First Keystone Consultants, Inc. v DDR Constr. Servs.

[*1] First Keystone Consultants, Inc. v DDR Constr. Servs. 2009 NY Slip Op 52166(U) [25 Misc 3d 1217(A)] Decided on October 5, 2009 Supreme Court, Queens County Hart, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 5, 2009
Supreme Court, Queens County

First Keystone Consultants, Inc., et al., Plaintiffs,

against

DDR Construction Services, et al., Defendants/Third-Party Plaintiffs, SCHLESINGER ELECTRICAL CONTRACTORS, INC., et al., Third-Party Defendants.



27095 2005

Duane A. Hart, J.

Schlesinger Electrical Contractors, Inc., First Keystone Consultants, Inc. and DDR Construction Services, Inc. formed SFD Joint Venture Associates. Schlesinger alleges that DDR withdrew from the joint venture, whereupon Schlesinger and First Keystone formed a new partnership. DDR denies that it voluntarily withdrew from the joint venture. Defendant DDR contends that the plaintiffs and the third-party defendants perpetrated a fraud by wrongfully ousting it from the joint venture. On or about December 19, 2005, First Keystone Consultants, Inc. began an action in the New York State Supreme Court, County of Queens, against DDR and other parties (First Keystone Consultants, Inc. v DDR Construction Services, Queens Index No. 27095/05) (Action No. 1). First Keystone sought, inter alia, a judgment declaring that SFD was dissolved. First Keystone subsequently brought a second action in the New York State Supreme Court, County of Nassau, against Schlesinger and other parties (First Keystone Consultants, Inc. v Schlesinger Electrical Contractors, Inc., Nassau Index No. 22828/07) (Action No. 2). The second action has been transferred to the New York State Supreme Court, County of Queens under Queens Index No. 7706/08. By decision and order (one paper) dated November 19, 2008, this court combined Action No. 1 and Action No. 2 for the purposes of [*2]discovery and a joint trial. On August 5, 2008, the defendants filed a note of issue, and on or about August 19, 2008, the plaintiffs served a demand for a jury trial. Pursuant to a stipulation filed on or about March 24, 2009 and a compliance conference order dated March 24, 2009, the claims in Action No. 2 have been discontinued.

Pursuant to a decision and order of this court dated December 2, 2008 (one paper), this court permitted DDR to amend its third-party complaint for the purpose of asserting additional claims for fraud, conspiracy to commit fraud, tortious interference with contract, tortious interference with prospective economic advantage, and breach of fiduciary duty against Schlesinger-Siemens Electrical, LLC.

DDR alleges the following:

In or about April, 2002, First Keystone, DDR, Clifford Weiner (a principal of DDR), Robert Solomon (a principal of First Keystone), and Jane Solomon entered into a verbal agreement, later reduced to writing, whereby First Keystone promised to compensate Weiner for services rendered in connection with a joint venture to be formed between First Keystone and Schlesinger. On or about January 21, 2004, Schlesinger and First Keystone formed a joint venture (the Coney Island joint venture) to bid on a subcontract to perform electrical work in connection with a New York City Department of Environmental Preservation (DEP) project designated as the Coney Island WPCP Primary Settling Tank Odor Control Building Reconstruction. In April, 2004, Schlesinger executed a subcontract for the project, and DDR served as the project manager, providing general supervision over the work. The Coney Island joint venture promised to pay DDR $3,000 per week for its services and to also distribute to DDR a share of the profits. The Coney Island joint venture failed to pay DDR all of the compensation owed to it and to distribute all of its share of the profits.

In 2004, Clifford Weiner, who also served as a vice-president of Schlesinger, brought Schlesinger and Siemens & Automation, Inc. (Siemens) together for the purpose of bidding on a DEP contract requiring the completion of electrical upgrades to the Newtown Creek Wastewater Treatment Plant-Manhattan Pump Station. In or about August, 2004, Siemens and Schlesinger organized a Delaware limited liability company, the Schlesinger-Siemens Electrical, LLC (SSE). Pursuant to Article 7 of SSE's operating agreement, Siemens could appoint three members of the Board of Managers and Schlesinger could appoint two members. Siemens appointed Harry G. Volande, Jeffrey D. Elder, and Hubert M. Koebach. Schlesinger appointed Robert Solomon and Clifford Weiner.

In or about August, 2004, Schlesinger, First Keystone, and DDR organized the SFD joint venture for the purpose of bidding on the Manhattan Pump Station contract as the nominee of SSE and to perform work for Schlesinger as a member of SSE. The SFD joint venturers agreed that each member would contribute one third of the enterprise's capital requirements which would be directly linked to the requirements of Siemens under SSE's operating agreement. The SFD joint venturers agreed that First Keystone and DDR would use profits generated from the [*3]Coney Island project to meet the capital requirements of SFD. The SFD joint venturers agreed to divide in equal one third shares the 50% profit that would become due to Schlesinger as a member of SSE. Although SSE did not successfully bid on the Manhattan Pump Station contract, SSE and SFD continued their arrangement, and SSE received DEP contracts for the 26th Ward project and other projects.

In the summer of 2005, First Keystone and Schlesinger devised plans to exclude DDR from SFD. On or about September 14, 2005, SFD notified DDR that it would be required to make a capital contribution of $200,000 at SFD's next meeting, which DDR did not pay, nor did DDR attend alleged scheduled meetings of SFD on September 15, 2005 and September 16,2005. SFD made the unnecessary capital call on DDR with the intention of forcing the latter into a default. Schlesinger and First Keystone did not make capital contributions to SFD until November 4, 2005, and they contributed less than the sum initially demanded from the joint venturers. Moreover, Schlesinger and First Keystone deprived DDR of the funds it needed to answer the capital call by failing to pay sums of money owed by the Coney Island joint venture.

On September 16, 2005, the plaintiffs and third-party defendants attempted to end DDR's participation in SFD and to remove Weiner from SSE's Board of Managers. Jacob Levita replaced Clifford Weiner on SSE'S Board of Managers with the acquiescence of Siemens. Although Siemens knew about the events occurring within SFD, it did not intervene.

On October 4, 2005, DDR sent a certified letter to Schlesinger demanding that SFD purchase its interest in the joint venture and demanding an accounting. Although Schlesinger responded that the joint venture was being "closed out," Schlesinger and First Keystone continued to participate in SSE under the name SFD, and SSE has done electrical work for DEP on several construction contracts.

Those branches of the motion by third-party defendant SSE which are for an order pursuant to CPLR 3211(a)(1) and (7) dismissing the cause of action for breach of fiduciary duty asserted against it are granted. The elements of a cause of action for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct. (See Daly v Kochanowicz, ___ AD3d ___, 884 NYS2d 144; Fitzpatrick House III, LLC v Neighborhood Youth & Family Services, 55 AD3d 664; Kurtzman v Bergstol, 40 AD3d 588.) In the case at bar, the third-party plaintiffs failed to adequately plead facts showing the existence of a fiduciary relationship between SSE and DDR. On this CPLR 3211(a)(7) motion, the court need not accept bare legal conclusions as to the existence of a fiduciary relationship as true. (See Mohan v Hollander, 303 AD2d 473; Mayer v Sanders, 264 AD2d 827.) While a partner owes a fiduciary duty to other partners (see Birnbaum v Birnbaum, 73 NY2d 461) and while a member of a limited liability company also owes a fiduciary duty to other members (see McGuire Children, LLC v Huntress, 24 Misc 3d 1202[A], 2009 WL 1693725), DDR did not allege sufficient facts showing that it was a partner or a fellow member with SSE. Moreover, the documentary evidence in this case such as SSE's operating agreement and SFD's joint venture agreement establishes that DDR lacked [*4]such status. DDR also failed to allege sufficient facts showing that SSE and SFD were de facto joint venturers. Although SSE and SFD may have cooperated in the bidding process for public contracts, DDR did not adequately allege that SSE and SFD had a joint venture agreement or agreed to share in profits and losses. (See Magnum Real Estate Services, Inc. v 133-134-135 Associates, LLC, 59 AD3d 362.) A "sufficiently definite agreement with respect to the sharing of profits and losses" is "an indispensable element of any joint venture agreement, oral or written." (Schnur v Marin, 285 AD2d 639, 640.)

That branch of the motion by third-party defendant SSE which is for an order pursuant to CPLR 3211(a)(7) dismissing the cause of action for aiding and abetting a breach of fiduciary duty is granted. The elements of a cause of action for aiding and abetting a breach of fiduciary duty are (1) a fiduciary duty owed to plaintiff, (2) a breach of that duty, (3) the defendant's substantial assistance in effecting the breach, and (4) damages. (See Yuko Ito v Suzuki, 57 AD3d 205; Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1.) "A person knowingly participates in a breach of fiduciary duty only when he or she provides substantial assistance' to the primary violator ***. Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur ***." (Kaufman v Cohen, 307 AD2d 113, 126; see Global Minerals and Metals Corp. v Holme, 35 AD3d 93.) DDR asserts that SSE aided and abetted Schlesinger and First Keystone in breaching fiduciary duties owed as partners of DDR in SFD. However, SSE did not actively participate in DDR's ouster from SFD by the other partners therein, and, despite DDR's allegations of SSE's acquiescence to the ouster, SSE had no duty to intervene in an internal partnership dispute. DDR's cause of action for aiding and abetting a breach of fiduciary duty fails to adequately plead facts supporting the element of substantial assistance. (See Kaufman v Cohen, supra .)

That branch of the motion by SSE which is for an order pursuant to CPLR 3211(a)(7) dismissing the cause of action for fraud asserted against it is granted. The elements of a cause of action for fraud are: (1) that the defendant made material representations that were false or concealed a material existing fact, (2) that the defendant knew the representations were false and made them with the intent to deceive the plaintiff, (3) that the plaintiff was deceived, (4) that the plaintiff justifiably relied on the defendant's representations, and (5) that the plaintiff was injured as a result of the defendant's representations. (See Lama Holding Co. v Smith Barney, 88 NY2d 413; New York Univ. v Continental Ins. Co., 87 NY2d 308; Watson v Pascal, 27 AD3d 459; Cerabono v Price, 7 AD3d 479; New York City Transit Authority v Morris J. Eisen, P.C., 276 AD2d 78; American Home Assur. Co. v Gemma Const. Co., Inc., 275 AD2d 616; Swersky v Dreyer & Traub, 219 AD2d 321.) In the case at bar, DDR alleges that the SSE knew that false representations had been made to DDR by the other partners of SFD, including one about a capital call, and that SSE remained silent. However, where a fiduciary or confidential relationship does not exist, the "mere silence" of a defendant, without some deceptive act or conduct, is not actionable fraud. (See Shomar Const. Services, Inc. v Lawman Const. Co., Inc., 262 AD2d 956; Moser v Spizzirro, 31 AD2d 537, affd 25 NY2d 941.) "Absent a confidential or fiduciary relationship, there is no duty to disclose, and mere silence, [*5]without identifying some act of deception, does not constitute a concealment actionable as fraud ***." (NYCTL 1999-1 Trust v 573 Jackson Ave. Realty Corp., 55 AD3d 454; see Shomar Const. Services, Inc. v Lawman Const. Co., Inc., supra .) Finally, conclusory allegations of a conspiracy to commit fraud are insufficient to make SSE liable for the acts of Schlesinger and First Keystone. (See Agostini v Sobol, 304 AD2d 395.)

That branch of the motion by SSE which is for an order pursuant to CPLR 3211(a)(7) dismissing the cause of action for tortious interference with contract is granted. The elements of a cause of action for tortious interference with contract include "the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom ***." (Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 424.) In the case at bar, DDR did not adequately allege that SSE committed an act to procure the breach of DDR's joint venture agreement with Schlesinger and First Keystone. (See Bellino Schwartz Padob Advertising, Inc. v Solaris Marketing Group, Inc., 222 AD2d 313.)

Those branches of the motion by SSE which are for an order pursuant to CPLR 3211(a)(7) dismissing the remaining causes of action asserted against it are granted. (See Leon v Martinez, 84 NY2d 83; Dann v King Associates, LLC, 303 AD2d 539.) The court notes that DDR's allegations are insufficient to state a claim as a third-party beneficiary of SSE's operating agreement. (See Edge Management Consulting, Inc. v Blank, 25 AD3d 364.)

The remaining branches of the motion by SSE are denied.

That branch of the cross motion which is for an order directing SSE to produce its internal company audit is granted. SSE shall supply DDR with a copy of the internal company audit within twenty days of the service of a copy of this order with notice of entry. The court notes that SSE has previously stipulated to supply DDR with a copy of the audit. (See decision and order dated December 3, 2008.) The court further notes that the CPLR affords DDR with ample means to obtain disclosure against SSE even if it is not a party to this action. (See CPLR 3101[a][4]; 2 NY Prac., Com. Litig. in New York State Courts § 20:14 [2d ed].)

That branch of the cross motion which is for an order appointing a referee to conduct an accounting, etc. is denied. In view of the opportunities which the defendants/third-party plaintiffs have had to conduct extensive discovery in this case which has been pending since 2005, the appointment of a referee at this time is unwarranted.

Dated: October 5, 2009

J.S.C.