Defendants move to dismiss the complaint pursuant to CPLR 3211(a)(5).

Plaintiff Edward T. Davison, M.D. ("Davison") and Scott J. Ratner, M.D. ("Ratner") were each 50% shareholders in Edward T. Davison and Scott J. Ratner, M.D., P.C. ("the Practice"). Davison and Ratner entered into a series of shareholder agreements, the last one of which was dated June 1996.

In 1997, Ratner commenced an action seeking the judicial dissolution of the Practice. The Practice shareholder agreement provided for arbitration of such disputes. As a result, the action was stayed and the dissolution proceeding was submitted to arbitration through the National Health Lawyers Association Dispute Resolution Service.

In 2000, Ratner sought to have the goodwill of a department of the Practice know as Nassau Cardiac Scanning ("Scanning") appraised. Ratner alleged this was an asset subject to distribution in the dissolution of the Practice. Davison disputed Ratner's assertion. The arbitrator ruled Scanning was an asset of the Practice subject to valuation.

Ratner and Davison each obtained an appraisal of Scanning. Ratner's appraiser found the value of the goodwill of Scanning to be in excess of $1 million. Davison's appraiser found the value of the goodwill of Scanning to be $3,600.

Because the appraisals differed so substantially in methodology and conclusion, the arbitrator directed the appointment of a third, neutral appraiser. The arbitrator requested the parties' appraisers recommend the third appraiser. The parties' appraisers could not agree upon the third appraiser. As a result, the arbitrator designated Defendant Margolin, Winer & Evens, LLP ("Margolin") as the third appraiser. Defendant Howard Feilstein was the partner at Margolin who was primarily responsible for the preparation of the appraisal.

The arbitrator determined the value of the goodwill of Scanning, as found by Margolin, would be binding. The arbitrator's decision was based upon ¶ 8(b) of the shareholder agreement which provided that the appraisal by the third arbitrator would be binding.^[FN1]In June 2003, Ratner and Davison executed a written retainer whereby Margolin was to appraise the goodwill of Scanning.

In August 2003, Davison made application to the arbitrator to disqualify Margolin. By order dated August 27, 2003, the arbitrator denied Davison's request. That order gave Davison and Ratner until September 8, 2003 to submit a response to Margolin's request for information. [*2]

In September, 2003, Davison renewed his request to disqualify Margolin and to terminate the appraisal of the goodwill of Scanning. By order dated October 17, 2003,

the arbitrator denied Davison's renewed request to disqualify Margolin and discontinue the appraisal with prejudice.

Margolin issued its report dated November 6, 2003. In that report, Margolin concluded that 100% of the goodwill of Scanning was an asset of the Practice and assigned the asset a value of in excess of $1 million.

On February 10, 2005, the arbitrator issued his decision. The arbitrator awarded Ratner $983,979.84 as his share of the Practice, $250,000 as severance resulting from Davison terminating the Practice and legal fees of $1,024,452.18. The arbitrator's decision was modified on March 10, 2005, reissued with a determination as to counsel fees on June 30, 2005 and modified by the arbitrator on August 9, 2005.

Davison petitioned to vacate or modify the award of the arbitrator and to stay further proceedings before the arbitrator. Ratner cross-petitioned for reasonable counsel fees and costs and disbursements as well as the release of escrowed funds.Davison sought to vacate or modify the arbitrator's award on the grounds that Ratner forced the termination of the Practice, the appraisal of the Practice was flawed with respect to the valuation of goodwill and as to valuation methodology, the arbitrator erred in making the final selection of the appraiser used to value the business and in refusing to permit the valuation of the goodwill for Nassau Cardiac Imaging, a division of the Practice.

More specifically, in his petition for vacatur or modification of the arbitrator's award, Davison claimed in that the Margolin report was based upon interviews and review of materials and not sworn testimony. Davison further alleged that Margolin used an improper methodology the capitalization of earnings approach to appraise the goodwill of Scanning rather than an excess earnings method. Davison also claimed that Margolin failed to deduct all tangible assets from cash flow and applied an after-tax capitalization rate to pre-tax cash flow. This resulted in the value of the goodwill being overstated. Davison claims that Margolin failed to consider whether the shareholder agreement intended goodwill to be an asset subject to distribution or that upon dissolution Davison would be assigned at no cost the location and telephone number of the Practice.

By order dated March 13, 2006, Hon. Thomas P. Phelan, a Justice of this Court, denied Davison's application to vacate or modify the arbitrator's award. Justice Phelan found that the arbitrator did not exceed his authority in selecting the third appraiser. Justice Phelan also found that Davison was judicially estopped from raising issues regarding the arbitrator's power to make rulings regarding the appraisal process. Justice Phelan noted that Davison had argued that the arbitrator was to determine what assets were to be valued and whether goodwill was to be considered an asset of the Practice subject to distribution in the arbitration. Since Davison prevailed on this issue in the arbitration, he could not then challenge the arbitrator's authority to make these determinations. See, Davison v. Ratner, 11 Misc 3d 1062(A) (Sup.Ct. Nassau Co. 2006).

Justice Phelan also issued an order dated August 7, 2006, whereby Davison was directed to pay to Ratner the sums awarded by the arbitrator plus interest within twenty [*3]

days of receipt of the order. See, Ratner v. Davison, 12 Misc 3d 1192 (A) (Sup.Ct. Nassau Co. 2006).

Davison has now commenced this action alleging that Margolin committed malpractice in preparing its appraisal of the goodwill of Scanning. Davison alleges that Margolin failed to consider certain several relevant factors and that Margolin's calculation of the goodwill of Scanning contained errors in methodology and math. As a result, Davison was required to pay Ratner $531,500 for the goodwill of Scanning. Davison alleges this amount is far in excess of the actual goodwill of Scanning. This erroneous appraisal resulted in Davison paying this inaccurate amount to Ratner and incurring legal fees and other expenses. Davison further alleges that these errors in calculating the value of the goodwill of Scanning also constituted a breach of contract.

Margolin moves to dismiss this action claiming that Davison is collaterally estopped from prosecuting this action. Margolin asserts that the malpractice and breach of contract actions are premised upon the same allegations that were made to, and were rejected by, the arbitrator and Justice Phelan.

Collateral estoppel bars a party from asserting claims that were or could have been asserted in the previous action. Ryan v. New York Telephone Co., 62 NY2d 494 (1984); and Melnitzky v. Uribe, 18 AD3d 328 (1st Dept. 2005). The rule barring the relitigation of issues in a subsequent litigation is also applicable to issues initially decided in arbitration. Hibbert v. Avwontom, 35 AD3d 813 (2nd Dept. 2006); and Kilduff v. Donna Oil Corp., 74 AD2d 562 (1st Dept. 1980).

"Accounting malpractice or professional negligence contemplates a failure to exercise due care and proof of material deviation from the recognized and accepted profession standards of accountants and auditors...which proximately causes damage to Plaintiff (citations omitted)." Cumins Ins. Society Inc. v. Tooke, 293 AD2d 794,797-8 (3rd Dept. 2002). See, Estate of Burke v. Peter J. Repetti & Co., 255 AD2d 483 (2nd Dept. 1998).

For Davison to prevail on his malpractice claim, he must establish that Margolin's appraisal of Scanning's goodwill was a result of Margolin's failure to exercise due care and deviated from generally accepted professional standards. The place to make this argument was [*4]before the arbitrator. By order dated March 7, 2002, the arbitrator directed Davison and Ratner to explain the methodology to be used to determine the effect that Ratner's competing with Scanning had on the value of the goodwill of Scanning. Counsel for both Ratner and Davison were given the opportunity to provide information to Margolin regarding the operation of Scanning. Copies of the materials provided to Margolin were also provided to counsel. Counsel was directed to review the information provided for accuracy and were to make corrections as needed.

Thus, Davison was given the opportunity to have input into the methodology employed to establish the value of the goodwill of Scanning. The arbitrator's August 27, 2003 decision indicates that counsel for Davison submitted substantial material to Margolin. This material included excerpts of testimony, copies of memoranda of law on the issue of goodwill, a synopsis of Davison's position on the subject, excerpts of publications addressing the issue of valuing goodwill of professional practices, copies of referral slips, statements from other physicians regarding their referral practices, copies of financial analyses and records and the report of the prior appraisers and communications from Davison's appraisers. Thus, Davison had ample opportunity to submit materials regarding the methodology to be employed and the figures to be used in evaluating the goodwill of Scanning.

The complaint herein is largely a rehash of the petition filed in connection with Davison's application to vacate or modify the arbitrator's award. The reasons underlying Davison's application to vacate the arbitrator's award and the malpractice action are contained in paragraphs 26 and 27 of the complaint and paragraph 27 of the petition in which Davison alleges that Margolin improperly used the "capitalization of earnings approach" as opposed to the "excess earnings method" to calculate the value of the goodwill of Scanning.

The arbitrator, by adopting the methodology and figures provided by Margolin, has ruled on this issue. This determination is a product of the Practice's shareholder agreement which provided for a third, binding appraisal upon the inability of Davison and Ratner's appraisers to agree upon the value of the asset.

This action is nothing more than a collateral attack on the arbitration award and the orders granted by Justice Phelan. Davison is dissatisfied with the outcome of the arbitration. Bringing a malpractice action against the expert whose opinion was properly used by the arbitrator in determining the value of the goodwill of Scanning, in accordance with the agreement of the parties, is an impermissible collateral attack on the arbitration and the award. See, Rutter v. Julien J. Studley, Inc., 244 AD2d 2389 (1st Dept. 1997).

Davison had a full and fair opportunity to litigate this issue in the arbitration and in the proceedings before Justice Phelan. He is collaterally estopped from relitigating these issues in this malpractice action. Even if he were not, no malpractice claim could stand under the circumstances presented.

Finally, a cause of action for breach of contract is duplicative of the malpractice action since it arises from the same set of facts. Amodeo v. Kolodny, P.C., 35 AD3d 733 (2nd Dept. 2006); and Gelfand v. Oliver, 29 AD3d 736 (2nd Dept. 2006). The breach of contract action must be dismissed for the same reasons that the malpractice action is being dismissed.

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss is granted and the complaint is hereby dismissed. [*5]

This constitutes the decision and Order of the Court.

Dated: Mineola, NY____________________________

March 8, 2007Hon. LEONARD B. AUSTIN, J.S.C.

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