Shad v. Zachter PLLC

Background

Plaintiffs alleged that, in an underlying civil action, RPG Ocean Holdings, LLC, its attorney Jeffrey Steven Zachter, and Zachter PLLC relied on an affidavit of service prepared by a third-party process server. The affidavit stated under oath that service had been completed at an address that plaintiffs alleged did not exist. Plaintiffs claimed that this led to a default judgment against Riaz Ahmed Shad and later enforcement activity involving funds.

Plaintiffs asserted claims against the Zachter defendants and RPG for fraud, conversion, negligence, intentional infliction of emotional distress, civil conspiracy, unjust enrichment, and violations of New York Judiciary Law § 487. Magistrate Judge Aaron recommended granting the Zachter defendants’ motion to dismiss under Rule 12(b)(6), which tests whether a complaint adequately states a legal claim. Plaintiffs objected, and the district court reviewed the challenged findings in full because it found the objections sufficiently specific.

Court’s Analysis

The court agreed that plaintiffs had not adequately alleged wrongdoing by the Zachter defendants, as opposed to the third-party process server.

Fraud. Under New York law, fraud requires a material misrepresentation or omission, knowledge that it was false, an intent to induce reliance, reasonable reliance, and resulting injury. Federal Rule of Civil Procedure 9(b) also requires fraud to be pleaded with particularity. The court found that plaintiffs did not adequately allege that the Zachter defendants knew the affidavit of service was false or intended to submit an erroneous affidavit. The facts that the defendants received the affidavit, received no communications from Shad, and obtained a default judgment did not establish the required knowledge or intent. The alleged typographical error in a restraining notice also did not plausibly show fraud.

Conversion. Plaintiffs alleged that the Zachter defendants interfered with funds seized during enforcement of the default judgment. The court found no plausible allegation that the Zachter defendants controlled or held plaintiffs’ property. It also declined to consider a new argument raised for the first time in the objections. The conversion claim was dismissed.

New York Judiciary Law § 487. This statute imposes liability on an attorney who engages in deceit or collusion with an intent to deceive a court or party. The court found that plaintiffs had not adequately alleged that the Zachter defendants knew the affidavit was faulty or intended to deceive anyone. It also found no adequate basis to attribute the process server’s conduct to the attorney defendants through agency principles.

Negligence. The court held that plaintiffs had not adequately alleged that the Zachter defendants owed them a duty. Plaintiffs’ allegations of fraud, collusion, malice, and bad faith were conclusory, and relying on a sworn process server’s affidavit was not enough to state a negligence claim.

Intentional infliction of emotional distress. The court found that the alleged conduct did not meet the required standard of extreme or outrageous conduct. Plaintiffs also did not adequately allege that the Zachter defendants held their funds or acted with the required intent.

Civil conspiracy. Because plaintiffs had not adequately pleaded an underlying tort against the Zachter defendants, the related conspiracy claim also failed.

Unjust enrichment. Plaintiffs did not plausibly allege that the Zachter defendants held or received a benefit from plaintiffs’ property. The court also rejected plaintiffs’ theory that legal fees paid by RPG to the Zachter defendants constituted unjust enrichment at plaintiffs’ expense.

Disposition

The court accepted and adopted Judge Aaron’s Report and Recommendation in full. It granted the Zachter defendants’ motion to dismiss plaintiffs’ amended complaint without prejudice. The court granted leave to amend because it concluded that the identified pleading problems might be corrected. Any amended complaint had to be filed within 14 days of the opinion. The Clerk was directed to terminate the motions pending at Docket Nos. 11, 12, and 13.