| Rock City Sound, Inc. v Bashian & Farber, LLP |
| 2010 NY Slip Op 05533 [74 AD3d 1168] |
| June 22, 2010 |
| Appellate Division, Second Department |
| Rock City Sound, Inc., Appellant-Respondent, v Bashian& Farber, LLP, et al., Respondents-Appellants. |
—[*1] White Fleischner & Fino, LLP, New York, N.Y. (Gil M. Coogler of counsel), forrespondents-appellants.
In an action, inter alia, to recover damages for legal malpractice and violation of JudiciaryLaw § 487, the plaintiff appeals, as limited by its brief, from so much of an order of theSupreme Court, Dutchess County (Brands, J), dated October 24, 2008, as granted those branchesof the defendants' motion which were to dismiss the first through fourth causes of action, and thedefendants cross-appeal, as limited by their brief, from so much of the same order as denied thatbranch of their motion which was to dismiss the fifth cause of action. Justice Dickerson has beensubstituted for Justice Angiolillo (see 22 NYCRR 670.1 [c]).
Ordered that the order is modified, on the law, by deleting the provisions thereof grantingthose branches of the defendants' motion which were to dismiss the first cause of action,sounding in legal malpractice, and the fourth cause of action, for an award of an attorney's fee,and by substituting therefor provisions denying those branches of the defendants' motion; as somodified, the order is affirmed insofar as appealed and cross-appealed from, without costs ordisbursements.
The plaintiff corporation, Rock City Sound, Inc. (hereinafter Rock City), was an audioequipment company formed in 1977. Pursuant to a shareholders' agreement made in January1998, Lee Kalish and Shelton Lindsay each owned 50% of Rock City's shares. The agreementprovided, among other things, that a shareholder desiring to sell his shares must give notice toRock City and the other shareholder, and Rock City would then purchase the shares for an"Established Value" calculated by a formula set forth in the agreement. In February 2004 Kalishgave notice to Rock City that he wanted to sell his shares for the established value, and withdrawfrom any position at Rock City.
A dispute arose between Kalish and Lindsay as to the established value of Kalish's shares,and in August 2004 Kalish commenced an action against Lindsay (hereinafter the Kalish action).The defendants Gary E. Bashian and Bashian & Farber, LLP (hereinafter Bashian and B&F)represented both Lindsay and Rock City in the Kalish action. Upon Kalish's application, theSupreme Court, Dutchess County, awarded him a preliminary injunction, inter alia, enjoiningLindsay from exercising any control over [*2]Kalish's Rock Cityshares (see Kalish v Lindsay, 47 AD3d 889, 890 [2008]).
Subsequently, Lindsay authorized himself to vote all of Kalish's shares, called shareholdermeetings at which he was the only one present, deemed himself to have complete authority tooperate Rock City, and made decisions about Rock City without notifying Kalish, such as votingto sell all of its equipment and assets.
In August 2005 Lindsay notified Bashian and B&F that he was resigning as president anddirector of Rock City. In December 2005, Lindsay, through Bashian and B&F, petitioned fordissolution of Rock City. Kalish opposed that petition.
In March 2006 Kalish moved in the Kalish action to hold Lindsay, as well as Bashian andB&F, in contempt (hereinafter the contempt motion). In May 2006 Kalish moved for partialsummary judgment, inter alia, declaring the total value of his shares in Rock City to be$1,145,580, requiring Lindsay and Rock City to purchase his shares for that amount plus interest,and declaring that he was entitled to the costs of the action, including legal fees (see Kalish vLindsay, 47 AD3d at 890).
In an order and judgment dated August 11, 2006, that branch of the contempt motion whichsought a finding of civil contempt against Lindsay was granted, and Lindsay was fined in theamount of $1,145,580. That branch of the contempt motion which sought to hold Bashian andB&F in contempt was denied. In a second order dated the same day, the Supreme Court deniedKalish's motion for partial summary judgment as academic in light of the decision on thecontempt motion (id.).
Kalish appealed both the order and judgment and the order to this Court. By decision andorder dated January 29, 2008, this Court modified the order and judgment by deleting theprovision thereof denying that branch of Kalish's motion which was to hold Bashian and B&F incivil contempt pursuant to Judiciary Law § 753, and remitted the matter to the SupremeCourt for a hearing and new determination on that branch of the motion. This Court reversed theorder denying Kalish's motion for partial summary judgment, and granted that motion (47 AD3dat 890-892).
Thereafter, the Supreme Court issued what was denominated a partial judgment, declaringand adjudging the total value of Kalish's shares to be $1,145,580, and that Rock City wasrequired to perform under the shareholders' agreement and purchase Kalish's shares for thatamount, which was due and payable at the time of the judgment.
Subsequently, Lindsay filed for personal bankruptcy, and his bankruptcy trustee, PaulBanner, took over his interests in Rock City. Banner and Kalish then voted their shares toauthorize Rock City to commence the instant action against the defendants Bashian & Farber,LLP, Gary E. Bashian, Gary E. Bashian, P.C., Irving O. Farber, and Irving O. Farber, PLLC.Rock City alleges five causes of action: (1) legal malpractice, (2) and (3) breach of fiduciaryduty, (4) breach of duty of loyalty, and (5) violation of Judiciary Law § 487 againstdefendant Gary E. Bashian only. Ultimately, the Supreme Court granted those branches of thedefendants' motion which were to dismiss the first through fourth causes of action.
Contrary to the defendants' contention, Kalish and Banner had the authority to vote theirshares to authorize Rock City to commence this action. The shareholders' agreement entitledKalish to exercise full voting rights on his shares "until such time as payment in full has beenmade." Since his shares were never purchased, Kalish's withdrawal from the corporation wasnever accomplished, and he had the right, according to the agreement, to vote his shares to bringthe instant action (cf. Cooper, Selvin & Strassberg v Soda Dispensing Sys., 212 AD2d498 [1995]). Further, a bankruptcy trustee stands in the shoes of the debtor and is able tomaintain actions that the debtor could have brought prior to the bankruptcy proceedings (seegenerally Hirsch v Arthur Andersen & Co., 72 F3d 1085 [1995]). Since, pursuant to theshareholders' agreement, Lindsay could have voted his shares to authorize this action, hisbankruptcy trustee, Banner, had the authority to do so.
On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberalconstruction (see CPLR 3026). Courts must accept the facts as alleged in the complaintas true, accord the plaintiff the benefit of every possible favorable inference, and determine onlywhether the facts as [*3]alleged fit within any cognizable legaltheory (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]).
To establish a cause of action to recover damages for legal malpractice, a plaintiff mustallege "that the defendant-attorney failed to exercise that degree of care, skill, and diligencecommonly possessed by a member of the legal community," and "that the defendant-attorney'snegligence was a proximate cause of damages" (DeNatale v Santangelo, 65 AD3d 1006,1007 [2009] [internal quotation marks omitted]; Barnett v Schwartz, 47 AD3d 197, 205[2007]). A plaintiff is not obligated to show, on a motion to dismiss, that it actually sustaineddamages. It need only plead allegations from which damages attributable to the defendant'smalpractice might be reasonably inferred (see Kempf v Magida, 37 AD3d 763, 764[2007]; see also InKine Pharm. Co. v Coleman, 305 AD2d 151 [2003]; Fielding vKupferman, 65 AD3d 437, 442 [2009]). Here, contrary to the defendants' contention, bypleading the loss of its equipment, assets, and ability to continue in business, attributable in partto the defendants' legal advice, Rock City sufficiently pleaded allegations from which damagesattributable to the defendants' malpractice might be reasonably inferred. Rock City alsosufficiently pleaded that the defendants' actions were a proximate cause of its damages (seeInKine Pharm. Co. v Coleman, 305 AD2d 151 [2003]; Fielding v Kupferman, 65AD3d at 442; see also Barnett v Schwartz, 47 AD3d at 205). Accordingly, the SupremeCourt should not have granted that branch of the defendants' motion which was to dismiss thefirst cause of action.
The Supreme Court, however, properly granted those branches of the defendants' motionwhich were to dismiss the second and third causes of action, alleging breach of fiduciary duty.Those causes of action arose from the same facts as the legal malpractice cause of action, did notallege distinct damages, and were thus duplicative of the legal malpractice cause of action(see Kvetnaya v Tylo, 49 AD3d 608 [2008]; Town of N. Hempstead v Winston &Strawn, LLP, 28 AD3d 746, 749 [2006]; Shivers v Siegel, 11 AD3d 447 [2004];Daniels v Lebit, 299 AD2d 310 [2002]).
Contrary to the Supreme Court's finding and the defendants' contention, the portion of thisCourt's order in Kalish v Lindsay which found that Kalish did not have standing to asserta cause of action for disgorgement of an attorney's fee (Kalish v Lindsay, 47 AD3d at892), did not bar Rock City from asserting such a cause of action. Unlike Kalish, Rock City wasthe defendants' client at all times relevant to the instant lawsuit, and therefore had standing tobring this cause of action (cf. Kalish v Lindsay, 47 AD3d 889 [2008]; Vanarthros vSt. Francis Hosp., 234 AD2d 450 [1996]). Moreover, as set forth above, Lindsay was not theonly controlling shareholder of Rock City at the time of the defendants' complained-of actions.Therefore, the Supreme Court erred in determining that Rock City had no basis to assert thefourth cause of action because the defendants "acted at the behest of Rock City's then onlycontrolling shareholder and officer, Lindsay."
The Supreme Court correctly declined to grant dismissal of the fifth cause of action, allegingviolation of Judiciary Law § 487, against Bashian. "A violation of Judiciary Law §487 (1) may be established either by the defendant's alleged deceit or by an alleged chronic,extreme pattern of legal delinquency by the defendant" (Boglia v Greenberg, 63 AD3d973, 975 [2009] [internal quotation marks omitted]; see Judiciary Law § 487;Izko Sportswear Co., Inc. v Flaum, 25 AD3d 534, 537 [2006]). Taking the allegations ofthe complaint as true, it sufficiently alleged Bashian's deceit by asserting that he knowinglyadvised and counseled Lindsay in violating the Supreme Court's injunction, in violating BusinessCorporation Law § 909 for failing to advise Kalish, the other 50% shareholder in RockCity, of the sale of all assets, and in failing to move to be relieved as Rock City's counsel afterLindsay advised him that he was resigning.
The parties' remaining contentions are without merit. Rivera, J.P., Florio, Dickerson andLott, JJ., concur.