| Lawyers' Fund for Client Protection of the State of N.Y. v JP MorganChase Bank, N.A. |
| 2011 NY Slip Op 00473 [80 AD3d 1129] |
| January 27, 2011 |
| Appellate Division, Third Department |
| Lawyers' Fund for Client Protection of the State of New York,Respondent, v JP Morgan Chase Bank, N.A., Appellant. |
—[*1] Eric T. Schneiderman, Attorney General, Albany (Paul Groenwegen of counsel), forrespondent.
Garry, J. Appeal from an order of the Supreme Court (Platkin, J.), entered May 14, 2010 inAlbany County, which denied defendant's motion to dismiss the amended complaint.
Plaintiff has the statutory purpose of promoting public confidence in the legal profession byreimbursing losses caused by the dishonest conduct of New York attorneys (see 22NYCRR 7200.1; Judiciary Law § 468-b [2]; State Finance Law § 97-t). In October2009, plaintiff commenced this subrogation action seeking to recover funds it had reimbursed to14 claimants who suffered an aggregate loss of approximately $1 million as the result of anattorney's misappropriation of fiduciary funds. The complaint alleged that defendant retained theattorney and his law firm to close mortgage loans and act as an escrow agent for related funds,that fiduciary escrow accounts were established at defendant's bank for this purpose, and that,between April 2005 and November 2006, the attorney used a check kiting scheme to steal fromthe accounts. Defendant allegedly breached a duty to conduct reasonable inspections and followprocedures that would have prevented the fraud and the claimants' losses.
In December 2009, defendant moved to dismiss the complaint for failure to state a cause ofaction due to, among other things, its failure to identify the claimants and particularize their [*2]individual losses. On December 22, 2009, plaintiff responded byfiling, as of right (see CPLR 3025 [a]), an amended complaint that included the names of13 claimants[FN*]and the specific amounts and circumstances of their losses, which were identified as having takenplace between "late October, 2006 and November 17, 2006." Defendant withdrew its previousmotion and moved to dismiss the amended complaint as time-barred (see CPLR 3211 [a][5]). Supreme Court denied the motion, finding that, although the amended complaint was filedafter the expiration of the applicable three-year limitations period (see CPLR 214 [5]), itrelated back to the original date of filing (see CPLR 203 [f]). Defendant appeals.
Under the relation back doctrine, an otherwise untimely claim in an amended pleading willbe deemed interposed at the time of the original pleading "unless the original pleading does notgive notice of the transactions, occurrences, or series of transactions or occurrences, to be provedpursuant to the amended pleading" (CPLR 203 [f]; see August Bohl Contr. Co., Inc. v L.A. Swyer Co., Inc., 74 AD3d1649, 1650 [2010]). "The sine qua non of the relation[ ]back doctrine is notice" (Pendleton v City of New York, 44AD3d 733, 736 [2007] [citations omitted]), and the requisite notice must be contained in theoriginal pleading (see Coleman, Grasso & Zasada Appraisals v Coleman, 246 AD2d 893,894 [1998], lvs dismissed 91 NY2d 1002 [1998], 94 NY2d 849 [1999]). We agree withSupreme Court that plaintiff's original complaint provided defendant with notice of the facts,transactions and occurrences to be proven and, therefore, that the amendment was timely.
The original complaint named the attorney and law firm responsible for the fraud, identifiedthe escrow accounts set up in defendant's bank, and described the manner in which the accountswere intended to function and the means by which the lawyer manipulated them tomisappropriate funds. With regard to defendant's conduct, the complaint alleged that, despiteknowing that the accounts in question were attorney fiduciary accounts, defendant disregardedcertain warning signs, such as regular negative account balances, that placed it on notice andtriggered a duty to make reasonable inquiries, as well as other specific errors, acts and omissionsthat allegedly facilitated and exacerbated the fraud. As to the subrogors, the complaint stated thenumber of claimants, the time frame within which their losses occurred, and the aggregateamount of their damages, and that, after being reimbursed, the subrogors each signed anagreement transferring their claims to plaintiff. The amended complaint restated these allegationsand provided additional detail by narrowing the time frame, naming the individual claimants, andpleading separate causes of action which particularized each claimant's losses and the specificreasons why the misappropriated funds had been deposited into the escrow accounts. The newallegations in the amended complaint were squarely based on the facts alleged in the originalcomplaint, merely amplifying and adding detail without adding new claimants or causes of actionor expanding the amount of damages sought (see Pendleton v City of New York, 44AD3d at 737).
Defendant claims that the original complaint was fatally defective for failing to identify theindividual claimants and particularize their claims. In support of this claim, defendant relies oncases involving efforts by health insurers and others to recoup from the tobacco industry the costof health care provided to large groups of persons injured by the use of tobacco (see BlueCross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 344 F3d 211, 217-218 [2d Cir2003]; [*3]A.O. Fox Mem. Hosp. v American TobaccoCo., 302 AD2d 413, 414 [2003], lv denied 100 NY2d 503 [2003]; Eastern StatesHealth & Welfare Fund v Philip Morris, Inc., 188 Misc 2d 638, 652-653 [2000]). However,the claims in those cases were dismissed not merely because the injured persons had not beenidentified, but because they could not be identified in a manner appropriate to a subrogationclaim. The separate claims asserted on behalf of the injured persons involved such a high degreeof individualized inquiry that, as the federal court noted, they "[could not] properly be consideredto be subrogated claims" (Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USAInc., 344 F3d at 218). Here, in contrast, the group of subrogors whose claims were paid byplaintiff is small, clearly defined and readily identifiable. Notably, the claimants were membersof a group that was not entirely unknown to defendant, as defendant had previously dishonored$2.1 million in checks drawn against the escrow accounts for the benefit of these claimants andothers. Each claimant was injured in the same way, each claimant's subrogation relationship toplaintiff arose in the same way, and the specific acts and omissions by defendant which werealleged to have caused the claimants' losses were the same. In light of the detail within theoriginal complaint regarding defendant's allegedly wrongful acts and omissions, we are satisfiedthat the amended complaint was "a mere expansion" of the allegations in the original complaint(August Bohl Contr. Co., Inc. v L.A. Swyer Co., Inc., 74 AD3d at 1651; compare McHale v Anthony, 41 AD3d265, 265-267 [2007]). Accordingly, the motion for dismissal was properly denied.
Mercure, J.P., Rose, Lahtinen and Kavanagh, JJ., concur. Ordered that the order is affirmed,with costs.
Footnote *: One claim was dropped after theoriginal complaint was filed, lowering the aggregate damage amount by $150.