JFK Holding Company LLC, et al., Respondents,v.City of New York, et al., Defendants, The Salvation Army, Appellant.

Brief

N.Y.October 16, 2013

To Be Argued By: MICHAEL J. BOWE Time Requested: 30 Minutes New York County Clerk’s Index No. 114577/09 Court of Appeals STATE OF NEW YORK JFK HOLDING COMPANY LLC and J.F.K. ACQUISITION GROUP, Plaintiffs-Respondents, -against- CITY OF NEW YORK and DEPARTMENT OF HOMELESS SERVICES, Defendants, -and- THE SALVATION ARMY, Defendant-Appellant. BRIEF FOR PLAINTIFFS-RESPONDENTS d MICHAEL J. BOWE, ESQ. JENNIFER S. RECINE, ESQ. KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 1633 Broadway New York, New York 10019 Telephone: (212) 506-1700 Facsimile: (212) 835-5252 jrecine@kasowitz.com Attorneys for Plaintiffs-Respondents January 25, 2013 i CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of Practice for the Court of Appeals of the State of New York, Plaintiff-Respondent JFK Holding Company LLC states that it does not have any parent or subsidiary corporations. ii CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of Practice for the Court of Appeals of the State of New York, Plaintiff-Respondent J.F.K. Acquisition Group states that it does not have any parent or subsidiary corporations. iii TABLE OF CONTENTS Page(s) PRELIMINARY STATEMENT ............................................................................... 1 COUNTER-STATEMENT OF THE QUESTION PRESENTED ............................ 6 COUNTER-STATEMENT OF THE NATURE OF THE CASE ............................. 6 A. Procedural History ................................................................................. 6 1. The Prior Action ............................................................................ 6 2. The Current Action ........................................................................ 7 a. The Trial Court’s Decision On The Motions To Dismiss ............................................................................ 7 b. The First Department Reverses The Trial Court .................. 9 c. The First Department Grants Leave To Appeal .................. 10 B. Relevant Factual Allegations .............................................................. 10 1. The Lease And Services Agreement ........................................... 11 2. The Salvation Army Fails To Properly Maintain The Property ............................................................................... 12 3. The Salvation Army Fails to Return the Property to its Pre-Lease Condition ................................................................... 12 4. The Salvation Army’s Conduct Breached The Lease ................. 14 C. Relevant Provisions in the Lease and Services Agreement ................ 15 1. The Lease ..................................................................................... 15 a. Maintenance Provisions ...................................................... 15 b. Termination Provisions ....................................................... 16 iv c. Commercially Reasonable Provision/Limitation on Liability ......................................................................... 17 2. The Services Agreement .............................................................. 18 a. Maintenance Provision ........................................................ 18 b. Payment Provision .............................................................. 18 c. Termination Payment Provision ......................................... 19 ARGUMENT ........................................................................................................... 20 POINT I. The Limitation oF Liability Does Not Apply Because The Salvation Army Failed To Act In a Commercially Reasonable Manner ................................. 20 A. The Plain Language Of The Lease Requires The Salvation Army To Take Commercially Reasonable Steps To Recover Money From The City Before It Can Rely On The Limitation Of Liability ................... 22 B. Whether The Salvation Army Took Commercially Reasonable Steps Is A Question of Fact Precluding Dismissal ....................................... 27 C. The Dissent’s Reading Of The Contract Violates The Most Basic Tenants Of Contract Construction....................................................... 31 D. The Lease Requires The Salvation Army To Go Beyond The Services Agreement To Meet Its Obligations Under The Lease, If Necessary, Before The Limitation Of Liability Can Apply .................................. 37 POINT II. AT BEST, THE LEASE AND RELATED SERVICES AGREEMENT ARE AMBIGUOUS, PRECLUDING DISMISSAL ............................................... 38 POINT III. JFK HAS PROPERLY STATED A CAUSE OF ACTION FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING ................................................................................................................ 40 A. The Breach Of The Implied Covenant Of Good Faith And Fair Dealing Claim Is Not Duplicative ....................................................... 40 B. The Salvation Army Has Breached The Implied Covenant Of Good Faith And Fair Dealing ........................................................................ 44 v POINT IV. THE SALVATION ARMY’S RELATIONSHIP WITH THE CITY DOES NOT REQUIRE DISMISSAL ..................................................................... 45 A. The Salvation Army Is The Real Party In Interest Under the Lease .. 45 B. Res Judicata Does Not Apply to this Case .......................................... 47 1. Res Judicata Is Not Implicated Where A Prior Action Was Between Different Parties And Concerned Different Wrongs ......................................................................................... 47 2. The Salvation Army Is Not In Privity With The City ................. 51 C. The Salvation Army’s Agency Arguments are Meritless ................... 54 CONCLUSION ........................................................................................................ 59 vi TABLE OF AUTHORITIES Page(s) CASES 1000 Northern of New York Co. v. Great Neck Medical Associates, 7 A.D.3d 592 (2d Dep’t 2004) ............................................................................ 30 A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 101 A.D.3d 53 (2d Dep’t 2012) .......................................................................... 55 Amusement Bus. Underwriters v. Am. Int’l. Group, 66 N.Y.2d 878 (1985) ......................................................................................... 40 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (2007) ..................................................................................... 23, 25 Bostany v. Trump Org. LLC, 73 A.D.3d 479 (1st Dep’t 2010) ......................................................................... 54 Bryant v. New York City Dep’t of Housing Preservation and Dev., No. 0102249/07, 2007 N.Y. Slip Op. 33345(U), (Sup. Ct. N.Y. Cty Oct. 10, 2007) ...................................................................... 53 Campaign For Fiscal Equity v. State of New York, 86 N.Y.2d 307 (1995) ......................................................................................... 29 Citi Mgmt. Group, Ltd. v. Highbridge House Ogden, LLC, 45 A.D.3d 487 (1st Dep’t 2007) ......................................................................... 41 Coastal Commercial Corp. v. Samuel Kosoff & Sons, Inc., 10 A.D.2d 372 (4th Dep’t 1960) ......................................................................... 47 Cohn v. Lionel Corp., 21 N.Y.2d 559 (1968) ......................................................................................... 41 Covanta Niagara, L.P. v. Town of Amherst Garbage & Refuse Dist. No. 1, 16 Misc. 3d 656 (Sup. Ct. Erie Cty. 2007) ......................................................... 46 vii Diehl v. Levine, No. 019444/07, 2008 N.Y. Slip Op. 31662U (Sup. Ct. Nassau Cty. June 12, 2008) ................................................................. 46 EBC I, Inc. v. Goldman Sachs & Co., 5 N.Y.3d 11 (2005) ............................................................................................. 29 Elias v. Rothschild, No. 603288/02, 2005 WL 5960119 (Sup. Ct. N.Y. Cty. Apr. 27, 2005) ..................................................................... 52 Energycresent, Inc. v. Creative Modules Enters., Inc., 183 A.D.2d 804 (2d Dep’t 1992) ........................................................................ 48 Fed. Ins. Co. v. Americas Ins. Co., 258 A.D.2d 39 (1st Dep’t 1999) ......................................................................... 39 Fogel v. Hertz Int’l, 141 A.D.2d 375 (1st Dep’t 1988) ....................................................................... 54 Formica Constr. Co., Inc. v. Mills, 9 Misc.3d 398 (Civ. Ct. Richmond Cty. 2005) ................................................... 57 Friedman v. Park Lane Motors, Inc., 18 A.D.2d 262 (1st Dep’t 1963) ......................................................................... 51 Gillespie v. Flight Line Pub LNC., No. 2001-1364, 2002 WL 34406050 (Sup. Ct. Schenectady Cty. Dec. 27, 2002) ........................................................ 48 Green v. Santa Fe Indus., Inc., 70 N.Y.2d 244 (1987) ......................................................................................... 51 Gross v. Empire Healthchoice Assur., Inc., No. 602848/05, 2007 NY Slip Op 51390(U), (Sup. Ct. N.Y. Cty. July 18, 2007) ............................................................... 43, 44 Hauser v. Western Group Nurseries, Inc., 767 F. Supp. 475 (S.D.N.Y. 1991) ..................................................................... 33 Hunt v. Enzo Biochem, Inc., No. 06 Civ. 170, 2009 WL 1683990 (S.D.N.Y. June 15, 2009) .................. 51, 52 viii In re Estate of Jones, 48 Misc. 2d 358 (Sur. Ct. Erie Cty. 1963) .......................................................... 48 Info. Superhighway, Inc. v. Talk Am., Inc., 274 F. Supp. 2d 466 (SDNY 2003) .................................................................... 38 Jefferson Towers, Inc. v. Public Serv. Mut. Ins. Co., 195 A.D.2d 311 (1st Dep’t 1993) ....................................................................... 49 Jeffreys v. Griffin, 301 A.D.2d 232 (1st Dep’t 2002) ....................................................................... 57 JP Morgan Chase Bank, N.A. v. Cellpoint Inc., 54 A.D.3d 366 (2d Dep’t 2008) .......................................................................... 39 Kempf v. Magida, 832 N.Y.S.2d 47 (2d Dep’t 2007) ....................................................................... 26 Lukowsky v. Shalit, 110 A.D.2d 563 (1st Dep’t 1985) ................................................................. 48, 49 Maddaloni Jewelers, Inc. v. Rolex Watch U.S.A., Inc., 41 A.D.3d 269 (1st Dep’t 2007) ......................................................................... 43 MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, 842 F. Supp.2d 682 (S.D.N.Y. 2012) ................................................................. 26 Melillo v. County of Nassau, 307 A.D.2d 356 (2d Dep’t 2003) ........................................................................ 49 Melwani v. Jain, No. 02 Civ. 1224, 2004 WL 1900356 (S.D.N.Y. Aug. 24, 2004) ................................................................................... 52 Network Mgmt. Servs. Group v. Rosenkrantz Lyon & Ross, Inc., 211 A.D.2d 584 (1st Dep’t 1995) ....................................................................... 58 Pepsi-Cola Buffalo Bottling Corp. v. Wehrle Drive Supermarkets, Inc., 123 A.D.2d 515 (4th Dep’t 1986) ....................................................................... 57 Perlbinder v. Bd. of Managers of 411 E. 53rd St. Condo., 65 A.D.3d 985 (1st Dep’t 2009) ................................................................... 33, 34 ix Plant City Steel Corp. v. Nat’l Mach. Exch., Inc., 23 N.Y.2d 472 (1969) ......................................................................................... 41 Prudential-Bache Secs., Inc. v. Citibank, N.A., 73 N.Y.2d 263 (1989) ......................................................................................... 29 R/S Assocs. v. New York Job Dev. Auth., 98 N.Y.2d 29 rearg denied 98 N.Y.2d 693 (2002) ............................................. 22 Resurgent Capital Servs., LLC v. Mackey, 32 Misc.3d 265 (Sup. Ct. Nassau Cty. 2011) ..................................................... 46 Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61 (1st Dep’t 2008) ........................................................................... 22 Rudman v. Cowles Communications, 30 N.Y.2d 1 (1972) ............................................................................................. 34 Rumbaut v. Reinhart, 216 A.D.2d 551 (2d Dep’t 1995) ........................................................................ 54 Schimmel v. Pfizer Inc., No. 0600173/08, 2008 N.Y. Slip Op. 32388(U) (Sup. Ct. N.Y. Cty. Aug. 21, 2008) .................................................................... 30 Schmitz v. MacDonald, 250 A.D.2d 533 (1st Dep’t 1998) ....................................................................... 57 Seabrook v. The City of New York, No. 110643/00, 2002 WL 34358112 (Sup. Ct. N.Y. Cty. June 10, 2002) ..................................................................... 49 Silberstein, Awad & Miklos, P.C. v. Spencer, Maston & McCarthy, LLP, 43 A.D.3d 902 (2d Dep’t 2007) .......................................................................... 49 Sirlin Plumbing Co. v. Maple Hill Homes, 21 N.Y.2d 831 (1968) ................................................................................... 29, 34 Slatt v. Slatt, 64 N.Y.2d 966, rearg denied 65 N.Y.2d 785 (1985) .......................................... 22 Sorenson v. Bridge Capital Corp., 52 A.D.3d 265 (1st Dep’t 2008) ......................................................................... 45 x Stardust Lanes, Inc. v. Metropolis Bowling Ctrs., Inc., 35 Misc. 2d 291 (Sup. Ct. Queens Cty. 1962) .................................................... 45 State v. Schenectady Chems., Inc., 117 Misc.2d 960 (Sup. Ct. Rensselaer Cty. 1983) ............................................. 47 State v. Town of Hardenburgh, 273 A.D.2d 769 (3d Dep’t 2000) ........................................................................ 47 Terminal Cent., Inc. v. Henry Modell & Co., Inc., 628 N.Y.S.2d 56 (1st Dep’t 1995) ...................................................................... 26 UBS Secs., Inc. v. Tsoukanelis, 852 F. Supp. 244 (S.D.N.Y. 1994) ..................................................................... 57 W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157 (1990) ................................................................................... 22, 27 Yanni v. Bruce Brandwen Productions, Inc., 160 Misc. 2d 109 (Civ. Ct. N.Y. Cty. 1994) ...................................................... 57 Zuckerwise v. Sorceron Inc., 289 A.D.2d 114 (1st Dep’t 2001) ....................................................................... 38 STATUTES CPLR 3014 ............................................................................................................... 41 CPLR 3211 ............................................................................................................... 26 PRELIMINARY STATEMENT On July 3, 2012, the Appellate Division, First Department issued a decision and order (“July 3, 2012 Decision”) (A9-24)1 reversing the November 5, 2010 dismissal (R8-17) of Respondents JFK Holding Company LLC’s and J.F.K. Acquisition Group’s (collectively, “JFK”) complaint against Appellant The Salvation Army for breach of contract (R8-17). Contrary to the contention of The Salvation Army, the July 3, 2012 Decision was properly made. This case concerns the Carlton House Hotel, located at 138-10 North Conduit Avenue a/k/a 135th Avenue, Queens, New York (“Carlton House” or the “Property”) which was leased by JFK to The Salvation Army for use as a homeless facility for the City of New York (the “City”) on October 1, 2002 (the “Lease”). The Salvation Army operated a shelter at the Property pursuant to a separate agreement with the City, entered into on December 10, 2002 (the “Services Agreement”). Notwithstanding the City’s commitment to provide adequate funding for the operation of the facility, including maintenance of the Property, the living and structural conditions at Carlton House deteriorated rapidly. By 2004, the City Comptroller’s Office pronounced Carlton House unsafe and unsanitary due to 1 The Record on Appeal to this Court consists of (1) the record on appeal to the Appellate Division, First Department (references to which are to “R__”) and (2) documents filed subsequently (references to which are to “A__”). References to The Salvation Army’s December 10, 2012 Brief to this Court are to “Br.__.” 2 extensive water infiltration and damage, peeling paint, contaminated carpeting, leaking sinks, bathtubs and other fixtures, damaged appliances, and infestations of roaches, mice, bedbugs and other vermin. As JFK pled in its complaint, despite the ongoing deterioration of the Property, and its obligation to maintain Carlton House and restore it to its pre- Lease condition upon surrender, The Salvation Army did nothing whatsoever to obtain funding from the City to repair the damage already sustained and/or prevent the Property’s further decline. In this way, The Salvation Army’s failure to take any steps to meet its commitments under the Lease pre-dated the City’s termination of the Services Agreement in 2005 and, as set forth below, also persisted after its termination. Among other things, The Salvation Army did not negotiate with the City to obtain funding to repair the damage based on the City’s failure to provide adequate funding while the Services Agreement was in effect and it did not bring a timely action against the City for breach of the Services Agreement or on any other basis thereafter. Instead, The Salvation Army did nothing, waiting until its right to sue the City expired. Now that The Salvation Army no longer has a mechanism to recover money against the City -- a circumstance for which it is solely responsible -- it seeks to rely on a clause of the Lease which purportedly limits its liability for breach of the 3 Lease to amounts it can recover from the City under the Services Agreement. The trial court agreed, finding that because the City cannot now be held accountable for the damage to JFK’s property, neither can The Salvation Army. (R15-16.) But, as JFK demonstrated on appeal, the clause of the Lease limiting The Salvation Army’s liability only applies to the extent that The Salvation Army first acted in a “commercially reasonable” manner to obtain funding from the City under the “Services Agreement, or otherwise” to satisfy its obligations to JFK -- an explicit obligation which appears in the very same paragraph of the Lease as the “limitation of liability.” (R135-36.) Accordingly, a majority of the Appellate Division, First Department reversed the trial court’s decision and reinstated JFK’s breach of contract claim, finding that the clause limiting liability and the clause requiring The Salvation Army to undertake commercially reasonable efforts “are intended to be read together” and that decoupling “the limitation of liability from the provision requiring that The Salvation Army use commercially reasonable efforts would render the latter an illusory promise.” (A15.) On Appeal, The Salvation Army has adopted an argument set forth in the dissent to the July 3, 2012 Decision. More specifically, The Salvation Army now argues that because the Services Agreement does not include an explicit obligation to provide monies for restoration of the Property in its termination provision, The Salvation Army cannot be liable to JFK for the deplorable state of the Property at 4 the time of its surrender as a matter of law. This argument is flawed in numerous respects. First, it improperly focuses only on the City’s obligation to make a termination payment and its obligation to provide adequate funding for maintenance and repairs under the Services Agreement. The Lease obligated The Salvation Army to pursue sufficient funds for maintenance and restoration under these provisions of the Services Agreement, which the Complaint alleges The Salvation Army failed to do. Likewise, the dissent and The Salvation Army focus solely on actions that The Salvation Army could have taken to obtain funds from the City under the Services Agreement, when the Lease clearly contemplated that The Salvation Army must exploit avenues beyond the Services Agreement to obtain necessary funds from the City before it can rely on the limitation of liability. Thus, The Salvation Army cannot contend that there was no reasonable action it could have taken, as a matter of law, to obtain money from the City to meet its maintenance and restoration obligations under the Lease. And, even to the extent that The Salvation Army wishes to maintain that doing nothing at all was “commercially reasonable” under the circumstances, whether its conduct was, in fact, commercially reasonable is a question of fact that cannot be resolved on a motion to dismiss. 5 Finally, the reading of the agreements advanced by the dissent and adopted on appeal by The Salvation Army further distorts the relevant agreements, improperly rendering broader aspects of the Lease meaningless. This is a classic breach of contract case, which requires the Court to apply hornbook law to construe the Lease and Services Agreement. The Appellate Division, First Department properly concluded that the reading of the contract adopted by the trial court would render meaningless bargained for terms of the Lease. The dissent’s reading of the contracts, now urged by The Salvation Army, myopically focuses on one aspect of the Services Agreement to the exclusion of others without basis, and also nullifies additional aspects of the Lease, including its maintenance and restoration clauses, violating well-settled precepts of contract construction. JFK’s reading of the agreements, adopted by the Appellate Division, First Department, is the most reasonable, and best harmonizes all relevant provisions of the Lease and Services Agreement, without rendering any of the bargained for terms meaningless or illusory. The reading now advanced by The Salvation Army cannot be what the parties to the Lease and the Services Agreement intended. At best, The Salvation Army’s arguments expose inconsistencies between the Lease and the Services Agreement, making them ambiguous and precluding dismissal. 6 For the reasons set forth below, JFK respectfully requests that the July 3, 2012 Decision be affirmed and the case be remanded for proceedings consistent with that decision and order. COUNTER-STATEMENT OF THE QUESTION PRESENTED 1. Was the order of the Appellate Division, First Department, which reversed the judgment of Supreme Court, properly made? JFK respectfully submits that it was. 2. Whether, to the extent the July 3, 2012 Decision is reversed insofar as it reinstated JFK’s cause of action for breach of contract, should it also be reversed and JFK’s cause of action for breach of the implied covenant of good faith and fair dealing be reinstated? JFK respectfully submits that, to the extent the cause of action for breach of contract is dismissed, the cause of action for breach of the implied covenant of good faith and fair dealing must be reinstated. COUNTER-STATEMENT OF THE NATURE OF THE CASE A. Procedural History 1. The Prior Action On August 4, 2008, JFK brought an action against the City and the Department of Homeless Services (“DHS”), a division of the City, alleging that the City had breached an oral contract in connection with its involvement with the Carlton House (the “Prior Action”). (R251-65.) After the trial court denied the 7 City’s motion to dismiss (R291-94), the First Department reversed, finding that oral agreements with the City are “invalid and unenforceable” as a matter of law. (R295-96.) The Salvation Army was not a party in the Prior Action. 2. The Current Action JFK filed a new complaint against the City and DHS on November 24, 2009, alleging that the City committed fraud by entering into an oral agreement with JFK that it never intended to honor. (R21-39.) On February 25, 2010, JFK amended the complaint to add claims against The Salvation Army for breach of contract and breach of the covenant of good faith and fair dealing based on its improper termination of the Lease, failure to properly maintain the Property or restore it to its pre-Lease condition, and failure to act in a commercially reasonable manner in obtaining sufficient monies from the City to meet its obligations under the Lease (the “Complaint”). (R41-65.) a. The Trial Court’s Decision On The Motions To Dismiss The City and The Salvation Army thereafter moved to dismiss the claims against them. (R10-11.) Both parties moved on the basis that JFK’s claims were precluded on the grounds of res judicata. (Id.) The Salvation Army also argued that its liability under the Lease is limited to monies paid to it by the City under the Services Agreement, and because the City is no longer obligated to make payments to JFK under the Services Agreement, The Salvation Army is not liable to JFK. 8 (R15-16.) The Salvation Army further argued that JFK’s claim for breach of the implied covenant of good faith and fair dealing should be dismissed as duplicative of the breach of contract claim. (R16.) On November 5, 2010, the trial court entered an order granting the City’s motion dismiss and granting, in part, and denying, in part, The Salvation Army’s motion dismiss. (R8-17.) More specifically, the trial court held that The Salvation Army was not in privity with the City in the Prior Action and thus the doctrine of res judicata does not apply to bar JFK’s claims against The Salvation Army. (R14- 15.) The trial court nonetheless dismissed JFK’s breach of contract claim on the basis that a provision in the Lease limits The Salvation Army’s liability to any amounts paid to it by the City. (R15-16.) Because the City “has not made any payments to enable The Salvation Army to meet any other financial obligations remaining under the Lease” and because JFK’s claims against the City were “being dismissed,” the trial court found that JFK has no recourse under the Lease and, thus, dismissed the claims against The Salvation Army. (R15-16.) The trial court order also dismissed JFK’s claim for breach of the implied covenant of good faith and fair dealing “as duplicative of its claim for breach of the explicit covenant to use ‘commercially reasonable efforts’ to obtain compensation from the City,” ruling that the two causes of action are “based on the same allegation -- that The Salvation Army failed to seek to enforce its rights against the City.” (R16.) 9 b. The First Department Reverses The Trial Court JFK appealed the trial court’s decision and, on July 3, 2012, the Appellate Division, First Department modified the trial court’s order, in part, and reinstated JFK’s cause of action for breach of contract. (A9-24.) The Appellate Division, First Department found that the limitation of liability on which the trial court relied “was obviously predicated upon The Salvation Army’s having fulfilled its contractual duty to use commercially reasonable efforts to secure payments from DHS pursuant to the services agreement.” (A15.) And, as the Appellate Division, First Department held, “[o]n this record, triable questions of fact exist as to whether The Salvation Army used commercially reasonable efforts” to procure the monies necessary to meet its obligations under the Lease. (A16.) While the dissent opined that “The Salvation Army has paid JFK the full amount that it is entitled to receive under the parties’ lease agreement,” (A19) the majority opinion correctly explained that the dissent’s reading of the contract “not only eviscerates the provision [of the Lease] requiring The Salvation Army to use ‘commercially reasonable efforts,’” but also improperly “grants The Salvation Army the benefit of the concurrent limitation on liability . . .” (A16.) The Appellate Division, First Department affirmed the dismissal of JFK’s claim for breach of the implied covenant of good faith and fair dealing, which the 10 Appellate Division, First Department found to be duplicative of the breach of contract claim. (A17.) The Appellate Division, First Department’s decision also implicitly affirmed the trial court’s decision on res judicata, because if it had not done so, it would have dismissed the action. c. The First Department Grants Leave To Appeal Thereafter, The Salvation Army made a motion for reargument and/or leave to appeal to the Court of Appeals. (A6.) The Salvation Army also requested that an interim stay be placed on all proceedings before the Supreme Court, New York County, pending a decision with respect to its motion. (Id.) On October 11, 2012, the Appellate Division, First Department denied The Salvation Army’s motion for reargument, but granted the motion for leave to appeal to this Court. (Id.) The Appellate Division, First Department certified the following question: “Was the order of this Court, which reversed the judgment of Supreme Court, properly made?” (Id.) B. Relevant Factual Allegations The Salvation Army’s recitation of the Complaint’s factual allegations emphasizes nearly every aspect of the allegations except those relevant to the causes of action against it. As set forth below, the Complaint specifically alleges that The Salvation Army permitted the Property to lapse into disrepair due to lack of funding from the City, and yet The Salvation Army failed to take any steps to 11 increase monies available for maintenance, or otherwise pursue the City for the funds necessary to meet its obligations under the Lease either before or after the Services Agreement was terminated by the City. (R48 at ¶¶ 19-20.) This conduct constituted breaches of the Lease, causing JFK significant harm and undermines any claim The Salvation Army might otherwise have that its liability to JFK is limited to amounts paid to it by the City. 1. The Lease And Services Agreement In the summer of 2002, DHS entered into negotiations with JFK concerning the use of the Carlton House Hotel as a Tier II shelter facility. (R42-43 at ¶¶ 8-9.) Yet, the City declined to directly lease the Property or operate the facility, and, instead, required that JFK lease Carlton House to The Salvation Army, the City’s chosen service provider. (R44 at ¶ 12.) JFK agreed to this arrangement with the understanding that The Salvation Army would enter into a related contract with the City, whereby the City would agree to fund The Salvation Army’s obligations under the Lease. (Id.) On October 1, 2002, JFK entered into the Lease of Carlton House to The Salvation Army, and on December 12, 2002, The Salvation Army entered into a Services Agreement with the City. (R48 at ¶ 18.) 12 2. The Salvation Army Fails To Properly Maintain The Property Notwithstanding the City’s purported commitment to provide adequate funding for the operation of the facility, including maintenance of the Property, the living and structural conditions at Carlton House deteriorated rapidly. (R48 at ¶ 19.) By 2004, the City Comptroller’s Office pronounced Carlton House unsafe and unsanitary due to extensive water infiltration and damage, peeling paint, contaminated carpeting, leaking sinks, bathtubs and other fixtures, damaged appliances, and infestations of roaches, mice, bedbugs and other vermin. (Id. at ¶ 21.) As JFK pled in its complaint, despite the ongoing deterioration of the Property, and its obligation to restore Carlton House to its pre-Lease condition upon surrender, The Salvation Army did nothing whatsoever to obtain funding from the City to repair the damage already sustained and/or prevent the Property’s further decline. (Id. at ¶ 20.) In this way, The Salvation Army’s failure to take any steps to meet its commitments under the Lease pre-dated the City’s purported termination of the Services Agreement in 2005, and, as set forth below, persisted even after its termination. (See R48-49 at ¶¶ 20-22; R51 at ¶¶ 29-30.) 3. The Salvation Army Fails to Return the Property to its Pre-Lease Condition Recognizing that Carlton House was in a deplorable state in the aftermath of the City Comptroller’s 2004 Report, on July 5, 2005, Mayor Bloomberg called a 13 press conference and announced the closure of the facility. (R48-49 at ¶ 22.) The City then purported to terminate the Services Agreement. (R49 at ¶ 23.) But, the termination was ineffective because it failed to comply with the express requirement under the Services Agreement that any termination letter state expressly the grounds for such termination. (Id.) Thereafter, on August 18, 2005, The Salvation Army notified JFK that, in light of DHS’s intention to close the facility and to terminate the Services Agreement, The Salvation Army intended to terminate the Lease with JFK. (Id. at ¶ 24.) On September 9, 2005, JFK notified The Salvation Army that the express conditions precedent to effective termination of the Lease had yet to be satisfied, including payment of a $10 million termination fee, payment of outstanding rents, fees, and other monies due, and the completion of (or funding for) repairs and restoration required to return Carlton House to its pre-Lease condition, pursuant to the Lease. (R49-50 at ¶ 25.) Despite having received notice that the conditions precedent to termination of the Lease had yet to be satisfied, and knowing that it had only a six-month statute of limitations within which to sue the City for that funding pursuant to the Services Agreement, The Salvation Army still took no action to obtain the funding necessary for restoration from the City or to otherwise enforce or preserve its rights. (R51 at ¶29; R64 at ¶76-79.) 14 As a result of The Salvation Army’s breaches, JFK was left with an uninhabitable, un-rentable, Property, which required $200,000,000 to restore to a usable and marketable condition. (R63.) 4. The Salvation Army’s Conduct Breached The Lease The Salvation Army’s failure to maintain the Property and/or to restore the Property to its pre-Lease condition constituted breaches of the Lease. (R48, 49, 51; R61-65.) These same breaches -- stemming from The Salvation Army’s willful failure to take any action whatsoever to obtain the monies necessary to meet its obligations under the Lease -- separately violated the requirement that The Salvation Army take commercially reasonable steps to ensure that appropriate funding was received from the City pursuant to Article 31 of the Lease. (Id.) As set forth below, breach of The Salvation Army’s obligation to take commercially reasonable steps to procure funding from the City also undermines any claim The Salvation Army could otherwise make that its liability should be limited in accordance with the same provision. Among other things, The Salvation Army did not challenge the City’s termination of the Services Agreement, it did not negotiate with the City to obtain funding to repair the damage based on the City’s failure to provide adequate funding for maintenance while the Services Agreement was in effect and it did not bring a timely action against the City, although as alleged in the Complaint and set 15 forth below, The Salvation Army “had viable claims against [the City] for breaching the terms of the Services Agreement.” (R51 at ¶¶ 29-30.) Instead, The Salvation Army did nothing, waiting until its right to sue the City expired. (R61- 65.) C. Relevant Provisions in the Lease and Services Agreement The Lease and Services Agreement bound The Salvation Army to properly maintain the Property and/or restore it to its pre-Lease condition upon surrender and provided a mechanism for The Salvation Army to obtain sufficient funds from the City to do so. 1. The Lease As set forth below, the Lease included provisions requiring The Salvation Army to maintain the facility during its tenancy and surrender it in good condition. While the Lease also limited The Salvation Army’s liability under the Lease to amounts provided to it by the City under the related Services Agreement, such limitation was expressly contingent upon The Salvation Army’s reasonable efforts to first obtain appropriate and sufficient funding from the City. a. Maintenance Provisions Article 12 of the Lease required The Salvation Army to properly maintain the Property; to wit: Tenant [i.e. The Salvation Army] shall at all times maintain or cause to be maintained the Leased Premises and the Adjoining Property in good and safe condition 16 and repair and fit to be used for their intended use. . . . Tenant shall take every other action, at Tenant’s sole cost and expense, reasonably necessary or appropriate for the preservation and safety of the Leased Premises. (R109.) b. Termination Provisions Article 23 of the Lease describes the condition in which the Property was required to be surrendered by The Salvation Army. More specifically, Article 23 of the Lease states: Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises to Landlord [i.e. JFK] in the same condition in which the Leased Premises was at the commencement of this Lease and otherwise in the condition required under this Lease, except as repaired, rebuilt or restored as permitted or required by any provision of this Lease, except for Landlord’s Work, and except for ordinary wear and tear. . . . (R130.) Separately, Article 32 of the Lease requires that, in addition to the requirements set forth in Article 23, that upon termination of the Lease, The Salvation Army would make a termination payment to JFK. Article 32 provides: It shall be a condition precedent to the effectiveness of any such termination by Tenant that (i) Tenant shall deliver vacant possession of the Leased Premises to Landlord in accordance with Paragraph 23 of this Lease and (ii) Tenant shall pay to Landlord, or, at Landlord’s written request, shall direct the Department to pay to the holder of a Superior Instrument, by wire transfer of 17 immediately available funds the Termination Consideration. (R136.) According to the same provision, “Termination Consideration shall include the termination fee specified on Schedule 2.” (Id.) Pursuant to Schedule 2 the amount of the termination fee decreases the longer the Lease is in effect. (R166.) c. Commercially Reasonable Provision/Limitation on Liability Article 31 of the Lease contains the clause that obligated The Salvation Army to take commercially reasonable steps to ensure that it received the appropriate funding it was entitled to under the Services Agreement. That clause states: In the event the Department fails to pay any such amounts to Tenant, Tenant shall use commercially reasonably efforts to enforce its right against the Department under the Services Agreement or otherwise. . . (R135-136.) The very same section of the Lease, Article 31, also describes the limitation of liability that The Salvation Army was entitled to so long as it first acted in a commercially reasonable manner. Article 31 states, in pertinent part: . . . Tenant shall only be liable for Base Rent, Maintenance Payments, Tax Payments, Insurance Payments, the Termination Fee, Additional Rent or other payments under this Lease, including without limitation indemnification payments, damages for breaches of any 18 covenant under this Lease and any late charges or default interest, solely to the extent of the amounts paid to Tenant from time to time under the Services Agreement or otherwise in connection with the use of the Leased Premises and expressly excluding any other assets of Tenant[.] (R135.) 2. The Services Agreement a. Maintenance Provision Consistent with the Lease, the Services Agreement explicitly requires The Salvation Army to properly maintain the Property. Article 2(O)(i) of the Services Agreement provides: The Contractor or its Landlord, as provided for under the Lease, shall be responsible for all management and maintenance of the Facility, including preventative maintenance, day to day maintenance, minor repairs and major capital improvements to mechanical and building systems. The Contractor shall immediately notify the Department if any violations are issued against the Facility. The Department shall not be responsible for building management or maintenance. (R177.) b. Payment Provision Article 6.1(C) of the Services Agreement provides a mechanism for The Salvation Army to review funding requirements on an ongoing basis with the City. The Contractor [i.e. The Salvation Army] and the Department [i.e. DHS] shall review annually the amount of payments made pursuant to [the Services] Agreement to determine the appropriateness of the rates based on 19 any increase in the cost of operating the Facility and enhancement of the Facility programs. Notwithstanding the above, the Department shall not reduce the above rate below that required to meet debt service (if applicable) and operating expenses (including, without limitation, Base Rent and Tax Payments and Insurance Payments . . . due under the Lease), subject to the parties’ ability to modify the Budget pursuant to Article 2 above. (R182.) This provision guarantees a floor for The Salvation Army’s operating expenses, not a ceiling, and expressly permits it to seek an increase in funding for increased operating expenses. The Payment Provision refers back to Article 2 of the Services Agreement, which sets forth the “Base Services” The Salvation Army was required to provide, including its cleaning and maintenance obligations. (Id.; R169.) Article 2 explicitly requires The Salvation Army to maintain the Property pursuant to the Lease and, again, indicates that if “reallocation” of budget monies is insufficient to address cost overruns, then The Salvation Army “may seek a rate increase in accordance with” the Payment Provision. (Id.) c. Termination Payment Provision Separately, Article 9 of the Services Agreement, includes a requirement that the City pay The Salvation Army a termination fee in the event of early termination. Specifically, Article 9(A) of the Services Agreement provides: In the event…the Department fails to forward sufficient monies to the Contractor, in accordance with Article 6 above, to enable the Contractor to make Required Lease 20 Payments under the Lease and such failure to forward sufficient monies to the Contractor to make the Required Lease Payments shall result in a termination of the Lease, the Department shall make a termination payment, as set forth in Exhibit 1, a copy of which is attached hereto and made a part hereof, to the Contractor to enable the Contractor to make the termination payment due under the Lease. (R190.) Exhibit 1 to the Services Agreement is the same document attached as Schedule 2 to the Lease, which defines the amount of the termination payment depending upon the year in which the Lease is terminated. (Compare R166 with R244.) Nothing in the “Termination Payment” provision suggests that it operates to the exclusion of any other provisions of the Services Agreement. (R189-90.) ARGUMENT POINT I. THE LIMITATION OF LIABILITY DOES NOT APPLY BECAUSE THE SALVATION ARMY FAILED TO ACT IN A COMMERCIALLY REASONABLE MANNER In the July 3, 2012 Decision, the Appellate Division, First Department held that JFK has “sufficiently pleaded a cause of action for breach of the lease.” (A13.) Properly construing the allegations of the Complaint in JFK’s favor, as it must at this stage of the proceeding, the July 3, 2012 Decision explained that The Salvation Army surrendered “an uninhabitable building, rife with code violations, structural problems, water damage and mold,” yet was obligated to return the Property upon 21 termination in “the same condition in which the leased premises was at the commencement of th[e] lease.” (A11-12.) In response to the trial court’s decision that The Salvation Army’s liability was limited under the terms of the Lease to “payments made by the City to the Salvation Army” (R15), the First Department correctly determined that “the parties’ intent, as reflected in the lease, was to impose on The Salvation Army the obligation to take all commercially reasonable steps, including seeking funds to which it was entitled under the services agreement . . . to satisfy its obligations to restore the property to pre-lease condition.” (A14.) Moreover, the First Department also reasoned that, the limitation of liability upon which The Salvation Army’s seeks to rely, cannot be “decouple[d]” from the clause setting forth its obligation to act in a commercially reasonable manner, without rendering “the latter an illusory promise.” (A15.) The facts alleged by JFK, therefore, raise a question of fact “as to whether The Salvation Army used commercially reasonable efforts to obtain payments to which it was entitled . . .” (A16.) Neither the dissent to the July 3, 2012 Decision, nor The Salvation Army’s arguments on appeal, undermine the First Department’s reasoning or its conclusion. The decision does not “engraft” a “commercially reasonable effort” requirement onto the limitation of liability provision, where one does not otherwise exist, nor does it find facts not supported by the Complaint. The reading of the 22 Lease and Services Agreement outlined in the July 3, 2012 Decision, in contrast to the reading ascribed to the agreements by the dissent to that decision, does not render any aspect of the Lease or the related Services Agreement a nullity. Indeed, the construction of the agreements advanced by JFK and accepted by the Appellate Division, First Department is the only one that harmonizes the various provisions of the Lease and the Services Agreement, gives effect to all of them while avoiding nullities and absurdities, as required by the black letter law governing the interpretation of contracts. A. The Plain Language Of The Lease Requires The Salvation Army To Take Commercially Reasonable Steps To Recover Money From The City Before It Can Rely On The Limitation Of Liability The fundamental and neutral precept of contract interpretation is that agreements are construed in accordance with the parties’ intent. See Slatt v. Slatt, 64 N.Y.2d 966, 967, rearg denied 65 N.Y.2d 785 (1985). “[T]he best evidence of what parties to a written agreement intend is what they say in their writing.” Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 66 (1st Dep’t 2008) (citing Slamow v. Del Col, 584 N.Y.S.2d 425, 424 (1992)). Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. See, e.g., R/S Assocs. v. New York Job Dev. Auth., 98 N.Y.2d 29, 32 rearg denied 98 N.Y.2d 693 (2002); W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). Moreover, 23 another hornbook principle of contract interpretation is that “[a] reading of the contract should not render any portion meaningless” and that “a contract should be read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose.” Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324-25 (2007) (internal citation and quotations omitted). Here, the Lease expressly requires The Salvation Army to both maintain the Property in good order and surrender it in its pre-Lease condition, except for normal wear and tear. (See supra at Counter-Statement of the Nature of the Case (“CSNC”) §§ C(1)(a), (b).) Rather than maintain the Property in conformance with the terms of the Lease, The Salvation Army permitted its condition to deteriorate precipitously from the outset (supra at CSNC § B(2)), and within two years of taking possession of Carleton House, it was declared uninhabitable by the City Comptroller’s Office (id.). The condition of the Property was not rectified during the remainder of The Salvation Army’s tenancy. (Supra at CSNC § B(3).) And, even after being notified that it had an obligation to restore the Property upon vacating the premise, The Salvation Army did not negotiate with the City for additional monies for restoration or bring suit to recover monies on the basis of the Services Agreement or on any other basis. (Id.) 24 In light of the foregoing, the cause of action for breach of the Lease would have been beyond dispute, but for the presence of a clause purportedly limiting The Salvation Army’s liability to amounts procured from the City under the Services Agreement or otherwise. Yet, that very same provision also contains a clause making a condition precedent to the limitation of liability The Salvation Army taking commercially reasonable steps to recover monies owed to it so that it could comply with the terms of the Lease. This provision of the Lease states, in pertinent part, . . . Tenant shall only be liable for Base Rent, Maintenance Payments, Tax Payments, Insurance Payments, the Termination Fee, Additional Rent or other payments under this Lease, including without limitation indemnification payments, damages for breaches of any covenant under this Lease and any late charges or default interest, solely to the extent of the amounts paid to Tenant from time to time under the Services Agreement or otherwise in connection with the use of the Leased Premises and expressly excluding any other assets of Tenant; provided, that Landlord and Tenant hereby agree that the foregoing limitation of liabilities . . . shall not limit or effect the rights of Landlord to declare Tenant in default of its obligations under this Lease, or to exercise any rights options, power and remedies set forth in this Lease. In the event the Department fails to pay any such amounts to Tenant, Tenant shall use commercially reasonable efforts to enforce its rights against the Department under the Services Agreement or otherwise. . . . (R135-136 (emphasis in original).) 25 The plain meaning of Article 31 supports the Appellate Division, First Department’s construction of the Lease. While Article 31 includes a clause limiting liability, that clause is then immediately qualified.2 (Id.) Indeed, the very next sentence sets forth The Salvation Army’s obligation to act in a “commercially reasonable” manner in enforcing its right to obtain monies from the City “under the Services Agreement or otherwise” so that it can meet its obligations to JFK. (Id.) Thus, by its plain language the “commercially reasonable efforts” clause was intended to ensure that The Salvation Army would enforce its rights under the Services Agreement or by any other available means so that it could meet its obligations to JFK under the Lease.3 (Id.) As the Appellate Division, First Department found, any other interpretation of this clause would impermissibly render the “commercially reasonable” language meaningless, depriving JFK of the benefit of the bargain it struck with The Salvation Army. (A15). And, as the First Department explained, to the extent that there is any doubts concerning its proper construction -- which there is not -- the provision including the limitation of liability must be construed strictly against the 2 In fact, the qualifying word -- “provided” -- that separates the limiting liability language from the qualifying language is underlined in the Lease, to highlight the qualification of the limiting liability language. (See R135.) 3 This interpretation is further supported by the remainder of that sentence, which obligates JFK to “fully reimburse [The Salvation Army] for all of its costs in any such enforcement action.” (R136.) Plainly, the parties contemplated that to the extent that legal action was necessary, The Salvation Army was bound to undertake it, with the full support of JFK. 26 party seeking to rely on it (A16, citing MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, 842 F. Supp.2d 682, 707 (S.D.N.Y. 2012)).4 See also Terminal Cent., Inc. v. Henry Modell & Co., Inc., 628 N.Y.S.2d 56, 60 (1st Dep’t 1995) (refusing to construe a lease as limiting tenant’s remedies for a breach and holding that such “clauses are, in any event, strictly construed against the party seeking to avoid liability”). Thus, for the purposes of this motion, The Salvation Army must have taken commercially reasonable steps to obtain necessary monies from the City before it could rely on the limitation of liability in Art. 31.5 As set forth below, the 4 The Salvation Army attempts to distinguish MBIA by claiming that: (1) the MBIA court’s decision was based on a summary judgment standard instead of motion to dismiss; (2) the limitation of liability provision being contingent on the use of “commercially reasonable efforts” was more explicit in MBIA; and (3) there were questions of fact as to whether the “commercially reasonable efforts” condition was satisfied in that case. (Br. at 35-36.) These arguments do not undermine the applicability of the holding in MBIA here. First, the standard on a motion to dismiss is more liberal than the standard on a motion for summary judgment. See Kempf v. Magida, 832 N.Y.S.2d 47, 49-50 (2d Dep’t 2007) (summary judgment requires “proof” and “disclosure of the evidence on the disputed issues” and “[t]he mere fact that a plaintiff cannot withstand a motion for summary judgment . . . is not controlling on a motion [to dismiss] under CPLR 3211”). Second, as the First Department correctly found, the contingent nature of the limitation of liability provision in MBIA on the use of “commercially reasonable efforts,” was directly analogous to the instant case, where were both provisions were located, respectively, “in the very same paragraph” of each contract. (A15.) The MBIA court reasoned, just as the First Department did, that the limitation of liability clause “should be strictly construed against the person seeking exemption from liability.” Compare MBIA Ins. Corp., 842 F.Supp.2d at 707 with (A16). Third, as demonstrated infra at Point I(B), whether The Salvation Army took “commercially reasonable efforts” is -- at the very least -- a question of “material fact,” just as it was in MBIA. 5 In urging a different reading of the Lease, The Salvation Army asks the Court to go beyond the four corners of the agreement, and evaluate the relationship of the parties and the circumstances surrounding the negotiation of the Lease and Services Agreement in order to understand the importance of the limitation on liability provision. (Br. at 23-25.) This approach to interpreting the Lease is contrary to black letter law, which requires the Court to analyze the 27 Complaint plainly alleges that The Salvation Army took no steps at all to secure proper funding from the City, precluding dismissal at this stage of the proceedings. B. Whether The Salvation Army Took Commercially Reasonable Steps Is A Question of Fact Precluding Dismissal The Complaint alleges that The Salvation Army did nothing to recover or attempt to recover monies from the City to meet its maintenance or restoration obligations under the Lease, both while the Services Agreement was in effect and after it was purportedly terminated, and thus did not take commercially reasonable steps permitting it to take advantage of the limitation of liability set forth in the Lease.6 (See supra at CSNC § B(3).) language of the relevant contract first. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (“[i]n its reliance on extrinsic evidence . . . [the party] ignores a vital first step in the analysis: before looking to evidence of what was in the parties’ minds, a court must give due weight to what was in their contract”). Only if the contract is ambiguous should a court resort to considering evidence outside of the four corners of the agreement. Greenfield, 98 N.Y.2d 562, 569 (2002) (“[e]xtrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous”). Additionally, extrinsic evidence can never be used to create an ambiguity in an agreement. W.W.W. Assocs., Inc., 77 N.Y.2d at 163 (“[i]t is well settled that extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face”). Here, The Salvation Army does not argue that the Lease is ambiguous, which, as discussed infra at Point II, would also preclude dismissal at this juncture on this record in any event. Thus, its emphasis on the relationship between the parties, the negotiations and other extrinsic information should be disregarded. 6 The Salvation Army takes the unfounded position that the July 3, 2012 Decision effectively nullifies the limitation of liability provision. (Br. at 25.) This argument is, simply put, wrong. The July 3, 2012 Decision does not nullify any provision of the Lease or the Services Agreement. (See infra at Point I(C).). Instead, it recognizes that the limitation of liability provision is contingent upon The Salvation Army’s use of “commercially reasonably efforts,” as expressed by the plain language of Article 31. (R135-136.) To the extent that The Salvation Army actually undertook commercially reasonable efforts, the limitation would apply. On this motion, however, plaintiffs have sufficiently alleged that The Salvation Army did not take commercially reasonable efforts, precluding dismissal at this phase of the proceedings. 28 Yet, The Salvation Army disingenuously claims that in reaching its decision, the Appellate Division, First Department relied upon unfounded factual assertions with no basis in the record. Nothing could be further from the truth. While The Salvation Army argues that the First Department’s characterization of its alleged conduct as “bad behavior” is not supported by the record (Br. at 26-28), the record establishes that The Salvation Army’s grossly-negligent management of a facility meant to shelter the homeless amounted to a disgraceful breach of the public trust. In 2002, The Salvation Army leased the Carlton House facility in order to “operate and manage” the Property as a residence for homeless families. (See R99; R168.) As the Complaint makes clear, within two years, The Salvation Army’s grossly negligent “operation and management” of that facility led to a scathing finding from the New York City Comptroller’s Office that the facility was: unsafe and unsanitary due to extensive water infiltration and damage, peeling paint and contaminated carpeting, leaking sinks, bathtubs and other fixtures, damaged appliances, and infestations of roaches, mice, bedbugs, and other vermin. (R48.) According to the Complaint: reports commissioned at the City’s direction uniformly show[ed] that the deterioration causing the . . . state of disrepair at Carlton House, particularly the significant water damage, occurred during the Salvation Army’s occupancy and resulted from its gross negligence in maintaining the property. 29 (R56.) Thus, “[a]s a result of the substantial deterioration and subsequent neglect to the Building caused by The Salvation Army’s tenancy, Carlton House must be torn down. . . .” (R56.) These allegations belie The Salvation Army’s claim that “there is no support in the record” for the First Department’s statement that “[d]uring its tenancy, The Salvation Army failed to take the most basic steps to maintain the facility in a safe and sanitary condition, as a result of which the property deteriorated precipitously.” (A11.) Given the short two-year period that The Salvation Army operated and managed the Carlton House and the deplorable condition into which the facility sank during that period, the majority’s statement was wholly supported by the record. The Appellate Division, First Department took these allegations as true, as it must for the purposes of this motion. See EBC I, Inc. v. Goldman Sachs & Co., 5 N.Y.3d 11, 19 (2005). “[B]ecause the motion would terminate the action before there has been an opportunity for discovery,” the Court must consider JFK’s assertions “most favorably,” Prudential-Bache Secs., Inc. v. Citibank, N.A., 73 N.Y.2d 263, 275 (1989), “without expressing [its] opinions as to whether [the plaintiffs] can ultimately establish the truth of the[ir] allegations. . . .” Campaign For Fiscal Equity v. State of New York, 86 N.Y.2d 307, 318 (1995). Questions of fact are not properly resolved at this stage of the litigation. See Sirlin Plumbing 30 Co. v. Maple Hill Homes, 21 N.Y.2d 831, 831 (1968) (no motion to dismiss where questions of fact were raised). Even if there were some doubt concerning whether the allegations of the Complaint are sufficient to support a finding that The Salvation Army failed to make commercially reasonable efforts to recover monies from the City at this stage of the proceeding, which there is not, whether a defendant used “commercially reasonable efforts,” as defined by a contract is generally a question of fact. See, e.g., 1000 Northern of New York Co. v. Great Neck Medical Associates, 7 A.D.3d 592, 593 (2d Dep’t 2004) (issues of fact existed as to whether the plaintiff was obligated to use commercially-reasonable efforts to re-let the premises and failed to do so); Schimmel v. Pfizer Inc., No. 0600173/08, 2008 N.Y. Slip Op. 32388(U) (Sup. Ct. N.Y. Cty. Aug. 21, 2008) (“Whether [a] defendant used ‘commercially reasonable efforts,’ as defined by the Agreement, is generally a question of fact.”) Thus, even to the extent that The Salvation Army suggests that its payment of the termination fee was sufficient to comply with its obligation to act in a commercially reasonable manner (Br. at 27), plaintiffs have pled that it was not sufficient to meet The Salvation Army’s independent obligation to maintain and restore the Property. (See supra at CSNC §§ C(1)(a),(b).) At minimum, therefore, JFK’s Complaint presents an issue of fact, which may not be resolved on this motion. 31 C. The Dissent’s Reading Of The Contract Violates The Most Basic Tenants Of Contract Construction The dissent would dismiss JFK’s claims for breach of contract, sidestepping the commercial reasonableness of The Salvation Army’s conduct, because, under its reading of the Services Agreement, The Salvation Army was not entitled to any monies from the City as a matter of law. In order to reach this result, however, the dissent disregards the majority of the Services Agreement, except for the provision governing the “Termination Payments.” (A22-23; R189-90.) Beyond ignoring other provisions of the Services Agreement, which would have provided an avenue for The Salvation Army to pursue the City for money for maintenance, and breach of the Services Agreement if such monies were not forthcoming, the dissent’s reading also renders meaningless the restoration and maintenance provisions of the Lease. This outcome violates the most basic tenants of contract construction. The Services Agreement plainly provided a mechanism to challenge and increase the amount of money provided by the City on an annual basis if the contractually specified amount proved inadequate. More specifically, Art. 6.1(C) of the Services Agreement specifies that: The Contractor and the Department shall review annually the amount of payments made pursuant to this Agreement to determine the appropriateness of the rates based on any increase in the cost of operating the Facility . . . . 32 (R182.) Additional funds were necessary for upkeep and maintenance of the facility (a forgone conclusion in light of the wretched condition of the Property as documented by the City Comptroller’s Office). Thus, The Salvation Army was obligated to attempt to reallocate the budget pursuant to Article 2 of the Services Agreement (which provision expressly includes in The Salvation Army’s “Base Services” maintenance of the Property), and if such reallocation was insufficient to provide the funds for all Base Services The Salvation Army was bound to deliver under the Services Agreement, it should have sought such additional funds pursuant to Article 6 of the Services Agreement. (See supra at CSNC § C(2)(b).) If The Salvation Army was denied sufficient funds for maintenance and its other Base Services, it should have brought an action against the City for breach. The consequential and special damages flowing from such breaches would have provided for the cost of restoring the Property. Separately, Article 9 of the Services Agreement provides for “Termination Payments,” set forth the money owed by the City in the event of early termination of the Services Agreement. (R189-90.) Nothing in Article 9 suggests that upon termination all other rights under the Services Agreement are extinguished. The dissent’s reading of the Services Agreement ignores The Salvation Army’s obligations for maintenance under Article 2 and the express mechanism for obtaining additional funds for maintenance from the City under Article 6 and 33 instead construes the Termination Payment provision as the sum total of money available to The Salvation Army upon termination. This construction of the Services Agreement has the effect of rendering meaningless those aspects of the Lease that require The Salvation Army to properly maintain the Property and/or restore the Property to its pre-Lease condition. This is an impermissible interpretation of the related Lease and Services Agreement. Not unlike provisions of the same contract, provisions of related contracts must be construed to harmonize conflicting provisions and avoid inconsistency. Hauser v. Western Group Nurseries, Inc., 767 F. Supp. 475, 489 (S.D.N.Y. 1991) (“Under New York law, writings executed as part of the same transaction are to be read together as part of the same agreement”) (citing Rudman v. Cowles Communications, 30 N.Y.2d 1 (1972); Williams v. Mobil Oil Corp., 83 A.D.2d 434 (2d Dep’t 1981).) Interpreting related contracts in a way that reconciles and harmonizes apparently inconsistent provisions is in keeping with the principle that contracts should be interpreted so that no provision is left without force and effect. See Perlbinder v. Bd. of Managers of 411 E. 53rd St. Condo., 65 A.D.3d 985, 987 (1st Dep’t 2009) (Interpreting article 10(c) of condominium declaration in a manner that would not render section 5.8(c) of related condominium by-laws meaningless). 34 Both the majority and the dissent agree that the Lease and Services Agreement were designed to be read together. (See A14 (majority noting the Services Agreement is “incorporated by reference” in the Lease); A19 (dissent premised on what “the two contracts provided.”)) The Salvation Army likewise insists that any reading of the Lease must “harmonize” the provisions of the Services Agreement.7 (Br. at 22.) Thus, any construction of these agreements must give effect to all of their terms, and may not ignore terms or accord them an unreasonable interpretation. Perlbinder, 65 A.D.3d at 986-87 (citing Ruttenberg v. Davidge Data Sys. Corp., 215 A.D.2d 191, 196 (1st Dep’t 1995).) In so doing, the construction must reconcile seemingly conflicting contract provisions of both agreements, if they can be reasonably reconciled, giving effect to all of them. Perlbinder, 65 A.D.3d at 986-87 (citing Proyecfin de Venezuela, S.A. v. Banco Indus. de Venezuela, S.A., 760 F.2d 390, 395-96 (2d Cir. 1985); G&B Photography, Inc. v. Greenberg, 209 A.D.2d 579, 581 (2d Dep’t 1994); Flemington Natl. Bank & Trust Co. (N.A.) v. Domler Leasing Corp., 65 A.D.2d 29, 32 (1st Dep’t 1978), aff’d 48 N.Y.2d 678 (1979).) 7 Alternatively, to the extent that there is a question concerning whether the Services Agreement and Lease are intended to be read together, this presents another question of fact precluding resolution on The Salvation Army’s motion to dismiss. See Rudman, 30 N.Y.2d at 13 (“Whether the parties intended to treat both agreements as mutually dependent contracts . . . is a question of fact.”); see also Sirlin Plumbing Co., 21 N.Y.2d at 831. 35 Here, the Lease explicitly calls for the restoration of the Property to its pre- Lease condition upon surrender. (See R130; R136.) Mirroring the Services Agreement, the Lease likewise required The Salvation Army to maintain the Property in good condition during its tenancy. (R109.) Reading the “Termination Payments” section of the Services Agreement together with Article 31 of the Lease to preclude any obligation on the part of The Salvation Army to honor its commitment to maintain and/or restore the Property, as the dissent and The Salvation Army advocate, impermissibly nullifies the Lease’s maintenance and restoration provisions, entirely. Indeed, based upon the dissent’s reading of the agreements, there is no scenario under which The Salvation Army could be called upon to independently honor the requirement that it surrender the Property in its pre-Lease condition and pay the termination payment because the Termination Payment provision does not also include reference to payment of monies for restoration. Looking both at the entirety of the Lease and the entirety of the Services Agreement, this is not a reasonable construction. Restoration and the termination payment are distinct obligations under the Lease: It shall be a condition precedent to the effectiveness of any such termination by Tenant that (i) Tenant shall deliver vacant possession of the Leased Premises to Landlord in accordance with Paragraph 23 of this Lease 36 and (ii) Tenant shall pay to Landlord, or, at Landlord’s written request, shall direct the Department to pay to the holder of a Superior Instrument, by wire transfer of immediately available funds the Termination Consideration. (R136 (emphasis added).) And, these obligations are designed to achieve different goals. The portion of the Lease that outlines a payment schedule for early termination compensates the landlord in light of his expectation that the Property would otherwise produce rental income for 15 years. This is why the amount due upon termination decreases the longer the Lease stays in effect. (See R166.) By contrast, the restoration provision of the Lease refers to returning the Property “in the same condition in which the Leased Premises was at the commencement of this Lease and otherwise in the condition required under this Lease …” (R130 (emphasis added).) In this way, the restoration provision relates directly to The Salvation Army’s ongoing maintenance obligation with respect to the Property as set forth in Article 12 of the Lease. (R109.) Thus it makes sense that separate provisions of the Services Agreement address The Salvation Army’s separate obligations to maintain the Property and make a termination payment in the event of early termination. (See R177; R189- 190.) Indeed, the provisions of the Service Agreement that provide The Salvation Army with an avenue to recover additional monies to fund maintenance and 37 restoration explicitly refer back to the to The Salvation Army’s maintenance obligation, as well. (R177.) These separate Services Agreement provisions mirror The Salvation Army’s separate obligations under the Lease. Thus, the proper reading of the Services Agreement permits a reading of the Lease that gives meaning to all of its provisions and nullifies none of them. D. The Lease Requires The Salvation Army To Go Beyond The Services Agreement To Meet Its Obligations Under The Lease, If Necessary, Before The Limitation Of Liability Can Apply Even if the Services Agreement does not provide any avenue for The Salvation Army to obtain restoration monies from the City, the plain language of Article 31 requires The Salvation Army to make efforts beyond its rights under the Services Agreement to procure funds to meet its obligations under the Lease. The language of the limitation of liability required The Salvation Army “to enforce its rights against the Department under the Services Agreement or otherwise . . .” (R136 (emphasis added).) Under the Lease, The Salvation Army’s failure to take commercially reasonable actions beyond the Services Agreement to secure money for restoration also precludes its ability to rely on the limitation of liability. Here, the Complaint alleges that The Salvation Army did nothing at all to enforce its rights against the City beyond the Services Agreement (R51 at ¶ 30), even through the City had an independent legal obligation to provide shelter for the homeless (R42 at ¶ 8). To the extent that the City refused to provide monies for 38 maintenance and restoration pursuant to any express or implied provision of the Services Agreement, The Salvation Army may have had political and legal recourse against the City pursuant to the laws, rules and regulations obligating the City to provide adequate facilities to house the homeless in New York City. The Salvation Army failed to take any steps beyond the Services Agreement to procure funds for maintenance or restoration as required by the Lease before the limitation on liability can apply. (See, e.g., R.50-51 ¶¶ 26-30.) Thus, at this stage of the proceeding, the claims against The Salvation Army cannot be dismissed even if any recovery by The Salvation Army were foreclosed by the terms of the Services Agreement. POINT II. AT BEST, THE LEASE AND RELATED SERVICES AGREEMENT ARE AMBIGUOUS, PRECLUDING DISMISSAL At best, The Salvation Army and the dissent have identified ambiguities in the form of internal inconsistencies between the Lease and related Services Agreement. Resolving these ambiguities, however, is an issue of fact and precludes dismissal of the case as a matter of law. Zuckerwise v. Sorceron Inc., 289 A.D.2d 114, 114-15 (1st Dep’t 2001) (“[A]t the very least, the contract is ambiguous and cannot be construed as a matter of law on the instant motion to dismiss”); Info. Superhighway, Inc. v. Talk Am., Inc., 274 F. Supp. 2d 466, 470-71 (SDNY 2003) (“[A]n ambiguous release may not form the basis for a motion to 39 dismiss.… Both parties have offered reasonable interpretations regarding the scope of the release, and these interpretations cannot be resolved on a motion to dismiss.”). Where an agreement or related agreements have “internal inconsistencies,” the trier of fact must consider “extrinsic evidence” of the parties’ intent. Fed. Ins. Co. v. Americas Ins. Co., 258 A.D.2d 39, 43 (1st Dep’t 1999) (citing Bianculli v. Bianculli, 242 A.D.2d 647 (2d Dep’t 1997); Friedman v. Smithfield, Inc., 146 A.D.2d 567 (2d Dep’t 1989).) And in cases where, like here, extrinsic evidence is lacking, appropriate discovery is necessary to develop the record as to the intent of the parties. See JP Morgan Chase Bank, N.A. v. Cellpoint Inc., 54 A.D.3d 366, 368 (2d Dep’t 2008) (reversing lower court’s decision granting defendant’s motion to dismiss because contract at issue was ambiguous, and although extrinsic evidence could properly be considered, the extrinsic evidence in the record did not resolve the issue as a matter of law). Here, if the termination provision of the Services Agreement provides only for the payment of the termination fee, and precludes any other recovery from the City, it is fundamentally inconsistent with the terms of the Lease, which separately requires The Salvation Army to restore the Property to its pre-Lease condition upon surrender. (See supra at CSNC § C(1)(b).) This ambiguity or inconsistency between the concededly connected agreements must be resolved by the trier of fact 40 after appropriate discovery is taken and a record is developed as to the intent of the parties. See Amusement Bus. Underwriters v. Am. Int’l. Group, 66 N.Y.2d 878, 880 (1985) (“[W]hen a term or clause is ambiguous and the determination of the parties’ intent depends upon the credibility of extrinsic evidence or a choice among inferences to be drawn from extrinsic evidence, then the issue is one of fact.”). Thus, even to the extent that the Lease and Services Agreement cannot be read so as to harmonize the terms of both documents, the case cannot be dismissed. POINT III. JFK HAS PROPERLY STATED A CAUSE OF ACTION FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING A. The Breach Of The Implied Covenant Of Good Faith And Fair Dealing Claim Is Not Duplicative The Appellate Division, First Department erred when it affirmed the trial court’s dismissal of JFK’s claim for breach of the implied covenant of good faith and fair dealing on the grounds that it is duplicative of JFK’s breach of contract claim. These claims may be properly pled in the alternative. Therefore, JFK’s claim for breach of the implied covenant of good faith and fair dealing should be allowed to stand. As this Court has recognized, New York’s rules of pleading liberally permit plaintiffs to plead alternative causes of actions: 41 CPLR 3014 explicitly provides for pleading alternatively and hypothetically in setting forth causes of action. . . . The spirit of the pleading provisions contained in the CPLR clearly indicates that procedural niceties are not ends in themselves, but only means to substantive justice. There is no need to force a plaintiff to elect between hypothetical or alternative causes of actions at the pleading stage. Plant City Steel Corp. v. Nat’l Mach. Exch., Inc., 23 N.Y.2d 472, 477 (1969) (citations omitted) (plaintiff need not elect between claim for breach of contract and claim for breach of an executory accord until trial); see also Cohn v. Lionel Corp., 21 N.Y.2d 559, 563 (1968) (denying motion to dismiss inconsistent claims because “a plaintiff is entitled to advance inconsistent theories in advancing a right to recovery”); CPLR 3014 (“[c]auses of action or defenses may be stated alternatively or hypothetically”). Therefore, JFK is entitled to plead in the alternative claims for both breach of contract and breach of the implied covenant of good faith and fair dealing. See, e.g., Citi Mgmt. Group, Ltd. v. Highbridge House Ogden, LLC, 45 A.D.3d 487, 487 (1st Dep’t 2007) (because pleading in the alternative is permitted, “the claims for breach of the implied covenant of good faith and fair dealing . . . should not be dismissed as duplicative of the breach-of- contract cause of action”). Moreover, should this Court -- as appellant advocates -- reverse the Appellate Division, First Department and dismiss JFK’s breach of contract claim, then clearly there would be no claim duplicative of JFK’s claim for breach of the 42 implied covenant of good faith and fair dealing. Under those circumstances, the breach of the implied duty of good faith and fair dealing claim should be reinstated. Indeed, the Appellate Division, First Department and the trial court articulated no basis for dismissing this claim other than that it was duplicative of the breach of contract claim. In the courts below, The Salvation Army wrongly asserted that should JFK’s breach of contract claim fail, then its claim for breach of the implied covenant of good faith and fair dealing would necessarily fail for the same reasons, because both are purportedly based on the alleged failure of The Salvation Army to properly terminate the Lease and procure the necessary funds from the City of New York to fulfill The Salvation Army’s alleged obligations under the Lease. (R16.) This argument is incorrect, however, because it ignores JFK’s allegations that The Salvation Army acted to deprive JFK of its right to the return of the Property in the same condition that it was in at the time the Lease was executed. By grossly neglecting even the most basic upkeep and repair of the Property, allowing it to become debilitated and uninhabitable, and by choosing not to make even a minimal effort to ensure that funds necessary to meet its obligations were provided by the City, The Salvation Army acted to deprive JFK of the fruit of its bargain.8 As 8 The Salvation Army takes the misguided position that its forwarding of a termination fee demonstrates that it took action to enforce its rights against the City. As demonstrated supra, the termination fee was an independent obligation separate and apart from the costs for maintenance and restoration. In any event, the record evidence cited by The Salvation Army only shows that 43 courts have routinely recognized, implied in every contract is a covenant of good faith and fair dealing that is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement. See, e.g., Maddaloni Jewelers, Inc. v. Rolex Watch U.S.A., Inc., 41 A.D.3d 269, 270 (1st Dep’t 2007) (permitting recovery on breach of implied covenant of good faith and fair dealing claim, even though there was no claim for breach of contract); Gross v. Empire Healthchoice Assur., Inc., No. 602848/05, 2007 NY Slip Op 51390(U), at *4 (Sup. Ct. N.Y. Cty. July 18, 2007) (in New York, “a plaintiff may bring a cause of action for breach of the implied covenant of good faith and fair dealing alleging that a defendant has exercised its rights under its contract in bad faith . . . to deprive the other party of the fruit of its bargain, even if the plaintiff has not alleged a breach of that contract”) (citing Maddaloni). 9 Thus, even if this Court were to reverse the Appellate Division, First Department and dismiss JFK’s breach of contract claim, the breach of implied the City voluntarily agreed to pay the termination fee, and not that The Salvation Army did anything to prompt such payment. (R11; R71; R79.) 9 Even if the Appellate Division, First Department is reversed with respect to the breach of contract claim, the provision in the Lease limiting The Salvation Army’s liability for breach of contract should not apply to foreclose a claim for breach of the implied covenant of good faith and fair dealing, because, as detailed in the Complaint, The Salvation Army’s appalling conduct, which left the Property in a state of ruin, served to deprive JFK of the right to receive the benefits under their agreement -- that is, to recover the Property in the same condition as it was tendered. To hold otherwise would be to undermine the implied covenant, permitting limitations of liability to become the threshold beyond which bad faith and unfair dealing are sanctioned. 44 covenant of good faith and fair dealing claim would not be duplicative of any other claim and should be allowed to stand on its own. B. The Salvation Army Has Breached The Implied Covenant Of Good Faith And Fair Dealing JFK has pleaded a valid claim that The Salvation Army breached its implied covenant of good faith and fair dealing by letting the Property fall into ruin while taking absolutely no action to preserve its rights against the City, and then attempting to use another provision of the Lease to avoid liability for that failure to act. (R48-51.) The Salvation Army thus did not make a phone call, write a letter, or even notify JFK that there was a potential funding problem in satisfying its obligations to JFK, or that it would later disclaim liability because it sat on its rights. (Id.) In so doing (or failing to do) The Salvation Army has, in fact, deprived JFK of the benefit of its bargain, by failing to sue or threatening to sue the City, and by failing to address the issues with JFK, even after being warned by JFK that they had failed to properly terminate its Lease, and by failing to make any attempt at all to enforce its rights with the City. (R64-65.) As a direct and proximate cause of The Salvation Army’s failure to make even a minimal effort to enforce its rights and its return of the Property to JFK in a state of abject ruin, as alleged in the Amended Complaint, JFK was deprived of the full benefits and protections of the Lease. Accordingly, JFK’s cause of action for breach of the 45 implied covenant of good faith and fair dealing should not have been dismissed and should be reinstated.10 POINT IV. THE SALVATION ARMY’S RELATIONSHIP WITH THE CITY DOES NOT REQUIRE DISMISSAL A. The Salvation Army Is The Real Party In Interest Under the Lease Implicit within the First Department’s denial of The Salvation Army’s motion to dismiss JFK’s breach of contract claim are findings that The Salvation Army is the proper defendant in this action and the City of New York is not the real party in interest. Whether a defendant is the “real party in interest” under a contract is governed by well established case law. The very cases cited by The Salvation Army in support of its argument that it is not the “real party in interest” under the Lease demonstrate that the original signatory to the contract is held blameless in favor of the “real party in interest” only in the event that the signatory formally assigned its rights under the agreement to another party. See Stardust 10 At minimum, what The Salvation Army was required to do in good faith to ensure that JFK received the benefit of the bargain is a question of fact that should not have been resolved on a motion to dismiss. See Sorenson v. Bridge Capital Corp., 52 A.D.3d 265, 276 (1st Dep’t 2008) (“Implicit in every contract is a promise of good faith and fair dealing that is breached when a party acts in a manner that -- although not expressly forbidden by any contractual provision -- would deprive the other party of receiving the benefits under their agreement. Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion.”) (internal citations and quotations omitted). While the parties can quibble about what they believe The Salvation Army was, or was not, obligated to do, what is certain is that The Salvation Army was required to take some action to enforce its rights under the Services Agreement, yet failed to take any meaningful action at all. That is sufficient to maintain a cause of action at this stage. 46 Lanes, Inc. v. Metropolis Bowling Ctrs., Inc., 35 Misc. 2d 291, 292 (Sup. Ct. Queens Cty. 1962) (defendant dismissed where it had, by written agreement, “assigned all of its rights, title and interest in the contract of sale. . . .”).11 Thus, only where there is a properly executed assignment does the assignee become the real party in interest under a contract. See Resurgent Capital Servs., LLC v. Mackey, 32 Misc.3d 265, 268 (Sup. Ct. Nassau Cty. 2011) (citing James McKinney & Son, Inc. v. Lake Placid 1980 Olympic Games, Inc., 61 N.Y.2d 836, 838 (1984)); Diehl v. Levine, No. 019444/07, 2008 N.Y. Slip Op. 31662U, at *13 (Sup. Ct. Nassau Cty. June 12, 2008) (same). Here, The Salvation Army does not contest that it was the signatory on the Lease and had a separate agreement with the City, the Services Agreement. There is nothing in JFK’s Complaint to suggest that the Lease was assigned to the City. Indeed, the entire premise of this action was that the Lease was not assigned to the City. As the trial court properly observed, “the Salvation Army is a party to the Lease and the City is not.” (R14.) And, in fact, the First Department also ruled in the Prior Action that the City did not assume the Lease and has no liability 11 The only other case that The Salvation Army cites for this proposition -- Covanta Niagara, L.P. v. Town of Amherst Garbage & Refuse Dist. No. 1, 16 Misc. 3d 656 (Sup. Ct. Erie Cty. 2007) -- does not even discuss the subject of a party in interest, and the court dismissed the breach of contract claim because the plaintiff failed to file a notice of claim under the appropriate Town Law statute. Id. at 657. 47 thereunder.12 JFK Holding Company, LLC v. City of New York, Index No. 110582/08 (1st Dep’t Dec. 8, 2009) (“[n]or was there evidence that the lease was assumed by the City. . . .”) (R360.) Accordingly, The Salvation Army cannot, and does not, show that the City is the real party in interest under the Lease. B. Res Judicata Does Not Apply to this Case The Salvation Army attempts to resuscitate its res judicata claim, which was rejected by the trial court. Where, as here, the prior action concerned different parties and different issues, res judicata presents no bar. Moreover, the trial court was correct in ruling that The Salvation Army was not in privity with the City and that The Salvation Army failed to prove that it was “controlled” by the City or was an “agent” of the City. (See R14.) 1. Res Judicata Is Not Implicated Where A Prior Action Was Between Different Parties And Concerned Different Wrongs_________________________________________ A previous litigation has no preclusive effect where the new litigation concerns new defendants. See State v. Town of Hardenburgh, 273 A.D.2d 769, 772 (3d Dep’t 2000); see also State v. Schenectady Chems., Inc., 117 Misc.2d 960, 12 “An assignment at law contemplates a completed transfer of the entire interest of the assignor in the particular subject of assignment, whereby the assignor is divested of all control over the thing assigned.” Coastal Commercial Corp. v. Samuel Kosoff & Sons, Inc., 10 A.D.2d 372, 376 (4th Dep’t 1960) (citation omitted). Here, there is no allegation that The Salvation Army divested “all control” over the facility to the City. Instead, JFK alleges that The Salvation Army operated the facility in a manner that led to its gross deterioration while failing to obtain sufficient funding from the City to maintain it. 48 969 (Sup. Ct. Rensselaer Cty. 1983) (“The defenses of res judicata and collateral estoppel . . . are not available since this action involves different parties upon different causes of action, and defendant’s responsibility, if any, was never addressed in the prior action.”); In re Estate of Jones, 48 Misc. 2d 358, 361 (Sur. Ct. Erie Cty. 1963) (“Different parties appear in the present proceeding than did in [previous action], so that an earlier determination, even if made on this [same] issue . . . would not bind the present litigants.”); Gillespie v. Flight Line Pub LNC., No. 2001-1364, 2002 WL 34406050, at *1 (Sup. Ct. Schenectady Cty. Dec. 27, 2002) (“the doctrine of res judicata is not applicable here inasmuch as defendants were neither parties nor in privity with any party to the prior action”). Here, the Prior Action against the City does not bar a claim against The Salvation Army, which was not a party to that litigation and whose responsibilities were never addressed by that litigation. Moreover, where, as here, the gravamen of the claims “is not the same wrong” at issue in the Prior Action -- or where the claims require different elements of proof and evidence -- res judicata is not a bar to a new action. Energycresent, Inc. v. Creative Modules Enters., Inc., 183 A.D.2d 804, 805 (2d Dep’t 1992); Lukowsky v. Shalit, 110 A.D.2d 563, 566 (1st Dep’t 1985) (three actions involved a single transaction but because each presented a different gravamen of wrong and distinct cause of action, res judicata posed no bar to the 49 claims); Silberstein, Awad & Miklos, P.C. v. Spencer, Maston & McCarthy, LLP, 43 A.D.3d 902, 903 (2d Dep’t 2007) (res judicata is no bar “where different elements of proof are required to support the claims”); Melillo v. County of Nassau, 307 A.D.2d 356, 358 (2d Dep’t 2003) (no res judicata even when two actions “arise out of essentially the same conduct” when the “evidence necessary” in both cases differ). For instance, in Lukowsky, the First Department held that “even when two successive actions arise from an identical course of dealing, the second may not be barred if the requisite elements of proof and evidence necessary to sustain recovery vary materially.” Lukowsky, 110 A.D.2d at 566; see also Jefferson Towers, Inc. v. Public Serv. Mut. Ins. Co., 195 A.D.2d 311, 313 (1st Dep’t 1993) (same).13 Here, the legal issues in the Prior Action against the City, and the elements of proof necessary to sustain the claims at issue, are entirely distinct from the claims alleged against The Salvation Army. The complaint in the Prior Action alleged that the City breached an oral agreement supported by consideration separate and apart from the consideration for the Lease between JFK and The Salvation Army at issue herein. (See R261, 263-264 ¶¶ 26-27, 35-36.) According 13 Indeed, even where the “gravamen of wrong” is identical in two actions, and even when these actions share “the same nucleus of operative fact” -- res judicata does not apply where the claims at issue materially differ. Seabrook v. The City of New York, No. 110643/00, 2002 WL 34358112, at *1 (Sup. Ct. N.Y. Cty. June 10, 2002) (City of New York failed to meet its burden of establishing res judicata defense where prior action raised federal claims and current action raised statutory claims under New York law) (aff’d Seabrook v. City of New York, 306 A.D.2d 68, 68 (1st Dep’t 2003) (modifying on other grounds but affirming res judicata determination). 50 to the earlier pleading, the City was liable to JFK as a third party beneficiary under the Services Agreement between the City and The Salvation Army, until its short limitation period expired. During that period, the City asked JFK to forgo litigation in exchange for an agreement by the City that it would restore the Property to its pre-lease condition. (R261 at ¶¶ 26-27.) JFK agreed and fulfilled its obligation by not suing the City, but the City never fulfilled its obligation to restore the Property leading to the first suit. (R262-263 at ¶¶ 31-32.) The Prior Action was dismissed, not because it was determined that the City never entered into a separate oral agreement, but rather on the basis of the City’s technical defense that any oral agreement it may have made was “invalid and unenforceable” because it did not comply with certain provisions of the City Charter. (See R80.) By contrast in this action, JFK sued on the fully executed Lease between it and The Salvation Army, which independently obligated The Salvation Army to reasonably maintain the Property during its tenancy, and upon vacating the Property, leave it in its pre-Lease condition. (R49; R136.) Similarly, the Lease obligated The Salvation Army to take commercially reasonable steps to ensure that it possessed the necessary funding to properly operate the homeless shelter at the Property and otherwise comply with the Lease, which it failed to do. (R136.) These distinct claims against a distinct party are the subject of the operative Complaint herein, which are not susceptible to dismissal based on res judicata. 51 2. The Salvation Army Is Not In Privity With The City The Salvation Army’s argument that it was in privity with the City of New York based on the City’s domination and control over it and/or based on a principal-agency relationship is also without merit. Even if these arguments had merit, however, they could not be properly addressed on a motion to dismiss as they raise material questions of fact. In order for a party other than a party to a prior action to successfully invoke res judicata, “privity is . . . required between the prevailing party in the prior action and the party relying on res judicata in the subsequent litigation.” Friedman v. Park Lane Motors, Inc., 18 A.D.2d 262, 265-66 (1st Dep’t 1963). In addressing privity, “courts must carefully analyze whether the party sought to be bound and the party against whom the litigated issue was decided have a relationship that would justify preclusion, and whether preclusion, with its severe consequences, would be fair under the particular circumstances.” Hunt v. Enzo Biochem, Inc., No. 06 Civ. 170, 2009 WL 1683990 at *5 (S.D.N.Y. June 15, 2009) (citing Buechel v. Bain, 97 N.Y.2d 295, 304-05 (2001)). Doubts should be resolved against imposing preclusion to ensure that the party to be bound can be considered to have had a full and fair opportunity to litigate. Id. Importantly, where there is a question as to whether privity exists, dismissal is inappropriate until the facts surrounding the alleged privity can be adequately developed. Green v. Santa Fe 52 Indus., Inc., 70 N.Y.2d 244, 255 (1987) (“[P]rivity . . . is a question of fact, which would preclude summary judgment.”) (citing Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 277 (1970)); see also Hunt, 2009 WL 1683990 at *5 (determining privity after discovery). Specifically, as it relates to The Salvation Army’s argument that it was in privity with the City based on the City’s “domination and control over The Salvation Army” (Br. at 46-47), the cases that The Salvation Army cite are easily distinguishable. In Elias v. Rothschild, the issue was privity as it relates to collateral estoppel, and more importantly, the “control” that is discussed is the control that an individual had over his company, and the fact that the individual and company were referred to interchangeably in the pleadings. See Elias v. Rothschild, No. 603288/02, 2005 WL 5960119, at *5 (Sup. Ct. N.Y. Cty. Apr. 27, 2005). Here, not only is the City not an “individual” that has “control” over The Salvation Army as its “company,” but at no point are the City and The Salvation Army referred to interchangeably in the pleadings. Moreover, The Salvation Army improperly relies on Melwani v. Jain for the proposition that privity was found when the defendant exercised “domination and control” over the defendant in a prior action. (See Br. at 47-48 (citing Melwani v. Jain, No. 02 Civ. 1224, 2004 WL 1900356 (S.D.N.Y. Aug. 24, 2004).) In that case, the court found that there was privity between the current defendant and the 53 prior defendant based on the following facts: (1) the current defendant provided financing to the prior defendant; (2) the current defendant paid for the prior defendant’s settlement; (3) the two defendants shared the same executive officers; (4) the two defendants were considered “sister companies;” and (5) the two defendants had an identity of interest and incentives in defending against the same claims based on the same alleged wrongdoing. Id. Here, none of those factors favor a finding that the City exercised “control and domination” over The Salvation Army. In particular, The Salvation Army has failed to establish that it had an identity of interests with The City in these litigations. See Bryant v. New York City Dep’t of Housing Preservation and Dev., No. 0102249/07, 2007 N.Y. Slip Op. 33345(U), at *1 (Sup. Ct. N.Y. Cty Oct. 10, 2007) (no privity where interests differed). The City did not represent The Salvation Army’s interests in the Prior Action; if anything, their interests were diverse. As the lower court recognized, “because the Salvation Army is a party to the Lease and the City is not, their interests are diverse. In fact, the court has already held that the City has no liability under the contract.” (R14.) Finally, and equally unavailing, is The Salvation Army’s argument that it was in privity with the City based on its principal-agency relationship and/or that it was not the real party in interest to the Lease. As described supra, The Salvation 54 Army was more than a mere agent for the City and was the real party in interest under the Lease. C. The Salvation Army’s Agency Arguments are Meritless Similarly unavailing are The Salvation Army’s arguments that it was acting as a mere agent for the City in entering into the Lease with JFK, and thus cannot be held liable for a breach of the Lease (see Br. at 40-44), and that this purported agency-principal relationship establishes privity for res judicata purposes (see Br. at 48-49). The Salvation Army has made no showing, written or otherwise, that it was a mere agent of The City. The issue of whether there is a principal-agent relationship in these circumstances is a question of fact that cannot be decided on a motion to dismiss. See Bostany v. Trump Org. LLC, 73 A.D.3d 479, 480 (1st Dep’t 2010) (“[W]here, as here, the circumstances raise the possibility of a principal-agent relationship but no written authority of the agent has been proven, questions of agency and of its nature and scope . . . are questions of fact.”); Fogel v. Hertz Int’l, 141 A.D.2d 375, 376 (1st Dep’t 1988) (same); Rumbaut v. Reinhart, 216 A.D.2d 551, 552 (2d Dep’t 1995) (reversing lower court and holding “issues of fact exist” as to whether the broker was acting as the agent of the lenders). Indeed, the Services Agreement between the City and The Salvation Army does not characterize The Salvation Army as the City’s agent, but rather as an “independent contractor.” (R198 (Services Agreement, Part 2, Art. 5.4)). 55 “Generally, an independent contractor does not act as an agent of the hiring principal. Unlike an agent, whose acts are subject to the principal's direction and control, an independent contractor is one who, in exercising an independent employment, contracts to do certain work according to his own methods, and without being subject to the control of his employer, except as to the product or result of his work.” A.M. Med. Servs., P.C. v. Progressive Cas. Ins. Co., 101 A.D.3d 53, 62 (2d Dep’t 2012) (citations omitted). Additionally, the Services Agreement, consistent with The Salvation Army’s role as an independent contractor, provides for The Salvation Army’s management of the facility without the City’s direct control. (See Services Agreement, Art. 1 (“Scope of Services. The Contractor shall operate and manage a facility to provide transitional housing for homeless families”) (R168); Art. 2 (O) (“Building Management. The Contractor or its Landlord, as provided for under the Lease, shall be responsible for all management and maintenance of the Facility, including preventative maintenance, day to day maintenance, minor repairs and major capital improvements to mechanical and building systems. . . . The Department shall not be responsible for building management or maintenance.”) (R177.).) Similarly, the Lease between The Salvation Army and JFK is consistent with The Salvation Army’s role as an independent contractor, not an agent, of the City. The Salvation Army undertook of its own accord - and not as an agent of the City - to, among other things, maintain and repair the Property (Lease, Art. 12 56 (R 109)), surrender the Property in its pre-Lease condition (id., Art. 23 (R130)), and use “commercially reasonable efforts” to enforce its rights under the Services Agreement (id., Art. 32 (R 136)). None of this supports The Salvation Army’s claim that it was the City’s agent. The Complaint also is consistent with the City’s and The Salvation Army’s agreement that The Salvation Army was a third party contractor of the City, not its agent. (See, e.g., Amended Complaint at ¶ 20 (“The Salvation Army . . . [was] aware of its obligation to restore Carton House to its pre-Lease condition . . . .”) (R48), ¶ 29 (discussing The Salvation Army’s obligation to use commercially reasonable efforts to enforce its rights) (R51), and ¶ 43 (discussing reports of The Salvation Army’s gross negligence in maintaining the Property) (R56)).14 These facts and allegations alone should preclude dismissal at the pleading stage on the issues of whether The Salvation Army was the City’s agent and whether it was in privity with the City with respect to the operation of the facility. Even assuming, arguendo, that The Salvation Army had been acting as an agent for the City,15 it signed the Lease in its own name -- not on behalf of the 14 While The Salvation Army suggests that the Complaint refers to the City in a single sentence as the “real party in interest,” it is clear from the totality of the Complaint, as well as the Lease and the Services Agreement, that The Salvation Army served the interest of the City as an independent contractor, not as an agent. 15 In its motion to dismiss in the instant action, The Salvation Army argued that it was the City’s agent on the basis of the Prior Action trial court’s purported finding that The Salvation Army merely acted in a “representative capacity” for the City. The trial court in this action properly rejected that argument because -- beyond the fact that The Salvation Army actually 57 City -- and the face of the Lease contained no indication that it was being signed in a representative capacity. Accordingly, The Salvation Army was responsible for meeting its terms. See Schmitz v. MacDonald, 250 A.D.2d 533, 533-34 (1st Dep’t 1998) (where “[t]here is no indication on the face of the note that defendant signed it in a representative capacity . . . he is, accordingly, personally liable for . . . the note”); Pepsi-Cola Buffalo Bottling Corp. v. Wehrle Drive Supermarkets, Inc., 123 A.D.2d 515, 515 (4th Dep’t 1986) (“agent’s failure to show by his signature his representative capacity” constitutes evidence of agent’s intention to be bound); Formica Constr. Co., Inc. v. Mills, 9 Misc.3d 398, 402 (Civ. Ct. Richmond Cty. 2005) (where contract was “clear and unambiguous on its face” in not naming a supposed third party principal or “indicat[ing] anywhere that [defendant] was signing in a representative fashion” -- defendant was liable for the contract); see also UBS Secs., Inc. v. Tsoukanelis, 852 F. Supp. 244, 247 operated the homeless shelter -- the Prior Action trial court’s decision was reversed by the First Department, invalidating that argument. (R14-15.) Previous findings in reversed decisions have no preclusive effect. See, e.g., Jeffreys v. Griffin, 301 A.D.2d 232, 238-39 (1st Dep’t 2002) (previous findings had no collateral estoppel effect where prior decision was reversed); Yanni v. Bruce Brandwen Productions, Inc., 160 Misc. 2d 109, 112 (Civ. Ct. N.Y. Cty. 1994) (“[t]he final . . . order reversed the initial . . . order; therefore, upon its reversal, the initial . . . order could have no preclusive effect”). Now, The Salvation Army purports to use JFK’s pleadings as the basis for its claims that it was under control of The City as its agent, stating that direct negotiations occurred between JFK and the City, that The Salvation Army had limited liability, and that the City represented that it would honor The Salvations Army’s obligations under the Lease. (Br. at 41-42.) But The Salvation Army has not -- and cannot -- cite any cases showing that under similar facts, and on the basis of the pleadings, a court concluded that one party was the agent for another. Indeed, if a party is harmed by two wrongdoers, the fact that the injured party enters into negotiations with the first wrongdoer does not make the second wrongdoer the agent of the first. 58 (S.D.N.Y. 1994) (applying New York law, “nothing short of clear disclosure of the principal’s corporate status will relieve an agent from personal liability. . . . The mere fact that the plaintiff had reason to suppose that [the defendant was] acting as an agent is not enough.”) (internal citations omitted).16 16 Further, The Salvation Army has not presented any evidence that it had the actual authority to bind The City to the terms of the Lease and execute the Lease on The City’s behalf. Contrary to its position, The Salvation Army cannot, by its own acts, give itself the authority to act on behalf of the City. See Network Mgmt. Servs. Group v. Rosenkrantz Lyon & Ross, Inc., 211 A.D.2d 584, 585 (1st Dep’t 1995) (agency argument failed where “all of the documents relied upon . . . were created by [signatory defendant]” and “executed solely by the plaintiff and [signatory] defendant” who “cannot, by its own acts, imbue itself with apparent authority to act as an agent”). 59 CONCLUSION For the foregoing reasons, the decision and order of the Appellate Division, First Department should be affirmed. Dated: New York, New York January 24, 2013 Respectfully submitted, KASOWITZ, BENSON, TORRES & FRIEDMAN LLP By: Michael J. Bowe 1633 Broadway New York, New York 10019 (212) 506-1700 Attorneys for Plaintiffs - Appellants JFK Holding Company, LLC and J.F.K. Acquisition Group Of Counsel: Jennifer S. Recine /s/ Michael J. Bowe ADDENDUM Westlaw, 2007 WL 3130992 (N.Y.Sup.) Supreme Court, New York. New York County In the Matter of the Application of David A. BRYANT, Petitioner, v. Page 1 NEW YORK CITY DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT, Respondents. West Headnotes Stipulations 363 €=>17(2) 363 Stipulations 363kl5 Conclusiveness and Effect 363k 17 Persons Concluded No. 010224912007. October 10, 2007. 363kI7(2) k. Persons not parties to stipulation. Most Cited Cases Collateral estoppel did not preclude the New York City Department of Housing Preservation and Development from litigating the issue of harassment against tenants in the 36-month period preceding the application for renovation of building, for purpose of determining whether building owner was entitled to certificate of no harassment; although the tenants and the owner reached a stipulation regarding multiple code violations in a prior proceeding in Housing Court, the Department was neither in privity with the tenants nor a party to the prior litigation. New York City Administrative Code § 27-2093. For an order under C.P.L.R. Article 78 [This opinion is uncorrected and not selected for official pUblication.] Present: Eileen Bransten, 1. The following papers, numbered 1 to 3 were read on this motion to/for set aside HDP determination Notice of Motion/ Order to Show Cause - Affidavits- Exhibits ... Answering Affidavits - Exhibits _ Replying Affidavits _ Cross-Motion: [] Yes [] No. Upon the foregoing papers, it is ordered that this motion Dated: 10-10-07 «signature» J.s. C. PAPERS NUMBERED 2 3 In this Article 78 proceeding, petitioner David A. Bryant ("Mr. Bryant") seeks a Judgment setting aside the final determination of the New York City Department of Housing Preservation and Development ("HPD"), which denied his application for a © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2007 WL 3130992 (N.Y.Sup.) Page 2 Certificate of No Harassment. HPD vigorously opposes the petition. Background This proceeding relates to a seven-unit building and property located at 213 West 131 st Street in Manhattan ("the Property"). In July 2004, Radian Services LLC--the owner of the property--commenced an eviction proceeding against six tenants in Housing Court. Verified Answer ("Answer"), at ~ 75. On December 21, 2004, the Special Enforcement Unit of HPD issued an Order to RepairiVacate Order for the Property ("Vacate Order"). Answer, at ~ 77. The Vacate Order set forth that an inspector certified that the dwelling was "dangerous to life and detrimental to the health and safety of the occupants" based on, among other things, "sagging/collapsing stairs, * * * no heat * * * no gas supply * * * no hot water * * * no water supply * * * Bldg in total disrepair." Answer, at ~ 77. It was ordered that the owner repair the building by the following day. Id The conditions at the Property were not timely cured. Answer, at ~ 78. HPD continued to monitor the situation on a regular basis.ld. On December 30, 2004, the Property was transferred to Jo West 131st Street, LLC ("Jo West"), of which Jeff Ozeri ("Mr. Ozeri") was a member. Answer, at ~ 76. Jo West was substituted as a petitioner in the Housing Court eviction proceeding. Id., at ~ 80. On January 19,2005, the parties to the eviction proceeding entered into a Stipulation of Settlement that was so-ordered by the court. The Stipulation indicated that the respondent tenants were A. Kym Graves, Charles Strother, Larry Wise, Robert Gil- lyard, Reginald Hill and Gerald Chance. Verified Petition ("Petition"), Ex. G, at ~ 1. Under the terms of the parties' agreement, the tenants agreed to vacate the Property. They received, among other things, $5,500, moving costs and their use and occupancy payments were waived. Id., at ~ 7. The stipulation stated: "Both parties withdraw each of their claims and/or counterclaims as set forth in the petitions and answer(s) * * *. Both parties also release each other, their officers, partners, members, employees, agents, heirs and assigns from any and all claims arising out of the [tenants] residency in the subject property to date. Each of the respondents [tenants} further represents that he/she has in no way been harassed by petitioner [owner}." Petition, Ex. G., at ~ 12 (emphasis added). If the owner failed to fulfill any of the stipulation's obligations the tenants reserved their rights to restore the cases. Id., at ~ 13. On January 20, 2005, pursuant to HPD's December 21, 2004 Vacate Order, HPD vacated the Property. Verified Answer ("Answer"), at ~ 82 On April 14, 2005, Mr. Bryant, an innocent arms-length purchaser, acquired the Property from Jo West. Petition, at ~ 12; Answer, at ~ 83. Because he wanted to renovate the Property, in August 2005, Mr. Bryant applied to HPD for a Certificate of No Harassment. Petition, at ~ 13, Ex. B. In his application, Mr. Bryant indicated that the relevant inquiry period was August 16,2002 through August 16,2005. Petition, Ex. B. Item 18 of the application required him to list "all former occupants who have surrendered the units they occupied at the subject premises, or otherwise vacated, from the opening date of the Inquiry Period to the present." The application set forth that if "you have not owned the premises during the entire inquiry period, please contact former owners for this information." Id. In response, Mr. Bryant indicated "None," omitting occupants' names, the units they occupied, © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2007 WL 3130992 (N.Y.Sup.) Page 3 the dates they vacated, their reasons for vacating and their current contact information. ld. Hem 19 required Mr. Bryant to list "all lawsuits relating to the subject premises commenced, pending or resolved during the inquiry period." Petition, Ex. B. Again, Mr. Bryant indicated "None." ld. By petition dated July 10,2006, pursuanllo Adminislrative Code § 27-2093, HPD sought to prohibit renovation of the Propeliy for three years on the ground that "harassment occurred at the premises 213 West 131 st Street, Borough of Manhattan, during the inquiry period." Petition, Ex. C, at 7. Specifically, the petition set forth that between September 14,2002 to the present, the "alleged acts of harassment [that] were done or caused by the applicant, applicant's agents, present owners or prior owners or their agents" included: • Failure to comply with a vacate order placed against the property effective December 22, 2004; • Failure to provide adequate heat and hot water; • Failure to provide gas to the building; • Failure to repair defective plaster; • Failure to repair holes in the ceiling; • Failure to repair electrical problems; • Failure to repair leaking roof; • Failure to repair wooden floor; • Failure [to repair] bathtub, pipes and flooding in basement; • Failure to repair broken steps; • Repeatedly telling tenants they had to move; • Bringing frivolous holdover proceedings against tenants; • Forcing tenants to bring HP actions in order to get repairs done; • Omitting material information from the application for a certification of no harassment, including but not limited to, the HP actions brought by the tenants, the list of former tenants, etc.; • Failure to repair hazardous violations timely which caused the Emergency Repair Program at HPD to repair said violations, which include, but are not limited to, supplying electricity to the building, concealing water leaks; and • Generally interrupting and/or discontinuing and decreasing essential services and repairs." Petition, Ex. C, at 5-6. In his answer to the petition, Mr. Bryant maintained that when he purchased the Propeliy it was vacant and he "had no knowledge of tenants or any alleged harassment prior to the instant proceeding." Petition, Ex. D, at ~ 4. He asserted that "all allegations of harassment offormer tenants * * * pertain to [his] predecessors in interest." Jd., at ~ 5. He further contended that the January 19, 2005 so-ordered stipulation "constitutes a prior judicial determination that the alleged tenants of the subject premises had in 'no way been harassed' by the prior owner" and that HPD "is estopped from herein seeking to prove harass- ment of alleged tenants in derogation of the Civil Court Order issued January 19,2005." ld., at ~~ 8-9. An administrative hearing was scheduled. HPD's potential witnesses included former tenants Arbara Kym Graves (who ac- tually testified), Charles Strother, Robeli Gillyard, Larry Wise and Reginald Hill, who were parties to the earlier Housing Court proceedings. Petition, Ex. E. On January 19,2007, HPD issued a final determination denying Mr. Bryant's application for a certification of no harassment based on the Report and Recommendation of the Administrative Law Judge ("AU"). Petition, Ex. F; Answer, Ex. T. The AU found that there were "currently 146 open violations on the building" and explained that any "acts of harassment during the 36-month inquiry period are attributed to the current owner, even those acts committed by prior owners, without regard to the current owner's fault." Petition, Ex. F, at 4. The AU concluded: © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2007 WL 3130992 (N.Y.Sup.) Page 4 "There is no dispute that [the Property] has a history of housing maintenance code violations. Indeed conditions were so ha- zardous that [HPD] issued an emergency order to vacate the building in December 2004 due to a complete lack of services and unsafe conditions. Within four months of issuing the vacate order [Jo West] delivered the building, without tenants, to [Mr. Bryant]. This tribunal has stated that numerous violations and a vacate order are sufficient to establish a prima facie case of harassment and create a presumption that there was an intent to cause lawful occupants to surrender their occupancy rights. * * * Accordingly, I find that [HPD] has demonstrated harassment as defined in section 27-2093(a)." Petition, Ex. F, at 5. The AU rejected Mr. Bryant's arguments that HPD was collaterally estopped from alleging harassment based on the Housing Court stipulation and that alleged "criminal behavior" by the tenants in soliciting a monetary settlement precluded a harassment finding. Petition, Ex. F, at 5. Specifically, with respect to collateral estoppel, the AU found that Mr. Bryant "failed to demonstrate that the issue of tenant harassment was litigated in the Housing Court proceeding, [and] HPD * * * demonstrated that it did not have a full and fair opportunity to litigate this question prior to this proceeding." Petition, Ex. F, at 5-6. The AU set forth that the one-line in the stipulation that mentioned harassment was not enough to implicate preclusion, stating that "the tenants' stipulation, standing alone, is insufficient to establish that the issue oftenant harassment was actually litigated in the prior proceeding." HPD was not in privity with the tenants for purposes of applying collateral estoppel, the AU found, because it "was not a party to the Housing Court proceeding and there is no evidence that it had any control over the litigation." Jd. The AU explained that unlike the eviction proceeding, the present case was commenced "pursuant to the SRO Anti-Harassment ordinance in response to a request for a certificate of no-harassment" and that HPD "has a statutory obligation to make a determination whether harass- ment of SRO tenants has occurred within three years of receiving such a request." Jd., at 7. The AU further found that the tenants "monetary demand" to Mr. Bryant, which HPD considered "inappropriate," and the sustained objection to admitting evidence of the settlement offer at the hearing, did not alter the conclusion that there had been harassment at the Property. Petition, Ex. F, at 7. The AU stated that even though Mr. Bryant "is an innocent owner with no prior connection to those responsible for the acts of harassment, and appears willing and able to renovate the uninhabitable building, the statute makes no provision for a remedy other than the non-issuance of a certificate of no harassment." Petition, Ex. F., at 8. Mr. Bryant commenced this Article 78 proceeding seeking a Judgment setting aside HPD's final determination. He argues that the AU improperly failed to apply collateral estoppel to prevent relitigation of a decided issue. Petitioner's Memorandum of Law ("Bryant Mem."), at 20. Mr. Bryant contends that HPD and the tenants in the Housing Court proceedings have a "mutually beneficial posture" and therefore that they meet the "broad definition of being in privity for collateral estoppel purposes." Bryant Mem., at 22. He asserts that HPD "is acting herein on behalf of the same tenants" that were subject to the consent order "and is in privity with its five tenant witnesses who previously were the litigants." Jd., at 24. Mr. Bryant states that "neither [HPD] nor the administrative court below have appellate jurisdiction necessary to review the civil court consent order." Petitioner's Reply Memorandum of Law ("Reply Mem."), at 2-3. Mr. Bryant also maintains that the tenant witnesses attempted to bribe him by asking for $20,000 in exchange for refusing to testify on HPD's behalf. Petition, at n 51, 53. He urges that it was error for the AU to allow one of the tenants to testify but deny him the opportunity to cross-examine her related to the $20,000 solicitation on the ground that settlement negotiations are inadmissible. Jd., at ~~ 54-55. HPD counters that collateral estoppel is inapplicable because the Housing Court stipulation does not establish that the issue of harassment was actually litigated or decided by the court. Answer, at ~ 106. HPD further contends that Mr. Bryant has not demonstrated privity between HPD and the tenants since its interests were not represented in the Housing Court proceeding.ld., © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2007 WL 3130992 (N.Y.Sup.) Page 5 at ~ 107. HPD emphasizes that the "tenants and the landlord cannot foreclose [it] from carrying out its duty by one line in a stipulation in a proceeding in which HPD did not even participate." Id., at ~ 107. HPD also maintains that the ALl properly precluded discussion of the parties' settlement negotiations at the hearing. Answer, at ~ 114. HPD defends its determination, explaining that it "followed all applicable procedures" and that "denial of the application for a Certificate of No Harassment was within [its] authority, and was reasonable and proper in all respects." Answer, at ~ Because collateral estoppel does not preclude HPD's denial ofMr. Bryant's application for a Certificate of No Harassment and because the final determination was rational, the petition is denied and the proceeding is dismissed. Analysis "Collateral estoppel precludes a party from relitigating in a subsequent action or proceeding an issue raised in a prior action * * * and decided against that party or those in privity." Buechel v. Bain. 97 N.Y.2d 295, 303, 740 N.Y.S.2d 252, 766 N.E.2d 914 (2001). "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 op- portunity to contest the decision now said to be controlling." Id., at 303-304. 740 N.Y.S.2d 252, 766 N.E.2d 914. Additionally, in addressing whether a non-party should be deemed in privity with one who already litigated an issue, "courts must carefully analyze whether the party sought to be bound and the party against whom the litigated issue was decided have a relationship that would justify preclusion, and whether preclusion, with its severe consequences would be fair under the par- ticular circumstances. Doubts should be resolved against imposing preclusion to ensure that the party to be bound can be considered to have had a full and fair opportunity to litigate. " Buechel v. Bain, 97 N.Y.2d, at 305, 740 N.Y.S.2d 252, 766 N.E.2d 914 (emphasis added). Here, there is no doubt that collateral estoppel is inapplicable. At the outset, there is no privity between HPD and the tenants in the Housing Court matter. Indeed, they do not remotely have a "relationship that would justify preclusion." The interests of HPD, are materially different from those of the tenants. The tenants simply cared about resolution of their pending Housing Court case. Their concern was limited to receiving sufficient compensation, nothing more. HPD--the only party with standing to initiate a harassment proceeding pursuant to Administrative Code § 27-2093--has wholly different responsibilities, objectives and concerns. It is duty bound to ensure that there has been no harassment of lawful oc- cupants of a multiple dwelling during the thirty-six month period before an application for a certification of no harassment. It had no opportunity or obligation to litigate "harassment" in the Housing Court proceeding. That HPD called on the Housing Court tenants to testify at its administrative proceedings, which took place long after the stipulation's execution, is of no con- sequence. It does not demonstrate that HPD was in privity with these individuals then or over a year earlier when the stipulation was signed. Mr. Bryant's reliance on Buechel v. Bain is misplaced. There, parties to be bound by an earlier judicial determination were named parties in that earlier action and were partners with the party against whom the issue was decided. They had notice of what was being litigated in the earlier action and the evidence established that they understood they could be bound by a judicial determination adverse to their partner. HPD, in stark contrast, was not a party to the Housing COUJ1 matter, and with its own independent objectives and responsibil- ities, does not have a relationship with the former tenants "that would justify preclusion." Additionally, the issue of harassment covered by Administrative Code § 27-1093 was not actually litigated or decided by the Housing Court. The Housing COUJ1 proceedings did not address whether there had been any harassment pursuant to Admin- © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2007 WL 3130992 (N.Y.Sup.) Page 6 istrative Code § 27-2093. Indeed, there had not been any application for a celtificate of no harassment and HPD had no occa- sion to investigate the matter. The issue of harassment under Administrative Code § 27-1093 was not actually litigated and certainly not decided by virtue of the one-line mention of "harassment" in a stipulation to which HPi) was not a party. See, Kaufman v. Eli Lillv & Co .. 65 N.Y.2d 449, 457, 492 N.Y.S.2d 584, 482 N.E.2d 63 (1985) (no collateral estoppel based on stipulation); Angel v. Bank of Tokyo-Mit sub is hi. Ltd.. 39 A.D. 3d 368, 371,835 N.Y.S.2d 57 (1st Dept.2007) (no issue preclu- sion based on a "consent order" because "collateral estoppel is inapplicable if an issue has not been fully litigated, e.g., if there has been a stipulation"). It is preposterous to even suggest that tenants, who have private interests entirely different from HPD's, could enter into a stipulation that would then bind the governmental agency and prevent it from furthering public interest. If preclusion were to apply under such circumstances private parties could entirely circumvent the Administrative Code. In the end, HPD, which was not in privity with the Housing Court tenants, did not have any incentive or any opportunity--much less a full and fair one--to contest the issue of harassment in the Housing Court proceeding. Finally, because there was a rational basis for denying Mr. Bryant's application for a Certificate of No Harassment, the de- termination must be upheld. Accordingly, it is ORDERED and ADJUDGED that the petition is denied and the proceeding is dismissed. This constitutes the Decision, Order and Judgment of the Court. Dated: New York, New York October 10, 2007 ENTER: «signature» Hon. Eileen Bransten Bryant v. New York City Dept. of Housing Preservation and Development 2007 WL 3130992 (N.Y.Sup. ) (Trial Order) END OF DOCUMENT © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. Page I LexisNexis® [*1] JOANNE DIEHL, Plaintiff, -against- LAURENCE LEVINE, KAREN SUSS, LARKA V, INC, KARLAR, INC., JONATHAN LUPKIN, FLEMMING ZULACK, WILLIAMSON ZAUDERER LLP, RICHARD HOROWITZ and HELLLER HO- ROWITZ & FElT, P.c., Defendants. INDEX No. 019444/07 SUPREME COURT OF NEW YORK, NASSAU COUNTY 2008 NY Slip Op 31662U; 2008 N.Y. Misc. LEXIS 9653 June 10,2008, Decided June 12, 2008, Entered NOTICE: THIS OPINION IS UNCORRECTED AND WILL NOT BE PUBLISHED IN THE PRINTED OFFICIAL REPORTS JUDGES: [**1] Present: HON. STEPHEN A. BUCA- RIA, l.S.C. OPINION BY: Stephen A. Bucaria OPINION SHORT FORM ORDER This motion, brought on by order to show cause pursuant to CPLR 3211 [a][1],[7] by the defendants Heller, Horowitz & Feit, P.e. and Richard Horowitz for an order dismissing the amended complaint insofar as asserted against them; and a motion pursuant to CPLR 3211 [a][l], [3], [5],[7], 3211 [b] by the plaintiff Joanne Diehl for an [*2] order dismissing stated counterclaims and affirmative defenses interposed by codefendants Laurence Levine, Karlar Temporaries, Inc and Larkav, Inc.; and a motion pursuant to CPLR 3211[a][1],[7] by the defendants Jonathon Lupkin and Flemming Zulak Williamson Zauderer, LLP, for an order dismissing the complaint insofar as asserted against them, are all determined as hereinafter set fOlih. In 1993, the plaintiff Joanne Diehl became an em- ployee of Lexstra Temporaries, Inc ["Lexstra"] -- a pro- vider of professional staffing services formed by code- fendant Laurence Levine in 1992 and later jointly oper- ated with codefendant Karen Suss. In accord with an employment agreement dated September 30, 1994 [the "employment agreement"], Lexstra issued to the plaintiff, 5% of its non-voting, common stock [**2] (8 shares) -- which amount was later increased to 8% in August of 1997. Suss and Levine were the majority of shareholders in Lexstra and in a related entity, Lexus Temporaries, Inc .. The plaintiffs employment agreement also contained certain prohibi- tions, which precluded the plaintiff from, among other things, soliciting Lexstra employees and/or competing with Lexstra. In October of 1998, Lexus and Lexstra entered into a so-called Asset Purchase Agreement ["Asset Agree- ment"], with an entity known as MSX International Inc ["MSX"], a "global provider of engineering information technology and staffing services" (Levine Ans., PP 88- 93; Cmplt., P 15; Pltffs Brief at 3-4). Pursuant to the Asset Agreement, MSX acquired the assets of Lexstra and Lexus for $ 24 million, with the purchase amount to be allocated to Lexstra and Lexus in the percentages of 56.54% and 43.46%, respectively. The Asset Agreement provides in part, that "[a]t the closing * * * Sellers [Lexus and Lexstra] will convey, transfer and assign to Buyer [MSX], and Buyer will purchase, all of the business, assets and rights of Sellers, whether or not reflected on the books of Sellers, includ- ing without limitation all customer [**3] lists, em- ployee list, customer agreements and employee contracts * * * trade names (including the names 'Lexstra' and 'Lexsus' and variants thereof * * * trademarks, intellec- tual propeliy, databases, patents inventions, accounts receivable, prepaid expenses, cash, notes receivable, Page 2 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** fixed assets, furniture and office equipment (Agreement, P 1.01)(Pltffs Mot., Exh., "B"). * * *" [*3] Subject to stated exceptions, the Agreement states further that, "[i]n the case of each Seller, Buyer will assume at the Closing all of such Sellers's obliga- tions which first arise after the date of Closing, under all of the contracts, commitments and obligations * * * transferred to the * * *Buyer * * *" (Agreement, I, P 1.02[i]). Most significantly, the Asset Agreement also pro- vided for three annual "earnout" payments for the years 1998, 1999, and 2000, which payments were to be based upon the "financial performance of the business asso- ciated with the asset purchase" (Agreement, PP 2.02[ii], 2.06, 2.l1)(Cmplt., PP 16-17; Levine Ans., PP 92-93). According to the plaintiff, the earnout payments were to be distributed in proportionate amounts based upon the 56.54% and 46.46% purchase price allocation. Levine asserts, [**4] however, that when the MSX agreement closed it was agreed that all payments to be made by MSX would be "consolidated" and not allocated between the two selling corporations. Around the time the 1998 Asset Agreement was ex- ecuted, Lexstra and Lexus changed their names, respec- tively, to "Larkav, Inc" and "Karlar, Inc." -- although Suss and Levine still retained their status as majority shareholders in both of the newly renamed entities. As a result of the name change, the plaintiffs original Lexstra shares were cancelled and replaced with 8 shares of stock in "Larkar" and the plaintiff became a full time employee ofMSX. Notably, the defendants claim that "the earn out op- portunity established in 1998 under the Asset Purchase Agreement "created a joint venture among MSX, Larkav and Karlar which "existed for the Earnout Period" and further that the plaintiffs employment agreement "inured to the benefit" of the alleged joint venture (Cmplt., PP 107-109). Levine avers that although the plaintiff then held 8% interest in Larkav, he and Suss -- acting on behalf of Karlar and Larkav -- offered the plaintiff a 4% interest in the consolidated MSX payments, which offer she alle- gedly accepted. Moreover, [**5] Levine asserts that the plaintiff agreed with him and Suss to establish an em- ployee "bonus pool" whose goal was to motivate em- ployees to maximize the overall earn out amounts due form MSX. According to the plaintiff, in 1998 and 1999, Levine and Suss received the [*4] contractual "earn out" pay- ments fi'om MSX, but improperly allocated them on a equal, 50%-50% basis -- instead of the contractually prescribed allocation of 56.54% and 43.46%. In 1999 and 2000, the plaintiff received distributions from Lar- kav based on the MSX earnout payments for 1998 and 1999 in the amounts of $ 189,452.00 and $ 589,485.00, respectively. The plaintiff claims, however, that the re- duced "earnout" allocation attributed to Larkav -- 50% instead of 56.54% -- correspondingly and improperly reduced her own distribution payments. Specifically, the plaintiff claims that by virtue of the improper allocation she effectively received only a 4% of the above-referenced earn out payments, instead of the 4.532% to which she was allegedly entitled. The plaintiff fUliher advises that she demanded the remaining portion of the sums due her (the additional .5232% remaining share of the 1998 and 1999 earnouts), but that no addi- tional [**6] payments were forthcoming. In October of 1999, plaintiffs employment was ter- minated. Levine and Suss assert that before she termi- nated her employment, the plaintiff had already begun to establish her "own competing business," diverted clients from her former employer and induced employees to leave with her as well (Levine Ans., P 97). Thereafter, at some point in 2001, MSX commenced a lawsuit against Levine, accusing him of engaging in misconduct, including maliciously interfering with MSX's employment relationships and inflating the amount due from MSX for the 2000 "earnout" payment. In light of this ongoing acrimony, MSX elected to withhold the 2000 earnout payment from both Larkav and Karlar. Notably, codefendant Suss retained the de- fendant lawfirm of Heller, Horowitz & Feit., P.C. in 2001 to represent her in connection with the MSX litiga- tion. Levine and Suss responded with their own lawsuit, alleging that MSX had breached the terms of the Asset Agreement. The litigation between the paliies was con- solidated in the Federal District COUli for the Southern District of New York and ultimately resolved in No- vember of2004. A settlement was ultimately reached pursuant to which MSX agreed [**7] to make a payment of$ 11.25 million to Suss and Levine, constituting the 2000 earn out amount. The settlement was to be paid out as follows: $ 4 million to be distributed [*5] immediately, with the remaining $ 7.25 million to be paid in twelve monthly installments. The settlement has now been fully paid, although the plaintiff claims that she has not received any distribution based thereon. At the time the settlement was completed, Levine and Suss -- on behalf of Larkav and Karlar -- created a joint deposit escrow account into which the 2004 MSX settlement amounts were to be deposited. Signature Bank Page 3 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** was the named escrow agent under the terms of the Agreement. According to Suss and Horowitz, both she and Levine agreed that no disbursements would be per- missible from the escrow except pursuant to "letters of instruction" executed by both of them. An escrow agreement was drafted by counsel for the bank, who also prepared the Bank's own "template" for the "Letters of Instruction" . The Bank allegedly insisted that the signatures of Suss and Levine be witnessed by: (1) Jacob Heller or Horowitz for Suss' signature; and (2) Mark Zauderer or Jonathon Lupkin for Levine's signature. Lupkin is cur- rently [**8] a partner in the defendant firm Flemming Zulak Williamson Zauderer, LLP, and according to the complaint, "is counsel to Defendant Levine" (Cmplt., P 7). Horowitz and Lupkin subsequently prepared on be- half of their respective clients (Suss and Levine), the Letters of Instruction for the disbursement of funds. Their sole function in connection with the escrow was allegedly to witness signatures on the Letters of Instruc- tion concerning the disbursement of funds therefrom. The plaintiff contends that Horowitz and Limpkin were responsible for drafting the distribution requests made on behalf of Levine and Suss and also allegedly had actual knowledge of the terms of the purchase agreement including the earn out provisions; and knew or should have known of plaintiffs alleged claims and/or entitlement to stated percentages of the three earnout distributions. Despite this knowledge, Lupkin and Horowitz and their respective firms "willingly permitted" Levine and Suss to exercise "unauthorized dominion and control" over the escrow proceeds, thereby assisting them in alle- gedly converting sums purportedly owing to the plaintiff. Based on these and additional allegations of wrong- doing, the plaintiff [**9] commenced the within action against, inter alia, Larkav, Karlar, Levine, Lupkin Ho- rowitz, and the [*6] defendants law firms, interposing causes of action sounding in conversion, aiding and abet- ting conversion, tortious interference, breach of contract, breach of fiduciary duty and claims for an accounting. The defendants have answered, denied the material allegations of the complaint and interposed several af- firmative defenses and counterclaims, including claims against the plaintiff sounding in breach of her employ- ment agreement, t0l1ious interference with prospective economic advantage/contractual relations, and breach of fiduciary duty/duty of)oyalty. The plaintiff moves to dismiss the various counter- claims and affirmative defenses interposed by Levine, Suss, Larkav and Karlar. Codefendants Lupkin, Flemming Zulak Williamson Zauderer, LLP, Richard Horowitz and his firm, Heller Horowitz and Feit, P.C. [the "defendant attorneys"] all move to dismiss the complaint insofar as interposed against them pursuant to CPLR 3211 [aJ[I],[7J. It is settled that on pursuant to CPLR 3211 [a][7], the Court will accept as true, the facts "alleged in the complaint and submissions in opposition to the motion, [** I 0] and accord plaintiffs the benefit of every possible favorable inference," determining only "whether the facts as alleged fit within any cognizable legal theory" (Soko- loff v. Harriman Estates Development Corp., 96 NY2d 409,414, 754 NE.2d 184, 729 NY.S2d 425 [2001]; see, A G Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 5 NY3d 582, 591, 842 NE.2d 471, 808 N Y.S2d 573 [2005]; Leon v. Martinez, 84 NY2d 83, 87-88, 638 NE.2d 511,614 NY.S2d 972 [1994]). On the other hand, "allegations consisting of bare legal conclusions, as well as factual claims inherently incredible or flatly contradicted by documentary evi- dence are not entitled to such consideration" (Morris v. Morris, 306 AD2d 449, 763 NY.S2d 622; see, Maas v. Cornell University, 94 NY2d 87,91-92, 721 NE.2d 966, 699 NY.S2d 716 [1999]; Salvatore v. Kumar, 45 AD3d 560,563,845 NY.S2d 384). Moreover, "[t]o succeed on a motion to dismiss pursuant to CPLR 3211 [a] [1], the documentary evi- dence that forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiffs claim" (Cohen v. Nassau Educators Federal Credit Union, 37 AD3d 751, 752, 832 N Y.S2d 50; see, AG Capital Funding Part- ners, L.P. v. State Street Bank and Trust Co., supra, at 591; [*7] Goshen v. Mutual Life Ins. Co. of N. Y., 98 NY2d 314, 326, 774 NE.2d 1190, 746 NY.S2d 858 [2002]; Leon v Martinez, supra, at 87-88; [**11] De- lacruz v. 236-1 Development Associates (Green), LP, 48 AD3d 614, 850 N Y.S2d 925). That branch of the defendant-attorneys' motion which is to dismiss the plaintiffs "aiding and abetting" cause of action, is granted. On a claim grounded upon aiding and abetting tor- tious conduct, a plaintiff must: (1) identify the underly- ing tort committed by the primary violator; (2) demon- strate the defendant knowingly induced or participated in its commission; and (3) establish that he or she sl:lstained damage as a result of the tortious conduct at issue (Kaufman v. Cohen, 307 AD2d 113, 125-6, 760 N Y.S2d 157; see also, Bullmore v. Ernst & Young Caymall Isl- antis, 45 AD3d 461, 464-465, 846 NY.S2d 145; Caprer v. Nussbaum, 36 AD3d 176, 193, 825 NY.S2d 55 cf., Wechsler v. Bowman, 285 NY 284, 291-292, 34 NE.2d 322 [1941];). A person knowingly participates in the Page 4 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** commission of a tortious conduct "only when he or she provides 'substantial assistance' to the primary violator" (Kaufman v. Cohen, supra, at 126; Velazquez v. De- caudin, 49 AD3d 712, 716, 854 N YS2d 163; Caprer v. Nussbaum, supra, at 193; Global Minerals and Metals Corp. v. Holme, 35 AD3d 93, 101, 824 NYS2d 210; King v. George Schonberg & Co., 233 AD2d 242, 243, 650 N YS2d 107; Natiollal Westminster Bank USA v. Weksel, 124 AD2d 144,148-149,511 NYS2d 626). "Substantial assistance occurs [**12] when a de- fendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling * * * [the tor- tious conduct] to occur" (Kaufman v. Collen, supra; Velazquez v. Decaudin, supra; see, Eurycleia Partners, LP v. Seward & Kissel, LLP, 46 AD3d 400, 402, 849 NYS2d 510; Caprer v. Nussbaum, supra). Further,"'[a]ctual knowledge, as opposed to merely constructive knowledge, is required and a plaintiff may not merely rely on conclusory and sparse allegations that the aider or abettor knew or should have known about the primary breach * * *" (Bullmore v. Ernst & Young Cayman Islands, supra at 464, quoting from, Global Mins. & Metals, supra, 35 AD3d at 101-102). In general "[a]Uegations of mere inaction * * * are insufficient to sustain a claim for aiding and abetting" "since [n]either lawyers nor accountants are required to tattle on their clients in the absence of some duty to dis- close" (Morin v. Trupill, 711 F. Supp. 97, 113 [SD.N YI989); Barker v. Henderson, Franklin, Starnes & Holt, 797 F.2d 490,497, 7th Cir.J986). [*8] Applying these principles to the facts pre- sented supp0l1s the defendant-attorneys' assertions that, even liberally construed, "the aiding and abetting" cause of action [**13] fails to state a claim upon which relief can be granted (Cmplt., PP 39-42). More particularly, a review of the amended com- plaint reveals that operative allegations are, at best, "sparse," vague and fail to meaningfully identify any actionable misconduct perpetrated by the defen- dant-attorneys (Bullmore v. Ernst & Young Cayman Islands, supra, at 464; see also, Hyman v. New York Stock Exchange, Inc., 46 AD3d 335, 848 N YS2d 51; CPLR 3J6[b}). Rather, the aiding and abetting cause of action is es- sentially founded on a few, cryptically framed allega- tions to the effect that the defendant attorneys -- in some unexplained fashion, "willingly permitted" the non-attorney defendants to "exercise unauthorized domi- nion and control" over the MSX earn out proceeds (Cmplt., P 41). The details underlying this alleged wrongful inaction or failure to intervene are not provided; nor is it ex- plained precisely how the defendants' alIeged inaction actually or substantially assisted Levine and Suss -- or why the defendants would owe an affirmative duty to intervene on behalf of a third party with whom they had no contractual relationship. These allegations do not demonstrate or adequately allege that the defen- dant-attorneys [**14] substantially assisted any pur- ported attempt to convert funds supposedly owed to the plaintiff (see, Kaufman v. Cohen, supra; Velazquez v. Decaudin, supra; Bullmore v. Ernst & Young Cayman Islands, supra; see also, Auricle Partners, LP v. Seward & Kissel, LLP, supra; National Westminster Bank USA v. Weksel, supra). Further, there is nothing in the Escrow Agreement which adds anything of substance to the plaintiffs aiding and abetting theory. To the contrary, the operative terms of that document support the defendant-attorneys' con- tentions that their role was functionally ministerial and non-substantive in terms of the challenged disburse- ments, i.e., their role was to witness signatures set forth on the letters of instruction, which were then delivered to the escrow agent, Signature Bank (see, Escrow Agree- ment, Schedule "A"). The defendant-attorneys were not signatories to the escrow agreement; nor were they em- powered thereby to disburse funds or to decide how and to what extent the funds would be disbursed; nor were they the agents holding the proceeds. Further, there is nothing in the agreement which supports the strained theory that [*9] the defen- dant-attorneys, merely by witnessing signatures [**15] or drafting disbursement requests, thereby acquired ac- tual knowledge of the plaintiffs disputed claims -- much less that they were then duty-bound to intervene and/or assert an authoritative role with respect to the amounts actually disbursed from the account. The agreement does not ascribe to the defendants a role above and beyond the narrow duty set forth in "Schedule A," i.e., to witness the signatures of Levine and Suss "in writing." Indeed, upon the alIegations made here, Levine and Suss could have chosen anyone to per- form the same witnessing task undertaken by the defen- dants -- which performance would be no more or less indicative of wrongdoing than the defendant-attorneys' conduct under the Agreement at issue here. AdditionalIy, while "an escrow agent owes his or her beneficiary a fiduciary duty" they must "comply with the escrow agreement" (Talansky v. Schulman, 2 Ap3d 355, 359, 770 N YS2d 48), and the defendant-attorneys were not escrow agents and no breach of the escrow agreement has been established or alleged. The Court similarly agrees that the fiduciary duty (sixth) cause of action interposed against the defen- dant-attorneys is lacking in merit. Page 5 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** In general, "[a] fiduciary relationship [**16] 'exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation' (Restatement [Second] of Torts § 874, Comment a). Such a relation- ship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transac- tions" (EBC I, Inc. v. Goldman Sachs & Co., 5 NY3d 11, 19,832 NE.2d 26, 799 NY.S2d 170 [2005]; North- east Gen. Corp. v Wellington Adv., 82 NY2d 158, 162, 624 NE.2d 129, 604 NY.S2d 1 [1993]; Pergament v. Roach, 41 AD3d 569,571,838 NY.S2d 591; HF Man- agement Services LLC v. Pistone, 34 AD3d 82, 84, 818 N Y.S2d 40). While an attorney owes a fiduciary duty to his own client (see, Graubard Mollen Dannett & Horowitz v Moskovitz, 86 NY2d 112, 118, 653 NE.2d 1179, 629 N Y.S2d 1009),"[a] direct cause of action by a nonclient against a law firm is not generally cognizable" (Mayes v. UVI Holdings, Inc., 280 AD2d 153, 161, 723 NY.S2d 151; Singer v. Whitman & Rallsom, 83 AD2d 862, 442 N Y.S2d 26). Specifically, "courts have not recognized any liability of the lawyer to third parties * * * where the factual situations have not fallen within one of the ac- knowledged categories of tort or contract liability," i.e.,"fraud, collusion, malicious acts, or other special [**l7] circumstances***" (Drago v. Buonagurio, 46 NY2d 778, 780, 386 NE.2d 821, 413 NY.S2d 910 [1978]; Nelson v. l(alatIUlra, 48 AD3d 528, 853 N Y.S2d 89; Chinello v. Nixon, Hargrave, Devans & Doyle, LLP, 15 AD3d 894, 895, 788 N Y.S2d 750; Ginsberg v. [* 1 0] Gamiel, 13 AD3d 79, 80, 785 N Y.S2d 331; Singer v. Whitman & Ransom, supra; see also, AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 5 NY3d 582, 595, 842 NE.2d 471, 808 NY.S2d 573 [2005]). Further, "absent fraud or other special circums- tances, an attorney is not liable to third parties for pur- ported injuries caused by services performed on behalf of a client or advice offered to that client" (Levine v. Graphic Scanning Corp., 87 AD2d 755, 756, 448 N Y.S2d 692; see also, State v. Poulson, 26 AD3d 650, 651, 810 NY.S2d 523; Zhang v. Wang, _ F.Supp2d _, 2006 U.S Dist. LEXIS 74203, 2006 WL 2927173, at 2 [E.D.N Y. 2006}). Here, the complaint does not identify the basis for any fiduciary duty owed directly by the defen- dant-attorneys to the plaintiff -- a non-client with whom the defendants were not in contractual privity (see, Tal v. Superior Vending, LLC, 20 AD3d 520, 799 N Y.S2d 532). To the contrary, the subject cause of action rests upon a series of nebulous allegations to the effect that the defendant-attorneys -- strangers to the plaintiff -- owed her some sort of free-floating duty of care, i.e., a pur- ported [** 18] duty "to communicate openly" with her; to provide her "with truthful information" and, in gener- al, to "act to further * * * [her] interests" (Cmplt., P 54) (Zhang v. Wang, supra). There is nothing in the record which would support the imposition of such a duty. Nor does the complaint allege -- or the record oth- erwise support -- a relationship functionally tantamount to contractual privity or establish the existence of a "rela- tionship of trust and confidence" between the defendant attorneys and the plaintiff (EBC I, Inc. v. Goldman Sachs & Co., supra, at 19 cf., Shapiro v. McNeill, 92 NY2d 91, 97, 699 NE.2d 407, 677 NY.S2d 48 [1998]; Prudential Ins. Co. of America v. Dewey, Ballantine, Bushby, Palmer & Wooti, 80 NY2d 377, 382-383, 605 NE.2d 318, 590 NY.S2d 831 [J992]). Further, cases involving self-dealing attorneys who represent trustees -- and thereby breach fiduciary duties to trust beneficiaries -- are not applicable to the factual circumstances pre- sented at bar (see, Heaven v. McGowan, 40 AD3d 583, 585-586, 835 NY.S2d 641; Chinello v. Nixon, Har- grave, Devans & Doyle, LLP, supra, 15 AD3d at 896 see also, Ginther v. Scinta, 31 AD3d 1135, 1136, 818 N Y.S2d 376). Since the Court has dismissed the plaintiffs equita- ble theories sounding in breach of fiduciary duty, there is no [**19] predicate upon which to base the related eq- uity-based claim for an accounting as set forth in the seventh cause of action (Simons v. Ross, 309 AD2d 667, 765 N Y.S.2d 859; Gebbia v. Toronto-Dominion Bank, 306 AD2d 37, 38, 762 N Y.S.2d 38; Mic/Illick v. Parkell Protiucts, Inc., 215 AD2d 462,463, 626 N Y.S2d 265). The fourth cause of action, sounding in tortious in- terference with contract alleges, [* 11] in sum, that the defendant-attorneys wrongfully caused Levine and Suss to "withhold the plaintiffs proportionate share" of the earnout proceeds -- a claim which is not pleaded with fact-specific allegations explaining precisely how this misconduct was perpetrated (Cmplt., PP 47-51). "In order to succeed on a cause of action to recover damages for tortious interference with contract, the plaintiff must establish, inter alia, the existence of a valid contract between it and a third party, and that the defendant intentionally procured the third party's breach of that contract without justification" (Dome Property Management, Inc. v. Barbaria, 47 AD3d 870, 850 N Y.S2d 208; see, LanUi /lolding Co. v. Smith Bamey Inc., 88 NY2d 413,424,668 NE.2d 1370,646 NY.S2d 76 [1996]; Foster v. Churchill, 87 NY2d 744, 665 NE.2d 153, 642 NY.S2d 583 [J996]; New York Mer- chants Protective Co., Inc. v. Rodriguez, 41 AD3d 565, 837 NY.S2d 341; Monex Financial Services Ltd. v. Dynamic Currency Conversion, Inc., 19 Mise.3d Page 6 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** 111 [(A], 859 N Y.S2d 904, 2008 NY Slip Op 50674[U], 2008 WL 880209 at 7 [Supreme Court, Nassau County 2008}). Further, [**20] "a plaintiff must allege that the contract would not have been breached 'but for' the de- fendant's conduct" (Burrowes v. Combs, 25 AD3d 370, 373, 808 N Y.S2d 50; Washington Ave. Associates, Inc. v. Euclid Equipment, Inc., 229 AD2d 486, 487, 645 NY.S2d 511). Significantly, "to avoid dismissal of a tortious interference * * * claim a plaintiff must support his claim with more than mere speculation" (Burrowes v. Combs, supra, at 373; Chestnut Hill Partners, LLC v. Van Raalte, 45 AD3d 434, 847 N Y.S2d 18; Black Car allli Livery Ins., Inc. v. H & W Brokerage, Inc., 28 AD3d 595,813 NY.S2d 751,). Apart from the fact that essentially the same cir- cuitous allegations of wrongdoing have again been re- peated in support of the tortious interference theory (Burrowes v. Combs, supra, at 373; Schuckman Realty, 1nc. v. Marine Midland Bank, NA., 244 AD2d 400, 401, 664 N. Y.S2d 73), the foregoing interference claim is defective for the additional reason that the plaintiff was not a pmty to the contract on which she claims was breached, i.e., the MSX Asset Purchase Agreement. To the contrary, the parties to the Assert Purchase Agree- ment were exclusively and solely MSX, Lexstra and Lexus (Horowitz OSC, Exh., "B" at I). The plaintiffs assertion that the defendant-attorneys have agreed [* *21] that she entitled to certain earnout payments under the agreement is immaterial, inasmuch as her rights do not derive from her status as a party the- reto. Moreover, the language of the tortious interference claim itself is, at best, veiled and oblique, since it never clearly alleges that the defendants, in fact, intentionally procured the breach of a specific contract to which the plaintiff was a party (Washington Ave. Associates, Inc. v. Euclid Equipmenl, IIlC., supra,). [*12] Lastly, the Court agrees that the plaintiffs own theory of recovery suggests that the "but for" com- ponent of the injury allegedly flowing from the interfe- rence is lacking. Specifically, there has been no showing by way of explanatory averments or otherwise, that Le- vine or Suss would have disbursed or otherwise dealt with the escrow funds in any different fashion but for the defendant-attorneys' alleged conduct -- the precise nature of which is never fully detailed in the complaint anyway (Burrowes v. Combs, supra, see generally, 68 Burns New Holding, Inc. v. Burns Slreel Owners Corp., 18 AD3d 857, 796 N Y.S2d 677; Velazquez v. Lackl1ulIlll Food Services al Old Counlry Road, Inc., 251 AD2d 495, 251 A.D.2d 4952, 674 N Y.S2d 413 cf., Whilmall Realty Group, Inc. v. Galan 0, 41 AD3d 590, 593, 838 N Y.S2d 585). Accordingly, [**22] the motion by codefendants Jonathon Lupkin and Flemming Zulak Williamson Zau- derer, LLP, for an order dismissing the complaint insofar as assel1ed against them is granted. However, the Court notes that the codefendants Heller, Horowitz & Feit, P.e. and Richard Horowitz have not specifically addressed, or sought dismissal of, the claim sounding in tortious interference with contract, and therefore, their motion is denied with respect to that claim. Turning to the plaintiffs motion to dismiss the af- firmative defenses and counterclaims interposed by de- fendants Levine, Karlar, Larkav ["the defendants"] -- which are interposed exclusively as defensively se- toff-type claims -- the Court notes that the foregoing claims essentially arise out of the defendants' assertions that the plaintiff was a disloyal employee in 1999; namely that the plaintiff created a competing business and lured employees away violation of her alleged fidu- ciary duties to the defendants. The defendants identically assert in support of each separate counterclaim, that they sustained injury because plaintiffs improper competi- tion/conduct had the effect of decreasing MSX's profits, and thereby reducing the earnout payment [**23] due from that MSX. Based on this key allegation, the defen- dants have advanced claims sounding in breach of em- ployment agreement, breach of fiduciary duty/duty of loyalty, and tortious interference with prospective eco- nomic advantage/contractual relations. In support of her motion to dismiss, the plaintiff asserts, as a threshold matter, that none of the defendants possesses standing to assert the claims advanced inasmuch as Lexstra/Lexus conveyed their all of their rights and assets to MSX -- which entity, is therefore the real, but unnamed, party in interest and true owner of the claims interposed. The plaintiffs claims possess merit. "In general, under New York law, an assignor of a claim retains no right to pur- sue that claim upon assignment and the assignee is the real party in interest with respect to that claim" [*13] (U.S. Fidelity & Guar. Co. v. Petroleo Brasileiro S.A.-Petrobras, _ F.Supp.2d _, 2001 U.S Dist. LEX1S 3349, 2001 WL 300735 [SD.NY. 2001] see, James McKinney & SOil v. Lake Placid 1980 Olympic Games, 61 NY2d 836, 838, 462 NE.2d 137, 473 N Y.S2d 960, 1984). However, "[o]nly where there is a properly executed assignment does an assignee become the 'real party in interest' and acquire standing to enforce the rights of an assignor [**24] * * *" (James McI(inlley & SOil v. Lake Placid 1980 Olympic Games, supra, at 838; III re Stralem, 303 AD2d 120, 123, 758 N Y.S2d 345 see, Maxus Leasing Group, Illc. v. Kobelco America, Inc., _ F.Supp2d _, 2007 U.S Dist. LEXIS 13312, 2007 WL 655779 at 2 [ND.N Y. 2007]). "[T]o effect an as- Page 7 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** signment * * * there [must] be a perfected transaction between the assignor and assignee, intended by those pm1ies to vest in the assignee a present right in the things [or rights] assigned" (Leon v. Martinez, supra., 84 NY2d at 88, citing, 4 Corbin, Contracts, § 879, at 528 [1951] see also, National Financial Co. v. Uh, 279 AD2d 374, 375, 720 N. YS2d 17; Rockland Lease FU1ldi1lg Corp. Inc. v. Waste Management of New York 11lc., 245 AD2d 779, 666 N. YS2d 50). Applying these principles to the facts presented supp0l1s the plaintiffs argument that the counterclaim parties (Larkav and Karlar), lack standing to advance the subject counterclaims. A review of the Asset Purchase Agreement itself leaves no doubt that the assignment of assets and a11 rights was complete, com- prehensive and intended "to vest in the assignee a present right in the things [or rights] assigned" -- including as it does -- "all of the business, assets and rights of Sellers, whether or not reflected on the books [**25] of Sellers, including without limitation a11 customer lists, employee list, customer agreements and employee contracts * * * trade names (including the names 'Lexstra' and 'Lexsus' and variants thereof * * * trademarks, inteIIectual prop- erty, databases, patents inventions, accounts receivable, prepaid expenses, cash, notes receivable, fixed assets, furniture and office equipment * * *" (Agreement, P 1.01)[emphases added]. The defendants do not seriously dispute -- and have not in any event demonstrated -- that the assignment was not complete and decisive in terms of aII assets, rights, and contracts. The defendants' primary opposition to the plaintiffs standing claim is their alternative theory -- which has been relegated to a single footnote in an op- posing brief (Dow Jones & Company, Inc. v. Interna- tional Securities Exchange, 11lc., 451 F.3d 295, 301 fn 7, 2nd Cir., 2006; u.S. v. Restrepo, 986 F.2d 1462, 1463, 2nd Cir., 1993)(see, Defs' Opp., at 10, fn 1). The defendants contend, in sum, that Karlar and Larkav are joint venturers (with MSX) and therefore possess stand- ing concurrently with MSX to assert claims against the plaintiff. The Court disagrees. [*14] "'An indispensable essential [**26] of a contract of partnership or joint venture, both under common law and statutory law, is a mutual promise or undertaking of the pm1ies to share in the profits of the business and submit to the burden of making good the losses'" (Community Capital Bank v. Fischer & Yano- witz, 47 AD3d 667, 668, 850 N. YS2d 508, quoting fj·om, Matter of Steinbeck v. Gerosa, 4 NY2d 302, 317, 151 NE.2d 170, 175 NYS.2d I [1 958]; Schnur v. Marin, 285 AD2d 639, 640, 729 N YS2d 155; Accent Asso- ciates, Inc. v. Wheatley Const. Corp., 268 AD2d 494, 701 N YS2d 667; see also, Natuzzi v. Rabady, 177 AD2d 620, 622, 576 N YS2d 326). Significantly," [a] joint venture does not arise simply because two pm1ies have agreed together to act in concert to achieve some stated economic objective" (Rocchio v. Biondi, 40 AD3d 615, 616-617, 835 N YS2d 401; Accent Associates, Inc. v. Wheatley Const. Corp., supra). Additiona11y, the mere "assertion that there was an agreement to distribute the proceeds of an enterprise on a percentage basis does not suffice to establish the existence of a joint venture" (Maalill Bakodesh Society, Inc. v. Lasher, 301 AD2d 634, 754 NYS2d 331; Wiener v. Lazard Freres & Co., 241 AD2d 114,121-122,672 NYS2d 8; Gold Mechan- ical Contractors, Inc. v. Lloyds Bank P.L.c., 197 AD2d 384, 602 N YS2d 136). The failure to plead these subs- tantive requisites warrants [**27] dismissal of claims predicated on the existence of an alleged joint venture or partnership (Latture v. Smith, I AD3d 408, 408-409, 766 N YS2d 906; see also, Rocchio v. Bio1ldi, supra; Da- vella v. Nielsen, 208 AD2d 494,616 NYS2d 800). Here, while the defendants' answer contains an un- elaborated statement that a joint venture arose with MSX, the pleading itself contains no reference to the requisite elements of a joint venture, i. e., there are no allegations to the effect the purported joint venturers exchanged "mutual promises" or undertook "to share in the profits of the business and submit to the burden of making good the losses'" (Commu1lity Capital Bank v. Fischer & Yanowitz, supra). Nor does the complaint identify the specific provisions in the Asset Purchase Agreement which actua11y support the claim that a joint venture arose between MSX and the defendants. Coun- sel's conclusory assertion, in the footnote devoted to this issue, that there was a pooling of skills and assets, is not a substitute for citation to documentary evidence andlor other materials which actuaIIy document the existence of a joint venture. In any event, the Asset Purchase Agree- ment does not contain provisions sufficiently evidencing a jointly [**28] consummated understanding that the parties would "share in the profits of the business and submit to the burden of making good the losses", and the defendants have not identified, for the Court's benefit, those provisions of the agreement which allegedly estab- lish as much. Claims referring to a distribution of assets andlor evidence of concel1ed action to "achieve some stated economic objective" -- not even clearly a11eged here -- will not suffice (Rocchio v. Biondi, supra; M{w- fin Bakodesh Society, Inc. v. Lasher, supra). [* 15] Although pleadings are to be liberally con- strued on a motion pursuant to CPLR 32]] [a}[7}, con- clusory assel1ions and those contradicted by documenta- ry submissions -- here the Asset Purchase Agreement -- are not entitled to such favorable treatment (M{ws v. Cornell University, supra; Davella v. Nielsen, supra). Lastly, the COUl1 agrees that any subsequent or oral agreements relative to the alleged existence of a joint venture are precluded by the Agreement's merger clause Page 8 2008 NY Slip Op 31662U, *; 2008 N.Y. Misc. LEXIS 9653, ** (see, Tilden of New Jersey, Inc. v. Regency Leasing Systems, Inc., 230 AD2d 784, 785, 646 N Y.S.2d 700). Accordingly, inasmuch as the defendants lack standing to interpose the causes of action interposed herein, that [**29] branch of the plaintiffs ~otio.n which is to dismiss the defendants' four counterclaIms IS granted. The plaintiff also moves to dismiss several of the defendants' twelve affirmative defenses, including the defenses alleging statute of limitations, setoff, offset, accord and satisfaction, unclean hands and laches. Preliminarily, the plaintiffs motion to dismiss is de- nied with respect to the limitations defense, inasmuch as the defendants have adduced evidence tending to estab- lish that plaintiffs claims based on the 1998 and 1999 earnout payments are untimely (Swift v. New York Med. Coli., 25 AD3d 686, 687, 808 N Y.S.2d 731; Gravel v. Cicola, 297 AD2d 620, 747 NY.S.2d 33; Savarese v. Shatz, 273 AD2d 219, 220, 708 NY.S.2d 642 see, In re Schwartz, 44 AD3d 779, 843 N Y.S.2d 403). The plain- tiffs conclusory and unsupported reply assertions fail to address and/or meaningfully refute the defendants' fact-specific claims with respect to the accrual dates and untimeliness of the 1998 and 1998 "earnout" claims (eJ, Reiner v. Jaeger, 50 A.D.3d 761, 855 NY.S.2d 613, 2008 WL 1073538, 2nd Dept., 2008). Nevertheless, the plaintiff has established -- at least at this juncture -- that issues of fact exist with respect to the timeliness of the 2000 earnout claim -- and the defendants [**30] have not argued to the contrary (Rehberger v. Garguilo & Orzechowski, LLP, 50 A.D.3d 760, 854 NYS2d 650, 2nd Dept., 2008; In re Schwartz, supra)(see, Defs' Brief at 22). Further and as to the setoff/offset claims, the de- fendants th~mselves advise that these defenses are re- dundant since they are "essentially Defendants' counter- claims restated" and that if their four counterclaims are viable then so too, are these defenses. However, since the Court has already dismissed the counterclaims, by the defendants' own construction, the foregoing setoff/offset defenses are now similarly not viable and must also be dismissed. [* 16] However, the defendants' accord and satis- faction defense, will be sustained at this pre-discovery juncture, since unresolved factual questions ~n~ iss~e~ .of intent exist with respect to the import of plamtlffs mltIaI acceptance of earn out payments amounting to only 4% -- as opposed to the 4.5232% which she claims she should have received (cf., Denburg v. Parker Chapin Flattau & Klimpl, 82 NY2d 375,383,624 NE.2d 995,604 NY.S.2d 900 [1993); Envirex, Illc. v. Cecil M. Garrow Constr., Inc., 99 AD2d 307,309,473 NY.S.2d 63). That branch of the plaintiffs motion which is to dismiss the "unclean hands" and "laches" defenses [**31] is granted. Upon the Court's own review (Glenesk v. Guidance Realty Corp., 36 AD2d 852,853,321 NY.S.2d 685), the foregoing defenses are pleaded as one-line conclusions of law "bereft of factual data" (Glenesk v. Guidance Realty' Corp., supra). It is settled that "[ d]efenses which merely plead conclusions of law without supporting facts are insufficient and should be stricken" (Petracca v. Pe- tracca, 305 AD2d 566, 567, 760 NY.S.2d 513; see, Plemmenou v. Arvanitakis, 39 AD3d 612, 613, 833 N Y.S.2d 596; Staten Islantl-Arlington, Inc. v. WilPOIl, 251 AD2d 650, 676 N Y.S.2d 469; Bentivegna v. Mee- nan Oil Co., Inc., 126 AD2d 506, 508, 510 N Y.S.2d 626; Falk v. Gallo, 18 Mise 3d 1146[A), 859 NY.S.2d 894, 2008 NY Slip Op 50451[U), 2008 WL 638419, at 3 [Su- preme Court, Nassau County 2008)). The Court has considered the parties' remaining contentions and concludes that none warrants an award of relief on the pending motions beyond that granted above. The foregoing constitutes the decision and order of the Court. A Preliminary Conference has been scheduled for July 1, 2008 at 9:30 a.m. in Chambers of the under- signed. Please be advised that counsel appearing for the Preliminary Conference shall be fully versed in the fac- tual background and their client's schedule for the pur- pose of setting firm deposition dates. Dated JUN 10 2008 /s/ [**32] Stephen A. Bucaria J.S.c. Westlaw~ 2005 WL 5960119 (N.Y.Sup.) H Karla Moskowitz, J. Supreme Court, New York. New York County David M.A. ELIAS, Plaintiff, v. Lord Jacob ROTHSCHILD, Defendant. No. 603288/2002. April 7, 2005. Decision and Order Page I Defendant Lord Jacob Rothschild ("Rothschild") moves to dismiss the complaint on the grounds of res judicata, collateral estoppel, forum non conveniens, lack of jurisdiction, statute of limitations and for failure to state a claim (CPLR 327, 3211 [a] [5], [2], [5], [7] and [8]). Plaintiff David M.A. Elias ("Elias") seeks $2.5 billion in damages in this action, alleging that defendant Lord, while ostensibly acting as Elias' agent, aided others in misappropriating plaintiffs indirect interest in an alleged corporate joint venture known as H-G Holdings, Inc. ("H-G"). The underlying transactions were the subject of a I 77-page, 680-paragraph complaint brought against different defendants by Elias and two companies controlled by him, Rich- bell Information Services, Inc. ("RIS") and The Richbell Group Limited ("RGL") (see, Richbelllnformation Services, Inc. et. al v Jupiter Partners L.P., NY Co Index No. 605979/97) (the "Richbell Action"). As is relevant here, by order dated March 6, 2002 (the "Richbell Order"), dismissed all thirty-three causes of action of the Richbell complaint. In September 2003, the Appellate Division, First Depmiment affirmed the dismissal as to thirty of the claims, including all of those that Mr. Elias assented in his individual capacity (see, Richbelllnformation Services v Jupiter Partners, 309 AD2d 288 [lSI Dept 2003]) The comis discussed the facts extensively in the Richbell order and the Appellate Division decision, familiarity with which are presumed. In connection with this motion, defendants have submitted a chart comparing, side-by-side, the claims asserted in the Richbell pleadings with the corresponding allegations of the complaint in this action. Both complaints detail the effOlis ofRIS and RGL to team up with Rothschild's RIT Capital Partners PLC ("RIT") and its subsidiary Atlantic and General Investment Trust Limited ("AGIT") to acquire Gelco Payments Systems, Inc. ("Gelco") and pursue a joint venture with Jupiter Partners L.P. ("Jupiter") and others through H-G. Plaintiff acknowledges that his claims against Rothschild are "connected with the transaction at issue in the Richbell case" and has conceded in papers submitted in the Richbell action that this case concerns Rothschild's "involvement in the transaction giving rise to [the Richbell action]." Further, he concedes that. both suits seek redress for "the same injury ... the loss of value of the joint venture." Nevertheless, plaintiff argues that res judicata and collateral estoppel do not apply because this suit alleges a "private agency arrangement" between Rothschild and Elias that Rothschild breached by causing RIT to side with Jupiter in the parties' dispute. Plaintifffurther notes that Rothschild was never a party in the Richbell case nor in privity with any party. The complaint is dismissed. Under the transactional approach to res judicata in New York, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy" (O'Brien v City o[Syracuse, 54 NY2d 353, 357). This rule. applies "even if the claims involve materially different elements of proof ... and even if the claims would call for © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2005 WL 5960119 (N.Y.Sup.) Page 2 different measures of liability or different kinds of relief' (Fifty CPW Tenants Corp v Epstein, 16 AD 3d 292, 2005 WL 701822, * I (l5t Dept 2005] [internal quotations and citations omitted). Moreover, "the doctrine bars not only claims that were actually litigated but also claimed that could heave been litigated, if they arose from the same transaction or series of transactions," (Marinelli Assocs. v Helmslev-Noyes Co., 265 AD2d 1, 5) Collateral estoppel fulfills a similar function, "preclud[ing] a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party ... whether or not the tribunals or causes of action are the same". (Allen v HofJinger, Friedland. Dobrish & Stern, p.e, 283 AD2d 346,349). All the claims and issues raised in this action the courts resolved adversely to plaintiff in the Richbell action. The Appellate Division affirmed this court's dismissal of claims relating to (1) the April 1996 oral assurances that RIT and others would use their best effOlts on behalf of Elias; (2) RIS's borrowing or ownership of H-G shares; (3) the "Bid Rigging Agreement"; (4) Jupiter's bad faith conduct; and (5) the failure to reappoint Elias to the H-G board after his resignation. Plaintiff cannot revive those claims merely by reconfiguring them under an agency theory asserted against Mr. Rothschild individually. Plaintiffs argument that his claims are not subject to preclusion because Rothschild was not in privity with a party in the Richbell action is legally irrelevant and factually flawed. First, there is no requirement that the party seeking to invoke collateral estoppel need have been a party to the earlier litigation. Rather, the rule is that "[t]he party to be estopped must have been either a party to the prior proceeding or in privity with a party to that proceeding" (All Terrain Properties, Inc. v Hoy, 265 AD2d 87, 92). Accordingly, the doctrine "is available to protect those defendants who were not parties to the earlier proceedings" so long as "the plaintiff fully participated in the prior proceedings and had a full and fair opportunity to litigate all the claims which were actually litigated or which could have been litigated in those proceedings" (Carta v LeFrak. 203 AD2d 94,95). Elias was both a named plaintiff in the Richbell case and in privity with the two corporate plaintiffs whose claims the courts dismissed. Further, even were privity a requirement, Rothschild would be entitled to invoke preclusion. because the complaint alleges that RIT and AGIT were "con- trolled" by him and because the pleadings refer to him and RIT interchangeably (see, prospect Owners Corp. v Tudor Realtv Services Corp., 260 AD2d 299) Insofar as the determination in the Richbell action so clearly bars the claims here, the court need not consider the potentially more complicated question of whether the corporate conduct alleged in the dismissed causes of action would have subjected Mr. Rothschild, a London resident, to jurisdiction in New York, or whether the doctrine of forum non conveniens is applicable. Nor is an extensive discussion of the merits of plaintiffs new agency theory warranted, as res judicata bars any theory arising out of the same transactions. For similar reasons, there is no reason to delve into the statute of limitations defense (see, e.g., Orzechowski v Warner-Lambert Co., 92 AD2d 110). Accordingly, it is ORDERED, that the motion to dismiss is granted; and it is further ORDERED, that the complaint is dismissed, with costs and disbursement s to defendant as taxed by the Clerk of the Court; and it is fUlther ORDERED that the Clerk is directed to enter judgment accordingly. Dated: April 7, 2005 < > J.S.c. © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2005 WL 5960119 (N.Y.Sup.) Page 3 Elias v. Rothschild 2005 WL 5960119 (N.Y.Sup. ) (Trial Order) END OF DOCUMENT © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. Westlaw. 2002 WL 34406050 (N.Y.Sup.) Supreme Court, New York. Schenectady County Daniel A. GILLESPIE, Plaintiff, v. Page 1 FLIGHT LINE PUB LNC., d/b/a Peter's Wagon Wheel, Two Argyle Place Entertainment Inc., d/b/a Sports World Tavern & Grill, Defendants. No.200l-l364. December 27,2002. Decision/Order Hon. Vincent 1. Reilly Jr., Supreme Court Justice. SUPREME COURT; Motions Returnable October 28,2002 APPEARANCES: Gibbons & Burke PC For Plaintiff 101 Mohawk A venue Scotia. NY 12302 Lawrence J. Mahar For defendant Flight Line Pub 225 Kingsley Road Burnt Hills, NY 12027 Boeggeman, George, Hodges & Corde, P.c. Attorneys for Defendant Two Argyle Entertainment 46 Columbia Street Albany, New York 12207-2716 Papers Considered (1) Notice of Motion dated October 4,2002; Affidavit of Kenneth T. Gibbons sworn to October 4, 2002 with Exhibits A-C; (2) Cross Notice of Motion dated October 10, 2002; Affirmation of M. Randolph dated October 10,2002 with Exhibits A-F; (3) Cross Notice of Motion dated October 18,2002; Affirmation of Lawrence Mahar dated October 18,2002 with Exhibits A-H; (4) Affirmation of Kenneth T. Gibbons dated October 24,2002; (5) Reply Affirmation ofM. Randolph Belkin dated October 25,2002; (6) Reply Affirmation of Lawrence J. Mahar dated October 28,2002. Plaintiff allegedly sustained personal injuries as the result of an automobile accident that occurred while he was a passenger in a vehicle driven by Renee Girard. The accident apparently occurred after plaintiff and Girard had con- sumed a number of alcoholic beverages at establishments owned and or operated by defendants In plaintiffs prior personal injury action against Girard as the sole defendant. ajury apportioned liability for the accident 60% to plaintiff and 40% to Girard and awarded plaintiff no damages, Plaintiffs motion to set aside that verdict was denied and a judgment was apparently entered on the verdict in the amount of $9.09l.93, representing the stipulated amount of plaintiffs unpaid medical bills. Plaintiff has appealed from the judgment but apparently did not challenge the jury's app0l1ionment of fault. Soon after the jury verdict was rendered in the prior action, plaintiff commenced this separate action against defen- dants alleging that they violated the Dram Shop Act (General Obligations Law § 11-101) by serving alcoholic beve- © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34406050 (N.Y.Sup.) Page 2 rages to Girard while she was visibly intoxicated. Following several unsuccessful attempts to schedule defendants' depositions in accordance with the discovery order established by this Court, plaintiff filed the present motion to compel discovery. Defendants have tiled separate cross motions seeking dismissal of the complaint upon the ground that plaintiffs claims are barred by principles of res judicata and/or collateral estoppel. Plaintiff opposes the cross motions. Defendants contend that the jury in the prior action determined that plaintiff and Girard were together 100% respon- sible for the accident and that, therefore, principles of res judicata and collateral estoppel preclude relitigation of the issue of fault in the present action. Initially, the doctrine of res judicata is not applicable here inasmuch as defendants were neither parties nor in privity with any party to the prior action (see, State v. Town of Harden burgh. 273 A.D.2d 769,772, 7lO N.Y.S.2d 435). Principles of collateral estoppel may apply, however, provided that there is an identity of issue which was necessarily decided in the prior action and is decisive of the present action, and that the party to he precluded had a full and fair opportunity to contest the decision said to be controlling (see, Sterling Ins. Co. v. Chase. 287 A.D.2d 392, 731 N.Y.S.2d 622; Pahl v Grenier. 279 A.D.2d 882, 719 N.Y.S.2d 370). Contrary to defendants' contentions, however. a prior determination between plaintiff and Girard on the issue of their negligence would not bar recovery here unless the issue presented here was squarely addressed and specifically decided on the merits in the prior action (see, Shanley v. Callanan Indust .. 54 N.Y.2d 52, 444 N.Y.S.2d 585, 429 N.E.2d 104). Clearly, the issue of whether defendants violated the Dram Shop Act was simply not litigated or necessarily decided in the first action. Moreover, although the jury in the first action determined 100% fault for the underlying accident as between plaintiff and Girard, that does not necessarily decide the issue of defendants' statutory violation and does not preclude a dif- ferent determination of fault based upon this different theory of liability (see, id.. 56-57, 444 N.Y.S.2d 585, 429 N.E.2d lO4). Accordingly, defendants' cross motions are denied. With regard to plaintiffs motion to compel defendants' depositions, defendants do not dispute plaintiffs version of events that depositions in this matter have been repeatedly adjourned as the result of defendants' failure to produce their respective witnesses on the scheduled dates, necessitating several extensions of the discovery deadlines estab- lished by court order. Under the circumstances, plaintiffs motion to compel is granted and defendants are directed to submit to examinations before trial no later than December 27,2002. In view of the foregoing, it is ORDERED that defendants' cross motions are denied, without costs, and it is further ORDERED that plaintiffs motion is granted without costs, and examinations before trial in this matter are to be completed no later than December 27,2002. THIS DECISION SHALL CONSTITUTE THE ORDER OF THE COURT. THE ATTORNEY FOR THE PLAIN- TIFF SHALL ENTER THIS ORIGINAL DECISION/ORDER WITHIN 20 DAYS OF ITS DATE AND PROVIDE A COPY WITH PROOF OF ITS ENTRY ON THE OPPOSING ATTORNEY(S) OR THE PRO SE LlTIGANT(S), AS THE CASF MAYBE. Dated :November 2002 «signature» HON. VINCENT J. REILLY JR. Supreme Court Justice Gillespie v. Flight Line Pub Inc. 2002 WL 34406050 (N.Y.Sup. ) (Trial Order) © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34406050 (N.Y.Sup.) Page 3 END OF DOCUMENT © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. Westlaw" 16 Misc.3d 1112(A) 16 Misc.3d 1112(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 1112(A), 847 N.Y.S.2d 896) Gross v. Empire Healthchoice Assur., Inc. 16 Misc.3d 1112(A), 847 N.Y.S.2d 896 N.Y.Sup.2007. 16 Misc.3d 1112(A), 847 N.Y.S.2d 896, 2007 WL 2066390,2007 N.Y. Slip Op. 51390(U) This opinion is uncorrected and will not be published in the printed Official Reports. Jeffrey M. Gross, M.D. and Union Square Rehabili- tation and Sports Medicine, Plaintiffs, v. Empire Healthchoice Assurance, Inc., Guardian Life Insurance Company of America, Horizon Healthcare of New York, Inc., Healthcare Insurance Plan Of Greater New York, Inc. and Cigna Healthcare of New York, Inc., Defendants. 602848-2005 Supreme Court, New York County Decided on July 18, 2007 Digest-Index Classification:Covenants--Covenant of Good Faith and Fair Dealing APPEARANCES OF COUNSEL APPEARANCES: For Plaintiffs Jeffrey M. Gross, M.D. et a!.: Meiselman, Denlea, Packman, Calion & Eberz P.C. 1311 Mamaroneck Avenue White Plains, New York 10605 (Jill Owens, Esq., Barry Cepelewicz, Esq.) For Defendant Empire Healthchoice Assurance Inc.: Morrison Cohen LLP 909 Third A venue New York, New York 10022 (Howard Wolfson, Esq.) For Defendant Horizon Healthcare of New York, Inc.: Sills Cummins Epstein & Gross pC 30 Rockefeller Plaza New York, New York 10112 (Jonathan Jemison, Esq.) For Defendant Cigna Healthcare of New York, Inc.: Russo Kean & Toner, LLP 26 Broadway, 28th Floor New York, New York 10004 (Kevin Horbatiuk, Esq.) OPINION OF THE COURT Bernard J. Fried, J. Page I In a Memorandum Decision and Order dated May 18, 2006, I granted the motion by defendants *2 Empire Healthchoice Assurance, Inc. ("Empire") and Horizon Healthcare of New York, Inc. ("Horizon") to dismiss all counts of the complaint except for the cause of action for breach of an implied covenant of good faith and fair dealing (the "May 18 Order"). In July 2006, I invited Empire and Horizon to move for reargument on the question of whether my decision to sustain the cause of action for breach of an implied covenant of good faith and fair dealing was in error. They accepted my invitation. At the same time, plaintiffs requested permission, which I granted, to move for reargument of my dismissal of the other counts. Apparently attempting to piggy-back off ofthe partial success of Horizon and Empire's motions to dismiss, defendant Cigna Healthcare of New York, Inc. ("Cigna") then moved to amend its answer and to join the Empire and Horizon in moving to dismiss the complaint. Now before me are four motions. (1) a motion by plaintiffs Jeffrey M. Gross, M.D. ("Dr. Gross") and Union Square Rehabilitation and Sports Medicine, seeking leave to reargue my dismissal of the causes of action for account stated, promissory estoppel, negli- gent misrepresentation, civil conspiracy, and decla- ratory judgment (Motion Seq. No. 003); (2 and 3) motions by defendants Horizon and Empire for leave to reargue my denial of their motions as to the cause of action for breach of an implied covenant of good faith and fair dealing (respectively, Motion Seq. Nos. 004 and 005); and (4) a motion by Cigna for leave to serve an amended answer and to dismiss the complaint (Motion Seq. No. 006). I have heard oral argument on the first three motions and took the fourth under submission. © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 16 Misc.3d I I 12(A) 16 Misc.3d I I 12(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 1112(A), 847 N.Y.S.2d 896) C.P.L.R. § 2221(d) provides that a motion to reargue may be made "based upon matters of fact or law al- legedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters offact not offered on the prior motion." Such a motion "may be granted only upon a showing that the court overlooked or misapprehended the facts or the law or for some reason mistakenly arrived at its earlier decision." William P. Pahl Equipment Corp. v. Kassis, 182 AD2d 22, 27 (1 st Dept. 1992) (internal citations omitted). For the reasons that follow, and based on the previous Order, which I incorporate by reference into this de- cision, I grant the motions for leave to reargue by plaintiffs and by defendants Horizon and Empire, but I adhere to the results reached in the May 18 Order for substantially the reasons stated in it. The motion by Cigna to amend its answer is granted, and its motion to dismiss is granted in part and denied in part. For the sake of readability, I reiterate the salient alle- gations of the complaint. According to the complaint, in 2002, Dr. Gross became interested in using a newly FDA-approved medical device called the "Sonocur" to administer a treatment called Extracorporeal Shock Wave Therapy ("ESWT") to treat orthopedic condi- tions. (Compl. ~~ 2, 19-20.) Several major health insurers, not defendants, including United Healthcare and AIG, authorized him to bill for ESWT using the billing code typically used for gall bladder and kidney stone treatments, CPT 50590. (Compl. ~ 21.) Dr. Gross informed the five defendants, also health in- surance companies, that these other major health in- surers had recommended using that billing code for the use ofESWT. According to the complaint, plaintiffs contacted de- fendants to seek pre-approval of ESWT to treat or- thopedic conditions and to use the CPT 50590 billing code. Defendants "verbally informed Dr. Gross' prac- tice that they would act similarly to UnitedHealthcare and the other carriers," and Dr. Gross "was led to believe by [defendants] that the 50590 code was the most appropriate." (Compl. ~~ 23-24.) Dr. Gross re- peatedly asked defendants for written confirmations of their oral approvals, but thes.e requests were "denied." (Com pI. ~ 4.) Nevertheless, for the next three years, Dr. Gross *3 revised his own authorization forms to memorialize the oral approvals by documenting the names of the defendants' representatives who orally Page 2 confirmed coverage for ESWT using the CPT 50590 billing code and the dates when those approvals were given. Plaintiffs submitted these forms, along with letters of medical necessity, when they submitted bills requesting payment. (Compl. ~~ 24-25.) Plaintiffs' submissions consistently documented that the diag- nosis code for which they used ESWT was tendonitis, an orthopedic condition. (Compl. ~ 69.) The complaint asserts that defendants typically made payments about six months after plaintiffs submitted their forms. During this time, plaintiffs submitted additional documentation to defendants and spoke with defendants to resolve any pending issues. In some cases, plaintiffs submitted their claims to de- fendants' internal appeals process, before defendants' appeals departments agreed to pay them. (Compl. ~~ 26.) During this time, defendants never told plaintiffs that they should not use the CPT 50590 billing code or that ESWT was unapproved for treatment of ortho- pedic conditions. (Compl. ~ 27.) The complaint alleges that, between late October 2004 and June 2005, six insurers, including all five defen- dants,FNl refused further payments for ESWT, accused Dr. Gross of improper billing and of misrepresenting the medical conditions for which he used the treat- ment, and demanded the funds totaling over $600,000 that they had paid to him since 2002 for using ESWT to treat orthopedic conditions. (Compl. ~~ 28-29.) Empire sent a letter in late October 2004. (Compl. ~ 34.) Guardian Life Insurance Company of America ("Guardian") followed in January 2005. (Compl. ~ 40.) Letters from Horizon and Healthcare Insurance Plan of Greater New York, Inc. ("HIP") appeared in March 2005. (Compl. ~~ 45, 50.) A letter from Cigna followed in June 2005. (Compl. ~ 57.) According to the complaint, Dr. Gross attempted to resolve the disputed claims, providing written docu- mentation and responses to the insurers' demands, but the defendants refused to either respond or withdraw their demands for repayment. FN2Meanwhile, Empire and Horizon began to withhold payments on undis- puted claims having nothing to do with ESWT, in- cluding pre-approved claims. (Compl. ~~ 38, 47.) Dr. Gross was forced to stop using ESWT on patients who were unable to afford to pay for them out-of-pocket. (Compl. ~ 63.) Plaintiffs filed this complaint on August 5, 2005. In its © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 16 Misc.3d 1112(A) 16 Misc.3d 1112(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 11 12(A), 847 N.V.S.2d 896) answer, served on September 27,2005, Cigna asserted as an affirmative defense that the claims against it are subject to compulsory arbitration. Horizon, in its answer, filed December 5, 2005, asserted a counter- claim in several counts for insurance fraud, breach of contract, unjust enrichment, and negligent misrepre- sentation, and seeking the return of $95,000 in as- serted overpayments. Three months after my May 18 Order, Empire filed its answer, asserting counter- claims in several counts for fraud, breach of contract, specific performance, and unjust enrichment, and demanding the return of $250,000 in alleged *4 overpayments. Among other things, Empire and Ho- rizon asserted rights arising from provider agreements into which Dr. Gross had allegedly entered with each of them. Cigna filed this motion on August 15,2006, seeking to amend its answer to withdraw its affirma- tive defense of compulsory arbitration, to assert counterclaims similar to those asserted by Horizon and Empire, and to dismiss the complaint. Horizon and Empire's motions to reargue I address first the question raised in the motions by defendants Horizon and Empire: whether a claim for breach of an implied covenant of good faith and fair dealing is an independent cause of action, or whether dismissal of a breach of contract claim requires the dismissal of the breach of an implied covenant of good faith and fair dealing claim. In their motions to reargue, Empire and Horizon contend that the claim for breach of an implied co- venant of good faith and fair dealing must be dis- missed because it cannot stand on its own, in the ab- sence of a valid breach of contract claim. Plaintiffs have not alleged that defendants breached a specific provision of their provider agreements, but that they breached their duty of good faith and fair dealing by (I) belatedly seeking payment refunds on claims that were previously authorized orally, of which they had notice, and which they had months or years to investigate; (2) withholding payments on false pretenses (with respect to Empire and Horizon); (3) withholding payments on unrelated claims; and (4) doing all of these things in consultation and coordi- nation with each other. In my May 18 Order, I con- cluded that the complaint properly stated a cause of action for breach of an implied covenant of good faith and fair dealing, and I now affirm that opinion. Page 3 The Court of Appeals has expressly recognized that the implied covenant of good faith and fair dealing in an insurance contract encompasses the insurer's duty "to investigate in good faith and pay covered claims." New York Univ. v. Continental Ins. Co., 87 NY2d 308, 318(1995). New York com1s have repeatedly affirmed that a party may be in breach of an implied duty of good faith and fair dealing, even if it is not in breach of its express contractual obligations, when it exercises a contrac- tual right as part of a scheme to realize gains that the contract implicitly denied or to deprive the other party of the fruit of its bargain. See Dalton v. Educ. Testing Serv., 87 NY2d 384, 389 (1995); Outback/Empire I. Ltd. P'ship v. Kamitis. Inc., 35 AD3d 563, 563 (2d Dept. 2006); Richbell Info. Servs .. Inc. v. Jupiter Partners. L.P., 309 AD2d 288, 302-03 (1st Dept. 2003) (refusing to dismiss cause of action for breach of implied covenant of good faith and fair dealing based on the allegation that defendant exercised con- tractual veto power "for an illegitimate purpose and in bad faith" as part of scheme to deprive plaintiffs of benefits of their joint venture). The First Department in Maddaloni Jewelers, Inc. v. Rolex Watch US.A., Inc. recently confirmed the principle that a claim for breach of the implied cove- nant of good faith and fair dealing can occasionally stand on its own. NYS2d , 2007 WL 1774986 (1 st Dept. June 21, 2007). In Maddaloni, the defendant had moved on summary judgment to dismiss the plaintiffs third amended complaint, which alleged a cause of action for breach of an implied duty of good faith and fair dealing but did not assert a cause of action for breach of contract. (See Maddaloni Jewelers, Inc. v. Rolex Watch US.A., Inc., Index No. 602457/2002, Ruffino Affirm. Ex. 2, 3d Am. Compl. (Apr. 20, 2005).) The First Department sustained the cause of action for breach of an implied duty of good faith and fair dealing. The Court found that, although the par- ties' contract permitted the defendant to accept plain- tiffs orders and time its deliveries at its "discretion," the plaintiffs allegations had "raise[d] a triable issue offact as to whether [the defendant]'s discretion under the [contract] was *5 exercised in bad faith." Mad- daloni. 2007 WL 1774986, at * J .Maddaloni makes it clear that a plaintiff may bring a cause of action for breach of the implied covenant of good faith and fair dealing alleging that a defendant has exercised its © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 16 Misc.3d 1112(A) 16 Misc.3d 1112(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 1112(A), 847 N.Y.S.2d 896) rights under its contract in bad faith in order to realize gains that the contract implicitly denied or to deprive the other party of the fruit of its bargain, even if the plaintiff has not alleged a breach of that contract. Most of the decisions that appear to reach a contrary result rely on the oft-cited rule that a claim for breach of an implied duty of good faith and fair dealing cannot stand alone ifit only substitutes for a nonviable breach of contract claim. Triton Partners LLC v. Prudential Sec. Inc., 30 I AD2d 411, 411 (1 st Dept. 2003).AccordJacobs Private Equity. LLC v. 450 Park LLC, 22 AD3d 347, 347-48 (lst Dept. 2005) (good faith claim duplicated insufficient breach of contract claim); Cerberus Int'l. Ltd. v. BancTec. Inc., 16 AD3d 126, 127 (lst Dept. 2005); Parker E. 67th Assocs .. L.P. v. Minister. Elders & Deacons or Reformed Protestant Dutch Church, 301 AD2d 453, 454 (lst Dept. 2003). This rule does not bar plaintiffs' good faith claim, where plaintiffs have alleged that defen- dants acted in bad faith as part of scheme to deny them of the benefit of their bargain. In Richbell, the First Department acknowledged the "tension between, on the one hand, the imposition of a good faith limitation on the exercise of a contract right and, on the other, the avoidance of using the implied covenant of good faith to create new duties that negate explicit rights under a contract." Richbell, 309 AD2d at 302.But notwithstanding this tension, it upheld the plaintiffs' cause of action for breach of implied cove- nant of good faith and fair dealing, alleging that the defendant had exercised its contractual right malevo- lently, for its own gain, as part of a purposeful scheme designed to deprive the plaintiffs of the benefits of their contract. Such a claim "do[ es] not create new duties that negate [the party']s explicit rights under a contract, but rather, seek[ s] imposition of an entirely proper duty to eschew this type of bad faith targeted malevolence in the guise of business dealings." Id. In such circumstances, the claim for breach of an implied duty of good faith and fair dealing does not depend on a breach of the contract; therefore, a plain- tiff may bring such a claim, whether or not there is a viable breach of contract claim. Chase Manhattan Bank. N.A. v .. Keystone Dislribs. Inc., 873 F. Supp. 808,815 (S.D.NY 1994) (under New York law, "[a] party may be in breach of its implied duty of good faith and fair dealing even if it is not in breach of its express contractual obligations," where that party Page 4 does something to "destroy or injure the right of another party to receive the benefits of the contract"). A few lower court decisions contain statements that, in my view, reflect a short-sighted view ofthe New York law on this subject. See, e.g., Cohen v. Nassau Edu- catm's Fed. Credit Union, 12 Misc 3d 1164(A), 2006 WL 1540324, *4 (Sup. Ct. May 10,2006) (dismissing cause of action for breach of implied covenant of good faith as duplicative of breach of contract action, and stating that "New York does not recognize a separate cause of action for violation of the implied covenant of good faith and fair dealing"); Silvester v. Time Warner. Inc., 1 Misc 3d 250, 258 (Sup. Ct. 2003), affd on other grounds, 14 AD3d 430 (lst Dept. 2005) (dismissing claims for breach of good faith and fair dealing, where no party had "acted in a way to prevent the performance of or the rights under the contract," and stating that covenant of implied covenant of good faith and fair dealing "does not impose any obligation upon a party to the contract beyond what the explicit terms of the contract provide"); Sutton Assocs. v. Lexis-Nexis, 196 Misc 2d 30, 34 (Sup. Ct. 2003) (dismissing cause of action for breach of implied covenant of good faith as duplicative of unavailing fraud theory, and stating that this "duty cannot be used to create independent obligations beyond those agreed upon *6 and stated in the express language of the contract"). In my view, these statements of law are broader than necessary to the holdings of these deci- sions and are therefore dicta. To the extent that these statements are necessary to the holdings of these de- cisions, I decline to follow them, to the extent that they are inconsistent with Dalton, Maddaloni, and Rich- bell. Consequently, I adhere to the result reached in the May 18 Order declining to dismiss the cause of action for breach of implied covenant of good faith and fair dealing. Plaintiffs' motion to reargue Plaintiffs have also moved to reargue dismissal of five causes of action: account stated, promissory estoppel, negligent misrepresentation, civil conspiracy, and declaratory judgment. In the account stated cause of action, the complaint seeks to bind defendants by their previous approvals of plaintiffs' claims and to estop them from demanding © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 16 Misc.3d 1112(A) 16 Misc.3d 1112(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 11 12(A), 847 N.Y.S.2d 896) a refund of asserted overpayments, because they have waited an unreasonably long time to reverse their previous approvals. An account stated cause of action generally is raised either by a plaintiff creditor seeking to recover from a debtor or as an affirmative defense by a defendant debtor, seeking to prevent the reopening of a paid account. In re Rocke(eller Ctr. Props., 272 B.R. 524, 541-42 (Bania. S.D.NY 2000). Plaintiffs' claim stretches the usual form of this cause of action to fit an unusual set of facts. To express plaintiffs' argument in the form of a run-of-the-mill cause of action for account stated, it would go as foIIows: plaintiffs would like to stand in the position of creditors, which, having issued state- ments of the amounts due on the insurance forms submitted to defendants, having given defendants a reasonable amount of time to object to those state- ments, and having been paid the amounts stated as due, seek to prevent defendants from challenging the accuracy of those statements. It is unusual to see medical insurance companies cast in the role of debtors to the physicians who bilI them for services provided to their patients. I am not aware of a case in which a similar argument has been made. The question is whether this application of the account stated doctrine is appropriate. It seems to me unwise to extend the doctrine to fit these facts, especiaIIy here, where plaintiffs have another viable cause of action that more comfortably fits the facts aIIeged. Conse- quently, I adhere to my previous decision dismissing the account stated cause of action.FN3 With regard to the promissory estoppel claim: I remain unconvinced that the complaint alleges that plaintiffs reasonably relied on defendants' alleged oral promises by defendants of coverage, where the complaint also alleges that the defendants repeatedly denied plain- tiffs' requests to provide written confirmation of those promises. CfN. Y. C. Health & Hasps. Corp. v. St. Barnabas Hasp., 10 AD3d 489,491 (1st Dept. 2004) (viable cause of action for promissory estoppel re- quires: (1) an oral promise that is sufficiently clear and unambiguous; (2) reasonable reliance on the promise by a party; and (3) injury caused by the reliance). Therefore, I will adhere to my previous dismissal of the promissory estoppel cause of action. Page 5 For a similar reason, I also affirm my previous holding dismissing the negligent misrepresentation *7 claim. "A claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plain- tiff; (2) that the information was incorrect; and (3) reasonable reliance on the information." J.A.o. Ac- quisition Corp. v. Stavitsky, 8 NY3d 144, 148 (2007). Applying these criteria to the present case: defendants have conceded that Dr. Gross entered into provider agreements with them. Consequently, he is in privity of contract with each of them, so the first criterion is met. Defendants concede that any aIIeged oral ap- provals were incorrect, so the second criterion is met. Plaintiffs have failed to satisfy the third criterion, however, because it was unreasonable for plaintiffs to rely on defendants' aIIeged oral approvals of the CPT 50590 billing code to use ESWT to treat orthopedic conditions, after defendants "refused" to confirm the oral approvals in writing, despite Dr. Gross's "re- peated" requests. (Compl. ~~ 23-24.) Therefore, I properly dismissed the cause of action for negligent misrepresentation. With regard to the cause of action for civil conspiracy: Under New York law, where a plaintiff has failed to sufficiently aIIege an actionable underlying tort, there is no support for conspiracy aIIegations. Am. Pre- (erred Prescription, Inc. v. Health Mgmt., Inc., 252 AD2d 414, 416 (lst Dept. 1998). Consequently, be- cause no cause of action for tort has survived dismis- sal, I correctly dismissed the cause of action for civil conspiracy. Finally, I conclude that I properly dismissed plaintiffs' cause of action seeking a declaratory judgment. "A cause of action for a declaratory judgment is unne- cessary and inappropriate when the plaintiff has an adequate, alternative remedy in another form of ac- tion, such as breach of contract." Apple Records, inc. v. Capitol Records, inc., 137 AD2d 50, 54 (1 st Dept. 1988); accordArtech info. Sys., L.L. C. v. Tee, 280 AD2d 117, 125 (1st Dept. 2001) (affirming dismissal of cause of action for declaratory judgment, where first cause of action for breach of contract afforded plaintiff an adequate remedy). Since, in this case, plaintiffs have an adequate, alternative remedy in their cause of action for breach of implied contract of good © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 16 Misc.3d 1112(A) 16 Misc.3d 1112(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 11 12(A), 847 N.Y.S.2d 896) faith and fair dealing, the cause of action for declm·a- tory judgment is unnecessary. Therefore, I affirm my original decision dismissing this cause of action. Cigna's Motion to Amend and Dismiss Cigna's motion is unopposed insofar as it seeks leave to amend its answer and to dismiss counts five, seven, and nine of the complaint. These aspects of its motion are therefore granted on default. In light of my deci- sion directing plaintiffs to file an amended complaint, Cigna shall file an answer in response to the amended complaint, rather than filing an amended answer in response to the original complaint. The rest of Cigna's motion to dismiss tracks the pa- rallel motions by Horizon and Empire, and plaintiffs oppose it for all the same reasons that they opposed Horizon and Empire's motions to dismiss and to reargue. For the reasons discussed, supra in connec- tion with Horizon and Empire's motions, I deny Cig- na's motion to dismiss the cause of action for breach of implied covenant of good faith and fair dealing, but grant its motion to dismiss the remaining causes of action in the complaint. Accordingly it is ORDERED that plaintiffs' motion for leave to reargue (Motion Seq. No. 003) is granted, but I adhere to the holdings in the May 18 Order for the reasons dis- cussed in this memorandum decision; and it is fUlther ORDERED that defendants Horizon and Empire's motions for leave to reargue (Motion Seq. Nos. *8004 and 005) are granted, though I adhere to my holdings in the May 18 Order for the reasons discussed in this memorandum decision; and it is further ORDERED that Cigna's motion for leave to serve an amended answer and to dismiss the complaint (Motion Seq. No. 006) is granted in pmt and denied in part, in accordance with this memorandum decision; and it is fUlther ORDERED that plaintiffs shall file an amended complaint in accordance with this decision within 30 days of the service of a copy of this order with notice of entry, and it is further Page 6 ORDERED that discovery, which has been stayed pending my decision on these motions, shall now continue with respect to the remaining claims; and it is further ORDERED that the parties shall appear in court for a status conference at 11:00 a.m. on September 25, 2007. DATED: ___________ _ J.S.C. FOOTNOTES FNI. The sixth insurer, according to the complaint, was GHI, which subsequently withdrew its demand for repayment after plaintiffs sub- mitted documentation that GHI had already approved the use of ESWT and the billing code plaintiffs used to bill for it. (Compl. ~ 28.) FN2. Since the complaint was filed, the Court has been informed that the action has been discontinued against two of the defen- dants, HIP and Guardian. So the term "de- fendants" in this decision applies only to the remaining defendants: Empire, Horizon, and Cigna. FN3. In their motion to reargue, plaintiffs also contend that I improperly dismissed this claim based on the erroneous asseltion that defendants had not made legal claims for refunds. Plaintiffs base this contention first on the complaint's allegation that defendants had made written demands for refunds, and second on the fact that Empire and Horizon filed counterclaims demanding refunds of the alleged overpayments. Because I conclude that I correctly dismissed this cause of action on another ground, I do not need to address plaintiffs' contention. Copr. (c) 2013, Secretary of State, State of New York N.Y.Sup.2007. Gross v Empire Healthchoice Assur., Inc. 16 Misc.3d 1112(A), 847 N.Y.S.2d 896847 N.Y.S.2d © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. !6 Misc.3d !!!2(A) !6 Misc.3d !!!2(A) (Table, Text in WESTLA W), Unreported Disposition (Cite as: 16 Mise.3d 1112(A), 847 N.Y.S.2d 896) 896 (Table)(Tab!e, Text in WESTLA W), Unreported Disposition6022007 WL 20663909992007 N.Y. Slip Op. 51390(U)4603, 847 N.Y.S.2d 896847 N.Y.S.2d 896 (Table)(Table, Text in WESTLA W), Unreported Disposition6022007 WL 20663909992007 N.Y. Slip Op. 51390(U)4603, 847 N.Y.S.2d 896847 N.Y.S.2d 896 (Table)(Table, Text in WESTLA W), Unreported Disposition6022007 WL 20663909992007 N.Y. Slip Op. 5!390(U)4603 END OF DOCUMENT © 20!3 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 7 LexisNexis® 4 of 7 DOCUMENTS FRANCIS SCOTT HUNT and SHUNDRA CHERI HUNT, individually and as Trustee for IAN CHRISTOPHER HUNT, LAWRENCE A. MCMAHON and JU- DITH J. MCMAHON, PAUL D. CAVANAGH individually and as Trustee for the PAUL D. CAVANAGH TRUST, and VIRGINIA POPE, Plaintiffs, - against - ENZO BIOCHEM, INC., HEIMAN GROSS, BARRY WEINER, ELAZAR RABBANI, SHARIM RABBANI, JOHN DELUCCA, DEAN ENGELHARDT, and JOHN DOES 1-50, Defendants. KEN ROBERTS, Plaintiff, - against - ENZO BIOCHEM, INC., HEIMAN GROSS, BARRY WEINER, ELAZAR RABBANI, SHARIM RABBANI, JOHN DELUCCA, DEAN ENGELHARDT, and JOHN DOES 1-50, Defendants. PAUL LEWICKI, Plaintiff, - against - ENZO BIOCHEM, INC., HEI- MAN GROSS, BARRY WEINER, ELAZAR RABBANI, SHARIM RABBANI, JOHN DELUCCA, DEAN ENGELHARDT, and JOHN DOES 1-50, Defendants. 06 Civ. 170 (SAS),06 Civ. 213 (SAS),06 Civ. 6347 (SAS) UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK 2009 U.S. Dist. LEXIS 52140 June 15,2009, Decided June 15, 2009, Filed SUBSEQUENT HISTORY: Affirmed by Pope v. Enzo Biochem, Inc., 2011 U.S. App. LEXIS J 5776 (2d Cir. N.Y, July 29,2011) OPINION SHIRA A. SCHEINDLIN, U.S.D.J.: I. INTRODUCTION Page 1 PRIOR HISTORY: Hunt v. Enzo Biochem, Inc., 530 F. Supp. 2d 580, 2008 U.s. Dist. LEXIS J 472 (S.D.N. Y, 2008) COUNSEL: [*1] For Plaintiffs: Dan Brecher, Esq., Law Offices of Dan Brecher, New York, NY. For the Enzo Defendants: Donald H. Chase, Esq., David A. Piedra, Esq., Gayle Elise Pollack, Esq., Morrison Co- hen, LLP, New York, NY. For Defendant Heiman Gross: Angelo Anthony Stio, III, Esq., Pepper Hamilton LLP, Princeton, NJ; K. Stewart Evans, JI'., Esq., Pepper Hamilton LLP, Washington, DC. JUDGES: Shira A. Scheindlin, United States District Judge. OPINION BY: Shira A. Scheindlin Enzo Biochem, Inc. ("Enzo" or the "Company"), a public company incorporated in 1970, has been engaged in the research and development of treatments to fight the human immunodeficiency virus ("HIV") and other disease. Plaintiffs are individuals who invested in Enzo securities. I Defendants include the Company, several officers and directors, and an outside consultant. 2 Plain- tiffs allege that they suffered financial losses by relying on defendants' misstatements and omissions when de- ciding to purchase, hold, and sell Enzo securities. The gravamen of plaintiffs' common law fraud claims is that defendants conspired to inflate the price of Enzo stock through a series of misrepresentations and omissions concerning [*2] the efficacy of Enzo's medical treat- ments in order to sell their shares at artificially inflated prices. After discovery, Enzo and Weiner (together, the "Enzo defendants"), as well as Gross filed motions for Page 2 2009 U.S. Dist. LEXIS 52140, * summary judgment to dismiss all claims against them. For the reasons stated below, their motions are granted. On December 11, 2006, this Court issued an Opinion and Order dismissing the claims of the Hunt plaintiffs for failing to file their claims be- fore the expiration of the statute of limitations. See Hunt v. Enzo Biochem, Inc., 47 I F. Supp. 2d 390, 4 I 4 (S.D.N. Y. 2006) ("Hunt 1"). On August 27, 2007, this Court entered an Order dismissing with prejudice the McMahons' claims for failure to respond to defendants' motion to dismiss the Second Amended Complaint and to appear in the action with counsel. See 8/27/07 Order Dismiss- ing With Prejudice the Actions of the McMahons. Thus, the only plaintiffs left in this action are Cavanagh, Pope, Lewicki, and Roberts. 2 Barry Weiner is Enzo's President and a member of its Board of Directors. Elazar Rabbani is Chief Executive Officer, and his brother, Sha- rim Rabbani, is Chief Operating Officer. The Rabbanis are also members of Enzo's Board [*3] of Directors. John Delucca is a director of the Company. Dean Engelhardt is Enzo's Execu- tive Vice President. Heiman Gross is an outside consultant. Plaintiffs decided not to proceed with their claims against Sharim Rabbani and John Delucca after this Court's Opinion and Order in Hunt 1. See First Amended Complaint. The Court dismissed plaintiffs' claims against Elazar Rab- bani in its January 9, 2008 Opinion and Order. See Hunt v. Enzo Biochem, Inc., 530 F. Supp. 2d 580, 600-01 (S.D.N. Y. 2008) ("Hunt 11"). On May 28, 2008, Engelhardt's counsel filed a suggestion of death notice with the Court. See 5/28/08 Sug- gestion of Death Notice of Dean Engelhardt. II. BACKGROUND 3 3 The facts in this section are not in dispute and are drawn from Defendants' Rule 56.1 Statement ("Def. 56.1 "), Plaintiffs' Counterstate- ment Pursuant to Rule 56.1 ("PI. Counter. 56.1") and from the evidence submitted to the Court by the parties if not included in the Rule 56.1 state- ments. A. Facts 1, The Litigation Agreement Between Glaser and Plaintiffs Cavanagh, Lewicki, and Pope In April 2001, Paul Lewicki -- one of the plaintiffs in this action retained Michael Rovell to represent him in connection with potential claims [*4] he might have against Enzo Biochem. ' The retainer agreement pro- vided that in return for a $ 10,000 fee, Rovell would in- vestigate whether a lawsuit could be brought against any defendants. 5 The agreement appears also to be a litiga- tion agreement because it provides that in the event of recovery in any lawsuit, Lewicki would be entitled to three and a half times what he had paid in attorney fees, with the remainder to be split among Larry Glaser, Paul Cavanagh, Scott Hunt, Lawrence McMahon, and Vir- ginia Pope. 6 Finally, the agreement provides that any settlement in a potential lawsuit brought by Glaser would require the approval of Glaser, and in turn, Glaser "can only force a settlement" ifhe and one other participant to the agreement approved it. 7 4 See 4111/01 Retainer Letter Agreement be- tween Michael Rovell and Paul Lewicki, Ex. E to Declaration of Donald Chase, counsel for Enzo defendants ("Chase Decl."). 5 See id. at 1. 6 See id. 7 Id. Although the agreement was signed by Rovell but not by the other participants, Lewicki admitted during his deposition in this case to the existence of the agreement and the requirement that Glaser and one other participant approve any potential settlement. [* 5] 8 He also testified that the group's strategy was to succeed in a lawsuit brought by Glaser, then contend that the outcomes of any subsequent lawsuits brought by the other plaintiffs would be dictated by the outcome of the Glaser suit. 9 8 See Transcript of Paul Lewicki Deposition, Ex. B to Chase Dec!., at 55:6-22 (summarizing agreement with Rovel!); 56:11-25 (admitting that agreement provided that any settlement in an ac- tion brought by Glaser would require his approval and the approval of at least one of the others). 9 See id. at 48: 1 0-17 ("[Rovell] said that, you know, this case was similar to Glaser's case, and if we would have won, he was going to file for summary judgment so that we would be success- ful in our suit. But since we lost and the suit was identical basically to the Glaser suit and Mr. Chase threatened him with sanctions, so he told me that in the phone conversation. "). Cavanagh and Pope also acknowledged in their de- positions that they had signed similar -- if not identical -- agreements in 2001 providing that they would receive a pOliion of any recovery Glaser obtained from his lawsuit against Enzo and Glaser would receive a portion of any recovery they obtained in their [*6] lawsuits. ]0 In addi- tion, Cavanagh and Pope admitted that the purpose of having Glaser file his lawsuit first was that any victory obtained in his lawsuit would be used in subsequent lawsuits to argue that a similar outcome should apply. II Page 3 2009 U.S. Dist. LEXIS 52140, * 10 See Transcript of Deposition of Paul Cava- nagh ("Cavanagh Dep. Tr."), Ex. A to Chase Decl., at 135:2-25 (testifying that according to the agreement he and others had signed, he would receive a portion of any recovery in Glaser's lawsuit and vice versa); Transcript of Deposition of Virginia Pope ("Pope Dep. Tr."), Ex. C to Chase Decl., at 289:7-20 (acknowledging the ex- istence of an agreement which directed the shar- ing of any recovery from Glaser's lawsuit or any other lawsuit). 11 See Cavanagh Dep. Tr. at 222: 1-8 (admit- ting that the instant lawsuit was not filed for four and half years after the alleged misconduct be- cause the plaintiffs had decided to await the out- come of Glaser's lawsuit before initiating their own); Pope Dep. Tr. at 76:23-77:22 (acknowl- edging that Glaser would initiate litigation first and the litigation of the others would follow), 297:14-21 (same). Glaser also testified at his deposition that he had en- tered into a written agreement [*7] with Lewicki, Ca- vanagh, and Pope in 2001. 12 He fmiher confirmed that the agreement provided that these individuals would contribute to Glaser's legal expenses in return for a share of any recovery Glaser obtained in his lawsuit. 13 12 See Deposition Transcript of Larry Glaser, Ex. B to Reply Declaration of Donald H. Chase ("Chase Rep. Decl."), at 380:1-10. 13 See id. at 380:7-22. Finally, a January 2009 agreement signed by Cava- nagh and Pope confirms the existence of the 2001 litiga- tion agreement and provides again for a splitting of any recovery in this action. I. In addition, it requires the "full cooperation" of Glaser in the prosecution of these claims. 15 The agreement also provides that each participant bes- tows a power of attorney on the others such that any of the participants may discuss with their counsel "any matter peliaining to the most zealous possible prosecu- tion of our cases and claims .... " 16 14 See 1/26/09 Agreement, Ex. E to Chase Dec!. 15 ld. 16 ld. In 2002, Glaser and members of his family -- who are not parties to this action -- retained Rovell to file a lawsuit against the defendants in the Eastern District of Virginia alleging violations of federal securities laws, [*8] civil conspiracy, and common law fraud (the "Glas- er Action"). The Glaser family alleged that Enzo and its officers made statements through press releases and other communications exaggerating the preliminary success of its HIV and Hepatitis B therapies, including pre-clinical and clinical trials as well as its stealth vector, its patent estate, and other commercial arrangements. 17 17 See Glaser v. Enzo Biochem, Inc., 464 F.3d 474, 476 (4th Cir. 2006). In 2005, after the Fourth Circuit remanded a portion of the case to the district court following an earlier ap- peal, the district court granted defendants' motion to dis- miss the remaining common law fraud claim. 18 In Sep- tember 2006, the Fourth Circuit affirmed the district court's dismissal of that claim. 19 First, the comi held that the district court had properly dismissed the claim against the individual defendants because the plaintiffs had not shown that they had made any actionable state- ments. 20 Second, the court ruled that plaintiffs had failed to satisfy the requirement to plead loss causation. 21 18 See id. at 475. 19 See id. at 480. 20 See id. at 476-77. 21 See id. at 477. In January 2006, while the appeal of the dismissal of the Glaser [*9] Action was pending in the Fourth Cir- cuit, two members of the Hunt family, two members of the McMahon family, Cavanagh, and Pope filed a joint action against defendants in this Court. 22 Their Com- plaint was "nearly identical" to the complaint that was filed in the Glaser Action. 23 Lewicki followed by filing his own lawsuit. 2. Ken Roberts, another plaintiff, also filed a lawsuit against Enzo and the other defendants. 25 All of the plaintiffs had retained Rovell as their attorney. 26 These actions were consolidated before this Comi. 27 22 See Complaint of Hunt v. Enzo Biochem, 06 Civ. 170 ("Hunt Comp!. "). 23 Hunt J, 471 F. Supp. 2d at 398 n.49. 24 See Complaint of Lewicki v. Enzo Biochem, 06 Civ. 6347 ("Lewicki Comp!. "). 25 See Complaint of Roberts v. Enzo Biochem, 06 Civ. 213 ("Roberts Comp!."). 26 See Hunt Comp!.; Lewicki Compl.; Roberts Compl. 27 See 3/30/06 Order of Consolidation. Le- wicki's case had not yet been filed and was therefore not included in this Order. However, his action was subseqHently identified as associated with this case and now proceeds along with the other two actions. See, e.g., 1 II 7/07 Stipulation and Order (affecting all three actions). Although Lewicki and Roberts [* 1 0] continued to file in- dividual complaints in their own respective ac- tions, their complaints were viliually identical to Page 4 2009 U.S. Dist. LEXIS 52140, * the corresponding complaints filed in the lead Hunt action and therefore will not be addressed separately. On January 3, 2007, plaintiffs filed a First Amended Complaint under seal with the Court. See First Amended Complaint. After briefing, the Court entered an Opinion and Order granting in part and denying in part defendants' motions to dismiss. See Hunt Il. The Court granted Elazar Rabbani's motion to dismiss holding that plaintiffs had failed to plead thei; common law fraud claim against him with suffi- cient particularity. See 530 F. Supp. 2d at 600. The Court denied all other defendants' motions to dismiss, finding that plaintiffs had adequately pled loss causation and reliance. See id. at 597, 599, 600 (holding also that plaintiffs had ade- quately pled their holder claims). On February 5, 2008, plaintiffs filed a Third Amended Complaint alleging claims of common law fraud. 28 They allege that defendants made material mi- srepresentations with respect to its treatment of HIV and in particular, regarding the progress of its pre-cli~ical and clinical trials, its stealth [* 11] vector, and its patent estate. 29 They also assert that defendants made these representations in order to artificially inflate the price of Enzo stock, and that as a result, plaintiffs relied on these misrepresentations and incurred losses on their invest- ments. 30 28 See Third Amended Complaint ("Third Am. Compl."). 29 See id. P 2. 30 See id. PP 3, 4. 2. The Enzo Defendants' Contacts with California On December 11, 2006, this COUIt issued an Opi- nion and Order granting defendants' first motions to dis- miss. 31 The Court dismissed all purchase claims for fail- ure to allege loss causation and all holder claims for fail- ure to plead reliance. 32 The Court also specifically found that plaintiffs should have been on inquiry notice of their potential claim as early as June 2001. 33 The Court held that because New York's borrowing statute dictates that the applicable statute of limitations for a common law fi'aud claim is determined by each plaintiffs state of res- idence, the statute of limitations had run on all plaintiffs' claims. 3. Nevertheless, the Court also noted that New York courts have long required the borrowing of tolling statutes that are applicable in a foreign state and deter- ~nine.d that [* 12] the state of residence of each plaintiff m thIS case -- except for the Hunt plaintiffs who lived in Georgia -- had tolling statutes that might apply. 35 31 See Hunt J, 47 J FSupp. 2d 390. 32 Seeid. at 410, 412-13. 33 See Jd. at 403. 34 See id. at 400, 403. 35 See id. at 405. These tolling statutes provided that the statute of li- mitations would be tolled for the period in which the absent defendants are not amenable to personal jurisdic- tion in the state. 36 Because the defendants in this case had failed to establish that these states had personal ju- risd!ction over them during the relevant period, the Court dellled defendants' motion to dismiss on this ground with leave to renew the motion at the close of discovery. 37 36 See id. at 404-05. 37 See id. at 408. With the exception of the Hunt plaintiffs, the Court allowed all plaintiffs leave to replead. See id. at 414. Defendants have now provided the Court with evi- dence of their contacts with California, where Roberts res~de~. None of this evidence has been disputed by plamtlffs. First, defendants note that the HlV clinical trial that was sponsored by Enzo was conducted at the University of California at San Francisco ("UCSF"). 38 Starting in 1997, [*13] Enzo personnel began to com- municate and meet with doctors in San Francisco to in- vestigate the clinical trial site. 39 These communications continued after the trial site was chosen and doctors at UCSF began assisting Enzo in "form[ing] an appropriate protocol and [] assist[ing] in the presentation to UCSF's in~titutional review board." .0 After the trial began in mld-1998, Enzo directed "substantial funding" and sent testing materials and personnel to the state to assist with the clinical trial. .1 38 See Def. 56.1 PP 119-122; see PI. Counter. 56.1 PP 119-122 (failing to contest these facts). 39 See Def. 56.1 P 120. 40 Jd. P 121. 41 Jd. P 122. Second, defendants note that they have business contacts with California. For instance, between 2000 and 2002, Enzo sold over $ 22 million of products in Cali- fornia, making up approximately fourteen percent of Enzo's revenue for those years. .2 Between 2003 and 2005, Enzo's revenues in California were over $ 14 mil- lion or roughly ten percent of total revenue. H Enzo has also retained a sales agent in California since 200 I. "" In addition, around April 1998, Enzo entered into one of its largest distribution agreements with Affymetrix, a Cali- fornia company. [*14]·5 42 See id. P 125; see PI. Counter. 56.1 P 125 (failing to contest this fact). Page 5 2009 U.S. Dist. LEXIS 52140, * 43 See Def. 56.1 P 125; see PI. Counter 56.1 P 125. 44 See Def. 56.1 P 126; see PI. Counter. 56.1 P 126 (failing to contest this fact). 45 See Def. 56.1 P 127; see PI. Counter. 56.1 P 127 (failing to contest this fact). Third, defendants inform the Court that since 2000, Weiner has taken four or five trips to California every year, during which he met with investors or potential investors, attended conferences relating to Enzo's work, and attended meetings with suppliers, distributors, and licensors .• 6 In addition, Weiner met with Roberts in Cal- ifornia, and in fact, Roberts alleges that many of Wein- er's misrepresentations were repeated to him during that meeting. H 46 See Def. 56.1 P 131; see PI. Counter. 56.1 P 131 (failing to contest this fact). 47 See Def. 56.1 P 124; see PI. Counter. 56.1 P 124 (failing to contest this fact). III. LEGAL STANDARDS A. Summary Judgment Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled [* 15] to judgment as a matter of law." .8 An issue of fact is genuine "'if the evi- dence is such that a reasonable jury could return a verdict for the nonmoving party.'" .9 A fact is material when it "'might affect the outcome of the suit under the govern- ing law.'" 5" ''It is the movant's burden to show that no genuine factual dispute exists." 51 48 Fed. R. Civ. P. 56(c). 49 Roe v. City of Waterbury, 542 F.3d 31, 34 (2d Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d202 (1986)). 50 Ricci v. DeStefano, 530 F.3d 88, 109 (2d Cir. 2008) (quoting Anderson, 477 U.S at 248). 51 Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004) (citing Adickes v. SH. Kress & Co., 398 U.S 144, 157, 90S Ct. 1598, 26L. Ed. 2d 142 (1970)). In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of ma- terial fact. "Summary judgment is properly granted when the non-moving party 'fails to make a showing sufficient to establish the existence of an element essential to that pat1y's case, and on which that party will bear the burden of proof at trial.'" 52 To do so, the non-moving party must do more than show that there is "'some metaphysical doubt as to the material facts,'" [* I 6] 53 and it "'may not rely on conclusory allegations or unsubstantiated specu- lation.'" 5. However, "'all that is required [from a non-moving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at triaL'" 55 52 Abramson v. Pataki, 278 F.3d 93, 101 (2d Cir. 2002) (quoting Celotex Corp. v. Catrett, 477 U.S 317, 322, 106 S Ct. 2548, 91 L. Ed. 2d 265 (1986)). Accord In re September 11 Litig., No. 21 MC 97, 500 F Supp. 2d 356,2007 WL 2332514, at *4 (SD.N. Y Aug. 15, 2007) ("Where the non- moving party bears the burden of proof at trial, the burden on the moving party may be dis- charged by showing -- that is, pointing out to the district court -- that there is an absence of evi- dence to support the nonmoving party's case. ") (quotation omitted). 53 Higazy v. Templeton, 505 F.3d 161,169 (2d Cir. 2007) (quoting Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.s. 574, 586, 106 S Ct. 1348,89 L. Ed. 2d 538 (1986)). 54 Jeffreys v. City of New York, 426 F3d 549, 554 (2d Cir. 2005) (quoting Fujitsu Ltd. v. Fed- eral Express Corp., 247 F.3d 423, 428 (2d Cir. 2001)). 55 Kessler v. Westchester County Dep't ~r Soc. Servs., 461 F.3d 199,206 (2d Cir. 2006) (quoting Anderson, 477 U.s. at 248-49). In [* 17] determining whether a genuine issue of material fact exists, the court must construe the evidence in the light most favorable to the non-moving pat1y and draw all justifiable inferences in that party's favor. 56 However, "[i]t is a settled rule that '[ c ]redibility assess- ments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judg- ment.''' 57 Summary judgment is therefore "only appro- priate when there is no genuine issue as to any material fact, making judgment appropriate as a matter oflaw." 58 56 See Mathirampuzha v. Potter, 548 F3d 70, 74 (2d Cir. 2008) (quoting Allianz Ins. Co. v. Lerner, 416 F3d 109,113 (2dCir. 2005)). 57 McClellan v. Smith, 439 F3d 137, 144 (2d Cir. 2006) (quoting Fischl v. Armitage, 128 F.3d 50, 55 (2d Cir. 1997)). Accord Anderson, 477 U.s. at 249. 58 Karpova v. Snow, 497 F.3d 262, 270 (2d Cir. 2007) (citing Tocker v. Philip Morris Cos., 470 F.3d 481, 486-87 (2d Cir. 2006)). Page 6 2009 U.S. Dist. LEXIS 52140, * B. Res Judicata "A fundamental precept of common-law adjudica- tion, embodied in the related doctrines of collateral es- toppel and res judicata, is that a 'right, question or fact distinctly put in [* 18] issue and directly determined by a comt of competent jurisdiction ... cannot be disputed in a subsequent suit between the same parties or their privies .... '" 59 "By 'preclud[ing] parties from contesting matters that they have had a full and fair opportunity to litigate,' these two doctrines protect against 'the expense and vexation attending mUltiple lawsuits, conserv[e] judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of inconsistent decisions.'" 60 59 Montana v. United States, 440 Us. 147, 153, 99 S. Ct. 970, 59 L. Ed. 2d 210 (1979) (quoting Southern Pac. R.R. Co. v. United States, 168 Us. 1, 48-49, 18 S. Ct. 18, 42 L. Ed 355 (1897)). 60 Taylor v. Sturgell, 128 S. Ct. 2161, 2171, 17 1 L. Ed 2d 155 (2008) (quoting Montana, 440 Us. at 153-54). "To determine whether the doctrine of res judicata bars a subsequent action, [courts] consider whether 1) the prior decision was a final judgment on the merits, 2) the litigants were the same parties, 3) the prior court was of competent jurisdiction, and 4) the causes of action were the same." 61 Two actions are the same when they "in- volve the same claim or nucleus of operative fact." 62 "'To ascertain whether two actions spring from the same transaction or claim, we look to [* 19] whether the un- derlying facts are related in time, space, origin, or moti- vation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations .... '" 63 61 In re Layo, 460 F.3d 289, 292 (2d Cir. 2006) (quoting Corbett v. MacDonald Moving Services, Inc., 124 F.3d 82, 87-88 (2d Cir. 1997)). 62 Id. (citing Interoceanica Corp. v. Sound Pi- lots, Inc., 107 F.3d 86,90 (2d Cir. 1997) (internal quotations omitted)). 63 Waldman v. Village ()[ Kiryas Joel, 207 F.3d 105, 108 (2d Cir. 2000) (quoting Interocea- nica Corp., 107 F.3d at 90 (internal quotations omitted)). "Res judicata may also preclude claims by parties who were not involved in the earlier lawsuit." 6. "How- ever, claim preclusion may be asserted only when the precluded party's interests have been represented in a previous lawsuit." 65 "Res judicata may bar non-parties to earlier litigation not only when there was a formal ar- rangement for representation in, or actual control of, the earlier action but also when the interests involved in the prior litigation are virtually identical to those in later litigation." G6 In other words, there must be a "substantial identity of the incentives [*20] of the earlier party with those of the party against whom res judicata is asserted." 67 The New York Court of Appeals has therefore held that non-parties to a prior lawsuit may be bound by that judgment, including "those who are successors to a property interest, those who control an action although not formal pmties to it, those whose interests are represented by a party to the action, and possibly co-parties to a prior action." 68 That the two actions are both brought by the same attorneys or law firm is "of singular impOltance." 69 64 Chase Manhattan Bank, NA. v. Celotex Corp., 56 F.3d 343, 345 (2d Cir. 1995). Accord Green v. Santa Fe Indus., Inc., 70 N. Y.2d 244, 253, 514 N.E.2d 105, 519 N.Y.S.2d 793 (1987) ("It is fundamental that a judgment in a prior ac- tion is binding not only on the parties to that ac- tion, but on those in privity with them."). 65 Chase Manhattan Bank, 56 F.3d at 345 (citing Expert Elec., Inc. v. Levine, 554 F.2d 1227,1233 (2dCir. 1977). 66 Id. (citation omitted). 67 Jd. at 346. 68 Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 277,265 NE.2d 739,317 NY.S2d 315 (1970). 69 Id at 278. "In addressing privity, courts must carefully analyze whether the party sought to be bound and the party against whom the litigated issue was decided have [*21] a relationship that would justifY preclusion, and whether preclusion, with its severe consequences, would be fair under the particular circumstances." 70 "Doubts should be resolved against imposing preclusion to ensure that the party to be bound can be considered to have had a full and fair opportunity to litigate." 71 70 Buechel v. Bain, 97 N. Y.2d 295, 304-05, 766 N.E.2d 914,740 N.Y.S.2d 252 (2001). 71 Id at 305. The New York Court of Appeals has explained "A determination whether the first ac- tion or proceeding genuinely provided a full and fair opportunity requires consid- eration of the realities of the [prior] litiga- tion, including the context and other cir- cumstances which ... may have had the practical effect of discouraging or deter- ring a pmty from fully litigating the de- Page 7 2009 U.S. Dist. LEXIS 52140, * termination which is now asserted against him." 72 "Included among the factors to be considered are 'the nature of the forum and the importance of the claim in the prior litigation, the incentive and initiative to litigate and the actual extent of litigation, [and] the competence and expertise of counsel. '" 73 72 Hickerson v. City of New York, 146 F.3d 99, 109 (2d Cir. 1998) (quoting Ryan v. KY. Tel. Co., 62 NY.2d 494, 501, 467 NE.2d 487, 478 NY.S.2d823 (1984)). 73 Id. (quoting [*22] Ryan, 62 NY.2d at 50l). C. Personal Jurisdiction in California "California's long-arm statute authorizes California courts to exercise jurisdiction on any basis not inconsis- tent with the Constitution of the United States or the Constitution of California." 74 "A state court's assertion of personal jurisdiction over a nonresident defendant who has not been served with process within the state com- ports with the requirements of the due process clause of the federal Constitution if the defendant has such mini- mum contacts with the state that the assertion of jurisdic- tion does not violate "'traditional notions of fair play and substantial justice.'" 75 74 Vons Cos., Inc. v. Seabest Foods, Inc., 14 Cal. 4th 434, 58 Cal. Rptr. 2d 899, 926 P.2d 1085,1091 (Cal. 1996). 75 Id. (quoting International Shoe Co. v. Washington, 326 u.s. 310, 316, 66 S. Ct. 154,90 L. Ed 95 (1945)). "A nonresident defendant may be subject to the general jurisdiction of the forum if his or her contacts in the forum state are 'substantial . . . continuous and sys- tematic.'" 76 "Such a defendant's contact with the forum are so wide-ranging that they take the place of physical presence in the forum as a basis for jurisdiction." 77 If the nonresident defendant does not have substantial and sys- tematic [*23] contacts in the forum sufficient to estab- lish general jurisdiction, he or she still may be subject to the specific jurisdiction of the forum, if the defendant has purposefully availed himself or herself of forum benefits [], and the controversy is related to or arises out of a de- fendant's contacts with the forum." 78 "[I]t is fair to sub- ject defendants to specific jurisdiction, because their fo- rum activities should put them on notice that they will be subject to litigation in the forum." 79 76 Jd. at J092 (quoting Perkins v. Benguet Conso!. Mining Co., 342 u.s. 437, 445, 446, 72 s. Ct. 413, 96 L. Ed 485, 63 Ohio Law Abs. 146 (1952)) (emphasis in original). 77 !d. (citations omitted). 78 Id. (citations and internal quotations omit- ted). 79 See id. D. The Element of Scienter in Fraud Actions The scienter element for jiaud claims under New York law is similar to that required for federal securities fraud claims. 80 A plaintiff must show that the defendant acted with "an intent to defraud." 81 A plaintiff may sa- tisfy this element by demonstrating either that (I) "'defendants had both the motive and opportunity to commit fraud,'" or (2) proffering "'strong circumstantial evidence of conscious behavior or recklessness.'" 82 80 See Fraternity Fund Ltd v. Beacon Hill As- set Mgmt. LLC., 376 F. Supp. 2d 385, 406 (S.D.N Y. 2005) [*24] ("The elements of com- mon law fraud [] are largely the same as those of a Rule 10b-5 claim .... "). See also Suez Equity Investors, LP. v. Toronto-Dominion Bank, 250 F.3d 87, 104-05 (2d Cir. 2001) (confirming the need to establish the defendant's knowledge or recklessness to succeed on a common law fraud claim). 81 Caputo v. Pfizer, Inc., 267 F.3d 181, 191 (2d Cir. 2001) (citing Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 276 (2d Cir. 1992)). 82 Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001) (quoting Acito v. IMCERA Group, Inc., 47 F.3d 47,52 (2d Cir. 1995)). Under the first prong, "[t]o show motive and oppor- tunity, plaintiffs must allege a likelihood that defendants could realize 'concrete benefits' through the deception." 83 "Insufficient motives [] include (I) the desire for the corporation to appear profitable and (2) the desire to keep stock prices high to increase officer compensation." "' The conduct of the defendants under the second prong must be conduct that is "'highly unreasonable'" and which represents "'an extreme departure from the stan- dards of ordinary care ... to the extent that the danger was either known to the defendant or so obvious that the defendant [*25] must have been aware of it.'" S5 83 Suez Equity Investors, 250 F.3d at 100 (quoting Shields v. Citytrust Bancorp., Inc., 25 F.3d Il24, Il30 (2dCir. 1994)). 84 Kalnit, 264 F.3d at 139. 85 In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 76 (2d Cir. 2001) (quoting Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38, 47 (2d Cir. Page 8 2009 U.S. Dist. LEXIS 52140, * 1978)). Both plaintiffs and defendant Gross agree that plaintiffs must either show a motive and op- portunity or circumstantial evidence of reckless or conscious behavior in order to satisfy the scienter element. See Plaintiffs' Memorandum of Law in Opposition to the Motion of Defendants for Summary Judgment ("PI. Mem. ") at 1 0; see Memorandum of Law in Support of Defendant Heiman Gross' Motion for Summary Judgment at 10. IV. DISCUSSION A. Plaintiffs' Claims Against the Enzo Defendants 1. The Glaser Action Bars This Litigation a. Privity of the Parties The Enzo defendants argue that "[t]he facts adduced in discovery demonstrate that [p]laintiffs Lewicki, Ca- vanagh[,] and Pope are privies of Glaser, and so closely tied to him that the outcome of the Glaser Action should have preclusive effect." 86 Plaintiffs counter that their claims should not be barred by res judicata because [*26] plaintiffs neither gave Glaser the authority to act on their behalf nor actually controlled Glaser's action. 87 In SUppOlt, they note that Lewicki's retainer agreement with Rovell was neither signed by Glaser or any of his family members who were plaintiffs in the Glaser Ac- tion. 88 However, plaintiffs' argument is belied by the other evidence defendants have presented to the Court. 86 See Memorandum of Law in SUppOlt of the Motion for Summary Judgment by Defendants Enzo Biochem, Inc. and Bany Weiner ("Enzo Def. Mem. "). 87 See PI. Mem. at 14. 88 See id. Lewicki, Cavanagh, and Pope each admitted at their depositions that a litigation agreement had existed among themselves and Glaser. This was confirmed by Glaser at his deposition. The intention of such agreement was that Glaser would litigate his action first, and ifhe succeeded, res judicata would be invoked to direct a similar outcome for the respective claims of the other pmticipants to the agreement. In addition, each of the pmticipants agreed to contribute to Glaser's legal expenses in return for a share of any potential recovery from the Glaser Action and vice versa. Most importantly, any settlement of the Glas- er Action would require [*27] the approval of both Glaser and one other participant to the agreement. 89 Thus, for all intents and purposes, Glaser represented the interests of Lewicki, Cavanagh, and Pope in the Glaser Action. In addition, payment by Lewicki, Cavanagh, and Pope of a pOltion of Glaser's attorney's fees and their share in any potential recovery in the Glaser Action gave them a vested interest in that lawsuit. 89 Although plaintiffs repeatedly argue that the signatures of the other participants to the agree- ment are absent from Lewicki's retainer agree- ment with Rovell, Glaser, Lewicki, Cavanagh, and Pope have all testified regarding the exis- tence of such an agreement and that they agreed to its terms and signed it. In addition, plaintiffs have failed to proffer evidence to show that the agreements signed by Cavanagh and Pope ex- cluded the provision stating that any settlement of the Glaser action would require the approval of Glaser and another participant. b. Identity of Claims Plaintiffs also contend that res judicata cannot apply in this case because the claims asserted in the Glaser Action and by Lewicki, Cavanagh, and Pope in this ac- tion are not identical. However, the Court previously compared the [*28] complaints in both actions in Hunt 1 and determined that their claims were virtually identical. 90 For instance, Glaser and his family also alleged claims of common law fraud against defendants. 91 Both sets of complaints also specifically allege misrepresentations by Enzo and its officers and directors relating to the success of the development of its HIV treatment, the clinical tri- als that took place, its patent estate, and its stealth vector. 92 I therefore find that the claims in this action and in the Glaser Action are "related in time, space, origin, or mo- tivation" and "they form a convenient trial unit." 93 90 See Hunt I, 471 F. Supp. 2d at 398 n.49. This is not surprising considering that all of the parties were represented by Rovell at the time they filed their complaints. 91 See Glaser, 464 F.3d at 475. 92 See id. at 476; Third Am. Compl. P 2. Sim- ilar claims against a company by two sharehold- ers in connection with the same transaction or event is not -- by itself -- enough to bind one shareholder to the result in an action brought by the other. However, that Glaser, Lewicki, Cava- nagh, and Pope had entered into a litigation agreement and that G laser had advanced the same claim [*29] in the Glaser Action makes it fair to apply res judicata to bar the claims of the other three. 93 Waldman, 207 F.3d at 108 (quotation marks omitted). Because there is no dispute that the dismissal of the Glaser Action was a final judg- ment on the merits and that the Eastern District of Virginia and the Fourth Circuit are courts of Page 9 2009 U.S. Dist. LEXIS 52140, * competent jurisdiction, I do not discuss these re- quirements for res judicata in detail. c. Differences in Law Plaintiffs argue further that the law that was applied in the Glaser Action is different from the law that is to be applied in this case. 9. This argument similarly fails. Al- though Virginia law -- and not New York law -- was applied in the Glaser Action, the elements of common law fraud under Virginia law are identical to those re- quired under New York law. In the Glaser Action, the FOUlih Circuit noted that in order for plaintiffs to succeed on their common law fraud claim, they were required to prove "'(1) a false representation, (2) of a material fact, (3) made intentionaIly and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) result- ing damage to the party misled.'" 95 These are the same elements this Court has held must [*30] be proven un- der New York law. 96 94 See PI. Mem. at 14. 95 See Glaser, 464 F.3d at 476-77 (quoting Bank of Montreal v. Signet Bank, 193 F.3d 818, 826 (4th Cir. 1999)). 96 See Hunt I, 471 F. Supp. 2d at 399 (noting that "[t]o recover damages for fraud under New York law, a plaintiff must prove: (1) a misrepre- sentation or omission of material fact; (2) which the defendant knew to be false; (3) which the de- fendant made with the intention of inducing re- liance; (4) upon which the plaintiff reasonably re- lied; and (5) which caused injury to the plain- tiff."). d. Full and Fair Opportunity FinaIly, all of the evidence regarding the litigation agreement among Glaser, Lewicki, Cavanagh, and Pope suggest that plaintiffs had a fuIl and fair 0ppOliunity to litigate their claims in the Glaser Action. First, the agreement ensured that the interests of the latter three were aligned with Glaser's interests because they each had a stake in the outcome of Glaser's action through their contribution to his attorney's fees and their share of his recovery. Second, their rights to receive payments were identical to Glaser's because they were all condi- tioned by the litigation agreement. Third, Lewicki, Ca- vanagh, and [*31] Pope acknowledged that adjudication of the Glaser Action would have consequences for them -- they testified that the intention of entering the agree- ment was to ensure that any victory in the Glaser Action would be used to obtain success in their own claims. 97 97 See Buechel, 97 N. Y.2d at 305 (holding that two partners at a law firm were in privity with a third partner and had had the full and fair oppor- tunity to litigate their claims when the third part- ner had litigated them because (1) their interests were "aligned" with that of the third partner, (2) their "right to receive payments were coexten- sive" with the right of the third partner, and (3) they recognized that adjudication of the third partner's claim would have "consequences for them."). Nevertheless, plaintiffs complain that they had access only to limited discovery in the Glaser Action and repeatedly assert that defendants had engaged in several instances of deceptive conduct in that case. 98 These ob- jections may be relevant to whether plaintiffs had a fuIl and fair opportunity to litigate their claims in the Glaser Action, and I therefore analyze each to determine wheth- er any alleged misconduct had the effect of detrimentally [*32] impacting Glaser's -- and, by agreement, Lewicki's, Cavanagh's, and Pope's -- ability to effectively litigate the prior action. 98 See PI. Mem. at 1, 15. First, with respect to plaintiffs' argument regarding limited discovery, there is no requirement that a plaintiff receive an opportunity for discovery prior to being sub- ject to res judicata. For example, dismissal of an action for failure to state a claim has been considered a final judgment on the merits that has res judicata effects. 99 99 See Berrios v. New York City Housing Auth., 564 F.3d 130, 134 (2d Cir. 2009). Never- theless, it should be noted that plaintiffs ac- knowledge that Glaser had limited discovery in connection with his personal bankruptcy pro- ceedings, see PI. Mem. at 1, and Enzo and Wein- er point out that a number of documents that plaintiffs' counsel, Dan Brecher, has included in his declaration -- appended to plaintiffs' response papers -- were obtained through discovery in Glaser's bankruptcy proceedings. See Chase Rep. Decl. P 5. Second, plaintiffs allege that the Enzo defendants have acknowledged the making of a tape recording of the 2000 Annual Shareholders' Meeting ("2000 ASM"), during which many of the alleged misrepresentations [*33] occurred, but have also admitted that it was subse- quently lost. 100 They also contend that defendants' coun- sel had "repeatedly" misrepresented to the courts in the Glaser Action that no sales of Enzo stock were made in March and April 2000 by the Weiner and Rabbani child- ren's trusts. 101 Plaintiffs therefore argue that they are en- titled to an inference that the alleged misrepresentations were in fact made at the 2000 ASM by the Enzo defen- dants. 102 And plaintiffs appear to suggest that this Court should find that plaintiffs did not have a full and fair Page 10 2009 U.S. Dist. LEXIS 52140, * oppOliunity to litigate their claims in the Glaser Action because of the alleged misrepresentations made to the Virginia courts regarding the Enzo defendants' sale of stock. 103 100 See PI. Mem. at 1. 101 See id. 102 See id. 103 See id. However, there has been no allegation of spoliation with respect to the 2000 ASM tape and no evidence that it was destroyed after the anticipation of litigation. In addition, the Glaser Action was dismissed on the basis of the pleadings, 10' and thus all allegations made in Glaser's complaint were assumed to be true, including the misre- presentations allegedly made at the 2000 ASM and re- garding the sale of stock [*34] by Weiner and the Rab- banis. 104 See Glaser, 464 F.3d at 476 (noting that the district court's dismissal of plaintiffs' claims occurred on defendants' motion to dismiss). Plaintiffs also cite to the New York Court of Ap- peals decision of Green v. Santa Fe Indus., Inc. to argue that res judicata should not apply to bar their claims in this case. 105 However, the facts of Green are distin- guishable from the facts of this case. In Green, defen- dants -- a company and its subsidiaries -- argued that res judicata barred the claims of the Borgs, a group of mi- nority shareholders, because they had been "deeply in- volved" in the action brought by another group of minor- ity shareholders, the Greens. 106 The evidence showed that although the Borgs and the Greens owned separate blocks of stock, the Borgs had "monitored the proceed- ings and received reports from the Greens' counsel [] who, the defendants claim, also represented the Borgs' interests in the [Green] action." 107 The Court of Appeals nevertheless concluded that whether the Borgs were in privity with the Greens was an issue of fact that could not be resolved on summary judgment, noting in partic- ular that "there was no indication that the prior [*35] action 'was managed as [the Borgs] thought it should be."1 JOS 105 See 70 NY2d 244, 514 NE.2d 105, 519 N YS2d 793 (1987). 106 See id. at 254. 107 Id. at 253-54. 108 Id. at 254 (quoting Watts v. Swiss Bank Corp., 27 NY2d 270,278,265 NE.2d 739,317 NYS2d 315 (1970)). By contrast, in this case, the relationship between Glaser and Lewicki, Cavanagh, and Pope is much closer. Lewicki, Cavanagh, and Pope all contributed to the liti- gation of the Glaser Action and would have shared in any recovery Glaser received. In addition, the agreement required that any settlement in the Glaser Action would have to be approved by Glaser and at least one of the other participants to the agreement. It therefore cannot be disputed that Lewicki, Cavanagh, and Pope had control -- albeit settlement control -- in the Glaser Action. e. Public Policy Considerations Finally, res judicata should apply in this case to bar the claims of Lewicki, Cavanagh, and Pope because pub- lic policy overwhelmingly favors it. The deposition tes- timony of all three demonstrate that the intent of entering into the litigation agreement was to succeed on Glaser's claims and then invoke res judicata to ensure a similar outcome in their own claims. It would simply be unfair to allow Glaser, Lewicki, [*36] Cavanagh, and Pope to take a "second bite at the apple" when they intended to use res judicata to their advantage had the Glaser Action gone their way. Allowing their claims to proceed would send a strong signal to other plaintiffs that they can "test the waters" by having only one member of their group institute an action first. If that member failed, then the others would be able to learn from his mistakes and in- itiate another action. If that member succeeded, then the others would bring their claims and argue that the same outcome should apply to their claims. Either way, they would take no risk. This is precisely the situation that res judicata seeks to prevent. The claims of Lewicki, Cava- nagh, and Pope against the Enzo defendants must there- fore be dismissed. 2. California's Statute of Limitations Is Not Tolled California's tolling statute does not apply in this case because the Enzo defendants were amenable to personal jurisdiction in California. The evidence shows that from 2000 to 2005, a significant portion of Enzo's total reve- nue was derived from the sale of goods in California. In addition, Enzo retained a sales agent in the state 109 and one of its largest distributors is [*37] based in Califor- nia. Finally, Weiner frequently visited California as En- zo's President in order to conduct business in the state. Significant revenues based on goods sold within the state and frequent business trips to the state have been found to be sufficient to indicate that the defendant has "exten- sive and wide-ranging" business in California. 110 109 While plaintiffs complain that Enzo had no sales agent in California in 2000, see PI. Counter 56.1 P 126, this is only one of the many Enzo contacts with California. 110 Neadeau v. Foster, 129 Cal. App. 3d 234, 239-40, 180 Cal. Rptr. 806 (Cal. Ct. App. 1982). cy Luberski, Inc. v. Oleificio F.LLl Amato SR.L.., 171 Cal. App. 4th 409, 89 Cal. Rptr. 3d Page 11 2009 U.S. Dist. LEXIS 52140, * 774, 778 (Cal. Ct. App. 2009) (holding that a history of shipping olive oil to a small number of customers within the state did not represent "sub- stantial, continuous, and systematic contacts" with the state). Further, even if California did not have general ju- risdiction, California certainly had specific jurisdiction over the Enzo defendants during the relevant period. The HIV clinical trials which are the focus of plaintiffs' alle- gations were conducted at UCSF. The Enzo defendants therefore could have foreseen that they would be subject [*38] to litigation in California. In addition, Roberts tes- tified at his deposition that Weiner met with him on one of his visits to California and made a number of misre- presentations to him during that meeting, including re- marks about the success of the HIV trials and the com- pany's transition to Phase II of the trials. III I therefore find that the Enzo defendants were amenable to personal jurisdiction in California during the relevant period. Ac- cordingly, California's tolling statute does not apply, and Roberts is time-barred from proceeding with his claim. 112 III See Transcript of Deposition of Ken Ro- berts ("Roberts Dep. Tr."), Ex. D to Chase Dec!., at 122:2-123:4 (attesting that Weiner had met with him and given him similar assurances to that which is alleged to have been given at the 2000 ASM: "Everything was [] moving forward, we don't see any problems, we've had quite a bit of success in our trials . . . we will be moving for- ward into Phase II"). See also Taylor-Rush v. Multitech Corp., 217 Cal. App. 3d 103, 114,265 Cal. Rptr. 672 (Cal. Ct. App. 1990) (holding that defendants were amenable to personal jurisdic- tion where one defendant made fraudulent misre- presentations to plaintiff while in California [*39] and another defendant "purposely directed" misrepresentations at plaintiff in California even though communications were made while defen- dant was in New York). 112 See Hunt 1, 471 F. Supp. 2d at 403 ("[A]ll plaintiffs' claims are time-barred unless they can show that the limitations period has been tolled."). Plaintiffs argue that counsel for the En- zo defendants had threatened plaintiffs' counsel with sanctions prior to the Glaser Action if he filed claims against them, apparently suggesting that the statute of limitations should not bar them fi·om bringing their claims. See PI. Mem. at 6. However, these threats -- although allegedly made prior to the Glaser Action, did not stop Glaser from instituting his lawsuit against the Enzo defendants. See 12/20102 Transcript of Mo- tion Proceedings Before the Eastern District of Virginia in the Glaser Action, Ex. I to Declara- tion of Dan Brecher, plaintiffs' counsel, at 39:24-40:6. There is no explanation for plaintiffs' failure to take similar action. B. Plaintiffs' Claims Against Gross 1. The Glaser Action Bars This Litigation Gross was a defendant in the Glaser Action. The Eastern District of Virginia dismissed claims against Gross in the Glaser [*40] Action because it held that his alleged statements were not actionable. 113 The Fourth Circuit affirmed the district comt's decision. 114 As such, Lewicki, Cavanagh, and Pope are bound by the dismissal of Glaser's claims against Gross in that action under the doctrine of res judicata for the same reasons I discussed above. The claims of Lewicki, Cavanagh, and Pope must therefore be dismissed. 113 See Glaser, 464 F.3d at 477. 114 See id. 2. Plaintiffs Have Proffered No Evidence of Gross' Scienter Even if the claims of Lewicki, Cavanagh, and Pope were not barred by res judicata, they -- and Roberts' claim -- must nevertheless be dismissed because plain- tiffs have failed to raise a genuine issue of material fact with respect to Gross' scienter. Plaintiffs have not prof- fered any evidence to show that Gross was reckless in making the alleged misrepresentations. Further, they have failed to present evidence that he obtained a "con- crete" benefit from making the alleged false statements. 115 Plaintiffs merely reiterate that Gross had made the alleged misrepresentations and contend that "he should have known better" and that "these statements evidence scienter." 116 However, more than mere conclusory [*41] allegations are necessary to defeat summary judg- ment. 117 Accordingly, plaintiffs' claims against Gross must fail. lIS Indeed, plaintiffs have failed to demon- strate that Gross sold any Enzo stock in 2000 or 200 I. See also Schedule D of Gross' Tax Returns, Ex. B to Declaration of Heiman Gross (indicating that Gross never sold Enzo stock during the rele- vant time period). 116 PI. Mem. at 12. 117 See Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 310 (2d Or. 2008) ("A pmty opposing summary judgment does not show the existence of a genuine issue of fact to be tried merely by making assertions that are conclusory [] or based on speculation.") (citations omitted). 2009 U.S. Dist. LEXIS 52140, * v. CONCLUSION For the foregoing reasons, defendants' motions for summary judgment are granted. The Clerk of the Court is directed to close the following motions: Document Nos. 98 and 103 in 06 Civ. 170; Document Nos. 78 and 83 in 06 Civ. 213; and Document Nos. 44 and 49 in 06 Civ. 6347. The Clerk of the Court is also directed to close this case. SO ORDERED: /s/ Shira A. Scheindlin Shira A. Scheindlin U.S.DJ. Dated: New York, New York June 15,2009 Page 12 Page 1 LexisNexis® 1 of 3 DOCUMENTS PRAKASH MELWANI, Plaintiff, -against- PRADIP K. JAIN, PRAMOD K. JAIN, ROY AL SILK PRODUCTS, INC. and, DIAST AR, INC., Defendants. 02 Civ. 1224 (DF) UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK 2004 U.S. Disl. LEXIS 16867 August 23, 2004, Decided August 24, 2004, Filed PRIOR HISTORY: Melwani v. Jain, 2004 u.s. Dist. LEXIS 7590 (S.D.N.Y., Apr. 28, 2004) DISPOSITION: [*1] Defendants' motion for par- tial summary judgment granted in part. Counts Three and Five of second amended complaint dismissed as against Defendant Diastar, Inc. COUNSEL: Prakash Melwani, Plaintiff, Pro se, New York, NY. For Pradip K. Jain, Pramod K. Jain, Diastar, Inc., De- fendants: Nicholas P. Otis, LEAD ATTORNEY, Na- thanson, Devack & Memmoli LLP, East Meadow, NY. For Pradip K. Jain, Pramod K. Jain, Diastar, Inc., Royal Silk Products, Inc., Defendants: Nicholas P. Otis, LEAD ATTORNEY, Nathanson, Devack & Memmoli, L.L.P., East Meadow, NY. JUDGES: DEBRA FREEMAN, United States Magi- strate Judge. OPINION BY: DEBRA FREEMAN OPINION MEMORANDUM AND ORDER DEBRA FREEMAN, United States Magistrate Judge: In this action, before me on consent pursuant to 28 Us.c. § 636(c), pro se plaintiff Prakash Melwani ("Melwani") asserted six claims against defendants, al- leging improper registration of a website, two counts of false advertising under the Lanham Act, two counts of tortious interference with prospective business advantage or relations, and unfair competition under state law. (See Second Amended Complaint, filed June 25, 2002 ("Second Am. Comp!.") (Dkt. 14).) On November 27, 2002, defendants moved for pm1ial summary judgment [*2] with respect to Count Three (false advertising) and Count Five (tortious interference) against defendants Pramod Jain ("Pramod") and Diaster, Inc. ("DI"). I (See Notice of Motion, filed Nov. 27, 2002 (Dkt. 25); Defen- dants' Memorandum of Law in SuppOJ1 for Partial Sum- mary Judgment, filed Dec. 2, 2002 ("Defs.' Mem. ") (Dkt. 26).) On April 28, 2004, this Court issued a Memoran- dum and Order dismissing the two claims against Pra- mod as barred by a settlement agreement reached in a prior action, in which Melwani agreed to release Pramod from liability on these issues. (See Memorandum and Order, dated April 28, 2004 ("4/28/04 Order") (Dkt. 35) at 8-13.) Further, the COUl1 determined, sua sponte, that the claims against DI appeared to be barred by the doc- trine of res judicata. (Jd. at 13-17.) Recognizing, howev- er, that res judicata was not argued by defendants on their motion, that Melwani had no 0ppOJ1unity to respond on that point, and that Melwani was proceeding pro se, the COUl1 afforded Melwani an opportunity to address the issue before the COUl1 dismissed the claims on this basis. (Jd. at 17.) Melwani originally named Pradip Jain ("Pra- dip") and Royal Silk Products, Inc. ("RSPI") as additional defendants on Counts Three and Five, Page 2 2004 U.S. Dist. LEXIS 16867, * but voluntarily dismissed those claims against Pradip and RSPI before defendants brought their summary judgment motion. (See Stipulation of Voluntary Dismissal of Certain Claims, "so or- dered" November 26, 2002 (Dkt. 24).) [*3] Melwani has now submitted a supplemental brief on the issue, to which defendant DI has replied. (See Plaintiff's Supplemental Brief in Opposition to De- fendants' Motion for Partial Summary Judgment, filed May 28, 2004 ("Melwani Supp. Mem.") (Dkt. 36); De- fendants' Memorandum in Reply to Plaintiff's Supple- mental Brief, filed June 24, 2004 ("Defs.' Supp. Reply") (Dkt. 38).) After reviewing the parties' supplemental submissions, the Court adheres to its original view that the Counts Three and Five in the Second Amended Complaint are barred as against DI by the doctrine of res judicata. Accordingly, these claims are hereby dismissed. DISCUSSION A. Litigation History The parties to this case have a litigation history that was fully described in the Court's April 28 Order (see 4/28/04 Order at 3-7), familiarity with which is assumed. The only history that is relevant here is that the same claims against DI that are now at issue were previously asserted against RSPI and Pradip in a prior federal ac- tion, Prakash Melwani v. Pradip Jain and Royal Silk Products, Inc. No. 00 Civ. 7623 (AJP), and, in that case, the claims were discontinued with prejudice as the result [*4] of a stipulated settlement. B. Privity for Res Judicata Purposes The defense of res judicata requires a party to show that "(1) the previous action involved an adjudication on the merits; (2) the previous action involved the [parties] or those in privity with them; [and] (3) the claims as- serted in the subsequent action were, or could have been, raised in the prior action." Monahan v. New York City Dep't ojCorr., 214 F.3d 275, 285 (2d Cir. 2000) (cita- tions omitted). The first and third of these factors are not at issue here, 2 and, indeed, the parties' supplemental briefs focus only on the "narrow issue [of] whether de- fendant ... DI was sufficiently in privity with the defen- dants in the prior federal action so as to bar Counts Three and Five of the [Second Amended Complaint] under the doctrine of res judicata." (Melwani Supp. Mem. at 1-2; Defs.' Supp. Reply at I.) 2 "It is clear that a dismissal, with prejudice, arising out of a settlement agreement operates as a final judgment on the merits for res judicata purposes." Marvel Characters, Inc. v. Simon, 310 F.3d 280, 287 (2d Cir. 2002); see Pultney Arms LLC v. Shaw Indus., 2002 u.s. Dist. LEXIS 17678, No. 3:00 Civ. 2052 (JBA), 2002 WL 31094971, at *3 (D. Conn. Sept. 6, 2002) ("A dismissal with prejudice, such as that provided for in the terms of the settlement stated on the record before the Magistrate Judge, is subject to the same rules of res judicata and is effective not only on the immediate parties but also on their privies. ") (internal quotation marks and citation omitted). [*5] For res judicata purposes, the existence of privity between pmiies "is a functional inquiry and not merely a static examination of legal status." Waldman v. Village oj Kiryas Joel, 39 F. Supp. 2d 370, 380 (S.D.N Y. 1999), affd, 207 F.3d 105 (2d Cir. 2000). Privity may be found where a party's interest in litigation is virtually identical to an interest it had in a prior litigation, where it was not actually named, but can be said to have had "virtual representation." Chase Manhattan Bank, NA. v. Celotex Corp., 56 F.3d 343, 346 (2d Cir. 1995). Privity may also be found where a party not previously named in litigation nonetheless controlled and financed the defense of the suit. See Alpert's Newspaper Delivery v. New York Times, 876 F.2d 266, 270 (2d Cir. 1989). Finally, the fact that the pmiies in the prior and current litigation had the same attorney is of "singular significance" in the privity analysis. Ruiz v. Comm'r ojthe Dep't oj Transp., 858 F.2d 898, 903 (2d Cir. 1988). A formal arrangement between parties is not necessary to a finding that they are in privity for res judicata purposes. [*6] Chase, 56 F.3d at 346; see Monahan, 214 F.3d at 285 (literal priv- ity is not required in the res judicata context, instead a party will be bound by a previous judgment if its inter- ests were adequately represented). Here, all of the relevant considerations support a finding that, for res judicata purposes, DI is in privity with at least RSPI, if not Pradip as well. 3 Given the way in which Melwani has framed his claims against DI - i.e., claiming that DI is liable for the conduct of RSPI be- cause of DI's supposed "domination" and "control" of RSPI (see Plaintiffs Memorandum of Law in Opposition to Defendants' Motion for Pmiial Summary Judgment, filed Dec. 30, 2002 ("12/30102 Melwani Mem.") (Dkt. 29) at 3, 5), it is apparent that DI's interest in this case is viliually identical to RSPI's interest in the prior federal litigation. It is also undisputed that DI financed the prior federal action for RSPI, was the pmiy to be notified in case of default, and paid the settlement amount that re- solved that action. (Jd.; Affirmation in Opposition to Defendants' Motion for Pmiial Summary Judgment sworn to December 22, 2002 ("Melwani Aff.") (Dkt. [*7] 30) PP 8, 27, Ex. B.) FUliher, it is undisputed that DI has the same executive officers as RSPI - namely Pradip and Pramod - and that the two companies are considered "sister companies." (See Affidavit of Pradip Page 3 2004 U.S. Oist. LEXIS 16867, * Jain in Support of Motion for Partial Summary Judgment sworn to Nov. 19, 2002, PP I, 20 (01 and RSPJ have common "shareholders, officers and directors"); Affida- vit of Pramod Jain in Support of Motion for Partial Summary Judgment dated Nov. 19, 2002, PI; see also 12/30/02 Melwani Mem. at 3 ("The only two officers of [01] are the same for RSPI."); Melwani Aff P 13 (quot- ing Pradip's deposition testimony that 01 and RSPJ are "sister companies")). Finally 01 is represented by the same counsel as RSPI. 3 An identity of interest between a corporate officer and the corporation may itself be suffi- cient to establish privity. See Fernicola v. Specif- ic Real Property in Possession, Custody, and Control of Healthcare Underwriters Mut. Ins. Co., 2001 U.S Dist. LEXIS 21724, No. 00 Civ, 5173 (MBM), 2001 WL 1658257, at *4 (SD.N.Y. Dec. 26, 2001); Kluge v. Fugazy, 1990 U.S Dist. LEXIS 17519, No. 89 Civ. 5927 (RPP), 1990 WL 251221, at *2 (SD.N.Y. Dec. 28, 1990) (officer, chairman, and part owner of a corporation was in sufficient privity with that corporation as to bar litigation against the corporation where the same issues had been litigated against the individual). [*8] In his supplemental submission, Melwani argues that the question of privity is a factual question that should be decided by the finder of fact at trial. (See Melwani Supp. Mem. at 6.) Melwani further argues that the facts regarding the relationship between 01 and RSPI are not so evident as to justify summary resolution. Spe- cifically, Melwani asserts that RSPI is not a subsidiary of OJ, that the businesses of 01 and RSPl are "completely different and unrelated," that Dl would not have had any legal interest in the alleged false advertising that was the basis of Melwani's claims against RSPl in the prior fed- eral action, that "there is no bulletproof evidence ... that DJ ever controlled the prior federal action," and that OI's payment of the settlement in the prior action may have been an "advance[]" or "temporary loan[]," which would not be sufficient to show a "direct financial interest" in that prior case. (ld at 9-11.) To the extent Melwani is suggesting that the issue of privity can only be determined at trial, his position is incorrect, as revealed by the case he cites. See Chase, 56 F.3d at 343 (deciding the issue of privity on a motion for summary [*9] judgment); see also Monahan, 214 F.3d at 283 ("The district court has the discretion to enteliain the defense [of res judicata] when it is raised in a motion for summary judgment. "). Moreover, the issues Melwani raises in his supplemental brief are insufficient to alter the Court's conclusion that 01 and RSPI are in privity for res judicata purposes. Even if 01 and RSPI are separate entities with distinct corporate boundaries and different businesses, this would not preclude a finding of privity between the two companies for res judicata purposes, given the identity of interests and incentives between the two companies in defending against the same claims based on the same alleged wrongdoing. See, e.g., Valley Disposal Inc. v. Central Vt. Solid Waste Dist., 31 F.3d 89, 103 n.22 (2d Cir. 1994) (a party may be barred by res judicata where it is attempting to take advantage of two companies' corporate separateness in order to sue the same defendant twice); see generally Chase Manhattan Bank, 56 F.3d at 345 (finding that privity may exist for the purpose of determining one legal question but not another depending on the circumstances [*10] and legal doctrines at issue); Waldman, 39 F. Supp. 2d at 380 ("A privity analysis for res judicata purposes is broader than a traditional privity analysis."); Nabisco v. Amtech, 2000 U.S Dist. LEX IS 305, No. 95 Civ. 9699 (LBS), 2000 WL 35854, at *6-7 (SD.N.Y. Jan. 18, 2000) ("Privity ... in- cludes any situation in which the relationship between the parties is sufficiently close to support preclusion") (citing Amalgamated Sugar Co., LLC v. NL Indus., Inc. 825 F.2d 634, 640 (2d Cir. 1987)). At bottom, Melwani cannot avoid the consequences of his own pleading and his own prior arguments to the Court. If OI's liability is, as he claims, entirely derivative of RSPI's liability, so that he has no basis for suing 01 other than his argument that DJ has wholly "dominated" RSPI (see, e.g., Melwani Aff. P 20 (arguing that "RSPI is a mere shell company that is almost completely con- trolled by [01] and that it has been for a number of years"); see also 12/30102 Melwani Mem. at 3 (listing 13 reasons why 01 is "the main control agent for the defen- dants" including financial control)), then he cannot si- multaneously contend there is no privity between DJ and RSPJ, [* II] because of OI's lack of control over RSPJ or over RSPI's defense in the prior action. See, e.g. Mag- azine Press, Inc. v. Doubleday Book & Music Clubs, Inc., 1989 U.S Dist. LEX IS 8737, No. 89 Civ. 4]]6 (CSH), 1989 WL 82413, at *5 (SD.N.Y. July 20, 1989) (finding privity between related companies for collateral estoppel purposes and that the party opposing the finding of privity was not permitted to chose between what it perceived as the benefits and disadvantages of that rela- tedness). Under the circumstances, 01 is in privity with RSPJ, and Melwani is precluded from relitigating the same claims against 01 that have already been resolved as against RSPI. See, e.g, Alpert's Newspaper Delivery, 876 F.2d at 270 (sufficient identity of interests existed for res judicata purposes where non-party was the "mastermind" of the prior and current litigations by providing tactical and financial support to both); Vishipco Line v. Charles Schwab & Co., 2003 U.S Dist. LEXIS 4082, No. 02 Civ. 7823, 2003 WL 1345229, at *5-6 (SD.N.Y. Mar. 19, Page 4 2004 U.S. Dist. LEXIS 16867, * 2003) (considering the totality of the circumstances, and finding the parties in prior and current action to be in privity, where they were represented by the same [* 12] attorneys, had the same property interest at stake, and it could be assumed that the prior action was managed as the party to be bound in the current action thought it should be); Zoll v. Ruder Finn, Inc., 2003 u.s. Dist. LEXIS 17514, No. 02 Civ. 3652 (CSH), 2003 WL 22283830, at *8 (S.D.N .. Y. Oct. 2, 2003) (privity found between party to original action and non-party, where the claims were identical, the same witnesses, facts, and le- gal theories were involved, and the first action did not involve any defense unique to those parties). CONCLUSION For all of the foregoing reasons, Counts Three and Five of the Second Amended Complaint are hereby dis- missed as against defendant Diastar, Inc. Dated: New York, New York August 23, 2004 SO ORDERED DEBRA FREEMAN United States Magistrate Judge Page 1 LexisNexis® 1 of 1 DOCUMENT [*2] PAUL R. SCHIMMEL, PAUL SCHIMMEL PROFIT SHARING PLAN, DAVID H. MACK, ALTA CALIFORNIA PARTNERS III, L.P., ALTA EMBAR- CADERO PARTNERS II, LLC, JOHN PARRISH, PAUL GLIDDEN AS TRUSTEE OF THE THE GLIDDEN FAMILY REVOCABLE TRUST, KARLA EWALT, CYNTHIA P. DUGAN, PETER L. DUGAN, CRAIG L. GROSVENOR, TRUSTEE FBO CRAIG L. GROSVENOR TRUST DATED 8/25/89, CHRISTINE PARRISH, PHYLLIS D. PARRISH, PARISH FAMILY TRUST, KATHERINE SCHIM- MEL-BAKI, K. LEAH SCHIMMEL, ERIK J. SORENSEN, JAMIE WILLIAM- SON, ALISON BATES, REBECCA ALEXANDER, KATHLEEN T. MULLIGAN, TOM JUROS, SINCLAIR DeBORDENA VE and FRANCELLA OTERO, Plaintiffs -against- PFIZER, INC., Defendant. Index No.: 600173/08 SUPREME COURT OF NEW YORK, NEW YORK COUNTY 2008 NY Slip Op 32388U; 2008 N. Y. Misc. LEXIS 9806 August 21, 2008, Decided August 28, 2008, Filed NOTICE: THIS OPINION IS UNCORRECTED AND WILL NOT BE PUBLISHED IN THE PRINTED OFFICIAL REPORTS JUDGES: [**1] Hon. Richard B. Lowe, III, 1.S.C. OPINION BY: Richard B. Lowe, III OPINION Hon. Richard B. Lowe, III: Motion sequence 002 and 003 are consolidated for disposition. In motion sequence 002, Defendant Phizer Inc. (Phizer) moves for an order pursuant to CPLR 3214(b) staying disclosure pending disposition on its motion to dismiss. In motion sequence 003, Phizer moves pursuant to CPLR 32Jl(a)(J), 32Jl(a)(7), and 3016(b) and for a declaratory judgment with respect to limiting its potential liability to $ 8.5 million. BACKGROUND Plaintiffs are the former shareholders of a biophar- maceutical start-up company called [*3] Angiosyn, Inc. Angiosyn was established to serve as the ownership and development vehicle for a fragment of a naturally growing protein known as tryptophanyl-tRNA (T2), whose primary application was expected to be for age-related macular degeneration, with some potential effect in oncology as well. Angiosyn conducted various pre-clinical experiments with T2, and the results indi- cated potential for further research. In the middle of 2004, Angiosyn began looking for financing to conduct additional research with T2, and, according to the complaint, several venture capital com- panies were interested in investing [**2] in Angiosyn. At the same time, defendant also expressed interest in T2, but wanted to acquire the exclusive rights to T2 ra- ther than invest in Angiosyn. Plaintiffs indicate that they decided to sell the rights to T2 to defendant rather than to acquire new capital to conduct their own research, be- cause defendant convinced them of the benefits of that transaction. Plaintiffs and defendant entered into an extensive period of negotiation, during which time plaintiffs allege that defendant presented them with a detailed develop- ment plan for T2, indicating that T2 would be one of defendant's top priorities. The parties eventually executed a Merger Agree- ment, by which defendant purchased Angiosyn outright Page 2 2008 NY Slip Op 32388U, *; 2008 N.Y. Misc. LEXIS 9806, ** for an up-front payment of $ 10 million. Plaintiffs, the Angiodyn shareholders, would also be entitled to receive various contingent payments, depending on whether T2 development reached certain milestones specified in the Agreement. The first milestone payment would be a payment of $ 8.5 million, due within 30 days after the completion of a Phase 1 Clinical Study for the first product for the ophthalmology field, and each successive milestone payment was contingent upon the completion of [**3] a development step. Additionally, if [*4] T2 were ever developed into a commercial product, plain- tiffs would receive a certain percentage of the sales as a royalty, and if sales ever exceeded $ 500 million in one calendar year, plaintiffs would be entitled to certain ad- ditional payments. The Merger Agreement gave defendant the exclu- sive right and full discretion to develop T2 as it saw fit. Section 7.6 of the Agreement states: "[c]ommencing upon the Closing, [de- fendant] shall have the exclusive right and responsibility to plan and implement all research, development, manufacturing, marketing and commercialization activi- ties for any and all [T2] products .... All decisions with respect to the creation, modification and implementation of all such activities shall be made by [defen- dant] in its sole discretion." Pursuant to the Agreement, the only obligation placed on defendant with respect to T2's development was to use "commercially reasonable efforts" to develop T2 in the ophthalmology field and one other field. "Commercially reasonable eff0l1s" is defined in Section 1.25 of the Agreement as "those efforts and resources that [de- fendant] would use were it actively de- veloping or commercializing [**4] its own pharmaceutical products that are of similar stages of product life and market potential as [T2], taking into account product labeling, present and future mar- ket potential, past performance, financial return, present and future regulatory en- vironment and competitive market condi- tions in the applicable Field, all as meas- ured by the facts and circumstances at the time such efforts are due." The Merger Agreement also included general confi- dentiality and merger clauses. After two years, defendant allegedly determined that T2 would not be able to be developed into a commer- cially viable product, and, accordingly, on December 15, 2006, [*5] defendant wrote to plaintiffs informing them of its decision to discontinue the development of T2 pursuant to Section 7.6 of the Agreement. In January, 2008, plaintiffs instituted the present lawsuit, asserting three causes of action: breach of contract; deceit and fraudulent inducement; and tortious interference with prospective business advantage. Defendant moves to dismiss the action, pursuant to CPLR 3211 (a) (1) and (a) (7), and CPLR 3016 (b), or, in the alternative, to have the court declare that the amount of potential damages recoverable by plaintiffs [**5] is limited to the $ 8.5 million indicated in the Agreement as the first milestone contingent payment, and also moves to stay disclosure, pursuant to CPLR 3214 (b) and Com- mercial Division Rule 11 (d) pending disposition of its motion to dismiss. DISCUSSION Stay of Discovery For reasons stated on the record of June 9, 2008, the motion is denied. Motion to Dismiss CP LR 3211 (a) states that " [ a] party may move for judgment dismissing one or more causes of action as- serted against him on the ground that: (1) a defense is founded upon docu- mentary evidence; or ... (7) the pleading fails to state a cause of action .... Under CPLR 3211 (a)(l) a dismissal is permissible only when the documentary evidence conclusively estab- lishes a defense to the asserted claims as a matter of law. (Leon v Martinez, 84 NY2d 83, 638 N.E.2d 511, 614 N. YS.2d 972 [J994]). As stated in Ladenburg Thalmann & Co. v. Tim's Amusements, Inc., 275 AD2d 243, 246, 712 N. YS.2d 526 (1st Dept 2000), "[t]he court's task is to determine only whether the facts as alleged, accepting them as true and according plaintiff every possible favorable [*6] inference, fit within any cognizable legal theory Leon v. Martinez, 84 NY2d 83, 87-88, 638 N.E.2d Page 3 2008 NY Slip Op 32388U, *; 2008 N.Y. Misc. LEXIS 9806, ** 511, 614 NY.S2d 972 (l994). Dismissal pursuant to CPLR 3211 (a)(l) is war- ranted only [**6] if the documentary evidence submitted conclusively estab- lishes a defense to the asserted claims as a matter oflaw (id. at 88)." To defeat a pre-answer motion to dismiss brought pursuant to CPLR 3211 (a)(l), the opposing party need only asselt facts which "fit within any cognizable legal theory [internal citations omitted]." (Bonnie & Co. Fa- shions, Inc. v Bankers Trust Co., 262 AD2d 188, 188, 693 NY.S2d 19 [1st Dept 1999}). Further, if any ques- tion of fact exists with respect to the meaning and intent of the contract in question, based on the documentary evidence supplied to the motion court, a dismissal pur- suant to CPLR 3211 (a)(l) is precluded. (Khayyam v Doyle, 231 AD2d 475, 647 N Y.S2d 507 [lst Dept 1996j). Breach of Contract Defendant asserts that, because the Merger Agree- ment provided it with the sole discretion to develop, or not develop, T2, plaintiffs may not maintain a cause of action for breach of contract. However, as even defen- dant points out, that "discretion" was defined as using "commercially reasonable efforts" as defendant would use for any of the products it developed in-house. Plaintiffs assert that defendant did not utilize "com- mercially reasonable efforts" as indicated by certain plans shown to [**7] plaintiffs during the negotiations as indications of defendant's projected development ideas. Whether defendant used "commercially reasonable effOlts," as defined by the Agreement, is generally a question of fact. (See Graubard Mollen Dannett & Ho- rowitz v Moskovitz, 86 NY2d 112, 653 NE.2d 1179, 629 NY.S2d 1009 [l995); Widewaters Prop. Dev. Co. v Katz, 38 AD3d 1225,834 NYS2d 889 [4th Dept 2007j). Therefore, defendants motion to dismiss the first cause of action [*7] for breach of contract is denied. Tort Causes of Action - Choice of Law With respect to the tort causes of action, Plaintiffs argue that California law should be applied to decide defendant's motion. Section 12.1 of the Merger Agree- ment states: "Governing Law. This Agreement shall be governed by and construed in accor- dance with the laws of the State of New York." Although New York has a strong public policy fa- voring the enforcement of choice of law contractual pro- visions (Finucane v Interior Construction Corp., 264 AD2d 618, 695 NY.S2d 322 [lst Dept 1999j) , such a provision does not preclude plaintiffs from asserting a tort cause of action based on California statutes and laws (Twinlab Corporation v Paulson, 283 AD2d 570, 724 N Y.S2d 496 [2nd Dept 2001}). Further, New York law holds that causes of action in [**8] negligence accrue in the place of injury. (Knieriemen v Bache Halsey Stuart Shields Incorporated, 74 AD2d 290, 427 N Y.S2d 10 [lst Dept 1980), overruled on other grounds by Rescildo v R.H. Macy's, 187 AD2d 112,594 NY.S2d 139 [lst Dept 1993j). Plaintiffs have asserted, and defendant has not de- nied, that the plaintiffs reside in California, Angiosyn is a California corporation, the Agreement was negotiated face-to-face in California, and defendant's conduct alle- gedly prevented plaintiffs from securing agreements to finance the California operations, including one with another California company. Under these circumstances, there are significant contacts with California to make California law the appropriate one for determination of plaintiffs' two tort claims. (Schultz v Boy Scouts of America, Inc., 65 NY2d 189, 480 NE.2d 679, 491 N Y.S2d 90 [l985), K. T. v Dash, 37 AD3d 107, 827 NY.S2d 112 [lst Dept 2006}). It is noted that neither side disputes that New York law governs the breach of contract cause of action discussed above. [*8] Deceit/Fraudulent Inducement Plaintiffs' second cause of action is for deceit, frau- dulent inducement. Under California law, "[t]raud alle- gations must be pled with more detail than other causes of action. The facts constituting the fraud, including [**9] every element of the cause of action, must be al- leged factually and specifically [internal quotation marks and citations omitted]." (Apollo Capital Fund LLC v Roth Capital Partners, LLC, 158 Cal App 4th 226, 240, 70 Cal. Rptr. 3d 199 [2d App Dist 2007j). This is also true under New York law, as stated in Friedman v An- derson 23 AD3d 163, 166, 803 NYS2d 514 (lst Dept 2005): "[a] mere recitation of the elements of fraud is insufficient to state a cause of ac- tion" (National Union Fire 1ns. Co. ~f Pittsburgh, Pa. v Christopher Assoc., 257 AD2d 1, 9, 691 NYS2d 35[lst Dept 1999}) Furthermore, a plaintiff seeking to recover for fraud and misrepresentation is required 'to set fOlih specific and detailed factual allegations that the defendant per- sonally participated in, or had knowledge of any alleged fraud' (Handel v Bruder, Page 4 2008 NY Slip Op 32388U, *; 2008 N.Y. Misc. LEXIS 9806 ** , 209 AD2d 282, 282-283, 618 N. YS.2d 356 [lst Dept 1994])." In the instant case, plaintiffs have claimed that de- fendant fraudulently induced them to enter into the Mer- ger Agreement by stating, among other things, that it would commence Phase 1 of the study of T2 immediate- ly, that it would provide its staff with a budget sufficient to develop T2, and that it would follow the development chart shown to plaintiffs during negotiations, all of which, [** 1 0] plaintiffs allege, defendant never in- tended to do. However, in order to maintain a cause of action for fraudulent inducement, the plaintiff must plead facts which "show how, when, where, to whom, and by what means the representations were made." (Lazar v Superior Court, 12 Cal 4th 631, 645, 49 Cal. Rptr. 2d 377, 909 P.2d 981 [l996]). [*9] "A promise of future conduct is actionable as fraud only if made without a present intent to perform. A declaration of intention, although in the nature of a promise, made in good faith, without the intent to deceive, and in the honest ex- pectation that it will be fulfilled even though it is not carried out, does n~t con- stitute a fraud. Moreover, something more than nonperformance is required to prove the defendant's intent not to perform his promise. If plaintiff adduces no fmiher evidence of fraudulent intent than proof of nonperformance, he will never reach a jury [internal quotation marks and cita- tions omitted]." (Magpa/i v Farmers Group, Inc., 48 Cal App 4th 471, 55 Cal. Rptr. 2d 225 [l996]). In the instant matter, plaintiff has only offered con- clusory statements that defendant did not intend to per- form; there are no specific facts stated that suppOli this contention. Therefore, defendant's motion with respect [** 11] to dismissal of the cause of action for fraudulent inducement is granted. Plaintiffs have also alleged a cause of action based in deceit, a subset of negligent misrepresentation an ac- tion that is recognized under California law. (Anderson v Deloitte & Touche LLP, 56 Cal App 4th 1468, 66 Cal. Rptr. 2d 512 [lst App Dist 1997]). Pursuant to California law, no actual intent to defraud need be shown, merely negligent misrepresentation of the facts that induced the injured party to act. (See Bily v Arthur Young & Co., 3 Cal. 4th 370, II Cal. Rptr. 2d 51, 834 P.2d 745 [1992J)(scienter is not an element of a cause of action for deceit). This cause of action "does not require know- ledge of falsity. A defendant who makes false statements honestly believing them to be true, but without reasona- ble ground for such belief... may be liable for negligent misrepresentation [internal quotation marks and citation omitted]." (Apollo Capital Fund LLC v Roth Capital Partners, LLC, 158 Cal App 4th 226, 70 Cal. Rptr. 3d 199, supra). Although a cause of action for deceit does not exist under New York law, because [*10] California law is to be applied to plaintiffs' tort claims, defendant's motion with respect to this cause of action is denied. Tortious Interference with Prosepective [**12] Business Advantage Plaintiffs have also alleged tortious interference with prospective business advantage. "To prevail on a cause of action for in- tentional interference with prospective economic advantage in California, a plaintiff must plead and prove (1) an economic relationship between the plain- tiff and some third party, with the proba- bility of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) the defendant's inten- tional acts designed to disrupt the rela- tionship; (4) actual disruption of the rela- tionship; and (5) economic harm to the plaintiff proximately caused be the de- fendant's acts [citation omitted]." (Reeves v Hanlon, 33 Cal 4th 1140,1152 n.6, 17 Cal. Rptr. 3d 289,95 P3d 513 [2004]). In their complaint, plaintiffs fail to allege that de- fendant had any specific knowledge of plaintiffs' pros- pectiv.e r~lationship with any particular venture capital orgamzatlOn, one of the elements necessary to support this cause of action. The complaint merely states that plaintiffs told defendant that they had "taken significant steps towards obtaining additional financing." (Com- plaint P 59). Although, according to the elements of this tort no actual contract need exist [** 13] with a third P~liY (Roth v Rhodes, 25 Cal. App. 4th 530, 30 Cal. Rptr. 2d 706 [l994}), plaintiffs must allege some action that dis- rupted or diverted their business relationship with anoth- er, outside the boundaries of competition. (Settimo Asso- ciates v Environ Systems, Inc., 14 Cal App 4th 842, 17 Page 5 2008 NY Slip Op 32388U, *; 2008 N.Y. Misc. LEXIS 9806 ** , Cal. Rptr. 2d 757 [J993J). In the instant matter, plaintiffs themselves decided to contract with defendant rather than to continue negotiations with the other prospective financial institutions. Defendants did not engage in any [* II] conduct that caused the third parties to withdraw any prospective offers. Consequently, defendant's motion to dismiss this cause of action is granted. Declaratory Relief- Cap of Potential Liability Lastly, defendants have requested declaratory relief that a cap of $ 8.5 million be put on their potentialliabil- ity, the sum that it would have had to pay plaintiffs under the first milestone payment designated in the Merger Agreement. Declaratory judgments may not be granted prior to the joinder of issue (Durkin v Durkin Fuel Acquisition Corp., 224 AD2d 574, 575, 639 N.Y.S.2d 716 [2d Dept 1996]), and since defendant has not requested such relief in a pleading, this request must be denied. (McHugh v Weissman, 46 AD3d 369, 847 N. Y.S.2d 566 [1st Dept 2007}). CONCLUSION Based [* * 14] on the foregoing, it is hereby ORDERED that defendant's motion to dismiss the complaint is granted as to the second cause of action alleging fraudulent inducement and the third cause of action for tOliious interference with prospective business advantage, but is otherwise denied; and it is further ORDERED that portion of defendant's motion for a declaratory judgment with respect to limiting its potential liability to $ 8.5 million is denied; and it is further ORDERED that defendant is directed to serve an answer to the complaint within 20 days [*12] after service of a copy of this order. Dated: August 21,2008 ENTER: HON. RICHARD B. LOWE /s/ Richard B. Lowe Richard B. Lowe, III, l.S.C. Westlaw~ 2002 WL 34358112 (N.Y.Sup.) Supreme Court, New York. New York County Norman SEABROOK, et aI, Plaintiffs, v. THE CITY OF NEW YORK, et aI, Defendants. Hon. Michael D. Stallman. HON. MICHAEL D. STALLMAN, 1.: No. 110643/00. June 10, 2002. Decision and Order Page 1 Defendants City of New York (the "City"), the New York City Department of Corrections ("DOC"), and former Commissioner Bernard Kerik move, for summary judgment dismissing the complaint. Plaintiff Norman Seabrook cross-moves for summary judgment. The Instant Action Plaintiff President of the New York City Correction Officers' Benevolent Association (the "Union") sues on behalf of all correction officers in the City. The complaint alleges that DOC Directive 22583-A (the "Directive"), which su- perseded Directive 2258R effective February 14.2000, violates New York Civil Service Law §§ 75 and 76. Plaintiff seeks declaratory and injunctive relief. The Directive's stated purpose is to "establish an Absence Control Program to reduce chronic absenteeism among members of the uniformed force." Steier Affirm., Exh A, as 1. The Directive provides, inter alia, that a correction officer who is out sick more than 12 days in a 12-month period (excluding absences for certain specified reasons) may be classified as "chronic absent", and may incur the loss of one or more of the following discretionary benefits and privileges: (1) assignment to a steady tour; (2) assignment to a specified post or duties; (3) access to voluntary over- time; (4) promotions; (5) secondary employment; (6) assignment to preferential/special units or commands; and (7) transfers. Defendants contend that this action is barred by res judicata and the doctrine of comity, and that the complaint fails to state a claim. Background In 1993, plaintiffs predecessor union president sued in federal court (U.S. Dist. Ct., SDNY) to invalidate a prior directive having the same purpose. Directive 2258R (effective April 12, 1993). The complaint there alleged that Directive 2258R violated the Union members' rights to due process and equal protection. That complaint did not allege a violation of state statutory law, although it did refer to Civil Service Law § 75 as the basis for plaintiffs claim that Directive 2258R implicated a constitutionally protected property right. By stipulation dated January 25, 1996, so ordered on January 29, 1996. the federal action was discontinued with prejudice. Israel v. Abate, No. 93 Civ. 3622 (JES). © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34358112 (N.Y.Sup.) Page 2 In 1998, plaintiff Seabrook commenced an action in this court, alleging that Directive 2258R violated Civil Service Law §§ 75 and 76. Seabrook v. NYS Dept. a/Correction, N.Y. Cty. Index No. 106695/98. In March 2000. after de- fendants had promulgated the current Directive, the parties agreed in a written stipulation that the action would be withdrawn and discontinued, as moot, without prejudice to the commencement of a new action. based on the Direc- tive. on march 2, 2000, this Court issued an order that embodied the terms of that stipulation Plaintiff commenced this action on May 10, 2000. Defendants assert that this action is barred by the resolution of the prior litigation. A party asserting the doctrine of claim preclusion (res judicata or merger and bar) as an affirmative defense has the burdens of pleading and proof The prior litigation must have concluded with a final resolution on the merits. See Siegel, NY Prac.3d ed. 5 444. The subject claim must arise/rom the same nucleus of operative fact as a claim raised in the prior litigation. O'Brier. v. City o(Syracuse. 54 N.Y.2d 353, 445 N.Y.S.2d 687,429 N.E.2d 1158. The court of the prior litigation must have had jurisdiction over the claim sought to be precluded (i.e., the instant claim either was properly before the prior court or could have been). See Pm·kerv. Blauvelt Volunteer Fire Co.! Inc .. 93 N.Y.2d 343, 690 N.Y.S.2d 478, 712 N.E.2d 647. The party bringing the instant claim must have had a full and fair opportunity to assert it in the prior litigation. People v. Evans. 94 N.Y.2d 499,502, 706 N.Y.S.2d 678, 727 N.E.2d 1232. The effect of the prior litigation here must be analyzed by the transactional analysis approach, adopted by the Court of Appeals in O'Brien v City a/Syracuse, supra: "Once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." Id. at 357, 445 N.Y.S.2d 687,429 N.E.2d 1158. The doctrine of claim preclusion (res judicata) bars claims that could have been litigated, as well as those that were actually litigated. The affirmative defense of res judicata may be raised, as here, when the prior litigation was resolved by stipulation. A stipulation of discontinuance with prejudice is final and has the same preclusive effect as a judgment on the merits (Schwartzreich v. E.pc. Carting Co .. Inc.! 246 A.D.2d 439, 541, 668 N.y'S.2d 370 [1st Dept], citing Nottenberg v. Walper 985 Co .. 160 A.D.2d 574, 575, 554 N.Y.S.2d 217 [1st Dept». Judgments of the federal courts are entitled to res judicata effect. Browning Ave. Realty Corp. v. Rubin. 207 A.D.2d 263, 615 N.Y.S.2d 360 (1 st Dept); Murray v. National Broadcasting Co .. 178 A.D.2d 157, 576 N.Y.S.2d 578 (1st Dept), app dismissed 79 N.Y.2d 1036, 584 N.Y.S.2d 442,594 N.E.2d 936. If a federal court dismisses a federal claim, but does not exercise jurisdiction over a state claim even if it might ar- guably be entertained as a pendent claim, the dismissal of the federal claim does not preclude a separate state action based on the state law claim. Van v. Town o(Warwick, et al.. 249 A.D.2d 382, 671 N.Y.S.2d 144 (2d Dept); Browning Ave. Realtv Corp. v. Rubin. 207 A.D.2d 263, 615 N.Y.S.2d 360, supra; Creative Bath Products. Inc. v. Connecticut General Life In. Co .. 173 A.D.2d 400,570 N.Y.S.2d 31 (Jst Dept), Iv denied 79 N.Y.2d 751, 579 N.Y.S.2d 651,587 N.E.2d 289. The rationale for this principle is that, in order for a claim to be barred by res judicata. the party opposing preclusion must have had a full and fair opportunity to litigate the claim. See, Schwartz v. Public Admr. o(Col/nD) o( Bronx. 24 N.Y.2d 65, 298 N.Y.S.2d 955, 246 N.E.2d 725; Murray v. National Broadcasting Co .. 178 A.D.2d 157,576 N.Y.S.7d 578, supra. "In properly seeking to deny litigants two 'days in COUlt', COUltS must be careful not to deprive [them] of one." Matter o(Reilly v. Reid. 45 N.Y.2d 24, 28, 407 N.Y.S.2d 645,379 N.E.2d 172. Thus, where a state law claim is not litigated in a federal action, either because the federal COUlt declines to hear it, or because the federal claim is dismissed or discontinued, res judicata does not bar the state claim. The same reasoning applies to a state law claim that was not brought in the federal action (Lamontagne v Board o(Trustees o(the United Wire. Metal and Machine Pension Fund (183 A.D.2d 424, 583 N.Y .S.2d 838 [1 st Dept], Iv denied 80 N.Y.2d 759, 59 I © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34358112 (N.Y.Sup.) Page 3 N.Y.S.2d 137,605 N.E.2d 873), especially where, as here, it would have proven incapable of being litigated, had it been brought. [FNI] FNI. But see, LaVigna v Capital Cities/ABc' Inc .. 245 A.D.2d 75, 665 N.Y.S.2d 410 (1 st Dept) (state law claim requiring same evidence as discontinued federal claim barred by res judicata). Although the La Vigna cOUlt cited Computer Assocs. IntI. Inc. v Altai. Inc .. (126 F.3d 365, 369 [2d Cir.], cert denied, 523 U.S. 1106, 118 S.Ct. 1676, 140 L.Ed.2d 814), that case did involve any state law claim and adhered to the principle that res judicata is inapplicable to a claim that could not have been litigated in an earlier action. In La Vigna, the first federal court lacked personal jurisdiction over the French defendant who sought to invoke res judicata. The instant state statutory claims were not before the federal court. They were not asserted there and, indeed, could not have been brought there, because these purely state statutory claims not concerning federal questions are not subject to federal jurisdiction. Accordingly, the federal stipulation did not affect, and could not have affected, the instant state claim. The federal stipulation was "with prejudice" and thus has preclusive effect, but only as to the federal claims that were or could have been brought in that litigation. The" 'gravamen of ... wrong' " (Jefferson Towers. Inc. v. Public Service Mut .. In. Co .. 195 A.D.2d 311, 313, 600 N.Y.S.2d 41 [1st Dept.) quoting, Lukowsky v. ShaW. 110 A.D.2d 563,566,487 N.Y.S.2d 781 [1st Dept], quoting Matter of Reilly v. Reid. supra. 45 N.Y.2d, at 29,407 N.y'S.2d 645, 379 N.E.2d 172)' at issue here is riot the same as in the discontinued federal action. The federal action raised constitutional claims. This state court action raises sta- tutory claims exclusively under New York law. Merely because plaintiffs predecessor cited the same state statute as the basis for the property right allegedly taken without due process, does not mean that the instant alleged state sta- tutory violation was litigated, or could have been litigated, in the federal action. Moreover, this action is not based on the same "transaction or series of transactions" (O'Brien v. City of Syracuse. supra. 54 N.Y.2d, at 357,445 N.Y.S.2d 687, 429 N.E.2d 1158) as the federal action. The Directive differs in signif- icant respects from Directive 2258R, which was at issue in the federal action. For example, under Directive 2258R, absences related to pregnancy were wholly excluded from the absences that could lead to classification as a "chronic absent." Under the Directive, that exclusion is limited by being made "subject to such limitations as the Department imposes." Steier Affirm., Exh. A, at 1. By stipulating that the previous state action brought in this Court was moot, defendants implicitly acknowledged the significance of the differences between the Directive and its predecessor. Indeed, in negotiating that stipUlation, this Court and the parties' counsel specifically discussed those differences, which would have rendered the then-pending prior state action moot. That stipulation was "without prejudice" and accordingly has no preclusive effect. Respondents have not met their burden of proving entitlement to dismissal based on claim preclusion (resjudicata). Neither plaintiff nor his predecessor, neither their union nor its members, had a full and fair opportunity to bring the alleged state statutory violation in the federal action. See Parker v. Blauvelt Volunteer Fire Co., Inc., supra. The principles of comity have no application here. The claims raised are not peculiarly w-chin the ken of the federal courts (Manufacturers Hanover Trust Co. v. Crossland Savings FSB. 177 A.D.2d 78,581 N.Y.S.2d 744); indeed, they are state claims uniquely within this Court's jurisdiction. The federal claims discontinued in the federal action are not raised in this action; plaintiff is not seeking collateral review of the federal court's order here; none of the possible resolutions of this action can interfere with the order or authority of the federal court. The pmties are entitled to analysis of the instant claims on the merits, II © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34358112 (N.Y.Sup.) Page 4 Civil Service Law § 75(1) provides, in relevant part, that individuals covered by section 75 "shall not be removed or otherwise subjected to any disciplinary penalty provided in this section except for incompetency or misconduct shown after a hearing upon stated charges pursuant to this section." (Emphasis added). Civil Service Law § 75(3) specifies the available penalties, stating, in relevant part, that: [p lending the hearing and determinations of charges of incompetency or misconduct, the officer or employee against whom such charges have been preferred may be suspended without pay for a period not exceeding thirty days. If such officer or employee is found guilty ofthe charges, the penalty or punishment may consist of a reprimand, a fine not to exceed one hundred dollars to be deducted from the salary or wages of such officer or employee, suspension without pay for a period not exceeding two months, demotion in grade and title, or dismissal from the service .... Civil Service Law § 75(2) sets forth mandatory procedures regarding a potential subject of such disciplinary action, and provides, inter alia, for written notice of charges, and the employee's right to representation. Civil Service Law § 76 provides for appeals from determinations made in disciplinary hearings. The employee protections embodied in sections 75 and 76 can be modified by the terms of a collective bargaining agreement. Civil Service Law § 76(4); Matter orDelmage v. Mahoney, 224 A.D.2d 688,639 N.Y.S.2d 66 (2d Dept), Iv denied 88 N.Y.2d 812, 649 N.Y.S.2d 379, 672 N.E.2d 605. Defendants acknowledge that the Directive was promulgated unilaterally, and that it does not afford certain of the protections that Civil Service Law §§ 75 and 76 provide to employees.[FN2 j However, defendants assert that those procedural protections are inapplicable, because the provisions of the Directive do not include any of the sanctions specified in CSL ill(3). FN2. The Union has filed an Improper Practice Petition concerning DOC's failure to bargain, with the New York City Office of Labor Relations. By its terms, CSL ifl requires the procedural protections that it specifies with regard to "disciplinary penalt[ies] provided in this section." The statute sets forth those substantive penalties with specific limitations, which may not be exceeded. See, Cepeda v. Koehler, 159 A.D.2d 290, 552 N.Y.S.2d 295 (Ist Dept) (penalty consisting offorfeiture of 15 vacation days plus payment of$I,500 fine held illegal); Carlstrom v. Hauser, 54 A.D.2d 705, 387 N.Y.S.2d 447 (2d Dept) (reducing 180-day suspension to two-month suspension). Moreover, no department subject to the Civil Service Law may take any of the actions specified in CSL ill(3) and deny the employee the protections of CSL ~ 75(1) and (2) by claiming that the action is not one of those specified in the statute. Matter orB ailey v. Susquehanna Vallev Central School Dist. Bd. orEduc., 276 A.D.2d 963, 714 N.Y.S.2d 389 (3d Dept 2000) (demotion, purportedly for lack of qualifications, was actually a demotion for misconduct, and subject to CSL ill); Matter or Campbell v. New York City Transit A lith .. 253 A.D.2d 813, 677 N.Y.S.2d 632 (2d Dept), Iv denied 93 N.Y.2d 805, 689 N.Y.S.2d 707,711 N.E.2d 983 (otherwise permissible transfer, if based upon specific misconduct, constitutes demotion subject to CSL ill); Matter or Civil Servo Employees Assoc .. Inc. V. Southhold Union Free School Dist ... 204 A.D.2d 445, 611 N.Y.S.2d 895 (2d Dept) (letter placed in teacher's file constitutes reprimand, not warning, because placed in file for punitive reasons). CSL ifl is not a complete listing of all permissible disciplinary measures. Rather, the enumerated substantive pe- nalties are those which trigger the statute's procedure. Matter orCa/atti V. County orDutchess, 64 N.Y.2d 1163,491 N.Y.S.2d 89,480 N.E.2d 678, rearg. denied 65 N.Y.2d 924, 493 N.Y.S.2d 1030,483 N.E.2d 136 (change of a non-civil service "functional" title, without change in civil service title or grade, held not a demotion and thus not subject to CSL ill). The Court of Appeals in Calatti emphasized the statutory language "provided in this section as limiting the applicability of the statutory hearing procedure, not the 'permissibility of the job reclassification. Jd. at 1165,491 N.Y.S.2d 89,480 N.E.2d 678. quoting CSL ill(1). It therefore follows that other disciplinary measures, not enumerated by CSL 5 75, including withdrawal of undisputedly discretionary benefits, are statutorily permitted without resOJi to the statute's procedural protections. © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. 2002 WL 34358112 (N.Y.Sup.) Page 5 There is no statutory basis for expanding CSL ill beyond the kinds of penalties that are specified in that section. To do so would constitute impermissible judicial legislation - extending the reach of a statute beyond its plain, unambi- guous wording, which is the best evidence of the Legislature's intent. The Directive does not purport to authorize the imposition of any of the penalties set forth in CSL § 75(3) without compliance with the procedural protections mandated by CSL D2, and plaintiff does not contend that any of the sanctions that the Directive does authorize, is substantively equivalent to any of the penalties specified in CSL ill(3). Accordingly, the Directive does not, on its face, violate CSL ill. Neither does the Directive violate CSL ill, which applies only to persons "aggrieved by a penalty or punishment ... imposed pursuant to [CSL ill] .... " III Facial validity of the Directive does not leave the Union and its members entirely without recourse. The Union has already filed an Improper Practice Petition, administratively challenging DOC's unilateral imposition of the Directive. Implementation of the Directive in a specific individual case may be challenged as arbitrary and capricious. Moreover, if transfers pursuant to the Directive constitute demotions within the meaning of CSL § 75, or if actions pursuant to the Directive otherwise constitute substantive penalties enumerated by CSL ill, they may be challenged in specific cases where appropriate. Such potential issues are not now before this Court. Conclusion Accordingly, it is hereby ORDERED that plaintiffs cross motion is denied; and it is further ORDERED that defendants' motion for summary judgment is granted and the complaint is dismissed without costs; and it is further ORDERED that the Clerk is directed to enter judgment accordingly. Dated: 5/31/02 ENTER: «signature» lB.C. Seabrook v. The City of New York 2002 WL 34358112 (N.Y.Sup. ) (Trial Order) END OF DOCUMENT © 2013 Thomson Reuters. No Claim to Orig. US Gov. Works. CERTIFICATE FOR IDENTICAL COMPLIANCE I, William McKenzie, certify that this electronic BRIEF FOR PLAINTIFFS- RESPONDENTS is identical to the filed original printed materials, except that they need not contain an original signature. Dated: January 24,2013