Opinion
98 Civ. 9051 (RWS).
November 1, 2004
ANTHONY F. LeCRICHIA, ESQ., New York, NY, Attorney for Plaintiff.
CASTRO KARTEN, New York, NY, By: CLAUDE CASTRO, ESQ., Of Counsel, Attorney for Defendants.
OPINION
Defendants Louis Mazzella, Sr. ("Mazzella, Sr."), Anne Mazzella ("Mrs. Mazzella"), Louis Mazzella, Jr. ("Mazzella, Jr."), Claude Castro ("Castro"), Castro Karten, LLP ("CK"), Timothy Dowd ("Dowd"), Louis Mazzella Irrevocable QTIP Trust ("QTIP"), CLM Properties, Inc. ("CLM"), Darby Corporation ("Darby"), and AL Properties ("AL") (collectively, the "defendants"), have moved under Rule 56, Fed.R.Civ.P., for summary judgment dismissing the amended complaint of Robert Savitsky ("Savitsky"). Savitsky has cross-moved under Rule 15(a), Fed.R.Civ.P., to amend his complaint and under New York Disciplinary Rules ("DR") 5-101 and 5-102, 22 NYCRR §§ 1200.20 and 1200.21, to disqualify Castro and CK and from representing the defendants. For the reasons set forth below, the cross-motion is granted to permit the filing of a second amended complaint ("SAC") and denied as to disqualification. The motion of the defendants for summary judgment is denied at this time with leave granted to renew after the filing of the SAC in accordance with this opinion.
This action has been prosecuted under difficult circumstances. Savitsky has been represented by three successive lawyers and has also participated pro se. The first appearance of his present counsel was on January 26, 2004. In order to permit new counsel an opportunity to represent Savitsky, his cross-motion to file an amended pleading is granted in accordance with the rulings which follow.
Facts
The following facts are not in dispute. The plaintiff and the defendants have been involved in an ongoing litigation arising out of a money judgment entered against the defendant in favor of the plaintiff on June 27, 1991 in the federal district court for the Eastern District of Pennsylvania. Over the past thirteen years, the plaintiff has tried unsuccessfully to collect on these judgments.
Prior Proceedings
The complaint was originally filed in the Central District of California but was transferred to this Court pursuant to 28 U.S.C. § 1404 (a). On September 1, 1999, plaintiff filed with this Court the first amended complaint ("FAC"), which alleged two causes of action: (1) conspiracy to intentionally, fraudulently transfer property under New York Debtor and Creditor Law ("DCL") § 276-a, and (2) conspiracy to commit common law fraud. The FAC was dismissed by opinion of this Court of April 23, 2002 (the "April Opinion"), which granted the defendants' motion for summary judgment. Savitsky v. Mazzella, No. 98 Civ. 9051 (RWS), 2002 WL 664060 (S.D.N.Y. April 23, 2002). On appeal, the April Opinion was vacated for failure to provide Savitsky with notice of the nature and consequences of the defendants' motion. Savitsky v. Mazzella, 59 Fed. Appx. 432, 2003 WL 1191180 (2nd Cir. 2003).
In both the FAC and the SAC, plaintiff asserts his fraudulent conveyance claims pursuant to DCL § 276-a, which governs awards of attorneys' fees in actions and special proceedings to set aside fraudulent conveyances. For the purpose of the FAC, the Court assumes that this citation was in error, and that plaintiff intended to assert his claim pursuant to DCL § 273-a, which provides for the setting aside of certain property transfers by defendants.
On remand, discovery was completed and the defendants again moved for summary judgment. Savitsky cross-moved (1) for leave to file the SAC and (2) to disqualify Castro and CK from representing the defendants. These motions were heard and marked fully submitted on June 9, 2004.
Discussion 1. Leave is Granted to File the SAC
Defendants oppose plaintiff's motion to file the SAC on the following grounds: (1) that leave to amend at this stage of an already protracted litigation will cause undue delay and prejudice and (2) that the SAC fails to cure alleged defects of the FAC.
In general, leave to replead is "freely given when justice so requires." Fed.R.Civ.P. 15(a); see also Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991); Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991). This liberal approach to the amendment of pleadings serves a dual purpose:
First, the rule's purpose is to provide maximum opportunity for each claim to be decided on its merits rather than on procedural technicalities. . . . Second, Rule 15 reflects the fact that the federal rules assign the pleadings the limited role of providing the parties with notice of the nature of the pleader's claim or defense and the transaction, event, or occurrence that has been called into question. . . .
6 Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 1471 (2d ed. 1990).
A district court has discretion to deny leave to amend "where the application is made after an inordinate delay, no satisfactory explanation is made for the delay, and the amendment would prejudice the defendant." BBS Norwalk One, Inc. v. Raccolta, Inc., 60 F. Supp. 2d 123, 132 (S.D.N.Y. 1999) (citing MacDraw, Inc. v. CIT Group Equip. Fin., Inc., 157 F.3d 956, 962 (2d Cir. 1998)). The Second Circuit has stated that "[m]ere delay, . . . absent a showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the right to amend." State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981).
The defendants argue that Savitsky's cross motion should be denied because undue delay would result if Savitsky is permitted to amend his complaint and that such delay would cause undue prejudice. (Castro Aff. ¶ 13). This conclusory assertion not withstanding, defendants have failed to make any actual showing as to how the filing of the SAC would result in any sort of prejudice to them. Savitsky is therefore granted leave to file the SAC despite the delay which has resulted after the remand.
2. Claims Identified in the SAC
The SAC asserts seven causes of action: (1) misrepresentation, (2) fraudulent conveyance, (3) fraudulent conveyance, (4) expenses, (5) violation of Section 487 of the New York Judiciary Law ("JL"), (6) unjust enrichment, and (7) conspiracy to commit fraud.
Pursuant to his fourth cause of action, Savitsky seeks attorneys' fees and other costs associated with bringing this law suit. As such, this is not a separate cause of action. Rather, it is an assertion of the damages that have resulted from defendants' allegedly improper conduct. It should be noted that under New York law, "[i]n actions for torts, counsel fees and other expenses in conducting the suit cannot be taken into consideration in assessing damages" 36 N.Y. Jurisprudence § 93 (2d ed. 2003) ("N.Y. Jur.") (collecting cases). However, pursuant to DCL 276-a, attorney's fees can be recovered in an action to set aside a fraudulent conveyance if the transfer "is found to have been made by the debtor and received by the transferee with actual intent" to delay, hinder or defraud the creditor.
For ease of analysis, this cumbersome and redundant structure can be collapsed into the following claims: (1) fraud (cause of action 1), (2) fraudulent conveyance (causes of action 2, 3, and 6), (3) violation of JL § 487 (cause of action 5), and (4) conspiracy to commit fraud (cause of action 7). 3. Choice of Law
Since this diversity action was transferred from a district court sitting in California, that state's choice-of-law rules are determinative of the substantive law that will govern the above-referenced state law claims. Ferens v. John Deere Co., 494 U.S. 516, 532 (1990). For most tort claims, California courts use a "governmental interest" analysis to determine what law should be applied. Downing v. Abercrombie Fitch, 265 F.3d 994, 1005 (9th Cir. 2001). The steps of this test are as follows:
(1) "the court examines the substantive laws of each jurisdiction to determine whether the laws differ as applied to the relevant transaction", (2) "if the laws do differ, the court must determine whether a true conflict' exists in that each of the relevant jurisdictions has an interest in having its law applied", and (3) "if more than one jurisdiction has a legitimate interest . . . the court [must] identify and apply the law of the state whose interest would be more impaired if its law were not applied."Id. (quoting Coufal Abogados v. ATT, Inc., 223 F.3d 932, 934 (9th Cir. 2000); Liew v. Official Receiver Liquidator, 685 F.2d 1192, 1196 (9th Cir. 1982)).
For claims 1, 3, and 4, the first step of this governmental interest analysis is dispositive: With respect to the transactions at issue and the claims asserted, there are no significant differences among the laws of California (the place of the transferor court), New York (the place of the transferee court), and Pennsylvania (the place where the underlying judgments were entered). Moreover, the parties have both applied New York law to these claims. Therefore, New York law will be applied to claims 1, 3, and 4.
It should be noted that in contrast to New York and California, Pennsylvania does not require express agreement between the parties as an element of a civil conspiracy claim.See, e.g., Ball v. Paramount Pictures, Inc., 169 F.2d 317, 320 (3d Cir. 1948) (stating that "`[i]t is not necessary to find an express agreement in order to find a conspiracy. It is enough that a concert of action is contemplated and that the defendants conformed to the arrangement.'") (quoting United States v. Paramount Pictures, Inc., 334 U.S. 131, 142 (1948)).
Claim 2 is based on the theory that Mazzella, Sr. fraudulently conveyed real property in California and New York to prevent Savitsky from collecting on the 1991 judgment. California law dictates that such "questions affecting title to real property are determined by the law of the jurisdiction where the property is located; if the law of the situs does not differ from that of California, the court will look to California law for guiding principles of decision." 12 Barbara Slotnik, California Jurisprudence 3d § 43 (2004) ("Cal. Jur.") (citing Cummings v. Bullock, 367 F. 2d 182 (9th Cir. 1966)). As described below, there are significant differences between New York and California law as it relates to Savitsky's fraudulent conveyance claim. Therefore, California law must govern Savitsky's claim that California real property was fraudulently conveyed, and New York law must govern his claim that an interest in New York property was so conveyed.
4. The SAC is not Futile as to Claims 1 2
"[I]t is well established that leave to amend a complaint need not be granted when amendment would be futile." Ellis v. Chao, 336 F.3d 114, 126 (2d Cir. 2003) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). A proposed amendment to a pleading is deemed to be futile if "it could not withstand a motion to dismiss pursuant to Rule 12 (b) (6)." Oneida Indian Nation of New York v. City of Sherrill, New York, 337 F.3d 139, 168 (2d Cir. 2003) (citing Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)).
For the purposes of evaluating futility, the 12(b)(6) standard is applied: All well pleaded allegations are accepted as true, and all inferences are drawn in favor of the pleader. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).
A. The Fraud Claim
Plaintiff's fraud claim has been properly plead. Under New York law, the elements of a fraud claim are: (1) that the defendant made a material false representation, (2) that the defendant intended to defraud the plaintiff thereby, (3) that the plaintiff reasonably relied upon the representation, and (4) that the plaintiff suffered damage as a result of such reliance.Manning v. Utils. Mut. Ins. Co., 254 F.3d 387, 400 (2d Cir. 2001) (quoting Bridgestone/Firestone, Inc. v. Recovery Credit Servs., 98 F.3d 13, 19 (2d Cir. 1996)); see also Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76, 80, 668 N.E.2d 1370, 1373 (1996); 60A William H. Danne, Jr., N.Y. Jur. § 14.
Pursuant to Fed.R.Civ.P. 9(b), a fraud claim must be stated with particularity. The Second Circuit "has read Rule 9(b) to require that a complaint `(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).
Paragraphs 21 through 25 of the SAC, in which Savitsky alleges that Mazzella, Sr. made false statements during the course of a July 13, 1992 deposition, are sufficient to satisfy the first three Mills requirements. Paragraphs 26 through 100 — alleging, in part, that Mazzella, Sr. held assets at the time of the July 13, 2002 deposition — are sufficient to satisfy the fourthMills requirement. That is, these paragraphs give rise to a "strong inference of fraudulent intent." Mills, 12 F.3d at 1176. Based on the foregoing, it is determined that the fraud claim, as stated in the SAC, is not futile.
B. The Fraudulent Conveyance Claim
The SAC alleges that Mazzella, Sr. fraudulently conveyed to his wife eight California properties after the June 27, 1991 judgment in favor of Savitsky. Section 3439.04(a) of the California Civil Code provides that "a transfer made or obligation incurred by a debtor is fraudulent as to a creditor . . . if the debtor made the transfer or incurred the obligation . . . [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." Cal. Civ. Code § 3439.04(a) (2004).
With respect to the California claims, the SAC has plead the elements of fraudulent conveyance with requisite particularity. Savitsky's allegations support an inference that the properties in question were purchased with funds provided by Mazzella, Sr. Furthermore, the intent element is satisfied by Savitsky's allegation that the real property transfers were made from husband to wife. See In re Kaiser, 722 F.2d 1574, 1582 (2d Cir. 1983) (stating that a family relationship between transferor and transferee is a "`badge . . . of fraud' [that] establish[es] the requisite actual intent to defraud.") (quoting In re Freudmann, 362 F. Supp. 429, 433 (S.D.N.Y. 1973)).
The SAC further alleges that Mazzella, Sr. fraudulently transferred his interest in New York real property after judgment was entered in favor of Savitsky. Section 273-a of the DCL provides that:
Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.
DCL § 273-a (2004) (emphasis added).
Paragraphs 77 and 78 of the SAC state a proper claim under DCL section 273-a. Paragraph 77 alleges that Mazzella, Sr. sold New York real property (located at 249 Waverly Place in New York City) to Richard Blitz, and that Mazzella, Sr. gave Blitz a purchase money mortgage for the purpose of this transfer. Paragraph 78 alleges that Mazzella, Sr. subsequently transferred his interest in this mortgage to QTIP for no consideration.
Based on the foregoing, the fraudulent conveyance claim is not futile. 5. The SAC is Futile as to Claims 3 and 4 A. The JL § 487 Claim
Savitsky has alleged that defendants' counsel, Castro and CK, violated JL Section 487(1), which broadly provides criminal and civil liability for any attorney who "[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party[.]" This statute is "`little known and seldom used.'" Brignoli v. Balch, Hardy Scheinman, Inc., 126 F.R.D. 462, 467 (S.D.N.Y. 1989) (quotingWiggin v. Gordon, 115 Misc. 2d 1071, 455 N.Y.S.2d 205, 206 (Civ.Ct. 1982)). Moreover, "civil relief [pursuant to J.L. § 487(1)] . . . is warranted only where the defendant attorney has engaged in `a chronic, extreme pattern of legal delinquency.'"Schindler v. Issler Schrage, P.C., 692 N.Y.S.2d 361, 362, 262 A.D.2d 226, 228 (1st Dep't 1999) (quoting Wiggin, 115 Misc. 2d at 1077, 455 N.Y.S.2d at 209); see also Senator Linie GmbH Co. KG v. Eastern Sunway Line, Inc., No. 96 Civ. 0008 (MGC), 2004 WL 232143 at *2 n. 1 (S.D.N.Y. Feb. 06, 2004); Schweizer v. Mulvehill, 93 F. Supp. 2d 376, 408 (S.D.N.Y. 2000).
Any attorney who engages in the conduct described in JL § 487(1) "is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action." JL § 487.
In the SAC, Savitsky makes three allegations in support of his JL § 487 (1) claim: (1) that Castro failed to prevent another attorney from arguing at a June 23, 1999 TRO hearing that Mazzella, Sr. was not the mortgagee of 249 Waverly Place (SAC ¶ 162-163), (2) that Castro permitted Mazzella, Sr. to falsely testify at the July 13, 1992 deposition (Id. ¶ 164), and (3) that Castro and his firm "wilfully masterminded or participated in the scheme alleged in this complaint" (Id. ¶ 143). The fist of the above-described allegations is contradicted by other parts of the SAC, and the second and third allegations are conclusory. Moreover, these allegations, which identify two isolated incidents separated by some seven years, are inadequate to allege the requisite pattern of "chronic, extreme legal delinquency." Therefore, the JL § 487(1) claim is futile, and will not be permitted in the SAC.
In paragraph 78 of the SAC, plaintiff admits that "Mazzella Sr. and Anne Mazzella assigned a mortgage on 249 Waverly Place without consideration to [QTIP]." (Compl. ¶ 78.) While plaintiff may argue that this transaction should be set aside as a fraudulent conveyance, he does not dispute that such a transfer of interest in the mortgage did, in fact, occur.
B. The Conspiracy to Commit Fraud Claim
The conspiracy to commit fraud claim is not adequately pled. In order to state a claim for conspiracy, a plaintiff must allege an independent actionable tort and four additional elements: (1) a corrupt agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) a party's intentional participation in the furtherance of a plan or purpose; and (4) resulting damage or injury. See Best Cellars Inc. v. Grape Finds at Dupont, Inc., 90 F. Supp. 2d 431, 446 (S.D.N.Y. 2000).
Savitsky's has failed to plead two of these elements. First, he has failed to allege, as he must, the existence of a corrupt agreement among the defendants. See, e.g., Goldstein v. Siegel, 19 A.D.2d 489, 493, 244 N.Y.S.2d 378, 382 (1st Dep't 1963) (stating that in order to properly allege a conspiracy claim, plaintiff must "assert adequately common action for a common purpose by common agreement or understanding among a group, from which common responsibility derives. [Citations omitted]. A bare conclusory allegation of conspiracy is usually held insufficient.") Second, he has failed to allege defendants' "`intentional participation in the furtherance of the plan or purpose[.]'" Kashi v. Gratsos, 790 F.2d 1050, 1055 (2d Cir. 1986) (quoting Vom Lehn v. Astor Art Galleries, Ltd., 86 Misc. 2d 1, 7, 380 N.Y.S.2d 532, 538 (Sup.Ct. 1976); Newburger, Loeb Co., Inc. v. Gross, 563 F.2d 1057, 1074 (2d Cir.).
Since the agreement and intentional participation have not been pled, Savitsky's conspiracy claim is futile and will not be permitted as part of the SAC. 6. The Motion to Disqualify Castro and CK is Denied
Pursuant to DR 5-101 and DR 5-102, 22 NYCRR §§ 1200.20 and 1200.21, Savitsky has sought disqualification of Castro and CK from the representation of the other defendants on the ground that Castro will be a witness upon trial.
Subject to certain exceptions, DR-102 require withdrawal when "a lawyer learns or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client." DR 5-101, which concerns conflicts between an attorney's interests and those of the client, does not address the issue of an attorney being called as a witness during the course of a representation.
Motions to disqualify counsel have long been disfavored in this Circuit. See, e.g., Evans v. Artek Sys. Corp., 715 F.2d 788, 791-92 (2d Cir. 1983) (enumerating the reasons for which disqualification motions are disfavored); Bennett Silvershein Assoc. v. Furman, 776 F. Supp. 800, 802 (S.D.N.Y. 1991) ("The Second Circuit has indeed been loathe to separate a client from his chosen attorney. . . .") (collecting cases). "Disqualification motions are often made for tactical reasons, and thereby unduly interfere with a party's right to employ counsel of his choice." Skidmore v. Warburg Dillon Read LLC, No. 99 Civ. 10525 (NRB), 2001 WL 504876, at *2 (S.D.N.Y. May 11, 2001) (citing Board of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979)). Moreover, disqualification motions, "even when made in the best of faith . . . inevitably cause delay." Evans, 715 F.2d at 792 (quoting Nyquist, 590 F.2d at 1246). A "high standard of proof" is therefore required from one who moves to disqualify counsel. Id. at 791 (quoting Government of India v. Cook Industries, Inc., 569 F.2d 737, 739 (2d Cir. 1978)). The appearance of impropriety alone does not warrant disqualification. See Nyquist, 590 F.2d at 1246-47.
Since leave has been granted to the defendants to renew their summary judgment motion upon the filing of an appropriate SAC, the grounds advanced are premature. If no such motion is made, or if it proves unsuccessful, leave is granted to Savitsky to renew his effort to disqualify Castro and his firm.
Conclusion
Based on the foregoing, the cross-motion is granted to permit the filing of a second amended complaint ("SAC") and denied as to disqualification. The causes of action for violation of JL § 487 and for conspiracy to commit fraud are judged to be futile and will not included in the SAC. The motion of the defendants for summary judgment is denied at this time with leave granted to renew after the filing of the SAC in accordance with this opinion.
It is so ordered.