In re Alicea
| Decision Date | 22 February 1999 |
| Docket Number | Adversary No. 98/8604A.,Bankruptcy No. 98 B 41341(SMB) |
| Parties | In re William A. ALICEA, Debtor. Frederic C. Weiss, Plaintiff, v. William A. Alicea, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
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Frederic C. Weiss, Brooklyn, NY, plaintiff pro se.
Zivyak Klein & Liss, LLP, Jeffrey L. Zivyak, of counsel, New York City, for defendant.
The plaintiff, an attorney, formerly represented the debtor, William A. Alicea. He also invested in one of Alicea's real estate deals. The plaintiff filed this adversary proceeding contending that his unpaid legal fees and lost investment should be declared non-dischargeable. Alicea moved to dismiss the amended complaint on the grounds that it fails to state a claim upon which relief can be granted, and is time-barred. For the reasons that follow, the motion is granted in part and denied in part.
The plaintiff represented Alicea and certain of his affiliated entities in real estate-related transactions between June 1987 and October 1990. The plaintiff's legal fees generally went unpaid, and the parties discussed the unpaid legal bills and their payment often. (Amended Complaint ¶¶ 5-6.) Alicea told the plaintiff that he did not have the money to pay the fees and expenses because all of his funds were tied up in the Bradley Avenue and Van Name projects, two real estate development deals owned and run by Alicea's affiliates. (Id., ¶ 9.) Alicea assured the plaintiff that the legal fees would be paid from the closing proceeds generated by future sales of residential homes built in connection with these projects. (Id., ¶¶ 6-8, 13.)
Many of the contractors working on the projects had also not been paid. As a result, they filed mechanics liens. Prior to each closing on the sale of numerous Bradley units between August and December 1988, Alicea advised the plaintiff that he needed the proceeds to satisfy mechanics liens. He assured the plaintiff, however, that he had "`cleared up' most of the debts to the subcontractors and materialmen, and would have enough funds from future closings to pay his legal fees." (Id., ¶¶ 17-18.) Based on these assurances, the plaintiff continued to provide legal services.
By January 1, 1990, Alicea and his affiliates had incurred legal fees and expenses totaling $95,000.00, which increased to $124,225.00 by February, 1991. (Id., ¶ 19.) Only $12,200.00 was ever paid. (Id.) To induce the plaintiff to continue working, Alicea and his partner, Kevin Love, personally guaranteed all of the legal fees due and to become due. They never honored the guarantees, and still owe $112,025.00.
On or about June 15, 1987, Alicea's affiliate, Metro-East Associates ("Metro-East"), agreed to purchase property located in Easthampton, New Jersey for $1,635,000.00. The transaction required approximately $400,000.00 in cash; Metro-East would give the seller a purchase money mortgage in the sum $1,245,000.00 for the balance. (Amended Complaint ¶ 22.) Alicea induced the plaintiff to invest $100,000.00 personally in the deal. (Id., ¶¶ 23, 26.) He told the plaintiff that he and Love had received offers from prospective purchasers. They planned to "flip" the purchase within a few months of the closing and well before the periodic balloon payments became due under the mortgage. Alicea also told him that the closing proceeds from the Bradley Avenue and Van Name developments would be sufficient, if needed, to make the mortgage payments, omitting that he had already pledged those same proceeds to pay contractors and satisfy mechanics lienors. Finally, and again if needed, Alicea and Love would use their personal assets to pay the mortgage. (Id., ¶¶ 25-26.)
Based upon these representations, the plaintiff invested the entire $100,000.00 at the closing. (Id., ¶ 26.) Within only three months, however, Alicea permitted the mortgage to go into default. (Id., ¶¶ 27, 30b2.) Instead of paying the mortgage from his personal assets, Alicea breached his fiduciary duty to the plaintiff, and invested approximately $150,000.00 of personal assets in another venture. (Id., ¶¶ 28, 30b.)
At a November 1989 meeting, the plaintiff learned that the Easthampton mortgage had been foreclosed.3 Alicea, Love and Metro-East acknowledged that they had breached their obligations to the plaintiff, and Alicea agreed to repay the $100,000.00 because he and Love had not held up their end of the deal. (Id., ¶¶ 29-30a.). They never did pay, and the plaintiff never recovered his investment.
The plaintiff stopped representing Alicea and his affiliates in October 1990.4 He retained the files regarding the Van Name units that had not closed, pending payment of his legal fees. (Amended Complaint ¶ 34.) Between October 1990 and April 1991, the parties met to negotiate a pay-out. (Id., ¶ 32.) Alicea represented, at the time, that he had full authority to reach agreement on behalf of himself and Love. (Id., ¶ 33.)
Following negotiations, the plaintiff prepared a letter agreement, dated April 11, 1991, memorializing their oral settlement agreement. It provided for the timely repayment of the $100,000.00 investment and an additional $60,000.00 in settlement of the legal fees. (Id., ¶¶ 35, 37.) Alicea and Love would be jointly and severally liable for all payments. (Id., ¶ 37.) The payments would be secured by mortgages on the unsold Van Name units, and upon closing, a portion of the proceeds would be paid to the plaintiff. (Id., ¶ 35.) Alicea represented that no closings would occur unless the proceeds were sufficient to pay the "pledged" payments (initially $750 per unit, increasing to several thousand dollars per unit). This was essential to the plaintiff because he no longer represented the Alicea's entities, and would not be present at the closings. (Id., ¶ 38.)
Based upon the settlement, the plaintiff released the legal files to Alicea. Alicea subsequently failed to provide the requisite block and lot descriptions or execute recordable assignments of proceeds, and never delivered settlement documents signed by Love. (Id., ¶ 39.) Alicea also failed to make payments from the closings (except for one $750.00 payment), or inform the plaintiff that the closings were taking place. In addition, he closed unit sales even though the closings did not generate sufficient proceeds to make the settlement payments. (Id., ¶¶ 39-40.)
On October 1, 1993, the plaintiff sued Alicea, Love and their entities in state supreme court. (Amended Complaint ¶ 41.) He sought compensatory and punitive damages, contending that the state court defendants had fraudulently induced him into providing legal services (Tenth(B) Cause of Action), investing $100,000.00 in the real estate project in May 1988 (Eleventh Cause of Action) and entering into a settlement agreement that Alicea thereafter breached (Fourteenth Cause of Action). (Id.) Alicea defaulted. (Id., ¶ 45.) The state court entered a default judgment on certain of the plaintiff's liquidated claims, severed the unliquidated causes of action, including the Tenth(B), Eleventh and Fourteenth, and scheduled an inquest. (Id., ¶ 47.)
Following the inquest, the state court awarded judgment on the Tenth(B) cause of action in the sum $112,025.00, on the Eleventh cause of action in the sum of $100,000.00, and on the Fourteenth cause of action in the sum of $159,250.00. The court also awarded $250,000.00 in punitive damages on all three causes of action. (Amended Complaint ¶ 48.)
Initially, Alicea contends that the amended complaint is time-barred because the claims do not relate back to the original complaint. Under Fed.R.Civ.P. 15(c)(2), an amended pleading "relates back" to an earlier pleading if the amended pleading sets forth claims arising out of the same conduct, transaction or occurrence set forth or attempted to be set forth in the earlier pleading. "The principal inquiry is whether adequate notice of the matters raised in the amended pleading has been given to the opposing party `by the general fact situation alleged in the original pleading.'" In re Chaus Sec. Litig., 801 F.Supp. 1257, 1264 (S.D.N.Y.1992) (quoting Contemporary Mission, Inc. v. New York Times Co., 665 F.Supp. 248, 255 (S.D.N.Y.1987), aff'd, 842 F.2d 612 (2d Cir.), cert. denied, 488 U.S. 856, 109 S.Ct. 145, 102 L.Ed.2d 117 (1988)); accord Rosenberg v. Martin, 478 F.2d 520, 526 (2d Cir.) (Friendly, C.J.), cert. denied, 414 U.S. 872, 94 S.Ct. 102, 38 L.Ed.2d 90 (1973); Asset Value Fund Ltd. Partnership v. Care Group, Inc., 179 F.R.D. 117, 121 n. 3 (S.D.N.Y.1998). New allegations in the amended pleading relate back if they amplify the facts alleged in the original pleading or set forth those facts with greater specificity. Oliner v. McBride's Indus., Inc., 106 F.R.D. 9, 12 (S.D.N.Y.1985); In re Chaus Sec. Litig., 801 F.Supp. at 1264; see 3 James Moore et al., Moore's Federal Practice § 15.192, at 15-82 (3d ed. 1998) ("Moore's"). A revised pleading will also relate back if it asserts new legal theories based on the same series of transactions or occurrences. White v. White Rose Food, 128 F.3d 110, 116 (2d Cir.1997); In re Chaus Sec. Litig., 801 F.Supp. at 1264; 3 Moore's § 15.192, at 15-82. Conversely, the amended complaint will not relate back if it is based on new facts and different transactions. In re Chaus Sec. Litig., 801 F.Supp. at 1264; The CIT Group/Factoring Mfrs. Hanover, Inc. v. Srour (In re Srour), 138 B.R. 413, 418 (Bankr.S.D.N.Y.1992).
The allegations in the plaintiff's amended complaint are based upon the same core of operative facts contained in the original complaint, merely adding "meat" to the existing "bones." See Oliner...
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