In Pioneer Bank v. Teal, Becker & Chiaramonte, CPAs, P.C.,  Justice Platkin of the Albany County Commercial Division denied defendants’ fact-based motion to dismiss brought under CPLR 3211(a)(7) (failure to state a claim) and (c) (allowing conversion to a motion for summary judgment) without prejudice to renew as a motion for summary judgment.  The Court had previously instructed defendants to move for summary judgment, rather than to dismiss.  Nonetheless, defendants brought a motion to dismiss, attaching 85 exhibits and seeking resolution of fact-based issues. 

Background

This case is a malpractice action brought by Pioneer Bank against an accounting firm, defendant Teal, Becker & Chiaramonte, CPAs, P.C. (“TBC”) in connection with TBC’s opinions regarding ValueWise Corp. (“ValueWise”) and its subsidiaries (collectively, the “ValueWise Entities”).  Pioneer Bank extended credit to the ValueWise Entities based on TBC’s opinions regarding the ValueWise Entities’ financial statements.  Pioneer Bank alleges the financial statements contained material misstatements based on a fraud perpetrated by ValueWise’s owner and president.[1]

In the midst of discovery, Defendants indicated an intention to move for partial summary judgment on the issue of causation.  A few months later, Defendants informed the court that they intended to move for dismissal under CPLR 3211(a)(7) for failure to state a claim.  In light of the fact-based causation issues defendants had raised earlier, the court cautioned that if defendants elected to proceed with a motion to dismiss for failure to state a claim rather than a motion for summary judgment under CPLR 3212, the court would not exercise its discretionary authority under CPLR 3211(c) to convert the motion into one for summary judgment.  Nonetheless, defendants moved for dismissal for failure to state a claim under CPLR 3211(a)(7) and (c) “on the grounds that (1) Pioneer’s claims are partially barred by the expiration of the statute of limitations; (2)  the claims for the remaining years must be dismissed because Pioneer was presented with forged financial statements, and, therefore never relied upon defendants’ actual audit reports; and (3) TBC’s audit reports are not the proximate cause of Pioneer’s alleged losses.”[2]  Defendants submitted 85 exhibits in support of their motion. 

Decision on Defendants’ Motion to Dismiss

Even though Defendants moved under both CPLR 3211(a)(7) and 3211(c), the latter of which affords a court discretion to convert a motion to dismiss into one for summary judgment, the court refused to convert the motion into one for summary judgment because it had previously instructed defendants to move for summary judgment if they wanted their motion to be treated as such.  When they instead brought their motion as one to dismiss, the court considered the motion as “an unconverted, post-answer motion for dismissal under CPLR 3211(a)(7).”[3] 

Citing to Third Department case law, the court noted that it was limited in its review “‘to an examination of the pleadings to determine whether they state a cause of action’” and was obligated to “‘accept facts alleged [in plaintiff’s complaint] as true.’”[4]  While the court acknowledged that some departments take a more expansive view of what may properly be considered a motion to dismiss under CPLR 3211(a)(7), Third Department precedent limited the court’s review: “But this court is obliged to follow the Third Department’s recent precedent in Carr, which teaches that ‘a court resolving a motion to dismiss for failure to state a claim cannot base the determination upon submissions by the defendant,’ no matter ‘how compelling claims made in such a submission may appear.’”[5]

The court also pointed to the “sound reasons” for requiring motions like defendants’, which included a number of exhibits and raised factual issues, to be brought under CPRL 3212.  The court said that “Defendants’ approach needlessly deprives the court of useful procedural tools associated with summary judgment motions, including the requirement that parties supply statements of material facts.”[6]  Furthermore, raising an “evidence-based motion to dismiss under CPLR 3211 (a)(7) also injects uncertainty and delay into the motion practice.”[7] 

Conclusion

The Pioneer case highlights the importance of following established procedural rules, as well as a court’s directives in doing so.  Parties who ignore a Court’s express warnings or instructions with respect to the procedure the Court intends to follow do so at their own peril.  Specifically, Defendants seeking resolution of evidentiary issues on a dispositive motion should be clear with respect to their intention to proceed under one of the limited avenues in which to do so prior to discovery (e.g., by bringing a motion to dismiss based on documentary evidence under CPLR 3211(a)(1) or by pursing conversion to summary judgment via CPLR 3211(c).  Otherwise, they will need to wait to file a post-discovery motion for summary judgment so that the Court is not constrained in its review to the four corners of the complaint.