EV Scarsdale Corp. v. Engel & Voelkers N. E. LLC
| Decision Date | 05 June 2015 |
| Docket Number | 651169/2011 |
| Citation | 13 N.Y.S.3d 805,48 Misc.3d 1019,2015 N.Y. Slip Op. 25188 |
| Parties | EV SCARSDALE CORP. and Jonathan Lerner, Plaintiffs, v. ENGEL & VOELKERS NORTH EAST LLC, Engel & Voelkers N.Y. LLC as successor in interest to Engel & Voelkers North East LLC, Engel & Voelkers U.S. Holdings, Inc., Engel & Voelkers U.S. Holding GmbH, Engel & Voelkers AG, Engel & Voelkers Residential GmbH, Engel & Voelkers IT, Michael Audet, WAV Group, Inc., Ralph Lenihan, and Sven Odia, Defendants. James Ian Properties Corp., Gary Leveillee, and Gordon Dwan, Plaintiffs, v. Engel & Voelkers North East LLC, Engel & Voelkers N.Y. LLC as successor in interest to Engel & Voelkers U.S. Holdings, Inc, Engel & Voelkers U.S. Holdings, Inc., Engel & Voelkers U.S. Holding GmbH, Engel & Voelkers AG, Engel & Voelkers Residential GmbH, Engel & Voelkers IT, Michael Audet, WAV Group, Inc., Rauert Peters, and Sven Odia, Defendants. Index No. 651608/2011. Riverside Homes Realty Inc. and Ling Ho, Plaintiffs, v. Engel & Voelkers North East LLC, Engel & Voelkers N.Y. LLC as successor in interest to Engel & Voelkers North East LLC, Engel & Voelkers U.S. Holdings, Inc., Engel & Voelkers U.S. Holding GmbH, Engel & Voelkers AG, Engel & Voelkers Residential GmbH, Engel & Voelkers IT, WAV Group, Inc., Rauert Peters, Michael Audet, Ralph Lenihan, and Sven Odia, Defendants. |
| Court | New York Supreme Court |
Jardim, Meisner & Susser, P.C., for plaintiffs.
Kaufmann Gildin & Robbins LLP, for defendants.
Motion sequence number 006 in Index No. 651169/2011 (the EV Scarsdale Action), motion sequence number 003 in Index No. 651611/2011 (the James Ian Action), and motion sequence number 003 in Index No. 651608/2011 (the Riverside Action) are consolidated for disposition.
In 2011, plaintiffs filed these three lawsuits against defendants, who own and operate the “Engel & Voelkers” real estate agency. Plaintiffs each entered into franchise license agreements with defendant Engel & Voelkers North East LLC (EV–NE) to operate “Engel & Voelkers Property Shops” (the Property Shops). Plaintiffs were to manage the Property Shops to operate real estate agencies specializing in selling upscale residential properties.
By order dated September 4, 2012 (Dkt. 44),1 the court joined the three actions for discovery and trial. Defendants now move, by way of an omnibus brief (Dkt. 124), to dismiss the second amended complaints (the SACs) in all three actions, which were filed on November 21, 2014. See Dkt. 96 (EV Scarsdale SAC), Dkt. 97 (James Ian SAC), & Dkt. 98 (Riverside SAC). Plaintiffs oppose with an omnibus brief (Dkt. 152 & 153),2 which is met with an omnibus brief in reply (Dkt. 179). Oral argument was held on April 2, 2015. See Dkt. 190 (4/2/15 Tr.). For the reasons that follow, defendants' motions are granted in part and denied in part.
EV–NE, a New York LLC, licenses Property Shops in the northeastern United States. In February 2011, EV–NE transferred its licenses to defendant Engel & Voelkers N.Y. LLC (EV–NY), another New York LLC. EV–NE and EV–NY are affiliates of defendant Engel & Voelkers U.S. Holdings, Inc. (EV–US), a Delaware corporation which contracts with various Engel & Voelkers entities, such as EV–NE and EV–NY, to license Property Shops throughout the United States. EV–US operates the United States arm of the Engel & Voelkers business pursuant to a license agreement with defendant Engel & Voelkers U.S. Holding GmbH (EV–US GmbH). EV–US GmbH, a German LLC, holds a master license agreement that authorizes it to license and market the Engel & Voelkers brand in the United States. EV–US GmbH is wholly owned by defendant Engel & Voelkers Residential GmbH (EV–Residential), another German LLC. EV–Residential, in turn, is wholly owned by defendant Engel & Voelkers AG (EV– AG), a German corporation. EV–AG is at the top of the Engel & Voelkers corporate structure.
EV–AG also has other subsidiaries, such as defendant Engel & Voelkers IT–Services GmbH (EV–IT), which provide services to franchisees. EV–IT is a German LLC that provides information technology services to Property Shops. Defendant Rauert Peters, who works in New York, is the CEO, President, and Managing Director of EV–NE and EV–NY. Peters is also the COO of EV–US. Defendant Michael Audet works in New York as the Head of Expansion of EV–NE, EV–NY, and EV–US. Audet also works for the Engel & Voelkers companies through his own company, defendant WAV Group, Inc. (WAV), a New York corporation. Defendant Ralph Lenihan works in Rhode Island as an independent contractor that sells franchise licenses on behalf of EV–NE. Defendant Sven Odia, who works in Germany, is the President and sole director of EV–US and is a board member and officer of EV–AG, EV–US GmbH, and EV–Residential. Odia is responsible for Engel & Voelkers' residential properties business outside of Germany.
In February 2008, plaintiff Jonathan Lerner became interested in acquiring the right to operate a Property Shop. EV Scarsdale SAC ¶ 27. Lerner formed plaintiff EV Scarsdale Corp. (EV Scarsdale) for this purpose. Id. EV Scarsdale is a New York corporation located in Scarsdale, New York. ¶ 2. On February 26, 2008, Lerner met with Audet and Lenihan to discuss opening a Property Shop. ¶ 28. At that meeting, Lenihan was shown a PowerPoint presentation containing data about the financial performance of an average Property Shop, including net operating profits, total annual sales transactions per agent, and sales commissions per agent. ¶ 30. Lenihan also was provided with a spreadsheet containing the information in the presentation. Id.
On March 20, 2008, Peters made additional oral representations to Lerner concerning the Scarsdale real estate market, such as the total residential property sales in Scarsdale in 2007 and that Lerner should expect to have 10% market share in Scarsdale. Id. On March 27, 2008, Lerner signed a receipt, confirming that he was provided with a Financial Disclosure Document (FDD) for EV–NE. See Dkt. 119 at 2. On June 19, 2008, Peters made further oral representations to Lerner, including Peters' own experience owning a Property Shop in Europe, where “his business from referrals covered all his operational overhead for the entire year.” EV Scarsdale SAC ¶ 30. On July 3, 2008, EV Scarsdale and EV–NE entered into a License Agreement , granting EV Scarsdale the right to operate a Property Shop in Scarsdale, New York (the Scarsdale Shop) for 5 years. ¶ 31; see Dkt. 120. EV Scarsdale also entered into a Software Licensing and IT–Services Agreement with EV–IT, pursuant to which EV Scarsdale would pay EV–IT to provide information technology services to the Scarsdale Shop. ¶ 35; see Dkt. 121. In the fall of 2008, EV Scarsdale began operating the Scarsdale Shop in Scarsdale, New York. ¶ 43.
Between August and October 2008, Peters provided Lerner with profit and loss statements for a Property Shop in Southampton, New York (the Southampton Shop). ¶ 30. Additionally, in October 2008, Peters showed Lerner another PowerPoint presentation about Peters' Property Shop in Europe. Id. On October 31, 2008, Lerner signed another FDD receipt, provided to him in connection with his interest in opening the Southampton Shop. See Dkt. 119 at 3. On November 26, 2008, EV Scarsdale and EV–NE entered into a License Agreement (the Southampton License Agreement) , granting EV Scarsdale the right to operate the Southampton Shop for 5 years. ¶ 32; see Dkt. 122. EV Scarsdale entered into an IT Agreement with EV–IT for the Southampton Shop (the Southampton IT Agreement) (the Scarsdale IT Agreement and the Southampton IT Agreement are collectively referred to as the EV Scarsdale IT Agreements). ¶ 35; see Dkt. 123. Lerner personally guaranteed the EV Scarsdale License Agreements. ¶ 34. On December 1, 2008, EV Scarsdale entered into an asset purchase agreement to acquire the already existing Property Shop located in Southampton, New York. ¶ 42. EV Scarsdale operated the Southampton Shop at that location. Id. In early 2011, pursuant to the Southampton License Agreement, EV Scarsdale opened another Property Shop in East Hampton, New York (the East Hampton Property Shop) (collectively, with the Scarsdale Shop and the Southampton Shop, the EV Scarsdale Property Shops). ¶ 44.
On April 29, 2011, plaintiffs canceled the EV Scarsdale License Agreements. ¶ 45. Lerner and EV Scarsdale commenced this action seeking rescission of the contracts and recovery of its costs and losses incurred in connection with the operation of the EV Scarsdale Property Shops, which they claim were in excess of $1.5 million. ¶ 46. The EV Scarsdale SAC asserts five causes of action: (1) violation of New York General Business Law (GBL) § 683 ; (2) violation of GBL § 687 ; (3) breach of the EV Scarsdale License Agreements and the EV Scarsdale IT Agreements; (4) fraudulent inducement; and (5) alter ego liability.
In August 2007, plaintiffs Gary Leveillee and Gordon Dwan, residents of Rhode Island, became interested in opening a Property Shop. James Ian SAC ¶¶ 2–3, 29. They formed James Ian Properties Corp. (JIP),3 a Rhode Island corporation, for this purpose. ¶¶ 1, 29. They had an initial meeting with EV–NE representatives in August 2007. ¶ 30. In September 2007, Audet and non-party Timothy Robinson, an EV–NE broker, provided Leveillee and Dwan with a document purporting to demonstrate the time and expense involved in building-out a Property Shop. ¶ 31. Leveillee and Dwan were also told that they would recoup their initial investment within two years. Id. Additionally, they were given information about the Providence, Rhode Island real estate market and given a spreadsheet containing the average...
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