Opinion
902890-19
02-07-2020
Edward B. FLINK and Flink Smith Law LLC, Plaintiffs, v. Jay A. SMITH, Jennifer L. Dominelli and Smith Dominelli & Guetti LLC, Defendants.
McNamee Lochner P.C., Attorneys for Plaintiffs (John J. Privitera and Ryan Coyne, of counsel), 677 Broadway, Suite 500, Albany, New York 12207 E. Stewart Jones Hacker Murphy, LLP, Attorneys for Defendants Jay A. Smith and Smith, Dominelli & Guetti, LLC (James E. Hacker and Thomas J. Higgs, of counsel), 28 Second Street, Troy, New York 12180 Harris, Conway & Donovan, PLLC, Attorneys for Defendant Jennifer L. Dominelli (Ryan T. Donovan and Ryan E. Manley, of counsel), 50 State Street, 2nd Floor, Albany, New York 12207
McNamee Lochner P.C., Attorneys for Plaintiffs (John J. Privitera and Ryan Coyne, of counsel), 677 Broadway, Suite 500, Albany, New York 12207
E. Stewart Jones Hacker Murphy, LLP, Attorneys for Defendants Jay A. Smith and Smith, Dominelli & Guetti, LLC (James E. Hacker and Thomas J. Higgs, of counsel), 28 Second Street, Troy, New York 12180
Harris, Conway & Donovan, PLLC, Attorneys for Defendant Jennifer L. Dominelli (Ryan T. Donovan and Ryan E. Manley, of counsel), 50 State Street, 2nd Floor, Albany, New York 12207
Richard M. Platkin, J.
This case involves a dispute between former law partners. Plaintiffs Edward B. Flink and Flink Smith Law LLC ("FSL" or "LLC") allege that defendants Jay A. Smith and Jennifer L. Dominelli conspired to unlawfully collapse FSL and divert its business to a newly-created law firm, defendant Smith, Dominelli & Guetti LLC ("SDG"), in violation of their contractual and fiduciary duties. Defendants move, pre-answer, for dismissal of six of the seven causes of action alleged by plaintiffs.
On a motion to dismiss, the relevant facts, as derived from the complaint, must be accepted as true (see Zwirn v. Galento , 288 NY 428, 430 [1942] ; Akins v. Village of Potsdam , 65 AD2d 835, 835 [3d Dept 1978] ).
A. FSL
FSL is a limited liability company established in 1999 by Flink and Smith (see NYSCEF Doc No. 11 ["Higgs Aff."], Ex. A ["Complaint"], ¶ 18). Dominelli joined FSL's predecessor, Edward Flink & Associates, as an associate in 1996, and she continued in that capacity with FSL (see id. , ¶¶ 18-19).
B. 2010 Agreement
In May 2010, Flink, Smith, Dominelli and nonparty Robert Coughlin entered into an operating agreement for FSL that modified and superseded all prior agreements (see id. , ¶ 24; Higgs Aff., Ex. B ["2010 Agreement"], p. 1). The 2010 Agreement established procedures for FSL's operations, including minimum billing requirements and the method by which FSL members would be compensated (see Complaint, ¶ 25; 2010 Agreement, pp. 2-4). In view of Flink's contemplated retirement in 2018 (see Complaint, ¶ 28), the 2010 Agreement also established a process for gradually transitioning ownership and leadership of the firm from Flink to Smith, Dominelli and Coughlin (see id. , ¶¶ 5, 31, 34).
When the 2010 Agreement was executed, there were 100 "shares" of FSL, with Flink holding 75 shares and Smith holding the balance (see id. , ¶ 27; 2010 Agreement, p. 4). In April 2012, Flink sold 7.5 shares to Dominelli and 7.5 shares to Coughlin (see Complaint, ¶ 35; 2010 Agreement, p. 5). The agreement further contemplated that, by April 30, 2014, Flink would sell Dominelli and Coughlin five (5) more shares, and any new members of FSL would be given the opportunity to purchase four (4) of Flink's shares (see 2010 Agreement, p. 5).
The 2010 Agreement and the Complaint use the term "share," rather than membership interest. For purposes of consistency, the Court will employ the same terminology.
As to the balance of Flink's shares, the 2010 Agreement provided as follows:
After 4/30/14 but no later than 4/30/18, Ed [Flink] will sell his remaining 51 shares to such members and on such schedule as the members may then agree, with the understanding and agreement that Jay [Smith], Jenn [Dominelli] and Rob [Coughlin] will each be given the opportunity to become equal shareholders. The LLC will purchase any remaining shares from Ed [Flink] on or before 12/31/18 in the event that the other members do not themselves purchase all of the 51 shares, with the further understanding and agreement that Jay [Smith] and Jenn [Dominelli] will purchase such shares as remain in the event that the LLC is no longer an operating entity and the other members do not elect to purchase the shares.
In the event Jay [Smith], Jenn [Dominelli] and/or Rob [Coughlin] decline to purchase a full one-third share of the firm from Ed [Flink], then Ed [Flink] will first offer his shares to Jay [Smith], Jenn [Dominelli] and/or Rob [Coughlin], as the case may be, in such proportion that those of them who remain members will become equal shareholders to each other. In the event that one of these remaining present members declines to purchase a proportionate share, then the remaining member(s) may purchase the shares. Should the remaining present member(s) decline to purchase all of Ed's shares, Ed [Flink] may offer said remaining shares to any subsequent member (id. , pp. 5-6).
The 2010 Agreement also included a section defining certain "[t]erminating [e]vents" (id. , p. 7). The first paragraph, entitled "Withdrawal," provides, in relevant part: "Any member [of FSL] may withdraw, resign or retire (‘voluntary withdrawal’) from the firm at the close of business on the last day of the third month ending not less than three months after written notice thereof is given to the members of the firm" (id. , p. 7). The final paragraph, entitled "Effect on Ownership Shares," states that the departing member shall be entitled to certain compensation, as well as to "[t]he fair market value of [his or her] shares on the effective date of the [withdrawal]" (id. , p. 8).
The 2010 Agreement was to expire on April 30, 2018, unless extended or modified, "except that all obligations which by their nature cannot be performed by that date will continue" (id. , p. 1).
C. Smith and Dominelli's Withdrawal from FSL
On December 22, 2016, while still members of FSL, Smith and Dominelli formed defendant SDG (see Complaint, ¶ 51). Smith and Dominelli gave written notice to FSL on February 8, 2017 of their intent to withdraw, effective in May 2017 (see id. , ¶ 52; Higgs Aff., Ex. C; NYSCEF Doc No. 12, Ex. 1). "With Coughlin having previously withdrawn from FSL in accordance with the provisions of the 2010 Agreement," Smith and Dominelli's withdrawal "left Flink as the only remaining FSL member" (Complaint, ¶ 53).
Plaintiffs allege that FSL "ceased to be an operating entity once Smith and Dominelli ‘departed’ the firm" (id. , ¶ 54). Plaintiffs further allege that SDG hired all but one of FSL's employees; Smith and Dominelli marketed themselves as the founding members of SDG, a purported "successor of FSL"; SDG "retained FSL's physical assets and intellectual property"; and Smith and Dominelli "barred Flink from work at the former FSL offices that they continued to occupy, now as SDG" (id. , ¶¶ 55-57).
Although FSL is alleged to be "a non-operating entity today, it has not been dissolved" (id. , ¶ 58). Flink "still owns 60 of FSL's 100 shares," which Smith and Dominelli have refused to purchase, notwithstanding their alleged agreement to do so (id. , ¶¶ 59-60).
D. This Action
Flink and FSL commenced this action in May 2019. Plaintiffs contend that Smith and Dominelli breached the 2010 Agreement by: (1) refusing to purchase Flink's remaining shares (see id. , ¶¶ 54-60, 64); (2) failing to satisfy the minimum billable-hour requirements from 2014 through 2017 (see id. , ¶¶ 45-49, 72-73); and (3) "conspiring to collapse FSL and redirect its business to SDG" (id. , ¶ 64).
In addition, the Complaint alleges that Smith and Dominelli breached fiduciary duties owed to Flink and FSL by "secretly forming a competing entity [SDG] for the purposes of soliciting Flink's [and FSL's] clients and diverting [Flink and FSL's] business opportunities and good will" (id. , ¶¶ 79-80, 84-85).
Plaintiffs further allege that SDG wrongfully caused Smith and Dominelli's breaches of the 2010 Agreement and affirmatively assisted Smith and Dominelli in their tortious misconduct against Flink and FSL (see id. , ¶¶ 89-99).
Finally, plaintiffs seek to compel Smith and Dominelli to provide a full accounting of FSL's escrow accounts (see id. , ¶¶ 105-109).
In lieu of answering, defendants move pursuant to CPLR 3211 (a) (1) and (7) to dismiss all but one of plaintiffs' seven causes of action. Specifically, defendants seek dismissal of all claims other than the second cause of action, which alleges that defendants breached the 2010 Agreement by, among other things, failing to meet their minimum billable-hours obligation.
Oral argument was held on January 17, 2020. This Decision & Order follows.
DISCUSSION
"Under CPLR 3211 (a) (1), dismissal is warranted if documentary evidence conclusively establishes a defense as a matter of law" ( Haire v. Bonelli , 57 AD3d 1354, 1356 [3d Dept 2008], [citations omitted]; see Goshen v. Mutual Life Ins. Co. of NY , 98 NY2d 314, 326 [2002] ).
In considering a motion to dismiss pursuant to CPLR 3211 (a) (7), "the Court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference" ( EBC 1, Inc. v. Goldman, Sachs & Co. , 5 NY3d 11, 19 [2005] ). The Court's "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" ( Polonetsky v. Better Homes Depot , 97 NY2d 46, 54 [2001] [internal quotation marks and citation omitted] ). However, the Court need not "accept as true legal conclusions or factual allegations that are either inherently incredible or flatly contradicted by documentary evidence" ( 1455 Washington Ave. Assoc. v. Rose & Kiernan , 260 AD2d 770, 771 [3d Dept 1999] [internal quotation marks and citations omitted] ).
A. Breach of Contract
Defendants move for dismissal of plaintiffs' first cause of action, which alleges that Smith and Dominelli "breached the 2010 Agreement by ... refusing to purchase Flink's shares" (Complaint, ¶ 64). According to defendants, "Smith and Dominelli's obligations under the [2010 Agreement] ceased to exist as of May 2017" (NYSCEF Doc No. 13 ["Moving Mem."], p. 6), when their withdrawal from FSL became effective.
Defendants also rely on Flink's email to Smith and Dominelli of March 12, 2017, which is said to constitute an admission by Flink that the alleged buy-out obligation had been rendered "moot" by Smith and Dominelli's withdrawal. The email states, in pertinent part:
To that end [referring to the impending split between the partners], please review my January resolutions for possible consideration this week. Some may not now be applicable (e.g., tabling further discussion on the buy-out so as to focus on working together through the end of the 2010 [A]greement, in the hope that we could still find accommodation, which was rendered moot by your withdrawal ) (Higgs Aff., Ex. D [emphasis added] ).
In opposing dismissal, plaintiffs maintain that the withdrawal of Smith and Dominelli from FSL did not relieve them of their obligation to purchase Flink's shares "in the event that the LLC is no longer an operating entity" (2010 Agreement, p. 5). In this connection, plaintiffs argue that FSL ceased to be an operating entity in May 2017, following the departure of Smith and Dominelli from the firm and their alleged appropriation of the firm's tangible and intangible assets, including its leasehold (see NYSCEF Doc No. 17 ["Opp. Mem."], pp. 5-11).
1. Legal Effect of Smith and Dominelli's Withdrawals
In analyzing the parties' contentions, the Court begins with Limited Liability Company Law ("LLC Law") § 606 (a), which provides, in relevant part:
A member may withdraw as a member of a limited liability company only at the time or upon the happening of events specified in the operating agreement and in accordance with the operating agreement. Notwithstanding anything to the contrary under applicable law, unless an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company.
Also pertinent here is LLC Law § 701 (b), which provides as follows:
Unless otherwise provided in the operating agreement, the death, retirement, expulsion, bankruptcy, or dissolution of any member or the occurrence of any other event that terminates the continued membership of any member shall not cause the limited liability company to be dissolved or its affairs to be wound up, and upon the occurrence of any such event, the limited liability company shall be continued without dissolution , unless within one hundred eighty days following the occurrence of such event, a majority in interest of all of the remaining members of the limited liability company or, if there is more than one class or group of members, then by a majority in interest of all the remaining members of each class or group of members, vote or agree in writing to dissolve the limited liability company (emphasis added).
The 2010 Agreement authorizes members to withdraw prior to dissolution (see pp. 6-8; cf. Matter of Kassab v. Kasab , 137 AD3d 1135, 1137-1138 [2d Dept 2016] ), and there is nothing in the agreement providing that the withdrawal of members shall cause the dissolution of the company. Thus, the mere withdrawal of Smith and Dominelli did not operate to dissolve FSL or deprive it of the status of an operating entity. As a matter of law and contract, FSL "continued without dissolution" following Smith and Dominelli's withdrawal ( LLC Law § 701 [b] ), regardless of the fact that Flink was left "as the only remaining FSL member" (Complaint, ¶ 53).
2. The Operating Status of FSL
Plaintiffs allege that FSL ceased to be an operating entity following Smith and Dominelli's withdrawal in May 2017, thereby triggering the duty of the former members to purchase Flink's shares. In responding to this contention, defendants observe that the 2010 Agreement fails to define the term "operating entity," and they argue that plaintiffs impermissibly are attempting to add context to this undefined term through the arguments of counsel, rather than via a client affidavit or other competent evidence (see Opp. Mem, p. 3).
Although the term "operating entity" is not defined in the 2010 Agreement, the plain and ordinary meaning of the term in the context of a professional practice (see LLC Law art 12) connotes a company that is actively engaged in rendering services to clients. Further, there is nothing in the text of the 2010 Agreement to support defendants' contention that the term is limited to circumstances where the company is "incapable" of operating (Transcript, pp. 13-14, 24-26).
Plaintiffs' Complaint, which is verified by Flink (see CPLR 105 [u] ), alleges that FSL ceased operations in or about May 2017, following the withdrawal of Smith and Dominelli (see Complaint, ¶ 54), the departure of all but one of the firm's employees (see id. ), the loss of the firm's office space (see id. , ¶ 56) and SDG's acquisition of FSL's remaining physical assets and intellectual property (see id. , ¶ 57). According to the Complaint, FSL "remains a non-operating entity" to this day (id. , ¶ 58). As defendants have not submitted documentary evidence to conclusively disprove the foregoing factual allegations, the Court must assume their truth.
Accordingly, plaintiffs sufficiently have pleaded that Smith and Dominelli's duty to purchase Flink's remaining shares was triggered under the provision of the 2010 Agreement addressing the contingency "that the LLC is no longer an operating entity and the other members [did] not elect to purchase the shares" (2010 Agreement, p. 5).
3. Effect of the Withdrawal
Defendants argue that any obligation on the part of Smith and Dominelli to purchase Flink's shares terminated following their withdrawal.
a. Defendants' Contentions
Defendants begin with statutory and case authorities recognizing that withdrawing members of an LLC who assign away all of their membership interest in a company "cease[ ] to be ... member[s] and to have the power to exercise any rights or powers of ... member[s]" ( LLC Law § 603 [a] [4]; see id. § 102 [q]; Matter of Jacobs v. Cartalemi , 156 AD3d 635, 639 [2d Dept 2017] [withdrawing member lacks standing to maintain derivative suit], lv denied 32 NY3d 903 [2018] ; see also 2010 Agreement, p. 8).
From this, defendants argue that "Smith and Dominelli ... lacked any power [to] perform under the operating agreement following their withdrawal" (Moving Mem., p. 8). Defendants further contend that "Smith and Dominelli were no longer parties to the operating agreement" after withdrawal, and they rely on the familiar proposition that plaintiffs may not maintain a breach of contract action against parties with whom they are not in privity (id. ).
Defendants also emphasize language in the 2010 Agreement that is said to evince the intention that Flink's shares be purchased by members of FSL. Thus, in the event that Smith, Domenelli and/or Coughlin declined to purchase a full one-third share of the firm, Flink was to "first offer his shares to [them] ... in such proportion that those of them who remain members will become equal shareholders to each other" (2010 Agreement, p. 5 [emphasis added] ). "In the event that one of these remaining present members declines to purchase a proportionate share, then the remaining member(s) may purchase the shares. Should the remaining present member(s) decline to purchase all of [Flink's] shares, [Flink] may offer said remaining shares to any subsequent member " (id. , pp. 5-6 [emphasis added] ).
b. Legal Principles
"It is often said that LLCs are ‘creatures of contract,’ and that ‘[o]ne attraction of the LLC form of entity is the statutory freedom granted to members to shape, by contract, their own approach to common business relationship problems’ " ( LNYC Loft, LLC v. Hudson Opportunity Fund I, LLC , 154 AD3d 109, 114 [1st Dept 2017], quoting Obeid v. Hogan , 2016 WL 3356851, *5, 2016 Del Ch LEXIS 86, *13 [June 10, 2016, C.A. No. 11900-VCL] ).
"Article IV of the New York Limited Liability Company Law makes clear that the operating agreement of an LLC governs the relationships among members and the powers and authority of the members and manager" (id. ). An operating agreement may include provisions "relating to (i) the business of the limited liability company, (ii) the conduct of its affairs and (iii) the rights, powers, preferences, limitations or responsibilities of its members, managers, employees or agents" ( LLC Law § 417 [a] ).
In interpreting the operating agreement, which is a contract made between and among Flink, Smith, Dominelli and Coughlin and signed by each of them, the Court must be "guided by basic principles of contract interpretation which instruct that a contract should be construed to give effect to the parties' intent as gleaned from the four corners of the document itself, provided that its terms are clear and unambiguous" ( Elmira Teachers' Assn. v. Elmira City School Dist. , 53 AD3d 757, 759 [3d Dept 2008], lv denied 11 NY3d 709 [2008] ). Contract language must be interpreted in accordance with the plain and ordinary meaning of the words used (see South Rd. Assoc., LLC v. International Bus. Machs. Corp. , 4 NY3d 272, 277 [2005] ; Elmira Teachers' Assn. , 53 AD3d at 759 ). "Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby" ( Atwater & Co. v. Panama R.R. Co. , 246 NY 519, 524 [1927] ).
Whether an agreement is ambiguous presents a question of law for the Court (see Consedine v. Portville Cent. School Dist. , 12 NY3d 286, 293 [2009] ). "An agreement is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion" ( Ellington v. EMI Music, Inc. , 24 NY3d 239, 244 [2014] [internal quotation marks and citations omitted] ). Ambiguity exists, however, "when specific language [in the contract] is ‘susceptible of two reasonable interpretations’ " (id. , quoting State of New York v. Home Indem. Co. , 66 NY2d 669, 671 [1985] ).
c. Analysis
The 2010 Agreement established a four-step process intended to result in the complete buy-out of Flink's interest in FSL by the end of 2018. First , by April 30, 2014, Flink was to sell a total of 24 shares to Dominelli, Coughlin and any new member(s) of FSL (see 2010 Agreement, p. 5). Second , from April 30, 2014 through April 30, 2018, Flink was to sell his remaining shares to members of the firm through a voluntary arrangement that allowed "those... who remain members [to] become equal shareholders to each other" (id. ). Third , the LLC was obliged to purchase any remaining shares that had not been purchased by "the other members" before December 31, 2018 (id. ). Finally , "in the event that the LLC is no longer an operating entity and the other members do not elect to purchase [Flink's] shares," Smith and Dominelli were to purchase the remaining shares (id. ).
Smith and Dominelli's withdrawal from the firm in May 2017 deprived them of the status of members, but it does not follow that they "lacked any power [to] perform under the operating agreement" (Moving Mem., p. 8 [emphasis added] ). There certainly may be duties in an LLC operating agreement that are capable of being performed only by present members, but defendants have not provided any authority to support their contention that "Smith and Dominelli must be members of FSL" for them "to be obligated to purchase Flink's remaining shares" (id. , p. 7). As admitted attorneys, Smith and Domenelli meet the only legal prerequisite to the purchase of Flink's shares (see LLC Law §§ 1203 [b]; 1211 [a] ).
Nor have defendants identified any legal impediment to the adoption of an LLC operating agreement that imposes continuing duties on former members, particularly where the duties relate to the purchase of shares as part of a comprehensive buy-out arrangement. While neither side has identified any relevant precedent concerning such a purchase obligation, the Court takes notice of the fact that LLC operating agreements often include provisions intended to be binding on former members, including covenants against competition and confidentiality provisions (see e.g. Niznick v. Sybron Can. Holdings, Inc. , 2018 NY Slip Op 31411[U], *4 [Sup Ct, NY County 2018] [construing operating agreement that prohibits former member from competition for five years following sale of his membership interest], affd as mod 172 AD3d 603 [1st Dept 2019] ; see also Touch of Italy Salumeria & Pasticceria, LLC v. Bascio , 2014 WL 108895, *8, 2014 Del Ch LEXIS 2, *30-31 [Jan. 13, 2014, C.A. No. 8602-VCG] ["There are undoubtedly sound business reasons to include ... covenants not to compete in or in connection with LLC (operating) agreements."] ).
In the absence of any identified legal bar to the inclusion in an operating agreement of a buy-sell provision binding on former members, the issue becomes one of intent: whether the parties to the 2010 Agreement intended Smith and Dominelli's obligation to purchase Flink's shares to survive the termination of their status as members of FSL.
Initially, the Court observes that the 2010 Agreement was signed by Smith and Dominelli in their personal capacities (see Transcript, p. 19), and the contractual duty at issue expressly was imposed upon them by name and without reference to membership status (cf. Grants Pass Imaging & Diagnostic Ctr., LLC v. Marchini , 270 Ore App 127, 139 [2015] ).
Further, there is nothing in the text of the 2010 Agreement that relieved Smith and Dominelli of the purchase obligation in the event of withdrawal. The absence of such language is notable, given the references in the 2010 Agreement to those "who remain members" and "remaining present members" in connection with the second step of the buy-out process, during which Flink was to sell his shares to the other FSL members on a consensual basis until April 30, 2018 (see 2010 Agreement, pp. 5-6).
Moreover, when the pertinent language of the 2010 Agreement is read "in the light of the obligation as a whole and the intention of the parties as manifested thereby" ( Atwater & Co. , 246 NY at 524 ), there is good reason to believe that Smith and Dominelli's withdrawal from FSL was not intended to relieve them of their obligation to purchase Flink's remaining shares if the firm no longer was operating.
The fourth and final step of the buy-out process addresses the contingency where the remaining members of FSL elected not to purchase all of Flink's shares and FSL cannot purchase the shares because it "is no longer an operating entity" (2010 Agreement, p. 5). Thus, in executing the 2010 Agreement, Smith and Dominelli agreed that, under some set of circumstances, they would pay $10,000 per share to Flink in 2018 for his interest in a law firm that no longer was engaged in rendering legal services to clients.
Indeed, by defendants' lights, this purchase obligation would arise only if FSL were incapable of operating (see Transcript, 13-24).
Viewed in this light, it is difficult to understand Smith and Dominelli's promise as anything other than a form of financial security for Flink — an assurance that all of his shares in FSL would be purchased by the end of 2018, whether by the members of FSL, the company itself, or, as a last resort, Smith and Dominelli. And if this was, in fact, the objective of the contracting parties, it is not reasonable to believe that Smith and Dominelli could avoid the obligation by the mere expedient of withdrawing from FSL prior to April 30, 2018.
At oral argument, defendants declined to proffer a competing rationale for the inclusion of this provision in the buy-out process (see Transcript, pp. 24-26).
Based on the foregoing, the Court concludes that defendants have failed to conclusively establish that Smith and Dominelli's withdrawal from FSL relieved them of their alleged duty to purchase Flink's remaining shares "in the event that the LLC is no longer an operating entity and the other members do not elect to purchase the shares" (2010 Agreement, p. 5).
4. The Email
In his March 12, 2017 email to Smith and Dominelli, Flink proposed a face-to-face meeting to discuss issues pertaining to the withdrawal. In that connection, Flink asked that they review his "January resolutions for possible consideration .... Some may not now be applicable (eg., tabling further discussion on the buy-out so as to focus on working together through the end of the 2010 agreement, in the hope that we could still find accommodation, which was rendered moot by [the] withdrawal)" (Higgs Aff., Ex. D).
Contrary to plaintiffs' contention, an email qualifies as documentary evidence for purposes of a motion to dismiss under CPLR 3211 (a) (1) (see Kolchins v. Evolution Markets, Inc. , 128 AD3d 47, 58 [1st Dept 2015], affd 31 NY3d 100 [2018] ), provided it is "unambiguous and of undisputed authenticity" ( Calhoun v. Midrox Ins. Co. , 165 AD3d 1450, 1450 [3d Dept 2018] [internal quotation marks and citations omitted]; cf. Opp. Mem., pp. 10-11).
Kolchins , the leading case on point, holds that emails constitute documentary evidence, provided their content is essentially undeniable (see 128 AD3d at 58 ["reject(ing) Supreme Court's conclusion that correspondence such as the emails here do not suffice as documentary evidence for purposes of CPLR 3211 (a) (1)," noting that "there is no blanket rule by which email is to be excluded from consideration as documentary evidence under the statute"] ). The Court of Appeals, while not expressly addressing this procedural point upon its review (see 31 NY3d at 105 n 3 ), considered email correspondence and ruled that the defendant failed to demonstrate that the proffered documentary evidence conclusively refuted the plaintiff's allegations that a contract had been formed (see Siegel & Connors, NY Prac § 259 [6th ed 2019] ). And while the Second Department "has continued to hold that ‘... emails ... fail to meet the requirements for documentary evidence’ " (id. , citing First Choice Plumbing Corp. v. Miller Law Offs., PLLC , 164 AD3d 756, 758 [2d Dept 2018], lv dismissed 33 NY3d 1007 [2019] ), the weight of appellate authority appears to point in a different direction (see Kolchins , 128 AD3d at 58 ; see also Liberty Affordable Hous., Inc. v. Maple Ct. Apts. , 125 AD3d 85, 92-93 [4th Dept 2015] [relying on email as documentary evidence to refute plaintiff's claim of specific performance] ).
Nor is there merit to plaintiffs' contention that the subject email is inadmissible because it related to "ongoing settlement efforts" (Opp. Mem., p. 11; see CPLR 4547 ). As observed by defendants, the email states plaintiffs' position without proffering an offer to settle or compromise any claim. Indeed, it appears that plaintiffs were not aware of any claim against defendants at the time the email was sent (see Transcript, p. 38). Thus, the email represents "predispute communication[ ] which [is] outside the scope of CPLR 4547" ( Alternatives Fed. Credit Union v. Olbios, LLC , 14 AD3d 779, 781 [3d Dept 2005] ).
Nonetheless, the Court concludes that the email does not utterly refute plaintiffs' claim or conclusively establish a defense as a matter of law (see Kolchins , 31 NY3d at 108 ). Flink's statement was made in reference to his "January resolutions," but these resolutions are not part of the record. And insofar as the email refers to the "buy-out" having been "rendered moot," it is unclear exactly what aspects of the buy-out process are being discussed. As discussed previously, the buy-out process consisted of four steps, and the parties were, at the time of Flink's email, involved in the second step, during which the members of FSL had the option of purchasing Flink's remaining shares by April 30, 2018. Finally, and in any event, even if the email does speak directly to the issues before the Court, it merely is an extrajudicial admission, which is not conclusively binding on Flink (see Gangi v. Fradus , 227 NY 452, 457-458 [1920] ).
In the absence of any other members of FSL, the second step of the buy-out process would, in fact, be rendered moot.
5. Conclusion
Based on the foregoing, defendants have failed to demonstrate their entitlement to dismissal of the first cause of action.
In this connection, the Court notes that any allegations in the Complaint pertaining to Smith and Dominelli's alleged conspiracy to "collapse FSL and redirect its business to SDG" (id. , ¶ 64; see Opp. Mem., p. 6) may be relevant to plaintiffs' other claims (see e.g. Cohen & Lombardo, P.C. v. Connors , 169 AD3d 1399, 1402 [4th Dept 2019] ), but not to the breach of contract claim. As plaintiffs recognized at oral argument, the collapsing/diversion allegations sound primarily in breach of fiduciary duty (see Transcript, pp. 38-41). And to the extent that the allegation is premised on a breach of the non-compete clause of the 2010 Agreement (see 2010 Agreement, pp. 8-10), it fails as a matter of law (see Rules of Professional Conduct [22 NYCRR 1200.0 ] rule 5.6 [a] [1]; see also Denburg v. Parker Chapin Flattau & Klimpl , 82 NY2d 375, 380 [1993] [addressing predecessor rule] ).
B. Breach of Fiduciary Duty
The third cause of action alleges that Smith and Dominelli breached fiduciary duties owed to Flink "by committing misconduct. Their misconduct includes, but is not limited to, secretly forming a competing entity for the purposes of soliciting Flink's clients and diverting Flink's business opportunities and good will" (Complaint, ¶¶ 78-79). The alleged misconduct also is said to include the retention of FSL's tangible and intangible assets, the hiring of all but one of FSL's employees, and the false marketing of SDG to clients as a successor to FSL (see id. , ¶¶ 54-57). The fourth cause of action makes the same allegations on behalf of FSL (see id. , ¶¶ 83-84).
Defendants contend that the causes of action alleging breach of fiduciary duty must be dismissed for failure to plead the claims with the particularity required by CPLR 3016 (b). Defendants further argue that the limited facts alleged by plaintiffs in the Complaint fail to state a claim upon which relief may be granted.
"The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct" ( Rut v. Young Adult Inst., Inc. , 74 AD3d 776, 777 [2d Dept 2010] [citation omitted] ).
"A cause of action sounding in breach of fiduciary duty must be pleaded with the particularity required by CPLR 3016 (b)" ( Palmetto Partners, L.P. v. AJW Qualified Partners, LLC , 83 AD3d 804, 808 [2d Dept 2011] [citations omitted] ). CPLR 3016 (b) requires that "the circumstances constituting the wrong shall be stated in detail." This requirement is met when the complaint puts defendants on notice of the incidents complained of, and the material facts alleged in the complaint, in light of the surrounding circumstances, are sufficient to permit a reasonable inference of the alleged misconduct (see Goel v. Ramachandran , 111 AD3d 783, 792-793 [2d Dept 2013] ).
In arguing that the Complaint alleges viable claims for breach of fiduciary duty, plaintiffs assert that "Smith and Dominelli's withdrawal was not effective until three months after the date of their notice," and "[p]laintiffs have therefore alleged that [they] engaged in the surreptitious pre-withdrawal solicitation of FSL clients and employees" (Opp. Mem., p. 13). According to plaintiffs, Smith and Dominelli's acts "exceed[ ] what is necessary to protest the important value of client freedom of choice, and thoroughly undermine[ ] another important value — the loyalty of partners (including law partners)" ( Graubard Mollen Dannett & Horowitz v. Moskovitz , 86 NY2d 112, 118 [1995] ).
Defendants respond that the Graubard case emphasized by plaintiffs actually supports dismissal of the breach-of-duty claims. Specifically, defendants cite the language in Graubard recognizing that, "where an attorney is dissatisfied with the existing association, taking steps to locate alternative space and affiliations would not violate a partner's fiduciary duties" ( id. , at 120 ). Defendants also highlight the Court of Appeals' recognition that "departing partners have been permitted to inform firm clients with whom they have a prior professional relationship about their impending withdrawal and new practice, and to remind the client of its freedom to retain counsel of its choice" (id. ).
Conversely, "secretly attempting to lure firm clients ... to the new association, lying to clients about their rights with respect to the choice of counsel, lying to partners about plans to leave, and abandoning the firm on short notice (taking clients and files) would not be consistent with a partner's fiduciary duties" (id. at 120-121; see also Don Buchwald & Assoc., Inc. v. Marber-Rich , 11 AD3d 277, 278 [1st Dept 2004] ).
Thus, defendants argue that Smith and Dominelli's formation of SDG in or about December 2016 did not constitute a breach of fiduciary duty (see id. ). Defendants further assert that plaintiffs have conceded that SDG did not commence operations until after Smith and Dominelli's withdrawal from FSL became effective (see NYSCEF Doc No. 20 ["Reply Mem."], p. 5, citing Complaint, ¶¶ 52-54).
The competing arguments of the parties regarding the legal sufficiency of the allegations supporting the claims for breach of fiduciary duty highlight a fundamental problem with the Complaint: it fails to plead with sufficient particularity whether Smith and Dominelli are alleged to have engaged in wrongful conduct prior to the date upon which their withdrawal from FSL became effective.
Plaintiffs do allege that Smith and Dominelli formed a new firm, SDG, in or about December 2016 (see Complaint, ¶ 51), but the mere formation of a competing business entity does not constitute a breach of fiduciary duty (see Graubard , 86 NY2d at 120 ), and there are no allegations in the Complaint that defendants made "improper use of [FSL's] time, facilities or proprietary secrets in [forming SDG]" ( Schneider Leasing Plus v. Stallone , 172 AD2d 739, 741 [2d Dept 1991], lv dismissed 78 NY2d 1043 [1991] ; cf. Don Buchwald , 11 AD3d at 278 ).
In terms of the alleged diversion of FSL's clients and assets, which is at the heart of the claims, plaintiffs allege that, "in February 2017 ..., Smith and Dominelli, in a concerted plan, simultaneously ‘withdrew’ from FSL and immediately diverted nearly all of its business to SDG" (Complaint, ¶ 6 [emphasis added] ). However, subsequent paragraphs of the Complaint indicate that the hiring of FSL's employees, the appropriation of FSL's assets and the false marketing of SDG as the successor to FSL all began ninety (90) days later, after Smith and Dominelli's withdrawal became effective and they actually left the firm (see id. , ¶ 54 ["FSL consequently ceased to be an operating entity once Smith and Dominelli ‘departed’ the firm, (d)efendants having hired all of FSL's employees except for (one)"]; id. , ¶ 55 ["At that time, SDG commenced operations as a new law firm, with Smith and Dominelli marketing themselves as its founding members, purportedly as a successor of FSL"]; id. , ¶ 56 "[ (A)t that time, Smith and Dominelli barred Flink from work at the former FSL offices that they continued to occupy, now as SDG"] ).Given plaintiffs' failure to clearly articulate whether they are alleging that Smith and Dominelli engaged in wrongful conduct before their withdrawal from FSL became effective (see Graubard , 86 NY2d at 120 ; cf. Lohen & Lombardo , 169 AD3d at 1400-1401 ), the Court concludes that the third and fourth causes of action have not been pleaded with sufficient particularity to put defendants on notice of the incidents complained of and permit a reasonable inference of misconduct (see Goel , 111 AD3d at 792-793 ).
It bears emphasis that Flink did not submit an affidavit to remedy any pleading deficiencies (cf. Rovello v. Orofino Realty Co. , 40 NY2d 633, 636 [1976] ), relying exclusively on the arguments of his counsel.
Accordingly, plaintiffs' third and fourth causes of action must be dismissed.
C. Tortious Interference with Contract
The fifth cause of action alleges that SDG tortiously interfered with plaintiffs' contractual rights under the 2010 Agreement.
"The elements of a cause of action for tortious interference with contract are (1) a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional procurement of the third party's breach of that contract; and (4) damages" ( Iacono v. Pilavas , 125 AD3d 811, 812 [2d Dept 2015] [citation omitted], lv denied 25 NY3d 909 [2015] ; see Abele Tractor & Equip. Co., Inc. v. Schaeffer , 167 AD3d 1256, 1258 [3d Dept 2018] ). "The plaintiff must specifically allege that the contract would not have been breached but for the defendant's conduct. Although on a motion to dismiss the allegations in a complaint should be construed liberally, to avoid dismissal of a tortious interference with contract claim a plaintiff must support his [or her] claim with more than mere speculation" ( Ferrandino & Son, Inc. v. Wheaton Bldrs., Inc., LLC , 82 AD3d 1035, 1036 [2d Dept 2011] [internal quotation marks and citations omitted] ).
The Court concludes that the tortious interference claim fails for several independent reasons.
First, the claimed misconduct of SDG — "providing Smith and Dominelli with office space, reference materials, marketing opportunities and other resources used for the solicitation of [plaintiffs'] clients and the diversion of [plaintiffs'] business opportunities and client good will" (Complaint, ¶ 92) — relates primarily to the (dismissed) claims for breach of fiduciary duty. Plaintiffs' contractual claim principally seeks to enforce the provision of the 2010 Agreement allegedly requiring Smith and Dominelli to purchase Flink's remaining shares of FSL.
Second, it appears from the Complaint that SDG's alleged misconduct did not begin until after Smith and Dominelli already had withdrawn from FSL (see id. , ¶¶ 52-55).
Finally, and in any event, plaintiffs have not plausibly alleged that SDG intentionally procured Smith and Dominelli's alleged breaches of contract. Reading the allegations of the Complaint as a whole, it is apparent that SDG did not cause Smith and Domenilli to "conspire" to collapse FSL and divert its business and assets to a new entity; rather, SDG is the new entity allegedly created by Smith and Dominelli as a vehicle for implementing their alleged "conspiracy."
Accordingly, the fifth cause of action must be dismissed.
D. Aiding and Abetting Breach of Fiduciary Duty
Given that plaintiffs' claims for breach of fiduciary duty against Smith and Dominelli fail for pleading insufficiency (see part B, supra ), the sixth cause of action against SDG for aiding and abetting a breach of fiduciary duty must likewise be dismissed (see Fiala v. Metro. Life Ins. Co. , 6 AD3d 320, 323 [1st Dept 2004] ; see also State of NY Workers' Compensation Bd. v. Wang , 147 AD3d 104, 119 [3d Dept 2017] ; cf. Schneider Leasing , 172 AD2d at 741 ).
E. Accounting
The seventh cause of action seeks an accounting of FSL escrow accounts that allegedly "were opened and managed solely by Smith and/or Dominelli, who alone have the knowledge, information and duty to account for and distribute" these accounts (Complaint, ¶ 105).
In moving for dismissal, defendants rely upon the representation of plaintiffs' counsel, made to the Court at a June 20, 2019 conference, that Flink "has access and control over the [FSL] accounts" (Higgs Aff., Ex. E). Defendants also submit a letter from M & T Bank, addressed to Smith and Dominelli, setting forth all former accounts belonging to FSL and the specific "dates that Ed Flink requested the removal of [Smith's and Dominelli's] signatory authority and online access" (id. , Ex. F).
In their opposition papers, plaintiffs acknowledge that they "do, in fact, control the accounts," but insist that they need "the corresponding financial records that define to whom and in what amounts these accounts should be distributed" — information that is said to be in "[d]efendants' possession" (Opp. Mem., p. 18).
The Court concludes that defendants have failed to demonstrate their entitlement to dismissal of the accounting claim. While Smith and Dominelli no longer have signatory authority over, or online access to, FSL's accounts, they are alleged to have had access to the accounts at relevant times, and there has been no conclusive demonstration that they do not possess documents or other relevant information concerning receipts and disbursements therefrom.
CONCLUSION
Based on the foregoing, it is
ORDERED that defendants' motion to dismiss is granted to the extent that the third, fourth, fifth and sixth causes of action are dismissed, and the motion is denied as to the first and seventh causes of action; and it is further
ORDERED that defendants shall serve an answer to plaintiffs' verified complaint within twenty (20) days from the date of this Decision & Order; and finally it is
ORDERED that the parties shall appear before the undersigned for a preliminary conference on March 10, 2020 at 10:00 a.m. Prior to the conference, counsel shall confer regarding the matters set forth in Commercial Division Rule 8, as well as the use of alternative dispute resolution, such as mediation, to bring about an early resolution of this action.
This constitutes the Decision & Order of the Court, the original of which is being uploaded to NYSCEF for electronic entry by the Albany County Clerk. Upon such entry, counsel for defendants shall promptly serve notice of entry on plaintiffs and all other parties entitled to notice.