| Dragon Inv. Co. II LLC v Shanahan |
| 2008 NY Slip Op 02484 [49 AD3d 403] |
| March 18, 2008 |
| Appellate Division, First Department |
| Dragon Investment Co. II LLC et al., Appellants, v WilliamS. Shanahan et al., Respondents. |
—[*1] Carabba Locke LLP, New York City (Steven I. Locke of counsel), for William S. Shanahan,Rose-Marie Fox and Antares, LLC., respondents. Thompson Wigdor & Gilly LLP, New York City (Kenneth P. Thompson of counsel), forPhoenix Telecommunication Limited, respondent.
Order, Supreme Court, New York County (Helen E. Freedman, J.), entered on or about June16, 2006, which, insofar as appealed from as limited by the brief, granted the motion ofdefendant Phoenix Telecommunication Ltd. to dismiss the causes of action for fraud and unjustenrichment, and granted, with leave to plaintiffs to replead, the other defendants' motion todismiss the causes of action for breach of fiduciary duty, aiding and abetting such breach andunjust enrichment, unanimously affirmed, with costs.
The statements which plaintiffs contend are fraudulent are contained in writtencommunications dated March 12 and 24, 1999. The plain language of the complaint shows thatthose communications were made to defendant Fox, not to plaintiffs. The complaint's conclusoryallegations that Phoenix falsely represented to plaintiffs that it had approved a shareholdersagreement fail to satisfy CPLR 3016 (b)'s requirement that fraud be pleaded with particularity(see e.g. Hernandez v New York City Law Dept. Corp. Counsel, 258 AD2d 390 [1999],appeal dismissed 93 NY2d 957 [1999], cert denied 529 US 1090 [2000]).
Furthermore, "a prediction of something which is . . . expected to occur in thefuture will not sustain an action for fraud" (Zanani v Savad, 217 AD2d 696, 697 [1995]).The March 1999 communications were just such predictions.
The fraud claim is also defective because "[a]s a matter of law, a sophisticated plaintiffcannot establish that it entered into an arm's length transaction in justifiable reliance on allegedmisrepresentations if that plaintiff failed to make use of the means of verification that wereavailable to it" (UST Private Equity Invs. Fund v Salomon Smith Barney, 288 AD2d 87,88 [2001]). According to the complaint, plaintiffs—offshore companies who invested $3.4million in Phoenix—made no inquiry until March 2000, a year after the allegedmisrepresentations.
The motion court properly exercised its discretion in denying plaintiffs' request to repleadtheir fraud claim (see Hornstein v Wolf, 67 NY2d 721, 723 [1986]).
The motion court properly found that the statute of limitations for plaintiffs' breach of [*2]fiduciary duty claim against Fox was three years rather than sixyears (see e.g. Carlingford Ctr. PointAssoc. v MR Realty Assoc., 4 AD3d 179 [2004]). Even though plaintiffs label the reliefthey seek on their breach of fiduciary claim "restitution," they essentially seek damages (seeid. at 180).
Plaintiffs also contend that the statute of limitations for their breach of fiduciary duty claimshould be six years because that claim is based on actual fraud (see Kaufman v Cohen,307 AD2d 113, 119 [2003]). That argument is unavailing because, as noted, the court properlydismissed plaintiffs' fraud claim based on affirmative misrepresentations. It is true that "where afiduciary relationship exists, the mere failure to disclose facts which one is required to disclosemay constitute actual fraud, provided the fiduciary possesses the requisite intent to deceive"(id. at 120 [internal quotation marks and citations omitted]). However, under BritishVirgin Islands law, which the parties agree applies because Phoenix is a British Virgin Islandscompany, and which follows English law, a director (Fox) does not owe a fiduciary duty toshareholders (plaintiffs) unless there is a special factual relationship between them (seePeskin v Anderson, [2001] BCC 874, [2001] 1 BCLC 372, 2000 WL 1841707 [2000]). Thecomplaint fails to allege facts establishing such a special relationship (see Feiner FamilyTrust v VBI Corp., 2007 WL 2615448, *7-8, 2007 US Dist LEXIS 66916, *23-25 [SD NY2007] [applying Cayman Islands law, which also follows English law]).
Plaintiffs' claim that Fox (aided and abetted by defendants Shanahan and Antares, LLC)looted Phoenix is not time-barred. However, this is a claim that belongs to Phoenix, not plaintiffs(see e.g. Davis v Magavern, 237 AD2d 902 [1997]). Therefore, the motion court properlydismissed plaintiffs' claims for breach of fiduciary duty against Fox, aiding and abetting againstShanahan and Antares, and unjust enrichment against Fox, Shanahan, and Antares, with leave toreplead them as derivative claims.
We understand that plaintiffs have filed an amended complaint. Therefore, we express noopinion as to whether the original complaint (which has been superseded by the amendedcomplaint) adequately alleged, in nonconclusory fashion, the elements of aiding and abetting abreach of fiduciary duty as set forth in Kaufman (307 AD2d at 125).
Plaintiffs' claim against Phoenix for unjust enrichment was properly dismissed without leaveto replead. "[T]he essential inquiry in any action for unjust enrichment . . . iswhether it is against equity and good conscience to permit the defendant to retain what is soughtto be recovered" (Sperry v CromptonCorp., 8 NY3d 204, 215 [2007] [citation omitted]). It is not against equity and goodconscience to permit Phoenix to retain the money that plaintiffs invested. If the antidilutionprovision of the draft shareholders agreement was so important to plaintiffs, they should haveascertained before they invested $3,402,000 that the agreement had, in fact, beenapproved. A claim for unjust enrichment does not lie to relieve a party "of the consequences of[the party's] own failure to . . . exercise caution with respect to a businesstransaction" (Charles Hyman, Inc. v Olsen Indus., 227 AD2d 270, 277 [1996]).
To the extent that plaintiffs' unjust enrichment claim is based on the alleged dilution of [*3]their shares, it fails to state a cause of action (see Mina Inv.Holdings, Ltd. v Lefkowitz, 51 F Supp 2d 486 [SD NY 1999]). Concur—Mazzarelli,J.P., Andrias, Williams, Buckley and Acosta, JJ.