Opinion
150315/2019
03-04-2021
Michael KNOPF and Norma Knopf, Plaintiffs, v. Frank ESPOSITO, Dorsey & Whitney, LLP, Nathaniel Akerman, Edward Feldman, Michael Sanford, and SP Voyager Fund, LLC, Defendants.
BerryLaw PLLC, New York, NY (Eric W. Berry of counsel), for plaintiffs. Dorsey & Whitney LLP and Nathaniel H. Akerman, New York, NY (Nathaniel H. Akerman and Anthony P. Badaracco of counsel), for non-parties Dorsey & Whitney, LLP, and Nathaniel H. Akerman, Esq. Feldman & Associates, PLLC, New York, NY (Edward S. Feldman of counsel), for defendant Edward S. Feldman, Esq. Esposito, PLLC, New York, NY (Frank Esposito of counsel), for defendant Frank Esposito, Esq.
BerryLaw PLLC, New York, NY (Eric W. Berry of counsel), for plaintiffs.
Dorsey & Whitney LLP and Nathaniel H. Akerman, New York, NY (Nathaniel H. Akerman and Anthony P. Badaracco of counsel), for non-parties Dorsey & Whitney, LLP, and Nathaniel H. Akerman, Esq.
Feldman & Associates, PLLC, New York, NY (Edward S. Feldman of counsel), for defendant Edward S. Feldman, Esq.
Esposito, PLLC, New York, NY (Frank Esposito of counsel), for defendant Frank Esposito, Esq.
Gerald Lebovits, J.
This action arises from the long litigation between Norma and Michael I. Knopf (plaintiffs here) and Michael H. Sanford over loans the Knopfs made to Sanford in 2006 and that Sanford failed to repay.
It concerns what the Knopfs contend to be Sanford's egregious, and successful, efforts to evade an October 2015 order of the Appellate Division, First Judicial Department. That order would have required Sanford to escrow proceeds from a sale of a penthouse apartment owned by one of his companies (nonparty Pursuit Holdings, LLC) to preserve funds to help satisfy a potential multi-million-dollar damages award against Sanford and Pursuit in the Knopfs’ favor. The motions now before the court do not involve claims against Sanford. Instead, the Knopfs have sued Sanford's then-attorneys—or, according to the Knopfs, Sanford's co-conspirators —asserting that these defendants helped Sanford evade the First Department's escrow order and dissipate the proceeds from the sale of his penthouse (approximately $3 million).
In particular, the Knopfs have sued defendants Nathaniel (Nick) H. Akerman, Esq. (and Dorsey & Whitney LLP, the law firm of which Akerman is a partner), Edward S. Feldman, Esq., and Frank M. Esposito, Esq., each of whom represented Sanford at the time. The Knopfs allege that these defendants, along with Esposito's wife, Melissa Ringel, Esq., participated in a conspiracy to violate Judiciary Law § 487 (barring false and deceitful statements by attorneys in litigation) by deceiving the Knopfs so that Sanford could sell his penthouse without putting the proceeds into escrow.
In October 2015, now-retired First Department Justice John W. Sweeny, Jr., entered an interim order in appellate litigation between the Knopfs and Sanford that permitted Sanford to sell his penthouse—if the proceeds were placed into escrow. In December 2015, a First Department motions panel denied Sanford's request to vacate that interim escrow order. The Knopfs allege that Sanford then went to extraordinary lengths to ensure that he could evade the order and not put the sale proceeds into escrow.
Melissa Ringel was, at the time, a special master at the First Department. She had served as a court attorney there for many years. The Knopfs allege that in January 2016 Sanford, Esposito, and Ringel agreed that Ringel would provide Akerman and Feldman with the dubious opinion that the October 2015 escrow order had already been dissolved by another First Department order (deciding a different motion on a different appeal)—and that Ringel agreed to do so in exchange for a $55,000 bribe to be paid to Esposito out of the penthouse sale proceeds, in the guise of a legal fee paid to him for transactional legal work.
The Knopfs further allege that Akerman and Feldman placed an ex parte telephone call to Ringel on her phoneline at the First Department, where she duly provided them with the bought-and-paid-for opinion about the October 2015 escrow order; and that Sanford then used this opinion to persuade his buyer to close on the sale of the penthouse—all without the Knopfs knowing anything about it.
According to the Knopfs, Sanford then dissipated the proceeds of the sale such that the Knopfs have ultimately been able to recover only $1 million or so of the penthouse's $3 million purchase price. What is more, the Knopfs allege that when they brought legal action in federal court against Akerman, Feldman, and Esposito to recover those sale proceeds, Akerman and Feldman lied in sworn statements about the circumstances under which the call with Ringel occurred—and used those lies to persuade the federal district court incorrectly to dismiss their action and sanction them and their counsel to the tune of almost $200,000.
These are extraordinary accusations. If true, it would mean that the attorney-defendants in this case, working with others, successfully perverted the administration of justice in the Appellate Division and the federal district court by engaging in multiple acts of corruption and deceit.
These accusations are made still more extraordinary by the fact that the First Department itself held in June 2016 that the October 2015 escrow order was no longer in place at the time of the penthouse sale in February 2016. But this court notes that in July 2017, the Presiding Justice of the First Department asked the Inspector General of the New York State Office of Court Administration to investigate the Knopfs’ allegations; and that following a meticulous investigation, the Inspector General's Office issued a March 16, 2018, report that confirmed many of the Knopfs’ allegations. The Inspector General's report found that the conversation between Ringel and Sanford's attorneys was ex parte and improper. The report concluded that Ringel's "involvement in this matter is extremely troubling and at the very least created an appearance of impropriety and reflects poorly on the impartiality of the court." (OCA Report, NYSCEF No. 51, at 20.)
After receiving the OCA Report, the federal district court substantially reduced the sanctions against the Knopfs and their counsel. According to the district court, the report's contents made the Knopfs’ allegations of conspiracy plausible and raised many questions about Esposito and Ringel's conduct. And the U.S. Court of Appeals for the Second Circuit later reversed the district court's holding that the Knopfs’ federal claims against Akerman, Feldman, and Esposito failed to state a cause of action (and vacated the remainder of the sanctions against the Knopfs and their counsel).
This court is obliged to take very seriously the allegations of the Knopfs’ complaint in this action, and the evidence the Knopfs have submitted in opposition to the current motions to dismiss. This court acknowledges that doing so puts itself in the awkward and uncomfortable position of scrutinizing decision-making not only of the very appellate court that sits in review of this court's orders, but also of a federal trial court in a neighboring courthouse. But this court's obligation to give full and fair consideration to the Knopfs’ grave allegations—and to the responsive contentions of defendants’ motions to dismiss the Knopfs’ claims at the pleading stage—demands no less.
Upon affording the parties’ arguments on these motions the careful consideration they deserve, this court concludes that the Knopfs have established for pleading purposes that they have Judiciary Law § 487 causes of action against Akerman and Dorsey, Feldman, and Esposito for these defendants’ actions in arranging and holding the January 2016 ex parte call with Ringel; and that the Knopfs have § 487 causes of action against Akerman, Dorsey, and Feldman for their false statements in the related federal-court litigation. The Knopfs have also raised against defendants several other claims that do not state a cause of action and which are therefore dismissed. The Knopfs’ Judiciary Law § 487 claims, which arise from defendants’ allegedly successful conspiracy to corrupt a First Department special master and the First Department itself and thereby help Sanford violate a First Department order and shield millions from his creditors, may proceed.
In addition to the allegations of the complaint and documents submitted in opposition to the motions to dismiss, this section draws from this court's decision in Knopf v Sanford (65 Misc 3d 463 [Sup Ct, NY County 2019] ). It is also based in part on court records and filings both from Sanford and from other related litigation (in this court and in federal court), of which this court takes judicial notice. (See RGH Liquidating Trust v Deloitte & Touche LLP , 71 AD3d 198, 207-208 [1st Dept 2009], revd on other grounds 17 NY3d 397 [2011].)
A. The Knopf-Sanford Litigation Between 2009 and December 2015
In 2006, the Knopfs made two multi-million-dollar loans to Pursuit to purchase several apartments in New York County, one of which is a penthouse condominium unit (or PHC). The Knopfs made these loans in exchange for Pursuit's commitment to execute mortgage liens on the property in the Knopfs’ favor. Pursuit failed to repay the loans or to execute the mortgage liens.
The Knopfs sued Pursuit and Sanford for breach of contract in Supreme Court, New York County. (See Knopf v Sanford , Sup Ct, NY County, Index No. 113227/2009.) In connection with the action, the Knopfs filed notices of pendency against the PHC and the other apartments, restricting Pursuit's ability to sell the apartments. In October 2013, the First Department extended the notices until September 17, 2015. (See Knopf v Sanford , 110 AD3d 502, 502 [1st Dept 2013].) In December 2014, the Appellate Division, First Department, granted summary judgment in the Knopfs’ favor on their breach-of-contract claim. The First Department left it to Supreme Court to determine the Knopfs’ damages. (See Knopf v Sanford , 123 AD3d 521, 521 [1st Dept 2014].)
Sanford had found a buyer for the PHC, Michael Phillips, in December 2013. ( Sanford , 65 Misc 3d at 473.) In December 2014, Sanford, to be able to sell the PHC to Phillips, asked then-New York County Supreme Court Justice Milton A. Tingling, Jr., to cancel the Knopfs’ notices of pendency. Justice Tingling did so on December 24, 2014. (See Knopf v Sanford , 130 AD3d 407, 407 [1st Dept 2015].) The Knopfs appealed Justice Tingling's order to the First Department (Appeal No. 1). The Knopfs wanted to keep the notices in place to impair Sanford's ability to sell the properties to third parties. The First Department affirmed Justice Tingling's order on July 2, 2015, on the ground that the Knopfs had failed to show that money damages would be an inadequate remedy. The Court denied, however, Sanford's request for costs involved in obtaining the cancellation, finding that Sanford had not shown that the Knopfs acted in bad faith in placing the notices. (See id. at 407.)
Over the course of 2015, the Knopfs made numerous (and overlapping) attempts to block the sale of the PHC to Phillips. After the First Department affirmed the cancellation of the notices of pendency on July 2, 2015, the Knopfs moved in Supreme Court for a prejudgment attachment against the PHC under CPLR article 62. On July 23, 2015, now-retired Justice Richard Braun, to whom the case had been reassigned from Justice Tingling, denied that motion. (See Knopf v Sanford , 137 AD3d 662, 662 [1st Dept 2016].) The Knopfs immediately noticed to the First Department an appeal of Justice Braun's decision denying prejudgment attachment (Appeal #2).
Justice Braun later recused himself, and the Sanford action was randomly reassigned to this court.
In connection with Appeal #2 taken from Justice Braun's decision, the Knopfs filed a motion in the First Department in July 2015 for two alternative forms of relief: a prejudgment attachment (essentially the same request they had made before Justice Braun) or, alternatively, a preliminary injunction preventing Sanford from selling the PHC. (See Index No. 113227/2009, First Dept Mot. No. 3660, or M-3660.) By separate motion (M-3726), the Knopfs also moved in the First Department to reargue the Court's July 2 decision in Appeal #1, which had affirmed Justice Tingling's cancellation of the initial notices of pendency. (See Index No. 113227/2009, M-3726.)
On October 6, 2015, the First Department decided the motion for reargument, M-3726. The Court granted reargument and substituted a new decision. (See Knopf v Sanford , 132 AD3d 416, 417 [1st Dept 2015] ; see also Knopf v Sanford , 2015 NY Slip Op 86551[U] [1st Dept 2015].) The only change from the decision of July 2 to that of October 6, though, was that the October 6 decision now remanded to Supreme Court to determine whether to award Sanford costs under CPLR 6514 (c), rather than denying costs outright. (See Sanford , 132 AD3d at 418.)
The Court explained that although Sanford had still not shown that the Knopfs acted in bad faith, First Department precedent permits costs to be awarded under CPLR 6514 (c) upon the cancellation of notices of pendency even absent bad faith. (See Sanford , 132 AD3d at 418.)
Thus, as of October 7, 2015, the only pending Knopf -related matter before the First Department was Appeal #2—the Knopfs’ appeal of Justice Braun's decision and the motion filed in connection with that appeal seeking attachment or a preliminary injunction (M-3660).
On October 22, 2015, though, the Knopfs filed another motion in the First Department (M-5459). This new motion sought to reargue the Court's October 6 reargument order on Appeal #1, which had again affirmed Justice Tingling's cancellation of the notices and remanded on costs. (See Index No. 113227/2009, M-5459; id. at NYSCEF No. 427, Ex. I, at 1-2, 9-21 [reproducing motion papers].) This motion seeking reargument-of-reargument on Appeal #1 also requested that the Knopfs’ appeal of Justice Braun's decision (Appeal #2) be recalendared from the Court's March 2016 Term to its December 2015 Term. (See Index No. 113227/2009, NYSCEF No. 427, Ex. I, at 2, 21-22.)
The same day this new motion was filed (October 22), the Knopfs also applied for interim relief in the First Department. This interim application sought two forms of relief: one related to Appeal #1—the Knopfs’ appeal from Justice Tingling's order cancelling the notices of pendency; and the other to Appeal #2—the Knopfs’ appeal from Justice Braun's order denying the prejudgment attachment.
With respect to the branch of the Knopfs’ October 22 motion seeking reargument-of-reargument on Appeal #1, the Knopfs sought an interim order staying any sale of the PHC. (See Index No. 113227/2009, NYSCEF No. 428 at 2-3 & n 1; id. at Ex. 1 [application for interim relief].) With respect to the branch of the Knopfs’ October 22 motion seeking to expedite oral argument on Appeal #2 from the denial of attachment on the PHC, the Knopfs sought an interim order moving up oral argument on the appeal from the Court's March 2016 Term to its December 2015 Term. (See OCA Report Attachment A [application for interim relief].)
In other words, upon filing the October 22 interim application, the Knopfs were asking the First Department, in two different motions filed in connection with two different appeals, to grant the same form of relief (blocking a sale of the PHC) and to expedite one of those two appeals.
The October 22 interim application was decided by First Department Justice John W. Sweeny, Jr. His order (the October 2015 order, or October 2015 escrow order) granted partial relief on each branch of the application. As to the request to halt any sale of the PHC pending a decision on the motion for reargument-of-reargument of the Court's decision on Appeal #1 from Justice Tingling's order cancelling the notices of pendency, Justice Sweeny declined to block the sale altogether. Instead, he required that any sale "proceeds to be placed in escrow pending further court order." (OCA Report, Attachment A.) As to the request to expedite oral argument on Appeal #2 from Justice Braun's order denying attachment, Justice Sweeny directed that this "appeal [be] recalendared to January 2016 Term" (rather than to the December 2015 Term as the Knopfs had requested).
On November 12, 2015, the First Department denied the Knopfs’ July 2015 motion (M-3660), which had sought an attachment or preliminary injunction in connection with Appeal #2 (taken from Justice Braun's denial of an attachment on the PHC). This order (the November 2015 order) did not mention the Knopfs’ reargument-of-reargument motion on Appeal #1 (M-5459) or Justice Sweeny's October 2015 interim escrow order entered on that motion.
Later in November 2015, Sanford and Pursuit filed their papers opposing the reargument-of-reargument motion. They also cross-moved to vacate Justice Sweeny's October 2015 escrow order. The cross-motion papers did not claim that the escrow order entered by Justice Sweeny on M-5459 and relating to Appeal #1 had been vacated or dissolved by the First Department's November 2015 order denying the preliminary injunction sought by M-3660 and relating to Appeal #2. Rather, Sanford and Pursuit argued only that because the Court had denied an injunction preventing the sale of the property in Appeal #2, the interim restraint related to Appeal #1 that imposed an escrow requirement on sale of the property should now be vacated on the merits. (See Mem. of Law in Support of Mot. to Vacate, reproduced in Index No. 113227/2009, NYSCEF No. 428, Ex. 3, at 9, 31.)
On December 29, 2015, the First Department denied the Knopfs’ October 22 reargument-of-reargument motion (M-5459), on which Justice Sweeny had entered the interim order imposing an escrow requirement. In the December 29 motion decision, though, the First Department went on to deny expressly Sanford and Pursuit's cross-motion to vacate Justice Sweeny's October 2015 escrow order. (See Knopf v Sanford , 2015 NY Slip Op 94969[U] [1st Dept 2015], reproduced at OCA Report Attachment C.)
B. The January 12, 2016, Ex Parte Telephone Call from Sanford's Attorneys to a First Department Special Master
Two weeks after the Court denied Sanford's cross-motion to vacate the escrow order—while the Knopfs and Sanford were litigating the amount of the Knopfs’ damages before a judicial hearing officer—Sanford retained a new attorney (Frank M. Esposito, Esq.). Esposito is a transactional lawyer, not a litigator. But Esposito's wife (Melissa Ringel, Esq.) was then a First Department special master in charge of the First Department's Pre-argument Conference Program, which mediates cases on appeal. (OCA Report at 6.) Ringel had been employed in various roles at the First Department for about 15 years (OCA Report at 14), including serving as the Principal Appellate Law Clerk for three years to then-Justice James M. McGuire (Ringel Deposition, NYSCEF No. 278, at Tr. 21-22).
Ringel no longer works at the First Department. The circumstances of her departure from the Court do not appear in the record.
Sanford had previously held several discussions with Esposito about hiring him as one of his attorneys. In the first week of January 2016, Sanford told Esposito that the First Department had issued orders that got his case badly wrong. Sanford provided Esposito copies of the November and December 2015 orders, which Esposito in turn showed to Ringel to get her opinion as a First Department court attorney. (See NYSCEF No. 14 at ¶¶ 77-78; NYSCEF No. 278 at Tr. 26-28, 30-31.)
On January 8, 2016, Sanford sent a copy of the December 2015 order to Akerman. Sanford asked Akerman and Feldman to call the First Department to obtain clarification from Ringel about whether the escrow requirement imposed by the October 2015 order remained in effect. They agreed. (See NYSCEF No. 14 at ¶ 81.) Sanford gave Akerman Ringel's direct telephone number at the First Department. (Id. at ¶ 86.)
On January 11, 2016, Sanford hired Esposito as general counsel to M.H. Sanford & Co. for a six-month period. Esposito agreed, "considering [their] mutual friendships," to "charge a project based, non-refundable fee of $55,000 for the six-month term of [the] agreement." (OCA Report, Attachment D, at 1.) Esposito agreed to let Sanford wait to pay him this fee until Sanford had more "liquidity." (See NYSCEF No. 14 at ¶ 82.) That same day, Sanford directed Akerman to move forward with the call to Ringel at the First Department. (Id. at ¶ 86.)
Also on January 11, Ringel called Evan Glassman, Esq., a litigation partner at Steptoe & Johnson LLP, to inquire whether Glassman would be interested in working with Esposito on a pending matter. (See NYSCEF No. 14 at ¶ 84.) Glassman told Ringel that he did not have time to discuss her inquiry because he was extremely busy on another matter. (See NYSCEF No. 279 at Tr. 29, 31.)
On the morning of January 12, Akerman (with Feldman patched in) called Ringel on her direct line at the First Department—without counsel for the Knopfs on the line. Akerman and Feldman began by identifying themselves as Sanford's attorneys. (See Akerman Deposition, NYSCEF No. 277, at Tr. 34; NYSCEF No. 278 at Tr. 41.) They asked Ringel whether she was familiar with the orders about which they were calling; and she told them she was. (See NYSCEF No. 278 at 44-45.) They then asked her to explain the relationship among the First Department's October, November, and December 2015 orders. Ringel told them that the November 2015 order (denying the motion for a preliminary injunction relating to Appeal #2) had by operation of law dissolved the October 2015 order (entered on the motion for reargument on Appeal #1); and that the December 2015 order had therefore denied Sanford's cross-motion to vacate the October 2015 order because the cross-motion was moot. (See Feldman Deposition, NYSCEF No. 274, at Tr. 59-60, 63-64; NYSCEF No. 277 at Tr. 27-29.) Feldman apparently then asked Ringel to confirm that no restraints remained on the PHC that would prevent its sale; and she said that all restraints had been removed. (See NYSCEF No. 274 at Tr. 33-34; NYSCEF No. 277 at Tr. 57.) At that point the call ended, having lasted just under four minutes. (See OCA Report at 8.)
Akerman in fact called Ringel's direct line twice that morning. (See NYSCEF No. 14 at ¶ 87.) The first call lasted only eight seconds, which Ringel has represented was the length of her voicemail greeting. (See OCA Report at 19.) Akerman also called Ringel's direct line that afternoon; that call lasted 24 seconds. (See id. at 8.)
Following the call, Akerman and Feldman each prepared memorandums on January 12 about the substance of the call. The post-call memorandums reflected that Ringel told them that the October 2015 order had been vacated and that the PHC was no longer subject to any restraints on its sale. (See NYSCEF No. 14 at ¶ 90; see also OCA Report Attachment F [Feldman memo]; NYSCEF No. 52 at 10 [Akerman memo].) Akerman and Sanford exchanged several emails that afternoon to fine-tune the language (and appearance) of Akerman's post-call memorandum, which Akerman was providing to Pursuit. (See NYSCEF No. 14 at ¶ 91; see also NYSCEF No. 52 at 8-9, 11-16.) Feldman's memorandum was forwarded to Phillips's title insurer. (See NYSCEF No. 14 at ¶ 90.)
On January 14, Ringel again called Glassman to follow up on whether he would be interested in representing Sanford and Pursuit; but he declined. Later that day, Ringel, at Esposito's request, emailed McGuire, her former supervisor at the First Department, to see whether he would like to represent Sanford and Pursuit—something she had never done before. (See NYSCEF No. 14 at ¶ 93; NYSCEF No. 51 at 18; NYSCEF No. 278 at Tr. 69.) On January 16, Sanford made an initial payment of $5,000 to Esposito's law firm. ( Sanford , 65 Misc 3d at 483.)
On February 1, 2016, the PHC sale closed at a purchase price of $3 million. (See id. at ¶ 95.) None of the sale proceeds were placed into escrow. That same day, Feldman's law firm wrote a $50,000 check out of the sale proceeds to Esposito's law firm. The check was then deposited into a firm bank account (NYSCEF No. 14 at ¶¶ 96-97; see also Sanford , 65 Misc 3d at 489-490 ). It cleared on February 3. Also on February 3, Esposito transferred the $50,000 from his firm's account to a personal account—and then paid a $48,607.76 American Express bill out of that personal account. (See NYSCEF No. 14 at ¶ 97.)
On February 4, three days after the sale closed, Sanford paid out of the sale proceeds a $500,000 retainer to Dechert, McGuire's then-law firm. (See Knopf v Esposito , 2017 WL 6210851, at *4 ; [SD NY, Dec. 7, 2017, No. 17-CV-5833] [Cote, J.].)
On February 8, one week after the sale closed, the late Hon. Ira Gammerman, then a judicial hearing officer, issued a report finding that the Knopfs were entitled to $10,937,850 in damages against Sanford. Pursuit was jointly liable for $8,336,488 of that sum. (See NYSCEF No. 51 at 5 n 12.)
C. The Knopfs’ Efforts to Seek Redress in the First Department for the PHC Sale Having Closed Without an Escrow
On February 24, 2016, the Knopfs learned that Sanford had completed the sale of the PHC without depositing any money into escrow. (See NYSCEF No. 14 at ¶ 101.) The Knopfs immediately moved in the First Department for relief that included contempt sanctions against Sanford for allegedly violating the Court's October 2015 escrow order. (See id. ; see also Sanford , 65 Misc 3d at 491.) On February 25, the Knopfs applied for interim relief requiring Sanford, Pursuit, Dechert, and any party to whom they had transferred PHC sale proceeds to put the proceeds into escrow immediately. Now-retired First Department Justice Karla Moskowitz granted the Knopfs’ application. She entered an interim order requiring, by close of business on February 29, 2016, that all remaining proceeds from the PHC sale "be placed in escrow as had been directed by Justice Sweeny in 10/22/15 order, vacatur of which was denied by this Court's 12/29/15 order." (OCA Report at 5 n 13 [quoting order].)
Justice Moskowitz was on the First Department motions panel that issued the Court's November 2015 order—the same order Ringel described to Akerman and Feldman as having dissolved Justice Sweeny's October 2015 escrow order. (See OCA Report Attachment B.)
Justice Moskowitz's February 25, 2016, escrow order led in total to approximately $430,000 being put into escrow. (See NYSCEF No. 100, at 2.) That sum was less than 15 percent of the total PHC sale proceeds of $3 million. The Knopfs have since recovered approximately $600,000 more of the $3 million. (See NYSCEF No. 89 at 1-2.)
Sanford filed an affidavit in support of his opposition to the Knopfs’ motion. The affidavit stated that he had "solicited and received legal advice that the proceeds of the PHC sale did not need to be escrowed"—i.e. , the Akerman and Feldman post-call memorandums—and relied on that advice in selling the PHC without putting the proceeds into escrow. (See NYSCEF No. 14 at ¶ 105; see also Sanford , 65 Misc 3d at 497.)
McGuire also submitted an affirmation in opposition to the Knopfs’ motion. The affirmation similarly asserted, in essence, that Sanford should not be held in contempt because he had reasonably relied on Akerman and Feldman's description of what they had been told by Ringel—whom McGuire described only as an "attorney employed by this Court." ( Sanford , 65 Misc 3d at 497-498.) McGuire also argued that Ringel was correct in advising Akerman and Feldman that the November 2015 order implicitly dissolved the October 2015 order. His papers cited, among other things, the First Department's decision in People v Asiatic Petroleum (45 AD2d 835 [1st Dept 1974] ) for support on the relationship between interim and final motion orders. (See Sanford , 65 Misc 3d at 502 & n 51.)
On June 16, 2016, the First Department issued an order that among other things denied the Knopfs’ motion for contempt. (See OCA Report Attachment G.) The order did not give a reason for its denial. Shortly thereafter, though, the First Department substituted a revised order (Revised June 2016 order) to explain its reasoning. (See OCA Report at 6; NYSCEF No. 14 at ¶ 115.) This revised order held, citing only People v Asiatic Petroleum , that "[t]he motion for contempt is denied because the [October 2015] TRO [temporary restraining order] was vacated once plaintiffs’ prior motion for a preliminary injunction was denied." (OCA Report, Attachment H.)
In 2017, the Knopfs moved to reargue the Revised June 2016 order, requesting that the First Department remove its explanation that the "motion for contempt is denied because the TRO was vacated once plaintiffs’ prior motion for a preliminary injunction was denied." ( Sanford , 65 Misc 3d at 521 [quoting Revised June 2016 order].) The Knopfs premised this request for reargument on the (incorrect) understanding that the First Department panel that issued the Revised June 2016 order had read and considered the Akerman and Feldman post-call memorandums. (See id. at 520.) In November 2017 the First Department issued an order denying without comment the Knopfs’ motion for reargument. (See Knopf v Sanford , 2017 NY Slip Op 91168[U] [1st Dept Nov. 2, 2017].)
Although the Court had initially requested Sanford to provide copies of those memorandums, the Court ultimately decided against taking the memorandums into account and returned them to Sanford unread. (See NYSCEF No. 51 at 7.)
D. The Knopfs’ Federal Actions Against Potential Recipients of The PHC Sale Proceeds
In 2016, the Knopfs brought an action against Phillips in the U.S. District Court for the Southern District of New York, alleging that the sale of the PHC was a fraudulent conveyance from Pursuit to Phillips. The action was assigned to Southern District Judge Denise L. Cote. (See Knopf v Phillips , Dkt. No. 16-civ-6601 [SD NY 2016].) In June 2017, during discovery in the Phillips action, Feldman inadvertently produced the memorandum he had prepared about the January 2016 call with Ringel—thereby informing the Knopfs for the first time of Ringel's identity. (See NYSCEF No. 14 at ¶ 120.) Thereafter, the Knopfs also deposed Sanford, Akerman, Feldman, Esposito, Ringel, and McGuire in Phillips . (See id. )
At the beginning of August 2017, drawing on discovery obtained in Phillips , the Knopfs brought a new federal action against Sanford, Akerman and Dorsey, Feldman, and Esposito. This new action alleged that the January 2016 call among Akerman, Feldman, and Ringel was the result of a conspiracy among the defendants to ensure that the sale of the PHC would go forward without the proceeds being placed into escrow—and therefore that the call abridged the Knopfs’ property rights in the PHC without due process of law, in violation of the Fourteenth Amendment and 42 USC § 1983. This action was also assigned to Judge Cote. (See Knopf v Esposito , Dkt. No. 17-cv-5833 [SD NY 2017].)
The Knopfs also asserted pendent state-law claims against defendants under Judiciary Law § 487.
Also in July 2017, after finding out that the conversation among Ringel, Akerman, and Feldman was the subject of litigation in federal court, the Presiding Justice of the First Department referred the Knopfs’ allegations regarding this conversation to the OCA Office of the Inspector General. (See OCA Report at 1, 8.)
In November 2017, counsel for the Knopfs also filed a formal written complaint with the OCA Inspector General about the January 2016 call, based on the discovery the Knopfs had obtained in Phillips . (See NYSCEF No. 14 at ¶ 123.)
Defendants in the Esposito action moved to dismiss the action for failure to state a claim. Both Akerman/Dorsey and Feldman's motion papers repeatedly—and falsely—claimed with respect to the January 2016 telephone call that Akerman had called only a general number for the First Department Clerk's Office and then happened to be transferred to Ringel. (See NYSCEF No. 14 at ¶¶ 131-133, 135-138.) Akerman/Dorsey and Feldman also suggested that they had not known Ringel's identity beforehand. (See id. at ¶¶ 133, 137,138.)
In early December 2017, the district court granted the motion to dismiss. (See Knopf v Esposito , 2017 WL 6210851 [SD NY Dec. 7, 2017].) The court held on two grounds that the Knopfs had failed to state a plausible § 1983 conspiracy claim. First , the court concluded, based on the First Department's Revised June 2016 order, that any injury to the Knopfs stemmed from the November 2015 order having dissolved the escrow requirement for the PHC sale, rather than from the January 2016 call. Second , the court concluded in any event that the Knopfs had failed to allege a plausible conspiracy—noting the absence of allegations in the Knopfs’ complaint that Akerman and Feldman knew Ringel's identity, that they were directed to call Ringel in particular, or that their call to the First Department was deliberately routed to Ringel. (See id. at *6-*7 ). The district court therefore dismissed the Knopfs’ § 1983 claim with prejudice; and it dismissed the Knopfs’ pendent Judiciary Law § 487 claim without prejudice to permit the Knopfs to refile it in state court. (See id. at *8.) The Knopfs filed an appeal to the U.S. Court of Appeals for the Second Circuit from the dismissal of the complaint.
Akerman/Dorsey, Feldman, and Esposito moved for sanctions against the Knopfs and their counsel, under 28 USC § 1927, 42 USC § 1988, and the court's inherent powers. In moving for sanctions, Akerman/Dorsey asserted—falsely—that Akerman's only involvement in any asserted conspiracy was calling the First Department Clerk's Office and then being "coincidentally" transferred to Ringel. (NYSCEF No. 14 at ¶ 134, quoting the Akerman/Dorsey memorandum of law in support of sanctions.)
In March 2018, the district court issued an order deciding the various requests for sanctions. (See Knopf v Esposito , 2018 WL 1226023 [SD NY Mar. 5, 2018].) The court denied Akerman, Feldman, and Esposito's individual requests for sanctions under 28 USC § 1927 and 42 USC § 1988 because, as pro se parties, they were not eligible for an award of § 1927 or § 1988 sanctions. (See id. at *3-*4.) The court held, though, that Dorsey was entitled to sanctions under both § 1927 and § 1988. The court concluded, among other things, that the Knopfs’ action was frivolous as plainly foreclosed by the First Department's Revised June 2016 order; that the Knopfs’ conspiracy claim was groundless absent any plausible allegation in the complaint that Akerman and Feldman controlled where their call to the First Department would be routed (or that Akerman had prearranged the call with Ringel); and that the filing of the Esposito action appeared "to have been motivated by a desire to include spurious allegations of bribery against Esposito and [Ringel]." ( Id. at *5-*6.) The district court therefore awarded Dorsey its legal fees in the action in the amount of $177,857.50, awarded jointly and severally against the Knopfs and their counsel. ( Id. at *7.) The court also held that Esposito was entitled to $20,000 in sanctions awarded pursuant to the court's inherent powers because the Knopfs’ claims against him were (assertedly) frivolous and because "Esposito was personally targeted by the unsupported bribery allegations" in the complaint. (Id. )
Two weeks after the district court issued its sanctions order in Esposito , the OCA Inspector General's Office issued a report of its investigation into the circumstances of the January 2016 call (the OCA Report). (See generally NYSCEF No. 51.) The OCA Report discussed among other things its finding that Akerman had called Ringel on her direct line, rather than having called a general Clerk's Office number and being transferred to Ringel; that Ringel knew that Esposito was representing Sanford and had previously been shown by Esposito the orders that Akerman and Feldman were calling about; and that Ringel was not candid with First Department Chief Clerk Susanna Molina Rojas about the circumstances of the call when asked about it. (See id. at 19-20.) The report concluded that "Ms. Ringel's involvement in this matter is extremely troubling and at the very least created an appearance of impropriety and reflects poorly on the impartiality of the court." (Id. at 20.)
Upon becoming aware of the district court's Esposito sanctions order, OCA gave the court a copy of its Inspector General's Report. In April 2018, the district court issued an order explaining that it had received a copy of the report (and that a redacted version of the report and its attachments would be posted on the docket in Esposito ). (See Knopf v Esposito , 2018 WL 1961105 [SD NY, Apr. 23, 2018].) The order noted that although the court then lacked jurisdiction over the matter given the Knopfs’ pending appeal, if the court were to obtain jurisdiction it would be willing to entertain motionts to vacate or modify its orders dismissing the complaint and awarding sanctions. (See id. at *1-*2.) The Second Circuit then remanded the matter to the district court; and the Knopfs duly moved to vacate the court's prior orders.
In July 2018, the district court issued an order declining to revisit its dismissal of the Knopfs’ complaint (or to grant the Knopfs leave to file a further amended complaint). But the court vacated the sanctions awarded to Esposito and reduced the sanctions awarded to Dorsey by half (to $88,928.75). (See Knopf v Esposito , 2018 WL 3579104 [SD NY July 25, 2018].)
With respect to the Esposito sanctions, the district court explained that the OCA Report's description of Ringel's conduct relating to the January 12 call raised "many questions ... about Esposito's role in these events," rendering an award of sanctions in his favor "unwarranted." ( Id. at *6.)
As for the Dorsey & Whitney sanctions award, the district court acknowledged that the OCA Report had removed one of the two bases for the award, because the report "makes more plausible the existence of a conspiratorial agreement among at least some of the defendants to have Esposito's wife, who is the Court Employee, offer an opinion that would permit the sale of PHC to proceed unencumbered by any court-issued restraints." (Id. at *3.) The district court concluded, though, that even after taking the OCA Report into account, the second ground for awarding sanctions remained intact. The court held that the Revised June 2016 order essentially established that the Knopfs’ federal action was frivolous when filed, given that order's ruling that the November 2015 order had vacated the escrow requirement. The district court therefore reduced the Dorsey & Whitney sanctions award only by half. (See id. at *5-*6.)
The Knopfs again appealed to the Second Circuit. In February 2020, the Second Circuit vacated by summary order the district court's dismissal of the complaint and therefore also vacated the remaining sanctions award. (See Knopf v Esposito , 803 F Appx 448 [2d Cir 2020].)
The Second Circuit disagreed with the district court's conclusion in granting the motion to dismiss that the allegations in the Knopfs’ complaint failed plausibly to allege a conspiracy. The court noted the allegations concerning the tight timing between Esposito and Ringel's speaking about Sanford's case; Sanford's hiring Esposito knowing he was married to Ringel; Sanford's telling Akerman and Feldman to call the First Department; the call occurring; the sale closing; and all those parties receiving a financial benefit shortly after the sale closed. (See id. at 453-454.)
More fundamentally, the Second Circuit held that the district court erred in concluding that the harm the Knopfs complained of, i.e. , "losing their rightful collateral and a priority claim on the sale's proceeds," resulted from the First Department's November 2015 order "declining to enjoin the sale of the PHC," rather than "the January 2016 phone call in which Ringel advised the lawyers that the orders were no longer in effect." ( 803 F Appx at 454.) The Second Circuit gave weight to the Knopfs’ allegation that the sale of the PHC would not have occurred absent the January 2016 call, because the call was necessary to assuage Phillips's concerns about judicial restraints remaining on the PHC, such that he was willing to close. (See id. )
The court also concluded that if the Knopfs had participated in the phone call, "they would have been aware that Sanford and the buyer intended to act on Ringel's opinion, and they could have sought emergency relief" with respect to escrow of the sale proceeds. (Id. ) As a result, defendants "miss the point" in arguing that the Revised June 2016 order settled whether the escrow requirement was in effect at the time of the call, because the Knopfs’ claims "derive from the harm done by the January 2016 phone call, not the effects of any of the state court orders." ( Id. at 455.)
In so holding, moreover, the Second Circuit squarely rejected defendants’ argument that the January 2016 call was not ex parte and did not violate the Knopfs’ due-process rights "because it concerned only a procedural question" rather than the merits. (Id. at 454.) The Second Circuit wrote that as "the OCA Report confirms, however, that simply is not the case: the phone call did amount to an ex parte conversation on a matter pending in the Appellate Division, and Ringel's statements were, at the very least, a hybrid of substantive legal advice and procedural information" that were "improper" for her to have made. (Id. )
The court therefore vacated the district court's dismissal of the complaint and remanded for further proceedings. (See id. at 456.) And, given its holding that the complaint stated a cause of action, the Second Circuit vacated the district court's remaining award of attorney fees to Dorsey, which had been premised on the district court's conclusion that the complaint was frivolous. (See id. at 456-457.)
E. The Knopfs’ Post-2017 Efforts to Seek Redress in State Court
Although JHO Gammerman issued his report—finding that Sanford and Pursuit owed the Knopfs millions of dollars—in February 2016, the report was not confirmed and reduced to judgment until February 2018.
Justice Braun initially denied the Knopfs’ motion to confirm the JHO report on purely procedural grounds relating to service. On appeal, the First Department reversed the denial of the motion to confirm. (See Knopf v Sanford , 150 AD3d 608 [1st Dept 2017].) Justice Braun subsequently recused himself, and the case was transferred to the undersigned. On remand from the First Department, this court confirmed the judicial hearing officer's report in part in February 2018. (See Knopf v Sanford , Index No. 113227/2009, 2018 NY Slip Op 30611[U] [Sup Ct, NY County Feb. 9, 2018].) On February 22, 2018, this court entered a judgment against Pursuit for $9,867,832.61. (See Knopf v Sanford , 2018 NY Slip Op 30611[U], at *20 [Sup Ct, NY County 2018].)
Pursuit has since declared bankruptcy. Its Chapter 7 bankruptcy proceeding remains pending in the U.S. Bankruptcy Court for the Southern District of New York. (See e.g. Matter of Pursuit Holdings (NY), LLC , No. 18-12738, 2021 WL 163083 [Bank SD NY, Jan 15, 2021] [Martin Glenn, J.]; Matter of Pursuit Holdings (NY), LLC , No. 18-12738, 2019 WL 1220928 [Bank SD NY, Mar. 12, 2019] [Glenn, J.].)
1. The Knopfs’ post-judgment discovery from Sanford and Akerman/Dorsey and their post-judgment turnover proceeding against Esposito
As part of their efforts to enforce this judgment, the Knopfs served subpoenas on Akerman and Dorsey and on Sanford. The recipients of these subpoenas moved to quash, arguing among other things that the subpoenas sought documents and testimony shielded by the attorney-client privilege. In July 2019, this court issued an order largely denying the motions to quash. (See Sanford , 65 Misc 3d 463.) This court held that the Knopfs had established probable cause to believe that a wrongful act relating to the January 2016 call and the PHC sale had been committed; and that "communications among and between Sanford, Akerman, Feldman, Ringel, McGuire, Esposito, and others furthered that wrongful act." ( Id. at 522.)
The Knopfs also went to considerable lengths to determine the whereabouts of $75,000 from the sale proceeds that remained unaccounted for. These efforts included bringing a special proceeding against Feldman and his law firm and against Esposito to obtain turnover of the $75,000 for the benefit of Pursuit's Chapter 7 bankruptcy estate. (See Knopf v Feldman & Associates PLLC , Index No. 153821/2019 [Sup Ct, NY County 2019].) In the course of this proceeding, the Knopfs were able to determine that $25,000 of that sum was used by Feldman to pay legitimate closing-related expenses; and that the remaining $50,000 was paid at Sanford's direction to Esposito shortly after the PHC sale closed. ( See 2019 NY Slip Op 51145[U], at *3 [Sup Ct, NY County July 11, 2019], revd 180 AD3d 508 [1st Dept 2020].) This court held that because the $50,000 undisputedly came out of the PHC sale proceeds, it should at a minimum have been returned to escrow pursuant to Justice Moskowitz's February 2016 escrow order. (See id. at *3-*4.) This court therefore concluded that the Knopfs and Pursuit had a superior claim to Esposito over the $50,000, and ordered Esposito to turn the funds over to Pursuit's bankruptcy trustee. (See id. at *4, *6.) On appeal, the First Department reversed and dismissed the petition. The Court held that although the Knopfs’ claims were "not barred by the doctrine of collateral estoppel," the Knopfs had "failed to show that their right to the funds in question was superior to that of respondents" or that Esposito and his law firm had "take[n] the funds in violation of any order of this Court." ( 180 AD3d at 508.)
The First Department also held that the Knopfs "do not have an equitable lien" on the $50,000, because Sanford and Pursuit had (according to them) "spent the money on services that were contracted for," rather than discrete and traceable items. (Feldman & Assoc. , 180 AD3d at 508, citing Montanile v. Board of Trustees of Natl. El. Indus. Health Benefit Plan , 577 US 136, 144-145 [2016].) That Sanford spent the $50,000 "on nontraceable items" would not bar the Knopfs from maintaining "a personal claim against the defendant's general assets," but instead would force them to resort merely to legal, rather than equitable, remedies. (Montanile , 577 US at 145.)
2. The Knopfs’ current action
The Knopfs brought the current action in 2019 while this court was considering the post-judgment motions in the Sanford action. As relevant here, the Knopfs’ amended complaint brings claims against Akerman (and vicariously against Akerman's law firm Dorsey & Whitney), Feldman, and Esposito.
The complaint asserts a variety of causes of action against defendants—most important, claims for treble damages under Judiciary Law § 487. The Knopfs allege that Akerman/Dorsey, Feldman, and Esposito conspired to violate § 487 by intentionally and deceitfully keeping the Knopfs in the dark about the January 2016 ex parte call with Ringel so that Sanford could use the opinion Ringel expressed on that call to close on the PHC sale without escrowing the sale proceeds. The Knopfs also allege that Akerman and Feldman separately violated § 487 by lying about the circumstances of the call in the Phillips and Esposito federal actions, to deceive the district court into dismissing the complaint in Esposito and sanctioning the Knopfs.
Akerman/Dorsey, Esposito, and Feldman each filed separate motions to dismiss (motion sequences 001, 002, and 003, respectively). This court held a partial oral argument on the motions; the court's plans to complete oral argument, however, were interrupted by the COVID-19 pandemic. In the fall of 2020, this court requested supplemental briefing from the parties on how (if at all) the Second Circuit's decision in Esposito should affect this court's resolution of the motions to dismiss. After receiving the parties’ supplemental submissions, this court held a further oral argument (with the parties appearing virtually). The motions are now ripe for decision.
In addition to the three motions to dismiss, the Knopfs have filed a motion requesting leave to supplement the record (motion sequence 005). Motion sequences 001, 002, 003, and 005 are consolidated here for disposition.
DISCUSSION
The Akerman/Dorsey, Feldman, and Esposito motions to dismiss seek, in aggregate, to dismiss nine of the ten causes of action in the complaint. The Knopfs have filed extensive opposition papers to those motions, to which defendants have replied. As noted above, the parties also have filed supplemental submissions to address the Second Circuit's decision on appeal in the Esposito federal action. And the parties have appeared twice for oral argument related to these motions.
The Knopfs previously discontinued the remaining cause of action asserted in the complaint, which sought money damages against Sanford. (See NYSCEF No. 172.)
In addition to the documentary submissions accompanying the briefing on the motions to dismiss, the Knopfs also move for leave to supplement the record to provide yet more evidence. That evidence consists principally of the transcript of the additional deposition that the Knopfs took of Michael Sanford in November 2019 pursuant to this court's July 2019 discovery order in Sanford —i.e. , after the parties completed principal briefing on the motions to dismiss in this action. The Knopfs have also since filed a number of other documents that they suggest this court should consider in ruling on the motions to dismiss.
The Knopfs previously brought an earlier request for similar relief on motion sequence 004. This court denied the motion without prejudice to afford Sanford a full opportunity to review his deposition transcript for errors and to submit corrections. (See Knopf v Esposito , 2019 NY Slip Op 33468[U], at *6-*7 [Sup Ct, NY County Nov. 27, 2019].)
The Knopfs’ motion for leave to supplement the record is denied. The parties have already given this court abundant documentary evidence in their briefing on the motions to dismiss. The record on these motions now more resembles one generated on a CPLR 3212 motion for summary judgment. At the same time, this remains a CPLR 3211 motion to dismiss, which should be decided on the pleadings and any affidavits or other documentary evidence submitted specifically on the motion papers themselves—not evidence provided to the court piecemeal at various points thereafter. (Cf. Ostrov v Rozbruch , 93 AD3d 147, 153, 155 [1st Dept 2012] [holding that even on CPLR 3212 motions, supplemental submissions "should be sparingly used and then only for a limited purpose"].) Given the extensive papers the parties themselves submitted on motion sequences 001, 002, and 003, considering the Knopfs’ additional proffered materials would be not only inappropriate but unnecessary. (Cf. Esposito , 803 F Appx at 452 ["deny[ing] as unnecessary the Knopfs’ motions to supplement the record" on appeal from the grant of defendants’ motions to dismiss in that action].)
That said, when this court during the supplemental oral argument raised the possibility of converting the three CPLR 3211 motions to dismiss into summary-judgment motions under CPLR 3212, both sides agreed that such a conversion would be unwarranted and undesirable. (See NYSCEF No. 290 at Tr. 6-9.) Notwithstanding the extensive record in the case, therefore, this court continues to analyze the pending motions under CPLR 3211 rather than CPLR 3212.
The complaint's allegations against the different defendants overlap heavily. This court's analysis of the three motions to dismiss is therefore organized by cause of action and then (as needed) by defendant, rather than by defendant and then cause of action.
This analysis applies familiar principles governing motions to dismiss under CPLR 3211. On a motion to dismiss pursuant to CPLR 3211 (a) (7), the court must ordinarily "accept as true the facts as alleged in the complaint and the opposition to the motion to dismiss and accord plaintiffs the benefit of every favorable inference." ( Facebook, Inc. v DLA Piper LLP (US) , 134 AD3d 610, 613 [1st Dept 2015].) However, where extrinsic evidence is introduced and considered on a CPLR 3211 motion, the allegations of the complaint are not conclusively presumed true. Rather, the court must consider whether "the essential facts" on which plaintiffs’ complaint relies "have been negated beyond substantial question by the affidavits and evidentiary matter submitted." ( Biondi v Beekman Hill House Apt. Corp. , 257 AD2d 76, 81 [1st Dept 1999], aff'd 94 NY2d 659 [2000] [internal quotation marks omitted].) The crucial question for these purposes is whether, taking the complaint and evidentiary material into account, the plaintiffs have a cause of action against defendants, not merely whether the allegations of the complaint could be read to state a cause of action. (See Blackgold Realty Corp. v Milne , 119 AD2d 512, 513 [1st Dept 1986].)
As noted in the Background section, supra , this court may properly take judicial notice on a CPLR 3211 (a) (7) motion of undisputed court records and files, including records and filings from other actions in other courts. (See RGH Liquidating Trust , 71 AD3d at 207-208.)
Applying these principles, the three motions to dismiss are each granted in part and denied in part. The Knopfs’ third, fourth, fifth, eighth, ninth, and tenth causes of action are dismissed. The first, second, and seventh causes of action may proceed.
Feldman and Esposito each argue more broadly that the action should be dismissed altogether as to them for lack of personal jurisdiction due to late service. They assert that because the Knopfs filed their affidavits of service on the docket more than 110 days after filing the complaint, under CPLR 308 service was not completed until more than 120 days after filing—thereby (assertedly) rendering service untimely and defective under CPLR 306-b. (See NYSCEF No. 36 at 2 [Esposito]; NYSCEF No. 45 at 5-6 [Feldman].) This court disagrees. (See Zhang v Rong , 2007 NY Slip Op 33684[U], at *4 [Sup Ct, NY County Oct. 31, 2007] [Schlesinger, J.] [quoting David D. Siegel, New York Practice , § 72, 4th ed 2005].)
The "purpose of requiring filing of proof of service, along with the ten-day grace period, pertains solely to the time within which the defendant must answer, and does not relate to the jurisdiction acquired by service of the summons." (Lancaster v Kindor , 98 AD2d 300, 306 [1st Dept 1984], affd on op below 65 NY2d 804 [1985].) Lancaster addressed CPLR 308 ’s 20-day deadline for filing proof of service, not CPLR 306-b ’s 120-day deadline for effecting service. But its logic applies equally to this context. In fact, an earlier version of CPLR 306-b expressly required filing of proof of service within 120 days and mandated dismissal if that filing was not accomplished. The Legislature omitted that language when substantially amending CPLR 306-b in 1998. (See Reid v Presbyterian Hosp. , 254 AD2d 139, 140 [1st Dept 1998] ; Floyd v Salamon Bros. , 249 AD2d 139, 139-140 [1st Dept 1998].) Thus, when (as here) a plaintiff has delivered or mailed the initiating papers within the 120 days set by CPLR 306-b, service is timely—whether or not the 10-day period tacked on following the filing of proof of service ends more than 120 days after filing of the summons and complaint.
I. The Knopfs’ First and Second Causes of Action ( Judiciary Law § 487 as against Akerman/Dorsey, Feldman, and Esposito based on statements and omissions occurring before October 2017)
Judiciary Law § 487 provides that "[a]n attorney or counselor" who is "guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party" shall "forfeit[ ] to the party injured treble damages, to be recovered in a civil action." The Knopfs’ first cause of action alleges that Akerman, Feldman, and Esposito severely injured the Knopfs by successfully and deceitfully excluding them from participating in the January 2016 telephone call among Akerman, Feldman, and Ringel. The Knopfs allege that this call was necessary for the PHC sale to close. They further allege that their exclusion from the call prevented them from taking steps prior to closing to ensure that the PHC sale proceeds were placed into escrow rather than being dissipated by Sanford. The Knopfs’ second cause of action alleges that these defendants’ deceitful exclusion of the Knopfs from the call was part of a conspiracy to violate Judiciary Law § 487 so that Sanford could sell the PHC and dissipate the proceeds as he saw fit, rather than putting them into escrow for the Knopfs’ eventual benefit.
The first cause of action also seeks to hold Dorsey vicariously liable for Akerman's alleged violations of Judiciary Law § 487. The parties’ briefing does not address Dorsey's potential vicarious liability (if any); the court discusses that issue further at note 28, infra.
In moving to dismiss the first cause of action, defendants make several arguments for dismissal of the § 487 claim that would, if accepted, apply categorically to the Knopfs’ claims as against them all. Those arguments are dealt with in Section I.A, infra. Each defendant also challenges the sufficiency of the allegations of the complaint (and supporting documentary evidence) as pertaining to him individually. Those challenges are dealt with in Sections I.B (Akerman/Dorsey), I.C (Feldman), and I.D (Esposito). Defendants’ motions to dismiss the second cause of action are addressed below in Section I.E.
A. Asserted Grounds to Dismiss that Apply to All Defendants Generally
1. Whether the Knopfs may maintain their § 487 claims in a separate plenary action
Defendants argue that the Knopfs’ Judiciary Law § 487 claims necessarily fail, because those claims may be brought only in the action in which the alleged false statements (or material omissions) occurred—not, as here, in a later freestanding action. (See e.g. NYSCEF No. 22 at 18-20 [Akerman].) This court disagrees.
In considering whether a § 487 claim must be brought only in the initial action, the First Department has distinguished § 487 claims aimed at "collaterally attack[ing] any prior adverse judgment or order on the ground that it was procured by fraud" from claims "seek[ing] to recover lost time value of money and the excess legal expenses incurred ... as a proximate result of defendants’ alleged deceit." The latter type of claim may be asserted in a separate action. ( Melcher v Greenberg Traurig LLP , 135 AD3d 547, 554 [1st Dept 2016] ; accord Kimbrook Rte. 31, L.L.C. v Bass , 147 AD3d 1508, 1509 [4th Dept 2017].)
Here, the Knopfs’ first two causes of action are not an impermissible collateral attack on a prior judgment or order. These claims do not seek redress for an injury caused by a judgment or order at all. Instead, the Knopfs claim that defendants’ wrongful conduct enabled Sanford to benefit unjustly from a private commercial transaction—i.e. , closing on the PHC sale without escrowing any of the proceeds. It is unclear how the Knopfs could have obtained the relief they seek here by moving under CPLR 5015 (a) (3) to vacate for fraud one or more court orders, as defendants now suggest. (See e.g. NYSCEF No. 36 at 22-23 [Esposito]; No. 106 at 18-19 [Akerman].)
Nor is this court persuaded that considerations of judicial economy should bar the Knopfs from bringing their current § 487 claims because the First Department previously denied the Knopfs’ 2016 motion to have Sanford held in contempt. Extensive evidence has emerged since the denial of that motion (such as Ringel's identity, the various depositions in the Phillips federal action, and the contents of the OCA Report). Absent some other bar, the Knopfs should have the opportunity to rely on that evidence to seek redress now.
2. Whether the Knopfs’ claims are foreclosed by the First Department's November 2015 and Revised June 2016 Orders
Defendants contend that the reasoning of First Department's Revised June 2016 order denying the Knopfs’ contempt motion constitutes such a bar. That is, the Revised June 2016 order held that no escrow order was in place at the time of the call, citing People v Asiatic Petroleum Corp. (45 AD2d 835, 836 [1st Dept 1974] ). (See Background Section C, supra. ) Defendants argue that in the absence of an escrow order, the Knopfs could not have been injured by a telephone call facilitating a sale of the PHC with no escrow. Indeed, defendants contend that the conclusion that no escrow order was in place—and thus that the Knopfs were not injured by the January 2016 call—flow plainly from basic procedural principles described in Asiatic Petroleum .
For the reasons below, this court is not persuaded that the absence of an escrow order at the time of the January 2016 call would preclude the Knopfs’ claim now that they were injured by that call. Nor is the court persuaded in any event that basic procedural principles dictate that Justice Sweeny's October 2015 escrow order was dissolved before the January 2016 call took place.
a. Whether the Knopfs could be injured by the January 2016 telephone call if the October 2015 escrow order was not in place at the time of the call
Under the holding of the Revised June 2016 order, Justice Sweeny's October 2015 order imposing an escrow requirement had been dissolved by the time Akerman and Feldman called Ringel in January 2016. Defendants assert, therefore, that any injury the Knopfs suffered due to the sale of the PHC without escrow resulted from the pre-call dissolution of the escrow order, not the call itself. No injury, no § 487 claim.
This court sees it differently. In particular, this court agrees with the Second Circuit in the Knopf v Esposito federal action that the Knopfs’ theory of causation and injury does not depend on the presence of an escrow requirement—and thus is not defeated by the holding of the Revised June 2016 order. ( See Esposito , 803 F Appx at 454-455 [holding that the federal defendants’ arguments that no escrow requirement was in effect at the time of the call "miss the point," because the presence or absence of an escrow requirement "does not affect the viability of the Knopfs’ claims"].)
That is, the Knopfs’ theory is that had they known that Sanford's counsel were planning to call a First Department court attorney to consult her about the status of the October 2015 escrow order, they could have acted to ensure that the sale of the PHC did not go forward based the belief of Phillips and his representatives that no escrow requirement applied. (Cf. NYSCEF No. 14 at ¶ 92 [quoting Feldman memorandum of law in Esposito stating that "based upon this call the closing took place and the proceeds were distributed"].) This causation theory does not turn on whether the escrow requirement was in place as of January 2016.
Indeed, the Knopfs could have taken any number of conceivable steps toward that end. The Knopfs could, for example, have ensured their counsel participated in the call itself, thereby complicating the simple story about the escrow requirement that Akerman and Feldman sought to tell in their post-call memorandums. The Knopfs could also have formally written to the Court to seek clarification on the status of the October 2015 order. For that matter, the Knopfs could simply have brought an immediate interim application in the First Department to reinstate the escrow requirement—as they successfully did once they found out in late February 2016 about the PHC sale. (See Background Section C, supra. )
In short, the Knopfs have sufficiently established for pleading purposes that had they participated in (or even been aware of) the January 2016 call, "they could have sought emergency relief in time to force the escrow of the sale proceeds." ( Esposito , 803 F Appx at 454.) Had the Knopfs done so, they would likely have succeeded in blocking the sale altogether, given the reluctance of both parties to the sale to proceed "while any judicial restraints remained." (Id. ) Thus, that the call took place without the Knopfs’ knowledge or participation enabled "the sale of the PHC (and Sanford's subsequent disposal of the assets from that sale)" to go forward, thus injuring the Knopfs. This theory of causation and injury does not depend on whether an escrow requirement was in place at the time of the call, and therefore is not foreclosed by the holding of the First Department's Revised June 2016 order.
b. Whether the November 2015 preliminary-injunction order necessarily dissolved the October 2015 escrow order
Furthermore, this court does not agree with defendants that basic principles of procedural law mandate a conclusion that the escrow requirement was dissolved before the January 2016 call. Defendants claim that under Asiatic Petroleum , the November 2015 order definitively resolving the Knopfs’ motion for a preliminary injunction necessarily dissolved the October 2015 order's interim remedy of an escrow requirement. The court rejects this claim for several reasons.
As an initial matter, the holding of Asiatic Petroleum is inapposite to the relationship between the October 2015 and November 2015 orders. That decision concerned a temporary restraining order granted under CPLR 6313 in the context of a motion for a preliminary injunction under CPLR 6301. And the Asiatic Petroleum Court's holding relied on the fact that the terms of CPLR 6301 and 6313 "provide[ ] for a temporary restraining order [p]ending a hearing for a preliminary injunction," but make "no such provision ... [f]ollowing the hearing." ( 45 AD2d at 836 ; accord Robinson v Robinson , 11 AD3d 853, 855-856 [3d Dept 2004] [same].) Here, on the other hand, the October 2015 interim escrow order was issued in the context of a motion for appellate reargument under CPLR 2221 of the First Department's affirmance of Supreme Court's order, which had canceled the notice of pendency on the PHC under CPLR 6514. Neither motions to reargue under CPLR 2221 nor motions to cancel notices of pendency under CPLR 6514 contain an express limit on the duration of interim relief issued on such motions—unlike CPLR 6301 and 6313.
More precisely, the underlying appellate motion on which Justice Sweeny issued the escrow order sought (i) to reargue the First Department's ruling on (ii) a motion for reargument of (iii) the First Department's decision on the Knopfs’ appeal from (iv) Justice Tingling's cancellation of the notice of pendency. (See Sanford , 65 Misc 3d at 474-475.)
The First Department's reargument decision remanded for an inquiry on whether Sanford should be awarded costs stemming from the notice of pendency irrespective of the issue of good faith. (See Sanford , 132 AD3d at 418.) It is not clear from the information presently available to the court (in part because the Sanford action was then still a non-efiled or "paper" case) whether Justice Tingling or Justice Braun ever conducted such an inquiry. No request to conduct a costs-of-the-notice inquiry has been made to the undersigned. And at this point this court deems the issue of costs to Sanford stemming from the canceled notices of pendency to have been waived.
The First Department's Revised June 2016 order, which expressly relied on the authority of Asiatic Petroleum alone, does not discuss whether the basis for that decision's holding under CPLR 6301 and 6313 should transfer to the different context of motions to reargue under CPLR 2221 (or motions relating to the cancellation of notices of pendency under CPLR 6514 ). (See OCA Report, Attachment H.)
Additionally, Asiatic Petroleum ’s holding is an especially poor fit for the procedural relationship between the October 2015 and November 2015 motion orders. Those orders were issued on (i) different motions (with different motion numbers), which were (ii) brought under different CPLR provisions, and which (iii) relate to different appeals altogether.
The motion on which Justice Sweeny issued the October 2015 escrow order was seeking reargument under CPLR 2221 of the First Department's decision on Appeal #1, which sought reversal of an order of Supreme Court entered under CPLR 6514. The motion decided by the November 2015 order sought under CPLR 6301 a preliminary injunction that would bar the sale of the PHC pending Appeal #2, taken from Supreme Court's denial of an order of attachment sought under CPLR 6201. (See Background Section A, supra. ) Nothing in Asiatic Petroleum suggests that it stands for the extraordinary proposition that interim relief afforded on Motion A pertaining to Appeal A is dissolved by a final decision on related Motion B pertaining to Appeal B. In fact, notwithstanding this court's thorough legal research on this question, the court found no New York authority standing for that proposition (other than, apparently, the First Department's Revised June 2016 order).
Esposito asserts on reply that "anyone with even the simplest understanding of appellate practice can see from the First Department's November 12, 2015 decision that the First Department combined Plaintiffs’ various requests for identical relief into one universal denial." (NYSCEF No. 88 at ¶ 34.) This court sees it differently. Among other things, Esposito's assertion fails to explain why the First Department's November 2015 order would treat the Knopfs’ request for an escrow requirement as bundled in with the Knopfs’ request for injunctive relief, given that the motion on which plaintiff requested the escrow requirement was not decided until December 2015. Nor has Esposito accounted for why that December order also went on to deny Sanford's cross-motion to vacate the escrow requirement. (See OCA Report Attachment B [November 2015 order], Attachment C [December 2015 order].)
Further, even if Asiatic Petroleum's holding could in theory be stretched beyond its bounds to apply to orders issued on related-but-distinct motions decided on related-but-distinct appeals, it would make no sense to stretch that holding that far here. Defendants argue that when the First Department's November 2015 order denied the Knopfs’ motion for an injunction on the sale of the PHC, that denial vitiated the need for the October 2015 escrow order. This argument fails to grapple with the context in which the October 2015 order imposed an escrow requirement.
The October 2015 order was issued in connection with Appeal #1—which the Knopfs had taken from a ruling that the notice of pendency on the PHC should be canceled because they could still obtain full relief through an action for damages. The October 2015 order decided an application for interim relief that the Knopfs brought on their longshot second motion to reargue Appeal #1. That application sought to stay the sale of the PHC altogether pending a decision on the motion. Justice Sweeny, declining to block the sale of the PHC, denied the Knopfs’ interim request for a stay. Instead of staying the sale, he required merely that if a sale did occur before the Court decided the reargument motion, the sale proceeds were to be placed into escrow—which would prevent Sanford from dissipating the proceeds and thereby frustrating the Knopfs’ ability to obtain full relief through an action for damages.
See Liffiton v DiBlasi (170 AD2d 994, 994 [4th Dept 1991] [affirming cancellation of notices of pendency, but requiring 25% of property-sale proceeds to be held in escrow pending final disposition of plaintiff's claim to a 25% ownership interest in the property]); CDR Creances S.A.S. v First Hotels & Resorts Inv., Inc. (2009 WL 8616788 [Sup Ct, NY County June 26, 2009] [Tolub, J.] [cancelling notice of pendency on property to allow sale of property to close, on condition that the owner escrow the proceeds], discussed in CDR Creances S.A.S. v First Hotels & Resorts Inv., Inc. 140 AD3d 558, 560 [1st Dept 2016] ); Matter of Tschernia (2008 NY Slip Op 50238[U], at *6 [Sur Ct, Nassau County Feb. 7, 2008] [Riordan, S.] [granting motion to cancel notice of pendency on condition that would-be seller escrow proceeds, absent posting of a sufficient undertaking to compensate seller from harms of continuing notice of pendency]).
In other words, both the October 2015 order and the November 2015 order were premised on the assumption that Sanford's desired sale of the PHC would go through. But the October order also served a distinct interest—addressing what should happen between the closing of the PHC sale and the First Department's rendering of a decision on the reargument motion. Issuance of the November order, which merely permitted a sale to occur, would not vitiate that distinct interest. So even if one were to read Asiatic Petroleum beyond its proper limits to stand for the proposition that a final decision on Motion A necessarily dissolves related interim relief on Motion B because it would eliminate the need for that interim relief, that expansive reading still would not support treating the November 2015 order as dissolving the October 2015 order here.
For this reason, defendants misplace their emphasis on Justice Sweeny's statement in the October 2015 order that the escrow requirement in that order would apply "until further order of the court." (E.g. NYSCEF No. 36 at 6 [Esposito].) The most natural reading of his statement is that it refers to a subsequent First Department panel order on the motion in which the October 2015 order was issued, not some other motion entirely. And, of course, when a full panel did issue a further order in December 2015 on the Knopfs’ motion for reargument (denying the motion), the panel also expressly rejected Sanford's request to vacate the escrow order. (See OCA Report Attachment C.)
Indeed, Sanford's own experienced and capable attorneys did not contemporaneously interpret the November 2015 order to have dissolved the October 2015 order under the principles of Asiatic Petroleum . As discussed above (see Background Section A, supra ), Sanford's cross-motion to vacate the October 2015 escrow order took as given that an escrow requirement remained in effect after the November 2015 order. His papers argued instead merely that the First Department should now vacate the order as substantively unnecessary. And the First Department rejected that argument and denied the cross-motion to vacate.
Justice Moskowitz, the Presiding Justice on the panel that issued the November 2015 preliminary-injunction order, held in her February 2016 escrow order that Sanford was to place the remaining funds "in escrow as had been directed by Justice Sweeny in his 10/22/15 interim order, vacatur of which was denied by this Court's 12/29/2015 Order (M-5459, M-5942)"—thus making unmistakably clear that she understood Justice Sweeny's October 2015 escrow order to still remain in effect. (OCA Report at 5 n 13 [reproducing February 2016 escrow order].)
Defendants here suggest that the First Department's December order merely denied the cross-motion as academic because the Court had already dissolved the escrow requirement in November. (See e.g. NYSCEF No. 88 at 2-3 [Esposito].) Yet it would be peculiar for the First Department to deny a motion merely on the ground that it was academic without saying so. For one, both sides’ briefing on the cross-motion assumed that the issue of the escrow requirement remained live. Moreover, the December motions panel also included Justice Sweeny, who himself had issued the October order that the cross-motion sought to vacate. (See OCA Report Attachment A [October 2015 order], Attachment C [December 2015 order].)
In short, Asiatic Petroleum , the authority on which defendants rely, does not support their argument that the November 2015 order necessarily dissolved the October 2015 order under basic principles of procedural law; and it is inconsistent with how the litigants themselves—and First Department Justices—understood the relationship between those orders.
Defendants suggest that the First Department's reliance on Asiatic Petroleum in the Revised June 2016 order was reaffirmed when the Court denied reargument of that order in November 2017, and when the Court reversed this court's turnover ruling in February 2020. (See e.g. NYSCEF No. 22 at 6-7; NYSCEF No. 106 at 15; NYSCEF No. 242 at 4-5 [Akerman].) This court is not so sure. Neither order cited Asiatic Petroleum , expressly reaffirmed the analysis of the Revised June 2016 order, or even mentioned that order. Indeed, the February 2020 decision held that the Knopfs’ claims were "not barred by the doctrine of collateral estoppel" (Feldman & Assoc. , 180 AD3d at 508 ); though given the brevity of the February 2020 decision it is difficult to tell for certain which claims the Court was referring to. And, notwithstanding Akerman's arguments on the current motion (see NYSCEF No. 106 at 21-22 & n 3), this court remains of the view that the November 2017 denial of reargument, standing alone, sheds no clear light on whether First Department meant thereby to reaffirm the Revised June 2016 order's analysis (see Sanford , 65 Misc 3d at 519-522 ).
3. Whether the Knopfs’ claims are precluded by the federal district court's July 2018 ruling in the federal Knopf v Esposito action
In addition to its other branches, the district court's July 2018 ruling in Esposito denied a sanctions motion by the Knopfs based on, among other things, the allegedly wrongful January 2016 telephone call. (See Esposito , 2018 WL 3579104, at *6.) Defendants argue that this denial of sanctions collaterally estops the Knopfs’ current Judiciary Law § 487 claims. This argument lacks merit.
A party is barred by collateral estoppel from relitigating an issue fully litigated and necessarily decided against the party in a prior action. (See Buechel v Bain , 97 NY2d 295, 303-304 [2001].) Here, the district court's July 2018 ruling in Esposito on the Knopfs’ sanctions motion did not necessarily resolve whether defendants made misstatements or omitted material information relating to the January 2016 call.
The district court exercised its discretion to deny the Knopfs’ sanctions motion on two grounds: (i) given the Revised June 2016 order, the Knopfs lacked a plausible basis to allege that they had been injured by the January 2016 call; and (ii) the Knopfs’ counsel had engaged in repeated bad-faith conduct in the Esposito action and other related litigation (such that awarding sanctions to the Knopfs would be inequitable). (See Esposito , 2018 WL 3579104, at *6.) Neither of these grounds concerned whether defendants were, in fact, guilty of affirmative misstatements or material omissions relating to the January 2016 call. Additionally, the Second Circuit has since reversed the district court's conclusion in its July 2018 ruling that the Knopfs were not injured by the call.
4. Whether the Knopfs’ claims are precluded by Justice Sher's and Justice Kelley's rulings in other proceedings involving Sanford
Esposito argues that the Knopfs’ claims relating to the January 2016 call are precluded by three orders of Supreme Court, Nassau County (Denise Sher, J.), and an order of Supreme Court, New York County (John J. Kelley, J.), in other litigation involving Sanford. (See NYSCEF No. 36, at 16-19. ) This court disagrees.
The three orders issued by Justice Sher are reproduced in filings submitted by Esposito in the Feldman & Associates turnover proceeding. (See Index No. 153821/2019, NYSCEF Nos. 46 and 47.) The order issued by Justice Kelley appears at Manhattan Leasing Enterprises, Ltd. v Esposito , Index No. 160455/2017, NYSCEF No. 59 (Sup Ct, NY County Mar. 11, 2019).
It is readily apparent on the face of these four orders that none of them dealt with—much less necessarily decided—any issue relating to the January 2016 call, whether defendants were guilty of actionable material omissions regarding that call, or whether the Knopfs suffered injuries resulting from the call. Esposito appears to be arguing instead that because the plaintiff in the proceedings before Justices Sher and Kelley lost the four rulings after raising some of the same contentions asserted in the Knopfs’ complaint in this action, the Knopfs are now estopped from making those arguments. (See NYSCEF No. 36 at 19.) That is not how collateral estoppel works.
5. Whether the first and second causes of action are subject to dismissal under CPLR 3211 (a) (4).
Esposito contends that the Knopfs’ claims in the first two causes of action duplicate their claims in the earlier-filed Esposito federal action, requiring their dismissal here under CPLR 3211 (a) (4). (See NYSCEF No. 236 at 1-2.) CPLR 3211 (a) (4) authorizes a court to dismiss a claim when "there is another action pending between the same parties for the same cause of action." A court has "broad discretion in considering whether to dismiss" the claim. ( Whitney v Whitney , 57 NY2d 731, 732 [1982].) This court concludes that dismissing the Knopfs’ § 487 claims on this ground would be inappropriate.
The two sets of claims at issue do not involve the same causes of action. The Knopfs’ due-process claims in Esposito require establishing that the Knopfs had a cognizable legal interest in the PHC (or the proceeds from its sale) at the time of the call, such that the call abridged that interest without adequate safeguards. Those claims do not, however, require proof of any particular mental state on the part of defendants. Here, on the other hand, the Knopfs’ § 487 claims do not necessarily require them to prove that they held a legal interest in the PHC at the time of the call. But these claims do require proof that defendants acted with intent to deceive. Each claim has an element not found in the other. This shows that the two causes of action are not the same. (See Rinzler v Rinzler , 97 AD3d 215, 217 [3d Dept 2012] [holding different grounds for granting divorce to be different causes of action for CPLR 3211 [a] [4] purposes because each ground had different elements].)
Regardless, in the unusual circumstances of this case, this court concludes in its broad discretion that dismissing the Knopfs’ first two causes of action would be unwarranted. The Knopfs originally brought those claims as pendent state-law claims in the Esposito action. (See Esposito , 2017 WL 6210851, at *1.) When the district court originally granted defendants’ motions to dismiss the federal claims, the court also dismissed the § 487 claims without prejudice to permit them to be asserted in state court. (See id. at *8.) The Knopfs then brought those claims in this action; and defendants moved to dismiss. It was only in February 2020, after the motions to dismiss had been fully briefed here, that the Second Circuit on appeal in Esposito reversed the district court and reinstated the federal claims. ( See Esposito , 803 F Appx 448.)
In other words, the Knopfs originally asserted distinct due-process and § 487 claims in Esposito ; and the district court specifically held that the § 487 claims should survive the dismissal of the due-process claims. It would be ironic to hold now that the reinstatement of the due-process claims in Esposito should require dismissal of the § 487 claims here.
6. Whether the Knopfs have already recovered the full amount of the damages that could proximately have resulted from the January 2016 phone call
Feldman and Esposito also argue that the Knopfs’ first and second causes of action under § 487 should be dismissed because the Knopfs have already managed to recoup an amount equal to the full sum they could recover in damages on those causes of action—namely, the $1.06 million in net proceeds from the sale. (See NYSCEF No. 88 at ¶¶ 32-33; NYSCEF No. 89 at 1-2.) This court is not persuaded.
Section 487 expressly provides for the award of treble, not single, damages to the injured party. Even if this court were to agree that the Knopfs’ § 487 injury consisted only of the net proceeds from the PHC sale, that would still leave the Knopfs with another $2 million worth of potential recovery. Additionally, given Sanford's demonstrated unwillingness to close if he had to escrow any of the proceeds (see NYSCEF No. 14 at ¶ 64), the likely result of a net-proceeds escrow order's remaining in effect would have been that the PHC sale would not go through at all—in which case the full value of the PHC would have remained available for the Knopfs to pursue. In any event, Justice Sweeny's October 2015 order required the escrow of "proceeds" from any sale of the PHC. It did not limit the scope of that requirement to net proceeds.
B. Akerman's Particular Arguments for Dismissal of the First Cause of Action
In addition to their general arguments for dismissal, Akerman, Feldman, and Esposito each individually challenge the sufficiency of the Knopfs’ Judiciary Law § 487 allegations. This section addresses Akerman's arguments for dismissal of the first cause of action as against him. Feldman and Esposito's defendant-specific arguments to dismiss this cause of action are considered in Sections I.C and I.D, infra.
The Knopfs also have brought this first cause of action against Dorsey, seeking to hold it vicariously liable under Judiciary Law § 487 for Akerman's supposed wrongdoing. (See NYSCEF No. 14 at ¶ 191.) The Akerman/Dorsey motion to dismiss does not address whether Dorsey may be held vicariously liable. Under New York law, a legal partnership may—in appropriate circumstances—be held liable under § 487 for the misconduct of one of its partners. (See Dupree v Voorhees , 68 AD3d 807, 809-810 [2d Dept 2009].) But whether Dorsey , in particular, could properly be subjected to vicarious liability for wrongdoing by Akerman is best left for another day on a properly developed record.
To make out a § 487 claim, a plaintiff must establish that the defendant, (i) acting in his or her capacity as an attorney, (ii) made a false statement or material omission (iii) with the intent to deceive (iv) the court in or a party to (v) pending litigation that (vi) proximately injured the plaintiff. (See Bill Birds, Inc. v Stein Law Firm, P.C. , 35 NY3d 173, 177-179 [2020] ; Schindler v Issler & Schrage, P.C. , 262 AD2d 226, 228-229 [1st Dept 1999].) To support a cause of action, the alleged intentional misstatements or omissions must be "egregious." ( Mazel 315 W. 35th LLC v 315 W. 35th Assoc. LLC , 120 AD3d 1106, 1107 [1st Dept 2014], citing Kurman v Schnapp , 73 AD3d 435, 435 [1st Dept 2010].) And the defendant's conduct and scienter must be stated with particularity. (See Facebook , 134 AD3d at 615.) That said, "fraudulent intent, by its very nature, is rarely susceptible to direct proof and must be established by inference from the circumstances surrounding the allegedly fraudulent act." (Matter of Setters v AI Props. & Devs. (USA) Corp. , 139 AD3d 492, 493 [1st Dept 2016] [internal quotation marks omitted].)
1. Whether the Knopfs have sufficiently demonstrated material omissions by Akerman
The Knopfs’ first cause of action as against Akerman relies largely not on allegations that he made affirmatively false statements, but that he withheld material information from the Knopfs in the course of their action against Sanford. An attorney's failure to provide an opposing party in pending litigation with information the attorney had a duty to disclose gives rise to a § 487 claim. (See Schindler , 262 AD2d at 229 ; Guardian Life Ins. Co. of Am. v Handel , 190 AD2d 57, 61 [1st Dept 1993], abrogated on other grounds Amalfitano v Rosenberg , 12 NY3d 8, 11-14 [2009].) The question, therefore, is whether the Knopfs have sufficiently alleged that Akerman withheld from them information he had a duty to disclose.
The Knopfs allege in the alternative that defendants made false statements to Ringel in a successful effort to trick her into giving the legal opinion they needed about the status of the escrow requirement. (See NYSCEF No. 14 at ¶ 188.) These alternative allegations cannot be reconciled with the remainder of the Knopfs’ complaint or the evidence they submit in opposition to the motions to dismiss. The court therefore declines to rely on the alternative allegations in holding that the Knopfs have made out a § 487 claim on their first cause of action.
The Knopfs also allege in the body of the complaint that Akerman made false statements in a June 2017 declaration executed in a fee-arbitration proceeding between Sanford and the law firm of Meister, Seelig & Fein, which formerly represented Sanford. (See NYSCEF No. 14 at ¶¶ 154-159.) These allegations, though, are not included in the lengthy list of false statements or material omissions appearing in the complaint's Causes of Action section. (See id. at ¶ 187.) The Knopfs’ papers opposing the motions to dismiss do not respond to the Akerman/Dorsey motion's challenge to these allegations. And alleged "attorney misconduct during an arbitral proceeding" cannot give rise to a Judiciary Law § 487 claim in any event. (See Doscher v Manatt, Phelps & Phillips, LLP , 148 AD3d 523, 524 [1st Dept 2017].)
This court—like the Second Circuit in Esposito (see 803 F Appx at 454-456 )—concludes that the complaint's detailed allegations amply establish for pleading purposes that Akerman owed the Knopfs a duty to disclose.
According to the allegations of the complaint (as supported by evidence submitted in opposition to the motions to dismiss), the January 2016 phone call was necessary for a multi-million-dollar real-estate transaction to close. The closing of this transaction would convert one of Sanford's principal remaining assets into cash, just as a JHO was (finally) about to determine how much Sanford and Pursuit owed the Knopfs. Sanford viewed it as crucial for him to be free of any restraints on his disposition (or dissipation) of the sale proceeds, to the point of having already blown up the sale closing once at the last minute due to a potential escrow requirement. (See NYSCEF No. 14 at ¶ 64.) Conversely, the Knopfs viewed blocking the sale as crucial to their ability to collect on any judgment against Sanford and Pursuit. The January 2016 call occurred amid the Knopfs’ repeated attempts to obtain legal relief that would prevent Sanford from selling the property and dissipating the proceeds—including a pending First Department appeal from the denial of an order of attachment on the property.
In other words, this call stood to have huge implications not only for Sanford's finances and the Knopfs’ ability to collect on any judgment against him (or Pursuit), but also for the ongoing, bitterly contested litigation between Sanford and the Knopfs regarding the subject of the call. In these circumstances, it was improper and deceptive for Akerman (and Feldman) to have called the First Department ex parte for guidance on the status of the restraints on the PHC's sale.
Filings in Sanford reflect that Sanford exchanged several emails with Akerman on the day of the call itself to ensure that the wording (and appearance) of Akerman's post-call memorandum were just so—to the point that Sanford told Akerman "[t]his doc is really impt. to me. If anything happens to u and ur not available for a signed affidavit, my life is over." (Index No. 113227/2009, NYSCEF No. 461, at 14.)
Akerman suggests that the call need not have been disclosed to the Knopfs because (according to Akerman) it was not an ex parte conversation, but instead concerned merely a simple procedural fact. (See NYSCEF No. 22 at 20-22.) This court agrees with the Second Circuit that the Knopfs’ complaint and supporting evidence sufficiently establish for pleading purposes that this "is simply not the case." ( Esposito , 803 F Appx at 454.)
First , whether as a formal, technical matter the call was "ex parte" would not itself determine Akerman's duty to disclose the call to the Knopfs, given the importance of the call to the ongoing litigation with the Knopfs and the call's obvious implications for the Knopfs’ legal rights and interests.
Second , even if Akerman were correct that the call was about a straightforward procedural issue, that would not, without more, resolve whether the call was ex parte such that it should not have gone forward without the Knopfs’ counsel on the line. New York's Rules Governing Judicial Conduct lay out a careful, nuanced framework for when judges and their staffs may properly communicate with a party or counsel outside the presence of the party's adversary (or the adversary's counsel). The Rules state that such communications are proper only when they are "made for scheduling or administrative purposes," when they "do not affect a substantial right of any party," and when "no party will gain a procedural or tactical advantage as a result" of the communications. ( 22 NYCRR 100.3 [B] [6] [a].) The January 2016 call did not satisfy any of these requirements, much less all of them.
These rules governed Ringel in her role as special master. (See Sanford , 65 Misc 3d at 486.)
New York's Rules of Professional Conduct, governing lawyers, similarly prohibit a lawyer from communicating "as to the merits of the matter with a judge or official of a tribunal or an employee thereof before whom the matter is pending" without the adversary (or the adversary's counsel) being present or copied on the communication. (See 22 NYCRR 1200.0, Rule 3.5 [a] [2].)
Third , the call did not concern a simple matter of procedure. The record on this motion reflects that Akerman and Feldman were seeking from court staff guidance that would entail untangling the proper relationship among three orders that the First Department had entered on two different motions (plus a cross-motion) brought in two different appeals. (See NYSCEF No. 274 at Tr. 59-60, 64-65, 86, 89-90; NYSCEF No. 278 at Tr. 57-58, 101-102.) For that matter, if the procedural fact that Akerman and Feldman were seeking to confirm were so straightforward, it is difficult to see why they would need to call the Court in the first place.
The only simple procedural principle that defendants have proffered as the subject of the call—that a final decision on a preliminary-injunction motion dissolves an interim temporary restraining order—did not apply to their circumstances. As discussed above, the motion on which the Court entered its October 2015 interim escrow order was a different motion from that resolved by the Court's November 2015 order, and sought reargument, not a preliminary injunction. (See Paragraph I.A.2.b, supra. ) Akerman was aware that the two orders were entered on distinct motions. In an email to Akerman and Feldman the day before the call, Sanford stated that the October and November 2015 orders were on different motion sequences. (See NYSCEF No. 247 at 1.) Sanford provided Akerman copies of the orders themselves reflecting that distinction. (See NYSCEF No. 52 at 3-6.) Akerman's post-call memorandum itself notes the different motion numbers of the orders at issue. (See id. at 10.)
The explanation of the relationship between the October and November 2015 orders that Sanford gave in this email also strikingly resembles the explanation that Akerman and Feldman later professed to have been given by Ringel on their call. (Compare NYSCEF No. 247, with NYSCEF No. 52 at 10; OCA Report Attachment F.)
The Knopfs have thus established for pleading purposes that Akerman had a duty to disclose the January 2016 telephone call to them and afford them an opportunity to participate, such that Akerman's failure to do so was a material omission under § 487.
2. Whether the Knopfs have sufficiently demonstrated that Akerman's material omissions resulted from deceitful intent
Akerman's failure to inform the Knopfs about the call was a material omission. But that alone does not support a § 487 claim. The Knopfs must also establish for pleading purposes that Akerman acted with scienter—i.e. , that excluding the Knopfs from the call was not merely an error in judgment on Akerman's part (even a serious error), but was instead a deliberate effort to deceive.
The allegations of the Knopfs’ complaint (and supporting evidence) sufficiently demonstrate, drawing inferences in the Knopfs’ favor, that Akerman acted with scienter in excluding the Knopfs from the January 2016 call. In particular, the Knopfs have established for pleading purposes that the call was not a legitimate, above-board attempt to obtain procedural information. Rather, the call was in essence a set-up—a staged call aimed only at getting the answer Sanford needed to persuade Phillips to close on the PHC sale without escrowing any of the proceeds. It follows from this conclusion that, at least at this stage of the litigation, the Knopfs have sufficiently shown that leaving them (or their counsel) off the call was a deliberate effort to leave them in the dark so that they could not take any further steps to block the PHC sale from going through.
a. Evidence of deceitful intent prior to the January 2016 call
The record contains several pieces of evidence from before the January 2016 telephone call supporting the conclusion that Akerman was acting with deceitful intent when he excluded the Knopfs from the call.
1. The complaint alleges, for example, that the PHC sale was originally scheduled to close on November 3, 2015. (See NYSCEF No. 14 at ¶ 60.) On October 29, 2015, Akerman wrote a letter to inform the building's condominium board and Phillips's counsel Lori Braverman to inform them that a separate notice of pendency on the property had been canceled by Judge Cote on October 16. But Akerman's reassuring October 29 letter omitted any mention of Justice Sweeny's October 22 escrow order. (See id. at 56, 60, 61.) This allegation, construed in the Knopfs’ favor, suggests that Akerman was already attempting to conceal material information that might prevent an unrestricted sale of the PHC from going through. The complaint further alleges that notwithstanding Akerman's effort to conceal the escrow order, one of Phillips's other attorneys learned of that order at the beginning of November—and promptly complained to Sanford about his not having disclosed its existence. (See id. at ¶ 62; see also NYSCEF No. 259 at 1 [November 3, 2015, email from Phillips's attorney to Sanford, stating that "I have no idea why neither Lori [Braverman] nor Ed [Feldman] knew about this court order until I sent [it] to them last night"].)
As noted above, the complaint alleges that Sanford refused on the literal eve of closing to go through with the sale if he would be required to put the sale proceeds into escrow. (See NYSCEF No. 14 at ¶ 64; see also Index No. 113227/2009, NYSCEF No. 168 [reproducing the email quoted in Compl. ¶ 64.)
2. In Sanford's deposition in the Phillips action, he explained the January 2016 call as an effort to respond to concerns from Braverman and Phillips's title company about whether an escrow requirement remained in place after the First Department's October, November, and December 2015 orders. (See NYSCEF No. 275 at Tr. 56-62.) But Braverman testified in her deposition in the Knopf v Phillips federal action that her concern about the escrow order was not whether it continued to be in effect, but what it meant by its reference to "proceeds." Braverman further testified that she simply wanted to be sure that her client Phillips's disbursements of money at closing went to the correct places without risking any contempt of court. (See Deposition Tr. at 30, 36-37, 42-43. )
The full transcript of Braverman's deposition, which the Knopfs’ complaint here paraphrases and relies on as the basis for one of its causes of action (see NYSCEF No. 14 at ¶ 98), appears at Index No. 113227/2009, NYSCEF No. 393.
This inconsistency supports a conclusion that the call was not a genuine effort to allay the buyer's actual escrow-related concerns, but an attempt to find a way to close on the sale of the PHC without impairing Sanford's control over the sale proceeds. Sanford testified at his Phillips deposition that he proposed having his own attorneys call the First Department to forestall Braverman from "walk[ing] over to the Appellate Division" herself and "ask[ing] someone there for clarification" of the escrow order. (NYSCEF No. 275 at Tr. 58-59; see also id. at 60-61.) And Braverman told Akerman and Feldman less than an hour before the call occurred that she was available to participate—but was then left off the call. (See NYSCEF No. 14 at ¶ 87-88; NYSCEF No. 59, NYSCEF No. 60.)
3. The day before the call, Feldman wrote an email to Akerman stating that he needed to set up a time for a call with "the Appellate Division Clerk to confirm that no restraints exist on the sale to Michael Phillip[s]," and that once Feldman had heard "when everyone is available," he would "call the clerk to get her time and availability." (NYSCEF No. 249 [emphasis added].) The language of this email suggests that Feldman already knew the gender—and thus the identity—of the individual (Ringel) to whom he and Akerman planned to speak. It also suggests that Akerman and Feldman knew what answer they were going to receive from the particular First Department clerk they intended to call.
Akerman and Feldman contest the inference to be drawn from Feldman's use of a female pronoun in this email. They point out, among other things, that the First Department's Chief Clerk (Susanna Molina Rojas) and one of the senior court attorneys in the Clerk's Office (Lauren Holmes) are women. (See NYSCEF No. 89 at 2-3 [Feldman]; NYSCEF No. 94 at ¶¶ 14-15 [Akerman].) This court rejects this argument. No evidence in the record indicates that Feldman then knew the identities or genders of the First Department's Chief Clerk or one of its senior court attorneys. And it would be unsurprising were he to lack such knowledge, given that a majority of Feldman's practice consists of transactional real-estate-related matters, as opposed to appellate litigation. (See NYSCEF No. 274 at Tr. 14-15.) Nor has Feldman given any reason he might have thought that his and Akerman's call would be made to Clerk Rojas or Court Attorney Holmes, in particular. Regardless, at this stage of the action, this court is required to draw inferences in favor of the Knopfs, not against them.
4. Feldman testified at his own Phillips deposition that Akerman told him shortly before the planned call that he had already been "advised by the Appellate Division that the restraints were dissolved as a matter of law." (NYSCEF No. 274 at Tr. 26.) That testimony supports the conclusion that Akerman and Feldman's ensuing call to Ringel was in the nature of a staged exercise to get their desired answer, rather than a genuine inquiry about the status of the First Department's October 2015 escrow order.
Feldman later submitted an errata sheet that modified his testimony and removed the statement indicating that Akerman had already spoken to the Appellate Division. Feldman wrote that "[t]his section" of testimony "does not make any sense ... Lines are duplicated, mixed together, and convoluted." (NYSCEF No. 14 at ¶¶ 139-140; NYSCEF No. 302 at 3.) Plaintiffs suggest that this correction was spurious. (See NYSCEF No. 14 at ¶¶ 140-145.) This court need not definitively resolve that question. At a minimum, the Second Circuit has made clear that under the Federal Rules of Civil Procedure, amending deposition testimony does not result in the "original answers [being] stricken." (Podell v Citicorp Diners Club, Inc. , 112 F3d 98, 103 [2d Cir 1997] [internal quotation marks omitted].) Rather, "[t]he original answer to the deposition questions will remain part of the record and can be read at the trial." (Id. [internal quotation marks omitted].)
In other words, the allegations of the complaint (and accompanying documents) have put before this court two different accounts of the conversation between Akerman and Feldman before the call with Ringel. In the present procedural posture, this court must assess those two competing accounts in the light most favorable to the plaintiffs. That leads the court, in turn, to the conclusion, for purposes of the current motion, that Feldman's original account is the correct one.
b. Evidence of deceitful intent during the January 2016 call
The circumstances of the call itself, as reflected by the record before this court on the current motion, indicate that the January 2016 telephone call was not merely an ordinary and legitimate call to the Court from which the Knopfs had been excluded by mistake.
1. That Akerman and Feldman called Ringel , in particular, would by itself call into question whether the call was a legitimate attempt to obtain information from the Court. Ringel's job responsibilities were entirely unrelated to resolving pending motions. At the time of the call, she was the special master in charge of the First Department's mediation program; and her previous position at the Court, from 2012-2015, was serving as a legal editor for the First Department's full-length decisions—not the Court's motion orders. (See NYSCEF No. 278 at Tr. 22-25, 100.) There would have been no reason for Akerman and Feldman to call Ringel for guidance on the status of recent First Department motion orders.
Akerman's explanation for this anomaly—which he gave in considerable detail in his Phillips deposition —was that he had called a general telephone number for the First Department's Clerk's Office, and had then been transferred by someone there to Ringel. (See NYSCEF No. 14 at ¶¶ 129, 134.) That explanation is false. Both Dorsey phone records and the First Department's own phone records show that Akerman neither called the Clerk's Office's general line, nor was transferred from any other First Department phone number to Ringel. (See OCA Report at 8-9.) Akerman called Ringel on her direct line on three different occasions that day. (See id. at 8.)
This point is discussed further in Paragraph I.B.2.c, infra.
Two of those three calls to Ringel's direct line lasted only a matter of seconds (see NYSCEF No. 51 at 8), suggesting that Akerman was unsuccessful in reaching her on those occasions.
2. Ringel's conduct when Akerman and Feldman reached her is also inconsistent with a legitimate call. Akerman's Phillips deposition testimony, for example, reflects that Ringel did not ask him or Feldman why they were calling her with a motions question when she was in charge of the Court's mediation program—as one might expect a member of the Court's staff to do when called out of the blue on a subject for which the staff member was plainly not responsible. (See NYSCEF No. 277 at Tr. 44-45.)
It is striking—and troubling—that Ringel spoke with Akerman and Feldman at all, once they had identified themselves as attorneys for Sanford and explained what they were calling about. (See NYSCEF No. 14 at ¶ 89; NYSCEF No. 277 at Tr. 34; NYSCEF No. 278 at Tr. 41.) The record reflects that Ringel was aware at the time of the call that her husband was also representing Sanford; and that Ringel and Esposito had already discussed the precise orders at issue and how they might affect Sanford. (See NYSCEF No. 278 at Tr. 11, 26-28, 33-35.) Ringel herself had attempted to obtain additional co-counsel for Sanford the day before the call. (See NYSCEF No. 14 at ¶ 85.)
Relatedly, the record reflects that Akerman and Feldman asked Ringel whether she was familiar with the order in the case that they were calling about. (See NYSCEF No. 278 at Tr. 44, 48.) Again, given the volume of motions and orders handled by the First Department, that would be an odd question to ask had the call been legitimately made to a random member of the Clerk's Office's staff.
For that matter, Ringel also contacted her old supervisor, former First Department Justice McGuire, two days after the call to inquire whether he would be interested in representing Sanford. (See NYSCEF No. 14 at ¶ 93; OCA Report at 4.)
In these circumstances, it would have been instantly apparent to Ringel—an experienced First Department court attorney and special master—that it would be unethical for her to answer Akerman and Feldman's questions in her professional capacity. (Cf. Matter of LaBombard v State Comm'n on Jud. Conduct , 11 NY3d 294, 297 [2008] ["Few principles are more fundamental to the integrity, fair-mindedness and impartiality of the judiciary than the requirement that judges not preside over or otherwise intervene in judicial matters involving relatives."].) Yet nothing in the record suggests that Ringel informed Akerman and Feldman that she could not answer their questions given her and her husband's involvement in Sanford's affairs—or that she even mentioned this conflict of interest at all.
Moreover, the record reflects that when Clerk Rojas initially asked Ringel about the call in the spring of 2016, Ringel did not mention either that Esposito had been retained by Sanford or that Esposito had shown Ringel some of the orders about which Akerman and Feldman were calling before they called her. (See NYSCEF No. 51 at 8, 19.)
Ringel's apparent silence on this obvious point strongly suggests that the call was prearranged rather than a genuine request for information. It also suggests that Akerman made his decision to exclude the Knopfs from the call with intent to deceive.
3. The subjects discussed (and not discussed) on the call are inconsistent with its being a genuine and legitimate inquiry. Akerman testified at his Phillips deposition that he and Feldman did not discuss with Ringel whether the orders about which they were asking had all been issued on the same motion sequence. But given the complexity of the underlying procedural context, one would expect that issue to have arisen—even if only in the course of giving Ringel sufficient background to understand the questions being asked of her. And, as discussed above (see Paragraph I.A.2.b, supra ), whether the orders were issued on the same motion or on different motions would help determine the correct answer to those questions. That the issue did not come up indicates, again, that the call was a set-up.
This is particularly true given that Ringel testified that she did not take even the basic step of pulling up on her computer the motion orders about which Akerman and Feldman were calling her. (See NYSCEF No. 278 at Tr. 46-47.)
4. For similar reasons, the call's short length cuts against its having been a legitimate attempt to obtain information from the Court. In defending their conduct, defendants have emphasized that the call was very brief. (The OCA Report states, based on the Court's phone records, that the call lasted 3 minutes and 56 seconds. [See OCA Report at 8].) That very brevity is suspicious. That is, on Akerman and Feldman's own account, they were seeking clarification about multiple motion orders issued by the First Department in a procedural context that can only be described as tangled. Akerman and Feldman's post-call memorandums also each describe Ringel as having given specific, clear answers about the relationship among those orders and their implications for selling the PHC. (See NYSCEF No. 14 at ¶ 116 [quoting body of Feldman memorandum; NYSCEF No. 104 [Akerman memorandum].)
Given these facts, it beggars credulity to think that Akerman and Feldman could have reached Ringel, introduced themselves, provided the necessary background, explained their questions, and gotten an informed answer—all in four minutes. Seeking and obtaining answers to more general questions about procedural principles (such as whether a final decision on a motion dissolves interim relief) might have been feasible in a four-minute call. But such general principles would be insufficient to resolve properly the quandary for Sanford and Phillips on which Akerman and Feldman were supposedly calling for guidance: whether the interim escrow order remained in place given the circumstances of the ongoing litigation between Sanford and the Knopfs.
In other words, the evidence of the call's brief duration suggests that the call was intended to serve merely as a fig leaf that Sanford and his attorneys could use to provide comfort to Phillips and his attorneys, and thereby ensure that the PHC sale would close without escrow of the proceeds. Excluding the Knopfs from a call undertaken with that objective would have been a deliberate effort to hide what Sanford was up to, rather than a genuine mistake. These conclusions are inferences—but in the present posture these inferences must be drawn in the Knopfs’ favor.
This conclusion gains further support from the fact that Akerman and Feldman did not include Phillips's attorney Braverman on the call to Ringel, despite Braverman's having told them shortly beforehand that she was available to participate. (See Paragraph I.B.2.a, supra. )
c. Evidence of deceitful intent after the January 2016 call
The way Akerman and Feldman (and Ringel herself) described the call after the fact also supports a conclusion that Akerman was acting with deceptive intent.
As discussed above, Akerman and Feldman's memorandums were phrased in terms suggesting that they had asked Ringel specific questions and received specific answers about the status and relationship of the motion orders in question. (See NYSCEF No. 104.) But Ringel repeatedly testified at her Phillips deposition that her answer to their questions was couched in very general terms about the procedural fact that interim relief on a motion ends when the full bench decides the motion—as opposed to the particular relationship among the October, November, and December 2015 orders. (See NYSCEF No. 278 at Tr. 44-45, 61, 84.) This tension raises questions about whether the memorandums were truthful and complete descriptions of the call. Such questions, in turn, undermine defendants’ position that the call was a legitimate attempt to obtain information.
The phrasing and areas of emphasis of Akerman's memorandum also closely tracked an email that Sanford had sent Akerman and Feldman the day before the call about how to understand the relationship between the October and November 2015 orders. (See NYSCEF No. 247 at 1.)
These questions are heightened by Akerman's repeated omissions and misstatements about the call when it became an issue in further legal action brought by the Knopfs. For example, in further proceedings before Justice Braun in March 2016, Akerman and Feldman each submitted affirmations about the call that did not disclose Ringel's name, but instead merely described her as a "court attorney." (See NYSCEF No. 14 at ¶¶ 106-107.)
Similarly, in opposing the Knopfs’ spring 2016 motion asking the First Department to hold Sanford in contempt, McGuire's affirmation carefully described Ringel only as an "attorney employed by this Court," without once referring to her by name or job title. McGuire thereby concealed Ringel's identity from the Knopfs—and from the First Department itself. (See Sanford , 65 Misc 3d at 497-498.) As noted above (see Background Section C, supra ), the complaint alleges that Ringel herself was the initial point of contact between Sanford and McGuire. (See NYSCEF No. 14 at ¶ 93.)
Yet more egregiously, Akerman has repeatedly stated in sworn affirmations and testimony that he did not call Ringel directly, but instead was coincidentally transferred to her by a court clerk in the First Department's Clerk's Office. It is a story Akerman has told with color and specifics. In his deposition in the Phillips federal action, for example, Akerman testified that he called the Clerk's Office's general line; described the conversation he had with the person in the Clerk's Office who picked up when he called; and stated that he expressly confirmed with the person who picked up that he was speaking to someone in the Clerk's Office. (See NYSCEF No. 14 at ¶¶ 129, 134; NYSCEF No. 277 at Tr. 23, 36-38, 46-49, 50-51.)
Feldman gave sworn testimony to the same effect, although without the same level of detail. (See NYSCEF No. 274 at Tr. 26, 60; see also NYSCEF No. 14 at ¶¶ 136-138.)
Akerman also relied on that story in seeking, and obtaining, dismissal of the related Esposito federal action. (See NYSCEF No. 14 at ¶¶ 131-133.) Dorsey went so far in Esposito as to seek and obtain sanctions against the Knopfs based in part on how Akerman's description of being transferred to Ringel rendered not even colorable the Knopfs’ allegations of a conspiracy among Sanford and his associates about the PHC sale. (See id. at ¶ 134; Esposito , 2018 WL 1226023, at *6.) For that matter, when the call came under scrutiny, Ringel herself told investigators from the Office of Court Administration that the call had been transferred to her from another First Department extension—and that she could tell it was a transferred call because of how it appeared on her phone's screen. (See OCA Report at 16.)
That request for (and grant of) sanctions is discussed further below in this court's analysis of the motions to dismiss Knopfs’ seventh cause of action. (See Section II.A, infra. )
But we know now that none of those specifics are true. Akerman did not call the Clerk's Office at any point that day. Nor did he call any other First Department extension that was then transferred to Ringel. (See id. at 8-9.) Instead, Akerman called Ringel's direct line—three different times.
Akerman's explanation, including on this motion, is that he fell prey to a mistaken recollection. (See NYSCEF No. 22 at 9 & n 2.) Even if this court were to consider this explanation on a clean slate, the court would be somewhat skeptical, given the sheer level of detail of Akerman's now-repudiated recollection. It is also suspicious that Feldman and Ringel proffered the same mistaken recollection.
This court does not, however, write on a clean slate. Akerman has moved to dismiss under CPLR 3211. Faced with two viable, competing explanations on a motion to dismiss, this court must draw inferences against the moving party's explanation. Here, this court must presume for purposes of the present motion that the Knopfs are correct, and that Akerman's prior account of how he came to be speaking to Ringel in particular during the January 12 call was a lie.
In short, in evaluating the sufficiency of the Knopfs’ allegations, this court must regard Akerman as having perjured himself, at length, about the circumstances of the call—presumably to cover up his and Feldman's true purpose in calling the special-master spouse of one of Sanford's other lawyers. This cover-up would alone suffice to support the Knopfs’ allegation that Akerman's failure to inform the Knopfs of that call was a deliberate effort to keep them in the dark. And in conjunction with the other evidence described above, this court readily concludes that the Knopfs have established that Akerman acted with scienter.
3. Whether the Knopfs Have Sufficiently Alleged that Akerman's Knowingly Deceptive Conduct was Egregious Within the Meaning of Judiciary Law § 487
The Knopfs have also established for pleading purposes that Akerman's conduct was "egregious" within the meaning of § 487. On the Knopfs’ present showing, Akerman knowingly helped Sanford, his client, evade a court order so that Sanford could sell real property worth millions of dollars, thereby frustrating the likely future efforts of creditors to levy on that property. Moreover, Akerman achieved this goal through a deceptive, improper, and ex parte call to a First Department special master, who duly furnished Akerman with the (incorrect) legal opinion that Akerman's client needed—in exchange for a $50,000 payment to her husband. The Knopfs have shown for pleading purposes, in other words, that Akerman not only materially deceived his client's adversary in pending litigation over the very asset that Akerman enabled his client to sell, but also that he aided his client's efforts to evade First Department orders through corrupting a First Department special master. That conduct constitutes "an egregious act of intentional deceit" sufficient to support a § 487 claim. (See Mazel 315 W. 35th LLC , 120 AD3d at 1107 ; Schindler , 262 AD2d at 228.)
C. Feldman's Particular Arguments for Dismissal of the First Cause of Action
The Knopfs’ first cause of action as against Feldman, like their claim against Akerman/Dorsey, relies on Feldman's having intentionally and deceitfully breached his obligation to inform the Knopfs about the January 2016 phone call (before or after it occurred). Feldman challenges the sufficiency of the Knopfs’ allegations and evidence against him on this claim. This court concludes, again like Akerman/Dorsey, that the Knopfs have established for pleading purposes that they have a Judiciary Law § 487 cause of action against Feldman.
To the extent Feldman also argues that the Knopfs’ § 487 claim against him fails in the absence of privity (or its functional equivalent), the argument is without merit. (See NYSCEF No. 45 at 5-6.). As Feldman himself concedes (see id. at 5), that principle governs common-law tort claims. The Knopfs, however, do not rely on tort principles. They rely on a statutory cause of action under § 487, to which no privity requirement applies. (See e.g. Jacobs v Kay , 50 AD3d 526, 527 [1st Dept 2008] [affirming dismissal of tort claims against attorneys for lack of privity, then separately affirming dismissal of § 487 claim on different grounds].)
The Knopfs have sufficiently established that Feldman owed—and breached—a duty to disclose the call to the Knopfs based on the same allegations and evidence discussed above in the context of the Knopfs’ claim against Akerman/Dorsey. (See Subsection I.B.1, supra. ) Those allegations and pieces of evidence also support the conclusion for pleading purposes that Feldman undertook his wrongful conduct with the requisite scienter for § 487 liability. (See Subsection I.B.2, supra. )
The Knopfs’ allegations and evidence with respect to Feldman, in particular, further support a conclusion that Feldman intentionally and deceptively excluded the Knopfs from the call. For example, Sanford testified in Philips that he specifically wanted Feldman on the call to Ringel, rather than Philips's attorney Braverman, because Feldman (unlike Braverman) had litigation experience. (See NYSCEF No. 275 at Tr. 58-59.) And the evidence suggests that it was Feldman who was coordinating the timing of the call with Ringel. (See NYSCEF No. 52 at 6.) But any lawyer with litigation experience would have known, given the ongoing litigation between Sanford and the Knopfs and the importance of the call for the PHC sale closing, that calling a First Department court attorney without the Knopfs on the line would be improper.
As discussed above, drawing inferences in the Knopfs’ favor, this email indicates that Feldman knew that he and Akerman would be calling Ringel, in particular, rather than a random member of the First Department Clerk's Office's staff.
Additionally, Feldman's account of the call given in Phillips and Esposito —i.e. , that Akerman reached the First Department Clerk's Office and then was transferred to Ringel—was false. Although Feldman continues to maintain that he (like Akerman and Ringel) was the victim of a mistaken recollection (see NYSCEF No. 89 at 3), this court is not required at this stage to accept his explanation. Feldman's alteration of his Phillips deposition testimony—to retract his initial statement that Akerman knew ahead of time what answer they would get on the call—itself supports the Knopfs’ showing that Feldman acted with scienter. (See Paragraph I.B.2.a & n 38, supra. ) That is, read in the light most favorable to the Knopfs, Feldman's alteration indicates that he knew in advance of the call that it was a sham, inadvertently admitted as much at his Phillips deposition, and then used a spurious "correction" to his testimony to cover up that admission.
Feldman's description of the call in his Phillips deposition contains other troubling oddities and inconsistencies. Feldman testified that part of the motivation for the call was that the title company had raised concerns about the meaning of the First Department's December 2015 ruling denying Sanford's cross-motion to vacate the escrow requirement—and therefore that Akerman asked Ringel about how to understand that ruling. (See NYSCEF No. 274 at Tr. 89-90; see also NYSCEF No. 278 at Tr. 57-58, 101-102.) But Braverman testified at her deposition in Phillips that she had no recollection of any title company's raising a concern about the December 2015 order; and that she herself had no recollection relating to that order at all. (See Index No. 113227/2009, NYSCEF No. 393, at Tr. 47, 49.)
Feldman also testified that although he had mainly remained silent during the call (in favor of letting Akerman do the talking), toward the end of the call he asked Ringel directly whether all restraints on the PHC had been lifted, and that she said that they had. (See NYSCEF No. 274 at Tr. 33-34.) But Ringel testified in her Phillips deposition that she did not recall being asked that question or giving that answer (see NYSCEF No. 278 at Tr. 84, 87)—although her testimony reflected that she did recall other details of what she, Akerman, and Feldman had discussed (see e.g. id. at Tr. 41, 448-48, 57-58, 101-102). The self-serving character of these disparate recollections raises further doubts about whether the January 2016 call was legitimate and above-board.
Akerman's own post-call memo characterizes Feldman as having "pointedly asked" Ringel whether any restraints were still in place, and having "emphasized he did not want to be in contempt of any court order" by facilitating the sale of the PHC. (NYSCEF No. 104.) One might expect Ringel to remember being asked (or answering) such pointed, emphatic questions, if indeed they were asked during the call (and if Ringel were testifying truthfully).
In short, the Knopfs’ allegations and evidence, taken together, amply establish for pleading purposes that Feldman, as well as Akerman, deliberately and deceptively kept the Knopfs in the dark about the January 2016 phone call with Ringel. For the same reasons set forth above with respect to Akerman, the Knopfs have shown at this stage of the litigation that Feldman's conduct was egregious within the meaning of Judiciary Law § 487.
D. Esposito's Particular Arguments for Dismissal of the First Cause of Action
The Knopfs’ Judiciary Law § 487 claim against Esposito in the first cause of action rests on the "collusion" prong of § 487 (1), rather than the "deceit" prong discussed above with respect to Akerman and Feldman. This court must consider the showing needed to make out a collusion-based § 487 claim.
This court's research has uncovered little appellate authority construing the meaning of "collusion" in the specific context of § 487. The Appellate Division, Second Department, held years ago in Matter of Bregoff that an attorney was guilty of collusion for § 487 purposes when he bribed a juror to rule in his client's favor ; but the Bregoff Court did not undertake a broader analysis of collusion's proper definition and scope. ( See 258 AD 551, 556 [2d Dept 1940].)
This aspect of Matter of Bregoff applied former Penal Law § 273. (See 258 AD at 556.) That statute later was transferred in relevant part to Judiciary Law § 487 without change. (See Amalfitano v Rosenberg , 12 NY3d 8, 14 [2009].)
In Wallace v Jones , the Second Department addressed claims that the Nassau County Board of Supervisors had acted fraudulently or collusively in approving allegedly improper expenses and disbursements incurred by Board members. (See 122 AD 497, 498-499 [2d Dept 1907] [reproducing opinion of Special Term below and affirming on that opinion], aff'd 195 NY 511 [1909].) The Wallace Court relied on legal dictionaries that defined collusion as "[a]n agreement between two or more persons to defraud a person of his rights by the forms of law, or to obtain an object forbidden by law." ( Wallace , 122 AD at 499, quoting Warren v Union Bank of Rochester , 157 NY 259, 270 [1898].) It therefore held that collusion requires "a concerted or agreed purpose to commit a fraud or accomplish a wrong." (Id. )
This venerable precedent is consistent with contemporary understandings of collusion, including for purposes of § 487. (See Bannister v Agard , 125 AD3d 797, 799 [2d Dept 2015] [holding that plaintiff's complaint "failed to plead collusion because it lacks the necessary factual allegations that the corporate defendants and [individual defendant] were part of a common scheme or plan to defraud the plaintiff"]; Bobker v Herrick Feinstein LLP , 2013 NY Slip Op 51967[U], at *4 [Sup Ct, NY County Nov. 6, 2013] [Jaffe, J.] [in § 487 action, quoting Black's Law Dictionary definition of collusion as "an agreement to defraud another or to do or obtain something forbidden by law"]; Leser v Multi Capital Grp. LLC , 2015 NY Slip Op 50272[U], at *8 [Sup Ct, Kings County Mar. 2, 2015] [Demarest, J.] [same, in dispute over real-estate loan guarantees].)
Thus, to make out a collusion-based § 487 claim, a plaintiff must establish that the defendant entered into a plan with others to defraud the court or a party to pending litigation, or otherwise to wrong the court or an adverse party through deliberate deception—and that this improper concerted purpose proximately caused damages to another. Here, this court easily concludes that the Knopfs have established for pleading purposes that Esposito acted collusively within the meaning of § 487.
The Knopfs have expressly alleged that Esposito and Ringel agreed with Sanford that Ringel would provide Sanford with an opinion on the status of the October 2015 escrow order "that suited Sanford's needs" (i.e. , would let him close on the PHC sale without an escrow) in exchange for a $55,000 fee—90% of which would be paid out of PHC-sale proceeds. (NYSCEF No. 14 at ¶ 187 [b].) To carry out this plan, the Knopfs allege, Esposito gave Sanford or Sanford's other attorneys Ringel's direct line at the First Department so that they could call her to obtain that predetermined opinion. (Id. at ¶ 187 [a].)
Although these allegations are not, for the most part, stated on information and belief, it is not entirely clear to this court what basis of knowledge the Knopfs have to make these accusations beyond information and belief. Esposito has not, however, offered evidence in support of his motion to dismiss that definitively negates these allegations, as the cases require. (See e.g. Biondi , 257 AD2d at 81.)
These allegations alone would suffice to show that Esposito and others entered into a plan that would wrong the Knopfs by enabling Sanford to dissipate the proceeds from the PHC sale, thereby frustrating the Knopfs’ ability to collect on a judgment against him (or against Pursuit). Given that the objective of the plan was to evade the escrow order that the Knopfs thought they had obtained against Sanford, all while leaving the Knopfs in the dark, the allegations also establish for pleading purposes that Esposito acted with deceitful intent.
In addition, numerous facts set forth in the complaint and supporting evidence, read in the light most favorable to the Knopfs, sufficiently demonstrate Esposito's collusion and deceit within the meaning of § 487.
The record, as described in Section B of the Background, supra , reflects that in late December 2015 or early January 2016, Sanford met with Esposito about potentially retaining him as counsel. At one of those meetings, Sanford complained to Esposito about what Sanford believed were errors in the First Department's October, November, and December 2015 orders. Esposito immediately showed the Court's November and December 2015 orders to Ringel and sought her input on them. On January 11, 2016, Sanford hired Esposito for a flat fee of $55,000, on the understanding that Sanford lacked sufficient liquidity to pay Esposito more than a small portion of the fee immediately. That same day, Ringel called at least one other lawyer whom she knew in an (unsuccessful) attempt to obtain additional counsel for Sanford.
On January 12, 2016, Akerman and Feldman called Ringel on her direct line at the Court—a call that was dubious in numerous respects. On January 16, Sanford paid Esposito the first $5,000 of his fee. On February 1, the PHC sale closed, facilitated by the January 12 call. Also on February 1, Feldman, at Sanford's direction, wrote a $50,000 check out of the sale proceeds to Esposito's law firm's bank account. This check cleared on February 3. Esposito promptly transferred that $50,000 from his firm's account to a personal bank account—and then on the same day paid a $48,000 American Express bill from that account. Moreover, in the related turnover proceeding brought by the Knopfs over the $50,000 paid to Esposito on February 2, 2016, Esposito was well short of forthright with this court about whether those funds came from PHC sale proceeds. ( SeeFeldman & Assoc. , 2019 NY Slip Op 51145[U], at *3-*4; Sanford , 65 Misc 3d at 492-494 & nn 37-40.)
Such conduct is particularly surprising given that Esposito is himself a Justice of the Oyster Bay Cove Village Court.
This evidence supports the Knopfs’ claim that Sanford agreed to pay Esposito a $55,000 bribe in exchange for Ringel's giving Sanford the ex parte guidance he would need to close on the PHC sale without escrowing any of the proceeds. In other words, Esposito allegedly facilitated Sanford's plan to undermine—quietly—the Knopfs’ efforts to preserve their ability to collect on a judgment against Sanford. Since this case is at the pleading stage, the evidence must be read in the light most favorable to the Knopfs. And the evidence has not yet been sifted and weighed by a fact-finder. But for present purposes, that evidence makes out a § 487 collusion cause of action.
As noted above, the First Department reversed this court's order that had directed Esposito to turn over $50,000 of the $55,000 alleged bribe to Pursuit's bankruptcy trustee. (See Feldman & Assoc. , 180 AD3d 508.)
On reply, Esposito argues that the Knopfs’ showing of what happened is simply a set of "salacious allegations" that "represent nothing more than Plaintiffs’ attempts to destroy the reputations of hard working attorneys," and which are less logical or plausible than the account he has given in his own defense. (See NYSCEF No. 88 at ¶¶ 3, 9-10). But that argument itself shows why dismissing this claim against him would be inappropriate. It is not enough for Esposito to offer a better explanation than the Knopfs. Given that this is a CPLR 3211 (a) (7) motion involving extrinsic evidence, Esposito must also negate the factual basis for the Knopfs’ account "beyond substantial question." ( Biondi , 257 AD2d at 81 [internal quotation marks omitted].) He has not done so.
E. Second Cause of Action (Conspiracy to Violate Judiciary Law § 487 as Against Akerman/Dorsey, Feldman, and Esposito)
The Knopfs’ second cause of action alleges that Akerman, Feldman, and Esposito conspired with each other, with Sanford, and with Ringel to violate Judiciary Law § 487. (See NYSCEF No. 14 at ¶¶ 192-194.) Akerman/Dorsey, Feldman, and Esposito each move to dismiss this cause of action. The motions to dismiss are denied.
The Knopfs also seek to hold Dorsey vicariously liable for Akerman's role in the alleged conspiracy. (See NYSCEF No. 14 at ¶ 195.)
Under New York law, "allegations of civil conspiracy are permitted to connect the actions of separate defendants with an otherwise actionable tort." ( Cohen Bros. Realty Corp. v Mapes , 181 AD3d 401, 404 [1st Dept 2020] [internal quotation marks omitted].) To make out a claim for conspiracy, a plaintiff must demonstrate (i) the primary tort (here a violation of § 487 ); (ii) an agreement between multiple parties; (iii) an overt act in furtherance of that agreement; (iv) the parties’ "intentional participation in the furtherance of a plan or purpose"; and (v) resulting damage to the plaintiff. (Id. )
As set forth above, the Knopfs have established for pleading purposes that Judiciary Law § 487 was violated. They have also demonstrated that Akerman, Feldman, and Esposito each agreed with Sanford that they would help him close on the sale of the PHC without escrowing any of the proceeds (thereby allowing him to shield those proceeds from the Knopfs’ collection efforts); and that they took specific overt acts to further this outrageous conspiracy.
Esposito, for example, is alleged to have agreed with Sanford and Ringel that she would provide Sanford the ex parte opinion he needed to close on the PHC sale sans escrow; and to have provided Sanford with Ringel's direct phone number at the First Department to facilitate the call. Akerman and Feldman are alleged, for example, to have called Ringel without telling the Knopfs, obtained the needed ex parte opinion that no escrow requirement applied, and given Sanford (and Phillips) post-call memorandums reflecting the ex parte opinion Ringel supplied during the call.
And, as discussed further above, the Knopfs have sufficiently alleged that this common plan injured them financially because the January 2016 call enabled Sanford to dissipate millions of dollars in assets that would otherwise have gone toward satisfying the Knopfs’ claims against him.
II. The Knopfs’ Seventh and Eighth Causes of Action ( Judiciary Law § 487 as against Akerman/Dorsey, Feldman, and Esposito based on statements and omissions occurring after October 2017)
The Knopfs have also brought Judiciary Law § 487 claims based on alleged false statements that defendants allegedly made after October 2017 in then-pending judicial proceedings. The seventh cause of action, seeking damages against Akerman/Dorsey and Feldman for alleged false statements made in the Esposito federal action before Judge Cote, is addressed in Section II.A, infra. The eighth cause of action, seeking damages against Feldman and Esposito for alleged false statements made in the Feldman & Associates turnover proceeding before this court, is addressed in Section II.B.
The branches of Akerman/Dorsey and Feldman's motions that seek dismissal of the Knopfs’ seventh cause of action are denied. The branches of Feldman and Esposito's motions that seek dismissal of the Knopfs’ eighth cause of action are granted.
A. The Motions to Dismiss the Knopfs’ Seventh Cause of Action
The Knopfs’ seventh cause of action is based on Akerman and Feldman's use of their Phillips deposition testimony that Akerman had called a general number for the First Department's Clerk's Office and then been randomly transferred to Ringel. The Knopfs allege that this deposition testimony from Philips was not simply false, but a deliberate lie. They further allege that Akerman and Feldman then used the Philips testimony in the Esposito federal action to deceive the district court into believing the Knopfs’ theory of wrongdoing to be not merely implausible but frivolous; and that as a result the court dismissed the Esposito action on an incorrect ground and sanctioned the Knopfs and their counsel. (See NYSCEF No. 14 at ¶¶ 124, 129-138.) This court concludes that the Knopfs have established for pleading purposes that they have a cause of action on this claim.
An unusual dimension of the Knopfs’ seventh cause of action is that it might ultimately require this court (or a state-court jury) to determine whether defendants injured the Knopfs through false statements in a prior federal action. Although defendants’ motions do not challenge this dimension of the claim, it appears to be unresolved whether a § 487 claim may rest on prior false statements made by New York attorneys before a federal court located in New York. At most, the First Department in dicta has suggested that § 487 may be intended only "to regulate the manner in which litigation is conducted before the courts of this State." (Doscher , 148 AD3d at 524.) But the statute's language is not so limited. It refers to a wrongdoer's "intent to deceive the court," as opposed, perhaps, to "a court of this State." (Judiciary Law § 487 [1] [emphasis added].) And the Second Department has reversed the dismissal of a § 487 claim based on alleged false statements made before a federal bankruptcy court. (See Izko Sportswear Co. v Flaum , 25 AD3d 534, 537 [2d Dept 2006], abrogated on other grounds Dupree , 102 AD3d at 913.) That said, this particular issue was neither pressed nor passed on in Izko Sportswear ; it is unclear how much precedential weight to afford that decision. Regardless, since defendants have not raised the issue on the present motions, this court need not—and does not—resolve it now.
This claim, unlike the Knopfs’ first and second causes of action, challenges particular orders entered in the Esposito federal action that defendants allegedly obtained in part by fraud and deceit. That fact, alone, though, does not foreclose the Knopfs from asserting the claim in this freestanding action. The orders in question have already been vacated, either by the Second Circuit or by the district court itself. The relief sought by the Knopfs is thus limited to the amount of additional attorney fees they were required to incur due to defendants’ alleged deceit (in opposing entry of the orders at issue themselves, and then in seeking vacatur or reversal of the orders after the fact). And the Knopfs clearly can seek that relief in a separate action. (See Amalfitano , 12 NY3d at 14-15 ; Melcher , 135 AD3d at 554.)
With respect to the sufficiency of the pleadings supporting this claim, this court, in considering the motions to dismiss the Knopfs’ first cause of action, has already discussed Akerman and Feldman's false testimonial recollections. (See Paragraphs I.B.2.b, 2.c [Akerman] and Section I.C [Feldman], supra. ) As noted there, it is undisputed that this testimony has been disproven by First Department and Dorsey telephone records. On the present procedural posture, moreover, this court is constrained to conclude that Akerman and Feldman gave these false accounts deliberately in order to deceive the district court in Phillips and Esposito . And, if anything, the fact that Akerman/Dorsey relied in Esposito on these accounts to support their successful motions to dismiss and Dorsey's successful motion for sanctions (see NYSCEF No. 14 at ¶¶ 132-134) makes the inference of deceitful intent stronger on this cause of action than the first claim above.
It is immaterial that Feldman continues to maintain that his false statements about how he and Akerman came to be speaking to Ringel were based on a mistaken recollection rather than deceitful intent. (See NYSCEF No. 89 at 3.) At this stage of the litigation, this court may not credit Feldman's exculpatory account over the Knopfs’ contrary inferences from the record.
Further, the district court gave weight to this characterization of how the call with Ringel occurred, both in granting the motion to dismiss and in awarding Dorsey attorney fees as a sanction. (See Background Section D, supra. ) The Knopfs have thus sufficiently alleged that Akerman and Feldman's false statements caused them harm in the form of (substantial) added attorney fees that the Knopfs were forced to incur in Esposito . (See NYSCEF No. 14 at ¶¶ 248-254.)
These allegations, taken together, establish for pleading purposes that the Knopfs have a § 487 claim on this cause of action. This court finds defendants’ contrary arguments unpersuasive.
Akerman contends that the Knopfs were required also to allege that they reasonably relied on the statements at issue. (See NYSCEF No. 22 at 24-25.) But § 487 does not derive from common-law fraud. It lacks a reliance requirement of the sort that applies to fraud claims. (See Bill Birds , 35 NY3d at 178.)
Feldman asserts that the false statements at issue here are not actionable under § 487. According to Feldman, the Knopfs fail to establish that any "lawsuit could not have gone forward in the absence of the material misrepresentation." (NYSCEF No. 93 at 8-9, quoting Gerard Fox Law, P.C. v The Vortex Group, LLC , 2019 NY Slip Op 32065[U], at *3 [Sup Ct, NY County July 10, 2019] [Borrok, J.].) The Knopfs were not required to make that showing, however. They must show only that they suffered damages or were forced to incur additional legal expenses "as a proximate result of a material misrepresentation in a prior action." ( Melcher , 135 AD3d at 552.)
In context, the language from the Supreme Court's decision in Gerard Fox quoted by Feldman is limited to the particular context of the § 487 claim in that case, rather than purporting to establish a general pleading requirement. In Gerard Fox , the defendant was asserting a § 487 counterclaim based on an allegation that plaintiff's complaint had been based in part on false statements. The Gerard Fox court accordingly described the requisites of a § 487 claim as they would apply when the claim was based on allegedly false statements made by a plaintiff—not, as here, false statements made by a defendant. (See 2019 NY Slip Op 32065[U], at *3. That is also true of the similar language in Amalfitano that is quoted in Gerard Fox. (See 12 NY3d at 14-15.)
Feldman also argues that he cannot be held liable on this cause of action because he did not receive any part of the sanctions awarded by the district court in reliance on Akerman and Feldman's statements about the call with Ringel. (See NYSCEF No. 93 at 8.) This argument is meritless.
Feldman's argument is premised on the assumption that the measure of recovery in a § 487 action is the gains to the wrongdoer from the alleged wrongdoer. No gains, no recovery. That would be true if § 487 provided for the equitable remedy of disgorgement of a wrongdoer's ill-gotten gains. (See People v Ernst & Young, LLP , 114 AD3d 569, 569-570 [1st Dept 2014] [discussing this remedy].) But it does not. Instead, § 487 creates a cause of action for money damages. The measure of recovery in damages is the harm inflicted by the wrong, so that the victim of the wrong may be made whole. (See E.J. Brooks Co. v Cambridge Security Seals , 31 NY3d 441, 448 [2018].)
Thus, for present purposes what matters is that the Knopfs have alleged that knowingly false statements by Feldman—i.e. , that the district court should dismiss the claims against him in Esposito because the circumstances of the Ringel call showed that Feldman was not part of a conspiracy—contributed to the court's decision to dismiss the Knopfs’ claims and award substantial monetary sanctions against them, forcing the Knopfs to incur substantial additional legal fees and expenses. Drawing inferences in the Knopfs’ favor at this stage of the action, that allegation makes out a § 487 claim.
In any event, even if Feldman were correct that the sanctions award cannot support an Esposito -based § 487 claim against him, that would not warrant dismissing the claim altogether. The Knopfs’ complaint is clear that its seventh cause of action is based not only on fees relating to the sanctions award, but also on fees incurred to obtain reversal of the district court's merits ruling dismissing the Knopfs’ complaint. At most, Feldman's arguments about the sanctions award in Esposito might be relevant to the amount of damages the Knopfs could recover should Feldman ultimately be held liable on this cause of action. But those arguments do not support dismissing this cause of action at the pleading stage.
Feldman also contends that this claim is barred by collateral estoppel in light of the district court's July 2018 order in the Esposito action that denied the Knopfs’ motion for sanctions. (See NYSCEF No. 93 at 8.) This contention fails for the reasons discussed above with respect to defendants’ challenges to the first cause of action. (See Subsection I.A.3, supra. )
B. The Motions to Dismiss the Knopfs’ Eighth Cause of Action
The Knopfs’ eighth cause of action is based on allegations that Esposito and Feldman each made intentionally false statements in proceedings before the undersigned in the Sanford action and the Feldman & Associates turnover proceeding. (See NYSCEF No. 14 at ¶¶ 161-184, 259-264.)
Having carefully reviewed the numerous statements on which the Knopfs rely, this court is far more skeptical of plaintiff's showing that a material number of these statements—as opposed to the statements at issue in the first and seventh causes of action—were objectively false, so as to take them outside the realm of legitimate adversarial dispute. (See Curry v Dollard , 52 AD3d 642, 644 [2d Dept 2008] [holding that statements by attorneys "advocating a reasonable interpretation ... most favorable to their clients" will not give rise to § 487 liability even if that interpretation ultimately proves incorrect]; Lazich v Vittoria & Parker , 189 AD2d 753, 754 [2d Dept 1993] [finding no § 487 liability where "the statements and conduct complained of were well within the bounds of the adversarial proceeding"]; Alliance Network , 43 Misc 3d at 861-862 [same].)
Moreover, even if this court concluded that the statements were false for § 487 purposes, the Knopfs have not established that the statements proximately caused them injury. The Knopfs’ complaint does not allege that the statements at issue on the eighth cause of action harmed them by leading to unfavorable judicial rulings, or inflicted monetary harm or the like outside the judicial proceedings in which they were made. Nor, beyond a single conclusory allegation (see NYSCEF No. 14 at ¶ 263), have the Knopfs even attempted to establish that the alleged false statements caused them to incur additional legal fees beyond what they would have needed to spend had the statements been true. (See Rozen v Russ & Russ, P.C. , 76 AD3d 965, 968 [2d Dept 2010] [finding no § 487 violation based on material omissions where litigating the action "would likely have required the same expenditure of attorney's fees by the plaintiffs" had all material information been disclosed].)
The motions to dismiss the eighth cause of action are granted.
III. The Knopfs’ Third, Fourth, Fifth, and Ninth Causes of Action
In addition to their Judiciary Law § 487 claims, the Knopfs have brought several other monetary claims against different defendants—the complaint's third, fourth, fifth, and ninth causes of action. These claims each sound in different areas of law. What they have in common is that none of the claims is viable. The branches of defendants’ motions seeking dismissal of these claims are granted.
As noted above, see note 13, supra , the Knopfs also originally brought a claim for money damages against Sanford for alleged fraud (the complaint's sixth cause of action). That claim was later discontinued. (See NYSCEF No. 172.)
A. The Third Cause of Action (Fraud as against Akerman/Dorsey, Feldman, and Esposito)
The Knopfs’ third cause of action seeks damages for alleged fraud and deceit against Akerman/Dorsey, Feldman, and Esposito. Although this claim is styled as a fraud claim, in substance it merely supplements the allegations supporting the Knopfs’ § 487 claim discussed above in Point I. The allegations of the third cause of action do not attempt to satisfy all the elements of a conventional common-law fraud claim. In particular, the third cause of action does not include any allegations that might establish for pleading purposes that the Knopfs relied on any of the false statements or material omissions said to have been made by Akerman/Dorsey, Feldman, or Esposito. (See Lama Holding Co. v Smith Barney Inc. , 88 NY2d 413, 421 [1996] [describing elements of common-law fraud claim, including reliance].) Defendants’ motions to dismiss this cause of action are granted.
B. The Fourth Cause of Action (Fraudulent Conveyance as Against Esposito)
The Knopfs’ fourth cause of action is a claim for fraudulent conveyance against Esposito, based on the $55,000 that Sanford paid Esposito (or his law firm). (See NYSCEF No. 14 at ¶¶ 209-223.)
The Knopfs withdrew the fraudulent-conveyance claim in their original memorandum of law opposing the motions to dismiss, given this court's turnover ruling in the Feldman & Associates proceeding. (See NYSCEF No. 86 at 8 n 4 [withdrawing the claim].) As noted above, the First Department later reversed this court's turnover order in February 2020, after initial briefing on the motions to dismiss was complete. (See Feldman & Assoc. , 180 AD3d 508.) But the Knopfs did not ask this court thereafter to reinstate their fourth cause of action in light of the change in circumstances. Nor have they addressed the fourth cause of action in their supplemental memorandum of law opposing dismissal. (See NYSCEF No. 268.) This court concludes that the Knopfs have withdrawn this cause of action.
On appeal in the turnover proceeding, the Knopfs sought for the first time also to raise a fraudulent-conveyance argument in defense of this court's turnover ruling. The First Department declined to consider this argument because the Knopfs had not raised it below. (See Feldman & Assoc. , 180 AD3d at 508.)
The Knopfs’ withdrawal of this claim does not altogether resolve whether the $50,000 payment from Sanford to Esposito should be unwound as a fraudulent conveyance. Esposito has represented in his supplemental affirmation in support of dismissal that Pursuit's Chapter 7 bankruptcy trustee has expressly reserved the right to bring a fraudulent-conveyance claim and has entered into a tolling agreement to safeguard the timeliness of that claim. (See NYSCEF No. 236 at ¶ 9.)
C. The Fifth Cause of Action (Fiduciary Duty as Against Feldman)
The Knopfs’ fifth cause of action raises a claim for breach of fiduciary duty against Feldman only. This claim asserts that Feldman had a fiduciary responsibility to maintain the net proceeds of the PHC sale (a little over $1 million) in escrow given the First Department's October 2015 escrow order, and that he breached that responsibility by instead paying the money over to Sanford. (See NYSCEF No. 14 at ¶¶ 224-231.) But the First Department has held that no escrow requirement was in place when the PHC sale closed on February 1, 2016. (See OCA Report Attachment H [Revised June 2016 order].) That holding, correct or not, remains binding on this court. And the complaint's allegations do not establish that Feldman owed any fiduciary obligation to hold those funds in escrow absent a judicially imposed requirement to do so. The fifth cause of action is dismissed.
D. The Ninth Cause of Action ( Judiciary Law § 773 as Against Esposito)
The Knopfs’ ninth cause of action asks this court to hold Esposito in contempt for allegedly failing to comply with Justice Moskowitz's February 2016 order directing the return into escrow of the remaining proceeds from the PHC sale. The Knopfs have not made out this cause of action.
Between February 1 and February 25, 2016, Sanford/Pursuit transferred $214,000 to Esposito. ( See Sanford , 65 Misc 3d at 489-490.) Of that total, $50,000 was the payment of Esposito's legal fee. The First Department held in its turnover decision that Esposito was not required by Justice Moskowitz's February 2016 order to return that sum into escrow. (See Feldman & Assoc. , 180 AD3d at 508.) Of the remaining $164,000, the record in the turnover proceeding establishes that on February 27, 2016, Esposito paid approximately $159,000 back to accounts controlled by Sanford. (See Index No. 153821/2019, NYSCEF No. 100, at 2-3.) And counsel for the Knopfs acknowledged during supplemental oral argument on the present motions that Esposito used the remaining $5,000 to pay legitimate expenses of business entities controlled by Sanford. (See NYSCEF No. 290 at Tr. 52-54.)
Esposito has thus fully satisfied his obligations under Justice Moskowitz's February 2016 escrow order, as those obligations have been construed by the First Department. The claim seeking to hold him in contempt for allegedly violating that escrow order is dismissed.
This court does not reach whether the Knopfs would have a claim under this cause of action if the First Department were to retreat from its current view on the question whether Esposito was required to return the $50,000 under Justice Sweeny's October 2015 order or Justice Moskowitz's February 2016 order.
IV. The Knopfs’ Tenth Cause of Action (Declaratory Judgment as against Akerman/Dorsey, Feldman, and Esposito)
Finally, the Knopfs’ tenth cause of action asks this court to enter a declaratory judgment providing that the Revised June 2016 order is void and without legal effect. The motions to dismiss this claim are granted.
This court lacks the authority to declare that a prior ruling of the Appellate Division in another action is legally invalid and void based merely on a party's argument that the Appellate Division erred in the way it reached and issued that ruling. (See Matter of Branciforte v Spanish Naturopath Socy. , 217 AD2d 619, 620 [2d Dept 1995] [holding that Supreme Court lacked jurisdiction to hear CPLR article 78 proceeding that sought "to overturn a judgment of the Civil Court which had been affirmed by the Appellate Term and for which leave to appeal had been denied by this court"], citing Maracina v Schirrmeister , 152 AD2d 502, 502-503 [1st Dept 1989] [holding that "[t]rial courts are without authority to vacate or modify orders of the Appellate Division"].)
This court need not, and does not, address the distinct issue of whether and when a justice of the Supreme Court, Trial Term, may declare that a prior Appellate Division decision is no longer binding precedent given an intervening decision of the Court of Appeals.
The Knopfs rely on the decision of the U.S. Supreme Court in Smith v Bayer (564 US 299 [2011] ). (See NYSCEF No. 86 at 31.) The language from Smith quoted by the Knopfs, however, merely describes the commonplace proposition that "[d]eciding whether and how prior litigation has preclusive effect is usually the bailiwick" of the court in which preclusion is raised as a defense, as opposed to the court that had entertained the prior litigation. ( 564 US at 307.) That proposition is different from a trial court's having the power to declare that a prior appellate order lacks preclusive effect because it was invalidly issued and therefore void. This court lacks that power. And this court declines the Knopfs’ invitation to claim that power for itself.
Accordingly, for all the foregoing reasons, it is hereby
ORDERED that Akerman/Dorsey's motion to dismiss under CPLR 3211 (mot seq 001) is denied with respect to the Knopfs’ first, second, and seventh causes of action; and granted with respect to the Knopfs’ third and tenth causes of action; and it is further
ORDERED that Esposito's motion to dismiss under CPLR 3211 (mot seq 002) is denied with respect to the Knopfs’ first and second causes of action; and granted with respect to the Knopfs’ third, fourth, eighth, ninth, and tenth causes of action; and it is further
ORDERED that Feldman's motion to dismiss under CPLR 3211 (mot seq 003) is denied with respect to the Knopfs’ first, second, and seventh causes of action; and granted with respect to the Knopfs’ third, fifth, eighth, and tenth causes of action; and it is further
ORDERED that the Knopfs’ motion to supplement the record under CPLR 2214 (c) (mot seq 005) is denied; and it is further
ORDERED that the Knopfs serve a copy of this order with notice of its entry on all parties.