Royal Communications Consultants, Inc. v IVIZ, LLC

[*1] Royal Communications Consultants, Inc. v IVIZ, LLC 2013 NY Slip Op 51213(U) Decided on July 19, 2013 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 19, 2013
Supreme Court, Kings County

Royal Communications Consultants, Inc., Plaintiff,

against

IVIZ, LLC, 203 NORTHSIDE LLC, 205 NORTHSIDE LLC, ANTHONY GALLINA, LAWRENCE PINNER, a/k/a LARRY PINNER, REUBEN PINNER, and DAVID BENZAKEN,, Defendants.



500182/13



Alan Fell, Esq.

Rick Steiner Fell & Benowitz LLP

90 Broad Street 25th Floor

New York, NY 10004

Attorneys for Plaintiff

Daniel C. Marotta, Esq.

Gabor & Marotta LLC

1878 Victory Boulevard

Staten Island, NY 10314

Attorneys for defendant Anthony Gallina

Michal Falkowski, Esq.

The Falkowski Firm, PLLC

61-43 186th Street, Suite 593

Fresh Meadows, NY 11365

Attorneys for defendant Reuben Pinner

Alexander Paykin, Esq.

The Law Office of Alexander Paykin, P.C.

350 5th Avenue, 59th Floor

New York, NY 10118

Attorneys for defendant Lawrence Pinner

Orrin Jaroslawicz, Esq.

Stein Farkas & Schwartz LLP

49 West 37th Street, 9th Floor

New York, NY

Attorneys for 203 Northside, 205 Northside, David Benzaken

Carolyn E. Demarest, J.

The following papers numbered 1 to 7 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed__________________22, 23, 24, 61, 70, 30, 31, 32, 30

Opposing Affidavits (Affirmations)_________________81, 41, 47, 93____________

Reply Affidavits (Affirmations)______________________100, 96____________

Affidavit (Affirmation)_________________________________________

Other Papers ________________________________________________

Defendants Lawrence Pinner ("Lawrence"), Reuben Pinner ("Reuben"), and Anthony Gallina ("Gallina"), herein "the Pinner Defendants," move [FN1] for an order dismissing plaintiff's causes of action for fraud in the inducement [FN2] as against themselves for the failure to state a cause of action pursuant to CPLR 3211 (a) (7), as barred by the statute of limitations pursuant to CPLR 213, and for a defense founded upon documentary evidence pursuant to CPLR 3211 (a) (1). Defendants David Benzaken ("Benzaken"), 203 Northside, LLC ("203 Northside"), and 205 Northside, LLC ("205 Northside") oppose the motions. Plaintiff filed and served a cross motion for leave to amend the complaint, which was granted by the court at oral argument.[FN3]

[*2]BACKGROUND

This case arises out of plaintiff's investment of $250,000 in defendants' project ("the Project") to acquire and develop two real properties known as 203 North 8th Street and 205 North 8th Street in Brooklyn, New York ("the Properties"), which were to be sold as condominium units. Plaintiff claims that its investment entitled it to a share of the profits from the Project, based on an investor agreement (the "Investor Agreement") and on plaintiff's interest in the LLCs that were created for the Project's operation. The Investor Agreement on which plaintiff relies is between plaintiff and IVIZ, of which Lawrence was allegedly the managing member.

Plaintiff alleges that in the fall of 2005 the Pinner Defendants each made representations to plaintiff's principals, Charles Santo ("Santo") and Alan Rheingold ("Rheingold"), that IVIZ or an entity to be formed by IVIZ would purchase the Properties and construct a new 6-story apartment building that would be offered for sale on a condominium basis. The Pinner Defendants allegedly represented that if plaintiff invested in the Project, plaintiff would be entitled to a share of the profits. The Investor Agreement states that "for every $100,000 invested, the investor is entitled to 5.55% of the investor profits." The Investor Agreement defines investor profits as one-third of the total profits for the Project. Plaintiff alleges that it relied on the Pinner Defendants' verbal representations by investing $250,000 in the Project and entering into the Investor Agreement on October 3, 2005. Plaintiff has produced a copy of the Investor Agreement signed only by plaintiff. Plaintiff alleges that defendant Lawrence countersigned the Investor Agreement on behalf of IVIZ but that the copy signed by Lawrence is not in plaintiff's possession. The Pinner Defendants challenge the validity of the unsigned Investor Agreement but concede that $250,000 was received from plaintiff.

One or more of the Pinner Defendants created the two defendant entities 203 Northside and 205 Northside for the purpose of acquiring the Properties. 203 Northside was created on January 5, 2006, but allegedly purchased the property located at 203 North 8th Street on or about October 3, 2005, the same date that the Investor Agreement was allegedly signed by plaintiff. 205 Northside was created on December14, 2005, and allegedly purchased the property located at 205 North 8th Street on or about January 3, 2006.

Plaintiff claims that, after its investment in 2005, Santo and Rheingold visited the properties on a monthly basis to view the progress. During each of these visits, Santo and Rheingold allegedly met with one or both of defendants Reuben and Gallina. On many of these visits, Rheingold and Santo allegedly asked Reuben or Gallina for financial documents but the response was either that the documents were forthcoming or that Reuben or Gallina would get back to them.

Plaintiff claims that in the summer of 2011, Rheingold and Santo again visited the properties, observed that no one was at the buildings, and saw a notice that work on the properties had stopped. Following this visit, plaintiff claims that Rheingold and Santo made numerous phone calls to the Pinner Defendants to get information on these developments but no one would return their calls.

Plaintiff alleges that Reuben assigned or sold his interest in the Project in or about late 2008 but kept this information secret from plaintiff, despite holding subsequent meetings with [*3]Santo and Rheingold and despite continuing to act as the face of the project. Plaintiff claims that Lawrence and Gallina assigned their respective interests in the project in 2010 to defendant Benzaken and also kept these transactions secret from Rheingold and Santo. The Pinner Defendants' motions to dismiss state that the Pinner Defendants are no longer members or officers of 203 Northside or 205 Northside. Plaintiff alleges that it did not previously know of these assignments or sales and that it only learned of them as a result of the statements made by defendants in the motion papers submitted to the court.

DISCUSSION

Plaintiff's amended complaint sets forth, as against the Pinner Defendants, causes of action for fraudulent inducement, unjust enrichment, breach of fiduciary duty, failure to deliver a membership certificate, failure to account, and declaration of a constructive trust naming defendants as involuntary trustees and mandating the sale of assets.

The Pinner Defendants first argue that plaintiff's claims are barred by the six-year statute of limitations under CPLR 213. Second, the Pinner Defendants contend that plaintiff's complaint should be dismissed for failure to state a cause of action pursuant to CPLR 3211 (a) (1). Third, the Pinner Defendants assert that the complaint should be dismissed based upon documentary evidence.

The Pinner Defendants first contend that plaintiff's claim is barred by the statute of limitations pursuant to CPLR 213. "A cause of action based upon fraud must be commenced within six years from the time of the fraud or within two years from the time the fraud was discovered, or with reasonable diligence, could have been discovered, whichever is longer" (Oggioni v Oggioni, 46 AD3d 646, 648 [2d Dept 2007]). "The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was possessed of knowledge of facts from which [the fraud] could be reasonably inferred'"(Sargiss v Magarelli, 12 NY3d 527, 532 [2009], quoting Erbe v Lincoln Rochester Trust Co., 3 NY2d 321, 326 [1957]). "Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute" (Erbe at 326). "Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion" (Sargiss at 532, quoting Trepuk v Frank, 44 NY2d 723, 725 [1978]). Where "it is unclear from the record when the plaintiff first should have been aware of the possible fraud, [the] cause of action should not [be] dismissed as time-barred" (Pericon v Ruck, 56 AD3d 635, 636-37 [2d Dept 2008]).

The Pinner Defendants seek to dismiss plaintiff's claim of fraud because the Investor Agreement was allegedly signed in 2005, more than six years prior to the initiation of this action, and it is argued that any fraud claim arising from the Investor Agreement is therefore barred by the six-year statute of limitations under CPLR 213. Lawrence argues that "if plaintiff, in all that time, never undertook to inquire as to the status of its investments, it did not act reasonably and any alleged fraud could have and should have been discovered during that time." He asserts that plaintiff has not explained how it is that it was unaware of this alleged fraud for over six years. However, plaintiff contends that it periodically requested financial documents from the Pinner Defendants, to no avail. Furthermore, plaintiff alleges that the Pinner Defendants withheld the [*4]fact that they had assigned their interests in the Project, information that plaintiff claims would have alerted it to the alleged fraudulent activity and would have caused plaintiff to take steps to protect its investment. The amended complaint alleges that the fraud continued until at least 2011 and that plaintiff did not discover it until July 1, 2012, although it does not provide details as to its discovery on that date. Plaintiff has thus alleged sufficient details to raise a question of fact as to whether the statute of limitations was tolled or was otherwise inapplicable. Based on the arguments presented, there is a dispute as to when the alleged fraud took place and when plaintiff could have discovered or did discover the alleged fraud. Accordingly, the complaint may not be dismissed as time-barred at this time (see Oggioni v Oggioni, 46 AD3d 646 at 645; Sargiss v Magarelli,12 NY3d 527 at 532; Pericon v Ruck, 56 AD3d 635 at 636-37).

The Pinner Defendants' second argument is that the complaint should be dismissed based upon documentary evidence pursuant to CPLR 3211 (a) (1). "To prevail on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence which forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim" (Parekh v Cain, 96 AD3d 812, 814-15 [2d Dept 2012]).

The Pinner Defendants annex several documents in support of their argument that plaintiff's claims should be dismissed based upon documentary evidence, including the Investor Agreement signed only by Rheingold, on behalf of plaintiff, and not by any defendant. This document alone is insufficient to resolve all factual issues as a matter of law. Defendants attach Lawrence's affidavit from the pending Nassau County case of Stahl v 203 Northside, LLC and 205 Northside, LLC (Sup Ct, Nassau County, April 12, 2013, Feinman, J., index No. 600992/12), in which Lawrence acknowledges plaintiff's interest in the Project. This document is also insufficient to resolve all factual issues because it does not definitively prove plaintiff's interest. The Pinner Defendants also provide corporate registration documents from the New York Department of State, apparently to demonstrate that defendants IVIZ, 203 Northside, and 205 Northside are still active entities, thereby precluding liability against the Pinner Defendants. These documents are insufficient to resolve all factual issues in this case.

In addition to the foregoing documents, the Pinner Defendants also present K-1 statements from 2008 for both 203 Northside and 205 Northside to demonstrate that plaintiff was accorded the benefits to which it was entitled. These K-1 statements indicate that plaintiff holds a 3.8% interest in each entity. The K-1 Statements on which defendants rely are insufficient to dispose of all questions of fact in this case. "The schedules and tax filing by [plaintiff] on which [defendants] rely are not binding judicial admissions" (Imprimis Investors, LLC v Insight Venture Mgmt. Inc., 300 AD2d 109 [1st Dept 2002]; see also (Stahl v 203 Northside, LLC and 205 Northside, LLC, Sup Ct, Nassau County, April 12, 2013, Feinman, J., index No. 600992/12, supra, finding that "the issuance of K-1 statements alone does not constitute incontrovertible proof of ownership"; D'Amour v Ohrenstein & Brown, LLP (17 Misc 3d 1130(A) [Sup Ct, New York County 2007], finding that "the Schedules K—1 do not conclusively establish that plaintiffs were non-equity partners"). Moreover, plaintiff indicates it never received these K-1 statements and, indeed, never saw these statements prior to receipt of the moving defendants' motions. Accordingly, the documentation that the Pinner Defendants have provided in support of their motions to dismiss is insufficient to justify dismissal on the basis of documentary evidence (see Parekh v Cain, 96 AD3d 812, 814-15 [2d Dept 2012]). [*5]

The Pinner Defendants contend that plaintiff's complaint should be dismissed for failure to state a cause of action under CPLR 3211 (a) (7). On a motion to dismiss pursuant to CPLR 3211 (a) (7), the court must accept the facts alleged by the plaintiff as true and liberally construe the complaint, "accord[ing] plaintiffs the benefit of all favorable inferences which may be drawn from their pleading, without expressing [its] opinion as to whether they can ultimately establish the truth of their allegations before the trier of fact" (Campaign for Fiscal Equity, Inc. v State of New York, 86 NY2d 307, 318 [1995]). The role of the court is to "determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87 [1994]). "So liberal is the standard under these provisions that the test is simply whether the proponent of the pleading has a cause of action, not even whether he has stated one" (Wiener v Lazard Freres & Co., 241 AD2d 114 [1st Dept 1998], internal quotation marks omitted). Therefore, "if [the court] determine[s] that [plaintiff is] entitled to relief on any reasonable view of the facts stated, [the court's] inquiry is complete and [it] must declare the complaint legally sufficient" (Campaign for Fiscal Equity, 86 NY2d at 318).

Plaintiff's first and second causes of action for fraud request punitive damages. "It is well settled that punitive damages may not be awarded to redress a private wrong, and, accordingly, that such damages are not available in the ordinary fraud and deceit case. ... Punitive damages may only be recovered in a fraud action where the fraud is aimed at the public generally, is gross, and involves high moral culpability" (Kelly v Defoe Corp., 223 AD2d 529 [2d Dept 1996], internal quotation marks omitted).

Plaintiff has not alleged that defendants' fraud was aimed at the public generally. Plaintiff has also failed to allege facts indicating that the alleged fraud was gross and involved high moral culpability. Therefore, plaintiff's request for punitive damages is denied. The court will address only plaintiff's demand for damages in the amount of $250,000.

"The essential elements of a cause of action sounding in fraud are 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" (Orlando v Kukielka, 40 AD3d 829, 831 [2d Dept 2007]; see also Channel Master Corp. v Aluminum Ltd. Sales, Inc.,4 NY2d 403, 407 [1958]). "Each of the foregoing elements must be supported by factual allegations sufficient to satisfy CPLR 3016 (b)" (Monaco v New York Univ. Med. Ctr., 213 AD2d 167, 169 [1st Dept 1995]). "CPLR 3016(b) is satisfied when the facts suffice to permit a reasonable inference' of the alleged misconduct. And, in certain cases, less than plainly observable facts may be supplemented by the circumstances surrounding the alleged fraud'" (Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009], quoting Pludeman v N. Leasing Sys., Inc., 10 NY3d 486, 492 [2008]). "In actions for fraud, corporate officers and directors may be held individually liable if they participated in or had knowledge of the fraud, even if they did not stand to gain personally" (Polonetsky v Better Homes Depot, Inc., 97 NY2d 46, 55 [2001]). However, "bare, conclusory allegations of fraud are insufficient to sustain a cause of action sounding in fraud" (Glassman v Catli, 111 AD2d 744, 745 [2d Dept 1985]).

Plaintiff articulates essentially two instances of fraud, the first occurring in 2005 when plaintiff claims it invested in the project, and the second occurring sometime during the years [*6]from 2008 to the present, after the Pinner Defendants allegedly sold their interests in the project.Plaintiff first alleges that the Pinner Defendants were each personally involved in discussions with plaintiff in the fall of 2005 regarding plaintiff's investment in the Project. The Pinner Defendants allegedly proposed to Rheingold and Santo that plaintiff invest in the Project, representing that the apartments would be offered for sale on a condominium basis and that, by investing, plaintiff would be entitled to a share of the profits earned on the Properties. Plaintiff claims that the Pinner Defendants presented plaintiff with the Investor Agreement and that a copy of the Investor Agreement was countersigned by Lawrence. The Pinner Defendants contend that the Investor Agreement is unenforceable because plaintiff has not produced a countersigned copy, but they concede that plaintiff did invest the $250,000. Both plaintiff and the Pinner Defendants acknowledge that the Project did acquire the real property and at least begin development on it.

Plaintiff has not sufficiently alleged details of the fraudulent inducement in 2005 which it claims the Pinner Defendants perpetrated on plaintiff. Plaintiff has not provided sufficient details of the allegedly false statements that were made by the Pinner Defendants. In fact, nowhere in the complaint is it alleged that the money plaintiff invested was not applied towards the acquisition and development of the Properties. Plaintiff's claim that the statements made by the Pinner Defendants were false is a conclusory allegation and is not supported by the facts as alleged by plaintiff. Therefore, plaintiff's claim that the Pinner Defendants made fraudulent misrepresentations in 2005 is not sufficiently alleged and the first and second causes of action, insofar as they relate to 2005, are dismissed pursuant to 3211 (a) (7) (see Glassman v Catli, 111 AD2d 744, 745 [2d Dept 1985]).

In addition to the allegations of fraud that took place in 2005, plaintiff also claims that material omissions amounting to fraudulent misrepresentation took place several years later when the Pinner Defendants sold their interests in the Project and did not disclose the sale to plaintiff or advise the buyer of plaintiff's interest. It is well established that "when there is no Operating Agreement, or such agreement does not address certain subjects, then the entity is bound by the minimum requirements set forth in the Limited Liability Company Law" (Spires v Casterline, 4 Misc 3d 428, 436 [Sup Ct, Monroe County 2004]). Limited Liability Company Law section 603 provides that "except as provided in the operating agreement, (1) a membership interest is assignable in whole or in part." New York's Limited Liability Company Law does not elsewhere impose a restriction on the assignment of membership interests in the absence of an operating agreement provision to the contrary.

Plaintiff claims that the Pinner Defendants individually sold or assigned their interests in the Project to defendant Benzaken and failed to inform plaintiff about these events, despite continuing to present themselves as the "face" of the Project and holding subsequent meetings with plaintiff's principals. Plaintiff claims that Santo and Rheingold attempted, on multiple occasions, to contact the Pinner Defendants when Santo and Rheingold saw that work on the Project had stopped. However, plaintiff has failed to allege with adequate specificity the details surrounding those attempts, including the dates and substance of phone calls or conversations which took place. Plaintiff also has not provided details as to precisely in what manner any of the Pinner Defendants continued to "act as point man" of the project after purportedly selling their [*7]interests or in what manner they kept "secret" the sale. Nor has plaintiff specified how "misrepresentations" by the Pinner Defendants caused damages to plaintiff or even how the Pinner Defendants owed plaintiff a duty to disclose the assignment of their interests. Therefore, plaintiff's claims of fraud relating to the sale of the Pinner Defendants' interests in the Project is not sufficient and the first and second causes of action must be dismissed as to the moving defendants (see Glassman v Catli, 111 AD2d 744, 745 [2d Dept 1985]).

As to the remaining causes of action against the Pinner Defendants, which are not specifically addressed in their motions to dismiss, it is not possible for the court to address them at this time. Though not artfully plead, the details alleged by plaintiff suffice to demonstrate that plaintiff may have claims against the Pinner Defendants. Particularly given plaintiff's recent discovery of pertinent facts upon receipt of the Pinner Defendants' motion papers in this case, plaintiff is entitled to discovery on the remaining issues (see Wiener v Lazard Freres & Co., 241 AD2d 114 [1st Dept 1998]).

CONCLUSIONPlaintiff has not alleged the circumstances constituting each element of its claims of fraud against each Pinner Defendant in sufficient detail to satisfy the pleading requirement of CPLR 3016 (b). The Pinner Defendants' motions to dismiss plaintiff's first and second causes of action for fraud based on a failure to adequately state a cause of action is, accordingly, granted (see Campaign for Fiscal Equity, Inc. v State of New York (86 NY2d 307, 318 [1995]). The motions, insofar as they seek outright dismissal of the complaint as to the Pinner Defendants, are denied at this time.

The foregoing constitutes the Decision and Order of the Court.

E N T E R,

Carolyn E. Demarest

J. S. C. Footnotes

Footnote 1:Defendants' three separate motions assert essentially the same arguments. Therefore, the court will address all three motions together.

Footnote 2:Plaintiff's third cause of action alleges breach of contract against defendants IVIZ, 203 Northside, and 205 Northside but is silent as to any of the Pinner Defendants. Therefore, the Pinner Defendants' arguments addressing plaintiff's third cause of action for breach of contract is moot. Additionally, although the Pinner Defendants state in their motions that they move to dismiss "the complaint," their arguments only address plaintiff's allegations of fraud. As the Pinner Defendants have not proffered arguments as to the other causes of action alleged against them, the court's decision will address only the first and second causes of action for fraud.

Footnote 3:Since plaintiff's amended complaint supersedes plaintiff's original complaint, the Pinner Defendants' motions will be addressed to plaintiff's amended complaint (see 49 W. Tenants Corp. v Seidenberg, 6 AD3d 243, 243 [1st Dept 2004]; Sage Realty Corp. v Proskauer Rose, 251 AD2d 35, 38 [1st Dept 1998]).