TriPoint Global Equities, LLC et al v. Fasolino et al
Filing
68
OPINION & ORDER. The third-party motions of June 3, 2013 and July 12, 2013 to dismiss are granted in full. The Fasolino third party complaint is dismissed in its entirety. (Signed by Judge Denise L. Cote on 10/18/2013) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
:
TRIPOINT GLOBAL EQUITIES, L.L.C., a
:
Maryland limited liability company, in :
its capacity as collateral agent for
:
CIP, L.L.C., a Kansas limited liability :
company and CARL W. GROVER,
:
:
Plaintiff,
:
:
-v:
:
ANTONIO R. FASOLINO, FASOLINO FOODS
:
USA, INC., FASOLINO FOODS CO., INC.,
:
FASOLINO ENTERPRISES, INC., and
:
FASOLINO WINE & SPIRITS, INC.,
:
:
Defendants.
:
:
--------------------------------------- X
:
ANTONIO R. FASOLINO, FASOLINO FOODS
:
USA, INC., FASOLINO FOODS CO., INC.,
:
FASOLINO ENTERPRISES, INC., and
:
FASOLINO WINE & SPIRITS, INC.,
:
:
Third Party Plaintiffs,
:
:
-v:
:
CARL W. GROVER, WILLIAM MOORE, CIP,
:
L.L.C., HUNTER, TAUBMAN & WEISS, LLP,
:
STEPHEN WEISS, ESQ. and SUNFLOWER
:
CAPITAL, L.L.C.,
:
:
Third Party Defendants.
:
:
----------------------------------------X
13 Civ. 1030 (DLC)
OPINION AND ORDER
APPEARANCES:
For the Plaintiff, Tripoint Global Equities, L.L.C., and Third
Party Defendant, Carl W. Grover:
Gary Lee Mason
Klafter & Mason, L.L.C.
195 Route 9 South, Suite 204
Manalapan, NJ 07726
(732) 358-2028
For the Defendants and Third Party Plaintiffs:
Vincent Savino Verdiramo
Verdiramo & Verdiramo, P.A.
3163 Kennedy Boulevard
Jersey City, NJ 07306
(201) 798-7082
For the Third Party Defendants, CIP, L.L.C., William Moore,
Sunflower Capital, L.L.C.:
Marshall Clinton Turner
Mark T. Benedict
Husch Blackwell Sanders, L.L.P.
190 Carondelet Plaza, Suit 600
St. Louis, MO 63105
(314) 480-1768
For the Third Party Defendants, Stephen A. Weiss and Hunter,
Taubman and Weiss, L.L.P.:
Barry Jacobs
Abrams, Gorelick, Friedman & Jacobson, L.L.P.
One Battery Park Plaza, 4th Floor
New York, NY 10004
(212) 422-1200
DENISE COTE, District Judge:
On May 27, 2013, Antonio R. Fasolino, Fasolino Foods USA,
Inc., Fasolino Foods Co., Inc., Fasolino Enterprises, Inc. and
Fasolino Wine & Spirits Inc. (collectively, “Fasolino”), filed a
third party amended complaint (“Fasolino Complaint”) against
2
CIP, L.L.C. (“CIP”), William Moore (“Moore”), Sunflower Capital,
L.L.C. (“Sunflower Capital”) (collectively, CIP, Moore, and
Sunflower Capital as “Kansas Defendants”), Carl W. Grover
(“Grover”), Stephen Weiss, Esq. (“Weiss”), and Hunter, Taubman,
and Weiss, L.L.P. (“HTW”) (collectively, Weiss and HTW as
“Lawyer Defendants”).
On June 3, Kansas Defendants and Grover
moved to dismiss the Fasolino Complaint; on July 12, the Lawyer
Defendants did the same.
For the reasons explained in this
Opinion, these motions are granted, and the Fasolino Complaint
is dismissed in its entirety.
BACKGROUND
Although this Opinion relates only to the third party
claims raised in the Fasolino Complaint, the underlying case is
central to understanding these claims.
In fact, two of the
third party defendants -- CIP and Grover -- are the lenders for
whom Tripoint Global Equities, L.L.C. (“Tripoint”) is bringing
the underlying suit.
It is therefore appropriate to begin with
the allegations made in the underlying case, before discussing
Fasolino’s allegations.
According to the allegations in Tripoint’s complaint, on
November 14, 2012, Fasolino acquired a $5,000,000 loan from CIP
(a Kansas corporation) and Carl Grover, through fraudulent
representations regarding his intended use of the funds and
3
regarding the assets he had available to be used as collateral
in the event of default.
While Fasolino claimed that he would
be using the loaned funds to operate his olive oil business, he
secreted the funds into private offshore accounts with no intent
to repay the loan.
Moreover, because Fasolino misrepresented
his assets, CIP and Grover cannot be made whole by seizing
Fasolino’s promised collateral.
Accordingly, Tripoint -- as
collateral agent on behalf of CIP and Grover -- seeks
compensatory, consequential, punitive, treble, and statutory
damages under various legal theories, including civil RICO,
fraud, breach of contract, conversion, and unjust enrichment.
Fasolino’s story differs significantly from that of
Tripoint’s.
According to Fasolino, he is a wholesale
manufacturer and distributer of Italian olive oil who, due to
repair work on his factories in Italy, was in need of bridge
financing to maintain his contractual obligations with his
largest clients, Costco and Target.
Fasolino retained the
services of Tripoint to find him suitable lenders, and Tripoint
arranged for CIP and Grover to lend Fasolino the necessary
funds.
Fasolino was already acquainted with CIP.
On August 6,
2012 (i.e., approximately two months prior to the $5,000,000
loan that is the subject of Tripoint’s suit), Fasolino had
executed a separate loan with CIP for $150,000, with a total
4
balance due of $250,000 on October 5, 2012 (“CIP Loan 1”).
A
few weeks later, on August 31, the total balance due on the CIP
Loan 1 was subsumed into a new loan from CIP to Fasolino for
$1,375,500, with a total balance due of $2,250,000 on November 6
(“CIP Loan 2”).
As will be relevant below, the promissory notes
for CIP Loan 1 and CIP Loan 2 included a Kansas choice-of-law
provision.
On November 14, as part of the transaction that Tripoint
facilitated, Fasolino executed a loan agreement with CIP and
Grover (“Loan Agreement”).
In the Loan Agreement, CIP and
Grover agreed to loan Fasolino up to $7,750,000, and to provide
$5,000,000 of that upon the execution date of the loan.
$2,250,000 of the $5,000,000 was actually an extension of the
total balance due on CIP Loan 2, and the remaining $2,750,000
was provided by Grover.
The total amount due in the Loan
Agreement was 115% of the principal (which could range from
$5,000,000 to $7,750,000, depending on whether Fasolino asked
for additional funds), on March 15, 2013.
The Loan Agreement
included a New York choice-of-law provision.
Fasolino’s legal counsel for the Loan Agreement transaction
was Weiss, who is a partner at HTW.
Fasolino alleges that
Tripoint directed him to use the legal services of Weiss in
order for the transaction to proceed “smoothly.”
5
Fasolino
alleges that, consistent with Tripoint’s directive, he relied on
Weiss fully to structure the transaction.
At some point after November 14, 2012, CIP and Grover
determined that Fasolino was not complying with the terms of the
Loan Agreement.
Accordingly, on February 14, 2013, Tripoint --
acting as collateral agent on behalf of CIP and Grover -- filed
the underlying suit against Fasolino.
On March 20, 2013,
Fasolino filed an answer, counter-claim, and third party
complaint.
On May 5 and May 10, the Kansas Defendants and
Grover moved to dismiss the third party action against them.
The motion was mooted, however, when Fasolino chose to amend his
answer, counter-claim, and third party complaint.
On May 27,
Fasolino filed his amended pleading, referred to in this Opinion
as “Fasolino Complaint.”
The gravamen of the Fasolino Complaint is that all of the
loans (the CIP Loans and the Loan Agreement) were or are
usurious.
He specifically notes the following.
The effective
annual interest rate on CIP Loan 1 was 500%.
The effective
annual interest rate on CIP Loan 2 was 254%.
The effective
annual interest rate on the Loan Agreement was 45%.
Fasolino
contends that these rates are usurious, that the loans are
thereby rendered unenforceable, and that he is entitled to
damages from the third party defendants as a result.
Fasolino Complaint has nine specified counts.
6
The
In Count One, Fasolino alleges that Weiss operated under an
undisclosed conflict of interest whereby he actually served
Weiss’s counter-party, Tripoint, and inter alia acted to
structure the transaction to avoid the protection of New York’s
usury laws.
Count Two is directed against HTW on a respondeat
superior theory for Weiss’s allegedly tortious conduct.
In Counts Three, Four, Five, and Seven, Fasolino sues CIP,
Moore (the alleged principal shareholder of CIP), and Grover for
making these usurious loans.
Fasolino seeks to have CIP Loan 1,
CIP Loan 2, and the Loan Agreement deemed void, to recoup any
payments he made, and to recover damages and other ancillary
relief.
In Count Six, Fasolino sues Moore and Sunflower Capital (a
corporation alleged to be wholly owned by Moore) for allegedly
extorting Fasolino into agreeing to pay an additional $350,000
to have the CIP Loan 2 subsumed into the Loan Agreement.
In
Counts Eight and Nine, Fasolino essentially repeats his request
for the relief sought in the prior counts.
On June 3, the Kansas Defendants moved to dismiss the
Fasolino Complaint.
On the same day, Grover moved for the same,
incorporating all the arguments made by the Kansas Defendants.
On July 12, Weiss and HTW moved to dismiss also.
were fully submitted as of September 11, 2013.
7
The motions
DISCUSSION
To survive a motion to dismiss, “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.”
U.S. 662, 678 (2009) (citation omitted).
Ashcroft v. Iqbal, 556
Applying this
plausibility standard is “a context-specific task that requires
the reviewing court to draw on its judicial experience and
common sense.”
Id. at 679.
When considering a motion to
dismiss under Rule 12(b)(6), a trial court must “accept all
allegations in the complaint as true and draw all inferences in
the non-moving party’s favor.”
LaFaro v. New York
Cardiothoracic Group, PLLC, 570 F.3d 471, 475 (2d Cir. 2009).
A
complaint must do more, however, than offer “naked assertions
devoid of further factual enhancement,” and a court is not
“bound to accept as true a legal conclusion couched as a factual
allegation.”
Iqbal, 556 U.S. at 678.
A. Usury Claims: Counts Three, Four, Five, Seven
In Counts Three and Four, Fasolino alleges that CIP Loan 1
and CIP Loan 2 were usurious and thus void.
In Count Five,
Fasolino alleges that the CIP component of the Loan Agreement is
a repackaging of CIP Loan 1 and CIP Loan 2, and it is therefore
also usurious and void.
In Count Seven, Fasolino alleges that
the Grover component of the Loan Agreement is the product of a
8
scheme to avoid the New York usury laws and thus is void.
Despite these differences in pleading, Counts Three, Four, Five,
and Seven all relate to the basic allegation of usury, and it is
prudent to address these counts together.
1. CIP Loan 1 and CIP Loan 2
In Counts Three and Four, Fasolino alleges that CIP Loan 1
and CIP Loan 2 are usurious.
The first, and indeed pivotal
issue, in assessing this allegation is determining the correct
law to apply, i.e., determining which state’s usury laws to
apply.
In a case grounded in diversity jurisdiction, as this case
is, a federal court “must apply the choice of law analysis of
the forum state.”
GlobalNet Financial.com, Inc. v. Frank
Crystal & Co., Inc., 449 F.3d 377, 382 (2d Cir. 2006).
“New
York law is clear in cases involving a contract with an express
choice-of-law provision: Absent fraud or violation of public
policy, a court is to apply the law selected in the contract as
long as the state selected has sufficient contacts with the
transaction.”
Hartford Fire Ins. Co. v. Orient Overseas
Containers Lines, 230 F.3d 549, 556 (2d Cir. 2000).
Here,
Fasolino makes no allegation of fraud or a violation of public
policy, and it is undisputed that the promissory notes for CIP
Loan 1 and CIP Loan 2 included a choice-of-law provision
9
specifying that the contracts are to be “governed by the laws of
the State of Kansas.”
The only question then is whether Kansas
has “sufficient contacts” with these loans.
It certainly does.
CIP, the lender for both loans, is both
incorporated in Kansas and has its principal place of business
in Kansas.
Additionally, according to the promissory notes for
both loans, Fasolino was obligated to pay CIP at its Kansas
address.
This means the loaned funds both originated from and
were due to be returned to Kansas.
This is more than sufficient
to conclude that Kansas has “sufficient contacts” with the loan
transactions and thus that Kansas law applies.
Under Kansas law, it is clear that neither CIP Loan 1 nor
CIP Loan 2 is usurious.
As the Kansas Defendants explain in
their motion to dismiss -- an argument that Fasolino essentially
concedes in his opposition -- the Kansas usury laws do not apply
to businesses; rather, they apply only to individuals and,
furthermore, only when the purpose of the loan is “primary for
personal, family, or household purposes.”
207(e)(West 2013). 1
Kan. Stat. Ann. § 16-
Fasolino does not dispute that he acquired
CIP Loan 1 and CIP Loan 2 for business purposes.
1
Thus,
At the time when CIP Loan 1 and CIP Loan 2 were executed, this
language appeared in § 16-207(f) of the Kansas Statutes. A
statutory amendment, effective July 1, 2013, shifted the
language to § 16-207(e).
10
Fasolino’s allegation of usury fails with regard to CIP Loan 1
and CIP Loan 2.
Fasolino presents only one argument in response: that,
because the loan transaction was executed in New Jersey and the
loaned funds were delivered in New Jersey, New Jersey law should
apply.
Under New York conflict-of-law principles, however, the
question is not which state has the “greatest” contacts with the
transaction but whether the state specified in a valid choiceof-law provision has “sufficient” contacts with the transaction.
Finucane v. Interior Constr. Corp., 695 N.Y.S.2d 322, 325 (1st
Dep't 1999).
As explained above, Kansas has sufficient
contacts, which is all that New York requires to apply the
Kansas choice-of-law provision.
Additionally, the sole citation provided by Fasolino in
support of his argument, Am. Home Assurance Co. v. Hapag Lloyd
Container Linie, GmbH, No. 04-cv-5605 (SAS), 2004 WL 1616379, at
*4 (S.D.N.Y. July 19, 2004), is readily distinguishable.
In
that case, which is not binding authority here, the court
rejected a German choice-of-law provision when the sole contact
between Germany and the case was that one party was a German
corporation.
Here, by contrast, CIP is not only incorporated in
Kansas but actually has its principal place of business there.
The location of a principal place of business is significant and
generally suffices to establish “sufficient contacts” for
11
purposes of New York conflicts-of-law analysis.
See Finucane,
695 N.Y.S.2d at 325; see also Cap Gemini Ernst & Young, U.S.,
L.L.C. v. Nackel, 346 F.3d 360, 366 (2d Cir. 2003).
For these
reasons, under Kansas law, CIP Loan 1 and CIP Loan 2 were not
usurious.
Finally, even if New Jersey law were to apply to CIP Loan 1
and CIP Loan 2, the loans would not be usurious under that
state’s laws.
New Jersey's civil usury statute states that
Notwithstanding the provisions of paragraph (a) or (b)
of this section, contracts for the following classes
or types of loans may provide for any rate of interest
which the parties agree upon, and interest at any such
rate may be taken, notwithstanding that it exceeds a
rate limited by paragraph (a) or (b) of this section:
(1) Loans in the amount of $50,000.00 or more, except
loans where the security given is a first lien on real
property on which there is erected or to be erected a
structure containing one, two, three, four, five or
six dwelling units, a portion of which structure may
be used for nonresidential purposes. The rate of
interest stated in such contract upon the origination
of such loans may be taken notwithstanding that
payments thereon reduce the amount outstanding to less
than $50,000.00.
N.J. Stat. Ann. § 31:1–1(e)(1)(West 2013)(emphasis added).
Neither CIP Loan 1 nor CIP Loan 2 was secured by first liens on
real property, and both exceeded the $50,000 cutoff for the
protection of New Jersey’s usury laws.
12
Accordingly, under New
Jersey law, the loans were not usurious.
Counts Three and Four
are therefore dismissed. 2
2. Loan Agreement
In Count Five, Fasolino alleges that the CIP component of
the Loan Agreement is usurious.
Specifically, he alleges that
the CIP component was merely a “re-casting” of the prior CIP
loans.
Because those loans were, he contends, usurious, the CIP
component of the Loan Agreement is also usurious and thus void.
Here, unlike as with CIP Loan 1 and CIP Loan 2, the parties
do not dispute the choice-of-law question.
Both parties apply
New York law, which is undoubtedly correct as the Loan Agreement
includes an express choice-of-law provision stating that the law
of New York governs.
The question, then, is whether the CIP
component of the Loan Agreement is usurious under New York law.
It is not.
Section 5-501(6)(b) of New York General
Obligations Law reads as follows:
No law regulating the maximum rate of interest which
may be charged, taken or received, including section
190.40 and section 190.42 of the penal law, shall
apply to any loan or forbearance in the amount of two
million five hundred thousand dollars or more. Loans
or forbearances aggregating two million five hundred
thousand dollars or more which are to be made or
2
Fasolino states, without explanation, in his opposition that
CIP Loan 1 “is void ab[]initio under New York law” and again
that CIP Loan 2 “is similarly void and unenforceable under New
York law.” There is, however, no basis whatsoever to apply New
York law to these transactions, for the reasons explained above.
13
advanced to any one borrower in one or more
installments pursuant to a written agreement by one or
more lenders shall be deemed to be a single loan or
forbearance for the total amount which the lender or
lenders have agreed to advance or make pursuant to
such agreement on the terms and conditions provided
therein.
N.Y. Gen. Oblig. Law § 5-501(6)(b) (McKinney 2013).
provision has two important elements.
This
First, it calls for
treating loans from multiple lenders advanced to “one borrower”
and “pursuant to a written agreement” as “a single loan.”
Second, if the aggregate total for this single loan exceeds
$2,500,000, it is not subject to the protection of New York’s
usury laws.
The Loan Agreement meets both elements.
Two loans, one
from CIP and one from Grover, were extended to one borrower,
Fasolino, in one written agreement, i.e., the Loan Agreement.
Accordingly, the two loans are treated as one, and -- more
important -- the loan amounts are aggregated when assessing
whether the loan exceeds the $2,500,000 cutoff for the
protection of New York’s usury laws.
Although the parties
dispute whether the aggregate total should be determined by the
amount actually loaned ($5,000,000) or the amount agreed to be
loaned ($7,750,000), the dispute is irrelevant; in either
situation, the aggregate total for the Loan Agreement exceeds
the $2,500,000 cutoff for the protection of New York’s usury
14
laws.
The CIP component of the Loan Agreement is therefore not
usurious under New York law.
Fasolino offers only one argument in response: that the
$2,250,000 portion of the Loan Agreement that represents CIP’s
extension of the prior loans should not qualify for aggregation
under § 5-501(6)(b) because the prior loans were usurious.
Although Fasolino cites no law to support his statutory reading
of § 5-501(6)(b), he makes a reasonable observation that New
York’s usury laws would be somewhat weakened if a lender could
combine multiple individually usurious loans into a package
exceeding $2,500,000 and thus avoid those laws altogether.
In
any event, this is not the case to resolve that issue, as the
prior CIP loans were not usurious, for reasons explained above.
Thus, aggregation does apply, the Loan Agreement is not usurious
under New York law, and Count Five is dismissed.
3. Count Seven
All that remains of the usury-related counts is Count
Seven. In Count Seven, Fasolino sues Grover (and perhaps the
remaining defendants) for acting in concert to structure the
Loan Agreement to avoid the protection of New York’s usury laws.
He seeks that the Grover loan component of the Loan Agreement to
be deemed void, to recoup his payments, and further damages.
15
On this count, the Fasolino Complaint is very unclear.
To
begin, Fasolino fails to specify who exactly is being sued in
this count.
Although Grover is named multiple times, some
allegations list other third party defendants, including CIP and
the Lawyer Defendants.
Additionally, although Fasolino alleges
that it was wrongful for these parties to act in concert to
“raise the gross amount loaned to Fasolino to reap greater fees
on behalf of themselves” and “to place the gross loan amount
above the threshold” for the protection of the usury laws,
Fasolino fails to specify any legal or equitable cause of action
that provides him with relief in such a circumstance.
A lender
is generally permitted to structure its transactions to maximize
its profits and minimize its liability.
It is equally true,
however, that the law places various limits on how lenders may
achieve these goals.
The line between permissible and
impermissible conduct defines a large body of law, and yet the
Fasolino Complaint makes no attempt whatsoever to explain or
even provide basic notice as to why or how the defendants’
conduct is impermissible, rather than permissible.
Under our
federal system of notice pleading, the Fasolino Complaint is
therefore insufficient.
Two additional arguments support this conclusion.
First,
even after the Kansas Defendants identified these deficiencies
in their initial motion to dismiss and Fasolino availed himself
16
of the opportunity to amend, he made no attempt to remedy these
pleading errors.
Second, the Lawyer Defendants argued in their
motion to dismiss that Count Seven should be dismissed because
New York does not recognize an independent civil tort of
conspiracy.
Fasolino, however, made no attempt to defend this
count in his opposition.
Thus, in addition to improperly
pleading Count Seven, Fasolino has failed to repair or defend it
in his motion papers.
Thus Count Seven is dismissed.
B. Legal Malpractice: Counts One and Two
Having resolved the usury counts, the next substantive
issue is the legal malpractice claim against Weiss in Count One.
Both parties assume that New York law applies to the legal
malpractice claim, but they do not directly address the choiceof-law issue.
“Under New York choice of law rules . . . where
the parties agree that New York law controls, this is sufficient
to establish choice of law.”
Fed. Ins. Co. v. Am. Home
Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011).
may be implicit.
Id.
Such agreement
The parties having assumed that New York
law controls, under the New York choice-of-law rule, New York
law applies.
See Krumme v. WestPoint Stevens Inc., 238 F.3d
133, 138 (2d Cir. 2000).
Under New York law, to prevail on a claim for legal
malpractice, a plaintiff must establish: “(1) attorney
17
negligence; (2) which is the proximate cause of a loss; and (3)
actual damages.”
Nordwind v. Rowland, 584 F.3d 420, 429 (2d
Cir. 2009)(quoting Achtman v. Kirby, McInerney & Squire, LLP,
464 F.3d 328, 337 (2d Cir. 2006)).
Here, Fasolino’s claim fails
at the first element, negligence.
The Fasolino Complaint alleges that Weiss operated under an
undisclosed conflict of interest whereby he actually served
Weiss’s counter-party, Tripoint, and inter alia acted to
structure the transaction to avoid the protection of New York’s
usury laws.
Specifically, Fasolino alleges that Weiss (1)
actively structured the transaction to prevent Fasolino from
having the protection of New York’s usury laws; (2) failed to
advise Fasolino that the interest rates were usurious under New
York law; (3) failed to negotiate for lower rates that were not
usurious; and (4) failed to advise Fasolino that he was pledging
all of his assets as collateral on the usurious loan.
Although the parties make much of the conflict of interest
alleged by Fasolino, that issue is ultimately irrelevant to
resolving the adequacy of Fasolino’s pleadings.
All that
matters is Fasolino’s allegations regarding Weiss’s conduct, not
Weiss’s motivation.
Specifically, the question is whether Weiss
“failed to exercise the ordinary reasonable skill and knowledge
commonly possessed by a member of the legal profession.”
Wyly
v. Weiss, 697 F.3d 131, 141 (2d Cir. 2012) (quoting AmBase Corp.
18
v. Davis Polk & Wardwell, 866 N.E.2d 1033, 1036 (N.Y. 2007))
(emphasis omitted).
The answer here is no.
With respect to Fasolino’s first
three allegations regarding negligence, all three allegations
presume that the Loan Agreement was usurious.
That is, the
premise for Weiss’s alleged negligence is that he either
actively promoted the usury problem or failed to identify and
address it.
It has been established above, however, that there
was no usury problem, as the Loan Agreement was not usurious
under New York law.
Accordingly, where there is no legal
problem, Weiss cannot be negligent for his conduct related to
the problem.
The fourth allegation relates to Weiss’s supposed failure
to inform Fasolino as to the collateral he was promising in the
Loan Agreement.
one.
The standard for attorney negligence is a high
See Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d
328, 337 (2d Cir. 2006) (“A complaint that essentially alleges
either an ‘error of judgment’ or a ‘selection of one among
several reasonable courses of action’ fails to state a claim for
malpractice.” (quoting Rosner v. Paley, 492 N.Y.S.2d 13, 14
(1985))); Bernstein v. Oppenheim & Co., 554 N.Y.S.2d 487, 489
(1st Dep’t 1990) (“[A]n attorney is not held to the rule of
infallibility and is not liable for an honest mistake of
judgment, where the proper course is open to reasonable
19
doubt.”).
Under this high standard, the question is whether
Fasolino has adequately pleaded that Weiss’s conduct was
objectively unreasonable.
While failing to explain the terms of a loan may be a valid
basis for a negligence claim in a transaction involving an
unsophisticated party (such as an ordinary consumer), it is
undisputed that Fasolino is a sophisticated business party.
In
such a case, it is not objectively unreasonable for an attorney
to believe that his client is fully capable of understanding
such a basic loan term as collateral.
“The general rule is that
an attorney may be held liable for ignorance of the rules of
practice, failure to comply with conditions precedent to suit,
or for his neglect to prosecute or defend an action.”
Bernstein, 554 N.Y.S.2d at 489-90.
Having failed to establish
the prima facie validity of the legal malpractice tort, Fasolino
cannot be granted relief and Count One is dismissed.
As to Count Two in the Fasolino Complaint, it is directed
at HTW based on respondeat superior liability for Weiss’s
tortious conduct.
It therefore rises and falls with the legal
malpractice claim in Count One.
Because Fasolino’s legal
malpractice claim fails, Count Two against HTW also fails.
20
C. Remaining Claims: Counts Six, Eight, Nine
The remaining claims in the Fasolino Complaint must also be
dismissed.
Count Six alleges that Moore and Sunflower Capital
“extort[ed]” Fasolino into paying them $350,000 for extending
CIP Loan 2 in the Loan Agreement.
New York, however, does not
provide a private right of action for extortion.
Soumayah, 839 N.Y.S.2d 727, 728 (1st Dep’t 2007).
Jersey.
Minnelli v.
Nor does New
Dello Russo v. Nagel, 358 N.J. Super. 254, 267 (App.
Div. 2003).
To the extent that Kansas law is applicable, this Court is
unable to find any reference in Kansas case law to a private
cause of action for extortion.
The closest case, a 1979
decision by the Kansas Court of Appeals, suggests that there may
be no such claim.
In a discussion regarding whether a plaintiff
is able to bring a civil cause of action for “oppression,” the
court makes reference to “extortion” but refers to it as the
Young v. Hecht, 597 P.2d 682, 687 (Kan.
“crime of extortion.”
Ct. App. 1979).
Were there a civil extortion cause of action
under Kansas law, the court would likely have referenced it.
As
with Count Seven above, the Kansas Defendants pointed out these
deficiencies in his pleading in their initial motion to dismiss.
Again, Fasolino made no attempt to remedy these deficiencies in
his amended filing.
Accordingly, Count Six is dismissed.
21
Counts Eight and Nine are, as discussed above, purely
duplicative.
These counts simply restate the allegations made
in the prior counts and then request the same relief requested
in the prior counts.
As Counts One through Seven have now been
dismissed, Counts Eight and Nine are also dismissed.
D. Confession of Judgment
Although the prior analysis resolves the entirety of the
third party complaint, one further issue merits discussion.
During the pendency of this action, CIP and Grover have acquired
a state court judgment against Fasolino in the amount of
$5,000,000 plus interest.
At the time of the execution of the
Loan Agreement, Fasolino signed a “Confession of Judgment”
document with blank spaces for the amount due.
Subsequent to
the filing of Tripoint’s suit in the underlying case, CIP and
Grover completed the “Confession of Judgment” document and filed
it (bearing Fasolino’s signature) in New York Supreme Court.
Judgment was entered in New York on May 14, 2013.
The Kansas
Defendants argue that the Confession of Judgment renders the
third party claim either moot or precluded under res judicata. 3
3
The Kansas Defendants also cite “collateral estoppel” but
this is wholly inapplicable. The critical distinction between
collateral estoppel and res judicata -- or “issue preclusion”
and “claim preclusion” as these doctrines are now known -- is
that the former doctrine requires the matter to have been
“actually litigated.” And it is blackletter law that, because
22
Without reaching the mootness question, this Court agrees
that it is bound by res judicata to accept the properly filed
Confession of Judgment as fully resolving the question of
Fasolino’s liability to CIP and Grover for the transaction in
question.
The law governing the doctrine of res judicata in a
diversity action is “the law that would be applied by state
courts in the State in which the federal diversity court sits.”
Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508
(2001).
New York courts treat confessions of judgments like
consent decrees; these are, in turn, treated the same as a final
judgment after trial.
See Canfield v. Elmer E. Harris & Co.,
170 N.E. 121 (N.Y. 1930)(“A judgment by confession stands in
much the same position as one by stipulation or consent and is
conclusive adjudication of all matters embraced in it and a bar
to any subsequent action on the same claim.”). 4
Such judgments
no matters are “actually litigated” in a confession of judgment,
it does not collaterally estop a bound party from arguing the
merits of an issue. Arizona v. California, 530 U.S. 392, 414
(2000).
4
Despite its early origin, Canfield continues to be cited as
controlling authority in federal and New York courts. See,
e.g., Levy v. U.S., 776 F. Supp. 831, 835 (S.D.N.Y. 1991); In re
Madison 92nd Street Associates LLC, 472 B.R. 189, 194 (Bankr.
S.D.N.Y. 2012) (“Under New York law, a consent judgment has the
same res judicata effect as a judgment on the merits.”); Maspeth
Federal Sav. and Loan Ass’n v. Bah, 816 N.Y.S.2d 683 (1st Dep’t
2006).
23
are subject to direct challenge at the time of their entry. 5
But
after the time to challenge has expired or the challenge has
been denied, the judgment is final under longstanding res
judicata principles.
Id.
Res judicata permits exceptions, however, and New York
allows collateral attack on prior final judgments in certain
instances, such as when the imposing court lacked jurisdiction.
See, e.g., Saud v. Bank of New York, 929 F.2d 916, 919 (2d Cir.
1991).
Conspicuously absent in any of Fasolino’s motions is any
allegation or contention that the New York Supreme Court lacked
jurisdiction to enter the Confession of Judgment against him.
To the contrary, Fasolino’s sole basis for his attack on the
Confession of Judgment is that the underlying loans are usurious
and thus unenforceable.
This is a classic merits-based
argument, which must be raised in a direct attack on a judgment,
not in a collateral attack.
Because Fasolino has not presented
an allegation that would permit this Court to draw an exception
to New York’s res judicata principles, this Court is bound by
the Confession of Judgment.
5
Under New York civil procedure, “[g]enerally, a person seeking
to vacate a judgment entered upon the filing of an affidavit of
confession of judgment must commence a separate plenary action
for that relief.” Regency Club at Wallkill, LLC v. Bienish, 942
N.Y.S.2d 894, 894 (2d Dep’t 2012). The challenge can be made by
motion to vacate the judgment in certain instances. See, e.g.,
Cole-Hatchard v. Nicholson, 901 N.Y.S.2d 660 (2d Dep’t 2010).
24
Finally, even if collateral attack on the Confession of
Judgment were permitted, Fasolino would still fail.
Fasolino’s
sole basis for his attack on the Judgment is that the underlying
loans are usurious.
not.
For the reasons explained above, they are
Therefore, Fasolino’s collateral attack would fail in any
event, and this Court would be bound by the Confession of
Judgment.
CONCLUSION
The third party motions of June 3, 2013 and July 12, 2013
to dismiss are granted in full.
The Fasolino third party
complaint is dismissed in its entirety.
SO ORDERED:
Dated:
New York, New York
October 18, 2013
____________________________
DENISE COTE
United States District Judge
25
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?