Doukas v. Ballard

• Decision Date: 01 May 2013
• Docket Number: No. 9267–11.,9267–11.
• Citation: 39 Misc.3d 1227,972 N.Y.S.2d 143,2013 N.Y. Slip Op. 50776
• Parties: Ted DOUKAS, et al., Plaintiffs, v. Claudio BALLARD, et al., Defendants.
• Court: New York Supreme Court

39 Misc.3d 1227
972 N.Y.S.2d 143
2013 N.Y. Slip Op. 50776

Ted DOUKAS, et al., Plaintiffs,
v.
Claudio BALLARD, et al., Defendants.

No. 9267–11.

Supreme Court, Suffolk County, New York.

May 1, 2013.

Robert J. Del Col, Esq., Smithtown, attorneys for plaintiffs.

Weil, Gotshal & Manges LLP, New York, attorneys for defendant Data Treasury Corporation.

Herrick, Feinstein LLP, New York, attorneys for defendants Claudio Ballard, Keith DeLucia and Shepard Lane.

ELIZABETH H. EMERSON, J.

Upon the following papers numbered 1–33 read on this motion to dismiss and cross-motion to modify; Notice of Motion and supporting papers 1–14; Notice of Cross Motion and supporting papers 15–27; Answering Affidavits and supporting papers 28–32; Replying Affidavits and supporting papers 33; and after hearing oral argument in support of and in opposition to the motion; it is,

ORDERED that the motion by the defendants Claudio Ballard, Shepard Lane, Keith DeLucia, and Data Treasury Corp. for an order dismissing the complaint insofar as it is asserted against them is granted; and it is further

ORDERED that the cross motion by the plaintiffs for an order permitting their late opposition to the aforementioned motion is granted.

The defendant Claudio Ballard is the creator, inventor, and developer of biometric image recognition, capturing, and remote storage technology that is used in the banking and financial services industry (the “technology”). In 1994 or 1995, when he was developing the technology, Ballard purportedly entered into an oral joint-venture agreement with the plaintiff Ted Doukas, an experienced real-estate and mortgage entrepreneur. According to Doukas, he agreed to invest in the development of the technology in exchange for a 50% ownership interest therein. Doukas alleges that he provided Ballard with funds, capital contributions, and office space valued at approximately $1 million. Doukas also alleges that, once the technology was developed, it was to be patented in his name and in Ballard's name and assigned to his company, the plaintiff Syngen Data Services Corporation. Syngen Data Services Corporation was to merge with Ballard's company, the defendant Syngen Corporation. Doukas alleges that development of the technology was to take only six or eight months. However, it took approximately two years. In August 1997 and May 1998, Ballard filed patent applications for the technology naming himself as the sole inventor thereof. Patents for the technology were issued to Ballard in June 1999 and February 2000, respectively. Ballard assigned the patents to CSP Holdings, Inc., a corporation of which he was an officer, director, and shareholder. CSP then transferred the patents to the defendant Data Treasury Corp. (“DTC').

Doukas claims that he did not discover Ballard's deception until April 29, 2009. On April 15, 2011, Doukas and Syngen Data Services Corporation commenced this action against Ballard, DTC, Keith DeLucia (DTC's Chief Executive Officer), and Shepard Lane (DTC's General Counsel), among others, and many of the banks and financial institutions that use the technology. The complaint contains 38 causes of action, inter alia, to recover damages for conversion, fraud, breach of contract, and breach of fiduciary duty; for the imposition of a constructive trust; and for declaratory relief. Ballard, DeLucia, Lane, and DTC move to dismiss the complaint on several grounds, among them that the plaintiffs' claims are time-barred. The plaintiffs' belated opposition to the motion is contained in a cross motion for leave to permit the late filing thereof.

Turning first to the cross motion, the court notes that the plaintiffs' opposition to the motion was originally due on August 27, 2012, and that counsel for the moving defendants consented to two extensions of time for the plaintiffs' counsel to submit his opposition. Those extensions gave the plaintiffs until October 1, 2012, to oppose the motion. On September 30, 2012, the plaintiffs' counsel requested a third extension of time to which the moving defendants would not consent. Rather than contact the court to request a further extension of time to oppose the motion, the plaintiffs' counsel took it upon himself to submit his opposition by way of a cross motion. The cross motion was served and filed on October 25, 2012, before the return date of the motion, but more than three weeks after the plaintiffs' opposition was due. Counsel's reason for proceeding via cross motion was “to avoid any shenanigans via a vis the papers being rejected' by opposing counsel and to preserve the record.” The plaintiffs' counsel has appeared before this Justice on previous occasions and is aware of her practice regarding adjournments to which opposing counsel will not consent. Counsel should have followed that practice and contacted the court to request a further adjournment of the time in which to submit his opposition. Instead, he simply submitted his opposition more than three weeks late without the consent of opposing counsel or leave of court. While the court does not condone counsel's conduct, it does not wish to penalize his clients. The court will, therefore, consider the plaintiffs' opposition in the interest of justice. Accordingly, the cross motion is granted.

Replevin

The moving defendants contend that the plaintiffs' eleventh cause of action for replevin is time-barred.

Replevin is governed by a three-year statute of limitations ( see,CPLR 214 [3]; Solomon R. Guggenheim Found. v. Lubell, 77 N.Y.2d 311, 317). When the stolen object is in the possession of the thief, the statute of limitations runs from the time of the theft, even if the property owner was unaware of the theft at the time that it occurred ( Id.). This action was commenced in 2011, more than three years after the purported theft of the technology by Ballard in the late 1990's and early 2000. Accordingly, the eleventh cause of action is time-barred.

Conversion

The moving defendants contend that the plaintiffs' twelfth and thirteenth causes of action for conversion and aiding and abetting conversion are time-barred.

Conversion is also governed by a three-year statute of limitations ( see,CPLR 214[3] ), which accrues when the alleged conversion took place ( see, Grunfeld v. Kasnett, 18 Misc.3d 1143[A], *3 [and cases cited therein] ). This action was commenced in 2011, more than three years after the purported conversion of the technology by Ballard in the late 1990's and early 2000. Accordingly, the twelfth and thirteenth causes of action are time-barred.

Fraud

The plaintiffs' fraud claims are the first cause of action for actual fraud, the second cause of action for aiding and abetting a fraud, the fifth cause of action for fraud in the inducement, and the eighteenth cause of action for constructive fraud. The moving defendants contend, inter alia, that all of these claims are time-barred. The plaintiffs contend that they are timely because Doukas commenced this action within two years of discovering the fraud in April 2009.

A cause of action based upon fraud must be commenced within six years from the time of the fraud or within two years from the time the fraud was discovered or could have been discovered with reasonable diligence, whichever is longer (CPLR 213[8]; CPLR 203[g]; Oggioni v. Oggioni, 46 AD3d 646, 648). For the purpose of the discovery rule, the cause of action accrues at the time the plaintiff possesses knowledge of facts from which the fraud could have been discovered with reasonable diligence (Marasa v. Andrews, 69 AD3d 584;Lucas–Plaza Housing Dev. Corp. v. Corey, 23 AD3d 217, 218). The plaintiffs' fraud claims are based on events that occurred in the late 1990's and early 2000, more than six years before the commencement of this action in 2011. Moreover, the discovery rule does not apply to the cause of action for constructive fraud (Gonik v. Israel Discount Bank of NY, 80 AD3d 437, 438;Fandy Corp. v. Lung–Fong Chen, 262 A.D.2d 352, 353), and the plaintiffs have failed to allege sufficient facts that they could not, with reasonable diligence, have discovered the purported fraud earlier than April 2009 ( Gonik, supra ).

The plaintiffs contend that, prior to the initial fraud in August 1997, Ballard told Doukas that their efforts had failed and that the technology had not been developed. Patents for the technology were issued to Ballard in June 1999 and February 2000, and an article about the technology appeared in Newsday as early as 2001. In June 2002, DTC commenced an action against J.P. Morgan Chase, among others, in the United States District Court for the Eastern District of Texas for infringement of the patents. Articles about the lawsuit appeared in Newsday in 2003 and in the New York Times and Business Wire in 2004. The Newsday and New York Times articles clearly identified Ballard as the founder of DTC and as the inventor of the technology.

The court finds that Doukas possessed knowledge of facts from which the fraud could have been discovered with reasonable diligence as early as 1997, approximately 14 years before the...