| Roni LLC v Arfa |
| 2010 NY Slip Op 02726 [72 AD3d 413] |
| April 1, 2010 |
| Appellate Division, First Department |
| Roni LLC et al., Appellants, v Rachel L. Arfa et al.,Defendants, and Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., et al.,Respondents. |
—[*1] Simpson Thacher & Bartlett LLP, New York (Mark G. Cunha of counsel), for Mintz, Levin,Cohn, Ferris, Glovsky & Popeo, P.C., and Jeffrey A. Moerdler, respondents. Bellin & Associates LLC, White Plains (Aytan Y. Bellin of counsel), for Edward Lukashok,respondent.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered October 27, 2009,which, upon renewal and reargument, adhered to a prior order, same court and Justice, enteredApril 15, 2009, granting the motion of defendants Mintz Levin Cohn Ferris Glovsky & Popeo,P.C. (Mintz Levin) and Jeffrey A. Moerdler and the cross motion of Edward Lukashok, AubreyRealty Co., Aubrey Realty, LLC, 42nd Street Realty, LLC, Tammaz Realty, LLC, and ElulAcquisition, LLC to dismiss the claims of aiding and abetting breach of fiduciary duty as againstMintz Levin, Moerdler and Lukashok (collectively, the attorney defendants), affirmed, withcosts. Appeal from prior order unanimously dismissed, without costs, as superseded by theappeal from the October 27, 2009 order.
Plaintiffs' conclusory allegations, and the documentary evidence submitted in supportthereof, do not give rise to an inference that the attorney defendants had actual knowledge of, orknowingly induced or participated in, the alleged scheme of defendants Rachel L. Arfa,Alexander Shpigel, and Gadi Zamir (collectively, the promoter defendants) to inflate thepurchase price of the properties they promoted by receiving secret commissions. At most, thedocumentary evidence indicates that the attorney defendants structured and organized entitiesthat acted as the brokers on the property acquisitions and collectedcommissions—activities which are part of ordinary real estate lawyering (see Eurycleia Partners, LP v Seward &Kissel, LLP, 46 AD3d 400 [2007], affd 12 NY3d 553 [2009]; Kaufman vCohen, 307 AD2d 113, 126 [2003]; cf. Yuko Ito v Suzuki, 57 AD3d 205 [2008]). Accordingly,assuming without deciding [*2]that plaintiffs have alleged abreach of fiduciary duty by the promoter defendants, they have not stated a cause of action foraiding and abetting such a breach by the attorney defendants.
We agree with the motion court that the allegations of paragraphs 105 and 106 of thecomplaint, on which the dissent focuses, are "conclusory," and therefore "do not give rise to aninference that the Attorney Defendants had actual knowledge of, or knowingly induced,participated in, substantially assisted the furtherance of, or intended to aid in the commission of,the Promoters' scheme to secretly obtain Commissions at the expense of the investors" (citingEurycleia, 12 NY3d at 559-560; International Strategies Group, Ltd v ABN AMRO Bank N.V., 49AD3d 474, 475 [2008]; GlobalMins. & Metals Corp. v Holme, 35 AD3d 93, 101-102 [2006], lv denied 8NY3d 804 [2007]). Simply put, the allegation that the attorney defendants structured thetransactions at issue does not, without more, give rise to a reasonable inference that suchprofessionals were aware that the promoter defendants, in soliciting plaintiffs' investment, wereconcealing certain commissions that the promoter defendants stood to receive. In this regard, itbears emphasis that it is not alleged that the attorney defendants solicited plaintiffs or advised thepromoter defendants concerning such solicitation. Concur—Andrias, Friedman andCatterson, JJ.
Tom, J.P., and Nardelli, J., dissent in a memorandum by Nardelli, J., as follows: Irespectfully dissent because I cannot agree with the majority's conclusion that the complaint doesnot give rise to any inference other than that the attorney defendants merely "structured andorganized entities that acted as the brokers on the property acquisitions and collectedcommissions."
Paragraph 105 of the complaint alleges that defendant Lukashok knew of the nondisclosuresconcerning the nonattorney defendants' secretive receipt of additional funds in connection withthe real estate transactions, and failed to disclose them to the investors in the limited liabilitycompanies which they were representing at the time of the purchases. It is further alleged thatLukashok himself shared in these secret commissions. Paragraph 106 similarly recites that theother attorney defendants also knew of the nondisclosures concerning the secret payments, andlikewise failed to disclose them to the investors. These contentions allege more than that theattorneys were involved in structuring some business entities. Indeed, at a minimum, theattorneys are alleged to have represented the limited liability companies in the transactions.
As this Court has recently noted, "Owners of a fractional interest in a common entity areowed a fiduciary duty by its manager" (Yuko Ito v Suzuki, 57 AD3d 205, 208 [2008], citing Caprer v Nussbaum, 36 AD3d176, 189 [2006]). Thus, the nonattorney defendants are potentially liable to plaintiffs, whowere investors in the limited liability companies, if it can be established that they receivedadditional payments in conjunction with the transactions that were not disclosed to plaintiffs.
Concededly, for the attorneys to be liable also for abetting the breach of fiduciary duty, theymust have provided[*3]" 'substantial assistance' to the primaryviolator" (Kaufman v Cohen, 307 AD2d 113, 126 [2003]). Yet, "[s]ubstantial assistanceoccurs when a defendant affirmatively assists, helps conceal or fails to act when required todo so, thereby enabling the breach to occur" (id. [emphasis supplied]). If theattorneys are proven to have known about the secret payments, their failure to disclose the detailsto the investors could be found to have enabled the breach to occur.
Thus, it cannot be said as a matter of law that the pleading is deficient, and dismissal at thisstage of the litigation is consequently not warranted.