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finding that reliance on defendant's omission was unreasonable where plaintiff cursorily scanned memoranda with information reasonably indicating defendant's fraud
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00 Civ. 9005 (WK)
November 4, 2002
Jack S. Dweck, Esq., H.P. Sean Dweck, Esq., The Dweck Law Firm, LLP, New York, NY.
Rachell Sirota, Esq., Sirota Sirota LLP, New York, N.Y.
MEMORANDUM ORDER
In this diversity action, Alan Waksman ("Plaintiff"), alleges, inter alia, that Defendants Jerome Cohen ("Cohen"), Bently Blum ("Blum"), Marshal Bernstein ("Bernstein"), Richard Gershman ("Gershman") and Midway Realty Associates, L.P. II (collectively the "Defendants") fraudulently concealed information pertaining to the operations of a partnership and the sale of that partnership's real estate. The Defendants have moved to dismiss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure or, in the alternative, for summary judgment pursuant to Rule 56.
For the reasons set forth below, we GRANT the Defendants' motion for summary judgment.
BACKGROUND
The facts which follow are presented as alleged in the complaint and in the affidavits in opposition to the Defendants' motion (as well as the accompanying opposition brief). Since the complaint and the opposition papers refer to a prior action initiated by the Plaintiff in this Court, we also take into account the Memorandum and Order we issued in that case in October 1998. See Waksman v. Cohen (S.D.N.Y. Oct. 2, 1998), No. 97 Civ. 7349 (WK), 1998 WL 690086. Familiarity with that decision is assumed.
I. Events Leading Up To The Prior Lawsuit
For many years prior to the events in question in the instant lawsuit, Defendant Cohen served as the Plaintiff's attorney, accountant and financial adviser. In September 1985, Cohen recommended an investment for the Plaintiff which would enhance the Plaintiff's estate plan. This investment proposal involved a syndicated real estate partnership, known as Midway Realty Associates ("Midway I"). The investment would supposedly have appreciated in value over time and would purportedly have supplied a guaranteed stream of income in the interim. Acting on the advice of Cohen, as well as upon a cursory reading of a confidential Private Placement Memorandum ("PPM") relating to Midway I, the Plaintiff decided to purchase an interest in the Midway I limited partnership at an aggregate price of $128,000. However, by the time the Plaintiff gave Cohen the go-ahead for the investment, all the interests in the Midway I partnership had already been purchased.
Thereafter, Cohen recommended that the Plaintiff invest in a similar limited partnership known as Midway Realty Associates L.P. II ("Midway II"). Cohen advised the Plaintiff that investing in the Midway II partnership would constitute exactly the same deal as investing in the Midway I partnership and that the Midway II investment related to real estate (which is hereinafter referred to as the "Midway II building" or the "Midway II property") on a parcel adjacent to the real estate involved in the Midway I deal. Based solely on Cohen's representations, and without reading the PPM for Midway II, the Plaintiff purchased an interest in the Midway II partnership for a total sum of $128,000. He signed a subscription agreement for the Midway II investment on December 25, 1985. Had he read the subscription agreement, the Plaintiff would have learned that he was representing: (1) that he was aware of the "high degree of risk" involved in a "speculative" investment; (2) that "no representations or warranties" had been made to him other than those contained in the PPM, and that he was not relying on any other representations or warranties; and (3) that he had received the PPM for Midway II (which in fact he had not, and would not until 1997), and was relying only on that document in making his investment choice.
In reality, the terms for the Plaintiff's investment in the Midway II partnership were quite different from those relating to Midway I. The property purchased by the Midway II partnership was encumbered by a mortgage financed on separate terms, which was to mature in 1987 (only two years after the Plaintiff had made his investment). This meant that the Midway II partners would have to refinance the mortgage immediately, which they proceeded to do on unfavorable terms. After buying the land under the Midway II building at an inflated price and laying out legal, mortgage placement and refinancing fees, the Midway II partnership accumulated a tremendous amount of debt.
The Plaintiff learned about none of this until 1997. After signing the subscription agreement in 1985, he proceeded under the assumption that the operations and finances of the Midway II partnership were identical to those of the Midway I partnership. He made no independent inquiry into the Midway II investment. Instead, he relied exclusively on Cohen's representations, placing blind trust in his fiduciary. It was not until 1997 that the Plaintiff, finally realizing that he had received no return on his investment to date, requested the PPM for Midway II. Upon receiving this PPM for Midway II (which described the Midway II deal in detail), the Plaintiff determined that he had been defrauded.
II. The 1997 Action
Upon discovering the purported fraud which had been perpetrated upon him, the Plaintiff instituted an action in this Court, Alan Waksman v. Jerome Cohen. et al. (S.D.N.Y.) No. 97 Civ. 7349 (WK), on October 2, 1997 (hereinafter the "1997 Action"). In that proceeding, the Plaintiff asserted a variety of different claims against Defendants Cohen, Blum, Bernstein, and Gershman, as well as against Midway I and II. Hence, the proceeding included causes of action for fraud, the breach of a fiduciary relationship, the breach of an employment agreement, unjust enrichment, conspiracy to breach fiduciary duties, aiding and abetting the breach of fiduciary duties, and wrongful inducement to breach fiduciary duties.
Defendant Blum is allegedly the principal owner of Commodore Resources Corp. ("Commodore"), the company that owned the Midway II building until the Midway II partnership purchased the property on November 1, 1985. See Compl. ¶ 31. Defendant Blum is also an alleged business affiliate of Defendants Bernstein and Gershman. See id.
Defendants Bernstein and Gershman are allegedly general partners in MIIGP Associates L.P., which is itself the general partner in the Midway II partnership. See Compl. ¶ 31.
The Defendants moved to dismiss the Plaintiff's action or, in the alternative, for summary judgment. On October 2, 1998, this Court granted their motion and dismissed the Plaintiff's action in its entirety.
III. Events Leading Up To The Present Action
After we dismissed the Plaintiff's 1997 Action, he filed a Notice of Appeal on November 2, 1998. Shortly thereafter, Lisa Greenberg, Staff Counsel for the Second Circuit, held a conference attended by the parties' attorneys in an attempt to help them reach a settlement. Over the course of these settlement negotiations, the Plaintiff's attorney, at his client's specific request, asked the Defendants' attorneys about the operation and status of the Midway II partnership and the disposition of the Midway II building. In response to this inquiry, the various defense attorneys (not the Defendants themselves) indicated that they knew nothing about the status of the property. The Plaintiff "contented" himself with this answer see Waksman Aff. ¶ 5, and the parties ultimately agreed to settle this matter. To effectuate the settlement, they signed a Stipulation of Settlement dated December 7, 1998. Pursuant to the Stipulation of Settlement, the Defendants agreed to pay the Plaintiff the sum of $100,000. In return, the Plaintiff agreed to discontinue his appeal and to assign all of his right, title and interest in the Midway II partnership to the Defendants. The Plaintiff also agreed to exchange releases "limited to the claims in" the 1997 "action or the underlying transaction, whether known or unknown which were or could have been raised in" the 1997 "action against the pates, their agents, partners, servants or employees." February 1, 2001 Sirota Aff., Ex. C. On December 8, 1998, the Plaintiff executed the agreed upon release of claims.
The Plaintiff received the agreed upon payment from the Defendants sometime after December 21, 1998. Thereafter, he also received a K-1 statement from the Defendants which detailed the tax consequences stemming from his former interest in the Midway II partnership. Although the Plaintiff anticipated that he would sustain a $28,000 capital loss on the sale of his interests in the Midway II partnership (which he could write-off for tax purposes), the K-1 statement instead revealed that he had received a capital gain in excess of $500,000. Since he had never received any return on his investment in the Midway II partnership, the Plaintiff sought to examine Midway II's records. His request was denied. The Plaintiff then instituted proceedings in the Supreme Court, New York County, to obtain copies of Midway II's financial records from the period of 1985 to 1998. On December 17, 1999, Justice Elliott Wilk issued a decision wherein he directed the Defendants to disclose the relevant records.
These financial records provided information relating to the operations of the Midway II partnership. Such information had never previously been disclosed to any of the limited partners, including the Plaintiff Certain information revealed in the records was of particular interest to the Plaintiff First, the records disclosed that Midway II's general partners had allegedly cancelled a previously executed rent guarantee made by Commodore, a company of which Defendant Blum was the principal owner, for no apparent reason. The rent guarantee, for which Blum's company had received a $200,000 fee, provided that the company would guarantee a fair market rent for the Midway II building from 1993 to 1997. The cancellation of that guarantee purportedly resulted in a substantial loss of cash flow and significantly reduced the value of the Midway II property. In addition, the records revealed that the Midway II building had been sold on or about May 29, 1998, while the 1997 Action was still pending before this Court, for $7,350,000. The general partners then purportedly used substantially all of the proceeds from this sale to repay various mortgages on the Midway II building and to repay advances that they made to the partnership even though they were allegedly entitled to such repayment only from the sale of additional interests in the Midway II partnership. Thereafter, the general partners allegedly awarded themselves a 10% commission on the sale of the Midway II building.
IV. The Present Action
The Plaintiff initiated the present action on November 27, 2000. At the outset of his new complaint (in what his attorney later refers to as "Count I" in his opposition papers to the motion at bar), the Plaintiff charges the Defendants with fraudulent concealment of the sale of the Midway II building as well as the conduct related to the sale of that property. The Plaintiff claims that the fraudulent concealment of these facts induced him to agree to the Stipulation of Settlement and release of claims and that he would not have agreed to settle the 1997 Action for $100,000 had he been aware of such facts. The new complaint also includes additional causes of action. In Count II of the new complaint, the Plaintiff alleges that the Defendants breached fiduciary duties when they: (a) failed to disclose the sale of the Midway II building and the various details concerning the sale of the property while the litigation was pending before this Court as well as during settlement negotiations and (b) failed to furnish the Midway II partnership's records to the Plaintiff In Count III, he contends that the Defendants, as a direct result of the foregoing fraudulent conduct and breach, were unjustly enriched during the course of their ownership of the Midway II property. In Count IV, the Plaintiff asserts that the Defendants conspired to breach fiduciary duties.
The Defendants have moved to dismiss this new action in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) or, in the alternative, for summary judgment under Rule 56. They argue, among other things, that the Plaintiff's claims were released under the Settlement Agreement, fail to state a claim, and are bared by the doctrine of res judicata as well as by the relevant statutes of limitation.
DISCUSSION
Although we are troubled by the conduct in which the Defendants are accused of engaging, the Plaintiff here is "not an unsophisticated person who has led a sheltered life." Waksman, 1998 WL 690086, at * 1. In this instance, the Plaintiff failed to use the means available to him to arm himself with the truth about the Defendants' conduct while engaging in arm's length negotiations with them arising out of contentious litigation (itself premised on accusations of fraud). As such, his own corresponding conduct demonstrates that he cannot sustain a claim for fraudulent concealment. Moreover, the express and unambiguous language set forth in the Stipulation of Settlement and release of claims now precludes the Plaintiff from proceeding on Counts II, Ill, and W.
Before we address the motion at bar, we set out the applicable standard in accordance with which the motion must be considered. The Defendants have moved to dismiss the current action in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) or, in the alternative, for summary judgment under Rule 56. As all the parties have introduced evidence outside the four corners of the original complaint in briefing or responding to the Defendants' motion and thereby treated it, in effect, as a motion for summary judgment, we similarly treat the motion as one for summary judgment. See Walker v. United States Drug Enforcement Administration (S.D.N.Y. Aug. 14, 2002) No. 01 Civ. 3668 (SHS), 2002 WL 1870131, at *2 ("Because both parties have submitted materials outside the pleadings . . ., the Court will treat the motion [to dismiss the complaint] as one for summary judgment pursuant to Fed.R.Civ.P. 56");German v. Pena (S.D.N.Y. 2000)88 F. Supp.2d 216, 219 ("As the parties have presented ample materials outside the pleadings, the Court is required to treat this motion to dismiss as a motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.") See also In re G. A. Book. Inc. (2d Cir. 1985)770 F.2d 288, 295, cert. denied,M.J.M. Exhibitors. Inc. v. Stern (1986) 475 U.S. 1015.
Under Local Civil Rule 56.1, a party moving for summary judgment must submit a short and concise statement of material facts as to which it contends there is no genuine issue of fact to be tried. In accordance with that same rule, a party opposing such a motion must similarly submit a statement of the material facts as to which it contends there is a genuine issue of fact to be tried. While Local Civil Rule 56.1 provides that a failure to submit such a statement may constitute grounds for the denial of a motion for summary judgment, we will not deny the Defendants' motion on the basis of this technical defect as the relevant facts are apparent from both parties' briefs and affidavits and the Plaintiff has not demonstrated (nor has he even sought to demonstrate) that he was prejudiced by the Defendants' failure to submit such a statement. See United States v. One Hundred and Thirty-Four Thousand. Seven Hundred and Fifty-Two Dollars United States Currency. more or less (S.D.N.Y. 1989) 706 F. Supp. 1075, 1082 n. 13.
"Summary judgment is appropriate where the Court is satisfied "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."' Celotex Corp. v. Catrett(1986) 477 U.S. 317, 330 (quoting FED.R.CIV.P. 56(c)). "The function of the district court in considering the motion for summary judgment is not to resolve disputed issues of fact but only to determine whether there is a genuine issue to be tried." Eastman Machine Co., Inc. v. United States (2d Cir. 1988) 841 F.2d 469, 473. In making this determination, we must "resolve all ambiguities and draw all reasonable inferences in the light most favorable to the party opposing the motion."Cifarelli v. Village of Babylon (2d Cir. 1996) 93 F.3d 47, 51.
With this standard in mind, we turn to the merits of the motion before us.
I. The Plaintiff's Claim For Fraudulent Concealment
Among other arguments, the Defendants contend that the Plaintiff has failed to state a claim for fraudulent concealment. "To sustain a cause of action for fraudulent concealment under New York law, a Plaintiff must demonstrate that: (1) defendant made an omission of material fact; (2) defendant intended to defraud the plaintiff thereby; (3) defendant had a duty to disclose to plaintiff (4) plaintiff reasonably relied upon the omission; and (5) the plaintiff suffered damages as a result of such reliance." Bermuda Container Line Ltd. v. Int'l Longshoremen's Ass'n (S.D.N.Y. Feb. 8, 1999) No. 97 Civ. 1257 (JFK), 1999 WL 64305, at *5,aff'd(2d Cir. 1999) 192 F.3d 250. See also Abernathy-Thomas Engineering Co. v. Pall Corp. (E.D.N.Y. 2000) 103 F. Supp.2d 582, 596. Even if we were to assume, for the sake of argument, that the Plaintiff has demonstrated that the Defendants omitted material facts where they had a duty to disclose them and did so with the intent to defraud the Plaintiff, we find that the Plaintiff cannot sustain a claim for fraudulent concealment as he cannot, as a matter of law, establish the requisite reliance.
At the outset, the Plaintiff, citing Affiliated Ute Citizens of Utah v. United States (1972) 426 U.S. 128, DuPont v. Brady(2d Cir. 1987) 828 F.2d 75, and Titan Group v. Faggen (2d Cir. 1975) 513 F.2d 234,cert. denied (1975) 423 U.S. 840, contends that reliance should be presumed from the fact the non-disclosed information was material. However, these cases are distinguishable from the circumstances at bar. The three aforementioned cases involved claims brought under the federal Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.See Affiliated Ute Citizens of Utah, 406 U.S. at 132; DuPont, 828 F.2d at 75-76; Titan Group, 513 F.2d at 236. Under that federal statute and regulation, where a plaintiff alleges fraudulent securities violations based on the non-disclosure of material information, "positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of his decision."Affiliated Ute Citizens of Utah, 406 U.S. at 153-154.
In sharp contrast, New York courts have chosen not to abandon the requirement of reliance in common law fraud cases. See Strauss v. Long Island Sports. Inc. (N.Y.App.Div. 1978) 401 N.Y.S.2d 233, 237 ("Other 10-b5 cases . . . do dispense with a showing of reliance provided the misrepresentation is material. But it appears from these decisions that 10b-5 cases are very much distinguishable from common-law fraud cases."); Stellema v. Vantage Press. Inc. (N.Y.Sup.Ct. 1983)470 N.Y.S.2d 507, 510 ("While reliance need not be proved in [10b-5 cases] . . . the requirement of a showing of reliance has not been removed in common-law fraud cases"). See also Securities Investor Protection Corp. v. BDO Seidman. LLP (2d Cir. 2000) 222 F.3d 63, 73 ("common law fraud claims require a different analysis than those brought under the federal securities regulation scheme"). "Because common law fraud claims must be supported by a showing of direct reliance on the misrepresentation or omission, they are distinct from actions brought under the federal securities laws, which 'permit a rebuttable presumption of reliance where a plaintiff purchases his shares on the market."' Banque Arabe Et Internationale D'Investissement v. Maryland Nat'l Bank (S.D.N.Y. 1994) 850 F. Supp. 1199 1221 aff'd (2d Cir. 1995)57 F.3d 146 (citation omitted). See also Turtur v. Rothschild Registry Int'l. Inc. (S.D.N.Y. Aug. 27, 1993) No. 92 Civ. 8710 (RPP), 1993 WL 338205, at *7 As a result, in order to maintain a claim for fraudulent concealment, the Plaintiff must establish that he "actually relied on the disclosure or lack thereof" Banque Arabe Et Internationale D'Investissement v. Maryland Nat'l Bank (2d Cir. 1995)57 F.3d 146, 156 (hereinafter "Banque Arabe"). Moreover, he must also show that "such reliance was reasonable or justifiable." Id. See also Bermuda Container Line Ltd. v. Int'l Longshoremen's Ass'n (2d Cir. 1999) 192 F.3d 250, 258 (to state a claim for fraudulent concealment, the plaintiffs "reliance must be reasonable or justifiable").
Fraudulent concealment is a species of common law fraud. See Banque Arabe Et Internationale D'Investissement v. Maryland Nat'l Bank (2d Cir. 1995) 57 F.3d 146, 160.
Even if the Defendants failed to tell the Plaintiff about the sale of the Midway II property (and the conduct related thereto) when they had a duty to speak and did so with the intent to defraud him, the Plaintiff could not have justifiably relied on these omissions when he decided to stipulate to the settlement and to execute the release of claims. Under New York law, "[w]here a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence and fails to make use of those means, he cannot claim justifiable reliance on defendant's misrepresentations." Stuart Silver Associates. Inc. v. Baco Development Corp. (N.Y.App.Div. 1997) 665 N.Y.S.2d 415, 417. See also Pinney v. Beckwith (N.Y.App.Div. 1994) 608 N.Y.S.2d 738, 739 (quotingSchumaker v. Mather (N.Y. 1892) 133 N.Y.590, 596) ("It is well settled that . . . if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth of the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations").Cf. Banque Arabe, 57 F.3d at 156 (applying this standard in the context of a claim for fraudulent concealment under New York law); Congress Financial Corp. v. John Morrell Co. (S.D.N.Y. 1992) 790 F. Supp. 459, 473-474 (same).
In accordance with this principle, New York courts have repeatedly found that reasonable reliance was absent where a party failed to review available records or secure available documentation which would have otherwise armed it with the truth. For example, in Pinney, the Appellate Division of the New York Supreme Court found that "the element of reasonable reliance" was "absent as a matter of law" where a simple inquiry into town records (i.e. "the barest of precautions"), would have disclosed the falsity of a defendant's representations regarding the approval of a subdivision. See Pinney, 608 N.Y.S.2d at 739. Similarly, reliance was absent in Marine Midland Bank v. Palm Beach Moorings. Inc. where the party had access to a corporation's records and the opportunity to examine those records but failed to take advantage of that opportunity. See Marine Midland Bank v. Palm Beach Moorings. Inc. (N.Y.App.Div. 1978) 403 N.Y.S.2d 15, 17, appeal denied (N.Y. 1978) 44 N.Y.2d 644. See also Banque Arabe, 57 F.3d at 157-158 (affirming the dismissal of a fraudulent concealment claim where the plaintiff had access to sources which would have alerted it to all of the information it needed to know yet it failed to request such information); Belin v. Weissler(S.D.N.Y. July 14, 1998) No. 97 Civ. 8787 (RWS), 1998 U.S. Dist. LEXIS 10492, at *14-*18 (plaintiffs reliance was neither reasonable nor justified where he had the ability to secure and review relevant documentation but failed to do so); Most v. Monti (N.Y. A.D. 1982) 456 N.Y.S.2d 427, 428 (affirming the dismissal of plaintiffs' fraud claim where the information relating to the subject matter of the fraud was "readily available to plaintiffs upon their making reasonable inquiry" yet they unreasonably failed to investigate the truth of the matter).
The Appellate Division has even affirmed the dismissal of a complaint which had sought the rescission of agreements procured through fraud where the plaintiffs made some effort to review a corporation's records but ultimately failed to obtain the documents. See Rodas v. Manitaras (N.Y.App.Div. 1990) 552 N.Y.S.2d 618, 620. In Rodas, the plaintiffs sought the recision of sale and purchase agreements on the ground that they had been fraudulently induced to enter into those agreements. Id. at 619. The plaintiffs had been aware that the income of the business in question in Rodas was a material fact about which they had received no documentation. Id. at 620. Although the plaintiffs had asked to examine the business' records and had that effort rebuffed, the Appellate Division nonetheless held that the "[p]laintiffs could easily have protected themselves by insisting on an examination of the books as a condition of closing." Id. (emphasis added). The court therefore held that the plaintiffs could not be heard to complain that they had been defrauded as they had chosen to proceed with a transaction without, among other things, securing the available documentation. Id.
Here, as in the foregoing cases, the Plaintiff had the means to discover the omitted information through a review of the available documentation yet he failed to seek such a review before he executed the Stipulation of Settlement and the release of claims. First, when the Plaintiff realized in 1997 that he had received no return on his investment in the Midway II partnership, he requested and received the PPM for Midway II. See Waksman, 1998 WL 690086, at *2. See also Compl. ¶ 14 ("In November 1997, Plaintiff, for the first time, learned of the false and fraudulent nature of the representations made to him by Defendant Cohen, when he obtained a copy of a Private Placement Memorandum for Midway 11th existence of which, up to that date, was unknown to the Plaintiff'). That PPM specifically explained that the general partners in the Midway II venture had the exclusive right to sell the Midway II property and discussed the substantial adverse tax consequences which could result from such a sale. See Sirota Aft, Ex. 1 at 40, 42, 57-58, and 1073n-7. The PPM also provided notice of the means by which the Plaintiff could ann himself with the truth about the status of the Midway II property for it explained that all partners in the Midway II venture had the right to inspect and examine the partnership's books at reasonable business times and upon reasonable prior written notice to the general partners. See Sirota Aft Ex. 1 at 1073n-10.
Indeed, the disposition of the property through a sale (and the consequences thereof) was a topic of concern to the Plaintiff Over the course of the settlement negotiations which followed our dismissal of his 1997 Action, he specifically directed his counsel to ask the Defendants' attorneys about the status of the Midway II property in an apparent effort to determine whether he could expect a capital loss from the sale of his interests in the partnership. See Waksman Aff. ¶ 5. See also Waksman Aff. ¶ 7 ("When my attorney informed me at the [settlement] conference before staff counsel at the Circuit Court that there was an offer to acquire my two units for $1 00, 000, 1 asked my attorney to inquire of the lawyers representing the various Defendants whether there was any change in the status of the property"); Pl.'s Opp'n Brief at 2 ("During the negotiations before staff counsel, inquiry was made of the three attorneys representing the respective Defendants about the operation and status of the partnership and the disposition of the real estate"). The defense attorneys provided no information in response to this inquiry as they indicated that they knew nothing about the status of the property. See Waksman Aff. ¶ 7. See also Waksman Aff. ¶ 5; Dweck Aff. ¶ 28; Pl.'s Opp'n Brief at 16. Nothing in the record suggests that the Plaintiff sought to review the partnership's records to arm himself with that very information before his attorney made the aforementioned inquiry; nor does the record suggest that the Plaintiff asked to review the partnership's records to arm himself with that same information after his attorney failed to receive any informative response to that inquiry but before the Stipulation of Settlement and release of claims were executed.
In other words, the PPM describing the Midway II partnership put the Plaintiff on notice that the Midway II property could be sold at any time by the general partners and that he might not receive a disbursement from the sale (and could even incur substantial tax liabilities therefrom). In fact, the Plaintiff was sufficiently concerned about the disposition of that property that he directed his attorney to inquire about the status of the property during settlement negotiations. Although he ultimately received no information about the status of the property from the Defendants' attorneys, he nonetheless agreed to the Stipulation of Settlement and the release of claims without attempting to use the means specifically afforded to him by the PPM (or, for that matter, by New York Partnership Law §§ 42 and 99), to arm himself with the truth about the partnership's operations and the status of the partnership's property through a review of the partnership's records. In essence, although he had the means to discover the relevant information, he chose not to use such means and instead agreed to the settlement on nothing more than the unsubstantiated assumption that he might be able to take a capital loss on the sale of his interests in the Midway II partnership. Accordingly, as in the foregoing cases, he cannot now establish the requisite reasonable or justifiable reliance to sustain his fraudulent concealment claim.
New York Partnership Law § 42 provides as follows: "Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability." N.Y. PARTNERSHIP LAW § 42 (emphasis added). Section 99, in pertinent part, further provides that: "A limited partner shall have the same rights as a partner to . . . (b) Have on demand true and full information on all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable . . . ." N.Y. PARTNERSHIP LAW § 99(1)(b) (emphasis added). See also Millard v. Newmark Co. (N.Y.App.Div. 1966) 266 N.Y.S.2d 254, 258 ("[A] limited partner is not in the hopeless position where he must only suffer in silence when an alleged wrong occurs. He has a right of full and free access to information contained in the partnership books, and of all things affecting the partnership, as well as a right to a formal accounting.")
In sharp contrast after the parties had already agreed upon a settlement and the Plaintiff had executed a release of claims and transferred his interest in the Midway II partnership to the Defendants, the Plaintiff vigorously sought access, pursuant to New York Partnership Law § 99, to the relevant records which had been available to him as a limited partner in the Midway II venture. See Dweck Aft, Ex. 5.
The absence of reasonable or justifiable reliance in this case is underscored by the context in which the Plaintiff failed to use the means available to him to learn about the partnership's operations and the status of the Midway II property. Where parties have engaged in arm's length negotiations and, as here, the party claiming reliance had the opportunity to discover the purported fraud, courts are wary of finding reasonable reliance, particularly where the party claiming reliance failed to use the means available to him to arm himself with accurate information while he was represented by counsel during settlement negotiations conducted in the wake of contentious litigation. Manley v. AmBase Corp. (S.D.N.Y. 2001) 126 F. Supp.2d 743, 758-759. In Manley, the defendant similarly asserted a fraudulent concealment claim premised on the concealment of information which supposedly induced it to enter into a settlement agreement. See id. at 755. There, the court determined that the defendant could not demonstrate reasonable or justifiable reliance as the parties had engaged in settlement negotiations through counsel after a history of contentious litigation and the defendant had failed to use the means available to it to arm itself with the truth. See id. at 758-759. As in Manley, the Plaintiff here entered into the settlement negotiations after a history of contentious litigation against these Defendants. In fact, the litigation leading up to those negotiations was itself premised on the Plaintiff's acrimonious accusations of fraud. The Plaintiff, who we previously indicated "is [himself] not an unsophisticated person who has led a sheltered life, " Waksman, 2002 WL 690086, at *1 (alteration added), was represented by an attorney over the course of those settlement negotiations with defense counsel and the Defendants. Having engaged in arm's length negotiations with the Defendants after a history of contentious litigation which called into question the veracity of the Defendants' conduct and having failed to use the means available to him to discover accurate information about what he contends were material facts, the Plaintiff cannot now demonstrate the reasonable or justifiable reliance necessary to sustain a claim for fraudulent concealment.
We also note that the Plaintiff appears to indicate that he had suspicions about the Defendants' conduct even before he received the K-1 statement, although he apparently felt that he had no basis to demand the partnership's records until after his receipt of that statement (which further aroused his suspicions and supplied the Plaintiff with what he felt was the basis to compel the production of the records). See Pl.'s Opp'n Brief at 29. The Second Circuit has explained that "[a] heightened degree of diligence is required where the victim of fraud had hints of its falsity." Banque Franco-Hellnique De Commerce Int'l et Maritime. S.A. v. Christophides (2d Cir. 1997) 106 F.3d 22, 27. Here, despite his apparent suspicions about the Defendants' purported conduct, the Plaintiff still failed to make use of the means available to him diligently to arm himself with the truth and this further undermines the reasonableness of his reliance. See Schlaifer Nance Co., Inc. v. Estate of Andy Warhol (S.D.N.Y. 1996) 927 F. Supp. 650, 660, aff'd (2d Cir. 1997) 119 F.3d 91 ("A party's reliance on false statements or omissions is not reasonable or justifiable if the party has reason to believe that the representations may be false but fails to inquire into their accuracy.")
Although the Plaintiff places a particular premium on the defense attorneys' disavowal of knowledge about the status of the Midway II property, he cannot establish reasonable or justifiable reliance on the basis of this disavowal alone. Here, as we previously indicated, the Plaintiff's counsel, at his client's specific direction, asked the Defendants' attorneys "about the operation and status of the partnership and the disposition of the [partnership's] real estate." Pl.'s Opp'n Brief at 2. See also Pl.'s Opp'n Brief at 7-8, 16; Waksman Aff. ¶¶ 5, 7; Dweck Aff. ¶ 28. In response to this inquiry, the various defense attorneys (not the Defendants themselves) indicated that they knew nothing about the status of the property. See Waksman Aff. ¶ 7 ("When my attorney informed me at the conference before staff counsel at the Circuit Court that there was an offer to acquire my two units for $100,000, I asked my attorney to inquire of the lawyers representing the various Defendants whether there was any change in the status of the property. He, thereafter, reported to me that he did make such an inquiry and that the attorneys all responded that they knew nothing about disposition of the properties.") See also Waksman Aff. ¶ 5; Dweck Aff. ¶ 28; Pl.'s Opp'n Brief at 16. Despite the fact that this answer provided no information whatsoever about the actual status of the Midway II property, the Plaintiff "contented" himself with this statement and did not pursue the matter further. See Waksman Aff. ¶ 5.
The Plaintiff cannot look to this wholly uninformative answer by the Defendants' attorneys, made during the course of settlement negotiations to the Plaintiff's counsel, to demonstrate reasonable or justifiable reliance. First, in such an arm's length negotiation where both parties are represented by attorneys, it is not reasonable for one side to rely on such a statement where it was made by the adverse party's counsel.Healey v. Rich Products Corp. (W.D.N.Y. Mar. 2, 1992) 1992 WL 50924, at *9, vacated on other grounds (2d Cir. 1992) 981 F.2d 68. See also Verschell v. Pike (N.Y.App.Div. 1981) 445 N.Y.S.2d 489, 491. Moreover, reliance on such an uninformative statement cannot be considered reasonable and cannot support a fraudulent concealment claim. See Healey, 1992 WL 50924, at *9 Cf. In re Danesi (S.D.N.Y. 1980)6 B.R. 738, 740.
In sum, the Plaintiff has failed to demonstrate that he reasonably or justifiably relied on the omitted information in question. As such, we grant summary judgment on the fraudulent concealment claim in favor of the Defendants.
II. The Effect of The Settlement On Counts II, III, and IV
Over the course of settlement negotiations before the Staff Counsel for the Second Circuit, the Plaintiff here agreed to settle the 1997 Action. Hence, his attorney executed a Stipulation of Settlement. See Sirota Aff., Ex. C. The Stipulation provided that the Plaintiff would discontinue his appeal and convey all of his interest in the Midway H partnership to the Defendants in exchange for $100,000. According to the express terms of the Stipulation, that payment was to be made "after exchange of general and complete releases between the Plaintiff and the respective Defendants limited to the claims in this action [(i.e. the 1997 Action)] or the underlying transaction, whether known or unknown which were or could have been raised in this action against the parties, their agents, partners, servants or employees." Sirota Aft'., Ex. C (alteration added). Thereafter, the Plaintiff actually executed a release of claims which specifically applied "to the claims in the action brought by the Releasor against the Releasees in the United States District Court, Southern District of New York bearing Docket No. 97 Civ. 7349 or in the underlying transaction giving rise to said litigation whether known or unknown which were or could have been raised in said action against the Releasees, their agents, partners, servants, or employees." Sirota Aff, Ex. F.
The Defendants contend that the Stipulation of Settlement and release of claims bar the Plaintiff from pursuing the instant lawsuit. "Settlement agreements are strongly favored in New York and may not be lightly cast aside. Afterthought or change of mind are not sufficient to justify rejecting a settlement."' Hughes v. Lillian Goldman Family, LLC (S.D.N.Y. 2001) 153 F. Supp.2d 435, 445 (citation omitted). See also Hallock v. State of New York (N.Y. 1984)64 N.Y.2d 224, 230 ("Stipulations of settlement are favored by the courts and not lightly cast aside.")
Nonetheless, a court may relieve a party of a settlement agreement where there is sufficient cause to invalidate a contract, "such as fraud, collusion, mistake or accident."' Willgerodt ex rel. Majority Peoples' Fund for the 21st Century. Inc. v. Hohri (S.D.N.Y. 1997) 953 F. Supp. 557, 560, aff'd (2d Cir. 1998) 159 F.3d 1347 (citation omitted) (hereinafter "Willgerodt"). See also Rivera v. State of New York (N.Y.App.Div. 1985) 496 N.Y.S.2d 230, 231. Cf. Morse/Diesel. Inc. v. Fidelity and Deposit Co. of Maryland (S.D.N.Y. Mar. 30, 1992) No. 86 Civ. 1494 (PKL), 1992 WL 75123, at *4 ("[t]he equitable remedy of rescission may be exercised where a party has committed a fraudulent act, ' including fraudulent concealment") (citation omitted). Hence, a party may ask the court to set aside a settlement agreement where the agreement has been procured through fraudulent concealment. See. e.g.,Nasik Breeding Research Farm Ltd. v. Merck Co., Inc. (S.D.N.Y. 2001) 165 F. Supp.2d 514, 520, 526, 528-529, 533-536; A.J. Tenwood Associates. Inc. v. United States Fire Ins. Co. (N.Y.Sup.Ct. 1980)428 N.Y.S.2d 606, 608. Similarly, "[f]raudulent concealment Will vitiate a release under New York law." Skylon Corp. v. Guilford Mills. Inc. (S.D.N.Y. 1994) 864 F. Supp. 353, 358. See also Nasik Breeding Research Farm Ltd., 165 F. Supp.2d at 526, 528-533.
However, nowhere in his complaint has the Plaintiff asked this Court to rescind the Stipulation of Settlement or release of claims. Although he has asserted a claim for fraudulent concealment, the Plaintiff seeks relief in the form of damages and not rescission. See Compl. ¶ 39;see also Compl., Ad Damnum Clause at ¶¶ 1-3. Moreover, even had the Plaintiff specifically sought to avoid the effect of the Stipulation and release by asking this Court to set them aside on the ground of fraudulent concealment, we would not do so where, as here, the Plaintiff failed to maintain a claim for fraudulent concealment. See. e.g. Bangue Arabe, 57 F.3d at 153-158; Skylon Corp., 864 F. Supp. at 358-360.
Instead of seeking to rescind the Stipulation and release on the basis of fraud, the Plaintiff argues that they should not bar this action because he was not aware of the conduct underlying the instant lawsuit until after he had agreed to settle the 1997 Action. However, as part of the Stipulation of Settlement, the Plaintiff agreed to execute a release that would apply to all "the claims in the" 1997 Action "or the underlying transaction, whether known or unknown which were or could have been raised in this action against the parties, their agents, partners, servants or employees." Sirota Aft'., Ex. C (emphasis added). He thereafter actually executed a release which applied to "the claims in the [1997 Action] . . . or in the underlying transaction giving rise" to the 1997 Action "whether known or unknown which were or could have been raised" in the 1997 Action. Sirota Aff., Ex. F (emphasis added).
A party which has expressly and unambiguously agreed to settle unknown claims may be precluded from asserting them at a later date even though they were not known to him at the time of the settlement. See Leonzo v. First Unum Life Ins. Co. (S.D.N.Y. Aug. 23, 1995) No. 93 Civ. 0535 (KTD), 1995 WL 505551, at *3 (dismissing a plaintiffs claims where he "willingly, knowingly, and under the guidance of counsel, chose to discharge all claims, whether known or unknown, arising out of his injury, " despite the plaintiffs assertion that he was unaware of the possibility of such a claim when he signed the release) (emphasis added);Fay v. Petersen Publishing Co. (S.D.N.Y. May, 17, 1990) No. 88 Civ. 6499 MBM, 1990 WL 67397, at *3 ("Although at the time of the signing [of the release] plaintiff may have had no inkling that he would bring an age discrimination claim in the future, he should have understood from the language of the agreement that he was giving up "any known or unknown' claims against the company related to his termination"); Jabara v. Songs of Manhattan Island Music Co., a Division of Whitehaven Music Publishing Corp. (S.D.N.Y. Feb. 24, 1989) No. 86 Civ. 3412 (KMW), 1989 WL 16614, at *7 ("Plaintiff attempts to escape from . . . [the release] by stating that he was unaware at the time of the termination agreement that such a deduction had been made by Whitehaven for payment to Rick's Music. The general release language in paragraph 2, however, covers claims "known or unknown to me." . . . Thus, it is clear that any claim Jabara may have had against Whitehaven for an unauthorized payment to Rick's Music was waived by paragraph 2 of the 1981 Termination Agreement") (internal citations omitted); Omaha Indemnity Co. v. Johnson Towers. Inc. (E.D.N.Y. 1984) 599 F. Supp. 215, 220 ("Lack of awareness of . . . the existence of a cause of action is not a mutual mistake of fact sufficient to set aside the General Release. The Release in this case bars all claims against Johnson Towers, both known and unknown. This is dictated both by the law and the language of the Release. The result may seem harsh, but it is the result Mr. Singer bargained for.") Since he expressly and unambiguously agreed to release those claims in the 1997 Action or in the underlying transaction which could have been raised in the 1997 Action, even if they were "unknown" to him at the time of the settlement, the Plaintiff cannot now avoid the effect of the Stipulation of Settlement and release of claims by arguing that the Stipulation and release do not apply to claims which were then unknown to him.
The issue before us then is whether the Plaintiff's present causes of action were claims in the 1997 Action or stemmed from the underlying transaction giving rise to that litigation. The Plaintiff reads the Stipulation and release as if they were limited to those claims which were included in his 1997 complaint. Pl.' s Opp'n Brief at 26. However, this interpretation does not follow from the plain language of the Stipulation or release, which applies to claims that could have been raised in the 1997 "action, " not merely to claims which were raised in the original complaint. The term "action" refers to a civil proceeding generally and not to a particular pleading. See BLACK'S LAW DICTIONARY 28-29 (7th ed. 1999) (defining "action" as "[a] civil or criminal judicial proceeding"); WEBSTER'S NEW WORLD DICTIONARY OF AMERICAN ENGLISH 13 (3d College ed. 1994) (defining "action" as "a legal proceeding by which one seeks to have a wrong put right; lawsuit"); WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 21 (1993) (defining "action" as (1) "a legal proceeding by which one demands or enforces one's right in a court of justice" and (2) "a judicial proceeding for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense"); THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 17 (3d ed. 1992) (defining "action" as "[a] judicial proceeding whose purpose is to obtain relief at the hands of a court"). If the Plaintiff had intended to limit the Stipulation and release solely to those specific claims which were raised in the original complaint rather than to those which could have been raised over the course of the entire proceeding, he could have drafted the agreement accordingly. Cf. Sibersky v. Borah. Goldstein. Altschuler Schwartz. P.C. (S.D.N.Y. July 22, 2002) No. 99 Civ. 3227 JGK, 2002 WL 1610923, at *5 ("If the release were intended to exclude any particular kinds of claims or disputes arising of this relationship or events, it could have easily done so, but it did not.")
In the instant case, Counts II, III, and IV are grounded in the transaction underlying the 1997 litigation. According to the Plaintiff himself, the "underlying transaction" refers to the Plaintiff's investment in the Midway II partnership in 1985. See Pl's Opp'n Brief at 26. That investment ultimately gave rise to his initial 1997 claims when the Plaintiff failed to receive any return on his investment in that partnership and thereafter discovered that the venture did not resemble the Midway I partnership as he had purportedly been led to believe. Absent his investment in that partnership (which made him a limited partner in the Midway II venture), Count II (which alleges the breach of a fiduciary duty) and Count IV (which alleges that the Defendants conspired to breach fiduciary duties) would be meritless; that transaction supposedly created the very fiduciary obligations which the Defendants either purportedly breached or conspired to breach. Similarly, absent his investment into the Midway II partnership, the Plaintiff would be unable to maintain his cause of action in Count II, which alleges unjust enrichment, as the Defendants supposedly enriched themselves at the expense of his investment in the Midway II partnership.
Moreover, the Plaintiff specifically alleges that his claim for unjust enrichment has arisen "[a]s a direct result of the [Defendants'] breaches of their respective obligations as fiduciaries . . . ." Compl. ¶ 44. As we indicated, those purported fiduciary obligations themselves supposedly arose when the Plaintiff engaged in the "underlying transaction" by investing in the Midway II partnership.
These three claims, which ultimately stem from the transaction underlying the 1997 litigation, "could have been raised" in the 1997 "action" as they could have been brought in the legal proceeding which the Plaintiff initiated in 1997. The conduct which supposedly breached the alleged fiduciary duties that arose out of the Plaintiff's investment in the Midway II partnership (and therefore serves as the basis for Counts II and IV), as well as the conduct which purportedly resulted in the Defendants' unjust enrichment at the expense of that investment (and which therefore serves as the basis for Count III), occurred while the 1997 Action was still pending before this Court. Thus, the Plaintiff could have supplemented his original 1997 complaint pursuant to Federal Rule of Civil Procedure 15(d) to include these claims and allegations before the 1997 Action was dismissed in October 1998. See FED.R.CIv.P. 15(d) (allowing a party to submit a supplemental pleading "setting forth transactions and occurrences or events that have happened since the date of the pleading sought to be supplemented"). See also 3 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 15.30 (3d ed. 1999) ("[A] Plaintiff need not commence a new action when after-occurring events demonstrate that it had a right to relief even if the original complaint was insufficient.") Even after we dismissed the 1997 Action, the Plaintiff, had he persuaded the Second Circuit to reverse our dismissal (as he hoped to do) and to remand the case to this Court, could then have supplemented his initial complaint to include Counts II, III, and IV through the procedure enumerated in Rule 15(d). See Gomez v. Wilson (D.C. Cir. 1973) 477 F.2d 411, 417 ("[O]nce appellant is again in the District Court, he will be free to appropriately supplement his complaint. That may include allegations of recent incidents, joinder of additional parties and, of course, presentation of such legal contentions as maybe indicated"); Miller v. Air Line Pilots Ass'n Int'l (D.D.C. Mar. 30, 2000) No. Civ.A.91-3161 NHJ, 2000 WL 362042, at * 1 ("Upon remand, the appellant is free to supplement his complaint, including allegations of new incidents and joinder of additional parties"); Bromley v. Michigan Educ. Ass'n-NEA (ED. Mich. 1998) 178 F.R.D. 148, 153 (quoting Texarkana v. Arkansas Gas Co. (1939) 306 U.S. 188, 203) ("The supplementation "procedure is equally applicable after remand for further proceedings.") Since the claims fall within the scope of the express language set forth in the Stipulation of Settlement and release of claims, we grant summary judgment in favor of the Defendants on Counts II, III, and IV because these causes of action are precluded by the Stipulation and release.
Because we have already determined that the Plaintiff cannot sustain a cause of action for fraudulent concealment on other grounds, we do not address the Defendants' contention that the Stipulation and release equally bar that claim.