Opinion
No. 75990/09.
2013-03-11
METROPOLITAN ENTERPRISES NY, on behalf of Itself and All Others Similarly Situated, Plaintiff, v. AMC UNITED INC. and Marjan Dimeski, Defendants.
Weinberg, Gross & Pergament, LLP, Garden City, Attorney for Plaintiff. Levine & Associates, P.C., Scarsdale, Attorney for Defendants and Third–Party Plaintiffs.
Weinberg, Gross & Pergament, LLP, Garden City, Attorney for Plaintiff. Levine & Associates, P.C., Scarsdale, Attorney for Defendants and Third–Party Plaintiffs.
Mastropietro Frade LLC, Mineola, Attorney for Third–Party Defendants NYC Construction Services, Inc. and Kadir Barkol.
DAVID I. SCHMIDT, J.
Upon the foregoing papers, plaintiff and third-party defendant Metropolitan Enterprises, Inc (Metropolitan) and third-party defendant Kenneth Martinez move pursuant to CPLR 3211(a)(1), (5) and (7) for an order dismissing defendants and third-party plaintiffs AMC United Inc (AMC) and Marjan Dimeski's (referred to herein as defendants) third-party complaint and counterclaims and for sanctions pursuant to 22 NYCRR § 130–1.1. Third-party defendants NYC Construction Services, Inc. and Kadir Barkol cross-move for the same relief (plaintiff and third-party defendants herein referred to collectively as movants). Defendants cross-move for sanctions pursuant to 22 NYCRR § 130–1.1 and additionally cross-move for an order pursuant to CPLR 3025 granting them leave to file amended counterclaims and an amended third-party complaint.
Background and Procedural History
In February 2009, Dimesky, the president and sole share holder of AMC entered into a written agreement with third-party defendant Shai Sellam,
which provided for Sellam to become a 50% owner of AMC stock. For this ownership, Sellam agreed to provide AMC with $125,000 and 2,800 square feet of sidewalk shed or $280,000. According to the third-party complaint, Sellam breached the agreement and never delivered the promised funds or sidewalk shed. Over the next several months Metropolitan loaned AMC approximately $350,000. There was no written agreement memorializing these loans. The parties agreed orally that AMC would repay the loan, with interest at prevailing rates, from the proceeds of existing contracts between AMC and the New York City Housing Authority (N.Y.CHA).
Sellam is not a party to the motion or the cross-motions at issue here.
On April 28, 2009, Metropolitan filed a Mechanic's Lien in the amount of $410,768 against AMC, for labor and materials provided by Metropolitan to AMC. According to the third-party complaint, the lien was fraudulent and no labor or materials were ever provided. AMC never moved in court to have the lien extinguished. According to the third-party complaint, AMC lacked the funds to place a bond to extinguish the lien. On June 30, 2009, Metropolitan filed two more Mechanic's Liens against AMC in the amounts of $238,400 and $195,000 respectively. Again, defendants argue that these liens were fraudulent, and again, no motion was made to extinguish these nor were they extinguished by the filing of a bond.
On May 18, 2009, Metropolitan filed a Waiver and Release of Lien with NYCHA extinguishing the lien filed on April 28, 2009. On July 9, 2009, Metropolitan filed a Satisfaction of Mechanic's Lien for Public Improvement with NYCHA extinguishing the lien filed on June 30th in the amount of $238,400. On July 27, 2009, Metropolitan and AMC entered into an agreement titled “LOAN PAYMENT AGREEMENT” whereby AMC acknowledged a debt on a loan owed to Metropolitan of $372,709, which was to be repaid by assignment of monies due from NYCHA under various contracts that AMC had with NYCHA. On that same day, Metropolitan and AMC entered into an agreement simply titled “AGREEMENT' whereby AMC acknowledged that it owed AMC $461,291 for labor, services and material that had been provided by Metropolitan to AMC from “time to time.” In satisfaction of this debt, AMC agreed to transfer 2,900 linear feet of sidewalk hanging, certain cash payments due to AMC from a contract with NYCHA and $291,291 in cash payments to be paid in three installments on August 27, 2009, September 27, 2009 and October 27, 2009. Both these agreements contained a release clause barring any actions by AMC against Metropolitan or its officers, including Sellam. Finally, on this same date Dimesky and Barkol entered into a stock repurchase agreement, by which Barkol sold his 50% stake of AMC back to Dimesky
From the documents submitted it is unclear how the shares were transferred from Sellam to Barkol.
On August 4, 2009, Metropolitan filed a satisfaction of Mechanic's Lien for Public Improvement extinguishing the third lien for the sum of $195,000. On October 20, 2010, Metropolitan filed a fourth lien against AMC in the amount of $200,000. AMC put up a bond to discharge the lien in August of 2011, and the lien was withdrawn on November 30, 2011.
Metropolitan commenced the instant action by filing a summons and complaint on July 11, 2011, for breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, unjust enrichment and an accounting. Defendants answered and counterclaimed for a judgment declaring the first three liens invalid, a judgment declaring the agreements entered into on July 27, 2009, to be invalidated for economic duress and usury, a judgment declaring the fourth lien to be invalid, civil RICO violations and conversion by extortion.
Discussion
A. Release
The loan payment agreement that Dimeski signed on July 27, 2009, contains a general release that provides:
The Borrowers hereby release and discharge the Lender and its directors, officers, stockholders, employees, agents or representatives, including Shai Sellam, from all liabilities, actions, causes of action, suits, debts, dues, sums of money, accounts, contracts, controversies, agreements, promises, damages, judgments, claims and demands whatsoever, in law or equity, which against Metropolitan, the Borrowers ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date hereof.”
Additionally the document simply titled Agreement contains a similar release that provides:
“ Release. The Contractors hereby release and discharge Metropolitan and its directors, officers, stockholders, employees, agents or representatives, including Shai Sellam, from all liabilities, actions, causes of action, suits, debts, dues, sums of money, accounts, contracts, controversies, agreements, promises, damages, judgments, claims and demands whatsoever, in law or equity, which against Metropolitan, the Borrowers ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date hereof.”
“Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release. If the language of a release is clear and unambiguous, the signing of a release is a jural act binding on the parties” ( Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V., 17 NY3d 269, 276 [2011] [internal quotation marks and citations omitted] ). The language contained in the releases at issue here is clear and unambiguous and should serve to bar defendants' causes of action against movants. “A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake ( id. [internal quotation marks omitted]; see also Lambert v. Sklar, 61 AD3d 939, 940 [2009] ).
Defendants argue that the agreements and the releases were signed under economic duress. “A contract may be voided on the ground of economic duress where the complaining party was compelled to agree to its terms by means of a wrongful threat which precluded the exercise of its free will” (Stewart M. Muller Constr. Co. v. New York Tel. Co., 40 N.Y.2d 955, 956 [1976];see also Sitar v. Sitar, 61 AD3d 739, 742 [2009] ). Defendants aver that the fraudulent liens constituted economic duress that prevented defendants from exercising their free will when they signed the agreements that contained the releases.
Even accepting that the liens were indeed fraudulent, as we must do on a motion to dismiss ( see Whitebox Concentrated Convertible Arbitrage Partners, L.P. v. Superior Well Servs., Inc., 20 NY3d 59, 63 [2012] ), defendants have failed to establish as a matter of law that the liens constituted economic duress such that it precluded defendants from exercising their free will. Noteworthy, it is undisputed that defendants never served notice to vacate any of the liens pursuant to Lien Law § 21–a, which would have forced Metropolitan to withdraw the lien or show cause in Supreme Court “why the notice of lien should not be vacated and canceled of record.” Further, pursuant to Lien Law § 39, a lien that is “wilfully exaggerated” is void ( see Executive Towers at Lido v. Metro Constr. Servs., 303 A.D.2d 545, 545 [2003] ). Because defendants elected to “forego legal remedies available to [them], and, instead, released [their] rights ... [they] cannot now argue economic duress” (Jomar Bakery Corp. v. Pergament United Sales, 159 A.D.2d 491, 492 [1990];see also Kohn v. Kenton Assoc., 27 A.D.2d 709, 709 [1967]affd23 N.Y.2d 726 [1968] [“One does not act under duress, moreover, where there is available adequate legal remedy to redress the threatened coercion”] ).
Furthermore, defendants unreasonably delayed raising the issue of duress in signing the contract. Again, accepting the liens as adequate economic duress, it is uncontroverted that the third lien was discharged on August 4, 2009, and the fourth lien was filed October 20, 2010 over a year later. “[O]ne who would recover moneys allegedly paid under duress must act promptly to make his claim known” (Austin Instrument v. Loral Corp., 29 N.Y.2d 124, 133 [1971];see also Cappelli Enters., Inc. v. F & J Cont. Food Corp., 16 AD3d 609, 610 [2005] [“Where a party has accepted the benefits of an agreement and then seeks to repudiate the agreement on the ground of coercion, it must do so in a timely fashion or any objection is waived”] ). Defendants failure to raise the issue of duress during the one-year period where there were no liens in place constitutes a waiver of any objection.
Defendants' argument that the threat of the possibility of additional fraudulent liens being levied against them constituted continuing economic duress ( see Sosnoff v. Carter, 165 A.D.2d 486, 492 [1991] [“continuing economic duress would even have the effect of tolling any period of limitations if the disaffirming party has commenced the action”] ) is without merit. In their complaint defendants argue that the duress caused by the liens was that they were unable to be paid on their contracts with NYCHA. Documentary evidence demonstrates that after the third lien was withdrawn, payments by NYCHA resumed.
Because the release is valid and defendants have failed to allege duress as a matter of law, the counterclaims and third-party complaint must be dismissed. However, even if the releases were invalid, defendants' causes of action would be denied.
B. Invalidating Liens
Defendants' first and fourth counterclaims request an order declaring the four liens “invalid ab initio.” This cause of action must fail, the liens are no longer in effect and accordingly, this court has no authority under Lien Law § 39–a to discharge them ( see Guzman v. Estate of Fluker, 226 A.D.2d 676, 678 [1996] ). Defendants' reliance on Matter of Diamond Architecturals v. EFCO Corp., (179 A.D.2d 420 [1992]appeal dismissed80 N.Y.2d 919 [1992] ) is misplaced. In Matter of Diamond the bond was discharged by the filing of an undertaking which is not the case at bar.
C. Duress
Defendants' second counterclaim sounds in duress. As fully discussed above, defendants have failed to allege duress as a matter of law.
D. Usury
Defendants' third counterclaim seeks a judgment declaring the agreements void because they collectively form a usurious transaction. Accepting defendants allegations as true, we must look at the three agreements together as having the purpose of collecting interest at a rate of almost 800% on the $350,000 loan ( see Ujueta v. Euro–Quest Corp., 29 AD3d 895, 895 [2006] [“When determining whether a transaction constitutes a usurious loan it must be “considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it”] [[internal quotation marks omitted] ). However, because the loan is greater than $250,000, defendants may not rely on civil usury restrictions ( seeGeneral Obligations Law § 5–501[6][a]; Machidera Inc. v. Toms, 258 A.D.2d 418, 418 [1999] ). Nor may defendants maintain an action pursuant to Penal Law § 190.40, the criminal usury statute. “The statutory exception for interest exceeding 25 percent per annum is strictly an affirmative defense to an action seeking repayment of a loan” (Intima–Eighteen, Inc. v. Schreiber Co., 172 A.D.2d 456, 457 [1991]lv denied78 N.Y.2d 856 [1991];see also Zoo Holdings, LLC v. Clinton, 11 Misc.3d 1051[A], 2006 N.Y. Slip Op 50167[U], *4 [Sup Ct, N.Y. County 2006] [“plaintiff improperly attempts to use a shield created by the Legislature as a sword”]; Koenig v. Slazer Enters., 27 Misc.3d 1212[A], 2010 Slip Op 50688[U] *4–5 [Sup Ct. Rockland County 2010] [“Nothing we see in the criminal usury statute, N.Y. Penal Law § 190.40 (McKinney 2001), provides for voiding, and it is unclear whether the Legislature intended that criminally usurious loans of $250,000 or greater be voided”] ).
E. RICO
“A violation of § 196(c) ... requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity” (Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 498 [1985] ). Defendants, in their complaint, allege that movants engaged in racketeering activity by use of extortion to extract usurious interest rates and violation of federal mail and wire fraud statutes.
For purposes of the RICO statute, extortion is defined as “obtaining something of value from another with his consent induced by the wrongful use of force, fear, or threats” (James v. United States, 550 U.S. 192, 222 n. 2 [2007] quoting Scheidler v. National Organization for Women, Inc., 537 U.S. 393, 409 [2003] ). “[A] threat of economic harm ... is not per se wrongful” (United States v. Kattar, 840 F.2d 118, 123 [1st Cir1988] ) “however, when employed to achieve a wrongful purpose, its use' is wrongful” (United States v. Clemente, 640 F.2d 1069, 1077 [2d Cir1981] ). On a motion to dismiss, the extortion by threat of economic harm as a RICO predicate, cannot be dismissed as a matter of law. The allegations of mail and wire fraud, however, fail to meet the heightened pleading requirements of a civil RICO action ( see Figueroa v. Alegria, 896 F.2d 645, 649 n. 3 [1st Cir1990] see also New England Data Servs., Inc. v. Becher, 829 F.2d 286, 291 [1st Cir1987] [“In RICO, the plaintiff must go beyond a showing of fraud and state the time, place and content of the alleged mail and wire communication perpetrating that fraud”] ).
However, even accepting the filing of fraudulent loans as a predicate racketeering activity, defendants have failed to show a pattern of racketeering. “A pattern of racketeering activity requires the commission within a ten year period of at least two predicate acts that violated laws listed in 18 U.S.C. § 1961(1)” (Center Cadillac, Inc. v. Bank Leumi Trust Co. of New York, 859 F Supp 97, 101 [SD N.Y.1994] ). Additionally, “a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity” (H.J. Inc. v. Northwestern Bell Telephone Co. 492 U.S. 229, 239 [1989] ). “Continuity' is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition” ( id. at 241).
Open ended continuity “is ... satisfied where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business” ( id. at 243). Defendants have failed to demonstrate that movants use fraudulent liens as a standard way of doing business. The sole allegation in the complaint is that movants “participated in ... the affairs of a racketeering enterprise established for the commission of criminal acts, to wit the obtainment of funds via the submission of fraudulent purported lien documents” to obtain money or “property from its victims by extortion.” Defendants' “allegation that defendants regularly conduct their business through similar fraudulent schemes is wholly conclusory and completely unsupported by the factual allegations in the complaint” (FD Property Holding, Inc. v. U.S. Traffic Corp., 206 F Supp2d 362, 371 [ED N.Y.2002] ). Additionally, defendants' allegations that movants and Sellam engaged in creating “shell companies” to hide and further their illegal activities, even if accepted as true, bear no relationship to the alleged pattern of racketeering activity against defendants, i.e the filling of the fraudulent liens, and do not demonstrate open-ended continuity ( see Bernstein v. Misk, 948 F Supp 228, 237 [ED N.Y.1997]; see also Shamis v. Ambassador Factors Corp., U.S. Dist Ct, SD NY, 95 Civ 9818, Sweet, J.1997).
“To satisfy closed-ended continuity, the plaintiff must prove a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months do not satisfy this requirement. To establish closed-ended continuity, a plaintiff must provide some basis for a court to conclude that defendants' activities were neither isolated or sporadic” (DeFalco v. Bernas, 244 F3d 286, 321 [2d Cir2001] ). “RICO allegations involving minimal variety in predicate acts, a limited number of participants or victims, and a discrete scheme with a narrow purpose are generally insufficient to establish a closed-ended continuity pattern” ( Acme American Repairs, Inc. v. Katzenberg, U.S. Dist Ct ED NY, 03 CV 4740, Mauskoph, J.2010 citing First Capital Asset Management, Inc. v. Satinwood, Inc., 385 F3d 159 [2d Cir2004] ). Here the scheme involved fraudulent liens placed on April 28, 2009 and July 9, 2009, forcing defendants to sign the agreements on July 27, 2009 and a fourth fraudulent lien being placed on October 20, 2010. These activities amount to a single scheme with a limited temporal base ( see id. at 181 [“this Court has never found a closed-ended pattern where the predicate acts spanned fewer than two years”] ). Furthermore, defendants, allegations that payments are still being made on the agreements to date is inconsequential in determining the length of the pattern ( see Pier Connection, Inc. v. Lakhani, 907 F Supp 72, 76 [SD N.Y.1995] [“continuing to reap such benefits is not itself a predicate act; it is only an effect of the alleged acts of wire fraud”] ). Defendants have failed to show close-ended continuity.
Because defendants' RICO claims must be dismissed, by necessity, their cause of action for conspiracy to violate RICO must also be dismissed.
F. Conversion by Extortion
Defendants seventh cause of action for conversion by extortion must be dismissed. “Extortion and attempted extortion are criminal offenses that do not imply a private right of action” (Minnelli v.. Soumayah, 41 AD3d 388 [2007] [internal citation omitted] lv dismissed9 NY3d 1028 [2008];see also Niagara Mohawk Power Corp. v. Testone, 272 A.D.2d 910, 911 [2000] ).
Finally, movants' motion and defendants' cross motion for sanctions are denied. Further because the release is valid and proscribes all causes or potential causes of action against movants, defendants' cross-motion for leave to file an amended complaint is denied.
Accordingly, it is
ORDERED that Metropolitan and Kenneth Martinez's motion to dismiss pursuant to CPLR 3211(a)(1), (5) and (7) is granted; and it is further
ORDERED that Metropolitan and Kenneth Martinez's motion for sanctions pursuant to 22 NYCRR § 130–1.1 is denied; and it is further
ORDERED that NYC Construction Services, Inc and Kadir Barkol's cross-motion to dismiss pursuant to CPLR 3211(a)(1), (5) and (7) is granted; and it further
ORDERED that defendants' motion for sanctions pursuant to 22 NYCRR § 130–1.1 is denied; and it is further
ORDERED that defendants' motion for leave to file amended counterclaims and an amended third-party complaint pursuant to CPLR 3025 is denied.
This constitutes the decision and order of the court.