Amalfitano v. Rosenberg

• Decision Date: 15 July 2008
• Docket Number: Docket No. 06-2364-cv.
• Citation: 533 F.3d 117
• Parties: Vivia AMALFITANO and Gerard Amalfitano, Plaintiffs-Appellees, v. Armand ROSENBERG, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

533 F.3d 117

Vivia AMALFITANO and Gerard Amalfitano, Plaintiffs-Appellees, v. Armand ROSENBERG, Defendant-Appellant.

Docket No. 06-2364-cv.

United States Court of Appeals, Second Circuit.

Argued: September 6, 2007.

Decided: July 15, 2008.

William J. Davis, Scheichet & Davis, P.C., New York, NY, for Defendant-Appellant.

Richard E. Hahn, Llorca & Hahn LLP, New York, NY, for Plaintiffs-Appellees.

Before: WALKER, CALABRESI, and SACK, Circuit Judges.

SACK, Circuit Judge:

Defendant-Appellant Armand Rosenberg appeals from the judgment of the United States District Court for the Southern District of New York (Naomi Reice Buchwald, Judge) finding him liable pursuant to New York Judiciary Law § 487 for treble damages arising from several of his actual and attempted acts of deception on New York State courts in the course of litigation before them. See Amalfitano v. Rosenberg, 428 F.Supp.2d 196 (S.D.N.Y. 2006). On appeal, he contends that (1) the district court's finding that the Appellate Division was deceived was not supported by clear and convincing evidence; and (2) the district court erred in concluding that section 487 imposes liability for attempted deceit.

For the reasons that follow, we certify to the New York Court of Appeals two questions regarding whether section 487 permits recovery of damages based on an attempted, but unsuccessful, deceit.

BACKGROUND

Three brothers, Peter, James, and John Costalas, were at one time engaged in a family real estate and restaurant business together. Unbeknownst to James and John, Peter undertook a series of personal business transactions that ultimately resulted in the loss of four of five buildings owned by the family, and eleven of their twelve restaurants. Peter diverted between eight and ten million dollars of the family business to himself, forging the signatures of several members of his family on business documents. He used this money both to fund his "palatial" apartment overlooking Central Park and to cover his losses from extensive and ultimately unsuccessful options trading.

Rosenberg, a member of the New York Bar, began representing Peter in the early 1990s after these misadventures first came to light. The representation included several foreclosure proceedings on the family's buildings. Rosenberg also negotiated with James and John on Peter's behalf to dissuade them from seeking to have criminal charges brought against Peter.

The Gruntal Litigation

Although James and John did not in the end seek to have criminal charges brought against Peter, they did file a civil lawsuit against him, also naming as a defendant Gruntal & Co., Inc. ("Gruntal"), the broker Peter used in his unsuccessful options trading. See Complaint at 1, Costalas v. Gruntal & Co., No. 92 Civ. 8677 (S.D.N.Y. filed Dec. 1, 1992) (the "Gruntal litigation"). Rosenberg never formally appeared in the Gruntal litigation, but he was retained by Peter and communicated with James and John's counsel, Vito Vincenti, on several occasions with regard to the Gruntal litigation.

The August 1993 Agreement

In August 1993, John and Peter signed an agreement (the "August 1993 Agreement") in which Peter assigned his one-third interest in the family business and partnerships to John in exchange for $12,000. The assets transferred included Peter's interest in the partnership known as 27 Whitehall Street Group, which owned the one building the family had not lost, located at 27 Whitehall Street in Manhattan ("27 Whitehall Street"). Peter also assigned to John two-thirds of any recovery he might receive in his cross-claims against Gruntal.¹

Rosenberg represented Peter in the negotiations that led to the drafting of the August 1993 Agreement. He held several telephone conversations with Vincenti in connection with it, and he received several drafts of the agreement. Rosenberg was also "instrumental" in negotiating a settlement of Peter's cross-claims against Gruntal, which involved a payment of $200,000. In accordance with the August 1993 Agreement, Rosenberg retained one-third of the payment as his fee and divided the remaining two-thirds into two equal checks.² Vivia Amalfitano, James's daughter and one of the appellees in this case, picked up one of those checks on her father's behalf. It is not clear from the record what happened to the other check for one-third of the settlement. Presumably, it went to John.

On April 11, 1994, Peter was dismissed as a party to the Gruntal litigation by stipulation.

The Costalas Litigation

In 1993, after the upheaval that resulted from the discovery of Peter's wrongdoing, Vivia began to assume responsibility for the family business. At that point the business included just one restaurant and the building at 27 Whitehall Street. The building was subject to a two-million-dollar mortgage at the time. In 2000, Vivia purchased the building from the family in order to avoid foreclosure. The contract of sale was assigned to Vivia's corporation, MSA Twins, Ltd. Vivia personally guaranteed the mortgage loan, and John and James were released from their obligations on the mortgage.

On May 24, 2001, Peter, represented by Rosenberg, initiated a lawsuit in New York state court against Vivia and her husband, Gerard Amalfitano, alleging that they had defrauded the family business and partnership in the sale of 27 Whitehall Street. See Complaint at 1, Costalas v. Amalfitano, No. 110552/01 (N.Y. Sup.Ct. filed May 24, 2001) (the "Costalas litigation").³ Despite the August 1993 Agreement removing Peter from the partnership, the complaint alleged that Peter was a member of the partnership. On July 31, 2001, the Amalfitanos moved to dismiss the complaint in the Costalas litigation on the ground that Peter lacked any interest in 27 Whitehall Street because he had transferred his interest to John under the August 1993 Agreement.

In response to the motion to dismiss, Rosenberg filed a cross-motion for summary judgment. In its support, he prepared an affidavit, executed by Peter, that asserted that the August 1993 Agreement "was never intended and did not have any real effect" because Peter's prior attorney, Oscar Goldberg, had advised him to sign the agreement as a sham to avoid potential creditors.

Supreme Court, New York County (Ira Gammerman, J.) granted the Amalfitanos' motion to dismiss. Rosenberg, on behalf of his client Peter, moved to vacate the dismissal. Justice Gammerman denied the motion on the grounds that (1) Peter was prohibited by the parol evidence rule from arguing that the August 1993 Agreement was a sham, and (2) Peter lacked standing to bring the lawsuit.⁴

Rosenberg, on Peter's behalf, appealed the denial of the motion to vacate to the Appellate Division, First Department. Included in the record on appeal was Peter's affidavit asserting that the August 1993 Agreement was a sham. Also included were several of the family partnership's tax returns, which had erroneously continued to list Peter as a partner even after the August 1993 Agreement was executed. The First Department reversed the order of the trial court, concluding that there were "[s]erious open questions" regarding "the real need for and purpose of the purported assignment" and whether Peter was a member of the partnership. Costalas v. Amalfitano, 760 N.Y.S.2d 422, 424, 305 A.D.2d 202, 203 (1st Dep't 2003).

Back in the trial court, the parties proceeded with pre-trial discovery. Thereafter, Justice Gammerman granted the Amalfitanos' motion to dismiss. Rosenberg then moved on Peter's behalf to vacate the dismissal based on alleged ex parte communications between the Amalfitanos' counsel and Justice Gammerman. The motion was denied. The First Department unanimously affirmed the trial court's judgment. See Costalas v. Amalfitano, 808 N.Y.S.2d 24, 23 A.D.3d 303, 304 (1st Dep't 2005).

The Instant Suit

On March 16, 2004, the Amalfitanos filed the instant diversity action in the United States District Court for the Southern District of New York. The complaint alleged that Rosenberg's conduct in the Costalas litigation violated New York Judiciary Law § 487,⁵ and caused them damages in the form of attorney's fees and expenses from that litigation.

The case was tried to the bench over a period of four days. The Amalfitanos called as witnesses themselves, Vito Vincenti and Rosenberg. Rosenberg called no witnesses.

In addition to finding the facts described above, the district court concluded that Rosenberg engaged in "a persistent pattern of unethical behavior" during the Costalas litigation. Amalfitano, 428 F.Supp.2d at 203.

First, after the Amalfitanos served a notice of deposition on the former family accountant, Howard Komendant, Rosenberg sent Komendant a letter stating, in part, "You should be advised, that in my opinion, if, in fact, you served in a professional capacity, all communications, contacts and documents were of a privileged nature." Rosenberg cited no authority for this proposition and failed to respond to opposing counsel's letter citing authority that there is no accountant-client privilege in New York. Rosenberg subsequently failed to attend the Komendant deposition. Komendant nonetheless brought counsel to the deposition, and the Amalfitanos were required to pay for the cost of his attendance.

Second, Rosenberg failed to correct Peter's deposition testimony to the effect that John and James had never brought suit against Gruntal, that Peter had never signed any documents during the Gruntal litigation, and that Peter had only sold stock options in the amount of "five, ten [options], here and there."

Third, Rosenberg refused to produce Peter's personal tax returns, insisting that they were "totally irrelevant." He eventually produced the returns, but only after being ordered to do so by Justice Gammerman. The returns, eventually admitted into evidence, showed that Peter had not asserted a partnership interest in 27 Whitehall Street Group after the August 1993 Agreement.

Fourth,...