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dismissing the Second Amended Complaint in its entirety and with prejudice for failure to state a claim
Summary of this case from Smith v. Manhattan Club Timeshare Ass'n, Inc.Opinion
11 Civ. 4362 (PKC)
05-23-2012
KELLY SHEPPARD, NINA BARCHAP, JIM JOHNSON, MONICA QUANN, KATHLEEN VON BRAUNSBERG, ROSEMARY REED, DONNA ROSEN, JEFF GOODMAN, DONALD BOEHMCKE, GARY SEGAL, ALBERT BLEECKER, MAUREEN WARNICKE and JEAN OTTEY, Individually and on Behalf of All Others Similarly Situated, as Class Representatives, Plaintiffs, v. THE MANHATTAN CLUB TIMESHARE ASSOCIATION, INC., NEW YORK URBAN OWNERSHIP MANAGEMENT LLC, T. PARK CENTRAL LLC, O. CENTRAL PARK LLC, IAN BRUCE EICHNER and STUART P. EICHNER, Defendants.
MEMORANDUM AND ORDER
:
Plaintiffs assert various claims relating to their purchases of ownership interests in The Manhattan Club, a vacation timeshare in New York County. According to the Second Amended Complaint (the "Complaint"), defendants induced them into purchasing interests in The Manhattan Club by making misrepresentations concerning the expected availability of unit reservations. Plaintiffs further allege that defendants have fraudulently marketed and rented units to the general public, thereby limiting the availability of reservations among purchasers. Defendants move to dismiss, arguing that the Complaint fails to allege fraud with the particularity required of Rule 9(b), Fed. R. Civ. P., and that the Complaint otherwise fails to state a claim pursuant to Rule 12(b)(6), Fed. R. Civ. P.
For the reasons explained, the motion to dismiss is granted. BACKGROUND
For the purposes of the defendants' motion, all nonconclusory factual allegations are accepted as true. S. Cherry St. LLC v. Hennessee Grp. LLC, 573 F.3d 98, 100 (2d Cir. 2009); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). All reasonable inferences are drawn in favor of the plaintiffs as non-movants. United States v. City of New York, 359 F.3d 83, 91 (2d Cir. 2004).
The Manhattan Club consists of 286 timeshare units located in the Park Central Condominium at 200 West 56th Street. (Compl. ¶¶ 31-32.) As described in the Complaint, the Park Central Condominium consists of The Park Central Hotel, 286 timeshare units, a sales office, a lounge, a library and a lobby. (Compl. ¶ 33.) The Manhattan Club markets itself as "New York City's first timeshare resort, successfully introducing the concept of urban vacation ownership in the world's most exciting city." (Compl. ¶ 81.) As of 2010, The Manhattan Club had 14,872 timeshare ownership interests. (Compl. ¶ 31.)
Plaintiffs have "flexible ownership interests" in The Manhattan Club, and bring this putative class action on behalf of others with flexible ownership interests. (Compl. ¶ 1.) They contend that they were unlawfully induced into the purchase of ownership interests in The Manhattan Club. Specifically, they assert that they were misled about the unit reservation process and reservation availability, and allege that The Manhattan Club unlawfully rents rooms to members of the general public.
According to the Complaint, the Manhattan Club sells several types of "flexible ownership interests." (Compl. ¶ 54.) These purchasers "have the right to use their interval a day at a time, two days at a time or whatever combination of seven (7) days the owner chooses, anytime through the Use Year." (Compl. ¶ 54.)
The Complaint alleges that reservations are restricted by certain rules. (Compl. ¶ 64.) According to the Complaint, when a purchaser buys an ownership interest in The Manhattan Club, "the Purchaser is entitled, depending on the type of Ownership Interest acquired, to exclusive use and occupancy of the Timeshare Unit and non-exclusive use of common areas." (Compl. ¶ 53.) "Reservations for the use and occupancy of an accommodation type in which the Ownership Interest lies, is made on a first come-first serve basis." (Compl. ¶ 62.) Each owner "is required to be afforded a fair and reasonable opportunity to make reservations" of a unit. (Compl. ¶ 65.) Confirmations or denials are to be provided in written form. (Compl. ¶¶ 72-73.) In the event that a timeshare member does not use all allotted reservations for a given year, those unused dates expire, and do not carry into succeeding years. (Compl. ¶¶ 75, 125.) Depending on the duration of the stay, owners must submit reservation requests to Urban Management within either nine or twelve months preceding the requested check-in date. (Compl. ¶¶ 69-70.)
According to the plaintiffs, defendants unlawfully promoted membership in The Manhattan Club by promoting "freedom" in the reservation system and misrepresenting the exclusivity of membership. (Compl. ¶¶ 105-10, 122-24.) They allege that defendants "systematically implement[ed] a process" whereby units were rented to the general public, which limited the reservation options of rightful timeshare participants. (Compl. ¶ 122.) As a consequence, ownership interests in The Manhattan Club have become "significantly depressed and virtually unsaleable." (Compl. ¶ 126.)
The purchaser of an ownership interest acquires a share of each timeshare unit. (Compl. ¶ 56.) Purchasers of ownership interests are responsible for timeshare charges and annual real estate taxes. (Compl. ¶ 55.) Plaintiffs claim that defendants induced them to purchase memberships in The Manhattan Club in order to accrue annual fees and facilitate the payment of real estate taxes. (Compl. ¶¶ 104, 127.)
According to the plaintiffs, in addition to the timeshare charges and payment of real estate taxes, the scheme further benefits the defendants because defendants have a contractual right of first refusal in any member's sale of shares in The Manhattan Club. (Compl. ¶ 128.) Due to "the depressed market value and unsaleability of their Timeshare Interests," any "distress sales" of ownership interests "would inure to the economic benefit of Defendants, if they elected to exercise [their] right of first refusal." (Compl. ¶¶ 128-29.) According to the Complaint, all of The Manhattan Club's operating costs and expenses are borne by the plaintiffs, while at the same time, the defendants benefit by renting timeshare units to the general public and depressing the value of plaintiffs' ownership interests. (Compl. ¶¶ 135-43.)
The defendants are responsible for aspects of managing and supervising of The Manhattan Club. Defendant The Manhattan Club Timeshare Association, Inc. (the "Timeshare Association") is "responsible for operation" of The Manhattan Club. (Compl. ¶ 30.) Defendant O. Central Park LLC is alleged to control the Timeshare Association. (Compl. ¶¶ 11, 38.) Defendant T. Park Central LLC is a sponsor of The Manhattan Club, and alleged to own approximately 5% of unsold ownership interests. (Compl. ¶¶ 35, 37.) Pursuant to a contract with the Timeshare Association, defendant New York Urban Management LLC ("Urban Management") is responsible "for the general operation of the physical properties" related to The Manhattan Club. (Compl. ¶ 40.) It also is responsible for managing reservations and administering The Manhattan Club's finances. (Compl. ¶¶ 41-48.) The individual defendants - Stuart P. Eichner and Ian Bruce Eichner - are alleged to be principals of Urban Management and the two LLC defendants. (Compl. ¶¶ 9-10, 12-13, 133.)
Jurisdiction is premised on the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332. (Compl. ¶ 92.) Plaintiffs assert five causes of action under New York law: violation of New York General Business Law § 349, fraud, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, and "Injunctive Relief." (Compl. ¶¶ 102-73.) Although the claims are premised solely on representations made in offering documents related to The Manhattan Club, plaintiffs do not allege that any provision of any contract with any defendant has been breached. PROCEDURAL HISTORY
The initial complaint was filed on June 28, 2011. (Docket # 1.) On August 8, 2011, prior to the initial pretrial conference, plaintiffs filed an amended complaint. (Docket # 5.) The previous operative complaints alleged that in 2005, the Timeshare Association amended its agreement with Urban Management to rent unreserved rooms to the general public, and also eliminated a previous cap on The Manhattan Club's rental income. (Docket # 1 ¶¶ 76-77; Docket # 5 ¶¶ 81-82.)
In a letter dated September 28, 2011, defendants wrote to the Court setting forth the basis for a proposed motion to dismiss, asserting that the amended complaint does not satisfy Rule 9(b) and otherwise failed to state a claim. (Docket # 18.) The Court issued an order advising plaintiffs to review the letter and inform the Court whether they wished to further amend their complaint. (Docket # 18.) After an initial pretrial conference of October 21, 2011, plaintiffs filed their Second Amended Complaint. (Docket # 19, 20.) MOTION TO DISMISS STANDARD UNDER RULES 12(b)(6) AND 9(b).
To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In assessing plausibility, courts draw all reasonable inferences in favor of the non-movant. See In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007). However, "[t]he plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S.Ct. at 1949. Legal conclusions and "[t]hreadbare recitals of the elements of a cause of action" do not suffice to state a claim, because the Federal Rules "[do] not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 1950.
Separately, Rule 9(b), Fed. R. Civ. P., requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." To satisfy Rule 9(b), "[t]he complaint must '(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999) (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)). "In a case involving multiple defendants, plaintiffs must plead circumstances providing a factual basis for scienter for each defendant; guilt by association is impermissible." In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 695 (2d Cir. 2009). "This can consist of allegations as to who 'possessed . . . knowledge' of the fraud, 'when and how they obtained [that] knowledge,' or even why they 'should have known' of the fraud." Id. (alterations in original; quoting Devaney v. Chester, 813 F.2d 566, 568 (2d Cir. 1987)). DISCUSSION
I. THE FRAUD CLAIM DOES NOT SATISFY RULE 9(b).
A. The Complaint Does Not Explain Why Defendants' Statements Were Fraudulent.
Plaintiffs assert that two of defendants' statements were fraudulent. (Opp. Mem. at 7.) According to the Complaint, the Offering Plan provided to purchasers fraudulently misrepresented the exclusivity of the reservation process and the overall availability of reservations. The Offering Plan stated in part:
Under the provisions of the Restated Offering Plan, "When a purchaser acquires an Ownership Interest in a Timeshare Unit in the Timeshare Project, the Purchaser shall be entitled, depending upon the type of Ownership Interest owned, and subject to the terms and conditions set forth in the Timeshare Documents, to exclusive use, and occupancy of the timeshare Unit in the Timeshare Project and the non-exclusive use of the Common Areas."(Compl. ¶ 90; emphasis in original; see also Opp. Mem. at 7.) Separately, the Complaint asserts:
Under the provisions of the Restated Offering Plan, "The Use of the accommodations and facilities in the Timeshare Project is subject to the terms and conditions of the Timeshare Documents and is limited solely to the use of Owners, their guests and invitees."(Compl. ¶ 91; emphasis in original; see also Opp. Mem. at 7.)
As the Complaint reflects, these statements expressly incorporate by reference "the terms and conditions" included in "the Timeshare Documents." (Compl. ¶¶ 90-91.)
Plaintiffs have submitted "a true and correct copy of the Manhattan Club Timeshare Offering Plan." (Dec. of Steven Bennet Blau ¶ 38 & Ex. A.) Plaintiffs contend that the Offering Plan was received by all plaintiffs and putative class members, and rely on its terms in the Complaint. (Opp. Mem. at 14; Compl. ¶¶ 83-91.) While the Court is limited to facts as stated in the Complaint, it may consider exhibits or documents incorporated by reference without converting the motion into one for summary judgment. See Int'l Audiotext Network, Inc. v. Am. Tel. & Telegraph Co., 62 F.3d 69, 72 (2d Cir. 1995). The Court may also consider any document integral to the complaint. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). The Offering Plan is such a document.
The Offering Plan unambiguously states that timeshare units may be rented to the general public: "In accordance with the Timeshare Documents, Management Company shall have the right to rent unreserved use periods in Declared Units to Owners and the general public, as applicable." (Blau Dec. Ex. A at 0688.) This same language is repeated in an amendment to the Timeshare Association's agreement with Urban Management, which was included in the Offering Plan. (Blau Dec. Ex. A at 0695.) As stated in the Offering Plan, The Manhattan Club has rented rooms to the general public since 1996. (Blau Dec. Ex. A at 0238.) In addition, The Manhattan Club's annual budgets, which were provided in the Offering Plan, include line items for "the gross rental proceeds for unreserved use periods as provided by the Timeshare Documents." (Blau Dec. Ex. A at 0054-56, 0120-22, 0192-93.)
Plaintiffs' opposition memo cuts and pastes ten paragraphs of the Complaint, arguing that these excerpts adequately allege fraud under Rule 9(b). (Opp. Mem. at 10-11, quoting Compl. ¶¶ 109, 117, 122-26, 128-29, 140.) These block quotes assert that plaintiffs were falsely promised exclusive reservations (Compl. ¶¶ 117, 123, 124), that units are available for rental by the general public via travel websites (Compl. ¶¶ 122, 129) and that defendants' conduct amounted to a "fraudulent scheme" of "deceptive acts and business practices." (Compl. ¶¶ 109, 117, 122-26, 128-29, 140.) The excerpts also allege that defendants profited by making rooms available to the general public. (Compl. ¶ 126, 128-29, 140.) As noted, in the prior operative complaints, plaintiffs alleged that in June 2005, The Manhattan Club's board amended the agreement with Urban Management "to rent unreserved use periods" to the general public, and eliminated a previous cap on rental income. (Docket # 1 ¶¶ 76-77; Docket # 5 ¶¶ 81-82.) According to the Complaint, owners of The Manhattan Club units "have representation on the Condominium Board through the Timeshare Association." (Compl. ¶ 34.)
The Complaint separately asserts that Urban Management "controls the Timeshare Association through the appointment of all members to the Timeshare Board, for so long as the Sponsor maintains an Ownership Interest." (Compl. ¶ 60; emphasis omitted.)
Under New York law, "[t]he elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages." Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009). Rule 9(b) requires a plaintiff to "explain why the statements were fraudulent.'" Anatian, 193 F.3d at 88. Plaintiffs have not explained how the representations quoted in paragraphs 90 and 91 are fraudulent in light of their express qualification that they are "subject to the terms and conditions set forth in the Timeshare Documents," which, themselves, state that units may be rented to the general public (Blau Dec. Ex. A. at 0238, 0688, 0695) and list gross proceeds from these rentals. (Blau Dec. Ex. A at 0054-56, 0120-22, 0192-93.) In its memorandum, plaintiffs assert that these offering documents were "received by every plaintiff and putative class member," but at the same time, argue that there was no "reference to and/or authority permitting [defendants] to rent out the use and occupancy of the 286 Timeshare Units to the general public, on an unrestricted basis . . . ." (Opp. Mem. at 14, 22.) Plaintiffs' legal argument is directly contradicted by their own affidavit in opposition.
Based on the face of the Complaint, as well the Offering Plan integral to the Complaint filed by the plaintiffs, the plaintiffs have failed to satisfy Rule 9(b) because they have failed to explain why the statements are fraudulent in view of the Offering Plan.
B. The Complaint Does Not Plead Alleged Acts of Fraud against Any Individual Defendant.
The fraud claim also fails to satisfy the requirement of Rule 9(b) that circumstances amounting to fraud be pleaded as to each individual defendant, and not premised on guilt by association. In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d at 695. The Complaint asserts that the "written misrepresentations . . . were promulgated and/or expressly and knowingly authorized by Defendants STUART P. EICHER and IAN BRUCE EICHNER in both their individual capacities and in their roles as fiduciaries of corporate Defendants." (Compl. ¶ 121.) The Complaint also asserts that "Defendants individually and corporately, through their agents, servants and employees," knowingly misrepresented the reservation process. (Compl. ¶¶ 122-26.) Plaintiffs do not otherwise allege facts that plead fraud against specific defendants. The purportedly fraudulent Timeshare Offering Plan was issued by defendant T. Park Central LLC as the sponsor. (Blau Dec. Ex. A at 002, 009.) The Ninth Amendment to Declaration of Timeshare Plan is similarly issued by T. Park Central LLC. (Blau Dec. Ex. A at 024.) In opposition, the plaintiffs have summarized allegations as to the relationships and responsibilities of the various defendants. (Opp. Mem. at 8-9, citing Compl. ¶¶ 66, 133-34, 162-63.)
These allegations fail to allege fraud as to each defendant, however, and neither the Complaint nor the plaintiffs' memorandum contends that liability is premised on veil piercing. The Complaint's failure to offer more than conclusory allegations of fraud against any individual defendant requires dismissal of the fraud claim.
C. Defendants' Fraud Theory is Not Cognizable Under New York Law.
Finally, under New York law, "[a] cause of action alleging fraud will not lie where the only claim of fraud relates to a breach of contract, and a mere misrepresentation of an intention to perform under the contract is insufficient to allege fraud." Putnam Cnty. Sav. Bank v. Aditya, 91 A.D.3d 840, 842 (2d Dep't 2012) (quotation marks omitted). Plaintiffs' fraud claim is premised on defendants' alleged failure to perform under a contract, a theory of fraud not recognized under New York law. This is an additional basis to dismiss plaintiffs' fraud claim.
II. PLAINTIFFS' CLAIM UNDER NEW YORK GENERAL BUSINESS LAW § 349 IS DISMISSED.
Section 349(a) of the New York General Business Law states that "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." The statute provides for a private right of action. N.Y.G.B.L. § 349(h). To state a claim, a plaintiff "must charge conduct of the defendant that is consumer-oriented" and "that the acts or practices have a broader impact on consumers at large." Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25 (1995). Section 349 applies to real estate transactions directed to the consuming public. Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 53-54 & n.1 (2001). "[A]n action under § 349 is not subject to the pleading-with-particularity requirements of Rule 9(b), Fed. R. Civ. P., but need only meet the bare-bones notice-pleading requirements of Rule 8(a) . . . ." Pelman ex rel. Pelman v. McDonald's Corp., 396 F.3d 508, 511 (2d Cir. 2005).
As discussed above, plaintiffs' allegations of "deceptive acts or practices" are conclusory, even under the less-exacting standards of Rule 8(a). The purported misrepresentations incorporate language stating that rooms in The Manhattan Club may be rented to the general public. (Compl. ¶¶ 90-91; Blau Dec. Ex. A. at 0238, 0688, 0695.) In opposition, plaintiffs characterize the rentals as "undisclosed and unauthorized," (Opp. Mem. at 21) but the Offering Plan submitted by plaintiffs directly contradicts this allegation. Moreover, the plaintiffs' generalized assertions of deception and misrepresentation are legal conclusions, which are not afforded the assumption of truth and do not suffice to state a claim. Iqbal, 129 S. Ct. at 1949-50.
Because the Complaint does not adequately allege deceptive acts or practices by the defendants, the General Business Law claim is dismissed.
III. THE COMPLAINT DOES NOT ALLEGE A BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING.
"Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance." Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995). When a party's conduct "will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract," the injured party may recover for a breach of the covenant of good faith and fair dealing implied in every contract under New York law. One Step Up, Ltd. v. Webster Bus. Credit Corp., 87 A.D.3d 1, 13-14 (1st Dep't 2011); accord Port Parties, Ltd. v. ENK Int'l LLC, 84 A.D.3d 685, 686 (1st Dep't 2011). Plaintiffs' complaint, despite opportunities to amend, fails to allege facts plausibly supporting such a claim.
Holders of "flexible ownership interests" have a first-come, first-served right to reserve a unit, as distinguished from those with "Fixed, Event or Holiday Ownership Interests." (Compl. ¶¶ 62-63.) No more than 25% of the units may be sold on a "Fixed, Event or Holiday" plan. (Compl. ¶ 63.) A fair reading of the Complaint suggests that the 25% limitation assures that larger number of reservations will be available for holders of "flexible ownership interests." Unambiguously, the Timeshare Association has the right to rent unreserved units to the "general public."
The plaintiffs have alleged that the defendants "systematically implement[ed] a process" whereby units were rented to the general public. (Compl. ¶122.) Plaintiffs plausibly allege that units are systematically rented through internet-based travel sites, specifically Expedia and Hotels.com. (Compl. ¶ 108, 129.) Standing alone, however, this does "not deprive plaintiff[s] of the benefits" of the contract. One Step Up, Ltd., 87 A.D.3d at 13.
Plaintiffs have failed to allege in a non-conclusory manner that any defendant has substantially impaired the value of the plaintiffs' units, or destroyed or injured their ability to reserve rooms. Nowhere do plaintiffs allege the number of units rented to the general public, either in absolute terms or as a percentage of total reservations. Plaintiffs also do not allege that rental to the general public systematically or repeatedly prevented them from obtaining reservations. Plaintiffs' allegations regarding class definition come closest to detailing the extent to which they have been unable to reserve units is the class definition. The class is defined to include those who "were denied by Defendants[ ] at least one (1) such requested reservation and use" in a given year. (Compl. ¶80.) The Court assumes that each named plaintiff would meet the class definition. Since The Manhattan Club has been in existence since 1997 and the Complaint covers the "applicable statutory period," this would include those who were, on one occasion, denied a reservation during New York's six-year limitations period for actions for breach of contract, N.Y. C.P.L.R. § 213(2). (Compl. ¶¶ 1, 30. ) The denial of one requested reservation over a six-year period hardly amounts to a deprivation of contractual benefits. One Step Up, Ltd., 87 A.D.3d at 13-14. Depending on owners' utilization rates, rentals to the general public benefit flexible time share owners in limiting the extent of further increases in annual timeshare charges.
The Complaint alleges in a conclusory manner that the defendants knew at the time of the sale of the units that their actions "would result in the value of [the units] to become significantly depressed and virtually unsaleable." (Compl ¶126.) Without any allegation concerning vacancy rates absent general public rentals, the actual extent of rentals to the general public or the extent of a purchasers' inability to reserve at desired times, the allegation of lost value by reason of the practice is conclusory and implausible.
IV. THE COMPLAINT DOES NOT ALLEGE BREACH OF FIDUCIARY DUTY.
"'The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct.'" Armentano v. Paraco Gas Corp., 90 A.D.3d 683, 684 (2d Dep't 2011) (quoting Rut v. Young Adult Inst., Inc., 74 A.D.3d 776, 777 (2d Dep't 2010)). "'A conventional business relationship between parties dealing at arm's length does not give rise to fiduciary duties.'" EBC I, Inc. v. Goldman Sachs & Co., 91 A.D.3d 211, 214 (1st Dep't 2011) (quoting Roni LLC v. Arfa, 74 A.D.3d 442, 444 (1st Dep't 2010). Superior knowledge in a sales context does not alone establish a fiduciary relationship. Batas v. Prudential Ins. Co. of Am., 281 A.D.2d 260, 264-65 (1st Dep't 2001). The fiduciary relationship must predate any alleged breach, and cannot arise based on plaintiff's subjective trust in a defendant. SNS Bank, N.V. v. Citibank, N.A., 7 A.D.3d 352, 355-56 (1st Dep't 2004).
When a breach of fiduciary duty claim is premised upon fraudulent misconduct, Rule 9(b) applies. Naughright v. Weiss, ___ F. Supp. 2d ___, 2011 WL 5835047, at *13 (S.D.N.Y. Nov. 18, 2011) (Sweet, J.); see also Caputo v. Pfizer, Inc., 267 F.3d 181, 191-92 (2d Cir. 2001) (applying Rule 9(b) to ERISA fiduciary duty claim premised on fraud). To survive a motion to dismiss, the Complaint also "'must set forth specific facts constituting the alleged relationship with sufficient particularity to enable the Court to determine whether, if true, such facts could give rise to a fiduciary relationship.'" Naughright, 2011 WL5835047, at *13 (quoting World Wrestling Entm't, Inc. v. Jakks Pac., Inc., 530 F. Supp. 2d 486, 504 (S.D.N.Y. 2007)).
The plaintiffs' allegations as to the existence of a fiduciary duty are thin. While plaintiffs are correct that real estate transactions may give rise to fiduciary relationship, see, e.g., Dubbs v. Stribling Assocs., 96 N.Y.2d 337, 340 (2001), the existence of such a relationship turns on the specific details of the parties' dealings and their obligations. In Caprer v. Nussbaum, 36 A.3d 176, 189-91 (2d Dep't 2006), the Second Department distinguished the fiduciary status of a condominium development's sponsors from those of a condominium board. The sponsor had no fiduciary obligation to individual unit owners, while members of the condominium board acted in a fiduciary capacity. Id. at 189, 191. However, if a sponsor "retains essentially total control" over a development, a fiduciary relationship to unit owners may arise. Board of Managers of Fairways at N. Hills Condo. v. Fairway at N. Hills, 193 A.D.2d 322, 325 (2d Dep't 1993). Caprer also concluded that a management company, whose duties in the case were comparable to those of Urban Management, had a fiduciary duty to the condominium as an entity, but not to individual unit owners. 36 A.D.3d at 191. It further concluded that unit owners had a common-law right to bring claims derivatively on behalf of a development, even when they had not suffered direct injury as a unit owner. Id. at 186-90. No derivative claim is asserted here.
Caprer discusses the rights and obligations of condominium owners, which are governed in part by the New York Condominium Act, N.Y. Real Propery L. § 339-d, et seq. The portions of Caprer discussed herein did not apply the Condominium Act.
The Complaint's allegations as to the existence of a fiduciary duty are thin, and the parties' memoranda of law do not meaningfully discuss whether New York recognizes a fiduciary obligation on the part of any specific defendant. However, despite the Complaint's vague and conclusory allegations, I need not address whether the Complaint alleges a fiduciary duty of any defendant, because assuming arguendo existence of a duty, plaintiffs fail to plausibly allege an underlying breach.
As previously noted, the Complaint is premised upon assertions that defendants acted contrary to the contractual language in the offering materials, even though the offering materials included representations that unreserved units may be rented to the general public. This theory of liability parallels plaintiffs' fraud claim and is dismissed for the reasons previously discussed. See, e.g., Burry v. Madison Park Owner LLC, 84 A.D.3d 699, 700 (1st Dep't 2011) (prospective condominium purchasers failed to allege breach of fiduciary duty claim against development's sponsor because "allegations of 'misconduct' on the part of defendant are in essence claims of fraud that have not been pleaded with particularity."); Walker v. Insignia Douglas Elliman LLC, 79 A.D.3d 511, 513 (1st Dep't 2010) (dismissing breach of fiduciary claim brought by real estate purchaser who could have learned restriction on property's usage "prior to closing by making relevant inquiries and exercising ordinary intelligence . . . ."); Bryant v. One Beekman Place, Inc., 73 A.D.3d 616, 617 (1st Dep't 2010) (dismissing breach of fiduciary duty claim against co-op board because complaint "fail[ed] to allege facts showing that the board's actions had no legitimate relationship to the welfare of the coop at large.").
In addition, to the extent that the Complaint's fiduciary duty claim is premised upon failure to perform under the agreed terms of a contract, the plaintiffs fail to state a claim under New York law. See, e.g., Celle v. Barclays Bank P.L.C., 48 A.D.3d 301, 302 (1st Dep't 2008) ("The breach of fiduciary duty claim was properly dismissed as the agreement covers the precise subject matter of the alleged fiduciary duty.") (quotation marks and alterations omitted).
V. THE COMPLAINT'S FIFTH CAUSE OF ACTION IS DISMISSED.
The fifth cause of action is captioned "Injunctive Relief," and seeks an injunction against "the fraudulent business practices and deceptive acts alleged herein." (Compl. ¶¶ 169-73.) Because the Complaint fails to state a substantive claim, the claim for injunctive relief also is dismissed.
VI. PLAINTIFFS DO NOT HAVE LEAVE TO REPLEAD.
As previously discussed, the motion to dismiss is directed to the third complaint in this action. Plaintiffs' submissions do not seek leave to re-plead in the event that the motion to dismiss is granted. This second amended complaint was filed with leave from the Court following a pretrial conference of October 21, 2011. (Docket # 19.) The Court noted that leave to amend was granted to plaintiffs "in an effort to address the purported deficiencies in defendants' letter of September 28, 2011." (Docket # 19 at 3.) Because the second amended complaint does not state a claim against any defendant, the plaintiffs have previously filed two complaints in this action and the plaintiffs do not seek leave to replead, the Clerk is directed to enter judgment in this action. CONCLUSION
The defendants' motion to dismiss is GRANTED. (Docket # 22.) The Clerk is directed to terminate the motion and enter judgment for the defendants.
SO ORDERED.
/s/_________
P. Kevin Castel
United States District Judge Dated: New York, New York
May 23, 2012