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Court Discusses Complicated Case Involving a TRO

Plaintiff A is the court appointed article 81 financial guardian for B. He is also the co-trustee of the B Family Trust. A New York Family Lawyer said these appointments were made only after the original action was brought. A has now interposed a third amended complaint on behalf of his ward. Defendant C as trustee and certain business defendants have brought a pre-answer motion to dismiss the fifth through fourteenth causes of action asserted in the third amended complaint. C has now joined in that motion in her individual capacity. Defendant D has separately moved to dismiss the causes of action asserted as to her. Defendant E separately moved to dismiss the causes of action asserted as to him.

F law firm separately moved to be relieved as counsel of record for certain defendants. This motion has already been denied by the court. A cross moved to: disqualify the F law firm; appoint a receiver; appoint a successor trustee in place of C of the B Family Trust; hold a hearing on whether a guardian ad litem should be appointed for G; strike D’s reply in support of her motion to dismiss and strike C’s reply in support of her motion to dismiss. A subsequently withdrew his application to have a receiver appointed. A New York Custody Lawyer said that although the parties represented to the court that the only relief left in the cross-motion pertained to disqualification of the F law firm, other requested relief has not been formally withdrawn. Thus, still outstanding is A’s request for the appointment of a successor trustee, a guardian ad litem hearing and to strike reply papers on the motions to dismiss.

Because all of the motions and cross-motion are substantially interrelated and rely on similar facts and arguments made sometimes in overlapping papers, they are consolidated for consideration and determination in this single decision. At the outset the court rejects arguments that the court should refuse to consider any of the relief requested in A’s cross-motion because it was made at a time when a stay of the proceedings was in effect. Regardless of whether the temporary restraining order contained in the August 27, 2007 Order to Show Cause precluded the cross-motion at the time it was originally interposed, that TRO had long expired by the time the cross-motion was actually submitted to the court. In the interim, and certainly by the time of submission, all parties had been given an opportunity to oppose the relief requested in the cross-motion on the merits. Thus the relief requested by A will be considered on the merits.

A Westchester County Family Lawyer said the F law firm originally moved to be relieved as counsel of record for defendants, seven (7) corporations, collectively referred to herein as “business defendants” or “business entities”. The court denied the motion to be relieved in its decision made in open court and on the record on 25 October 2007.

The F law firm never moved to be relieved, and always intended to remain, as counsel of record for C in her capacity as trustee of the B Family Trust. As a consequence of the court’s 25 October 2007 decision, the F law firm currently remains counsel of record for the business defendants and C, but only in her capacity as trustee of the B Family Trust. Although C, in her individual capacity, was represented by the F law firm earlier in this action, she is presently represented by the law firm of H.
As held in the case of Petrossian v Grossman, the burden of proving entitlement to disqualifying opposing counsel rests on the movant. DR 5-105.A. provides that “a lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would likely to involve the lawyer in representing different interests, except to the extent permitted in DR 5-105 [1200.24](C).”

DR-5105.C. also provides, in pertinent part that: “a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved.”

The court rejects the F law firm’s claim that there are no aspects of dual representation in this case. Although they do not and have not for some time represented C individually, the firm still represents C in her capacity as trustee.

Dual representation, however, does not per se require disqualification. Dual representation of management and business entities in the context of derivative actions presents its own unique set of considerations. Where, as here, the business entities are closely held, so that management and the business entities they control are virtually indistinguishable, still other considerations should guide the court’s analysis.

In the case at bar, the court finds that there is no basis for disqualification of the F law firm on the basis of dual representation.

Further, the court also holds that there is no basis to replace C as trustee of the B trust. Not only are the allegations regarding her past conduct as yet unproven, A has not shown any likelihood of success on these claims at this time. There is also no claim of ongoing and imminent misuse of assets, requiring the appointment of a third party to preserve assets.

Finally, plaintiff A himself is presently a co-trustee of the B Family Trust and, thus, he can oversee and protect his ward’s interest without the need for that appointment of others.

The landmark case of Guggenheimer v Ginzberg sets forth the guideline that whether plaintiff has stated a cause of action, thereby defeating defendants’ motions, the court will consider whether the plaintiff has a cause of action rather than whether he has properly stated one. The facts in the pleading will be accepted as true and afforded the benefit of every possible favorable inference, unless clearly contradicted by evidence submitted by the moving parties in connection with their. Although defendants have not expressly cited CPLR 3211 (a) (1) as the basis for their motion, they are relying on certain documents as being dispositive plaintiff’s claims as well. Where a motion is premised upon the existence of documentary evidence, such evidence must definitively dispose of plaintiff’s claims.

In the instant case, there has not been any judicial settlement of account. C has repudiated her fiduciary obligations. She continues to have the same management responsibilities over the business entities that she previously had. C has not resigned any positions. These are the management responsibilities that give rise to the fiduciary relationship that forms the underpinning for A’s causes of action for an accounting. Nor have these business entities been dissolved. A cause of action for accountings, therefore, is not barred by the applicable statutes of limitation.

Any claim for monetary relief relative to the sale of 645-647 Broadway is barred by the applicable statute of limitations. The claim for an accounting, however, survives.

The court rejects A’s claim that B is entitled to the tolling of the statute of limitations because of her drug addiction. Such a claim and the facts to support it are not alleged in the third amended complaint. They are only raised in a memorandum of law submitted on this motion. The fact that she had, or may still have, a drug addiction problem, standing alone, may or may not support a tolling. The same is true with the appointment of an article 81 Financial Guardian. Here, B has not alleged that the mental disability existed at the time the cause of action accrued and/or when or if it has indeed ceased.

It is conceded that no demands were made. The only issue left for the court’s consideration is whether such a demand would have been futile. The court holds that it would have been. Although C claims that she would have gladly provided all the documentation A would or could have wanted, the underlying consideration on an accounting is to critically evaluate the documentation for the purpose of ferreting out wrong doing, if any, by those in management. Given the identity of interest between C and these closely held business entities, any demand that C ferret out her own wrongdoing would have been futile. Thus, the court holds that in this context no demand was necessary before any derivative action was commenced against the business defendants.

In order to prevail on an equitable claim plaintiff must show that he has no adequate remedy at law. C argues that failure to plead this element of plaintiff’s equitable claims warrants dismissal. It is also well recognized that alternative pleadings that include both legal and equitable relief withstand ore-answer dismissal. The fact that the pleading does not include the actual language that plaintiff has no legal remedy is not fatal to the equitable claims at this point in the litigation. Certainly as part of his case plaintiff is required to prove this element in order to obtain any actual equitable relief. The court cannot, however, conclude at the pleading stage that an adequate legal remedy otherwise exists warranting dismissal of the complaint.

Accordingly, the motion of C and the business defendants to dismiss the complaint is granted only to the extent that claims for money damages concerning the sale of 645-647 Broadway are dismissed, otherwise, it is denied; the cross motion of plaintiff is denied to the extent that it seeks to disqualify the F law firm; the cross motion of plaintiff is denied to the extent that is seeks to have the court appoint a successor trustee in place of C of the B Family trust; the cross motion of plaintiff is denied to the extent that it seeks to strike the reply papers of D on motion sequence; the cross motion of plaintiff is denied to the extent that it seeks to strike the reply papers of C on motion sequence; the cross-motion of plaintiff is granted to the extent that the court directs that there be a hearing on whether to appoint a Guardian Ad Litem for G; A is directed to serve a copy of the decision and order upon Mr. I and file proof of such service on or before the hearing date; D’s motion to dismiss is granted only to the extent that any claims made with respect to her as the trustee of the J Trust in connection with the HAT trust, including the third cause of action, are dismissed and stricken from the third amended complaint; D’s motion to dismiss is denied; K’s motion to dismiss is denied only insofar as the third amended complaint set forth a cause of action against him with respect to the sale of the real estate located at 32 West 22nd Street, New York, New York; the defendants who have not yet answered the complaint are directed to do so within 10 days of the date of the decision and the replies, if necessary, must be served not later than 20 days after receipt of the answer; a preliminary conference to set up a comprehensive discovery schedule is ordered; and, any requested relief not expressly granted is denied and any arguments not expressly addressed are rejected.

New York Family Attorneys, particularly, New York Family Trust Attorneys and Stephen Bilkis & Associates like representing cases like this. They protect the family and help strengthen the bond that ties them together. Call us at our toll free numbers or visit us at our firm to tighten those heartstrings. If you or anyone you know is in the same situation as the case mentioned above, it is best to act on it right away and ask an expert in that field for advice on how to remedy it.

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