Northland E., LLC v. J.R. Militello Realty, Inc.

• Decision Date: 06 July 2018
• Docket Number: CA 17–01558,234
• Citation: 81 N.Y.S.3d 694,163 A.D.3d 1401
• Parties: NORTHLAND EAST, LLC, Northland West, LLC, Dutton, LLC, and Michael W. Sweeney, Plaintiffs–Appellants, v. J.R. MILITELLO REALTY, INC., and Nordel II, LLC, Defendants–Respondents.
• Court: New York Supreme Court — Appellate Division

163 A.D.3d 1401

81 N.Y.S.3d 694

NORTHLAND EAST, LLC, Northland West, LLC, Dutton, LLC, and Michael W. Sweeney, Plaintiffs–Appellants,

v.J.R. MILITELLO REALTY, INC., and Nordel II, LLC, Defendants–Respondents.

234

CA 17–01558

Supreme Court, Appellate Division, Fourth Department, New York.

Entered: July 6, 2018

JUSTIN S. WHITE, WILLIAMSVILLE, FOR PLAINTIFFS–APPELLANTS.

ZDARSKY, SAWICKI & AGOSTINELLI LLP, BUFFALO (GUY J. AGOSTINELLI OF COUNSEL), FOR DEFENDANT–RESPONDENT J.R. MILITELLO REALTY, INC.

HURWITZ & FINE, P.C., BUFFALO (EARL K. CANTWELL OF COUNSEL), FOR DEFENDANT–RESPONDENT NORDEL II, LLC.

PRESENT: SMITH, J.P., LINDLEY, DEJOSEPH, AND NEMOYER, JJ.

MEMORANDUM AND ORDER

Appeal from an order and judgment (one paper) of the Supreme Court, Erie County ( Henry J. Nowak, Jr., J.), entered April 19, 2017. The order and judgment granted the motion of defendant Nordel II, LLC to dismiss the complaint against it and granted the motion of defendant J.R. Militello Realty, Inc. for summary judgment dismissing the complaint against it and for summary judgment on its counterclaim.

It is hereby ORDERED that the order and judgment so appealed from is unanimously modified on the law by denying the motion of defendant J.R. Militello Realty, Inc., reinstating the complaint against it, and vacating the fourth and fifth decretal paragraphs, and as modified the order and judgment is affirmed without costs.

Memorandum: Pursuant to a real estate purchase agreement (contract), plaintiffs agreed to sell their properties to defendant Nordel II, LLC (Nordel), which is a wholly-owned subsidiary of the Buffalo Urban Development Corporation (BUDC). It is undisputed that plaintiffs engaged defendant J.R. Militello Realty, Inc. (JRMR) as their real estate broker to market and sell the subject properties, and that JRMR's president, James R. Militello, acted on JRMR's behalf. After plaintiffs executed the contract but before they closed on the sale of the properties with Nordel, they commenced this action, alleging that JRMR breached its fiduciary duty to them, that Nordel knowingly induced JRMR's breach of that duty, and that both defendants engaged in a scheme to defraud plaintiffs into selling the properties "for far below market value." Both defendants denied the general allegations of the complaint, and JRMR asserted a counterclaim seeking to recover its commission from the sale of the properties, which were ultimately sold to Nordel for a combined price of $4,400,000.

Nordel filed a CPLR 3211 motion to dismiss, contending that the complaint failed to state a cause of action against Nordel, was refuted by documentary evidence, i.e., the contract, and failed to plead fraud with the requisite particularity (see CPLR 3211[a][1], [7] ; see also CPLR 3016[b] ). JRMR thereafter filed a CPLR 3212 motion for summary judgment, seeking dismissal of the complaint against it as well as judgment on its counterclaim. Supreme Court granted both motions. Although we conclude that Nordel's motion was properly granted for reasons stated by the court in its written decision, we agree with plaintiffs that the court erred in granting JRMR's motion (hereafter, motion). We therefore modify the order and judgment accordingly.

Addressing plaintiffs' causes of action against JRMR, we conclude that, even if JRMR established as a matter of law that it was entitled to dismissal of the breach of fiduciary duty and fraud causes of action, plaintiffs raised triable issues of fact sufficient to defeat the motion (see generally Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ).

"To state a claim for breach of fiduciary duty, a plaintiff must allege that the defendant owed him [or her] a fiduciary duty, that the defendant committed misconduct, and that the plaintiff suffered damages caused by that misconduct" ( NRT N.Y., LLC v. Morin, 147 A.D.3d 589, 589, 48 N.Y.S.3d 56 [1st Dept. 2017], lv denied 30 N.Y.3d 901, 2017 WL 4543415 [2017] ; see Daly v. Kochanowicz, 67 A.D.3d 78, 95, 884 N.Y.S.2d 144 [2d Dept. 2009] ). With respect to the first element, "it is well settled that a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal" ( Dubbs v. Stribling & Assoc., 96 N.Y.2d 337, 340, 728 N.Y.S.2d 413, 752 N.E.2d 850 [2001] ; see Sonnenschein v. Douglas Elliman–Gibbons & Ives, 96 N.Y.2d 369, 374, 729 N.Y.S.2d 62, 753 N.E.2d 857 [2001] ). There is thus no dispute that JRMR owed plaintiffs a fiduciary duty.

We conclude that, contrary to defendants' contention, plaintiffs raised triable issues of fact whether Militello, while acting on behalf of JRMR, committed misconduct. It is well settled that, "because of a broker's fiduciary duties, he [or she] has the affirmative duty not to act for a party whose interests are adverse to those of the principal, unless he [or she] has the consent of the principal given after full knowledge of the facts ... Accordingly, he [or she] cannot act as agent for both seller and purchaser of property in a real estate transaction" ( Matter of Goldstein v. Department of State, Div. of Licensing Servs., 144 A.D.2d 463, 464, 533 N.Y.S.2d 1002 [2d Dept. 1988] ). "Where a broker's interests or loyalties are divided due to ... [the] representation of multiple parties, the broker must disclose to the principal ... the material facts illuminating the broker's divided loyalties" ( Dubbs, 96 N.Y.2d at 340, 728 N.Y.S.2d 413, 752 N.E.2d 850 ; see Goldstein, 144 A.D.2d at 464, 533 N.Y.S.2d 1002 ). Indeed, "[a] failure to disclose any interest tending to influence the [broker] ... constitutes a breach of [the broker's] fiduciary obligation and precludes [the broker] from recovering for services rendered" ( John J. Reynolds, Inc. v. Snow, 11 A.D.2d 653, 653–654, 201 N.Y.S.2d 704 [1st Dept. 1960], affd 9 N.Y.2d 785, 215 N.Y.S.2d 84, 174 N.E.2d 753 [1961] [emphasis added] ).

Here, in opposition to the motion, plaintiffs submitted multiple emails between Militello and Peter M. Cammarata, who was the president of the buyer, Nordel, and who signed the contract as the president of BUDC. In those emails, Militello discussed his efforts to "box [plaintiffs] into a corner" and have them "make a deal" to sell the properties for substantially less than Militello had opined that they were worth. Thus, despite his representation of plaintiffs, Militello clearly aligned himself with Nordel's interests in those emails, as demonstrated by Militello's use of the pronouns "we" and "our" when discussing with Nordel the plans to deal with plaintiffs. For example, Militello proposed to Cammarata that "[w]e pay" a certain sum for the properties, opined that "we will make a deal with [plaintiffs] at that number," and suggested to Cammarata what "our message" to plaintiffs should be. Militello even complained to Cammarata that plaintiffs were "stringing us along" (emphasis added).

We also note that Militello, i.e., the plaintiffs' agent, suggested that Nordel should consider purchasing other property, stating, "Would we consider [other] property as [an] alternative to [plaintiffs' property]." Although JRMR established that it did not formally represent Nordel, the emails between Militello, as JRMR's president, and Cammarata, as Nordel's president, raise triable issues of fact whether JRMR, through Militello's actions and statements, assumed "the role of agent for [Nordel] in the purchase of [plaintiffs' properties]" ( Douglas Elliman LLC v. Tretter, 84 A.D.3d 446, 448, 922 N.Y.S.2d 74 [1st Dept. 2011], affd 20 N.Y.3d 875, 955 N.Y.S.2d 851, 979 N.E.2d 1178 [2012] ). In such a situation, JRMR "would be considered a dual agent, with a duty to disclose [its] divided loyalties and obtain the parties' consent thereto" ( id. at 448–449, 922 N.Y.S.2d 74 ). On the record before this Court, no such disclosure was made, and no consent was obtained.

With respect to damages, we conclude that plaintiffs raised triable issues of fact whether they suffered damages that were " ‘directly caused by [Militello's] misconduct’ " ( Daly, 67 A.D.3d at 96, 884 N.Y.S.2d 144 ). There is no dispute that plaintiffs did not commence this action until after the contract between plaintiffs and Nordel was executed and that they did, in fact, sell the properties to Nordel. Contrary to JRMR's contention, the fulfillment of that contract does not establish the absence of damages. BUDC's own appraiser estimated that the value of the properties was at least $160,000 more than the sale price.

We further conclude that the court erred in granting JRMR summary judgment dismissing the third cause of action, for fraud, against it. "The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff[,] and damages" ( Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559, 883 N.Y.S.2d 147, 910 N.E.2d 976 [2009] ; see Carlson v. American Intl. Group, Inc., 30 N.Y.3d 288, 310, 67 N.Y.S.3d 100, 89 N.E.3d 490 [2017] ). Even assuming, arguendo, that JRMR met its initial burden with respect to the...