The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge
MEMORANDUM-DECISION AND ORDER
Presently before the Court is a motion (Dkt. No. 15) by defendants Konstanin Leviev ("K. Leviev"), Leviev Development, LLC, and Leviev Group, LLC to dismiss the complaint against them. Defendants move pursuant to Rule 9(a) and (b) and Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. For reasons set forth herein, the motion is granted with leave to replead certain causes of action.
The allegations in plaintiffs' complaint are summarized as follows. Sleepy Hollow Lake ("Sleepy Hollow") is a 2200 acre subdivision community in Greene County, managed by the Association of Property Owners of Sleepy Hollow Lake, Inc. ("APO"). By early 2002, as a result of tax foreclosures, Greene County held title to over 400 parcels within Sleepy Hollow.
On July 19, 2002, Greene County and APO entered into a Development Rights Agreement ("Greene County/APO-DRA"), which gave APO the exclusive option to purchase, develop, market and sell the county-owned properties in Sleepy Hollow. The agreement acknowledged that APO had separately contracted with Cornerstone Realty Group, Inc. ("Cornerstone Inc.") to develop and market certain of those properties. The Greene County/APO-DRA provided that "the Agreement shall terminate automatically and immediately upon Cornerstone's failure to build 20 homes to completion by December 31, 2003."
On the same date, APO and Cornerstone Inc. entered into a separate Development Rights Agreement ("APO/Cornerstone-DRA"), which gave Cornerstone Inc. the exclusive option to purchase, develop, market, and sell certain Sleepy Hollow properties. Cornerstone Inc. agreed to construct at least three model homes at locations to be agreed upon between the parties. The agreement further provided that it would be extended for an additional two years if, within 18 months, construction of at least 20 single family homes was complete.
In December 2002, Cornerstone Inc. began negotiating an agreement with defendant Fred Baum of Four Musketeer, LLC, ("Musketeer") whereby Cornerstone Inc. would sell, and Musketeer would purchase and develop, certain lots identified in the APO/Cornerstone-DRA. The complaint alleges that Baum fraudulently and deceitfully represented that Musketeer had the capacity and financial resources to develop the Sleepy Hollow subdivision in accordance with the APO/Cornerstone-DRA. No purchase agreement was executed and after months of negotiations, Baum proposed that Cornerstone Inc. work with defendants Konstantin Leviev ("K. Leviev") and "Leviev Development."*fn1
On May 30, 2003, Cornerstone Inc. and Leviev Development, LLC ("Leviev Dev. LLC") entered into a Purchase Agreement ("Cornerstone/Leviev Purchase Agreement"), providing that Cornerstone Inc. would sell, and Leviev Dev. LLC would purchase and develop, certain lots identified in the APO/Cornerstone-DRA.*fn2 The Cornerstone/Leviev Purchase Agreement provides: "Leviev shall acquire all lots for construction and use good faith and diligent efforts to complete 20 single-family residences, and convey same to third-party purchasers on or before December 31, 2003." Cornerstone Inc. alleges that it entered into the Cornerstone/Leviev Purchase Agreement based on Baum's and Leviev Development's fraudulent representations that K. Leviev and Leviev Development were capable of building and intended to build 20 homes by December 31, 2003, as required by the APO/Cornerstone-DRA.
The complaint further alleges that Leviev Development continually failed to make good faith and diligent efforts to construct even one home pursuant to the Cornerstone/Leviev Purchase Agreement; that K. Leviev and Leviev Development refused to meet with plaintiff Roy A. Jacobs; and that Baum told Jacobs that Baum, as Project Manager for Leviev Development, would be responsible for the project, because K. Leviev was "too busy to be personally involved."
Attached to the complaint are letters from Cornerstone Inc. to Baum and Leviev Development, dated April 26, 2004 and July 19, 2004, and a letter from APO to Baum at Leviev Dev. LLC dated April 16, 2004, concerning the project delays.
On July 21, 2004, Greene County passed Resolution No. 291-04. The resolution referred to the Greene County/APO-DRA and provided that Greene County would enter into a new agreement with APO on the condition that, inter alia, the contract will expressly state that there is no intended third party beneficiary of the contract and that Greene County is dealing only with APO and not with any brokers, realtors, or developers. The complaint claims that Greene County passed this resolution as a result of Leviev Development's breach of the Cornerstone/Leviev Purchase Agreement.
On November 17, 2004, Greene County passed Resolution No. 440-04 rescinding Resolution No. 291-04, and stating in pertinent part:
[T]he County legislature passed Resolution No. 291-04 which said resolution called for the sale of County-owned properties in Sleepy Hollow Lake Development under certain terms and conditions to the Homeowner's Association at Sleepy Hollow and the County no longer wishes to offer to contract with the Homeowner's Association under the terms and conditions set forth in that Resolution.
The complaint claims that Leviev Development "purposely and knowingly in bad faith delayed the building of twenty (20) homes in anticipation of the automatic termination" of the APO/Cornerstone-DRA and that when that contract terminated, Leviev Development "swiftly and deceitfully contracted with Greene County and/or the APO to unilaterally develop the Sleepy Hollow Lake subdivision."
In January 2005, Cornerstone Realty Group LLC ("Cornerstone LLC") commenced a special proceeding in state court under N.Y.C.P.L.R. Article 78 against the County and APO seeking, inter alia, a ruling that "the resolution of the Greene County legislature be deemed void and of no force and effect" and further requesting that the July 19, 2002 agreement between the County and APO be declared "valid and binding on the parties thereto." New York State Supreme Court, Greene County, converted a portion of the petition into an action for a declaratory judgment and declared "that the contract between the County of Greene and the APO is valid and binding as written, and further, that it terminated as of December 31, 2003."
Cornerstone Realty Group, LLC v. County of Greene, 2005 WL 6075236, *5 (N.Y.Sup. June 6, 2005). The Appellate Division affirmed. 814 N.Y.S.2d 343 (3d Dep't 2006).
Count I of the complaint alleges breach of contract. Plaintiffs claim that Leviev Development breached the Cornerstone/Leviev Purchase Agreement with Cornerstone Inc. by failing to complete 20 homes by December 31, 2003; failing to complete three models within 120 days; failing to submit plans and specifications for at least six model homes; and failing to comply with various marketing and other contractual requirements. Plaintiffs allege that, as a result of Leviev Development's numerous bad faith breaches of the Cornerstone/Leviev Purchase Agreement, Cornerstone Inc.'s third party rights under the Greene County/APO-DRA automatically terminated, and Cornerstone Inc. forfeited its interest in developing Sleepy Hollow pursuant to the APO/Cornerstone-DRA.
Count II sounds in fraud. Count II claims that Baum "knowingly defrauded plaintiffs by negotiating on behalf of Musketeer, a fictional limited liability company that has never existed." It claims that Baum fraudulently and deceitfully represented to plaintiffs that Musketeer "had the capacity and financial resources to develop the Sleepy Hollow Lake subdivision in accordance with the provisions of" the APO/Cornerstone-DRA, and that plaintiffs reasonably and detrimentally relied on Baum's fraudulent representations by not pursuing other developers to develop Sleepy Hollow in accordance with the APO/Cornerstone-DRA.
Count II further claims that Cornerstone Inc. entered into the Cornerstone/Leviev Purchase Agreement with Leviev Dev. LLC based on Baum's and Leviev Development's fraudulent and deceitful representations, including the following representations: that K. Leviev and Leviev Development were "experienced developers"; that Leviev Development "was capable of" building 20 homes by December 31, 2003; and that Leviev Development "intended to, inter alia, build twenty (20) homes by December 31, 2003." Plaintiffs aver they detrimentally relied on these fraudulent representations by not pursuing other developers to develop Sleepy Hollow. Plaintiffs claim Leviev Development "purposely and knowingly in bad faith delayed the building of twenty (20) homes in anticipation of Cornerstone's Development Rights Agreement with the APO terminating automatically[,]" whereupon Leviev Development "swiftly and deceitfully contracted with the County and/or the APO to unilaterally develop the Sleepy Hollow Lake subdivision."
In Count III, for breach of implied covenant of good faith and fair dealing, plaintiffs claim that Leviev Development acknowledged the APO/Cornerstone-DRA was conditioned upon the construction and conveyance of 20 homes by December 31, 2003; that Cornerstone Inc. put Baum and Leviev Development on notice of the damages it would suffer if Leviev Development did not comply with the terms of the Cornerstone/Leviev Purchase Agreement; and that Leviev Development "continually failed to make a good faith effort to construct even one home pursuant to the Purchase Agreement." As in Count II, plaintiffs claim Leviev Development "purposely and knowingly in bad faith" delayed building 20 homes, in anticipation of the automatic termination of the APO/Cornerstone-DRA, whereupon Leviev Development "swiftly and deceitfully" contracted to develop Sleepy Hollow.
In Count IV, for tortious interference, plaintiffs allege that Leviev Development tortiously interfered with Cornerstone Inc.'s business and contractual relations with APO and Greene County "by virtue of its utter lack of good faith and complete breach of the May 30, 2003 [Cornerstone/Leviev] Purchase Agreement" and that as a result, Jacobs and Cornerstone Inc. have lost their credibility with both the County Legislature and members of APO. As in Counts II and III, plaintiffs allege Leviev Development "purposely and knowingly in bad faith" delayed building 20 homes in anticipation of the automatic termination of the APO/Cornerstone-DRA, whereupon Leviev Development "swiftly and deceitfully" contracted to develop Sleepy Hollow.
Count V sounds in prima facie tort. Plaintiffs claim the defendants' actions "were committed willfully, wantonly and maliciously, without reasonable or probable cause and collectively set forth a legal pattern and cause of action sustaining prima facie tort in the State of New York." Plaintiffs further allege that, "in committing and perpetrating the above-described acts, the sole motivation of the defendants was "disinterested malevolence,'" and that defendants acted without legal or social justification. Plaintiffs aver that, "[b]y reason of the foregoing acts perpetrated by defendants, plaintiffs have sustained special damages which include, but are not limited to, the following: (a) the loss of the option to develop Sleepy Hollow Lake in accordance with their Development Rights Agreement with the APO and (b) the loss of reputation and continuing business interests with the APO and Greene County."
In Count VI, plaintiffs allege injury to their business reputation. They claim the injury resulted from of defendants' lack of good faith and breach of the Cornerstone/Leviev Purchase Agreement.
Count VII alleges a "conspiracy to divert and misappropriate." Plaintiffs allege defendants Baum, K. Leviev, and Leviev Development conspired to divert and misappropriate Cornerstone Inc.'s interest in the Sleepy Hollow Lake development. Specifically, they allegedly conspired intentionally to (a) misappropriate and convert plaintiffs' interests in Sleepy Hollow Lake subdivision to their own benefit; (b) defraud and deceive plaintiffs; (c) interfere with actual and/or prospective legal and equitable rights of plaintiffs; and (d) misappropriate actual and/or prospective contractual and property interests and rights of the plaintiffs. Plaintiffs allege that defendants "specifically agreed to commit the aforesaid wrongful acts of conspiracy to divert and misappropriate"; that they specifically intended and agreed to participate in a common scheme or plan to divert and misappropriate the interests of Cornerstone Inc.; that the aforesaid wrongful acts of misappropriation were actually committed; and that defendants' acts were intentional, willful, wanton and malicious.
Count VIII is for economic duress. This count alleges defendants subjected plaintiffs to economic duress designed to extract and extort an unfair and illegal economic advantage from plaintiffs. Plaintiffs state defendants acted willfully, wantonly and maliciously, without reasonable or probable cause.
In Count IX, breach of fiduciary duties, plaintiffs claim that a relationship of trust and confidence existed between plaintiffs and defendants Baum and K. Leviev. Plaintiffs aver that Jacobs, Baum, and K. Leviev "formed a joint venture to develop, invest in and share profits and expenses concerning Sleepy Hollow Lake in accordance with [the APO/Cornerstone-DRA]"; that "a fiduciary relationship of trust, mutual cooperation and financial and professional interdependence" existed among plaintiffs, Baum, and K. Leviev; that Baum and K. Leviev became involved in the Sleepy Hollow Lake development "solely by virtue of their affiliation and contractual relationship with plaintiffs"; and that "by virtue of this joint venture and the specialized knowledge gained through their relationship with plaintiffs, Baum and K. Leviev owed and continue to owe to plaintiffs a fiduciary duty to protect their financial ...