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Financial Freedom Senior Funding Corp v. Bellettieri

March 30, 2012

FINANCIAL FREEDOM SENIOR FUNDING CORP., PLAINTIFF,
v.
BELLETTIERI, FONTE & LAUDONIO, P.C., ANTHONY BELLETTIERI, ROBERT FONTE, TARA LAUDONIO, DEFENDANTS.



The opinion of the court was delivered by: Kenneth M. Karas, District Judge:

OPINION AND ORDER

Plaintiff Financial Freedom Senior Funding Corporation ("Plaintiff") has filed a Motion for Summary Judgment on Counts IV and V of its Complaint only against individual defendant Robert Fonte ("Defendant"). Count IV alleges that Defendant committed attorney malpractice and breached his fiduciary duty to Plaintiff, while Count V alleges that Defendant was negligent in his work on behalf of Plaintiff. Plaintiff asks the Court to apply the doctrine of collateral estoppel against Defendant with respect to prior adverse findings from an attorney disciplinary proceeding and their subsequent confirmation by the Appellate Division of the New York state courts ("Appellate Division"). For the reasons stated herein, the Motion for Summary Judgment is denied.

I. Background

For the purposes of this Motion, the following facts are salient. Plaintiff is a reverse-mortgage lender. (Pl.'s Local Rule 56.1 Statement of Facts ("Pl.'s 56.1") ¶ 1.) Defendant Fonte and Anthony Bellettieri ("Bellettieri") were both shareholders and partners in the law firm Bellettieri, Fonte & Laudonio, P.C. ("BF&L"). (Def.'s Local Rule 56.1 Statement of Facts ("Def.'s 56.1") ¶ 4.)*fn1 The law firm's business included acting as an agent for several mortgage lenders. Plaintiff was among those lenders and Defendant was its attorney for closings on its mortgage loans. (Def.'s 56.1 ¶ 11.) Pursuant to this arrangement, Plaintiff would issue closing instructions and wire funds to a BF&L escrow account for the purpose of funding reverse-mortgage loans. (Id. ¶¶ 12, 13.) Defendant would then conduct the closings and issue disbursement checks. (Id. ¶ 14.) Plaintiff alleges that between October 1 and November 17, 2006, the issued disbursement checks were not honored due to insufficient funds in the BF&L escrow, and resulting in damages of $311,000.09. (Id. ¶¶ 16, 17.)

Plaintiff's loss allegedly resulted from a "fraudulent check kiting scheme" by Bellettieri which culminated in a "roughly $17 million dollar overdraft" on BF&L's account. (Def.'s Mem. of Law in Opp. to Pl.'s Mot. for Summ. J. ("Def.'s Mem."), Ex. A (Report of Steven C. Krane, Special Referee ("Ref. Rep.")) 2.) In sum, Bellettieri, a former JP Morgan Chase Bank Vice-President, exploited a routing number error in the checks issued by that financial institution to BF&L's disbursement account. (Ref. Rep. 2, 12.) Due to the routing number error, there was a "brief window of opportunity" during which "the same funds simultaneously appeared as available" in two different accounts. (Id. at 12.) Bellettieri then wrote checks from these accounts for "his personal use before the clearance period caught up with the deposit." (Id.) To avoid detection and further advance the fraud, "Bellettieri had to write a series of similar checks, in ever-increasing amounts, every day" during the scheme. (Id. at 12-13.) Bellettieri was eventually prosecuted for these acts, sentenced to a 10-year federal prison term, and disbarred. (Id. at 2.)

The Grievance Committee for the Ninth Judicial District ("Grievance Committee") also instituted disciplinary proceedings against Defendant, an attorney, on five charges:

Charge one alleges that the [Defendant] was guilty of a breach of fiduciary duty and a failure to safeguard and ensure the transactional integrity of funds entrusted to him, incident to his practice of law in his attorney special accounts, in violation of Code of Professional Responsibility DR 9-102 (a) ( 22 NYCRR 1200.46 [a]). . . . .

Charge two alleges that the [Defendant] failed to promptly pay or deliver funds, which were placed in his possession by clients for disbursement to third parties, to the clients or to third parties entitled to receive them, in violation of Code of Professional Responsibility DR 9-102 (c) (4) (22 NYCRR 1200.46 [c] [4]), based on the factual specifications of charge one. The [Defendant]'s failure to discover Bellettieri's escrow fund theft resulted in the dishonorment of numerous checks issued from the attorney special accounts of BF&L.

Charge three alleges that the [Defendant] failed to make reasonable efforts to adequately supervise Bellettieri's work and to ensure that all lawyers in BF&L were conforming to the disciplinary rules, in violation of Code of Professional Responsibility DR 1-104 (a)-(c) and (d) (2) (22 NYCRR 1200.5 [a]-[c], [d] [2]), by failing to adequately oversee the transactional activity of one or more of BF&L's special accounts, based on the factual specifications of charges one and two. . . . .

Charge four alleges that the [Defendant] engaged in conduct prejudicial to the administration of justice, in violation of Code of Professional Responsibility DR 1-102 (a) (5) (22 NYCRR 1200.3 [a] [5]), by failing to timely respond to the lawful demand for his written response to one or more complaints of professional misconduct, based on the factual specifications of charges one and two. . . . .

Charge five alleges that the [Defendant] engaged in other conduct that adversely reflects upon his fitness as a lawyer, in violation of Code of Professional Responsibility DR 1-102 (a) (7) (22 NYCRR 1200.3 [a] [7]), by failing to adequately oversee the transactional activity of one or more of BF&L's attorney special accounts and/or to cooperate with the Grievance Committee's investigation into those allegations, based on the factual specifications of all of the aforesaid charges.

In re Fonte, 905 N.Y.S.2d 173, 175-177 (App. Div. 2010).

A Special Referee ("Referee") held proceedings to address these charges. The Referee found that Defendant was "certainly [a] victim[] of Mr. Bellettieri's fraudulent scheme," but was also "uniquely positioned to prevent or put an end to that scheme and minimize the damage that was ultimately caused to those who had entrusted funds to [BL&F.]" (Ref. Rep. 13.) The Referee further found that Defendant had "never asked to audit or review any of the records associated with" BL&F's accounts, despite being a signatory on the accounts and a fiduciary "responsible for the safekeeping of funds held therein." (Id.) While observing that "[t]his failure might have been attributed to mistaken trust in [a] senior partner," the Referee also noted that Defendant "ignored warning signs that Mr. Bellettieri could not be trusted to handle escrow funds properly and should be monitored." (Id.) The most telling of these warning signs occurred when Defendant learned that six fraudulent checks had been cashed against a BL&F escrow account for a defalcation of $900,000 and Bellettieri, rather than providing necessary banks records to an accountant that Defendant had hired to examine the matter, advised Defendant that he would draw upon his personal line of credit to replenish the missing funds and later seek their recovery -- even though this would unethically commingle personal funds with funds held in trust for others. (Id. at 9.) Overall, the Referee concluded that Defendant had "blindly and unreasonably relied on the presumed honesty" of Bellettieri and recommended that all the charges be sustained. (Id. at 14.)

Upon a motion by the Grievance Committee, contested by Defendant, the Referee's report was subsequently confirmed by the New York Appellate Division. In re Fonte, 905 N.Y.S.2d at 177. In moving for confirmation, the Grievance Committee "expressed strong disagreement with the Special Referee's conclusion . . . that [Defendant] was a victim" of the check kiting scheme and argued that Defendant "displayed a long-term, near total ignorance of his fiduciary duties . . . [and] ignored multiple warning signs and blatantly apparent indicators of criminality." Id. at 176-77. Notably, although the Appellate Division confirmed the Referee's recommendation, it did not accept this view of the Grievance Committee, observing that Defendant "was, to some extent, victimized by Bellettieri," but was "also uniquely positioned to put an end to Bellettieri's scheme and thereby minimize damage to [BF&L] clients." Id. at 177. Both the ...


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