| US Express Leasing, Inc. v Elite Tech. (NY), Inc. |
| 2011 NY Slip Op 06326 [87 AD3d 494] |
| August 25, 2011 |
| Appellate Division, First Department |
| US Express Leasing, Inc., Appellant, v Elite Technology(NY), Inc., et al., Respondents. |
—[*1] Allan H. Carlin, New York, for respondents.
Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 3, 2009,which, to the extent appealed from, granted defendants' motion to dismiss the first and thirdcauses of action, unanimously affirmed, without costs. Order, same court and Justice, enteredOctober 30, 2009, which, upon reargument, granted defendants' motion to dismiss the secondcause of action, unanimously modified, on the law, to reinstate the second claim, and otherwiseaffirmed, without costs.
Plaintiff, US Express Leasing, Inc. (USXL), is a leasing and financing company that providesfinancing for equipment dealers, vendors and their customers. Defendant, Elite Technology, Inc.(Elite), sells business equipment such as copiers, shredders and scanners, and arranges for theleasing, rental and financing of such equipment. Defendant Michael Pavone is an officer andrepresentative of Elite who dealt with USXL on Elite's behalf. In November 2006, USXL andElite entered into a "Master Purchase Agreement & Assignment of Leases" (MPA) under whichUSXL would purchase equipment leases from Elite and in turn be entitled to collect thepayments under the lease. The MPA defines leases as "lease, rental or finance agreements forequipment and/or software sold or distributed by [Elite] (the "Equipment") to certain qualifiedcustomers (each a "Customer") of [Elite]." Further, the MPA expressly provides that "[a]lldocumentation for Leases will name [Elite] as the owner for such Leases," and "[i]mmediatelyupon the execution and delivery of the final documents by Customer, [Elite] will assign and sellall of its rights, title and interest in and to the Lease, including the Lease Documents and theEquipment, to USXL on a non-recourse basis."
Under the MPA, Elite also agreed to certain representations and warranties, including, thatall documents executed by Elite's customers in connection with any lease are valid, legal, andgenuine. The MPA further required Elite to agree that with regard to leases, it had no knowledgeof any fact or circumstance that would impair the validity or collectability under any lease.
In April 2007, Pavone informed USXL that nonparty National International MarketingGroups, Inc. (National), wished to lease a photocopier system over a 63-month term. Pavoneprovided USXL with National's phone number, business address, and the name, address, and[*2]Social Security number for National's Personal Guarantor andPresident, John Samuel. The record reflects that USXL engaged in its own investigation ofNational, including performing a Google search, checking with the New York Secretary of Stateregarding the listing for National, and performing a credit check on Samuel. According toUSXL's business notes, the Secretary of State did not have a listing for National, and the addresssearch returned the name of a different company. However, USXL was able to confirm thatNational was incorporated in Delaware, and it received a positive credit history report on Samuel.USXL then requested National's finances from Elite. Elite subsequently provided USXL with anunsigned "Independent Accountants' Report," which reflected that National's financials were ingood working order. According to Elite, this was the only documentation it had on National, andUSXL accepted this without further question.
Based on this information, USXL entered into a rental agreement directly with National forthe lease of photocopier equipment, which USXL had purchased from Elite for $96,643.21. Therental agreement expressly required National to agree that USXL was the owner of theequipment. Samuel signed the rental agreement on National's behalf and as a personal guarantor.Elite was not named or referenced in the rental agreement between USXL and National.Thereafter, National never made any payments under the rental agreement. USXL then gavenotice to Elite that it had breached its representations and warranties under the MPA anddemanded that Elite repurchase the copier, as it was obligated to do. Elite refused, contendingthat the rental agreement between USXL and National did not fall under the MPA, and thus thewarranties under it did not apply.
USXL commenced this action against Elite alleging breach of representations and warranties,and against Elite and Pavone for fraud and negligent misrepresentation. Elite and Pavone movedto dismiss for failure to state a cause of action. The motion court granted the motion as to thebreach of representations and warranties and negligent misrepresentation claims, but denied themotion as to the fraud claim. However, upon reargument, the motion court granted defendants'motion to dismiss the fraud claim.
"Dismissal of a complaint pursuant to CPLR 3211 (a) (1) is warranted where 'thedocumentary evidence submitted conclusively establishes a defense to the asserted claims as amatter of law' " (150 Broadway N.Y.Assoc., L.P. v Bodner, 14 AD3d 1, 5 [2004], quoting Leon v Martinez, 84 NY2d83, 88 [1994]). Here, the written MPA contradicts USXL's allegations supporting its claim forbreach of representations and warranties. According to the MPA, which contains the warrantyclauses at issue in this case, the lease must list Elite as the equipment owner. However, the rentalagreement between USXL and National listed USXL as the equipment owner, and therefore didnot come within the MPA at all. Further, USXL did not purchase a lease, and all the rightsthereunder, from Elite; rather, it purchased the actual equipment. The MPA only applies if thelease, as opposed to the equipment, is purchased. USXL then entered into a separate agreement,which did not involve Elite, with National. Thus, the rental agreement never qualified as a leaseunder the MPA, and therefore the representations and warranties in the MPA were nevertriggered.
The complaint also fails to state a cause of action for negligent misrepresentation. To makeout a prima facie case of negligent misrepresentation, the plaintiff must show "(1) the existenceof a special or privity-like relationship imposing a duty on the defendant to impart correctinformation to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance onthe information" (J.A.O. AcquisitionCorp. v Stavitsky, 8 NY3d 144, [*3]148 [2007]). USXLalleges no facts to indicate the type of special relationship of trust or confidence that would giverise to a duty on the part of Elite or Pavone to impart correct information (see Mandarin Trading Ltd. vWildenstein, 16 NY3d 173, 180 [2011]; Kimmell v Schaefer, 89 NY2d 257, 263[1996]; Dobroshi v Bank of Am.,N.A., 65 AD3d 882, 884 [2009], lv dismissed 14 NY3d 785 [2010]). Nor doesUSXL contend that Elite possessed any specialized knowledge or expertise as it pertained to thefinance and leasing industry (Mandarin Trading Ltd., 16 NY3d at 180; Kimmell,89 NY2d at 263). A special relationship does not arise out of an ordinary arm's length businesstransaction between two parties (Mateov Senterfitt, 82 AD3d 515, 516-517 [2011]; Dembeck v 220 Cent. Park S., LLC, 33 AD3d 491, 492 [2006]).
USXL's second cause of action should not have been dismissed. To make out a prima faciecase of fraud, plaintiff must allege "representation of material fact, falsity, scienter, reliance andinjury" (Small v Lorillard Tobacco Co., 94 NY2d 43, 57 [1999]).[FN*] On a motion to dismiss, pursuant to CPLR 3211, the complaint is to be afforded a liberalconstruction; the court accepts the facts as alleged in the complaint as true, accords the plaintiffthe benefit of every possible inference, and determines only whether the facts as alleged fitwithin any cognizable legal theory (Leon, 84 NY2d at 87-88). There is no dispute herethat defendants falsely misrepresented a material fact in the form of an inaccurate accountant'sreport, and that plaintiff relied on it to its detriment resulting in significant monetary loss. Theresolution of this motion turns primarily on whether the issue of reasonable reliance can beresolved as a matter of law based on the evidence, or whether plaintiff, for pleading purposes, hasmet its burden.
The reasonableness of plaintiff's reliance finds some support in the fact that, from theinformation Elite provided, USXL was able to conduct a credit history check of National'spersonal guarantor, and determine that National was incorporated in Delaware. USXL alsoobtained an accountant's report from Elite, which showed that National's finances were in goodworking order. Furthermore, the parties had some business dealings with each other prior to thereceipt of the accountant's report, though the extent of their dealings cannot be determined fromthe submissions on this motion.
On the other hand, the reasonableness of USXL's reliance could be undermined by itsacceptance of an unsigned accountant's report and its awareness of an address search showing thename of a company other than National. We conclude, however, that these factors do not, in thiscase, entitle defendants to dismissal of the fraud claim based on documentary evidence. Indeed,there is a strong inference in USXL's pleadings, considered as a whole, of an active scheme bydefendants to fraudulently induce USXL to enter into a fictional transaction. Any issues raised bydefendants as to the reasonableness of USXL's actions can be explored at later stages of theproceedings (Knight Sec. v FiduciaryTrust Co., 5 AD3d 172, 173 [2004] [finding that the question of the plaintiff'sreasonable reliance on the defendant's misrepresentations implicated factual issues inappropriatefor resolution on a CPLR 3211 motion]). Concur—Andrias, J.P., Saxe, Friedman,Moskowitz and Richter, JJ. [Prior Case History: 2009 NY Slip Op 30474(U).]
Footnote *: In its briefing, defendant appearsto have confused the elements of negligent misrepresentation, which requires the presence of aspecial relationship, with the elements of fraud, which does not.