Plaintiff Gerald Modell, Inc. ("Modell") is a licensed collateral broker (i.e., a pawnbroker) with three locations in New York City. Pro se defendant James Schraeder ("Schraeder"), a jewelry designer, became a client of Modell's in 1995 or 1996, when he owned a jewelry store called "Alexander Rose." Schraeder obtained loans from Modell's in exchange for providing jewelry as collateral both his own and later, that of his employer, Natcon Art & Jewels Ltd., d/b/a Demner ("Demner").

In April 2003, a New York City Police Department ("NYPD") investigation resulted in the issuance of a search warrant for plaintiff's premises. Pursuant to that warrant, the NYPD seized twenty-two pawn tickets representing transactions that took place between Modell and Schraeder from June 2002 to March 2003. In addition, the NYPD seized the jewelry Schraeder had pledged as collateral for those transactions.^[FN1]

Subsequently, Schraeder was charged with Grand Larceny in the First Degree, P.L. § 155.42, a class B felony.^[FN2] However, that charge was reduced to Scheme to Defraud in the First Degree,

P.L. § 190.65(1), a class E felony,^[FN3] and Schraeder pleaded guilty to that charge in exchange for an [*2]agreed-upon sentence of five years' probation.^[FN4]

Plaintiff now moves for summary judgment against defendant on the first count of the complaint, fraudulent misrepresentation. In support of that motion, Modell submits, inter alia, copies of the twenty-two pawn tickets signed by Schraeder, each of which indicates, in legible print, that the signatory to the ticket is the "owner, consignee or agent of the owner of the above mentioned pledge," is of legal age, and has "the legal right to pawn the same." Additionally, Modell has submitted transcripts of a presentencing conference and defendant's sentencing in the criminal case, as well as defendant's deposition testimony in this case.

Schraeder does not dispute that he signed the pawn tickets, nor that he pledged Demner's jewelry to Modell as collateral without Demner's knowledge or permission. Rather, he claims that

Modell was fully aware that the jewelry Schraeder was pledging was not his own. Thus, Schraeder argues that any loan agreement between plaintiff and defendant constituted an illegal, unenforceable conspiracy. See Lloyd Capital Corp. v. Pat Henchar, Inc., 80 NY2d 124, 127 (1992); Unger v. Leviton, 2004 NY Misc. LEXIS 1891, *1, *7 (S.Ct. Nassau Cty. 2004).

Put another way, Schraeder asserts that Modell cannot establish the elements necessary to its claim of fraudulent misrepresentation. For this reason, Schraeder cross-moves for dismissal of the complaint.

To establish actual fraud, a plaintiff must prove:

(1) that the defendant made a representation, (2) as to a material

fact, (3) which was false, (4) and known to be false by the defendant,

(5) that the representation was made for the purpose of inducing

the other party to rely upon it, (6) that the other party rightfully

did so rely, (7) in ignorance of its falsity (8) to his injury.

Brown v. Lockwood, 76 AD2d 721, 730 (2nd Dept. 1980). Plainly, if Modell knew that the collateral did not belong to Schraeder, this knowledge would undercut any suggestion that Schraeder falsely claimed the jewelry as his own, with intent to deceive Modell, and for the purpose of inducing Modell to act upon that false representation. So, too, Modell's actual knowledge that the collateral did not belong to Schraeder would negate the requirement that Modell be ignorant of the falsity of Schraeder's statements of ownership.

In support of his contention that Modell, through its employees, knew that the collateral Schraeder was pledging did not belong to him, Schraeder submits an affidavit outlining his dealings with Modell employees, in particular with Chris Szymanski ("Szymanski"), the employee who, [*3]according to Schraeder, usually handled his account.^[FN5] Schraeder asserts, in essence, that it was common knowledge at Modell that Schraeder was obtaining loans by pledging collateral he did not own. According to Schraeder, shortly after the arrest of Derek Khan,^[FN6] a Modell's client, for grand larceny, Szymanski

[t]old me that this was going to happen to me if I'm not careful

and as much as he liked me he was going to cover his ass and

I was going to [be] on my own. He had his wife and job

to look out for. Then he offered to set me up in that office with

a no-questions asked buyer and then pushed for me to sell off

anything I felt I could get rid of safely.

Affidavit of James Schraeder, dated Sept. 23, 2004, at p. 6, ¶ 9(g).

In response to Schraeder's claims, Szymanski has filed an affidavit denying that he or any other Modell employee was aware that the collateral Schraeder was pledging was not his own:

We would never have made the loans if he told us, as he now claims to

have done . . . that some of the items were in his possession for repair or

enhancement. His claims that he made such statements and that we accepted

such property as collateral for tens of thousands of dollars of loans made to him

are ludicrous and defy belief.

Reply Affidavit of Chris Szymanski, dated Oct. 6, 2004, at p. 2, ¶ 4.

However, in further support of his position, Schraeder notes that neither Modell, nor any other pawnbroker involved in the criminal case, was deemed to be a "victim" of Schraeder's and, consequently, the trial court that accepted his guilty plea to Scheme to Defraud ordered no restitution as to these pawnbrokers. Rather, that court considered only Schraeder's employer, Demner, to be a victim in need of court-ordered restitution. See Transcript of Calendar Call, Sept. 24, 2003, at p. 3; Sentencing Transcript, June 16, 2004, at pp.3-4.

Initially, the court refused to accept Schraeder's plea without further investigation into the question of whether the four pawnbrokers who had received merchandise from Demner (Schraeder's employer) were victims in need of restitution, or potential defendants:

The Court: So in the five months or so that the People have been investigating

this matter, it seems to me that the People should have come to some conclusion

about whether or not the pawnshops are in some way responsible for themselves

knowing that the property was stolen, or that Mr. Schraeder didn't have the

authority to pawn it, in which case it would seem to me they may have committed

a crime as well. [*4]

So either they are, it would seem, should be defendants or they are

victims. If they are complainants and victims, it seems to me there should be

some resolution of the outstanding money owed to them. If they aren't

victims or complainants, then they should be defendants, it would seem.

Ms. Riewerts [Assistant District Attorney]: Those issues have been discussed with

my supervisors in terms of the charges that we are able to prove against Mr.

Schraeder, against this particular defendant.

The Court: I'm not willing to just accept that. I understand what you are saying.

I'm not willing to take this plea until I know what the entire picture is, because

the possibility of Mr. Schraeder being responsible in some way financially to

the pawnshops, is not accounted for in this plea.

So if it should be, then it should be, and if it shouldn't be, then it isn't

going to be; but I need to know more about why there isn't a more definitive

conclusion as to what the role of the pawnshops were in this matter.

Transcript of Calendar Call, Sept. 24, 2003, at pp. 9-11 (emphasis supplied).

In response to the trial court's inquiry as to what information the district attorney's office's investigation into the pawnshops had revealed, the prosecutor informed the court that, of the four pawnshops at which Schraeder had pledged Demner's jewelry, "one certainly, and two potentially" were aware that Schraeder was pledging collateral he did not own. Id. at p. 12. On that basis, the court initially refused to accept Schraeder's plea:

The Court: On the record. I do think there are issues that I need to have a better

understanding of before I'm willing to accept this plea, and I explained them, I think.

They include the question of whether or not which pawnshops are

entitled to restitution, and or perhaps a confession of judgement[sic], whether

the DA has some obligation to do, to investigate these others.

That is not your issue, obviously, but since you have raised the question

of whether or not they are, in fact, complainants or in some sense part of the

scheme, I think it is something that needs to be flushed out a little bit.

I would like to suggest we have another conference for me to learn

something more about this, and to take the plea at that time, depending

upon what it is I learn.

Id. at pp. 14-15 (emphasis supplied). As noted above, the court ultimately accepted Schraeder's plea, but ordered restitution be made only as to Demner, and not the pawnshops.

That the trial court declined to name Modell as a victim entitled to restitution from Schraeder [*5]in conjunction with his guilty plea is far from conclusive on the question of whether Modell had actual knowledge that Schraeder was pledging collateral he did not own. There is, therefore, no basis for dismissal of Modell's complaint pursuant to CPLR §3211. See Hakko v. Silverberg, 178 AD2d 151 (1st Dept. 1991).

Schraeder relies upon the same evidence to counter Modell's motion for summary judgment; that evidence requires a trial of this matter. As the trial court in Schraeder's criminal case declined to order that Schraeder make restitution to Modell, there is a genuine issue of material fact which prevents this court from finding that Schraeder's defense to this action "has no merit." CPLR §3212(b).

Accordingly, it is hereby

ORDERED that plaintiff's motion for summary judgment is denied; and it is further

ORDERED that defendant's cross-motion to dismiss the complaint is denied; and it is further

ORDERED that the parties and their counsel shall appear for a conference at 9:30 a.m. on January 3, 2005, at Room 438, 60 Centre Street, New York, New York, 10007.

This shall constitute the decision and order of the court.

DATED: December 2, 2004

SHERRY KLEIN HEITLER

J.S.C.