Waggoner v. Caruso, 2008 NY Slip Op 51891(U) (N.Y. Sup. Ct. 9/10/2008)
| Decision Date | 10 September 2008 |
| Docket Number | 602192-2007 |
| Citation | 2008 NY Slip Op 51891 |
| Parties | J. VIRGIL WAGGONER and J.V.W. INVESTMENT LTD. OF DOMINICA, Plaintiffs, v. KENNETH A. CARUSO, BRACEWELL & GIULIANI LLP, CHADBOURNE & PARKE LLP, and PILLSBURY WINTHROP SHAW PITTMAN LLP, Defendants. |
| Court | New York Supreme Court |
James J. Mahon, Esq., Christopher S. Rooney, Esq., HELMS & GREENE, LLC, New York, NY, Attorneys for Plaintiffs.
E. Leo Milonas, Esq., David Keyko, Esq., PILLSBURY WINTHROP SHAW PITTMAN LLP, New York, NY, Asa Hutchinson, Esq., (Admitted Pro Hac Vice) Winifred M. Weitsen, Esq., (Admitted Pro Hac Vice) VENABLE, LLP, Washington, DC, Attorneys Pro Se for Defendant Pillsbury Winthrop Shaw Pittman LLP.
Daniel S. Connolly, Esq., Michael Kuhn, Esq., BRACEWELL & GIULIANI LLP, New York, NY, Attorneys Pro Se for Defendant Bracewell & Giuliani LLP.
Frederick B. Warder III, Esq., Rosanne E. Felicello, Esq., PATTERSON BELKNAP WEBB & TYLER LLP, New York, NY, Attorneys for Defendant Kenneth A. Caruso.
Thomas J. Hall, Esq., Eric Przybylko, Esq., CHADBOURNE & PARKE LLP, New York, NY, Attorneys Pro Se for Defendant Chadbourne & Parke LLP.
Plaintiffs J. Virgil Waggoner ("Waggoner") and J.V.W. Investment Ltd. of Dominica ("JVW"; collectively, "Plaintiffs") brought this action for legal malpractice, breach of fiduciary duty, fraud, and conspiracy to commit fraud against Defendants Kenneth A. Caruso ("Caruso"), Bracewell & Giuliani LLP ("Bracewell"), Chadbourne & Parke LLP ("Chadbourne"), and Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"; collectively, "Defendants"). Defendants move to dismiss the Verified Amended and Substituted Complaint (the "Complaint") with prejudice pursuant to CPLR §§ 3211(a)(1), (7).
This lawsuit arises out of legal representation provided by Defendants over the course of eight years, resulting from Plaintiffs' loss of money in overseas investments. Waggoner is a retired petrochemical executive who invested $10 million in a High Yield Investment Program ("HYIP"), which turned out to be fraudulent. Waggoner created JVW for the purpose of making this investment. Plaintiffs allege that the money was immediately stolen upon deposit, and Plaintiffs retained Caruso, then a partner at Pillsbury, to trace the money and recover it through legal action. Over the next eight years, Caruso represented Plaintiffs in a series of federal and state actions, which were ultimately unsuccessful in recovering Plaintiffs' investment. During the course of the litigation, Caruso moved from Pillsbury to Chadbourne, and then to Bracewell.
Defendants move to dismiss on several grounds. First, as to the malpractice claim, Pillsbury argues that the claim against it is time-barred. Chadbourne and Bracewell argue that the claim does not allege any acts of malpractice against either of them, and all Defendants argue that the Complaint does not adequately allege but-for causation of Plaintiffs' losses.
On the breach of fiduciary duty claim, Pillsbury again raises a statute of limitations defense. Bracewell argues that the claim does not apply to it because any allegations of wrongdoing occurred prior to its retention, and furthermore, there is no available remedy against it. Defendants collectively argue that Plaintiffs have failed to adequately plead causation, and further, that this claim is duplicative of the malpractice claim.
As to the cause of action for fraud, Defendants collectively raise a statute of limitations defense. Defendants also argue that the fraud claim is duplicative of the malpractice claim, that it is not pled with sufficient detail, and that it does not allege conduct actionable as fraud. Defendants further argue that there can be no derivative liability for acts that occurred before any particular defendant's retention, nor after the conclusion of its representation. Defendants raise the same defenses to the conspiracy claim, but add that, as conspiracy is not an independent cause of action, if the fraud claim is dismissed, the conspiracy claim must also be dismissed. Bracewell independently argues that there is no allegation of any actionable conduct by it contained in the cause of action for conspiracy.
I will first outline the allegations as presented in the complaint, and then discuss each of the issues listed above.
In 1996, Waggoner was approached by Lisa Duperier ("Duperier") to invest $10 million in a High Yield Investment Program ("HYIP"). Several government agencies, notably the Securities and Exchange Commission and the Federal Reserve Board, had issued warnings about HYIPs in 1993. In 1998, the SEC issued detailed warnings that HYIPs are instruments of bank fraud. HYIP investors are asked to place their money in offshore accounts, are promised high returns, and are given a zero risk guarantee on their principal. In December 1997, Waggoner transferred $10 million into an escrow account to be held while a HYIP was located.
In April 1998, Waggoner entered into a joint participation agreement with Donal Kelleher ("Kelleher"), a financial advisor. In May and June of 1998, Kelleher and Duperier began discussions with a HYIP administrator, British Trade and Commerce Bank ("BTCB"). BTCB Vice President Charles Brazie ("Brazie") suggested that Waggoner organize JVW under the laws of Dominica. Having done so, JVW then entered into a cooperative venture agreement with BTCB, whereby BTCB was to administer the investment program into which Waggoner's funds were to be placed. Pursuant to BTCB instruction, the $10 million was to be placed into a BTCB sub-account in JVW's name at Citibank, which was held by Suisse Security Bank and Trust ("SSBT"). BTCB claimed that after this transfer, it would place the funds into the investment program, and issue a Certificate of Deposit ("CD").
However, there was no BTCB sub-account at Citibank, and the funds were instead placed into a freestanding account owned by SSBT. The Complaint alleges that the funds were immediately stolen upon arrival at Citibank, that SSBT converted at least a portion of the funds, and that BTCB laundered any remainder through transfers to various other accounts that it held. During the summer of 1998, SSBT denied Waggoner access to the funds, claiming that they believed the funds to be part of a money laundering scheme, and later suggested that Kelleher had authorized the funds to be moved to Swiss money market accounts. Duperier recommended that Waggoner retain Caruso to investigate the funds, and on October 7, 1998, Caruso and his law firm, Pillsbury, were formally retained by Waggoner for the purpose of "(1) tracing the assets of [SSBT], and (2) recovering, through legal action to be commenced in one or several jurisdictions, any amounts due and owing to [JVW]."1
The Complaint alleges that shortly thereafter, Kelleher provided Caruso with information regarding SSBT's and BTCB's assets totaling over $10 million, which could be reached by attachment or Mareva injunction (a foreign order freezing assets). Plaintiffs allege that Caruso ignored this information and instead persuaded Waggoner to fire Kelleher.
On August 16, 1999, Correspondent Services Corporation ("CSC"), the holder of the CD, filed an interpleader action in the United States District Court for the Southern District of New York regarding the competing claims to the CD. CSC named as interpleader defendants in the action Kelleher, First Equity Corporation of Florida ("FECF")2, and Plaintiffs. However, the CD that was the subject of the action had expired and the funds had been moved to another CD; therefore, the CD that was the subject of the action had no value, and the action was ultimately dismissed for lack of subject matter jurisdiction. Correspondent Servs. Corp. v. J.V.W. Invs. Ltd., 205 F. Supp. 2d 191 (S.D.NY 2002), vacated, 338 F.3d 119 (2d Cir. 2003), dismissed, 2004 U.S. Dist. LEXIS 19341, aff'd, 442 F.3d 767 (2d Cir. 2006). On October 21, 1999, Duperier wrote a letter to George Betts, an officer of BTCB, stating that there was nothing to be gained from informing the court that the CD was worthless; Caruso was copied on this letter.
Sometime after the interpleader action was commenced, Caruso hired Duperier and Brazie as consultants, to be reimbursed by Waggoner, while Duperier was identifying herself as BTCB's agent and/or officer, and Brazie was still the Vice President of BTCB. The complaint alleges that Duperier and Brazie's services appeared on invoices starting in January 2003, until late 2004.
In March 2000, Caruso requested that Waggoner sign an affidavit stating that Waggoner had received approximately $7.7 million of the original $10 million. Waggoner signed the affidavit, though Plaintiffs now allege that Waggoner never actually received any money, and that Caruso was aware of that fact. However, Defendants have submitted a letter dated August 12, 2004, from Caruso to Waggoner's personal attorney, Larry Wallace ("Wallace"), stating that the $7.7 million had been returned, and attached to that letter are a number of bank statements indicating transfers made from SSBT to BTCB, and eventually a total amount of $7.7 million being credited to JVW's account at BTCB. In September 2000, Caruso added SSBT as a defendant in the interpleader action, seeking an attachment of $3 million, equaling the missing $2.3 million plus interest.
In February 2001, the Senate Committee on Investigations issued the "Minority Staff of the Permanent Subcommittee on Investigations Report on Correspondent Banking: a Gateway for Money Laundering" ("Senate Report"), which analyzed certain dealings with BTCB, and specifically included Waggoner's investment. The report discusses BTCB's use of a correspondent account at Citibank in the name of SSBT, and determines that millions of Plaintiffs' funds passed through an escrow account and were then transferred to Union Bank of Switzerland. According to the report, none of the funds were ever...
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