Brach v Levine

[*1] Brach v Levine 2012 NY Slip Op 51312(U) Decided on July 16, 2012 Supreme Court, Kings County Battaglia, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 16, 2012
Supreme Court, Kings County

Mendel Brach, MOSHE ROTH, 519 MARCY LLC a/k/a 519 MARCY AVENUE LLC, Plaintiffs,

against

Michael J. Levine, D'AGOSTINO, LEVINE, LANDESMAN & LEDERMAN, LLP, Defendants.



3323/12



Plaintiffs Mendel Brach, Moshe Roth, 519 Marcy LLC a/k/a 519 Marcy Avenue LLC were represented by Thomas C. Landrigan, Esq. of Cohen, LaBarbera & Landrigan, LLP. Defendants Michael J. Levine and D'Agostino, Levine, Landesman & Lederman, LLP were represented by Mark K. Anesh, Esq. of Lewis, Brisbois Bisgaard & Smith LLP.

Jack M. Battaglia, J.

Plaintiffs Mendel Brach, Moshe Roth, 519 Marcy LLC a/k/a 519 Marcy Avenue LLC were represented by Thomas C. Landrigan, Esq. of Cohen, LaBarbera & Landrigan, LLP. Defendants Michael J. Levine and D'Agostino, Levine, Landesman & Lederman, LLP were represented by Mark K. Anesh, Esq. of Lewis, Brisbois Bisgaard & Smith LLP.

In the Verified Complaint, plaintiffs Mendel Brach, Moshe Roth, 519 Marcy LLC a/k/a 519 Marcy Avenue LLC ("519 Marcy LLC") allege that on May 10, 2006, plaintiff Mendel Brach "executed a Mortgage, Modification, Extension and Spreader Agreement on behalf of assorted limited liability companies, namely, 222 Skillman, LLC, 189 Spencer LLC, 401 Bedford LLC and related mortgage loan documents concerning an asserted obligations [sic] of $1,800,000 in favor of Johar Equity, LLC (the May 2006 Spreader Agreement')." (See Verified Complaint, ¶ 8.) Defendant Michael J. Levine, a partner of the defendant law firm D'Agostino, Levine, Landesman & Lederman, LLP allegedly prepared the May 2006 Spreader Agreement, notarized plaintiff Brach's signature on it, and "represented to Mendel Brach that his office would properly record" the agreement "according to its actual terms" (see id. at ¶¶ 13, 23). Instead, sometime around June 21, 2006, defendant Levine allegedly altered the documents, and on November 15, 2006, the mortgage was recorded as against 420 Marcy Avenue, LLC, plaintiff 519 Marcy LLC, and Frankwink Properties, Inc., in addition to 222 Skillman, LLC, 189 Spencer LLC, and 401 Bedford LLC. (See id. at ¶¶ 16, 18, 20.) Levine allegedly altered the signature page by "adding wholly new parties to the agreement". (See id. at ¶ 17.)

Plaintiffs further allege that defendant Levine's May 10, 2006 representation to Mendel Brach that he would record the Spreader Agreement according to its actual terms "was intentionally false at the time he made same and Plaintiffs reasonably relied upon same to their detriment" (see id. at ¶ 24); that Levine knew "that 519 Marcy Avenue, LLC and property located at 519 Marcy Avenue was expressly released from any loan obligation by the mortgagee by reason of release dated May 2005, but nevertheless, filed the Altered Spreader Agreement in bad faith" (see id. at ¶ 25); that Plaintiffs were harmed "by the fraudulent and bad faith encumbrance of 519 Marcy Avenue, LLC in an amount not less than $1,800,000" (see id. at ¶26.)

In a related action also before this Court, Mew Equity LLC v Sutton Land Services, LLC, Index No. 25882/10, the plaintiffs Mew Equity LLC, Martin Wydra, and Edward Wydra allege eight causes of action against 13 named defendants, including Mendel Brach, Moshe Roth a/k/a [*2]Mozes Roth, Sutton Land Services, L.L.C. d/b/a Sutton Land Title, and Sutton Alliance, LLC d/b/a Sutton Land Title. In that action, the plaintiffs allege that Brach, Roth, and their title company Sutton Land Services, LLC perpetrated a "sophisticated fraud" upon them.

Specifically, the Mew Equity LLC action relates to a 2003 loan for $1.8 million secured by a mortgage on several parcels of real property, including property located at 519 Marcy Avenue, Brooklyn. Allegedly, at some time or times, defendants 519 Marcy LLC a/k/a 519 Marcy Avenue, LLC, 222 Skillman LLC, 652 Park, LLC, directly or indirectly owned an interest in the property at 519 Marcy Avenue, and those entities were owned or controlled by Brach, Roth, or both. In 2005, title to 519 Marcy Avenue was transferred to Marcy Tower LLC, and mortgages on the property were given to the predecessor in interest of defendant JP Morgan Chase Bank National Association.

Edward Wydra and Martin Wydra, and Mendel Brach and Moshe Roth a/k/a Mozes Roth, together with some number of juridical entities controlled by at least one of them, are also parties to an arbitration, still pending before The Beth Din Kollel HaRabbonim Rabbinical Court. The arbitration yielded a Decision of the Bais Din "dated as of September 22, 2010" that is the subject of a special proceeding pursuant to CPLR Article 75.

With a Decision and Order dated September 21, 2011, this Court vacated the arbitration award represented by the Decision of the Bais Din, and remitted the matter to The Beth Din Kollel HaRabbonim Rabbinical Court for rehearing on issues raised in the Decision and Order, including clarification as to which disputes and juridical entities were subject to the beth din's determination. (See Matter of Wydra [Brach], 32 Misc 3d 1241 [A], 2011 NY Slip Op 51664 [U] [Sup Ct, Kings County 2011].) In the decision dated September 21, 2011, this Court noted that the litigants, including plaintiffs Brach and Roth, "engaged in a business practice of using separate juridical entities, primarily limited liability companies, to hold title to various parcels of real property", and that the "separate juridical entities and the real property owned by each were pressed into service by the litigants to serve the purposes of broader business transactions or relationships". (See Matter of Wydra [Brach], 2011 NY Slip Op 51664, at *3.) As will be demonstrated below, and as was demonstrated in this Court's prior decisions in the Mew Equity LLC action and the Article 75 proceeding, the consequences of conducting business in this fashion have legal ramifications, including, in determining who is party to a transaction, and who has an interest in real property.

In their pre-answer motion to dismiss, defendants Michael J. Levine and D'Agostino, Levine, Landesman & Lederman, LLP contend that they are entitled to dismissal of the action as against them on the grounds that plaintiffs Mendel Brach, Moshe Roth, and 519 Marcy LLC either lack capacity to sue (see CPLR 3211[a][3]) or lack standing to bring the action. In addition, Defendants contend that the allegations in the Verified Complaint do not state a valid cause of action for fraud because, among other things, neither Mendel Brach nor Moshe Roth were party to any of the alleged transactions, and did not sustain any actual damages as a result of Defendants' alleged fraudulent conduct. (See CPLR 3211[a][7].) [*3]

In Community Board 7 of the Borough of Manhattan v Schaffer (84 NY2d 148 [1994]), the Court of Appeals discussed the distinction between dismissal for lack of capacity, lack of standing, and for failure to state a cause of action. "[T]he concept of capacity is often confused with the concept of standing, but the two legal doctrines are not interchangeable. Standing is an element of the larger question of justiciability'. The various tests that have been devised to determine standing are designed to ensure that the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. Often informed by considerations of public policy, the standing analysis is, at its foundation, aimed at advancing the judiciary's self-imposed policy of restraint, which precludes the issuance of advisory opinions. Capacity,' in contrast, concerns a litigant's power to appear and bring its grievance before the court. The concept of a lack of capacity, which has also occasionally been intermingled with the analytically distinct concept of a failure to state a cause of action, does not admit of precise or comprehensive definition. Capacity, or the lack thereof, sometimes depends purely upon a litigant's status." (Id. at 154-55 [internal quotation marks, brackets, and citations omitted].)

In addressing these issues with respect to plaintiff 519 Marcy LLC, Defendants' contention is most easily resolved based upon lack of capacity to sue pursuant to CPLR 3211(a)(3). (See e.g. Security Pacific National Bank v Evans, 31 AD3d 278, 279 [1st Dept 2006] [an objection to "plaintiff's status [as a non-existent corporation] is properly understood as questioning legal capacity, not standing"].)

In this regard, Defendants contend that 519 Marcy LLC lacks legal capacity to sue because it was merged into 222 Skillman, LLC on February 11, 2003, and has been an inactive entity since 2003. It has been held that a business corporation that is merged with, and completely absorbed by, another corporation ceases to exist as an independent jural entity, and, therefore, lacks legal capacity to sue. (See Westside Federal Savings & Loan Association of New York City v Fitzgerald, 136 AD2d 699, 699 [2d Dept 1988]; see also e.g. Lance International, Inc. v First National City Bank, 86 AD3d 479, 480 [1st Dept 2011] [dissolved corporation lacks capacity to sue unless in the course of winding up its affairs]; cf. Security Pacific National Bank v Evans, 31 AD3d at 279.)

In support, Defendants proffers documentary evidence (see CPLR 3211[a][1]) including a Certificate of Merger establishing that 519 Marcy LLC was merged into 222 Skillman, LLC on February 11, 2003, and a computer printout from the New York State Department of State indicating that 519 Marcy LLC is "INACTIVE- Merged Out (Feb 11, 2003)". (See e.g. Kearney v Capelli Enters., Inc., 2012 NY Slip Op 30439[U] [Sup Ct, New York County 2012] [taking judicial notice of public records on the New York State Department of State website]; Scarsini Interiors, Inc. v Just in Time Furniture Warehouse, Inc., 2009 NY Slip Op 31702[U] [Sup Ct, [*4]New York County 2009]; Tener Consulting Servs., LLC v FSA Main St. LLC, 23 Misc 3d 1120[A], 2009 NY Slip Op 50857[U], *7-*8 [Sup Ct, Westchester County 2009]; Brown v SMR Gateway 1, LLC, 22 Misc 3d 1139[A], 2009 NY Slip Op 50516[U], *4 [Sup Ct, Kings County 2009]; see also generally Kingsbrook Jewish Med Ctr. v Allstate Ins. Co., 61 AD3d 13, 19 [2d Dept 2009] [discussing judicial notice and admissibility of information on official government websites].)

As a result, movants sufficiently demonstrate prima facie that plaintiff 519 Marcy LLC a/k/a 519 Marcy Avenue LLC merged into 222 Skillman, LLC on February 11, 2003, and has been an inactive entity since that time.

In opposition, Plaintiffs submit, among other things, the affirmation of plaintiff Mendel Brach, who does not point to any evidence disputing that 519 Marcy LLC merged into 222 Skillman, LLC on February 11, 2003, and was an inactive entity at the time it commenced the instant action.

Accordingly, the branch of Defendants' motion for an order dismissing the Verified Complaint of plaintiff 519 Marcy LLC a/k/a 519 Marcy Avenue LLC as against them is GRANTED.

Defendants also contend, among other things, that plaintiffs Mendel Brach and Moshe Roth lack capacity or standing to sue since Plaintiffs do not allege that they ever owned title to the 519 Marcy Avenue property in their individual capacities. Defendants also contend, similarly, that plaintiffs Brach and Roth fail to state a cause of action for fraud because the Verified Complaint does not allege any injury or harm to them as individuals. Indeed, the Verified Complaint specifically alleges that Plaintiffs acted on behalf of "assorted limited liability companies" (see Verified Complaint, ¶ 8), and makes no allegation that they ever acted in their individual capacities with respect to any transaction with Defendants.

"Generally corporations have an existence separate and distinct from that of their shareholders and an individual shareholder cannot secure a personal recovery for an alleged wrong done to a corporation. The fact that an individual closely affiliated with a corporation (for example a principal shareholder, or even a sole shareholder), is incidentally injured by an injury to the corporation does not confer on the injured individual standing to sue on the basis of either that indirect injury or the direct injury to the corporation". (New Castle Siding Co., Inc. v Wolfson, 97 AD2d 501, 502 [2d Dept 1983], aff'd 63 NY2d 782 [1984]; see also Baccash v Sayegh, 53 AD3d 636, 639 [2d Dept 2008] ["Although it is undisputed that the plaintiff is Bridal Coutrue's sole officer and shareholder, a corporation has a separate legal existence from its shareholders even where the corporation is wholly owned by a single individual"].) "[C]ourts are loathe to disregard the corporate form for the benefit of those who have chosen that form to conduct business". (Baccash v Sayegh, 53 AD3d at 639 [quoting Harris v Stony Clove Lake Acres, 202 AD2d 745, 747 (3d Dept 1994)].) [*5]

The caselaw cited above appears to consider the issue in terms of both "standing to sue" (New Castle Siding Co., Inc. v Wolfson, 97 AD2d at 502) and "having a cause of action" (id.) . However, in Matlinpatterson ATA Holdings LLC v Federal Express Corp. (87 AD3d 836 [1st Dept 2011], the court analyzed the "standing" issue as a "threshold matter" in the context of a motion for failure to state a cause of action pursuant to CPLR 3211(a)(7), and continued to consider whether any recognizable cause of action could be discerned from the complaint despite noting that the plaintiff may not have had "standing". (See id.) Similarly, in Baccash v Sayegh (53 AD3d 636), the court addressed the issue in terms of the plaintiff's failure to prove at trial the elements of a cognizable cause of action. (See id. at 639.) In this regard, the court found that the plaintiff, the sole shareholder and owner of a corporation, did not prove that she suffered any direct damages as result of the defendant's legal malpractice. (See id. at 640.)

In Sealy v Clifton, LLC (68 AD3d 846 [2d Dept 2009]), the Second Department held that an individual plaintiff, who owned a 50% interest in an limited liability company, did not have "legal capacity to sue" for partition of a property owned by a limited liability company of which he was member. (See id., at 847.) The court also noted that a member of a limited liability company "has no interest in specific property of the limited liability company". (See id.; see also Limited Liability Company Law § 601; see also e.g. Yonaty v Glauber, 40 AD3d 1193, 1195 [3d Dept 2007].)

"On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction." (Leon v Martinez, 84 NY2d 83, 89 [1994].) The court must "accept the facts as alleged in the complaint as true, accord plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." (Id.) "[A] court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint and the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one." (Id. [internal quotation marks and citations omitted].)

In opposition to the motion, Mendel Brach's affirmation alleges, among other things, that "at all times it was well known by the Defendants that [he] and Moshe Roth were the owners of these entities and that their individual rights would be effected by the rank alteration of the documents at issue"; that in his dealings with Defendants, "it was known that my interests would be effected and that I was a representative of Moshe Roth and it was well known that our individual interests would be effected, along with the various business entity Plaintiffs." (See Affirmation in Opposition, ¶ 21.)

The allegations of the Verified Complaint as supplemented by Mendel Brach's affirmation do not contain any allegation that either Brach or Roth acted in an individual capacity with respect to any of the transactions. Indeed, there is no allegation even involving plaintiff Moshe Roth other than harm to his "interests". Neither Brach nor Roth allege ownership, in an individual capacity, of 519 Marcy Avenue, which is alleged to have been fraudulently encumbered by a $1.8 million dollar mortgage. While such property may have been owned by a limited liability company wholly owned and controlled by Brach or Roth, or both, the limited [*6]liability company has a separate legal existence from its members. (See Baccash v Sayegh, 53 AD3d at 639; New Castle Siding Co., Inc. v Wolfson, 97 AD2d at 502.) As such, neither Brach nor Roth have capacity (see Sealy v Clifton, LLC, 68 AD3d at 847), or standing (see New Castle Siding Co., Inc. v Wolfson, 97 AD2d at 502) to sue for the harm to any of the limited liability companies of which they are members.

In any event, for reasons related to the "standing" and capacity" issues, Plaintiffs' Verified Complaint, as supplemented by the Brach affirmation, also fails to sufficiently plead a fraud cause of action as against Defendants.

"To sustain a cause of action alleging fraud, a party must show a misrepresentation or a material omission of fact which was false and known to be false by the 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." (Cayuga Partners, LLC v 150 Grand, LLC, 305 AD2d 527, 527-28 [2d Dept 2003].) "To state a legally cognizable claim of fraudulent misrepresentation, the complaint must allege that the defendant made a material misrepresentation of fact; that the misrepresentation was made intentionally in order to defraud or mislead the plaintiff; that the plaintiff reasonably relied on the misrepresentation, and that the plaintiff suffered damages as a result of its reliance on the defendant's misrepresentation." (P.T. Bank Central Asia v ABN AMRO Bank, N.V., 301 AD2d 373, 376 [1st Dept 2003].)

Where a cause of action is based on misrepresentation or fraud, the "circumstances constituting the wrong shall be stated in detail." (See CPLR 3016[b]). "Bare allegations of fraud, which merely list the material elements of fraud without any supporting detail, are insufficient to satisfy the pleading requirements of CPLR 3016 (subd [b])." (Gorman v Gorman, 88 AD2d 677, 678 [3d Dept 1982].) Confusing and ambiguous allegations are insufficient. (See Perla v Marine Midland Realty Corp., 61 AD2d 837, 837 [2d Dept 1978].)

Initially, Plaintiffs fail to allege that Defendants made any misrepresentation to plaintiff Moshe Roth. (See Garelick v Carmel, 141 AD2d 501, 502 [2d Dept 1988][fraud cause of action not adequately pled where no allegation that misrepresentation was made by defendant to plaintiff].)

Since Brach and Roth allege that they were acting on behalf of various limited liability companies, they each fail to allege any misrepresentation was made to them in their individual capacities, and that they sustained actual damages as a result of Defendants' conduct. (See Baccash v Sayegh, 53 AD3d at 641 [plaintiff who was sole shareholder and officer of corporation was unable to prove that she sustained actual damages in her individual capacity.)

"[W]hile the doctrine of piercing the corporate veil allows a corporation's separate legal existence to be disregarded to prevent fraud and achieve equity, the doctrine is typically employed by third parties seeking to circumvent the limited liability of the owners, and requires a showing of a wrongful or unjust action toward the plaintiff." (See id. at 640.) Plaintiffs make no [*7]showing that the doctrine of the piercing the corporate veil "would be available to allow [them] to disregard the corporate form in which [they] chose to do business." (Id.)

Nor do Plaintiffs make any allegations demonstrating that they have a viable claim on the ground that injury to them "resulted from the violation of a duty owing to the shareholder from the wrongdoer, having its origin in circumstances independent of and extrinsic to the corporate entity." (See e.g. Matlinpatterson ATA Holdings LLC v Federal Express Corporation, 87 AD3d at 839.)

Moreover, neither the Verified Complaint nor Mendel Brach's affirmation describe the circumstances constituting the wrong in sufficient detail pursuant to CPLR 3016. For example, while it is alleged that defendant Levine is an attorney, and that he notarized Brach's signature on the May 2006 Spreader Agreement, there is no allegation describing Plaintiffs' relationship to Defendants. In this regard, it is not clear whether Defendants represented Plaintiffs as their attorneys, whether they represented a nonparty, such as the lender Johar Equity, LLC or any of the other parties in the Mew Equity LLC action or Article 75 proceeding, or whether they acted in their own capacity. More significantly, none of the allegations explain how Plaintiffs sustained damages in the amount of $1,800,000, since there is no allegation that any of the Plaintiffs owned 519 Marcy Avenue, the property allegedly fraudulently encumbered by Defendants.

Accordingly, the branch of Defendants' motion for an order dismissing the Verified Complaint of plaintiffs Mendel Brach and Moshe Roth as against them is GRANTED.

In light of this determination, the Court need not consider the remaining branches of Defendants' motion.

Finally, it should be noted that the Court did not consider Plaintiffs' submission of a Notice of Cross Motion and an Attorney Affirmation in Opposition and in Support of Cross Motion (the "cross-motion"), which seek to amend the Verified Complaint to add 652 Park LLC as a plaintiff. The cross-motion was not filed with the Court, does not appear on the Part 59 calendar, and is not shown to have been served upon Defendants. The Court also did not consider the Supplemental Summons and Amended Verified Complaint, which is also not shown to have been served upon Defendants.

In sum, Defendants' motion to dismiss Plaintiffs' Verified Complaint is granted in its entirety.

July 16, 2012___________________

Jack M. Battaglia

Justice, Supreme Court