A federal judge has dismissed several civil charges against White Plains attorney Lee David Auerbach but allowed a $17.5 million malpractice claim to proceed.
John and Denise Meskunas sued Auerbach and his law firm in 2017, alleging that he diverted rent payments on a New Rochelle Harley Davidson shop, while they were embroiled in a contentious divorce, and caused them to lose equity in the property. They accused him of fraud, conversion, breach of fiduciary duty, breach of contract and legal malpractice.
Auerbach did not formally answer the charges. Instead, his lawyer filed a motion to dismiss, arguing that the couple lacked legal standing to bring the case. The pleading also notes that $258,000 in rent payments he is accused of mishandling were turned over to Denise Meskunas, as directed by a court.
Most of the charges are either duplicative or were filed too late, U.S. District Judge Vincent L. Briccetti ruled on Feb. 20, but the malpractice accusation is “better addressed on a more complete record at the summary judgment stage or at trial.”
In 2004, when the Meskunases lived in Pelham Manor, they formed Important Properties LLC and Newroc Motorcycles LLC. They paid $3.35 million for property at 8 Industrial Lane in New Rochelle and another $3 million renovating a 22,000-square-foot shop. In 2005, they opened a Harley store.
Important Properties, which owned the property, was paying nearly $35,000 a month on a $5.5 million mortgage.
Newroc filed for bankruptcy in 2011 and sold its assets in 2012 to Empire Harley Davidson. Empire took on a 10-year lease.
By then, the couple was in divorce court. Denise Meskunas eventually moved to West Palm Beach, Florida and John Meskunas to Greenwich, Connecticut.
Family Court in New Rochelle appointed Auerbach as receiver and custodian of Important Properties’ rent payments from Empire Harley Davidson.
Instead of applying the rent payments to the mortgage, the Meskunases claim, Auerbach diverted the money and then refused their demands to pay the mortgage.
They claim that Auerbach’s actions caused Important Properties to default on the mortgage. Important Properties filed for bankruptcy in 2015.
Eventually, 32 North Street Realty LLC, a company associated with Empire Harley Davidson, bought the property for $6.5 million.
The Meskunases allege that Auerbach received $258,000 in rent payments and diverted more than $250,000, for attorney fees and expenses, and caused them to spend at least $300,000 on legal fees.
When Important Properties defaulted on the mortgage, they claim they lost at least $2.5 million in equity on the property, another $10 million in equity that would have accrued during Empire’s lease, and $5.5 million in future equity.
Briccetti dismissed most of the charges.
The fraud and breach of contract claims are substantially the same as the malpractice claim, he ruled. Breach of fiduciary duty and conversion claims were filed after three-year statutes of limitations.
Important Properties’ malpractice claim also is not timely, he ruled, but the Meskunases malpractice claim survives at this stage because the couple claimed Auerbach was still representing them less than three years before they sued.
Important Properties may also try to reopen its bankruptcy case, Briccetti said, but because it did not originally disclose a claim against Auerbach a successful claim in bankruptcy court may only benefit the company’s creditors.
Briccetti also upheld the Meskunases demand for an accounting of all sums Auerbach collected and all actions he took on behalf of Important.
The Meskunases and Important Properties are represented by attorney Steven T. Halperin of Manhattan. Auerbach is represented by Peter Schillinger of White Plains.