In motion sequence 003, the defendant/third-party plaintiff Richard Friedman ("Friedman") moves pursuant to CPLR 3212 for partial summary judgment on its seventh cross-claim for declaratory judgment as alleged in the third-party complaint (the "Complaint").

The defendants Kathy Braddock ("Braddock"), Paul Purcell ("Purcell"), and the third-party defendant Braddock and Purcell ("BP" collectively, the "BP" Defendants) cross-move pursuant to CPLR 3212 for partial summary judgment to dismiss the first cross-claim for fraud and the seventh cross-claim for declaratory judgment against the BP Defendants.

In motion sequence 006, Markowitz moves pursuant to § 11.4 of the 2010 Operating Agreement for an order granting him attorney's fees and costs.

Friedman cross-moves pursuant to 22 NYCRR § 130-1.1 for sanctions.

This instant motion relates to the dissolution of shared investments between Friedman and his son-in-law, the defendant Jeffrey Markowitz ("Markowitz").

The relevant facts to the dispute as alleged in the Complaint and moving papers are as follows:

In July 2006, Friedman, Markowitz, Braddock, Purcell, the Krug Family Trust (the "Trust")(collectively, the "Members") formed Charles Rutenberg LLC ("Rutenberg") for the purposes of operating a real estate brokerage firm.

In March 2007, the Members entered into an operating agreement for Rutenberg (the "2007 Operating Agreement"), that [*2]provided that the Trust would hold a 33 1/3% interest in Rutenberg as a non-voting, non-managing member. Friedman, Markowitz, Purcell and Braddock, individually, each held a 16 2/3% interest in Rutenberg as voting and managing members. The plaintiff Joseph Moshe ("Moshe") is the current trustee of the Trust. However, the 2007 Operating Agreement was executed by the Trust's authorized agent at the time and Moshe's uncle, Stewart L. Krug ("Krug").^[FN1]

In September 2010, Friedman's relationship with Markowitz began to deteriorate for various reasons, including, but not limited to investments made by Friedman that caused substantial losses, and a growing discord resulting from Markowitz's divorce from Friedman's daughter. This eventually led Friedman to decide to sever his business relationship with Markowitz, which included the dissolution of an entity formed by them in August 2000, RFJM Partners, LLC ("RFJM").

Between October and December 2010, Friedman and Markowitz commenced negotiations for an orderly dissolution of their shared investments. However, before an agreement was reached, Markowitz presented an alternate version of the 2007 Operating Agreement (the "2010 Operating Agreement") that was never fully executed.

Pursuant to the 2010 Operating Agreement, RFJM owns a 33 1/3% interest in Rutenberg and has one vote. This interest is in lieu of Friedman and Markowitz each owning 16 2/3% in Rutenberg individually, and having one vote apiece.

Markowitz contends that pursuant to the 2010 Operating Agreement, a dissolution of RFJM would result in a transfer and division of its interest in Rutenberg equally between Markowitz and Friedman individually and the forfeiture of RFJM's voting rights, unless Braddock and Purcell consented to the transfer. Failure to obtain the consent of Braddock and Purcell would result in their being the only voting members of Rutenberg. As of the date of this decision, Braddock and Purcell have not consented to such a transfer.

Friedman disputes that the 2010 Operating Agreement is the operative agreement for Rutenberg, relying instead on the 2007 Operating Agreement.

In September 2011, Friedman commenced an arbitration to resolve the issues relating to the dissolution of RFJM, arguing that he and Markowitz owned their interests in Rutenberg individually and not jointly through RFJM.

In an effort to resolve the arbitration, Braddock and Purcell agreed to take the position that the 2007 Operating Agreement was the operative agreement for RFJM and that RFJM held [*3]no interest in Rutenberg. Based on that agreement, Friedman agreed to dissolve RFJM. After the dissolution, Braddock and Purcell took the contrary position. They asserted that the 2010 Operating Agreement was the controlling agreement, and that RFJM's dissolution resulted in a forfeiture of its vote. If this position prevails, Braddock and Purcell will be the sole remaining voting members of Rutenberg.

On July 26, 2012, Friedman commenced a third-party action against Markowitz and the BP Defendants alleging that numerous distributions from the Rutenberg bank accounts have been made without his consent or authorization. In addition, Friedman alleges that Markowitz, Braddock, and Purcell have attempted to thwart his ability to participate and monitor the actions taken by Rutenberg by denying him access to Rutenberg's books and records.

The purpose of a motion for summary judgment is issue finding, not issue determination (Garcia v J.C. Duggan, Inc., 180 AD2d 579, 580 [1st Dept 1992]). "Thus, summary judgment is to be granted only when there are no genuine issues of material fact" (id.).

In his first cross-claim, Friedman alleges that Braddock and Purcell knowingly misrepresented their mutual understanding and agreement with Friedman that the 2007 Operating Agreement was the controlling operating agreement for Rutenberg. In reliance of their representations, Friedman dissolved RFJM during the arbitration before a determination was made as to the controlling operating agreement. Since the dissolution, Braddock and Purcell have taken the position that the 2010 Operating Agreement is controlling. As a result, they contend that they are the only voting members of Rutenberg and have denied Friedman access to the books and records, and any distributions from Rutenberg.

The BP Defendants argue that Friedman, as a sophisticated businessman, cannot establish justifiable reliance based on Braddock and Purcell's misrepresentations.

"As a matter of law, a sophisticated plaintiff cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it" (Ventur Group, LLC v Finnerty, 68 AD3d 638, 639 [1st Dept 2009][emphasis added][internal citation and quotations omitted]).

We hold that Braddock and Purcell have not established that Friedman "failed to make use of the means of verification that were available to [him]" (id.). The truthfulness of the representations are clearly within the peculiar knowledge of Braddock and Purcell and could not have been uncovered by any investigation undertaken by Friedman with due diligence (China [*4]Dev. Indus. Bank v Morgan Stanley & Co. Inc., 86 AD3d 435, 436 [1st Dept 2011]). Consequently, the cause of action for fraud is adequately pled and dismissal of Friedman's first cross-claim at this juncture is premature. Friedman's seventh cross-claim for declaratory judgment seeks a declaration that the 2007 Operating Agreement is the operative operating agreement for Rutenberg.

Friedman argues that the 2007 Operating Agreement is the only fully executed operating agreement for Rutenberg. Furthermore, the 2007 Operating Agreement provides that "[a] proposed amendment will be adopted and become effective as an amendment only on the written approval of all members" (Davidian Aff., Ex. A, Ex. A, § 11.1) .

It is undisputed that the 2007 Operating Agreement is signed by Krug in his capacity as trustee of the Trust. However, the BP Defendants contend that Krug only signed the 2007 Operating Agreement recently, and only for the purposes of this litigation.

Furthermore, the BP defendants have submitted emails from Friedman and Krug, which purportedly demonstrate that they both understood that RFJM was a member of Rutenberg.

In a February 2008 email, Markowitz requested that Krug execute an amended operating agreement that made RFJM the owner of their interest in Rutenberg, instead of Friedman and Markowitz individually (Ennis Aff., Ex. 2). Krug responded that it was "no problem" and that he would "sign and return" (id., Ex. 3).^[FN2]

On December 13, 2010, Friedman emailed Braddock and Purcell informing them of the impending dissolution of "RFJM, which owns a 1/3 ownership interest in [Rutenberg]" (Ennis Opp. Aff., Ex. 15).

The BP Defendants argue that summary judgment is premature because additional discovery is required as they have not had an opportunity to conduct the deposition of Krug, and other non-parties that submitted affidavits in support of Friedman's motion for partial summary judgment. Aside from Krug, Friedman has submitted affidavits from John Kohn ("Kohn"), Rutenberg's accountant, and William Ruffa, the drafter of the Operating Agreements.

This Court agrees. The emails are sufficient to raise triable issues of fact as to the agreed upon ownership structure for Friedman and Markowitz's interests in Rutenberg. At the very [*5]least, a deposition of Krug would reveal when he executed the 2007 Operating Agreement and the ownership structure that was agreed upon by the parties at the formation of Rutenberg.

Additional triable issues of credibility are raised by the circumstances surrounding the filing of RFJM's tax returns from 2007 to 2011, which reflected an ownership interest in Rutenberg. The record does not explain why Kohn would rely upon the unilateral representation of Markowitz in deciding to file Schedule K-1s that reflected RFJM as the member in Rutenberg, in complete contradiction of the 2007 Operating Agreement in his possession (Ennis Aff., Ex. E, ¶¶ 4-9). Nor does it explain how Friedman filed years of tax returns without noticing or questioning the fact that RFJM was reflected as the member of Rutenberg.

Therefore, the motion and cross-motion for summary judgment on Friedman's seventh cross-claim is denied.

Finally, the motion for attorney's fees and the cross-motion for sanctions is held in abeyance pending the determination of the issues set forth in this decision.

Accordingly it is,

ORDERED that the third-party plaintiff Richard Friedman's motion for summary judgment is denied, and it is further

ORDERED that the defendants Kathy Braddock and Paul Purcell, and third-party defendant Braddock and Purcell LLC's motion for summary judgment is denied, and it is further

ORDERED that the defendant Jeffery Markowitz's motion for attorney's fees is held in abeyance pending the determination of the issues set forth in this decision, and it is further

ORDERED that the plaintiff Richard Friedman's cross-motion for sanctions is held in abeyance pending the determination of the issues set forth in this decision, and it is further

ORDERED that the parties are to continue with discovery and are to appear telephonically on December 3, 2013 at 4:00 p.m. for a status conference.

This constitutes the decision and order of the Court.

Date: October 31, 2013 ENTER:______________________J.S.C.