Opinion
No. 4444–2012.
05-27-2015
John EHRENKRANZ and Andra Ehrenkranz, Plaintiffs, v. 58 MHR, LLC, Dimitri Boylan and Julian Boylan, Defendants.
Sam P. Israel, Esq., Sam P. Israel, PC, New York, Attorney for Plaintiff. Michael P. Bowen, Esq., Kasowitz, Benson, Torres & Friedman LLP, New York, Attorney for the Defendant.
Sam P. Israel, Esq., Sam P. Israel, PC, New York, Attorney for Plaintiff.
Michael P. Bowen, Esq., Kasowitz, Benson, Torres & Friedman LLP, New York, Attorney for the Defendant.
Opinion
EMILY PINES, J.
The Court here considers three pre-discovery motions to dismiss among various parties to two interrelated actions. In the first action, John Ehrenkranz and Andra Ehrenkranz (“the Ehrenkranzs” or “the Ehrenkranz Plaintiffs”) have sued 58 MHR, LLC (“MHR”), Dimitri Boylan and Julian Boylan for conversion, unjust enrichment and fraudulent conveyances and aiding and abetting the same under the New York Debtor and Creditor Law, based upon allegations that the Boylans and a company allegedly owned by them, MHR, were dissipating the assets of another corporation, Opus Vivir, Inc (“Opus”), against which the Ehrenkranzs asserted claims in another lawsuit. The Ehrenkranzs have also asserted the right to a Notice of Pendency on real property owned by MHR and sought punitive damages against the Defendants. The Ehrenkranzs commenced the current action in an effort to preserve the assets of Opus and to prevent it from essentially becoming judgment proof in the other action, a breach of contract action arising out of competing claims between Opus and the Ehrenkranzs following the construction by Opus of a residence for the Ehrenkranzs. Following a trial of that action in 2013, the jury rendered a verdict in favor of the Ehrenkranzs in the amount of $2,2111,000 and this Court subsequently denied Opus' motion pursuant to CPLR 4404 to set aside the verdict. The resulting judgment in that action was recently affirmed by the Appellate Division, Second Department, after the motions currently before the Court were submitted, see, Vivir v. Ehrenkranz, 127 AD3d 962 (2d Dep't 2015).
MHR and Julian Boylan assert counterclaims in this action against the Ehrenkranzs, and have asserted third-party claims against the Ehrenkranzs' wholly owned limited liability company, 624 Butter Lane LLC (“624 BL”) , the entity that purchased the subject residence pre-construction. MHR and Julian Boylan claim that outright lies by the Ehrenkranzs resulted in the Court (Mayer, J.) granting an Order of attachment to the extent of preliminarily enjoining, restraining, and preventing the Defendants from assigning, disposing of, selling, encumbering, mortgaging, removing, or otherwise interfering with certain real property owned by MHR. Julian Boylan has also counterclaimed against the Ehrenkranzs for breach the construction contract with Opus and against 624 BL for unjust enrichment; MHR, as the assignee of Dmitri Boylan, has counterclaimed against the Ehrenkranzs for recission of the purchase of the property at 624 Butter Lane based on assertions that in their complaint in the prior breach of contract litigation, the Ehrenkranzs wrongfully set forth that the sale price for the 624 Butter Lane parcel was $1,708,882.24 when it was clearly $3,250,000, evidencing a lack meeting of the minds; MHR counterclaims against the Ehrenkranzs and 624 BL for fraudulent conveyance of the real property purchased for construction without proper consideration; MHR also counterclaims against the Ehrenkranzs for abuse of process for falsely accusing MHR of misappropriating funds due the Ehrenkranzs as part of a scheme to extort settlement funds from the MHR parties and to obtain the attachment Order; and MHR counterclaims against the Ehrenkranzs for conversion assertedly arising from the wrongful obtaining of the Order of attachment of MHR real property, as well as violations of the federal fraud and abuse act and stored communication act.
Although 624 BL is a third-party defendant, MHR and Boylan address the third-party claims together with the counterclaims asserted against the Ehrenkranzs.
In addition to these claims and counterclaims, MHR and Julian Boylan assert third-party claims against, as herein relevant, the law firm of LePatner & Associates, LLP (“LePatner” or “LePatner Firm”), the former attorneys for the Ehrenkranz Plaintiffs. These include claims for: 1) defamation; 2) tortious interference with prospective business relations; 3) business disparagement; 4) inducing the breach of fiduciary duties; 5) a violation of the federal computer fraud and abuse action under 18 USC § 1030 ; 6) tortious interference with contract; 7) conversion; 8) violation of Judiciary Law § 487 ; and 9) abuse of process.
MOTIONS
The LePatner Firm moves to dismiss all of the nine remaining third-party claims asserted against it pursuant to CPLR 1007, and 3211(a)(1), (5) and (7). The Ehrenkranzs and 624 BL move to dismiss: 1) the second, eleventh and fifteenth claims by Julian Boylan and MHR against the Ehrenkranzs for tortious interference with prospective business relationships pursuant to CPLR 3211(a)(7) and (1) ; 2) the fifth and nineteenth claims by Julian Boylan against the Ehrenkranzs and 624 BL for breach of the construction contract and against 624 BL for unjust enrichment pursuant to CPLR 3211(a)(7) and (5) ; 3) the eighteenth claim against the Ehrenkranzs and 624 BL for recission under CPLR 3211(a)(7) ; 4) the eighth claim by Julian Boylan against the Ehrenkranz Plaintiffs for inducement of the breach of fiduciary duty; and 5) the ninth and tenth claims by Julian Boylan and MHR against the Ehrenkranzs for Computer Fraud pursuant to CPLR 3211(a)(7).
MHR, Dmitri Boylan and Julian Boylan cross move to dismiss the first, fifth and sixth claims against them for conversion, the filing of a lis pendens and punitive damages under CPLR 3211(a)(7) ; the second claim against all Defendants for unjust enrichment under CPLR 3211(a)(7) and (1) ; and the third and fourth claims against all Defendants for fraudulent conveyance and aiding and abetting the same pursuant to CPLR 3211(a)(7), and 3013 and 3016(b).
The Defendants previously moved to dismiss certain causes of action pursuant to CPLR 3211. The Order of attachment (Mayer, J.) was recently affirmed by the Appellate Division and the Court's order concerning the Defendants' motion to dismiss was affirmed in part and modified in part, as discussed infra. Ehrenkranz v. 58 MHR, LLC, 127 AD3d 918 (2d Dep't 2015).
MOTION TO DISMISS THIRD PARTY COMPLAINT
In support of its motion to dismiss the third-party complaint as asserted against it, the LePatner Firm asserts that the third-party claims asserted against it fail to constitute any proper “claim over” as required under CPLR 1007. They review the claims asserted by the Ehrenkranzs and 624 BL against the Boylans and MHR which are for conversion of the monies paid by the Ehrenkranzs to Opus, unjust enrichment based upon the use of such funds by the Defendants to pay for development of different properties, fraudulent conveyance through the use of such funds by Defendants for the development of different property, and aiding and abetting Opus and 58 MHR in engaging in such activities. The LePatner Firm argues that none of such causes of action are stated either to arise from or are conditioned upon the third-party claims asserted against it.
The LePatner Firm also argues that these claims must fail under CPLR 3211. With regard to the claim for defamation, the LePatner firm argues that in no instance does the purported claim particularize or point to any specific words, time, place or manner nor person making such statements as required by law. In addition, they must arguably fail as they were made in the context of a judicial preceding and are privileged. The LePatner Firm argues that the disparagement claims as set forth are merely duplicative of the defamation claim, that again they lack any specificity like the defamation claim, and that special damages are not pled.
The LePatner Firm contends that the claim for tortious interference with prospective business relations fails for lack of specificity as there are no specific business relations set forth that Defendants were prevented from achieving. With regard to the claim against the LePatner Firm for allegedly aiding and abetting the Ehrenkranzs in breaching their fiduciary duties to the Defendants, it is argued that such are either contradicted by the findings of this Court in its denial of the Defendants' CPLR 4404 motion to set aside the jury verdict against Opus or were raised by the Defendants on their appeal from the Order of attachment and were rejected by the Appellate Division.
The LePatner firm also argues that neither of the federal computer fraud claims can be sustained as both require some allegation that the accused entity actually accessed or came into possession of the alleged improperly obtained information and no such is even asserted herein.
The LePatner Firm also asserts that the claim against it for abuse of process must be dismissed as there was nothing improper in its application for preliminary injunctive relief to the Court, which was granted and then affirmed on appeal. The same argument is made vis-a-vis the tortious interference with contract claim, which is based on an assertion that the attachment somehow improperly interfered with the Defendants' ability to sell the real property.
The LePatner Firm contends that the claim against it under the Judiciary Law for allegedly filing false claims in the Opus action has now been vitiated by the verdict against Opus in the breach of contract action, as well as by the now affirmed order of attachment.
Based on all of the above, the LePatner Firm argues that the entire third-party complaint against it is frivolous and entitles them to sanctions under 22 NYCRR Part 130.
In response, Third–Party Plaintiffs assert that third-party practice should be utilized as a tool for economical resolution of interrelated lawsuits, which they claim are present in this case. In any event, they argue that if CPLR 1007 presents a technical bar to their third-party action against the LePatner Firm, this Court should exercise its discretion under CPLR 1010 to separate out any issues in the third-party complaint and allow them to proceed in any manner as may be just.
With regard to the third-party claims in general, the Third–Party Plaintiffs assert that they all state proper causes of action. They claim that the defamation cause of action should stand, as the pleading purportedly makes statements that are patently false and are particularized. These include: false statements regarding the price paid by the Ehrenkranzs for the subject residence; the assertion that the Ehrenkranzs' funds were improperly used by the Third–Party Plaintiffs to develop other properties owned by MHR; that Julian Boylan misled the Ehrenkranzs into believing he had the resources to work on the construction project; that he mishandled the Ehrenkranz funds and fraudulently conveyed the same; that MHR transferred funds offshore to avoid tax obligations; and that the Boylans improperly commingled their personal and corporate assets. The Third–Party Plaintiffs also set forth that the particular attorney responsible for making such assertions is set forth in the Third–Party Complaint. In addition, they state that the statements are not privileged as the privilege does not apply to out of court statements published to non-parties such as Anna Boylan who received the pleading. With regard to the cause of action for disparagement, such is assertedly proper because the acts of the LePatner Firm interfered with multiple potential purchasers interested in buying the MHR real property which was the subject of the attachment order. For the same reasons, Third–Party Plaintiffs contend that the claim for tortious interference with business opportunity should remain as the LePatner Firm's actions improperly secured the attachment of the MHR real property.
The Defendants/Third–Party Plaintiffs also assert that the claims for inducement of breach of fiduciary duty are properly plead as they relate to the claim that Opus' employee, Cynthia Robinson, was knowingly assisted in breaching her fiduciary duty not to disclose confidential information she learned from her employment for false purposes (including statements regarding Opus' use of Ehrenkranz funds for other projects; the claim that Julian Boylan kept Opus paperwork at his home; that Opus was owned by both Boylan brothers; that Opus was underfunded and that Julian Boylan would seek funds wired from Dimitri; that funds received were not attributed to a particular project; and that the Boylans did not observe any corporate formalities). Based on these kinds of statements, Third–Party Plaintiffs contend that the prior Court made improper findings of fact as its basis for the September 2012 Order of attachment.
With regard to the alleged violation of the Federal Computer Fraud and Abuses Act (“CFAA”), it is alleged that the LePatner Firm acted as a conspirator to improperly access Opus' computers.
The Third–Party Plaintiffs contend that the tortious interference with contract claim is proper as it is alleged that the LePatner Firm knowingly interfered with the contracts between Opus and Robinson and Opus and Anderson (Opus' subcontractor on the construction of the Ehrenkranz residence) in order to cause them to breach the same, causing harm to the MHR parties by publishing defamatory material about them and obtaining the Order of attachment. Third–Party Plaintiffs argue that the action for conversion is also proper as it is based on the allegations that the acts of the LePatner Firm interfered with Third–Party Plaintiffs' rights involving the real property subject to the Order of attachment. Similarly, Third–Party Plaintiffs argue that the abuse of process claim is properly plead as LePatner used the process of attachment for the purpose of doing harm.
Third–Party Plaintiffs contend that their claim under Judiciary Law § 487 should stand as it is based upon the deceit and collusion engaged in by the LePatner Firm to deceive the Court into issuing the September 2012 Order barring MHR from the rightful attempt to sell its property.
Finally, the Third–Party Plaintiffs argue that there is no basis for recovery of sanctions as the Third–Party Complaint contains genuine claims.
In reply, the LePatner Firm contends that the arguments by Third–Party Plaintiffs are identical to those made in opposition to the motion for the Order of attachment and rejected by the Court; and, moreover, that none of them meet the requirements for “a claim over” under CPLR 1007.
With regard to the defamation and business disparagement claims, the LePatner Firm reasserts that these claims refer to purported actions pertinent to the litigation herein by the LePatner Firm and are, therefore, privileged. It is also contended that the tortious interference with business relationships claim is barred by documentary evidence that the Court's injunction ruling could not have caused Opus' insolvency as such was admitted in Opus documents in January 2009, long before this action was commenced in 2012. With regard to the inducement of breach of fiduciary duty, such assertedly is based upon the legal filings in connection with the Robinson affidavit; those filings were attacked before and rejected by the Court sustaining the injunction in 2012. They were also assertedly raised and rejected by the Appellate Division in its recent decision. They respond to the conspiracy theory raised by the Third–Party Plaintiffs on the computer fraud claim by stating that such is not supported by any caselaw and that there is no allegation in the Third–Party Complaint that the LePatner Firm ever accessed the subject computer(s). In addition, they ask the Court to take notice of the fact that no defense was provided vis-a-vis the claim under the Federal Stored Communication Act (18 USC § 2701 ) and such should be dismissed. They reiterate their assertions that the abuse of process claim cannot stand where the injunctive relief was issued after a lengthy hearing and served the purpose of maintaining the status quo, and that the conversion claim cannot lie where it is based upon alleged harm to real property. With regard to the tortious interference claim, the assertions by Third–Party Plaintiffs that such refers to contracts between Opus and Anderson and Opus and Robinson, cannot be brought by Julian Boylan who lacks standing to make such claims. Finally, they argue that the Judiciary Law claim cannot stand because the jury returned a verdict in favor of the Ehrenkranzs on their breach of contract claim against Opus, which was subsequently affirmed by the Appellate Division.
MOTION TO DISMISS COUNTERCLAIMS
The Ehrenkranzs argue that the counterclaim asserted against them for tortious interference with prospective business relationships must fail as it does not identify any third-party with which the Defendants had a potential business relationship. In addition, to the extent that the counterclaim is asserting harm caused by the issuance of the Order of attachment, such is barred by the Appellate Division's order affirming the Order of attachment.
The Ehrenkranzs also contend that the breach of contract counterclaim by Julian Boylan against them must fail as he was never a party to the construction contract with Opus and both a jury and later this Court found that it was Opus, with which Julian stands in privity, and not the Ehrenkranzs, who breached such agreement. Thus, it is argued that such claim is barred by collateral estoppel. Additionally, the Ehrenkranzs argue that the counterclaim for rescission must be dismissed as it is contradicted by both documentary and testimonial evidence from the Opus trial, demonstrating that the full $3,250,000 which the Counterclaimants set forth as the purchase price of the Ehrenkranz property, was paid in full, negating any allegation of “mistake as to material terms” warranting recission. The claim against 624 BL for quantum meruit, arising out of the same assertions regarding the construction of the residence must be dismissed as the work performed was governed by an express agreement.
The Ehrenkranzs argue that the counterclaim for inducement of breach of fiduciary duty should be dismissed both because there exists no fiduciary duty owed by Anderson, who was merely a subcontractor to Opus on the subject construction, and because the allegations with regard to Opus' employee, Robinson, fail to state any manner in which they had any direct influence over the breach. The federal statutory claims involving accessing Defendants' computers or electronic information should be dismissed because there is no allegation that the Ehrenkranzs actually accessed the computers.
The Ehrenkranzs move to dismiss the counterclaim for abuse of process because obtaining the Order of attachment, standing alone, simply does not make out such a claim. To the extent that such counterclaim is alleged to arise from Lien Law claims in the Opus lawsuit, such were never litigated and therefore, the Ehrenkranzs argue that nothing resulted therefrom, abrogating any claim for relief. Like the abuse of process counterclaim, the Ehrenkranzs argue that the conversion counterclaim must fail as the issuance of the injunctive relief was with the authority of a Court Order which has now been affirmed on appeal.
Finally, the Ehrenkranzs argue that the fraudulent conveyance counterclaim asserted on the basis that the Ehrenkranzs transferred the subject property to 624 BL without consideration is belied by documentary evidence that the property was transferred directly to 624 BL which purchased the same directly from Dimitri Boylan.
The Counterclaimants argue that the claim for tortious interference with business relationships should stand as they have alleged that multiple potential purchasers interested in the MHR Quogue property existed prior to the issuance of the attachment Order which was only accomplished through lies and deceit.
They also set forth that their counterclaims for breach of contract, recission and quantum meruit are legally sound. They argue that Julian Boylan is a third-party beneficiary of the construction contract between the Ehrenkranzs and Opus; that Boylan is not barred by the doctrine of collateral estoppel as his claims for breach of contract assert distinct claims (such as additional charges incurred by him due to delay) not previously decided; that the quantum meruit claim does not arise out of the construction agreement; but, rather, seeks unpaid funds for work performed personally for the Ehrenkranzs without compensation; and that the quantum meruit claim against 624 BL is properly based on the increase in value to that entity based upon unpaid work performed by Julian Boylan in his personal capacity. Counterclaimants defend their counterclaim for recission based upon the clear provisions in the complaint in the Opus action wherein the Ehrenkranzs stated that the contract of sale was for $1,708,882.24, showing either that they lied to the Court in order to buttress their assertions of fraudulent conveyance of monies to MHR or that there was never a meeting of the minds on the construction contract terms.
Concerning the counterclaim for abuse of process, it is argued that the Ehrenkranzs filed the Complaint in this action in order to demand ransom and threaten real property having no connection whatsoever to the matters in the original litigation. They assert in addition that the lien enforcement and trust fund claims raised by the Ehrenkranzs were utilized for the same improper purposes. By the same token, the Counterclaimants assert that their conversion counterclaim is based upon the allegation that the Ehrenkranzs interfered with their real property by seeking and obtaining the injunction order preventing them from exercising the right to sell the same.
In Reply, the Ehrenkranzs note, first, that the Counterclaimants have asserted no defense to their motion to dismiss either of the federal computer fraud or the inducement of breach of fiduciary duty claims and, therefore, such should clearly be dismissed.
They reassert their argument that the tortious interference with business relationships remains too vague and, that the proffered emails to prospective purchasers in November 2013 occurred over one year after the counterclaim was filed by these parties. In addition, with regard to the assertion that the injunction obtained in this action caused Opus to collapse, such also occurred, as set for in the record in the Opus action, two years before the Order of attachment in 2012.
The Ehrenkranzs reassert that by finding in their favor at the prior trial, a unanimous jury has already rejected every factual assertion made by Julian Boylan in his breach of contract counterclaim. They set forth that Boylan again testified at length during the jury trial that he was in control of Opus at all relevant times and, therefore, is properly in privity with that entity demonstrating that collateral estoppel does bar his claim herein. They again state that the quantum meruit claim against 624 BL must fail due to the existence of the construction contract and the fact that there was never any act whatsoever evidencing assumption by that entity of any of the Ehrenkranzs' obligations thereunder, which were, in any event, not breached as already determined by a jury. With regard to the recission claim based upon the lack of meeting of the minds on the Opus/Ehrenkranz contract of sale, they argue that there exists no basis for such claim years after the payment terms on that contract were fully performed by the Ehrenkranzs.
With regard to the abuse of process counterclaim, there are assertedly no bases set forth for this claim as the entire challenged process resulted in a Court Order (now affirmed) following an extensive hearing in which all of the same allegations were raised and clearly rejected. For the same reasons, the Ehrenkranzs contend that the conversion counterclaim should be dismissed.
MOTION TO DISMISS COMPLAINT
Defendants Julian Boylan and MHR move to dismiss the Ehrenkranzs' claim for conversion on the ground that as a matter of law such a claim cannot lie where the subject of the claim, as set forth therein, is solely money and there is no allegation of immediate right to ownership of specifically identifiable funds.
In addition, Defendants assert that the claim set forth in the Complaint for unjust enrichment, which falls squarely under the purview of the construction contract at issue, bars such a claim. Indeed they cite the very argument raised in the Ehrenkranzs' motion to dismiss the unjust enrichment claim asserted against them in the MHR/Boylan counterclaims.
The fraudulent conveyance claims under the Debtor and Creditor Law must also assertedly be dismissed as they merely list a series of transactions and set forth that such were fraudulent without any real explanation of which conveyance relates to which transaction and allegedly only make the conclusory claims that such were fraudulent. Defendants argue, in addition, that to the extent that the fraudulent conveyance claims are aimed at Julian Boylan, such were resolved in this Court's Decision denying the veil piercing claim in connection with the construction lawsuit. Since they assert that the fraudulent conveyance claims are barred, Defendants argue that there can be no claims for aiding and abetting the same.
The claim for a Notice of Pendency, which they assert has never been filed with the County Clerk, simply does not constitute a cause of action according to Defendants; the same argument is set forth with regard to the Plaintiffs' separate claim for punitive damages.
In response, the Ehrenkranzs argue that the CPLR 3211 motion by the Defendants is barred under the single motion rule set forth under CPLR 3211(e) as such motion was already made before the Court determining the injunction/attachment relief and is based on the very same arguments made therein. In addition, they assert that the current motion is in any case barred by the doctrine of the law of the case as those branches of Defendants' prior motion pursuant to CPLR 3211(a)(7) to dismiss the cause of action to set aside conveyances as fraudulent and violative of the Debtor and Creditor Law, and the cause of action that Defendants aided and abetted in making the alleged fraudulent conveyances were denied by the Court's order dated September 6, 2012. In addition, in that Order the Court recognized that the Plaintiffs set forth sufficient facts to pursue punitive damages, ignoring the “form over substance” argument that such does not constitute a separate cause of action. According to Plaintiffs, Defendants have based their arguments herein on the same factual and legal contentions as set forth in their prior motion.
The Ehrenkranzs contend that the conversion claim is properly pled based on their allegation that the funds they paid to for construction of the residence were in trust for subcontractors and suppliers and were diverted by the Defendants as specified in the Complaint.
With regard to the fraudulent conveyance claims under the Debtor and Creditor Law, Plaintiffs argue that they have specified over 102 specific instances demonstrating the diversion of Plaintiffs' funds through Opus for the improper development of MHR property, Julian Boylan and Julian Boylan owned real properties. In addition, they assert that, with regard to the Defendants' argument that such claims do not meet the heightened pleading requirement, they are not required to do so as CPLR 3016 is not applicable to claims brought under Article 10 of the Debtor and Creditor Law. With regard to the assertion that such actions sufficiently comply with the fraudulent intent requirements of DCL § 276, Plaintiffs argue that the allegations set forth demonstrate the required circumstances commonly associated with fraudulent transfers that give rise to an inference of intent. The Plaintiffs also state that since the Boylans were the sole owners and shareholders of Opus and MHR and had full knowledge of the transfers, they qualify under the law as aiders and abettors of the challenged transfers. In addition, they argue that this Court's determination not to pierce the corporate veil in the construction case did not decide whether MHR was the alter ego of Opus, Julian Boylan or Dmitri Boylan; or whether Opus was an alter ego of Dmitri Boylan all of which are still pending before this Court. Plaintiffs quote from the 2012 Order which states that evidence was sufficiently set forth to allege that Opus diverted funds to MHR and that MHR was an entity acting solely through the actions of the Boylans and that the fraudulent conveyance claims and aiding and abetting claims were, therefore, sufficiently pled.
The Defendants reply that the CPLR 3211(e) argument only applies by its terms to motions to dismiss prior to the filing of a responsive pleading and that, in any case, the Court has the power to convert their motion into one for summary judgment. They also assert that the law of the case does not bar their cross-motion as it is based in part upon newly discovered evidence, that the Ehrnekranz Plaintiffs have filed in support of their current motion to dismiss the Defendants' counterclaims.
With regard to the fraudulent conveyance claims, Defendants restate their argument that nothing in the transactions listed demonstrates which ones left Opus insolvent, nor was there any showing of actual intent required under Debtor and Creditor Law § 276. They also state that the conversion claim alleges that the only funds “converted” were those constituting the balance of the contract of sale, improperly given to Opus and thereafter rightfully returned to MHR. They reiterate their assertion that there can be no separate claim for punitive damages and set forth that because their cross-motion has merit, there exists no basis for sanctions.
COLLATERAL ESTOPPEL and LAW OF THE CASE
The doctrine of collateral estoppel will preclude a party, under CPLR 3211(a)(5) from relitigating an issue that has previously been determined against such party, or those in privity, in a proceeding where there was a fair opportunity to fully litigate the matter, see, Ryan v. New York Tel. Co., 62 N.Y.2d 494 (1984). In order to invoke the doctrine, the proponent must demonstrate: 1) the identical issue must have been determined in the prior action and be decisive in the current action, and 2) the party who is precluded from relitigating the issue must have had a full and fair opportunity to contest the matter in the prior action, see, Schwartz v. Public Adm'r of County of Bronx, 24 N.Y.2d 65 (1969) ; Strough v. Inc Vil. of West Hampton Dunes, 78 AD3d 1037 (2d Dep't 2010). Once the proponent demonstrates that the issue was identical and decided in the first action, the party opposing the motion has the burden of setting forth that there was no full and fair opportunity to be heard, see, Kaufman v. Eli Lilly & Co, 65 N.Y.2d 449 (1985).
Where issues have been raised and determined in a prior appeal, reconsideration of such issues is barred by the doctrine of law of the case, CPLR 5501(a) ; Moran Enters., Inc. v. Hurst, 96 AD3d 914 (2d Dep't 2012) ; Aurora Loan Servs., LLC v. Grant, 88 AD3d 929 (2d Dep't 2011).
The counterclaim by Julian Boylan against the Ehrenkranzs for breach of contract is clearly barred by the doctrine of collateral estoppel. Julian Boylan was present during the entire trial between the Ehrenkranzs and his closely held corporation, Opus Vivir, in which all issues concerning the purchase of the subject real property and construction work performed were litigated. As set forth in the Plaintiffs' motion to dismiss that particular counterclaim, Julian Boylan was both in privity with Opus as its sole shareholder and, in any event, had every opportunity to raise any and all issues dealing with the contractual and construction issues at hand. A jury verdict determined both that Opus breached its contract with the Ehrenkranzs and caused them monetary damages and that the Ehrenkranzs in no way prevented Opus from performing its obligations thereunder. This included all claims dealing with extra work.
In deciding the Defendants' prior cross motion, the Court dismissed the Plaintiffs' claims under the Notice of Pendency/Lien Law, as well as the cause of action for unjust enrichment. The Appellate Division then modified by dismissing the Plaintiffs' cause of action for conversion. Accordingly, all of these claims are barred under the doctrine of law of the case and must be dismissed. In addition, the Appellate Division affirmed the order denying those branches of Defendants cross motion which were pursuant to CPLR 3211(a)(7) to dismiss the cause of action to set aside conveyances as fraudulent and violative of the Debtor and Creditor Law, and the cause of action that Defendants aided and abetted in making the alleged fraudulent conveyances. Accordingly, Defendants' current motion to dismiss such claims is also denied as it is governed by the law of the case.
In addition to those claims, set forth above, barred as precluded under the doctrines of collateral estoppel and law of the case, certain claims were abandoned by the parties herein as a result of the current motion practice. These include the counterclaims against the Ehrenkranzs for aiding and abetting the breach of fiduciary duty and violation of the Federal Computer Fraud and Abuse Act and the Stored Communication Act, and the third-party claim against the LePatner Firm for violation of the Federal Stored Communication Act.
MOTIONS TO DISMISS
In considering a motion to dismiss a pleading pursuant to CPLR 3211(a)(7), “[t]he sole criterion is whether the pleading states a cause of action, and if from its four corners, factual allegations are discerned which taken together manifest any cause of action cognizable at law, a motion for dismissal will fail,” Guggenheimer v. Ginzburg, 43 N.Y.2d 268 (1977). In viewing such a motion, the court must accept the facts as alleged as true and only determine whether such allegations fit within any cognizable legal theory, see, Dye v. Catholic Med. Ctr. of Brooklyn & Queens, 273 A.D.2d 193 (2d Dep't 2000). “[W]hether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss,” EBC I, Inc. v. Goldman, Sachs & Co, 5 NY3d 11 (2005). However, bare legal conclusions are not entitled to the benefit of the presumption of truth and are not accorded every favorable inference, see, Doria v. Masucci, 230 A.D.2d 764 (2d Dep't 1996).
In order to prevail on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence that forms the basis of the defense must in and of itself resolve all factual issues as a matter of law and conclusively dispose of the claim at issue, see, Trade Source, Inc. v. Westchester Wood Works, Inc., 290 A.D.2d 437 (Dep't 2002). Where documentary evidence disproves an essential element of a cause of action, dismissal pursuant to CPLR 3211(a)(1) is warranted even where the allegations, standing alone, could withstand a motion to dismiss under CPLR 3211(a)(7), McGuire v. Sterling Doubleday Enters, L.P., 19 AD3d 660 (Dep't 2005), lv den, 7 NY3d 701 (2006).
THIRD–PARTY CLAIMS
In this case, the Third–Party Defendant LePatner, has moved to dismiss the entire Third–Party Complaint as alleged against it on the ground that it fails to state a claim, as it is simply not an appropriate impleader. CPLR 1007 permits a Defendant to implead, by means of a third-party action, “[a] person not a party who is or may be liable to that defendant for all or part of the plaintiff's claim against that defendant,” CPLR 1007 ; Sunbelt Rentals, Inc. v.. Tempest Windows, Inc., 94 AD3d 1088 (2d Dep't 2012), quoting, BBIG Realty Corp. v. Ginsberg, 111 A.D.2d 91 (2d Dep't 1985). It is necessary, however, that the liability sought to be imposed in the third-party action arise from or be conditioned upon the liability asserted against the third-party plaintiff in the main action. Id.
The Third–Party Complaint herein, as described above, includes claims against the LePatner Firm for defamation, commercial disparagement, abuse of process, conversion, computer fraud, tortious interference with prospective business relationships and tortious interference with contract, inducement of breach of fiduciary duty and violation of the Judiciary Law. All of these claims arise out of acts the law firm allegedly engaged in on behalf of its clients in the Ehrenkranz construction litigation and in bringing the current lawsuit in which the attachment relief was sought. None of these alleged acts arises from or are conditioned upon the liability asserted by the Ehrenkranzs against Julian Boylan, Dimitri Boylan and/or MHR in the main action. CPLR 1010 permits the court to dismiss without prejudice or sever those third-party claims that fail to meet the CPLR 1007 test; however, in this case, the LePatner Firm avers that each and every one of the remaining nine causes of action in the Third–Party Complaint must be dismissed under CPLR 3211(a)(1) and/or (7). Accordingly, the Court will examine them seriatim.
Defamation/Disparagement
New York law accords an absolute privilege to both oral and written communications which are made while judicial proceedings are pending and which relate in some manner to the litigation; this privilege attaches not only during a hearing, trial or deposition, but at every stage of the process, even during an investigation, Credit Agricole Corporate & Inv. Bank of N.Y. Branch v. BDC Fin. LLC, 114 AD3d 552 (1st Dep't 2014) ; Rufeh v. Schwartz, 50 AD3d 1002 (2d Dep't 2008). The rationale for according privilege to these sorts of statements has been explained by the Second Department:
“The interest of society requires that whenever [persons] seek the aid of the courts of justice, either to assert or to defend rights of person, property, [or] liberty, speech and writing therein must be untrammeled and free. The good of all must prevail over the incidental harm to the individual. So the law offers a shield to the one who in legal proceedings publishes a libel, not because it wishes to encourage libel, but because if [persons] were afraid to set forth their rights in legal proceedings for fear of liability to libel suits, greater harm would result, in the suppression of the truth. The law gives all who take part in judicial proceedings, judge, attorney, counsel, printer, witness, litigant, a right to speak and write, subject only to one limitation, that what is said or written bears upon the subject of the ligation”.
Allan & Allan Arts, Ltd. v. Rosenblum, 201 A.D.2d 136 (2d Dep't 1994) ; see, Font, Inc. v. Khalil, 103 AD3d 481 (1st Dep't 2013).
Disparagement in the commercial context is similar but not identical to defamation. While a statement that impugns the basic integrity or creditworthiness of a business is considered a direct attack on the same and constitutes defamation; where a statement is confined to denigrating the quality of a business' services, it supports an action for disparagement. Ruder & Finn Inc. v. Seaboard Sur. Co., 52 N.Y.2d 663 (1981). As stated by the Court of appeals: “[W]here ... the statement is confined to denigrating the quality of the business' ... services, it could support an action for disparagement, but it will do so only if malice and special damages are proven”, id.
Here, the allegations set forth in the Third–Party Complaint under the two named causes of action, all fall within the definition of defamation rather than business disparagement under the definition set forth above. As argued by counsel for Third–Party Defendant, there are, in any event, no special damages even alleged in the so-called “Disparagement” claim. More significant, however, is the fact that all of these statements denigrating the business operations of the Third–Party Plaintiffs were made in each and every instance in the context of the litigation and occurred during various phases thereof including the investigative stage of this and the prior action and are entitled to the protection of the absolute privilege. They cannot withstand a CPLR 3211(a)(7) attack.
Claims Involving Allegations of Interference with Contracting Parties
A claim for aiding and abetting breach of fiduciary duty requires: 1) a breach of fiduciary obligations to another; 2) that the party being sued knowingly induced or participated, through the provision of substantial assistance, in procuring the breach; and 3) that the party bringing such action suffered damage as a result of the breach of the fiduciary duty, Bullmore v. Ernst & Young Cayman Islands, 45 AD3d 461 (1st Dep't 2007). In order to sustain such a claim, there must exist a fiduciary relationship between the claimant and the party allegedly induced to harm the claimant. As a general rule, an arms' length business relationship, such as that between a contractor and subcontractor or a contractor and owner on a construction project does not give rise to a fiduciary relationship, Board of Mgrs. of Highpoint Condominium v. East/West Venture, Haseko (40th), Inc., 278 A.D.2d 55 (1st Dep't 2000). An employee, on the other hand, does owe his or her employer a fiduciary duty and a duty of loyalty, Duane Jones Co. v. Burke, 306 N.Y. 172 (1954) ; Qosina Corp. v. C & N Packaging, Inc., 96 AD3d 1032 (2d Dep't 2012). The fact that one, who as an attorney, prepares legal documents which arise out of the alleged breach of fiduciary duty, does not constitute the “substantial assistance” required by law, See, Roni LLC v. Arfa, 72 AD3d 413 (1st Dep't 2010), aff'd, 15 NY3d 826 (2010).
In the case at bar, Third–Party Plaintiffs assert that the LePatner Firm aided and abetted the breaches of fiduciary duty owed to them by the Opus subcontractor-Anderson—and by Opus' employee—Robinson. As a party contracting at arms length with Opus, Anderson did not owe that entity, which is not even named as a Third–Party Plaintiff here, a fiduciary duty. Robinson, as an employee, did owe Opus (again not named in this action) a fiduciary duty. However, the only aid set forth in the Third–Party Complaint that the LePatner Firm allegedly provided was the use of Robinson's documents and affidavits in the litigation for the purpose of obtaining injunctive/attachment relief. Accordingly, Third–Party Plaintiffs fail, as a matter of law, to state a claim for aiding and abetting (inducement) of the breach of any fiduciary duty owned them. The Court notes, in addition, that its review of the record demonstrates that the very issues raised herein regarding the role of the LePatner Firm inducing the Robinson affidavit were raised before the Court which ignored them in granting the injunctive relief, recently affirmed by the Appellate Division.
A claim for tortious interference with contract requires assertion of: 1) a valid contract between the claimant and a third-party; 2) knowledge of such contract by the entity being sued; 3) intentional procurement of the breach; and 4) damages as a result, Oddo Asset Mgt v. Barclays Bank, PLC, 19 NY3d 584 (2012).
In its Fourteenth cause of action, Third–Party Plaintiffs fail to explain which contracts they are talking about and how the LePatner Firm procured a breach thereof. In their papers in response to this motion, Third–Party Plaintiffs set forth that they are referring to contracts that existed between Anderson and Robinson and themselves. However, such contracts, one as a subcontractor and the other as an employee, were with Opus-which is not a party to this action; and, therefore, fail to set forth the necessary contract between any of them and these third parties. Julian Boylan simply lacks standing to bring this action for tortious interference with contract where the contracts that existed were between a corporation and those parties, Bizjak v. Grammercy Capital Corp., 95 AD3d 469 (1st Dep't 2012) ; Rogers v. Ciprian, 26 AD3d 1 (1st Dep't 2005).
The Computer Fraud and Abuse Act (“CFAA”) makes unlawful the act of “[i]ntentionally accessing a computer without authorization or exceed(ing) authorized access, thereby obtain(ing) .... information from any protected computer”. 18 U.S.C.A. § 1030(a)(2). Third–Party Plaintiffs do not even allege that the LePatner Firm actually accessed their computer(s); but, rather, that Robinson accessed the same and revealed both confidential and protected information belonging to Opus, MHR, Julian Boylan and Dimitri Boylan. Third–Party Plaintiffs go on to assert that such information was improperly shared with the LePatner Firm. As a matter of law, the sharing of such information by one who does not actually access the computer does not state a claim under the CFAA, See, Role Models Am., Inc v. Jones, 305 F.Supp.2d 564 (D Md 2004). Accordingly, all of the above third-party claims are dismissed under CPLR 3211(a)(7).
In addition to Third–Party Plaintiffs' claims regarding interference with employee and subcontractor agreements, they have asserted a claim for tortious interference with prospective business relationships, essentially asserting that through the use of wrongful means, the LePatner Firm prevented them from selling the MHR Quogue property to various interested purchasers. In order to state a claim for tortious interference with business relationships, the Third–Party Plaintiffs must set forth: 1) the LePatner Firm's knowledge of the Third–Party Plaintiffs' opportunity with another party; 2) LePatner's intentional interference with that opportunity; 3) LePatner's use of wrongful means or sole purpose of inflicting harm; and 4) resulting damages, NBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., 87 N.Y.2d 614 (1996). A demonstration of causation requires that the claimant show that, but for the interference, the claimant would have obtained the subject contract or business relationship, A.S. Rampell, Inc. v. Hyster Co, 3 N.Y.2d 369 (1957) ; Gettinger Assoc., LP v. Abraham Kamber Co. LLC, 83 AD3d 412 (1st Dep't 2011) ; Ricca v. Valenti, 24 AD3d 647 (2d Dep't 2005). The “but for” standard requires a showing by the claimant that it would have obtained the contract or entered into the subject business relationship if the Third–Party Defendant had not interfered, Union Car Adv. Co. v. Collier, 263 N.Y. 386 (1934) ; Slatkin v. Lancer Litho Packaging Corp., 33 AD3d 421 (1st Dep't 2006).
The Court of Appeals, in Carvel Corp. v. Noonan, 3 NY3d 182 (2004), stated that the culpable conduct encompassed in this business tort must have been directed not at the claimant, but rather at the party with which the claimant sought to have a business relationship. A view of the Third–Party Complaint demonstrates that the Third–Party Plaintiffs essentially set forth that they believed they would have a contract in the future for the sale of the land that was the subject of the attachment/injunction. It is simply not sufficient, as a matter of law, to state, as Third–Party Plaintiffs did and do in the current papers that “[D]efendants [referring to MHR] had professional and sales contracts both extant and/or a preliminary nature and/or had an expectancy of future contracts with non-parties.” No party nor contract is named or otherwise identified. Moreover, Third–Party Plaintiffs fail to meet the Carvel v. Noonan test as they fail to allege that the wrongful conduct complained of was directed at any non-party. The sole allegation is that as a result of the submission of papers by the LePatner Firm in support of its application for provisional relief, MHR was forced to remove its real property from the market. Accordingly this cause of action must be dismissed pursuant to CPLR 3211(a)(7).
The elements of a claim for conversion include: 1) the claimants right or interest in the subject property; and 2) the other party's dominion over or interference with the same in derogation of the claimant's rights thereto, Colavito v. New York Organ Donor Network, Inc., 8 NY3d 43 (2006). However, real property cannot be converted, Dickinson v. Igoni, 76 AD3d 943 (2d Dep't 2010). Moreover, neither an interest in or an expectancy in a business opportunity are proper subjects for a claim of conversion, Roemer & Featherstonhaugh, PC v. Featherstonhaugh, 267 A.D.2d 697 (3d Dep't 1999). The assertion that the LePatner Firm acquired dominion and control as set forth in the preceding paragraphs over the property of the Third–Party Plaintiffs fails to state a cause of action and must be dismissed.
Claims Attacking the Legal Process Utilized
To state a claim for abuse of process, the claimant must allege: 1) the issuance of regularly issued civil or criminal process, compelling performance or forbearance of some act; 2) the existence of an ulterior motive to do harm, without economic or social justification; 3) the seeking of some collateral advantage outside the legitimate ends of such process; and 4) actual or special damages, Board of Educ. of Farmingdale Union Free School Dist. v. Farmingdale Classroom Teacher's Ass'n, Inc. Local 1889 AFT AFL–CIO, 38 N.Y.2d 397 (1975). The institution of a civil action is not considered process capable of being abused even where such is done with malicious intent, Muro–Light v. Farley, 95 AD3d 846 (2d Dep't 2012). No abuse of process lies as a result of the accused party or entity obtaining provisional orders of attachment enjoining the claimants from transferring assets, Daniel J. Edelman, Inc. v. Korn, 231 A.D.2d 405 (1st Dep't 1996) ; Park v. State of NY, 226 A.D.2d 153 (1st Dep't 1996). This is supported in the case at bar by the Appellate Division's recent affirmance of the Supreme Court's issuance of the very provisional remedy issued herein following the Third–Party Defendants' raising of the same issues. Thus, the abuse of process counterclaim fails as a matter of law and is dismissed.
Third–Party Plaintiffs assert that devious court filings and deliberate lies by the LePatner Firm in these litigations constitute a violation of Judiciary Law § 487. However, in this matter, the claims by the Ehrenkranzs in the Opus case were resolved in favor of the Ehrenkranzs by a jury, the motion to set aside the verdict was denied by this Court, and the subsequent judgment entered thereon was affirmed by the Appellate Division. The “[a]ssertion of unfounded allegations in a pleading, even if made for improper purposes, does not provide a basis for liability under Judiciary Law § 487 ]”, Ticketmaster Corp. v. Lidsky, 245 A.D.2d 142 (1st Dep't 1997).
Based on the Court's findings as set forth, the Third–Party Complaint as asserted against the LePatner Firm is dismissed.
THE COUNTERCLAIMS
As set forth above, the Ehrenkranzs have moved to dismiss certain counterclaims alleged against them by Julian Boylan and MHR. For the reasons stated, supra, the counterclaim by Julian Boylan against the Plaintiffs for breach of contract is barred by the doctrine of collateral estoppel and is dismissed. The counterclaims against the Ehrenkranzs for violation of the Federal Computer Fraud Act and the Stored Communication Act are abandoned in the papers before the Court and, therefore, the motion to dismiss those counterclaims is granted.
Tortious Interference With Prospective Business Relationships
The claim against the Ehrenkranzs for tortious interference with prospective business relationships is essentially identical to that against the LePatner Firm. It asserts that the information obtained and utilized by the Plaintiffs to obtain provisional relief deprived MHR of its ability to sell its Quogue property and that the use of such false information interfered with Julian Boylan's ability to continue to operate Opus. As set forth above, this claim simply cannot stand as there is no interference even alleged with prospective purchasers much less the allegation that they were anything other than potential purchasers. With regard to any interference by the Ehrenkranzs with Opus' operation, the Third–Party Complaint was filed containing all the alleged false allegations years before Opus closed its doors, a fact contained within documentary evidence admitted at the Opus trial, which has now ended in a sustained verdict by the Appellate Division. This cause of action cannot survive a motion to dismiss under CPLR 3211(a)(1) and (7).
Abuse of Process and Conversion
Again, these two claims are asserted against the Ehrenkranzs in counterclaims for the same reasons set forth in the third-party claims against LePatner. For the same reasons, they cannot be sustained and are dismissible as a matter of law. The abuse of process counterclaim is grounded in the alleged false submission made by the Ehrenkranzs in order to attach property and prevent MHR from selling the same. Neither the commencement of a civil action nor obtaining provisional remedies, even where malicious intent is involved can sustain a cause of action for abuse of process, Muro–Light v. Farley, supra; Edelman v. Korn, supra; Park v. State, supra. To the extent that the counterclaim is also based upon the fact that the Ehrenkranzs instituted a Lien Law claim in the Opus action, such was never litigated and as a result thereof, there is no allegation of injury, see Mattituck Dev. Corp. v. Hudson City Sav. Bank, 2012 N.Y. Slip Op 31529[U] WL 2344979 (Sup Ct Suffolk County 2012).
The conversion counterclaim asserted against the Ehrenkranzs is based, like the claim against LePatner on the assertion that wrongful acts caused the prior Court to grant the provisional remedy described preventing the sale of the MHR real property. As stated above, neither real property nor a prospective business opportunity is a proper subject for a claim of conversion and, therefore, such may not stand as a matter of law.
Quantum Meruit and Rescission
The Defendant, Julian Boylan, has also brought a separate claim against 624 BL, the entity formed by the Ehrenkranzs to purchase the real property on which Opus performed the construction leading to the prior litigation. The stated basis for this claim is that 624 BL became the “successor in interest” to the Ehrenkranzs on the construction contract and violated the same. This claim, like the contract claim is barred by collateral estoppel, as a jury and this court have already determined that Opus was in violation of the subject contract, a finding affirmed by the Appellate Division. In addition, as stated above, although Julian Boylan was not a party to the subject contract, he was the sole owner of Opus and bound by the same. Moreover, as there is no question that a written contract existed governing the issue of construction of the subject residence, there can be no recovery in quasi contract, see, IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 NY3d 132 (2009) ; Krigsfeld v. Feldman, 115 AD3d 712 (2d Dep't 2014).
MHR has brought a counterclaim against the Ehrenkranzs and 624 BL for rescission of the sales contract regarding the real property purchased, based on the allegation that the purchasing parties made an admission that the purchase price was only approximately $1.7 million, when it was in fact $3.25 million. However, such claim is barred both based upon evidence submitted at trial as well as the recording of title for the real property over six years ago demonstrating that the purchase price was paid in full. This is supported by Julian Boylan's admission at trial. Accordingly this claim cannot survive the trial and documentary evidence at hand.
With regard to the fraudulent conveyance claim against the Ehrenkranzs and 624 BL, such is based upon the allegations that the real property sold by Dimitri Boylan to the Ehrenkranzs was transferred to their corporation without fair consideration. Such must fail as a matter of law since documentary evidence submitted in the Opus trial demonstrated that the real property was transferred directly from Dimitri Boylan to 624 BL.
Based on the above findings, the Second, Eleventh and Fifteenth counterclaims by Julian Boylan and MHR against the Ehrenkranzs; the Fifth counterclaim by Julian Boylan against the Ehrenkranzs and 624 BL and the Nineteenth counterclaim by Julian Boylan against 624 BL ; the Eighteenth counterclaim by MHR against the Ehrenkranzs and 624 BL ; the Eighth counterclaim by Julian Boylan against the Ehrenkranzs; the Ninth and Tenth counterclaims by Julian Boylan and MHR against the Ehrenkranzs; and the Seventeenth counterclaim by MHR against the Ehrenkranzs and 624 BL are all dismissed pursuant to CPLR 3211(a)(1), (5), and/or (7). Accordingly, the counterclaims asserted against the Ehrenkranzs and 624 BL are dismissed in their entirety.
THE COMPLAINT
As with the counterclaims, the status of many of the Ehrenkranz claims brought against Julian Boylan, Dimitri Boylan and MHR have been determined in motions brought under CPLR 3211 before the prior Court, which have been either affirmed or modified on appeal. Thus, the Defendants' motion to dismiss the claims for Notice of Pendency, unjust enrichment and conversion are dismissed under the doctrine of law of the case. The Defendants' motion to dismiss Plaintiffs' claims for fraudulent conveyances and aiding and abetting the same are denied on the same ground.
The Defendants have also moved to dismiss the Plaintiffs' claim for punitive damages, asserting correctly that such does not constitute a separate cause of action. While, as Defendants admit in their Reply papers, dismissal does not preclude Plaintiffs from seeking special damages upon proper proof, they are correct in the assertion that there exists no separate cause of action for punitive damages and such is also dismissed. Therefore, the cross-motion to dismiss the Complaint against Julian Boylan, Dimitri Boylan and MHR is granted with the exception of the claims for fraudulent conveyance and aiding and abetting fraudulent conveyance.
This constitutes the DECISION and ORDER of the Court