Opinion
INDEX NO. 153620/2020
05-04-2021
FTF LENDING, LLC, Plaintiff, v. MAVIRIDES MOYAL PACKMAN & SADKIN, LLP and MATTHEW WEINBERGER, Defendants. MAVIRIDES MOYAL PACKMAN & SADKIN, LLP and MATTHEW WEINBERGER, Third-Party Plaintiffs, v. ROBERT THONY LAW, PLLC, and ROBERT THONY. Third-Party Defendants.
NYSCEF DOC. NO. 42 PRESENT: HON. MARGARET A. CHAN Justice MOTION DATE __________ MOTION SEQ. NO. 001 &002
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document numbers 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40 were read on these motions to DISMISS.
In this action arising out of defendants' legal representation of plaintiff FTF Lending, LLC ("FTF") in connection with a loan transaction, third-party defendants Robert Thony Law, PLLC ("the Thony firm") and Robert Thony (collectively "third-party defendants" or "Thony") move pursuant to CPLR 3211(a)(7) for an order dismissing the third-party complaint with prejudice for failure to state a claim and for related relief (motion sequence 001). Defendants/third-party plaintiffs Mavirides Moyal Packman & Sadkin, LLP ("the MMPS firm") and Matthew Weinberger ("Weinberger") (collectively "defendants" or "MMPS") oppose the motion and separately move for an order (i) pursuant to CPLR 3211(a)(7) dismissing the complaint for failure to state a claim; (ii) dismissing the causes of action for breach of contract, negligence and disgorgement of fees as duplicative of the legal malpractice claim; and (iii) dismissing the complaint against Weinberger (motion sequence 002). FTF opposes the motion and reserves the right to seek to amend the complaint.
Motion sequences nos. 001 and 002 are consolidated for disposition.
Unless otherwise noted, the following facts are based on the allegations of the verified complaint (NYSCEF #1). FTF is a real estate and financial services company that provides short-term capital to real estate developers and investors who purchase and renovate residential properties (id., ¶ 7). On or about May 30, 2018, FTF retained MMPS, which held itself out as "experts in real estate financing," to represent FTF in loan transaction with 2330 Dutch and 2330 Dutch's sole member Dwayne A. Samuels ("Samuels") (id., ¶'s 8, 9). Weinberg is an associate at MMPS, who practices in MMPS's commercial real estate practice group (id., ¶ 3).
On or about May 26, 2018, FTF and Samuels executed a Term Sheet, which contemplated FTF providing a to-be named entity owned by Samuels a $375,000 loan related to first mortgage financing for 2330 Dutch Broadway, Elmont, New York 11003 (the "Property") (id, ¶ 12). As part of the transaction, FTF required, inter alia, that the Property be transferred from Samuels to 2330 Dutch, a title insurance policy be secured, a closing protection letter, and a first mortgage lien on the Property (id, ¶ 15). On May 30, 2018, MMPS sent a check list of these requirements to counsel for Samuels and 2330 Dutch, Robert Thony (id., ¶ 14). On June 8, 2018, Thony sent MMPS a copy of an unmarked and marked up purported title reports purportedly prepared by Fidelity National Title Insurance Company ("Fidelity") and a purported closing protection letter (id., ¶¶16, 17). Both the marked and unmarked purported title reports contained a purported deed falsely evidencing the transfer of the Property by Samuels to 2330 Dutch (id., ¶ 18).
Defendants scheduled the loan to close on June 12, 2018, and, at that time, on advice of defendants, FTF entered into a certain loan with 2330 Dutch in the amount of $375,000 (id., ¶ 19). In connection with the loan, 2330 Dutch also executed a certain Mortgage and Security Agreement, and Samuels executed a guaranty, which guaranteed all of 2330 Dutch's obligations under the loan (id., 20).
Neither 2330 Dutch nor Samuels ever made payments and, as a result, FTF sought to foreclose on the Property (id., ¶ 25). After conducting a title search, on or about June 30, 2019, FTF discovered that the unmarked purported title report and marked up purported title report provided by Thony to MMPS were entirely fraudulent; that the Property was encumbered by numerous liens, judgments and the subject of a pending foreclosure proceeding; that the Property was never transferred to 2330 Dutch; that the "recorded" mortgage provided by Thony was not actually recorded in the Nassau County Clerk's Office; and that title insurance policy with Fidelity was fraudulent and title insurance was never secured (id., ¶'s 27-33).
On May 29, 2020, FTF commenced this action by filing a summons and verified complaint asserting claims for legal malpractice, breach of contract, negligence, and disgorgement/restitution (id.). The legal malpractice, breach of contract claim, and negligence claims all seek to recover as damages the $375,000 loaned to 2330 Dutch, while the disgorgement/restitution claim seeks to recover the attorneys' fees paid to MMPS for its representation of FTF in the loan transaction.
On July 31, 2020, defendants answered the complaint (NYSCEF # 8) and filed a third-party action against the third-party defendants, asserting claims for fraud, common law indemnification and contribution (NYSCEF # 9). In particular, the third-party complaint alleges that if "[t]hird-party plaintiffs are held liable for any portion of damages, which they deny, those damages were caused by the fraudulent and/or negligent acts or omissions of the [t]hird-party defendants" (id., at ¶ 24).
The third-party defendants now move to dismiss the third-party complaint for failure to state a cause of action and defendants separately move to dismiss the main action for failure to state a claim.
Defendants' motion
Defendants argue that the complaint does not state a claim for legal malpractice, that the remaining claims must be dismissed as duplicative of the malpractice claim, and that there is no viable claim against Weinberger individually as any alleged wrongdoing by him was within the scope of his employment as an attorney for MMPS.
With regard to the legal malpractice claim, defendants argue that MMPS did not owe FTF a duty to investigate whether Samuels engaged in fraud and, in any event, the complaint does not allege that any documents were fraudulent on their face. In this connection, defendants assert that the complaint fails to allege that they had any role in investigating and approving Samuels as a guarantor since FTF was the party responsible for performing due diligence and conducting a background check on Samuels. Defendants further argue that the complaint insufficiently alleges proximate cause since any damages resulted from Samuels' default on his guaranty of the loan was the result of FTF's failure to properly investigate Samuels.
In support of their motion, defendants submit the affidavit of Scott Packman, who is a member of MMPS (NYSCEF # 28). Packman states that "[t]he scope of FTF's engagement of [MMPS] was to provide services as a Loan Closer after FTF conducted due diligence regarding the borrower and authorized the loan to proceed to closing... [and that] [MMPS] had no authority to and played no part in vetting, investigating or approving the borrower for FTF performed its own part in the due diligence" (NYSCEF # 28, ¶'s 11, 12). In this connection, Packman states that at the time that the MMPS firm was retained, FTF sent the firm the Term Sheet prepared by FTF providing the terms and the provisions of the loan which was executed by Samuels and an authorized representative of FTF, which Term Sheet requires FTF to perform "due diligence before a closing can occur" and authorizes FTF to obtain a Consumer Credit Report and/or Background Report on Samuels (NYSCEF # 30 at 3-8). As evidence that FTF failed to properly investigate Samuels and perform due diligence, defendants submit two newspaper articles, from 2003 and 2005, indicating that Samuels pleaded guilty to health care fraud in 2000 (NYSCEF # 26), and the results of a search of Unified Court System website indicating that Samuels was named as a defendant in six foreclosure actions between 2000 and 2017 (NYSCEF # 25).
As for the information provided to MMPS from Thony and, in particular, the title reports and closing protection letter, Packman states that "[t]he information and documentation Thony provided to [MMPS] came from an attorney admitted to practice law in the State of New York, gave the appearance of an ordinary real estate closing transaction, and provided no reason to suspect a fraudulent transaction on the part of a third-party borrower" (NYSCEF # 28, ¶'s 14, 15).
FTF opposes the motion, arguing that with respect to the legal malpractice claim, the complaint sufficiently alleges that MMPS failed to adhere to the standard of care of representing FTF's interests by failing to perform routine legal task, including reviewing the title reports and various closing documents, and confirming that 2330 Dutch actually owed the Property. Specifically, as alleged in the complaint, before the closing, defendants obtained a copy of an unmarked and marked-up purported title report. The reports contained a copy of the purported deed, which revealed inaccuracies that defendants, as real estate finance attorneys, should have discovered. In support, FTF notes that the deeds which are attached to the complaint (NYSCEF #1, Exhibits A, B) reveal various inaccuracies including conflicting liber and page numbers and conflicting control numbers.
As for causation, FTF argues that the complaint adequately alleges defendants' conduct caused a pecuniary injury to FTF, and that it is premature to determine if the loss was solely caused by FTF's failure to exercise due diligence. As for Weinberger, FTF argues that an attorney may be held individually liable for alleged acts of negligence committed personally by the attorney while employed by a law firm.
With regard to the breach of contract and fee disgorgement claim, plaintiff argues that they are not duplicative of the legal malpractice claim as they are based on distinct allegations and do not seek the same damages.
On a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference," and "determine only whether the facts as alleged fit into any cognizable legal theory" (Siegmund Strauss, Inc. v E. 149th Realty Corp., 104 AD3d 401, 403 [1st Dept 2013]). Significantly, "whether a plaintiff...can ultimately establish its allegations is not taken into consideration in determining a motion to dismiss" (Phillips S. Beach LLC v ZC Specialty Ins. Co., 55 AD3d 493, 497 [1st Dept 2008], lv denied 12 NY3d 713 [2009]). At the same time, "[i]n those circumstances where the legal conclusions and factual allegations are flatly contradicted by documentary evidence they are not presumed to be true or accorded every favorable inference'" (Morgenthow & Latham v Bank of New York Company, Inc., 305 AD2d 74, 78 [1st Dept 2003][internal citation and quotation omitted]). However, dismissal based on documentary evidence may result "only when it has been shown that a material fact as claimed by the pleader is not a fact at all and no significant dispute exists regarding it'"(Acquista v New York Life Ins. Co., 285 AD2d 73, 76 [1st Dept 2001]), quoting, Guggenheimer v. Ginzburg, 43 NY2d 268, 275 [1977]).
"[A]n action for legal malpractice requires proof of three elements: the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and proof of actual damages" (Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). Negligence is shown if a plaintiff can demonstrate that "the attorney failed to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession, and that this failure caused damages" (Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 140 [1st Dept ], lv denied 22 NY3d 855 [2013]).
Applying these principles, the court finds that FTF has sufficiently stated a claim for legal malpractice based on allegations that defendants breached their duty to FTF by not adequately reviewing the title report and various closing documents so as to ascertain that 2330 Dutch did not own the Property, and therefore caused damages to FTF. Moreover, defendants' assertion that they relied on Thony's status as an attorney does not provide grounds for dismissal based on the pleadings.
Additionally, contrary to defendants' argument, evidence that FTF was responsible for, and failed to exercise, due diligence, including in investigating Samuels, does not warrant the dismissal of the complaint for lack of causation. To survive a motion to dismiss under 3211(a)(7), "a pleading need only state allegations from which damages attributable to the defendant's conduct may be reasonably inferred" (Lappin v Greenberg, 34 AD3d 277, 279 [1st Dept 2006] [internal citations omitted]). And, at the pleading stage, a plaintiff "is not obligated to show...that it actually sustained damages" (Inkine Pharmaceutical Company, Inc. v Coleman, 305 AD2d 151, 152 [1st Dept 2003] [internal citation and quotation omitted]).
Here, the complaint sufficiently alleges that FTF's damages are attributable to defendants' failure to exercise the appropriate standard of care in examining the pre-closing documents. And, the cases relied on the defendants to argue lack of causation are inapposite as they were based on evidence refuting causation submitted in support of summary judgment (see e.g. Stolmeier v Fields, 280 AD2d 342, 343 [1st Dept], lv denied 96 NY2d 714 [2001] [granting summary judgment dismissing plaintiff contractor's legal malpractice claim against attorney based on attorney's alleged failure to advise him of the need for a license based on "overwhelming evidence, including [plaintiff's] own deposition testimony, that he was aware prior to the [subject] contract" of the licensing requirement]).
With regard to the claims against Weinberger, as the complaint sufficiently alleges acts of malpractice committed by him personally, dismissal of these claims is not warranted (Lauder v Goldhammer, 122 AD3d 908, 910 [2014] [allegations that partner in law firm personally committed negligent acts were sufficient to state a claim against the partner individually]; Scarborough v Napoli, Kaiser & Bern, LLP, 63 AD3d 1531, 1532 [4th Dept 2009] [defendants' status as associates in a law firm did not shield them from potential liability based on allegations that they committed acts of negligence]).
The remaining issues on the motion concern whether defendants are entitled to dismissal of the claims for breach of contract, negligence, and disgorgement/restitution of fees. Here, as the breach of contract and negligence claims arise out of the same facts and do not involve distinct damage from the legal malpractice claim, these claims must be dismissed as duplicative (Lusk v Weinstein, 85 AD3d 445 [1st Dept], lv denied 17 NY3d 709 [2011]). As for the claim for disgorgement or restitution of the attorneys' fees, while this claim seeks damages distinct from those sought in connection with the alleged legal malpractice, it must be dismissed as such a claim cannot be asserted in the in absence of allegations of fraud or divided loyalty or self-dealing by the defendant attorney (compare Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 12 [1st Dept 2008] [recoupment of an attorney's fee may be proper where attorney breaches a duty of undivided loyalty owed to client]; see generally, Excelsior 57th Corp. v Lerner, 160 AD2d 407, 408-409 [1st Dept 1990]).
Accordingly, the defendants' motion is granted to the extent of dismissing the claims for breach of contract, negligence and disgorgement/restitution of fees.
As for FTF's request for leave to amend, the court notes that dismissal of an action for failure to state a claim based on pleading deficiencies does not generally have a preclusive effect (see Komolov v Segal, 96 AD3d 513, 513 [1st Dept 2012).
Third-party defendants' motion
The third-party defendants argue that the third-party complaint must be dismissed for failure to state a cause of action. With regard to the indemnification claim, third-party defendants argue that to have a claim for indemnification MMPS's liability would have to be purely vicarious and not based on MMPS's negligence as alleged in the main action. In addition, third-party defendants argue that MMPS cannot assert an actionable claim for indemnification or contribution against them since, as the attorneys on the opposite side of a loan transaction, they owed no duty of care to FTF or to MMPS nor were they in privity with MMPS. They also argue that contribution fails as the damages sought by third-party plaintiffs are for purely economic losses resulting from the underlying loan transaction. As for the fraud claim, third-party defendants argue that it must be dismissed as duplicative of the claims for indemnification and contribution.
MMPS opposes the motion, arguing under New York law, an attorney may be held liable to third-parties for actions taken in furtherance of his role as counsel where there is proof of "fraud, collision, malice or bad faith" (citing Joel v Weber, 197 AD2d 396 [1st Dept 1993]) and that the third-party complaint contains specific allegations of fraud and misrepresentation, which are sufficient to state a claim. As for contribution and indemnification claims, MMPS argues that the allegations of fraud provide a sufficient basis for such claims.
CPLR 1007 permits a defendant to bring an action "against 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." The main purpose of third-party practice is "the avoidance of multiplicity and circuity of action, and the determination of the primary liability as well as the ultimate liability in one proceeding, whenever convenient" (Gross v De Meglio, 143 AD2d 609 [1st Dept 1988] [internal quotations and citations omitted]). The statute "places no limit ... upon the legal theories which may be asserted as a basis for the claim" (George Cohen Agency v Donald S. Perlman Agency, 51 NY2d 358, 365 [1980]). And, "the third-party complaint may be based on a theory of liability different from and independent of the cause of action pleaded against the primary defendant" (J.P Morgan Chase Bank, N.A. v Strands Hair Studio, 84 AD3d 1173 [2d Dept 2011] [internal citations and quotations omitted]). Additionally, "impleader is available even if the impleaded party owes no duty whatsoever to the primary plaintiff" (Gross v DeMeglio, 143 AD2d 609, 610 [1st Dept 1988], citing Garrett v Holiday Inns, 58 NY2d 253 [1983]). At the same time, however, liability under CPLR 1007 requires that the third-party defendant's liability arise from "the liability asserted against the third-party plaintiff in the main action" (BBIG Realty Corp v Ginsberg, 111 AD2d 91, 93 [1st Dept 1985]; see also Fid. Nat. Tit. Ins. Co. v Altshuler Shaham Provident Funds Ltd, 120 AD3d 1135 [1st Dept 2014]).
Applying these principles, the court finds that the third-party complaint states a cause of action as the third-party defendants may be liable for all or part of MMPS's liability to FTF for legal malpractice based on allegations that Thony provided MMPS with fraudulent closing documents which resulted in the underlying transaction being completed (CPLR 1007; see e.g. George Cohen Agency, 51 NY2d at 361-362 [permitting defendants who were sued by plaintiff in main action for defaulting on promissory notes used to purchase insurance portfolio to implead two non-parties for their role in "knowingly inducing [defendants] to purchase the worthless package of insurance business"]).
And, contrary to third-party defendants' argument, as noted above, third-party liability does not require a showing that the impleaded party owes a duty to the plaintiff, in this case, FTF (Gross, 143 AD2d at 610). As for the third-party defendants' argument that contribution is unavailable as the damages sought in the main action are for "purely economic loss," this argument is unavailing as the main action does not seek benefit-of-the-bargain type contractual losses but, rather, damages arising out of defendants' professional malpractice (Tower Building Restoration, Inc. v 20 East 9th Apartment Corp., 295 AD2d 229 [1st Dept 2002]; compare Children's Corner Learning Center v A. Miranda Contracting Corp., 64 AD3d 318 [1st Dept 2009]). Next, insofar as the third-party defendants assert that the fraud and contribution claims are duplicative, at this stage of the litigation, the court finds that it is premature to dismiss these claims which are based on alternative theories of liability (George Cohen Agency, 51 NY2d at 366 [noting that third-party complaint may plead claims in the alternative]).
That said, however, the court finds that the third-party complaint is insufficient to state a claim for common law indemnification. It is well established that "since the predicate of common law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, it follows that the party who has itself participated to some degree in the wrongdoing cannot receive the benefit of the doctrine" (Trustee of Columbia Univ. v Mitchell/Giurgolas Assoc, 109 AD2d 449, 453 [1985]; see e.g. Richards Plumbing and Heating Co., Inc. v Washington Group Int'l, 59 AD3d 311, 312 [1st Dept 2009] [dismissing construction manager's third-party claim for common law indemnity against architect where underlying action asserted claim of breach of contract by construction manager and not vicarious liability solely attributable to architect]) Here, the third-party complaint does not state a claim for common law indemnification since to the extent MMPS is found liable to FTF for malpractice, its liability would not be vicarious, and there would be no basis for shifting its entire liability to the third-party defendants. (Trump Vill. Section 3, Inc. v N.Y. State Hous. Fin. Agency, 307 AD2d 891, 896 [1st Dept 2003] [cross claims for indemnification should have been dismissed since any liability of defendants asserting the cross claims would be based on their own wrongdoing]).
Conclusion
In view of the above, it is
ORDERED that the motion to dismiss by third-party defendants Robert Thony Law, PLLC and Robert Thony (motion sequence no. 001) is granted only to the extent of dismissing the third-party claim for common law indemnification; and it is further
ORDERED that the third-party defendants shall answer the third-party complaint within 20 days of entry of this Decision and Order; and it is further
ORDERED that the motion to dismiss by Mavirides Moyal Packman & Sadkin, LLP and Matthew Weinberger (motion sequence 002) is granted to the extent of dismissing the causes of action for breach of contract, negligence and disgorgement/restitution; and it is further
ORDERED that a preliminary conference shall be held by telephone on July 12, 2021 at 11:00 am with the call-information to be provided by the court prior to the conference. 5/4/21
DATE
/s/ _________
MARGARET A. CHAN, J.S.C.