The within decision and order determines the first affirmative defense contained in the answer of defendants Roni Dersovitz ("Dersovitz"), RDLF Financial Services, LLC, RD Legal Funding, LLC, RD Legal Holdings, RD Legal Capital, LLC and RD Legal Financial Services, LLC (collectively, the "RD defendants"). More specifically, in view of all the prior submissions in this matter in response to trial orders, including, inter alia, proposed jury instructions, motions in limine concerning the plaintiff's theories of liability and damages, preclusion motions based thereon, and a trial motion to dismiss (CPLR 4401), in an order dated February 1, 2016 (Trial Order No. 3), the court directed that the first affirmative defense, which alleges that the complaint fails to state a cause of action insofar as asserted against Dersovitz and the RD Defendants, be tried first (CPLR 4011; see generally Butler v Catinella, 58 AD3d 145 [2d Dept 2008] overruling Bentivegna v Meenan Oil Co., 126 AD2d 506 [2d Dept 1987] [A defense that the complaint fails to state a cause of action cannot be interposed in an answer]; 8-R4011 New York Civil Practice: CPLR P 4011.06 ["The sequence in which the issues at trial should be determined is primarily a matter of convenience and common sense. * * * When a single peripheral issue may be determinative and obviate the trial of other issues, it should be heard and determined in advance of the rest of the case."]).^[FN1]

In ordering the trial of this affirmative defense, the court notes the following: Prior to trial, the court directed that the parties submit proposed jury instructions. This expedient, particularly in the context of cases assigned to the commercial division that involve jury trials, serves the purposes of clarifying the issues that will be presented to the jury and focusing the attorneys on relevant evidence and applications, thereby avoiding confusion and loss of time and resources. In no way is the requirement meant to hamper or impede the attorneys from performing their functions, or to harm the parties in pursuit of their claims and defenses or to "hamstring" them where a reasonable expansion of legal theories in conformity with the evidence presented is warranted (CPLR 3025[c]). To the contrary, the device merely affords the attorneys the opportunity to clarify and organize their theories for the court and jury.

The need for proposed jury instructions and clarity in presentation became evident after a careful review of the complaint immediately prior to trial. In the complaint,^[FN2] the plaintiff ("plaintiff" or "Albano") alleged that Dersovitz and the RD defendants (entities controlled by Dersovitz), together with Bernstein — a now-disbarred lawyer — engaged in a fraudulent funding scheme in connection with an investment venture in which Albano participated. The "barebones" complaint asserts that: Dersovitz and Bernstein agreed to fund the activities of an entity called [*2]On the Right Track, LLC ("OTRT") (Complaint ¶ 22); the method of funding was through Dersovitz controlled entities (Complaint ¶ 23); in furtherance of and in order to obtain funding, Dersovitz and Bernstein devised a scheme to defraud the co-owners, partners, members and/or investors in the Dersovitz controlled entities (Complaint ¶ 24); through false representations concerning, inter alia, the existence and amount of settlements and legal fees and the existence of valid assignments and sale agreements (Complaint ¶ 25), Dersovitz controlled entities "paid money at the direction of Dersovitz and Bernstein * * * to fund the activities of OTRT" (Complaint at ¶ 26); as a result of false and fraudulent representations, Bernstein and Dersovitz obtained money from Dersovitz controlled entities with which they funded, inter-alia, the purchases of licenses and rights to manufacture and distribute construction products and systems for the benefit of OTRT" (Complaint ¶ 31); Bernstein and Dersovitz falsely represented to Albano that Dersovitz had funded OTRT legally, Dersovitz and Bernstein had the financial ability to fund OTRT legally, Dersovitz and Bernstein would pay any obligation Albano undertook to help fund OTRT and the funding of OTRT by Dersovitz was not subject to any condition other than that Dersovitz received 10% of OTRT revenue (Complaint ¶ 32); these representations were false and fraudulent in that neither Bernstein nor Dersovitz were financially able to fund OTRT, Bernstein and Dersovitz intended to fund and did fund OTRT by illegal and fraudulent means, the money given to OTRT by Dersovitz or his entities was the product of an illegal scheme and would have to be paid back by OTRT to the victims (Complaint ¶ 33); Albano relied on the false representation of Dersovitz and Bernstein (Complaint ¶ 35); in October 2006, Albano borrowed $2 million dollars to further fund OTRT which was to be paid back to him by lawful and legitimate funding from Dersovitz (Complaint ¶ 35); Albano secured the repayment of the $2 million loan with a note and mortgage on his real property (Complaint ¶ 36); to conceal the scheme to defraud, after questions arose concerning Bernstein's liability to Dersovitz controlled entities, Dersovitz and a controlled entity sued Bernstein alleging that Bernstein was liable for money paid to him pursuant to fraudulent contracts (Complaint ¶ 37); Bernstein purposely failed to answer the complaint of Dersovitz in order to continue to conceal the scheme on behalf of him and Dersovitz (Complaint ¶ 38); Dersovitz obtained a judgment against Bernstein by default based on the fraudulent contracts and sought to enforce the judgment by falsely claiming that the property owned by Albano was actually owned by Bernstein "knowing full well that * * * Bernstein had no interest in Albano's real property" (Complaint ¶ ¶ 40, 41); at the time Dersovitz sought to enforce judgment against Albano's property, he knew that Albano was in contract to sell the property for $7.5 million (which was not consummated because of the lawsuit) and that Albano was not liable for Bernstein's debt and maintained an action against it based upon false allegations (Complaint ¶ 43); Bernstein stole $900,000 from his escrow account, representing the down payment on the contract to sell Albano's real property, in order to continue to conceal the scheme to defraud investors and fund OTRT (Complaint ¶ 45); and Dersovitz knew that Bernstein was commingling funds and stealing from clients (Complaint ¶ 44).

The first cause of action purports to assert a fraud claim (fraudulent misrepresentations) against all defendants alleging, inter alia, that Dersovitz and the RD defendants fraudulently obtained property from Albano by false representations (Complaint ¶ 57). The third cause of action appears to assert a fraudulent concealment claim against the defendants alleging, inter [*3]alia, that Dersovitz knew Bernstein stole money from his clients and committed other crimes but failed to disclose such information to Albano. The fifth cause of action asserts a breach of fiduciary duty claim against Bernstein. The seventh cause of action appears to assert some type of malpractice or other similar claim against Bernstein for failing to fulfill his obligations as attorney for plaintiff. Each of the causes of action demands $7.5 million in damages.

The complaint

On a motion to dismiss pursuant to CPLR 3211(a)(7), "the court must afford the pleadings a liberal construction, accept the allegations of the complaint as true and provide plaintiff the benefit of every possible favorable inference" (AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 591 [2005]). The "sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law, a motion for dismissal will fail" (Polonetsky v Better Homes Depot, Inc., 97 NY2d 46, 54, [2001], quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). The court "must accept as true the facts as alleged in the complaint and submissions in opposition to the motion and determine only whether the facts as alleged fit within any cognizable legal theory" (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]).

At bar, by parity of reasoning and considering the procedural posture in which the sufficiency of the plaintiff's claims are being assessed, the court may consider not only the allegations in the complaint but also additional evidentiary submissions supportive of the plaintiff's claims. Notwithstanding Dersovitz' and the RD defendants' arguments in their trial memoranda and motions, the court's explicit statements to the plaintiff concerning the possible insufficiency of his claims, the repeated directives and opportunities to clarify the nature of his claims, and the court's notification of its intention to initially determine the first affirmative defense in the answer of Dersovitz and the RD defendants and to consider additional evidence offered by the parties in connection therewith, plaintiff submitted no affidavits supplementing his pleadings. Instead, plaintiff has, through attorney affirmation and minimal documentation, insufficiently elaborated on and improperly altered his claims.

The essence of the claims against Dersovitz, as articulated in the complaint, is fraud-based conduct by him, done in collusion with Bernstein, involving misrepresentations and concealment of information, which caused Albano to borrow $2 million secured by a note and mortgage on property which he owned. According to the complaint, Dersovitz' filing of a manufactured claim against Bernstein and Albano (preventing a sale of the property) represented an effort to deprive Albano of his property. However, the allegations against Dersovitz, on their face, state no fraud claims against him or any of the RD defendants. First, the allegations, for the most part, do not satisfy the specificity requirements of CPLR 3016. The only allegations which possibly could be interpreted as setting forth an actionable misrepresentation are that Dersovitz and Bernstein falsely represented that they would pay any obligation Albano undertook to fund OTRT (¶ 32) and that Albano borrowed $2 million which was "to be paid back to him" by [*4]Dersovitz (see generally Pease v Elliman, Inc. v Wegeman, 223 AD 682 [1st Dept 1928]).^[FN3] However, the complaint does not allege a loss of property or damages resulting from any of the alleged misrepresentations. Reference to a defeated sale of real property—property which itself was alleged to have been used to secure a loan taken by Albano to help fund OTRT, does not constitute damages. Significantly, no allegation was made that the $2 million loan remained unpaid, and, more significantly, that the real property and investment were lost because of fraudulent representations. Additionally, as will be discussed, it is undisputed that Albano did not personally obtain a loan and that plaintiff now concedes that there was no promise by Dersovitz to repay the loan.

The defective pleading is not saved by reference to any other submissions of the plaintiff, even if those submissions had included affidavits as opposed to unsworn attorney affirmations and statements (see Rovello v Orofino Realty Co., 40 NY2d 633, 636 [1976] ["[A]ffidavits may be used freely to preserve inartfully pleaded, but potentially meritorious, claims * * * Modern pleading rules are "designed to focus attention on whether the pleader has a cause of action rather than on whether he has properly stated one" * * * In sum * * * affidavits may be received for a limited purpose only, serving normally to remedy defects in the complaint, although there may be instances in which a submission by plaintiff will conclusively establish that he has no cause of action]) [internal citations omitted]; Grossfield v Grossfield, 224 AD2d 583 [2d Dept 1996]). Among the problems with the plaintiff's theories, as identified by the defendants, is their "shifting" and imprecise nature and failure to distinguish between the plaintiff and the non-party limited liability company of which he is a member, Houston Acquisitions, LLC, rendering much of plaintiff's putative claims fundamentally flawed.

The Plaintiff's other submissions and representations

As noted on page 2 supra, in response to the court's first trial order (for proposed jury instructions, etc.) the attorneys for the parties, excluding Marc A. Bernstein and Bernstein & Bernstein LLP (the "Bernstein defendants"), submitted proposed jury instructions and other in limine applications. A review of the plaintiff's proposed jury instructions demonstrated that the plaintiff continued to present no cognizable claims against Dersovitz or the RD defendants. In this regard, the fraud theory upon which the plaintiff's claims rested were only remotely causally related to the damages allegedly suffered by him (See second paragraph on second page of plaintiff's proposed charges dated Oct. 26, 2015; bottom of second page and top of third page of plaintiff's proposed charges; articulation of damages claim on fourth page of plaintiff's proposed charges).

According to the various trial submissions of the parties, the plaintiff and defendants became involved in a failed investment venture, the objective of which was to commercially exploit a patented metal framing system known as the "Trakloc" system. The plaintiff alleges that Dervsovitz made false statements and/or concealed the fraudulent manner in which he generated funding for the parties' Trakloc investment venture. Among other things, the plaintiff claims that Dersovitz (and the RD defendants) fraudulently purchased personal injury settlements [*5]from Bernstein's law firm — settlements which, according to the plaintiff, both Dersovitz and Bernstein knew were defective, conditional and/or "non-existent". Later, and even though Dersovitz was allegedly aware that these settlements were fraudulent, he and Bernstein instituted or participated in collusive litigation relating to those settlements — and together engaged in other collusive acts — intended to conceal their underlying funding misconduct from the plaintiff and others.

The plaintiff alleges, inter alia, that he was deceived by, and relied upon, the ostensible legality of the defendants' funding activities in connection with the Trakloc investment; that with Dersovitz' knowledge, he mortgaged certain real property and obtained $2 million dollars in loan proceeds; and that he later invested the loan funds in the Trakloc venture. Relatedly, the plaintiff claims that he entered into a contract of sale with respect to the same real property, but that in 2008, Bernstein (who was representing the plaintiff in the real estate transaction), stole the prospective purchaser's $900,000.00 down payment — which sum had been deposited into Bernstein's attorney IOLA account. The plaintiff further asserts that although Dersovitz was not a party to the foregoing real estate transaction, he knew about the sale and was also aware that Bernstein had stolen the down payment — but that Dersovitz failed to inform the plaintiff that the theft had taken place. These events took place after the Trakloc investment failed, however. Moreover, as will be discussed, it was not Albano who borrowed and invested funds at all, but a limited liability company (Houston Acquisitions, LLC), which he and Bernstein formed for the purpose of participating in the venture, that borrowed the funds.

Dersovitz' and the RD defendants' initial trial memoranda and in limine applications, directed at the preclusion of certain evidence and the limitation of damages' theories and claims, touched upon problems with the plaintiff's theories and claims. One such issue was the question of ownership of the parcels of real property that secured a loan, the proceeds of which constituted Albano's investment in the Trakloc venture. In fact, the property was originally owned by the plaintiff and his sister, transferred to Houston Acquisitions, LLC in April 2006, and then pledged as collateral for a loan to Houston Acquisitions, LLC (to be used in connection with the Trakloc investment). Eventually, this property was transferred to Albano and sold to satisfy the debt of Houston Acquisitions, LLC, after the business venture failed.

Nowhere are these facts, which are now undisputed, asserted in the plaintiff's complaint. Rather, they have been articulated, in part, in plaintiff's proposed jury charges and unsworn submissions, which posit a theory of liability based on the premise that "Albano's property" was "lost" when it was transferred by him to the LLC. However, upon learning of these facts, the court was compelled to inquire, inter alia, as to whether the plaintiff's sister was a necessary party to this action. The plaintiff's sister was produced in court and questioned by counsel, after which the defendants stipulated that her presence at trial was unnecessary (discussed infra at p.11). Nevertheless, the issues of when the property was "lost", when loss was to be determined, and how the loss was causally related to any fraud, remained. In addition, although there are multiple RD defendants (in addition to Dersovitz), the allegations in the complaint and in the proposed jury instructions, did not specify particularized theories of recovery against specific defendants.

As a result of the plaintiff's confusing and incomplete factual representations and legal theories, the court issued a second order, dated November 9, 2015, stating the following:

Pursuant to oral directives of the court issued in September 2015, the parties were directed to prepare and submit proposed jury instructions and in limine motions by mid-October, 2015. The parties subsequently submitted to the court several in limine applications, memoranda of law, reply papers, affirmations with exhibits and proposed charges. The last of these submissions was received subsequent to a pre-trial conference conducted on October 30, at which, in view of the nature of the applications—some involving post-note of issue disclosure, the court directed further submissions to fully and properly address the issues raised.

Upon review of the submissions, and considering plaintiff's imprecise and vague proposed jury instructions, the court is unable to adequately glean the precise nature of the claims being made by the plaintiff against all of the defendants. Accordingly, the plaintiff shall submit to the court, and serve on the parties, by 3:00 p.m. on November 10, 2015, an affirmation setting forth a detailed statement as to the precise claims being made by him against each defendant, the theory of liability against each defendant, with due regard to all of the elements of the claims being advanced, including duty, breach, causation (see eg, Laub v Faessel, 297 AD2d 28 [1st Dept 2002]) and the damages actually sustained.

The plaintiff shall also submit and serve proposed jury instructions encompassing the claims and all the elements thereof which shall be consistent with the aforementioned affirmation by 9:30 a.m. on November 12, 2015.

Additional submissions of the plaintiff reflected, inter alia, new theories of recovery by the plaintiff, some of which were inconsistent with prior orders of the court that dismissed claims in the complaint. Essentially, however, the plaintiff's articulation of claims was insufficient, confusing and otherwise failed to address the causation issue mentioned by Dersovitz and the RD Defendants (Trial Memorandum at p.24) and specifically referred to by the court in its November 9th order; nor did the plaintiff adequately delineate specific theories against each and every defendant as the court had directed. The affirmation of plaintiff's attorney cited to a decision and order of this court on a summary judgment motion in which the court, denying summary judgment to the defendants, noted the plaintiff's allegations of an "elaborate and secretly perpetrated fraudulent scheme", however, inasmuch as the decision and order concerned a motion for summary judgment in which the sufficiency of the pleading was not at issue, and because the issues raised therein were not identical to the issues under consideration, reference to the court's prior decision and order was irrelevant.

The supplemental requests to charge dated Nov. 12, 2015, assert, inter alia, the following: the defendants actively concealed material facts "combined with partial disclosure"; the concealed facts included that Dersovitz' investment was to be paid back by Bernstein to Dersovitz; that the Dersovitz investment was secured by Bernstein's membership in the venture; that funding was provided by Dersovitz "as a result of false and fraudulent Assignment and Sale agreements"; Bernstein was "less" capable of repaying the loan [from Winter] because of what he owed to Dersovitz; Dersovitz aided and abetted Bernstein in breaching his fiduciary duties to plaintiff; under the special facts doctrine, Dersovitz was liable to plaintiff given that he knew Bernstein was required to pay him back; Dersovitz had a fiduciary obligation to plaintiff because he dominated the Trakloc venture and he breached this obligation; Bernstein stole the $900,000 [*6]deposit given in connection with a proposed purchase of the property that he transferred to Houston Acquisition LLC; if Dersovitz knew of the theft of deposit, then the jury "could consider that in determining whether Dersovitz, in addition to Bernstein, is liable to Albano for the loss of the opportunity to sell his property in New York, unencumbered for $7,500,000" (Plaintiff's Supplemental Requests to Charge at p.7). All of plaintiff's damages claims contain a demand of $7.5 million on each cause of action, which is the amount for which Houston Acquisitions, LLC contracted to sell the property (to David King Real Properties Two, LLC) in August 2008. It is significant that plaintiff's theory of liability against Dersovitz and the RD defendants is, as noted, predicated upon the transfer of "his" property to the LLC based on representations allegedly made at that time, the information concealed at that time, and the value of the property at a substantially later date. In essence, plaintiff asserts that he would not have transferred the property to the LLC (and signed a personal guaranty) had he known of the true financial circumstances of the investment scheme. Again, Albano did not personally borrow any funds or use "his" property as collateral; Albano (with his sister) transferred the property to Houston Acquisition, LLC, which borrowed funds via a loan secured by the transferred property and guaranteed by Albano.

On November 17, 2016, the court conducted a conference at which it discussed the issues raised and not satisfactorily addressed in the submitted papers. At the conference, upon questioning by the court, plaintiff's attorney confirmed that the underlying property which was security for a loan to Houston Acquisition LLC used to purchase an interest in the Trakloc venture was transferred by the plaintiff and his sister to the LLC. The court discussed this issue at length with the attorneys (and subsequently addressed it again by a stipulation and testimony from plaintiff's sister in which she waived any interest in the property. This expedient satisfied the sister and the parties in regard to her non-joinder but it did not resolve deficiencies in the pleadings concerning causation or damages).

In attempting to discern the precise nature of the plaintiff's claims, the court asked about certain allegations that the defendants promised to service the loan (i.e., to make regular installment payments, as referenced in the Affirmation of Plaintiff's Attorney, Mr. Santangelo, dated November 10, 2015, and in his Reply of Plaintiff to Defendant's Response to Pre-trial Affirmation of George L. Santangelo), that was taken by Houston Acquisition, LLC.^[FN4] The following colloquy then occurred at the conference:

Mr. Santangelo: I don't know that I made that claim, Judge. [that the defendants promised to service the loan] * * * I don't see anything in my supplemental request to charge which indicates that I am relying on a promise to pay the loan.

Mr. Bernstein: Not to pay, to service, George. Not to pay, to service.

Mr. Santangelo: That's not the misrepresentation that we're relying on, although it happened. There were promises, but that's not the misrepresentation we're relying on. (Emphasis added)

* * * *

Mr. Bernstein: * * * My recollection is that both Mr. Dersovitz and I both agreed to service the loan and, in fact, we did.

Mr. Santangelo: We're not talking about servicing the loan.

Mr. Bernstein: Yes, we are. The ultimate underlying instrument, whether we agreed to pay it off?

The Court: Were the terms of that loan supposed to be that it be serviced for a period of time and a balloon payment come due at some point?

Mr. Santangelo: It was a six-month loan and the parties assumed and believed - -

The Court: Six months?

Mr. Willingham: It was a one-year loan, your Honor.

* * * I would ask plaintiff's counsel to adopt this, payment due on October 27, I believe, 2007, in full.

Mr. Bernstein: My recollection, there was also, your Honor, a one-year renewable with a small payment on the renewable aspect of it for a second year. And, in fact, at some point the loan was sold and the second year was, in fact, granted and the servicing was done, but the ultimate payment - - the ultimate repayment of the loan which is referred to in a subsequent agreement would have been made from profits from the Kamco contract.

The Court: That pretty much confirms what I thought.

Mr. Willingham: Your Honor, I would ask if the plaintiff agrees with the characterization of the terms of the loan.

The Court: Is that a correct characterization?

Mr. Santangelo: Well, the documents speak for themselves. It was not going to be paid by Mr. Dersovitz and Mr. Bernstein, the underlying loan. We do not make that claim. Subsequent events, subsequent events participated in by Mr. Bernstein, Mr. Dersovitz and Mr. Albano indicate that the loan was to be paid off in a certain way, not by them, Bernstein or Dersovitz. That's never been our claim. (Emphasis added)

The Court: * * *

Is it also correct that this whole - - I'm going to call it an investment plan or investment scheme which involved * * * this company On The Right Track, that ultimately - - putting aside the existence of litigation going on elsewhere in other venues, that ultimately it proved to be unsuccessful?

Mr. Santangelo: Yes.

The Court: Is that an accurate statement?

Mr. Santangelo: Yes.

Mr. Willingham: That's correct.

Mr. Bernstein: Yes.

The Court: Is it also an accurate statement that it proved to be unsuccessful for matters unrelated to any alleged fraud?

Mr. Santangelo: In this case?

The Court: Yes.

Mr. Bernstein: Alleged in this matter?

The Court: In this matter by the plaintiff here.

Mr. Santangelo: That's something I haven't thought about, Judge. (Emphasis added)

The Court: I'm just asking because I haven't seen it in the papers. I'm asking the question.

Mr. Santangelo: I can't truly give a yes or no. I haven't said it. I haven't said that with respect to later actions. I just can't answer you, Judge. (Emphasis added)

Mr. Bernstein: Your Honor, from my part, I would say that that is a true statement because the ultimate unsuccessfulness of the company, which was ultimately resolved in this ongoing and different litigation, was a default by a third party that had nothing to do with any of the people here nor was it occasioned by any monies that were paid or not paid by any of the parties here.

The Court: That $4 million - - that $2 million loan from W Financial to Houston Acquisition which you said was ultimately sold to some other company.

Mr. Bernstein: That was - - that loan was used to pay licensing fees and to pay off a later involved and complicated deal where a licensee who was in Tennessee had borrowed that money and then the master company, Trakloc International, had guaranteed that loan. So the deal that we had all made with Trakloc International was we were going to buy the default from the Minnesota hedge fund and then own the company worldwide. That's what the money was used for. But the ultimate unsuccessfulness of the company was occasioned by the default by Kamco on that deal.

Mr. Willingham: Again, it's really complicated here because of the interrelationship with the parties, but I ask that plaintiff either adopt or not adopt that theory.

Mr. Santangelo: I don't adopt what Mr. Bernstein said for the following reasons: The loan that was made to Houston was originally supposed to be for $4 million and it was for two purposes; one, to pay for the license fees, and the other to take over the Trakloc International patents, et cetera, nationwide. When W Financial told Houston, Mr. Bernstein and Mr. Albano, that they were only lending 2 million, the purpose of that loan was cut in half and the $2 million was used to pay license fees. There was not the other $2 million to go forward with purchasing the Trakloc International patents, et cetera, and control of the company.

So insofar as what their original purpose was, yes, there were two purposes. When they took the loan they knew they could only satisfy one purpose, and the most important one was paying the fees that Mr. Dersovitz was extremely interested in because the fees made the 77 million contract secure. Without that 77 million contract with the Kamco companies, Mr. Dersovitz had no chance of getting his $2.4 million back, and that's why he dit it.

The Court: The $77 million, that Kamco contract, just went south for other reasons?

Mr. Santangelo: Yes, it did. But at the time it was quite active, and it was in '06 when Kamco was still viable and the contract was viable. (Emphasis added)

The Court: The other thing is that, looking at your reply to defendant's response, in light of what you said today, just now, you mentioned on Page 5, Bernstein, Albano and Dersovitz believed that W Financial was going to extend a loan of $4 million, which is [*7]consistent with what you just said. Not until the day of the closing, when Bernstein, Albano arrived at their offices, did W Financial inform them that the loan would only be 2 million. On The Right Track needed to pay Trakloc International license fees for 2006. That was one purpose of the loan for $4 million. The other was to purchase and consolidate the Trakloc companies nationally. The fees had to be paid that day, October 26, 2006 or On The Right Track could not perform on a contract with the Kamco companies worth $77 million for 2006 and which was self-renewing year after year. After consultation with Dersovitz, the loan to Houston - - it looks like to me that was a collective decision by Mr. Albano, be Mr. Bernstein and by Mr. Dersovitz, according to your papers, to go forward with the $2 million loan even though really you expected $4 million.

Mr. Santangello: Correct.

Mr. Bernstein: If I may clarify that a drop more, your Honor, just because this may come up later. The $2 million that was given by W on that day was to pay licensing fees, but the way that it functioned was the people in California who we had to pay the licensing fees to, they were losing their rights by being foreclosed by the company that we were looking to buy everything from. So although we gave the money to the company in Minnesota, it was to pay the licensing rights, and they gave us a receipt that said we had paid them. They were really paid on their behalf. Then we bought an extension of time for the other $2 million which, my position is, based on that conversation that day with Mr. Dersovitz that he told us would be no problem for him getting because he had a 10 or 12 million dollar deal coming where he had referred cases to some big plaintiffs' class action that he was getting, and not to worry, we would get the money. We then agreed to take the 2 million and bought additional time that was said was needed in order to get the balance. Because otherwise we were just throwing $2 million away if we couldn't close, I don't remember if it was 30 or 60 days thereafter, we had paid that money and we would still lose the deal. So it was a very vexing and a difficult decision on that day as to whether we should go forward on [sic] not, because if we walked there was no money spent.

The Court: Everything you said, seems to point you were all facing a vexing decision. Is there anything about what you said about Mr. Dersovitz that you are claiming was false, what he told you?

Mr. Bernstein: Well, I don't know, your Honor, whether it was false or not or if it was intended to be false at the time it was made, but there was no money forthcoming, so the part not to worry about it was obviously false. We didn't get the additional 2 million and we were unable to pay the hedge fund the 2 million to buy the rights, and we forfeited the 2 million.

The Court: Based on the failure to get the 2 million - -

Mr. Bernstein: With exception of the part we paid for licensing fees. The reliance was certainly there that day. That was - - the ultimate decision that was made was based on that reliance, that the other $2 million would not be a problem for Mr. Dersovitz to come up with.

Mr. Willingham: Your Honor, again, just to be clear, this is the defendant arguing [*8]what the plaintiff's purported reliance is. I just want to know if the plaintiff agrees.

Mr. Santangelo: Plaintiff does not agree. (Emphasis added)

The Court: I want you to know, I'm trying to understand the theory of causation here. That's all. It's consistent with what I have been saying. My own - - trying to fit this case in the confines of case law, for example, Laub versus Faessel, First Department case that I cited in my decision, and I'm not sure what else I want to say further on this point. I think everybody brought something that is of importance to me. Then of course connecting up the damages.

Is there anything else you want to say on these points right now on the issue of causation? You feel confident? I have to say that I'm not a hundred percent sure about what exactly would get before the jury, what you are intending would go before the jury, because you have some differences in some of the papers I've seen.

Mr. Santangelo: I respect your Honor and what his view of my submissions are, but I don't see a difference. We essentially argue that Mr. Dersovitz' statement and Mr. Bernstein's statement that the $1,450,000 that he had invested in the company, OTRT, up to January or February of '06 from July of '05 was in fact a half truth. And the other half of that truth is that Dersovitz was holding Bernstein liable if that investment was lost by Mr. Dersovitz. And he also failed to disclose to Mr. Albano the method by which he, Dersovitz, was financing that, quote, unquote, investment by the use of false and fraudulent assignment and sale agreements. That's the misrepresentation. That's what Mr. Albano relied on, that this hedge fund guru who made due diligence a part of his game put a $1,450,000 into this company and now is asking him to put his property up in order to finance the remainder of what had to be done which included licensing fees to support a $77 million contract from which Mr. Dersovitz is likely to get paid.

Now, of course Mr. Albano believed he would be making money, otherwise he wouldn't be doing this. This was an investment by him, but it's based on and induced by a half truth. Now that half truth makes Mr. Albano sign a promissory note that requires him to pay the amount of the note, and if he doesn't pay with money, they can take his property away. When Mr. Dersovitz induced Mr. Albano to make that promise and put his property in jeopardy, he didn't do it for no reason. He did it for the reason that if the investment went down, Albano would pay.

So the causation of damages is clear and unequivocal and linked. Dersovitz induced him to promise to pay and secured the promise with his property. And any jury has the right to infer that when Mr. Dersovitz made that inducement and Mr. Albano promised to pay and subsumed his property, Dersovitz said he's going to pay if it goes down. What other reason would he have him to do that? None other. That's the causation I see. It's clear and linked. (Emphasis added)

The Court: Say that last point. The last point about his promise to pay, the last thing you said.

Mr. Santangelo: Mr. Albano is induced to sign a note, a guarantee that promised to pay - -

* * *

- - and the property is the security for his promise to pay. When that happens, Mr. [*9]Dersovitz has got to know that if the thing goes down, the investment goes down, Albano is going to pay. That has to be his intent. There can't be any other intent at that time. That's the intent of damages. He has transactional intent because he induces him clearly to sign the note, put up the property. So you have transactional causation and you have damage causation, it seems to me. (Emphasis added)

Mr. Willingham: On the loss causation, under the Laub case, what's in the recent submission that was filed yesterday on Page 7 is that as a result - - basically, as a result of the purported misrepresentations, which we will address factually if we need to at another time, Albano was unable to sell the property and realize the full value of the property which is the link that is alleged to the $7.5 million claim. We ask - - we still to this day don't understand whether the claim is for the $7.5 million from Mr. Santangelo on behalf of Mr. Albano for failure to close the sale to David King Realty. That's what it appears to be, and that is what is set forth here.

Mr. Santangelo: Your Honor, to make it clear, the Court dismissed our claim with respect to interference with the contract between Mr. Albano and David King. We do, however, rely on the contract for $7.5 million as evidence of the value of that property

Shortly thereafter, Dersovitz and the RD defendants moved pursuant to CPLR 4401 for a directed verdict on their defenses, citing, inter alia, plaintiff's inability to establish "loss causation", i.e., that the loss of any investment by plaintiff was causally related to the alleged misrepresentations made by him. In response, plaintiff asserted:

Albano took the risk of loss based on the misrepresentations made that Dersovitz' "investment" was unconditional, derived from legally obtained funds, that Dersovitz' decision to invest was based on due diligence regarding the Company, OTRT, and that he and Bernstein would service the loan. Instead Dersovitz' "investment" was actually a concealed loan to Bernstein, secured by false A & S agreements. Bernstein's concealed debt to Dersovitz placed all the risk of payment on Albano. Had it not been concealed, Albano's confidence that Dersovitz and Bernstein would service the loan would have been shattered. Instead, induced by the fraud, Albano was forced to service the loan after both Dersovitz and Bernstein failed to. He was economically unable to service the loan and had to sell.

The circumstances under which Albano had to pay off the loan resulted in his loss of a property which was reasonably valued at $7,500,000. He can only be made whole by the return of that value to him.

There was no intervening event outside the terms of the loan which caused Albano to pay the loan. The sale of the property on account of Albano's obligation by virtue of their fraud Dersovitz and Bernstein risked paying for whatever loss Albano suffered when he had to sell.

It was foreseeable that Albano would have to pay Houston's loan from the proceeds of any sale. All the damages from Albano's obligation to pay the Houston loan, whenever and why paid, flow from the lies told by Dersovitz and Bernstein.

Albano could not service the loan, a fact known to Bernstein and Dersovitz in October 2006. A foreclosure action was begun by Titan Capital which purchased the loan from W Financial. Albano filed for Chapter 11 Bankruptcy in order to stay the foreclosure. The [*10]property was sold after Albano filed bankruptcy in order to pay off the loan.

When a car manufacturer is held liable for negligently installing brakes that do not work properly, it is foreseeable that the brakes will not stop the car. If the car fails to stop, no one can foresee the location of the crash site, those injured in the crash, how many are injured, the property damage caused by the crash. In this case, that Albano would have to pay, that his property would be sold to secure the payment, and that Bernstein's indebtedness to Dersovitz would increase Albano's risk was all foreseeable by Dersovitz and Bernstein. That Albano had to sell (car failed to stop) paid the loan (driver injured) and suffered an amount of damages (loss of property) constitutes a cause of action where the loss is proximately cause by the fraud (negligent installation of brakes). To hold otherwise is to stand proximate cause and forseeability on their heads. Judge Calabrsi's analysis relied on by defendants is fatal to their claim. "[S]o long as the neighborhood was not more prone to flooding" the fraud did not increase "the chances of actual damage". Loreley Fin. v Wells Fargo, 797F. 3D 160, 183-84 (2d Cir. 2015). Here the chance that the property would be used to pay the loan was increased substantially because of Bernstein's concealed debt to Dersovitz.

With respect to plaintiff's Third Cause of Action, plaintiff stated:

Defendants point to a colloquy on November 17, 2015 as an oral admission. Defense counsel said he would like to "understand the value of the causation for the third cause of action." Plaintiff's counsel agreed that the Court read correctly the value of the claim in the Third Cause of Action. Regardless, the affirmation correctly claims that the evidence will support the facts that Dersovitz was aware of Bernstein's prior thefts from his IOLA, that Dersovitz either had a fiduciary's duty to Albano or aided and abetted Bernstein in the violation of Bernstein's fiduciary duty to Albano. And, as a proximate result of either theory of liability, the contract vendee was afforded a substantial ground to refuse to close the sale of Albano's property. (Defendant's claim that Houston was the seller and owned the property, not Albano, flies in the face of the contract which was assigned to Albano, the transfer from Houston to Albano and the operating agreement of Houston which declared the property to be albano's if sold.).

In view of the foregoing, the court issued trial order No. 3, directing the trial of the first affirmative defense contained in the answer of Dersovitz and the RD Defendants and permitted additional submissions thereon. In those submissions, the plaintiff asserts that he has advanced five theories of liability upon which he can rely to prove his case. However, the plaintiff's theories, to the extent that they have not been precluded by other orders issued in this matter, concern fraudulent misrepresentations or concealment, and have yet again failed to address the issue of causation. No part of the "theories" advanced by the plaintiff allege or demonstrate the existence of a causal connection between the misrepresented or concealed information and the loss of plaintiff's investment (inexplicably claimed by him to be $7.5 million), which occurred when the Trakloc venture failed, apparently because of the loss of the Kamco contract, but certainly for reasons unrelated to the alleged fraud. In essence, plaintiff's claim is that but for the misrepresentations and concealment by Dersovitz of significant facts concerning the source of funding and that he was holding Bernstein accountable for monies owed him, plaintiff never would have invested in the Trakloc venture. As noted, that is not a sufficient basis to impose [*11]liability on Dersovitz. Plaintiff's new assertion—not contained in the complaint or in any sworn statement by him, that Dersovitz and Bernstein misrepresented that they would service the loan, is likewise conclusory and insufficient. In this regard, the claim lacks factual support, as it was made by counsel, and lacks specificity (CPLR 3016), as it does not indicate for how long the loan was to be serviced and whether the promise to service the loan was in any way related to the ultimate obligation to re-pay the loan, which Albano admits was not Dersovitz' obligation, in any event. Significantly, any alleged promise to service the loan does not alter that repayment of the loan was contingent upon the success of the venture, which is not alleged to have failed because of any misrepresentations or fraud or the failure to service the loan. Finally, the plaintiff's attorney admitted to the court (see highlighted text supra at p.12) that he was not making any claim based on the alleged misrepresentation by Dersovitz to service the loan; any allegation by plaintiff of a misrepresentation in this regard, would, in any event, be flatly contradicted by plaintiff's statements that Dersovitz made payments on the loan from its inception in 2006 until June 2, 2008.

On the seminal issue of causation, the case, Laub v Faessel (297 AD2d 28 [1st Dept 2002]), is dispositive of the first affirmative defense and plaintiff's claims against Dersovitz and the RD defendants. Laub v Faessel (supra) involved claims of fraud, negligent misrepresentation and breach of fiduciary duty brought by the plaintiff, an investor, against the defendant Faessel, a consultant he engaged for investment advice. After the Supreme Court dismissed the plaintiffs' complaint, the First Department affirmed, noting the following:

[F]rom the spring of 1994 through June 30, 1995, plaintiff retained Faessel as a consultant, essentially to provide second opinions with respect to the investment advice plaintiff was receiving from his broker, Bear Stearns & Co., and * * * paid Faessel approximately $18,000 during that period for his consulting services. During the first half of 1995, prior to the period when plaintiff allegedly relied on Faessel's misrepresentations, plaintiff purchased 7,000,000 shares of technology stock, valued at over $400 million, using millions of dollars in margin debt tofinance those transactions through Bear Stearns. In addition, both before and during the period in which plaintiff allegedly was relying to his detriment on Faessel's misrepresentations and investment recommendations, plaintiff controlled and determined what trades were actually made for his account, as well as what and how many shares of stock he would buy and when. From July 1995 through December 1995, plaintiff actively traded stock only through Bear Stearns; during the first quarter of 1996, plaintiff traded stock through a number of leading brokerage firms, including Bear Stearns, Morgan Stanley, Goldman Sachs, Salomon Brothers, and WorldCo, among others. In the first quarter of 1996, the stock market declined, particularly in technology equities. Plaintiff, having invested heavily on margin, sold a great deal of his technology stock, allegedly at a loss of over $41 million. Plaintiff seeks to recoup those losses through the current action.

* * *

For each of the direct causes of action included in the complaint—fraud, negligent misrepresentation and breach of fiduciary duty—plaintiff must establish that the alleged misrepresentations or other misconduct were the direct and proximate cause of the losses claimed (see, Wall St. Corp. v Ziff Communications Co., 225 AD2d 322 [fraud claim]; [*12]Hayes v Baker, 232 AD2d 371 [negligent misrepresentation claim]; R.M. Newell Co. v Rice, 236 AD2d 843, lv denied 90 NY2d 807 [breach of fiduciary duty claim]).

To establish causation, plaintiff must show both that defendant's misrepresentation induced plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation) (see, e.g., Small v Lorillard Tobacco Co., 94 NY2d 43, 57; National Union Fire Ins. Co. v Christopher Assoc., 257 AD2d 1; Cathay Pac. Airways, Ltd. v Fly & See Travel, Inc., 3 F Supp 2d 443, 451 [SD NY]). Loss causation is the fundamental core of the common-law concept of proximate cause: "An essential element of the plaintiff's cause of action for negligence, or for any tort, is that there be some reasonable connection between the act or omission of the defendant and the damage which the plaintiff has suffered." (Prosser and Keeton, Torts § 41, at 263 [5th ed ]; see also, Small v Lorillard Tobacco Co., 94 NY2d 43, 57; Wall St. Transcript Corp. v Ziff Communications Co., 225 AD2d 322; Megaris Furs v Gimbel Bros., 172 AD2d 209, 213; cf. AUSA Life Ins. Co. v Ernst & Young, 206 F3d 202, 216 [2d Cir], on remand 119 F Supp 2d 394, 398 [SD NY].)

Plaintiff has not alleged that Faessel's misrepresentations concerned the financial condition of any of the companies whose stock he recommended to plaintiff (see, e.g., Hotaling v A.B. Leach & Co., 247 NY 84; AUSA Life Ins. Co. v Ernst & Young, 206 F3d 202 [2d Cir]); the alleged misrepresentations concern only Faessel's and WorldCo's competencies. Regardless of whether plaintiff could establish that he was induced by the alleged misrepresentations to follow Faessel's recommendations on purchases of equities, plaintiff's claims must fail because he has not alleged or produced any evidence that those misrepresentations directly and proximately caused his investment losses (see, Safchik v Prudential Sec., 233 AD2d 383; Megaris Furs v Gimbel Bros., 172 AD2d 209; Aronoff v Ernst & Young, 1999 WL 458779, 1999 NY Misc LEXIS 665 [Sup Ct, NY County, Apr. 26, 1999], affd 283 AD2d 301; see also, Restatement [Second] of Torts § 548A, Comment b; Prosser and Keeton, Torts § 110, at 767 [5th ed 1984]).

At bar, there being no evidence or allegation that plaintiff's loss was caused by the alleged fraud of Dersovitz rather than the ultimate failure of the Trakloc venture, the plaintiff's claims, to the extent that they have sought to be asserted against Dersovitz and the RD defendants, must fail.

Last, the court notes that no specific allegations have been made against any of the RD defendants. And, with respect to the third cause of action, Dersovitz correctly asserts that any issue pertaining to the alleged concealment of Bernstein's $900,000 theft cannot form the basis of a claim against him as the alleged wrongdoing post-dated plaintiff's investment in the Trakloc venture and could not have been known at that time.

Accordingly, it is ordered that the complaint insofar as asserted against Dersovitz and the RD defendants is dismissed.

It is further ordered that the motion pursuant to CPLR 4401 is denied as moot.

This constitutes the decision and order of the court upon the trial of the first affirmative defense.