Court Opinion

ID: 5250015
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:10:33.926368+00
Date Added: 2024-06-11T08:27:55.819700
License: Public Domain

Shearn, J. (dissenting):
The complaint in this case was dismissed on the opening statement of plaintiff’s counsel. The action is one to recover damages for fraud, consisting of the combined acts of the defendants, pursuant to an alleged unlawful agreement and conspiracy, to enable the defendant Rezinas to defraud plaintiff out of his investment of $15,000 for an undivided half interest in the partnership business of plaintiff and said Rezinas, who conducted a hotel and café at Coney Island called the Indiana House. He had a fifteen-year ground lease from the defendant Garms and had erected thereon the hotel and several other buildings at an expense of between $25,000 and $30,000. In 1912 the lease had eleven years to run. *463The lease was a valuable one, for while the rental was $8,500 Eezinas collected from various sub-tenants $8,700 a year rent for premises and privileges other than the hotel. This gave him the Indiana House free of rent.
.On August 2, 1912, plaintiff and Eezinas entered into written articles of copartnership, to continue for the term of twelve years. Eezinas contributed the lease, buildings, fixtures, furnishings and stock in trade, and plaintiff contributed $15,000, $4,000 of which was in cash and the balance paid by the assumption of various liabilities. Shortly after entering upon the partnership, disputes arose between the partners, resulting in threats of violence to the plaintiff made by Eezinas, rendering it dangerous for plaintiff to return to the hotel after November 12, 1912. Thereafter an amicable settlement was agreed upon and Eezinas agreed and was willing to return to plaintiff his cash investment of $4,000, and in addition thereto to pay him $1,800, $800 of which was to be in notes. The settlement would have been consummated but for the intervention of one of the defendants, a lawyer for Eezinas, who persuaded the latter not to pay plaintiff anything, stating that he would “ turn a trick whereby Dalury will not get a cent ” and promising "to “ do Dalury up.” Failing to obtain the return of his investment, plaintiff on March 21, 1913, began suit against Eezinas in the Supreme Court for a dissolution of the partnership and an accounting. Eezinas appeared by the lawyer who had undertaken to provide a way to cheat the plaintiff out of his investment. On April 19, 1913, a receiver was appointed in that action and qualified as such. He is one of the defendants. The receiver retained the lawyer of Eezinas as Ms attorney. Thereupon the lawyer of Eezinas formulated Ms scheme for cheating the .plaintiff out of Ms investment, and the various defendants became parties to the scheme and each took the requisite steps to effectuate the fraud. The scheme was a very simple one. Eezinas was somewhat behind in Ms rent. TMs was usual with Mm and had been permitted by the landlord. It was agreed that Eezinas should refrain from paying the rent, that Garms should dispossess Eezinas and thus break the lease, but under an agreement whereby the lease should be in effect continued by a new lease to dummies of Eezinas, *464and that dummies should buy in for a trifle at a receiver’s sale the fixtures and furnishings and stock in trade, and that then the business should go on as before, with the exception that the plaintiff would be ousted and would have lost all of his interest in the business. After the arranged dispossess proceeding the landlord was to be paid his arrears of rent. The scheme was carried out to the letter and accomplished its purpose. This action resulted, to recover damages for such fraudulent conspiracy.
All of this was set forth in the opening with a wealth of careful recital of all the facts, whereupon the trial justice of his own motion expressed a doubt as to whether there could be a recovery upon such a state of facts, which led to the motion to dismiss on the opening. Two considerations moved the court to take this position. One was that the lease was broken by dispossess proceedings which were regularly brought and which the defendant Garms had a legal right to carry through to judgment. The other was that the receiver had filed an account of his proceedings and of the amount realized on the sale, and that no steps were taken by the plaintiff to surcharge his account. The court was of the opinion that plaintiff could only succeed in this action by a collateral- attack upon the dispossess judgment and the approved account of the receiver, and stated that he would not permit such an attack to be made.
Of course, plaintiff’s claims may be extravagant, impossible of proof and contrary to the truth,-but, assuming as we must that all of the allegations in his complaint and in the opening of his counsel are true, the question is whether the plaintiff can recover damages for being thus ousted from the business and losing his investment, which Rezinas was willing and had agreed to repay and would have repaid but for the fraudulent scheme devised by his lawyer, to which the other defendants became parties.
The defendants chiefly rely upon the rule prevailing in this State, that no action for a conspiracy lies where two or more persons conspire to do a lawful act in a lawful manner and cause damage thereby, even though they have acted with a malicious motive. (Cohen v. Fisher & Co., 135 App. Div. 238; Prospect Park & Coney Island R. R. *465Co. v. Morey, 155 id. 347, 351; Von Au v. Magenheimer, 126 id. 257; affd., 196 N. Y. 510.) They argue that the defendant Ganns was legally entitled to bring dispossess proceedings because the rent was unpaid, , and there being no fraud in the judgment it matters not that the purpose or result was to break the lease, or that the proceedings were brought as a result of an agreement or combination styled a “ conspiracy.” This is quite true, but it does not take into account the gravamen of the cause of action. The wrong complained of is not the .dispossess proceeding. That was merely one of the steps by which the wrong was perpetrated. The wrong was the virtual theft and the conversion of plaintiff’s money by his partner Rezinas, who, unmindful of his fiduciary obligations as a partner, and in violation of his partnership agreement, aided by the combined acts of the defendants who were willing and active parties to a disclosed fraud, ousted plaintiff from the business and misappropriated to his own use plaintiff’s investment. This breach of faith and misappropriation on the part of Rezinas was a tort, and was actionable. (Goldsmith v. Loeb, 182 App. Div. 533.) This was the very thing which the defendants confederated to bring about and which they accomplished. Surely it can be no answer to say that one of the important steps in the course of the conspiracy was an authorized legal proceeding.
If a trustee, holding a mortgage and planning to get the property into his own hands, arranged for a foreclosure and having a dummy buy in the property and thereafter transfer it to him, it would be no answer to a charge of conspiracy to defraud his cestui que trust to say that his title was acquired in a valid legal proceeding. The wrong would not consist in the foreclosure proceeding but in the breach of trust. Here the original wrong consisted in the breach by Rezinas of his fiduciary obligation to his partner and in his agreement with his lawyer to cheat the plaintiff out of his property by causing the dispossess proceeding to be brought under an agreement that, notwithstanding, Rezinas through dummies should continue in possession and have the use of plaintiff’s investment.
The fraud was planned and agreed upon while the partner*466ship still existed and, therefore,- at a time when a fiduciary relation, with its consequent obligation of good faith, still existed. This clearly appears from the fact that the tentative agreement to effect an amicable dissolution, which was broken up by the plan outlined by Rezinas’s lawyer to “ turn a trick ” and “ do Dalury up,” was reached in December, 1912, whereas no legal action was taken to dissolve the partnership until March 21, 1913. In Weinstein v. Welden (160 App. Div. 554; affd., 220 N. Y. 693) an essentially different situation existed, for there the partnership was terminable at will, whereas in the case at bar the partnership had twelve years to run. In Neudecker v. Kohlberg (81 N. Y. 296) the alleged breach of faith consisted of a confession of judgment given by plaintiff’s partner to codefendants, enforced on execution, upon a valid debt which, as plaintiff sought to show, had not matured. The court said: “ To show that a debt is not due presently is simply showing that the time has not arrived for its payment; it has no tendency to show that the debt does not in fact exist (Leggett v. Bank of Sing Sing, 24 N. Y. 283). It was a debt when contracted, and the liability of the debtor was then fixed. It was evidently against this state or condition of things that the pleader made the allegation that Kohlberg was not indebted to his co-defendants. In substance, he meant to say the judgment represents a fictitious debt, and this appears not only from the language used, but from the context.” Accordingly, the judgment, by which the plaintiff recovered damages for an alleged conspiracy to break up the partnership, was reversed, for it was not “ secundum allegata et probata.” Furthermore, that situation is far removed from one where, in order to squeeze one partner out of a business and appropriate his investment, the other partner promotes and procures a collusive suit to be brought to break the partnership’s lease, when the suit, as we must assume from the complaint and the opening of counsel, was otherwise unnecessary and would not have been brought unless instigated in bad faith and for the express purpose of defrauding the copartner.
To uphold this cause of action, there is not involved, in my opinion, any departure from the rule that one partner may not sue another for conversion of the property belonging *467to the partnership. This action is not one to recover damages for the conversion of the lease or of any other property of the firm. Plaintiff’s interest in the business, represented by his capital investment, was his own property. It was that interest in the business which was rendered valueless by the breach of faith complained of and for which damages are sought.
The plaintiff is making no attack upon the validity of the dispossess proceeding. There is none that he could make for the rent was past due and unpaid. Plaintiff does not attempt to regain possession of the leased property or challenge any of the rights of the landlord. He recognizes his ouster as accomplished and seeks damages, not for being dispossessed by the landlord,.but for his partner’s breach of faith and tort, instigated by one of the defendants, the lawyer of Rezinas and aided and abetted by the others with knowledge of the fraud and for the purpose of consummating it.
Neither is the plaintiff, so far as concerns the defendant receiver, who, it is alleged, made a fictitious sale of the fixtures and stock in trade, relegated to an attempt to surcharge his accounts or bound by the fact that the receiver’s accounts were approved by the court. The sale, upon the assumed facts, was a fraud upon the court. Where-there is actual fraud in a judgment, resulting from a conspiracy, the injured party is not required to set aside the judgment, but may recover his damages. (Verplanck v. Van Buren, 76 N. Y. 247; Swan v. Saddlemire, 8 Wend. 676.)
If the plaintiff were seeking to recover his share of the true value of the property disposed of at the alleged collusive receiver’s sale, of course he could only do so either by opening the receiver’s accounts or by action to set aside the sale. But, again, it should be emphasized that this action is not one brought to recover partnership property or its value. It is brought to recover damages for the destruction of plaintiff’s interest in a going business, brought about by his partner’s breach of faith and consummated by the acts of the other defendants who were, knowingly and with fraudulent purpose, in collusion with the defaulting partner confederating and acting for a common end. There are many instances where, following the rule applied in Gould v. Cayuga County *468National Bank (99 N. Y. 333), a party defrauded has been permitted to affirm and stand upon the transactions constituting a fraud and recover damages for the fraud instead of being compelled first to set aside the transactions.
The judgment should be reversed and a new trial ordered, with costs to appellant to abide the event.
Judgment affirmed, with costs.