Opinion
27823-06.
Decided October 9, 2007.
By notice of motion filed on May 21, 2007 defendants Avruhum M. Donner, Israel Eichenholz and Isadore Fisher (hereinafter movants) jointly move for an order dismissing all claims against them pursuant to CPLR § 3211(a)(5) and (7). Plaintiff Hebrew Institute for the Deaf and Exceptional Children (hereinafter HIDEC) opposes the motion.
The Complaint
HIDEC's complaint alleges thirty five allegations of fact in support of three causes of action. The first cause of action claims that Abraham M. Kahana, the Vice President of Midwood Federal Credit Union (hereinafter MFCU) and Mark Kaplan, the Comptroller of MFCU embezzled and diverted HIDEC's funds to accounts in their own name for their own use during the period of January 1999 through October 31, 2004. The second cause of action alleges that the movants and other named officers, directors and managers of MFCU converted the funds diverted by Abraham M. Kahan and Mark Kaplan during the period of January 1999 through October 31, 2004. The third cause of action alleges that the movants and other named defendants acted in concert to plan and perpetrate the embezzlement and conversion of HIDEC's funds.
Motion Papers
The movants' motion papers consist of an affirmation of their counsel, a memorandum of law and twelve annexed exhibits. Exhibit A is a letter dated May 12, 2005, from Leon Brickman, the president of HIDEC, to the National Credit Union Administration (NCUA) demanding the return of their embezzled and converted funds. Exhibit B is a certified copy of a letter dated June 13, 2005, from NCUA to Mr. Brickman advising that it forwarded to HIDEC a check for one hundred thousand dollars ($100,000.00) representing the maximum amount of HIDEC's claim that is insured under the National Credit Union Share Insurance Fund. NCUA also advised HIDEC that it was denying their claim for one million two hundred and sixty seven thousand seven hundred and fifty dollars ($1,267,750.00) based on lack of evidence. Exhibit C is an unsigned copy of a decision and order of NCUA dated December 15, 2005. Exhibit D is a certified copy of a complaint, index number CXV-05 5242, brought by HIDEC against NCUA, the movants, and others, in the United States District Court in the Eastern District of New York (hereinafter the federal action). Exhibit E is a certified copy of NCUA's motion to dismiss HIDEC's complaint against MFCU brought in the federal action. Exhibit F is the certified transcript of a proceeding before United States District Judge Brian M. Cogan which occurred on August 29, 2006 in the federal action. Following the transcript is Judge Cogan's order, dated August 29, 2006, dismissing all claims against MFCU with prejudice and all claims against the remaining defendants without prejudice. Exhibit G is the summons and verified complaint in the instant action. Exhibit H is a copy of some documents which was annexed to HIDEC's opposition papers as exhibit D. Exhibit I, J and K are affidavits of Avruhum M. Donner, Isadore Fisher and Isreal Eichenholz respectively. Each of them denies involvement in a conspiracy to embezzle or in the embezzlement of HIDEC's funds deposited in MFCU. Exhibit L is an order of this court dated April 20, 2007, permitting the movant's to renew their respective motions to dismiss the complaint.
HIDEC's opposition papers consist of the affirmation of their counsel and nine annexed exhibits. Exhibit A consist of a copy of a Citibank withdrawal slip and an official Citibank check in the amount of fifty thousand dollars ($50,000.00) payable to MFCU. Exhibit B is a letter dated September 7, 2005, from Leon Brickman, as president of HIDEC to the officers, directors and managers of MFCU demanding that they return one million two hundred and sixty seven thousand seven hundred and fifty dollars ($1,267,750.00). Exhibit C is NCUA' notice of revocation of the charter of MFCU dated December 16, 2004. Exhibit D is correspondence regarding HIDEC's claim against NCUA. Exhibit E is the same copy of NCUA's motion to dismiss HIDEC's complaint already annexed to the movant's papers as exhibit E. Exhibit F is the same transcript of the proceeding before United States District Judge Brian M. Cogan already annexed to the movant's papers as exhibit F. Exhibit G is dated October 2, 2005 and purports to be NCUA's report of the composition of the officers of MCFU. Exhibt H purports to be an amended complaint of a different federal action pending in the United States District Court of the Eastern District of New York with MCFU as a defendant. Exhibit I purports to be a confidential report from an agent of NCUA.
The movants also submitted a memorandum of law in reply to HIDEC's opposition papers.
LAW AND APPLICATION
The movants seek dismissal of the complaint pursuant to CPLR §§ 3211(a)(5) and(7). The two grounds asserted under CPLR § 3211(a)(5) are that the claims are barred by the equitable principles of collateral estoppel and are time barred. They also assert under
CPLR § 3211(a)(7) that the allegation of the complaint, even if true, do not state a cognizable claim in law or equity.
Logic dictates that the CPLR § 3211(a)(7) prong be addressed first because the issue of collateral estoppel or untimeliness need not be reached if the complaint fails to state a cognizable claim. The first issue is what is the appropriate standard of review. Analyzing the motion papers reveals no information on whether the movants have answered the instant complaint. Assuming that they have done so, the answer is not referenced or annexed in their motion. Furthermore, the motion and opposition papers do not unequivocally manifest the parties intention to lay bare their proofs and deliberately chart a summary judgment course ( see generally, Four Seasons Hotel Ltd. v. Vinnik, 127 AD2d 310 [1st Dept 1987]). Therefore, the court will treat the motion as a pre-answer application for dismissal and will not convert it to one for summary judgment pursuant to CPLR § 3211(c).
On a CPLR § 3211 motion to dismiss for failure to state a cause of action, the court will "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Nonnon v. City of New York , 9 NY3d 825, [2007]; citing Leon v. Martinez, 84 NY2d 83, 87-88. While affidavits may be considered, if the motion has not been converted to a CPLR § 3212 motion for summary judgment, they are generally intended to remedy pleading defects and not to offer evidentiary support for properly pleaded claims ( Nonnon v. City of New York , 9 NY3d 825, [2007]; citing Rovello v. Orofino Realty Co., 40 NY2d 633, 635-636). The test on a pre-answer motion to dismiss a complaint for failure to state a cause of action (CPLR § 3211(a)(7)) is whether a cognizable cause of action can be discerned from the four corners of the complaint, not whether the claim has been properly stated ( Rovello v. Orofino Realty Co., 40 NY2d 633).
The movants contend that the complaint does not satisfy the minimal pleading requirements of CPLR § 3013 in that it is insufficient to give notice of the transaction or occurrences plaintiff intends to prove against them. However, they have neither moved to compel a more definite statement pursuant to CPLR § 3024(a), nor used this contention as a separate basis for dismissal.
Only HIDEC's second and third cause of action is directed against the movants. HIDEC alleges that the movant, acting in concert with Abraham M. Kahana and Mark Kaplan, conspired to embezzle and did convert funds belonging to HIDEC, while acting in their capacity as officers, directors and managers of MFCU.
"If a cause of action can be spelled out from the four corners of the pleading, a cause of action is stated and no motion lies under CPLR § 3211(a)(7). The pleadings can be pathetically drawn; it can reek of miserable draftsmanship. That is not the inquiry. We want only to know whether it states a cause of action — any cause of action. If it does, it is an acceptable CPLR pleading"( Siegel's New York Practice 4th Edition § 208, The Basic Pleading Requirements).
Conversion is the unauthorized exercise of the right of ownership over property belonging to another to the exclusion of the owner's rights ( State v. Seventh Regiment Fund, 98 NY2d 249, 259 citing Vigilante Ins. Co. Of America v. Housing Auth. of the City of El Paso, 87 NY2d 36, 44). Money can be the subject of conversion when it can be described, identified, or segregated in the manner that a specific chattel can be and when it is subject to an obligation to be returned (see generally, Republic of Haiti, 211 AD2d 379, 384 [1st Dept 1995]). "The funds of a specific named bank account . . . are sufficiently identifiable" for purposes of establishing a conversion claim ( Lenczycki v. Shearson Lehman Hutton, Inc. 238 AD2d 248 [1st Dept 1997]). Furthermore, a person may be liable for conversion by conniving with another in an act of conversion ( Ahles v. Aztec Enterprises, 120 AD2d 903, 904 [3rd 1986]).
The general rule is that a depositary bank has no duty to monitor fiduciary accounts maintained at its branches in order to safeguard funds in those accounts from fiduciary misappropriation ( Northwest Mortgage Inc., v. Dime Savings Bank of New York, 280 AD2d 653 [2nd Dept 2001]; citing Matter of Knox, 64 NY2d 434). Liability may be imposed if a depositary bank has actual knowledge or notice that a diversion will occur or is ongoing. Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry on the part of a depositary bank, and the bank's failure to conduct a reasonable inquiry when the obligation arises will result in the bank being charged with such knowledge as inquiry would have disclosed ( Northwest Mortgage Inc., v. Dime Savings Bank of New York, supra; citing see, Home Savings. v Amoros, 233 AD2d 35, at 39 [1st Dept 1997]). Borrowing this analysis the court finds that an officer, director or manager of a credit union may act in concert with a fiduciary to perpetrate a conversion of funds.
The court finds that HIDEC's complaint sufficiently pleads a cause of action for conversion against the movants. Therefore, the motion to dismiss the complaint pursuant to CPLR § 3211(a)(7) is denied.
The movants contend that pursuant to CPLR § 3211(a)(5) the complaint may be dismissed by applying the equitable principles of collateral estoppel and also because it is barred by the statute of limitations.
"The equitable doctrine of collateral estoppel is grounded in the facts and realities of a particular litigation, rather than rigid rules. Collateral estoppel precludes a party from litigating again, in a subsequent action or proceeding, an issue raised in a prior action or proceeding and decided against that party or those in privity ( Buechel v Bain, 97 NY2d 295, 303). Two requirements must be met before collateral estoppel can be invoked. There must be an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and there must have been a full and fair opportunity to contest the decision now said to be controlling ( Buechel v Bain, supra., 97 NY2d at 304). The litigant seeking the benefit of collateral estoppel must demonstrate that the decisive issue was necessarily decided in the prior action against a party, or one in privity with a party. The party to be precluded from relitigating the issue bears the burden of demonstrating the absence of a full and fair opportunity to contest the prior determination ( id at 304).
The doctrine, however, is a flexible one, and the enumeration of these elements is intended merely as a framework, not a substitute, for case-by-case analysis of the facts and realities. 'In the end, the fundamental inquiry is whether relitigation should be permitted in a particular case in light of . . . fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results. No rigid rules are possible, because even these factors may vary in relative importance depending on the nature of the proceedings . . .'" ( id. At 304).
The movants claim that the dismissal of the plaintiff's claims against MFCU and NCUA in the federal action bars the claims against them in the instant action. Judge Brian M. Cogan's decision to dismiss the claims against NCUA and MFCU with prejudice was based on the plaintiff's failure to bring the only federal claims in the action against these two defendants in a timely fashion. The remaining defendants, which included the movants, were brought into the federal action by the joinder of the ancillary state claims pertaining to them to the federal claims against NCUA and MFCU. Once Judge Cogan decided to dismiss the federal claim against NCUA and MFCU, he then had to decide whether to retain or decline jurisdiction on the remaining ancillary state claims. According to the transcript of the proceedings annexed to the movants' papers, Judge Cogan declined to exercise jurisdiction and dismissed the state claims, including those pending against the movants, without prejudice to their renewal in any state court of competent jurisdiction. Judge Cogan relied on the authority set forth in the 1988 decision of the United States Supreme Court in Carnegie-Mellon University v. Cohill, 484 US 343, 350 n. 7 (1988). In that case, the Supreme Court held that "in the usual case in which all federal-law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state-law claims Carnegie-Mellon University v. Cohill, supra.
Although the movants have shown that the complaint in the federal action and the instant action are virtually identical, they have not shown that the issue pertaining to the claims against NCUA and MFCU in the federal action were decided in a manner that would be decisive in HEDIC's claim against the movants in the instant action. The only issue determined by Judge Cogan in the federal action which pertained to the movants was to decline jurisdiction on the ancillary state claims plead against them. There is no dispute that Judge Cogan had jurisdiction over these claims and that he had the discretionary authority to retain or decline jurisdiction. Judge Cogan's determination to decline jurisdiction did not address the merits of any aspect of HIDEC's claims against the movants. Therefore, the movants application to dismiss the instant complaint pursuant to the doctrine of collateral estoppel is denied. The court now turns to the movants remaining claim that the instant action was commenced untimely. A defendant who seeks dismissal of a complaint on the grounds that it is barred by the statute of limitations bears the initial burden of proving, prima facie, that the time in which to commence an action has expired. The burden then shifts to the plaintiff to aver evidentiary facts establishing that his or her cause of action falls within an exception to the statue of limitations, or raising an issue of fact as to whether such an exception applies ( LaRocca v. DeRicco , 39 AD3d 486-487 [2nd Dept. 2007]). In order to make a prima facie showing, the defendant must establish, inter alia, when the cause of action accrued (see Swift v. New York Medical College, 25 AD3d 686 [2nd Dept. 2006]).
The issue of the timeliness of the instant complaint requires some discussion of CPLR §§ 214(3) and 205(a). CPLR § 214 (3) provides in pertinent part that an action to recover a chattel or damages for the taking or detaining of a chattel are to be commenced within three years.
CPLR § 205 (a) provides as follows: Termination of action. (a) New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period.
The affirmation of movants' counsel sets forth five allegations, numbered twenty six through thirty in support of the application to dismiss the complaint based on the statute of limitations. They allege that plaintiff's opposition papers have annexed as exhibit D evidence of HIDEC's claim against NCUA and MFCU. They contend that these exhibits are admissible against HIDEC and show deposits allegedly made by defendants Kahana and Kaplan prior to September 14, 2003. They also refer generally to their respective affidavits and reference the fact that the federal action commenced against them was dismissed without prejudice.
The movants' memorandum of law in support of the motion contend that HIDEC's claim for conversion is untimely applying CPLR § 214. They contend that the action accrued on January 1, 1999 and the instant action was not commenced until September 14, 2006, nearly six years later. They seek dismissal of the claim on that basis. The movants do not address whether the federal action brought against them was timely commenced. Nor do they address the applicability of CPLR § 205(a).
Keeping in mind that it is the movants burden to establish the accrual date of the action, the applicable statue of limitations and the expiration date for commencement of the action, the issue of what the actual accrual date of the act or acts of conversion is unclear.
On a conversion claim the accrual date is generally the date the conversion takes place( see generally, In re Peters, 34AD3d 29 [1st Dept 2006]; see also Sporn v. MCA Records, Inc., 58 NY2d 482, 488) and not from discovery or the exercise of diligence to discover ( Vigilant Ins. Co., of Am. v. Housing Authority of the City of El Paso, Texas, 87 NY2d 36, 44). It is well settled, however, that where the original possession is lawful, a conversion does not occur until after a demand and refusal to return the property ( D'Amico v. First Union National Bank, 285 AD2d 166 [1st Dept 2001]; citing, MacDonnell v. Buffalo Loan, Trust Safe Deposit Co., 193 NY 192, 101 1908]).
The actual accrual date is, therefore, ambiguous. If HIDEC's demand letter to N CUA and MCFU dated May 12, 2005 annexed as exhibit A to the motion, marks the accrual date, then HIDEC's instant complaint is clearly commenced within three years of the demand and timely. However, if the court is supposed to consider an earlier date, it is unclear what it should be. It is the movant's burden to show which accrural date or dates is applicable.
Furthermore, there is no dispute that the Federal action was dismissed without prejudice on August 29, 2006. There is also no dispute that the dismissal was not by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits. Therefore, if the identical state claims brought against the movants in the federal action were timely brought, then the instant action would be timely commenced if initiated within six months after the termination (CPLR § 205(a), see also, Daluise v. Sottile , 40 AD3d 801, 804 [2nd Dept 2007]). The instant action was commenced on September 14, 2006, less than thirty days later.Inasmuch as the movant did not demonstrate that the federal action was untimely commenced, they necessarily cannot and did not demonstrate that the instant action is time barred.
Therefore, movants application to dismiss the complaint pursuant to CPLR §§ 3211(a)(5) and (7) is denied in its entirety.
The foregoing constitutes the decision and order of this court.