Opinion
INDEX NO. 158691/2019
04-16-2020
HARPIA ASSET MANAGEMENT LLC,434 THROOP AVENUE LLC,HARPIA THROOP JV LLC,HARPIA NYC THROOP HOLDINGS LLC,KRIS HENRY Plaintiff, v. JASON SHANBAUM, THE LAW OFFICES OF JASON B. SHANBAUM, PLLC,ISAAC BROYN, Defendant.
NYSCEF DOC. NO. 79 PRESENT: HON. ANDREW BORROK Justice MOTION DATE N/A, N/A MOTION SEQ. NO. 001 002
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document number (Motion 001) 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 21, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 50 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 002) 23, 24, 25, 26, 27, 28, 29, 49, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73 were read on this motion to/for DISMISS. Upon the foregoing documents, (i) Jason B. Shanbaum, Esq., The Law Offices of Jason B. Shanbaum, PLLC's (collectively, the Shanbaum Defendants) motion to dismiss (Mtn. Seq. 002) pursuant to CPLR §§ 3211 (a)(1) and (7) is denied, and (ii) Isaac Broyn's motion to dismiss pursuant to CPLR 3211 §§ (a)(4), (7), and (10) (Mtn. Seq. 001) and to cancel the Notice of Pendency (hereinafter defined) pursuant to CPLR § 6514(b) is granted solely to the extent that the fifth cause of action for injunctive relief is dismissed but is otherwise denied.
The Relevant Facts and Circumstances
Harpia Asset Management LLC, 434 Throop Avenue LLC, Harpia Throop JV LLC, Harpia NYC Throop Holdings LLC, and Kris Henry (collectively, the Plaintiffs) operated a joint venture for the purpose of developing a property located at 434 Throop Avenue, Brooklyn, New York (the Property). The Shanbaum Defendants represented the Plaintiffs in a foreclosure action involving the Property captioned Nationstar Mortgage LLC v. Kris Henry et al., Index No. 506082/2014 (the Foreclosure Action). And, on January 30, 2019, the court (Dear, J.) in the Foreclosure Action signed a Final Judgment of Foreclosure (the Foreclosure Judgment), which ordered the sale of the Property within 90 days (NYSCEF Doc. No. 1, ¶ 35). On March 27, 2019, Nationstar Mortgage LLC (Nationstar) filed a Notice of Sale scheduling an auction sale (the Auction) of the Property on April 18, 2019 (id., ¶ 38). However, inasmuch as when the Foreclosure Judgment was entered on February 5, 2019, the Foreclosure Judgment was entered with the incorrect block number for the Property (id., ¶¶ 36-37), on March 29, 2019, Nationstar filed a motion to correct the Foreclosure Judgment nunc pro tunc, to correct the block number and extend the time for the Auction (id., ¶ 39). During telephone calls which occurred on March 6, 2019 and March 26, 2019, the Complaint alleges that Omar Slowe, managing partner of Harpia Asset Management LLC, 434 Throop Avenue LLC, Harpia Throop JV LLC, and Harpia NYC Throop Holdings LLC, discussed the Foreclosure Action with Mr. Shanbaum and advised Mr. Shanbaum (i) of the Plaintiffs' extensive pre-development work on the Property, (ii) that Plaintiffs were working with lenders to secure a loan, and (iii) that Plaintiffs intended to negotiate payment of the mortgage (id. ¶ 44). Subsequently on April 5, 2019, during a conference call between Mr. Slowe, Kris Henry, and Mr. Shanbaum, Mr. Slowe further advised, among other things, that the Plaintiffs had selected a winning bidder for construction work on the Property and that the Plaintiffs would sign a term sheet to obtain funds to pay off the mortgage or purchase the Property at the Auction (id. ¶¶ 46-47). During the conference call, the Complaint alleges that Mr. Shanbaum advised that the Auction would not take place on April 18, 2019 (id.). On April 8, 2019, Mr. Henry and Mr. Slowe signed a retainer agreement with the Shanbaum Defendants pursuant to which these individuals sought legal advice to, among other things, vacate the Foreclosure Judgment and/or stay the Foreclosure Action (id., ¶ 50). The Auction took place on April 18, 2019 and Isaac Broyn, who was also a client of the Shanbaum Defendants, purchased the Property for $835,000 (id., ¶ 59). The Complaint alleges that on the day of the Auction, when Mr. Slowe heard from another developer that the Property was in fact being sold at the Brooklyn courthouse on that day (despite the advice that he had been given from Mr. Shanbaum that the Auction was not going to occur on that date), Mr. Slowe called Mr. Shanbaum for advice (id., ¶ 62) and Mr. Shanbaum not only confirmed that the Auction was not going forward but also instructed Mr. Slowe not to go to the courthouse (id., ¶¶ 63-64). The Shanbaum Defendants did not file a motion to vacate the Foreclosure Judgment and/or stay the Foreclosure Action before the Auction (id., ¶¶ 51-54). After the Auction, the Plaintiffs allege that Mr. Shanbaum acknowledged that the Auction took place as originally scheduled and admitted that the winning bidder, Mr. Broyn, was one of his clients (id., ¶ 68). Further, the Plaintiffs allege, on information and belief, that Mr. Shanbaum had disclosed to Mr. Broyn confidential and privileged information about the Plaintiffs' pre-development work of more than $400,000, the value of the Property, and the Plaintiffs' intent to purchase the Property at the Auction and develop it to earn millions of dollars in sale proceeds (id. ¶¶ 57, 60). On April 22, 2019, Mr. Shanbaum texted Mr. Slowe to ask whether to file a motion to vacate the sale (id., ¶ 72). On April 23, 2019, Mr. Slowe emailed Mr. Shanbaum to request that a motion to vacate the sale be filed, along with an explanation that the Plaintiffs did not attend the auction on Mr. Shanbaum's instructions (id., ¶ 73). On April 29, 2019, some 11 days following the Auction, the Shanbaum Defendants filed a motion to stay the Foreclosure Auction and vacate the Foreclosure Judgment (id., ¶ 78). On May 8, 2019, the Shanbaum Defendants submitted opposition to Nationstar's motion to correct the block number for the Property (id., ¶¶ 78-79). Both motions were denied on June 24, 2019 (id., ¶ 86). Around the same time that the above motions were filed in late April, the Plaintiffs assert that Mr. Shanbaum attempted to persuade them, by phone, to pay Mr. Broyn $10,000 so that Mr. Broyn would not oppose the motion to vacate (id. ¶ 82). The Plaintiffs refer to a text on May 6, 2019, from Mr. Shanbaum to Mr. Slowe whereby the $10,000 payment was discussed:
Mr. Slowe: Dealt with lender(s) and other stuff all day. Nacmias said he'll call me back. Haven't had a change to talk to Kenny yet about your email. You or Kenny can talk to Isaac. My offer was for him to sign whatever affidavit or affirmation supporting out motion to have it voided. I'll call you in the morning.(NYSCEF Doc. No. 68). After the court heard the Plaintiffs' motion to vacate on May 15, 2019, the Plaintiffs further assert that Mr. Shanbaum told them that Mr. Broyn rejected an offer of $10,000 and advised Mr. Slowe that the offer be increased to $50,000 (NYSCEF Doc. No. 1, ¶ 85). The same evening, Mr. Shanbaum allegedly told Mr. Slowe to speak directly to Mr. Broyn and when Mr. Slowe called Mr. Broyn the next day, Mr. Broyn stated that he would not accept less than $100,000 and that this amount was not negotiable (id. ¶ 85). Subsequently, the Plaintiffs brought this action, alleging (1) legal malpractice, (2) breach of fiduciary duty, (3) fraud, as against the Shanbaum Defendants, and (4) aiding and abetting fraud, (5) injunctive relief, and (6) a declaratory judgment the Auction was null and void as against Mr. Broyn (NYSCEF Doc. No. 1, the Complaint). The Plaintiffs also filed a Notice of Pendency (NYSCEF Doc. No. 2, the Notice of Pendency) against the Property. Both the Shanbaum Defendants and Mr. Broyn moved to dismiss.
Thanks for the update, by the way. Appreciated.
Mr. Shanbaum: Oh ya he's not gonna want to do $10k to reverse but I can ask him ... I thought you were offering $10k to not object.
Discussion
I. Motion Sequence 002 (The Shanbaum Defendants' Motion to Dismiss) On a motion to dismiss, the pleadings are to be afforded a liberal construction and the facts as alleged in the complaint are accepted as true (Leon v Martinez, 84 NY2d 83, 87 [1994]). Under CPLR § 3211 (a)(1), the court may dismiss a cause of action where the documentary evidence conclusively establishes a defense to the claims as a matter of law (id. at 88) and dismissal under CPLR § 3211 (a)(7) requires the court to assess whether the proponent of the pleading has a cause of action and not whether he has stated one (id.).
A. Second Cause of Action (Breach of Fiduciary Duty) The Shanbaum Defendants argue that the breach of fiduciary duty claim must be dismissed as it is not pled with specificity and because it is duplicative of the legal malpractice claim because both arise from the same facts. Both arguments are unavailing. The elements of a claim for breach of fiduciary duty are that (1) defendant owed plaintiff a fiduciary duty, (2) defendant committed misconduct, and (3) plaintiff suffered damages caused by that misconduct (Burry v Madison Park Owner LLC, 84 AD3d 699, 699-700 [1st Dept 2011] [citations omitted]). Here, the Plaintiffs allege that they were owed a fiduciary duty by the Shanbaum Defendants, including a duty of loyalty and honesty (NYSCEF Doc. No. 1, ¶ 99). The Plaintiffs' further allege that the Shanbaum Defendants breached their fiduciary duty by (i) disclosing the Plaintiffs' confidential and privileged information to other clients, including Mr. Broyn, (ii) assisting Mr. Broyn with purchasing the Property, and (iii) representing both Mr. Broyn and the Plaintiffs in the potential sale of the Property from Mr. Broyn to the Plaintiffs after the Auction (id. ¶¶ 100-102). The Plaintiffs have also alleged damages (id. ¶ 103-105). Taking the Plaintiffs allegations as true as this court must on a motion to dismiss, the Plaintiffs sufficiently state a claim for breach of fiduciary duty with the requisite particularity pursuant to CPLR §3016(b). Dismissal is also not required because the Plaintiffs' breach of fiduciary duty claim does not arise from the same set of facts that underlie the legal malpractice claim (Kurman v Schnapp, 73 AD3d 435, 435-436 [1st Dept 2010] [citations omitted] [explaining that a claim for breach of fiduciary duty is not duplicative of a claim for legal malpractice where each claim is premised on separate facts that support a different theory]). Here, as discussed above, the Plaintiffs allege, among other things, that the Shanbaum Defendants breached their duty of loyalty by assisting Mr. Broyn with the purchase of the Property while at the same time representing the Plaintiffs in having the Auction stayed. By contrast, the Plaintiffs' ground their legal malpractice claim on the Shanbaum Defendants' alleged failure to (i) timely file a motion to vacate the Foreclosure Judgment and/or stay the Foreclosure Action before the Auction, (ii) advise the Plaintiffs that the Auction would proceed on April 18, 2019, (iii) make any attempt to reschedule the Auction, and (iv) include the relevant information in the Plaintiffs' motion to vacate the Auction (NYSCEF Doc. No. 1, ¶¶ 88-93). Under these circumstances, the breach of fiduciary claim arises from a different set of facts than the legal malpractice claim such that both may be sustained (see Exeter Law Group LLP v Wong, 2016 NY Slip Op 32425[U] [Sup Ct, NY County 2016] [denying motion to dismiss certain counterclaims, including counterclaim for legal malpractice due to reliance on alleged negligent representations when forming business ventures and counterclaim for breach of fiduciary duty for disclosure of confidential and privileged information]; Colucci v Arisohn, 2009 NY Slip Op 32053[U] [Sup Ct, NY County 2009] [declining to dismiss breach of fiduciary claim for defendants' alleged unauthorized use of plaintiffs' confidential communications as duplicative of legal malpractice claim predicated on defendants' actions as plaintiffs' former counsel]). Accordingly, that branch of the Shanbaum Defendants' motion to dismiss the second cause of action for breach of fiduciary duty must be denied.
B. Third Cause of Action (Fraud) The Shanbaum Defendants argue that the Plaintiffs' fraud claim must be dismissed because it is not plead with specificity in accordance with CPLR § 3016(b) and is duplicative of the legal malpractice claim. The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages (Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). A fraud claim must also meet the heightened pleading standard pursuant to CPLR § 3016(b). The Plaintiffs allege that the Shanbaum Defendants made the following false representations: (i) that Nationstar's nunc pro tunc motion had stayed the Foreclosure Action, (ii) that the Auction would not be held on April 18, 2019, (iii) that Mr. Shanbaum did not communicate with Mr. Broyn about the Property before the Auction, and (iv) that there was no conflict of interest as to the Shanbaum Defendants' simultaneous representation of both the Plaintiffs and Mr. Broyn (NYSCEF Doc. No. 1, ¶ 109). Inasmuch as the Plaintiffs seek to frame their fraud claim as one of conspiracy against all defendants (NYSCEF Doc. No. 52 at 16), this is impermissible as a separate cause of action because New York does not recognize an independent cause of action for civil conspiracy (Kovkov v Law Firm of Dayrel Sewell, PLLC, 2020 NY Slip Op 02166 [1st Dept 2020]). However, to the extent that the claim is one for fraud against the Shanbaum Defendants based on the above false statements, this is sufficient at the pleading stage even under the heightened pleading requirements of CPLR § 3016 (b) as the Plaintiffs allege that the Shanbaum Defendants knowingly made materially false statements, reasonable reliance and resulting damages. More is not required at this juncture. Nor is the fraud claim duplicative as the fraud alleged is not simply based on the same conduct as the legal malpractice (Johnson v Proskauer Rose LLP, 129 AD3d 59, 68-69 [1st Dept 2015]). The First Department explained the difference in Mitschele v Schultz, where a client sued an accounting firm, which had been recommended to her by her employer, for numerous errors in her tax returns, and also alleged that the firm had represented to her that the way in which it declared her earnings was "the way it's got to be" but that this was really to benefit her employer's tax liability at her expense (36 AD3d 249 [1st Dept 2006]). As the Court wrote:
defendant's alleged fraud is not simply the failure to disclose the malpractice based upon accounting errors. Rather, defendants are alleged to have perpetrated a fraud on plaintiff from the time they were retained to provide accounting services, in failing to disclose their concern with protecting the interests of another entity....(36 AD3d at 254). Here, similarly, the Plaintiffs do not simply allege that the Shanbaum Defendants committed malpractice by failing to timely file the appropriate motion to stop the foreclosure, or otherwise committing errors in their legal representation, but they allege that the Shanbaum Defendants took deliberate steps to mislead the Plaintiffs in favor of their other client without disclosing this conflict to the Plaintiffs and by affirmatively lying about the fact instead. The "essences of the fraud and malpractice claims" are, thus, "sufficiently distinct from one another" so as to not be duplicative (Johnson, 129 AD3d at 69). For the avoidance of doubt, to the extent that the Shanbaum Defendants' also seek dismissal of the fraud claim on the basis of documentary evidence - i.e. a text message and email chain (NYSCEF Doc. No. 29) - such evidence fails to conclusively establish a defense to the alleged fraud. Accordingly, that branch of the Shanbaum Defendants' motion to dismiss the third cause of action for fraud must be denied.
II. Motion Sequence 001 (Mr. Broyn's Motion to Dismiss)
A. Fourth Cause of Action (Aiding and Abetting Fraud) Although a much closer call, the motion to dismiss the claim for aiding and abetting fraud against Mr. Broyn also must be denied. The Plaintiffs allege that Mr. Broyn did not randomly obtain the information about the Auction. Had this been the case, the mere fact that Mr. Broyn is also a client of the Shanbaum Defendants would not necessarily raise concern. Rather, the Complaint alleges that "upon information and belief," the Shanbaum Defendants told Mr. Broyn about the Property and when the Auction was taking place, and "conspired" with him to "defraud Plaintiffs to reap a financial benefit," which they did with his "substantial assistance" (NYSCEF Doc. No. 1, ¶¶ 119-123). In other words, the allegations are that Mr. Broyn obtained the information from the Shanbaum Defendants who owed a conflicted duty. And, the argument is that Mr. Broyn may very well have encouraged the Shanbaum Defendants to breach their duty to the Plaintiffs. To wit, as discussed above, Mr. Broyn allegedly demanded $10,000 to forebear from opposing the motion to vacate (NYSCEF Doc. No. 1, ¶ 82) and $100,000 to flip his interest post sale (id. ¶ 85). This was communicated first by the Shanbaum Defendants (id. ¶ 82) and then subsequently by Mr. Broyn himself (id. ¶ 85). These facts taken as true as the court must at this stage of the proceedings are sufficient allegations of knowing wrongdoing to make out a claim for aiding and abetting and go well beyond mere allegations based on information and belief alone (cf., Kaufman v Cohen, 307 AD2d 113, 126 [1st Dept 2003]). To the extent that Mr. Broyn relies on Apfelberg v E. 56th Plaza, Inc., 78 AD2d 606, 607 [1st Dept 1980], the case does not suggest a different result. In Apfelberg, certain rent stabilized tenants of 400 East 56th Street instituted an action against the sponsor of a co-operative housing plan pursuant to article 23-A of the General Business Law and the Attorney-General, alleging that the sponsors were engaged in fraud and the Attorney-General failed to fulfill his responsibilities to thoroughly investigate the offering plan. The trial court dismissed the action as against the Attorney-General and no appeal was taken. The tenants had sought judgment prior to the acceptance for filing of the conversion plan by the Attorney-General pursuant to subdivision 2 of Section 352-e of the General Business Law declaring, among other things, their right to inspect the books and records, the physical premises, and otherwise seeking a stay. The trial court denied the motion to dismiss, granted the discovery and the injunction to maintain the status quo. The First Department reversed holding that the tenants' action was premature as the requested relief was inappropriate at the prefiling stage. The First Department commented that the Attorney General has the exclusive responsibility on passing on the sufficiency of the offering plan prior to the public offering pursuant to 352-e of the General Business Law and the acceptance of an offering plan does not indicate approval or prevent further legal action. The filing is for information purposes only and a determination by the Attorney-General to accept a plan may not be challenged in advance as was attempted in that case. The proper vehicle for a challenge is an Article 78 proceeding after the decision has been made and if the Attorney-General does not investigate any complaints. The First Department then wrote:
We further note that the complaint is almost entirely grounded 'upon information and belief', without indication of the sources of said information and belief', without indication of the sources of said information and belief. The allegations are conclusory and without support or probative value. Plaintiffs have failed to allege with sufficient particularity any facts demonstrative fraudulent practices on the part of the sponsors (CPLR 3016, subd[b]; 3013). They should not be permitted, on such a weak showing, to enjoin the entire conversion process.(78 AD2d at 607). Putting aside that the holding of the case is not that allegations based on information and belief are not sufficient to withstand a motion to dismiss, here, unlike in Apfelberg, the allegations regarding the $10,000, $50,000 and $100,000 demands as described more fully above together with the relationship with the Shanbaum Defendants sufficiently corroborate the allegations set forth in this Complaint to make the allegations not merely based on information and belief alone. Accordingly, that branch of the Shanbaum Defendants' motion to dismiss the fourth cause of action for aiding and abetting fraud is denied.
B. Fifth Cause of Action (Injunctive Relief) Notwithstanding the foregoing, the Plaintiffs' fifth cause of action to enjoin Mr. Broyn from selling the Property is dismissed because while the facts are sufficiently pled to withstand a motion to dismiss, the Plaintiffs cannot demonstrate a likelihood of success on the merits against Mr. Broyn at this time. The Plaintiffs also have failed to allege irreparable harm because the lis pendens puts any would be purchaser on notice of the Plaintiffs' pending claim and addresses the Plaintiffs concern that Mr. Broyn may attempt to sell the Property during this action.
C. Sixth Cause of Action (Declaratory Judgment) Pursuant to CPLR § 3001, a declaratory judgment establishes the respective legal rights of parties to a justiciable controversy (Thome v Alexander & Louisa Calder Found., 70 AD3d 88, 99 [1st Dept 2009]). As the Plaintiffs have stated a cause of action against Mr. Broyn, there exists a justiciable controversy between the Plaintiffs and Mr. Broyn regarding ownership of the Property and the sixth cause of action for a declaratory judgment is sustained. For the avoidance of doubt, that branch of Mr. Broyn's motion to dismiss pursuant to CPLR § 3211 (a)(4) is denied because the Plaintiffs are not required to raise their claims against the Shanbaum Defendants and Mr. Broyn in the Foreclosure Action. That branch of Mr. Broyn's motion to dismiss pursuant to CPLR § 3211 (a)(10) is also denied because the foreclosing plaintiff and foreclosure referee are not necessary parties to this action. Finally, Mr. Broyn's request to cancel the Notice of Pendency pursuant to CPLR § 6514(b) is denied because such notice must be maintained in light of a valid claim (contra Guberman v Rudder, 85 AD3d 683, 684 [1st Dept 2011] [citations omitted]). Accordingly, it is ORDERED that the Shanbaum Defendants' motion to dismiss (Mtn. Seq. 002) is denied; and it is further ORDERED that Mr. Broyn's motion (Mtn. Seq. 001) to dismiss and to cancel the Notice of Pendency pursuant to CPLR § 6514(b) is granted solely to the extent that the fifth cause of action for injunctive relief is dismissed but otherwise denied; and it is further ORDERED that the Shanbaum Defendants' and Mr. Broyn shall file an answer by 5/8/2020. Dated: April 16, 2020
/s/_________
Hon. Andrew Borrok
J.S.C.