| McDonnell v Bradley |
| 2013 NY Slip Op 05681 [109 AD3d 592] |
| August 21, 2013 |
| Appellate Division, Second Department |
| Kevin McDonnell, Appellant, v Ryan Bradley,Respondent, et al. Defendant. |
—[*1] Trachtenberg Rodes & Friedberg LLP, New York, N.Y. (Stephen J. Arena ofcounsel), for respondent.
In an action to recover damages for fraud and breach of fiduciary duty, the plaintiffappeals from an order of the Supreme Court, Westchester County (Tolbert, J.), datedMarch 23, 2012, which granted the motion of the defendant Ryan Bradley pursuant toCPLR 3211 (a) (5) and (7) and CPLR 3016 (b) to dismiss the complaint.
Ordered that the order is reversed, on the law and the facts, with costs, and themotion of the defendant Ryan Bradley pursuant to CPLR 3211 (a) (5) and (7) and CPLR3016 (b) to dismiss the complaint is denied.
In September 2011, the plaintiff, a futures contract trader, commenced this action torecover damages for fraud and breach of fiduciary duty from the defendants, RyanBradley and John Martin, two of his former employees. The defendants acted as floorclerks, receiving the plaintiff's orders for the purchase and sale of futures contracts, andarranging to have those orders executed by brokers. The plaintiff terminated theemployment of the defendants in March 2006, when he discovered that the defendantswere allegedly misappropriating a significant number of profitable trades executed on hisbehalf, and placing the profits from those trades, without his knowledge or consent, intoa trading account maintained in the name of one of the defendants. Bradley moved todismiss the complaint pursuant to CPLR 3211 (a) (5) and (7) and CPLR 3016 (b). TheSupreme Court granted those branches of the motion which were pursuant to CPLR 3211(a) (5) and (7) and CPLR 3016 (b) to dismiss the first cause of action, which sounded infraud, and pursuant to CPLR 3211 (a) (5) to dismiss the second cause of action, whichwas to recover damages for breach of fiduciary duty, with respect to both defendants.
To state a cause of action sounding in fraud, a plaintiff must allege that "(1) thedefendant made a representation or a material omission of fact which was false and thedefendant knew to be false, (2) the misrepresentation was made for the purpose ofinducing the plaintiff to rely upon it, (3) there was justifiable reliance on themisrepresentation or material omission, and (4) injury" (Selechnik v Law Off. of HowardR. Birnbach, 82 AD3d 1077, 1078 [2011]; see Eurycleia Partners, [*2]LP vSeward & Kissel, LLP, 12 NY3d 553, 559 [2009]; Lama Holding Co. vSmith Barney, 88 NY2d 413, 421 [1996]; Pace v Raisman & Assoc., Esqs., LLP, 95 AD3d 1185,1188-1189 [2012]). "A cause of action to recover damages for fraudulent concealmentrequires, in addition to allegations of scienter, reliance and damages, an allegation thatthe defendant had a duty to disclose material information and that it failed to do so" (High Tides, LLC v DeMichele,88 AD3d 954, 957 [2011]; see Consolidated Bus Tr., Inc. v Treiber Group, LLC, 97 AD3d778, 779 [2012]; see also Kaufman v Cohen, 307 AD2d 113, 119-120[2003]).
In assessing a motion pursuant to CPLR 3211 (a) (7) to dismiss a complaint forfailure to state a cause of action, the facts pleaded are accepted as true and the plaintiff isaccorded every possible favorable inference (see Nonnon v City of New York, 9 NY3d 825, 827 [2007];Garner v China Natural Gas,Inc., 71 AD3d 825, 826 [2010]). The court is then to "determine only whetherthe facts as alleged fit within any cognizable legal theory" (Nonnon v City of NewYork, 9 NY3d at 827; see Guggenheimer v Ginzburg, 43 NY2d 268 [1977]).Pursuant to CPLR 3016 (b), a cause of action alleging fraud must be pleaded withparticularity so as to inform the defendant of the alleged wrongful conduct and givenotice of the allegations the plaintiff intends to prove (see Eurycleia Partners, LP vSeward & Kissel, LLP, 12 NY3d at 559; Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486,492 [2008]; Pace v Raisman & Assoc., Esqs., LLP, 95 AD3d at 1189). Thispleading requirement "should not be confused with unassailable proof of fraud," and"may be met when the facts are sufficient to permit a reasonable inference of the allegedconduct" (Pludeman v Northern Leasing Sys., Inc., 10 NY3d at 492; seeEurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d at 559).
Here, the Supreme Court improperly granted that branch of Bradley's motion whichwas pursuant to CPLR 3211 (a) (7) and CPLR 3016 (b) to dismiss the first cause ofaction, which alleged fraud. Upon examining the allegations contained in the complaintand drawing reasonable inferences therefrom, we conclude that the plaintiff adequatelypleaded a fraud cause of action (see Pludeman v Northern Leasing Sys., Inc., 10NY3d at 492-493). The complaint specified that the plaintiff relied upon the defendantsto "arrange for the execution of his trade orders" and to "obtain the best pricing possiblefor the transactions" when doing so. The plaintiff also alleged that the defendants wereresponsible for "obtain[ing] from the brokers the specific prices at which the trades were[ultimately] executed or 'filled' " and then "report[ing] those trading results to the[plaintiff's] administrative employees." The plaintiff alleged that he relied on thedefendants to "honestly and accurately report to him the results of the trades theyexecuted for him," because it was the method by which his "administrative staff couldcompute the profit or loss on each trade, and in turn, the profit or loss for the tradingday." The complaint further stated that "unbeknownst to [the plaintiff], [the defendants]opened up a separate trading account with a clearing house different from the one usedby [the plaintiff] for his trading" so that the defendants could conceal that they weremisappropriating a significant number of profitable trades that were executed for theplaintiff, and placing the profits into this separate account, without the plaintiff'sknowledge or consent.
Accepting these allegations as true, and according the plaintiff every possiblefavorable inference, the pleading sufficiently sets forth that the defendants engaged in afraudulent scheme, while under a duty to honestly report all trades to the plaintiff and hisadministrative staff, by making material omissions of fact or fraudulently concealingfrom the plaintiff that they were diverting profits from trades made on the plaintiff'sbehalf, and that they were doing so in order for the plaintiff to rely on thosemisrepresentations and not discover the misappropriation of his profits, which he allegedwere in the amount of $700,000 (see e.g. Kaufman v Cohen, 307 AD2d at 120).The plaintiff's failure to set forth all of the particulars of the defendants' scheme is notfatal to his claim (see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3dat 559; Pludeman v Northern Leasing Sys., Inc., 10 NY3d at 492-493).
Further, since the plaintiff adequately pleaded a cause of action to recover damagesfor fraud, the Supreme Court improperly granted that branch of Bradley's motion whichwas pursuant to CPLR 3211 (a) (5) to dismiss the first cause of action. Since the plaintiffsufficiently pleaded his first cause of action as one to recover damages for fraud, the firstcause of action was subject to the six-year statute of limitations of CPLR 213 (8), ratherthan the three-year statute of limitations applied by the Supreme Court (see Sargiss v Magarelli, 12NY3d 527, 532 [2009]; Vilsack v Meyer, 96 AD3d 827, 828 [2012]).[*3]
With respect to the second cause of action, whichalleged a breach of fiduciary duty, since the allegations of fraud were essential to thiscause of action, the six-year statute of limitations applied to it as well (see CPLR213 [8]; Carbon Capital Mgt.,LLC v American Express Co., 88 AD3d 933, 939 [2011]; Scott v Fields, 85 AD3d756 [2011]; Monaghan vFord Motor Co., 71 AD3d 848, 850 [2010]).
Accordingly, the Supreme Court improperly granted those branches of Bradley'smotion which were pursuant to CPLR 3211 (a) (5) and (7) and CPLR 3016 (b) to dismissthe first cause of action and pursuant to CPLR 3211 (a) (5) to dismiss the second causeof action. Balkin, J.P., Lott, Austin and Sgroi, JJ., concur.