HUGH SCOTT, Magistrate Judge
Before the Court are motions by the third-party defendants to dismiss the third-party complaint (Docket No. 87 and 100).
Background
The Original Complaint
In the original complaint, plaintiffs, James J. Graham ("Graham") and Mark S. Shimrak ("Shimrak"), allege that each were once clients of the law firms named as defendants in this matter. In separate lawsuits, the Collins-DiNardo firm prosecuted personal injury claims on behalf of both Graham and Shimrak. Graham's case settled for $1,000,000 in 1989. Shimrak's case settled for $500,000 in 1990. The plaintiffs allege that while their respective personal injury cases were pending, each of the plaintiffs received "financial assistance" from the law firm which was to be repaid, with interest, upon the receipt of the settlement proceeds. (Third Amended Complaint at ¶ 16). This appears to be in addition to the contingent fee taken by the law firm from the settlement funds.
The plaintiffs have named Collins, Collins DiNardo PC and Collins, Collins DiNardo Dolce, PC as the law firm that represented them in their personal injury cases. One firm is the successor of the other. They are referred to collectively herein as the "Collins-DiNardo firm."
In May of 1990, after their respective cases were settled, Graham and Shimrak allege that they were approached by Emil DiNardo and Joseph Collins to discuss the start of a "fund" to help other injured plaintiffs with their monthly bills while their cases were being resolved. The plaintiffs assert that they understood that the law firm would arrange for and make loans to its clients using the plaintiffs' funds. The plaintiffs believed that the borrowers would be charged 21% interest. The plaintiffs were to receive 16% interest on their "investment" and the Collins-DiNardo firm would presumably retain the remainder. The plaintiffs allege that they were advised that the Collins-DiNardo firm "guaranteed" their principal investment in full. (Third Amended Complaint at ¶¶ 17-21).
Eventually, the plaintiffs were told that their money would be lent to a company called Rutledge Equity Services, Inc. ("Rutledge") which had allegedly been chosen by William B. Collins, Joseph Collins and John Collins. The plaintiffs allege that they met with William B. Collins, along with Joseph Collins and John Collins on June 25, 1990 at which time each of these defendants represented that the plaintiffs "investment" was fully backed by the Collins-DiNardo firm and that the partners "were personally guaranteeing that plaintiffs would not lose any principal and/or interest." (Third Amended Complaint at ¶¶ 25-30). Based upon these assurances, on or about July 23, 1990 Graham sent a check to the Collins-DiNardo firm in the amount of $250,000 payable to Rutledge. Shimrak sent a check to the Collins-DiNardo firm in the amount of $200,000 payable to Rutledge that same date. On July 31, 1990 Rutledge executed a promissory note in the amount of $250,000 payable to Graham and a promissory note in the amount of $200,000 payable to Shimrak. Both notes provided for an interest rate of 13%. Because the plaintiffs had been promised a 16% return, the additional 3% interest was to be paid by the Collins-DiNardo firm.
Consistent with the above described arrangement, beginning August 1, 1990, Graham and Shimrak received two sets of periodic checks: one from Rutledge representing 13% interest and another from the Collins-DiNardo firm equaling 3% interest on the alleged investment. The plaintiffs allege that they received these payments until December of 1995. In January of 1996, the plaintiffs were told by defendant Kenneth S. Polowitz, Rutledge's President, that William Collins instructed him to stop making payments to Graham and Shimrak. The plaintiffs were also told that payments from the Collins-DiNardo firm would also cease. (Third Amended Complaint at ¶¶ 36-40).
Subsequently, the plaintiffs demanded payment on the promissory notes. No payment has been made by Rutledge. During this same time frame, the Collins-DiNardo firm dissolved. In February of 1999, the plaintiffs reached a settlement with Emil DiNardo, Joseph DiNardo, Frank J. Dolce, Joseph DiNardo, P.C., DiNardo, DiNardo Lukasik P.C., The DiNardo Law Firm, P.C., DiNardo Lukasik, P.C. and DiNardo Associates, P.C. (referred to herein as "the DiNardo Group"). The DiNardo Group paid Graham $189,605.72 ($158,605.72 to be attributed to the amount owed to Graham by Rutledge and the remaining $31,000 representing the DiNardo share of payments purportedly owed by the Collins-DiNardo firm). The DiNardo Group similarly paid Shimrak $108,605.38. While the fact of these settlements is not binding on the Collins Group, they do provide considerable evidence regarding the existence of the transactions set forth in the Third Amended Complaint. Graham alleges that he is owed $213,010.57 plus interest from the named defendants ("the Collins Group"). Shimrak asserts that he is owed $108,605.38 by the Collins Group.
Thus, the original complaint in this action asserts claims against the members of the Collins Group including breach of contract, breach of guaranty, securities fraud, breach of fiduciary duty, and common law fraud.
The Third-Party Complaint
On August 15, 2003, the Collins Group filed a third-party complaint alleging various claims against the DiNardo Group (Docket No. 78). The thrust of the third-party complaint is that the DiNardo Group breached its fiduciary duty to the Collins Group, as former partners in the Collins-DiNardo Firm, by making payments to Graham and Shimrak as a partial settlement of the plaintiff's claims. The Collins Group asserts three causes of action: (1) that by executing releases to Graham and Shimrak which did not include the Collins Group members, the DiNardo Group intentionally and purposefully breached their fiduciary duty and exposed the Collins-DiNardo firm (and its former shareholders) to legal action (Docket No. 78, ¶¶ 47-55); (2) that the DiNardo Group negligently and recklessly exposed the Collins-DiNardo firm (and its former shareholders) to legal action (Docket No. 78, ¶¶ 56-62); and (3) that the DiNardo Group intentionally entered into the release with the plaintiffs at the exclusion of the Collins Group for the purpose of causing financial harm to the Collins Group and exposing them to legal action (Docket No. 78, ¶¶ 63-68). Based upon the alleged breach of fiduciary duty, the Collins Group seeks indemnification and/or contribution from the DiNardo Group of any amount found owing from the Collins Group to plaintiffs Graham and Shimrak.
Related State Court Action
On February 2, 2001, William B. Collins filed a complaint in New York State Supreme Court against the members of the DiNardo Group, Graham, Shimrak, Kenneth S. Polowitz, Paul Muccigrosso, PSK Resources Corp ("PSK"), Plaintiff Support Services, Inc. ("PSS"), and Rutledge Equity, Inc. ("Rutledge")[referred to collectively as the "state court defendants"]. (Docket No. 97, Exhibit A). According to this state court complaint, after the break-up of the Collins-DiNardo law firm, two separate law firms were created. Each of these law firms allegedly had clients who were provided loans or venture capital by Rutledge, PSK or PSS. According to Collins, these clients had an obligation "to return said monies to the Defendants when their litigation concluded." (Docket No. 97, Exhibit A at ¶ 26). In his complaint, Collins claims that the state court defendants conspired to defraud Collins of legal fees and other monies received from these clients. (Docket No. 97, Exhibit A, ¶¶ 35-41). Collins asserts that the defendants' actions were done with the malicious intent to deprive him of monies to which he was entitled (Docket No. 97, Exhibit A, ¶¶ 42-43). He also alleges that Polowitz, Muccigrosso, Rutledge, PSK and PSS wrongfully converted and misappropriated monies paid to them by Collins with the result that Collins has incurred legal fees because he "has been subjected to wrongful and baseless claims by investors," including Graham and Shimrak. (Docket No. 97, Exhibit A, ¶¶ 44-46). Collins asserts that Emil DiNardo, Joseph DiNardo and Frank Dolce all owed and breached a fiduciary duty to Collins by failing to pay him monies retained from recoveries relating to former clients of the Collins-DiNardo firm. (Docket No. 97, Exhibit A, ¶¶ 47-51). The state court complaint asserts that Emil DiNardo, Joseph DiNardo and Frank Dolce intentionally withheld the monies to cause Collins harm and to subject him to baseless claims by Graham, Shimrak and other investors or creditors of the Collins-DiNardo firm. (Docket No. 97, Exhibit A, ¶¶ 52-54). Collins also asserts that during the 1990s, he paid approximately $170,000 to Polowitz, PSK and PSS which should have been paid to investors, including Graham and Shimrak, but was misappropriated. (Docket No. 97, Exhibit A, ¶¶ 55-60). Finally, Collins claims that Polowitz, PSK and PSS assumed any liability to pay investors. (Docket No. 97, Exhibit A, ¶¶ 61-62).
The Court notes that page 12 of the state court complaint, which apparently contains ¶¶ 63 through 67, is missing from each copy of the pleading in the record before the Court.
DiscussionThe third-party defendants have moved to dismiss the third-party complaint on the grounds that it does not state a cause of action for impleader under Rule 14(a) of the Federal Rules of Civil Procedure. In addition, the defendants assert that the third-party complaint was improperly filed without leave of Court and that the Court should decline to exercise jurisdiction over the third-party complaint because of a prior action pending in the New York State court.
Rule 14 Impleader
Rule 14(a) of the Federal Rules of Civil Procedure allows a defending party to implead a party "who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff." Fed.R.Civ.P. 14(a). A defending party may file a third-party complaint without leave of court within 10 days after serving the answer. Thereafter, however, the third-party plaintiff must obtain leave of court to implead another party. Id.
In order to a assert a third-party claim under Rule 14(a), the third party's liability must be in some way dependent on the outcome of the main claim or the third party must be potentially secondarily liable as a contributor to the defendant. Kenneth Leventhal Co. v. Joyner Wholesale Co., 736 F.2d 29, 31 (2d Cir. 1984) (per curiam). Because Rule 14 requires that the third-party defendant's liability "be derivative of or secondary to that of the defendant in the main action," impleader may be utilized only when the third party complaint necessarily depends upon the merits of the plaintiff's main claim against the defendant. EZ-TIXZ, Inc. v. Hit-Tix, Inc., 1995 WL 77589, at *2 (S.D.N.Y. 1995); Telecom Int'l America, Ltd. v. AT T Corp., 1999 WL 777954, at *4 (S.D.N.Y. 1999). See also Schwabach v. Memorial Sloan-Kettering Cancer Center, 2000 WL 122203, *2 (S.D.N.Y. 2000) (collecting cases.) Thus, where the rights and obligations between the proposed third-party defendant and the defendant in the underlying action exist independently of the rights and obligations between the parties in the original action, impleader is not proper. Telecom Int'l America, Ltd., 1999 WL 777954, at *5; National Union Fire Ins. Co. v. Deloach, 708 F.Supp. 1371, 1387-88 (S.D.N.Y. 1989). An "entirely separate and independent claim cannot be maintained against a third party under Rule 14, even though it arises out of the same general set of facts as the main claim." EZ-TIXZ, Inc., 1995 WL 77589, at *4 (internal quotation omitted); Resources Funding Corp. v. Congrecare, Inc., 1994 WL 24825, at *10 (S.D.N.Y. 1994) ("A third-party claim is not permissible simply because it arises out of the same nucleus of facts as the main claim.").
The third-party defendants contend that because the third-party claims arise out of a fiduciary relationship, that they are "wholly separate from the main claim." This argument is not persuasive. It is evident from the third-party complaint that the claims asserted therein are related to, and dependant upon, the success of the main plaintiffs claims against the Collins Group. As discussed above, the thrust of each of the third-party claims is that the DiNardo Group acted in such a way as to improperly exposed the Collins Group defendants to liability to Graham and Shimrak. The third-party complaint expressly frames its damage request upon the success of the main plaintiffs' claims. For example, the third-party complaint states:
¶ 54. If plaintiff recovers judgment against any or all of the defendants/third-party plaintiffs, their liability will have been brought about or caused by reason of the intentional and purposeful breach of fiduciary duty on the part of third-party defendants, and without any wrongdoing on the part of defendants/third-party plaintiffs contributing thereto.
¶ 55. Should the plaintiff recover against any or all of the defendants/third-party plaintiffs, the third-party defendants shall be liable over to defendants/third-party plaintiffs for any part of such judgment on the basis of the intentional breach of their fiduciary duty.
(Docket No. 78, ¶¶ 54-55) See also similar language in ¶¶ 61-62, 67-68).
It is evident that the third-party plaintiffs' claims for indemnification in this case are based upon an alleged fiduciary relationship. The third-party defendants have not distinguished this from cases in which Rule 14 impleader is allowed where the indemnification claim is based upon a contractual relationship between the third-party plaintiffs and third-party defendants.
Because the third-party claims are related to, and dependant upon, the plaintiffs' claims in the main action, the motion to dismiss the third-party complaint as impermissible under Rule 14 should be denied.
Leave to File the Third-Party Complaint
The defendants' also seek to dismiss the third-party complaint based on the argument that it was filed without leave of Court. The Court notes that a status/scheduling conference was held in this case on July 14, 2003. At that time, there was discussion to the effect that the defendants desired to bring a third-part action against the DiNardo Group. In a Scheduling Order dated July 24, 2003, the Court directed that any motion to amend or to join parties be made by August 14, 2003. The third-party complaint in this action was filed on August 15, 2003. At no time have the third-party defendants articulated any basis upon which to refuse the third-party plaintiffs leave to file the third-party complaint. Inasmuch as the Court's leave to file the third-party complaint was not previously reduced to writing, the Court hereby grants such leave nunc pro tunc.
The motion to dismiss the third-party complaint on this ground should be denied.
Effect of State Court Action
The third-party defendants also seek dismissal of the third-party complaint based upon the existence of the state court action commenced by William Collins. Neither third-party defendant has presented the Court with any legal authority in support of this claim. (see Docket Nos. 87, 98, 100, 101). Although some of the claims in this case are arguably subsumed by the broadly worded claims in the state court action, the third-party defendants have not established any basis to decline jurisdiction of the third-party claims. The Court notes that there is no complete symmetry between the parties of this action and the state court proceeding.
In any event, generally speaking, the abstention doctrine comprises a few "extraordinary and narrow exception[s]" to a federal court's duty to exercise its jurisdiction. Although duplicative litigation is ordinarily to be avoided, the rule is that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction. Woodford v. Community Action Agency of Greene County, Inc. 239 F.3d 517, 522 (2d Cir. 2001).
Based upon the record before the Court, the motion to dismiss the third-party complaint due to the pendency of the state court action should be denied.
Conclusion
Based on the above, it is recommended that the motions to dismiss the third-party complaint (Docket No. 87 and 100) be denied.
Pursuant to 28 USC § 636(b)(1), it is hereby ordered that this Report Recommendation be filed with the Clerk of the Court and that the Clerk shall send a copy of the Report Recommendation to all parties.
ANY OBJECTIONS to this Report Recommendation must be filed with the Clerk of this Court within ten(10) days after receipt of a copy of this Report Recommendation in accordance with 28 USC § 636(b)(1), Fed.R.Civ.P. 72(b) and WDNY Local Rule 72(a)(3). FAILURE TO FILE OBJECTIONS TO THIS REPORT RECOMMENDATION WITHIN THE SPECIFIED TIME, OR TO REQUEST AN EXTENSION OF TIME TO FILE OBJECTIONS, WAIVES THE RIGHT TO APPEAL ANY SUBSEQUENT ORDER BY THE DISTRICT COURT ADOPTING THE RECOMMENDATIONS CONTAINED HEREIN. Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed2d 435 (1985); F.D.I.C. v. Hillcrest Associates, 66 F.3d 566 (2d. Cir. 1995); Wesolak v. Canadair Ltd., 838 F.2d 55 (2d Cir. 1988).
Please also note that the District Court, on de novo review, will ordinarily refuse to consider arguments, case law and/or evidentiary material which could have been, but was not, presented to the Magistrate Judge in the first instance. SeePatterson-Leitch Co. Inc. v. Massachusetts Municipal Wholesale Electric Co., 840 F.2d 985 (1st Cir. 1988).
Finally, the parties are reminded that, pursuant to WDNY Local Rule 72.3(a)(3), "written objections shall specifically identify the portions of the proposed findings and recommendations to which objection is made and the basis for such objection and shall be supported by legal authority." Failure to comply with the provisions of Rule 72.3(a)(3)may result in the District Court's refusal to consider the objection.
So ordered.
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