Defendants move to dismiss plaintiff's cause of action against individual defendant Peter Katsihtis pursuant to CPLR 3211(a)(7), contending that plaintiff fails to state a cause of action based on a theory of fraudulent concealment. In addition, defendants move for summary judgment pursuant to CPLR 3212 on their counterclaim seeking sanctions under Rule 130-1, contending that plaintiff's cause of action for fraudulent concealment is frivolous. Plaintiff opposes and cross-moves: 1) to dismiss defendants' counterclaim pursuant to CPLR 3211(a)(7); and 2) for leave to serve an amended complaint pursuant to CPLR 3025(b).

Plaintiff Louis Foodservice, Inc. is in the business of selling food products to restaurants. Defendant 839 Restaurant Corp., f/d/b/a Star Diner (hereinafter "the restaurant"), operated a restaurant at 839 Seventh Avenue in Manhattan. Individual defendants Peter Katsihtis and Andreas Sofroniou were officers, directors and/or stockholders of the restaurant. Plaintiff alleges that the restaurant was its longtime customer and that it sold goods to the restaurant on an open account with thirty-day payment terms.

Plaintiff asserts that it delivered various goods to the restaurant between August 3, 2005, and September 30, 2005, but defendants did not pay for them at the time of delivery. Instead, on September 30, 2005, defendant Andreas Sofroniou allegedly told an employee of plaintiff to come back on October 3, 2005, to pick up a check for payment of the account. When plaintiff's employee returned for the promised check on October 3, 2005, the restaurant was out of business. [*2]

On May 17, 2006, plaintiff filed suit against defendants seeking damages in the sum of $20,062.95. Plaintiff's first cause of action alleges breach of contract by the corporate defendant. Plaintiff's second cause of action alleges that individual defendants Peter Katsihtis and Andreas Sofroniou defrauded plaintiff by failing to inform it that the restaurant's lease was expiring.

Defendants 839 Restaurant Corp. and Peter Katsihtis filed an answer raising four affirmative defenses, to wit: 1) plaintiff's complaint failed to state a cause of action upon which relief may be granted against the corporate defendant; 2) the complaint failed to state a cause of action upon which relief may be granted against individual defendant Katsihtis; 3) plaintiff failed to state a cause of action based upon fraud in detail as required by CPLR 3016; and 4) the court lacks personal jurisdiction over defendant Katsihtis. In addition, defendant Katsihtis filed a counterclaim for sanctions, contending that plaintiff commenced the instant action against him in bad faith and that the cause of action against him alleging fraudulent concealment is frivolous.

In their motion to dismiss pursuant to CPLR 3211(a)(7), defendants contend that they were under no affirmative duty to inform plaintiff that the restaurant's lease was going to expire. They contend further that plaintiff's allegations are "a mere pretext" to wrongfully sue an individual namely, Peter Katsihtis who has absolutely no liability whatsoever to plaintiff. Defendants' counsel contends that plaintiff cannot allege that Katsihtis somehow misled plaintiff into continuing to conduct business because "plaintiff has never had occasion to have so much as a conversation with [Katsihtis]" (Affidavit of Constantine G. Dimopoulos, Esquire, p. 2, paras. 10-11).

In response, plaintiff contends that defendants' failure to disclose their intent to cease operations rendered the continued purchasing of goods by the corporate defendant from plaintiff on open account, with thirty-day payment terms, inherently unfair. As set forth in the sworn affidavits of plaintiff's controller, Keith Blum, and its sales representative, Nicholas Stavrakis, had plaintiff known of the intended cessation of operations by the corporate defendant, it would not have sold goods to the corporate defendant on such terms, but rather would have sold only on a cash-on-delivery basis.

To make a prima facie claim of fraudulent concealment, a complaint must allege: 1) concealment of a material fact which defendant was duty-bound to disclose; 2) the defendant intended to defraud the plaintiff thereby; 3) the plaintiff reasonably relied upon the representation; and 4) resulting injury (Dembeck v. 220 Central Park South, LLC, 33 AD3d 491, 492 [1st Dep't 2006]; Mitschele v. Schultz, 826 NYS2d 14, 19 {36 AD3d 249} [1st Dep't 2006]). A duty to disclose arises where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair (P.T. Bank Cent. Asia, NY Branch v. ABN AMRO Bank N.V., 301 AD2d 373, 378 [1st Dep't 2003]; Stevenson Equip. v. Chemig Constr. Corp., 170 AD2d 769, 771 [3d Dep't 1991], aff'd, 79 NY2d 989 [1992]; Swersky v. Dreyer and Traub [1st Dep't 1996]; see also 2 NY PJI3d 3:20, at 163 [2007]). In other words, "where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge, there is a duty to disclose that information" (Swersky v. Dreyer Traub, supra ). This rule, known as the "Special Facts" doctrine, is subject to a two-prong test: 1) that the material fact is peculiarly within the knowledge of one party; and 2) that the fact could not have been discovered through the exercise of ordinary intelligence by the other party (Jana L. v. West 129th Street Realty Corp., 22 AD3d 274, 278 [1st Dep't 2005]). [*3]

The Special Facts doctrine has been applied in a variety of circumstances. For example, in Stevenson Equip., Inc. v. Chemig Constr. Corp., supra ., the purchaser of a piece of construction equipment filed suit against defendant, alleging that defendant knew but failed to disclose that the equipment had been stolen and that the FBI was looking for it. The jury found defendant liable for fraud.

On appeal, defendant argued that there was insufficient proof for fraud because defendant had no duty to disclose that the equipment was stolen, that plaintiff did not justifiably rely on the alleged fraudulent concealment and that plaintiff failed to perform its duty to investigate. The Third Department rejected defendant's argument, stating

Fraud may consist of the intentional suppression of the truth.... Here, the record contains evidence that defendants possessed superior knowledge that the Wheelloader had been reported stolen, that the FBI was looking for it and that plaintiff did not know these facts. There is also evidence that defendants were aware that plaintiff was acting on the basis of a mistaken belief when purchasing the Wheelloader from IMS. This situation imposed an obligation on defendants' part.

Stevenson Equip., 170 AD2d at 771.

In Swersky v. Dreyer Traub, supra ., an investor who had purchased unregistered stock filed suit against the lawyer who helped negotiate the sale and against his law firm. The Supreme Court dismissed plaintiff's cause of action alleging fraudulent concealment. The First Department reversed, stating that there were outstanding issues as to whether the disparity in the level of information available to defendant/attorney, but not to plaintiff/investor, placed the case within the ambit of the Special Facts doctrine.

In Mitschele v. Schultz, supra ., a client sued her accountants for fraud, alleging that defendants failed to disclose their concern with protecting the interests of another entity namely, plaintiff's employer. The First Department found that plaintiff's complaint, which stated that defendants failed to inform plaintiff of their divided loyalties and conflicted interests, pleaded all of the elements of a fraudulent concealment claim.

Finally, in Strasser v. Prudential Sec., 218 AD2d 526 [1st Dep't 1995], the First Department held that plaintiffs' cause of action for fraud based on the allegation that defendants failed to disclose certain key facts concerning limited partnerships was improperly dismissed. The court stated:

There is a duty to disclose, which is not limited to parties in privity of contract, when nondisclosure would lead the person to whom it was or should have been made to forego action that might otherwise have been taken for the protection of that person. Plaintiffs' allegations of fraud by nondisclosure are sufficient ... to withstand a motion pursuant to CPLR 3211.

Strasser, 218 AD2d at 527 (citations omitted).

Likewise, in determining whether plaintiff has stated facts sufficient to withstand defendants' motion to dismiss pursuant to CPLR 3211(a)(7) in the instant action, we bear in mind the following principles:

It is well established that in determining whether to grant such a motion, the pleading is to be afforded a liberal construction (CPLR 3026) and the court should accept as true the facts alleged [*4]in the complaint, accord plaintiff the benefit of every possible inference, and only determine whether the facts, as alleged, fit within any discernable legal theory. Stated another way, the motion must be denied if from the pleadings four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.

Sheila v. Povich, 11 AD3d 120, 122 [1st Dep't 2004](citations omitted).

The elements of a fraudulent concealment claim based on the Special Facts doctrine are all sufficiently pleaded by the claims which may be properly gleaned from the complaint. Plaintiff alleges that the individual defendants, as controlling officers of the restaurant, knew that the restaurant's lease would expire on September 30, 2005, and that it would not remain in business after September 30, 2005 (Complaint, p. 2, para. 8). Plaintiff contends further that the corporate defendant's concealment of its intention to discontinue operation of its restaurant was done with the intent to deceive plaintiff and with full knowledge that it would not be in business to pay for the outstanding balance of the food products it received from plaintiff (Complaint, p. 2, para. 11). The complaint alleges that plaintiff did not know that defendant's lease was on the verge of termination and that the restaurant would close (Complaint, p. 2, para. 12). On the contrary, plaintiff believed the corporate defendant to be a viable business that would pay the purchase price of the products it received from plaintiff upon the terms of payment set forth in the invoices and that plaintiff reasonably relied upon the foregoing in selling and delivering food products to the corporate defendant (Complaint, pp. 2-3, para. 12). Furthermore, plaintiff alleges that individual defendants Peter Katsihtis and Andreas Sofroniou knew, or should have known, that the corporate defendant's concealment of the expiration of the lease, and the corporate defendant's intention to discontinue operation of the restaurant, would deceive plaintiff and that the corporate defendant would not be in business to pay plaintiff's invoices for the sales (Complaint, p. 3., para. 13). Finally, plaintiff alleges damages in the sum of $20,062.95 (Complaint, p. 3, para. 14).

Factual allegations presumed to be true on a motion pursuant to CPLR 3211 may properly be negated by affidavits and documentary evidence (Wilhelmina Models, Inc. v. Fleisher, 19 AD3d 267,269 [1st Dep't 2005]). However, defendants have submitted no affidavits whatsoever from individuals possessing personal knowledge, nor have they submitted any documentary evidence to negate the factual allegations set forth in plaintiff's complaint. Meanwhile, plaintiff exhibits two sworn affidavits those of Keith Blum, the controller of Louis Foodservice Corp., and Nicholas Stavrakis, a sales representative stating facts that corroborate the allegations set forth in the complaint. Accordingly, plaintiff has clearly set forth a cause of action against defendants for fraudulent concealment.

In light of the above, there is clearly no merit to defendants' contention that plaintiff's actions are frivolous. Thus, there is no legal basis for the imposition of sanctions against plaintiff.

Finally, we turn to plaintiff's cross-motion for leave to serve an amended complaint in the form annexed as Exhibit B to the Rosen affirmation. Plaintiff contends that the proposed amended complaint amplifies the allegations of plaintiff's current second cause of action based on fraudulent concealment. In addition, the proposed amended complaint would add a third cause of action against the individual defendants, alleging that the corporation was or would [*5]soon become insolvent at the time of the credit purchases which were the subject of this action.

In response, defendants contend that plaintiff is attempting to interpose a cause of action for fraudulent conveyance pursuant to debtor-creditor law. Defendants contend that plaintiff's cause of action is flawed, however, in that it fails to allege a conveyance.

Leave to amend should be freely granted if there is no prejudice to defendants (CPLR 3025(b)). Here, plaintiff contends that defendants will suffer no prejudice, nor do defendants claim that any prejudice would result from the proposed amended complaint.

For the above reasons, defendants' motion to dismiss to dismiss plaintiff's second cause of action as against individual defendant Peter Katsihtis pursuant to CPLR 3211(a)(7) is denied, and defendants' motion for summary judgment on their counterclaim is also denied. Plaintiff's cross-motion to dismiss defendant Katsihtis' counterclaim is granted, as is plaintiff's cross-motion for leave to serve an amended complaint.

The foregoing constitutes the decision and order of the court.

Date: March 12, 2007______________________________

New York, New YorkAnil C. Singh