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Molina v. Faust Goetz Schenker & Blee, LLP

United States District Court, S.D. New York

January 31, 2017

BENNY MOLINA, Plaintiff,

          Anthony T. DiPietro LAW OFFICE OF ANTHONY T. DIPIETRO, P.C. Attorney for Plaintiff

          Michael V. DeSantis Anthony J. Proscia Adam M. Marshall KAUFMAN DOLOWICH & VOLUCK, LLP Attorneys for Defendants


          Lewis A. Kaplan, United Slates District Judge

         Plaintiff Benny Molina brought this legal malpractice suit against the lawyers who represented him in two related state court actions that culminated in the entry of substantial default judgments against him. But, due to a series of agreements between Molina and the plaintiff-judgment-creditor in one of the underlying actions, Molina sues here as the assignee of the judgment-creditor. Defendants have moved for summary judgment dismissing the amended complaint on several grounds. They rely chiefly on the equitable doctrine of judicial estoppel. The Court agrees that the doctrine applies and holds that Molina, as the judgment-creditor's assignee, may not take positions here contrary to those his assignor successfully advanced in the state court actions. For that reason, the Court grants defendants' motion for summary judgment in its entirety without addressing their remaining arguments.


         The following facts are undisputed.[1]

         Between 2002 and 2006, Molina, through various companies under his control, performed renovation and construction work on the Manhattan building in which Gregory and Julie Oyen owned a penthouse apartment. In 2005, the Oyens' apartment suffered extensive water damage. The Oyens and their insurer, Allstate Insurance Company (“Allstate”), filed related state court actions in which they alleged, among other things, that Molina's negligence in repair work on the building's roof had caused the damage.

         Molina retained the law firm Faust Goetz Schenker & Blee, LLP (“Faust Goetz”) to represent him and the corporate defendants named in underlying actions, with associate Kril Francis handling the day-to-day litigation of the case. In March 2011, Francis filed a motion for summary judgment dismissing the underlying actions, which the court granted as to one of the corporate defendants. The judgment on its face did not apply to Molina in his personal capacity, so he remained a party to the case. Despite this, Francis and Faust Goetz, through inadvertence (according to Faust Goetz) or deception (according to Molina), stopped appearing on behalf of Molina. After counsel for Molina failed to appear for seventeen pre-trial conferences from 2011 through late 2013, the underlying actions proceeded to inquest on April 29, 2014.

         At the inquest, Gregory Oyen submitted an affidavit in which he repeated the allegations in the complaint pertaining to Molina's negligence. Oyen stated also that he had suffered damages totaling $1, 724, 447.49. Oyen's attorney, Daniel J. Hansen, affirmed the damages calculation in his submission to the court. The court awarded net damages of $1, 024, 447 plus interest to the Oyens and $262, 592 plus interest to Allstate, which both parties later entered as judgments against Molina. Faust Goetz's attempts to have the judgments vacated proved unsuccessful.

         Molina and the Oyens then entered into an agreement (the “First Assignment”) in which Molina assigned to Gregory Oyen “all rights, benefits, causes of action, and claims ” he might possess relating to the underlying action involving Oyen, including claims for legal malpractice.[2]The First Assignment gave Oyen the “exclusive legal power to prosecute” the claims “without the need for further agreement or action” by Molina.[3] The agreement provided also that Hansen would serve as Oyen's lawyer “[f]or all purposes, including entering into [the First Assignment], as well as the pursuit of the [a]ssigned [c]laims, ” and that separate counsel would represent Molina and his companies.[4]

         Shortly after the execution of the First Assignment, Hansen filed an action in this Court on behalf of Molina against Faust Goetz (the “First Malpractice Suit”), asserting claims nearly identical to those in this case. He did so despite the fact that Molina previously had assigned his right to prosecute the claim to Oyen. With that suit pending, Hansen emailed Allstate's counsel a draft of a new assignment agreement between Molina and Oyen and proposed that Oyen and Allstate share in the costs and proceeds associated with the pursuit of the malpractice claims. On November 16, 2015, the parties in the First Malpractice Suit stipulated to its dismissal without prejudice.

         Next, Oyen and Molina executed a second agreement (the “Second Assignment”) in which Oyen purported to “assign[ ] back to Molina” any interest covered by the First Assignment.[5]Molina agreed to “commence and duly prosecute” the malpractice case against Faust Goetz and to transfer “[a]ny amounts received” in connection with the suit to “the attorney escrow account of the attorneys of Oyen.”[6] The Second Assignment provided also that the net proceeds would be distributed, “without any further agreement, notice, or other requirements, as follows: 6% to Molina and 94% to Oyen, with all amounts applied toward the satisfaction of the [j]udgements.”[7] Like the First Assignment, the Second Assignment provided that Hansen would serve as Oyen's attorney “[f]or all purposes, including the entering into this [a]greement, as well as the pursuit of the” assigned claims, and that Molina would be represented by separate counsel.[8]

         Simultaneous to the Second Assignment, Molina retained Hansen and his firm to “commence and diligently prosecute in good faith” a second malpractice suit for a fee of “thirty-three and one-third (33 1/3) percent of the sum recovered, whether recovered by judgment, settlement or otherwise.”[9] Remarkably, the retainer agreement included a grant from Molina to Hansen of “a power of attorney” so that Hansen would have full authority to settle the case for any amount without further approval from Molina.[10] An additional term provided that Hansen could endorse Molina's name “on any checks that may be paid in settlement” and “retain out of said monies . . . the legal fee as computed pursuant to this agreement.”[11]

         Hansen then filed this suit on behalf of Molina (the “Second Malpractice Suit”) on November 17, 2015. The complaint made a common law negligence claim and asserted a violation of New York Judiciary Law Section 487. But even after he began litigating this case, ostensibly on behalf of Molina, Hansen continued to represent Oyen in negotiations with Allstate over the terms on which they would share the costs and proceeds of the malpractice lawsuit. Nor did Hansen's involvement in this case end when attorney Anthony T. DiPietro was substituted as Molina's counsel. Rather, Hansen prepared the draft reports for Molina's experts and appeared as Oyen's counsel at his non-party deposition.


         New York law governs this diversity action.[12] In line with many jurisdictions and the federal courts, New York follows the doctrine of judicial estoppel, whereby “a party who assumes a certain position in a prior legal proceeding and secures a favorable judgment therein is precluded from assuming a contrary position in another action simply because his or her interests have changed.”[13] The equitable doctrine “rests upon the principle that a litigant should not be permitted to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise.”[14] Doing so could be viewed as “playing fast and loose with the courts.”[15]

         Equitable in nature, the doctrine “cannot be reduced to a precise formula or test, ”[16] but its requirements are well catalogued. The New York Court of Appeals has cited approvingly[17] to the United States Supreme Court's helpful articulation of the factors courts typically consider:

“First, a party's later position must be clearly inconsistent with its earlier position. Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position . . . . A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”[18]

         These factors are not “inflexible prerequisites” and do not constitute “an exhaustive formula, ” as [a]dditional considerations may inform the doctrine's application in specific factual contexts.”[19]Ultimately, judicial estoppel is invoked at the court's discretion.[20]

         The somewhat convoluted series of assignments in this case present a twist on an otherwise routine application of the doctrine. Molina brought this suit in his own name, ostensibly to redress the financial harm he allegedly has suffered to due to the alleged negligence of his lawyers in the underlying actions. But defendants argue that Gregory Oyen is the “de facto plaintiff.”[21] That is so, they say, because Molina gave away his right to sue in the First Assignment and derives his role as plaintiff here solely from the Second Assignment. Defendants further maintain that Molina, acting on behalf of Oyen, should be precluded from taking positions in this case inconsistent with those Oyen took in the underlying actions, which they contend Molina must do to prevail on either cause of action in the amended complaint. Not surprisingly, Molina opposes the application of judicial estoppel at each point.

         I. Undisputed Facts Establish that Molina Stands in Oyen's Shoes for Equitable Purposes.

         New York courts apply judicial estoppel, like any equitable defense, in tune to the identity of the real party in interest.[22] The threshold issue of who is the “true plaintiff” in this case for equitable purposes can be resolved by application of black letter state law to undisputed facts.

         In New York, causes of action generally are freely assignable.[23] An assignee of a cause of action holds legal title to sue as a “real party in interest” on the claim, “regardless of the use to be made of any proceeds collected.”[24] A valid assignment divests the assignor of all interest in (and control over) the suit, rendering the assignee the sole party in interest.[25] On the other hand, “where there has been a partial assignment, such as an assignment for collection, the assignor and assignee each retain an interest in the claim and both are real parties.”[26] The distinction between a complete and partial assignment turns on the degree of control the assignor retains over the conduct and proceeds of the assigned suit.[27]

         When evaluating an equitable defense to an assigned claim, courts must pay careful attention to the identities of the parties and their past conduct. For “[i]t is elementary ancient law that an assignee never stands in any better position than his assignor. He is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.”[28] In New York, this well established rule applies with equal force to a judicial estoppel defense.[29] An assignee therefore will not be heard to make an argument that his assignor would be judicially estopped from making if the assignor had brought the suit him/herself.

         Molina contends that he “cannot possibly b[e] the assignee of the claims or the proceeds of the claims, since Molina was the only person with the right to bring an action” in the first instance.[30] In so arguing, Molina ignores the fact that he relinquished any and all claims that he personally possessed against the defendants when he executed the First Assignment. That assignment was complete, granting Oyen the “exclusive legal power to prosecute” the claims and divesting Molina from any further role in the litigation. Hence, Molina ceased to have any interest in the malpractice claims as of the date of that agreement.

         The Second Assignment, in contrast, was not complete and did not restore Molina and Oyen to their respective pre-assignment positions. Rather, the Second Assignment obligated Molina to bring the claims and to deposit the proceeds in Oyen's attorney's account, to be distributed almost entirely to Oyen.[31] Hansen, who continues to act as Oyen's attorney “in all respects” under both assignment agreements, has maintained an unusual degree of control over this case, including the power to settle for any amount and to endorse checks in Molina's name. Molina characterizes this as “limited, residual involvement, ”[32] but that is not so - Hansen's engagement includes appearing as Molina's attorney at the suit's early stages and helping to prepare expert reports on which Molina relies in opposing this motion. These undisputed facts belie any contention that Molina brought this suit on his own behalf.

         To be sure, the Molina listed as plaintiff on the amended complaint is the same person to whom the malpractice claims initially accrued. But that does not change the fact that Molina sues here as Oyen's assignee under the Second Assignment. If, instead of assigning the malpractice claims back to Molina, Oyen had negotiated the Second Assignment with a different assignee and that assignee had agreed to prosecute the suit and give the proceeds to Oyen for a small fee, there would be no question that that assignee would act as Oyen's assignee. It would follow also that this hypothetical alternate assignee would be subject to any equitable defenses the defendants could have raised against Oyen. It is of no consequence that the plaintiff here is Molina and not the hypothetical alternate assignee. The results must be the same in the two cases.

         A Massachusetts court reached that conclusion in Sandman v. McGrath, [33] a case involving similar facts. There, plaintiff Sandman had been involved in a car accident in which a motorcyclist named Hanlon was severely injured.[34] Hanlon sued Sandman and obtained a $17 million judgment against her, following which Sandman assigned her malpractice claims against her attorney to Hanlon.[35] Hanlon then brought a malpractice action against the attorney, but later substituted Sandman as the plaintiff.[36] The trial court determined that Hanlon was the real party in interest and invoked judicial estoppel to dismiss the malpractice claim.[37] In affirming, the appeals court noted that Hanlon's maneuvers appeared designed to avoid a judicial estoppel defense, that [e]ven after the complaint was amended to name Sandman as plaintiff, the same lawyers represented Sandman as had previously represented Hanlon, ” and that Hanlon was likely to enjoy the benefits of the malpractice suit.[38] Sandman demonstrates that judicial estoppel is a flexible equitable doctrine not easily evaded by subterfuge, a lesson that applies equally well to the case at hand, in which Oyen appears to have taken a page out of Hanlon's play book.

         This Court holds that Molina acts here as Oyen's assignee and stands in his shoes for equitable purposes.[39] Moreover, because of Oyen's entitlement to any damages awarded and his continued control over this litigation, he is at least one of the real parties of interest. The Court therefore assesses the claims in the amended complaint as if Oyen had made them himself.

         II. Defendants Have Established the Elements of Their ...

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