Crossland Sav. FSB v. Rockwood Ins. Co.

• Decision Date: 05 December 1988
• Docket Number: No. 86 Civ. 2438 (PNL).,86 Civ. 2438 (PNL).
• Citation: 700 F. Supp. 1274
• Parties: CROSSLAND SAVINGS FSB, Plaintiff, v. ROCKWOOD INSURANCE COMPANY, Defendant. ROCKWOOD INSURANCE COMPANY, Third-Party Plaintiff, v. INTERDISCOUNT, LTD., Jeffrey E. Carter, J.E. Carter Energy and Development Corporation, W. Austin Barsalou and Barsalou and Associates, P.C., Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

700 F. Supp. 1274

CROSSLAND SAVINGS FSB, Plaintiff, v. ROCKWOOD INSURANCE COMPANY, Defendant.

ROCKWOOD INSURANCE COMPANY, Third-Party Plaintiff, v. INTERDISCOUNT, LTD., Jeffrey E. Carter, J.E. Carter Energy and Development Corporation, W. Austin Barsalou and Barsalou and Associates, P.C., Third-Party Defendants.

No. 86 Civ. 2438 (PNL).

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

December 5, 1988.

Rose, Schmidt, Hasley & DiSalle, Pittsburgh, Pa. (Richard DiSalle, of counsel), Rosenman & Colin, New York City, for defendant and third-party plaintiff.

LeBoeuf, Lamb, Leiby & MacRae, New York City (Thomas G. Rohback, Ellen August, George B. Schwab, of counsel), for third-party defendants W. Austin Barsalou and Barsalou and Associates, P.C.

OPINION AND ORDER

LEVAL, District Judge.

Third-party defendants, W. Austin Barsalou and Barsalou & Associates, P.C. (collectively "Barsalou") move, pursuant to Fed.R.Civ.P. Rule 56, for partial summary judgment dismissing the first, second and third causes of action in third-party plaintiff Rockwood Insurance Company's ("Rockwood") amended third-party complaint.

BACKGROUND

In the main action plaintiff Crossland Savings FSB sues the surety, Rockwood Insurance Company on its bond guaranteeing payment of investor notes. The dispute arises out of a 1984 investment program in an oil and gas limited partnership, Westwind 1984 Acquisition and Development Program ("Westwind 84"). The promoters of the program were defendants Jeffrey E. Carter and J.E. Carter Energy and Development Corp.¹ The attorney for Carter in the promotion of the program was third-party defendant Barsalou. Westwind 84 was financed in part by InterDiscount Ltd. ("IDL") which made a loan to the program in exchange for security interests in Investor Notes of the limited partners guaranteed by Surety Bonds of the defendant Rockwood. Those Notes and Surety Bonds were assigned by IDL to plaintiff Crossland which has not been paid on the Notes and brings suit against Rockwood to recover on its Bonds.

In its initial third-party complaint, Rockwood sought indemnification. It alleged that if it were held liable on its Surety Bonds, liability should ultimately rest with Barsalou (as well as the Carter defendants) on the grounds that they fraudulently induced Rockwood to issue the Surety Bonds. Rockwood alleged that Barsalou and the Carter defendants falsely represented, in their promotional materials and in an attorney opinion letter, that the limited partners of Westwind 84 had made a paid-in investment in the partnership and were all persons of substantial means who would be able to fulfill their obligations under the Investor Notes. It alleged that the limited partners had in fact made no payments to the partnership.

By Memorandum and Order of April 12, 1988, 692 F.Supp. 1510, I granted the Barsalou's motion for partial summary judgment dismissing Rockwood's claim of attorney malpractice consisting of the Barsalou's failure to exercise professional care to ensure the accuracy of information provided Rockwood. I found that under the laws of New York, which I determined to be applicable to the action, an attorney cannot be held liable in negligence toward a third party with whom she is not in a relation of privity or near-privity. The evidence submitted by Rockwood that Barsalou was aware Rockwood would act as surety and would rely on the documents Barsalou prepared was insufficient to establish an actionable duty of care on the part of Barsalou toward Rockwood under New York law.²

Rockwood also argued in its memorandum that, as subrogee of Crossland, it had a cause of action for negligence and professional malpractice. Such a liability would not necessarily have been foreclosed by the New York privity requirement if Crossland had been in privity or a sufficiently close relationship. However, the third-party complaint did not assert a claim on this theory. I therefore ruled that the issue of the sufficiency of any such claim was not properly presented by the earlier motion. By order of May 3, 1988 I permitted Rockwood to amend its complaint to assert such a claim.

The amended third-party complaint asserts first a direct claim for negligence against Barsalou (which is hereby dismissed on the grounds that it is precluded by my earlier grant of summary judgment) and two separate claims against Barsalou as subrogee of Crossland. These claims assert that the Barsalou defendants (along with the Carter defendants) made negligent misrepresentations to Crossland which caused its loss and that, as Crossland's surety, Rockwood is subrogated to the claims of Crossland against Barsalou for negligence and professional malpractice.

These claims assert liability for Barsalou's negligent preparation of an opinion letter addressed to IDL. The Barsalou letter opens with the introduction stating that "we have acted as special counsel to the Westwind 1984 Acquisition and Development Program." It then proceeds to make various representations concerning the Partnership which Rockwood alleges to be materially false. The letter concludes "This opinion may be relied upon by IDL and its assignee under the Agreement." Barsalou Aff. Exh. A. The evidence from the deposition of Barsalou is to the effect that Barsalou was asked to prepare and sign the letters by his client, Carter, because IDL had requested the letter. Rohback Aff. Exh. C. The letter was drafted by counsel to IDL, the law firm of Henderson, Coplich and Carter. Id. Exh. B; Barsalou Aff. ¶ 3. At the time Barsalou signed the letter, he did not know whether IDL would assign its rights or, if so, to whom. Rohback Aff. Exh. D. Indeed, prior to the closing of the transaction, he had no contact with anyone at Crossland. Id. Exh. F; Barsalou Aff. ¶ 5.

Barsalou moves for summary judgment on these causes of action.

DISCUSSION

The granting of a motion for summary judgment under Fed.R.Civ.P. 56 is appropriate only where "there is no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought. Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987); Heyman v. Commerce and Industry Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). If the moving party shows facts that would entitle it to judgment, the party against whom summary judgment is sought must make a sufficient showing that a factual question exists as to each element on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Barsalou argues it cannot be held for negligence and malpractice in favor of Crossland because it did not even know of the existence of Crossland prior to the closing of the transaction and because the imposition of a duty of care to a third party would be inconsistent with the attorney's duty to represent his client zealously.³ In addition, it argues that any claim Rockwood might have as subrogee of Crossland is barred under New York's three-year statute of limitations for attorney malpractice. N.Y.C.P.L.R. § 214(6).

1. Statute of Limitations

Barsalou's alleged misrepresentations were contained in an opinion letter dated January 7, 1985. Barsalou Aff. Exh. A. Rockwood's subrogation claims were not filed until May 1988. Barsalou thus contends that Rockwood's claims for subrogation are barred by New York's three-year statute of limitations for tort actions. See N.Y.C.P.L.R. § 214(6); Jewish Guild for the Blind v. Senor, 93 A.D.2d 764, 765, 461 N.Y.S.2d 331, 333 (1st Dept.) (cause of action accrues upon the performance of the work by the professional), vacated on other grounds, 95 A.D.2d 681, 464 N.Y.S.2d 369 (1st Dept.1983); Albany Savings Bank v. Caffry, Pontiff, Stewart, Rhodes & Judge, 95 A.D.2d 918, 919, 463 N.Y.S.2d 896 (3d Dept.1983) (same); Gilbert Properties, Inc. v. Millstein, 40 A.D.2d 100, 338 N.Y.S.2d 370 (1st Dept.1972), aff'd, 33 N.Y. 2d 857, 352 N.Y.S.2d 198, 307 N.E.2d 257 (1973).

Rockwood responds that the claim for subrogation relates back to its timely claim in its individual capacity against Barsalou. Fed.R.Civ.P. 15(c). It argues that the claim in its amended third-party complaint arose out of the same conduct alleged in the original complaint and that therefore the claim relates back to the filing of the original complaint under Fed.R.Civ.P. 15(c).

Fed.R.Civ.P. 15(c) provides that "whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading." When the amendment changes the party against whom a claim is asserted or adds an additional defendant, the claim relates back if it arose out of the same conduct and the party "(1) has received such notice of the institution of the action that the party will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party." Although the Rule does not specifically refer to amendments adding plaintiffs or changing the capacity of the plaintiff, the principles regarding changes in defendants "extend by analogy to amendments changing plaintiffs." Fed.R.Civ.P. 15(c) advisory committee note on 1966 amendment; Stoppelman v. Owens, 580 F.Supp. 944, 946 (D.D.C.1983); Unilever (Raw Materials), Ltd. v. M/T Stolt Boel, 77 F.R.D. 384, 388 (S.D.N.Y. 1977).

Barsalou argues that Rockwood's addition of a claim as subrogee constitutes the assertion of a claim by a new plaintiff which is untimely.

There is authority that an amendment which adds a claim by the plaintiff in another capacity relates back to the original complaint even...