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Arkin Kaplan Rice LLP v. Kaplan

Sup Ct, New York County

August 1, 2013

ARKIN KAPLAN RICE LLP, STANLEY S. ARKIN and LISA C. SOLBAKKEN, Plaintiffs,
v.
HOWARD KAPLAN, MICHELLE RICE and KAPLAN RICE LLP, Defendants. Index No. 652316/2012

Unpublished Opinion

DECISION AND ORDER

O. PETER SHERWOOD, J.S.C.

1. APPOINTMENT OF AN INDEPENDENT ACCOUNTANT

Before the court is defendants' motion brought on by Order to Show Cause for the appointment of an independent accountant to: (1) administer the financial affairs of Arkin Kaplan Rice, LLP ("AKR"); (2) prepare the tax return information of each of AKR's former partners; and (3) conduct the final accounting of AKR. Defendants also ask that the professional fees for such an independent accountant be paid by AKR.

Defendants contend that such relief is necessary as the individual plaintiffs have violated this court's orders, misappropriated funds from AKR's bank account, placed their interests above AKR's, attempted to impose their personal liabilities on AKR, sought through "doctored" bank applications to obtain sole control over AKR's funds and are interested only in prolonging this litigation rather than resolving it. Defendants claim that through their actions, Arkin & Solbakken ("AS") have made clear that they have no intention of fulfilling their fiduciary duties to AKR and their former partners.

Defendants contend further that Arkin & Solbakken are aided in their efforts by Kris Collins ("Collins"), AKR's former office manager and Allan Levine ("Levine"), Arkin's long-time personal accountant who is purportedly acting as AKR's outside accountant. Defendants maintain that Levine has an inherent conflict of interest as the accountant for both Arkin and AKR and will resolve any conflict in Arkin's and Solbakken's favor. Defendants claim that both Collins and Levine have refused to respond to their inquiries. Further, defendants contend that Arkin has sought Levine's advice on litigation matters and then withheld such information from defendants on claims of privilege. Thus, Levine is not an independent agent, but is an advocate for Arkin's and Solbakken's interests.

Plaintiffs oppose the Order to Show Cause by submitting Arkin's personal affirmation, affidavits of Levine and Collins and an affirmation of plaintiffs' counsel Joseph A. Piesco. Plaintiffs' opposition appears predicated upon an incorrect assumption that the court in an order dated February 11, 2013, directed that the parties resolve the claims as to defendants' wrongdoing in the accounting. In that order, the court held in abeyance the branch of defendants' motion as sought dismissal of the first through eighth Causes of Action in the complaint pending a full accounting on the ground that as a general rule partners cannot sue each other for conversion of partnership assets or other wrongdoing with respect to the partnership but must first resort to an accounting in which the rights of each party can be determined. The concluding paragraph of the order states: "Accordingly, at this juncture, a judicial accounting is the appropriate and exclusive remedy available to plaintiffs whereby the rights and liabilities of the partners will be finally determined and plaintiffs' allegations as to defendants' alleged wrongdoing can best be resolved." Plaintiffs read this language as directing that the claims based on alleged wrongdoing by defendants be resolved in the accounting.

On the basis of that erroneous interpretation of the court's Decision and Order, plaintiffs' opposition is focused on supporting such claims and refuting Defendants' counter-allegations as to plaintiffs' wrongdoing. Plaintiffs argue that the Order to Show Cause for appointment of an independent accountant is not appropriate because: (1) additional discovery is needed on the issues of defendants' alleged wrongdoing, the date of AKR's dissolution, and determining the extent of AKR's assets. Plaintiffs contend that the appointment of an independent accountant with no familiarity with the issues in the case will cause delay and burden AKR with unnecessary costs to the detriment of AKR's creditors. Plaintiffs also aver that Arkin will suffer the greatest harm as he owns a majority of the firm is in dissolution and is the only partner with a positive capital account. Plaintiffs propose that Arkin be designated as the winding up partner with authority to collect receivables and pay AKR's obligations, with all of defendants' claims and rights reserved until a final accounting. Plaintiffs maintain that if the court is inclined to appoint an independent accountant that the cost should not be borne by AKR, but rather should be shared equally by Kaplan Rice LLP and Arkin Solbakken LLP.

II. LETTERS OF PARTIES' COUNSEL

A. Supplemental Submissions and Proposed Orders

In addition to the formal submissions, counsel for the parties have submitted a series of letters in further support of their respective positions as well as proposed orders reflecting their views. The letters and accompanying documents are in the nature of unauthorized supplemental submissions and will not be considered in connection with this Decision and Order (see 22 NYCRR §202.70 Rule 18).

B. Documents from the Joint Representation File

By Decision and Order dated June 13, 2013, the Appellate Division, First Department, affirmed an order of this court entered on January 28, 2013, which confirmed certain discovery rulings of JHO Ira Gammernman. Specifically, the Appellate Division found that this court providently exercised its discretion in directing defendants' former counsel Ciampi LLC, to submit to JHO Gammerman for in camera review certain communications in plaintiff, Solbakken's legal file made during Ciampi's joint representation of Kaplan, Rice and Solbakken, upon which Solbakken was not copied. In dicta the Appellate Division stated that:

"Although we only address the propriety of the in camera review, we note that communications between defendants Howard Kaplan, Michelle Rice, Solbakken, and Ciampi, LLC, made during the course of Ciampi's joint representation of them, fall within the scope of the attorney-client privilege because Kaplan, Rice, Solbakken, shared "a common interest" (American Re-Insurance Co. v United States Fid. & Guar. Co., 40 A.D.3d 486, 490-491 [1st Dept 2007]; Finn v Morgan, 46 A.D.2d 229, 235 [4th Dept 1974]), and ...

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