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Schutz v. Kagan Lubic Lepper Finkelstein & Gold, Llp

United States District Court, Second Circuit

July 2, 2013



PAUL A. ENGELMAYER, District Judge.

In this diversity action, plaintiffs Susan Schutz and Leonard Schutz (collectively, "plaintiffs" or "the Schutzes") bring suit against the law firm Kagan Lubic Lepper Finkelstein & Gold, LLP ("KLLFG"), and its lawyers Joseph G. Colbert, Esq., and Jesse P. Schwartz, Esq. (collectively, "defendants") for alleged breaches arising out of defendants' legal representation of them. In essence, the Schutzes allege that defendants, who also represented the board and management company of the condominium in which the Schutzes owned a unit, took various actions adverse to the Schutzes' interests and beneficial to those other clients. On this basis, the Schutzes raise claims of, inter alia, legal malpractice and breach of contract. They seek money damages and declaratory relief, including to prohibit defendants from further representing the board and its management company, Veritas Management Company ("Veritas").

Defendants move to dismiss the complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, defendants' motion is granted.

I. Facts[1]

In November 2004, the Schutzes, residents of South Carolina, purchased a newly built condominium unit in the Danielle Condominium building, which is located at 3800 Blackstone Avenue in the Bronx, New York. First Amended Complaint ("FAC") ¶¶ 2-3, 13. They allege that their unit, and in fact the entire building, experienced severe water infiltration due to the building's defective construction. Id. ¶ 15.

In or around September 2009, the Board of Managers of the Danielle Condominium (the "Board") and individual unit owners in the building retained defendants[2] to represent them in pursuing claims against the building's owner, sponsor, developer, construction company, and architect-Hudson View Construction, Inc. ("Hudson View"), 3274 Blackstone LLC ("3274"), Hal A. Dorfman ("Dorfman"), Meltzer/Mandl Architects, P.C. ("Meltzer/Mandl"), and H.S.C. Management Corp. ("H.S.C.") (collectively, the "building defendants"). Id. ¶¶ 6, 16. In a written engagement agreement into which these clients and defendants entered on August 31, 2009, the parties recited that, because a lawsuit previously commenced by the Board had sought recovery for damages only to the common elements of the building, to recover for damage to their individual units, individual unit owners would need to bring individual claims against the building defendants (which, defendants suggested, might then be consolidated into one court action). Mercurio Decl. Ex. B. The agreement recited that the Board had already retained defendants on the Board's behalf. Id. It stated that defendants were then unaware of any conflicts of interest between the unit owners and the Board. But, the agreement provided, "[s]hould any conflict or differing interest arise, the Firm shall be entitled... to withdraw as counsel for the Unit Owners, on the one hand, and/or the Condominium, on the other. In such case, the Firm anticipates that it would elect to withdraw as counsel to the Unit Owners, and would continue to represent and protect the interests of the Condominium as a whole." Id.; see also FAC ¶ 17. The engagement agreement provided that, under that circumstance, individual unit owners would then be forced to retain separate counsel at their own expense. Mercurio Decl. Ex. B. The Schutzes signed the engagement letter on those conditions, and thereby retained defendants to pursue their individual claims. See id.; see also FAC ¶¶ 6, 16-17.

In or around October 2009, defendants initiated two lawsuits in the Supreme Court of Bronx County against the building defendants. The first lawsuit, Board of Managers of the Danielle Condominium v. Hudson View Construction Co., Inc., et. al., Index No. 301882/08, brought on behalf of the Board, alleged damages arising from improper design, construction, and/or maintenance of the Danielle Building. Mercurio Decl. Ex. B. The second, Thelma Wolf, et al. v. Hudson View Construction Co., Inc., et. al., Index No. 308664/09, brought on behalf of all the unit owners-including the Schutzes-made identical allegations of damage to the individual unit owners' apartments.

By June 2010, the Schutzes had terminated defendants as their counsel and had retained a new attorney-Guy Keith Vann, Esq.[3] - to represent them in the litigation against the building defendants. See FAC ¶ 24; Mercurio Decl. Ex. C; Dkt. 21 (Letter to Judge Paul A. Engelmayer, April 18, 2013).

In November 2010, a settlement agreement was negotiated, on behalf of the Board and the individual unit owners, with the building defendants. FAC ¶ 25. The settlement agreement was approved by a vote of the unit owners, and executed on November 4, 2010. See Mercurio Decl. Ex. D. However, the Schutzes, and the owners of one other unit in the building, declined to sign on to the settlement agreement, FAC ¶ 26; the Schutzes viewed that settlement as "woefully inadequate to meet the total estimated cost of repairs and damages, " id. ¶ 25.

Significant here, as part of the settlement agreement, the Board agreed to indemnify the building defendants for all future liabilities, including the Schutzes' continuing litigation against the building defendants. Id. ¶¶ 27-28. The Schutzes allege that defendants recommended that the Board approve that indemnification provision, which effectively meant that any judgment obtained by the Schutzes against the building defendants would be paid for with funds contributed by all unit owners in the building.

II. Procedural History

A. The Schutzes' Lawsuits in State Court

The Schutzes are currently pursuing two lawsuits in the New York State Supreme Court of Bronx County. One is the ongoing litigation against the building defendants, now captioned, Susan Schutz & Leonard Schutz v. Hudson View Construction, Inc., et al., Index No. 308664/2009. The other is against the Board and its management company, captioned Susan Schutz & Leonard Schutz v. The Board of Managers of the Danielle Condominium & Veritas Management, Index No. 105499/2010. Def. Br. 5-6.

B. The Current Lawsuit

The Schutzes brought this lawsuit in New York State Supreme Court in 2012. On December 28, 2012, the defendants removed the lawsuit to this Court on the basis of diversity jurisdiction, see Dkt. 1, because the Schutzes are citizens of the State of South Carolina and defendants are a domestic limited liability partnership organized under the laws of the State of New York with its principal place of business in New York County, FAC ¶¶ 2, 4, and because the Schutzes have allegedly suffered more than $75, 000 worth of damages, id. ¶ 1.

On January 22, 2013, defendants moved to dismiss the Complaint. Dkt. 4. On January 23, 2013, the Court issued an order giving the Schutzes 21 days to amend their complaint in response to the motion to dismiss, but advising them that no further opportunities to amend would be granted. See Dkt. 7 (citing Fed.R.Civ.P. 15(a)(1)(B)). On February 12, 2013, the Schutzes filed the FAC. See Dkt. 11. The FAC is broadly similar to the initial Complaint, with the principal differences being that it drops a claim for civil conspiracy, modifies its claim based on New York Judiciary Law § 487, and eliminates its demand for damages of at least $5 million on each cause of action. Compare Dkt. 6 Ex. A, with FAC.

Even as amended, the FAC is a muddled document which broadly assails defendants but contains strikingly few specifics. The FAC contains causes of action for legal malpractice, breach of contract, breach of fiduciary duty, and violation of New York Judiciary Law § 487. Among various lapses, the Complaint alleges generally that defendants: (1) withheld information and advice from the unit owners, FAC ¶ 20; (2) failed to disclose conflicts of interest, id. ¶ 21;

(3) conspired to defeat the Schutzes' proof of claim filed with the building's insurance company, id. ¶ 23(a); (4) withheld information from the Schutzes as to board meetings and decisions relating to the pending litigation, id. ¶ 23(b)-(c); (5) advised the Board not to document its meeting minutes so as to deny the Schutzes information about those meetings, id. ¶ 23(d); (6) advised the Board to cease mold remediation efforts in the Schutzes' unit, id. ¶ 23(f); (7) charged excessive fees, id. ¶ 23(i); and (8) falsely ...

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