Gerzog v. Goldfarb

Citation: 2022 NY Slip Op 04120Docket: Index No. 653432/18 Appeal No. 16221 Case No. 2022-00071

Court: Appellate Division of the Supreme Court of the State of New York; June 28, 2022; New York; State Appellate Court

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Ira Gerzog filed a lawsuit against Steven Goldfarb and Harvey Migden, claiming partnership status at their law firm and entitlement to one-third of the firm's profits. The Appellate Division, First Department, reviewed the Supreme Court's order from December 16, 2021, which had denied the defendants' motions for summary judgment on the second amended consolidated complaint. The court modified the order to grant Goldfarb's motion regarding the fraud claim but affirmed the denial of summary judgment on other claims, imposing costs on Goldfarb and Migden to be paid to Gerzog.

Key points of contention included Gerzog's partnership status and profit entitlement. Evidence such as Gerzog's testimony, the firm’s partnership tax returns, and K-1s supported his claim of being a partner and entitled to a share of profits. Despite being labeled as a 'limited partner,' this designation did not negate Gerzog's potential equity stake. The record suggested he may have contributed capital and was involved in daily operations, while Goldfarb managed finances. Gerzog's claim remained valid despite variations in his profit percentage, as he alleged improper suppression of total firm profits.

Regarding Migden, the court acknowledged issues concerning the typical limitations on accountants' fiduciary duties. Gerzog presented evidence suggesting that Migden misclassified Goldfarb's personal expenses as business expenses, which could indicate knowledge of wrongdoing that affected profit distribution. This evidence presented sufficient grounds for a factfinder to consider potential liability.

Plaintiff's access to K-1 forms and the firm's tax returns is deemed irrelevant, as his claim rests on the assertion that Goldfarb’s personal expenses were not clearly indicated in those documents. Evidence shows Migden was responsible for categorizing deductions and did not rely solely on Goldfarb's evaluations. Conflicting expert opinions exist regarding whether an accountant’s duties extend to all partners or just the partner managing tax matters; however, the question of Migden's personal duty to the plaintiff is not pertinent to the derivative accounting malpractice claim on behalf of the firm. The claim's partial dismissal based on statute of limitations is contested due to factual disputes about whether Migden is equitably estopped from claiming the defense, as his alleged concealment of misconduct may have prevented the plaintiff from timely filing. Issues also arise regarding whether the statute of limitations was tolled due to Migden's fiduciary relationship with the firm and under the continuous representation doctrine. While mere repetition of errors on tax returns does not qualify as continuous representation, it may apply where there is deliberate neglect of professional standards regarding similar expenses. The fraud claim against Goldfarb is to be dismissed, as plaintiff's allegations that Goldfarb falsely claimed his annual compensation exceeded his one-third share of profits lack justifiable reliance; the K-1s clearly indicated income did not surpass that share, barring exceptional cases in 2012. The decision and order were entered by the Supreme Court, Appellate Division, First Department, on June 28, 2022.