Opinion
Index No. 653123/2019
04-20-2020
AUCTION HOUSE 43, INC., and Modern Pawn Brokers, Inc., Plaintiffs, v. Rafael KOBLENCE and Naziha Boulmarouf, Defendants.
Plaintiffs: Auction House 43, Inc. and Modern Pawn Brokers, Inc., Herrick, Feinstein LLP, 2 Park Avenue, New York, NY 10016, By: Sean E. O'Donnell, Esq., Elena Therese Mcdermott, Esq., Jason A. Dangelo, Esq., and Gabrielle Ruth Fromer, Esq. Defendants: Rafael Koblence and Naziha Boulmarouf, Kagen & Caspersen PLLC, 757 Third Avenue, 20th Floor, New York, NY 10017, By: Stuart Kagen, Esq.
Plaintiffs: Auction House 43, Inc. and Modern Pawn Brokers, Inc., Herrick, Feinstein LLP, 2 Park Avenue, New York, NY 10016, By: Sean E. O'Donnell, Esq., Elena Therese Mcdermott, Esq., Jason A. Dangelo, Esq., and Gabrielle Ruth Fromer, Esq.
Defendants: Rafael Koblence and Naziha Boulmarouf, Kagen & Caspersen PLLC, 757 Third Avenue, 20th Floor, New York, NY 10017, By: Stuart Kagen, Esq.
Robert R. Reed, J.
Defendants Rafael Koblence (Koblence) and Naziha Boulmarouf (Boulmarouf) move for an order, pursuant to CPLR 3211 (a) (5) & (7), dismissing the complaint in its entirety.
BACKGROUND
The following recitation of facts is based upon the allegations in the verified complaint (Complaint) of plaintiffs Auction House 43, Inc. (Auction House) and Modern Pawn Brokers, Inc. (Modern Pawn), unless otherwise specified. This case involves a dispute between plaintiffs, Auction House and Modern Pawn, and defendants, Koblence and his wife, Boulmarouf, concerning the ownership of a rare Kashmir sapphire (the Sapphire) that was pawned by Koblence to Modern Pawn, in 2011, in exchange for a loan of $3.75 million. Auction House and Modern Pawn both have a principal place of business at 43 West 47th Street, New York, NY, and have the same president, Boris Aronov (Aronov).
According to the Complaint, in 2005, Koblence pawned the Sapphire to a jewelry company known as Essex Global for a sum of $2 million. The Complaint alleges, on information and belief, that Koblence was delinquent in his payment obligations to Essex Global, and that when its owner threatened to sell the Sapphire, Koblence sought a new loan from Modern Pawn to pay off his obligation to Essex Global.
Prior to pawning the Sapphire with Modern Pawn, in September 2011, Koblence had pawned assorted diamonds and jewelry with Modern Pawn in exchange for a loan of $410,000 (Original Loan Collateral). When Koblence approached Modern Pawn about obtaining a larger loan, using the Sapphire as collateral, Modern Pawn agreed, and loaned him $3.75 million which he used to pay Essex Global in full. Essex Global then transferred possession of the Sapphire to Modern Pawn, and Modern Pawn returned the diamonds and jewelry that constituted the Original Loan Collateral to Koblence.
On November 29, 2011, Koblence and Modern Pawn entered into a Consolidated Promissory Note (the Note) and a Security Agreement (the Security Agreement) governing the $3.75 million loan (together, with four pawn tickets, the Loan Documents). The Security Agreement purported to grant to Modern Pawn "a security interest in the right, title and interest of, in and to the [Sapphire] to secure the full prompt payment and performance of all the Obligations." Complaint, ¶ 24, NYSCEF Doc. No. 2. In the Security Agreement, Koblence represented that he was " ‘the legal and equitable owner of the [Sapphire], free and clear of all security interests, liens, claims and encumbrances of every kind and nature’ ... and promised to ‘defend the title to the [Sapphire] against all claims and demands whatsoever.’ " Id., ¶ 25.
Under the Security Agreement, Koblence had the right to sell the Sapphire at any time prior to July 29, 2012, on the condition that the sale price was not less than $15 million, and that payment under the Note not be made prior to the return of the Sapphire to Koblence. Should Koblence not sell the Sapphire on or before July 29, 2012, Modern Pawn was permitted to promptly sell the Sapphire "[a]t a public auction at an auction house chosen at the sole discretion of the Debtor. Should Debtor not select an auction house on or before July 30, 2012, Secured Party shall complete the sale through an auction house chosen at the sole discretion of the Secured Party." Complaint, exhibit C (Security Agreement), ¶ 5 (a).
Apparently Koblence did not sell the Sapphire by July 29, 2012 as permitted under the Security Agreement, and on November 6, 2015, Auction House consigned the Sapphire to Phillips Auctioneers LLC (Phillips) for potential sale on December 8, 2015.
The Complaint alleges, on information and belief, that in connection with the sale, Phillips had the Sapphire analyzed by the Swiss Gemological Institute, which advised Phillips that the Sapphire was the same gem that had previously been owned by a Geneva-based gem dealer, Horoviz & Totah, S.A. (H & T), and that the gem, which was inlaid in a Cartier bracelet, had been stolen in November 1996, while on display in Milan. After obtaining that information, Phillips cancelled the consignment and returned the Sapphire to plaintiffs.
While owned by H & T, the Sapphire was insured by a group of Underwriters (Underwriters) including seven insurance companies. After the theft, H & T submitted a claim to the Underwriters which was paid, and H & T assigned all rights, title and interest in the Sapphire to the Underwriters. On December 21, 2015, the Underwriters commenced litigation in this court against Auction House, Modern Pawn, Aronov, Koblence, and others. Riverstone Insurance (UK) Ltd. v. Auction House 43, Index No. 654328/2015, Sup. Ct., NY County (the Insurance Litigation). The Insurance Litigation sought: "(a) a declaratory judgment that (i) the Sapphire in Plaintiffs' possession was stolen, and (ii) the Underwriters are the rightful owners of the Sapphire; and (b) an order of replevin against the named defendants directing that the Underwriters be given possession of the Sapphire." Complaint, ¶ 33.
When plaintiffs confronted Koblence about the allegations made in the Insurance Litigation, he and Boulmarouf represented to plaintiffs that he came to possess and own the Sapphire through Boulmarouf, who had inherited it from a family member, and that the Sapphire had originally been gifted to a member of her family at some point prior to 1985.
The Complaint alleges that "[d]espite his contractual obligation to defend title to the Sapphire, Koblence defaulted in the Insurance Litigation, forcing Plaintiffs to litigate against the Underwriters' claims that the Sapphire was stolen." Id., ¶ 3. Ultimately, in October 2016, plaintiffs settled the Insurance Litigation for a payment of $4,625,000.00 in exchange for which the Underwriters " ‘relinquish[ed] any and all rights, claims and interest to or in the [Sapphire].’ " Complaint ¶ 41.
In 2017, Koblence and Rafka & Company, LTD (Rafka), a company owned by Boulmarouf, sued Modern Pawn, Aronov, and anonymous others, alleging that they had sold the Sapphire in violation of the Security Agreement, and sought, among other things, a declaratory judgment that Koblence and Rafka were the rightful owners of the Sapphire, with a superior right of possession to the gem. Koblence v. Modern Pawn Brokers, Inc. , Index NO. 653282/2017, Sup. Ct., NY County (the Koblence Litigation). On March 1, 2019, Koblence's third amended complaint was dismissed by this court. Id., March 1, 2019, Reed, J. NYSCEF Doc. No. 121.
Auction House was added as a defendant in the Amended Complaint. Id. , NYSCEF Doc. No. 42.
On May 28, 2019, plaintiffs filed their Complaint against defendants asserting the following causes of action for: 1) a declaratory judgment against Koblence and Boulmarouf declaring that the Sapphire is the same gem that was stolen from H & T, that defendants have no interests in the Sapphire, that under the Insurance Litigation Settlement Agreement, all of H & T's and the Underwriters' interests in the Sapphire were relinquished to plaintiffs, and that plaintiffs are the legal and rightful owners of the Sapphire with a superior right of possession to all rights and interests, if any, of the defendants; 2) a declaratory judgment against Koblence declaring that he knowingly made a material misrepresentation that he was the legal and equitable owner of the Sapphire, and that, therefore, the Loan Documents are void; 3) unjust enrichment against Koblence and Boulmarouf, awarding compensatory and punitive damages of not less than $4,160,000, plus interest; 4) alternatively, breach of express warranties against Koblence for falsely stating in the Loan Documents that he was the legal and equitable owner of the Sapphire, awarding compensatory and punitive damages in an amount not less than $9 million, plus interest; and 5) alternatively, breach of contract against Koblence for failure to defend the title to the Sapphire in the Insurance Litigation, awarding compensatory and punitive damages of not less than $6 million, plus interest.
Defendants move to dismiss the complaint in its entirety pursuant to CPLR 3211 (a) (5) & (a) (7). Relying primarily on the defense of statute of limitation, defendants address the causes of action out of chronological order. The court will, however, address the causes of action chronologically.
FIRST CAUSE OF ACTION — DECLARATORY JUDGMENT
Defendants argue that plaintiffs' first cause of action for a declaratory judgment that plaintiffs, rather than the defendants, are now the legal owners of the Sapphire with a superior right of possession to defendants is time-barred, because it is merely a repackaged version of other time-barred claims. They contend that the statute of limitations for the cause of action is determined by "examin[ing] the substance of [the] action to identify the relationship out of which the claim arises and the relief is sought." Solnick v. Whalen , 49 NY2d 224, 229 (1980). "[Where] the rights of the parties sought to be stabilized in the action for declaratory relief are, or have been, open to resolution through a form of proceeding for which a specific limitation period is statutorily provided, then that period limits the time for commencement of the declaratory judgment action." Id. at 229-230. Defendants contend that the first cause of action is merely a repackaged fourth cause of action for breach of express warranty for falsely claiming that Koblence was the legal and equitable owner of the Sapphire. According to defendants, that cause of action has a six-year statute of limitations which began to run on November 29, 2011, the date that the Loan Documents were signed, and which, therefore, expired on November 29, 2017, approximately 1½ years before plaintiffs' complaint was filed.
Plaintiffs agree that the statute of limitations is six years, as a claim for which there is no other statute of limitations, but they differ with defendants on the accrual date, contending that the statute of limitations began to run when they obtained their claim of superior right under the Insurance Litigation Settlement Agreement.
Alternatively, plaintiffs suggest that there was no justiciable controversy between plaintiffs and defendants until approximately two years before this litigation was initiated, when Koblence filed the Koblence Litigation against Modern Pawn and Auction House in June 2017, claiming that the Sapphire belonged to him. See Zwarycz v. Marnia Constr., Inc., 102 AD3d 774, 776 (2d Dept. 2013) ("A dispute matures into a justiciable controversy when a plaintiff receives direct, definitive notice that the defendant is repudiating his or her rights").
The Solnick case relied on by defendants involved a challenge by plaintiff to an administrative decision which properly should have been challenged in an Article 78 proceeding, a different procedural mechanism from a declaratory judgment action, which has a four-month statute of limitations. As the Solnick court stated, "[t]his result is consonant with sound public policy, particularly where the action sought to be reviewed is that of a regulatory governmental agency. ‘The reason for the short statute is the strong policy, vital to the conduct of certain kinds of governmental affairs, that the operation of government not be trammeled by stale litigation and stale determinations.’ " Solnick v. Whalen , 49 NY2d at 232 (internal citation omitted). Thus, Solnick does not deal with causes of action brought under legal theories that might have differing statutes of limitations, but rather is a case where plaintiffs brought an action utilizing an inappropriate procedural mechanism which had a substantially longer statute of limitations than the applicable Article 78 proceeding.
This matter, of course, does not involve a challenge to a governmental policy or action for which Article 78 would be the proper procedural mechanism. Furthermore, the basis for plaintiffs' claim of a superior right and title to the Sapphire is not the Loan Documents, as defendants contend, but rather the Insurance Litigation Settlement Agreement, dated October 2016, 3½ years before this litigation was initiated by plaintiffs.
Thus, regardless of whether the appropriate statute of limitations for the declaratory judgment cause of action is one based upon contract, as defendants contend, or is for an action with no other express limitation, as plaintiffs argue, the statute of limitations would be six years. The six years began to run, however, on the signing of the Insurance Litigation Settlement Agreement on which plaintiffs rely for their claim of right and title to the Sapphire, thus the cause of action is timely.
For that reason, defendants' motion to dismiss the first cause of action is denied.
SECOND CAUSE OF ACTION — DECLARATORY JUDGMENT
Plaintiff's second cause of action seeks a declaration that the Loan Documents are void because of Koblence's alleged misrepresentations regarding his ownership of the Sapphire. Defendants again contend that it should be dismissed because it is also a repackaging of plaintiffs' fourth cause of action for breach of warranty, which, according to defendants, has a six year statute of limitations which began to run on November 29, 2011 when the Loan Documents were signed. Alternatively, according to defendants, it constitutes a cause of action for fraudulent inducement, "the statute of limitations ... is [the greater of] six years from the time of the fraud or within two years from the time the fraud was discovered, or with reasonable diligence, could have been discovered." Norddeutsche Landesbank Girozentrale v. Tilton, 149 AD3d 152, 163 (1st Dept. 2017), citing CPLR 213(8) (additional citations omitted). According to defendants, under either calculation, the cause of action is untimely.
Plaintiffs argue that the second cause of action essentially seeks a declaration that the Loan Documents are void because Koblence could not grant a security interest in the Sapphire because it had been stolen years before, in 1996, and he knowingly did not have good title to the gem.
Citing Riverside Syndicate, Inc. v. Munroe (10 NY3d 18, 24 [2008] ), plaintiffs argue that there is no statute of limitations applicable to a cause of action seeking a determination that a contract is void. In Riverside Syndicate, the Court of Appeals declared a stipulation void, despite the defendant's claim that the challenge to the agreement was barred by a 6-year statute of limitations, noting that "a statute of limitations ... does not make an agreement that was void at its inception valid by the mere passage of time. This [cause of] action is not one upon a contractual obligation or liability, but one to declare that no valid contractual obligations ever existed." Id. at 24 (internal quotations marks and citation omitted).
The reasoning of the Court of Appeals in Riverside Syndicate is applicable here. Therefore, this court concludes that the second cause of action is not barred by the six-year statute of limitations.
Defendants also argue that plaintiffs are judicially estopped from asserting that the Loan Documents are void because they took a contrary position in the Koblence Litigation brought by defendants against plaintiffs. There, in repeated amended complaints, Koblence sought rulings that he is the legal and rightful owner of the Sapphire and is entitled to obtain damages and other relief. Koblence contends that, in moving to dismiss his complaint, Modern Pawn and Auction House took the position that the Security Agreement between Modern Pawn and Koblence was valid, and cannot now claim it is void. As Auction House and Modern Pawn argue here, however, in the Koblence Litigation they argued that "[i]n general, factual allegations are deemed to be true for purposes of a motion to dismiss." Koblence v. Modern Pawn Brokers , Index No. 653282/2017, NYSCEF Doc. No. 96, Memorandum of law in support of defendants' motion to dismiss the third amended complaint, at 8. Reiterating that legal principle in granting defendants' motion to dismiss the Third Amended Complaint in the Koblence Litigation this court stated, "in such motions, the Court affords deference to the pleading; accepts the factual assertions as true; provides every favorable inference to the pleader." See tr, Koblence v. Modern Pawn Brokers, Inc., Index No. 653282/2017, Sup. Ct., NY County, Reed, J., March 8, 2019, NYSCEF Doc. No. 122 at 30.
Furthermore, Auction House and Modern Pawn did not argue that the Security Agreement was valid, as Koblence claims. Rather, they argued there that Modern Pawn's actions in transferring the Sapphire to Auction House for the purposes of selling it at auction were consistent with the provisions of the Security Agreement, and did not violate General Business Law § 349. That does not, as Koblence contends, establish that plaintiffs took a contrary position regarding the validity of the Loan Documents in the case he filed against him.
Thus, Auction House and Modern Pawn are not judicially estopped from arguing that the Security Agreement is void because Koblence did not have title to the Sapphire when he claimed he did.
Finally, although plaintiffs' second cause of action does allege that Koblence made a material misrepresentation with respect to his ownership of the Sapphire with the intention of having Modern Pawn rely on the misrepresentation, the second cause of action is not one for damages for fraudulent inducement, but rather for a declaration that the Loan Documents are void because Koblence made a material misrepresentation regarding his ownership of the Sapphire.
For these reasons, Koblence's motion to dismiss the second cause of action is rejected.
THIRD CAUSE OF ACTION — UNJUST ENRICHMENT
In their third cause of action, plaintiffs allege that they conferred benefits on Koblence by first paying $410,000 to him and then paying $3,750,000 to Essex Global to satisfy his debt, for a total amount of $4,160,000, and that it would be unjust for him to retain that sum of money.
Defendants move to dismiss the unjust enrichment claim both as time-barred and as duplicative of plaintiffs' breach of contract cause of action. With respect to the statute of limitations, citing Underground Utils., Inc. v. Comptroller of the City of NY (170 AD3d 481 [1st Dept. 2019] ), and other cases, defendants argue that the cause of action has a three-year statute of limitations. The $410,000 payment was made in September 2011, and the $3,750,000 payment to Essex Global was made no later than November 2011. Quoting Kaufman v. Cohen (307 AD2d 113, 127 [1st 2003] )("a claim for unjust enrichment accrues upon the occurrence of the alleged wrongful act giving rise to restitution"), defendants contend that the wrongful act alleged by plaintiffs is the payment of the two loans, and, therefore, the cause of action arose no later than November 2011, nearly eight years before the Complaint was filed. Therefore, according to defendants, the cause of action is time-barred.
Plaintiffs, however, claim that their cause of action for unjust enrichment is subject to a six-year statute of limitations citing Maya NY, LLC v. Hagler (106 AD3d 583, 585 [1st Dept. 2013] )("Under New York law, there is no identified statute of limitations period within which to bring a claim for unjust enrichment, but where, as here, the unjust enrichment and breach of contract claims are based upon the same facts and pleaded in the alternative, a six-year statute of limitations applies"). In Maya NY , where the unjust enrichment claim was based on a "loan" of money that was not repaid, the Court indicated that the "[t]he alleged wrongful act occurred ... when the monies should have been repaid to plaintiff and not when plaintiff first advanced the funds." Id. at 585. Plaintiffs contend that the cause of action did not accrue until 2015 or 2016 when they learned that the Sapphire was stolen and that the Loan Documents were void; that is, between December 2015, when the Insurance Litigation was initiated by the Underwriters, and October 2016, when the Settlement Agreement was executed, because it was then that plaintiffs contacted Koblence to confront him with the information that the Sapphire was stolen and he failed to repay the funds.
To establish a claim for unjust enrichment, "[a] plaintiff must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered." Mandarin Trading Ltd. v. Wildenstein , 16 NY3d 173, 182 (2011) (internal quotation marks and citation omitted).
There appear to be two lines of cases with respect to the applicable statute of limitations for unjust enrichment cases — those such as Underground Utils. , which states, without qualification, that the statute of limitations is three years, and those such as Maya NY, which states that since the period is unstated in the CPLR it depends on the facts of the underlying claim. See also Knobel v. Shaw , 90 AD3d 493, 495 (1st Dept. 2011) ("Plaintiff's unjust enrichment claim is time-barred to the extent it is based on his provision of services to [the defendant] in the 1970s. However, the part of the claim that is based on the individual defendants' keeping all the profits from the properties for themselves is viable for the six years preceding the commencement of this action" [citations omitted] ).
In Maya NY , where the underlying claim involved a loan, the court found that the claim was similar to a breach of contract claim and the statute of limitations was six years, which began to run when the loan should have been repaid, not, when the funds were advanced, as defendants argue here.
This court agrees that the claim accrued when defendant, having been notified by plaintiffs that the Sapphire was allegedly stolen, failed to repay the funds to plaintiffs, not when defendants received the benefit of the loans. Although that date is not specified by plaintiffs, it would appear to have been between October 2015 and December 2016. The Complaint, having been filed on May 28, 2019, may well have been filed within three years of Koblence being notified by plaintiffs and failing to repay the loans. At the very least, a question of fact exists about the timeliness of the Complaint even under a three-year statute of limitations, thus the court need not decide whether a three or six-year statute year limitations period is applicable. Affording the Complaint a liberal construction and accepting the facts as alleged as true as the court must on a motion to dismiss ( Leon v. Martinez , 84 NY2d 83, 87 [1994] ), defendants' claim that the third cause of action is barred as untimely is denied.
Defendants also contend that the unjust enrichment cause of action should be dismissed as duplicative of plaintiffs' contract claims. Goldstein v. CIBC World Mkts. Corp. , 6 AD3d 295, 296 (1st Dept. 2004) ("A claim for unjust enrichment, or quasi contract, may not be maintained where a contract exists between the parties covering the same subject matter.").
Koblence contends that the unjust enrichment claim is based on, and is duplicative of, allegations in two causes of action sounding in contract, the fifth cause of action for breach of contract for failing to defend his title to the Sapphire in the Insurance Litigation, and the breach of warranty claim in the fourth cause of action for allegedly making a material misrepresentation regarding his ownership of and title to the Sapphire.
Plaintiffs argue that, since they contend that the contract is void because the Sapphire was stolen, they may alternatively plead unjust enrichment. Zuccarini v. Ziff-Davis Media, 306 AD2d 404, 405 (2d Dept. 2003) ("Where, as here, there is a bona fide dispute as to the existence of a contract, or where the contract does not cover the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as contract, and will not be required to elect his or her remedies").
Alternative pleading is often permitted where the defendant contends that the contract is void (see e.g. Art & Fashion Group Corp. v. Cyclops Prod., Inc., 120 AD3d 436, 439 (1st Dept. 2014) ) ("In light of defendants' contention that no joint venture agreement existed, plaintiffs are permitted to plead unjust enrichment as an alternative basis for relief"). Permitting such alternative pleading is justified here as well, where it is plaintiffs that argue that the contract is void because defendants did not have title to the item concerning which the contract was made. Therefore, defendants' motion to dismiss the third cause of action is denied.
FOURTH CAUSE OF ACTION — BREACH OF EXPRESS WARRANTIES
Defendants contend that the statute of limitations for the fourth cause of action is six years, as for breach of contract, and that the cause of action accrued in 2011 when the Loan Documents were executed. Natixis Real Estate Capital Trust 2007-HE2 v. Natixis Real Estate Holdings, LLC, 149 AD3d 127, 134 (1st Dept. 2017) ("[a] claim for breach of warranty accrues at the time the contract is executed"). Thus, according to defendants the fourth cause of action is time-barred.
Plaintiffs, however, argue that defendants should be equitably estopped from asserting any statute of limitations for this cause of action because Koblence's affirmative wrongdoing (falsely claiming that he had good title to the Sapphire) prevented them from timely filing their claim of breach of express warranty. See Simcuski v. Saeli, 44 NY2d 442, 448–49, (1978) ("It is the rule that a defendant may be estopped to plead the Statute of Limitations where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action"); see also General Stencils, Inc. v. Chiappa, 18 NY2d 125, 128 (1966) ("Our courts have long had the power, both at law and equity, to bar the assertion of the affirmative defense of the Statute of Limitations where it is the defendant's affirmative wrongdoing — a carefully concealed crime here — which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding").
In reply, defendants cite Corsello v. Verizon NY, Inc. (18 NY3d 777, 789 [2012] ) in which the Court of Appeals stated, "General Stencils and Simcuski are not in point. In these cases, the complaints alleged both the tort that was the basis of the action and later acts of deception by which the defendants concealed their wrongdoing.... By contrast, in cases where the alleged concealment consisted of nothing but defendants' failure to disclose the wrongs they had committed, we have held that the defendants were not estopped from pleading a statute of limitations defense." See also Ross v. Louise Wise Servs., Inc. , 8 NY3d 478, 491 (2007) ("For the doctrine [of equitable estoppel] to apply, a plaintiff may not rely on the same act that forms the basis for the claim—the later fraudulent misrepresentation must be for the purpose of concealing the former tort").
Furthermore, as defendants have pointed out, plaintiffs learned in 2015, only four years after the Loan Documents were signed, that the Sapphire had allegedly been stolen. Had they initiated litigation at that point, they would have been within the six-year statute of limitations. For these reasons, the court concludes that the doctrine of equitable estoppel is not applicable here and defendants' motion to dismiss the fourth cause of action is granted.
FIFTH CAUSE OF ACTION — BREACH OF CONTRACT
In their fifth cause of action plaintiffs alternatively allege that, if the Loan Documents constitute valid contracts, Koblence has breached them by failing to defend title to the Sapphire in the Insurance Litigation. Defendants move to dismiss this cause of action contending that plaintiffs have failed to meet the pleading requirements for breach of contract because they failed to allege that Modern Pawn performed under the agreements. According to Koblence, as he alleged in the Koblence Litigation, Modern Pawn sold the Sapphire to Auction House in 2015 without complying with the agreement.
Contrary to Koblence's argument, however, in the fifth cause of action plaintiffs allege that "Modern Pawn has performed under the terms of the Loan Documents." Complaint, ¶ 77. As the court noted above in discussing the second cause of action for declaratory judgment, in considering a motion to dismiss the court must give deference to the pleadings and accept the factual assertions as true. Thus, at least at this stage of the litigation, Koblence's argument that plaintiffs have not met the pleading requirement, regarding their own performance of the contract, fails.
Defendants next argue that because plaintiffs did not allege that Koblence, himself, was ever properly served with the complaint in the Insurance Litigation, or that they made a demand to him to defend his title in that litigation, that the cause of action must be dismissed. Once again, however, this court must accept the factual allegations in the complaint that "Koblence promised ‘to defend the title to the [Sapphire] against all claims and demands whatsoever" and "Koblence ... fail[ed] to defend his title to the Sapphire in the Insurance Litigation" as true. Complaint, ¶¶ 78 & 79. Koblence ultimately may be able to prove that he was not served with the complaint in the Insurance Litigation and that no request was made for him to defend his title, but at this stage of the litigation his argument fails, and defendants' motion to dismiss the fifth cause of action is denied.
Accordingly, for the reasons stated above, it is hereby
ORDERED that defendants' motion to dismiss the complaint is granted as to the fourth cause of action for breach of express warranties against Koblence, and is otherwise denied.