Opinion
No. 03 Civ. 7462 (PKL).
March 1, 2005
EMERY CELLI CUTI BRINCKERHOFF ABADY P.C., Joanna C. Schwartz, Esq., Jonathan S. Abady, Esq., New York, NY, Attorneys for Plaintiff.
FRIEDMAN, WANG BLEIBERG, P.C., Peter N. Wang, Esq., New York, NY, Attorneys for Defendant Jonathan Read.
OPINION AND ORDER
Plaintiff, Donald Sultan, an internationally renowned artist, brings this action for breach of contract, fraudulent inducement, and unjust enrichment against Park Plaza Worldwide LLC ("PPW") and its Chairman, Jonathan Read ("defendant"). Plaintiff contends that defendants fraudulently induced him into an agreement to contribute his artistic expertise and reputation to the development of a luxury hotel in Budapest, Hungary, and then failed to pay him in full for the services he provided. Specifically, plaintiff asserts two claims for breach of contract against PPW, one claim for fraudulent inducement against Read, and one claim for unjust enrichment against both defendants.
The complaint refers to Read as the "Chairman" of PPW (Complaint ("Compl.") ¶¶ 2, 9, 26, 28, 30, 53) and as "Director" of PPW (id. ¶ 25), while plaintiff's opposition papers describe him as "president" of PPW (Plaintiff's Memorandum of Law In Opposition to Defendant Read's Motion to Dismiss ("Pl. Mem.") at 1, 5, 6, 14). For the sake of clarity, the Court will refer to Read as "Chairman" of PPW.
Plaintiff served PPW with the complaint on November 14, 2003 through its registered agent, CT Corporation Systems, and served Read on December 15, 2003 by posting a summons and complaint at his residence and mailing a copy to him. When neither defendant answered the complaint, plaintiff moved for an Order to Show Cause for Default Judgment, which the Court so ordered on February 11, 2004. PPW did not respond to the Order to Show Cause. As a result, the Court entered a default judgment against PPW on March 3, 2004, and referred the action to United States Magistrate Judge Gabriel W. Gorenstein for an inquest. On May 7, 2004, the Court received a letter from CT Corporation Systems stating that it was no longer an agent for PPW, that it was unable to serve PPW with the Order to Show Cause, and that it had no forwarding address for PPW. The Court forwarded a copy of the letter to plaintiff's counsel, which prompted plaintiff to request (1) the withdrawal of the default judgment against PPW, and the related referral to Magistrate Judge Gorenstein, due to improper service of the Order to Show Cause, and (2) the dismissal of plaintiff's claims against PPW without prejudice because plaintiff was unable to locate PPW. The Court granted these requests on June 17, 2004. Thus, the only claims remaining in this action are those for fraudulent inducement and unjust enrichment against Read.
Unlike PPW, Read responded to the Order to Show Cause, and subsequently filed the instant motion to dismiss. Relying upon Rule 12(b)(6) of the Federal Rules of Civil Procedure, Read argues that the claims against him are insufficient and should be dismissed because they are merely an attempt to drag him and his assets into what is, at most, a simple breach of contract claim against PPW.
BACKGROUND
Because the Court must accept plaintiff's allegations as true for purposes of a motion to dismiss, see Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 175 (2d Cir. 2004), the relevant facts, taken from plaintiff's complaint, are set forth below.
Plaintiff, Donald Sultan, is recognized around the world for his photography, prints, paintings, and sculptures, all of which have been shown internationally for the last twenty years. (Compl. ¶ 7.) At all relevant times, defendant Jonathan Read was the Chairman of defendant PPW, a limited liability company based in Scottsdale, Arizona. (Id. ¶¶ 8-9.) In December 1999, Read proposed to Sultan that PPW would pay Sultan to provide artwork and design services for a hotel in Chicago that would be dedicated to Sultan's art and aesthetic. (Id. ¶ 14.) During a subsequent meeting, Read explained that the Chicago hotel would be filled with Sultan's work and would be named after him. (Id. ¶ 15.) Moreover, Read asked Sultan to provide similar services for a second hotel in Budapest, Hungary. (Id.) Sultan informed Read that he would work on the Budapest hotel on the condition that he be hired to provide the same services for the Chicago hotel. (Id. ¶ 16.) Read agreed to this arrangement, and Read and Sultan traveled to Budapest together in January 2000. (Id. ¶¶ 16-17.)
Following negotiations with Read, Sultan agreed that PPW would pay him a total of $1,165,000 for services rendered in connection with the aforesaid Budapest hotel (the "Hotel"), as follows: $640,000 for his design services; $200,000 for four paintings; $200,000 for thirty-three drawings; $100,000 for over one-hundred-fifty prints; and $25,000 for miscellaneous travel and expenses. (Id. ¶¶ 18-19.) Sultan discounted the price charged for the artwork by more than $380,000. (Id. ¶ 20.) Moreover, Read agreed to give Sultan a five percent interest in the earnings of the Hotel, as well as five percent of the proceeds if the Hotel was ever sold. (Id. ¶¶ 22-23.) Read represented that he had the authority to make both of these promises. (Id. ¶¶ 22-23.)
In January 2000, Sultan and Read, on behalf of PPW, signed a letter agreement (the "Agreement"), which memorialized the above arrangement. (Id. ¶ 25.) Sultan then provided the Hotel with hundreds of pieces of his artwork and his design consultation services in a timely manner, as provided by the Agreement. (Id. ¶ 34.) Following the October 16, 2000 opening of the Hotel, Sultan received a letter from Read dated December 12, 2000. (Id. ¶¶ 36-37.) In the letter, Read assured Sultan that, (1) he was entitled to a five percent interest in the net operating profit of the leasehold entity that operates the Hotel; (2) he would receive a "Participation Agreement" before the end of the year concerning the five percent interest; and, (3) he would receive monthly financial reports concerning the operating leasehold entity once the "Participation Agreement" was executed. (Id. ¶ 38.)
Sultan never received the "Participation Agreement," the monthly financial reports of the operating leasehold entity, the five percent equity interest in the Hotel, or five percent of the proceeds of the sale of the Hotel. (Id. ¶¶ 39-42.) Sultan alleges that he did not receive the five percent equity interest or five percent of the sale proceeds because Read did not have the authority to make those promises since neither he nor PPW owned the leasehold entity that operated the Hotel or the Hotel itself. (Id. ¶¶ 32-33.) In addition, Sultan was not hired to provide artwork and design services for a hotel in Chicago as Read had promised. (Id. ¶ 43.) Ultimately, PPW paid Sultan $1,071,000 of the $1,165,000 owed to him, and Sultan still has not received the remaining $94,000. (Id. ¶ 44.)
As a result, Sultan filed a complaint against PPW and Read in September 2003. Sultan claimed that PPW breached the Agreement by failing to pay him (1) the remaining $94,000 owed for his services; (2) the value of a five percent equity interest in the earnings of the leasehold entity that operates the Hotel; and (3) the value of five percent of the proceeds generated from the sale of the Hotel. In addition, Sultan averred that Read fraudulently induced Sultan to enter into the Agreement by falsely representing, inter alia, that he had the authority to make certain promises concerning Sultan's compensation for services rendered. Finally, Sultan maintained that both defendants have been unjustly enriched because they have benefited from his artwork and design services without adequately compensating him. As discussed above, PPW never responded and has been dismissed from the case. Read responded with the instant motion to dismiss.
DISCUSSION
I. Standard under Rule 12(b)(6)In deciding a motion to dismiss under Rule 12(b)(6), a court must construe all well-pleaded factual allegations in the complaint in plaintiff's favor. See Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). The issue before the Court is not "whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Scheur v. Rhodes, 416 U.S. 232 (1974). Thus, a party is entitled to dismissal only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
The Court will now address in turn the two claims that defendant seeks to have dismissed.
II. The Fraudulent Inducement Claim
To establish a claim for fraudulent inducement under New York law, a plaintiff must show "`(1) that [the defendant] made a misrepresentation (2) as to a material fact (3) which was false (4) and known to be false by [the defendant] (5) that was made for the purpose of inducing [the plaintiff] to rely on it (6) that [the plaintiff] rightfully did so rely (7) in ignorance of its falsity (8) to his injury.'" Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (Kearse, J.) (alterations in original) (quoting Murray v. Xerox Corp., 811 F.2d 118, 121 (2d Cir. 1987)); see also Brown v. Lockwood, 432 N.Y.S.2d 186, 193, 76 A.D.2d 721, 730 (N.Y.App.Div. 1980). Plaintiff's reliance in this context must be "reasonable." Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1478, 1484 (2d Cir. 1995). A promise to perform future acts may not form the basis of a fraud claim unless it may be shown that there was an intent not to perform at the time the promise was made. See Cohen, 25 F.3d at 1172 (citations omitted). Furthermore, a fraudulent inducement claim may not be based upon statements that are "puffery" or merely opinions as to future events. Id. (citation omitted).
When a plaintiff alleges breach of contract along with fraudulent inducement, he must distinguish the two claims by, (1) demonstrating a legal duty separate from the duty to perform under the contract; (2) establishing a fraudulent misrepresentation collateral or extraneous to the contract; or (3) seeking special damages caused by the misrepresentation and unrecoverable as contract damages. See Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996). Notably, an allegation that defendant made an intentionally false statement concerning its intent to fulfill its obligations under the contract does not represent a misrepresentation collateral or extraneous to the contract. See Bridgestone/Firestone, 98 F.3d at 19. Therefore, to ensure its independence from the breach of contract claim, a properly pled fraudulent inducement claim should be based upon a misrepresentation of present fact that, though collateral to the contract, served as the inducement for the contract. See In re Enron Corp., Nos. 04 Civ. 1367, 04 Civ. 1495, 04 Civ. 1496, 04 Civ. 1498, 2005 U.S. Dist. LEXIS 2134, at *40-41 (S.D.N.Y. Feb. 14, 2005) (citations omitted).
In the present case, accepting as true the complaint's material allegations, the Court concludes that plaintiff has pleaded facts sufficient to state a claim for fraudulent inducement against Read. The complaint alleges four fraudulent misrepresentations by Read that form the basis of the fraudulent inducement claim: (1) that a five percent interest in the earnings of the Hotel would adequately compensate Sultan for the over $380,000 discount Sultan would give to PPW for his artwork (Compl. ¶ 60); (2) that Read had the authority to promise Sultan a five percent interest in the earnings of the Hotel, including five percent of any proceeds from the sale of the Hotel (id. ¶ 61); (3) that Read owned the Hotel and would not sell it (id. ¶ 62); and, (4) that Sultan could design a similar hotel in Chicago after completing the Hotel in Budapest (id. ¶ 63).
The complaint lists Read's alleged misrepresentation that Sultan would receive a five percent equity participation in the earnings of the leasehold entity that operates the Hotel, including five percent on any sale of the Hotel, as a fifth fraudulent misrepresentation supporting the fraudulent inducement claim. (Compl. ¶ 59.) In his moving papers, Read argues that this statement is duplicative of a term of the Agreement and thus, cannot form the basis of a fraudulent inducement claim. (Memorandum of Law In Support of Defendant Jonathan Read's Motion to Dismiss the Complaint ("Def. Mem.") at 4-5.) Perhaps recognizing the merit of Read's position, Sultan maintains, in his moving papers, that he is not alleging that this misrepresentation, taken alone, amounts to fraudulent inducement. Rather, he contends that the combination of this promise with Read's misrepresentations that he had the authority to make the promise and that the five percent interest had a certain value was fraudulent. (Pl. Mem. at 4 n. 3.) Accordingly, the Court will focus only upon the four alleged misrepresentations set forth above.
Read argues that the first alleged misrepresentation, regarding the potential value of the five percent interest in the Hotel, should be dismissed as a statement of opinion. (Def. Mem. at 5.) Before the parties executed the Agreement in January 2000, ten months prior to the opening of the Hotel, Read allegedly represented to Sultan that Sultan's five percent interest in the earnings of the Hotel "would adequately compensate" him for the $380,000 discount. This suggests that Read believed at the time, again nearly one year before the Hotel even opened for business, that, at some point in the future, five percent of the earnings of the Hotel would equal at least $380,000. Given the attenuated time frame and the fact that the Hotel was a new venture without an earnings history, Sultan could not have reasonably considered this a statement of present fact. During their negotiations, Sultan should have recognized that any predictions by Read concerning the future value of the Hotel or the future value of Sultan's five percent interest were merely speculative opinions, and not statements of fact.
The fact that "a relatively concrete representation as to a company's future performance, if made at a time when the speaker knows that the represented level of performance cannot be achieved, may ground a claim of fraud" does not aid Sultan here because Read's alleged misrepresentation was not made at a time when he knew that five percent of the Hotel's earnings could not equal $380,000.Cohen, 25 F.3d at 1172. As noted above, the Hotel was a new enterprise and Read may have believed at this early date that a five percent interest in it would ultimately be worth $380,000. Moreover, the statements that form the basis of the fraudulent inducement claim in Turnbull v. King, No. 98 Civ. 5925, 1999 WL 672561, at *6 (S.D.N.Y. Aug. 26, 1999), upon which Sultan relies, are distinguishable. Unlike Read's statement, which did not indicate when Sultan's five percent interest would attain a value of $380,000, the statements in Turnbull referenced events that had either already occurred or would occur in the near future. Thus, they possessed the necessary "concrete" quality that Read's statement did not. Cohen, 25 F.3d at 1172. As a result, the Court dismisses Read's alleged misrepresentation that Sultan's five percent interest in the earnings of the Hotel would adequately compensate him for the $380,000 discount because it is a statement of opinion about future performance that cannot form the basis of a fraudulent inducement claim.
In Turnbull, the Court ruled that the following statements by defendant concerning his toy company were not "mere puffery or opinion," but "concrete representations as to [the company's] future performance": (1) that the company "possessed sufficient capital to profitably operate"; (2) that defendant's father "would be closely and permanently involved in the day to day operations of [the company]; (3) that the company "was then acquiring two or three toy companies in the United States and Canada"; (4) that the company "was about to take off"; (5) that "additional financing had been found"; (6) that "acquisitions of other toy companies were imminent"; and (7) that "plaintiff's earnings would soon be phenomenal." Turnbull, 1999 WL 672561, at *6.
With respect to the three other misrepresentations alleged by Sultan, the Court finds that each was a statement as to a present material fact. See Moore v. Paine Webber, Inc., 189 F.3d 165, 170 (2d Cir. 1999) (noting that a misrepresentation is material if it is likely to be deemed significant to a reasonable person considering whether to enter into the transaction). Moreover, the complaint alleges that these three representations were false, that Read knew they were false, and that they were intentionally made to induce Sultan to enter into the Agreement. As a result, Sultan relied upon these misrepresentations and allegedly suffered economic damages because he asked for less money during his negotiations with Read.
In addition, even though the breach of contract claims against PPW have been withdrawn, the Court finds that the fraudulent inducement claim is sufficiently distinct from those potential claims as mandated by Bridgestone/Firestone. Although the Court has not reviewed the Agreement, the three misrepresentations cited by Sultan appear to satisfy at least two of the three prongs of Bridgestone/Firestone in that they suggest a legal duty on the part of Read separate from the duty of PPW to perform under the Agreement, and they concern matters collateral to the terms of the Agreement. Thus, because plaintiff would only have to satisfy one of the threeBridgestone/Firestone prongs, the Court need not address defendant's arguments concerning the third prong, special damages. See supra, at 7.
Read emphasizes that his statements to Sultan over the course of their negotiations cannot be considered material, and thus could not have been reasonably relied upon by Sultan, because Sultan understood that the Agreement was with PPW, and not with Read personally. (Def. Mem. at 7-9.) In light of the fact that Read negotiated with Sultan in his capacity as Chairman of PPW, this argument is specious. According to the complaint, Read presented himself to Sultan as the representative for PPW in the negotiations concerning the Hotel and never indicated that he was not acting on the company's behalf. Thus, at this preliminary stage, it appears that Read's representations to Sultan were material to Sultan's decision to enter into the Agreement with PPW, and that Sultan's reliance on those representations was plainly reasonable.
III. The Unjust Enrichment Claim
A plaintiff asserting a claim of unjust enrichment under New York law must show (1) that defendant benefited; (2) at plaintiff's expense; and, (3) that "equity and good conscience" require restitution. See Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (citing Dolmetta v. Uintah Nat'l Corp., 712 F.2d 15, 20 (2d Cir. 1983)); see also Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 263 (2d Cir. 1984) ("[A] plaintiff seeking an equitable recovery based on unjust enrichment must first show that a benefit was conferred upon the defendant, and then show that as between the two parties, enrichment of the defendant was unjust.").
Sultan alleges that he provided Read and PPW with a multi-million dollar collection of artwork and design services, which serve as the Hotel's "major attraction," and for which Sultan has never been adequately compensated. (Compl. ¶¶ 69-72.) Read argues that Sultan has failed to establish that Read benefited personally from Sultan's contributions to the Hotel. (Def. Mem. at 11-12.) While the complaint does not distinguish between the benefit received by PPW and that received by Read, assuming that plaintiff's allegations are true, and making all reasonable inferences in plaintiff's favor as the Court must at this preliminary stage, it is reasonable to conclude that Read derived some personal benefit in his capacity as Chairman of PPW from the development of the Hotel, which was aided in no small measure by Sultan.
Further, at the present time, Read's contention that Sultan's unjust enrichment claim should be dismissed because Sultan has an adequate remedy at law in the form of the default judgment against PPW has lost whatever force it may have had now that the default judgment and the claims against PPW have been withdrawn.See supra, Introduction. Accordingly, Read's motion to dismiss Sultan's unjust enrichment claim is denied.
CONCLUSION
For the reasons set forth above, Read's motion to dismiss Sultan's claims of fraudulent inducement and unjust enrichment against him is HEREBY DENIED. The parties are directed to appear for a status conference before the Court in Courtroom 18B at 500 Pearl Street, New York, New York, on April 21, 2005 at 11:00 a.m.
SO ORDERED.