United States District Court, Southern District of New York
February 4, 2000
HOWARD ROSBACH AND RAYMOND HARVEY, PLAINTIFFS,
INDUSTRY TRADING CO., INC. AND SHRAGA GANCZ, DEFENDANTS.
The opinion of the court was delivered by: Sweet, District Judge.
Defendants Industry Trading Co. ("ITC") and Shraga Gancz
("Gancz") (together, "Defendants") have moved to dismiss the
complaint of plaintiffs Howard Rosbach ("Rosbach") and Raymond
Harvey ("Harvey") (together, "Plaintiffs") as barred by the
Statute of Frauds. For the reasons set forth below, the motion
will be granted in part and denied in part.
Rosbach is a citizen of Nevada.
Harvey is a citizen of Massachusetts.
ITC is a New York corporation with its principal place of
business in New York.
Gancz is a citizen of New York and president of ITC.
In 1992 or 1993,*fn1 ITC filed an action against Rosbach in
New York State Court, Suffolk County, to recover $15,000 due for
goods sold and delivered by ITC to Rosbach (the "State Action").
ITC was awarded a default judgment in the 1992 Action for the
$15,000, plus interest (the "Default Judgment").
The complaint in this action (the "Complaint") was filed on
August 31, 1999. The instant motion to dismiss was filed on
October 27, 1999. Oral argument was heard on November 10.
Additional briefing materials were received through November 29,
On a motion to dismiss under Rule 12(b)(6), the facts alleged
in the complaint are presumed to be true, and all factual
inferences are drawn in the plaintiff's favor. See Mills v.
Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).
Accordingly, the facts presented here are drawn from the
allegations of Plaintiffs' Complaint and do not constitute
findings of fact by the Court.
ITC, a diamond wholesaler, supplied diamonds for a period of
time to Rosbach, a diamond broker, who in turn sold the diamonds
to customers. Rosbach paid ITC the retail price minus an
agreed-upon sales commission.
Early in 1993, a purchaser failed to pay Rosbach for a $15,000
diamond provided by ITC. Rosbach, in turn, failed to pay
ITC. ITC subsequently filed the State Action.
Late in 1993, Rosbach proposed settling the State Action by
finding an investor who would loan Gancz and ITC $80,000 to
invest in diamonds. Rosbach would waive his "usual finder's
commission" of $15,000 for performing this service, in return for
which Gancz and ITC would discontinue the State Action. Gancz and
ITC would, however, be required to pay the investor an additional
$8,000, representing interest of ten percent on the $80,000 loan.
Gancz and ITC agreed to Rosbach's terms.
Rosbach and Harvey subsequently formed a joint venture, late in
1993. Harvey invested $100,000 with the understanding that
$80,000 would constitute a loan to Gancz and ITC on the
agreed-upon terms. Rosbach disbursed the loan in two
installments: a check to Gancz and ITC for $50,000 in December
1993, and a check to Gancz and ITC for $30,000 in January 1994.
Beginning in 1994, Rosbach made repeated demands on Gancz and
ITC for payment of the $80,000 principal and $8,000 interest. The
sole payment to date has been $2,250 in connection with ITC's
sale of one diamond.
In 1998, Rosbach discovered that Gancz, contrary to his
representations, had not discontinued the State Action but had
obtained the Default Judgment, which he was seeking to enforce
In deciding the merits of a motion to dismiss for failure to
state a claim, all material allegations composing the factual
predicate of the action are taken as true, for the court's task
is to "assess the legal feasibility of the complaint, not assay
the weight of the evidence which might be offered in support
thereof." Ryder Energy Distribution Corp. v. Merrill Lynch
Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting
Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)). Thus,
where a plaintiff can prove no set of facts in support of his or
her claim which would warrant relief, the motion to dismiss must
be granted. See H.J. Inc. v. Northwestern Bell Tel. Co.,
492 U.S. 229, 249-50, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989).
Defendants maintain that the three causes of action alleged in
the Complaint are barred by New York's Statute of Frauds: the
General Obligations Law § 5-701. Specifically, Defendants
maintain that the three causes of action are predicated upon
Defendants' breach of two alleged oral contracts: (1) a contract
between Rosbach and Defendants whereby Rosbach would find a
third-party investor for Defendants (the "Finder's Contract"),
barred by § 5-701(a)(10); and (2) a contract, entered into in
late 1993, whereby Rosbach and Harvey loaned Defendants $80,000
for a one-year term, the loans being distributed in installments
in December 1993 and January 1994 (the "Loan Contract"), barred
by § 5-701(a)(1).
As a preliminary matter, it is noted that consideration of the
affirmative defense of the Statute of Frauds is appropriate on a
motion to dismiss. See Doehla v. Wathne Ltd., Inc., No. 98 Civ.
6087, 1999 WL 566311, at *4 (S.D.N.Y. Aug. 3, 1999) (CSH).
New York General Obligations Law § 5-701(a) states in pertinent
Every agreement, promise or undertaking is void,
unless it or some note or memorandum thereof be in
writing, and subscribed by the party to be charged
therewith, or by his lawful agent, if such agreement,
promise or undertaking:
1. By its terms is not to be performed within one
year from the making thereof or the performance
of which is not to be completed before the end of
10. Is a contract to pay compensation for services
rendered in negotiating a loan. . . .
"Negotiating" includes procuring an introduction
to a party to the transaction or assisting in the
negotiation or consummation of the transaction. .
The Finder's Contract
The alleged Finder's Contract falls squarely within the
language of § 5-701(a)(10). The Complaint alleges that Rosbach
contracted with Defendants, who agreed to discontinue the State
Action in return for Rosbach's finding of a person (Harvey) who
would loan Defendants $80,000. By the plain language of the
Complaint, discontinuing the State Action had a value of $15,000
to Rosbach and was thus unquestionably "compensation" within the
meaning of § 5-701(a)(10).
Plaintiffs raise two objections to this defense. First, they
maintain that oral agreements are the norm in the diamond
business, thereby precluding mechanical application of the
Statute of Frauds. This objection, however, is inapplicable to
the Finder's Contract. The Complaint alleges that the normal
course of dealings between Rosbach and Defendants involved
Defendants supplying Rosbach with diamonds, which Rosbach would
sell to customers. There is no allegation that Rosbach
customarily acted as a finder in any capacity for Defendants, let
alone as a loan finder. Under these circumstances, the absence of
a writing is not reasonable.
Plaintiffs also maintain that it would constitute unjust
enrichment were Defendants able to prevail on the Statute of
Frauds defense. However, New York courts have specifically
applied the requirement that finder's agreements be in writing to
claims for commissions sought under both contract and quantum
meruit theories. See Minichiello v. Royal Business Funds
Corp., 18 N.Y.2d 521, 277 N.Y.S.2d 268, 272, 223 N.E.2d 793, 797
(1966) (the 1944 legislature in enacting subdivision 10 intended
to include "finders" within the operation of the statute and to
preclude any recovery in quantum meruit); Klein v. Smigel,
44 A.D.2d 248, 354 N.Y.S.2d 117, 120 (1974), aff'd, 36 N.Y.2d 809,
370 N.Y.S.2d 897, 331 N.E.2d 679 (1975) (the aim of the statute
is to protect businessmen from a claim for a finder's fee not
supported by written evidence). As the Fourth Circuit stated in
Hardy-Latham v. Wellons, 415 F.2d 674 (4th Cir. 1968),
construing this section of New York General Obligations law:
"[s]ince the design of the statute is to avoid the dangers
inherent in claims for commissions by finders or brokers on oral
testimony without a sufficient written memorandum, the New York
Court of Appeals has recently held that to allow recovery for the
reasonable value of the services rendered would undermine the
legislative purpose." Id. at 677 (citing Minichiello,
18 N.Y.2d 521, 277 N.Y.S.2d 268, 223 N.E.2d 793).
For these reasons, Plaintiffs' third cause of action, for
"Impairment of Credit" stemming from Defendants' attempts to
enforce the Default Judgment in the State Action, will be
dismissed without prejudice.
The Loan Contract
New York General Obligations Law § 5-701(a)(1) "encompass[es]
only those contracts which, by their terms, `have absolutely no
possibility in fact and law of full performance within one year.'
As long as the agreement may be `fairly and reasonably
interpreted' such that it may be performed within a year, the
Statute of Frauds will not act as a bar however unexpected,
unlikely, or even improbable that such performance will occur
during that time frame." Nakamura v. Fujii, 253 A.D.2d 387,
389, 677 N.Y.S.2d 113, 115 (1st Dep't 1998) (quoting D & N
Boening v. Kirsch Beverages, 63 N.Y.2d 449, 454, 483 N.Y.S.2d 164,
472 N.E.2d 992 (1984); Warren Chem. & Mfg. Co. v.
Holbrook, 118 N.Y. 586, 593, 23 N.E. 908 (1890)).
Defendants maintain that the Complaint alleges that the $80,000
loan was to be paid upon the expiration of one year from the date
of delivery of the money. Since the money was not fully delivered
until January 1994, yet the Loan Agreement was entered into in
1993, Defendants maintain that the term of the loan was in excess
of one year. Defendants further maintain that since the purpose
of the loan was "to invest in diamonds," Plaintiffs had a
continuing obligation to make the funding available, and that
Defendants had a continuing right to draw on the funds, even if
Defendants repaid any or all of the funds during the year.
While there is support for the proposition that a continuing
obligation to provide funds for a period longer than one year is
not terminable or performable within a year, see, e.g., Bank of
New York v. Sasson, 786 F. Supp. 349 (S.D.N.Y. 1992), the
allegations of the Complaint do not support such an
interpretation of the Loan Contract. Nothing in the Complaint
suggests that Defendants could not have repaid the loan within a
year from the date of the Loan Agreement. Nor does the fact that
the loan was for the purpose of investing in diamonds lead to the
conclusion that Plaintiffs had a continuing obligation to provide
the funds, even if Defendants repaid the loan. On a motion to
dismiss, in particular, it would be inappropriate to construe the
language of the Complaint in such a fashion.
Since under the allegations in the Complaint, the Loan
Agreement can fairly and reasonably be interpreted as being
capable of being performed within a year, § 5-701(a)(1) does not
act as a bar. Consequently, Plaintiffs' first and second causes
of action will not be dismissed.
For the reasons set forth above, the third cause of action in
the Complaint is dismissed without prejudice as barred by New
York General Obligations Law § 5-701(a)(10). The first two causes
of action in the Complaint stand.
It is so ordered.