Malmsteen v. Berdon, Llp

• Decision Date: 20 March 2007
• Docket Number: No. 05 Civ. 958(RJH).,05 Civ. 958(RJH).
• Citation: 477 F.Supp.2d 655
• Parties: Yngwie MALMSTEEN, Plaintiff, v. BERDON, LLP, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

477 F.Supp.2d 655

Yngwie MALMSTEEN, Plaintiff, v. BERDON, LLP, et al., Defendants.

No. 05 Civ. 958(RJH).

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

March 20, 2007.

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James P. Cinque, Cinque & Cinque, New York, NY, for Plaintiff.

William J. Kelly, Shaub, Ahmuty, Citrin and Spratt, Lake Success, NY, Sarah Graham Lopez, Wilson Elser Moskowitz Edelman & Dicker LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

HOLWELL, District Judge.

In this diversity action, plaintiff Yngwie Malmsteen, a professional musician, sues his former manager, James Lewis, and his company, James Lewis Entertainment, and his former financial manager and accountant, Michael Mitnick, and his firm, Berdon, LLP, for actions they took while in his employ. Plaintiffs, Amended Complaint alleges fraud and deceit, unlawful appropriation, breach of fiduciary duty, unjust enrichment, and breach of contract, and seeks monetary damages, an accounting, and the imposition of a constructive trust. Defendants Michael Mitnick and Berdon, LLP (collectively, "Mitnick") move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on the grounds that all of plaintiffs claims " against them are barred by the applicable statutes of limitations or otherwise defective. For the reasons discussed below, Mitnick's motion [14] is granted in part and denied in part.

BACKGROUND

Plaintiff is a professional composer and guitarist with an international following. (Am.Compl.¶ 1.) After the death of his previous manager in 1993, plaintiff hired James Lewis, who operated his management services through his company, James Lewis Entertainment. (Malmsteen Tr. 5-6; Am. Comps. ¶¶ 4, 5.) Both James Lewis and James Lewis Entertainment are defendants in this matter, but not parties to this motion. Early in 1994, at the suggestion of Lewis, plaintiff hired Michael Mitnick, then working for another firm, to act as his "accountant[ ] and financial business manager[]." (Kelly Decl. Ex. 5.) Roughly a year later, Mitnick moved to the firm of David Berdon & Co., now known as Berdon, LLP. (Mitnick Tr. 6.) Mitnick performed traditional accounting services, such as the filing of tax returns, but also collected, accounted for, and disbursed plaintiffs income. (Malmsteen Tr. 17-18; Mitnick Tr. 14.)

Shortly after Mitnick began working for plaintiff, he suggested that plaintiff create a separate legal entity for his touring activities, later named Malmsteen Touring, Inc., to diminish his personal liability. (Am.Compl.¶ 10.) Mitnick created the corporation and named himself as an officer and director. Mitnick and Lewis opened bank accounts in New York for plaintiff and Malmsteen Touring, into which Mitnick deposited any money received on plaintiffs behalf, and out of which he paid expenses, including his own fees. (Id.¶ 13.) Plaintiff alleges that he had no knowledge of these accounts, despite knowing that Mitnick had created a corporation to receive his touring income and was collecting money on his behalf. (Id. ¶¶ 13-14.) When shown account documents purportedly bearing his signature, he claimed the signatures were forged. (Kelly Decl. Ex 6; Malmsteen Tr. 13-17.)

According to Mitnick, shortly after he had been hired by Malmsteen, Lewis began depositing royalty checks made out to Malmsteen directly into Lewis's personal account separate from the above-mentioned accounts maintained by Mitnick. (Mitnick Tr. 11-12.) The Amended Complaint lists a number of these transactions beginning in January 1995 and continuing through January 2000. (Am.Compl.¶ 16.) The evidence before the Court does not make clear for what purpose these transfers were made, or to what extent they were legitimate, but it appears that there may have been some financial justification and also that Lewis was paying some business expenses directly from his account. (Mitnick Tr. 39-40; Kelly Decl. Exs. 8, 9.) Beginning around 1997, when plaintiffs assets had shrunk to almost nothing, he began to ask questions of Mitnick concerning his financial situation. (Malmsteen Tr. 28-29, 31-32.) Eventually, in early 2000, plaintiff hired an external accountant to examine Mitnick's management of his money, and after the accountant found certain discrepancies, plaintiff terminated Mitnick along with Lewis. (Id. 34-40; Am. Compl. ¶ 20.)

In 2001, plaintiff filed a lawsuit in Florida against Lewis and his companies, alleging unlawful diversion of plaintiffs income into secret bank accounts. (See Kelly Decl. Ex. 10.) This case was eventually dismissed for failure to prosecute. (Kelly Decl. Ex. 11.) On January 28, 2005, plaintiff filed this lawsuit in the Southern District of New York. The Amended Complaint does not clearly differentiate between the roles of the several defendants in stating causes of action. However, the factual allegations suggest that only Lewis, and not Mitnick, actually stole any of plaintiffs money. Rather, the Amended Complaint alleges that Mitnick permitted Lewis to divert money into his personal accounts. In addition, plaintiff alleges that Mitnick paid himself "well in excess of what a reasonable fee would have been under a normal business relationship," supposedly as compensation for permitting Lewis to divert funds. (Am Compl. ¶ 15.)

STANDARD OF REVIEW

Summary judgment is appropriate when "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). In a motion for summary judgment, the Court must view the facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The moving party must demonstrate that no genuine issue of fact exists for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If successful, the nonmoving party must then produce specific facts showing a genuine issue of material fact. Samuels v. Mockry, 77 F.3d 34, 36 (2d Cir.1996). "It is quite common for summary-judgment motions to be made asserting the defense[ ] of statute of limitations," as it lends itself "to the type of categorical proof required by Rule 56." 10B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2734 (3d ed.1998).

DISCUSSION

This action comes before the Court based on diversity jurisdiction, and therefore the Court is required to apply the substantive law of the state in which it sits, New York in this case. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Neither party disputes that New York law provides the relevant statute of limitations. Under New York law, the Court looks "to the essence of plaintiff's claim and not to the form in which it is pleaded." State v. Cortelle Corp., 38 N.Y.2d 83, 378 N.Y.S.2d 654, 341 N.E.2d 223, 224 (1975) (citing Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 11 N.E.2d 902, 904 (1937)); accord Wilson v. Bristol-Myers Co., 61 A.D.2d 965, 403 N.Y.S.2d 251, 252 (N.Y.App.Div. 1978) ("The test of a cause of action, for Statute of Limitations purposes, is its gravamen not the form in which it is pleaded.").

1.Plaintiff's Claims Do Not Sound in Malpractice

Defendants argue that the claims are, in essence, for accounting malpractice. Accounting malpractice is subject to a three-year statute of limitations, "whether the underlying theory is based in contract or tort." N.Y. C.P.L.R. § 214(6). The governing statutory provision was amended in 1996 to "rewrite a judicial interpretation of the nonmedical Statute of Limitations" that was allowing malpractice claims based on breach, of contract (even implied terms) to be brought within six years. See Brothers v. Florence, 95 N.Y.2d 290, 716 N.Y.S.2d 367, 739 N.E.2d 733, 737 (2000). Consistent with a legislative desire to prevent clever pleading to avoid a shorter statute of limitations, New York courts have, since the 1996 amendments, applied the three-year statute of limitations to bar any claims that they found duplicative or incidental to a claim of malpractice. See Kliment v. McKinsey & Co., 3 N.Y.3d 538, 788 N.Y.S.2d 648, 821 N.E.2d 952, 954 (2004) (applying three-year statute of limitations where breach of contract claim was "essentially a malpractice claim"); Spinale v. Tenzer Greenblatt, LLP, 309 A.D.2d 632, 765 N.Y.S.2d 786, 786 (N.Y.App.Div.2003) (unjust enrichment cause of action "based on the same allegations as [plaintiffs'] causes for legal malpractice" and is thus "governed by three-year limitations period"); Mecca v. Shang, 258 A.D.2d 569, 685 N.Y.S.2d 458, 460 (N.Y.App.Div.1999) (dismissing breach of fiduciary duty and fraud claims where they "arise from the same facts as [plaintiff's] legal malpractice claim and do not allege distinct damages."). If defendants are correct that plaintiff's claims all arise from malpractice, then these claims are subject to a three-year limitations period. Because plaintiffs claims all arose, at the latest, by early 2000, they would be subject to dismissal as untimely.

Plaintiff contends instead that his relationship with Mitnick gave rise to a fiduciary duty on which his claims are based, rather than any lack of skill in performing traditional accounting tasks. Therefore, plaintiff continues, the causes of action should stand on their own and are not pled to avoid the three-year limitations period for malpractice claims. The parties focus on Mitnick's job title: defendants argue that Mitnick was an accountant, and thus owes no fiduciary duty to plaintiff, VTech Holdings Ltd. v. Pricewaterhouse Coopers LLP, 348 F.Supp.2d 255, 268 (S.D.N.Y.2004) ("In New York, the accountant-client relationship does not generally give rise to a fiduciary relationship absent special...