Opinion
INDEX NO. 8651/2005
09-30-2020
Cheryl Lee and Charles Roe, individually and on behalf of those class members similarly situated, Plaintiff(s), v. Leeds, Morelli & Brown, P.C., Leeds, Morelli & Brown, L.L.P., Leeds, Morelli & Brown, Lenard Leeds, Steven A. Morelli, Jeffrey K. Brown, James Vagnini, Frederick David Ostrove, Robert John Valli, JR., Bear, Stearns & CO., INC., John Does 1-10, a fictitious designation for presently unknown licensed attorneys, professionals and/or unknown persons or entities, Defendant(s).
NYSCEF DOC. NO. 47 At an IAS Term, Part 83 of the Supreme Court of the State of New York, held in and for the County of Kings, at the Courthouse, at Civic Center, Brooklyn, New York, on the 30th day of September, 2020. PRESENT: HON. INGRID JOSEPH, Justice. The following e-filed papers read herein:
| NYSEF Nos. | |
|---|---|
| Notice of Motion/Order to Show Cause/Petition/Cross Motion andAffidavits (Affirmations) Annexed | 6, 8 |
| Opposing Affidavits (Affirmations) | 24 |
| Reply Affidavits (Affirmations) | 40 |
Upon the foregoing papers, plaintiffs Cheryl Lee and Charles Roe, individually and on behalf of those class members similarly situated, move to reargue a prior order of this court, dated January 8, 2020, which granted the separate motions of defendant Bear, Stearns & Co., Inc. (Bear) and defendants Leeds, Morelli & Brown, P.C., Leeds, Morelli & Brown, L.L.P., Leeds, Morelli & Brown (collectively, LMB), Lenard Leeds, Steven A. Morelli, Jeffrey K. Brown, James Vagnini, Frederick David Ostrove and Robert John Valli, Jr. (collectively, LMB attorneys) for an order dismissing the complaint upon grounds which included statute of limitations (CPLR § 3211 [a] [5]) and failure to state a cause of action (CPLR § 3211 [a] [7]).
Plaintiffs commenced this putative class action seeking damages for breach of fiduciary duty, legal malpractice and fraud, among other claims, stemming from a global settlement agreement between LMB and Bear. Plaintiffs contend that the agreement was secretly designed to materially benefit both LMB and Bear while depriving plaintiffs of the right to bring legal actions against Bear for race, age and gender discrimination by compelling plaintiffs to settle for capped and inadequate settlement awards.
In or around early 2001, LMB was consulted by several Bear employees, including plaintiffs Lee and Roe, regarding employment discrimination claims against Bear. Plaintiffs each executed an undated retainer agreement authorizing LMB to represent them with respect to "negotiating a settlement" against Bear. On or about October 1, 2001, LMB and Bear agreed to a global settlement award and process which was memorialized in a "Dispute Resolution Agreement by Single Settlement Payment" (DRA), dated October 17, 2001. The DRA set forth a global settlement amount of $3 million. From the global settlement amount, Bear agreed to pay LMB's one-third contingency fee of $1 million that the 52 claimants represented by LMB (including plaintiffs) would otherwise be required to pay from their settlement allocations. The remaining $2 million in settlement funds was to be distributed among the claimants according to the settlement process set forth in the DRA. Under this process, each of the 52 participating claimants would receive an up-front $2,500 payment for releasing their right to bring any claims and/or causes of action against Bear, and the $1.87 million remaining in the global settlement fund would then be divided among the claimants based upon the merits of each individual claim. The merits of each claim would be examined by an independent evaluator, selected by LMB, who would thereafter issue a settlement award to the claimant, if merited, based upon submissions from LMB on behalf of the claimant and from Bear in opposition. If any amount remained in the settlement fund following distribution of all claimants' awards, such sums would be donated by Bear to the New York Times 9/11 Fund.
Plaintiffs Lee and Roe signed new, superseding retainer agreements with LMB on October 2, 2001 and October 3, 2001, respectively. The superseding retainers authorized LMB to represent plaintiffs in the global settlement process pursuant to the DRA, the essential terms of which were set forth in the retainers. The retainers further advised that LMB "will not be filing any documents in court or with any administrative agency" and contained, among other terms, the following provisions:
"5. All parties have read and understood each and every term herein and the signature below constitutes an acknowledgment of such understanding. Client also acknowledge[s] and understand[s] that he/she is obligated to cooperate in good faith during each phase of the Dispute Resolution Agreement and hereby agree[s] to so cooperate ..."
* * *
"8. Client waives/his/her right to receive a copy of the Retainer, the Dispute Resolution Agreement and related paperwork because he/she understands the importance of maintaining and complying with the strict confidentiality provisions set forth in the Dispute Resolution Agreement. However, he/she understands that upon providing [LMB] with reasonable notice he/she will be permitted to inspect and study the Retainer and the Dispute Resolution Agreement and have a[n] [LMB] attorney present in order to address any of client's concerns."
In addition to the retainers, both plaintiffs signed an Execution and Acknowledgment stating that they read the DRA and "accept and agree to the provisions it contains and hereby execute it voluntarily with full understanding of the consequences" and that "[e]ach of the terms of the [DRA] has been thoroughly explained to [them] by [their] attorneys." Plaintiffs also signed and swore to Release Agreements which, among other provisions, authorized LMB to represent them in a single global settlement in the amount of $2 million, which was to be divided among the clients participating in the settlement process in accordance with the DRA, and which further released Bear from any all claims and causes of action relating to plaintiffs' employment or separation from employment with the company.
Pursuant to the DRA, plaintiffs' claims, along with those of the other claimants, were submitted to a neutral evaluator for determination of their value, if any. The neutral evaluator subsequently issued decisions which awarded $60,000.00 to plaintiff Roe and $55,000 to plaintiff Lee. On March 6, 2002 and March 7, 2002, plaintiff Lee and plaintiff Roe, respectively, signed and swore to "Evaluation Allocation and Release Agreement[s]" wherein each claimant acknowledged, among other things, that he/she had the opportunity to appear before the evaluator, present his/her claims and accept the award stated therein as consideration for the release of his/her claims against Bear.
Plaintiffs commenced the instant action on March 23, 2005. In their complaint, plaintiffs set forth causes of action against LMB and LMB attorneys for breach of fiduciary duty (first), fraud (third) and legal malpractice (sixth), against Bear and the John Doe defendants for aiding and abetting breach of fiduciary duty (second), aiding and abetting fraud (fourth), constructive fraud (fifth) and tortious interference with a contract (seventh) Plaintiffs' eighth and final cause of action is interposed against all defendants for "commercial bribery." The gravamen of plaintiffs' claims is that LMB and Bear agreed to a mutually beneficial global settlement agreement, which (1) capped the amount of damages Bear would pay to settle the claims, which in turn capped the amounts LMB's clients could recover under the settlement process, (2) guaranteed a generous $1,000,000 legal fee to LMB and (3) protected Bear from negative publicity which may have ensued from litigation of employment discrimination claims in court. Plaintiffs allege that LMB "duped" their clients into waiving relief in court and into participating in the "sham" settlement process for "arbitrary" and "inadequate" settlement awards. Plaintiffs contend that because the DRA made the $1 million legal fee contingent on LMB persuading the 52 claimants to execute releases and participate in the "sham" settlement, a conflict of interest was created between LMB and its claimant/clients.
By order dated January 8, 2020, this court dismissed the complaint in its entirety. The court found the first cause of action for breach of fiduciary duty untimely as it accrued, at the latest, upon plaintiffs' execution of the superseding retainer agreements on October 2, 2001 and October 3, 2001, wherein plaintiffs expressly assented to the global settlement process pursuant to the DRA and waived any other claims or causes of action against Bear. The court applied the three-year statute of limitations as it determined the remedy sought by plaintiffs was purely monetary in nature. Because the instant action was not commenced until March 23, 2005, the breach of fiduciary cause of action was barred by the statute of limitations. In addition, the court found that the cause of action for breach of fiduciary duty was subject to dismissal as duplicative of the legal malpractice cause of action, because both claims were based on the same facts and did not allege distinct damages. In the January 8, 2020 order, the court found that the legal malpractice cause of action was also barred by the statute of limitations, since it accrued at the latest, on March 6, 2002 and March 7, 2002, when plaintiff Lee and plaintiff Roe, respectively, signed and swore to the "Evaluation Allocation and Release Agreement[s]" accepting the settlement awards. The court also dismissed the cause of action for fraud as it determined that plaintiffs failed to plead that they suffered actual pecuniary loss or and "out-of- pocket" loss as the result of the alleged fraud.
A motion for leave to reargue "shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion" (CPLR § 2221 [d] [2]). While the determination to grant leave to reargue lies within the sound discretion of the court (see Barnett v Smith, 64 AD3d 669, 670-671 [2d Dept 2009]; Long v Long, 251 AD2d 631 [2d Dept 1998]; Loland v City of New York, 212 AD2d 674 [2d Dept 1995]), a motion for leave to reargue "is not designed to provide an unsuccessful party with successive opportunities to reargue issues previously decided, or to present arguments different from those originally presented" (McGill v Goldman, 261 AD2d 593, 594 [2d Dept 1999]; see Woody's Lbr. Co., Inc. v Jayram Realty Corp., 30 AD3d 590, 593 [2d Dept 2006]; Foley v Roche, 68 AD2d 558, 567-568 [1st Dept 1979]).
The court, in its discretion, grants reargument and upon review of the parties' arguments and applicable law, adheres to its prior determination for the following reasons:
The Plaintiffs have failed to demonstrate that the court misapprehended or overlooked the statute of limitations applicable to the breach of fiduciary duty and legal malpractice claims. The court properly applied a three-year statute of limitations period to plaintiffs breach of fiduciary duty claims (seeking damages), rather than a six-year statute of limitations period under CPLR § 213 (8), which applies in cases where the allegation of fraud is essential to the breach of fiduciary duty claim. The court also correctly determined that the "continuous representation" tolling rule did not extend the three-year limitations period until plaintiffs received their settlement checks on March 29, 2002.
Moreover, in finding that plaintiffs failed to adequately plead fraud damages, the court did not misapprehend the meaning of the "out of pocket" rule, which is the difference between the value of what was given up and what was received in exchange. Additionally, the court found that plaintiffs' breach of fiduciary duty claim was time-barred and further, that such claim was also duplicative of plaintiffs' legal malpractice (professional negligence) claim. Finally, the court did not overlook the law which allows recovery of additional damages for breach of fiduciary duty based upon the plaintiffs' forfeiture of the $1 million in legal fees paid to LMB.
The breach of fiduciary duty claim is time-barred. In IDT Corp v Morgan Stanley Dean Witter & Co., 12 NY23d 132, 139 [2009], the Court of Appeals explained, "[w]here the remedy sought is purely monetary in nature, courts construe the suit as alleging "injury to property" within the meaning of CPLR 214(4), which has a three-year limitations period." The Court further explained, "[w]here an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8) (IDT Corp v Morgan Stanley Dean Witter & Co., 12 NY3d at 139 citing Kaufman v Cohen, 307 AD2d 113, 119 [1st Dept 2003]). Here, plaintiffs breach of fiduciary cause of action consists of allegations of conflicts of interest, violations of ethical rules, failure to fully disclose and obtain plaintiffs' consent to multiple representation, and failure to decline employment that was likely to be adversely affected by LMB's representation of another client. The elements of fraud are not present (See Lee Dodge, Inc. v Sovereign Bank, N.A., 148 AD3d 1007, 1008 [2d Dept 2017][material misrepresentation of a fact, scienter, intent to induce reliance, plaintiffs' justifiable reliance, and resulting injury] compare Cusimano v Schnurr, 137 AD3d 527 [1st Dept 2016][where plaintiff's breach of fiduciary duty claim contained allegations sounding in fraud]).
The court did not misapprehend facts or overlook applicable law in determining that Plaintiffs' breach of fiduciary duty and legal malpractice claims are redundant, predicated on the same facts and do not allege distinct damages (Kvetnaya v Tylo, 48 AD3d 608, 609 [2d Dept 2008] citing Shivers v Siegel, 11 AD3d 447 [2d Dept 2004] and Daniels v Lebit, 299 AD2d 310 [2d Dept 2002]). Although plaintiffs argue that the breach of fiduciary duty cause of action includes a claim for punitive damages while the legal malpractice cause of action does not, the court finds that plaintiffs' inclusion of a different basis to recover punitive damages is insufficient to rectify the duplicity problem. Moreover, plaintiffs' novel argument regarding fee forfeiture is unavailing. There is no request in the complaint for fee forfeiture, and plaintiffs advanced no authority to support the notion that such request constitutes distinct damages for purposes of determining whether a breach of fiduciary duty cause of action is duplicative of a legal malpractice claim.
It is noted that the plaintiffs did not explicitly address the out-of-pocket rule in opposition to LMB/LMB attorneys' motion to dismiss and consequently, it is improperly raised for the first time on the instant reargument motion. Notwithstanding that fact, this court did not misapprehend the meaning of the "out of pocket" rule, nor was binding precedent concerning the measure of damages within the context of the "out of pocket" rule overlooked. As stated in the January 8, 2020 order, when ascertaining damages that allegedly resulted from fraud, the measure of damages is "indemnity for the actual pecuniary loss sustained as a direct result of the fraud" (Connaughton v Chipotle Mexican Grill, Inc., 29 NY3d 137, 142 [2017]). Essentially, plaintiffs contend that the defendants' fraud caused plaintiffs to accept inadequate sums via a global settlement process that also had the reciprocal effect of causing plaintiffs to give up and lose the right to pursue their claims in court, which may have yielded each claimant a higher sum. Under the fraud cause of action in the Complaint, plaintiffs assert "they suffered damages because of the misrepresentations and omission of the [Defendants];" that they are "entitled to recover as damages all losses within the range of probable contemplation of the Court or jury" and further, that "damages are believed to be in excess of $10,000,000." (Complaint, ¶ 90-91). According to binding precedent, "[t]hese are factual assertions of the quintessential lost opportunity, which is not a recoverable out-of-pocket loss (Connaughton, at 143 citing Lama Holding v Smith Barney, 88 NY2d 413, 422 [1992]).
Additionally, the Plaintiffs' fraud claim is subject to dismissal under CPLR § 3211 (a) (1). The documentary evidence, including the retainers, execution and acknowledgment statements and the releases signed by plaintiffs, establishes conclusively that the terms of the DRA and essential details of the global settlement process, i.e., the number of claimants, amount of the settlement funds and the legal fee to LMB, were disclosed to plaintiffs, thus negating any claim that such information was concealed or not fully revealed by LMB or the LMB attorneys. The Second Department and Court of Appeals have held that "a party who signs a document without any valid excuse for not having read it is 'conclusively bound' by its terms" (Ferrarella v Godt, 131 AD3d 563, 567-568 [2d Dept 2015], quoting Gillman v Chase Manhattan Bank, 73 NY2d 1, 11 [1988]; see Sorenson v Bridge Capital Corp., 52 AD3d 265,266 [1st Dept 2008]; Sofio v Hughes, 162 AD2d 518, 519 [2d Dept 1990]). Furthermore, the fraud cause of action is duplicative of the legal malpractice cause of action, because it is grounded in the same facts and alleges similar damages
Finally, the plaintiffs have not shown that the court misapplied or overlooked the law in finding the legal malpractice claim untimely. The continuous representation doctrine tolls the three-year statute of limitations period for legal malpractice actions when the attorney continues to represent the client in the same matter after the alleged malpractice has been committed (see Byron Chem. Co., Inc. v Groman, 61 AD3d 909 [2d Dept 2009]; Hasty Hills Stables, Inc. v Dorfman, Lynch, Knoebel & Conway, LLP, 52 AD3d 566, 567 [2d Dept 2008]). The continuous representation doctrine tolls the statute of limitations where "there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim" (McCoy v Feinman, 99 NY2d 295, 306 [2002]; Kvetnaya v Tylo, 49 AD3d 608 [2d Dept 2008]; Town of Wallkill, 40 AD3d 972, 973-974 [2d Dept 2007]). Thus, there must be "clear indicia of an ongoing, continuous, developing, and dependent relationship between the client and attorney" (Luk Lamellen U. Kupplungbau GmbH v Lerner, 166 AD2d 505, 506 [2d Dept 1990]). The crux of plaintiffs' argument is that the court failed to find that LMB continuously represented plaintiffs until such time as plaintiffs received their settlement checks, which was within three years prior to the commencement of this action.
In support of their contention, plaintiffs rely on Amodeo v Kolodny, P.C. (35 AD3d 773 [2nd Dept 2006]), a malpractice case involving an underlying personal injury action which was settled without the defendant attorneys first obtaining the consent of the plaintiff's workers' compensation carrier to the settlement as required pursuant to Workers' Compensation Law § 29 (5), resulting in the suspension of benefits to the plaintiff. In finding the 2004 malpractice action untimely, the Appellate Division stated:
"Here, the plaintiff's cause of action accrued on December 11, 1998 when his underlying personal injury action was settled without the defendants first obtaining the consent of the plaintiff's workers' compensation carrier to the settlement as required pursuant to Workers' Compensation Law § 29 (5). In addition, the defendants' representation of the plaintiff in the underlying personal injury action ended on February 2, 1999 when they sent him his share of the settlement proceeds and the closing statement. Inasmuch as this action was not commenced until November 2004, more than five years after the alleged malpractice occurred, the plaintiff's cause of action alleging legal malpractice was time-barred."
The facts, as presented in Amodeo, are distinguishable from the facts herein and thus, do not compel a finding that the Plaintiffs' time in which to commence the legal malpractice claim was tolled under the continuous representation doctrine. Unlike the instant matter, the date the Amodeo plaintiff received the settlement proceeds and closing statement was more than three years prior to the commencement of the legal malpractice action. The Appellate Division did not address whether such date brought the action within the three-year statute of limitations. Moreover, the Appellate Division did not state, as a universal principle of law, that the continuous representation rule tolls the limitations period in every malpractice case until a plaintiff receives the proceeds from a settlement. LMB's performance of the simple clerical act of forwarding checks to the plaintiffs is not continuous representation for purposes of tolling the statute of limitations (see Nahoum v Weiss, 17 Misc3d 1118[A], 2007 NY Slip Op 52058[U] [Sup Ct, NY County 2007], *5 [Defendant real estate attorneys' subsequent mailing of a recorded deed to the plaintiff was "a ministerial act that was no more than a continuity of a general professional relationship between the parties, which did not constitute continued legal representation"] citing Luk Lamellen U. Kupplungbau GmbH v Lerner, 166 AD2d 505, 507 [2d Dept 1990[]). Further, following plaintiffs' acceptance of the settlement award agreements, there was no mutual understanding of the need for further representation on the Plaintiffs' underlying class action lawsuit against Bear Sterns for race, age and gender discrimination" (McCoy v Feinman, 99 NY2d at 306). Thus, for purposes of reargument, the court is not persuaded that it overlooked or misapplied any "law" when it determined that LMB's representation ended, at the latest, when the plaintiffs agreed to accept their settlement awards and release Bear from any litigation in the matter.
Accordingly, that branch of Plaintiffs motion for leave to reargue is granted. Upon reargument, the court adheres to its earlier determination, which is also dispositive of plaintiffs' claims against defendant Bear Stearns.
The foregoing constitutes the decision and order of the court.
ENTER,
/s/ _________
HON. INGRID JOSEPH, J.S.C.