Opinion
602192-2007.
Decided September 10, 2008.
Attorneys Pro Se for Defendant Pillsbury Winthrop Shaw Pittman LLP: HELMS GREENE, LLC, New York, NY. By: James J. Mahon, Esq. Christopher S. Rooney, Esq. PILLSBURY WINTHROP SHAW PITTMAN LLP, New York, NY, Attorneys for Plaintiffs.
By: E. Leo Milonas, Esq. David Keyko, Esq. VENABLE, LLP, NW Washington, DC.
By: Asa Hutchinson, Esq. (Admitted Pro Hac Vice) Winifred M. Weitsen, Esq. (Admitted Pro Hac Vice) Attorneys Pro Se for Defendant Bracewell Giuliani LLP: BRACEWELL GIULIANI LLP, New York, NY.
By: Daniel S. Connolly, Esq. Michael Kuhn, Esq. Attorneys for Defendant Kenneth A. Caruso: PATTERSON BELKNAP WEBB TYLER LLP, New York, NY.
By: Frederick B. Warder III, Esq. Rosanne E. Felicello, Esq. Attorneys Pro Se for Defendant Chadbourne Parke LLP: CHADBOURNE PARKE LLP, New York, NY.
By: Thomas J. Hall, Esq., Eric Przybylko, Esq.
Plaintiffs J. Virgil Waggoner ("Waggoner") and J.V.W. Investment Ltd. of Dominica ("JVW"; collectively, "Plaintiffs") brought this action for legal malpractice, breach of fiduciary duty, fraud, and conspiracy to commit fraud against Defendants Kenneth A. Caruso ("Caruso"), Bracewell Giuliani LLP ("Bracewell"), Chadbourne Parke LLP ("Chadbourne"), and Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"; collectively, "Defendants"). Defendants move to dismiss the Verified Amended and Substituted Complaint (the "Complaint") with prejudice pursuant to CPLR §§ 3211(a)(1), (7).
This lawsuit arises out of legal representation provided by Defendants over the course of eight years, resulting from Plaintiffs' loss of money in overseas investments. Waggoner is a retired petrochemical executive who invested $10 million in a High Yield Investment Program ("HYIP"), which turned out to be fraudulent. Waggoner created JVW for the purpose of making this investment. Plaintiffs allege that the money was immediately stolen upon deposit, and Plaintiffs retained Caruso, then a partner at Pillsbury, to trace the money and recover it through legal action. Over the next eight years, Caruso represented Plaintiffs in a series of federal and state actions, which were ultimately unsuccessful in recovering Plaintiffs' investment. During the course of the litigation, Caruso moved from Pillsbury to Chadbourne, and then to Bracewell.
Defendants move to dismiss on several grounds. First, as to the malpractice claim, Pillsbury argues that the claim against it is time-barred. Chadbourne and Bracewell argue that the claim does not allege any acts of malpractice against either of them, and all Defendants argue that the Complaint does not adequately allege but-for causation of Plaintiffs' losses.
On the breach of fiduciary duty claim, Pillsbury again raises a statute of limitations defense. Bracewell argues that the claim does not apply to it because any allegations of wrongdoing occurred prior to its retention, and furthermore, there is no available remedy against it. Defendants collectively argue that Plaintiffs have failed to adequately plead causation, and further, that this claim is duplicative of the malpractice claim.
As to the cause of action for fraud, Defendants collectively raise a statute of limitations defense. Defendants also argue that the fraud claim is duplicative of the malpractice claim, that it is not pled with sufficient detail, and that it does not allege conduct actionable as fraud. Defendants further argue that there can be no derivative liability for acts that occurred before any particular defendant's retention, nor after the conclusion of its representation. Defendants raise the same defenses to the conspiracy claim, but add that, as conspiracy is not an independent cause of action, if the fraud claim is dismissed, the conspiracy claim must also be dismissed. Bracewell independently argues that there is no allegation of any actionable conduct by it contained in the cause of action for conspiracy.
I will first outline the allegations as presented in the complaint, and then discuss each of the issues listed above.
In 1996, Waggoner was approached by Lisa Duperier ("Duperier") to invest $10 million in a High Yield Investment Program ("HYIP"). Several government agencies, notably the Securities and Exchange Commission and the Federal Reserve Board, had issued warnings about HYIPs in 1993. In 1998, the SEC issued detailed warnings that HYIPs are instruments of bank fraud. HYIP investors are asked to place their money in offshore accounts, are promised high returns, and are given a zero risk guarantee on their principal. In December 1997, Waggoner transferred $10 million into an escrow account to be held while a HYIP was located. In April 1998, Waggoner entered into a joint participation agreement with Donal Kelleher ("Kelleher"), a financial advisor. In May and June of 1998, Kelleher and Duperier began discussions with a HYIP administrator, British Trade and Commerce Bank ("BTCB"). BTCB Vice President Charles Brazie ("Brazie") suggested that Waggoner organize JVW under the laws of Dominica. Having done so, JVW then entered into a cooperative venture agreement with BTCB, whereby BTCB was to administer the investment program into which Waggoner's funds were to be placed. Pursuant to BTCB instruction, the $10 million was to be placed into a BTCB sub-account in JVW's name at Citibank, which was held by Suisse Security Bank and Trust ("SSBT"). BTCB claimed that after this transfer, it would place the funds into the investment program, and issue a Certificate of Deposit ("CD").
However, there was no BTCB sub-account at Citibank, and the funds were instead placed into a freestanding account owned by SSBT. The Complaint alleges that the funds were immediately stolen upon arrival at Citibank, that SSBT converted at least a portion of the funds, and that BTCB laundered any remainder through transfers to various other accounts that it held. During the summer of 1998, SSBT denied Waggoner access to the funds, claiming that they believed the funds to be part of a money laundering scheme, and later suggested that Kelleher had authorized the funds to be moved to Swiss money market accounts. Duperier recommended that Waggoner retain Caruso to investigate the funds, and on October 7, 1998, Caruso and his law firm, Pillsbury, were formally retained by Waggoner for the purpose of "(1) tracing the assets of [SSBT], and (2) recovering, through legal action to be commenced in one or several jurisdictions, any amounts due and owing to [JVW]."
Notice of Motion by all Defendants to Dismiss Verified Amended Complaint, Ex. D.
The Complaint alleges that shortly thereafter, Kelleher provided Caruso with information regarding SSBT's and BTCB's assets totaling over $10 million, which could be reached by attachment or Mareva injunction (a foreign order freezing assets). Plaintiffs allege that Caruso ignored this information and instead persuaded Waggoner to fire Kelleher.
On August 16, 1999, Correspondent Services Corporation ("CSC"), the holder of the CD, filed an interpleader action in the United States District Court for the Southern District of New York regarding the competing claims to the CD. CSC named as interpleader defendants in the action Kelleher, First Equity Corporation of Florida ("FECF"), and Plaintiffs. However, the CD that was the subject of the action had expired and the funds had been moved to another CD; therefore, the CD that was the subject of the action had no value, and the action was ultimately dismissed for lack of subject matter jurisdiction. Correspondent Servs. Corp. v. J.V.W. Invs. Ltd., 205 F. Supp. 2d 191 (S.D.NY 2002), vacated, 338 F.3d 119 (2d Cir. 2003), dismissed, 2004 U.S. Dist. LEXIS 19341, aff'd, 442 F.3d 767 (2d Cir. 2006). On October 21, 1999, Duperier wrote a letter to George Betts, an officer of BTCB, stating that there was nothing to be gained from informing the court that the CD was worthless; Caruso was copied on this letter.
FECF is a BTCB affiliate.
Sometime after the interpleader action was commenced, Caruso hired Duperier and Brazie as consultants, to be reimbursed by Waggoner, while Duperier was identifying herself as BTCB's agent and/or officer, and Brazie was still the Vice President of BTCB. The complaint alleges that Duperier and Brazie's services appeared on invoices starting in January 2003, until late 2004.
In March 2000, Caruso requested that Waggoner sign an affidavit stating that Waggoner had received approximately $7.7 million of the original $10 million. Waggoner signed the affidavit, though Plaintiffs now allege that Waggoner never actually received any money, and that Caruso was aware of that fact. However, Defendants have submitted a letter dated August 12, 2004, from Caruso to Waggoner's personal attorney, Larry Wallace ("Wallace"), stating that the $7.7 million had been returned, and attached to that letter are a number of bank statements indicating transfers made from SSBT to BTCB, and eventually a total amount of $7.7 million being credited to JVW's account at BTCB. In September 2000, Caruso added SSBT as a defendant in the interpleader action, seeking an attachment of $3 million, equaling the missing $2.3 million plus interest.
In February 2001, the Senate Committee on Investigations issued the "Minority Staff of the Permanent Subcommittee on Investigations Report on Correspondent Banking: a Gateway for Money Laundering" ("Senate Report"), which analyzed certain dealings with BTCB, and specifically included Waggoner's investment. The report discusses BTCB's use of a correspondent account at Citibank in the name of SSBT, and determines that millions of Plaintiffs' funds passed through an escrow account and were then transferred to Union Bank of Switzerland. According to the report, none of the funds were ever returned to Plaintiffs. The report also detailed a series of frauds in which BTCB had been involved. The Complaint alleges that Waggoner was never advised of the report or of its findings, and that BTCB agents Duperier and Brazie continued to be employed by Caruso and paid by Waggoner. Furthermore, the Complaint alleges that Caruso was asked by the Senate Committee to comment on the report, but declined, and that he never advised Waggoner of his refusal to comment.
Also in February 2001, BTCB's license was revoked, a receiver was appointed, and it entered liquidation. One month later, SSBT's license was revoked, and it too entered liquidation.
In August 2001, Caruso filed an affidavit in the interpleader action opposing requested depositions of Brazie, Betts, and others, which were allegedly designed to trace the $10 million.
In November 2001, Rodolfo Requena ("Requena"), chairman of BTCB, and president of BTC Financial Services, whose primary subsidiary is FECF, pleaded guilty to federal money laundering charges in the Southern District of Florida. The Complaint alleges that Caruso agreed to represent Requena and never disclosed this fact to Plaintiffs; however, Defendants point out that none of the Defendants are listed as counsel for Requena on the docket in his proceeding, because no retention agreement was ever made.
Also in November 2001, Caruso left Pillsbury and relocated to Chadbourne. In January 2002, Pillsbury and Chadbourne agreed to share in any proceeds obtained under the terms of the previously agreed upon contingency fee between Caruso and Plaintiffs. The federal interpleader action was dismissed for lack of subject matter jurisdiction on March 30, 2002. Plaintiffs allege in their brief that the district court imposed SSBT's attorney fees on Waggoner because Waggoner, represented by Caruso, knew or had reason to know that subject matter jurisdiction was lacking, and thus that the attachment was wrongful. The decision in the interpleader action was appealed, and the Second Circuit vacated the decision and remanded to the district court for clarification of its ruling in 2003. In 2004, the district court once again dismissed the action, and in 2006 the Second Circuit affirmed. Defendants have submitted correspondence sent between Caruso and Wallace during the summer of 2004. In a letter dated June 18, 2004 from Wallace to Caruso, Wallace suggests that there is evidence of fraud or collusion between BTCB, SSBT, and Kelleher, and that Plaintiffs may have a claim against BTCB. The letter also suggests that communication between Wallace and Caruso is protected by attorney client privilege, as they both represent Waggoner; in a subsequent letter from Caruso dated July 27, 2004, Caruso agreed that their communications were privileged. On July 29, 2004, Wallace was sent a copy of Kelleher's deposition, and accompanying exhibits, from another Chadbourne attorney. On August 12, 2004, Caruso sent a letter to Wallace outlining the transfers that were made out of SSBT accounts, and the matching amounts credited to JVW's account at BTCB, which totaled about $7.7 million. On August 19, 2004, Wallace sent Caruso an e-mail explaining that Waggoner may have claims against the English firm that initially held the $10 million in escrow, as well as noting that statutes of limitations may have barred many of Waggoner's other claims.
In May 2005, Caruso joined Bracewell, and Bracewell replaced Chadbourne as Plaintiffs' counsel. In May 2006, Waggoner discharged Caruso and Bracewell. Following this discharge, Plaintiffs filed their original complaint against Defendants on July 2, 2007. Plaintiffs then filed the Amended and Verified Complaint on February 28, 2008. This motion ensued.
It is well settled that on a motion to dismiss pursuant to CPLR § 3211, the allegations in the complaint must be accepted as true, the court must grant plaintiffs the "benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory." Goldman v. Metro. Life Ins. Co. , 5 NY3d 561, 570-71 (2005) (citations omitted). Allegations that consist of "bare legal conclusions" or that are "inherently incredible," however, need not be accepted as true. See, e.g., Beattie v. Brown Wood, 243 AD2d 395, 395 (1st Dep't 1997) (citations omitted). Under CPLR § 3211(a)(1), a dismissal "may be granted where the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Goldman, 5 NY3d at 571.
This Complaint contains four causes of action against all Defendants. The first cause of action is malpractice; the second is breach of fiduciary duty; the third is fraud; and the fourth is conspiracy to commit fraud. I address each of the causes of action, and the bases for its dismissal, in turn.
The Malpractice Claim
A plaintiff in a legal malpractice action must show "that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff and that the plaintiff would have succeeded on the merits of the underlying action but for' the attorney's negligence." AmBase Corp. v. Davis Polk Wardwell , 8 NY3d 428, 434 (2007) (citations omitted).
Pillsbury alone raises a statute of limitations defense. Under CPLR § 214(6), a legal malpractice action must be commenced within three years. Accrual occurs upon commission of the malpractice, not upon discovery. See, e.g., McCoy v. Feinman, 99 NY2d 295, 301 (1996). Pillsbury argues that since its representation of Plaintiffs ended in 2001, the three-year statute of limitations had already expired by 2004, well before this Complaint was filed, in 2007. Plaintiffs, however, argue that there are two grounds on which the statute of limitations in this case should be tolled: the continuous representation doctrine and equitable estoppel.
"The rule of continuous representation tolls the running of the Statute of Limitations on the malpractice claim until the ongoing representation is completed." Glamm v. Allen, 57 NY2d 87, 94 (1982). Pillsbury argues that Caruso's continuous representation of Plaintiffs until 2006 does not mean that the limitations period should be tolled as to Pillsbury, citing Tiffany Gen. Holding Corp. v. Speno, Goldberg, Steingart, Penn, P.C., 278 AD2d 306 (2d Dep't 2000), which states that the continuous representation doctrine is "limited to situations in which the attorney who allegedly was responsible for the malpractice continues to represent the client in that case." Id. at 307-08. Hence, Pillsbury argues that since it did not continue to represent Plaintiffs, the doctrine cannot apply.
Pillsbury further argues, relying on Pollicino v. Roemer Featherstonhaugh P.C., 260 AD2d 52, 54-55 (3d Dep't 1999), that the policy behind the continuous representation doctrine is to afford the party who allegedly committed the malpractice an opportunity to identify and correct the error, as that party is in the best position to do so. However, once the relationship ends, mitigation of any errors is no longer possible. Therefore, Pillsbury argues that when Caruso left, he took Plaintiffs and their case file with him; as a result, Pillsbury was no longer in a position to correct its error.
Lastly, Pillsbury argues that no court in New York has ever addressed the issue of applying the continuous representation doctrine to the former firm of an attorney who left that firm and took the client with him. The only known court that has addressed the issue is the Supreme Court of California, in Beal Bank, SSB v. Arter Hadden, LLP, 167 P.3d 666 (Cal. 2007). There, the Court denied application of the continuous representation doctrine on similar facts, reasoning that the firm in such a situation loses all ability to mitigate, and there no longer exists a relationship between the client and the firm that would be disrupted by the client bringing a malpractice claim. See id. at 671 (explaining that a purpose of the continuous representation doctrine is to avoid disruption of the relationship by a lawsuit).
In response, Plaintiffs frame the issue as a question of first impression and argue that the policy behind the continuous representation doctrine supports their position that the doctrine should be extended to firms even after they have been discharged, so long as the same attorney continues to represent the client. Plaintiffs contend that the goals of the doctrine, to preserve the attorney-client relationship and give the attorney a chance to mitigate his error, are best served by its extension. Plaintiffs suggest that here, had Waggoner sued Pillsbury while still being represented by Caruso, Pillsbury would have then impleaded Caruso, and the attorney-client relationship would have been ruined. Furthermore, Plaintiffs argue that there was no way for them to have known that a claim existed against Pillsbury, since they were still being represented by the same attorney, Caruso, and that they were justified in reposing trust and confidence in his representation.
Plaintiffs also cite Pollicino to illustrate the "two-fold rationale" for the continuous representation doctrine: "[1] the client has a right to repose confidence in the professional's ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered' [2] [n]either is a person expected to jeopardize his pending case or his relationship with the attorney handling that case during the period that the attorney continues to represent the person." Pollicino, 260 AD2d at 54 (citing Glamm, 57 NY2d at 93-94).
Plaintiffs further argue that Beal Bank should not be followed because California has codified the continuous representation doctrine, and the California Supreme Court in that case was bound by statutory language, which specifically refers to an attorney continuing to represent a client, and makes no mention of tolling as to law firms. See Cal. Civ. Proc. Code § 340.6 (Deering 2008).
Finally, Plaintiffs cite another proposition found in Pollicino stemming from the continuous treatment doctrine in medical malpractice cases, from which the continuous representation doctrine originates, i.e., when an agency relationship exists between two caregivers, continuous treatment by one is imputed to the other to toll the statute of limitations. 260 AD2d at 56. Plaintiffs argue that here, Caruso's continued representation of Plaintiffs should be imputed to Pillsbury because there existed an agency relationship between Caruso and Pillsbury. Plaintiffs also argue that there existed an agency relationship between Pillsbury and Chadbourne, due to a fee agreement between the two firms.
Contrary to Plaintiffs' characterization of the Beal Bank case, the holding was not exclusively based on strict statutory interpretation, but also on policy concerns. The Court recognized that attorneys have a professional obligation to disclose their own acts of malpractice to their clients, and observed that
[T]o the extent current counsel do breach that obligation, it will do nothing to reduce their own liability, as their own ongoing representation will continue to toll the limitations period on claims against them; it will instead simply increase the risk that when the client does sue, current counsel and current counsel alone will be forced to bear responsibility for any errors.
167 P.3d at 673. The Court noted that its decision would create "an additional incentive for counsel to fulfill their fiduciary duties." Id.
While a California decision is not controlling on a New York court, the policy considerations raised in Beal Bank are persuasive. Attorneys do have an obligation to disclose their own acts of malpractice to their clients, see, e.g., In Re Tallon, 86 AD2d 897, 898 (3d Dep't 1982); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 20 cmt. c (2000) ("If the lawyer's conduct of the matter gives the client a substantial malpractice claim against the lawyer, the lawyer must disclose that to the client."), and clients would be better served by attorneys who are more forthcoming about their errors than by a system where attorneys hide their errors because they believe that liability will rest on the attorneys' former firms.
The policy of affording the attorney or the firm an opportunity to mitigate its error is also important. The attorney representing the client is in the best position to "identify and correct his or her malpractice." McDermott v. Torre, 56 NY2d 399, 408 (1982) (discussing policy of mitigation in continuous treatment doctrine). Once the relationship ends, the ability to mitigate vanishes. Here, once Caruso left, Pillsbury was no longer in a position to mitigate any alleged malpractice he committed. When Caruso left, he took the clients and their files with him. Furthermore, as Plaintiffs admit, Caruso had assembled a team to help him work on Plaintiffs' case, and when he left Pillsbury, he took that entire team with him as well, thus leaving no one at Pillsbury who was even familiar with the case and who would have been able to mitigate the effects of any alleged malpractice.
Moreover, Plaintiffs' argument that a suit brought by Plaintiffs against Pillsbury would have ruined the relationship between Caruso and Plaintiffs misses a crucial point: if Plaintiffs believed that Caruso had committed malpractice while at Pillsbury, then Plaintiffs would have most certainly not only filed suit against Pillsbury, but would have discharged Caruso and filed suit against him as well. After all, it is highly doubtful that Plaintiffs would have wanted Caruso to continue to represent them even after they would have learned that he injured them by committing malpractice. Thus, it makes no difference where Caruso was, or for whom he happened to be working at the time that Plaintiffs discovered any alleged malpractice; Plaintiffs would most likely have terminated the relationship themselves at that point, by filing suit against Caruso, and the scenario of Pillsbury impleading Caruso would have never arisen.
In addition, Plaintiffs have misapplied the "two-fold rationale" of the continuous representation doctrine. The purpose of the doctrine, as stated in cases such as Pollicino, is to preserve the client's existing relationship. See 260 AD2d at 54; see also Shumsky v. Eisenstein, 96 NY2d 164, 167-68 (2001). The doctrine "appreciates the client's dilemma if required to sue the attorney while the latter's representation on the matter is ongoing." Id. at 167. However, once "that relationship ends, for whatever reason, the purpose for applying the continuous representation rule no longer exists." Glamm, 57 NY2d at 94. Here, when Caruso left Pillsbury, Waggoner had a choice: he could have continued his relationship with Pillsbury, or he could have continued his relationship with Caruso, by following him to his next firm. Waggoner chose to continue his relationship with Caruso, thereby ending his relationship with Pillsbury. The policies behind the continuous representation doctrine then cease to be operative as far as Pillsbury is concerned, because there simply was no continued representation. To hold otherwise would be to expose law firms to open-ended liability by creating uncertainty as to when potential claims have actually been extinguished by the statute of limitations.
Beal Bank noted that this may also have the effect of driving up the costs of malpractice insurance. 167 P.3d at 672.
Plaintiffs also have misinterpreted the holding in Pollicino. There, the plaintiff-client had forged his relationship with the firm, not with the attorney who left. Thus, the statute of limitations was tolled because the firm continued to represent the client in the same matter, and the tolling was imputed to the attorney because the attorney was an agent of the firm at the time the malpractice occurred. Pollicino, 260 AD2d at 55-56. Similarly here, Plaintiffs retained Pillsbury, the law firm, rather than Caruso, the individual. Once Plaintiffs followed Caruso to Chadbourne, the relationship between Plaintiffs and Pillsbury was terminated, and a new relationship began between Plaintiffs and Chadbourne.
Plaintiffs' agency relationship argument, i.e. Caruso as an agent of Pillsbury, arises from a further misinterpretation of a portion of the Pollicino decision which stems from Watkins v. Fromm, 108 AD2d 233 (2d Dep't 1985), a medical malpractice case applying the continuous treatment doctrine. The facts in Watkins were similar to those in Pollicino: a patient sought to impute continuous treatment of a patient by a medical group to doctors who had departed the group before the treatment had ended, but who had, indeed, treated the patient and allegedly committed malpractice, before their departure. Watkins, 108 AD2d at 233-37. The Court relied on the participation of the doctors in the medical group during the time of the alleged malpractice to impute the continuous treatment doctrine to the departed doctors; in other words, the continuous treatment doctrine was extended to the departed doctors to toll the statute of limitations on acts of malpractice committed while they were agents of the group. Id. at 239-43. Pollicino followed the logic of that decision, tolling the statute of limitations against the departed attorney because he had been an agent of the law firm that had continuously represented the client, at the time of the representation. Neither Pollicino nor Watkins ever suggested, however, that the statute of limitations would be tolled against a principal in the opposite scenario, which exists here.
The situation here can be further distinguished. In Pollicino, the defendant attorney was one of several attorneys who had worked on the plaintiff's case. 260 AD2d at 55. Likewise in Watkins, a group of doctors, of which the departed defendant doctors were only a part, had been treating the plaintiff. 108 AD2d at 234-36. Here, however, the entire team of attorneys that had been working on Plaintiffs' case departed, and Plaintiffs followed that team to their new firm. The opportunity to mitigate, an important factor in the development of the continuous representation doctrine, see McDermott, 56 NY2d at 408, was simply not possible. In a situation such as Pollicino or Watkins, the departed agent can notify the former client/patient, or the former principal, of the error that the agent committed at the time; in the opposite situation presented here, that was simply not possible, because there was nobody at Pillsbury who could have done anything to mitigate Plaintiffs' alleged loss. This factor weighs against applying the continuous representation doctrine to Pillsbury. See Pollicino, 260 AD2d at 55-56 (discussing the importance of ongoing efforts at the law firm to mitigate the departed attorney's error in tolling the statute of limitations against that attorney under the continuous representation doctrine).
Plaintiffs' argument that Pillsbury and Chadbourne entered into an agency relationship by virtue of their fee-sharing agreement is unpersuasive. That agreement is more accurately analogized to an accounts receivable, and merely served as an acknowledgment by Chadbourne that any recovery by Plaintiffs would have been somewhat owing to work that had already been done at Pillsbury. There is no allegation made by Plaintiffs that Pillsbury still exercised any control over, nor had any input into, the handling of the case. Absent any such allegations, the agreement as described does not rise to the level of an agency relationship.
Hence, Plaintiffs' argument that the continuous representation doctrine should toll the statute of limitations as to Pillsbury is rejected.
As to Plaintiffs' contention that the doctrine of equitable estoppel should toll the statute of limitations, "[i]t is the rule that a defendant may be estopped to plead the Statute of Limitations where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action." Simcuski v. Saeli, 44 NY2d 442, 448-49 (1978) (citing General Stencils v. Chiappa, 18 NY2d 125, 127-28 (1966)). Plaintiffs allege that the employment of Duperier and Brazie constituted a conflict of interest, and that the concealment of such conflict amounted to fraud that deterred Plaintiffs from filing a timely action. Plaintiffs also allege that Defendants "actively discouraged an attempt by a friend of Mr. Waggoner to assert a claim against SSBT on his behalf", and that Defendants maintained a myth that Plaintiffs had recovered $7.7 million of their initial investment. According to Plaintiffs, concealment of these facts caused them to be unaware that a malpractice action had accrued, until Caruso was discharged in 2006. Plaintiffs claim that this amounted to fraudulent concealment, and that as a result, Pillsbury should be estopped from pleading the statute of limitations as a defense. Plaintiffs further argue that the question of whether facts were concealed from Plaintiffs, such that Pillsbury should be estopped from pleading the statute of limitations as a defense, is one of fact, not of law, and therefore is not a proper issue on a motion to dismiss.
(Plaintiffs' Memorandum of Law in Opposition at 28). It appears from the complaint that the "friend" referred to is Kelleher. (Complaint ¶ 27-28.)
Though Plaintiffs state that Defendants should be estopped from raising the statute of limitations as a defense, only Pillsbury actually raises the defense.
In response, Pillsbury argues that the alleged act of misrepresentation or concealment forming the basis of the equitable estoppel argument may not be the same as the underlying cause of action. Pillsbury argues that here, the same facts are used to support both the malpractice claim and the equitable estoppel argument: namely, the alleged failure to disclose certain facts that could have led to recovery of Plaintiffs' investment. Furthermore, Pillsbury argues that Plaintiffs were on notice of the facts that form the basis of the alleged fraud by June 2004, as a result of correspondence between Caruso and Waggoner's personal attorney, Wallace. This would have been more than three years before this action was filed, and Pillsbury argues that Plaintiffs therefore cannot claim that it is equitably estopped from raising the statute of limitations as a defense.
Equitable estoppel will not toll the statute of limitations "where plaintiffs possessed timely knowledge sufficient to have placed them under a duty to make inquiry and ascertain all the relevant facts prior to the expiration of the applicable statute of limitations." Rite Aid Corp. v. Grass , 48 AD3d 363, 364-65 (1st Dep't 2008) (citing Gleason v. Spota, 194 AD2d 764, 765 (2d Dep't 1993)). Here, Plaintiffs admit in their pleading that they were aware of the employment of Duperier and Brazie, because Duperier's and Brazie's services appeared on invoices sent to Plaintiffs, from Defendants. (Complaint ¶ 39.) Since Plaintiffs were aware of the employment, they cannot claim concealment of it, and they cannot rely on it to form the basis of an equitable estoppel argument, as this would certainly constitute "timely knowledge."
Furthermore, Plaintiffs allege that the employment of Duperier and Brazie did not occur until 2002; however, Pillsbury only represented Plaintiffs until November 2001. Therefore, it is unclear why Plaintiffs even make this allegation against Pillsbury.
Plaintiffs' argument regarding discouragement of Waggoner's friend from filing a claim against SSBT on Waggoner's behalf also cannot form the basis of equitable estoppel. First, it is not clear how this prevented Plaintiffs from filing a timely malpractice claim. Second, since Waggoner's friend would have needed Waggoner's consent in order to file the claim on his behalf, Waggoner's friend must have advised Waggoner of such claim. Waggoner would then have been on notice that such an action may exist, and therefore would have been under a duty to investigate. See Simcuski, 42 NY2d at 450-51 (holding that due diligence on the part of the plaintiff is an essential element of equitable estoppel).
Finally, the element of due diligence eliminates from consideration the third argument that Plaintiffs make in support of equitable estoppel: the misrepresentation that Plaintiffs had recovered $7.7 million of their initial investment. Before Caruso handed Waggoner an affidavit for his signature stating that Waggoner had recovered a portion of the initial investment, Waggoner should have investigated whether he actually had received any of that money. Indeed, Waggoner was in the best position to know whether he had recovered any money, and the idea that Waggoner would have been justified in relying on a representation that he had received money when he in fact had not is, charitably speaking, dubious. See id. at 449 (stating that plaintiff must establish elements of reliance on the misrepresentation as the cause of his or her failure to sooner institute the action and justification for such reliance).
Even if Plaintiffs' allegations met the requirements of due diligence, the equitable estoppel argument would still fail because equitable estoppel "is triggered by some conduct on the part of the defendant after the initial wrongdoing; mere silence or failure to disclose the wrongdoing is insufficient." Ross v. Louise Wise Servs., Inc. , 8 NY3d 478, 491-92 (2007) (quoting Zoe G. v. Frederick F.G., 208 AD2d 675, 675-676 (2d Dep't 1994)). Plaintiffs' equitable estoppel argument must be premised on facts different than those that make up the malpractice claim itself: "the later fraudulent misrepresentation must be for the purpose of concealing the former tort." Id. at 491 (citing Zumpano v. Quinn , 6 NY3d 666 , 674 (2006)). Otherwise, the statute of limitations for legal malpractice would have no effect, because any attorney who fails to disclose his malpractice, or who commits malpractice by some act of nondisclosure, would be estopped from asserting the statute of limitations as a defense. Here, the allegations in support of equitable estoppel essentially are the same ones made in support of the malpractice claim; these allegations merely provide support for Defendants' alleged negligence, and do not establish that Pillsbury actively deterred Plaintiffs from filing a malpractice claim.
Lastly, Plaintiffs' argument that determination of whether Pillsbury should be estopped from asserting the statute of limitations as a defense is a question of fact, not of law, is unpersuasive. Therefore, Plaintiffs' equitable estoppel argument is rejected, and Plaintiffs' malpractice claim against Pillsbury is dismissed.
All Defendants collectively argue that Plaintiffs have failed to plead all the elements of a malpractice claim. Specifically, Defendants argue that Plaintiffs have failed to allege but-for causation. Defendants put forth three arguments to support their position.
First, Defendants argue, contrary to Plaintiffs' assertion that Caruso failed to bring a recovery action, that Caruso did assert cross-claims against SSBT in the federal interpleader action. Second, Defendants argue that Plaintiffs have failed to plead a case within a case as to a claim against BTCB. Defendants assert that they had no reason to know of any meritorious claims against BTCB, and that in any event, Plaintiffs have not identified any such claim that should have been brought, or where it should have been brought; Plaintiffs have only made vague, conclusory allegations. Third, Defendants argue that BTCB's liquidation was a superseding cause of Plaintiffs' loss.
Finally, Defendants claim that to meet the causation element, Plaintiffs must show that but for the malpractice, the debt could have or would have been collected. In support of this argument, Defendants cite Vooth v. McEachen, 181 NY 28 (NY 1905). Defendants also point out that three of the four departments of the Appellate Division require a showing of collectability, with only the First Department holding otherwise in Lindenman v. Kreitzer , 7 AD3d 30 (1st Dep't 2004).
Defendants make the collectability argument in order to preserve the issue for appellate review. (Def. Mem. 15 n. 6.)
In response, Plaintiffs argue that the cross-claim brought against SSBT was improper because the federal court lacked subject matter jurisdiction, and the court imposed attorney fees on Waggoner as a result of bringing the wrongful attachment action, causing Plaintiffs damage in excess of $3 million. Plaintiffs contend that this part of their malpractice claim is adequately pleaded because actions taken by attorneys, which cause damage to the client in the form of forcing the client to pay fees to the other side, constitute malpractice.
Plaintiffs further argue that Defendants did have reason to know of meritorious claims against BTCB because HYIPs are inherently fraudulent, and as a person who held himself out as an expert in the field, Caruso should have known that, and should have brought a claim against the party that induced Waggoner to invest in this fraudulent scheme, BTCB. Furthermore, Plaintiffs argue that the Senate Report, of which Caruso was aware because he was asked to comment on it, also should have put Caruso on notice of a potential claim against BTCB. Plaintiffs claim that they have adequately pled a case within a case, as the complaint states that either a Mareva injunction or traditional attachment actions should have been filed prior to 2001.
Plaintiffs also allege that the employment of Duperier and Brazie presented a conflict of interest, which should have been disclosed to Plaintiffs. Plaintiffs allege that the concealment of this conflict constitutes malpractice.
Additionally, Plaintiffs argue that liquidation was not a superseding cause of their loss, because Caruso was retained three years before BTCB entered liquidation; therefore, a proper claim should have been brought before then. Lastly, Plaintiffs argue that I should follow Lindenman, as I am bound to do, in determining that a showing of collectability is not necessary.
"To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer's negligence." Rudolf v. Shayne, Dachs, Stanisci, Corker Sauer , 8 NY3d 438, 442 (2007). A plaintiff's burden in a legal malpractice case is "a heavy one. The plaintiff must prove first the hypothetical outcome of the underlying litigation and, then, the attorney's liability for malpractice in connection with that litigation." Lindenman, 7 AD3d at 34. This means the plaintiff must prove a "case within a case." See, e.g., id.
In an effort to allege a case within a case, Plaintiffs here have alleged Caruso's failure to investigate and institute recovery actions against BTCB and SSBT; however, Plaintiffs have not alleged in their complaint what exactly those actions were supposed to be, nor have they made allegations regarding the hypothetical outcome of such suits. While Plaintiffs do specifically state that a Mareva injunction or a traditional attachment should have been sought, Defendants point out that no allegation is made as to where such a suit should have been brought, and again, Plaintiffs make no allegations as to the hypothetical outcome.
Furthermore, while it is clear that Plaintiffs believe Defendants should have attached BTCB's assets in the course of some action, it is not clear at all what exactly that action should have been. Without such an allegation, an essential element of a legal malpractice claim is missing. As a result, Plaintiffs' argument that Defendants were on notice of a claim against BTCB fails, because Plaintiffs have not pleaded what claim Defendants should have been aware of. Since Plaintiffs have not met the case within a case requirement, I do not need to reach the issue of whether the liquidation was a superseding cause of Plaintiffs' loss, nor do I need to reach the issue of collectability.
Defendants also point out that in their original complaint, Plaintiffs had alleged that they were defrauded by BTCB, but they chose not to include that allegation in their amended complaint. While the contents of the original complaint are not at issue here, Defendants' observation still raises a relevant question as to what exactly the claim against BTCB would have been.
Plaintiffs also argue that the damages they suffered in the form of payment of attorney fees to SSBT due to the wrongful attachment in the federal interpleader action are recoverable, but they do not adequately set forth in the Complaint the way in which Defendants' alleged malpractice caused them to lose the amount paid in attorneys' fees, nor that but for the Defendants' actions, such a loss would not have occurred. In other words, Plaintiffs have not fulfilled the case within a case requirement.
Furthermore, while it is true that a plaintiff's damages in a legal malpractice action need not be limited to the value of the underlying claim, these other damages typically include "litigation expenses incurred in an attempt to avoid, minimize, or reduce the damage caused by the attorney's wrongful conduct." see Rudolf, 8 NY3d at 443 (quoting DePinto v. Rosenthal Curry, 237 AD2d 482, 482 (2d Dep't 1997)) (awarding damages for cost of hiring new counsel, pursuing appeal, and retaining expert). Here, the attorney fees paid by Plaintiffs were not incurred in any such attempt. Finally, in Rudolf, the plaintiff still met the case within a case requirement, see Rudolf, 8 NY3d at 443; here, Plaintiffs have simply failed to allege causation. No court has awarded damages to a legal malpractice plaintiff without a showing of causation, and to hold otherwise would be to render the case within a case requirement meaningless.
Lastly, there is Plaintiffs' allegation regarding employment of Duperier and Brazie. This allegation is puzzling for two reasons. First, Plaintiffs make no allegation regarding, nor do they explain, how this employment caused them damage. There is no allegation that but for this employment, Plaintiffs would have either succeeded in an underlying claim, nor is there an allegation that but for this employment Plaintiffs would not have suffered some other sort of actual damage. Second, the allegation that the employment was concealed from Plaintiffs directly contradicts another allegation in the Complaint: that Duperier's and Brazie's services were included in several invoices sent to Plaintiffs. (Complaint ¶ 39.) Clearly, the employment was not concealed if it was disclosed on invoices sent to Plaintiffs. Therefore, the argument that concealment of Duperier's and Brazie's employment constituted malpractice must be rejected.
Thus, the malpractice claim is dismissed as to all Defendants on the grounds that causation has not been adequately pleaded, and it is further dismissed as to Pillsbury on the grounds that it is time-barred.
Chadbourne and Bracewell additionally argue that the malpractice cause of action does not apply to them because no acts of malpractice are alleged during the time that either of them was retained. They point to the allegation in the complaint that Caruso failed to investigate and institute proper recovery actions " prior to 2001." (Complaint ¶ 42) (emphasis added). Since Chadbourne was retained in November 2001, and Bracewell in May 2005, they argue that this allegation does not pertain to either of them. Furthermore, they argue that Plaintiffs allege no negligent acts or omissions of Chadbourne or Bracewell that caused damage to Plaintiffs.
Plaintiffs argue in response that while at Chadbourne, Caruso continued to employ and harbor Duperier and Brazie. Plaintiffs also cite their allegation that during this time the improper attachment action that eventually caused Waggoner to pay attorney fees to SSBT was ongoing. Plaintiffs also argue that attorneys have a duty to disclose their acts of malpractice to their clients, and that the continued nondisclosure of prior malpractice at Chadbourne and Bracewell itself constituted malpractice.
Plaintiffs' argument that the employment of Duperier and Brazie somehow constituted malpractice has already been rejected, as has the argument regarding damages relating to the wrongful attachment action. The same logic applies here. Furthermore, as it specifically applies to Bracewell, the Complaint alleges that Plaintiffs were damaged by being compelled to pay "attorney fees to third parties that were incurred prior to December, 2003" (Complaint ¶ 68), which was before Bracewell was ever retained. As Bracewell cannot be held liable for actions that occurred before its retention, it cannot be held liable for the payment of attorney fees to SSBT.
Plaintiffs' final argument is that nondisclosure of Caruso's malpractice continued at Chadbourne and Bracewell. As far as Bracewell is concerned, there is nothing in the Complaint alleging causation between any alleged nondisclosure and damages suffered by Plaintiffs. The Complaint alleges failure to file claims prior to 2001. This preceded both Bracewell's and Chadbourne's retention. During argument, Plaintiffs conceded that the proper time to file an action was before 2001, before BTCB and SSBT had gone into liquidation, and Plaintiffs' money was still available for recovery. (Hr'g Tr. 67, June 2, 2008.) Hence, it also has not been explained by Plaintiffs how, nor does it seem possible that, Bracewell's alleged nondisclosure was in any way a but-for cause of any loss suffered by Plaintiffs, since the loss had already been suffered before Bracewell's retention.
This same logic can be applied to Chadbourne, in connection with any alleged nondisclosure of failure to file proper claims prior to 2001. The allegation that a claim should have been brought prior to 2001 can only be construed to be an allegation against Caruso and Pillsbury, and not Chadbourne and Bracewell. Therefore, Chadbourne and Bracewell cannot be held liable for any alleged damages arising out of failure to bring a claim prior to 2001, and for the additional reasons stated, the entire malpractice claim against Chadbourne and Bracewell is dismissed.
The Breach of Fiduciary Duty Claim
To establish a cause of action for breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship and a breach of the duty imposed by such a relationship that directly caused actual damages. See Weil, Gotshal, Manges LLP v. Fashion Boutique of Short Hills, Inc. , 10 AD3d 267, 271-72 (1st Dep't 2004). Where the only actual damage alleged is the value of a lost claim, a plaintiff client must prove that he or she would have prevailed in the underlying action but for the attorney's conduct. Weil, 10 AD3d at 271-72. In other words, as in a malpractice claim, the plaintiff must meet the case within a case requirement. Id.
As with the malpractice claim, Pillsbury raises a statute of limitations defense to the breach of fiduciary duty claim. In response, Plaintiffs, as with the malpractice claim, argue that the continuous representation doctrine tolls the statute of limitations, and that Pillsbury should be equitably estopped from pleading the statute of limitations. As these arguments are identical to the ones in support of the malpractice claim, they are rejected on identical grounds and need not be repeated.
Alternatively, Plaintiffs argue that a six-year statute of limitations should be applied here, rather than the three-year statutory period, because they allege that Pillsbury's breach of fiduciary duty in this case amounted to actual fraud.
Breach of fiduciary duty claims at law carry a three-year statutory period, because they are viewed as "injury to property" within CPLR § 214. Kaufman v. Cohen, 307 AD2d 113, 118 (1st Dep't 2003). However, breach of fiduciary duty claims based on allegations of actual fraud carry a six-year statutory period, although the fraud claim must be more than only incidental to the breach of fiduciary duty claim. Id. at 119. Thus, the fraud claim must be essential to the breach of fiduciary duty claim, and the application of the six-year statutory period will therefore turn on the viability of the fraud claim. Id. (quoting Brick v. Cohn-Hall-Marx Co., 276 NY 259, 263-65 (1937)).
Here, there is no allegation within the breach of fiduciary duty claim that rises to the level of actual fraud. Plaintiffs again allege nondisclosure of Duperier's and Brazie's employment, but, as already discussed, this employment was actually disclosed. Plaintiffs also allege that Pillsbury failed to disclose that Duperier and Brazie had a romantic relationship with each other. However, Plaintiffs provide no explanation as to how this constitutes fraud; in fact, during argument, Plaintiffs conceded that this allegation has little relevance. (Hr'g Tr. 60, June 2, 2008.)
Plaintiffs also allege that the failure to disclose improper negotiations with Requena constituted a breach of fiduciary duty. While this allegation will be discussed in further detail below, as far as its relevance to the statute of limitations issue is concerned, Plaintiffs fail to explain how, if at all, this particular allegation rises beyond a breach of fiduciary duty and reaches the level of actual fraud. There are no allegations of inducement, justifiable reliance, or injury, which are basic elements of fraud. See, e.g., Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 421 (1996) (finding no actionable fraud due to lack of inducement).
Thus, since the claim does not rise to the level of actual fraud, it must be subject to the three-year statutory period. See Kaufman, 307 AD2d at 118-19. Pillsbury's representation of Plaintiffs ended in 2001, and this action was not filed within three years of that date. Since Plaintiffs' arguments regarding tolling have been rejected, the breach of fiduciary duty claim against Pillsbury is dismissed as untimely.
Defendants argue that the alleged breach of fiduciary duty was not the but-for cause of Plaintiffs' losses. Defendants state that the loss alleged as a result of the breach is the lost $10 million investment; however, that investment was lost prior to 2001, and the alleged breach occurred only after 2001. Therefore, the breach could not have possibly caused the damage alleged.
Plaintiffs allege three acts to form the basis of their breach of fiduciary duty claim. First, they allege that the employment of Duperier and Brazie created a conflict of interest which caused Plaintiffs to lose $10 million. Second, Plaintiffs allege that failure to disclose or investigate the relationship between Duperier and Brazie constituted a failure to act in Plaintiffs' best interest, because "the Defendants owed the Plaintiffs full and prompt disclosure of the complete facts." (Plf. Opp. Mem. 32 [emphasis in original], citing National Union Fire Ins. Co. of Pittsburgh, Pa. v. Red Apple Group, Inc., 273 AD2d 140 (1st Dep't 2000)). Third, they argue that the failure to disclose negotiations with Requena, a person whose interests were adverse to Plaintiffs', is conclusive evidence of a breach of fiduciary duty. Plaintiffs allege that the resulting damage was the loss of their $10 million investment, and that they are also entitled to disgorgement of fees paid to Defendants, which exceeded $1 million.
It is unclear how, and indeed, Plaintiffs cannot prove that, the employment of Duperier and Brazie caused their loss of the $10 million investment. Plaintiffs have pleaded that the claims against BTCB and SSBT should have been filed prior to 2001; however, Duperier and Brazie were not employed until 2002, after Plaintiffs allege the claim was lost. Thus, the alleged conflict of interest stemming from the employment of Duperier and Brazie could not have caused the Plaintiffs to lose their investment, and the portion of the claim relying on such allegation must be dismissed.
Plaintiffs' pleadings also do not make clear how the alleged failure to investigate and disclose the relationship between Duperier and Brazie caused the loss of the $10 million investment. The Complaint itself does not even include an allegation that there existed a romantic relationship between the two. Even if such relationship did exist, there is simply nothing to support Plaintiffs' contention that it somehow led to the loss of $10 million. Presumably, the idea is that Defendants should have disclosed the relationship, and then Plaintiffs would have had the opportunity to bring some kind of claim. But, Plaintiffs fail to allege not only what type of claim would have been appropriate, but also that such claim would have been successful and resulted in the return of their $10 million investment. Plaintiffs thus do not meet the case within a case requirement. Therefore, the part of the claim relying on the allegation that failure to investigate or disclose the Brazie-Duperier relationship caused the $10 million loss is dismissed.
Plaintiffs have similarly failed to plead causation with respect to the allegation that Defendants did not disclose a conflict of interest in representing Requena. There is no allegation of what claim should have been filed, and no support for how this alleged representation caused Plaintiffs to lose the $10 million investment. This portion of the claim must likewise be dismissed.
Plaintiffs also assert that they are entitled to disgorgement of fees paid to Defendants as a result of the conflicts of interest created by employment of Duperier and Brazie and representation of Requena. Plaintiffs state that in breach of fiduciary duty actions where the relief sought is disgorgement of fees, causation of actual damages need not be proved. Plaintiffs cite Ulico Cas. Co. v. Wilson, Elser. Moskowitz, Edelman Dicker , 16 Misc 3d 1051, 1065 (NY Sup. Ct. 2007) (citing Feiger v. Iral Jewelry, 41 NY2d 928, 928-29 (1977)) for this proposition. Ulico, however, awarded the plaintiff-client disgorgement of fees by the defendant-firm, because the defendant had assisted in the conversion of the plaintiff's business to a competitor. Essentially, the defendant had advanced the business interests of some clients, to the detriment of one of its other clients, the plaintiff. See id. at 1059. Here, Plaintiffs have made no allegation that Defendants advanced the interests of Requena or anybody else, to the detriment of Plaintiffs. Moreover, whatever allegations Plaintiffs do make of Defendants' conflicting interests are wholly conclusory. The allegation appears to be that, because Duperier, Brazie and Requena worked for BTCB, any involvement between them and Defendants somehow compromised Defendants' zealous representation of Plaintiffs. But the allegations do not at all make clear why this would be the case. (Indeed, it is plausible to believe that BTCB had a significant interest in seeing the return of Plaintiffs' allegedly stolen $10 million investment as well.) As such, those allegations amount to no more than "bare legal conclusions" and are insufficient to maintain a claim. See Beattie v. Brown Wood, 243 AD2d 395, 395 (1st Dep't 1997).
In addition, it is true that "one who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary," Feiger, 41 NY2d at 928 (citation omitted), and that breach of fiduciary duty actions are meant not only to compensate a plaintiff, but also to deter commission of the wrong in the first place, see Diamond v. Oreamuno, 24 NY2d 494, 498 (1969) (holding that an allegation of damages to a corporation has never been an essential element in a breach of fiduciary duty action). However, "an attorney's failure to disclose a conflict of interest is not actionable absent allegations that such a failure proximately caused actual damages." Unger v. Paul Weiss Rifkind Wharton Garrison, 265 AD2d 156, 157 (1st Dep't 1999) (citation omitted) (emphasis added). Furthermore, in the context of attorney liability, the First Department has "never differentiated between the standard of causation requested for a claim of legal malpractice and one for breach of fiduciary duty." Weil, 10 AD3d at 271. Therefore, it is clear that the but-for standard must be applied to this case, and that Plaintiffs must show causation in order to recover. This they have not done.
Moreover, even the Ulico court noted that, on the facts before it, the breach of fiduciary duty claim was not "coextensive" with a malpractice claim, meaning that the breach of fiduciary duty claim was not, like the malpractice claim, premised on a conflict of interest that "compromised" the "level of advocacy," and thus led to a "less favorable trial outcome than would have been achieved absent the conflict." Ulico, 16 Misc 3d at 1065. Since the conflict of interest alleged there was not based on a claim of professional negligence, the court awarded disgorgement of fees without requiring satisfaction of the case within a case requirement.
Here, Plaintiffs' claim for breach of fiduciary duty is coextensive with their malpractice claim, as they both allege the lost $10 million as the damage caused. Clearly, Plaintiffs believe that the alleged conflicts of interest somehow led to the loss of their underlying claim, because they have pleaded the value of that claim as their injury. Thus, this situation can be distinguished from that in Ulico, as here, Plaintiffs seek to recover only the value of their lost claim. It is therefore clear that Plaintiffs must plead a case within a case. Weil, 10 AD3d at 271-72. Having failed to do so, Plaintiffs' claim that they are entitled to disgorgement of fees is dismissed.
Feiger and Diamond are distinguishable because they both involved defendants who had allegedly breached fiduciary duties for their own personal gain, rather than attorneys who had allegedly advanced the interests of one client over another. See Feiger, 41 NY2d at 928; Diamond, 24 NY2d at 496.
Finally, Plaintiffs argue that Defendants violated a disciplinary rule by not disclosing alleged conflicting interests. However, "a violation of a disciplinary rule does not generate a cause of action." William Kaufman Org., Ltd. v. Graham James LLP, 269 AD2d 171, 173 (1st Dep't 2000). Not having been able to demonstrate a causal link between Defendants' representation and the lost investment, Plaintiffs cannot bootstrap an alleged violation of a disciplinary rule into their breach of fiduciary duty claim. More is required. Cf. id. (reinstating a cause of action for breach of contract because the claim was based on more than solely a disciplinary rule violation). Since Plaintiffs fail to plead more than just a violation of the disciplinary rule, they have failed to state a cause of action on that basis.
Plaintiffs cite Avianca, Inc. v. Corriea, 705 F. Supp. 666 (D.D.C. 1989), for the proposition that a violation of a disciplinary rule under the Code of Professional Responsibility is conclusive evidence of a breach of fiduciary duty. See id. at 679. Not only is this decision not binding, and contrary to well-settled New York law, but Plaintiffs also fail to state that the subsequent appellate decision, which clarified that ruling, concluded that a violation of a disciplinary rule only creates a rebuttable presumption of a breach of fiduciary duty. See Avianca v. Corriea, 1995 U.S. App. LEXIS 30863, *5-6 (D.C. Cir. 1995) (emphasis added).
Therefore, the breach of fiduciary duty claim is legally insufficient and is dismissed as to all Defendants.
Defendants provide an alternative ground for dismissal of the breach of fiduciary duty claim, arguing that, to the extent it seeks recovery of the $10 million lost investment, the breach of fiduciary duty claim is duplicative of the malpractice claim, as it is based on the same operative facts and seeks the same damages.
Plaintiffs reply that the breach of fiduciary duty claim is independent of the malpractice claim because it focuses upon the duty of loyalty owed to Plaintiffs by Defendants, which was breached by promoting the conflicting interests of Duperier, Brazie, and Requena.
A breach of fiduciary duty claim "premised on the same facts and seeking the identical relief sought in the legal malpractice cause of action, is redundant and should be dismissed." Weil, 10 AD3d at 271 (citations omitted). Here, the facts on which the breach of fiduciary duty claim is premised, to the extent that it seeks recovery of the lost investment, are identical to the set of facts pled in support of the malpractice claim. Both claims allege nondisclosed employment of Duperier and Brazie, both claims plead a failure to disclose a relationship between Duperier and Brazie, and both claims plead improper negotiations with and representation of Requena. Thus, the portion of the claim seeking damages in the amount of the $10 million investment is duplicative.
Bracewell argues that Plaintiffs' Complaint cannot make out a cause of action for breach of fiduciary duty against it. Bracewell was retained in April 2005, and the employment of Duperier and Brazie last occurred in 2004. Furthermore, any alleged negotiations with, or representation of, Requena occurred in 2001. Bracewell argues that it therefore could not have possibly caused the $10 million loss alleged.
Bracewell also argues that there is no available remedy against it, because Plaintiffs could only recover disgorgement of fees; as Bracewell was never paid by Plaintiffs, this would be impossible. However, as already discussed, Plaintiffs' claim for disgorgement of fees has been dismissed, and I therefore do not need to reach this argument.
Plaintiffs argue that the nondisclosure of the acts alleged continued at Bracewell, although they provide no argument for causation that differs from those contained in the discussion above. As those arguments have already been rejected, they are likewise rejected here for the same reasons. It should also be noted that the only allegations against Bracewell are that the alleged wrongful acts committed by the other Defendants were not disclosed during the time of Bracewell's retention. However, Plaintiffs make no allegation as to how this caused them any damage. Therefore, the breach of fiduciary duty claim against Bracewell is dismissed for failure to adequately plead the claim. See Unger, 265 AD2d at 157 (finding that a failure to disclose conflicts of interest is not actionable absent allegations of causation of actual damages).
In accordance with the above discussion, the breach of fiduciary duty claim is dismissed as to Pillsbury on the ground that it is untimely, and as to all Defendants on the basis that it is insufficiently pled. An alternative basis for the dismissal of the portion of this cause of action seeking damages in the amount of the lost $10 million investment, is the fact that it is duplicative of the malpractice claim.
The Fraud Claim
To make out a cause of action for fraud, a plaintiff must show that the defendant made a misrepresentation which was false and which defendant knew to be false or made an omission of a material fact, for the purpose of inducing the plaintiff's reliance; and that the plaintiff justifiably relied on the misrepresentation or omission and suffered injury as a result. See, e.g., Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 421 (1996).
Plaintiffs have made several allegations in support of their fraud claim, and they have attempted to impute each allegation of fraud to each defendant by utilizing the theories of derivative liability and conspiracy. These allegations are, namely: Defendants' failure to disclose that the $10 million investment was stolen; Caruso's request that Waggoner sign an affidavit stating that Waggoner had received $7.7 million of his funds when Caruso knew that no such funds had been received; Caruso's failure to cooperate with the investigation leading up to the Senate Report; Defendants' failure to disclose that HYIPs are fraudulent; Defendants' employment of Duperier and Brazie; and Defendants' failure to disclose prior malpractice.
Defendants argue that no single defendant can be held liable for an act that occurred before any one of them was retained. Although Plaintiffs attempt to charge each of the Defendants with each of these allegations, they offer no argument as to why, other than stating well-settled principles of respondeat superior to impute Caruso's actions to the particular firm where he was employed at the time.
While an employer may be liable for acts committed by an employee acting in the scope of his employment, an employee only acts within the scope of his employment when "doing something in furtherance of the duties he owes to his employer and where the employer is, or could be, exercising some control, directly or indirectly, over the employee's activities." Lundberg v. State, 25 NY2d 467 (1969) (citations omitted).
Thus, the defendant law firms in this case cannot be held liable for acts that were taken by Caruso before he was employed by their respective firms, nor can they be held liable for acts taken once his employment with any of them had ceased. Once Caruso left a particular firm, that firm no longer exercised any control over him, and cannot be liable for his actions. Furthermore, Plaintiffs have not pleaded any "fraudulent connection" between any of the Defendant law firms that would potentially extend their liability. See Senrow Concessions, Inc. v. Shelton Properties, Inc., 10 NY2d 320 (1961). Therefore, Plaintiffs' argument regarding derivative liability is rejected, and the only acts that the Defendant law firms may be held liable for are those that are alleged to have taken place during the time of their particular retentions.
All Defendants argue that the fraud claim is not pleaded with sufficient detail, but is instead conclusory. Defendants argue that the allegations do not contain the required level of detail regarding the circumstances of the fraud, that there are no allegations made as to scienter, and no allegations regarding how Plaintiffs relied on any alleged misrepresentations, nor what damage was caused by such reliance.
Plaintiffs respond by arguing that each of their allegations has been pleaded with sufficient detail as to each element of fraud. Plaintiffs argue that the element of scienter is within the sole knowledge of Defendants, and thus the most difficult to prove, and most difficult to plead. Plaintiffs also argue that the issue of reliance cannot be determined on a motion to dismiss, and that Plaintiffs adequately pleaded reasonable reliance on Defendants' misrepresentations, which caused Plaintiffs to lose any opportunity to recover their lost $10 million investment.
Causes of action based on fraud or misrepresentation must state in detail the circumstances constituting the wrong. CPLR § 3016(b). The Court of Appeals has cautioned, however, that this requirement should not be "so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.'" Lanzi v. Brooks, 43 NY2d 778, 780 (1977) (quoting Jered Contracting Corp. v. New York City Transit Auth., 22 NY2d 187, 194 (1968)). The requirement of detail "may be met when the facts are sufficient to permit a reasonable inference of the alleged conduct." Pludeman v. N. Leasing Sys., Inc. , 10 NY3d 486, 492 (2008) (citations omitted). However, mere conclusory allegations are insufficient, see Greschler v. Gleschler, 51 NY2d 368, 375 (1980), as are mere recitations of the elements of fraud. See Friedman v. Anderson , 23 AD3d 163 , 166 (1st Dep't 2005).
Here, each allegation is missing detail regarding one or more circumstances constituting the fraud. First of all, the Complaint contains no allegations of how, specifically, Plaintiffs relied on any of the alleged misrepresentations or omissions made by Defendants. Instead, there is this blanket statement: "Plaintiff Waggoner reasonably and justifiably relied on those misrepresentations and/or nondisclosures and took the course of action advocated by Defendant Caruso and the Defendant Law Firms." (Complaint ¶ 86.) Detail is lacking as to how Waggoner relied on the misrepresentations or nondisclosures; in other words, Plaintiffs fail to allege, for example, that Waggoner changed his position, or chose not to take some other, more beneficial, course of action. Hence, the pleading does nothing more than recite the reliance element of fraud, and it is therefore insufficient to state a cause of action. See Friedman, 23 AD3d at 166.
Secondly, several allegations within the Complaint contain no detail regarding causation. "To establish a fraud claim, a plaintiff must demonstrate that a defendant's misrepresentations were the direct and proximate cause of the claimed losses." Id. at 167 (citation omitted).
Plaintiffs allege that Caruso refused to disclose that Plaintiffs' $10 million investment was stolen, even though such information certainly was within his knowledge. Plaintiffs also allege that Caruso's failure to cooperate with the investigation that provided the basis for the Senate Report, and failure to disclose the findings of that report, constituted fraud, as did his failure to disclose the fraudulent nature of HYIPs. However, Plaintiffs do not explain how any of this caused them damage, nor is it at all clear how any of this could have caused Plaintiffs to lose their investment. See id. (dismissing fraud claim for failure to adequately plead causation of lost investment). Thus, the part of the claim resting on these allegations is dismissed. Third, the allegation that Caruso asked Waggoner to sign an affidavit stating that he had received $7.7 million of his funds, when Caruso knew that no such funds were received, is devoid of any detail regarding inducement. See Laub v. Faessel, 297 AD2d 28, 31 (1st Dep't 2002) (holding that, to establish causation, plaintiff must show that defendant's misrepresentation induced plaintiff to take the course of action). There is no detail whatsoever as to how, or whether, Caruso or anybody else induced Waggoner to sign the affidavit. This part of the claim is therefore dismissed.
In connection with these allegations, Defendants argue that since these allegations were in the public knowledge, they could not have been concealed, citing Fabiano v. Philip Morris Inc., 16 Misc 3d 1130A (NY Sup. Ct. 2007). Fabiano held that "common knowledge," such as the dangers of smoking, cannot form the basis of fraudulent concealment. Id. While the kinds of government documents and reports at issue here may not be in the common knowledge in the same way that the dangers of smoking are, they are nevertheless public documents, and it is dubious that a sophisticated investor would not have been on notice of government reports and warnings regarding the very overseas investments that he or she was planning to make. Plaintiffs here must at least be charged with inquiry notice of the contents of those documents and warnings, because they were public. See Tayebi v. KPMG LLP, 18 Misc 3d 1139A (NY Sup. Ct. 2008) (holding that IRS announcement sufficient to put plaintiff on inquiry notice).
Finally, Plaintiffs allege that the employment of Duperier and Brazie constituted fraud, and they add that acts taken by Duperier and Brazie are imputable to all Defendants. As has been discussed, this employment was disclosed to Plaintiffs, and thus Plaintiffs cannot claim concealment. Furthermore, there is no legal support for Plaintiffs' proposition that mere employment of an individual amounts to fraud; Plaintiffs simply make a conclusory allegation that Duperier and Brazie were "co-conspirators," without providing any detail as to what is meant by "co-conspirators," or what, if anything, Duperier and Brazie did, while employed by Defendants, that amounted to fraud. There is also no allegation as to how this caused Plaintiffs any damage, as the employment occurred after 2001. This allegation is therefore insufficient and this part of the claim is dismissed.
The fraud claim is therefore dismissed as against all Defendants, as it has not been pled with sufficient detail.
Chadbourne and Bracewell separately, and additionally, argue that Plaintiffs have not pleaded fraud in detail against them. The alleged failure to cooperate with the Senate investigation occurred prior to the retention of Chadbourne or Bracewell, as did the request to sign the affidavit. Therefore, these allegations, insofar as they are made against Chadbourne and Bracewell, do not plead conduct by either one. Furthermore, any allegations that these defendants concealed previous acts must be dismissed because concealment of malpractice, without more, does not establish a fraud claim. See Simcuski v. Saeli, 44 NY2d 442, 452 (1978) (holding that concealment or failure to disclose malpractice does not give rise to separate cause of action for fraud).
All Defendants also argue that, even if the claim had been pled with the requisite detail, the acts alleged by Plaintiffs simply are not actionable as fraud. Defendants argue that the allegations fail to plead certain elements of fraud, such as causation, or that certain allegations do not even constitute misrepresentations or omissions. For example, the allegation regarding a request to sign an affidavit is not actionable as fraud. There is no allegation that Caruso fraudulently induced Waggoner to sign the affidavit, only that he requested that Waggoner sign it. (See Complaint ¶ 84(B).) A mere request to sign something cannot constitute fraud. Rather, there must be a showing of fraudulent inducement, due to a misrepresentation or an omission. See, e.g., Peach Parking Corp. v. 346 W. 40th St., LLC , 42 AD3d 82, 86 (1st Dep't 2007) (holding that plaintiff must show inducement in order to sustain fraud claim). Furthermore, even if there were a misrepresentation by Caruso, Waggoner could not have been justified in relying on it, because upon being handed the affidavit, Waggoner could have checked his accounts to see whether he had received any money. USED Private Equity Investors Fund, Inc. v. Salomon Smith Barney, 288 AD2d 87, 88 (1st Dep't 2001) (concluding that a plaintiff cannot claim justifiable reliance if he or she did not "make use of the means of verification that were available to it") (citations omitted). This component of the fraud claim is therefore dismissed.
Defendants submitted documentary evidence, in the form of account statements showing a total of roughly $7.7 million credited to Plaintiffs' account at BTCB, to contradict Plaintiffs' contention that Waggoner never received the funds, and that Caruso knew he had never received the funds, and yet asked him to sign the affidavit anyway. (Def. Mem. Ex. M.) The point here, however, is not whether Waggoner had or had not received the funds; rather, the point is that it is inherently incredible to assume that Waggoner, who was in the best position to know whether he received $7.7 million, would have justifiably relied on Caruso's statement that the funds had been received. I therefore need not address the documentary evidence, which Plaintiffs contend is improperly submitted on a motion to dismiss.
Similarly, Plaintiffs allege that the employment of Duperier and Brazie, and Caruso's failure to participate in the Senate Report constitute fraud, but, because the allegations are devoid of certain, crucial elements, it is not clear how this conduct could possibly be actionable as fraud. Mere employment, on its own, like failure to participate in a Senate investigation, simply is not fraudulent. Standing alone, these allegations do not implicate conduct that is actionable as fraud, and as such, these pieces of the fraud claim may be dismissed. See Lama Holding Co., 88 NY2d at 421-22 (dismissing fraud claim for failure to plead actionable conduct).
The remainder of the fraud claim merely duplicates the malpractice claim. A fraud claim may not be duplicative of a malpractice claim, and must be based on independent, intentionally tortious conduct. See Sabo v. Alan B. Brill, P.C. , 25 AD3d 420 (1st Dep't 2006). The allegations must go beyond mere nondisclosure of the defendant's malpractice, may not be founded upon the same underlying allegations as the malpractice claim, and must seek different relief. See Atton v. Bier , 12 AD3d 240, 241-42 (1st Dep't 2004).
Plaintiffs argue, however, that they have pleaded specific misrepresentations and omissions by Defendants in connection with the fraud claim, which go beyond merely providing negligent legal services. Plaintiffs also argue that they have pleaded additional, non-duplicative damages under the fraud claim, since they are also seeking punitive damages.
As I have already dismissed the fraud claim for failure to plead the claim in detail, and for failure to allege conduct actionable as fraud, I do not need to reach the issue of whether the fraud claim duplicates the malpractice claim. Nonetheless, it is clear that here, the fraud claim is duplicative. Several allegations that Plaintiffs make in connection with the fraud claim are allegations of negligent representation, not fraud. For example, Plaintiffs allege that the failure to properly investigate and institute recovery actions against BTCB and SSBT constitutes fraud. However, this is an allegation of negligent representation, and is not a misrepresentation or omission. It also provides one basis for the malpractice claim. Similarly, the allegation that Caruso discouraged Kelleher from filing claims on Waggoner's behalf is one of negligent representation, which Plaintiffs also allege under their malpractice and breach of fiduciary duty claims.
In fact, the only allegation underlying the fraud claim that is not identical to those comprising the basis for the malpractice claim is the allegation that Caruso asked Waggoner to sign an affidavit stating that Waggoner had received $7.7 million of his funds, though Caruso knew that no such funds had been received. However, this slight difference is not enough to save the fraud claim, because for it to be independent of a malpractice claim, the fraud claim must also seek damages that are "separate and distinct from those generated by the alleged malpractice." Id. (citations omitted).
There is, perhaps, one additional allegation of fraud that is not identical to those alleging malpractice: the allegation that Defendants' failure to disclose their malpractice constituted fraud. This allegation, however, runs afoul of the case law stating that the mere failure to disclose malpractice is not fraud. See, e.g., Simcuski, 44 NY2d at 452.
Plaintiffs unpersuasively argue that the fraud claim is not duplicative because it seeks punitive damages. The damage that Plaintiffs allege they suffered as a result of Defendants' fraud is the loss of their $10 million investment. This represents the value of the claim that they allege was lost as a result of Defendants' malpractice. Thus, Plaintiffs are actually alleging the same damage in both actions, not damages that are "separate and distinct." Furthermore, Plaintiffs' argument would render the law on duplicativeness meaningless, because malpractice plaintiffs could always simply circumvent the requirement that the claims be independent by asking for punitive damages as part of their fraud claim. Thus, every malpractice cause of action would automatically generate a fraud cause of action, because plaintiffs would know to simply add on a request for punitive damages. Plaintiffs cannot bootstrap a malpractice claim onto a fraud claim merely by asking for punitive damages. This claim may therefore be dismissed on the additional grounds that it duplicates the malpractice claim.
All Defendants also raise a statute of limitations defense to the fraud claim. The statute of limitations on a fraud action is "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it." CPLR § 213(8).
Defendants argue that the alleged claim here accrued in 1998, when Plaintiff made the initial investment, because, Defendants argue, citing to Ingrami v. Rovner , 45 AD3d 806, 808 (2d Dep't 2007), fraud claims accrue when money is transferred in reliance on false representations. Therefore, Defendants state that the six-year statute of limitations had expired by 2004.
Defendants further argue that the fraud claim is untimely even under the two-year discovery provision of the statute, because Plaintiffs should have, with due diligence, discovered the fraud claim by 2004, when Waggoner's personal attorney, Wallace, conducted his own investigation into the matter. Defendants argue that Plaintiffs would have then had two years, until 2006, to file this claim. By the time the claim was filed in 2007, this period had expired.
Plaintiffs respond by reiterating the arguments they made for equitable estoppel on the malpractice and breach of fiduciary duty claims. Insofar as Plaintiffs repeat arguments made in support of equitable estoppel, those arguments are rejected here on the same grounds as above.
Plaintiffs also argue that they did not discover the fraud until after Caruso had been discharged, in 2006, and that this action was thus brought within the two-year discovery provision.
In order to determine whether the two-year or six-year statute of limitations applies, I must first determine when the fraud claim accrued. Defendants' argument that the claim accrued at the time of the transfer of funds for the investment is incorrect. Plaintiffs do not allege that Defendants here fraudulently induced them into making that initial investment; rather, Plaintiffs allege that several acts taken by Defendants during their representation of Plaintiffs, subsequent to the initial investment, constitute fraud.
However, Plaintiffs' pleading nevertheless makes it difficult to pinpoint when exactly the claim accrued because, as I have already discussed, the Complaint does not adequately make out a cause of action for fraud. The elements of reliance and causation are missing, and, as is well settled, a cause of action accrues when all the elements necessary to the action have occurred. See Gaidon v. Guardian Life Ins. Co. of Am., 96 NY2d 201, 210 (2001) ("a cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that the plaintiff would be entitled to relief") (citations omitted).
Yet, it is clear that Plaintiffs believe their damage to be their lost $10 million investment. It is also clear that Plaintiffs believe the time to recover their money by filing a claim was prior to 2001, before BTCB and SSBT entered liquidation. Therefore, Plaintiffs' were allegedly damaged by February 2001, when both banks entered liquidation. Plaintiffs have not alleged any damage caused by fraud subsequent to the loss of the opportunity to file a claim to recover their investment. Therefore, assuming for the moment that the fraud claim accrued in February 2001, when Plaintiffs allegedly suffered their injury, Plaintiffs would have had six years, until February 2007, to file this action. As this action was filed on July 2, 2007, it would be untimely under the six-year provision.
Thus, the only way that Plaintiffs' action would be timely is if it were filed within two years of discovery of the fraud. Defendants argue that Plaintiffs were at least on notice of all the information necessary to file their claim by 2004, when Wallace became involved. Plaintiffs have alleged as part of their fraud claim nondisclosure that HYIPs are fraudulent, that several public agencies had issued warnings about the fraudulent nature of HYIPs, and the contents of the Senate Report. Plaintiffs charge Defendants with knowledge of all this because it was public information and Defendants had a duty to investigate such facts. Likewise, however, Wallace must be charged with this knowledge; in a letter from Wallace to Caruso, Wallace, himself, states that HYIPs are fraudulent, and indicates that he has conducted his own research and information. (Def. Mem. Ex. J.) Wallace further states that any communications between himself and Caruso are protected by attorney-client privilege, meaning that Wallace was acting as Waggoner's personal attorney at the time. ( Id.) Furthermore, Waggoner was copied on the letter, so he at least had knowledge of its contents, and it would be reasonable to assume that Wallace spoke to Waggoner separately, and apprised Waggoner of his findings. Therefore, Plaintiffs must have been aware, through Wallace, of the fraudulent nature of HYIPs, as well as the contents of the Senate Report, by 2004. Finally, Waggoner must be charged with at least inquiry notice of the Senate Report and the warnings about HYIPs, because, as I have stated earlier, it is dubious that a sophisticated investor would not conduct research into where he or she was placing money. Therefore, Plaintiffs could reasonably have discovered the alleged fraud in 2004, and, under the two-year discovery provision, the time to file an action based on these allegations expired, at the very latest, in 2006. Hence, the portion of the fraud claim resting on these allegations is dismissed.
Plaintiffs also allege nondisclosure of the employment of Duperier and Brazie as part of their fraud claim. However, as stated above, Plaintiffs were made aware of such employment through invoices sent to them by Defendants. Therefore, Plaintiffs discovered the employment by the time the first invoice was sent, in 2002. As a result, this part of the fraud claim must also be dismissed as untimely.
Plaintiffs also allege that Defendants concealed that their $10 million was stolen. However, it appears that Plaintiffs learned that their money had been stolen by 2004 at the latest, because in the June 2004 letter from Wallace to Caruso, Wallace specifically refers to the "theft of Mr. Waggoner's funds." (Def. Mem. Ex. J.) Thus, at that point, Plaintiffs knew, or should have known, that the theft of their funds had been allegedly concealed. This portion of the claim must therefore be dismissed.
Plaintiffs further allege that Waggoner was asked by Caruso in March 2000 to sign an affidavit stating that he had received $7.7 million of his funds, though Caruso knew that no such funds were received. Certainly, upon being handed that affidavit, Plaintiffs could have, with reasonable diligence, discovered that they had not in fact received any funds. Indeed, Plaintiffs were in the best position to check whether any funds had been received, because they were the ones who held the accounts. Thus, this part of the fraud claim must be dismissed. See CPLR § 213(8).
Therefore, even if the cause of action for fraud had been adequately pleaded, and even if it were not duplicative of the malpractice claim, it is nonetheless untimely, and it is therefore dismissed on this additional ground.
The Conspiracy to Commit Fraud Claim
Conspiracy to commit a tort is not an independent cause of action. Alexander Alexander of NY, Inc. v. Fritzen, 68 NY2d 968, 969 (1986) (quoting Brackett v. Griswold, 112 [*25]NY 454, 467 (1889)) ("a mere conspiracy to commit a [tort] is never of itself a cause of action"). Rather, a conspiracy claim must be pleaded along with an underlying tort. See id. (holding that conspiracies "are permitted only to connect the actions of separate defendants with an otherwise actionable tort"). Therefore, if the underlying tort is dismissed, then the conspiracy claim must also be dismissed. Here, I have already dismissed the underlying fraud claim on several alternate grounds, and the conspiracy claim, which cannot stand as an independent cause of action, is also dismissed.
Accordingly, it is
ORDERED that Defendants' motion to dismiss the complaint (Motion Sequence No. 009) is granted and the Complaint is dismissed with costs and disbursements to Defendants as taxed by the Clerk of the Court; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.