Download - Woodcock v Birnbaum
Woodcock v Birnbaum2018 NY Slip Op 32841(U)
November 7, 2018Supreme Court, Kings CountyDocket Number: 507014/18Judge: Leon Ruchelsman
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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM : COMMERCIAL 8 20/oNQ, -9 - -------------------- - - - - - ----------------x A;r 7: 55 CHRISTIAN JOHN WOODCOCK, Individually and Derivatively ,
Plaintiff , Decision and ·order
- against - Index No . 507014/18
ROBBY H. BIRNBAUM AND GREENSPOON MARDER , LLP . ,
Defendants, November 7 , 2018
And
UNITED CREDIT SOLUTIONS , INC ., ------------------------------------------x PRESENT : HON . LEON RUCHELSMAN
The defendants Robby Birnbaum and Greenspoon Marder LLP have
moved seekinq to dismis s the complaint pursuant to CPLR §3211 on
various grounds. The plaintiff opposes the motion. Papers were
submitted by the parties and arguments held . After reviewing all
the arguments , this court now ma kes the fo llowing determination .
During the fall of 2011 the plaintiff and Ingo Nowottny
incorporated an entity called Century First Credit Solutions
lnc . , [hereinafter ' CFCS') and each was a fifty percent owner of
that entity . On December 22 , 20 11 Ingo Nowottny formed nominal
defendant United Credit Solutions , Inc . , [hereinafter ' UCS ' ) . On
March 1 , 2012 Woodcock purchased half the shares of UCS and thus
became equal shareholders in both corporat i ons . On November 6 ,
2014 Nowottny ' s sister formed another entity, the similarly
called United Credit Solvers , Inc ., and then entered into an
agreement to purchase some of the assets and book of business of
UCS . The relationship between Nowottny and Woodcock soured and
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Woodcock formed another entity Named Priority Capital LLC to
compete with Nowottny without Nowottny ' s ownership interests .
Indeed, both Nowottny and Woodcock accused the other of stealing
proprietary information from their joint corporations and
utilizing the information in their wholly owned corporations .
First , on August 25 , 2015 Woodcock through counsel sent Nowottny
a cease and desist letter accusing Nowottny of representing to
clients that United Credit Solvers is really UCS and demanding
Nowottny discontinue this activity. A few days later a lawsuit
was filed in an action entitled Century First Credit Solutions
Inc. , v . Priority Capital LLC , Christian Woodcock and Joh n Amato ,
Index Number 653287/2015 in New York County . In that action , the
plaintiff Century First Credit Solutions Inc . , owned by Nowottny,
sued Woodcock, alleging he misappropriated trade secrets ,
converted corporate funds and tortuously interfered with
contractual relations , among other claims . Spec i fically , the
complaint alleged Woodcock and John Amato , a former sales
representative and independ~nt contractor of CFCS , formed
Priority Capital LLC and utilized the information misappropriated
in the new entity . Woodcock filed a third party complaint
against Nowottny and his brother William Nowottny alleging they
interfered with Priority and actually fraudulently represented
themselves as employees of Priority to steal Priority' s business
for their own businesses .
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In that lawsuit while the third party complaint was dismissed
the court held in an order dated January 25, 2017 that Greenspoon
Marder LLP [hereinafter 'GM' ) was disqualified from representing
CFCS . The court noted that Woodcock established that GM
" personally represented him both previous ly and currently , and
thus represents him individual l y in addition to in his capacity
as a 50% shareholder in both Century and Solutions" (see ,
Decision of Justice Bannon , dated January 25 , 2017). The court
concluded that Woodcock established he maintained an attorney
client relationship with GM, that his relationship with GM was
substantiall y related to the lawsuit between Century and Priority
and that such interests are materially adverse . The court
disqualified GM ' s representation in the underlying lawsuit on the
grounds such representation was "rife with conflict" (id) .
Woodcock instituted the within lawsuit alleging four causes
of action . The first two allegations are that GM and Robbie
Birnbaum, the GM attorney who dealt with Woodcock , breached their
fiduciary duties and duties of loyalty to Woodock derivatively
and Woodcock personally . The third and fourth causes of action
allege GM and Birnbaum violated Judiciary Law §487 to Woodcock
derivatively a nd personally .
The defendants have moved seeking to dismi ss the lawsuit .
First, Birnbaum argues that he has no connection with the State
of New York sufficient for the court to assert any personal
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jurisdiction over him . Substantively, the motion argues the
complaint has failed to establish the necessary elements
sufficient to state any cause of action.
Conclusions of Law
A non-domiciliary may be subject to the jurisdiction of New
York courts where that individual "transacts any business within
the state or contracts anywhere to supply goods or services in
the state" (CPLR §302(a)) . "Although it is impossible to
precisely fix those acts that constitute a transaction of
business" case law has established that "it is the quality of the
defenda~ts' New York contacts that is the primary consideration"
(see , Fischbarg v . Doucet , 9 NY3d 375 , 849 NYS2d 501 [2007)) .
Thus , it is generally true that electronic mail or telephone
communications , actions undertaken by Birnbaum in this case , are
gene r ally insufficient to constitute ' transacting business '
sufficient to confer jurisdiction (Dukes Bridg e LLC v. Security
Life of Denver Insurance Company, 2016 WL 1700383 [E . D. N. Y.
2016]) . However , in Cutco industries Inc., v . Naughton , 806 F2d
361 [2d Cir. 1986) the court held that individuals that comprise
a partnership or a joint venture are agents of each other.
Therefore , jurisdiction upon Birnbaum would be proper if it can
be established that GM acted as his agent in New York. Thus ,
Birnbaum can be ~aid to have transacted business in New York
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through partners hip activities in New York \see , Durkin v . Shea ,
957 F . Supp 1 3 60 [S . D. N. Y. 1 997]) . In this case, the init i al
letter of engagement sent by Birnba um to UCS dated April 29 , 2 013
was wr itten on GM letterhead . Further , the letter confirmed "the
engagement of Greenspoon Marder , P . A." and Birnbaum signed the
letter " for the Firm" (see , Letter of Engagement) . Thus , while
Birnbaum migh t have acted in Florida , there can be no dispute
that he did not act in an ind ividual capacity but as a member of
GM . The parties have not presented any evidence how Woodcock or
Nowottny , for that matter , came to learn of GM or Birnbaum and
whether any solic i tation was conducte d by GM in New York
sufficient to subject Birnbaum a s agent of GM to New York courts .
Similarly, the Letter of Engagement mentions bill ing information ,
hourly rates , and monthly invoices . The mot ion papers do not
reveal whether such information was presen ted to the client by GM
from a New York office or some other state. Further , t here has
been no evidence presented that no other attorneys from GM
conducted any work for any of the parties who wer e present in New
York . Thus , there are significant factual questions whether
Birnbaum can have reasonably expect ed to be subject to New York
courts and consequently the motion seeking to di s miss the
complaint for lack of jurisdiction is denied .
Turning to t he substantive grounds seeking to dismiss the
complaint , it is well settled that "[a] motion to dismiss made
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pursuant. to CPLR §32ll[a] (7) wil l fail i f , taking all facts
alleged a s true and according them every possible inference
favorable to the p l aint if f , the complaint states in some
r e cognizable form any cause of action known to our law" (see ,
e . g . AG Capital Funding Partners , LP v . State St. Bank and Trust
Co ., 5 NY3d 582 , 808 NYS2d 573 (2005) , Leon v. Martinez , 84 NY2d
83, 614 NYS2d 972 , (1 994) , Hayes v . Wilson, 25 AD3d 586 , 807
NYS2d 567 [2d Dept., 2006) , Ma rchionni v . Drexler , 22 AD3d 814 ,
803 NYS2d 196 [2d Dept ., 2005) . Whether the complaint will late r
survive a motion for summary j udgment , or whether the plaint iff
will ultimately be able to prove it s c l aims , of course , p lays no
part in the determi nation of a p re - discovery CPLR § 321 1 mot i on to
dismiss (see , EBC I , Inc . v . Goldman Sachs & Co ., 5 NY3d 11 , 799
NYS2d 170 [2005)) .
First , Business Cor poration Law §62 6 (c) states that no
derivat i ve lawsuit may be corrunenced unless the c omplaint a lleges
" with particularity the efforts of the plaint iff to secure the
initiation of such act ion by the board or the reasons for no t
making the effort" (id) . As the Supreme Court noted , for a
stockholder to sue derivat ively " he m~st ma ke an earnest , not a
simulated effort , with the ma naging body o f the corporation , to
induce remedial action o n thei r part , and this must be made
apparent to the court " (s ee , Hawes v . City of Oakland, 104 US
450 , 14 Otto 450 (188 1 )) .
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The defendants argue the plaintiff failed to comply with
that provision and that consequently the p l aintiff has no
standing to pursue the lawsuit. The plaintiff counters that
specific evidence such notice would have been futile has been
presented .
To succeed upon an assertion that notice would have been
futile and hence not required, specific facts must be presented
that the individuals at issue were self-interested in the
transactions (see, Bansbach v . Zinn, 1 NY3d 1 , 769 NYS2d 175
[2003]. Thus , the plaintiff must establish that if a demand
would have been filed with the Board of Directors they could not
have exercised independent and disinterested business judgement
(id) . Thus, the individual defendants wil l be considered
incapable of being disinterested if facts support a personal
benefit to them regarding the transaction being challenged (id).
In that instance the business judgement rule is inapplicable and
demand futility is established .
In this case, the complaint alleges that defendants had
material interests in the issues that comprise the causes of
action , namely the representation of Binrbaum and GM . Thus ,
demand would obviously have been futile .
The defendants argue the standard for demand futility has
not been met since the futility has not been presented with
sufficient particularity . However, particularity governs the
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totality of the futility and as long as such fut ility can be
discerned by the court then the particularity will naturally
suffice . Thus , where the directors are accused of self-dealing
then obviously futility has been presented (see , Soho Snacks
Inc ., v. Franq ioudakis , 129 AD3d 636, 13 NYS3d 31 [1st Dept. ,
2015)). While Nowottny has been directly accused of self dealing
the e nt ire lawsuit presented here conflicts directly with
activities undertaken by Nowottny , most notably his hiring of GM
in the New York lawsuit . Thus , demand futility has been
established .
To succeed on a claim for breach of a fiduciary duty, a
plaintiff must establish the existence of the following th~ee
elements : (1) a fiduciary relationship existed between plaintiff
and defendant , (2) misconduct by the defendant, and (3) damages
that were directly caused by the defendant's misconduct (Kurtzman
v Bergstol , 40 AD3d 588 , 835 NYS2d 644 , 646 [2d Dept ., 2007) ,
see, Birnbaum v . Birnbaum, 73 NY2d 461 , 541 NYS2d 746 [1989)
stating individuals jointly managing a limited liability
corporation creates a fiduciary duty among the members analogous
to that of partners) .
It is well settled ~hat the violation of a Disciplinary Rule
does not , by itself, give rise to a claim of breach of a
fiduciary duty (Schwartz v . Olshan Grudrnan Frome & Rosenzweig,
302 AD2d 193 , 753 NYS2d 482 [1st Dept ., 2003)). Therefore, the
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allegations of the complaint must be examined . The complaint
alleges var ious breaches of fiduciary duties including " advising
in the misuse , misappropriatiqn , removal and/or destruction of
UCS assets and property" (see , Summons and Complaint , ~ 114(b)) .
Of course , the plaintiff will be required to prove these
allegations at trial , however , at this stage of the proceedings ,
accepting the allegat i ons of the complaint as true , they allege
breaches of duty s ufficient to survive a motion to dismiss , based
upon ot~er allegations besides the breach of any disciplinary
rules (see , Summons and Compla int , ~ 114(a)) . For similar
reasons the requisite causation required to plead and prove a
breach of fiduciary duty is satisfied . The plaintiff has alleged
that if GM would not have committed the various breaches
enumerated above and in the complaint then the plaintiff would
not have been harmed in the manner in which he was harmed. The
specific harms could include compensatory damages or perhaps
forfe i ture of legal fees . Again , while the plaintiff will be
required to prove those losses and harms , at this stage a prima
facie presentation of a breach of duty has been made.
Consequently , the motions seeking to dismiss the breach of
fiduciary duty claims are denied.
Lastly , concerning Judiciary Law §487, it is well settled
that to establish such a cause of action the plaintiff must
present evidence an attorney acted " with intent to deceive"
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either the court or any party (see, Moormann v. Perini Hoerger,
65 AD3d 1106, 886 NYS2d 49 [2d Dept . , 2009]). The allegations
concerning the deception must be pled with particularity (Betz v .
Blatt, 160 AD3d 696 , 74 NYS3d 75 [2d Dept ., 2018]).
First , it must be noted that the Second Department no longer
mainta ins a cause of action pursuant to Judiciary Law §487 based
upon an attorney's egregious , extreme or chronic delinquent
activities . Rather, "the only liability standard recognized in
Judiciary Law §487 is that of an intent to deceive" (Dupree v .
Vorhees , 102 AD3d 912 , 959 NYS2d 235 [2d Dept. , 2013]) .
Second , considering the intent to deceive, such intent can
hardly be demonstrated . Indeed , GM acknowledged to the court as
well as to the plaintiff that such representation was being
undertaken . In Judge Bannon ' s decision dated January 25 , 2017,
she noted that in opposition to the motion to disqualify the
plaintiff there, CFCS argued that "Woodcock is only a former
client of Greenspoon Marder, that any representation of Woodcock
in Florida was only provided in connection with Woodcock role as
a 50% owner of Century , that personal representation of Woodcock
by Greenspoon Marder in Florida , if any, was not substantially
related to the instant matter" (supra). Thus , GM ' s
representation in the New York matter was not ' deceptive ' in any
manner, rather, GM simply argued the representation was not
legally proscribed. While they failed to prevail upon such
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argument , which comprises the causes of action as noted, they did
not engage in any decept ion or any deceptive practices .
Therefore , the motions seeking to dismiss t he claims based upon
Judiciary Law §487 are hereby granted .
So ordered.
DATE D: November 7 , 2018 Brooklyn N. Y.
ENTER :
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Hon . Leon Ruchelsman JSC
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