Opinion
No. 2013–3216/B.
10-12-2017
In the Matter of the Application of Lois M. ROSENBLATT, Public Administrator of Queens County as Administrator of the Estate of Floyd Manuel, Deceased, For the turnover of assets.
Gerard J. Sweeney, Esq., for Petitioner. Laleh Hawa, Esq., for Respondents Iraj Delafraz & Kami Homes, Inc. Bradley D. Wank, Esq., for Respondents Abdul Wallace & JP Morgan Chase Bank, NA.
Gerard J. Sweeney, Esq., for Petitioner.
Laleh Hawa, Esq., for Respondents Iraj Delafraz & Kami Homes, Inc.
Bradley D. Wank, Esq., for Respondents Abdul Wallace & JP Morgan Chase Bank, NA.
PETER J. KELLY, S.
Floyd Manuel ("the decedent") passed away intestate on September 21, 2012, leaving his daughter, Ernestine Hightower, as his sole distributee. This proceeding, initiated by the Public Administrator, seeks to vacate a deed dated January 17, 2012, purportedly executed by the decedent on October 18, 2011, whereby he conveyed his real property located in St. Albans, New York to Kami Homes, Inc. ("Kami") for the sum of $75,000.00. Additionally, the Public Administrator seeks to vacate a subsequent deed dated July 16, 2012 whereby the subject property was conveyed from Kami to Abdul Wallace ("Wallace") for the sum of $365,000.00.
The petitioner alleges that the consideration for the initial sale was inadequate and that the decedent lacked the capacity to understand the transaction. Petitioner further contends that the decedent did not have independent counsel, received inadequate legal advice, and was ultimately defrauded.
Respondents, Kami, and its president, Iraj Delafraz ("Delafraz"), move pursuant to CPLR § 3212 to dismiss this proceeding, stating that petitioner cannot sustain its allegations of fraud as there are "no facts to support the petitioner's contention that there were any misrepresentations made to [the decedent] or that he was unaware that he was selling his home." Respondents further claim that there is no evidence that the decedent had "any mental deficiencies at the time of the execution of the contract and deed as well as the closing of the transaction."
Alternatively, respondents argue that the action against Delafraz must be dismissed as he cannot be held individually liable for actions undertaken on behalf of the corporation.
Respondents, Wallace and J.P. Morgan Chase Bank ("Chase"), also move to dismiss the proceeding pursuant to CPLR § 3212 arguing that neither of the deeds the petitioner seeks to vacate are void, and that they are good faith purchasers and lenders for value, without notice of petitioner's claims.
As a preliminary matter, "[a] party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, producing sufficient evidence to demonstrate the absence of any material issue of fact. Once this showing has been made, the burden shifts to the nonmoving party to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact that require a trial for resolution" ( Giuffrida v. Citibank Corp., 100 N.Y.2d 72, 81 [2003] ; see also CPLR 3212 ; Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986] ).
A bona fide purchaser or encumbrancer for value is protected in its title unless the deed is void and conveys no title (see Marden v. Dorthy, 160 N.Y. 39 [1899] ; Yin Wu v. Wu, 288 A.D.2d 104, 105 [1st Dept 2001] ), or it either had previous notice of the alleged fraud ( Real Property Law § 266 ; Anderson v. Blood, 152 N.Y. 285, 293 [1897] ; Karan v. Hoskins, 22 AD3d 638 [2d Dept 2005] ), or knowledge of facts or circumstances that would have led a reasonably prudent person to make inquiry into a possible defect of title (see Anderson, supra; Royce v. Rymkevitch, 29 A.D.2d 1029 [3d Dept 1968] ).
Accordingly, respondents must make a prima facie showing that the deeds are not void ab initio, that they had no previous notice of any alleged fraud, and that they did not have knowledge of facts or circumstances that would have led a reasonably prudent person to make inquiry into a possible defect of title.
In support of their prima facie demonstration, Delafraz and Kami submit, among other items: an executed contract of sale, an assignment of the contract, an amendment to the contract, affidavits executed in connection with the closing, a power of attorney, various deposition transcripts, the deed, and documents relating to a guardianship proceeding commenced on behalf of the decedent subsequent to the transaction.
Inasmuch as the viability of Wallace and Chase's motion for summary judgment is intertwined with the outcome of Delafraz and Kami's motion, a detailed recitation of the circumstances surrounding the conveyance from the decedent to Kami is initially warranted.
Floyd Manuel, who had been residing at a nursing home since he suffered a stroke in 2004, allegedly executed a contract to sell his single family home to John Prato ("Prato"), "a licensed real estate broker" for the sum of $75,000.00 in an all cash, "as is" deal. The contract, which is dated October 18, 2011, lists Frank A. Naclerio, Esq. ("Naclerio") as the decedent's attorney with Prato being represented by attorney Steven L. Gallin, Esq. ("Gallin"). Paragraph 26 of the contract provides that the contract "may not be assigned by the Purchaser without the prior written consent of Seller in each instance and any purported assignment(s) made without such consent shall be void."
The parties and the witnesses provide differing accounts regarding the circumstances surrounding this transaction. Prato, who is both a real estate and mortgage broker, testified that he was contacted by a fellow real estate broker, Mary Byrd , who told him that she had a friend with a brother in a nursing home and that her friend wished to sell her brother's real property. Prato contends that Byrd asked if he was interested in purchasing the property for $75,000.00.
There are no written submissions, affidavits, or deposition transcripts of Ms. Byrd on record with the court and it is unclear if her testimony was sought.
Despite his experience in real estate, Prato testified that he did not undertake any searches to ascertain the value of the house. Rather, after he and Byrd inspected the property—which he described as being in poor condition—he agreed to the price that she set and contacted his attorney, Gallin, to move forward with the transaction. Under oath, he surmised that Byrd contacted an attorney on behalf of the decedent.
This supposition is flatly contradicted by the testimony of Naclerio, the attorney who purportedly represented the decedent in the transaction. Naclerio testified that his understanding was that the decedent's home had been "placed for sale with a broker, Mr. Prato of Century 21 Kin Realty " and, according to Naclerio, it was Prato who recommended him to the decedent's sister who was "handling his affairs." According to the testimony, Prato and Naclerio are not strangers, as Prato routinely refers real estate clients to him.
Naclerio, who purportedly represented the decedent's interests in the transaction, testified twice that Prato was the real estate broker on the deal, and not the purchaser. Prato denies this. Assuming Prato was the broker on the deal, he would be obligated to act in good faith towards his principal and would be duty bound to disclose all facts material to the deal (see e.g. Wendt v. Fischer, 215 AD 196, 199 [1st Dept 1926] ).
Based on his testimony, at the alleged behest of decedent's sister, and without having any contact with the decedent himself, Naclerio, an attorney selected by the purchaser, prepared and presented the decedent, in the nursing home, with a contract of sale, deed, and power of attorney on their first meeting. Naclerio, who testified he was to be paid $1,000.00 to "assist in the sale of the property" could not state whether he discussed his fee with the decedent or the nature of the services he was providing. Additionally, despite his purported representation of the decedent, he neither questioned the $75,000.00 purchase price nor did he endeavor to determine whether it was adequate. Rather, Naclerio simply prepared a contract of sale and deed based on Prato's instructions. While Naclerio testified that decedent "understood he was selling the property" he also admitted that he did not discuss the $75,000.00 purchase price with decedent. The contract, the deed, and the power of attorney were all executed at this initial meeting because, according to Naclerio, the decedent "was not going to be able to attend the closing and everything had to be pre-signed." The record does not set forth why it had been predetermined that the decedent could not personally attend the closing.
According to Prato, approximately three weeks after the contract was fully executed, he thought better of entering into the transaction, stating that "it was just too big a project" and that the "house was trashed." He then contends that his attorney, Gallin, suggested finding another purchaser interested in taking over the deal. According to Prato, Gallin contacted him a few days later with a buyer willing to give Prato $55,000.00 to purchase his interest in the contract. Prato testified that the first time he met the new purchaser was at the closing of the sale of the property.
In sharp contrast, Delafraz, President of Kami, the newly found purchaser, testified that it was Prato, not Gallin, who contacted him directly, told him that he wanted to "flip the contract," and inquired as to whether he was interested in purchasing the property. According to Delafraz, Prato showed him around the subject property. Delafraz testified that the $75,000.00 purchase price was below market value and in his opinion the property was worth approximately $120,000.00 to $130,000.00 at that time, so he agreed to purchase the contract from Prato for $55,000.00. There is no proof in the record that the decedent was informed of or aware of this new arrangement, although there is proof that a $200,000.00 title insurance policy was purchased by Kami to protect its interest in the property.
At some point prior to the closing, Naclerio and a representative from the title company selected by Prato met with the decedent to have him execute affidavits required for the closing. One was a standard affidavit that the power of attorney the decedent granted to his sister was in full force and effect. "Standard" as it may be, the affidavit makes little sense when read from the viewpoint of the decedent. The other was a seller's affidavit which would be considered boilerplate but for the inclusion of a handwritten subparagraph stating that "Floyd Manuel is alive & well and knows his property is being sold for $75,000.00 on 1/17/12 due to extensive repairs." No initials appear next to this handwritten insertion. Neither the identity of the scrivener nor the circumstances and timing of its inclusion are set forth in the record. The title company representative who notarized these affidavits has been unable to be located for an examination under oath.
Naclerio could not recall whether he had any discussions with the decedent on that day and knew nothing of the nature of any conversations between the decedent and the title company representative.
The closing was held on January 17, 2012. The decedent was not present. Based on the divergent testimony, it is not clear whether or not Prato was present at the closing. However, it appears that Prato and Delafraz, both represented by attorney Gallin, had executed an assignment of the contract as well as an amendment to the contract that day. Neither the amendment nor the assignment was executed by the decedent, despite the provision in the contract requiring his prior written consent and notwithstanding the fact that Naclerio had just visited the decedent with a title company representative to execute other documents for the closing.
Further, although the decedent's sister, Blossie Waters , in her capacity as attorney-in-fact, executed the remaining transfer documents required to record the deed, her signature also does not appear on the assignment or the amendment. It is therefore unclear whether the decedent's attorney-in-fact was cognizant of the so-called "contract flip."
A transcript of the examination of Blossie Waters has not been submitted and it is unclear as to whether her deposition was taken.
The record does not contain a copy of the closing statement or any of the checks exchanged, but according to the testimony, Prato received $55,000.00 from the closing. Notably, the amount payable to the decedent, the deed owner of the property, was only slightly more than the amount received by Prato, who had no ownership interest in the property and did nothing more than execute an assignment of the contract without notice to the decedent. Finally, other than testimony indicating that proceeds payable to the decedent were given to his attorney-in-fact, there is no evidence in the record to indicate that they were ultimately delivered to the decedent and/or used for his benefit.
In considering the above, it is clear the movants have not established a prima facie showing of entitlement to relief. Putting aside the inconsistent testimony of the participants in the transaction, the unexplained absence of testimony from material witnesses, and the failure to include relevant documentary evidence, the respondents' reliance on the fact that the first transaction resulted in the recording of a facially valid acknowledged deed is misguided.
Put simply, the deed upon which respondents' rely raises more issues than it resolves, not the least of which surround its actual execution. As Prato's name never appeared on the deed, a scenario exists that he, Delafraz, Gallin , and Naclerio, knew from the inception that this was to be a so-called "contract flip" or "wholesaling" of the subject real property and they concealed it from the decedent. Accordingly, the movants have failed to demonstrate that the deed is not void ab initio (see Cruz v. Cruz, 37 AD3d 754 [2d Dept 2007] ; Marden v. Dorthy, 160 N.Y. 39 [1899] ; Chauncey v. Arnold, 24 N.Y. 330, 335 [1862] ).
Gallin, as well as counsel for Delafraz and Kami, repeatedly raised the attorney-client privilege with respect to the conversations that apparently took place between Gallin and Prato, and Gallin and Delafraz regarding the assignment.
Despite respondents' claims that there is no proof that any actual misrepresentations were made to the decedent, a cause of action for fraud may be predicated on acts of concealment where there is a duty to disclose material information (see Kaufman v. Cohen, 307 A.D.2d 113, 119–20 [1st Dept 2003] ; Kelly v. Kelly, 116 Misc. 195 [Sup Ct, Bronx County 1921] ; Green v. Roworth, 113 N.Y. 462 [1889] ).
Here, the duty to inform the decedent of an assignment that seemingly benefitted everyone other than himself, was clearly spelled out in the very contract upon which the respondents rely, in part, in establishing their prima facie case. This obligation was entirely ignored by decedent's purported attorney, the assignor, the assignee, and their mutual attorney, Gallin.
Contractual obligations aside, Naclerio clearly owed a duty to the decedent by virtue of the attorney-client relationship. The obligations that attach to the attorney-client relationship cannot be understated and paramount among them is the duty to avoid conflicts of interest, to act competently, to safeguard the client's property, and to honor the client's interests over the lawyer's (see Kelly v. Greason, 23 N.Y.2d 368 [1968] ). Given the facts as presently set forth in the record, Naclerio, in taking direction from Prato, in failing to discuss with the decedent the $75,000.00 purchase price or determine its adequacy, in neglecting to disclose his working relationship with Prato, and in failing to advise the decedent that someone was willing to pay an additional $55,000.00 to purchase the property, could be found to be derelict in each of these duties.
Further, given Naclerio's testimony whereby he repeatedly stated that he understood that Prato was the broker on the deal, and Delafraz's testimony that it was Prato that sought him out as a purchaser and personally provided him access to the home, movant has not established Prato was not acting in that capacity, and did not owe the decedent the duties inherent with that of a client-broker relationship (see e.g. Boldin v. Lewis H. May Co., 111 Misc. 170 [1st Dept 1920] ; Wendt v. Fischer, 215 AD 196 [1st Dept 1926] ).
Respondents' argument that Delafraz could not have participated in the alleged fraud because he never met or spoke with the decedent is unavailing. A fraud claim can be maintained against the party who was benefitted by the conveyance and the conveyance can be set aside regardless of whether Delafraz participated in the fraud (see Piccarreto v. Mura, 2016 N.Y. Misc. Lexis 2093 [Sup Ct, Monroe County 2016] ).
Ignoring the above, even if movant had established, prima facie, the validity of the transfer, there are clearly issues of fact with respect to whether the decedent had the requisite capacity to enter into the transaction. Medical records submitted by the petitioner describe the decedent in January of 2012 as having a psychiatric "history" of Major Depressive Disorder and dementia, requiring treatment with psychotropic drugs.
In determining that issues of fact exist with respect to the decedent's capacity, the court has not failed to consider respondents' submissions of uncertified copies of documents from a guardianship proceeding that post-dates the transaction. Those documents include an attorney-prepared guardianship petition executed by the decedent's sister and attorney-in-fact, wherein it is stated that the decedent, over whom she sought guardianship, "did not suffer from any mental deficiencies" as well as the affidavit of decedent himself stating "I do not suffer from any mental disabilities" which was purportedly signed by the decedent on September 5, 2012. Interestingly, this document was notarized by Prato, who repeatedly testified under oath that he had never met the decedent.
The court concludes that respondents, Delafraz and Kami, have failed to demonstrate prima facie entitlement to judgment as a matter of law and their motion for summary judgment is denied (see e.g. Jacks v. D'Ambrosio, 2008 N.Y. Misc. Lexis 9406 [Sup Ct, Nassau County 2008] citing Baly v. Chrysler Credit Corp., 94 A.D.2d 781 [2d Dept 1983] ).
Turning to the branch of the motion wherein the movants seek to have the proceeding dismissed against Delafraz on the grounds that he cannot be held individually liable for activities undertaken with respect to Kami, it is well-settled that "the law permits the incorporation of a business for the very purpose of escaping personal liability" ( Ventresca Realty Corp. v. Houlihan, 41 AD3d 707, 708 [2d Dept 2007] ). On the other hand, it is also firmly established that "equity will intervene to pierce the corporate veil and permit the imposition of personal liability in order to avoid fraud or injustice" (id. ).
As stated by the Court of Appeals, a decision whether to disregard the corporate form depends on the attendant facts and equities, and therefore, "cases may not be reduced to definitive rules governing the varying circumstances when the power may be exercised" ( Morris v. State Dept. of Taxation & Fin., 82 N.Y.2d 135, 141 [1993] ).
Generally, however, to pierce the corporate veil, it must be shown that the owners of the corporation exercised complete domination of the corporation with respect to the transaction at issue, and that such domination was used to commit a fraud or otherwise resulted in wrongful or inequitable consequences (see id; see also, e.g.; Hudson–Spring Partnership, L.P. v. P+M Design Consultants, Inc., 2015 N.Y. Misc. Lexis 144 [Sup Ct, New York County 2015] ).
A determination as to whether or not the corporate veil should be pierced involves a "fact-laden" analysis that includes consideration of such factors as overlap of ownership, officers, directors and personnel, the capitalization of the corporation, and the presence or absence of corporate formalities (see Kain Dev. LLC v. Krause Props., LLC, 130 AD3d 1229, 1235 [3d Dept 2015] ) and is "particularly unsuited for resolution on a summary judgment motion" ( Forum Ins. Co. v. Texarkoma Transp. Co., 229 A.D.2d 341 [1st Dept 1996] ).
This is even more so true where, as here, summary dismissal of such a claim is sought as the "fact-laden inquiry suffers the additional pressure of being a negative proof" (Holme v. Global Minerals & Metals Corp., 2012 N.Y. Misc. Lexis 6500 [Sup Ct, New York County 2012] ). Essentially, on their motion, unlike at trial, the movants have the burden of establishing that the petitioner cannot pierce the corporate veil (see Kain Dev., LLC v. Karuse Props., LLC, 130 AD3d 1229, 1236 [3d Dept 2015] ).
In this regard, courts have permitted a party to establish prima facie entitlement to dismiss such a claim by way of an affidavit of a member or shareholder of the corporation which sufficiently demonstrates the lack of domination or control and fraud or misconduct (see Fifth Ave. Partners, L.P. v. Doniger, 2013 N.Y. Misc. Lexis 1625 [Sup Ct, New York County 2013] citing John John, LLC v. Exit 63 Development, LLC, 35 AD3d 540 [2d Dept 2006] ).
Offered by the movant is the affidavit of Delafraz wherein he states that he is the President of Kami Homes, that at all times he acted on behalf of Kami Homes, Inc., that no facts were known to him that would have led him to believe that there were any issues with the propriety of the transfer, and that there was no fraud perpetrated on the decedent.
The affidavit of Delafraz is conclusory in content and is in the nature of a general denial. In any event, the affidavit neither speaks to a lack of domination and control by Delafraz over the corporation, nor does it, except by mere denials, demonstrate the absence of fraud or misconduct with respect to the triable issues that remain before the court as noted above. Accordingly, the branch of the motion for summary judgment dismissing the proceeding against Delafraz is denied (see Holme v. Global Minerals & Metals Corp., 2012 N.Y. Misc. Lexis 6500 [Sup Ct, New York County 2012] ).
Turning now to the motion for summary judgment made by Wallace and Chase, their claims that they are a bona fide purchaser and a lender for value provides no respite if the deed from the decedent to Kami is ultimately determined to be void ab initio ( Marden v. Dorthy, 160 N.Y. 39, 49 [1899] ; Cruz v. Cruz, 37 AD3d 754 [2d Dept 2007] ; First Natl. Bank of Nev. v. Williams, 74 AD3d 740, 742 [2d Dept 2010] ).
"It is well-settled that if a document purportedly conveying or encumbering a property is void, the conveyance or encumbrance is a nullity and neither the grantee nor those subsequent in the chain of title or encumbrances, including bona fide purchasers or encumbrancers for value ... gain anything of value from the void transaction" ( JP Morgan Chase Bank Natl. Assn. v. Kalpkis, 30 Misc.3d 1236 [Sup Ct, Suffolk County 2011]affd 91 AD3d 722 [2d Dept 2012] ).
As there has been no determination made concerning the validity of the transfer from decedent to Kami, the motion for summary judgment of Wallace and Chase is denied.
The parties are directed to appear for a further pre-trial conference on October 31, 2017 at 9:30 a.m.
This is the Decision and Order of the court.