Mid Atlantic Framing, LLC v. Varish Construction, Inc. et al

Filing 68

MEMORANDUM-DECISION AND ORDER granting in part and denying in part 31 Motion for Judgment on the Pleadings; granting 48 Motion for Leave to File: The Court hereby ORDERS that Defendant AVA's motion for partial judgment on the pleadings is GRANTED in part and DENIED in part; and the Court furtherORDERS that Plaintiff's cross-motion for leave to file a second amended verified complaint is GRANTED; and the Court further ORDERS that Plaintiff shall file a signed copy of its Second Am ended Verified Complaint, with such alterations as are consistent with this Memorandum-Decision and Order,within TEN (10) DAYS; and the Court further ORDERS that Plaintiff shall serve a copy of the Second Amended Verified Complaint on the additionall y named Defendant, Wilmington Savings Fund Society, FSB, within TWENTYONE (21) DAYS, in compliance with the Federal Rules of Civil Procedure; and the Court furtherORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision and Order on the parties in accordance with the Local Rules. Signed by U.S. District Judge Mae A. D'Agostino on 7/24/2015. (ban)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
____________________________________________
MID ATLANTIC FRAMING, LLC,
on behalf of itself and all other similarly situated
beneficiaries of trust funds received, or to be
received by defendant Varish Construction, Inc.
Under Article 3-A of the New York Lien Law,
Plaintiff,
vs.

3:13-CV-01376
(MAD/DEP)

VARISH CONSTRUCTION, INC.; AVA REALTY
ITHACA, LLC; AVA DEVELOPMENT, LLC;
TOM VARISH, individually: AJESH PATEL, individually;
359 HOSPITALITY ASSOCIATES, LLC; SENECA
SUPPLY, LLC d/b/a THE DUKE COMPANY;
and "JOHN DOE NO. 1" through "JOHN DOE NO. 20",
inclusive, as those persons and entities having an interest in
real property located at 359 Elmira Road, Ithaca, New York,
and being designated as Tax Parcel Nos.: 128.-1-8 and
129.-1-9 on the Land and Tax Map of the City of Ithaca,
Tompkins County, New York, and a portion of Tax Parcel
Nos.: 129-1-10.2, 129.-1-1-1, 129.-1-6.2 and 129.-1-7.2 on the
Land and Tax Map of the City of Ithaca, Tompkins County,
New York, and/or the trust funds received, or to be received by
VARISH CONSTRUCTION, INC. for the improvement of
said property,
Defendants.
____________________________________________
APPEARANCES:

OF COUNSEL:

MARCO & SITARAS, PLLC
33 Whitehall Street, 16th Floor
New York, New York 10004
Attorneys for Plaintiff

GEORGE SITARAS, ESQ.

COOPER ERVING & SAVAGE LLP
39 North Pearl Street
Albany, New York 12207
Attorneys for Defendants AVA Realty
Ithaca, LLC, AVA Development LLC,
and Ajesh Patel
Mae A. D'Agostino, U.S. District Judge:

BRIAN W. MATULA, ESQ.

MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Plaintiff commenced this action on November 5, 2013, seeking damages in connection
with a construction project in which Plaintiff performed work as a subcontractor of Varish
Construction, Inc. (together with owner/principal, Tom Varish, collectively "Varish") on property
owned at the time by AVA Realty Ithaca, LLC (together with AVA Development LLC and Ajesh
Patel, collectively "AVA"); Varish and AVA are co-defendants in this action. See Dkt. No. 1.
Currently before the Court are (1) AVA's motion for partial judgment on the pleadings
pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, and (2) Plaintiff's cross-motion for
leave to file a second amended verified complaint.
II. BACKGROUND
A.

Procedural Posture
AVA filed the instant Rule 12(c) motion on June 2, 2014. See Dkt. No. 31. In response to

Plaintiff's letter motion submitted on June 6, 2014, the Court issued a Text Order on June 9, 2014,
resetting the deadlines as to the pending motion for judgment on the pleadings. See Dkt. No. 37.
The deadlines for the responsive pleading and reply were reset to July 30, 2014, and August 5,
2014, respectively. See id. Both the responsive cross-motion and the reply were timely filed.
See Dkt. Nos. 48-50.
On September 9, 2014, the Court issued a Text Order staying this case pending the
resolution of the U.S. Bankruptcy Case in the Middle District of Pennsylvania1 involving Varish
Construction, Inc. See Dkt. No. 57. The bankruptcy case has since been resolved, and this Court

1

No. 1:14-bk-03677-RNO.
2

accordingly lifted the stay on June 11, 2015. See Dkt. No. 63. Varish has not appeared to defend
against the present action.
B.

Factual Background
In September 2012, Plaintiff entered into a subcontract with Varish, whereby Plaintiff

would furnish and install certain framing and carpentry work for the construction of "Fairfield Inn
and Suites," located at 359 Elmira Road, Ithaca, New York 14850. See Dkt. No. 48-3 at ¶¶ 17-18.
The primary contract was executed between Varish and AVA; the subcontract price was
$721,000. See id.
"During the course of the project, Varish directed Plaintiff to perform extra work in the
amount of $11,740.00, thereby adjusting the contract price upward to $732,740.00." Id. at ¶ 19.
Plaintiff claims that it substantially completed the work required under the subcontract, but was
paid only $115,000, leaving a remaining balance of $617,740 still due to Plaintiff. Id. at ¶ 20. On
March 28, 2013, Plaintiff filed a Notice of Mechanic's Lien in Tompkins County against the
property in the amount of $600,960. See id. at ¶ 92.
On June 12, 2013, AVA filed a petition in the state supreme court in Tompkins County
seeking summary discharge of the mechanics lien. See id. at ¶ 102. The court dismissed the
petition because it did not find the lien to be facially defective. See Dkt. No. 31-7. Plaintiff
claims that Varish and AVA falsely represented, both to the state supreme court and the
Wilmington Savings Fund Society ("WSFS"),2 that AVA had paid Varish in full for Plaintiff's
work. See id. at ¶ 104. Plaintiff alleges that these false statements were fraudulently made to
give the appearance that no funds were due to Varish from AVA at the time Plaintiff's lien was

WSFS is additionally named as a defendant in Plaintiff's proposed second amended
verified complaint. See Dkt. No. 48-3 at ¶¶ 170-204.
2

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filed; the purpose of the fraud being to procure the discharge of the lien. See id. at ¶¶ 105-06.
Plaintiff asserts that (1) AVA knew of the falsity of the statements or had a hand in crafting them;
(2) AVA submitted these false certifications to WSFS to obtain advances on the building loan;
and (3) these advances were due in trust to Plaintiff but never paid. See id. at ¶¶ 112-14.
AVA commenced a state-court action in Tompkins County on September 24, 2014,
seeking a declaratory judgment that the mechanics lien asserted by Mid Atlantic is null and void
because all contractual obligations between AVA and the primary contractor (Varish) had been
fulfilled. See Dkt. No. 31-8. On August 14, 2015, Plaintiff's counsel informed this Court that its
motion to dismiss the state-court action had been granted. See Dkt. No. 54. Consequently,
AVA's abstention argument for the dismissal of Plaintiff's ninth count for foreclosure is moot.
The remainder of AVA's motion for partial judgment on the pleadings seeks dismissal of
Plaintiff's tenth and twelfth counts of the amended complaint and the denial of Plaintiff's motion
for leave to file a second amended complaint. Specifically, AVA argues that the tenth cause of
action for fraud and the twelfth cause of action for aiding and abetting fraud and breach of
fiduciary duty should be dismissed on the grounds of res judicata, or in the alternative, for failure
to state a claim. See Dkt. No. 31-1.
III. DISCUSSION
A.

Standard of Review
1. Judgment on the Pleadings
The standard of review for a Rule 12(c) motion for judgment on the pleadings is the same

as for a motion to dismiss under Rule 12(b)(6). See Johnson v. Rowley, 569 F.3d 40, 43-44 (2d
Cir. 2009). A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure challenges the legal sufficiency of the non-movant's claim for
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relief, without regard to the merits of the claim. See Patane v. Clark, 508 F.3d 106, 111-12 (2d
Cir. 2007); Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir.
2006). When determining the legal sufficiency of a claim, a court must accept as true all
well-pleaded allegations contained within the pleading as construed most favorably to the
claimant. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (citation
omitted). This presumption of truth does not extend to "mere conclusory" legal statements. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).
To withstand a Rule 12(b)(6) motion to dismiss, a pleading must contain "a short and
plain statement of the claim," with sufficient factual "heft to 'sho[w] that the pleader is entitled to
relief.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-57 (2007) (alterations in original) (quoting
Fed. R. Civ. P. 8(a)(2)). "Factual allegations [contained in the pleading] must be enough to raise
a right of relief above the speculative level." Id. at 555. But this standard does not call for a
determination of probability and may indeed be satisfied even if "actual proof of those facts"
alleged is improbable. Id. at 570. "A claim has facial plausibility when the pleaded factual
content allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged." Iqbal, 556 U.S. at 678. Ultimately, "when the allegations in a complaint,
however true, could not raise a claim of entitlement to relief," Twombly, 550 U.S. at 558, or
where a plaintiff has "not nudged [its] claims across the line from conceivable to plausible, [the]
complaint must be dismissed[,]" id. at 570.
"Generally, consideration of a motion to dismiss under Rule 12(b)(6) is limited to
consideration of the complaint itself" unless all parties are given a reasonable opportunity to
submit extrinsic evidence. Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006); Robinson v. Town
of Kent, No. 11 Civ. 2875, 2012 WL 3024766, *4 (S.D.N.Y. July 24, 2012) (citing Roth v.
5

Jennings, 489 F.3d 499, 509 (2d Cir. 2007)) ("[A] district court generally must confine itself to
the four corners of the complaint and look only to the allegations contained therein."). However,
"the Court may consider documents attached as an exhibit thereto . . . that are 'integral' to
plaintiff's claims, . . . and matters of which judicial notice may be taken." Thomas v. Westchester
Cty. Health Care Corp., 232 F. Supp. 2d 273, 275 (S.D.N.Y. 2002) (citations omitted); see also
Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (alteration in original) (quoting
Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993)). "[A] plaintiff's reliance on the
terms and effect of a document in drafting the complaint is a necessary prerequisite to the court's
consideration of the document on a dismissal motion; mere notice or possession is not enough."
Chambers, 282 F.3d at 153 (footnote omitted).
2. Leave to Amend a Complaint
Leave to amend a complaint "shall be freely given when justice so requires[,]" and a
district court has broad discretion to determine whether such leave is appropriate. Fed. R. Civ. P.
15(a); see also Ruffolo v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993) (per curiam). A
decision pursuant to this discretion is not subject to review on appeal, except for abuse of
discretion. See Ruffolo, 987 F.2d at 131. "Where it appears that granting leave to amend is
unlikely to be productive," or where a proposed amendment would be futile, "it is not an abuse of
discretion to deny leave to amend." Id. at 131. "An amendment to a pleading is futile if the
proposed claim could not withstand a motion to dismiss pursuant to [Federal Rule of Civil
Procedure] 12(b)(6)." Lucente v. Int'l Bus. Mach. Corp., 310 F.3d 243, 258 (2d Cir. 2002) (citing
Dougherty v. N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 88 (2d Cir. 2002)).
B.

Res Judicata

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The doctrine of res judicata, or claim preclusion, "preclude[s] later litigation if the earlier
decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a
case involving the same parties or their privies, and (4) involving the same cause of action." In re
Teltronics Servs., Inc., 762 F.2d 185, 190 (2d Cir. 1985) (quoting Comm'r v. Sunnen, 333 U.S.
591, 597 (1948)) (other citation omitted). Additionally, once a final judgment has been entered
by a court of competent jurisdiction, "the parties to the suit and their privies are thereafter bound
not only as to every matter which was offered and received to sustain or defeat the claim or
demand, but as to any other admissible matter which might have been offered for that purpose."
Id. at 190 (internal quotation marks omitted). "Such a judgment precludes the subsequent
litigation both of issues actually decided in determining the claim asserted in the first action[] and
of issues that could have been raised in the adjudication of that claim." Colonial Acquisition
P'ship v. Colonial at Lynnfield, Inc., 697 F. Supp. 714, 717-18 (S.D.N.Y. 1988) (quoting Nat'l
Labor Relations Bd. v. United Techs. Corp., 706 F.2d 1254, 1259 (2d Cir. 1983)).
AVA asserts that the state court's denial of the parties' motions for sanctions in the
summary proceeding precludes Plaintiff's fraud claim.3 See Dkt. No. 31-1 at 9-10. AVA's
argument is wholly unavailing. First, the denial of a motion for sanctions does not constitute a
final judgment on the merits, and indeed, failing this threshold issue renders res judicata entirely
inapplicable. Even setting aside this failure, res judicata would still not serve to preclude
Plaintiff's claims. The state court only retained jurisdiction over the summary proceeding to the
extent that it considered discharging the lien for any facial defects. See N.Y. Lien Law § 19(6).
The state court properly acknowledged that it lacked jurisdiction under New York law to consider
any substantive objections to the lien. See Dkt. No. 31-7. As such, it is clear that the state court
The Court takes notice of the state-court decision dismissing AVA's petition to discharge
the lien. See Dkt. No. 31-7.
3

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lacked jurisdiction to consider allegations of fraud/misrepresentation or aiding-and-abetting
liability. The present action — encompassing, inter alia, claims for fraud, unjust enrichment,
breach of contract, and diversion of trust funds, in addition to foreclosure on the mechanic's lien
— is a far cry from constituting the "same cause of action" as the summary proceeding in light of
this jurisdictional limitation. Accordingly, the Court finds the doctrine of res judicata
inapplicable.
C.

Tenth Cause of Action for Fraud
1. Common-Law Fraud
"To prove common law fraud under New York law, a plaintiff must show that (1) the

defendant made a material false representation, (2) the defendant intended to defraud the plaintiff
thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered
damage as a result of such reliance." Banque Arabe et Internationale D'Investissement v. Md.
Nat'l Bank, 57 F.3d 146, 153 (2d Cir. 1995) (citations omitted). "In all averments of fraud . . . the
circumstances constituting fraud . . . shall be stated with particularity. Malice, intent, knowledge,
and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b).
AVA does not contest that Plaintiff has pled the first two elements of common-law fraud
with sufficient particularity as is required by Rule 9(b).4 See Dkt. No. 31-1 at 8. AVA does,
however, contend that Plaintiff has failed to sufficiently allege facts supporting the reliance and
damage elements of its claim. See id. at 8-9. AVA asserts, correctly, that Plaintiff does not claim

In the tenth count of the proposed second amended complaint, Plaintiff alleges the
following facts sufficient to sustain the first two elements: AVA made a material false
representation by submitting the certification of Tom Varish to the state court and to WSFS; AVA
knew that the certification contained false statements; AVA had assisted in drafting the
certification; AVA intended thereby to fraudulently deprive Plaintiff of its rights and induce
WSFS to make advances under the building loan for Plaintiff's yet-uncompensated work. See
Dkt. No. 48-3 at 18-19.
4

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to have relied on the alleged false representation; and furthermore, that because the discharge
AVA allegedly sought in making the false representation to the court was ultimately denied,
Plaintiff has not suffered actual damages. See id. at 9. However, Plaintiff's proposed second
amended complaint alleges further that AVA also submitted the certification to WSFS. See Dkt.
No. 48-3 at 18-19. Plaintiff claims that WSFS made building loan advances to AVA, which were
due in trust to Plaintiff but never paid, in reliance upon AVA's false certification. Id. As a result,
Plaintiff suffered damages amount to at least $617,740 — the unpaid amount due both under the
subcontract and in trust under New York Lien law. See id. Stated succinctly, Plaintiff claims that
AVA is liable for fraud because AVA fraudulently induced the reliance of WSFS and Plaintiff
suffered damages as a result. The sufficiency of Plaintiff's claim therefore turns upon whether,
under New York law, a cause of action for common-law fraud can be predicated upon the reliance
of a party other than the plaintiff.
2. Third-Party Reliance
There has been considerable confusion among both state and federal courts in New York
regarding whether, under New York law, a plaintiff may predicate a claim of common-law fraud
upon the reliance of a third party where, as here, the fraudulent representations were not directly
made to the plaintiff and the plaintiff did not directly rely upon those representations, and the
plaintiff would not have suffered damages but for the fraud of the defendant. Compare Cement &
Concrete Workers Dist. Council Welfare Fund, Pension Fund, Legal Servs. Fund & Annuity Fund
v. Lollo, 148 F.3d 194, 196 (2d Cir. 1998) (citing Kelly v. L.L. Cool J., 145 F.R.D. 32, 39 n.8
(S.D.N.Y. 1992)) ("[A] plaintiff does not establish the reliance element of fraud for purposes of
ERISA or New York law by showing only that a third party relied on defendant's false
statements."), and City of N.Y. v. Smokes-Spirits.com, Inc., 541 F.3d 425, 454 (2d Cir. 2008)
9

(same), and Trs. of the United Health & Welfare Fund v. N. Kofsky & Son, Inc., No. 08 Civ.
11219(KNF), 2015 WL 59173, *11 (S.D.N.Y. Jan. 5, 2015) (same), and Pasternack v. Lab. Corp.
of. Am., No 10 Civ. 4426(PGG), 2014 WL 4832299, *15 (S.D.N.Y. Sept. 28, 2014) (arguing that
the Court of Appeals has not directly addressed third-party reliance), with Chevron Corp. v.
Dozinger, 871 F. Supp. 2d. 229, 257 (S.D.N.Y. 2012) ("[T]his Court concludes that the New York
Court of Appeals' previous decisions allowing recovery for common law fraud based on third
party reliance remain authoritative and, in any case, that that Court, were it faced with the
question anew, would adhere to that position."), and Prestige Builder & Mgmt. LLC v. Safeco Ins.
Co. of Am., 896 F. Supp. 2d 198, 203 (E.D.N.Y. 2012) (citing Chevron, 871 F. Supp. 2d. at 257)
(holding that the "doctrine of third-party reliance" exists under New York law).
This vexing potpourri of federal judgments is rooted in disagreement over the correct
application of three nineteenth-century decisions rendered by the New York Court of Appeals.
Some courts have interpreted these cases as explicitly holding that the reliance element of a
common-law fraud claim may indeed be predicated upon third-party reliance. Bruff v. Mali, 36
N.Y. 200, 205-06 (N.Y. 1867) (holding that the defendant who had falsely authenticated and
issued certificates was liable to all purchasers relying on the defendant's authentications even if
purchased from a party other than the defendant); Rice v. Manley, 66 N.Y. 82, 87 (1876) ("The
mere forms . . . of fraud[] are of little importance; it matters not whether the false representations
be made to the party injured or to a third party, whose conduct is thus influenced to produce the
injury, or whether it be direct or indirect in its consequences. Schemes of fraud may be . . .
cunningly devised . . . but they must not escape condemnation"); Eaton, Cole & Burnham Co. v.
Avery, 83 N.Y. 31, 33-34 (1880) (citing Bruff, 36 N.Y. at 205-06) ("[I]t is not essential that a

10

representation should be addressed directly to the party who seeks a remedy for having been
deceived and defrauded by means thereof").
Further obfuscating the issue, the appellate divisions "have split on the issue[,] in some
cases within the same department[,] and without citing contrary decisions." See Chevron, 871 F.
Supp. 2d at 257. Compare Litvinov v. Hodson, 74 A.D.3d 1884, 1885 (4th Dept. 2010) (quoting
Ruffing v. Union Carbide Corp., 308 A.D.2d 526, 528 (2d Dept. 2010) ("[F]raud may be found
'where a false representation is made to a third party, resulting in injury to the plaintiff' . . . ."),
with Garelick v. Carmel, 141 A.D.2d 501, 502 (2d Dept. 1988) (stating that a complaint "must set
forth all of the elements of fraud including the making of material representations by the
defendant to the plaintiff"), and Escoett & Co. v. Alexander & Alexander, Inc., 31 A.D.2d 791,
791 (1st Dept. 1969) (same).
Fortunately, the Southern District recently engaged in a thorough analysis of the
nineteenth-century cases in order to determine whether they indeed stand, as they are often taken,
for the proposition that a plaintiff may bring a claim for common-law fraud based on third-party
reliance. See Pasternack, 2014 WL 4832299, at *17; see also Ahluwalia v. St. George's Univ.,
LLC, 63 F. Supp. 3d 251, 269-70 (E.D.N.Y. 2014) (adopting the reasoning of the court in
Pasternack). This Court is convinced by the reasoning in Pasternack and agrees that neither
Eaton nor Bruff stands for such a proposition. Indeed, in Eaton, "[t]he court held that 'if A. makes
[a false] statement to B. for the purpose of being communicated to C.[,] or intending that it shall
reach and influence him, [A.] can be . . . held [liable to C.].'" Pasternack, 2014 WL 4832299, at
*17 (alterations in original) (quoting Eaton, 83 N.Y. at 35). Such is also the holding in Bruff. Id.
(citing Bruff, 36 N.Y. at 200-02). The principle articulated in Eaton and Bruff is that liability may
be imposed for misrepresentations that are intended to be, and are in fact, communicated to a
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plaintiff through a third party and are thereby relied upon to the plaintiff's pecuniary detriment.
When construed narrowly as standing for this principle — as opposed to broadly establishing
fraud liability for damages resulting from third-party reliance — the holdings of both Eaton and
Bruff are perfectly consistent with contemporary Court of Appeals rulings. See, e.g., Secs.
Investor Prot. Corp. v. BDO Seidman, L.L.P., 746 N.E.2d 1042, 1047 (N.Y. 2001).
The Court also agrees that "fraud" as discussed in Rice does not correspond to the
contemporary fraud cause of action and "reflects an antiquated and simplistic view of the
elements of a fraud claim that has long since been superseded." Pasternack, 2014 WL 4832299,
*18. In support of this assertion, it is worth noting that the relational structure of tort law is such
that liability is imposed where a tortfeasor breaches a duty owed to the plaintiff. The breach of
duty a tortfeasor commits by fraud is perhaps best understood as "an interference with [plaintiff's]
interest in being able to make . . . decisions . . . free of misinformation generated by others." See
John C.P. Goldberg et al., The Place of Reliance in Fraud, 48 Ariz. L. Rev. 1001, 1002-03
(2006). "Indeed, the word 'fraud' is a source of great mischief in tort law precisely because it is
used not only as the name of a discrete cause of action, but also to refer to any misrepresentation
by which some other tort or statutory wrong is perpetrated." Id. at 1003; see, e.g., Bridge v.
Phoenix Bond Indem. Co., 553 U.S. 639, 652-656 (2008) (noting that although RICO violations
are predicated upon "fraud offenses" it does not necessitate that a common-law first-party reliance
element is incorporated into a RICO claim). "[W]hile it may be that first-party reliance is an
element of a common-law fraud claim, there is no general common-law principle holding that a
fraudulent misrepresentation can cause legal injury only to those who rely on it." Bridge, 553
U.S. at 656. In fact, "the Restatement [(Second) of Torts] specifically recognizes 'a cause of
action' in favor of the injured party where the defendant 'defrauds another for the purpose of
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causing pecuniary harm to a third person.'" Id. at 657 (citing the Restatement (Second) of Torts §
435A, Cmt. a.). However, under New York common law, the action is one for tortious
interference (with business or contractual relations) and not for common-law fraud. See, e.g.,
Lamb v. Cheney & Son, 125 N.E. 817, 817-18 (N.Y. 1920) (recognizing a cause of action for
tortious interference). The facts in Rice are clearly analogous to a cause of action for tortious
interference and not to an action for fraud as articulated by the New York Court of Appeals in
contemporary authority.5
Based on the foregoing analysis, the Court applies Cement & Concrete and finds that
under New York law, Plaintiff has not sufficiently stated a claim for common-law fraud by
pleading damages resulting from the reliance of a third party. The Court therefore grants AVA's
motion for partial judgment on the pleadings with respect to Plaintiff's tenth count of the
complaint.
D.

Twelfth Cause of Action for Aiding & Abetting Fraud and Breach of Fiduciary Duty
To state a claim for aiding and abetting fraud under New York law, a plaintiff must plead

facts showing (1) the existence of a fraud, (2) the defendant's knowledge of the fraud, (3) that the
defendant provided substantial assistance to advance the fraud's commission, and (4) damages.
See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F. Supp. 2d
163, 201 (S.D.N.Y. 2006) [hereinafter Montreal]. Since the Court has already determined that
Plaintiff has failed to plead a cause of action for fraud, there is no predicate fraud claim that can
serve as the basis for aiding-and-abetting liability. Therefore, AVA's motion for partial judgment
on the pleadings is granted with respect to aiding and abetting fraud.
In Rice, a defendant who, with knowledge of an existing agreement between plaintiff and
a third party, posed as the plaintiff and sent a telegraph to the third party fraudulently indicating
the counterfactual repudiation of the plaintiff in order to induce the third party to sell the cheese
to the defendant. See Rice, 66 N.Y. at 84.
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To state a claim for aiding and abetting a breach of fiduciary duty, a plaintiff must allege
"(1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or
participated in the breach, and (3) that plaintiff suffered damage as a result of the breach."
Whitney v. Citibank, N.A., 782 F.2d 1106, 1115 (2d Cir. 1986); see also Kaufman v. Cohen, 307
A.D.2d 113, 125 (N.Y. App. Div. 1st Dept. 2003). "[O]ne who knowingly participates with a
fiduciary in a breach of trust is liable to the beneficiary for any damage caused thereby."
Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1074 (2d Cir. 1977). Aiding-and-abetting
liability may attach when a defendant affirmatively assists, helps conceal, or by omission of a
duty to act enables the breach of fiduciary duty to proceed. See Montreal, 446 F. Supp. 2d at 201.
"When a plaintiff adequately pleads such assistance, concealment, or failure to act, she fulfills . . .
the 'participation' element of the breach of fiduciary duty-based claim." Id.
Plaintiff has pled a prima facie case for breach of fiduciary duty against Varish in the sixth
count of the proposed amended complaint.6 See Dkt. No. 48-3 at ¶¶ 64-71. Plaintiff has alleged
that "AVA . . . assisted Varish . . . in the preparation of false documents, as well as submitted an
affidavit . . . even though such statement(s) was false." See id. at ¶ 124. This clearly constitutes
"affirmative assistance" amounting to "participation" and gives rise to very strong inference of
knowledge. However, AVA contests the existence of a bona fide fiduciary duty at the times
during which AVA acted in alleged "participation" on the grounds that a trustee's fiduciary duty
springs from receipt of the funds to be held in trust. Since Varish had not received funds at the
"Under New York law, the elements of a claim for breach of fiduciary duty are: '(i) the
existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting
therefrom.'" Schwartzco Enters. LLC v. TMH Mgmt., LLC, 60 F. Supp. 3d 331, 352 (quoting
Johnson v. Nextel Commc'ns, Inc., 660 F.3d 131, 138 (2d Cir. 2011)). Plaintiff has alleged that
Varish (1) owed Plaintiff a fiduciary duty under New York Lien Law Article 3-A, (2) breached
that duty by diverting, misappropriating, or disbursing trust assets as well as failing to properly
keep and maintain books and records, and (3) Plaintiff was damaged in the amount of the diverted
or misappropriated trust assets. See Dkt. No. 48-3 at ¶ 70.
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time of AVA's alleged actions, Varish had no duty that AVA could have assisted in breaching.
See Dkt. No 31-1 at 13. AVA argues that because Plaintiff alleges that Varish breached his
fiduciary duty by diverting or misappropriating funds received from AVA, and since any actions
amounting to participation occurred prior to the "creation of the duty alleged to have been
breached," AVA cannot be said to have aided and abetted a breach of a fiduciary duty as one did
not exist. See Dkt. No. 31-1 at 13; Dkt. No. 50-1 at 6. The Court disagrees. "Inducement" by its
very nature must be causally prior to the breach of duty induced. It cannot be sensibly argued that
this priority necessarily absolves a party who induces such a breach from liability for damages
that are proximately caused thereby.7 Moreover, the pleadings make abundantly clear that
Plaintiff does not actually know the location of the funds and has comprehensively pled
alternative theories to account for the plausible possibilities. That is, of course, the very point of
pleading in the alternative. See Henry v. Daytop Vill., Inc., 42 F.3d 89, 95 (2d Cir. 1994). AVA
seems to take issue with Plaintiff's inconsistent claims, see Dkt. No. 50-1 at 6, however, "[u]nder
Rule 8(e)(2) of the Federal Rules of Civil Procedure, a plaintiff may plead two or more statements
of a claim, even within the same count, regardless of consistency." Id. at 95. Indeed, testing for
facial plausibility, the Court finds Plaintiff's claim for aiding and abetting breach of fiduciary duty
to be sufficiently pled as to "allow[] the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged." See Iqbal, 556 U.S. at 678. Accordingly, AVA's motion for
partial judgment on the pleadings is denied with respect to Plaintiff's claim for aiding and abetting
breach of fiduciary duty in the twelfth count of the proposed second amended complaint.
IV. CONCLUSION
After carefully reviewing the entire record in this matter, the parties' submissions and the
AVA has not offered any authority supporting its position, nor can the Court find any
precedent articulating such a principle.
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applicable law, and for the foregoing reasons, the Court hereby
ORDERS that Defendant AVA's motion for partial judgment on the pleadings is
GRANTED in part and DENIED in part;8 and the Court further
ORDERS that Plaintiff's cross-motion for leave to file a second amended verified
complaint is GRANTED; and the Court further
ORDERS that Plaintiff shall file a signed copy of its Second Amended Verified
Complaint, with such alterations as are consistent with this Memorandum-Decision and Order,
within TEN (10) DAYS; and the Court further
ORDERS that Plaintiff shall serve a copy of the Second Amended Verified Complaint on
the additionally named Defendant, Wilmington Savings Fund Society, FSB, within TWENTYONE (21) DAYS, in compliance with the Federal Rules of Civil Procedure; and the Court further
ORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision
and Order on the parties in accordance with the Local Rules.
IT IS SO ORDERED.
Dated: July 24, 2015
Albany, New York

The motion is (1) granted with respect to Plaintiff's cause of action for common-law
fraud, which is contained in the tenth count of the amended complaint; (2) granted with respect to
Plaintiff's cause of action for aiding and abetting fraud, which is contained in the twelfth count of
the amended complaint; (3) denied with respect to Plaintiff's cause of action for aiding and
abetting breach of fiduciary duty, which is contained in the twelfth count of the proposed second
amended verified complaint; and (4) denied with respect to abstention. The motion is further
denied to the extent not otherwise specified in this Memorandum-Decision and Order.
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