Vitale v. Koenig

Full title: Joseph Vitale and TITAN ELECTRICAL COMPANY OF NEW YORK, INC., Plaintiffs…

Court: Supreme Court, New York County

Date published: Oct 12, 2017

2017 N.Y. Slip Op. 51557 (N.Y. Sup. Ct. 2017)

Opinion

108444/2010

10-12-2017

Joseph Vitale and TITAN ELECTRICAL COMPANY OF NEW YORK, INC., Plaintiffs, v. Steven A. Koenig, Defendant. Joseph Vitale individually and derivatively on behalf of TITAN ELECTRICAL COMPANY OF NEW YORK, INC., Plaintiffs, v. Mario Sonzone, SUNRISE CONTRACTING, ELITE CONSTRUCTION COMPANY, HI TECH CONTRACTING, INC., HI TECH CONSTRUCTION, ACTION CONSTRUCTION CO., HARBOR CONSTRUCTION, RITE WAY CONSTRUCTION, SUDDENLY SECURITY, M & S RENTAL and MICHAEL LAGANO, Defendants, and TITAN ELECTRICAL COMPANY OF NEW YORK, INC., Nominal Defendant.

Appearances: Ronald S. Herzog LeClairryan, P.C. Attorneys for the Defendant Steven Koenig 885 Third Ave, 16th Floor New York, NY 10022 John A. Coleman Jr. Esq. Cohen & Coleman, LLP Attorneys for Plaintiffs 767 Third Avenue, 31st Floor New York, NY 10017 Shari Claire Lewis, Esq. Rivkin Radler LLP Attorneys for Defendants Mario Sonzone, Sunrise Contracting, Elite Construction Company, HI Tech Contracting Inc, HI Tech Construction Action, Rite Way Construction, Suddenly Security, M & S Rental and Michael Lagano 926 RXR Plaza Uniondale, NY 11556

Carmen Victoria St. George, J.

Appearances: Ronald S. Herzog LeClairryan, P.C. Attorneys for the Defendant Steven Koenig 885 Third Ave, 16th Floor New York, NY 10022 John A. Coleman Jr. Esq. Cohen & Coleman, LLP Attorneys for Plaintiffs 767 Third Avenue, 31st Floor New York, NY 10017 Shari Claire Lewis, Esq. Rivkin Radler LLP Attorneys for Defendants Mario Sonzone, Sunrise Contracting, Elite Construction Company, HI Tech Contracting Inc, HI Tech Construction Action, Rite Way Construction, Suddenly Security, M & S Rental and Michael Lagano 926 RXR Plaza Uniondale, NY 11556 Carmen Victoria St. George, J.

In this motion, Steven A. Koenig, the defendant in Vitale v Koenig (Index No. 108444/2010), moves for summary judgment dismissing all remaining causes of action. Plaintiffs oppose the motion. For the reasons below, the Court grants the motion.

The undisputed facts, which this Court has condensed from its decision in motion sequence 004, are as follows: In late 2001, Joseph Vitale formed a company which he named Titan Electrical and Elevator Contracting Company (Titan I).¹ Mr. Vitale was the sole owner of the company. In December 2004, Mr. Vitale formed Titan Electrical Company of New York (Titan II). The business became operational after, on August 31, 2005, Mr. Vitale and Mr. Sonzone entered into a partnership. In his capacity as an electrician, Mr. Vitale's business had worked with Mr. Sonzone's and his general contracting business Sunrise Contracting. The parties' partnership agreement provided that the partners would divide the shares of the company and its profits and liabilities equally. Mr. Sonzone took charge of the administrative and financial aspects of the corporation, contributing funds as necessary. The parties agreed that, in addition, Mr. Sonzone would give money to Mr. Vitale and Titan I so that the company could clear up its debts and pay back taxes. The parties dispute whether this money was a loan or was part of the agreement that Titan II would pay the expenses and liabilities of Titan I. In March 2007 Titan II ceased its operations.

1 The parties use acronyms for the first and third Titan businesses, but for the sake of clarity the Court refers to them as Titan I, Titan II, and Titan III.

At some point after the dissolution of Titan II, the former partners accused each other of fiscal improprieties and numerous other violations of the agreement. Each alleged that, through a variety of methods, the other diverted profits from Titan II and placed them into his own hands. In Vitale v Sonzone (Index No. 111440/2011 [Sup Ct NY County]), Mr. Vitale and Titan II sue Mr. Sonzone, his contracting business, and other defendants.

The current lawsuit, which is joined for discovery purposes with Vitale v Sonzone, is against Mr. Koenig, who was Titan II's accountant. Here, plaintiffs assert that in June 2007 Mr. Vitale asked defendant to perform an accounting of Titan II. Plaintiffs states that in response Mr. Vitale simply received a few pages of handwritten notes with the title "Audit." Allegedly, Mr. Koenig conceded that he did not review the corporate American Express card bills, which would have shown whether Mr. Sonzone made personal charges or otherwise improper charges on his corporate card, along with other bills from the company. Instead, he stated that he relied entirely on the limited papers Mr. Sonzone had provided to him. Moreover, plaintiffs state, defendant refused to evaluate these other charges when Mr. Vitale provided him with the pertinent records. Plaintiffs claim that defendant received more than $7,000.00 for his improper tax and audit work. Justice Billings, who formerly presided over this case, issued an order in 2011 which dismissed plaintiffs' second, third, and fourth causes of action. Thus, all that remains are the first cause of action, for professional negligence and accounting malpractice, and the third cause of action, for aiding and abetting Mr. Sonzone's breach of fiduciary duty. Plaintiffs seek damages of at least $120,000.00.

In his motion to dismiss these remaining causes of action, defendant states there are no triable issues of fact. The first cause of action, he states, is based on the audit he performed on June 26, 2007 and the tax returns he prepared for 2005, 2006, and 2007. As for the June 26, 2007 audit, defendant points out that he performed the audit months after the dissolution of Titan II. As accounting malpractice requires proof of proximate cause, and as plaintiffs did not rely on this document to their detriment during the operation of Titan II, and they cannot show that damages flowed from it, the allegation has no merit.

Moreover, Mr. Koenig states, as Mr. Sonzone was the individual who held the books and records of Titan II and managed the Quickbooks, he had no choice but to rely on the materials that Mr. Sonzone provided to him. Such reliance, he states, complies with the IRS guidelines that govern income tax preparers.² Further, he argues, there is no evidence he knew anything about Mr. Sonzone's alleged misappropriations of funds.³ He states that Mr. Vitale's contention that he worked for the dummy companies is vague and lacks evidentiary support. He acknowledges that he prepared final K-1 tax returns for the partners, winding up their affairs at Titan II, and asserts this was the extent of his work for these parties. In addition, defendant states that Mr. Vitale disregarded his personal tax obligations and thus cannot claim damages resulting from the 2005-2007 tax returns of the company. Finally, he points out that Mr. Vitale indicated at his deposition, which took place in September and October of 2014, that although his filings in 2013 and 2014 revealed issues with the 2005-2007 tax returns that defendant prepared, he had not been assessed any penalties yet. He argues that in the absence of such penalties, plaintiffs cannot show damages, also a critical part of their first cause of action. Any future penalties, he concludes, are not the result of any malpractice on his part because Mr. Vitale did not have his accountant file his taxes until 2013 and 2014 and did not have his accountant check defendant's original work. He concludes that the lack of expert testimony as to the alleged malpractice is fatal to the cause of action as well.

2 IRS § 230-34 (d) provides that a tax preparer may rely on such information in good faith and without verification, but may not "ignore the implications of information furnished to, or actually known by, the [preparer], and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.

3 He claims that Mr. Vitale conceded as much during his deposition. However, Mr. Vitale simply stated that he had no knowledge that Mr. Koenig was aware of the activity. --------

For similar reasons, defendant argues that the third cause of action should be dismissed. He alleges that plaintiffs have provided no evidence suggesting that he had any knowledge of the existence of dummy companies, and that plaintiffs' claims to the contrary are based solely on the fact that Mr. Sonzone hired defendant. He states that Mr. Vitale cannot identify specific information showing his alleged knowledge that Mr. Sonzone was siphoning Titan II's money into his and his company's accounts. Defendant points to Mr. Vitale's deposition testimony, in which Mr. Vitale stated that he had been unaware, either way, whether defendant had used Titan II's funds improperly. Plaintiffs' lack of evidentiary support, defendant alleges, is fatal to the third cause of action.

Mr. Vitale submits an affidavit in opposition on behalf of plaintiffs. He states that, at least since 2006, defendant was aware of Titan II and Mr. Sonzone's methods of accounting due to his tax work for the company. He points out that defendant met with Mr. Sonzone after Mr. Vitale requested an accounting, and that he relied on the information Mr. Sonzone provided. This, he suggests, is indicative of some collusion. He states he never would have agreed to a profit-sharing agreement in the manner Mr. Sonzone describes. He states that the so-called audit initially indicated that Titan II had made a profit. He contends that defendant only subsequently denied he'd performed an audit and that no profits were due. He states that during the time in question defendant also worked for Mr. Sonzone and the dummy companies and intimates that this shows his conflict of interest. His own subsequent review of the bank statements, Mr. Vitale contends, revealed wrongdoings that defendant should have and did not uncover; and, he suggests defendant's allegiance to Mr. Sonzone is the reason. Even if, as defendant contends, defendant was unaware of any fiscal improprieties at the time they occurred, his failure to produce American Express records to Mr. Vitale upon request renders defendant culpable.

In Schmidt v One New York Plaza (153 AD3d 427, 428 [1st Dept 2017]), the First Department reaffirmed the standard of review for a summary judgment motion:

On a motion for summary judgment, the moving party has the initial burden of establishing its entitlement to judgment as a matter of law with evidence sufficient to eliminate any material issue of fact (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1985]). The facts must be viewed "in the light most favorable to the non-moving party" (Ortiz v Varsity Holdings, LLC, 18 NY3d 335, 339 [2011]). Summary judgment should not be granted where there is any doubt as to the existence of triable issues or there are any issues of fact (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; see Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Utilizing this standard, the Court dismisses plaintiffs' first cause of action. A claim of accounting malpractice or negligence not only "requires proof that there was a departure from accepted standards of practice" but requires a showing "that the departure was the proximate cause of the injury" (D.D. Hamilton Textiles, Inc. v Estate of Mate, 269 AD2d 214, 215 [1st Dept 2000]). Absent a showing of proximate cause, the case for professional negligence must be dismissed (See Charlap v BDO Seidman, 251 AD2d 146, 147 [1st Dept 1998]). Here, defendant persuasively argues that the claim relating to the 2007 "audit" occurred after the alleged misappropriations of funds and dissolution of the company. Thus, the Court need not reach the issue of defendant's competence with respect to the 2007 audit.

As for the alleged malpractice relating to the tax returns, defendant was entitled to rely in good faith on the records his clients provided to him, without the need for verification (CFR § 10.34 [d]). Plaintiffs have not set forth facts that show defendant, who was hired by Titan II in a limited capacity, should not have trusted the Quickbooks which Mr. Sonzone provided. In fact, Mr. Vitale himself did not mistrust Mr. Sonzone initially.

Moreover, plaintiffs' third cause of action must be dismissed because plaintiffs have not raised more than speculative allegations of collusion (See Lichtman v Mount Judah Cemetery, 269 AD2d 319, 321 [1st Dept 2000]). The questions of fact plaintiffs allege relate to the accounting system Mr. Sonzone employed and to the use of credit cards and the payroll system. These were not within the control of defendant, who prepared the taxes but did not create the accounting system for the company. Nor is he chargeable with knowledge simply because Mr. Sonzone retained him for tax services for himself and some of his other businesses.

Therefore, it is

ORDERED that the motion for summary judgment is granted and the action is dismissed. Dated: October 12, 2017 ENTER: ____________________________________ Carmen Victoria St. George, J.S.C.