Opinion
Index No. 005192/2020
10-01-2021
INNER HARBOR PHASE I, L.P. v. COR INNER HARBOR COMPANY, LLC, COR West Kirkpatrick Street Company LLC, Jeffrey L. Aiello, Joseph B. Gerardi, Steven F. Aiello, Paul G. Joynt, Lori A. Aiello Family Trust, Laurie R. Gerardi Family Trust, Mannion & Copani
David C. Temes, Esq., LYNN D'ELIA TEMES & STANCZYK, 100 Madison Street, Suite 1905, Syracuse, New York 13202 Christopher E. Buckey, Esq., CULLEN AND DYKMAN, LLP, 80 State Street, Suite 900, Albany, New York 12207 Terry J. Kirwan, Jr., KIRWAN LAW FIRM, P.C., 100 Madison Street, 15th Floor, Syracuse, New York 13202
David C. Temes, Esq., LYNN D'ELIA TEMES & STANCZYK, 100 Madison Street, Suite 1905, Syracuse, New York 13202
Christopher E. Buckey, Esq., CULLEN AND DYKMAN, LLP, 80 State Street, Suite 900, Albany, New York 12207
Terry J. Kirwan, Jr., KIRWAN LAW FIRM, P.C., 100 Madison Street, 15th Floor, Syracuse, New York 13202
Deborah H. Karalunas, J.
This constitutes the Court's decision on three outstanding motions: (1) a motion by defendants COR Inner Harbor Company LLC ("COR LLC"), COR West Kirkpatrick Street Company LLC ("COR Kirkpatrick"), the Lori A. Aiello Family Trust ("the Aiello Trust"), the Laurie R. Gerardi Family Trust ("the Gerardi Trust"), Mannion & Copani, Jeffrey L. Aiello ("J. Aiello"), Joseph B. Gerardi ("J. Gerardi"), Steven F. Aiello ("S. Aiello") and Paul G. Joynt ("P. Joynt")(collectively "the COR defendants") for dismissal of the second, third, fourth and fifth causes of action in the complaint; (2) a cross-motion by plaintiff Inner Harbor Phase I LP ("Inner Harbor") for judgment on its first cause of action; and (3) a cross-motion by Zhiyao Ding on his own behalf and on behalf of other limited partners in plaintiff Inner Harbor ("limited partners") for permission to either intervene or be granted amicus curie status.
FACTS
Plaintiff Inner Harbor is a limited partnership formed for the express purpose of making qualified investments for specified investors pursuant to the EB-5 Immigrant Investor Program in the development and construction of an aLoft Hotel ("the Hotel") in Syracuse, New York ("the Hotel Project"). Compl. ¶ 1. Defendant COR LLC was formed to carry out the Hotel Project and to own the Hotel after its development and construction. Compl. ¶ 2. Defendant COR Kirkpatrick is the owner of the parcel on which the Hotel is located and is the Hotel operator. Compl. ¶ 3. Defendants J. Aiello, J. Gerardi, S. Aiello, P. Joynt and the Aiello Trust had control over COR LLC's assets and financial affairs. Compl. ¶¶ 4-10. Defendant Mannion & Copani is a law firm that acted as attorney for COR LLC with respect to the Hotel and as escrow agent for Inner Harbor. Compl. ¶ 10.
The EB-5 Program was created by Congress to encourage job creation and capital investment by foreign investors. Compl. ¶ 11. Pursuant to the EB-5 Program, foreign investors can invest in qualified projects in the United States and thereby become eligible to obtain a Green Card. Compl. ¶ 12. Various limited partners of Inner Harbor, including proposed intervenor Zhiyao Ding, invested a total of $4,000,000 in Inner Harbor for construction and development of the Hotel in accordance with the EB-5 Program. Inner Harbor used those funds to make loans to COR LLC to finance the Hotel. Compl. ¶¶ 13-14. Between July 2014 and August 2014 plaintiff advanced $4,000,000 to Mannion & Copani to be held in escrow pursuant to a written Escrow Agreement. Under the terms of the Escrow Agreement, the proceeds were to be released to COR LLC upon execution and delivery of, among other things, a Promissory Note and Executed Addendum evidencing the Loan. Compl. ¶ 16. Plaintiff is the holder of four Promissory Notes and five Executed Addenda, each evidencing loans made by it to COR LLC for the Hotel. Compl. ¶¶ 15, 17. Between September 2014 and February 2015, contemporaneously with delivery of each Executed Addendum, Mannion & Copani released the stated amount from the proceeds it held in escrow. Compl. ¶ 18. Some of the escrowed funds were released to COR LLC and some of the escrowed funds were released to COR Kirpatrick. Compl. ¶ 21. The Hotel was completed and opened for business in or about July 2016. Compl. ¶ 24.
The Note and First Addendum became due and owing to plaintiff in September 2019. Compl. ¶ 30. COR LLC advised Inner Harbor that it did not have the ability to repay plaintiff the amount then due and sought an extension of the various loan maturity dates. Compl. ¶ 31. To evaluate COR LLC's request, Inner Harbor sought information concerning COR LLC's financial condition. Compl. ¶ 32. The information provided by COR LLC demonstrated that COR LLC transferred the proceeds of the loan to COR Kirkpatrick without consideration or obligation to repay. Compl. ¶ 34, 35. It also demonstrated that COR LLC neither owned the Hotel nor held any interest in the Hotel. Compl. ¶ 33.
By summons and complaint filed August 19, 2020, plaintiff asserts the following: (1) first cause of action against COR LLC, breach of contract for failure to pay any portion of the principal amounts owed in accordance with the Promissory Notes; (2) second cause of action against all defendants, fraud regarding COR LLC's interest in the Hotel; (3) third cause of action against Mannion & Copani, for disbursement of funds contrary to the escrow agreement; (4) fourth cause of action against all defendants, fraudulent conveyance; and (5) fifth cause of action against all defendants, fraudulent conveyance.
DISCUSSION
Cross-Motion to Intervene or Grant Amicus Curiae Status to the Limited Partner
Zhiyao Ding ("proposed intervenor"), a limited partner in plaintiff Inner Harbor, seeks permission to intervene pursuant to CPLR §§ 1012 and 1013 or, in the alternative, permission to obtain amicus curiae status to oppose COR LLC's motion to dismiss the second, third, fourth and fifth causes of action.
CPLR § 1012 provides in pertinent part:
(a) Intervention as of right. Upon timely motion, any person shall be permitted to intervene in any action:
...
2. When the representation of the person's interests by the parties is or may be inadequate and the person is or may be bound by the judgment.
CPLR § 1013 governs permissive intervention and provides in pertinent part:
Upon timely motion, any person may be permitted to intervene in any action when a statute confers a right to intervene in the discretion of the court, or when the person's claim or defense and the main action have a common question of law or fact.
"Whether intervention is sought as a matter of right under CPLR 1012(a), or as a matter of discretion under CPLR 1013, is of little practical significance since a timely motion for leave to intervene should be granted, in either event, where the intervenor has a real and substantial interest in the outcome of the proceedings." Jones v. Town of Carroll , 158 AD3d 1325 (4th Dep't 2018) ; see also , Petroleum Bd. of Assessment Review , 91 AD3d 1037 (2d Dep't 1083), aff'd, 61 NY2d 695 (1984).
A real and substantial interest in the outcome of the proceedings requires more than "mere interest in the success of one of the parties." State ex rel. Field v. Cronshaw, 139 Misc 2d 470, 472 (Nassau Co. 1988). The fact that an individual in some manner may be "affected by the outcome of the proceeding is insufficient to form the basis for intervention. A third party will be permitted to intervene only when the third party will be bound by the judgment to the extent that the judgment will adjudicate the legal rights, duties and or obligations of the third party." Id. at 472-473. In other words, the proposed intervenor must have "an actual and ultimate interest in the results of the litigation. This ‘interest’ has been defined as a property interest or some duty or right devolving upon or belonging to the person seeking the right to intervene." Id. at 473. A proposed intervenor must establish that "the interest which he seeks to protect [is] sufficient to provide the necessary standing." Id.
To have standing, "a party must have an injury in fact, i.e., an actual legal stake in the matter being adjudicated." Lyman Rice, Inc. v. Albion Mobile Homes, Inc. , 89 AD3d 1488 (4th Dep't 2011). Thus, "a plaintiff generally has standing only to assert claims on behalf of itself." Id. at 1489.
Noticeably absent from the complaint proposed by Ding are any allegations that differ from those in the Inner Harbor complaint. Indeed, the complaint and proposed intervenor's complaint are virtually identical: they contain the same causes of action and factual allegations. Nowhere in the proposed intervenor's complaint does Ding allege a direct injury independent of the injury claimed by Inner Harbor. The proposed intervenors do not allege (nor could they) privity with COR LLC or third-party beneficiary status, and they do not allege that COR LLC owed to them any direct duty.
While the proposed intervenors may suffer financial loss by an adverse result in the present litigation, any loss is indirect; any debt owed by COR LLC is to Inner Harbor, not to the individuals who invested in Inner Harbor. Under these facts, the proposed intervenors lack standing to assert a claim against COR LLC. Cf. Lyman Rice, Inc. , 89 AD3d at 1489 (corporation having only indirect interest does not have legal standing to exercise rights of associated corporation). Accordingly, the motion to intervene is DENIED.
With respect to Ding's alternatively sought relief, amicus curie status, as an initial matter the court notes that Ding has submitted a proposed brief with his application.
Amicus curie means "friend of the court." Although rarely used at the trial level, generally, an individual or entity requesting amicus curie status seeks to "assist" the court. Among the factors to be considered are:
(1) whether the application[ is] timely; (2) whether [the] application states the movant's interest in the matter and includes the proposed brief; (3) whether the parties are capable of a full and adequate presentation of the relevant issues and, if not, whether the proposed amici could remedy this deficiency; (4) whether the proposed briefs identify law or arguments that might otherwise escape the court's consideration or would otherwise be of assistance to the court; (5) whether consideration of the proposed amicus briefs would substantially prejudice the parties; and (6) whether the case involves questions of important public interest.
Anschutz Exploration Corp. v. Town of Dryden , 35 Misc 3d 450, 454 (Tompkins Co. 2012).
While the parties have fully and adequately presented the relevant issues, and there are no arguments that escape the Court's consideration, and this case does not involve questions of important public interest, this Court finds no prejudice to the parties in permitting the proposed amicus briefing already submitted. Accordingly, Ding's motion to file an amicus curie brief on behalf of the limited partners is GRANTED.
COR LLC's motion to dismiss the Second, Third, Fourth and Fifth Causes of Action
Defendants move to dismiss plaintiff's second, third, fourth and fifth causes of action pursuant to CPLR § 3211(a)(1)(5) and (7).
"When a court rules on a CPLR 3211 motion to dismiss, it must accept as true the facts as alleged in the complaint and submissions in opposition to the motion, accord plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory." Whitebox Concentrated Convertible Arbitrage Partners, L.P. v. Superior Well Servs., Inc. , 20 NY3d 59, 63 (2012) ; see also , Leon v. Martinez , 84 NY2d 83, 87-88 (1994) ; Town of Mexico v. Cty. of Oswego , 175 AD3d 876, 877 (4th Dep't 2019) ; Lots 4 Less Stores, Inc. v. Integrated Props., Inc. , 152 AD3d 1181, 1182 (4th Dep't 2017). However, "allegations consisting of bare legal conclusions, as well as factual claims, flatly contradicted by documentary evidence are not entitled to any such consideration." Simkin v. Blank , 19 NY3d 46, 52 (2012).
An affidavit submitted by a plaintiff may be considered to remedy any defects in the complaint, but affidavits submitted by a defendant "rarely warrant dismissal of the complaint unless they conclusively establish that plaintiff has no cause of action." Divito v. Fiandach , 160 AD3d 1356, 1357 (4th Dep't 2018) ; accord Wilczak v. City of Niagara Falls , 174 AD3d 1446 (4th Dep't 2019) (affidavits and other evidentiary material may be considered to establish conclusively that plaintiff has no cause of action).
Under CPLR § 3211(a)(1), dismissal is warranted only if the "documentary evidence resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claims." Scheer v. Elam Sand & Gravel Corp. , 177 AD3d 1290, 1291 (4th Dep't 2019) ; see also , Whitebox Concentrated Convertible Arbitrage Partners, L.P. , 20 NY3d at 63 ; Lots 4 Less Stores, Inc. , 152 AD3d at 1182 ; Carbone v. Brenizer , 148 AD3d 1806 (4th Dep't 2017) ; Liberty Affordable Hous., Inc. v. Maple Ct. Apts. , 125 AD3d 1195, 1196 (4th Dep't 2015) (dismissal warranted where documentary evidence conclusively establishes the lack of any merit to plaintiff's claim).
Second Cause of Action — Against All Defendants — For Fraud
When asserting a cause of action for fraud, a plaintiff is "required to alleged misrepresentation of a material fact, scienter, justifiable reliance and injury." Barrett v. Grenda , 154 AD3d 1275, 1277 (4th Dep't 2017). Moreover, CPLR 3016(b) requires a party to plead fraud with specificity. Id.
As to the first element — misrepresentation of a material fact - the entirety of plaintiff's allegation is found in paragraph 49 of the complaint. That paragraph provides: "[d]efendants made representations to [p]laintiff regarding [COR LLP's] interest in the Hotel Project and the Hotel and the distribution of Proceeds."
It is worth noting that plaintiff does not dispute that the Hotel property was transferred to COR Kirkpatrick by deed publicly recorded on May 30, 2014, before Inner Harbor executed the July 15, 2014 Promissory Note and any of the five Executed Addenda, Mannion Aff. ¶¶ 6, 9-11, 15, before Inner Harbor transferred $4,000,000 to Mannion & Copani, and before Mannion & Copani disbursed any of the $4,000,000 proceeds to COR LLC or COR Kirkpatrick. Mannion Aff. ¶¶ 18 — 20.
Wholly absent are any facts sufficiently specific as to the substance of any misrepresentation allegedly made, i.e., the words used, when any misrepresentation was allegedly made or the identity of the person who allegedly made the misrepresentation. Under these circumstances, plaintiff fails to comply with the specificity requirements of CPLR 3016(b) and the fraud cause of action must be dismissed. Goldner v. Sullivan, Gough, Skipworth, Summers & Smith , 105 AD2d 1149 (4th Dep't 1984) (dismissing fraud cause of action where allegations were vague and conclusory and plaintiff failed to allege defendants made any false statement of existing material fact); Ferro Fabricators, Inc. v 1807-1811 Park Ave. Dev. Corp., 127 AD3d 479, 480 (1st Dep't 2015) (dismissing fraud claim containing only general allegation as to alleged misrepresentations with virtually no information as to when and by whom representations were made); Gregor v. Rossi , 120 AD3d 447 (1st Dep't 2014) (dismissing fraud claim where words used and date of alleged false representations not set forth); Brown v. Wolf Grp. Integrated Communications, Ltd. , 23 AD3d 239 (1st Dep't 2005) (allegation that defendants "deliberately misrepresented the fact that an agreement had been reached," was insufficient to satisfy CPLR 3016 ; failed to specify words or actions used).
Devoid of essential facts concerning the alleged misrepresentation(s), this Court cannot begin to address the sufficiency with which plaintiff pled the additional elements of fraud, i.e. , scienter, justifiable reliance or injury. Accordingly, defendants’ motion to dismiss the second cause of action is GRANTED.
Third Cause of Action — Against Mannion & Compani — For Breach of the Escrow Agreement
In the third cause of action, albeit pled inartfully, plaintiff alleges that defendant Mannion & Copani, acting as legal counsel for COR LLC, received funds from Inner Harbor and subsequently released those funds to COR Kirkpatrick in violation of the applicable escrow agreement. Compl. ¶ 56, 60-62; see also Mannion Aff. Exh. C. While the legal theory of plaintiff's third cause of action is imprecise, in the context of a pre-answer motion to dismiss, defendant's motion must be DENIED. As previously stated: "[w]hen a court rules on a CPLR 3211 motion to dismiss, it must accept as true the facts as alleged in the complaint and submissions in opposition to the motion, accord plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory." Whitebox Concentrated Convertible Arbitrage Partners, L.P. , 20 NY3d at 63.
Exhibit C to the Mannion affidavit is a copy of a July 15, 2014 letter from Mannion & Copani to Inner Harbor acknowledging that Inner Harbor would be wiring $5,000,000 in funds to Mannion & Copani's escrow account. The letter advised Inner Harbor that the funds would be paid to COR LLC and that Mannion & Copani would "not otherwise release the described escrow funds except upon receipt of written direction executed by both Inner Harbor and COR LLC."
Fourth and Fifth Causes of Action — Against All Defendants — For Fraudulent Conveyance Under Article 10 of the Debtor and Creditor Law
In the fourth cause of action, plaintiff alleges that defendants "made or caused to be made" transfers totaling $4,000,000 to COR Kirkpatrick without consideration. Compl. ¶ 69. The disputed transfers were made no later than February 2015. Id. ¶ 19. Plaintiff further alleges that the transfers rendered COR LLC insolvent and unable to repay its debts to plaintiff and were made with actual intent to hinder, defraud or delay plaintiff's collection of money due under the Promissory Notes. Id. ¶¶ 70-74, 81. Finally, plaintiff alleges that defendants are in close relationship, with common control. Id. ¶ 75.
In the fifth cause of action plaintiff alleges that the transfer of proceeds from COR LLC to COR Kirkpatrick was unauthorized and without consideration and rendered COR LLC insolvent. Compl.¶¶ 85-87. Plaintiff also alleges that the transfer was on account of an antecedent debt. Id. ¶ 90. Finally, plaintiff alleges the transfers were made to an "insider," and "[d]efendants are all insiders." Id. ¶¶ 88-89.
Both the fourth and fifth causes of action purport to be brought under former Article 10 of the New York Debtor and Creditor Law ("DCL"). The statute of limitations for actions under that statutory scheme was six years. CPLR 214(1). As there is no dispute that the challenged transactions occurred no later than February 2015, and this action was commenced on August 19, 2020, to the extent defendants seek dismissal of these causes of action on statute of limitations grounds, their motion is DENIED.
The entirety of the DCL applicable at the time of the acts complained of in this action was repealed in 2020 and replaced with a new statutory scheme. The new DCL provisions are not retroactive and only apply to transfers made after April 4, 2020.
Defendants’ motion to dismiss the fourth and fifth causes of action also is brought on grounds that plaintiff fails to assert facts against defendants J. Aiello, J. Gerardi, S. Aiello, P. Joynt, the Aiello Trust, the Gerardi Trust and Mannion & Copani sufficient to pierce the corporate veil or to hold them liable as alter egos. The Court disagrees with respect to all except Mannion & Copani.
It is well settled that a party "seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that resulted in injury to the party seeking to pierce the corporate veil." Buhovecky v S & J Morrell, Inc., 175 AD3d 945, 947 (4th Dep't 2019).
Likewise, "when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator's business instead of its own [, it] can be called the other's alter ego [and] the corporate form may be disregarded to achieve an equitable result." Clark Rigging & Rental Corp. v Liberty Mut. Ins. Co., 179 AD3d 1510, 1511 (4th Dep't 2020).
Here, plaintiff alleges that it is a creditor of COR LLC, defendants (excluding Mannion & Copani) had a close relationship with common control, the transfers of funds from COR LLC to COR Kirkpatrick were made "to an insider" with absent or inadequate consideration rendering COR LLC insolvent, the existence of a debt antecedent to the transfer, and the transfers were made with actual intent to hinder and delay creditors. As an alternative to actual knowledge, Inner Harbor alleges that defendants had constructive knowledge of intent to hinder and delay. Compl. ¶¶ 19, 69, 70-75, 81, 85-90.
While the complaint is sparse on facts, in the context of a CPLR 3211(a)(1) and (7) motion, affording plaintiff every possible favorable inference, with respect to piercing the corporate veil and establishing alter ego liability, the pleading says enough. These allegations, taken as true, sufficiently plead causes of action under the former DCL statutes. See Loblaw, Inc. v. Wylie , 50 AD2d 4 (4th Dep't 1975). Accordingly, defendants’ motion to dismiss is DENIED as to all defendants excluding Mannion & Compani.
Plaintiff's motion for Judgment on the First Cause of Action for Breach of Contract
Inner Harbor cross-moves for judgment pursuant to CPLR § 3211(e) for "recovery of funds" owed for non-payment of the principal balance of $4,000,000 plus any accrued interest and attorneys’ fees. Although styled as a CPLR § 3211(e) motion, plaintiff's motion is akin to a CPLR § 3212 motion for summary judgment. As such, prior to joinder, plaintiff's motion is premature and must be DENIED.
Counsel for defendants is directed to prepare an order consistent with this decision to be submitted to the Court on notice within 15 days. The order shall attach a copy of this letter decision and incorporate it therein.