| Baron v Galasso |
| 2011 NY Slip Op 02820 [83 AD3d 626] |
| April 5, 2011 |
| Appellate Division, Second Department |
| Wendy Baron et al., Appellants-Respondents, v AnthonyGalasso et al., Defendants, and Signature Bank,Respondent-Appellant. |
—[*1] Westerman Ball Ederer Miller & Sharfstein, LLP, Uniondale, N.Y. (Richard Gabriele andWilliam E. Vita of counsel), for respondent-appellant.
In an action, inter alia, to recover damages for legal malpractice, conversion, negligence, andbreach of fiduciary duty, the plaintiffs appeal, as limited by their brief, from so much of an orderof the Supreme Court, Nassau County (Bucaria, J.), entered August 6, 2009, as granted thatbranch of the motion of the defendant Signature Bank which was pursuant to CPLR 3211 (a) (5)to dismiss so much of the complaint as was based upon acts occurring prior to January 28, 2006,insofar as asserted against it, and the defendant Signature Bank cross-appeals, as limited by itsbrief, from so much of the same order as denied those branches of its motion which werepursuant to CPLR 3211 (a) (1) and (7) to dismiss the complaint insofar as asserted against it.
Ordered that the order is modified, on the law, by deleting the provision thereof denying thatbranch of the motion of the defendant Signature Bank which was pursuant to CPLR 3211 (a) (7)to dismiss the complaint insofar as asserted against it and substituting therefor a provisiongranting that branch of the motion; as so modified, the order is affirmed insofar as appealed andcross-appealed from, with costs payable to the defendant Signature Bank.
The plaintiffs commenced this action against, among others, their attorney, Peter Galasso,Peter Galasso's brother and bookkeeper, Anthony Galasso, and Signature Bank (hereinafterSignature) based upon Anthony Galasso's alleged embezzlement of approximately $4.4 millionin proceeds from the plaintiffs' sale of real property, which Peter Galasso had placed in escrow atSignature. Signature moved pursuant to CPLR 3211 (a) (1), (5) and (7) to dismiss the complaintinsofar as asserted against it. The Supreme Court, inter alia, granted that branch of Signature'smotion which was pursuant to CPLR 3211 (a) (5) to dismiss so much of the complaint as wasbased on conduct occurring prior to January 28, 2006, insofar as asserted against it, and deniedthose branches of the motion which were pursuant to CPLR 3211 (a) (1) and (7) to dismiss thecomplaint insofar as asserted against it. The plaintiffs appeal, and Signature cross-appeals.
Contrary to the plaintiffs' contentions, the Supreme Court properly applied the three-[*2]year statute of limitations to the ninth cause of action, allegingnegligence and the eleventh cause of action, alleging aiding and abetting a breach of fiduciaryduty (see CPLR 214 [4]; IDT Corp. v Morgan Stanley Dean Witter & Co., 12NY3d 132, 139-140 [2009]; Matter of Kaszirer v Kaszirer, 286 AD2d 598, 599 [2001];Heffernan v Marine Midland Bank, 283 AD2d 337, 338 [2001]). As this action was notcommenced until January 28, 2009, the Supreme Court properly granted that branch ofSignature's motion which was pursuant to CPLR 3211 (a) (5) to dismiss as time-barred so muchof the complaint as was based upon acts occurring prior to January 28, 2006, insofar as assertedagainst it.
Additionally, the Supreme Court should have granted that branch of Signature's motionwhich was pursuant to CPLR 3211 (a) (7) to dismiss the complaint insofar as asserted against itfor failure to state a cause of action. In considering a motion to dismiss a complaint pursuant toCPLR 3211 (a) (7), the court must " 'accept the facts as alleged in the complaint as true, accordplaintiffs the benefit of every possible favorable inference, and determine only whether the factsas alleged fit within any cognizable legal theory' " (Nonnon v City of New York, 9 NY3d 825, 827 [2007], quotingLeon v Martinez, 84 NY2d 83, 87-88 [1994]; see Sokol v Leader, 74 AD3d 1180, 1181 [2010]). Bare legalconclusions asserted in a complaint, however, are not presumed to be true (see Rozen v Russ & Russ, P.C., 76AD3d 965, 969 [2010]; F.W.J.Realty Corp. v County of Suffolk, 73 AD3d 977, 978 [2010]; Breytman v Olinville Realty, LLC, 54AD3d 703, 704 [2008]).
In the ninth cause of action, the plaintiffs sought to recover damages from Signature fornegligence. Generally, a depositary bank has no duty to monitor fiduciary accounts maintained atits branches in order to safeguard funds in those accounts from fiduciary misappropriation(see Matter of Knox [Columbia Banking Fed. Sav. & Loan Assn.], 64 NY2d 434, 438[1985]; Norwest Mtge. v Dime Sav. Bank of N.Y., 280 AD2d 653, 654 [2001]; HomeSav. of Am. v Amoros, 233 AD2d 35, 39 [1997]). Nonetheless, "[l]iability may be imposedif a depositary bank has actual knowledge or notice that a diversion will occur or is ongoing.Facts sufficient to cause a reasonably prudent person to suspect that trust funds are beingmisappropriated will trigger a duty of inquiry on the part of a depositary bank, and the bank'sfailure to conduct a reasonable inquiry when the obligation arises will result in the bank beingcharged with such knowledge as inquiry would have disclosed. Such facts include a chronicinsufficiency of funds, or payment of the fiduciary's personal obligations to the depositary bankfrom the escrow account" (Norwest Mtge. v Dime Sav. Bank of N.Y., 280 AD2d at 654[citation omitted]).
The plaintiffs did not allege that Signature had actual knowledge of the allegedly improperdiversions from the escrow account, nor did they allege facts that would be sufficient to trigger aduty of inquiry on Signature's part. The plaintiffs' allegation that Signature was aware thatAnthony Galasso was not an attorney and, thus, allegedly not legally authorized to be a signatoryto any attorney's escrow account, was insufficient, since that fact would not "cause a reasonablyprudent person to suspect that trust funds [were] being misappropriated" (id.). The onlyother nonconclusory allegations in the complaint on this issue were that funds were withdrawnfrom the escrow account by electronic transfers, and that such transfers were prohibited by theterms of the agreement establishing the escrow account. The latter fact, however, wasindisputably shown through evidentiary material to be "not a fact at all" (Guggenheimer vGinzburg, 43 NY2d 268, 275 [1977]). Thus, the plaintiffs failed to state a cause of action torecover damages from Signature for negligence.
In the eleventh cause of action, the plaintiffs sought to recover damages from Signature foraiding and abetting a breach of fiduciary duty. To recover damages for aiding and abetting abreach of fiduciary duty, a plaintiff must plead and prove that a fiduciary duty owed to plaintiffwas breached, that the defendant "knowingly induced or participated in the breach," and that theplaintiff sustained damages as a result of the breach (Kaufman v Cohen, 307 AD2d 113,125 [2003]; see Roni LLC v Arfa,15 NY3d 826 [2010]; Global Mins.& Metals Corp. v Holme, 35 AD3d 93, 101 [2006]). "A [*3]person knowingly participates in a breach of fiduciary duty onlywhen he or she provides 'substantial assistance' to the primary violator" (Kaufman vCohen, 307 AD2d at 126; see Roni LLC v Arfa, 15 NY3d at 827; Monaghan v Ford Motor Co., 71 AD3d848, 850 [2010]; Global Mins. & Metals Corp. v Holme, 35 AD3d at 101).
The plaintiffs alleged that Signature "knew or should have known" that Anthony Galasso wasactively depleting the escrow account, and that Signature was "in possession of sufficientinformation to know" that unauthorized diversions were occurring. However, since a claim ofaiding and abetting a breach of fiduciary duty must be supported by an allegation that thedefendant had actual knowledge of the breach of duty, as opposed to mere constructiveknowledge (see Kaufman v Cohen, 307 AD2d at 125), an allegation that the defendant"knew or should have known" about the breach of duty is insufficient to support such a claim(Global Mins. & Metals Corp. v Holme, 35 AD3d at 102; see Brasseur v Speranza, 21 AD3d297, 299 [2005]). The allegations in the complaint also are deficient in that they describeonly omissions by Signature. "Substantial assistance" requires an affirmative act on thedefendant's part; "mere inaction" can constitute substantial assistance "only if the defendant owesa fiduciary duty directly to the plaintiff" (Kaufman v Cohen, 307 AD2d at 126; see First Keystone Consultants, Inc. v DDRConstr. Servs., 74 AD3d 1135, 1137 [2010]; Monaghan v Ford Motor Co., 71AD3d at 850) and, here, the plaintiffs did not plead any facts that would support a finding thatSignature owed a fiduciary duty directly to them. Thus, the plaintiffs failed to state a cause ofaction to recover damages from Signature for aiding and abetting a breach of fiduciary duty.
The plaintiffs' remaining contentions are without merit.
Accordingly, although the Supreme Court properly directed dismissal of the complaint inpart, pursuant to CPLR 3211 (a) (5), as time-barred, the court also should have granted thatbranch of Signature's motion which was pursuant to CPLR 3211 (a) (7) to dismiss the complaintinsofar as asserted against it for failure to state a cause of action.
In light of our determination, we need not reach Signature's remaining contentions. Prudenti,P.J., Angiolillo, Florio and Sgroi, JJ., concur.