| ARB Upstate Communications LLC v R.J. Reuter, L.L.C. |
| 2012 NY Slip Op 01540 [93 AD3d 929] |
| March 1, 2012 |
| Appellate Division, Third Department |
| ARB Upstate Communications LLC et al., Respondents, v R.J.Reuter, L.L.C., Doing Business as Reuter Business Consulting, et al.,Appellants. |
—[*1] The Law Office of Bruce James Donadio, Scotia (Bruce Donadio of counsel), forrespondents.
McCarthy, J. Appeal from an order of the Supreme Court (Reilly, Jr., J.), entered December1, 2010 in Schenectady County, which partially denied defendants' motion to, among otherthings, dismiss the complaint.
In 1999, Wendy Helm purchased Leonard Communications, LLC, a radio tower business,and entered into a lease agreement for two sites where the radio towers and equipment werelocated. The lease included an option to purchase the parcels at the end of the lease. As allegedby plaintiffs, in 2006 Leonard Communications entered into a business consultant agreementwith defendant R.J. Reuter, L.L.C. (hereinafter RJR) and defendant Ronald J. Reuter (hereinaftercollectively referred to as the Reuter defendants). In 2007, the Reuter defendants advised Helm toform plaintiffs and transfer all of Leonard Communications's interests—including theoption to purchase the sites—to plaintiffs so that financing could be secured for thepurchase.
The Reuter defendants advised plaintiffs to transfer their purchase options to BastaracheProperties, LLC under an agreement where Bastarache would lease the parcels to plaintiffs with[*2]an option to purchase the sites for $150,000. In 2008,plaintiffs entered into a new business consultant agreement with the Reuter defendants, with amain goal of obtaining financing to purchase the sites from Bastarache. Plaintiffs allege that theReuter defendants advised them to cancel their purchase options and allow Bastarache to sell theparcels to the Reuter defendants, then lease the parcels from the Reuter defendants until plaintiffswere able to secure financing.
In 2009, RJR formed defendant Hightower Capital, LLC, with Reuter as managing director.Plaintiffs entered into a six-month lease with Hightower Capital, but this lease did not contain apurchase option. When the lease expired, plaintiffs continued to rent the sites on amonth-to-month basis, then refused to continue to pay the rent, which they contended wasartificially high. Defendants responded that plaintiffs could purchase the sites for $350,000, anddemanded immediate payment.
Plaintiffs commenced this action, with most of the causes of action directed at the Reuterdefendants. Prior to joinder of issue, defendants moved to dismiss the complaint for failure tostate a cause of action. Supreme Court granted the motion as to plaintiffs' cause of action forspecific performance, but denied the motion with respect to the remaining causes of action.Defendants appeal.
Courts considering a motion to dismiss a complaint for failure to state a cause of action mustliberally construe the pleadings (see CPLR 3026), accept the facts alleged in thecomplaint as true, give plaintiffs the benefit of every possible favorable inference, and determinewhether the alleged facts fit within any cognizable legal theory (see ABN AMRO Bank, N.V. v MBIAInc., 17 NY3d 208, 227 [2011]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Amotion pursuant to CPLR 3211 (a) (7) must be decided without regard to evidence submitted bydefendants, unless that evidence "conclusively establishes the falsity of an alleged fact" (Gray v Schenectady City School Dist.,86 AD3d 771, 772 [2011]). Applying these standards, Supreme Court correctly decideddefendants' motion.
Supreme Court did not err in refusing to dismiss the causes of action for breach of fiduciaryduty, breach of loyalty and breach of contract against Reuter. A fiduciary has both a duty ofloyalty and an obligation to act in the best interests of the principal (see Land Man Realty, Inc. v Faraone,70 AD3d 1246, 1247 [2010]). Plaintiffs allege that they entered into a contract, pursuant towhich the Reuter defendants would act as business consultants. This arrangement allowed theReuter defendants access to plaintiffs' vital business information, including client lists, radiofrequencies and license renewal information. Although plaintiffs have sufficiently alleged afiduciary relationship and a duty of loyalty, the question is whether that relationship and dutyextend to Reuter individually.
Despite the complaint's allegations that plaintiffs entered into a contract with the Reuterdefendants, RJR is the only defendant that is a party to the 2008 contract; Reuter signed thatcontract only in his capacity as managing director of RJR.[FN1] To pierce the corporate veil and hold a corporation owner such as Reuter individually liable,plaintiffs must show that he exercised complete domination of the corporation concerning thetransaction at issue and that this [*3]domination was used tocommit a fraud or wrong against plaintiffs, causing injury (see Matter of Morris v New YorkState Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]; Heim v Tri-Lakes Ford Mercury, Inc.,25 AD3d 901, 902 [2006], lv dismissed and denied 6 NY3d 886 [2006]). Piercingthe corporate veil is not a separate cause of action, but is a way to hold an individual liable for acorporation's tort. Thus, the complaint need only contain some allegations reflecting on theindividual's liability for the corporation's wrongdoing.
Plaintiffs alleged that Reuter managed or owned the three corporate defendants, he providedbusiness advice to plaintiffs to cancel their purchase options and allow Bastarache to sell the sitesto the Reuter defendants, he purchased the sites, and he formed Hightower Capital and defendantHightower Upstate Communications, LLC to directly compete against plaintiffs. Liberallyconstruing the complaint in plaintiffs' favor, we find these allegations sufficient to state a causeof action against Reuter individually for the obligations of his corporations. Plaintiffs alleged thatthe contract required the Reuter defendants to secure financing for the purchase of the sites, andthat, despite plaintiffs' payment of consulting fees, the Reuter defendants never sought to securethe financing or perform certain other contractual obligations, thereby breaching the 2008contract and causing plaintiffs damage (see Clearmont Prop., LLC v Eisner, 58 AD3d1052, 1055 [2009]). Hence, the complaint states causes of action for breach of fiduciary duty,breach of the duty of loyalty and breach of contract.
Plaintiffs have stated a limited cause of action for conversion. "[T]he subject matter of aconversion action must constitute identifiable tangible personal property"; real property andinterests in business opportunities will not suffice (Roemer & Featherstonhaugh vFeatherstonhaugh, 267 AD2d 697, 697 [1999], lv denied 95 NY2d 758 [2000]; see Thyroff v Nationwide Mut. Ins.Co., 8 NY3d 283, 289 [2007]). The complaint states, in its fourth cause of action, thatthe Reuter defendants used their business relationship to convert plaintiffs' "business, license andcontract rights, opportunities, funds and business opportunities." While several of the listedcategories cannot be the basis of a conversion cause of action, elsewhere in thecomplaint[FN2] plaintiffs allege that the Reuter defendants demanded and received from plaintiffs an updatedclient list, which defendants' representative then used to contact plaintiffs' clients on behalf ofdefendants. Construing the allegations liberally, plaintiffs have alleged conversion of funds andtheir client list.
The complaint sufficiently alleges fraud. That cause of action requires allegations thatdefendants made a knowingly false misrepresentation or material omission of fact for the purposeof inducing plaintiffs to rely on it, plaintiffs justifiably relied on the misrepresentation or materialomission, and plaintiffs suffered related injuries (see Mandarin Trading Ltd. vWildenstein, 16 [*4]NY3d 173, 178 [2011]; LamaHolding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). For a fraud cause of action, "thecircumstances constituting the wrong shall be stated in detail" (CPLR 3016 [b]). The fifth causeof action alleges that the Reuter defendants "intentionally made false and misleading statements"to plaintiffs concerning performance of duties under the contract, that plaintiffs "reasonablyrelied upon such false and misleading statements" to their detriment, and that this reliance led todamages. Elsewhere in the complaint, plaintiffs alleged that the Reuter defendants representedthat they were working on obtaining financing, but that they never actually made any suchattempts. Plaintiffs also alleged that defendants advised them that the sale of the sites fromBastarache to defendants would preserve plaintiffs' purchase option, but the lease with HightowerCapital did not contain a purchase option and the later sale price offered by defendants was$200,000 more than the price under the Bastarache purchase option. These allegations containenough detail of the circumstances to support a cause of action for fraud (see Kosowsky v Willard Mtn., Inc., 90AD3d 1127, 1129 [2011]).
Plaintiffs sufficiently alleged tortious interference with contract. That cause of action isestablished where a valid contract exists between a plaintiff and a third party, a defendant knowsabout the contract, the defendant intentionally and improperly procures a breach of the contractby one party, and damages to the plaintiff result (see Kronos, Inc. v AVX Corp., 81NY2d 90, 94 [1993]; Ullmannglass vOneida, Ltd., 86 AD3d 827, 829 [2011]). The complaint alleges that defendants advisedplaintiffs to terminate their agreement with Bastarache, allowing defendants to purchase the sitesand causing plaintiffs to lose their purchase options (see Ullmannglass v Oneida, Ltd., 86AD3d at 829). This was sufficient to state that cause of action.
Similarly, plaintiffs stated a cause of action for tortious interference with businessopportunities and advantages. This cause of action is established where a defendant useswrongful means to engage in conduct directed at a third party with whom a plaintiff has or seeksto have a business relationship, causing damage to the plaintiff (see Carvel Corp. v Noonan, 3 NY3d182, 192 [2004]; see also White vIvy, 63 AD3d 1236, 1238 [2009]). Plaintiffs alleged that defendants submittedcompeting applications with the Federal Communications Commission for licenses to radiofrequencies used by plaintiffs. This could interfere with plaintiffs' contracts with their customers.Plaintiffs also alleged that defendants knew of the frequency renewal dates through confidentialinformation supplied as part of the business consultant relationship, such that defendantswrongfully used that information to interfere with plaintiffs' business relationships. Theseallegations stated the cause of action.
To state a cause of action for unjust enrichment, plaintiffs needed to allege that defendantswere enriched, the enrichment came at plaintiffs' expense, and permitting defendants to retainwhat plaintiffs seek to recover would be " ' "against equity and good conscience" ' "(Mandarin Trading Ltd. v Wildenstein, 16 NY3d at 182, quoting Citibank, N.A. v Walker, 12 AD3d480, 481 [2004]; Baron v Pfizer,Inc., 42 AD3d 627, 629-630 [2007]). Plaintiffs alleged that defendants induced them torelinquish the option to purchase the sites from Bastarache for $150,000 and allow defendants topurchase them, and that defendants later demanded that plaintiffs pay $350,000 for the sites.These statements are sufficient to allege that defendants were enriched at plaintiffs' expense andthat, because defendants were able to obtain possession of the sites due to the business consultantrelationship, it would be inequitable to permit defendants to retain the parcels. While a quasicontract recovery, such as through an unjust enrichment cause of action, is precluded where avalid and enforceable contract applies to the dispute, a party need not elect its remedies and mayproceed on alternative theories if a disagreement exists concerning whether the contract coversthe situation at issue (see Kosowsky [*5]v Willard Mtn.,Inc., 90 AD3d at 1131). At this pre-answer stage of the action, plaintiffs may proceed onboth theories.
The complaint also states a cause of action for breach of the implied covenant of good faithand fair dealing. That "implied obligation encompasses any promises which a reasonable personin [plaintiffs' position] would be justified in understanding was included" in the parties'agreement (Just-Irv Sales v Air-Tite Bus. Ctr., 237 AD2d 793, 794 [1997]). "[T]hecovenant of good faith and fair dealing 'is breached when a party to a contract acts in a mannerthat, although not expressly forbidden by any contractual provision, would deprive the otherparty of the right to receive the benefits under their agreement' " (id. at 794, quotingJaffe v Paramount Communications, 222 AD2d 17, 22-23 [1996]; see Kosowsky vWillard Mtn., Inc., 90 AD3d at 1131-1132). Plaintiffs alleged that they supplied confidentialinformation to defendants and relied on defendants' advice as part of the business consultantrelationship. Plaintiffs further allege that defendants used this information and position of trust tousurp plaintiffs' right to acquire the sites, interfere with plaintiffs' renewal of their radiofrequency licenses, contact plaintiffs' customers and compete with their business. Thus, theysufficiently stated this cause of action (see Just-Irv Sales v Air-Tite Bus. Ctr., 237 AD2dat 794-795). While this cause of action may eventually be determined to be duplicative of anothercause of action—such as breach of fiduciary duty or breach of loyalty—plaintiffsmay proceed on alternative theories at this early stage of the litigation (compare Logan Advisors, LLC v PatriarchPartners, LLC, 63 AD3d 440, 443 [2009]).
Mercure, A.P.J., Peters, Malone Jr. and Kavanagh, JJ., concur. Ordered that the order isaffirmed, with costs.
Footnote 1: The 2006 contract was betweenRJR and Helm. Plaintiffs have no cause of action for any breach of that contract, as they were notparties to it.
Footnote 2: After general statements of thenature of the action and identification of the parties, the complaint contains a section entitled"Allegations Common to All Causes of Action." While the sections of the complaint outliningeach cause of action are sparse, this common section contains most of the complaint's factualallegations. The sections outlining each cause of action "repeat and reallege" all of the priorallegations, thereby incorporating by reference the common section's allegations. In any event,courts must read the complaint as a whole when deciding a CPLR 3211 (a) (7) motion.