Melvin D. Hiller & Jeffrey Hiller LLC v Buel

[*1] Melvin D. Hiller & Jeffrey Hiller LLC v Buel 2011 NY Slip Op 51914(U) Decided on September 28, 2011 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 28, 2011
Supreme Court, Kings County

Melvin D. Hiller & Jeffrey Hiller LLC and Freehold House, Inc., Plaintiffs,

against

Benjamin D. Buel, Max Suhner and Mountain View Brasserie, Inc., Defendants.



500410/09

David Schmidt, J.

Upon the foregoing papers, defendants Benjamin D. Buel, Max Suhner and Mountain View Brasserie, Inc., (Mountain View) move for an order, pursuant to CPLR 3212, dismissing the complaint. Plaintiffs Melvin D. Hiller & Jeffrey Hiller LLC (Hiller LLC) and Freehold House, Inc., (Freehold) cross-move for an order, pursuant to CPLR 3212, granting them summary judgment.

Defendants' motion is granted to the extent that plaintiffs' second through sixth causes of action are dismissed. Defendants' motion is otherwise denied. Plaintiffs' motion is denied.[FN1]

In this action, plaintiffs have pled causes of action premised on fraud and unfair [*2]competition arising out of a transaction involving Buel and Suhner's sale of their restaurant, Freehold, and its associated real estate, to Zofia Ghoshal. Plaintiff Hiller LLC is the successor in interest and assignee of the M. Hiller & Son, Inc. Retirement Trust Inc., (Hiller Trust). Hiller Trust lent $1,250,000 to Ghoshal to allow her to purchase Freehold and secured this loan by a mortgage on Freehold's property. In essence, plaintiffs claim that Buel and Suhner, as part of a scheme to allow Ghoshal to obtain the loan from the Hiller Trust and defraud plaintiffs, made misrepresentations indicating that Ghoshal had made a significant down payment towards the purchase price of the business and property, when in fact, Ghoshal made no down payment and the remainder of the purchase price was secured by a purchase money mortgage with payment due six months from the closing date. Plaintiffs, who ultimately purchased Freehold and the property at the foreclosure sale, further claim that defendants opened up a competing restaurant, Mountain View, not long after the sale of Freehold to Ghoshal.

It is essentially undisputed that Buel and Suhner first listed Freehold for sale in the fall of 2005. In late 2005, Ghoshal, whose primary language was Polish, and who relied upon a friend or companion named Vladimir to act as translator, saw the property in the presence of Debra Danner, her broker, Buel and Suhner's listing broker, Jason O'Toole, and Buel. Thereafter, Ghoshal and Buel and Suhner signed an offer/agreement, dated December 14, 2005, in which they agreed that the sale price was $2,000,000 with $500,000 to be paid as a deposit to be held by the listing broker until the contingencies were worked out and the remainder to be paid in the form of a purchase money mortgage payable on May 1, 2006. According to Buel's deposition testimony, the transaction did not move forward because Ghoshal wanted to pay the $500,000 deposit with a bank letter of credit using the property as collateral.

At some point thereafter, Ghoshal contacted someone by the name of David Paneth,[FN2] who referred Ghoshal to Joel Moskowitz, a mortgage broker,[FN3] who, in turn, acted as a representative for the Hiller Trust and obtained all the information relied upon by the Hiller Trust in making the loan. Around April 2006, the Hiller Trust apparently provisionally agreed to finance a portion of the transaction and Ghoshal entered into new negotiations with Buel and Suhner. Joseph Stanzione, Buel and Suhner's counsel, then drafted a proposed contract providing for a sale price of $2,000,000 made up of a payment of $1,600,000 in cash (apparently based on the loan from the Hiller Trust) and $400,000 in the form of a purchase money mortgage with a term of six months. This contract, however, was never executed. In May 2006, Danner, Ghoshal's broker, submitted another proposed contract, with a sale price of $2,400,000 made up of a payment of $1,200,000 in cash (apparently based on the Hiller Trust loan), $800,000 in the form of a purchase money mortgage, and the last $400,000 constituting a seller's concession.[FN4] Although this May 2006 agreement was [*3]apparently executed by Ghoshal, Buel and Suhner, Stanzione canceled it pursuant to the attorney approval clause contained in the agreement.

Around June 20, 2006, Stanzione submitted another proposed contract of sale that also provided for a purchase price of $2,400,000 with immediate payment to be made in the form of $960,000 "in cash or cash like asset" upon the signing of the contract and $1,440,000 in cash or certified bank check at the closing and with $200,000 in sellers' concessions.[FN5] According to Stanzione's deposition testimony and his affirmations submitted in support of the motion, Stanzione, at the same time, submitted a proposed promissary note in the amount of $960,000 in which Ghoshal acknowledged her indebtedness to Buel and Suhner and which declared that it served as the "cash like asset" referred to in the above noted contract of sale. The contract of sale was thereafter executed by Ghoshal, Buel and Suhner, but it is unclear whether they ever executed the $960,000 promissary note.

At the closing, which occurred on August 21, 2006, Ghoshal, Buel and Suhner executed a revised contract, which provided for a purchase price of $2,000,000, with $1,100,000 to be paid upon closing (apparently from Hiller Trust's loan) and $900,000 in the form of a purchase money mortgage secondary to the Hiller Trust's mortgage in the amount of $1,250,000. Following the transfer, Ghoshal failed to make a single payment on the loan. In addition, Freehold ceased operation in November 2006. The Hiller Trust thereafter commenced foreclosure proceedings and purchased the property at the foreclosure sale held in June 2007. After taking possession of the premises and Freehold, the Hiller Trust leased Freehold to other parties, but these parties likewise went out of business. On the other hand, Buel and Suhner, in May 2007, opened another restaurant, Mountain View, which is located five miles from Freehold, and which continues to operate. Of note, the website for Mountain View states, in relevant part, that:

The Mountain View Brasserie was opened on May 2, 2007 after months of planning and renovation. The Mountain View Brasserie is owned and operated by the Buel and Suhner families. Our families have worked together for over eight years, collaborating in 1999 when we renovated and operated the Freehold Country Inn until it was sold in August 2006. We are an experienced and dedicated team that always strives to be the very best.

It is in this factual context that the parties have made the competing motion and cross-motion for summary judgment. In support of their cross-motion for summary judgment plaintiffs, based on the deposition testimony of Moscowitz (the mortgage broker) and Melvin Hiller (one of the partners of the Hiller Trust) primarily contend that the only contract provided to them was the one bearing the date April 30, 2006 (but apparently actually executed in June 2006) that required Ghoshal to make a down payment of $960,000 at the time of the contract was signed in cash or a "cash like asset." Moskowitz testified that he was never informed that the $960,000 payment was not cash or a "cash like asset"[FN6] but was [*4]actually intended to be paid in the form of a promissary note to Buel and Suhner. Moskowitz further asserted that he received written verification from the sellers' attorney that he was holding the money in the form of a cash deposit. In addition to this alleged verification of the deposit, plaintiffs point to Galgay's opinion letter, dated August 21, 2006, in which she asserted that there were no mortgages, liens, or other encumbrances relating to the premisses other than those already provided to the Hiller Trust. Both Steven Kwestel, who represented the Hiller Trust at the closing, and Moskowitz, who was present at the closing, deny that anyone informed them or otherwise made them aware that Ghoshal, Buel and Suhner executed the revised contract of sale providing for the $900,000 purchase money mortgage at the closing. Although defendants assert that Kwestel was shown certificates of insurance relating to Hiller Trust's mortgage and the second mortgage favoring Buel, Kwestal claims that he was only shown the page relating to the Hiller Trust's mortgage.

Another document providing some support for plaintiffs' claims is Galgay's fax to Stanzione, in which she noted that Moskowitz had informed her that an escrow letter would be required to close the loan and asked Stanzione if he could prepare a letter indicating that he was holding "cash like assets" in light of the promissary note. Although this fax does not demonstrate that Stanzione issued such an escrow letter, it supports Moskowitz's assertion that he had requested an escrow letter and also plaintiffs' claim that there was a desire to conceal the existence of the promissary note.

The importance of a significant cash down payment is explained in the deposition testimony of Moskowitz. Moskowitz conceded that, although he looked at the property and the restaurant, he never inquired regarding Ghoshal's experience running a restaurant, never requested verification relating to the legitimacy of Ghoshal's French tranches [FN7] and never performed a credit check of her. Moskwitz, nevertheless, asserted that such investigations were generally irrelevant in "hard money" transactions involving significant down payments primarily because a purchaser who makes a significant down payment has "skin in the game", or, in other words, a greater personal interest in the success of the venture than a purchaser who is risking someone else's money. Both Hiller and Moskowitz assert that they would not have proceeded with the transaction if they had known that Ghoshal did not make a cash down payment.

In support of their motion and in opposition to plaintiffs' cross-motion, defendants generally deny any intent to defraud plaintiffs. Defendants assert that it was readily apparent that Ghoshal did not have any ready cash or assets on hand and that her only asset was her expectancy or interest in the French tranches. More importantly, Galgay, at her deposition, testified that she had discussed with Moskowitz the fact that Ghoshal did not have the cash on hand to make a cash down payment, and that at that time it was Moskowitz who had given Galgay the name of another lender who might have been willing to lend Ghoshal the money for the down payment. In addition, Stanzione, in his testimony, denied that he ever provided plaintiffs with an escrow letter of any kind. Further, Stanzione asserted that Kwestel and Moskowitz were at the closing when the revised contract was signed and, in his affirmation submitted in support of the motion, asserted that copies of the insurance information relating [*5]to Buel's second mortgage were provided to Kwestel at the closing.

In the face of these competing factual assertions, the summary judgment motion and cross-motion must be denied with respect to plaintiffs' first cause of action alleging fraud. The elements of a fraud cause of action are that, "(1) the defendant made a representation or a material omission of fact which was false and which the defendant knew to be false, (2) the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it, (3) there was justifiable reliance on the misrepresentation or material omission, and (4) injury" (Selechnik v Law Offices of Howard R. Birnbach, 82 AD3d 1077, 1078 [2011]). Although plaintiffs' evidentiary proof, when viewed in a light most favorably to plaintiff, is sufficient to establish, prima facie, these elements of a fraud cause of action, defendants' proof demonstrates the existence of factual issues as to whether they ever misrepresented that Ghoshal had made a cash down payment. It bears noting that, in the absence of a fiduciary duty, mere silence does not arise to the level of deceptive conduct necessary to establish a fraud claim (see East 15360 Corp. v Provident Loan Socy. of NY, 177 AD2d 280, 281 [1991]).

Even if plaintiffs' proof demonstrated that defendants had made misrepresentations relating to the cash payments, the issue of whether plaintiffs justifiably relied on the misrepresentations would preclude the grant of plaintiffs' cross-motion. Indeed, the issue of a party's justifiable reliance generally presents an issue of fact for the jury (see Braddock v Braddock, 60 AD3d 84, 88 [2009]; Orlando v Kukielka, 40 AD3d 829, 832 [2007]; see also DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d 147, 155 [2010]), and here, even viewing plaintiffs' claims in a light most favorable to them, the contract they allegedly relied on allowed for a down payment to be made in the form of "cash like assets." Although Moskowitz testified that he would not deem a promissary note to be a cash-like asset, the inclusion of the term, which is not defined in the contract, certainly raises a question as to whether plaintiffs should have made further inquiry as to the nature of the deposit, especially given their concessions that they took no other steps to investigate Ghoshal's bona fides (see Centro Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V., 17 NY3d 269, 278-279[2011]; Global Mins & Metals Corp. v Holme, 35 AD3d 93, 100 [2006], lv denied 8 NY3d 804 [2007]; Lampert v Mahoney, Cohen & Co., 218 AD2d 580, 582 [1995]). On the other hand, if Moskowitz's testimony that he obtained an escrow letter from plaintiff's counsel that Ghoshal had made a cash deposit is accepted,[FN8] this court cannot hold as a matter of law that a reasonable lender in plaintiffs' shoes was required to do more (see DDJ Mgt., LLC, 15 NY3d at 155-156).

Turning to defendants' motion as it relates to the remainder of plaintiffs' causes of action (all of which arise out of defendants' operation of Mountain View), defendants have demonstrated their entitlement to summary judgment dismissing those causes of action as a matter of law. First, and most importantly, defendants have demonstrated that the contract of sale relating to Freehold did not contain a non-compete clause. In the absence of a covenant not to compete, the seller of a business' goodwill may carry on a similar business in the same locality (see Van Bremen v MacMonnies, 200 NY 41, 47-48 [1910]; Alsheimer v Evarts, 289 AD2d 1004 [2001]).

Plaintiffs nevertheless assert that defendants improperly solicited Freehold's former [*6]customers. Even in the absence of express agreement not to compete, courts have recognized that a seller has an "implied covenant or duty to refrain from soliciting former customers, which arises upon the sale of the good will of an established business" (Bessemer Trust Co., N.A. v Branin, 16 NY3d 549, 556 [2011][internal quotations omitted]). This implied covenant not to solicit customers, however, does not bar the seller from operating a competing business, accepting the trade of former customers, or advertising the competing business in advertisements aimed at the general public (id. at 557-558). Here, assuming that Suhner and Buel sold Freehold's goodwill as part of the sale (see Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 286-287 [1981]), the only evidence relating to defendants' solicitation presented by plaintiffs are the statements contained in Mountain View's website quoted above. This website is indistinguishable from a newspaper or other media advertisements aimed at the general public that are not barred by the implied covenant (see Bessemer Trust Co., N.A., 16 NY3d at 556; Slomin's Inc. v Gray, 176 AD2d 934, 936 [1991]), and the truthful statements that Buel and Suhner had formerly owned and operated Freehold made on Mountain View's website are not improper (see Slomin's Inc., 176 AD2d at 936; see also Camelot Assocs. Corp. v Camelot Design & Dev., LLC, 298 AD2d 799, 800 [2002]; Little India Stores, Inc. v Singh, 101 AD2d 727, 729-730 [1984]).

Plaintiffs' contention that defendants looted or raided Freehold's employees is likewise not a grounds for recovery on the facts here. The contract of sale of Freehold expressly allowed Suhner and Buel to leave their posts, and nothing in the contract barred Suhner or Buel from hiring Freehold employees. To the extent that such looting claim may arise out of an implied covenant, it would appear that it would require proof that Buel and Suhner solicited Freehold's employees with the intent of taking back or deprecating what they sold (see Von Bremen, 200 NY at 50-51). The record evidence that Buel and Suhner did not form or begin working on Mountain View until February 2007, several months after Freehold closed in November 2007, and did not open it for business until May 2007, would appear to render it impossible for plaintiffs to prove that defendants improperly hired Freehold employees. Indeed, defendants have submitted an affidavit from a waitress who represented that she, and her two daughters, who also worked at Freehold, only left Freehold when it went out of business and stopped paying their checks. Moreover, Buel testified that the employees hired by Mountain View included a salad chef, part time wait staff and a part time hostess, some of whom were family members. Nothing about the nature of these positions suggests that these employees had unique skills that would make them hard to replace or that Mountain View's hiring them otherwise affected Freehold's ability to operate. Under these circumstances, plaintiffs have failed to demonstrate factual issues warranting denial of plaintiffs' motion with respect to the second through sixth causes of action.[FN9]

Finally, the court rejects plaintiffs' assertion that they are entitled to the grant of their cross-motion and denial of defendants' motion because defendants failed provide a statement and counter statement of material facts pursuant to rule 19-a of the Rules of Practice for the Commercial Division of the Supreme Court (22 NYCRR 202.70; Kings County Commercial [*7]Division Rules, Rule 15). Notably, defendants have shown they are entitled to the grant of their motion with respect to second through sixth causes of action and the denial of plaintiffs' cross-motion by specifically addressing plaintiffs' contentions with evidentiary facts and legal arguments. Under these circumstances, defendants' failure to comply with the specific requirements of rule 19-a was a mere non-prejudicial irregularity that may be ignored (see Abrue v Barkin & Assoc. Realty, Inc., 69 AD3d 420, 421 [2010]["court not compelled to grant summary judgment solely on the basis of blind adherence to the procedure set forth in rule 19-a"]; CPLR 2001).

This constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1: It is noted that, on March 18, 2011 plaintiffs filed an amended complaint adding Joseph Stanzione, Aline D. Galgay, and Jason O'Toole as defendants. As plaintiffs did not address this amended complaint their own cross-motion that they served after they filed the amended complaint, the parties are deemed to have charted their own procedural course, and the court will treat the motion and cross-motion as if issue had been joined (see Becher v Feller, 64 AD3d 672, 676 [2009]; Kline v Town of Guilderland, 289 AD3d 741, 741 n [2001]). It is noted that the second through sixth causes of action contained in the amended complaint are not directed at Stanzione, Galgay, and O'Toole and repeat the same factual allegations as those made in the original complaint.

Footnote 2: There is nothing in the record indicating how Ghoshal came into contact with Paneth. Joel Moskowitz, conceded in his deposition testimony that Paneth had a "distant familial connection" and had referred Moskowitz a number of deals.

Footnote 3: Moscowitz and his partner, Gary Miller, operated their mortgage broker business through an entity called Quadrant Funding.

Footnote 4: Assuming that Ghoshal was able to obtain a loan of $1,600,000, the seller's concession of $400,000 would allow her to retain $400,000 from the loan to operate the restaurant.

Footnote 5: Stanzione testified that the date of April 30, 2006 typed on the top of contract of sale was a drafting error. No other witness directly controverts this assertion. In any event, as conceded by plaintiffs, the date of this agreement does not appear to be material to the parties' contentions. It is also noted that, on the signed copy of the contract, the parties changed the sellers' concession to $240,000 by way of a handwritten alterations to the contract.

Footnote 6: According to Moskowitz, he could consider securities or a certificate of deposit "cash like" assets, but not an IOU or promissary note.

Footnote 7: "Tranche: a division or portion of a pool or whole; specifically : an issue of bonds derived from a pooling of like obligations (as securitized mortgage debt) that is differentiated from other issues especially by maturity or rate of return" (Free Merriam-Webster Dictionary, http://www.merriam-webster.com/dictionary/tranche). At his deposition, Jason O'Toole testified that he understood that the tranches were some form of European bonds.

Footnote 8: Plaintiffs' ability to prove this point is hindered by their inability to produce such a letter or copy thereof. Moreover, if plaintiffs cannot prove that Stanzione issued an escrow letter, it will be hard for them to demonstrate that defendants made any fraudulent misrepresentations.

Footnote 9: To the extent that the fifth cause of action claiming money had and received and sixth cause of action claiming unjust enrichment arise out of the fraud alleged in the first cause of action (rather than the unfair competition alleged in the second through fourth causes of action), they must be dismissed as duplicative of the fraud claim (see American Mayflower Life Ins. Co. of NY v Moskowitz, 17 AD3d 289, 293 [2005]; Atton v Bier, 12 AD3d 240, 242 [2004]).