| Rozen v Russ & Russ, P.C. |
| 2010 NY Slip Op 06578 [76 AD3d 965] |
| September 14, 2010 |
| Appellate Division, Second Department |
| Marek Rozen et al., Appellants, v Russ & Russ, P.C., et al.,Respondents. |
—[*1] L'Abbate, Balkan, Colavita & Contini, LLP, Garden City, N.Y. (Noah Nunberg of counsel),for respondents Russ & Russ, P.C., Jay Edmond Russ, Linda Eileen Russ, Daniel P. Rosenthal,Kenneth J. Lauri, and Ira Levine. Nesenoff & Miltenberg, LLP, New York, N.Y. (Andrew T. Miltenberg and Philip A. Byler ofcounsel), for respondents Portabella Associates, LLC, and Jonnat Management Corp.
In an action, inter alia, to recover damages for the fraudulent transfer of certain property andviolations of Judiciary Law §§ 487, 488 and 489, the plaintiffs appeal, as limited bytheir brief, from so much of an order of the Supreme Court, Suffolk County (Cohalan, J.), datedFebruary 17, 2009, as granted those branches of the motion of the defendants Russ & Russ, P.C.,Jay Edmond Russ, Linda Eileen Russ, Daniel P. Rosenthal, Kenneth J. Lauri, and Ira Levinewhich were pursuant to CPLR 3211 (a) (1) and (7) to dismiss the first, second, third, sixth, andeighth causes of action insofar as asserted against them and granted those branches of theseparate motion of the defendants Portabella Associates, LLC, and Jonnat Management Corp.which were pursuant to CPLR 3211 (a) (1) and (7) to dismiss the third, sixth, and eighth causesof action insofar as asserted against them.
Ordered that the order is modified, on the law, (1) by deleting the provision thereof grantingthat branch of the motion of the defendants Russ & Russ, P.C., Jay Edmond Russ, Linda EileenRuss, Daniel P. Rosenthal, Kenneth J. Lauri, and Ira Levine which was to dismiss the sixth causeof action insofar as asserted against them, and substituting therefor a provision denying thatbranch of the motion, and (2) by deleting the provision thereof granting that branch of theseparate motion of the defendants Portabella Associates, LLC, and Jonnat Management Corp.which was to dismiss the sixth cause of action insofar as asserted against them, and substitutingtherefor a provision denying that branch of the separate motion; as so modified, the order isaffirmed insofar as appealed from, with one bill of costs to the respondents appearing separatelyand filing separate briefs.
In March 2001, after defaulting on a mortgage loan made to them by the plaintiffs MarekRozen and Christine Rozen (hereinafter together the Rozens), the defendants Mohamed Sh.Omar and Sally Omar (hereinafter together the Omars) entered into an agreement with theRozens (hereinafter the March 2001 agreement), pursuant to which, inter alia, the Omars wouldconvey the [*2]mortgaged property to the Rozens by quitclaimdeed, Sally Omar would have a right of first refusal to purchase the mortgaged property, and, ifSally Omar decided to erect a house on the property within five years and prior to the sale of theproperty, the Rozens would reconvey the property to her, with 95% of the purchase pricefinanced by a 15-year purchase-money mortgage.
When the Rozens rejected Sally Omar's notice that she was exercising her option to purchasethe mortgaged property, the Omars commenced an action against the Rozens, seeking specificperformance of the March 2001 agreement. The defendant Russ & Russ, P.C. (hereinafter theRuss PC), represented the Omars in that action, and in two other actions commenced againstthem by the Rozens and their daughter, the plaintiff Gabrielle Rozen (hereinafter collectively theplaintiffs), to collect separate debts allegedly owed by the Omars.
In May 2006, the Omars and the Russ PC entered into a supplemental retainer agreement,which provided that, since the Omars "lack[ed] the funds to honor the [original] retaineragreement," the Omars would immediately pay the outstanding bill in the amount of $14,000;that the fee for the Russ PC's work on the Omars' action against the Rozens would be 40%ownership of the mortgaged property and 40% of "any recovery of any kind"; and that the fee forthe Russ PC's work on the plaintiffs' actions against the Omars would be an additional 40%ownership of the mortgaged property and an additional 40% of "any recovery of any kind" in theOmars' action against the Rozens. The supplemental retainer agreement further provided thatSally Omar would assign "all of her right, title and interest" in the Omars' action against theRozens and the mortgaged property to "an LLC," and "[t]he LLC shall be substituted as theplaintiff in the [Omars' action against the Rozens]." Sally Omar was to receive her 20% interestin the Omars' action against the Rozens and the mortgaged property in the form of a cashpayment from the LLC. The defendant Portabella Associates, LLC (hereinafter Portabella), wasformed for the purpose of providing financing for the purchase and development of themortgaged property and taking title to the property. Portabella was wholly owned by thedefendant Jonnat Management Corp. (hereinafter Jonnat), which, in turn, was wholly owned bythe defendant Jay Edmond Russ, a principal of the Russ PC.
After the trial of the plaintiffs' actions against, among others, the Omars, which resulted in ajudgment in favor of the plaintiffs in the principal sum of $800,000, the plaintiffs learned of theassignment of Sally Omar's rights to Portabella. The plaintiffs then commenced this actionagainst the Russ PC, Jay Edmond Russ, and several other attorneys affiliated with the Russ PC(hereinafter collectively the Russ attorneys), as well as Portabella, Jonnat, and the Omars, torecover damages for fraudulent transfer and violations of Judiciary Law §§ 487, 488and 489, as well as recision of the assignment of Sally Omar's rights to Portabella and injunctiverelief. The Russ attorneys moved, and Portabella and Jonnat separately moved, to dismiss thecomplaint insofar as asserted against them pursuant to CPLR 3211 (a) (1) and (7). The SupremeCourt denied those branches of the motions which were to dismiss the causes of action allegingfraudulent transfer, and otherwise granted the relief requested. The plaintiffs appeal.
Judiciary Law § 487 provides that an attorney who "[i]s guilty of any deceit orcollusion, or consents to any deceit or collusion, with intent to deceive the court or any party" isguilty of a misdemeanor, and "forfeits to the party injured treble damages, to be recovered in acivil action." In the first cause of action, the plaintiffs alleged that the Russ attorneys "deceitfullyconcealed from the [c]ourts and from plaintiffs," for a period of 18 months, "the transfer of theinterest in the [mortgaged] property between Sally Omar and Portabella." Since Judiciary Law§ 487 authorizes an award of damages only to "the party injured," an injury to the plaintiffresulting from the alleged deceitful conduct of the defendant attorney is an essential element of acause of action based on a violation of that statute. Although the plaintiffs assert that the Omarshad no assets other than whatever rights they possessed under the March 2001 agreement, andthus the transfer of those rights to Portabella rendered the Omars insolvent, making it impossiblefor the plaintiffs to enforce their judgment against the Omars, the complaint contains noallegation supporting the proposition that such harm was attributable to the Russ attorneys'failure to disclose the transfer of rights for a period of 18 months. Thus, the first cause ofaction failed to set forth allegations from which damages proximately caused by the attorneydefendants' alleged deceitful conduct might be reasonably inferred (cf. Rock City Sound, Inc. v Bashian &Farber, LLP, 74 AD3d 1168, 1171 [2010]).[*3]
In the second cause of action, the plaintiffs alleged that,as a result of the Russ attorneys' nondisclosure, they were forced to expend more than $300,000in legal fees to defend against the Omars' action, while, unbeknownst to the plaintiffs, the Omarslacked standing in that action. Contrary to the plaintiffs' contention, however, Sally Omar did notlack standing to continue as a plaintiff in that action, since she retained a 20% interest in anyprofits generated by the mortgaged property. In any event, Portabella had standing, and defendingagainst Portabella would likely have required the same expenditure of attorney's fees by theplaintiffs as defending against the Omars.
Accordingly, the Supreme Court properly determined that the first and second causes ofaction were subject to dismissal pursuant to CPLR 3211 (a) (7) for failure to state a cause ofaction (see Peters v Accurate Bldg.Inspectors Div. of Ubell Enters., Inc., 29 AD3d 972, 973 [2006]).
The third cause of action alleged a violation of Judiciary Law § 488, which codifies thecommon-law prohibition on champerty (see Trust for Certificate Holders of Merrill Lynch Mtge. Invs., Inc. Mtge.Pass-Through Certificates, Series 1999-C1 v Love Funding Corp., 13 NY3d 190,198-199 [2009]). The terms of the supplemental retainer agreement demonstrate that the Russattorneys and Portabella did not engage in champerty since they did not accept the assignment ofSally Omar's rights for the primary purpose of "bringing an action thereon" (Judiciary Law§ 488; see Bluebird Partners v First Fid. Bank, 94 NY2d 726, 736 [2000]). Sincethe documentary evidence "conclusively establish[es]" (Goshen v Mutual Life Ins. Co. ofN.Y., 98 NY2d 314, 326 [2002]) that the Russ attorneys acquired Sally Omar's rights "inorder to enforce [them]," and not "in order to make money from litigating [them]" (Trust forCertificate Holders of Merrill Lynch Mtge. Invs., Inc. Mtge. Pass-Through Certificates, Series1999-C1 v Love Funding Corp., 13 NY3d at 200), the Supreme Court properly determinedthat the third cause of action was subject to dismissal pursuant to CPLR 3211 (a) (1).
The plaintiffs further contend that the assignment of Sally Omar's rights to an entitycontrolled by Jay Edmond Russ violated rule 1.8 (i) of the New York Rules of ProfessionalConduct (22 NYCRR 1200.0) (formerly Code of Professional Responsibility DR 5-103 [a] [22NYCRR 1200.22 (a)]), which prohibits a lawyer from "acquir[ing] a proprietary interest in thecause of action or subject matter of litigation the lawyer is conducting for a client." Theplaintiffs, however, lack standing to assert such a violation as a ground for relief in their favor(see Wilson v LaFontant, 240 AD2d 172 [1997]).
In the eighth cause of action, the plaintiffs sought to preliminarily enjoin the defendants fromenforcing the rights assigned to Portabella by Sally Omar. On the issue of irreparable harm, thecomplaint contains only a bare legal conclusion, which is not entitled to the presumption of truthnormally afforded to the allegations of a complaint (see Symbol Tech., Inc. v Deloitte & Touche, LLP, 69 AD3d 191,194 [2009]). Any harm to the plaintiffs resulting from an improper assignment of Sally Omar'srights can be remedied by an award of money damages, and the complaint contains nomeaningful allegations to the contrary (see EdCia Corp. v McCormack, 44 AD3d 991, 994 [2007]). Thus,the Supreme Court properly determined that the eighth cause of action was subject to dismissalpursuant to CPLR 3211 (a) (7) for failure to state a cause of action.
The sixth cause of action sought recision of the assignment on the ground that Sally Omar'sinterest in the mortgaged property could not be assigned to a third party. While options are, ingeneral, "freely assignable," this rule does not apply when a contract contains "express languageto the contrary or terms which indicate that the seller is relying upon the credit of the optionee orother forms of personal performance" (Toroy Realty Corp. v Ronka Realty Corp., 113AD2d 882, 883 [1985]). The March 2001 agreement contained a provision requiring the Rozensto give Sally Omar a purchase-money mortgage financing 95% of the repurchase price if sheexercised her option. This arguably constituted a personal extension of credit to Sally Omar,indicating that the Rozens were relying upon her credit, which would render the optionunassignable, and there is nothing in the agreement that conclusively proves the contrary. Thus,the documentary evidence submitted by the Russ attorneys and Portabella did not "conclusivelyestablish[ ] a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98NY2d at 326), and the Supreme Court therefore erred in determining that the sixth cause ofaction was subject to dismissal pursuant to CPLR 3211 (a) (1).[*4]
The plaintiffs' remaining contentions are without merit.Prudenti, P.J., Angiolillo, Balkin and Chambers, JJ., concur. [Prior Case History: 2009 NYSlip Op 30509(U).]