Opinion
No. 602616/07.
2010-07-19
Alex BOLTIN, Roman Buslovich, Marina Lerner, VMI Production, Inc., and Boltin Enterprises, Inc., Plaintiffs, v. Vlad LAVRINOVICH, Natalya Vilkova (a/k/a Natalya Lavrinovich), Rosa Klig, Euphoria Entertainment, Inc., Eupohria Mfc, Inc., Six Row Productions, Inc., New Age Entertainment, Inc., VNM Entertainment and John Doe Corporations 1–10, Defendants.
Sherri L. Eisenpress, Esq., Howard R. Reiss, Esq. and Matthew Sheppe, Esq., of Reiss Eisenpress LLP for movants. Richard W. Mackiewicz, Jr., Esq., of Mackiewicz & Associates, LLC for respondents.
Sherri L. Eisenpress, Esq., Howard R. Reiss, Esq. and Matthew Sheppe, Esq., of Reiss Eisenpress LLP for movants. Richard W. Mackiewicz, Jr., Esq., of Mackiewicz & Associates, LLC for respondents.
EILEEN BRANSTEN, J.
Plaintiff/counterclaim defendant Marina Lerner and third-party defendants Gary Lerner, Esq., McLan Accounting Services, LLC (“McLan”) and Isaac Vainer (“Vainer,” and with Marina Lerner, Gary Lerner, McLan and Vainer collectively, “Movants”) move, pursuant to CPLR 3211, for an order dismissing defendants/third-party plaintiffs Vlad Lavrinovich (“Lavrinovich”) and New Age Entertainment Inc.'s (“New Age”) counterclaim and third-party complaint in its entirety. Defendants Lavrinovich, Natalya Vilkova a/k/a Natalya Lavrinovich, VNM Entertainment, New Age, Euphoria MRC, Inc., Euphoria Entertainment, Inc. and Six Row Productions, Inc. cross-move for an order holding disposition of the motion to dismiss in abeyance in order to allow discovery to go forward, or, alternatively, if the motion to dismiss is granted, leave for Lavrinovich and New Age to replead.
FACTS
This action arises out of a March 2002 business transaction between several of the parties. Beyond this fact, the parties greatly vary in their recitation of the allegedly relevant facts.
Marina Lerner contends that Lavrinovich orchestrated a massive fraud by gaining her trust to induce her and the other plaintiffs to loan $750,000 to Lavrinovich's company, VMI Production Co. (“VMI”). Ms. Lerner contends that plaintiffs were to acquire a 50% ownership in VMI in return for the loan.
According to Ms. Lerner, the loan proceeds were used to pay off some of Lavrinovich's obligations and to acquire assets from New Age, which Lavrinovich wholly owned. New Age was involved in arranging concerts featuring Russian performers for the Russian expatriate community. Lavrinovich entered into a non-compete agreement as part of the transaction. Ms. Lerner alleges that additional monies invested by plaintiffs to finance various concerts were diverted by Lavrinovich for his own purposes, unbeknownst to plaintiffs, and were not used to promote the concerts arranged by VMI.
Lavrinovich contends that the transaction at issue involved an investment, not a loan, of $650,000. He denies that another $100,000 was part of the transaction.
Lavrinovich further maintains that Gary Lerner was not solely Marina Lerner's attorney, but acted as attorney for all of the parties to the transaction. Lavrinovich refers to a bill he received from Gary Lerner as evidence that Mr. Lerner was his attorney. That bill, however, is dated before this transaction took place, and the bill notes that it involved a lease. The transaction at issue did not involve a lease. Mr. Lerner avers that he had represented Lavrinovich with respect to an unrelated matter and that the bill presented by Lavrinovich refers to that unrelated matter.
Third-party defendant Vainer is a shareholder of VMI. Lavrinovich contends that Vainer must be included in the third-party complaint because Vainer is a necessary party as a shareholder of VMI. Lavrinovich has not, however, alleged that there is any basis to pierce VMI's corporate veil, and Lavrinovich has not raised any claims against Vainer or VMI.
Plaintiffs allege that Lavrinovich was to run VMI. VMI was to stage concerts. Plaintiffs maintain that Lavrinovich sought investors in VMI in part by touting his 20 years of experience in the entertainment industry. Lavrinovich, on the other hand, contends that he did not seek to relinquish any ownership interest in VMI, but that Marina Lerner asked whether she could join him in his enterprise.
The transaction at issue, the alleged $750,000 investment, was memorialized in three documents: the March 30, 2002 Agreement of Shareholders (“Shareholders Agreement”); the April 1, 2002 Agreement of Sale (“Sales Agreement”); and the April 12, 2002 Agreement of Sale (“New Age Purchase Agreement”) (collectively, the “Transaction Documents”). Lavrinovich asserts that he did not know what was in the Transaction Documents and that he merely signed where he was told to. He further contends that he did not receive a copy of the documents. Plaintiffs counter that Lavrinovich possessed the documents for more than a week before executing them, and that he was able to read the documents and confer with an attorney before signing. Gary Lerner notarized Lavrinovich's signature on two of the documents on April 2, 2002.
Lavrinovich contends that McLan was an active participant in the transaction. Movants maintain that McLan was not incorporated until September 29, 2004, and, therefore, could not have been involved in a transaction that took place in March and April of 2002.
According to Lavrinovich, the parties always spoke to each other in Russian, and before signing the Transaction Documents, Gary Lerner explained to him, in Russian, that the documents were just legalese for the sale of 50% of VMI for $650,000. Lavrinovich points out that two of the documents contain the $750,000 figure, while a third contains the alleged $650,000 amount. Lavrinovich contends that Marina Lerner pocketed the $100,000 difference between the two amounts without notifying her co-investors, plaintiffs Roman Buslovich (“Buslovich”) and Alex Boltin (“Boltin”). Lavrinovich does not, however, correlate this alleged action by Marina Lerner to any effect upon his position in the transaction at issue.
Lavrinovich notes that Gary Lerner wrote to the New Jersey Gaming Officials to notify them that Lavrinovich was not and is not a shareholder in VMI. Mr. Lerner stated in his letter that Lavrinovich merely held VMI shares as collateral, but should never have been listed as a shareholder in that company. Further, Mr. Lerner wrote that Lavrinovich returned the shares to the company on July 15, 2002. In the papers before this court, Movants claim that Lavrinovich was a shareholder until May 2003, at which time he sought to give up his ownership position while retaining his share of the profits. Movants assert that they later discovered that this was because Lavrinovich had been barred from contracting with Atlantic City establishments.
Lavrinovich also points out that, although Gary Lerner claims to have his law practice in Westchester County, he is listed in the attorney registration as located at 4121 18th Avenue, Brooklyn, New York, the same address as his sister's accounting firm. Further, Lavrinovich states while Marina Lerner claims that her firm was first incorporated on September 29, 2004, and produces a document from the Department of State to that effect, her firm's website states that she founded the firm in 1984.
All of these discrepancies trouble the court. It is difficult to reconcile the statements of each party, or the documentary evidence. While many of the parties' assertions have little, if anything, to do with the written agreements, or the manner in which they must be construed, the conflicting accounts of the facts and the manner in which they are presented give rise to doubt regarding the veracity of the statements made in these papers.
Upon reviewing the Transaction Documents, the court can discern that neither party presented an accurate picture of the transaction. The documents show that Marina Lerner, Boltin and Buslovich agreed to loan VMI $750,000. VMI was incorporated in early March 2002, and it is unclear whether anyone owned any of the shares prior to this transaction. The Shareholder Agreement appears to be an initial shareholder agreement, setting out the bases for the company. The Shareholder Agreement recites that Lavrinovich owns100 shares in VMI, Marina Lerner owns 50 shares, and Boltin and Buslovich each own 25 shares. No other shares in VMI are stated. Lavrinovich was to run VMI and would receive 50% of the profits of the company until such time as the $750,000 loan was paid off.
VMI entered into the New Age Purchase Agreement with New Age, in which VMI was to purchase the assets of New Age for $650,000, on April 12, 2002. Included in the purchased assets were contracts for concerts, Lavrinovich's know-how of the business and goodwill and Lavrinovich's non-compete agreement. The Transaction Documents do not show what happened with the other $100,000 that VMI received. Marina Lerner asserts that Lavrinovich asked that she use that money to pay off some debts; Lavrinovich denies this.
The counterclaim and third-party complaint are contained in one pleading. The counterclaim and third-party complaint raise causes of action for fraud against Gary Lerner and Marina Lerner (first cause of action); for negligent misrepresentation against Gary Lerner, Lerner & Kaplan, Marina Lerner and McLan (second cause of action); for violation of Judiciary Law § 487 against Gary Lerner and Lerner & Kaplan (third cause of action); for violation of General Business Law § 349 against Marina Lerner and McLan (fourth cause of action); for constructive fraud against Marina Lerner, Gary Lerner, McLan and Lerner & Kaplan (fifth cause of action); for breach of fiduciary duty against Marina Lerner, McLan, Gary Lerner and Lerner & Kaplan (sixth cause of action); and for a declaratory judgment that the agreements upon which the main action are predicated are void ab initio and have no legal force (seventh cause of action, though denominated as the sixth cause of action). The counterclaim and third-party complaint also seeks punitive damages.
Movants seek dismissal of Lavrinovich and New Age's counterclaim and third-party complaint in its entirety.
DISCUSSION
Fraud
Lavrinovich and New Age raise a claim for fraud against Gary Lerner and Marina Lerner. The elements of a cause of action for fraud are misrepresentation or concealment of a material fact; falsity; scienter; reasonable reliance by the plaintiff; and injury. New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995); Zanett Lombardier, Ltd. v. Maslow, 29 AD3d 495 (1st Dep't 2006). Fraud must be pled with particularity. In order to avoid the statute of limitations, a claim for fraud must be plead within six years from the date of the commission of the fraud or two years from after the fraud was or should reasonably have been discovered, whichever is longer. CPLR 3016; Zanett Lombardier, Ltd., 29 AD3d at 495.
Lavrinovich and New Age contend that Gary Lerner engaged in fraud by failing to inform Lavrinovich and New Age that they should retain their own counsel and that Mr. Lerner was not representing them in the transaction. Counterclaim plaintiffs also assert that Marina Lerner engaged in fraud by representing that she was a CPA, even though she is not licensed as a CPA in New York and therefore is not entitled to use that designation in this state. They further allege that Marina Lerner and Gary Lerner deliberately concealed that the Transaction Documents provided for a loan rather than a straight sale. Lavrinovich and New Age claim to have sustained damages in having to answer charges of fraud in the main action, such charges being based upon the wrongs perpetrated by Marina Lerner, Gary Lerner, McLan and Lerner & Kaplan.
Counterclaim plaintiffs' fraud claim is not sustainable. First, the alleged fraud occurred in March and April of 2002. This third-party action was commenced in November 2008. Thus, more than six years elapsed from the time of the alleged fraud and this claim, and the action is time-barred. Although counterclaim plaintiffs maintain that their claims should relate back to the initiation of the main action, in 2007, there is no basis for relating back when the issues underlying the main action did not put Movants on notice that this fraud claim was being raised against them. See Mondello v. New York Blood Ctr.-Greater N.Y. Blood Program, 80 N.Y.2d 219, 226 (1992); Duffy v. Horton Mem. Hosp., 66 N.Y.2d 473, 477–478 (1985).
Movants maintain that an additional reason to reject the fraud claim may be found in the Transaction Documents. Movants contend that Lavrinovich could not have reasonably relied on any representations made by Gary Lerner, because the documents themselves negate any such oral representation. However, Lavrinovich also contends that Mr. Lerner presented himself as representing Lavrinovich. While such a representation does not relieve Lavrinovich from responsibility for reading what he signed, and being bound by the agreement with respect to the other parties to the agreement, Moon Choung v. Allstate Ins. Co., 283 A.D.2d 468 (2d Dep't 2001), it is not clear whether Gary Lerner could benefit from this rule. See Kram Knarf, LLC v. Djonovic, 74 AD3d 628, 2010 N.Y. Slip Op 05464 (1st Dep't 2010). However, that is not an issue that must be determined on this motion to dismiss, as the third-party claim is time-barred.
Lavrinovich and New Age assert that they have sustained damages by having to respond to the main lawsuit. Response to a lawsuit, however, is not an injury that is compensable under a claim of fraud. Legal fees are recognized as damages flowing from fraud only when the legal fees involve an action and a third party, unrelated to the fraud at issue. Coopers & Lybrand v. Levitt, 52 A.D.2d 493, 496 (1st Dep't 1976). For example, if the fraudulent activities of Marina Lerner caused Lavrinovich to have to respond to an action by an unrelated third party, Lavrinovich could look to Ms. Lerner for compensation. Here, however, the main action involves Ms. Lerner. Thus, while fraud might be a defense to the claims in the underlying action, there are no damages alleged that can support a separate cause of action. Therefore, even if this cause of action were not time-barred, Lavrinovich and New Age have not pleaded damages, and the claim could not proceed.
For the above reasons, the first cause of action in the counterclaim/third-party complaint is dismissed.
Negligent Misrepresentation
In order to state a claim for negligent misrepresentation, a party must allege that the parties are in privity or a special relationship of trust or confidence, creating a duty for one party to provide correct information to the other party; the giving of false information; reasonable reliance on the information given; and damages. Prudential Ins. Co. of Am. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382 (1992); Orlando v. Kukielka, 40 AD3d 829, 831 (2d Dep't 2007). If the party to whom the information was given has the means to ascertain the truth, that party must make use of those means. Orlando, 40 AD3d at 831. The statute of limitations for a claim of negligent misrepresentation is six years. CPLR 213(1); Hernandez v. Empire Mut. Ins. Co., 121 A.D.2d 259, 261 (1st Dep't 1986).
As with the fraud claim, the negligent misrepresentation claim is time-barred. The basis of Lavrinovich and New Age's claim, the alleged representation that the transaction was a simple sale, occurred in March and April of 2002. This third-party action was commenced in November 2008. In light of this, it is unnecessary for the court to determine whether Lavrinovich sufficiently alleged a special relationship between the parties, or whether the allegations preclude a finding that Lavrinovich could have reasonably relied on representations made by the third-party defendants.
The second cause of action in the counterclaim/third-party complaint is dismissed
Judiciary Law § 487Lavrinovich and New Age base their third cause of action on their belief that Gary Lerner and Lerner & Kaplan conveyed false information to Marina Lerner's attorney in the main action, including that Gary Lerner was not in practice with Lerner & Kaplan and that he did not have an office at 4121 18th Avenue, Brooklyn, New York, 11218. Lavrinovich and New Age further allege, without specifying how or as to what subject, that Gary Lerner and Lerner & Kaplan intentionally deceived them. Lavrinovich and New Age assert that this and other conduct constitutes a violation of Judiciary Law § 487.
In Lavrinovich and New Age's opposition to the motion to dismiss, they elaborate upon their original claim by alleging that Gary Lerner is working “behind the scenes” of the main action, which is how Mr. Reiss, Movants' attorney, learned the alleged misinformation that Mr. Lerner does not have an office in Brooklyn. Lavrinovich and New Age further assert that Gary Lerner is responsible for allowing the action to go forward with the deceitful allegation that Lavrinovich was a shareholder in VMI, despite Mr. Lerner's letter to the New Jersey authorities that Lavrinovich was not.
Judiciary Law § 487 provides that it is a misdemeanor for an attorney or counselor to be engaged in deceit or collusion, or to consent to any deceit or collusion, with intent to deceive the court or any party. If found in violation of section 487, an attorney may be subject to penal punishment and liable for treble damages to the injured party.
There is no allegation from which it can be inferred that any deceit was perpetrated on the court or any party regarding the location of Mr. Lerner's office. Reiss Eisenpress LLP agreed to accept service on behalf of Mr. Lerner, and the subpoena involved was served. Thus, there is no basis to conclude that Mr. Lerner's conduct ran afoul of his “obligation to protect the integrity of the courts and foster their truth-seeking function.” See Amalfitano v. Rosenberg, 12 NY3d 8, 14 (2009).
Lavrinovich and New Age's allegation that they were otherwise deceived is entirely without support. Further, the letters to the New Jersey authorities were not part of any litigation, and are therefore not subject to Judiciary Law § 487. Henry v. Brenner, 271 A.D.2d 647 (2d Dep't 2000).
Third-party plaintiffs allege no deceit that is violative of Judiciary Law § 487, and the third cause of action in the counterclaim/third-party complaint is dismissed.
General Business Law § 349Lavrinovich and New Age contend that Marina Lerner violated General Business Law § 349 by representing to consumers on “the website,” Complaint ¶ 137, and elsewhere that she was a CPA. Third-party plaintiffs state that a person cannot use that credential in the State of New York unless that person is licensed by New York State. Lavrinovich and New Age maintain that they relied upon Ms. Lerner's statements regarding her CPA status, and that, had they known she was not a CPA that they would not have engaged her services and would not have gone into business with her, thus avoiding this entire lawsuit.
Third-party defendants misconstrue the allegation, and argue that there are no damages because third-party plaintiffs have not asserted that the accounting work was deficient.
“Section 349 (a) of the General Business Law encompasses deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this State.” Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55 (1999). It is intended to apply to consumer-oriented activity. Here, Marina Lerner allegedly advertised herself as a CPA. In New York State, in order to use that designation, a person must be licensed by the State of New York. Education Law § 7402. By advertising herself as a CPA, Ms. Lerner was engaged in consumer-oriented business activity, and providing a service in this State. Hence, her alleged activity falls within the parameters of section 349.
Third-party defendants assert that third-party plaintiffs have failed to allege any damages as a result of Ms. Lerner's alleged misrepresentation. However, third-party plaintiffs aver that they would not have used Ms. Lerner as an accountant, and would not have entered into the transaction at issue with her, had they been aware that she was not a New York State-licensed CPA. Only “proof that a material deceptive act or practice caused actual, although not necessarily pecuniary, harm ' “ is required to impose compensatory damages.” Small, 94 N.Y.2d at 56 (citation omitted). At this pre-answer juncture, third-party plaintiffs' allegations would suffice to defeat third-party defendants' motion to dismiss this counterclaim.
However, the statute of limitations for General Business Law § 349 is three years. Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201, 209–210 (2001). Although third-party plaintiffs allege that Ms. Lerner is still improperly representing herself as a CPA, the damage which they assert is based on such representations that occurred more than six years ago. Hence, third-party plaintiffs' fourth cause of action is time barred, and is dismissed.
Constructive Fraud
Third-party plaintiffs contend that the conduct of Gary Lerner, Lerner & Kaplan, Marina Lerner and McLan constitutes constructive fraud and vitiates the legal effect of the Transaction Documents. Third-party defendants counter that this cause of action is barred by the statute of limitations, and, in any event, third-party defendants were not in a fiduciary or confidential relationship with third-party plaintiffs. They point out that McLan was not involved in the transaction, and that Gary Lerner did not represent third-party plaintiffs in the transaction.
The statute of limitations for constructive fraud is six years from the time of the constructive fraud. There is no twoyear-from-discovery extension in a constructive fraud claim. Monaco v. New York Univ. Med. Ctr., 213 A.D.2d 167, 168 (1st Dep't 1995). This third-party action was not filed until more than six years after the Transaction Documents were executed. Therefore, this cause of action is time-barred.
Third-party plaintiffs argue that the cause of action did not accrue until there were damages, which did not occur until the main action was filed. Contrary to that assertion, a cause of action for fraud or constructive fraud accrues at the time of the fraudulent act. See id.; Schoen v. Martin, 187 A.D.2d 253, 254 (1st Dep't 1992).
As a result, it is unnecessary for this court to address the questions of whether there was reasonable reliance or a fiduciary or confidential relationship. Third-party plaintiffs' fifth cause of action for constructive fraud is time-barred and is therefore dismissed.
Breach of Fiduciary Duty
Third-party plaintiffs assert that Marina Lerner, McLan, Gary Lerner and Lerner & Kaplan owed them a fiduciary duty and breached that duty. Lavrinovich and New Age assert they were defrauded by Marina Lerner, McLan, Gary Lerner and Lerner & Kaplan “proceeding on a course or courses to defraud” them, Complaint ¶ 149, and by concealing that fraud by making it appear that the transaction at issue involved a straight sale transaction, as Lavrinovich allegedly understood it to be, rather than a hybrid loan/sale.
The statute of limitations for a breach of fiduciary duty claim is six years if the relief sought is equitable, and three years if the relief sought is monetary. Kaufman v. Cohen, 307 A.D.2d 113, 118 (1st Dep't 2003). However, as third-party defendants concede, when the breach of fiduciary duty claim is based on fraud, it is subject to the six-year statute of limitations, regardless of the relief sought. Nonetheless, this cause of action has been brought over six years from the date of the alleged fraud, and therefore thee statute of limitations for this cause of action has expired.
Third-party plaintiffs' sixth cause of action for constructive fraud is time-barred and is therefore dismissed..
Declaratory Judgment
Third-party plaintiffs seek a declaration that the Transaction Documents are void ab initio. Third-party defendants argue that there is no reason for a declaratory judgment, because the resolution of the underlying dispute will resolve the issue involved in this cause of action.
Third-party plaintiffs seek, in essence, to have this court declare that plaintiffs lose the main action. There is no reason for this issue to be determined as a declaratory judgment. Rather, the question of whether the Transaction Documents are enforceable will be addressed and determined in the main action. Third-party plaintiffs will be able to raise the same arguments in opposing the main complaint as they would in this cause of action. As no need to employ a declaratory judgment exists, that cause of action is also dismissed. See Board of Coop. Educ. Servs., Nassau County v. Goldin, 38 A.D.2d 267, 271 (2d Dep't 1972).
Isaac Vanier
All causes of action in the third-party complaint are dismissed. Therefore, Vanier is no longer in this action. In any event, there were no claims brought against Vanier or against VMI that would require Vanier to be named as a party in this action. Thus, even had any third-party claims remained, he would have been dismissed.
Leave to Replead
Third-party plaintiffs seek leave to replead if the motion to dismiss is granted. However, they have not offered any basis to permit such repleading. All of the claims that they raise are time-barred; therefore, repleading will not cure the deficiency in the causes of action.
CONCLUSION
Accordingly, it is hereby
ORDERED that the motion to dismiss by counterclaim defendant and third-party defendants is granted and the counterclaim and third-party complaint is dismissed with costs and disbursements to counterclaim defendant and third-party defendants as taxed by the Clerk of the Court; and it is further
ORDERED that third-party plaintiffs' cross motion is denied in all respects, and it is further
ORDERED that the Clerk is directed to enter judgment accordingly, and it is further
ORDERED that the parties are directed to appear before the Court on August 24, 2010 at 10:30 a.m. for a status conference.