May 16, 2013
Candela Entertainment, Inc. and Cynthia Newport, Plaintiffs,
Davis & Gilbert, LLP, Defendant.
Vincent J. Syracuse and Matthew R. Maron of Tannenbaum Helpern Syracuse & Hirschtritt LLP (for the defendant)
Daniel S. Brecher of Scarinci & Hollenbeck, LLC (for the plaintiffs).
Hon. Eileen Bransten, J.S.C.
This matter comes before the Court on Defendant Davis & Gilbert, LLP's motion to dismiss Plaintiffs Candela Entertainment, Inc.'s ("Candela") and Cynthia Newport's (together with Candela, "Plaintiffs") Complaint pursuant to CPLR 3211(a)(1), (a)(7) and CPLR 3016(a). Plaintiffs oppose. For the reasons set forth below, Defendant's motion is granted, and the Complaint is dismissed in its entirety.
According to the Complaint, Plaintiff Candela Entertainment, Inc. retained Defendant Davis & Gilbert, LLP ("D & G") in October 2007 to assist in financing and transferring ownership of a movie entitled "Dance Cuba." (Cmpl. ¶¶ 1, 3.) Since 1999; Plaintiff Cynthia Newport has invested nearly $4, 500, 000 in "Dance Cuba" through her non-profit organization, Illume Productions, Inc. ("Illume"). (Cmpl. ¶¶ 1, 7.) In 2005, Newport formed Candela together with Curb Gardner, with both serving as co-presidents. (Affidavit of Mary M. Luria ("Luria Aff."), Ex. 1 at 1-2.) Candela retained D & G in order to, specifically, transfer ownership of "Dance Cuba" from Illume to Candela, as well as to assist in "completion of the film with new investors." (Affidavit of Cynthia Newport ("Newport Aff.") ¶ 2.) Mary M. Luria is the partner at D & G who was responsible for the representation. (Cmpl. ¶ 17.) The retainer agreement had as its signature line, "Agreed to and Accepted Candela Entertainment, Inc., " and all invoices from D & G were sent to Candela, "attn: [Co-President] Curb Gardner II." (Affirmation of Vincent J. Syracuse ("Syracuse Affirm."), Ex. 4 at 3; Newport Aff. Ex. F at 1.)
There are two transactions relevant to this motion, both occurring in October 2007. In the first transaction, Illume assigned all rights and agreements related to "Dance Cuba" to Candela in exchange for Candela assuming a portion of Illume's outstanding debts. (Newport Aff. Ex. I at 3, 5, 9-11.) The second transaction was a secured loan by Factory Pond, LLC ("Factory Pond") to Candela, with the use of "Dance Cuba" as loan collateral and with Newport and Gardner providing personal guarantees of the debt. (Newport Aff. Ex. E.)
On behalf of D & G, Luria revised and drafted several documents for both transactions, including a bill of sale, a trademark assignment, a Candela/Factory Pond deal memorandum and an "Assignment and Assumption Agreement" between Illume and Candela.  (Newport Aff. ¶ 9.) However, D & G was not the sole attorney consulted during these transactions. Candela also retained an attorney named Kojo Bentil, who drafted a promissory note and a security agreement for the Factory Pond transaction. (Newport Aff. ¶ 9, Ex. D.) In addition, at a July 2008 meeting regarding "Illume tax issues, " attorneys from Patterson Belknap Webb & Tyler LLP were consulted. (Newport Aff. Ex. L.)
Relevant to the instant litigation, significant portions of the "Dance Cuba" film incorporate copyrighted materials for which Illume had signed licensing agreements. (Newport Aff. ¶ 2.) These licensing agreements required that Illume obtain consent from the licensors before any transfer of intellectual property rights could be made. (Newport Aff. ¶ 3.) While there is a dispute as to whose duty it was to obtain the consents, the Complaint alleges that no consents to assignment were ever obtained from the licensors. (Cmpl. ¶ 8.) The Complaint further alleges that the Defendant's failure to obtain or to advise on obtaining the necessary consents to any transfer of copyrighted material in "Dance Cuba" created a cloud on the film's title that prevents Plaintiffs from seeking new investors and completing the film. (Cmpl. ¶ 20; Newport Aff. ¶ 3.)
Plaintiffs commenced this action on December 1, 2011, asserting that Defendant's "failures to properly understand and advise Plaintiffs as to the structure, the transactions and the effect of the documents utilized in the transactions, " constitute (i) negligence, (ii) breach of contract, (iii) breach of fiduciary duties, and (iv) negligent misrepresentation. (Cmpl. ¶¶ 8, 23, 27, 36, 40.) Defendant now seeks dismissal of the Complaint in its entirety. Plaintiffs oppose.
I. Defendant's Motion to Dismiss
Defendant moves to dismiss the Complaint pursuant to CPLR 3211(a)(1) and (a)(7), on the grounds that Newport has failed to plead facts that establish an attorney-client relationship and that Candela has failed to plead facts that establish Defendant's negligence was "the" proximate cause of Plaintiffs' damages.
A. Motion to Dismiss Standard
On a motion to dismiss a complaint for failure to state a cause of action, all factual allegations must be accepted as truthful, the complaint must be construed in a light most favorable to the plaintiffs and the plaintiffs must be given the benefit of all reasonable inferences. Allianz Underwriters Ins. Co. v. Landmark Ins. Co., 13 A.D.3d 172, 174 (1st Dep't 2004). "We... determine only whether the facts as alleged fit within any cognizable legal theory." Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994). This Court must deny a motion to dismiss, "if from the pleadings' four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law." 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 152 (2002) (internal quotation marks and citations omitted). However, on a CPLR 3211(a)(1) motion, "[i]t is well settled that bare legal conclusions and factual claims, which are either inherently incredible or flatly contradicted by documentary evidence... are not presumed to be true on a motion to dismiss for legal insufficiency." O'Donnell, Fox & Gartner v. R-2000 Corp., 198 A.D.2d 154, 154 (1st Dep't 1993). The court is not required to accept factual allegations that are contradicted by documentary evidence or legal conclusions that are unsupported in the face of undisputed facts. See Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495, 495 (1st Dep't 2006) (citing Robinson v. Robinson, 303 A.D.2d 234, 235 (1st Dep't 2003). Ultimately, under CPLR 3211(a)(1), "dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Leon, 84 N.Y.2d at 88.
As a threshold matter, to maintain a cause of action for legal malpractice, the plaintiff must plead the existence of an attorney-client relationship. See, e.g., AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 5 N.Y.3d 582, 595 (2005) (affirming dismissal of legal malpractice claim for failure to plead facts showing actual privity, near privity, or an exception to privity). In order to defeat a motion to dismiss, a party must plead facts showing the privity of an attorney-client relationship, or a relationship so close as to approach privity. Cal. Pub. Employees Ret. Sys. v. Shearman & Sterling, 95 N.Y.2d 427, 434 (2000) (affirming dismissal of legal malpractice claim for failure to plead actual privity or near privity). To show "near privity, " a plaintiff must allege that the attorney was aware that its services were used for a specific purpose, that the plaintiff relied upon those services, and that the attorney demonstrated an understanding of the plaintiff's reliance. Cal. Pub. Employees, 95 N.Y.2d at 434.
Defendant moves to dismiss based on CPLR 3211(a)(1) and (7), arguing that documentary evidence refutes the Complaint's claims of privity between Newport and D & G, and thus Plaintiffs fail to state a cause of action for legal malpractice.  Plaintiff Newport argues that she was in privity or "near privity" with D & G because she (i) personally guaranteed the Factory Pond loan to Candela, (ii) signed a promissory note with Candela, and (iii) communicated directly with Defendant D & G. (Newport Aff. ¶ 19; Plaintiffs' Memorandum in Opposition to Motion to Dismiss ("Pls.' Br.") 15.) Defendant argues that there can be no privity because the retainer agreement is addressed solely to Candela and closing documents were signed by Newport on behalf of Candela. (Defendant's Memorandum in Support of Motion to Dismiss ("Def's Br.") 16.)
Documentary evidence submitted by both parties contradicts Plaintiffs' allegations that D & G expressly represented Newport. As stated above, D & G's retainer signature line stated, "Agreed to and Accepted Candela Entertainment, Inc." (Syracuse Affirm., Ex. 4 at 3.) Further, all invoices from D & G were sent to Candela, "attn: [Co-President] Curb Gardner II." (Newport Aff. Ex. F at 1.) Finally, the promissory note cited by Plaintiffs was drafted by another attorney, Kojo Bentil. (Newport Aff. ¶ 9, Ex. D.) Plaintiffs generally refer to "the language of Defendant's own retainer and own documents, " to argue that privity existed. (Pls.' Br. at 14.) However, Plaintiffs point to no facts alleged in the Complaint or elsewhere that rebut the documentary evidence enumerated above or that show express privity existed between Newport and D & G.
Plaintiffs further argue that the required element of privity is still present because the relationship between Newport and D & G was "so close as to touch the bounds of privity, " because there was an "explicit undertaking" by D & G "to complete a specific task" for Newport as an individual. However, Plaintiffs' argument for "near privity" falls short because the Complaint does not allege that the specific purpose of the work done by D & G related to Newport personally. See Fortress Credit Corp. v. Dechert LLP, 89 A.D.3d 615, 616-17 (1st Dep't 2011) (stating there is "near privity" where the particular purpose of an attorney's opinion letter was to aid plaintiff in deciding merits of a loan transaction); Topor v. Enbar, 15 Misc.3d 1139(A) (Sup. Ct. NY County May 24, 2007) (Fried, J.) (finding no privity where plaintiff failed to allege "any facts... establishing that there was an explicit undertaking to perform a specific legal task on behalf of [plaintiff] personally."). The Complaint fails to allege that the purpose of D & G's efforts regarding the first transaction was anything other than transferring ownership of "Dance Cuba" from Illume to Candela. See Cmpl. ¶¶ 3, 6, 7, 8, 16, 22, 31, 32, 34; Newport Aff. ¶¶ 2, 3, 4, 6, 15. Similarly, the Complaint does not allege that the primary purpose of the second transaction went beyond creating the Factory Pond loan. See Cmpl. ¶¶ 18, 22, 32, 34; Newport Aff. ¶¶ 6, 9, 11, 12, Exs. D, E at 1-2, 4-5, F at 1-2. The Complaint does not allege any "specific undertaking to complete a specific task, " that D & G embarked upon with the primary purpose of benefitting Newport individually. Fortress, 89 A.D.3d at 616-17; Wei Cheng Chang v. Pi, 288 A.D.2d 378, 380-81 (2d Dep't 2001) (finding no privity between attorney and plaintiff where "the record is devoid of any written or oral agreement that the defendant attorneys would perform a specific task for the plaintiffs").
Plaintiffs cite several inapposite cases in support of their "near privity" argument. See Pls.' Br. 15; Prudential Ins. Co. of Am. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377 (1992); Allianz Underwriters Ins. Co. v. Landmark Ins. Co., 13 A.D.3d 172 (1st Dep't 2004); Caprer v. Nussbaum, 36 A.D.3d 176 (2d Dep't 2006). In Prudential, the court stated that "it should be stressed that the purpose of [an accountant's] opinion letter is to offer assurances" to third-party creditors. Prudential, 80 N.Y.2d at 386-87. Unlike Prudential, the Complaint here does not allege that the primary purpose of the transactions requiring legal advice was to benefit Newport personally.
In both Allianz and Caprer, the defendants communicated and advised the non-client plaintiffs even though there was no direct relationship between them. Allianz, 13 A.D.3d at 175; Caprer, 36 A.D.3d at 197. Here, D & G was simply communicating with its client, Candela, through one of its officers. Further, Allianz was decided on equitable subrogation grounds and the "near privity" relationship was mentioned in dictum. Allianz, 13 A.D.3d at 175 (stating "the issue of equitable subrogation is dispositive"); see Federal Ins. Co. v. North Am. Speciality Ins. Co., 47 A.D.3d 52 (1st Dep't 2007) (noting that the "near privity" analysis in Allianz is dictum).
In Caprer, the Second Department found privity between accountants and condominium owners hired by management because the particular purpose of the accountants' employment was to benefit condominium members. Caprer, 36 A.D.3d at 197. The court found that the condominium members were the intended beneficiaries of the accountants' audits because the report would determine the common expenses each member would owe, and the condominium's by-laws required that an audited financial report be submitted to unit owners each year. Caprer, 36 A.D.3d at 197. As stated above, the Complaint simply does not allege that the primary purpose of D & G's actions related to Newport in an individual capacity, nor does it allege that Newport was the intended beneficiary of either the retainer agreement or the transactions at issue.
In contrast, this case is factually analogous to Griffin v. Anslow, 17 A.D.3d 889 (3d Dep't 2005). In Griffin, an attorney signed a retainer agreement with a corporation and advised on corporate transactions. The corporate counsel was subsequently sued for malpractice by one of the corporation's owners, with the owner alleging privity because the plaintiff had provided a personal guarantee of corporate debt and communicated with the attorney directly. Griffin, 17 A.D.3d at 892. The Third Department affirmed dismissal of plaintiffs' claims based upon documentary evidence, holding that "[p]laintiffs' conclusory assertion that they considered defendant to be their personal attorney does not... confer upon them the status of defendant's clients, " despite the personal guarantee of corporate debt and direct communication between the attorney and the plaintiffs. Griffin, 17 A.D.3d at 893. The court in Griffin also noted that the retainer agreement was addressed to the corporation and that the plaintiffs were briefly represented by other attorneys. Griffin, 17 A.D.3d at 892.
Here, despite Newport's personal guarantee of corporate debt and direct communication with D & G, the retainer agreement states, "Agreed to and Accepted Candela Entertainment, Inc., " and at least two other attorneys were involved. (Syracuse Affirm. Ex. 4 at 3; Newport Aff. ¶ 9, Exs. D, L.) In addition, all invoices from D & G were sent to Candela, "attn: [Co-President] Curb Gardner II." (Newport Aff. Ex. F at 1.) Therefore, as in Griffin, since the Complaint does not plead facts showing that D & G performed any task specifically to benefit Newport as an individual apart from the corporation, the Complaint fails to establish that an attorney-client relationship existed between Newport and D & G.
In addition to privity, a plaintiff in a legal malpractice action must plead "that the defendant failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession." AmBase Corp. v. Davis Polk & Wardwell, 8 N.Y.3d 428, 434 (2007). The Complaint alleges that the Defendant was negligent in understanding and advising as to the structural, documentary, and intellectual property ramifications of the various transactions and the need to obtain licensor consents to any transfer of copyrighted material. (Cmpl. ¶ 8.) The Complaint alleges that Defendant's negligence caused a cloud on the title to "Dance Cuba." (Cmpl. ¶¶ 8, 19.)
A critical element of a malpractice action is proximate causation. Zarin v. Reid & Priest, 184 A.D.2d 385, 386 (1st Dep't 1992). Plaintiffs must plead that the Defendant's negligence was the proximate cause of damages suffered. Zarin, 184 A.D.2d at 386. Plaintiffs must plead that because of the Defendant's negligence, a positive outcome was transformed into a negative outcome. Zarin, 184 A.D.2d at 386. Put another way, the Complaint must plead facts such that "but for" the attorney's derelict conduct, "what would have been a favorable outcome was an unfavorable outcome." Zarin, 184 A.D.2d at 386; see Barnett v. Schwartz, 47 A.D.3d 198, 203 (2d Dep't 2007) (stating that alleged malpractice need be neither "a" proximate cause nor "the" proximate cause, but only that " 'but for' the negligence of the defendant-attorney, the plaintiff-client... would not have incurred damages").
Here, according every possible inference favorable to Plaintiffs, the Complaint fails to allege facts tending to show that, but for Defendant's alleged negligence in failing to properly counsel Plaintiffs on the ramifications of the two transactions or to advise Plaintiffs on the need to obtain consent from various licensors, Plaintiffs would have secured the requisite licensor consents that are mandatory for any transfer of significant portions of "Dance Cuba, " and that Plaintiffs would still own the "Dance Cuba" film.
The damage that Candela suffered as alleged in the Complaint is a cloud on title to "Dance Cuba, " such that Candela can no longer seek investors for the film and may not even own the film. (Cmpl. ¶¶ 8, 19.) Therefore, it is incumbent upon Candela to plead that but for the Defendant's failure to properly advise on the various transactions and the need to obtain consent agreements, Candela would have full and clear title to the "Dance Cuba" film.
Plaintiffs' claims fail because they do not plead that the consents would have been given, even if D & G had instructed Plaintiffs to obtain the consents or structured and documented the transactions differently. Nor do Plaintiffs claim that they would have foregone the transactions had they been properly advised. In fact, there are several reasons that obtaining the consents would have been unlikely. First, as stated in Exhibit A of Newport's Affidavit, the original license agreements were the result of "highly personal negotiations between the granting entity/individual and Cynthia Newport, " and were not boilerplate documents. (Newport Aff. Ex. A at 1.) Further complicating the consent issue, (i) payment for the licenses may have been "based on Illume's status as a not-for-profit;" (ii) the original "Dance Cuba" film was made "under a series of Treasury Department licenses granted to Illume, a not-for-profit organization;" and (iii) the Cuban embargo "prevents most U.S. companies from realizing a 'profit' 'on (sic) any 'product' made under such a license." (Newport Aff. Ex. A at 1.) Finally, the Plaintiffs state that the "Dance Cuba" film "involved huge careers, personal and business relations and reputations, and impacted the international and political relations that relate to the project." (Pls.' Br. at 13.) Plaintiffs failed to plead that all of these factors would have aligned such that, but for D & G's failure to properly advise Candela, all of the necessary consents would have been given. See Eighth Ave. Garage Corp. v. Kaye Scholer LLP, 93 A.D.3d 611, 612 (1st Dep't 2012) (holding that "plaintiffs failed to demonstrate that they would have sold the subject garage but for defendants' alleged malpractice").
"The failure to establish proximate cause requires dismissal of the legal malpractice action, regardless of whether it is demonstrated that the attorney was negligent." Schwartz v. Olshan Grundman Frome & Rosenzweig, 302 A.D.2d 193, 198 (1st Dep't 2003). Therefore, the Defendant's motion to dismiss the first cause of action, for negligence, is granted.
D. Duplicative Claims
Defendant also moves for dismissal of the breach of contract, breach of fiduciary duties, and negligent misrepresentation claims as duplicative of the legal malpractice claim. Where a plaintiff's breach of contract, breach fiduciary duty and negligent misrepresentation claims arise from the same facts and allege similar damages as a legal malpractice action, they must be dismissed. E.g., Waggoner v. Caruso, 14 N.Y.3d 874, 874 (2010) (dismissing breach of fiduciary duty claim as duplicative of malpractice claim); Sage Realty Corp. v. Pros/causer Rose LLP, 251 A.D.2d 35, 38 (1st Dep't 1998) (dismissing breach of contract and fraudulent misrepresentation claims as duplicative of malpractice claim). Here, the facts on which the breach of contract, breach fiduciary duty and negligent misrepresentation claims are premised are identical to the set of facts Plaintiffs plead in support of the malpractice claim. All claims allege that Defendant "badly mishandled intellectual property matters, " all claims plead that there is now a cloud on title to the "Dance Cuba" production, and all claims seek $8, 000, 000 in damages. (Cmpl. ¶¶ 23, 26, 32, 40, A, B, C, D.) Accordingly, Defendant's motion to dismiss the causes of action for breach of contract, breach of fiduciary duty and negligent misrepresentation is granted.
Defendant's other arguments are rendered moot. The Court has considered Plaintiffs' other arguments and finds them unpersuasive.
For the reasons set forth above, it is hereby
ORDERED that defendant D & G's motion to dismiss the Complaint is granted without prejudice for Plaintiffs to file an amended complaint; and it is further
ORDERED that Plaintiffs are granted leave to serve an amended complaint within 20 days after service on Plaintiffs' attorney of a copy of this order with notice of entry; and it is further
ORDERED that, in the event that Plaintiffs fail to serve and file an amended complaint in conformity herewith within such time, leave to replead shall be deemed denied, and the Clerk, upon service of a copy of this order with notice of entry and an affirmation or affidavit by Defendant's counsel attesting to such non-compliance, is directed to enter judgment dismissing the action, with prejudice, and with costs and disbursements to defendant as taxed by the Clerk.
This constitutes the decision and order of the Court.