Regen Capital I, LLC v. Alixpartners, LLP

Citation2014 NY Slip Op 32354 (U)
Decision Date02 September 2014
Docket NumberIndex No. 652794/2012
PartiesREGEN CAPITAL I, LLC, Plaintiff, v. ALIXPARTNERS, LLP, Defendant.
CourtNew York Supreme Court

2014 NY Slip Op 32354(U)

REGEN CAPITAL I, LLC, Plaintiff,
v.
ALIXPARTNERS, LLP, Defendant.

Index No. 652794/2012

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 35

September 2, 2014


Motion Seq. No. 003

HON. CAROL ROBINSON EDMEAD, J.S.C.

MEMORANDUM DECISION

Defendant Alixpartners, LLP ("defendant") moves for summary judgment dismissing the complaint of the plaintiff Regen Capital I, LLC ("plaintiff") on the ground that the complaint is time-barred by the statute of limitations.

In response, plaintiff cross moves to amend its complaint to add claims for unjust enrichment, constructive trust, an accounting and punitive damages.

Factual Background1

Plaintiff's President, Elliot H. Herskowitz ("Herskowitz"), claims that plaintiff was a creditor of Key3Media Group, Inc. (the "Debtor" or "Key3Media") and holder of claims in a bankruptcy case. As such, plaintiff received notice that it was entitled to purchase shares of the reorganized debtor, MediaLive International, Inc. (the "Reorganized Debtor"), with a direction that all questions be directed to Meade Monger, an employee of defendant. On January 19, 2004, defendant, through Henry R. Colvin ("Colvin") directed plaintiff to wire the funds to

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"Texas Capital Bank," located at "6060 North Central, Suite 800, Dallas, TX 75206" with an account address of "c/o MediaLive International, Inc., Legal Department, 795 Folsom Street, 6th Floor, San Francisco, CA 94107-1243" and to "Account # 111 301 0217" (the "Account") for the purpose of purchasing the shares pursuant to the First Amended Joint Plan of Reorganization. Based on plaintiff's "trust and confidence" in defendant, plaintiff wired the funds accordingly. However, over time, plaintiff realized that the funds were never used to purchase the shares.

In its complaint, plaintiff alleges that defendant "owes plaintiff $50,164.20 for money that was wired on or about January 20, 2004 to an account designated by defendant, to wit, Texas Capital Bank Account No. 1113010217" (¶3). It is also alleged that on an unspecified date after such wire, defendant converted the monies for an unauthorized use" and therefore, "breached a duty owed to plaintiff." (¶¶4,5).2

In support of dismissal, defendant alleges that the breach of fiduciary duty and conversion claims are time-barred under the three-year statute of limitations applicable to such claims. Both claims accrue when the alleged breach and conversion occurred, respectively, which was when defendant received payment from plaintiff (i.e., January 2004) and failed to make plaintiff a shareholder in the Reorganized Debtor. Plaintiff's claim accrued at the earliest, January 2004 or at the latest in January 2005, a year after the funds were wired. Even if the conversion claim accrued when the demand by plaintiff was made, discovery shows that at the latest, plaintiff sought return of the money on May 3, 2007. Plaintiff also acknowledged that the claims accrued more than eight years ago by insisting that it receive interest from the date plaintiff's funds were

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wired to the subject account. Plaintiff's President, Herskowitz, even stated that after 10 years "of being run around I decided enough." And, even if the claims are deemed as one for monies had and received, which has a six-year statute of limitations, such claim runs from the remittance by plaintiff of the funds at issue; and, the latest this claim could have accrued was a year after the funds were wired, to wit: January 2005. Therefore, the Complaint, which was filed in August 2012, is time-barred.

Further, even if the conversion claim is timely, the funds transferred by plaintiff were wired into an account which, at that time, contained other funds as well, and plaintiff's funds were commingled with others. Since plaintiff cannot prove that the money is "specifically identifiable and segregated," the conversion claim fails. Likewise, even if the fiduciary claim is timely, there is no basis for plaintiff's claim that defendant was its fiduciary. Plaintiff does not allege that defendant is a debtor in possession. And, plaintiff was not even defendant's client; the Debtor Key3Media was. Further, nothing about the subject arms-length stock purchase transaction created a fiduciary relationship between defendant and plaintiff.

In response, plaintiff opposes defendant's motion, cross moves for leave to amend its complaint, and argues that upon a search of the record, summary judgment should be granted in favor of plaintiff, with plaintiff's punitive damages claim severed for trial.

Plaintiff initially argues that defendant fails to specify the applicable CPLR section upon which it relies for its statute of limitations defense. Although the statute of limitations for conversion claims is generally three years pursuant to CPLR 214(3), to the extent the claim may be read as an equitable claim for unjust enrichment, the imposition of a constructive trust and an accounting, a six-year statute of limitations applies. And, as to the conversion claim, defendant

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does not admit that it converted the funds, or, submits sufficient, admissible evidence showing what happened to the funds and when. Instead, documents produced by defendant show that, as late as February 2012, accounts relating to the Key3Media bankruptcy continued to remain open.

Since defendant cannot establish when its conversion of plaintiff's property occurred, the statute of limitations must be measured from the time defendant refused to return plaintiff's funds upon demand. Alternatively, the conversion action is timely pursuant CPLR 206(a), the additional, one-year statute of limitations applicable to fiduciary relationships, since plaintiff reposed confidence and trust in defendant who provided directions with respect to plaintiff's funds and, as an intermediary and agent who obtained such funds, was under a duty to act for the benefit of plaintiff with respect to those funds. Defendant is deemed to be an escrow agent, owing a fiduciary duty to plaintiff upon defendant's receipt plaintiff's funds for the purpose of delivery to the Reorganized Debtor to purchase stock. Defendant was also a fiduciary by virtue of its role in the Key3Media bankruptcy. And, defendant is estopped from pleading the statute of limitations defense based on its misrepresentations that it did not possess plaintiff's funds.

Plaintiff claims that after wiring its funds to defendant on January 20, 2004 time passed, and it never received its shares. After "time went by," and "over the ensuing years" plaintiff inquired of Colvin as to the whereabouts of its shares, and Colvin advised that he would contact the Reorganized Debtor, and that plaintiff did not need to pursue the Reorganized Debtor itself. Plaintiff claims that it would have demanded the return of the money had it known that defendant had the funds. Over the course of time as plaintiff tried to retrieve the funds, David Bauman, CEO of the successor to the venture capital firm which funded the reorganization and Julian Viadro (the Liquidating Trustee) advised plaintiff in June 2011 that the Account did not belong

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to the Reorganized Debtor, and the funds never reached the Reorganized Debtor and may have been used for other purposes. Plaintiff contacted Colvin, who advised, on June 30, 2011 that an internal report would be prepared to trace the funds. Plaintiff's messages left with Colvin remained unreturned throughout June and August 2011. Thus, on August 16, 2011, plaintiff demanded, in writing, that unless defendant "in its role as fiduciary" provided plaintiff with an explanation as to the whereabouts and use of the funds, plaintiff would pursue other remedies.

Plaintiff also contends that defendant has avoided disclosure of relevant documents, and the documents produced show that at least by August 4, 2011, defendant was still in possession of the funds, in an account defendant chose to keep open due to defendant's claim of right to such funds. Documentation also shows that defendant used the funds to pay itself on invoices which include charges relating to defendant's misappropriation of plaintiff's funds. Also, the June 2011 destruction of documents referenced in an invoice was implemented pursuant to Item III(B) of a report of August 4, 2011 (the "Specific Trust Status Report"). Nor may defendant rely upon the so-called "ledger" as it was improperly withheld from production, and only produced less than 24 hours before the summary judgment motion was e-filed and in violation of the stay of discovery issued by the Court. And, defendant may not use reply papers to correct these deficiencies.

Plaintiff's motion to compel Colvin to appear for a deposition was denied by this Court, and discovery was stayed pending the disposition of plaintiff's summary judgment motion. Plaintiff argues that based on the above facts the Court should search the record and grant summary judgment in its favor. As this Court has previously ruled, plaintiff's funds are properly the subject of a conversion claim since they were provided for the specific purpose of the

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purchase of stock and were to be treated in a particular manner. This Court has also previously found that it cannot be said as a matter of law that defendant did not owe plaintiff a fiduciary duty. And, since the evidence shows that defendant received and retained plaintiff's funds and diverted...

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