Cathedral Ct. Assocs., L.P. v Cathedral Props. Corp.
Annotate this CaseDecided on September 4, 2012
Supreme Court, Nassau County
Cathedral Court Assocs., L.P., OLD COURT REALTY CORP., AND JACQUES BLINBAUM, Plaintiff(s),
against
Cathedral Properties Corp., Defendant(s),
618/10
Kenneth Cooperstein, Esq.
Attorney for Plaintiff
54 Harbor Park Drive
Centerport, NY 11721
631-754-7777
Paul McDougal, Esq.
Walsh Markus McDougal & Debellis LLP
Attorney for Defendant
229 Seventh St., Suite 200
Garden City, NY 11530
Angela G. Iannacci, J.
The motion by the third-party defendant, Kevin Walsh, for an order dismissing the third-party complaint and awarding sanctions and costs pursuant to NYCRR 130-1.1, and the cross motion by the third-party plaintiffs for an order disqualifying Walsh as counsel for the defendant in the main action, are determined as follows:
This action arises from a conversion and attempted refinance of mortgages by the defendant, Cathedral Properties Corp. (Co-Op), a cooperative apartment complex located in Hempstead, NY. The plaintiff, Cathedral Court Associates (CCA), was the former owner and was the conversion sponsor. Jacques Blinbaum is a principal of CCA, is a member of the board, former officer and shareholder of the Co-Op, and is the principal of Old Court Realty Corp. (Old Court), which is the management company for the Co-Op. For the purposes of these motions, Blinbaum, CCA and Old Court will be referred to collectively as the Blinbaum affiliates unless specific reference to an individual person or entity is necessary.
From the inception of the Co-Op, the general counsel to the Co-Op would be hand selected by Blinbaum. That practice ended in 2006, when the board of directors for the Co-Op selected Walsh as its general counsel. Walsh was charged by the board to assist and advise it regarding a refinance of the Co-Op's mortgages, including a 7 million wrap mortgage held by Blinbaum on assignment from CCA.
In July 2006, the Co-Op directed Old Court to obtain a payoff letter for all mortgages, including the wrap. Accordingly, Blinbaum prepared a "Mortgage Analysis" which indicated a payoff amount plus a 2% prepayment penalty. Thereafter, the Co-Op received a mortgage commitment from National Cooperative Bank (NCB) in the amount of 9.5 million. In November, Blinbaum, on behalf of Old Court, informed the Co-Op that Old Court would be terminating its relationship as property manager. Based on the payoff letters prepared by Blinbaum, in December 2006, the Co-Op locked in its rate with NCB by making a $176,000 good faith deposit. Less than two weeks later, Blinbaum, for the first time, notified the Co-Op that the wrap mortgage was not pre-payable and that he would not consent to prepayment.
The Co-Op commenced a declaratory action as well as an action for damages against the Blinbaum affiliates seeking to compel Blinbaum to accept prepayment of the wrap mortgage without penalty. On February 15, 2007, Justice O'Connell issued an order granting summary judgment to the Co-Op and directing the Blinbaum affiliates to accept prepayment of the wrap without penalty. The Appellate Division, Second Department, reversed that portion of the order stating that the terms of the wrap mortgage clearly did not allow prepayment and that Blinbaum's "Mortgage Analysis" was insufficient to change the terms of the wrap mortgage. The only claims remaining [*2]from that action are the Co-Op's claims of breach of fiduciary duty and fraud on the part of the Blinbaum affiliates.
In January 2010, the Blinbaum affiliates commenced an action against the Co-Op for indemnification of costs and attorneys fees incurred as a result of the underlying ill-fated transactions. The Co-Op asserted several counterclaims, including declaratory judgment, breach of fiduciary duty, and breach of contract. Thereafter, the Blinbaum affiliates commenced a third-party action against Walsh asserting claims for contribution and indemnification based upon Walsh's alleged negligence in failing to discover that the wrap was not pre-payable prior to payment of the good faith deposit.
On the present motion, Walsh seeks dismissal of the third-party complaint as well as costs and sanctions for commencing a frivolous action. The Blinbaum affiliates cross move to disqualify Walsh asserting that he is a material witness.
Impleader under CPLR 1007 is limited to those situations where a person not a party to action may be liable to the defendant for all or part of the plaintiff's claim against him (see Galasso, Langione & Botter, LLP v Liotti, 81 AD2d 880 [2d Dept. 2011]). Therefore, the third-party action must be based upon valid claims of contribution or indemnification. The right to indemnification arises from a contractual agreement or is implied where the third-party defendant is the actual wrongdoer (see McCarthy v Turner Const., Inc., 17 NY3d 369). Indemnification involves shifting the entire loss from one compelled to pay by law, to the person actually responsible for the damages (see County of Westchester v Welton Becket Assocs., 102 AD2d 34 [2d Dept. 1984]). Contribution, however, involves apportionment of responsibility where the parties are equally at fault (Id.).
Here, there is no contract for indemnification between the Blinbaum affiliates and Walsh, therefore, only common law indemnification could exist. Under the facts of this case, there is no evidence to suggest that the entire loss is the responsibility of Walsh. Accordingly, indemnification is improperly asserted against him. As for contribution, pleading it as a third-party action is unnecessary and a waste of judicial resources. To the extent that the Blinbaum affiliates can prove that Walsh committed malpractice, that negligence will be imputed to the Co-Op, as Walsh's principal, and its claim for damages will be limited by the degree of fault attributable to Walsh and vicariously attributable to the Co-Op. All that is needed is a standard comparative negligence defense in order for the Blinbaum affiliates to preserve this apportionment. Of course, the Blinbaum affiliates may seek leave to amend their reply to the counterclaims to assert that defense.
As for the request for sanctions pursuant to 22 NYCRR 130-1.1, it is denied. While clearly not meritorious and brought with the most unclean of hands, the third-party complaint does not rise to the level of frivolous as defined by the rules.
Accordingly, the motion is granted to the extent that the third-party complaint is dismissed.
As for the cross motion to disqualify Walsh and his firm as counsel for the Co-Op, it is denied. The law is well settled that a party's right to be represented by counsel of his or her choosing is a valued right not to be abridged without a clear showing that disqualification is warranted (Matter of Deans, 92 AD3d 879 [2d Dept. 2012]; Trimarco v Data Treasury Corp., 91 AD3d 756 [2d Dept. 2012]). The "advocate-witness" rule, [*3]contained in the Rules of Professional Conduct (22 NYCRR 1200.0), merely provides guidance, and is not binding on the court in determining whether disqualification is warranted (see Trimarco, supra). While Rule 3.7 of the Rules of Professional conduct provides that "a lawyer shall not act as advocate before a tribunal in a matter in which the lawyer is likely to be a witness on a significant issue of fact," the law is clear that in order to disqualify counsel on this basis, the moving party must demonstrate that the testimony of the opposing party's counsel is necessary to his or her case and that such testimony will be prejudicial to the opposing party (see Magnus v Sklover, 95 AD3d 837 [2d Dept. 2012]). Here, the Blinbaum affiliates have not satisfied either requirement. Further, while the firm, Walsh Markus McDougal & DeBellis, LLP, is representing the Co-Op, Walsh is not the attorney handling these joined actions. Even if he is called to testify, he is not advocating on behalf of the Co-Op in this case.
Counsel for the parties are directed to appear for a compliance conference in Part 12 of this court on September 20, 2012, at 9:30 a.m. at which time a discovery schedule will be established.
This constitutes the decision and order of the court.
Dated: September 4, 2012Angela G. Iannacci, J.S.C.
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