Opinion
111605/94.
Decided May 26, 2004.
Defendants, Abraham Heby (Heby), New York 104 FundingCorp. ("104 Funding"), and AH Funding Corp., ("AH Funding") move to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7) based on documentary evidence and for failure to state a cause of action. Plaintiff Tal Priel ("Priel") opposes the motion, which for the reasons indicated below, is granted in part and denied in part.
Background
Priel alleges that in 1996, he and Heby entered into an agreement to establish a joint venture for the purpose of purchasing properties in foreclosure that were available at below market prices and reselling them for a profit. Priel was to use his knowledge, skills and expertise in real estate to identify and bid on such properties, and to manage them after purchase and prior to resale. Heby was to fund the purchases of the properties. Priel further alleges that he and Heby agreed that the profits and losses from such properties would be divided equally between them.
According to Priel, pursuant to such agreement six properties were purchased and contracts for the sale of two were assigned to others. Heby provided funding for three of the remaining four properties, and he provided funding of $35,000 for one property. Of the four properties that were acquired, one, situated at 77 W 55th Street, was resold for a profit. Of the remaining three, one is owned by Heby and two owned by 104 Funding and AH Funding, corporations set up by Heby and to whom all shares were issued. The property owned by Heby is an apartment in which Heby's brother is residing and the property owned by 104 Funding consists of a building with tenants which Priel alleges he managed from its purchase in October, 1998. The property owned by A H Funding consists of four condominium units which Priel alleges he managed since their purchase in 1998. As to properties owned by 104 Funding and AH Funding, Priel alleges for three years no rent was received from the tenants, that litigation ensued, and that, until payments were received as a result of litigation, he paid real estate taxes, maintenance, insurance and attorney's fees.
On or about August 9, 2001, Priel and Heby signed a document, in which an initial typed written section is followed by a part printed by Heby. It provides:
This agreement is made between Tal Priel and Abraham Heby to equal[ly] divide and share the ownership of A) New York 104 Funding Corp. which consist of real estate property at 347 E 104th St. NYC and B) AH Funding Ltd. which consist of real estate property at 306 E 105th St. NYC ( the following is handprinted) After all incom [sic] and expenses which was paid by Abraham Heby for the entire real estate and above corpras corp.[sic].
The complaint alleges causes of action for (i) specific performance, requiring Heby to transfer 50% ownership of 104 Funding Corporation to Priel in accordance with the parties' agreement, (ii) specific performance requiring Heby to transfer 50% ownership of AH Funding Ltd. to Priel in accordance with the parties' agreement, (iii) a declaratory judgment declaring that there was a joint venture agreement between Priel and Heby, (iv) an accounting, (v) breach of contract in connection with Heby's use of the property at 359 East 69th Street to house his brother instead of selling the property for a profit, (vi) breach of contract arising out of Heby's failure to pay Priel his share of profits from the transaction involving 446 West 47th Street, Apt. 2B, (vii) breach of contract arising out of Heby's failure to pay Priel his share of profits from the transaction involving 153 East 87th Street, Apt 14A, (viii) breach of contract arising out of Heby's failure to pay Priel his share of profits from the transaction involving 77 West 55th Street, Apt 6E, (ix) breach of contract arising out of Heby's failure to pay Priel his share of use and occupancy received from the tenants of 347 East 104th and for reimbursement of expenses incurred in managing the property, (x) breach of contract arising out of Heby's failure to pay Priel his share of use and occupancy received from the tenants of 306 East 105th Street and for reimbursement of expenses incurred in managing the property, (xi) quantum meriut for services rendered by Priel to Heby in identifying undervalued properties in mortgage foreclosure for possible purchases, (xii) unjust enrichment in connection a $35,000 deposit given to Heby by Priel for the purpose of placing a deposit on the property, (xiii) fraud arising out of Heby's representation to plaintiff that the profits realized from the six transactions were made pursuant to a joint venture agreement between the parties, and (xiv) conversion in connection with the $35,000 deposit given to Heby by Priel for the purpose of placing a deposit on the property.
Heby moves to dismiss the first ten causes of action against him, arguing that there did not exist any agreement to establish a joint venture for the purchase of property and asserting that any such oral agreement would be barred by the Statute of Frauds. Heby also argues that any joint venture agreement would have been subsumed in the subsequent written agreement between the parties, which did not become effective as it contains an unfulfilled condition precedent requiring that Heby recover all income and expenses from the properties. Heby further argues that as Priel is not a licensed real estate broker he is not entitled to sue to recover compensation for any services that he may have rendered in connection with locating the properties for purchase.
Next, Heby argues that accounting claim must be dismissed as Priel has not alleged any wrongdoing on his part which would require an accounting. Heby also contends that Priel cannot recover in quantum meriut for services rendered in locating real estate, as such agreements must be in writing. He also asserts that the claim for unjust enrichment must be dismissed as the complaint alleges the existence of an express contract and that the claim is inadequately pleaded. With respect to the fraud claim, Heby contends that it is not actionable as it alleges only that Heby did not intend to comply with his contractual obligations, and that the claim in not sufficiently pleaded. As for the conversion claim, Heby argues that it is time-barred as the alleged conversion occurred more than three years prior to the commencement of the action, and that in any event, the conversion claim fails to state in a cause of action as it does not allege that Priel had ownership or control of the money allegedly converted.
Discussion
When considering a dismissal motion based on the pleadings "the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law. . . ." Guggenheimer v. Ginzburg, 43 NY2d 268, 275 (1977) (citations omitted); See also, Foley v. D'Agostino, 21 AD2d 60 (1st Dept 1964). However, to the extent that "evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one." Guggenheimer v. Ginzburg, 43 NY2d, at 275.
Under this standard, the first and second causes of action, which allege Heby's breach of the parties' written agreement dated August 9, 2001 requiring the equal division of the ownership of the defendant corporations, are sufficient to state a cause of action. Defendants argue that the second part of the agreement, i.e. that portion beginning with "after all incomand expenses which was paid by Abraham Heby for the entire real estate and above corpras corp" should be interpreted to mean that ownership of the property would only be shared after all income and expenses was paid to Heby from the properties and corporations. Defendants then argue that as this condition has not yet been met, no obligation to divide the ownership has arisen.
In contrast, Priel asserts that the second portion, which was added at Heby's request and therefore should be interpreted against Heby, means that although the parties agreed to divide the property of the corporations equally, that Heby retained his claim for moneys that he put into the corporations. Both Heby and Priel submit affidavits supporting their interpretation of the agreement. Under these circumstances and as the agreement is ambiguous as to whether the second portion constitutes a condition precedent to performance under the agreement, the motion to dismiss must be denied. See Ruttenberg v. Davidge Data Systems Corp., 215 AD2d 191 (1st Dept 1995).
Next, defendants' various arguments addressed to the alleged joint venture agreement do not provide a basis for dismissal of the complaint. "A joint-venture agreement is generally defined as 'a special combination of two or more persons wherein some specific . . . venture a profit is jointly sought without actual partnership or corporate designation." Natuzzi v. Rabady, 177 AD2d 620, 622 (2d Dept 1991) (citations omitted), quoting Forman v. Lumm, 214 App Div 579, 583 (1st Dept 1925).
The indicia of the existence of a joint venture are: acts manifesting the intent of the parties to be associated with the joint venturers, mutual contribution to the joint undertaking through the combination of property, financial resources, effort, skill or knowledge, a measure of joint proprietorship and control over the enterprise and a provision for sharing profits and losses. . . . the intent of the parties, as one of the factors in determining whether the joint venture exists, may be express or implied.
Richbell Information Services, Inc. v. 529 Jupiter Partners, L.P., 309 AD2d 288, 298 (1st Dept 2003) (citations omitted). Here, allegations in the complaint (i) that the parties entered into a joint venture for the purpose of purchasing properties in foreclosure that were available at below market prices and reselling them for a profit, (ii) that Priel was to use his knowledge, skills and expertise in real estate to identify and bid on such properties, and to manage them after purchase and prior to resale while Heby was to fund the purchases of the properties, and (iii) that the parties agreed that the profits and losses from such properties would be divided equally between them is sufficient to plead the existence of an oral joint venture agreement.
Moreover, the oral joint venture agreement is not rendered void by the Statute of Frauds since when, as alleged here, a joint venture is formed for the purpose dealing in real property, the interest of each joint venturer is deemed to be personalty. See Barash v. Estate of Sperlin, 271 AD2d 558 (2d Dept 2000); Walsh v. Rechler, 151 AD2d 473 (2d Dept 1989).
In addition, contrary to defendants' position, the formation of the defendant corporations does not require a finding that the alleged joint venture between the parties ceased to exist. Although earlier case law held that a joint venture cannot be carried out by individuals through the corporate form, this rule has been qualified to permit the individuals to continue the joint venture between themselves as long as third parties, such as creditors, are not involved and the joint venture does not conflict with the corporation's functioning. See Richbell Information Services, Inc. v. 529 Jupiter Partners, L.P., 309 AD2d at 299-300; Blank v. Blank, 222 AD2d 851 (3d Dept 1995). As this dispute is between the purported participants in the joint venture and not third parties and as it appears that the defendant corporations were utilized by the parties to conduct business and there is not apparent conflict with the corporation's functioning, it cannot be said, at least at this juncture, that the alleged joint venture ceased to exist after the creation of the defendant corporations.
Moreover, on this dismissal motion, it cannot be said that the written agreement between the parties dated August 9, 2001 supercedes any separate oral agreement for a joint venture. Furthermore, as the complaint, fairly read, does not seek to recover commissions earned by Priel as a real estate broker for defendants but, instead, to obtain his share of profits as a principal acting for a joint venture, the complaint cannot be dismissed on the ground that Priel is not a licensed real estate broker. And, MKD Capital Corp. v. Miller, 170 Misc2d 1002, 1003 (Sup Ct. NY Co 1996) on which defendants rely is not controlling here as, in that case, it was undisputed that defendants turned down plaintiff's offer to create a joint venture and that plaintiff's role was to "facilitate the purchase of the [subject] property by defendants." Thus, the court found that plaintiff acted as a real estate broker and was required to be licensed in order to recover a commission. In contrast, the complaint here is based on the theory that defendants owe plaintiff moneys as a joint venturer and thus states a cause of action even if Priel is not licensed to sell real estate. Likewise, since the alleged oral agreement was to create a joint venture for the purpose of dealing in real property and not for the payment of a commission or finder's fee, the agreement need not be in writing. See Barash v. Estate of Sperlin, 271 AD2d at 559.
Next, the complaint states a cause of action for an accounting as it alleges a fiduciary relationship with Heby and a breach of a duty imposed by that relationship respecting property in which Priel has an alleged interest. See Adam v. Cutner Rathkopf, 238 AD2d 234 (1st Dept 1997). In addition, contrary to defendants' position, an allegation of wrongdoing is not an indispensable element of a demand for an accounting. Id. Next, in the event the contracts between the parties are found to be unenforceable, allegations that Priel performed services in good faith, that Heby accepted these services and expected compensation for these services are adequate to state a cause of action for quantum meruit. See Curtis Properties Corp v. Greif Cos., 212 AD2d 259 (1st Dept 1995). The allegations in the complaint are also sufficient to state a claim for unjust enrichment, and as the existence of an express contract is disputed, Priel is not required to elect his remedies at this time. See Wilmoth v. Sandor, 259 AD2d 252, 254 (1st Dept 1999).
Defendants' argument that the fraud claim must be dismissed as it is duplicative of the breach of contract claim has merit. "'A fraud claim is not sufficiently stated where it alleges that a defendant did not intend to perform a contract . . . when he made it.'" Eastman Kodak Co. v. Roopak Enterprises, Ltd., 202 AD2d 220, 222 (1st Dept 1994) (quoting, Gordon v. Dino De Laurentiis Corp, 141 AD2d 435, 436 (1st Dept 1988)). Instead, "a viable fraud claim concerning a contract must allege misrepresentations of present facts (rather than merely future intent) that were collateral to the contract and which induced the allegedly defrauded party to enter into the contract." Orix Credit Alliance, Inc. v. R.E. Hable Co., 256 AD2d 114, 115 (1st Dept 1998).
Here, the fraud claim is based solely on allegations that the Heby knew at the time he entered into the joint venture agreement with Priel that he did not intend to comply with it, and thus does not state a cause of action for fraud. Moreover, instead of being collateral to the contract, the misrepresentation alleged by plaintiff is directly related to the contract, and the damages sought are simply contract damages. See Orix Credit Alliance, Inc. v. R.E. Hable Co., 256 AD2d at 115. Defendants' fraud claim also lacks the particularity required under CPLR 3016(b), as it fails to allege the circumstances surrounding the fraud, including the time and place of the purported misrepresentations. Eastman Kodak Co. v. Roopak Enterprises, Ltd., 202 AD2d at 222.
To properly plead a cause of action for conversion, it is incumbent upon plaintiff to allege facts establishing that he owned or had a superior right to the materials in question, that he demanded their return, and that defendant refused to deliver them. See Weider v. Chemical Bank, 202 AD2d 168 (1st Dept), lv denied 83 NY2d 759 (1994). "A conversion action cannot predicated on an equitable interest or a mere breach of a contractual obligation." Traffix Inc. v. Herold, 269 FSupp2d 223 (SD NY 2003). As Priel has failed to plead that he had actual ownership of the money when he delivered it to Heby but, instead, alleges that he was entitled to the money based on the contractual obligations owed by Heby to him, the complaint fails to state a cause of action for conversion.
Conclusion
In view of the above, it is
ORDERED that the motion to dismiss is granted only to the extent of dismissing the thirteenth cause of action for fraud and the fourteenth cause of action for conversion; and it is further
ORDERED that the thirteenth and fourteenth causes of action are dismissed and severed; and it is further
ORDERED that the remainder of the action shall continue.