Board of Mgrs. of Foundry at Wash. Park Condominium v Foundry Dev. Co., Inc.

[*1] Board of Mgrs. of Foundry at Wash. Park Condominium v Foundry Dev. Co., Inc. 2013 NY Slip Op 51423(U) Decided on August 23, 2013 Supreme Court, Orange County Marx, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 23, 2013
Supreme Court, Orange County

The Board of Managers of Foundry at Washington Park Condominium, AS AGENT FOR ALL UNIT OWNERS, Plaintiff,

against

Foundry Development Co., Inc., PAUL & JOSEPH MANAGEMENT COMPANY, INC., POLONIA VENTURES LLC, GERARDO SANCHEZ, NIRVA SANCHEZ, JOSEPH SUAREZ, THE GALINN FUND, LLC, and "JOHN DOE" and/or "JANE DOE" the last 2 names being fictitious and unknown to plaintiff, the person or parties intended being the persons or parties, if any, having or claiming an interest in or lien upon the mortgaged premises described in the complaint, Defendants.



JOSEPH SUAREZ, as President of Paul & Joseph Management, Inc., Plaintiff,

against

THE FOUNDRY AT WASHINGTON PARK CONDOMINIUM ASSOCIATION, RACHEL ANDREWS HAQUE, as President and individually and JOHN ANGELET, as Treasurer and Individually,Defendants. DECISION AND ORDER Motion Date July 19, 2013 Motion Sequence No. 25 Index No. 1567/2012 ACTION NO. 2



JOSEPH SUAREZ and PAUL & JOSEPH MANAGEMENT COMPANY, INC., Representing over five percent of the interests, and on behalf of All unit owners and in the name of The Foundry at Washington Park Condominium Association, Plaintiffs,

against

ROY SPELLS; RACHEL ANDREWS HAQUE; JOHN G. ANGELET; MARIA FLORES; LIZA SCOTTO-ARMBRISTER; ROBERT WALENTIN; ALBERT WEISS; SMITH, BUSS & JACOBS, LLC; BLUSTEIN, SHAPIRO, RICH & BARONE, LLP; JOHN DOE 1; and JOHN DOE 2, Defendants. Index No. 4656/2013 ACTION NO. 3



4484/2010

Paul I. Marx, J.

Upon the foregoing papers, it is ORDERED that (1) Defendant BSRB's motion to dismiss is granted; and (2) Plaintiffs' cross-motion is denied, for the reasons which follow.

Plaintiffs Joseph Suarez and Paul & Joseph Management, Inc., representing over five percent of the interests, on behalf of all unit owners and in the name of The Foundry at Washington Park Condominium Association ("The Foundry"), bring this derivative action [*2]against various members of the Board of Managers of The Foundry and the law firms, past[FN1] and present, that provided legal representation to The Foundry, including the filing and/or continuation of certain liens against condominium units owned by Plaintiffs. The instant motions concern Plaintiffs' cause of action against The Foundry's present counsel, BSRB.

BSRB moves to dismiss Plaintiffs' twenty-sixth cause of action of the complaint in Action No. 3, which seeks damages for the claimed breach of fiduciary duty on the following grounds: (1) failure to timely serve the amended complaint within 120 days after it was filed in Rockland County Supreme Court on January 20, 2013; (2) failure to state a cause of action for breach of fiduciary duty; (3) lack of standing; and (4) collateral estoppel. Plaintiffs' cause of action against BSRB alleges that BSRB knew that the liens were defective and improper, at least as to eleven of the units, at the time they amended the complaint in Action No. 1 to include a cause of action to foreclose on the liens. The crux of Plaintiffs' claim is that BSRB breached its duty to The Foundry by failing to inform the Board "as to the defects in their litigation" and "their conflict of interest as it relates to representing Weiss and FDG's[FN2] interests, and the competing interests of the unit owners of [The Foundry]." Amended Complaint at ¶ 465.

Failure to Timely Serve and Request to Extend Time to Serve

Plaintiffs concede that the summons and complaint were not timely served on BSRB. They request an extension of time pursuant to CPLR §306-b to serve the summons and amended complaint. Section 306-b provides that: Service of the summons and complaint, summons with notice, third-party summons and complaint, or petition with a notice of petition or order to show cause shall be made within one hundred twenty days after the commencement of the action or proceeding, provided that in an action or proceeding, except a proceeding commenced under the election law, where the applicable statute of limitations is four months or less, service shall be made not later than fifteen days after the date on which the applicable statute of limitations expires. If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service.

Plaintiffs must show both a reasonable excuse for their delay in serving the amended complaint within the 120 day period and that their complaint is potentially meritorious. See Mitrani Plasterers Co., Inc. v SCG Contr. Corp., 97 AD3d 552, 552 [2nd Dept 2012] (citing [*3]Perez-Faringer v Heilman, 79 AD3d 837, 838 [2nd Dept 2010]; Gibbons v Court Officers' Benevolent Assn. of Nassau County, 78 AD3d 654, 654 [2nd Dept 2010]; Pristavec v Galligan, 32 AD3d 834, 834 [2nd Dept 2006]). It is within the Court's sound discretion whether to grant an extension. Id. at 552 (citing Pristavec, supra at 834-835). The Court will consider all of the factors relevant to such determination, "including the extent of the delay, the prejudice to the opposing party, and the lack of an intent to abandon the action." Id. at 552 (citing Grace v Follini, 80 AD3d 560, 560-561 [2nd Dept 2011]; Aquilar v Nassau Health Care Corp., 40 AD3d 788, 789 [2nd Dept 2007]; Harcztark v Drive Variety, Inc., 21 AD3d 876 [2nd Dept 2005]).

Plaintiffs offer no excuse for their delay in serving the summons and complaint. They request that the Court exercise its discretion under the interest of justice prong and grant the extension based upon "the de minimis two-day lateness" in serving Defendant, which they claim caused no prejudice to BSRB. Affidavit of Joseph E. Suarez in Opposition at ¶ 4.

Although the Court agrees that the extent of the delay is de minimis and any prejudice to BSRB from the delay is slight, Plaintiffs have not demonstrated that they have a meritorious cause of action against BSRB. Accordingly, Plaintiffs' motion to extend time to serve BSRB is denied.Breach of Fiduciary Duty

BSRB contends that "two essential elements of a cause of action [for breach of fiduciary duty] are missing-causation and damages." Memorandum of Law in Support of Motion to Dismiss at p. 9. The elements of a cause of action for breach of fiduciary duty are: " (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct.'" Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 AD3d 804, 807 [2nd Dept 2011] (quoting Rut v Young Adult Inst., Inc., 74 AD3d 776, 777 [2nd Dept 2010]). As BSRB asserts, a claim against an attorney for breach of fiduciary duty is co-extensive with a claim of legal malpractice.[FN3] Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271-272 [1st Dept 2004] ("We have never differentiated between the standard of causation requested for a claim of legal malpractice and one for breach of fiduciary duty in the context of attorney liability. The claims are coextensive."). The "but for" standard of causation applicable to a legal malpractice claim applies to a breach of fiduciary duty claim against an attorney. Id. at 271. In order to survive dismissal, the client must establish proximate cause by showing that it would not have sustained actual damages but for the attorney's alleged malpractice. Simmons v. Edelstein, 32 AD3d 464, 466 [2nd Dept 2006] (citing Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002]).

Plaintiffs fail to allege how The Foundry was damaged by BSRB's purported failure to inform The Foundry's Board of the allegedly defective liens. While it is readily apparent how Plaintiffs themselves might have been harmed by the filing of liens against their units, they fail to make the connection between any harm to themselves and harm to The Foundry. Similarly, they fail to allege the nature of the conflict that arises from BSRB representing The Foundry in Action No. 1 and BSRB's representation of Weiss and FDG in a separate action relating to their liability [*4]to a bank for funds loaned to them. In their memorandum of law in opposition to BSRB's motion, Plaintiffs assert that the damage to The Foundry consists of the payment of "unnecessary legal fees". Memorandum of Law in Support of Cross Motion and in Opposition to Motion to Dismiss at p. 4. Even if they had alleged this in their complaint, which they did not, Plaintiffs cannot claim damage to The Foundry by reason of its payment of legal fees that were authorized by the Board.

It is obvious that Plaintiffs are attempting to use this derivative action to launch a collateral attack on counsel for The Foundry in an effort to hobble their legal representation of The Foundry in Action No. 1. The Foundry's claims against Plaintiffs in Action No. 1 have survived pleading motions but their ultimate merit remains to be determined. Plaintiffs must await the trial and/or resolution of Action No. 1 and advance their defenses appropriately in that action instead of raising them here under the guise of an action that purports to vindicate the rights of the very entity that is prosecuting claims against them. Essentially, Plaintiffs' claim is that but for the negligence of counsel, the action brought against them on The Foundry's behalf would not have been filed. While they may incorporate that notion into their defense against The Foundry's claims, it cannot serve as the basis for a derivative action on behalf of The Foundry against their own counsel, particularly while The Foundry's case is ongoing. This Court declines to be made a party to such efforts. As the Court previously noted in its Decision and Order dismissing Plaintiffs' claims against Smith, Buss & Jacobs, the liens are intended to protect the interest of The Foundry and its ability to recover on its claims in Action No.1. Plaintiffs may not thwart that effort with this collateral attack on counsel's representation of The Foundry. Accordingly, BSRB's motion to dismiss is granted.

Sanctions

BSRB requests sanctions against Plaintiffs pursuant to 22 NYCRR §130-1.1(c) for filing a frivolous claim.

Pursuant to 22 NYCRR §130-1.1(c) "conduct is frivolous if: (1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or(3) it asserts material factual statements that are false."

The Court finds Plaintiffs' conduct in asserting the claim for breach of fiduciary duty against BSRB to be frivolous within the meaning of 22 NYCRR §130-1.1(c), because it is "completely without merit in law" and was "undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another." It is apparent, as this Court has already stated, that Plaintiffs undertook a claim against BSRB in an effort to thwart their efforts to adequately represent The Foundry. In fact, Plaintiffs' suit against BSRB is part of a disturbing pattern that has emerged in these cases, whereby the defendants in Action No. 1, including Plaintiffs herein, seek to attack the attorneys representing The Foundry rather than address the merits of the claims that are alleged against them. The Court is deeply dismayed at [*5]the dilatory and disingenuous conduct that has been displayed, including the filing of related actions in other courts, the existence of which was not disclosed to this Court until the filing of a motion to consolidate and/or join such actions with Action No. 1, which has been pending in this Court. The pattern of delay and distraction which has emerged is a drain upon the resources of this Court and counsel who have had to respond to the unrelenting efforts to protract the litigation and prevent the adjudication of Action No. 1 on the merits. Such conduct cannot and will not be tolerated by this Court. What makes this matter even more egregious is the fact that Joseph Suarez is not only an attorney, but a judge in a lower court. As such, he should know how taxing baseless actions are on the Court's already strained resources. Further, he persisted in pursuing this action against BSRB even after this Court cautioned him, on the record in open court, that the Court took a dim view of any effort to unnecessarily delay this case[FN4] and/or to attempt to improperly chill BSRB's representation of The Foundry. Accordingly, as permitted by Court Rule 22 NYCRR §130-1.1(a), the Court imposes a sanction on Mr. Suarez, in the amount of $10,000.00, to be paid to the client security fund within 30 days of the date hereof.The Court also awards BSRB attorney's fees for bringing both the motion to consolidate and/or join Action No. 3 with Action No. 1 and the instant Order to Show Cause, together with costs and disbursement related thereto. BSRB shall file an application for said attorney's fees, costs and disbursements within 15 days of the date of this Order.

All other prayers for relief not specifically addressed herein are denied as without merit.[FN5]

The foregoing constitutes the Decision and Order of the Court.

Dated: August, 2013

Goshen, New YorkE N T E R

_______________________________

HON. PAUL I. MARX, J.S.C.

The Board of Managers of Foundry at Washington Park Condominium, etc. v Foundry Development Co., Inc., et al., Index No. 4484/2010

Joseph Suarez, etc. v The Foundry at Washington Park Condominium Assoc., et al., Index No. 1567/2012

Joseph Suarez, et al. v Roy Spells, et al., Index No. 4656/2013 Footnotes

Footnote 1: By Order dated July 18, 2013, the Court dismissed Plaintiffs' claims against The Foundry's prior counsel, Smith, Buss & Jacobs, LLP.

Footnote 2: Weiss refers to non party Albert Weiss, the principal of Pyramid Services Corp., which is allegedly a member of FDG ("Foundry Development Group, LLC", a non party), to which 59 unbuilt condominium units were sold by Defendant Foundry Development Co., Inc. Plaintiffs allege that BSRB represents Weiss and FDG in an action brought against them by Imperial Capital Bank to recover monies advanced to them to perform construction at The Foundry. Amended Complaint at ¶ 21, Exhibit A to Order to Show Cause. Plaintiffs also allege that BSRB represented Weiss in connection with the purchase of the 59 units. Id. at ¶ 22.

Footnote 3: The elements of a cause of action for legal malpractice are: "(1) that the attorney was negligent; (2) that such negligence was a proximate cause of plaintiff's losses; and (3) ... actual damages." Global Bus. Inst. v. Rivkin Radler LLP, 101 AD3d 651, 651 [1st Dept 2012] (citing Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713[2006]).

Footnote 4: This is motion # 25 in a case in which discovery has barely commenced.

Footnote 5: Plaintiffs seek leave, in the alternative, to amend "to incorporate the recently acquired Fee Statement information ...". Memorandum of Law in Support of Cross Motion and in Opposition to Motion to Dismiss at p. 19. Such an amendment would not save their claim.

Plaintiffs memorandum of law appears to be an omnibus response to both the motion of Smith, Buss & Jacobs to dismiss, as it discusses claims alleged against them, and to the motion of BSRB. The Court does not construe the arguments related to claims other than the sole cause of action against BSRB as a request for leave to amend to add causes of action for negligence/legal malpractice or General Business Law § 349 against BSRB. If that was Plaintiffs' intent, leave to amend would be denied for the same reasons those causes of action were not viable against Smith, Buss & Jacobs. Plaintiffs' request would also be denied for the reason that they fail to provide a proposed second amended complaint with their motion.