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A panel of New York’s Appellate Division, 1st Department, with a heated dissent, has allowed a law firm to move forward with a $50 million punitive damage claim because Chase Manhattan Bank allegedly misled it about the availability of funds to satisfy a judgment. In a 4-1 unsigned decision, the panel ruled that New York’s Edelman & Edelman had properly raised a common-law fraud claim against Chase Manhattan Bank for allegedly falsely claiming that it did not hold funds that the firm could levy on to satisfy a $1.5 million tort judgment. The dissenter, Justice Peter Tom, however, noted that the entire judgment was satisfied inside of a month after it became final. He called the law firm’s fraud claim “implausible, conclusory and unsupported.” More importantly, Tom observed, allowing the fraud claim to proceed opens “the floodgates to alleged fraud litigation by impatient attorneys against banks.” Thomas R. Newman of San Diego-based Luce, Forward, Hamilton & Scripps, the law firm’s attorney, viewed the case differently. The question here, he said, is “whether a major institution should be held accountable for flat out lying to the sheriff, not once but twice.” The dispute arose on Dec. 17, 1998, when after eight years of litigation, the New York Court of Appeals affirmed a judgment requiring a $1.5 million “immediate cash payment” and an annuity providing for future payments. The Edelman firm had won the judgment for an elderly woman who was hit by a bus operated by the Manhattan & Bronx Surface Transit Operating Authority. As to the $1.5 million cash payment, the judgment stipulated that about $790,000 be paid “immediately” to the plaintiff and $680,000 to the law firm to satisfy its contingency fee, according to the majority in Salles v. The Chase Manhattan Bank, 5164. The law firm demanded that the bus company pay the full amount of the judgment by Dec. 28, and when it failed to do so by that date, the firm served sheriff’s levies on Chase Manhattan two days later demanding that the bank satisfy the judgment from accounts it maintained for the company. According to the law firm’s complaint, the bank stamped the levies with the notation that no accounts for the bus company could be found. The complaint also quoted a bank employee as saying on Jan. 4, 1999, that a check would be cut for the plaintiff, but not for the law firm without specific authorization from the company. Meanwhile, the law firm alleged that Chase had at least 15 accounts belonging to the bus company, one of which contained $3 million, more than enough to satisfy the judgment. Frustrated in its ability to levy on the Chase accounts, the firm started a lawsuit on Jan. 7 to obtain an order compelling the bank to pay the judgment. All sides agree that on Jan. 14 two checks covering the full amount of the judgment and post-judgment interest were delivered to Edelman & Edelman. In sustaining the claim, the majority noted that the law firm alleged to have incurred an extra $100,000 in expenses in attempting to collect on the judgment in the wake of Chase’s false report that it held no bus company accounts. The four judges in the majority — Justices Joseph P. Sullivan, Ernst Rosenberger, Richard W. Wallach and Israel Rubin — described the complaint as detailing “alleged stonewalling efforts and outright refusals to comply with the Sheriff’s levies and executions by Chase.” However, Justice Tom argued that the facts outlined in the complaint were inconsistent with an intentional scheme to defraud. The 28 days that elapsed between the date the judgment became final and the time it was paid “cannot be in any manner” construed as “inordinate,” he wrote, especially in light of the fact that many of the events unfolded during “an extensive holiday period.” Tom faulted the firm for refusing to wait “a short and reasonable time period,” and, instead, “by its own accounting,” generating “significant legal expenses litigating very dubious claims against the bank.” Chase was represented by Thomas E. Stagg of Simmons, Jannace & Stagg in East Meadow, N.Y.

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