Preview
FILED: NEW YORK COUNTY CLERK 03/24/2011 INDEX NO. 650159/2010
NYSCEF DOC. NO. 36-1 RECEIVED NYSCEF: 03/24/2011
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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HARVEY RUDMAN and HAROLD KUPLESKY, :
on Behalf of Each of Them Individually and :
on Behalf of Starrett City Preservation LLC, :
Derivatively, :
:
Plaintiffs, : Index No. 650159/2010
:
-against- : ORAL ARGUMENT REQUESTED
:
CAROL GRAM DEANE, THE ESTATE OF :
DISQUE D. DEANE by CAROL G. DEANE, :
as TEMPORARY EXECUTRIX, SALT :
KETTLE LLC, ST. GERVAIS LLC, and :
STARRETT CITY PRESERVATION LLC, :
DD SPRING CREEK LLC, SK SPRING :
CREEK LLC, SPRING CREEK PLAZA :
LLC, DD SHOPPING CENTER LLC and :
SK SHOPPING CENTER LLC, :
:
Defendants. :
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MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT SPRING CREEK PLAZA
LLC’S MOTION TO DISMISS SECOND AMENDED COMPLAINT
FOLEY & LARDNER LLP
Peter N. Wang
Jonathan H. Friedman
90 Park Avenue
New York, New York 10016
Tel: (212) 682-7474
Attorneys for Defendant Spring
Creek Plaza LLC
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii
PRELIMINARY STATEMENT .................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................. 2
I. Incentive Agreement and Refinancing................................................................................ 2
II. Plaintiffs’ Claims ................................................................................................................ 4
ARGUMENT.................................................................................................................................. 5
I. The Second Claim, Alleging Aiding and Abetting Breach of Fiduciary Duty, Fails to
State a Claim Against Spring Creek. .................................................................................. 6
A. Plaintiffs Fail to Allege the Requisite Substantial Assistance. ....................................... 7
B. Plaintiffs Fail to Plead that Spring Creek’s Alleged Conduct Caused Their Alleged
Damages.......................................................................................................................... 9
C. Plaintiffs Improperly Combine Individual and Derivative Claims............................... 10
II. The Sixth Claim, Alleging Conversion, Fails to State a Claim Against Spring Creek..... 11
A. Plaintiffs Fail to Allege Specifically Identifiable Property........................................... 12
B. Plaintiffs Fail to Allege that They Ever Owned, Possessed or Controlled the Allegedly
Converted Property. ...................................................................................................... 13
III. The Seventh and Eighth Claims, Alleging Tortious Interference with Contract, Fail to
State a Claim Against Spring Creek. ................................................................................ 14
A. Plaintiffs Fail to Allege Intentional Procurement of any Breach.................................. 15
B. Plaintiffs Fail to Allege that Spring Creek’s Alleged Conduct Was the Proximate
Cause of Defendants’ Alleged Breaches of the Preservation Agreement and the
Corresponding Assignments. ........................................................................................ 16
IV. The Tenth Claim, Seeking Declaratory Judgment, Fails to State a Claim Against Spring
Creek. ................................................................................................................................ 17
CONCLUSION............................................................................................................................. 18
i
TABLE OF AUTHORITIES
CASES
Aetna Cas. & Sur. Co. v. Merchants Mut. Ins. Co.,
84 A.D.2d 736 (1st Dep’t 1981) ................................................................................................7
Apple Records, Inc. v. Capitol Records, Inc.,
137 A.D.2d 50 (1st Dep’t 1988) ..............................................................................................17
Artech Info. Sys. L.L.C. v. Tee,
280 A.D.2d 117 (1st Dep’t 2001) ............................................................................................18
Balkan Demolition Co. v. Yorkshire Ins. Co. of N.Y.,
3 A.D.2d 902 (1st Dep’t 1957) ................................................................................................18
Barbour v. Knecht,
296 A.D.2d 218 (1st Dep’t 2002) ............................................................................................10
Beecher v. Feldstein,
8 A.D.3d 597 (2d Dep’t 2004) .................................................................................................15
Biondi v. Beekman Hill House Apartment Corp.,
257 A.D.2d 76 (1st Dep’t 1999) ................................................................................................5
Burrowes v. Combs,
25 A.D.3d 370 (1st Dep’t 2006) ..............................................................................................16
Esteva v. Nash,
55 A.D.3d 474 (1st Dep’t 2008) ................................................................................................8
Fantozzi v. Axsys Techs., Inc.,
No. 07 Civ. 02667, 2008 WL 4866054 (S.D.N.Y. Nov. 6, 2008) ...........................................14
Franklin v. Winard,
199 A.D.2d 220 (1st Dep’t 1993) ..............................................................................................6
Interstate Adjusters, Inc. v. First Fidelity Bank,
251 A.D.2d 232 (1st Dep’t 1998) ...................................................................................... 13-14
Kaufman v. Cohen,
307 A.D.2d 113 (1st Dep’t 2003) .......................................................................................... 7-9
Lama Holding Co. v. Smith Barney Inc.,
88 N.Y.2d 413 (1996) ..............................................................................................................15
NY Medscan, LLC v. JC-Duggan Inc.,
40 A.D.3d 536 (1st Dep’t 2007) ..............................................................................................11
ii
Peters Griffin Woodward, Inc. v. WCSC, Inc.,
88 A.D.2d 883 (1st Dep’t 1982) ..............................................................................................13
RSM Prod. Corp. v. Fridman,
643 F. Supp. 2d 382 (S.D.N.Y. 2009)................................................................................ 15-16
Singer Asset Fin. Co. v. Melvin,
33 A.D.3d 355 (1st Dep’t 2006) ..............................................................................................18
Skillgames, LLC v. Brody,
1 A.D.3d 247 (1st Dep’t 2003) ..................................................................................................5
Soviero v. Carroll Grp. Int’l, Inc.,
27 A.D.3d 276 (1st Dep’t 2006) ..............................................................................................13
Spitzer v. Schussel,
48 A.D.3d 233 (1st Dep’t 2008) ........................................................................................ 17-18
Stack Elec. Inc. v. DiNardi Constr. Corp.,
161 A.D.2d 416 (1st Dep’t 1990) ............................................................................................13
Stanfield Offshore Leveraged Assets Ltd. v. Metro. Life Ins. Co.,
64 A.D.3d 472 (1st Dep’t 2009) ................................................................................................9
Sud v. Sud,
211 A.D.2d 423 (1st Dep’t 1995) ..............................................................................................5
Trump v. The Carlyle Grp.,
No. 08 Civ. 603097, 2010 WL 1285443 (N.Y. Sup. Ct. Mar. 29, 2010)...................................9
Turk v. Angel,
293 A.D.2d 284 (1st Dep’t 2002) ............................................................................................16
Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker,
56 A.D.3d 1 (1st Dep’t 2008) ..................................................................................................15
Westdeutsche Landesbank Girozentrale v. Learsy,
284 A.D.2d 251 (1st Dep’t 2001) ..............................................................................................5
Wornow v. Register.com, Inc.,
8 A.D.3d 59 (1st Dep’t 2004) ..................................................................................................12
STATUTES
CPLR § 3013................................................................................................................................1, 5
CPLR § 3016(b)....................................................................................................................... 1, 5-6
CPLR § 3211(a)(7) ......................................................................................................................1, 5
iii
Defendant Spring Creek Plaza LLC (“Spring Creek”) submits this Memorandum of Law
in support of Spring Creek’s Motion to Dismiss the Second Amended Complaint pursuant to
§§ 3013, 3016(b), and 3211(a)(7) of the New York Civil Practice Law and Rules. The Second
Amended Complaint (“SAC”), which was filed by plaintiffs Harvey Rudman (“Rudman”) and
Harold Kuplesky (“Kuplesky”) individually and purportedly on behalf of Starrett City
Preservation LLC derivatively, is annexed hereto as Exhibit 1.
PRELIMINARY STATEMENT
This case is an effort by Plaintiffs to assert claims under a written agreement (and two
subsequent assignments) to which Spring Creek is not a party. Specifically, Plaintiffs were
employed by the entities managing a billion dollar real estate enterprise called Starrett City
Associates LP (“SCA”). Plaintiffs allege that defendants Disque Deane (“Deane”) and Salt
Kettle LLC (“SKI”), who together had a residual economic interest in 19.9% of SCA, sought to
motivate various individuals, including plaintiffs Rudman and Kuplesky, to help achieve a sale
or refinancing of SCA by creating an economic incentive for them. To this end, in 2006, various
parties not including Spring Creek signed the Preservation Agreement, creating an entity called
Starrett City Preservation LLC (“Preservation”) of which Rudman and Kuplesky together had a
minority membership share. On the same day, SKI executed a written assignment of its
economic interests in SCA to Preservation and Deane executed a written assignment of his
economic interests as Managing General Partner (“MGP”) of SCA to Preservation. The heart of
the Second Amended Complaint is Plaintiffs’ allegation that Preservation did not receive the
economic interests to which it was entitled under the Preservation Agreement (which referenced
the assignments) and the corresponding assignments themselves.
1
But defendant Spring Creek’s connection to this story is beyond tenuous; it is non-
existent. Plaintiffs allege neither that Spring Creek was a party to the Preservation Agreement
(or the corresponding assignments) nor that Spring Creek owed plaintiffs any duty. It is not
surprising, therefore, that Spring Creek is mentioned in only a handful of allegations scattered
throughout the 48 pages of the abstruse Second Amended Complaint, the first version of the
complaint that even names Spring Creek as a defendant. Indeed, to the extent that the Second
Amended Complaint alleges any conduct by Spring Creek, it lumps Spring Creek together with
many other defendants to make collective allegations, many of which are self-evidently
inapplicable to Spring Creek. This belated and slap-dash inclusion of Spring Creek demonstrates
Plaintiffs’ own awareness that Spring Creek has no place in this litigation.
Plaintiffs seek to overcome their fatal lack of a relationship with Spring Creek—
contractual, fiduciary, or otherwise—by concocting wholly inapplicable claims of aiding and
abetting breach of fiduciary duty, conversion, and tortious interference with contract, as well as
seeking a declaratory judgment. As explained below, these claims are utterly meritless.
STATEMENT OF FACTS1
Because the Second Amended Complaint does not include any particularized allegations
of misconduct by Spring Creek, the facts alleged regarding Spring Creek are both sparse and
straightforward.
I. Incentive Agreement and Refinancing
Starrett City is an apartment complex in Brooklyn that houses over 12,000 residents, and
boasts extensive facilities including a shopping center. SAC ¶ 27. SCA, the partnership that
1
Although the facts alleged in the Second Amended are assumed to be true for purposes of this
motion, many of them are not.
2
beneficially owns Starrett City, has hundreds of partners—mostly limited partners—who have
residual economic interests in SCA. Id. at ¶¶ 8, 11. Disque Deane served as MGP until his death
several months ago at the age of 89. Id. at ¶ 16. The day-to-day operations of SCA were
overseen by entities by whom plaintiffs Rudman and Kuplesky were employed. Id. at ¶¶ 8, 28-
30.
In 2006, SCA was seeking to exploit, through a sale or refinancing, the equity it had built
up in Starrett City, and offered a number of individuals, including Plaintiffs, a chance to benefit
economically from such a sale or refinancing as an incentive to help achieve that goal. Id. at ¶¶
3-5, 40. To this end, in 2006, a number of documents were executed: (1) the Preservation
Agreement created a new entity called Preservation, of which Rudman and Kuplesky had a
minority share, and was signed by all members of that entity (id. at ¶ 46); (2) the MGP
Assignment, which assigned the MGP’s economic interest in SCA to Preservation (id. at ¶ 51);
and (3) the SKI Assignment, which assigned SKI’s economic interest in SCA to Preservation
(id.). The MGP (Deane) and SKI (the other general partner of SCA) together had a residual
economic interest in 19.9% of SCA, and signed the Preservation Agreement for the limited
purpose of acknowledging the assignments. Id. at ¶ 42. Notably, Spring Creek did not yet exist
and was not a party to either the Preservation Agreement or the corresponding assignments.
In November 2009, Spring Creek was created as a single-purpose entity in anticipation of
the refinancing of Starrett City. Id. at ¶¶ 22, 74, 79. The residual economic interests in Spring
Creek were distributed to the same limited and general partners and in the same proportion as the
residual economic interests in SCA. Id. at ¶¶ 22, 79. On December 17, 2009, Starrett City was
refinanced with a loan from Wells Fargo. Id. at ¶ 79. At that time, SCA transferred to Spring
Creek the Starrett City shopping center and seven undeveloped parcels of land (which were not
3
part of the refinancing collateral for Starrett City), as well as $3,273,307 of the refinancing
proceeds for Spring Creek’s use. Id. at ¶¶ 79, 81. Because the MGP and SKI together have a
residual economic interest in 19.9% of Spring Creek, just as they have a residual economic
interest in 19.9% of SCA, these transfers did not diminish the economic interest of the MGP and
SKI in the transferred property and funds. Id. at ¶¶ 22, 42.
II. Plaintiffs’ Claims
Plaintiffs allege that, pursuant to the Preservation Agreement, the MGP Assignment, and
the SKI assignment, Preservation is entitled to the MGP’s and SKI’s economic interests in SCA,
including the MGP’s and SKI’s residual economic interest in Spring Creek. Id. at ¶ 87.
The claims alleging breach of the written agreement and corresponding assignments are
not even asserted against Spring Creek. First, Plaintiffs allege that Deane and SKI breached the
Deane Assignment and the SKI Assignment. Id. at ¶¶124-39. Second, a claim for breach of the
Preservation Agreement is asserted against Deane, SKI, Carol Deane (Disque Deane’s wife), and
Preservation, and not against Spring Creek. Id. at ¶¶ 140-46. Plaintiffs also do not assert their
claim for breach of fiduciary duty against Spring Creek—that is directed only at Carol Deane
and St. Gervais, the largest limited partner of SCA and the sole member of SKI. Id. at ¶ 18, 112-
18.
The specific claims asserted against Spring Creek are impossible to identify, because the
Second Amended Complaint also asserts each such claim against numerous other defendants
without specifying which allegations apply to Spring Creek. Id. at ¶¶ 119-23, 147-62. In
essence, these claims are all based on the allegation that Spring Creek received assets from SCA
in connection with the refinancing and failed to deliver those assets to Preservation and that
Preservation was obligated to distribute those assets, whether tangible or intangible, to its
4
members. Id. at ¶¶ 87-91. The claims are limited to: (1) aiding and abetting breach of fiduciary
duty (id. at ¶¶ 119-23); (2) conversion apparently based on the same conduct (id. at ¶¶ 147-53);
and (3) tortious interference (id. at ¶¶ 154-62). But Plaintiffs have not made—and cannot
make—any allegation in support of these claims that Spring Creek breached an agreement,
violated a duty, or committed any other specific or identifiable misconduct.
As the foregoing facts show, and the case law discussed below confirms, Plaintiffs’
claims are entirely frivolous and without any support, and should be dismissed in their entirety.
ARGUMENT
This motion to dismiss is brought under CPLR § 3211(a)(7). On such motions, although
facts pleaded in a complaint are generally presumed to be true and afforded every favorable
inference in determining whether a complaint adequately states a cause of action, “allegations
consisting of bare legal conclusions, as well as factual claims either inherently incredible or
flatly contradicted by documentary evidence, are not entitled to such consideration.” Sud v. Sud,
211 A.D.2d 423, 424 (1st Dep’t 1995); see also Skillgames, LLC v. Brody, 1 A.D.3d 247, 250
(1st Dep’t 2003); Biondi v. Beekman Hill House Apartment Corp., 257 A.D.2d 76, 81 (1st Dep’t
1999).
CPLR § 3013 requires that claims be pleaded with sufficient particularity “to give the
court and parties notice of the transactions, occurrences, or series of transactions or occurrences,
intended to be proved and the material elements of each cause of action or defense,” and CPLR
§ 3016(b) further requires that, for certain claims, including aiding and abetting breach of
fiduciary duty, “the circumstances constituting the wrong shall be stated in detail.” See
Westdeutsche Landesbank Girozentrale v. Learsy, 284 A.D.2d 251, 252 (1st Dep’t 2001)
(affirming dismissal of counterclaims where, among other defects, they failed to “identify the
5
exact misrepresentation made, the person who made it, or when or where it was made.”);
Franklin v. Winard, 199 A.D.2d 220, 220-21 (1st Dep’t 1993) (dismissing claim for failure to
meet specificity requirements of CPLR § 3016(b) where complaint “merely alleged that ‘some or
all’ of the defendants” engaged in alleged misconduct).
I. The Second Claim, Alleging Aiding and Abetting Breach of Fiduciary Duty, Fails to
State a Claim Against Spring Creek.
Plaintiffs, “acting individually and derivatively,” allege that Spring Creek and six other
defendants aided and abetted two breaches of fiduciary duty by Carol Deane: (i) Carol Deane’s
alleged failure to make due demand that MGP and SKI (and their affiliates) deliver the
refinancing proceeds to Preservation and (ii) Carol Deane’s alleged failure to direct Preservation
to pay Plaintiffs their full share. SAC ¶¶ 115, 119, 121. In particular, Plaintiffs allege:
Deane, SKI, Spring Creek, DD/SCA, SK/SCA, DD/Shopping and
SK/Shopping . . . provided substantial assistance to her by, among
other things: (i) failing and refusing to deliver the MGP/SKI’s
Share of Refinancing Proceeds to Preservation, (ii) transferring, or
arranging for the transfer of, part or all of the MGP/SKI’s Share of
Refinancing Proceeds to third parties rather than to Preservation,
and (iii) using Deane’s influence and control over Carol Deane to
cause her to breach her fiduciary duties to Preservation and to
Plaintiffs.
Id. at ¶ 121. Plaintiffs allege that they have been damaged by this conduct in that: (i)
“Preservation has been deprived of the MGP/SKI’s Share of Refinancing Proceeds,” (ii) “the
Plaintiffs have been deprived of their distributable share of the MGP/SKI’s Share of Refinancing
Proceeds,” and (iii) “[Plaintiffs] have incurred and will continue to incur substantial expenses,
including fees for lawyers and other professionals.” Id. at ¶ 122.
These amalgamated allegations directed collectively at seven defendants fail to state a
claim because they (1) lack the requisite particularity regarding the allegedly offending conduct
of Spring Creek, (2) fail to identify any conduct that could be attributed to Spring Creek that
6
substantially assisted the alleged breaches of fiduciary duty, and (3) fail to allege any damages
arising from Spring Creek’s alleged conduct.
A. Plaintiffs Fail to Allege the Requisite Substantial Assistance.
A claim for aiding and abetting a breach of fiduciary duty must be dismissed absent
allegations that defendant enabled a breach of fiduciary duty by providing “substantial
assistance.” See Kaufman v. Cohen, 307 A.D.2d 113, 126 (1st Dep’t 2003). Plaintiffs’
allegations of substantial assistance are insufficient for several reasons, each of which separately
provides an independent basis for dismissal of this claim.
First, instead of specifying how Spring Creek provided substantial assistance, the Second
Amended Complaint offers only collective allegations against a hodgepodge of defendants—and
not a single allegation of misconduct specific to Spring Creek. These group allegations identify
three types of substantial assistance that “Deane, SKI, Spring Creek, DD/SCA, SK/SCA,
DD/Shopping and SK/Shopping” allegedly provided collectively. SAC ¶ 121. So haphazardly
general are these allegations that the third type—an allegation that some or all of the seven
defendants “us[ed] Deane’s influence and control over [his wife] Carol Deane” (id.)—is not even
coherent with respect to Spring Creek. Deane was neither an officer nor a director of Spring
Creek, and the Second Amended Complaint alleges no facts indicating how Spring Creek might
have used Deane’s influence to control Carol Deane. This lack of particularity requires
dismissal. See Aetna Cas. & Sur. Co. v. Merchants Mut. Ins. Co., 84 A.D.2d 736, 736 (1st Dep’t
1981) (dismissing complaint on ground that “the first four causes of action are pleaded against
all defendants collectively without any specification as to the precise tortious conduct charged to
a particular defendant”).
7
Second, the Second Amended Complaint fails to allege any conduct by Spring Creek that
enabled the alleged breaches of fiduciary duty by Carol Deane, as required to plead substantial
assistance. See Esteva v. Nash, 55 A.D.3d 474, 475 (1st Dep’t 2008) (affirming grant of motion
to dismiss claim for aiding and abetting breach of fiduciary duty, holding that claim “must . . .
fail” absent “facts sufficient to suggest that [defendant] provided substantial assistance to
plaintiffs in their alleged breach of fiduciary duty.”); Kaufman, 307 A.D.2d at 126 (“Substantial
assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when
required to do so, thereby enabling the breach to occur.”). The alleged substantial assistance—
that Defendants arranged the transfer of the MGP/SKI’s Share of Refinancing Proceeds and did
not deliver those proceeds to Preservation—could not have enabled the alleged breaches of
fiduciary duty by Carol Deane. The Second Amended Complaint alleges that Spring Creek and
six other defendants aided and abetted two breaches by Carol Deane: her alleged (1) “fail[ure] to
make due demand on the MGP and SKI (and their affiliates) to deliver to Preservation the
entirety of the MGP/SKI’s Share of Refinancing Proceeds and (2) “fail[ure] to direct
Preservation to pay to Plaintiffs their full share of the Due Distributions.” SAC ¶ 115. The
Second Amended Complaint, however, does not allege any conduct by Spring Creek related to
Carol Deane’s ability to make due demand on MGP and SKI or on her ability to direct
Preservation to pay Plaintiffs. Indeed, Plaintiffs do not and cannot allege any facts indicating
that Spring Creek had anything to do with Carol Deane’s interaction with these entities.
Third, the first category of alleged substantial assistance discussed above—that
Defendants failed to deliver proceeds to Preservation—is defective for the further reason that it is
an allegation of inaction, which is insufficient to plead substantial assistance as a matter of law
where the defendant does not have a direct fiduciary duty to act. Kaufman, 307 A.D.2d at 126
8
(explaining that “the mere inaction of an alleged aider and abettor constitutes substantial
assistance only if the defendant owes a fiduciary duty directly to the plaintiff”); see also
Stanfield Offshore Leveraged Assets Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dep’t
2009) (affirming grant of motion to dismiss aiding and abetting fraud claim where plaintiffs
failed to plead substantial assistance by alleging that defendant bank arranging refinancing
contacted prospective investors and distributed information without disclosing that entity seeking
refinancing was insolvent; holding that, without “duty to disclose,” defendant “could not be held
liable for the failure to disclose any information”). Here, the Second Amended Complaint does
not—and cannot—allege that Spring Creek owed a fiduciary duty to Preservation.
B. Plaintiffs Fail to Plead that Spring Creek’s Alleged Conduct Caused Their
Alleged Damages.
A further basis for dismissal—of this claim and all others asserted against Spring
Creek—is that Plaintiffs have failed to plead that their alleged damages were caused by Spring
Creek’s alleged conduct. See Trump v. The Carlyle Grp., No. 08 Civ. 603097, 2010 WL
1285443, at *10 (N.Y. Sup. Ct. Mar. 29, 2010) (granting motion to dismiss claim for aiding and
abetting breach of fiduciary duty on ground that damages were not “a direct and foreseeable
result of the conduct in question”).2 Here, the Second Amended Complaint alleges that Plaintiffs
were damaged by Carol Deane’s alleged breaches in that “Preservation has been deprived of the
2
The unreported cases cited herein are attached hereto as Exhibit 2.
9
MGP/SKI’s Share of Refinancing Proceeds.” SAC ¶ 122.3 But the alleged failure of the MGP
and SKI to give Preservation the fruits of the assigned economic interest could not have been
caused by the transfer of assets from SCA to Spring Creek: This transfer had no impact on Deane
and SKI’s economic interests assigned to Preservation because Deane and SKI had the same
residual economic interest in both SCA and Spring Creek. SAC ¶ 22. In other words, for any
assets that SCA transferred to Spring Creek, Deane and SKI had an identical economic interest in
those assets before and after the transfer. Thus, Spring Creek’s alleged possession of a
transferred asset could not have enabled any failure by Deane and SKI to fulfill their obligations
to Preservation.
C. Plaintiffs Improperly Combine Individual and Derivative Claims.
Plaintiffs not only lump together their claims against seven different defendants, but also
combine individual and derivative claims into a single cause of action for aiding and abetting
breach of fiduciary duty. SAC ¶ 119 (alleging that Plaintiffs are “acting individually and
derivatively”). This improper and confusing practice provides an independent basis for dismissal
of this claim. See Barbour v. Knecht, 296 A.D.2d 218, 228 (1st Dep’t 2002) (“The mingling of
derivative claims and individual claims requires dismissal of the causes of action so affected.”).
3
Plaintiffs also allege that they were damaged in that they “have been deprived of their
distributable share of the MGP/SKI’s Share of the Refinancing Proceeds.” (SAC ¶ 122.) If this
allegation means that Preservation did not receive funds that it would have distributed to
Plaintiffs, it is indistinguishable from the allegation discussed above that “Preservation has been
deprived of the MGP/SKI’s Share of Refinancing Proceeds.” Id. If it means that Preservation
failed to properly distribute the Refinancing Proceeds it received, that is a dispute between
Plaintiffs and Preservation—and clearly not an allegation that Spring Creek caused damage.
Either way, it provides no basis for a claim against Spring Creek.
10
II. The Sixth Claim, Alleging Conversion, Fails to State a Claim Against Spring Creek.
Plaintiffs seek to plead conversion by once again improperly lumping together Spring
Creek with seven disparate defendants—an independent pleading deficiency that requires
dismissal. This claim is based on the group allegation that “Deane, SKI, DD/SCA, SK/SCA,
Spring Creek, DD/Shopping, SK/Shopping and Carol Deane (through her control of SKI) have
exercised unauthorized dominion over the Due Distributions by failing and refusing to deliver
them to Preservation.” SAC ¶ 150. The Second Amended Complaint defines “Due
Distributions” as “the payments made, or that should have been made to Preservation, and that
Preservation was obligated to distribute to its members.” Id. at ¶ 89. In particular, it identifies
four such “payments”:
(i) the MGP’s and SKI’s (or their affiliates’) share of the cash
proceeds from the Refinancing, (ii) the MGP’s and SKI’s (or their
affiliates’) ownership interest in Spring Creek, including the assets
owned by Spring Creek that were transferred to it from SCA, (iii)
the MGP’s and SKI’s (or their affiliates’) share of the tax
deductions arising from the charitable contributions of the religious
site and the vacant parcels, and (iv) the value of the MGP’s and
SKI’s (or their affiliates) increased equity in SCA resulting from
the cash reserves set aside from the cash proceeds for capital
improvement and other purposes and any dividends or other
distributions made in respect thereof.
Id.
To avoid dismissal, plaintiffs alleging conversion “must show legal ownership or an
immediate superior right of possession to specifically identifiable property, and must
demonstrate that the defendant exercised unauthorized dominion over that property to the
exclusion of the plaintiff’s rights.” NY Medscan, LLC v. JC-Duggan Inc., 40 A.D.3d 536, 537
(1st Dep’t 2007). Plaintiffs’ conversion claim has at least two fatal defects: (1) the allegedly
converted property is not specifically identifiable, a required element of conversion, and (2)
11
Plaintiffs do not and cannot allege that they ever owned, possessed, or controlled the allegedly
converted property, as required to plead conversion.
A. Plaintiffs Fail to Allege Specifically Identifiable Property.
A conversion claim that fails to identify any “specifically identifiable property” must be
dismissed. See Wornow v. Register.com, Inc., 8 A.D.3d 59, 60 (1st Dep’t 2004) (affirming
dismissal of conversion claim on ground that series of $34.99 charges to plaintiff’s credit card
were not “specifically identifiable”). The Second Amended Complaint’s definition of “Due
Distributions”—the allegedly converted property—is far too amorphous to describe “specifically
identifiable property.” See SAC ¶ 89 (defining “Due Distributions” as “the payments made, or
that should have been made, to Preservation, and that Preservation was obligated to distribute to
its members”).
First, although the Second Amended Complaint lists four categories of Due
Distributions—including “the value of the MGP’s and SKI’s (or their affiliates’) increased equity
in SCA,” which is not property at all, let alone specifically identifiable—its group allegations
against seven defendants fail to specify which defendant allegedly converted which type of Due
Distribution. Id. (emphasis added).
Second, the Second Amended Complaint concedes that at least some of the Due
Distributions may already have been paid to Preservation (id.), and fails to identify any specific
property that Preservation did not receive.
The Second Amended Complaint’s failure to identify any “specifically identifiable
property” requires dismissal of the conversion claim.
12
B. Plaintiffs Fail to Allege that They Ever Owned, Possessed or Controlled the
Allegedly Converted Property.
A conversion claim must be dismissed unless Plaintiffs allege that they initially “had
ownership, possession or control” of the specific property in question. Soviero v. Carroll Grp.
Int’l, Inc., 27 A.D.3d 276, 276-77 (1st Dep’t 2006) (affirming grant of motion to dismiss
conversion claim on ground that “in order to assert a cause of action for conversion, which is the
unauthorized assumption and exercise of the right of ownership of goods belonging to another, to
the exclusion of the owner’s rights, a plaintiff must have exercised ownership, possession or
control of the property in the first place” (citation omitted)).
Where a complaint alleges merely “that the defendants had an obligation to pay the
plaintiff what it was owed after receiving payment,” a claim for conversion must be dismissed as
a matter of law. Stack Elec. Inc. v. DiNardi Constr. Corp., 161 A.D.2d 416, 417 (1st Dep’t
1990) (dismissing conversion claim on ground that “plaintiff failed to allege the necessary
elements”); see also Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 A.D.2d 883, 884 (1st
Dep’t 1982) (reversing denial of motion to dismiss conversion claim on ground that “an action
for conversion cannot be validly maintained where damages are merely being sought for breach
of contract. The plaintiff has never had ownership, possession or control of the money
constituting the June commissions. Therefore no action in conversion may be brought against
[defendants] on that theory.”).
Here, the Second Amended Complaint expressly alleges that Plaintiffs never received the
allegedly converted Due Distributions (SAC ¶ 90)—and thus never had the requisite “ownership,
possession, or control”—because Defendants allegedly “fail[ed] and refus[ed] to deliver them”
(id. at ¶ 150). The First Department has held that a conversion claim is unavailable in exactly
this circumstance. See Interstate Adjusters, Inc. v. First Fidelity Bank, 251 A.D.2d 232, 234 (1st
13
Dep’t 1998) (granting motion to dismiss conversion claim on ground that “[a] conversion claim
cannot be based only on the allegation that a defendant received money and failed to remit
payment to the plaintiff”); Fantozzi v. Axsys Techs., Inc., No. 07 Civ. 02667, 2008 WL
4866054, at *9 (S.D.N.Y. Nov. 6, 2008) (“New York law is clear, seeking to enforce an
‘obligation to pay’ does not raise a claim for conversion.”).
III. The Seventh and Eighth Claims, Alleging Tortious Interference with Contract, Fail
to State a Claim Against Spring Creek.
Again resorting to the fatally flawed practice of asserting collective allegations against
disparate defendants—itself a basis for dismissal—the Second Amended Complaint asserts two
causes of action for tortious interference with contract against groups of defendants that include
Spring Creek.
Count VII alleges that “Deane . . . , SKI, SS/SCA, SK/SCA, Spring Creek, DD/Shopping,
and SK/Shopping . . . procured a breach” of the Preservation Agreement by:
(i) failing and refusing to deliver the Due Distributions to
Preservation, (ii) transferring the Due Distributions to third parties
to avoid delivery of same to Preservation or Plaintiffs, (iii)using
their influence and control to cause Preservation and Carol Deane
to fail to distribute the Due Distributions to Plaintiffs, and (iv)
engaging in the foregoing in order to attempt to keep for
themselves and other members of the Deane family the benefit of
the full 19.9% interest in SCA bestowed on the MGP and SKI. . . .
SAC ¶ 156.
Count VIII alleges that “Deane, Carol Deane, DD/SCA, SK/SCA, Spring Creek,
Preview
FILED: NEW YORK COUNTY CLERK 03/24/2011 INDEX NO. 650159/2010 NYSCEF DOC. NO. 36-1 RECEIVED NYSCEF: 03/24/2011 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK --------------------------------------------------------------------X HARVEY RUDMAN and HAROLD KUPLESKY, : on Behalf of Each of Them Individually and : on Behalf of Starrett City Preservation LLC, : Derivatively, : : Plaintiffs, : Index No. 650159/2010 : -against- : ORAL ARGUMENT REQUESTED : CAROL GRAM DEANE, THE ESTATE OF : DISQUE D. DEANE by CAROL G. DEANE, : as TEMPORARY EXECUTRIX, SALT : KETTLE LLC, ST. GERVAIS LLC, and : STARRETT CITY PRESERVATION LLC, : DD SPRING CREEK LLC, SK SPRING : CREEK LLC, SPRING CREEK PLAZA : LLC, DD SHOPPING CENTER LLC and : SK SHOPPING CENTER LLC, : : Defendants. : --------------------------------------------------------------------X MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT SPRING CREEK PLAZA LLC’S MOTION TO DISMISS SECOND AMENDED COMPLAINT FOLEY & LARDNER LLP Peter N. Wang Jonathan H. Friedman 90 Park Avenue New York, New York 10016 Tel: (212) 682-7474 Attorneys for Defendant Spring Creek Plaza LLC TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................... ii PRELIMINARY STATEMENT .................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................. 2 I. Incentive Agreement and Refinancing................................................................................ 2 II. Plaintiffs’ Claims ................................................................................................................ 4 ARGUMENT.................................................................................................................................. 5 I. The Second Claim, Alleging Aiding and Abetting Breach of Fiduciary Duty, Fails to State a Claim Against Spring Creek. .................................................................................. 6 A. Plaintiffs Fail to Allege the Requisite Substantial Assistance. ....................................... 7 B. Plaintiffs Fail to Plead that Spring Creek’s Alleged Conduct Caused Their Alleged Damages.......................................................................................................................... 9 C. Plaintiffs Improperly Combine Individual and Derivative Claims............................... 10 II. The Sixth Claim, Alleging Conversion, Fails to State a Claim Against Spring Creek..... 11 A. Plaintiffs Fail to Allege Specifically Identifiable Property........................................... 12 B. Plaintiffs Fail to Allege that They Ever Owned, Possessed or Controlled the Allegedly Converted Property. ...................................................................................................... 13 III. The Seventh and Eighth Claims, Alleging Tortious Interference with Contract, Fail to State a Claim Against Spring Creek. ................................................................................ 14 A. Plaintiffs Fail to Allege Intentional Procurement of any Breach.................................. 15 B. Plaintiffs Fail to Allege that Spring Creek’s Alleged Conduct Was the Proximate Cause of Defendants’ Alleged Breaches of the Preservation Agreement and the Corresponding Assignments. ........................................................................................ 16 IV. The Tenth Claim, Seeking Declaratory Judgment, Fails to State a Claim Against Spring Creek. ................................................................................................................................ 17 CONCLUSION............................................................................................................................. 18 i TABLE OF AUTHORITIES CASES Aetna Cas. & Sur. Co. v. Merchants Mut. Ins. Co., 84 A.D.2d 736 (1st Dep’t 1981) ................................................................................................7 Apple Records, Inc. v. Capitol Records, Inc., 137 A.D.2d 50 (1st Dep’t 1988) ..............................................................................................17 Artech Info. Sys. L.L.C. v. Tee, 280 A.D.2d 117 (1st Dep’t 2001) ............................................................................................18 Balkan Demolition Co. v. Yorkshire Ins. Co. of N.Y., 3 A.D.2d 902 (1st Dep’t 1957) ................................................................................................18 Barbour v. Knecht, 296 A.D.2d 218 (1st Dep’t 2002) ............................................................................................10 Beecher v. Feldstein, 8 A.D.3d 597 (2d Dep’t 2004) .................................................................................................15 Biondi v. Beekman Hill House Apartment Corp., 257 A.D.2d 76 (1st Dep’t 1999) ................................................................................................5 Burrowes v. Combs, 25 A.D.3d 370 (1st Dep’t 2006) ..............................................................................................16 Esteva v. Nash, 55 A.D.3d 474 (1st Dep’t 2008) ................................................................................................8 Fantozzi v. Axsys Techs., Inc., No. 07 Civ. 02667, 2008 WL 4866054 (S.D.N.Y. Nov. 6, 2008) ...........................................14 Franklin v. Winard, 199 A.D.2d 220 (1st Dep’t 1993) ..............................................................................................6 Interstate Adjusters, Inc. v. First Fidelity Bank, 251 A.D.2d 232 (1st Dep’t 1998) ...................................................................................... 13-14 Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep’t 2003) .......................................................................................... 7-9 Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413 (1996) ..............................................................................................................15 NY Medscan, LLC v. JC-Duggan Inc., 40 A.D.3d 536 (1st Dep’t 2007) ..............................................................................................11 ii Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 A.D.2d 883 (1st Dep’t 1982) ..............................................................................................13 RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382 (S.D.N.Y. 2009)................................................................................ 15-16 Singer Asset Fin. Co. v. Melvin, 33 A.D.3d 355 (1st Dep’t 2006) ..............................................................................................18 Skillgames, LLC v. Brody, 1 A.D.3d 247 (1st Dep’t 2003) ..................................................................................................5 Soviero v. Carroll Grp. Int’l, Inc., 27 A.D.3d 276 (1st Dep’t 2006) ..............................................................................................13 Spitzer v. Schussel, 48 A.D.3d 233 (1st Dep’t 2008) ........................................................................................ 17-18 Stack Elec. Inc. v. DiNardi Constr. Corp., 161 A.D.2d 416 (1st Dep’t 1990) ............................................................................................13 Stanfield Offshore Leveraged Assets Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472 (1st Dep’t 2009) ................................................................................................9 Sud v. Sud, 211 A.D.2d 423 (1st Dep’t 1995) ..............................................................................................5 Trump v. The Carlyle Grp., No. 08 Civ. 603097, 2010 WL 1285443 (N.Y. Sup. Ct. Mar. 29, 2010)...................................9 Turk v. Angel, 293 A.D.2d 284 (1st Dep’t 2002) ............................................................................................16 Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 A.D.3d 1 (1st Dep’t 2008) ..................................................................................................15 Westdeutsche Landesbank Girozentrale v. Learsy, 284 A.D.2d 251 (1st Dep’t 2001) ..............................................................................................5 Wornow v. Register.com, Inc., 8 A.D.3d 59 (1st Dep’t 2004) ..................................................................................................12 STATUTES CPLR § 3013................................................................................................................................1, 5 CPLR § 3016(b)....................................................................................................................... 1, 5-6 CPLR § 3211(a)(7) ......................................................................................................................1, 5 iii Defendant Spring Creek Plaza LLC (“Spring Creek”) submits this Memorandum of Law in support of Spring Creek’s Motion to Dismiss the Second Amended Complaint pursuant to §§ 3013, 3016(b), and 3211(a)(7) of the New York Civil Practice Law and Rules. The Second Amended Complaint (“SAC”), which was filed by plaintiffs Harvey Rudman (“Rudman”) and Harold Kuplesky (“Kuplesky”) individually and purportedly on behalf of Starrett City Preservation LLC derivatively, is annexed hereto as Exhibit 1. PRELIMINARY STATEMENT This case is an effort by Plaintiffs to assert claims under a written agreement (and two subsequent assignments) to which Spring Creek is not a party. Specifically, Plaintiffs were employed by the entities managing a billion dollar real estate enterprise called Starrett City Associates LP (“SCA”). Plaintiffs allege that defendants Disque Deane (“Deane”) and Salt Kettle LLC (“SKI”), who together had a residual economic interest in 19.9% of SCA, sought to motivate various individuals, including plaintiffs Rudman and Kuplesky, to help achieve a sale or refinancing of SCA by creating an economic incentive for them. To this end, in 2006, various parties not including Spring Creek signed the Preservation Agreement, creating an entity called Starrett City Preservation LLC (“Preservation”) of which Rudman and Kuplesky together had a minority membership share. On the same day, SKI executed a written assignment of its economic interests in SCA to Preservation and Deane executed a written assignment of his economic interests as Managing General Partner (“MGP”) of SCA to Preservation. The heart of the Second Amended Complaint is Plaintiffs’ allegation that Preservation did not receive the economic interests to which it was entitled under the Preservation Agreement (which referenced the assignments) and the corresponding assignments themselves. 1 But defendant Spring Creek’s connection to this story is beyond tenuous; it is non- existent. Plaintiffs allege neither that Spring Creek was a party to the Preservation Agreement (or the corresponding assignments) nor that Spring Creek owed plaintiffs any duty. It is not surprising, therefore, that Spring Creek is mentioned in only a handful of allegations scattered throughout the 48 pages of the abstruse Second Amended Complaint, the first version of the complaint that even names Spring Creek as a defendant. Indeed, to the extent that the Second Amended Complaint alleges any conduct by Spring Creek, it lumps Spring Creek together with many other defendants to make collective allegations, many of which are self-evidently inapplicable to Spring Creek. This belated and slap-dash inclusion of Spring Creek demonstrates Plaintiffs’ own awareness that Spring Creek has no place in this litigation. Plaintiffs seek to overcome their fatal lack of a relationship with Spring Creek— contractual, fiduciary, or otherwise—by concocting wholly inapplicable claims of aiding and abetting breach of fiduciary duty, conversion, and tortious interference with contract, as well as seeking a declaratory judgment. As explained below, these claims are utterly meritless. STATEMENT OF FACTS1 Because the Second Amended Complaint does not include any particularized allegations of misconduct by Spring Creek, the facts alleged regarding Spring Creek are both sparse and straightforward. I. Incentive Agreement and Refinancing Starrett City is an apartment complex in Brooklyn that houses over 12,000 residents, and boasts extensive facilities including a shopping center. SAC ¶ 27. SCA, the partnership that 1 Although the facts alleged in the Second Amended are assumed to be true for purposes of this motion, many of them are not. 2 beneficially owns Starrett City, has hundreds of partners—mostly limited partners—who have residual economic interests in SCA. Id. at ¶¶ 8, 11. Disque Deane served as MGP until his death several months ago at the age of 89. Id. at ¶ 16. The day-to-day operations of SCA were overseen by entities by whom plaintiffs Rudman and Kuplesky were employed. Id. at ¶¶ 8, 28- 30. In 2006, SCA was seeking to exploit, through a sale or refinancing, the equity it had built up in Starrett City, and offered a number of individuals, including Plaintiffs, a chance to benefit economically from such a sale or refinancing as an incentive to help achieve that goal. Id. at ¶¶ 3-5, 40. To this end, in 2006, a number of documents were executed: (1) the Preservation Agreement created a new entity called Preservation, of which Rudman and Kuplesky had a minority share, and was signed by all members of that entity (id. at ¶ 46); (2) the MGP Assignment, which assigned the MGP’s economic interest in SCA to Preservation (id. at ¶ 51); and (3) the SKI Assignment, which assigned SKI’s economic interest in SCA to Preservation (id.). The MGP (Deane) and SKI (the other general partner of SCA) together had a residual economic interest in 19.9% of SCA, and signed the Preservation Agreement for the limited purpose of acknowledging the assignments. Id. at ¶ 42. Notably, Spring Creek did not yet exist and was not a party to either the Preservation Agreement or the corresponding assignments. In November 2009, Spring Creek was created as a single-purpose entity in anticipation of the refinancing of Starrett City. Id. at ¶¶ 22, 74, 79. The residual economic interests in Spring Creek were distributed to the same limited and general partners and in the same proportion as the residual economic interests in SCA. Id. at ¶¶ 22, 79. On December 17, 2009, Starrett City was refinanced with a loan from Wells Fargo. Id. at ¶ 79. At that time, SCA transferred to Spring Creek the Starrett City shopping center and seven undeveloped parcels of land (which were not 3 part of the refinancing collateral for Starrett City), as well as $3,273,307 of the refinancing proceeds for Spring Creek’s use. Id. at ¶¶ 79, 81. Because the MGP and SKI together have a residual economic interest in 19.9% of Spring Creek, just as they have a residual economic interest in 19.9% of SCA, these transfers did not diminish the economic interest of the MGP and SKI in the transferred property and funds. Id. at ¶¶ 22, 42. II. Plaintiffs’ Claims Plaintiffs allege that, pursuant to the Preservation Agreement, the MGP Assignment, and the SKI assignment, Preservation is entitled to the MGP’s and SKI’s economic interests in SCA, including the MGP’s and SKI’s residual economic interest in Spring Creek. Id. at ¶ 87. The claims alleging breach of the written agreement and corresponding assignments are not even asserted against Spring Creek. First, Plaintiffs allege that Deane and SKI breached the Deane Assignment and the SKI Assignment. Id. at ¶¶124-39. Second, a claim for breach of the Preservation Agreement is asserted against Deane, SKI, Carol Deane (Disque Deane’s wife), and Preservation, and not against Spring Creek. Id. at ¶¶ 140-46. Plaintiffs also do not assert their claim for breach of fiduciary duty against Spring Creek—that is directed only at Carol Deane and St. Gervais, the largest limited partner of SCA and the sole member of SKI. Id. at ¶ 18, 112- 18. The specific claims asserted against Spring Creek are impossible to identify, because the Second Amended Complaint also asserts each such claim against numerous other defendants without specifying which allegations apply to Spring Creek. Id. at ¶¶ 119-23, 147-62. In essence, these claims are all based on the allegation that Spring Creek received assets from SCA in connection with the refinancing and failed to deliver those assets to Preservation and that Preservation was obligated to distribute those assets, whether tangible or intangible, to its 4 members. Id. at ¶¶ 87-91. The claims are limited to: (1) aiding and abetting breach of fiduciary duty (id. at ¶¶ 119-23); (2) conversion apparently based on the same conduct (id. at ¶¶ 147-53); and (3) tortious interference (id. at ¶¶ 154-62). But Plaintiffs have not made—and cannot make—any allegation in support of these claims that Spring Creek breached an agreement, violated a duty, or committed any other specific or identifiable misconduct. As the foregoing facts show, and the case law discussed below confirms, Plaintiffs’ claims are entirely frivolous and without any support, and should be dismissed in their entirety. ARGUMENT This motion to dismiss is brought under CPLR § 3211(a)(7). On such motions, although facts pleaded in a complaint are generally presumed to be true and afforded every favorable inference in determining whether a complaint adequately states a cause of action, “allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or flatly contradicted by documentary evidence, are not entitled to such consideration.” Sud v. Sud, 211 A.D.2d 423, 424 (1st Dep’t 1995); see also Skillgames, LLC v. Brody, 1 A.D.3d 247, 250 (1st Dep’t 2003); Biondi v. Beekman Hill House Apartment Corp., 257 A.D.2d 76, 81 (1st Dep’t 1999). CPLR § 3013 requires that claims be pleaded with sufficient particularity “to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action or defense,” and CPLR § 3016(b) further requires that, for certain claims, including aiding and abetting breach of fiduciary duty, “the circumstances constituting the wrong shall be stated in detail.” See Westdeutsche Landesbank Girozentrale v. Learsy, 284 A.D.2d 251, 252 (1st Dep’t 2001) (affirming dismissal of counterclaims where, among other defects, they failed to “identify the 5 exact misrepresentation made, the person who made it, or when or where it was made.”); Franklin v. Winard, 199 A.D.2d 220, 220-21 (1st Dep’t 1993) (dismissing claim for failure to meet specificity requirements of CPLR § 3016(b) where complaint “merely alleged that ‘some or all’ of the defendants” engaged in alleged misconduct). I. The Second Claim, Alleging Aiding and Abetting Breach of Fiduciary Duty, Fails to State a Claim Against Spring Creek. Plaintiffs, “acting individually and derivatively,” allege that Spring Creek and six other defendants aided and abetted two breaches of fiduciary duty by Carol Deane: (i) Carol Deane’s alleged failure to make due demand that MGP and SKI (and their affiliates) deliver the refinancing proceeds to Preservation and (ii) Carol Deane’s alleged failure to direct Preservation to pay Plaintiffs their full share. SAC ¶¶ 115, 119, 121. In particular, Plaintiffs allege: Deane, SKI, Spring Creek, DD/SCA, SK/SCA, DD/Shopping and SK/Shopping . . . provided substantial assistance to her by, among other things: (i) failing and refusing to deliver the MGP/SKI’s Share of Refinancing Proceeds to Preservation, (ii) transferring, or arranging for the transfer of, part or all of the MGP/SKI’s Share of Refinancing Proceeds to third parties rather than to Preservation, and (iii) using Deane’s influence and control over Carol Deane to cause her to breach her fiduciary duties to Preservation and to Plaintiffs. Id. at ¶ 121. Plaintiffs allege that they have been damaged by this conduct in that: (i) “Preservation has been deprived of the MGP/SKI’s Share of Refinancing Proceeds,” (ii) “the Plaintiffs have been deprived of their distributable share of the MGP/SKI’s Share of Refinancing Proceeds,” and (iii) “[Plaintiffs] have incurred and will continue to incur substantial expenses, including fees for lawyers and other professionals.” Id. at ¶ 122. These amalgamated allegations directed collectively at seven defendants fail to state a claim because they (1) lack the requisite particularity regarding the allegedly offending conduct of Spring Creek, (2) fail to identify any conduct that could be attributed to Spring Creek that 6 substantially assisted the alleged breaches of fiduciary duty, and (3) fail to allege any damages arising from Spring Creek’s alleged conduct. A. Plaintiffs Fail to Allege the Requisite Substantial Assistance. A claim for aiding and abetting a breach of fiduciary duty must be dismissed absent allegations that defendant enabled a breach of fiduciary duty by providing “substantial assistance.” See Kaufman v. Cohen, 307 A.D.2d 113, 126 (1st Dep’t 2003). Plaintiffs’ allegations of substantial assistance are insufficient for several reasons, each of which separately provides an independent basis for dismissal of this claim. First, instead of specifying how Spring Creek provided substantial assistance, the Second Amended Complaint offers only collective allegations against a hodgepodge of defendants—and not a single allegation of misconduct specific to Spring Creek. These group allegations identify three types of substantial assistance that “Deane, SKI, Spring Creek, DD/SCA, SK/SCA, DD/Shopping and SK/Shopping” allegedly provided collectively. SAC ¶ 121. So haphazardly general are these allegations that the third type—an allegation that some or all of the seven defendants “us[ed] Deane’s influence and control over [his wife] Carol Deane” (id.)—is not even coherent with respect to Spring Creek. Deane was neither an officer nor a director of Spring Creek, and the Second Amended Complaint alleges no facts indicating how Spring Creek might have used Deane’s influence to control Carol Deane. This lack of particularity requires dismissal. See Aetna Cas. & Sur. Co. v. Merchants Mut. Ins. Co., 84 A.D.2d 736, 736 (1st Dep’t 1981) (dismissing complaint on ground that “the first four causes of action are pleaded against all defendants collectively without any specification as to the precise tortious conduct charged to a particular defendant”). 7 Second, the Second Amended Complaint fails to allege any conduct by Spring Creek that enabled the alleged breaches of fiduciary duty by Carol Deane, as required to plead substantial assistance. See Esteva v. Nash, 55 A.D.3d 474, 475 (1st Dep’t 2008) (affirming grant of motion to dismiss claim for aiding and abetting breach of fiduciary duty, holding that claim “must . . . fail” absent “facts sufficient to suggest that [defendant] provided substantial assistance to plaintiffs in their alleged breach of fiduciary duty.”); Kaufman, 307 A.D.2d at 126 (“Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur.”). The alleged substantial assistance— that Defendants arranged the transfer of the MGP/SKI’s Share of Refinancing Proceeds and did not deliver those proceeds to Preservation—could not have enabled the alleged breaches of fiduciary duty by Carol Deane. The Second Amended Complaint alleges that Spring Creek and six other defendants aided and abetted two breaches by Carol Deane: her alleged (1) “fail[ure] to make due demand on the MGP and SKI (and their affiliates) to deliver to Preservation the entirety of the MGP/SKI’s Share of Refinancing Proceeds and (2) “fail[ure] to direct Preservation to pay to Plaintiffs their full share of the Due Distributions.” SAC ¶ 115. The Second Amended Complaint, however, does not allege any conduct by Spring Creek related to Carol Deane’s ability to make due demand on MGP and SKI or on her ability to direct Preservation to pay Plaintiffs. Indeed, Plaintiffs do not and cannot allege any facts indicating that Spring Creek had anything to do with Carol Deane’s interaction with these entities. Third, the first category of alleged substantial assistance discussed above—that Defendants failed to deliver proceeds to Preservation—is defective for the further reason that it is an allegation of inaction, which is insufficient to plead substantial assistance as a matter of law where the defendant does not have a direct fiduciary duty to act. Kaufman, 307 A.D.2d at 126 8 (explaining that “the mere inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff”); see also Stanfield Offshore Leveraged Assets Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dep’t 2009) (affirming grant of motion to dismiss aiding and abetting fraud claim where plaintiffs failed to plead substantial assistance by alleging that defendant bank arranging refinancing contacted prospective investors and distributed information without disclosing that entity seeking refinancing was insolvent; holding that, without “duty to disclose,” defendant “could not be held liable for the failure to disclose any information”). Here, the Second Amended Complaint does not—and cannot—allege that Spring Creek owed a fiduciary duty to Preservation. B. Plaintiffs Fail to Plead that Spring Creek’s Alleged Conduct Caused Their Alleged Damages. A further basis for dismissal—of this claim and all others asserted against Spring Creek—is that Plaintiffs have failed to plead that their alleged damages were caused by Spring Creek’s alleged conduct. See Trump v. The Carlyle Grp., No. 08 Civ. 603097, 2010 WL 1285443, at *10 (N.Y. Sup. Ct. Mar. 29, 2010) (granting motion to dismiss claim for aiding and abetting breach of fiduciary duty on ground that damages were not “a direct and foreseeable result of the conduct in question”).2 Here, the Second Amended Complaint alleges that Plaintiffs were damaged by Carol Deane’s alleged breaches in that “Preservation has been deprived of the 2 The unreported cases cited herein are attached hereto as Exhibit 2. 9 MGP/SKI’s Share of Refinancing Proceeds.” SAC ¶ 122.3 But the alleged failure of the MGP and SKI to give Preservation the fruits of the assigned economic interest could not have been caused by the transfer of assets from SCA to Spring Creek: This transfer had no impact on Deane and SKI’s economic interests assigned to Preservation because Deane and SKI had the same residual economic interest in both SCA and Spring Creek. SAC ¶ 22. In other words, for any assets that SCA transferred to Spring Creek, Deane and SKI had an identical economic interest in those assets before and after the transfer. Thus, Spring Creek’s alleged possession of a transferred asset could not have enabled any failure by Deane and SKI to fulfill their obligations to Preservation. C. Plaintiffs Improperly Combine Individual and Derivative Claims. Plaintiffs not only lump together their claims against seven different defendants, but also combine individual and derivative claims into a single cause of action for aiding and abetting breach of fiduciary duty. SAC ¶ 119 (alleging that Plaintiffs are “acting individually and derivatively”). This improper and confusing practice provides an independent basis for dismissal of this claim. See Barbour v. Knecht, 296 A.D.2d 218, 228 (1st Dep’t 2002) (“The mingling of derivative claims and individual claims requires dismissal of the causes of action so affected.”). 3 Plaintiffs also allege that they were damaged in that they “have been deprived of their distributable share of the MGP/SKI’s Share of the Refinancing Proceeds.” (SAC ¶ 122.) If this allegation means that Preservation did not receive funds that it would have distributed to Plaintiffs, it is indistinguishable from the allegation discussed above that “Preservation has been deprived of the MGP/SKI’s Share of Refinancing Proceeds.” Id. If it means that Preservation failed to properly distribute the Refinancing Proceeds it received, that is a dispute between Plaintiffs and Preservation—and clearly not an allegation that Spring Creek caused damage. Either way, it provides no basis for a claim against Spring Creek. 10 II. The Sixth Claim, Alleging Conversion, Fails to State a Claim Against Spring Creek. Plaintiffs seek to plead conversion by once again improperly lumping together Spring Creek with seven disparate defendants—an independent pleading deficiency that requires dismissal. This claim is based on the group allegation that “Deane, SKI, DD/SCA, SK/SCA, Spring Creek, DD/Shopping, SK/Shopping and Carol Deane (through her control of SKI) have exercised unauthorized dominion over the Due Distributions by failing and refusing to deliver them to Preservation.” SAC ¶ 150. The Second Amended Complaint defines “Due Distributions” as “the payments made, or that should have been made to Preservation, and that Preservation was obligated to distribute to its members.” Id. at ¶ 89. In particular, it identifies four such “payments”: (i) the MGP’s and SKI’s (or their affiliates’) share of the cash proceeds from the Refinancing, (ii) the MGP’s and SKI’s (or their affiliates’) ownership interest in Spring Creek, including the assets owned by Spring Creek that were transferred to it from SCA, (iii) the MGP’s and SKI’s (or their affiliates’) share of the tax deductions arising from the charitable contributions of the religious site and the vacant parcels, and (iv) the value of the MGP’s and SKI’s (or their affiliates) increased equity in SCA resulting from the cash reserves set aside from the cash proceeds for capital improvement and other purposes and any dividends or other distributions made in respect thereof. Id. To avoid dismissal, plaintiffs alleging conversion “must show legal ownership or an immediate superior right of possession to specifically identifiable property, and must demonstrate that the defendant exercised unauthorized dominion over that property to the exclusion of the plaintiff’s rights.” NY Medscan, LLC v. JC-Duggan Inc., 40 A.D.3d 536, 537 (1st Dep’t 2007). Plaintiffs’ conversion claim has at least two fatal defects: (1) the allegedly converted property is not specifically identifiable, a required element of conversion, and (2) 11 Plaintiffs do not and cannot allege that they ever owned, possessed, or controlled the allegedly converted property, as required to plead conversion. A. Plaintiffs Fail to Allege Specifically Identifiable Property. A conversion claim that fails to identify any “specifically identifiable property” must be dismissed. See Wornow v. Register.com, Inc., 8 A.D.3d 59, 60 (1st Dep’t 2004) (affirming dismissal of conversion claim on ground that series of $34.99 charges to plaintiff’s credit card were not “specifically identifiable”). The Second Amended Complaint’s definition of “Due Distributions”—the allegedly converted property—is far too amorphous to describe “specifically identifiable property.” See SAC ¶ 89 (defining “Due Distributions” as “the payments made, or that should have been made, to Preservation, and that Preservation was obligated to distribute to its members”). First, although the Second Amended Complaint lists four categories of Due Distributions—including “the value of the MGP’s and SKI’s (or their affiliates’) increased equity in SCA,” which is not property at all, let alone specifically identifiable—its group allegations against seven defendants fail to specify which defendant allegedly converted which type of Due Distribution. Id. (emphasis added). Second, the Second Amended Complaint concedes that at least some of the Due Distributions may already have been paid to Preservation (id.), and fails to identify any specific property that Preservation did not receive. The Second Amended Complaint’s failure to identify any “specifically identifiable property” requires dismissal of the conversion claim. 12 B. Plaintiffs Fail to Allege that They Ever Owned, Possessed or Controlled the Allegedly Converted Property. A conversion claim must be dismissed unless Plaintiffs allege that they initially “had ownership, possession or control” of the specific property in question. Soviero v. Carroll Grp. Int’l, Inc., 27 A.D.3d 276, 276-77 (1st Dep’t 2006) (affirming grant of motion to dismiss conversion claim on ground that “in order to assert a cause of action for conversion, which is the unauthorized assumption and exercise of the right of ownership of goods belonging to another, to the exclusion of the owner’s rights, a plaintiff must have exercised ownership, possession or control of the property in the first place” (citation omitted)). Where a complaint alleges merely “that the defendants had an obligation to pay the plaintiff what it was owed after receiving payment,” a claim for conversion must be dismissed as a matter of law. Stack Elec. Inc. v. DiNardi Constr. Corp., 161 A.D.2d 416, 417 (1st Dep’t 1990) (dismissing conversion claim on ground that “plaintiff failed to allege the necessary elements”); see also Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 A.D.2d 883, 884 (1st Dep’t 1982) (reversing denial of motion to dismiss conversion claim on ground that “an action for conversion cannot be validly maintained where damages are merely being sought for breach of contract. The plaintiff has never had ownership, possession or control of the money constituting the June commissions. Therefore no action in conversion may be brought against [defendants] on that theory.”). Here, the Second Amended Complaint expressly alleges that Plaintiffs never received the allegedly converted Due Distributions (SAC ¶ 90)—and thus never had the requisite “ownership, possession, or control”—because Defendants allegedly “fail[ed] and refus[ed] to deliver them” (id. at ¶ 150). The First Department has held that a conversion claim is unavailable in exactly this circumstance. See Interstate Adjusters, Inc. v. First Fidelity Bank, 251 A.D.2d 232, 234 (1st 13 Dep’t 1998) (granting motion to dismiss conversion claim on ground that “[a] conversion claim cannot be based only on the allegation that a defendant received money and failed to remit payment to the plaintiff”); Fantozzi v. Axsys Techs., Inc., No. 07 Civ. 02667, 2008 WL 4866054, at *9 (S.D.N.Y. Nov. 6, 2008) (“New York law is clear, seeking to enforce an ‘obligation to pay’ does not raise a claim for conversion.”). III. The Seventh and Eighth Claims, Alleging Tortious Interference with Contract, Fail to State a Claim Against Spring Creek. Again resorting to the fatally flawed practice of asserting collective allegations against disparate defendants—itself a basis for dismissal—the Second Amended Complaint asserts two causes of action for tortious interference with contract against groups of defendants that include Spring Creek. Count VII alleges that “Deane . . . , SKI, SS/SCA, SK/SCA, Spring Creek, DD/Shopping, and SK/Shopping . . . procured a breach” of the Preservation Agreement by: (i) failing and refusing to deliver the Due Distributions to Preservation, (ii) transferring the Due Distributions to third parties to avoid delivery of same to Preservation or Plaintiffs, (iii)using their influence and control to cause Preservation and Carol Deane to fail to distribute the Due Distributions to Plaintiffs, and (iv) engaging in the foregoing in order to attempt to keep for themselves and other members of the Deane family the benefit of the full 19.9% interest in SCA bestowed on the MGP and SKI. . . . SAC ¶ 156. Count VIII alleges that “Deane, Carol Deane, DD/SCA, SK/SCA, Spring Creek,