Stone Cold

Adonis Mort, c. 1620 by Laurent de La Hyre (1606-1656). Photograph of Adonis Mort by Gautier Poupeau, 2011. Shows: Muscular young man, mostly nude, with red shaw draped on body, laying apparently motionless on the ground, with brown dog sitting near his feet.

The business idea was a good one: one partner, we’ll call him “Salesman,” was experienced in the stone business.

He would bring his knowledge and talents. The other partner, we’ll call him “Moneybags,” would bring his cash. Together, they would launch a business to import and distribute stone material from China. The plan was for Moneybags to invest money into the newly-formed corporation to be used to purchase the stone material, and Salesman was going to make profitable deals, moving the product to market through wholesalers.

In anticipation of launching the business, and in order to buy the stone material, Moneybags gave Salesman more than $250,000, a bit at a time. Every time Moneybags invested a chunk of money, Salesman gave him an “IOU” for the money. After a while, and after a series of exchanges which raised his suspicions, Moneybags became convinced that Salesman was diverting the seed money from the stone business and was using it instead for personal purposes. Thinking he had been defrauded, Moneybags began an action to recoup whatever he could of his original investment. The situation was dire and complicated, but it got worse. During this period, Salesman went on a business trip to Africa and died.

Substitution of wife/administrator as defendant

Before learning that Salesman had died, Moneybags had already brought a lawsuit against Salesman, through counsel other than Richard A. Klass, Your Court Street Lawyer, for breach of contract and embezzlement. After Salesman died, Moneybags’ lawsuit was “stayed” or stopped from proceeding. According to law, when a defendant dies, there is a stay of the legal proceeding until someone is appointed to represent the estate of the deceased. CPLR 1015 (“If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.”). Salesman’s widow was appointed as the administrator of his estate. At this point, Moneybags sought help from Richard A. Klass. The first step was to substitute the wife/administrator as the defendant in place of her deceased husband.

Elements of Fraud and Conversion

The next, important, step was to amend the Complaint in the action to include various causes of action, including fraud and conversion against the estate of the defendant. To allege fraud, the Complaint contained the essential elements that (a) Salesman made representations to Moneybags about investing the money into buying stone material; (b) those representations were false and misleading; (c) that Salesman made those representations knowingly and with the intent and purpose of inducing Moneybags to invest the money; (d) that Moneybags justifiably relied on those representations to his detriment; and (e) he sustained damages. The Complaint also alleged that Salesman wrongfully took and converted the investment moneys for his own purposes and in derogation of Moneybags’ rights.

Rights as a Shareholder in the Corporation

Aside from alleging that Salesman was a fraudster who diverted his investment moneys into his own pocket, Moneybags also pursued rights afforded to him as a shareholder in a New York State corporation. New York Business Corporation Law Section 717 states that “A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.” (Similarly, Business Corporation Law Section 715(h) provides “An officer shall perform his duties as an officer in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.”)

Aiding and Abetting Breach of Fiduciary Duty

Unless some “bite” could be put into the Complaint to allege that the wife and son may have some personal liability, Moneybags realized he was nearly certain to lose his entire $250,000 investment. Richard A. Klass amended the Complaint to allege numerous causes of action against not only the estate of Salesman but also his wife/administrator of the estate and son, including fraud, conversion, constructive trust, accounting, breach of fiduciary duties, aiding and abetting breach of duties, and unjust enrichment. Under New York law, a claim for aiding and abetting breach of fiduciary duty consists of the following elements: (1) a breach of fiduciary duty, (2) that the defendant knowingly induced or participated in the breach, and (3) that the plaintiff suffered damages as a result of the breach. See, S&K Sales Co. v. Nike, Inc., 816 F2d 843 [2 Cir. 1987]. In this case, Moneybags alleged that the wife and son should be held liable to him, and not only Salesman’s estate.

The amendment of the Complaint to include numerous allegations against the several defendants pushed them to immediately settle the case for a substantial percentage of Moneybag’s initial investment.

by Richard A. Klass, Esq.

copyr. 2013 Richard A. Klass, Esq.
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Proof of Payment: The Importance of Saving Proof of Payment

In 1994, tax payments were made to the NYC Department of Finance for several parcels of real property by a client. In 2001, unbeknownst to the client, the Department of Finance unilaterally reversed the payments made, added interest, created tax liens, and bundled up the liens for public auction sale. My firm commenced an action against the City of New York in 2002, after learning of the tax lien sales, to declare that the payments made in 1994 had truly been made, and that the Department of Finance acted without authority in reversing the credits. Luckily for the client, he saved the receipts issued by the Department of Finance when he made the payments in 1994 (which receipts are stamped onto the tax bills and actually given to the taxpayer). The case culminated with the City of New York agreeing to reverse all of the unauthorized charges in 2001, reversing the tax lien sales, and clearing the tax delinquencies on the client’s account. A Win!What does this teach? The importance of retaining proof of payment in various situations. Here, proof of payment was crucial in winning the case. Common proofs of payment include a check or credit card statement, showing that the bill was paid. Other forms of proof may be a store receipt, credit card receipt, or paid invoice. If cash is tendered, a signed receipt should be obtained. The general rule of thumb is that most business records should be maintained for safekeeping for seven years. Many advocate saving records for much longer, if feasible given space considerations. The ability to prove payment of a debt or bill comes in handy in various situations, including:
  1. Many parents pay the custodial parent their child support payments by cash; sometimes, the custodial parent has kept poor records, and will allege non-payment. The burden of proving payment will fall upon the person charged with making the support payments.
  2. Distribution companies, such as food wholesalers, will have the drivers pick up payments at the time of making delivery of goods. The driver may not account for the payments, and the store will be forced to show payment of the invoices.
  3. Tenants of smaller rental buildings or two-family houses will pay the landlord (who generally lives at the building) by cash and fail to obtain a rent receipt. Afterwards, the landlord may commence an action for non-payment in the Housing Court, and the tenant will be without proof of payment of the rent.
Since the general burden of proof of payment falls upon the person liable for the same, it is critical that proof be obtained at the first instance and maintained. This will ensure that later mistakes or intentional denials of payment are disproved.
by Richard A. Klass, Esq.
———– copyr. 2010 Richard A. Klass, Esq. The firm’s website: Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to with any questions.
Prior results do not guarantee a similar outcome.

The Sale of New York City Tax Liens at Auction

Almost every parcel of real property within New York City is assessed taxes on an annual basis. When these real estate taxes are not paid, tax liens are created by law which “attach” to the property. The tax lien, similar to other liens, serves as notice to the public that the City has a claim against the property. Traditionally, New York City was enabled by statute to bring “in rem” proceedings to foreclose on the lien and, thus, become the owner of the property.

In 1996, New York City’s Administrative Code was amended to include an article permitting the City to sell at auction these real estate tax liens. This was done partly to shift the administrative burden of collecting the tax liens outside of the City’s system; it was also partly done to get the City immediate money from the sale of the liens from third parties.

The change of process from “in rem” proceedings to the sale of tax liens, affects owners of real property against which tax liens exist in important ways:

  1. Unlike in the past, where the City may have been perceived as almost lethargic in collecting the tax arrears, this new process motivates the purchaser of the tax lien to immediately take action to collect on the lien, including the bringing of a foreclosure action in the Supreme Court in the county in which the property is located.
  2. The statute gives the purchaser of the tax lien a high rate of interest on the tax lien until paid, plus an award of reasonable attorney’s fees and expenses for the prosecution of the foreclosure action.
  3. Once the tax lien is sold, it is removed from the records of the City. Unless the homeowner inspects the tax lien records in the City Register’s office, the tax lien information will not appear on the owner’s tax bill. This may cause confusion, with the assumption that no older tax arrears are due.

Prior to the sale of a tax lien, the City is required to provide notice to the owner of the subject property and to the public. The owner will be sent notice by mail at the registered address for such owner (which, in some cases, may be different than the property’s address). The public will receive notice by virtue of advertisements of the sale published in newspapers.

Once the tax lien is sold, the purchaser will send notification to the owner of the property. Further, the purchaser will afford the owner the opportunity to satisfy the lien prior to the commencement of a foreclosure action. In the event that payment is not made, a foreclosure action will be commenced for the unpaid tax arrears as indicated in the tax lien, along with a request for interest and attorney’s fees. After a Judgment of Foreclosure is entered, the property will be auctioned off to first satisfy the lien and, then, to pay off junior lienors. Any surplus moneys left over will be turned over to the owner of record.

by Richard A. Klass, Esq.
©2003 Richard A. Klass


This article was originally published in the legal newsletter LawCURRENTS.

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About the Author:
Richard A. Klass, Esq. maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached by phone at (718) COURT-ST [(718) 268-7878)] or RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.

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