Opinion
17743/07.
Decided June 3, 2008.
Michael J. Weiner Esq., Silverman Sclar Shin Byrne PLLC, Attorney for Plaintiff.
Jordan M. O'Brien Esq., Steven Landy Associates, PLLC, Attorney for Defendants.
In this action by plaintiff Continental Realty, LLC (plaintiff) to recover damages for breach of contract and fraud, defendants Kennelly Development Company, LLC (KDC), James Kennelly (Kennelly), East 51st Street Development Company, LLC (East 51st Street), and Bremen House, Inc. (Bremen House) (collectively, defendants) move for summary judgment dismissing plaintiff's second cause of action for fraud as against them.
By order dated March 5, 2008, plaintiff's cross motion, insofar as it sought leave to serve an amended complaint, pursuant to CPLR 3025(b), was granted, and its proposed second amended complaint was deemed served. Defendants' instant motion will be determined based upon plaintiff's second amended complaint. (Plaintiff's cross motion, insofar as it sought an order, pursuant to CPLR 3124, compelling defendants to produce certain documents and to provide responses to certain interrogatories, was granted, in part, as set forth in the court's March 5, 2008 order.)
Plaintiff is a licensed real estate brokerage agency. Kennelly is a real estate developer, and the principal and sole member of KDC. In 2004, KDC sought to acquire three parcels on Second Avenue, i.e., 972, 974, and 976 Second Avenue, in Manhattan, so that it could undertake a project combining these parcels with the neighboring building owned by an entity controlled by Kennelly, to develop a residential condominium building on the northeastern corner of 51st Street and Second Avenue. Kennelly's initial efforts, on behalf of KDC, to acquire these parcels, which were then owned by Bremen House, were unsuccessful.
In November 2005, Howard Morrel, an independent real estate broker, allegedly introduced Kennelly to Alexander Gurevich (Gurevich), a real estate broker employed by plaintiff, who knew the principals of Bremen House. On November 22, 2005, Kennelly met with Gurevich and Vladimir Kovalenko (Kovalenko), another real estate broker employed by plaintiff. At the beginning of the meeting, Kennelly provided Gurevich with a letter, dated November 22, 2005, from his attorney, Donald P. Kennelly, addressed to Janof Gurevich, LLP (Gurevich's law firm) to the attention of Gurevich. That letter, in pertinent part, provided:
"This letter is to confirm your authority to negotiate on behalf of my client [KDC] for the [subject] properties. The maximum price that you are authorized to offer for the acquisition of these three properties is to be calculated at $430 per allowable buildable square foot . . . According to our calculations, the three properties total 52,200 allowable buildable square feet. Therefore, the maximum sale price to be negotiated cannot exceed $22,446,000.00 . . ."
Plaintiff claims that Gurevich, Kovalenko, and Kennelly discussed the amount of the commission at the November 22, 2005 meeting, and agreed that it would be 4% of the purchase price to be paid at the closing. This is denied by Kennelly. After that meeting, Kovalenko, on behalf of plaintiff, mailed a letter, dated November 22, 2005, to Kennelly, which provided, in pertinent part:"Thank you for coming to our office and meeting with me and . . . Gurevich regarding acquisition of the [subject] properties. [Plaintiff] is pleased to represent you in this transaction and confirm with you that we have come to an agreement that you will pay us a commission fee equal to four percent (4%) of the total purchase price of the properties. Such commission shall be paid to [plaintiff] at closing. As discussed, please send us a letter authorizing . . . Gurevich to act on your behalf as the real estate broker in this transaction."
Plaintiff does not allege that any letter was ever executed by defendants authorizing Gurevich or plaintiff to act on their behalf as the real estate broker in the purchase of the subject parcels. Kovalenko, however, contacted Bremen House, through Aydin S. Caginalp, Esq. (Caginalp), who is the trustee that manages the trust which controls Bremen House. An e-mail on December 21, 2005 memoralized a telephone call from Kovalenko, regarding the parcels, to Alston Bird, LLP, who were the attorneys then representing Caginalp and Bremen House. According to Kovalenko, Caginalp first refused to meet with Kennelly because Kennelly was only offering $22,446,000 for the parcels, and Caginalp indicated that Bremen House would not sell the parcels for less than $25,000,000. Kovalenko claims that in late January 2006, Kennelly told him that he would pay the $25,000,000 purchase price, and based upon this statement, he arranged a meeting between Caginalp and Kennelly.
The meeting, at which Gurevich, Kovalenko, Kennelly, and Caginalp attended, took place in February 2006. Kennelly claims that the meeting lasted less than 30 minutes, whereas Kovalenko claims that the meeting lasted about two hours. Both Kennelly and Kovalenko agree that at the meeting, Kennelly, on behalf of KDC, refused to pay the $25,000,000 purchase price, and Caginalp, on behalf of Bremen House, would not agree to the lower price offered by Kennelly, on behalf of KDC. According to Kennelly, after the February 2006 meeting, he directed Kovalenko to cease all efforts to attempt to contact Bremen House on KDC's behalf. Kovalenko claims, on the other hand, that he was in regular telephone contact with Kennelly and Caginalp during 2006 to see if either side would budge on their position with respect to the purchase price.
By an e-mail dated August 15, 2006, Nicholas T. Donovan of Donovan Grannuzzi, LLP (the attorneys for Kennelly and the companies controlled by Kennelly) wrote to Caginalp, on behalf of Kennelly and his companies, concerning the purchase of air rights on Second Avenue. On February 12, 2007, the attorneys for Kennelly and the companies controlled by Kennelly extended an offer of $19,000,000 to Alston Bird LLP, as the attorneys for Bremen House, to purchase the subject parcels.
Kovalenko states that in early 2007, he began to hear rumors that Bremen House had, in fact, agreed to a lower purchase price, and that Kennelly was going to purchase the parcels at a price lower than $25,000,000. Kovalenko states that he, therefore, in the beginning of March 2007, telephoned Caginalp and asked him about the status of his negotiations with Kennelly over the parcels. He asserts that Caginalp stated to him that there was "no deal" to sell the parcels and that, since real estate prices were going up, Bremen House's "price was the same" and it would "not sell the properties for less than $25 to $30 million dollars."
Kennelly states that on March 27, 2007, he, by chance, met with members of the Tekiner family (the beneficial owners of the parcels) on the street in front of 303 East 51st Street, in Manhattan, and was able to convince the Tekiners to consider selling the parcels to his company. Kennelly asserts that he, thereafter, directed his attorneys, Donovan Gianuzzi, LLP, to negotiate the details of the purchase with Bremen House's attorneys. This was memoralized in a contract of sale dated April 30, 2007, in which Bremen House, as the seller, agreed to sell the subject parcels to 968 Kingsmen, LLC, as the purchaser, for the purchase price of $22,250,000. The contract of sale was executed by Kennelly, as the managing member of 968 Kingsmen LLC, and by Berrin Tekiner, as the president of Bremen House. The contract of sale was, thereafter, assigned to East 51st Street, an entity in which Kennelly is the sole manager and member. By deed dated May 21, 2007, the parcels were transferred by Bremen House to East 51st Street.
On May 18, 2007, plaintiff filed this action against KDC, Kennelly, and Bremen House, and, thereafter, it served a supplemental summons and amended complaint, adding East 51st Street as a defendant. Subsequently, plaintiff sought leave to amend its amended complaint, and, pursuant to the court's order dated March 5, 2008, it served a second amended complaint ( see n 1 above). Plaintiff's first cause of action, in its second amended complaint, alleges a breach of contract claim as against KDC and East 51st Street (as KDC's affiliate and alter ego) for their failure to pay it the 4% brokerage commission pursuant to the alleged brokerage agreement between it and KDC. Plaintiff's second cause of action alleges a fraud claim as against KDC, Kennelly, East 51st Street, and Bremen House, and seeks compensatory damages in an amount equal to 4% of the purchase price, and punitive damages in an amount of no less than $3,000,000.
It is well established that "[i]n order to earn a commission on a sale of real property, a broker must procure a buyer ready, willing and able to purchase the property and must bring the minds of the parties to an agreement" ( Bob Howard, Inc. v Baltis, 178 AD2d 740, 741; see also Finley v Amyot, 285 AD2d 946, 948). "If the broker opens negotiations between the parties but then abandons them after failing to bring the prospective buyer to the seller's terms, the seller will not be liable for a commission even if thereafter selling to the same prospective buyer" ( Bob Howard, Inc., 178 AD2d at 741; see also Finley, 285AD2d at 947; Ryan v Bettiol, 211 AD2d 844, 845-846; Gabrielli v Cornazzani, 135 AD2d 340, 342-343; Salzano v Pellillo, 4 AD2d 789, 790). Even where a broker's actions may not have constituted an "abandonment," the broker must have brought the minds of the parties to agreement to be entitled to a commission ( see Ryan, 211 AD2d at 846; Gabrielli, 135 AD2d at 342-343).
In order for a plaintiff to succeed on a claim that it was wrongfully deprived of a commission, it must prove that it was "the procuring cause of the sale" ( Finley, 285 AD2d at 948; Buck v Cimino, 243 AD2d 681, 684). That is, the broker must prove that it was" a direct and proximate link, as distinguished from one that is indirect and remote, between the bare introduction [of the buyer and seller] and the consummation [of the sale]'" ( Finley, 285 AD2d at 948, quoting Greene v Hellman, 51 NY2d 197, 206; see also Lanstar Intl. Realty v New York News, 206 AD2d 411, 412; Gabrielli, 135 AD2d at 342). "Simply call[ing] the property to the attention of the ultimate purchaser' is insufficient to make out a case for a commission" ( Finley, 285 AD2d at 948, quoting Greene, 51 NY2d at 205; Douglas, Payton Co. v We're Assoc., 197 AD2d 559, 560).
The mere fact that the broker introduced the customer to the principal, especially where the customer already knew about the opportunity and had decided to negotiate with the principal, does not necessarily make the broker the procuring cause of the sale ( see generally Ryan, 211 AD2d at 845-846; Lanstar Intl. Realty, 206 AD2d at 412). The broker may be deemed the procuring cause of the sale only if the introduction is the foundation upon which negotiations are begun and the transaction is consummated ( see Finley, 285 AD2d at 947-948; Sylvan Lawrence Co. v Mutual of Am. Life Ins. Co., 221 AD2d 239, 239; Ryan, 211 AD2d at 845-846; Bob Howard, Inc., 178 AD2d at 741).
"The broker takes the risk of bringing the minds of the parties together so as to effect a bargain, and if he [or she] fails, the mere fact that his [or her] efforts may have led to subsequent negotiations, which under more favorable circumstances have resulted in sale, does not alone entitle him [or her] to a commission'" ( Bob Howard, Inc., 178 AD2d at 741, quoting Miller v Vining, 112 App Div 304, 305). "Of course if the seller acts in bad faith in rejecting an offer, his [or her] later sale to the same buyer would entitle the broker to a commission" ( Bob Howard, Inc., 178 AD2d at 741; see also Smith DeGroat v Vita, 178 AD2d 591, 592; Pilger v Ramati, 37 AD2d 581, 581).
In this motion, defendants do not challenge plaintiff's first cause of action for breach of contract, but seek dismissal of the second cause of action alleging fraud upon the grounds that the allegations are legally insufficient, that the cause for fraud is merely duplicative of the breach of contract claim and that Bremen House owed no duty to plaintiff.
The essential elements required to sustain a cause of action for fraud "are a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" ( Orlando v Kukielka , 40 AD3d 829 , 831; see also Lama Holding Co. v Smith Barney, 88 NY2d 413, 421; Channel Master Corp. v Aluminium Ltd. Sales, 4 NY2d 403, 407). In order to plead a prima facie cause of action for fraud, a plaintiff must allege each of these elements of fraud with particularity and support them with allegations of fact ( see CPLR 3016 [b]; Fink v Citizens Mtge. Banking, 148 AD2d 578, 578; Lanzi v Brooks, 54 AD2d 1057, 1058, affd 43 NY2d 778). Bare, conclusory allegations are insufficient to sustain a cause of action for fraud ( see Fink, 148 AD2d at 578; Glassman v Catli, 111 AD2d 744, 745; Lanzi, 54 AD2d at 1058).
"It is well settled that a cause of action seeking damages for fraud cannot be sustained when the only fraud charged relates to a breach of contract" ( Elsky v KM Ins. Brokers, 139 AD2d 69l, 69l [1988]; see also Tiffany at Westbury Condominium v Marelli Dev. Corp. , 40 AD3d 1073 , 1076; Ross v DeLorenzo , 28 AD3d 631 , 636; 34-35th Corp. v 1-10 Indus. Assoc., 2 AD3d 711, 712; Edwil Indus. v Stroba Instruments Corp., 131 AD2d 425, 425). Moreover, a fraud claim must be dismissed unless it arises from representations that are collateral or extraneous to the parties contract ( see 34-35th Corp., 2 AD3d at 712; Tsilogiannis v 53-11 90th St. Assoc., 293 AD2d 468, 469; Gupta Realty Corp. v Gross, 251 AD2d 544, 545; Alamo Contract Bldrs. v CTF Hotel Co., 242 AD2d 643, 643).
In the case at bar, it is undisputed that Bremen House had unequivocally rejected KDC's offer at the February 2006 meeting, and that it was not until April 30, 2007, over one year later, that Bremen House agreed to convey the subject parcels, after Kennelly had undertaken to contact the Tekiner family to initiate further negotiations ( see Finley, 285 AD2d at 948). In attempting to sustain its cause of action for fraud, plaintiff alleges that Bremen House, through its agent, Caginalp, knew that it represented KDC, as its real estate broker, and that it was entitled to a substantial commission upon the sale of the parcels. Plaintiff asserts that at the time KDC and Bremen House reached the agreement on the purchase of the parcels, defendants, all having knowledge of the alleged brokerage agreement, entered into a conspiracy to enrich themselves by depriving plaintiff of its brokerage commission.
However, plaintiff has not pleaded any facts or circumstances showing that KDC breached any duty independent of the duty which arose from the alleged brokerage contract ( see Spencer v Green , 42 AD3d 521 , 522; 34-35th Corp., 2 AD3d at 712). Thus, plaintiff's cause of action for fraud is duplicative and redundant of plaintiff's breach of contract cause of action as against KDC ( see Tiffany at Westbury Condominium, 40 AD3d at 1076-1077). Therefore, plaintiff's claim as against KDC lies solely in breach of contract, rather than fraud, and its second cause of action as against KDC must be dismissed ( see CPLR 3212 [b]).
As to Kennelly, plaintiff claims that in furtherance of the alleged fraudulent conspiracy, he, on various occasions after the sale agreement was reached, falsely represented to it that KDC and Bremen House had not reached an agreement and that no agreement was contemplated with regard to the conveyance of the parcels. Such bare allegation, however, is insufficient to sustain a claim of fraud as against Kennelly. Plaintiff has not cited any specific false representations made by Kennelly or the dates and times that these representations were made. Furthermore, plaintiff cannot claim that it relied in any way to its detriment on these representations as they allegedly occurred after the contract of sale was executed. Plaintiff fails to identify how it was affected by such alleged misrepresentations or any action it did or did not take in reliance thereon.
Kennelly has submitted his sworn affidavit, attesting that he did not conduct business in his individual capacity and that all of his real estate development efforts were conducted in his capacity as a member or manager of his real estate entities. Plaintiff does not allege that it entered into a brokerage agreement with Kennelly, individually, and its second amended complaint does not contain sufficient allegations to support a piercing of the veil of the limited liability companies involved in the subject transaction ( see Retropolis, Inc. v 14th St. Dev. LLC , 17 AD3d 209, 210). Therefore, dismissal of plaintiff's second cause of action for fraud as against Kennelly is warranted ( see CPLR 3212 [b]).
Plaintiff's allegations as against East 51st Street, are based solely upon its taking title to the parcels by the May 21, 2007 deed pursuant to assignment from KDC. Plaintiff's remedy therefore lies in its breach of contract cause of action, which it has asserted as against both KDC (with whom it claims to have had a brokerage agreement) and East 51st Street ( see generally 34-35th Corp., 2 AD3d at 712; Tsilogiannis, 293 AD2d at 469). As plaintiff had no direct relationship with East 51st Street and has articulated no basis for the breach of an independent duty to plaintiff on the part of East 51st Street, the motion must be granted as to that defendant ( see Spencer, 42 AD3d at 522).
With respect to Bremen House, plaintiff alleges that in 2007, Caginalp, acting on behalf of Bremen House, falsely represented to it that there was no agreement and none contemplated, between KDC and Bremen House with regard to the conveyance of the parcels. Specifically, plaintiff alleges that in the March 2007 telephone conversation between Caginalp and Kovelenko, Caginalp had falsely represented that there was "no deal" to sell the parcels and that, since real estate prices were going up, Bremen House's "price was the same," and it would "not sell the properties for less than $25 to $30 million dollars." Plaintiff asserts that these representations were false and known to be false at the time they were made because the very next month, on April 30, 2007, Bremen House entered into a written contract with one of Kennelly's entities to sell the parcels for $22,250,000, a price less than the $25,000,000 that Caginalp had told Kovelenko he would not sell the parcels below.
Defendants assert that the statements made by Caginalp were not false since in March 2007, at the time the statements were made, the parties had not yet entered into the April 30, 2007 contract of sale. Moreover, while plaintiff contends that Bremen House participated in a fraud by misrepresenting the status of the negotiations between it and the purchaser, the alleged brokerage agreement was between the broker and the purchaser, not between the broker and Bremen House, the seller. There was neither a contractual nor a fiduciary relationship between plaintiff and Bremen House. Thus, Caginalp, on behalf of Bremen House, had no duty to inform plaintiff of Bremen House's subsequent decision to sell the parcels ( see Sylvan Lawrence Co., 221 AD2d at 239; Yerushalmi v Monroe, 185 AD2d 841, 842). Plaintiff's bare allegations of Bremen House's bad faith lack any evidentiary support and are insufficient to raise a legally-cognizable issue ( see Sylvan Lawrence Co., 221 AD2d at 239).
While plaintiff relies upon the decision of Smith De Groat ( 178 AD2d at 592), in which the Appellate Division, Second Department, found, after a non-jury trial, that there was ample evidence adduced to sustain a determination that the purchaser and the seller had colluded to deprive the broker of a real estate commission, that case is distinguishable from the case at bar. In Smith De Groat, the broker had an exclusive listing with the sellers and had procured a buyer who had entered into a binder agreement before the sellers then secretly, within a few months, sold the property to the procured buyer's wholly-owned corporation at a lower sale price. Here, plaintiff does not allege that it had an exclusive brokerage agreement with KDC ( see Parkway Group v Modell's Sporting Goods, 254 AD2d 338, 339), and no binder agreement was executed at the February 2006 meeting. The sale was concluded over a year after plaintiff had arranged the meeting between the seller and prospective buyer, and several other negotiations, independent of plaintiff, intervened. Moreover, in contrast to the facts in Smith De Groat, here, the parties did not attempt to disguise the sales transaction by naming, as the seller, an entity other than Bremen House, which plaintiff introduced to the purchaser. While the contract identifies 968 Kingsmen, LLC (a non-party) as purchaser, its relationship to KDC is clearly set forth in the contract and no deception is evident.
Relying upon Pilger v Romati ( 37 AD2d at 581), plaintiff also argues that Bremen House's later acceptance of a lower purchase price permits the inference that Bremen House had conspired with Kennelly to deliberately simulate an impasse in the transaction with the objective of depriving plaintiff of its brokerage commission. Plaintiff's reliance upon Pilger to sustain its fraud cause of action is misplaced. Plaintiff will still be able to cite such facts to support its breach of contract claim, but the fraud allegations remain redundant of the breach of contract action against KDC and 51st Street. In Pilger, recovery was had against the seller with whom plaintiff was in privity. The case does not suggest that the broker would recover against the buyer, with whom he had no privity, based upon a claim of fraud.
In a further attempt to sustain its fraud cause of action, plaintiff relies upon the reciprocal representations made by Bremen House and 968 Kingsmen, LLC in paragraph 14.02 of the April 30, 2007 contract of sale, that:"Seller and Purchaser represent and warrant to each other that neither has dealt with any real estate broker in connection with this contract and the transaction and know of no real estate broker who has claimed or may have the right to claim a commission in connection with this transaction."
Plaintiff contends that these representations were false and known to be false by the parties. It argues that these representations were made with the express purpose to deprive plaintiff of its duly earned commission. Plaintiff further claims that it relied upon these representations to its detriment.
These representations and warranties, however, were made by the seller and purchaser "to each other." No representation was made to plaintiff, nor was this representation, as between Bremen House and 968 Kingsmen, LLC, intended to be relied upon by plaintiff; plaintiff was not a party or a third-party beneficiary of this contract ( compare Ficor, Inc. v National Kinney Corp., 67 AD2d 659, 659-660; Century 21 Lewis N Clark v Wang, 2003 NY Slip Op 50899 [U], *1 [2003]). In addition, plaintiff, who was unaware of this contract, cannot show that it relied on these statements or that any reliance by it on these statements resulted in any damages ( see generally Ross v Gidwani , 47 AD3d 912 , 913; Chasanoff v Perlberg, 19 AD3d 635, 635). Thus, dismissal of plaintiff's fraud cause of action as against all defendants is warranted ( see CPLR 3212 [b]).
Accordingly, defendants' motion for summary judgment dismissing plaintiff's second cause of action for fraud is granted. The parties are directed to appear for conference in Commercial Division I on July 16, 2008, at 10 A.M.
This constitutes the decision and order of the court.