Opinion
00 Civ. 3539 (LAP)
February 6, 2001
MEMORANDUM AND ORDER
Plaintiff Norman Olshansky ("Olshansky") brings this action alleging that defendants Shane Henty Sutton ("S.H. Sutton") and Shane Henty Sutton, P.C. ("Sutton, P.C.") (collectively "Sutton") knowingly and falsely took and retained possession of common stock owned by plaintiff and fraudulently converted such stock to defendants' own benefit by, inter alia, knowingly making false and fraudulent statements to the New York Supreme Court in violation of Mr. Olshansky's rights and in violation of S.H. Sutton's ethical duties as an attorney and officer of the Court. Plaintiff seeks compensatory and punitive damages. Sutton moves to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, defendants motion is granted in part and denied in part.
BACKGROUND
The following facts are taken from the allegations in the Complaint, which I must accept as true for purposes of the motion to dismiss. In March 1998, Mr. Olshansky received 214,286 shares of Keystone Energy Services, Inc. ("Keystone") common stock from Richard Carey, the owner of About Time, Inc. ("ATI"). (Compl. ¶ 8.) The shares were registered in the name of ATI at the time of the transfer and were delivered to Mr. Olshansky with an executed, signature guarantee stock power as compensation for commercial services rendered by him to Mr. Carey and ATI. (Compl. ¶ 10.)
It is unclear from the complaint whether there was a second certificate representing an additional 214,286 shares of Keystone stock, but for purposes of this motion to dismiss this fact is irrelevant.
Mr. Carey allegedly told plaintiff that Sutton, the attorney for Mr. Carey and ATI, was collecting stock certificates in the name of ATI "for purposes of having the restrictive legend removed therefrom and then selling the shares in a block sale on behalf of ATI and plaintiff." (Compl. ¶ 12.) On March 25, 1998, Mr. Olshansky instructed his attorneys, Dornbush, Mensch, Mandelstam Schaeffer ("Dornbush, Mensch"), to give Sutton stock certificate numbered 1464 ("certificate no. 1464") which represented the 214,286 shares of Keystone stock and the stock power. (Compl. ¶ 11.)
Plaintiff's attorneys delivered the stock certificate to Sutton with instructions to send Mr. Olshansky's portion of the proceeds from the sale of the shares to Dornbush, Mensch. (Compl. ¶ 14.) Sutton accepted plaintiff's Keystone shares. (Compl. ¶ 15.)
After Mr. Olshansky realized that Sutton was not going to sell the Keystone shares, he told Dornbush, Mensch to ask Sutton to return the stock certificate. (Compl. ¶ 16.) On June 30, 1998, Mr. Olshansky's attorneys sent a letter to Sutton requesting the return of the stock. (Compl. ¶ 18.)
By letter dated July 2, 1998, Sutton informed Mr. Olshansky's attorneys that Mr. Carey "'attended at our office to pick up documents including Certificate No. 1464.'" (Compl. ¶ 19.) Mr. Olshansky's attorneys allegedly told Sutton by telephone and letter dated July 29, 1998 that he had no authority or right to deliver the stock certificate to Mr. Carey and again requested that Sutton return the stock certificate. (Compl. ¶ 20.)
By letter dated July 24, 1998, Sutton denied any responsibility to plaintiff and indicated that Mr. Carey had "entered into a settlement agreement with Keystone that imposed certain limitations on the transferability of the shares such that even if plaintiff held the shares, plaintiff could not transfer them." (Compl. ¶¶ 23-24.) By letter dated August 7, 1998, Sutton informed Dornbush, Mensch that "Mr. Carey demanded the certificate from Sutton, claiming a 'legitimate entitlement as the registered owner.'" (Compl. ¶ 30.) It is alleged that Mr. Sutton and one of his associates also told plaintiff's attorneys that "Mr. Carey 'stole' the Certificate from their office prior to June 30, 1998" and "described their client, Mr. Carey, as a 'thief.'" (Compl. ¶ 30.)
Plaintiff asserts that he unsuccessfully attempted to resolve the dispute over the Keystone shares directly with Mr. Carey during August and September 1998. (Compl. ¶ 34.) On October 9, 1998, Dornbush, Mensch sent a letter to Sutton and Mr. Carey demanding the return of the certificate. (Compl. ¶ 34.)
At some point not indicated by the complaint, Sutton put an attorney's lien on the stock certificate because of a dispute over fees with Mr. Carey. (Compl. ¶ 35.) Sutton allegedly did not inform Mr. Olshansky or his attorneys of the lien. (Compl. ¶¶ 35.) Around September 1998, Sutton petitioned the Supreme Court of the State of New York to effectuate his lien and allow him to sell the Keystone stock that plaintiff had given him. (Compl. ¶ 39.) Plaintiff asserts that Sutton failed to inform the court about plaintiff's claim to the stock. (Compl. ¶ 40.) Sutton allegedly sold plaintiff's Keystone shares. (Compl. ¶ 53.)
Plaintiff asserts that on October 22, 1998, Sutton offered to replace the stock certificate if Mr. Olshansky would agree to a general release of liability to Sutton. (Compl. ¶ 35.) At that point, the value of the shares had dropped by over $100,000 from the time the shares were given to Sutton. (Compl. ¶ 35.)
ANALYSIS
I. Standard Applicable To Motion To Dismiss
When deciding a motion to dismiss under Rule 12(b)(6), a court must accept as true all well-pleaded factual allegations of the complaint and must draw all inferences in favor of the pleader. See City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986); Miree v. DeKalb County, 433 U.S. 25, 27 n. 2 (1977) (referring to "well-pleaded allegations"); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). "'[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.'" International Audiotext Network, Inc. v. American Tel. Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991)). In order to avoid dismissal, plaintiff must do more than plead mere "[c]onclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp.2d 331, 333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice ¶ 12.34[a][b] (3d ed. 1997)). Dismissal is proper only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994).
I note that in resolving this motion I have not considered the Affirmation of Judah S. Shapiro and the Affidavit of Norman Olshansky submitted with plaintiff's opposition papers and the Affirmations of Peter Moulinos in support of defendants' motion to dismiss. Plaintiff's affirmation and affidavit and defendants' affirmations contain a number of factual allegations not pled in the original complaint. This is a 12(b)(6) motion, filed in lieu of an answer and prior to commencement of discovery. Under the circumstances, I have two options, either consider the affidavit and affirmations and convert this motion into one for summary judgment, or disregard the affidavit and affirmations and treat this motion as a 12(b)(6) motion. See Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir. 1988). Here, neither side had any form of notice that conversion was appropriate, nor do I believe that it was. At the time the motion was submitted, an answer had not been filed and discovery had not commenced. See Old Republic Ins. Co. v. Hansa World Cargo Serv., Inc., 170 F.R.D. 361, 366 (S.D.N Y 1997) (declining to convert motion because, inter alia, the parties had not undertaken discovery). Accordingly, because I have not relied upon the affirmations or affidavit for additional factual material, this motion remains a motion under Fed.R.Civ.P. 12(b)(6). See Alba v. Ansonia Bd. of Educ., 999 F. Supp. 687, 691 n. 1 (D.Conn. 1998).
The Court must assess the complaint in the light of the very minimal requirements by Rule 8. Even under this liberal standard, however, I find that plaintiff's claim for fraud suffers from deficiencies that mandate its dismissal. For the reasons set forth below, however, plaintiff's remaining claims in the complaint, while far from a model of clarity, fulfill the minimal requirements of Rule 8.
II. Fraud
Plaintiff's first cause of action alleges fraud. To establish a claim for fraud under New York law, the plaintiff must plead the following elements: (1) that the defendant made a material false representation, (2) that the defendant intended to defraud the plaintiff with such representation, (3) that the plaintiff reasonably relied on the representation, and (4) that the plaintiff suffered damage as a result of such reliance. Keywell Corp. v. Weinstein, 33 F.3d 159, 163 (2d Cir. 1994); see Barclay Arms, Inc. v. Barclay Arms Assocs., 540 N.E.2d 707, 709 (N.Y. 1989) (noting that elements of fraud include misrepresentation of material fact, falsity, scienter, reliance, and damages); Channel Master Corp. v. Aluminum Ltd. Sales, 151 N.E.2d 833 (N.Y. 1958); Caniglia v. Chicago Tribune-New York News Syndicate, Inc., 612 N.Y.S.2d 146, 147 (1st Dept. 1994). Plaintiff must allege the "particulars regarding the fraudulent content of the speech, the time and place at which the statements were made, and the identity of individuals making the fraudulent statements." Lomaglio Assocs. Inc. v. LBK Marketing Corp., 876 F. Supp. 41, 45 (S.D.N.Y. 1995); Fed.R.Civ.P. 9(b) (requiring fraud to be plead with particularity).
Passing problems with other elements, plaintiff has failed to plead reliance on the alleged misrepresentations and omissions. The only time Mr. Olshansky even attempts to address the element of reliance is in his opposition brief where plaintiff argues that "[i]t is clear that Sutton failed to disclose material information to Olshansky, made affirmative misrepresentations, ratified those omissions and misrepresentations by retaining the shares entrusted in him by Plaintiff in reasonable reliance thereof and caused Olshansky damages by his fraudulent conduct." (Pl. Opp. Br. at 7.) Even if the Court were to ignore the fact that this allegation does not fall within the pleadings, such a conclusory statement will not satisfy plaintiff's obligation to plead reliance on a material misrepresentation by Sutton, an essential element of fraud. See generally Fed.R.Civ.P. 9(b). I am unable to infer from the pleadings that plaintiff relied to his detriment on any of defendants' alleged misrepresentations or omissions. See, e.g., The Golden Budha Corp. v. Canadian Land Co. of Amer., N.V., 931 F.2d 196, 202 (2d Cir. 1990) (noting that claim for fraud "requires a false misrepresentation of a material fact, by one who knows it to be false, for the purpose of inducing another to rely upon it, as well as actual reliance to his injury by the defrauded party in ignorance of the falsity" and finding that "necessary allegations are totally absent from the complaint"); In re Motel 6 Sec. Litig., 93 Civ. 2183, 1997 WL 154011, at *5-6 (S.D.N Y April 2, 1997) (holding that fraud claim must be dismissed because plaintiff failed to allege facts to support claim that they relied on defendants' omissions). Purely as a matter of pleading, the complaint is deficient in this regard.
The Court notes that most of the alleged material false misrepresentations also are inadequately pled. Conclusory allegations will not satisfy plaintiff's burden. See, e.g., (Compl. ¶ 45) ("[d]efendants made false and fraudulent statements regarding the shares to plaintiff and third parties while in possession they were in possession of the shares of stock" [sic]); (Compl. ¶ 46) ("[d]efendants made statements to Plaintiff omitting material information regarding the shares while in possession of the shares of stock"); (Compl. ¶ 48) (defendants "falsely asserted an attorneys [sic] lien over Mr. Olshansky's shares of stock and made willful false statements to the Court regarding the shares of stock").
Plaintiff's claim for fraud is dismissed for failure to plead reliance on the alleged misrepresentations or omissions.
III. Judiciary Law § 487
Plaintiff's second claim alleges that defendants violated "Judiciary Law Section 1400" and seeks damages of $600,000 plus attorney's fees. (Compl. ¶ 61.) Because there is no Section 1400 of the New York Judiciary Law, this Court assumes, as defendants do, that plaintiff intends to assert a claim under Section 487 of the Judiciary Law which states that any attorney who "[i]s guilty of any deceit . . . with intent to deceive the court or any party . . . . forfeits to the party injured treble damages, to be recovered in a civil action." N.Y. Judiciary Law § 487(1) (2000).
Plaintiff alleges that Sutton, as an officer of the court, "made wilful, false and fraudulent statements and omissions of fact to the New York Supreme Court in order to take possession and control over Mr. Olshansky's shares." (Compl. ¶ 58.) Mr. Olshansky asserts that in September 1998, "while Sutton had full knowledge that Plaintiff had a claim to the shares of Keystone stock, Sutton, petitioned the [New York Supreme Court] to effectuate his supposed lien and allow him to sell the stock." (Compl. ¶ 39.) Plaintiff claims that "Sutton wilfully failed to bring to the attention of the court Mr. Olshansky's disputed claim to such stock though it was his legal and ethical obligation to do so." (Compl. ¶ 40.) Essentially, plaintiff asserts that because defendants deceived the New York Supreme Court by knowingly failing to disclose to the court that plaintiff had, at the very least, a disputed interest in the Keystone shares, the court, ignorant of the dispute, allowed Sutton to sell the Keystone shares. (Compl. ¶ 53.)
In order to adequately allege a claim under Section 487, plaintiff must assert that an attorney-client or fiduciary relationship existed between plaintiff and defendants during the New York state court action. Although plaintiff never retained Sutton and was not a party to the Supreme Court action, Mr. Olshansky has adequately pled that a fiduciary duty relationship existed between plaintiff and Sutton, as more fully discussed below. See Rogath v. Koegel, 96 Civ. 8729, 1998 WL 695668, at *4 n. 10 (S.D.N.Y. Oct. 6, 1998) (finding that plaintiff has not pled and cannot plead that any fiduciary duty or attorney-client relationship existed between plaintiff and defendant and "[h]aving determined that Defendant owed no duty to Plaintiff because Defendant represented Plaintiff's adversary, Plaintiff's . . .claim for violation of Judiciary Law § 487, interest and attorney's fees, [is] dismissed because Plaintiff has no standing to bring [this] claim"); Mecca v. Shang, 258 A.D.2d 569, 570 (N.Y. A.D. 1999) (affirming dismissal of plaintiff's Section 487 claim "who never retained the defendants' legal services and was not a party to the CPLR article 78 proceeding," but was wife of client). Plaintiff alleges that Sutton "made wilful, false and fraudulent statements and omissions of fact to the New York Supreme Court in order to take possession and control over Mr. Olshansky's shares," (Compl. ¶ 58), and that "[s]uch fraudulent statements and omissions were made wilfully to effectuate sale of Mr. Olshansky's [shares] and to unlawfully receive the funds derived from the sale," (Compl. ¶ 59).
Under the liberal pleading standards of Rule 8, plaintiff has adequately alleged a claim under New York Judiciary Law § 487. Defendant's motion to dismiss is denied.
IV. Fiduciary Duty
Plaintiff's third claim alleges that defendants, as agents for Mr. Olshansky, breached a fiduciary duty to plaintiff. The existence of a fiduciary duty "depends on the facts of a particular relationship." Boley v. Pineloch Assocs., Ltd., 700 F. Supp. 673, 680-81 (S.D.N.Y. 1988). "Usually, therefore, a claim alleging the existence of a fiduciary duty is not subject to dismissal in a 12(b)(6) motion, given the generous pleading standard established in Fed.R.Civ.P. 8." Id. at 681.
Under New York Law, "'a fiduciary relationship exists from the assumption of control and responsibility, and is founded upon trust reposed by one party in integrity and fidelity of another.'" Deleu v. Scaife, 775 F. Supp. 712, 715 (S.D.N Y 1991) (quoting Beneficial Commercial Corp. v. Murray Glick Datsun, Inc., 601 F. Supp. 770, 772 (S.D.N.Y. 1985)); Mandelblatt v. Devon Stores, Inc., 132 A.D.2d 162, 168, 521 N.Y.S.2d 672, 676 (N.Y. A.D. 1987) (stating that fiduciary relationship exists "'when one [person] is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation'") (quoting Restatement (Second) of Torts § 874 cmt. a (1977)). Certain relationships such as that between a lawyer and client are traditionally considered to be fiduciary. Granat v. Center Art Galleries-Hawaii, Inc., 91 Civ. 7252, 1993 WL 403977, at *6 (S.D.N Y Oct. 6, 1993). Fiduciary relationships "may also exist in more informal settings when one person trusts or relies on another or where confidence is based on prior business dealings." Id. (dismissing fiduciary duty claim because mere fact that plaintiffs bought numerous pieces of art from defendants over course of two years not enough to establish fiduciary relationship).
Agency is a legal and fiduciary "relationship between a principal and an agent." Maurillo v. U-Haul, 194 A.D.2d 142, 146 (N.Y. A.D. 199 3). An agency relationship is created if the following factual elements exist: "the manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking and the understanding of the parties that the principal is to be in control of the undertaking." Cabrera v. Jakabovitz, 24 F.3d 372, 386 (2d Cir. 1994).
Under the liberal pleading standards of Rule 8, plaintiff has adequately pled that an agency relationship was established between Mr. Olshansky and Sutton. Plaintiff alleges that the Keystone shares were delivered to defendants, (Compl. ¶ 14), and that "[d]efendants knowingly took on the responsibility to attempt to effectuate the purchase and sale of Keystone stock including he [sic] shares owned by Olshansky," (Compl. ¶ 63). Giving all benefit to the plaintiff, the Court cannot say at his stage that there is no way for plaintiff to prove that an agency and fiduciary relationship existed between the parties.
Plaintiff's claim for breach of fiduciary duty is adequately pled. Defendants' motion to dismiss this claim is denied.
V. Negligence
Plaintiff's fourth cause of action sounds in negligence. Plaintiff claims that a bailment was created when the stock certificate was delivered to defendants and that defendants, as bailees, negligently allowed the stock certificate to be taken by Mr. Carey. (Compl. ¶¶ 69-71.)
In New York, to hold a defendant liable in negligence, a plaintiff must show: (1) a legally-recognized duty or obligation flowing from defendant to plaintiff; (2) a breach of that duty by defendant's conduct; (3) damages to plaintiff resulting from the breach of that duty; and (4) a causal connection between the breach of duty and plaintiff's damages. M. Stagl v. Delta Air Lines, Inc., 117 F.3d 76, 79 (2d Cir. 1997). Plaintiff claims that defendant had a duty as a bailee of the stock certificate to prevent the stock from being taken.
A "[b]ailment is defined as 'delivery of personalty for some particular purpose, or on mere deposit, upon a contract, express or implied, that after the purpose has been fulfilled it shall be redelivered to the person who delivered it, or otherwise dealt with according to his directions, or kept until he reclaims it . . . .'" Chilewich Partners v. M.V. Alligator Fortune, et al., 853 F. Supp. 744, 756 (S.D.N.Y. 1994) (quoting 8 C.J.S. Bailment § 2). The elements of a bailment include "the intent to create a bailment, delivery of possession of the bailed items, and acceptance of the items by the bailee." Id. (quoting 8 C.J.S. Bailment § 19).
Plaintiff asserts that "[d]efendants willfully and knowingly took temporary physical possession of the Plaintiff's shares of stock to effectuate a sale of such shares." (Compl. ¶ 69.) Under the liberal pleading standards of Rule 8, plaintiff has adequately alleged that a bailment was created.
Thus, plaintiff has also alleged that Sutton owed a duty to plaintiff under tort law to conduct defendants' activities non-negligently. Plaintiff alleges that Sutton breached the duty by "allowing the shares to be stolen," (Compl. ¶ 71), which caused Mr. Olshansky to suffer damages in the amount of $200,000, (Compl. ¶ 73).
Plaintiff has adequately pled a claim for negligence. Defendants' motion to dismiss is denied.
VI. Conversion
Plaintiff's fifth claim is for conversion. Under New York law, "[c]onversion is any unauthorized exercise of dominion or control over property by one who is not the owner of the property which interferes with and is in defiance of a superior possessory right of another in the property." Meese v. Miller, 79 A.D.2d 237, 436 N.Y.S.2d 496, 500 (1981); Van Syckle v. C.L. King Assocs., Inc., 822 F. Supp. 98, 106 (N.D.N Y 1993) (finding that "party who wrongfully sells stock of another may be found guilty of conversion"). To maintain a viable claim for conversion, plaintiff must allege that "a demand for the return of property was made and that a refusal to comply with this demand followed." Schloss v. Danka Business Systems PLC, 99 Civ. 0817, 2000 WL 282791, *7 (S.D.N.Y. March 16, 2000) (citing Tompkins v. Fonda Glove Lining Co., 188 N.Y. 261 (1907)), aff'd, 2000 WL 1715262 (2d Cir. Nov. 13, 2000); Granat v. Center Art Galleries-Hawaii, Inc., 91 Civ. 7252, 1993 WL 403977, *7 (S.D.N Y Oct. 6, 1993) (finding that defendants' alleged refusal to return painting satisfies grounds for conversion claim).
Plaintiff has adequately alleged a claim for conversion. Plaintiff asserts that he had a superior right to the stock certificate. (Compl. ¶¶ 7, 8, 14.) On June 30, 1998, plaintiff allegedly made his first demand for the return of the Keystone shares. (Compl. ¶ 18.) Plaintiff asserts that after requesting that the shares be returned, "[d]efendants wilfully refused return of [the] shares making false [sic] and through [sic] duly demanded." (Compl. ¶ 76.)
The Court notes, however, that at the time the first demand was made it is unclear whether Sutton still maintained possession of the shares. (See Compl. ¶ 19 ("By letter dated July 2, 1998, Sutton advised plaintiff's attorneys that Mr. Richard Carey (Sutton's client) 'attended at our office to pick up documents including Certificate No. 1464,' which was the certificate that had been transferred to plaintiff by ATI.")).
Defendant argues that he offered to replace the stock certificate on October 22, 1998 and that since plaintiff refused the replacement, plaintiff's conversion claim must be dismissed. (Def's Br. at 17-18.) Defendant's argument is unpersuasive. Not only was the alleged offer to replace the shares several months after the original demand, but plaintiff alleges that the replacement was "contingent up on [sic] Sutton's receipt of a General Release from plaintiff." (Compl. ¶ 35.) Defendant's allegedly belated attempts to return the stock certificate if plaintiff would agree to added conditions does not demonstrate that defendant complied with a request to return the certificate.
Plaintiff has adequately alleged a claim for conversion. Defendant's motion to dismiss this claim is denied.
VII. Accounting and Constructive Trust
Plaintiff's remaining claims seek an accounting and a constructive trust. An equitable accounting is available "when there is a confidential relationship which induced plaintiff to entrust defendant with property or money and no adequate legal remedy exists." Beck v. The CIT Group/Credit Finance, Inc., 95 Civ. 5800, 1998 WL 655547, at *3 (S.D.N.Y. Sept. 24, 1998). An accounting is "warranted when one party is entrusted with another's money under circumstances manifesting a fiduciary relationship with respect to its use and the trusted party refuses to render an account of his dealings with the money." Id.
A constructive trust is available "when property has been acquired under such circumstances that the holder of legal title may not in good conscience retain the beneficial interest therein." Bibeault v. Advance Health Corp., 97 Civ. 6026, 1999 WL 301691, *11 (S.D.N.Y. May 12, 1999) (internal citations and quotations omitted). Under New York law, "there are four elements to a claim for a constructive trust: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer of the subject res made in reliance on that promise; and (4) unjust enrichment." Briggs v. The Goodyear Tire Rubber Co., 79 F. Supp.2d 228, 237 (W.D.N.Y. 1999).
As stated supra, plaintiff has adequately alleged that a fiduciary relationship existed between plaintiff and defendants. Plaintiff has alleged that the stock certificate was transferred to Sutton, (Compl. ¶ 15), and that defendant wrongfully received funds from the sale of such stock, (Compl. ¶ 85).
Plaintiffs claims for an accounting and a constructive trust are adequately pled. Defendants motion to dismiss is denied.
Conclusion
For the reasons stated above, defendants' motion to dismiss is granted as to plaintiff's claim for fraud (first claim), and denied as to plaintiff's remaining claims.