Opinion
No. 03 Civ. 2330 (HB).
September 15, 2004
OPINION ORDER
Counterclaim defendant Noel W. Hauser ("Hauser"), counsel to the original plaintiffs in this action, moves to dismiss the first, second, ninth, and eleventh counterclaims of Michelle Jewelry, Inc. ("Michelle Jewelry") and Jong D. Park ("Mr. Park") (collectively, "counterclaim plaintiffs") for turnover and accounting, abuse of process, conversion, and vexatious litigation. For the reasons set forth below, Hauser's motion is granted in part and denied in part.
I. BACKGROUND That now his Brightest Diamond is grown Darker by far than any Coalpit Stone Edward Taylor, God's Determinations, The Preface (lines 43-44) (c. 1685)This case arises out of the longstanding personal and business relationship between two couples involved in the jewelry and precious stone industry. That relationship has begun to deteriorate, hastened by debt, accusations of foul play, and now this litigation. One lawsuit has spawned a series of counterclaims, which have been levied against the original plaintiff and its principal, along with plaintiff's counsel, a New York City Marshal, and a surety company. After a long and winding procedural history that has taken this case through four orders to show cause and a trip to bankruptcy court, plaintiff counsel moves to dismiss the counterclaims against him. Before reaching the merits of this motion, let me pause for a moment to provide some history.
Robert Wu ("Mr. Wu") and Cathy Wu ("Ms. Wu") (collectively, "the Wus") are the officers and shareholders of Bright View Trading Co., Inc. ("Bright View"), a New York corporation with its principle place of business at 153 Centre Street in New York City. Beginning in 1996, the Wus, on behalf of Bright View, sold on "sale or return" a large quantity of jewelry and precious stones to Mr. Park and Sonya Chung Suk Park ("Ms. Park") (collectively, "the Parks"), both of whom are residents of New Jersey. At this juncture, it is unclear whether these sales were made to the Parks personally or as agents for the various businesses in which they have been involved, New-Ko Diamond Co., Michelle Jewelry, and JHP Jewelry Manufacture, Inc. Since its incorporation on January 12, 1998, Mr. Park was the president, sole shareholder, and was employed by Michelle Jewelry, a New York corporation with its principle place of business at 36 West 47th Street, New York City. At all relevant times, Ms. Park was an employee of Michelle Jewelry, but held no office. Michelle Jewelry was dissolved by proclamation by the New York Secretary of the State on June 27, 2001 for failure to pay taxes. Notwithstanding this dissolution, Michelle Jewelry continued to conduct business until it was required to cease operations as a result of the dispute between the Wus and Parks.
On April 4, 2003, the Wus filed suit on behalf of Bright View against the Parks in their individual capacities for the sum of $458,721. A few days later, on April 7, 2003, on Bright View's application, the Court issued an ex-parte Order of Attachment pursuant to N.Y.C.P.L.R. § 6201 et seq. against the Park's property to satisfy the debt alleged in Bright View's complaint. The Order required Bright View to post a $20,000 attachment bond and directed the United States Marshal of the Southern District of New York ("U.S. Marshal") to levy on the defendants' property. The Court further ordered Bright View to move within ten days to confirm the Order of Attachment.
The Order of Attachment was amended on April 15, 2003 to provide greater specificity as to what items were to be seized. Specifically, the Amended Order authorized Ms. Wu, as an officer of Bright View, to seize, under the supervision of the U.S. Marshal, "precious stones and other inventory, including diamonds, gold jewelry, precious metals and the like, comprising the inventory of the defendant Sonya Chung Suk Park located within the premises of `Michelle Jewelry'. . . ." Amended Order of Attachment at 3 (caps and bold removed). The Amended Order of Attachment was executed on April 23, 2003. The counterclaim plaintiffs allege that during the seizure, Ms. Wu, on behalf of Bright View, exceeded the scope of the Order and improperly seized Michelle Jewelry's entire inventory of jewelry and precious stones — property that did not belong to Mr. or Ms. Park, the only two named defendants in Bright View's suit.
Following the seizure, Bright View moved by order to show cause on April 25, 2003 to confirm the attachment. A hearing on the motion was scheduled for April 30, 2003, but the parties were unable to appear. Bright View then informed the Court by letter that the Parks consented to the attachment and the parties were excused from their appearance. After the Parks failed to file an answer, Bright View moved for and was granted a default judgment on May 29, 2003 in the liquidated amount of $458,721, plus interest and costs.
Michelle Jewelry and Mr. Park allege that some time after the default judgment was entered, Bright View, Ms. Wu and Hauser, the attorney for the plaintiff, delivered only a portion of the seized jewelry and precious stones to City Marshal Kenneth J. Giachetta ("City Marshal Giachetta") for sale at auction, which was scheduled for June 25, 2003. According to Michelle Jewelry and Mr. Park, "[m]any valuable items of jewelry and virtually all of the unmounted precious stones that had been seized pursuant to the levy were not delivered by Bright View, [Ms.] Wu and Hauser to [City] Marshall Giachetta, nor did they account for this valuable property or its whereabouts on any inventory given to the United States Marshal, or otherwise to this Court or any other entity or person." Answer and Counterclaims ("A CC") ¶ 53. The essence of these allegations is that "Michelle Jewelry's inventory was converted for the personal benefit and use of one or more of said Counterclaim Defendants." Id. ¶ 55.
On June 6, 2003, the Parks moved by order to show cause to vacate the default judgment based on Bright View's purported failure to serve the Parks with a summons and complaint and lack of subject matter jurisdiction. The Parks' jurisdictional argument was based on their assertion that Michelle Jewelry, not the Parks, was the proper defendant, which would have defeated the diversity of citizenship because both Bright View and Michelle Jewelry are New York corporations. The Court held argument on the motion, which was denied on June 30, 2003.
The Parks, represented by new counsel, again moved by order to show cause on July 17, 2003 for a stay of the auction of the goods seized pursuant to the Amended Order of Attachment and for vacatur of the default judgment against them based on excusable neglect, the existence of meritorious defenses, and the brevity of the default. The Court held argument and a hearing on the Parks' motion on July 22 and 25, 2003. However, before the proceedings were complete, Michelle Jewelry filed a Chapter 11 petition in the United States Bankruptcy Court, Southern District of New York, which triggered the automatic stay provisions of 11 U.S.C. § 362. By Order dated January 26, 2004, the Honorable Prudence Carter Beatty dismissed both the reorganization petition and the adversary proceeding. Thereafter, upon receipt of additional submissions and a pre-trial conference in which the parties further argued the merits of the Parks' pending motion, the Court vacated the default judgment by Order dated April 19, 2004. The Parks then interposed an answer and Michelle Jewelry and Mr. Park filed the counterclaims that form the basis of the instant motion.
This order of dismissal is based in part on the court's determination that the petition for reorganization was filed in bad faith. "Bad faith," however, has a distinct meaning in bankruptcy law. A bankruptcy filing is made in "bad faith" "[w]hen it is clear that, from the date of filing, the debtor has no reasonable probability of emerging from the bankruptcy proceedings and no realistic chance of reorganizing" or when it is "solely designed to attack a judgment collaterally." In re C-TC 9th Ave. P'Ship, 113 F.3d 1304, 1310 (2d Cir. 1997). 11 U.S.C. § 1112(b) outlines eight suggested factors for courts to consider in their assessment of whether a bankruptcy petition was filed in "bad faith," most of which center on the viability of reorganization.
II. DISCUSSION
A. Standard of Review
On a motion to dismiss, "we accept all of plaintiff's factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff."Desiderio v. Nat. Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 202 (2d Cir. 1999). At this juncture, "[o]ur consideration is generally limited to the facts as presented within the four corners of the complaint, to documents attached to the complaint, or to documents incorporated within the complaint by reference," although we may also consider matters of public record. Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002). Our assessment of the claims is not guided by whether the plaintiff will ultimately prevail. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985) ("The court's function on a Rule 12(b)(6) motion is not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient."). Therefore, "a complaint should not be dismissed for failure to state a claim 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). "Further, a complaint need only meet the requirements of our `simplified notice pleading standard [which] relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims.'" Courtenay Communications Corp. v. Hall, 334 F.3d 210, 213 (2d Cir. 2003) (alteration in original) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002)).
B. Standing
Hauser first argues that the counterclaims asserted against him — the first, second, ninth, and eleventh counterclaims for turnover and accounting, abuse of process, conversion, and vexatious litigation — must be dismissed because the counterclaim plaintiffs lack standing. Hauser contends that Mr. Park lacks standing because Michelle Jewelry, not Mr. Park, owns the seized jewelry. Hauser further avers that Michelle Jewelry has no standing to bring suit because it was dissolved by proclamation some three years ago. Certainly one of the two, either Mr. Park as principal of the corporation or the corporation itself, is entitled to seek relief for alleged improper seizure and conversion of the corporate assets. The question then is who is the proper party.
1. Michelle Jewelry
Under New York law, dissolution terminates a corporation's legal existence. Lorisa Capital Corp. v. Gallo, 506 N.Y.S.2d 62, 70 (2d Dep't 1986) (citing Lattin, Corporations § 183 at 642 (2d Ed.)). However, "[t]his rule is qualified by statute to provide that a corporation retains a limited de jure existence for the purpose of winding up," even when such dissolution is for failure to pay taxes, as was the case with Michelle Jewelry.Id. (citing Tax Law § 203-a[10]; Bus. Corp. Law §§ 1009, 1006, 1005[a][1]). A business entity may continue to exist as a de facto corporation notwithstanding its lack of a de jure corporate existence. Garzo v. Maid of the Mist Steamboat Co., 303 N.Y. 516, 517 (1952) (holding that "where, as here, a corporation carries on its affairs and exercises corporate powers as before, it is a de facto corporation as well, and ordinarily no one but the state may question its corporate existence"). Michelle Jewelry and Mr. Park assert in their counterclaims that "although dissolved by proclamation on or about June 27, 2001, Michelle Jewelry continued to conduct business until it was required to cease operations following the seizure by Bright View and [Ms.] Wu of Michelle Jewelry's inventory pursuant to the Order of Attachment, on April 23, 2003." A CC ¶ 41. Thus, the counterclaim pleadings allege that Michelle Jewelry was a de facto corporation at the time it suffered the alleged injuries. Indeed, the original complaint confirms these allegations. Compl. ¶ 7 ("Michelle Jewelry Inc. was dissolved by proclamation on June 27, 2001; however, the defendants Sonya Chung Suk Park and Jong D. Park continued to employ the name `Michelle Jewelry Co.' in the conduct of a jewelry business at 46 West 47 Street, New York City.").
Suffice to say that Michelle Jewelry has standing both because it sufficiently alleged that it was a de facto corporation at the time the injuries were suffered and because it could further prove that counterclaim defendants treated it as such and thus are estopped from denying its de facto existence.
2. Mr. Park
The counterclaims aver that "[a]t all relevant times, the management and affairs of Michelle Jewelry were conducted by Jong Park, its president and sole shareholder, along with his wife, Sonya Park who served as an employee of Michelle Jewelry." A CC ¶ 43. The counterclaim plaintiffs argue that Mr. Park has standing in this lawsuit because he is a real party in interest as defined by Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 17. However, New York law provides that "a shareholder generally has no right to bring an action in h[is] own name for wrongs committed against the corporation." Gruber v. Victor, No. 95 Civ. 2285, 1996 WL 492991, at *8 (S.D.N.Y. Aug.28, 1996). "[T]he fact that a person closely affiliated with a corporation such as a principal shareholder is incidentally injured by an injury to the corporation does not confer on the individual standing to sue on the basis of either that indirect injury or the direct injury to the corporation." Saxe, Bacon Bolan, P.C. v. Martindale-Hubbell, Inc., 521 F. Supp. 1046, 1048 (S.D.N.Y. 1981). This is true even if the plaintiff is the sole shareholder of the corporation. Id. Indeed, a shareholder may only "bring an individual suit if the defendant has violated an independent duty to the shareholder." Gruber, 1996 WL 492991, at *8; see also Shapolsky v. Shapolsky, 279 N.Y.S.2d 747, 751 (N.Y.Sup. 1966), aff'd, 282 N.Y.S.2d 163 (1st Dep't 1967), ("a stockholder may maintain an action in his own right for an injury directly affecting him where it appears that the injury to the stockholder resulted from the violation of a duty owing to the stockholder from the wrongdoer, having its origin in circumstances independent of and extrinsic to the corporate entity"). Mr. Park has not alleged that the counterclaim defendants owed him any independent duty and therefore he cannot assert individual claims in this lawsuit.
Michelle Jewelry, not Mr. Park, suffered the injury allegedly caused by the counterclaim defendants. E.g., Glenn v. Hoteltron Sys., Inc., 74 N.Y.2d 386, 392 (1989) (ruling that a shareholder who sued to recover diverted corporate assets was injured derivatively, not directly); Wolf v. Rand, 685 N.Y.S.2d 708, 710 (1st Dep't 1999) (deciding that the plaintiff shareholder could only sue derivatively to recover lost profits from converted assets). This distinction is particularly important when it comes to determine damages, if any. If the counterclaim plaintiffs succeed on any of their counterclaims, any damages will be awarded to Michelle Jewelry, not Mr. Park.Paradiso DiMenna, Inc. v. DiMenna, 649 N.Y.S.2d 126, 127 (1st Dep't 1996) (finding that the lower court's award of damages directly to plaintiff shareholder constituted reversible error because the conversion of corporate funds caused an injury to the corporation, not the plaintiff shareholder). As the Court of Appeals has explained, "[w]hile awarding damages directly to the innocent shareholder may seem equitable with respect to the parties before the court, other interests, particularly those of the corporation's creditors, should not be overlooked." Glenn, 74 N.Y.2d at 393. It is imperative, particularly in the case at bar where Michelle Jewelry filed a bankruptcy petition in the not too distant past, to protect "the rights of creditors whose claims may be superior to that of the innocent shareholder."Id. Mr. Park's claims are pleaded in his individual capacity and must therefore dismissed.
Having decided that Mr. Park's counterclaims fail for lack of standing, I will hereinafter refer only to Michelle Jewelry as the sole counterclaim plaintiff.
C. Ripeness
Hauser argues that the counterclaims in toto are not ripe because they essentially equate to a claim for malicious prosecution, a pre-requisite of which is a prior favorable determination. Hauser errs in his conflation of the distinct counterclaims into a single claim — malicious prosecution — one that was not asserted in this action. The only counterclaim that approximates malicious prosecution is the second counterclaim for abuse of process. However, New York courts have long taught that "[t]he distinctive nature of an action for malicious abuse of process, as compared with an action for malicious prosecution, is that it lies for the improper use of process after it has been issued, not for maliciously causing process to issue." Silverman v. Ufa Eastern Div. Distribution, 236 N.Y.S. 18, 20 (N.Y.Sup. 1929). Unlike a malicious prosecution claim, abuse of process does not require a prior favorable determination, see Chrysler Corp. v. Fedders Corp., 540 F. Supp. 706, 714 (S.D.N.Y. 1982), and it is therefore not premature. As Michelle Jewelry argues, this claim and the remaining counterclaims are wholly independent of Bright View's initial breach of contract claim and do not turn on its adjudication. Suffice to say that there is no ripeness issue.
D. Absolute Privilege for Attorneys
Hauser next contends that there is an absolute privilege for attorneys acting in their official capacity. Notably, Hauser cites no case law to support this sweeping impenetrable veil of privilege for members of the bar. Instead, he bases this defense solely on public policy considerations and the holdings of a several courts — none of which sit in this state or Circuit — that dismiss claims against attorneys. On their face, these cases do not stand for the proposition asserted. Many of these cases involve RICO claims and reflect the courts' hesitancy to find that an act by an attorney on behalf of his client constitutes a predicate act upon which civil RICO liability could be based.E.g., McMurtry v. Brasfield, 654 F. Supp. 1222, 1225 (E.D. Va. 1987) ("The Court finds absurd plaintiffs' apparent suggestion that a lawyer's act in posting a letter which states a client's legal position in a dispute can constitute mail fraud. If such were the situation, every dispute in which the parties' counsel exchanged letters could give rise to RICO litigation. Such activity simply is not fraudulent."). It is quite a leap from these cases to Hauser's position that there is an absolute shield against any civil liability on behalf of an attorney. This conclusion is belied by existing causes of action, e.g., professional negligence or malpractice, breach of fiduciary duty, etc., that can be brought against attorneys. Moreover, there are important countervailing policy concerns that Hauser would have us ignore. It is important to provide attorneys with the ability to advocate vigorously on his or her client's behalf, but it is equally important to provide an injured party with a remedy if the attorney oversteps the permissible bounds of advocacy. Indeed, this is precisely the concern that is embodied in Fed.R.Civ.P. 11. In short, I find this defense to be without merit.
Having disposed of Hauser's general defenses, I now turn to each of the four counterclaims levied against him.
E. Turnover and Accounting
Michelle Jewelry's first counterclaim is for turnover and accounting pursuant to N.Y.C.P.L.R. § 6221, which provides, in pertinent part, "[p]rior to the application of property or debt to the satisfaction of a judgment, any interested person may commence a special proceeding against the plaintiff to determine the rights of adverse claimants to the property or debt." This remedy is available only to a third party that claims an ownership interest; it may not be raised by a defendant who seeks vacatur of an order of attachment on the grounds that it does not own the property at issue. Glaser v. Rosenberg, 291 N.Y.S.2d 204, 205 (1st Dep't 1968); Katz v. Liston, 254 N.Y.S.2d 389, 390 (1st Dep't 1964).
The purpose of this statute is to permit determination of adverse claims to property levied pursuant to an order of attachment before such property is used to satisfy the judgment.Riccar Am. Corp. v. Curtis, 274 N.Y.S.2d 736, 737 (3d Dep't 1966). This procedure does not exist under the federal rules, but it has nevertheless been applied by courts in this Circuit.E.g., Am. Jerex Co. v. Universal Aluminum Extrusions, Inc., 340 F. Supp. 524, 530-31 (E.D.N.Y. 1972) (noting that "it would be anomalous to leave petitioner without remedy because the action was removed to this court" and permitting the petitioner to intervene to contest plaintiff's levy of defendant's property); see also A.I. Trade Fin., Inc. v. Bank, No. 89 Civ. 7987, 1997 WL 291841, at *2 (S.D.N.Y. June 2, 1997); MCT Shipping Corp. v. Sabet, 497 F. Supp. 1078, 1086 (S.D.N.Y. Sept. 4, 1980). Indeed, Fed.R.Civ.P. 64 provides that, subject to a few qualifications, "all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held." Thus, it is appropriate to adjudicate Michelle Jewelry's N.Y.C.P.L.R. § 6221 claim in this forum. Hauser's arguments to the contrary are unavailing.
F. Abuse of Process
Under New York law, a claim of "abuse of process has three essential elements: (1) regularly issued process, either civil or criminal, (2) an intent to do harm without excuse or justification, and (3) use of the process in a perverted manner to obtain a collateral objective." Curiano v. Suozzi, 63 N.Y.2d 113, 116 (1984). As the Court of Appeals has explained, "[i]n its broadest sense, abuse of process may be defined as the misuse or perversion of regularly issued legal process for a purpose not justified by the nature of the process." Bd. of Educ. of Farmingdale Union Free School Dist. v. Farmingdale Classroom Teachers Ass'n, Inc., Local 1889 AFT AFL-CIO, 38 N.Y.2d 397, 400 (1975). In other words, "[t]he gist of the action for abuse of process lies in the improper use of process after it is issued. To show that regularly issued process was perverted to the accomplishment of an improper purpose is enough." Dean v. Kochendorfer, 237 N.Y. 384, 390 (1924).
In its second counterclaim, Michelle Jewelry alleges, inter alia, that Hauser knowingly misrepresented and omitted facts necessary to establish this Court's jurisdiction and the basis for the Order of Attachment. Specifically, this counterclaim, in pertinent part, avers that "Hauser disingenuously omitted Michelle Jewelry as a defendant in this action and falsely represented to the Court that Sonya Park, a resident of New Jersey, was the owner of the inventory, when in fact . . . Hauser knew that the inventory was owned by Michelle Jewelry, a domestic New York corporation, the business entity with whom Bright View and Wu had regularly dealt with over many years." A CC ¶ 72. Michelle Jewelry contends that Hauser and his clients knew that joining Michelle Jewelry as a party would defeat diversity jurisdiction and foreclose the availability of the order of attachment pursuant to N.Y.C.P.L.R. § 6201(1), which is available when the defendant is a nondomicilary or foreign corporation.
N.Y.C.P.L.R. § 6201 (1) provides: "An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when: 1. the defendant is a nondomiciliary residing without the state, or is a foreign corporation not qualified to do business in the state. . . ." Under subsections 2 and 3, an order of attachment is available against a defendant domiciled or residing in New York where it cannot be served after diligent attempts to do so or where it has encumbered, secreted, or otherwise disposed of property with an intend to defraud its creditors.
Hauser argues that these allegations omit the critical component of an abuse of process claim, i.e., improper motive and use of process after it is issued. It is true that misrepresentations in the application for an attachment may not be enough to state a claim for abuse of process. Dynamic Microprocessor Assocs., Inc. v. EKD Computer Sales, No. 92 Civ. 2787, 1997 WL 231496, at *26 (E.D.N.Y. April 14, 1997) (deciding that allegations of bad faith representations to the court in an application for a temporary restraining order, order of seizure, and preliminary injunction did not state a claim for abuse of process). Instead, this counterclaim must allege that the counterclaim defendants "used the process of attachment for the purpose of doing harm." Prince v. Stoye, 449 N.Y.S.2d 303, 305 (2d Dep't 1982). Here, Michelle Jewelry has done precisely that. The second counterclaim sets out that Hauser and his clients "knowingly sought and obtained the Order of Attachment for the specific purpose of seizing and obtaining control over Michelle Jewelry's valuable inventory when in fact there was no legal or factual basis of justification for obtaining such a remedy in this action." A CC ¶ 70 (emphasis supplied). Further, it alleges that "Bright View['s] and Wu's motive for seeking the attachment was to commercially destroy Michelle Jewelry as an indirect way of causing financial hardship and personal turmoil in the lives of Sonya and Jong Park." A CC ¶ 79.
This motive, coupled with the collateral objective of the improper seizure of Michelle Jewelry's inventory of jewelry and precious stones and the alleged conversion of some portion thereof, sufficiently states a claim for abuse of process.E.g., Bd. of Educ. of Farmingdale Union Free School Dist., 38 N.Y.2d at 404 (finding that the abuse of process claim was sufficiently plead because defendants intended to use subpoenas to harass and injure when they subpoenaed 87 teachers to testify knowing that they could and would not offer testimony, which resulted in the school being compelled to hire substitute teachers to avoid closing the school); Four Star Stage Lighting, Inc. v. Merrick, 392 N.Y.S.2d 297, 298 (1st Dep't 1977) (holding that an allegation "that defendants used the order of seizure in order to force plaintiffs into buying defendant Merrick's equipment at an unreasonable price" stated a cause of action for abuse of process); Williams v. Williams, 275 N.Y.S.2d 425, 426 (2d Dep't 1966) (ruling that allegations that the defendant filed suit for the sole purpose of ruining plaintiff's business reputation and accomplished that purpose by mailing copies of the complaint to trade members pleaded abuse of process).
Once again, Hauser's policy arguments with respect to the proper bounds of attorney conduct are not persuasive. See, e.g., Honzawa v. Honzawa, 701 N.Y.S.2d 411, 414 (1st Dep't 2000) (noting that while "caution must be exercised in imposing liability for allegedly overzealous representation of a client," the allegations that a law firm used a false affidavit to support an application for attachment of plaintiff's funds sufficiently alleged abuse of process).
G. Conversion
"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) (internal quotation marks and citation omitted). Conversion encompasses both wrongful takings and wrongful detention. Nat Koslow, Inc. v. Bletterman, 197 N.Y.S.2d 583, 586 (N.Y.Sup. 1960). Indeed, because "[i]nterference with another's right to possession is the essence of conversion . . . it is not necessary that one take actual physical possession of the subject property." Glass v. Wiener, 480 N.Y.S.2d 760, 761 (2d Dep't 1984) (internal citations omitted).
Here, Michelle Jewelry bases its conversion claim on two principle allegations. First, Michelle Jewelry contends that the counterclaim defendants exceeded the scope of the Order of Attachment when they seized items belonging to Michelle Jewelry, not Mrs. Park, and that their continued exercise of control and dominion over these items constitutes conversion. Second, Michelle Jewelry alleges that Ms. Wu, Bright View, and Hauser have refused to account for a substantial amount of Michelle Jewelry's jewelry and precious stones that were seized during the levy on April 23, 2003. Michelle Jewelry further avers that the incomplete inventory of the seized jewelry that was provided includes items that were never turned over to City Marshal Giachetta after the seizure. According to Michelle Jewelry, one or more of the counterclaim defendants have converted these missing items for their personal benefit.
Michelle Jewelry makes these allegations in several different portions of its counterclaims, including its statement of the "Nature of the Case," A CC ¶ 26, "Factual Background,"id. ¶¶ 54-55, and its sixth, seventh, eighth, and ninth counterclaims for conversion against each of the counterclaim defendants, id. ¶¶ 94-109. The Court must, however, read the complaint as a whole and in the light most favorable to the plaintiff on a motion to dismiss. Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985) (citingConley v. Gibson, 355 U.S. at 47-48).
Hauser argues that the conversion claim against him fails as a matter of law because the seizure was conducted by order of the Court. With this argument, Hauser misapprehends the nature of Michelle Jewelry's conversion claim. There is no doubt that this Court issued an order of attachment, which was later amended to authorize the levy of "precious stones and other inventory, including diamonds, gold jewelry, precious metals and the like, comprising the inventory of the defendant Sonya Chung Suk Park located within the premises of `Michelle Jewelry'. . . ." Amended Order of Attachment at 3 (caps and bold removed). However, Michelle Jewelry's conversion claims stem from the alleged misconduct during and subsequent to the seizure, whereby the counterclaim defendants seized items not included in the Amended Order of Attachment and later failed to account for them. Thus, the mere existence of a court order does not negate Michelle Jewelry's allegations.
Hauser also asserts that this counterclaim is deficient because it does not plead that he exercised "unauthorized dominion" over the seized property. Michelle Jewelry alleges precisely this. Michelle Jewelry avers that "Hauser served as a custodian of the seized inventory and was actively involved in all aspects of the . . . the execution of the levy of attachment, . . . the appraisals of the seized inventory, the transfer of seized property among levying officers and the arrangements for the auction of the seized inventory." A CC ¶ 47. Michelle Jewelry further claims that Hauser was one of the parties who refused to account for the missing jewelry and precious stones and may be one of the parties who benefited from the alleged conversion. While it remains to be seen whether these allegations will be borne out at trial, they are sufficient to survive a motion to dismiss.
The fact that Hauser may have been merely acting on behalf of his client, as he contends, is of no moment, for conversion requires neither bad faith, e.g., Nat Koslow, Inc., 197 N.Y.S.2d at 586; Parker v. P N Recovery of N.Y., Inc., 697 N.Y.S.2d 462, 467 (N.Y. Civ.Ct., 1999), nor wrongful intent,e.g., Spodek v. Liberty Mut. Ins. Co., 547 N.Y.S.2d 100, 102 (2d Dep't 1989); Leve v. C. Itoh Co., (Am.), Inc., 523 N.Y.S.2d 512, 513 (1st Dep't 1988). Moreover, a conversion claim may lie based solely on Hauser's alleged misrepresentations in his application for an order of attachment. See, e.g., Hof v. Mager, 203 N.Y.S. 161, 162 (1st Dep't 1924) (deciding that the complaint sufficiently pleaded a conversion claim where "the warrant of seizure was procured by defendant without any just claim or right thereto") (internal quotation marks omitted);Smith v. Wayne Weinberger, P.C., 994 F. Supp. 418, 421 (E.D.N.Y. 1998) (holding that "a claim of conversion will survive a motion to dismiss even where there is an underlying foreclosure judgment if the plaintiff alleges that the foreclosure judgment was wrongfully obtained"); 23 N.Y. Jur. 2d Conversion § 24, Wrongful Seizure or Sale Under Legal Process (2004) ("One who applies for or obtains a warrant of seizure and takes possession of the goods of another takes the risk of doing so; this person, if having no right to possess the property, is a trespasser and is liable in conversion to the owner of the goods.").
H. Vexatious Litigation
Michelle Jewelry's final counterclaim against Hauser is for vexatious litigation pursuant to 29 U.S.C. § 1927, which provides that "Any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." Michelle Jewelry alleges that Hauser created needless litigation and perpetrated a fraud upon the Court when he purposely omitted the fact that Michelle Jewelry owned the jewelry and precious stones to be seized despite his knowledge that the debt owed to Bright View arose out of business transactions between Bright View and Michelle Jewelry. As described earlier, it is Michelle Jewelry's contention that Hauser knew and acted on the theory that if suit were brought against Michelle Jewelry, a New York corporation, it would defeat this Court's diversity jurisdiction and preclude any relief pursuant to N.Y.C.P.L.R. § 6201(1).
Hauser argues that 28 U.S.C. § 1927 should be construed narrowly and requires a showing of bad faith, something that is absent, as he was simply advocating on behalf of his clients. These arguments will have to await another day, as it is inappropriate to decide whether 28 U.S.C. § 1927 sanctions are warranted at this juncture. As the Second Circuit has instructed, 28 U.S.C. § 1927 is not an independent cause of action. See Cresswell v. Sullivan Cromwell, 922 F.2d 60, 69 (2d Cir. 1990) (holding that 28 U.S.C. § 1927 does not authorize an independent lawsuit and thus cannot be used as a basis for federal jurisdiction). Instead, it is a sanction that may be imposed, upon a proper showing, at the conclusion of the litigation. Id. (noting that "§ 1927 `attorneys' fees were intended to be among the costs which a party could request after litigation was completed'") (quoting Gordon v. Heimann, 715 F.2d 531, 537 (11th Cir. 1983) ("The appropriate time for assessing such costs is after a decision has been reached on the merits.")). Thus, resolution of Michelle Jewelry's application for 28 U.S.C. § 1927 costs, expenses, and attorneys' fees will have to await trial on the substantive claims and counterclaims.
III. CONCLUSION
For the foregoing reasons, Hauser's motion to dismiss is granted in part and denied in part. Mr. Park's counterclaims are dismissed for lack of standing. Michelle Jewelry's counterclaims against Hauser are sufficiently pleaded and will be tried, along with Bright View's breach of contract claim, on October 12, 2004. The Clerk of the Court is instructed to close this motion.
THIS CONSTITUTES THE OPINION AND ORDER OF THE COURT.