| Paolucci v Mauro |
| 2010 NY Slip Op 04898 [74 AD3d 1517] |
| June 10, 2010 |
| Appellate Division, Third Department |
| Steven Paolucci, Respondent-Appellant, v Dennis Mauro et al.,Appellants-Respondents. |
—[*1] Dreyer Boyajian, L.L.P., Albany (John J. Dowd of counsel), for Boni Enterprises, L.L.C.,appellant-respondent. Ganz, Wolkenbreit & Friedman, Albany (Robert E. Ganz of counsel), forrespondent-appellant.
Garry, J. Cross appeals from an order of the Supreme Court (McNamara, J.), entered March20, 2009 in Albany County, which, among other things, denied defendants' motions for summaryjudgment dismissing the complaint.
In 2002, defendants Dennis Mauro and Aaron Wagner formed A&D Properties, a generalpartnership organized for the purpose of dealing in and developing real property. In early 2004,plaintiff, Mauro, and Kevin Dailey, an attorney who had previously represented plaintiff,allegedly discussed A&D's need for additional partners or investors to finance its exercise of anoption it had acquired to purchase real property in the Town of Halfmoon, Saratoga County.Thereafter, A&D exercised the option, allegedly on the strength of plaintiff's financial [*2]assurances, and retained Dailey as its attorney.[FN*]In May 2004, plaintiff joined A&D as a partner with a one-third interest. Shortly thereafter, heand the other partners signed and personally guaranteed an agreement to indemnify the seller ofthe property from any claims by another potential purchaser, as well as a partnership resolutionthat provided, among other things, that after the closing on the real property transaction, Wagnerwould sell his partnership interest to the other two partners. In June 2004, A&D executed acontract of sale for the purchase of the property. Plaintiff alleges that he was not involved innegotiations to complete the purchase thereafter, but remained willing and able to contributefinancially to the transaction, although financial assistance from a third-party investor he hadsought to bring into the venture did not materialize. On August 5, 2004, the seller signed awarranty deed conveying the property to plaintiff, Wagner, and Mauro as partners in A&D. Laterthat month, plaintiff signed documents prepared by Dailey that effected his withdrawal from thepartnership without compensation. Several days thereafter, A&D closed on the purchase of theproperty, and resold it that same day to defendant Boni Enterprises, LLC.
Plaintiff alleges that when he withdrew from the partnership he did not know that the deedhad been signed or that a closing and sale to Boni were scheduled. He asserts that Mauro andWagner concealed this information from him and that Dailey, acting as agent for Mauro,Wagner, and Boni, induced him to withdraw from the partnership by misleading him to believethat the transaction had failed. Plaintiff further alleges that Boni funded A&D's acquisition of theproperty and aided and abetted A&D in procuring his withdrawal from the partnership so thatBoni could then purchase the property at a lower price. In August 2008, he commenced thisaction alleging that Mauro and Wagner breached their fiduciary duties to him as partners andthat Boni aided and abetted the breach. Following joinder of issue, defendants moved forsummary judgment dismissing the complaint, asserting primarily that plaintiff's claims weretime-barred. Plaintiff opposed the motions and cross-moved for, among other things, leave to filean amended complaint. Supreme Court denied defendants' motions and granted plaintiff's crossmotion to amend the complaint, conditioning leave to amend on plaintiff's payment to defendantsof the reasonable costs and counsel fees incurred in making their motions. The parties nowcross-appeal.
Leave to amend pleadings is freely granted (see CPLR 3025 [b]) so long as " 'there isno prejudice to the nonmoving party and the amendment is not plainly lacking in merit' " (Shelton v New York State Liq. Auth.,61 AD3d 1145, 1149 [2009], quoting Smith v Haggerty, 16 AD3d 967, 967-968 [2005]). Defendantscontend that the amendment lacks merit as the action is time-barred by the three-year statute oflimitations applicable to claims for injury to property (see CPLR 214 [4]). Theapplicable statute of limitations for breach of fiduciary duty varies, however (see generally IDT Corp. v Morgan StanleyDean Witter & Co., 12 NY3d 132, 139-140 [2009]). We agree with Supreme Court thatas plaintiff's claim for breach of fiduciary duty is based on allegations of fraud, the six-yearlimitations period of CPLR 213 (8) applies (see IDT Corp. v Morgan Stanley Dean Witter &Co., 12 NY3d at 139; Kaufman v Cohen, 307 AD2d 113, 119 [2003]).[*3]
The six-year limitations period applies to a claim forbreach of fiduciary duty only when the fraud allegations are " 'essential to the cause of actionpleaded' " (Kaufman v Cohen, 307 AD2d at 119, quoting Powers Mercantile Corp. vFeinberg, 109 AD2d 117, 120 [1985], affd 67 NY2d 981 [1986]) and when "therewould be no injury but for the fraud" (New York Seven-Up Bottling Co. v Dow Chem.Co., 96 AD2d 1051, 1052-1053 [1983], affd 61 NY2d 828 [1984]; see IDT Corp.v Morgan Stanley Dean Witter & Co., 12 NY3d at 139-140). To establish fraud, a plaintiffmust demonstrate that the defendant "knowingly misrepresented a material fact for the purposeof inducing reliance upon it, that there was, in fact, justifiable reliance thereon, and that damagesresulted" (Dube-Forman vD'Agostino, 61 AD3d 1255, 1257 [2009]; see Ross v Louise Wise Servs., Inc., 8 NY3d 478, 488 [2007]).Fraud may also result from a fiduciary's failure to disclose material facts when the fiduciary hada duty to disclose and acted with the intent to deceive (see Kaufman v Cohen, 307 AD2dat 119-120; Callahan v Callahan, 127 AD2d 298, 300 [1987]). The foundation ofplaintiff's original claim was that Mauro and Wagner, aided and abetted by Boni, used "trickery,deceit, and lack of candor" to procure his withdrawal from the partnership. These allegationswere necessarily premised on his justifiable reliance on the material omissions allegedly madeby his partners and the misrepresentations allegedly made by Dailey, his former attorney, actingas defendants' agent. While the initial complaint did not use the word "fraud" in describing theseevents, we are to "look for the reality, and the essence of the action and not its mere name"(Brick v Cohn-Hall-Marx Co., 276 NY 259, 264 [1937]). Reading the complaint fairly asa whole, plaintiff's claims of breach of fiduciary duty by Mauro and Wagner and of aiding andabetting the breach by Boni are based on fraud, and thus are not time-barred.
Defendants further contend that the amendment lacks merit due to plaintiff's failure to allegethe elements of fraud with sufficient specificity, as CPLR 3016 (b) requires that "thecircumstances constituting the wrong shall be stated in detail." We disagree, noting that "[i]t isimpossible to state in detail the circumstances constituting fraud when those circumstances arepeculiarly within the knowledge of the party moving for summary relief" (P.S. Auctions vExchange Mut. Ins. Co., 105 AD2d 473, 475 [1984]; see Jered Contr. Corp. v New YorkCity Tr. Auth., 22 NY2d 187, 194 [1968]). In a case such as this, the specificity requirementis not to be so strictly interpreted " 'as to prevent an otherwise valid cause of action' " (Pludeman v Northern Leasing Sys.,Inc., 10 NY3d 486, 491 [2008], quoting Lanzi v Brooks, 43 NY2d 778, 780[1977]). The heart of plaintiff's complaint is his claim that factual details about the venture werewithin defendants' knowledge and withheld from him. Notably, plaintiff's proposed amendedcomplaint seeks, in part, to correct and amplify the original allegations with details learnedfollowing the filing of the original complaint; for example, he seeks to correct his original claimthat A&D's purchase transaction closed on August 4, 2004 to instead allege that the transactionactually closed after he had withdrawn from the partnership—as he learned upondefendants' response to his complaint. Moreover, no discovery has yet taken place; plaintiffmoved to amend just five months after filing the action. Where material facts are exclusivelywithin the knowledge of those charged with fraud, "it would work a potentially unnecessaryinjustice to dismiss a case at an early stage where any pleading deficiency might be cured later inthe proceedings" (Pludeman v Northern Leasing Sys., Inc., 10 NY3d at 491-492). Here,the alleged misconduct was set forth "in sufficient detail to clearly inform [defendants] withrespect to the incidents complained of" (Lanzi v Brooks, 43 NY2d at 780) and the factualallegations "are sufficient to permit a reasonable inference of the alleged conduct" (Pludemanv Northern Leasing Sys., Inc., 10 NY3d at 492; see Polonetsky v Better HomesDepot, 97 NY2d 46, 55 [2001]). Thus, the requirements of CPLR 3016 (b) were met.[*4]
Defendants' version of events differs substantially fromplaintiff's. The parties' competing claims as to plaintiff's contributions to the partnership, hisknowledge and expectations when he withdrew, Dailey's role in the transactions, and the extentof Boni's knowledge of A&D's affairs distill to material disputes of fact that, while supportingthe denial of defendants' summary judgment motions, do not preclude the proposed amendment.The court's "threshold evaluation" (CFJ Assoc. of N.Y. v Hanson Indus., 260 AD2d 917,920 [1999]) of the merits of the proposed amendment is not to be used as a pretext for trying theclaim (see Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B,CPLR 3025:11). Plaintiff met his burden to support his proposed amendment with an evidentiaryshowing of the prima facie basis for his claim that consisted of more than conclusory allegations(see Curtin v Community Health Plan, 276 AD2d 884, 886 [2000]; Pettengill vSissman, 267 AD2d 767, 768 [1999]) and, thus, Supreme Court did not abuse its discretionin permitting the amendment.
As to the imposition of costs and fees, leave to amend pleadings may be conditioned "uponsuch terms as may be just including the granting of costs" (CPLR 3025 [b]). However, anyappearance that a party is being punished for asserting his or her legal rights should be avoided,especially where, as here, the amendment causes no delay or prejudice to the nonmoving party(see Estate of Vitale v Eventquest,Inc., 38 AD3d 330, 331 [2007]). The proposed amendments did not substantiallychange the fundamental nature of the original claim and, as noted, resulted in part frominformation that plaintiff acquired only as a result of the initial filing. Moreover, defendants wereunsuccessful in moving for summary judgment. For these reasons, we exercise our discretion toreverse so much of the order as directed the payment of costs and counsel fees as a condition ofgranting plaintiff's cross motion (seeWhiteman Osterman & Hanna, LLP v Albany-Troy Neurosurgical Assoc., 50 AD3d1305, 1305 [2008]).
Cardona, P.J., Mercure, Peters and Kavanagh, JJ., concur. Ordered that the order is modified,on the facts, without costs, by reversing so much thereof as directed plaintiff to pay costs andcounsel fees incurred by defendants in filing their motions for summary judgment, and, as somodified, affirmed.
Footnote *: Dailey avers by affidavit that heacted as counsel for both A&D and defendant Boni Enterprises, LLC at times relevant to theaction, but that the representation "did not overlap at any time where the entities had potentiallyconflicting interests."