Cuccolo v. Lipsky, Goodkin & Co.

• Decision Date: 13 July 1993
• Docket Number: No. 92 Civ. 2716(CES).,92 Civ. 2716(CES).
• Citation: 826 F. Supp. 763
• Parties: Anthony CUCCOLO and Michelle Cuccolo, Plaintiffs, v. LIPSKY, GOODKIN & CO., a general partnership, Robbins, Greene, Horowitz & Co., a general partnership, Rochlin, Greenblatt & Gallo, a general partnership, Alan Greenblatt, individually, Robert Rochlin, individually, and Mark Lipsky, individually, Defendants.
• Court: U.S. District Court — Southern District of New York

826 F. Supp. 763

Anthony CUCCOLO and Michelle Cuccolo, Plaintiffs, v. LIPSKY, GOODKIN & CO., a general partnership, Robbins, Greene, Horowitz & Co., a general partnership, Rochlin, Greenblatt & Gallo, a general partnership, Alan Greenblatt, individually, Robert Rochlin, individually, and Mark Lipsky, individually, Defendants.

No. 92 Civ. 2716(CES).

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

July 13, 1993.

COPYRIGHT MATERIAL OMITTED

Pollack & Greene by Michael E. Greene, Carl M. Kuntz, New York City, for plaintiffs.

Wilson, Elser, Moskowitz, Edelman & Dicker by Jonathan C. Thau, Michael L. Schwartzberg, Fred N. Knopf, New York City, for defendants Greenblatt & Rochlin.

McDonough, Marcus, Cohn & Tretter by Diane K. Kanca, New York City, for defendants Lipsky, Goodkin and Lipsky.

MEMORANDUM DECISION

STEWART, District Judge:

Defendants Lipsky, Goodkin & Co. ("LGC"), Mark Lipsky, Alan Greenblatt and Robert Rochlin move, pursuant to Federal Rules of Civil Procedure ("Fed.R.Civ.P.") 12(b) and 9(b), to dismiss the amended complaint of plaintiffs Anthony and Michelle Cuccolo. As set forth below, the motion is converted to one for summary judgment pursuant to Fed.R.Civ.P. 56 and is denied in part and granted in part.

BACKGROUND

In 1975, the Cuccolos retained the accounting firm that eventually became defendant LGC, with whom defendants Lipsky, Greenblatt and Rochlin were affiliated. Am. Compl. ¶ 10. LGC provided accounting services and tax planning advice to the Cuccolos and to Tobron Office Furniture, Inc. ("Tobron"), a company owned by Anthony Cuccolo.

In 1988, Greenblatt and Rochlin joined a new firm, defendant Robbins, Greene, Horowitz & Co. ("RGHC"); three years later they started defendant Rochlin, Greenblatt & Gallo ("RGG"). Am.Compl. ¶¶ 59, 61. As Greenblatt and Rochlin changed their firm affiliations, the Cuccolo and Tobron accounts did so as well. Am.Compl. ¶ 62. RGG performed accounting and tax services for the Cuccolos and Tobron until June, 1991. Id. Neither RGHC nor RGG have been served with process in this action.

The Cuccolos allege that in 1982 and 1984 Greenblatt recommended certain investments to reduce their income tax exposure.¹ Am. Compl. ¶¶ 13, 37. Pursuant to these recommendations, in 1982 the Cuccolos purchased limited partnership interests in Transpac Oil Drilling Limited Partnership 1982-16 ("Transpac Partnership") for an aggregate purchase price of $126,000.00. Am.Compl. ¶¶ 15, 36. Two years later, the Cuccolos purchased limited partnership interests in Taylor Residential Real Estate Limited Partnership ("Taylor Residential") for $378,591.00, including interest. Am.Compl. ¶¶ 38, 56. Greenblatt allegedly told the Cuccolos that he had investigated both investments and had determined that they were legitimate and would withstand scrutiny by the Internal Revenue Service ("IRS"). Am. Compl. ¶¶ 14, 38. The Cuccolos also maintain that they were never advised about the economic and tax risks of these investments. Am.Compl. ¶¶ 15, 39.

Because of numerous improprieties, neither the Transpac Partnership nor the Taylor Residential investments performed as the Cuccolos anticipated. The offering materials of both investments contained misstatements and omissions. Am.Compl. ¶¶ 27, 28, 41. In addition, both ventures were controlled by John Galanis, who had a history of improper business practices. Am.Compl. ¶¶ 26, 28, 42. Indeed, Galanis and others were convicted of conspiracy and of operating a racketeering enterprise in connection with these two investments. See United States v. Galanis, 87-851 (S.D.N.Y.).

Sometime before 1991, the IRS challenged the Transpac Partnership and Taylor Residential investments, and concluded that they were not legitimate tax shelters. Consequently, the investments did not provide the tax benefits that the Cuccolos had expected. Instead, the plaintiffs have paid tax deficiencies and penalties of approximately $500,000.00, and anticipate having to pay an additional $500,000.00. Am.Compl. ¶ 68; Cuccolo Aff. ¶¶ 18-20, Exs. C, E, F.

The Cuccolos claim they were unaware of the improprieties involving their investments until March of 1991, when they received notices of personal tax liability from the IRS and the state of New Jersey. Cuccolo Aff. ¶¶ 13, 16. However, they acknowledge that prior to that time they received notices from the IRS and correspondence from lawyers concerning the Transpac Partnership and Taylor Residential investments. Am.Compl. ¶ 63; Cuccolo Aff. ¶¶ 8, 10. The Cuccolos claim they never read any of this information, but instead promptly turned it over to the defendants. Id. They also claim they executed certain documents pursuant to the advice of the defendants. Cuccolo Aff. ¶ 11. Finally, the Cuccolos maintain that they asked if there was any action they should take, and that the defendants — and Greenblatt in particular — "repeatedly assured us that these matters were being handled so as to insure that our substantial interests were protected." Cuccolo Aff. ¶ 12.

Greenblatt contests the Cuccolos' claim that they were not fully informed about the situation involving these investments until March of 1991. Specifically, Greenblatt points out that in 1986 Anthony Cuccolo executed an agreement that retained counsel in connection with the Taylor Residential investment. Greenblatt Aff. ¶¶ 9, 11, Exs. A, C. Similarly, the Cuccolos apparently retained counsel in connection with the Transpac Partnership investment. Greenblatt Aff. ¶¶ 18-19, Exs. H-J.

The Cuccolos' amended complaint contains three causes of action. The first two relate to the investments in Transpac Partnership and Taylor Residential. The first cause of action alleges that the defendants committed accountant malpractice. Am.Compl. ¶¶ 71-81. The second alleges that the defendants committed common law fraud and deceit and also violated certain federal securities statutes. Am.Compl. ¶¶ 82-93.

The third cause of action alleges that from 1986 to 1990 the defendants committed accountant malpractice in preparing the Cuccolos' tax returns. Specifically, the defendants included "Tobron's total ordinary earnings as dividends on plaintiffs' New Jersey income tax returns" instead of reporting only the actual dividends they received. Am.Compl. ¶¶ 98, 102. The defendants also improperly computed the Cuccolos' New Jersey tax credits for taxes paid to New York State. Id. As a result, the Cuccolos will incur tax deficiencies and penalties with their New Jersey income taxes. Am.Compl. ¶ 105. In April, 1992, the Cuccolos commenced the instant action in the Supreme Court of New York State, New York County. Since the Cuccolos are residents of New Jersey and the defendants are all residents of New York, the case was removed to this Court. Jurisdiction is based on 28 U.S.C. § 1332.

DISCUSSION

I. Fed.R.Civ.P. 12(b)(6) and 56.

Defendants LGC, Lipsky, Greenblatt and Rochlin move to dismiss the plaintiffs' amended complaint, presumably pursuant to Fed.R.Civ.P. 12(b)(6). When determining the sufficiency of a claim under this rule, courts shall consider only those "facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991) (citing Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir.1991)).

When evidence outside the pleadings are submitted with a motion to dismiss, the court "may exclude the additional material and decide the motion on the complaint alone." Kopec v. Coughlin, 922 F.2d 152, 154 (2d Cir.1991) (quoting Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir.1988)). Alternatively, the court may consider the materials outside the pleadings. In that case, "the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12(b).

In the instant case, the plaintiffs submitted the affidavit of Anthony Cuccolo with their opposition papers, and defendants Greenblatt and Rochlin submitted affidavits with their reply papers. Thereafter, neither party contacted the Court to request leave to submit sur-reply papers. Since the parties had ample opportunity to respond to their adversaries submissions, the Court treats this motion as one for summary judgment governed by Fed.R.Civ.P. 56.

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Maresco v. Evans Chemetics, Div. of W.R. Grace & Co., 964 F.2d 106, 110 (2d Cir.1992) (citing Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991)). The court is not to resolve disputed issues of fact when determining a summary judgment motion. Rather, the court is to determine whether factual disputes exist that are both genuine and material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). See also Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

II. The Statute of Limitations Defense.

Defendants argue that plaintiffs' first two causes of action are barred by the statute of limitations. When diversity of citizenship is the basis of jurisdiction, a federal court must look to the statute of limitations of the state in which it sits. Popkin v. Nat'l Benefit Life Ins. Co., 711 F.Supp. 1194, 1197 n. 1 (S.D.N.Y.1989) (citations omitted). Generally, the New York borrowing statute, N.Y.Civ.Prac.L. & R. 202 (McKinney 1990), requires that a nonresident plaintiff's claim that accrued²...