| Nicosia v Board of Mgrs. of the Weber House Condominium |
| 2010 NY Slip Op 07254 [77 AD3d 455] |
| October 14, 2010 |
| Appellate Division, First Department |
| Donaldo Nicosia, Appellant, v The Board of Managers of theWeber House Condominium et al., Respondents, et al., Defendant. |
—[*1] Marin Goodman, LLP, New York (Margret M. McBurney of counsel), for The Board ofManagers of the Weber House Condominium, respondent. Loeb & Loeb LLP, New York (David M. Satnick of counsel), for KESY LLC and KevinMacCarthy, respondents.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered September 22, 2008,that granted the motions of defendants Board of Managers of the Weber House Condominium, KESYLLC and Kevin MacCarthy to dismiss the complaint and to cancel the notice of pendency plaintiff filedagainst the property, modified, on the law, to reinstate the second cause of action (in part) and fifthcause of action, and otherwise affirmed, without costs.
The court based its grant of defendants' motions to dismiss on its finding that plaintiff had waived hisright to bring any claims arising out of his contract with defendant Axminster to purchase thecondominium unit. In doing so, the court improperly made a factual determination that defendantBoard's exercise of its right of first refusal was valid (see Leon v Martinez, 84 NY2d 83,87-88 [1994]). Accordingly, we modify to reinstate those claims that we find to be viable, namely, thatpart of the second cause of action for tortious interference with contract and the fifth cause of action forbreach of contract against Axminster.
Plaintiff states a cause of action for tortious interference with a contract against defendants Boardof Managers, KESY and MacCarthy by alleging that he had a contractual relationship with Axminster,that KESY, the Board and MacCarthy had knowledge of the contract, and that MacCarthy, the Boardand KESY intentionally interfered with that contract "by improperly purporting to exercise a right of firstrefusal," causing plaintiff financial damages (see NBT Bancorp v Fleet/Norstar Fin. Group, 87NY2d 614, 621 [1996]; cf. 85 Fifth Ave. 4thFloor, LLC v I.A. Selig, LLC, 45 AD3d 349 [2007]).
The fifth cause of action, for breach of contract against Axminster only, should be reinstatedbecause Axminster did not move to dismiss, but instead answered the complaint and [*2]asserted affirmative defenses. For unstated reasons, the motion courtdismissed the complaint in its entirety.
Plaintiff's remaining claims should be dismissed as either duplicative (see Turk v Angel, 293AD2d 284 [2002], lv denied 100 NY2d 510 [2003]), unnecessary (see Bartley vWalentas, 78 AD2d 310, 312 [1980]) or insufficient to state a cause of action (see MBFClearing Corp. v Shine, 212 AD2d 478, 479 [1995]).
Plaintiff's fraud claim should be dismissed for the additional reason that it is not pleaded withparticularity (CPLR 3016 [b]). A cause of action for fraud requires plaintiff to plead: (1) a materialmisrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiablereliance and (5) damages (Eurycleia Partners,LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). Plaintiff's complaint is bare-bones.Among other deficiencies, plaintiff does not allege how he learned that the Board was purporting toexercise its right of first refusal. Plaintiff attaches an August 6, 2007 letter that the Board sent toAxminster's attorney stating that the Board was electing to exercise its right of first refusal. However,plaintiff does not articulate who communicated this information to him or when he received thisinformation. Thus, we are left to guess that somehow Axminster's attorney communicated the Board'sdecision to plaintiff at some point. Plaintiff also does not explain how he relied to his detriment on theBoard's alleged exercise of its right of first refusal. While we can suppose that plaintiff's reliancesomehow involved his refraining from taking steps to enforce the closing, it is not for us to interject oursupposition into plaintiff's pleading. Nor is it our place to explain what damages might have flowed fromthe failure to close. The dissent points to allegations from the tortious interference cause of action whereplaintiff alleges that because of defendants' wrongful conduct, "plaintiff's contract with Axminster topurchase the Unit was not consummated." However, this language does not appear in plaintiff's causeof action for fraud. And, even if it did, this language would hardly satisfy the CPLR 3016 (b)requirement that the facts constituting the fraud "be stated in detail." Certainly, what plaintiff did or didnot do after learning that the Board was exercising its right of first refusal, and what damages flowedfrom that action or inaction, are within plaintiff's purview.
While the dissent may be correct that plaintiff can prevail on his fraud claim "if Axminsterreasonably relied on the misrepresentation in selling the unit to KESY," plaintiff has not alleged this.Rather, plaintiff's allegations concerning Axminster are more nefarious—that Axminster directlybreached its duties to plaintiff by failing to perform "its required due diligence to determine if the sale toKESY was in accordance with the By-laws."
Thus, the facts of this case could very well eventually support a fraud claim. However, plaintiff hasnot pleaded these facts sufficiently and, unlike the dissent, we decline to speculate and infer the facts forhim, especially given our liberal rules regarding amendment of pleadings.
That part of plaintiff's second cause of action for tortious interference with prospective advantagewas properly dismissed. Because plaintiff and Axminster had already entered into a contract, plaintifffailed to plead any prospective business relationship. We cannot see how plaintiff would have anyrelationship with Axminster, separate from the contract, upon which to recover. Moreover, because thefraud claim is not viable in its present form, plaintiff has failed to plead conduct "amount[ing] to a crimeor an independent tort" or conduct the sole purpose of which was to inflict intentional harm on plaintiff,sufficient to support this cause of action (seeCarvel Corp. v Noonan, 3 NY3d 182, 190 [2004]). Concur—Friedman, J.P.,Moskowitz, DeGrasse, JJ.
McGuire and Acosta, JJ., dissent in a [*3]memorandum byMcGuire, J., as follows: I disagree with the majority's determination to uphold the dismissal of the fraudcause of action as against defendants KESY LLC and Kevin MacCarthy and the cause of action fortortious interference with prospective advantage.
We must assume the following to be true: Plaintiff entered into a contract with defendant Axminsterto purchase a commercial condominium unit. The contract was subject to and conditioned upon thewaiver of a right of first refusal to purchase the unit held by the condominium and exercisable bydefendant Board of Managers. The condominium's bylaws provide that within 30 days of receipt ofnotice from a unit owner of a bona fide offer to purchase the unit, the Board "may elect, by notice tosuch unit owner, to purchaser [sic] such unit . . . (or to cause the same to bepurchased by its designee, corporate or otherwise), on behalf of all other unit owners, on the sameterms and conditions as contained in the Outside Offer and as stated in the notice from the offering unitowner." In a letter dated August 6, 2007, defendant MacCarthy, purporting to act in his capacity as theBoard's president, falsely represented to Axminster's attorney that the Board properly had elected toexercise its right of first refusal and purchase the unit. In fact, according to the complaint, MacCarthyhad "fraudulently concocted a scheme whereby KESY, an entity he controlled, would purchase theUnit." Thereafter, the complaint alleges, "MacCarthy directed the sale of the Unit to KESY on or aboutSeptember 14, 2007, in violation of the By-laws."
The majority writes that "[p]laintiff's complaint is bare-bones." Whether this characterization isaccurate is irrelevant, because the question is whether the allegations regarding fraud pass muster withrespect to KESY and MacCarthy. The majority identifies as a "deficienc[y]" that "plaintiff does notallege how he learned that the Board was purporting to exercise its right of first refusal." The majoritygoes on to note that the August 6, 2007 letter was "sent to Axminster's attorney," and that "plaintiffdoes not articulate who communicated this information to him or when he received this information,"relying on plaintiff's failure to assert that this information was communicated to him as a basis for itsaffirmance of the dismissal of the claim.
The majority is unpersuasive to the extent it takes the position that the fraud claim is deficientbecause it fails to allege that KESY or MacCarthy made the false representation. Fairly read, plaintiffalleges that MacCarthy was the architect of a fraudulent scheme pursuant to which he used his positionas president of the Board to arrogate to himself for his sole benefit, through KESY, the right of firstrefusal that properly could be exercised only by the Board for the benefit of all the shareholders.Pursuant to this scheme, the complaint also alleges that MacCarthy wrote and sent to Axminster'sattorney the August 6, 2007 letter falsely asserting that the right of first refusal had been exercised bythe Board on behalf of all the shareholders. As the Court of Appeals stated in the course of holding thatallegations of fraud were sufficiently pleaded, "[t]he very nature of the scheme, as alleged, gives rise tothe reasonable inference . . . that the [defendant] officers, as individuals and in the keypositions they held, knew of and/or were involved in the fraud" (Pludeman v Northern LeasingSys., Inc., 10 NY3d 486, 493[2008]).
Although inartfully pleaded, plaintiff's complaint alleges a scheme to defraud him out of the propertyhe contracted to purchase and it is clear from the complaint and the attached August [*4]6 letter that the misrepresentation was conveyed to him. It would notmatter at all if the misrepresentation was made by defendants to Axminster and not to plaintiff (seeTindle v Birkett, 171 NY 520, 524 [1902] [upholding fraud claim; "(d)isregarding mere forms andmethods, it cannot be doubted that the defendant spoke false and deceitful words to the plaintiffsthrough (a third party) just as effectually as if they had met face to face and the statements had beenmade directly and personally"]).
The majority writes that plaintiff "does not explain how he relied to his detriment on the Board'salleged exercise of its right of first refusal." But the want of such an explanation in his complaint hardly isfatal to plaintiff's fraud claim. Not surprisingly, the majority cites nothing in support of the notion thatfraud complaints must contain explanations. The statutory requirement that "the circumstancesconstituting the wrong shall be stated in detail" (CPLR 3016 [b]) "should not be confused withunassailable proof of fraud"; "section 3016 (b) may be met when the facts are sufficient to permit areasonable inference of the alleged conduct" (see also Pludeman v Northern Leasing Sys., Inc.,10 NY3d 486, 492 [2008]).
The inference that plaintiff relied—whether he did so reasonably is not in dispute—onthe fraudulent representation to his detriment is a reasonable one to which he is entitled. After all, thecomplaint alleges that because of the wrongful conduct of MacCarthy and KESY, "plaintiff's contract. . . to purchase the Unit was not consummated and as a result plaintiff has sustainedfinancial harm . . . and damages." Of course, a fraud plaintiff can show that he or sheacted or refrained from acting to his detriment (Shea v Hambros PLC, 244 AD2d 39, 46-47[1998]), and it is reasonable to infer from the complaint that plaintiff did not take steps to enforce hisvaluable contractual rights because he credited MacCarthy's representation that the Board properly hadexercised its right of first refusal.
Moreover, it also is reasonable to infer from plaintiff's allegations against Axminster that Axminstersold the unit to KESY because it, too, credited that representation. Thus, plaintiff alleges that Axminsterbreached the contract in selling the unit to KESY "by failing to do its due diligence with respect to thepurported exercise of the . . . right of first refusal." That inference also defeats themajority's position, because plaintiff can prevail on his fraud claim if Axminster reasonably relied on themisrepresentation in selling the unit to KESY (see Rice v Manley, 66 NY 82, 87 [1876] ["itmatters not whether the false representations be made to the party injured or to a third party, whoseconduct is thus influenced to produce the injury"]; see also Ruffing v Union Carbide Corp., 308AD2d 526, 528-529 [2003], appeal dismissed 1 NY3d 621 [2004]).
The majority also writes that "we are left to guess that somehow Axminster'sattorney communicated the Board's decision to plaintiff at some point" (emphasis added). To be blunt,this is just silly. Even putting aside what, as noted below, transpired at oral argument, no reasonableperson could fail to draw the inference from the complaint's factual allegations that that is exactly whathappened. Nor would any reasonable person think that communicating the decision—ostensiblythat of the Board—might be at all difficult, even if it were necessary to allege how it wascommunicated. This statement by the majority is of a piece with the rest of its discussion of the fraudallegations. Rather than do what it must (if it seeks to persuade) and explain why the inferences I draware not reasonable, the majority offers only conclusory characterizations ("guess," "supposition" and"speculate").
The majority argues that plaintiff's allegations that he was damaged are insufficient. It first stressesthat I "point[ ] to allegations from the tortious interference cause of action where plaintiff alleges thatbecause of defendants' wrongful conduct, 'plaintiff's contract with [*5]Axminster to purchase the Unit was not consummated.' " Permitting formto vanquish substance, the majority then objects that "this language does not appear in plaintiff's causeof action for fraud." Of course, however, on a CPLR 3211 motion, precisely where a factual allegationappears in a complaint is irrelevant (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]["the sole criterion is whether the pleading states a cause of action, and if from its four cornersfactual allegations are discerned which taken together manifest any cause of action . . . amotion for dismissal will fail" (emphasis added)]).
The majority next objects that even if this language did appear in the paragraphs of the complaintexplicitly devoted to the fraud cause of action, it "would hardly satisfy the CPLR 3016 (b) requirementthat the facts constituting the fraud 'be stated in detail.' " This language, however, relates not to thefraudulent conduct but to plaintiff's damages and there is no requirement that the damages be pleadedwith specificity. Rather, "[t]his provision requires only that the misconduct complained of be set forth insufficient detail to clearly inform a defendant with respect to the incidents complained of" (Lanzi vBrooks, 43 NY2d 778, 780 [1977]). In any event, the majority is content with this sweepingassertion and identifies no specific respect in which the language is deficient. Again, moreover, themajority wrongly requires what amounts to "unassailable proof of fraud" (Pludeman, 10 NY3dat 492).
The majority is correct that "what plaintiff did or did not do after learning that the Board wasexercising its right of first refusal, and what damages flowed from that action or inaction, are withinplaintiff's purview." But if, as I contend, the factual allegations plaintiff does make and the reasonableinferences that can be drawn from them are sufficient to pass muster under CPLR 3016 (b), thecomplaint is not defective because plaintiff could have pleaded more.
The majority does not disagree with me that plaintiff can prevail on his fraud claim if Axminsterreasonably relied on the misrepresentation in selling the unit to KESY. Instead, the majority proteststhat "plaintiff has not alleged this." Of course, however, I expressly acknowledged that. My point, withwhich the majority does not come to grips, is that it is reasonable to infer that reliance by Axminsterfrom a specific allegation of the complaint. The majority's characterization of that allegation as"nefarious" is as colorful as it is irrelevant. In any event, if I am correct that reliance by plaintiffreasonably can be inferred from the allegations of the complaint, it does not matter whether I also amcorrect that reliance by Axminster can be inferred.[FN*][*6]
One of the two reasons proffered by the majority for upholdingthe dismissal of the claim for tortious interference with prospective advantage is that "[b]ecause plaintiffand defendant Axminster had already entered into a contract, plaintiff failed to plead any prospectivebusiness relationship." The majority cites no authority in support of its position, and does not seek toreconcile it with the precept that causes of action can be pleaded in the alternative (George CohenAgency v Donald S. Perlman Agency, 51 NY2d 358, 366 [1980]). Rather, it apparently assumesthat the existence of a valid contract, something else the majority simply assumes, precludes a claim fortortious interference with prospective advantage. In other words, for some reason a plaintiff who pleadsa breach of contract claim cannot also plead a claim for tortious interference with prospectiveadvantage whenever the prospective advantage and the object of the contract are one and the same.
Why the majority singles out the latter rather than the former claim for dismissal is not clear. In anyevent, the fundamental problem with the majority's approach is that it implicitly and erroneouslyassumes that plaintiff can prove both the existence of a valid contract with Axminster and thebreach of that contract. As noted above, the theory advanced by plaintiff in his complaint is thatAxminster breached the contract by selling the unit to KESY "by failing to do its due diligence withrespect to the purported exercise of the . . . right of first refusal." We need not decide thepoint, but it is not obvious that Axminster breached the contract if it believed or reasonably believedthat the right of first refusal had been properly exercised by the Board. If Axminster did not breach thecontract, there is no reason—the majority does not suggest one—why plaintiff should beprecluded from seeking to prove that MacCarthy and KESY tortiously interfered with a prospectivebusiness relationship pursuant to which Axminster would sell the unit to him. Finally, on this point, I notethe quandary into which the majority would put a plaintiff who is unsure whether it can prove that avalid contract was breached. If the plaintiff can prove that a third party tortiously interfered with itsprospective economic relationship with the contractual counterparty, the majority's approach forces theplaintiff to elect between suing the contractual counterparty and the tortfeasor. For no good reason, oneof them must escape liability.
The majority has nothing at all to say in response to any of my arguments that it is wrong to upholdthe dismissal of the claim for tortious interference with prospective advantage on the ground that"plaintiff and Axminster had already entered into a contract." The majority's silence, I think, does notreflect timorous diffidence. In its failure to provide any explanation of, or even to cite a single precedentostensibly supporting its position, the majority's writing has more in common with a diktat than a judicialopinion.
The second of the two reasons proffered by the majority is that "plaintiff has failed to plead conductamount[ing] to a crime or an independent tort or conduct the sole purpose of which was to inflictintentional harm . . . to support this cause of action" (internal quotation marks omitted).The majority's premise, that plaintiff must plead and prove an independent tort (if it does not pleadconduct that is criminal or intended solely to inflict harm), is incorrect (see Carvel Corp. v Noonan, 3 NY3d182, 190-191 [2004] [expressly leaving open the question of [*7]whether conduct, "though not a crime or tort in itself, (is) so 'culpable( )'. . . that it could be the basis for a claim of tortious interference with economic relations"]).In any event, for the reasons stated above, I think plaintiff has pleaded conduct amounting to theindependent tort of fraud.
With regard to the cause of action for breach of contract asserted only against Axminster, anonmoving defendant, it is not clear that the court intended to dismiss this claim. The order appealedfrom does not mention Axminster nor does it state that it is dismissing the cause of action for breach ofcontract. To the extent that the complaint may have erroneously been dismissed in its entirety, this causeof action should be reinstated.
Footnote *: Tellingly, at oral argument on themotion to dismiss, the defendants charged with fraud never so much as mentioned the subject of theadequacy of the complaint's allegations of reliance. The colloquy, however, makes clear that plaintiff'sposition is that he accepted the return of the down payment made to Axminster precisely because hebelieved the representation that the right of first refusal had been properly exercised. In addition,making clear that Axminster also relied on that representation, counsel for Axminster stated that plaintiff"accepted the $220,000 down-payment . . . [e]verything seemed fine, then wewent to a closing, we transferred to KESY" (emphasis added). Accordingly, as plaintiff's ability toplead reliance cannot be doubted, it is not clear that the fraud cause of action should be dismissed evenif the inference of reliance could not reasonably be drawn from the complaint (cf. Nonnon v City of New York, 9 NY3d825, 827 [2007] [on a CPLR 3211 motion to dismiss, affidavits may be used to remedy pleadingdefects]).