Supreme Court, Albany County, October 4, 2022

Landman Corsi Ballaine & Ford P.C., New York City (Louis G. Corsi and Sophia Ree of counsel), for defendants.

DLA Piper LLP (US), Albany (Robert J. Alessi and Jeffrey D. Kuhn of counsel), and New York City (Steven M. Rosato of counsel), for plaintiff.

This is an action for professional malpractice brought by Pioneer Bank against the accounting firm of Teal, Becker & Chiaramonte, CPAs, P.C. (TBC) and two of the firm's certified public accountants.

Following joinder of issue and the substantial completion of written discovery, defendants move for dismissal of Pioneer's complaint under "[CPLR] 3211(a) (7) and 3211(c)" (NY St Cts Elec Filing [NYSCEF] Doc No. 24). Pioneer opposes the motion as procedurally defective and substantively lacking in merit.

Background

Pioneer commenced this malpractice action on December 1, 2020 (see NYSCEF Doc No. 1, complaint). In brief, Pioneer alleges that it extended credit to ValueWise Corp. (ValueWise) and its subsidiaries (collectively, the ValueWise Entities) in reliance on TBC's "unqualified 'clean' opinions on the financial statements of the ValueWise Entities for fiscal years 2010 to 2018" (id. ¶ 3). However, the financial statements allegedly "contained numerous material misstatements," including "gross[ ] overstate[ments of] the ValueWise Entities' revenue and accounts receivable balances because of a massive criminal fraud perpetrated by ValueWise's owner and president, Michael T. Mann" (id. ¶ 5).

Defendants joined issue on February 12, 2021, through service of an answer alleging 13 affirmative defenses, including expiration of the statute of limitations (see NYSCEF Doc No. 3, answer ¶ 156). The principal defense tendered by defendants, however, is that "Pioneer's alleged losses were not caused by {**77 Misc 3d at 362}TBC, but rather by a massive, complex fraud engineered by Michael Mann who fabricated documents and altered audit reports issued by TBC" (id. at 1).

A request for judicial intervention was filed on March 17, 2021 (see NYSCEF Doc Nos. 12-13), and the preliminary conference was held on April 27, 2021. At the conference, the parties agreed to respond to initial demands for written discovery by August 2021.

A compliance conference was held in September 2021, and the parties reported significant progress in exchanging written discovery, but advised that they were awaiting a voluminous production of documents from the U.S. Attorney's Office regarding Mann. Defendants also expressed an intention to make an early motion for partial summary judgment on the issue of causation.

Another conference was held on January 11, 2022, at which the parties reported that documents from the U.S. Attorney's Office were forthcoming. Defendants again indicated their desire to engage in dispositive motion practice and informed the court that they intended to move for dismissal under CPLR 3211 (a) (7). The court was skeptical that the fact-based causation issues that defendants sought to raise were amenable to determination on a motion to dismiss for failure to state a claim. The court further advised defendants that if they elected to proceed with a motion to dismiss under CPLR 3211 (a) (7), rather than move for summary judgment under CPLR 3212, the court would not exercise its discretionary authority under CPLR 3211 (c) to convert the motion into one for summary judgment.

Notwithstanding the foregoing, defendants moved for dismissal of the complaint under CPLR 3211 (a) (7) and (c), on the grounds that: (1) Pioneer's claims are partially barred by the expiration of the statute of limitations; (2) the claims for the remaining years must be dismissed because Pioneer was presented with forged financial statements, and, therefore, never relied upon defendants' actual audit reports; and (3) TBC's audit reports are not the proximate cause of Pioneer's alleged losses (see NYSCEF Doc No. 156). Defendants submit 85 exhibits in support of their motion, including letters, emails, financial statements, deposition transcripts and an affidavit.

Pioneer opposes the motion on the grounds that: (1) the complaint states a claim for [*3]accounting malpractice, and defendants do not argue otherwise; (2) binding precedent of the{**77 Misc 3d at 363} Appellate Division, Third Department precludes the consideration of the 85 exhibits submitted and relied upon by defendants to support their motion under CPLR 3211 (a) (7); and (3) TBC's arguments for dismissal fail on the merits, even if they properly were before the court.

Analysis

CPLR 3211 (a) (7) allows a party to move for dismissal on the ground that "the pleading fails to state a cause of action." Such a motion may be made "[a]t any time" (CPLR 3211 [e]).

On a motion to dismiss made pursuant to CPLR 3211 (a), including a motion to dismiss for failure to state a claim under CPLR 3211 (a) (7), "either party may submit any evidence that could properly be considered on a motion for summary judgment," including documentary evidence and affidavits (CPLR 3211 [c]). "Whether or not issue has been joined, the court, after adequate notice to the parties, may treat the motion as a motion for summary judgment" (id.).

Here, defendants moved under "[CPLR] 3211(a) (7) and 3211(c)" (NYSCEF Doc No. 24), thus inviting conversion of their motion into one for summary judgment. However, the court has not converted the motion, and it will not do so. As defendants were advised at the January 2022 conference, if they wanted their motion treated as one for summary judgment, they needed to move for summary judgment. Accordingly, the court has before it an unconverted, post-answer motion for dismissal under CPLR 3211 (a) (7).

As Pioneer observes, the Appellate Division, Third Department recently summarized the principles governing determination of such a motion. As well-articulated by Presiding Justice Garry,

"[t]he grounds for dismissal under CPLR 3211 (a) (7) are . . . strictly limited; the court is not allowed to render a determination upon a thorough review of the relevant facts adduced by both parties, but rather is substantially more constrained in its review, examining only the plaintiff's pleadings and affidavits" (Carr v Wegmans Food Mkts., Inc., 182 AD3d 667, 668 [3d Dept 2020]; see John R. Higgitt, CPLR 3211 [a] [7]: Demurrer or Merits-Testing Device?, 73 Alb L Rev 99, 109 [2009]).

"In contrast to a motion for summary judgment, a court resolving a motion to dismiss for failure to state a claim cannot base the determination upon submissions by the defendant—{**77 Misc 3d at 364}without regard to how compelling claims made in such submissions may appear" (Carr, 182 AD3d at 668 [citations omitted]). "Unless the motion to dismiss is converted by the court to a motion for summary judgment, a motion to dismiss is not in a posture to be resolved as a matter of law" (id. at 669 [internal quotation marks, brackets and citations omitted]).

In so ruling, the Third Department relied on the Court of Appeals' decision in Miglino v Bally Total Fitness of Greater N.Y., Inc. (20 NY3d 342 [2013]), which declined to dismiss a negligence action under CPLR 3211 (a) (7) based on the defendant's affidavit. The Court of Appeals explained that the

"matter [came to it] on a motion to dismiss, not a motion for summary judgment. As a result, the case is not currently in a posture to be resolved as a matter of law on the basis of the parties' affidavits, and [plaintiff] has at least pleaded a viable cause of action" (id. at 351).

The Court of Appeals further emphasized that CPLR 3211 (a) (7) limits a court "to an examination of the pleadings to determine whether they state a cause of action," obliges the court to "accept facts alleged [in plaintiff's complaint] as true and interpret them in the light most favorable to plaintiff," and protects the plaintiff from "be[ing] penalized for failure to make an evidentiary showing in support of a complaint that states a claim on its face" (id.).

Contrary to defendants' argument in reply, nothing in the Third Department's decision in Zeppieri v Vinson (190 AD3d 1173 [3d Dept 2021]) alters the mode of analysis for CPLR 3211 (a) (7) motions articulated in Carr. The Third Department's decision in Zeppieri rejected the argument [*4]that Carr "limit[ed] what may be considered as documentary evidence" (Zeppieri, 190 AD3d at 1175 n), but that discussion pertained to the branch of the dismissal motion brought under CPLR 3211 (a) (1) (see Carr, 182 AD3d at 668). Defendants' motion is not made under CPLR 3211 (a) (1), and their time in which to raise "a defense . . . founded upon documentary evidence" under that provision expired with service of their answer (see CPLR 3211 [e]).

Nor did defendants move under CPLR 3211 (a) (5) to interpose the defense of the partial expiration of the statute of limitations, and their time in which to do so similarly has expired (see CPLR 3211 [e]). To be sure, defendants preserved the defense in their answer (see id.; see also answer ¶ 156), {**77 Misc 3d at 365}thereby affording them the opportunity to move for summary judgment on the defense or present it at trial (see DeSanctis v Laudeman, 169 AD2d 1026, 1027 [3d Dept 1991] ["although we agree that the issue was properly preserved by defendant, . . . because responsive pleadings were served, defendant's motion should have been brought pursuant to CPLR 3212 instead of pursuant to CPLR 3211"]; see also CPLR 3212 [c] [contemplating motions for summary judgment "on . . . the grounds enumerated in subdivision (a) or (b) of rule 3211"]).

The court therefore concludes that defendants' fact-based causation defense and their partial challenge to the timeliness of Pioneer's claims should, at this juncture, be the subject of a properly supported motion for summary judgment under CPLR 3212, not a motion for dismissal under CPLR 3211 (a) (7) accompanied by an invitation for conversion under CPLR 3211 (c).

In reaching this conclusion, the court recognizes that the Court of Appeals left open the possibility that a defendant may obtain dismissal under CPLR 3211 (a) (7) through the submission of "conclusive" affidavits and evidence (see Rovello v Orofino Realty Co., 40 NY2d 633, 635-636 [1976] ["affidavits submitted by the defendant will seldom if ever warrant the relief (it) seeks unless too the affidavits establish conclusively that plaintiff has no cause of action"]), and the other Judicial Departments take a more expansive view of CPLR 3211 (a) (7) (see e.g. Doe v Intercontinental Hotels Group, PLC, 193 AD3d 410, 410 [1st Dept 2021]).

But this court is obliged to follow the Third Department's recent precedent in Carr, which teaches that "a court resolving a motion to dismiss for failure to state a claim cannot base the determination upon submissions by the defendant," no matter "how compelling claims made in such submissions may appear" (182 AD3d at 668-669).

Moreover, there are sound reasons for requiring motions like the one made here by defendants to be brought under CPLR 3212. Defendants' approach needlessly deprives the court of useful procedural tools associated with summary judgment motions, including the requirement that parties supply statements of material facts (see Rules of Commercial Div of Sup Ct [22 NYCRR] § 202.70 [g] [rule 19-a]; see also 22 NYCRR 202.8-g).

An evidence-based motion to dismiss under CPLR 3211 (a) (7) also injects needless uncertainty and delay into the motion{**77 Misc 3d at 366} practice,^[FN1] and may allow litigants to evade the proscription [*5]against successive summary judgment motions (see Amill v Lawrence Ruben Co., Inc., 117 AD3d 433, 433 [1st Dept 2014]; see also CPLR 3211 [e] ["no more than one (3211) motion shall be permitted"]).

In sum, defendants do not challenge the legal sufficiency of Pioneer's claim for accounting malpractice, and their unconverted, post-answer CPLR 3211 (a) (7) motion is not an appropriate procedural vehicle by which to interpose a fact-based causation defense or assert the partial expiration of the statute of limitations.

Based on the foregoing, defendants' motion is denied, without regard to the substantive arguments sought to be made therein and without prejudice to the eventual filing of a proper motion for summary judgment under CPLR 3212.^[FN2]

Conclusion

For all of the foregoing reasons, it is ordered that defendants' motion is denied; and it is further ordered that the parties shall confer regarding a schedule for the expeditious completion of all remaining fact discovery, and, by October 14, 2022, either: (1) submit a proposed scheduling order to the court to be so-ordered; or (2) request a conference with the court for the purpose of establishing such a schedule.

"it is risky to rely on the courts' oft-repeated assurance that pre-answer dismissals are rare. A plaintiff faced with evidence on a CPLR 3211(a) motion should seriously consider responding with evidence or at least with a cogent argument that he or she needs discovery in order to respond" (Adrienne B. Koch, Use of Evidence in a Motion Under CPLR 3211 [a] [7]: A Refresher Course, NYLJ, Nov. 5, 2021 at 11, col 1).

As to delay, CPLR 3211 (c) obliges the court to provide the parties with "adequate notice" of its intention to treat a motion to dismiss as one for summary judgment, and it is customary, at least in Albany County, to allow the parties an opportunity to submit additional evidence and argument after being notified of the conversion to summary judgment.

Footnote 2: Given the needless discovery delays engendered by this motion, the court is disinclined to allow a stay of disclosure (see Rules of Commercial Div of Sup Ct [22 NYCRR] § 202.70 [g] [rule 11 (g)]).