Opinion
Index No. 652074/2012
06-06-2013
In the Matter of an Article 75 Proceeding ADHY INVESTMENTS PROPERTIES, LLC, Petitioner, v. GARRISON LIFESTYLE PIERCE HILL LLC, Respondent.
DECISION & ORDER
SHIRLEY WERNER KORNREICH, J.:
This action arises out of an online auction of real property. Petitioner ADHY Investment Properties, LLC placed the winning bid on the property, but subsequently refused to close. Upon being served with a demand for arbitration pursuant to the property's purchase and sale agreement, petitioner commenced this special proceeding, claiming that it had not sighed the agreement and, consequently, that the arbitration provision contained therein was not binding. On December 14, 2012, the court issued an interim order directing that a hearing be held to determine the circumstances surrounding the agreement's execution.
The hearing was held on January 29, March 11, and April 11, 2013. Steven Floman and Avi Dishi, the principal of petitioner, testified for petitioner. Courtney Young, an employee of auction.com, the online auctioneer, and Brian Chase, the chief financial officer and chief operating officer of Garrison Investment Group, testified for respondent. Based on the credible evidence, the court finds that the agreement is binding on petitioner and denies the application to stay the arbitration.
I. Findings of Fact
Auction.com is a website that conducts auctions over the Internet. It is based in California. Avi Dishi, a principal of petitioner, learned of the website through a catalogue he received in the mail (Dishi, Jan. 29, 2013 hearing, 42-43). Wishing to bid on certain real estate assets scheduled for auction on April 4, 2012, he enlisted the aid of Steven Floman, the son of his partner in a clothing business, to help him place the bids online (Floman, Jan. hearing, 6-8). Thus, approximately a week before the auction, Dishi told Floman he wished to place bids on the auction site for several assets and asked Floman to help him fill out the necessary forms to qualify (id., 7-9). At Dish's instruction, on April 3, 2012, Floman filled out the Bidder Qualification Form, which was signed by Dishi and sent to auction.com (id., 10-14, 18), as well as documents showing proof of funds and a bid deposit of $10,000 (id., 15-16). Floman submitted both his and Dishi's phone numbers and email addresses as contact information (id., 37; petitioner's exhibit 1).
Auction.com required that, prior to bidding, all prospective purchasers agree to the terms and conditions set forth by each seller of property (Young, Jan. hearing 88-89; March 11, 2013 hearing, 9-10). The terms and conditions state that the winning bidder "will be sent, by e-mail, the Purchase Agreement," which he must execute "within two (2) hours of [auction.com]'s acknowledgment of the winning bid" (respondent's exhibit E, ¶ 3). They further state that a bidder accepts the terms by registering for the auction (id. at ¶ 7). A non-negotiable contract of sale for each asset is available online prior to the auction, as well as due diligence materials (Young, Jan. hearing 89, 92).
On April 4, Floman went to Dishi's office in Washington Heights to assist him in placing bids at the online auction (Floman, Jan. hearing, 18-19). Working from the computer of Dishi's assistant, Floman, following Dishi's direction, placed bids on the assets in which Dishi was interested (Dishi, Jan. hearing, 48). Dishi sat next to Floman during this process (Floman, Jan. hearing, 19:17-21).
Dishi was the highest bidder for three assets: the property known as 1308 Vestal Parkway East in Vestal, New York (the Vestal property), a mortgage on the property known as 55 Broadway in Newark, New Jersey (the Newark mortgage) and either the property located at 8395 Oswego Road in Baldwinsville, New York, or the mortgage thereon (the Baldwinsville property) (id. at 35-36; Young, March hearing, 31-32). Respondent was the seller of the Vestal property.
The record is unclear as to which.
Auction.com employs an electronic signature system called Docusign. To execute a document through Docusign, the user selects an initial block and a signature that he agrees will serve as his signature for such purpose (Young, Jan. hearing, 91:19-23). When a bidder wins at auction, auction.com employees contact the bidder and review the details of their bid and the next steps in proceeding with the purchase (Young, March hearing, 12:26-13:9; petitioner's exhibit 3; respondent's exhibit E, ¶ 3). They then enter the winning bidder's information into the contract (Young, March hearing, 18). The completed contract, along with other documents, is uploaded onto the Docusign system, into a file known as an "envelope" (Young, Jan. hearing, 97). The bidder then is notified by email that the envelope has been created and is "invited" to view the envelope's contents and sign the agreement (Young, March hearing, 19-20).
Dishi was confirmed as the winner of the Vestal properly by an email to Floman, sent at 8:21 a.m. Pacific time on April 4 (petitioner's exhibit 3). Soon after, Dishi spoke by telephone with Courtney Young, the auction.com employee responsible for auction-day logistics, contracting, and overseeing conversations with bidders (Young, Jan. hearing, 87). Young and Dishi reviewed the details of each of Dishi's winning bids, including the bid amount and the location of each asset (Young, March hearing, 41). Dishi explained that he wanted his entity, petitioner, to be the purchaser on the contracts of sale (id. at 14, 48:21-23). Young informed him that he needed to send auction.com documentation for that entity (Young, Jan. hearing, 92:11-14, 109:16-19), and Dishi did so (Young, March hearing, 14). Young confirmed with Dishi that he intended to sign the contract and reminded him that he needed to do so within two hours (id. at 41:17-20).
Auction.com then prepared contracts for all of the assets upon which Dishi bid (id. at 42:2-4). The contract for the Vestal property (the Vestal contract) was first created on April 4 at 10:17 a.m. Pacific time (petitioner's exhibit 6). Auction.com personnel reviewed the contract and realized that it did not name petitioner as the purchaser, as Dishi had requested (Young, March hearing, 48, 55). Therefore, that contract was voided, and a new contract in petitioner's name was prepared at 3:56 p.m. Pacific time (petitioner's exhibit 6; Young, March hearing, 48; respondent's exhibit F).
Young, however, was unable to contact Dishi, and, instead, reached his assistant (Young, March hearing, 52:20-21). She became concerned that someone other than Dishi was going to execute the contracts, even though there was no power of attorney authorizing such an action (id. at 52:20-25). She, therefore, late afternoon or early evening had advised both Dishi and his male assistant that only Dishi could sign the contracts (Young, Jan. hearing, 110-11; March hearing, 14:22-15:2, 52-53). Dishi affirmed that he would execute the contract himself (Young, Jan. hearing, 110:22-111:10).
Despite these admonitions, it was Floman, not Dishi, who actually executed the Vestal contract through Docusign at 5:31 p.m. Pacific time, electronically signing as "Avi Dishi" (Floman, Jan. hearing, 27:20-26; respondent's exhibit F). Floman did not inform Young that he signed on Dishi's behalf (Floman, Jan. hearing, 28:12-14). Relying on the authenticity of Dishi's electronic signature, respondent executed the Vestal contract as seller (Chase, Apr. 11, 2013 hearing, 5:4-6). Half-an-hour later, someone using the same IP address as Floman used Docusign to sign the contract for the Newark mortgage (respondent's exhibit D). No contract for the Baldwinsville property was ever signed (Young, March hearing, 35).
Young and Dishi spoke several times after the contracts were signed (Young, March hearing, 15:11). Young confirmed that the contracts had been signed and urged Dishi to wire over the earnest money required thereunder (id. at 15:11-15). In response, Dishi explained that he had sent the wrong entity's documents and wanted a different entity to be the purchaser (id. at 27:16-28:2). Once this occurred, he said he would send in the earnest money (id. at 28:16-18). Young told him she would try to get the various sellers' approvals for Dishi's proposed change (id. at 28:6-9) and requested that Dishi send the new purchasing entity's documentation; he did not do so (id. at 28:23-29:8).
Subsequently, on April 10, Dishi informed Young that he would not consummate the purchase of the Vestal property, claiming that he had not realized where the property was when he bid on it and that the property was too far away (id. at 29:9-30:6). At trial, Dishi maintained that he believed that all the assets he bid on at the auction were mortgages (Dishi, Jan. hearing 50-51). However, the due diligence materials for each asset and each property's address were posted prior to the auction. Dishi proceeded to close on the Newark mortgage, after amending the contract signed on April 4 to name a different entity, "ADHY Advisor, LLC", as the purchaser therein (Young, Jan. hearing, 106:14-17; respondent's exhibit B). Far from disavowing the earlier agreement, which was supposedly executed without authorization on April 4, this later agreement "amends, restates and replaces" the prior one (respondent's exhibit B). The record does not contain any copy of any agreement for the Newark property bearing a nonelectronic signature.
Dishi testified that he first learned that the Vestal contract had been executed in a conversation with Young, who informed him that Floman had signed the contract (Dishi, Jan. hearing, 61). He claimed that he immediately told her that Floman had no authority to do so (id). The court does not find this account credible. It contradicts Dishi's own testimony that as of April 5, Young did not believe that a contract had been signed (id. at 52:23-24). Moreover, both Young and Floman testified that Young was not aware that Floman was signing the purchase agreement for the Vestal properly on Dishi's behalf, and both testified she had told Floman that Dishi must execute the documents (see supra; Floman, Jan. hearing, 27).
Dish's testimony is confusing. By April 5, the contracts had already been executed through Docusign. There would be no reason at that point for Young to demand that Dishi sign anything.
Dishi's closing on the Newark mortgage, using Docusign to do so, further undercuts his claims. When presented with the electronically executed final agreement for the Newark mortgage, Dishi stated that the electronic signature was not "his" (id. at 71). He hypothesized that there were other copies of the same contract which he did sign, but none have been produced, conceding that he does not actually remember signing any such additional copies (id. at 72:5-9). When asked if he ever stated that the electronic signature on the Newark contract was unauthorized, Dishi was evasive and did not give a direct answer (id. at 73-76, 85). Instead, he stated that, in dealing with JPMorgan Chase Bank, the seller of the Newark mortgage and an entity with whom he had dealt in the past, he frequently did not sign any documents at all. In short, Dishi did not explain why the effective documents for the Newark transaction were signed using the very same electronic signature process as to which he now professes total ignorance.
"I think that, if you'll see, most of the document that I have for them to sign with me in a contract, usually, I don't even sign it because this is the relationship" (Dishi, Jan. hearing, 73:24-74:2).
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Moreover, no contract for the Baldwinsville property was ever executed. If the April 4 contracts for the Vestal property and the Newark mortgage were really executed solely due to Young's pressure and insistence, without Dishi's knowledge or instructions, then a contract for the Baldwinsville property should have been executed as well. That no such agreement was signed, electronically or otherwise, indicates that a conscious decision was made to go forward with two of the deals, not the third.
II. Conclusions of Law
Based on the above, credible evidence, the court finds that: Dishi had the opportunity, before the auction, to perform due diligence on the properties; after having won the bids, Dishi was aware that contracts were required to be executed quickly for all the assets won; contracts for the Newark mortgage and the Vestal property were executed through Docusign; and Dishi confirmed this with Young after the fact, merely requesting a different entity be substituted as the purchaser before he wired the earnest money. The court further finds that Dishi disavowed the Vestral contract only after these events took place, while proceeding to close on the Newark mortgage contract, executed with an electronic signature created mere minutes after the one affixed to the Vestal contract. In sum, at the very least, Dishi had full knowledge of the facts surrounding the Vestal auction, bid and contract and consciously ratified that contract.
Ratification is a person's express or implied retroactive adoption of the unauthorized acts of another done on his behalf (Holm v C.M.P. Sheet Metal, Inc., 89 AD2d 229, 232 [4th Dept 1982]). The act of ratification must be performed with full knowledge of the material, that is the important, facts relating to the transaction and must be clearly established (New York State Medical Transporters Ass'n. v Perales, 77NY2d 126, 137 [1990]; Lipman v Vebeliunas, 39 AD3d 488, 490 [2d Dept 2007]). Circumstances that may imply ratification are the retention of the benefit of the unauthorized transaction with knowledge of the material facts of the agreement (Cologne Life Reins. Co. v Zurich Reins. (N. Am.), Inc., 286 AD2d 118, 126-27 [1st Dept 2001]). Similarly, failure to repudiate an unauthorized agreement when one knows of the material facts concerning the agreement is evidence of ratification(id.; J.M. Heinike Assocs., Inc. v Chili Lumber Co., 83 AD2d 751, 752 [4th Dept 1981]; Restatement (Second) of Agency §94 [1958]).
Here, Dishi knew of the subject auction well before the bidding, submitted documentation and $10,000 in order to participate, enlisted Floman to act with him and on his behalf to bid on specific assets advertised, was successful in bidding on three of those assets, and aware that he was required to execute contracts for the assets, decided to contract for two of them. Indeed, when Young notified Dishi that the contracts for the Vestal property and the Newark mortgage had been signed, Dishi confirmed rather than repudiated the contracts, requesting that certain changes be made regarding the name of the purchaser. The hearing evidence clearly establishes that Dishi, through his conduct, ratified the Vestal contract.
It is true, generally speaking, that where, as here, the Statute of Frauds requires an agent's authorization to be in writing, the ratification of that agent's act must also be in writing (General Obligations Law § 5-703[2]; Kwang Hee Lee v ADJMI 936 Realty Assoc., 46 AD3d 629, 631 [2d Dept 2007]). However, the Statute of Frauds cannot be employed to immunize fraudulent conduct (Channel Master Corp. v Aluminium Limited Sales, Inc., 4 NY 403, 408 [1958]). Where a party knows that his or her signature has been forged on a contract of sale and that another party is relying on that signature, yet fails to repudiate the agreement, he or she is equitably estopped from invoking the Statute of Frauds to invalidate the document (see Jill Real Estate, Inc. v Smyles, 150 AD2d 640 [2d Dept 1989] [contract of sale not void where husband forged signature of wife given wife's full knowledge of transaction]; see also Hazim v Dross, 2 AD3d 268, 268-69 [1st Dept 2003] [finding no estoppel where plaintiff "did not remain silent after learning of the fraudulent 1986 deed"]). Young warned Dishi and his staff a number of times that no one besides Dishi was to execute the agreement, and Dishi not only knew that the contracts had been executed, but knew that Young believed that they were executed by him. He, nevertheless, raised no objection to their execution, and cannot do so now. Hence, Dishi is bound by the Vestal contract and the arbitration provision contained therein. Accordingly it is
ORDERED that the petition of ADHY Investment Properties, LLC to stay the subject arbitration is denied in all respects, and the petition is dismissed; and it is further
ORDERED that the parties shall proceed to arbitration forthwith and respondent's counsel shall serve a copy of this decision and order upon the arbitral tribunal.
ENTER:
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J.S.C.