FKB’s Rachel Aghassi and Asher Kest obtained a post-answer dismissal on behalf of a transactional firm which represented certain corporate shareholders in an international fertilizer distributor. In an intra-corporate suit, various shareholders in the corporation are accused of fraud, breach of fiduciary duty, and conversion. Plaintiffs were shareholders who, individually and derivatively on behalf of the corporate entities, alleged that FKB’s client law firm committed legal malpractice, breach of fiduciary duty, fraud, and violation of Judiciary Law §487 by inducing Plaintiffs’ investment and structuring corporate documents to favor the allegedly breaching shareholders over the Plaintiffs.
Taking over this litigation from previous counsel, FKB filed an amended answer to preserve affirmative defenses, and successfully moved to dismiss under CPLR § 3211(a)(7) on the basis of a lack of standing to bring derivative claims, failure to allege a fiduciary relationship, and inability to plead fraud on the part of defendant firm with specificity.
In the resulting decision in the Supreme Court, Nassau County Commercial Division, dated January 4, 2021, Justice Timothy S. Driscoll agreed with FKB’s arguments, and dismissed all of Plaintiffs’ claims.
In doing so, the court agreed with FKB’s position that the Plaintiffs derivative claims are improper as they appear to have been abandoned and are otherwise improperly comingled with individual claims. The court further agreed that the legal malpractice claim is improper because “[t]he Complaint fails to allege a mutual understanding that Defendants represented Plaintiffs. Plaintiffs do not plausibly assert that they retained Defendants to represent them individually and/or that Defendants undertook a specific task on their behalf.” In making this determination, the court accepted FKB’s arguments in full that even if FKB’s client represented the corporate entities, “a lawyer’s representation of a business entity does not render the law firm counsel to an individual partner, officer, director or shareholder.”
Justice Driscoll further agreed that the Judiciary Law §487 claim appears to be abandoned and was otherwise improperly pleaded as there is no allegation that the misconduct took place during a judicial proceeding. The decision also found that the breach of fiduciary duty claim was likewise abandoned and is otherwise improper because no duty was alleged on the part of FKB’s client and the claim was also duplicative of the legal malpractice claim.
Similarly, the decision dismisses the fraud claim as duplicative and further finds Plaintiffs failed to state a claim with the requisite level of particularity. Specifically, the court found that “Plaintiffs’ allegation that Defendants assisted in illegal payments disguised as customs and port fees is vague and conclusory. Plaintiffs’ allegations regarding third-party representations with respect to [FKB’s client’s] background are irrelevant and improperly asserted in a memorandum of law.” With respect to the remaining claims, the court found that Plaintiffs do not allege how they justifiably relied on the alleged misrepresentations in continuing to invest in the business.