Opinion
IND-2134-2019
08-30-2024
The People of the State of New York, v. Penny Bradley, Defendant.
Prosecutor: Alvin L. Bragg, Jr., District Attorney of New York County Jeffrey Levinson, Assistant District Attorney and Jamie Hickey-Mendoza, Assistant District Attorney One Hogan Place Defense Counsel for Penny Bradley Emery Celli Brinckerhoff Abady Ward & Maazel, LLP Earl S. Ward, Esq. Richard D. Emery, Esq. Vasudha Talla, Esq.
Prosecutor: Alvin L. Bragg, Jr., District Attorney of New York County Jeffrey Levinson, Assistant District Attorney and Jamie Hickey-Mendoza, Assistant District Attorney One Hogan Place
Defense Counsel for Penny Bradley Emery Celli Brinckerhoff Abady Ward & Maazel, LLP Earl S. Ward, Esq. Richard D. Emery, Esq. Vasudha Talla, Esq.
Brendan T. Lantry, J.
On April 4, 2024, the Defendant Penny Bradley ("Bradley" or "Defendant") was convicted by a jury of Residential Mortgage Fraud in the First Degree in violation of Penal Law § 187.25, two counts of Grand Larceny in the Second Degree in violation of Penal Law § 155.40, and two counts of Criminal Possession of a Forged Instrument in the Second Degree in violation of Penal Law § 170.25. During the pendency of the trial, the Defendant moved for a trial order of dismissal pursuant to CPL § 290 on March 29, 2024. ("Motion No. 001"). After the jury returned a verdict of guilty on both counts of the indictment, the Defendant filed a motion on May 2, 2024 to set aside the verdict pursuant to CPL § 330.30, and the parties engaged in motion [*2] practice. ("Motion No. 002"). On May 2, 2024, the Defendant also filed an Affirmation and Memorandum in Support of Motion Nos. 001 and 002. On June 3, 2024, the People filed an Affirmation in Response to both of the Defendant's motions. On June 24, 2024, the Defendant filed a Reply Affirmation and Memorandum in Support of Defendant's Motion for Trial Order of Dismissal and to Set Aside the Verdict.
On May 21, 2024, the Defendant separately supplemented the motion pursuant to CPL § 330.30. On June 21, 2024, the People filed an Affirmation in Response to the Defendant's CPL § 330.30(2) Motion. On July 1, 2024, the Defendant filed a Reply in Further Support of Supplemental Affirmation and Memorandum in Support of Defendant's Motion to Set Aside the Verdict. The May 21, 2024 Supplemental Affirmation, the People's June 21, 2024 Affirmation, the Defendant's July 1, 2024 Reply, and their respective exhibits, were sealed by this Court, on consent. A separate Decision and Order addressing Defendant's arguments in the May 21, 2024 Supplemental Affirmation was issued, under seal, on August 30, 2024.
Based upon the evidence and papers submitted by the parties, the Court hereby grants, pursuant to CPL § 290, the portion of Motion No. 001 seeking dismissal of the sole count of Residential Mortgage Fraud in the First Degree, in violation of Penal Law § 187.25. The Court denies the remaining portions of Motion No. 001 and denies Motion No. 002 as delineated below.
Relevant Pre-Trial Procedural History
On July 10, 2019, the Defendant was arraigned on Indictment No. 2134/2019, which charged her with Residential Mortgage Fraud in the First Degree in violation of Penal Law § 187.25, Grand Larceny in the Second Degree in violation of Penal Law § 155.40(1), two counts of Forgery in the Second Degree in violation of Penal Law § 170.10(1), and two counts of Criminal Possession of a Forged Instrument in the Second Degree in violation of Penal Law § 170.25 (the "2019 Indictment").
On May 26, 2021, the Defendant was arraigned on Indictment No. 850/2021, which charged her with Grand Larceny in the Second Degree in violation of Penal Law § 155.40(1) (the "2021 Indictment").
The Defendant's omnibus motion dated October 21, 2020, which, in relevant part, sought to dismiss the 2019 Indictment, was denied by the Honorable Maxwell Wiley in a Decision and Order dated August 3, 2021.
The Defendant's subsequent motion to dismiss dated March 23, 2022 was denied by the Honorable Maxwell Wiley on or about July 22, 2022.
On or about August 29, 2022, the 2019 Indictment and the 2021 Indictment were consolidated.
The 2019 Indictment
As the People note in their Affirmation in Opposition, the Defendant was the sole member of Norfolk Street Management, LLC ("Norfolk"), which was the Managing Member of 46 East 82nd Street LLC. Under the 2019 Indictment, the People alleged that the Defendant forged a document entitled "Consent of Majority of Interest of Members of 46 East 82nd Street LLC" (46 East 82nd Street Consent Document"). The People alleged that the 46 East 82nd Street Consent Document contained the forged signature pages of Oded Levy ("Levy") and Denise LePera ("LePera"), who were members of 46 East 82nd Street LLC. According to the People, the Defendant also signed a Certificate of Incumbency ("Certificate"), swearing to the truth and accuracy of the 46 East 82nd Street Consent Document while she knew that at least two of those signature pages were forged. With respect to these allegations, a grand jury charged the Defendant with two counts of Forgery in the Second Degree in violation of Penal Law § 170.10(1) and two counts of Criminal Possession of a Forged Instrument in the Second Degree in violation of Penal Law § 170.25.
With respect to the remaining charge of Residential Mortgage Fraud in the First Degree in violation of Penal Law § 187.25 contained in the 2019 Indictment, the Defendant was alleged to have presented the 46 East 82nd Street Consent Document and the Certificate "knowing that these documents were to be used in the application for, as well as the underwriting and closing of, a mortgage secured by the property located at 46 East 82nd Street, which was improved by a one-family dwelling where the Defendant did not intend to dwell." According to the allegations made by the People, the Defendant presented these documents with the intent to defraud Atlas Capital Bank ("Atlas") and First American Title Insurance Company ("First American") by leading them to believe that a majority of the members of 46 East 82nd Street LLC consented to obtaining a loan from Atlas in the amount of $11.5 million for 46 East 82nd Street LLC ("Atlas Loan"). The People alleged, therefore, that the Defendant's procurement of the Atlas Loan equated to Residential Mortgage Fraud in the First Degree, since the Defendant "thereby received proceeds or any other funds in the aggregate in excess of one million dollars."
Lastly, under the 2019 Indictment, the Defendant allegedly committed the crime of Grand Larceny in the Second Degree in violation of Penal Law § 155.40 by stealing funds in excess of $50,000.00 from 46 East 82nd Street LLC. During the Defendant's trial, the People submitted evidence to the trial jury that the Defendant stole $799,038.29 from 46 East 82nd Street LLC. The People submitted various documents, including bank records, credit card statements, text messages, and emails, in support of this position, which was summarized in an excel spreadsheet prepared by Wei Man Tang, a forensic accountant investigator in the Office of the New York County District Attorney.
Wei Man Tang testified in the grand jury that the total amount used by the Defendant for non-business purposes was $721,231.90. This number was changed several times from the time between the grand jury presentation and the trial. At trial, the People presented evidence that the amount used by the Defendant for non-business purposes was $799,038.29.
The 2021 Indictment
The sole count in the 2021 Indictment, Grand Larceny in the Second Degree in violation of Penal Law § 155.40, charges the Defendant with stealing over $50,000.00 from Inversiones Eurocel Limitada (hereinafter "Inversiones" or "IEL"), a company based in Chile. Specifically, the People alleged that R.S., a director of IEL, wired $500,000.00 to the Defendant and sent a subscription agreement in order to become a member of 52 East 64th Street LLC. During the trial, the People presented evidence showing that the Defendant sent the subscription agreement and numerous other documents to R.S., and also tried to convince R.S. to invest in 52 East 64th Street LLC. The People further submitted evidence at trial demonstrating that the Defendant never countersigned the subscription agreement but told R.S. that the funds would be used to purchase a townhouse located at 52 East 64th Street in New York County. The People allege that, out of the $500,000.00 wired by IEL, the Defendant used $486,833.00 for expenditures unrelated to 52 East 64th Street.
The Court has redacted the name of this witness for publication purposes.
The Trial Charges and Verdict
The Defendant's trial for the 2019 Indictment and 2021 Indictment commenced on February 27, 2024. As noted above, the Defendant made Motion No. 001 seeking a trial order of dismissal, asserting that the People did not make a prima facie case as to any of the counts charged and reserved further argument until the close of the case. The Court reserved decision.
After the Defense rested, the People moved to dismiss the two counts of Forgery in the Second Degree in violation of Penal Law § 170.10(1), which the Defense joined. See Tr. 3454:20-24. The Court dismissed the two counts of Forgery in the Second Degree in violation of Penal Law § 170.10(1).
The Defendant also moved to (1) strike the testimony of Wei Man Tang under the theory that his testimony impermissibly veered into expert opinion evidence; (2) dismiss the 2021 Indictment, arguing that the People failed to prove Grand Larceny in the Second Degree under the theory of larceny by embezzlement because the People had not established that the Defendant owed IEL a fiduciary duty; and (3) for a mistrial based on the People's decision to delay their motion to dismiss until after the close of evidence. The Court denied the motion to strike Mr. Tang's testimony and for a mistrial. The Court further requested written submissions from the parties as to the Defendant's motion to dismiss the 2021 Indictment.
Following deliberations, the trial jury found the Defendant guilty of all counts presented to the jury: Residential Mortgage Fraud in the First Degree, two counts of Grand Larceny in the Second Degree, and two counts of Criminal Possession of a Forged Instrument in the Second Degree.
The Defendant's Affirmation Regarding Residential Mortgage Fraud
With leave of this Court, the Defendant filed an Affirmation and Memorandum of Law in support of Motion Nos. 001 & 002. As to the 2019 Indictment, the Defendant's affirmation submits that the conviction for Residential Mortgage Fraud in the First Degree in violation of Penal Law § 187.25 should be dismissed or set aside because the evidence is legally insufficient to support such crime. Specifically, the Defense argues that (1) no legally sufficient evidence was submitted as to the Defendant's actual knowledge that the Atlas Loan constituted a "residential mortgage loan;" (2) applying the Residential Mortgage Fraud statute to the Defendant violates the Due Process Clause; and (3) she did not receive "proceeds" in excess of $1,000,000.00, which is a necessary element of the Residential Mortgage Fraud in the First Degree charge.
As to the 2021 Indictment, the Defense argues that the Defendant's conviction for Grand Larceny in the Second Degree in violation of Penal Law § 155.40(1) should be dismissed or set aside because the evidence is legally insufficient to support this crime. Specifically, the Defense argues that the People failed to establish a "trust" relationship between the Defendant and the victim, IEL.
The People's Affirmation in Opposition Regarding Residential Mortgage Fraud
The People submit that the Defendant was properly and legally convicted of Residential Mortgage Fraud.
As to the Defendant's argument that the "knowledge" component of this crime was not met since she did not know that the Atlas Loan was a residential mortgage loan, the People aver that "even assuming for the moment that the Defendant did not know that the loan she was applying for was labeled a 'residential mortgage loan' under Article 187, the Defendant still had the requisite mens rea. She knew that the loan that she applied for was a loan that was secured by residential real property; that is what is required by the statute." The People further submit that "the knowledge statute does not require that the defendant be aware of the terms used in the statute, just that the defendant be aware of the 'nature' or 'circumstances' of the conduct involved."
As to the Defendant's "Due Process" argument, the People submit that the Defendant's argument was not preserved. Citing People v. Baumann & Sons Buses, Inc., 6 N.Y.3d 404, 408 [2006], the People argue that a "challenge to the constitutionality of a statute must be preserved." The People further argue that the Defendant "never advanced a vagueness claim, or any other constitutional challenges, in the motion to dismiss the indictment included in her omnibus motion or in her motions to dismiss at trial." Accordingly, the People assert, the Defendant's application based upon due process claims should be denied.
Discussion
Defendant's Motion to Dismiss Grand Larceny Count Pertaining to IEL
This is a case of first impression. There are no published decisions interpreting the scope and intent of Article 187 of the Penal Law. As noted by both sides, Article 187 was enacted fifteen years ago in response to the financial collapse that ensued from rampant subprime mortgage lending.
"When the express terms of a statute give us one answer and extratextual considerations suggest another, it's no contest. Only the written word is the law, and all persons are entitled to its benefit." Bostock v. Clayton County, Georgia, 590 U.S. 644 [2020] (Gorsuch, J.)
"As the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof." Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577 [1998] (Smith, J.)
Penal Law § 187.25 reads as follows: "A person is guilty of residential mortgage fraud in the first degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one million dollars." Pursuant to Penal Law § 187.00(4), "Residential mortgage fraud" is committed by a person who:
knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be used in soliciting an applicant for, applying for, underwriting or closing a residential mortgage loan, or filing with a county clerk of any county in the state arising out of and related to the closing of a residential mortgage loan, any written statement which (a) contains materially false information concerning any fact material thereto; or (b) conceals, for the purpose of misleading, information concerning any fact material thereto. Penal Law § 187.00(4)
The definition of "Residential mortgage loan" is enumerated in Penal Law § 187.00(2), which defines the term as:
a loan or agreement to extend credit, including the renewal, refinancing or modification of any such loan, made to a person, which loan is primarily secured by either a mortgage, deed of trust, or other lien upon any interest in residential real property or any certificate of stock or other evidence of ownership in, and a proprietary lease from, a corporation or partnership formed for the purpose of cooperative ownership of residential real property.
A plain text reading of Penal Law § 187.25 clearly shows that the person, whether an individual or an entity, who commits residential mortgage fraud must be the person who receives proceeds or other funds in excess of one million dollars.
The Court is unpersuaded by the single case submitted by the People in support of their position that the Defendant "received" the subject proceeds. In Matter of Ibrahim, 104 A.D.3d 184 [2d Dept., 2013], the Second Department decided a motion by the Grievance Committee for the Tenth Judicial District pertaining to a now-disbarred attorney ("Ibrahim"). The disbarment was based, in part, on Ibrahim's plea to Residential Mortgage Fraud in the Second Degree in violation of Penal Law § 187.20. Ibrahim acted as the bank attorney and settlement agent in numerous real estate closings, during which he engaged in fraudulent conduct to misrepresent purchase contributions in real estate transactions. Here, the People liken the Defendant in the instant matter to Ibrahim, arguing that the Defendant's role as managing member of 46 East 82nd Street LLC is akin to the role of a bank attorney and settlement agent in a real estate transaction. Based upon such alleged similarities in the conduct of the Defendant in the instant case to that of Ibrahim, the People maintain that this decision by the Appellate Division, Second Department shows that the Defendant's conviction of Residential Mortgage Fraud in the First Degree should remain undisturbed.
Despite the People's attempt to liken the circumstances of this case to those found in Matter of Ibrahim, the Court finds that such comparison is without merit. One of the essential roles of a settlement agent's role is to receive and disburse funds. See In re Kapchan, 86 A.D.3d 110 [1st Dept., 2011]. A managing member's role is to fulfill the duties set forth by the operating agreement of the entity. Absent legislative mandates to the contrary, a person merely serving as a managing member or other officer of an entity is not automatically culpable for the actions of the entity. Absent a mandate by an operating agreement, a managing member has no duty to receive or disburse any funds of an entity. Accordingly, the People's reliance on Matter of Ibrahim is misplaced.
This finding by the Court does equate to a holding that only an entity can be culpable under Penal Law § 187.25 or that an entity and an individual cannot both be culpable under the statute. See U.S. v. Wise, 370 U.S. 405 [1962] (Warren, C.J.) (Inclusion of corporations and associations in the word "person" as defined by the Sherman Act does not mean that an individual corporate officer is thereby excluded). The individual circumstances dictate whether a person "receive[d]" proceeds.
Rather, in the instant matter, there is simply no evidence that the Defendant "received" the proceeds from the Atlas Loan, which was made between 46 East 82nd Street LLC and Atlas. Accordingly, the portion of Motion No. 001 seeking to set aside the verdict as to Residential Mortgage Fraud in the First Degree in violation of Penal Law § 187.25 is granted.
It should also be noted that, even though "person" is defined by Penal Law § 187.00 to mean "any individual or entity," the corporate entity in this matter, namely 46 East 82nd Street LLC, which actually did receive the proceeds, was not named as a defendant in this action.
This Court agrees with the People that "proceeds" within the statute includes the $11.5 million loan - not the difference between the loan amount and the amount disbursed to outstanding loans. While the Penal Law is silent as to a definition of "proceeds," Blacks Law Dictionary defines "proceeds" as 1. "[t]he value of land, goods or investments when converted into money; the amount of money received from a sale;" and 2. "[s]omething received upon selling, exchanging, collecting, other otherwise disposing of collateral." Black's Law Dictionary separately defines "net proceeds" as "[t]he amount received in a transaction minus the costs of the transaction."
However, assuming, arguendo, that the Defendant's conviction of Grand Larceny in the Second Degree for stealing from 46 East 82nd Street LLC would satisfy the "receive" element of Residential Mortgage Fraud in the First Degree - the People did not submit evidence that the Defendant stole in excess of $1,000,000.00. To the contrary, the reports generated by the People's witness, Mr. Tang, reflected $799,038.29 that was used by the Defendant for non-company purposes - over $200,000.00 short of the $1,000,000.00 threshold for Mortgage Fraud in the First Degree. In addition, the People never charged (and the jury never considered) Grand Larceny in the First Degree.
Turning to the Defendant's remaining arguments regarding the charge of Residential Mortgage Fraud in the First Degree, such as the Defendant did not know that the Atlas Loan was a "residential mortgage loan," the Court is unpersuaded by same.
Penal Law § 187.00(3) defines "Residential real property" as:
real property that is used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons, including real property that is improved by a one-to-four family dwelling, or a residential unit in a building including units owned as condominiums or on a cooperative basis, used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons, but shall not refer to unimproved real property upon which such dwellings are to be constructed.
A plain reading of Penal Law § 187.00(3) reveals that real property "intended to be used or occupied" as "the home or residence of one or more persons" falls within the scope of the statute. In other words, that the owners are taking out a mortgage to "flip" the house does not make the mortgage commercial, rather than residential, in nature. This is supported further by Penal Law § 187.01, which explicitly excludes owner-occupiers from prosecution under Article 187.
Clearly, the People were not required to prove that the Defendant had knowledge that the mortgage in question was "residential" in nature. As noted by the People, "[u]nder defendant's logic, a person who knowingly breaks into an 'enclosed motor truck' and steals items from within would not be guilty of burglary because he was not aware that the truck was considered a building under Penal Law § 140.00(2), despite knowing that he [had] broken into the truck and stole property."
The Defendant's arguments that the application of Article 187 as applied to the Defendant violates the due process clause are also unpersuasive. Citing People v. Allen, 213 A.D.3d 73 [1st Dept., 2023], the Defendant argues that the Residential Mortgage statute was not "sufficiently definite" to give the Defendant "fair notice" that her conduct was "forbidden by the statute." The Defendant further argues that the vagueness of the statute does not provide "officials with clear standards for enforcement" and "delegates basic policy determinations to the police - and eventually to judges and juries - for resolution on an on ad and subjective basis, with the attendant dangers of arbitrary and discriminatory application." Id. The Defendant's Reply affirmation explicitly submits that the Residential Mortgage Fraud statute is unconstitutional and notes that the Defendant previously argued during the charge conference that the statute required proof that she knew that the written statement "would be used in closing a residential mortgage loan."
As the People correctly note, the Defendant failed to notify the New York State Attorney General as to her challenge to the constitutionality to Article 187, as required. CPLR § 1012(b)(1), entitled "Notice to attorney-general, city, county town or village where constitutionality in issue," states that "[w]hen the constitutionality of a statute of the state... is involved in an action to which the state is not a part, the attorney-general, shall be notified and permitted to intervene in support of its constitutionality." CPLR § 1012(b)(3) provides that the Court "shall not consider any challenge to the constitutionality of such state statute... unless proof of service of the notice required by this subdivision is filed with such court." Furthermore, Judiciary Law § 71(1) requires that:
[w]henever the constitutionality of a statute, or a rule or regulation adopted pursuant thereto is brought into question upon the trial, hearing or appeal of any action or proceeding, civil or criminal, in any court of record of original or appellate jurisdiction, and proof of the notice of such constitutional challenge, as required by paragraph one of subdivision (b) of section one thousand twelve of the civil practice law and rules, has not been filed, the court or justice before whom such action or proceeding is pending, shall make an order, directing the party desiring to raise such question, to serve notice thereof on the attorney-general, and providing that the attorney-general be permitted to appear at any such trial or hearing in support of the constitutionality of such statute, or rule or regulation adopted pursuant thereto.
In accordance with Executive Law § 71(1), this Court would have issued an Order to the New York Attorney General granting leave for the Attorney General to appear in support of the constitutionality of Chapter 187 of the Penal Law. However, as this Court has already granted the Defendant's motion to dismiss the Defendant's conviction of Residential Mortgage Fraud in the First Degree on other grounds, such issue is moot.
The Court will now turn to the second portion of the Defendant's motions, which pertain to the trust relationship between the Defendant and IEL.
Defendant's Motion to Dismiss Grand Larceny Count Pertaining to IEL
The Defendant moves to dismiss the Defendant's conviction of Grand Larceny in the Second Degree in violation of Penal Law § 155 with respect to IEL. According to the Defendant, the People's theory of larceny by embezzlement required the existence of a trust or fiduciary relationship between the Defendant and IEL. The Defendant proffers that the trial evidence unequivocally demonstrated that the only document and relationship giving rise to a fiduciary or trust relationship, which would be the acceptance of IEL as a member of the 52 East 64th Street LLC and the fiduciary obligation in the LLC operating agreement, was never consummated. The Defendant maintains that because IEL did not become a member of the 52 East 64th Street LLC, the Defendant never held IEL's funds in trust and, therefore, larceny by embezzlement cannot be established.
The Defendant maintains that the only theory of larceny that could be pursued is larceny by false promise, in that the Defendant allegedly promised to make IEL a member of the 64th Street LLC if IEL transferred $500,000.00 and the Defendant failed to fulfill such promise by allegedly keeping the money. However, the Defendant asserts, the People abandoned the theory of larceny by false promise, most likely because they could not establish a prima facie case for this charge, and decided to proceed with larceny by embezzlement. The Defendant therefore moves to dismiss the Defendant's conviction for Grand Larceny based upon the lack of a fiduciary or trust relationship on behalf of the Defendant.
In opposition, the People assert that the Defendant was proven guilty beyond a reasonable doubt to have owed a fiduciary duty to IEL, who entrusted $500,000.00 to the Defendant before the Defendant stole such funds. The People state that while they do not concede that they were obligated to prove that the Defendant owed IEL a fiduciary duty, the evidence showed that she did. The People delineate how larceny crimes were codified and provide that the general definition of larceny applies to cases of embezzlement, as the previous distinction between the two types of crimes was abolished. See People v. Krumme, 161 Misc. 278, 280 [Kings Co. Ct. 1936].
Pointing to Penal Law § 155.05, the People represent that a person commits larceny when "with intent to deprive another of property or appropriate the same to himself or to a third person, he wrongfully takes, obtains, or withholds such property from an owner thereof." The People argue the following:
Thus, the proper evaluation of whether a trust relationship has been established is not the existence of a fiduciary duty, which relies on the duty of the possessor in relationship to the owner. Instead, the trust relationship is established based on the representations made by the possessor and the reliance placed by the owner. In this case, the defendant clearly made representations intending to induce IEL's trust, and R.S. clearly relied on the defendant's representations when he convinced his family business to transfer $500,000 to the defendant. The defendant told R.S. about her work, showed him a property that she managed, and told him that she working on the 64th St. project. The defendant stayed in contact with R.S. for almost a year and then gave him a personal tour of 52 E. 64th St. Once R.S. had confirmed his interest in investing, the defendant sent him a brochure extolling her talents and accomplishments in the real estate business, and information about investing. Throughout the month of June 2016, the defendant repeatedly contacted IEL and then entreated R.S. to invest in her company to acquire and renovate the 52 East 64th Street property. As proven at trial, R.S. entrusted his company's money to the defendant for that specific purpose.
The People assert that based upon these facts, the Defendant does not deny that IEL "entrusted" its money to her, but rather that there was no "trust relationship," referring to the legal connection created by a fiduciary duty. According to the People, the higher level of a "fiduciary relationship" was not a required element here. However, the People state, even if it was a necessary element, the evidence shows that the Defendant did have a fiduciary relationship with IEL, who "reposed confidence" in the Defendant and reasonably relied upon her "superior expertise of knowledge" in making real estate investments in the United States.
With respect to the Defendant's argument that no fiduciary duty existed since the Defendant did not sign the subscription agreement executed by IEL and, therefore, IEL was not a member of 52 East 64th Street LLC, the People argue that such lack of contractual formality does not resolve the question of whether the Defendant owed IEL a fiduciary duty. Rather, the People maintain, the Defendant's negotiations with IEL and the relationship established with R.S. imposed upon the Defendant a fiduciary duty, one which was cemented by the Defendant when she offered to renegotiate her "agreement" with R.S. to effectuate a return on R.S.'s "investment."
With respect to the case cited by the Defendant, WIT Holding Corp. v. Klein, 282 A.D.2d 527 [2d Dept., 2001], the People assert that his case is inapplicable because in that case, the court found no fiduciary relationship existed even though the parties socialized with one another and worked together on a joint process. Here, the People maintain, all of the years long interactions between the Defendant and R.S./IEL were specifically relayed to the 52 East 64th Street project and, unlike the parties in WIT Holding Corp., the relationship between the parties was not at "arms-length." According to the People, the parties negotiated personally after the Defendant informed R.S. about the 52 East 64th Street investment opportunity and she pushed for his investment. Based upon these circumstances, the People argue that the Defendant had a fiduciary relationship with IEL/R.S.
In People v. Yannett, the Court of Appeals delineated the crime of larceny by embezzlement under Penal Law § 155.05 and explained it as follows:
The essence of the crime of larceny by embezzlement is the conversion by the embezzler of property belonging to another which has been entrusted to the embezzler to hold on behalf of the owner (see Penal Law, s 155.05, subds. 1-2; People v. Meadows, 199 NY 1, 4, 92 N.E. 128; People v. Robinson, 284 NY 75, 29 N.E.2d 475). People v Yannett, 49 N.Y.2d 296, 301-02 [1980]. See People v. Duda, 79 A.D.2d 712 [2d Dept., 1980].
In that case, the Appellate Division, Third Department affirmed the conviction of a defendant, an operator of a nursing home, who was convicted of Grand Larceny in the Second Degree. Subsequently, the Court of Appeals found that although the nursing home residents had contractual rights to receive Medicaid refunds from the operator of the nursing home equal to full amount they previously paid to him (minus any coinsurance fees), the money from which the operator was required to make those payments belonged to him rather than the residents, and the operator's failure to make full refunds did not constitute larceny by embezzlement. The Court noted in its opinion that, when the residents initially paid the private resident rate to the defendant, that money became the defendant's money, and it was not given to him in trust. Moreover, the Court held that the defendant was free to use the funds for "any purpose he wished."
In the instant case, the evidence produced at trial showed that IEL relied upon the Defendant's representations regarding the 64th Street Project and that IEL entrusted the $500,000.00 to the Defendant to invest in the project. Unlike the case of Yannett, the evidence presented at trial demonstrated that the Defendant was not free to use the funds for any purpose she wished, but rather, that IEL entrusted the funds to the Defendant to hold on its behalf. Here, the evidence shows that IEL was the legal "owner" of the funds at issue under Penal Law § 155.00(5), which defines owner as "any person who has a right to possession thereof superior to that of the taker, obtainer or withholder." As the People correctly note, the Court of Appeals in Yannett did not adopt the holding of the Appellate Division, Third Department in that a fiduciary relationship must exist for the charge of grand larceny. Therefore, the Court finds that the People were not required to establish a fiduciary duty existed in order to prove that the Defendant committed Grand Larceny in the Second Degree beyond a reasonable doubt.
However, even if the Court were to determine that a fiduciary duty was a necessary element of this crime, the Court would still find that the People proved the charge beyond a reasonable doubt. The evidence at trial showed that the Defendant made representations to IEL in order to induce IEL to provide the funds at issue. The evidence further showed that IEL relied upon such representations, which were made under the umbrella of the Defendant's experience in real estate, and that IEL entrusted the funds to the Defendant for the purpose of investing. In EBC I, Inc. V. Goldman, Sachs & Co, the Court of Appeals explained the nature of a fiduciary relationship:
A fiduciary relationship "exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" (Restatement [Second] of Torts § 874, Comment a). Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions (see Northeast Gen. Corp. v Wellington Adv., 82 N.Y.2d 158, 162 [1993]). Generally, where parties have entered into a contract, courts look to that agreement "to discover... the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency" (see id. at 160). "If the parties... do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them" (id. at 162). However, it is fundamental that fiduciary "liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation" (Restatement [Second] of Torts § 874, Comment b). EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19-20 [2005].
As the Court held in EBC I, Inc., a fiduciary duty is not solely dependent upon an agreement between the parties. Therefore, the Defendant's argument that she was not a fiduciary because IEL did not become a member of the LLC is unavailing. Rather, the evidence shows that the Defendant made representations with the intent to induce IEL's trust and that the Defendant relied upon her history of accomplishments in this particular field to ensure that IEL would entrust the funds to her. The evidence also shows that IEL had the intention of becoming a member of the LLC and that it was the Defendant who failed to sign the agreement.
The Court finds that the evidence surrounding the relationship between the Defendant and IEL demonstrates that a fiduciary relationship existed between the parties and, therefore, the Defendant had a fiduciary duty to IEL.
Accordingly, the Defendant's motion to dismiss her conviction for Grand Larceny in the Second Degree is denied under Motion Nos. 001 and 002.
Defendant's Application Regarding Wei Man Tang
The Defendant's arguments as to the scope of the testimony of Wei Man Tang is also rejected. The Defendant argues that Mr. Tang's testimony exceeded the limits applicable to lay witness testimony. The issue of whether Mr. Tang, a forensic accountant investigator in the Office of the New York County District Attorney, could testify as a lay witness was thoroughly litigated during pre-trial motions and at various points during the People's case. Contrary to the Defendant's assertions, Mr. Tang testified within the scope of this Court's ruling following the Defendant's Frye motion. Accordingly, the Defendant's motion to dismiss or set aside the grand larceny convictions against the Defendant is denied.
Conclusion
Accordingly, it is hereby
ORDERED that the Defendant's conviction for Residential Mortgage Fraud in the First Degree is hereby dismissed; it is further
ORDERED that the remainder of Defendant's Motion Nos. 001 and 002 is denied.
This constitutes the Decision and Order of the Court.