Meisel v. Grunberg
| Decision Date | 31 August 2009 |
| Docket Number | No. 07 Civ. 11610(PKL).,07 Civ. 11610(PKL). |
| Citation | 651 F.Supp.2d 98 |
| Parties | Bruce M. MEISEL, Plaintiff, v. Michael GRUNBERG, Fanny Grunberg, and Ariel Grunberg, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Rosenberg & Giger P.C., Matthew H. Giger, Esq., John J. Rosenberg, Esq., New York, NY, for Plaintiff.
Tarter Krinsky & Drogin LLP, Andrew N. Krinsky, Esq., Linda S. Roth, Esq., New York, NY, for Defendants.
Bruce Meisel ("Meisel" or "plaintiff) brings this diversity action against Michael Grunberg ("Michael"), Fanny Grunberg ("Fanny"), and Ariel Grunberg ("Ariel") (collectively, "defendants")1 for breach of fiduciary duty, fraud, and negligent misrepresentation. Plaintiff claims that defendants misrepresented and omitted material facts in order to induce him into selling his minority interest in the 15 and 19 West 55th Street Realty Company (the "Partnership") at a price significantly below actual value. Defendants move to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. For the reasons stated below, defendants' motion is GRANTED in part and DENIED in part.
For purposes of this motion, the Court accepts all well-pleaded factual allegations in the complaint as true. Holmes v. Grubman, 568 F.3d 329, 332 (2d Cir.2009) (citing Burch v. Pioneer Credit Recovery Inc., 551 F.3d 122, 124 (2d Cir.2008)).
In September of 1976, plaintiff entered into a written partnership agreement (the "Agreement") with Fanny and her late husband, establishing the Partnership. (Compl. ¶ 13.) The express purpose of the Agreement was "to acquire, improve, manage and operate two (2) adjacent apartment house buildings" (id. ¶ 14) located at 15 and 19 West 55th Street, New York, New York (the "Properties") (id. ¶ 1). When Fanny's husband died in 1991, Fanny succeeded to his Partnership interest for a total interest of 70%; plaintiff continued to own her original 30%. (Id. ¶ 17.) Fanny also succeeded to her late husband's management responsibilities under the Agreement, which included (i) inspecting the Properties; (ii) making all capital improvements, repairs, and replacements necessary or advisable in order to maintain the Properties as a first-class apartment building; (iii) preparing reports of operations for the partners and other interested parties; and (iv) using her best efforts to dispose of vacant space in the buildings. (Id. ¶¶ 18-19.) However, the Agreement explicitly required the prior written consent of all partners for the Partnership to undertake certain actions, including (i) selling, exchanging, leasing, or otherwise disposing of any part of the Properties and (ii) making repairs, alterations, or capital improvements (a) that, for any one item, exceeded $10,000, or (b) which, in any fiscal year of the Partnership, exceeded $60,000 in the aggregate. (Id. ¶ 20.) Additionally, the Agreement prohibited the partners from selling or transferring their interest in the Partnership without the written consent of all partners. (Id. ¶ 21.) Plaintiff asserts that in or about 2000, Michael began to manage the day-to-day affairs of the Partnership "on behalf of [Fanny] and as her agent." (Id. ¶ 10.)
Around 2002, disputes arose between plaintiff and defendants over whether the Partnership was fully utilizing the Properties. (Id. ¶¶ 22-23.) Plaintiff contends that there were numerous vacant apartments, many of which required renovation; that apartments were being rented at below-market rates; and that Fanny personally rented two apartments at a significant discount. (Id. ¶ 23.) In an attempt to rectify these problems and increase the Partnership's profits, plaintiff recommended renovating apartments and making other physical improvements to the Properties; taking more aggressive steps to rent vacant apartments; and/or converting the Properties into condominiums to take advantage of a bullish condominium market. (Id. ¶ 25.) However, defendants declined to implement any of plaintiffs suggestions, and plaintiff was unable to act alone pursuant to the Agreement. (Id. ¶ 25.)
In 2005, plaintiff began proposing possible ways of winding up the Partnership. (Id. ¶¶ 27, 29.) Although plaintiff suggested selling the Properties or allowing one partner to purchase the other's Partnership interest (id. ¶ 29), Michael, acting on behalf of and as agent for Fanny and Ariel (id. ¶ 28), represented that defendants would only consider the family's purchase of plaintiffs 30% interest (id. ¶ 32). Specifically, Michael informed plaintiff that "[t]he buildings are not for sale" (id. ¶ 30), "we [i.e., the Grunbergs] are not sellers" (id.), and "[y]ou own a 30% interest that you do not control or manage and you can't sell to anyone but us" (id. ¶ 47).
In order to determine a purchase price for plaintiffs 30% interest in the Partnership, Michael commissioned an "Opinion of Value" (the "Knakal Opinion") from Massey Knakal Realty Services ("Massey Knakal"). (Id. ¶ 33.) Based on gross annual income ("GAI") and net operating income ("NOI") figures provided by defendants (id. ¶ 36), the Knakal Opinion estimated the Properties' value to be between $22,375,000 and $33,375,000 (id. ¶ 35). When plaintiff sought a second opinion on the fair market value of the Properties through the New York real estate firm Grubb & Ellis, Michael threatened Grubb & Ellis with legal action and demanded that the firm inform any potential buyers that the Properties were not for sale. (Id. ¶¶ 39-40.)
On March 21, 2005, Michael informed plaintiff by e-mail that he had just sold another property and thus had acquired liquid funds (the "1031 Exchange Funds") that would enable him to purchase plaintiffs Partnership interest. (Id. ¶ 42.) Michael stressed that he would have only a short period of time under the Internal Revenue Code to roll the proceeds into a "like-kind exchange" in order to avoid paying capital gains taxes. (Id. ¶ 43.) Specifically, Michael communicated to plaintiff that a "window of opportunity has just opened and may last only days." (Id.) Plaintiff claims that, through these statements, defendants represented that they lacked sufficient liquid assets other than the 1031 Exchange Funds with which to purchase plaintiffs Partnership interest. (Id. ¶¶ 45.) These statements left plaintiff with the impression that there was a sense of urgency to the negotiations. (See id. ¶¶ 41.)
On June 23, 2005, plaintiff signed a letter agreement with Michael and the Partnership (the "Letter Agreement") in which Michael agreed to buy out plaintiffs 30% interest for $7.8 million (the "Buy-Out"). (Id. ¶ 51.) The Letter Agreement confirmed that it was "intended to memorialize the agreement" reached among plaintiff, Michael, and the Partnership, and that the parties agreed to execute such other and further documentation as necessary to effectuate the agreement. (Meisel Decl. Ex. A at 1.) Michael signed the Letter Agreement "individually, and as authorized representative of Fanny Grunberg and the Partnership" (id. at 2), which consented to the sale and admission of a new partner (id. at 1). By letter dated July 11, 2005, defendants' counsel informed plaintiff that defendants had decided to use the 1031 Exchange Funds for another purpose. (Compl. ¶ 53.) Plaintiff contends this letter reveals that defendants possessed sufficient funds to purchase his Partnership interest all along, and Michael's claimed "window of opportunity" was a sham designed to induce plaintiff into a quick acceptance of defendants' offering price. (Id. ¶¶ 53-54.) Nonetheless, on July 22, 2005 and in accordance with the terms of the Letter Agreement, plaintiff, Michael, and Ariel signed an agreement entitled "Purchase, Assignment & Assumption of Partnership" (the "Buy-Out Agreement"), pursuant to which plaintiff sold his Partnership interest to Michael and Ariel for $7.8 million (the "Buy-Out Price"). (Id. ¶¶ 10, 49.) At the time plaintiff sold his minority interest in the Partnership, the sale was subject to Fanny's approval. (Compl. ¶¶ 17, 21.) Fanny consented to and signed the Buy-Out Agreement individually and as general partner of the Partnership. (Id. ¶ 56.)
On October 21, 2005, only ninety days after the Buy-Out and contrary to their prior representations to plaintiff, defendants offered the Properties for sale through Massey Knakal. (Id. ¶ 57.) The offering materials stated (1) an asking price of $64 million, which was approximately 250% higher than the value of the Properties contained in the appraisal presented to plaintiff during the Buy-Out negotiations, and significantly higher than the range contemplated in the Knakal Opinion (id. ¶¶ 4, 59); (2) higher "projected" GAI and NOI figures than those included in the Knakal Opinion (id. ¶ 59); (3) that "plans are in place to combine the lobbies and add additional retail space," despite defendants' rejection of plaintiffs prior suggestions to renovate the buildings (id. ¶ 60); and (4) that the buildings would be "PERFECT FOR CONVERSION!!!", despite defendants' rejection of plaintiff s prior suggestion to convert the Properties into condominiums (id. ¶ 61). Ultimately, defendants sold the Properties for $52 million, double the amount of the valuation of the Properties that was used for determining the Buy-Out Price. (Id. ¶¶ 5, 62.)
On December 28, 2007, plaintiff commenced this action against defendants for damages arising from defendants' alleged breaches of fiduciary duties, fraud, and negligent misrepresentation. Generally, plaintiff contends that defendants acted in concert to plan and implement a scheme to induce him into selling his Partnership interest at a below-market price so they could profit on a subsequent sale of the Properties. (Id. ¶¶ 1, 28, 66, 74.) At all times...
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