Art Capital Group Llc v. Neuhaus

• Decision Date: 25 February 2010
• Citation: 896 N.Y.S.2d 35,2010 N.Y. Slip Op. 01600,70 A.D.3d 605
• Parties: ART CAPITAL GROUP, LLC, et al., Plaintiffs–Respondents,v.Beth Sara NEUHAUS, Defendant–Appellant.
• Court: New York Supreme Court — Appellate Division

70 A.D.3d 605

896 N.Y.S.2d 35

2010 N.Y. Slip Op. 01600

ART CAPITAL GROUP, LLC, et al., Plaintiffs–Respondents,

v.Beth Sara NEUHAUS, Defendant–Appellant.

Supreme Court, Appellate Division, First Department, New York.

Feb. 25, 2010.

Miller & Wrubel P.C., New York (Joel M. Miller of counsel), for appellant.Wollmuth Maher & Deutsch LLP, New York (Jennifer L. Rudolph of counsel), for respondents.ANDRIAS, J.P., FRIEDMAN, BUCKLEY, ACOSTA, DEGRASSE, JJ.

Order, Supreme Court, New York County (Richard B. Lowe III, J.), entered December 1, 2008, which denied defendant's motion to dismiss the complaint, reversed, on the law, with costs, and the motion granted. The Clerk is directed to enter judgment in defendant's favor.

Plaintiffs are in the business of providing financial and consulting services to art owners, for the purpose of enhancing the liquidity of works of art held by individual owners and art galleries. This action stems from the fact that plaintiffs' former employees, Christopher Krecke and Andrew Rose, now compete with plaintiffs through entities they have formed. Three years before this action was commenced, plaintiffs sued Krecke, Rose and their entities, alleging various torts plus claims for declaratory relief and an accounting. In that still pending action, it is alleged, among other things, that Krecke and Rose defrauded and engaged in unfair competition with plaintiffs. All of the instant complaint's seven causes of action, which include aiding and abetting breach of fiduciary duty, fraud and conspiracy to defraud, and aiding and abetting fraud are based upon defendant's role as an attorney retained by Rose for the purpose of starting his new business venture with Krecke. Plaintiffs allege that Krecke and Rose needed to secure the aid and assistance of legal counsel in order to carry out the conspiracy against them. Accordingly, defendant is alleged to have substantially facilitated and advanced the Krecke–Rose conspiracy to defraud and unfairly compete with plaintiffs.

The issue on this appeal is whether the complaint sets forth any basis for defendant's liability for the alleged conduct of Krecke and Rose.

In general, all who aid and abet the commission of a trespass are liable ... But where one acts only in the execution of the duties of his calling or profession, and does not go beyond it, and does not actually participate in the trespass, he is not liable, though what he does may aid another in its commission.

( Ford v. Williams, 13 N.Y. 577, 584 [1856].)

Moreover, it is recognized that public policy demands that attorneys, in the exercise of their proper functions as such, shall not be civilly liable for their acts when performed in good faith and for the honest purpose of protecting the interests of their clients ( Hahn v. Wylie, 54 A.D.2d 629, 387 N.Y.S.2d 855 [1976] ). As to defendant's specific conduct, plaintiffs allege that she gave Krecke and Rose indispensable legal advice and counsel, documented and negotiated loan transactions between their competing entities and plaintiffs' current and prospective clients, and provided legal services to secure office space for Krecke and Rose. Guided by Ford, we find that plaintiffs' causes of action are not viable because all of the aforementioned acts fall completely within the scope of defendant's duties as an attorney. The five quotes from the complaint cited by the dissent do not warrant a contrary conclusion inasmuch as they do not even suggest that defendant acted in any capacity other than as an attorney.

Even apart from Ford and Hahn, this Court has held that a viable tort claim against a professional requires the underlying relationship between the parties to be one of contract or the bond between them so close as to be the functional equivalent of contractual privity ( Jacobs v. Kay, 50 A.D.3d 526, 857 N.Y.S.2d 81 [2008], citing Ossining Union Free School Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 541 N.Y.S.2d 335, 539 N.E.2d 91 [1989] ). The existence of such a relationship is not alleged here. Moreover, Rule 1.2(d) of the Rules of Professional Conduct (22 NYCRR 1200.2 [d] ), also cited by the dissent, does not bear upon the sufficiency of plaintiffs' claims. Standing alone, an ethical violation will not create a duty giving rise to a cause of action that would otherwise not exist at law ( Shapiro v. McNeill, 92 N.Y.2d 91, 97, 677 N.Y.S.2d 48, 699 N.E.2d 407 [1998] ).

Also, the dissent merely begs the question by invoking Judiciary Law § 487, authority plaintiffs do not cite. That statute provides for criminal and civil liability for 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.” The “indication of fraud and collusion” discerned by the dissent falls short of an allegation that defendant tortiously acted outside the scope of her role as an attorney. By illustration, the tenor of the complaint is revealed by its following language: “In order to accomplish the aforementioned conspiracy, Krecke and Rose needed to secure the aid and assistance of legal counsel,” and “Beth Neuhaus' legal advice and counsel was substantial and indispensable to Krecke and Rose.” The “advice of counsel with respect to a client's course of conduct, even if pleaded as ‘condonation,’ does not thereby and without more metamorphose into a cause of action by a third party against that counsel” ( Pearl v. 305 E. 92nd St. Corp., 156 A.D.2d 122, 548 N.Y.S.2d 25 [1989] ). It is also of no moment that discovery has not been conducted. Plaintiffs have not asserted that facts essential to justify opposition to the motion may have existed but could not be stated ( see CPLR 3211[d] ).

Plaintiffs' claims of fraud, conspiracy to defraud and aiding and abetting fraud are deficient for an additional reason. The elements of fraud are a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff, and damages ( Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559, 883 N.Y.S.2d 147, 910 N.E.2d 976 [2009] ). In this case, plaintiffs do not allege that any misrepresentations were made to them.

All concur except ACOSTA, J. who dissents in part in a memorandum as follows: ACOSTA, J. (dissenting in part).

I believe that plaintiffs have stated a viable cause of action for aiding and abetting a breach of fiduciary duty, and aiding and abetting fraud.

Plaintiffs are in the business of providing financial and consulting services to individual art owners and art galleries. Apart from engaging in art sales, purchases and advisory services, plaintiffs also offer recourse and nonrecourse asset-based loans to individuals, galleries and other businesses, using their art assets as collateral in securing the loan or as a component of the collateral package.

Nonparty Christopher Krecke was an employee of plaintiff Art Capital and served as its chief financial officer and chief operating officer. He also served as the chief financial officer and chief operating officer of plaintiff ACG Credit, and as president of plaintiff Fine Art Finance. Krecke administered the loans for each of ACG Credit's lending clients, as well as managing and developing key banking and credit relationships. Nonparty Andrew C. Rose was a consultant for Art Capital Group, and was managing director of ACG Credit. Rose's employment and consulting arrangement was terminated on December 28, 2004.

According to the complaint, while Rose was consulting for Art Capital, he “started planning to compete secretly against plaintiffs and appropriate ACG Credit's corporate loans and plaintiffs' business opportunities for himself and Krecke.” On or about October 2004, Rose formed a company called Art Capital Holdings, Inc., “to provide financial consulting services and established e-mail accounts with ‘artcapitalgroup.com’ domain names.”

After Rose was terminated, Krecke continued his employment with plaintiffs for an additional three months. The complaint alleges that during that time, Krecke helped Rose conceal the efforts of the competing business. Krecke resigned from his employment with plaintiffs on April 1, 2005, and reported for employment with Rose three days later. It is further alleged that during that three-month period, “Krecke and Rose facilitated the transfer of numerous lending clients and prospective clients to Rose's new company.”

On or about January 26, 2005, defendant, an attorney, met with Krecke and Rose at her office, and was retained as Rose's legal counsel. It is alleged that she “knowingly and deliberately enabled, assisted, and counseled Krecke and Rose to unfairly compete with Plaintiffs, to defraud Plaintiffs, and to disregard the fiduciary duties they each owed to Plaintiffs.” It is further alleged that defendant “worked on loan transactions with Krecke and Rose with counterparties that were borrowers of, potential clients of, or had signed term sheets with Plaintiffs,” assisted in “appropriat[ing] many loan transactions away from Plaintiffs, and otherwise ... interfere[d] with Pl...