Comprehensive Med. Care of N.Y., P.C. v Hausknecht

[*1] Comprehensive Med. Care of N.Y., P.C. v Hausknecht 2007 NY Slip Op 50041(U) [14 Misc 3d 1216(A)] Decided on January 12, 2007 Supreme Court, Kings County Schack, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through January 12, 2007; it will not be published in the printed Official Reports.

Decided on January 12, 2007
Supreme Court, Kings County

Comprehensive Medical Care of New York, P.C., Plaintiff,

against

Aric Hausknecht, Defendant.



9916/06



Plaintiff

Borchert Genovesi Laspina & Landicino, PC

Whitestone NY

Defendant

L Lawrence Futterman, Esq.

NY NY

Arthur M. Schack, J.

This action is part of a continuing family feud among three neurologists, all well known to many local trial judges and the tort bar as expert witnesses. Plaintiff (CMCNY) is a professional corporation. Its present principals are Dr. Allan Hausknecht (Allan) and his son, Dr. Kerin Hausknecht ( Kerin). Defendant, Dr. Aric Hausknecht (Aric), is the son of Allan and the brother of Kerin. The instant action is yet another chapter in the parties' tangled web of litigation with respect to the division of property and accounts. Subsequent to Aric's withdrew as a CMCNY shareholder, pursuant to the May 18, 2000 "Redemption Agreement" of the parties [exhibit C of motion - appellate record, pp. 16-46]. The agreement was executed by CMCNY, Allan and Kerin, the "remaining shareholders," and Aric, the "selling shareholder." Specifically, plaintiff alleges that Aric breached the Redemption Agreement by retaining the proceeds of $89,409.43 in accounts settled, from March 21, 2000 through May 17, 2000 [exhibit A of motion - summons and complaint].

Defendant Aric moves to dismiss the complaint on two grounds. First, pursuant to CPLR Rule 3211(a) (2), this court does not have subject matter jurisdiction due to the arbitration provision in the Redemption Agreement. Second, pursuant to CPLR Rule3211 (a) (5), an arbitration award was rendered in favor of Aric, confirmed by Supreme Court, Nassau County (Index Number 5854/03), and affirmed by the Appellate Division, Second Department, on December 27, 2005, in Hausknecht v Comprehensive MedicalCare of New York, P.C., (24 AD3d 778). This is res judicata and collateral estoppel as

to the instant action. Further, defendant Aric seeks sanctions and attorneys' fees for [*2]

frivolous conduct, pursuant to 22 NYCRR § 130-1.1, from plaintiff CMCNY and its

counsel.

The Court finds that any CMCNY accounts settled from March 21, 2000 through

May 17, 2000 and retained by Aric were not subject to the arbitration proceedings and

award, conducted pursuant to the terms of the May 18, 2000 Redemption Agreement.

Therefore, this Court has subject matter jurisdiction over the instant matter, and plaintiff

is not precluded from pursuing its breach of contract claims because of res judicata and

collateral estoppel. Further, with plaintiff presenting a meritorious claim, it is impossible

for CMCNY and its counsel to have engaged in frivolous conduct.

Factual Background

According to the October 25, 2004 appellate brief, filed by respondent-appellate

CMCNY in Hausknecht v Comprehensive Medical Care of New York, P.C., supra,

CMCNY was incorporated by Allan. CMCNY has offices in Nassau, Suffolk, Kings and

New York Counties. Further, Allan, who paid for Aric's medical education, gave a one-

third interest in the business to Aric on August 7, 1997 [exhibit C of motion - appellate

record, p. 205; stock certificate for 66 and two-thirds shares of CMCNY]. The appellate

brief, at p. 4, states:

After working together for just two and one-half years Aric

Hausknecht demanded his interest in the business be purchased by

the business. It being clear that the parties could not work together,

on May 18, 2000 Allan Hausknecht, M.D., acceded to his son

Aric Hausknecht, M.D.'s demand to be bought out of [CMCNY]

and the parties entered into the underlying Redemption Agreement.

(R.[appellate record] 75-204) The agreement granted to Aric Hausknecht

as of its date, May 18, 2000, inter alia, the [CMCNY] accounts receivable

that related to services rendered at the New York office between July 1,

1995 and March 21, 2000. In the event of a disagreement concerning

the amount of the accounts receivables, the redemption agreement

allows that question and only that specific question to be submitted

to arbitration.

§ 4 (a) (2) of the Redemption Agreement states that CMCNY "shall assign to

Selling Shareholder [Aric] all of its right, title and interest in and to outstanding Accounts

Receivable attributable solely to the Manhattan Office from July 1, 1995 to March 21,

2000." The parties, in § 7 (a), agreed to cooperate with "each other when reasonably

requested" and further agreed, in § 7 (b) (1), that all accounts receivable of CMCNY "are

the exclusive property of the Corporation" except for the July 1, 1995 to March 21, 2000

accounts receivable at the Manhattan office. In § 7 (7), the parties agreed that, "[i]n the

event of a disagreement as to the amount of the Accounts Receivable owed to the other

party, the parties shall submit the matter to the American Arbitration Association and the

losing party shall bear all costs including, but not limited to, reasonable attorneys fees [*3]

associated with the arbitration [sic]."

According to Allan's affidavit in opposition, as well as the appellate brief, plaintiff

corporation was unable to determine what checks drawn to CMCNY but deposited by

Aric, in the March 21 to May 17, 2000 period, were to be charged to CMCNY. Plaintiff

alleges that it asked for information with respect to these payments and Aric refused to

provide the necessary information. Therefore, pursuant to the Redemption Agreement, §

7 (7), CMCNY demanded arbitration to determine the accounts receivable.

Counterclaims were filed by Aric. CMCNY attempted to stay the arbitration in

Supreme Court, Nassau County, Index Number 6392/02. Aric prevailed and an

arbitration award in excess of $30,000.00 was awarded to him. Aric moved to confirm

the final arbitration award in Supreme Court, Nassau County, Index Number 5854/03.

On July 28, 2003, the Hon. Joseph A. De Maro confirmed the award, holding that,

"[u]nder the facts at bar, the entire issue of accounts receivable and the measure of

damages flowing from the respondent's improper retention of funds due and owing Dr.

Aric Hausknecht, the selling shareholder, was the proper domain of the arbitrator." This

judgment was affirmed, as noted above, by the Second Department.

The instant action does not relate to accounts receivable, but to monies actually

received as accounts settled by CMCNY's Manhattan office for the March 21 to May 17,

2000 period, prior to the signing of the May 18, 2000 Redemption Agreement. The

instant action does not seek to establish the amount of accounts receivable, which was

decided in the arbitration proceedings and award, pursuant to §7 (7) of the Redemption

Agreement, confirmed by Supreme Court, Nassau County, and affirmed by the Appellate

Division. As no breach of contract claim was or could have been adjudicated in the

arbitration proceeding, the arbitration proceeding cannot serve as a basis to estop the

instant breach of contract action.

Discussion

The arbitration provision of the Redemption Agreement deals with "accounts

receivable," which is defined in Black's Law Dictionary, 17 [7th ed 1999] as an account

"reflecting a balance owed by a debtor; a debt owed by a customer to an enterprise for

goods or services." It is clear from its plain meaning that "accounts receivable" are

payments that are anticipated to be received by a business but not yet presented by a

debtor to a creditor or settled between a debtor and creditor. Black's Law Dictionary,

supra, defines "account settled" as an account "with a paid balance." The instant action

is clearly for breach of contract with respect to accounts settled, with the balances

retained by Aric, from March 21, 2000 through May 17, 2000. The instant action does

not deal with the accounts receivable for that period. The instant motion might have

arisen from confusing language in plaintiff's complaint. Paragraph 8 of the complaint

states "[d]efendant retained the accounts receivable for the period March 21, 2000

through May 17, 2000." Then, it states in paragraph 9 that "[t]he accounts receivable

and retained by Defendant for the period March 21, 2000 through May 17, 2000 was

Eighty-nine Thousand Four Hundred Nine Dollars Forty-Three Cents (89,409.43) [sic]." [*4]

Further, in paragraph 13, it states "[i]n violation of the agreement, Defendant has retained

the accounts receivable for the period March 21, 2000 through May 17, 2000." If

plaintiffs had properly referred to the March 21, 2000 through May 17, 2000 payments

that Aric allegedly retained as "accounts settled," maybe the Court would not have to adjudicate this motion. It is clear that the $89,409.43 at issue is for "accounts settled," not future payments of "accounts receivable." Pursuant to §7 (7) of the Redemption

Agreement, accounts receivable are subject to the arbitration provision. Disputes with

respect to accounts settled are not addressed in the arbitration provisions of the

Redemption Agreement. Thus, this Court has subject matter jurisdiction in the instant

matter.

Further, defendant's motion for dismissal relies upon the related legal principles of

res judicata and collateral estoppel, which prevent our courts from wasting limited

resources by the continued relitigation of claims and issues. Professor David Siegel, in

NY Prac §442, at 747 [4th ed], makes it clear that "[t]he doctrine of res judicata is

designed to put an end to a matter once duly decided. It forbids relitigation of the matter

as an unjustifiable duplication, an unwarranted burden on the courts as well as on

opposing parties." Res judicata is also known as "claims preclusion." Judge Cardozo,

for a unanimous Court of Appeals, in Schuylkill Fuel Corp. v B & C Nieberg Realty

Corp., 250 NY 304, 306-307 (1929) instructed that "[a] judgment in one action is

conclusive in a later one not only as to any matters actually litigated therein, but also as to

any that might have been so litigated, when the two causes of action have such a measure

of identity that a different judgment in the second would destroy or impair rights or

interests established by the first . . . " In O'Brien v City of Syracuse, 54 NY2d 353, 357

(1981), Chief Judge Cooke, also for a unanimous Court of Appeals, noted that "once a

claim is brought to a final conclusion , all other claims arising out of the same transaction

or series of transactions are barred, even if based upon different theories or if seeking a

different remedy . . ." See Yerg v Board of Educ. of Nyack Union Free School District,

141 AD2d 537 (2d Dept 1988); Coliseum Towers Associates v County of Nassau, 217

AD2d 387 (2d Dept 1996).

Collateral estoppel or "issue preclusion," as observed by Prof. Siegel, in NY Prac

§443, at 748-749, [4th ed], "scans the first action and takes note of each issue decided in

it. Then if the second action, although based on a different cause of action, attempts to

reintroduce the same issue, collateral estoppel intervenes to preclude its relitigation and to

bind the party, against whom the doctrine is being invoked, to the way the issue was

decided in the first action." In Ryan v New York Telephone Company, 62 NY2d 494,

500 (1984), the Court of Appeals, held that "[t]he doctrine of collateral estoppel, a

narrower species of res judicata, precludes a party from relitigating in a subsequent action

or proceeding an issue clearly raised in a prior action or proceeding and decided against

that party or those in privity, whether or not the tribunals or causes of action are the

same." Two prerequisites must be met before collateral estoppel can be raised. The

Court of Appeals, in Buechel v Bain, 97 NY2d 295 (2001), cert denied 535 US 1096 [*5]

(2002), instructed at 303-304, that :

There must be an identity of issue which has necessarily been decided

in the prior action and is decisive of the present action, and there

must have been a full and fair opportunity to contest the decision now

said to be controlling (see, Gilberg v Barnieri, 53 NY2d 285, 291

[1981]). The litigant seeking the benefit of collateral estoppel must

demonstrate that the decisive issue was necessarily decided in the prior

action against a party, or one in privity with a party (see, id.). The

party to be precluded from relitigating the issue bears the burden of

demonstrating the absence of a full and fair opportunity to contest

the prior determination

See Gramatan Home Investors Corp. v Lopez, 46 NY2d 481, 485 (1979); D'Arata v New

York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664 (1990); David v American Bio

Medica Corp., 299 AD2d 390 (2d Dept 2002); Luscher ex. rel Luscher v Arrua, 21 AD3d

1005 (2d Dept 2005).

It is clear that the instant complaint deals with matters not litigated in the

arbitration and the subsequently related Supreme Court and Appellate Division litigation.

The issue of accounts settled in the March 21 to May 17, 2000-period was not decided in

the arbitration proceedings and award. Res judicata and collateral estoppel are

inapplicable. The Court of Appeals, in Rembrandt Industries, Inc. v Hodges Intern., Inc.,

38 NY2d 502, 504 (1976), instructed that:

It is settled law that the doctrine of res judicata is applicable

to issues resolved by earlier arbitration . . . Where, however, an issue

not passed upon by the arbitrators is the subject of a later action,

obviously the award is not a bar to that action ( . . . cf. Matter of

Spring Cotton Mills [Buster Boy Suit Co.], 275 App Div 196, 199-200

[1st Dept 1949], affd 300 NY 586 [1949]; Matter of Weinberger

(Friedman), 41 AD2d 620 [1st Dept 1973]).

The Appellate Division explicitly found, in affirming the confirmation of the arbitration

award, in Hausknecht v Comprehensive Medical Care of New York, P.C., supra at 779,

that "the Supreme Court properly determined that the arbitrator did not exceed his

power." Since the arbitration clause dealt with accounts received, the breach of contract

claim for accounts settled cannot have been previously litigated.

Even if the arbitration proceeding can be said to have considered the breach of

contract issue, under collateral estoppel there is no identity of issues between accounts

receivable, the only issue subject to arbitration, as decisive to accounts settled in the

March 20 to May 17, 2000-period. Buechel v Bain, supra; Altamore v Friedman, 193

AD2d 240, 245-246 (2d Dept 1993). Defendant has conveniently ignored the

commonsense reality that the term "accounts receivables" concern money due to be paid

that has not yet been paid. The instant action does not concern such funds. Rather, the

instant action concerns funds already received at the time the Redemption Agreement was [*6]

signed on May 18, 2000. This reality is the substantive basis upon which this Court

distinguishes the instant action from any issue that was or could have been pursued in the

arbitration proceeding.

Finally, defendant's request for sanctions and attorneys' fees from plaintiff is

predicated upon defendant's unwillingness to accept the legal and factual distinctions

between the instant action and the arbitration proceeding. The Court finds that the

conduct of plaintiff CMCNY and its counsel is not frivolous. While the plaintiff might

not ultimately prevail, the instant action has merit.

Conclusion

Accordingly, it is,

ORDERED, that defendant's motion for dismissal of plaintiff's complaint,

pursuant to CPLR Rule 3211 (a) (2), upon the grounds of lack of subject matter

jurisdiction, and CPLR Rule 3211 (a) (5), upon the grounds of res judicata and collateral

estoppel is denied, and it is further

ORDERED, that defendant's application for an award of sanctions and attorneys'

fees against plaintiff and its counsel for frivolous conduct, pursuant to 22 NYCRR § 130-

1.1, is denied.

This constitutes the Decision and Order of the Court.

E N T E R

___________________________

HON. ARTHUR M. SCHACK

J. S. C.