Knoll v Respler
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Knoll v Respler 2014 NY Slip Op 31599(U) June 20, 2014 Sup Ct, New York County Docket Number: 653609/13 Judge: Peter H. Moulton Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] Supreme Court: New York County Part 57 --------------------------------------x CHARLES E. KNOLL, Plaintiff, -against- Index No. 653609/13 MARKRESPLER, STEPHEN TEITELBAUM, AND ELM UROLOGY ASSOCIATES, P.C. Defendants. -----------------~--------------------x Peter H. Moulton, Justice Plaintiff brings this action against his former colleagues Mark Respler, MD, and Stephan Teitelbaum, MD, and the company they formed together, Elm Urology Associates, PC ("Elm Urology"). Plaintiff and the individual defendants were shareholders in Elm Urology from 1992 to According to plaintiff during the 2005. period 2001-04, Respler and Teitelbaum failed to pay the practice's payroll taxes, and diverted to themselves monies withheld for taxes from Elm Urology's employees' paychecks. Defendants bring this pre-answer motion to dismiss the complaint on statute of limitations grounds. BACKGROUND Plaintiff .is a urologist. In 1992 he was in practice with nonparty Eugene Wexler when the two were approached by defendants [* 2] Respler and Teitelbaum to form a practice. formed Elm Urology. The parties and Wexler Each was a 25% shareholder. Wexler left the practice in 2001 and the remaining three doctors continued as equal shareholders. According to the complaint Teitelbaum was responsible for preparing and filing Elm Urology's tax returns, and he dealt with the practice's accountant. involved in the Plaintiff avers that he did not get preparation and filing of Elm Urology's tax returns. Plaintiff claims that from 1993 to 2001 Elm Urology withheld a portion of each employee's and each shareholder's salary for the payment of federal, allegedly saw to state, the and city payroll taxes. filing of quarterly tax Teitelbaum returns and the payment of these withholding fees. The complaint avers that for the period July 1, 2001 through June 30, 2004, Teitelbaum failed to file quarterly tax returns, and failed to remit the The authorities. withheld complaint funds states to that the "upon relevant taxing information and beliefn the withheld funds were instead diverted by Teitelbaum and Respler, to pay towards their own personal debts. The complaint alleges that plaintiff learned about this failure to pay taxes in September 2004. states time that at that both Teitelbaum Indeed, and the complaint Respler "openly acknowledged" to plaintiff that they had distributed the withheld 2 [* 3] funds to themselves. The complaint also states that Teitelbaum and Respler assured plaintiff that "their" accountant (it is unclear from Elm the complaint if this person was also Urology's accountant) had "reached an agreement" with the IRS with respect to the outstanding payroll taxes. The complaint appears to assert that Teitelbaum and Respler were to be responsible for payment of these back taxes. The complaint asserts that in late 2004 and early 2005 both Teitelbaum and Respler told plaintiff that they were paying down the tax liability pursuant to their agreement with the taxing authorities. According to plaintiff the individual defendants in fact defaulted on their agreement and did not make the required payments. The complaint alleges that at some point after becoming aware of these improprieties plaintiff notified Teitelbaum that he was leaving Elm Urology. He continued to provide care to Elm Urology's patients 30, until June Paragraph 2005. 4 6 of the complaint alleges: Respler and Teitelbaum agreed with plaintiff that upon his departure from the practice, all debts and other liabilities associated with Elm Urology would be the sole responsibility of the Defendants and not Plaintiff. The complaint does not specify if this alleged agreement was written or oral. In a letter dated January 25, 2006, the Internal Revenue Service informed plaintiff that it proposed to assess Trust Fund 3 [* 4] Recovery Penalties against him for the delinquent taxes owed by Elm Urology. According to the complaint, the IRS assessed the penalty on February 19, 2007. On March 20008, plaintiff made a payment of $15,241.90 to the IRS, and sought tax refunds for the period April 1, 2002 through June 30, 2004. The refund request was denied, apparently because the withholding funds for that period were never paid to the IRS and there~ore constituted new untaxed income. Plaintiff appealed this determination, but the appeal was denied. On January 31, bank accounts. funds from 2011, In all, refunds the IRS levied several of plaintiff's it seized $369,515. allegedly owed plaintiff, It also garnished in the amount of approximately $11,000. In their pre-answer motion to dismiss defendants dispute the complaint's account of the tra.nsactions surrunarized above. However, the motion is directed solely to the legal questions of whether plaintiff's claims are time-barred or fail to state a claim. DISCUSSION Defendants argue that the underlying fraud that gives rise to plaintiff's four causes of action was known to plaintiff no later than September 2004, when the complaint avers that Teitelbaum and Respler admitted to plaintiff that they had failed to pay payroll taxes. Defendants go on to argue that the complaint provides other points where the alleged injury 4 should have been known to [* 5] plaintiff, i.e. 1) in January 2006, the IRS wrote to plaintiff telling him that it proposed to assess penalties against him, and 2) in February 2007, the IRS assessed a fine against plaintiff. Both of these dates fell more than six years prior to plaintiff's filing of the instant complaint. The six year limitations period governs fraud claims pursuant to CPLR 213(8). Plaintiff argues that the fraud claim, action, is not stale, his fourth cause of because he did not suffer an injury until money was actually seized from his bank accounts. At the most, plaintiff argues, when he the first potential injury was paid $15,241.90 to the IRS in March 2008, allegedly to have standing to challenge the Trust Fund penalty levied by the IRS. The elements of fraud are misrepresentation of a material fact, knowledge by the party making the misrepresentation that it was- false when made, damages. (~ justifiable reliance on the statement, Swersky v Dreyer & Traub, 219 AD2d 321, and 32_6.) Plaintiff is correct that damages are an element of the claim, and that he must have suffered some damages in order for the claim to be ripe. (See House of Spices v SMJ Services, 103 AD3d 848.) Plaintiff asserts that it was not clear that he would have to actually pay anything when the IRS first notified him in January 2006 of the proposed penalty. Plaintiff argues that he did not suffer any damages until he was forced to pay money for the tax liability. 5 [* 6] Plaintiff's argument is not persuasive. Damages from fraud do not require the actual loss of funds as a result of the fraud. (See Kottler v Deutsche Bank AG, York Law] . ) IRS, the Certainly, 2006, when 607 F Supp2d 447 [applying New Once Elm Urology's tax delinquency was known to the shareholders were potentially exposed to liability. this was known to plaintiff no later than January 25, the Internal Revenue Service informed plaintiff by letter that it proposed to assess Trust Fund Recovery Penalties against him for the delinquent taxes owed by Elm Urology. Had he attempted to sell his practice at this point, or seek financing or a letter of credit, this would be a fact he would have to disclose, and the fact that he was under an investigation could very likely have adverse economic consequences for him. It is not necessary for a potential tax liability to be quantifiable in order for it to cause damages. Co. 88 AD3d 933, (Carbon Capital Management LLC v American Express 939.) [injury occurred when plaintiff entered into a contract that resulted in adverse tax consequences, not upon the imposition of fines by IRS].) For these reasons, the fourth cause of action is dismissed as time-barred. For similar reasons, breach of fiduciary duty, the third cause of action, sounding in is also dismissed as time-barred. The elements of a breach of fiduciary duty are: 1) the existence of a fiduciary relationship; 2) misconduct by defendant, and 3) damages. (Rut v Young Adult Institute, Inc., 6 74 AD3d 776.) New York does [* 7] not have a single limitations period for fraud. The choice of the applicable limitations remedy plaintiff. Where the remedy is purely monetary in nature, courts period depends on the sought by construe the suit as alleging injury to property and the three-year limitations period of CPLR 214(4) applies. Where the relief sought is equitable in nature a six-year period applies. (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132.) Here again, plaintiff January 25, 2006. is time-barred period applies. incurred damages, at the latest, on Accordingly, the breach of fiduciary duty claim whether a six-year or a three-year limitations The third cause of action is dismissed. Defendants contend in their motion papers that plaintiff's first two causes of action, for contribution and indemnification, are attempts to avoid the statute of limitations by re-casting fraud claims as some other cause of action. In this case, plaintiff has articulated, barely, action for cormnon law indemnification. a cause of Cormnon law indemnity is an equitable concept that permits the shifting of loss in order to avoid unjust enrichment of one party at the expense of another. It is by available where one person is held responsible "solely operation of law because of his relation to the actual wrongdoer." (McCarthy v Turner Cons tr. Inc. , 1 7 NY3d 3 69, 3 7 5. ) "Since the predicate of cormnon-law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, 7 it follows [* 8] that a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine.n Vil. Section 3 v New York State Housing Finance Agency, 891, 895 (Trump 307 AD2d [quoting Trustees of Columbia Univ. v Mitchell/Giurgola Assoc., 109 AD2d 449, 453), lv denied 1 NY3d 504.) Here plaintiff has alleged an agreement or agreements with the defendants that would relieve Urology's tax liabilities. him of responsibilities Such agreements, for Elm it could be argued, might indemnify plaintiff concerning any liabilities to the federal and state taxing authorities. It seems certain that the IRS and the New York State Tax Department would not care about. such an agreement, and would consider plaintiff per se liable for unpaid taxes irrespective of any agreement with his fellow shareholders. The parties have not briefed the applicable law on this question and it is unclear how the law concerning the tax liabilities of Professional Corporations might intersect with plaintiff's alleged agreements with Respler and Teitelbaum. However, on a motion to dismiss, it is sufficient that the complaint's allegations of the shareholders' internal agreements might give rise to a legally cognizable indemnification claim. Unli.ke the indemnification fraud and breach of fiduciary duty claims, claim is not time barred. The the applicable limitations period is six years and accrues upon payment of the sum for which the party seeks indemnification. 8 (See Walker v Trustees [* 9] of the University of Pennsylvania, 275 AD2d 266.) The plaintiff's cause of action accrues each time a payment is made that is subject to common law indemnification. Fuel, 307 AD2d 59, 62, aff'd (See State of New York v Speonk 3 NY3d 720.) Accordingly, the complaint states a timely common law indemnification claim arising from the seizure of plaintiff's bank accounts and the garnishment of his refunds. Plaintiff's first cause of action is for contribution. The claim does not state any underlying tort liability that could give rise to a claim for contribution. (CPLR 1401; see Genesee Valley Club Inc. v Walter Kidde & ,Company, 177 AD2d 1051.) Here, plaintiff's exposure, and resulting claim for contribution, appears to arise either from contract, i.e. from the defendants' alleged agreement to hold plaintiff harmless from the tax liabilities, or from statute, i.e. from tax laws that impose liabilities upon the shareholders of a liability is a professional corporation. form of tort liability. cause of action is dismissed. 9 Neither source of Accordingly', the first [* 10] CONCLUSION For the reasons stated, granted with respect to action. all In other the defendants' first, respects third the motion and motion to fourth is dismiss is causes of denied. constitutes the decision and order of the court. DATED: June 20, ~~,A J.S.C. 2014 HON. PETER H. MOULTON SUPREME COURT JUSTICE 10 This
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