Collins v. Felder ( 2019 )

18‐2904‐cv
Collins v. Felder
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ).
A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 12th day of September, two thousand nineteen.
PRESENT: RICHARD C. WESLEY,
DENNY CHIN,
RICHARD J. SULLIVAN,
Circuit Judges.
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PETER COLLINS,
Plaintiff‐Appellant,
v. 18‐2904‐cv
RAOUL FELDER, RAOUL FELDER &
PARTNERS, P.C., DANIEL P. NOTTES,
HOWARD BENJAMIN, NICHOLAS R.
PERRELLA,
Defendants‐Appellees,
MR. FUAT SARAYLI,
Defendant.
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FOR PLAINTIFF‐APPELLANT: KENNETH A. VOTRE, Votre &
Associates, P.C., Ridgefield,
Connecticut.
FOR DEFENDANTS‐APPELLEES: DANIEL J. HURTEAU, Nixon Peabody
LLP, New York, New York, for
Defendants‐Appellees Raoul Felder, Raoul
Felder & Associates, P.C., and Daniel P.
Nottes.
NICHOLAS R. PERRELLA, pro se, West
New York, New Jersey.
MARK K. ANESH (Jake W. Bedor, on the
brief), Lewis Brisbois Bisgaard & Smith
LLP, New York, New York, for
Defendant‐Appellant Howard Benjamin.
Appeal from a judgment of the United States District Court for the
Southern District of New York (Stanton, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Plaintiff‐appellant Peter Collins appeals from the district courtʹs July 13,
2018 judgment dismissing his complaint, which alleges that defendants‐appellees
committed legal malpractice in their representation of him in an arbitration. By
opinion and order dated July 12, 2018, the district court granted defendants‐appelleesʹ
motion to dismiss the complaint for failure to state a claim, principally because Collins
failed to allege that defendants‐appelleesʹ purportedly negligent representation was the
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actual and proximate cause of his damages. We assume the partiesʹ familiarity with
the underlying facts, the procedural history of the case, and the issues on appeal.
A. The Underlying Litigation and Arbitration
Collins and three other individuals were shareholders in 400 West 14th,
Inc. (the ʺCorporationʺ), which owned and operated a bar and pizzeria in New York
Cityʹs Meatpacking District called ʺThe Gaslight.ʺ In March 2013, Collins and another
shareholder retained defendant‐appellee Nicholas R. Perrella to sue the other two
shareholders of the Corporation (the ʺshareholder‐defendantsʺ), individually and
derivatively in New York State Supreme Court, for misfeasance, conversion,
embezzlement, and mismanagement. Approximately one month later, on or about
April 9, 2013, defendants‐appellees Raoul Felder and Daniel B. Nottes of Raoul Felder &
Partners, P.C. (collectively, ʺFelderʺ) were substituted for Perrella as attorneys of record.
Around the time the initial complaint was filed in March 2013, the
shareholder‐defendants, on behalf of the Corporation, requested entry into the Internal
Revenue Serviceʹs Domestic Voluntary Disclosure Program, and after gaining entry,
prepared amended corporate tax returns for tax years 2006 through 2012. The
shareholder‐defendants also filed amended personal returns for those tax years.
On May 13, 2013, the New York Supreme Court ordered that the case be
heard before the American Arbitration Association (the ʺpanelʺ). On or around
November 13, 2013, Felder ceased its representation of Collins. On November 14, 2013,
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Collins retained defendant‐appellee Howard Benjamin to represent him in the
arbitration.
The arbitration began in March 2014 and concluded several months later
in July. On December 10, 2014, the panel issued a partial final award. The panel
denied all of Collinsʹs claims against the shareholder‐defendants and concluded that all
four shareholders, including Collins, knew of and were involved in a tax evasion
scheme to conceal the Corporationʹs cash receipts ʺto increase net profits and to reduce
the tax liability for both the corporation and its shareholders.ʺ App. at 280. Because
all four shareholders ʺknew of, and were complicit in, this pattern of concealment [of
cash receipts],ʺ the panel concluded that ʺthere was no breach of fiduciary duty or acts
of ʹbad faithʹ with respect to each other [‐‐] only to the best interests of the Corporation
by all of the shareholders and directors.ʺ Id. at 285 (emphasis in original).
In addition to rejecting Collinsʹs claims, the panel specifically directed
Collins to pay to the Corporation $17,000 drawn from the Corporationʹs account, and to
account for an additional ʺʹmissingʹ or misused $40,000 in greater detail.ʺ App. at 284.
The panel issued its final award on March 16, 2015, which incorporated the partial final
award without change. On June 26, 2016, the New York State Supreme Court affirmed
the award, and on August 10, 2016, it entered final judgment.
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B. The Malpractice Claim
On November 10, 2016, Collins filed an initial complaint in the district
court below. Defendants‐appellees moved to dismiss, and on December 21, 2017, the
district court granted the motion without prejudice because Collins failed to allege that
he would have prevailed in the arbitration had the attorneys not been negligent in their
representation of him. The district court granted Collins leave to amend the complaint.
On February 5, 2018, Collins filed an amended complaint (the
ʺComplaintʺ). Defendants‐appellees renewed their motions to dismiss. On July 12,
2018, the district court granted the renewed motions, dismissing the Complaint with
prejudice for substantially the reasons given in the previous decision. The court
concluded that ʺ[t]he arbitration panelʹs conclusions rested primarily on its finding that
[Collins] participated in the fraudulent schemeʺ and that Collins failed to plead
proximate causation because it was ʺbaseless speculation to assert that [the panel]
would have changed its awardʺ had the alleged negligence of the attorneys not
occurred. App. at 274‐75.
DISCUSSION
ʺWe review the grant of a motion to dismiss de novo, accepting as true all
factual claims in the complaint and drawing all reasonable inferences in the plaintiffʹs
favor.ʺ Singh v. Cigna Corp., 918 F.3d 57, 62 (2d Cir. 2019) (quoting Fink v. Time Warner
Cable, 714 F.3d 739, 741 (2d Cir. 2013)). To survive a motion to dismiss, the complaint
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must contain sufficient factual matter, accepted as true, ʺto state a claim to relief that is
plausible on its face.ʺ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation
marks omitted). ʺA claim has facial plausibility when the pleaded factual content
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.ʺ Id.
To prevail on a legal malpractice claim in New York, a plaintiff must
demonstrate that ʺthat the attorney was negligent, that the negligence was a proximate
cause of the injury and that [the plaintiff] suffered actual and ascertainable damages.ʺ
Rubens v. Mason, 527 F.3d 252, 254‐55 (2d Cir. 2009); see also Ocean Ships, Inc. v. Stiles, 315
F.3d 111, 117 (2d Cir. 2002). To adequately plead causation, the plaintiff must plead
facts sufficient for ʺa reasonable fact‐finder [to] conclude that a reasonable fact‐finder in
the underlying suit would have arrived at a different result but for the attorneyʹs
negligence.ʺ Rubens, 527 F.3d at 255 (emphasis added) (internal quotation marks
omitted).
Collins principally alleges that defendants‐appellees (1) improperly
advised Collins to withdraw a state court action against the Corporationʹs accountants;
(2) failed to properly engage in the selection of arbitrators; (3) failed to properly prepare
Collins for his testimony and for cross‐examination at arbitration; (4) failed to properly
conduct discovery and prepare exhibits for arbitration; (5) prepared an inaccurate and
improperly filed statement of the claim with the arbitrators; and (6) failed to effectively
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challenge the accuracy of the amended tax returns submitted by the shareholder‐
defendants.
The district court correctly concluded that Collins failed to allege that he
would have prevailed on his claims before the arbitration panel but for his attorneysʹ
allegedly negligent performance. Though the Complaint states in conclusory fashion
that but for the purported negligence Collins would have prevailed in the arbitration, it
is devoid of any allegations as to how proper performance would have led to a different
result. Collins argues that the shareholder‐defendantsʹ amended tax returns were
inaccurate, were not adequately challenged by defendants‐appellees at the arbitration,
and were crucial to the panelʹs ultimate conclusion. But even if the arbitration panel
had rejected outright shareholder‐defendantsʹ purportedly faulty amended tax returns,
the Complaint contains no allegations that plausibly suggest the panel would have
changed its award.
Indeed, contrary to Collinsʹs assertion in his brief, the panel did not rest its
conclusions on the amended tax returns. The panelʹs decision, which is incorporated
by reference into the Complaint,1 rested primarily on the fact that all four shareholders,
including Collins, ʺknew [that] cash receipts generated by the [Corporation were used]
to pay bills, pay employees and pay the four (4) shareholders ʹoff the booksʹ to increase
1 See, e.g., Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (ʺDocuments that are attached
to the complaint or incorporated by reference are deemed part of the pleading and may be
considered.ʺ).
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net profits and to reduce the tax liability for both the Corporation and its shareholders.ʺ
App. at 280 (emphasis in original). Because all four shareholders ʺknew of, and were
complicit in, this pattern of concealment [of cash receipts], there was no breach of
fiduciary duty or acts of ʹbad faithʹ with respect to each other [‐‐] only to the best
interests of the Corporation by all of the shareholders and directors.ʺ Id. at 285
(emphasis in original).
This conclusion was based not on the accuracy of the amended tax returns
but, in large part, on Collinsʹs own admissions to the panel. See id. at 280 (noting that
Collins ʺadmittedʺ to distributing cash to employees and himself and ʺafter first
denying their existence, admitted that [he] received copies of two (2) sets of books
reflecting cash payments to all the shareholdersʺ); id. at 281 (noting that Collinsʹs ʺpost‐
hearing brief conceded that it was common practice in the industry to pay employees in
cash and that cash envelopes were part of [the Corporationʹs] cultureʺ). The panelʹs
conclusion, based on Collinsʹs own admissions, that Collins was engaged in a tax
avoidance scheme common to all the shareholders was fatal to his claim that the
shareholder‐defendants were stealing cash from the Corporation or otherwise
deliberately concealing the Corporationʹs books and records from him. The Complaint
fails to explain how this conclusion would have been different had his attorneys not
performed deficiently as alleged. See Rubens, 527 F.3d at 255. Accordingly, the district
court properly granted defendants‐appelleesʹ motions to dismiss the Complaint.
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* * *
We have considered all of Collinsʹs remaining arguments and conclude
they are without merit. For the foregoing reasons, the judgment of the district court is
AFFIRMED.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk of Court
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