Patmos Fifth Real Estate Inc. v Mazl Bldg. LLC (2013 NY Slip Op 51246(U))

Patmos Fifth Real Estate Inc. v Mazl Bldg. LLC

2013 NY Slip Op 51246(U) [40 Misc 3d 1220(A)]

Decided on July 29, 2013

Supreme Court, New York County

Jaffe, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and will not be published in the printed Official Reports.

Defendants Mazl Building LLC (Mazl), Raba Haim Abramov, NYA Building Construction Corporation (NYA), and High Line Holdings, LLC (High Line) move pursuant to CPLR 3013, 3016, and 3211(a)(1), (4), (5), and (7) for an order dismissing plaintiffs' claims against them. Defendant Shimon Wolkowicki joins. Plaintiffs oppose.

On June 21, 2006, plaintiff Patmos Fifth Real Estate Inc. (Patmos Fifth) purchased from defendant Mazl a multi-unit building located at 214-216 East 52nd Street in Manhattan with a [*2]$9,350,000 loan from Mazl secured by a mortgage on the building due to be paid by December 21, 2007 (June mortgage). (EFD 8-1, 8-2). (EFD 8-2).

On December 6, 2006, as Patmos Fifth failed to maintain insurance for or pay taxes on the building, it borrowed $1,000,000 from defendant NYA, secured by a second mortgage on the building (December mortgage). The December mortgage contains terms identical to those set forth in the June mortgage. (EFD 8-3).

On December 7, 2007, plaintiff Patmos Westbury, LLC (Patmos Westbury), an affiliate of Patmos Fifth, purchased a condominium unit in a building located at 15 East 69th Street in Manhattan with a $2,722,500 loan from Citimortgage, secured by a mortgage on the unit (Citi mortgage). (EFD 8, 8-4).

On January 21, 2008, as plaintiffs had defaulted on the June, December, and Citi mortgages, Mazl agreed to extend the time for payment of the June and December mortgages and lent plaintiffs an additional $5,650,000 secured by a mortgage on the building and the condo, due to be paid in full by December 21, 2008 (January mortgage). They also pledged as security their interest in a building at 70 Greene Street in Manhattan. (EFD 8, 8-5). The January mortgage contains terms identical to those set forth in the December and June mortgages. (EFD 8-5).

The same day, and as part of the same transaction, NYA assigned to Mazl the December mortgage, and plaintiffs and Mazl agreed to consolidate the June, December, and January mortgages into a single $16,000,000 mortgage, due to be paid in full by December 31, 2008, and containing terms identical to those sets forth in the December, June, and January mortgages (consolidated mortgage). (EFD 8, 8-6, 8-7).

On September 30, 2008, Wolkowicki lent Patmos Westbury $750,000 in exchange for a mortgage on the condo, with the first payment due on October 30, 2008 (condo mortgage). (EFD 8, 8-8).

Plaintiffs defaulted on the consolidated mortgage, and on February 27, 2009, they executed with Mazl an agreement providing, in pertinent part, that:

On October 1, 2009, plaintiffs defaulted on the consolidated mortgage. (EFD 8, 8-11). Shortly thereafter, Mazl's counsel released the deed from escrow, and on December 23, 2009, it was recorded in the City register. (EFD 8-11).

On March 22, 2010, Wolkowicki commenced an action against Patmos Westbury, alleging that it defaulted on the condo mortgage and seeking to foreclose on it (prior action). (EFD 8-15).

On November 10, 2010, Wolkowicki conveyed to High Line his ownership interest in the building. (EFD 8, 8-12).

On or about July 21, 2011, plaintiffs commenced the instant action with the filing of a summons and verified complaint, alleging, in pertinent part, that Abramov is Mazl's principal, that Mazl controls NYA and Highline, that Mazl "convinced [Patmos Fifth] to purchase the [building] as an investment to be renovated and developed into a luxury condominium," that the June, December, and January mortgages "were to be satisfied via the sale of the contemplated [c]ondo units," and that because Mazl dissuaded potential investors from purchasing units they were unable to sell them, and were thus, unable to pay off the mortgages. (EFD 8-1). According to plaintiffs, "[d]efendants agreed among themselves to never properly disburse loan proceeds and to delay development of the [building] with the aim of improperly divesting [Patmos Fifth]" of its ownership interest and, after doing so, "unlawfully commenced selling [units in the building] without compensating [them]," and claim that NYA was formed "solely for the purposes of creating a vehicle for sabotaging development of the [building] . . . ." (Id.). They allege, moreover, that they "paid for over $1,000,000 in furnishings and interior decorating utilized throughout the new condo [building], that "[t]he furnishings and decorating . . . have been instrumental in drawing prospective purchasers to the [building]," and yet were never credited or reimbursed for them. (Id.).

Plaintiffs also maintain that the following transactions were intended to be but were never applied to partially satisfy the consolidated mortgage: (1) the assignment of a $500,000 down payment on another property to "an entity related to Mazl"; (2) the wire transfer to defendants of [*4]$2,000,000 from the sale of 70 Greene Street; and (3) the $750,000 loan secured by the condo mortgage. (Id.).

Plaintiffs assert claims for conspiracy to commit fraud, fraud, and the violation of Real Property Law § 320, thereby seeking rescission of the consolidated mortgage, the condo mortgage, and the deed, a judgment declaring these instruments null and void, an injunction directing defendants to file a cancellation and/or satisfaction of the consolidated and condo mortgages, and an injunction prohibiting defendants from foreclosing on the mortgages. (Id.). They also advance a claim for unjust enrichment based on defendants' failure to reimburse them for the $1,000,000 in decorations and furnishings they purchased, a claim for tortious interference against Mazl based on its conduct in dissuading potential purchasers from buying units in the building, a claim for breach of contract against Mazl and NYA based on their failure to develop the building in a timely fashion, a claim for an accounting of the disbursement of the loan proceeds, and a claim for punitive damages. (Id.).

On August 16, 2011, Patmos Westbury joined issue in the prior action with service of its answer, alleging, in pertinent part, that High Line and Mazl are controlled by the same principals, that Mazl improperly released the deed from escrow, and that Wolkowicki and Mazl agreed "to never properly disburse loan proceeds and to delay development of [the building] with the aim of improperly divesting [Patmos Fifth] of its ownership rights . . . ." (EFD 8-16). It asserts counterclaims for conspiracy to commit fraud, fraud, an accounting as to the disbursement of the loan secured by the condo mortgage, and, based on plaintiff's fraud, rescission of the condo mortgage, a judgment declaring it null and void, an injunction requiring Wolkowicki to file a cancellation and/or satisfaction of the mortgage, and punitive damages. (Id.).

On September 28, 2011, defendants served plaintiffs with the instant motion, specifying that plaintiffs serve them with their opposition no later than October 10, 2011. (EFD 3). On October 10, 2011, the parties stipulated that the deadline for plaintiffs' service of their opposition be extended to October 31, 2011. (EFD 14). On November 10, 2011, plaintiffs served defendants with their opposition. (Id.).

By affidavit dated November 4, 2011, submitted in opposition to the instant motions, Augusto Reitano, plaintiffs' principal, states that he "naively signed the [a]greement and the [e]scrow [d]eed under the pretense that sales of the condominium units would result in profits for everyone," that "[d]efendants' deliberate delays in obtaining a [c]ertificate of [o]ccupancy for the [building] until November 2010 . . . made it impossible for [him] to make any sales, which was the only viable way [he] could meet the payment deadlines set forth in the [a]greement," and that he "with no knowledge to the contrary, believed and relied upon all statements, representations, agreements, and promises made by [] [d]efendants and made at the insistence and request of [] [d]efendants." (EFD 13). He also states that Mazl representatives "bad mouthed" him to potential investors in the building, claiming that "[his] inability to pay for construction would soon lead to [his] loss of ownership," and that "[t]hese actions were undertaken with malice in order to interfere with [his] right to sell the [building]." (Id.).

Defendants assert that the instant action should be dismissed as plaintiffs' arguments here are largely identical to those raised by Patmos Westbury in its answer in the prior action (EFD

5-1,7), and claim that, in any event, plaintiffs' claims are barred by the statute of frauds, that they [*5]fail to plead their fraud claim with sufficient particularity, that there exists no cause of action for conspiracy to commit fraud, that they were not unjustly enriched in retaining the furnishings and decorations as the parties understood that, upon plaintiffs' default, defendants would own the building as it stood, including any contributions plaintiffs made to the building, that plaintiffs fail to state a claim for tortious interference as their conduct was neither criminal nor tortious, that plaintiffs fail to state a breach of contract as they do not identify the contract breached, and that they fail to state a claim for an accounting as they plead no facts reflecting the existence of a fiduciary relationship between them. (EFD 7). Defendants deny that plaintiffs plead any facts on which a claim against Abramov may be based, and note that plaintiffs' claim for punitive damages must be dismissed absent the viability of an independent cause of action for them. (Id.).

In opposition, plaintiffs observe that none of the defendants except Wolkowicki are parties to the prior action, and their counterclaims seek relief relating to the condo mortgage only, and that defendants do not address their Real Property § 320 claim. (EFD 11). They argue that the deed functioned as a mortgage, not as a conveyance, and thus, defendants improperly released it from escrow. (Id.). They maintain that defendants' construction delays and failure to disburse the loan proceeds provide a basis for their fraud, tortious interference, accounting, and breach of contract claims, and that defendants' continued possession of the furnishings and decorations gives rise to an unjust enrichment claim absent any contractual or legal authority for the proposition that they were entitled to the furnishings and decorations upon plaintiffs' default. (Id.). And, that having made the misrepresentations on which their fraud claim is based, Abramov may be held personally liable for Mazl's conduct. (Id.).

In reply, defendants claim that plaintiffs' challenge to the deed is barred by laches, and in any event deny that the deed is a mortgage. (EFD 14). Rather, they claim that it properly effected the transfer of title to the building and condo. (Id.). They also argue that plaintiffs, in failing to address their motion to dismiss the claim for punitive damages claim, have abandoned it. (Id.). They reiterate their arguments regarding the statute of frauds and plaintiffs' failure to state claims for fraud, breach of contract, tortious interference, and an accounting. (Id.). They maintain that plaintiffs fail to state a claim for unjust enrichment, as the agreement requires that defendants, in exchange for acquiring ownership of the building, forgive all of plaintiffs' debts without reimbursement or credit for any contributions they made to the building. (Id.). Defendants note that plaintiffs' opposition papers are untimely, having been served 10 days after the stipulated deadline.

Pursuant to CPLR 3211(a), an action may be dismissed if, as pertinent here: "(1) a defense is founded upon documentary evidence"; "(4) there is another action pending between the same parties for the same cause of action"; "(5) the cause of action may not be maintained because of . . . the statute of frauds"; or "(7) the pleading fails to state a cause of action."

To warrant dismissal of an action pursuant to CPLR 3211(a)(1), documentary evidence must "resolve[] all factual issues as a matter of law, and conclusively dispose[] of [ ] plaintiff's claim." (Erich Fuchs Enters. v Am. Civ. Liberties Union Found., Inc., 95 AD3d 558, 558 [1st Dept 2012]; Fortis Fin. Servs. v Fimat Futures USA, 290 AD2d 383, 383 [1st Dept 2002]).

In deciding a motion to dismiss pursuant to section 3211(a)(7), the court must liberally construe the pleading, "accept the alleged facts as true, accord [the non-moving party] the benefit [*6]of every possible favorable inference, and determine only whether the alleged facts fit within any cognizable theory." (Leon v Martinez, 84 NY2d 83, 87 [1994]). "Further, [the court] must consider the factual assertions of an affidavit submitted in opposition to the dismissal motion in order to preserve inartfully pleaded, but potentially meritorious, claims." (Ashwood Capital, Inc. v OTG Mgt., Inc., 99 AD3d 1, 10 [1st Dept 2012]; Rovello v Orofino Realty Co., 40 NY2d 633 [1976]).

Pursuant to CPLR 2214(c), a court may consider untimely papers if there is no prejudice to the opposing party (Bucklaew v Walters, 75 AD3d 1140 [4th Dept 2010]; Matter of Jordan v City of New York, 38 AD3d 336, 338 [1st Dept 2007]; Sheehan v Marshall, 9 AD3d 403 [2d Dept 2004]), and a party waives objection to late service of papers by responding to them on the merits (Jones v Le France Leasing Ltd. Partnership, 81 AD3d 900 [2d Dept 2011]; Piquette v City of New York, 4 AD3d 402 [2d Dept 2004]; Adler v Gordon, 243 AD2d 365 [1st Dept 1997]). Having replied to plaintiffs' opposition on the merits, defendants waived their right to contest late service.

Here, the February 2009 agreement does not expressly provide that the parties intended the deed to function as a conveyance of the property. Rather, it reflects that defendants agreed to extend the deadline for payment of the consolidated mortgage in exchange for plaintiffs' agreement to execute the deed. Thus, the deed does not demonstrate, as a matter of law, that it did not function as security for the amount outstanding on the consolidated mortgage, notwithstanding defendants' right to record it in the event of plaintiffs' default. (See Basile v Erhal Holding Corp., 148 AD2d 484 [2d Dept 1989] [where defendant loaned plaintiff money in exchange for mortgage on property, plaintiff commenced action for declaration that mortgage was void on ground of usury, and agreement settling action provided that plaintiff would execute new mortgage in defendant's favor and "simultaneously execute[] a deed in lieu of foreclosure which may be recorded by [defendant] for any default herein," deed constituted mortgage]). Moreover, as plaintiffs' obligation to pay interest commencing on October 1, 2009 is not expressly contingent on the extension of the payment deadline to June 30, 2010, it is reasonably [*7]inferred that the parties contemplated plaintiffs' continued ownership of the building notwithstanding a default on October 1, 2009. (Cf. Southwell v Middleton, 67 AD3d 666 [2d Dept 2009] [where plaintiff, facing foreclosure, executed deed in defendant's favor, and parties agreed that defendant would pay off plaintiff's mortgage and lease property back to plaintiff for four months, at which time plaintiff had option to buy property back, "equity pay down feature" providing that he could do so over course of 30-year lease "anticipated continuation of the lease agreement for 30 years and, as such, raised" factual issues as to whether deed intended as security]).

Therefore, "[t]he holder of a deed given as security must proceed in the same manner as any other mortgagee — by foreclosure and sale — to extinguish the mortgagor's interest." (Leonia Bank, 3 AD3d at 217). Here, as the facts as set forth in the complaint and in Reitano's affidavit reflect that defendants failed to do so, assuming ownership of the building after recording the deed, plaintiffs state a claim for violation of CPLR 320(a).

Moreover, pursuant to GOL § 15-301.1, "[a] written agreement which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing . . . ." Thus, even if GOL § 5-703(2) were inapplicable to the instant mortgages and agreement, as they each contain a provision prohibiting oral modification, plaintiff would still be foreclosed from challenging them based on any alleged oral agreement.

Here, the complaint contains no allegation that defendants knowingly misrepresented a material fact on which plaintiffs detrimentally relied, and although Retaino alleges in his [*8]affidavit that plaintiffs relied on all of defendants' "statements, representations, agreements, and promises," neither their subject matter nor defendants' knowledge of their falsity is detailed. Plaintiffs thus fail to state a claim for fraud.

In light of this result, the parties' contentions regarding Abramov's liability for fraud need not be addressed.

"Where [ ] parties executed a valid and enforceable written contract governing a particular subject matter, recovery on a theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded." (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 142 [2009]). However, where "there is a bona fide dispute as to . . . the application of a contract in the dispute at issue, a plaintiff may proceed upon a theory of quasi contract . . . and will not be required to elect his or her remedies." (Sabre Intl. Sec. Ltd. v Vulcan Capital Mgt., Inc., 95 AD3d 434, 438-39 [1st Dept 2012]; Goldman v Simon Prop. Group, Inc., 58 AD3d 208, 220 [2d Dept 2008]).

Here, as the parties dispute whether the agreement applies to the decorations and furnishings in the building, plaintiffs are not precluded from asserting their unjust enrichment claim. And, assuming it does not, plaintiffs adequately plead it in alleging that the furnishings and decorations facilitated defendants' sale of the buildings' units after they had divested Patmos Fifth of its ownership interest by delaying construction, as it would be inequitable to permit defendants to benefit from plaintiffs' contributions to the building after ensuring that plaintiffs cannot.

To state a claim for tortious interference with prospective contractual relations, "a plaintiff must plead that a defendant directly interfered with a third party and that the defendant either employed wrongful means or acted for the sole purpose of inflicting intentional harm on plaintiff" (Posner v Lewis, 18 NY3d 566, 570 [2012]), independent of its economic self-interest (Carvel Corp. v Noonan, 3 NY3d 182, 190 [2004]; Phillips v Carter, 58 AD3d 528 [1st Dept 2009]). The defendant's conduct must have been either criminal or independently tortious to be considered "wrongful." (Carvel Corp., 3 NY3d at 190; Mitzvah Inc. v Power, 106 AD3d 485 [1st Dept 2013]).

Here, plaintiffs do not allege that defendants' conduct in dissuading potential investors from purchasing units in the building was criminal or independently tortious, and neither the complaint nor Reitano's affidavit furnishes a basis for so concluding. (See Phillips v Carter, 58 AD3d 528 ["While the complaint alleges defendant falsely told the third party that plaintiff had breached his contract and could not be trusted as a contract partner,' it fails to state a claim for defamation, the only possible tort on the facts alleged[, as] defendant's statements were either true or unactionable opinion."]). Moreover, even assuming that defendants acted maliciously, as plaintiffs' failure to sell units economically benefitted defendants by enabling them to obtain title to the building upon plaintiffs' default and to sell its units at a profit, there is no basis for finding [*9]that they acted solely to harm plaintiffs. (See Steiner Sports Mktg, Inc. v Weinreb., 88 AD3d 482 [1st Dept 2007] [defendant's assertion that plaintiff's principal interfered with his prospective employment for sole purpose of harming him undermined by factual allegations that plaintiff had economic interest in interfering with his employment]).

"The essential elements of a cause of action for breach of contract are the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of the contract, and resulting damages." (Morpheus Capital Advisors LLC v UBS AG, 105 AD3d 145, 150 [1st Dept 2013]). Accordingly, although plaintiffs allege the existence of a contract with Mazl and NYA for the development of the building, as neither the complaint nor Reitano's affidavit reflect any terms breached by defendants in delaying construction, or plaintiffs' performance under the contract, they fail to state a claim.

"The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest." (Lawrence v Kennedy, 95 AD3d 955, 958 [2d Dept 2012]). An "arm's length borrower-lender relationship is not of a confidential or fiduciary nature" (Dobroshi v Bank of Am., N.A., 65 AD3d 882, 884 [1st Dept 2009]), and as plaintiffs fail to plead facts reflecting that defendants were otherwise obligated to act for or to give advice to them such that defendants exercised control and dominance over them (see People v Coventry First LLC, 13 NY3d 108, 115 [2009] [so defining fiduciary relationship]), they fail to state a claim.

G. Piercing the corporate veil as to AbramovTo pierce the corporate veil and hold a corporation's principal liable for the corporation's actions, "it must be established that (1) [he/she] . . . exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury." (Morpheus Capital Advisors LLC, 105 AD3d at 153).

Here, having pleaded no facts supporting a claim that Abramov exercised complete domination and control over Mazl, NYA, and Highline so as to abuse the corporate form, plaintiffs' conclusory assertions that Abramov controlled all three entities and formed NYA solely for the purpose of sabotaging the building's development are insufficient to subject him to personal liability. (See Vue Mgt., Inc. v Photo Assoc., 81 AD3d 569 [1st Dept 2011] [plaintiff's allegation that individual defendants dominated and controlled corporate defendants, without more, insufficient to state veil piercing claim]; Itamari v Giordan Dev. Corp., 298 AD2d 559 [2d Dept 2002] [same]; Metro. Transp. Auth. v Triumph Advertising Prod., Inc., 116 AD2d 526 [1st Dept 1986] [same]).

As a claim is deemed abandoned if the party asserting it fails to oppose the branch of a motion to dismiss it (Kronick v L.P. Thebault Co., Inc. 70 AD3d 648 [2d Dept 2010]; Genovese v Gambino, 309 AD2d 832 [2d Dept 2003]; Fairchild v Servidone Constr. Corp., 288 AD2d 665 [3d Dept 2001]), here, plaintiffs have abandoned their claim for punitive damages. In any event, [*10]defendants' conduct does not "evidence a high degree of moral culpability," is not "so flagrant as to transcend mere carelessness," and does not constitute willful or wanton negligence or recklessness." (Pellegrini v Richmond County Ambulance Serv., Inc., 48 AD3d 436, 437 [2d Dept 2008]). Consequently, plaintiffs fail to state a claim for punitive damages.

ORDERED, that defendants' motions for an order dismissing the complaint are denied as to plaintiffs' claims against all defendants but Abramov based on their alleged violation of Real Property Law § 320(a) and for unjust enrichment, and are otherwise granted.