Regency Found. v Robson

[*1] Regency Found. v Robson 2006 NY Slip Op 52464(U) [14 Misc 3d 1209(A)] Decided on November 2, 2006 Supreme Court, New York County Edmead, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 2, 2006
Supreme Court, New York County

Regency Foundation in its own right and as assignee of claims, Plaintiff,

against

Morton S. Robson, Individually, Robson Ferber Frost Chan & Essner, LLP a/k/a Robson & Miller LLP, and John Doe and Richard Roe, being individual partners having possible personal liability, Defendants.



101615/06

Carol R. Edmead, J.

Defendants Morton S. Robson, individually ("Robson"), and Robson & Miller LLP ("R&M") (collectively the "moving defendants"), move for an order, pursuant to CPLR 3211(a)(5) and (7), dismissing the second amended complaint of plaintiff Regency Foundation in its own right and as assignee of claims ("Regency" or "plaintiff"), on the grounds that plaintiff is not the proper party;[FN1] that plaintiff fails to set forth causes of action upon which relief may be granted; and, with respect to the third cause of action, on the ground that the conversion claim is barred by the statute of limitations.

Plaintiff opposes this motion, and cross moves for an order granting leave to amend the complaint herein to: (1) incorporate the Disbarment Decision concerning defendant Robson, and the facts set forth therein; (2) add Kenneth N. Miller, Esq. as a named defendant; and (3) amend the complaint should this court decide that any additional facts of this case must be included or expanded upon.

Background

The following facts are derived from the Complaint:[FN2] [*2]

At some time prior to April 1999, Columbia Pictures Television, Inc. ("Columbia") claimed a lien in the amount of at least $5 million on certain Film Libraries [FN3] pursuant to a Stipulation between Columbia and the predecessor of Cresbury Screen Entertainment, Ltd. ("Cresbury"), which Stipulation was made in connection with a judgment in favor of Columbia. In April 1999, a Florida Court granted a judgment of foreclosure against the Film Libraries. Subsequently, Cresbury and Columbia entered into a Settlement Agreement, whereby Cresbury was to pay Columbia $5.5 million by December 1, 1999.

At a meeting in December 1999, plaintiff was presented with a business opportunity by Canadian Imperial Bank of Commerce ("CIBC") representatives concerning Cresbury. At a subsequent meeting in January 2000, CIBC representatives introduced plaintiff to an opportunity to invest in Cresbury, as Cresbury was seeking an investor to provide working capital to market the Film Libraries and to digitalize the existing film masters. By letter dated January 2000, plaintiff submitted a proposal and requested evaluations of Cresbury's assets and the Film Libraries. In response, CIBC provided plaintiff with the purchase price for the Film Libraries and other information.

On February 16, 2000, plaintiff, CIBC, and Cresbury's majority shareholder met in CIBC's office. At that meeting, Cresbury's majority shareholder requested that plaintiff become a shareholder in Cresbury in order to finance the settlement which he alleged had been agreed to by Columbia and which would enable Cresbury to conclude the sale of one of the Film Libraries.

On March 13, 2000, the Florida Court upheld the Settlement Agreement.

In mid-March 2000, Cresbury's majority shareholder met with plaintiff in Germany, indicating that Columbia indicated that it would wait no longer than April 1, 2000 to settle in full, or proceed with its Lien foreclosure.

On March 27, 2000, plaintiff met with Cresbury's majority shareholder, defendant Robson, and "Mr. Gibbs." At this meeting, defendant Robson represented that he had promised Columbia that a $5 million settlement payment would be made to Columbia before April 1st and that Cresbury now needed the $5 million before Columbia foreclosed on the Lien.

At a second meeting, plaintiff was advised that the sale of one of Cresbury's Film Libraries to a "Closed End Fund"[FN4] would close within 10 days, and that a company would guarantee the $5 million settlement payment due Columbia if plaintiff would advance the $5 million. Cresbury, with defendant Robson's knowledge and approval, presented plaintiff with an evaluation of the Film Libraries justifying the existing $420 million appraisal. At this second meeting, Robson represented that: (1) a settlement had been fully agreed to by Columbia and only required a payment of $5 million before April 1, 2000 for Cresbury to receive a full release of the Lien; (2) Robson needed the $5 million deposited into his law firm's escrow account immediately in order to convince Columbia of Cresbury's ability to make the settlement payment, which had to be made to Columbia no later than March 31, 2000; and (3) upon receipt of the funds into Robson's Law Firm's Escrow account, the settlement payment would be made [*3]immediately to Columbia in full settlement of Columbia's claims.[FN5] Robson also represented that if, for any reason, the transaction should fail to close, the escrow funds would be refunded immediately to the investors.

Based on the representations made to plaintiff, plaintiff and Cresbury entered into an agreement reflecting agreed upon terms. The agreement, dated March 28, 2000, ("Agreement") provides that an initial $6.2 million payment was made pursuant to plaintiff's instructions by its subsidiary, Penta Financial Services AG ("Penta") to SBH Werner Schmidt Beteitigungss-und-Handelgeselschaft ("SBH"), a company controlled by Werner Schmidt, on March 31, 2000, and the $6.2 million was immediately transferred to the Robson Law Firms' Escrow Account. The Agreement provided that the Robson Law Firms would hold the $6.2 million in escrow, and immediately release same only to pay Columbia for release of the Lien.

Following the meetings, the plaintiff itself did not make the desired investment in Cresbury,[FN6] but instead arranged for its subsidiary, Penta, to lend $6.2 million to SBH, upon Schmidt's agreement to repay the loan within ten days. This loan to SBH was made by Penta with the understanding that the money would be used to discharge an obligation of the Fund, which would then allow the Fund to make a down payment towards its purchase agreement with Cresbury.

The funds loaned by Penta to SBH were initially deposited into Robson's Law Firm's Escrow Account, where they were held for the benefit of Cresbury. SBH, in turn, used those funds to make the down payment on the Fund's contract to purchase the Film Libraries from Cresbury. Upon making this down payment, the funds became the property of Cresbury.

At a meeting on April 20, 2000, Cresbury's majority shareholder advised plaintiff that Cresbury had not paid the $5 million to Columbia, but that negotiations with Columbia were close to an end so that a final settlement would be made.

During a conversation on May 17, 2000, Robson advised plaintiff that on instructions by Cresbury's majority shareholder, the $6.2 million had been transferred by the Robson Law Firm's Escrow Account to a Notary Public in Canada.

According to Robson, following this transfer of funds, Robson became concerned that Columbia would attempt to seize the funds in satisfaction of its judgment against Cresbury due to Cresbury's default on a prior settlement agreement. Thus, at Bensberg's direction, Robson transferred the funds to a Notary Public in Canada, who would hold and distribute funds on behalf of Cresbury.

Meanwhile, SBH failed to repay Penta for Penta's $6.2 million loan. Furthermore, the plaintiff never sought to exploit its 20% interest in Cresbury and the Film Libraries.

Robson was ultimately terminated as counsel for Cresbury, and the funds which had been transferred from his escrow account to Cresbury were never used by Cresbury to satisfy the [*4]Columbia lien.

In 2003, Columbia foreclosed on its Lien and Judgment.

Finally, on May 30, 2006, the Appellate Division, First Department, issued its decision disbarring Robson from the practice of law in the State of New York for his actions associated with the present action.

Contentions of the Parties

Defendants' Motion to Dismiss

The moving defendants argue that all claims against individual partners of the two law firms, Robson & Miller LLP and Robson Ferber Frost Chan & Essner LLP (John Doe and Richard Roe) must be dismissed since the partnerships described are Limited Liability Partnerships and, therefore, there can be no individual liability on the part of any of the individuals in the absence of any allegations in the complaint of acts on the part of any individual partners. And, the only defendant whose actions are alleged to give rise to the seven causes of action is Robson, and there are no allegations of any acts by any partner other than Robson.

The moving defendants also contend that the plaintiff is not the proper party plaintiff, and thus, has no cause of action, since the plaintiff is not the person or entity that provided the funds to SBH. It is argued that Penta, not the plaintiff, advanced the funds to SBH, and that even though the plaintiff is the parent company of Penta, a parent company has no standing to assert a claim for damages sustained by its subsidiary. Further, to the extent that the complaint purports to state a claim as assignee of another, the complaint fails to describe or identify the assignor, the nature of the assignor's claim, or evidence of the alleged assignment.

The moving defendants also contend that the complaint fails to set forth any facts to support its claim that plaintiff undertook acts in reliance upon the representations made by Robson, and that the plaintiff's alleged reliance on Robson's misrepresentations was unjustified since the plaintiff could have reasonably investigated and confirmed such alleged misrepresentations. Plaintiff could have easily called the representative of Columbia to confirm Robson's representation that Columbia's lien would be released upon being paid $5,000,000 before April 1, 2000. Plaintiff failed to take such action, and therefore cannot now justifiably rely on Robson's representation.

Further, Cresbury owned the Film Libraries from 2000 through 2003, and plaintiff, a 20% shareholder, failed to exploit its interest in Cresbury or the Film Libraries. Therefore, although plaintiff alleges that Robson's misrepresentations deprived it of its money and profits as an investor and shareholder of Cresbury, plaintiff fails to explain what damage Cresbury sustained by virtue of Robson's actions, or how, as an alleged shareholder of Cresbury, plaintiff can assert a personal claim arising from a damage sustained by Cresbury.

It is also argued that plaintiff's cause of action against Robson for conversion is barred by the three (3) year statute of limitations applicable to conversion claims. Also, the moving defendants argue that Robson cannot be liable for conversion as the plaintiff alleges since the allegedly converted funds never belonged to the plaintiff, and Robson never personally took any of the escrowed funds.

The moving defendants also assert that since Robson and the plaintiff were never parties to any contract, and plaintiff's breach of contract claim is merely an improper attempt to restate the fraud allegation, plaintiff's cause of action against Robson for breach of contract must fail. [*5]

Also, there is no claim that Robson or any of the other defendants had any involvement with the negotiation or execution of the agreement with Cresbury and the Fund or that Robson had any familiarity with it. In addition, no claim is made that Robson or any of the other defendants were present at or had any knowledge of the January 2000 meeting in Zurich, Switzerland.

The moving defendants also contend that the funds in Robson's firm's escrow account did not constitute an investment in Cresbury by either the plaintiff or Penta. Plaintiff made no investment in Cresbury for the purpose of satisfying Columbia's lien, and Penta only "made a very short term bridge loan" to SBH. Neither the plaintiff nor Penta had a right to the funds once the funds were paid to Cresbury. Once in Robson's firm's escrow account, the funds belonged to Cresbury, and neither the plaintiff nor Penta can claim any loss as a result of any representation, act, or failure to act on the part of Robson. The moving defendants argue that the plaintiff's or Penta's claim might be properly asserted against SBH, not Robson or his law firm.

Additionally, since Robson did not have a fiduciary or trust obligation to the plaintiff, being neither an agent, representative, or confidante of the plaintiff, the plaintiff's claim against Robson for breach of fiduciary duty or trust must fail.

Further, plaintiff's causes of action for negligence, intention to harm, and for violation of the Disciplinary Rules cannot be maintained against Robson because Robson owed no duty to the plaintiff, and neither intent to harm nor violating the Disciplinary Rules give rise to independent causes of action.

Also, as plaintiff failed to set forth a single fact to support its cause of action for constructive trust on the moving defendants' assets, such cause of action must fail.

Plaintiff's Opposition and Cross-Motion

Plaintiff initially contends that since Robson appeared as counsel on behalf of the moving defendants, but he did not sign the present Notice of Motion, moving affirmation, nor the memorandum of Law, the moving defendants' motion is defective.

On the merits, the plaintiff generally contends that the Defendants fraudulently induced Plaintiff to wire over $6.2 million into the Robson Defendants' escrow account for the purpose of obtaining a release of Columbia Picture's Lien on Cresbury's Film Libraries worth $420 million, in exchange for which Plaintiff would receive 20% of Cresbury's stock plus other valuable distribution rights. Instead, the Defendant's [sic]... broke the escrow, converted the funds, and left Plaintiff with worthless stock, which Cresbury later claimed was cancelled on its books.

Specifically, the plaintiff contends that Regency is the proper party in interest since Regency has commenced this action in its own right and as an assignee of the claims of Penta and the Fund. The plaintiff claims that it lost its own funds, the funds that Penta advanced for Regency's benefit, and that Regency suffered approximately $100,000,000 in damages for the loss of benefits under the Regency Agreement, all as a result of the defendants' fraudulent scheme and the breach of the escrow agreement.

The plaintiff further contends that the funds in Robson's firm's escrow account constituted an investment by Regency, and therefore, Robson's alleged fraud and breach of the escrow [*6]agreement caused the plaintiff damages. The plaintiff asserts that it did not attend the Berlin meeting merely for the purpose of buying bonds from SBH's Fund, but that these bonds were further collateral for Regency's transfer of funds (the investment) pursuant to its agreement with Robson.

The plaintiff also contends that it justifiably relied on Robson's alleged misrepresentations. The plaintiff claims that it had neither a reason nor the time to contact Columbia to conduct an independent investigation as to the accuracy of Robson's representations. Further, the escrow agreement was intended to fully protect plaintiff's investment, and the plaintiff should not have been expected to anticipate Robson's conversion of $6.2 million in escrow funds.

The plaintiff additionally contends that Robson did in fact have a fiduciary and trust obligation to Regency since Robson requested to act as the escrow agent, prepared the Regency Agreement containing the escrow provisions, named his firm as escrow agent, fraudulently induced Regency to sign the escrow agreement, accepted the funds pursuant to that agreement, and then disbursed the funds in violation of the agreement.

The plaintiff contends that its cause of action for breach of contract is meritorious for the same reasons stated above with respect to Robson's fiduciary and trust obligations to Regency.

In addition, the plaintiff argues that its cause of action for conversion is not barred by a statute of limitations since the date of the conversion cannot be determined, and therefore, no clear three year time frame exists. Further, the statute of limitations cited by the moving defendants is not applicable when the conversion involves fraud. The plaintiff notes that those accused of fraud are estopped from asserting the customary three year statute of limitations for conversion, as such defendants cannot take refuge behind the shield of their own wrongdoing.

The plaintiff further contends that the causes of action for negligence and intentional infliction of harm have been sufficiently pleaded in the complaint. Also, the plaintiff asserts that Robson's violations of the Disciplinary Rules form a basis for an independent cause of action because, pursuant to the Partnership laws, such transgressions breached the escrow agreement and were part of a fraudulent scheme, thereby creating independent causes of action by the damaged plaintiff. Moreover, the plaintiff argues that it is entitled to a constructive trust as an assignee of the claims of Penta and the Fund.

Finally, in support of its cross-motion, the plaintiff contends that in the event that the court determines that necessary facts have been omitted or not fully alleged, then Regency should be granted leave to amend the complaint to include such omissions and allegations.

The Moving Defendants' Reply and Opposition to the Cross-Motion

Addressing the plaintiff's opposition to the motion, the moving defendants contend that there is no rule that when a motion is made on behalf of more than one defendant, each defendant must sign the moving papers. Further, the plaintiff cannot become the proper party seeking damages against Robson by simply suing as an assignee of Penta's and the Fund's claims since the complaint does not describe any such assignments, the complaint does not describe any claim that Penta or the Fund would have against Robson, and the funds at issue were not an investment, but were instead a down payment by the Fund for the purchase of two Film Libraries owned by Cresbury. Penta loaned the money for the down payment to SBH, and therefore, the money transferred came from SBH and not plaintiff. Neither SBH which borrowed the money, nor [*7]Penta, which loaned the money, had any legal interest in such funds after they were transferred to Robson's firm's escrow account. And, the loan from Penta to SBH, at plaintiff's request, was not made pursuant to any agreement with any defendant or Cresbury. The moving defendants point out that the issue is not whether the plaintiff is a party with an interest in the transaction as a whole, but whether the plaintiff transferred funds to Robson's firm's escrow account, which are the funds that constitute the subject matter of the complaint. Nor does the complaint support the claim that plaintiff is suing as an assignee of Penta or the Fund. Further, there is no allegation that Penta or the Fund ever had any relationship with any defendant. And, any loss in the value of plaintiff's stock in Cresbury as a result of any loss suffered by Cresbury due to the break down of the settlement does not give rise to a personal cause of action by plaintiff, since a shareholder does not have an individual cause of action as a result of damage sustained by the corporation.

As to the plaintiff's claim that the statute of limitations for conversion does not apply, the moving defendants contend that the plaintiff knew of the alleged conversion by May of 2000, and therefore, the action's commencement nearly six (6) years later violated the statute of limitations. Also, the money was not procured by fraud, and thus the plaintiff's cited cases that invalidate the statute of limitations in this case are inapplicable.

The moving defendants further contend that the plaintiff did not confirm the accuracy of Robson's representations because the plaintiff was not concerned with their accuracy as the plaintiff was not the entity that advanced the funds in the form of a bridge loan. Also, the moving defendants refute the plaintiff's claim that verifying such representations would have taken too much time, arguing that making such verifications would not have taken much time at all.

As to Robson's alleged fiduciary and trust obligation to the plaintiff, the moving defendants reiterate that Robson could not have such obligations as he was not a party to the agreement between Regency and Cresbury, and the Agreement clearly states that the funds were being held by Robson for the benefit of Cresbury. Further, whatever fiduciary relationship existed was between Robson and Cresbury, as Robson had no relationship, fiduciary or otherwise, with Penta.

Further, a violation of disciplinary rules in and of itself is not a basis for a claim.

Finally, in opposition to the plaintiff's cross-motion for leave to amend the complaint, the moving defendants contend that since the plaintiff has failed to include a copy of its proposed amended complaint, its request to amend cannot be evaluated properly, especially as against the proposed additional defendant, Kenneth N. Miller, Esq.

Plaintiff's Reply

The plaintiff contends that its failure to attach a proposed amended complaint to its cross-motion does not render the cross-motion invalid since the moving defendants would not be prejudiced by such an amendment, and they were fully apprised of the content of the proposed amendments. Moreover, the plaintiff attaches a proposed amended complaint to its reply affidavit.

Further, the Disbarment Decision, which was made after an exhaustive hearing, confirms that Robson misappropriated the funds, that the funds were not the property of Cresbury, that plaintiff had a legal interest in the funds, and that Robson & Miller had a fiduciary duty to plaintiff, which was violated by transferring the escrow funds to the notary in Canada. [*8]

Analysis

Dismissal as Against Individual Partners

The claims as asserted against individual partners of the two law firms, Robson & Miller, LLP and Robson Ferber Front Chan & Essner LLP, (John Doe and Richard Roe) are dismissed. Under Limited Liability Company Law § 609(a), members and managers of a limited liability company are expressly exempt from personal responsibility for the obligations of such company, unless plaintiff successfully pierces the corporate veil, and here, there are no allegations giving rise to a claim to pierce the corporate veil (Collins v E-Magine, LLC, 291 AD2d 350, 739 NYS2d 15 [1st Dept 2002 ]). Since the partnerships described are limited liability partnerships, there can be no individual liability on the part of any of the individuals in the absence of any allegations in the complaint of acts on the part of any individual partners. Moreover, plaintiff has not set forth any allegations pertaining to an individual partner, and the only defendants whose actions purportedly give rise to the causes of action is Robson and the law firm of Robson & Miller, L.L.P. Further, plaintiff has not pursued any claims against any individual partner in opposition to defendants' dismissal motion.

CPLR 3211(a)(3): Proper Party to Bring Action

Under CPLR 3211(a)(3), a party may move for dismissal of causes of action asserted against it on the ground that "the party asserting the cause of action has not legal capacity to sue."

In order for plaintiff to sue in its individual capacity for damages arising out of the performance of the terms of the Regency Agreement, it must have been party to the agreement or the agreement must have been intended for its benefit (see Fleischer v W.P.I.X. Inc., 30 Misc 2d 17, 213 NYS2d 632 [Sup. Ct. New York County 1961]). "To allow a right of action to one not a party to the contract, the condition seems universally to be recognized as necessary that the contract will not merely operate, but shall have been intended, for his benefit" (Id. citing Van Clief & Sons, Inc. v City of New York, 141 Misc 216, 219, 252 NYS 402, 405 and Simson v Brown, 68 NY 355-361).

Here, the Regency Agreement was expressly between plaintiff, as "Investor" and Cresbury, as the "Company," in which plaintiff "agree[d] to purchase and the Company [Cresbury] agreed to sell twenty (20%) Percent of the Company's shares." According to the Agreement, the "payment of 1,550,000 shall be made by wire transfer on or before May 15, 2000 to the Escrow Account of Robson & Miller LLP" and that such "payments into the account of Robson & Miller LLP shall be held in escrow for the benefit of the Company [Cresbury] and shall not be released unless and until Robson & Miller LLP has received from Columbia Pictures a release of any and all liens upon and claims to the Libraries . . . ."

Plaintiff is clearly a party to this Agreement, and is obligated to purchase the agreed number of shares for an agreed sum. The Agreement, and terms thereunder, not only inure to the benefit of Cresbury, but also, inure to the benefit of the plaintiff. That the payments due by plaintiff under the Agreement were sent by Penta does not deprive plaintiff from standing to assert claims arising out of the Agreement. Thus, there is no merit to defendants' contention that plaintiff lacks standing to assert claims in connection with the Escrow Account referred to in the Agreement.

Furthermore, plaintiff alleges that defendant Robson, of Robson & Miller LLP, made a separate, independent representation that the payments into the Escrow Account would not be [*9]released until Robson & Miller LLP received a release from Columbia. Such alleged representation is expressed in the Agreement as well. Contrary to defendants' contentions, plaintiff expressly alleges that Robson represented that a settlement had been fully agreed to by Columbia and only required a payment of $5 million before April 1, 2000 for Cresbury to receive a full release of the Lien, that Robson needed the $5 million deposited into his law firm's escrow account and that upon receipt of the funds into Robson's Law Firm's Escrow account, the settlement payment would be made immediately to Columbia in full settlement of Columbia's claims. Allegedly, Robson also represented that if, for any reason, the transaction should fail to close, the escrow funds would be refunded immediately to the investors.

The cases upon which defendants rely are factually distinguishable and do not warrant a different result (cf. Rhode Island Hosp. Trust Co. v Neon, 109 NYS2d 834 [Sup. Ct. New York County 1952] [where damage alleged was the diminution in the value of the stock of the Pioneer, the status of defendant, the parent of Pioneer, was that of a stockholder, and any cause of action for any wrong or injury to Pioneer is in Pioneer in the form a stockholder's derivative suit]; Schaeffer v Lipton, 243 AD2d 969 [3d Dept 1997] [plaintiff, a 95% shareholder of closely held subchapter S corporation, lacked standing to sue for legal malpractice in his own name for injuries to corporation]). Therefore, this Court finds that plaintiff has standing and the legal capacity to seek redress for claims arising out of Robson's alleged breach of his obligation to maintain funds in the Escrow Account.

Misrepresentation

To state a claim for fraudulent misrepresentation, plaintiff must allege the following: (1) the defendants made a material false representation, (2) the defendants intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of its reliance (Guggenheimer v Bernstein Litowitz Berger & Grossmann LLP, 1 Misc 3d 926, 810 NYS2d 880 [Sup. Ct. New York County 2006 ] citing Swersky v Dreyer and Traub, 219 AD2d 321, 326, 643 NYS2d 33 [1st Dept. 1996]). Accepting the facts as alleged in the complaint as true, as this Court must, and according plaintiff the benefit of every favorable inference, (Gabriel v Therapists Unlimited, L.P., 218 AD2d 614, 615, 631 NYS2d 34, 35 [1st Dept 1995]), the complaint contains some rational basis for inferring plaintiff's alleged reliance upon the misrepresentations made by defendant Robson. Further, on a motion to dismiss for failure to state a cause of action, "a plaintiff £££ need only plead that he relied on misrepresentations made by the defendant £££ since the reasonableness of his reliance [generally] implicates factual issues whose resolution would be inappropriate at this early stage." The alleged misrepresentations by defendant Robson were confirmed by the Agreement, and therefore, it cannot be said that plaintiff's reliance upon Robson's statements were unreasonable so as to warrant dismissal of the complaint. Whether plaintiff could have investigated and confirmed the merits of Robson's claim that Columbia's lien would be released upon being paid $5,000,000 before April 1, 2000 does not obviate the fact that plaintiff's complaint contains sufficient allegations to support a misrepresentation claim.

CPLR 3211(a)(5): Statute of Limitations for Conversion

Plaintiff's third cause of action asserts that the moving defendants converted the escrow funds entrusted to them for the benefit of Regency and Cresbury. Conversion is the unauthorized assumption and exercise of the right of ownership over property belonging to another to the [*10]exclusion of the owner's rights (see Vigilant Insurance Co. of America v Housing Authority of the City of El Paso, Texas, 87 NY2d 36, 637 NYS2d 342 [1995]). Pursuant to CPLR 214(3), the statute of limitations on a cause of action for conversion is three (3) years from the date of the conversion (see also id.). The limitations period on conversion begins to run from the date the conversion takes place and not from discovery or the exercise of diligence to discover (see id.).

In Vigilant, the Court of Appeals found that the alleged conversion occurred when the defendant placed "stops" on the plaintiff's bonds and first refused to honor the plaintiff's title and right of the plaintiff to negotiate the bonds or to redeem the interest coupons on the bonds. Accordingly, since such action occurred in July 1983 and the action was not commenced until 1990, the three year statute of limitations barred the plaintiff's cause of action for conversion.

Similarly, in the present case, as plaintiff itself outlines in Paragraph 53 of the complaint, Robson told the plaintiff on May 17, 2000 that the $6,200,000 placed in escrow by Penta had been transferred from the escrow account to a Notary Public in Vancouver, Canada. While the moving defendants do not admit that a conversion in fact took place, they recognize the plaintiff's allegation that the $6,200,000 was transferred from the escrow account in May of 2000. Thus, it is undisputed among the parties that the act that allegedly constituted the conversion described in the third cause of action occurred in May of 2000. Plaintiff commenced the present action in 2006. Therefore, since plaintiff commenced the action nearly six years after the alleged conversion, the third cause of action for conversion is barred by the applicable three year statute of limitations.

Plaintiff's arguments to the contrary are not persuasive. Plaintiff contends that it "does not know[,] to this day[,] when the funds were finally converted, other than the fact that the Robson Law Firm wired the funds to [the Notary Public]," and therefore "no clear three year time frame exists." However, the plaintiff does not deny, and in fact advances, that, at the very least, when the funds were transferred to the Notary Public, an allegedly unauthorized assumption and exercise of the right of ownership over the funds belonging to Penta to the exclusion of Penta's rights occurred (id.). The plaintiff cannot assert that a conversion took place, but then deny the same when facing possible dismissal of that cause of action.

Further, plaintiff contends that the three year limitations period of CPLR 214(3) does not apply to the present situation since the alleged conversion involves fraud. However, the cases cited by plaintiff in support of this argument stand for the proposition that a defendant is estopped from barring a cause of action based on a statute of limitation when the defendant's own fraud prevented the plaintiff from timely discovering the conversion and bringing the cause of action within the limitations period. As plaintiff learned of the moving defendants' alleged conversion in May of 2000, regardless of any alleged fraud committed by the moving defendants, plaintiff cannot validly claim that the moving defendants are estopped from asserting dismissal based on the statute of limitations.

Therefore, the third cause of action for conversion is dismissed as untimely.

Breach of Contract

Ordinarily, the first element plaintiff must plead and prove to establish a cause of action for breach of contract is the existence of a contract between the plaintiff and defendant (see Greenwood v Daily News, L.P., 8 Misc 3d 1002, Slip Copy, 2005 WL 1389052 [Sup Ct. Nassau County 2005]). Defendant Robson did not execute the Regency Agreement and was not a party [*11]thereto. However, plaintiff alleges that Robson orally requested of plaintiff to act as the escrow agent, prepared the Regency Agreement, which contained the escrow arrangement, and accepted the funds into the Escrow Account.

An escrow is a written agreement that imports a legal obligation to deposit an instrument or property by the promisor, the plaintiff herein, with a third party (Robson & Miller, LLP) to be kept by the latter in the capacity of depositary or escrowee until the performance of a condition or the happening of an event, which then is to be delivered by the escrow agent to the promisee (Cresbury) (see National Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 165 Misc 2d 539, 634 NYS2d 609 [Sup. Ct. New York County 1994]). "The purpose of an escrow is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition" (Id.). For an instrument to operate as an escrow there must be: a) an agreement as to the subject matter and delivery of the same; b) a third-party depositary; c) delivery of the subject matter to a third party conditioned upon the performance of some act or the happening of the event; and d) relinquishment by the promisor (Id.). Further, the interest of ownership remains in the person depositing property into escrow until the conditions of the escrow agreement are fulfilled (Id.).

Robson's alleged oral agreement to retain the funds in the Escrow Account until Columbia supplied a release of the Lien, in order to induce plaintiff to forward funds to the benefit of Robson's client, Cresbury, is sufficient to establish the existence of an enforceable agreement. Moreover, the alleged oral agreement by Robson appears in the Regency Agreement. Both agreements contain a condition, to wit: receipt of a release from Columbia, which, upon satisfaction, permits Robson or Robson & Miller, LLP, to release the funds. The alleged disbursement of the escrowed funds in the absence of compliance with this condition precedent, sufficiently states a cause of action for breach of escrow agreement.

Defendants' contention that the funds in the Escrow Account did not constitute an investment in Cresbury by plaintiff or Penta is inconsequential.

Therefore, defendants' application to dismiss the second cause of action for breach of contract is denied.

Breach of Fiduciary Duty

Contrary to defendants' contention, the complaint states a claim for breach of fiduciary duty. The escrow agent's powers are limited by the terms of the escrow agreement, and the escrow agent becomes trustee of the parties who have a beneficial interest in the subject matter of his or her trust (National Union Fire Ins. Co. Pittsburgh, Pa. v Proskauer Rose Goetz & Mendelsohn, 165 Misc 2d 539, supra ]). The escrow agent as trustee owes "the highest kind of loyalty" and must make whole the party to which he or she owes a fiduciary duty for any damages arising from the breach of the fiduciary's duty (Id.). As the escrow agent, Robson or Robson and Miller, LLP must take whatever steps may be necessary to fulfill his or her duties properly, and here, said defendants' duty was to strictly execute the terms of the Escrow Agreement. The alleged failure to fulfill the duty entitles the plaintiff to bring an action against the escrow agent for breach of fiduciary duty (see National Union Fire, supra ).

Therefore, the branch of defendants' application to dismiss the cause of action for breach of fiduciary duty is denied. [*12]

Intentional Tort, Negligence, Violation of Disciplinary Rules

It is well established that a simple breach of contract does not give rise to an action in tort (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389, 521 NYS2d 653). A defendant "may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations" but such duty must spring from circumstances extraneous to, and not constituting elements of, the contract" (Id.). The plaintiff's sixth cause of action for intentional tort and gross negligence repeat and re-allege the allegations contained in the previous paragraphs of the complaint. There are no facts alleged in the sixth cause of action establishing a legal duty imposed upon the defendants Robson and Robson & Miller, LLP independent of the Regency Agreement and Escrow Agreement. Thus, it cannot be said that defendants engaged in tortious conduct separate and apart from their failure to fulfill the Regency or Escrow Agreement, already adequately alleged in the second and fifth causes of action (see generally Goldstein v Greco, 2001 WL 1422349 [Supreme Court New York County 1002]).

Furthermore, a violation of a disciplinary rule does not, itself, generate a cause of action in favor of the affected client (see William Kaufman Organization, Ltd. v. Graham & James LLP, 269 AD2d 171, 703 NYS2d 439 [1st Dept 2000]; G.D. Searle & Co., Inc. v Pennie & Edmonds LLP, 7 Misc 3d 1010, 801 NYS2d 233 [Sup. Ct. New York County 1994]). Therefore, there is no basis to support plaintiff's action for negligence, intention to harm, or violation of the Disciplinary Rules.

Constructive Trust

The ultimate purpose of a constructive trust is to prevent unjust enrichment and, thus, a constructive trust may be imposed "when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest" (Sharp v Kosmalski, 40 NY2d 119, 386 NYS2d 72, quoting Beatty v Guggenheim Exploration Co., 225 NY 380, 386, 122 NE 378; see Matter of Wieczorek, 186 AD2d 204, 587 NYS2d 755). The usual elements of a constructive trust are (1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment (Sharp v Kosmalski, supra at 121, 386 NYS2d 72). These factors should be applied flexibly (Id.). Here, a fiduciary relationship was allegedly created, in which Robson promised to maintain the funds in escrow until Columbia executed the release, and plaintiff has alleged a delivery to the Escrow Account upon the representations made by Robson. It is uncontested that the funds delivered by plaintiff to Robson and placed in escrow were disbursed, allegedly in violation of Robson's obligation to maintain such funds until a release from Columbia was issued. Yet, it appears that the moving defendants do not know the whereabouts of the funds. A court of equity must maintain a cause of action to avoid the unjust enrichment by defendants under the circumstances alleged herein. Therefore, the complaint sufficiently states a cause of action for the imposition of a constructive trust.

Plaintiff's Cross-Motion to Amend

It is well settled that leave to amend an answer pursuant to CPLR §3025(b) should be freely granted provided there is no prejudice to the nonmoving party (Crimmins Contr. Co. v City of New York, 74 NY2d 166 [1989]; McCaskey, Davies & Assocs. v New York City Health & Hosps. Corp., 59 NY2d 755 [1983]; Lambert v Williams, 218 AD2d 618, 631 NYS2d 31 [1st Dept 1995]). Although leave to amend should be freely granted, the movant must make some [*13]evidentiary showing that the proposed amendment has merit, and a proposed pleading that fails to state a cause of action or is plainly lacking in merit will not be permitted (Hynes v Start Elevator, Inc., 2 AD3d 178, 769 NYS2d 504 [1st Dept 2003]; Tishman Constr. Corp. v City of New York, 280 AD2d 374 [1st Dept 2001]; Bencivenga & Co. v Phyfe, 210 AD2d 22 [1st Dept 1994]; Bankers Trust Co. v Cusumano, 177 AD2d 450 [1st Dept 1991], lv dismissed 81 NY2d 1067 [1993]; Stroock & Stroock & Lavan v Beltramini, 157 AD2d 590 [1st Dept 1990]). Therefore, 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., Inc. v. Braddis Associates, Inc., 243 AD2d 107, 675 NYS2d 5 [1st Dept 1998]).

When a party seeks not only to amend the pleadings, but also to assert claims against persons sought to be joined as additional parties in the action (CPLR 1003), the court may also consider the prejudice to the other defendants and the extent of the delay in moving to add the new parties and the reasons therefor (Haughton v Merrill Lynch, Pierce, Fenner & Smith Inc., 305 AD2d 214 [1st Dept 2003]; Konrad v 136 East 64th Street Corp., 246 AD2d 324 [1st Dept 1998]).

Plaintiff did not allege facts sufficient to support its contention that Kenneth N. Miller, Esq. had an independent fiduciary duty as an escrow agent or is liable under any of the theories alleged in the amended complaint (see generally Krouner v Travis, 290 AD2d 917, 736 NYS2d 804 [3d Dept 2002]; Univec Inc. v American Home Prods. Corp., 265 AD2d 403, 697 NYS2d 71 [2d Dept 1999]). The Court notes that the proposed third amended summons and complaint was submitted in reply, and merely adds Mr. Miller's name to each allegation containing Robson's name, without specifying the individual acts undertaken by Mr. Miller in connection with the Regency Agreement. Without more, plaintiff's attempt to amend the complaint to add Mr. Miller lacks basis at this juncture. As such, plaintiff's cross-motion to amend the complaint to add Mr. Miller as an individually named defendant is denied, without prejudice to renew, upon the exchange of discovery.

However, plaintiff's application to amend the complaint to incorporate the Disbarment Decision concerning defendant Robson, and the facts set forth therein is granted. The Disbarment Decision contains factual findings highly relevant to the instant litigation, and there is no basis to exclude such findings from the complaint.

Conclusion

Based on the foregoing, it is hereby

ORDERED that the motion by defendants Morton S. Robson and Robson & Miller LLP pursuant to CPLR 3211(a)(5) and (7) to dismiss the second amended complaint of plaintiff Regency Foundation, is granted solely to the extent that the (1) claims against any individual partners of the two law firms Robson & Miller LLP and Robson Ferber Frost Chan & Essner LLP, to wit: JOHN DOE and RICHARD ROE, being individual partners having possible personal liability, (2) third cause of action for conversion, (3) sixth cause of action for gross negligence and/or intent to harm, and (4) seventh cause of action for violation of Disciplinary Rules, are DISMISSED. It is further

ORDERED that the branch of plaintiff's cross-motion to amend the complaint to add a claim against Kenneth N. Miller as a specifically named defendant, is denied, without prejudice [*14]to renew upon the exchange of discovery. It is further

ORDERED that the branch of plaintiff's cross-motion for leave to amend the complaint herein to incorporate the Disbarment Decision concerning defendant Robson, and the facts set forth therein is granted, and plaintiff shall serve a third amended complaint within 30 days of entry of this order. However, the claims dismissed herein shall not be re-plead in the third amended complaint. It is further

ORDERED that defendants serve a copy of this order with notice of entry upon all parties within 20 days of entry.

This constitutes the decision and order of the Court.

Dated: November 2, 2006______________________________________

Hon. Carol Robinson Edmead, J.S.C.

Based on the accompanying Memorandum Decision, it is hereby

ORDERED that the motion by defendants Morton S. Robson and Robson & Miller LLP pursuant to CPLR 3211(a)(5) and (7) to dismiss the second amended complaint of plaintiff Regency Foundation, is granted solely to the extent that the (1) claims against any individual partners of the two law firms Robson & Miller LLP and Robson Ferber Frost Chan & Essner LLP, to wit: JOHN DOE and RICHARD ROE, being individual partners having possible personal liability, (2) third cause of action for conversion, (3) sixth cause of action for gross negligence and/or intent to harm, and (4) seventh cause of action for violation of Disciplinary Rules, are DISMISSED. It is further

ORDERED that the branch of plaintiff's cross-motion to amend the complaint to add a claim against Kenneth N. Miller as a specifically named defendant, is denied, without prejudice to renew upon the exchange of discovery. It is further

ORDERED that the branch of plaintiff's cross-motion for leave to amend the complaint herein to incorporate the Disbarment Decision concerning defendant Robson, and the facts set forth therein is granted, and plaintiff shall serve an amended complaint within 30 days of entry of this order. However, the dismissed claims shall not be re-plead in the third amended complaint. It is further [*15]

ORDERED that defendants serve a copy of this order with notice of entry upon all parties within 20 days of entry.

This constitutes the decision and order of the Court. Footnotes

Footnote 1: While the moving defendants limit their motion to dismiss under CPLR 3211(a)(5) & (7), one of the grounds on which their motion is based, that plaintiff is not the proper party to bring the action, warrants the inclusion of CPLR 3211(a)(3) as a provision under which the motion is brought. The court will proceed as if the moving defendants additionally moved pursuant to CPLR 3211(a)(3).

Footnote 2: Plaintiff commenced this action against defendants alleging the following causes of action: (1) fraud; (2) breach of the Regency Agreement; (3) conversion; (4) constructive trust and attachment of defendants' assets; (5) breach of fiduciary duty and trust; (6) gross negligence and/or intent to harm; and (7) violation of Disciplinary Rules.

Footnote 3: The Film Libraries were appraised at $400,000,000.

Footnote 4: The name of this fund is WSP Fonds Vermogensanlagen GmbH & Co. Funfte Filmwert Cresbury KG, and is controlled by either WSP Werner Schmidt & Partner ("WSP") or Werner Schmidt.

Footnote 5: Plaintiff also alleges that it relied on these representations when it eventually made its investment in Cresbury. Defendant Robson denies that such representations were made to the plaintiff.

Footnote 6: Although the plaintiff did not invest to the extent envisioned by Cresbury and Robson, the plaintiff nonetheless, in consideration of a payment of $250,000, acquired a 20% interest in Cresbury, and thereby, a 20% interest in the Film Libraries.