Opinion
650460/10
04-08-2011
David H. Ostad, , Plaintiff, v. Behzad Nehmadi, -and- BENITA HOLDINGS, LLC , Defendants.
For Plaintiff: Claude Castro & Associates PLLC Claude Castro, Esq. For Defendants: Goldberg Weprin Finkel Goldstein, LLP Kevin J. Nash, Esq.
For Plaintiff:
Claude Castro & Associates PLLC
Claude Castro, Esq.
For Defendants:
Goldberg Weprin Finkel
Goldstein, LLP
Kevin J. Nash, Esq.
Bernard J. Fried, J.
In this action by David H. Ostad ("Ostad" or "Plaintiff") to recover a ten percent interest in certain property, Defendants Behzad Nehmadi ("Nehmadi" or "Defendant") and Benita Holdings, LLC ("Benita") submitted a Notice of Motion to Vacate and Cancel Notice of Pendency, together with related relief. In support of their motion, the Defendants argued that the Plaintiff's Notice of Pendency is improper under CPLR §§ 6501, 6514, and relevant case law because such Notice is issued when the claim implicates an interest in real property and the Plaintiff is claiming an interest in property acquired by a corporation for the benefit of a purported partnership, which constitutes an interest in personal, and not real property.
Ostad's original Verified Complaint alleges that sometime in 2003, Nehmadi proposed to form an "Enterprise" with the Plaintiff in order to transact in various real estate ventures, including acquiring real property known as 227 East 45th Street, New York, NY ("Premises") for twenty-five million dollars, with a down payment of four million dollars, to which Ostad initially contributed four hundred thousand dollars. (Verified Complaint ¶¶ 4, 5, 7). In return for Ostad's investment, Nehmadi allegedly made an oral promise to grant Ostad a ten percent interest in the Premises. (Id. at ¶ 5). Ostad claims that he attended the closing of the purchase, when Benita—a limited liability company ("LLC") which Nehmadi formed for the purpose of acquiring title to the Premises—purchased the Premises as a constructive trustee for the "Enterprise." (Id. ¶¶ 6, 8). The parties allegedly agreed, as partners and members of the "Enterprise," that Nehmadi and/or his management company would manage, operate, and handle all financial affairs with respect to the Premises. (Id. ¶¶ 9—10).
Throughout the existence of the "Enterprise," Ostad allegedly inquired about, and demanded financial documents with regard to the operation of the Premises, which Nehmadi never provided. (Id. ¶¶ 16, 18). During this time, the parties met occasionally to discuss the status of the Premises, while Nehmadi continued to operate the Premises without Ostad's involvement. (Id. ¶¶ 11—19). Upon his discovery that Nehmadi refinanced the property for fifty-five million dollars, Ostad allegedly demanded, and the Defendants refused, to account for Ostad's ten percent interest in the Premises. (Id. ¶¶ 18—19).
On May 27, 2010, the Ostad filed a complaint against Nehmadi and Benita, requesting a final accounting of all proceeds generated by the Premises, and the formation of a constructive trust to be imposed upon the Premises and Benita, such that the Premises are included in the final accounting. (Id. ¶¶ 23—29). In addition, the Plaintiff requested a judgment that, inter alia, would establish the rights of the parties, and determine and partition the assets of the alleged "Enterprise." (Id. at ¶ 29). The Plaintiff filed a Notice of Pendency with regard to the Premises concurrently with the Summons and Verified Complaint on the ground that his request for relief implicates a ten percent interest in the ownership of real property, i.e., the Premises. (See Pl.'s Notice of Pendency).
The Defendants denied all allegations set forth in the original Verified Complaint, claiming that Ostad has no legal or equitable interest in Benita or its real estate property, and moved to vacate and cancel the Notice of Pendency. (See Verified Answer; see Defs.' Notice of Mot. to Vacate and Cancel Notice of Pendency Together With Related Relief). The Defendants grounded their request for the cancellation of the Notice of Pendency on their interpretation of the complaint, which involves a dispute over the Plaintiff's alleged interest in a partnership, and not in real property. (Verified Answer ¶ 53). According to the Defendants, the dispute does not affect "title, use or possession of the real property" as required by CPLR § 6501, but instead involves Ostad's personal interest in a purported partnership. (Id.). The Defendants further counterclaimed that Ostad's Notice of Pendency will "adversely impact Benita's property and cause interference with prospective business and economic relationships," thereby requesting special damages. (Id. ¶¶ 54—56). (Thereafter, the Plaintiff filed an amended Verified Complaint, which the Defendants answered with similar denials and counterclaims.)
While the overarching dispute in this case is whether the Plaintiff is, in fact, entitled to any interest in the partnership or the Premises, at issue on this motion is the validity of Plaintiff's Notice of Pendency. Thus, the question is whether the disputed ten percent interest constitutes an interest in real property or Plaintiff's personal interest in a purported partnership, which indirectly owns real property of Benita. If the disputed interest is in personal property, the Notice of Pendency is inappropriate. (See 5303 Realty Corp. v. O & Y Equity Corp., 64 NY2d 313 [1984]; see Yonaty v. Glauber, 40 AD3d 1193 [3d Dep't 2007]).
The Scope of Judicial Review as Applied to a Motion to Cancel and/or Vacate a Notice of Pendency.
Upon a motion for cancellation of a notice of pendency on the ground that the action is not within the scope of CPLR § 6501, courts confine their review to the face of the complaint and no inquiry is made into the underlying transaction or the merits of the claim. (5303 Realty Corp., 64 NY2d at 313). But in reviewing the complaint, courts are not bound by the labels a plaintiff assigns to his claim or the relief sought. (Yonaty, 40 AD3d at 1193, 1195). Moreover, the validity of the notice must be determined based on a review of the original complaint, and defects in the filing of the original notice of pendency cannot be cured based on the filing of an amended complaint. (See Sherpaco LLC v. Kossi, No. 103875-07, 2010 NY Misc. LEXIS 1322 [NY Sup. Ct. 1st Dep't 2010] [citing Piccirillo v. Ravenal, 161 AD2d 253 [1st Dep't 1990]]). Thus, the amended Verified Complaint is not relevant to a determination of the validity of the Notice, and my review is circumscribed to the allegations set out in the Plaintiff's original Verified Complaint.
Amended Verified Complaint, filed Nov. 9, 2010.
It is also noteworthy that the Plaintiff's likelihood of success on the merits is irrelevant to the determination of the validity of the Notice of Pendency. (See Richard J. Zintz, Inc. v. Pereira, 965 F. Supp. 350 [1997]). As such, the Notice of Pendency must be vacated where the original complaint fails to comply with CPLR § 6501 requirements. (See Nastasi v. Nastasi, 26 AD3d 32, 36 [2d Dep't 2005]; see CPLR § 6501).
Notice of Pendency is Proper Only With Respect to a Direct Claim on Real Property.
Generally, a notice of pendency may be filed under CPLR § 6501, in any action in which the judgment demanded "would affect the title to, or the possession, use or enjoyment of real property." (CPLR § 6501). The New York Court of Appeals has insisted upon strict compliance with the procedural requirements of CPLR § 6501 and has narrowly interpreted the type of action in which a notice of pendency may be used. (See 5303 Realty Corp., supra.).In Diaz v. Paterson, the federal court, citing New York law observed that in order to file a notice of pendency, the plaintiff usually must have a direct, pre-existing claim to the property itself and not merely a transitory claim. (547 F.3d 88 [2d Cir. 2008], cert. denied, No. 08—890, _U.S._ , 129 S.Ct. 2789 [2009] [mem.]; see also Braunston v. Anchorage Woods, Inc., 10 NY2d 302 [1961] [holding that a notice of pendency may be filed only in actions implicating recording act principles, that is, in situations where plaintiff's right, title, or interest in defendant's land might be lost as a result of a transfer of the property to a purchaser for value who lacks notice of plaintiff's claim]). The basic test is whether the pleading on its face directly affects the necessary interest in the land and notice of pendency is improper if the relationship of action to realty is only indirect. (Shihab v. 215—217 West 10th St. Assoc., 506 N.Y.S.2d 651 [1986]; CPLR § 6501). Consequently, New York courts have confined the notice of pendency to cases in which the plaintiff claims a direct interest in the defendant's real property and actions asserting an interest in personal property do not fall within the scope of CPLR § 6501. (See 5303 Realty Corp., 64 NY2d at 321; cf. Savasta v. Duffy, 683 257 AD3d 435, [1st Dep't 1999] [holding that notice of pendency is improper in an action arising from a dispute over ownership of stock in a cooperative apartment because such claim represented an interest in personal property]).
The "direct relationship" requirement has been most commonly applied in actions concerning the transfer of certain personal property which represents a beneficial ownership of realty. (5303 Realty Corp., 65 NY2d at 323).For example, courts have generally declined to permit a notice of pendency in situations where the "transaction was for a sale of stock in a corporation whose sole or primary asset was real estate." (Id.) In this vein, notices of pendency may not be used in actions where the relief sought is a declaration of ownership in a corporation, "even where the sole corporate asset is real property." (Schlesinger v. Schlesinger, No. 27246/00, 2002 WL 221100, at *10 [NY Sup. Ct. 2002] [citing 5303 Realty Corp., supra]). Similarly, notices of pendency were found invalid in actions involving a claimed interest in a partnership dealing in real property, as such interest was deemed to constitute a personality. (Liffiton v. DiBlasi, 170 AD2d 994, 995 [4th Dep't 1991]; Walsh v. Rechler, 151 AD2d 473 [2d Dep't 1989]; Johnson v. Johnson, 111 AD2d 1005, 1006 [3d Dep't 1985]; Elias v. Serota, 103 AD2d 410 [2d Dep't 1984]; Mattikow v. Sudarsky, 248 NY 404, 406-407 [1928]; Fairchild v. Fairchild, 64 NY 471 [1876]). Thus, in order to ascertain whether the Notice of Pendency is appropriate in this case, the complaint must be examined in its entirety. (5303 Realty Corp., 64 NY2d at 323).
The Meaning of "Enterprise" With Respect to Plaintiff's Claim on the Premises.
Neither party disputes that Benita legally owns the Premises. In fact, the Plaintiff did not allege that he had ever acquired any interest of record in the Premises. In his complaint, the Plaintiff plainly stated that Nehmadi "formed Benita for the purpose of acquiring title to the premises on behalf of the Enterprise ." (Verified Compl. ¶ 5) (emphasis added). In this regard, Ostad claimed that the parties "have acted as partners and joint venturers in various real estate transactions," and that sometime in 2003, Nehmadi proposed to form the "Enterprise" with the Plaintiff in order to acquire the Premises. (Verified Compl. ¶¶ 4—5). Nevertheless, the Plaintiff urges that he never claimed to have an ownership interest in a partnership, corporation or any other business entity, and instead seeks to protect his alleged ten percent interest in the Premises via a constructive trust. (Verified Compl. ¶¶ 28—29; Pl.'s Affirmation in Opp'n ¶¶ 7—8). The Plaintiff asserts that Benita acquired the Premises as a trustee for the "Enterprise," yet claims to have a direct interest in the property, disregarding the existence of the amorphous "Enterprise" entity. As stated above, my review is limited to the face of the Plaintiff's original complaint, which indeed begins by describing Ostad and Nehmadi's ventures as partners in various real estate deals and their subsequent formation of the "Enterprise" for similar purposes. (Verified Compl. ¶¶ 4, 5). A closer reading of the complaint reveals that such language alleges the existence of a partnership or quasi-partnership arrangement between Ostad and Nehmadi, which the Plaintiff labels "Enterprise." Thus, in order to determine the validity of the Notice of Pendency, it is necessary to ascertain the true nature of the transaction (Oppenheim v. Pemberton, 164 AD2d 430, 432 [N.Y.A.D. 1990]) and the meaning of "Enterprise."
It should be noted that the creation of interest in real property would generally be subject to the statute of frauds. (GOL § 5-701; Sherpaco, 2010 N.Y.Misc. LEXIS 1322, at *15). An exception to this principle is a preexisting partnership agreement to deal in real property, thereby taking the transaction out of the statute of frauds because the subject real property becomes partnership property, which constitutes personality. (Barash v. Estate of Sperlin, 271 AD2d 558 [2d Dep't 2000]; Mattikow v. Sudarsky, 248 NY at 404). As such, the statute of frauds is inapplicable if a partnership existed before the closing of the purchase of real property. (Sherpaco, 2010 N.Y.Misc. LEXIS 1322, at *16).
Whether a partnership exists is a question of fact (Olson v. Smithtown Medical Specialists, P.S., 197 AD2d 564 [2d Dep't 1993]). A partnership has been defined as "an association of two or more persons to carry on as co-owners of a business for profit . . . ." (Partnership Law § 10(1); Sherpaco LLC, 2010 NY Misc. LEXIS, at *11—14; see also Prince v. O'Brien, 234 AD2d 12 [1st Dep't 1996] ["[a]n oral agreement to form a partnership for an indefinite period creates a partnership at will"]. While no individual trait is determinative of partnership's existence, factors to consider are the sharing of profits and losses, parties' intentions, ownership of the assets, joint control, management, and liability to creditors, compensation, contribution of capital and loans to the entity; and an equal sharing of profits, losses and control is not required. (Richbell Information Services, Inc. v. Jupiter Partners, L.P., 309 AD2d 288, 298—299 [1st Dep't 2003]; Brodsky v. Stadlen, 138 AD2d 662, 663 [2d Dep't 1988]; Sherpaco LLC, 2010 NY Misc. LEXIS, at *11).
In a similar vein, a joint venture is generally a business undertaking by two or more parties engaged in a single project. (Forman v. Lumm, 214 A.D. 579 [1st Dept. 1925] [holding that a joint venture is "an association of two or more persons to carry out a single business enterprise for profit, for which purpose they combine their property, money, effects, skill, and knowledge"];Black's Law Dictionary [9th ed. 2009]). Although the mere purchase of something by two or more persons does not constitute a joint business or partnership, "the sharing of profits is a basal ingredient of a joint venture." (Mariani v. Summers, 52 N.Y.S.2d 750, 754 [NY Sup. 1944], aff'd 56 N.Y.S.2d 537 [1st Dep't 1945] [noting that an agreement to share losses is not indispensable to the existence of a joint venture]). Moreover, a joint venture may exist for a limited purpose, such as dealings in real estate. (See, e.g., Barash, 271 AD2d at 558).
The characteristics that the Plaintiff attributes to the "Enterprise" relate to an entity not unlike a partnership or a joint venture. (See, e.g., Verified Compl. ¶ 11 ("[t]he Plaintiff placed his trust in Nehmadi as partner and member of the Enterprise and permitted Nehmadi to have sole control of the operation and maintenance of the Premises on behalf of the Enterprise"). The Plaintiff's allegations are not contrary to this notion, as he asserts the existence of an agreement between himself and Nehmadi to create a real estate-dealing entity—which he labels "Enterprise"—to "buy the building." (Hr'g Tr. 10:13—10:22, Feb. 14, 2011). The Plaintiff essentially grounds his entire argument to enforce the Notice of Pendency in ¶ 5 of the complaint, insisting that Nehmadi promised him a ten percent interest in the Premises. (Id. 8:11—8:12). However, the remaining portion of the complaint clearly states that the Plaintiff and Nehmadi acted as members of the "Enterprise," and that the Premises were acquired by Benita on behalf of the "Enterprise." (See generally Verified Compl.) Thus, assuming that the complaint avers the existence of a partnership or quasi-partnership entity, the question turns on whether a partner's or a venturer's claim on the real estate owned by such entity constitutes personal property, which falls outside the scope of CPLR § 6501. The affirmative answer is found in the decisions of numerous New York cases discussed below.
When real estate is purchased by a partnership entity, it becomes partnership property, which constitutes personality. (Mattikow, 248 NY at 406). And a notice of pendency is "inappropriate where the claimed interest is in a partnership that deals in realty, since such an interest constitutes personality." (Sherpaco LLC, 2010 NY Misc. LEXIS, at *27; Liffiton v. Di Blasi, 170 AD2d at 994—95). In other words, an action to enforce a claim pertaining to a partner's interest in real property cannot support a notice of pendency. (General Property Corp. v. Diamond, 29 AD2d 173 [1st Dep't 1968]). Likewise, real estate bought pursuant to an oral agreement to form a joint venture to deal in real estate will be regarded as personal property, held in trust by the purchaser as trustee. (Barash, 271 AD2d at 558 [holding that an oral agreement to form a partnership or a joint venture to deal in real property is not subject to statute of frauds, because the interest of each partner or joint venturer is a personality]; Elias v. Serota, 103 AD2d 410 [2d Dep't 1984]).
The complaint does not allege that Benita holds title to the Premises on behalf of the Plaintiff; it instead states that the title is held on behalf of the "Enterprise." (Verified Compl. ¶ 6). In this vein, the Plaintiff's investment appeared as a contribution to the purported "Enterprise" for the purpose of purchasing and sharing in the profits of the real estate indirectly owned by the "Enterprise." (See Verified Compl. ¶¶ 15—17 [stating that Nehmadi managed and operated the Premises on behalf of the "Enterprise" and alluding to the Plaintiff's expectation to receive profits from the "Enterprise"]). This contribution gives rise to the Plaintiff's personal interest in the "Enterprise," but does not provide grounds upon which a notice of pendency may be filed. Thus, while the Plaintiff seeks relief in form of a declaration that he had acquired an interest in the subject real property, in examining the entire complaint to determine the true nature of the action, it is apparent that the Plaintiff's cause of action is grounded in an alleged interest in a partnership or joint venture which transacted in the subject real estate.
Because the Plaintiff's interest in the Premises derives from his interest in the "Enterprise," Ostad has no interest in the specific property of the LLC and his purported interest in Benita constitutes personality. (Limited Liability Company Law § 601). It has been held that where an action involves a shareholder's rights in a corporation whose sole asset is real property, such action does not "directly affect the title to [the] real property." (Piccirillo, 161 AD2d at 254; 5303 Realty Corp., 64 NY2d at 323 [citing Brock v. Poor, 216 NY 387, 401 [1915]] [emphasizing, "it is well settled that the property interest of a shareholder and the corporation are distinct" and even complete ownership of stock would not transfer the title to corporate property]). Accordingly, such action does not support the filing of a notice of pendency. (Piccirillo, 161 AD2d at 254). In the present case, the Plaintiff's claim on the Premises appears to be merely transitory and would not necessarily "affect title to, or the possession, use or enjoyment of, real property" as required by CPLR § 6501. (CPLR § 6501).
Constructive Trust Issue.
To further support his Notice of Pendency, the Plaintiff claims that his request to impose a constructive trust on the Premises, establishes a basis for the proper filing of the Notice. (Pl.'s Affirmation in Opp'n ¶¶ 24, 28). It is true that certain actions seeking to impose a constructive trust on real property have been deemed to affect title to real property. (Shlesinger v. Schlesinger, 2002 WL 221100 [NY Sup. Ct. 2002]). However, courts applying New York law have held that the requirements of CPLR § 6501 may be satisfied if a cause of action involves the imposition of a constructive trust on real property and the judgment demanded will "affect the title to, or the possession, use or enjoyment of real property." (CPLR § 6501; Sierra Rutile Ltd. ("SRL") v. Katz, 1992 WL 42242 [S.D.NY 1992]; Morice v. Garritano, No. 33873/07, 2009 N.Y.App.Div. LEXIS 4754, at *1—2 [2d Dep't 2009]). In this vein, the analysis again turns to whether the essence of the Plaintiff's cause of action entails such direct claim on the Premises.
In United States v. Fontana, the federal district court, applying New York law opined that " [a] constructive trust is not a true trust: it is not intended, but is treated as if it were intended, to avoid unjust enrichment; and it does not impose extensive fiduciary duties on the trustee, but only the duty to make restitution." (528 F.Supp. 137, 143 [S.D.NY 1981], citing 5 Scott, Trusts (2d ed.) § 462.4). In New York, in order to state a cause of action to impose a constructive trust, a plaintiff must allege "(1) a confidential or fiduciary relation, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment" (Cerabono v. Price, 7 AD3d 479, 480 [2d Dep't 2004]; Levy v. Moran, 270 AD2d 314, 315 [2d Dep't 2000]; Nastasi v. Nastasi, 805 N.Y.S.2d 585 [2005]; Ostreicher v. Ostreicher, 238 AD2d 392, 393 [2d Dep't 1997]; Weiss v. Weiss, 186 AD2d 247, 249 [2d Dep't 1992]; Sharp v. Kosmalski, 40 NY2d 119, 121 [1976]; Simonds v. Simonds, 45 NY2d 233, 241—42 [1978]; cf. Modica v. Modica, 15 AD3d 635 [2d Dep't 2005]).
For example, in Weingarten v. Minskoff, the court declined to dismiss a notice of pendency, holding that the plaintiff alleged an "entitlement to one-third interest in real property and sought to specifically enforce his claim in the property." (198 N.Y.S. 691 [1st Dept., 1923]). However, unlike the present case, Weingarten involved a written contract between the plaintiff and the defendant for the purchase of the real property in their names jointly and when the title to property was taken by corporation, it violated the agreement of the joint venture made by the parties therein. (Id. [emphasis added]). Here, the Premises were purchased by Benita, with no mention of the Plaintiff's name in the deed.
The Plaintiff relies on a number of New York cases in support of his claim that a request to impose a constructive trust on real property will somehow validate the Notice of Pendency. However, all those cases involved a judgment directly affecting the title, possession, use, or enjoyment of real property, and/or fraudulent transfers of such property to third parties. For instance, Katz involved an alleged breach of a written, exclusive agency agreement, where the defendants acted as principles rather than agents of SRL and used fraudulently-obtained funds to purchase and/or maintain real (and other) property, which they also held as trustees for the plaintiff's benefit. (See Katz, 1992 WL 42242, supra). The Plaintiff also mistakenly relies on Klein v. Gutman for the proposition that because the complaint sought, in part, to impose a constructive trust on the property at issue, it was proper to impose a notice of pendency (see Pl.'s Affirmation in Opp'n ¶ 23; Klein, 12 AD3d 348 [2d Dep't 2004]). In Klein, the notice of pendency was sustained with respect to a partner's action to impose a constructive trust on partnership's real property because the facts of the case involved an allegedly forged and fraudulent transfer of the subject property to a third party, thereby depriving the plaintiff of his fifty percent interest in the property. (Klein, 12 AD3d at 350). No such fraudulent transfer is alleged here; the Plaintiff merely seeks to prove the existence of his ten percent interest in the "Enterprise" which indirectly owns real property.
Similarly, in Nastasi, the cause of action involved plaintiff's alleged transfer of real property to the defendant in reliance on an agreement to pay the plaintiff an annuity. (26 AD3d at 32). The Nastasi court held that such action was sufficient to impose a constructive trust on the real property at issue. (Id.). Again, the factual landscape of that case involved plaintiff's direct ownership of the subject real property (and a written agreement conveying such property to the plaintiff), where, upon the plaintiff's purported "exchange" of the real property for the annuity, no annuity payments were made to the plaintiff by the defendants. (See id.). To reiterate, transfers of real property, such as those implicated in these decisions—and which justify the imposition of constructive trusts and notices of pendency filed in connection with the underlying real property—are not present here.
Other New York cases support the rule that a cause of action to impose a constructive trust on real property will not alone permit the filing of a notice of pendency if the alleged claim does not have a direct relationship to the subject real property. In Maiorino v. Galindo, the court struck down a notice of pendency in an action alleging improper diversion of corporate assets to improve certain real property. (65 AD3d at 525). While one of the plaintiff's requests for relief involved the imposition of constructive trust on underlying real property, the court held that the complaint did not adequately plead a cause of action to impose a constructive trust on the real property in question because the plaintiff had no preexisting interest in the subject real property. (Id.).
In Yonaty, the court denied a notice of pendency motion because it found that the true action behind the plaintiff's request to impose a constructive trust on certain real property was "to enforce defendants' promise to give the plaintiff a 20% interest in the LLC which acquired the property, not an ownership interest in the real property itself." (Yonaty, 40 AD3d at 1194 [emphasis in original]). There, the plaintiff asserted that the defendants breached various oral contracts involving plaintiff's assistance in acquiring development rights to the real property in return for a 20% interest in the LLC that would take title to the property and a construction management fee. (Id. at 1194). The plaintiff sought, inter alia declaratory relief, an accounting, and imposition of a constructive trust on the subject property. (Id.) The Yonaty court held that, "while the plaintiff seeks imposition of a constructive trust on real property," the plaintiff never claimed to have an interest in the real property itself and asserted only an interest in the LLC which acquired the subject real estate. (Id. at 1195). Such claim implicated a membership interest in the LLC, which is personal property, "and an LLC member has no interest in specific property of the LLC." (Id. [quoting Limited Liability Company Law § 601]). The Yonaty court also pointed out that a realty-owning corporation, such as an LLC, itself owns its assets, and a shareholder merely owns an interest in the corporation, and does not have a direct claim on its real property. (Yonaty, 40 AD3d at 1195; see also 5303 Realty Corp. 64 NY2d at 323). Thus, in Yonaty, thecourt looked past the labels assigned to the plaintiff's causes of action and the relief sought, and ascertained that the pleadings did not support the notices of pendency. (Yonaty, 40 AD3d at 1195).
The Defendants correctly assert that while the Plaintiff seeks to impose a constructive trust, "the res of the trust remains a partnership interest." (Reply in Further Supp. 1). Like in Yonaty, the true action behind the Plaintiff's request to impose a constructive trust on the Premises was to enforce Nehmadi's oral promise to share with the Plaintiff all income and profits generated by the partnership-like entity in which he had invested. That the Plaintiff alleged a constructive trust over the proceeds of the Premises (see Hr'g Tr. 6:7—6:12, Feb. 14, 2011) is not by itself enough to convert his claim into one which complies with the necessary requirements of CPLR § 6501. While the Plaintiff claims that he is entitled to his ten percent interest in the Premises, the true nature of the transaction is reflected in Benita's legal purchase of the Premises, on behalf of a partnership entity formed by both Ostad and Nehmadi. It is true that unlike the facts in 5303 Realty Corp., the Plaintiff's request for relief did not assert ownership of stock in the LLC. (See 5303 Realty Corp., 64 NY2d at 323). But the transaction was structured similarly, such that the Plaintiff did not invest in the realty itself, but instead invested in a partnership entity dealing in realty, which purchased the Premises through Benita. New York courts have held that such action does not "directly affect title to or the possession, use or enjoyment of real property." (Yonaty, 40 AD3d at 1195; 5303 Realty Corp., 64 NY2d at 323).
The Plaintiff's claim does not involve direct ownership of the property but only entitlement to the proceeds of the Premises (Id. at 6:3—6:6; Verified Compl. ¶ 29).
In conclusion, the objective of filing a Notice of Pendency is to protect "some right, title or interest claimed by a plaintiff in the lands of a defendant, which might be lost under the recordings acts in the event of a transfer . . . ." (Braunson v. Anchorage Woods, 10 NY2d 302, 305 [1961]). Such objective is lost in the present action because the Plaintiff does not have a direct claim on the real property at issue. Thus, the Notice of Pendency would serve little purpose for the Plaintiff, because even if Nehmadi were to effect a sale of the Premises through Benita, the Plaintiff is not without relief and is entitled to vindicate his alleged rights to "all rents, profits, mortgage proceeds and other income generated by the Premises" through dissolution and accounting, as he has requested in his cause of action. (Verified Compl. ¶¶ 23—25).
The Defendants are not Entitled to Damages for a Cancelled Notice of Pendency Under CPLR §§
6514(b) and (c).The Defendants claim that they are entitled to an award of the costs incurred by filing their motion, as is generally permitted by CPLR § 6514(c). (CPLR §6514 (c)). But moving to vacate and moving to cancel a notice of pendency are two different concepts in New York. (Id; In re Murphy, 331 B.R. 107 [Bkrtcy. S.D.NY 2005]). A motion to vacate seeks to vacate a notice of pendency because CPLR § 6501 requirements for issuance of the notice were not met, whereas a motion to cancel a notice of pendency seeks to do so for one of the enumerated reasons in the statute. (In re Murphy, 331 B.R. 107; Richard J. Zitz, Inc. v. Pereira, 965 F.Supp. 350 [E.D.NY 1997]).
CPLR § 6514 (a) permits the court to cancel a notice of pendency for procedural reasons, such as untimely service of process and CPLR § 6514 (b) gives the court discretion, upon a motion by order to show cause, to cancel a notice of pendency if "the plaintiff has not commenced or prosecuted the action in good faith," which the courts have most often applied to cases involving plaintiff's unreasonable delay of the action. (CPLR §§ 6514(a), (b); see, e.g., 551 West Chelsea Partners LLC v. 556 Holding LLC, 40 AD3d [1st Dep't 2007] ("the party seeking to cancel a notice of pendency must demonstrate plaintiff has not commenced or prosecuted the action in good faith, a burden which is not easily met . . . ."); see also Williams v. Harrington, 628 N.Y.S.2d 842 [3d Dept., 1995]).
Applying these principles, neither CPLR §6514 (a) nor (b) are applicable to the Defendants' request for cancellation of the Notice of Pendency. Furthermore, during the parties' oral argument, the Defendants eschewed their motion to cancel under CPLR § 6514, instead proceeding under CPLR § 6501 to vacate the Notice of Pendency (Hr'g Tr. 5:5—5:14, Feb. 14, 2011). Accordingly, it is hereby
ORDERED that the motion to vacate the notice of pendency in this action is granted, and the County Clerk is directed upon service of a copy of this order with notice of entry, to vacate that notice of pendency; and it is further
ORDERED that the branch of the plaintiff's motion which seeks to cancel the notice of pendency with costs is denied.
Dated:
ENTER:
_____________________
J.S.C.