UNITED STATES DISTRICT COURT SOUTHERN DISTRICT of NEW YORK ------X RALPH MERCADO and : RMM RECORDS & VIDEO CORP., : Plaintiffs, : : Case No
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------x RALPH MERCADO and : RMM RECORDS & VIDEO CORP., : Plaintiffs, : : Case No. 02-CV-4974 (MGC) v. : : PETER THOMAS PATERNO, : MARC STOLLMAN, : KING, PURTICH, HOLMES, : PATERNO & BERLINER, LLP, and : STOLLMAN & STOLLMAN, : Defendants. : --------------------------------------------------------x UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------x In re : : Case No. 00-15350 (AJG) RMM RECORDS & VIDEO CORP., : : Debtor. : : --------------------------------------------------------x RALPH MERCADO and : RMM RECORDS & VIDEO CORP., : Plaintiffs, : : Adversary Proceeding No. v. : 04-00004 (AJG) : PETER THOMAS PATERNO, : MARC STOLLMAN, : KING, PURTICH, HOLMES, : PATERNO & BERLINER, LLP, and : STOLLMAN & STOLLMAN, : Defendants. : --------------------------------------------------------x REPORT AND RECOMMENDATION: PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW ARTHUR J. GONZALEZ, United States Bankruptcy Judge: To the Honorable Miriam Goldman Cedarbaum, United States District Judge: On or about June 27, 2002, RMM Records & Video Corp. (“RMM”) and Ralph Mercado, RMM’s principal, filed a complaint alleging legal malpractice in United States District Court for the Southern District of New York against the defendants Peter Thomas Paterno, King, Purtich, Holmes, Paterno & Berliner, LLP, Marc Stollman, and Stollman & Stollman, their former attorneys. Before this Court is the defendants’ motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, joined and supported by Universal Music & Video Corp. (“Universal”). Defendants and Universal base their motion for judgment on the pleadings on their contention that RMM does not have standing to prosecute this action. For the reasons set forth below, the defendants’ motion for judgment on the pleadings should be GRANTED, and the plaintiff’s complaint dismissed in its entirety. FACTS On November 14, 2000, RMM filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, Case No. 00-15350. During the course of that bankruptcy proceeding, RMM and Universal entered into an Asset Purchase Agreement (“APA”), dated as of April 30, 2001, for the sale of RMM’s assets to Universal. For APA, see Docket No. 261, Universal’s Memorandum of Law, Affidavit of James S. Cochran, Exhibit C. On July 13, 2001, this Court entered an Order authorizing the sale of those assets in accordance with the terms of the APA. 2 RMM and Ralph Mercado, who had filed for personal bankruptcy in connection with RMM’s bankruptcy, subsequently filed the instant complaint alleging legal malpractice against the Defendants, their former attorneys. The malpractice complaint arose in connection with the 1999 sale of RMM’s recording contract with a popular performer to Sony Music. The District Court dismissed the malpractice claims brought by Ralph Mercado individually on December 2, 2002. On June 1, 2004, the Defendants filed the subject motion for judgment on the pleadings pursuant to Rule 12(c). On July 28, 2004, the District Court, pursuant to 28 U.S.C. § 157(a) and the Standing Order of the United States District Court for the Southern District of New York, dated July 10, 1984, ordered the motion transferred to this Court under Rule 9033 of the Federal Rules of Bankruptcy Procedure to hear and then submit proposed findings of fact and conclusions of law, holding that this motion was a non-core proceeding related to RMM’s bankruptcy proceeding before this Court. By Stipulation of this Court dated December 22, 2004, Universal was joined to this proceeding as a necessary party. Arguments on the motion were heard by this Court on January 26, 2005. The Defendants and Universal argue that the legal malpractice claims RMM has asserted in the complaint were sold to Universal pursuant to the APA, and that therefore, RMM has no standing to sue on the claims. Universal contends that as a matter of law the plain, unambiguous language of the APA effected the transfer of “all of” and “100%” of RMM’s assets, thereby including any claims for legal malpractice. Universal urges the Court to conclude that the Defendants’ motion for judgment on the pleadings should be granted on this ground. RMM responds that the meaning of the APA is in fact ambiguous, and thus that the Court cannot determine as a matter of law whether the legal malpractice claims at issue here were transferred 3 under the APA without further interpreting the language of the agreement and the intentions of the parties. RMM argues that the APA is best interpreted as limited in application to those of RMM’s assets used in or related to RMM’s business and operations, which category RMM argues does not include the legal malpractice claims at issue here. RMM also contends that extrinsic evidence buttresses its contention that the APA was not intended to include the legal malpractice claims. RMM urges the Court to therefore conclude as a matter of law that, based on the preponderance of the evidence, the APA did not include the legal malpractice claims at issue here, or in the alternative, to find that this is an issue of material fact to be determined by a trier of fact. Finally, RMM argues that if the Court does conclude as a matter of law that the APA did transfer the legal malpractice claims, the Court should reform the APA to exclude those claims on the grounds of mutual mistake. Discussion The Defendants’ motion here is for judgment on the pleadings pursuant to Rule 12(c). Generally, “[t]he standard for granting a Rule 12(c) motion for judgment on the pleadings is identical to that of a Rule 12(b)(6) motion for failure to state a claim.” Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2nd Cir. 2001) (citing Irish Lesbian & Gay Org. v. Giuliani, 143 F.3d 638, 644 (2nd Cir. 1998)). See also, Sheppard v. Beerman, 18 F.3d 147, 150 (2nd Cir. 1994); Ad-Hoc Comm. Of Baruch Black & Hispanic Alumni Ass’n v. Bernard M. Baruch Coll., 835 F.2d 980, 982 (2nd Cir. 1987)); Smith v. Barnhart, 2005 U.S. Dist. LEXIS 1664 (S.D.N.Y. Jan. 31, 2005); Bennerson v. City of N.Y., Dep’t of Corr., 2004 U.S. Dist. LEXIS 7241 (S.D.N.Y. Apr. 28, 2004). Under such a standard, all allegations asserted in the complaint must be accepted as true, and all reasonable inferences must be drawn in favor of the plaintiff. Giuliani, 143 F.3d at 644. 4 Additionally, “the district court may not consider matters outside of the pleadings without converting the motion into a motion for summary judgment.” Courtenay Communications Corp. v. Hall, 334 F.3d 210, 213 (2nd Cir. 2003) (citing Friedl v. City of New York, 210 F.3d 79, 83-84 (2nd Cir. 2000). However, the Defendants’ motion rests upon the claim that RMM lacks standing to bring this action for legal malpractice. Motions to dismiss for lack of standing are commonly brought under both Rule 12(b)(6) for failure to state a claim and under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. See, e.g., Small v. General Nutrition Co., Inc., 388 F.Supp.2d 83 (E.D.N.Y. 2005) (dismissed for lack of standing under Rule 12(b)(6)); Juvenile Matters Trial Lawyers Assoc. v. Judicial Dep’t., 363 F.Supp.2d 239 (D.Conn. 2005) (dismissed for lack of standing under Rule 12(b)(1)). See also, Rent Stabilization Ass’n. of New York v. Dinkins, 5 F.3d 591, n. 2 (2nd Cir. 1994) (recognizing that challenges for lack of standing are brought under both rules and suggesting that standing and subject matter jurisdiction are distinct concepts). However, although it is the continuing practice of district courts in this circuit to accept challenges to standing under either rule, the Court of Appeals has fairly conclusively stated that issues of standing are more properly addressed under Rule 12(b)(1), concluding that “standing is perhaps the most important of the jurisdictional doctrines” and that “the concept of standing - even its prudential dimension - is a limitation on federal court jurisdiction.” Thompson v. County of Franklin, 15 F.3d 245, 247-48 (2nd Cir. 1994) (noting that the issue was unresolved and reviewing its dicta in Rent Stabilization) (internal quotations and citations omitted). But see, Bank of Am. Corp. v. Braga Lemgruber, 385 F.Supp. 2d 200, 217-18 (S.D.N.Y. 2005) (suggesting that the proper ground for dismissal for lack of standing is still unclear). This issue is of importance here because, while the general rule is for Rule 12(c) motions to be 5 treated as if they were Rule 12(b)(6) motions, the standards for Rule 12(b)(1) motions are distinct from the standards for Rule 12(b)(6) motions and particularly tailored to the unique issues of jurisdictional analyses. Accordingly, some courts have treated Rule 12(c) motions founded on a claim of lack of subject matter jurisdiction as if they were Rule 12(b)(1) motions. See U.S. ex rel. Phipps v. Comprehensive Cmty., 152 F.Supp.2d 443 (S.D.N.Y. 2001); Peters v. Timespan Communications, Inc., Case No. 97-CV-8750, 1999 WL 135231 (S.D.N.Y. March 12, 1999); Alonzo v. Chase Manhattan Bank, N.A., 25 F.Supp.2d 455 (S.D.N.Y. 1998). Although Phipps, Peters, and Alonzo involved challenges to the court’s subject matter jurisdiction, the District Court should find that a Rule 12(c) motion based upon a lack of standing should be treated as a Rule 12(b)(1) motion as well. Like a motion to dismiss for lack of subject matter jurisdiction, a motion to dismiss for lack of standing can raise “a factual challenge based on extrinsic evidence.” Guadagno v.