| Barrett v Freifeld |
| 2009 NY Slip Op 05992 [64 AD3d 736] |
| July 28, 2009 |
| Appellate Division, Second Department |
| Andrew Barrett, Respondent, v Steven Freifeld et al.,Defendants, and Bernard Chipetine et al., Appellants. |
—[*1] Zimmet Bieber, LLP, New York, N.Y. (Bruce W. Bieber of counsel), for appellantRochester Drug Cooperative, Inc. Farrell Fritz, P.C., Uniondale, N.Y. (James M. Wicks and Michael A.H. Schoenberg ofcounsel), for respondent.
In an action, inter alia, to recover damages for fraud and breach of fiduciary duty, thedefendants Bernard Chipetine and Chipetine, Neu & Silverman, LLP, appeal, as limited by theirbrief, from so much of an order of the Supreme Court, Nassau County (Lally, J.), datedNovember 19, 2007, as denied those branches of their cross motion pursuant to CPLR 3211which were to dismiss the causes of action alleging negligence and fraud insofar as assertedagainst them, and the defendant Rochester Drug Cooperative, Inc., separately appeals from somuch of the same order as denied its cross motion for summary judgment dismissing the cause ofaction alleging breach of fiduciary duty insofar as asserted against it, and granted the plaintiff'smotion for leave to serve a second amended complaint.
Ordered that the order is affirmed insofar as appealed from, with one bill of costs payable bythe appellants appearing separately and filing separate briefs.
The Supreme Court properly denied those branches of the cross motion of the defendantsBernard Chipetine and Chipetine, Neu & Silverman, LLP (hereinafter together Chipetine),pursuant to CPLR 3211 which were to dismiss the causes of action alleging negligence and fraudinsofar as asserted against them. On a motion to dismiss pursuant to CPLR 3211 (a) (1), thepleading is to be afforded a liberal construction, the facts alleged in the complaint are acceptedas true, and the plaintiff is afforded the benefit of every possible favorable inference (see AG Capital Funding Partners, L.P. vState St. Bank & Trust Co., 5 NY3d 582 [2005]). With respect to a motion to dismisspursuant to CPLR 3211 (a) (1), only evidence which utterly refutes the plaintiff's allegations,conclusively establishing a defense as a matter of law, will warrant dismissal (see 730 J & J vFillmore Agency, 303 AD2d 486 [2003]).
A third party alleging negligence against an accountant, in the absence of contractual privity,must show a relationship so close as to approach that of privity (see Credit Alliance Corp.[*2]v Arthur Andersen & Co., 65 NY2d 536, 545-546[1985]). In particular, "(1) the accountants must have been aware that the financial reports wereto be used for a particular purpose or purposes; (2) in the furtherance of which a known party orparties was intended to rely; and (3) there must have been some conduct on the part of theaccountants linking them to that party or parties, which evinces the accountants' understandingof that party or parties' reliance" (id. at 551).
Here, the plaintiff alleged sufficient facts to suggest that Chipetine was aware that thefinancial statements they provided were to be used by the defendant Steven Freifeld inattempting to sell his pharmacy business. The plaintiff also alleged sufficient facts to suggest thatChipetine knew the identity of the party relying on the financial records (see WestpacBanking Corp. v Deschamps, 66 NY2d 16, 19 [1985]). Thus, the plaintiff alleged affirmativeconduct linking Chipetine to the plaintiff's reliance (see LaSalle Natl. Bank v Ernst & Young,285 AD2d 101, 107 [2001]; cf. Parrott v Coopers & Lybrand, 263 AD2d 316, 324[2000], affd 95 NY2d 479 [2000]), and the Supreme Court properly declined to dismissthe negligence cause of action against Chipetine.
In order to establish accounting fraud, the plaintiff must show representation of material fact,falsity, scienter, reliance, and damages (see New York Univ. v Continental Ins. Co., 87NY2d 308, 318 [1995]). Since the fraud claim here is based on an omission or concealment ofmaterial fact, the plaintiff must also allege that Chipetine had a duty to disclose materialinformation and failed to do so (seeE.B. v Liberation Publs., 7 AD3d 566 [2004]). Even in the absence of a fiduciaryrelationship, a duty to disclose may arise when one party's superior knowledge of essential factsrenders nondisclosure inherently unfair (see Swersky v Dreyer & Traub, 219 AD2d 321,327 [1996]). Here, the plaintiff has alleged sufficient facts to suggest that Chipetine was aware ofinformation material to the finances of Freifeld's pharmacy business the plaintiff was seeking topurchase, yet failed to disclose that information. Thus, the plaintiff alleged sufficient facts tosupport his claim of fraud against Chipetine.
The Supreme Court properly denied the cross motion of Rochester Drug Cooperative, Inc.(hereinafter RDC), for summary judgment dismissing the breach of fiduciary duty cause ofaction insofar as asserted against it. To establish a breach of fiduciary duty, the plaintiff mustshow the existence of a fiduciary relationship, misconduct that induced the plaintiff to engage inthe transaction in question, and damages directly caused by that misconduct (see Kurtzman v Bergstol, 40 AD3d588, 590 [2007]; Ozelkan v TyreeBros. Envtl. Servs., Inc., 29 AD3d 877, 879 [2006]). A fiduciary relationship may existwhen one party reposes confidence in another and reasonably relies on the other's superiorexpertise or knowledge, but not in an arm's-length business transaction involving sophisticatedbusiness people (see WIT Holding Corp. v Klein, 282 AD2d 527, 529 [2001]).
RDC established its prima facie entitlement to judgment as a matter of law by demonstratingthat it had no fiduciary duty to the plaintiff, since it was not party to any agreement placing it ina fiduciary relationship. RDC contends that it was merely a seller of pharmaceuticals, and thepharmacies that the plaintiff owned or managed were simply customers. In response to thisshowing, however, the plaintiff raised triable issues of fact as to whether a fiduciary relationshipnevertheless existed. The creation of a fiduciary duty does not depend upon the existence of anagreement or contract between the parties, but results from the relationship between the fiduciaryand the beneficiary (see Northeast Gen. Corp. v Wellington Adv., 82 NY2d 158, 172[1993]; Wiener v Lazard Freres & Co., 241 AD2d 114, 122 [1998]). Here, the defendantGary Zweig, an employee of RDC, approached the plaintiff regarding the purchase of Freifeld'spharmacy business. Zweig signed a memo on behalf of RDC containing financial informationabout the business, offering the plaintiff a loan in the sum of $900,000 from RDC to finance thetransaction, and directing the plaintiff to contact RDC's certified financial officer (hereinafterCFO) for more information. RDC's CFO looked at the company's financial statements andallegedly represented to the plaintiff that the company's finances were in "immaculate shape."Moreover, the plaintiff is the sole shareholder of a pharmacy which stands in a fiduciaryrelationship to RDC (see Fourth Ocean Putnam Corp. v Interstate Wrecking Co., 66NY2d 38, 44 [1985]; Good Old Days Tavern v Zwirn, 259 AD2d 300 [1999]). Thus, theplaintiff raised a triable issue of fact as to whether he and RDC had more than an arm's lengthrelationship involving the mere sale of pharmaceuticals and, therefore, summary judgmentdismissing the cause of action alleging breach of fiduciary duty was properly denied (seeZuckerman [*3]v City of New York, 49 NY2d 557 [1980]).
Contrary to RDC's contentions, the Supreme Court properly granted the plaintiff's motion forleave to serve a second amended complaint (see CPLR 3025 [b]). Florio, J.P., Miller,Covello and Austin, JJ., concur.