Opinion
6456/07.
Decided April 21, 2008.
Upon the foregoing papers, defendant V.C. Vitanza Sons, LLC (Vitanza) moves, pursuant to CPLR 3025(b), for leave to amend its answer herein.
BACKGROUND AND CONTENTIONS
This motion arises out of a lawsuit commenced by plaintiff on February 22, 2007, seeking monetary damages, an accounting, a declaratory judgment and injunctive relief, concerning a certain parcel of real estate located at 103-119 Third Street in Brooklyn (the property). According to plaintiff, who identifies himself as an investor in real estate who resides in Dublin, Ireland, he and defendant James Mooney (Mooney), a professional acquaintance who resides in both Ireland and New York, introduced him to defendants Aida Stoddard (Stoddard) and Joanna Frank (Frank). In or about May of 2006, plaintiff was approached by Stoddard, Frank and Mooney, with a proposal that they purchase and develop the property.
As further alleged, Stoddard and Frank represented to plaintiff that they had a good relationship with defendant V. T. Vitanza Sons, LLC (Vitanza), the fee owner and vendor of the property. During the negotiations, Stoddard, Frank and Mooney advised plaintiff that a deposit on the purchase price of the property was needed to secure their interests in the property, and requested that he, as the only entity involved with sufficient funds, contribute a total of $800,000 to be used exclusively to fund the purchase. Plaintiff, as a condition for his immediate contribution of $400,000, required that the other three individuals give him full and unfettered authority with regard to the property until the commencement of the actual development, or, in the event that plaintiff decided that he did not wish to proceed with such purchase or development, that they reimburse him the full amount of $800,000, and additionally compensate him for such risk investment. The other individuals agreed and accepted plaintiff's terms and conditions. Accordingly, on or about May 23, 2006, plaintiff provided the requested $400,000 for the deposit on the property, and later, in early September of 2006, provided the balance. The funds were held in escrow.
According to plaintiff, Stoddard and Frank formed Bright City Development LLC (Bright City) to represent interests in the partnership now formed among plaintiff, Stoddard, Frank, Mooney and, ostensibly, Bright City . Plaintiff alleges that he retained a majority interest in said partnership. In August of 2006, they memorialized the terms of their partnership agreement.
Subsequently, Stoddard, Frank and Bright City objected to certain mortgage broker charges and expressed a desire to engage with funding and loan brokerage services themselves with the Bank of Scotland NYC. Plaintiff purportedly objected to this proposal.
Plaintiff claims that on August 31, 2006, he became seriously ill and underwent emergency surgery. He was then advised that Stoddard, Frank and Bright City engaged in direct negotiations with the Bank of Scotland, NYC in direct contravention of their agreement and plaintiff's authority to control of pre-development activities of the partnership. They then purportedly refused to provide plaintiff with the final terms of the purchase of the property, and threatened to replace plaintiff with other investors. Consequently, plaintiff alleges that he threatened to withdraw from the transaction, and, by letter dated September 21, 2006, did so. He further alleges that they have failed to return his $800,000 or provide him with any of the books and records in connection with the purchase of the property.
Plaintiff further alleges that in January of 2007, Stoddard, Frank and Bright City offered the parties' interest in the property for sale to third parties, alleging that such was necessary in order to meet their obligations under the contract of sale. They also obtained an extension of the closing date from November 15, 2006 to February 1, 2007. They were then served with a "time of the essence letter" demanding that the closing take place on or before February 23, 2007.
Plaintiff was purportedly advised that a funding source had emerged, that said source required, as a condition, that it be accorded a majority interest, and that upon completion of the project, the equity interests of the new investor would be satisfied before any return to plaintiff, Stoddard, Frank and Bright City. Claiming that he was deprived of any further information regarding this funding source or the ultimate effect its role in the project would have on plaintiff's interests, plaintiff refused to join with the others in consenting to its terms and conditions, and once again demanded, without success, to review the partnership's books and records.
Plaintiff alleges that he has learned that his $800,000 has been utilized in connection with the purchase of an unrelated property.
Plaintiff commenced the instant lawsuit by filing a summons and complaint on February 22, 2007, and simultaneously filing a Notice of Pendency, purportedly causing Bright City to refuse to purchase the property on the scheduled closing date. After further negotiations, and after conferences with the court, Bright City transferred its rights under the contract of sale. The property was sold on May 31, 2007.
The present motion
Alleging that its existing answer sets forth only a cross claim against BCD for specific performance under the contract of sale, Vitanza, noting that the disposition of the property is no longer an issue, seeks an order amending its answer to (1) assert counterclaims against plaintiff for damages for fraud, malicious prosecution and abuse of process; (2) cross claims against BCD,
Stoddard and Frank for damages for fraud, breach of contract, unjust enrichment, breach of covenant of good faith and fair dealing, and misrepresentation; and (3) a cross claim against Mooney for fraud. It contends that the sole issue is that of damages to which any party may be entitled, as well as claims to the $610,000 being held in escrow by plaintiff's attorneys, which sum may be available to satisfy any eventual judgment.
Vitanza's allegations
In is proposed Second Amended Answer, Vitanza alleges, as its Tenth Affirmative Defense and First Counterclaim and Cross Claim, that on or about June 1, 2006, it entered into a contract of sale with Bright City where it agreed to sell the subject property for the sum of $7.9 million. To permit Vitanza to perform an IRC § 1031 tax deferred exchange, Section 18.09 was included in the contract. On or about August 21, 2006, Vitanza and Bright City amended the contract of sale by executing a certain Amendment which, inter alia, provided for closing to take place on November 15, 2006. In October of 2006, Vitanza entered into a contract of sale to purchase a replacement property in order to avail itself of the § 1031 tax deferral. Closing for that property was scheduled to take place on November 15, 2006.
As further alleged, Bright City advised Vitanza that it would not be able to close on November 15, 2006. In response to Vitanza's insistence, Bright City offered to arrange for interim financing, and asked Vitanza to seek an adjournment of the closing on the replacement property to January of 2007. Vitanza succeeded in doing so, on the condition that it pay the principal and interest payments due on the first mortgage on the replacement property for the months of December, 2006 and January, 2007. Vitanza in turn agreed to accept Bright City's offer to arrange for interim financing provided that it, Stoddard and Frank agree to reimburse Vitanza for the aforementioned mortgage payments, and pay all costs and interest associated with the interim financing, until the closing on the property. Bright City accepted this arrangement, and a closing was held on the interim financing on November 30, 2006, whereby Vitanza borrowed $2.8 million, the note was secured by a first mortgage against the property, and payment thereof was guaranteed by Stoddard and Frank. Bright City paid costs and interest through February of 2007.
Vitanza goes on to claim that from the proceeds of the closing, it refunded to Bright City the amount of $780,000, representing a partial refund of the down payment, such that the down payment was reduced to $10,000. The contract of sale was so amended by the parties' execution of a second amendment thereto.
After January 1, 2007, Vitanza attempted to schedule a closing for some day that month, but was advised by Bright City that because its financing was not yet in place, closing could not take place until February. Vitanza then received a "Time of the Essence" letter scheduling closing on the replacement property for 10:00 a.m. on February 7, 2007. Consequently, Vitanza sent a similar letter to Bright City scheduling closing for 11:00 a.m on February 6, 2007. Following further negotiations, the parties agreed to reschedule closing for February 23, 2007, time being of the essence. Thereafter, on February 16, 2007, the parties executed the Second Amendment to the contract of sale, fixing February 23, 2007 as the closing date.
On February 22, 2007, plaintiff commenced the instant lawsuit and filed a notice of pendency.
Vitanza claims that it had never heard of plaintiff prior to being served with process, and denies plaintiff's allegations to the contrary. It further alleges that all transactions by Vitanza relative to the sale of the property to Bright City had been with Stoddard and/or Frank, and asserts that on February 23, 2007, its title to the property was good and marketable, and that it was ready, willing and able to perform the contract of sale.
Vitanza further alleges that on February 23, 2007, the members of Bright City and Vitanza met to address plaintiff's action and the failure to close. Bright City indicated that it had hired an attorney who was in the process of preparing a motion to have the notice of pendency vacated.
Defendant alleges that it obtained a further adjournment of the closing on the replacement property, but ultimately was declared in default and forfeited its down payment in the amount of $350,000. It further avers that on March 1, 2007, the $2.8 million mortgage against the subject property matured, and, precluded from refinancing due to the notice of pendency, it was in default on that as well. Consequently, it claims that it was forced to extend the mortgage to June 1, 2007, at a cost of $151,478.34, which Bright Cities refused to pay in breach of its contractual obligations.
Upon the aforementioned cancellation of the notice of pendency, Vitanza assigned its rights under the contract of sale to Hudson Residential Services, Inc. (Hudson), and, on May 31, 2007, sold the subject property to Hudson.
In support of its counterclaim for fraud, Vitanza asserts that the "cross claim defendants" and plaintiff entered into a plan and scheme to defraud Vitanza, and to cause it to agree to accept a sum substantially lower than the agreed-upon sales price. As alleged, part of such plan and scheme was to have plaintiff file a notice of pendency against the property to give the "cross claim defendants" an excuse to refuse to close title on February 23, 2007.
The foregoing allegations furnish the basis for Vitanza's proposed second counterclaim (malicious prosecution), third counterclaim (abuse of process), second cross claim against Bright City (breach of contract), third cross claim against Stoddard and Frank (unjust enrichment), fourth cross claim against Bright City, Stoddard and Frank (breach of implied covenant of good faith and fair dealing), and fifth cross claim against Bright City, Stoddard and Frank (misrepresentation).
Bright City's, Stoddard's and Frank's opposition
In opposition, Bright City, Stoddard and Frank contends that the contract which was allegedly breached was solely between two limited liability companies, Vitanza and Bright City. They assert that Stoddard and Frank cannot be held liable for the activity of the limited liability company of which they are members, and reject Vitanza's proposed cross claims. Specifically, it is argued that the third cross claim (unjust enrichment) is frivolous because, as it is based on the Frank and Stoddard guaranty, the latter would have a cause of action against Vitanza for contribution/indemnification if they had paid Vitanza's obligation. The fourth cross claim (breach of the implied covenant) is opposed based upon (1) the aforementioned contention that Stoddard and Frank were not parties to the contract, and (2) the contention that the incorrect information/representations allegedly provided was done so prior to the execution of the contract and is therefore barred by the Statute of Frauds, the parol evidence rule and the doctrine of merger and bar.
It is thus contended that while motions for leave to amend pleadings are to be liberally granted in the absence of prejudice or surprise, it is equally true that the court should examine the sufficiency of the merits of the proposed amendment when considering such motions.
Plaintiff's opposition
Plaintiff contends that Vitanza was not an "innocent bystander" to the fraud and malfeasance described by him in the complaint. He asserts that Vitanza utilized plaintiff's funds on deposit for the purchase of the subject property, for unrelated matters, knew of the other parties' fiduciary duties, and knowingly induced or participated in the fraud and breach thereof. He argues that the facts and circumstances set forth by Vitanza in the present motion were known to it, but omitted, at the time it moved to vacate the notice of pendency, demonstrating both lack of merit, and an intent to harass and intimidate plaintiff.
Substantively, plaintiff contends that Vitanza's motion for leave to amend its answer to include a cause of action for fraud should be denied as it fails to satisfy New York's pleading requirements for fraud. He contends that the proposed claim for malicious prosecution must fail because it is conclusory and because Vitanza cannot show that the notice of pendency action was terminated in its favor when it was discontinued by agreement of the parties. Finally, he rejects Vitanza's proposed cause of action for malicious prosecution, contending that under New York law, the filing of a notice of pendency is not actionable as an abuse of process.
Vitanza's reply
In reply, Louis Vitanza, a member of Vitanza, points out that its first answer was drafted by former counsel, and that new counsel seeks to add the new counterclaims and cross claims. He contends that if Stoddard and Frank had been honest with it in September of 2006 and informed Vitanza that they no longer had the finances to close the transaction, it would not have borrowed the $2.8 million and given an oppressive mortgage. Rather, Vitanza would have defaulted Bright City and sold the property to others.
Louis Vitanza further points out that there have been no depositions, and alleges that after the present action was commenced, plaintiff met with Vitanza and suggested (in what is characterized as a tactic) a reduction of $1.4 million dollars in the purchase price. He further argues that discovery may well disclose the existence of a scheme to reduce the purchase price, or that the present lawsuit was brought by plaintiff to use as leverage against one or more of the other defendants in disputes plaintiff has with them with respect to other (unidentified) projects in which they are mutually involved.
Vitanza further contends that Stoddard and Frank's misrepresentations concerning their intention to perform the contract give rise to a claim for fraud, which lies outside the contract and is independent of the enforceability of the contract, and that a false statement of intention is sufficient to support an action for fraud even where that statement relates to an agreement between the parties. Vitanza contends that plaintiff, by commencing the present action and filing the notice of pendency, actively took part in the fraud.
As to plaintiff's opposition to inclusion of the counterclaims for malicious prosecution and abuse of process, Vitanza contends that plaintiff, who claims that he filed the notice of pendency and commenced the instant lawsuit when he did in order to protect his interests and prevent BCD from unilaterally acquiring title to the property, fails to explain how involving Vitanza in a dispute involving BCD, Stoddard, Frank and Mooney protected those interests.
Mooney
Mooney has interposed no opposition to Vitanza's motion.
DISCUSSION
It is well settled that motions for leave to amend pleadings are to be liberally granted absent prejudice or surprise resulting from the delay ( see Crystal House Manor v Totura , 5 AD3d 425 ; Tarantini v Russo Realty Corp., 273 AD2d 458). The determination whether to grant such leave is within the discretion of the court ( see AFBT-II, LLC v County Village on Mooney Pond, Inc. , 21 AD3d 972). However, a cause of action totally devoid of merit or palpably insufficient as a matter of law will not be allowed ( Leszczynski v Kelly McGlynn, 281 AD2d 519; Fandy Corp. v Lung-Fong Chen, 265 AD2d 450; Romano v Damiano, 242 AD2d 267).
Vitanza's cross claims
The court rejects Stoddard and Frank's opposition to the present motion on the ground that as a matter of law, they cannot, as members of a limited liability corporation, be found liable. It is, of course, well-settled that "[a] member of a limited liability company cannot be held liable for the company's obligations by virtue of his [or her] status as a member thereof'" ( Matias ex rel. Palma v Mondo Properties LLC, 43 AD3d 367, 367-368, quoting Retropolis, Inc. v 14th St. Dev. LLC , 17 AD3d 209, 210; see also Limited Liability Company Law §§ 609, 610). However, despite this statutory proscription, Vitanza has set forth facts which entitle it to maintain a cross claim as against said individuals. In order to hold the individual members of the corporation liable by piercing the corporate veil, a doctrine applicable to limited liability companies ( see Retropolis, id., citing Williams Oil Co. v Randy Luce E-Z Mart One, 302 AD2d 736, 739-40, 757 NYS2d 341), a third party must show 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 [party] which resulted in [party's] injury" ( Matter of Morris v. New York State Dept. of Taxation Fin., 82 NY2d 135, 141; Old Republic Nat. Title Ins. Co. v Moskowitz, 297 AD2d 724). Moreover, it is well established that a breach of contract may be considered a tort in the event that "a legal duty independent of the contract itself has been violated" ( Clark-Fitzpatrick, Inc. v Long Is. R.R., 70 NY2d 382, 389). Vitanza's factual allegations against the corporate and individual defendants, while opposed in an attorney's affidavit, are not challenged in admissible form by the co-defendants themselves, and are clearly "neither palpably insufficient nor patently devoid of merit, and would not prejudice or surprise the opposing part[ies] so as to prevent the stated causes of action on the cross claim from going forward." ( In re Salon Ignazia, Inc., 34 AD3d 821, 822).
Vitanza's counterclaim
As correctly observed by Vitanza, plaintiff opposes its motion by claiming that its proposed counterclaims fail to state a cause of action. However, the law does not impose the burden requiring that party seeking leave to amend a pleading set forth evidentiary support which is sufficient to state a cause of action. Indeed, in Lucindo v Mancuso, 49 AD3d 220, 245, the Appellate Division, Second Department, explicitly instructed courts that "[c]ases involving CPLR 3025(b) that place a burden on the pleader to establish the merit of the proposed amendment erroneously state the applicable standard and are no longer to be followed. No evidentiary showing of merit is required under CPLR 3025(b). The court need only determine whether the proposed amendment is palpably insufficient' to state a cause of action or defense, or is patently devoid of merit. Where the proposed amended pleading is palpably insufficient or patently devoid of merit, or where the delay in seeking the amendment would cause prejudice or surprise, the motion for leave to amend should be denied. If the opposing party wishes to test the merits of the proposed added cause of action or defense, that party may later move for summary judgment upon a proper showing (see CPLR 3212)."
In the instant case, Vitanza has set forth a factual scenario alleging fraudulent and otherwise tortious conduct that is in sharp contrast to that which the plaintiff has alleged ( see Auguston v Spry, 282 AD2d 489). Applying the Appellate Division's clearly articulated legal standard, the court finds neither palpable insufficiency of any proposed cause of action against plaintiff, nor any basis for concluding granting the motion will result in surprise or prejudice.
In view of the foregoing, the court grants Vitanza's motion, and directs that it serve its second amended answer, in the form annexed to its moving papers, within 10 days following notice of entry of this order.
This constitutes the decision and order of the court.