Coopers and Lybrand v. Levitt
| Citation | 52 A.D.2d 493,384 N.Y.S.2d 804 |
| Parties | COOPERS & LYBRAND, a partnership, Plaintiff-Respondent, v. Samuel LEVITT et al., Defendants-Appellants. |
| Decision Date | 22 June 1976 |
| Court | New York Supreme Court Appellate Division |
Martin R. Gold, New York City, of counsel (Charles B. Ortner, New York City, with him on the brief; Gold, Farrell & Marks, New York City, Attys.), for defendants-appellants.
William M. Barron, New York City, of counsel (Powell Pierpoint, New York City, with him on the brief; Hughes Hubbard & Reed, New York City, Attys.), for plaintiff-respondent.
Before STEVENS, P.J., and MARKEWICH, KUPFERMAN, MURPHY and CAPOZZOLI, JJ.
This is an appeal by defendants from an order of the Supreme Court entered February 26, 1976, in New York County, which denied their motion to dismiss the complaint. The complaint alleges five causes of action containing four theories upon which the plaintiff seeks recovery, viz. fraud, malicious prosecution, champerty and prima facie tort. Defendants moved to dismiss on the grounds of insufficiency, another action pending in the Federal court between the same parties for the same causes, statute of limitations, Res judicata, collateral estoppel, Forum non conveniens, lack of jurisdiction over the defendants, and that pursuant to Illinois law, which the defendants claim governs, the release of one tort feasor released all.
In order to understand this case, a brief background of facts is essential. The defendants Levitt were the stockholders and officers of Levitt Manufacturing Corporation (LMC), a New York corporation engaged in the manufacture and sale of lawn mowers, with its principal place of business in the State of Indiana. By the terms of an agreement dated October 27, 1967, they undertook to sell LMC to Poloron Products Inc. (Poloron), a New York corporation. The sale was consummated December 1, 1967. The price agreed upon was $11,200, plus an amount of Poloron stock to be determined on the basis of future earnings of LMC plus payment of a personal debt of Samuel Levitt in the amount of $109,000, and the assumption of certain personal liabilities of the Levitts. After the purchase by Poloron of LMC, the name of LMC, its new subsidiary, was changed to Poloron Products of Indiana, Inc. (Poloron-Indiana). Samuel Levitt entered into a sales representative agreement with Poloron-Indiana, which agreement was assigned to Dynamark Corp. (Dynamark) which was formed by the Levitts. At the time of the sale of LMC to Poloron, the balance sheet for the sale of LMC was prepared by Coopers & Lybrand (Lybrand), the plaintiff herein. Thereafter, it was allegedly discovered that the balance sheet prepared by Lybrand overstated the net worth of LMC.
Poloron then brought suit in the Supreme Court of the State of New York against the Levitts and withheld or caused to be withheld certain commissions due Dynamark, whereupon Dynamark, represented by defendant George Feiwell, an Illinois attorney, sued Poloron-Indiana in the U.S. District Court for the Northern District of Indiana to recover the withheld commissions. Dynamark's complaint was later amended to add Lybrand as a party defendant and Poloron-Indiana's motion to transfer the suit to the U.S. District Court for the Southern District of New York was granted in 1971. Thereafter, all parties except Lybrand settled their differences. In the settlement agreement, it was agreed that Poloron and Poloron-Indiana would pay Dynamark one-half of the commissions which had been withheld and the claims of Dynamark were assigned to Poloron. Poloron undertook to sue Lybrand on the claims assigned to it and to pay seventy-five percent of the proceeds of any recovery to Dynamark which agreed to bear seventy-five percent of the cost of the prosecution of the suit. The state action was discontinued and a stipulation of voluntary dismissal was signed by all parties in the federal action including Lybrand, whose signing was without prejudice.
Subsequently, Poloron sued Lybrand in the U.S. District Court for the Northern District of Illinois, but before an answer could be served, Poloron filed a notice of voluntary dismissal without prejudice. In that action Feiwell was the attorney for Poloron.
Some nine months later, Poloron, with Feiwell acting as counsel for the attorneys of record, brought a third suit in the U.S. District Court for the Southern District of New York virtually identical to the second suit and Lybrand, as defendant, filed a third party complaint against Dynamark, the Levitts and Feiwell seeking actual and exemplary damages. Lybrand's motion to dismiss this third suit upon the grounds of Res judicata was granted and the court declined further jurisdiction over Lybrand's third-party action. Lybrand then commenced the present action in the Supreme Court, New York County, seeking actual and exemplary damages upon the grounds heretofore stated.
In its first cause of action for fraud, Lybrand claims that defendants falsified and inflated the books and records of LMC, thereby deceiving Lybrand in its examination of the financial statements and deceiving Poloron in the sale. Lybrand asserts that the fraud and deceitful acts of defendants caused it to be subjected to a series of groundless suits, resulting in a loss to it of valuable personnel time and the incurrence of substantial attorneys' fees and other expenses in defending itself.
Counsel fees and the legal expenses necessarily incurred in carrying on a law suit are not generally considered items of expense recoverable as general or special damages (Miss Susan, Inc. v. Enterprise and Century Undergarment Co., 270 App.Div. 747, 748, 62 N.Y.S.2d 250, affd. 297 N.Y. 512, 74 N.E.2d 461). This is true in the absence of statutory liability or contractual provision so providing whether the action be in contract (Rollin v. Grand Store Fixture Co., Inc., 231 App.Div. 47, 50, 246 N.Y.S 371), or in tort where the action does not involve elements of malice (Lurman v. Jarvie, 82 App.Div. 37, 46, 81 N.Y.S. 468, affd. 178 N.Y. 559, 70 N.E. 1102). A well recognized exception to the rule holds: 'If, through the wrongful act of his...
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