Opinion
No. 02 Civ. 05338 (RPP).
March 21, 2005
Dan Solomon Smith, P.C., Orange, New Jersey, Counsel for Plaintiffs.
Wilson, Elser, Moskowitz, Edelman Dicker, LLP, New York, New York, Christina M. Thompson, Mark K. Anesh, Christian Novay, Counsel for Defendants.
OPINION AND ORDER
Defendants Anne Stone, Richard G. Klein, Esq., and the law firm of Hofheimer, Gartlir Gross, LLP ("Hofheimer") move to dismiss the Plaintiffs' Reamended Complaint ("Ream. Complaint") pursuant to Rule 12(b) of the Federal Rules of Civil Procedure because: (1) corporate Plaintiffs have not established subject matter jurisdiction; (2) the claims in the Ream. Complaint are barred by the applicable statutes of limitations; (3) the Ream. Complaint fails to state a cause of action upon which relief can be granted; and (4) Plaintiffs' claims are barred by the doctrine of judicial estoppel. Since each of the claims is barred by the applicable statute of limitations or fails to state a cause of action upon which relief can be granted, Defendants' motion to dismiss is granted.
BACKGROUND
A. Procedural Posture
The initial complaint in this matter was filed July 11, 2002, and the Amended Complaint was filed March 19, 2003. During oral argument on August 27, 2003, this Court dismissed with leave to amend Plaintiff's Amended Complaint pursuant to Rule 8 of the Federal Rules of Civil Procedure, finding that none of the allegations were sufficiently pled and that many of the allegations faced difficulties with the applicable statutes of limitations. The Court advised Plaintiff's counsel to include specific information about the acts alleged in the complaint, such as the when, where, how, and why concerning those acts, and to plead sufficient facts to demonstrate exceptions to the statutes of limitations. (Defs.' Notice of Motion, dated Nov. 20, 2003 ("Defs.' Mot."), Ex. O (Transcript of oral argument, dated Aug. 27, 2003) at 5, 8, 12.) The Ream. Complaint, filed on October 7, 2003, not only fails to correct the deficiencies of the Amended Complaint but also creates additional defects.
The only plaintiff named in the Amended Complaint was Plaintiff Alston.
Although the Ream. Complaint contains five counts, it is difficult to discern what causes of action Plaintiffs are attempting to plead in each count. The first four counts center around allegations concerning a transfer of Plaintiff's money in May 1996. Count One appears to charge fraud, and Count Two seems to charge conversion. The claim in Count Three is unclear. Count Four, as demonstrated by the recitation of the statute, is denominated a Racketeering Influenced and Corrupt Organizations (RICO) claim under 18 U.S.C. § 1964(a). (Ream. Compl. ¶ 46.) Count Five alleges attorney malpractice by Defendants Klein and Hofheimer in connection with the representation of Plaintiff in a mineral lease in Alabama. (Id. ¶¶ 70-82.)
Defendants also move to dismiss the Ream. Complaint because it fails to comply with the requirement under Rule 8(a)(2) of the Federal Rules of Civil Procedure that the complaint shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Specifically, the Defendants claim that Ream. Complaint is "so confusing, ambiguous, vague, or otherwise unintelligible that its true substance, if any, is well disguised, leaving defendants to guess at what causes of action are being alleged." (Defs.' Mem., dated Nov. 24, 2003, at 9-10 (citing Salahuddin v. Cuomo, 861 F.2d 40 (2d Cir. 1988).) While the Court agrees that the Ream. Complaint is ambiguous and vague, it is dismissed because all of the claims are barred by the applicable statutes of limitations or fail to state a claim on which relief can be granted.
Although the Ream. Complaint lists three plaintiffs, it refers primarily to plaintiff in the singular. The Court uses the terms "Plaintiff" and "Plaintiffs" as they are used in the Ream. Complaint.
Counts One through Four also contain other allegations, but these allegations do not appear connected to any cause of action. Therefore, the Court will not address them.
For example, the Ream. Complaint alleges that on or about May 5, 1996, Defendant Hofheimer billed Plaintiff $8,000 for legal services rendered on consulting and option agreements with Baltic International and Imaging Diagnostic System. (Ream. Compl. ¶ 17, Ex. 1.) However, there is no allegation connecting this billing to any of the causes of action.
Plaintiffs also allege that prior to May 5, 1996 "Plaintiff had . . . complied with instructions to deposit" approximately $500,000 into Hofheimer's trust account 094-09-448 and other unspecified accounts, and that Defendant Klein had "directed by wire Plaintiff [sic] funds to an account at Morgan Guaranty Trust Bank" with the same account number 094-09-448. (Id. ¶¶ 13, 50.) Although Plaintiff requests restitution of the $500,000 "held in defendant's accounts" (Id. ¶ 83(b)), there is no allegation that those accounts, including account 094-09-448, constitute Plaintiffs' funds and do not belong to Hofheimer, or that these particular funds were not used for Plaintiff's benefit.
Also, the Ream. Complaint alleges that on October 5, 1996, Defendant received a check for $5,000 by mail from Plaintiff. (Id. ¶ 52.) Again, there is no allegation that this money was used improperly.
The Ream. Complaint claims that on or about October 17, 1996, Defendant Klein instructed Plaintiff to forward a check for $26,543 to provide legal services in the "National Union litigation." (Id. ¶¶ 12, 51.) However, there is no allegation that Plaintiff sent this check.
Plaintiffs also allege that "Defendant Klein submitted slanderous statements to the late Honorable Lewis R. Friedman, J.S.C., and National Union regarding Plaintiff to conceal their failure to noticing [sic] Plaintiff of his court dates." (Id. ¶ 61.) Although the Ream. Complaint does not allege any dates for these statements, they must have been made before the May 24, 1999 order included as Exhibit 6 to the Ream. Complaint, which refers to the late Honorable Lewis R. Friedman. Therefore, as this case was commenced on July 11, 2002, a cause of action for slander would be barred by the applicable one-year statute of limitations. See N.Y.C.P.L.R. § 215(3); Hochberg v. Nissen, 180 A.D.2d 435, 436, 580 N.Y.S.2d 12 (1st Dep't 1992).
B. Parties
Plaintiff Norman Alston is currently a resident of the state of Florida. (Id. ¶ 1.) Defendant Anne Stone is a resident of the state of New York and the wife of Defendant Richard G. Klein. (Id. ¶¶ 2, 15.) Richard G. Klein is a resident of the state of New York and a former attorney for Plaintiff Alston. (Id. ¶ 3.) Defendant Klein was and is a partner at the Defendant law firm of Hofheimer, Gartlir Gross, LLP, which is a professional partnership located at 530 Fifth Avenue, New York, New York. (Id. ¶ 4.)
The Ream. Complaint does not include any allegation of principal place of business or state of incorporation for corporate Plaintiffs Pembrooke Calox, Inc. and Pembrooke Holdings.
The facts which follow are taken from the Ream. Complaint and the exhibits attached thereto. For the purposes of this motion, these facts are assumed as true. However, the Ream. Complaint contains many allegations that are either incoherent because of improper grammar or the omission of essential facts or unclear because they fail to identify which defendant or plaintiff committed a specific act. This Court will use the terms "Defendant" and "Defendants" as used in the Ream. Complaint. Additionally, the alleged dates for certain events in the Ream. Complaint conflict, without an explanation for the discrepancy, with the dates shown for these events on the exhibits attached to the Ream. Complaint. In view of the numerous other inconsistencies in the Ream. Complaint, the Court will use the dates shown in the exhibits.
Plaintiff and Defendants Klein and Hofheimer entered into an attorney-client relationship with no retainer agreement in February 1995. (Id. ¶ 8.)
The Ream. Complaint alleges that on or about May 2, 1996, Defendant Klein orally instructed Plaintiff Alston "of the need" to transfer $285,000 to the trust account of Defendant Hofheimer "for the rendering of legal services, litigation and disbursements for Plaintiff [sic] business," without alleging to what legal services such a deposit would relate. (Id. ¶ 11.) There is no allegation that Plaintiff made this transfer. The Ream. Complaint, however, following two paragraphs concerning unrelated instructions from Defendants to Plaintiff for money transfers, alleges that "[o]n this occasion Defendant instructed Plaintiff to sign a letter of authorization which defendant submitted to transfer money to account W52-1277376." (Id. ¶ 14.) Later allegations state that this transfer occurred on or about May 5, 1996. (Id. ¶¶ 48-49.) Account W52-1277376 belonged to Defendant Stone. (Id. ¶¶ 15, 30, 49.) The Ream. Complaint also alleges that Defendant Klein did not apply the money to legal representation or expenses and that he and Defendant Stone "commingled" this money. (Id. ¶¶ 31-32.) This alleged transfer of funds appears to serve as the basis for the first four causes of action alleged in the Ream. Complaint.
The Ream. Complaint alleges that on October 17, 1996, Defendant Klein, as attorney for Plaintiff, was to reopen a six-year old judgment entered against Plaintiff on July 9, 1990 in the case ofNational Union Fire Ins. Co. of Pittsburgh, PA v. Norman Alston, Supreme Court of the State of New York, County of New York, Index No. 0139291/88 ("Alston action"). (Id. ¶¶ 9-10.) The Ream. Complaint does not state that Defendant Klein or Defendant Hofheimer reopened this judgment, took any action, or failed to take any action on behalf of Plaintiffs in relation to that judgment.
In the Alston action, the court ordered Plaintiff Alston to pay $139,493.12 to National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union"). (Id. ¶ 9.) Plaintiff Alston was served with a copy of a restraining notice on November 19, 1990, which was signed for on November 23, 1990. (See id. Ex. 4 (Order, dated May 24, 1999, Nat'l Union Fire Ins. Co. v. Pembrooke Holding Corp. and Norman Alston, Supreme Court of New York, County of New York, Index No. 603566/98, Barry A. Cozier, J.) at 2.) Plaintiff was also a defendant in other proceedings initiated by National Union. On September 25, 1991, the same court entered another judgment against Alston in National Union's favor in the amount of $130,053.47 in an action titled National Union Fire Insurance Company of Pittsburgh, PA v. Akhter, et al., Supreme Court of New York, County of New York, Index No. 007116/90. (Id. Ex. 4 at 2.) On May 29, 1999, the same court granted a turnover petition initiated by National Union against Pembrooke Holdings in an action titled National Union Fire Insurance of Pittsburgh, PA v. Pembrooke Holdings Corp. Norman Alston, Supreme Court of New York, County of New York, Index No. 603566/98 Barry A. Crozier, J. (Id. Ex. 4 at 6.)
On or about October 6, 1997, National Union, as a judgment creditor in the Alston action, initiated a third-party turnover petition against Defendant Stone, concerning the transfer of funds on May 5, 1996 to Defendant Stone's account and the transfer of funds and payments of attorneys' fees to Defendants Klein and Hofheimer by judgment debtor Plaintiff Alston. (Id. ¶ 18, Ex. 4 at 2 (citing a June 30, 1998 order issued by the Supreme Court of the State of New York, County of New York in National Union Fire Insurance Company of Pittsburgh, PA v. Anne Stone, Index No. 112363/97, ("Stone turnover action").) On or about July 27, 1999, Defendants met with their attorney and counsel for National Union and agreed to a resolution of the Stone turnover action. (Id. ¶ 54.)
The Ream. Complaint alleges that on June 20, 1997, Defendant Klein "failed to notice" Plaintiff of a court appearance and allowed a warrant to be issued against Plaintiff in connection with the Stone action. (Id. ¶ 33.) However, the Ream. Complaint does not state that Defendant Klein represented Plaintiff in that proceeding, or that Defendant Klein had knowledge of the required court appearance.
The Ream. Complaint also alleges that Defendant Klein placed Plaintiff "under duress of being arrested and refus[ed] to represent Plaintiff at the deposition unless he stated that Defendant Klein was entitled to the money held in Defendant Stone's account." (Id. ¶ 34.) The Ream. Complaint does not specify when this duress occurred. However, based on the context, the deposition of Plaintiff Alston was in connection with theStone turnover action and occurred between when the alleged warrant was issued on June 20, 1997 and when the Stone turnover action was allegedly settled on October 28, 1999.
The original complaint filed in this action states that "[o]n or about July 29, 1999 Defendant Stone converted to her own use $130,000.00 of plaintiff's money that came from plaintiff's account for settlement of a case that she was a defendant." (Defs.' Mot. Ex. A ¶ 13.) This payment almost certainly constituted the turnover proceeds in the Stone action and would not constitute conversion of those funds since those funds would apply to National Union's judgment against Plaintiff, and therefore benefit Plaintiff. Plaintiffs and their New Jersey counsel apparently do not understand New York third-party turnover actions.
On or about October 25, 1999, counsel for National Union wrote Defendant Stone's attorney a letter stating that "National Union does not intend to commence any further actions against Anne Stone, Richard Klein and Hofheimer Gartlir and Gross, LLP." (Id. ¶ 36, Ex. 3 (Letter from Charles D. Krieg of National Union to Kevin Nash, dated Oct. 25, 1999).) On October 28, 1999, National Union signed a release that released and discharged Defendants Klein and Hofheimer from all causes of actions relating to the transfer of funds from Plaintiff Alston or his companies to Defendants Klein and/or Hofheimer and the allegations contained in the Stone turnover action. (Id. Ex. 2 (Limited Release, dated Oct. 28, 1999).) The Limited Release in Exhibit Two does not list Defendant Stone as a releasee. (Id.) Plaintiffs allege that Defendants did not pay $139,493.12 "to satisfy Plaintiffs [sic] debt." (Id. ¶ 59.)
Although the Ream. Complaint states that this occurred on or about October 5, 1996, the letter from Mr. Kreig, counsel for National Union, to Mr. Nash, counsel for Defendant Stone, is dated October 25, 1999. (Ream. Compl. ¶ 19, Ex. 3.)
DISCUSSION
A. Jurisdiction
Plaintiffs claim that this Court has jurisdiction over the claims asserted in the Ream. Complaint on the basis of diversity, federal question and supplemental jurisdiction. (Id. ¶¶ 6, 47.)
Plaintiffs fail to establish diversity jurisdiction because the Ream. Complaint does not include any mention of the principal place of business or state of incorporation for newly added corporate Plaintiffs Pembrooke Calox, Inc. and Pembrooke Holdings. It is axiomatic that diversity jurisdiction exists "only when all adverse parties to a litigation are completely diverse in their citizenship." Herrick Co., Inc. v. SCS Communications, Inc., 251 F.3d 315, 322 (2d Cir. 2001). "The party seeking to invoke jurisdiction under 28 U.S.C. § 1332 bears the burden of demonstrating that the grounds for diversity exist and that diversity is complete." Id. at 322-23 (citations omitted). Complete diversity must be apparent from the pleadings.John Birch Soc'y v. Nat'l Broad. Co., 377 F.2d 194, 197 (2d Cir. 1967). For the purposes of diversity jurisdiction, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). Thus, Plaintiffs have not pled sufficient facts to establish diversity jurisdiction.
Therefore, although this Court would have subject matter jurisdiction over the RICO claim under 28 U.S.C. § 1331, the state law claims of fraud, conversion and attorney malpractice warrant dismissal pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. Nevertheless, were this Court to exercise supplemental jurisdiction over the state law claims of fraud and conversion, or were the Court to allow Plaintiffs to cure the diversity issue by amending their complaint a third time, Plaintiffs' claims are barred by the applicable statutes of limitations and without merit.
The RICO claim cannot provide supplemental jurisdiction over the attorney malpractice claim involving the representation of Plaintiff Alston in the mineral lease in Alabama because this claim does not "form part of the same case or controversy" as the RICO claim. 28 U.S.C. § 1367.
B. Standard of Review
In reviewing a motion to dismiss under Rule 12(b)(6), a court must limit its review to the complaint and documents attached or incorporated by reference thereto. Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991). A court must "accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). A court may not dismiss a complaint under Rule 12(b)(6) "unless 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) (footnote omitted). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quotation marks and citation omitted).
Although both Defendants and Plaintiffs submitted exhibits containing documents related to this matter to this Court and both parties referenced these documents in their papers and during oral argument, there has been no request to convert this motion to dismiss into a summary judgment motion. Therefore, the Court has limited its review in this matter to the Ream. Complaint and the documents attached thereto as required for a motion to dismiss.
1. First Cause of Action
This cause of action is denominated a fraud claim. (Ream. Compl. ¶ 25.) Under New York law, a cause of action in fraud must be commenced within six years of the date the alleged fraud was committed, or two years from the time the fraud was discovered, or with the exercise of due diligence, should have been discovered. N.Y.C.P.L.R §§ 213(8), 203(g);Cappelli v. Berkshire Life Ins. Co., 276 A.D.2d 458, 713 N.Y.S.2d 756 (2d Dep't 2000).
The Ream. Complaint alleges that Defendants Klein and Stone committed the initial fraudulent act on May 2, 1996, when Defendant Klein orally instructed Plaintiff "of the need" to transfer $285,000 to Hofheimer's trust account for the performance of legal services, litigation and disbursements. (Ream. Compl. ¶¶ 11, 25.) There is no allegation that Plaintiff transferred $285,000 to Hofheimer's trust account in response to this instruction. Reading paragraphs 14 and 15 with paragraphs 48 and 49, the Ream. Complaint alleges that on May 5, 1996, "Defendant instructed Plaintiff to sign a letter of authorization which defendant submitted to transfer money to account W52-1277376," which in fact belonged to Defendant Stone. (Id. ¶¶ 14-15, 48-49.) Under the six-year statute of limitations for fraud, the first cause of action is untimely since it was filed on July 11, 2002 and should have been filed by May 5, 2002.
The two paragraphs following paragraph 11 of the first count of Ream. Complaint are out of sequence. They state:
12. On or about October 17, 1996, Defendant Klein instructed forwarding Plaintiff forwarded [sic] a check for twenty six thousand five hundred and forty three dollars to provide legal services in the National litigation.
13. Plaintiff had previously complied with instructions to deposit money into defendants [sic] firm trust account number 09409448 and other accounts of approximately five hundred thousand dollars.
The Ream. Complaint alleges, however, that the nature of Defendants acts made it such that the Plaintiff "could not have reasonably discovered" the fraudulent transfer to Ms. Stone's account until October 2, 2000, when he received discovery from opposing counsel (evidently the Skadden law firm) describing the conduct of Defendants Stone, Klein and Hofheimer. (Id. ¶ 25.)
The Ream. Complaint also appears to contend that Plaintiff discovered the fraud in May 2001 through the "request for the return of his money and file which was refused." (Id. ¶ 25.) There is no explanation of how a refusal to return Plaintiff's money or file would lead Plaintiff to the discovery of the fraud.
Additionally, Plaintiffs also maintain that since "Defendant is still in possession of [his] money and file," that the Defendants cannot assert a statute of limitations defense to this action. (Id. ¶ 26.) Attorneys, however, are entitled to retain files during a fee dispute, such as the one alleged in the Ream. Complaint. (See id. ¶ 41.)
However, the allegations in the Ream. Complaint indicate that by October 1999 Plaintiff knew or reasonably should have known of the alleged fraud involving the May 5, 1996 transfer to Ms. Stone's account. The Ream. Complaint alleges that the Stone turnover action was initiated on October 6, 1997. (Id. ¶ 18). In paragraph 34 of the Ream. Complaint, Plaintiffs allege that "Defendant Klein having placed Plaintiff under duress of being arrested and refusing [sic] to represent Plaintiff at the deposition unless he stated that Defendant Klein was entitled to the money held in Defendant Stone's account." Thus, Plaintiff acknowledges that he knew at the deposition that his money had been deposited in the Stone account. The next paragraph alleges that Defendant Stone settled her case and received a limited release, which is dated October 28, 1999, on the behalf of herself, Mr. Klein and Hofheimer. (Id. ¶ 35). Thus, Plaintiff learned of the alleged fraudulent transfer before theStone turnover action was settled. Therefore, the two-year statute of limitations running from the discovery of the alleged fraudulent transfer would have run during October 2001.
To the extent that the Ream. Complaint is attempting to allege that the statute of limitations is tolled by this alleged duress, this contention is unavailing to Plaintiffs. There is no suggestion that the duress continued after the deposition or after settlement of the action in October 1999, and therefore, the statute of limitations was not tolled beyond this incident.See Zoe G. v. Frederick F.G., 208 A.D.2d 675, 617 N.Y.S.2d 370 (2d Dep't 1994) (stating that "[w]hen duress is part of the causes of action alleged, the Statute of Limitations is tolled until the duress terminates as such conduct is considered a continuous wrong").
Also, Plaintiff Alston should have discovered the alleged fraud on or about October 6, 1997, when National Union, as a judgment creditor, instituted a third party turnover petition against Defendant Stone in New York (the Stone turnover action), which involved the "transfer of funds by Alston on May 5, 1996 into Stone's Lewco account." (Id. ¶ 18, Ex. 4 at 2.) Under New York law, notice of commencement of a turnover petition against a third party must be given to a judgment debtor. N.Y.C.P.L.R. § 5225(b) Practice Commentaries C5225:5. Notice of a turnover proceeding may be served in the same manner as a summons, but the judgment creditor may also serve notice by registered or certified mail with return receipt requested. Although the judgment debtor need not be formally designated as a respondent, he may intervene in the proceeding if he wishes "and should if [his] interest in the property or money is disputed." N.Y.C.P.L.R. § 5225(b) Practice Commentaries C5225:5.
Absent an allegation to the contrary, courts are entitled to presume the procedural requirements of New York law are complied with. As the judgment debtor, Plaintiff Alston must have received notice of the Stone action in October 1997, and thus been aware of the alleged misapplication of his funds on that date. Accordingly, two years from the date of actual or imputed discovery would have been October 1999.
Plaintiffs also fail to state a cause of action for fraud adequately. Under New York law, the elements of an allegation of fraud are "false representation of a material existing fact, scienter, deception and injury." American Home Assur. Co. v. Gemma Constr. Co., Inc., 275 A.D. 2d 616, 713 N.Y.S.2d 48 (1st Dep't 2000). As this Court advised Plaintiff's counsel on August 27, 2003 in connection with the Amended Complaint (Defs.' Mot. Ex. O at 14), under Rule 9(b) of the Federal Rules of Civil Procedure, when a complaint alleges fraud, the circumstances must be pled with particularity. In other words, the Ream. Complaint:
must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made and identify those responsible for the statements.McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1989). The Ream. Complaint does not provide these particulars even though Plaintiff's counsel was advised of the necessity to set them forth when the Amended Complaint was dismissed.
Plaintiffs do not explain why Defendant Klein's alleged statements to Plaintiff were fraudulent. Paragraph 16 of the Ream. Complaint states that "Plaintiff relied upon the representation of Defendants safekeeping and continued representation in legal matters." There is no allegation that Defendants did not safekeep the funds, i.e., that Defendants used the funds from the Stone account for their personal benefit. Nor is there an allegation that Defendants did not continue to render legal services to Plaintiff from May 1996 to November 2000. Apart from paragraph 16, Plaintiff does not allege that he relied on any other representations of the Defendants. Additionally, when there are multiple defendants, as in this case, the complaint must particularize the nature of each defendant's participation in the fraud. Di Vittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987);The Jordan (Bermuda) Inv. Co. v. Hunter Green Inv. Ltd., 154 F. Supp. 2d 682, 692 (S.D.N.Y. 2001). Therefore, the conclusory allegations of fraud in the first cause of action do not state a claim upon which relief can be granted.
On or about November 2000, "defendant withdrew as counsel . . . in the Greka litigation alleging nonpayment of fees." (Ream. Compl. ¶ 41.)
2. The Second Cause of Action
This claim requests damages sustained by Plaintiff "due to the fraudulent concealment of the Defendants." (Id. ¶ 28.) Since the May 5, 1996 transfer of funds to the Stone account is also the subject of this complaint, the second cause of action is barred by the statute of limitations. The second cause of action, however, might also be viewed as a claim for conversion. The Ream. Complaint alleges that Defendant Klein did not apply the money in account W52-1277376 for legal representation or expenses and that Defendants Stone and Klein "commingled Plaintiff's money." (Id. ¶¶ 30-32.) Although some paragraphs of the Ream. Complaint contain references to other money transfers or checks, the paragraph immediately preceding the allegations of misapplication of the money and commingling refers to the date May 2, 1996 and the account W52-1277376. (Id. ¶ 30.)
Additionally, Plaintiffs either fail to specify what acts by the Defendants constituted the fraudulent concealment or if an act was alleged, the allegation does not contain any facts which connect that act to the "fraud." For example in paragraph 33, the Ream. Complaint alleges that "[o]n June 20, 1997 Defendant Klein in an effort to conceal failed to notice Plaintiff of a court appearance." There are no facts connecting this allegation to any concealment, nor is it alleged what defendants were attempting to conceal. Paragraph 38 is peppered with the phrase "fraudulent concealment," but there are no facts alleged to support this conclusory statement.
"Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." State v. Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 259 (2002) (quotation marks and citations omitted). Under New York law, an action alleging conversion must be initiated within three years of date the conversion occurs, regardless of when the conversion is discovered. Id. at 258; see also N.Y.C.P.L.R. § 214(3);Vigilant Ins. Co. of Am. v. Housing Auth., 87 N.Y.2d 36, 44 (1995).
Defendants allegedly took possession of Plaintiff Alston's funds on May 5, 1996, upon the impliedly unauthorized transfer of funds to Defendant Stone's account. (Ream. Compl. ¶¶ 14-15, 48-49.) Accordingly, Plaintiffs' conversion claim is barred by the statute of limitations, as the claim must have been brought by May 5, 1999, while this action was initiated on July 11, 2002.
Reading the Ream. Complaint, it is unclear when, if ever, the Defendants exercised the right of ownership over these funds to the exclusion of the Plaintiff. The Court uses the date of the alleged transfer as the conversion date because the Ream. Complaint alleges that Defendants' took possession of these funds by a fraudulent act, and therefore, Defendants' alleged initial possession of these funds was not authorized. Since the Ream. Complaint alleges that Defendants submitted the letter of authorization signed by Plaintiff to transfer funds into account W52-1277376 and the letter directed money into said account on May 5, 1996, this is the date the Court will use. See Seventh Regiment Fund, Inc., 98 N.Y.2d at 260 (stating that "while it is not necessary for a defendant to take or destroy goods to constitute a conversion, it is also not sufficient for a defendant secretly to declare ownership, when that declaration does nothing to inform the owner or any other interested party that an interference with ownership is intended. Some affirmative act — asportation by the defendant or another person, denial of access to the rightful owner or assertion to the owner of a claim on the goods, . . . — has always been an element of conversion").
Although the Ream. Complaint alleges that the Plaintiff could not reasonably be expected to discover that the funds were transferred into Defendant Stone's account until October 2000 because of fraud, in actions for conversion, accrual runs from the date of conversion, not from the discovery or the exercise of due diligence to discover. Vigilant Ins. Co., 87 N.Y.2d at 44. Additionally, Plaintiff knew of the alleged conversion in October 1997 because, under New York law, National Union was required to serve Plaintiff with notice of the third-party turnover action initiated against Defendant Stone in October 1997.
3. The Third Cause of Action
This claim asserts that Defendants took actions to conceal material acts of fraud committed against Plaintiff by moving to quash a subpoena to depose Defendant Stone on or about January 2001. (Id. ¶¶ 42-43.) It then alleges "[u]pon Plaintiff [sic] discovery in November 2000, of Defendants [sic] concealment of Plaintiffs [sic] cause of action this action to depose Defendant was commenced. Because of such concealment, this cause of action comes within the preview [sic] of as set forth [sic] in which constitutes an implied exception to the statute of limitations. . . ." (Id. ¶ 44.) Thus, this claim is apparently alleging that the statute of limitations for the causes of action relating to the "acts of fraud" did not begin to run until Plaintiff's discovery of the fraud in November 2000. However, other allegations of the Ream. Complaint show Plaintiff had prior notice of the transfer of funds to Defendant's Stone account. (See supra p. 10.) This "cause of action" is dismissed.
4. The Fourth Cause of Action
Count Four of the Ream. Complaint is framed as an action "under the organized crime control act of 1970, 18 U.S.C. § 1964(a) and (c) (Racketee [sic] Influenced and Corrupt Organization)." (Ream. Compl. ¶ 46.) Civil RICO claims are subject to a four-year statute of limitations. Agency Holding Corp. v. Malley-Duff Associates, Inc., 483 U.S. 143, 156 (1987). The limitations period begins to run when plaintiff knew or should have known of his RICO injury. Rotella v. Wood, 28 U.S. 549, 554 (2000); Tho Dinh Tran v. Alphonse Hotel Corp., 281 F.3d 23, 35 (2d Cir. 2002).
The first alleged activity under Count Four in the Ream. Complaint occurred on or about May 5, 1996 when Defendants submitted the authorization by Plaintiff to transfer money by wire into account W52-1277376, which belonged to Defendant Stone. (Ream. Compl. ¶¶ 14-15, 48-49.)
The Ream. Complaint also states without explanation that on October 29, 1996, Defendant Klein received a check for $1002.40 "by misrepresentation to the Plaintiff." (Ream. Compl. ¶ 53.) This "misrepresentation to the Plaintiff" is not articulated further.
The gist of the alleged reason for the delay in learning of the RICO cause of action is that when Plaintiff deposed Randeep Grewal of Greka Energy on May 16, 2001, Plaintiff discovered that he had been defrauded in May 1996 when the funds were transferred to Defendant Stone. (Id. ¶¶ 68-69.) However, as stated previously, Plaintiff Alston acknowledges that sometime before October 1999 he knew that his funds had been transferred to Defendant Stone's account on May 5, 1996 because Defendant Klein had allegedly placed him "under duress" to state that Defendant Klein was entitled to the money held in Defendant Stone's account. Thus, the RICO claim would be timely filed since the statute would have run in October 2003 and this claim was filed on July 11, 2002.
Plaintiffs inconsistently allege that "[o]n May 16, 2001 Plaintiff became further aware of the fraud and the broad scale of the conspiracy" (id. ¶ 68 (emphasis added)), and that "the cause of action was not discovered by Plaintiff until May 16, 2001" (id. ¶ 69).
Nevertheless, Plaintiffs have failed to sufficiently plead a RICO cause of action. To state a claim under RICO, a plaintiff must meet two pleading burdens. First, the plaintiff must allege all of the elements of a criminal RICO violation, specifically, "(1) that the defendant (2) through the commission of two or more acts (3) constituting a `pattern' (4) of `racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an `enterprise' (7) the activities of which affect interstate or foreign commerce." Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983) (quoting 18 U.S.C. § 1962(a)-(c)); Burrell v. State Farm and Casualty Co., 226 F. Supp. 2d 427, 443 (S.D.N.Y. 2002). Second, "the plaintiff must allege that he was `injured in his business or property by reason of'" the conduct constituting a criminal RICO violation. Moss, 719 F.2d at 17 (quoting 18 U.S.C. § 1964(c)).
Plaintiffs have not alleged with the requisite specificity two or more acts of racketeering activity. Only paragraph 49 of the Ream. Complaint, in conjunction with earlier allegations in the Ream. Complaint, alleges a wire fraud claim on May 5, 1996. Thus, Plaintiff has not pleaded a pattern of racketeering activity. Nor has he attempted to comply with the requirement of pleading participation in an enterprise or attempted to plead that the activities of Defendants affected interstate commerce. Therefore, the RICO claim is dismissed as not stating a RICO cause of action.
Allegations of wire and mail fraud must be made with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. McLaughlin, 962 F.2d at 191; The Jordan (Bermuda) Inv. Co., 154 F. Supp. 2d at 691-92.
The other alleged actions of the Defendants in the Ream. Complaint do not constitute racketeering activities. "Unenumerated acts such as common law fraud, negligent misrepresentation, breach of fiduciary duty, negligence and conversion, are not `racketeering activities.'" The Jordan (Bermuda) Inv. Co., 154 F. Supp. 2d at 690.
5. The Fifth Cause of Action
Plaintiffs' fifth cause of action is based on Defendant Hofheimer and Defendant Klein's representation of Plaintiff in negotiating a January 1998 lease agreement with Mr. and Mrs. T.J. Pate, the landlords of a sandstone quarry in Alabama. (Ream. Compl. ¶ 71.) Under New York law, a cause of action to recover damages for legal malpractice has a three-year statute of limitations, which "accrues on the date the malpractice was committed, not when the client discovered it." Julian v. Carroll, 270 A.D.2d 457, 704 N.Y.S.2d 654, 655 (2d Dep't 2000); N.Y.C.P.L.R. § 214(6). In the attorney malpractice context, the statute of limitations may be tolled under the doctrine of continuous representation, but "only where the continuing representation pertains specifically to the matter in which the attorney committed the alleged malpractice."Shumsky v. Eisenstein, 96 N.Y.2d 164, 168 (2001).
In Count Five, the Ream. Complaint alleges that on January 30, 1998, Defendant Hofheimer represented Plaintiff and his business, United Quarries, in a mineral lease agreement for a sandstone quarry in Alabama but does not state Hofheimer represented Plaintiff thereafter on this matter. (Ream. Compl. ¶ 71.) The Ream. Complaint claims that on September 2, 1998 notices were sent stating that United Quarries was in default on this lease because of delinquent royalty payments owed to the landlords of the quarry and that the period to cure this delinquency was ten days. (Id. ¶ 72.) However, there is no allegation that these notices were addressed to Defendant Hofheimer or Defendant Klein or to Plaintiff and United Quarries. The only acts or omissions attributed to Defendants Klein and Hofheimer in representing Plaintiff Alston in this matter for which dates are provided occurred on January 27, 1999, when Defendant Klein wrote the landlords' counsel in an attempt to cure the default on the lease (id. Ex. 5 (Letter from Richard G. Klein to Brent Thornley, Esq.)), and on March 4, 1999, when Defendant Klein and Plaintiff Alston participated in a telephone conference with James E. Wilson, Esq., a lawyer in Alabama, to discuss a possible legal action to set aside the default (id Ex. 7 (Affidavit of James E. Wilson, dated May 12, 2003), ¶ 4).
To the extent that the Ream. Complaint raises a cause of action for attorney malpractice in relation to the National Union matter, again, the Ream. Complaint does not contain a date upon which Defendants Hofheimer and Klein stopped representing Plaintiff Alston. Plaintiffs argue that Defendants should be equitably estopped from raising the statute of limitations defense because Defendants have fraudulently concealed the facts giving rise to this action. Although courts may apply the doctrine of equitable estoppel when a plaintiff was induced by fraud to delay commencing a legal action, the plaintiff must exercise due diligence in commencing the action after the facts "giving rise to the estoppel have ceased to be operational."Simcuski v. Saeli, 44 N.Y.2d 442, 450 (1978). In this case, Plaintiff Alston knew or should have known of any misrepresentations made by Defendant Klein concerning the alleged May 5, 1996 transfer of money to Defendant Stone's account by October 1997 when Plaintiff Alston must have received notice of the initiation of a third-party turnover proceeding against Defendant Stone. Therefore, the Plaintiffs cannot assert that Defendants are barred from raising the statute of limitations defense in relation to attorney malpractice in the National Union matter in 1998 since Plaintiff has not demonstrated due diligence in commencing this action after discovery of the facts alleged to constitute malpractice.
Although the Ream. Complaint mentions that Defendant Hofheimer moved to withdraw as counsel on or about November 2000 in an action titled Pembrooke Calox v. Greka Energy because of the alleged non-payment of fees, there is no discernible factual allegation of legal malpractice in relation to that matter.
Since the Ream. Complaint does not state that after January 30, 1998, Defendants Klein and Hofheimer represented Plaintiffs in relation to the operation of the sandstone quarry in Alabama, this Court looks to the last date of any action by Defendants Hofheimer or Klein in relation to this matter provided in the Ream. Complaint, which is March 24, 1999. Accordingly, the three-year statute of limitations ran as March 24, 2002 and this claim, which was commenced on July 11, 2002, is untimely.
The Ream. Complaint alleges that on October 2, 1999, Defendant knew or should have known that United Quarries was not registered in Alabama, citing Exhibit 6 (Letter from Kathy P. Sherman of Pittman, Pittman, Garwie Fuquay of Alabama to Lou Sherman, Esq. of Hofheimer stating that United Quarries is not registered to do business in Alabama). (Ream. Compl. ¶ 77.) However, the letter is dated October 2, 1998, not October 2, 1999, and therefore, the Court will use the March 24, 1999 date for both Hofheimer and Klein. (Id. Ex. 5.)
Plaintiffs again claim that the doctrine of equitable estoppel bars Defendants from invoking the statute of limitations defense. Even assuming that Defendants Klein and Hofheimer concealed the non-payment of United Quarries royalties from Plaintiff, this action would be barred by the statute of limitations. Plaintiff must have learned of the non-payment and the default by February 16, 1999, (or upon receipt of a copy of the letter of January 27, 1999 (Ex. 5)), when he contacted the law offices of James E. Wilson to discuss this matter, and Mr. Wilson agreed to research the setting aside of the default of the mineral lease. (Id. Ex. 7 ¶ 2.) Therefore, the Ream. Complaint does not show that Plaintiff exercised due diligence after discovery of the facts in commencing this action, since the statute of limitations would have run by February 16, 2002. See Simcuski, 44 N.Y.2d at 450.
In addition to being statutorily time barred, the claim of legal malpractice must be dismissed because the Ream. Complaint fails to state a cause of action. In a claim for attorney malpractice, a plaintiff must plead: (1) the existence of an attorney-client relationship or assumption of a duty in connection therewith; (2) that the attorney was negligent; (3) that the alleged negligence was the proximate cause of plaintiff's loss; and (4) that actual and ascertainable damages were sustained. Hwang v. Biermana, 206 A.D.2d 360, 614 N.Y.S.2d 51, 52 (2d Dep't 1994); see also Hanlin v. Mitchelson, 794 F.2d 834, 838 (2d Cir. 1986).
The Ream. Complaint alleges that Hofheimer represented Plaintiff in the mineral lease agreement for the quarry in Alabama on January 30, 1998, but does not allege any broader scope of this representation. The Ream. Complaint alleges that Hofheimer and Klein did not notify Plaintiff Alston about the default on the lease, but it is not alleged that notice of the default was sent to Defendants Klein and Hofheimer. Because Plaintiffs have failed to allege a broader scope to the attorney-client relationship and there is no showing that Hofheimer and Klein represented Plaintiff in connection with the royalty payments or with the mineral lease when notice of the default was sent on September 2, 1998, Plaintiffs fail to state a cause of action for attorney malpractice.
The Ream. Complaint alleges that Defendant Klein and Hofheimer "failed to correct the lack of registration regarding qualifying the business in Alabama or Kentucky" (Ream. Compl. ¶ 81), but does not assert that Defendant Klein or Hofheimer were retained to correct the registration of United Quarries in Kentucky and eventually arrange for the registration of United Quarries to do business in Alabama. Nor do Plaintiffs allege any connection between these registrations and the termination of Plaintiff's mineral lease.
It does appear that Hofheimer was attempting to qualify United Quarries to do business in Alabama on or about October 2, 1998. (See Ream. Compl. Ex. 6.) However, there is no allegation that Hofheimer or Klein represented Plaintiff in further attempts to qualify United Quarries to do business in Alabama after Plaintiffs consulted Mr. Wilson.
As the Ream. Complaint fails to allege an attorney-client relationship between Plaintiff and Defendants Klein and Hofheimer in regard to the default on the lease at the time the notices were sent, and fails to define the scope of their representation during the subsequent attempts to cure the default, the Plaintiffs have not stated a claim for attorney malpractice.
CONCLUSION
The first, second, third and fifth "causes of action" of the Ream. Complaint are dismissed for lack of jurisdiction, for failure to comply with the applicable statute of limitations and for failure to state a claim upon which relief can be granted. The fourth cause of action is dismissed for failure to state a claim upon which relief can be granted. For the foregoing reasons, the motion to dismiss is granted with prejudice. Enter judgment for the Defendants.
IT IS SO ORDERED.