Show Lain Cheng v Young

[*1] Show Lain Cheng v Young 2008 NY Slip Op 52699(U) [25 Misc 3d 1227(A)] Decided on February 20, 2008 Supreme Court, Kings County Kramer, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 20, 2008
Supreme Court, Kings County

Show Lain Cheng A/k/a Show Lain Chuu, Plaintiff,

against

Alan H. Young, Esq. And Nicholas Guzzone, Defendants.



44512/02

Herbert Kramer, J.

Upon the foregoing papers, plaintiff Show Lain Cheng, a/k/a Show Lain Chuu, moves for an order granting her leave to file an amended complaint adding causes of action for breach of fiduciary duty and fraud and to compel further discovery with respect to monies allegedly owed to her by defendants pursuant to her pending claim for contribution as against them. Defendants Alan H. Young, Esq. and Nicholas Guzzone oppose plaintiff's motion and cross-move for an order compelling plaintiff to discontinue the instant action and to accept $9,845.50 in full satisfaction of her claim for contribution.

This action involves a claim for contribution arising from a guaranty agreement in which the defendants and Ko-Cheng Cheng ("Ko-Cheng"), the ex-husband of plaintiff, became co-guarantors for an underlying mortgage agreement. In or about 1986, plaintiff, Ko-Cheng and the defendants were each 25% stockholders in Watersedge Estates, Inc. ("Watersedge"), a New York corporation. During 1986, Watersedge executed and delivered a certain note and mortgage for real property in the principal amount of $1,950,000.00 in favor of the lender, the Home Savings Bank ("Home Savings"). By an instrument dated August 1986, Ko-Cheng and defendants guaranteed payment of the note and mortgage in the event of a default by Watersedge and agreed to be jointly and severally liable as co-guarantors. Plaintiff was not a party to the guaranty agreement.

Subsequently, Watersedge defaulted on the note and mortgage and Home Savings obtained a judgment of foreclosure against Watersedge. In connection with the judgment of foreclosure, Home Savings obtained a deficiency judgement against Ko-Cheng and defendants, as co-guarantors of the note, in the amount of $2,678,612.72.

In or about 1998, the Fernandez Construction Corp. ("Fernandez"), the assignee of [*2]Home Savings' interest in the judgment of foreclosure against Watersedge and the deficiency judgment against defendants, commenced a fraudulent conveyance action against plaintiff. The action, which alleged four claims under Debtor Creditor Law § 279, sought to set aside the conveyance from Ko-Cheng to plaintiff of four parcels of real property. The complaint in that action alleged that the four parcels had been transferred to plaintiff without fair consideration, while the foreclosure action was pending, in an attempt by Ko-Cheng to shield these properties from any resulting judgment against him. On or about September 3, 2002, plaintiff ultimately settled the fraudulent conveyance action at the beginning of trial by agreeing to pay Fernandez $1,352,500.00.

With regard to defendants' liability under the deficiency judgment, defendants reached a settlement with Home Savings in 1996. Prior to the settlement, defendants made a payment of $200,000 to a representative of Fernandez, who acted as a "go-between" in defendants' settlement negotiations with Home Savings prior to the purchase by Fernandez of the judgment of foreclosure and deficiency judgment. Under the terms of the settlement ultimately reached by the defendants and Home Savings, Home Savings executed a release and partial satisfaction of judgment, and separate releases in favor of defendants, with respect to their liability under the deficiency judgment, upon the payment by defendants to Home Savings of $75,000. Home Savings also reserved its right to continue to enforce any "claim, demand or cause of action" it had against Ko-Cheng as the defendants' co-debtor under the deficiency judgment.

Plaintiff commenced the instant action by filing a summons with notice on or about October 21, 2002, seeking contribution from defendants in the amount of $636,965.62. The amount sought by plaintiff in this action represents the proportionate sum defendants are allegedly obligated to pay, as co-obligors, pursuant to the terms of the guaranty, in satisfaction of any judgment obtained as a result of a default by Watersedge on the underlying note and mortgage. In response to plaintiff's summons with notice, defendants' counsel filed a notice of appearance and a demand that plaintiff serve a copy of the complaint within twenty days in accordance with CPLR 3012(b). Plaintiff did not serve defendants with a copy of the complaint as demanded, but rather, on December 11, 2002, moved for summary judgment in lieu of complaint pursuant to CPLR 3213.

This court, by order dated May 12, 2003, denied plaintiff's motion for summary judgment in lieu of complaint as follows:

Plaintiff brought this action under a guarantee made by her husband under which she paid an amount greater than that of her husband's co-obligors. However, an action instituted by virtue of CPLR 3213 is not the proper vehicle for this type of underlying fact pattern. The motion is denied.

Should plaintiff re-move for summary judgment, same should be granted to the extent of granting equality between the joint co-obligors and plaintiff. [*3]

On or about June 19, 2003, plaintiff filed a motion for summary judgment. In a decision and order , dated December 4, 2003, determining said motion, the court found that plaintiff was entitled to seek contribution from defendants pursuant to the doctrine of equitable subrogation, and, therefore, granted plaintiff's motion "to the extent of granting equality between the joint co-obligors [defendants] and plaintiff." The court based its determination upon the following reasoning:

Plaintiff's right to bring such claims stems not from any contractual agreement between plaintiff and her ex-husband, Ko-Cheng, but rather derives from the undisputed fact of her payment of $1,352,000 in settlement of the fraudulent conveyance claims against her. By virtue of such payment, plaintiff has in effect satisfied part of the deficiency judgment against Ko-Cheng. Having paid the debt of another, Ko-Cheng, for which she was not personally liable, plaintiff is now entitled, pursuant to the doctrine of equitable subrogation, to pursue any repayment remedies, including any contribution claims that Ko-Cheng would have been entitled to enforce had he paid the debt himself.

In so holding, however, the court noted that "plaintiff is entitled to contribution from defendants only to the extent that she has paid more than Ko-Cheng's proportionate share of the deficiency judgment."

Concerning the amount of contribution allegedly owed to plaintiff by defendants, the court found that questions of fact existed that precluded the grant of summary judgment to her with respect to the amount she sought and delineated some of those factual issues as follows:

Multiple issues of fact exist, however, in regard to the ultimate valuation of plaintiff's contribution claim which preclude the grant of summary judgment to plaintiff. Defendants argue, and the court agrees, that issues of fact exist in regard to: (a) the exact amount of Ko-Cheng's liability in September 2003, taking into account interest accrual; (b) additional amounts allegedly paid by defendants in obtaining the release of their liability from Home Savings upon their payment to Home Savings of $75,000; (c) whether plaintiff was obligated and failed to mitigate her damages in regard to her ultimate settlement of the Fernandez matter; and (d) what portion, if any, of her settlement with Fernandez represented a settlement of interest and attorneys' fees claims which would fall outside of the scope of payment of Ko-Cheng's underlying indebtedness. Given the paucity of discovery on these issues to date, and the sharp disputes of fact which exist in regard to same, the court finds that the valuation of plaintiff's contribution claim, including the amount and proportion of the underlying debt and the amounts paid by the parties in settlement thereof, are more properly determined by the trier of fact and cannot be resolved by the court on the instant summary judgment motion.

Finally, in response to plaintiff's motion, defendants' cross-moved, pursuant to CPLR [*4]3012(b), to dismiss the plaintiff's action on the ground that plaintiff allegedly had failed to serve a complaint. The court found, however, that because it "never directed the plaintiff to file a complaint upon its denial of her motion for summary judgment in lieu of complaint, such motion and defendants' answering papers are therefore deemed the complaint and answer in this action," and the cross motion was denied on that basis.

In support of her instant motion to compel discovery and to amend her complaint, plaintiff seeks responses to a demand for discovery and inspection and a notice of examination before trial that were served upon defendants subsequent to the court's December 4, 2003 decision and order. Plaintiff argues that defendants have failed to respond to such discovery requests despite several letters from her attorney demanding same and the issuance of two compliance conference orders, dated May 21, 2007 and July 23, 2007, respectively, which directed that all outstanding discovery be completed within either 30 or 20 days of said orders.

Plaintiff also contends that she should be granted leave to amend her complaint to assert causes of action for breach of fiduciary duty, fraud, aiding and abetting breach of fiduciary duty, as well as her contribution claim. Plaintiff maintains that the affidavit filed in support of her summary judgment motion in lieu of complaint "gave ample notice to the [d]efendants that this action was predicated on a breach of fiduciary duty by counsel and guarantor [d]efendant Young, abetted by [d]efendant Guzzone, as well as contribution. Moreover, the facts supporting the fraud claim were also disclosed." Accordingly, plaintiff argues that all such causes of action should be construed by the court as "relating back" to the original pleading that was filed in December 2002 and also states that "[t]he breach of fiduciary duty and the non-disclosure of information constituting fraud were not discovered by the [p]laintiff, and the misconduct continued at least until the end of [d]efendant Young's representation of the [p]laintiff, in late 2000."

The affidavit in support of the plaintiff's original summary judgment in lieu of a complaint avers, in relevant part, the following:

Upon information and belief, prior to the date that the Fernandez action was commenced, in exchange for nominal consideration, defendants were discharged and released by Home Savings for all liability under the judgment of foreclosure and, as a result, they were not named as defendants in the Fernandez action.

Although defendants were co-fiduciaries to me under the Guaranty, and defendant Young was acting as my legal counsel at the time, neither defendant informed me of any opportunity to satisfy the judgment or to avoid any further legal action to enforce the judgment obtained by Home Savings, and Young failed to advise me with respect to same.

As the Guaranty is clear and unambiguous, and likely would have resulted in liability against me for the full amount of the [l]oan, with accrued interest from the date of entry of any judgment, the Fernandez action resulted in a settlement agreement entered on September [*5]3, 2002 in open court in the midst of trial before Honorable Herbert Kramer, J.S.C., which settlement on the record is enforceable as a judgment against me, in the amount of $1,352,000.00, plus fixed interest in the amount of $8,750.00.

Plaintiff also submits an affidavit in support of her instant motion for leave to amend the complaint which addresses the alleged grounds for the amended claims she seeks to assert as follows:

When he was my attorney, [d]efendant Young obtained a release by Home Savings from all liability under the [j]udgment.

Defendant Young failed to disclose to me that he was obtaining this release for himself. I understand that as my attorney, [d]efendant Young had an obligation to disclose this information to me. Defendant Young benefitted by the unfair advantage he took of settling without telling me

Defendant Young failed to disclose to me [that] I had any opportunity to obtain the release or to avoid any further legal action to enforce the [j]udgment. He also failed to advise me of the risks of loss from failing to obtain a release by Home Savings.

Defendant Guzzone also failed to disclose that defendant Young was obtaining this release.

Mr. Young ceased to be my attorney in 2000.

In addition, plaintiff submits to the court a proposed Amended Verified Complaint which reiterates the factual allegations contained in the aforesaid affidavits and asserts claims sounding in breach of fiduciary duty, fraud and contribution.

In support of their cross motion compelling the plaintiff to accept $9,845.50 in full satisfaction of all monies due and owing to plaintiff for contribution and to discontinue the action, defendants contend that the percentage of Ko-Cheng's liability pursuant to the guaranty agreement is indisputably 50.125% of the judgment amount of $2,678,612.72 (not taking interest into account) or $1,352,000.00. Plaintiff gained her status as an equitable subrogee due to her payment of $1,352,000.00 in settlement of the fraudulent conveyance claims against her which, in effect, constituted satisfaction of part of the deficiency judgment rendered against Ko-Cheng. Accordingly, defendants argue that because plaintiff only paid $9,845.50 more than Ko-Cheng's proportionate share of the common liability of the subject co-guarantors, she is only entitled to said sum and should be compelled to accept same and discontinue her action. Defendants note that they have offered said sum in compromise of the action on two occasions - April 17, 2006 and August 21, 2007 - and plaintiff has refused both offers.

With respect to that portion of plaintiff's motion seeking to compel discovery and [*6]amend the complaint, defendants contend that the subject discovery demands are unrelated to plaintiff's contribution claim and, therefore, defendants should not be compelled to respond to such improper demands. Defendants also maintain that plaintiff does not have standing to bring the instant claims for breach of fiduciary duty or fraud, as such alleged claims would belong to Ko-Cheng and not plaintiff and, in any event, plaintiff failed to seek to amend her complaint for five years even though she possessed knowledge of the claims and the ability to assert same.

As an initial matter, the court denies plaintiff's motion for leave to amend her complaint. Although it is well settled that "leave to amend a complaint should be freely given [pursuant to CPLR 3025(b)], where, as here, the proposed amendment is palpably insufficient or devoid of merit, the amendment should not be permitted" (Beja v Meadowbrook Ford, ___AD3d ___, 2008 NY Slip Op. 01285 at *2 [2007][internal quotation marks and citations omitted]; accord Spitzer v Schussel, __AD3d __, 2008 NY Slip Op. 01022 at *1 [2008][finding that in order "[t]o conserve judicial resources . . . examination of the underlying merit of the proposed amendment is mandated [and] [w]here no cause of action has been stated to begin with, leave to amend will be denied"]).

Here, plaintiff has asserted claims sounding in fiduciary duty and fraud as against the defendants. She apparently bases her fiduciary duty claim upon the fact that defendant was her attorney and a co-guarantor under the subject guaranty and Guzzone was also a co-guarantor. However, plaintiff was never a co-guarantor under the note and was never liable thereunder. Indeed, she only gained standing to bring the instant action for contribution by dint of her settlement of the related fraudulent conveyance action subsequent to which she became the subrogee of Ko-Cheng's claim for contribution, if any, as against the co-guarantor defendants.[FN1] Although it is true that once a party's entitlement to equitable subrogation is established, "a subrogee acquires all rights, defenses and remedies of the subrogor and is subject to any claims or defenses which may be raised against the subrogor; thus, the rights of a subrogee must be determined with respect to the rights of the subrogor" (Servidori v Mahoney, 129 AD2d 944, 945 [1987]; see also generally Federal Ins. Co. v Arthur Anderson, 75 NY2d 366, 372 [1990]), plaintiff has not stated a cause of action with respect to any breach of fiduciary claim or fraud claim which may have been asserted by Ko-Cheng as against the co-guarantors. Rather, she bases her claims on alleged misrepresentations and/or the concealment of information with respect to her potential liability under the guaranty due to the defendants' settlement of their own liability under the guaranty and their [*7]alleged failure to disclose same at the time such settlement was made. However, given that plaintiff admittedly was never a guarantor under the subject guaranty at the time the defendants settled their liability and, as a result, was not herself liable under same, she has failed to allege facts adequate to sustain a cause of action for breach of fiduciary duty or fraud based upon the alleged malfeasance of defendants in allegedly settling their portion of liability without informing her of same or apprising her of said settlement's impact upon her own potential future liability.

Moreover, plaintiff's fraud claims are without merit given that they are premised upon factual allegations identical to those underlying her breach of fiduciary duty. It is well settled that "[a] claim for fraud cannot duplicate a claim for breach of fiduciary duty" (Calabro v Fleishell, ___AD3d___, 2008 NY Slip Op. 00986 at *1 [2008]). In addition, "[t]he essential elements of fraud are a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" (Orlando v Kukielka, 40 AD3d 829, 831 [2007]). Here, plaintiff has failed to plead either justifiable reliance or an injury flowing from such alleged reliance given that she was not personally liable under the guaranty at the time the defendants settled their own liability as co-guarantors pursuant to same. She also has failed to state any particular facts which would support a fraud claim on behalf of Ko-Cheng as against defendants based upon their complained-of settlement (see CPLR 306[b]). As a result, the court finds that "no cause of action has been stated to begin with" with respect to plaintiff's proposed breach of fiduciary duty and fraud claims and, accordingly, "leave to amend will be denied" (Spitzer, 2008 NY Slip Op. 01022 at *1).

The court also denies that portion of plaintiff's motion which seeks to compel responses to the subject discovery demands. Although it is axiomatic that New York law favors liberal discovery (see e.g. Allen v Crowell-Collier Publishing Co., 21 NY2d 403, 406 [1968][citing CPLR 3101]), a discovery demand may nonetheless be deemed palpably improper where such demand is demonstrably overbroad and seeks material which is largely irrelevant to the claims asserted (see Velez v South Nine Realty Corp., 32 AD3d 1017, 1019 [2006]; Shapiro v Central General Hosp., Inc., 171 AD2d 786, 787 [1991]). Indeed, "although the general rule is that when a party fails to challenge a disclosure request in a timely fashion, inquiry into the propriety of the information sought is foreclosed . . . this rule is inapplicable where the . . . challenged disclosure request is palpably improper" (Park Knoll Assocs. v Schmidt, 99 AD2d 772, 772 [1984][internal quotation marks and citations omitted]).

In the instant case, the court notes that the only claim asserted by plaintiff, particularly given this court's present denial of that portion of her motion seeking leave to amend the complaint, is one for contribution. Accordingly, the salient issue to be determined in this matter is a narrow one, namely, whether or not plaintiff, as the subrogee of Ko-Cheng, a co-guarantor, paid more than Ko-Cheng's proportionate share in satisfaction of the subject [*8]deficiency judgment and is therefore entitled to contribution from the defendant co-guarantors (see Mediclaim v Groothus, 38 AD3d 730, 731 [2007]; Leo v Levi, 304 AD2d 621, 623 [2003]; Kristiansen v Kristiansen, 280 AD2d 584, 585 [2001]). As a result, even if some items of discovery sought arguably relate to the limited contribution claim at issue, given the preponderance of overbroad and irrelevant requests also contained therein, the court notes that it is not its role to attempt to parse the acceptable from the objectionable (see generally Haszinger v Praver, 12 AD3d 485, 485 [2004][noting that the court is not required to "prune" an improper discovery demand]). Rather, it is constrained to deny the plaintiff's motion to compel on the ground that the demand, as presently formulated, is palpably improper. Moreover, it is apparent to the court form its review of the parties' current submissions and the procedural posture in which they are being made, that no further discovery on this issue is necessary (see Gillen v Utica First Ins. Co., 41 AD3d 647, 647 [2007][reaffirming that "(t)he supervision of disclosure and the setting of reasonable terms and conditions (for discovery) are matters resting within the court's discretion"]). Rather, the contribution claim asserted by plaintiff is based upon, and largely provable by reference to, documents and records currently available to both parties.

The court also denies the motion of defendants to compel plaintiff to accept defendant's offer of compromise in the amount of $9,845.50 and to discontinue the action. Pursuant to CPLR 3221:

Except in a matrimonial action, at any time not later than ten days before trial, any party against whom a claim is asserted, and against whom a separate judgment may be taken, may serve upon the claimant a written offer to allow judgment to be taken against him for a sum or property or to the effect therein specified, with costs then accrued. If within ten days thereafter the claimant serves a written notice that he accepts the offer, either party may file the summons, complaint and offer, with proof of acceptance, and thereupon the clerk shall enter judgment accordingly. If the offer is not accepted and the claimant fails to obtain a more favorable judgment, he shall not recover costs form the time of the offer, but shall pay costs from that time. An offer of judgment shall not be made known to the jury.

Defendants have failed to provide any authority for their proposition that said provision empowers this court to compel plaintiff to accept the offer of compromise and discontinue the action. Rather, CPLR 3221 provides its own remedy for a party's nonacceptance of such offer by rendering said party liable for any costs accrued subsequent to the time of the offer if the party ultimately fails to obtain a more favorable judgment.

The court, however, finds it appropriate at this juncture to refer the matter to a Judicial Hearing Officer (JHO) to determine the amount of contribution, if any, due to plaintiff (see CIR Electrical Const. Corp. v Black Creek Integrated Systs. Corp., 8 AD3d 999, 1000 [2004][matter appropriately referred to JHO to determine issue of damages]). The court has already determined that plaintiff is entitled to collect as contribution from defendants that amount, if any, she paid in excess of Ko-Cheng's proportionate share of the deficiency [*9]judgment. The court is mindful that this matter has been pending since 2002. Moreover, given the narrowness of the remaining issue - in essence, the amount of damages due to plaintiff, if any - a hearing limited to same will serve expeditiously to resolve this action. The court emphasizes, however, that such hearing shall be limited to plaintiff's contribution claim and issues or evidence pertaining to plaintiff's proposed amended claims of fraud or breach of fiduciary duty - already rejected by the court herein - shall be considered. Rather, the only issues and evidence which shall be relevant to the hearing are the current proportionate amount owed by Ko-Cheng under the deficiency judgment, the amount paid, to date, by plaintiff either in partial or total satisfaction of same and whether or not the amount of such payment is in excess of Ko-Cheng's proportionate share of the deficiency judgment.

As a result, the motion of plaintiff to compel discovery and to amend the complaint is denied. The motion of defendants to compel plaintiff to accept the subject offer and compromise and to discontinue the action is also denied; however, pursuant to Article 22 of the Judiciary Law, in accordance with the provisions of part 122 of the Rules of the Chief Administrator of the Courts, and upon the filing of the requisite forms and approval of the Administrative Judge, the issue of the amount of contribution due to plaintiff, if any, is hereby referred to a JHO in the JHO part to hear and determine such issue in accordance with this order and decision.[FN2]

The foregoing constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C.

Footnotes

Footnote 1: The court notes that plaintiff contended in her summary judgment motion that she had been assigned all of her husband's rights under the guaranty. However, even if such assignment were valid, which has not been determined by the court, the assignment was allegedly made in 2002, approximately 6 years after the defendants settled their liability under the deficiency judgment and would, therefore, be insufficient to imbue her with co-guarantor status for purposes of her breach of fiduciary duty and fraud claims.

Footnote 2: The court notes that defendants have also requested a hearing on legal fees and costs allegedly owed to defendant as a result of the plaintiff's refusal to accept the subject tender of $9,845.50. Given that the outcome of the hearing on the contribution issue is still pending, this portion of the motion is denied as premature, without prejudice to any further motion for such fees and costs. In addition, this decision or order shall not be construed by the parties as precluding defendants from making any other or further offer of compromise at least 10 days prior to the hearing date.