Opinion
No. 23124–2009.
2013-01-5
OIKONOMOS, INCORPORATED, Stonegate Springs, LLC, Second Realty, LLC, Educare Systems Solutions, Inc., 3399 Route 112, LLC and WDR Assets, LLC, Plaintiffs, v. John Claude BAHRENBERG, The Brayson Foundation, Ltd., Windwood Meadow, Inc., Lake Grove at Durham, Inc., Henry Clark and Jeffrey Dryfoos and The Maple Valley School, Inc., Defendants.
Joel E. Davidson, Esq., Davidson & Grannum, Orangeburg, NY, Linda U. Margolin, Esq., Bracken, Margolin and Besunder, LLP, Islandia, NY, Attorney for Plaintiffs. Peter Mott, Esq., Twomey. Latham, Shea & Kelly, Dublin & Quartararo, LLP, Riverhead, NY, Attorney for Defendants and Third Party Plaintiffs Windwood Meadow, and Maple Valley.
Joel E. Davidson, Esq., Davidson & Grannum, Orangeburg, NY, Linda U. Margolin, Esq., Bracken, Margolin and Besunder, LLP, Islandia, NY, Attorney for Plaintiffs. Peter Mott, Esq., Twomey. Latham, Shea & Kelly, Dublin & Quartararo, LLP, Riverhead, NY, Attorney for Defendants and Third Party Plaintiffs Windwood Meadow, and Maple Valley.
David A. Ryan Jr., Esq. Ryan & Ryan. LLC New Haven, CT, Attorney for Defendants Bahrenburg, The Brayson Foundation, Clark & Dryfoos.
EMILY PINES, J.
This case arises from numerous leases, promissory notes, guarantees, and services agreements entered into between the Plaintiffs and the corporate Defendants, each of which is a not for profit entity. The various Plaintiffs, all for-profit corporate entities, owned by Albert and Barbara Brayson (“the Braysons”) (or, in the case of WDR Assets LLC, by the Braysons' children) are Oikonomos, Inc (“Oikonomos”), Stonegate Springs, LLC (“Stonegate”), Second Realty, LLC (“Second Realty”), Educare Systems Solutions, LLC (“Educare”), 3390 Route 112, LLC (“3390”) and WDR Assets LLC (“WDR”). The Plaintiffs have sued various lessees, promisors on notes and guarantors of the notes and leases, all named Defendants, for breaches of their agreements. The non profit corporate Defendants include Lake Grove at Durham, Inc (“Durham”) (operating a school located in Connecticut), Maple Valley School, Inc (“Maple Valley”) which operates a school in Massachusetts, the Brayson Foundation Ltd (“the Foundation”), which provided financial support to these affiliated not for profit schools; and Windwood Meadow Inc (“Windwood”), which provided management services to the other entities. In addition to suing the corporate entities listed, the Plaintiffs have sued individual Defendant, John Claude Bahrenburg (“Bahrenburg”), the Braysons' alleged former close friend and attorney, for over a twenty year period, for breach of fiduciary duty, legal malpractice, tortious interference with the various agreements described above and fraud. It is the Plaintiffs' position that Bahrenburg not only represented the Braysons but, in addition, all the corporate Plaintiffs at various times and each and every named corporate Defendant. Plaintiffs have also made claims against individual Defendants, Henry Clark (“Clark”) a member of the Board of Directors of Defendant, the Foundation and a Massachusetts attorney and Jeffrey Dryfoos (“Dryfoos”), Chairman of the Board of Defendant Windwood (2001–2012) as well as Albert Brayson's close personal friend and college roommate, essentially for acting in concert with Bahrenburg, and utilizing their corporate positions to cause the losses that the corporate Plaintiffs have allegedly suffered.
To the extent relevant to the Summary Judgment motions at issue, certain Defendants, Windwood, Lake Grove at Durham, and Maple Valley have also brought a Third Party action against the Braysons, as well as Litvak, LLC (“Litvak”) and Farley Road, LLC (“Farley Road”), two for profit corporate entities owned by the Braysons, also holding leases with these not for profit entities, asserting that the Braysons, during the period from 2001–2006, engaged in self dealing and profited financially from their dealings with the Plaintiff entities and that they engaged in such activity in order to harm Windwood, Durham and Maple Valley. In response, the Braysons, Litvak and Farley, as Third Party Defendants brought cross-clams against Bahrenburg for fraud, legal malpractice, breach of fiduciary duty and tortious interference with contract.
In this action, to the extent relevant to the motions herein, there are six separate Plaintiffs, seven separate Defendants, three separate third party plaintiffs, and four separate third party defendants/cross claimants. The Plaintiffs' second amended complaint contains thirty causes of action and the third party answer contains nine cross claims. The papers submitted both in support of and in opposition to various motions for Summary Judgment are extensive, and at times somewhat confusing; however, the Court will attempt to describe what it believes to be at the heart of the numerous applications.
Claims of Defendants
Defendants Bahrenburg, the Foundation, Clark and Dryfoos have now moved, pursuant to CPLR § 3212, for Summary Judgment dismissing the following claims: 1) the fourth claim for relief by Oikonomos against Bahrenburg for breach of fiduciary duty; 2) the fifth claim for relief by Oikonomos against Bahrenburg for fraud; 3) the sixth claim by Oikonomos against Bahrenburg for tortious interference with contract; 4) the eighth claim by Stonegate against the Foundation for breach of its guarantee; 5) the ninth and twelfth claims by Stonegate against the Foundation for equitable estoppel regarding the validity of the subject guarantee; 6) the tenth claim by Stonegate and Second Realty against the Foundation and Bahrenburg for a declaratory judgment regarding the subject lease and guarantee; 7) the eleventh claim by Stonegate and Second Realty against the Foundation for unjust enrichment; 8) the seventeenth claim by Stonegate, 3390 and Educare against Bahrenburg for breach of fiduciary duty; 9) the eighteenth claim by Stonegate, Second Realty, Educare and 3390 against Bahrenburg for fraud; 10) the nineteenth claim by Stonegate, Second Realty, 3390 and Educare against Bahrenburg for tortious interference with contract; 11) the twentieth claim by Stonegate, Second Realty, 3390 and Educare against Clark and Dryfoos for tortious interference with contract; 12) the twenty first claim by Stonegate, Second Realty, 3390 and Educare against Clark and Dryfoos for fraud; 13) the twenty second claim by Oikonomos, Stonegate, Second Realty, 3390 and Educare against Bahrenburg for gross negligence; 14) the twenty fourth and twenty sixth claims by against the Foundation for breach of its guarantee on a note; 15) the twenty seventh claim by Oikonomos, Stonegate, Second Realty, Educare, 3390 and WDR against Bahrenburg for legal malpractice; 16) the twenty eighth and twenty ninth claims by WDR against Bahrenburg, Clark and Dryfoos for tortious interference with contract; and 17) the thirtieth claim by WDR against Bahrenburg, Clark and Dryfoos for fraud. In addition, in the Third Party action, Third Party Defendant, Bahrenburg seeks Summary Judgment dismissing certain cross claims against him: 1) the first cross claim by the Braysons against Bahrenburg for breach of his fiduciary duties; 2) the second cross claim by the Braysons against Bahrenburg intentional interference with the Braysons' contractual rights; 3) the third and fourth cross claims (plead together) by the Braysons against Bahrenburg for legal malpractice and breach of fiduciary duty; 4) the fifth cross claim by the Braysons against Bahrenburg for intentional misrepresentation; 5) the seventh cross claim by the Braysons against Bahrenburg for deliberate intent to harm; 6) the eighth cross claim by Litvak and Farley Road against Bahrenburg for unpaid rent (this is also asserted as a counterclaim against Third Party Plaintiffs Windwood and Maple Valley); and 7) the ninth cross claim by the Braysons against Bahrenburg for gross negligence.
Since the claims asserted by the Plaintiffs in the main complaint and by the Third Party Defendants as cross claims in the Third Party action are so numerous and contain so many allegations that need to be examined in order to decide these motions, the Court summarizes these pleadings below.
A.Oikonomos against Windwood and Bahrenburg
1. On July 17, 2006, Windwood Meadow, Inc, by its CEO (Bahrenburg) executed a promissory note in favor of Plaintiff, Oikonomos, in the amount of $3,140,000. Bahrenburg was counsel for Oikonomos from 2003 through part of 2006; he is also a director of Windwood. Windwood ceased making payments on the note in July 2007 and Oikonomos seeks payment of the note. On July 17, 2006 Windwood, by its Chairman (Bahrenburg) executed a second promissory note in favor of Oikonomos, on which Windwood again defaulted in July 2007. These promissory notes were issued in connection with a Contract Rights Acquisition Agreement, which Windwood has allegedly breached. (Claims 1–3)
2. Bahrenburg, while on retainer for both Windwood and Oikonomos, allegedly counseled the parties to structure an agreement, whereby Windwood purchased Oikonomos' Management Services Agreement. In 2006, Bahreneburg told Windwood's auditors that such Acquisition Agreement and the subject promissory notes were valid and enforceable. Then in July, 2007, Bahrenburg allegedly advised Windwood to cease making payments, advising that the Acquisition Agreements and Notes were void. The same factual allegations are set forth as a basis by Oikonomos to sue Bahrenburg for fraud in the inducement. He allegedly induced Oikonomos based upon misrepresentations as to his opinion that Acquisition Agreement was valid, to sign over its management role to Windwood and in order to obtain huge monetary payments from Windwood, always intending that Windwood would not honor its agreement or its obligations on the notes. Oikonomos assertedly would not have entered into such agreement but did so in justifiable reliance on its attorney's advice. The same factual allegations are set forth as the basis to sue Bahrenburg for tortious interference with its contract with Windwood (Claims 4–6).
B.Stonegate, Second Realty against Lake Grove at Durham, Foundation
1. Plaintiff Stonegate, lessor (allegedly represented by Bahrenburg) entered into a continuation of a 1998 lease, previously entered into between Second Realty and Lake Grove at Durham (of which Bahrenburg was Secretary /Treasurer). The lessee, Lake Grove at Durham, stopped payment on the lease around February 2008 and is in arrears in the amount of $597,026.46. There is a related claim by Stonegate against the Brayson Foundation, of which Bahrenburg was Secretary/Treasurer, and which Stonegate claims is liable on guarantees (made in connection with the 1998 lease) of Lake Grove at Durham's obligation under the lease. There is another related claim by Stonegate against the Foundation and Lake Grove at Durham for equitable estoppel based upon Stonegate's asserted reasonable reliance on representations of the Foundation and Lake Grove at Durham that the guarantee was valid. Another related claim is asserted by Stonegate and its predecessor in interest, Second Realty, against Lake Grove at Durham, the Foundation and Bahrenburg for Declaratory Judgment that the July, 2002 amended lease is valid and continued the original 1998 guarantee; or, in the alternative, that the original 1998 lease and guarantee are presently valid and enforceable. There is a related claim by Second Realty and Stonegate against Lake Grove at Durham and the Foundation for unjust enrichment. There is yet another related claim by Stonegate against Lake Grove at Durham and the Foundation for equitable estoppel, essentially on the grounds that these entities should not be allowed to claim the invalidity of the July 2002 lease and guarantee after convincing Stonegate to enter into the amendment at issue.
(Claims 7–12).
C. 3390 Route 112 LLC, Educare against Windwood
1. On July 17, 2006, Plaintiff 3390 (Bahrenburg as counsel) and Defendant Windwood (Bahrenburg officer and counsel) entered into two lease agreements. Windwood allegedly breached the lease in 2009 and wrongfully removed personal property in violation of the terms of the lease. There is a related claim by 3390 against Windwood for conversion of the property it removed from the premises.
2. Plaintiff Educare (Bahrenburg as counsel) provided certain technology services to Windwood. Windwood stopped payment allegedly in breach of its contract owing $150,000. There is a related claim by Educare against Windwood for unfair competition in converting its equipment and allegedly secretly hiring all of its employees in July 2007.
(Claims 13–16)
D. Stonegate, Second Reality, 3390 and Educare against Bahrenburg.
1. Bahrenburg allegedly acted as legal counsel to Stonegate, Second Realty, 3390 and Educare. Bahrenburg represented Second Realty in its first and second leases with Lake Grove at Durham and represented Stonegate in connection with a loan. Bahrenburg was both Sec./Treas. of Foundation and executed the Foundation's 1998 and May 2002 guarantees of the Durham lease.Bahrenburg represented that the guarantees were valid and enforceable and constituted a continuing obligation. Second Realty and Stonegate relied to their detriment on such representations, yet Bahrenburg allegedly advised the Foundation not to honor its obligations. Bahrenburg also provided legal advice to Plaintiff 3390 as to the validity of its lease with Windwood and to Educare with regard to its business relations with Windwood and Oikonomos. Bahrenburg then allegedly advised Windwood to remove Educare's property from the leased premises and offered employment to Educare's employees at Windwood. These were breaches of Bahrenburg's fiduciary duties to these entities. There is a related claim by Stonegate, Second Realty, 3390 and Educare against Bahrenburg for fraud in the inducement based on the same allegations. There is another related claim by Stonegate, Second Realty, Educare and 3390 against Bahrenburg for tortious interference with their various contracts with Durham, Windwood and the Foundation.
(Claims 17–19).
E. Stonegate, Second Realty, Educare, 3390 and Oikonomos against Henry Clark and Jeffrey Dryfoos
1. Essentially this claim asserts that Clark and Dryfoos as directors and/or officers of the Foundation, Lake Grove at Durham and Windwood conspired with Bahrenburg to cause Lake Grove to violate the terms of its lease with Stonegate; to cause the Foundation to avoid its lease guarantees to Stonegate; to cause Windwood to avoid its lease obligations to 3390; to cause conversion of the personal property located at the 3390 premises, to conspire with Bahrenburg to divert funds from Lake Grove at Durham, the Foundation and Windwood for their own personal benefit; and to cause the breach of Durham's and Windwood's obligations to Oikonomos. A related claim is made by the same Plaintiffs, Stonegate, Second Realty, 3390 and Educare, against Clark and Dryfoos, for conspiring with Bahrenburg to defraud the Plaintiffs. (Claims 20–21).
F. All Plaintiffs against Bahrenburg for gross negligence-this claim is based on Bahrenburg allegedly advising all the Plaintiffs as well as Durham, Windwood and Foundation that all the agreements were valid and later falsely representing that they were not valid and did not have to be enforced. (Claim 22).
G. WDR Assets LLC against Maple Valley School, Inc, the Foundation and Windwood.
WDR purchased a loan, in favor of Bank of Western Massachusetts, including a note and guarantee from Maple Valley. Maple Valley defaulted on the note and owes $1,236,947.65. The Foundation guaranteed this Note and has refused to pay after Maple Valley's default. Windwood also executed an “Unlimited Guaranty” of payment of all Maple Valley's obligation under the note and has refused to honor its guarantee. These claims are all to enforce the agreements. In a related claim, WDR seeks a mandatory injunction to preserve WDR's rights under the note and guarantees. (Claims 23–26).
H. All Plaintiffs against Bahrenburg
Bahrenburg, as counsel to Albert and Barbara Brayson, parents of the owners of WDR, allegedly advised the Braysons, who sought to invest in that entity, that the Note executed by Maple Valley as well as the guarantees by the Foundation and Windwood were valid. He then assertedly advised Windwood and the Foundation not to honor the guarantees. The claim is for legal malpractice in acting in a manner adverse to his former clients. This claim incorporates all the prior allegations to state that Bahrneburg represented each of the Plaintiff entities in various transactions and thereafter took positions adverse to both his current and former clients, that he disclosed privileged information gained uin his representative capacity and that he engaged in malicious misconduct as an attorney. (Claim 27).
I. WDR sues Bahrenburg, Clark and Dryfoos for the tortious interference with WDR's contracts with the Foundation, and Windwood. There is a related claim is by WDR against Bahrenburg, Dryfoos and Clark alleging that Clark and Dryfoos conspired with Bahrenburg to defraud WDR by misrepresenting to the Bank of Western Massachusetts that Windwood and the Foundation would honor their guarantees, never intending to do so and using the funds to enrich themselves. (Claims 28–30).
J. Cross claims by Braysons and Litvak LLC and Farley Road LLC (two landlords owned by the Braysons in Mass.) as third party Defendants in a third party action brought by Windwood, Lake Grove at Durham and Maple Valley against the Braysons and the two new LLC's (owned by the Braysons)
1. Braysons against Bahrenburg.
The Braysons allege that Bahrenburg, after representing the Braysons for almost twenty years, advised all of the entities discussed above to violate the terms of their contracts to the detriment of the Braysons (who owned the entities which were left with defaults); the claim is that Bahrenburg breached his fiduciary duty to the Braysons (Cross Claiml). There is a related claim by the Braysons against Bahrenburg for tortious interference with contracts entered into by the Brayson entities (Cross Claim 2). There is another related claim by the Braysons against Bahrenburg for breach of fiduciary duty (Cross Claim 4); and another related claim by the Braysons against Bahrenburg for legal malpractice(Cross Claim 3). There is yet another related claim by the Braysons against Bahrenburg for misrepresentation(Cross Claim 5). There is a final related claim by Braysons against Bahrenburg for fraud (malicious intent to harm). (Cross Claims 7).
2. Litvak LLC and Farley Road LLC against Maple Valley, Windwood and Bahrenburg.
Litvak and Farley Road both had leases with Maple Valley in Massachusetts. Windwood allegedly caused Maple Valley to violate the terms of its leases with these entities, under the direction of Bahrenburg while he was also allegedly counsel to Litvak and Farley Road. Thus, Maple Valley, Windwood and Bahrenburg are assertedly liable for $50,000 to Litvak and over $1.200,000 to Farley.(Counterclaim and Cross Claim 8)
3. Braysons against Bahrenburg. This claim relates to the third party complaint by Lake Grove at Durham against the Braysons concerning mismanagement of Lake Grove and concerning certain medicaid reimbursements. The Braysons allege that as Bahrenburg was counsel on all such matters, if they are found liable, it is the fault of Bahrenburg.(gross negligence). (Cross Claim 9).
ARGUMENTS OF PARTIES
The various Defendants set forth their bases for the grant of Summary Judgment, dismissing most of the claims asserted against them as follows. Bahrenburg argues that the fourth claim by Oikonomos against him for breach of fiduciary duty arising from his advising that Plaintiff to enter into the 2006 restructuring agreement with Windwood must fail both because it is identical to the legal malpractice claim and because he had no fiduciary relationship with Oikonomos as that entity had its own attorney and released him from that role in 2006. Bahrenburg asserts, with regard to Oikonomos' fifth claim against him for fraud that it is duplicative of the legal malpractice claim, that Oikonomos had its own attorney for the 2006 agreement and that the reason set forth in the record for Windwood to cease making payments was due to the advice of the independent advisor, BDO, not Bahrenburg. Bahrenburg moves to dismiss Oikonomos' sixth claim against him for tortious interference with the Windwood 2006 contract because Bahrenburg was not a third party in such negotiations; but, rather acted as CEO of Windwood; there is no evidence that Windwood would have continued payment absent any interference, and the record does not demonstrate that Bahrenburg used any influence to cause the independent consultant, BDO, to opine negatively on the 2006 agreement.
The Foundation asserts that Plaintiff Stonegate's eighth claim against it for breach of its guarantee should be dismissed because the Foundation's obligations were extinguished as a matter of law when Stonegate entered into a new lease with Durham, altering the Foundation's obligations without the Foundation's (guarantor's) consent. The Foundation makes a similar argument vis-a-vis the ninth claim by Stonegate against the Foundation for equitable estoppel, asserting that the July 2002 lease cancelled the May 2002 guarantee by the Foundation by operation of law. With regard to the tenth claim by Stonegate and Second Realty against the Foundation and Bahrenburg, both Defendants assert that Second Realty lacks standing as it has no contractual rights; that Declaratory Judgment is not permissible where other remedies such as breach of contract are available, that the July, 2002 lease agreement cancelled the Foundation's guarantee; that the July, 2002 lease agreement was entered into for Stonegate's benefit to obtain a higher rent from Durham; and that Bahrenburg is not a party to the lease agreement. The Foundation asserts that the eleventh claim against it by Stonegate and Second Realty for unjust enrichment must fail as Second Realty lacks standing; there exists no close relationship between the Foundation and Stonegate giving rise to an equitable claim; and the July, 2002 lease extinguished the May, 2002 guarantee.
Bahrenburg moves for Summary Judgment dismissing the seventeenth claim by Stonegate, Second Realty, 3390 and Educare for breach of fiduciary duty, arguing that all the claims are duplicative of the same Plaintiffs' legal malpractice claims against him and, therefore, are impermissible; that he had no fiduciary relationship with 3390 or Educare, as he never represented those entities; and that Second Realty lacks standing as it has no contractual rights with any of the parties herein, having been essentially taken over by Stonegate. With regard to the eighteenth claim by Stonegate, Second Realty, 3390 and Educare against Bahrenburg for fraud, the Defendant argues that such must be dismissed as the allegations are vague and redundant of the legal malpractice claim, and there is no evidence that he induced Stonegate to enter into the July, 2002 lease. Bahrenburg also moves for dismissal of the nineteenth claim by Stonegate and Second Realty for tortious interference with the Foundation guarantee contract because Stonegate cannot demonstrate any valid contract between itself and the Foundation establishing a guarantee; there is no evidence that “but for” Bahrenburg's advice, the Foundation would not have taken the position that it had no guarantee obligation; and Second Realty, having given its contractual rights to Stonegate, lacks standing to bring this claim.
Clark and Dryfoos move for Summary judgment dismissing certain of the claims of Stonegate, Second Realty, Educare, 3390 and Oikonomos against them for tortious interference with those Plaintiffs' various contracts on the following grounds: 1) Clark had no involvement with Windwood, as admitted by Brayson during discovery and, therefore could not have influenced Windwood to renege on its obligations to Oikonomos; 2)Dryfoos' position as CEO of Windwood is insufficient, in and of itself, to demonstrate interference; 3) the 2006 restructuring agreement was voided due only to the advice of an independent consultant, BDO; 4) Second Realty has no contractual rights vis-a-vis Durham and, therefore lacks standing; 5) since Bahrenburg did not tortiously interfere with any of these agreements, Clark and Dryfoos cannot be sued for having aided and abetted him as alleged;6) the July 2002 lease contained no guarantee and, thus, there was no contract with which to interfere; and 7) Clark had no dealings as admitted, with Educare or 3390. Similar arguments are raised with regard to the twenty first claim by Stonegate, Second Realty, 3390, Educare, Clark and Dryfoos to dismiss the claims against them for fraud: 1) Second Realty lacks standing; 2) the claim lacks specificity required by law; 3) as Bahrenburg cannot be sued for fraud, Clark and Dryfoos cannot be sued for conspiring with him to commit such tort; 4) there has been no evidence adduced of any misrepresentations that Clark or Dryfoos made to Stonegate; 5) Clark has no involvement with 3390 or Educare, as admitted by Brayson in his deposition.
Bahrenburg moves for dismissal of the twenty second claim by Oikonomos, Stonegate, Second Realty, 3390, Educare and Bahrenburg against him for gross negligence, as such is redundant of the legal malpractice claim and because Second Realty lacks standing as it has no contractual rights.
The Foundation moves for Summary Judgment dismissing the twenty fourth and twenty sixth claims by WDR based upon its alleged breach of the guarantee of Maple Valley's lease on the ground that under Massachusetts law (which is applicable) WDR's payment of the note which it took over from the Bank of Western Massachusetts, extinguished the obligation of the guarantor.
Bahrenburg moves for dismissal of the twenty seventh claim against him by Oikonomos, Stonegate, Second Realty, and WDR for legal malpractice arguing as follows: 1) none of the plaintiffs can demonstrate that “but for” Bahrenburg's acts, they would not have sustained their alleged losses; 2) Oikonomos had no attorney-client relationship with Bahrenburg having released him in 2006 before the restructuring agreement was entered into; 3) Windwood's ceasing of payments under the 2006 reformation agreement with Oikonomos was due to the advice of the independent consultant, BDO, and not Bahrenburg; 4) Bahrenburg did not represent Stonegate on the July, 2002 lease amendment; 5) Second Realty lacks standing as it has no rights under any of the subject agreements; and 6) Bahrenburg never represented WDR.
Bahrenburg, Clark and Dryfoos move for dismissal of the twenty eighth and twenty ninth claims by WDR as it was WDR's own acts, in paying off the note that extinguished the Foundation's guarantee of Maple Valley's lease obligations and not any actions on those Defendants' parts. The same Defendants move to dismiss the twenty eighth and twenty ninth claims by WDR for tortious interference with its contract with the Foundation, again, as it was WDR's own act in paying off the note that extinguished the guarantee and not any actions by Bahrenburg, Clark or Dryfoos. Finally, Clark Dryfoos and Bahrenburg move for Summary Judgment, dismissing the thirtieth claim against them by WDR for fraud, since the claim is that the alleged misrepresentations made, were allegedly directed to a third party, i .e., the Bank of Massachusetts and, therefore, were not made to the contracting entities, Windwood and the Foundation, that ceased payment on the guarantees involved.
Bahrenburg moves to dismiss the Braysons' first cross claim against him based on breach of his fiduciary duties to them as officers of Oikonomos as 1) any fiduciary duty Bahrenburg had concerning Oikonomos does not extend to them as individuals and 2) the claim is redundant of their legal malpractice claim against him. Bahrenburg moves for dismissal of the second cross claim by the Braysons for tortious interference with their contractual rights in connection with the 2006 Oikonomos contract as the Braysons, individuals, are not parties to such agreement. With regard to the third and fourth cross claims, which are for legal malpractice and breach of fiduciary duty, by the Braysons against Bahrenburg, the Defendant argues that they are duplicative and again, that the Braysons are not parties to any of the contracts which the Braysons claim were breached as a result of Bahrenburg's actions.
Bahrenburg moves to dismiss the fifth cross claim against him by the Braysons, Litvak and Farley Road based on fraud, since the allegations are vague and none of the third party cross claimants were parties to any of the contracts at issue. Bahrenburg moves for Summary Judgment, dismissing the seventh cross claim by Litvak, Farley, and the Braysons stating that he caused Windwood, the Foundation, Maple Valley and Durham to renege on their obligations, as the Braysons were not parties to any of the subject contracts, and Bahrenburg never represented Litvak or Farley Road. Bahrenburg moves for dismissal of the eighth cross claim by Litvak and Farley Road against him for breach fiduciary duty stating that he caused Windwood and Maple Valley to breach their obligations as this was redundant of the legal malpractice cross claim against him and he had no fiduciary relationship with Litvak or Farley.
Finally, Bahrenburg moves to dismiss the ninth cross claim by the Braysons against him for gross negligence in failing to review the procedures by which Durham received medicaid reimbursement, as it is redundant of their legal malpractice claim and there is no showing that Bahrenburg and any duty to oversee procedures used with regard to medicaid reimbursements.
Plaintiff's Arguments
In opposition to the Summary Judgment motions, Plaintiffs set forth a series of disputed facts. Accordingly, Plaintiffs argue that Bahrenburg convinced Dryfoos in 2007 to name him as the CEO of Windwood and obtained a package of benefits amounting to $3.3 million; shortly thereafter, Windwood stopped payment on its promissory notes to Oikonomos, with a balance similar to Bahrenburg's compensation package. Then, Plaintiffs state that in 2009, Bahrenburg caused Windwood to abandon its lease with 3390 and closed down Durham refusing to pay past due rents to Stonegate. According to Plaintiffs, Bahrenburg consistently took positions adverse to each of his former clients, advising that the Foundation's guarantee of the Durham lease, on which he had advised the Braysons, Second Realty and the Foundation, was null and void. When the Maple Valley School closed and defaulted on past rents due, Plaintiffs assert that Bahrenburg advised Windwood and the Foundation that their guarantees need not be honored. Plaintiffs state that Bahrenburg caused the employees of Educare, to quit en masse from that Brayson owned entity and join Windwood; and that he caused the misappropriation of equipment owned by Educare, 3390 and the Braysons. Finally, Plaintiffs assert that Bahrenburg co-opted Dryfoos, as Chairman of Windwood, in return for compensation, into approving the recommendation of BDO to declare the guarantee to Oikonomos void and that he co-opted Clark, as Chairman of the Foundation, into approving of the various actions that entity took, to avoid payment of its obligations, in return for legal referrals to Clark's law firm.
With regard to the fourth claim by Oikonomos against Bahrenburg, Oikonomos argues that Bahrenburg's obligations as advisor and close friend to the Braysons, as owner of that entity, stretch far beyond any legal malpractice claims; and that even in those instances where Bahrenburg was not technically representing the entity, he was in violation of his fiduciary duties based upon years of advice as well his involvement in all of the restructuring proposals made and accomplished between 2001 and 2006.
Oikonomos also opposes the motion to dismiss its sixth claim against Bahrenburg for tortious interference with contract, setting forth that Windwood, which breached its contract, is a separate entity from Bahrenburg, who acted both as Windwood's counsel and as its CEO, and also arguing that BDO only declared the restructuring agreement void upon Bahrenburg's advice.
Plaintiff Stonegate asserts that issues of fact preclude Summary Judgment on the eighth claim against the Foundation on its guarantee, since the original 1998 loan stated that its terms (which included the guarantee) could not be modified without the bank's consent (which never occurred). In addition, Stonegate alleges that even after the formation of Stonegate, in 2002, the Foundation executed a second guarantee of the lease, demonstrating its intent to continue the same.
With regard to the ninth and twelfth claims by Second Realty and Stonegate against the Foundation for equitable estoppel, the Plaintiffs claim that Bahrenburg, as attorney and officer to the Foundation, was also former counsel to Second Realty and Stonegate and advised them having the effect of terminating a guarantee. He also, as advisor to the Plaintiff entities, allowed them not to attempt to enforce payment of arrears by the lessee and encouraged instead the writing of a new lease without advising them that he would then take the position that his co-client need not pay the guarantee.
Plaintiffs Second Realty and Stonegate set forth that the facts they allege support their claim for declaratory and equitable relief (in the tenth and twelfth claims), as an alternative remedy, based upon Bahrenburg's duplicity in setting forth first that the Foundation guarantee would be in effect and then reversing the Foundation's position on his advice and encouragement. The same Plaintiffs argue that factual issues remain to support its claim for unjust enrichment against the Foundation (the eleventh claim), since the Foundation lulled those Plaintiffs into entering into the new lease agreement and providing relief to Durham, all to their financial detriment.
Stonegate, Second Realty, Educare and 3390 assert that they have set forth sufficient facts to proceed against Bahrenburg for breach of his fiduciary duties, which again go far beyond the claim for legal malpractice. They set forth again Bahrenburg's various roles, as counsel to Stonegate, and Secretary to the Foundation, yet advising the Foundation not to honor its guarantee. Bahrenburg assertedly stole Educare's staff and misappropriated Educare's equipment after writing the very instrument that permitted such entity to be formed. The same parties claim they have set forth a basis to sue Bahrenburg for fraud (eighteenth claim), as an alternative to the legal malpractice claim, based upon his misrepresentation to those entities in order to lure therm into various agreements, which he then declared extinguished. Stonegate, Second Realty, 3390 and Educare also assert the validity of their claim against Bahrenburg for tortious interference with contract (nineteenth claim) stating that he used his roles as CEO and officer of Windwood and the Foundation to convince them not to honor their agreements with those Plaintiffs. They assert that the same facts state their claim for gross negligence (twenty second claim) against Bahrenburg.
Stonegate, Second Realty, 3390 and Educare assert that the twentieth claim against Dryfoos and Clark for tortious interference with contract is valid. They set forth testimony by Dryfoos admitting that he signed the 2001 and 2006 contracts on behalf of Windwood yet stated he was not sure Windwood ever intended to perform; in addition, he agreed with Bahrenburg to stop payment by Windwood on the 2006 contracts he signed. With regard to Clark, Plaintiffs point to his role as both a member of the Foundation and later its Chair, who allowed Bahrenburg to terminate its obligations to 3390, after having been told by the Braysons of Bahrenburg's conflicts on these issues and knowing the impropriety of the same as an attorney. The same set of facts, allegedly set forth the bases for their twenty first claim against Clark and Dryfoos for fraud.
Plaintiff WDR argues that its claims (twenty fourth and twenty sixth) against the Foundation to enforce its guarantee of the Maple Valley construction loan is valid under Massachusetts law. It opines that WDR's purchase of a loan to the school from the Bank of Western Massachusetts and its payment of such loan, did not have the effect of extinguishing the Foundation's guarantee, since WDR was not a co-guarantor. In addition, it cites case law from that state also cited by Defendant, that sets forth that even where a co-guarantor's obligations are extinguished, the paying guarantor still has a claim in equity against the co-obligor.
WDR argues that its twenty eighth and twenty ninth claims against Bahrenburg, Dryfoos and Clark for tortious interference with contract, vis-a-vis the Foundation guarantee of the Maple Valley loan are supported by factual evidence of the interference by these parties with WDR's rights after purchasing and paying off the loan. Similarly, with regard to the thirtieth claim against the same parties for fraud, Plaintiffs assert that in 2000 Bahrenburg advised the Braysons that they would not have to pay off this loan as the Foundation would be the guarantor. Based upon this advice, they loaned money to WDR to purchase the guarantee as an investment. Thereafter, Bahrenburg, with the aid of Dryfoos and Clark, reneged on the Foundation's guarantees.
With regard to the claim by all named Plaintiffs against Bahrenburg for legal malpractice, they assert that serious issues of fact preclude granting of Summary Judgment. Oikonomos states that Bahrenburg represented that entity in drafting the 2001 agreement and that he should have inserted in such contract that the Braysons had already resigned from Windwood, avoiding any impropriety in that entity's guarantee. With regard to the 2006 restructuring agreement, he should have cited BDO's objections and set forth in writing that the agreement was a fair settlement of the parties' contractual rights. He should have assertedly set forth in his original draft of the Foundation's guarantee of the Maple Valley loan that such entity would indemnify the Braysons as guarantors should they be forced to pay on the guarantee. They set forth that Bahrenburg should have set forth in the 1998 Windwood guarantee of the Second Realty lease that the guarantee would apply to all future leases and to any successor landlord. The Plaintiffs allege that they have properly demonstrated their right to go forward and prove that “but for” Bahrenburg's legal malpractice, they would not have suffered various monetary losses. In addition, they state that Bahrenburg should have instructed Oikonomos that he intended to take a position adverse to his former client before he had them sign a release as former counsel to that entity; that he should not have advised the Braysons to guarantee the Maple Valley loan and then taken the position that the Foundation's and Windwood's guarantees were extinguished.
The third party Defendants, the Braysons, claim that there exist questions of fact on each and every one of their cross claims against Bahrenburg. Thus, they assert that they have a claim for breach of fiduciary duty based upon his representation of them for over a twenty year period (first cross claim). Concerning the second cross claim, they assert that this is brought by the Braysons who were named by Defendant Windwood as third party defendants while Bahrenburg (their private attorney) l)was CEO and counsel to Windwood; 2) represented the Braysons and the Plaintiff entities at the same time, thereby blurring lines as to his representation; and 3) while Bahrenburg stated on the one hand to the Braysons that the contracts they were signing were valid and then advised against their enforcement. With regard to the third and fourth cross claims against Bahrenburg for legal malpractice and breach of fiduciary duty, the Braysons assert that Rule 1.9 of the Rules of Professional Conduct prohibit an attorney from seeking to rescind a contract drafted for a former client; that he cannot take positions adverse to former clients. They set forth that Bahrenburg represented Oikonomos in 2001, as well as the Braysons and Windwood; drafted the 2006 settlement agreement for Oikonomos and Windwood; represented the Braysons in 2000 as well as the Foundation and Windwood on guarantees of loans and represented Second Avenue Realty as well as Windwood as guarantor of its lease. Finally, with regard to the remaining cross -claims (fifth by Braysons, Litvak and Farley Road against Bahrenburg for fraud) (seventh by the same third party Defendants against Bahrenburg for tortious interference with contracts); (eighth by the same Plaintiffs against Bahrenburg for breach of his fiduciary duties); and (ninth by the same Plaintiffs against Bahrenburg for gross negligence) these cross claimants make the following assertions: 1) the Braysons had a 20 year retainer agreement with Bahrenburg; 2) he consistently made misrepresentations to them to convince them to act to their detriment; 3) his breach of his fiduciary duties is far broader than the claim for legal malpractice; 4) Bahrenburg consistently blurred all distinctions between the corporate entities and the Braysons, all of which he represented; 5) Bahrenburg advised the Braysons to transfer the Farley Road lease to a new entity and signed the Foundation's guarantee of this lease in favor of Farley Road, later reneging on the same.
Summary Judgment
The proponent of a motion for Summary Judgment must demonstrate to the court the absence of any material and triable issues of fact, thereby entitling such party to judgment as a matter of law. CPLR § 3212; see, Morjan v. Rais Const Co, 7 NY3d 203, 818 NYS 2s 792, 851 NE 2d 1143 (2006); Winegrad v. New York University Medical Center, 64 N.Y.2d 851, 487 N.Y.S.2d 316, 476 NE 2d 642 (1985). Upon such showing, the burden shifts to the party opposing the motion to demonstrate either that material issues of fact exist or that even undisputed facts do not entitle the movant to judgment as a matter of law. Winegrad, supra. Where such material issues are set forth either in the moving or opposition papers, the court must deny the motion and proceed to trial. Fed Ins Co v. Automatic Burglar Alarm Corp, 208 A.D.2d 495, 617 N.Y.S.2d 53 (2d Dep't 1994).
Standing
Defendants seek to dismiss all claims raised by Second Realty on the ground that such entity assigned all of its rights to Stonegate when Stonegate became the successor in interest to Second Realty. An unequivocal and complete assignment extinguishes the assignor's rights against obligors thereby leaving the assignor without standing to sue upon an assigned claim. Aaron Ferer & Sons v. Chase Manhattan Bank, 731 F.2d 112 (2d Cir.1984). In its response torn Defendants' Rule 19 Statement, Plaintiffs set forth that: “Stonegate was formed around 2001 as a successor to Second Realty and acquired all of the property and right of Second Realty”. Plaintiffs do not dispute the Defendants' asserted allegation that: “Plaintiff Second Realty ceased conducting business after the formation of Stonegate”.
Plaintiffs citation of Tekni–PIex Inc v. Meyer and Landis, 89 N.Y.2d 123, 651 N.Y.S.2d 954, 674 NE 2d 663 (1996), is supportive of the proposition that representation of the assignor of a successor corporation permits such entity to be characterized as a “former client” for purposes of the Rules of Professional Conduct. However, it does not provide a basis for the assigning corporation's standing to sue once it has assigned its rights and interests. Accordingly, the Defendants' motions to dismiss the various claims by Second Realty are granted.
Legal Malpractice/Breach of Fiduciary Duty
An action for legal malpractice requires proof of the following three elements: 1) attorney's failure to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession; 2) causation; and 3) actual damages. Prudential Ins Co of America v. Dewey, Ballantine, Bushby, Palmer & Wood, 170 A.D.2d 108, 573 N.Y.S.2d 981, (1st Dep't 1991), aff'd, 80 N.Y.2d 377, 590 N.Y.S.2d 831, 605 NE 2d 318 (1992); Gray v. Wallman & Kramer, 184 A.D.2d 409, 585 N.Y.S.2d 86 (1st Dep't 1992). In the absence of fraud, collusion, or malicious acts, the malpractice liability of an attorney does not ordinarily extend to third persons with whom there is no privity, C K Industries Corp v. C M Industries Corp, 213 A.D.2d 846, 623 N.Y.S.2d 410 (3d Dep't 1995). However, courts have found that attorneys owed duties of care to individuals not in direct privity where the relationship was sufficiently close as to approach privity, Estate of Schneider v. Finmann, 15 NY3d 306, 907 N.Y.S.2d 119, 933 NE 2d 718 (2010); see Kurtzman v. Bergstol, 40 AD3d 588, 835 N.Y.S.2d 644 (2d Dep't 2007) (attorney for limited liability company had fiduciary duty to individual member; attorney's duty breached when attorney placed personal interest above plaintiff member's interest). In addition, an attorney may also be liable in legal malpractice to third persons where there has been fraud, collusion or a malicious or tortious act. Harder v. Arthur F McGinn Jr, PC, 89 A.D.2d 732, 454 N.Y.S.2d 42 (3d Dep't 1982), aff'd, 58 N.Y.2d 663, 458 N.Y.S.2d 542, 444 NE 2d 1006 (1982); Griffen v. Anslow, 17 AD3d 889, 793 N.Y.S.2d 615 (3d Dep't 2005).
To demonstrate the first prong of this test, a party must prove that the attorney failed to exercise “the ordinary reasonable skill and knowledge” commonly possessed by a member of the legal profession, Darby & Darby, P C v. VSI International Inc, 95 N.Y.2d 308, 716 N.Y.S.2d 378, 739 NE 2d 744 (2000). The New York Rules of Professional Conduct Code contain provisions bearing on malpractice by an attorney. Such rules are clearly relevant to a malpractice claim. Thus, a court upheld the validity of a malpractice claim where a defendant attorney represented both sides of a transaction and thereby withheld critical information from the plaintiff client. Sitar v. Sitar, 50 AD3d 667, 854 N.Y.S.2d 536 (2d Dep't 2008), and where a law firm's divided loyalties impaired its professional judgment, Ulico Cas Co v. Wilson, Elser, Moscowitz, Edelman & Dicker, 56 AD3d 1, 865 N.Y.S.2d 14 (1st Dep't 2008). In addition, a lawyer may not seek, by contract or other means, to limit prospectively the attorney's individual liability to a client for legal malpractice. Rule 1.8(h)(1).
It is hornbook law that to recover for an attorney's malpractice, a plaintiff must show that such proximately caused the loss, Rudolf v. Shayne, Dachs, Stanisi, Corker & Sauer, 8 NY3d 438, 835 NYS 534, 867 NE 2d 385 (2007). In addition, it has been generally recognized that a plaintiff in such cases must satisfy a more demanding test than usual by proving that “but for” the defendant's negligence, the plaintiff would not have sustained the claimed loss in the underlying transaction. Waggoner v. Caruso, 14 NY3d 874, 903 N.Y.S.2d 333, 929 NE 2d 296 (2007). The Court notes, however, that in Barnett v. Schwartz, 47 AD3d 197, 848 N.Y.S.2d 663, the Second Department held, in 2007, that the “but for” causation standard does not require a greater or more direct degree of causation than the “proximate cause” standard set forth in PJI 2:70; and, further, that the “but for” standard does not require a showing that the defendant's malpractice was the sole proximate clause, rather than a substantial cause, of the plaintiff's loss. Id. This particular view has not yet been considered by the Court of Appeals.
Judiciary Law § 487 permits an injured party to recover treble damages against an attorney who “[i]s guilty of any deceit or collusion or consents to any deceit or collusion, with intent to deceive .... any party”.
In order to maintain a claim for breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant's misconduct. Daly v. Kochanowicz, 40 AD3d 78, 884 N.Y.S.2d 144 (2d Dep't 2009). An attorney stands in a fiduciary relationship to the client, Graudbard, Mollen Dannett & Horowitz v. Moscovitz, 86 N.Y.2d 112, 629 N.Y.S.2d 1009, 653 NE 2d 1179 (1995). Indeed, it is settled law that the relationship of client and counsel is one of “unique fiduciary reliance” and that the relationship imposes on the attorney “[t]he duty to deal fairly, honestly, and with undivided loyalty ... including maintaining confidentiality, avoiding conflicts of interest ... and honoring the client's interests over the lawyer's” Matter of Cooperman, 83 N.Y.2d 467 (1994). Since an attorney's basic relationship with clients is inherently fiduciary, claims involving legal malpractice are often joined with causes of action based on alleged breaches of fiduciary duty, Ulico Cas Co v. Wilson, Elser, Moscowitz, Edelman & Dicker, supra. Where a claim for damages arises out of a breach of an attorney's fiduciary duties, the plaintiff must prove, as in the malpractice situation, that the damages would not have arisen “but for” the breach. Ulico Cas Co v. Wilson, Elser, Moscowitz, Edelman & Dicker, supra. However, such claims will be dismissed as duplicative of the malpractice claims unless the breach of fiduciary duty claim is based upon facts that are different from the underlying malpractice claim. Id.
A claim for aiding and abetting a breach of fiduciary duty requires 1) a breach of fiduciary obligation to another, 2) that the defendant knowingly induced or participated in the breach, 3) and that plaintiff suffered damages as a result of the breach. Bullmore v. Ernst & Young, 45 AD3d 461, 846 N.Y.S.2d 145 (1st Dep't 2007). A person knowingly participates in a breach of fiduciary duty when that person provides substantial assistance to the primary violator. Id. This assistance has been held to occur when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur. Kaufman v. Cohen, 307 A.D.2d 113, 760 N.Y.S.2d 157 (Dep't 2003).
Applying these general principles to the case at bar, the Court finds that there are so many disputed issues of fact surrounding the legal malpractice claim of the Plaintiffs against Bahrenburg, that a trial is necessary. While Bahrenburg asserts he either did not represent or was released from any conflicts by certain Plaintiffs, the Plaintiffs state the opposite. While Bahrenburg offers different reasons for the Plaintiffs economic losses, the Plaintiffs set forth that each and every breach, whether of a lease, promissory note or guarantee, was caused by Bahrenburg's disloyalty, misrepresentations and improper acts. There are also issues of fact raised by the Third Party Defendants, the Braysons, with regard to the allegations that Bahrenburg's actions of collusion and malicious behavior are sufficient to permit them to sue Bahrenburg both as former clients and as third parties to the various transactions, for legal malpractice under the authority set forth above.
In this action, based upon a careful reading of all the papers, the Court is convinced that the allegations in this case of breach of fiduciary duty against Defendant Bahrenburg, while extremely serious, are subsumed under the claims for legal malpractice as they all arise from the same sets of alleged facts and actions. For this reason, although the Court believes that the multitude of claims by the various Plaintiffs against Bahrenburg for breach of his fiduciary duties will be the subject of much of the trial of this action, they are not the basis for a separate cause of action. Accordingly, the motions for Summary Judgment dismissing the twenty seventh claim by the corporate Plaintiffs and the third, fourth, and ninth cross claims by the Braysons against Bahrenburg for legal malpractice are denied. The motion for Summary Judgment, dismissing the fourth and seventeenth claims as well as the first and eighth cross claims against Bahrenburg for breach of fiduciary duties is granted, with the understanding that all of the factual allegations made under such claims may be presented as the basis for legal malpractice.
Where claims asserting gross negligence arise from the same facts as those for legal malpractice, they are duplicative and subject to dismissal. Mecca v. Shang, 258 A.D.2d 569, 685 N.Y.S.2d 458 (2d Dep't 1999). Therefore, the motions to dismiss the twenty second claim and ninth cross claim against Bahrenburg are granted, again with the understanding that the allegations set forth in such claims are subsumed within the twenty seventh claim and the third cross claim fro legal malpractice.
Fraud
To succeed on a claim for fraud, a plaintiff must demonstrate 1) a misrepresentation or a material omission of fact which was false and known to be false by the defendant, 2) made for the purpose of inducing the other party to rely upon it, 3) justifiable reliance by the other party on the misrepresentation or material omission, and 4) injury. Martin Trading Ltd v. Wildenstein, 16 NY3d 173, 919 N.Y.S.2d 465, 944 NE 2d 1104 (2011); Ross v. Louise Wise Services Inc, 8 NY3d 478, 836 N.Y.S.2d 539, 868 NE 2d 189 (2011). An attorney's failure to disclose actual conflicts among various clients, involved in a transaction, may give rise to an action for fraud. Schoen v. Martin, 187 A.D.2d 253, 589 N.Y.S.2d 443 (1st Dep't 1992). However, as in the case of the breach of fiduciary duty claims, a fraud claim will generally not be maintained where the injury and damages sought are the same as those occasioned by the claim of legal malpractice. White of Lake George Inc v. Bell; 251 A.D.2d 777, 674 N.Y.S.2d 162 (3d Dep't 1998) (plaintiff asserting fraud cause of action must demonstrate intentional misrepresentations causing damages separate and apart form those caused by malpractice).
The elements for aiding and abetting fraud are 1) the existence of an underlying fraud; 2) knowledge of this fraud on the part of the aiding and abetting party, and 3) substantial assistance by the aiding and abetting party in achieving this fraud. Stanfield Offshore Leveraged Assets Ltd v. Metropolitan Life Insurance Co, 64 AD3d 472, 883 N.Y.S.2d 486 (1st Dep't 2009).
As with the breach of fiduciary duty claims, the Plaintiffs and third party Cross Claimants have set forth allegations of facts, which if demonstrated at trials constitute fraud. However, to the extent that such allegations are made against Bahrenburg, they are again, subsumed within the legal malpractice claims and indeed seek the same damages for the loss of the lease, note and guarantee payments on the various underlying agreements that give rise to this lawsuit. Therefore, while Plaintiffs will be free to demonstrate the acts complained of, they are again not separate causes of action. The same is not true with regard to Defendants Clark and Dryfoos, who are essentially accused, through the various affidavits and discovery presented to the Court, of aiding and abetting Bahrenburg in his various alleged concealments, disloyalties to his former clients, and wrongful acts in jeopardizing their contractual rights. Accordingly, the Summary Judgment motions to dismiss the fraud claims against Bahrenburg (fifth, eighteenth and thirtieth) are granted. On the other hand, the allegations set forth by Plaintiffs against Clark and Dryfoos are sufficient to allow the twenty first and thirtieth claims against them, in which they are accused essentially of aiding and abetting Bahrenburg in acts of misrepresentation and concealment, to proceed to trial and are not dismissed on the Summary Judgment motion.
Breach of Contract/Tortious Interference With Contract
To sustain a cause of action for breach of contract, a plaintiff must demonstrate: 1) formation of a contract between plaintiff and defendant; 2) performance by the plaintiff; 3) defendant's failure to perform; and 4) resulting damages. Furia v. Furia, 116 A.D.2d 694, 498 N.Y.S.2d 12 (2d Dep't 1986). While it is ordinarily the court's responsibility to interpret written instruments, when a finding of whether an enforceable contract exits is dependent on facts from which differing inferences may be drawn, a question of fact arises. Brown Bros Electrical Contractors Inc v. Beam Construction Corp, 41 N.Y.2d 397, 393 N.Y.S.2d 350, 361 NE 2d 999 (1977). Whether the contract at issue is or is not ambiguous is determined by examining the circumstances under which the contract was executed as well as the entire instrument. Brad H v. NewYork, 17 NY3d 180, 928 N.Y.S.2d 221, 951 NE 2d 743 (2011).
There are numerous contracts at issue in this case, which the Defendants all claim to be barred and the Plaintiffs all assert are enforceable. In this Court's view each presents ambiguities, when viewing the agreements as a whole, as well their purpose when entered (which is disputed in certain instances). Whether discussing the Oikonomos restructuring agreement, which the Defendants claim void based upon the advice of a non party and Plaintiff claims valid based upon the alleged advice of Windwood and Bahrenburg; the Stonegate lease amendment, which the Foundation asserts relieved it of its obligations and which Stonegate sets forth stands in view of obligations to the initial lending institution; the lease and services agreements between 3390, Educare and Windwood; or the guarantees of the Foundation and Windwood of Maple Valley's obligations to WDR on its note (which the Defendants claim was expunged and the Plaintiff states is still in effect, either in law or equity under Massachusetts cases), questions of fact have been raised and require the issues to be tried. In this vein, Plaintiffs point to the case relied upon by movants, Awed v. Marisco, 538 NE 2d 43 (Mass Ct.App.1989), which held that even where a co-guarantor pays off a debt, thereby extinguishing the guarantee, such party still has a claim against the co-maker in equity and under the Uniform Commercial Code, for contribution.
The elements of the tort of interference with contract are: 1) the existence of a valid contract; 2) defendant's knowledge of that contract; 3) defendant's intentional procuring of the breach; and 4) damages. White Plains Coat & Apron Co Inc v. Cintas Corp, 8 NY3d 422, 835 N.Y.S.2d 530, 867 NE 2d 381 (2007); Lama Holding Co v. Smith Barney Inc, 88 N.Y.2d 413, 646 N.Y.S.2d 76, 668 NE 2d 1370 (1996). In view of the public benefit afforded enforcement of contractual rights as opposed to prospective business relationships, the tort of interference with existing contracts does not require either use of wrongful means or motive to cause harm. White Plains Coat & Apron Co, Inc, supra; NBT Bancorp Inc v. Fleet/Norstar Financial Group Inc, 87 N.Y.2d 614, 641 N.Y.S.2d 581, 664 NE 2d 492 (1996). Indeed, in A S Rampell, Inc v. Hyster Co, 3 N.Y.2d 369, 165 N.Y.S.2d 475, 144 NE 2d 371 (1957), the Court of Appeals set forth that the requirement of actual malice, in the sense of ill will, as an element of the plaintiff's case, has been abandoned.
As to the contract claims, those asserted by the various Plaintiffs as well as the Cross Claimants raise sufficient issues of fact, based upon the substantial evidence presented to require a trial. Accordingly, the motion to dismiss the eighth claim against the Foundation for breach of its guarantee; the twenty fourth claim against the Foundation for breach of its agreement to guarantee the Maple Valley Note; and the twenty fifth claim against Windwood for breach of its guarantee on such Note are denied. With regard to the issue of whether the payment by WDR had the effect of releasing these guarantors, Plaintiffs have set forth sufficient basis under Massachusetts law to pursue these claims on an equitable basis, if, the facts as they set forth, concerning Bahrenburg's legal advice to them as well as his knowledge of their estate planning efforts, are found to be true.
A plaintiff in a tortious interference action need not be one of the contracting parties; so long as the entity seeking relief is one, such as a third-party beneficiary, which has rights under the subject contract. See, Newin Corp v. Hartford Acc & Indem Co, 37 N.Y.2d 211, 371 N.Y.S.2d 884, 333 NE 2d 163 (1975). Of course, whether it is a direct or third party beneficiary, the contract itself must be binding. Burns, Jackson, Miller, Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 464 N.Y.S.2d 712, 451 NE 2d 459 (1983). Only a stranger to the contract, such as third party, however, can be liable for tortious interference with a contract. Angelino v. Michael Freedus, D.D.S,, P.C., 69 AD3d 1203, 893 N.Y.S.2d 668 (3rd Dep't 2010). A corporate officer or director will not be liable for tortious interference with a corporate contract, unless the acts asserted are demonstrated to have been performed with malice and were calculated to impair the Plaintiff's business or for the personal profit of the named defendant. Stern v. H. DiMarzo, Inc., 77 AD3d 730, 909 N.Y.S.2d 480 (2d Dep't 2010). However, a corporate officer can be held liable for this tort if his activities involved independent tortious acts. International Credit Brokerage Co., Inc. v. Agapov, 249 A.D.2d 77, 671 N.Y.S.2d 64 (1st Dep't 1998).
Based upon the substantial issues raised with regard to the validity of each contract which forms the basis of these claims, as well as the allegations of intentional and malicious conduct of the Bahrenburg, Dryfoos and Clark, who assertedly caused all of the above contracts to be breached both for their own economic gain and with knowledge of their wrongdoing, these claims should likewise proceed to trial. In this vein, there are issues of fact concerning whether Bahrenburg acted not as an officer or advisor of the Defendants; but, as alleged, for his personal gain. Thus, the motions for Summary Judgment seeking to dismiss the sixth claim against Bahrenburg; the nineteenth claim against Bahrenburg; the twentieth claim against Dryfoos and Clark; the twenty eighth claim against Bahrenburg; the twenty ninth claim against Bahrenburg, Dryfoos and Clark; the second cross claim against Bahrenburg; the seventh cross-claim against Bahrenburg; and the eighth cross claim against Bahrenburg for tortious interference with the contracts set forth above, are denied.
Equitable Estoppel/Quantum Meruit/Declaratory Judgment
The doctrine of “equitable estoppel” is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom some sort of enforcement is sought and who, in justifiable reliance upon the opposing party's words or conduct, has been misled into acting upon the belief that such enforcement would not be sought. Fundamental Portfolio Advisors, Inc v. Tocqueville Asset Management L P, 7 NY3d 96, 817 N.Y.S.2d 606, 850 NE 2d 653 (2006). Promissory estoppel, a related doctrine, requires a showing of clear and unambiguous promise, reasonable and foreseeable reliance by a party to whom the promise is made, and an injury sustained in reliance on the promise. AHA Sales, Inc. v. Creative Bath Prods., Inc 58 AD3d 6, 867 N.Y.S.2d 169 (2d Dep't 2008).
An action to recover for unjust enrichment rests upon the equitable principle that a person shall not be allowed to enrich himself or herself unjustly or at the expense of another. Miller v. Schloss, 218 N.Y. 400, 113 NE 337 (1916); and sounds in quasi contract, Edelman v. Starwood Capital Group, LLC, 70 AD3d 246, 892 N.Y.S.2d 37 (1st Dep't 2009). As a general rule, recovery in quasi contract may not be obtained where there exists a valid enforceable contract between the parties as to the same subject matter. IDT Corp v. Morgan Stanley Dean Witter & Co, 12 NY3d 132, 879 N.Y.S.2d 355, 907 NE 2d 269 (2009); Goldman v. Metropolitan Life Ins Co, 5 NY3d 561, 807 N.Y.S.2d 583, 841 NE 2d 742 (2005). However, a party will not be precluded from proceeding to trial on both breach of contract and quasi contract theories where a bona fide dispute exists as to the existence of a contract. AHA Sales Inc v. Creative Bath Products, supra. Thus, if the contract itself is not proved, recovery at trial may still be had for unjust enrichment. O'Brien v. Syracuse, 54 N.Y.2d 353, 445 N.Y.S.2d 687, 429 NE 2d 1158 (1981). The same is true for the doctrine of promissory estoppel, which rests upon equitable foundations essentially analogous to quantum meruit. The sole difference is that the promise is actual under the estoppel theory rather than inferred; however, the defendant is, in both instances prevented for equitable reasons from raising a defense to enforcement. Binkowski v. Hartford Acc and Indem Co, 60 AD3d 1473, 876 N.Y.S.2d 295 (4th Dep't 2009).
A declaratory judgment, on the other hand, asking the court to set forth the rights of the parties, is unnecessary where the plaintiff can be afforded complete relief from the other legal and equitable claims proceeding. See, Empire 33rd LLC v. Forward Assn. Inc., 87 AD3d 447, 928 N.Y.S.2d 282 (1st Dep't 2011).
Applying the above principles to this case, the Court finds that Plaintiffs have raised issues of fact which prevent Summary Judgment dismissing the claims labeled “equitable estoppel” which are, in fact really claims for “promissory estoppel” as defined as well as those for quantum meruit. While the Defendants argue that the various agreements are void, whether based upon the advice of outside agents, their view of the wording of the contracts, or as a result of actions taken by the various Plaintiffs, those Plaintiffs counter that if this is so, then all actions were taken upon the express or implied promises of the named Defendants that caused the defeat of their contractual rights. Such claims should proceed to trial. On the other hand, the Declaratory Judgment action is unnecessary as the Plaintiffs will receive full relief, if any of their other remaining claims prove to be successful. Accordingly, the Summary Judgment motions to dismiss the ninth, eleventh, and twelfth claims against the Foundation and Durham, the twenty sixth claim against Windwood and the Foundation are denied. The motion to dismiss the tenth claim against the Foundation and Bahrenburg is granted.
PUNITIVE DAMAGES
Within each of their motions, the moving Defendants seek Summary Judgment, dismissing the punitive damages sought by Plaintiffs in many of the claims against them. To obtain an award of punitive damages, which does not constitute a separate cause of action, the claimant must demonstrate recklessness or a conscious disregard of the rights of others. Hartford Accident & Indemnity Co v. Hempstead, 48 N.Y.2d 218, 422 N.Y.S.2d 46, 397 NE 2d 737 (1979). Thus punitive damages require more than mere intentional conduct; they are permitted when the conduct evinces a high degree of moral turpitude and demonstrate such wanton dishonesty as to imply criminal indifference to civil obligations. Ross v. Louise Wise Services, Inc, 8 NY3d 478, 835 N.Y.S.2d 509, 868 NE 2d 189 (2007). The United States Supreme Court has asked courts to consider, inter alia, whether: 1) the tortious conduct evinced an indifference to or disregard for the health or safety of others; 2) the target of the conduct was financially vulnerable; 3) whether the conduct involved repeated actions of a similar type or was an isolated incident; and 4) whether the harm was as a result of intentional malice, trickery or deceit, as opposed to mere accident. State Farm Mutual Ins Co v. Campbell, 538 U.S. 408, 123 S.Ct. 1513(2003).
The allegations in the Complaint are serous. In this case, Plaintiffs and Cross–Claimants allege that Defendant Bahreneburg acted, with more than mere intent; but, rather, deliberately instigated and carried out an elaborate and deliberate scheme to advise the Braysons and their various entities to enter into numerous agreements, which he assertedly contrived and/or drafted; to represent all sides of the various transactions; and then, for his own personal enrichment, to cause deliberate default, in violation of his significant duties as an advisor, counselor and fiduciary. Of course, Bahrenburg has a totally different take on the transactions and blames the Braysons for their own misconduct and poor business decisions. In view of the serousness of the allegations set forth, the Court will permit the issue of punitive damages to go to trial with regard to Defendant Bahrenburg only; however, the Court points out that at least in the Second Department, there is required standard of proof equating to “clear and convincing evidence”. Randi A.J. v. Long Island Surgi–Center, 46 AD3d 74, 842 N.Y.S.2d 558 (2d Dep't 2007). None of the allegations set forth in the Plaintiffs' papers, following a full discovery process, give rise to the ability to seek punitive damages against any of the other Defendants.
Based upon the above Decision, and incorporating each of its holdings and rulings on the law, the Court determines that:
1. The following motions for Summary Judgment, dismissing certain claims by Plaintiffs or Cross Claimants are granted: all claims by Second Realty; the fourth claim by Oikonomos against Bahrenburg for breach of fiduciary duty; the fifth claim by Oikonomos against Bahrenburg for fraud; the tenth claim by Stonegate against the Foundation and Bahrenburg for declaratory judgment; the seventeenth claim by Stonegate, 3390 and Educare against Bahrenburg for breach of fiduciary duty; the eighteenth claim by Stonegate, 3390 against Bahrenburg for fraud; the twenty second claim by Oikonomos, Stonegate, 3390 and Educare against Bahrenburg for gross negligence; the thirtieth claim by WDR against Bahrenburg for fraud; the first and eighth cross claims by the Braysons against Bahrenburg for breach of fiduciary duty; and the fifth cross claim by the Braysons, Litvak and Farley Road against Bahrenburg for fraud.
2.The following motions for Summary Judgment dismissing certain claims and cross claims are denied: the sixth claim by Oikonomos against Bahrenburg for tortious interference with contract; the eighth claim by Stonegate against the Foundation for breach of contract; the ninth claim by Stonegate against the Foundation for equitable estoppel; the eleventh claim by Stonegate against the Foundation for unjust enrichment; the nineteenth claim by Stonegate against Bahrenburg for tortious interference with contract; the twentieth claim by Stonegate, Educare, 3390 and Oikonomos against Dryfoos and Clark for tortious interference with contract; the twenty first claim by Stonegate, 3390, and Educare against Clark and Dryfoos for aiding and abetting fraud; the twenty fourth and twenty sixth claims by WDR against the Foundation for breach of contract or equitable relief; the twenty seventh claim by all Plaintiffs against Bahrenburg for legal malpractice; the twenty eighth and twenty ninth claims by WDR against Bahrenburg, Clark and Dryfoos for tortious interference with contract; the thirtieth claim by WDR against Clark and Dryfoos for aiding and abetting fraud; the third, fourth and ninth cross claims by the Braysons against Bahrenburg for legal malpractice; the seventh cross claim by the Braysons, Litvak and Farley Road against Bahrenburg for legal malpractice; and the second cross claim by the Braysons against Bahrenburg for tortious interference with contract.
The claims that remain shall proceed to trial on the scheduled date. This constitutes the Decision and Order of the Court