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Kew Gardens Hills Apartment Owners, Inc. v Horing, Welikson & Rosen, P.C. 2005 NY Slip Op 30313(U) February 10, 2005 Supreme Court, Queens County Docket Number: 7783/01 Judge: Orin R. Kitzes Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication.

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Short Form Order

. r

NEW YORK SUPREME COURT - QUEENS COUNTY Present:

HONORABLE

ORIN R. KITZES Justice

IA PART 17

_ _ _ _ _ _ _ _ _ - - - - - - - - - - - - - - - - - - - -X - - - -

KEW GARDENS HILLS APARTMENT OWNERS, INC.
-

Index Number

7783

2001

against &

Motion Date December 1,

2004

HORING, WELIKSON et al.

ROSEN, P.C.,

Motion Cal. Numbers 24,25,26

The following papers numbered 1 to 16 read on this motion by defendant Cheshire Kew Village, L.P., defendant Cheshire Group, and defendant Susan Hewitt (collectively "the Cheshire defendants") for, inter alia, an order dismissing the complaint against them pursuant to CPLR 3211(a) (7) for failure to state a cause of action and for summary judgment, on this motion by defendant Horing, Welikson & Rosen, P.C., defendant Horing & Welikson, P.C., defendant Eric Schultz, Esq., and defendant Robert Gordon, Esq. (collectively "the Horing Welikson defendants") for summary judgment dismissing the complaint and all of the cross claims against them, on this cross motion by defendant Gordon Miller for summary judgment dismissing the complaint and all of the cross claims against him, and on this motion by defendant Insignia Residential Group, Inc. for an order dismissing the plaintiff's complaint against it for failure to make disclosure. Papers Numbered Notice of Motion - Affidavits - Exhibits . . . . . . . . . Notice of Cross Motion - Affidavits - Exhibits . . . Answering Affidavits - Exhibits . . . . . . . . . . . . . . . . . . Reply Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (Memoranda of Law) .......................... Upon the foregoing papers it is ordered that:
1-3 4 5-7 8-10 11-16

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That branch of the motion by the Chesire defendants which is for an order pursuant to CPLR 3211(a)(7) dismissing the complaint against them for failure to state a cause of action is denied. That branch of the motion by the Cheshire defendants which is for summary judgment dismissing the complaint against them is denied without prejudice to renewal at the conclusion of discovery. The remaining branches defendants are denied.
of

the

motion

by

the

Cheshire

The motion by the Horing Welikson defendants for summary judgment dismissing the complaint and all of the cross claims against them is denied without prejudice to renewal at the conclusion of disclosure. The cross motion by defendant Gordon Miller for summary judgment dismissing the complaint and all of the cross claims against him is denied without prejudice to renewal at the conclusion of disclosure. The motion by defendant Insignia Residential Group, Inc. is granted to the extent that the plaintiff's complaint against it is dismissed unless the plaintiff complies with the defendant's discovery demands within 20 days after the service of a copy of this order with notice of entry. Unless otherwise agreed, the parties shall complete disclosure within 90 days of the service of a copy of this order with notice of entry. (See the accompanying memorandum.)

Dated:

February 10, 2005
Y

J.S.C.

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M E M O R A N D U M

SUPREME COURT: QUEENS COUNTY IA PART: 17
..................................
X

KEW GARDENS HILLS APARTMENT OWNERS, INC. -against-

INDEX NO.
BY:

7783/01

KITZES, J. FEBRUARY 10, 2005

DATED: HORING, WELIKSON et al.
&

ROSEN, P.C.,

Defendant Cheshire Kew Village, L.P., defendant Cheshire Group, and defendant Susan Hewitt (collectively "the Cheshire

defendants") have moved for, inter alia, an order dismissing the complaint against them pursuant to CPLR 3211(a)(7) for failure to state a cause of action and for summary judgment. Horing, Welikson
&

Defendant

Rosen, P.C., defendant Horing

&

Welikson, P.C.,

defendant Eric Schultz, Esq., and defendant Robert Gordon, Esq. (collectively "the Horing Welikson defendants") have moved for summary judgment dismissing the complaint and all of the cross claims against them. Defendant Gordon Miller has cross-moved for

summary judgment dismissing the complaint and all of the cross claims against him. Defendant Insignia Residential Group, Inc. has moved for an order dismissing the plaintiff's complaint against it for failure to make disclosure. The complaint alleges, inter alia: Plaintiff Kew Gardens
Hills Apartment Owners, I n c . ,

a residential cooperative,

Owns

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premises

known as

Kew Village

Estates, Flushing, New

York.

Defendant Kew Gardens Hills Associates, LP, acting as the sponsor, first offered shares in the cooperative in or about July 1987. From around 1990 through around 1998, defendant Gordon Miller served as the president of the Board of Directors of Kew Gardens Hills Apartment Owners, Inc.
At

around

the

time

that

the

cooperative was formed, First Nationwide Bank held a first mortgage on the premises. On or about March 19, 1989, the cooperative

became subject to a wrap around mortgage in favor of the sponsor, defendant Kew Gardens Hills Associates, LP, in the amount of

$11,000,000, and the sponsor obligated itself to pay the principal
and interest on the underlying mortgage held by First Nationwide Bank. On or about October 13, 1988, the defendant sponsor

obligated itself to the shareholders of the cooperative and to the cooperative to improve the property by, inter alia, removing asbestos and installing new windows. On or about October 9, 1990, the sponsor filed its fifth amendment to the offering plan falsely declaring that certain obligations toward the cooperative had been discharged. The cooperative made mortgage payments to the sponsor, but the sponsor defaulted on payments due on the underlying bank mortgage. In 1993, the bank accelerated its mortgage and began a

foreclosure proceeding. The sponsor did not pay certain taxes, and the sponsor failed to make maintenance payments from 1993 to 1998. The sponsor also failed to make improvements to the property. In

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or about May 1995, defendant Cheshire Kew Valley Village, LP purchased the sponsor's defaulted note from the bank for around
$5,000,000. During the period from around 1997 to around 2002,

defendant Cheshire Kew Village, LP held an underlying mortgage on the premises which eventually went into default. In or about At this

March 1998, defendant Cheshire devised a refinance plan.

time, the sponsor owed the cooperative more than $12,000,000, and the sponsor's general partner was personally liable for the entire amount. The complicated refinance plan greatly favored the sponsor and inter greatly alia, prejudiced lost a the cooperative. to the

The

cooperative, (unsold

claim

sponsor's

assets

apartments) worth more than $12 , 000,000.

The cooperative "paid

more than $22,000,000 ($9,500,000in a new loan; relinquishing a claim of $3,740,958 in Sponsor's unpaid interest and taxes;

relinquishing a claim of $8,657,038;and the Coop's contributions of $569,000 and $75,000) to satisfy a $14,000,000 obligation." Defendant Horing, Welikson
&

Rosen, P.C., a law firm, its successor

Horing Welikson, PC, Eric Schultz, Esq., and Robert Gordon, Esq. gave detailed advice to the Board of Directors concerning the restructuring agreement. Nevertheless, the Board disregarded the

advice of its attorneys and approved the restructuring agreement, which wasted the assets of the cooperative corporation and left it in grave financial difficulty.

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The plaintiff

alleges that

the Cheshire defendants

"conspired with the Sponsor to breach its fiduciary duties to the Coop" and "aided and abetted the Sponsor in breaching its fiduciary duties owed to the Coop." In or about May, 1995, First Nationwide Bank assigned its mortgage to Cheshire Kew Valley Village, LP, which thereafter participated in a refinancing plan for the

cooperative. On the date of the refinancing, the sponsor owed the cooperative $8,657,038 for overdue maintenance charges. The

cooperative assigned this debt to defendant Chesire Kew, which also received a payoff from Credit Suisse in the sum of $7,823,077. According to the plaintiff's attorney, "Chesire from these two sources alone was receiving the sum of $16,480,115 to satisfy what it has acknowledged principal is a debt of of $14,385,515 consisting of interest of
'I

outstanding

$10,482,082, accrued

$3 , 125 , 487, and negative escrow for real estate taxes of $777,946.

Cheshire Kew also allegedly improperly received $260,215 from a former receiver's account and also allegedly could conditionally receive an additional $500,000 from the vacancy fund escrow and $81,760 from the debt service escrow. On the other hand, the Cheshire defendants allege the refinancing agreement they participated in provided the plaintiff cooperative with the following benefits: "[l] It resolved the

Foreclosure Action with prejudice and discharged the receiver that had been appointed in the Foreclosure Action; and [2] [ilt resolved

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the Cooperative's conceded default under the terms of the Mortgage; and [3] [ilt secured for the Cooperative a new first mortgage and reduced its debt by thirty per cent (30%) and at nearly two basis points below the interest rate the Cooperative had been paying Lender [defendant Chesire Kew Village LP]; and [3] [ilt dissolved the indebtedness of the Cooperative to Sponsor under the wrap around mortgage; and [4] [i]t provided a funding source for

urgently needed repairs to the Buildings through contributions of the Lender and others so as to bring them to a condition where they cold be sold or leased.
I '

That branch of the motion by the Cheshire defendants which is for an order pursuant to CPLR 3211(a) (7) dismissing the complaint against them for failure to state a cause of action is denied. The complaint adequately states a claim based on

conspiracy. It is true, as the defendants contend, that there must be tortious or other wrongful conduct supporting a conspiracy claim.

(See, Small v Lorillard Tobacco Co., Inc. 94 NY2d 43;

Multiloan Mortq. Co., LLC v. Asian Gardens Ltd., 303 AD2d 658; Sokol v. Addison, 293 AD2d 600.) In the case at bar, the plaintiff has adequately alleged (1) that the sponsor, which held a seat on the cooperative's Board of Directors, breached fiduciary duties owed to the cooperative and its shareholders

(see, BCL

713; Alpert

v 28 Williams Street Corp., 63 NY2d 557; Kavanauah v Gould, 223 NY 103; Giblin v Murphy, 97 AD2d 668) such as by obtaining the

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sponsor's release from financial obligations payable

to

the

cooperative and (2) that the Cheshire defendants joined in an agreement or common scheme to commit the wrongful acts. Standish-Parkin v. Lorillard Tobacco C o . , 12 AD3d

(See,

301.) The

complaint also adequately states a claim for aiding and abetting a breach of fiduciary duty. Baslev, 205 AD2d of

(See, Shearson Lehman Bros. Inc. v.

467.) "A claim for aiding and abetting a breach

fiduciary duty requires:

(1) a breach by a fiduciary of

obligations to another, (2) that the defendant knowingly induced or participated in the breach, and ( 3 ) that plaintiff suffered damage as a result of the breach
* * * . I r

(Kaufman v. Cohen, 307 AD2d 113.)

In the case at bar, the plaintiff has adequately alleged a cause of
action for aiding and abetting a breach of fiduciary duty by the sponsor which allegedly held a seat on the cooperative's Board of Directors. The court notes that "on a motion to dismiss a

complaint for failure to state a cause of action pursuant to CPLR 3211(a) (7) the pleading is to be liberally construed, accepting , all the facts alleged in the complaint to be true and according the plaintiff the benefit of every possible favorable inference***." (Jacobs v. Macv's East, Inc., 262 AD2d 607, 608; Leon v. Martinez, 84 NY2d 83.) The court does not determine the merits of a cause of

action on a CPLR 3211(a) ( 7 ) motion.

(See, Stukuls v. State of New
Finally,

York, 42 NY2d 272; Jacobs v. Macv's East Inc., supra.)

defendant Hewitt and defendant Cheshire Group are individually

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liable

for

any

tortious

conduct

they

may

have

committed

notwithstanding sections 609 and 610 of the Limited Liability Company Law. Their position is analogous to corporate officers

who can be held personally liable for tortious behavior they directly participated in.

(See, Hussins v. Parkset Plumbinq

Supplv, Inc., 7 AD3d 672.) That branch of the motion by the Cheshire defendants which is for summary judgment dismissing the complaint against them is denied without prejudice discovery. to renewal at the conclusion of

Unless otherwise agreed, the parties shall complete

disclosure within 90 days of the service of a copy of the order to be entered hereon with notice of entry. This motion for summary

judgment is premature before the conclusion of discovery which is in its early stages in this action.

(See, Barletta v. Lewis, 237
of

AD2d 238; Welsh v. Countv of Albanv, 235 AD2d 820; Wee v. Citv Rome, 233 AD2d 876.)

The plaintiff has shown the need for

discovery from the Cheshire defendants on such issues as (1) the exact relationship between the Cheshire defendants and the sponsor, (2) what role, if any, the Cheshire defendants played in obtaining the sponsor's release of some of its obligations toward the cooperative, since the Cheshire defendants stood to gain when they assumed the sponsor`s obligations, (3) whether the Cheshire

defendants participated in allegedly illegal conduct whereby the plaintiff cooperative was induced to consent to Cheshire Kew's

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receiving a sum allegedly greatly in excess of the amount the plaintiff cooperative owed to it for the unpaid principal balance of the mortgage, accrued interest arrears, and escrow debt, and (4) whether the claims against the Cheshire defendants for conspiracy and for aiding and abetting the sponsor in its alleged breach of fiduciary duty toward the cooperative are barred by a valid release. The remaining branches of the motion by the Cheshire defendants are denied. The cross motion by defendant Gordon Miller for summary judgment dismissing the complaint and all of the cross claims against him is denied without prejudice to renewal at the

conclusion of disclosure.

Unless otherwise ag reed, the parties

shall complete disclosure within 90 days of the service of a copy of the order to be entered hereon with notice of entry. Defendant Miller, a member of the cooperative's Board of D rectors from 1990 to 1998, previously moved for an order pursuant to CPLR 3211(a) (7) dismissing the complaint against him. court stated, inter alia:
In denying his motion, this

"the plaintiff has adequately alleged

that defendant Miller breached duties of care and good faith owed to the cooperative and its shareholders by (1) not obligating the bank holding the first mortgage to notify the board if the sponsor defaulted on the payment of the mortgage, ( 2 ) not obligating the sponsor to notify the board if there was a default in the payment

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of real estate taxes, (3) overlooking the sponsor's failure to make maintenance payments between 1993 and 1998, (4) overlooking the sponsor's failure to make renovations as promised, and (5) entering into a financial restructuring arrangement which unduly favored the sponsor and greatly prejudiced the cooperative. * * * There are issues of fact pertaining to whether defendant Miller acted in good faith and with due care which cannot be resolved here.

(See,

Ackerman v 305 East 40th Owners Corp., 189 AD2d 665; Bryan v West 81 Street Owners Corp., 186 AD2d 514.)" Defendant Miller's

motion for summary judgment is premature before the plaintiff has had a full opportunity to conduct discovery regarding the issues raised by these allegations. The motion by the Horing Welikson defendants for summary judgment dismissing the complaint and all of the cross claims against them is denied without prejudice to renewal at the

conclusion of disclosure. (See, Barletta v. Lewis, supra; Welsh v. County of Albany, supra; Wee v. City of Rome, supra.) Unless

otherwise agreed, the parties shall complete disclosure within 90 days of the service of a copy of the order to be entered hereon with notice of entry. The Horing Welikson defendants were the cooperative at the time of the

attorneys for the plaintiff refinancing.
"An

action for legal malpractice requires proof of

the attorney's negligence, a showing that the negligence was the proximate cause of the plaintiff's l o s s or injury, and evidence of

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actual damages * * * . "

(Pelleqrino v. File, 291 AD2d 60, 63;
&

see,
&

Russo v. Feder, Kaszovitz, Isaacson, Weber, Skala

Bass, LLP, 301

AD2d 63; Prudential Ins. C o . v Dewey, Ballantine, Bushby, Palmer

Wood, 170 AD2d 108, 114, affd 80 NY2d 377.) The plaintiff alleges that the Horing Welikson defendants failed to properly advise the cooperative regarding, inter alia, the sponsor's default on its maintenance and mortgage obligations. (See e.q., Estate of Nevelson v. Carro, SDanbock, Kaster
&

Cuiffo, 259 AD2d 282.) The plaintiff

has shown the need for further discovery on such issues as whether the Horing Welikson defendants failed to properly advise the cooperative regarding (1) measures that could be taken to enforce the sponsor's maintenance obligations, (2) remedies, if any,

available to the cooperative in the event the sponsor filed for bankruptcy, (3) the cooperative's alleged right pursuant to the regulations of the Attorney General to declare the sponsor's wraparound mortgage satisfied based on the latter's default in payment of the underlying mortgage, and (4) special rights on the payment
of maintenance given by the cooperative allegedly in violation of

BCL 501(c) and the cooperative's proprietary lease and by-laws to defendant Cheshire Kew, which assumed control of the sponsor's apartments pursuant to a power of attorney. The motion by defendant Insignia Residential Group, Inc. is granted to the extent that the plaintiff's complaint against it is dismissed unless the plaintiff complies with the defendant's

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discovery demands within 20 days after the service of a copy of the order to be entered hereon with notice of entry.
"A conditional

order is an appropriate remedy when it affords the party who is refusing to comply with a disclosure order an additional

opportunity to comply prior to the imposition of the final sanction

***.

1,

(Casas v. Romanelli, 232 AD2d 445.)

The plaintiff commenced

this action by the filing of a summons with notice on March 23,

2001. Thereafter, on or about May 1, 2003, the Honorable Martin E.
Ritholz issued a compliance conference order which the plaintiff has not obeyed. In view of the length of time that this action has been pending and in view of the plaintiff's disobedience of the compliance conference order, a conditional order of dismissal is appropriate. Short form order signed herewith.

W

J.S.C.

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