Orlando v. Kukielka

• Decision Date: 15 May 2007
• Docket Number: 2006-01107.
• Citation: 836 N.Y.S.2d 252,40 A.D.3d 829,2007 NY Slip Op 04272
• Parties: JOSEPH ORLANDO et al., Respondents, v. WILLIAM KUKIELKA et al., Defendants, and STEVE ROSSETTI et al., Appellants.
• Court: New York Supreme Court — Appellate Division

40 A.D.3d 829

836 N.Y.S.2d 252

2007 NY Slip Op 04272

JOSEPH ORLANDO et al., Respondents, v. WILLIAM KUKIELKA et al., Defendants, and STEVE ROSSETTI et al., Appellants.

2006-01107.

Appellate Division of the Supreme Court of the State of New York, Second Department.

Decided May 15, 2007.

In an action, inter alia, to recover damages for fraud and negligent misrepresentation, the defendants Steve Rossetti and Revenue Stream, Inc., appeal from an order of the Supreme Court, Westchester County (Rudolph, J.), entered December 21, 2005, which denied their motion for summary judgment dismissing the complaint insofar as asserted against them.

Ordered that the order is reversed, on the law, with costs, and the motion of the defendants Steve Rossetti and Revenue Stream, Inc., for summary judgment dismissing the complaint insofar as asserted against them is granted.

The defendants William Kukielka, Glenn Taus, and Jeffrey Bakshi (hereinafter collectively the sellers), who were the officers and shareholders of five family entertainment centers (hereinafter the businesses), employed the defendants Steve Rossetti and Revenue Stream, Inc. (hereinafter together the broker), to sell their businesses. A "business listing agreement" between the sellers and the broker gave the broker the exclusive right to sell each of the businesses. The business listing agreement also contained the financial information of the sellers' businesses, such as annual gross revenue and expenses, which the sellers had provided to the broker. A provision within each business listing agreement provided that the sellers, by signing it, were representing that the financial information was correct and would confirm as much upon the request of any buyer. The broker placed an advertisement in the New York Times to which the plaintiffs responded. The broker instructed the plaintiffs to view the broker's Web site, which contained a disclaimer confirming that the information contained on it had been obtained from the broker's clients, and that the broker made "no representation or warranty as to the accuracy thereof." After visiting the businesses, the plaintiffs signed a "prospective buyer agreement," which provided that "any representations made by the seller are not guaranteed and that the Prospective Buyer [s] will not hold [the broker] responsible for any misrepresentation [s] made by the seller, lessor, or any third party." Shortly thereafter, the broker presented the plaintiffs with the business listing agreement containing the financial information of the sellers' businesses. After a period of negotiation, the sellers accepted the plaintiffs' offer in the sum of $2.425 million. The terms were memorialized in a "business binder agreement" which provided for a 14-day due diligence period. During that period, the plaintiffs conducted an independent audit of the businesses, which was based on documents and information the sellers provided to them. The broker was later provided with a copy of the plaintiffs' audit, as well as the plaintiffs' revised versions of the financial information as contained in the business listing agreements. The audit revealed that the net profit generated by the businesses was not the sum of $1 million, as indicated in the business listing agreements, but rather was approximately the sum of $500,000. In particular, as to one business, "collection sheets" that the sellers had provided to the plaintiffs showed that the gross revenue was approximately $75,000 less than represented in the business listing agreements.

Despite the discrepancies, the plaintiffs stated that they "felt comfortable" relying on the financial information contained in the business listing agreements and on the broker's Web site, as well as verbal representations the broker made, such as statements that the businesses were a "great opportunity," "very profitable," and generated a $1 million operating profit for the sellers. As a result, a revised "business binder agreement" was executed reducing the sale price to the sum of $2.15 million, representing approximately twice the "perceived net income" of the businesses. Four months later, a contract of sale solely between the plaintiffs and the sellers was executed that contained, inter alia, a provision stating that the listing agreements containing the financial information of the businesses were "delivered to [the broker and the plaintiffs]," that they represented a "true and correct historical statement," and that the sellers acknowledged that the plaintiffs would not otherwise have proceeded with the transaction had they contained false or incorrect information.

Once the...