FILED: KINGS COUNTY CLERK 05/17/2016 05:44 PM INDEX NO. 022785/2012 NYSCEF DOC. NO. 57 RECEIVED NYSCEF: 05/17/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS ASH BROKERAGE CORPORATION, Index No. 22785/2012 -against- Plaintiff, MOSHE LIEBERMAN; BLACKSTONE GROUP BROKERAGE, LLC; METROPOLIS AGENCY LLC; TZVI KATZ; YAAKOV ILOWITZ; HADASSAH ILOWITZ; and SHAYA ILOWITZ, Defendants. REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTS MOTION TO DISMISS THE AMENDED COMPLAINT Of counsel: Ira S. Lipsius Phillip M. Manela LIPSIUS-BENHAIM LAW, LLP 80-02 Kew Gardens Road, Suite 1030 Kew Gardens, New York 11415 Telephone: 212-981-8440 Fax: 888-442-0284 Attorneys for Defendants 1 of 16
TABLE OF CONTENTS Page I. THE COURT SHOULD REJECT ASH S ARGUMENTS BEYOND PAGE 25 OF ITS BRIEF... 1 II. LAW OF THE CASE DOES NOT APPLY.. 2 III. THE RELATION BACK DOCTRINE DOES NOT APPLY 4 A. The Ilowitzs are not United in Interest with the Original Defendants.. 4 B. There was no Mistake.. 5 IV. THERE WAS NO NEWLY DISCOVERED FRAUD 7 V. ASH HAS NOT PLED THE NECESSARY ELEMENTS TO PIERCE THE CORPORATE VEIL 8 VI. CLAIMS AGAINST THE ILOWITZS INDIVIDUALLY ARE BARRED BY THE STATUTE OF LIMITATIONS 11 VII. ASH ILLEGALLY SHARED THE COMMISSIONS WITH BLACKSTONE AND CANNOT NOW SUE FOR RECOUPMENT. 11 VIII. ASH CONCEDES NO CAUSE OF ACTION AGAINST SHAYA ILOWITZ.. 13 IX. ASH S CONCEDES ITS ALLEGATIONS ARE BARRED BY THE STATUTE OF FRAUD 14 CONCLUSION 14 2 of 16
Defendants respectfully submit this Memorandum of Law in reply to ASH s Memorandum of Law in Opposition to Defendants Motion to Dismiss the Amended Complaint ( ASH Opp.) This Court should not consider ASH s arguments contained after page 25 of ASH s 42- page opposition brief, in violation of this Court s rules. Further, ASH does not oppose, and therefore concedes, that it has no cause of action against Shaya Ilowitz, and that all of ASH s causes of action, against all Defendants, are barred by the Statute of Frauds. ASH s remaining arguments (Points II, III, and IV) fail for the reasons set forth below. I. THE COURT SHOULD REJECT ASH S ARGUMENTS BEYOND PAGE 25 OF ITS BRIEF ASH s Memorandum of Law in Opposition consists of 42 pages, in clear violation of the rules of this Court. The Uniform Rules of the Commercial Division, 22 NYCRR 202.70(g), Rule 17, limit memoranda of law to 25 pages: Unless otherwise permitted by the court: (i) briefs or memoranda of law shall be limited to 25 pages each; (ii) reply memoranda shall be no more than 15 pages and shall not contain any arguments that do not respond or relate to those made in the memoranda in chief; (iii) affidavits and affirmations shall be limited to 25 pages each. The Kings County Commercial Division Rules Provide: 19. The Kings County Commercial Division will strictly enforce Uniform Rules, 202.70(g), Rules 6 and 17 relating to the form and length of papers submitted to the Court. Unless the Court has authorized a longer brief in advance, counsel are advised that briefs and affidavits in excess of 25 and 15 pages as specified in the Rules may be rejected. 1 3 of 16
This rule was strictly enforced in a recent case, Aish Hatorah N.Y., Inc. v Fetman, 48 Misc. 3d 1207(A) (N.Y. Sup. Ct. 2015; emphasis supplied): Respondent submits a 52 page memorandum of law, without leave of the Court, in violation of the rules of the Commercial Division which limit memoranda of law to 25 pages (see 22 NYCRR 202.70(g), Rule 17). Accordingly, the Court will only consider the first 25 pages of respondent's memorandum. Here too, this Court should only consider the first 25 pages of ASH s memorandum, and disregard Points V, VI, and VII thereof. II. LAW OF THE CASE DOES NOT APPLY ASH erroneously argues that the court s prior decision, granting ASH s motion to amend the complaint, which motion that pre-dated the Illowitzs participation in this case, now bars the Illowitzs instant motion to dismiss the amended complaint. The doctrine of law of the case contemplates that the parties had a "full and fair" opportunity to litigate the initial determination. Ramanathan v Aharon, 109 A.D.3d 529, 530 (2d Dep't 2013), quoting People v. Evans, 94 N.Y.2d 499, 502-03 (2000) (citations omitted). Law of the case is necessarily "amorphous" in that it "directs a court's discretion," but does not restrict its authority. Id. On the exact factual posture of this case, the Appellate Division held: As a preliminary matter, we reject plaintiff's argument that the instant motion was precluded under the doctrine of law of the case by virtue of a prior order granting plaintiff leave to amend the complaint so as to add FedEx as a defendant. The doctrine of law of the case contemplates that the parties had a full and fair opportunity to litigate when the initial determination was made [People v Evans]. The motion court did not consider FedEx's opposition to plaintiff's motion to amend the complaint, since it was not a party to the case at the time, and thus FedEx was not precluded from moving to 2 4 of 16
dismiss the claims subsequently asserted against it in the amended complaint. Chanice v Federal Express Corp., 118 A.D.3d 634, 635 (1st Dep't 2014). See also Red Tulip, LLC v. Neiva, 44 A.D.3d 204, 209 n1 (1st Dep't 2007) ( Palm Beach makes the additional argument that our prior ruling in Anderson's injunction appeal [concerning the guaranty] should be binding on Neiva here, because she signed the same guaranty and has raised nearly identical defenses. However, given that Neiva was not directly involved in the injunction proceedings [and] did not participate therein, the doctrine of law of the case should not be applied [People v Evans]. ). Here, too, the Court did not consider the Ilowitzs opposition to plaintiff's motion to amend the complaint, since the Ilowitzs were not parties to the case at the time. Accordingly, the Ilowitzs are not precluded from moving to dismiss the claims subsequently asserted against them in the amended complaint. Further, even with respect to the Original Defendants: in determining whether law of the case applies, the procedural posture and evidentiary burdens of the litigants must be considered [denial of motion to dismiss does not establish law of the case because it looks only to the sufficiency of the pleadings]. Here, the procedural posture and evidentiary burdens of the parties at the time Feinberg moved to amend his complaint and at the time the defendants moved for JNOV were markedly different. Feinberg v Boros, 99 A.D.3d 219, 224 (1st Dep't 2012) (citations omitted) In the present matter, plaintiff s minimal burden on its prior motion to amend ( freely given unless proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit (CPLR 3025 (b)), is not the same standard as on a motion to dismiss ( whether 3 5 of 16
the facts as alleged fit within any cognizable legal theory" (Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414 (2001)). Accordingly, the Court s prior ruling on the motion to amend is not the law of the case with respect to the instant motion. III. THE RELATION BACK DOCTRINE DOES NOT APPLY A. The Ilowitzs and the Original Defendants Are Not United In Interest Notwithstanding the fact that ASH submitted a 42-page opposition brief, ASH does not respond to the case law adduced by Defendants, which consistently hold that there is no unity of interest for newly added tort-feasors. Def. MOL at 15-17. ASH similarly does not respond to Defendants showing that the Illowitzs do not stand or fall together with the Original Defendants. Id. Instead, ASH merely cites two cases for the proposition that a newly-added party can be charged with notice of the original action. ASH Opp. at 16. Even if this were true, and even if the Illowitzs are charged with notice of the original lawsuit, that does not end the inquiry. As shown in Defendants moving papers (Def. MOL at 15-17), the relevant inquiry is whether the interest of the parties in the subject-matter is such that they stand or fall together and that judgment against one will similarly affect the other. In other words, the Illowitzs and the Original Defendants must necessarily have the same defenses to the plaintiff s claim. Defendants are not united in interest even if there is only the mere possibility that the new party could have a different defense than the original party. In cases like this one, where ASH seeks to introduce the Ilowitzs as new tort-feasors, New York courts consistently hold that there is no unity of interest. 4 6 of 16
Accordingly, Yaakov, Hadassah and Shaya Ilowitz are not united in interest with the Original Defendants with respect to ASH s causes of actions in tort (fraud, negligence, etc.), and the Relation Back Doctrine will not apply. Further, ASH s claims seeking to pierce Blackstone s corporate veil with respect to Yaakov and Hadassah similarly fails because, even if ASH succeeds against Blackstone, ASH must then prove the elements for piercing the corporate veil to reach Yaakov and Hadassah. As such, Yaakov and Hadassah have a potential defense not available to the Original Defendants, barring application of the Relation Back Doctrine. Accordingly, the Relation Back Doctrine cannot be applied with respect to the Ilowitzs, because ASH cannot satisfy its burden to prove the element of unity of interest. B. There Was No Mistake ASH s opposition on this point is not supported by any evidence. Instead, ASH s counsel states in his brief that: From the time that Plaintiff commenced this action in November 2012 through the date of the receipt of meaningful discovery in March 2015, Plaintiff... in particular, knew nothing about the relationship the various members of the Ilowitz family had with Blackstone. ASH Opp. at 6. Notably, ASH does not submit any party affirmation attesting to this, or to any of the facts stated by ASH s counsel in opposition to this motion. As counsel does not have personal knowledge of the facts, and counsel fails to cite the source of any allegations contained in his brief, the allegations should be struck. Zuckerman v. City of New York, 49 N.Y.2d 557, 563 (1980) (holding that the bare affirmation of... [an] attorney who demonstrated no personal knowledge... is without evidentiary value and thus unavailing."); American Tr. Ins. Co. v. Rodriguez, 41 Misc. 3d 1209(A), (Sup. Ct. N.Y. Cty. 2013) ( an affirmation by an attorney who is without the requisite knowledge of the facts has no probative value. ). 5 7 of 16
Even more, Defendants have conclusively shown, through ASH s own documents and correspondence produced in discovery, that at all relevant times, and as far back as March 2007, ASH knew of, communicated with, and took direction from Ilowitz concerning the transactions at issue in this litigation. Def. MOL at 5. ASH s counsel attempts to minimize this overwhelming evidence, stating that [n]one of those emails identify or suggest in any manner that Yaakov is a principal or member of Blackstone, nor a participant in the insurance fraud. ASH Opp. at 24. In fact, the documents show, inter alia, that: On March 6, 2007, ASH took direction from Yaakov for the ultimate decision to move forward with the Chera applications; and On July 20, 2007, ASH specifically requested Yaakov to reply back with an I agree statement concerning a message from ASH s CEO and AXA to the broker on the [Chera] case. Def. MOL at 5. Thus, as far back as 2007, ASH was actively aware that Yaakov was the principal force behind Blackstone. ASH relied on Yaakov for the ultimate decisions concerning the transactions at issue. As noted, ASH does not (and cannot) submit a party affidavit to support its contention that it was unaware of the Ilowitzs when ASH filed suit in 2012. As set forth in Defendants moving brief (Def. MOL at 10-12), the Appellate Division has repeatedly and consistently held that, where a plaintiff knew or with proper due diligence should have known the existence of a potential defendant at the onset of an action, it has not made a mistake as to the identity of the correct defendant. ASH s failure to name the Ilowitzs was either a strategic decision, or gross negligence in failing to utilize information it ASH s own possession concerning the Ilowitzs. It was not a 6 8 of 16
mistake, and the Ilowitzs had every reason to believe that ASH chose not to sue them for good reason. See Def. MOL at 13-14. Accordingly, the Relation Back Doctrine cannot be applied with respect to the Ilowitzs, because ASH cannot satisfy its burden to prove the element of mistake. IV. THERE WAS NO NEWLY DISCOVERED FRAUD ASH argues that the allegations against the Illowitzs were brought within two years of discovery, because, according to ASH s counsel, the Illowitzs identity and involvement in the fraud was not discovered and could not have been discovered, in the exercise of due diligence, until shortly before [ASH] moved to amend the Complaint. ASH Opp. at 25. Once again, we are left with a bald assertion by ASH s counsel, with no party affirmation supporting this claim. As stated above, the overwhelming evidence conclusively shows that ASH knew by 2007 that Blackstone operated through Yaakov Ilowitz, and ASH took direction and instruction from Yaakov in processing and submitting the Chera applications. At the very least, ASH had knowledge of facts which should have caused [it] to inquire and discover the alleged fraud. Baratta v. ABF Real Estate Co., 215 A.D.2d 518, 519 (2d Dep t 1995). ASH cannot meet its burden of establishing that the fraud could not have been discovered during the two-year period before the commencement of the action. Percoco v. Lesnak, 24 A.D.3d 427, 427-28 (2d Dep t 2005). Since ASH was aware of the Ilowitzs involvement before, during, and after the accrual of ASH s cause of action, ASH s claims against the Ilowitzs are time barred by the six-year statute of limitations. 7 9 of 16
V. ASH HAS NOT PLED THE NECESSARY ELEMENTS TO PIERCE THE CORPORATE VEIL ASH s arguments to pierce the corporate veil should be disregarded, because they begin on page 26 of ASH s Opposition, in violation of this Court s rules. Even if the Court were to consider these arguments, they fail to state a cause of action. As set forth in Defendants moving brief, New York law disfavors disregard of the corporate form, and a party seeking to do so bears a "heavy burden." Piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury. Evidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance. The cases cited by ASH hold the same. In Grammas v Lockwood Assoc., LLC, 95 A.D.3d 1073, 1075 (2d Dep't 2012; emphasis supplied), the plaintiffs adequately pleaded allegations that Porcelli engaged in acts amounting to an abuse or perversion of the LLC form to perpetrate a wrong or injustice against the plaintiffs, including allegations that he dissolved Lockwood shortly after closing title to the property and that the defendants failed to reserve funds for the purposes of contingent liability. Grammas cites to the Court of Appeals decision, in East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 N.Y.3d 775, 776 (2011; emphasis supplied), holding: In order for a plaintiff to state a viable claim against a shareholder of a corporation in his or her individual capacity for actions purportedly taken on behalf of the corporation, plaintiff must allege facts that, if proved, indicate that the shareholder exercised complete domination and control over the corporation and "abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice." Since, by definition, a corporation acts through its officers and directors, to hold a shareholder/officer such as Canseco personally 8 10 of 16
liable, a plaintiff must do more than merely allege that the individual engaged in improper acts or acted in "bad faith" while representing the corporation. In this case, plaintiff failed to allege any facts indicating that Canseco engaged in acts amounting to an abuse or perversion of the corporate form, much less that the school district was harmed as a result of such actions. In another case cited by ASH, the court found that the individual engaged in acts amounting to an abuse of the privilege of doing business in that form so as to perpetrate a wrong or injustice against them. Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuworth, LLC v. Comprehensive Mental Assessment & Med. Care, P.C., 110 A.D.3d 1022, 1023 (2d Dep't 2013; emphasis supplied). Another case cited by ASH, Last Time Beverage Corp. v. F &V Distrib. Co., LLC, 98 A.D.3d 947 (2d Dep't 2012), is a prime example. In the lower case, defendants argued that the court erred in piercing the corporate veil, because the court failed to recognize that alter ego liability could not be present absent proof that Hornell's domination of F & V was used to commit a fraud or wrong against Plaintiffs that resulted in Plaintiffs' injury. 2010 N.Y. Misc. LEXIS 3477, 3-4 (N.Y. Sup. Ct. July 15, 2010). The court agreed that, as a matter of law, the individual s control of the corporation must be used to commit a... wrong that causes plaintiff's loss and confirmed that this correct legal standard has been recognized, cited, and applied, at every point in this proceeding. Id. Here, ASH has not pled the first element - that Defendants used their alleged domination of the corporation with respect to the shared commissions (the transaction attacked ). ASH has not pled the second element - that ASH was defrauded and harmed by Defendants domination of the corporation with respect to the shared commissions. 9 11 of 16
ASH s Opposition lists eight pages of allegations concerning the alleged fraud. ASH Opp. at 28-36. The common denominator of all these allegations is that they do not allege that ASH was harmed in the subject transactions as a result of the Illowitzs purported abuse of the corporate form. At most, ASH alleges that, during discovery in this litigation, Defendants evaded and concealed the identity of the owners and members of Blackstone and concealed and confused the identity of its members in public filings. Even if true, such evasions and concealments bear no connection to the transaction attacked, and ASH has not alleged that such evasions and concealments harmed ASH with respect to the transactions attacked. See Pourquoi M.P.S., Inc. v. Worldstar Intl., Ltd., 91 A.D.3d 839, 840 (2d Dep't 2012) (no piercing because it was not demonstrated that principal used her domination of [corporation] with respect to the transactions at issue to commit a wrong against the plaintiff that caused its injury. ) (emphasis supplied); Aetna Elec. Distrib. Co. v. Homestead Elec., Ltd., 279 A.D.2d 541, 541-42 (2d Dep't 2001) (corporate veil not pieced where domination was not used to commit a fraud or wrong against plaintiff); Schuyler v Sotheby's Intl. Realty, Inc., 2013 N.Y. Misc. LEXIS 4487, 10-11 (N.Y. Sup. Ct. Oct. 2, 2013) (no allegations that defendants exercised such domination and control in respect to the transaction attacked and more importantly that they misused the corporate form to commit a wrong). Accordingly, ASH fails to plead the necessary elements to sustain a cause of action to pierce the corporate veil. 10 12 of 16
VI. CLAIMS AGAINST THE ILOWITZS INDIVIDUALLY ARE BARRED BY THE STATUTE OF LIMITATIONS The Court should disregard ASH s arguments that, independent of its claim to pierce the corporate veil, the Ilowitzs are individually liable for fraud. This argument begins on page 36 of ASH s Opposition, in violation of this Court s rules. Even if the Court were to consider these arguments, they fail for the same reasons set forth above. The six-year statute of limitations has passed, and the relation back doctrine does not apply. VII. ASH ILLEGALY SHARED THE COMMISSIONS WITH BLACKSTONE AND CANNOT NOW SUE FOR RECOUPMENT ASH s opposition to Defendants illegality argument should be disregarded, because it begins on page 37 of ASH s Opposition, in violation of this Court s rules. Even if the Court were to consider ASH s arguments, they are without merit. First, ASH focuses on the wrong provision of the Insurance Statute, and falsely accuses Defendants of misstating the applicable statute. ASH Opp. at 38. The applicable statute is New York Insurance Law 2114(a)(2) (emphasis supplied): No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be. The additional language cited by ASH is contained in 2114(a)(1), which applies to insurers (not agents) and is therefore inapplicable. The fact that 2114(a)(2), applying specifically to agents, omits the additional language or to an insurance broker underscores that 11 13 of 16
an agent (such as ASH) may share commissions only with a licensed life insurance agent of such insurer (which Blackstone never was). ASH cites a February 28, 2003 Opinion of the General Counsel, which actually refutes ASH s position. That Opinion states that an agent, such as ASH: may share the commission with another New York licensed agent or broker for the referral of business on the placement of an insurance policy if the referring agent is licensed to sell that kind of insurance and is a licensed agent of the insurer that wrote the policy, or if the referring broker is licensed to write that kind of insurance... Otherwise, such referring agent or broker must be treated as any other non-licensed person under sections 2114, 2115 and 2116. Here, Blackstone was the referring agent or broker with whom ASH shared commissions. Since Blackstone was not a licensed agent of the insurer that wrote the policy and was not licensed to write insurance, Blackstone must be treated as any other non-licensed person with whom it is illegal to share commissions. The May 6, 2004 Opinion of the General Counsel, cited by ASH, does not specify the type of insurance at issue. 2114(a)(2) applies specifically to life insurance. 2114(a)(3) applies to health insurance and allows sharing commissions with a licensed insurance broker. The 5/6/04 Opinion must be addressing only the health insurance provision, which allows sharing commissions with a broker who is not a licensed agent of the insurer. This is not true for life insurance commissions, as expressly stated in 2114(a)(2). Further, ASH s disjointed arguments to distinguish Ziv v. Tellkamp, 117 A.D.3d 727 (2d Dep't 2014), fall flat. At first ASH argues that its damages consist of the commissions ASH returned to AXA when the policies were rescinded. ASH Opp. at 40. However, ASH was merely returning to AXA monies it received from AXA. Such return of monies received is not a loss. It merely returns ASH to its prior position. 12 14 of 16
Next ASH argues that it seeks return of funds it paid Blackstone (not AXA) and that, unlike Ziv, this claim is not based on breach of contract. ASH Opp. at 40-41. However, Ziv dismissed not only a breach of contract claim, but also an unjust enrichment claim. Id. at 729. The specific cause of action is immaterial. Rather, as stated by the Court of Appeals, concerning an action for return of commissions paid to a broker, pursuant to an agreement for illegal sharing of commissions: [N]o court should be required to serve as paymaster of the wages of crime, or referee between thieves. Therefore, the law "will not extend its aid to either of the parties" or "listen to their complaints against each other, but will leave them where their own acts have placed them." Stone v. Freeman, 298 N.Y. 268, 271 (1948) (emphasis supplied). Finally, ASH attempt to portray its illegal activity as a non-serious violation, is belied by the explicit holding of the Second Department in Ziv and the Court of Appeals in Stone, which specifically address a violation of 2114 and illegal sharing of commissions, and consider such violations serious enough to dismiss the action and leave the parties where their own acts have left them. VIII. ASH CONCEDES NO CAUSE OF ACTION AGAINST SHAYA ILOWITZ For the reasons stated in Defendants moving brief (Def. MOL at 17-18), which ASH does not oppose, ASH s causes of action against Shaya Ilowitz are deficient as a matter of law, and should be dismissed. 13 15 of 16
IX. ASH S CONCEDES ITS ALLEGATIONS ARE BARRED BY THE STATUTE OF FRAUDS For the reasons stated in Defendants moving brief (Def. MOL at 22-23), which ASH does not oppose, the oral agreement alleged by ASH falls within the Statute of Frauds and is unenforceable. Therefore, for the reasons stated in Defendants moving brief (Def. MOL at 24-26), which ASH does not oppose, the Statute of Frauds also bars ASH s alternate theories of liability (i.e., fraud, negligence, implied contract, unjust enrichment, and tortious interference), because they are all based upon the alleged oral agreement to share policy commissions and to return such commissions if the subject policy is rescinded. CONCLUSION For all the above-mentioned reasons, Defendants respectfully request that the Court dismiss ASH s Amended Complaint in its entirety. Dated: Kew Gardens, New York May 17, 2016 LIPSIUS-BENHAIM LAW, LLP Attorneys for Defendants By: Ira S. Lipsius Phillip M. Manela 80-02 Kew Gardens Road, Suite 1030 Kew Gardens, New York 11415 (212) 981-8440 14 16 of 16