DePalma v. Maya Murphy, P.C. et al
OPINION & ORDER re: 30 MOTION to Dismiss . filed by Klein Liebman & Gersen, LLC, 28 MOTION to Dismiss the Complaint. filed by H. Daniel Murphy, Maya Murphy, P.C.: For the foregoing reasons, Defendant KLG's motion t o dismiss is granted and Defendant Murphy's motion to dismiss is denied. The parties are directed to submit a joint proposed discovery schedule pursuant to Fed. R. Civ. P. 26(f) by December 15, 2017. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 28 and 30. (Signed by Judge William H. Pauley, III on 12/1/2017) (jwh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-againstMAYA MURPHY, P.C., et al.,
OPINION & ORDER
WILLIAM H. PAULEY III, District Judge:
Plaintiff Carol DePalma (“DePalma”) brings this action against H. Daniel
Murphy, Esq., his law firm Maya Murphy, P.C. (together, “Murphy”), and accounting firm Klein
Liebman & Gresen, LLC (“KLG”), alleging malpractice, breach of contract, and negligence.
Defendants move to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 12(c). For the
reasons that follow, KLG’s motion is granted and Murphy’s motion is denied.
This dispute arises out of DePalma’s divorce from her now ex-husband, Vince
DePalma (“Vince”). (Complaint, ECF No. 1 (“Compl.”) ¶ 9.) Their divorce was adjudicated in
the Supreme Court of the State of New York, Nassau County, from 2013 to 2015. (Compl. ¶ 9.)
DePalma retained Murphy to represent her. (Compl. ¶ 11.) Vince’s equity interest in Shred-It
International, Inc. (“Shred-It”), a Canadian-based document shredding company, was one of the
largest assets in the marital estate. (Compl. ¶ 13.) Vince was Shred-It’s CEO. (Compl. ¶ 13.)
In August 2013, the state court directed the parties to retain a neutral appraiser to
value Vince’s interest in Shred-It. (Compl. ¶ 15.) The parties chose, and the court appointed,
KLG. (Compl. ¶ 15; Affidavit of Glenn S. Liebman (“Aff.”), Ex. 1 (“Order Appointing
Appraiser”) at 2; Ex. 2 (“Retainer Agreement”).) The Retainer Agreement provided that unless
directed otherwise by the parties, KLG would appraise Vince’s interest in Shred-It as of May 29,
2013—the date the divorce proceedings commenced. (Retainer Agreement at 1.) The Retainer
Agreement also provided that subsequent events such as mergers, acquisitions, and public offers
could have a significant impact on value, but would not be taken into account in the analysis.
(Retainer Agreement at 1.) No party objected.
KLG issued two reports—one in March 2014 valuing Vince’s vested shares and
another in May 2014 valuing Vince’s options. (Aff. Ex. 3.) KLG estimated Vince’s total equity
interest to be $1,549,801 and assessed Shred-It’s aggregate value to be approximately $100
million. (Compl. ¶¶ 18–19.) In both reports, KLG reiterated the possible impact of subsequent
events on those valuations. (Aff. Ex. 3 at 3, 26.)
In the interval between issuance of the two KLG reports, Shred-It acquired Cintas,
Inc. (“Cintas”), another document shredding company. (Compl. ¶ 20.) KLG did not account for
this merger in its second report, again valuing Vince’s interest as of May 29, 2013. (Aff. ¶ 12.)
In November 2014, roughly eight months after the merger and twelve days before trial, Murphy
requested that the state court direct KLG to update its valuations, arguing that Vince’s equity
interest had likely risen substantially as a result of the merger. (Aff. Ex. 4.) Apparently, a law
secretary informed the parties that Vince’s request would be denied. (July 13, 2017 Hr’g Tr.
7:12–23.) Twelve days later, DePalma and Vince entered into a stipulation of settlement
resolving their matrimonial action. (Compl. ¶ 10.)
DePalma received approximately 50% of Vince’s equity interest based on KLG’s
valuation. (Declaration of Mark K. Anesh in Support of Maya Murphy’s Motion to Dismiss
Plaintiff’s Complaint, ECF No. 29, Ex. 3.) The state court entered a judgment of divorce in
March 2015. (Compl. ¶ 10.) In July 2015, Stericycle, Inc., another shredding company,
acquired Shred-It for $2.3 billion. (Compl. ¶ 20.)
DePalma claims that because Murphy and KLG failed to revalue Vince’s interest
after the Cintas merger, she received a substantially lower settlement. She alleges that KLG
breached its contract with the parties and negligently valued Vince’s shares. She also asserts that
Murphy committed legal malpractice by blindly accepting KLG’s reports and failing to
adequately seek a new valuation after the Cintas merger. Murphy and KLG each move to
On a motion to dismiss under Rule 12(b)(6), the factual allegations in a complaint
are accepted as true and all reasonable inferences are drawn in the plaintiff’s favor. Gonzalez v.
Hasty, 802 F.3d 212, 219 (2d Cir. 2015). To survive a motion to dismiss, the complaint “must
contain sufficient factual matter” to “state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 663, 678 (2009) (internal citation omitted). In other words, the “[f]actual
allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). In making this determination, the Court may consider
“any statements or documents incorporated in [the Complaint] by reference.” Yak v. Bank
Brussels Lambert, 252 F.3d 127, 130 (2d Cir. 2001) (internal citation omitted).
“Where a Rule 12(c) motion asserts that a court lacks subject matter jurisdiction,
the motion is governed by the same standard that applies to a Rule 12(b)(1) motion.” Cruz v.
AAA Carting & Rubbish Removal, Inc., 116 F. Supp. 3d 232, 239 (S.D.N.Y. 2015) (internal
citation omitted); see also SEC v. Rorech, 673 F. Supp. 2d 217, 220 (S.D.N.Y. 2009) (the same
standards apply to a Rule 12(c) motion as those under Rule 12(b)). On such a motion, a court
must dismiss a claim if it “lacks the statutory or constitutional power to adjudicate it.” Morrison
v. Nat’l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008) (internal citation omitted), aff’d 561
U.S. 247. “On a 12(c) motion, the court considers the complaint, the answer, any written
documents attached to them, and any matter to which the court can take judicial notice for the
factual background of the case.” L–7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d
Cir. 2011) (internal citation omitted).
A. Domestic Relations Exception and Rooker-Feldman Doctrine
Murphy and KLG challenge this Court’s jurisdiction, arguing that it is barred by
both the domestic relations exception and the Rooker-Feldman doctrine. These legal principles
are analyzed in turn.
The domestic relations exception “divests the federal courts of power to issue
divorce, alimony, and child custody decrees.” Ankenbrandt v. Richards, 504 U.S. 689, 703
(1992). It also bars federal jurisdiction over “matrimonial issues or issues ‘on the verge’ of
being matrimonial in nature” in view of “the greater interest and expertise of state courts in this
field.” Am. Airlines, Inc. v. Block, 905 F.2d 12, 14 (2d Cir. 1990). The contours of what counts
as “on the verge of being matrimonial” are somewhat ambiguous, but courts in the past have
abstained from hearing matters including an application to remove an ex-husband’s name from
loans held jointly with his ex-wife, Hamilton v. Hamilton–Grinols, 363 F. App’x 767, 769 (2d
Cir. 2010), and a petition to confirm an arbitration award between ex-spouses arising from an
audit of marital assets. Genger v. Genger, 252 F. Supp. 3d 362, 367 (S.D.N.Y. 2017).
But the domestic relations exception is “very narrow.” Williams v. Lambert, 46
F.3d 1275, 1283 (2d Cir. 1995). This Court must consider whether the claims “begin and end in
a domestic dispute” such that it is at heart, a matrimonial dispute. Schottel v. Kutyba, 2009 WL
230106, at *1–2 (2d Cir. Feb. 2, 2009) (summary order).
This exception does not apply to DePalma’s case. She has not brought an action
seeking a greater portion of Vince’s Shred-It interest, nor is she seeking to revise her divorce
settlement. The relief she seeks instead arises from her view that Murphy and KLG provided
negligent representation in connection with her divorce. This is not a matrimonial action
masquerading as a tort, as Defendants allege, but rather a tort action that incidentally involves
DePalma’s divorce proceedings. See Ankenbrandt, 504 U.S. at 704 (domestic relations
exception did not apply to claims primarily based in tort); Sykes v. Bank of Am., 723 F.3d 399,
404 (2d Cir. 2013) (per curiam).
Resolving DePalma’s claims requires questioning the adequacy of Murphy and
KLG’s performance, not interpreting the settlement agreement or any party’s rights thereunder.
This case does not “begin and end in a domestic dispute.” Schottel, 2009 WL 230106, at *1.
This Court is no less equipped to analyze and consider malpractice and business valuation issues
than a state matrimonial court. Moreover, any damages arising from these claims will not be
apportioned from the marital estate—they will instead be attributable to Defendants as a means
to compensate DePalma for any loss that she may have suffered.
KLG also contends that this action is barred by the Rooker-Feldman doctrine.
This judicially-created abstention doctrine blocks “cases brought by state-court losers
complaining of injuries caused by state-court judgments rendered before the district court
proceedings commenced and inviting the district court review and rejection of those judgments.”
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); see also Hoblock v.
Albany Cty. Bd. of Elections, 422 F.3d 77, 83–86 (2d Cir. 2005) (Rooker-Feldman bars what
“are, in substance, appeals from state-court judgments.”).
This doctrine is also inapplicable. DePalma is not appealing a state court ruling,
nor does she ask this court to overturn a state court judgment. Her arguments instead lie with the
actions that Murphy and KLG took in preparing her case. Abstention is therefore unwarranted.
Accordingly, DePalma appropriately invokes this Court’s subject-matter
B. Breach of Contract Claim Against KLG
Turning to the merits of the allegations, DePalma claims both breach of contract
and negligence against KLG. “Under New York law, a plaintiff may not assert breach of
contract claims and tort claims based on the same underlying facts, because, in such
circumstances, the two claims are duplicative or redundant.” In re MF Global, Inc., 496 B.R.
315, 322 (S.D.N.Y. 2013). “A claim for breach of contract is properly dismissed as redundant of
a malpractice claim where it does not rest upon a promise of a particular or assured result, but
rather upon defendant’s alleged breach of professional standards.” Diamond v. Sokol, 468 F.
Supp. 2d 626, 640 (S.D.N.Y. 2006) (internal quotation and alterations omitted).
Here, DePalma bases her breach of contract claim on KLG’s alleged “failures to
apply generally accepted standards and methodologies . . . and [failure] to exercise good faith
and care required under the [Retainer A]greement.” (Compl. ¶ 32.) DePalma does not allege
that KLG promised any particular or assured results. Accordingly, this claim is entirely
duplicative of her negligence claim. It therefore fails as a matter of law and is dismissed.
C. Negligence Claim Against KLG
DePalma next claims that KLG conducted its valuation of Vince’s assets
negligently, “significant[ly] undervaluing” them. (Compl. ¶¶ 38–39.) She specifically alleges
that KLG: (1) created internally inconsistent valuation reports; (2) employed only one method of
valuation; (3) determined Vince’s valuation based on Shred-It’s own internal numbers, rather
than an independent analysis; and (4) failed to update its reports to account for Shred-It’s
subsequent merger. (Compl. ¶ 17.)
The state court appointed KLG as a “neutral financial evaluator.” (Order
Appointing Appraiser at 2.) Authority on a specific negligence standard for such a role is scant,
so this Court evaluates KLG’s actions against a general negligence standard. In New York,
negligence requires establishing: “(1) a duty owed by the defendant to the plaintiff, (2) a breach
thereof, and (3) injury proximately resulting therefrom.” Pasternack v. Lab. Corp. of Am.
Holdings, 59 N.E.3d 485, 490 (N.Y. 2016).
DePalma’s argument that KLG was negligent in not updating its reports after the
merger is not persuasive. KLG informed the parties that May 29, 2013 would be the date for all
valuations, “unless directed by the Court or pursuant to a stipulation in writing from both parties’
attorneys.” (Retainer Agreement at 1.) No one objected, and KLG never received an instruction
to change the date. (Aff. ¶ 14.) Indeed, if KLG had changed the valuation date or updated its
reports sua sponte, it would have violated the terms of the Retainer Agreement.
DePalma’s retort that she never signed the Retainer Agreement is without merit.
“[A]n unsigned contract may be enforceable, provided there is objective evidence establishing
that the parties intended to be bound.” Flores v. Lower E. Side Serv. Ctr., Inc., 828 N.E.2d 593,
597 (N.Y. 2005). Counsel for both parties were well aware of KLG’s engagement and its terms,
and operated under them for over a year.
DePalma also asserts errors in the specific valuation methods and procedures
used. But in a professional negligence claim, like any negligence claim, “a plaintiff must
demonstrate . . . a causal connection between its losses and the defendant’s actions.” MF Global
Holdings Ltd. v. PricewaterhouseCoopers LLP, 199 F. Supp. 3d 818, 830 (S.D.N.Y. 2016)
(internal citation omitted). The requirement is one of proximate causation, meaning “the cause
that directly produces an event and without which the event would not have occurred.” Ritchie
Capital Mgmt. LLC v. Gen. Elec. Capital Corp., 121 F. Supp. 3d 321, 338 (S.D.N.Y. 2015)
(internal citation omitted).
Here, KLG was only an intermediate player in the parties’ ultimate decision to
settle. Murphy and DePalma were free to choose what weight to give to KLG’s conclusions, and
could have decided to conduct additional discovery or hire their own expert to do another
analysis. (See Order Appointing Appraiser at 4) (“This Order is without prejudice to either
party’s right to retain their own appraiser/expert to value the assets and/or income at issue in this
Because DePalma cannot establish that her settlement amount was proximately
caused by any of KLG’s alleged errors, her negligence claim is dismissed.
D. Legal Malpractice Claim Against Murphy
DePalma asserts a legal malpractice claim against Murphy and his law firm by
their: (1) accepting KLG’s valuation at face value; (2) not retaining their own expert; (3) not
conducting further discovery on the value of Vince’s shares; (4) advising DePalma to take the
settlement; and (5) not taking the necessary steps to obtain an updated valuation of Vince’s
shares after the merger with Cintas. (Compl. ¶ 23.) All of these actions, DePalma contends,
“result[ed] in a settlement depriv[ing her] of her true entitlement.” (Compl. ¶ 24.)
To state a claim for legal malpractice under New York law, a plaintiff must
allege: (1) negligence on the part of the attorney; (2) that the negligence is the proximate cause
of plaintiff’s injury; and (3) actual, ascertainable damages. Achtman v. Kirby, McInerney &
Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006). A plaintiff must demonstrate that the attorney
“failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a
member of the legal profession.” Dombrowski v. Bulson, 971 N.E.2d 338, 339 (N.Y. 2012)
(internal citation omitted). The causation prong requires showing “but for the attorney’s
negligence, what would have been a favorable outcome was an unfavorable outcome.” Even
Street Prod., Ltd. v. Shkat Arrow Hafer & Weber, LLP, 643 F. Supp. 2d 317, 322 (S.D.N.Y.
2008) (internal quotation omitted).
Murphy claims that it is unknowable whether the state court would have ordered
an updated valuation even if Murphy had earlier requested one. That may be the case, but “[a]t
this early stage of the litigation . . . [DePalma] need only allege, not prove, the proximate cause
element of the legal malpractice claim.” Even Street Prod., Ltd., 643 F. Supp. 2d at 322; see also
Barack v. Seward & Kissel, LLP, 2017 WL 4023141, at *4 (S.D.N.Y. Sept. 12, 2017) (denying a
motion to dismiss for the same reason).
Here, DePalma has adequately alleged that Murphy’s performance deprived her
of a court award or settlement much higher than what she actually received. She avers that she
informed Murphy of the Shred-It–Cintas merger shortly after it happened, and urged them to
seek a reappraisal. (Hr’g 28:19–29:7.) Inexplicably, Murphy waited eight months to inform the
court of the merger and request an updated valuation. (Aff. Ex. 4.) That request came less than
two weeks before trial. In the eight months leading up to trial, Murphy sought no discovery,
conducted no relevant depositions, and chose not to hire an independent expert to perform a
second valuation. When the state court denied Murphy’s request for a new appraisal, trial was
imminent, and Murphy was seemingly left with no alternative but to advise DePalma to settle
based on KLG’s estimates.
At this nascent stage in the litigation, these allegations are sufficient to survive
Murphy’s motion to dismiss. Through discovery, the parties may flesh out what would have
occurred had Murphy taken additional action, and whether DePalma can provide adequate
evidence of malpractice. See Even Street Prods., Ltd., 643 F. Supp. 2d at 322 n.3 (applying the
same course of action).
For the foregoing reasons, Defendant KLG’s motion to dismiss is granted and
Defendant Murphy’s motion to dismiss is denied. The parties are directed to submit a joint
proposed discovery schedule pursuant to Fed. R. Civ. P. 26(f) by December 15, 2017. The Clerk
of Court is directed to terminate the motions pending at ECF Nos. 28 and 30.
Dated: December 1, 2017
New York, New York
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