Opinion
22024/09.
Decided June 28, 2010.
Solomon Rubin, Esq., Law Offices of Jan Meyer Associates, P.C., Teaneck, NJ, Attorney for Plaintiff.
Michael I. Bernstein, P.A., Brooklyn, NY, Attorney for Defendants.
. By notice of motion filed on February 4, 2010, under motion sequence number two, defendants Henry Schon and the Schon Family Foundation jointly move 1) pursuant to CPLR § 3211(a)(7) for an order dismissing the amended complaint for failure to state a cause of action upon which relief can be granted and 2) pursuant to CPLR § 3211(a)(3) for an order dismissing plaintiff Moshe Meisels from the complaint as an improper party based on lack of standing to commence the instant action.
BACKGROUND
On August 31, 2009, plaintiffs commenced this action by filing a summons and verified complaint with the Kings County Clerk's office (KCC). By notice of motion filed with the KCC on November 4, 2009, under motion sequence number one, defendants jointly moved to dismiss the complaint on various grounds pursuant to CPLR §§ 308, 311, 3211(a)(3) and (8). On December 21, 2009, plaintiffs filed an amended complaint with the KCC. By order of this court entered on January 21, 2010, defendants' motion filed under motion sequence number one was denied without prejudice based on their failure to comply with CPLR § 2214(c).
The amended complaint designates five causes of action. The first cause of action is for conversion; the second is for unjust enrichment; the third is for fraudulent conveyance; the fourth is for aiding and abetting in the commission of a tort; and the fifth is for piercing the corporate veil. Defendants move by the instant motion to dismiss the amended complaint before being required to answer it.
MOTION PAPERS
Defendants' motion papers consist of an attorney's affirmation and three annexed exhibits labeled A through C. Exhibit A is the original summons and complaint. Exhibit B is the amended verified complaint. Exhibit C is a copy of the aforementioned January 21, 2010 order of this court denying defendants' motion filed under motion sequence number one.
Plaintiffs' opposition papers consist of an attorney's affirmation and five annexed exhibits labeled A through E. The attorney's affirmation does not explain why exhibits B or E are annexed. The exhibits that are annexed are not tabulated and are presented in a confusing manner. Exhibit A is described as a court filing. However, there are two items marked exhibit A, and neither one appears to be a filed court document, such as a pleading. Defendants submitted an attorney's affirmation in reply to plaintiffs' opposition.
LAW AND APPLICATION
As a threshold issue, the court notes that an amended complaint, once served, supersedes the initial complaint and becomes the only complaint in the case as though the initial complaint was never served (see Elegante Leasing, Ltd. v. Cross Trans Svc., Inc ., 11 AD3d 650 [2nd Dept., 2004], see also, Titus v. Titus, 275 AD2d 409, 410 [2nd Dept., 2000]). Therefore, defendants' instant motion to dismiss is deemed directed to the amended complaint.
CPLR § 3211(a)(7)The court will address the CPLR § 3211(a)(7) prong of defendants' motion first. Pursuant to CPLR § 3211 (a) (7), "[a] party may move for judgment dismissing one or more causes of action asserted against [her] on the ground that . . . the pleading fails to state a cause of action." On a motion to dismiss pursuant to CPLR 3211 (a) (7), "the pleading is to be afforded a liberal construction. The reviewing court accepts the facts as alleged in the complaint as true, accords the plaintiffs the benefit of every possible favorable inference, and determines only whether the facts as alleged fit within any cognizable legal theory" ( Epifani v Johnson , 65 AD3d 224 , 229 [2nd Dept., 2009]).
While affidavits may be considered, if the motion has not been converted to a CPLR § 3212 motion for summary judgment, they are generally intended to remedy pleading defects and not to offer evidentiary support for properly pleaded claims ( Nonnon v. City of New York , 9 NY3d 825 citing Rovello v. Orofino Realty Co., 40 NY2d 633). The test on a pre-answer motion to dismiss a complaint for failure to state a cause of action is whether a cognizable cause of action can be discerned from the four corners of the complaint, not whether the claim has been properly stated ( Rovello v. Orofino Realty Co., 40 NY2d 633).
CONVERSION
The first cause of action claims conversion. Conversion is the unauthorized exercise of the right of ownership over property belonging to another to the exclusion of the owner's rights ( State v. Seventh Regiment Fund, 98 NY2d 249 citing Vigilante Ins. Co. of America v. Housing Auth. Of the City of El Paso, 87 NY2d 36).
Money can be the subject of conversion when it can be described, identified, or segregated in the manner that a specific chattel can be and when it is subject to an obligation to be returned (see generally, Republic of Haiti v. Duvalier, 211 AD2d 379; see also Hebrew Institute for the Deaf and Exceptional Children v. Kahana, 17 Misc. 1110(A) [NY Sup. 2007]). Furthermore, a person may be liable for conversion by conniving with another in an act of conversion ( Hebrew Institute for the Deaf and Exceptional Children v. Kahana, 17 Misc. 1110(A) [NY Sup. 2007] citing Ahles v. Aztec Enterprises, 120 AD2d 903 [3rd Dept. 1986]).
In Colavito v. New York Organ Donor Network, Inc. , 8 NY3d 43 , the Court of Appeals noted that two key elements of conversion are 1) the plaintiff's possessory right or interest in the property in dispute and 2) the defendant's dominion over the property in dispute or interference with it, in derogation of plaintiff's rights.
As stated by the Appellate Division, Second Department, a cause of action for conversion must allege legal ownership or an immediate right of possession to specifically identifiable funds on the part of the plaintiff and must further allege that the defendant[s] exercised an unauthorized dominion over such funds to the exclusion of the plaintiffs' rights; the mere right to payment cannot be basis of a cause of action for conversion ( Zendler Const. Co., Inc. v. First Adjustment Group, Inc. , 59 AD3d 439 [2nd Dept. 2009]). In addition, a wrongful intention to possess the property is not an essential element of conversion ( General Electric Co. v. American Export Isbrandtsen Lines, Inc., 37 AD2d 959 [2nd Dept. 1971]).
Plaintiffs amended complaint states that Meisels and his affiliated entities transferred over $27,000,000 to the attorney trust accounts of Fox Rothschild LLP and Mallow Konstam Hager P.C., for the purpose of investing in real property through a partnership with a non-party named Eli Weinstein. "The funds were wrongfully transferred to Eli Weinstein who misappropriated them for other purposes" (See amended complaint). As a result, an action was brought in the New Jersey Superior Court under the caption Meisels et. al. v. Weinstein et. al.. The court in the New Jersey Action ordered Eli Weinstein to account for the manner in which the funds he received from the plaintiff were used. The court ordered accounting indicated that Eli Weinstein transferred $250,000 of plaintiffs' funds to defendant Schon Family Foundation. Defendant Schon Family Foundation indicated on its 2007 tax return that the money it received from Eli Weinstein was a charitable contribution. Eli Weinstein testified under oath that the money was transferred to defendant Schon Family Foundation as repayment of a loan. Plaintiffs claim a possessory interest in these funds and that defendants' dominion over the funds interferes with plaintiffs' use of them.
Plaintiffs have alleged that they have a possessory right or interest in the money in dispute. The money in dispute was transferred into an attorney trust account for the purposes of facilitating investment in real property by plaintiffs and non-party Eli Weinstein. Money can be the subject of conversion when it can be described, identified, or segregated in the manner that a specific chattel can be and when it is subject to an obligation to be returned. The Schon Family Foundation took possession of the money in dispute, acquiring dominion over it, and naturally this dominion has been in derogation of plaintiffs' rights. The fact that it is not alleged within the amended complaint that the defendant Schon Family Foundation intended to wrongfully possess the money in dispute does not undermine the conversion cause of action. As the court has noted, a wrongful intention to possess the property is not an essential element of conversion ( General Electric Co. v. American Export Isbrandtsen Lines, Inc., 37 AD2d 959 [2nd Dept. 1971]). The complaint supports a cause of action for conversion against defendant Schon Family Foundation.
UNJUST ENRICHMENT
The second cause of action is for unjust enrichment. The United States Court of Appeals for the Second Circuit noted in Indyk v. Habib Bank, Ltd., 694 F.2d 54, that the term "unjust enrichment" is founded upon the equitable principal that a person should not be allowed to enrich himself unjustly at the expense of another. Historically it arose in actions to recover on an implied or quasi contract. It applies in situations where no legal contract exists, "but where the person sought to be charged is in possession of money or property which in good conscience and justice he should not retain, but should deliver to another ( See, Indyk v. Habib Bank, Ltd., 694 F.2d 54 [2nd Cir. 1982] citing Matarese v. Moore-McCormack Lines, 158 F.2d 631 [2nd Cir. 1946]).
The relationship between the terms "unjust enrichment" and "quasi-contract" has manifested itself within the jurisprudence of the Appellate Division, Second Department, which has used the two terms interchangeably. The court stated in Metropolitan Elec. Mfg. Co. v. Herbert Const. Co., Inc., 183 AD2d 758 [2nd Dept. 1992], in overruling an order of the Supreme Court, Queens County: "The court improperly denied that branch of the motion which was to dismiss the second cause of action sounding in unjust enrichment [emphasis added]. It is well settled that in order to recover under a theory of quasi contract, a plaintiff must be able to prove that performance was rendered for the defendant, resulting in its unjust enrichment [emphasis added]."
Thus, plaintiffs' second cause of action might well have been better stated as one sounding in quasi contract — a cause of action of which the case law of the courts of the State of New York is replete with analysis.
First and foremost, the existence of a valid and enforceable contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter (See, American Exp. Travel Related Services Co., Inc. v. Seidenfeld, 1 Misc 3d 907(A) [NY Sup. Ct. 2003] citing Clark-Fitzpatrick, Inc. v. Long Island Rail Road Company, 70 NY2d 382). Thus, in order to state a cause of action for quasi contract in a pleading, that pleading must fail to allege the existence of an express agreement. Plaintiffs' amended complaint does not allege the existence of an express agreement between plaintiffs and defendants regarding the money in dispute. Plaintiffs' allege in their amended complaint that the money in dispute passed first from themselves to an attorney trust account maintained by a non-party law firm, then from this attorney trust account to a second non-party intermediary identified in the amended complaint as Eli Weinstein, and finally from Mr. Weinstein to defendant Schon Family Foundation. There is no allegations in the complaint that an express agreement existed between plaintiffs and defendants.
"Quasi contracts are not contracts at all, although they give rise to obligations more akin to those stemming from contract than from tort. The contract is a mere fiction, a form imposed in order to adapt the case to a given remedy . . . Briefly stated, a quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it, regardless of the intention of the parties, to assure a just and equitable result . . . The obligation implied under such circumstances . . . is such as justice would dictate, and must conform to what the court may assume would have been the agreement of the parties if the situation had been anticipated and provided for . . . A quasi or constructive contract rests upon the equitable principal that a person shall not be allowed to enrich himself unjustly at the expense of another. In truth it is not a contract or promise at all. It is an obligation which the law creates, in the absence of any agreement, when and because the acts of the parties or others have placed in the possession of one person money . . . under such circumstances that in equity and good conscience he ought not to retain it, and which Ex aequo et bono belongs to another. Duty, and not a promise or agreement or intention of the person sought to be charged, defines it. It is fictitiously deemed contractual, in order to fit the cause of action to the contractual remedy" ( Bradkin v. Leverton, 26 NY2d 192, [1970]).
Stated another way, "There is a class of cases where the law prescribes the rights and liabilities of persons who have not in reality entered into any contract at all with one another, but between whom circumstances have arisen which make it just that one should have a right, and the other should be subject to a liability similar to the rights and liabilities in certain cases of express contract. Thus, if one man has obtained money from another, through the medium of oppression, imposition, extortion, or deceit, or by the commission of a trespass, such money may be recovered back, for the law implies a promise from the wrongdoer to restore it to the rightful owner, although it is obvious that this is the very opposite of his intention. Implied or constructive contracts of this nature are similar to the constructive trusts of courts of equity, and in fact are not contracts at all . . . And a somewhat similar distinction is recognized in the civil law, where it is said: In contracts it is the consent of the contracting parties which produces the obligation; in quasi contracts there is not any consent. The law alone, or natural equity produces the obligation by rendering obligatory the fact from which it results. Therefore, these facts are called quasi contracts, because without being contracts, they produce obligations in the same manner as actual contracts" ( Miller v. Schloss, 218 NY 400).
Viewed in the light most favorable to plaintiffs, the allegations of fact contained within the amended complaint make out a cause of action sounding in quasi-contract, or unjust enrichment, against defendant Schon Family Foundation. The amended complaint alleges that through some kind of deceit, certain funds were transferred from plaintiffs' control to the dominion of defendant Schon Family Foundation. There being no contract between Schon Family Foundation and plaintiffs upon which plaintiffs might sue, the equitable quasi-contract cause of action is an appropriate avenue through which plaintiffs might seek to recover their money. The motion to dismiss the unjust enrichment cause of action against defendant Schon Family Foundation for failure to state a claim for which relief can be granted is denied.
FRAUDULENT CONVEYANCE
The third cause of action is for fraudulent conveyance based on the provisions of "DCL § 270, et. set", or Article 10 of New York's Debtor and Creditor Law. The allegations of fact contained under the heading of the third cause of action are set forth in five numbered paragraphs as follows: "2) At the time of the transfers of money to defendant Schon Family Foundation, non-party Eli Weinstein was indebted to plaintiffs; 3) at the time of the transfers of money to defendant Schon Family Foundation, Eli Weinstein was insolvent and/or believed that he was about to incur debts beyond his ability to repay; 4)Eli Weinstein did not receive consideration for the money transferred to defendant Schon Family Foundation; 5) The transfer was made with the intent to hinder creditors; 6) As such the transfer was a fraudulent conveyance as per DCL § 270, et. set".
Debtor and Creditor Law § 276 prescribes that every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.
The facts alleged and the permissible inferences that may be drawn from said facts are sufficient to state a cause of action for fraudulent conveyance pursuant to DCL § 276. Consequently, defendants motion to dismiss the third cause of action for fraudulent conveyance is denied.
AIDING AND ABETTING IN THE COMMISSION OF A TORT
The fourth cause of action is labeled "aiding and abetting in the commission of a tort." Although no such cause of action exists in the law of the State of New York, it is apparent from plaintiffs' attorney's affirmation that plaintiff sought to set forth a cause of action for aiding and abetting in the commission of a fraud. Regardless, the fourth cause of action is dismissed for the reasons set forth below.
The allegations of fact contained under the fourth cause of action are as follows. "Eli Weinstein transferred money that he obtained via fraud to charities, which would hold his money as nominee with the understanding that the charities would transfer the money to third parties at Eli Weinstein's direction so as to hide the money from Mr. Weintein's fraud victims; the money at issue in this litigation was transferred to defendant Schon Family Foundation as part of this money laundering scheme; defendants were aware that the purpose of the transfers of the funds in dispute was to facilitate the fraud."
The Court of Appeals in Eurycleia Partners, LP v. Seward Kissel, LLP , 12 NY3d 553 , treated a motion to dismiss a complaint within which was a cause of action for aiding and abetting in fraud as requiring the same analysis as if the aiding and abetting fraud cause of action were simply a fraud cause of action. The court stated, "The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages. Although there is certainly no requirement of unassailable proof at the pleading stage, the complaint must allege the basic facts to establish the elements of the cause of action. The complaint contains no allegation of fact of any transaction by the defendants which would amount to a material misrepresentation to the plaintiffs. Simply put, the allegations of fact within the amended complaint do not permit a reasonable inference of the alleged misconduct so as to apprise defendants of the nature of the complained of incidents. Consequently the fourth cause of action for aiding and abetting fraud must be dismissed.
PIERCING THE CORPORATE VEIL
The fifth and final cause of action is labeled "piercing the corporate veil". "The concept of piercing the corporate veil is equitable in nature and assumes that the corporation itself is liable for the obligation sought to be imposed . . . Thus, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation; rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners or owner. . . . Because a decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities, the New York cases may not be reduced to definitive rules governing the varying circumstances when the power may be exercised . . . Generally, however, piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" ( Morris v. New York State Dept. of Taxation and Finance, 82 NY2d 135, 140-141).
The Court of Appeals in Morris v. New York State Dept. Of Taxation and Finance stated that piercing the corporate veil does not constitute a cause of action independent of any against the corporation. Therefore, the fifth cause of action does not plead a cognizable claim.
Although, the court finds that the equitable remedy does not state a cognizable claim in law, plaintiffs may still endeavor to pierce defendant Schon Family Foundation's corporate veil of protection over defendant Henry Schon in order to hold Henry Schon personally liable for the acts of defendant Schon Family Foundation.
CPLR § 3211(A)(3)The court now turns to that branch of defendants' motion, pursuant to CPLR § 3211(a)(3), for an order dismissing plaintiff Moshe Meisels from the complaint as an improper party on the basis that he lacks standing and thus has not the legal capacity to sue. Defendants base their CPLR § 3211(a)(3) motion on a misreading of an allegation in the amended complaint. In the second paragraph of the amended complaint, plaintiffs state, in pertinent part, "Meisels assigned financial interests in business conducted in the United States of America to Premier Estates." Defendants have apparently misread and misquoted this sentence in their motion papers as including the word his between the words assigned and financial. Thus, the mistaken reading of this sentence adopted by defendants would suggest that plaintiff Meisels had transferred all of his financial interests to plaintiff Premier Estates NY, Inc, and that consequently it would be impossible for plaintiff Meisels to have any stake in the outcome of the instant litigation. The court, therefore, sees no basis to dismiss the causes of action Meisels has asserted against the defendants based on the lack of capacity or lack of standing.
In summary, defendants' motion to dismiss the first cause of action for conversion, the second cause of action for unjust enrichment; and the third cause of action for fraudulent conveyance pursuant to CPLR § 3211(a)(7) is denied.
Defendants' motion to dismiss the fourth cause of action designated "aiding and abetting in the commission of a tort" and the fifth cause of action designated "piercing the corporate veil" pursuant to CPLR § 3211(a)(7) is granted. However, the court reiterates that plaintiffs may still endeavor to pierce defendant Schon Family Foundation's corporate veil of protection over defendant Henry Schon in order to hold Henry Schon personally liable for the acts of defendant Schon Family Foundation.
Defendants' motion to dismiss all causes of action asserted by Moshe Meisels pursuant to CPLR § 3211(a)(3) is denied. Of course, for the reasons set forth above, the fourth and fifth cause of action are dismissed for all parties.
The foregoing constitutes the decision and order of the court.