| Pappas v Tzolis |
| 2011 NY Slip Op 06455 [87 AD3d 889] |
| September 15, 2011 |
| Appellate Division, First Department |
| Steve Pappas et al., Appellants, v Steve Tzolis,Respondent, et al., Defendant. |
—[*1] Weinstein Smith LLP, New York, (Eric Weinstein of counsel), for respondent.
Order, Supreme Court, New York County (Ira Gammerman, J.H.O.), entered on or aboutMarch 4, 2010, which, insofar as appealed from as limited by the briefs, granted defendant SteveTzolis's motion to dismiss the first, second, third, fourth, fifth, ninth, tenth, and eleventh causesof action pursuant to CPLR 3211 (a) (1) and (7), modified, on the law, to deny the motion as tothe first, fourth, fifth, and tenth causes of action, and otherwise affirmed, without costs.
Plaintiffs and defendant Steve Tzolis formed defendant Vrahos LLC for the specific purposeof entering into a long-term lease on a building in Manhattan. Vrahos was created as a Delawarelimited liability company, although the operating agreement expressly provided that theagreement was governed by New York law. The lease, which commenced in January 2006,required the payment of a security deposit of $1,192,500 and personal guarantees from Tzolisand plaintiff Steve Pappas. The operating agreement specified that Tzolis would advance thesecurity deposit. It further provided that, as consideration for his furnishing of the securitydeposit, Tzolis would have the right to enter into a sublease of the property with Vrahos. Thiswas conditioned on his paying additional monies to Vrahos above the rental payments thatVrahos was required to pay directly to the landlord.
As concerns this appeal, the operating agreement also contained the following relevantprovision: "Any Member may engage in business ventures and investments of any naturewhatsoever, whether or not in competition with the LLC, without obligation of any kind to theLLC or to the other Members."
Tzolis exercised his right to sublease the building. However, he failed to make the additionalpayments to Vrahos that were required by the operating agreement. In September 2006, a fewmonths after the subtenancy began, Tzolis suggested to plaintiffs that they assign their interestsin Vrahos to him. He claimed that he did not want to make the additional rent payments andwould rather take over the prime lease. Plaintiffs agreed, and negotiated buyouts of $1,000,000for Pappas and $500,000 for plaintiff Constantine Ifantopoulos. The assignment [*2]agreements between plaintiffs and Tzolis provided that theassignment would become effective on the later of the date on which the landlord releasedPappas from his personal guarantee and the date on which Pappas received the assignment fee. Ifeither of those events had not taken place by February 5, 2007, the assignment would be renderednull and void. At the same time as they executed their assignment agreement, plaintiffs andTzolis signed a handwritten "certificate," which provided, in pertinent part, that "each of theundersigned Sellers, in connection with their respective assignments to Steve Tzolis of theirmembership interests in Vrahos LLC, has performed their own due diligence in connection withsuch assignments. Each of the undersigned Sellers has engaged its own legal counsel, and is notrelying on any representation by Steve Tzolis or any of his agents or representatives, except as setforth in the assignments & other documents delivered to the undersigned Sellers today. Further,each of the undersigned Sellers agrees that Steve Tzolis has no fiduciary duty to the undersignedSellers in connection with such assignments."
The assignments to Tzolis became effective shortly after February 20, 2007, the date onwhich Pappas was released from his personal guarantee. Six months later, Vrahos, now whollyowned by Tzolis, assigned its lease to nonparty Charlton Soho LLC for $17.5 million. Pappasclaims that he later discovered that, unbeknownst to plaintiffs at the time, Tzolis had begunnegotiating the assignment of the lease to nonparty Extell Development Company, Charlton'sowner, months before plaintiffs assigned their interests in Vrahos to Tzolis.
The complaint asserts nine causes of action against Tzolis. The first is that, in failing todisclose to them that he and Extell were negotiating a lucrative sale of Vrahos's leaseholdinterest, and then engineering the buyout of their interests, Tzolis breached a fiduciary duty thathe owed to plaintiffs. The second claim is for misappropriation of a business opportunity ofVrahos. The third is for breach of contract and of the implied covenant of good faith and fairdealing, although it does not identify the contract that Tzolis is alleged to have breached. Thefourth cause of action is for conversion, the fifth for unjust enrichment, and the sixth forrescission and a declaratory judgment that not only was plaintiffs' assignment of their interests inVrahos to Tzolis rendered null and void by Trolis's actions, but that, in addition, Tzolis forfeitedhis own interest in the entity. Plaintiffs' seventh and eighth causes of action seek, respectively, anequitable accounting and the imposition of a constructive trust. The ninth cause of action assertsthat Tzolis tortiously caused Vrahos to interfere with plaintiffs' interests. The tenth cause ofaction sounds in fraud and misrepresentation and is based on Tzolis's failure to advise plaintiffs,before Tzolis purchased their interests in Vrahos, of the ongoing negotiations with Extell.Finally, the eleventh cause of action was brought derivatively on behalf of Vrahos and assertsthat Tzolis breached his fiduciary duty to the entity.
Tzolis moved to dismiss the complaint in its entirety, pursuant to CPLR 3211 (a) (1) and (7).He argued that he and plaintiffs never intended to enter into a fiduciary relationship and that hethus had no duty to disclose his negotiations with Extell. He further asserted that Delaware lawgoverned Vrahos's internal affairs, and that it permitted the elimination of fiduciary duties amongmembers, which he contended was achieved by paragraph 11 of the operating agreement. Basedon this theory, Tzolis argued that all of his dealings with Extell were immune from claims forbreach of fiduciary duty. He further argued that because plaintiffs executed the certificate andwillingly entered into the assignment agreement, none of the causes of action stated a claimagainst him. Plaintiffs countered that paragraph 11 could not be construed in such a way as topermit Tzolis's actions, and that their assignment of their interests [*3]in Vrahos could not be considered willing because Tzolis hadconcealed material information from them such as his negotiations with Extell.
The motion court granted the motion. It found that under both Delaware law and New Yorklaw, plaintiffs had no cause of action. The court found that paragraph 11 of the operatingagreement "eliminates the fiduciary relationship that would, otherwise, be owed by the membersto each other and to the LLC." The court noted that, contrary to plaintiffs' contention, paragraph11 could not be reasonably construed as limiting the types of business opportunities a member ofVrahos could enter into for his exclusive benefit to those that did not exploit the assets of Vrahositself. The court also stated that, to the extent paragraph 11 of the operating agreement eliminatedcertain fiduciary duties amongst the members, it was not unlawful or against public policy. Thecourt relied on this reasoning, and the fact that plaintiffs failed to identify any contractualprovision that Tzolis violated, in finding that plaintiffs' claims for breach of fiduciary duty,misappropriation and breach of contract failed to state a cause of action.
As to their claims for conversion and unjust enrichment, the court noted plaintiffs' willingsale of their interests in Vrahos. As to the fraud cause of action, the court stated that plaintiffscould prevail only if, under the "special facts" doctrine, they established that Tzolis had suchsuperior knowledge of the relevant facts that it was inherently unfair for him not to disclosethem. The court found that plaintiffs failed to sufficiently allege that, through the use of ordinarydiligence, they could not have discovered that Tzolis had been negotiating to achieve asignificant profit through the assignment of the lease to Extell. Further, the court determined thatsince the fraud allegations were based on information and belief, they were inadequate to supporta fraud claim. Finally, the court found that plaintiffs did not have standing to assert a derivativeclaim on behalf of Vrahos, since, at the time they brought the complaint, they no longer had aninterest in the entity.
As the movant on this pre-answer motion to dismiss, Tzolis had the burden of "clearly"establishing that paragraph 11 of the operating agreement eliminated the particular fiduciary dutythat plaintiffs contend he breached (511 W. 232nd Owners Corp. v Jennifer Realty Co.,98 NY2d 144, 153 [2002]). Further, in considering whether Tzolis demonstrated that plaintiffshave not stated the various causes of action they assert in their complaint, we are required toaccept the facts as alleged as true, "accord plaintiffs the benefit of every possible favorableinference, and determine only whether the facts as alleged fit within any cognizable legal theory"(Leon v Martinez, 84 NY2d 83, 87-88 [1994]).
Paragraph 11 of the operating agreement may have permitted Tzolis to pursue a businessopportunity unrelated to Vrahos, for his exclusive benefit, without having to disclose it toplaintiffs or otherwise present it first to Vrahos. However, we find that the provision does not"clearly" permit Tzolis to engage in behavior such as that alleged here, which was tosurreptitiously engineer the lucrative sale of the sole asset owned by Vrahos, withoutinforming his fellow owners of that entity. Thus, guided by the principles, enunciated above, thatapply on a CPLR 3211 motion to dismiss, we find that Tzolis failed to meet his burden ofestablishing that the provision extended that far.
Even under Delaware law, which permits parties to a limited liability company agreementsuch as this one to eliminate traditional fiduciary duties (Del Code Ann tit 6, § 18-1101[c]), Tzolis has not established that the parties eliminated all fiduciary duties that they owed toeach other. That is because, under Delaware law, "unless the LLC agreement in amanager-managed LLC explicitly . . . restricts, or eliminates traditionalfiduciary duties, managers owe those duties [*4]to. . . [the LLC's] members" (Kelly v Blum, 2010 WL 629850, *10, 2010 DelCh LEXIS 31, *44 [2010] [emphasis added]). Accordingly, plaintiffs have adequately allegedthat Tzolis breached a fiduciary duty to keep them informed of any and all opportunities he waspursuing on behalf of Vrahos.
We turn now to the effect of the certificate signed by plaintiffs, in which they acknowledgedthat the assignments of their interests in Vrahos were not based on any representations by Tzolisand that Tzolis owed them no fiduciary duties whatsoever. This Court addressed that very issuein Blue Chip Emerald v Allied Partners (299 AD2d 278 [2002]), a case with very similarfacts. In Blue Chip, the parties were joint venturers who formed an entity for the solepurpose of owning a commercial building. The plaintiffs sold their interests in the entity to thedefendants based on a valuation of the building that was a small fraction of the price that thedefendants received when they sold the building two weeks later. The plaintiffs commenced anaction, sounding in breach of fiduciary duty and fraud, to recover what they claimed they shouldhave been paid based on the actual sale price of the building. The motion court granted thedefendants' motion to dismiss, because the plaintiffs had executed a buyout agreement in whichthey acknowledged that they were not relying on any warranties or representations and that theyhad been afforded an opportunity to conduct due diligence, and in which they disclaimed anyclaim for breach of fiduciary duty or fraud in connection with the sale.
This Court reversed, stating as follows: "The key fact overlooked by the IAS court is that the. . . defendants, as coventurers and, in particular, as managing coventurers, werefiduciaries of [the entity] in matters relating to the Venture until the moment the buy-outtransaction closed, and therefore owe[d] [the entity] a duty of undivided and undiluted loyalty.Consistent with this stringent standard of conduct, which the courts have enforced with[u]ncompromising rigidity, it is well established that, when a fiduciary, in furtherance of itsindividual interests, deals with the beneficiary of the duty in a matter relating to the fiduciaryrelationship, the fiduciary is strictly obligated to make full disclosure of all material facts. Statedotherwise, the fiduciary is obligated in negotiating such a transaction to disclose any informationthat could reasonably bear on [the beneficiary's] consideration of [the fiduciary's] offer. Absentsuch full disclosure, the transaction is voidable" (299 AD2d at 279-280 [internal quotation marksand citations omitted]).
We found that, pursuant to these principles, the defendants in Blue Chip had anobligation, in negotiating the buyout agreement, to divulge to the plaintiffs "material factsconcerning their efforts to sell or lease the Venture's Property, such as, for example, the pricesprospective purchasers were offering to pay" (id. at 280). This obligation attached eventhough the plaintiffs were commercially sophisticated (id.).
There is no discernible difference in the facts of this case, and we are compelled to act withthe same uncompromising rigidity here as in Blue Chip. Thus, notwithstanding thecertificate in which plaintiffs acknowledged performing their own due diligence and stated that"Tzolis has no fiduciary duty to the undersigned Sellers in connection with such assignments,"we find that Tzolis had an overriding duty to disclose his dealings with Extell to plaintiffs beforethey assigned their interests in Vrahos to him. Indeed, as this Court stated in Blue Chip,"[A] fiduciary cannot by contract relieve itself of the fiduciary obligation of full disclosure bywithholding the very information the beneficiary needs in order to make a reasoned judgmentwhether to agree to the proposed contract" (299 AD2d at 280).
Although the case is not relied on by Tzolis, the dissent cites Centro Empresarial Cempresa S.A. vAm�rica M�vil, S.A.B. de C.V. (17 NY3d 269 [2011], affg 76AD3d 310 [2010]) as support for its position that the certificate effectively released Tzolis fromthe claims now at issue. However, Centro is distinguishable. In that case, the plaintiffsalleged that the defendants, their cofiduciaries, induced them to sell their interest in atelecommunications company by misrepresenting the value of the enterprise. The Court ofAppeals, in affirming the dismissal of the plaintiffs' fraud claim, noted that the "plaintiffs knewthat defendants had not supplied them with the financial information necessary to properly value[their interest], and that they were entitled to that information . . . In short, this is aninstance where plaintiffs 'have been so lax in protecting themselves that they cannot fairly ask forthe law's protection' " (17 NY3d at 279, quoting DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d 147, 154[2010]). The Court further noted that the plaintiff "ha[d] actual knowledge that its fiduciary [was]not being entirely forthright" (id.). In contrast, defendants here have made no showingthat plaintiffs had any reason to suspect Tzolis of deceit or that they had the independent abilityto discover facts that would have deterred them from selling their interests in Vrahos to him.
Moreover, Centro involved an exceedingly broad release that extinguisheddefendants' liability in "all manner of actions . . . whatsoever . . .whether past, present or future . . . resulting from the ownership of membershipinterests in [the entity] or having taken or failed to take any action in any capacity on behalf of[the entity] or in connection wit the business of [the entity]" (id. at 274). No suchdocument was signed by plaintiffs here.
To the extent that, as the dissent notes, the Court of Appeals criticized Blue Chip inCentro, it is irrelevant here. The criticism was that Blue Chip may suggest thatthis Court disagreed with the proposition that "[a] sophisticated principal is able to release itsfiduciary from claims—at least where . . . the fiduciary relationship is nolonger one of unquestioning trust—so long as the principal understands that thefiduciary is acting in its own interest and the release is knowingly entered into" (17 NY3d at 278[emphasis added]). Here, the dissent points to no evidence that plaintiffs and Tzolis were not stillin a relationship of unquestioning trust at the time of the transaction at issue, other thanemploying the circular logic that they must not have had such a relationship given that plaintiffswere willing to execute the certificate.
We further acknowledge this Court's decision in Arfa v Zamir (76 AD3d 56 [2010], affd 17 NY3d 737[2011]), also not cited by Tzolis, which was similar to Centro insofar as, notwithstandingthe fiduciary relationship between the parties, it dismissed a fraud claim based on allegations thatthe defendants induced the plaintiffs to invest in a building with them by misrepresenting certainmaterial facts. However, Arfa, like Centro, is distinguishable from this caseinsofar as there was a broad release, the parties' relationship by the time of the alleged fraud haddeteriorated to a high level of distrust, and the plaintiffs had received "hints of . . .falsity" from the defendants (76 AD3d at 62 [internal quotation marks and citation omitted]). It isnotable that this Court in Arfa distinguished Blue Chip based on those samefacts.
Accordingly, we conclude that the motion court erred in dismissing plaintiffs' claims forbreach of fiduciary duty and fraud. With respect to the latter cause of action, we note that whilethe complaint's allegations, insofar as they were made upon information and belief, may havebeen insufficient, plaintiffs cured any defect by making particular allegations of fraud in Pappas'saffidavit in opposition to the motion (see Cron v Hargro Fabrics, 91 NY2d 362, 366[1998]). The dissent contends that the fraud and misrepresentation claim should be dismissedbecause[*5]"Pappas and Ifantopoulos did not ask Tzolis why hewas offering them 20 times more than what they had invested in Vrahos one year earlier."However, the dissent is ignoring the basic precepts that must be followed on a motion to dismissand applying a standard that is more suitable to summary judgment. Accepting the facts asalleged as true and according plaintiffs the benefit of every possible favorable inference, we findthat plaintiffs have alleged enough to permit them to develop a full record on the issue whetherthey acted reasonably.
As for plaintiffs' causes of action for conversion and unjust enrichment, we reinstate thembased on our finding that, because of Tzolis's surreptitious behavior, plaintiffs did not sell theirinterests in Vrahos willingly or at arm's length. Plaintiffs are entitled to litigate their claims thatTzolis's wrongful behavior constituted a conversion of a portion of their interests in Vrahos andthat equity dictates that Tzolis return the corresponding value to them.
The remaining claims, however, were correctly dismissed. Plaintiffs allege in their secondcause of action that Tzolis misappropriated a business opportunity by assigning the lease toExtell. However, it was Vrahos, not Tzolis, that assigned the lease. The court also correctlydismissed the breach of contract cause of action because of plaintiffs' failure to allege specificallywhat the violation was (see Gordon vCurtis, 68 AD3d 549, 550 [2009], lv denied 14 NY3d 713 [2010]). The relatedclaim for breach of the implied covenant of good faith and fair dealing was also correctlydismissed because such a claim cannot be used to create independent contractual rights (see National Union Fire Ins. Co. ofPittsburgh, Pa. v Xerox Corp., 25 AD3d 309, 310 [2006], lv dismissed 7 NY3d886 [2006]).
Because the claim for breach of contract has been dismissed, plaintiffs cannot state a cause ofaction for tortious interference with contract (see e.g. NBT Bancorp v Fleet/Norstar Fin.Group, 87 NY2d 614, 620-621 [1996]). On appeal, plaintiffs seek to recast this claim as onefor tortious interference with prospective business opportunities. Even if we were to consider thisbelated change, we would find that this claim fails to state a cause of action (see Carvel Corp. v Noonan, 3 NY3d182, 192 [2004]).
Because plaintiffs' assignments of their interests in Vrahos may be voidable, they havestanding to assert a derivative claim on Vrahos's behalf. However, on the merits, the eleventhcause of action was correctly dismissed, since it was contradicted both by other allegations in thecomplaint and by the documentary evidence, which shows that Vrahos received $17,500,000from the assignment of its lease. Concur—Mazzarelli, J.P., Saxe and Acosta, JJ.
Friedman and Freedman, JJ., dissent in a memorandum by Freedman, J., as follows: I wouldaffirm the dismissal of the complaint in its entirety, because contractual disclaimers by plaintiffspreclude the causes of action that the majority has reinstated.
The complaint alleges as follows: In January 2006, plaintiffs Steve Pappas and ConstantineIfantopoulos and defendant Steve Tzolis formed a Delaware limited liability company, VrahosLLC, as a vehicle for entering into a 49-year lease of a commercial building in Manhattan, andoperating and developing the property. Pursuant to Vrahos's operating agreement, also executedin January 2006, Pappas, Ifantopoulos, and Tzolis were named as the company's sole membersand managers, with Pappas and Tzolis each holding a 40% interest and making a $50,000 capitalcontribution and Ifantopoulos holding a 20% interest and making a $25,000 contribution.
According to the complaint, Tzolis assumed Vrahos's control and management, and, with[*6]plaintiffs' consent, Vrahos subleased the Manhattan propertyto Tzolis in June 2006 for $20,000 per month. In late 2006, Tzolis approached Pappas andIfantopoulos about buying out their interests in Vrahos. According to the complaint, Tzolis'sgiven reason for the buyout was that "he [did] not want to pay rent" and that "he owns his ownbuildings." But by this time, plaintiffs allege, Tzolis knew of but did not disclose a profitableopportunity for Vrahos to assign its lease interest to nonparty Charlton Soho LLC, a real estatedeveloper.
On January 18, 2007, the parties executed closing documents pursuant to which, after thefulfillment of certain conditions, Pappas and Ifantopoulos would assign their interests in Vrahosto Tzolis, in exchange for which Tzolis would pay Pappas $1 million and Ifantopoulos $500,000,or 20 times what they had invested one year earlier. At the closing, the complaint acknowledges,Pappas, Ifantopoulos, and Tzolis executed a certificate stating that each of the plaintiffs "hasperformed [his] own due diligence in connection with [his] assignment[ ]," and that each of them"has engaged its own legal counsel, and is not relying on any representation by Steve Tzolis orany of his agents or representatives, except as set forth in the assignments & other documentsdelivered to [Pappas and Ifantopoulos] today." The certificate further stated that "Steve Tzolishas no fiduciary duty to [Pappas and Ifantopoulos] in connection with [the] assignments."
The transaction was consummated and the assignments completed on February 20, 2007.About six months later, in late August 2007, Tzolis, now Vrahos's sole member, assigned theVrahos lease to Charlton Soho for $17.5 million, thus realizing a very large profit on hisinvestment in the LLC. Plaintiffs' central allegation against Tzolis is that he cheated Pappas andIfantopoulos out of a share of the profit from the Charlton Soho deal by buying out their interestsin Vrahos without disclosing to them that a potential deal was in the offing.
I agree with the majority that, for the reasons stated, Supreme Court correctly dismissedplaintiffs' claims for breach of the operating agreement, breach of the implied covenant of goodfaith and fair dealing, tortious interference with contract, and misappropriation of businessopportunities. I also agree that the cause of action asserting a derivative claim was correctlydismissed on the merits.
The remaining causes of action for breach of fiduciary duty (first cause of action), conversion(fourth), unjust enrichment (fifth), and fraud and misrepresentation (tenth) also should have beendismissed. Pappas and Ifantopoulos allege that Tzolis breached his fiduciary duty to them bybuying their LLC interests without telling them about what they contend were ongoingnegotiations with Charlton Soho. The terms of the closing certificate, however, preclude thatclaim. In the certificate, Pappas and Ifantopoulos explicitly agreed that Tzolis had no fiduciaryduty to them in connection with the assignment, stated that they were not relying on Tzolis'external representations, and represented that they had protected their interests by performing duediligence and engaging separate counsel. Although Tzolis had a fiduciary relationship withPappas and Ifantopoulos before the closing, the certificate specifically discharged that fiduciaryrelationship and released Tzolis from any liability arising from his fiduciary duty.
Moreover, a provision in the original operating agreement for the LLC anticipated competinginterests among the LLC members. The agreement provides that "[a]ny [m]ember may engage inbusiness ventures and investments of any nature whatsoever, whether or not incompetition with the LLC, without obligation of any kind . . . to the other[m]embers" (emphasis supplied). Under Delaware law, which, as the majority points out, governsthe breach of fiduciary duty claim, an LLC member's fiduciary duty to another member "may beexpanded or [*7]restricted or eliminated by provisions in thelimited liability company agreement" (Del Code Ann tit 6, § 18-1101 [c]). While theoperating agreement provision alone did not eliminate all of Tzolis's fiduciary duties to Pappasand Ifantopoulos, it afforded Tzolis latitude to pursue his individual business interests for hisown gain regardless of his comembers' interests.
The Court of Appeals recently held that "[a] sophisticated principal is able to release itsfiduciary from claims—at least where . . . the fiduciary relationship is nolonger one of unquestioning trust—so long as the principal understands that the fiduciaryis acting in its own interest and the release is knowingly entered into" (Centro Empresarial Cempresa S.A. vAm�rica M�vil, S.A.B. de C.V., 17 NY3d 269, 278 [2011], affg 76AD3d 310 [2010]). In Centro Empresarial, the plaintiffs, who were minority shareholdersin a closely held corporation, claimed that the defendant majority shareholder and its affiliatesfraudulently induced them both to sell their shares (by misrepresenting their value) and toexecute a broad release from claims. The defendant was the plaintiffs' fiduciary and therefore wasrequired to "disclose any information that could reasonably bear on plaintiffs' consideration of[its purchase] offer" (id., quoting Dubbs v Stribling & Assoc., 96 NY2d 337, 341[2001]). Despite that fiduciary obligation, the Court of Appeals held that the plaintiffs' claims,which included breach of fiduciary duty, fraud, and unjust enrichment, were barred by the releasethey granted defendants as a condition of the sale (see also Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 98[2006], lv denied 8 NY3d 804 [2007]).
In this case, plaintiffs were business partners of Tzolis who affirmed at the closing and inconnection with the assignments that they were represented by counsel and had performed theirown due diligence in connection with the transaction. Their acknowledgment in the closingcertificate that Tzolis was not acting as their fiduciary and that they were not relying on anyrepresentations by him beyond those contained in the closing documents, constituted fair noticethat plaintiffs were engaging in an arm's length business transaction with Tzolis, that they shouldnot place their "unquestioning trust" in him, and that in exchange for their immediate and certaintwentyfold return on their investment, they were forgoing the possibility of future greater profit.
The majority's reliance on Blue Chip Emerald v Allied Partners (299 AD2d 278[2002]) as support for its holding that, despite plaintiffs' disclaimers, Tzolis had an "overriding[fiduciary] duty to disclose" is misplaced. In Centro Empresarial, the Court of Appealsmade clear that one party could release another from claims arising from a fiduciary duty thatexisted before the release, and called our holding in Blue Chip Emerald into question bystating that "[t]o the extent that Appellate Division decisions such as . . . BlueChip Emerald . . . suggest otherwise, they misapprehend our case law" (17NY3d at 278).
The majority's attempt to distinguish Centro Empresarial from this case isunpersuasive. It is immaterial that instead of signing a general release plaintiffs executed acertificate disclaiming Tzolis's fiduciary duty and his earlier representations. The disclaimer wastantamount to a release from all claims against Tzolis in connection with the assignment thatwere premised on his fiduciary duty to plaintiffs.
The majority also contends that Tzolis made no showing that plaintiffs lacked"unquestioning trust" in him. The face of the closing certificate, however, indicates otherwise. Inconsideration of Tzolis's purchase, plaintiffs were presented with, and with the advice of counselsigned, an explicit acknowledgment that Tzolis was not their fiduciary and that they should notrely on his earlier representations. Even if plaintiffs had the right to place their trust in Tzolisbefore they signed the certificate, that right necessarily ended when they executed it. [*8]Accordingly, the breach of fiduciary duty claim is barred.
The fraud and misrepresentation claim also fails. The gist of plaintiffs' allegations is thatTzolis failed to disclose that he was negotiating the lease assignment, not that he actually madeany misrepresentations about it. New York law, which governs the operating agreement, adoptsthe "special facts" doctrine that, in the absence of a fiduciary relationship between parties to atransaction, a duty to disclose only arises where one party's superior knowledge of relevant factsis such that nondisclosure would render the transaction unfair (see Jana L. v West 129th St. RealtyCorp., 22 AD3d 274, 277 [2005]). However, that doctrine only applies if the partylacking the relevant facts could not have acquired them by using ordinary intelligence (id.at 278). Tzolis's substantial offer to plaintiffs should have alerted them to the fact that some dealwas in the offing. Pappas and Ifantopoulos did not ask Tzolis why he was offering them 20 timesmore than what they had invested in Vrahos one year earlier; their lack of due diligence isunreasonable as a matter of law and fatal to plaintiffs' claim.
Finally, since Pappas and Ifantopoulos received their bargained-for consideration inexchange for their LLC interests, and the transaction was unaffected by a fiduciary relationship,the conversion and unjust enrichment claims fail.