| Weinberg v Mendelow |
| 2014 NY Slip Op 00286 [113 AD3d 485] |
| January 16, 2014 |
| Appellate Division, First Department |
| Mark D. Weinberg, Appellant, v StevenMendelow, Defendant, and Konigsberg, Wolf & Co. et al.,Respondents. |
—[*1] Wilson Elser Moskowitz Edelman & Dicker LLP, White Plains (Fred N. Knopf ofcounsel), for respondents.
Order, Supreme Court, New York County (Anil C. Singh, J.), entered May 31, 2012,which, insofar as appealed from as limited by the briefs, granted defendants Konigsberg,Wolf & Co. and Paul Konigsberg's (defendants) motion to dismiss as against them thefraud, aiding and abetting fraud, and negligent retention and supervision claims,unanimously modified, on the law, to deny the motion as to the fraud and aiding andabetting claims, and to deny as to the negligent retention and supervision claims againstdefendant Konigsberg, Wolf & Co., and otherwise affirmed, without costs.
With respect to the fraud claim, the complaint adequately alleges, on its agencytheory, that defendant Steven Mendelow's acts can be attributed to defendantKonigsberg, Wolf & Co. (KW), but not to defendant Paul Konigsberg (Konigsberg). Itsufficiently pleads that Mendelow was KW's agent by alleging that KW held Mendelowout as a "principal," which was akin to a partner. "A legal entity [such as KW]. . . necessarily functions through human actors" such as Mendelow(Prudential-Bache Sec. v Citibank, 73 NY2d 263, 276 [1989]). "[T]he acts ofagents [e.g. Mendelow], and the knowledge they acquire while acting within the scope oftheir authority[,] are presumptively imputed to their principals," such as KW (Kirschner v KPMG LLP, 15NY3d 446, 465 [2010]). Contrary to Konigsberg's and KW's contention, Mendelowcould not have been acting on behalf of FGLS Equity, LLC (a Bernard Madoff feederfund), rather than KW, when he advised plaintiff to invest with Madoff in the summer of2002, because FGLS was not formed until March 2003. The allegations that Mendelowwas acting on behalf of Konigsberg, however, are conclusory (see Perl v SmithBarney, 230 AD2d 664, 665 [1st Dept 1996], lv denied 89 NY2d 803[1996]).
In addition to agency, the complaint sufficiently pleads that KW—but, again,not Konigsberg—should be liable for Mendelow's acts under the doctrine ofrespondeat superior by alleging that KW—not Konigsbergpersonally—employed Mendelow (see Judith M. v Sisters of CharityHosp., 93 NY2d 932 [1999]). The complaint alleges that Konigsberg is the soleowner [*2]of KW, but even the sole owner of acorporation is entitled to the presumption that he is separate from his corporation (see East Hampton Union FreeSchool Dist. v Sandpebble Bldrs., Inc., 66 AD3d 122, 126 [2d Dept 2009],affd 16 NY3d 775 [2011]). Plaintiff does not contend that KW's corporate veilshould be pierced to reach Konigsberg.
Konigsberg and KW contend that Mendelow was not acting within the scope of hisemployment when he advised plaintiff. However, the allegations in the complaint aresufficient to withstand a motion to dismiss the respondeat superior claim (see Riviellov Waldron, 47 NY2d 297, 303 [1979]; Burns v City of New York, 6 AD2d30, 33, 35, 37 [1st Dept 1958]).
Even if Konigsberg is not liable on an agency theory, he is on the pleaded conspiracytheory. The complaint sufficiently pleads that both Konigsberg and KW should be liablefor Mendelow's fraud because all three defendants conspired to defraud plaintiff (seeAlexander & Alexander of N.Y. v Fritzen, 68 NY2d 968 [1986]). The complaintexpressly alleges "a corrupt agreement" among all three defendants, their "intentionalparticipation in the furtherance of the plan or purpose," and "resulting damages or injury"(Williams v Sidley Austin Brown & Wood, L.L.P., 13 Misc 3d 1213[A], 2006NY Slip Op 51810[U], *3 [Sup Ct, NY County 2006], affd 38 AD3d 219 [1stDept 2007]). As for the "overt act in furtherance of the agreement, which constitutes anindependent tort or wrongful act" (id.), the complaint alleges that KW mademisrepresentations in the form of the monthly account statements it sent to plaintiff. It isnot necessary that the complaint allege an overt act by Konigsberg (see Kuo FengCorp. v Ma, 248 AD2d 168 [1st Dept 1998], appeal dismissed 92 NY2d 845[1998], lv denied 92 NY2d 809 [1998]).
The complaint sufficiently pleads a cause of action for negligent retention againstKW by alleging that Mendelow had been a principal of KW since 1982, that Konigsbergwas KW's president, that Mendelow was sanctioned by the Securities and ExchangeCommission (SEC) in 1993 for Madoff-related fraud, and that Konigsberg "looked theother way with respect to Mendelow being sanctioned by the SEC" (see Sheila C. v Povich, 11AD3d 120, 129-130 [1st Dept 2004]). Konigsberg's knowledge of the SEC sanctioncan be imputed to KW because Konigsberg was its president (see Kirschner, 15NY3d at 465). At this stage of the proceedings, we also find that these factual allegationssupport a claim for negligent supervision.
Originally, the fifth cause of action alleged that all three defendants aided andabetted Madoff's fraud and that Konigsberg and KW aided and abetted Mendelow's fraudon plaintiff. On appeal, plaintiff presses only the latter point. Since we find thatKonigsberg and KW can be sued for fraud, the aiding and abetting claim appears to beunnecessary; nevertheless, plaintiff may plead alternate causes of action (seeCPLR 3014).
The complaint sufficiently pleads that Konigsberg and KW aided and abettedMendelow's fraud (see Oster vKirschner, 77 AD3d 51, 55 [1st Dept 2010]; see also Stanfield Offshore Leveraged Assets, Ltd. v MetropolitanLife Ins. Co., 64 AD3d 472, 476 [1st Dept 2009], lv denied 13 NY3d709 [2009]). Contrary to their contention that the complaint does not allege actualknowledge of the fraud, the complaint alleges that "Konigsberg knew, or certainly shouldhave known, that KW and Mendelow fraudulently induced Plaintiff's investments" andthat KW "knew that [the monthly] statements [for FGLS, which Mendelow and KWforwarded to plaintiff,] were false." Contrary to their contention that the complaint doesnot allege that Konigsberg and KW rendered substantial assistance in the achievement ofthe fraud, the complaint alleges that plaintiff relied on the representations on KW'swebsite about Mendelow's [*3]qualifications whendeciding to invest in FGLS. It also alleges that, at Mendelow's and Konigsberg'sdirection, KW (FGLS's accountant) ignored irregularities in FGLS's books and records;that, if KW had reviewed such books and records, it would have discovered Madoff'sfraud; and that plaintiff "would have redeemed his investment [in FGLS] if Defendantshad informed him of the numerous warning signs of [Madoff's] fraud."Concur—Mazzarelli, J.P., Friedman, DeGrasse, Richter and Manzanet-Daniels, JJ.