COUNTY OF NEW YORK: IAS PART 3

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ROBERT HONOR, LORRAINE HONOR,

THOMAS CULLEN, SUSAN CULLEN,

ROBERT MUINO, and LORI MUINO,

Plaintiffs,

Index No: 600457/00

-against- Sequence Nos: 005 and 006

NORTHFIELD SAVINGS BANK, ALAN D.

LASHER, LASHER & LASHER, ON THE PARK

WITH A VIEW OF THE LAKE CORPORATION,

KENNETH J. DOHERTY, CHARTER ABSTRACT

COMPANY, ALBERT L. RISI, FIRST

AMERICAN TITLE INSURANCE COMPANY OF

NEW YORK, THE LAW FIRM OF SPENCER H.

GAINES n/k/a GAINES & FISHLER, LLP,

ROBERT M. FISHLER, CIRO ASPERTI,

ASPERTI ARCHITECTURE, P.C., SAMUEL

L. SCOLLAR and ROBERT G. REBOLLO,

Defendants.

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BARRY A. COZIER, J.:

Defendants Gaines & Fishler, LLP, and Robert Fishler ("Fishler"), former attorney for the defendant sponsors, move to dismiss this action as against them, pursuant to CPLR 3211(a)(7) and 3212. Defendant Samuel L. Scollar ("Scollar"), former attorney for plaintiffs Robert and Lori Muino (at the time of their purchase), moves to change venue to Richmond County. Plaintiffs cross-move to retain venue in New York County.

FACTUAL ALLEGATIONS

Defendant On the Park with a View of the Lake Corporation ("On the Park Corp.") was the sponsor of a condominium development ("Development") on Staten Island, and Alan D. Lasher ("Lasher") was the president and sole principal of the sponsoring entity. Hereinafter, defendants Lasher and On the Park Corp. will be collectively referred to as the "Sponsors." Plaintiffs Robert and Lorraine Honor (the "Honors"), Thomas and Susan Cullen (the "Cullens"), and Robert and Lori Muino (the "Muinos"), were purchasers of one-family townhouses in the Development.

The Sponsors allegedly represented to plaintiffs that the entire Development would be converted to 18 one-family townhouses in a Home Owners' Association ("HOA"). At the time of plaintiffs' respective purchases, almost all the condominium units, including the unit purchased by the Cullens, were in various stages of construction, as they were being transformed from one-family condominiums to one-family townhouses. Plaintiffs maintain that the Sponsors failed to complete construction on their individual units and on the Development as a whole. Plaintiffs further maintain that due to Sponsors incomplete construction and poor workmanship, they were each forced to expend additional sums of money to cure various defects (relating to their respective homes) that arose after occupancy. Plaintiffs allege that despite repeated complaints and requests for reimbursements, no response or action from the Sponsors was forthcoming. Eventually, plaintiffs contacted the Office of the Attorney-General ("AG's Office").

Plaintiffs learned that the Sponsors had not filed any documents concerning the Development's conversion to an HOA, or about the physical conversion of the units to townhouses. Thus, the Development remains legally a condominium. Plaintiffs maintain that if they knew that the Development was not going to be converted to an HOA, they would not have purchased their townhouses.

According to the Cullens, Sponsors told them that the necessary paperwork to convert the legal status of the Development from condominiums to an HOA had been filed with the AG's Office. Prior to the closing on their unit, the Cullens asked their attorney, Scollar, to confirm that the HOA conversion was in progress. At the closing on November 25, 1997, Scollar showed the Cullens a copy of a November 24, 1997 letter by Fishler, on the letterhead of The Law Firm of Spencer H. Gaines, the predecessor of movant Gaines & Fishler. Fishler's letter was addressed "To Whom It May Concern" and recited in its entirety:

Please be advised that I have prepared an Offering Plan in order to convert properties now known as On the Park Condominium to On the Park Homeowners Association, Inc.

Upon acceptance of filing for the Homeowners Association, it is my understanding that the Sponsor shall take all steps necessary in order to convey fee simple title to ultimate purchasers.

Plaintiffs allege that Fishler committed fraud when he falsely stated, in its November 24, 1997 letter, that he had prepared the necessary paperwork to convert the development from a condominium to an HOA.

In its defense, Fishler contends that Lasher retained his firm in 1997 to prepare an offering plan, and that by mid-November 1997, he had prepared an incomplete draft of said plan. Thereafter, pursuant to Lasher's request, Fishler wrote the November 24, 1997 letter in question. According to Fishler, Lasher wanted said letter so that he could show it to prospective investors.

Fishler further contends that the letter was not misleading, because it does not state and cannot be taken to mean that: (a) the offering plan was ready to be filed; (b) it had been filed; or (c) that it would be accepted by the AG's Office. In addition, Fishler maintains that his letter concerned the offering plan only, and not other documents that may have been required for the conversion.

The Attorney-General has commenced an action against the Sponsors, alleging that they violated the Martin Act by selling condominium units without a current amended offering plan, and without filing other required documents. The plaintiffs commenced the present action, alleging fraud and breach of contract.

Subsequently, defendant Sponsors filed an answer to plaintiffs' complaint. In their answer, Sponsors asserted a cross claim based on fraud against defendant Fishler and defendant firm Gaines & Fishler. Sponsors allege that Fishler and Gaines & Fishler made false statements and failed to submit proper documentation to the Attorney-General. Defendant Sponsors seeks indemnification and/or contribution from Fishler and Gaines & Fishler.

DISCUSSION

Article 23-A of the General Business Law ("GBL") ("the Martin Act") prohibits the sale of condominium interests unless an offering plan of such sale is filed with the New York State Department of Law, and the Attorney-General then issues a letter to the offeror stating that the offering has been filed. See, G.B.L § 352-e(1)(a), (2). Alternatively, the Attorney-General may refuse to issue such a letter, or may notify the offeror of deficiencies in the offering plan. G.B.L § 352-e(2).

The Court notes that the word "filed" has two meanings in the statute. One meaning refers to the actual delivery of the documents to the indicated government office. The other meaning refers to approval or acceptance of the plan by the Attorney-General.

When there is a change in the material terms of the offer, the offering plan must be promptly amended. See, 13 N.Y.C.R.R. 23.5. Here, because an offering plan with respect to the condominiums had previously been filed, the Sponsors were obligated to file an amendment with respect to the conversion.

I. Motion To Dismiss Complaint

The eleventh cause of action alleging fraud (without specific details), is the only claim asserted against defendants Gaines & Fishler and Fishler. In opposition to the motion to dismiss, two of the six plaintiffs, the Cullens, have submitted affidavits claiming that when they purchased their townhouse, they relied on a misleading letter written by Fishler. According to the Complaint, the Honors and the Muinos purchased their townhouses before Fishler wrote his letter. Moreover, they have failed to submit anything to indicate otherwise. Therefore, as the Complaint does not state a claim against Fishler, on behalf of plaintiffs Honors and Muinos, any cause of action which they may have against Fishler shall be dismissed.¹

The elements of a cause of action for fraud are a representation concerning a material fact, falsity of that representation, scienter, reliance, and damages. Stuart Silver Associates, Inc. v. Baco Development Corp., 245 A.D.2d 96, 98 (1^st Dept. 1997). Plaintiff must show not only that he actually relied on the misrepresentations, but also that such reliance was reasonable. Id.

In opposition to the motion, the Cullens claim that when Scollar showed them the

letter, he

informed us that the letter meant that Mr. Fishler had taken the steps necessary to have the project converted to an HOA. I also understood Mr. Fishler's letter to mean that he was working toward accomplishing conversion to an HOA.

We relied on Mr. Fishler's letter in closing on the purchase of Unit R and would not have closed without the representation that Lasher and his company had taken real steps to complete the HOA conversion.

Aff. of Susan Cullen, ¶ 5-6; Aff. of Thomas Cullen, ¶ 5-6.

Contrary to Fishler's contentions, the letter does contain statements that could be misconstrued. The letter's first paragraph could easily give the impression that Fishler had completed the offering plan, when he had only prepared a draft. The second paragraph, beginning, "[u]pon acceptance of filing for the Homeowners Association," could easily give the impression that the offering plan had been delivered to the Department of Law and was awaiting the Attorney-General's approval.

Notwithstanding these ambiguities, even if the Cullens were not aware of the provisions in GBL § 352-e(2), or were misled by the letter into believing that the Attorney-General's acceptance was guaranteed, they have stated that they relied on their attorney's representations about the letter. Thus, the Court finds that the Cullens have not shown justifiable reliance on the purported misrepresentations in the letter, but rather that they relied on their attorney's assurance that it was suitable to proceed with purchasing the townhouse.

The Court's responsibility on a CPLR 3211 motion is to determine whether the plaintiff has a cause of action, not whether he has stated one. Leon v. Martinez, 84 N.Y.2d 83 (1994). Here, the Cullens' cause of action for fraud is deficient in that it lacks the requisite element of justifiable reliance. Therefore, the Complaint shall be dismissed as against the movants.

Defendants Sponsors also oppose the instant motion through their cross claim, which seeks indemnification and/or contribution from defendant Fishler and defendant firm Gaines & Fishler. The cross claim alleges that Fishler failed to file the proper documentation with the Attorney-General. Insofar as the cross claim is based on plaintiffs' allegations of fraud against Fishler and Gaines & Fishler, the cross claim cannot be maintained. However, as it relates to Fishler's failure to file documents and resultant harm to the cross claimants, the cross claim can be pleaded as a third-party claim, even though the plaintiffs' cause of action against Fishler and Gaines & Fishler is dismissed. See, Jones v. City of New York, 161 A.D.2d 518, 519 (1^st Dept. 1990). The cross claim is deemed converted into a third-party claim without the necessity of the cross claimants formally serving a third-party complaint. Id. Defendants Lasher, Lasher & Lasher and On the Park Corp. are directed to present a copy of this decision and order to the cashier in the Office of the County Clerk upon the purchase of a third party index number within ten (10) days of service of a copy of this order with notice of entry. The caption in the action shall be amended to include the third-party action, and an answer to the third party complaint shall be served within thirty (30) days of a service of a copy of this order with notice on entry.

Since issue has not been joined with respect to the movants, the CPLR 3212 motion was prematurely made, and is denied as moot.

II. Motion For Change Of Venue and Cross Motion To Retain Venue

Defendant Scollar moves for a change of venue to Richmond County on the ground that the county designated by plaintiffs is improper (CPLR 510[1]), and on the ground that the court may change the place of trial of an action where the convenience of material witnesses and the ends of justice will be promoted by the change. CPLR 510(3). Pursuant to CPLR 511(b), Scollar demanded a change of place of the trial because of improper venue, which plaintiffs refused. Plaintiffs cross-move to retain venue in New York County.

Pursuant to CPLR 503 (a), the rule is that the place of trial shall be in the county in which one of the parties resided when the action was commenced, which in the case of a corporation, is where its principal place of business is located. CPLR 503(c).

Plaintiffs allege that venue has been properly placed in New York County, as one of the defendants, First American Title Insurance Company of New York ("First American"), has its principal place of business here. Conversely, Scollar contends that Richmond County is the proper venue because all of the parties reside in or have their principal place of business in Richmond County, and that First American has an agent in Richmond County.

The designation of a county as the location of a corporation's principal office in a certificate of incorporation is controlling in determining corporate residence for the purposes of venue. Klugman v. Food Emporium, 226 A.D.2d 321 (1^st Dept. 1996); Conway v. Gateway Assocs., 166 A.D.2d 388, 389 (1^st Dept. 1990). Neither side attaches a certificate of incorporation for First American.

Since the burden is on the moving party to present facts to justify the relief requested, and since the court has not been told what the certificate of incorporation states as to First American's principal place of business, the motion cannot be granted on the basis of improper venue. See, Circle Bake Shop, Inc. v. Demand Oil Corp., 21 Misc. 2d 643, 644 (Sup. Ct., N.Y. County 1959). Plaintiffs will forfeit their right to select the place of venue by choosing an improper venue in the first instance (Scott v. Otis Elevator Co., 160 A.D.2d 519 (1st Dept. 1990)), but in this case, the movant has not shown that the venue was improper.

Where venue has been properly designated by the plaintiff based on the residence of either party, a discretionary change of venue should be granted based on the convenience of witnesses only after there has been a detailed evidentiary showing that the convenience of non- party witnesses would in fact be served by the granting of such relief. O'Brien v. Vassar Brothers Hospital, 207 A.D.2d 169, 170 (2d Dept. 1995); see also, Weiss v. Saks Fifth Avenue, 157 A.D.2d 475, 476 (1st Dept. 1990).

The evidentiary showing must consist of: (1) the names, addresses, and occupations of the prospective witnesses; (2) the facts to which the proposed witnesses will testify at the trial, so that the court may judge whether the proposed evidence of the witnesses is necessary and material; (3) a showing that the witnesses for whose convenience a change of venue is sought are in fact willing to testify; and (4) a showing as to how the witnesses in question would in fact be inconvenienced in the event that a change of venue were not granted. O'Brien, supra, at 172-173.

Because Scollar's affidavit recites none of these criteria, his motion cannot be granted on the basis of convenience to witnesses, and is therefore denied. Thus, plaintiffs' cross-motion to retain venue in New York County is granted.

Accordingly, it is

ORDERED that the defendants' CPLR 3211 motion to dismiss the Complaint is granted, and the Complaint is hereby severed and dismissed as against defendant Fishler and defendant firm Gaines & Fishler; and it is further

ORDERED that the remainder of the action shall continue; and it is further

ORDERED that the defendants' CPLR 3212 motion to dismiss the Complaint is denied; and it is further

ORDERED that the motion for change of venue is denied without prejudice; and it is further

ORDERED that the cross-motion to retain venue in New York County is granted; and it is further

ORDERED that the cross claim of defendants Lasher, Lasher & Lasher, and On the Park Corp. is hereby converted to a third-party action; and it is further

ORDERED that defendants/third-party plaintiffs Lasher, Lasher & Lasher and On the Park Corp. are directed to present a copy of this decision and order to the cashier in the Office of the County Clerk upon the purchase of a third party index number within ten (10) days of service of a copy of this order with notice of entry; and it is further

ORDERED that the caption in the action shall be amended to reflect the third-party action; and it is further

ORDERED that defendants/third-party plaintiffs Lasher, Lasher & Lasher and On the Park Corp. shall serve a copy of this order with notice of entry upon the Clerk of the Court and the Clerk of the Trial Support Office (Room 158), who are hereby directed to mark the court records to reflect said change in the caption; and it is further

ORDERED that defendant/third-party defendants Fishler and Gaines & Fishler are directed to serve an answer to the third party complaint within thirty (30) days of a service of a copy of this order with notice on entry; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

This constitutes the decision and order of the Court.

Dated: January 4, 2001

ENTER:

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J.S.C.