Lincoln Trust v Spaziano
Annotate this CaseDecided on March 7, 2013
Supreme Court, Onondaga County
Lincoln Trust AS CUSTODIAN FOR DANIEL ELSTEIN, MD ROLLOVER IRA ("LINCOLN TRUST") AND DANIEL ELSTEIN INDIVIDUALLY AND AS BENEFICIAL OWNER OF LINCOLN TRUST, Plaintiffs,
against
Alfred D. Spaziano, ALBERT M. MERCURY AND PHILLIPS, LYTLE, HITCHCOCK, BLAINE AND HUBER, LLP, Defendants.
2004-5934
FOR PLAINTIFF:
DAVIDSON FINK, LLP
David L. Rasmussen, Esq., of Counsel
FOR DEFENDANTS:
CONNORS & VILARDO, LLP
Lawrence J. Vilardo, Esq., of Counsel
HARRIS BEACH, LLP
Richard T. Sullivan, Esq.
Anthony J. Paris, J.
Plaintiffs commenced this action by the filing of a Summons with Notice on September 10, 2004 and subsequent service of a Complaint dated March 22, 2005. Issue was joined on May 16, 2005 by the service of an Answer on behalf of Defendant Albert M. Mercury by his then attorneys Sullivan, Oliverio & Gioia, LLP, and by the service of an Answer on behalf of defendant Phillips, Lytle, Hitchcock, Blaine and Huber, LLP ("Phillips Lytle"). Defendant Mercury is now represented by Harris Beach, LLP, Richard T. Sullivan, Esq., of counsel. [*2]Defendant Albert Spaziano has not appeared and is in default [FN1].
Based on the expiration of more than one year from time of default, and Plaintiffs' failure to show sufficient cause, the Court on its own initiative pursuant to CPLR §3215(c), DISMISSES the Plaintiffs' Complaint as against Defendant Spaziano, as alleged in the first, fourth, eighth and ninth causes of action.
The Complaint contains nine separate causes of action. Pertinent to this motion are the second cause of action alleging fraud against Mercury and Phillips Lytle; the third cause of action alleging fraudulent concealment against all defendants; the fifth cause of action alleging negligent concealment against all defendants; the sixth cause of action alleging conspiracy against all defendants; and the seventh cause of action alleging professional malpractice against Mercury and Phillips Lytle.
Subsequent to discovery proceedings, Defendants Mercury and Phillips Lytle have brought a motion for summary judgment pursuant to CPLR §3212 seeking dismissal of all claims in the Complaint against the moving Defendants. Plaintiffs oppose this motion and have cross moved for summary judgment in the amount of $703,000, plus interest from November 26, 2001, based on the third, fifth and seventh causes of action in the Complaint. Plaintiffs also seek a hearing on the issue of punitive damages. Defendants oppose this cross motion.
This action arises out of a 2001 loan transaction between Plaintiff Lincoln Trust as Custodian for Daniel Elstein, MD Rollover IRA ("Lincoln Trust") and Defendant Albert Spaziano, whereby Mr. Spaziano executed a Promissory Note in the amount of $750,000. As part of the terms of the Note and pursuant to a Pledge Security Agreement simultaneously executed by him, Spaziano also pledged 100 shares of stock of Westview Commons Apartments, Inc. as security interest for the loan.
Defendant Mercury is a partner with the Phillips Lytle law firm and both were retained by Plaintiffs to represent them in this transaction. Mercury and Phillips Lytle prepared the closing documents for the loan transaction. The 100 shares of Westview stock were placed in escrow, and Defendant Mercury was named escrow agent.
Subsequently, Defendant Spaziano defaulted on the Promissory Note. When Plaintiff Elstein became aware of the default in January 2003, he directed Mercury as escrow agent to proceed to enforce the security interest in the Note. Defendant Mercury proceeded as directed.
Following negotiations and bargaining between Plaintiffs, Defendant Spaziano and the entities holding mortgages on Westview Commons, a deal was ultimately struck whereby Plaintiff Elstein would form a new LLC and obtain financing to purchase Westview Commons Apartments, Inc. The financing would satisfy the first mortgage held on Westview by John Hancock, as well as a second mortgage held by Monroe Funding. It appears that this second mortgage was taken out by Defendant Spaziano immediately prior to his execution of the 2001 Promissory Note, and without the knowledge of Plaintiffs.
Plaintiff Elstein was successful in forming a new LLC, Trason-Westview, of which he [*3]was a 75% owner. Trason-Westview obtained financing from First Niagara and approval of the Bankruptcy Court for the purchase of Westview Commons. Trason-Westview was able to purchase Westview Commons for the sum of $11,970,000.00, and paid John Hancock the amount of $11,134,493.89 in satisfaction of the first mortgage, and paid $970,000 to Monroe Funding to satisfy the second mortgage.
As part of this transaction, Plaintiff Elstein was required by First Niagara to obtain an appraisal of Westview Commons, and the property was appraised for a fair market value of $14,000,000 at the time of this transaction. Also, at the Trason-Westview closing on Westview Commons, Plaintiff Elstein executed a release to Defendant Spaziano of the $750,000 Note.
Plaintiff Elstein subsequently sold Westview Commons in what he describes as a "successful transaction".
Plaintiffs then commenced this lawsuit alleging professional malpractice, fraud, fraudulent concealment and conspiracy against the moving Defendants. The Complaint seeks damages against Defendants in the amount of $750,000 plus interest from January 12, 2002, attorney fees, an award of treble damages pursuant to Judiciary Law §487, as well as $3,000,000 in punitive damages.
Defendants have moved for summary judgment contending that Plaintiff Elstein executed a release of the Promissory Note in the amount of $750,000 and that in exchange for the $750,000 loan, Trason-Westview purchased an apartment complex appraised at $14,000,000 with a mortgage of $11,970,000. Further, the property was ultimately sold and Elstein, as 75% owner of Trason-Westview, would have made a profit of approximately $2,000,000 on that transaction. It is Defendants' contention that Plaintiffs sustained no damages as the result of any alleged conduct on their part, and therefore have no basis for this lawsuit.
As an initial matter, the Court finds that Plaintiff Elstein executed a valid release which released Defendant Spaziano from any liability on the $750,000 Note. A valid release which is clear and unambiguous on its face and which is knowingly and voluntarily entered into will be enforced as a private agreement between parties. Fleming v. Ponziani, 24 NY2d 105 (1969); Frost v. Budget Car & Truck Rental, 15 AD3d 963 (4th Dept. 2005); Appel v. Ford Motor Co., 111 AD2d 731 (2d Dept. 1985).
There are strong policy considerations which favor the enforcement of settlement agreements [Rocanova v. Equitable Life Assurance Society of the United States, 83 NY2d 603 (1994)], and "a release may not be treated lightly since it is a jural act of high significance without which the settlement of disputes would be rendered all be impossible. It should never be converted into a starting point for renewed litigation except under circumstances and under rules which would render any other result a grave injustice'." Calvano v. New York City Health & Hosp Corp., 246 AD2d 317 (1st Dept. 1998), citing Mangini v. McClurg, 24 NY2d 556 (1969).
The deposition testimony of Plaintiff Elstein establishes that he signed the release, although only as Daniel Elstein and not on behalf of Lincoln Trust, and that Elstein deliberately signed below the signature line. The Court finds that Elstein's signature as the sole member of Lincoln Trust acts to enforce the release as against Lincoln Trust as well as Elstein, [See e.g. Cory v. Nintendo of America, Inc., 185 AD2d 70 (1st Dept. 1993)], especially in light of the fact that Elstein has acknowledged that he signed in this manner as a "strategy" in a premeditated attempt to void the release. [*4]
The Court further finds that Defendant Spaziano was entitled to the release, which was given in exchange for the 100 shares of stock of Westview Commons which were transferred to Elstein, as well as Spaziano's release of liens for work performed at the apartment complex.
The Court rejects any claims by Plaintiff Elstein that the release should be rescinded as obtained under duress and compulsion, and Plaintiffs have failed to raise any issue of fact in that regard. Booth v. 3669 Delaware, Inc., et al., 92 NY2d 934 (1998); Doldan v. Fenner, 309 AD2d 1274 (4th Dept. 2003); Marlowe v. Muhlnickel, 294 AD2d 830 (4th Dept. 2002). The release was provided to Elstein several days prior to the closing and Elstein was represented by legal counsel at the closing who raised no objection to the release. Elstein's sworn deposition testimony makes clear that he knowingly executed the release and had previously instructed his closing attorney that he himself would handle that part of the closing dealing with the release.
Therefore, Defendants are entitled to summary judgment and dismissal of Plaintiffs' claims for the $750,000 under the Promissory Note, and that branch of Defendants' motion is GRANTED.
While the Complaint seeks $750,000 in damages under the Promissory Note, it is clear from Plaintiff's submissions in opposition to Defendants' motion and in support of their cross motion that they have abandoned their claim for the $750,000 under the Promissory Note as demanded in the Complaint. Plaintiffs now seek the amount of $703,000 which is the amount they claim is the difference between what was paid to satisfy the first mortgage held by John Hancock and what they purportedly could have paid had they been made aware of certain issues relative to the Promissory Note and Defendant Spaziano which were known to Defendants Mercury and Phillips Lytle, but not relayed to Plaintiffs.
According to the Plaintiffs, the default letter sent to Spaziano by John Hancock on November 26, 2011 demanded payment of the balance due of $10,431,058.09. The subsequent payoff of that same debt by Elstein as part of the Trason-Westview purchase was $11,134,493.89. It is this increased balance, which Plaintiffs ultimately paid off as part of a separate real estate transaction, that Plaintiffs now seek to recoup from the moving Defendants based on claims of professional malpractice, fraud and negligence.
Plaintiffs contend that Defendants committed professional malpractice based on conflicts of interest and failure to keep them advised of significant developments which could have had a material impact on Plaintiffs' interests. From November 2001 to January 2003 Defendants failed to advise Plaintiffs of several events of which they were aware that constituted events of default under the loan documents which Defendants had prepared on Plaintiffs' behalf. Those events included Defendant Spaziano's default on the first mortgage held by John Hancock on Westview Commons in October 2001. Stock in Westview Commons, Inc. was the security interest pledged for the Promissory Note, yet Defendants failed to notify Plaintiffs of that default. Nor did Defendants notify Plaintiffs when John Hancock instituted foreclosure proceedings against Westview Commons. Further, Defendants acted as counsel for Westview Commons in defense of the foreclosure proceeding from December 2001 to its resolution in 2003, including an attempted sale of Westview Commons to a third party, which Plaintiffs contend constituted a conflict of interest.
At no time during the period from November 2001 to January of 2003 did Mercury or anyone at Phillips Lytle advise Plaintiffs of any of these events, many of which according to [*5]Plaintiffs constituted events of default under the Promissory Note. As such, these Defendants deprived Plaintiffs of the opportunity to protect their interests during that time period. This despite the fact that Phillips Lytle and Mercury provided Plaintiffs with significant legal representation on other legal matters, billing over $30,000 for those services.
Plaintiffs contend that Defendants breached a duty to advise them of the default in November 2001 and subsequent foreclosure proceeding which Plaintiffs' contend constitutes a significant development which could have had a material impact on Plaintiffs' interests, specifically relative to the collateral which was pledged for the Note, and that this breach of duty resulted in monetary harm to the Plaintiffs.
Although Mercury was the escrow agent for the 100 shares of Westview Commons stock held in escrow as collateral on the $750,000 Promissory Note to Plaintiffs, Mercury did not advise Plaintiffs of the default or foreclosure commencement, or that John Hancock obtained summary judgment in the foreclosure proceeding. Moreover, Mercury did not advise Plaintiffs that he was engaged in attempting to negotiate a sale of Westview Commons to a third party. Nor did Mercury advise Plaintiffs that Westview Commons filed for Chapter 11 Bankruptcy on November 22, 2002.
Plaintiffs further contend that Defendants breached their duty under Professional Rule 1.9 which provides that a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or substantially related matter in which that person's interests are naturally adverse to the interests of a former client. Defendants' representation of Westview Commons during the foreclosure and bankruptcy proceedings, when Defendants had previously represented Plaintiffs relative to a loan transaction where Westview Commons stock was used as a security interest for the loan, would, according to Plaintiffs, constitute a breach of that duty.
Whether or not the above conduct could be considered professional malpractice, and assuming for purposes of this motion that such conduct is in fact malpractice, the Plaintiffs' claim for damages in the amount of $703,000 based on a claim of what is apparently lost profits must be dismissed for the following reasons.
Defendants contend that there is no claim in Plaintiff's Complaint for the $703,000 now being sought by Plaintiffs. They are correct. The Complaint is limited to Plaintiffs' demand for $750,000 under the Promissory Note, the interest on that Note and attorney fees. Furthermore, the $703,000 amount currently demanded by Plaintiffs is not included in their Bill of Particulars. This is an entirely new claim raised only after discovery was completed and the Trial Note of Issue filed. Defendants have had no opportunity for discovery on this claim. Plaintiffs, despite ample opportunity, have not moved to amend their Complaint or Bill of Particulars to include this claim for damages.
While the law is well settled that "in the absence of prejudice to the defendants, a motion to amend the ad damnum clause, whether made before or after the trial, should generally be granted", [Loomis v. Civetta Corrinno Constr. Corp., et al., 54 NY2d 18 (1981)], the Plaintiffs have made no such motion to amend. Rather, at this late stage in this litigation, Plaintiffs now seek to substitute an entirely new and different theory of damages than that sought in their Complaint. Moreover, any such amendment would be extremely prejudicial to Defendants who have had no opportunity to seek particulars of Plaintiffs' claim on this new theory or for [*6]discovery on those particulars.
Therefore, the Court finds that it would be extremely prejudicial to Defendants for the Court to consider the Plaintiffs' new theory of damages raised for the first time in papers in opposition to Defendants' motion for summary judgment, and in the absence of any motion by Plaintiffs seeking to amend the Complaint to include that claim. Based upon this finding, and the Court having previously dismissed any claims based on damages under the Promissory Note, that branch of Defendants' motion seeking to dismiss the professional malpractice claim is GRANTED.
Even if the Court were to accept Plaintiffs' new and untimely theory of damages, Defendants contend that the claim for $703,000, based on a difference in purchase price in a subsequent transaction, is too speculative. In New York, "actual and ascertainable damages", not speculative damages, are an element of legal malpractice claims. Rudolf v. Shayne,Dachs, Stanisci, Corker & Sauer, 8 NY3d 438 (2007); New York Univ v. Cont'l Ins. Co., 87 NY2d 308 (1995).
Here, Defendants have established that in exercising the security interest of 100 shares of Westview Commons, Plaintiffs took control of Westview Commons and ultimately sold it obtaining an equity interest greater in value than $750,000. Plaintiffs do not dispute that profit, yet argue that the profit could have been even greater but for the moving Defendants fraud, negligence and professional malpractice.
Based on the record before it, the Court finds that Plaintiffs have failed to raise any issue of fact relative to any actual damages in relation to its claim against the moving Defendants. Plaintiffs have not submitted any evidence or proof supporting a showing that they paid $703,000 more than they should have. There is no evidence that they would have been able to obtain the same financing as that obtained fourteen months later, or that Plaintiff Elstein would have found an investor similar to Reidman at that time, or that any such proposal would have been acceptable to John Hancock at that time, or acceptable to Monroe Funding as the junior mortgage holder, or that Defendant Spaziano would have agreed to release his liens on the apartment complex.
The Court has determined that Plaintiffs, as a result of the release executed by Elstein, cannot establish any actual damages relative to the $750,000 Promissory Note which is the basis of this lawsuit. Any claim that Plaintiffs could have realized more profit had the moving Defendants earlier advised them of the totality of the situation is simply too speculative to support a claim against Defendants for professional malpractice. Sager v. Friedman, 270 NY 472 (1936). Therefore, that branch of Defendants' motion which seeks to dismiss Plaintiffs' professional malpractice cause of action must also be GRANTED for this reason.
Furthermore, the fraud and negligence claims contained in the second, third and fifth causes of action in the Complaint are duplicative of the legal malpractice claim and allege no distinct damages. Dischiavi v. Calli, 68 AD3d 1691 (4th Dept. 2009); Mecca v. Shang, 258 AD2d 569 (2d Dept. 1999). A fraud claim asserted within the context of a legal malpractice claim is sustainable only to the extent that it is premised upon one or more affirmative, intentional misrepresentations. Kailer v. Van Houten, 12 AD3d 1012 (3d Dept. 2004). No allegations of affirmative misrepresentations by the moving Defendants have been alleged here. Nor have Plaintiffs alleged any different damages, separate and distinct from those generated [*7]from the alleged malpractice, as required to establish a separate fraud claim. Dischiavi, supra. Plaintiffs' legal malpractice claim relies on the same allegations as Plaintiffs' fraudulent concealment and negligent concealment claims. Thus Plaintiffs' fraudulent concealment and negligent concealment claims are subsumed by the legal malpractice claim.
Based upon the foregoing, that branch of Defendants' motion for summary judgment seeking dismissal of Plaintiffs' causes of action for fraud (2nd cause of action), fraudulent concealment (3rd cause of action), and negligent concealment (5th cause of action) is GRANTED.
Defendants move to dismiss the sixth cause of action in the Complaint which alleges a claim of conspiracy against Defendants. Plaintiffs' opposition does not address this claim. New York does not recognize a cause of action for civil conspiracy against another contracting party for conspiracy to breach the agreement between them. North Shore Bottling Co. v. Schmidt & Sons, 22 NY2d 171 (1968); Egan Real Estate v. McGraw, 40 AD2d 299 (4th Dept. 1973); see also Thyroff v. Nationwide Mut. Ins. Co., 57 AD3d 1433 (4th Dept. 2008).
Based on the foregoing, that branch of Defendants' motion seeking dismissal of the sixth cause of action for Conspiracy is GRANTED.
Plaintiffs' Complaint seeks treble damages under Judiciary Law §487 which prohibits an attorney from engaging in deceit or collusion or consenting to any deceit or collusion with the intention to deceive the Court or any party. This claim fails to state a cause of action because such damages apply only to wrongful conduct by an attorney in a lawsuit that is actually pending. Mahler v. Campagna, 60 AD3d 1009 (2d Dept. 2009). There being no lawsuit or judicial proceeding actually pending at the time of Plaintiffs' allegations, this branch of Defendants' motion must be GRANTED.
The Court agrees with Defendants that there can be no claim for punitive damages here as there are no underlying actual damages. Rocanova v. Equitable Life Assur., 83 NY2d 603 (1994). Even if there were sufficient damages upon which to base a punitive damage claim, the Court finds that, on the record before it, the Defendants have not committed the morally culpable conduct for which punitive damages might be claimed. Hubbell v. Trans World Life, 50 NY2d 899 (1980).
The Plaintiffs' allegations here arise from Defendants alleged failure to adequately protect Plaintiffs' security interests in a loan by failing to advise Plaintiffs of certain conduct by other parties [FN2]. Such conduct, even if proven, would not constitute a basis for punitive damages. Such alleged conduct does not represent a high degree of immorality, is not malicious or wanton and reckless, and does not show a criminal indifference to civil obligations. NY PJI2d 2:278 (3d ed); Hunter v. Galland,, 37 AD3d 1048 (4th Dept. 2007); Walker v. Stroh, 192 AD2d 775 (3d Dept. 1993).
Based on the foregoing, that branch of Defendants' motion seeking dismissal of the punitive damages claim is GRANTED.
Plaintiffs have cross moved for summary judgment on the Complaint.
Based upon this Court's dismissal of the Complaint, that motion must be DENIED as moot.[*8]
To recapitulate, the Court on its own initiative has DISMISSED the Complaint as against Defendant Spaziano pursuant to CPLR §3215(c). Defendants' motion for summary judgment and dismissal of Plaintiff's Complaint is GRANTED in its entirety and the Complaint is hereby DISMISSED. Plaintiffs' cross motion for summary judgment on the Complaint is DENIED.
The foregoing constitutes the Decision and Order of the Court. A list of the documents upon which the Court relied is attached.
AND IT IS SO ORDERED.
______________________________
ANTHONY J. PARIS
J.S.C.
Dated:March 7, 2013
Syracuse, New York
Filed Papers:
Notice of Motion dated January 20, 2012 on behalf of Defendants
Affirmation of Lawrence J. Vilardo, Esq., dated January 20, 2012, with exhibits
Notice of Cross Motion dated February 24, 2012 on behalf of Plaintiffs
Affidavit of David L. Rasmussen, Esq., sworn to on February 27, 2012, with exhibits
Affidavit of Daniel Elstein, sworn to on February 23, 2012, with exhibits
Responding and Reply Affidavit of Lawrence J. Vilardo, Esq., sworn to on March 9, 2012
Affirmation of Richard T. Sullivan, Esq., dated March 9, 2012.
Footnotes
Footnote 1:Pursuant to CPLR 3215(c), if a plaintiff does not move for default judgment within one year of default, the Court shall dismiss the Complaint as abandoned without costs, on its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed.
Footnote 2:The Court notes that the allegations contained in ¶¶ 38-64 of the Complaint involving claims of fraud and conspiracy relative to Crystal Ridge against the moving defendants have been withdrawn by the Plaintiffs.
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