Argento SC by Sicura Inc. v Hirsch

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Argento SC by Sicura Inc. v Hirsch 2023 NY Slip Op 30137(U) January 12, 2023 Supreme Court, New York County Docket Number: Index No. 160504/2021 Judge: Dakota D. Ramseur 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. FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 INDEX NO. 160504/2021 . I RECEIVED NYSCEF: 01/13/2023 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUN TY PRESENT: 34M PART HON. DAKOTA D. RAMSEUR Justice X ARGENTO SC BY SICURA INC. INDEX NO. MOTION DATE Plaintiff, · MOTION SEQ. NO. 160504/2021 08/12/2022 001 - V - DECISION + ORDER ON MOTION ALLEN HIRSCH, Defendant. ------- ------- ------- ---- ----~--X 001) 8, 9, 10, 11, 12, 13, The following e-filed documents, listed by NYSCEF documen t number (Motion 14, 15, 16, 17, 18, 19, 20, 21 DISMISSAL were read on this motion to/for Plaintif f Argento S.C. By Sicura, Inc. (hereinafter "Argent o") commen ced the instant g action against defendant Allen Hirsch (as owner ofHand l New York, LLC; "Handl" ) assertin e Sequenc Motion causes of action for fraudulent inducement and breach of fiduciary duties. In of action. 001, Hirsch moves pursuant to CPLR 3211 (a) (7) for an order dismissing these causes granted. is motion s Hirsch' reasons, g Argento opposes the motion in its entirety. For the followin BACKGROUND After developing a novel smartphone case in 2014, Hirsch -an artist based in New York--o btained three United States patents and several tradem~ k registrations for his designs. and sell In 2018, Hirsch incorporated his company, Handl, in Delaware to design, manufacture, in leader the smartphone cases. In the fall/winter of 2020, Argent o-.as a self-described industry the design, manufacture, and distribution of a variety of goods, including cellphone and During smartphone cases-a pproach ed Hirsch and Handl to negotiate a joint venture agreement. l principa its these negotiations, Hirsch allegedly represented to Argento and Jack Scaba, one of the agents, that Handl's prior agreement with C2 Wireless and Accessories LLC ("C2") for to pay agreed had Handl that and manufacturing/sale of these smartphone cases had conclud ed $50,000 to C2 to resolve a dispute between them. In December 2020, Argento and Handl executed a joint venture agreeme nt ("the ent Agreement"). (See NYSCE F doc. no. 13, Joint Venture Agreement.) Section 2 of the Agreem es under provides "each of the two Parties of this Venture shall operate their respective business 5, Section entity." s busines their current names .. . This Venture shall not operate as a separate entitled "Management," requires that "the Venture shall be managed jointly by one confer representative from each of.the Parties (each, a 'Manag er'). The Managers will meet or 6 Section (Id.) ." ibilities respons their with each other on a periodic basis in the performance of daythe for ible then distributes the parties' respective responsibilities: Handl would be respons 160504/2021 ARGENTO SC BY SICURA INC. vs. HIRSCH, ALLEN Motion No. 001 [* 1] 1 of 6 Page 1 of 6 FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 INDEX NO. 160504/2021 RECEIVED NYSCEF: 01/13/2023 ~:: :::~ n:~ :1 ting, atoun_ting, an l~t yb ~~ dg rk~ ma es, sal ing lud inc . , ndl Ha . to-day operations of es ma nu act unn g qua 1 , cas e hon artp sm the gs, c:g thin ~~ er ensure among oth ina and alter~attve fin nships with manufac~urers i1:1 Ch . (Id.) ~ec tto n 7,_ ent l\ e Handl 'with establishing relatio marketing/packagmg assistance , exe rci sab le at its so e . sources and provide engineering/ en~o an opt i~n To olin g," ext end s Arg a greate~ port10_n of "Fi nan ~in g of Inv ent ory and and too lmg cos ts ~n re t~ for ng uri act nuf ma 's ndl Ha e edu~e m Sec tio n 8, dis cre tion , to fin anc tio n 8. As des cri bed m the sch Sec in ed ion ort app as fits the pro the joi nt ven tur e's estic sales if it were to provide the net profits on ~om ment Argento would receive 25% of finance. (I~ .) Lastly, th~ Agree to ~on o~t the e rcis exe not did constitute_ a . financing versus 15% if it tractual Jomt venture and will n?t con a d me ter is re ntu Ve is "Th gth basis ';h ile provides, es to one another o~ an arm s le~ vic ser e vid pro l wil ties par e act10ns and partnership. Th ty is responsible only for its o~ Par h Eac s. itie ent ss ine bus nt scellaneous remaining independe , Joint Venture Agreement, Mi ,I25 at (Id. ty." Par er oth any No Party is an agent for Section.) funding pursuant approximately $1.3 mi llio n in ndl Ha ed end ext o ent Arg 1, who ran In April 202 ly terminated a Handl employee ged alle sch Hir r, afte n Soo : use ed to to Section 7's option cla Argento alleges tha t Handl fail . ice off n sto Bo its ed tter shu garnered from the the day-to-day operations and or pay 25% of the profits Handl 994 , 042 $1, tely ima rox app apter 11 for reimburse it In June 2021, Handi filed for Ch ds. fun s o' ent Arg h wit sed cha ,00 0-n ot sale of inventory pur erted that it still ow ed C2 $5 00 ass sch Hir g, din cee pro y ptc ents (which Argento bankruptcy. In that bankru that Ha ndl 's smartphone case pat d -an nto ge Ar to d nte rra wa ly already securing $50,000 as ral for nonpayment) were actual late col as sch Hir h wit s tion sought in negotia ing Statement. the $500,000 in a UCC-1 Financ sch 's November 2021 alleging tha t Hir in ion act t tan ins the d nce me induced Argento com to C2 and, thereby, fraudulently ns tio iga obl y's pan com his of t Hirsch, by virtue of misrepresented the value ent. Further, Argento alleges tha eem agr e tur ven nt joi the er ent ies by firing the Argento to o and that he violated those dut ent Arg to ies dut ary uci fid d t motion the Agreement, hel er the Agreement. In the curren und ies dut 's ndl Ha for le sib uing tha t (1) Argento individual specifically respon suant to CP LR 3211 (a) (7), arg pur sal mis dis for ves mo sch ns; and (2) the sequence, Hir ries from, his misrepresentatio inju ed fer suf or on, ied rel y abl fails to plead it justifi . uciary duties between the parties joi nt venture did not establish fid DISCUSSION LR 3211 (a) (7), state a cause of action und er CP to ure fail for s mis dis to n tio plaint as On a mo ept the facts as alleged in the com acc n, ctio stru con ral libe a ngs ez, 84 courts afford the pleadi orable inference. (Leon v Martin fav le sib pos ry eve of t efi ben ts as alleged fit true, and give the pla int iff the n is to determine wh eth er the fac ctio fun y onl rts' cou e Th .) 94] nt cause of NY2d 83, 87 [19 Ar gen to's fraudulent induceme for h, suc As .) (Id . ory the al leg n or within any cognizable consist of "(1 ) a misrepresentatio ged alle as ts fac the er eth wh ant, (2) made action, the Court only looks to known to be false by [the] defend and e fals s wa ich wh t fac of ion of the other a material omiss upon it, (3) jus tifi abl e reliance rely to ty par er oth the ng uci Corp. for the purpose of ind " (See Pa ste rna ck v Laboratory ry. inju s] tiff ain [pl (4) and n, fiduciary duties cause party on the misrepresentatio .) And for Ar gen to's bre ach of 16] [20 827 , 817 3d NY 27 gs, ofAm. Holdin .... [* 2] , ALLEN BY SICURA INC. vs. HIRSCH 160504/2021 ARGENTO SC Motion No. 001 2 of 6 Page 2 of 6 FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 INDEX NO. 160504/2021 RECEIVED NYSCEF: 01/13/2023 of action, the Court only looks to whether the facts establish the existence of a fiduciary relationship, misconduct by the defendant, and damages caused by the misconduct. (Pokoik v Pokoik, 115 AD3d 428,429 [1st Dept 2014], citing Kurtzman v Bergstol, 40 AD3d 588, 590 [2d Dept 2007].) The Court finds that Argento has failed to sufficiently plead each cause of action. Fraudulent-Inducement Cause ofAction Hirsch premises his argument on Argento's failure to cite evidence indicating that it performed due diligence or that the knowledge of Hirsch's resolution with C2 was solely within his possession (NYSCEF doc. no. 15 at 8, Hirsch memo oflaw.) In his view, since Argento is required to plead facts which would signal that it justifiably relied upon the alleged misrepresentations, and since Argento did not describe any due diligence on its part, Argento's pleadings are fatally deficient and should be dismissed. Though the Court recognizes that pleading justifiable reliance is a "fundamental precept" of a fraud cause of action and that its absence (as the case is here) would ordinarily warrant dismissal (Ambac Assur. Corp. v Countrywide Home Loans, Inc., 31 NY3d 569,579 [2018]), the issue is not dispositive on this motion. In certain circumstances, where defendants have "essential" facts that are within their sole knowledge and such knowledge renders a transaction without disclosure inherently unfair, they have a duty to disclose the facts as known to them. (Sports Tech. Applications, Inc. v MLB Advanced Media, L.P., 188 AD3d 619,620 [1st Dept 2020], citing Greenman-Pedersen, Inc. v Berryman & Renigar, Inc., 130 AD3d 514, 516 [1st Dept 2015].) To avail oneself of this "special facts" doctrine, a plaintiff must not only plead the above-described elements but also that the "information was not such that could have been discovered through the exercise of ordinary intelligence." (Shareholder Representative Servs. LLC v Sandoz Inc., 2015 Slip Op 50326 [U] at *7 [Sup. Ct. NY County 2015], quoting Jana L. v W I 29th St. Realty Corp., 22 AD3d 274, 2777 [1st Dept 2005].) Here, Argento contends that, as alleged, the complaint makes out a cause of action for fraudulent inducement under the "special facts" doctrine. It maintains that: (1) the knowledge of the company's liability to C2 were solely within Hirsch's or Handl's possession given that the liability concerned a private contractual dispute and was not part of any public record or the subject of any litigation; (2) such a significant misrepresentation-$50,000 instead of $500,000-affected Argento's evaluation of an essential component of the company and devalued Handl's intellectual property that secured Argento's payments, all of which made the transaction unfair; and (3) the true facts of Handl's liability could not have been discovered through ordinary intelligence. Although Argento has undoubtedly demonstrated that Hirsch and Handl had superior knowledge of the company's liability to C2, the Court finds that Argento's allegations that it could not have discovered the information through the exercise of ordinary intelligence to be deficient. (See New York City Waterfront Dev. Fund II, LLC v Pier A Battery Park Assocs., LLC, 206 AD3d 565, 567 [1st Dept 2022].) The pleadings on this point are, at best, conclusory and lack anything that would indicate Argento attempted to verify Hirsch's st_atements (even as the alleged misrepresentations concerned what Argento considered to be a significant issue in its negotiations). (See Kim v XP Sec., LLC, 200 AD3d 420, 421 [1st Dept 2021] [Doctrine does not apply because "plaintiffs pleadings do not demonstrate that he 160504/2021 ARGENTO SC BY SICURA INC. vs. HIRSCH, ALLEN Motion No. 001 [* 3] 3 of 6 Page 3 of 6 FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 INDEX NO. 160504/2021 RECEIVED NYSCEF: 01/13/2023 exercised ordinary diligence in investigating defendant's representations, despite their alleged importance to the employment agreement"].) In Jana L., the First Department wrote that simply using the language "[the information] could not have been obtained through the exercise of ordinary intelligence" is insufficient for pleading the "special facts" doctrine. (22 AD3d at 278.) As this is precisely how Argento has described why it could not have discovered the misrepresentation, the Court is compelled to grant this branch of Hirsch's motion. (See also New York City Waterfront Dev., 206 AD3d at 567 ["special facts" doctrine unavailing because plaintiff's allegations were conclusory ].) Argento's argument that the applicability of the "special facts" doctrine requires a factintensive inquiry and therefore the cause of action should not be dismissed before the conclusion of discovery is unpersuasive. As an initial matter, this fact-sensitive argument relies upon the possibility that discovery will uncover information as to whether the "special fact" doctrine applies. But this ignores that at this stage, requiring some factual allegation that indicates ordinary intelligence would not have uncovered the deception is a minimal threshold, often necessitating only allegations of whatever minimal attempts they made at verificationinformation entirely within the plaintiff's control. (See Kim v XP Sec., LLC, 200 AD3d at 421 [requiring pleadings demonstrate plaintiff exercised ordinary diligence in investigating facts for "special facts" doctrine to apply].) Again, this aspect is entirely missing from Argento's complaint. For example, as Hirsch argues, nowhere in the pleading papers does Argento allege that it sought even documentary proof or signed papers regarding Handl' s agreement with C2. Moreover, the cases Argento cites are in one way or another inapposite here. In both China Dev. Indus. Bank v Morgan Stanley & Co. Inc. (86 AD3d 435 [1st Dept 2011]) and P. T Bank Cent. Asia v ABN AMRO Bank NV (301 AD2d 373 [1st Dept 2003]), the plaintiffs alleged fraudulent inducement on the part of investment banks related to complex and opaque financial instruments-credit default swaps and collateral debt obligations-in the financial service industry. While the First Department in both cases found it improvident to dismiss the complaint, the courts appear to have held so because of the unique circumstances involved in these types of transactions at issue. In regard to China Dev. specifically, the First Department affirmed the lower court's judgment that, given the allegations that Morgan Stanley "corrupted the rating agencies," no amount of due diligence or analysis could have uncovered the deception and · misrepresentations. The Court's only mention of having an obligation to disclose was in the context of fraudulent concealment-not the "special facts" doctrine. By contrast, as described above, the Court has determined that Argento failed to plead any basic actions it took to investigate statements that by its own account were important to it and that were by orders of magnitude less complex than those financial instruments. Or consider Swersky v Dreyer & Traub (219 AD2d 321) and Harbinger Capital Partners Master Fund I, Ltd. v Wachovia Capital Mkts., LLC (2010 NY Slip Op 51046 [U] [Sup. Ct. NY County 2010]. Besides involving complex securities and large-scale fraud allegations, both courts found issues of fact as to the level of knowledge of each party and whether the exercise of ordinary intelligence could have independently ascertained the truth of defendants' statements. (Swersky, 219 AD2d at 327-328; Harbinger, 2010 NY Slip Op 51046[U] at *9.) Put differently, neither court appears to have confronted the type of conclusory allegations that are at issue here: 160504/2021 ARGENTO SC BY SICURA INC. vs. HIRSCH, ALLEN Motion No. 001 [* 4] 4 of 6 Page 4 of 6 FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 INDEX NO. 160504/2021 RECEIVED NYSCEF: 01/13/2023 both of the respective plaintiffs in these cases seemed to have displayed some degree of diligence with regard to defendants' statements. For the above stated reasons, Argento has not plead a cognizable fraudulent-inducement cause of action. 1 Breach-of-Fiduciary-Duties Cause ofAction The premise of Argento' s cause of action is that the joint venture agreement created fiduciary duties between the managers-Ja ck Scaba for Argento, Hirsch for Handl-to the joint venture and that Hirsch breached such duties by unilaterally undermining Handl' s ability to distribute the smartphone cases. According to Hirsch, however, that the Agreement may have labeled the parties' business arrangement as a joint venture is immaterial to whether the agreement actually establish a joint venture as recognized under New York law. Citing to Slabakis v Schik (164 AD3d 454, 454-455 [1st Dept 2018]), Richbell v Info. Servs. v Jupiter Partners (309 AD2d 288,298 [1st Dept 2003]), and Lebedev v Blavatnik (193 AD3d 175, 186 [1st Dept 2021 ]), Hirsch argues that to properly plead the existence of a joint venture Argento must, but cannot, allege that parties included a mutual promise to share in the profits of the business and its losses. The Court agrees. Described supra, the joint venture agreement contains Sections 7 and 8 that specify what would happen should Argento provide the financing for the manufacturing and tooling of the smartphone cases, but the agreement is silent as to the division of losses. As the First Department recognized in Slabakis and Lebedev, "an indispensable essential of a contract of contract of partnership or a joint venture ... is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses (quoting Matter ofSteinbeck v Gerosa, 4 NY2d 302, 317 [1958])." Without a division of losses, and therefore, without a joint venture, Argento' s cause of action collapses on itself. Instead of a joint venture, the Agreement app~ars to provide for a lender-borrower relationship between Argento and Handl. Under such a relationship, "there is no special relationship of confidence and trust". (See Oddo Asset Mgmt. v Barclay's Bank, PLC, 19 NY3d 584, 593 [2012] ["There is generally 'no fiduciary obligation in a contractual arm's length relationship between a debtor and a note-holding creditor' (citation omitted)]".) The conclusion that the parties did not create an actual joint venture is furthered by looking to Section 25 of the Agreement. That section does three things: first, it disclaims that a partnership exists; second, it describes that the parties will undertake the services to each other "on an arms' length basis;" and third, it denies that either party is an agent for the other. (NYSCEF doc. no. 13 at ,r25.) It is clear that at each level Section 25 rejects the premise that each owe the other "a higher realm of relationship ... or stricter duty." (Oddo Asset Mgmt., 19 NY3d at 593 [2012].) In opposition, Argento principally relies on Don v Singer (92 AD3d 576 [1st Dept 2012] and Richbell Info. Servs. (309 AD2d 288) for the proposition that issues concerning the existence Because the Court finds that Argento has not sufficiently plead justifiable reliance or its use of ordinary intelligence, it need not address Hirsch's further contention that Argento failed to plead a causal connection between the alleged misrepresentation and its injury. The Court also does not consider Hirsch's argument, submitted for the first time in reply, that the joint venture agreement contains a merger agreement that precludes any representations made during negotiations from constituting a fraud inducement cause of action. 1 160504/2021 ARGENTO SC BY SICURA INC. vs. HIRSCH, ALLEN Motion No. 001 [* 5] 5 of 6 Page 5 of 6 INDEX NO. 160504/2021 FILED: NEW YORK COUNTY CLERK 01/13/2023 12:34 PM NYSCEF DOC. NO. 22 RECEIVED NYSCEF: 01/13/2023 of a joint venture are not suited for resolution on a motion to dismiss. (NYSCEF doc. no. 17 at 19-20.) Reliance on these cases, however, is mistaken. In Don v Singer, the First Department held that issues of fact exist as to "whether [defendant's] conduct manifested an intention to be bound as a joint venturer with plaintiff." The conduct that the First Department alluded to included remaining silent when provided with the agreements or when repeatedly introduced as plaintiffs partner. (Don, 92 AD3d at 577.) Here, Argento does not point to similar such conduct on Hirsch's part that might have implicitly manifested the intention to be deemed a joint. Richbell is no more helpful : as found by both the motion court and the First Department, the express written agreement that was the basis for the "joint venture" was merely "an agreement to agree" and therefore not binding on the parties. (Richbell, 309 AD2d at 297.) It was only in the absence of an express agreement that the First Department found issues of fact as to whether the parties, by their conduct, entered into an implied joint venture agreement. Lastly, Argento argues that the language of a joint venture agreement does not preclude the Court from inferring a fiduciary duty from the circumstances beyond the contractual nature of the relationship. While an accurate statement, Argento allegations provide no reason to believe that the circumstances outside of the contractual relationship would impose additional duties on the party. As opposed to the circumstances in Kern v Robert Currie Assocs., 220 AD2d 255 [1st Dept 1995], where a plaintiff relied on the defendant's advice after a series of interactions outside the strict confines of the contract, or Era Capital L.P. v Soleil Chtd. Bank, 2021 NY Misc. Lexis 2723 at 15-16 (Sup. Ct. NY County 2021 ), where a years-long customerbank relationship developed into the financial-advisory relationship, Argento has not alleged any relationship outside the terms of the agreement. Because its cause of action requires it to plead a fiduciary relationship, and because Argento has not, this cause of action is dismissed. Accordingly, for the foregoing reasons, it is hereby ORDERED that defendant Allen Hirsch' s motion pursuant to CPLR 3211 (a) (7) is granted against plaintiff Argento S.C. By Sicura, Inc and the complaint dismissed; and it further ORDERED that counsel for defendant shall serve a copy of this order, along with notice of entry, on all parties within ten (10) days of entry; and it is further ORDERED that the Clerk of the Court shall enter judgment accordingly. This constitutes the Decision and Order of the Court 1/12/2023 DATE CHECK ONE: CASE DISPOSED GRANTED • § NON-FINAL DISPOSITION DENIED APPLICATION: SETTLE ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN SUBMIT ORDER 160504/2021 ARGENTO SC BY SICURA INC. vs. HIRSCH, ALLEN Motion No. 001 [* 6] GRANTED IN PART 6 of 6 FIDUCIARY APPOINTMENT • • OTHER REFERENCE Page 6 of 6

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