Opinion
Index No.: 650702/2010 Motion Sequence No.: 036
04-09-2013
RUBIN SCHRON, CAM-ELM COMPANY, LLC, SMV PROPERTY HOLDINGS LLC, SWC PROPERTY HOLDINGS LLC, SWC SPECIAL HOLDINGS, LLC, SMV SPECIAL HOLDINGS, LLC, CAMMEBY'S EQUITY HOLDINGS LLC, CAMMEBY'S FUNDING LLC, CAMMEBY'S FUNDING II LLC, CAMMEBY'S FUNDING III LLC, CAMFIVE HOLDINGS, LLC, CAMMEBY'S MANAGEMENT CO. LLC, and CAMMEBY'S INTERNATIONAL, LTD., Plaintiffs, v. LEONARD GRUNSTEIN, MURRAY FORMAN, TROUTMAN SANDERS LLP, CANYON SUDAR PARTNERS LLC, SVCARE HOLDINGS, LLC, SAVASENIORCARE LLC, FUNDAMENTAL LONG TERM CARE HOLDINGS, LLC, THI OF BALTIMORE, INC., NATIONAL SENIOR CARE, INC., MARINER HEALTH CARE, INC., METCAP SECURITIES, LLC, METCAP HOLDING, LLC, METCAP ADVISORY SERVICES, LLC, HARRY GRUNSTEIN, and LAWRENCE LEVINSON, Defendants.
DECISION AND
ORDER
O. PETER SHERWOOD, J.:
BACKGROUND
The background of this case is set forth in the Decision and Order, dated September 6, 2012 and will not be repeated here (see 36 Misc3d 1238[A] [Sup Ct, NY County 2012] aff'd _AD3d_, 2013 NY App Div LEXIS 2128). On this motion sequence number 036, plaintiffs move, pursuant to CPLR 3025 (b), for leave to file a second amended complaint to assert nine additional causes of action on the basis of new facts alleged to have emerged in discovery or at trial. The additional claims relate to (i) defendants' alleged acquisition for themselves of Mariner real estate interests in breach of "reversionary rights" provided to plaintiffs in the 2004 Mariner Transaction, (ii) Grunstein and Forman's alleged misappropriation of SVCARE funds in breach of the Cam III loan agreement, and (iii) the defendants' alleged overbilling of plaintiffs by $4 million for services MetCap provided in connection with the Mariner Transaction.
Plaintiffs contend that during discovery, they discovered that the defendants acquired fee interests in leased real estate in violation of reversionary rights acquired primarily by plaintiff, SMV Property Holdings LLC ("SMV"), in the 2004 Mariner Transaction. These reversionary rights purportedly gave SMV and/or its affiliates the right to purchase the underlying real estate of any leased skilled nursing facilities operated by Mariner or Sava at the time of the closing of the Mariner Transaction, if and when those properties are offered for sale by their third party owners. Plaintiffs assert that defendants secretly transferred a number of the facilities to and among themselves in violation of the reversionary rights.
These claims are the subject of discovery rulings of Justice Cozier and arguably are already within the broad allegations of breach of fiduciary duty asserted in the first amended complaint ("FAC"). In this regard, plaintiffs contend that "[although [Discovery Order No. 12] properly recognizes that the Complaint plainly does include Plaintiffs' reversionary rights claims, [they] seek to amend their Complaint to remove any scintilla of doubt that the [defendants'] violations of Plaintiffs' reversionary rights are part of this lawsuit by asserting new allegations and claims. In addition, the amendments will add new causes of actions [sic] related to the reversionary rights claims, beyond those for breach of fiduciary duty." The proposed new causes of action related to reversionary rights are:
• Sixteenth Cause of Action (Against Grunstein, Forman, MetCap Holding, New Mariner, Sava, and Fundamental) for Conversion
• Seventeenth Cause of Action (Against Troutman Sanders) for Aiding & Abetting Conversion
• Eighteenth Cause of Action (Against Grunstein, Forman, MetCap Holding, New Mariner, Sava, and Fundamental) for Fraud
• Nineteenth Cause of Action (Against Grunstein, Forman, MetCap Holding, New Mariner, Sava, Fundamental, and Troutman Sanders) for Aiding & Abetting Fraud
• Twentieth Cause of Action (Against Grunstein, Forman, MetCap Holding, and Troutman Sanders) for Constructive Trust
• Twenty-First Cause of Action (Against New Mariner) for Breach of Contract (Breach of the MPA)
• Twenty-Second Cause of Action (Against New Mariner) for Breach of Contract (Breach of the Reversionary Rights Agreements)
Plaintiffs also seek to add allegations regarding the alleged misappropriation of SVCARE funds in breach of the Cam III loan agreement. Plaintiffs contend that at the trial held in August 2012, Forman admitted under oath that he and Grunstein took equity distributions of "tens of millions" of dollars that went directly into their "pocket[s]." Under the terms of the Cam III loan agreements, distributions to equity holders purportedly were prohibited so long as the loans remained outstanding, except for a limited allowance to cover the amount of pass-through tax liability. FLGH LLC ("FLGH"), the Junior Collateral Agent under the Cam III loan, filed suit regarding these equity distributions in the Delaware Chancery Court in 2011. The Chancery Court allegedly indicated that the claim should be brought in New York. Plaintiffs assert that they seek to bring these claims now, because the court has confirmed the validity of the Cam III loans, and because Forman admitted that defendants disregarded the prohibition on equity distributions, and paid themselves at least $61 million beyond the permitted amount. Plaintiffs seek to add FLGH as a plaintiff, and to assert the following causes of action:
• Twenty-Third Cause of Action (Against Sava and SVCARE) for Breach of Contract; and
• Twenty-Fourth Cause of Action (Against Grunstein, Forman, Canyon Sudar, and SVCARE) for Fraud
In a third category of claims, plaintiffs propose to add claims regarding overbilling by MetCap (which is controlled by Forman) for investment banking services provided to plaintiffs in connection with the Mariner Transaction. Plaintiffs contend that the agreed upon fee was $ 10 million but Grunstein and Forman subsequently fraudulently convinced the Schron Entities that they owed MetCap a total of $14 million in fees.
DISCUSSION
I. CPLR 3025(b) Standard
"Motions for leave to amend pleadings should be freely granted . . . absent prejudice or surprise resulting therefrom ..., unless the proposed amendment is palpably insufficient or patently devoid of merit. . . . [P]laintiff[s] need not establish the merit of [their] proposed new allegations . . ., but simply show that the proffered amendment is not palpably insufficient or clearly devoid of merit" (MBIA Ins. Corp. v Greystone & Co., Inc., 74 AD3d 499, 499-500 [1st Dept 2010]; CPLR 3025 [b]). Prejudice in this context is shown where the nonmoving party is "hindered in the preparation of his case or has been prevented from taking some measure in support of his position" (Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18, 23 [1981]). A delay in seeking leave to amend is not grounds for denial of the motion except where the delay would cause prejudice or surprise (see Lucido v Mancuso, 49 AD3d 220, 229 [2d Dept 2008]). Although leave to amend should be freely granted, an examination of the underlying merits of the proposed causes of action is warranted in order to conserve judicial resources (see Eighth Ave. Garage Corp. v H.K.L. Rlty, Corp., 60 AD3d 404, 405 [1st Dept 2009]). Whether to permit amendment is within the sound discretion of the court (see Pellegrino v NYC Transit Auth., 177 AD2d 554, 557 [2d Dept 1991]).
II. Procedural Matters
Defendants contend that the motion must be denied because plaintiffs' proposed second amended complaint has not been verified. This argument has no merit. Although the proposed pleading is titled "Second Amended Verified Complaint," it does not contain a verification page. Plaintiffs will, of course, attach a verification page if the motion is granted.
Defendants also contend that the motion must be denied because plaintiffs have not provided an affidavit of merit with their motion papers. CPLR 3025 (b) does not explicitly require an affidavit of merit, but the First Department has held that "a motion for leave to amend a pleading 'must be supported by an affidavit of merits and evidentiary proof that could be considered upon a motion for summary judgment'" (Non-Linear Trading Co. v Braddis Assoc., 243 AD2d 107, 116 [1st Dept 1998], citing Nab-Tern Constructors v City of New York, 123 AD2d 571 [1st Dept 1986] [emphasis added]). It appears, however, that this standard no longer controls. The Second Department recently much proof on the merits (see Lucido v Mancuso, 49 AD3d 220 [2d Dept 2008]). In Lucido, the court noted that for years, many courts, including the Second Department itself, were "mentioning the absence of an affidavit of merit as a factor to be considered in support of denying a motion pursuant to CPLR 3025 (b) for leave to amend a complaint" (id. at 229). The court then rejected this standard, holding that "[c]ases involving CPLR 3025(b) that place a burden on the pleader to establish the merit of the proposed amendment erroneously state the applicable standard and are no longer to be followed. No evidentiary showing of merit is required under CPLR 3025(b)" (id.)
The First Department impliedly adopted the thrust of Lucido in MBIA Ins. Corp. (74 AD3d at 499). Citing Lucido, the court held that "[o]n a motion for leave to amend, plaintiff need not establish the merit of its proposed new allegations . . . but simply show that the proffered amendment is not palpably insufficient or clearly devoid of merit" (id. at 500). Indeed, the defendant in that case raised and the court rejected the same argument defendants raise here regarding an affidavit of merit. The court held that "the proposed amendment was supported by a sufficient showing of merit through the submission of an affirmation by counsel, along with a transcript of relevant deposition testimony" (id.)
While both the First and Second Departments agree that the plaintiff does not have the burden of establishing the merit of its proposed new allegations, a split between the Departments remains on the issue of who has the burden to show that the proffered amendment is not palpably insufficient or patently devoid of merit. While the First Department places that burden on the plaintiff (MBIA Ins. Corp., 74 AD3d at 500 [plaintiff must "simply show that the proffered amendment is not palpably insufficient or clearly devoid of merit"]), the Second Department places no burden on the plaintiff whatsoever (Lucido, 49 AD3d at 229 ["[c]ases involving CPLR 3025 (b) that place a burden on the pleader to establish the merit of the proposed amendment . . . are no longer to be followed. No evidentiary showing of merit is required under CPLR 3025 (b)"]). Rather, the Second Department requires that the court simply "determine whether the proposed amendment is 'palpably insufficient' to state a cause of action or defense, or is patently devoid of merit" (id.)
Here, plaintiffs have provided an affirmation of counsel along with exhibits containing relevant documents, including the Master Purchase Agreement and a Reversionary Rights Agreement. Accordingly, the affirmation is enough and defendants' argument that plaintiffs must provide an affidavit of merit must be rejected.
III. Prejudice
In opposing the motion for leave to amend on the basis of prejudice, defendants focus much of their attention on the issue of delay. As noted previously, delay alone in seeking leave to amend is not grounds for denial of the motion. Delay coupled with prejudice or surprise is required (see Lucido, 49 AD3d at 229). Defendants can claim prejudice only if they are "hindered in the preparation of [their] case or ha[ve] been prevented from taking some measure in support of [their] position" (Loomis, 54 NY2d at 23). No such showing has been made here.
With regard to the reversionary rights claims, defendants contend that the information on which plaintiffs base these claims have been in their possession for over a year. Defendants demonstrate that plaintiffs served discovery demands regarding reversionary rights as early as October 28, 2011. Additionally, defendants note that plaintiffs have represented that the FAC includes allegations related to reversionary rights, even though "reversionary rights" are not explicitly mentioned. Thus, defendants argue that plaintiffs' failure to assert such claims explicitly until this late stage, especially when they knew of the underlying facts when the FAC was filed, constitutes undue delay.
The argument illustrates an absence of prejudice. Because defendants have been aware that plaintiffs were seeking information regarding reversionary rights as early as October 28, 2011, and because Justice Cozier decided on June 15, 2012 that reversionary rights fell within the scope of permissible discovery, defendants cannot now claim that they were hindered in the preparation of their case or were prevented in any way from taking measures in support of their position (see Loomis, 54 NY2d at 23). Indeed, defendants' only argument as to prejudice is that the assertion of such claims "would cause needless additional burden on this Court, cause unnecessarily [sic] delay and multiply the litigation costs of Defendants (many of which are not targets of Plaintiffs' proposed additions), as well as nonparties against whom discovery will become necessary." It is well established that "[f]urther discovery, without more, does not justify denial of a motion to amend the pleadings (Carp v Marcus, 138 AD2d 775,777 [3d Dept 1988]). Moreover, there is no prejudice where, as here, "defendants] had long been aware of plaintiff[s'] concern[s] . . . and any discovery relevant to the supposedly new theor[ies] remained entirely in defendants'] hands" (Aetna Cas. & Sur. Co. v LFO Constr. Corp., 207 AD2d 274 [1st Dept 1994]). Defendants will suffer no prejudice as a result of plaintiffs' express assertion of reversionary rights claims.
Regarding the proposed claims of misappropriation of SVCARE funds, defendants argue that while plaintiffs contend that they obtained new information regarding excess distributions as a result of the recent trial, plaintiffs actually had this information earlier and nothing revealed at trial added to what plaintiffs already knew. Specifically, defendants contend that the same allegations were asserted by Cam Funding III in a complaint filed in the Southern District of New York in May 2011 (see Cammeby's Funding III, LLC v CapitalSource Finance LLC, No. 11 Civ. 3644 [SD NY]) (the "Capsource Action"). Defendants contend that this shows that plaintiffs' delayed assertion of claims with respect to the excess distributions is unjustified.
Accepting that plaintiffs delayed without justification, in addition, defendants must demonstrate prejudice. Defendants argue that "the parties have expended significant resources in engaging in extensive discovery and discovery is now near completion in this matter.... Allowing Plaintiffs to amend their pleadings at this late juncture would significantly prejudice Defendants by inserting new issues into the litigation after Defendants have already deposed numerous witnesses and made numerous document requests without the benefit of knowing that either purported excess distributions or allegations regarding alleged overbilling for MetCap's services were at-issue in this case." As noted previously, the mere need for additional discovery does not constitute prejudice sufficient to defeat a motion to amend the pleadings.
Defendants also allege that they would suffer prejudice by allowing amendment because this court and the court in the Capsource Action could reach opposite conclusions regarding similar facts. The actions are distinct because Grunstein and Forman are not parties to the Capsource Action (whereas the proposed twenty-fourth cause of action is asserted against Grunstein and Forman), and the Capsource Action involves alleged breach of the Second Amended and Restated Intercreditor and Subordination Agreement, whereas the Proposed Second Amended Complaint alleges breaches of the SVCARE Loan Agreement.
With regard to the MetCap overbilling allegations, defendants contend that plaintiffs knew of this alleged misconduct prior to trial. Defendants note that plaintiffs asked a series of questions at trial about the overbilling, and thus plaintiffs unjustifiably delayed making these assertions. Defendants contend that "[a]llowing Plaintiffs to amend their pleadings at this late juncture would significantly prejudice Defendants by inserting new issues into the litigation after Defendants have already deposed numerous witnesses and made numerous document requests without the benefit of knowing that . . . allegations regarding alleged overbilling for MetCap's services were at-issue in this case." Plaintiffs respond that these proposed allegations have already been the subject of discovery, and in any event, the need for additional discovery by itself is not a bar to granting a motion for leave to amend a complaint.
Defendants rely on Panasia Estate, Inc. v Broche (89 AD3d498 [1st Dept 2011]), to support the prejudice argument. There, the First Department affirmed the denial of a motion for leave to serve a third amended complaint on grounds of prejudice, where "[t]he record reveal[ed] that discovery, which had been tailored to the theories of liability set forth in the second amended complaint, was nearly complete and the filing date of the note of issue was imminent" (id. at 498). The court noted that "[p]laintiff sought this amendment 18 months after the action was commenced, after it had amended the complaint twice, and after it and the defendants had submitted motions for summary judgment that Supreme Court had resolved" (id.)The court further affirmed the denial of the motion on the ground that the proposed amendment lacked merit (id.) Panasia Estate is inapposite. Here, discovery already encompasses much of the proposed new allegations. Further, the proposed amendment in this case is not palpably insufficient or patently devoid of merit (see MBIA Ins. Corp., 74 AD3d at 500).
IV. Merits
Defendants argue that the proposed sixteenth (conversion) and seventeenth (aiding and abetting conversion) causes of action are without merit because they fail to state a cause of action. These causes of action are based on the contention that defendants "misappropriate[d] real estate interests from Schron Entities by acquiring interests in facilities in explicit violation of Plaintiffs' reversionary rights." Defendants contend that these proposed claims fail to state a cause of action because (1) under New York law, real property cannot be converted, and (2) the proposed claims are duplicative of the proposed breach of contract cause of action.
Conversion is defined as "the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights"(State of New York v Seventh Regiment Fund, 98 NY2d 249, 259 [2002] [citations and internal quotation marks omitted]). "An action sounding in conversion does not lie where the property involved is real property" (Garelick vCarmel, 141 AD2d 501, 502 [2d Dept 1988]). "[T]he subject matter of a conversion action must constitute identifiable tangible personal property . . . . Thus, whether the property claimed to have been converted is real property, . . . or an interest or expectancy in a business opportunity, . . . conversion will not lie" (Roemer & Featherstonhaugh v Featherstonhaugh, 267 AD2d 697,697 [3d Dept 1999] [citations omitted]).
Plaintiffs first respond that it is not clear that New York law would govern the conversion claims, because the reversionary rights involve real estate and other interests transferred in several states. Plaintiffs contend that other states might allow real property to be converted. In any event, even if New York law did control, the acts of conversion involved the transfer of equity in single-purpose entities that own the real estate. Plaintiffs argue that the transfer of equity interests can support a conversion claim under New York law because stock certificates are considered personal property. Indeed, the First Department has held that an allegation of interference with the possessory interest in stock states a cause of action for conversion (Siegel v Siegel, 98 AD3d 426, 427 [1st Dept 2012]).
Defendants also contend that the proposed conversion claims are duplicative of the twenty-first and twenty-second causes of action for breach of contract. Conversion claims cannot lie if they are "predicated solely on a mere breach of contract claim," and simply restate the breach of contract claim (see Fesseha v TD Waterhouse Inv. Servs., 305 AD2d 268, 269 [1st Dept 2003]). Plaintiffs respond that the conversion causes of action are brought against different parties than the breach of contract claims, and furthermore that the misconduct alleged in the conversion claims goes beyond the four corners of the contracts. Accordingly, plaintiffs argue that the conversion claims are not duplicative of the breach of contract claims. This argument has merit.
Defendants next argue that the eighteenth (fraud) and nineteenth (aiding and abetting fraud) causes of action fail to state a cause of action. Defendants advance several arguments in support of this contention, including (1) that plaintiffs do not state the alleged misrepresentation or material omissions with the required particularity; (2) plaintiffs do not allege any misrepresentation or omission by Forman, Metcap Holding, New Mariner, Sava or Fundamental, or with respect to any property other than the San Jose Facility; (3) plaintiffs' allegations with respect to Fundamental are based solely "upon information and belief," which is insufficient to sustain a fraud cause of action, and plaintiffs do not allege that Fundamental acquired any real property interests; (4) plaintiffs' proposed fraud causes of action represent an impermissible attempt to convert a breach of contract cause of action into a fraud claim; and (5) plaintiffs do not and cannot allege that they reasonably relied on any alleged acts or omissions.
As to the first argument, defendants contend that plaintiffs failed to satisfy the heightened pleading standards of CPLR 3016 (b). Although plaintiffs make reference to "false representations" in paragraph 418 of the proposed second amended complaint, the proposed amendment makes only a single reference to any alleged statement or omission on which plaintiffs rely for their proposed fraud claims. That reference is in paragraph 315, where plaintiffs allege that "Schron received a 'Privileged and Confidential' memorandum from Grunstein - on behalf of Troutman Sanders - that falsely stated that the contract on the San Jose Facility was a mistake and that New Mariner, the tenant, should purchase the San Jose Facility" (Proposed Second Amended Complaint at 315). Defendants argue that plaintiffs do not identify the date of the memorandum and plaintiffs do not allege that the San Jose Facility memorandum was sent on behalf of any defendant other than Troutman Sanders. Further, the proposed second amended complaint fails to identify a single statement or omission by Forman, MetCap, New Mariner, Sava or Fundamental. Defendants rely on Eastman Kodak Co. v Roopak Enters. (202 AD2d 220 [ 1 st Dept 1994]), where the First Department dismissed a fraud counterclaim for failure to satisfy CPLR 3016(b)'s particularity requirement (id. at 222). Specifically, the Eastman Kodak court held that "[t]he defendant alleged neither the time nor the place of the purported misrepresentations nor which employee of the plaintiff purportedly made them" (id.)
Plaintiffs respond that they have gone "beyond the minimal threshold for notice pleading by providing an illustrative example of one of the transactions that violated the Schron Parties' reversionary rights - the San Jose Facility transaction.... Plaintiffs allege that they were misled by a memorandum from Grunstein and his law firm." This satisfies CPLR 3016 (b)'s "mere[] require[ment] that a claim of fraud be pleaded in sufficient detail to give adequate notice" (Houbigant, Inc. v Deloitte & Touche, 303 AD2d 92, 97 [1st Dept 2003]). Additionally, plaintiffs have stated all the elements of a fraud cause of action. Because at least one of the relevant transactions is stated in sufficient detail, it cannot be said at this stage that the proposed fraud claims are palpably insufficient or patently devoid of merit due to failure to satisfy CPLR 3016 (b)'s requirements.
Defendants next argue that plaintiffs' proposed fraud claims are duplicative of their proposed breach of contract causes of action. Causes of action for fraud cannot stand where the only fraud relates to a breach of contract (see Blackman v Genova, 250 AD2d 561, 561-562 [2d Dept 1998]). "Nor may a breach of contract action be converted into one for fraud by the mere additional allegation that the contracting party did not intend to fulfill its contractual obligation" (id. at 562). Plaintiffs respond that defendants' alleged fraudulent acts go beyond the four corners of the contract. Plaintiffs argue that they are "alleging that their contractual counterparties, and others who are not party to a certain [MPA] but knew of its terms and Plaintiffs' rights, engaged in a scheme to purchase properties on the sly without advising the Schron Parties that their rights were implicated (or, in the San Jose-type case, by deceiving the Schron Parties about their rights). These allegations are independent of the breach of contract claims, not duplicative." A fraud cause of action brought against a non-party to a contract can state a cause of action even in the face of a breach of contract cause of action on similar facts (see Selinger Enters, v Cassuto, 50 AD3d 766,768 [2d Dept 2008]). Because plaintiffs have alleged all the elements of a cause of action for fraud, which are addressed at different parties than those named in the breach of contract causes of action, it cannot be said that the claims are palpably insufficient or patently devoid of merit.
Defendants also argue that plaintiffs do not allege that they reasonably relied on any acts or omissions by defendants. However, plaintiffs allege at several points in the proposed second amended complaint that they relied on defendants' statements and fiduciary relationship. Defendants' arguments regarding the particularity of these allegations is best reserved for a motion for summary judgment, and not on a motion for leave to amend.
Defendants next contend that plaintiffs' proposed twentieth cause of action for constructive trust is a remedy, and not a cause of action. This argument is flawed. New York courts recognize a cause of action for constructive trust (see, e.g., Siegel, 98 AD3d at 427).
Defendants next argue that plaintiffs failed to provide evidentiary support for their proposed breach of contract causes of action. As noted previously, plaintiffs need not provide any evidentiary support whatsoever on a motion for leave to amend. Additionally, plaintiffs have stated all the elements of a breach of contract cause of action. The proposed amendment will be allowed.
With regard to the proposed allegations regarding misappropriation of SVCARE funds in breach of the Cam III loan agreement, defendants raise two arguments. As to the twenty-fourth cause of action for fraud, defendants argue that plaintiffs fail to satisfy the particularity requirement of CPLR 3016 (b). Plaintiffs have stated all the elements of a fraud cause of action. As to the twenty-third cause of action for breach of contract, defendants argue that this cause of action is expressly barred by the subordination clause of the Amended and Restated Term Loan and Credit Facility Agreement ("Amended SVCARE Loan Agreement"). Specifically, defendants argue that the subordination clause states that until all senior obligations are paid in full, Cam Funding III is not permitted to "exercise or enforce any of its rights, powers, privileges, remedies and interests under [the Amended SVCARE Loan Agreement]," and specifically forbids Cam Funding III from "bring[ing] suit against [SVCARE and Sava] in any federal or state court of competent jurisdiction." Defendants contend that the senior obligations have not been paid in full, and therefore the claim is barred by the express terms of the Amended SVCARE Loan Agreement. Plaintiffs respond that defendants misconstrue the agreements. Because such a claim requires interpretation of documentary evidence, and since plaintiffs have stated all the elements of a cause of action for breach of contract, the court will allow plaintiffs to add this claim. Defendants can test the sufficiency of the claim on a motion for summary judgment. For now, the claim will be allowed.
As to the proposed allegations regarding MetCap's overbilling, defendants contend that such claims are barred by the six-year statute of limitations, because the events in question occurred prior to 2005. Defendants also note that plaintiffs have not alleged any additional causes of action related to these claims. Plaintiffs respond that (1) the claims are measured by the filing of the initial complaint in June 2010 pursuant to the CPLR 203 (f) relation-back doctrine; (2) the continuous representation doctrine tolls the limitations period until 2009 because MetCap represented plaintiffs as a fiduciary in connection with the Mariner Transaction until then; and (3) defendants should be equitably estopped from asserting the statute of limitations defense because plaintiffs relied on defendants' misrepresentations concerning the fees owed and had no reason to question their advisors until learning of the fraud. Again, defendants' arguments are best raised on a motion for summary judgment, as plaintiffs raise several potentially valid arguments in response.
Accordingly, it is ORDERED that the motion for leave to amend the complaint is GRANTED. Plaintiffs shall serve and file their verified amended complaint within ten (10) days of service of this Decision and Order with notice of entry. The answer shall be served and filed within twenty (20) days thereafter.
Although plaintiffs' further amendment of the complaint was submitted after the motion became sub judice and is not authorized, the court hereby grants leave to file said complaint in the interest of judicial economy.
This constitutes the decision and order of the Court.
ENTER:
______________________
O. PETER SHERWOOD
J.S.C.