SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X ALVIN DWORMAN, individually, and derivatively on behalf of CAPITAL PROPERTIES, CO., Plaintiff, -against- JANOVER LLC, ALAN J. HOFFMAN, and MARK B. SOLOMON, Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X Index No. 653144/2016 Hon. Shirley W. Kornreich Part 54 PLAINTIFF S REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF HIS MOTION FOR DEFAULT JUDGMENT AND OPPOSITION TO DEFENDANTS MOTION TO COMPEL ACCEPTANCE OF THEIR UNTIMELY ANSWER Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. Christopher J. Sullivan, Esq. 666 Third Avenue New York, NY 10017 (212) 692-6215 Attorney for Plaintiff 1 of 12
TABLE OF CONTENTS TABLE OF AUTHORITIES... ii PRELIMINARY STATEMENT...1 STATEMENT OF FACTS...1 ARGUMENT...2 I. Defendants Have Failed To Meet Their Burden To Avoid Entry Of Default...2 A. Defendants Have Not Provided A Reasonable Excuse For Their Delay...2 B. Defendants Failed To Present A Meritorious Defense...4 II. Defendants Request For An Extension Of Time To Plead Or To Compel Acceptance Of Their Untimely Pleading Should Be Rejected...8 CONCLUSION...9 2 of 12
State Cases TABLE OF AUTHORITIES Page(s) Arctic Glacier USA, Inc. v Good Enough To Eat Uptown, Ltd., 2017 NY Slip Op 51321 [1st Dep t 2017]...5, 6 Booth v Kriegel, 2005 NYLJ LEXIS 5499 [Sup Ct, New York County Dec. 6, 2005]...7 Egan v Federated Dept. Stores, Abraham & Straus Div., 108 AD2d 718 [2d Dept 1985]...3 Ennis v Lema, 305 AD2d 632 [2d Dept. 2003]...4 Fred Smith Plumbing & Heating Co. v Christensen, 242 AD2d 429 [1st Dept 1997]...7 Friedman v Anderson, 23 AD3d 163 [1st Dept 2005]...8 Juseinoski v Board of Educ. Of City of N.Y., 15 AD3d 353 [2d Dept 2005]...2, 3, 5, 6 Paez v 1610 St. Nicholas Ave. L.P., 103 AD3d 553 [1st Dep t 2013]...4 Peacock v Kalikow, 239 AD2d 188 [1st Dept 1997]...4 Westchester Religious Inst. v Kamerman, 262 AD2d 131 [1st Dept 1999]...8 Young v Richards, 26 AD3d 249 [1st Dept 2006]...6 Rules CPLR 2104...3 CPLR 3012(d)...8 CPLR 3020(d)(3)...5, 6 CPLR 3215(a)...1 ii 3 of 12
PRELIMINARY STATEMENT Plaintiff Alvin Dworman ( Dworman ) respectfully submits this Memorandum of Law in further support of his motion for leave to enter judgment by default against Defendants Janover LLC, Alan J. Hoffman, and Mark B. Solomon (collectively, Defendants ) pursuant to CPLR 3215(a), and in opposition to Defendants cross-motion to compel acceptance of its Verified Answer. STATEMENT OF FACTS 1 On January 12, 2017, the Court held oral argument on Defendants motion to dismiss and motion to stay. (Dkt. No. 24) During that argument, the Court did not order Plaintiff to amend the causes of action that survived the motion to dismiss, and counsel for Plaintiff made no indication that he intended to amend. In fact, Plaintiff s counsel specifically requested leave to amend after discovery if in fact discovery proves the validity of the additional claims. (Sullivan Aff., Ex. D at 7512-15) (emphasis added) Contrary to Defendants contention that there was a conversation with some unnamed Plaintiff s counsel after the hearing during which Defendants inquired about plaintiff s intentions concerning the ruling and otherwise, (Br. at 2) 2 neither Mr. Sullivan nor Mr. Mehlman (Plaintiff s former counsel) recall having had such a conversation (Sullivan Aff. 12) Moreover, Defendants counsel does not state that during that conversation he requested an extension of time (either orally or in writing) to file an answer. (Kelly Aff.) Further, Defendants counsel does not state that he secured an oral or written extension of time to answer the Verified Complaint. (Id.) Instead, he makes a vague reference to maintaining the status quo, whatever that means in the context of one s obligations to timely 1 Plaintiff incorporates by reference the Statement of Facts set forth in his moving brief. See Dkt No. 29 at 1-3. 2 Br. at refers to Defendants Memorandum in Opposition to Plaintiff s Motion for Default Judgment and in Support of the Defendants Cross-Motion to Compel Acceptance of an Answer. 4 of 12
answer a pleading. (Id. at 3-4) Defendants failed to call or email Plaintiff s counsel after January 12, 2017 concerning the deadline to answer the Verified Complaint, or to otherwise confirm their alleged understanding that they had received an extension of time to answer same until September 25, 2017 shortly after Defendants were served with notice that Plaintiff intended to submit an application for entry of default judgment. (Sullivan Supp. Aff. at 2) In short, no extension was ever requested, or obtained. Additionally, the allegations in the Verified Complaint concern claims against Defendants that are distinct from those being considered in the pending arbitration between Capital Enterprises Co. and Dworman. The claims at issue in the Verified Complaint arise out of Defendants own actions and active role in facilitating and concealing Capital Enterprises Co. s misconduct, including accounting malpractice, negligent misrepresentation, fraudulent misrepresentation, aiding and abetting breach of fiduciary duty, and aiding and abetting conversion. (Dkt. No. 1) None of these causes of action are at issue in the pending arbitration between Capital Enterprises Co. and Dworman. ARGUMENT I. Defendants Have Failed To Meet Their Burden To Avoid Entry Of Default In order to avoid default judgment, Defendants have the burden to demonstrate a reasonable excuse for their default and a meritorious defense to the action. (Juseinoski v Board of Educ. Of City of N.Y., 15 AD3d 353, 355 56 [2d Dept 2005]) Defendants have failed to meet their burden on both accounts. A. Defendants Have Not Provided A Reasonable Excuse For Their Delay Defendants have not provided a reasonable excuse for failing to answer the Verified Complaint for seven months. Defendants proffered excuse is twofold (i) they operated under 2 5 of 12
the assumption that there was a mutual understanding that plaintiff s counsel would inform defendants counsel when he determined how to proceed and that Defendants time to answer the Verified Complaint was somehow stayed as a result (Br. at 1) and (ii) Defendants were affording Plaintiff ample opportunity to amend their complaint for clarity and to account for the commentary of this Court (Id. at 8) Neither excuse makes sense or is otherwise reasonable. Defendants claims of a mutual understanding that extended Defendants time to answer is not supported by the Kelly Affirmation. Even Defendants counsel does not state that he requested and obtained an extension of time to answer the Verified Complaint. Nowhere does he say that. Moreover, Plaintiff expressly refutes that alleged mutual understanding. (Sullivan Aff. at 12) Finally, Defendants have not provided any writings to substantiate this supposed extension. 3 That alone is fatal to this claim, as any such stipulations must be in writing to be valid. (See Egan v Federated Dept. Stores, Abraham & Straus Div., 108 AD2d 718 [2d Dept 1985]) ( Plaintiff's attorney s claim that an unidentified agent from the law firm representing defendant had agreed to an unlimited extension of time to serve the complaint should have been rejected since plaintiff did not produce a written stipulation to that effect, as required by CPLR 2104. ) (internal citation omitted); (see also Juseinoski, 15 AD3d at 355 [2d Dept 2005]) (disputed oral stipulation to extend defendants time to answer, without proof that the plaintiff agreed to extend the defendants time to answer, was insufficient to preclude default) It is standard practice for any agreements for an extension of time to be memorialized in writing so as to avoid this very situation. And, as noted above, the case law requires it. 3 In his affirmation, William Kelly states that [u]pon walking out of the Court, I had a conversation with plaintiff s counsel and specifically asked him what his intentions were with respect to amending the complaint given the Court s ruling as well as other issues. He said he was not sure yet and we agreed to not do anything until he decides what to do. (Kelly Aff. at 4) Again, it is unclear to which plaintiff s counsel Mr. Kelly is referring. 3 6 of 12
The argument that the time to answer was somehow suspended because Defendants were affording Plaintiff ample opportunity to amend their complaint for clarity and to account for the commentary of the court fares no better. Indeed, although Defendants claim that Plaintiff s counsel, on or about January 12, 2017 immediately following the oral argument on the motion to dismiss, stated that he was not sure how he intended to proceed, that should have become readily apparent to Defendants when Plaintiff served and filed the Notice of Entry on February 24, 2017. (Dkt. No. 24) Since the service of the Notice of Entry triggered Defendants time to answer the Verified Complaint, this event should at the very least have prompted Defendants to contact Plaintiff s counsel to confirm in writing that an extension of time existed. Defendants counsel did not. (Supp. Sullivan Aff. at 2) B. Defendants Failed To Present A Meritorious Defense Even assuming Defendants could proffer a reasonable excuse for their delay, which they have not, they have failed to demonstrate a meritorious defense a requirement Defendants bear the burden to demonstrate to successfully defeat a motion for default judgment. (Ennis v Lema, 305 AD2d 632, 633 [2d Dept. 2003]) ( [a] defendant who has failed to appear or answer the complaint must provide a reasonable excuse for the default and demonstrate a meritorious defense to the action to avoid the entering of a default judgment ) (emphasis added) To demonstrate a meritorious defense, a party must submit an affidavit from an individual with knowledge of the facts. (Peacock v Kalikow, 239 AD2d 188, 190 [1st Dept 1997]) A verified pleading may be accepted in lieu of an affidavit of merit or affidavit signed by a party with knowledge of the facts but only if that pleading is verified by an individual with personal knowledge of the facts of the underlying case. (See Paez v 1610 St. Nicholas Ave. L.P., 103 AD3d 553, 554 [1 st Dep t 2013]) (reversing vacatur of default judgment where answer 4 7 of 12
was verified by defendants attorney who did not claim to have personal knowledge of the facts ) As Plaintiff set forth in his moving brief, a verified answer, verified only by counsel who has no personal knowledge of the facts pertaining to the underlying case, is insufficient to substantiate a meritorious defense. (Dkt. No. 29 at p. 7); (see also Juseinoski, 15 AD3d at 355 [2d Dept 2005]) ( a pleading verified by an attorney pursuant to CPLR 3020(d)(3), and not someone with personal knowledge of the facts, is insufficient to establish its merits ); (Arctic Glacier USA, Inc. v Good Enough To Eat Uptown, Ltd., 2017 NY Slip Op 51321 [1st Dep t 2017]) ( proposed answer, verified by defendants counsel upon information and belief did not constitute a sufficient affidavit of merit) Plaintiff pointed to this deficiency in his opening papers in support of the motion for default judgment. Significantly, despite being on notice that an attorney verification was insufficient to establish a meritorious defense, Defendants counsel did not, in opposition to Plaintiff s motion for default judgment, submit an affidavit from their client who presumably has personal knowledge of the underlying case. One can only speculate why Defendant Hoffman or Defendant Solomon did not submit an affidavit setting forth the facts of their meritorious defense. But their reason for failing to do so is irrelevant. That they failed to do so is fatal to their defense of this motion for a default judgment. Indeed, the fact that Defendant Hoffman has admitted that as a result of errors in his accounting, Capital Properties has sustained damages of approximately $200,000, of which Mr. Dworman s share is approximately $100,000 suggests that there is no meritorious defense. (Supp. Sullivan Aff., Ex. 1.) Defendants argue that attorneys are permitted, in limited circumstances, to verify pleadings. In making this argument, Defendants appear to erroneously conflate the sufficiency of an attorney-verified answer generally, and the sufficiency of such an answer to establish a 5 8 of 12
meritorious defense in opposition to a default motion. (Br at 4 5) Plaintiff does not assert that, had Defendants timely filed their Verified Answer, an attorney verification would have been improper pursuant to CPLR 3020(d)(3). Plaintiff instead asserts that Defendants Verified Answer is, without more, insufficient to establish a meritorious defense because it was made by someone who lacks personal knowledge. Contrary to Defendants assertion, the Young case stands for exactly that proposition that a proposed answer verified by counsel, who had no personal knowledge of the facts pertaining to the case, was insufficient to establish either of the required showings [to overcome default judgment], namely a justifiable excuse for the default and a meritorious defense. (Br. at 4); (Young v Richards, 26 AD3d 249, 250 [1st Dept 2006]) In addition to submitting an answer verified only by counsel, Defendants have submitted an attorney affirmation in conjunction with this motion that was allegedly made pursuant to personal knowledge and review of the referenced documents. (Kelly Aff. at 1) (emphasis added). That too is insufficient to meet Defendants burden of demonstrating a meritorious defense as it is not verified by a person with personal knowledge of the facts at hand. (Juseinoski, 15 AD3d at 356 [2d Dept 2005]) ( the affirmation of an attorney which does not contain evidentiary facts from one having personal knowledge is insufficient to establish the merits of a claim ); (Arctic Glacier USA, 2017 NY Slip Op 51321 [1st Dep t 2017]) (reinstating default judgment; affirmation submitted by defendants counsel, who had no personal knowledge of the facts, was insufficient to show a meritorious defense ) (citations omitted). Given that Defendants counsel has only been involved in this case since September 2016, it stands to reason that he has no personal knowledge of any events that pre-date the filing of this litigation. For example, Defendants counsel describes the accounting work that was performed by his client and he professes to know about Dworman s understanding of how the Partnership 6 9 of 12
was operated, (Kelly Aff. at 14) but Mr. Kelly has no personal knowledge of what work was performed by his client prior to September 2016 or what Mr. Dworman knew at any point in time. Defendants remaining arguments concerning their purported meritorious defenses are unavailing, and simply a red herring since Defendants have failed to proffer any document signed by a person with knowledge of the case, and have therefore failed to meet their burden to demonstrate a meritorious defense. Indeed, Defendants suggest that Plaintiff s causes of action that were not the subject of Defendants motion to dismiss are nonetheless susceptible to a motion to dismiss. (Br. at 8 10) But Defendants never moved to dismiss these causes of action. Plaintiff certainly does not have the burden here to litigate a motion to dismiss that Defendants failed to bring. If Plaintiff s causes of action truly lacked the legal and factual veracity that Defendants now contend, then Defendants would have challenged these causes of action in their motion to dismiss. They did not, or were otherwise unsuccessful. Nonetheless, Plaintiff s causes of action, or any portion thereof, are not barred by the three year statute of limitations imposed generally on accounting claims as the continuous representation doctrine, which is applicable here, recognizes that a person seeking professional assistance has a right to repose confidence in the professional s ability and good faith and therefore tolls the running of the statute of limitations until the professional relationship ends. (See Booth v Kriegel, 2005 NYLJ LEXIS 5499, at *6 7 [Sup Ct, New York County Dec. 6, 2005]) (denying summary judgment on statute of limitations grounds where accountant prepared plaintiff s annual tax returns and repeatedly failed to apply the Totalization Agreement each year); (see also Fred Smith Plumbing & Heating Co. v Christensen, 242 AD2d 429 [1st Dept 1997]) (striking accountants statute of limitations affirmative defense where accountants 7 10 of 12
allegedly failed to properly advise plaintiff with respect to, inter alia, the reasonableness of its executive compensation and the option of electing Subchapter S status up to their termination which was within the statute of limitations period) Defendants representation of the Partnership did not end until May 2016, when the Court removed them as the Partnership s accountants. Given that this action was filed in June 2016, this action was clearly timely when the three-year statute of limitations began to run. Additionally, and contrary to Defendants assertions that [a]n outside accountant s role is to ensure that the financial activity is properly recorded, not to serve as a task master for documentation (Kelly Aff., 13), [a]ccountants have a duty to perform within the scope of their professional accounting standards, which generally go beyond simple auditing and bookkeeping. (Friedman v Anderson, 23 AD3d 163 [1st Dept 2005]) (finding that plaintiff had adequately stated claims for negligence and negligent misrepresentation against accountants) Furthermore, the statute of limitations for aiding and abetting breach of fiduciary duty accrues only once the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated, making this cause of action well within the applicable statute of limitations. (Westchester Religious Inst. v Kamerman, 262 AD2d 131 [1st Dept 1999]) Accordingly, since Defendants have failed to establish a meritorious defense, default judgment must be entered in favor of Plaintiff. II. Defendants Request For An Extension Of Time To Plead Or To Compel Acceptance Of Their Untimely Pleading Should Be Rejected Although CPLR 3012(d) affords courts discretion to extend a party s time to plead, or compel the acceptance of a pleading untimely served upon such terms as may be just and upon a showing of reasonable excuse for delay or default, the Court in this instance should reject Defendants request for such relief. As discussed infra in Section I(b), Defendants have failed to 8 11 of 12
proffer a reasonable excuse for their delay and default. As such, the Court should deny Defendants request for an extension of time to plead or to compel Plaintiff to accept their untimely served answer. CONCLUSION For the foregoing reasons, Plaintiff respectfully requests that the Court grant his motion for default judgment against Defendants, and deny Defendants cross-motion to compel acceptance of its untimely answer. Dated New York, New York October 27, 2017 Respectfully Submitted, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. By /s/ Christopher Sullivan Christopher Sullivan 666 Third Avenue New York, New York 10017 (212) 935-3000 Attorneys for Plaintiff 9 12 of 12