The opinion of the court was delivered by: SWEET
Defendants Roger Levin ("Levin") and Levin & Weissman ("L&W") (collectively, the "Levin Defendants") have moved pursuant to Rule 12(b)(6), Fed. R. Civ. P. to dismiss all of the claims asserted against them by plaintiffs, the Mason Tenders' District Council Trust Funds (the "Funds").
The Funds have cross-moved for summary judgment pursuant to Rule 56, Fed. R. Civ. P., with respect to their claims for breach of fiduciary duty.
Defendants Joseph Albanese ("Albanese") and Albanese, Albanese & Fiore ("AA&F") (collectively, the "Albanese Defendants") have moved for summary judgment dismissing the claims against them.
For the reasons set forth below, the Funds' motion for summary judgment will be denied; the Levin Defendants' motion to dismiss will be granted in part and denied in part; the Albanese Defendants' motion for summary judgment will be granted; and the Cunningham Defendants' motion for partial summary judgment will be granted in part and denied in part.
The parties, prior proceedings and facts in this action have been fully set forth in two prior opinions of the court, familiarity with which is assumed. See Mason Tenders District Council Pension Fund v. James Messera, 1996 U.S. Dist. LEXIS 8929, 1996 WL 351250 (S.D.N.Y. June 26, 1996); Mason Tenders District Council Pension Fund v. James Messera, 1996 U.S. Dist. LEXIS 14822, 1996 WL 578048 (S.D.N.Y. Oct. 8, 1996). The facts relevant to the instant motions are set forth below.
The Funds consist of various "employee pension benefit plans" or "employee welfare benefit plans" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1002(3). The Funds provide benefits to members of local unions affiliated with the Laborers' International Union of North America ("LIUNA"), which local unions together comprise the Mason Tenders' District Council of Greater New York (the "District Council"). The Funds are administered by the District Council and contributing employers in the industry.
Defendants Cunningham, Levin and Albanese are attorneys and Defendants C&L, L&W and AA&F are their respective law firms.
The Funds are trust funds established under the auspices of the District Council which have provided benefit plans to the members of the Mason Tenders' local unions which are organized as part of LIUNA. The District Council, the governing body of the local unions, entered into a consent decree on December 27, 1994 in a civil action, U.S. v. Mason Tenders District Council, 94 Civ. 6487 (RWS), brought by the Government against it alleging violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), including certain improprieties with respect to the administration of the Funds.
On November 2, 1995, this action was commenced, pleading eighty-four causes of action against nearly fifty separate defendants. The gravamina of this action are the first four claims, which plead violations of 18 U.S.C. §§ 1962(b) and of RICO, and of 19 U.S.C. § 1962(d), conspiracy to violate 18 U.S.C. § 1962(b) and (c). The remaining causes of action allege various statutory and common law claims.
The Levin Defendants' motion to dismiss was filed on April 22, 1996. Thereafter, the Funds cross-moved for partial summary judgment. Oral argument on both motions was heard on October 2, 1996. The Court received further submissions through December 12, 1996, at which time the motions were deemed fully submitted.
The Albanese Defendants' motion for summary judgment was filed on October 22, 1996. Oral argument was heard on February 5, 1997, at which time the motion was deemed fully submitted.
On August 20, 1996, the Funds moved to amend the complaint to add the Cunningham Defendants. The motion was granted on September 23, 1996, and the Amended Complaint (hereinafter, the "Complaint") was filed on October 2, 1996. The Cunningham Defendants' motion to dismiss was filed on November 22, 1996. Oral argument was heard on March 5, 1997, at which time the motion was deemed fully submitted.
A. Fraudulent Real Estate Transactions
At around the same time, the Funds were the victim of a separate fraudulent transaction involving a property located at 32-36 West 18th Street (the "18th Street Building"). The Complaint alleges that in December 1989, defendant Ronald Miceli, now a convicted racketeer, arranged to purchase the 18th Street Building for $ 7,465,000. Miceli obtained a $ 15,850,000 loan from the Pension Fund in February 1990 in order to purchase the Building. As security for the loan, the Pension Fund obtained a mortgage on the 18th Street Building and on another piece of commercial property owned by Miceli in Long Island, New York. The loan had previously been discussed at a Trustees meeting held on December 6, 1989, and its consummation was reported to the Trustees by the Funds' real estate counsel at a subsequent meeting held on March 8, 1990. The minutes of that meeting show that there was discussion concerning the transaction, including an inquiry as to whether there were limitations in the Trust documents on the percentage of Pension Fund assets that could be invested in real estate. There is no indication in these minutes or any subsequent minutes that any of the attorneys present responded to that inquiry.
On the same date Miceli procured the loan, he purchased the building for $ 7,465,000. Approximately eight months later, at a Trustees meeting conducted on November 13, 1990, the Trustees approved the Pension Fund's purchase of the 18th Street Building from Miceli for $ 24 million. There is no evidence of any explanation as to why the property was purchased for nearly $ 10 million more than the amount of the loan made nine months earlier, and about $ 16.5 million more than the price Miceli had obtained. Nor is there any evidence to suggest that any inquiry was made into the existence of appraisals that would justify the $ 24 million purchase price.
Furthermore, there is no evidence in the Trustees Meeting minutes to suggest that any of the professionals alerted the Trustees to the fact that their fiduciary liability policy contained an exclusion which stated: "coverage as provided hereunder shall apply to an investment by the Fund in real estate and/or mortgage that is: . . . specifically directed or approved by and managed by a Qualified Professional Asset Manager ("QPAM")."
Shortly before the loan transaction in February, the Fund had obtained three appraisals on the 18th Street Building. Two of the appraisals valued the property at approximately $ 15,900,000, while the third valued it at only $ 8,300,000. The third appraisal also noted that the property had been purchased just two years earlier for only $ 7.7 million. As of October 1993, the 18th Street Building was valued at $ 5 million, notwithstanding the fact that the Pension Fund had by then invested several million dollars in renovating the site, over and above the $ 24 million purchase price.
In the related civil action filed by the Government, this Court granted summary judgment against two of the Funds' former Trustees, Joseph Fater and James Lupo, finding that they had breached their fiduciary duties in connection with the purchase of the 18th Street Building. See United States v. Mason Tenders District Council, 909 F. Supp. 882, 887 (S.D.N.Y. 1995). The Court entered a judgment in the amount of $ 16,535,000 for losses associated with the purchase of the 18th Street Building.
B. The Pervale Litigation
Another of the transactions addressed by the Complaint relates to the renovation of the 18th Street Building following its purchase by one of the Funds, and a subsequent lawsuit with the contractor over payment for the work. The Complaint alleges that after the Pension Fund bought the 18th Street Building in 1990, it spent $ 5.62 million to renovate the property although the property's market value was thereafter appraised at only $ 5 million. It is further alleged that the contractor hired to perform the renovation, defendant Pervale Contracting Company ("Pervale"), and Pervale's principal, defendant Salvatore Leotta ("Leotta"), paid kickbacks of at least $ 150,000 to corrupt representatives of the Pension Fund in order to obtain the job.
On or about June 8, 1994, after the renovation work had been completed, Pervale commenced an action against the Pension Fund, 32-36 Corp. and several subcontractors in order to foreclose a mechanics lien, contending that it was owed money for the renovation work on the 18th Street Building. Pervale moved for summary judgment in the action and, by opinion dated August 16, 1995, was awarded a judgment against 32-36 Corp. in the amount of $ 398,798.00. That judgment is now on appeal.
By Opinion dated June 26, 1996, the Court denied defendants' Salvatore Leotta ("Leotta") and Pervale Contracting Company's ("Pervale") motion for summary judgment.
A. Activities in Connection With the Funds
During the period that is the subject of the Government's investigation and this lawsuit, the law firm of Levin & Weissman served as Funds' counsel, first through Harold Levin and then through his son Roger Levin ("Levin"). The Levin Defendants provided various legal services that included regular attendance at Trustees' meetings; membership in the Funds' Investment Committee; special litigation counsel for benefit cases; provider to the Legal Services Plan; and a collections practice.
For the six-year period between 1989 and 1994, the Levin Defendants received $ 15,631,367 for these legal services. In addition, Chetwood Publishing Co., a company in which Levin owned a fifty percent interest, received $ 1,534,959 in fees during this period from the Mason Tenders' District Council Industry Fund for publishing the Mason Tender magazine.
The legal services the Levin Defendants provided to the Funds were secured in whole or in part through the payment of kickbacks to Fund officials responsible, directly or indirectly, for hiring and retaining the Funds' service providers. Harold Levin has stated under oath that he started paying bribes to various union officials in the late 1950's or early 1960's in order to secure the Funds' legal business for the firm, and that he continued to do so on a routine basis. The practice was continued by Levin, first at the behest of his father, and then on his own. The payments were at times as large as $ 8,000-$ 10,000 per month.
In addition, Levin stated that he paid numerous kickbacks to secure the business of Chetwood Publishing Co. In return for the publishing contract, Levin regularly paid former Trustee Frank Lupo ten percent of Chetwood's revenues.
Former Trustee Frank Lupo described payment of these kickbacks:
We had a large conference room at the Welfare Fund. And we would just, we would all arrive there at a certain time, we'd just walk off into a corner, have coffee, and he'd pass the envelope. Basically that was it.
The Levin Defendants specifically recalled making payments to various Fund officials, including former Trustees Frank Lupo and James Lupo and Ernie Muscarella, the former Supervisor of the Field Representatives for the Funds. The payments totaled over $ 160,000.
B. Claims Against the Levin Defendants
The Complaint alleges several claims against the Levin Defendants. The Sixty-Eighth Claim alleges that the Levin Defendants breached their duties to the Funds by paying kickbacks to Fund officials. The Fifty-Eighth Claim alleges that the Levin Defendants' failure to advise the Funds that the purchase price for the 18th Street Building was grossly inflated, and that the Funds should retain a Qualified Professional Asset Manager, constituted legal malpractice as well as breach of fiduciary duty. The Complaint also includes a RICO claim against the Levin Defendants based on their payment of kickbacks in exchange for their continued retention, and a claim for violation of ERISA.
III. The Albanese Defendants
A. Activities In Connection With the Funds
1. Real Estate Transactions
The Funds claim to have had an attorney-client relationship with Albanese and AA&F when the above-described real estate purchases were made. The Minutes of the Regular Joint Meetings of the Board of Trustees of the Mason Tenders District Council Pension, Welfare and Annuity Funds (the "Minutes") contain no affirmative representation that Albanese or AA&F represented the Funds during this period. The Albanese Defendants were identified as counsel to Anthony J. Zotollo ("Zotollo"), one of the Funds' employer-designated trustees. The Funds were represented by the Levin Defendants and by the law firm of Davis & Davis.
As Zotollo's personal attorney, Albanese accompanied Zotollo to Trustees' meetings and advised him individually concerning matters about which Zotollo consulted him. Zotollo has attested that he did not consult Albanese about investments by the Funds. For advice on matters of that nature, including the real estate transactions at issue here, Zotollo consulted with the professionals hired by the Funds for their expertise in investments.
At a Board of Trustees' meeting on November 4, 1992, a resolution was proposed, and thereafter adopted, appointing Albanese to serve as co-counsel to the Real Estate Committee. Eight months later, at a Board of Trustees' meeting held on July 7, 1993, Albanese was appointed to serve as "Co-Counsel to the Funds." The Minutes do not reflect that Albanese or his firm ever acted, or was asked to act, as the Funds' counsel during the period prior to these appointments.
The Declarations of Trust, under which the Funds were created, authorized the Trustees, including Zotollo, to obtain reimbursement from the Funds for the expenses they incurred in performing their duties. The Funds' Administrator, Ms. Audrey Hinkly, instructed Albanese to send AA&F's bills for representing Zotollo directly to the Funds rather than requiring Zotollo to pay the bills in the first instance and thereafter obtain reimbursement from the Funds. Albanese and AA&F followed those instructions throughout the period they served as Zotollo's counsel.
2. The Pervale Litigation
The Funds were represented initially in the Pervale litigation by defendant C&L, and subsequently by the firm of Manning, Raab, Dealy & Sturm. In the answer originally served on behalf of the Funds in response to Pervale's complaint, C&L listed AA&F as its co-counsel. Albanese contends that this listing was unauthorized by AA&F and merely the result of an administrative mistake by C&L.
Albanese corrected the error by executing a written Consent to Change Attorney signed by the Funds, as well as by C&L. The Consent was finalized approximately four months before any decision on Pervale's summary judgment motion was rendered.
B. The Claims Against Albanese and AA&F
Each of these claims alleges that there was a contractual relationship between the Funds and the Albanese Defendants, pursuant to which the Albanese Defendants agreed to provide legal services to the Funds; that the Funds paid the Albanese Defendants for such legal services; that the Albanese Defendants routinely attended meetings of the Boards of Trustees of the Funds, including meetings where the Investment Committee and Real Estate Committee presented reports and recommendations, and the Funds looked to the Albanese Defendants for legal advice; that the parties' "attorney-client relationship" created a duty to represent the Funds with the reasonable care; and that the Albanese Defendants had a duty to advise the Funds that the purchase prices for properties in question were grossly inflated and that the Funds should have retained a Qualified Professional Asset Manager in connection with their purchases of the properties.
The final claim against Albanese and AA&F, the Seventy-ninth count of the Complaint, challenges the adequacy of the defense provided to the Funds in connection with the motion for summary judgment in the Pervale Litigation. The Funds allege that the papers submitted in opposition to the motion failed to alert the Court to facts and circumstances indicating that Pervale had obtained the renovation contracts through fraudulent means and had overcharged for the renovations.
IV. The Cunningham Defendants
A. Activities in Connection with the Funds
The Cunningham Defendants served as counsel to both the Funds and the Real Estate Committee from 1987, when the Funds first began purchasing the real estate properties at issue in this litigation, until March 1995. They regularly attended meetings of the Real Estate Committee and the Funds' Board of Trustees. The Cunningham Defendants were counsel of record for the Funds in the Pervale litigation. As of December 1994, the Cunningham Defendants were still reporting to the Funds about real estate matters. The Cunningham Defendants' representation of the Funds ended on March 9, 1995, when they resigned as counsel.
B. The Claims Against the Cunningham Defendants
The Complaints' Fifty-eighth, Sixty-fourth, Seventieth, Seventy-seventh and Eightieth claims for relief address the Funds' malpractice claims against the Cunningham Defendants arising out of the real estate transactions described above. In its Fifty-eighth, Sixty-fourth and Seventieth claims for relief, the Complaint alleges that, because of their capacity as members of the Funds' Real Estate Committee and their routine attendance at Board of Directors meetings, the Cunningham Defendants should have known that the purchase prices for the properties were grossly inflated and they should have advised the Pension Fund to retain a "QPAM" in connection with the purchase of the properties.
The Complaint's Seventy-seventh claim for relief asserts that the Cunningham Defendants should have known that renovations to the 18th Street Building were unnecessary or improper and that charges for the renovations were grossly inflated. The Eightieth claim for relief alleges that the Cunningham Defendants failed to include a termination provision in favor of the Fund during the negotiation of a contract between the Fund and Stein Gerontological Institute, Inc. ("Stein") entered into "on or about May of 1992" in connection with the management of the Indian Creek Property.
The Complaint further alleges, in the Seventy-eighth claim for relief, that the Cunningham's failure to vigorously defend the Funds in the Pervale litigation, which was commenced in 1994, constitutes malpractice.
I. The Levin Defendants' Motion to Dismiss
On a Rule 12(b)(6) motion to dismiss, the factual allegations of the complaint are presumed to be true and all factual inferences must be drawn in the plaintiff's favor and against the defendants. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683, 1686 (1974); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir. 1985). Accordingly, the factual allegations considered here and set forth below are taken from Plaintiffs' Amended Complaint and do not constitute findings of fact by the Court. They are presumed to be true only for the purpose of deciding the present motion to dismiss.
Rule 12(b)(6) imposes a substantial burden of proof upon the moving party. A court may not dismiss a complaint unless the movant demonstrates "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957). Accord Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232-33, 81 L. Ed. 2d 59 (1984) (quoted in H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 250-51, 109 S. Ct. 2893, 2906, 106 L. Ed. 2d 195 (1989)).
"In practice 'a complaint ... must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.'" Fort Wayne Telsat v. Entertainment & Sports Prog. Network, 753 F. Supp. 109, 111 (S.D.N.Y. 1990) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)).
Rule 8(a)(2) of the Federal Rules of Civil Procedure mandates that a complaint contain a "short and plain statement of the claim" that demonstrates "that the pleader is entitled to relief." The Federal Rules do "not permit conclusory statements to substitute for minimally sufficient factual ...