the Lyons loan. All this, of course, is inherently inconsistent with his current position that he had permission to make a further loan of the funds and that the loss was an unfortunate result of a failed second investment.
Also worthy of note is defendant's assertion that when he was urging plaintiff to buy out Halequa he was referring to a second investment. He stated "As their attorney I advised them that the loan was sufficiently securitized on the properties and the property in my estimation made the loan properly secure." Powell EBT, at 16. Although Powell contended at his deposition (and contends here) that he was referring to the "new" loan, and not the Lyons loan, he nowhere explains how he could have used the funds he obtained in 2007 to make a "new" loan without Halequa's consent, as co-owner of the money. Powell nowhere asserts that he had Halequa's permission to do anything with the funds beyond the loan to Lyons — even assuming that BR had given him authority to reinvest its half. It must be remembered that at the time of the Lyons refinance in 2007 Halequa was still 50% owner of the funds.
In view of the foregoing, the Court finds that the "facts" asserted in opposition to be patently incredible, even under the generous standards to be applied to such opposing proof under the authority regarding summary judgment motions set forth above. Accordingly, the Court finds unrebutted plaintiff's proof that Powell took possession of funds belonging to the plaintiff, hid that fact from it, and then lost or misappropriated those funds for his own use. This constitutes an established breach of fidiciary duty owed to BR by Powell as its attorney. Matter of Posner, 63 AD3d 61 (2d Dept. 2009). Further, damages resulting from that breach have been shown as a result of the misappropriation of the clients' funds, which is distinct from any claim for negligence or legal malpractice. See, Ulico Cas. Ins. Co. v Wilson, Elser, Moskowitz, Edelman Dicker, 56 AD3d 1 (1st Dept. 2008). Summary judgment therefore is granted to the plaintiff on its third and fifth causes of action, breach of "the fiduciary duty of care", and "of loyalty", as they most closely comport with the foregoing authority regarding breach of fiduciary duty generally. The Court notes that such a breach would also allow for a recovery for any attorney's fees that were improperly charged as being incident the to breach ( Id., at 13) rendering the continued pursuit of the negligence and malpractice causes of action unnecessary. Summary judgment is therefore denied as to these claims.
The Court also finds that the accounting and constructive trust causes of action, both equitable in nature, are in reality claims intended to establish damages, and to preserve and examine defendants' assets to insure that any judgment will not be rendered worthless. However, an injunction against disposition of defendants' assets already has been granted and an immediate damages trial will be directed to determine the plaintiff's losses. To the extent that further inquiry of defendants' assets will become necessary after a judgment has been entered, plaintiff has available to it CPLR article 52, a comprehensive array of procedures that may be utilized by plaintiff as a judgment creditor. Accordingly, summary judgment is denied as to these causes of action.
The Court now turns to the issue of damages. Although the defendant has not placed in issue the specific amount claimed, the Court cannot simply accept plaintiff's recitation at face value as sufficient prima facie proof. In cases where there has been a breach of fiduciary duty, the plaintiff is entitled to all damages that will put him in as good a position as he would have occupied had the breach not occurred, and the circumstances regarding any investment lost must be considered to establish the proper figure. See, Matter of Rothko, 43 NY2d 305 (1977); Scalp Blade, Inc. v Advest, Inc., 309 AD2d 219 (4th Dept. 2003). Here, the Court has not been presented with the note, the rights of the borrower thereunder and the expectations of the investors had there been no breach of fiduciary duty by the defendant. Accordingly, an immediate trial on damages is appropriate. CPLR 3212(c).
Subject to the approval of the Justice there presiding and provided a Note of Issue has been filed at least 10 days prior thereto, this matter is referred to the Calendar Control Part (CCP) for a damages trial on June 14, 2010 at 9:30 A.M.
A copy of this order shall be served on the Calendar Clerk and accompany the Note of Issue when filed. The failure to file a Note of Issue or appear as directed may be deemed an abandonment of the claims giving rise to the hearing.
Upon conclusion of the damages trial, the action against Robin Powell shall be severed and continued. The injunction against disposition of assets by the defendants pending the conclusion of this action, as previously granted by this Court, continues through conclusion of this action as against both defendants
This shall constitute the Decision and Order of this Court.