Opinion
Index No.: 154898/2013
02-11-2016
CYNTHIA O'NEAL, in her individual capacity and derivatively, on behalf of THE GOOD SERVICE COMPANY, INC., d/b/a O'NEALS' RESTAURANT Plaintiffs, v. MUCHNICK GOLIEB & GOLIEB, P.C., HOWARD W. MUCHNICK, ESQ., and REMKO DeJONG, ESQ., Defendants.
Motion Seq.: 003
DECISION & ORDER HON. SHLOMO S. HAGLER, J.S.C. :
Defendants Muchnick, Golieb & Golieb, P.C. ("Muchnick Firm"), Howard W. Muchnick, Esq. ("Muchnick"), and Remko deJong ("deJong") (collectively "defendants") move to dismiss the entire complaint pursuant to CPLR §§ 3211(a)(1) and (7). Plaintiff opposes the motion.
FACTUAL BACKGROUND
The factual information in this decision is based on the facts as alleged by the plaintiff in its Amended Complaint, except as noted, as is required on a motion to dismiss pursuant to CPLR §3211.
Plaintiff Cynthia O'Neal ("plaintiff" or "O'Neal"), is the widow of Patrick O'Neal, who co-founded the O'Neals' family of restaurants in 1964. They first operated The Ginger Man Restaurant at 51 West 64th Street, New York, New York, and afterwards, O'Neals (the "Restaurant") at 49 West 64th Street, New York, New York (the "Premises"), until it's closing on June 28, 2010. Plaintiff James Enzel ("Enzel") and Christine O'Neal ("Christine") were the sole shareholders of The Good Service Company, Inc. ("Good Service" or the "Corporation"), which owned the Restaurant. Plaintiff was at all times a passive shareholder and took no active managerial role in either the Restaurant or the Corporation.
Beginning at or about' February 2008, Enzel, as president of Good Service, retained the Muchnick Firm to provide legal representation to the Corporation in various matters. Defendants represented Good Service in connection with trademark licensor, modifications to financing instruments, in negotiations with New York City for operation of an outdoor cafes, and in defending the Corporation in litigation in Supreme Court, New York County.
Defendants were also retained to represent Good Service and its shareholders in connection with the closing of the Restaurant and the workout of the related debts, which consisted mainly of the outstanding lease payments and a restaurant construction loan.
BR Guest Services ("BR"), whose principal Stephen P. Hanson ("Hanson") was also a client of the Muchnick Firm, agreed to take over the lease of the Premises. Defendants drafted a number of documents in connection with the transfer of the lease from the Good Service to BR. First, they drafted an "Agreement to Release Collateral" which was executed on May 7, 2010, by TD Bank and allowed BR to obtain the space, fixtures and equipment at the Restaurant for a payment of $200,000.00, which reduced Good Service's outstanding debt to TD Bank to $899,697.82. The debt emanated from a 2006 construction and operating loan from Commerce Bank, and Plaintiff was a guarantor of the loan.
Defendants also drafted a "Termination of Assignment of Tenant's Interest in Lease," executed on May 7, 2010 and the "Second Amended Lease Agreement," dated May 17, 2010. During the entire transfer, defendants represented both BR and Good Service.
Good Service vacated the Premises on June 28, 2010. BR began its tenancy on July 1, 2010, and thereafter opened Atlantic Grill Lincoln Center on August 1, 2010.
On July 30, 2010, BT64th Street, LLC ("BT 64"), the owner of the Premises, commenced an action against plaintiffs and Enzel to collect $878,149.42 in unpaid rent. O'Neal and Enzel retained the Muchnick Firm to defend them in the action, who in turn, arranged for the law firm of Borah, Goldstein, Altschuler, Nahins, Goidel, P.C. ("Borah Goldstein") to represent them in this matter. Borah Goldstein filed a Notice of Appearance but did not iterpose an answer. On January 19, 2011, BT 64 filed a motion for summary judgment, which was not opposed. O'Neal claims that she was never served with the complaint, and therefore had a "good and meritorious defense" to the action, which was not allegedly raised by defendants. Instead, BT64 obtained a $995,066.03 judgment against plaintiffs.
At a post judgment hearing on April 27,2011, the Muchnick Firm once again appeared on behalf of plaintiffs and entered into a so-ordered stipulation that day ("Stipulation"), which stated in part that "[d]fendants shall not . . . sell, transfer or otherwise dispose of any of their assets until the judgment in this action is satisfied." Amended Complaint ¶¶ 67-68, attached as Exhibit "A" to the Motion.
Following the entry of the Stipulation, defendants held a meeting with plaintiff, Enzel and Christine O'Neal. Plaintiff claims that at the meeting Muchnick advised her to immediately transfer all of her assets out of her name. Furthermore, she claims that she was not told about the Stipulation and Muchnick specifically advised her that such a transfer was legal and proper. O'Neal allegedly followed the defendants' advice and transferred some of her assets to her son.
On February 16, 2011, TD Bank filed a complaint in Supreme Court, New York County against plaintiff and her co-owners seeking damages in the amount of $899,697.82. Defendants filed an answer on March 29, 2011. On May 20, 2011, TD Bank filed a motion for summary judgment, which was submitted without opposition.
On June 6, 2011, defendants sent a letter to the attorneys for BT64 and TD Bank, advising them that plaintiff was the only shareholder that had any assets to satisfy the judgments against Good Service. The letter also noted that plaintiff transferred a securities account to her son, exposing her to prosecution for violating the so-ordered Stipulation dated April 27, 2011.
On July 11, 2011, plaintiff formally discharged defendants as her counsel. On December 15, 2011, plaintiff and her new counsel met with the other shareholders of Good Service and recommended that Good Service sever its ties with the Muchnick Firm and consider filing a lawsuit against them for their actions in connection with the Restaurant transfer and subsequent litigation. The other shareholders disagreed with plaintiff in this matter.
On December 19, 2011, plaintiff settled with BT64 for $100,000.00. On February 2, 2012, the Court granted TD Bank's motion for summary judgment. On June 26, 2012, an Order and Judgment was entered in favor of TD Bank in the amount of $927,697.82. On January 29, 2013, plaintiff settled with TD Bank for $162,500.00.
Causes of Action
Plaintiff's first cause of action is a derivative claim on behalf of Good Service against defendants for legal malpractice. Plaintiff alleges that defendants failed to exercise reasonable care and professional competence in its representation of Good Service. Specifically, plaintiff alleges that defendants failed to exercise professional independence and competence when it represented both sides of the transaction in the transfer of the Restaurant and its lease from Good Service to BR Guest Service without advising Good Service of the conflict of interest. Plaintiff claims that had defendants displayed professional independence and competence, the outstanding debts would have been extinguished. Plaintiff further claims that defendants also failed to exercise professional care and competence in defense of the BT64th Street and TD Bank collection actions. As a result, plaintiff claims that Good Service was damaged.
Plaintiff's second cause of action is that as a result of defendants malpractice, she was damaged in the amount of $262,500.00 plus attorneys' fees and compensatory damages in the amount of $668,156.00.
Plaintiff's third cause of action is a derivative fraud claim on behalf of Good Service against defendants. Plaintiff's fourth cause of action is a fraud claim on her behalf against defendants.
Plaintiff's fifth cause of action is a derivative claim on behalf of Good Service that defendants violated Judiciary Law § 487 and Good Service was damaged as a result of said violation. Plaintiff's sixth cause of action is that she was damaged as a result of defendants violation of Judiciary Law § 487.
Plaintiff's seventh cause of action is derivative claim of breach of fiduciary duty on behalf of Good Service against defendants. Plaintiff's eighth cause of action is a direct claim of breach of fiduciary duty against defendants.
DISCUSSION
Standard for Deciding a Motion to Dismiss Pursuant to CPLR § 3211
In deciding a motion brought pursuant to CPLR § 3211(a)(7) for failure to state a cause of action, the complaint should be liberally construed and the facts alleged in the complaint and any submissions in opposition to the dismissal motion accepted as true, according plaintiffs the benefit of every possible favorable inference (511 West 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152 [2002] [internal citations omitted]). "The motion must be denied if from the pleadings' four corners 'factual allegations are discerned which taken together manifest any cause of action cognizable at law' " (id.; Vitale v Rowland, 88 AD3d 692, 693 [2d Dept 2011]; McCarthy v Young, 57 AD3d 955, 955 [2d Dept 2008]). On a motion to dismiss pursuant to CPLR § 3211(a), the defendant has the burden of demonstrating that the documentary evidence conclusively resolves all factual issues, and that plaintiff's claims fail as a matter of law. (Robinson v. Robinson, 303 AD2d 234, 235 [1st Dept. 2003]). Legal Malpractice Claims
"To establish a cause of action for legal malpractice, the plaintiff must show that the attorneys were negligent, that their negligence was the proximate cause of the plaintiff's damages, and that the plaintiff suffered actual damages as a direct result of the attorneys' actions" (Franklin v Winard, 199 AD2d 220, 221 [1st Dept 1993]; see also Leder v Spiegel, 31 AD3d 266, 267 [1st Dept 2006], affd 9 NY3d 836 [2007], cert denied 552 US 1257[2008]). "[A] party must show that an attorney failed to exercise the reasonable skill and knowledge commonly possessed by a member of the legal profession" (Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, L.L.P., 96 NY2d 300, 303-304 [2001]; see also Marshall v Nacht, 172 AD2d 727, 727 [2d Dept 1991]). "In order to establish proximate cause, plaintiff must demonstrate that 'but for' the attorney's negligence, plaintiff would either have prevailed in the matter at issue, or would not have sustained any 'ascertainable damages'" (Leder, 31 AD3d at 267-268; see also Franklin, 199 AD2d at 221). In order to recover damages in a legal malpractice action, a plaintiff must establish that the malpractice proximately caused plaintiff to sustain actual and ascertainable damages. (Dombrowski v Bulson, 19 NY3d 347, 350 [2012]).
Plaintiff alleges that defendants committed malpractice by: (1) representing both sides during the assumption of lease; (2) by not opposing collection actions brought by Landlord BT64th Street and (3) Lender TD Bank; and (4) by advising her to transfer her assets out of her possession to avoid the enforcement of a judgment.
Plaintiff alleges that defendants represented both sides of the assumption of lease and favored the other side and did not obtain the best possible price for the assumption of lease. She claims that the fair price for the assumption of lease should have included a discharge of the Restaurant's outstanding rent and construction loan. She then suffered damages because she was a personal guarantor of the lease and the loan.
Plaintiff's valuation of the lease is based on pure speculation and not supported by any facts. Furthermore, there is nothing in the record that shows any negligence by defendants during the assumption of lease process. Even if a conflict of interest existed, "[a] conflict of interest, even [in] violation of the Code of Professional Responsibility, does not by itself support a legal malpractice cause of action." Schafrann v N.V. Famka, Inc., 14 AD3d 363, 364 (1st Dept 2005).
Even assuming arguendo that there was a deviation from the accepted standards, plaintiff must establish that the malpractice was the proximate cause of her damages. Her claim that a defunct restaurant, with assets consisting of its fixtures and lease, was worth enough to discharge debts amounting to approximately $1.8 million dollars is incredible and based upon mere speculation and unsupported by an appraisal or any other facts alleged in the four corners of the complaint. Even accepting everything in the complaint and opposition to the motion as true as required in a motion pursuant to CPLR § 3211, the complaint does not state a cause of action of legal malpractice in conjunction with defendants' actions during the assumption of lease representation.
Plaintiff further alleges that defendants committed malpractice in the collection action brought by the landlord to collect unpaid rent of the Corporation under the lease which she personally guaranteed. The landlord was granted summary judgment without any opposition. In addition, plaintiff claims that after the judgment, defendant advised her to transfer her assets out of her possession to avoid collection. Defendants argue that they neither represented plaintiff nor Good Service in the landlord action until after the judgment was entered. Defendants also deny ever having advised plaintiff to avoid the judgment by transferring her assets. At this juncture, the record is incomplete and further discovery is needed to determine who represented plaintiff and Good Service during this proceeding.
Plaintiff also claims that she was damaged as a result of defendants failure to oppose the summary judgment motion in the collection action brought by TD Bank to collect on a loan to Good Service which was guaranteed by plaintiff. However, plaintiff substituted her own attorney in place of defendants. Her new attorney was provided an opportunity to oppose the motion. Despite opposition from plaintiff's counsel, the motion was nevertheless granted after considering the merit of plaintiff's position. Inasmuch as the motion was granted after plaintiff substituted defendants with new counsel, who actually submitted opposition to the motion, the fact the defendants allegedly did not initially oppose the motion cannot be the proximate cause for plaintiff's damages, if any. Other Claims
Plaintiff's fraud and breach of fiduciary duty claims should be dismissed as they are duplicative of the legal malpractice claim since they arise from the same underlying facts and allege similar damages.. Dinhofer v. Medical Liability Mut. Ins. Co., 92 AD3d 480, 481 (1st Dept 2012); Sonnenschine v Giacomo, 295 AD2d 287, 288 (1st Dept 2002); Turk v Angel, 293 AD2d 284 (1st Dept 2002); Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435, 436 (1st Dept 2011).
The Judiciary Law §487 claim is unsupported by any factual evidence of "chronic and extreme pattern of legal delinquency" and should also be dismissed. Dinhofer, 92 AD3d at 481. The mere fact that defendants represented both parties during the assignment of lease does not amount to "chronic and extreme pattern of legal delinquency." Furthermore, in support of the claim, plaintiff alleges that a letter that DeJong sent to the creditors' attorneys on June 6, 2011, was calculated to allow BR Guest to obtain the Restaurant at a minimal cost, and therefore is a violation of Judiciary Law § 487. Complaint ¶¶ 145 and 151. Plaintiff fails to explain how a letter dated June 6, 2011, could possibly effect a transaction that was completed in May 2010. See Complaint ¶¶ 34, 39, 40.
CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that the motion is granted to the extent that the third, fourth, fifth, sixth, seventh, and eighth causes of action are entirely dismissed, and the first and second causes of action are dismissed except as to any alleged malpractice during the course of the action by the landlord to recover unpaid rent and regarding the allegation that defendants advised plaintiff to transfer her assets to avoid the judgment, and the remainder of the legal malpractice claims are otherwise dismissed; and it is further
ORDERED that defendants are directed to serve an answer to the complaint as to the remaining causes of action within twenty days after service of a copy of this order with notice of entry. Dated: February 11, 2016
ENTER:
/s/_________
Shlomo S. Hagler, J.S.C.