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Dickstein v. Merrill Lynch

December 9, 1996

ROBERT S. DICKSTEIN AND JANET DICKSTEIN, PLAINTIFFS-RESPONDENTS-CROSS-APPELLANTS,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., AND CHRISTINE M. BERNIUS, DEFENDANTS-APPELLANTS-CROSS-RESPONDENTS.



On appeal from Superior Court, Law Division, Bergen County.

Approved for Publication December 11, 1996. As Corrected January 28, 1997.

Before Judges Petrella, Wallace and Kimmelman. The opinion of the court was delivered by Petrella, P.j.a.d.

The opinion of the court was delivered by: Petrella

The opinion of the court was delivered by

PETRELLA, P.J.A.D.

Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) and Christine M. Bernius (defendants) appeal from summary judgment in favor of plaintiffs Robert S. Dickstein and Janet Dickstein (plaintiffs) ordering defendants to pay most of the funds withheld by Merrill Lynch to satisfy a tax levy on plaintiffs' account by the State of New York.

Defendants argue on appeal that the motion Judge erred in granting summary judgment because: (1) New York Uniform Commercial Code § 8-317(4) authorized and required Merrill Lynch to comply with the tax levy; (2) New York law provided a complete defense to plaintiffs' claim; (3) plaintiffs suffered no legally cognizable damage as a result of Merrill Lynch's payment of the tax judgment against them; (4) there were fact issues as to damages and mitigation; and (5) the judgment against defendant Bernius was improper.

On cross-appeal plaintiffs argue that the Judge erred in reducing damages.

I.

On February 23, 1994 plaintiffs filed a complaint in Bergen County, New Jersey, against Merrill Lynch and Bernius asserting that $8,975.63 was wrongfully withheld from plaintiffs' account. Defendants answered that the money was withheld in compliance with a valid New York tax levy. *fn1

The Dicksteins, New Jersey residents, earned income in New York in 1981. Robert Dickstein, an attorney, applied for an extension of time to file his required New York non-resident income tax return until June 15, 1982. However, it was not until October 1982 that plaintiffs filed their New York tax return on income of $198,886, and paid taxes of $18,229 on New York taxable income of $108,218.

On November 30, 1982, the New York Tax Compliance Bureau sent plaintiffs a notice and demand for tax due of $4,807.78, consisting of a penalty of $3,615.75 and interest of $1,190.26 for late filing and payment of taxes. On December 6, 1982, Dickstein *fn2 responded by tendering the interest due and requesting a waiver of the penalty. The Audit Division rejected his waiver request because "reasonable cause for late filing had not been established."

Dickstein neither paid the penalty nor sought any judicial remedy. Almost four years later, New York entered a tax warrant in the judgment docket in the County of Albany Clerk's Office on November 26, 1986 for $40.48 taxes due, $2,445.13 penalty and $2,873.16 interest. At no time thereafter did plaintiffs challenge the validity of that judgment in New York.

In 1991, plaintiffs opened a securities account with Merrill Lynch's Wayne, New Jersey office. Merrill Lynch is incorporated in Delaware with principal place of business in New York. In December of 1993, plaintiffs owned two mutual funds: Merrill Lynch Corporate Bond Fund Inc. and the Income Opportunities Fund 1999, Inc. Both funds were administered by Maryland corporations with principal offices in New Jersey. Merrill Lynch served as the financial intermediary in purchasing these shares and plaintiffs' ownership interest was recorded in book entry form on Merrill Lynch's books in New York. By December 29, 1993, at plaintiffs' request, ...


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