Wall Street Associates v. Brodsky

• Decision Date: 28 January 1999
• Citation: 257 A.D.2d 526,684 N.Y.S.2d 244
• Parties: 1999 N.Y. Slip Op. 749 WALL STREET ASSOCIATES, Plaintiff-Appellant, v. Edward BRODSKY, et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 244

684 N.Y.S.2d 244

1999 N.Y. Slip Op. 749

WALL STREET ASSOCIATES, Plaintiff-Appellant, v. Edward BRODSKY, et al., Defendants-Respondents.

Supreme Court, Appellate Division,

First Department.

Jan. 28, 1999.

Joseph S. Rosenthal, for Plaintiff-Appellant.

Richard L. Spinogatti, for Defendants-Respondents.

ROSENBERGER, J.P., WILLIAMS, ANDRIAS and SAXE, JJ.

MEMORANDUM DECISION.

Judgment, Supreme Court, New York County (Edward Lehner, J.), entered May 12, 1997, which, upon defendants' CPLR 3211(a)(7) motion, dismissed plaintiff's second amended legal malpractice complaint, unanimously reversed, on the law, with costs, and plaintiff granted leave to file and serve the third amended complaint. Appeal from order, same court and Justice entered May 6, 1997, unanimously dismissed as subsumed within the appeal from the judgment. Appeal from order, same court and Justice, entered November 17, 1997, which denied plaintiff's motion deemed to be one for reargument, unanimously dismissed, without costs, as taken from a non-appealable order.

In the context of a CPLR 3211 motion to dismiss, where we must take the factual allegations of the complaint as true, consider the affidavits submitted on the motion only for the limited purpose of determining whether the plaintiff has stated a claim, not whether he has one and, in the absence of proof that an alleged material fact is untrue or beyond significant dispute, must not dismiss the complaint (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17; Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 634-36, 389 N.Y.S.2d 314, 357 N.E.2d 970), we find that plaintiff's allegations are sufficient to support its contentions that its fraudulent conveyance claims were viable and potentially successful when brought to defendants' attention in 1986, that as a consequence, its claims for legal malpractice and breach of contract to perform legal services were sufficiently alleged, and that the motion court erred in granting dismissal of the complaint. We also grant leave to amend the complaint, notwithstanding the motion court's denial of plaintiff's motion for reargument, where plaintiff had previously sought, and the court failed to address, such relief in its opposition to defendants' motion to dismiss, and where the proposed third amended complaint clearly sets forth an adequate basis for plaintiff's claims. It is well-settled that leave to amend should be freely granted (Dittmar Explosives v. A.E. Ottaviano, 20 N.Y.2d 498, 502, 285 N.Y.S.2d 55, 231 N.E.2d 756; Lambert v. Williams, 218 A.D.2d 618, 621, 631 N.Y.S.2d 31), and that strong public policy favors resolving cases on the merits (see, Amer. Continental Properties v. Natl. Union Fire Ins. Co., 200 A.D.2d 443, 446, 608 N.Y.S.2d 807; Segall v. Heyer, 161 A.D.2d 471, 473, 555 N.Y.S.2d 738).

Plaintiff alleged in its legal malpractice action that defendants successfully obtained for it a $6.1 million judgment in the underlying arbitration proceeding against, inter alia, its former general managing partners, Michael Wise and Monroe Friedman, for fraud, conversion, breach of fiduciary duty and negligence, but failed to bring an action against them, pursuant to the Debtor and Creditor Law (DCL), to set aside alleged fraudulent conveyances to their spouses of their respective 25% ownership interests in Enseco, Inc.. Plaintiff further alleged that these conveyances rendered Wise and Friedman judgment-proof and resulted in plaintiff's recovery of only $500,000.

The plaintiff in a legal malpractice action must establish that the attorney in question was negligent, that the attorney's negligence was the proximate cause of the loss sustained, and that actual damages were sustained. It must be established that "but for" the attorney's negligence, the underlying action would have succeeded (Greenwich v. Markhoff, 234 A.D.2d 112, 114, 650 N.Y.S.2d 704; Lauer v. Rapp, 190 A.D.2d 778, 593 N.Y.S.2d 843). In addition, in order to establish the proximate cause and actual damages elements, plaintiff must show that the Statute of Limitations on the underlying claim had run by the time that it discharged defendants as its attorneys (see, C & F Pollution Control v. Fidelity and Casualty Co. of New York, 222 A.D.2d 828, 829, 653 N.Y.S.2d 704).

With regard to plaintiff's DCL § 273 claim, for example, it had to establish that the debtors made a conveyance, that they were insolvent prior to the conveyance or rendered insolvent thereby, and that the conveyance was made without fair consideration (United States v. McCombs, 30 F.3d 310, 323; United States v. Carlin, 948 F.Supp. 271, 277). The motion court, in dismissing the second amended complaint, found that plaintiff failed to plead the existence of a conveyance and did not allege the insolvency element. However, DCL § 270 defines "conveyance" broadly and it has been held that the term includes a prospective debtor's arrangement to have stock issued in the name of his wife (see, Levy v. Braverman, 24 A.D.2d 430, 260 N.Y.S.2d 681). Applying this definition to the instant matter, where the complaint cites Friedman's arbitration testimony that his Enseco stock was placed in his wife's name to insulate it from anticipated judgment creditors, it is clear that the complaint adequately alleges that a conveyance occurred. The insolvency element can be sufficiently made out from the complaint in that it alleges that Wise and Friedman were judgment proof when plaintiff attempted to enforce its judgment (see, Union Natl. Bank v. Russo, 64 A.D.2d 759, 760, 406 N.Y.S.2d 930). Finally, triable issues of fact were raised as to the fairness of the consideration paid for the conveyance, since the spouses' purchase of the shares at such a favorable price here appears to be dubious. Fairness of the consideration is a question of fact and an intra-family transaction places a heavier burden on defendant to demonstrate fairness (Liggio v. Liggio, 53 A.D.2d 543, 549, 385 N.Y.S.2d 33).

Similarly, we find that plaintiff sufficiently asserted claims under DCL §§ 275 and 276. DCL § 275 provides that:

Every conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and...