Dempster v Liotti

[*1] Dempster v Liotti 2009 NY Slip Op 50720(U) [23 Misc 3d 1112(A)] Decided on March 31, 2009 Supreme Court, Nassau County Marber, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 31, 2009
Supreme Court, Nassau County

Madeline Dempster, Plaintiff,

against

Thomas F. Liotti, Defendant.



014703/07



Attorney for Plaintiff:

Lester D. Janoff, Esq.

200 Broadhollow Road, Suite 207

Melville, NY 11747

(631) 393-5037

Fax: (631) 499-4084

Defendant Pro se:

Thomas F. Liotti

600 Old Country Road, Suite 530

Garden City, NY 11530

(516) 794-4700

Fax: (516) 794-2816

Randy Sue Marber, J.

Upon the foregoing papers, the motion by the Defendant, Thomas F. Liotti, pro se, pursuant to CPLR 3211(a)(7) and CPLR 3212, for an order dismissing the Plaintiff, Madeline Dempster's complaint, for failure to state a cause of action, and for summary judgment is DENIED. So much of a cross-motion by the Plaintiff seeking an order, pursuant to CPLR 3212(e), for partial summary judgment in the sum of $30,205.00 on the second cause of action for breach of contract and [*2]dismissing the counterclaim is DENIED, and so much of the motion as it seeks dismissal of the second affirmative defense which relies upon the pendency of an appeal in the Court of Appeals for the Second Circuit, is GRANTED and is dismissed, as the Second Circuit Court of Appeals has rendered a determination affirming the District Court.

The divorce proceeding between Madeline Dempster and George Dempster was lengthy and complex, and spawned multiple appeals and litigations, as the Plaintiff pursued her share of the marital property, including the marital residence and her husband's closely held business assets. The history presents what is essentially an asset chase, with the husband, George Dempster, attempting to put his assets out of the reach of his wife.

The Plaintiff secured a divorce from her former husband by judgment dated May 22, 1992. An order on appeal in one of the subsequent proceedings sets out the history as follows:

On appeal, the judgment of divorce was modified and the matter was remitted to the trial court for valuation of certain of the defendant's closely-held businesses for purposes of equitable distribution. As a result of the valuation trial, the plaintiff was awarded additional amounts based on the value of the defendant's businesses, which were included in an amended judgment of divorce. Thereafter, the plaintiff sought to enforce the amended judgment of divorce, resulting in two judgments in her favor in the sums of $3,194,484 and $283,383.57, respectively.

(Dempster v. Overview Equities, 4 AD3d 495 [2d Dept 2004], app denied 3 NY3d 612 [2004]). Just prior to the "valuation trial" directed by the court in the above quoted appeal, George Dempster transferred the marital residence to a newly formed corporation and signed confessions of judgment to other alleged creditors and caused the newly formed corporation to also sign confessions of judgment. The Plaintiff was forced to pursue further litigation against her former husband alleging that he transferred the marital residence to a newly formed corporation in order to deprive her of her marital share of that asset, and executed several confessions of judgment to business entities to frustrate her collection upon the judgments against him. The transactions were held to be fraudulent by the Second Department and the extensive fraud was described as follows:

On June 29, 1995, just weeks before the valuation trial, the defendant transferred title of his residence to the defendant Overview Equities, Inc. (hereinafter Overview). Two days earlier, on June 27, 1995, Overview was created by the filing of a Certificate of Incorporation with the Secretary of the State of Delaware. Thereafter, on August 4, 1995, the defendant confessed judgments in favor of the defendant Island Helicopter Leasing Corp. (hereinafter Island) for $1,181,364.50 and in favor of the defendant Rio Manufacturing of Delaware, Inc. (hereinafter Rio), for $291,998.24. The Island confession was purportedly in exchange for a promissory note executed by the defendant on August 1, 1983, in exchange for an $800,000 construction loan from Island. The Rio confession was purportedly in exchange for a promissory note executed by the defendant on January 2, 1984, in exchange for a $200,000 construction loan from Rio. On the same day that the defendant confessed judgment in favor of Island and Rio, Overview separately confessed judgment in favor of Island for $1,181,364.50 and in favor of Rio for $291,998.24.

On April 14, 1999, Overview filed a Chapter 11 bankruptcy petition in the United States District Court for the Eastern District of New York. The defendant's residence was listed as an asset of the corporation and was approved for sale. All net proceeds from the sale of this property, which totaled over $1 million, were placed in an escrow account. [*3]

(Dempster v. Overview Equities, at pp 496-497, supra). The Appellate Division affirmed an award of a judgment to the plaintiff, finding the defendant's transfers "replete with badges of fraud'" (Dempster v. Overview Equities, supra at p 498).

Thereafter, the Plaintiff, Madeline Dempster, retained the Defendant, Thomas Liotti. They entered into a retainer agreement dated October 29, 2002, in which Mr.Liotti agreed, inter-alia, to "commence and file a motion for summary judgment . . . in, a private, civil RICO . . . lawsuit against George G. Dempster and his attorneys in Federal Court and [seek] treble damages thereunder (the RICO Action')".

The Plaintiff commenced the Rico Action alleging that Dempster and his law firm engaged in fraudulent and unlawful conduct that was directed at depriving the Plaintiff of property that she was entitled to under New York's equitable distribution law, and preventing the Plaintiff from collecting on her judgments. The alleged conduct consisted of a fraudulent transfer of the marital residence involving the creation of a shell purchasing entity, Overview Equities; the preparation of fraudulent confessions of judgment against Island Helicopter Leasing Corp. and Rio Manufacturing of Delaware, Inc. so as to encumber the marital residence; the preparation of a fraudulent lease and the filing of a bankruptcy petition.

After her original complaint was dismissed for failure to state a claim in the RICO Action, the Plaintiff filed an amended complaint. George Dempster and the law firm moved again to dismiss the amended complaint and for sanctions and attorneys' fees.

The Defendant, Liotti, failed to timely file opposition papers to the motion on Madeline Dempster's behalf. After receiving two extensions to submit an answer to the motion to dismiss, an untimely request was made to the court to accept the plaintiff's opposition nunc pro tunc. The court denied the request indicating that two extensions in orders dated August 4, 2004 and August 16, 2004, had already been granted, and the August 16, 2004 order contained an admonition that no further extensions would be granted. The court noted the inadequate reasons offered for a previous failure to timely submit opposition, which included a "lingering cold" and "trial engagements."

Absent the filing of timely opposition, the District Court proceeded to consider the motions to dismiss without opposition. A determinative defense was set forth by the "law defendants" and accepted by the court, addressing the statute of limitations. The predicate acts of fraud making up the RICO pattern occurred over four years prior to commencement of the District Court action on March 3, 2003. The District Court stated that the plaintiff was well aware of any injury arising from the transactions in 1997 "as evidenced by the fraudulent conveyance action she commenced in New York Supreme Court." ( Dempster v. Dempster, 404 F. Supp. 2d 445 [E.D.NY 2005], affd 273 Fed.Appx. 67 [2nd Cir (NY) 2008], cert denied 129 S. Ct. 901 [2009]).

However, one act, the bankruptcy filing by Overview Equities, the newly minted and closely held corporate purchaser of the marital residence, was within the limitations period. Regarding this potential predicate the court stated:

the only instance of conduct that could conceivably render Plaintiff's action timely is the April 1999 bankruptcy petition of Overview. However, Plaintiff does not, even under the most liberal reading of the Amended Complaint, allege how the bankruptcy proceeding relates to the scheme to deprive her of marital assets - the purpose of the alleged RICO enterprise.

(Dempster v. Dempster, 404 F. Supp. 2d 445 [EDNY 2005], supra [emphasis supplied]). The court [*4]dismissed the federal RICO claim with prejudice based upon the statute of limitations.The Defendant, Liotti, thereafter failed to timely file a Notice of Appeal. The Defendant, Liotti, moved for an extension of time to file an appeal asserting that he had not received the court's electronic mailing of the order of dismissal. The District Court referred the matter for a hearing and upon recommendation of the hearing magistrate rejected Liotti's contention regarding the electronic filing and refused to reopen the time to appeal. The Second Circuit Court of Appeals affirmed (Dempster v. Dempster, 273 Fed.Appx. 67 [2nd Cir (NY) 2008], cert denied 129 S. Ct. 901, [2009]).

The Defendant, Liotti, now moves to dismiss this malpractice action for failure to state a cause of action. He avers that the Plaintiff cannot establish that but for his alleged negligence she would have prevailed in the District Court action. He contends that the Plaintiff could not prevail on the statute of limitations defense and he had no notice of a statute of limitations defense. In his affidavit at pp 4-5 he states,

Unfortunately for plaintiff . . . the Court . . . held that the statute of limitations began to run in 1997, when Madeline Dempster initiated her fraudulence (sic) conveyance claim in Overview, thus making the federal RICO claim time-barred. . . . The Court held that because there was no fraud in the bankruptcy proceeding, it could not be considered part of a scheme to defraud under RICO.

The Defendant, Liotti, also argues that even if he had submitted timely opposition on behalf of Madeline Dempster he could not have addressed the statute of limitations defense because the defendants did not raise it. He contends that the court raised the issue sua sponte. He states:

The issue of a time-bar pursuant to the statute of limitations was not addressed by Judge Seybert in her first decision, nor in any Overview defendant motions to dismiss. Judge Seybert, sua sponte, decided that the amended complaint should be dismissed as time-barred. Therefore, defendant Liotti could not have responded to the issue of timeliness prior to Judge Seybert's ruling because none of the opposing parties raised the issue and obviously, Mr. Liotti did not.

This court finds that the Defendant, Liotti's contentions are contradicted by the record. Regarding the first contention, the District Court did not find that "there was no fraud in the bankruptcy proceeding". Rather, the District Court found that the complaint failed to allege "how the bankruptcy proceeding relates to the scheme to deprive [plaintiff] of marital assets" (supra). Such deficiency could have been remedied with an affidavit had any opposition been timely submitted (see Gardner v. Toilet Goods Ass'n, 387 US 167, 172 [1967]["we must on a motion to dismiss on the pleadings, [accept] the allegations of the complaint and supporting affidavits as true" [emphasis supplied]).

The contents of such an affidavit are revealed in examination of the several proceedings concluded prior to the District Court action. Particularly salient are the bankruptcy of Overview Equities (In re Overview Equities, 240 B.R. 683 [Bankruptcy Court E.D.NY 1999]), and the Second Department decision holding that the transfers of the marital residence were fraudulent (Dempster v. Overview Equities, 4 AD3d 495 [2d Dept 2004]). The Second Department held that the legal strategies to transfer and confess judgment in order to deprive plaintiff of her interest in the marital residence were fraudulent. Overview Equities, Inc. was brought into being by George W. Dempster and he transferred title to the marital residence. Dempster and Overview both signed confessions of judgment to other entities related to Dempster, rendering Overview insolvent. The bankruptcy [*5]court noted that the residence was the only asset held by Overview.

The law firm of Shaw, Licitra, Bohner, Esernio, Schwartz & Pfluger, P.C., the law firm defendants in the District Court proceeding, represented George Dempster, created Overview, presumably drafted the transfer and confession of judgment documents, and represented Overview in the bankruptcy proceeding. The legal services were sufficiently intertwined with and enabling of the fraudulent transactions and proceedings so as to render them questionable. Dismissal at the pleading stage without opposition presents a problem for the defaulting attorney.

With regard to counsel's claim that the statute of limitations was not raised by the defendants, the District Court order explicitly stated:

In their motion to dismiss, Defendants raise several inadequacies found in the Amended Complaint. Most notably, the Law Defendants point out that Plaintiff's RICO claims are time-barred.

In a footnote to the above quoted order, the court notes that it read the pro se defendant George Dempster's allegation that the Amended Complaint "does not attain the criteria of the RICO statute" liberally, presuming Dempster "also objects to the timeliness of the Amended Complaint". Thus it is difficult, without examining the moving papers of the "law defendants" in the District Court to discern the basis for the Defendant's assertion that he was not on notice of the defense. As he has not submitted a copy of the law defendants' motion papers to support his claim, the contention is rejected.

With respect to the timeliness of the Plaintiff's federal complaint, if the bankruptcy proceeding had been successfully related to the Dempster and Overview fraud by affidavit, the separate accrual rule for RICO claims adopted by the Second Circuit Court of Appeals governs and would have saved the Plaintiff's RICO claim from dismissal based upon the statute of limitations ( Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102 [2nd Cir (NY) 1988], cert denied 490 US 1007 [1989]). Pursuant to the separate accrual rule, a new cause of action accrues "each time a plaintiff suffers an injury caused by a violation" of the RICO statute (18 U.S.C. § 1962). Thus a new cause of action accrues to a plaintiff at the time he or she discovered or should have discovered the injury (Bankers Trust Co. v. Rhoades, supra).

The Plaintiff's contention that the complaint would not have been dismissed as untimely if the appropriate and timely opposition concerning the relation between the bankruptcy filing and the fraud of the defendants had been submitted warrants denial of counsel's motion to dismiss. Accordingly, the Defendant, Liotti's, motion to dismiss is DENIED.

The Plaintiff's cross-motion for summary judgment for breach of contract is DENIED. The Plaintiff's cause of action for breach of contract alleges that the Defendant, Liotti, "failed to properly and skillfully prosecute plaintiff's RICO action to a conclusion." Such claim is merely a "redundant" claim which is "predicated on the same allegations and seek[s] relief identical to that sought in the malpractice cause of action" (Nevelson v. Carro, Spanbock, Kaster & Cuiffo, 290 AD2d 399 [1st Dept 2002]). Moreover, the Defendant, Liotti, performed the legal services promised in the retainer agreement.

Accordingly, upon searching the record, the Plaintiff's cause of action for breach of contract is dismissed.

This decision constitutes the decision and order of the court. [*6]

DATED:Mineola, New York

March 31, 2009

________________________________

Hon. Randy Sue Marber, J.S.C.