Opinion
14747/05.
Decided December 22, 2005.
Gerard A. Imperato, Esquire, Brooklyn, New York, for Plaintiff.
Respondent Pro Se.
Plaintiff seeks damages for fraud in the sum of $24,000.00, or in the alternative to recover the $24,000.00 "loan" made to defendant in a newly formed business entity, Edge Auctions. Defendant counterclaims for $15,000.00 plus "punitive damages, court costs, medical expenses, marriage counseling and lawyer fees" alleging that the removal of computer equipment by plaintiff effectively put Edge Auctions and all entities affiliated with Edge Auctions out of business. This case was tried on December 6, 2005.
Plaintiff was represented by legal counsel. Defendant proceeded pro se. Plaintiff, his wife and defendant testified. Both sides admitted documents into evidence. The gravamen of plaintiff's claim asserted at trial is that defendant committed fraud by holding himself out to be a "sophisticated businessman", and by making misleading statements concerning the profitability of Eagle Auctions in both the written "Strategic Tactical Business Plan" prepared by defendant and in conversations between defendant, plaintiff and plaintiff's wife. After trial, the Court makes the following findings of fact and conclusions of law based on the credible evidence.
Plaintiff's complaint alleged defendant committed fraud in falsely representing that in return for plaintiff advancing $20,000.00, plaintiff would have a 50% interest in and receive 50% of the profits in Edge Auctions, a corporation, but then excluded plaintiff. This claim was neither advanced nor proven at trial. The complaint also included a claim for violation of this state's Blue Sky Laws, however, this claim was withdrawn at trial.
In early July 2005, defendant telephoned plaintiff to advise him of a business opportunity to invest in a newly formed entity known as Edge Auctions. Plaintiff knew defendant, as defendant had previously printed or designed menus for Classic Pizza, a business owned by plaintiff's father. The parties agreed to meet to further discuss the matter.
Shortly thereafter, defendant came to plaintiff's home and met with plaintiff and his wife. At this meeting, defendant presented plaintiff with a detailed twenty page printed document entitled "Strategic Tactical Business Plan for Edge Auctions," (Pl. Ex. 1) prepared by defendant ("Business Plan").
According to the Business Plan, Edge Auctions, a subdivision of Advertising Edge New York, was to operate as a successful "online auction research and listing service/mailing center." It would allow "business owners the opportunity to buy and sell used equipment, machinery and excess inventory" and would include a "UPS shipping center, Western Union service, gift wrapping and private mailboxes, as well as a resource for placing pets in a loving home through Edge Pet Adoptions". The Business Plan projected the following sales: year 2005-$125,000.00; year 2006-$140,000.00; and year 2007-$165,000.00.
A lease was entered into for the location of Eagle Auctions at 1186 Hylan Blvd., Staten Island, New York. Plaintiff claims he and his wife provided defendant with a total of $24,000.00, consisting of several cash payments. The parties agree that defendant used his credit card to pay for whatever startup items were needed ( i.e. computers/mailboxes) and plaintiff's wife reimbursed him. Defendant admits that he received $17,000.00 from plaintiff and alleges he used it all for startup expenses of Eagle Auctions, such as rental payments on the leased premises, computers, printers, and mailboxes, for which he had receipts. The parties agree that defendant purchased these items, and gave the receipts to plaintiff's wife who was supposed to keep the "books and records" of this business. As it turned out, the "books and records" consisted solely of the credit card receipts given by defendant to plaintiff's wife.
Plaintiff alleged $20,000.00 in the complaint.
The relationship between the parties deteriorated. In or around August 2005, defendant stopped returning plaintiff's phone calls inquiring into the status of the business. In late September 2005, plaintiff drove by the office premises which appeared to him to have opened for business. Subsequently, in an alleged attempt to get defendant to contact him, plaintiff using the key provided earlier by defendant, entered the office of Edge Auctions and removed, among other items, three computers, a printer and a Fed Ex sign. Plaintiff concedes that these items were brought to his house and are still there. In response defendant telephoned plaintiff and a heated exchange ensued.
In what plaintiff describes as an act of retaliation, defendant ripped out mailboxes along with other items from Edge Auctions offices, hired a moving van and had these items delivered to the pizzeria owned by plaintiff's father. Defendant does not dispute doing this. This action followed.
Neither party chose to consult a lawyer, accountant or seek any other form of professional advice with respect to the effectuation of the Business Plan or the viability of this business. The parties agree that there are no written documents to memorialize their business relationship or otherwise specify what plaintiff was to receive for his money. The Business Plan states that Edge Auctions would be a partnership, however, no partnership agreement was ever prepared. While the Business Plan purports to categorizes the capital investment of $15,000.00 as a "loan", it does not indicate when this sum would be repaid and at what interest, if any. No promissory note, loan agreement or similar document was entered into between these parties to substantiate the making of a loan.
The Plan provided: "To make this company a reality, there will be an amount needed of $15,000.00. The founder will be investing his time and energy leaving a balance of $15,000.00, which will come as a loan. The $15,000.00 is the complete amount needed to open and operate this business."
The Court finds based on the credible testimony that the intent of the parties was that the money be an investment and not a loan. Plaintiff testified he was supposed to be a silent partner. Plaintiff's wife, Mrs. Rocchio, testified that she believed she and her husband would receive "something like" 50% of the profits in return for their investment. Accordingly, the Court finds that plaintiff did not sustain his cause of action premised on nonpayment of a loan and dismisses this cause of action.
The main claim relied upon for recovery articulated at trial is that defendant committed fraud when he made material misrepresentations of fact which induced plaintiff to invest money by holding himself out to be a sophisticated businessman when he, in fact, had no idea of how to open a business, and when he supplied plaintiff with the Business Plan containing profit projections.
At its essence, fraud is the taking advantage of another with dishonest intent. Fraud based on misrepresentation is the representation of a material fact which was untrue and known to be untrue by the maker, made with the intent to deceive and to induce the other party to act relying on it to his damage. Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 NY2d 403 (1958); Dalessio v. Kressler, 6 AD3d 57 (2nd Dept 2004); Pappas v. Harrow Stores, Inc. 140 AD2d 501 (2nd Dept 1988). It may be accomplished by words or acts. A party must establish and prove the elements of fraud by clear and convincing evidence. Gaidon v. Guardian Life Insurance Co. of America, 94 NY2d 330 (1999).
Plaintiff failed to prove, by clear and convincing evidence, any specific statement by defendant as to his experience or education that would support a reasonable belief on plaintiff's part that defendant was a "sophisticated businessman". A party must establish the element of reasonable reliance to recover on the theory of fraudulent misrepresentation. Marino v. Oakwood Care Center, 5 AD3d 740 (2nd Dept 2004).
In fact, plaintiff failed to point to any material misrepresentations made by defendant. In this regard, the Business Plan states that defendant holds a BBA in Business Management, a fact that plaintiff has not alleged to be false. Defendant also claimed to have twenty years of retail business experience. Plaintiff has not alleged this assertion to be false either. Moreover, nowhere in the Business Plan is it alleged that defendant had any experience in launching a new business such as that contemplated here.
A party who has the means available to him of knowing by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. Jachetta v. Vivona Estates, Inc., 249 AD2d 512 (2nd Dept 1998); Rodas v. Manitaras, 159 AD2d 341 (1st Dept 1990).
The Court notes that defendant was not a stranger to plaintiff prior to the making of plaintiff's investment in Edge Auctions. Plaintiff knew defendant as the person who "made menus" for plaintiff's father pizzeria. Prior to investing in this endeavor, plaintiff could have asked defendant how this printing/advertising work prepared defendant to launch and manage Edge Auctions, or what other specific relevant "retail experience" defendant actually had.
Moreover, the very nature of the business to be conducted by Edge Auctions was, to say the least, unique. According to the Business Plan, Edge Auctions was to be an online auction drop off site, a mailing center, and an adoption center for abandoned animals. The odd combination of business services to be offered might have caused plaintiff to pause prior to making a substantial investment in this business, or at least, to consult a business professional to evaluate the viability of such a venture.
Last, as grandiose a scheme as it may have been, the trial testimony of defendant makes clear that defendant truly believed he had devised a viable profitable business venture.
The future years business forecasts of profitability does not give rise to an action for fraud. Absent special circumstances the representation must be one of fact and not opinion. Bank of New York v. Realty Group Consultants, 186 AD2d 618 (2nd Dept 1992). The rule is that a representation of opinion or a prediction of something which is hoped or expected to occur in the future will not sustain an action for fraud. Platus Corporation Pension Plan v. Nazareth, 271 AD2d 422 (2nd Dept 2000).
Accordingly, as plaintiff has failed to prove by clear and convincing evidence, any specific misrepresentation made by defendant upon which plaintiff reasonably relied on to his detriment the cause of action for damages based on fraud is dismissed.
Defendants's counterclaim for $15,000.00 plus "punitive damages, court costs, medical expenses, marriage counseling and lawyer fees" is dismissed. There was no proof presented as to medical expenses, marital counseling or lawyer fees or their causal relationship to what transpired between the parties. As to the allegation that plaintiff's removal of the computer equipment effectively put Edge Auctions and all entities allegedly affiliated with Edge Auctions out of business, there was no proof presented that this, in fact, led to the demise of any of these businesses. Defendant's ripping out of the mailboxes along with other items from Edge Auctions offices, loading them in a moving van and delivering them to the pizzeria owned by plaintiff's father could be considered no less a contributory factor to the demise of this business than the action taken by plaintiff. Further there was no evidence presented, by expert or otherwise as to the value of this business which had yet to generate any income from which the Court could determine the proper measure of damages even if the Court found that plaintiff's actions caused this business to fail.
Accordingly for the above stated reasons this action and the counterclaim is dismissed.
This constitutes the decision and order of the Court Court Attorney to notify both sides.