Vashovsky v Zablocki

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Vashovsky v Zablocki 2022 NY Slip Op 32925(U) August 25, 2022 Supreme Court, Kings County Docket Number: Index No. 507373/21 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL 8 --------------- --- --~ -- . ------ ------ X CHANAVASHOVSKY, individually and derivatively on behalf of · HUDSON VALLEY NY HOLDINGS LLC, Plaintiffs, -against- Decision and Order Index No. 507373/21 YOSEF ZABLOCKI arid NATIONAL ,JEWISH CONVENTION CENTER, Defendants, And August 25, 2022 HUDSON VALLEY NY HOLDINGS LLC, Nominal Defendant, -------- -- ---- --- ----- ----- ---------x YOSEF ZABLOCKI and NATIONAL JEWISH CONVENTION CENTER, Counterclaim P1ai:ntiffs; -againstCHANA VASHOVSKY and EPHRAIM VA.SHOVSKY, Counterclaim-Defendants, ---------------·--. ----. --· .. -- .-----------·-,x PRE$ENT: HON. LEON Rt]CHELSMAN The defendants have moved pursuant to CPLR §3211 seeking to dismiss the thirteenth and six,teenth causes of action of the plaintiff's second amended complaint. The deferidahts have also moved seeking the removal of any merition of RICO within the second amended complaint. Papers were submitted by the parties and arguments held and after reviewing all the arguments this ·court irnw makes the following determination. The. facts arid. litigation history has been adequately r.ecorded in p;rior ord.ers and neE:ld not be repeated here. In an order dated March 1.5, 2 022 the .court deh :Led the plaintiff's request to amend the complaint tq [* 1] 1 of 9 a$sert a cause of INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 action for fraud. In a subsequent order dated May 9, 2022 the court denied a request to reargue that determination holding the allegations presented failed to adequately assert any claims of fraud, The defendants have now moved seeking to dismiss the thirteenth cause of action alleging fraudulent inducement and the sixteenth cause of action alleging the fraudulent transfer of assets. To state a claim for fraudulent misrepresentation the plaintiff must establish a misrepresentation of fact that was false when made for the purpose of inducing another to rely upon it and they justifiably relied upon it to their detriment (Mandarin Trading Ltd., v. Wildensteirt, 16 NY3d 173, 919 NYS2d 465 [2011]). Thus, the misrepresentation must concern a present fact, npt a future promise (see, Scialdone v. Stepping Stones AssoOiates L.F,i 148 AD3d 953, 50 NYS2d 413 [2d Dept., 2017]), Therefore, misrepresentc3.tions made before the formation of a contract which incluce a party to enter into the contract can support claims for fraudulent misrepreseritatiori (Coheri 2 5 F3d 1168 [ 2d °Cir. 1994] ) . v. Koenig, The second amended yeri fied complaint ass:erts that "Zablocki represented to Plaintiff that he had experience successfully running hoteis and inve,strnent prope:r:ties and turning .a profit" and that \\.·Zablocki further represented that he had reiationships with .businesses who book hotels for ciients needing facilities, inciuding, rooms and 2 [* 2] 2 of 9 INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 banquet halls for large groups, anci he had the ability to run HVR" (see, Second Amended Verified Complaint, 'TI':lI30, 31}. These representations specifically relate to allegations they induced the plaintiff to enter into a partnership in the first place. They are thus distinct from allegations related to the fraudulent performance of the contract once the partnership had already been formed (see, Reiser Inc.; v. Roberts Real Estate, 292 AD2d 726, 739 NYS2d 753 [3 rd Dept., 2002]). This all·egation is not a reiteration of the previously barred fraud claims. Therefore; the motion seeking to dismiss the thirteenth count is denied. The sixteenth count alleges that funds the plaintiff . . . . . contributed were utilized by defendant for his personal account and other businesses he owns and essentially diverted -the funds infused by the plaintiff to capitalize the hotel. However, where a claim to recover damages for fraud ''is premised up·on alleged breach of contractual duties and the supporting allegations do not concern misrepresentations which are collateral or extraneous to the te.rms of the parties agreement, a cause of action sounding in fraud does not lie" (McKernin v.Fanny Farmer Candy Shops Inc., 176 AD2d 233, 574 NY:S2d 58, [2 nd OE:pt, ,. 1991]) . The defendants seek to dismiss this frauo claim on the grounds the f1;aud is the s.ame as the bre.i:3.ch of Contract claims. The plaintiff opposes that contention arguing the breach of contract claim is not dupJ,icative of this 3 [* 3] 3 of 9 INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 particular fraud clairn since this fraud claim. ''deals with . . Defendants' actions post breach, namely the hiding of HVNY;s money in Zablocki's sham non-profit NJCC. The illegal shifting 0£ money is not the brec1cl) of contrac;t, rather i t is the steps that Defendants are taking to hide their loot after they breached the contract" page 17}. (see, Memorandum of Law in Opposition, A comparison of the respective claims is therefore necessary. The breach of contract claim (eight cause of action) alleges that the defendant "breached this Agreement by entering into contracts requiring HVNY to spend more than $20,000 without Vashovsky's consent and by transferring HVNY funds in excess of $20,000 to Zablocki's personal accounts or to the accounts of entities controlled by Zablocki, including NJCC, who have no relation to HVNY or HVR" (see, Second Amended Verified Complaint, ~ 225). To be sure, if ttue, the defendaht's transfer of HVR funds to private accounts would constitute a breach of contract, The fraud claim alleges essentially the same conduct, namely that Zablocki stole HVR funds £or his Own personal endeavors. Thus, the distinction drawn by the plaintiff that the fraudulent transfer of assets occurred after the breach and is thus different than a breach of contract does not withstilnd analysis, This is especially true W:he;e the alleged breaches were continuous a:nd ongoing and .each allegation of misuse of funds by the defendant constitutes .another breach of contract. 4 [* 4] 4 of 9 The INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 pl 9 intiff further argues that the two claims are distinct because they seek to remedy "different species of damages" (Memorandum of Law in Opposition, page 17). It is true the fraudulent inducement claim seeks damages for lost opportunities and that is different 1:han the breach of contract claim. However, the fra.udulerit transfer of assets is no different than the breach of contract claim. Moreover, i t is true that a misrepresentation of a material fact that is collateral to the contract which induces the other party to enter into the contract is sufficient to sustain an action of fraud and is distinct from the breach of contract claim {Selinger Enterprises Inc .•. v. Cassuto, 50 AD3d 766, 860 NYS2d 533 [2d Dept., 2008]). However, where the misrepresentation refers only to the intent or ability to perform under the contract then such misrepresentation is quplicative of the breach of contract claim (see, Gorman v. Fowkes, 949 NYS2d 96 [ 2d Dept., 2012·1) • 97 AD3d 726, Generally, for a fraud claim to be collateral to a breach of contri3.ct claim the misrepresentation must consist of a present fa.ct that is unrelated to the precise terins of the contract itself.. Bainbridge [Pt & Thus, in American Media Inc., v. Knight Laboratories LLC, 135 AD'.3d 477, 22 NYS3d 437 Dept.~· 2016] the pla'intiff sued defendant for advertisements it placed in val;'ious periodicals withoµt receiving payment pursuant to the contract. The c.ourt held mistepresenta.tions made by the defendant were not duplicative of the breach of contrapt 5 [* 5] 5 of 9 INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 cla:im. RECEIVED NYSCEF: 08/30/2022 Specifically, the principal of the defendant made statements that he loaned the defendant sufficient funds to cover the advertisi.ng expenses thereby inducing the plaintiff to enter into the contract. The court noted those misrepresentations were c::ollateral since they were misrepresentations of present facts; namely that the defendant had sufficient funds. Further, these misrepresentations were collate.ral to the actual terms of the contract which involved placing advertising in plaintiff's periodicals (see, also, Deerfield Communications Corp., v. Chesebrouqh Ponds Inc., 68 NY2d 954, 510 NYS2d 88 [1986]). Thus, the critical distinction whether a fraud, claim is distinct from a breach of contract claim rests upon the following criteria. The first is whether the misrepresentation concerns a future intent to perform or whether the statement misrepresents present facts (see, Wylie Inc., v. ITT C:orp., 130 AD3d 438, 13 NYS3d 375 [Pt Dept., 2015]). If the misrepresentation concerns present facts i t will generally he considered collateral. If the misrepresentation concerns a future intent to perform then it is This does generally duplicative of a breach of contract claim. not mean to imply a fraud clairn regarding future. conduct can iieve:tbe distinct from a breach of contract claim. where the promise is collateral to the. contract. It surely can (.§.§.§1, Fai.rwa:y Prime Estate Management LLC v.; First America.Ii InternatioY1al Bank, 9~ AOjd 5~4, 951 NYS2d 514 [l~t Dept., 2bl2]). 6 [* 6] 6 of 9 Moreover, even ~f INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 th1= misrepresentation concerns a present statement of facts, those facts must t9uch a matter that is not the subject of the contract. Therefore, if the promise or misrepresentations ''concerned the performance of the contract itself, the fraud claim is subject to dismissal as duplicative 0£ the claim for breach of contract" (HSH Nordba:nk AG v. UBS AG, 95 AD3d 185, 941 NYS2d ~9 [ pt Dept., 2012] ) . In this case, the transfer of assets claim alleges that Zablocki misappropriated HVR' s funds for his own personal use. That allegation do,es not include a matter not already subject to the contract, namely misusing HVR funds. Therefore., the fraudulent transfer of assets claim is duplicative of the breach .of contract claim and consequently the motion seeking to dismiss the sixteenth cause of action is granted. Turning to the motion to strike portions of the complaint, CPLR §3024(b) provides that a party may move to strike any scandalous or prejudicial material that has been unnecessarily inserted in a pleading. If the allegati6ns are relevant to a cause of action then suchmate:rial will not be stricken {New York 'City Heal th and HosPi ta.ls Corporation v. Barnabas Community .Heal th Plan, 22 A03d 391, 802 NYS2.d 363 [ pt Dept,, 2005]) . Thus, "releyaricy is th~ :measuring rod" whether. such material, allegedly scandal'ous 6.r prejudicial is proper.Ly piaced in a pleading (Siegel, Ne.w York Practice., §23.0 [.5 th 7 [* 7] 7 of 9 ed., 2011]). The INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 specific paragraphs of the second amended verified complaint which are the subject of the motion, namely paragraphs 155 through 169 all concerh the RICO cause of action the court held could not be pled. The plaintiff argues the language is relevant regarding ''defendants continued pillaging Of the hotel; as they relate solely to Zablocki's actions in furtherance Of the operation of the hotel" (Memorandum in Opposition, page 13). Thus, where the information sought to be struck from the complaint rel.ates to other viable causes of a,ction the motion should be denied (Hirsch v. Stellar Management, 148 AD3d 588, 50 NYS3c1 68 [ pt Dept., 2017]) . An examination of the RICO paragraphs reveal they do not help support any of the remaining causes of a:ction at all. First, the remaining causes of action do not require the transmission of communications via interstate commerce (s·ee, second Amended Verified Complaint, 'l['J[ 159, 161). More importantly, the uniqueness of the RICO statute and t:he particular pleading requirements. it detnands, namely the existence of the proceeds of unlawful activity, a: pattern of racketeering activity, an "enterprisel' and closed and open ended cotnrinmities do not thereby support the traditional causes of action contained here such as brea,ch Qf contract and preach of a fiduciary duty. Thus., the specific allegations required of RICO is inappropriate when considering the other causes of action and the facts alleged in the B,ICCi paragr:aphs do not help to support the .. oth,er causes of 8 [* 8] 8 of 9 INDEX NO. 507373/2021 FILED: KINGS COUNTY CLERK 08/30/2022 01:26 PM NYSCEF DOC. NO. 255 RECEIVED NYSCEF: 08/30/2022 action (see, Bankers Trust Co. , v . Rhoades, 859 F2d . 1096 [ 2d Cir. 1988 ] "r at her than simply provid ing a new avenue of redress for wrongs cognizable at common law or p rohibit ed by statute, congress's main goal was to eradica te organized crime ... To reach this goal, RICO t akes a uni que approach; it looks for a "pattern" of illegal acts- each of which, standing alone, may injure a plai nti ff - and the n views them together as a s ingl e violation. As a result , there may be encompassed within a single RICO violation injuries , both multip le and independent, that occur over a b r oad span of t ime"). The viable causes of action do not require such p r ecise and ini mi t able pleadings. Therefore, the motion seeking to strike paragraphs 155 - 169 of t he second amended ver ifi ed complaint is granted. So ordered. ENTER: DATED: Augus t 25, 2022 Brooklyn N.Y. Hon . Leon Ruchelsman JSC 9 [* 9] 9 of 9

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