Shulman v. Chaitman LLP

• Decision Date: 11 July 2019
• Docket Number: 17 Civ. 9330 (VM)
• Parties: Kevin SHULMAN and Caran Ross, in their capacities as co-trustees of the Florence Shulman Pourover Trust; and Estelle Harwood, individually and in her capacity as trustee of the Estelle Harwood Revocable Trust; on behalf of themselves and all others similarly situated, Plaintiffs, v. CHAITMAN LLP and Becker & Poliakoff, LLP, Defendants.
• Court: U.S. District Court — Southern District of New York

392 F.Supp.3d 340

Kevin SHULMAN and Caran Ross, in their capacities as co-trustees of the Florence Shulman Pourover Trust; and Estelle Harwood, individually and in her capacity as trustee of the Estelle Harwood Revocable Trust; on behalf of themselves and all others similarly situated, Plaintiffs,

v.CHAITMAN LLP and Becker & Poliakoff, LLP, Defendants.

17 Civ. 9330 (VM)

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

Signed July 11, 2019

Filed July 19, 2019

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

I. BACKGROUND

Plaintiffs Kevin Shulman and Caran Ross, in their capacities as co-trustees of the Florence Shulman Pourover Trust, and Estelle Harwood, individually and in her capacity as trustee of the Estelle Harwood Revocable Trust, on behalf of themselves and all others similarly situated (collectively, "Plaintiffs"), brought this action against defendants Chaitman LLP ("Chaitman") and Becker & Poliakoff, LLP ("B&P," and together with Chaitman, "Defendants") alleging breach of fiduciary duty, breach of contract, unjust enrichment, and fraud related to Defendants' representation of Plaintiffs in various lawsuits stemming from the liquidation of Bernard L. Madoff Investment Securities LLC. (See "First Amended Complaint," Dkt. No. 13.)

By Order dated August 9, 2018 (Dkt. No. 66), the Court referred general pretrial matters and dispositive motions to Magistrate Judge James L. Cott. Specifically, the Court referred Defendants' motions to dismiss for lack of subject matter jurisdiction. (See "Defendants' Motions to Dismiss," Dkt. Nos. 54, 58.) On September 21, 2018, after briefing for the Defendants' Motions to Dismiss concluded, Plaintiffs filed a motion for leave to amend the First Amended Complaint. (See "Plaintiffs' Motion to Amend," Dkt. No. 92.)

On April 11, 2019, Magistrate Judge Cott issued a Report and Recommendation, a copy of which is attached and incorporated herein, recommending that Defendants' Motions to Dismiss be denied and Plaintiffs' Motion to Amend be granted. (See "Report," Dkt. No. 118 at 2-3.)

On April 25, 2019, Defendants filed timely objections to the Report and Recommendation, and challenged its findings and conclusions on various grounds. (See "Defendants' Objections," Dkt. Nos. 119, 120.) On May 8, 2019, Plaintiffs filed timely responses to the Defendants' Objections. (See Dkt. No. 121.)

For the reasons stated below, the Court adopts the recommendations of the Report in their entirety.

II. STANDARD OF REVIEW

A district court evaluating a magistrate judge's report may adopt those portions of the report to which no "specific written objection" is made, as long as the factual and legal bases supporting the findings and conclusions set forth in those sections are not clearly erroneous or contrary to law. Fed. R. Civ. P. 72(b) ; see also Thomas v. Arn, 474 U.S. 140, 149, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985). However, "[w]hen a timely and specific objection has been made, the court is obligated to review the contested issues de novo." Fischer v. Forrest, 286 F. Supp. 3d 590, 600-01 (S.D.N.Y. 2018) (citing Fed. R. Civ. P. 72(b) and Hynes v. Squillace, 143 F.3d 653, 656 (2d Cir. 1998) ). A district court is not required to review any portion of a magistrate judge's report that is not the subject of an objection. See Thomas, 474 U.S. at 149, 106 S.Ct. 466.

Because motions to dismiss require a dispositive determination of the parties' claims, a district court's review of a magistrate judge's determination of such a motion is evaluated under the de novo standard applicable to dispositive matters under Federal Rule of Civil Procedure 72(b), as opposed to the clearly erroneous or contrary to law standard applicable to a magistrate judge's ruling as to non-dispositive matters under Federal Rule of Civil Procedure Rule 72(a). A district judge may accept, set aside, or modify, in whole or in part, the findings and recommendations of the magistrate judge. See Fed. R. Civ. P. 72(b).

III. DISCUSSION

Upon a de novo review of the full factual record in this litigation, including the pleadings and the parties' respective papers submitted in connection with the underlying motions and in this proceeding, as well as the Report and applicable legal authorities, the Court reaches the same conclusions as Magistrate Judge Cott. The Court further concludes that the findings, reasoning, and legal support for the recommendations made in the Report are consistent with applicable law as set forth in the cases and statutes relied upon therein, and are thus warranted. Accordingly, for substantially the reasons set forth in Magistrate Judge Cott's thorough and detailed Report, the Court adopts in their entirety the Report's factual and legal analyses and determinations, as well as its substantive recommendations, as the Court's ruling on Defendants' Motions to Dismiss (Dkt. Nos. 54, 58) and Plaintiffs' Motion to Amend (Dkt. No. 92).

IV. ORDER

For the reasons discussed above, it is hereby

ORDERED that the Report and Recommendation of Magistrate Judge James Cott dated April 11, 2019 (Dkt. No. 118) is adopted in its entirety, and the objections of defendants Chaitman LLP and Becker & Poliakoff, LLP (Dkt. Nos. 119, 120) are DENIED. It is further

ORDERED that the motion for leave to amend the First Amended Complaint (Dkt. No. 92) of plaintiffs Kevin Shulman, Caran Ross, and Estelle Harwood is GRANTED.

SO ORDERED.

REPORT AND RECOMMENDATION

JAMES L. COTT, United States Magistrate Judge.

To the Honorable Victor Marrero, United States District Judge:

Plaintiffs Kevin Shulman and Caran Ross, in their capacities as co-trustees of the Florence Shulman Pourover Trust, and Estelle Harwood, individually and in her capacity as trustee of the Estelle Harwood Revocable Trust, brought this class action against defendants Becker & Poliakoff, LLP and Chaitman LLP for breach of fiduciary duty, breach of contract, unjust enrichment, and fraud. Plaintiffs' claims arise from defendants' legal representation of them and similarly situated entities and individuals in separate lawsuits related to the liquidation of Bernard L. Madoff Investment Securities LLC.

Defendants have each moved to dismiss this action, arguing that the Court lacks subject-matter jurisdiction over this case. Plaintiffs oppose defendants' motions, asserting that the Court has jurisdiction over this matter under the Class Action Fairness Act, 28 U.S.C. § 1332(d). They contend that the jurisdictional requirements of the Act--minimal diversity, 100 or more class members, and an amount in controversy of at least $5,000,000--have been satisfied and defendants' motions should be denied.

Before the Court is also plaintiffs' motion for leave to amend the First Amended Complaint. Plaintiffs argue that there is good cause to further amend the complaint to add Helen Davis Chaitman, Esq., former Becker and Poliakoff, LLP attorney and currently Chaitman LLP's principal attorney, as a defendant to this lawsuit. They assert that the amendment would cure any alleged jurisdictional deficiencies. Both defendants oppose plaintiffs' motion, arguing that plaintiffs have failed to demonstrate good cause to amend and that their proposed amendment is a futile attempt to cure the jurisdictional defects of this case.

For the reasons discussed below, the Court has jurisdiction over this lawsuit pursuant to the Class Action Fairness Act. Thus, I recommend that defendants' motions to dismiss be denied. In addition, plaintiffs have established good cause to further amend their complaint. Therefore, I recommend that if necessary plaintiffs' motion for leave to amend the First Amended Complaint be granted.

I. BACKGROUND

A. Facts Alleged in the First Amended Complaint

Plaintiffs' lawsuit concerns the legal representation that Helen Chaitman provided to the putative class--victims of the Bernard L. Madoff Investment Securities LLC ("BLMIS") ponzi scheme--when she was their counsel while at the law firms Becker & Poliakoff, LLP ("B&P") and Chaitman LLP. See First Amended Complaint ("FAC") dated January 3, 2018, Dkt. No. 13. As described by plaintiffs, in the underlying liquidation proceedings following the revelation of BLMIS' fraud, trustee Irving Picard was charged with determining the "net equity" of the BLMIS investors (the amount of liquidated BLMIS assets to which each investor was entitled), and redistributing funds from the so-called "net winners" (those who received more funds from BLMIS than they had invested) to the "net losers" (those who invested more funds than they had received). Id. ¶¶ 2, 33–35.

Plaintiffs allege that Helen Chaitman "represented both net winners and net losers in a zero-sum game; the more money collected from some of her clients (the net winners), the more available to be distributed to her other clients (the net losers)." Id. ¶ 5. They further allege that Helen Chaitman represented a third group of investors—so-called "early investors" (investors who claim that their BLMIS profits are not subject to clawback actions because they were made before the legitimate operation turned into a fraud)--who "sought to keep assets out of Mr. Picard's liquidation proceedings altogether." Id. ¶ 7.

Plaintiffs also assert that Helen Chaitman herself is a "net loser" and "personally stands to receive money taken from her net winner clients," but nonetheless represented these three groups of clients despite this "irreconcilable conflict," and "bilked hundreds of thousands of dollars (if not more) from each of her net winner clients by actively discouraging them from settling Mr. Picard's clawback actions." Id. ¶¶ 6, 8. Plaintiffs contend that Helen Chaitman represented to "net winner" clients that "continued, full-scale litigation was the only viable option" because Picard "never would settle for less than 100% of what he claimed he was owed." Id. ¶¶ 8, 47. They allege that Picard "imposed no such all-or-nothing condition on settlements," and that Helen Chaitman's misrepresentations induced ...