Prichard v 164 Ludlow Corp.

[*1] Prichard v 164 Ludlow Corp. 2006 NY Slip Op 52381(U) [14 Misc 3d 1202(A)] Decided on December 12, 2006 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 12, 2006
Supreme Court, New York County

Robert Prichard, JENNIFER BOCCIO, and MARTIN GRAVES, Plaintiffs,

against

164 Ludlow Corp., GARY AUSLANDER, LEONARD EASTER, Esq., ALEXANDRA WOLCOTT, a/k/a SANDRA WOLCOTT, MICHAEL TRAIN, THOMAS JOHNSON, and ROBERT WORTH, Defendants.



600828/06



For Plaintiffs:

Michael T. Fois, Esq.

35 Downer Avenue

Scarsdale, New York 10583

For Defendants

Johnson, Train, Wolcott and Worth:

Law Offices of G. Oliver Koppell & Associates

99 Park Avenue, Suite 800

New York, New York 10016

Gary Auslander, appearing pro se

Bernard J. Fried, J.

Motions sequence numbers 001 and 003 are consolidated for disposition.

In motion seq. no. 001, defendants Alexandra Wolcott, a/k/a Sandy Wolcott, Michael Train, Thomas Johnson and Robert Worth (other defendants) move, pursuant to CPLR 3211 (a) (1), 3211 (a) (5), and 3211 (a) (7), for an order dismissing the complaint, based on documentary evidence, statute of limitations, and failure to state a cause of action.

In motion seq. no. 003, defendant Gary Auslander (Auslander) moves, pursuant to CPLR 3211 (a) (1), 3211 (a) (5), and 3211 (a) (7), for an order dismissing the complaint.

This is an action commenced by plaintiffs, a group of investors, to recover monies that they [*2]had invested in defendant 164 Ludlow Corporation (164 Ludlow) to create a restaurant, which monies plaintiffs claim were diverted from the corporation's legitimate business by other investors for their own use and control. Plaintiffs allege that in 1987, a number of persons, including plaintiffs, Auslander and the other defendants, purchased stock in 164 Ludlow for the purpose of opening and operating a new restaurant and cabaret space called "Baby Jupiter" at 170 Orchard Street, New York, NY (see 164 Ludlow Stock Purchase Agreement, ¶ 2 [I], motion, exhibit A). The principal operator was Auslander. Defendant Leonard Easter was counsel for the corporation. Plaintiffs allege that defendants failed to secure the necessary cabaret permits and licenses and that, consequently, Baby Jupiter was operated solely as a restaurant.

Plaintiffs allege that after their investment, they became suspicious of the reports prepared by management and suspected that fraudulent misrepresentations were being made to them (complaint, ¶ 30). Thereafter, the bookkeeper of Baby Jupiter discovered that Auslander, the chief operator of the business, was allegedly keeping two sets of books, misappropriating corporate funds, committing tax evasion, and destroying company records. These matters were addressed at a board meeting on February 27, 1999 (complaint, ¶ 36), after which the other defendants, together with defendant Easter, began to assume more direct control over 164 Ludlow (complaint, ¶¶ 51,52). Plaintiffs allege that there was an emergency meeting on August 7, 1999, to address these alleged irregularities, at which time they were met with defendants' ratification of Auslander's action (complaint, ¶ 59).Between February 1999 and August 1999, the board of directors of 164 Ludlow took several steps to address Auslander's activities, including conducting an internal audit. Plaintiffs, however, determined that it was not in their best interests to remain as shareholders of 164 Ludlow and decided, instead, to sell their shares back to defendants. On December 1, 1999, defendants purchased plaintiffs' shares for $156,000, with $30,000 payable immediately and $126,000 to be paid in monthly installments, pursuant to a promissory note secured by an interest in an Auslander-related company named Requisite Bootie, Inc. (the Security) (complaint, ¶ 85). Plaintiffs complain that, because of Auslander's and other defendants' allegedly fraudulent activities, the buyout price was less than it should have been.

The complaint alleges that the sale documents consisted of the following: 1) 164 Ludlow Corp. Agreement of Sale (the Agreement); 2) Commitment to Cooperate in Defense of Tax Liability of 164 Ludlow Corporation by Marin Graves, Jenny Prichard (now Boccio) and Robert Prichard (Agreement to cooperate); 3) Indemnification Agreement between the Undersigned and Martin Graves, Jennifer Prichard (now Boccio), and Robert Prichard (Indemnification Agreement); 4) Promissory Note; and 5) 164 Ludlow Security Agreement (Security Agreement), which had attached, as the security for the transaction, a promissory note and agreement of sale between defendant Auslander and Requisite Bootie, Inc. (complaint, ¶ 92).

Paragraph 7 of the Agreement reads as follows:

In consideration of the aforesaid payments and the promissory note payment requirements and obligations under the security agreement pertaining thereto, the parties hereto hereby release and forever discharge the other form [sic] any and all claims, demands and obligations whatsoever, present and future, arising out of or in connection with the Agreement, except to the extent necessary to enforce rights and obligations arising under this agreement ... .

Plaintiffs allege that, following the buyout, defendants began dissipating the Security, while at the same time, lulling plaintiffs into a false sense of complacency regarding defendants' ability [*3]to pay the full balance due. Although defendants made 15 of the payments due under the note (albeit two were slightly untimely and one was $834 less than the amount called for), plaintiffs allege that these payments were made with "the specific intent ... to prevent plaintiffs from realizing that [the named defendants] had no intention of paying off the Promissory Note in full and thereby buy time to loot the security for the Promissory Note" (complaint, ¶ 110).

In late 2001, Baby Jupiter was sold for $237,000, consisting of $161,000 at the time of the sale and a promissory note for $76,000 (complaint, ¶¶ 131, 137). Defendants sent plaintiffs a check from the proceeds in the amount of $23,000, but the check bounced and was replaced, in December 2001, with another check for $19,500. Defendant Easter, however, continued to send e-mails suggesting that further payment would be forthcoming. Finally, in April 2002, Easter is alleged to have made a proposal, not authorized by all the defendants, to settle the balance due plaintiffs for $55,000 (complaint, ¶¶ 144, 145, 152-153). This offer proved unsatisfactory to plaintiffs, who instead commenced an action against defendants in federal court on May 13, 2005. Plaintiffs alleged that $132,437 was outstanding on the Promissory Note and that "absolutely nothing remains of the security for the Promissory Note" (complaint, ¶¶ 70-71). In addition to the causes of action contained in this complaint, the federal court's complaint contained allegations that the defendants were guilty of violating the RICO statute. The court held that the initial complaint was "deficient on its face" and granted plaintiffs leave to replead (Prichard v 164 Ludlow Corp., 390 F Supp 2d 408 [SD NY 2005]). Following the filing of an amended complaint and motion practice, the federal court dismissed plaintiffs' RICO claims, observing that: "When a simple attempt to collect an unpaid debt is dressed a up as a RICO' action, it inures to no one's benefit but those who hold the legal profession in low esteem" (id. at 409). The federal court characterized plaintiffs as "simply disgruntled creditors" (id. at 410) and found that they had failed to make out the prerequisites to either of their RICO claims. With regard to plaintiffs' fraud claims, the court found that the only injury to plaintiffs' "business or property" alleged to have been suffered by plaintiffs after they sold their shares in 164 Ludlow is their inability to recover full payment on their note, which they allege is the result of their being fraudulently lulled into waiting for payment while the Security was being dissipated. The federal court, however, determined that there was nothing fraudulent about the 15 partial payments made by defendants, and found that plaintiffs failed to allege with particularity how the payments constituted misrepresentations. The court also found that the e-mails from Auslander did not last long enough to support a RICO "pattern." Plaintiffs' federal claims were dismissed with prejudice. Plaintiffs' state claims were dismissed without prejudice. This suit in state court then ensued.

In their complaint, plaintiffs plead the following causes of action: I) "breach of contract, and implied covenant of good faith and fair dealing"; II) "fraud collateral to a contract and conspiracy to defraud claim against all defendants"; III) "embezzlement, conversion, and breach of fiduciary duty against all defendants"; IV) "breach of fiduciary duty against all defendants: use of tax evasion and other violations of law to defraud plaintiffs of the fair value of their investment"; V) "breach of investment: the initial investment in 164 Ludlow Corp. against defendants 164 Ludlow Corp., Auslander, Johnson, Train, Wolcott and Worth"; VI) "fraudulent inducement: the initial investment in 164 Ludlow Corp. against defendants 164 Ludlow Corp., Auslander, Johnson, Train, Wolcott, and Worth"; VII) "lulling fraud: false statements and other acts used to forestall plaintiffs moving on their rights against all defendants"; VIII) "fraudulent inducement: extension of credit"; IX) "promissory estoppel and detrimental reliance against all defendants"; and X) "unjust enrichment [*4]against all defendants" (complaint, at 33-53).

Auslander and the other defendants move to dismiss, pursuant to CPLR 3211 (a) (1), (5), and (7) on the ground that they were not parties to the contract that plaintiffs claim was breached. In the context of a CPLR 3211 motion to dismiss, the pleadings are necessarily afforded a liberal construction (see Leon v Martinez, 84 NY2d 83 [1994]; see CPLR 3026). Indeed, the court must accord plaintiffs "the benefit of every possible favorable inference" (Leon v Martinez, 84 NY2d at 87). The court, however, need not accept as true bare legal conclusions or factual allegations that are either inherently incredible or flatly contradicted by documentary evidence (see Maas v Cornell Univ., 94 NY2d 87, 91 [1999]). "To succeed on a motion under CPLR 3211 (a) (1), a defendant must show that the documentary evidence upon which the motion is predicated resolves all factual issues as a matter of law and definitively disposes of the plaintiff's claim" (Unadilla Silo Co. v Ernst & Young, 234 AD2d 754, 754 [3d Dept 1996]).

Here, the Agreement (complaint, exhibit 1), states in its preamble and throughout the document, that it is between 164 Ludlow and the individual plaintiffs. It is signed by the defendants on behalf of 164 Ludlow. Indeed, the other agreements referenced in the agreement all purport to bind 164 Ludlow, except the indemnification agreement, which specifically speaks to the individual defendants. That the indemnification agreement deliberately binds the individual defendants, while the other agreements speak only to the corporation, demonstrates that the Agreement was deliberately intended to exclude the defendants from personal liability.

The Agreement in which 164 Ludlow bought out plaintiffs' interest in the corporation clearly states that the only parties to the agreement are 164 Ludlow and plaintiffs. The well-established rule of contract interpretation is that "[t]he best evidence of what parties to a written agreement intend is what they say in their writing. Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms" (Greenfield v Philles Records, 98 NY2d 562, 569 [2002] [citations and internal quotation marks omitted]). Where a written agreement unambiguously contradicts the allegations of a breach of contract cause of action, the contract itself constitutes documentary evidence warranting dismissal of the complaint, pursuant to CPLR 3211 (a) (1), regardless of any extrinsic evidence or self-serving allegations offered by the plaintiff (see 150 Broadway NY Assoc., L.P. v Bodner, 14 AD3d 1 [1st Dept 2004]).

Whether an agreement is ambiguous is a question of law for the courts (see Van Wagner Adv. Corp. v S & M Enters., 67 NY2d 186, 191 [1986]). When an agreement is found to be unambiguous, the rules governing the interpretation of ambiguous contracts do not come into play (R/S Assoc. v New York Job Dev. Auth., 98 NY2d 29, 33 [2002]). "This follows from the bedrock principle that it is a court's task to enforce a clear and complete written agreement according to the plain meaning of its terms, without looking to extrinsic evidence to create ambiguities not present on the face of the document" (150 Broadway NY Assoc. v Bodner, 14 AD3d at 4).

There is no ambiguity in the meaning of the Agreement. At no point in the typed document are defendants individually mentioned; only the corporation is mentioned, which is purchasing the shares. Indeed, plaintiffs' complaint itself buttresses a finding that defendants are not parties to the agreement by stating that defendants signed as the active managers of 164 Ludlow (complaint ¶ 94). Further, the fact that the agreement does not contain an express indication that defendants signed on behalf of the corporation, rather than in their individual capacities, does not require a different result. The signatures on the Agreement must be read, like any other portion of the instrument, not [*5]in isolation, but in the context of the instrument as a whole (see Zodiac Enters., Inc. v American Broadcasting Cos., 81 AD2d 337 [1st Dept 1981], affd 56 NY2d 738 [1982]). That defendants each signed the agreement does not change the fact that there is no reasonable basis for a different interpretation, where the signature page of the agreement makes it clear that each defendant was signing on behalf on 164 Ludlow. Moreover, the presence or absence of a reference to the corporate office above or below a person's signature on an instrument does not necessarily determine the capacity in which the person signed the instrument (150 Broadway NY Assoc., L.P. v Bodner, 14 AD2d at 5 ).

Plaintiffs' conclusory allegations that the intent of the agreement was to bind the defendants individually, should be accorded no weight, contradicted, as it is, by the express terms of the agreement (see Tectrade Intl. v Fertilizer Dev. and Inv., 258 AD2d 349 [1st Dept 1999] citing 805 Third Ave. Co. v M..W. Realty Assoc., 58 NY2d 447 [1983]). Thus, although the complaint alleges that the individual defendants were parties to the Agreement, the document underlying the transaction establishes that the sole contracting party was 164 Ludlow. "Where a variance exists between the written contract and the conclusion drawn by the pleader, the writing must prevail over the allegations of the complaint" (citations excluded) (La Potin v Julius Lang Co., 30 AD2d 527, 528 [1st Dept 1968]). Defendants, as individuals, are nowhere mentioned in the Agreement, nor did they sign in their individual capacities. Since defendants were not parties to the Agreement, the complaint against them alleging breach of contract is dismissed.

Nor can plaintiffs pierce the corporate veil in an attempt to hold the other defendants personally liable for damages. It is well established that those seeking to pierce the corporate veil bear a heavy burden (TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339 [1998]). Under New York law, to pierce the corporate veil, the plaintiff must prove that: "(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff, which resulted in plaintiff's injury" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]; Bowles v Errico, 163 AD2d 771 [3d Dept 1990]). The corporate veil can also be pierced if there is a failure to follow corporate formalities, inadequate capitalization, the use of corporate funds for personal purposes, an overlap in ownership or directorship, or common use of office space and equipment (Forum Ins. Co. v Texarkoma Transp. Co., 229 AD2d 341 [1st Dept 1996]). Given the courts' reluctance to disregard the corporate form, complaints seeking to pierce the corporate veil require specificity in pleading (Cresser v American Tobacco Co., 174 Misc 2d 1, 5 [Sup Ct, Kings County 1997]). Plaintiffs must allege "particularized statements detailing fraud or other corporate misconduct" (Sheridan Broadcasting Corp. v Small, 19 AD3d 331, 332 [1st Dept 2005]).

In this case, there has been no showing that defendants enjoyed total domination over the corporate entity and used that domination in order to commit the breach complained of (see Matter of Guptill Holding Corp. v State of New York 33 AD2d 362 [3d Dept 1970], affd on opinion below 31 NY2d 897 [1972]]). Other than conclusory allegations and references to prior alleged instances of domination of the corporation, plaintiffs have not alleged that defendants controlled the corporation with respect to the corporation's failure to pay under the buy-out Agreement. There is simply no evidence that any one of the other defendants had the requisite control over 164 Ludlow such as to show that 164 Ludlow was a mere instrumentality of these defendants. The individual acts attributed to the other defendants involve legitimate activities of a corporation. None of the alleged malfeasance, misfeasance or nonfeasance demonstrates that the other defendants were using [*6]the corporation for their personal benefit. Indeed, plaintiffs unambiguously state that the actions of the other defendants cited in the complaint were in their managerial capacities (complaint, ¶¶ 38, 44, 63). Since there are no allegations that the other defendants were doing business in their individual capacities, or that they were using the firm for the furtherance of their personal, rather than the firm's business, or that they were exercising total domination of the corporation, plaintiffs' attempt to pierce the corporate veil is unavailing (see Lichtman v Estrin, 282 AD2d 326 [1st Dept 2001]). With regard to Auslander, whom plaintiffs allege embezzled $25,000 from the corporation, there is still no showing of the kind of domination and control that will suffice to pierce the corporate veil, nor any demonstration that the alleged wrong resulted in plaintiffs' injury, i.e., failure to receive full payment under the Agreement (see Matter of Morris v New York State Dept. of Taxation & Fin., supra).

Moreover, plaintiffs and defendants entered into a release as part of the buyout Agreement, which provided that any claims against defendants stemming from action other than breach of the Agreement are barred. A release is viewed as a "jural act of high significance," and will be set aside only in the event of duress, illegality, fraud or mutual mistake (Mangini v McClurg, 24 NY2d 556, 563 [1969]). Consistent with the public policy of favoring enforcement of settlements, a signed release should be enforced according to its terms (Booth v 3669 Delaware, 92 NY2d 934, 935 [1998]). While a release may be avoided if it is shown to have been obtained though fraud or duress, a plaintiff's conclusory allegations of fraudulent inducement are insufficient to overcome the unambiguous language of the release agreement (New York City School Constr. Auth. v Koren-DiResta Constr. Co., 249 AD2d 205 [1st Dept 1998], citing Fleming v Panziani, 24 NY2d 105 [1969]). The intent of the parties is dictated by the language employed in the release, and the fact that one party may have intended something different is irrelevant (see LeMay v H.W. Keeney, Inc., 124 AD2d 1026, 1027 [4th Dept 1986], lv denied 69 NY2d 607 [1987]).

The previously cited release is clear and unambiguous on its face and releases 164 Ludlow from any liability for any incidents concerning the operation of Baby Jupiter prior to entering into the Agreement. Under the broad terms of the Agreement, plaintiffs agreed to "release and forever discharge the other form (sic) and any and all claims, demands and obligations whatsoever, present and future, arising out of or in connection with the Agreement, except to the extent necessary to enforce rights and obligations arising under this agreement... ." This release clearly bars any claim such as fraud collateral to a contract, fraudulent inducement of credit, or promissory estoppel, which all allegedly arose in connection with the Agreement, but which are not necessary to enforce its terms. By executing that general release, plaintiffs not only released the disputed claims, but also those that could have been litigated (see Mar Co. Export, Inc. v Banco de Santander-Puerto Rico, 99 AD2d 403, 404 [1st Dept 1984]).

Nor do plaintiffs allege that, at the time of the buyout with the plaintiffs, defendants misled them in any matter concerning the buyout. Indeed, plaintiffs specifically note that they were aware of the alleged looting and the devaluation of the corporate assets, decided not to bring a derivative action, and opted, instead, to enter into a settlement and release agreement (complaint, ¶¶ 81, 83). The Agreement explicitly states with regard to the purchase price that: "Minority Shareholders acknowledge that they are familiar with the assets and liabilities of the Corporation and upon a review of same have determined that the above mentioned purchase price is fair and equitable" (Agreement, 2 [B]). Where a release is signed in the commercial context by parties with roughly [*7]equal bargaining power and ready access to counsel, the general rule is to construe the release against the releasor, and shift the burden onto the releasor to prove that the release should be limited (Medinol Ltd. v Boston Scientific Corp., 346 F Supp 2d 575, 603 [SD NY 2004])

Furthermore, plaintiffs' attempt to invoke the defense of economic duress to vitiate the release is unavailing. It is the well established rule in New York that "[t]he existence of economic duress is demonstrated by proof that one party to a contract has threatened to breach the agreement by withholding performance unless the other party agrees to some further demand" (Edison Stone Corp. v 42nd St. Dev. Corp., 145 AD2d 249, 254 [1st Dept 1989 [internal quotation marks and citation omitted]; Austin Instrument v Loral Corp., 29 NY2d 124 [1971]). In this case, there is no allegation that defendants made threats to plaintiffs that precluded the exercise of free will by plaintiffs, leaving them with no other alternatives but to accept the release. On the contrary, plaintiffs have specifically pled that they were aware of their right to commence an action against defendants for their alleged illegal conduct, and instead accepted the cash buyout offered by defendants. Plaintiffs knew of legal alternatives to pursue their claims and have not alleged any threat made by defendants. Plaintiffs offer no law supporting the contention that defendants' actions constituted threats of the kind generally associated with invoking the doctrine of economic duress. Moreover, by accepting payment under the terms of the agreement which contained the release, plaintiffs ratified the release by failing to challenge its validity (VKK Corp. v National Football League, 244 F 3d 114, 122-3 [2d Cir 2001]).

Plaintiffs allege four actions by defendants as the basis for their belief that defendants committed fraudulent actions collateral to the agreement: 1) alleged promises that monies from the Requisite Bootie, Inc. security would be turned over to plaintiffs; 2) alleged promises that the Promissory Note would be paid from the proceeds of the sale of Baby Jupiter; 3) alleged promises that plaintiffs would be compensated for not moving on the defaults; and 4) Johnson's mailing checks to plaintiffs not called for under the Agreement.

A fraud claim is redundant where it arises out of the same facts as the breach of contract claim, and alleges nothing more than that the defendant never intended to perform the promises alleged in the contract (Sudul v Computer Outsourcing Servs., 868 F Supp 59, 62 [SD NY 1994]). A fraud collateral to a contract arises only when a duty extraneous to the contract is breached (Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 382, 389 [1987]). An allegation that defendants lied about their intention to perform the contract does not state a cause of action for fraud (Hawthorne Group, v RRE Ventures, 7 AD3d 320, 323-324 [1st Dept 2004]). It states a cause of action for breach of contract (Rochelle Assoc. v Fleet Bank of NY, 230 AD2d 605, 606 [1st Dept 1996], lv denied 89 NY2d 1030 [1997]). Plaintiffs allege no more than that defendants did not intend to perform the agreement when they made it. A party may not establish fraudulent intent solely from the non-performance of a future event (Abelman v Shoratlantic Dev. Co., 153 AD2d 821, 822 [2d Dept 1989]). Moreover, the defrauded party must allege specific facts showing that the promisor intended not to honor his obligations at the time the promise was made (Pope v New York Prop. Ins. Underwriting Assn., 112 AD2d 984, 985 [2d Dept], affd in part, appeal dismissed in part 66 NY2d 857 [1985]).

To state a claim for fraud, a plaintiff must allege "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" (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). CPLR 3016 [*8]requires that these elements of fraud be pleaded in detail (see Salles v Chase Manhattan Bank, 300 AD2d 226, 235 [1st Dept 2002]). To survive a motion to dismiss, the complaint must make factual allegations sufficient to support each element of a cause of action for fraud (Kaufman v Cohen, 307 AD2d 113 [1st Dept 2003]).

According to the complaint, the fraudulent representations allegedly made by defendants to plaintiffs were made leading up to and following the execution of the Agreement and Note, with the intent to retain plaintiffs' shares without making payments for them (complaint, ¶¶ 198-200, 203). All plaintiffs are doing is alleging that defendants never intended to follow the verbal and written representations that they made in connection with making payments under the Agreement and Note, which does not create an independent basis for a cause of action for fraud (Sommer v Federal Signal Corp., 79 NY2d 540, 552 [1992]). Furthermore, fraudulent intent not to perform a promise cannot be inferred from the mere nonperformance of that promise; additional proof is required (Brown v Lockwood , 76 AD2d 721, 732-733 [2d Dept 1980]). Plaintiffs' claim for fraud cannot be separated from the facts and circumstances leading up to the alleged breach of contract by defendants, and, therefore, must be dismissed as redundant.

Nor can plaintiffs rely on statements allegedly made by defendant Easter in support of their claim of fraud against defendants. Easter's representations were not representations made by Easter on behalf of the other defendants, rather, they were made on behalf of 164 Ludlow Corp., his client. No specific representation is noted in the prolix complaint that defendant Easter ever told plaintiffs that he was the attorney for any of the other defendants individually, or authorized to speak for them individually. In addition, promises with regard to payments to plaintiffs from the Requisite Bootie, Inc. security were proper under the default provisions of the Security Agreement, and the discussion of the source of payments to be made under the Promissory Note were not new promises but a description of how performance would be tendered, and offers of settlement. A conclusory statement of intent does not adequately plead sufficient details of scienter (see Credit Alliance Corp. v Arthur Anderson & Co., 65 NY2d 536 [1985]). Plaintiffs have not alleged, with the specificity required by CPLR 3016 (b), any of the promises allegedly made by defendants other than those contained in the settlement e-mails.

Plaintiffs concede that their claims for embezzlement in Count III of the complaint, breach of fiduciary duty in Count IV of the complaint, breach of contract in the initial investment in 164 Ludlow in Count V of the complaint and fraudulent inducement in the initial investment in 164 Ludlow in Count VI of the complaint are time-barred unless a tolling doctrine is applied. In this regard, plaintiffs argue for the application of the principle of equitable estoppel.

A defendant is estopped from pleading the statute of limitations as a defense where by fraud, misrepresentation or deception he induced the plaintiff to delay filing a timely action (Simcuski v Saeli, 44 NY2d 442, 448-449 [1978]; Melnitzky v Hollander, 16 AD3d 192 [1st Dept 2005] lv denied 5 NY3d 710 [2005]). However, due diligence is an essential part of the claim of equitable estoppel (Marshall v Duryea, 172 AD2d 726, 727 [2d Dept 1991]) and if the plaintiff has knowledge about the possible existence of a claim, he is under a duty to ascertain the relevant facts before the statute of limitations expires (Augstein v Levey, 3 AD2d 595, 598 [1st Dept 1957], affd 4 NY2d 791 [1958]).

Plaintiffs have not alleged any fraudulent statements made by defendants that could have been relied upon to delay their commencement of the action. The only statements were made by defendant Easter, the attorney retained by the corporation. There is no specific allegation in the [*9]complaint that he ever told plaintiffs that he ever represented any of the other defendants individually, or that he was authorized to speak on their behalf. Even if defendants made certain representations, they were clearly for the purpose of settlement, and it is well established that ongoing settlement negotiations do not estop a party from asserting the statute of limitations as a defense (see Bennett v Metro-North Commuter R. R., 231 AD2d 662 [2d Dept 1996]).

Most of Count III and Count IV speak to allegedly improper activities that occurred while plaintiffs were shareholders of 164 Ludlow, between 1997 and December 1, 1999, when the Agreement was reached, by which point plaintiffs acknowledge they were aware of any alleged misconduct. To the extent that those claims are not barred by the release contained in the Agreement, any claims for misconduct must have been brought within three years, or by 2002. The federal court complaint was brought in 2005, three years after the applicable statute of limitations expired, and those causes of action are dismissed.

Count V, sounding in breach of contract, is also time-barred and barred by the documentary evidence. Essentially, plaintiffs allege two material breaches of representations contained in the Agreement: 1) that another restaurant entitled Baby Jake's was fully and solely owned by 164 Ludlow (complaint, ¶ 246); and 2) that 164 Ludlow had a valid "performance space" at the Baby Jupiter restaurant, i.e., that Baby Jupiter would be able to have theatrical and cabaret performances (complaint, ¶ 248). According to the complaint, however, plaintiffs were aware in "mid-1998" that 164 Ludlow did not own Baby Jake's because Auslander had failed to transfer those assets to164 Ludlow (complaint, ¶ 23). In addition, the terms of the buyout Agreement incorporated into the complaint preclude a finding that plaintiffs contracted for the existence of a "performance space" at Baby Jupiter, since nowhere in the buyout Agreement, nor in the rider (complaint, exhibit B), is there any mention of an agreement to operate a "performance space." Finally, pursuant to CPLR 213 (2), plaintiffs had six years to commence an action for this breach. Plaintiffs did not file their first federal complaint until March 2005. Accordingly, the claims for these alleged breaches are barred by the statute of limitations. For all these reasons, this cause of action is dismissed.

Plaintiffs' sixth count of fraudulent inducement is also time-barred. Plaintiffs were aware of any alleged injuries suffered by the alleged fraudulent inducement to purchase shares in February of 1999, when they first began lodging complaints with defendants and discussed their complaints about corporate waste, looting, and tax liability at the February 27, 1999 board meeting (complaint ¶¶ 33, 34, 36). Certainly, they were aware of their injury by March 22, 1999, when defendant Johnson circulated a questionnaire outlining Auslander's misconduct (complaint, ¶ 37). All this occurred several months prior to the largest available outer limits afforded by the statute of limitations, which would have been May 13, 1999, six years prior to the commencement of the federal court litigation.

Plaintiffs have also failed to state a cause of action for "lulling fraud." Assuming, arguendo, that defendants made representations to plaintiffs though April 2002 (the date of the last representation alleged in the complaint), and assuming, arguendo, that the statute of limitations for claims first began to run at that point, plaintiffs' failure to timely commence an action within the relevant three-year statute of limitations period is an error of their own making. Plaintiffs waited until May 2005, more than three years after the last alleged representation, to commence their first action. Within that three-year period, the entire statute of limitations for plaintiffs' causes of action sounding in embezzlement, conversion and breach of fiduciary duty (counts III and IV of the [*10]complaint) elapsed. Plaintiff cannot claim to have been fraudulently "lulled" in the absence of any statement being made by any of the defendants (Brick v Cohn-Hall-Marx Co., 276 NY 259, 264 [1937]).

Count VIII, which asserts a claim for fraudulent inducement to extend the defendants' credit, merely restates the fraud claim in count II of the complaint. As discussed above, all of the representations regarding payment of the Agreement and Note were mere discussions concerning the timing and manner of making payments due under the agreement, not new promises and new obligations. Plaintiffs' forbearance in commencing a lawsuit was not a new extension of credit, but rather an element of the settlement talks aimed at resolving payment issues under the Agreement and Note. In any event, any claim by plaintiffs of reasonable reliance on representations by defendants is fatally undermined by plaintiffs' admission that they discovered all the material facts prior to electing to sell their shares (see Bank Leumi Trust Co. of NY v D'Evori Intl., 163 AD2d 26, 31-32 [1990]). While failing to sue is consideration for a contract, it is not a new extension of credit. There is no evidence of conduct by defendants which could be viewed as lulling plaintiffs into inaction (see Chester v Mutual Life Ins. Co. of NY, 290 AD2d 317 [1st Dept 2002]).

Plaintiffs' count IX for promissory estoppel also fails. In the complaint, plaintiffs fail to identify which specific promises attributed to defendants form the basis for their claim of promissory estoppel. Plaintiffs now identify those promises as having been made after the buyout Agreement (brief at 25-26). Promissory estoppel arises when a party makes a clear and unambiguous promise to another party, who reasonably relies upon the promise, and is injured by reason of his or her reliance (Ripple's of Clearview v Le Havre Assoc., 88 AD2d 120, 122 [2d Dept, app denied 57 NY2d 609 [1982]). The injury resulting from either conduct must be of the sort properly described as unconscionable (American Bartenders School, Inc. v 105 Madison Co., 59 NY2d 716, 718 [1983]; Melwani v Jain, 281 AD2d 276, 277 [1st Dept 2001]). Here, the injuries of lost profits, lost opportunities, and lost good will, all relate to the operation and loss of investment in Baby Jupiter, and not the promises allegedly made by defendants regarding payment to be made under the Agreement. Since the promises allegedly relied upon in no way relate to the injury, the claim must be dismissed. A plaintiff may not convert a simple breach of contract claim into one sounding in a tort, such as promissory estoppel, unless a legal duty extraneous to the contract has been breached. An express agreement ordinarily precludes recovery in quasi-contract for an event arising out of the same subject matter (Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 388, supra).

Although plaintiffs do not enumerate in count IX the specific promises made by defendants that they allegedly relied upon, they implicitly refer to the promises allegedly made prior to plaintiffs' purchase of shares, the promises allegedly made leading up to the entry into the Agreement in December 1999, and the promises allegedly made following the entry into that Agreement concerning payments to be made to plaintiffs for the purchase of their shares. These promises, however, are all solely referable to the breach of contract action, and, as such, cannot be alleged as an independent cause of action.

Plaintiffs' count X, a cause of action for unjust enrichment, cannot survive because of the existence of a contract. A cause of action for unjust enrichment arises under the doctrine of quasi-contract, and can be applied only in the absence of an express agreement, to prove a party's unjust enrichment (see id.). In this case, plaintiffs have pled at length that there is a binding written agreement. Therefore, count X of the complaint is dismissed.

Since all of the causes of actions enunciated in the complaint are dismissed, defendants [*11]motion to disqualify plaintiffs' attorney is dismissed as moot.

Accordingly, it is hereby

ORDERED that motion seq. no. 001 to dismiss the complaint as to defendants Alexandra Wolcott, a/k/a/ Sandy Wolcott, Michael Train, Thomas Johnson and Robert Worth is granted, with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further

ORDERED that motion seq. no. 003 to dismiss the complaint as to defendant Gary Auslander is granted, with costs and disbursements to defendants as taxed by Clerk of Court, and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: _____________________ENTER:

______________________________

J.S.C. [*12]