v. Gold Scollar Moshan, PLLC et al

Filing 116

MEMORANDUM OPINION & ORDER re: 81 MOTION to Strike Document No. 62 Third-Party Complaint. MOTION to Dismiss Third-Party Complaint. MOTION to Sever Third-Party Complaint filed by Hui Ye. For the reasons stated above, Plaintiff's motion to strike the third-party complaint pursuant to Rule 14(a)(4) is granted. The Clerk of the Court is respectfully directed to close the open motion (ECF No. 81) and to terminate the third-party claims and parties from the docket. A conference remains scheduled for December 20, 2016, at 11:00 A.M. (As further set forth in this Memorandum Opinion & Order.) Gold Scollar, Gold Scollar Moshan, PLLC, Gold Scollar Moshan, PLLC, David Katz, David Katz, J ay Katz, Jay Katz, Kokkosis, Katherine Kokkosis, Katherine Kokkosis, Alexandra Luski, Alexandra Luski, Eli Luski, Eli Luski, Moshan, Michael J Moshan, Michael J Moshan, Banner Realty Company, LLC and Banner Realty Company, LLC terminated. (Signed by Judge John F. Keenan on 12/6/2016) (mro)

Case 1:09-md-02013-PAC Document 57

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 12/06/2016

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
-----------------------------------X
SOUTHERN DISTRICT OF NEW YORK
HUI YE,
:
-----------------------------------------------------------x
In re FANNIE MAE 2008 SECURITIES : :
08 Civ. 7831 (PAC)
Plaintiff,
: :
LITIGATION
09 MD 2013 (PAC)
:
No. 14 Civ. 7683 (JFK)
:
-against:
:
OPINION & ORDER
:
MEMORANDUM
-----------------------------------------------------------x
GOLD SCOLLAR MOSHAN PLLC,
:
OPINION & ORDER
ALLISON SCOLLAR,
:
MICHAEL J. MOSHAN,
:
KATHERINE KOKKOSIS, and
:
HONORABLE PAUL A. CROTTY, United States District Judge:
ROBERT B. GOLD,
:
:
Defendants.
:
BACKGROUND1
-----------------------------------X
GOLD SCOLLAR MOSHAN PLLC,
:
boom in home financing which was fueled, among
MICHAEL J. The early years of this decade saw a :
MOSHAN, and
KATHERINE KOKKOSIS,
:
other things, by low interest rates and lax credit conditions. New lending instruments, such as
:
Third-Party Plaintiffs, :
subprime mortgages (high credit risk loans) : Alt-A mortgages (low-documentation loans)
and
-against:
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
:
ELI LUSKI,
:
assumption that
ALEXANDRA LUSKI, the market would continue to rise and that refinancing options would always be
:
JAY KATZ,
:
DAVID available and future. Lending discipline was lacking in the system. Mortgage originators did
KATZ, in the
:
BANNER REALTY COMPANY, LLC,
:
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
:
Third-Party Defendants. :
originators sold their loans into the secondary
-----------------------------------X mortgage market, often as securitized packages

known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
JOHN F. KEENAN, United States District Judge:
But then the housing bubble burst. In PLLC (“GSM”), Michael
Defendants Gold Scollar Moshan, 2006, the demand for housing dropped abruptly
and home prices began Kokkosis have changing housing market, banks modified their
Moshan, and Katherine to fall. In light of the filed a third-party
lending practices diversity action. They seek to recover on
complaint in this and became unwilling to refinance home mortgages without refinancing.
contribution and indemnity claims against five third-party
1

Unless otherwise indicated, all references cited as “(¶ _)”
defendants. 22, 2009. For purposes of this Motion, allHui or to thethe Amended ComplaintAmended totrue.
First-Party Plaintiff allegations in “Complaint” are to themoves Complaint,
Ye (“Plaintiff”) are taken as
dated June

strike the third-party complaint pursuant to Federal Rule of
1

1

Civil Procedure 14(a)(4).

For the reasons set forth below,

Plaintiff’s motion is granted.
I. Background
Plaintiff Hui Ye is a resident of China. (Compl. ¶ 4.)
Defendant GSM is a New York law firm. (Id. ¶ 5.)

Defendants

Robert B. Gold, Allison Scollar, Michael Moshan, and Katherine
Kokkosis were allegedly attorneys who worked at GSM during the
events alleged in the complaint.

(Id. ¶¶ 6-9.)

In or around 2013, Plaintiff hired GSM to represent her in
connection with her purchase of an apartment on Central Park
West in Manhattan. (Id. ¶ 12.)

Plaintiff advised Defendants

that she would not be traveling to New York to attend the
closing on the apartment, which was scheduled for the end of
August 2014. (Id. ¶¶ 13, 18.)

Defendants assured Plaintiff that

she did not need to attend the closing in person as long as she
wired the balance of the purchase price to GSM’s escrow account
for the Defendants to hold onto until delivery to the sellers at
the closing. (Id. ¶ 14.)

Plaintiff did so on August 1, 2014,1

wiring $1,044,533.00 into GSM’s escrow account. (Id. ¶ 16.)

1

The complaint alleges that the date of the transfer was January
8, 2014. (Compl. ¶ 16.) In their papers submitted in connection
with this motion, however, the parties agree that the correct
date is August 1, 2014. (See Pl.’s Mem. at 7; Defs.’ Mem. at 1112; see also Am. Answer ¶ 47, ECF No. 62.)
2

On August 11, 2014, GSM notified Plaintiff that there was a
“significant shortfall” in the firm’s escrow account that made
it “impossible to proceed with [the] closing.” (Id. ¶ 19.)
Despite repeated demands, GSM refused to return Plaintiff’s
funds. (Id. ¶ 22.)

To avoid being in breach of the contract of

sale, Plaintiff was forced to borrow money to raise another
$1,044,533.00 to close on the apartment. (Id. ¶ 23.)

Upon

information and belief, Plaintiff alleges that instead of
preserving the escrow funds on Plaintiff’s behalf until the
closing, Defendants retained the funds for their own use. (Id.
¶ 20.)

The complaint asserts claims against Defendants for

legal malpractice, breach of fiduciary duty, misappropriation,
conversion, and fraud.
In response to the complaint, the defendants filed various
answers and cross-claims.

On November 21, 2014, Scollar

answered and filed cross-claims against all of her codefendants.

On December 2, 2014, Moshan and Kokkosis jointly

answered and filed cross-claims against Scollar.

On March 23,

2015, Gold moved to dismiss the first-party claims against him
for lack of personal jurisdiction.

The Court denied that motion

on October 30, 2015, and Gold then answered.
On January 13, 2016, the Court held an initial conference
and entered a scheduling order that set a deadline for joinder
of parties and amendment of pleadings by February 5, 2016.
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On

February 4, 2016, counsel entered a notice of appearance on
behalf of GSM, which had not yet answered or appeared.

On

February 5, 2016, Defendants GSM, Moshan, and Kokkosis (the
“Third-Party Plaintiffs”) filed an amended answer with crossclaims against Defendant Scollar and a third-party complaint
against five nonparties:

Eli Luski, Alexandra Luski, Jay Katz,

David Katz, and Banner Realty Company, LLC (the “Third-Party
Defendants”).
According to the cross-claims and third-party complaint,
Defendant Scollar took millions of dollars from GSM’s escrow
account in 2013 and 2014 and wrongfully distributed the funds to
herself and others. (Am. Answer ¶ 100.)

The Third-Party

Defendants are alleged to have acted in concert with Scollar and
to have wrongfully received funds from her despite knowing they
were escrow funds. (Id. ¶ 114.)

In the event that Third-Party

Plaintiffs are found liable on the first-party claims, they seek
to recover from the Third-Party Defendants for indemnity and
contribution. (Id. ¶¶ 121, 125.)

Third-Party Plaintiffs also

separately bring cross-claims against Scollar for indemnity,
contribution, and fraud. (Id. ¶¶ 100-113.)
On April 4, 2016, Plaintiff filed the instant motion to
strike the third-party complaint pursuant to Rule 14(a)(4) of
the Federal Rules of Civil Procedure.

4

On May 2, 2016, the District Attorney for New York County
announced the indictment of three of the Third-Party Defendants:
Eli Luski, Jay Katz, and David Katz. (See Press Release, New
York District Attorney’s Office, DA Vance:

Three Men, Including

Former Attorney, Charged with Conspiring to Steal and Launder $5
Million from Attorney Escrow Accounts (May 2, 2016),
http://manhattanda.org/press-release/da-vance-three-menincluding-former-attorney-charged-conspiring-steal-and-launder5-mi.)

From January 2010 to February 2016, the three men are

alleged to have enlisted attorneys to steal approximately $5
million held in attorney escrow accounts and to have directed
the stolen funds to designated bank accounts. Id.

Each

defendant is charged with second degree grand larceny and
conspiracy in the fourth degree. Id.

Luski and Jay Katz are

also charged with money laundering in the first and second
degrees and residential mortgage fraud in the second degree. Id.
The Court has been advised that David Katz and Eli Luski are
currently incarcerated in connection with the state charges and
that a motions schedule in the criminal case is pending.
II. Discussion
Plaintiff moves this Court to strike the third-party
complaint pursuant to Rule 14(a)(4) of the Federal Rules of
Civil Procedure, which permits any party to move to strike a
third-party claim, to sever it, or to try it separately. FED. R.
5

CIV. P. 14(a)(4).

The thrust of Plaintiff’s argument is that the

prejudice to Plaintiff from allowing the third-party complaint
at this stage of the litigation outweighs the benefits to
judicial economy from permitting the third-party claims.

The

Court agrees.
Under Rule 14(a)(1), a defending party may implead a third
party “who is or may be liable to it for all or part of the
claim against it.” FED. R. CIV. P. 14(a).

The purpose of the rule

is to promote judicial efficiency by eliminating the necessity
for the defendant to bring a separate action against a thirdparty who might be liable to the defendant for a portion of the
plaintiff’s claims. Kenny v. City of New York, No. 09-CV-1422
RRM VVP, 2011 WL 4460598, at *2 (E.D.N.Y. Sept. 26, 2011).
However, “the right to implead third parties is not automatic,
and the decision whether to permit impleader rests within the
sound discretion of the district court.” Doucette v. Vibe
Records, Inc., 233 F.R.D. 117, 120 (E.D.N.Y. 2005) (quoting
Consol. Rail Corp. v. Metz, 115 F.R.D. 216, 218 (S.D.N.Y.
1987)).

In exercising this discretion, the district court must

balance the benefits of settling related matters in one suit
against the possible prejudice to the plaintiff and third-party
defendants. Metz, 115 F.R.D. at 218.
Court’s decision include:

Factors relevant to the

“(1) whether the movant deliberately

delayed or was derelict in filing the motion, (2) whether
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impleading would delay or unduly complicate the trial;
(3) whether impleading would prejudice the third-party
defendant; and (4) whether the proposed third-party complaint
states a claim upon which relief can be granted.” Murphy v.
Keller Indus., Inc., 201 F.R.D. 317, 320 (S.D.N.Y. 2001).
In opposition to Plaintiff’s motion to strike, Third-Party
Plaintiffs provide no convincing justification for waiting more
than 14 months from the date of their original answer to implead
the Third-Party Defendants.

Although the initial conference in

this case was adjourned pending briefing and a decision on
Defendant Gold’s motion to dismiss for lack of personal
jurisdiction, Gold is not involved in the third-party claims.
Thus, there was little reason to wait until Gold’s motion was
decided before seeking to implead the Third-Party Defendants.
Nor is this a situation where the factual bases for the thirdparty claims were only recently discovered.

The third-party

complaint relies on facts alleged in a state court action
brought by Defendant Scollar, which Third-Party Plaintiffs
acknowledge was filed in late 2014, more than a year before the
third-party complaint. (See Am. Answer ¶ 116; id. Ex. G; Defs.’
Mem. at 4.)

Accordingly, the timing of the third-party

complaint weighs in favor of granting Plaintiff’s motion to
strike.

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Moreover, were the Court to permit the third-party claims,
further delay would likely ensue.

Discovery, other than

depositions, on the first-party claims has concluded.

Plaintiff

has indicated that she intends to move for summary judgment on
the first-party claims following depositions.

Impleading five

additional parties, three of whom are awaiting trial on state
criminal charges, would likely delay and complicate resolution
of the relatively straightforward first-party claims as the
parties engage in additional discovery and motions practice,
including a potential motion to stay the third-party action
pending resolution of the state criminal proceedings.
The Court finds that these concerns outweigh the benefits
to judicial economy from having the third-party claims litigated
in this action.

The Court therefore need not consider

Plaintiff’s additional argument that the third-party claims
should be stricken because they fail to state claims for
contribution or indemnity that are dependent upon the firstparty claims.

Nor does the Court consider Plaintiff’s

contention that the Court would lack subject matter jurisdiction
over the third-party claims.
Conclusion
For the reasons stated above, Plaintiff’s motion to strike
the third-party complaint pursuant to Rule 14(a)(4) is granted.
The Clerk of the Court is respectfully directed to close the
8

open motion (ECF No. 81) and to terminate the third-party claims
and parties from the docket.

A conference remains scheduled for

December 20, 2016, at 11:00 A.M.
SO ORDERED.

Dated:

New York, New York
December 6, 2016

United States District Judge

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