[*1]
Jericho Group, Ltd. v Herzfeld & Rubin, P.C.
2012 NY Slip Op 50892(U) [35 Misc 3d 1225(A)]
Decided on May 15, 2012
Supreme Court, Kings County
Schmidt, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on May 15, 2012
Supreme Court, Kings County


Jericho Group, Ltd. and Jericho Co., Plaintiffs,

against

Herzfeld & Rubin, P.C. and Herbert Rubin, Esq., Defendants.




6515/2011



Plaintiff Attorney: Andrew Lavoott Bluestone, 233 Broadway, Suite 2702, NY, NY 10279

Defendant Attorney: Herzfeld & Rubin, 125 Broad Street, NY, NY 10004

David I. Schmidt, J.



Defendants Hertzfeld & Rubin, P.C. (H & R) and Herbert Rubin, Esq. (Rubin) move for an order, pursuant to CPLR 3211 (a) (5) and (7), in this action to recover damages for legal malpractice, breach of fiduciary duty, and breach of contract.

FACTS AND PROCEDURAL HISTORY


The instant action involves litigation over a failed real estate transaction. The gravamen of the Complaint is that law firm H & R committed malpractice by failing to obtain the reinstatement of a Notice of Pendency or Lis Pendens after it had been vacated prior to H & R's representation in the underlying matter. Plaintiff had hired H & R to represent it in its lawsuit against property owner Pioneer Management and Realty LLC (Pioneer). Rubin is a member of H & R.

The Pioneer Litigation


According to plaintiffs' Complaint, Jericho Group, Ltd. and Jericho Co. (collectively, Jericho)[FN1] entered a sales contract, dated May 28, 2003, as the prospective buyers of certain real estate property (the Property) located in New York, New York, which was owned by seller Pioneer. The sales contract gave Jericho a right to cancel within a "due diligence" period (ending on July 25, 2003), during which plaintiff could investigate any potential problems with the Property. On July 18, 2003, at Pioneer's request, plaintiff agreed to terminate the contract and [*2]permit Pioneer to sell the Property to a third party under more favorable terms. In exchange, Pioneer agreed to certain conditions: (1) the immediate return of the $250,000 down payment to Jericho with interest; (2) two additional payments of $100,000 each; and (3) the sale of the premises of a third party on or before October 18, 2003. This agreement was memorialized in a "July 25 Amendment Letter." If any of the conditions were not met, the original sales contract would remain in effect, with a new fifty-day due diligence period to commence on October 19, 2003. If no termination occurred, plaintiff was obligated to set a closing within 75 days after the end of the due diligence period.

When Pioneer failed to sell the Property to the third party by October 18, 2003, it returned Jericho's $250,000 down payment, but it did not pay Jericho the additional $200,000. As that condition was not met, the sales contract remained intact. However, Pioneer was ultimately unable to sell the Property to Jericho within the specified time frame because it could not yet deliver the Property vacant of tenants, as also required under the sales contract.

As a result of these events, on March 30, 2004 plaintiff commenced an action, Jericho Group LTD v Pioneer Mgt. & Realty LLC, index number 600887/2004, in Supreme Court, New York County against Pioneer, Jack Sharma (Sharma), and Pan Express Travel, Inc. (Pay Express),[FN2] seeking money damages and specific performance of the sales contract (the Pioneer Action). The complaint therein alleged that Jericho was fraudulently induced to enter the July 25 Amendment Letter by Pioneer's misrepresentation that there was an existing third party potential purchaser for the Property. Plaintiff was represented in the lawsuit by prior counsel, Marshall Berger, Esq. (Berger). On behalf of plaintiff, Berger filed a Notice of Pendency, dated March 30, 2004, against the Property. In the Pioneer Action, plaintiff moved for partial summary judgment directing specific performance of the agreement as modified by the July 25 Amendment Letter. Plaintiff's motion also sought to compel Pioneer to begin the fifty-day due diligence period under section 5.2 (a) of the July 25 Amendment Letter due to Pioneer's failure to sell the property to a third party before October 18, 2003. Pioneer cross-moved to dismiss the complaint and vacate the Notice of Pendency on the Property, arguing that Jericho had not demonstrated that it was ready, willing, and able to perform its obligations under the sales contract.

In the Pioneer Action, Justice Leland DeGrasse granted the seller's motion by decision and order dated December 16, 2005 (the December 2005 Order), on the grounds that the sales contract contained a provision limiting Jericho's remedy to cancellation and a return of its down payment; that specific performance was unavailable because Jericho did not demonstrate that it was ready, willing, and able to perform the contract; and that Pan Express and Sharma never executed any agreement with plaintiff. The December 2005 Order provided for the Notice of Vacancy to be vacated and directed the parties to settle an order, which the parties finalized in an order dated February 3, 2006 and entered on February 24, 2006 (the February 2006 Order). The February 2006 Order directed the clerk of the court to cancel the Notice of Vacancy and referred the issue of costs and expenses to a special referee. Pioneer served the February 2006 Order with Notice of Entry on Jericho on April 4, 2006.

On or about May 9, 2006, plaintiff served a Notice of Appeal of the February 2006 Order. Simultaneously, plaintiff also served, on notice, a motion to renew and reargue the summary [*3]judgment motion and cross motion in the Pioneer Action or, in the alternative, to stay enforcement of the order. The motion to renew and reargue was denied by order dated March 14, 2007. Justice DeGrasse's March 14, 2007 order did not address the alternative request for a stay.

On or about August 29, 2006, Berger moved by order to show cause to withdraw as counsel for plaintiff in the Pioneer Action. Plaintiff avers that H & R became attorney of record for Jericho in the Pioneer Action on March 29, 2007 when it filed its Notice of Appearance therein. According to plaintiff, despite its specific requests and demands that defendants seek an order from either the trial or appellate court staying the cancellation of or reinstating the Notice of Pendency, defendants allegedly did not do so.

By Notice of Appeal dated April 4, 2007, plaintiff appealed the February 2006 Order dismissing the Complaint and vacating the Notice of Pendency and the May 2006 order denying plaintiff's motion to renew and reargue to the Appellate Division, First Department. Plaintiff's appeal of the May 2006 order was consolidated and perfected onto the same record.

In May 2007, Pioneer conveyed the Property to a third party, Eros Management, which plaintiff alleges is an entity formed by Sharma. Plaintiff avers that it did not discover this fact until defendants served their papers in opposition to H & R's March 2008 order to show cause seeking to reinstate and extend the Notice of Pendency, as mentioned below.

On or about February 28, 2008, the Appellate Division reversed the February 2006 Order dismissing the complaint, finding that triable issues of fact remained (Jericho Group Ltd. v Pioneer Mgt. & Realty, LLC, 48 AD3d 368 [2008]). As a result, plaintiff's Complaint was reinstated.

On March 5, 2008, Michael B. Sena, another attorney from H & R, then moved, by order to show cause, to reinstate plaintiff's Notice of Pendency, nunc pro tunc,as of February 3, 2006, and to extend it for three additional years. By decision and order dated March 31, 2008, Justice DeGrasse denied said motion on the ground that the appeal had been decided and the enforcement of the judgment never stayed, as done in a factually similar lawsuit, Da Silva v Musso (76 NY2d 436, 444 [1990]).

In April 2008, plaintiff terminated H & R's representation in the underlying Pioneer Action. Represented by new counsel, plaintiff settled the Pioneer Action by filing a stipulation on or about August 31, 2010.

The Lien Foreclosure Action


On or about October 5, 2010, H & R commenced a separate action by petition, Herfeld & Rubin, P.C. v Jericho Group, Ltd. et al., index number 113127/10, in Supreme Court, New York County (the Lien Foreclosure Action), pursuant to Judicial Law § 475, seeking to recover unpaid fees for its representation of plaintiff in the Pioneer Action and to enforce its attorney lien against the settlement proceeds therein. On or about December 23, 2010, Jericho's vice president, Avrum Shmiel "Samuel" Pfeiffer (Pfeiffer),[FN3] executed a stipulation of settlement (the Stipulation), agreeing, among other things, that "H & R's claim of judicial lien is hereby settled and agreed to be enforceable in the sum of $30,000 to H & R" and that, if Pioneer did not pay said amount to H & R on or before August 30, 2011, Jericho would do so. The Stipulation [*4]further provided that "[t]his proceeding under Index No. 113127/10 shall be discontinued, with prejudice, but without prejudice to the rights of H & R under paragraph 2(d) of this stipulation."[FN4] Final judgment was entered in the Lien Foreclosure Action on January 27, 2011.

THE PARTIES' CONTENTIONS


Defendants argue that the Complaint should be dismissed because (1) plaintiff's claims are barred by principles of res judicata; (2) plaintiff does not allege facts sufficient to sustain a cause of action for legal malpractice; and (3) plaintiff's breach of fiduciary and breach of contract duty claims and malpractice claims are redundant. Defendants first argue that the doctrine of res judiciata bars the instant action because the Stipulation entered into by Jericho and its principal was tantamount to a judgment in the Lien Foreclosure Action, resolving the legal fees incurred for H & R's services in the Pioneer Action and precluding a claim for malpractice arising out of those services. With regard to the contention that Jericho fails to state a cause of action, defendants maintain that plaintiff cannot establish that he would have been successful in the underlying action, but for defendants' alleged negligence and malpractice, because there was no available mechanism for reinstating the Notice of Pendency at the time defendants were hired to represent plaintiff. According to defendants, it was prior counsel Berger, not defendants, who missed the opportunity to obtain a stay under CPLR 5519 the Notice of Pendency lapsed. Finally, defendants contend that plaintiff's claims for breach of fiduciary duty and breach of contract must be dismissed, as they are based on the same operative facts and allege the same damages as the cause of action for legal malpractice.

In opposition, Pfeiffer's affirmation states that plaintiff signed the Stipulation in the Lien Foreclosure Action in reliance on certain representations by defendants that plaintiff would not be waiving any rights against defendants, based on their drafts of proposed stipulations, and that, but for such understandings, plaintiff would not have signed the Stipulation. Plaintiff also advances arguments regarding a separate litigation against H & R, also before this court, relating to H & R's purported fraudulent misrepresentation on a different matter. Next, although Jericho contends that defendants erroneously claim that H & R became attorneys of record only after March 2007, plaintiff avers that defendant actually began representing Jericho, including by preparing documents filed with the court, in September 2006. Plaintiff also asserts that defendants misled the court by arguing that it was impossible, once the Notice of Pendency was vacated, to reinstate the original Notice of Pendency or file a new one or restrain the transfer of the Property. In this regard, plaintiff highlights Justice DeGrasse's March 31, 2008 order denying Jericho's motion to reinstate and extend the Notice of Pendency in the Pioneer Action, specifically because the enforcement of the judgment was not stayed. Additionally, plaintiff distinguishes the instant scenario from cases cited by defendants, in which courts denied the filing of a second Notice of Pendency, because plaintiff herein did not fail to comply with the necessary procedural requirements. Finally, plaintiff maintains that it sufficiently stated separate causes of action for malpractice, breach of fiduciary duty, and breach of contract. In sum, Jericho argues that, had defendants timely acted according to plaintiff's instructions, the Notice of [*5]Pendency would have been reinstated before the Property was transferred.

Defendants' reply urges the court to disregard various emotionally-charge exhibits submitted by plaintiff that are irrelevant to the legal matters herein. They also indicate that plaintiff raises issues that are not properly before the court, including references to defendants' purported fraud, which is the subject of a separate lawsuit by plaintiff against defendants. Although plaintiff alleges that reserved its rights to commence a new lawsuit against defendants, defendants maintain that plaintiff settled the Lien Foreclosure Action of their own volition. Moreover, they insist that any terms or conditions not incorporated into the final draft of the Stipulation cannot now be used to assert any reservation of rights. Defendants also argue that plaintiff fails to sufficiently allege facts regarding the "but for" causation element of a malpractice claim because there was nothing defendants could have done differently to achieve a reinstatement of the Notice of Pendency, given that, at the time H & R was first consulted by plaintiff, the Notice of Pendency against the Property had already been vacated and the time to stay such vacatur had expired. Defendants further argue that plaintiff's "last gasp" suggestion that defendants should have moved for an order staying Pioneer from transferring or permitting any lien or encumbrance is not supported by any allegations showing that such an application would have been granted.

In plaintiff's "Affirmation, Reply and Clarification," it asserts that defendants should have nevertheless pursued a stay of the vacatur of the Notice of Pendency from the Appellate Division. Plaintiff also argues that it would not have signed the Stipulation but for defendants' advice that the language in the final draft of the Stipulation was sufficient to protect plaintiff's right to further litigate its disputes. Plaintiff now requests that, if those understandings do not preserve their right to pursue further claims against defendants, the court permit it to amend the Complaint to include claims that defendants induced plaintiffs to sign the Stipulation through fraud. In this regard, plaintiff avers that the Stipulation should be declared null and void because, had it known of the frauds committed by defendants against it, as it eventually learned through discovery in a separate lawsuit by plaintiff against defendants, it would have not signed the Stipulation.

Last, Jericho submits an affirmation objecting to the court's consideration of plaintiff's sur-reply, which was untimely and served without the court's leave. Defendants aver that they received plaintiff's sur-reply merely two and a half hours before the scheduled oral argument that same afternoon, and also note that plaintiff improperly raises new arguments therein. They reiterate that they were precluded from seeking a stay to prevent the lapse of the Notice of Pendency in either the trial court or Appellate Division because it had already lapsed, and, in any event, a motion seeking reinstatement of the Notice of Pendency, nunc pro tunc, was already pending before the trial court.

DISCUSSION


"On a motion to dismiss pursuant to CPLR 3211, the . . . complaint is to be afforded a liberal construction. The facts as alleged in the . . . complaint are accepted as true, the plaintiff is accorded the benefit of every possible favorable inference, and the court's function is to determine only whether the facts as alleged fit within any cognizable legal theory" (Goldfarb v Schwartz, 26 AD3d 462, 463 [2006]); see also 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152 [2002]; Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]). If from the four corners of the complaint [*6]factual allegations are discerned which, taken together, manifest any cause of action cognizable at law, a motion to dismiss will fail (see 511 West 232nd Owners Corp., 98 NY2d at 152; Cooper v 620 Prop. Assoc., 242 AD2d 359, 360 [1997]). The court's function is to "accept . . . each and every allegation forwarded by the plaintiff without expressing any opinion as to the plaintiff's ability ultimately to establish the truth of these averments before the trier of the facts" (id., quoting 219 Broadway Corp. v Alexander's, Inc., 46 NY2d 506, 509 [1979]).

However, even affording plaintiff "the benefit of every possible favorable inference," the court finds that the Complaint must be dismissed. First, the court finds that principles of res judicata bar the instant action. Under New York's transactional approach to res judicata, once a claim is brought to a conclusion, that final judgment bars future actions between the same parties on the same cause of action (see Fogel v Oelmann, 7 AD3d 485, 486 [2004]; Field Home-Holy Comforter v DeBuono, 238 AD2d 589, 590 [1997]), which includes "all other claims arising out of the same transaction or series of transactions . . . even if based upon different theories or if seeking a different remedy" (see Fifty CPW Tenants Corp. v Epstein, 16 AD3d 292 [2005], quoting O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]). A stipulation of discontinuance "with prejudice" settling a prior action on the merits is accorded the same res judicata effect as the entry of a judgment on the merits (see Fifty CPW Tenants Corp., 16 AD3d at 294; Matter of Hofmann, 287 AD2d 119, 123 [2001]).

Moreover, res judicata applies not only to the parties of record in the prior action, or administrative proceeding, but also to those in privity with them (see Matter of State of New York v Seaport Manor A.C.F., 19 AD3d 609, 610 [2009]). To establish privity, "the connection between the parties must be such that the interests of the nonparty can be said to have been represented in the prior proceeding" (Green v Santa Fe Indus., 70 NY2d 244, 253 [1987]). Privity has also been found where a person controlled the conduct of the prior litigation in which he was interested such that the result is res judicata against him (Id. at 254).

Here, this action for malpractice, breach of fiduciary duty, and breach of contract against defendants arises out of the same series of transactions as the Lien Foreclosure Action brought by H & R against plaintiff herein.[FN5] The legal services rendered by H & R are the basis for the claims herein as well as those in the prior action. Thus, the parties' stipulation of settlement in the Lien Foreclosure Action bars plaintiff from maintaining the instant action against defendants under the doctrine of res judicata (see Liberty Assoc. v Etkin, 69 AD3d 681 [2010] [settlement by stipulation of fee dispute barred action for malpractice under res judicata]). Similarly, the parties' Stipulation bars plaintiff's recovery under the breach of fiduciary duty and breach of contract claims, which also could have been litigated in the Lien Foreclosure Action.

The court notes that the parties' Stipulation discontinuing the Lien Foreclosure Action "with prejudice" did not reserve any right to pursue related claims or limit any of the disposed [*7]claims to those actually asserted in that proceeding (see Town of Huntington v Beechwood Carmen Bldg. Corp., 82 AD3d 1203, 1206 [2011]; Fifty CPW Tenants Corp., 16 AD3d at 294). Although plaintiff argues that it had reached certain understandings with defendants regarding certain rights it had allegedly reserved, such reservations were not finalized in the signed Stipulation and cannot be binding against the parties.

Additionally, the court finds that plaintiff's claims for breach of contract and breach of fiduciary duty indeed arise from the same operative facts and seek the same damages, and should be dismissed as duplicative (see Ofman v Katz, 89 AD3d 909, 911 [2011]; Tsafatinos v Lee David Auerbach, P.C., 80 AD3d 749, 750 [2011]). Although plaintiff alleges that defendants breached their fiduciary duty by virtue of certain conflicts of interest, the Complaint does not allege facts to support any such conflict of interest. Similarly, plaintiff suggests that it asserted a breach of contract claim based on defendants' failure to comply with plaintiff's specific request that defendants obtain a reinstatement of the Notice of Pendency or stay of its vacatur. However, the court rejects this argument, as such purported "specific demands" were integral to defendants' representation of plaintiff, which is the same basis of the malpractice claim (cf. Reidy v Martin, 77 AD3d 903 [2010] [where breach of contract claim was not duplicative of malpractice claim because it was based on a request or promise to achieve a specific result, rather than a failure to exercise due care or abide by certain professional standards]).

Even if plaintiff's claims are not barred by res judicata nor redundancy, the court would still find that plaintiff has failed to state a cause of action for malpractice. The record reflects that, by the time plaintiff alleges H & R began representing Jericho in September 2006, it was already too late to file any stays preventing the vacatur of the Notice of Pendency or utilize any other mechanism to prevent the transfer of the Property. Once the February 2006 Order vacating the Notice of Pendency was issued, to prevent the Notice of Pendency from lapsing, counsel for plaintiff had to demonstrate that either the time for appealing the final judgment had not yet expired or that an order staying the judgment's enforcement had been issued under CPLR 5519 (see CPLR 6514 [a]; Da Silva v Musso, 76 NY2d 436, 444 [1990]). In that regard, the time for appealing the February 2006 Order expired on May 4, 2006, thirty days after Pioneer's service of a copy of the February 2006 Order vacating the Notice of Pendency, with Notice of Entry, on April 4, 2006, according to defendants (see CPLR 5513 [time to take appeal]). Thus, the period during which counsel for plaintiff could have acted to prevent vacatur of the Notice of Pendency elapsed long before September 2006, the month during which plaintiff alleges defendants first performed any legal services on its behalf. Accordingly, any steps toward keeping the Notice of Pendency in place would have had to have been taken by prior counsel, Berger, who represented Jericho until he moved to withdraw as plaintiff's counsel in the Pioneer Action.

Once vacated, the Notice of Pendency becomes null and void and cannot thereafter be reinstated or restored (see Matter of Sakow, 97 NY2d 436, 442-443 [2002] ["an expired or cancelled notice of pendency may not be refiled on the same cause of action or claim"]). Furthermore, contrary to plaintiff's contentions, successive Notices of Pendency cannot be filed with respect to the Property (Guttman v Gutman, 78 AD3d 779 [2010]; Deutsch v Grunwald, 63 AD3d 872 [2009]) because this is not a mortgage foreclosure action (CPLR 6516 [a]). As noted briefly above, plaintiff also did not state a cause of action for breach of fiduciary duty or breach of contract. [*8]

With respect to plaintiff's suggestion that defendants were negligent because they did not move to restrain the transfer of the Property prior to its sale, the court finds that plaintiff did not establish that a motion seeking such injunctive relief would have been successful, including a showing of likelihood of success on the merits, among other considerations. Additionally, insofar as plaintiff argues that it would not have signed the Stipulation but for defendants' reassurance that the language in the Stipulation would allow plaintiff to pursue further claims against defendants, it is disingenuous and absurd to believe that plaintiff would be entitled to rely on defendants' representations, as they are on the opposite side of an adversarial dispute and were no longer obligated to act in plaintiff's interest. Although plaintiff may argue that defendants improperly settled the Lien Foreclosure Action against Jericho, a former client, without first advising Jericho that it was entitled to obtain independent representation (Code of Professional Responsibility, EC 6-6), such Ethical Considerations are aspirational in nature and are merely non-binding guidelines where are therefore unavailing to prevent the dismissal of the instant action as barred by the doctrine of res judicata (see Matter of Blum, 135 AD2d 253, 255 [1998]; Cheney v Wills, 23 Misc 3d 161, 169 n 23 [2008]). The court has considered the parties' remaining contentions and deems them meritless.

Accordingly, it is

ORDERED that defendants' motion to dismiss the action is granted.

The foregoing constitutes the decision and order of the court.

E N T E R,

J. S. C.

Footnotes


Footnote 1: The court will hereinafter refer to plaintiffs in the singular for ease of reference.

Footnote 2: Sharma is the principal of Pioneer. Pan Express is a travel agency operated by Sharma.

Footnote 3: Pfeiffer is the vice president of Jericho Group, Ltd., and purports to represent Jericho Co., pro se.

Footnote 4: Paragraph 2 (d) referred to the formula by which H & R would bill plaintiff for its services, including interest, should H & R not receive the $30,000 payment from Pioneer by August 30, 2011 or from Jericho by September 30, 2011.

Footnote 5: Jericho Co. is a named plaintiff and Rubin is a named defendant in this action. The court notes that, while Jericho Co., was not a party to the Lien Foreclosure Action, its principal, Pfeiffer, was sued in his official capacity therein and Jericho Co.'s interests were thus represented through privity. Similarly, while Rubin was not a party to the Lien Foreclosure Action, H & R, of which he is a member, is in privity with him and represented his interests therein. The instant action against H & R and Rubin is thus barred by res judicata.