Salles v. Chase Manhattan Bank

• Court: New York Supreme Court — Appellate Division
• Citation: Salles v. Chase Manhattan Bank, 300 A.D.2d 226, 754 N.Y.S.2d 236 (N.Y. App. Div. 2002)
• Decision Date: 31 December 2002
• Parties: STUART SALLES et al., Appellants,<BR>v.<BR>CHASE MANHATTAN BANK et al., Respondents.

300 A.D.2d 226

754 N.Y.S.2d 236

STUART SALLES et al., Appellants,

v.CHASE MANHATTAN BANK et al., Respondents.

Decided December 31, 2002.

Concur — Sullivan, Rosenberger, Wallach and Rubin, JJ.

In a prior action for personal injuries against the Manhattan and Bronx Surface Transit Operating Authority (MABSTOA), the present attorney-plaintiffs, Edelman & Edelman, P.C. (Edelman), successfully represented Stuart Salles in his capacity as court-appointed Committee for Bessie Schneider. The Schneider action was commenced in 1990 and came to a final resolution after protracted litigation, including a retrial, when, on December 17, 1998, the Court of Appeals denied leave to appeal (92 NY2d 817) from this Court's affirmance (250 AD2d 548) of a judgment finding MABSTOA 100% liable and awarding Salles an annuity providing future annual payments and medical benefits plus an "immediate cash payment" award of approximately $1.5 million, of which $791,614 was to be paid to Salles for the benefit of Schneider and $684,006 was to be paid to Edelman in satisfaction of the contingency fee agreement between Salles and Edelman (the Schneider Judgment). Interest was to accrue on the immediately payable cash portion of the judgment until the date of payment.

The present case, brought by Salles and by the attorneys as plaintiffs, against the Chase Manhattan Bank and the Chase Manhattan Bank, N.A. (collectively, Chase), arises from what plaintiffs allege were fraudulent misrepresentations by Chase regarding its custody of MABSTOA bank accounts, against which plaintiffs sought to enforce the Schneider Judgment. Plaintiffs contend that Chase's alleged misrepresentations caused plaintiffs to suffer damages in the form of uncompensated attorney and staff time plus additional expenses incurred in the enforcement of the Schneider Judgment.

According to plaintiffs, when MABSTOA refused to comply with plaintiffs' December 22, 1998 demand that it pay the immediately payable cash portion of the Schneider Judgment within six days, plaintiffs sought to enforce that judgment through presentment to Chase, which plaintiffs believed held MABSTOA accounts, of a restraining notice and two sheriff's levies and executions, which required Chase to pay the cash amounts due to Salles and Edelman under the Schneider Judgment from the MABSTOA accounts. The complaint alleges that, in response to the sheriff's levies and executions and plaintiffs' restraining notices, Chase knowingly, intentionally and falsely represented that it held no MABSTOA accounts or assets, when, in fact, it had at least 15 accounts in the name and/or for the benefit of MABSTOA, one of which contained nearly $3 million, more than a sufficient amount to satisfy the Schneider Judgment. The complaint details alleged stonewalling efforts and outright refusals to comply with the sheriff's levies and executions by Chase. Plaintiffs allege that Chase, acting on behalf of a valued customer, deliberately made these false representations and refused to comply with the sheriff's levies and executions in order to impede plaintiffs' ability to collect the Schneider Judgment. The complaint further alleges that plaintiffs reasonably relied on Chase's false representations, and that, as a result, Edelman was compelled to undertake additional unnecessary and uncompensated work, including bringing a CPLR article 78 mandamus proceeding to compel MABSTOA to pay the amounts due under the Schneider Judgment. According to plaintiffs, although MABSTOA eventually paid the cash portion of the Schneider Judgment, it did so only in response to the article 78 order to show cause and after Edelman had expended significant attorney and staff time and incurred additional expenses in seeking to enforce the Schneider Judgment, all of which allegedly were necessitated by Chase's misrepresentations and refusals to comply with the sheriff's levies and executions and none of which were covered by plaintiffs' contingency-fee agreement in the Schneider action.

The complaint asserted causes of action against Chase for, inter alia, common-law fraud, for a scheme to defraud in violation of Penal Law §§ 190.60 and 190.65, and for falsification of records pursuant to Banking Law § 672. Plaintiff attorneys claim compensatory damages of $100,000 in unpaid fees and expenses and seek punitive damages in addition to the claimed compensatory losses.

In lieu of an answer, Chase filed a motion to dismiss the complaint for failure to state a claim and for lack of standing pursuant to CPLR 3211 (a) (7). Supreme Court granted Chase's motion holding, inter alia, that plaintiffs lacked standing to sue and that they suffered no damages as the Schneider Judgment had been paid in full. We modify only to the extent of reinstating the attorney-plaintiffs' cause of action for common-law fraud.

In deciding a motion to dismiss a complaint for failure to state a claim under CPLR 3211, the allegations of the complaint, and all reasonable inferences that may be drawn from those allegations, must be accepted as true and the complaint must be liberally construed in favor of the plaintiff (Anguita v Koch, 179 AD2d 454). In addition, while a plaintiff may be required to supply evidentiary support for his claims in response to a motion for summary judgment under CPLR 3212, he is not obligated to do so in response to a preanswer motion to dismiss under CPLR 3211. The criterion for decision on such a motion is whether the allegations of the complaint state a legally cognizable cause of action (see e.g. Held v Kaufman, 91 NY2d 425, 432). The court's role is simply to determine whether the facts, as alleged, fit into any valid legal theory (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414). In deciding such a preanswer motion, the court is not authorized to assess the relative merits of the complaint's allegations against the defendant's contrary assertions or to determine whether or not plaintiff has produced evidence to support his claims (see e.g. Residence on Madison Condominium v W.T. Gallagher & Assoc., 271 AD2d 209, 210; Washington Ave. Assoc. v Euclid Equip., 229 AD2d 486).^[1]

The complaint alleges the necessary elements of a claim for common-law fraud: defendant's knowing misrepresentation of a material fact, made with intent to deceive, plaintiff's reasonable reliance, and damages (see Caniglia v Chicago Tribune-New York News Syndicate, 204 AD2d 233, 234).

Supreme Court apparently confused the attorney-plaintiffs' common-law fraud claim with a claim arising from a garnishee's failure to comply with a sheriff's levy and execution under article 52 of the CPLR, which, the court held, could only be asserted by Salles, the judgment creditor in the underlying Schneider personal injury action.^[2] However, the attorney-plaintiffs' common-law fraud claim is not derivative, nor is it brought under article 52. The attorney-plaintiffs alleged that Chase fraudulently misrepresented that it had no accounts and no assets of the judgment debtor MABSTOA, and that they (the attorney-plaintiffs) were forced, as a result of Chase's misrepresentations, to expend a significant number of attorney and staff hours and to incur additional expenses in undertaking alternate and, but for Chase's fraudulent conduct, unnecessary means of enforcing the Schneider Judgment. Accepting the allegations of the complaint as true, as we must, it is clear that the attorney-plaintiffs sufficiently state a cause of action for common-law fraud against Chase.

Supreme Court's conclusion that the attorney-plaintiffs suffered no damages also misses the mark. The common-law fraud claim asserted by Salles was properly dismissed because, as plaintiffs acknowledge, the attorneys' fees he was to pay were fixed by his contingency agreement with Edelman, regardless of how many hours were expended in enforcing the judgment. Thus, once MABSTOA paid the Schneider Judgment, Salles had no damages resulting from Chase's alleged fraud. However, the attorney-plaintiffs allege that the extra work they were required to perform and the additional expenses they incurred in enforcing the Schneider Judgment as a result of Chase's alleged fraud were uncompensated and unrecovered. Those damages did not disappear because the Schneider Judgment, together with accrued interest, was ultimately paid.

Contrary to the dissent's characterization of the complaint, the attorney-plaintiffs do not complain here that Chase did not "timely pay [their] client the judgment award," but, rather, that Chase acted fraudulently and thereby caused them to incur financial losses. Moreover, underlying the dissent's conclusion that the plaintiff-attorneys' common-law fraud claim was properly dismissed is the determination that the attorneys' contingency-fee agreement with Salles in the Schneider case, as a matter of law, must be construed to cover extraordinary judgment-enforcement efforts, including countering fraudulent conduct by MABSTOA's bank. As an initial matter, that is an interpretation that both parties to that agreement apparently reject in the allegations of the complaint. Moreover, such a determination would require that the attorney-plaintiffs must bear whatever financial burdens might have been caused by Chase's allegedly fraudulent conduct, a result that is clearly at odds with accepted notions of fault-based liability (see e.g. Mazzuka v Bank of N. Am., 53 Misc 2d 1053, 1056 [garnishee bank is liable in negligence for damages caused by its violation of a restraining notice]). In any event, any interpretation of the contingency-fee agreement in the Schneider case is wholly unnecessary and irrelevant to a determination as to whether the complaint sufficiently states a cause of action for common-law fraud so as to defeat defendant's preanswer motion to dismiss under CPLR 3211.^[3] In our view, the complaint satisfies that requirement with respect to the attorney-plaintiffs' common-law fraud claim.

We do not disturb the...