The Jefferson Apartments, Inc. v. Steven J. Mauceri et al., Index No. 7396/2015, 7/25/16 (Martin E. Ritholtz, J.)

Motion to dismiss; Failure to state a claim; Continuous Representation Doctrine; Statute of Limitations; Fraud; CPLR 3211(a)(1); Aiding and Abetting the Commission of a Tort

By: Meg Lombardo | Staff Writer

Jefferson Apartments (“Plaintiff”) entered into an agreement with Tribor Management (“Tribor”), which provided that Tribor serve as an agent for Plaintiff’s residential cooperative corporation in Flushing, Queens. Plaintiff hired accountant Steven Mauceri (Defendant”) to audit Plaintiff’s balance sheets, issue independent financial statements, prepare annual tax returns, and provide consultation on financial matters. Later, Plaintiff discovered that the signatory for its bank account made seven unauthorized transfers from its account to Tribor and other affiliated companies. As a result, Defendant did not issue accurate financial statements for June 30, 2010 through June 30, 2013 because they failed to specify the unauthorized transactions made by Tribor.

Plaintiff subsequently brought suit and asserted five separate causes of action against Defendant, all based on the alleged mismanagement and unauthorized withdrawal of Plaintiff’s funds. The relevant claims before the Court here were: aiding and abetting the commission of a tort; negligent misrepresentation; fraud. In opposition, Defendant moved to dismiss these claims under CPLR 3211(a) (1), (5), and (7), on the ground that the cause of action was barred by the statute of limitations under CPLR 214(6) because Plaintiff’s claim was not commenced within three years of the date of occurrence.  In response, Plaintiff contended that Defendant “recertified” the financial statements for the 2011 period in 2012, thereby making the statute of limitations within the statutory period.

The Court denied the motion in part by ruling that the statute of limitations did not bar Plaintiff from bring a cause of action and granted it in part on the basis of duplicative claims. First, the Court held that the continuous representation doctrine tolled the statute of limitations. To resolve whether the statute of limitations for professional malpractice has expired, a Court will look to the “continuous representation” doctrine, which tolls the running of the statute of limitations on a claim only so long as the defendant continues to advise the client in connection with the particular transaction that is the subject of action and not merely during the continuation of a general professional relationship. In this case, the Court held that Defendant’s issue of the September 2012 financial statement was classified as a “recertification” of the 2011 financials, thereby constituting an undertaking to perform further work on the specific subject matter underlying the malpractice claim, namely, the 2011 audit. Thus, the Court ruled that the statute of limitations did not expire.

Second, the Court denied Defendant’s 3211(a)(1) motion. To obtain a dismissal based upon documentary evidence, a party must establish that the documentary evidence which forms the basis of the defense be such that it resolves all factual issues as a matter of law and conclusively disposes of the P’s claim. Here, Plaintiff’s foregoing papers alone could not resolve all factual issues as a matter of law. Thus, the Court denied Defendant’s motion as to this point.

Third, the Court denied Defendant’s motion to dismiss Plaintiff’s claim for aiding and abetting the commission of a tort. To withstand a motion to dismiss on a claim of aiding and abetting, a plaintiff must allege that the defendant had actual knowledge of the fraud and provided substantial assistance in its commission. Here, Plaintiff pleaded sufficient facts that Defendant committed several torts against Plaintiff, relying on the unauthorized account transfers and Plaintiff’s ability to allege these facts with particularity. such claim.

Finally, the Court denied the motion to dismiss the cause of action for fraud. To succeed on a claim for fraud, there must be a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages. Here Plaintiff alleged sufficient claims in the complaint to establish that Defendant either knowingly failed to confirm the transfer with the financial institution or intentionally failed to conduct a thorough audit. Therefore, the Court denied the motion for the fraud clam.

The Jefferson Apartments, Inc. v. Steven J. Mauceri et al., Index No. 7396/2015, 7/25/16 (Martin E. Ritholtz, J.).