Summary
finding three-year statute-of-limitations applicable because the alleged fraud was "identical" and "incidental to the [breach of fiduciary duty] claims"
Summary of this case from Noskov v. RothOpinion
153813/2016
09-11-2018
ALEXANDER CONDOMINIUM, BY ITS BOARD OF MANAGERS, Plaintiff, v. EAST 49TH STREET DEVELOPMENT II, LLC, 250 East Borrower, LLC, Continental Finance Corporation, CFC Specialty Program Managers, LLC, Continental Realty, LLC, Ocean Avenue Construction, Inc., 250 Construction, Inc., PAV-LAK Industries, Inc., Gurevich & Associates, LLP, Janoff & Gurevich, LLP, Alexander Gurevich, Mitchell Gurevich, Gennady Kiselman a/k/a Gene Kiselman, Michael Steinberg, Elliot Spitzer a/k/a Eliyahu Spitzer, Eugene Tsirkin, Peter R. Silverman, Maurice Setton, Taube Management Realty, LLC, Joseph M. Taube, Sydness Architects, P.C. and K. Jeffries Sydness, Defendants.
Attorneys for Plaintiff, SCHWARTZ SLADKUS REICH GREENBERG ATLAS LLP, 270 Madison Avenue, New York, NY 10016, BY: MITCHELL J. FLACHNER, ESQ. Attorneys for CFC Specialty Program Managers, LAW OFFICE OF RICHARD G. MONACO, P.O. Box 116, South Salem, NY 10590, BY: RICHARD G. MONACO, ESQ. Attorneys for East 49th Street Development II LLC, 250 East Borrower LLC, Continental Finance Corporation, Continental Realty LLC, Alexander Gurevich, Mitchell Gurevich, Gennady Kiselman A/K/A Gene Kiselman and Maurice Setton, SPOLZINO SMITH BUSS & JACOBS LLP, 733 Yonkers Avenue, New York, NY 10704, BY: RYAN P. KAUPELIS, ESQ. Attorneys for Elliot Spitzer ZACHTER PLLC, 20 Wall Street, New York, NY 07601, BY: MAYER KOVACS, ESQ. Attorneys for Taube Management, MOUND COTTON WOLLAN & GREENGRASS, One New York Plaza, New York, NY 10004, BY: KENNETH M. LABBATE, ESQ. Attorneys for Peter Silverman, SILVERMAN SHIN & BYRNE PLLC, 88 Pine Street, New York, NY 10005, BY: DONALD F. SCHNEIDER, ESQ.
Attorneys for Plaintiff, SCHWARTZ SLADKUS REICH GREENBERG ATLAS LLP, 270 Madison Avenue, New York, NY 10016, BY: MITCHELL J. FLACHNER, ESQ.
Attorneys for CFC Specialty Program Managers, LAW OFFICE OF RICHARD G. MONACO, P.O. Box 116, South Salem, NY 10590, BY: RICHARD G. MONACO, ESQ.
Attorneys for East 49th Street Development II LLC, 250 East Borrower LLC, Continental Finance Corporation, Continental Realty LLC, Alexander Gurevich, Mitchell Gurevich, Gennady Kiselman A/K/A Gene Kiselman and Maurice Setton, SPOLZINO SMITH BUSS & JACOBS LLP, 733 Yonkers Avenue, New York, NY 10704, BY: RYAN P. KAUPELIS, ESQ.
Attorneys for Elliot Spitzer ZACHTER PLLC, 20 Wall Street, New York, NY 07601, BY: MAYER KOVACS, ESQ.
Attorneys for Taube Management, MOUND COTTON WOLLAN & GREENGRASS, One New York Plaza, New York, NY 10004, BY: KENNETH M. LABBATE, ESQ.
Attorneys for Peter Silverman, SILVERMAN SHIN & BYRNE PLLC, 88 Pine Street, New York, NY 10005, BY: DONALD F. SCHNEIDER, ESQ.
Robert R. Reed, J.
Motion sequence Nos. 003, 004, 005, 006, and 007 are consolidated for disposition, and are disposed of in accordance with the following decision and order.
Defendant Peter R. Silverman (Silverman) moves for an order, pursuant to CPLR 3211 (a) (5) and (7) and 3016 (b), dismissing the 3rd, 7th, and 10th causes of action, and the request for punitive damages, for failure to state a claim and on timeliness grounds, and moves for sanctions (motion seq. No. 003). Defendants Taube Management Realty, LLC and Joseph M. Taube (the Taube Defendants) move for an order, pursuant to CPLR 3211 (a) (5) and (7), dismissing the 3rd, 4th, 5th, 8th, 11th, 14th, 18th, and 19th causes of action, and the request for punitive damages on the same grounds (motion seq. No. 004). Defendant Elliot Spitzer moves for an order, pursuant to CPLR 3211 (a) (1), (5), and (7), dismissing all claims as against him (motion seq. No. 005). Defendants East 49th Street Development II, LLC (East 49 Sponsor), 250 East Borrower, LLC (250 Sponsor), Continental Finance Corporation (Continental Finance), Continental Realty, LLC (Continental Realty), Alexander Gurevich, Mitchell Gurevich, Gennady Kiselman (Kiselman), and Maurice Setton (Setton) move for an order, pursuant to CPLR 3211 (a) (1), (5), (7), and 3016 (b), dismissing the fraud, breach of fiduciary duty, and fraudulent conveyance claims (the 3rd, 15th, 17th, 18th, and 24th-26th causes of action), and the request for punitive damages, and for sanctions (motion seq. No. 006). Defendant CFC Specialty Program Managers, LLC (CFC) moves for an order, pursuant to CPLR 3211 (a) (1), (5), (7), and 3016 (b), dismissing all claims against it (the 8th and 9th causes of action) (motion seq. No. 007).
This action arises out of various alleged construction defects in connection with the newly constructed 24-story building at 250 East 49th Street, in Manhattan, New York containing 77 residential units, and 5 commercial units. Plaintiffs are The Board of Managers of the Alexander Condominium (Board) and the Alexander Condominium (Condominium), an unincorporated association of unit owners formed pursuant to a Declaration of Condominium filed and recorded pursuant to Article 9-B of the Real Property Law. Moving defendants include East 49 Sponsor and 250 Sponsor, the sponsors of the conversion of the building (collectively, the Sponsor); Continental Finance; Continental Realty, allegedly the initial selling agent; CFC, the mortgage holder; Alexander Gurevich, Kiselman, and Spitzer, all principals of the Sponsor (collectively, Sponsor Principals); and Mitchell Gurevich, Setton, and Silverman, Sponsor-designated members of the Board. Sponsor Principals Kiselman, Michael Steinberg, and Spitzer signed various certifications in the offering plan and in amendments to the Offering Plan, and defendants Eugene Tsirkin and Silverman signed Sponsor Certifications on behalf of the Sponsor. Defendants Taube Management Realty, LLC (Taube Management) and Joseph M. Taube (the Taube Defendants) were the managing agents for the building (exhibit A to notice of motion to dismiss [003], amended complaint [compl], ¶¶ 1-40).
BACKGROUND
The units of the building were offered for sale by the Sponsor pursuant to the Offering Plan. Plaintiff alleges that the Sponsor created sales and marketing materials available to the public in an effort to attract potential buyers regarding the quality and features of the building and its units. Plaintiff asserts that the Sponsor, and the other (nonmoving) design professional defendants, failed to complete the construction of various promised and/or code-required features, and the ones that were completed suffer from material defects, and are not as represented in the Offering Plan. Plaintiff asserts that defendants failed to build it in accordance with the promises and representations they made in the marketing materials and in the Offering Plan, including in later amendments to the Offering Plan (id. , compl, ¶¶ 46-52).
Plaintiff alleges that the Offering Plan promised the buyers of the units that the building and its units would be of a premier luxury caliber, and would be constructed with the highest quality materials and workmanship, and in accordance with all applicable government codes, rules, and regulations, and local construction standards (id. , compl, ¶ 50). Plaintiff contends, however, that the building suffered from material defects, poor workmanship, shoddy construction practices, and were not at all representative of what the Sponsor depicted in the Offering Plan (id. , compl, ¶ 51).
Plaintiff alleges that there are numerous leaks throughout the building, causing water intrusion in the residential units, resulting from cracks in the building facades, open joints, and caulk details missing at roof level bulkhead (id. , compl, ¶¶ 69-70); railings, parapets, and guardrails at roof level fail to meet building code requirements (id. , compl, ¶¶ 71-77); the roofing system is incomplete at the main roof level, with flashing separated in certain areas; there is rusting in the structure around the cooling tower along with active leaks within it; storage rooms were not constructed (id. , compl, ¶¶ 78-87); there are drafty windows and windows lacking features required by building codes (id. , compl, ¶¶ 88-92); and there are various other defects (id. , compl, ¶¶ 92-122). Plaintiff further alleges that the Sponsor failed to establish an escrow fund for completion of the building (id. , compl, ¶¶ 124-126), failed to maintain the building (id. , compl, ¶¶ 127-130), and failed to deliver architectural plans and warranties (id. , compl, ¶¶ 131-135).
Plaintiff alleges that the Sponsor never amended the Offering Plan to reflect the numerous construction defects, despite amending it 11 times over the course of the construction (id. , compl, ¶ 54). As a result, as the construction continued and the building was eventually completed, the Offering Plan "came to contain many misrepresentations and misleading statements as to the Building's true condition" (id. , compl, ¶ 55). Plaintiff Board alleges that while the Offering Plan no longer contained accurate information for prospective buyers, the Sponsor continued to disseminate it in an effort to sell all of the units.
Plaintiff Board also alleges that the Taube Defendants transferred insurance proceeds paid to the Condominium by its insurers for three claims for water and other property damage on October 3, 2011, January 23, 2012, and May 14, 2012, in the total amount of $364,968.80, to the Sponsor and the Sponsor Principals (collectively, the Sponsor Defendants) at the direction of the Sponsor Defendants (id. , compl, ¶¶ 225-238).
The complaint asserts that the Sponsor and/or Sponsor Defendants sold 14 Sponsor-owned units from June 2011 through to November 2014, and with regard to these units the Sponsor was in arrears in common charges in the total amount of $205,352.94 (id. , compl, ¶¶ 271-273). The Sponsor Defendants and the Taube Defendants, the complaint alleges, essentially forgave these common charges upon the sale of these units, and provided false letters of good standing at the closing indicating that the common charges were paid in full (id. , compl, ¶¶ 274-275). Moreover, plaintiff alleges that the Sponsor Defendants and the Taube Defendants issued or caused to be issued common charge credits, in the total amount of $22,580.57, to particular unit owners in settlement of disputed punch list items from the construction of their units, and that those settlements should have been paid by the Sponsor (id. , compl, ¶¶ 331-334, 338). Further, plaintiff alleges that, in breach of fiduciary duty, Sponsor Principal Kiselman, Board members Mitchell Gurevich and Setton, and defendant Tsirkin failed to conduct the Condominium in accordance with the by-laws by: failing to conduct a first election in the required time period; only conducting such an election in 2014 after the unit owners expended over $34,000.00 in legal fees to force such election; failing to conduct an annual meeting in 2013; failing to give unit owners the required minority seats on the Board within two years after the closing of title on the first unit; and committing other alleged by-laws violations (id. , compl, ¶¶ 426-446).
The complaint also asserts that, in breach of the Taube Defendants' management contract, and of Kiselman's, Tsirkin's, Mitchell Gurevich's, Setton's, and the Taube Defendants' fiduciary duties, these defendants failed to maintain the building, including the common elements, and mismanaged it, financially and otherwise (id. , compl ¶¶ 453-483).
The complaint alleges 26 causes of action, including breach of contract (1-2, 16, 19, 21-22); fraud (3-4, 14-15, 20); fraudulent misappropriation (5, 8, 11); money had and received (6, 9, 12); breach of fiduciary duty (7, 10, 13, 17, and 18); fraudulent conveyances (24-26); and negligence (23).
The moving defendants seek dismissal of various claims in the complaint as against some or all of the moving defendants based on documentary evidence, failure to state a claim, and as time-barred. This court will address each of the claims challenged, and the arguments raised by the various defendants, in seeking their dismissal.
DISCUSSION
The motions to dismiss are granted to the extent that the fraud (3rd, 4th, 5th, 8th, 11th, 14th, and 15th causes of action), money had and received (6th, 9th, and 12th causes of action), and fraudulent conveyance claims (24th through 26th causes of action) are dismissed. The breach of fiduciary duty claims (7th, 10th, 13th, 17th, and 18th causes of action) are dismissed in part as time-barred, and dismissed entirely against defendant Silverman. Finally, the requests for punitive damages are dismissed.
On a motion to dismiss based on documentary evidence ( CPLR 3211 [a] [1] ), the documentary evidence submitted must resolve all factual issues, definitively disposing of the plaintiff's claims (see 511 W. 232nd Owners Corp. v. Jennifer Realty Co. , 98 NY2d 144, 152 [2002] ; Art & Fashion Group Corp. v. Cyclops Prod., Inc. , 120 AD3d 436, 438 [1st Dept 2014] ). It is "granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" ( Goshen v. Mutual Life Ins. Co. of NY , 98 NY2d 314, 326 [2002] ; McCully v. Jersey Partners, Inc. , 60 AD3d 562, 562 [1st Dept 2009] ). The facts as alleged in the complaint are accepted as true, and the plaintiff is afforded the benefit of every favorable inference (see Leon v. Martinez , 84 NY2d 83, 87-88 [1994] ). A plaintiff's affidavit may be considered to supplement the pleadings. Bare legal conclusions and factual claims flatly contradicted by the documentary evidence are not entitled to such considerations (see Nisari v. Ramjohn , 85 AD3d 987, 989 [2d Dept 2011] ). Defendant's factual affidavits do not constitute documentary evidence within the meaning of CPLR 3211 (a) (1) (see Art & Fashion Group Corp. v. Cyclops Prod., Inc. , 120 AD3d at 438 ).
On a motion to dismiss for failure to state a claim ( CPLR 3211 [a] [7] ), again, the complaint allegations, and any submissions in opposition to the dismissal motion, are accepted as true, the plaintiff is afforded the benefit of favorable inferences, and the court need only determine whether the facts fit within a cognizable legal theory (see Sokoloff v. Harriman Estates Dev. Corp. , 96 NY2d 409, 414 [2001] Guggenheimer v. Ginzberg , 43 NY2d 268, 275 [1977] ).
Fraud Claims
To assert a fraudulent inducement claim, the plaintiff must allege a misrepresentation of presently existing fact, which is extraneous to the parties' contract and involves a duty that is separate from, and in addition to, the one imposed by the contract, and not merely that the defendant misrepresented its intent to perform ( Hawthorne Group v. RRE Ventures , 7 AD3d 320, 323-324 [1st Dept 2004] ; Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748[U],* 6 [Sup Ct, NY County 2014] [Scarpulla] ). Moreover, where a fraudulent inducement claim is duplicative of a breach of contract claim, it must be dismissed (see Community Counseling & Mediation Servs. v. Chera , 115 AD3d 589, 591 [1st Dept 2014] ["The proposed claim for fraudulent inducement, based merely on a misrepresented intent to perform, is duplicative of the breach of contract claim"] [internal quotation marks and citations omitted]; Board of Mgrs. of the Chelsea 19 Condominium v. Chelsea 19 Assoc. , 73 AD3d 581, 581 [1st Dept 2010] [condominium board's fraud and related tort claims arising from same provisions alleged to have been breached in offering plan and purchase agreements, and seeking same damages, dismissed as duplicative of contract claims]; see also Board of Mgrs. of Beacon Tower Condominium v. 85 Adams St., LLC , 136 AD3d 680, 683-684 [2d Dept 2016] ).
In the instant case, plaintiff fails to allege a separate duty owed by defendants. In fact, plaintiff fails to allege any misrepresentations separate from the promises under the Offering Plan. Indeed, the alleged misrepresentations precisely mirror the alleged breaches of the Offering Plan documents. For instance, plaintiff alleges in the contract claim (first cause of action) that defendant Sponsor failed to meet its obligations pursuant to the Offering Plan to construct the building in accordance with the plans and specifications and all applicable building codes, laws, regulation, and other requirements of the New York City Building Code (compl, ¶¶ 63-64), and, in the fraud claim, correspondingly alleges misrepresentations that the building will be built in accordance with plans and specifications, and all applicable rules, regulations, laws, and other governmental requirements (id. , ¶ 151). The breach of contract claim then refers to obligations regarding the construction of the building that were breached (id. , ¶¶ 66-122), and the fraud claim (third cause of action) alleges misrepresentations in connection with what defendant Sponsor promised to build (id. , ¶¶ 152-193). Specifically, both the contract and fraud claim complain that the roofing system as installed is incomplete at the main roof level (compare id. , ¶¶ 78-80 with ¶¶ 159-161). In addition, the contract claim asserts that the main roof tubular railings are in violation of code (id. , ¶ 76), and the fraud claim complains of the same railing violation as a misrepresentation (id. , ¶ 158). Further, the measurement of specified items were not as promised in breach of contract (id. , ¶¶ 71-73), and the measurements were not as the Sponsor represented would be built (id. , ¶¶ 153-155). There are numerous examples throughout this pleading of the nearly identical contract and fraud allegations, demonstrating that the fraud causes of action are redundant of the breach of contract claims, warranting dismissal (see Board of Mgrs. of Beacon Tower Condominium v. 85 Adams St., LLC , 136 AD3d at 683-684 ; Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748[U], *7).
In addition, the complaint, here, asserts promises of future conduct by the Sponsor Defendants in the Offering Plan and its amendments. Plaintiff contends that the forward looking promises in the Offering Plan "came to contain misrepresentations of existing fact when defendant Silverman executed the Sponsor's Certification after the Building was substantially or fully completed" (plaintiff's memorandum in opposition [motion 003] at 12). The Amended Complaint, in fact, alleges that "the Offering Plan came to contain numerous affirmative misrepresentations of existing fact" (compl, ¶ 147 [emphasis supplied] ). These allegations basically concede that the Offering Plan did not contain affirmative misrepresentations of then-present existing fact. Rather, as the construction proceeded, the Offering Plan "came to contain" misrepresentations, that is, as the terms of the Offering Plan were breached, then the Offering Plan would contain misrepresentations of fact. This fails to constitute a then-present, existing fact to support the fraud claim (see Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748[U], *7 & n3). Further, there are no damages that would not be recoverable under the contract measure of damages. Thus, the fraud allegations do not arise from any presently existing misrepresentations that are extraneous or collateral to the Offering Plan or purchase contracts, and, thus, the fraud claims are redundant of the breach of contract claims (see 34-35th Corp. v. 1-10 Indus. Assoc. , 2 AD3d 711, 712 [2d Dept 2003] ).
Moreover, this claim is preempted by the Martin Act to the extent that it relies on omissions in the Offering Plan and other statutory required filings (General Business Law Art. 23-A). The Martin Act is a disclosure statute that was "designed to protect the public from fraud in the sale of real estate securities and the Attorney General enforces its provisions and implementing regulations" ( Berenger v. 261 W. LLC , 93 AD3d 175, 184 [1st Dept 2012] ). "There is no private right of action where the fraud and misrepresentation relies entirely on alleged omissions in filings required by the Martin Act" (id. , citing Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership , 12 NY3d 236, 247 [2009] ; see also Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748 [U], *7).
The complaint, here, asserts omissions by the Sponsor Defendants in the Offering Plan and its amendments. For example, it alleges that the Offering Plan failed to disclose that the building and it improvements failed to comply with industry standards, and with code requirements and was not being constructed in accordance with the plans and specifications: such as roof railings not meeting code requirements, incomplete installation of roofing system, failing to complete residential storage room, failure to construct cold storage and fitness rooms, failure to install meters for steam usage, failing to disclose presence of lot line windows, and incomplete installation of window washing assembly (compl, ¶¶ 151-193). The complaint further alleges that when the Sponsor Defendants, Silverman and Tsirkin circulated the Offering Plan and promoted the sale of units of the condominium based on the Offering Plan's "affirmative representations" of how the building was to be constructed, as the building's construction commenced, was in process, and then was largely complete, they knew from their observations at the conditions in the building and/or from their communications with the construction contractors, that such "affirmative representations" were false, and knew that the "representations" rendered other representations in the Offering Plan misleading and false (id. , ¶¶ 196-197). These allegations are based on omissions in the Offering Plan regarding defective conditions in the building as it was being constructed. Thus, to the extent that the third cause of action alleges a claim for fraudulent inducement based on omissions in the Offering Plan, it is preempted by the Martin Act ( Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748 [U], *7). Thus, the 3rd cause of action for fraudulent inducement is dismissed.
The 4th cause of action (compl, ¶¶ 204-224), also for fraudulent misrepresentations against the Sponsor Defendants, including Spitzer, Continental Realty, and the Gurevich Firm, is insufficient to survive these motions. In this claim, plaintiff alleges that the Sponsor Defendants and Continental Realty knew that certain components of the building had not been constructed in accordance with the Offering Plan, that defective conditions existed, and that certain features did not exist as detailed therein, but that they circulated the Offering Plan to promote the sale of units, knowing that the representations therein were false (id. , ¶ 216), and they sold units knowing the Offering Plan either contained incorrect information, such as the date of the first annual meeting, or had expired (id. , ¶¶ 208-210). As discussed above, this claim, like the 3rd cause of action, duplicates the breach of contract claims in the 1st, 2nd, and 19th causes of action (see Board of Mgrs. of the Chelsea 19 Condominium v. Chelsea 19 Assoc. , 73 AD3d at 581 ).
As against defendants Spitzer, Alexander Gurevich, and Kiselman, the claim fails to make any specific allegations of any misrepresentations that they made, or that they were aware of and participated in any misrepresentations. Simply because they were principals of the Sponsor does not warrant the imposition of fraud liability (see Board of Mgrs. of Beacon Tower Condominium v. 85 Adams St., LLC , 136 AD3d at 682-683 ). Plaintiff fails to allege any facts relating to their positions and responsibilities which would permit any inference that they would have participated in such alleged wrongdoing. Gurevich did not sign the Sponsor Certifications contained in the Offering Plan or Amendments to the Offering Plan (exhibits D, E and F to Kiselman aff). In fact, the complaint admits that he was prohibited from participating in the development of the Condominium by the Attorney General's Office before the Condominium was established (compl, ¶ 205). This admission contradicts plaintiff's conclusory allegation that he participated in the commission of the alleged fraud.
Further, plaintiff fails to meet its heavy burden of showing a basis to pierce the corporate veil. Under that doctrine, the plaintiff must allege facts to demonstrate that the principal or shareholder exercised complete dominion and control over the corporation, abusing the privilege of doing business in the corporate form, in order to perpetrate a wrong or injustice ( East Hampton Union Free Sch. Dist. v. Sandpebble Bldrs., Inc. , 16 NY3d 775, 776 [2011] ). Plaintiff fails to plead any of the necessary factors, including failure to adhere to formalities, personal use of funds, commingling of assets, and inadequate capitalization (see Olivieri Const. Corp. v. WN Weaver St., LLC , 144 AD3d 765, 766-767 [2d Dept 2016] ; Grammas v. Lockwood Assoc., LLC , 95 AD3d 1073, 1075 [2d Dept 2012] ). The conclusory allegations of fraud as attributed to them are insufficient to satisfy the pleading requirement of CPLR 3016 (b) for their personal liability (see Board of Mgrs. of Beacon Tower Condominium v. 85 Adams St., LLC , 136 AD3d at 682-683 ; High Tides, LLC v. DeMichele , 88 AD3d 954, 957-959 [2d Dept 2011] ). The fourth claim is, accordingly, dismissed.
Similarly, the 14th cause of action for fraudulent inducement against the Sponsor Defendants, Continental Realty, and the Taube Defendants is dismissed. This claim also duplicates both the 16th and the 19th causes of action for breach of contract. For instance, plaintiff alleges that the Sponsor Defendants, Continental Realty and the Taube Defendants set the common charges at a low rate to help the Sponsor sell its units; failed to raise the common charges rate; Taube personally loaned money to the condominium when it had cash shortfalls to cover operating expenses, creating the appearance that the common charges were adequate; failed to pay water and sewer charges; and financially mismanaged the building (id. , ¶¶ 370-382). These are identical to all of the allegations of breach of contract in the 16th and 19th causes of action (id. , ¶¶ 399-424, 494). Again, the claim seeks the same damages, and the alleged misrepresentations are not extraneous to the contractual obligations.
The 15th cause of action for fraudulent inducement against Continental Realty similarly is dismissed. In this claim, plaintiff alleges that in circulating the Offering Plan and promoting sales of the units, Continental Realty was aware that components of the building were not being, and had not been, installed and constructed in accordance with the Offering Plan. It alleges that Continental Realty marketed and sold units. Defendants, however, have submitted the Offering Plan (exhibit D to affidavit of Gene Kiselman in support [Kiselman aff] at 1), which clearly indicates that Continental Realty was not a selling agent. Rather, Corcoran Group was the selling and marketing agent. In fact, the complaint alleges that Continental Realty was removed as the initial managing agent in February 2010, which was several months before the Condominium began operation in May 2010 (compl, ¶ 13). In addition, Continental Realty's certifications in the Offering Plan, required by the Martin Act, were replaced, in the Eighth Amendment to the Offering Plan, with certifications by an independent expert as disclosed in the Eighth Amendment to the Offering Plan, and purchasers were given an option to rescind their purchase agreements (exhibit F to Kiselman aff). Further, as discussed above, the allegations fail to assert a misrepresentation of a present, existing fact, rather than future intentions with regard to the building construction.
To the extent that plaintiff bases its claims against Silverman, Tsirkin, and Continental Realty on the certifications they provided as sponsor representatives in compliance with the requirements set forth in 13 NYCRR Part 20, they also are dismissed (the 3rd and 14th causes of action). These documents were filed in accordance with the Martin Act -- and, thus, claims of misrepresentations based upon such documents are preempted by the Martin Act (see Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership , 12 NY3d at 244-245 ; Board of Mgrs. of 184 Thompson St. Condominium v. 184 Thompson St. Owner LLC , 106 AD3d 542, 544 [1st Dept 2013] ; see Berenger v. 261 W. LLC , 93 AD3d at 184 ). Plaintiff fails to assert any basis of liability outside of that statute against these defendants. To the extent plaintiff relies on Board of Mgrs. of the S. Star v. WSA Equities, LLC , 2014 NY Slip Op 32750[U] [Sup Ct, NY County 2014], affd as modified 140 AD3d 405 [1st Dept 2016] [dismissing fraud claim to extent based on omissions in offering plan as barred by Martin Act] ), such reliance is misplaced. In that case, a fraud claim was sustained against an individual, William Achenbaum, who had signed a certification, not simply because he had signed such certification, but because it found that he personally participated in the transactions, and knew of the contents of a letter by an engineer, referred to as the Kaplan letter, which existed at the time of his certification, and at the time of the offering plan, and contradicted facts specifically represented in the offering plan ( 2014 NY Slip Op 32750 [U], * 5). Here, plaintiff fails to make any such allegations against Silverman, Tsirkin, or Continental Realty. Thus, plaintiff's fraudulent inducement causes of action against these defendants must be dismissed (see Board of Mgrs. of 647 & 649 Place Condominium v. 647 & 649 Washington Ave., LLC , 49 Misc 3d 1216[A], * 10, 2015 NY Slip Op 51693[U] [Sup Ct, Kings County 2015] ).
Fraudulent Misappropriation and Money Had and Received
The 5th cause of action for fraudulent misappropriation of insurance proceeds (id. , ¶¶ 225-238), the 6th cause of action for money had and received for those same insurance proceeds (id. , ¶¶ 239-243), the 8th cause of action for fraudulent misappropriation of unpaid common charges in the amount of $205,352.94 (compl, ¶¶ 270-285), the 9th cause of action for money had and received for those same charges (id. , ¶¶ 286-329), the 11th cause of action for fraudulent misappropriation of common charge credits (id. , ¶¶ 330-341), and the 12th cause of action for money had and received for those same credits (id. , ¶¶ 342-346), all are dismissed as duplicative of the 16th and 19th causes of action for breach of contract (see id. , ¶¶ 415-416, 494; see also exhibit D to Kiselman aff, Offering Plan at 102) seeking those same common charges, credits and other damages (see ABL Advisor LLC v. Peck , 147 AD3d 689, 690 [1st Dept 2017 [conversion claim dismissed as duplicative of breach of contract claim]; M.D. Carlisle Realty Corp. v. Owners & Tenants Elec. Co. Inc. , 47 AD3d 408, 409 [1st Dept 2008] [same]; Kurzman Karelsen & Frank v. Kaiser , 283 AD2d 330, 331 [1st Dept 2001] [money had and received and conversion claims dismissed as duplicative of breach of contract claim] ). Further, the fraudulent misappropriation claims are in essence conversions claims, subject to a three-year limitations period which runs from the date of the conversion (see Board of Mgrs. of the Chelsea 19 Condominium v. Chelsea 19 Assoc. , 73 AD3d at 582 [wrongful transfer of development rights sounds in conversion, subject to three-year limitations period] ). The 5th claim for the insurance proceeds involves transfers on three occasions from October 2011 to May 14, 2012, all longer than three years before the commencement of this action on May 5, 2016.
Moreover, the 8th and 11th causes of action for fraudulent misappropriation, and the 14th cause of action for fraudulent inducement are dismissed as against defendant Spitzer, because they fail to make any specific allegations of misrepresentations by him individually, and fail to set forth a factual basis to permit an inference of his knowledge of, or participation in, any purported fraudulent scheme (see High Tides, LLC v. DeMichele , 88 AD3d at 957-959 ).
Further, the 8th and 9th claims also are dismissed against CFC Specialty Program Managers, LLC, the mortgagee holding first mortgage liens on unsold units in the Condominium, because there are no substantive allegations against this defendant, except that it received money as a lender, which is insufficient. Plaintiff's assertion, in its opposition to these motions, that CFC Specialty was the alter ego of the Sponsor through Alexander Gurevich is not pled in the complaint, and, while it asserts this in its opposition, it fails to meet its heavy burden of showing that the corporate veil should be pierced to impose liability on this defendant (see Matter of Morris v. New York State Dept. of Taxation & Fin. , 82 NY2d 135, 140-141 [1993] ; see also TNS Holdings v. MKI Sec. Corp. , 92 NY2d 335, 339 [1998] ).
Fraudulent Conveyance Claims
Plaintiff purports to allege claims for constructive fraudulent conveyances while insolvent, pursuant to §§ 273 and 278 of the New York Debtor and Creditor Law (DCL); constructive fraudulent conveyances causing unreasonably small capital, pursuant to DCL §§ 274 and 278 ; and intentional fraudulent conveyances, pursuant to DCL §§ 276 and 278 (24th through 26th causes of action).
Plaintiff asserts that the sponsor had a special relationship with the prospective purchasers of the condo units, because it had specialized expertise in the sale of condominium units (compl, ¶¶ 537-538). It alleges that it sold all the residential units, but that when it completed these closings, it retained little, if any, of the closing proceeds, instead distributing them pro rata to the Sponsor members in accordance with their equity interests. Plaintiff further alleges that these distributions were transfers of the Sponsor's property, made "without fair consideration," to the members of the Sponsor, including Steinberg, Spitzer, Kiselman, and Alexander Gurevich, at a time when the Sponsor was insolvent, or that, by making the distributions, the Sponsor became insolvent, or was left with an unreasonably small amount of capital. Plaintiff asserts that the unit owners are entitled to the distributions, and that these Sponsor members are liable to plaintiff for the amounts of distributions they received.
The Sponsor Defendants argue that these claims should be dismissed, because plaintiff fails to allege a fiduciary relationship sufficient to support such claims (see Sutton Apts. Corp. v. Bradhurst 100 Dev. LLC , 107 AD3d 646, 648 [1st Dept 2013] ). Plaintiff urges that Sutton Apts. Corp. was wrongly decided, and that ABN AMRO Bank, N.V. v. MBIA Inc. (17 NY3d 208 [2011] ) warrants a conclusion that no such relationship is necessary to bring these claims against the Sponsor Defendants.
The constructive fraudulent conveyance claims are dismissed. Plaintiff fails to allege a confidential or fiduciary relationship with the Sponsor Defendants ( Sutton Apts. Corp. v. Bradhurst 100 Dev. LLC , 107 AD3d at 648 ). Sutton Apts. Corp. , like the instant case, involved a dispute brought by a cooperative corporation on behalf of its proprietary leaseholders/shareholders against the Sponsor and its members, asserting constructive fraudulent conveyance claims, involving damages sustained due to purported defects in the construction and design of the building. The Appellate Division, First Department required the plaintiff to demonstrate such a relationship to proceed with such claims (id. ; see Board of Mgrs. of the S. Star v. WSA Equities, LLC , 2014 NY Slip Op 32750[U], * 6; see also Levin v. Kitsis , 82 AD3d 1051, 1054 [2d Dept 2011] ). ABN AMRO Bank, N.V. v. MBIA Inc. (17 NY3d 208 ), in contrast, involved claims between policyholders and their insurer for fraudulent conveyance claims, and the Court never addressed whether there was such a relationship. This court is bound to follow and finds Sutton Apts. Corp. v. Bradhurst 100 Dev. LLC (107 AD3d at 648 ) persuasive. Further, all of plaintiff's allegations were made upon information and belief, and plaintiff failed to sufficiently allege that the transfers were made without fair consideration ( Carlyle, LLC v. Quik Park 1633 Garage LLC , 160 AD3d 476, 477 [1st Dept 2018] ). Thus, these claims (the 24th and 25th causes of action) are dismissed (see Board of Mgrs. of the Vetro Condominium v. 107/31 Dev. Corp. , 2014 NY Slip Op 32748[U], *10).
The 26th cause of action for intentional fraudulent conveyance also is dismissed. To properly assert such a claim, the plaintiff must plead facts, with sufficient particularity, which would tend to show that the challenged conveyance was made without fair consideration, and with the actual intent to hinder, delay, or defraud creditors ( DCL § 276 ; CPLR 3016 [b]; Carlyle, LLC v. Quik Park 1633 Garage LLC , 160 AD3d at 477 ; RTN Networks, LLC v. Telco Group, Inc. , 126 AD3d 477, 478 [1st Dept 2015] ; Board of Mgrs. of the Downtown Condominium v. 15 Broad St., LLC , Index No. 102963/2009, annexed as exhibit E at 9 [Sup Ct, NY County 2009] ).
The complaint, here, alleges that, after the Sponsor used unit sales proceeds to pay off the lender in full, it sold additional units, and took the proceeds and distributed them pro rata to the members of the Sponsor (Steinberg, Spitzer, Kiselman and Alexander Gurevich), without retaining any proceeds. Plaintiff then alleges, in conclusory fashion and with no supporting facts, that these transactions were "made without fair consideration," which merely tracks the language of the statute. This is insufficient (see compl, ¶ 552). Moreover, the key allegations underlying these allegedly intentional fraudulent conveyances, including fraudulent intent, are based on information and belief, and plaintiff fails to reveal the source of that information, and, thus, the allegations are inadequate under CPLR 3016 (b) ( Carlyle, LLC v. Quik Park 1633 Garage LLC , 160 AD3d at 477 ; RTN Networks, LLC v. Telco Group, Inc. , 126 AD3d at 478 ; Board of Managers of Beacon Tower Condominium v. 85 Adams St., LLC , 136 AD3d at 686 [where knowledge pleaded upon information and belief, allegations must be accompanied by fact statement upon which the belief is based] ). Further, these claims simply group defendants such as defendants Spitzer and Kiselman, defined jointly with others as Sponsor Defendants, with no particular allegations of wrongdoing by them, which similarly are insufficient. Accordingly, the 24th, 25th, and 26th causes of action are dismissed.
Breach of Fiduciary Duty
The branch of the motion of defendants Taube and Taube Management and Sponsor Board defendants Kiselman, Tsirkin, Silverman, Mitchell Gurevich, and Maurice Setton to dismiss the breach of fiduciary duty claims asserted against them (7th, 10th, 13th, and 18th causes of action) to the extent that they are untimely is granted.
Statute of Limitations
The CPLR does not provide any single limitations period for breach of fiduciary duty claims (see Kaufman v. Cohen , 307 AD2d 113, 118 [1st Dept 2003] ). Rather, the applicable period depends on the substantive remedy sought (id. ). Where the claim seeks only money damages, alleging injury to property, the three-year limitations period in CPLR 214 (4) applies. "Where the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies" (id. ). However, a claim for breach of fiduciary duty which is based on allegations of fraud is subject to the six-year period, unless the fraud allegations are only incidental to the claim asserted (id. ; Cusimano v. Schnurr , 137 AD3d 527, 529 [1st Dept 2016] ). The rationale for this rule is that the courts do not want litigants to assert a fraud claim as a means to litigate a stale claim ( Kaufman v. Cohen , 307 AD2d at 118 ).
The complaint asserts five claims for breach of fiduciary duty against the Sponsor Board Defendants and Taube and Taube Management: the 7th (compl, ¶¶ 245-269); 10th (id. , ¶¶ 292-329); 13th (id. , ¶¶ 348-365); 17th (id. , ¶¶ 425-451); and the 18th (id. , ¶¶ 453-488). Every one of these claims seeks monetary damages, not equitable relief. Contrary to plaintiff's contention, these claims assert fraud only as incidental to the claims. The essence of the 7th, 10th, 13th, and 18th fiduciary duty claims are that Taube and Taube Management exceeded their authority as managing agent for the condominium, and breached their contractual duties to manage the condominium finances (see compl, ¶¶ 266, 326, 362, and 462). Similarly, the claims allege that the Sponsor Defendants breached their agreement in the Offering Plan, and that they converted the insurance proceeds, the common charges and the common charge credits. The alleged fraud in these breach of fiduciary duty claims are identical to the alleged breaches of these defendants' contractual duties, as asserted in the 1st, 16th and 19th causes of action for breach of contract against them. For example, the 7th claim alleges that the Condominium received $364,968.80 in insurance proceeds for three claims, and the Taube defendants transferred these proceeds to the Sponsor and/or its related entities, on October 3, 2011, January 23, 2012, and May 14, 2012 (see id. , ¶ 258), and the 19th claim asserts that those same actions were a breach of its contract (see id. , ¶ 494). Their actions were not extraneous to their contractual duties; as such, the fraud allegations are only incidental and may not extend the limitations period. Since this action was commenced on May 5, 2016, any breach of fiduciary duty claim based on actions prior to May 5, 2013 are time-barred. Thus, the 7th cause of action, which is based on actions from 2011 and 2012, is dismissed as against all defendants on statute of limitations grounds.
Similarly, the 10th cause of action alleges that between June 1, 2011 and November 24, 2014, 14 Sponsor-owned units were sold as to which the Sponsor was in arrears in the payment of common charges at the time of sale (id. , ¶ 304), and the Sponsor Defendants and the Taube Defendants provided, or arranged for the provision of, false letters of good standing for the closing indicating that common charges had been paid in full, forgiving the payment of such charges (id. , ¶¶ 311-312). Again, these are the bases for the 16th and 19th claims for breach of these defendants' contractual duties (see id. , ¶¶ 415-417,494), and the essence of the claims against them are not fraud, but rather are based on their contractual duties. The fraud allegations are only incidental, and the claim is subject to the three-year limitations period pursuant to CPLR 214 (4). Accordingly, any portion of this claim based on actions prior to May 5, 2013, is time-barred. Therefore, the 10th cause of action is dismissed only to the extent that it is based on breaches of fiduciary duty for unpaid common charges which accrued before May 5, 2013. However, the claim is dismissed in its entirety as against defendant Silverman, because he was no longer a member of the Board by June 1, 2012 (compl, ¶ 247).
The 13th cause of action alleges that the individual defendants Kiselman, Tsirkin, Mitchell Gurevich, and the Taube Defendants issued, or caused to be issued, common charge credits to unit owners over disputes with the Sponsor regarding construction items in their units on November 19, 2013 and January 16, 2014 (id. , ¶ 356). The alleged breaches of fiduciary duty accrued within three years of the commencement date of this action of May 5, 2016. Thus, they are not time-barred.
The 17th cause of action seeks recovery for breach of fiduciary duty against Kiselman, Tsirkin, Mitchell Gurevich, and Setton for failure to give the unit owners two seats on the Board of Managers within two years after closing, which should have occurred on June 18, 2012; failure to conduct an election at the first meeting of unit owners in October 2012, failure to call an annual meeting in 2013, and only conducting an annual meeting and election after the unit owners hired counsel to demand such meeting and election at a cost of $34,561.69; and misuse of Condominium funds to pay more than $65,000 for the Sponsor's legal bills from December 2013 to October 2014 to advance the Sponsor's agenda at the expense of the unit owners (id. , ¶¶ 425-447). Any breaches of fiduciary duty that accrued under this claim before May 5, 2013 are time-barred.
Finally, the 18th cause of action alleges that Kiselman, Tsirkin, Mitchell Gurevich, and Maurice Setton, as board members, and the Taube Defendants, as managing agent, breached their fiduciary duties by failing to maintain the building from May 2010 through May 2015; keeping Tsirkin as building superintendent although he allegedly had no experience; overcharging for Tsirkin's services from 2010 to 2015; setting the common charges too low; starting in 2010, paying operating bills of condominium from Taube's personal account, and Taube loaning money to the Condominium to cover normal operating costs; and failing to pay water and sewer bills for five years (id. , ¶¶ 465-480). Allegedly, the Taube Defendants breached their fiduciary duties to favor the Sponsor Defendants, at the expense of the Condominium and the other unit owners (id. , ¶ 462). As with the other breach of fiduciary duty claims, plaintiff may not circumvent the three-year limitations period, and, therefore, any actions alleged before May 5, 2013 are time-barred with respect to this breach of fiduciary duty claim.
Breach of Fiduciary Duty Claims on Merits
On the merits of the fiduciary duty claims, the claims against the individual defendants Mitchell Gurevich, Tsirkin, Maurice Setton, and Gene Kiselman, are not dismissed against them at this early stage of the litigation. Condominium board directors, acting in their official capacity as board members, "who cause the performance of an affirmative tortious act of malfeasance may be subject to personal liability" regardless of whether the corporate veil is pierced ( Pomerance v. McGrath , 143 AD3d 443, 447—48 [1st Dept 2016] ; Board of Mgrs. of S. Star v. WSA Equities, LLC , 140 AD3d at 405—06 ). However, personal liability cannot be imposed upon such directors for nonfeasance, that is, for a failure to act ( Pomerance v. McGrath , 124 AD3d 481, 482 [1st Dept 2015] [violation of condominium bylaws is analogous to a breach of contract, which will not create individual liability]; Peguero v. 601 Realty Corp. , 58 AD3d 556, 559 [1st Dept 2009] [the mere failure to act will not subject corporate officers to personal liability] ). Thus, while a violation of a condominium's bylaws does not subject board members to individual liability ( Pomerance v. McGrath , 124 AD3d at 482-483 ), the failure of the board members to cause the association to discharge its obligations may be proper grounds against these members in their official capacities (see id. ).
Here, the complaint alleges that these individual defendants all directly and personally participated in the transactions that are the bases of the fiduciary duty claims, and caused the Sponsor to act as alleged (compl, ¶¶ 34-35). The complaint's allegations against these individuals are not simply based on nonfeasance, but, rather, reflect that they authorized the transfer of the insurance funds (compl, ¶ 260); provided false letters of good standing regarding unpaid common charges (id. , ¶ 306); caused the association not to conduct elections for unit owner board members and to overcharge for legal fees to defend the Sponsor (id. , ¶¶ 438, 441); and issued or caused to be issued the challenged common charge credits (id. , ¶ 356). Plaintiff's claims are not barred by CPLR 3016 (b), because the facts of the details of these defendants' actions in relation to the challenged acts are peculiarly in the defendants' knowledge at this early pleading stage (see Pludeman v. Northern Leasing Sys., Inc. , 10 NY3d 486, 492 [2008] ).
Accordingly, the breach of fiduciary duty claims in the seventh, 10th, 13th, 17th, and 18th causes of action, to the extent that they are timely, are sufficient to withstand these motions to dismiss as against defendants Mitchell Gurevich, Maurice Setton, and Gene Kiselman and the Taube Defendants.
Punitive Damages
Plaintiff's request for punitive damages in the breach of fiduciary duty causes of action (7th, 10th, 13th, 17th, and 18th) is dismissed. In order to demonstrate the right to punitive damages in a tort claim, the plaintiff must show one of the following: "intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that willfully and wantonly disregards the rights of another" ( Gamiel v. Curtis & Riess-Curits, P.C. , 16 AD3d 140, 141 [1st Dept 2005] ; see also Sutton Apts. Corp. v. Bradhurst 100 Dev. LLC , 36 Misc 3d 1205[A], * 9 [Sup Ct, NY County 2012], modified on other grounds 107 AD3d 646 [1st Dept 2013] ). Moreover, simply alleging fraud is not enough to warrant the imposition of this remedy. Rather, the conduct must be both egregious and part of a pattern of conduct directed at the public ( Appel v. Giddins , 89 AD3d 543, 544 [1st Dept 2011] ). Here, plaintiff's primary claims are contract-based, the fraud claims are dismissed, and there is no allegation that defendants' conduct was directed at the public generally, or that their conduct involved a high degree of moral turpitude (see Mountain Cr. Acquisition LLC v. Intra West U.S. Holdings, Inc. , 96 AD3d 633, 635 [1st Dept 2012] [private transaction, no harm to public, and no showing of high degree of moral turpitude]; Segal v. Cooper , 49 AD3d 467, 468 [1st Dept 2008] ; Steinhardt Group v. Citicorp , 272 AD2d 255, 257 [1st Dept 2000] [punitive damages dismissed where a private transaction, with no allegation of egregious tort directed at public at large] ).
Finally, the various defendants' requests for sanctions are denied. While their motions to dismiss are being granted in part, some of the claims are surviving the motion, and while other claims are insufficient, they are not frivolous.
Accordingly, it is
ORDERED that the motion of defendant Peter R. Silverman (motion seq. No. 003) to dismiss the complaint as against him is granted and the 3rd, 7th, and 10th causes of action and the request for punitive damages and sanctions are dismissed, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the motion of defendants Taube Management Realty, LLC and Joseph M. Taube (motion seq. No. 004) to dismiss the complaint is granted to the extent that the 7th, 8th, 11th, and 14th causes of action and the request for punitive damages are dismissed, and the 10th, 17th and 18th causes of action are dismissed only to the extent that they are based on breaches of fiduciary duty which accrued before May 5, 2013, and, thus, are time barred; and it is further
ORDERED that the motion of defendant Elliot Spitzer (motion seq. No. 005) to dismiss the complaint as against him is granted and the 3rd, 5th, 6th, 8th, 9th, 11th and 12th, 24th, 25th, and 26th causes of action and the request for punitive damages are dismissed, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the motion of defendants East 49th Street Development II, LLC, 250 East Borrower, LLC, Continental Finance Corporation, Continental Realty, LLC, Alexander Gurevich, Mitchell Gurevich, Gennady Kiselman, and Maurice Setton (motion seq. No. 006) to dismiss the complaint is granted to the extent that the 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 11th, 12th, 14th, 15th, 24th, 25th, and 26th causes of action, and the request for punitive damages and for sanctions, are dismissed, and the 10th, 17th and 18th causes of action are dismissed only to the extent that they are based on breaches of fiduciary duty which accrued before May 5, 2013, and thus are time barred; and it is further
ORDERED that the motion of defendant CFC Specialty Program Managers, LLC (motion seq. No. 007) to dismiss the complaint as against it is granted and the 8th and 9th causes of action, and the request for punitive damages and sanctions, are dismissed, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the action is severed and continued against the remaining defendants, with the remaining causes of action.