Mitchell v Kurtz

[*1] Mitchell v Kurtz 2005 NY Slip Op 52107(U) [10 Misc 3d 1063(A)] Decided on November 23, 2005 Supreme Court, New York County Acosta, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 23, 2005
Supreme Court, New York County

Michael Mitchell, Plaintiff,

against

Richard Kurtz, the Kamson Corporation, and Steven Bennett Blau, Defendants.



107428/05

Rolando T. Acosta, J.

This action arises out of a series of three loans totaling $400,000.00 made in 1999 by defendant Richard Kurtz as president of The Kamson Corporation ("Kamson") to plaintiff Michael Mitchell ("Mitchell"), as president and CEO of LCS Golf, Inc. ("LCS").[FN1] The first loan was made on or about May 17, 1999 in the amount of $150,000, and was to be repaid on September 18, 1999 with an interest rate of 10%; the second loan was made on or about August 11, 1999 in the amount of $100,000 and was to be repaid on November 23, 1999 with an interest rate of 10%; and the third loan was made on or about August 24, 1999 in the amount of $150,000, and was to be repaid by November 23, 1999 with an interest rate of 10%. Mitchell personally guaranteed all three loans. Mitchell, however, subsequently defaulted on all three loans, and in 2002 Richard Kurt commenced an action against Mitchell in Supreme Court, Putnam County.

A default judgment was entered against Mitchell and in favor of Kurtz on July 19, 2004 in the amount of $599,123.33. It was at this juncture that the co-defendant in this action, Steven Bennett Blau, Esq. ("Blau"), began representing Kurtz. Pursuant to CPLR § 5222, Blau duly served Mitchell with a restraining notice on August 2, 2004, after entry of judgment. Blau thereafter served a restraining notice on Conversion Services International, Inc. ("CSII") of which plaintiff was the President and CEO, and on its stock transfer agent, Old Monmouth Stock Transfer Company, to prevent Mitchell from transferring or disposing of his CSII stock.

Mitchell argues that the restraining notices were served by Kurtz through his attorney Blau to harm him financially and socially. Mitchell additionally [*2]claims that the restraining notices were used by Kurtz and his attorney to defame his character and credit. Mitchell further claims that Kurtz fraudulently misrepresented to him that Kurtz would accept transfers of LCS stock as repayment of the loans made to Mitchell by Kurtz. Kurtz, on the other hand, argues that he accepted the LCS stocks as forbearance from bringing judicial action against Mitchell to recover upon the loans up until 2002.

Defendants move for summary judgment dismissing the complaint in its entirety and plaintiff cross-moves to amend his seventh cause of action. For the foregoing reasons, defendants' motion for summary judgment is granted, and plaintiff's cross-motion to amend is denied.

Plaintiff's first cause of action against Kurtz (fraud), second, third, fourth causes of action against Kurtz and Kamson (breach of contract) and fifth cause of action against Kurtz (unjust enrichment) are barred by the doctrine of res judicata and accordingly defendants' motion for summary judgment as to plaintiff's first, second, third, fourth, and fifth causes of action is granted.

In 2002, defendant Kurtz commenced an action against plaintiff Mitchell to recover the entire outstanding loan of $400,000 together with interest. The action proceeded under the caption Kurtz v. Mitchell, Index No. 1103/02. A default judgment was duly entered against Mitchell on July 19, 2004 in the amount of $599,123.33. Mitchell subsequently moved to vacate the default judgment on November 29, 2004. The application to vacate the default judgment was denied by a Decision and Order of the Hon. Andrew P. O'Rourke dated December 13, 2004. In denying Mitchell's motion to vacate the default, Justice O'Rourke explicitly held that Mitchell did not have a reasonable excuse for his default, nor a meritorious defense to Kurtz's claim against him.

In the present action Mitchell's first, second, third, fourth, and fifth causes of action arise out of the very same series of loan transactions between Mitchell and Kurtz which have already been brought to a final adjudication in Supreme Court, Putnam County, where judgment in favor of Kurtz and against Mitchell has been entered. The facts and transactions asserted in the Putnam county litigation are identical to those in the present litigation, and as such the present action is barred by the doctrine of res judicata.

The doctrine of res judicata relieves a party from the cost and attendant inconveniences of defending multiple lawsuits, conserves judicial resources by preventing inconsistent decisions, and encourages reliance on adjudication. Allen v. McCurry, 449 U.S. 90, 94 (1980). Res judicata operates to preclude parties from relitigating issues that were or could have been raised in an earlier adjudicated [*3]action, even if the later claim is based on different legal theories. O'Brien v. City of Syracuse, 54 NY2d 353 (1981). See also Schuylkill Fuel Corp. v. B&C Neilberg Realty Corp, 250 NY 304 (1929) ("A judgment in one action is conclusive in a later one, not only as to any matters actually litigated therein, but also as to any that might have been so litigated, when the two causes of action have such measure of identity that a different judgment in the second would destroy or impair rights of interest established by the first".)

Notwithstanding settled law, and without citing authority for his position, Mitchell contends that his causes of action against Kurtz are not barred by the doctrine of res judicata inasmuch as the prior default judgment against him was not decided on the merits. This argument has no merit. Res judicata is applicable to a judgment taken by default which has not been vacated. Spindell v. Brooklyn Jewish Hospital, 35 AD2d 962 (2nd Dept. 1970) aff'd 29 NY2d 888 (1970). See also Robbins v. Growney, 229 AD2d 356, 357 (1st Dept. 1996)("[t]he doctrine of res judicata is applicable to a judgment taken by default which has not been vacated, as well as defenses raised in the prior action or which, though not raised, could have been raised" (internal citations omitted).

A motion to vacate Mitchell's default was made before Justice O'Rourke. Eisenstein v. Rose, 135 AD2d 369 (1st Dept. 1987). In deciding whether to vacate the judgment entered against Mitchell's default, Justice O'Rourke explicitly found that Mitchell lacked a meritorious defense to the underlying actions by Kurtz. Indeed, Justice O'Rourke further found that Mitchell "evidenced a persistent and egregious disregard for judicial process and he woefully has failed to establish any excusable default." Kurtz v. Mitchell, 1103/02. Mitchell, failing to perfect his appeal of Justice O'Rourke's order, has now instead chosen to recast his causes of action before this Court and add a few new claims. Given the doctrine of res judicata as well as Justice O'Rourke's findings, Mitchell should know better; and so should his counsel.

Incredibly, Mitchell's sixth cause of action against Richard Kurtz and Steven Bennett Blau is for abuse of process. According to Mitchell, on September 21, 2004, defendants served a restraining notice on CSII, directing CSII to place a restraint on any debts owed to plaintiff and on any property which CSII held in which plaintiff may have had an interest. On May 9, 2005 defendant Blau served a Restraining Notice via regular mail upon plaintiff's banking institution, Mahopac National Bank ("Mahopac") directing Mahopac to place restraints on plaintiff's checking and savings account, certificates of deposit, wire transfer funds, and/or bank investment products. On the same day defendant Blau also served a [*4]restraining notice via regular mail upon Old Monmouth Stock Transfer Company, Inc., placing a restraint on property which was in their possession or custody, and in which plaintiff had an interest.

Plaintiff claims that the Restraining Notices upon CSI and Old Monmouth failed to comply with the service requirements of CPLR § 5222, and as such represent an abuse of process on the parts of defendants. This argument is without merit. To be successful on an abuse of process claim, plaintiff must show (1) regularly issued process, either civil or criminal; (2) an intent to do harm without excuse or justification; (3) use of process in a perverted manner to obtain a collateral objective. Curiano v. Suozzi, 63 NY2d 113 (1984). Plaintiff has failed to show that defendants served the restraining notices with an intent to do harm to plaintiff without excuse or justification, or that the restraining notices were utilized to obtain a collateral objective.

Irrespective of whether defendants complied with the service requirements of the restraining notices pursuant to CPLR § 5222, the process was used for the purpose for which it was created, namely, to allow defendants to collect on a properly obtained judgment by preventing Mitchell from improperly disposing of property before the judgment is satisfied. See City of New York v. Panzirer, 23 AD2d 158 (1st Dept. 1965). Section 5222 of the CPLR permits a judgment creditor to place a restraint upon a judgment debtor's property, and Mitchell has failed to provide any perverted ulterior motives on the part of defendants for serving the restraining notices. Rather, the judgment entered against Mitchell justified defendants' actions and does not constitute an abuse of process. See Hornstein v. Wolf, 67 NY2d 721 (1986) (complaint insufficient to state a cause of action for abuse of process since it failed to allege any misuse of the process to obtain an end outside its proper scope). Accordingly, defendants' motion for summary judgment against plaintiff's sixth cause of action is granted

Plaintiff's seventh cause of action against Kurtz and Blau alleges that as a result of the restraining notices served by defendants, he was defamed in both the financial and social community. Defendants motion for summary judgment against plaintiff's seventh cause of action is granted inasmuch as plaintiff has failed to set forth "the particular words complained of..." CPLR § 3016(a). Plaintiff, having failed to set forth the particular words he claims to have defamed him, has failed to state a cause of action for defamation. See Erlitz v. Segal, Liling, & Erlitz, 142 AD2d 710, 712 (2nd Dept. 1988) (requirement that the defamatory words be quoted verbatim is strictly enforced). Moreover, truth is an absolute defense to a claim of defamation. Bell v. Alden Owners, Inc., 299 AD2d 207 (1st Dept. 2002). In the [*5]instant action plaintiff has not shown that the restraining notices nor the judgment upon which the notices are predicated were false, and thus has failed to state a claim for defamation.

Without citing authority for his position or denying the truth regarding his debt to Kurtz, plaintiff now seeks to amend his Verified Complaint to incorporate the improperly served restraining notices as the engine of his cause of action for defamation. Although a determination whether to grant leave to amend a pleading is within the sound discretion of the court, it should not be lightly considered. Sidor v. Zuhoski, 257 AD2d 564 (2nd Dept. 1999). While leave to amend should be granted absent prejudice or surprise, leave should be denied if the proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit. Tarantini v. Russo Realty Corp., 273 AD2d 458 (2nd Dept. 2000). In the present action, plaintiff's proposed amendment is devoid of merit. Without setting forth the defamatory words, or any authority for his propositions, plaintiff contends that the restraining notices that were improperly served by defendants caused plaintiff's reputation to be defamed in the professional and social community. Again, and significantly, plaintiff has failed to even dispute whether the contents of the restraining notices are false. This Court finds that "[Defendants'] use of a collection tool did not constitute a tort, and, thus, [they] overcame the presumption of validity of the proposed cause[] of action." Caribbean Const. Services & Associates, Inc. v. Zurich Ins. Co., 267 AD2d 81 (1st Dept. 1999).

The Court now turns to defendants motion for sanctions against plaintiff's attorney, Robert M. Smiles, for engaging in frivolous conduct. 22 NYCRR § 130-1.1(a) gives the Court discretion to award costs in the form of expenses reasonably incurred and reasonable attorney's fees and/or financial sanctions upon a party or attorney who engages in frivolous conduct. Conduct will be frivolous if (1) it is completely without merit in law and cannot be supported by reasonable argument for an extension, modification, or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false. 22 NYCRR § 130-1.1( c ). In considering whether conduct is frivolous under the Rule, the Court shall consider "(1) the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct, and (2) whether or not the conduct was continued when its lack of legal or factual basis was apparent, should have been apparent, or was brought to the attention of counsel or the party." 22 NYCRR § 130-1.1( c )(3).

Having reviewed the papers in this motion, including the filings in the prior [*6]action, the Court fails to detect non-frivolous conduct on the part of Robert M. Simels, P.C. Indeed, the Court believes that plaintiff's attorney may have engaged in conduct that is frivolous within the meaning of the Rules and Statute in that the present action may have been undertaken to harass and prolong the resolution of the conflict between the parties. Plaintiff's first five causes of action have been judicially adjudged in the prior Putnam Supreme Court action, in which plaintiff was represented by Robert M. Simels, P.C. ("Simels") which also represents him in the present action. Thus, Simels knew or should have known plaintiff's first five causes of action would be barred by the doctrine of res judicata and has failed to provide this Court with any good faith argument for an extension, modification, or reversal of current law. 22 NYCRR § 130-1.1( c )(1). Moreover, plaintiff's causes of action for abuse of process and defamation were predicated upon a lack of legal and factual basis, and this should have been apparent to Simels. Id.

However, while it is within the Court's discretion to impose sanctions without the necessity of a hearing, Jalor Color Graphics, Inc. v. Universal Advertising Systems Inc., 183 Misc 2d 294, aff'd 191 Misc 2d 653 (NY App. Term 2002) aff'd 2 AD3d 165 (1st Dept. 2003); see also Matter of Minister, Elders & Deacons of Refm. Prot. Dutch Church of City of NY v. 198 Broadway, 76 NY2d 411 (1990) ("[Defendants'] express request for the imposition of sanctions pursuant to subpart 130-1 of the rules furnished [plaintiff] with adequate notice that such relief would be considered and rendered a formal hearing unnecessary."), in proceeding with as much caution as is prudently possible after careful and prolonged deliberation, and giving counsel every benefit of the doubt and a final opportunity to be heard, supra, at 415, the Court hereby orders a hearing for plaintiff's counsel to show cause why this Court should not find its conduct frivolous within the meaning of Section 130-1.1 of the Rules of the Chief Administrator of the Courts. Accordingly, it is hereby

ORDERED that defendants motion for summary judgment dismissing plaintiff's complaint in its entirety is GRANTED and the complaint is dismissed; and it is further

ORDERED that plaintiff's cross motion to amend the verified complaint is DENIED; and it is further

ORDERED that a hearing to determine the propriety of sanctions, including costs and reasonable attorney's fee, are to be held on December 22, 2005 at 11:30 a.m. in this Court, Part 61.

This constitutes the Decision and Order of the Court. [*7]

Dated: November 23, 2005 ENTER

__________________________ Rolando T. Acosta, J.S.C.

Footnotes

Footnote 1: This Decision was edited for publication.