Roni LLC v. Arfa

• Decision Date: 20 December 2011
• Docket Number: No. 228,228
• Parties: Roni LLC, et al., Respondents, v. Rachel L. Arfa, et al., Appellants, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

2011 NY Slip Op 09163

Roni LLC, et al., Respondents,

v. Rachel L. Arfa, et al., Appellants, et al., Defendants.

No. 228

Court of Appeals of New York

Decided December 20, 2011

David J. Katz, for appellants.

John Van Der Tuin, for respondents.

Richard Dearing, for Hon. Eric T. Schneiderman, Attorney General of the State of New York, amicus curiae.

Larry E. Ribstein, amicus curiae.

MEMORANDUM:

The order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

This action arises from a series of related business transactions in which a number of Israeli investors acquired membership interests in seven limited liability companies thatpurchased residential buildings in the Bronx and Harlem for renovation and resale. The promoter defendants organized the limited liability companies, located and managed the properties, and solicited the investors. Plaintiffs — the majority of the investors or their assignees — brought this action, alleging that the promoter defendants deliberately concealed that property sellers and mortgage brokers paid them commissions of up to 15% of the purchase prices of the properties and that these commissions inflated the purchase prices by millions of dollars. The complaint contains claims for an accounting, waste, breach of fiduciary duty, actual fraud and constructive fraud. The promoter defendants moved to dismiss the complaint insofar as asserted against them pursuant to CPLR 3211.

Supreme Court granted the motion to the extent of dismissing the causes of action for waste and actual fraud. It also permitted plaintiffs to replead their fraud claim. The Appellate Division affirmed (74 AD3d 442 [1st Dept 2010]) and granted the promoter defendants leave to appeal on a certified question.

The promoter defendants argue that the three claims at issue on this appeal — an accounting, breach of fiduciary duty and constructive fraud — must be dismissed because no fiduciary relationship existed between the promoter defendants and plaintiffs before the formation of the limited liability companies. On a CPLR 3211 motion to dismiss, however, we must give the complaint a liberal construction, accept the allegations as true and provide plaintiffs with the benefit of every favorable inference. Indeed, the question of "[w]hether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]). Applying this standard, we conclude that plaintiffs' allegations of a fiduciary relationship survive the dismissal motion.

A fiduciary relationship arises "between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" (id. [internal quotation marks and citation omitted]). Put differently, "[a] fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other" (AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 11 NY3d 146, 158 [2008] [internal quotation marks and citation omitted]). Ascertaining the existence of a fiduciary relationship "inevitably requires a fact-specific inquiry" (Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 561 [2009]).

Here, plaintiffs assert that the promoter defendants planned the business venture, organized the limited liability companies, solicited their involvement and exercised control over the invested funds. We agree with plaintiffs that the promoters of a limited liability company are in the best position to...