Amalfitano v. Rosenberg

• Decision Date: 20 April 2006
• Docket Number: No. 04 Civ.2027(NRB).,04 Civ.2027(NRB).
• Parties: Vivia AMALFITANO and Gerard Amalfitano, Plaintiffs, v. Armand J. ROSENBERG, Defendant.
• Court: U.S. District Court — Southern District of New York

428 F.Supp.2d 196

Vivia AMALFITANO and Gerard Amalfitano, Plaintiffs, v. Armand J. ROSENBERG, Defendant.

No. 04 Civ.2027(NRB).

United States District Court, S.D. New York.

April 20, 2006.

Richard E. Hahn, New York, NY, for Plaintiffs.

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

MEMORANDUM AND ORDER

BUCHWALD, District Judge.

Plaintiffs Vivia Amalfitano ("Mrs.Amalfitano") and Gerard Amalfitano, Esq. ("Mr.Amalfitano") (collectively, "plaintiffs" or "the Amalfitanos") have brought this diversity action against attorney Armand J. Rosenberg, Esq. ("defendant" or "Rosenberg"). Plaintiffs allege that Rosenberg violated New York Judiciary Law § 487 (" § 487") in the course of his representation of Mrs. Amalfitano's uncle, Peter Costalas ("Peter"), who was the plaintiff in an earlier lawsuit brought against the Amalfitanos in New York state court. For the reasons stated below, we find that Rosenberg engaged in conduct that violated § 487.

BACKGROUND¹

I. Overview

Plaintiffs' claim is based on § 487, which states that an attorney who

[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party . . . [i]s guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.

N.Y. Jud. Law § 487 (McKinney 2005). Plaintiffs assert that, in violation of § 487, Rosenberg brought a lawsuit accusing them of orchestrating a fraudulent sale of the family business to themselves despite knowing from his own prior representation that Peter had earlier forfeited his interest in the family business because of his misdeeds. In short, Rosenberg brought suit against plaintiffs despite knowing that it was entirely baseless. Plaintiffs allege that Rosenberg's knowledge gained from his prior representation of Peter, combined with various other actions of questionable ethical or professional propriety, support the conclusion that he acted with the intent to deceive.

Defendant responds by arguing that plaintiffs have at best shown "frivolous conduct" on his part, see Trial Tr. 546, which does not rise to the level of intentional deceit, as required under § 487. Moreover, defendant contends that even if the conduct rose to the level of intentional deceit, plaintiffs have failed to establish reliance on his alleged acts of deceit as required by § 487.

II. The Original Dispute

The Costalas brothers, Peter, James, and John, were at one time engaged in a family real estate and restaurant business. The three Costalas brothers shared the responsibility of managing the twelve restaurants and five buildings which comprised the family business. James focused on the operational aspects of running the restaurants, John supervised the building of the restaurants, and Peter oversaw finances. Id. at 32-33.

Unbeknownst to James and John, Peter engaged in a series of personal business transactions which ultimately contributed to the loss of four of the family-owned buildings and eleven of the businesses' restaurants. Id. In doing so, Peter improperly diverted approximately eight to ten million dollars from the family businesses. Id. at 50. Some of this money, it appears, was used to subsidize his "palatial" apartment, which was filled with imported Italian marble and overlooked Central Park. Id. at 158. Moreover, Peter had been accumulating significant debts in the course of his personal investing, specifically through extensive trading in options. In an effort to cover his losses, Peter began writing checks to himself from the business accounts and forging the signatures of various family members on bank documents in order to obtain financing. Id. at 34, 37. In 1989, family members learned that Peter had heavily mortgaged the family-owned buildings and that the businesses were in danger of being lost. Id. at 34. Family members also faced the consequences of Peter's actions directly, with some of them facing foreclosure on their homes due to Peter's forging of their signatures. Id. As a result of Peter's actions, the Costalas family lost four of five buildings and eleven of twelve restaurants. Id. at 32. Peter subsequently was forced out of the business in 1993.²

Rosenberg's representation of Peter began in the early 1990s, during this time of family and business turmoil. Rosenberg negotiated with James and John on Peter's behalf in an attempt to keep the peace among the brothers and eventually dissuaded James and John from pursuing criminal charges against Peter.³ Id. at 40, 50-51.

III. The Gruntal Litigation

While Rosenberg was successful in discouraging Peter's brothers from contacting the District Attorney's Office, his efforts did not prevent a civil suit. James and John subsequently filed a lawsuit against Peter as well as, among others, Gruntal & Co. ("Gruntal") and Maurice (Mike) Gross, who were the brokers involved in Peter's option trades (the "Gruntal litigation"). On June 18, 1993, the action was dismissed against all defendants except Peter. Id. at 73.

A. August 1993 Agreement

Soon afterwards, John and Peter signed an agreement in August 1993 ("August 1993 Agreement") in which Peter assigned and transferred to John his right, title, and interest in all the family businesses. Pl. Ex. 41. In addition, Peter assigned to John two-thirds of the amount of any recovery he received from his cross-claims against the brokers.⁴ Trial Tr. 69, 74-75, 190; Pl.Ex. 41. Peter was subsequently dismissed from the Gruntal litigation by stipulation on April 11, 1994.⁵ Trial Tr. 76.

B. Rosenberg's Knowledge

Although Rosenberg never formally appeared in the Gruntal litigation, he was retained by Peter and also communicated with Vito Vincenti, Esq. (counsel for James and John) on Peter's behalf on numerous occasions. See, e.g., Pl.Ex. 21, 22, 26, 30, 31, 33, 37; Trial Tr. 198, 202, 418-23; P1.2d Req. to Admit ¶ 30. During the course of his representation of Peter, Rosenberg learned (if he did not already know of them) many of the details of Peter's misdeeds, which would later be the focus of much of the litigation before this Court.

1. August 1993 Agreement

Significantly, Vincenti testified at trial in this litigation, and his records reflect, that Rosenberg was involved in the negotiations which led to the drafting of the August 1993 Agreement. Pursuant to phone conversations with Rosenberg, Vincenti drafted an agreement designed to constitute a binding contract. PI.Ex. 19; Trial Tr. 192, 209-10. Similar to the final August 1993 Agreement, this draft effectuated the sale of Peter's rights and interests in the family businesses (including 27 Whitehall Street Group) to James and John.⁶ Pl.Ex. 27; Pl.2d Req. to Admit ¶ 25. On August 13, 1993, Vincenti sent a substantially similar draft of the agreement to Oscar Goldberg, Esq., an attorney who often represented the family in real estate matters, and a copy of this draft eventually was signed by Peter and John.⁷ Trial Tr. 102; Pl.Ex. 40, 41.

Rosenberg ultimately was "instrumental" in negotiating a settlement of Peter's cross-claim against Gruntal, which involved a payment of $200,000. Rosenberg retained one-third of the payment as his fee. Id. at 357. The remaining two-thirds were divided equally into two checks, both made out to Peter.⁸ Id. at 359; Pl.Ex. 56, 57.

2. Peter's Trading

The Gruntal litigation provided Rosenberg an opportunity to learn details of Peter's option trading. Significantly, Rosenberg requested and eventually received from David Brodsky, Esq. (counsel for defendants Gruntal and Gross in the Gruntal litigation) trading account records of both Peter's parents and an employee of the family business because Rosenberg represented that those accounts were "totally intertwined with those of Peter Costalas."⁹ Pl.Ex. 34; Trial Tr. 383, 394-98. These statements detail numerous transactions involving call option and put option orders.¹⁰ Pl.Ex. 49; Trial Tr. 406-08. Despite the fact that they resided in Greece, the addresses listed for Peter's parents on the statements at various points were a post office box maintained by Peter and Peter's own home address during that time, which was then known by Rosenberg. Trial Tr. 409, 427. Even if Rosenberg previously had any doubts, these documents confirmed that Peter had been engaged in wrongdoing during the course of his option trading.

IV. The Costalas Litigation

In 1993, at the family's request Mrs. Amalfitano (James' daughter), a Villanova University graduate who had majored in business and communications, began to assume responsibility for the operation and management of the Costalas family businesses, of which only one restaurant and a building at 27 Whitehall Street remained. Id. at 30, 35. At that time, the building at 27 Whitehall Street¹¹ was subject to a two million dollar mortgage ($800,000 of which had been undertaken by Peter without his brothers' knowledge). Id. at 38, 48. Mrs Amalfitano eventually purchased the building in 2000 in order to avoid foreclosure. As part of this purchase, the contract of sale was assigned to Mrs. Amalfitano's corporation, MSA Twins, Ltd., Mrs. Amalfitano personally guaranteed the necessary mortgage loan, and James and John were released from their obligations on the mortgage.¹² Id. at 80, 83, 91, 93, 94.

The next year, on May 18, 2001, Rosenberg, as Peter's attorney,¹³ initiated a lawsuit (the "Costalas litigation") against the Amalfitanos. Id. at 97. Despite Rosenberg's knowledge of recent events, he filed a complaint alleging both that the Amalfitanos defrauded James and John into conveying 27 Whitehall Street to the Amalfitanos and that Peter was still a partner in the business.¹⁴ Relying on an asserted difference between the purchase price and the total value of the property, the complaint alleged essentially that the Amalfitanos had fraudulently purchased the property under extremely...