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Braddock v. Braddock

January 6, 2009


Plaintiffs appeal from an order of the Supreme Court, New York County (Marylin G. Diamond, J.), entered October, 17, 2007, which granted defendants' motion to dismiss the complaint for failure to state a cause of action.

The opinion of the court was delivered by: Saxe, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Jonathan Lippman, P.J., David B. Saxe, David Friedman, John W. Sweeny, Jr. and Rolando T. Acosta, JJ.

Index 600430/07

Plaintiff John Braddock alleges that he was shockingly used and abused after placing his trust in his cousin, defendant David Braddock, who lured John to sacrifice his lucrative career and the opportunities available to him and to uproot his home, in order to provide, at a huge discount, the critical service of locating a major investor to fund an oil and gas exploration company that David was attempting to form. John asserts that his cousin David induced him to make these enormous sacrifices by falsely representing that they would essentially jointly own and run the company, Broad Oak Energy (Broad Oak). He asserts that after he resigned from his full-time position in a New York investment firm, moved with his wife to Dallas, and found the investor for the company - charging a fraction of his usual fee for his services as an investment banker - he was slowly forced out of the company, first being driven to accept a substantially reduced position with lesser salary, benefits and terms, and later being subjected to humiliating scorn and abusive conduct. Especially in light of the familial relationship, these allegations state causes of action for fraud, breach of fiduciary duty, and promissory estoppel.

On a motion to dismiss under CPLR 3211, the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Properly applied to the record before us, this standard requires that the foregoing causes of action be reinstated. To plead a claim for common-law fraudulent inducement, a plaintiff must assert the misrepresentation of a material fact, which was known by the defendant to be false and intended to be relied on when made, and that there was justifiable reliance and resulting injury (see Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330, 348 [1999]). The complaint here sufficiently sets forth these elements.

It is specifically alleged that David orally misrepresented to John that, once John raised the capital needed from an investor, he would be appointed to serve as the company's CFO and land manager, and he would be issued "founder's shares" giving him equity interests in the company equal to half the allotment that David would receive as company chairman and CEO. In alleged reliance on these promises, John not only accepted a drastically reduced investment banking fee, but he also was thereafter persuaded by David to pay most of the senior executives' required capital investment from the commissions he would be entitled to receive on the closing of the investment. What is more, in mid-March of 2006, David used the same assurances to convince John to agree to use some of his investment banking fees to fund the payments that Broad Oak was obligated to pay at closing to another consultant, J. Barry Brokaw.

On March 31, 2006, immediately after the investor, Warburg Pincus, agreed to provide $150 million in start-up capital to Broad Oak, David cut off all contact with John. Eventually, when pressed, in conversations and then in an e-mail dated April 17, 2006, David informed John that he would not be made CFO or land manager, although he offered that John could still be employed in the position of landman, with the understanding that eventually he would become the company's land manager, at which point he would become entitled to receive the originally promised founders' shares. David asserted that these changes were at the insistence of Warburg Pincus, although it is important to recognize that the record before us does not definitively establish this assertion to be an indisputable fact. Since, by the time David surprised John with these reduced terms, John had left his home and employment, was unemployed and had discontinued all other pending investment banking transactions to work for Broad Oak, he was in no position to do anything but cooperate in an attempt to salvage something from his former expectations.

In his responsive April 17, 2006 e-mail, John acknowledged the validity of David's message earlier that day suggesting, inter alia, that John's "substantial financial management and investment banking skill do not transfer to the high level of Oil & Gas Accounting and land management skills that are required in a very small start-up company," and indicated his willingness to forgo the CFO position and accept for the moment a lesser position at a reduced salary and as an "employee at-will, subject to the same objective performance criteria as any other employee."

On May 16, 2006, when the closing with Warburg Pincus occurred, John signed a termination and fee agreement, which documented his previous agreements to satisfy the company's payment obligations to Brokaw out of his reduced investment banking fees.On that date, John was also presented with an employment agreement, and after two weeks of discussions with his cousin in which he attempted to reassure himself that he could count on David's new promises, John signed the employment agreement on May 30, 2006, accepting the position of landman as an at-will employee.

John states that after he began his employment as landman for Broad Oak, he began to experience mistreatment. He was refused access to company meetings and was intentionally embarrassed, mocked and threatened. Not long after he began in his new position, John was diagnosed with papillary carcinoma of the thyroid in early June, and on June 26, 2006, his thyroid was removed. While John asserts that initially this had no impact on his job performance, he also asserts that harassment about his condition and its treatment became an integral part of David's campaign to drive him from the company, using embarrassment and cruelty. When the stress began to take a toll on his health, John was granted a conditional medical leave of absence in October 2006. However, at the end of November 2006, Broad Oak terminated his employment on the ground that he had failed to provide the required medical information from his physician.

The foregoing allegations satisfy the particularity requirement for a fraud claim (CPLR 3016[b]).

As to the element of justifiable reliance, it is not amenable to determination as a matter of law on this record and in this context. First, it must be emphasized that the issue is generally one of fact (see Talansky v Schulman, 2 AD3d 355, 361 [2003]).

"Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 20 [2005]). Moreover, since David and John are cousins, John's reliance on David's good faith may be found to be reasonable even where it might not be reasonable in the context of an arms' length transaction with a stranger. Family members stand in a fiduciary relationship toward one another in a co-owned business venture (see Venizelos v Oceania Mar. Agency, 268 AD2d 291 [2000]; see also Birnbaum v Birnbaum, 73 NY2d 461 [1989]). A fiduciary relationship is "[f]ounded upon trust or confidence reposed by one person in the integrity and fidelity of another. It is said that the relationship exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed. The rule embraces both technical fiduciary relations and those informal relations which exist whenever one man trusts in, and relies upon, another" (Wende C. v United Methodist Church, N.Y. W. Area, 6 AD3d 1047, 1055 [2004], affd 4 NY3d 293 [2005], cert denied 546 US 818 [2005]).

Under the circumstances alleged here, John had reason to believe that David would treat him, in their interaction, with good faith and integrity.

In assessing whether John's actions may be found to be reasonable, the question is not whether he ultimately understood that his cousin had lied to him, but whether he could have reasonably understood that his cousin was lying to him at the time when he first took actions in response to David's assurances. In other words, initially, did he reasonably rely on David's representations when he left his job, moved to Dallas, and accepted a drastically reduced investment banking fee, and thereafter, did he reasonably rely on David's further assurances when he agreed to pay Brokaw's fees out of his own commissions? These questions require fact-finding and therefore cannot be resolved in the context of a CPLR 3211 motion.

The dissent, relying on the classic definition of fraud as the misrepresentation of a present fact, reasons that John's claim of fraud was properly dismissed because it amounts to a promise to confer a benefit in the future, which is only actionable when the defendant had no intention of fulfilling the promise at the time it was given (see Tribune Print. Co. v 263 Ninth Ave. Realty, 57 NY2d 1038 [1982]; Lanzi v Brooks, 54 AD2d 1057, 1058 [1976], affd 43 NY2d 778 [1977]). The validity of this rule is not in dispute. But the issue here, whether David ever intended that his promises would be fulfilled, is one of fact that should not be determined on a CPLR 3211 motion. While an inference that the promisor never intended to fulfill his promise should not be based solely upon the assertion that the promise was not, in fact, fulfilled (see Brown v Lockwood, 76 AD2d 721, 732-733 [1980]; Lanzi v Brooks, 54 AD2d at 1058), we must recognize that a present intention not to fulfill a promise is generally inferred from surrounding circumstances, since people do not ordinarily acknowledge that they are lying.

In Lanzi v Brooks, the complaint "neither allege[d] that defendant falsely stated his future intentions at the time he purportedly made the ... representation nor contain[ed] any factual assertions from which this conclusion [could] be drawn" (54 AD2d at 1058). Here, in contrast, the inference that David knew all along that he would not fulfill his promises to John may be drawn from the full range of the troubling series of events visited on John. Those events, viewed together, permit the conclusion that David conducted himself in bad faith, planning all along to take advantage of his cousin's trust in order to obtain from him, at a fraction of the usual cost, the crucial service of finding the necessary investor to provide the start-up capital, and that he planned that once the necessary investor was on board, he would remove John by degrees until he was excised from the company completely. David's assurances as to the structure of the new company and the roles each of them would play within that structure ...

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