Williams v Sidley Austin Brown & Wood, L.L.P.

[*1] Williams v Sidley Austin Brown & Wood, L.L.P. 2006 NY Slip Op 50381(U) [11 Misc 3d 1064(A)] Decided on March 13, 2006 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 13, 2006
Supreme Court, New York County

E. ROGER WILLIAMS, NORMANDY TRADING, INC. and NORMANDY INVESTMENT TRUST, Plaintiffs,

against

SIDLEY AUSTIN BROWN & WOOD, L.L.P; RAYMOND J. RUBLE; MULTINATIONAL STRATEGIES, LLC; KEVIN M. KOPS; MICHAEL N. SCHWARTZ; COASTAL TRADING, LLC; ENTERPRISE FINANCIAL SERVICES INC., f/k/a ENTERPRISE BANK; DEERHURST MANAGEMENT COMPANY, N.C.; BRAXTON MANAGEMENT, INC; BRADONTON MANAGEMENT, INC.; NORTHBRIDGE CAPITAL MANAGEMENT, INC. BECKENHAM TRADING COMPANY, INC.; PETER MOLYNEUX; ANDREW KRIEGER; REFCO CAPITAL MARKETS, LTD.; HVB US FINANCE INC.; and DAVID A. SCHWARTZ, Defendants.



600808/05



Plaintiffs:

Kane Kessler, P.C.

1350 Avenue of the Americas

New York, New York 10019

(Jeffrey H. Daichman, Esq.)

Whatley Drake LLC

2323 2nd Avenue North

Birmingham AL 35203

(Joe R. Whatley, Jr., Esq.)Defendants:

Attorneys for defendant Sidley Austin Brown & Wood LLP

Covington & Burlington

1330 Avenue of the Americas

New York, NY 10019

(Aaron R. Marcu, Esq. Andrew Ruffino, Esq., Phillip A. Irwin Esq., Jason P. Criss, Esq.)

Of Counsel: Munger Tolles & Olson LLP

355 South Grand Avenue, 35th Floor

Los Angeles, California 90071

(Richard E. Drooyan, Esq.)

Attorneys for Raymond J. Ruble

William J. Brady, III, Esq.

Frankel & Abrams

230 Park Avenue

New York, New York 10169

(Stuart E. Abrams, Esq.

William J. Brady, III, Esq.)

Attorneys for Defendant HVB US Finance Inc. f/k/a HVB Structured Finance Inc.: Fulbright & Jaworski, LLP

555 S. Flower Street

Los Angeles, California 90071

(Helen L. Duncan, Esq., Dinh Ha, Esq.)

and

666 Fifth Avenue

New York, New York 10103

(Sarah E. O'Connell, Esq.)

Bernard J. Fried, J.

Motion sequence numbers 007, 008 and 009 are consolidated for determination.

In this action, plaintiffs, E. Roger Williams and his affiliated entities, assert thirteen causes of action against the defendants, who are alleged to have acted in concert to structure and facilitate a series of transactions leading to plaintiffs' investment in the Coastal Common Trust Fund Series III Fund (the Coastal III Fund). Plaintiffs allege that defendants made fraudulent or negligent misrepresentations, concealed the nature of their relationships, breached their fiduciary duty, and committed professional malpractice to induce plaintiffs to enter into these transactions, and to claim $8,033.250.77 in ordinary losses generated by the Fund as a deduction against income on their 2001 U.S. federal and state income tax returns. Plaintiffs seek both declaratory relief and damages, including the interest, penalties and late fees paid when, subsequently, the deductions were disallowed by the Internal Revenue Service (IRS).

Under motion sequence 007 and 008, the law firm defendants, Sidley Austin Brown & Wood LLP (Sidley) and attorney Raymond J. Ruble (together the Sidley defendants) move to dismiss plaintiffs' amended complaint pursuant to CPLR 3211 (a) (1) & (7) and CPLR 3016 (b), relying, in part upon alleged "documentary evidence" to demonstrate that Sidley made no representations to plaintiffs prior to their investment in the Coastal III Fund. Under motion sequence 009 defendant HVB US Finance Inc.(HVB) moves to dismiss plaintiffs' complaint, pursuant to CPLR 3211 (a) (7) for failure to state a cause of action, and allege that plaintiffs have [*2]no standing to seek a declaratory judgment. [FN1]

For purposes of these CPLR 3211 motions, the following facts, as alleged in plaintiffs' complaint, are accepted as true, and given the benefit of every possible favorable inference (EBC I, Inc. V Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]; Sokoloff v Harriman Estates Development Corp., 96 NY2d 409, 414 [2001]; P.T. Bank Central Asia v ABN AMRO Bank N.V., 301 AD2d 373, 375-6 [1st Dept 2003]).

Plaintiff E. Roger Williams was introduced to defendant Multi National Strategies, LLC, and its principals, Michael N. Schwartz, Kevin M. Kops and David Schwartz (collectively, the Multi National defendants) in October 2001 for the purpose of obtaining tax advice in connection with a substantial amount of "phantom equity" imputed to Williams as a result of the sale of one of his businesses. Defendants Schwartz and Kops, both certified public accountants, represented that they were experts in the field with substantial experience in creating, marketing and selling tax advantaged products to corporations and high net worth individuals. They advised Williams to invest in a "common trust fund" (CTF), which Schwartz and Kops represented was a lawful tax strategy with tremendous tax benefits. Schwartz and Kops explained that a CTF transaction was materially different from other tax strategies previously challenged by the IRS, and that the transaction would be accompanied by an opinion letter from defendant Sidley, which the Multi National defendants represented was an independent, international and highly reputable tax law firm. The Multi-National defendants represented to Mr. Williams that because Sidley was an independent, international and reputable law firm, the opinion letter would shield plaintiffs from accuracy penalties in the event of an adverse determination by the IRS, and that an adverse determination was unlikely because the CTF involved fewer investors than other tax strategies, making it unlikely to attract IRS attention. The Multi National defendants represented that the CTF transaction they were marketing met the "economic substance" and "clear business purpose" tests used by the IRS to measure the legitimacy of a transaction, and assured Williams that Sidley would provide him with an opinion letter stating that it was "more likely than not" that the transaction would be acceptable to the IRS. The Multi National defendants also advised Williams that it was absolutely essential that Williams obtain a Sidley opinion letter before making use of the CTF transaction losses when filing U.S. federal income tax returns for 2001.

As further assurance of the legitimacy and safety of a CTF investment, Multi National highlighted the participation of Deerhurst Management Company, Inc., which Multi National asserted was one of the premier experts in the field of options and foreign currency trading, and HVB, a subsidiary of Germany's second largest bank, Bayerische Hypo-und Vereinsbank AG. Multi National represented that HVB understood the nature of CTF investments, and would work closely with Multi National and the other defendants named in the amended complaint to implement the strategy.

The Multi National defendants advised Williams that under the Tax Code, the only way a tax sheltered investment in a CTF could be made was through the use of a trust. Thus, in order [*3]to facilitate Williams' investment in the Coastal III Fund, the Multi National defendants assisted Williams in setting up plaintiff Normandy Trading, Inc. (Normandy Trading), a subchapter S corporation wholly owned by Williams in order to limit Williams' personal liability exposure, and plaintiff Normandy Investment Trust ( the Normandy Trust). One of the individual Multi National defendants was named as Secretary of Normandy Trading, and defendant Enterprise Financial Services, Inc. was named as Trustee of Normandy Trust. According to the Sidley Opinion Letter, which is annexed to Sidley's moving papers as Exhibit 3 (the Opinion Letter), the use of these investment entities was in accordance with the prospectus issued for the Coastal III Fund.[FN2]

The next step in making this investment was for Williams to establish an account with defendant Deerhurst. Williams opened the account with Deerhurst on November 21, 2001 with an initial investment of $1.2 million. Deerhurst used those funds to purchase two put options on Japanese Yen for $8,040,426, and $8,000,000 respectively, with both puts maturing in November 22, 2002. Defendant Refco Capital Markets acted as the counter-party on the option transactions. Williams' portfolio was then transferred to Normandy Trading. To cover the options defendant Braxton Management, Inc. (Braxton), a Deerhurst affiliate, borrowed $8 million from Hypo Vereinsbank Structured Finance, of which defendant HVB is the United States counterpart. Braxton loaned the $8 million to Williams, who in turn loaned the $8 Million to Normandy Trading. Normandy Trading then contributed $1.2 million in cash and loaned $8 million to Normandy Trust, which in turn purchased a $9,200,000.00 position in the Coastal III Fund, giving Normandy Trust a 6.6% position in the fund.

The Coastal III Fund then used the $8 million to acquire a foreign currency linked variable rate of return structured note from defendant Bradonton, Inc., another Deerhurst affiliate. According to the Sidley Opinion Letter, Brandonton, in turn "lent" the money to Hypo Vereinsbank Structured Finance. Plaintiffs' amended complaint alleges that Bradonton's loan to HVB was in repayment of the $8 million borrowed by Williams through Braxton, and seeks a declaratory judgment that plaintiffs are not obligated to repay those funds. Plaintiffs' amended complaint also alleges that in addition to lending the $8 million, HVB facilitated the movement [*4]of the funds between the various entities, and that all of these transaction were an anticipated and integral part of the overall Coastal III Fund transaction.

In moving to dismiss plaintiffs' amended complaint, the Sidley defendants rely on an unsigned copy of a Letter of Engagement (the "Engagement Letter") dated December 12, 2001, which purportedly was forwarded to Williams after the CTF transactions were completed. Pursuant to the Engagement Letter, Sidley was to act as "Special U.S. Federal Income Tax Counsel," and would provide Williams with income tax advice, including the Opinion Letter, in relation to the CTF transactions. The Engagement Letter advised Williams that changes in the law could occur after completion of Sidley's engagement which could impact his future rights and liabilities, and that Sidley would have no further obligation unless specifically retained for that purpose. Under the terms of the Engagement Letter, Sidley's fee for providing these services was $50,000 "regardless of the amount of time or disbursements actually incurred payable on delivery of the Opinion Letter." In addition, the Engagement Letter contained a conflict of interest disclosure stating that Sidley represented persons affiliated with Coastal Trading LLC, that it might continue to do so in the future, and that in the event of a conflict of interest, Williams agreed that Sidley would represent the "other client."

On or about December 28, 2001, the Coastal III Fund allocated $8,033,250.77 in ordinary losses to Normandy trading. Several months later, on or about March 8, 2001, Sidley forwarded the 113 page Opinion Letter to Williams. The letter advised Williams that there was a fifty (50%) percent likelihood that the tax treatment of the CTF transactions would be upheld if challenged by the IRS, with a disclaimer stating that Sidley's opinion was "not binding on the IRS or a court of law," and that accordingly, there could be "no assurance" that following an audit, the IRS would not take a position contrary to Sidley's, or that its position would be sustained by the courts. Plaintiffs' complaint alleges that Williams relied upon the Opinion Letter, and IRS K-1 and 1120S forms prepared and provided by Multi National, in preparing income tax returns for Williams and Normandy Trading, and in claiming a $8,033,250.77 loss to offset income for the 2001 tax year.

Three years later, on July 16, 2003, the IRS issued Notice 2003-54 entitled "Common Trust Fund Straddle Tax Shelter" to " alert taxpayers and their representatives that the claimed tax benefits purportedly generated by these transactions are not allowable for federal income tax purposes...." Around the same time, the Multi National defendants informed Williams that there were problems with the CTF transactions, and that the IRS had taken the position that the transaction was a "tax shelter" and had identified it as a "listed transaction" under the relevant provisions of the Income Tax Regulations, based upon a finding that the offsetting positions did not serve any non-tax objectives. Upon learning of the IRS ruling, Williams retained new counsel and accountants to amend plaintiffs' 2001 federal and Connecticut income tax returns, and upon refiling, was required to pay interest to both taxing authorities, as well as late filing penalties to the IRS. Plaintiffs also incurred substantial penalties from having to withdrew from the Coastal III fund.

Addressing the merits of the motions, and notwithstanding the liberal construction to be accorded plaintiffs' pleadings pursuant to CPLR 3211 (EBC I, Inc. V Goldman, Sachs & Co., supra, 5 NY3d at 19; (Sokoloff v Harriman Estates Development Corp., supra 96 NY2d at 414), the allegations of plaintiffs' amended complaint fail to state a cause of action for fraudulent inducement or fraudulent concealment against the attorney defendants, or against HVB, with [*5]respect to plaintiffs' determination to invest in the Costal III Fund. To plead a viable cause of action for fraud, plaintiffs must allege: that the defendants made misrepresentations of material existing fact; which were false and known to be false by the defendants when made, for the purpose of inducing plaintiffs' reliance; justifiable reliance on the alleged misrepresentation or omission by the plaintiffs; and injury (Lama Holding Company v Smith Barney, Inc., 88 NY2d 413 [1996], as; New York University v Continental Ins. Co., 87 NY2d 308, 318 [1995]; Friedman v Anderson, 23 AD3d 163, 166 [1st Dept 2005]). In addition, CPLR 3016 (b) requires that the complaint set forth the misconduct complained of in sufficient detail to clearly inform each defendant of what their respective roles were in the incidents complained of (see P.T. Bank Central Asia v ABN AMRO Bank, 301 AD2d 373, 377 [1st Dept 2003]; Abrahami v UPC Construction Co., Inc., 176 AD2d 180 [1st Dept 1991]); but c.f. Lanzi v Brooks, 43 NY2d 778, 780 [1977]). Mere recitation of the elements of fraud is insufficient to state a cause of action (Friedman v Andersen, supra, 23 AD3d at 166, quoting National Union Fire Ins. Co. of Pittsburgh PA v Robert Christopher Assoc., 257 AD2d 1, 9 [1st Dept 1999]).

In this case, plaintiffs do not allege any direct misrepresentations of fact by the Sidley defendants or by HVB prior to their agreement to enter into the CTF transactions (see Linden v Moskowitz, 294 AD2d 114 [1st Dept 2002]; Abrahami v UPC Construction Co., Inc., supra, 176 AD2d 180), nor do plaintiffs plead facts with sufficient particularity from which to infer that either HVB or the Sidley defendants were in an agency relationship with Multi National, or had sufficient control over the Multi National defendants to allow the purported representations to be imputed to them (CPLR 3016 [b]; see First Nationwide Bank v 965 Amsterdam, Inc., 212 AD2d 469 [1st Dept 1995]; Abrahami v UPC Construction Co., Inc., supra, 176 AD2d 180; National Westminister Bank USA v Weksel, 124 AD2d 144, 147 [1st Dept], app denied, 70 NY2d 604 [1987]). Plaintiffs' amended complaint makes blanket statements that all of the defendants authorized and participated in advancing the alleged scheme without any specific delineation, in large measure, as to their respective roles. While plaintiff need not allege and prove that each defendant committed every element of fraud, plaintiff must establish facts that support an inference that defendants knowingly agreed to cooperate in a fraudulent scheme, or shared a perfidious purpose and, when scienter is lacking, the mere fact that a defendants' otherwise lawful activities may have assisted another in pursuit of guileful objectives is not a sufficient basis for a finding that they conspired to defraud (Snyder v Puente de Brooklyn Realty Corp., 297 AD2d 432 [3rd Dept 2002]; National Westminister Bank USA v Weksel, supra 124 AD2d at 147).

The alleged misrepresentations regarding the purported safety and viability of the Coastal III Fund as a tax sheltered investment fall within the category of predictions or expressions of future events, which are neither affirmations of events that when made, the defendants knew would not occur, nor assertions of present facts that were exclusively within the defendants' knowledge (Channel Master Corp. V Aluminum Limited Sales, 4 NY2d 403, 407-8 [1958]; Beltrone v General Schuyler & Co., 223 AD2d 938, 941 [3rd Dept 1996]; Wilsen Associates Real Estate Corp. Inc. v Pizilly, 204 AD2d 777 [3rd Dept 1994]; Lane v McCallion, 166 AD2d 688 [2d Dept 1990]; see e.g. Lama Holding Company v Smith Barney, Inc., supra, 88 NY2d at 421-22). Predictions and expressions of future events cannot form the basis for a fraud cause of action (SRG Partners v Asch, 270 AD2d 4 [1st Dept 2000]; Auchincloss v Allen, 211 AD2d 417 [1st Dept 1995]). In this case, the CTF transactions were not determined by the IRS to be [*6]inappropriate until three years after the deductions were claimed. Facts regarding positions taken by the IRS in similar instances or with similar types of transactions were not exclusively within the defendant's knowledge, and it may be inferred from the allegations contained within the four corners of the amended complaint that plaintiffs understood the risks, took a gamble that the CTF transactions would achieve the desired tax savings, and lost (see e.g. Pace Communications, Inc. v Amsale Aberra, LLC, 6 Misc 3d 1022[A] [Sup Ct, NY County 2005]; but see Seippel v Jenkens & Gilchrist, P.C., 341 F Supp 2d 363 [SDNY], amended 2004 WL 240391 [SDNY 2004]).

To the extent that the complaint alleges that Sidley made negligent representations to Multi National knowing that those representations would be used to market Coastal products (see Finova Capital Corp. v Berger, 18 AD3d 256 [1st Dept 2005]), or that Sidley and HVB failed to disclose their relationship with Coastal or the other transactional defendants, prior to the time Sidley entered into an attorney-client relationship with Williams, there was no privity of contract between plaintiff and Sidley, or between plaintiffs and HVB, and there are no allegations in plaintiffs' amended complaint from which to infer the existence of any contractual or fiduciary relationship between plaintiffs and the moving defendants that would give rise to a duty to disclose prior to or during the execution of the CTF transactions (see Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 545-48 [1985]; Rovello v Klein, 304 AD2d 638 [2d Dept], lv. denied, 100 NY2d 509 [2003]; Conti v Polizzotto, 243 AD2d 672 [2d Dept 1997]; Mayes v UVI Holdings, Inc., 280 AD2d 153, 161-2 [1st Dept 2001]; Singer v Whitman, 83 AD2d 862, 863 [2d Dept 1981]; National Westminister Bank v Weksel, supra, 124 AD2d at 148; Banque Arabe et Internatinal D'Investissement v Maryland Natl. Bank, 57 F 3d 158 [2d Cir 1995]). Defendant HVB's participation was limited to making a loan to Braxton Management, Inc. There are no allegations that the loan transaction was illegal or fraudulent, and a lawful act done in a lawful way cannot be the basis for a claim of fraudulent conspiracy (Callahan v Gutowski,

111 AD2d 464 [3rd Dept 1985], citing Dalury v Rezinas, 183 App Div 456 [1st Dept 1918], affd 229 NY 513 [1920]; see also National Westminister Bank v Weksel, supra, 124 AD2d at 148; Banque Arabe et Internatinal D'Investissement v Maryland Natl. Bank, 57 F.3d 158 [2d Cir 1995]). The allegations in plaintiffs' amended complaint are insufficient to support the inference of fraud in the inducement or fraudulent concealment against these defendants, and plaintiffs' broad, blunderbuss allegations, that all of the participants in the CTF transactions were engaged in a fraudulent scheme or conspiracy, lack specificity (CPLR 3016 [b]; Abrahami v UPC Construction Co., Inc., supra, 176 AD2d 180; see also Northshore Environmental Solutions, Inc. v Glass, 17 AD3d 427, 428 [2d Dept 2005]).

Plaintiffs' claim against HVB for aiding and abetting fraud must also fail, as there are no facts from which to infer that HVB was aware of plaintiffs' existence let alone affirmatively assisted or concealed the fraud, or failed to act when required to do so (c.f. compare Houbigant, Inc. v Deloitte & Touche LLP, 303 AD2d 92 [1st Dept 2003]; to National Westminster Bank USA v Weksel, supra, 124 AD2d at 150; and Kaufman v. Cohen, 307 AD2d 113, 126 [1st Dept 2003]). Further, in the absence of a viable underlying fraud claim, plaintiffs' cause of action for conspiracy, as asserted against these defendants, must also fail (see Small v Lorillard Tobacco Co., 94 NY2d 43, 57 [1999]; Linden v Moskowitz, 294 AD2d 114, 115 [1st Dept 2002], lv [*7]denied 99 NY2d 505[2003]). Accordingly, plaintiffs' first, ninth and twelfth causes of action, alleging fraud, aiding and abetting fraud, and civil conspiracy, as asserted against the Sidley defendants and HVB, are dismissed.

The same analysis does not apply to plaintiffs' causes action against the Sidley defendants for events or representations occurring after Sidley was retained by Williams as "Special U.S. Federal Income Tax Counsel." Once the attorney-client relationship was engaged, a fiduciary relationship came into play with all of the attendant duties and obligations, which "transcend those prevailing in the commercial market place" (Matter of Cooperman, 83 NY2d 465, 472 [1994]). Attorneys have a duty to deal fairly, honestly with their clients, with undivided loyalty which is superimposed onto the attorney-client relationship, and creates set of special and unique obligations including the avoidance of conflicts of interest, operating competently, safeguarding client property and honoring the clients' interests over their own (Matter of Cooperman, supra, 83 NY2d at 472; see also EBC I, Inc. v Goldman, Sachs & Co., supra 5 NY3d at 19-20; Blue Chip Emerald LLC v Allied Partners Inc., 299 AD2d 278, 279-80 [1st Dept 2002]). "This is a sensitive and 'inflexible' rule of fidelity, barring not only blatant self-dealing, but also requiring avoidance of situations in which a fiduciary's personal interest possibly conflicts with the interest of those owed a fiduciary duty" (Birnbaum v Birnbaum, 73 NY2d 461, 466 [1989]). A fiduciary may not have interests adverse to those of the client, and where a conflict of interest exists, nothing less than full and complete disclosure is required of the fiduciary (TPL Associates v Helmsley-Spear, Inc., 146 AD2d 468, 470 [1st Dept 1989]). If dual interests are to be served, the disclosure, to be effective, must lay bare the truth, without ambiguity or reservation, in all its stark significance. (Guice v Charles Schwab & Co., 89 NY2d 31, 45 [1996], cert denied 520 US 1118 [1997]). Thus, within the context of an attorney-client relationship, plaintiffs' claims that Sidley was acting in its own self interest, and that it did not fully disclose the extent and nature of its relationship with the other defendants, are sufficient to support a cause of action for professional malpractice, and plaintiffs' claims that the Sidley defendants knew or should have known that the transactions in issue would not withstand scrutiny by the IRS, suffice to raise the inference that the Sidley defendants did not exercise the degree of skill commonly exercised by an ordinary member of the legal community in rendering tax advise to plaintiffs (Nevelson v Carro, Spanbock, Kaster & Cuiffo, 259 AD2d 282 [1st Dept 1999]; Thaler & Thaler v Gupta, 208 AD2d 1130 [3rd Dept 1994]). Plaintiffs claim reliance on the Opinion Letter in taking the deduction, and it can be inferred that "but for" the attorneys' alleged negligence in rendering the opinion letter, plaintiff would not have incurred interest, penalties, professional fees and other damages claimed as a result of having to re-file for 2001 (see Nevelson v Carro, Spanbock, Kaster & Cuiffo, supra 259 AD2d at 284; Strook & Strook & Lavan v Beltramini, 157 AD2d 590, 591 [1st Dept 1990]). The Sidley defendants' motion to dismiss plaintiffs' seventh cause of action for professional malpractice, therefore, is denied.

With respect to such damages, however, the moving defendants properly assert that under New York law, plaintiffs are not entitled to recover interest paid to the IRS as a result of having to re-file for the 2001 tax year (see Alpert v Shea Gould Climenko & Casey (160 AD2d 67, [1st Dept 1990][equities militate in favor of barring recovery of such interest rather than allowing plaintiffs the windfall of both having used the tax money and recovering all interest thereon], citing Freschi v Grand Coal Venture, 767 F2d 1041 [2d Cir 1985], vacated on other grounds, 478 U.S. 1015 [1986] [interest upon disallowance of tax deduction by IRS not damages suffered [*8]by plaintiff, but rather, payment to IRS for use of money plaintiff was not entitled to]; in accord see Nevelson v Carro, Spanbock, Kaster & Cuiffo, supra, 259 AD2d at 284). Accordingly, plaintiffs' demand for damages in the form of interest paid to the IRS and state taxing authorities due to the disallowance of the CTF loss deductions is stricken. The balance of the motion by the Sidley defendants to strike plaintiffs' demand for reimbursement of penalties, late fees and professional fees is denied. Sidley's assertion that it did not advise plaintiffs when to file amended tax returns appears disingenuous, and the issues, in any event, will be addressed, more appropriately, on the merits after a full development of the facts (see e.g. Lama Holding Company v Smith Barney Inc., supra, 88 NY2d at 421-2; Linden v Moskowitz, supra, 294 AD2d 114; Abrahami v UPC Construction Co., Inc., supra, 176 AD2d 180; Waterman v State of New York, 19 AD2d 264, 266 [4th Dept 1963], affd 14 NY2d 793 [1964]).

Plaintiffs' fifth, sixth and eleventh, causes of action for negligent misrepresentation, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing, as asserted against the Sidley defendants, are dismissed as redundant of the malpractice claim (see Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271 [1st Dept 2004]; Schwartz v Olshan Grundman, Frome & Rosenzweig, 302 AD2d 193, 199-200 [1st Dept 2003]; Nevelson v Carro, Spanbock, Kaster & Cuiffo, supra, 290 AD2d at 400).

Plaintiffs' ninth and tenth causes of action as alleged against HVB, for aiding and abetting fraud and the alleged breaches of fiduciary duty, also are dismissed. Plaintiffs failed to allege that HVB had actual, as opposed to constructive, knowledge of the fiduciary relationships alleged, and there are no facts from which to infer that HVB knowingly induced or participated in the alleged breach (see Kaufman v Cohen, 307 AD2d 113, 125 [1st Dept 2003]; Higgins v New York Stock Exchange, 10 Misc 3d 257, 286-89 [Sup Ct, NY County 2005]).

Finally, as conceded by plaintiffs during oral argument on the motions, the eighth and eleventh causes of action asserted against the movants for declaratory relief are not ripe for determination (see Church of St. Paul and St. Andrew v Barwick, 67 NY2d 510, 518-19, cert. denied 479 US 985 [1986]). Moreover, as to defendant HVB, plaintiffs have no standing to seek a declaration of rights under a contract to which plaintiffs are not a party (see Baker v Latham Sparrowbush Assoc., 129 AD2d 667, appeal denied 70 NY2d 606 [1987]). Accordingly, the eighth and eleventh causes of action alleged in plaintiffs' amended complaint, as asserted against the Sidley defendants, and against HVB, also are dismissed.

For the reasons set forth above, it is

ORDERED that the motion by defendants Sidley Austin Brown & Wood, L.L.P and Raymond J. Ruble under motion sequence 007 and 008 to dismiss plaintiffs' amended complaint are granted, in part, to the extent of dismissing the FIRST, FIFTH, SIXTH, EIGHTH, ELEVENTH AND TWELFTH causes of action as asserted against these defendants, and it is otherwise denied; and it is further;

ORDERED that plaintiffs' demand for damages in the form of interest paid to the IRS and state taxing authorities is stricken from the amended complaint; and it is further

ORDERED that the motion by defendant HVB Finance Inc. to dismiss plaintiffs' amended complaint, as asserted against it, is granted in its entirety. The complaint, as to HVB is dismissed, and the Clerk is directed to enter judgment accordingly as to HVB; and it is further

ORDERED that defendants Sidley Austin Brown & Wood, L.L.P. and Raymond J. Rubel are directed to answer the balance of plaintiffs' amended complaint within 30 days of service of a [*9]copy of this order with notice of entry.

Dated:

__________________________

J.S.C. Footnotes

Footnote 1:The motion to dismiss interposed by defendant Ronald G. Menaker, Esq. on behalf of the deceased defendant Peter Molyneux, who died in November 2005, was denied with leave to renew, by order dated January 30, 2006.

Footnote 2: According to plaintiffs' amended complaint, as confirmed by the Opinion Letter, the Coastal III Fund was established by defendant Enterprise Financial Services, Inc. f/k/a Enterprise Bank (Enterprise) by establishing two charitable remainder uni-trusts. These two trusts were used to make initial contributions of $48,000 apiece to the Coastal III Fund. The monies contributed to the Coastal III Fund were invested by defendant Deerhurst on or about November 27, 2001 in a series of foreign currency options which were intended to and did create what is known as a "straddle" and "strangle" position with a $95,467.05 margin, using both a call option and a corresponding put option on the same currency. The Straddle transaction generated both losses and offsetting gains. As structured, losses incurred by the Coastal III Fund were to be allocated to the investors, and the gains were to be allocated to the charitable trusts on a monthly basis. Investors were expected to participate in the Coastal III Fund for a minimum of five (5) years, with substantial penalties incurred for early withdrawl. At the end of the first allocation period, November 30, 2001, the Coastal III Fund recognized a $120,663,915 gain after the sale of the options, along with losses that would not be realized until the subsequent period.