Marcum LLP v Silva

[*1] Marcum LLP v Silva 2012 NY Slip Op 52101(U) Decided on September 12, 2012 Supreme Court, Nassau County DeStefano, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 12, 2012
Supreme Court, Nassau County

Marcum LLP, f/k/a MARCUM & KLIEGMAN LLP, Plaintiffs,

against

Jerry Silva and STEVEN SILVA, Defendants.



004148-11



Attorney for Plaintiff:

Moritt, Hock & Hamroff, LLP

400 Garden City Plaza

Garden City, NY 11530

(516) 873-2000

By: Robert M. Tills, Esq.

Attorney for Defendant:

The Law Offices of Jeffrey F. Levine

110 East 59th Street, Suite 3200

New York, NY 10022

(212) 752-2908

By: Jeffrey F. Levine, Esq.

Steven Cohn, P.C.

One Old Country Road, Suite 420

Carle Place, NY 11514

(516)294-6410

By: Steven Cohn, Esq.

Vito M. DeStefano, J.

The following papers and the attachments and exhibits thereto have been read on this motion:

Notice of Motion (02)1

Memorandum of Law in Support of Motion2

Affirmation in Opposition3

Memorandum of Law in Opposition to Motion4

Andrew Wilson's Affidavit in Opposition5

Jerry Silva's Affidavit in Opposition6

Gary Jacobs Affidavit in Opposition7

Jerry Silva's Memorandum of Law in Opposition8

Reply Affidavit9

Reply Memorandum of Law10

Notice of Motion (03)11

Timothy Kahler Affidavit12

Notice of Cross Motion (04)13

Affidavit in Opposition (03 & 04)14

Memorandum of Law in Opposition (03 & 04)15

Reply Affirmation (03 & 04)16

Reply Memorandum of Law (03 & 04)17

September 7, 2012 Letter18

Plaintiff moves for an order pursuant to CPLR 3211 (b) dismissing the affirmative defenses contained in the Defendants' answers. Defendants oppose the motion and separately move for an order pursuant to CPLR 3025 (b) for leave to amend their answers to add counterclaims, assert additional affirmative defenses and to replead affirmative defenses previously pled in the original answers.

For the reasons that follow the Plaintiff's motion is granted and the Defendants' motions are denied.

In 2007, the Defendants, Principals of ChemRX, a provider of pharmacy services, entered into an oral agreement with the Plaintiff accounting firm, wherein the Plaintiff agreed to assist the Defendants in obtaining a buyer for ChemRX in return for payment of a $5 million fee upon closing. The Plaintiff procured a buyer and closing occurred on October 26, 2007. In various comment letters issued by the SEC, Plaintiff's involvement in the transaction was described as providing "financial advisory services" for the contingent fee of $5,000,000.[FN1] [*2]

The Definitive Proxy Statement filed by the Silvas in connection with the sale recites that:

In connection with the closing of the Transaction, Jerry Silva and Steven Silva will pay Marcum & Kliegman LLP ("M & K") [now Marcum] a fee of $5,000,000, which is contingent upon the closing of the Transaction, for the rendering of financial advisory services to the Silva family. [Marcum] was the independent accounting firm whose audit report is included in this proxy as to the Chem Rx financial statements as of December 31, 2004 and December 31, 2005 and for the fiscal years then ended. In early February 2007, [Marcum] and the Silva family entered into an informal agreement for such financial advisory services, and [Marcum] simultaneously resigned as the independent accounting firm of Chem Rx. Such financial advisory services commenced in early February 2007 and are expected to continue until the closing of the Transaction (Notice of Motion No.02 P. 5 ¶ 33).

According to Stephen Feldman, a partner of Plaintiff, prior to closing "Jerry Silva asked * * * whether Marcum would defer $1,000,000.00 of its $5,000,000.00 fee for a period of twelve (12) months * * * so that the Silvas could use those funds to help fund a put escrow' required by Paramount" (Notice of Motion # 02 P. 8 ¶ 45). Plaintiff agreed to the request.

Jerry Silva, in his Affidavit in Opposition to the motion, asserts that:

Plaintiff's principal Stephen R. Feldman and I agreed orally at or just before the closing on the stock sale that the $5 million fee would be - and it was - paid to Plaintiff but the $1 million thereof would be deposited in escrow as Plaintiffs contribution to the $30 million put agreement and escrow, approximately 1/30th thereof, such that if the put holders did not exercise their puts, the $30 million would be distributed to me who in turn would return the $1 million to Plaintiff, and if the put holders did exercise their puts, the returned stock would be distributed to me who in turn would give 1/30th thereof to Plaintiff (Affidavit in Opposition p. 2 ¶ 6).

It is undisputed that $4 million was paid by the Defendants to the Plaintiff and that

$1 million remains in escrow, the Defendants refusing to pay that amount to the Plaintiff.

The Plaintiff commenced this action for breach of contract on March 18, 2011. The Defendants separately answered the complaint on May 9, 2011; Jerry Silva's answer contains 16 affirmative defenses and Steven Silva's answer contains 18 affirmative defenses. Most of the defenses asserted are accurately described by the Plaintiff as "boilerplate" and all have been demonstrated by the Plaintiff to be without merit.

In this regard, the documentary evidence submitted in support of the motion as well as the submissions contained in the Defendants' opposition papers and motions establish the existence of an agreement. Accordingly, the fourth and fifth affirmative defenses contained in Defendant Jerry Silva's answer and the seventh and eighth affirmative defenses contained in Defendant Steven Silva's answer (which allege a violation of Statute of Frauds) must be dismissed.

Likewise, the Defendants' affirmative defenses, alleging accord and satisfaction have [*3]been pleaded in conclusory and insufficient fashion, failing to allege the required elements of that defense, and in particular, that there was a disputed claim prior to closing (see Pothos v Avenue House, Inc., 269 AD2d 377 [2d Dept 2000]). Therefore, the 15th affirmative defense contained in Jerry Silva's answer and the 17th affirmative defense in Steven Silva's answer must be dismissed.

The remaining affirmative defenses are likewise without merit or inapplicable to a breach of contract claim, i.e., failure to state a claim, failure to state a cause of action, statute of limitations, waiver, failure to join necessary parties, lack of an agreement, laches, unclean hands, estoppel, unjust enrichment, culpable conduct, breach of agreement, failure to satisfy conditions precedent, full performance, or are otherwise insufficiently plead (i.e., fraud and bad faith).

Indeed, Defendants do not particularize any arguments in opposition to the motion in regard to several of the affirmative defenses raised. Instead, the essential allegations raised by the Defendants concern the statute of frauds defense.

Significantly, the Defendants argue that the parties entered into a new agreement regarding the payment of the $1 million balance (of the $5 million fee) which effected a novation, and that the new agreement was invalid because it violated the Statute of Frauds. However, the argument is specious to the extent that the Defendants suggest that an invalid agreement could effect a novation of a valid one (see Old Oak Realty v Polimeni, 232 AD2d 536 [2d Dept 1996] [the requirements of a novation are satisfied when there is a previously valid obligation, agreement of the parties to the new obligation, extinguishment of the old contract, and a valid new contract]).

With respect to the Defendants' motions to amend their answers, the motions must also be denied (cf. Lucido v Mancuso, 49 AD3d 220 [2d Dept 2008]). First, the court notes that the Defendants' counterclaims and affirmative defenses alleging that Plaintiff violated 15 USC § 78o(a)(1) are all time-barred (Carter Financial Corp. v Atlantic Medical Mgmt., LLC, 262 AD2d 178 [1st Dept 1989] citing 15 USC § 78cc[b]). Defendants' reliance on Carver v State (87 AD3d 25 [2d Dept 2011]) and Flanagan v Prudential-Bache Securities, Inc. (67 NY2d 500 [1986]) in support of the proposition that the Supreme Court may ignore controlling New York State Court case authority is misplaced (e.g.Obstfeld v Thermo Niton Analyzers LLC, 32 Misc 3d 1221A [Supreme Court NY County 2011][where the court noted its obligation to follow controlling appellate authority while expressing disagreement with the rationale in Carter Financial Corp. v Atlantic Medical Mgmt., LLC, supra]).

Defendants' other counterclaims alleging fraud, misrepresentation and breach of fiduciary duty based on the Plaintiff's alleged misrepresentation concerning its alleged capacity to perform the services provided are also devoid of merit and insufficiently pleaded (e.g. Lama Holding Co. v Smith Barney Inc., 88 NY2d 413 [1996]), as are Defendants' unjust enrichment counterclaims.

Finally, Defendants' papers and proposed affirmative defenses fail to remedy the defects contained in the original pleadings and are likewise without any merit. [*4]

For all the foregoing reasons, it is hereby ordered that the motion is granted and the

Defendants' motions are denied.

This constitutes the decision and order of the court.

Dated: September 12, 2012

_____________________________

Hon. Vito M. DeStefano, J.S.C. Footnotes

Footnote 1: According to the Plaintiff, it provided auditing services to ChemRX since the 1990s. It resigned as auditor in order to perform the agreement with ChemRX and did "assist the Silvas in connection with the sale" (Plaintiff's Affirmation in Support of Notice of Motion).