| Vandashield Ltd v Isaacson |
| 2017 NY Slip Op 00259 [146 AD3d 552] |
| January 17, 2017 |
| Appellate Division, First Department |
[*1]
| Vandashield Ltd et al.,Respondents-Appellants, v Mark Isaacson et al., Appellants-Respondents.Anthony Hilton, Nonparty Appellant. |
Law Offices of Paul C. Cavaliere, New York (Paul C. Cavaliere of counsel), forappellant.
Anthony Hilton, New York, for appellants-respondents.
Frankfurt Kurnit Klein & Selz, P.C., New York (John B. Harris of counsel), forrespondents-appellants.
Appeal from order, Supreme Court, New York County (Shirley Werner Kornreich,J.), entered May 20, 2015, which denied defendants' application for an order to showcause, unanimously dismissed, without costs. Order, same court and Justice, entered May20, 2015, which granted plaintiffs' motion for sanctions, unanimously affirmed, withoutcosts. Order, same court and Justice, entered July 17, 2015, which ruled that defendantshad waived their right to serve paper discovery demands, unanimously affirmed, withoutcosts. Order, same court and Justice, entered on or about September 18, 2015, which, tothe extent appealed from as limited by the briefs, inter alia, granted defendants' firstmotion to dismiss (for failure to state a cause of action) so much of the fraud and breachof fiduciary duty claims as were predicated on misrepresentations allegedly made beforethe assignments by defendant Strategic Development Partners, LLC (SDP), the claimsfor constructive trust and punitive damages, and all claims against defendant Great CourtCapital LLC, and denied the motion as to the remaining portion of the fraud and breachof fiduciary duty claims, the breach of contract claim, and the accounting claim as againstSDP, and denied their second motion to dismiss (based on forum non conveniens),unanimously modified, on the law, to deny the first motion as to the request for punitivedamages on the fiduciary duty claim, and otherwise affirmed, without costs. Appeal fromso much of the September 18, 2015 order as denied vacatur of the orders entered April 3and May 4, 2015, unanimously dismissed, without costs, as moot.
With respect to dismissal of the entire action, the motion court considered the factorsrelevant on a forum non conveniens motion and providently exercised its discretion inruling that the action should proceed in New York rather than South Africa (seeIslamic Republic of Iran v Pahlavi, 62 NY2d 474, 479 [1984], cert denied469 US 1108 [1985]).
The business judgment rule does not avail defendants since plaintiffs are neithershareholders of a corporation, challenging the decisions of the corporation's directors(see Auerbach v Bennett, 47 NY2d 619, 629 [1979]), nor residents of acooperative or condominium, challenging the decisions of the board of directors or boardof managers (see Matter of Levandusky v One Fifth Ave. Apt. Corp., 75 NY2d530, 537 [1990]). This case involves, in the first instance, contract interpretation, namely,whether defendant SDP has satisfied the conditions in paragraph 7 (a) of the 2012agreement to require plaintiffs to forbear from suit.
[*2] The court correctly dismissed so much of the fraudclaim as dealt with the misrepresentations that defendants allegedly made beforeplaintiffs entered into their assignment agreements with SDP. "To establish a fraudclaim, a plaintiff must demonstrate that a defendant's misrepresentations were the directand proximate cause of the claimed losses" (Friedman v Anderson, 23 AD3d 163, 167 [1st Dept 2005])."To establish causation, plaintiff must show both that defendant's misrepresentationinduced plaintiff to engage in the transaction in question (transaction causation) and thatthe misrepresentations directly caused the loss about which plaintiff complains (losscausation)" (Laub v Faessel, 297 AD2d 28, 31 [1st Dept 2002]).
Read liberally in plaintiffs' favor, the complaint adequately alleges transactioncausation. However, the complaint insufficiently alleges loss causation (see id.).Plaintiffs' losses are not alleged to have been caused by poor security for the loan ordefendants' supposed failure to lend money to MOD; rather, the complaint alleges thatplaintiffs' losses were caused by defendants' privileging of their own claims in thelitigation and settlement with nonparty MOD. Plaintiffs allege, inter alia, that "the ActualSettlement Amount was more than sufficient to repay the Plaintiff Lenders in full, withinterest, but Defendants sought to . . . retain[ ] more than $12 million forthemselves as supposed lost profits because [MOD] failed to pursue the publicoffering."
Since plaintiffs submitted no proposed amendment, the court properly denied theirrequest—made in a footnote in their brief—to replead (see Gerrish v State Univ. of N.Y. atBuffalo, 129 AD3d 1611, 1613 [4th Dept 2015]).
Defendants contend that the individual defendants (Mark Isaacson and IvanBerkowitz) are not subject to liability for fraud and breach of fiduciary duty because theyacted on behalf of SDP and there is no basis for piercing SDP's corporate veil. However,the rule on which defendants rely is applicable to contract claims, not tort claims(compare Feigen v Advance Capital Mgt. Corp., 150 AD2d 281, 282 [1st Dept1989], lv dismissed in part, denied in part 74 NY2d 874 [1989], with Fletcher v Dakota, Inc.,99 AD3d 43, 49 [1st Dept 2012]). Defendants' contention that the individualdefendants did not profit personally is also unavailing (see Pludeman v Northern LeasingSys., Inc., 10 NY3d 486, 491 [2008]).
Defendants' claim that plaintiffs failed to plead the contract cause of action withparticularity is without merit. There is no requirement of heightened particularity in acontract claim (see EastHampton Union Free School Dist. v Sandpebble Bldrs., Inc., 66 AD3d 122, 125[2d Dept 2009], affd 16NY3d 775 [2011]; CPLR 3016). Even if, arguendo, it were found that the complaintwas not sufficiently particular to give the requisite notice (see CPLR 3013), inopposition to defendants' first motion to dismiss, plaintiffs submitted an affirmation bytheir counsel describing defendants' failure/refusal to give them full and timely access toinformation and documents pertaining to MOD's default in making the paymentsrequired under the South African settlement (see Rovello v Orofino Realty Co.,40 NY2d 633, 635 [1976]).
Plaintiffs contend that the constructive trust claim should be reinstated. However, thepurpose of a constructive trust is to prevent unjust enrichment (Simonds vSimonds, 45 NY2d 233, 242 [1978]), and plaintiffs do not argue that the motioncourt erred in dismissing their unjust enrichment claim. Moreover, since constructivetrust applies to property already acquired by a defendant (see id. at 241), themotion court correctly dismissed so much of the fourth cause of action as sought toimpose a constructive trust over any future funds received by defendants from MOD. Inaddition, plaintiffs do not allege that defendants will fail to pass along plaintiffs' share offuture MOD payments; on the contrary, the documentary evidence indicates that SDP hasbeen fulfilling its obligation to pass plaintiffs' share along.
In pleading alter ego liability against Great Court, plaintiffs failed to allege factsindicating that defendants abused or perverted the corporate form for the purpose ofcausing harm to them (see East Hampton Union Free School Dist. v SandpebbleBldrs., Inc., 16 NY3d 775, 776 [2011]). For example, they do not allege that theycontracted with SDP because defendants led them to believe that it was the same as themore solid Great Court. Plaintiffs' plea for discovery is also unavailing (see EastHampton, 66 AD3d at 128-129).
The court properly struck plaintiffs' request for punitive damages on their fraudclaim, which did not allege that the fraud was aimed at the public generally (seeWalker v Sheldon, 10 NY2d 401, 405 [1961]). However, the requirement of conductdirected at the general public [*3]does not apply topunitive damages for breach of fiduciary duty (Don Buchwald & Assoc. vRich, 281 AD2d 329, 330 [1st Dept 2001]; see also Banque Indosuez v BarclaysBank, 181 AD2d 447 [1st Dept 1992]). Plaintiffs pleaded, at a minimum,"intentional or deliberate wrongdoing" on defendants' part (Buchwald, 281 AD2dat 330). "It is for the jury to decide whether [defendants'] . . . dealings with[plaintiffs] were so reprehensible as to warrant punitive damages" (Swersky v Dreyer& Traub, 219 AD2d 321, 328 [1st Dept 1996]).
Since, on May 26, 2015, defendants disclosed the names of persons other thanplaintiffs who participated in the loan to MOD, their appeal from so much of theSeptember order as refused to vacate the April and May orders directing such disclosureis moot.
As to the sanctions imposed by the court on defendants and their counsel, the May 4,2015, order said that "defendants shall . . . turn over the names of the otherlenders by 5/6/15 or the court will impose a sanction" (emphasis added).Defendants did not turn over the names by May 6; therefore, on May 20, the court ruledthat they would have to pay plaintiffs' reasonable costs to compel them to comply.
The court imposed sanctions on defendants (as opposed to their counsel) pursuant toboth CPLR 3126 and 22 NYCRR 130-1.1. To the extent sanctions were imposedpursuant to the former, the court was not required to find that defendants' behavior wasfrivolous (New v Scores Entertainment, 255 AD2d 108, 109 [1st Dept1998]).
The court providently exercised its discretion in sanctioning defendants for refusingto obey the order (see Spira v Antoine, 191 AD2d 219 [1st Dept 1993]; see generally Gibbs v St. BarnabasHosp., 16 NY3d 74, 83 [2010]). The court had the power to order defendants topay plaintiffs' reasonable costs (see Anonymous v High School for Envtl. Studies, 32 AD3d353, 359-360 [1st Dept 2006]; see also Baralan Intl. v Avant Indus., 242AD2d 226, 227 [1st Dept 1997]).
On May 20, the court ordered defense counsel to pay $5,000 to the Lawyers' Fundfor Client Protection pursuant to 22 NYCRR 130-1.3. Counsel contends that he shouldnot be punished for his clients' disobedience of court orders. However, by his ownadmission, counsel did not file a notice of appeal from the order. We are thereforewithout authority to entertain his arguments (see Hecht v City of New York, 60NY2d 57, 63 [1983]).
The court providently exercised its discretion in finding, on July 20, 2015, thatdefendants had waived their right to serve paper discovery demands by disregarding thedeadlines set forth in two case management orders (see e.g. Fletcher v Dakota, Inc., 127 AD3d 626 [1st Dept2015]).
Citing nonbinding cases, defendants contend that the court could order preclusiononly on a clear showing that their failure to comply with the case management orders waswillful or contumacious. However, we have upheld preclusion even when a party'sbehavior was neither willful nor contumacious (see New, 255 AD2d at 108;see also Christian v City of New York, 269 AD2d 135, 137 [1st Dept2000]).
Defendants contend that the sanction was disproportionate because their motion for aprotective order stayed discovery pursuant to CPLR 3103 (b). However, the statute says,"Service of a notice of motion for a protective order shall suspend disclosure of theparticular matter in dispute" (CPLR 3103 [b] [emphasis added]). Defendants' motionfor a protective order against plaintiffs' discovery demands did not stay theirobligation to serve their own discovery demands.
Defendants contend that the sanction was disproportionate because the reason fortheir delay in serving paper discovery demands was that the parties were engaged insettlement negotiations. However, as the motion court explained, defendants could haverequested an extension of the discovery deadline on this basis but failed to do so (seeGibbs, 16 NY3d at 81).
The appeal from the May 20, 2015 order denying defendants' application for an orderto show cause is dismissed, since no appeal lies from an order declining to sign an orderto show cause (Kalyanaram vNew York Inst. of Tech., 91 AD3d 532 [1st Dept 2012]). In any event, theappeal was abandoned.
We have considered defendants' remaining arguments and find them unavailing.Concur—Renwick, J.P., Richter, Manzanet-Daniels, Feinman and Kapnick,JJ.