Topor v Enbar

[*1] Topor v Enbar 2007 NY Slip Op 51042(U) [15 Misc 3d 1139(A)] Decided on May 24, 2007 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 24, 2007
Supreme Court, New York County

James Topor, Plaintiff,

against

Moshe Enbar, Steven Kamhi, 6 St. Nicholas Terrace, LLC, 60 West 124th Street, LLC, 217 West 136th Street, LLC, 50 East 119th Street, LLC, Magnum Real Estate Services, Inc., 23-132rd Street, LLC, Michael N. Coritsidis and Coritsidis & Lambros, PLLC, Defendants.



603182/06



APPEARANCES:

For Plaintiff:

Piliero Goldstein Kogan & Miller, LLP

10 East 53rd Street

New York, New York 10022

(Michael C. Miller, Esq.

Evan Glassman, Esq.)

For Defendants Coritsidis & Lambros,

PLLCand Michael Coritsidis :

Coritsidis & Lambros, PLLC

46 Trinity Place, 4th Floor

New York, New York 10006

(Michael Coritsidis, Esq.)

Kamhi, 6 St. Nicholas Terrace, LLC,

60 West 124th Street, LLC, 217 West 136th Street, LLC,

50 East 119th Street, LLC, Magnum Real Estate Services, Inc.,

and 23-123rd Street, LLC:

Levy & Boonshoft, P.C.

477 Madison Avenue, 14th Floor

New York, New York, 10022

(David M. Levy, Esq.)

Bernard J. Fried, J.

Defendants Coritsidis & Lambros, PLLC and Michael N. Coritsidis, Esq. (the Counsel Defendants) move to dismiss the cause of action for legal malpractice pursuant to CPLR § 3211 (a) (1) and (a) (7), and for costs and sanctions against plaintiff James Topor, pursuant to 22 NYCRR § 130-1.1.

According to the complaint, in 1998, Topor entered into a business relationship with non-moving defendants Moshe Enbar, Steven Kamhi, and non-party Jordan Gitterman, who invited Topor to become a managing officer and part owner of Flatiron Equities, LLC (Flatiron), for the purpose of acquiring, leasing, and managing distressed and undervalued real estate properties located in New York City (Complaint at ¶¶ 1, 27).

In January of 2003, Topor, Enbar, Kamhi and Gitterman (the Flatiron Principals) drafted an operating agreement for Flatiron. Although it was never executed, the Flatiron Principals orally agreed to operate under the terms of that agreement, whereby each owned a 25% share of Flatiron (id. at ¶ 29). Topor alleges that Flatiron's operations were conducted informally, and agreements amongst the Flatiron Principals relating to the acquisition of property were often made orally and confirmed by the parties' respective actions (id. at ¶ 34). Between 2003 and 2005, the Flatiron Principals acquired five properties. Because two of the properties were subject to various regulatory restrictions requiring that real property sales be made to individuals rather than corporate entities, two of the properties were acquired by individual Flatiron Principals, and then transferred to single purpose entities created by Flatiron (id. at ¶¶ 34-5).

Defendant Coritsidis is a partner in defendant Coritsidis & Lambros, PLLC (the Counsel Defendants). According to the complaint, the Counsel Defendants were retained by Topor and the remaining Flatiron Principals to represent them individually and collectively, in addition to the single-purpose entities that Flatiron created to hold the properties, St. Nicholas Terrace, LLC, 60 West 124th Street LLC, 217 West 136th Street, LLC, and 50 East 119th Street LLC (119th Street LLC), to draft operating agreements, and to otherwise assist in the acquisition and financing of the real estate properties (id. at ¶¶ 36, 55, 76, 95). The Flatiron Principals did not execute a retainer agreement with the Counsel Defendants (id. at ¶ 37).

According to the complaint,[FN1] in June of 2004, three of the Flatiron Principals, Enbar, Kamhi and Topor formed 119th Street LLC in order to acquire and hold the property located at 50 East 119th Street, with the assistance of the Counsel Defendants (id. at ¶ 104). Topor, Enbar and Kamhi allegedly prepared an operating agreement themselves, and executed it on June 24, 2004 (June 24 Agreement) (id. at ¶107). The June 24 Agreement provided that 119th Street LLC was 50% owned by Enbar and 25% owned by Kamhi and Topor, respectively (id. at ¶ 110). Unbeknownst to Topor, however, earlier that month, on June 5, the Counsel Defendants assisted Enbar and Kamhi in drafting [*2]an operating agreement for 119th Street LLC (June 5 Agreement). The June 5 Agreement stated that Enbar and Kamhi were each 50% owners of 119th Street LLC, and did not mention Topor (id. at ¶¶ 132, 134).

During this time, Topor, Enbar and Kamhi allegedly acted as if the June 24 Agreement was in effect and Topor was a member of 119th Street LLC, by, inter alia, collectively searching for financing in order to acquire the property. Topor alleges that he identified a private investor, Nolan Karp, who agreed to loan funds to 119th Street LLC for the acquisition of the property (id. at ¶ 114). The Counsel Defendants prepared and negotiated an investment agreement (Karp Agreement) on behalf of Flatiron, 119th Street LLC and the Flatiron Principals (id. at ¶ 115).

At the closing of the purchase of the property, Topor alleges that he was present as a representative of Flatiron in addition to the Counsel Defendants, who represented Flatiron and Topor (id. at ¶ 122). Topor alleges that, subsequent to the closing, with the Counsel Defendants' knowledge and assistance, he acted on behalf of 119th Street LLC as a part owner in other circumstances, including filing documents with governmental agencies and executing the New York State Real Property Report Form as the "buyer" of the property (id. at ¶¶ 122-23).

Topor alleges that beginning in September of 2004, he learned that Enbar and Kamhi were engaging in various acts of self-dealing and misconduct relating to Flatiron and the five properties acquired by the Flatiron Principals (id. at ¶ 41). In December of 2004, Enbar and Kamhi caused 119th Street LLC to obtain a $900,000 mortgage on the property (119th Street Refinancing) with the Counsel Defendants' assistance (id. at ¶¶ 44, 125). In order to obtain the mortgage, the Counsel Defendants, Enbar, and Kamhi presented the June 5 Agreement to the bank (id. at ¶¶ 44, 132).

According to Topor, he only learned of the 119th Street Refinancing in January of 2005, and allegedly never consented to the transaction. Further, Topor alleges that the June 5 Agreement submitted to the bank was a fraudulent document that failed to reflect his interest in 119th Street LLC. Topor additionally alleges that Enbar and Kamhi diverted some of the proceeds from the 119th Street Refinancing for their own personal use (id. at ¶ 126). The Counsel Defendants earned $10,000 in legal fees for the services that they rendered in connection with the 119th Street Refinancing (id. at ¶ 128).

When Topor approached Enbar, Kamhi and the Counsel Defendants about the 119th Street Refinancing, Enbar and Kamhi allegedly refused to include Topor in the transaction, which Topor alleges "belonged to Flatiron's Principals collectively" (id. at ¶ 42). Further, the Counsel Defendants failed to take corrective action, as Topor demanded. As a result, Topor ceased working at Flatiron, in addition to ceasing day-today communication with Enbar and Kamhi (id. at ¶ 43).

Throughout 2005, Topor, Enbar and Kamhi engaged in settlement-related discussions. Topor was represented by separate counsel, and Enbar and Kamhi were represented by the Counsel Defendants (Topor Affidavit at ¶ 9). The parties were unable to reach a settlement, and this lawsuit ensued.

Enbar's and Kamhi's acts of alleged misconduct are the subject of twenty-eight of the twenty-nine causes of action in the complaint: breach of fiduciary duty, conversion, unjust enrichment, accounting and constructive trust, fraud, breach of contract, and seeking a judicial dissolution of several of the single purpose entities created by the Flatiron Principals. The sole cause of action asserted against the Counsel Defendants is for legal malpractice, and arises out of the 119th Street Refinancing, where Topor alleges that the Counsel Defendants personally owed him a duty by virtue of their professional relationship, which the Counsel Defendants breached by drafting and submitting [*3]the June 5 Agreement, a fraudulent document, to the bank and which concealed Topor's ownership interest in 119th Street LLC (Complaint at ¶¶ 297-301).

Topor alleges additional acts of legal malpractice on the part of the Counsel Defendants in his opposition affidavit. In December of 2005, following the settlement negotiations that took place between Topor, Enbar and Kamhi, the Counsel Defendants allegedly assisted Enbar and Kamhi obtaining a mortgage on property located at West 123rd Street, without Topor's knowledge and consent. Additionally, the Counsel Defendants allegedly facilitated a further encumbrance of the 119th Street property by their participation in and preparation of documents memorializing a settlement between Gitterman and Enbar that secured a 20% interest in the 119th Street property, without Topor's knowledge or consent.

The Counsel Defendants move to dismiss the cause of action for legal malpractice pursuant to CPLR 3211 (a) (7), on the ground that Topor has failed to plead facts that establish an attorney-client relationship between the Counsel Defendants and him, individually, and failed to allege causation and damages. Additionally, the Counsel Defendants move to dismiss pursuant to CPLR 3211 (a) (1), on the ground that documentary evidence, and Topor's own admissions, establish that no privity exists between the Counsel Defendants and Topor.

Topor maintains that he adequately pleaded facts that the Counsel Defendants represented him individually in connection with the five real estate transactions entered int For Defendants Moshe Enbar, Steven o by Topor and the remaining Flatiron Principals, including the 119th Street Refinancing, in addition to pleading elements of causation and damages. Alternatively, Topor argues that the element of privity, a requisite for pleading a cause of action for legal malpractice, should be waived because the Counsel Defendants aided and abetted Enbar's and Kamhi's fraud, and because of "special circumstances," arising out of Topor's reliance that the Counsel Defendants were representing him personally. Finally, Topor requests leave to replead in the event that the cause of action for legal malpractice is determined to have been deficiently pleaded.

For the reasons stated below, affording the complaint a liberal construction, accepting the facts alleged as true and according Topor the benefit of every favorable inference (Allianz Underwriters Ins. Co. v Landmark Ins. Co., 13 AD3d 172, 174 [1st Dept 2004]), the facts alleged do not support a cause of action for legal malpractice.

As a threshold matter, in order to establish a cause of action for legal malpractice, the plaintiff must demonstrate the existence of an attorney-client relationship (AG Capital Funding Partners, L.P. v State Street Bank & Trust Co., 5 NY3d 582, 595 [2005]). A relationship of actual privity or one that closely resembles privity, is required (id.; Linden v Moskowitz, 294 AD2d 114, 115 [1st Dept 2002], lv denied 99 NY2d 505 [2003]). The execution of a formal retainer agreement or the payment of a fee is not dispositive (Jane Street Co. v Rosenberg & Estis, P.C., 192 AD2d 451, 451 [1st Dept], lv denied 82 NY2d 654 [1993]). Rather, courts typically consider the words and actions of the parties to ascertain the existence of such a relationship, and whether there was an explicit undertaking by the attorney to perform a specific task (Wei Cheng Chang v Pi, 288 AD2d 378, 380 [2d Dept 2001], lv denied 99 NY2d 501 [2002]). Additionally, the plaintiff must allege that the attorney was aware that its services were being used for a specific purpose, that the plaintiff relied upon those services, and that the attorney engaged in some conduct evincing an understanding of the plaintiff's reliance (Allianz Underwriters Ins. Co., 13 AD3d at 175). A plaintiff's subjective belief alone as to the existence of such a relationship is not sufficient (Weadick v Herlihy, 16 AD3d 223, 224 [1st Dept], lv denied 5 NY3d 707 [2005]). [*4]

The complaint fails to plead facts establishing that an attorney-client relationship existed between Topor, individually, and the Counsel Defendants. In the complaint, Topor repeatedly alleges that the Counsel Defendants represented Flatiron and the single-purpose entities that Flatiron created, including 119th Street LLC, in order to acquire properties (see e.g. Complaint at ¶ 36). Otherwise, Topor does not allege any facts, either in the form of words or actions, taken by Topor and the Counsel Defendants establishing that there was an explicit undertaking to perform a specific legal task on behalf of Topor personally (Wei Cheng Chang, 288 AD2d at 380), or that the Counsel Defendants knew that Topor was personally relying on their services (Allianz Underwriters Ins. Co., 13 AD3d at 175).

With respect to 119th Street LLC specifically, the complaint is replete with allegations that all of the services that the Counsel Defendants conferred in connection with the acquisition of the property at 119th Street was done on behalf of 119th Street LLC and Flatiron (see e.g. Complaint ¶¶ 104, 120, 122). Topor alleges that Flatiron, and the then owner of the property at 119th Street, engaged in negotiations regarding the former's purchase of the property (id. at ¶ 105). Moreover, Topor alleges that in identifying a private investor to obtain financing for the acquisition, attending the closing of the 119th Street property, preparing a valuation, planning renovations, participating in the prosecution of landlord-tenant actions, and preparing and executing various filings in connection with the acquisition, Topor was "act[ing] on behalf of 119th Street LLC" for the benefit of Flatiron, and not on his own behalf (id. at ¶¶115, 122, 123, 124). In fact, Topor does not allege any direct, personal contact between the Counsel Defendants and himself; rather, all of the legal services that Topor alleges that the Counsel Defendants undertook was for the benefit of Flatiron and the corporate entities that the Flatiron Principals created to acquire the properties, including 119th Street LLC.

Topor's conclusory allegation that the Counsel Defendants knew that he was relying on their services in connection with their representation of 119th Street LLC, is contradicted by Topor's allegation that he, Enbar and Kamhi prepared and drafted the June 24 Agreement without the Counsel Defendants' involvement (compare Prudential Ins. Co. of Am. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 385 [1992], rearg denied 81 NY2d 955 [1993] [defendant law firm which sent an opinion letter directly to plaintiff, on the instructions of the client, owed a duty of care to the plaintiff to support a legal malpractice claim against the firm where the firm was aware that the plaintiff was relying on the letter and, by sending the letter directly to the plaintiff, engaged in conduct evincing its awareness and understanding that the plaintiff would rely on the letter, providing the requisite link between the parties]). Nor has Topor alleged specific facts establishing that the Counsel Defendants represented him individually, rather than Flatiron, in the refinancing of the property located at 123rd Street, which Topor alleges was purchased by 123rd Street LLC, an entity that he was not even a member of (Complaint at ¶¶ 143, 145, 146).

Topor's allegations that the Counsel Defendants' acknowledged their prior representation of him by requiring him to execute a waiver of conflicts letter in connection with settlement discussions with Enbar and Kamhi may not be considered, since evidence of any conduct or statement made during settlement negotiations is inadmissible as proof of liability (CPLR § 4547 [a]).

A law firm's representation of a corporate entity does not put the law firm in privity with the entity's individual members (Griffith v Medical Quadrangle, Inc., 5 AD3d 151, 152 [1st Dept 2004]). Thus, because it is evident that the Counsel Defendants represented the corporate entity Flatiron and the single-purpose entities it created, the complaint fails to establish that an attorney-client relationship existed between Topor, individually, and the Counsel Defendants. [*5]

Moreover, documentary evidence submitted by the Counsel Defendants flatly contradicts Topor's allegations that Counsel Defendants represented him individually in connection with the acquisition of the 119th Street property. In order to succeed on a motion to dismiss pursuant to CPLR 3211 (a) (1), the documentary evidence that forms the basis of the defense must resolve all factual issues as a mater of law, and conclusively dispose of the plaintiff's claim (Leon v Martinez, 84 NY2d 83, 87-88 [1994]; see also Goldfarb v Schwartz, 26 AD3d 462, 463 [2d Dept 2006]). The Counsel Defendants submit closing documents reflecting that 119th Street LLC was the purchaser of the property located at 119th Street, including an assignment executed by Enbar and Kamhi on behalf of 119th Street LLC, loan documents executed by Enbar on behalf of 119th Street LLC, and the closing agreement for the property, executed by Kamhi on behalf of 119th Street LLC (Exhibits 3, 4, 5, annexed to the Affidavit of Michael N. Coritsidis, Esq.). These documents conclusively establish as a matter of law that the Counsel Defendants represented Flatiron and 119th Street LLC, and thus, Topor did not share an attorney-client relationship with the Counsel Defendants that could support a cause of action for legal malpractice (see Laruccia v Forchelli, Curto, Schwartz, Mineo, Carlino & Cohn, LLP, 295 AD2d 321, 322 [2d Dept] lv dismissed in part, denied in part 98 NY2d 753 [2002]).

Alternatively, Topor asserts that his cause of action for legal malpractice falls within the exception to the privity requirement, maintaining that the Counsel Defendants aided and abetted Enbar's and Kamhi's fraud by their participation in the 119th Street Refinancing, and by their submission of the June 5 Agreement to the bank, an allegedly fraudulent document, in order to facilitate the 119th Street Refinancing. However, absent actual or near privity, an attorney may not be held liable to third parties for professional negligence, except where the plaintiff alleges specific facts of "fraud, collusion, malicious acts or other special circumstances" (AG Capital Funding Partners, L.P. v State Street Bank & Trust Co., 5 NY3d 582, 595 [2005]; see also Aranki v Goldman & Assocs., LLP, 34 AD3d 510 [2d Dept 2006]).

The complaint fails to allege specific facts essential to a claim for fraud, namely, an intentional misrepresentation made by the Counsel Defendants to Topor. Rather, the only intentional misrepresentation Topor alleges that the Counsel Defendants made was to the bank, when they allegedly misrepresented that the documents submitted, including the June 5 Agreement, were accurate, even though they knew they were not (Complaint at ¶ 135). Because there is no allegation that the Counsel Defendants made an intentional misrepresentation to Topor himself, Topor has failed to plead facts sufficient to establish fraud in order to avail himself of the fraud exception to the privity requirement (see National Westminster Bank USA v Weksel, 124 AD2d 144, 147 [1st Dept], app denied 70 NY2d 604 [1987]).

Furthermore, Topor's conclusory allegations that the Counsel Defendants knew of or should have known that he was a member of 119th Street LLC, and, thus, a part owner of the 119th Street property because of their work on the Karp Investment Agreement, his participation in the closing of the 119th Street property, and his execution of other government filings is insufficient to permit the inference that the Counsel Defendants were aware of, and intended to assist, Enbar's and Kamhi's alleged fraud to conceal Topor's ownership interest in 119th Street LLC, required for an aiding and abetting fraud theory (see National Westminster Bank USA, 124 AD2d at 147). Topor himself alleges that the Counsel Defendants did not participate in the preparation or drafting of the June 24 Agreement. Indeed, Topor alleges that Flatiron's operations were informally conducted, that the Flatiron Principals often conducted affairs pursuant to oral agreements, and that two of the acquisitions were undertaken by individual Flatiron Principals and subsequently transferred to single [*6]purpose entities due to regulatory restrictions on the properties themselves (Complaint at ¶ 34).

In light of these allegations, the Counsel Defendants' participation in the 119th Street Refinancing in the absence of Topor and their submission of the June 5 Agreement that did not list Topor as a part member, does not lead to the inference that the Counsel Defendants' were knowingly assisting the commission of a fraud.

Moreover, Topor's claim does not fall within the "special circumstances" exception to the privity rule. In Good Old Days Tavern, Inc. v Zwirn (259 AD2d 300 [1st Dept], app and rearg denied 261 AD2d 288 [1999]), relied upon by Topor, and which found "special circumstances," the plaintiff retained an attorney to represent a corporate entity, and thereafter sought to assert a claim for legal malpractice in his individual capacity. The court held that because the plaintiff was the president and sole shareholder of the corporate entity, the plaintiff was effectively a foreseeable third-party beneficiary of the contract pursuant to which he retained the attorney to represent the corporate entity (id.). Thus, because the relationship shared between the plaintiff and the attorney was "tantamount to one of contractual privity" where the plaintiff was effectively an alter ego of the corporate entity, the requirement of strict privity was dispensed with in order to find that the attorney represented the plaintiff in addition to the corporate entity (id.). In contrast, the complaint alleges that Topor, "along with defendants Enbar, Kamhi, St. Nicholas LLC, 124th Street LLC, 136th Street LLC and 119th Street LLC, consulted with and retained the [Counsel Defendants] as their attorneys to represent them" (Complaint at ¶ 36). Unlike in Good Old Days Tavern, Inc. v Zwirn (259 AD2d 300), Topor held, at most, a minority interest in Flatiron and the five corporate entities created by the four Flatiron Principals to acquire property. Therefore, it cannot be said that Topor was "for all intents and purposes a foreseeable third-party beneficiary" (id.), of the Counsel Defendants' representation of the corporate entities.

Because Topor has failed to allege facts of an attorney-client relationship and has failed to establish that one of the exceptions to the privity requirement applies, the motion to dismiss is granted, and the cause of action for legal malpractice is dismissed. Additionally, even assuming that Topor can establish that the Counsel Defendants represented him individually, or that one of the recognized exceptions to the privity requirement applies, Topor has failed to plead sufficient facts that the Counsel Defendants' negligence proximately caused his damages.

While I have the discretion to grant leave to replead where the plaintiff has demonstrated that a good ground exists for the assertion of the cause of action, by submitting additional allegations in sufficient detail (CPLR 3211 [e]; EBC I, Inc. v Goldman Sachs & Co., 5 NY3d 11, 23 [2005]), Topor has failed to demonstrate that a good ground for the assertion of a cause of action for legal malpractice exists that would justify granting leave to replead in this instance.

Finally, the Counsel Defendants' request for costs and sanctions pursuant to 22 NYCRR § 130-1.1, is denied. Such an award is not warranted (22 NYCRR § 130-1.1). Therefore, that branch of the Counsel Defendants' motion is denied.

Accordingly, it is

ORDERED that the motion to dismiss the complaint is granted and the complaint is hereby severed and dismissed as against defendants Michael N. Coritsidis and Coritsidis & Lambros, PLLC, and the Clerk is directed to enter judgment in favor of said defendants; and it is further

ORDERED that the remainder of the action shall continue. [*7]

Dated:

ENTER:

_________________J.S.C. Footnotes

Footnote 1: Only facts relevant to the cause of action for legal malpractice, the only cause of action asserted against the Counsel Defendants, are discussed herein.