Opinion
1960/09.
Decided July 15, 2009.
This motion, by defendants Stuart Wachs and Fogel Wachs PC ("the Wachs defendants"), pursuant to CPLR 3211(a)(1) and (7), for judgment dismissing second and third causes of action in the complaint against them, is granted as to the second cause of action for conversion, with leave to replead, and is denied as to the third cause of action for tortious interference with contract; and a cross-motion, by plaintiff, for an order pursuant to CPLR 3025, granting plaintiff leave to serve an amended complaint is granted as set forth herein.
The motion, by plaintiff and third-party defendants ("the Sawyer defendants"), for (1) summary judgment pursuant to CPLR 3212 against Michael Kors Stores, LLC ("MKS") on the first cause of action in the complaint; (2) granting the Sawyer defendants summary judgment pursuant to CPLR 3212 dismissing the amended third-party complaint is granted . The further request by plaintiff and third-party defendants for an order imposing sanctions on Joseph Heppt, and setting the matter down for a hearing is denied at this time.
The motion, by MKS, for an order pursuant to Rules 1.7 and 3.7 of the New York Rules of Professional Conduct, disqualifying third-party defendants from continuing to represent plaintiff herein, is denied .
The motion, by plaintiff, for an order pursuant to CPLR 6211(b), confirming the Order of Attachment granted on February 17, 2009, is granted . The additional requests by plaintiff for an order (1) pursuant to CPLR 6214(b) extending the levy made by the New York County Sheriff's office on February 24, 2009, on defendants PRK Stores LLC ("PRK") and Richard S. Kaplan, and (2) pursuant to the Order of Attachment, compelling Richard S. Kaplan and PRK to deliver to the New York County Sheriff's office those documents of title in their possession that concern any assets owned or in which they have an interest, including Kaplan's ownership interest in The Hermitage at Napeague, Ltd, PRK, Plum Shoppes, LLC, Richard S. Kaplan CPA, PC, Richard S. Kaplan and
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Associates LLP, and RS Kaplan CPA, PC, is also granted .
The complaint arises out of the failure by MKS to pay to plaintiff ("H Co.") a portion of a note that was assigned to H Co., pursuant to a Partial Assignment of Note Payment Obligation ("the Partial Assignment"). The assignor of the subject note was PRK; the debtor was MKS. The Partial Assignment is dated December 3, 2007, and was signed by Richard Kaplan, the managing member of PRK.
By way of background, MKS had executed the subject note payable to PRK in the sum of $666,666.67 on March 22, 2007. By its terms, the note was to be paid to PRK in two installments: (1) the first installment of $333,333.33 was to be made on December, 31, 2007; (2) the second installment of $333,333.34 was to be made on December 31, 2008. According to the Partial Assignment, PRK assigned to H Co. the right to receive the sum of $276,958.90 from the second installment under the note. Notice of the Partial Assignment, was given to MKS pursuant to a Notice of Partial Assignment of Note Payment Obligation acknowledged on January 7, 2008.
PRK had sued MKS in Supreme Court, New York County ("the New York County action"), and that case had settled pursuant to a Settlement Agreement dated November 3, 2008 (Exhibit C to the complaint herein). According to the Settlement Agreement, MKS was required to pay PRK the sum of $371,000 on or before November 7, 2008, after which PRK and MKS mutually released each other from all claims. The Settlement Agreement contains the following provision:
3. Representations and Warranties
(i) PRK is and at all times has been the holder of the Note, and that the Note has not been and will not be negotiated, assigned or transferred to any person or entity; and
(ii) PRK has not sold, pledged, assigned, transferred, conveyed, or otherwise disposed of any of its claims or any other claims, demands, obligations, or causes of action referred to in this Agreement.
Based on the Settlement Agreement, MKS paid PRK the $371,000, and PRK released all claims for payment of the subject note.
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H Co. commenced this action alleging three causes of action. The first cause of action is against MKS, for breach of MKS' obligation to pay $276,958.90 to it out of the monies payable pursuant to the second installment under the subject note. The second cause of action is for conversion and is alleged against the Wachs defendants, PRK, and Kaplan for collusion in the settlement of the New York County action, and inducing MKS to pay PRK, even though all defendants were on notice of MKS' obligation to pay $276,958.90 to H Co, pursuant to the Partial Assignment. The third cause of action is also against the Wachs defendants, PRK, and Kaplan, for intentional interference with MKS' contractual obligation to pay $276,958.90 to H Co.
On a motion to dismiss pursuant to CPLR 3211, the facts as alleged must be accepted as true, the pleader must be accorded the benefit of every favorable inference, and the court must determine only whether the facts as alleged fit within an cognizable theory ( Arnav Indus, Inc. Retirement Trust v Brown Raysman, Miller Felder Steiner , LLP , 96 NY2d 300, 303, 2001). Where the ground for dismissal is 3211(a)(7), and evidentiary material is submitted, the criterion is whether the pleader has a cause of action, not whether it has stated one ( Leon v Martinez , 84 NY2d 83, 87, 1994). Where the ground for dismissal is CPLR 3211(a)(1), the movant must demonstrate that the document at issue utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law ( Town of Riverhead v Silverman , 54 AD3d 1025, 1026, 2nd Dept., 2008). Whether the plaintiff can ultimately establish the allegations is not part of the calculus (R.I. Island House, LLC v North Town Phase II Houses, Inc., 51 AD3d 890, 893, 2nd Dept., 2008).
The Wachs defendants seek dismissal of the second and third causes of action against them for conversion and tortious interference with contract, respectively. In opposition, plaintiff argues that the Wachs defendants acted in concert with and for the benefit of PRK and Kaplan, and fraudulently as to MKS, in violation of plaintiff's rights to the assigned funds.
The essence of a cause of action for conversion of funds is the unauthorized dominion over such funds to the exclusion of the plaintiff (see Seeliger Enterprises Inc. v Cassuto , 50 AD3d 766, 768, 2nd Dept., 2008). As the Wachs defendants never had possession of the monies at issue, which were wired directly by MKS to PRK, plaintiff has no cause of action against the Wachs defendants for conversion, and the motion for judgment dismissing this cause of action based upon CPLR 3211 (a)(7) is granted .
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Nevertheless, careful review of the second cause of action reveals that in addition to conversion, this cause of action alleges that the Wachs defendants colluded with the other defendants in the negotiation, preparation and execution of the Settlement Agreement pursuant to which MKS paid PRK directly. Here plaintiff alleges that the Wachs defendants, along with the other defendants, knew the representations and warranties contained in the Settlement Agreement were false and made to induce MKS to pay PRK rather than H Co.
Under ordinary circumstances, an attorney who does not represent a party may only be held liable to that party upon a showing of fraud or collusion, or a malicious or tortious act ( Krasne v Gedell , 147 AD2d 616, 2nd Dept., 1989). At this early pleading stage of this action, H Co.'s allegations of deliberate use of falsehoods to induce the subject payment, support a claim against the Wachs defendants of fraud and collusion, or aiding and abetting of fraud and collusion (see Bankers Trust Co. v Cerrato, Sweeney, Cohn, Stahl Vaccaro , 187 AD2d 384, 1st Dept., 1992). H Co. has cross-moved for leave to amend its complaint pursuant to CPLR 3025(b), and leave to amend should be freely granted absent prejudice or surprise, unless the proposed amendment is devoid of merit or palpably improper ( Janssen v Incorporated Village of Rockville Centre , 59 AD3d 15, 27, 2nd Dept., 2008). As H Co. meets the requirements for leave to amend, it is hereby granted leave to replead this cause of action against the Wachs defendants, with caution that any fraud alleged must be pled with particularity [CPLR 3016(b)].
The Wachs defendants further seek dismissal of the third cause of action against them for intentional interference with contract. They argue that an attorney who takes action to induce a breach of contract while acting withing the scope of an agency relationship, is not liable to a third party for tortious interference with contract ( Cunningham v Lewenson , 294 AD2d 327, 2nd Dept., app dsmd 99 NY2d 531, 2002). These arguments miss the mark, inasmuch as the cause of action is against the Wachs defendants for inducing MKS, not its client PRK, to breach obligations to H Co.
Again the Court must consider the obligation of an attorney to a third party. Here H Co. seeks to hold the Wachs defendants liable for the use of deliberate falsehoods (see Leiderman v Gilbert , 176 AD2d 525, 1st Dept., 1991) in inducing MKS to breach its obligations to H Co. On this record, viewing the allegations of the third cause of action in the light most favorable to H Co., dismissal of the third cause of action against the Wachs defendants for intentional interference with MKS' obligations is denied .
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H Co. also seeks summary judgment pursuant to CPLR 3212 against MKS, on its first cause of action for breach of MKS' obligation to pay it a portion of the monies due PRK. In its answer, MKS alleges six affirmative defenses against H Co, namely, legal malpractice by the attorneys for H Co., failure to state a claim, accord and satisfaction, expiration of limitations period/laches/waiver/ estoppel/quasi-estoppel and unclean hands, offset, and lack of authenticity.
Summary judgment is the procedural equivalent of a trial ( SJ Capelin Assoc. Inc. v Globe Mfg. Corp. , 34 NY2d 338, 341, 1974). It is a drastic remedy that will only be granted when the proponent establishes that there are no triable issues of fact ( Alvarez v Prospect Hosp. , 68 NY2d 320, 1986). Once the party seeking summary judgment has made a prima facie showing of entitlement to judgment as a matter of law, the party opposing the motion must come forward with proof in evidentiary form establishing the existence of triable issues of fact, or demonstrate an acceptable excuse for its failure to do so ( Zuckerman v City of New York , 49 NY2d 557, 562, 1980). Mere conclusions, expressions of hope or unsubstantiated allegations are insufficient ( Zuckerman ).
H Co. bases its request for summary judgment upon presentation of the Partial Assignment which establishes the obligation at issue. The Notice of Partial Assignment, the fax confirmation receipt showing receipt at MKS on January 15, 2008, and the certified mail receipt showing receipt at MKS on January 18, 2008, establish actual notice of the obligation to MKS. The complaint, verified by the president of H Co. establishes the default by MKS to make the payment due. On this record, H Co. has presented a prima facie case against MKS on the first cause of action in the complaint (see, generally, 20 East 17th Street LLC v 4 M Development Co. , 246 AD2d 341, 1st Dept., 1998; Bercy Investors Inc. v Sun , 239 AD2d 161, 1st Dept., 1997). In support of its request for summary judgment, plaintiff must also show that none of MKS's defenses have merit [CPLR 3212(b)].
The first affirmative defense in MKS's answer is that the cause of H Co.'s damages is legal malpractice by its own attorneys. MKS purports to establish negligence by Attorney Sawyer because "plaintiff's counsel took no steps vis-a-vis MKS" (MKS answer, par. 41), other than to serve the Notice of Partial Assignment in January, 2008. In its opposition papers, MKS claims that, because Richard Kaplan failed to pay part of the money received from MKS pursuant to the first installment of the note to H Co., Sawyer should have contacted MKS regarding the second installment under the note. This
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argument is unavailing; it confuses PRK's obligations with those of MKS, and the first installment with the second installment pursuant to the note. Consequently, MKS's first affirmative defense must be dismissed .
The second affirmative defense is failure to state a cause of action. MKS insists that H Co. has failed to allege a breach of any contract with it. However, an assignment does not require a contract between the debtor and the assignee.
An assignment is a transfer of property, or of some right or interest therein, from one person to another ( Griffey v New York Cent. Ins. Co. , 100 NY 417, 422, 1885). No particular words are necessary to effect an assignment; it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned ( Leon v Martinez , 84 NY2d 83, 88, 1994).
An assignment may be for "a part only of the designated payment" ( Hinkle Iron Co. v Kohn , 229 NY 179, 1920). Where there is a partial assignment, the assignee may retain possession of the note partially assigned ( Kronman v Palm Management Associates Ltd. Partnership , 276 AD2d 338, 1st Dept., 2000). The consent of the debtor to a partial assignment is not required ( Hinkle Iron Co v Kohn; Terino v Claire , 26 AD2d 28, 4th Dept., 1966).
As noted above, H Co has presented a prima facie case for enforcement of the partial assignment of the second installment of the subject note. All parties are before the Court, and therefore H Co. may proceed with its direct claim against the debtor, MKS. In opposition, MKS has failed to raise a triable issue of fact as to its second affirmative defense. Under these circumstances, the second affirmative defense is hereby dismissed .
The third affirmative defense is accord and satisfaction. According to MKS, collection on the judgment by the Honorable Leonard B. Austin dated January 13, 2009, giving H Co. an award of $276,958.90 against PRK and Richard Kaplan, is an accord and satisfaction of H Co.'s claim in this litigation. Again, MKS confuses the first installment under the note with the second installment under the note. Accordingly the dismissal of the third affirmative defense is warranted.
The fourth affirmative defense is a catch-all defense, including expiration of the
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various statutes of limitations, laches, waiver, estoppel, quasi-estoppel, and unclean hands. MKS does not even mention any of these defenses, except to say, in conclusory fashion, that they "are applicable" (Heppt affirmation in opposition to partial summary judgment, at par.12). This does not suffice to raise a triable issue of fact, and therefore, the fourth affirmative is hereby dismissed .
The fifth affirmative defense is for an offset for any amounts paid to plaintiff on the judgment dated January 13, 2009, noted above. Apparently MKS does not oppose dismissal of the fifth affirmative defense as it never mentions this defense in its memorandum of law or supporting affirmations. For the record, the Court notes Attorney Sawyer's sworn testimony that "there has not been any monies received on account of that Judgment" (Sawyer reply affirmation, par. 16). The fifth affirmative defense is summarily dismissed .
The sixth affirmative defense challenges the authenticity of the Notice of Partial Assignment, and MKS claims that it cannot be held liable for paying the sums due on the note to PRK, the note holder. In opposition, H Co. argues that it holds the originals of the Partial Assignment and the Notice of Partial Assignment, and that the originals are identical to the copies presented. Co-defendant Richard Kaplan is noticeably silent. MKS relies, in part, upon the Levy letter dated January 9, 2008, however, that letter from the former attorney for PRK and Kaplan is not binding on H Co.
It is well established that after notice of the assignment of a debt, the debtor is put on guard, and if he pays the assignor any money, which under the assignment belongs to the assignee, he is liable for the resulting damage (see TPZ Corp v Dabbs , 25 AD3d 787, 790, 2nd Dept., 2006; quoting Continental Purch. Co. v Van Raalte Co. , 251 App Div 151, 152, 4th Dept., 1937; General Motors Acceptance Corp v Albany Water Board , 187 AD2d 894, 896, 3rd Dept., 1992). Actual notice to the debtor is required (cf. Chase Manhattan Bank v State , 40 NY2d 590, 1976 (no actual notice of assignment given to debtor)).
In this case, where H Co. has established the actual notice given to MKS, and MKS has failed to raise a triable issue of fact as to any of its defenses, the Court is compelled to find that MKS is liable to H Co. for that portion of the monies due to H Co. from the second installment of the note pursuant to the Partial Assignment. Under these circumstances, H Co. is entitled to partial summary judgment against MKS on the first
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cause of action. MKS's cross-claims against PRK and Kaplan are severed and continued.
MKS's final attempt to stave off summary judgment with a request for discovery must also be rejected. MKS has failed to offer an evidentiary basis for its claim that discovery might lead to relevant evidence; speculation and hope do not suffice ( Lauriello v Gallotta , 59 AD3d 497, 2nd Dept., 2009; Brewster v Five Towns Health Care Realty Corp., 59 AD3d 483, 2nd Dept., 2009).
In the original third-party complaint MKS alleged a claim against the Sawyer defendants for contribution, on the grounds that any damages sustained by H Co. were sustained by reason of negligence by the Sawyer defendants. In the amended third-party
complaint MKS adds a second cause of action against the Sawyer defendants for indemnification. The Sawyer defendants allege three affirmative defenses to the amended third-party complaint, and request summary judgment dismissing the third-party action.
In contribution, tortfeasors responsible for the plaintiff's damages share liability for it ( Mas v Two Bridges Associates by Nat. Kinney Corp. , 75 NY2d 680, 689, 1990). Their common liability to plaintiff is apportioned and each tortfeasor pays its ratable share of plaintiff's loss [ Id. at 690]. Again, MKS bases its purported claim against the Sawyer defendants on the allegation that they took no "steps vis-a-vis MKS" other than to serve the Notice of Partial Assignment. No legal authority is presented for this claim that the lack of "steps vis-a-vis MKS" constitutes negligence or legal malpractice, and the Court is aware of none. On this record, MKS has no claim for contribution against the Sawyer defendants. Consequently the Sawyer defendants are entitled to summary judgment dismissing the first cause of action in the amended third-party complaint.
Common law indemnification, the second cause of action in the third-party complaint arises from a separate duty owed by the indemnitor to the indemnitee ( Raquet v Braun , 90 NY2d 177, 183, 1997, citing Mas at 690). MKS argues that where special circumstances exist, an attorney can be liable to third parties for damages resulting from the attorneys' negligence, and claims that the Sporn affidavit establishes that special circumstances exist here.
Attorney Sporn is the Senior Vice President, General Counsel and Secretary of MKS. He asserts that email communications between himself and Attorney Levy, counsel for PRK, on which Attorney Sawyer was copied, establish that no payments were to be made to anyone other than Kaplan. As noted by the Sawyer defendants, the email
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communications at issue did not concern the subject note. Attorney Sporn also raises the issue of a Modification Agreement, which is irrelevant to the subject note.
The crux of Attorney Sporn's testimony is his claim that he "did not understand the significance of" the Notice of Partial Assignment, and that because Mr. Kaplan remained in possession of the note, and represented that there had been no assignment of the note, and Attorney Sawyer had not stated otherwise despite numerous opportunities to do so, MKS was obligated to pay the holder of the note. He further insists that the New York County litigation was a matter of public record, and that Attorney Sawyer "knew, or should have known, that every reasonable effort should have been made by him to effectively communicate" with him regarding payment of the Partial Assignment "under these complex and contentious circumstances" (Sporn affidavit, par. 18).
None of these claims rises to the level of raising a triable issue of fact regarding any duty from the Sawyer defendants to MKS. As the assignment was of a portion of the monies due under the second installment, rather than the entire second installment, transfer of possession of the note was not required. Any misrepresentation by PRK and/or Kaplan that the note had not been assigned is not a defense against H Co., or its attorneys, given MKS's actual notice of the Partial Assignment. Nor were further communications required, after actual notice of the Partial Assignment was given, even under "complex and contentious circumstances." Finally, the Sawyer defendants were not obligated to check all courts, or all public records, for possible litigation involving MKS and PRK.
Based on the foregoing, the Court finds that Attorney Sporn's affidavit does not establish any special circumstances in this case, and that the Sawyer defendants owed no duty to MKS. Accordingly, the second cause of action for indemnification in the third-party complaint must be dismissed .
H Co. and the Sawyer defendants further request an order imposing sanctions on Attorney Joseph Heppt, the attorney for MKS, for engaging in frivolous conduct as defined in 22 NYC 130-1.1(c). They argue that the sole reason for commencement of the third-party action was to pressure H Co. to discontinue its claim, force the Sawyer defendants to withdraw, and/or cause H Co. to incur unnecessary legal fees. While the claims set forth in the third-party action did not survive, the Court is not prepared, on this record, to find that such claims were entirely frivolous. At this juncture, Attorney Heppt will be given the benefit of the doubt, and the request for sanctions is denied . Nevertheless, the Court cautions the attorneys that it will not tolerate conduct undertaken
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to harass any party, and prevent a speedy resolution of the claims herein.
MKS cross-moves for an order disqualifying the third-party defendants from continuing to represent H Co pursuant to Rules 1.7(Conflict of Interest) and 3.7(Lawyer as Witness) of the new Professional Disciplinary Rules, effective April 1, 2009. However, a party's right to be represented by the attorney of its choice should not be abridged absent a clear showing that disqualification is warranted ( Haberman v City of Long Beach , 298 AD2d 497, 2nd Dept., 2002). Disqualification denies a party's right to representation by the attorney of its choice and can derail the proceedings in an ongoing lawsuit, resulting in the strategic advantage of one party over another ( S S Hotel Ventures Ltd. Partnership v 777 S.H. Corp. , 69 NY2d 437, 443, 1987). Here, as the third-party action has been dismissed in its entirety, the continued representation of H Co. by the Sawyer defendants no longer presents any conflict of interest. Further, H Co. has been granted partial summary judgment against MKS on the basis of documentary evidence, as noted above. Therefore, there is no longer any issue regarding the attorney/advocate rule for Attorney Sawyer. Based on the foregoing, the cross-motion for disqualification of the Sawyer defendants is denied .
The motion by H Co. for an order pursuant to CPLR 6211(b), confirming this Court's Order of Attachment against PRK and Richard Kaplan dated February 17, 2009, is granted . H Co. has met the requirements for a confirmation order as set forth in CPLR 6212 (a). No explanation whatsoever is provided for the representation in the Settlement Agreement in the New York County action which is at the heart of this case, namely, that the subject note "has not been . . . assigned" when in fact PRK had assigned a portion of the second installment months earlier to H Co. Neither Richard Kaplan, nor any member of PRK, submits any evidence whatsoever, and Attorney Greene confuses the judgment in another action with H Co.'s claims herein. Indeed, Attorney Greene makes some of the same arguments that did not succeed for MKS in opposition to H Co.'s motion for partial summary judgment.
On this record, H Co. has shown that it has a likelihood of success on the merits on its claim against these two defendants for tortious interference with contract, that grounds for attachment exist under CPLR 6201(3), and that the amount demanded from the defendant exceeds all counterclaims known to H Co. Consequently the Order of Confirmation is granted .
Finally, H Co. seeks, pursuant to CPLR 6214(b), an order extending the levy made
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by the New York County Sheriff's office on February 24, 2009 on PRK and Richard Kaplan and garnishees Plum Shoppes, LLC, Richard S Kaplan, CPA, PC, RS Kaplan and Associates LLP, and RS Kaplan, CPA, PC, as well as an order compelling Kaplan and PRK to deliver to the New York County Sheriff's office documents of title in their possession that concern any assets owned or in which they have an interest. The basis for this request is the allegation that nothing has been attached to date, and that possession by the Sheriff of documentary evidence of title is necessary to protect against improper transfers to third parties in contravention of the Order of attachment.
Defendants Kaplan and PRK object to this relief in a conclusory manner.
Based on the foregoing, the levy is hereby continued for an additional 180 days, and Richard Kaplan and PRK are directed to deliver, to the New York County Sheriff's office, documents of title in connection with any ownership interest in The Hermitage at Napeague, Ltd, PRK Stores LLC, Plum Shoppes LLC, Richard S. Kaplan, CPA, PC, RS Kaplan and Associates LLP, and RS Kaplan CPA, PC.
A Preliminary Conference has been scheduled for September 1, 2009 at 9:30 a.m. in Chambers of the undersigned. Please be advised that counsel appearing for the Preliminary Conference shall be fully versed in the factual background and their client's schedule for the purpose of setting firm deposition dates.