SOUTH PIERRE ASSOCIATES LLC v. MEYERS (2006)

Defendant Cary Meyers (“Meyers” or “defendant”) moves for an order pursuant to CPLR § 3212 for summary judgment “based on the fact that there exists no material fact requiring a trial on damages.”   Plaintiffs South Pierre Associates and Urban Associates, LLC (“SPA” and “UA” or “plaintiffs”) oppose the motion and cross-move for an order pursuant to 22 NYCRR 130-1.1 granting plaintiffs an award of sanctions against the defendant for filing a frivolous motion.   Defendant opposes the motion.   Both the motion and cross-motion are consolidated herein for disposition.

Background

SPA is the owner of a building located at 160 West 71st Street, New York, New York (“subject building”).   UA is the managing agent SPA employed to manage the subject building.   From September, 1997 to April, 2002, UA employed Meyers as the residential property manager of the subject building.   Kurt Freisinger (“Freisinger”) was the rent stabilized tenant of record of apartment 17F of the subject building (“subject premises”) from on or about 1975 until November 12, 1989, when he died.   From 1980 until Freisinger died, Stanley Mankowitz a/k/a Stanley Mann (“Mankowitz”) allegedly occupied the subject premises contemporaneously with Freisinger as a non-traditional family member.

After Freisinger's death, Mankowitz admittedly forged Freisinger's signature on rent stabilized renewal leases and riders dated September 5, 1990, September 24, 1992, September 30, 1994, October 3, 1996, October 19, 1998 and September 21, 2000 and October 2, 2002.   Apparently, on advice of counsel, Mankowitz forged said renewal leases and paid the rent with money orders.   Except for the last renewal lease, Meyers countersigned each renewal lease on behalf of the plaintiffs.   Plaintiffs allegedly discovered in 2002 that Freisinger had died in 1989 and refused to countersign the October 2, 2002 renewal lease.

Thereafter, plaintiffs commenced a holdover proceeding under Index No. L & T 51503/03 seeking to evict Mankowitz from the subject premises (“Holdover Proceeding”).   Plaintiffs moved for summary judgment in the Holdover Proceeding.   Mankowitz then cross-moved for summary judgment dismissing the proceeding.   In support thereof, Mankowitz submitted an affidavit of Meyers, sworn to on January 19, 2005, at ¶ 9 and 11, averring as follows:

After Mr. Freisinger died I knew that Mr. Mankowitz continued to live in the apartment [subject premises].   After Mr. Freisinger's death I decided not to commence an eviction proceeding against Mr. Mankowitz because I knew that he and Mr. Freisinger had lived together as a gay couple for more than two years and that Mr. Mankowitz had a right to succeed to the apartment [subject premises].

Subsequently, in his reply papers, Mankowitz submitted an additional affidavit by Meyers, sworn to on March 4, 2005, in further support of the cross-motion, at ¶ 18-19, averring as follows:

I know that Mr. Mankowitz was signing Mr. Freisinger's name on the renewal leases after Mr. Freisinger's death but disregarded it because I knew that Mr. Freisinger and Mr. Mankowitz had lived together as a couple for many years.   I also knew that, based upon my understanding of the law at the time, Mr. Mankowitz was entitled to remain living in the subject apartment after Mr. Freisinger's death.

Therefore, I did not consider Mr. Mankowitz's actions to be “fraud” since I understood that he was entitled to succeed to Mr. Freisinger's tenancy.

Based on Meyers' conduct, plaintiffs commenced this action in Supreme Court, New York County, under Index No. 105682/05, asserting five causes of action fraud, breach of fiduciary duties, breach of employment agreement, breach of agent-principal relationship, and negligence.  (See Exhibit “A” to the Motion).   Defendant interposed a written answer to the complaint.  (See Exhibit “B” to the Motion).

Subsequently, plaintiffs moved for summary judgment on its five causes of action.   By decision and order dated January 6, 2006, the Hon. Leland DeGrasse, J.S.C. granted plaintiffs partial summary judgment on the issue of liability as follows:

Defendant's argument that he believed Mankowitz had succession rights as Freisinger's gay life partner is unavailing․  Defendant's claim that he informed plaintiffs of Freisinger's death is refuted by conduct in countersigning the forged lease renewals.

The fiduciary relationship between plaintiffs and defendant imposed upon defendant a duty to disclose Freisinger's death.   His failure to make the disclosure is actionable as fraud․

The issue of liability is resolved in plaintiff's [favor] with respect to the causes of action set forth in the complaint.   An assessment of damage shall be conducted upon filing a note of issue.  (See Exhibit “C” to the Motion).

At the same time, Justice DeGrasse transferred this action from Supreme Court to the Civil Court pursuant to CPLR § 325(d).  (See Exhibit “E” to the Cross-Motion).

In or about February, 2006, defendant moved for reargument and/or renewal of Justice DeGrasse's order based on the decision and order of the Hon. Timmie Erin Elsner, J.H.C. dated December 21, 2005, wherein the court dismissed the Holdover Proceeding finding that Mankowitz was entitled to succeed Freisinger as the rent stabilized tenant of record at the time of his death on November 11, 1989.¹  (See Exhibit “D” to the Cross-Motion).   In a cogent decision, Judge Elsner discounted Mankowitz's admitted forgery of at least six renewal leases as follows:

Here, petitioner failed to prove any injury resulting from respondent's misrepresentations.   Respondent [Mankowitz] was entitled to succession rights prior to his signing of Mr. Freisinger's name in the first renewal lease by virtue of his ten-year residence with Mr. Freisinger in the subject premises, coupled with his close emotional and financial interdependence with Mr. Freisinger.   Furthermore, his reliance on the advice of counsel, which was given at a time the law relating to succession rights was unsettled at best, was understandable.  (Emphasis added).

Summary Judgment

The movant has the initial burden of proving entitlement to summary judgment.  Winegrad v. N.Y.U. Medical Center, 64 N.Y.2d 851, 487 N.Y.S.2d 316, 476 N.E.2d 642 (1985).  “[T]he remedy of summary judgment is a drastic one, which should not be granted where there is any doubt as to the existence of a triable issue (Moskowitz v. Garlock, 23 A.D.2d 943 944 [259 N.Y.S.2d 1003] ) or where the issue is even arguable (Barrett v. Jacobs, 255 N.Y. 520, 522 [175 N.E. 275] ) since it serves to deprive a party of his [or her] day in court.   Relief should be granted only where no genuine, triable issue of fact exists ․” Broadway-111th Street Associates v. Morris, 160 A.D.2d 182, 553 N.Y.S.2d 153 (1st Dept. 1990).

Arguments

Meyers relies on the above underscored language of Judge Elsner's decision and order as a basis for his summary judgment motion in that defendant contends that Judge Elsner resolved the issue of damages in his favor.   Plaintiffs counter that this instant motion is improper because Meyers has a similar motion that is currently sub judice before Justice DeGrasse.   Also, plaintiffs contend that notwithstanding Judge Elsner's decision to dismiss the Holdover Proceeding, plaintiffs can still demonstrate its entitlement to damages including recapturing the compensation paid Meyers for the period of disloyalty and punitive damages.

Faithless Servant Doctrine

The faithless servant doctrine deals with the disloyal or “faithless” performance of employment duties.   This doctrine has developed for more than a century and it is firmly grounded in the law of agency.   See Murray v. Beard, 102 N.Y. 505, 7 N.E. 553 (1886);  Restatement (Second) of Agency, §§ 387, 390 & 469 (1958).

The Restatement (Second) of Agency prescribes the general principle that an agent has a duty of loyalty to the principal (§ 387);  the agent must specifically disclose all pertinent facts to the principal (§ 390);  and provides for damages for the breach of the agent's duties to the principal (§ 469).   The above sections state as follows:

§ 387.  Unless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.

§ 390.  An agent who, to the knowledge of the principal, acts on his own account in a transaction in which he is employed has a duty to deal fairly with the principal and to disclose to him all facts which the agent knows or should know would reasonably affect the principal's judgment, unless the principal has manifested that he knows such facts or that he does not care to know them.

§ 469.  An agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty;  if such conduct constitutes a wilful and deliberate breach of his contract of service, he is not entitled to compensation even for properly performed services for which no compensation is apportioned.

In 1886, the Court of Appeals firmly established this agency principle as follows:

An agent is held to uberrima fides in his dealings with his principal, and if he acts adversely to his employer in any part of the transaction, or omits to disclose any interest which would naturally influence his conduct in dealing with the subject of the employment, it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services.

Murray, 102 N.Y. at 508, 7 N.E. 553.

In E.W. Bruno Co. v. Friedberg, 21 A.D.2d 336, 250 N.Y.S.2d 187 (1st Dept. 1964), the Appellate Division discussed the measure of damages to be awarded to the principal for the agent's disloyalty as follows:

‘Above all,’ it has been said of one in [the Agent's] position, ‘he should be candid with his employer and should withhold no information which would be useful to the employer in the protection and promotion of its interests' (Community [Counselling] Service, Inc. v. Reilly, 317 F.2d 239, 244).  [The Agent's] concealment deprived plaintiff [the principal], intentionally, of the opportunity of setting matters right.   We may not assume, in favor of the wrongdoer, that the cause was lost;  rather should “every doubt and difficulty” be resolved against him (Michel Cosmetics, Inc. v. Tsirkas, 282 N.Y. 195, 203, 26 N.E.2d 16, 19.)  21 A.D.2d at 340, 250 N.Y.S.2d at 191.

Later, the Appellate Division, First Department, further clarified that the agent's very act of disloyalty and not any resultant business loss by the principal may be sufficient to forfeit the agent's right to compensation for the period of disloyalty as follows:

The rigid rules ․ which bind an agent to the utmost fairness in his dealings with respect to his principal's business, are universal in their application, and are well understood․ It has been said that the reason for these rigid rules respecting agents is that all temptation shall be removed from one acting in a fiduciary capacity to abuse his trust or seek his own advantage in the position which it affords him.  (Meech. Agency § 469.)'   (Robert Reis & Co. v. Volck, supra, 151 App.Div. [613] at 614, 615, 136 N.Y.S. [367] at 369).   This overriding consideration patently suggests that it is the disloyalty itself and not its consequences to the employer or principal which is to be condemned.   It is the disloyalty itself which bars the agent from compensation and the failure of the principal thus injured to prove direct damage to its business may not be availed of to restore such compensation (see 2 N.Y. Jur. Agency § 229;  see also Bruno Co. v. Friedberg, 21 A.D.2d 336, 250 N.Y.S.2d 187 [1st Dept. 1964] ).  (Emphasis added).

Feiger v. Iral Jewelry, Ltd., 52 A.D.2d 524, 525-526, 382 N.Y.S.2d 221, 222-223 (1st Dept. 1976).   See also Phansalkar v. Andersen Weinroth & Co., L.P., et al., 344 F.3d 184 (2nd Cir.2003).

Punitive Damages

 The general rule is that punitive damages may be awarded where the defendant's conduct is directed at the public.  Rocanova v. Equitable Life Assur. Soc. of U.S., 83 N.Y.2d 603, 613, 612 N.Y.S.2d 339, 342, 634 N.E.2d 940 (1994).   However, this rule only applies to breach of contract cases, not in tort cases for breach of fiduciary duty.  Giblin v. Murphy, 73 N.Y.2d 769, 536 N.Y.S.2d 54, 532 N.E.2d 1282 (1988).   Specifically, “[p]unitive damages are allowable in tort cases such as this [breach of fiduciary duty] so long as the very high threshold of moral culpability is satisfied.”  Giblin v. Murphy, 73 N.Y.2d at 772, 536 N.Y.S.2d at 55, 532 N.E.2d 1282.

Discussion

 Meyers' argument that the language of Judge Elsner's decision and order resolved the issue of damages in this action in his favor is misplaced.   The language of Judge Elsner's decision stated above is taken out of context as Judge Elsner referenced Riverton Assocs. v. Knibb, 11 Misc.3d 14, 811 N.Y.S.2d 854 (2005) for the proposition that any fraud committed after the death of the tenant of record did not cause “petitioner any discernable prejudice in the prosecution of its eviction claim.”  (Emphasis added).   Clearly, Judge Elsner never decided the issue of plenary damages as it relates to Meyers' admitted breach of his fiduciary duty to the plaintiffs.   Significantly, Judge Elsner's decision in no way insulated Meyers from any damages plaintiffs may have suffered as a result of his disloyalty.

Quite to the contrary, Meyers faithless performance of his duties may subject him to severe penalties such as the forfeiture of all compensation plaintiffs paid for the period of his disloyalty.   This is true even if plaintiffs cannot prove any direct damage or loss arising out of Meyers' admitted culpable conduct.  “The overriding consideration patently suggests that it is the disloyalty itself and not the consequences to the employer or principal which is to be condemned.” Feiger v. Iral Jewelry, Ltd., 52 A.D.2d at 525-526, 382 N.Y.S.2d at 222.

Sanctions

Defendant's filing of the instant motion for summary judgment was not frivolous even though he earlier filed a motion to reargue and/or renew Justice DeGrasse's decision which granted plaintiffs partial summary judgment on the issue of liability.   There is a distinction between the two motions.   The instant motion accepts Judge DeGrasse's ruling on liability, but nonetheless challenges the viability of plaintiffs' claims for damages.   However, the prior motion directly challenges the issue of liability without the superfluous discussion of damages.   Both motions were permitted.

 Next, the substance of the instant motion for summary judgment was also not frivolous.   Judge Elsner's decision may have provided a semblance of an argument that plaintiffs suffered no damages, which has been rejected by this Court.   Moreover, it appears that few practitioners are familiar with this somewhat complex area of law where the damages do not flow from the principal's business losses, but may be awarded based on the disloyalty itself.

Conclusion

Based on the foregoing, both the motion and cross-motion are denied.

The foregoing constitutes the decision and order of this Court.

FOOTNOTES

1.   This decision and order should not be construed to determine the issue of Meyers' liability which is sub judice before Justice DeGrasse.

SHLOMO S. HAGLER, J.