Roni LLC v. Arfa
| Decision Date | 03 June 2010 |
| Citation | 903 N.Y.S.2d 352,74 A.D.3d 442 |
| Parties | RONI LLC, et al., Plaintiffs-Respondents, v. Rachel L. ARFA, et al., Defendants-Appellants, Lawrence A. Mandelker, etc., et al., Defendants, Edward Lukashok, Defendant-Respondent. |
| Court | New York Supreme Court — Appellate Division |
74 A.D.3d 442
RONI LLC, et al., Plaintiffs-Respondents,
v.
Rachel L. ARFA, et al., Defendants-Appellants,
Lawrence A. Mandelker, etc., et al., Defendants,
Edward Lukashok, Defendant-Respondent.
Supreme Court, Appellate Division, First Department, New York.
June 3, 2010.
Schlam Stone & Dolan LLP, New York (David J. Katz of counsel), for appellants.
Balber Pickard Maldonado & Van Der Tuin, P.C., New York (John T. Van Der Tuin of counsel), for plaintiffs-respondents.
Bellin & Associates LLC, White Plains (Aytan Y. Bellin of counsel), for Edward Lukashok, respondent.
FRIEDMAN, J.P., SWEENY, FREEDMAN, ABDUS-SALAAM, JJ.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered April 17, 2009, which, insofar as appealed from as limited by the briefs, denied the motion of defendants Rachel L. Arfa, Alexander Shpigel and American Elite Properties, Inc. (the promoter defendants) to dismiss plaintiffs' accounting, breach of fiduciary duty, and constructive fraud causes of action, unanimously affirmed, with costs.
This action arises from a series of business transactions in
Plaintiffs' central allegation in the amended complaint and in the affidavits and documents submitted in opposition to the motion to dismiss is that the promoter defendants made secret profits at the expense of plaintiffs and the LLCs. Plaintiffs allege that the promoter defendants disclosed some of the profits they would make from the business venture but deliberately concealed that property sellers and mortgage brokers directly or indirectly paid them commissions of up to 15% of the purchase prices of the properties. These undisclosed commissions, plaintiffs allege, inflated the prices that the LLCs paid for the properties by millions of dollars.
In the amended complaint, plaintiffs asserted claims for an accounting, waste, breach of fiduciary duty, actual fraud, and constructive fraud. The promoter defendants moved to dismiss the complaint as against them for, among other things, failure to state a cause of action (CPLR 3211[a][7] ) and failure to plead actual fraud and breach of fiduciary duty with specificity (CPLR 3016 [b] ). The motion court granted the motion only to the extent of dismissing the cause of action for waste and granting plaintiff leave to re-plead the cause of action for actual fraud.1
As a threshold matter, and contrary to the promoter defendants' assertion, the anti-fraud provisions of the Martin Act (General Business Law art. 23-A), which regulates the sale of publicly offered securities, do not preempt plaintiffs' claims for an accounting, breach of fiduciary duty, and constructive fraud, because given the relatively small number of investors and the absence of advertising, other than written promotional materials distributed to some of them, the offering was not "public" within the meaning of the Act ( see General Business Law § 352-e[1][a];
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