Opinion
No. 5494–11.
2013-05-1
The BOARD OF MANAGERS OF the PARK SLOPE VIEWS CONDOMINIUM, and Diana Chasten, Jeffrey Grollo, Solmarie Babilonia, Lindsey Mazzola Paluska, Lynn Mazzola, James Rusk, Jennifer Valu, Josef Valu, Sean Fedeli, Jessica Fedeli, Howard B. Finkel, Restated Residence Living Trust dated 12/2/04, Rebecca H. Finkel, Jason Rogers, Sarah Rogers, Michael T.Conner, Raymond J. Mancini, Lina Fenequito, Harold Steinberg, Lisa E. Steinberg, Dana Wilson, Andrew D. Goldstein, Julia A. Rawe, Jason Charles Rodner, Cindy Rodner, f/k/a Cindy Ng, Jennifer Gordon, Joseph Wekselblatt, Maureen Wekselblatt, Alfred M. Pires, Victoria Pires, Luna Dalva, Sam Kazdal, Temeron Ackley–Kazdal, Farid Aliyev, Faiza Kazmi, Daniel Tarlow Hilfer, Queenie Feril Reyes, and Vsevolod Konoplich and Yangkun Zhang, Plaintiffs, v. PARK SLOPE VIEWS, LLC, Fairmont Capital, LLC, Barry Katz, Issac Katan, a/k/a Itzhak Katan, Neal Frolich, Fairmont Insurance Brokers, Ltd., Abraham Hertzberg, PE, Abraham Hertzberg, Hertzberg and Sanchez Consulting Engineers, PC., Bricolage Architecture & Design, PLLC a/k/a Bricolage Designs, AIA, Henry Radusky, Aguayo & Huebener Realty Group, Inc., Peggy Aguayo, Debbie Fuka, Dover Construction, LLC and American Architectural Windows, Inc., Defendants.
Wolf Haldenstein Adler Freeman & Herz, LLP, New York, for plaintiffs. Berg Law, PLLC, Brooklyn, for the defendants Park Slope Views, LLC, Barry Katz, Isaac Katan, Abe Deitel.
Wolf Haldenstein Adler Freeman & Herz, LLP, New York, for plaintiffs. Berg Law, PLLC, Brooklyn, for the defendants Park Slope Views, LLC, Barry Katz, Isaac Katan, Abe Deitel.
Capuder, Fazio, Giacoia, LLP, New York, for defendants for Aguayo & Hubener Realty Group, Inc., Peggy Aguayo and Debbie Fuka.
Keidel, Weldon & Cunningham, LLP, White Plains, for the defendants Fairmont Capitol, LLC, Neal Frolich, Fairmont Insurance Brokers, Ltd.
FRANCOIS A. RIVERA, J.
Recitation in accordance with CPLR 2219(a) of the papers submitted on the moving defendants' motions for an order seeking, among other things, dismissal of various causes of action in the complaint pursuant to CPLR 3211(a):
INotice of Motion pursuant to CPLR 3211(a) and 3012(b) to dismiss the complaint by Defendants Aguayo & Huebener Realty Group, Inc., Peggy Aguayo and Debbie Fuka
-Attorney's Affirmation
Affidavit of Debbie Fuka and Peggy Aguayo
Exhibits 1–46
-Memorandum of Law
-Memorandum in Further Support of the Motion
IINotice of Motion pursuant to CPLR 3211(a) to dismiss the complaint byDefendants Park Slop Views, LLC, Barry Katz, Isaac Katan and Abe Dietel
-Attorney's Affirmation
-Exhibits 1–3
-Memorandum of Law
-Memorandum in Further Support of the Motion
IIINotice of Motion pursuant to CPLR 3211 to dismiss the Complaint byDefendants Fairmont Capital, LLC, Neal Frolich, Fairmont Funding Ltd., and Fairmont Insurance Brokers, Ltd.
-Attorney's Affirmation
-Exhibits 1–3
-Memorandum of Law
-Plaintiffs' memorandum of Law in Opposition to the Motions
-Attorney's Affirmation
-Exhibits 1–5
By notice of motion filed on June 5, 2012 under motion sequence number two, defendants Aguayo & Huebener Realty Group, Inc., Peggy Aguayo and Debbie Fuka (hereinafter the Realty defendants) have jointly moved to dismiss all causes of action alleged against them pursuant to CPLR 3012(b), 3211(a)(1), and (7).
By notice of motion filed on October 11, 2012 under motion sequence number six, defendants Park Slop Views, LLC, Barry Katz, Isaac Katan and Abe Dietel (hereinafter the Sponsor defendants) have jointly moved to dismiss the second, third, fourth, sixteenth, twenty-first, twenty-second, twenty-third and twenty-fourth causes of action of the complaint pursuant to CPLR 3211(a)(1) and (7).
By notice of motion filed on October 16, 2012 under motion sequence number seven, defendants Fairmont Capital, LLC, Neal Frolich, Fairmont Funding Ltd., and Fairmont Insurance Brokers, Ltd. (hereinafter the Funding defendants) have jointly moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint and any cross-claims asserted against it.
The Funding defendants have not annexed the answer of any answering defendant containing cross-claims against them.
Plaintiffs have opposed the moving defendants' respective motions.
No moving defendant has answered the complaint or opposed their co-defendants' respective motions.
BACKGROUND
On March 14, 2011, plaintiffs commenced the instant action by filing a summons with notice with the Kings County Clerk's office. On April 17, 2012, plaintiffs served the complaint on all the defendants. All defendants who appeared and demanded a complaint stipulated to accept service of the complaint as provided. The complaint contains three hundred allegations of fact in support of twenty-four causes of action.
The complaint describes the various parties in the instant action as follows: the plaintiffs consist of the Board of Managers of the Park Slope Views Condominium and twenty three individual unit owners of a ten story condominium property located at 162 16th Street, Brooklyn New York (hereinafter the subject property).
Park Slope Views, LLC is the sponsor of the condominium and a New York Limited Liability Company existing under the laws of the State of New York. Fairmont Capital, LLC is a limited liability existing under the laws of New York and is alleged to be a controlling principal and member of the sponsor. Defendant Fairmont Funding, Ltd. and Fairmont Insurance Brokers, Ltd. are New York corporations existing under the laws of the State of New York and alleged to be representatives of the sponsor and of Fairmont Funding.
Barry Katz is a controlling principal and member of the sponsor and the managing director of Fairmont Capital, LLC. Mr. Katz has also served as a sponsor appointed member of the board. Isaac Katan is a controlling principal and member of the sponsor. Neil Frolich and Abe Dietel are representatives of the sponsor and Fairmont Capital, LLC.
The Realty defendants are described as a New York Corporation that acted as the selling agent of the sponsor who actively marketed and sold units of the condominium to members of the general public.
The individually named defendants, Peggy Aguayo and Debbie Fuka, are described as selling agents for the sponsor who also actively marketed and sold units of the condominium to members of the general public. They are also alleged to have a special relationship with the plaintiffs due to the unique and specialized expertise in the sale of real estate and specifically newly constructed condominium units. The Selling agents are alleged to have had a duty to use reasonable care to impart correct information to them because the Selling Agents were agents of the Sponsor, which was in privity with the unit owners. The complaint groups the Funding defendants and the Sponsor defendants into one entity labeled the “Sponsor defendants.”
The gravamen of the claims brought against the moving defendants are as follows. The Sponsor and Funding defendants failed to build the condominium in accordance with the promises and representations made in the purchasing agreement, marketing materials, and the Offering Plan. The subject property was built in a defective and unworkmanlike manner and in violation of the New York City Building Code. Furthermore, the Sponsor, Funding and Realty defendants knew of the defects and either negligently or intentionally withheld the information from prospective purchasers in order to induce them into purchasing the units. The first closing on the sale of a unit was completed on or about March 12, 2008.
Causes of Action Targeted by Moving Defendants for Dismissal
The fifth through and including the twelfth causes of action and the seventeenth through and including the twentieth causes of action are not discussed because they do not allege any claims against the moving defendants.
The first through and including the fourth causes of action are against the Sponsor and Funding defendants. The first cause of action is for breach of contract, the second is for a breach of common law implied merchant warranty of habitability, the third is for fraud, and the fourth is for negligent misrepresentation.
The thirteenth through and including the fifteenth causes of action are alleged against the Realty defendants. The thirteenth cause of action alleges fraud, the fourteenth is for aiding and abetting fraud, and the fifteenth is for negligent misrepresentation.
The sixteenth cause of action is against all of the moving defendants and alleges violations of the General Business Law (GBL) §§ 349 and 350.
The twenty-first, twenty-second, and twenty-third causes of action are against the Sponsor and Funding defendants. The twenty-first cause of action is for constructive fraudulent conveyances while insolvent. The twenty-second cause of action alleges constructive fraudulent conveyances causing unreasonably small capital. The twenty-third cause of action alleges intentional fraudulent conveyances.
The twenty-fourth cause of action is against all moving defendants and alleges violations of the Interstate Land Sales Act (ILSA) § 1703 [15 USC § 1703(a)(2) ].
Factual Allegations of the Targeted Causes of Action:
The first cause of action alleges that due to the material defects to the common areas and individual units the Sponsor and Funding defendants breached the purchasing agreements. The purchase agreement expressly incorporated the Offering Plan, which provided that the Sponsor and Funding defendants shall comply with all building codes, plans and specifications. The Offering Plan further stated that there were no conditions at the subject property that warranted repair.
However, the conditions materially deviated from the description in the Offering Plan in regard to the windows, roof, balconies, parking area, lighting, insulation, cellar, storage areas, exit doors, walls and ceilings. Furthermore, the building was not built according to the New York City Building Code and New York City Local Laws. The defects extended to the individual units, as there were leaks, problems with the heating/cooling system and the installation of the kitchens and bathrooms were defective.
The second cause of action alleges that the Sponsor and Funding defendants breached the common law implied housing merchant warranty. Common law imposes an implied warranty to purchasers of newly constructed homes. As a builder-vendor of the property the Sponsor and Funding defendants are held to the common law requirement that the construction be “workman like” and free from material defects. The Sponsor and Funding defendants breached the warranty, as the building contains many material structural and non-structural defects.
The third and the thirteenth causes of action are labeled as fraud. The third cause of action alleges that the Sponsor and Funding defendants engaged in a fraud. Plaintiff's claim that the Sponsor and Funding defendants made omissions and misrepresentations of fact regarding the building and its units in the Offering Plan, and in sales and marketing materials. Examples of the false representations are contained within the Offering Plan which states that the document was complete, current and accurate and that it did not omit any material fact, contain any untrue statement of material fact, fraud deception, concealment, suppression or false pretense, or fictitious or pretended purchase or sale.
The plaintiffs claim that those statements and assertions were necessarily false as the Sponsor and Funding defendants commissioned an engineering evaluation report which was completed on or about March 12, 2007, by a non-party, Porcello Engineering, Inc., (the “Porcello Report”) which included numerous findings of defects in the building. The Porcello Report findings were known prior to certifying the Property Condition Disclosure Statement contained within the Offering Plan. Furthermore, that the statements were made to induce the purchasers to buy the units. The purchasers did in fact rely upon those statements and assertions contained within the Offering Plan to their detriment.
The thirteenth cause of action alleges fraud on the part of the Realty defendants. Plaintiffs allege that the Realty defendants made representations of fact regarding the building and its apartment units in circulating the Offering Plan and/or in promoting sales of units of the condominium, including in sales and marketing materials for the condominium that were false when made. Plaintiffs' further allege that after the first units of the condominium were sold, the selling agents, and defendant Fuka in particular were repeatedly informed by unit owners and by the Board that the building had water infiltration and resulting mold. In or about July 2009, the plaintiffs provided the Realty defendants with another detailed engineering report and written reports from the residents detailing defects in the construction of the building including issues regarding water infiltration and mold growth. In spite of being aware of these material defects the Realty defendants continued to represent that the building was free from defects in order to induce potential purchasers to buy units. The representations and omissions made by the Realty defendants by verbal assertions, circulating the Offering Plan and marketing materials were made to induce prospective buyers into purchasing units. The prospective purchasers did in fact rely upon those representations and were damaged.
The fourth and fifteenth causes of action allege negligent misrepresentation. The plaintiffs allege that a special relationship existed between the Sponsor and Funding defendants and the plaintiffs because the defendants had unique knowledge and were in a special position of confidence and trust. Due to the special relationship it was reasonable for the plaintiffs to rely upon their statements. Furthermore, the Sponsor and Funding defendants had a duty to use reasonable care to impart correct information and should have known that the Offering Plan contained material misrepresentation.
As to the Realty defendants, the allegations state that a special relationship exists with the plaintiffs due to the unique and specialized expertise in the sale of real estate and specifically newly constructed condominium units. The selling agents are alleged to have had a duty to use reasonable care to impart correct information to them because the selling agents were agents of the Sponsor and Funding defendants, which were in privity with the unit owners.
The sixteenth cause of action alleges that the Sponsor, Funding and Realty defendants violated the New York GBL §§ 349 and 350 by engaging in deceptive consumer practices and false adverting. Specifically, the defendants “disseminated advertising and promotional information that had an impact on consumers at large because such information was broadly disseminated via the internet and other media to the general public and particularly to those members of the general public who were also potential home buyers.” The advertising and promotional materials were false in material ways “including without limitation by misrepresenting the quality of construction of the Building ...”
The twenty-first, twenty-second and twenty-third causes of action allege that the Sponsor and Funding defendants violated the New York Debtor and Creditor Law (DCL) §§ 273 and 278, by constructively conveying property while insolvent, conveying property causing unreasonably small capital and intentional fraudulent conveyances with the actual intent to hinder, delay, and defraud the creditors of the Sponsor. Specifically, the plaintiffs allege that even after the Sponsor became aware of the Porcello report, the Sponsor did not retain any proceeds of sales of the units, but rather distributed those proceeds to its members in accordance with their equity interests in the Sponsor. The equity distributions were transfers of the Sponsor's property and were made without fair consideration. Those who received equity distributions were Fairmont, Katz, Katan, Fairmont Insurance, Fairmont Funding, Frolich and Deitel. Therefore, the plaintiffs demand that the transfers be set aside.
The twenty-fourth cause of action alleges that the Sponsor, Funding, and Realty defendants violated the ILSA § 1703(a)(2). The complaint alleges that the condominium, the unit owners, the Sponsor and the Realty defendants fit within the definitions of the statute. The Sponsor and Realty defendants violated the statute by making statements of fact regarding the Subject Property and its units that were false when made for the purpose of inducing prospective owners to purchase the units. The aforesaid statements constitute a “transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser” and the actions were committed using the means and instruments of interstate and international commerce and communication and the mails.
LAW AND APPLICATION
CPLR 3012(b)It is expeditious to first determine whether the Realty defendants were improperly served before discussing the other grounds for dismissal because if service was improper then the remainder of the motion is moot. Only the Realty defendants have moved pursuant to CPLR 3012(b) to dismiss the complaint due to untimely service. CPLR 3012(b) provides:
Service of complaint where summons served without complaint. If the complaint is not served with the summons, the defendant may serve a written demand for the complaint within the time provided in subdivision (a) of rule 320 for an appearance. Service of the complaint shall be made within twenty days after service of the demand. Service of the demand shall extend the time to appear until twenty days after service of the complaint. If no demand is made, the complaint shall be served within twenty days after service of the notice of appearance.
It is undisputed that the Realty defendants served a notice of appearance and demand on plaintiffs' prior counsel on October 31, 2011, even though that counsel had properly been substituted by a consent to change attorney form filed with the Kings County Clerk's office on June 29, 2011. The notice of appearance and demand was never served on plaintiffs' current counsel and cannot serve as a basis for dismissal. Moreover, plaintiffs time to serve a complaint on the Realty defendants never expired as there was no demand. Regardless, the Realty defendants were served with the complaint on April 17, 2012 and in fact address the merits of the complaint in the instant motion. Therefore, the Court finds that any objection to the purported late service either has no merit or has been waived.
CPLR 3211(a)(1)All moving defendants seek dismissal of certain causes of action pursuant to CPLR 3211(a)(1). The statute provides that a defendant may move to dismiss a cause of action on the ground that “a defense is founded upon documentary evidence” (CPLR 3211[a][1] ). A motion to dismiss a complaint based upon CPLR 3211(a)(1) may be granted “only where the documentary evidence utterly refutes [a] plaintiff's factual allegations, conclusively establishing a defense as a matter of law” (Goseh v. Mutual Life Ins. Co.of NY, 98 N.Y.2d 314, 326 [2002] ).
To be considered “documentary,” for purposes of motion to dismiss based on documentary evidence, evidence must be unambiguous and of undisputed authenticity. From the cases that exist, it is clear that judicial records, as well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the contents of which are “essentially undeniable,” would qualify as “documentary evidence” in the proper case. If the document does not reflect an out-of-court transaction and is not essentially undeniable it is not documentary evidence within the intendment of CPLR 3211(a)(1) ( see Fontanetta v. Doe, 73 AD3d 78 [2nd Dept 2010] ).
The evidence submitted by the defendants in support of the motion under CPLR 3211(a)(1) include a letter from Porcello Engineering, a copy of the Offering Plan with attached blank contract of sale, and specific executed contracts of sale.
The letter from Porcello Engineering is not considered “documentary” as it is not “unambiguous and of undisputed authenticity” nor are the contents “essentially undeniable” ( see Fontanetta v. Doe, 73 AD3d 78 [2nd Dept 2010] ). Therefore, the letter is disregarded.
The Offering Plan is considered “documentary” as it is undisputed by the parties. It is utilized by the Sponsor and Funding defendants to highlight the “no representations” clause contained in paragraph 26, as a basis to dismiss the fraud and negligent misrepresentation claims. Specifically, paragraph 26 states:
No representations: Except as set forth in the Plan. The Seller has not made, does not make and is unwilling to make any representations as to the condition, income, expense, tenants, use, operation or any other matter or thing affecting or relating to the Property or title thereto or the transactions completed hereby. The Purchaser acknowledges and represents that except as expressly set forth in the Plan or in this Agreement, the Seller has not made and the Purchaser has not relied upon any representations, warranties, statements or estimates of any nature whatsoever, whether written or oral, made by or behalf of the Seller, whether consisting of or contained in any architect's plans, sales plans, selling brochures, advertisements or otherwise.
As the plaintiffs' third and fourth cause of action are based in some part on reliances made based on information contained in documents and statements that are outside of the contract, which is expressly dealt with in paragraph 26, the Sponsor and Funding defendants claim that paragraph twenty-six prohibits those causes of action.
When a contract contains a specific disclaimer such a provision may destroy allegations in the complaint that the agreement was executed in reliance upon defendants' contrary oral representations ( see Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320–321 [1959] ). However, there is an exception applicable where the defendant was in exclusive possession of facts demonstrating that a disclaimed representation was false at the time ( see Steinhardt Group v. Citicorp, 272 A.D.2d 255 [1st Dept 2000] see also O'Keeffe v. Hicks, 74 A.D.2d 919 [2nd Dept 1980] ). Furthermore, when a seller makes a false representation in a disclosure statement, such a representation may be proof of active concealment and can support a cause of action alleging fraudulent misrepresentation ( see Daly v. Kochanowicz, 67 AD3d 78 [2nd Dept 2009] ).
In this action, it is alleged that the defendants were in exclusive knowledge of facts, including but not limited to the Porcello report, which may demonstrate that a disclaimed representation was false at the time. Furthermore, the plaintiffs allege that the Sponsor and Funding defendants made false representations in the disclosure statement contained within the Offering Plan and therefore the Offering Plan does not conclusively establish a defense to the causes of action asserted against the defendants as a matter of law.
In support of their 3211(a)(1) motion the Realty defendants submitted the contracts of sale as evidence that they were solely agents of the Sponsor and to deny that certain plaintiff's were damaged by the purchase of the units or purchased the units with full knowledge of the defects. Similarly to the Offering Plan, the contracts of sale do not conclusively establish a defense to the causes of action asserted against the Realty defendants. The contracts of sale support the contention that the Realty defendants were agents of the Sponsor, but they do not establish that they were not simultaneously acting as agents of the plaintiffs in each of the sales. Furthermore, the damages alleged by the plaintiffs include costs incurred and to be incurred to repair the defects. The contracts do not even touch upon those damages. Therefore, the contracts of sale do not utterly refute the plaintiffs' allegations.
CPLR 3211(a)(7) analysis:
As the documentary evidence fails to conclusively establish defenses as a matter of law the Court will analyze the complaint pursuant to CPLR 3211(a)(7). The statute provides that “[a] party may move for judgment dismissing one or more causes of action asserted against [it] on the ground that ... the pleading fails to state a cause of action” (CPLR 3211(a)(7)). “On a motion to dismiss pursuant to CPLR 3211(a)(7), the complaint must be liberally construed in the light most favorable to the plaintiff and all allegations must be accepted as true” (Pacific Carlton Dev. Corp. v. 752 Pac., LLC, 62 AD3d 677, 679 [2nd Dept 2009]; see also Leon v. Martinez, 84 N.Y.2d 83, 87 [1994] ). “Initially, the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail” (Pacific Carlton Dev. Corp., 62 AD3d at 679 [2nd Dept 2009], quoting Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 [1977];see also Heffez v. L & G Gen. Constr., Inc., 56 AD3d 526, 526 [2nd Dept 2008]; Matovcik v. Times Beacon Record Newspapers, 46 AD3d 636, 637 [2nd Dept 2007]; Gershon v. Goldberg, 30 AD3d 372, 373 [2nd Dept 2006] ). “In assessing a motion under CPLR 3211(a)(7), ... a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint ... and “the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one” (Simmons v. Edelstein, 32 AD3d 464, 465 [2nd Dept 2006] ). “Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss ... Further, any deficiencies in the complaint may be amplified by supplemental pleadings and other evidence” (AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co. 5 NY3d 582 [2005] [internal citations omitted] ).
However, “bare legal conclusions are not presumed to be true and are not accorded every favorable inference” (Kupersmith v. Winged Foot Golf Club, Inc., 38 AD3d 847, 848 [2nd Dept 2007]; see also Parola, Gross & Marino, P.C. v. Susskind, 43 AD3d 1020, 1021–1022 [2nd Dept 2007]; McKenzie v. Meridian Capital Group, LLC, 35 AD3d 676, 676 [2nd Dept 2006] ).
In order to analyze a CPLR 3211(a)(7) motion the Court essentially has a two pronged analysis. First, whether there are factual allegations which give the defendant and the court notice of the transactions or occurrences intended to be proved and second, whether those factual allegations allege any cognizable cause of action.
Preliminarily, it is undisputed that the first cause of action for breach of contract is adequately plead. To state a cause of action for breach of contract the complaint must include the terms of an existing contract, including good consideration, performance on the part of the plaintiff, breach by the defendant and damages. The complaint clearly asserts each required element of a breach of contract claim.
Pleading Deficiencies:
As part of the 3211(a)(7) framework it is apparent that certain causes of action must be dismissed outright for failing to meet the prongs of a CPLR 3211(a)(7) analysis. First, all causes of action against the individual defendants must be dismissed as the complaint fails to allege any transactions or occurrences that give rise to a cognizable claim against the individuals. Second, the second cause of action entitled “breach of common law implied housing merchant warranty” must be dismissed as there is no cognizable cause of action recognized under that theory.
It is clear that all of the causes of action alleged against Peggy Aguayo, Debbie Fuka, Barry Katz, Isaac Katan, Abe Dietel and Neal Frolich must be dismissed. The complaint fails to contain any allegations of fact that would allow anyone of these individuals, acting in their representative capacity, to be held personally liable. A member of a limited liability company or corporation “cannot be held liable for the company's obligations by virtue of his status as a member thereof” (Retropolis, Inc., v. 14th st Dev ., LLC, 17 AD3d 209 [1st Dept 2005] ).
The plaintiffs may not invoke the doctrine of piercing of the corporate veil. Equity may intervene to “pierce the corporate veil” and permit the assertion of claims against the individuals who control the corporation in order to avoid fraud or injustice ( see Matter of Morris v. New York State Dept. of Taxation and Fin., 82 N.Y.2d 135, 140–141 [1993] ). In order to do so, the plaintiffs must make a showing that the individual defendants exercised complete dominion and control over the corporation and used such dominion and control to commit a fraud or wrong against the plaintiff, which resulted in injury ( Flushing Plaza Associates No.2 v. Albert, 102 AD3d 737 [2nd Dept 2013] quoting Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d at 141 [1993] ).
The mere claim that the corporation was completely dominated by the defendants, or conclusory assertions that the corporation acted as their “alter ego,” without more, will not suffice to support the equitable relief of piercing the corporate veil (Id.). In the instant matter, the complaint fails to include any allegations of fact which would allow a piercing of the corporate veil. Therefore, the complaint is dismissed as to all of the individually named defendants.
The second cause of action is labeled as “breach of common law implied housing merchant warranty.” The Sponsor and Funding defendants seek to dismiss this cause of action based on it being duplicative of the breach of contract cause of action. However, the Court need not determine the validity of the defendants' arguments because as of the effective date of GBL article 36–B, which undisputably was in effect prior to the occurrences which gave rise to the instant litigation, the cause of action for a breach of the common law implied merchant warranty of habitability no longer exists.
Previously, the common law provided an implied warranty in contracts for the sale of newly constructed homes. The construction was to be performed in a skillful manner and the building was not to have any material defects ( see Caceci v. Di Canio Constr. Corp., 72 N.Y.2d 52 [1988] ). GBL article 36–B § 777–a “(1) specifies different durations for the guarantee of skillful construction of various parts of a building, including the plumbing, electrical, heating, cooling, and ventilation systems; (2) excludes specified entities, and patent defects, from statutory remedy coverage; (3) identifies the scope of the protection with regard to goods sold incidentally with the dwelling, such as stoves, refrigerators, air conditioners, and so forth; and (4) describes the procedures needed to make a claim” (Fumarella v. Marsam Development, Inc., 92 N.Y.2d 298 [1998] ).GBL § 777–b likewise details the manner and the circumstances under which a builder-vendor may exclude the statutory remedy. Therefore, GBL article 36–B has been held to be a “full, effective, and realistic substitute for the protections and rationale of the common law” ( Id.).
The complaint does not reference the GBL nor allege any claims that fit within the specifics therein. Therefore, the Court cannot consider the title of the cause of action to be a scrivener's error. Rather it is apparent that the plaintiff attempted to state a cause of action under the common law. However, no cause of action under the common law exists and the second cause of action is dismissed as against all parties (Fumarella, 92 N.Y.2d 298 [1998] ).The remaining causes of action, the first, third, fourth, thirteenth through sixteenth and twenty-first through twenty-fourth causes of action remain for the reasons discussed herein.
The Fraud Causes of Action
The Court will analyze the third, fourth, thirteenth and fifteenth causes of action together as CPLR 3016(b) imposes special pleading requirements of particularity and all of the movants seek dismissal for failure to plead as required in CPLR 3016(b). New York Civil Practice Rules § 3016(b) requires causes of action based on fraud or mistake to be plead with particularity. The statute provides “where a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail” (CPLR 3016[b] ). Although there is certainly no requirement of unassailable proof of fraud at the pleading stage, the complaint must allege the basic facts to establish the elements of the cause of action (Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553 [2009] ).
The requirement of particularity is satisfied in fraud actions when the facts are sufficient to permit a reasonable inference of the alleged conduct (Pludeman v. Northern Leasing Systems, Inc., 10 NY3d 486 [2008] ). However, the requirement that all circumstances constituting fraud be stated in detail is not to be construed so strictly as to prevent otherwise valid cause of action in instances in which knowledge of details is in exclusive possession of defendants (Auguston v. Spry, 282 A.D.2d 489 [2nd Dept 2001] ).
To establish a prima facie case of actual fraud, a plaintiff must present proof that (1) the defendant made material representations that were false, (2) the defendant knew the representations were false and made them with the intent to deceive the plaintiff, (3) the plaintiff justifiably relied on the defendant's representations, and (4) the plaintiff was injured as a result of the defendant's representations ( see Cohen v. Houseconnect Realty Corp., 289 A.D.2d 277 [2nd Dept 2001] ). Each of the foregoing elements must be supported by factual allegations containing the details constituting the wrong sufficient to satisfy CPLR 3016(b) (Cohen, 289 A.D.2d 277 [2nd Dept 2001] ).
While a cause of action for negligent misrepresentation is not required to have the scienter of fraud it still requires that the plaintiff plead (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information (J.A.O. Acquisition Corp. v. Stavitsky, 8 NY3d 144, 148 [2007] ).
As previously detailed in the discussion above, the complaint contains several allegations of fact that fit into a cognizable claim sounding in fraud. For example, it is alleged that the Sponsor and Funding defendants signed a certification in the Offering Plan and contracts of sale which asserted that the information contained therein was true, accurate and complete while simultaneously being aware of the probability of significant structural defects. The Realty defendants are alleged to have had conversations with prospective purchasers in which material defects were specifically denied and the Realty defendants knowingly marketed the units with materials containing false information. Therefore, the complaint sufficiently pleads fraud with specificity, as the defendants are able to make a reasonable inference as to the alleged conduct.
As to the elements of the negligent misrepresentation causes of action, the complaint alleges that the Sponsor, Funding, and Realty defendants had a special relationship with the plaintiffs as they had particularized knowledge with a duty to impart that knowledge to the plaintiffs. The Funding and Sponsor defendants do not dispute the allegation of a special relationship in their motion. The Realty defendants do deny such a relationship existed and base that denial on the contracts of sale as well as the affidavits of the individual Realty defendants. However, on a motion pursuant to 3211(a)(7), taking all the allegations of fact to be true the Court may not dismiss a properly plead cause of action based on a defendants mere denial.
The complaint is plead with enough specificity to permit a reasonable inference of the alleged conduct. In fact, while all of the moving defendants assert that the claims of fraud and negligent misrepresentation lack the requisite specificity, they simultaneously attempt to contradict each allegation by specific denials. Therefore, it is apparent that the complaint gives the defendants sufficient notice of the alleged of conduct.
General Business Law Art. 23–A—“The Martin Act”
The defendants alternately assert that even if the complaint properly state a cause of action for fraud and negligent misrepresentation, that GBL Art. 23–A (the “Martin Act”) precludes the plaintiffs' claims. The “Martin Act authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing of stocks, bonds and other securities within or from New York State” ( seeGBL §§ 352 and 353; Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236 [2009] ). It is correct that a purchaser of a condominium apartment may not bring a claim for common-law fraud against the building's sponsor when the fraud is predicated solely on alleged material omissions from the Offering Plan amendments mandated by the Martin Act (Kerusa Co. LLC, 12 NY3d 236 [2009] ). Furthermore, the Martin Act authorizes the Attorney General to enforce its provisions and implementing regulations by, among other things, seeking restitution and damages for injured parties. Indeed, the Attorney General bears “sole responsibility for implementing and enforcing the Martin Act” and there is no private right of action under the statute ( [ Id.] [internal citations omitted] ).
However, if the elements of common-law fraud are plead, the Martin Act does not preclude bringing a cause of action for fraud nor does it necessarily preclude causes of action based on affirmative misrepresentations ( see Assured Guaranty v. J.P. Morgan Investment Mgmt., Inc., 18 NY3d 341 [2011];Caboara v. Babylon Cove Development, LLC, 82 AD3d 1141 [2nd Dept 2011], Board of Managers of Marke Gardens Condominium v. 240/242 Frankilin Ave., LLC, 71 AD3d 935 [2nd Dept 2010] compare Hamlet on Olde Oyster Bay Home Owners Assn., Inc. v. Holiday Org., Inc., 65 AD3d 1284, 1287, [2nd Dept 2009], appeal dismissed15 NY3d 742 [2010];Breakwaters Townhomes Assn. of Buffalo v. Breakwaters of Buffalo, 207 A.D.2d 963 [4th Dept 1994]; Rego Park Gardens Owners v. Rego Park Gardens Assoc., 191 A.D.2d 621, 622 [2nd Dept 1993]; Eagle Tenants Corp. v. Fishbein, 182 A.D.2d 610 [2nd Dept 1992]; Horn v. 440 E. 57th Co., 151 A.D.2d 112, 120 [1st Dept 1989] ). An “injured investor may bring a common-law claim (for fraud or otherwise) that is not entirely dependent on the Martin Act for its viability (Assured Guaranty v. J.P. Morgan Investment Mgmt ., Inc., 18 NY3d 341 [2011] ). Mere overlap between the common law and the Martin Act is not enough to extinguish common-law remedies” (Assured Guaranty, 18 NY3d 341 [2011] ).
While there are several cases that have dismissed causes of action based on the preclusive effect of the Martin Act, the most recent Court of Appeals decision clarifies that if the cause of action is not “entirely dependent on” the Martin Act, it should remain ( see Assured Guaranty v. J.P. Morgan Investment Mgmt., Inc., 18 NY3d 341 [2011] ). It is the movant's burden to establish that the causes of action based on fraud and negligent misrepresentation arise solely from pure non-disclosure violations under the purview of the Martin Act, this they have not done.
Duplicative causes of action
The defendants also contend that the causes of action sounding in breach of contract, violations of the implied warranty of habitability, fraud and negligent misrepresentation are duplicative and therefore should be dismissed. A cause of action may be dismissed as duplicative of another when they both arise out of the same facts and allege the same damages ( see Town of Wallkill v. Rosenstein, 40 AD3d 972, 974 [2nd Dept 2007] ). Further, no cause of action to recover damages for fraud will arise when the only fraud alleged relates to a breach of contract” (Bella Maple Group, Inc. v. Attias, 78 AD3d 1092, 1093 [2nd Dept 2010] ).
However, “a cause of action [alleging] fraud may be maintained where a [party] pleads a breach of duty separate from, or in addition to, a breach of the contract” (J & D Evans Constr. Corp. v. Iannucci, 84 AD3d 1171[2nd Dept 2011] ). As the plaintiffs plead duties that arose separately from the contract and the fraud and negligent misrepresentation are not “completely encompassed by the contract,” the causes of action are not duplicative and remain.
Parasitic Cause of Action
The Realty defendants posit that the fourteenth cause of action labeled as aiding and abetting fraud is parasitic and not recognized in New York. While it is long held that, “a mere conspiracy to commit a [tort] is never of itself a cause of action. Allegations of conspiracy are permitted only to connect the actions of separate defendants with an otherwise actionable tort” (Alexander & Alexander of N.Y. v. Fritzen, 68 N.Y.2d 968 [1986] [internal citations omitted] ). To plead a cause of action to recover damages for aiding and abetting fraud, the complaint must allege the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud (Winkler v. Battery Trading, Inc., 89 AD3d 1016 [2nd Dept 2011] ). It is then not actually correct to state that the cause of action is not recognized in New York, as the Realty defendants posit, but that the cause of action is not recognized when the underlying fraud is not also plead. As discussed above, the complaint adequately pleads an underlying fraud by the Sponsor and Funding defendants and therefore the fourteenth cause of action remains against the Realty defendants held up by the fraud claims.
As it has been determined that the fourteenth cause of action does not fail simply by being attached to the underlying fraud, it is also necessary to determine whether the complaint adequately pleads the cause of action. The complaint indeed adequately pleads a cause of action for aiding and abetting a fraud as set forth in the following allegations: the Realty defendants were aware of the misrepresentations within the Offering Plan, the sales, and marketing materials and continued to market and sell apartment units without disclosing the defective conditions and made material misrepresentations of the condition of the property. Those actions effectively assisted the Sponsor and Funding defendants in perpetrating a fraud.
While the Realty defendants also support their motion through affidavits of the individual Realty defendants, which contain denials of the allegations contained in the complaint, those denials do not establish a defense as a matter of law. Rather genuine issues of material fact are raised by the affidavits which may be determined at a later time in the proceedings. Therefore, the fourteenth cause of action is properly plead, exists under New York law and remains a viable cause of action.
General Business Law Causes of Action
All of the moving defendants assert that the allegations that the GBL §§ 349 and 350 were violated do not apply to sales of cooperative shares and therefore must be dismissed. GBL §§ 349 and 350 were enacted to safeguard the “vast multitude which includes the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions” (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 273 [1977] ). In order to state a cause of action under the GBL the plaintiff must allege (1) that the act, practice or advertisement was consumer-oriented, (2) that the act, practice or advertisement was misleading, and (3) that the plaintiff was injured as a result of the deceptive practice, act or advertisement. The consumer-oriented prong of the factors requires that the action have a broad impact on consumers at large. A breach of a private contract affecting no one but the parties to the contract, whether that breach be negligent or intentional, is not an act or practice affecting the public interest (Genesco Entertainment, a Div. of Lymutt Industries, Inc. v. Koch, 593 F.Supp.743 [1984] ).
There is a split in the Appellate Departments as to whether sales of condominiums within a development meet the “consumer” threshold ( compare Quail Ridge Association v. Chemical Bank, 162 A.D.2d 917 [3rd Dept]; Thompkins v. Parkchester Apartments Co., 271 A.D.2d 311 [1st Dept 2000] with Gallup v. Summerset Homes, LLC, 82 AD3d 1658 [2nd Dept 2011]; Board of Mgrs. Of Bayberry Greens Condominium v. Bayberry Greens Assoc., 174 A.D.2d 595 [2nd Dept 1991] ); Breakwaters Townhomes Assoc. of Buffalo, Inc. v. Breakwaters of Buffalo, Inc., 207 A.D.2d 963 [4th Dept.1994] ). As the Court's esteemed colleague so noted, “this Court is bound to follow the controlling decisions of the Appellate Division, Second Department” ( Hamlet on Olde Oyster Bay Home Owners Association, Inc., v. Holiday Organizations, Inc., 12 Misc.3d 1182(A) [Sup Ct, Nassau County 2006] citing28 N.Y. Jur2d Courts and Judges § 221). Therefore, the causes of action asserted for violations of the GBL remain.
Debtor and Creditor Causes of Action
The Sponsor and Funding defendants seek to dismiss the twenty-first through the twenty-third causes of action which allege violations of the New York DCL §§ 270 through 276.
DCL 270 provides that:
In this article “assets” of a debtor means property not exempt from liability for his debts. To the extent that any property is liable for any debts of the debtor, such property shall be included in his assets. “Conveyance” includes every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance. “Creditor” is a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent. “Debt” includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent.
The plaintiffs allege that they are “creditors” as they have both unmatured and matured claims against the defendants.
DCL §§ 273 and 274 do not have a scienter requirement. Rather the statue simply provides that “[e]very conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent ... without regard to his [or her] actual intent if the conveyance is made or the obligation is incurred without a fair consideration.” (DCL § 273; see Zanani v.. Meisels, 78 AD3d 823 [2nd Dept 2010] ). DCL § 274 further provides as follows: every conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors and as to other persons who become creditors during the continuance of such business or transaction without regard to his actual intent.
On the other hand, DCL § 276 requires proof that the transferor actually intended to “hinder, delay, or defraud” any present or future creditors (Zanani v. Meisels, 78 AD3d 823 [2nd Dept 2010] [internal citations omitted] ). As this section of the DCL requires intent the heightened pleading standard set forth in CPLR 3016(b) applies ( Combina Inc. v. Iconic Wireless Inc. 32 Misc.3d 1231(A) [NY Sup 2011] ).
The Sponsor and Funding defendants aver that the allegations are insufficient to meet the heightened pleading requirement and also deny that the transfers occurred. However, accepting the allegations in the complaint as true, the causes of action under the debtor and creditor law remain. The complaint sufficiently alleges that the Sponsor entity was formed for the limited purpose of construction of the premises and that the equity distributions made after completion and sale of the units rendered the Sponsor insolvent. Furthermore, the plaintiffs allege that the transfers were done with the intent to hinder and delay them as creditors. The Sponsor defendants do not submit any affidavits from someone with personal knowledge to address these causes of action. There are, however, denials found in the memorandums of law, which are not taken into account by the Court, as they are not sworn to nor does defendants' counsel explain their basis for personal knowledge.
Lastly, the plaintiffs correctly point out that the defendants are the parties in the sole possession of documents evidencing these alleged transfers and the plaintiffs are in need of discovery relating thereto. Due to the early stage in the litigation it would be premature to dismiss the causes of action as no discovery has been exchanged. In light of the complaint meeting the pleading requirements and the lack of any conclusive defense the twenty-first through twenty-third causes of action remain against the Funding and Sponsor defendants.
Interstate Land Sales Act (ILSA)
All of the moving defendants seek to dismiss the twenty-fourth cause of action which alleges violations of the ILSA, specifically 15 USC. § 1703(a)(2). The ILSA was “designed to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers. It imposes detailed disclosure requirements upon land developers and prohibits fraud in interstate land transactions. While the ILSA's text refers to the sale of lots,' its protections apply to the sale of condominiums as well (Cruz v. Leviev Fulton Club, LLC, 711 F Supp 2d 329, 331 [SD N.Y.2010] [internal citations omitted] ). Section 1703(a)(2) of ILSA provides that “[i]t shall be unlawful for any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce, or of the mails” with respect to the sale of property:
to employ any device, scheme, or artifice, to defraud; to obtain money or property by means of any untrue statement of a material fact, or any omission to state a material fact necessary in order to make the statements made (in light of the circumstances in which they were made and within the context of the overall offer and sale or lease) not misleading, with respect to any information pertinent to the lot or subdivision; to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser.
The complaint adequately pleads a cause of action under the ILSA. The plaintiffs specifically allege that the Sponsor and Funding defendants and Realty defendants utilized e-mail and the internet to disseminate the marketing materials and Offering Plan. In the light most favorable to the plaintiffs that activity can fall within the ambit of “means or instruments of transportation or communication in interstate commerce, or of the mails.” Therefore, under a CPLR 3211(a)(7) analysis the complaint adequately states a cause of action for violations of ILSA.
CONCLUSION
The motions of all moving defendants are granted in part and denied in part as follows:
All of the causes of action alleged as against Peggy Aguayo, Debbie Fuka, Barry Katz, Isaac Katan, Abe Dietel and Neal Frolich are dismissed as to these individual defendants only.
The second cause of action for breach of the common law implied housing warranty merchant is dismissed.
All the remaining causes of action survive.
The foregoing constitutes the decision and order of this Court.