United States District Court, E.D. New York
ROBERT I. SCHWARTZ, MD., Plaintiff,
RICHARD A. SCHWARTZ, Defendant.
MEMORANDUM AND ORDER
LEONARD D. WEXLER, District Judge.
Plaintiff Robert I. Schwartz, MD brings this diversity action against defendant Richard A. Schwartz asserting fraud and equitable claims. Defendant moves to dismiss the complaint under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure ("FRCP"), and to cancel the notice of pendency, together with an award attorney's fees and expenses upon the cancellation of the notice of pendency. Plaintiff opposes the motion.
As alleged in the complaint, plaintiff is a retired dermatologist who suffered various strokes. Defendant is plaintiff's son. Defendant formerly worked in the securities industry. In mid to late February 2014, defendant contacted plaintiff explaining that he was in dire financial straits and needed to borrow $150, 000. Plaintiff advised defendant that he would not lend him that amount but would consider a loan of $100, 000. Defendant accepted the offer to borrow $100, 000. At that time, defendant also told plaintiff that he was working with a colleague who was a financial "genius." Defendant claimed that the colleague had a recent track record of achieving 24% returns on investments. Defendant recommended to plaintiff that he invest $200, 000 with the colleague. On or about February 26, 2014, plaintiff wired $300, 000 into defendant's bank account. Based on defendant's representations, plaintiff understood that $100, 000 was a loan to defendant and $200, 000 was to be invested with defendant's colleague.
On or about May 15, 2014, defendant advised plaintiff that he never invested the $200, 000 with his colleague and that he was treating the entire $300, 000 as a "loan." Defendant further advised plaintiff that he had spent all, or a significant portion, of the funds to remove liens and make past due mortgage payments on his home located at 360 Canoe Place Road in Southampton, New York (the "Property"). On or about June 17, 2014, defendant listed the Property for sale.
Plaintiff commenced this action on June 20, 2014. He also filed a notice of pendency. Plaintiff asserts four claims in the complaint: (1) fraud, seeking money damages; (2) constructive trust, imposing a trust on the Property and in the proceeds of any sale of the Property; (3) unjust enrichment; and (4) an accounting.
On August 20, 2014, defendant served his motion to dismiss the complaint and to cancel the notice of pendency. The motion was fully briefed and submitted on September 29, 2014. Defendant's motion requests (1) dismissal of the fraud claim under FRCP 12(b)(6) because the complaint alleges nothing more than a breach of contract cast as a fraud claim, and under FRCP 9(b) because the complaint fails to plead fraud with specificity; (2) dismissal of claims seeking equitable relief because plaintiff has an adequate remedy at law; (3) cancellation of the notice of pendency under New York Civil Practice Law and Rules ("CPLR") § 6501 because the underlying claims are insufficient and they have no direct relationship to the Property, and under CPLR § 6514(b) because the action was not commenced in good faith; and (4) an award of attorney's fees and expenses based on the cancellation of the notice of pendency because the action was not commenced in good faith, as authorized by CPLR § 6514(c).
In support of the motion to cancel the notice of pendency, defendant submits a declaration in which he asserts, among other things, that the $300, 000 he received from plaintiff was a loan and that he told plaintiff he would repay the loan after he sold the Property. Defendant attaches an email that he received from plaintiff's girlfriend in May 2014 and letters he received from plaintiff's attorney, David Valicenti ("Valicenti"), in June 2014, purportedly demonstrating that the $300, 000 was a loan.
In opposition to the motion to cancel the notice of pendency, plaintiff submits his own declaration, as well as declarations of his financial advisor, Ken Rosenbaum ("Rosenbaum"), and attorney Valicenti, purportedly to "demonstrate the facts supporting the claim, " Plaintiff's Memorandum of Law in Opposition to Motion to Dismiss and Motion to Cancel Notice of Pendency, at 15. Plaintiff's declaration explains the details of his conversations with defendant, including defendant's lies about the "investment" and about defendant's colleague, the financial "genius." Plaintiff states that after he sent defendant the $300, 000, defendant disclosed that he spent $160, 000 of the money to pay personal debts, including late mortgage payments. When plaintiff asked defendant to account for the balance of the money, defendant refused to tell him. After plaintiff realized defendant's deception, he sought to ensure repayment of the $300, 000. In this respect, plaintiff asked defendant to sign a promissory note and mortgage on the Property as a way to resolve the situation, not because the money was a loan. Rosenbaum provides details of his conversations with plaintiff and defendant about the purported "investment" and of notes he made concerning those conversations, purportedly demonstrating that the money plaintiff provided to defendant was not a loan. Valicenti explains his correspondence with defendant, maintaining that he conveyed plaintiff's willingness to "treat" the entire $300, 000 as a loan (to be documented by a promissory note and mortgage) as an attempt to resolve the parties' dispute, not as an indication that plaintiff's money was a loan. Valicenti also states that he retrieved tax payment records from the Suffolk County Treasurer's Office showing that six days after plaintiff wired the $300, 000 to defendant, defendant paid $36, 080.62 in taxes that were in arrears on the Property. By letter dated June 18, 2014, Valicenti requested that defendant provide an accounting for the remainder of the money, but defendant refused. Valicenti attaches a real estate listing for the Property showing a listing price of $1.95 million.
On November 11, 2014, plaintiff requested the Court's permission to file a letter brief and declaration of Ahmad Nahhas ("Nahhas"), the purported financial "genius" with whom defendant was to invest plaintiff's money. According to Nahhas, Chief Executive of Data One Global, he told defendant that he would not invest plaintiff's money. Plaintiff states that he received Nahhas' declaration only after Data One Global recently responded to plaintiff's subpoena seeking documents regarding investment opportunities available to plaintiff. By letter dated November 13, 2014, defendant requested that the Court strike plaintiff's November 11 submission as untimely.
A. Motion to Dismiss Standard
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court held that to avoid dismissal a plaintiff is required to plead enough facts "to state a claim for relief that is plausible on its face." Id. at 570; see also Ashcroft v. Iqbal, 556 U.S. 662, 678-80 (2009). While heightened factual pleading is not required, Twombly holds that a "formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. On a motion to dismiss, the court must, as always, assume that all allegations in the complaint are true and draw all reasonable inferences in favor of the nonmoving party. Plair v. City of New York, 789 F.Supp.2d 459, 463 (S.D.N.Y. 2011). However, the court must ensure that the complaint sets forth "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; see Ruston v. Town Bd. for Town of Skaneateles, 610 F.3d 55, 57 (2d Cir. 2010). A pleading that does nothing more than recite the elements of a claim, supported by mere conclusory statements, is insufficient to "unlock the doors of discovery." Iqbal, 556 U.S. at 678. Rather, "only ...