Breach of Contract; Breach of Fiduciary Duty; Negligence; Fraud; Constructive Trust; Violation of General Business Law §349; Unjust Enrichment
By Anastasia Galstian | Staff Writer
Plaintiff, Sherman (“Plaintiff”), owned 50% of shares of common stock of Apex Companies, which operate and offer limousine and black car services. Defendants M and S were shareholders of the companies and Defendant R was the certified public accountant. Plaintiff had commenced a prior action on behalf of the companies, seeking to enjoin and restrain Defendants M and S from interfering with the operation of the businesses. By a stipulation signed on April 9, 2009, the action was discontinued. On July 22, 2009, Defendants M and S commenced an action against Plaintiff, seeking specific performance of a 2009 agreement. A new agreement was entered into, known as the “2010 Share Purchase Agreement,” to which Defendant R was not a party. Paragraph 10 provided that Plaintiff had the right to have a designated CPA conduct a full audit and review of the companies’ financial data and records. Paragraph 20 provided that if legal action were to be brought, the prevailing party would be entitled to recover reasonable attorney’s fees, expenses and other costs incurred. On March 9, 2010, a stipulation to discontinue the 2009 action was signed and the Court ordered the release of funds held in escrow pending the resolution of the action. On September 14, 2010, Plaintiff commenced an action against all three Defendants entitled Sherman v. Mulerman. This action hereafter known as the “Sherman I action,” set forth five causes of action. The Court dismissed the action, noting that Plaintiff had failed to exercise his right to an audit pursuant to Paragraph 10. On September 21, 2011, Plaintiff commenced this action against Defendants.
Plaintiff raised several causes of action. The first cause of action for breach of contract, alleged that Defendants M and S failed to pay him the amount due under the 2010 Share Purchase Agreement. The second cause of action alleged a breach of fiduciary duty by the Defendants in their preparation of a computation of $79,924.31 as being a sum equal to 50% of the difference between the accounts receivable and accounts payable to the Apex companies. The third cause of action alleged negligence by Defendant R in calculating the accounts receivable. The fourth cause of action alleged fraud in the inducement by Defendants, asserting that they induced him to transfer his interest in the companies for less consideration than if an accurate computation had been furnished. The fifth cause of action sought the imposition of a constructive trust on the money due, based upon the sale of his interest in the companies at an undervalued price. The sixth cause of action asserted a violation of the General Business Law §349 due to deceptive acts by Defendant R. Lastly, the seventh cause of action sought a declaratory judgment that Defendants M and S have been unjustly enriched. Defendants M and S filed motions for summary judgment and Defendant R filed a cross-motion.
The Court granted Defendants motion for summary judgment because there were no material issues of fact. The Court dismissed each of the causes of action for being duplicative of those previously raised in the Sherman action and noted they were also barred by the doctrine of res judicata. A claim is duplicative under res judicata if it involves a renewal of issues that were once litigated, arises out of similar facts and could have been resolved earlier. The claim for breach of fiduciary duty also required dismissal as a matter of law. The duty owed by an accountant to clients was not fiduciary in nature and Plaintiff could not have relied upon Defendant R’s calculation, since in the 2010 Share Purchase Agreement, he reserved the right to independently verify such calculation. In regards to the sixth cause of action, however, the Court also held that the General Business Law §349 was intended as a consumer protection statute and private contract disputes unique to parties did not fall under the statute. To constitute a violation, the conduct must have been “consumer-oriented” and had a “broad impact on consumers at large.” In this instance, the conduct was a private transaction between Defendant R and Plaintiff and did not have a broad impact on consumers at large.
The Court therefore dismissed all of Plaintiff’s claims and held that Defendants M and S were entitled to an award of attorney fees and litigation expenses pursuant to paragraph 20 of the 2010 Share Purchase Agreement. The Court granted their summary judgment claim. Defendants M and S also sought to recover fees and expenses incurred by them in the Sherman I action. The Court found that as prevailing parties in that action, defendants were entitled to an award of fees and litigation expenses incurred, and granted them summary judgment with respect to their second counterclaim. The Court also deemed that sanctions were warranted under 22 NYCRR 130-1.1 which holds that the Court in its discretion, may award a party to an action, costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney’s fees resulting from frivolous conduct on behalf of Plaintiff. Here, Plaintiff commenced the action to assert the same issues and claims which were the subjects of previous actions, and those that were already adjudicated and dismissed in the Sherman I action. Plaintiff’s commencement of this action was done to prolong his dispute and to harass defendants in bad faith. However, since defendants had not moved for sanctions, the Court must provide Plaintiff with a reasonable opportunity to be heard before imposing sanctions, and at a hearing to determine the reasonable fees and expenses, the Court would then determine the amount of sanctions to be properly awarded.
Sherman v. Mulerman, 11/24/14 (Demarest, J.).