United States District Court, S.D. New York
September 21, 2005.
D. SCOTT CARRUTHERS, SPRINGHAWK, LLC, and SUMMERHAWK, LLC, Plaintiffs,
DAVID FLAUM, FLAUM MANAGEMENT COMPANY, INC., 3D ASSOCIATES, LLC, ABC PACIFIC REALTY, LLC, A.P. EQUITY, INC., ANCESTRAL RECLAMATION, LLC, ALAN H. YOUNG, individually, d/b/a LINDENBAUM AND YOUNG, LINDENBAUM AND YOUNG, CHARLES PETRI, GENE BARBANTI, individually and d/b/a THE BARBANTI GROUP REAL ESTATE, JAMES F. SIMERMEYER, HARRY B. WALLACE AND SIMERMEYER & WALLACE, Defendants.
The opinion of the court was delivered by: COLLEEN McMAHON, District Judge
MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT ABC PACIFIC'S
MOTION TO DISMISS AND GRANTING IN PART AND DENYING IN PART
SIMERMEYER DEFENDANTS' MOTION TO DISMISS AND DENYING SIMERMEYER
DEFENDANTS' MOTION FOR RULE 11 SANCTIONS
In this action, plaintiffs D. Scott Carruthers ("Carruthers"),
Springhawk, LLC ("Springhawk") and Summerhawk, LLC ("Summerhawk")
seek to recover damages and for equitable relief against various
attorneys, individuals, and entities for their roles in (I)
allegedly fraudulently inducing Plaintiffs to provide $550,000 in
funds for the purchase of real property, and to incur other
out-of-pocket expenses, in connection with certain business
ventures in Sullivan and Suffolk Counties, and (ii) allegedly
misappropriating, diverting and/or converting those funds to
other, undisclosed uses in breach of various contractual, common
law and/or fiduciary obligations to plaintiffs. This action also seeks to
recover from the current owners of the real property, whom
plaintiffs allege have been unjustly enriched as a result of the
Two motions are before the court. The first is by defendant ABC
Pacific Realty, LLC ("ABC Pacific"), the current owner of the
property, to dismiss the Amended Complaint pursuant to
Fed.R.Civ.P. 12(b)(6), or in the alternative, for summary judgment
pursuant to Rule 56. The only claim asserted against ABC Pacific,
Count XI, is for unjust enrichment. It is dismissed.
The second motion is by defendants James F. Simermeyer
("Simermeyer"), Harry B. Wallace ("Wallace"), and Simermeyer &
Wallace (collectively, "the Simermeyer defendants") to dismiss
the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(2), (4),
(5), and (6) (Counts I-IV).*fn1
Counts I & II allege legal malpractice and conflict of interest
by Simermeyer, with Wallace and Simermeyer & Wallace jointly
liable for Simermeyer's purported defalcation. In Counts III and
IV, Simermeyer is charged with self-dealing and breach of the
duties of loyalty and fiduciary duty. The motion is granted as to
Count III, and granted in part and denied in part as to Counts I,
II, and IV.
The Simermeyer defendants also ask that Rule 11 sanctions be
imposed against plaintiffs' counsel. Because their motion is
procedurally defective, their request is denied.
Facts According to the Amended Complaint,*fn2 in late 2001,
Carruthers was approached by Simermeyer and solicited to
participate in a business venture with the Unkechaug Indian
Nation to develop real estate and casino gaming facilities on
ancestral land of the Unkechaug in Sullivan and Suffolk Counties
in the State of New York (the "joint venture"). Amended
Complaint, filed May 11, 2005 ("Cplt.") ¶ 19. Simermeyer
introduced Carruthers to members of the Unkechaug Indian Nation
("the Unkechaugs"), including its Chief, Harry Wallace, who also
solicited Carruthers' involvement in the joint venture with the
Unkechaugs. Cplt. ¶ 20.
The Unkechaugs desired to develop real property and open gaming
facilities at one or more sites in Sullivan County and sought
land of suitable geographic location and ancestral connection for
that purpose. Cplt. ¶ 29. Based on representations by Simermeyer
and Wallace, Carruthers decided to participate in the joint
venture with the Unkechaugs. Cplt. ¶ 21.
Both Wallace and Simermeyer are attorneys licensed to practice
law in New York State and practice as a partnership called
Simermeyer & Wallace (which is also a defendant in this case).
Cplt. ¶ 16-18. Carruthers retained Simermeyer to represent him
personally and also to form and represent the two Plaintiff LLCs,
Springhawk and Summerhawk. Cplt. ¶ 22.
Springhawk and Summerhawk were both established in January
2002, and, at inception, were both made up of Carruthers,
Simermeyer and Mitchell Stanley ("Stanley"). Cplt. ¶¶ 23, 25.
Carruthers was to be the controlling member of both Springhawk
and Summerhawk with a 56.25% ownership interest. Cplt. ¶¶ 24, 26.
Simermeyer and Stanley were to be minority owners in both LLCs, with 25% and 19.25% membership interests,
respectively. Cplt. ¶¶ 24, 26.*fn3
Springhawk and Summerhawk are Delaware limited liability
companies. See Complaint filed in the State Court Action, on
August 12, 2003 ("State Action Cplt."), ¶ 13.*fn4 They were
established for the purpose of developing and operating high
stakes Bingo, other gaming activities, gasoline sales, and
tobacco sales in Sullivan County and Long Island, New York, on
ancestral land of the Unkechaug Indian Nation. Id. Upon the
formation of Springhawk and Summerhawk, the members entered into
operating agreements and became contractually bound to each other
pursuant to those agreements (the "operating agreements"). Id.
at 16-17;Cplt. ¶ 112.*fn5
Simermeyer allegedly served as attorney for Carruthers,
Springhawk, and Summerhawk in connection with certain business
matters relating to Springhawk and Summerhawk. Cplt. ¶ 27.
Throughout the course of his representation of Carruthers,
Springhawk, and Summerhawk, Simermeyer was paid some $75,000 in
fees in connection with the joint venture, including but not limited to the failed real property estate deals that are the
subject of this lawsuit. Cplt. ¶ 28.
Springhawk and Summerhawk entered into various agreements with
the Unkechaug Indian Nation. Cplt. ¶ 22. The agreements granted
Springhawk the exclusive right to operate and manage gaming
facilities and other economic development projects opened by the
Unkechaug Indian Nation in Sullivan County, and granted
Summerhawk the same rights in Nassau and Suffolk Counties. State
Action Cplt. ¶¶ 18, 19.*fn6
In the spring of 2002, Simermeyer and/or Wallace introduced
Carruthers to defendants Petri, Young, and Barbanti. Cplt. ¶ 30.
Petri, Young, and Barbanti sought to convince Carruthers and the
Unkechaug Indian Nation that they could identify the necessary
land and assist in the financing for the joint venture. Cplt. ¶
30. Simermeyer took no steps to verify any of the information or
assurances given by Petri, Young, and Barbanti, but represented
to Carruthers that these individuals were reliable and credible.
Cplt. ¶ 31.
After the initial introduction of Petri, Young, and Barbanti to
Carruthers, Simermeyer and Wallace exerted pressure upon
Carruthers and Springhawk to enter into a variety of contracts
and agreements with Young and Petri for the acquisition and
development of real estate in Sullivan County. Cplt. ¶ 32.
Simermeyer's Alleged Malpractice and the Failed Sullivan
County Real Estate Deals
The specific parcels of real estate that were discussed in
various meetings between Simermeyer, Wallace, Petri, Young,
Carruthers and others included the Apollo Mall Plaza, located in
the Town of Thompson, New York, and the 3D Industrial Park, also
situated in the Town of Thompson. Cplt. ¶ 34. The Unkechaug
Indian Nation ultimately decided to acquire the Apollo Mall Plaza and 3D Industrial Park after determining that
it held ancestral land claims to both properties. Cplt. ¶ 35.
Simermeyer led Carruthers to believe that the proposed real
estate acquisitions would proceed smoothly and that clear title
to the properties would be obtained. Cplt. ¶ 36. Carruthers had
previously been given assurances by Petri, Young, and Barbanti
that the two properties were owned and/or controlled by
Ancestral, and/or its principals. Cplt. ¶ 37. Petri told
Carruthers that he and his wife owned the 3D Industrial Park, as
well as a number of other properties. Id. Carruthers allegedly
relied on all of these representations. Id.
Carruthers allegedly assumed that Simermeyer, in his capacity
as attorney for Carruthers and Springhawk, would verify all
necessary legal aspects of the transaction, as well as the bona
fides of Petri, Young and Barbanti. Cplt. ¶ 38. Carruthers
alleges that Simermeyer repeatedly failed to do so. Id.
In negotiating the land deals on behalf of Ancestral, Petri,
Young and Barbanti represented to all parties to the deal that
the Apollo Mall Plaza was encumbered by approximately $500,000 in
tax and other government liens, as well as a mortgage in favor of
the Bank of Kuwait in the amount of approximately $3,500,000.
Cplt. ¶ 39. Simermeyer, though acting as attorney for Springhawk
and Carruthers, took no steps to verify the existence or amounts
of these or other encumbrances on the Apollo Mall property. Cplt.
¶ 40. Petri, Young and Barbanti further falsely represented that
the Bank of Kuwait mortgage would be settled for approximately
$1,500,000. Cplt. ¶ 41. Simermeyer likewise took no steps to
verify this claim. Cplt. ¶ 42.
In reliance upon various assurances made by Simermeyer,
Wallace, Petri, Young and Barbanti, one or more written memoranda
of agreement was signed by the Unkechaug Indian Nation (as purchaser), Springhawk (as co-developer of the two
properties) and Ancestral Reclamation (as seller). Cplt. ¶ 43.
Pursuant to these agreements, Ancestral was to transfer both the
Apollo Mall Plaza and the 3D Industrial Park to the Unkechaug
Indian Nation. Cplt. ¶ 44.
The $550,000 Cash Advance
To get the deal done, however, Ancestral, through Petri, Young
and Barbanti, insisted on a $550,000 purchase deposit. Cplt. ¶
45. Although not legally required to do so under the agreements
with the Unkechaug Indian Nation, Carruthers and Springhawk,
relying on the assurances and perceived good faith of Simermeyer,
Wallace, Petri, Young and Barbanti, agreed to advance the initial
deposit of $550,000 to acquire the two parcels on the Unkechaug
Indian Nation's behalf. Cplt. ¶ 46.
This payment of $550,000 was on top of more than $1,000,000
previously advanced by Springhawk and Carruthers for various
other project development costs. Cplt. ¶ 47. Because of the
considerable advances already made, Carruthers was reluctant to
advance the $550,000 purchase deposit. Cplt. ¶ 48. However, under
considerable pressure from his attorney and business partner,
Simermeyer, as well as Wallace, Carruthers ultimately agreed to
do so. Cplt. ¶ 49.
In making the decision to advance funds, Carruthers and
Springhawk allegedly relied upon the legal advice of Simermeyer,
who had an ongoing attorney/client relationship with Springhawk
and Carruthers. Cplt. ¶ 50. At Simermeyer's direction, Carruthers
forwarded the $550,000 to Simermeyer, as attorney for Carruthers
and Springhawk. Cplt. ¶ 51. These funds were advanced by
Carruthers in a trust capacity. Id.
In turn, Simermeyer delivered all of the funds advanced by
Carruthers directly to Young, without any instructions as to the
manner in which they were to be released or used in connection with the real estate deal. Cplt. ¶ 52. Young, himself
a licensed New York attorney, represented that he would hold the
$550,000 in escrow pending a formal court settlement of the Bank
of Kuwait mortgage. Cplt. ¶ 53.
Simermeyer released to Young the $550,000 he held in trust for
Carruthers and Springhawk. Cplt. ¶ 58. Young received the
$550,000 advanced from Simermeyer during the first week of May
2002. Cplt. ¶ 162.
Carruthers alleges that various representations made by Petri,
Young and Barbanti regarding the ownership of and liens against
the Apollo Mall Plaza and 3D Industrial Park were almost all
untrue. Cplt. ¶ 54.
Carruthers alleges that "the most basic due diligence" by
Simermeyer would have uncovered the following three facts (Cplt.
1. The ownership of the Apollo Mall Plaza property
was not held by Ancestral, as Petri, Young,
Barbanti had maintained, but rather by the Sullivan
County Industrial Development Agency ("IDA") (id.);
2. The ownership of the Apollo Mall Plaza ground
lease was not held by Ancestral, as Petri, Young,
Barbanti had maintained, but rather by a company
known as A.P. Equity, which had recently been
dismissed from a Chapter 11 bankruptcy proceeding
3. The mortgage against both the property and the
ground lease was not owned by the Bank of Kuwait,
but rather by a company known as ABC Pacific Realty,
LLC, which had taken an assignment of the mortgage in
May 2001 (id.).
Simermeyer allegedly failed to do the necessary due diligence
with respect to discovering these facts as the attorney for Springhawk and Carruthers. Cplt.
¶ 56. Other than assisting in the drafting of the initial
"purchase contract" for the Sullivan County properties,
Simermeyer took none of the "customary and reasonable legal
steps" to competently represent Carruthers and Springhawk in
closing the real estate transaction. Cplt. ¶ 57.
Title Transfer of the Apollo Mall Plaza
Despite the fact that it did not at the time own the property,
A.P. Equity through its president, Barbanti, whose signature
was notarized by Young executed and delivered a deed for the
Apollo Mall Plaza to the Unkechaug Indian Nation on April 26,
2002. Cplt. ¶ 60.
On or about May 3, 2002, A.P. Equity used all or substantially
all of the funds advanced by Carruthers and Springhawk to
purchase the Apollo Mall Plaza property from the Sullivan County
IDA. Cplt. ¶ 61.
Approximately $300,000 of the $550,000 advanced by Carruthers
and Springhawk was received by the Sullivan County IDA from A.P.
Equity and/or Ancestral and was applied to outstanding real
estate taxes or other similar obligations (collectively, the "tax
liens") then outstanding against the Apollo Mall property. Id.
at ¶ 171. The tax liens constituted a first lien against the
Apollo Mall property entitled to priority ahead of the mortgage
held by ABC Pacific. Id. at ¶ 172. Carruthers and Springhawk
believed that the payment would be applied to the tax liens, but
that Springhawk would obtain the benefit of such payment by
obtaining a release of the tax lien when the property was
transferred to the Unkechaug Indian Nation. Id. at ¶ 174.
Ultimately, title to the Apollo Mall Plaza was transferred to
the Unkechaug Indian Nation, but none of the promised steps to
settle the mortgage owned by ABC Realty was ever taken. Cplt. ¶
Foreclosure on the Apollo Mall Plaza The mortgage claim of ABC Pacific remained a lien against the
Apollo Mall Plaza notwithstanding the transfer of title to the
Unkechaug Indian Nation. Cplt. ¶ 63. And, unbeknownst to
Carruthers, Springhawk or the Nation, by that time, the mortgage
was in the late stages of foreclosure. Id.
Because Petri, Young and Barbanti failed to resolve the
mortgage claim on the Apollo Mall Plaza as they had promised to
do the foreclosure action was ultimately concluded. Cplt. ¶ 64.
The property was purchased by the mortgage holder ABC Pacific
at the foreclosure auction and the Unkechaug Indian Nation was
left with nothing. Id.
ABC Pacific now holds unencumbered title to the Apollo Mall
property. Cplt. ¶ 176.
3D Industrial Park
A portion of the funds advanced by Carruthers and Springhawk
was used to purchase the 3D Industrial Park, however, the 3D
Industrial Park was never transferred to the Unkechaug Indian
Nation. Cpl. ¶ 65. Instead, the 3D Industrial Park is now owned
by 3D Associates and/or Barbanti or companies owned or controlled
by him. Id.
Simermeyer's Alleged Conflict of Interest
"At all times relevant to this action, Carruthers was under the
reasonable belief that Simermeyer was serving as his personal
attorney, as well as attorney for Springhawk." Cplt. ¶ 66.
Accordingly, Carruthers expected Simermeyer to use reasonable
care and diligence to ensure that funds advanced by Carruthers
and Springhawk would be safeguarded. Id.
Additionally, at all relevant times, Carruthers reasonably
believed that any dealings between Simermeyer, on the one hand,
and Petri, Young, Barbanti, Ancestral, etc., on the other, were
conducted by Simermeyer with the best interests of Carruthers,
Springhawk, and Summerhawk kept paramount. Cplt. ¶ 67. However, at the same time Simermeyer was representing
Carruthers, Springhawk, and Summerhawk, Simermeyer was allegedly
also representing the differing interests of the Unkechaug Indian
Nation. Cplt. ¶ 68. Simermeyer did not disclose to Carruthers any
conflicts of interest created by Simermeyer's simultaneous
representation of Carruthers, Springhawk, and Summerhawk, as well
as by Simermeyer's ownership interest in Springhawk and his
representation of the Unkechaug Indian Nation. Cplt. ¶¶ 69, 70.
Nor did Simermeyer obtain any consent to this simultaneous
representation of Carruthers and the Plaintiff LLCs on the one
hand, and the Unkechaug on the other. Cplt. ¶ 70.
Carruthers subsequently learned that, beginning at some point
in March or April of 2002, Simermeyer had secretly been
conspiring with at least Wallace, Petri, and Young to oust
Carruthers as a member of Springhawk and Summerhawk and to divide
Carruthers' ownership interest in the two LLC's among themselves.
Cplt. ¶ 72
Carruthers also has come to learn that the request made by
Simermeyer, among others, for Carruthers and Springhawk to
advance the $550,000 real estate purchase deposit was made after
the time Simermeyer had decided to collaborate with Wallace,
Petri, and Young to oust Carruthers from Springhawk and
Summerhawk. Cplt. ¶ 73.
In an effort to circumvent the contractual rights of Carruthers
in Springhawk and Summerhawk, Simermeyer established a new
corporation known as Eagle's Hill, Inc. Cplt. ¶ 74. Plaintiffs'
believe that Wallace is an undisclosed partner/investor in
Eagle's Hill. Id. And Plaintiffs allege that Simermeyer formed
this new company with the intention of entering into new
contracts with the Unkechaug Indian Nation. Cplt. ¶ 75.
The initial Summons and Complaint was filed in this action on
August 27, 2003 in the Supreme Court of the State of New York in Sullivan County. There
being complete diversity, the action was removed by defendants on
October 2, 2003, pursuant to 28 U.S.C. § 1332(a). By Decision and
Order dated March 31, 2005, I dismissed most of the claims
asserted in plaintiffs' initial Complaint. See Carruthers v.
Flaum, 365 F. Supp. 2d 448 (S.D.N.Y. 2005).
On May 6, 2005, plaintiffs filed a motion to amend the
Complaint to remove those dismissed claims, to add new parties to
this action, and to assert additional claims in this action. I
granted plaintiffs' request on May 10, 2005, and on May 11, 2005,
plaintiffs filed their Amended Complaint.
A court may grant a Rule 12(b)(6) motion to dismiss for failure
to state a claim only "when it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which
would entitle him to relief." Phillip v. University of
Rochester, 316 F.3d 291, 293 (2d Cir. 2003) (quoting Conley v.
Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80
(1957)); Kaltman-Glasel v. Dooley, 156 F. Supp. 2d 225, 226
When deciding a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6), a court must construe the complaint in the light most
favorable to the plaintiff and accept the factual allegations in
the complaint as true. See Desiano v. Warner-Lambert Co.,
326 F.3d 339, 347 (2d Cir. 2003). "Given the Federal Rules'
simplified standard for pleading, `[a] court may dismiss a
complaint only if it is clear that no relief could be granted
under any set of facts that could be proved consistent with the
allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514,
122 S. Ct. 992, 152 L. Ed. 2d 1 (2002) (quoting Hishon v. King &
Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d 59
(1984)). See also Gmurzynska v. Hutton, 355 F.3d 206, 210
(2d Cir. 2004) ("A complaint `should not be dismissed for failure
to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts in support
of his claim which would entitle him to relief.'") (quoting
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99,
2 L. Ed. 2d 80 (1957)). "Thus, the issue is not whether a plaintiff will
ultimately prevail but whether the claimant is entitled to offer
evidence to support the claims." Desiano, 326 F.3d at 347
(quotation marks and citation omitted).
When deciding a motion to dismiss pursuant to Rule 12(b)(6),
the Court may consider documents attached to the complaint as
exhibits or incorporated in it by reference. Zito v. Leasecomm
Corp., 02 Civ. 8074, 2004 U.S. Dist. LEXIS 19778, *16-17
(S.D.N.Y. Sept. 30, 2004) (citing Brass v. Am. Film Techs.,
Inc., 987 F.2d 142, 150 (2d Cir. 1993). While the court may not
consider matters outside the pleadings, it may consider documents
that are "integral" to the plaintiff's claims, even if not
explicitly incorporated by reference (see Chambers v. Time
Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)), and matters of
which judicial notice may be taken. See Leonard F. v. Israel
Discount Bank of New York, 199 F.3d 99, 107 (2d Cir. 1999). A
district court may "take judicial notice of documents filed in
other courts . . . not for the truth of the matters asserted in
the other litigation, but rather to establish the fact of such
litigation and related filings." Kramer v. Time Warner, Inc.,
937 F.2d 767, 774 (2d Cir. 1991). Additionally, a court "may take
judicial notice of admissions in pleadings and other documents in
the public record filed by a party in other judicial proceedings
that contradict the party's factual assertions in a subsequent
action." Harris v. New York State Dept. of Health,
202 F. Supp. 2d 143, 173 n. 13 (S.D.N.Y. 2002).
I. ABC Pacific's Motion to Dismiss Is Granted
The Eleventh Count in the Amended Complaint alleges that ABC
Pacific was unjustly enriched when it purchased the Apollo Mall Plaza at the
foreclosure auction because its title was not encumbered due to
the payment using Springhawk's money of tax liens that were
previously attached to the property. Plaintiffs claim that ABC
Pacific was enriched because it would have been required to pay
the liens at the conclusion of the foreclosure process, before it
could complete its purchase of the property. Cplt. ¶¶ 173, 176.
Plaintiffs argue that the value of ABC Pacific's equitable
interest in the property has been substantially increased as a
result of Springhawk's elimination of the tax lien. Cplt. ¶ 176.
Plaintiffs claim that ABC Pacific's receipt of this benefit, at
Springhawk's expense, renders retention of the benefit unjust.
Cplt. ¶ 177. Thus, plaintiffs argue that, under equitable
principles, ABC Pacific should be held accountable to Springhawk
for the benefit it received, even in the absence of wrongdoing by
ABC Pacific. Plaintiffs claim that either Springhawk is entitled
to the imposition of a resulting trust (in first lien position)
against the Apollo Mall property to the extent of $300,000 or the
value of any actual tax lien payments, or in the alternative,
Carruthers and Springhawk are entitled to a money judgment
against ABC Pacific in an amount not less than $300,000, plus
Plaintiffs' claim is meritless.
The elements of unjust enrichment are that the defendant
benefitted, at plaintiffs' expense, and that equity and good
conscience require restitution. Kaye v. Grossman, 202 F.3d 611,
616 (2d Cir. 2000). "To prevail on a claim of unjust enrichment,
[a] plaintiff must show that (1) defendant was enriched (2) at
plaintiff's expense, and (3) `that it is against equity and good
conscience to permit . . . defendant to retain what is sought to
be recovered.'" Clark v. Darby, 300 A.D.2d 732, 732,
751 N.Y.S.2d 622 (2d Dep't 2002) (citations omitted).
Unjust enrichment sounds in quasi-contract. See Lightfoot v.
Union Carbide Corp., 110 F.3d 898, 905 (2d Cir. 1997) ("[U]nder the quasi-contractual
doctrine of unjust enrichment, courts may infer the existence of
an implied contract to prevent one person from unjustly enriching
himself at the other party's expense.") "This is significant,
particularly with regard to the third element of the claim, as a
plaintiff, `in order to recover under a theory of quasi-contract,
. . . must . . . prove that performance was rendered for the
defendant, resulting in its unjust enrichment.'" Piccoli A/S v.
Calvin Klein Jeanswear Co., 19 F. Supp. 2d 157, 166 (S.D.N.Y.
1998) (quoting Metropolitan Electric Manufacturing Co. v.
Herbert Construction Co., Inc., 183 A.D.2d 758, 759,
583 N.Y.S.2d 497, 498 (2d Dep't 1992) (emphasis added). Here that
critical element is lacking.
In Kagan v. K-Tel Entertainment, Inc., 172 A.D2d 375,
568 N.Y.S.2d 756 (1st Dep't 1991), the First Department held:
As reflected in the common law of the various states,
to recover under a theory of quasi contract, a
plaintiff must demonstrate that services were
performed for the defendant resulting in its unjust
enrichment. It is not enough that the defendant
received a benefit from the activities of the
plaintiff; if services were performed at the behest
of someone other than the defendant, the plaintiff
must look to that person for recovery.
Id. at 376.
In this case, the performance at issue is Springhawk's advance
of $550,000 as a purchase deposit on the Apollo Mall Plaza, some
$300,000 of which was used to pay off tax liens against the
property. These payments were not rendered for the benefit of ABC
Pacific. On the contrary, Carruthers and Springhawk advanced
these funds for their own benefit and perhaps the benefit of
their business partners and the Unkechuag Indian Nation. Indeed,
the Complaint alleges as much. See Cplt. ¶ 174. ("Carruthers
and Springhawk believed that the payment would be applied to the
tax liens, but that Springhawk would obtain the benefit of such
payment by obtaining a release of the tax lien when the property was transferred to the Unkechaug
ABC Pacific's motion to dismiss Count XI is granted, and it is
dismissed as a defendant in this action.
II. The Simermeyer Defendants' Motion To Dismiss Is Granted in
Part and Denied in Part
A. Count III is Dismissed; Count IV is Dismissed in Part
Count III of the Amended Complaint alleges that, as a party to
the operating agreements (which formed both Spinghawk and
Summerhawk), Simermeyer took on specific contractual obligations,
and was also subject to implied duties of honesty, care, loyalty,
good faith, and fair dealing. Cplt. ¶ 111. Carruthers alleges
that, as a member of Springhawk and Summerhawk, Simermeyer
breached these obligations and duties specifically his duties
of care, loyalty, and the exercise of reasonable business
discretion. Cplt. ¶¶ 112-14. Similarly, Count IV, in part,
alleges that Simermeyer breached fiduciary duties he owed to his
partners as a member of Springhawk and Summerhawk. Cplt. ¶¶ 118,
Based on my previous decision in this matter (see Carruthers
I, supra, 365 F. Supp. 2d 448), it is law of the case that the
operating agreement pursuant to which Springhawk was formed
(see Cplt. ¶¶ 23, 25) cannot be enforced because its stated
corporate purpose was illegal. Carruthers I,
365 F. Supp. 2d at 470.*fn7 In Carruthers I, I held:
Because the Unkechaug are not federally-recognized,
they are neither sovereign nor can they claim preemption from
state laws forbidding gambling that is extended to
federally-recognized tribes by the Indian Gaming
Regulatory Act ("IGRA"), 25 U.S.C. §§ 2701, et seq.
And lacking both sovereignty and the benefit of IGRA
preemption, they are subject to New York's strict
prohibition against gaming, just like anyone else."
Id. at 465-66. I further held that, "Since Springhawk's stated
corporate purpose was illegal, any agreement formed to operate
Springhawk is unenforceable." Id. at 470.
Because no such allegation of illicit purpose was asserted as
to Summerhawk in the initial complaint, I did not make any
findings in Carruthers I regarding the validity of the
Summerhawk agreements. See id. at 470. However, the Complaint
filed in the State Court Action states that both "Springhawk and
Summerhawk are . . . companies established for the purpose of
developing and operating high stakes Bingo, other gaming
activities . . . in Sullivan County and Long Island, New York, on
ancestral land of the Unkechaug Indian Nation." State Action
Cplt. ¶ 13.*fn8 It also states that, "Upon the formation of
Springhawk and Summerhawk, the members entered into the operating
agreement and became contractually bound to one another. . . ."
Id. at ¶ 16.
For the reasons I held that the Springhawk operating agreements
were invalid in Carruthers I, I find that the Summerhawk
operating agreements which has the same illegal purpose to be
invalid as well. See Carruthers I, 365 F. Supp. 2d at 465-70
Because the Springhawk and Summerhawk operating agreements are
invalid, any claim to enforce the obligations created thereunder
must be dismissed. For that reason, I dismiss Count III in its
entirety, and Count IV to the extent it alleges a breach based on
Simermeyer's membership in the two LLC's, for failure to state a claim upon
which relief can be granted.
B. Counts I, II, and the Surviving Portion of Count IV
The three Simermeyer defendants move to dismiss the remaining
claims against them on several grounds: (1) all claims are barred
by statute of limitations; (2) all claims are barred by the
Colorado River abstention doctrine, because of a prior pending
action in state court; (3) the claims against Wallace are barred
by res judicata; (4) all claims against Simermeyer & Wallace must
be dismissed because the firm was dissolved almost 15 years ago;
(5) all claims against Wallace must be dismissed because the only
allegation is vicarious liability based on membership in the
dissolved firm; (6) all claims must be dismissed against the firm
for failure to serve in timely and proper manner; and (7) the
claims against Simermeyer fail to properly plead a claim for
breach of fiduciary duty and/or duty of loyalty.
1. The Claims are Not Barred by the Statute of Limitations
The Simermeyer defendants argue that the claims asserted by
plaintiffs under Counts I-IV must be dismissed as barred by the
applicable three year statute of limitations because they were
not interposed until more than three years after the complained
of events occurred.
An action to recover for attorney malpractice (Count I) in New
York is governed by a three-year statute of limitations,
regardless of whether the underlying theory is based on contract
or tort. See New York Civil Practice Law and Rules ("CPLR") §
214(6); Hoffenberg v. Hoffman & Pollok, 288 F. Supp. 2d 527,
536 (S.D.N.Y. 2003) (citing De Carlo v. Ratner,
204 F. Supp. 2d 630, 634 (S.D.N.Y. 2002); Shumsky v. Eisenstein, 96 N.Y.2d 164,
166 (2001)). Although fashioned in the complaint as three
separate counts, all three remaining counts attorney
malpractice (Count I), impermissible conflicts of interest while
serving as attorney for plaintiffs (Count II), and breach of
fiduciary duty as attorney for plaintiffs (Count IV) sound in attorney malpractice, and are therefore all subject to the
same three year statute of limitations.*fn9 Such claims
accrue, and the limitations period starts running, when the
malpractice is committed, not when the client discovers it.
Aaron v. Roemer, Wallens & Mineaux, LLP, 272 A.D.2d 752, 754,
707 N.Y.S.2d 711 (3d Dep't 2000); Hoffenberg,
288 F. Supp. 2d at 536.
However, the Statute of Limitations can be tolled by the
continuous representation rule, which tolls the running of the
Statute of Limitations on a malpractice claim until the ongoing
representation is completed. See Glamm v. Allen,
57 N.Y.2d 87, 93-94 (1982). To invoke this rule, "there must be `clear
indicia of an ongoing continuous, developing, and dependent
relationship between the client and the attorney.'" See
Aaron, supra, 272 A.D.2d at 754 (quoting Luk Lamellen U.
Kupplungbau GmbH v. Lerner, 166 A.D.2d 505, 506,
560 N.Y.S.2d 787 (2d Dep't 1990)).
The rationale underlying the continuous representation rule is
that "the client has a right to repose confidence in the
professional's ability and good faith, and realistically cannot
be expected to question and assess the techniques employed or the
manner in which the services are rendered . . . [n]either is a
person expected to jeopardize his pending case or his
relationship with the attorney handling that case during the
period that the attorney continues to represent the person."
Aaron, 272 A.D.2d at 754 (citations omitted). The rule also
recognizes "that the professional `not only is in a position to
identify and correct his or her malpractice, but is best placed
to do so.'" Id. (citations omitted). Therefore, the initial inquiries are: (1) when the malpractice
was allegedly committed and (2) when Simermeyer's representation
of Carruthers, Springhawk, and Summerhawk ceased.
The Amended Complaint alleges that Carruthers retained
Simermeyer to represent him personally in late 2001, and also to
form and represent Springhawk and Summerhawk, in January 2002.
Cplt. ¶¶ 19, 22, 23, 25. Paragraph twenty-seven of the Amended
Complaint states that Simermeyer served as attorney for
Carruthers, Springhawk and Summerhawk "in connection with the
matters alleged herein." Cplt. ¶ 27. And at paragraph sixty-six,
the Amended Complaint states that, "at all times relevant to
this action," Carruthers was under the belief that Simermeyer
was serving as his personal attorney as well as attorney for
Springhawk. Cplt. ¶ 66 (emphasis added).
The last specific reference to an action by Simermeyer in the
Amended Complaint is, "Young received the $550,000 purchase
deposit from defendant Simermeyer on behalf of Spinghawk during
the first week of May 2002." Cplt. ¶ 162. Then, according to the
Amended Complaint, "[o]n or about May 3, 2002," A.P. Equity used
some of those funds to purchase the Apollo Mall Plaza from the
Sullivan County IDA. Cplt. ¶ 61. The Amended Complaint alleges
that, following the acquisition by A.P. Equity, title to the
Apollo Mall was then transferred to the Unkechaug Indian Nation.
Cplt. ¶ 63. It further alleges that, at the time title was
transferred to the Unkechaugs, the mortgage encumbering the
property was in the late stages of foreclosure. Id. The rest of
the matters alleged in the Complaint necessarily occurred
thereafter: e.g., the foreclosure action was ultimately concluded
and the property was purchased by the mortgage holder ABC
Realty. Cplt. ¶ 64.
Per the allegations in the Amended Complaint, Simermeyer still
represented Carruthers and Springhawk when the foreclosure action
concluded and when the property was sold at auction. Cplt. ¶ 66 ("At all times relevant to this action,
Carruthers was under the reasonable belief that Simermeyer was
serving as his personal attorney, as well as attorney for
Springhawk."). Thus, from the plain language of the Complaint, it
appears that Simermeyer's representation of plaintiffs continued
for some time after the first week of May 2002.
I reject defendants' argument that the language of the Amended
Complaint specifically paragraph ninety-one unambiguously
states that any alleged malpractice by Carruthers against
Simermeyer necessarily took place before April 30, 2002.
Paragraph ninety-one reads, "From the formation of Springhawk and
Summerhawk through the date of the purported closing of the
Sullivan County land deal in April 2002, Simermeyer served as
attorney to a variety of parties." Cplt. ¶ 91. Contrary to
defendants' assertions, this paragraph does not state that
Simermeyer's representation of Carruthers ceased in April of
2002. Rather it states that he represented a "variety of
parties" through that date. See Cplt. ¶ 91 (emphasis added).
This paragraph must be considered in context, and as part of
plaintiffs' allegation that, while the Sullivan County land deal
was being worked on, Simermeyer was secretly also representing
other interests and parties. See Cplt. ¶ 68-70. Furthermore,
this interpretation would directly contradict plaintiffs'
allegation that, during the first week of May 2002, Simermeyer
transferred the $550,000 purchase deposit to Young on behalf of
Springhawk. See Cplt. ¶¶ 58, 162. Contrary to defendants'
assertions, this paragraph does not negate the Amended
Complaint's specific allegations and inferences that Simermeyer's
representation of plaintiffs continued through the foreclosure
proceedings and the auction of the Apollo Mall Plaza.
"Where a plaintiff seeks to add a new defendant in an existing
action, the date of the filing of the motion to amend constitutes
the date the action was commenced for statute of limitations
purposes." In re Integrated Resources Real Estate Ltd.
Partnerships Securities Litigation, 815 F. Supp. 620, 645 (S.D.N.Y. 1993) (citing
Schiavone v. Fortune, 477 U.S. 21, 25-32, 106 S. Ct. 2379,
91 L. Ed. 2d 18 (1986); Northwestern Nat. Ins. Inc. v. Alberts,
769 F. Supp. 498, 510 (S.D.N.Y. 1991)). The motion to amend the
complaint in this action was filed on May 6, 2005. Therefore,
plaintiffs' claims against the Simermeyer defendants would be
barred by the statute of limitations unless plaintiffs alleged
that Simermeyer represented them beyond May 6, 2002.
Accepting as true the factual allegations in the Amended
Complaint, and drawing all inferences in favor of the pleader, as
I am required to do on a motion to dismiss (see Giant Group,
Ltd. v. Sands, 142 F. Supp. 2d 503, 505 (S.D.N.Y. 2001)), I find
that the complaint sufficiently alleges that the attorney-client
relationship between Simermeyer and plaintiffs extended for
sometime beyond May 6, 2002.
I deny this part of the motion without prejudice, because the
evidence may show plaintiffs' allegation of continuing
representation to be wrong.
2. No "Exceptional" Circumstances Exist to Warrant Colorado
Defendants next argue that the claims against the Simermeyer
defendants must be dismissed under the Colorado River
abstention doctrine, because there is another pending action in
the Supreme Court of the State of New York, Suffolk County ("the
State Court Action") "which was commenced by the very same
plaintiffs as commenced in this action (prior to filing this
action), and which complaint contains identical causes of action
against Simermeyer and Wallace as are now alleged in the instant
Amended Complaint." See Memorandum of Law of Defendants
Simermeyer, Wallace and Simermeyer & Wallace in Support of Their
Motion to Dismiss the Amended Complaint ("Def. Mem.") at 11.
Abstention under Colorado River rests on "considerations of
wise judicial administration, giving regard to conservation of judicial
resources and comprehensive disposition of litigation." Colorado
River Water Conservation Dist. v. United States, 424 U.S. 800,
817, 96 S. Ct. 1236, 47 L. Ed. 2d 483. Colorado River
abstention, however, is an "extraordinary and narrow exception to
a federal court's duty to exercise its jurisdiction," and applies
only "in exceptional circumstances where the order to the parties
to repair to state court would clearly serve a countervailing
interest." FDIC v. Four Star Holding Co., 178 F.3d 97, 101 (2d
Mouchantaf v. International Modeling and Talent Ass'n,
368 F. Supp. 2d 303, 306 (S.D.N.Y. 2005).*fn10
To determine whether abstention is appropriate, a federal court
"must weigh six factors, with the balance heavily weighted in
favor of the exercise of jurisdiction." Burnett v. Physician's
Online, Inc., 99 F.3d 72, 76 (2d Cir. 1996) (quoting Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16,
103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)) (internal quotation marks
omitted). The six factors are: "(1) assumption of jurisdiction
over a res; (2) inconvenience of the forum; (3) avoidance of
piecemeal litigation; (4) order in which the actions were filed;
(5) the law that provides the rule of decision; and (6)
protection of the federal plaintiff's rights." FDIC,
178 F.3d at 101; Burnett, 99 F.3d at 76. The decision to abstain does
not depend "on a mechanical checklist, but on a careful balancing
of the important factors as they apply in a given case." FDIC,
178 F.3d at 101. Before considering the factors set forth in Colorado River, a
threshold determination is "whether the state and federal
proceedings are indeed parallel, i.e., whether substantially the
same parties are litigating the same issues in a state forum."
Mouchantaf, 368 F. Supp. 2d at 306 (quoting United Nat' Ins.
Co. v. Waterfront N.Y. Realty, Corp., 948 F. Supp. 263, 271
(S.D.N.Y. 1996)) (internal quotation marks omitted). The
plaintiffs, Simermeyer, and Wallace are all parties to the State
action and many of the causes of action are similar. While this
action involves an additional party the law firm, Simermeyer &
Wallace that fact does not automatically render the proceedings
non-parallel. See Great South Bay Medical Care, P.C. v.
Allstate Ins. Co., 204 F. Supp. 2d 492, 496-7 (E.D.N.Y. 2002)
("Lawsuits are considered `parallel' if `substantially the same
parties are contemporaneously litigating substantially the same
issues in different forums.'") (quoting Dittmer v. County of
Suffolk, 146 F.3d 113, 118 (2d Cir. 1998). Furthermore, the
state action includes as defendants both of the alleged members
of that partnership Simermeyer and Wallace. Therefore,
consideration of Colorado River abstention in this case is
In examining the Colorado River factors, the task is not to
find some substantial reason for the exercise of federal
jurisdiction by the district court, but, rather to ascertain
whether there exist "exceptional" circumstances with the
"clearest of justifications" that can suffice under Colorado
River. See Moses H. Cone, supra, 460 U.S. at 25-26. Here,
I do not find such an exceptional circumstance.
1. Is there a res over which the court has established
This action is an in personam action that does not involve a
res. The absence of a res is a factor that weighs slightly in
favor of retaining jurisdiction. See Mouchantaf,
368 F. Supp. 2d at 306 (citing Woodford v. Community Action Agency of Greene
County, Inc., 239 F.3d 517, 523 (2d Cir. 2001)).
2. Is there any inconvenience of the federal forum?
There is no appreciable difference in the level of
inconvenience between the two fora. The Simermeyer defendants
allegedly have a place of business in New York, New York. See
Cplt. ¶ 16-18. From Manhattan, the federal courthouse in White
Plains is no more inconvenient than the state court in Suffolk
County in fact, it is more convenient. Thus, this factor does
not favor abstention. See, e.g., De Cisneros v. Younger,
871 F.2d 305, 307 (2d Cir. 1989); Bethlehem Contracting Co. v.
Leher/McGovern, Inc., 800 F.2d 325, 327 (2d Cir. 1986).
3. Will maintaining separate actions result in piecemeal
Because the policies underlying Colorado River abstention are
"considerations of `[w]ise judicial administration,' giving
regard to conservation of judicial resources and comprehensive
disposition of litigation" (Colorado River, supra,
424 U.S. at 817), the Supreme Court cases state that this is the
predominant factor. See, e.g., Moses H. Cone,
460 U.S. at 16, 21.
Defendants raise the concern in their brief that "the identity
of issues in the state and federal actions," and "the existence
of concurrent proceedings" could "create? the serious potential
for spawning an unseemly and destructive race to see which forum
can resolve which issue first." See Def. Mem. at 13 (citing
Mouchantaf, supra, 368 F. Supp. 2d at 307). However, that is
a dubious proposition.
For one thing, the claims asserted against Wallace in the two
actions are not identical. Count V in the State action alleges
that Wallace was responsible for the legal advice he personally
gave to Simermeyer (as a member of Springhawk). State Action
Cplt. ¶¶ 126-140. Unlike the federal action, the complaint in the
State action did not allege vicarious liability for Simermeyer's malpractice. In contrast, Counts I and II in the
federal action allege vicarious liability against Wallace for
legal malpractice by his law partner, Simermeyer. See Cplt. ¶¶
102, 109. The federal action does not allege any liability for
legal advice given by Wallace himself.
As against Simermeyer, the state court's jurisdiction over him
personally is in dispute and the matter is on for a traverse
hearing. It has yet to be resolved. If the state court lacks
jurisdiction over Simermeyer, there is no chance of inconsistent
litigation. And as to the law firm, Simermeyer & Wallace is not
even a party to the state court action.
4. Which case has priority?
The State action was filed on August 12, 2003. Plaintiffs moved
to amend the complaint in the federal case on May 6, 2005 (the
original Complaint was filed on August 27, 2003). Based on
chronology, the State action was filed almost twenty-one months
before the plaintiffs moved to add the Simermeyer defendants to
the federal action. However, "priority should not be measured
exclusively by which complaint was filed first, but rather in
terms of how much progress has been made in the two actions."
Cone Mem'l Hosp., 460 U.S. at 21; see also De Cisneros,
871 F.2d at 307.
Here, the state court action has been dismissed for lack of
subject matter jurisdiction against Wallace, and no progress at
all has been made on the substance of the claims against
Simermeyer and the firm. As noted above, Simermeyer claims that
Suffolk County lacks personal jurisdiction over him, and that
controverted matter has not been resolved, and the firm is not a
party to the state court proceeding.
5. Does state or federal law control?
The causes of action attorney malpractice, breach of
fiduciary duty are governed by state law. However, the presence of state law issues will weigh
in favor of abstention only in rare circumstances. Moses H.
Cone, supra, 460 U.S. at 26. Because the state law issues are
neither novel nor particularly complex, the absence of federal
claims weighs only slightly in favor of abstention. See
Mouchantaf, 368 F. Supp. 2d at 307-08 (citing De Cisneros v.
Younger, 871 F.2d 305, 309 (2d Cir. 1989)); see also
General Reins. Corp. v. Ciba-Geigy Corp., 853 F.2d 78, 82 (2d
6. Is the state forum adequate to protect the federal
There is no dispute that the state courts can ably protect the
plaintiffs' procedural and substantive rights. Indeed, it was the
plaintiffs who filed the state action in that forum almost
twenty-one months before they amended the federal complaint to
include the Simermeyer defendants.
From my analysis of these factors, I find the following:
Factors 1, 2, 3 and 4 all weigh against abstention. Only Factors
5 and 6 weigh in favor of abstention, and neither presents "the
clearest of justifications [that alone] will warrant" abstention.
Colorado River, supra, 424 U.S. at 819. Having examined the
Colorado River factors, I find that there are no "exceptional"
circumstances that warrant abstention under.
3. The Claims Against Wallace Are Not Barred By Res
Wallace moves to have the claims asserted against him dismissed
on res judicata grounds. A judgment entered by the State action
by the Supreme Court of New York, Suffolk County on December 22,
2004, granted defendants' motion to dismiss the claims against
the Unkechaug Indian Nation and Wallace, its Chief, because the
court found that it lacked subject matter jurisdiction pursuant
to the doctrine of sovereign immunity. See Def. Mem., Exh. Q at
1-2 ("[T]he complaint is dismissed, with prejudice, in its entirety
as against defendants Unkechaug Indian Nation and Harry B.
Wallace. . . .").
The doctrine of res judicata precludes the relitigation of
issues which were or could have been raised in a prior action in
which there was a judgment on the merits. Federated Department
Stores, Inc. v. Moitie, 452 U.S.394, 394, 398, 101 S. Ct. 2424,
69 L. Ed 2d 103 (1981).
However, the doctrine of res judicata or issue preclusion in
no way implicates jurisdiction. Thompson v. County of Franklin,
15 F.3d 245, 253 (2d Cir. 1994). Unlike dismissals for a
plaintiff's failure to state a claim, dismissals for lack of
subject matter jurisdiction are not on the merits and are not
accorded res judicata effect. Id. (citing Exchange Nat'l
Bank v. Touche Ross & Co., 544 F.2d 1126, 1130-31 (2d Cir.
The claims asserted against Wallace in the State action were
not dismissed on the merits, and therefore, the judgment
dismissing those claims does not preclude plaintiffs from raising
claims against Wallace in this action.
4. All Claims Against Simermeyer & Wallace Are Dismissed And
All Claims Against Wallace Are Dismissed
The Simermeyer defendants next argue that Wallace and the law
firm of Simermeyer & Wallace ("S&W" or "the firm") must be
dismissed as defendants in this action because S&W ceased to
exist long before any alleged legal representation of plaintiffs.
According to the Amended Complaint, Simermeyer first approached
Carruthers and began representing him in "late 2001." Cplt. ¶¶
19, 22. The Simermeyer defendants claim that S&W was dissolved in
1991. Significantly, they argue that, inasmuch as the firm did
not exist by 2001, it could not have been involved with
plaintiffs nor with Simermeyer's representation of plaintiffs.
Likewise, since the only allegations against Wallace are for
vicarious liability based upon his alleged association with Simermeyer, as a partner of S&W, if the firm had
dissolved before 2001, the claim against Wallace has no basis
Whether or not the firm had dissolved before late 2001 when
Carruthers allegedly first met Simermeyer is a question that
can only decided on a motion for summary judgment. Although
defendants moved to dismiss the claims against the law firm and
Wallace under Rule 12(b)(6), they attached to the motion
affidavits of Simermeyer and Wallace as well as numerous papers,
exhibits, letters, and other documents. Plaintiff has responded
to the motion with their own exhibits and documents, etc. I am,
therefore, exercising my prerogative to convert defendants'
motion to dismiss into a motion for summary judgment, and I will
consider all of the material submitted by both sides in support
of and in opposition to the motion. See, e.g., Garcha v.
City of Beacon, 351 F. Supp. 2d 213, 215-16 (S.D.N.Y. 2005).
A district court has discretion to convert a motion to dismiss
into a motion for summary judgment. See, e.g., In re G & A
Books, Inc., 770 F.2d 288, 294-95 (2d Cir. 1985); see also
Green v. Doukas, 205 F.3d 1322, 2000 WL 236471, at *2 (2d Cir.
2000). Generally, a court should give the parties explicit notice
of its intention to convert such a motion; however, courts have
recognized that, in certain circumstances, such explicit notice
is not necessary. Green, 2000 WL 236471, at *2 (citing In re G
& A Books, Inc., supra, 770 F.2d at 295).
The "essential inquiry," in exercising this discretion, is
whether the parties "should reasonably have recognized the
possibility that the motion might be converted to one for summary
judgment or [whether they were] taken by surprise and deprived of
a reasonable opportunity to meet facts outside the pleading." In
re G & A Books, Inc., 770 F.2d at 294-95; see also
Metrokane, Inc. v. Wine Enthusiast, 185 F. Supp. 2d 321, 325
(S.D.N.Y. 2002). Where both parties submit extrinsic evidence in support of their
positions, a district court may fairly convert a motion to
dismiss into one for summary judgment under Fed.R.Civ.P. 56.
Green, 2000 WL 236741, at *2 (citing In re G & A Books, Inc.,
supra, 770 F.2d at 295).
Since both parties submitted extrinsic evidence in support of
their motions in this case, as noted above, I convert the instant
motion into a motion for summary judgment under Rule 56. Rule
56(c) provides that summary judgment shall be granted where there
is no "genuine issue as to any material fact and ? the moving
party is entitled to judgment as a matter of law," that is, where
the party opposing summary judgment "fails to make a showing
sufficient to establish the existence of an element essential to
that party's case." Celotex Corp. v. Catrett, 477 U.S. 317,
322-23, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Thus, a
party opposing summary judgment must point to "specific facts
showing that there is a genuine issue for trial," by proffering
"significant probative evidence tending to support [its]
complaint." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248-49, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986) (citations
omitted). The non-movant "may not rest upon the mere allegations
or denials of [its] pleadings," Fed.R.Civ.P. 56(e), or upon "mere
speculation or conjecture as to the true nature of the facts."
Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995).
Having considered all the evidence submitted, I grant the
motion and dismiss both Wallace and the law firm, S&W, from the
The Simermeyer defendants produced a preponderance of evidence
that shows that S&W dissolved in 1991, some ten years before the
Amended Complaint alleges that Simermeyer began representing
Carruthers. Both the federal and New York state tax returns filed
by S&W for the 1991 fiscal year indicate that they represent the
firm's "Final Return." See Def. Mem., Exh. L and T. Additionally, Simermeyer's 1993 individual tax return
indicates that he is a sole practitioner (see Def. Mem., Exh.
F), and Wallace's 1992 individual tax return states that he too
is a sole practitioner. See Def. Mem., Exh. V. In signing these
tax returns, both Simermeyer and Wallace declared, under the
penalties of perjury, that the "returns and the accompanying
schedules and statements . . . are true, correct, and complete."
See Def. Mem. Exh. L, T, F, and V. The Simermeyer defendants
also produced a letter from Wallace to the Internal Revenue
Service, dated December 27, 1993, enclosing copies of certain
personal tax returns that state that S&W was dissolved in 1991.
See Def. Mem., Exh U. In their papers, plaintiffs do not
challenge the authenticity of any of these documents or the
accuracy of the information contained therein. See Plaintiffs'
Memorandum of Law in Opposition to the Simermeyer Defendants'
Motion to Dismiss at 17-20.
Plaintiffs however, argue that additional discovery is
warranted based on their "investigation" the fruits of which do
nothing to cast doubt on the evidence proffered by the Simermeyer
defendants. Specifically, plaintiffs produced as evidence: (1) a
FindLaw.com listing that lists Simermeyer & Wallace with a New
York, New York address (Affidavit of John G. Horn, Esq. ("Horn
Aff.), Exh. A); (2) an August 27, 1998 decision of the New York
State Tax Appeals Tribunal Listing which refers to challenged tax
assessment against "the partnerships of Simermeyer and Wallace
Esqs." (Horn Aff., Exh. B at 2); and (3) a copy of the listing
from the New York Department of State Tax Warrant Notice System,
indicating the existence of a tax warrant docketed on January 20,
1999 against the partnership of S&W (Horn Aff., Exh. C).
Plaintiffs also point to the fact that The New York Secretary of
State website does not have a Certificate of Dissolution or any
other documentation on file that would confirm that S&W
dissolved. See Horn Aff. ¶ 5. There is no evidence explaining how the firm came to be listed
on the FindLaw.com website, when that information was posted, how
it was obtained, and whether it was periodically updated. For all
I know, the person who started the website got hold of some old
legal directory and simply input its contents without any
verification. The website also lists Wallace as a solo
practitioner at 207 Poopatuck Lane in Mastic, New York. See
Reply Declaration of Robert J. Semaya, dated July 14, 2005
("Semaya Dec."), Exh. B. I find this evidence both unreliable and
irrelevant because it provides no information about how current
the listings are nor does it identify the source of the
Second, plaintiffs produce a 1998 decision of the Tax Appeals
Tribunal in which Simermeyer and his wife challenged certain tax
assessments for the years ending December 31, 1989, 1990, 1991,
and 1992. See Horn. Aff., Ex. B a 1. The decision states that
the proceeding was discontinued with respect to the years 1989,
1990, and 1992. See id. at 3. Thus, the only issue is this
proceeding was an assessment for the year 1991 the last year,
according to defendants' exhibits, that S&W was in existence.
See id. The decision provides no evidence that the firm
existed beyond the 1991 fiscal year.
Third, the tax warrant (Horn Aff., Exh C) provides no evidence
regarding when the firm existed or dissolved (aside from the fact
that it existed at sometime before January 20, 1999). The copy of
the unofficial computer record produced by plaintiffs notes that
this document was docketed on January 20, 1999. See id. It
further states that because the warrant was filed prior to the
implementation of the electronic filing system, that the date of
filing must be derived from the paper filings. See id.
Plaintiffs do not attach a copy of the paper filing which would
indicate when this document was actually filed. Absent that date
which could be any date prior to January 20, 1999 this exhibit does nothing to contradict
defendants' evidence of dissolution. In any event, there is no
requirement that a partnership file a certificate of
discontinuance. Section 130(10) of the New York General Business
Law expressly states that such filing are permissive. See N.Y.
Gen. Bus. Law § 130(10) (McKinney's 2004). Therefore, the failure
by S&W to have filed such a certificate is proof of nothing.
Based on the evidence before me, I find that defendants have
produced a preponderance of evidence none of which has been
contradicted by plaintiffs which prove that the firm dissolved
in 1991. That was some ten years before Simermeyer allegedly
approached Carruthers and began representing him. Ergo,
Simermeyer & Wallace cannot be held vicariously liable for any
matters related to Simermeyer's alleged representation of
plaintiffs, and it is dismissed as a defendant in this case.
Furthermore, because all of the claims against Wallace are also
derivative claims that is, no wrongdoing is alleged against
Wallace he could only be held liable vicariously as a partner
of Simermeyer & Wallace. Therefore, the claims against Wallace
are dismissed for the same reason.
5. The Remaining Claim in Count IV is Properly Pled
The Simermeyer defendants also argue that Count IV of the
Amended Complaint fails to properly state a claim based on
Simermeyer's breach of fiduciary duty. I have already dismissed
Count IV to the extent that it relates to the fiduciary duty that
arose because of Simermeyer's membership in Springhawk and
Summerhawk. See supra, II.A.
The surviving claim in Count IV alleges that Simermeyer
breached his fiduciary duty in his capacity as attorney for
Carruthers, Springhawk, and Summerhawk. Cplt. ¶ 117. Plaintiffs claim that this breach caused plaintiffs to incur not less than
$1,500,000 in damages, including, but not limited to legal fees.
Cplt. ¶ 119.
Under New York law, to state a cognizable claim for fiduciary
duty, a plaintiff must allege three elements: (1) the existence
of a fiduciary relationship; (2) knowing breach of a duty that
relationship imposes; and (3) damages suffered. Scholastic Inc.
v. Harris, 80 F. Supp. 2d 139, 152 (S.D.N.Y. 1999) (citing
Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 281
(2d Cir. 1992).
The Amended Complaint alleges all three of these elements. As
to the first element, plaintiff satisfies the existence of a
fiduciary relationship by alleging that Simermeyer served as
attorney for Carruthers, Springhawk, and Summerhawk. Cplt. ¶¶ 27,
50. Plaintiff alleges that Simermeyer breached his fiduciary
duties as plaintiffs' attorney in multiple instances. See,
e.g., ¶¶ 66-71. Plaintiffs also alleged significant financial
damages as a result of the breach. Cplt. ¶ 119. Thus, I find that
plaintiffs have stated a cognizable claim against Simermeyer for
breach of fiduciary duty.
III. The Simermeyer Defendants' Motion For Rule 11 Sanctions
At the conclusion of the Simermeyer defendants memorandum of
law, they also ask this Court to impose Rule 11 Sanctions against
the plaintiffs. See Def. Mem. at 23-25. This request is denied.
Fed.R.Civ.P. 11(c)(1)(A) states that "[a] motion for
sanctions under this rule shall be made separately from other
motions. The rule goes on to require that a motion for sanctions:
shall not be filed with or presented to the court
unless, within 21 days after service of the motion
(or such other period as the court may prescribe),
the challenged paper, claim, defense, contingent, allegation, or denial is not withdrawn or
"Court's have refused to award sanctions based on the failure
to comply with these procedures." See, e.g., Lipiro v. Remee
Prods., 75 F. Supp. 2d 174, 178 (S.D.N.Y. 1999) (citing cases).
And the Second Circuit has held that a District Court's award of
sanctions in the face of such failure constitutes an abuse of
discretion. Perpetual Secs., Inc. v. Tang, 290 F.3d 132 (2d
Cir. 2002). Because of the procedural defects in the Simermeyer
defendants' motion for Rule 11 sanctions, I dismiss this motion
without further consideration.
ABC Pacific's motion to dismiss Count XI of the Amended
Complaint is granted.
The Simermeyer defendants' motion to dismiss Counts I-IV of the
Amended Complaint is granted in part and denied in part. The
motion to dismiss is granted as to defendants Simermeyer &
Wallace, and Wallace, individually. The motion to dismiss is
granted as to Count III in its entirety, and to Count IV insofar
as it alleges breach of fiduciary duties related to Simermeyer's
membership in Springhawk and Summerhawk.
Counts I & 2 survive as against Simermeyer and Count IV
survives to the extent it alleges breach of fiduciary duties
related to Simermeyer's legal representation of plaintiffs.
The Simermeyer defendants' motion for Rule 11 sanctions is
This constitutes the decision and order of the Court.
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