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O'BRIEN v. ALEXANDER

August 29, 1995

DAVID J. O'BRIEN, Plaintiff, against NORMAN E. ALEXANDER, STUART Z. KRINSLY, GERALD S. GUTTERMAN, JOHN J. QUICKE, ELLEN T. HARMON, SCHULTE ROTH & ZABEL, DAVID BRODSKY, CHAYE ZUCKERMAN SHAPOT, SEQUA CORPORATION, SEQUA CAPITAL CORPORATION, and JOHN DOES 1-5, Defendants.


The opinion of the court was delivered by: DENNY CHIN

 CHIN, D.J.

 Plaintiff David J. O'Brien alleges in this action that defendants damaged his reputation and career by committing various torts -- malicious prosecution, abuse of process, defamation, negligence, prima facie tort, general tort and tortious interference with contract -- as well as by violating the New York Judiciary Law. He has named as defendants not only his former employer, but also certain corporate officers as well as the attorneys who represented his former employer in prior litigation.

 Before the Court are the following motions: (i) defendants' motion to dismiss the amended complaint for failure to state a claim; (ii) plaintiff's cross-motion for leave to file a second amended complaint; (iii) defendants' motion for Rule 11 sanctions; and (iv) plaintiff's cross-motion for Rule 11 sanctions.

 Plaintiff's cross-motion for leave to file a second amended complaint was filed in response to defendants' motion to dismiss. In their reply papers, however, defendants addressed the adequacy of the allegations of the proposed second amended complaint, and at oral argument both sides addressed the proposed second amended complaint. Hence, as a threshold matter, plaintiff's cross-motion for leave to file a second amended complaint is granted and the proposed second amended complaint is deemed filed as of the date the cross-motion was filed. In considering defendants' motion to dismiss, I have analyzed the issues presented on the basis of the second amended complaint.

 For the reasons stated below, defendants' motion to dismiss is granted; defendants' motion for Rule 11 sanctions is granted; and plaintiff's cross-motion for Rule 11 sanctions is denied.

 STATEMENT OF THE CASE1

 Defendant Sequa Corporation ("Sequa") is a diversified manufacturing corporation. From 1973 to 1986, plaintiff served as Sequa's vice president and treasurer. In 1986, plaintiff founded and became president, and later chief executive officer, of defendant Sequa Capital Corporation, a wholly owned subsidiary of Sequa ("SCC" and together with Sequa, the "Sequa Defendants"). Plaintiff was dismissed from his position as chief executive officer in January 1991, without warning and without any reasons given for his dismissal.

 Immediately following his discharge, plaintiff was told by one of Sequa's attorneys that he would be given a severance package. About one month later, plaintiff met with defendants Alexander (Sequa's chairman), Krinsly (senior executive vice president and general counsel), Harmon (associate general counsel), and Gutterman (chief financial officer), purportedly to discuss the severance package. When plaintiff objected to Sequa's legal counsel being present, Alexander (who is an attorney) assured plaintiff that he would act as plaintiff's lawyer. Alexander further promised that he would protect plaintiff, that plaintiff would "not be hurt" by remaining at the meeting, and that Alexander would personally arrange the severance package as plaintiff's lawyer. (Cmplt. PP 22-23). The meeting lasted approximately 2-3 hours during which time defendants induced plaintiff to furnish information that was later used in a lawsuit against him.

 While plaintiff was employed by Sequa, the Sequa Defendants maintained a relationship with a consulting company, GBJ Corporation ("GBJ"). In 1991, GBJ and its president, Jeffrey Gelmin, brought a lawsuit against the Sequa Defendants for unpaid fees and commissions (the "Sequa Case"). *fn2" In October 1991, plaintiff met with Krinsly concerning the Sequa Defendants' relationship with GBJ and Gelmin. At that meeting, defendants attempted to coerce plaintiff into falsely giving testimony against Gelmin in the Sequa Case. Plaintiff, however, refused, and as a result defendants again denied plaintiff his severance package. (Cmplt. P 31).

 In August 1992, plaintiff was named as a co-defendant in the Sequa Case by the Sequa Defendants for allegedly conspiring with Gelmin to commit fraud against them. Plaintiff alleges that the Sequa Defendants knew the allegations against him were false and yet they proceeded to disseminate the false statements. (Cmplt. P 31). In July 1993, the Sequa Defendants voluntarily discontinued their claims against plaintiff without prejudice, after the court in that case (Haight, J.) ruled that the Sequa Defendants were obligated to indemnify plaintiff for the costs of defending against the claims that they had asserted against him.

 Defendants also purportedly coerced Edward J. Piszko, who served as administrative vice president of SCC at the same time plaintiff was president, into signing an affidavit containing false statements of wrongdoing by plaintiff and Gelmin. This affidavit was allegedly authored by defendants Shapot and Harmon and was used as a basis for the claims brought by the Sequa Defendants against plaintiff and Gelmin. (Cmplt. PP 36-46).

 On July 30, 1992, Sequa filed an insurance claim for damages caused by employee dishonesty, based on the alleged dishonest acts of plaintiff, Piszko and Gelmin (the "Insurance Claim"). The claim was grounded, in part, on the allegedly false statements contained in the Piszko affidavit. (Cmplt. P 47).

 Plaintiff commenced this action on July 22, 1994, and amended his complaint on July 27, 1994. Plaintiff complains that defendants engaged in a "campaign to destroy plaintiff" through their various purportedly tortious acts. In the second amended complaint, plaintiff also alleges that defendant Brodsky -- one of Sequa's attorneys in the Sequa Case -- made a number of purportedly false and defamatory statements about plaintiff in his opening statement to the Court at the trial of the Sequa Case. (Cmplt. PP 64a, b, c, d, e; see also Cmplt. P 91j).

 The second amended complaints seeks $ 23,996,000 in "special damages," $ 50,000,000 in "general damages," $ 221,988,000 in "treble damages," and $ 50,000,000 in "punitive damages."

 DISCUSSION

 I. Defendants' Motion To Dismiss

 A. Standards for Rule 12(b)(6) Motion to Dismiss

 In analyzing defendants' motion to dismiss for failure to state a claim, I must view plaintiff's second amended complaint in the light most favorable to plaintiff and accept all allegations contained in the complaint as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Annis v. County of Westchester, 36 F.3d 251, 253 (2d Cir. 1994). Giving plaintiff the benefit of the inferences in his favor, the complaint should not be dismissed unless it appears beyond a doubt that plaintiff can prove no set of facts that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Christ Gatzonis Electrical Contractor, Inc. v. New York City School Construction Authority, 23 F.3d 636, 639 (2d Cir. 1994). With these standards in mind, I turn to defendants' motion to dismiss.

 A. Plaintiff's Claims

 1. Malicious Prosecution

 To succeed on his claim for malicious prosecution of a civil action, plaintiff must show that: 1) defendants maliciously commenced and continued an action against plaintiff; 2) the proceeding was terminated in favor of plaintiff or under circumstances "such that innocence is indicated" *fn3" ; 3) probable cause for the proceeding was lacking; and 4) plaintiff's person or property was interfered with by the issuance of a provisional remedy, e.g., attachment or arrest. See Sharma v. Skaarup Ship Management Corp., 699 F. Supp. 440, 448 (S.D.N.Y. 1988), aff'd, 916 F.2d 820 (2d Cir. 1990), cert. denied, 499 U.S. 907, 111 S. Ct. 1109, 113 L. Ed. 2d 218 (1991); Molinoff v. Sassower, 99 A.D.2d 528, 529, 471 N.Y.S.2d 312, 313-14 (2d Dep't 1984).

 Defendants contend that plaintiff's claim for malicious prosecution should be dismissed because the proceeding did not result in the issuance of a provisional remedy that interfered with plaintiff's person or property. I agree. Plaintiff essentially concedes that no provisional remedy, such as attachment or arrest, was issued against him in the Sequa Case. (See Pl. Mem. in Opp. to Motion to Dismiss at 6). This failure to allege the issuance of a provisional remedy is fatal to plaintiff's malicious prosecution claim. See Church of Scientology of California v. Siegelman, 94 F.R.D. 735, 736 (S.D.N.Y. 1982) (citing Kalso Systemet v. Jacobs, 474 F. Supp. 666, 670 (S.D.N.Y. 1979)) (malicious prosecution claim that fails to allege issuance of provisional remedy is defective); Sokol v. Sofokles, 136 A.D.2d 535, 536, 523 N.Y.S.2d 155, 157 (2d Dep't 1988) (dismissal of claim for malicious prosecution affirmed since "mere service of a summons and complaint without further interference from some provisional remedy does not rise to the level of malicious prosecution"); Molinoff, 471 N.Y.S.2d at 314 (affirming dismissal of malicious prosecution claim where amended complaint failed to allege sufficient interference with plaintiff's person or property). *fn4"

 Defendants argue that the malicious prosecution claim should also be dismissed on the independent grounds that the discontinuance of the Sequa Case against plaintiff was not a termination of that proceeding in his favor. In the Sequa Case, Judge Haight ruled that the Sequa Defendants were obligated under BCL § 724(c) to indemnify plaintiff for his legal costs in the Sequa Case. *fn5" As a result of Judge Haight's ruling, the Sequa Defendants were put in the position of reimbursing plaintiff for his legal expenses in defending against claims asserted by the Sequa Defendants themselves. Consequently, shortly after Judge Haight rendered his decision, the Sequa Defendants chose to discontinue their claims against plaintiff in the Sequa Case "without prejudice."

 Plaintiff contends that the discontinuance of the claims against him in the Sequa Case was a termination in his favor. (Pl. Mem. in Opp. to Motion to Dismiss at 5). That contention, however, is based on a patent misreading of Judge Haight's decision.

 Paragraph 55 of the second amended complaint alleges:

 
In over two years of sham "investigations," of attempts to buy O'Brien's false testimony, and of groundless litigation, defendants found no genuine evidence to support their claims, yet they persisted out of pure malice. Finally, the court interceded. In July 1993, the Honorable Judge Charles S. Haight, having found no evidence that O'Brien had obtained even a penny of the millions he was accused of taking ruled that Sequa and SCC would be required either to dismiss their case or to advance the costs of O'Brien's legal defense. Promptly thereafter, Sequa and SCC dismissed O'Brien from the case.

 Indeed, in concluding that O'Brien was entitled to indemnification, Judge Haight acknowledged that he was applying a "far less demanding standard" than the standard for finding genuine issues of material fact sufficient to withstand a motion for summary judgment, and he noted that a corporate officer seeking indemnification under BCL § 724(c) need not even show a probability of success. Id. at 7. Moreover, Judge Haight denied O'Brien's motion to dismiss the complaint against him for failure to state a claim, recognizing that the Sequa Defendants adequately pled a civil RICO claim against plaintiff for fraud. Id. at 2. Hence, Judge Haight's decision simply cannot be reasonably read as a finding on the merits in favor of O'Brien, nor can it be interpreted as a finding that plaintiff did not engage in any wrongdoing, nor can defendants' dismissal "without prejudice" of their claims against O'Brien in these circumstances be deemed a termination on the merits. See Ward v. Silverberg, 85 N.Y.2d 993, 652 N.E.2d 914, 629 N.Y.S.2d 168 (1995) (where plaintiff's guilt or innocence in underlying criminal case was left "unanswered" because the case was dismissed "on consent" after colloquy between court and counsel and plea by defense for a dismissal "in all fairness to this lady," no malicious prosecution claim could lie); Morrill v. Norstar Bank, 161 A.D.2d 1096, 1097, 557 N.Y.S.2d 655, 656 (3d Dep't 1990) (dismissal of criminal charges "without prejudice" essentially for "inartful pleading" was not a dismissal on the merits and could not be basis of malicious prosecution case); Sokol v. Sofokles, 136 A.D.2d 535, 536, 523 N.Y.S.2d 155, 157 (2d Dep't 1988) (dismissal of underlying civil action for failure to prosecute was not a "favorable determination" of the prior action "on the merits" and hence could not be a basis for malicious prosecution claim).

 At oral argument, plaintiff's counsel argued that there was other evidence of O'Brien's "innocence" with respect to the claims asserted against him in the Sequa Case: O'Brien's deposition testimony; "reams and reams of documents" produced in discovery; and the testimony of other witnesses. (Tr. at 16-17). This argument, however, must be rejected, for the only allegations set forth in the second amended complaint to support the contention that the Sequa Case terminated in favor of plaintiff are the allegations based on Judge Haight's purported "intercession" and finding of "no evidence" of wrongdoing. (See Cmplt P 55; see also id. P 84). Plaintiff cannot now again re-write his complaint by abandoning these key allegations.

 Accordingly, the malicious prosecution claim is dismissed, both because the second amended complaint fails to allege the issuance of a provisional remedy or other process and because it fails to properly allege a termination of the underlying lawsuit in favor of plaintiff or under circumstances indicating his "innocence."

 2. Abuse of Process

 An abuse of process claim has three essential elements:

 
(1) regularly issued process, either civil or criminal, (2) an intent to do harm without excuse or justification, and (3) use of the process in a perverted ...

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