Malul v Azulay

[*1] Malul v Azulay 2013 NY Slip Op 50022(U) Decided on January 4, 2013 Supreme Court, Queens County McDonald, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 4, 2013
Supreme Court, Queens County

Charles Malul, Plaintiff,

against

Maimon Ziv Azulay, ZIV COMPLEX, INC., and MATANAH M.H., LLC, Defendants.



5280/2010

Robert J. McDonald, J.

The following papers numbered 1 to 27 were read on this motion by defendant, MATANAH M.H., LLC, for an order pursuant to CPLR 3212 granting summary judgment and dismissing the plaintiff's complaint and vacating the lis pendens on the ground that the complaint fails to state a cause of action against said defendant; and the amended cross-motion of plaintiff, SHALOM MALUL, for an order pursuant to CPLR 2215 and 3025 granting plaintiff leave to amend the complaint:

Papers Numbered

MATANAH Notice of Motion-Affidavits-Exhibits.............1 - 6

Plaintiff's Notice of Cross-Motion-Exhibits..............7 - 11

Plaintiff's Affirmation in Opposition...................12 - 16

AZULAY Affirmation in Opposition to Cross-Motion....... 17 - 19

AZULAY Affirmation in Support of Co-Defendant's Motion..20 - 23

MATANAH Reply Affirmation...............................24 - 27

_________________________________________________________________

In this action for a constructive trust, unjust enrichment, breach of fiduciary duty, and fraud, related to the sale of [*2]certain properties in Rosedale, Queens, defendant Matanah M.H. LLC, moves for an order granting summary judgment dismissing the plaintiff's complaint against it on the ground that the complaint fails to state a cause of action against defendant Matanah.

According to the plaintiff's complaint, dated March 2, 2010, in the Fall of 2006, plaintiff Malul and defendant Azulay established a limited liability company known as Ziv Complex LLC (ZCL), for the purpose of acquiring and developing vacant land located on Hook Creek Boulevard in Rosedale, Queens. Pursuant to the agreement, each party owned 50% of the LLC and the partners agreed to equally share the profits or losses of the venture. On December 26, 2006, ZCL borrowed two million dollars from Rosenthal & Rosenthal Inc. and purchased land which eventually was subdivided into 16 separate parcels, each improved with a two-family house. Plaintiff asserts that in addition to lending his credit to obtain the loan from Rosenthal & Rosenthal he made substantial investments of approximately $900,000 from his own funds which was used for the development and improvement of the Hook Creek properties.

Subsequently, two of the houses were sold to third parties with the net proceeds divided equally between plaintiff and Azulay. However, plaintiff contends that on August 28, 2008, defendant Azulay deeded four properties to himself from ZCL for no consideration and refused to share the rental income being collected from the tenants of each property. Plaintiff also asserts that Azulay refinanced the mortgages on the four properties netting over $100,000 which he has also not shared with the plaintiff. Plaintiff further asserts that on December 18, 2009, Azulay and ZCL, without plaintiff's knowledge or consent, negotiated a purchase and assignment of the mortgages against the remaining ten properties to defendant Matanah. Plaintiff asserts that Matanah is aFiduciaryn entity controlled by Azulay and in which Azulay has a substantial interest. Plaintiff alleges that on December 22, 2009, Azulay, without plaintiff's knowledge or consent, caused ZCL to convey the ten houses to Matanah yielding net proceeds to ZCL of at least $500,000. Plaintiff alleges that Azulay has refused to share rental income from those properties and has refused to share any profits or consideration in connection with the sale of the properties to Matanah.

Plaintiff asserts that Azulay and ZCL breached their promise to plaintiff to share the profits of the partnership and as a result, defendants Matanah, Azulay and ZCL have breached their fiduciary duty and have been unjustly enriched. In addition, plaintiff alleges that Matanah aided, abetted and conspired with [*3]Azulay and ZCL to violate their fiduciary duties by purchasing the ten houses knowing that the acquisition of the properties was part of a scheme by Azulay and ZCL to divert and misappropriate plaintiff's partnership opportunities. The complaint also states that on information and belief Matanah is Azulay's alter ego. Plaintiff alleges that Matanah's acquisition of the properties was fraudulent and was promulgated to deprive plaintiff of his profit from the sale of the properties and as a result plaintiff seeks a constructive trust and a judgment against Matanah invalidating the deeds.

Plaintiff commenced the instant action by filing a summons and complaint and lis pendens on fourteen properties on March 3, 2010. Matanah served its answer on April 30, 2010, denying the allegations in the complaint but admitting that Matanah did purchase both the mortgage and the ten properties for good and valuable consideration. The answer contains an affirmative defense stating that Matanah was a bona fide purchaser for value and as a result the complaint fails to state a cause of action against it. Plaintiff filed a note of issue on March 14, 2012. The case is on the calendar in the trial scheduling part on February 5, 2012.

Matanah now moves for summary judgment dismissing the complaint on the ground that no valid cause of action has been pled against Matanah. In support of its motion, defendant submits an affidavit from Michael Goldman, managing member of Matanah, dated June 19, 2012, stating that the transaction in which Matanah purchased the properties "was an arms length, bona fide transaction for which full consideration was tendered, wholly independently from either co-defendant." Goldman states that plaintiff has presented no factual support for its conclusion that Matanah is partly owned and/or controlled by Azulay and ZCL. He states that Matanah is controlled by the Koralashvili family and that there is no connection between that family and the co-defendants. Goldman states that ZCL was unable to sell the remaining ten properties and that Rosenthal & Rosenthal was going to foreclose on its loan unless the mortgages were satisfied for three million dollars. Matanah negotiated an agreement with Azulay to satisfy the mortgages and to pay ZCL an additional sum of $500,000 in consideration for which Matanah would receive deeds to the ten houses. At the closing on December 22, 2009 the mortgages were satisfied by payment from Matanah directly to Rosenthal & Rosenthal. In addition, Matanah paid the sum of $500,000 to various entities for the benefit of the seller. Goldman annexes copies of the checks and a closing statement and states that Matanah is a third-party who purchased the property for three and a half million dollars in a bona fide [*4]transaction and that it is not involved in the partnership dispute between Azulay and Malul. Thus, Goldman alleges that there is no factual basis for the claims against Matanah contained in the complaint and as such the causes of action for a constructive trust, unjust enrichment, breach of fiduciary duty and fraud should be dismissed on the basis that the complaint fails to state a cause of action.

Specifically, Matanah asserts that the causes of action for unjust enrichment and breach of fiduciary duty do not set forth any factual allegations against Matanah. Counsel asserts that the plaintiff's claims for damages arise soley from his business relationship with Azulay and that Matanah never transacted any business with the plaintff. Further, counsel claims that there is no fiduciary relationship between Matanah and the plaintiff and that the claim for unjust enrichment is related to the alleged failure of Azulay to divide the partnership profits with Malul. Counsel asserts that the cause of action for a constructive trust has no relation to Matanah as it also arises out of the partnership between Azulay and Malul. Counsel also claims that there should be no constructive trust asserted against the ten properties as Matanah acquired title for valuable consideration and that the only claim in the complaint regarding Matanah is that Matanah is an entity controlled Azulay. Counsel contends that the plaintiff's dispute has no basis in the real estate but rather he is seeking the proceeds from the sale. Therefore, counsel states that the plaintiff's recourse, if any, lies in recouping his share of the funds from the purchase of the properties from Azulay and there is no basis for a cause of action for a constructive trust against the properties.

With respect to the cause of action for fraud and misconduct, Matanah alleges that the allegations of a conspiracy between Matanah and Azulay are wholly unsubstantiated and based only upon information and belief. Counsel asserts that he has submitted documentation verifying the genuineness of the subject transaction, the wholly independent source of the funds utilized, and the lack of connection between Matanah and Azulay. Counsel also submits a document dated September 9, 2008, signed by Malul, in which he claims that Malul waived any claim to the sale of the ten houses by Ziv Complex to Matanah. The document signed by Malul states as follows:

"To Whom It May Concern: I, Shalom Malul, hereby state that I have no claim and/or ownership over Ziv Complex LLC or its entities. Maimon Ziv Azulay has 100% sole ownership and is the responsible party for thus stated LLC." [*5]

Counsel states that this document was presented to Matanah at the closing and substantiates Azulay's claim that Azulay and ZCL were legally entitled to transfer title free and clear and without the need to obtain the plaintiff's consent.

Counsel for Azulay, Robert P. Johnson, Esq., submits an affirmation in support of Matanah's motion for summary judgment stating that the cause of action for breach of fiduciary relationship must be dismissed as the plaintiff has not established a fiduciary relationship between Malul and Matanah. Counsel asserts in this regard that Matanah never transacted any business with Malul. Counsel also aserts that the plaintiff does not have standing to maintain the action in his individual capacity as he is a member of an LLC (citing Baron v Rocketboom, LLC, 57 AD3d 269 [1st Dept. 2008]). Counsel claims that the suit, by a member of the limited liability corporation against the third party may only be brought in a derivative capacity. Lastly, counsel claims that pursuant to the signed statement set forth above, plaintiff surrendered his interest in ZCL in September 2008 (citing Katz v Katz, 55 AD3d 680 [2d Dept. 2009]), and therefore has no standing to seek damages from the sale of the property belonging to ZCL. Defendant contends that as Malul has no interest or valid claim against the properties, he also has no standing to file a lis pendens (citing Yonaty v Glauber, 40 AD3d 1193 [3d Dept. 2007]).

In opposition, Shalom Malul submits an affidavit dated July 18, 2012, stating that he and Azulay owned ZCL in equal shares. He states that in 2006 they obtained acquisition and construction financing through Rosenthal and Rosenthal to purchase and develop vacant land on Hook Creek Boulevard. He states that in addition to the mortgage he gave personal guarantees on the and invested $900,00 consisting of funds, materials, labor, and sevices toward the developmentof the 16 house tract. Malul states that on September 10, 2009, Rosenthal & Rosenthal commenced a foreclosure action against the remaining ten homes as well as foreclosing on its mortgages on other parcels in Laurelton and Flushing Queens owned by other corporations formed by Azulay and Malul. Malul states that prior to the sale to Matanah he and Azulay reached a deal with Fairway Capital Partners in which Fairway would satisfy the Rosenthal & Rosenthal mortgages for three million dollars. However, Malul states that subsequently Matanah made a private deal with Azulay to purchase the mortgage and the deeds to the ten houses without Malul's knowledge or consent. Plaintifff claims that the workout plan with Fairway was aborted without his knowledge and a secret private deal was abruptly reached between Azulay and Matanah only a short time before the closing. Plaintiff claims that at the time of the [*6]closing Matanah was aware of the fraud perpetrated on Malul as Goldman was aware of the ZCL operating agreement identifying Malul as a 50 per cent owner of ZCL. Malul also disputes the validity of the purported waiver stating that he signed it under threats of physical assault by Azulay. In addition, Malul claims that Matanah knew the waiver was invalid because he and Azulay signed certain promissory notes in September 2009 and in January and February 2010, subsequent to the date of the purported waiver, and prior to the closing, in which Malul signed as a managing member of Ziv Complex. Malul contends, therefore, that Matanah's clandestine purchase of the ZCL properties was part of a scheme to fraudulently transfer partnership property so as to defeat, hinder, and delay the plaintiff's rights to the Hook Creek properties and his share of the proceeds.

Plaintiff also cross-moves to amend the complaint to discontinue its cause of action against defendant Ziv Complex LLC and to add Ziv Complex LLC as a plaintiff. Plaintiff also seeks to assert new causes of action for a judgment declaring the transfers to Matanah and Azulay void ab initio, for breach of contract, for tortious interference with contract, for tortious interference with prospective economic advantage, for aiding and abetting breach of fiduciary duty, for fraudulent conveyance pursuant to Debtor Creditor Law § 276, and to quiet title under RPAPL Art 15.

In addition, in opposition to the moton to dismiss, Malul asserts that the causes of action for fraud, constructive trust, breach of fiduciary duty and unjust enrichment are sufficiently supported by the documents submitted showing that Azulay and the Matanah principals were neighbors and friends, and that there was a hurried consummation of the subject transactions both of which create inferences that the transactions were not arms length. Mall contends that the pleadings are sufficient and raise questions of fact as to whether Matanah received the properties with actual knowledge that Malul was a member of Ziv Complex and whether the transfer was fraudulent as it was made with the intent to defeat plaintiff's right to proceeds of the transaction. With respect to the cause of action for fraud plaintiff alleges that he has submitted sufficient evidence to rase a question of fact as to whether Matanah was aware of Malul's partnership in Ziv complex at the time of the property transfers and whether the so called waiver was valid in view of Malul's continued role with Ziv subsequent to his signing the purported waiver. With respect to unjust enrichment and breach of fiduciary duty counsel, citing Klein v Gutman, 12 AD3d 348 [2d Dept. 2004], contends that the Second Department has held that third parties who participate with a fiduciary in breach of trust [*7]may be liable despite the absence of a fiduciary relationship between the plaintiff and the third party. In Klein, supra. the Court stated that "one who participates with a fiduciary in a breach of trust is liable for the full amount of damages to the injured party." Thus, counsel states that there are questions of fact as to whether the transaction was at arms length, whether Matanah acquired the properties with actual knowledge Azulay lacked authority to convey the realty without Malul's consent, whether Matanah acquired the properties with the intent to defraud Malul.

With respect to standing, plaintiff asserts that Matanah waived the issue of standing as it was not asserted as an affirmative defense in its answer nor was it the subject of a pre-answer motion to dismiss (citing Citibank, N.A. v Swiatkowski, 98 AD3d 554[2d Dept. 2012]).

Upon review and consideration of the defendant's motion to dismiss the plaintiff's complaint, plaintiff's affirmation in opposition and cross-motion and defendant's reply thereto, this court finds as follows:

It is well settled that in considering a motion to dismiss for failure to state a cause of action the pleadings must be liberally construed. The sole criterion is whether from the four corners of the complaint factual allegations are discerned which taken together manifest any cause of action cognizable at law (see Leon v Martinez, 84 NY2d 83 [1994]; Guggenheimer v Ginzburg, 43 NY2d 268 [1977]; Lupski v County of Nassau, 32 AD3d 997 [2d Dept. 2006]; Rochdale Vil. v Zimmerman, 2 AD3d 827 [2d Dept. 2003]; Bovino v Village of Wappingers Falls, 215 AD2d 619 [1995]). The facts pleaded are to be presumed to be true and are to be accorded every favorable inference, although bare legal conclusions as well as factual claims flatly contradicted by the record are not entitled to any such consideration (see Morone v. Morone, 50 NY2d 481 [1980]; Gertler v Goodgold, 107 AD2d 481 [1985], affirmed 66 NY2d 946 [1985]). Where evidence is submitted by the movant in support of the CPLR 3211 (a)(7) motion, the court must determine whether the proponent of the pleading has a cause of action, not whether he or she has stated one (see Simos v Vic-Armen Realty, LLC, 92 AD3d 760 [2d Dept. 2012]; Fishberger v Voss, 51 AD3d 627 [2d Dept. 2008]; Columbo v Chase Manhattan Automotive Fin. Corp., 297 AD2d 327 [2002]).

With respect to standing, this Court finds that defendant waived its defense that the plaintiff does not have standing to bring the action. Because the issue of standing was not asserted as an affirmative defense by Matanah in its answer nor was it the subject of a pre-answer motion to dismiss, the defense was waived [*8](see Bank of NY v Alderazi, 99 AD3d 837 [2d Dept. 2012]; Citibank, N.A. v Swiatkowski, 98 AD3d 555 [2d Dept. 2012]; CitiMortgage, Inc. v Rosenthal, 88 AD3d 759 [2d Dept. 2011]).

With respect to the motion for summary judgment this Court finds that the plaintiff has submitted evidence which sufficiently supports the causes of action for fraud, breach of fiduciary duty, unjust enrichment and constructive trust.

To recover damages for aiding and abetting a breach of fiduciary duty, a plaintiff must plead and prove that a fiduciary duty owed to plaintiff was breached, that the defendant "knowingly induced or participated in the breach," and that the plaintiff sustained damages as a result of the breach (see Kaufman v Cohen, 307 AD2d 113 [2003]; Roni LLC v Arfa, 15 NY3d 826 [2010]; Global Mins. & Metals Corp. v Holme, 35 AD3d 93 [2006]). A person knowingly participates in a breach of fiduciary duty only when he provides substantial assistance to the primary violator(see Velazquez v Decaudin, 49 AD3d 712 [2008]; Caprer v Nussbaum, 36 AD3d 176 [2006]). Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur (Monaghan v Ford Motor Co., 71 AD3d 848 [2010]).

Here, this court finds that the complaint and supporting affidavits sufficiently set forth allegations which raise a question of fact as to whether Goldman had knowledge or should have been on constructive notice that that Azulay and Malul were partners in Ziv Complex and that Malul's consent was required for the sale. Further, Malul's purported waiver of his interest in Ziv Complex relied upon by Goldman was of questionable validity in view of the fact that Malul was still signing promissory notes on behalf of Ziv Complex subsequent to the date of the purported waiver and prior to the closing with Matanah. In addition, proof submitted is sufficient to support plaintiff's causes of action for fraud and constructive trust and for an order setting aside the deeds. Because the financing plan with Matanah was arranged hastily and without the knowledge of Azulay's business partner, there is a question of fact as to whether Azulay was intentionally attempting to sell the properties without the knowledge of his partner, whether Matanah was aiding Azulay in the alleged fraud and breach of fiduciary duty and whether Goldman had knowledge that the partnership properties were being transferred knowing Azulay lacked the authority to convey the properties without Malul's consent. There is also a question as to whether Matanah had constructive notice or had a duty to make further inquiry as to whether Malul still had a viable interest [*9]in Ziv Complex at the time of the closing and whether the sale of the properties required plaintiff's consent.

Therefore the pleadings sufficiently plead a cause of action for breach of fiduciary duty, constructive trust, unjust enrichment and fraud. The defendant failed to make a prima facie showing that the transaction was in fact arms length as asserted by Matanah as questions of fact have been raised as to whether Matanah received the properties with knowledge that the transfer was fraudulent as to Malul. Further, as the alleged fraudulent conveyance is based upon the improper transfer of real property to Matanah, in breach of a fiduciary relationship, and as the sale affects the title to the properties, the cause of action for a unjust enrichment and constructive trust are also sustained (see Watson v Pascal, 65 AD3d 1333[2d Dept. 2009] Lipton v Lipton, 5 AD3d 356 [2d Dept. 2004]) and defendant's motion for an order cancelling the notices of pendency is denied (see Nastasi v Nastasi, 26 AD3d 32 [2d Dept. 2005]).

The plaintiff's cross motion for leave to amend the complaint subsequent to filing a note of issue is denied. Here, the plaintiff seeks to add several causes of action and to change Ziv Complex, who is represented by opposing counsel from a defendant to a plaintiff after the plaintiff has filed a note of issue and certified the matter ready for trial. The plaintiff has failed to provide a reasonable excuse for unreasonably delaying this application (see Alrose Oceanside, LLC v Mueller, 81 AD3d 574 [2d Dept. 2011]; Fischer v RWSP Realty, LLC, 53 AD3d 595 [2d Dept. 2008]; Navarette v Alexiades, 50 AD3d 869 [2d Dept. 2008]; Morris v Queens Long Is. Med. Group, P.C., 49 AD3d 827 [2d Dept. 2008]; Trataros Constr., Inc. v New York City School Constr. Auth., 46 AD3d 874 [2d Dept. 2007]; Cohen v Ho, 38 AD3d 705 [2d Dept. 2007]; Comsewogue Union Free Sch. Dist. v Allied-Trent Roofing Sys., 15 AD3d 523 [2d Dept. 2005]).

Accordingly, for all the above stated reasons, it is hereby

ORDERED, that the motion of MATANAH M.H. for an order granting summary judgment dismissing the complaint against it and the cross-motion of the plaintiff, SHALOM MALUL, for leave to serve an amended complaint are denied.

Dated: January 4, 2013

Long Island City, NY

______________________________

ROBERT J. MCDONALD [*10]

J.S.C.