William Doyle Galleries, Inc. v. Stettner, 6954

• Decision Date: 20 December 2018
• Docket Number: Index 653204/17,6954
• Parties: WILLIAM DOYLE GALLERIES, INC., Plaintiff–Appellant, v. Brett STETTNER, Defendant, HSBC Bank USA, N.A., Defendant–Respondent.
• Court: New York Supreme Court — Appellate Division

167 A.D.3d 501
91 N.Y.S.3d 13

WILLIAM DOYLE GALLERIES, INC., Plaintiff–Appellant,
v.
Brett STETTNER, Defendant,

HSBC Bank USA, N.A., Defendant–Respondent.

6954
Index 653204/17

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

ENTERED: DECEMBER 20, 2018

91 N.Y.S.3d 16

Lichtenberg PLLC, New York (Barry Lichtenberg of counsel), for appellant.

McGlinchey Stafford, New York (Brian S. McGrath of counsel), for respondent.

Richter, J.P., Tom, Mazzarelli, Gesmer, Moulton, JJ.

167 A.D.3d 502

Order, Supreme Court, New York County (Gerald Lebovits, J.), entered February 14, 2018, which granted defendant HSBC Bank USA, N.A.'s (HSBC) motion under CPLR 3211(a)(1),(5), and (7) to dismiss the complaint as against it and dismissed the action, modified, on the law, solely to reinstate the causes of action against HSBC for aiding and abetting fraud and aiding and abetting conversion, and to reinstate the action as against defendant Stettner, and otherwise affirmed, without costs.

In considering this motion to dismiss, we assume the facts stated in plaintiff's verified complaint to be true ( Simkin v. Blank, 19 N.Y.3d 46, 52, 945 N.Y.S.2d 222, 968 N.E.2d 459 [2012] ), and give the pleadings the benefit of every possible favorable inference ( Rivietz v. Wolohojian, 38 A.D.3d 301, 832 N.Y.S.2d 505 [1st Dept. 2007] ).

At an auction held by plaintiff on April 16, 2012, defendant Brett Stettner successfully bid on multiple antique watches and items of jewelry. Stettner presented a check dated May 16, 2012 for $425,750.00 as payment, which plaintiff declined to honor without a credit reference. Sometime after, William Caban, a vice president of defendant HSBC, contacted plaintiff and advised plaintiff that Stettner had a long-standing banking relationship with HSBC in the United States and Hong Kong, and that Stettner's account contained funds sufficient to cover the check. Plaintiff informed Mr. Caban that, in addition to his verbal assurance, plaintiff would require HSBC to submit a credit reference in writing.

Mr. Caban provided plaintiff with a letter on HSBC stationery on April 27, 2012, stating:

"In reference to your request for a credit reference, I have the following information to provide:

• Brett Stettner currently has Commercial and Personal relationships with HSBC in the U.S. and in HK for his various international business needs

• The relationships have been established and in good standing since 2008

• Worldwide the average balances can fluctuate from $1 MM U.S. to $20 MM US

• There have been no problems with the accounts as we have maintained a

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good standing relationship for over 4 years

167 A.D.3d 503

• We value the worldwide relationships Brett and his company have with us and continue to work closely to maintain this high level relationship."

In reliance upon HSBC's verbal and written representations, plaintiff released the jewelry and watches to Stettner. However, Stettner's HSBC check was rejected for insufficient funds, and plaintiff did not receive payment.

On August 14, 2015, Stettner was arrested and indicted for several thefts against auction houses in Manhattan, including the theft from plaintiff. On May 6, 2016, Stettner pleaded guilty to the charges filed against him. As part of his plea allocution, Stettner stated, "I presented a letter to [plaintiff] which I knew contained false information about my bank balances for the purposes of inducing [plaintiff] to give me [the watches and jewelry]."

"A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance" ( Oster v. Kirschner, 77 A.D.3d 51, 55, 905 N.Y.S.2d 69 [1st Dept. 2010] ). In turn, the elements of an underlying fraud are "a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" ( Genger v. Genger, 152 A.D.3d 444, 445, 55 N.Y.S.3d 658 [1st Dept. 2017] [internal quotation marks omitted] ).

Plaintiff sufficiently pleaded that there was an underlying fraud. It alleged that Stettner admitted in his plea allocution that he knowingly presented a letter containing false information about his bank balances to plaintiff, and that he did so in order to induce plaintiff to release the jewelry and watches to him. Plaintiff pleaded that it reasonably relied on the letter and its misrepresentations, and that it was injured as a result, since it did not receive payment.

We reject HSBC's argument that plaintiff's pleading of an underlying fraud was defective because it failed to plead the misrepresentation of a present or existing fact (see Roney v. Janis, 77 A.D.2d 555, 556–557, 430 N.Y.S.2d 333 [1st Dept. 1980], affd 53 N.Y.2d 1025, 442 N.Y.S.2d 484, 425 N.E.2d 872 [1981] ). Here, the HSBC letter made representations about Stettner's bank balances as they existed at the time the letter was written. Indeed, the HSBC letter explained that Stettner had "current[ ]" personal and commercial relationships with HSBC and that "[w]orldwide," Stettner's average balances "can fluctuate from $1 MM U.S. to $20 MM US." We disagree with HSBC that the letter's use of the language "can fluctuate" precludes the letter from establishing a misrepresentation

167 A.D.3d 504

of a present or existing fact. The HSBC letter clearly represented to plaintiff that Stettner's accounts contained a minimum of $1,000,000, an amount that was specific, and that was sufficient to cover Stettner's $425,750.00 check. The letter was thus a statement of existing fact, as opposed to a "nonactionable opinion" or "a prediction as to future performance" ( FMC Corp. v. Fleet Bank, 226 A.D.2d 225, 225, 641 N.Y.S.2d 25 [1st Dept. 1996] [No actionable fraud where bank officer made statement that it "felt" that a particular line of credit would be adequate to cover its customer's debt to plaintiff] ).

Plaintiff sufficiently alleged the element of actual knowledge. "This Court has stated that actual knowledge need only be pleaded generally ... particularly at the prediscovery stage, [since] a plaintiff lacks access to the very discovery materials

91 N.Y.S.3d 18

which would illuminate a defendant's state of mind. Participants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud" ( Oster, 77 A.D.3d at 55–56, 905 N.Y.S.2d 69 ; see also Chambers v. Weinstein, 135 A.D.3d 450, 451, 21 N.Y.S.3d 892 [1st Dept. 2016] ; AIG Fin. Prods. Corp. v. ICP Asset Mgt., LLC, 108 A.D.3d 444, 446, 969 N.Y.S.2d 449 [1st Dept. 2013] ). Stettner admitted that he knew that the letter that he provided plaintiff contained false information about his bank balances. HSBC was the source of that letter, and had the means to verify if it was accurate.¹ Prior to providing the letter, HSBC verbally represented that Stettner and HSBC had a long-standing relationship and that his accounts contained funds sufficient to cover the check. These allegations are sufficient, on this prediscovery, pre-answer motion, to plead that HSBC knew that the letter contained misrepresentations about Stettner's accounts. Indeed, this Court has declined to " ‘endorse what is essentially a "see no evil, hear no evil" approach’ " when reviewing whether a cause of action for aiding and abetting fraud adequately pleads actual knowledge ( AIG Fin. Prods. Corp., 108 A.D.3d at 446, 969 N.Y.S.2d 449, quoting Oster, 77 A.D.3d at 57, 905 N.Y.S.2d 69 ).

Plaintiff's allegations are also sufficient as to the element of substantial assistance, since plaintiff pleaded that "[b]ut for the verbal assurances by HSBC Vice President Caban and the HSBC Letter vouching for Stettner's financial and personal integrity, Stettner's scheme would have failed. Doyle released the Valuables only after HSBC's repeated representations ..." (see

167 A.D.3d 505

Oster, 77 A.D.3d at 56, 905 N.Y.S.2d 69, citing Nathel v. Siegal, 592 F.Supp.2d 452, 470 [S.D. N.Y.2008] ).²

The cause of action for aiding and abetting conversion, which was based upon fraud, was timely under the six-year statute of limitations governing fraud (see D. Penguin Bros. Ltd. v. City Natl. Bank, 158 A.D.3d 432, 70 N.Y.S.3d 192 [1st Dept. 2018] ; Loeuis v. Grushin, 126 A.D.3d 761, 764, 5 N.Y.S.3d 283 [2d Dept. 2015] ).

This cause of action was also adequately stated by plaintiff. Aiding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance (see Dangerfield v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2006 WL 335357, *5, 2006 U.S. Dist LEXIS 7761, *17 [S.D. N.Y.2006] ; see also Weisman, Celler, Spett & Modlin v. Chadbourne & Parke, 271 A.D.2d 329, 330, 706 N.Y.S.2d 414 [1st Dept. 2000], lv denied 95 N.Y.2d 760, 714 N.Y.S.2d 710, 737 N.E.2d 952 [2000] ). "A conversion takes place...