Genger v Genger

[*1] Genger v Genger 2008 NY Slip Op 52325(U) [21 Misc 3d 1132(A)] Decided on November 12, 2008 Supreme Court, New York County Solomon, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through November 21, 2008; it will not be published in the printed Official Reports.

Decided on November 12, 2008
Supreme Court, New York County

Orly Genger, Plaintiff,

against

SAGI GENGER, Defendant.



100697/08



Plaintiff is represented by Bryan Leinbach, Esq., of Zeichner Ellman & Krause, LLP, 575 Lexington Ave., New York, NY 10022, tel. no. (212) 826-5313. Defendant is represented by Alan Sash, Esq. and Steve J. Hyman, Esq., of McLaughlin & Stern, LLP, 260 Madison Avenue, New York, NY 10016, tel. no. (212) 448-1100.

Jane S. Solomon, J.

INTRODUCTION

This action arises out of the purchase by defendant Sagi Genger ("Sagi" or "Defendant") of the interests of his sister, plaintiff Orly Genger ("Orly" or "Plaintiff"), in certain real estate investment entities. Orly alleges, inter alia, that the transfer was fraudulently induced and invalid. Defendant moves to dismiss Plaintiff's Verified Complaint (the "Complaint") pursuant to CPLR 3211(a)(1) (documentary evidence). As set forth below, Defendant's motion is denied.

FACTS

AG Real Estate Partners, LP ("AGLP") held an interest in two real estate investment properties in Canada. Orly and Sagi each owned 45% of AGLP. AG Real Estate GP, Inc. ("AGGP") owned the remaining 10% and, in turn, was owned by their father Arie Genger ("Arie").[FN1] In March of 2004, Arie sold his interest in AGGP to Sagi and Orly equally pursuant to a written agreement. Thereafter, Orly apparently transferred both her 45% interest in AGLP and her 50% interest in the general partner to Sagi. The underlying real estate was sold and Sagi caused the proceeds from the sale to be used to make other real estate investments in Canada [*2]using two different entities: Riverside General Partner LP and Riverside Properties (Canada) LP (collectively referred to as the "Riverside Entities").

Orly's interests were purportedly transferred upon her execution of a Bill of Sale that was dated January 1, 2004. The Bill of Sale provides in pertinent part: 1. Transfer of Ownership. The Seller transfers ownership of the property described below to the Buyer. The Seller has received simultaneously with the execution of this Bill of Sale the Buyer's cash in the amount of One Hundred Thousand Dollars ($100,000) for making this transfer, payable by January 1, 2006, pursuant to a promissory note substantially on the terms of Exhibit A attached hereto. 2. Property. The following property is sold to the Buyer (hereinafter referred to as the "property"). A Limited Partnership Interest in AG Real Estate Partners L.P., a Delaware limited partnership.
Exhibit "B" to the Complaint.

In connection with the Bill of Sale, Sagi signed a Promissory Note also dated January 1, 2004 (the "Note") in which Sagi promises to pay to Orly the principal sum of $100,000 plus interest at a rate of 3% per annum. The Note provides, "The principal, together with all accrued interest, shall be due and payable in full by January 1, 2006." Exhibit "C" to the Complaint.

In September of 2006, Sagi wrote a Memorandum to Orly (the "Memorandum"). The Memorandum was signed by Orly and reads: This note is to clarify that with respect to our agreement dated January 1, 2004, the consideration I received was for my entire interest in the AG Real Estate Enterprise including, my interest in AG Real Estate GP, Inc.
Exhibit "D" to the Complaint.

On January 16, 2008, Plaintiff commenced suit against Defendant by filing a summons and the Complaint. In the Complaint, Plaintiff alleges, inter alia, that Defendant defrauded her because he induced her to temporarily transfer her interests in the AG Companies to Defendant with the understanding that she could recoup her interests at a later date, but then rendered the companies valueless.

Orly claims that "due to their familial relationship and Defendant's business background, knowledge and experience, [she] reposed her trust, confidence and reliance" in Defendant. Complaint at ¶5. She alleges: In late 2004 or early 2005, Defendant approached Plaintiff and asked her to temporarily transfer her ownership interest to Defendant. At Defendant's urging, Plaintiff signed a Bill of Sale, drafted by Defendant and backdated to January 1, 2004 . . . conditioned on Plaintiff's receipt of payments totaling $100,000 from Defendant by January 1, 2006.
Complaint at ¶9.

Orly claims that Sagi fraudulently induced her to sign the Bill of Sale and transfer her interests in the AG Companies in that "[i]n signing the Bill of Sale and agreeing to transfer her [*3]interests to Defendant, Plaintiff relied on various misrepresentations and omissions by Defendant." Complaint at ¶10. She specifically alleges that "Defendant told [Orly] she could retrieve her interest back at a later date for one dollar, that her percentage interest would remain unchanged, and that she would continue to share as before in any value stemming from her interest in the [AG Companies]." Id.

Plaintiff further avers that her interests in the AG Companies were worth at least $4,000,000 when she transferred them to her brother for $100,000 (Complaint at ¶14), and that Sagi knew about the true value of the AG Companies, but withheld this information from Orly. Complaint at ¶15. According to Orly, "But for the misrepresentations and omissions of Defendant, Plaintiff would not have agreed to transfer her interest to Defendant." Complaint at ¶16. Plaintiff also asserts that, unbeknownst to her, one of the properties which the AG Companies held an interest in was sold shortly before Sagi asked her to transfer her interests. Complaint at ¶ 13.
Plaintiff further alleges that Defendant: through a series of complex transactions, drained [the AG Companies] of their value and shifted the value of [the AG Companies] into two new ventures, Riverside General Partner LP and Riverside Properties (Canada) LP . . . that remain extremely valuable.
Complaint at ¶21. Lastly, Plaintiff sets forth in the Complaint an allegation that Defendant has failed to pay the full amount due under the Note. Complaint at ¶17.

Plaintiff's first cause of action is for an order declaring that the transfer of her interests in the AG Companies is null and void and directing Defendant to transfer an equivalent ownership interest in the Riverside Entities to Plaintiff. The second cause of action seeks the rescission of the Bill of Sale based on fraud, misrepresentations, and omissions. The third cause of action is for fraudulent inducement.

On or about February 22, 2008, Defendant served a Verified Answer (the "Answer") denying the material allegations and asserting the following three affirmative defenses: (1) failure to state a cause of action; (2) failure to allege fraud or mistake with particularity as required by CPLR 3016(b); and (3) the Complaint sounds in breach of contract and not fraud. In the Answer, Defendant does not assert a defense pursuant to CPLR 3211(a)(1) (documentary evidence).

On April 16, 2008, Defendant made the instant motion and submitted a copy of the pleadings and two one page documents in support of his contention that the Complaint should be dismissed based on documentary evidence. First, Defendant produced an undated letter agreement (the "Letter Agreement") addressed to Orly from Sagi and signed by Orly. In the Letter Agreement, Sagi writes in pertinent part: I purchased from you, as of January 1, 2004, your limited partnership interest in [AGLP] ("Your Interest"). I have agreed to, and hereby do, grant you an option to purchase back from me your interest in the Partnership on the following terms: (a)the exercise price of such option will be $10,000; (b) you will acquire Your Interest in full; and (iii)[sic] you will exercise such option to acquire Your Interest, not earlier than January 1, 2006. [*4]

Exhibit "2" to the Affidavit of Sagi Genger in Support of Defendant's Motion to Dismiss.

Second, Defendant submits a short resolution of the Board of Directors of AGGP dated March 8, 2004 (the "Resolution") which shows that Sagi served as the President and Treasurer of AGGP while Orly was apparently the Vice President and Secretary.

DISCUSSION

A. WAIVER

An objection or defense based on CPLR 3211(a)(1) (documentary evidence) is waived unless raised in a party's answer or a pre-answer motion to dismiss. CPLR 3211(e)[FN2]; Mindich Developers, Inc. v. Milstein, 164 Misc 2d 71, 74 (Sup. Ct. West. Co. 1995), rev'd on other grounds, 227 AD2d 536 (2nd Dept. 1996). Here, Defendant waived his documentary evidence defense because he did not raise the defense in the Answer and did not bring a pre-answer motion on that ground. Since the instant motion is brought only under CPLR 3211(a)(1) and Sagi has waived his objection or defense based on documentary evidence, his motion must be denied on that basis alone. However, even assuming that his documentary evidence defense was not waived, Plaintiff's motion still is appropriately denied on the merits.

B. DISMISSAL BASED ON DOCUMENTARY EVIDENCE

"In order to prevail on a motion to dismiss based on documentary evidence pursuant to CPLR 3211(a)(1), the documents relied upon must definitively dispose of plaintiff's claim." Bronxville Knolls, Inc. v. Webster Town Center Partnership, 221 AD2d 248, 248 (1st Dept. 1995); see also Goshen v. Mutual Life Ins. Co. Of NY, 98 NY2d 314, 326 (2002) (a CPLR 3211(a)(1) motion "may be appropriately granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law").

Defendant urges that "plaintiff has failed to state a claim against me because the documentary evidence executed by her specifically undermines her Verified Complaint." Affidavit of Sagi Genger in Support of Motion to Dismiss at ¶9. However, the documentary evidence that is before the Court on this motion does not "definitively dispose" of Plaintiff's causes of action for declaratory judgment, rescission, and fraudulent inducement.

[*5]C. FRAUDULENT INDUCEMENT

In order to have a cause of action for fraudulent inducement, a plaintiff must establish " a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury'". NM IQ LLC v. OmniSky Corp., 31 AD3d 315, 317 (1st Dept. 2006) (quoting Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413, 421 (1996)).

The elements of a fraud claim must be pled with particularity and mere conclusory allegations will not suffice. CPLR 3016(b); Kavner v. Geller, 49 AD3d 281, 282 (1st Dept. 2008). Furthermore, in business transactions a party is under a duty to disclose material facts if: "(1) there is a fiduciary relationship between the parties or (2) one party has superior knowledge that is not readily accessible to another and that party knows the other party is acting on the basis of mistaken knowledge." Bank of New York v. Bram Mfg. Corp., No. 4103/03, 2005 WL 1704021, at *8 (Sup. Ct. Rockland Co. July 20, 2005); see also Sterling Nat. Bank v. Israel Discount Bank of NY, 305 AD2d 184, 186 (1st Dept. 2003).

Plaintiff has met her burden of alleging fraudulent inducement with the requisite particularity required under CPLR 3016(b) and the documents submitted on the motion do not conclusively dispose of this cause of action. Here, as noted above, Plaintiff alleges a specific misrepresentation and material omissions of fact in support of her fraudulent inducement cause of action.

Plaintiff claims: (a) her brother misrepresented to her that she was only temporarily transferring her interests to him and that she could repurchase her interests at a later date; (b) her brother withheld materially important facts about the true value of the AG Companies; (c) the aforementioned misrepresentation and material omissions were made by Defendant for the purpose of inducing Orly to rely on them and proceed with the transfer of her interests in the AG Companies; (d) Plaintif did justifiably rely thereon by transferring her interests to Defendant; and (e) Orly was damaged thereby.

In support of his motion to dismiss, Defendant appears to rely both on the documents that he annexed as exhibits to his motion papers (the Letter Agreement and the Resolution) as well as the Bill of Sale and the Memorandum even though the latter two documents were not submitted as separate exhibits to the motion, but were attached to the Complaint. First, the Resolution does not dispose of Plaintiff's claim for fraudulent inducement. It merely shows that Orly was listed as the Vice President and Secretary of AGGP.

The Resolution does not establish that Orly was provided with the information concerning the value of the AG Companies which she alleges that Defendant withheld from her. Nor does the Resolution show that Orly was involved at all in the day to day operations of the AG Companies. In fact, in a sworn statement, she states to the contrary: [*6]All business decisions and operations were left to my older brother, the Defendant, who was more experienced in business operations than I, and who, until recently, had my trust and confidence.
Affidavit of Orly Genger in Opposition to Motion to Dismiss at ¶3.

Neither does the Letter Agreement "definitively dispose" of Plaintiff's fraudulent inducement claim. The Letter Agreement provides that Plaintiff could exercise her option to repurchase her interests in the AG Companies, but could only do so after January 1, 2006. Plaintiff claims that Defendant rendered the AG Companies valueless before that date. Thus, the Letter Agreement actually supports the notion that Defendant defrauded Plaintiff by inducing her to transfer her interests in the AG Companies based on an illusory option.

Defendant correctly notes that Plaintiff alleges in the Complaint that Defendant represented that she could repurchase her interests for $1 and the Letter Agreement provides that she would have to pay $10,000 to repurchase her shares. However, the Letter Agreement, which is undated, does not contain a merger clause or a no-oral modification clause and thus does not necessarily refute Plaintiff's allegation that Defendant represented to her that she could repurchase her interests for $1 at some point. Indeed, Plaintiff has submitted an affidavit of Joel Isaacson, president of a tax and financial planning firm, who states that at a meeting held on November 8, 2007 "Orly explicitly stated to Sagi that he had promised her that she would have the right to purchase back her interests in [the AG Companies] for $1." Isaacson Affidavit at ¶3. Mr. Isaacson further states that Sagi "acknowledged that she had such a right, but stated that he could not see why she would want to exercise her right to repurchase her interests in [the AG Companies] for $1, as the [AG Companies] were now valueless." Id.

Moreover, the Bill of Sale does not vitiate Plaintiff's fraudulent inducement claim. It establishes that a transfer of Plaintiff's interest to Defendant took place, but does not contradict Orly's allegations that Sagi made the aforementioned misrepresentation concerning the repurchase of Plaintiff's interest or that Sagi withheld materially important information from Orly concerning the value of the AG Companies and her interests therein.

D. DECLARATORY JUDGMENT & RESCISSION

The documentary evidence submitted on this motion does not "completely dispose" of Plaintiff's causes of action for declaratory judgment and rescission. Plaintiff will be entitled to rescission if she can adequately establish that Plaintiff fraudulently induced her to transfer her interests in the AG Companies to him. Plaintiff also alleges that Defendant did not make all of the requisite payments under the Note which may also entitle Plaintiff to a declaration in her favor.

CONCLUSION

Accordingly, it hereby is ORDERED that Defendant's motion to dismiss pursuant to CPLR 3211(a)(1) is denied in its entirety; and it is further [*7]ORDERED that a preliminary conference will be held in Part 55 on December 8, 2008 at noon.

Dated: November 12, 2008

ENTER:

_____________________

J.S.C.

Footnotes

Footnote 1: AGLP and AGGP will be collectively referred to as the "AG Companies".

Footnote 2: CPLR 3211(e) provides:

At any time before service of the responsive pleading is required, a party may move on one or more of the grounds set forth in subdivision (a), and no more than one such motion shall be permitted. Any objection or defense based upon a ground set forth in paragraphs one, three, four, five and six of subdivision (a) is waived unless raised either by such motion or in the responsive pleading.