MWW Group Holding Co., LLC v Marcum LLP

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MWW Group Holding Co., LLC v Marcum LLP 2018 NY Slip Op 31921(U) August 10, 2018 Supreme Court, New York County Docket Number: 653412/2016 Judge: O. Peter Sherwood Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 1] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 StJJ)l{Ef\lll£ <~- ()lJl{T ()F rl,HE s·r1\FJ'E ()f, NI~:\i\l \'{)R.K <:<)lJNTr~ <JF Nf.~\V Y(lltK: (~(Jl\ll~IEl{C~l1\l~ [JlVl.SlO.N J> All'I' 49 1 - -· - - - ... - - - .... - - ·- - .. - -.: ....... - .. - -.. i.w - -..... - - .- -. - -- ...... _·-·- .... ~ - -X -- l\tl\V\V f~·l{()lJI>. l··-1()1,.IJING C~01\1PA.NY LLC, lVl\\l\V (;.fl()lfP lJl..iC~ alld M\V.\\l (;J{(JUl> 40l{K)·1>1.J1\N, DEC:JSl()N 1\NI> (ll~.l>RR Index.No.: .65341..212:016 l•htin tiffS, -againstl\ lotion Scquenc.e No.: 004 1 }. ... · . ·. . r .. . . . . 'I I? ··i;rv1NER'. i~ ·.·'D . l\'IAl{C.... lrM LLI>, •,.1,1."17 Fl"r~ \· J\11. \., r ... ~ 1 N' 1 l~J(~ll~4RI) , CO<)KlE, --~------~-~~--------···--------------X 1\s this Is a n1otion lo disn1iss~ the facts are taken fron1 the First. J\n1endcd (,'ornplaint r··Fi\(:'~I (NYSC>EF' l)oc. No. 69 ['"~[)oc. 'l'Jo ......... "'J) and are assun1cd to be true (xee A.Jonroe r Adonroe, 50 NY2d 481,, 484 [ l 980j). PlainlilT .~11\\1 \\' (.iroup l·Jolding C\.unpany 1..iabitity (\H11pa.ny. lt has a .subsidiary, ~fW'\\l l.jl~(~ (~·~rv1\\lV./ ll0Jdi11g~~) Ciroup York. Plaintitl' M\V\\/ Group 40 l (k) Plan (".I\<f\\tW ;."l\1\\rw·~~.) p·Jan~\ ("'l\4W\\l (J.rtlup") located in Nc\·V an.cl together \Vith the other pl.ai ntilfs~ ~1~'\V is an ernploycc be11e!it plan inaintained by a pubhc relations agency. lJ.,(~~~ is a. foreign l,i111ited (irotrp !i..lr its ernployecs. rvl\\l\\/ fs l)cfendant Je1Trey \.'/cincr \Vas f\1anagi11g F'artner of defendant l'vtarcun1 LLP (!\i1arcun1), and defendant ltichard (~ooke \vas a Marcun1 Partner. l\lfarcun1 provides independent accounting and advisory services" In ?Ol()'i a group of investors<; including iv1\V\V~s C~E(J Michael Ken1pner~ acquired · iv1\\t\\/. Ken1pner O\Vncd 75'~/~' of ~,f\\l\\l. Six investors o\vncd t.he other 25c~,..-c.. ] (~lass ii\ eq.uity interesf~ 'in rvf.\;\l\~/ Holding (Fl\C~~ l)cfendanl ii 24). l3oth ·weincr and c:o().l<~e are certified public atc<)unttints anti n1cn1bcts of the 1\111cricun Institute of (\:rtified Public 1\c:C.<Juntants (i\.f(~J> 1\) and are. su~ject to: Al'(:P:A !Os by1avvs and t~<)dc uf .protcssiona] c<Jnduct In 2011 . \.Veiner told Ken1pner that \\leinet \V«)uld like l\1arcun1 to be (ill ii 26). \\lcincr said that his resignatit>n fron1 the ivf\~!W MW\\l~s auditor boartf of directors would elin1inate any cor1flict. of intercst>and allQ\V l\1arc:un1 to· pr(lvidc independent audit opinions, Bor fiscal yeat 2011~~ (and in fiscal years 2012., 2013 and 20l4) ~1.·ww Page 1of 18 2 of 19 (rroup and M\\/~l Hofding hired [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 2] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 fv1arCUI11 to pr<}Vidc independent atld1ts. rv1arCUll1 subsequently prC)Vidcd the !vf\\l\\/ entities \Vith audit opinions pursuant to yearly cngagc1ncnt agrecn1ent.s. Each audit \Vas to be accordance \Vith auditing standards gcncraUy accepted in the LJnited States of .., .., . ' ... } "'--· .• ·. )' ' ~·conducted 1\1nerica~" (i<.l. in i! Independence of the auditor \\1as required under the cngagcnlcnt agree1nents and by (iencral ly 1\ccepted Accounting Procedures (;...G,1\1\P"~) (itl. ~j 33-34 ). ·rhc agrccn1ents provided that., in the event of litigation~ the J)revailing party would ret:ei ve: reasonable attorneys~ fees and costs ( i (.I ir 36). ivl \V \\1 paid o vet $1 1n 111 ion fbr the audits. In 2015 . under a nc\v C~F(),, JV1W\\l noticed that rvtarcuin had n1adc signiti.canl errors in preparing the 2014 audit.. overstating revenue and n1aking it ap1Jear signif.icantly better than it \Vas. \Vas doing ·rhc Marcun1 audit sho\vcd deferred revenue. as having been earned. Marcun1 alten1pted to fix the audit, but its next drat! als<l contained plaintiff~ fV1\~/W n~atcrial errors. The also contend the 201.4 audit . and all prior audits, \Vere tla\vcd hccausc f\t1arcun1 \Vas not independent. based on ~~anyone at Weiner~s equity stake 1n rv1\\l\\l l-Iolding. f\1arcun1 also 1\ f\\1\\/, olher than M\\lW's f(n·n1er 1 C FO~ 1 dishonored and vendors \Vere not being paid~" (id. if 1~1iled to inf()n11 Seth lloscnstcin, that cl1ecks \Vere being 48). Marcu1n's errors dan1agcd l\'1\\1\V by the an1ount of rnoney paid to ivlarcu1n. fees lJaid to identify the proble1ns and fix the audits, i\11\\1 \~l'." s default under a credit 1~1cility'.' legal fees fron1 suits by unpaid vendors, OJlerational decisions based on bad. inforn1ation in the audit. and the failure of a tr,1nsaction to sell tv1\V\\l. alter the buyer learned or the audit problcrns (id. ir 50). l'v1art:un1 has ackno\vlcdged it \.Vas not independent \\. hen it issued the 20 l 1. 2012 . and 2013 audits (hl at 58). l\1arcun1 disclaiincd those audit opinions and \Varncd M\\l\\I not t.o rely on then1. M\\1\V asserts causes of action fi>r: l) L)cclaratory .Judgn1ent- that the engagen1cnt agrccn1cnts arc illegal and void. 2) l{cscission - I\1arcun1 ~ s n1isreprescntation that it could perf(lrn1 under the agrccrncnts entitles ·wl\V W to rescind t.he contracts: 3) Fraudulent lnduccincnt - !vlarcun1 and \Veiner failed to infon11 IvlWW it had an un\vaivable ~ontlict of interest: 4) .Professional Ncgligence//\CCt1tt111ing rvtalpracticc - defendants fr1ilcd to adhere to (i.Ai\P'! J)Urport.ed to provide independent audit services \vhcn it could not . and nlade n1atcrial errors~ Page 2of18 3 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 3] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 5) Breach of c:ontract - Marcun1 failed to provide independent audits; 6) l~rcach of the l.n11Jlied (~ovenant of (Jood Faith and Fair l)ealing: and 7) lJ njust ~:nrichn1cnt. l. l)efendants' .A.rgumcnts l)ctcndants contend plaintiffs ·\vere a\vare of the conflict, \Vere equally at faulc that the clain1s are tin1e-barrcd under the tern1s of the c.ngagen1ent agrccrncnts~ and that. the cquitt1bh: causes of action should be denied as duplicative of the cngagen1ent agrcen1cnts. l)eJendants rnaintain that contrary to the al1egations in the an1cndcd con1plaint the cngagcn1ent agrecn1cnts arc not V(>id ah inilio. i\grccn1cnts arc only void t1b inilio \vhcn they are inherently detective or consun11nated in1propcrly~ such as w·hen a signature \Vas ft)rgcd (see Ku-~ang I Jee: Lee v il /).JAii Y36 Ret.11(,v ,.1ssoc.... 46 AIJ3d 6/9 J2d. Dept 2007] ). Here., there problen1 . including fraud~ \Vas no \\..-ith the contracts themselves . onl:y \Vith. perforn1ance of the contracts ( [)et~ndants . rv1cn10 at 10-11 . Doc. No. 97). Each contract provides J(1r a one-year li1nitations period (ill at 12 . quoting the various engagen1cnt agrceinenls; l)ocs. No. 75-81 ["'"No action regardless of fi:>rtn~ arising out of the services under this agreen1cnt rnay be brought by either party tnorc than one year after the dale of the Jast services arc provided under this agreen1enf~]). ·rhis suit \Vas and .\1arcuin provided its last audil opinion on 1\pr.il 15, 2014. r~ngagen1cnt ,t\g1·een1ent \Vhich~ con1n1enccd in June 2016") [)elivcrv satisfied the 201 :1 like all of the agreen1ents"I provided that the '"i.cngag_en1e1rt ends on de1ivery of our audit rcporf' (L)oc. No. 77, 2013 f~ngage1nent i\grcctncntat 7).. Accordingly~ the clairns. (>f M\\l\\l (1roup and M\\1 W l1olding were all ti1nc-barrcd after 1\pril J 5, 20 I 5. fvtarcutn provided its last audit to wl\A/ \\/ Plan on ()clober 15"' 2015 (De Jendants ~ rvtcn10 at 13 ). 1\ dra11 audit \Vas circulated in Deccrnbcr 2015'! but it \Vas never signed or cornplctcd~ and cannot extend the tin1c to sue (Jt/. at l 3-14 ). l-\dditionally, as these constitute separate· audit scrviccs'I the doctrine of conlinuous representation docs not apply (itl at 14- 15). l)ctcndants add that even if these cJain1s vvere ti1ncly, plaintiffs arc precluded fro111 J)Ursuing lhen1 against. defenda11ts because. tv1 WW' s o\vn agent was responsible t{:>r the Page:3of 18 4 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 4] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 n1isstaten1cnts (icl at 15 ). In a Proposed First Arnended C~t.1rnplainl (the ''"PF i\(~'"), plaintiJls slate that ... f\1\~/w~·s t<Jrn1er (l)oc. No. 44, ·~Rosenstein ii 42). (~17() f{osenstein ... bore initial responsibility for the accounting Further~ L~rrors'~ in the originaJ con1pJaint (f)oc. ·No. 18) . plaintiffs slated that co1nn1.ittcd financial slaten1ent fraud . . . that included ~revenue n1iscJassjfi.calion . \Vithholding of n1aterial inforn1ation, and patently obvious Qperating account d.eficiencics and transactions~~.~ (i\ lcn10 at 1 16 . quoting ()riginal c:ornplaint, ~1ir 37-38, 40-41 ). l)laintiffs attcn1pt to obscure the origin of these errors in the Fl\(' (l\1cn10 at 16). l{oscnstcin ""deceived"' and .... 111islccr~ !\.1\~l\\l ··by expenses properly under infi.ln11ation"~:' 94 . at i;ir have also adn1ittcd 1~-iiling to record revenues thereby ·providing the con1pany \Vith (ill . quoting the \'crified 9- l 0). in1putcd to the (]1\J\I"~ intentionally Plaintiff~ C~on1plaint in 1\1J1V'1'J' (Jrott/) L.LC.~ v Ros·ensJein . plaintiffs~ ·~all Doc. No. as their agent (Mcn10 al 17). of each agrccn1ent ap,pli.cablc. .f{)r financial 13ecause financial reporting was part of Rosenstein 's job~ his tai lures arc l)cfcndants also argue lloscnstei11" s 111isrcprescnlations n1ake the "'-hold harrnl~ss f~llse and clause T'hat clause provides the plaintiffs \vill hold the delcndarns clain1s ... \\.:here t.herc .has (\1rnpany's n1anagcn1cnf" harn1lcss'~ (~,1en10 at be~n 18)~ a kno\vn n11.sreprescntation by a n1c1nbcr of the Rosenstein \Vas a n1en1bcr of the con1pany~s 111anagcn1cnl.. and a<.:ted for the con1pany \Vhen he signed each of the Managcn1ent 1leprcsentation letters., \Vhith included various kn<)\Vn n1isrcprcscntatio11s. Accordingly, this dispute is covered by the hold harn1lcss provision and rv1arcun1 cannot be held liable fiJr da111ages Ho,ving fron1 the n1isstt1tcrnenls (ill). [)et'cndants further argue that claims contraci~ 3~ 5, and 6 (fraudulent inducen1ent, breach or and breach of the covenant of good 1~1ilh and fair dealing) are redundant of the professional negJigc.nce/n1alpractice t:lai111 (clain1 4). 'll1ey arise froin the san1e facls . seek the san1c da1t1ages. and should be disn1issed (it! at 19-21 ). Ir not l~tilurc disn1isscd as redundant.. the fraudulent conccaln1ent clairn should he disn1isscd for to state a clain1~ as plaintitls have l~1ilcd to n1akc the required allegation of kno,ving n1isrcprcscntation or a n1al.crial fact~ as the clain1 of independence \Vas true \Vhen n1adc (ill al. 27). \\lcjncr is only alleged to have held an interest in Iv1\\'W J-Iolding . not JVlWW Ciroup or rvt\\/W Plan (ill). l\lfW\\/ 1lolding did not enter into the 2011 Engagc111enl i\grccn1ent, 1\1\V\\l <=iroup did (i<l. ). \\'ciner had no interest jn M V\'W Group. {)nly later did Marcun1 express an Page 4of18 5 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 5] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 opinion as to tvf\\l\\/ llolding~s 201 l financial statcn1ents (it/. at 23~ citing lndc·pendent l\uditors' Report duted A.pr ii 15, 2014, l)oc. No. 84). Nor is an intent to deceive properly- pled under the l~Jr heightened standard fraud (f)clendants" l\4cn10 at 23). ·rhc only n1otive alleged is to get paid i()r services provided: \vhich is insufficient (i(I. ~ citing l)1e11lu.1ns<>J1 v (.'itco (JruU/J Ltd., 700 F Supp 2d 599, 620 fSl)N'{ 201 O], £.{.(/"'cl on other /;;rounll~· suh no1n. 5'te1Jhen.\·on " l'ri1..·e1ralerhouse('oo1)er.,·. LLJ>, 482 Fed 1\ppx 618 [2d (_''ir 2012J, a.\' anu:nlle<.f [June 13., 20121). Plaintiffs also lai1 lo plead justifiable reliance, as \Veiner held an intcrc·st in that con1pany~ I\1\~.1\\1 l·lolding had the ability to discover that and a li·aud clain1 cannot survive \Vherc the plaintiff had notice or could have discovered the inforrnatit)TI at issue \A/ith reasonable investigation (id. citing 't Z(tJJt.-'ll l..AJ1nhl11·llier. Lit.I, v Ala.,:loH', 29 i\l)3d 495. 496 11 st f)cpt 2006]). /\s to the rescission cJain1 and the quasi-contract clain1 tclr unjust enrichtncnt (c.laitr1s 2 and 7).. these should be <lisn1issed because they are equitable clai1ns and the parties had enf()rce.able contracts (DeJendants" i\!le1no at 24-25). ·rhcsc cfain1s should alsc> be disn1issed f(>r the separate reason that they are duplicative of the professional 11egligence clain1. i~·inally, the rescission cluin1 should be disn1isscd because such claims apply only \Vhcre t11ere is no adequate. rcrnedy al la\V and the pat1ics nlay be rctut4ned to the status quo (ill at 25). llere, ren1cdics at. la\:V \Vere available t<>r tin1ely clairns~ and it is not practical to return to lhe status quo (it./.). 11. Plai11tiffs' ()ppositio11 Jn opposition to the 111otion., plaintiffs note thnt \Veiner was on the b<Jard ()f M\\l\\l and represented that i\1arcun1 could provide independent audit services~ as long as \.\'einer stepped 1 do\vn (Plaintiffs' ()pp at 3). Plaintills concede each cngag.cn1ent agreen1cnt contained a one year statute or lin1itations J)rovision \vhich starts to run aJter the last services are provided . and an indcn1nification ]Jrovision \Vhich holds l\1arcun1 harrnless fron1 clain1s arising when there has been a kno\vn 1nisrcprcsentation by 1"1 \\l\\,, (ill at 4). Plaintiffs also agree that. rv1arcun1 's errors~ othi.:r than its lack of independence, arose fron1 its failure to detect l{oscnstcin~s 111isclassific.ation of revenue payn1cnts to tv1\V\\1, and failing to note they should have been deterred (ill at 5). I>Iaintitls ar~ue ..... -· the clain1s brought here arc not tin1e-barrcd becaus~ the ClH.!agen1cnt '..... agreen1ents are iHegal ct1ntract.s . and not enl(>rccable (ill. at 7). It is undisrlut.ed that Weiner O\vned an interest in !\.1\\/W I lolding (1V1\\l\\l Group . s parent), and that. . as a result. f\,1arcun1 could not issue an independent opinion (h.I. at 8)~ Accordingly~ Page 5of18 6 of 19 the contract violated Ne\.v '{ ork [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 6] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 la\\-' (8 N't'(~l{I{ 1.210.010.0~) AIC~P1\ section 29.10[aJr5l and (:ode of f>rofessional (:onduct section <tnd is an illegal contract (Plaintifls:' ()pp at 8, citing L.ofhar'.,· t~f-C'ulifhrnia. Inc. l' l·f'eintrauh . 158 rvtisc 2d 460~ 463 [Sup C~t 1993}). While Lotluu··s also noted that "·(tlhc courts of this Stat4.: have consistently held that even in the event of illegality., equity does not require def endanl to return an1ounts already paid, and that the parties to an illegal contract should be left as they are'' (158 rv1isc 2d al 463 (internal quotation 01nittcdj), plaintiffs observe that the .Lothar ·.\' cou11~ "\vh"ich had a tl11ly developed record., noted that the p1aintiff had paid certain lees {1Jicr it vvas satisfied \vith the servi<:es (Plaintiffs' (J·pp al 8). Plaintiffs distinguish the case on its fr1cts and urge that leaving the parties here .;'"as they arc'", and cnfbrcing the shortened statute of Jin1itations . --·is inconsistent \Vith the spirit of Lothar 's"~ (it/. at 8-9). Plaintiffs add that the. illegal portion of the contract cannot be excised and the rest cnfi·lrccd, a~ the illegality goes to the heart of Lhe contract (i<J. at 9). J>lainti ffs also clain1 to be entitled lo resc1ss1on'I rendering the li1nitations clauses unenforceable (it/.). Plaintiffs argue they have alleged all f()ur of the possible reasons l.o grant rescission: fraud in the indut..:cn1enl, failure of considt:ration_ inability to perl(lrn1., and a breach \.vhich frustrates the purpose of the contract (ill at 9-10). I)uc to \Vciner's interest, 1\1arcurn \Vas unabJe to pcrfi)rn1 . so plaintiffs received no consideration and the breach frustrated the purpose of the contruct (id. at 10). Defendants should nol he able to disclain1 the audits, adn1it they are \vorthless., and retain the fees thcv received. . ~ l)cfcndants ~ ti·aud renders the agrccn1cnts null and void (ill. at 11 ). l1ecausc defendants \·VCrC incapable of' 1)erJorlning the \VOrk \Vhich they Contracted 10 do, the fraud pcrn1eated. the agrccrnent. n1aking it void and unent.(>rceablc (it.I.). Because the agrccn1cnts sh(Juld be rescinded . . the lin1itations clause is a ntillity' and plaint1f1s~ n1alpracticc clain1s arc tin1ely (ill at 12). l'laintiffs also 1naintain that n1alpracticc ~lain1s related to the [)rali 2013/ 14 Financial Staten1ent /\udit and th~ 2014 Plan .t\udit are tin1cly" regardless. 'rhc f<Jn11er \vas provided in l)ccc1nbcr 2015, and stated Mar<.:un1 audited the J'vfW\\i I lolding and M W\\.r (_lroup Jinancials f()r 2014 and 2013. ,_fhus. clai111s based on both vcars a.re actionahlc. i\dditionallv . the 2014 f\11.W\\/ .I Plan /\udit \Vas provided on ()ctober - 15~ - . 2015, and so is \vi thin the contractual one year statute of li1nitations. As lo the clai1ns that the f\l1\\l\\l Plan 1\.udit ·\vas not raised in the original Page-6of18 7 of 19 con1plaint~ [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 7] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 the clain1 can be n1ade in an an1cnded con1plaint and is lin1ely as it relates back to the original con1plain1 (ill. at 13 ). A three-year statute of lin1itations applies 10 the n1alpractic.c clain1s regarding the 7012 and ?O 13 audits . n1aking thcn1 tin1ely (ill.). provided to ~v1W\V on June 18~ \\lhilc the 2012 Financial Stat~n1ent Audit \Vas 2f) 13 (three years and 12 days bcfi)rc the filing or the con1plainl here) . the clain1 is tin1c1y because of the equitable tolling doctrine (hl. at 14). lJpon learning of the conflict of interest rY1\\!\\/ in1n1ediately confronted i\1arcun1 about its Jack of independence. Plainti!ls pursued the issue properly? con1111unicating \Vi th Marcun1 and starling I.his action in a tirncly lashion (hi.). Plaintiffs aJso clain1 the continuous representation doctrine tolled the statute of lin1italions until the represcntatior1 ended, n1aking al I clai1ns asserted here tin1cly (_itl ). doctrine applies because 1.) the contracts arc r1ulJ an<l void (as discussed continuing representation \\lith regard to the san1e subject n1attcr'.' above)~ 2.) f\1arcun1~s The there \Vas \vithdra\val or the audits constilutcs a continuation of t.he protcssional relationship (hi. at 15 >~ and 3.) the \Vithdrawa1 \.vas related to the reason for this dispute, i\.rlarcun1 "s conflict (ill at 16 }. Plainti lls also point to the continuing \vrong doctrine lo toll the statute of lin1itations~ as J\llarctun continuulJ\/ violated the sa111c ~ final violation~ \.Vhich~ la\v~. so t.he statute of lirnitat.ions sh.ould be tolled until the plaintiffs clainL should he the last services provided for l\!1WW Ciroup and l\/1\\l\\l 1--Iolding in l)eccnlbcr 2015. l"he last services \Vere provided for N1 \\/W Plan in ()ctober 20 I 5 (ill). As to the clain1s thcn1sel.ves., plaintiffs argue the covenant of good h1ith and f~1ir fraud~ hrcach of CClntracL. breach of the dealing, and unjust enrichn1cnt clain1s are not duplicative of the n1alpractice clain1. ·rhe fraud clain1 is distinct fi"<)nl the n1alpracticc claitn because the fraud is basl:d on \\leiner"s intent to deceive M\V·w into believing Iv1arcutn could be independent despite bis equity interest in rvfWW, \vhilc the n1alpracticc clain1 is based on Marcun1's inability to he independent (i<l at 17). Fu rt.her . even if the co11tractual st.atulc t)f lin1itations provision applies. the fraud clain1 is not subject to that clause., and the six-year lin1itations period ·rhc breach of contract and tn~jusl. appJi~s (icl at 18 ). enrichn1ent clain1s are not duplicative because there arc distinct dan1ages. ·rhc rnalpractice clairn seeks '·~dan1agcs suflered as a result of f>efendants~ 111atcrial rnisstaten1cnts., errors and on1issions" ~ . \Vhile the contract clai n1s se.ek a return of the tees Page 7of18 8 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 8] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 paid fiJr services not properly pcrfi)rtncd (itl at 19). In the unjust enrichment clai1n~ plaintiffs sin1ilarly seek to recover \Vhat they paid f()r \vorthless services (hi.at 19, 22). Plaintifrs clai1n the fraud and unjust cnrichn1cnt clain1s have been properly pied. l\1arcun1 has adn1ittcd it \Vas not.. in fi1ct~ independent and regardless or \Vhcthcr Weiner O\vned equity in tv1\.\1\\' 1-lolding or (jroup~ each audit involved both entities~ rnaking the distinction irrelevant (ill at 20). Plaintiffs huvc pied defendants~ intent to deceive~ based on V\.leiner"s fitlse rl~prcscntalitnls and l'v'larctnn' s ag.rccn1ent to provide independent audits it could nol perforn1 ( i£l at 20-·21) . .Plaintills argue that hy providing crronc<)US they \Vere~ audits~ \Vhich 111ake M'W\\1 entit.ics look better than \Veiner could obtain huge lees tor Marcun1 'vhile inrreasing the value of his equity stake in tvf\~1 \\/ (hi. at 21 ). For justifiable reliance . plaintitls arc rH)t relying on conccahncnt of the f'~1ct that \Veiner had an e4uity inlt:.rest, but on defendants~ he able to he ·independent if Vv'einer 111erely resigned representation that IV1arcu1n fi~<>n1 Ll1c \VOtdd board (i<.l. at 21-22). l.>Iaintiffs clain1 to be unsophisticated in this regard, and entitled to rely on defendants . representation. l{cgarding the i11[Jari1ielic10 doctrine., it <l<)CS not apply~ and Rosenst:ein"s actions do not el in1inatc defendants' liability (icl. at 23 ). 'f'he doctrine only protects an auditor \Vhose client con1n1its \villli1l fraud ( itl.}. i:urthcr. the lJcbt\varc Ct1n1plaint against J{osenstein only alleges the ~·rorn1cr C~l~'() ·deceived' and ;;n1isled~ the con1pany by intentionally failing to record revenues and expenses properly under (11\1\P thereby 'provid1ng the con1pany· \Vith inl()nr1ation ~.,, (ill.~ quoting l)elaware (.'on-1plaint.. ~f~l falst~ financial 9-l 0)~ l{<.>scnslcin is not aUegt·J to hav~ provided tvtarcurn \Vith intentionally frilsiticd information Or to have at.tell1}Jted to intentionally dctf·aud the cornpany ( <Jpp at 23 ). f'urthcr., allegations about .R.osenslein in the l)cla\varc (\_n11plaint \Vere n1adc upon infonr1ation and belief~ and are not dcc1ncd ad1nissions f(.1r t11is purpose (i,./. at 24 citing S'ounil c~·o1nh1unicl1lions~ Inc. v Rack £111<1 ]~oil, r] St l)ept 2()] 1 f I""asscrtl011S in the pleading \Vere n1ade -~upon infon11ation and bclieC"' and do constitute forn1aJ or inforn1al judicial ad1nissions'~]). Inc., 88 J\[)3d And, as tl1r as the Dela\vare 523~ 524 1101 C~on1plaint <..:ontains i11fi)nnal judicial adn1issions . those do not provide a sufficient basis f(Jr disn1issal (itl at 24-?5~ lVonn1ra ,/Jssel ('ttf>illtl ('0111. v (·l1(/iralt.1£ier! Hlickerslunn (_~· Tt?fi LL/', 23 .f\.1isc 3d I 114(/\) l Sup C t 2009] I_"" While certain of the asse1tions and representations allegedly rnadc by 1 plaint.ifis in the Federal ./\ction and cited by Cad\.valader n1ay l'c inl(.lrn1al judicial adinissions and thus constitute evidence of facts allegedly adn1ittcd . such evidence is not sufficient1y conclusive Page 8 of 18 9 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 9] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 under C~Pl..l{ 3211 (a) (1) and/or (7) to p-reclude plaintiffs' clain1 that C:au\\ialader \vas negligent in the 111anner allegecr'\J ). Finally, plaintifTs clain1 the hold harn1Jcss provision of the cngagen1ent agreen1ent.s does not bar these claints (()11p at 25). Such clauses usually are intended to apply to claiins or third _parties. l\s applied to parties t<) the contract, the provision is -~strictly ·construed" and ,~·ill not be interpreted t<) cover inter-party clain1s unless there is clear language to that effect \vhich is not present here (ill quoting l/0011er .llssoc.. Lili. v i1<JSJ (.'01111-n1ters. Inc., 74 NY2d 487~ 491 f 19891). JI l. Defendants' Rl·.ply In reply . defendants argue the engagen1ent agreen1ents .. including the lin1ilalions period clause~ arc enforceabJe and the cases rcllcd upon by pla1nti ffs arc distinguishable ( l{epJy at 3 ). I Jere': nf> ter1n of the cngagen1cnt agreen1ents violated a Nc\v York statute or policy. !lather, defendants· conduct t~1ilcd tt) cot11ply "vith New '{ork la'.v and the on /..othar\' <"!f-( ·ltlifi1rniL1. Inc ... in ivhich the contract itself \Vas illegal~ accountant a prohibited contingent fee ( 158 \t11sc 2d at 463). illcgaL so !Jotht1r ·.,. docs not apply. (:onxultin~ Al(~~P.A. as it granted the defendant "rl1c parties" contract \Vas not ·rhc only case to cite JJ01/u1r 's~ l'lu1r1naceu1ical:- { 'or/J. v /1ccucortJ l'acklllJinl'<' Inc. (23 J J·;ed Appx 1 J 0 f3d distincti<Hl . noting that c:ode. Plaintiffs rely ·~fh]crc'.' hov.1cvcr~ (~ir ~S"a/es 2007]), 1nadc the san1e it is l_appcllant'sj chosen n1ode of pcrtor111ance rather than a tcrrn of the contract itself that is illegal'.! .... and the contract n1ay be enforced against. it (i<I. n6 ,). l~vcn if fraud is alleged~ the shortened lin1itations period vvas not obtained by fraud, so that clause survives (Defendants" l{eply at 5'1 citing Inc. JfiJ. qf.5'altc1ire v L£1Rltllt~ 280 Af)2d 548 l2d i)epl 2001] l~'"\Vhcrc th~ party 547~ aga.inst which an abbrcviat.ed Statute -<)f Li111itatio-ns is sought to be en ((>rc~d docs not dctnonstrate duress~ fraud~ or n1isre1)resentation in regard to its agreen1cnt. to the shortened period, it is assun1ed that the tcrn1 \Vas \lol untarily agreed to~"}). l~cgar<ling the draft 2014 audit report .. it docs not extend Lht! li111itations period to 2015 . and plaintiffs cite no has is t(-»t a ·draft pt\)Viding the basis 1or· these clain1s (ill. at 9}. Detcndants argue that the in JJari llelicto doctrine also precludes the causes of action here ( il..l at I 0 ). Defendants point to various representations plaintii1s n1ade in court fi Ii ngs that Rosenstein intended to deceive \vhen he lhlsitied rvf\\l'W'"s tinancial statcn1cn.ts and con1111itted in1proprictics (i<../. ). Defendants also reiterate their argun1enls Page 9of18 10 of 19 cl~~i1ni11g~ protection. of the. hold [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 10] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 hartnlcss provision in the cngagen1cn1 agreen1ents (ill. c~- Klie,t:11u111, at l I . citing Kitnher .:\4f'(1.. Inc. v ~~4t1rcun1 L.Lf'.. Sup Ct.. \Vestchcstcr (:ounty .. Scpternbcr 26., 2007., 20559/04., 2007 f,icbo'\vilz~ J.~ lndex No °"/ L 6 711957) and that the contract and fi·aud based clain1s are duplicative of the n1alpracticc clain1 (Reply at l 2). ()clendant.s note further that plainti!Ts still have failed to plt"ad an affirn1alivc, intentional 111isreprcscntation by \N'einer . '-'Vhi<.:h would support a fraud clain1 (ill at I 3 ). The F1\t' docs nol state \Vhich entity Weiner said l\!1arcun1 could properly audit aHcr he stepped dO\\,·n f1·0111 the board . and that is an i1nportant distinction. \Veiner hcJd an equity interest agrecn1cnl. (~'1\~l\\t ·rhe entity in ,,vhich llolding) did not enler into the 2011 cngage11H:nt /\ccordingly . deJendants did not deceive plaintifls w·hcn entering int.o the 2011 e11gag,en1cnt agrccn1ent (it/. at 14). Pia.inti!].$ have also f~1if cd to plead justifiable reliance. ·rhey \,vere a\varc of \Veiner~s equity interest in MWW 1-Iolding and knc\v of the underlying condition causing the lack of independence . or at least could have discovered it (i,f ). Finally~ the equitable clairns (rescission and quasi-contract) should be dis1nissed . as plainLitls had adequate rcn1cdics at Ja\\r~ regardless that the re1nedies have expired (it..l at 15; citing /\/orris v (iro,\·venor ,'t1k(g~ r..1,1.., X03 F2<l 1281, 1'"'87 [2d C'ir 19861 r-·l\n equitable clain1 cannot proceed \vhert: the plaintiff has had and Jct pass an adequate alternative re1ncdy at h1\v . ~]). DlS(~lJSSl(lN. I. Standartl for a Motion to Dis1niss- Do·cumentary E,,.idc11ee 1\) succeed on a n1otion to disn1iss pursuant to evidence suhi:nittcd that forn1s the basis or C~PLR § 31 l I (a) ( 1).. the docun1en Lary a defense, n1ust resolve all 1~1ctual issues and delinitively dispose of the plaintiff's cJainlS (see, 5/ J f1fl~ 2.32°d ()H'ner.\' (,'or/1. V .lennff(y· J?e(1/l_J ( ·o .. 98 N).t2d 144~ 152 f2002]: /}/on<ler <-~ (.'o.. Inc. v c·~itihank, 1 1\./.11.. 28 AIJ3d 180~ 182 [1st l)cpt 2006]). i\ n1otion to disn1iss pursuant lo (]>[J{ § 3·1 11 (a) (I) "'n1ay he appropriately granted onl.y \Vhere the docun1entary evidence utterly reFut<:s plaintiff~ s !~1ctual altcgations~ conclusively establishing a defense as a nlattcr of h1vv .. (1\4c(.'ul/J- v..Jer.\·e_v J>art1u;rs, Inc.. 60 1 i\l))d 562~ 562 11 \t Dept. 20091.). The l~1cts as alleged in the con1plaint arc regarded as true, and the plainti lI is arrordcd the benefit of every fr1vorablc in!erencc (see .Leon \' A4art ine:. 84 N '{2d 83 . 87-88 11994]). /\llcgations consisting of bare legal conclusions as \.veil as f~tctual clain1s · ·flatly contradicted by docun1cntary evidence are not entitled to any such consideration (see e..~. l\/isari v ltlll1'?iohn. 85 .t\f)3d 987 . 989 I2nd [)ept 20111). Page 10of18 11 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 11] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 <.:-PlJ{ § 3211 (a) ( 1) docs n<)t explicitly define i."doctnncntary evidence.~~ 'fuzzy tcrn1 \ and \Vhat is docun1cntary statutory provision.. . .... docu1rlentary evidence'! is a (I~·onlanelttl evidence fi1r one purpose., rnight not be docun1entary· evidence f{n· another"' f)ot: 78~ l. 71 .l\[)3d 'judicial (~~ons. records~ dc~ds, c:ontracts~ '! La\vs of N.)t ... Hook 71S, C~PLI{ Practice ('1on11ncntaries~ 3211 :10'1 at 21-22). ·rypicalJy . that 1ncans as \VCll as d(>Cun1ents rctlccting out-of-cour1 transactions such as and any other 84-85 ). 1lcrc~ the v .!0/111 84 find [)ept 20 I Ol). ~"['l'Jo be considered "docun1entary~ t!vidcncc nlust be unar11biguous and of undisputed authcQticity'' (itl. at 86, citing Siegel, McKinncy"s As used in this papers~ d(lCtt111c1ltary the contents of \Vhich arc n1Qrtgagcs~ ~esscnli~11ly undeniable,~~'.' evidence presented consists of the cngagen1cnt (i<I at agrce111cnts~ the tcrrns of \vhich., defendants argue'! bar plainli IJs,~ cJain1s. II. Standard for a IVlotion to Dismiss- l~ailurc lo ()n a n1otion to disn1iss a plaintiff's clain1 JJUrsuanl to State a (]aini (_].>LJ~ § ~211 (a) (7) f()r fi.tilurc to state a cause of action~ the C<.Jurt is not cal led upon to detern1ine the truth of the allegations (see, 1 (. (1111/Ulign ji.>1·· .~1lexani..ler ·s~ Fisct1l J:'t/Ui(F v ,\~lctle, 86 N'i'2d 3.07~ 317 [1995]; 2l<J llrotultFl(V ( 1 017J, v lnc.. 46 N'{2d 506. 509 ff 979J). Rather, the court is required to "•afford tht! pleadings a liberaJ construcli(>ll, take the allegations of the complaint as true and provide plaintiff the bcneiit of every possible inference (citation 0111itted]. Whether a plaintiff can ulti1natcly establish its allegations is not l'art of the calculus in dctcr1nini11g a n1otion to (lollltnan, ~S'rtchs (~ disn1iss~~ (f~·/J(,' l v C"'o.. 5 NY3d 11. 19 (20051). rrhe court . s role is lin1ited to dctcn11ining \Nhcthcr the pleading. states a cause ()faction . not \.vhcthcr there is evidentiary support to establish a n1eritorious cause of action (see (i'uggenheilner v (ii!1zhurts.t 43 N'r'2.d 268~ 275 l l 977); .5okol 1' l;eluler, 74 1\l)3d I 180 1"2d Dept 20 I 0 J). I.II. Enforccubi.lity of LimitationsClause in Engagement .4.greements . fhe one-year statute of lin1i1ations clause in the cngagcrncnt agreen1ent is cnt(1rccable. ln Nc\v York . a rcas<)nablc contractual shortening or the period of lin1itations is statutorily authorized (see C,PIJ{ 20 I /?1ulin v l>ianzt:t. 202 1\D 2d 202 fl st L)ept 1994]~ 1~1· Liver11ot.1l. Inc. v ;4.l). T. (:.lo., I 67 AD2d 965~ 966 14th f)e·pt 1990]). and l)iunt1 .JeH'elers Such a provision is cntort:eablc absent a showing of ti"aud, duress or n1isrcprcscntation \Vith respect to the actual shortened lin1itation (see Kozen1ko v <3r{f/i1J1 ()ii (.~o., 256 /\IJ2d 119·9~ 1200 llst Dept 1998]).. i\ Page 11 of18 12 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 12] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 one-year li1nitation period has been held t.o be reasonable (see f'ox-Kn(l/JfJ. Inc. v f)nlJ 'rs Ar/111. Ins. C'o.~ 725 f-::· St.1J)P 706 . 7 I 0 [Sl)NY 1989], aJl.. d 893 F2d 14 [2d C~ir J'v1arctH11 could not provide independent audits because of ivt \\l\\7 1--Iolding. 8 N\l(,l.{I.{ *29. ·1 O(a)(S) provides that 1989]). \.\leiner~S ~·lu]nprotcssional equity interest in conduct in the practice of rn1hlic accountancy shall include . . . expressing an independent 01Jinion or kno,.vingly pern1itting his or her firn1 to· express an opinion on linancial stalen1cnts of an enterprise ... ., if th~ licensee or a partner or en1ployee in the firn1 is not independent \Vith respect to such enterprise."~. pcnncatcs·~ \Veiner \-vas not independent \Vith respect to rvtW\\I. rvf\V\\l argues that . 1.fraud the engagen1ent agrccrncnts because Weiner aJTirn1ativcly n1isrepresenled that upon his \Vilhdra\"lal fron1 the M\\1\\l hoard.. IVfarcun1 could serve as an independent auditor~ nol\vithstanding \~'cincr"s continued equity interest in f\:1\\'\V. (()pj) at l l). ·rhc r\:prcscntation \Vas an opinion \Vhich \-Vas erroneous. It \Vas not a staten1ent of 1~1ct and even if it \Vas .. there was no justi-11ahlc reliance since the representation \Vas reading veritiahlc. Further~ even accepting this allegation as true.. the contract clause shortening the statutory lin1itations period is enJ(ln.:eable because there arc no allegations that the contract provision itself \Vas procured by fraud (sec Henl}·' ( ·(1.\1Jer. Inc v l)ines .Assocs.. l,. J>., 53 l\1)3d 764, 765 f 3d f)ept 2008 f). Plaintiff~ clain1, nevertheless. that. the lack of independence 111akcs the cngagelncnt agrccn1ents i11cgal . contracts~ and tl1ereJ(>re uncnfilrccablc. Plaintiffs rely on lotht1r ·s., \Vhere the defendant \Vas hired to audit plaintin~s subtcnant''s _percentage of its sa1cs (Lothar\ <!!. (~: l'rl{f.ornit1, 1 books .. as the subtenant's rent included a Inc.. 158 fv1isc 2d at 46 I). '1.'hc au.reen1enl ..... bet \VCt:n those pa11ics provided f(Jr an audit fee and a contingent fee. ·rhe latter \Vas based on a percentage of n1oncy plainti tr recovered as a result of the audit. 'rhe defendant pcrfortned the audit. Plaintiff paid the defendant a portion of the tee~· and then sued f<Jr the return or the arnount paid,. ;.1rguing C{>.rrectly that contingent tee arrange1nents \Vith auditors art: in1pr<lper and a violation of 8 N'{("'H.I< 29. lt)(a)y f)elendanl countcrclairncd l<Jr the outsta11ding balance of the lee. ·rhc court noted . ~ltfhc courts of this state have consistently h~ld illegality, equity docs not require dclendant to return an1ottt1ts already to an illegal contract "should be 1cJt as they are''._ (.i<i. al 463~ that even in the event of paid~ and that the parties quoting 1)e,t;rete v Zi1111nern1c111, 67 1\1)2d 999, 1000 I2d Dept l 979J). ·rhc court also disn1issed the countcrclairn. because ,.;.[\v]herc an arrangen1cnt is illegal~ the la\v \Vill not extend its aid to either party or listen to their cornplaints against each other~ but \viii leave thcn1 \Vhcrc their ovvn acts have ]Jlaccd then'1 (itl}. 1 .. Page 12 of 18 13 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 13] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 Pht.1r11Jc.1ceulh:<1l /:~;ales (~·on.-.,·11/tin,g (."'orJl. (231 Fed Appx at 1 l 7J~ relied on by defendants, discusses the distinction Nc\V Jersey courts rnakt: between an iUegal contract and an illegal n1odc of pcrf()rn1a.ncc (r'V1cn10 at t 1). .ln that case, t.he plaintifl~scon1rncrcial bribery in the course of its perforrnanl.:e abrogated its entitlcincnt. to enf<>rcc tl1c (.:'.Ontract at issue (itl at 116 Iapplying Nc\·v Jersey lav/)). 'rhc court noted that "·tv~!lhcre a contract is tainted by illegality in its lern1s or in the n1ode of pcr-ft)rn1anl:e elected hy ont:: of the parties, Ne\V Jersey courts inquire into \-vhctber the illegality <:an be excised fi·on1 the contract and lhc rcr11~tindcr enlotced"" (i<:l at 116). 'fhe ··rhird ('ircuit alll}\Ved the 011posing pa11y~ flclavau . to pursue a breach of contract clain1 for a portion of the contract \vhich \Vas severable fro:n1 the tainted portion (id. at 117). f)clavau \Vas not pern1itted to recover through disgorgcn1ent of nl<)ncy it paid fi:>r the tainted poriion of the contracc. because f)clavau ·'"profited handsorncl y ii·om this arrangcn1enC' (h1. at 116 ). The ·rhird C ircuit also cited and distinguished Lotlu1r 's, concluding that the case involved 1 contractual an«1nge1ncnts that \Vere then1sclvcs illegal~ services that. contained an unla,vful co.nting.ent f.ee specifically., a contract for accounting clause~ l\c.cording to the Third C:ircuit, the case bcf{)re it concerned a hchosen .111odc of p~rt<.>rn1ancc rather than a tern1 of the contract i tscl f that is be~n illegal~ and there f\vas] no public policy reason to penalize [defendant] \\there there has no shovving that ldcfcndanl] \Vas in any way at ti1ult ftlr [plaintif:l--s] illegal conduct'' (it/. at 117.. n. 6). ·rhc cases <.:itcd by the parties do not su1)po11 a conclusion that the contract is illegal and therefore "·oid t1h ini1io -vvhere the illegalitv is a result c>f defendants' c:onduct.., not anv '-" ., .J ccn1 tract tcrrn. Nothing in the contract before fhis court is itself illegaL ~fhc cngagen1cnts are unla\vful because a principal in the accounting tirln (MarcLn11) O\vncd equity in MW\\/.., thereby co1npron1ising the a<.:counting firm"s independence in the conduct of audits of any f\1\\l\\l con1pany, not just the parent con1pany . The resulting conflict t1f interest was kno\Vtl (or readily kno\vable) to Jv1¥/\V at the t.in1e of contract. 1'he audit reports were received and used hy M\\l\\1 for a tin1c. i\lthough the co1nplain1 alleges that the audits \vcre i\-1.arcunf's C()nllict of' intercsf~ ((:·on1plaint ir 36~ [)oc. No. "~irrcdecn1ably tainted 18)~ the ~~blatant by errors;" found in the audits a.re alleged to have rcsuH~d fron1 ~~financial irnpr()priely \vithin MVv'\\f'\s organization"· that Page 13of18 14 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 14] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 iVlarcurn ti:1ilcd to report. to fVfWV\'"\s C~E<J (icl. . ~r 37). 1 "\\lhat is disputed here is the n1odc of performance, not the tenr•s of the contract. J\ccor<lingly '! the first cause of action~ f{)r a declaratory j11dgn1cnt that the e11gagen1e.nl .agrccn1ents arc ii legal and void is disn1issc.d. ·rhc engagen1ent agrccn1cnts all contain shortened .lin1itations periods of one year follo\ving dclivt:ry of each "·individual audit report. been fiJurtd to be reasonable and upheld at 69 5 and f'tu· P(1it (Jr(gi11ctls v Such shortened lirnitations pcr1\Jds have (se(~~ e.(~· L)ianc1 "/11)1' .)ec. ~)~rs. .lelVt!lers <~/· Lif:er1>ool. Inc.. 167 1\0 2d No1·theasl. Inc., 164 ,1\l). 2d 4 72 [ 1st [)ept 199? I [C'ontract containing shortened lirnitations period f(Jr all cJain1s . including those invol\!ing gross 'rhc shortened lin1itations clattse cannot be invalidated based on negligence., upheld I). allegations that fi·aud pern1eated the cngagen1ent agreen1ent. as there are no nicts alleged to support such a fi·aud cJain1. Moreover~ to invalidate a contractual Iin1itations period based on fraud . plaintiff n1ust allege the lin1ilations provision itself \vas procured by tl·aud (see Aic1xcess. Inc. r lucent 1'echs. Inc~, 433 F3d 133 7~ 1342 I 11th (~ir 2(l05 I Iapplying New York la\.v_I; and L)iana .le1·Felers <?/.l.ive11100/, Inc., 167 AD2d at 965). l.Jndcr the tcnns of the engagen1ent agreernents, the ""cngagcn1cnt ends on the delivery of (thcl audit. report'~ (f)oc. No. 75 . 76 and 77). The last audit opinion relating to f\,1\\l\\' \Vas delivered <)n 1\pril 15, 2014 (see J)oc. No. 84 ). 'fhc last audit opinion of rvfW\.\l Plt1n \Vas dclivt.::rcd on ()ctohcr 15, 2015. The tv1W\\/ su1nn1ons \Vith notice \Vas filed on June 28, 2016. ·rhc co1nplaint vvas (Jll1ended to include the audit of iv1\\/W t>lan on l)cccrnbcr 1\ccordingly . plaintif·f~s cJain1s are li1ne barred except as to the 2014 l\1.w~: 22~ 2016. f>Jan 1\udit. . as the co1nplaint regarding the 2014 i\.1V\1 \1\i Plan 1\udit relates back lo the date the original con1plaint 1 \Vas filed (see (~Pl.R 2031. f] and 1~··ul?,un1 l' 1'oivn r~.f'(.'ortlltnd Altu1or, 19 l\ D3d 444, 446 [2d [)cpt 2005] [holding that an1cnd1nent of co111plaint to a<ld related party as a plaintitr related back to the original filing 01· the con1pla.int since the substance of the addccl pn.rty"s clairn ·\vas virtually identical to that alleged in the original con1plaintJ). --------..·.·-····-·' 1\t:con.Jing to the verified l'.Otnplaint filed by f\11~1 W against its f(.>r111cr (~F(J in the Dcla\varc c·hanccrv c.:ourt ,., AJll'H.: (lroup l.Lt v Seth J<oscnstein., Rosenstein regularly provided i~:tlse and rnislcading financial inforrnation to ...,,...·.·.·.......· 1 aud has adn1irted to doing so" (fJoc. No. 94~ 11 ). ;.'"falsely reported the a1nount of 1noncy available on f\1 \V\V's credit lines"' (id~ ~I 12). ··cte.liberately hid~~ overdue payables (ht, , 13) ~n1d provided deliberately thlse financial statcn1cnts to l\1\VW~s lendcr(hl~ it 16). the ~·on1pany's (~E(). Page14of18 15 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 15] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 l\'.. l·:l·oltl I la r1n less (]11t1se lJcfense i\1arcun1 also argues that the claims arc barred under the hold harn1lcss t:-lausc in the .... engagen1cnt agrcc111e11ts bee-a.use tho clai1ns ':.arisclj in circun1star1ces vvhcre there has been a (~ornpany"s kno\vn n1isrcprcsentation by the f\t\\l\\' 1nay have su[fercd dan1agcs as f{,t111er ('F() {}f ~i n1anagen1ent". (Doc. N(>. 77 at p. 9). i\Jthl1ugh result of Jla\.\·cd attdits caused .by 1nisrcprescntations of a M\V'\\1 this case is distinguishable frotn Kitnher '! L./_;f>, No. 20559/04 . 2007 \VL 6711957 (Sup C.~t \\/cstchestct 1\1fK· (:~ty'.' /11c v Aiarcun1 & Klie~~nu1n~ Scpten1bcr 26, 2007) afrd 56 1\[)Jd 6 I 8 (2ti r>ept 2008). be<:ausc the Fi\(, here alleges separate hrea~hcs resulting fron1 Marcu111"s inability h) render independent audits~ ·rhc ... strict"'~ construction of inter-party indcn1nificaflon clauses required under /1001)er j4ssoc. v l1(i,\ (:ornJJuters. 1 !11c. (74 N'r"2d 487 [ l 989J). as applied to this case . renders the clause inap.plicable, and this dc'fense t:1ils. \!. l11 J>a1~i .....f'hc doctrine /JelicJo J)efensc t1f it1 1>ari llelicto denies judicial relief of rescission to parties to- illegal contracts. 1\ccr>rcling to the doctrine, orte vvho con1cs into equity to seek relief fi·on1 a contracl that he or she has executed n1us1 co1nc \Vith clean hands . lc>r equity \Viii aid neither party Lo an illegal contract by decreeing cancelJation if they are il1 fJt.1ri \Vhcre t.lelict<J~ but will leave thcn1 just it finds thcrn . to settle their disJJUtc 'vvithout the aid of the court"" (16 N. Y. Jur. 2d ('anccllation of Jnslrunlents rvtarcun1 argues that as *36). I{osenstcin~ f\:lW\\/'s for1ncr c·~F()_ caused the alleged accounting errors through financial fi·aud~ including. <.'"revenue n1isc.lassification~ \Vithholding of n1al<.:riaJ inf(Jrn1ation and patently obvious op~rating account deficiencies"~ ( l)oc. No. 18" ( 'on1ptainL ~i' 38 )" ~1\.V\\1 should be precluded frorn raising clain1s related to those errors (~1en10 at 15-16). l~vcn if rvtarc.un1~s assertions arc on rv1arcun1 "s lack C<JITcct~ lVIV\lW~s clain1s based or independence and inability lo pr<>Vidc the agreed-upon audits~ This defense t.his argun1cnt d()CS not address tails. \ll. f>rofcssional Ne~ligcnce//\Ccttunting Malpractice (C:taim 4) Marcun1 docs not object to the malpractice clain1, as fltr as it relates to f'v1arcun1 's lack of independence. l lo\.·vevcr~ the three-year statute of lin1itations generally applicahlc to 1nalpracticc clain1s ((~PI_l{ § 214) does not apply here, as the parties agreed to the one-year lin1itations period Page 15of18 16 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 16] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 stated in the cngagen1ent ugrccn1cnts. M\~/ l.J.,l related to the 2(Jl 4 VI I. ~1arcu1n be dis1nissed. 1\~cordingly., as discussed above~ only n1alprac.ticc clain1s Plan audit are tin1ely and suTvivcs. ()thcr\vise this clain1 ·is disn1issed. (~ontract anti '1~raud (C~laims 3, 5, and 6) argues that clain1s 3, 5 and 6 are duplicative of the n1alpracticc cfain1 and should ·rhe court agrees except the fifth c.ause of action aJleging failure to provide acc.ounting services pursuant lo the engagcn1cnt agree1nents survives.. lJo\vever~ the three-year statute of lin1itations appl icablc to cornbined profcssionaJ n1alpractice and breach of contract (see C.'.PLf< § 214 f 6 I) does not apply., as it is. superseded by a contractual one-year li1nitations pcriod. 1 l'hc on.ly portion of the clain1 \vhich is tin1ely is that related lo the 2014 1\lWW Pl.an ,\udit. 1 1\ccordingly, this clain1 is disinisscd ~rhe ~xccpt as to the 20141\1\\1 \\/ J>lan /\udit. good faith and tl1ir dealing clain1 (C.;lain1 6) is duplicative of the brea<.:.h of contract (lai111, as it is based on the san1c facts and SCL"ks the san1c relief. It is also burred bv tht.· .... contractual lin1itations period and 111ust be disrnissed. 'fhc fraudulent induc.cn1ent clain1 (C:'lain1 3) also t~1ils. i.•fn a fraudulent in<ltu..:e1nl:nt clai rn. th<.: alleged n·1isrt}Jrcscntatio11 should be one of then-present fact" \,vhich ,,. . ould be extraneous to the contract and involve a duty separate fron1 or in addition to that i1nposcd by the (;Ontract ... and not n1crcly a n1isreprescntcd intent to pcrfiJrn1'1" (llc11vthorne Jlentures . . 7 1\lJ3d 320~ 323-24 [I st J)cpt 2004] [citations on1itted]: see (}rOUJJ 1· Rf~E' t1lso ,/.A.f. Bit/rs. <~ .4ssoc.t Inc. v liruf11er.., 67 i\1)3d 738~ 741 l2d Dept 2007] [4'~[aj present intent to deceive n·1ust be alleged and a n1crc rnisrcpresentation of an intention to perforrn under the contract is insufficient to al legc fraud''l). l{cpresenlations of opinion.., even as lo n1attcrs of fact, are not representations and arc not actionable unless guaranteed (.\'ee Lanzi v /Jrooks" 54 1\f)2d l 057 l 19761, 778 [ 1977.1: Alun. 1\4elt1llic Bell Jl1f~. C.'0111. v /Jobbs, 2.53 N't' 313 f 1930 j). l:~flil 43 NY2d The alleged .._. representations. regarding ~vtarcun1 .. s ability to pro.vidc independent ac\;.ounting services~ vvcre '-----··· ·.······... In re J<.JI I\ lin1en c~ /' /·1..tnl.'L'..Y flalshand A rchitec·t.v (lt:ft:.·KH1.\·cy c~ ( ·o.. Inc.) 3 Nl'' Jd 538, 54 J (2004)~ cited by defendants is inapposite. l~hc:H case concerned an interpretation ofthc 3-year statute of li1nitations fixed by the L~gislaturc in non111cdical n1alpractice c.lainls \Vhcthcr the C()11ipJaint is cast in coniract or tort ((j'PLR 214 l 6 J). .S'ee also, A'. r. H.:orkers' C. '<Nnp. Bd l' SG Risk. Ll~C·. J 16 A.D 3d 1148~ 1150 (Jd fJcpt 2014) (san1c). 1\1ary /Jnoy,ene llav,vc/f f Jo.,p v ('annon LJesign, Inf·., J 27 1\L> 3d 1377. l 3 79 ( 3d [)cpt2015) is also ina11posite because there the Third [>cparttnent fi:nu1d that con1pliance \Vith the 2000 International Building (~ode standard allegedly breached by defendant: \Vas not a rcquiren1ent of the parties' contract and theretore the breach of contract ctain1 \Yas disrnissed. 'l·o tht.'- cxtt~nt Letuling Ins, (irp. C~o. \,. F'riednuin LLF\ 20 l6 N'Y" Mis\: 2389~ * l 5 (Sup (~l N"{ (~ty rv1~1rch IO, 2016) :> holds otherv~dse. thi~ cotH1 rcspc\;tf11lly declines to adopt .it. Page 16of18 17 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 17] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 not "-•extraneous to the c.ontract:-": \ 1 .i\ccordi11gly., this ciaiin l:dso shall be disri1issed. 111. Rcscissi<>n (Clairn 2) ~"I~cscission is an e-quitable ren1e.dy through \i\rhich one party seeks to disaffirn1 (l \Vritten instrun1enl and return to the st.at.us that e.xisled bef<Jte the transaction \Vas executed. ·.rhe cffecl of ·rescission is to declare a contract void .status quo~~- (60/\ ft{)l11 its .incc.ption and put or J:estorc the parties to the N. "{. Jur. 2d Fraud nnd [Jee.cit § 221 ). l{cscissio11 is not available vvhcn there is an adequate··rcrn-edy avai Iable al Ja\v (1~1/in,gton v /)oi~vll'l TI/. A1usic J>ubl. L"l(.'~ 85 . 1\f)Jd 438 . 439 I. I st J)ept 2011 j). \\lh1Je 111t>st of the n1alpractice c.lai111 is barred by the contraetuaJ li1nitatio11s perio·d., plaintiJ1s rnay not ci-rctn11vent this bar by invoking equ-it.y ((:olotlne~v <t. :5u,gar Exch.~ Inc . ., 4 i\l)2d 137 . 14f) [1st lJe1Jt l 957}'\ c~ll'-l sub (.'i?/lee (Intl !'10111. v 1\1elv l!"t>rk 1 (, ti,/Ji~{J (.io/oclne~v v lvfeiv ·York ;5utgcu· .z:·xci1., ·4 '·N Y2d 698 r1958] rloit \.VOUld appear th.al vvherc a legal and Cf}ltitable rcn1edy exists as to the san1e su-~jctt rnatter~. t.he latter is ttnd:er cor1trol of the san1c f(lrn1er. :"lJ~ 1\ccordingly, this clain1 ·is dis111isscd IX. lJnjust l•:nrichment((~~ol'ainr l.J bar as the as tht1e-barred or other'vVisc duplicative. 7) ";·lJnjust cnrichn1c11t is a quasi -C:Qntrac.t theO.f)' ·<lf recovery, and '-is an <>bligation in1posed by equity to -prevent injustice, in the absci1ce o.f an actual agreerncnt bet\veen the parties concerned' .. , ( (!eorgia Alt1lo·ne & (.~o. ~ /11,.·. N'(3d 51 l [20 .12] . . quoting 11)1' c·tol].J, v l' l?ietler, 86 1\l)Jd 4.06, 408 lst Dept 201 I J.. (.?fli.:l. 19 I_ A4or~VJltl Slttnle;-! l)ea1'1 lf'itter <~ (:to., 12 N'{3d 132~ 14? [2009]). ·in order to plead a <..:lain1 for unjust cnrichrnent, the JllaintiCf n1ust allege ;;"that the other party \Vas enriched~ at pla.intitl~s CXJ)Cnsc, and that 'it. is against equity and good conscience t<) per111it fthe. other party I to retain \Vhat is S<>ught tQ l>e recovered:''"' (Georgiti /\,ft1lone (.\:· (,'o., 86 .£\J)3d al 408~ quoti11g A.ft11uic1ri11 ·rrt.uli1'lf~· 1.,.tcl. v tfli/(fenslein, 16 N'Y"3d J73, 18'? [20 l 1)). l1crc plaintiffs n1ay cnfi.)rce the contract and seek dan1ages for rnalpracticc f()r ll1e tin1cf y portion of that l:lain1. further, although plaintifls' breach of contract clain1s are largely tin1e barred., the fi-ic·t that plaintiffs had viahle breach of contract clain1s is an additional reason ft)r disn1issal oJ" this clair11 (see 1Vorr;s., 801 F 2d al . 1287). ..fhere is no .. ~"absence of an actual aurccn1cnt het\vccn the ._,. . . parties"" to pern1it this clain1. i\ccording.ly, this clair:n is aJso d.is1n.issed For the reasons discussed above~ it is hcrcbv . ...' Page 17 of '18 18 of 19 [*FILED: NEW YORK COUNTY CLERK 08/10/2018 04:29 PM 18] INDEX NO. 653412/2016 NYSCEF DOC. NO. 109 RECEIVED NYSCEF: 08/10/2018 ()l{l)l!:ltED that the rnotion to disn1iss (M.otion Sequence Ntunber 004) of defendants Marcurn l.LJ>~ Jeffrey \Veiner & l{ichard C~ooke denied~ and it is S[.~(~(JND {rescission)~ TIIlR1) is granted in part and other\visc il.1rtl1cr ()Jl.llERED that the r·'lllS·r (declaratory jud·gn1ent).. (fraudulent inducen1cnt)~ s1x·r1 .I (breach of the cov.enant of gt)od SEVl·:N·r1 f (ur~just cnrichn1ent) causes of action are lJlSJ\,flSSl~[>; f~1ith and fair dealing) and and it is further Ol{llEREll that the 1notion lo disn1iss is DE.NJ 1:-J) insofi.1r as it seeks disn1issal of the F<JlJl{.l'J I (professional negligence) and FIF'J'I I (breach of contract)'\ causes of action . except that these clain1s are. f)IS1\1ISSFD as tin1c-harred as far as thcv relate 111alters other than the 7014 .... M Vv \V Plan 1\udit: and it is further 1 . . . <.>Rll~t~•:I.> ·that defendants .ans\vcr the f'.'irst Alncn<led (,on1pJaint \Vi thin t\vent)'' (20) days of the date of service of this [)cuision and ()rder together \Vith notice of entry; and 11 1s 1·urther Ol{DEl~l(I) that counsel for the respective parties shall aJlpcar for a prelin1inary confcrt:ncc on ·ruesday. Scpten1ber 18, 2018 at 9:30 A!\tl in Part 49~ (~ourlroon1 252., 60 Centre Street.. Ne\v York~ Ne\v '{ork. 'I 'his l:onstitutcs tl1e decision and order of this court ., ., r·,·-~ :· ·:· ..'" ·.·· ...· "'. F:·N .: 1~ _; E ti, ~/.'""~··--,.~ ~ P-"'/ /.' ' . ! . . , ._, . . ··-·-··... , · ·.···"".!'.·.· .. ..... A'' !·.: "·- _ _.___,.f.___. ''> !(,.~· ·t_,..-~·---··{._·.-.·-:--·[.-;_::!~~::.'.~:~<3<.:000:::·:.w,;,o:~·····//•····· .·. · f). Page 18ofl8 19 of 19 t>f·~rrER _#.·.·,·.·.'.'.·...•... SH•:-1{.W()Of) J . S.C~~-

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