August 26, 2013
Jane B. Holzer and CHARLES R. HOLZER, Plaintiffs,
Katherine Price Mondadori and ENRICO TODISCO GRANDE, Defendants.
Law Offices of Roger D. Olson, for plaintiffs.
Pavia & Harcourt LLP, for Mondadori.
Shirley Werner Kornreich, J.
Motion Sequence Numbers 002 and 003 are consolidated for disposition.
Defendant Katherine Price Mondadori moves to: (1) vacate the attachment entered by this court on June 26, 2012; and (2) dismiss the Complaint pursuant to CPLR 3211. Defendant's motions are granted for the reasons that follow.
Procedural History & Factual Background
This case arises from an alleged fraudulent scheme whereby Mondadori allegedly duped plaintiffs, Jane B. Holzer (Jane) and Charles R. Holzer (Charles), into buying luxury apartments in a building in Dubai that did not and does not exist. As this decision involves a motion to dismiss, the facts recited are taken from the Complaint.
In 2007, Mondadori and defendant Enrico Todisco Grande (Todisco)  solicited plaintiffs' investment in a luxury, high-rise condominium in Dubai known as "KPM Tower" (the Building). Complaint ¶¶ 7-8. Mondadori represented that the Building bore her initials, that "she was the creative force behind the design concept, " and that she "had personally developed the details and appointments of the residential units." ¶¶ 10-12. Defendants gave plaintiffs a 31-page marketing brochure (the Brochure) that depicts a 30-story tower and images of its luxury amenities, such as a rooftop spa and health club. ¶ 13. Mondadori's picture is featured on the Brochure's cover, which contains flowery language about her "trained eye", "international experiences", and "unique vision". ¶ 14. The Brochure also states that Mondadori "plans to occupy a penthouse in [the Building]." Id. At various meetings with plaintiffs, Mondadori and Todisco each represented that they owned numerous units in the Building that were available for purchase by investors and which could quickly be resold for a substantial profit. ¶ 16. Defendants told plaintiffs that they were presenting them with a unique, "insider" opportunity to purchase these units due to their personal friendship. Id.
Defendants offered to sell plaintiffs two units in the Building for $1 million per unit. ¶ 17. They allegedly gave plaintiffs explicit oral assurances that plaintiffs "could request — and receive — the return of the purchase money at any time." ¶ 19. Further, Todisco orally represented that he would "maintain plaintiffs' purchase monies as discreet funds pending the actual conveyance of the defendants' ownership interests to the plaintiffs." ¶ 20.
Plaintiffs purchased two units. On December 22, 2007, Charles wired $1 million to an account in Dubai and received a confirmation that the funds were "for KPM 2 and 3." ¶ 21. On May 7, 2008, Jane wired a second $1 million payment to Leonardo Commercial Brokers, LLC (Leonardo), a company supposedly owned by Todisco. ¶ 22. Immediately thereafter, defendants ceased communicating with plaintiffs. ¶ 23. Defendants refused to answer plaintiffs' phone calls and allegedly deactivated their email accounts. Id. Title to the units has not been transferred to plaintiffs and their $2 million has not been refunded. ¶¶ 24-25.
Plaintiffs commenced this action on March 30, 2012. Four causes of action are alleged: (1) breach of contract; (2) fraud/fraudulent inducement; (3) breach of fiduciary duty; and (4) unjust enrichment. On June 26, 2012, plaintiffs filed and the court granted a motion for an attachment of up to $2 million of Mondadori's assets.  See NYSCEF Doc No. 16. However, this action quickly came to a halt when, on July 5, 2012, Mondadori removed this action to the United States District Court for the Southern District of New York. The primary basis for removal  was the supposed applicability of the Federal Arbitration Act to the arbitration clauses in the written contracts (not mentioned in the Complaint, but discussed below). In an order dated March 14, 2013, Judge Buchwald remanded the case to this court because, inter alia, the individual defendants were not parties to the subject contracts and, therefore, not bound by the arbitration clauses. See NYSCEF Doc. No. 22.
On April 16, 2013, Mondadori filed the instant motions to dismiss the Complaint and to vacate the attachment. Mondadori submitted the written contracts (the Purchase Agreements) that govern the sale of the two subject units in the Building. The Purchase Agreements, which are virtually identical, are contracts between plaintiffs and Leonardo, not the individual defendants.  Charles signed his Purchase Agreement in May 2007 (approximately seven months before he wired his $1 million). Jane did not sign a Purchase Agreement before wiring her $1 million. Instead, she signed her Purchase Agreement in October 2008, approximately five months after she wired her funds and after she tracked down Mondadori in Italy.
The Purchase Agreements provide that "Within 30 days of this agreement the purchaser will chose [sic] among the units offered by the vendor from the highest to the lowest floor." Jane signed the Purchase Agreement even though she knew that Charles was never given the opportunity to select a unit in the year-and-a-half since he signed his Purchase Agreement.
The Purchase Agreements contain a merger clause which sets forth that they:
constitute the entire agreement between the parties and there are no other representations, warranties, conditions or collateral agreements, express or implied, written or oral, whether made by the Vendor or the Master Developer or any other person including, without limitation, arising out of any marketing material including sales brochures, models, representative view sets, show room displays, photographs, videos, illustrations, renderings, revenue projections or pro-forma statements by the vendor.
The Purchase Agreements further provide that they are governed by the laws of Dubai and the United Arab Emirates and that all disputes arising from the Purchase Agreements shall be arbitrated in Dubai.
In addition to signing a Purchase Agreement, Charles and Todisco also entered into a contract titled "Mandate for Purchase /Sale of Real Estate Property" (the Mandate), dated December 12, 2007 (ten days before Charles wired his $1 million).  The Mandate was effectively a power of attorney, whereby Todisco was given authority to effectuate the sale of Charles' unit in the Building. The Mandate provides that it is "the entire understating between the parties and supersedes all prior writings, negotiations or understandings" and that modifications of the Mandate must be in writing.
On a motion to dismiss, the court must accept as true the facts alleged in the complaint as well as all reasonable inferences that may be gleaned from those facts. Amaro v Gani Realty Corp., 60 A.D.3d 491 (1st Dept 2009); Skillgames, L.L.C. v Brody, 1 A.D.3d 247, 250 (1st Dept 2003), citing McGill v Parker, 179 A.D.2d 98, 105 (1992); see also Cron v Harago Fabrics, 91 N.Y.2d 362, 366 (1998). The court is not permitted to assess the merits of the complaint or any of its factual allegations, but may only determine if, assuming the truth of the facts alleged, the complaint states the elements of a legally cognizable cause of action. Skillgames, id., citing Guggenheimer v Ginzburg, 43 N.Y.2d 268, 275 (1977). Deficiencies in the complaint may be remedied by affidavits submitted by the plaintiff. Amaro, 60 N.Y.3d at 491. "However, factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration." Skillgames, 1 A.D.3d at 250, citing Caniglia v Chicago Tribune-New York News Syndicate, 204 A.D.2d 233 (1st Dept 1994). Further, where the defendant seeks to dismiss the complaint based upon documentary evidence, the motion will succeed if "the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v Mutual Life Ins. Co. of NY, 98 N.Y.2d 314, 326 (2002) (citation omitted); Leon v Martinez, 84 N.Y.2d 83, 88 (1994).
Breach of Contract
The Complaint alleges breach of an oral agreement between the parties with respect to the sale of two units in the Building. Specifically, plaintiffs claim they paid defendants $2 million to purchase two units and never received title to those units because the Building is really a hole in the ground. Thus, plaintiffs want the return of their money. However, the terms of the written contracts produced by defendants,  which expressly govern the sale of the units, establish that plaintiffs cannot maintain a claim against defendants for breach of contract because: (1) defendants are not parties to the Purchase Agreements; (2) the alleged oral agreements are disclaimed by the Purchase Agreements and the Mandate; (3) the alleged oral agreements are barred by the statute of frauds; and (4) the Purchase Agreements have a mandatory arbitration clause.
First, the Purchase Agreements are contracts between plaintiffs and Leonardo. Defendants are not parties to the Purchase Agreements and cannot recover thereunder. See State ex rel. Grupp v DHL (USA), Inc., 19 N.Y.3d 278, 285-6 (2012) (plaintiffs who are not parties to agreement, lack privity to enforce contract). Even if defendants own and control Leonardo, they cannot personally be sued under a contract that they did not enter into in their individual capacities. See Morris v State Dept. Of Taxation and Fin., 82 N.Y.2d 135, 140 (1993) (It is accepted principle that corporation exists independently of its owners as separate legal entity and owners normally not liable for its debts).
Next, the express terms of the Purchase Agreements (the first of which was executed contemporaneously with the representations that constitute the purported oral agreement) preclude plaintiffs' reliance on an oral contract because they state that they "constitute the entire agreement between the parties and there are no other representations, warranties, conditions or collateral agreements, express or implied, written or oral " (emphasis added). Similarly, the Mandate precludes oral modifications. Plaintiffs cannot sign these contracts and later claim that there were other "collateral agreements."
In addition, plaintiffs cannot allege a breach of an oral agreement for the sale of real property as against Mondadori and Todisco, since all parties agree that they do not own the property. In any event, such a claim is barred by the statute of frauds. See Pollak v Moore, 85 A.D.3d 578, 579 (1st Dept 2011), citing General Obligations Law § 5-703(2). Furthermore, plaintiffs' payment of the sale price does not save their claim because the part performance exception to the statute of frauds only entitles a plaintiff to specific performance — i.e. the transfer of the property. See Sparks Assocs., LLC v N. Hills Holding Co. II, LLC, 94 A.D.3d 864, 865 (2d Dept 2012). Here, specific performance is impossible because the units (and the Building) do not exist and, to the extent any rights to such units exist, they are owned by Leonardo, not defendants.
Finally, plaintiffs cannot use this action as a means to avoid the arbitration they consented to in the Purchase Agreements. See Stark v Molod Spitz DeSantos & Stark, P.C., 9 N.Y.3d 59, 66 (2007) (New York has strong public policy favoring arbitration); Collins & Aikman Prods. Co. v Building Sys., Inc., 58 F.3d 16, 19 (2d Cir 1995) (federal policy strongly favors arbitration). If plaintiffs want their money back, they must commence an arbitration proceeding against Leonardo in Dubai. For these reasons, plaintiffs' breach of contract claim is dismissed.
Fraud/ Fraudulent Inducement
To properly plead a claim of fraud, the complaint must contain allegations of a material misrepresentation, scienter, reliance, and injury. Small v Lorillard Tobacco Co., 94 N.Y.2d 43, 57 (1999); Perrotti v Becker, Glynn, Melamed & Muffly LLP, 82 A.D.3d 495, 498 (1st Dept 2011) (to maintain claim of fraudulent inducement, complaint must allege "a false representation, made for the purpose of inducing another to act on it, and that the party to whom the representation was made justifiably relied on it and was damaged."), citing Lama Holding Co. v Smith Barney Inc., 88 N.Y.2d 413 (1996). Additionally, pursuant to CPLR 3016(b), the circumstances constituting the fraud must be stated in detail. Id.
The Complaint and documentary evidence indicate that defendants lied about myriad facts, such as their real involvement in the Building (which does not exist). However, the fraud claim is dismissed for failure to plead reasonable reliance.
This court assumes, as it must on a motion to dismiss, that plaintiffs relied on defendants' alleged false statements. However, it is beyond cavil that one cannot sign a writing explicitly disclaiming reliance on representations not contained in a contract and later aver that the court should disregard such a disclaimer. Plaintiffs, nevertheless, are correct that general disclaimers do not sanitize specific instances of fraud. See Silver Oak Capital L.L.C. v UBS AG, 82 A.D.3d 666, 667 (1st Dept 2011). However, "[a] claim for fraud is barred by the existence of a specific disclaimer and failure to exercise reasonable diligence." Steinhardt Group Inc. v Citicorp, 272 A.D.2d 255, 256 (1st Dept 2000), accord Danann Realty Corp. v Harris, 5 N.Y.2d 317 (1959).
Here, the subject disclaimer specifically refers to the source of the subject misrepresentations (the "marketing material including sales brochures, models, representative view sets, show room displays, photographs, videos, illustrations, renderings, [and] revenue projections"). Ergo, plaintiffs are precluded from relying on those representations. Moreover, plaintiffs' reliance on defendants' representations was unreasonable because plaintiffs are "relatively sophisticated investors who should have understood the risks of investing in a real estate venture without conducting a due diligence' investigation or consulting their lawyers and accountants." Stuart Silver Assocs., Inc. v Baco Dev. Corp., 245 A.D.2d 96, 99 (1st Dept 1997).
Instead, in their haste to latch onto a "riskless", overseas real estate investment with the supposed potential for imminent lucrative returns, plaintiffs threw caution to the wind and wired $2 million before conducting the most basic of inquires that would have revealed that the Building was just a hole in the ground. If that were not enough, even after it appeared that Charles was conned because he never got a unit months after sending his $1 million, Jane disregarded this obvious red flag and wired another $1 million without insisting on a contract. Consequently, plaintiffs are precluded from asserting reasonable reliance because where, as here, "a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant's misrepresentations." Stuart Silver, 245 A.D.2d at 99; Rosenblum v Glogoff, 96 A.D.3d 514, 515 (1st Dept 2012) (same). 
Breach of Fiduciary Duty
A fiduciary relationship "exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation." Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions. Generally, where parties have entered into a contract, courts look to that agreement "to discover the nexus of theparties' relationship and the particular contractual expression establishing the parties' interdependency." "If the parties do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them." However, it is fundamental that fiduciary "liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation." EBC I, Inc. v Goldman, Sachs & Co., 5 N.Y.3d 11, 19-20 (2005) (internal citations and quotation marks omitted). 
Plaintiffs allege the existence of fiduciary relationships based on: (1) Todisco's role as escrow agent; and (2) the parties' friendship. As discussed above, plaintiffs' assertion of an escrow agreement with Todisco is expressly precluded by the terms of the Purchase Agreements and the Mandate. However, a fiduciary relationship might exist between the parties by virtue of their friendship. See Apple Records, Inc. v Capitol Records, Inc., 137 A.D.2d 50, 57 (1st Dept 1988) ("a fiduciary relationship might be found to exist, in appropriate circumstances, between close friends or even where confidence is based upon prior business dealings").
To establish the existence of a fiduciary relationship based on a friendship, the plaintiff must make a "showing of special circumstances' that could have transformed the parties' business relationship to a fiduciary one, such as control by one party of the other for the good of the other." DiTolla v Doral Dental IPA of NY, LLC, 100 A.D.3d 586, 587 (2d Dept 2012), citing L. Magarian & Co., Inc. v Timberland Co., 245 A.D.2d 69 (1st Dept 1997). However, when the parties enter into an arms' length transaction, they merely have a "conventional business relationship" and do not have fiduciary duties with respect that specific transaction. Id.; see also Cooper v Sony Records Int'l., 2001 WL 1223492, at *5 n.10 (SDNY 2001) ("[u]nlike Apple Records, here there is no assertion of a special relationship beyond that which normally exists between contracting parties in an arms-length transaction"); cf. Rather v CBS Corp., 68 A.D.3d 49, 55-56 (1st Dept 2009) (discussing the inapplicability of Apple Records to a longstanding employment or contractual relationship).
Plaintiffs allege that the parties were close friends and had prior business dealings where defendants sold them artwork. These facts, generally, might be enough to create fiduciary duties. Here, however, the parties entered in arms' length real estate transactions governed by written agreements that set forth the scope of the parties' duties. Moreover, plaintiffs allege that Leonardo, the owner of the subject units and counterparty to the Purchase Agreements, is controlled by defendants. Hence, plaintiffs understood that Mondadori and Todisco were on opposite sides of the deal from them. Plaintiffs are wealthy, sophisticated individuals who understand that counterparties to a transaction are not fiduciaries because their economic interests are, by definition, not aligned. Indeed, the hallmark of a fiduciary relationship is "undivided and undiluted loyalty." Birnbaum v Birnbaum, 73 N.Y.2d 461, 466 (1989).Consequently, for the purposes of the subject transactions, such loyalty is not required.  Thus, even if the parties' friendship might give rise to fiduciary obligations in other contexts or transactions, no such obligations existed in this case.
It should be noted that, though not explicitly pled in the Complaint, when plaintiffs assert that defendants committed fraud within a fiduciary relationship, the proper claim is for constructive fraud — a fraud claim without the element of scienter. See Levin v Kitsis, 82 A.D.3d 1051, 1054 (2d Dept 2011). However, even where a fiduciary commits fraud, the claim is not viable if the plaintiff cannot establish reasonable reliance. See id. As discussed in part II.B, plaintiffs' reliance on defendants' representations was unreasonable. As a result, even if the parties' friendship sufficed to create fiduciary duties, a claim for constructive fraud would fail as well. 
Plaintiffs cannot maintain a claim for unjust enrichment because, as discussed in part II.A, their claims to recoup their $2 million are governed by the Purchase Agreements. See IDT Corp. v Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 142 (2009), citing Goldman v Metropolitan Life Ins. Co., 5 N.Y.3d 561 (2005), accord Clark-Fitzpatrick, Inc. v Long Island R.R. Co., 70 N.Y.2d 382, 388 (1987) ("existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter"). Additionally, to the extent that plaintiffs assert an unjust enrichment claim with respect to their alleged oral agreement with defendants, such claim is not viable because one cannot maintain a quasi-contract claim where, as here, the statute of frauds bars the enforcement of the alleged oral agreement. See Mark Bruce Int'l, Inc. v Blank Rome LLP, 19 Misc.3d 1140(A), at *7 (Sup Ct, NY County 2008), aff'd 60 A.D.3d 550 (1st Dept 2009).
It should not be forgotten that this action arose out of a scam that has been exposed and publicized as a result of this lawsuit. This decision is a matter of public record and, even though the court cannot find Katherine Price Mondadori legally liable for her actions due to the terms of the governing written agreements and plaintiffs' own recklessness, escaping legal liability is not the same as preserving one's reputation. Finally, as this court is unfamiliar with the laws of Dubai, nothing in this decision shall be construed as any intended prejudice to plaintiffs' right to commence an arbitration proceeding in Dubai to recover their $2 million from Leonardo. Accordingly, it is
ORDERED that the motion to dismiss the Complaint by defendant Katherine Price Mondadori is granted, the attachment entered by this court on June 26, 2012 is hereby vacated, and the Clerk is directed to enter judgment dismissing the Complaint with prejudice.