Decided June 9, 2011.
Michael Paneth, Esq., Treff Lowy PLLC, Brooklyn, NY, Attorney for Plaintiff.
Michael Lupolover, Esq., Englewood Cliffs, New Jersey, Attorney for Defendants 1925 NE 10 LLC, Benjamin Kaplan, Mark Lupolover, Robert Grinberg.
Karl Bikhman, Esq. Bikhman Vinbaytel, P.C., Brooklyn, NY, Attorney for Defendant Viktoriya Shtatlender.
Alexander Karasik, Esq., Karasik Law Firm, PLLC, Brookyn, NY, Attorney for Defendants Galina Pyatetsky and Anatoly Shvartsberg.
Defendants Benjamin N. Kaplan and Robert Grinberg move for an order dismissing the complaint as against them pursuant to CPLR 3211 (a) (8) for lack of personal jurisdiction. The defendants Kaplan and Grinberg, residents of the State of Florida, assert that this court has no personal jurisdiction over them under either CPLR 302 (a) (1) or (2). Plaintiff Leonid Akodes cross-moves for an order pursuant to CPLR 3126 striking defendants Kaplan and Grinberg's answer and entering a default judgment against them.
The Notice of Cross-Motion refers to "CPLR 3226," a provision which does not exist, which appears to be a typographical error.
According to the plaintiff's amended complaint, plaintiff is a resident of Brooklyn, New York and owns and operates Fiber Optic Devices, USA. The plaintiff alleges he was first introduced to Roman Pyatetsky ("Pyatetsky") by a mutual acquaintance, Dmitry Serebryany, in September of 2006 when Serebryany solicited an $85,000 loan from the plaintiff on behalf of a condominium development project. The plaintiff agreed to issue the loan to Serebryany, and Roman Pyatetsky, believed to be Serebryany's attorney in prior real estate investments, drafted the mortgage. On February 28, 2007, plaintiff claims Pyatetsky recorded the mortgage in the Office of the City Register of the City of New York but later duped plaintiff into signing a satisfaction of mortgage, unbeknownst to plaintiff, which Pyatetsky recorded on March 16, 2007.
According to the plaintiff, in or about May of 2007, Pyatetsky approached the plaintiff in the parking lot outside the plaintiff's condominium complex in Brooklyn. Plaintiff claims that Pyatetsky invited the plaintiff to sit in his car, where Pyatetsky advised him that one of his clients, the defendant 1925 NE 10 LLC (hereinafter "1925"), was in the midst of a large scale construction project and was in need of a short-term loan in the amount of $100,000 to complete the project. Plaintiff claims that he told Pyatetsky that he would need some time to consider the investment and that he would meet Pyatetsky in his office at a later time to obtain more information. Plaintiff further alleges that Pyatetsky gave the plaintiff his business card, indicating his employment with the law firm of Ikhilov Associates, located in Brooklyn, and asked him to call his office to schedule the appointment.
According to the complaint, shortly thereafter plaintiff met with Pyatetsky at the offices of Erik Ikhilov, P.C. in Brooklyn, which he alleges operates as Ikhilov Associates, to ascertain whether 1925 was a legitimate business. Pyatetsky provided the plaintiff with a copy of 1925's Certificate of Status from the Department of State for the State of Florida, a printout from the Internal Revenue Service's website indicating 1925 possessed a valid Employer Identification Number ("EIN"), and 1925's EIN application. On the EIN application, 1925 listed the name and social security number of defendant Mark Lupolover and also listed the same phone and fax number found on the business card previously provided to the plaintiff by Pyatetsky. Plaintiff claims that Pyatetsky provided detailed construction plans for the "Lupolover Building," a development project with which 1925 was allegedly involved. In his deposition, defendant Mark Lupolover stated that he personally delivered these plans to Pyatetsky at his 1925 office in Brooklyn.
According to the complaint, after his meeting with Pyatetsky, plaintiff agreed to loan $100,000 to 1925. Pyatetsky subsequently drafted and presented the plaintiff with a promissory note, which listed the borrower as "V.R.M. Development," explaining to the plaintiff that V.R.M. was a name under which 1925 did business in New York and that he could execute the promissory note on 1925/V.R.M.'s behalf as their attorney. Plaintiff agreed to issue the loan and Pyatetsky executed the promissory note on June 5, 2007 during the meeting in his Brooklyn office. .
The complaint alleges that on November 30, 2007, Pyatetsky executed another promissory note for $313,000, which also included a line of credit for $100,000, to finance Pyatetksy's personal injury practice. Plaintiff claims that Pyatetsky subsequently provided him with two checks as repayment, which were refused by the depositing banks due to insufficient funds. One of these checks, drawn from the account of R M Management, referenced "1925 NE 10 LLC" in the memo line and was signed by Pyatetsky. According to the complaint, Pyatetsky negotiated plaintiff's loan checks at a check cashier instead of depositing them into a savings or checking account. Plaintiff claims that Pyatetsky converted the loan and defrauded the plaintiff with the assistance of all the other named defendants. The complaint alleges that defendants Mark Lupolover, Kaplan, and Grinberg are co-conspirators in this alleged fraud as they are members of 1925 LLC and are listed on its Articles of Organization filed with the Secretary of State of Florida.
Plaintiff commenced this action by filing a summons and complaint on October 29, 2008 against defendants Pyatetsky, 1925 d/b/a V.R.M. Development, Zorik Erik Ikhilov, Erik Ikhilov, P.C., d/b/a/ Ikhilov Associates, R M Management, Anatoly Shvartsberg, Galin Pyatetsky, Viktoriya Shtatlender, Mark Lupolover, Kaplan and Grinberg. On July 23, 2009, the plaintiff filed an amended complaint (the "complaint"), which contained claims of fraud, conspiracy to commit fraud, aiding and abetting fraud, conversion, money had and received and unjust enrichment, against defendants Kaplan and Grinberg. By their attorney Michael Lupolover, defendants 1925 LLC, Mark Lupolover, Benjamin Kaplan and Robert Grinberg filed an amended answer on September 14, 2009, asserting, inter alia, the affirmative defense that this court lacks personal jurisdiction over them, a cross claim against Pyatetsky and R M Management, claiming they are liable for any of plaintiff's damages, and a counterclaim against plaintiff for proceeding with the action without probable cause and causing damage to Kaplan and Grinberg's reputation as well as mental suffering. On November 23, 2010, this court awarded plaintiff a default judgment against Pyatetsky and R M Management.
Zorik Erik Ikhilov and Erik Ikhilov, P.C. d/b/a Ikhilov Associates have been discontinued from this action pursuant to a stipulation of discontinuance with prejudice executed on March 16, 2011.
Discovery has proceeded, and Michael Lupolover or another attorney from his office has appeared at preliminary conferences on behalf of the defendants 1925 LLC, Mark Lupolover, Benjamin Kaplan and Robert Grinberg on July 15, 2009 and February 17, 2010. Defendants Mark Lupolover, Kaplan and Grinberg have separately responded to plaintiff's first discovery and inspection request from the plaintiff on November 29, 2010 by their attorney Michael Lupolover in writing but, to the court's knowledge, only Mark Lupolover has produced any responsive documents. Mark Lupolover was also deposed by plaintiff on January 25, 2011. Defendants Kaplan and Grinberg were noticed for depositions on January 27, 2011 but failed to appear and instead moved to dismiss for lack of personal jurisdiction on February 2, 2011. On February 23, 2011 plaintiff cross-moved to strike defendants Kaplan and Grinberg's answer and to enter a default judgment against them.
Defendants Kaplan and Grinberg have moved, pursuant to CPLR 3211 (a) (8), to dismiss the complaint against them for lack of personal jurisdiction. "[I]n opposing a motion to dismiss pursuant to CPLR 3211 (a) (8) on the ground that discovery on the issue of personal jurisdiction is necessary, plaintiffs need not make a prima facie showing of jurisdiction, but instead must only set forth a sufficient start, and show their position not to be frivolous. The plaintiffs need only demonstrate that facts may exist to exercise personal jurisdiction over the defendant" ( Lettieri v Cushing , 80 AD3d 574, 575 [2d Dept 2011] (internal quotations and citations omitted)).
The plaintiff does not claim that the defendants waived any jurisdictional defenses by appearing multiple times through their counsel, Michael Lupolover, at preliminary conferences or by asserting a cross claim or counterclaim in their answer. It is noted that the defendants have not waived jurisdictional defenses by entering into a preliminary conference order or by asserting a related cross claim and counterclaim in their answer ( see Williams v Uptown Collision, Inc., 243 AD2d 467 [2d Dept 1997] ("Neither [defendants'] counter claim for indemnification nor their participation in discovery constituted a waiver of [the personal jurisdiction defense]" (internal citations omitted)); see also Net Com Data Corp. of New York v Brunetti, 2010 NY Slip Op 30327U [Sup Ct Nassau 2010] (court held that mandatory preliminary conference does not address the merits of the case so participation in such conference did not waive jurisdictional defenses raised in answer); Liebling v Yankwitt, 109 AD2d 780 [2d Dept 1985] (defendant's counterclaims waive any jurisdictional objection where the counterclaims are unrelated to the plaintiff's claim) as a waiver occurs only when a defendant participates in a lawsuit on the merits ( see generally Siegel, NY Prac § 111 and CPLR 3211 (e)).
CPLR 3211 (d) provides: "[s]hould it appear from affidavits submitted in opposition to a motion made under subdivision (a) or (b) that facts essential to justify opposition may exist but cannot then be stated, the court may deny the motion, allowing the moving party to assert the objection in his responsive pleading, if any, or may order a continuance to permit further affidavits to be obtained or disclosure to be had and may make such other order as may be just." Based upon both CPLR 3211 (a) (8) and CPLR 3211 (d), New York courts have fashioned a "sufficient start" standard, requiring that plaintiffs only make a "sufficient start" to a finding of personal jurisdiction over defendants Kaplan and Grinberg by demonstrating that facts may exist that would support the conclusion that these defendants, either personally or through an agent, transacted business or committed a tortious act within the State of New York ( see Peterson v Spartan Industries, 33 NY2d 463, 467(finding that personal jurisdiction over a Connecticut corporation was proper based upon its production of fraudulent city records indicating that it was authorized to store a product which allegedly caused plaintiff's injury in New York)).
Defendants Kaplan and Grinberg claim, and plaintiff does not dispute, that they are residents of Florida and do not personally own real property or conduct business in New York, although they do admit that they are members of 1925, an entity which lists Boca Raton, Florida as its principal office and the Brooklyn address of Ikhilov Associates as its mailing address in its Articles of Organization, filed with the State of Florida on April 12, 2007. Under CPLR 302, New York's long-arm statute, which details how jurisdiction can be acquired over a non-domiciliary, Kaplan and Grinberg may be subject to the jurisdiction of New York. CPLR 302 (a) states:
[A] court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent: (1) transacts any business within the state or contracts anywhere to supply goods or services in the state; or (2) commits a tortious act within the state . . . (3) commits a tortious act without the state causing injury to person or property within the state . . . if he (i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; or (4) owns, uses or possesses any real property situated within the state.
"Plaintiff need not establish a formal agency relationship between [the defendant] and [the actors in New York]. He need only convince the court that [the New York actors] engaged in purposeful activities in this State in relation to his transaction for the benefit of and with the knowledge and consent of [the defendant] and that they exercised some control over [the New York actors]."
The defendants Kaplan and Grinberg contend the plaintiff has failed to provide a sufficient start to establishing the requirements of CPLR 302 and as a result this court lacks personal jurisdiction over them, requiring their dismissal from the case. Plaintiff concedes that the complaint includes general claims against the members of 1925, but does not allege any specific act committed by defendants Kaplan and Grinberg. Nonetheless, plaintiff contends that New York has jurisdiction over the moving defendants as they either transacted business or committed a tortious act within New York through their agent 1925, which in turn retained Pyatetsky as its agent.
The complaint includes Kaplan and Grinberg in a number of causes of action, namely, the third cause of action for conspiracy to commit fraud, the fourth cause of action for aiding and abetting fraud, the seventh cause of action for conversion, and the ninth cause of action seeking equitable relief for money had and received. In particular, the complaint alleges that Kaplan and Grinberg are part of a "corrupt agreement to commit fraud" among all the defendants and that all the defendants "committed acts in furtherance of said agreement and intentionally participated in [it]" (Complaint, ¶¶ 108-109). The complaint further alleges that a conspiracy exists between the members of 1925 and Pyatetsky who assisted in incorporating 1925 and listed Ikhilov's address as 1925's mailing address (Complaint ¶ 121) and by providing Pyatetsky the Lupolover Building project plans. (Complaint ¶ 122). In his deposition, Mark Lupolover admits that he delivered the Lupolover Building project plans to Pyatetsky during a meeting held in Brooklyn so that Pyatetsky could secure financing for 1925 (Plaintiff's Mem. of Law at 7-8). Both Kaplan and Grinberg state in their affirmations that they have never met Pyatetsky, but do not deny that Pyatetsky was retained by 1925.
Plaintiff cites Shore Pharmaceutical Providers, Inc. v Oakwood Care Center, Inc. , 65 AD3d 623 , 623-24 [2nd Dept 2009], which shares factual similarities to the case at bar. In Shore, as in the instant action, the defendant moved for dismissal for lack of personal jurisdiction, claiming he was a Florida resident, and had never conducted business in New York, but for his status as a member of one of the corporate defendants. The Appellate Division, Second Department reversed the lower court's dismissal of the defendant, finding that the plaintiff had met the sufficient start standard by sufficiently demonstrating defendant was a payee on a promissory note containing a New York choice-of-law clause substantially related to the plaintiff's claim. Id. at 624.
In Shore, as in many of the cases cited by the plaintiff, the court found jurisdiction over non-domiciliaries. See Castillo v Star Leasing Co. , 69 AD3d 551 , 552 [2nd Dept 2010] (plaintiff demonstrated defendant entered into a lease with a customer having a New York address); Kreutter v McFadden Oil Corp., 71 NY2d 460 (court found personal jurisdiction over a Texas resident who acted solely in Texas, but whose actions were part of an overall scheme to defraud a New York resident); Deutsche Bank Securities, Inc. v Montana Board of Investments, 7 NY3d 65 (personal jurisdiction found over Montana corporation where corporate representatives, through phone calls and emails, executed bond purchases with employees of the plaintiff in New York); CIBC Mellon Trust Co. v HSBC Guyerzeller Bank AG , 56 AD3d 307 [1st Dept 2008] (foreign corporate defendant's agents subject to personal jurisdiction in New York because they invested in a New York hotel, obtained a mortgage on New York property, and participated in a fraudulent conveyance in New York); Banco Nacional Ultramarino, S.A. v Chan, 169 Misc 2d 182 [Sup Ct NY 1996] (non-domiciliary defendant subject to personal jurisdiction in New York for directing wire transfers that utilized New York banks); Reeves v Phillips, 54 AD2d 854, [1st Dept 1976] (Personal jurisdiction found over Texas individual defendant who conspired with New York board members of a Texas corporation to delay a takeover bid by directing his law firm to intervene in the takeover process); Chiosie v Chiosie, 104 AD2d 962, [2d Dept. 1984] (New Jersey resident found to have contributed to a conspiracy to abduct plaintiff's children from New York by lending her car to co-conspirators who would use it in the abduction and therefore was subject to the jurisdiction of the New York courts).
These cases indicate that, in order to demonstrate a "sufficient start" adequate to avoid dismissal for lack of personal jurisdiction, plaintiff must allege some participation, whether inside or outside of New York, by the non-domiciliary defendant in a business transaction or tortious act with consequences in New York. Here, the plaintiff has alleged that Kaplan and Grinberg, by virtue of their membership in 1925, a closely held limited liability company, which retained Pyatetsky to set up the LLC and find potential investors, may have conspired with Pyatetsky and unjustly benefitted from the alleged fraud. Although Kaplan and Grinberg claim that they have never met Pyatetsky, they admit that they are members of 1925, which retained him and authorized him to seek out investment opportunities for 1925. These allegations are adequate for plaintiff to establish that facts "may exist" to exercise personal jurisdiction over Kaplan and Grinberg, and show that plaintiff "made a sufficient start' to warrant further disclosure on the issue of whether personal jurisdiction may be established over the defendant" ( Lettieri v Cushing , 80 AD3d 574 at 575). At the very least, plaintiff is entitled to depose both Kaplan and Grinberg. Accordingly, defendants Kaplan and Grinberg's motion to dismiss for lack of personal jurisdiction is denied without prejudice to renewal upon the completion of discovery on the issue of whether personal jurisdiction exists over defendants Kaplan and Grinberg.
Plaintiff cross-moves to strike Kaplan and Grinberg's answer and enter a default judgment against them, pursuant to CPLR 3126, which provides that "[i]f any party . . . refuses to obey an order for disclosure or wilfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article," the court may issue an order, in its discretion, with regard to the party's failure, including an order striking the pleading. "[S]uch a sanction [to strike a pleading] is inappropriate absent a clear showing that the failure to comply with discovery demands is willful or contumacious" ( Cambry v Lincoln Gardens , 50 AD3d 1081 , 1082 [2d Dept 2008]).
Plaintiff claims that Kaplan and Grinberg provided generic, boilerplate responses to plaintiff's document demands and failed to appear for duly noticed depositions. Mark Lupolover, counsel for Kaplan and Grinberg, states in his affirmation that he attempted to arrange for the depositions of his clients several times, claiming that Kaplan and Grinberg only failed to appear because plaintiff's counsel was unwilling to bear the costs of the depositions, as required by CPLR 3116 (d). CPLR 3116 (d) states that "[u]nless the court orders otherwise, the party taking the deposition shall bear the expense thereof." As the burden is upon the plaintiff to establish that personal jurisdiction can be obtained over Kaplan and Grinberg, this court finds no reason to alter the cost provision set forth in the CPLR 3116 (d). Thus, plaintiff must bear the expense of taking Kaplan and Grinberg's depositions.
Moreover, in accordance with CPLR 3110, the preferred practice, except in cases where hardship is shown to exist, is to conduct depositions of nonresident defendants in New York ( see Kahn v Rodman, 91 AD2d 910 [1st Dept 1983]). As it has already been determined that plaintiff must bear the cost of deposing Kaplan and Grinberg, this court finds no hardship for Kaplan and Grinberg to travel to New York for depositions. Defendants' counsel has already stated that Kaplan and Grinberg would be willing to travel to New York provided that plaintiff reimburses them for travel costs. Therefore, in light of Kaplan and Grinberg's willingness to proceed with depositions and their response to plaintiff's document requests, albeit "generic" and "boilerplate," this court finds no basis to strike their answer and grant a default judgment against them.
It is noted that plaintiff's own response to defendants 1925, Mark Lupolover, Kaplan and Grinberg's interrogatories does not directly address defendants' requests, and instead raises inappropriate objections on the grounds that the information sought is protected by the work product doctrine or by attorney-client privilege. Prior to making this cross-motion, plaintiff had not moved for a protective order or notified the court of any discovery dispute, pursuant to Rule 18 of the Kings County Commercial Division Rules.
Kaplan and Grinberg's motion to dismiss for lack of personal jurisdiction is denied without prejudice to renewal upon completion of discovery. Plaintiff's cross-motion is denied in its entirety. This matter is scheduled for a compliance conference on September 7, 2011, at which time the depositions of Kaplan and Grinberg must be complete and the parties must have duly responded to all document demands and submitted affidavits attesting to that effect. The deadline for filing the Note of Issue is extended to November 30, 2011.
This constitutes the decision, order, and judgment of the court.