GOLDMAN v. RIO PLLC (2008)

Defendants, Richard R. Rio (“Richard”) and Law Offices of Richard R. Rio, PLLC (“Rio PLLC”), move to dismiss this action pursuant to CPLR 3211(a)(3) and (5).

Plaintiff, Michael Goldman (“Goldman”), cross-moves for summary judgment on his cause of action to compel an accounting and to compel Defendants to comply with his discovery demands.

BACKGROUND

In 1982, Goldman and Richard formed a partnership for the practice of law know as Goldman & Rio, Esqs. (“G & R”).  They practiced law as G & R until May 18, 2004, when Goldman was suspended from the practice of law.  Matter of Goldman, 7 A.D.3d 18, 777 N.Y.S.2d 89 (1st Dept.2004).

Goldman's suspension from the practice of law terminated the G & R partnership.   Upon Goldman's suspension, Richard set up a new firm, the Law Offices of Richard R. Rio, PLLC. Goldman did not have an interest in Rio PLLC.

Goldman was subsequently disbarred.  Matter of Goldman, 24 A.D.3d 29, 804 N.Y.S.2d 18 (1st Dept.2005).

After Goldman was disbarred, but before he commenced this action, he filed for protection under Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 701, et. seq.   Goldman listed Richard, G & R and Rio, PLLC, as creditors in his bankruptcy petition.   Goldman's bankruptcy petition listed no assets from which dividends could be paid to creditors.   On June 5, 2006, the United States Bankruptcy Court for the Eastern District of New York granted Goldman a discharge in bankruptcy pursuant to 11 U.S.C. § 727.¹

Goldman commenced this action on September 26, 2006 wherein he seeks to compel Rio to account for the affairs of G & R.

Goldman asserts that, when he was suspended from G & R had assets to which he is entitled to share.   Goldman further asserts G & R had numerous matters pending when he was suspended.   Goldman seeks to recover the value of his equity in G & R and/or his share of the legal fees earned by or paid to G & R relating to legal services he rendered prior to his suspension.

Defendants moves to dismiss this action asserting that Goldman lacks standing to maintain the action.   Defendants claim that Goldman was required to list his equity interest G & R and his right to legal fees earned by the partnership as assets in his bankruptcy petition.   Goldman listed neither.   Defendants assert that his failure to list these assets in his bankruptcy filing deprive Goldman of capacity or judicially estop him from bringing this action.

Goldman asserts he is entitled to an accounting.   He claims Richard is attempting to deprive him of his rightful share of the G & R.

Goldman cross-moves for summary judgment on his cause of action to compel an accounting and to compel Defendants to comply with his discovery demand as provided in the Preliminary Conference order.

DISCUSSION

 CPLR 3211(a)(3) permits the court to dismiss an action where the party bringing the action lacks the legal capacity to sue.   A plaintiff who declares bankruptcy lacks capacity to sue on a cause of action if (1) the cause of action accrued prior to the filing of the bankruptcy petition;  (2) the plaintiff knew or should have known the cause of action existed when he filed for bankruptcy;  and (3) the plaintiff failed to disclose the existence of the cause of action as an asset in the bankruptcy proceeding.   Dynamics Corp. of America v. Marine Midland Bank-New York, 69 N.Y.2d 191, 513 N.Y.S.2d 91, 505 N.E.2d 601 (1987);  Whelan v. Longo, 23 A.D.3d 459, 808 N.Y.S.2d 95 (2nd Dept.2005):  and Quiros v. Polow, 135 A.D.2d 697, 522 N.Y.S.2d 596 (2nd Dept.1987).

 The cause of action for an accounting accrued when the partnership was dissolved.  Green v. Albert, 199 A.D.2d 465, 605 N.Y.S.2d 395 (2nd Dept.1993);  and Partnership Law § 74.   G & R was dissolved by operation of law upon Goldman's suspension from the practice of law.   Thus, the cause of action for an accounting accrued on May 18, 2004, the date Goldman was suspended from practice.

 Goldman, as a suspended and subsequently disbarred attorney, would be entitled to recover legal fees earned and disbursements incurred for legal services rendered or disbursements incurred prior to his suspension or disbarment on a quantum meruit basis.  Decolator, Cohen & DiPrisco, LLP v. Lysaght, Lysaght & Kramer, P.C., 304 A.D.2d 86, 756 N.Y.S.2d 147 (1st Dept.2003).   A cause of action for quantum meruit accrues immediately upon the attorney's discharge. Schneider, Kleinick, Weitz, Damashek & Shoot v. City of New York, 302 A.D.2d 183, 754 N.Y.S.2d 220 (1st Dept.2002).   Thus, Goldman's claim to recover legal fees accrued on May 18, 2004.

A bankrupt's estate consists of “․ all legal or equitable interests of the debtor in property as of the commencement of the case.”  11 U.S.C. § 541(a)(1).   A voluntary bankruptcy proceeding is commenced by the filing of a petition with the court.  11 U.S.C. § 301(a).   Goldman filed his bankruptcy petition on October 16, 2006.

 The estate of a bankrupt attorney includes the value of all legal fees earned prior to the filing of the petition including all pre-petition contingent fee contractual rights.  Matter of Bagen, 186 B.R. 824 (S.D.N.Y.1995), aff'd, 201 B.R. 642 (S.D.N.Y.1996).   Earnings of an individual for services performed after the commencement of the case are not part of the bankrupt's estate.  11 U.S.C. § 541(a)(6).

Goldman could not earn any legal fees after his suspension from practice.   Therefore, any legal fees he might have earned would be assets of his bankruptcy estate.

 The causes of action Goldman pleads in the complaint herein all accrued prior to his filing for bankruptcy.   He did not list those causes of action as assets in his bankruptcy petition.   Any money Goldman would have recovered as a result of these causes of action would have been assets of his bankruptcy estate which could have been used to satisfy, in whole or part, the claims of his creditors.   Goldman most certainly knew, or should have known, of his right to an accounting upon the dissolution of G & R as well as his right to recover his quantum meruit share of legal fees for services rendered prior to his suspension.   Since Goldman did not list these items as assets in his bankruptcy petition, he lacks capacity to bring this action.

In addition, Goldman is judicially estopped from asserting the causes of action plead in the complaint

 The doctrine of judicial estoppel or estoppel against inconsistent positions prevents a party who asserted a factual position in a prior action from taking an inconsistent position in subsequent litigation.  Black v. White & Case, 280 A.D.2d 407, 721 N.Y.S.2d 44 (1st Dept.2001);and McCaffrey v. Schaefer, 251 A.D.2d 300, 673 N.Y.S.2d 717 (2nd Dept.1998).  “The doctrine rests upon the principle that a litigant should not be permitted * * * to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise' (Note, op. cit., 59 Harv. L. Rev. 1132).”  Environmental Concern, Inc. v. Larchwood Construction Corp., 101 A.D.2d 591, 593, 476 N.Y.S.2d 175 (2nd Dept.1984).   The doctrine is invoked to prevent a party from adopting contrary positions because our cannot tolerate a party playing “fast and loose with the courts.”  Environmental Concern, Inc. v. Larchwood Construction Corp., Id. at 594, 476 N.Y.S.2d 175.   See also, Ford Motor Credit Co. v. Colonial Funding Corp., 215 A.D.2d 435, 626 N.Y.S.2d 527 (2nd Dept.1995).

 In his bankruptcy proceeding, Goldman stated that Richard, G & R and Rio, PLLC were creditors.   He stated he had no assets.   Goldman takes the opposite position in this action.   He claims an entitlement to his equity in G & R and/or his share of legal fees earned by Richard, G & R and Rio, PLLC relating to legal services he provided and legal fees earned prior to his suspension.   Judicial estoppel prevents Goldman from making these contradictory claims after having obtained a bankruptcy discharge.

In rendering this decision this Court is not saying that Goldman was not entitled to an accounting or a share of the legal fees earned for legal services prior to his suspension.   However, as assets of his estate in bankruptcy, these assets/claims had to be listed as such in his bankruptcy proceeding.   His failure to do so bars him from bringing this action.

Since the action is being dismissed, Goldman's cross-motion for summary judgment on his accounting cause of action and his cross-motion to compel Defendants to comply with his discovery demands must be denied as moot.

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss is granted and the complaint is hereby without costs dismissed;  and it is further,

ORDERED, that Plaintiff's cross-motion for summary judgment and/or to compel discovery is denied as moot.

This constitutes the decision and order of this Court.

FOOTNOTES

1.   After the discharge was issued, the trustee commenced a proceeding to determine whether Goldman had significantly understated his equity interest in a one family house he owns as a tenant by the entirety with his wife.   The trustee also wanted to investigate whether Goldman's transfer of a 25% interest in this real property to his wife in August 2002 to permit her to obtain an additional mortgage on the house constituted a fraudulent transfer.

LEONARD B. AUSTIN, J.