Board of Managers of Beacon Tower Condominium v. 85 Adams Street, LLC

In an action, inter alia, to recover damages for breach of contract and fraud in the inducement, the defendants 85 Adams Street, LLC, 85 Adams Street Managers, LLC, Boymelgreen Family, LLC, AI Properties and Developments (USA) Corp., and Jeshayahu Boymelgreen appeal, as limited by their brief, from so much of an order of the Supreme Court, Kings County (Rothenberg, J.), dated June 13, 2013, as denied, with leave to renew, their motion pursuant to CPLR 3012 (b) and 3211 (a) to dismiss the complaint insofar as asserted against them, and granted that branch of the plaintiff’s cross motion which was to compel them to accept service of the complaint.

Ordered that the order is modified, on the law, (1) by deleting the provision thereof denying those branches of the appellants’ motion which were pursuant to CPLR 3211 (a) to dismiss the complaint insofar as asserted against the defendants Boymelgreen Family, LLC, and AI Properties and Developments (USA) Corp., and substituting therefor a provision granting those branches of the motion, and (2) by deleting the provision thereof denying those branches of the appellants’ motion which were pursuant to CPLR 3211 (a) to dismiss the 2nd, 3rd, 4th, 17th, and 18th causes of action insofar as asserted against the defendants 85 Adams Street, LLC, 85 Adams Street Managers, LLC, and Jeshayahu Boymelgreen, and substituting therefor a provision granting those branches of the motion; as so modified, the order is affirmed insofar as appealed from, with costs to the appellants.

This action involves the marketing and sales of units in a condominium apartment building (hereinafter the condominium). The condominium was developed by 85 Adams Street, LLC (hereinafter the sponsor), pursuant to an offering plan. The sponsor is a single-purpose entity which was formed solely to develop the condominium and to sell the units. The condominium is 23 stories and consists of 79 residential units, one commercial unit, and one garage.

The appellants moved pursuant to CPLR 3012 (b) and 3211 (a) (1), (3), (7) and (8) to dismiss the complaint insofar as asserted against them. The plaintiff cross-moved, inter alia, to compel the appellants to accept service of the complaint. The Supreme Court denied the appellants’ motion, with leave to renew, and granted that branch of the plaintiff’s cross motion.

The appellants contend that the 1st, 2nd, 3rd, 4th, 13th, 14th, 15th, and 16th causes of action should have been dismissed insofar as asserted against the nonsponsor defendants because the complaint fails to allege facts sufficient to pierce the corporate veil so as to impose liability against those defendants. The appellants correctly contend that a member of a limited liability company will not be held liable for the liabilities of the company solely by reason of being a member of the company or acting in such capacity or participating in the conduct of the business of the company (see Limited Liability Company Law § 609 [a]). “[M]embers of limited liability companies, such as corporate officers, may be held personally liable if they participate in the commission of a tort in further

The complaint alleges that Jeshayahu and Managers are the principal and the managing member, respectively, of the sponsor, that they executed the certification page of the offering plan, and that they directly participated in the transactions at issue by virtue of their control of the sponsor. Such allegations are sufficient to support the claim that Jeshayahu and Managers participated in the commission of a tort as alleged, and that they are, therefore, not insulated from liability by Limited Liability Company Law § 609 (a) (see Kew Gardens Hills Apt. Owners, Inc. v Horing Welikson & Rosen, P.C., 35 AD3d 383 , 386 [2006]; Birnbaum v Yonkers Contr. Co., 272 AD2d 355 , 357 [2000]; Zanani v Savad, 228 AD2d 584 [1996]). Accordingly, the Supreme Court properly denied those branches of the appellants’ motion which were pursuant to CPLR 3211 (a) to dismiss the 1st, 2nd, 3rd, 4th, 13th, 14th, 15th, and 16th causes of action insofar as asserted against Jeshayahu and Managers.

However, the mere fact that Boymelgreen Family and AI are members of Managers, a limited liability company, is insufficient to impose liability upon them (see Limited Liability Company Law § 609 [a]). Managers is a separate legal entity from its members (see generally Sheridan Broadcasting Corp. v Small, 19 AD3d 331 [2005]). A member of a limited liability company “cannot be held liable for the company’s obligations by virtue of his [or her] status as a member thereof” (Grammas v Lockwood Assoc., LLC, 95 AD3d 1073 , 1074 [2012] [internal quotation marks omitted]; see Smith v Delta Intl. Mach. Corp., 69 AD3d 840 , 842 [2010]; see also Limited Liability Company Law §§ 609, 610). “[A] party may seek to hold a member of an LLC individually liable despite this statutory proscription by application of the doctrine of piercing the corporate veil” (Grammas v Lockwood Assoc., LLC, 95 AD3d at 1074-1075 ).

To state a cause of action under the doctrine of piercing the corporate veil, the “plaintiff must allege facts that, if proved, indicate that the shareholder exercised complete domination and control over the corporation [or LLC] and ‘abused the privilege of doing business in the corporate [or LLC] form to perpetrate a wrong or injustice’ ” (East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775 , 776 [2011], quoting Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135 , 142 [1993]; see Grammas v Lockwood Assoc., LLC, 95 AD3d at 1075 ). “Factors to be considered in

Here, the allegations in the complaint impermissibly seek to extend liability to Boymelgreen Family and AI simply by virtue of their status as members of Managers. The plaintiff’s allegations that Boymelgreen Family and AI, as “sole members of Managers,” directly participated in the transactions at issue, without more, are conclusory at best and, thus, insufficient to extend liability to them. The plaintiff failed to allege any facts sufficient to justify piercing the corporate veil with respect to Boymelgreen Family and AI (see TNS Holdings v MKI Sec. Corp., 92 NY2d 335 , 339 [1998]). Accordingly, the Supreme Court should have granted those branches of the appellants’ motion which were pursuant to CPLR 3211 (a) (7) to dismiss the 1st, 2nd, 3rd, 4th, 13th, 14th, 15th, and 16th causes of action insofar as asserted against Boymelgreen Family and AI.

The appellants correctly contend that the 2nd cause of action, which alleges breach of the common-law implied housing merchant warranty (hereinafter the common-law housing warranty), must be dismissed insofar as asserted against the sponsor, Managers, and Jeshayahu, since General Business Law article 36-B, which codified the common-law housing warranty, applies only to new single-family homes or new for-sale units in a multi-unit residential structure of five stories or less, and not the 23-story condominium at issue (see General Business Law § 777 [5]). The common-law housing warranty embodied in Caceci v Di Canio Constr. Corp. ( 72 NY2d 52 [1988]) was supplanted by General Business Law article 36-B (see Fumarelli v Marsam Dev., 92 NY2d 298 [1998]). The statutory housing merchant warranty scheme codified under General Business Law article 36-B applies only to buildings of five stories or less, and not to the subject condominium, and the ruling in Fumarelli abrogates whatever common-law housing warranty may have existed with respect to buildings taller than five stories prior to the statutory codification (see 20 Pine St. Homeowners Assn. v 20 Pine St. LLC, 109 AD3d 733 [2013]). Accordingly, the 2nd cause of action must be dismissed insofar as asserted against the sponsor, Managers, and Jeshayahu pursuant to CPLR 3211 (a) (7).

The appellants also contend that the 3rd, 4th, and 13th causes of action, which allege fraud in the inducement, negligent misrepresentation, and violations of General Busi

Here, the complaint fails to allege facts that would give rise to a duty owed to the plaintiff, or to the unit owners, independent of the duty imposed by the offering plan and purchase agreements (see New York Univ. v Continental Ins. Co., 87 NY2d 308 , 318 [1995]; Board of Mgrs. of Soho N. 267 W. 124th St. Condominium v NW 124 LLC, 116 AD3d at 507 ; Verizon N.Y., Inc. v Optical Communications Group, Inc., 91 AD3d 176 , 182 [2011]). Therefore, the 3rd and 4th causes of action, which allege fraud in the inducement and negligent misrepresentation, respectively, must be dismissed insofar as asserted against the sponsor, Managers, and Jeshayahu as duplicative of the 1st cause of action, which alleges breach of contract.

The appellants also contend that the 17th and 18th causes of action, which allege violations of the Racketeer Influenced and Corrupt Organizations Act ( 18 USC § 1961 et seq. [hereinafter RICO]), must be dismissed insofar as asserted against them since the plaintiff failed to plead these claims with the requisite specificity. The crux of the allegations supporting these causes of action is that the appellants fraudulently filed a “TR1: Technical Statement of Responsibility” form with the New York City Department of Buildings in order to obtain a temporary certificate of occupancy (hereinafter TCO). The sponsor could not close on the sale of any units without the TCO. The plaintiff alleges that, upon receipt of the TCO under false pretenses, every closing notice sent by mail to prospective buyers or payment sent by mail or wire to close on the units was a predicate act of mail and wire fraud.

“To establish mail fraud as a RICO predicate act, a plaintiff must demonstrate that defendants knowingly or intentionally participated in a ‘scheme to defraud’ using the U.S. mails ‘in furtherance of the scheme’ ” (Buyers & Renters United to Save Harlem v Pinnacle Group N.Y. LLC, 575 F Supp 2d 499 , 508 [SD NY 2008], quoting S.Q.K.F.C., Inc. v Bell Atl. TriCon Leasing Corp., 84 F3d 629 , 633 [2d Cir 1996]). “[T]he complaint must allege the content of the fraudulent communication, who made and received the communication, where and when it took place, and describe why the information transmitted was fraudulent. Finally, the complaint must provide some minimal factual basis that gives rise to a strong inference of fraudulent intent” (Buyers & Renters United to Save Harlem v Pinnacle Group N.Y. LLC, 575 F Supp 2d at 508 [internal quotation marks and citations omitted]; see Ritchie v Carvel Corp., 180 AD2d 786 , 787-788 [1992]). Here, the complaint fails to plead the RICO causes of action with sufficient particularity (see

Furthermore, the complaint fails to allege facts demonstrating an agreement between the sponsor and the nonsponsor defendants to engage in a pattern of racketeering activity (see Crawford v Franklin Credit Mgt. Corp., 758 F3d 473 , 487 [2d Cir 2014]), or that the transactions at issue had an effect on interstate commerce (see DeFalco v Bernas, 244 F3d 286 , 309 [2d Cir 2001]; cf. United States v Atcheson, 94 F3d 1237 , 1243 [9th Cir 1996]; United States v Muskovsky, 863 F2d 1319 , 1325 [7th Cir 1988]).

Accordingly, the Supreme Court should have directed the dismissal of the 17th and 18th causes of action insofar as asserted against the appellants.

The appellants’ remaining contentions either are without merit or need not be reached in light of our determination.

Rivera, J.P., Austin, Cohen and Duffy, JJ., concur.