| Yuko Ito v Suzuki |
| 2008 NY Slip Op 09437 [57 AD3d 205] |
| December 2, 2008 |
| Appellate Division, First Department |
| Yuko Ito, Individually and Derivatively on Behalf of KeystoneInternational, LLC, Appellant, v Sam Suzuki et al., Respondents, et al.,Defendants. |
—[*1] Storch Amini & Munves PC, New York (Jason Levin of counsel), for Sam Suzuki andKatsuko Suzuki, respondents. McManus, Collura & Richter, P.C., New York (Scott C. Tuttle of counsel), for Markowitz &Roshco and Daniel Roshco, respondents. Wilson Elser LLP, New York (Brett A. Scher of counsel), for Kudman Trachten, LLP,respondent. Meister Seelig & Fein, LLP, New York (Howard S. Koh of counsel), for Stuart I. Rich,respondent.
Order, Supreme Court, New York County (Marylin G. Diamond, J.), entered November 24,2006, insofar as it dismissed the third, fourth, fifth, sixth and seventh causes of action as againstthe attorney defendants, unanimously affirmed, without costs. Order, same court and Justice,entered November 2, 2007, insofar as it denied plaintiff's motion for renewal and for leave toamend the complaint, unanimously modified, on the law, to the extent of granting plaintiff leaveto file the proposed fourth amended complaint, and otherwise affirmed, without costs. Crossappeals from above orders unanimously dismissed, without cost, as abandoned.
Plaintiff, who does not speak English, was induced to make an investment of $1 million toacquire a two-thirds interest in Keystone International, LLC and to sign an operation agreementthat gave defendant Sam Suzuki permanent managing control of its affairs. Keystone took title toa property consisting of 41 condominium units owned by an entity controlled by HiroyoshiHasegawa. The transaction was in derogation of "a clear and unequivocal court order" enjoiningtransfer of the property due to the pendency of divorce proceedings (Hasegawa vHasegawa, 281 [*2]AD2d 594, 595 [2001]). Plaintiff broughtthis action in November 2002, which defendants removed to federal court, requiring amendmentof the complaint to conform to federal pleading requirements and, again, to reflect dismissal ofRICO claims. Following remand by the District Court in late 2005, plaintiff filed her thirdamended complaint, and defendants brought this pre-answer motion to dismiss (CPLR 3211 [a][1], [7]), which Supreme Court granted in relevant part. Plaintiff then interposed a motion torenew, which also sought amendment of the complaint to reflect a change in the law concerningstanding to sue a limited liability company.
The complaint adequately pleads a cause of action for fraud, alleging that Sam Suzuki usedplaintiff's funds to obtain property with a cloud on its title (because of the injunction againsttransfer and the filing of a lis pendens), for an inflated price and under financing terms onerous toplaintiff. It further asserts that Suzuki diverted funds from Keystone to satisfy personalobligations, which included payment of a $1.7 million settlement of a fraudulent conveyanceclaim brought by Hiroyoshi Hasegawa's wife.
The third amended complaint asserts claims of fraud and conspiracy to defraud (third andfourth causes of action) against defendants Daniel Roshco and his firm, Markowitz & Roshco,and Stuart I. Rich, and his firm, Kudman Trachten, LLP (collectively, the attorney defendants).Rich and his firm are charged with legal malpractice and breach of fiduciary duty (fifth, sixth andseventh causes of action) and, in the proposed fourth amended complaint, with aiding andabetting breach of fiduciary duty.
It is apparent that plaintiff was not individually represented by counsel with respect to eitherthe formation of Keystone or the transfer of the subject property. Defendant Daniel Roshcorepresented plaintiff in the sale of her New York condominium apartment to secure funding forher investment in Keystone, obtaining her unlimited power of attorney to permit sale of thepremises in her absence.
Both plaintiff and her brother were present when the purchase of the Hasegawa propertyclosed in September 2000. Although Roshco was not in attendance, he was paid $8,500 out ofKeystone funds for work previously performed for the LLC. It was defendant Rich, Suzuki'sattorney, who actually provided representation for Keystone at the closing. The complaint allegesthat Rich released escrow funds to Suzuki before the closing was even scheduled whereby,plaintiff asserts, she "lost all leverage to withdraw from the purchase agreement."
The complaint alleges that Suzuki, represented by Rich, defrauded plaintiff, who maintainsthat she was represented by Roshco during that period. A fair reading of the allegations againstthe attorney defendants is that they failed to disclose the extent to which the transaction wasdetrimental to plaintiff. Lacking, however, is the assertion of any misrepresentation by eitherRoshco or Rich that was calculated to induce plaintiff's detrimental reliance so as to support aclaim of fraud (cf. Houbigant, Inc. v Deloitte & Touche, 303 AD2d 92, 100 [2003]) and,absent any underlying tort, the conspiracy claim is likewise without foundation (see Jebran v LaSalle Bus. Credit, LLC,33 AD3d 424, 425 [2006]).
A claim for attorney malpractice arises out of the contractual relationship between theparties, whether documented by a retainer agreement or not (Moran v Hurst, 32 AD3d 909, 911 [2006]). Absent actualrepresentation by Rich and Kudman Trachten, plaintiff's claims of legal malpractice areuntenable as against those defendants (see AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5NY3d 582, 595 [2005]), as is the redundant cause of action for breach of fiduciary duty (see Brooks v Lewin, 21 AD3d731, 733 [2005], lv denied 6 NY3d 713 [2006]; Tabner v Drake, 9 AD3d 606, 611 [2004]).[*3]
Affording plaintiff the benefit of every favorableinference (Rovello v Orofino Realty Co., 40 NY2d 633, 634 [1976]), we accept as truethe complaint's allegations that Rich knew or should have known that the active assistance heprovided to Suzuki was harmful to her interests (see Franco v English, 210 AD2d 630,633 [1994]). Rich and Kudman Trachten were engaged by Suzuki to represent Keystone in thepurchase of the Hasegawa property, and Suzuki, as Keystone's manager, was charged with afiduciary duty to plaintiff. A cause of action for aiding and abetting breach of fiduciary dutymerely "requires a prima facie showing of a fiduciary duty owed to plaintiff . . . abreach of that duty, and defendant's substantial assistance . . . in effecting thebreach, together with resulting damages" (Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56AD3d 1, 11 [1st Dept 2008]; Kaufman v Cohen, 307 AD2d 113, 125 [2003]).Owners of a fractional interest in a common entity are owed a fiduciary duty by its manager (see Caprer v Nussbaum, 36 AD3d176, 189 [2006]), and it is now settled that a member of a limited liability company hasstanding to maintain a derivative action on its behalf (Tzolis v Wolff, 39 AD3d 138 [2007], affd 10 NY3d 100[2008]). According the allegations of the complaint their most favorable intendment(Arrington v New York Times Co., 55 NY2d 433, 442 [1982], cert denied 459US 1146 [1983]), we find that it sufficiently pleads that to the extent Rich and Kudman Trachtenknowingly assisted Suzuki to structure the transaction in a manner that was detrimental toplaintiff's interests, they may be held liable for aiding and abetting the breach of Suzuki'sfiduciary duty to her as the owner of Keystone's majority interest (Kaufman, 307 AD2d at125).
We find plaintiff's motion to amend the complaint to be timely (CPLR 3025 [b]; see Cherebin v Empress Ambulance Serv.,Inc., 43 AD3d 364, 365 [2007]). As noted, this matter was litigated in federal court untillate 2005, defendants interposed this motion to dismiss in February 2006, and plaintiff's capacityto bring derivative claims on behalf of Keystone has only recently been resolved (Tzolis,10 NY3d at 109). Given that the detailed facts concerning the extent of the attorney defendants'involvement in the fraudulent scheme are peculiarly within the knowledge of other parties(see Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187, 194 [1968]) and thesubstance of the alleged wrongdoing is set forth in the affidavits of plaintiff and her brother, thecircumstances surrounding the proposed cause of action are sufficiently stated to supportamendment of the complaint (ZaidTheatre Corp. v Sona Realty Co., 18 AD3d 352, 354-355 [2005]; cf. Non-LinearTrading Co. v Braddis Assoc., 243 AD2d 107, 116 [1998]). Moreover, at this stage of theproceedings, before joinder of issue and discovery, Rich and Kudman Trachten will not sustainprejudice as a result of the amendment (see Stroock & Stroock & Lavan v Beltramini,157 AD2d 590, 591 [1990]).
We dismiss the cross appeals as abandoned for failure to raise grounds for affirmative [*4]relief in the briefs (see Rivera v Anilesh, 32 AD3d 202, 204-205 [2006], affd onother grounds 8 NY3d 627 [2007]). Concur—Tom, J.P., Friedman, Buckley, Acostaand Freedman, JJ.