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Fierro v. Gallucci

May 12, 2008

MICHAEL FIERRO AND CHRISTINE FIERRO, PLAINTIFFS,
v.
THOMAS GALLUCCI AND FLORENCE GALLUCCI, AND VILLA POINTE LLC, JAMESNICOTRA AND ANN MARIE NICOTRA DEFENDANTS.



The opinion of the court was delivered by: Joseph F. Bianco, District Judge

MEMORANDUM AND ORDER

Plaintiffs Michael and Christine Fierro (collectively, "plaintiffs") brought this action against Thomas and Florence Gallucci (hereinafter, the "Gallucci Defendants"), Villa Pointe LLC, and James and Ann Marie Nicotra (hereinafter, the "Nicotra Defendants") (collectively, "defendants"), in connection with the 2004 sale of plaintiffs' home in Rockville Centre, New York, to the Gallucci Defendants. Plaintiffs contend that the defendants committed fraud by making false and misleading statements to plaintiffs in order to induce plaintiffs to enter into a contract of sale for their home and to induce them into consenting to the Gallucci Defendants' subsequent assignment of the contract to Villa Pointe LLC. Plaintiffs assert that the Gallucci Defendants' subsequent demolition of the home (with the assistance of the Nicotra Defendants) and development of the property constitute, among other things, fraud, fraudulent inducement, and breach of contract. Defendants move to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. As set forth below, the motion to dismiss is granted in part and denied in part.

I. BACKGROUND

A. Facts

This case involves the plaintiffs' sale of their residence at 327 Lakeview Avenue in Rockville Centre, New York (hereinafter, the "Residence"), to the Gallucci Defendants. The following facts are taken from the Amended Complaint and are not findings of fact by the court. The Court assumes these facts to be true for the purpose of deciding this motion and construes them in the light most favorable to plaintiffs, the non-moving parties.

According to the Amended Complaint, plaintiffs were introduced to the Gallucci Defendants by James and Ann-Marie Nicotra, who reside immediately adjacent to the Residence. (Am. Compl. ¶ 8.) The Amended Complaint alleges that the Gallucci Defendants, the Nicotra Defendants, and an LLC created by the Gallucci Defendants - namely, Villa Pointe LLC - "were partners in a scheme to con the Plaintiffs into selling the Gallucci Defendants their Home, and to then tear it down and develop the property with new homes." (Id. ¶ 9.) Specifically, it is alleged that the Gallucci Defendants fraudulently concealed their intention to tear down the home and develop the property. (Id. ¶ 11.) For example, the Amended Complaint alleges the following misrepresentations took place regarding the sale of the home:

During such discussions [about the sale of the home], Defendants made fraudulent statements to Plaintiffs designed to convince Plaintiffs to sell their Home to the Defendants. Among other things, Plaintiffs and Gallucci Defendants discussed Gallucci Defendants' reasons for wanting to purchase the Home. Gallucci Defendants lied about their true intentions with the Home. Prior to entering into the contract of sale, Plaintiffs expressed to both the Gallucci Defendants and Nicotra Defendants their desire to find a family that would give their house a good "home". During these conversations, Defendants never disclosed their plans to tear down Plaintiffs' home, or to develop the property.

(Id. at ¶ 11.) The Amended Complaint further alleges that the defendants knew that plaintiffs had received offers to purchase the Residence that were higher than the Gallucci Defendants' offer, but accepted the Gallucci Defendants' offer because, among other things, they "gave the impression that they were going to be a good family to the Home." (Id. at ¶¶ 15-18.)

Moreover, the Amended Complaint alleges that, less than one week prior to the consummation of the contract of sale in August 2004, the Gallucci Defendants informed plaintiffs that they wished to have the right to purchase the home under the contract of sale transferred to Villa Pointe LLC. (Id. ¶ 19.) According to the Amended Complaint, prior to agreeing to this assignment of rights to the LLC, plaintiffs explicitly asked the Gallucci Defendants whether they intended to tear down the Residence and the Gallucci Defendants expressly denied any current intention to tear down the home. (Id. ¶¶ 23-24.) The Amended Complaint further alleges that, within one month after the closing on the Residence, the Gallucci Defendants had arranged for the property to be re-zoned for two homes and, shortly thereafter, had the Residence destroyed. (Id. ¶¶ 28-29.)

Plaintiffs allege that, pursuant to a partnership with the Nicotra Defendants, the Gallucci Defendants (through the Villa Pointe LLC) built two new residences in place of the Residence which sold for approximately $1,300,000 each. (Id. ¶¶ 30-31.) Plaintiffs allege, among other things, that the Gallucci Defendants and Nicotra Defendants made false and misleading statements prior to the signing of the contract of sale in order to fraudulently induce them to enter into the contract of sale for the purchase of the Residence. (Id. ¶¶ 35,45.) Moreover, plaintiffs allege that the "Gallucci Defendants made false and misleading statements to the Plaintiffs in order to induce Plaintiffs to allow Gallucci Defendants to assign any rights Gallucci Defendants had to purchase the home under the contract of sale to the LLC." (Id. ¶ 51.) Plaintiffs further assert that "[d]efendants knew, through conversations with Plaintiffs and through conversations with the Nicotra Defendants, that Plaintiffs had a strong sentimental attachment to the Home, and would not have sold the Home to the Gallucci Defendants had Plaintiffs known of Defendants' intentions to tear the Home down and put up `McMansions' in its place." (Id. ¶ 51.) In short, plaintiffs contend that "had the Plaintiff known about Defendants' plan to tear down their Home, and had it not been for Defendants' false and misleading statements to Plaintiffs, Plaintiffs would have never sold the Home to Gallucci Defendants, nor would they have agreed to the assignment for the contract of sale to the LLC or the waiver of the rights under the contract of sale." (Id. ¶ 32.)

B. Procedural History

Plaintiffs acting pro se brought this diversity action on September 25, 2006, alleging fraud, fraud in the inducement, and breach of contract claims. Dollinger, Gonski, & Grossman was retained, through partner Floyd G. Grossman, Esq., to represent the defendants in this action. (Dollinger Affirmation ¶ 14.) On January 31, 2007, plaintiffs filed an Amended Complaint. On March 2, 2007, defendants moved to dismiss the Amended Complaint. Plaintiffs filed a response on April 17, 2007 and defendants filed a reply on May 7, 2007.

In a letter filed July 17, 2007, Michael Fierro notified the Court that he recently remembered that he had contacted Mr. Dollinger two years prior to bringing this lawsuit about the subject matter of this lawsuit. On September 17, 2007, plaintiffs moved to disqualify defense counsel. The Court granted the motion for disqualification on December 4, 2007. Defendants then retained J. Edward Gathman Jr., Esq., of Gathman & Bennett, LLP, as counsel. Mr. Gathman filed a notice of appearance with the Court on January 3, 2008. Defendants filed a supplemental motion to dismiss on February 4, 2008. Plaintiffs filed a reply to defendants' supplemental motion on February 11, 2008. Oral argument was held on April 11, 2008.

II. STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept the factual allegations set forth in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. See Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006); Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005). The plaintiff must satisfy "a flexible `plausibility standard.'" Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007). "Once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). Therefore, the Court ordinarily does not require "heightened fact pleading of specifics, but only enough facts to state a claim for relief that is plausible on its face." Id.

However, claims concerning fraud are subject to heightened pleading standards pursuant to Fed. R. Civ. P. 9(b). Specifically, Federal Rule of Civil Procedure 9(b) requires the following:

In allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

Fed. R. Civ. P. 9(b). Thus, fraud allegations in a complaint must: "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Shields v. Citytrust Bankcorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994); accord Knoll v. Schectman, No. 06-1832-CV, 2008 WL 1868440, at *1 (2d Cir. Apr. 25, 2008); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). Conclusory allegations of fraud will be dismissed under Rule 9(b). See Shemtob v. Shearson, Hammill & Co., 448 F.2d 442, 444 (2d Cir. 1971). Moreover, "[w]here multiple defendants are asked to respond to allegations of fraud, the complaint should inform each defendant of the nature of his alleged participation in the fraud." DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987).

Finally, as the plaintiffs are appearing pro se, the Court shall "`construe [their complaint] broadly, and interpret [it] to raise the strongest arguments that [it] suggests.'" Weixel v. Bd. of Educ. of the City of N.Y., 287 F.3d 138, 145-46 (2d Cir. 2002) (quoting Cruz v. Gomez, 202 F.3d 593, 597 (2d Cir. 2000)).*fn1

III. DISCUSSION

A. New York Law

In exercising its diversity jurisdiction, the Court must "apply the substantive law of the state to which the forum state, New York, would have turned had the suit been filed in state court." Factors Etc., Inc. v. Pro Arts, Inc., 652 F.2d 278, 280 (2d Cir. 1981) (citations omitted). Because the plaintiffs were from New York at the time of the transaction negotiations, defendants are from New York, and the transaction at issue took place in New York, this Court properly applies New York law. See Clarkson Co. Ltd. v. Shaheen, 660 F.2d 506, 512 n.4 (2d Cir. 1981).

A claim under breach of contract is distinct from one under fraudulent inducement. "[A]s a general matter, a fraud claim may not be used as a means of restating what is, in substance, a claim for breach of contract." Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006) (citations omitted). Thus, "general allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support [a fraud] claim." Id. (quoting N.Y. Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 318 (N.Y. 1995)). The law in New York is clear that "a plaintiff may not circumvent the Statute of Frauds . . . by simply recasting his claim for breach of contract as an action for fraud." Lehman v. Dow Jones & Co., 783 F.2d 285, 294 (2d Cir. 1986) (internal quotation marks omitted).

However, New York specifically recognizes causes of action for fraud in the inducement when the misrepresentation is collateral to the contract it induced. See WIT Holding Corp. v. Klein, 282 A.D.2d 527, 528 (N.Y. App. Div. 2001) ("[A] misrepresentation of material fact, which is collateral to the contract and serves as an inducement for the contract, is sufficient to sustain a cause of action alleging fraud."). New York distinguishes between a promissory statement of what will be done in the future that gives rise only to a breach of contract cause of action and a misrepresentation of a present fact that gives rise to a separate cause of action for fraudulent inducement. See Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 184 (2d Cir. 2007) (citing Stewart v. Jackson & Nash, 976 F.2d 86, 88-89 (2d Cir. 1992)).

As set forth below, the Court analyzes separately the breach of contract claim and the claims for fraudulent inducement under New York law and, as discussed infra, finds that the breach of contract claim and the fraud claims against the Nicotra Defendants do not survive a motion to dismiss, but the other claims, including the fraudulent inducement claims against the Gallucci Defendants and Villa Pointe LLC, are sufficiently alleged to withstand defendants' motion to dismiss.

1. Breach of Contract Claim

Plaintiff alleges that the Gallucci Defendants breached their contract for the sale of the Residence. In particular, it is alleged that the Gallucci Defendants breached the contract by failing to include a material fact in the contract of sale - namely, their alleged plan to tear down the Home and develop the property.*fn2 For the ...


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