Northeast Industrial Development Corp. v. ParkStone Capital Partners, LLC et al

Filing 6

OPINION & ORDER: For the foregoing reasons, the Court adopts Chief Judge Morris's Proposed Findings of Fact and Conclusions of Law and grants Defendants' motion to dismiss the complaint. The Clerk of Court is directed to enter judgment accordingly and close this case. SO ORDERED. (Signed by Judge Nelson Stephen Roman on 6/16/2015) (mml)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:

14-cv-7056 (NSR)
NORTHEAST INDUSTRIAL DEVELOPMENT
CORPORATION,

OPINION & ORDER

Debtor,

NORTHEAST INDUSTRIAL DEVELOPMENT
CORPORATION,
Plaintiff,
-againstPARK.STONE CAPITAL PARTNERS, LLC,
et al.,
Defendants.
NELSONS. ROMAN, United States District Judge:
This matter arises out of the chapter 11 case of Northeast Industrial Corporation
("Debtor," "Northeast Industrial," or "Plaintiff'). Plaintiffs filed a complaint and initiated an
adversary proceeding in the Bankruptcy Comt against Defendants ParkStone Capital Partners,
LLC ("ParkStone"), Parkston Capital Partners II, LLC ("ParkStone II"), and Jonathan Childs
(collectively, the "ParkStone Defendants"), as well as Receiver Vincent Rippa, on January 31,
2014. The ParkStone Defendants filed an answer to the complaint on February 28, 2014, and
Defendant Rippa filed his answer to the complaint on March 6. Thereafter, on April 22, the
ParkStone Defendants filed a motion seeking to dismiss the complaint.
On July 29, 2014, Chief Judge Cecelia G. Morris of the U.S. Bankruptcy Comt for the
Southern District of New York issued Proposed Findings of Fact and Conclusions of Law (the

USDCSDNY
DOCUMENT
ELECTRONICALLY FILED
i,

DOC#:
DATE FILED:

lJ

It<; I~I:>/ .

“Decision”) in favor of Defendants, recommending that Counts 1-4 of Plaintiff’s Complaint be
dismissed. 1 (See Mem. Decision and Proposed Findings of Fact and Conclusions of Law
Granting ParkStone Defs.’ Mot. to Dismiss Compl. [hereinafter “Decision”], ECF No. 1.)
Pursuant to Federal Rule of Bankruptcy Procedure 9033(b) and Local Bankruptcy Rule 9033-1,
Northeast Industrial timely objected to the Bankruptcy Court’s Decision. (Pl.’s Objections, ECF
No. 2.) Defendants submitted a response to Plaintiff’s objections. (Defs.’ Resp., ECF No. 3.) For
the reasons that follow, the Court adopts the Bankruptcy Court’s Proposed Findings of Fact and
Conclusions of Law and the ParkStone Defendants’ motion to dismiss is GRANTED.

BACKGROUND
The Court, having reviewed the facts and description of the proceedings in the
Bankruptcy Court contained in the “Background” section of Chief Judge Morris’s Decision,
adopts that section of the Decision in full and otherwise assumes familiarity with the procedural
history of this action. Neither party has submitted any specific objections to the “Background”
section of Chief Judge Morris’s Decision or to the findings of fact contained therein.

RELEVANT LEGAL STANDARDS
I.

Review of Bankruptcy Court’s Proposed Findings of Fact and Conclusions of Law
There are two kinds of bankruptcy proceedings under 28 U.S.C. § 157(b): “core”

1

Chief Judge Morris’s Decision also dismissed Count 6 as against the ParkStone Defendants. As Chief Judge
Morris noted, Count 6 of the Complaint is plainly a core proceeding in which the Bankruptcy Court could enter a
final order. (Decision at 13.) Count 6 of the Complaint requested disallowance of a portion of ParkStone’s proof of
claim for its prepetition secured debt, and Section 157(b)(2)(B) provides that the “allowance or disallowance of
claims against the estate” is a core proceeding. 28 U.S.C. § 157(b)(2)(B); see also In re Salander-O’Reilly Galleries,
453 B.R. 106, 118 (Bankr. S.D.N.Y. 2011) (“[A]llowance of claims is indisputably the realm of the bankruptcy
court.”). “Nothing in [Stern] removes the authority of the bankruptcy court to enter a final order or judgment in such
matters.” Wilson v. Residential Capital, LLC (In re Residential Capital, LLC), No. 12-12020, 2014 WL 3057111, at
*1 n.1 (Bankr. S.D.N.Y. July 7, 2014).

2

proceedings and “non-core” proceedings. While a bankruptcy court does not have authority
under Article III of the Constitution to issue final orders and judgments in non-core proceedings,
the bankruptcy court may submit proposed findings of fact and conclusions of law to the district
court. 28 U.S.C. § 157(c)(1) (in non-core proceedings “otherwise related to a case under title 11 .
. . the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the
district court”); see also Exec. Benefits v. Arkison, 573 U.S. __, 134 S. Ct. 2165, 2168 (2014);
Stern v. Marshall, 564 U.S. __, 131 S. Ct. 2594, 2620 (2011); In re Orion Pictures Corp., 4 F.3d
1095, 1100–01 (2d Cir. 1993) (in non-core proceeding, “the bankruptcy court is only empowered
to submit proposed findings of fact and conclusions of law to the district court for de novo
review”). The district court may then enter a final order or judgment after “considering the
bankruptcy judge's proposed findings and conclusions” and “reviewing de novo those matters to
which any party has timely and specifically objected.” 28 U.S.C. § 157(c)(1). The district court
“may accept, reject, or modify the proposed findings of fact or conclusions of law, receive
further evidence, or recommit the matter to the bankruptcy judge with instructions.” Fed. R.
Bankr. P. 9033(d).
This Court reviews the findings of fact and conclusions of law of the Bankruptcy Court in
this matter de novo because this is a non-core proceeding. See Decision at 12 (“[T]he claims
asserted against the ParkStone Defendants are necessarily at least ‘related to’ the bankruptcy
case and fall within the [Bankruptcy] Court’s noncore jurisdiction.”); see also Fed. R. Bankr. P.
9033(d) (“The district judge shall make a de novo review . . . of any portion of the bankruptcy
judge’s findings of fact or conclusions of law to which specific written objection has been made
in accordance with this rule.”); In re Adelphia Communications Corp., No. 02-41729, 2015 WL
1208588, at *6 (S.D.N.Y. Mar. 17, 2015); In re Prudential Lines, Inc., 170 B.R. 222, 228

3

(S.D.N.Y. 1994) (“In non-core related proceedings, the district court reviews de novo both the
factual findings and the legal conclusions of the bankruptcy court.”).
II.

Motion to Dismiss
The ParkStone Defendants seek dismissal under Federal Rule of Civil Procedure

12(b)(6); because they have filed an answer to the complaint, however, the Court construes their
motion as seeking dismissal under Federal Rule 12(c). “[A] motion to dismiss for failure to state
a claim . . . that is styled as arising under Rule 12(b) but is filed after the close of pleadings,
should be construed by the district court as a motion for judgment on the pleadings under Rule
12(c).” Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001).
Under Rule 12(c), “[a]fter the pleadings are closed—but early enough not to delay trial—
a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). Courts evaluate a Rule
12(c) motion for judgment on the pleadings under the same standard as a Rule 12(b)(6) motion
for failure to state a claim. U.S. ex rel. Krol v. Arch Ins. Co., 46 F. Supp. 3d 347, 349 (S.D.N.Y.
2014) (citing Nicholas v. Goord, 430 F.3d 652, 657 n.8 (2d Cir. 2005)). “To survive a Rule 12(c)
motion, the complaint must contain sufficient factual matter to ‘state a claim to relief that is
plausible on its face.’” Graziano v. Pataki, 689 F.3d 110, 114 (2d Cir. 2012) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff “must provide the grounds upon
which his claim rests through factual allegations sufficient ‘to raise a right to relief above the
speculative level.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)
(quoting Twombly, 550 U.S. at 555). “Judgment on the pleadings is appropriate where material
facts are undisputed and where a judgment on the merits is possible merely by considering the
contents of the pleadings.” Entegra Power Grp. v. Dewey & Leboeuf LLP (In re Dewey &
Lebouef LLP), 493 B.R. 421, 427 (Bankr. S.D.N.Y. 2013) (quoting Sellers v. M.C. Floor
Crafters, Inc., 842 F.2d 639, 642 (2d Cir. 1988)) (internal quotation marks omitted).
4

Similarly, to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must provide grounds
upon which their claim rests through “factual allegations sufficient ‘to raise a right to relief
above the speculative level.’” ATSI Commc’ns, Inc., 493 F.3d at 98 (quoting Twombly, 550 U.S.
at 555 (2007)). In other words, the complaint must allege “enough facts to state a claim to relief
that is plausible on its face.” Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 321 (2d Cir. 2010)
(quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In applying this standard, a court should accept as true all well-pled factual allegations,
but should not credit “mere conclusory statements” or “[t]hreadbare recitals of the elements of a
cause of action.” Id. Additionally, a court should also draw all reasonable inferences in favor of
the non-moving party in deciding such a motion. Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir.
2010). A court, however, should “giv[e] no effect to legal conclusions couched as factual
allegations.” Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007)
(citing Twomblv, 550 U.S. at 555).

DISCUSSION
I.

Plaintiff’s Objections
The Court must review de novo all portions of the Decision “to which specific written

objection has been made.” Fed. R. Bankr. P. 9033(d). Plaintiff objects to the Decision on the
grounds that: (1) “[n]umerous conclusions of law fail to incorporate the facts presented in this
adversary proceeding by the plaintiff;” and (2) “[t]he decision fails to take into consideration all
of the facts set forth in the Complaint, [and] all documents that may be taken judicial notice of
by the Court . . . in a light most favorable to the plaintiff.” (Pl.’s Objections at 2.) Specifically,
5

Plaintiff objects to, and seeks to strike the following paragraphs of the Decision: paragraphs 1, 2,
and 3 of the section labeled “i. Count 1 (Fraud),” found on pages 19-20 of the Decision;
paragraphs 3 and 5 of the section labeled “ii. Count 2 (Imposition of the Loan Workout
Agreement),” 2 found on pages 21-23; paragraphs 2, 3, and 4 of the section labeled “iii. Count 3
(Unjust Enrichment),” 3 found on pages 23-24; paragraphs 1, 2, 3, 4, and 5 of the section
labeled “iv. Count 4 (Imposition of a Joint Venture),” 4 found on pages 25-27. (Pl.’s
Objections at 2.)
A.

Count 1 (Fraud)

In its first cause of action, Plaintiff alleges that the ParkStone Defendants falsely
represented to Plaintiff (and Plaintiff’s principal) that if Plaintiff completed certain investments
and took certain actions related to the property at issue, ParkStone would reduce the mortgage
loan pay-off amount and permit an additional 24-month forbearance period pursuant to an
agreement negotiated between the parties (the “Loan Workout Agreement”). (See Compl. ¶¶ 2331.) These representations were false, Plaintiff alleges, because the ParkStone Defendants never
intended to comply with the terms of the Loan Workout Agreement, but instead waited until
Plaintiff had performed the investments and rented the premises to present Plaintiff with an
entirely different agreement than the one originally contemplated between the parties. (Compl. ¶
27.) Plaintiff also contends that the ParkStone Defendants knew this representation was false
when they made it. (Compl. ¶ 28.)

2
Plaintiff lists the paragraphs objected to in this section as paragraphs 3 and 6; however, this section
contains only five paragraphs, so the Court construes Plaintiff’s objection to be to paragraphs 3 and 5.
3
Plaintiff lists paragraphs 2, 3, and 5. This section contains only four paragraphs total, so the Court
construes Plaintiff’s objection to be to paragraphs 2-4.
4
Plaintiff lists paragraphs 1, 2, 3, 4, 5, and 6. This section contains only five paragraphs total, so the Court
construes Plaintiff’s objection to be to paragraphs 1-5.

6

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, 910
N.E.2d 976, 979 (N.Y. 2009). “General allegations that [a party] entered into a contract while
lacking the intent to perform it are insufficient to support [such a] claim.” New York Univ. v.
Cont'l Ins. Co., 662 N.E.2d 763, 769 (N.Y. 1995). A claim that a party entered into a contract
that they never intended to honor is generally duplicative of a claim for breach of contract, and
can only be maintained as a fraud claim in certain situations if: “(1) the defendant owed a legal
duty to the plaintiff ‘separate from the duty to perform under the contract’; (2) the defendant
makes a fraudulent misrepresentation that is ‘collateral or extraneous’ to the contract; or (3) the
plaintiff seeks special damages unrecoverable as contract damages.” Cougar Audio, Inc. v.
Reich, No. 99 Civ. 4498, 2000 WL 420546, at *6 (S.D.N.Y. Apr. 18, 2000) (quoting
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996)). Thus,
“[a] contracting party's ‘mere promissory statement’ that he will live up to his contractual
obligations generally cannot be the basis of a fraud claim.” Rolls-Royce Motor Cars, Inc. v.
Schudroff, 929 F. Supp. 117, 123 (S.D.N.Y. 1996) (quoting Deerfield Communications Corp. v.
Chesebrough–Ponds, Inc., 502 N.E.2d 1003, 1004–05 (N.Y. 1986)); see also WIT Holding Corp.
v. Klein, 724 N.Y.S.2d 66, 68 (App. Div. 2001) (“[A] mere misrepresentation of an intention to
perform under [a] contract is insufficient to allege fraud.”).
Assuming, arguendo, that Plaintiff’s first cause of action complies with the dictates of
Federal Rule of Civil Procedure 9(b), the claim still fails as a matter of law. Plaintiff’s claim is
fundamentally a claim for breach of contract; Plaintiff cannot state an independent tort claim for
fraud, based on the alleged false representation by the ParkStone Defendants of their intent to

7

perform by “simply dressing up a breach of contract claim by further alleging that the promisor
had no intention, at the time of the contract’s making, to perform its obligations thereunder.”
Best W. Int’l, Inc. v. CSI Int’l Corp., No. 94 Civ. 0360, 1994 WL 465905, at *4 (S.D.N.Y. Aug.
23, 1994).
As an additional matter, Plaintiff objected to Chief Bankruptcy Judge Morris’s statements
regarding Plaintiff’s allegations in this action. One example that Plaintiff points to is the
statement in the Decision that “the debtor alleges that ParkStone falsely claimed that it would
agree to accept a reduced payoff of the Note ($1.5 million and later $2.2 million).” Specifically,
Plaintiff argues that the Bankruptcy Court failed to review the facts presented in the light most
favorable to Plaintiff because “[t]here is nothing being ‘alleged’ here by the debtor as the offer
was firm, solid and in writing.” (Pl.’s Objections at 17.) Plaintiff’s argument is inapposite.
Contrary to Plaintiff’s contention, the “facts” as contemplated in the Decision are indeed
allegations, as they are statements of factual matter, contained in a pleading, that have not yet
been proved. See “Allegation,” Black’s Law Dictionary (10th ed. 2014) (“1. A declaration that
something is true; esp., a statement, not yet proved, that someone has done something wrong or
illegal. 2. Something declared or asserted as a matter of fact, esp. in a legal pleading; a party's
formal statement of a factual matter as being true or provable, without its having yet been
proved; averment.”) (emphasis added). The requirement that the Court assume the alleged facts
to be true for the purposes of the motion to dismiss does not render Plaintiff’s factual allegations
“proved.” Thus, Judge Morris’s use of the word “alleged” does not show that she failed to review
the facts presented in the light most favorable to Plaintiff. Further, this Court’s de novo review of
Plaintiff’s fraud claim yields a determination that the claim fails as a matter of law, even if the
allegations are accepted as true and all reasonable inferences are drawn in Plaintiff’s favor.

8

B.

Count 2 (Imposition of the Loan Workout Agreement)

Plaintiff’s second cause of action pertains to the alleged Loan Workout Agreement
between the parties to modify the terms of the note and mortgage. Plaintiff alleges that “the
parties had agreed to all essential terms of the agreement and mutually intended to be bound” by
the agreement, as evidenced by their communications and actions, and thus the Court “should
impose the terms of the contract set forth [in the Complaint] on the parties.” (Compl. ¶ 36.)
New York General Obligations Law § 5-703(3) requires the existence of a signed writing
to enforce an agreement for an interest in real property. See N.Y. Gen. Oblig. Law § 5-703(3).
Thus, in New York, the modification of a mortgage is subject to the statute of frauds and any
such modification must be in writing and signed by the party to be charged. Such a writing must
evidence “the full intention of the parties . . . without recourse to parol evidence.” Dahan v.
Weiss, 991 N.Y.S.2d 119, 120 A.D.3d 540, 542 (App. Div. 2014). Additionally, § 15-301(1)
provides that a contract with a written modification clause, such as the construction loan note and
construction loan mortgage in this action, “cannot be changed by an executory agreement unless
such executory agreement is in writing and signed by the party against whom enforcement of the
change is sought.” See N.Y. Gen. Oblig. Law § 15-301(1); Richardson & Lucas, Inc. v. New
York Athletic Club of City of N.Y., 758 N.Y.S.2d 321, 304 A.D.2d 462, 463 (App. Div. 2003)
(quoting N.Y. Gen. Oblig. Law § 15-301(1)).
Plaintiff alleges that the Loan Workout Agreement modifying the mortgage in this action
was written, not oral as found by the Bankruptcy Court, because of a series of emails discussing
the loan modification, which Plaintiff has attached to the Complaint. (Pl.’s Objections at 20.)
Although Plaintiff has attached to its Complaint evidence of e-mails 5 exchanged between

5

“[A]n e-mail will satisfy the statute of frauds so long as its contents and subscription meet all
requirements of the governing statute.” Naldi v. Grunberg, 80 A.D.3d 1, 3 (1st Dep’t 2010).

9

Defendant Childs and Plaintiff’s principal referencing construction that was occurring and a “24month agreement,” 6 (Compl. Ex. E), and has set forth the alleged Loan Workout Agreement
terms in the Complaint, (Compl. ¶ 12), the e-mails provided fail to state the essential terms of a
complete agreement, and are therefore insufficient on their own to satisfy § 5-703(3). Even if the
agreement was in the process of being drafted by ParkStone’s attorney, as Plaintiff alleges,
Plaintiff still cannot produce a writing evidencing the full intention of the parties that is signed
by Defendants as required by the statute of frauds, because, by Plaintiff’s own admission, the
“original workout agreement” was never produced in written form. (See Compl. ¶ 17.)
Accordingly, Plaintiff would need to rely on parol evidence in order to satisfy § 5-703(3)’s
writing requirement and thus the alleged Loan Workout Agreement modifying the mortgage does
not satisfy the statute of frauds.
Nevertheless, “[a]n agreement which violates the statute of frauds may nonetheless be
enforceable where there has been part performance unequivocally referable to the contract by the
party seeking to enforce the agreement.” Barretti v. Detore, 944 N.Y.S.2d 166, 95 A.D.3d 803,
806 (App. Div. 2012) (internal citations and quotations omitted). “‘Unequivocally referable’
conduct is conduct which is ‘inconsistent with any other explanation.’” Id. (quoting 745
Nostrand Retail Ltd. v. 745 Jeffco Corp., 854 N.Y.S.2d 773, 50 A.D.3d 768, 769 (App. Div.
2008)). “When analyzing part performance for potential invocation of equitable principles,
courts should only consider the actions and detrimental reliance of the party seeking enforcement
of the contract.” Post Hill, LLC v. E. Tetz & Sons, Inc., 997 N.Y.S.2d 525, 122 A.D.3d 1126,
1128 (App. Div. 2014).

6

Notably, the only reference to 24 months (the additional forbearance period that Plaintiff alleges was part
of the Loan Workout Agreement) is in an email from Plaintiff’s principal to Defendant Childs, not the other way
around. Thus, even if the Court were to find that this essential term of the alleged agreement was set forth in writing
in the emails provided, it is not signed by the party against whom enforcement is sought.

10

Despite Plaintiff’s contentions, Plaintiff’s actions are not “unequivocally referable” to the
agreement and are not “inconsistent with any other explanation.” Plaintiff completed
construction of a building on the property and entered into a deal with a broker to locate and
secure a new tenant for the property. These actions are not “unintelligible or at least
extraordinary, explainable only with reference to” the alleged Loan Workout Agreement.
Anostario v. Vicinanzo, 450 N.E.2d 215, 216 (N.Y. 1983). Plaintiff’s actions were attempts to
maximize the property’s value and obtain a source of cash flow; this is consistent with its
obligations under the note and mortgage, and can hardly be said to be “inconsistent with any
other explanation.” Barretti, 944 N.Y.S.2d 166, 95 A.D.3d at 806. The alleged Loan Workout
Agreement is therefore barred by the statute of frauds and unenforceable.
C.

Count 3 (Unjust Enrichment)

In its third cause of action, Plaintiff seeks from the Court the imposition of “a
constructive contract between the parties to prevent the defendants’ unjust enrichment,” alleging
that the ParkStone Defendants “obtained a substantial benefit by inducing the Plaintiff to
continue to perform upon a promise to reduce the [Loan Workout] agreement to writing.”
(Compl. ¶¶ 40-41.)
In order to prevail on an unjust enrichment claim in New York, “a plaintiff must establish
(1) that the defendant benefitted; (2) at the plaintiff’s expense; and (3) that equity and good
conscience require restitution.” Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of
N.J., Inc., 448 F.3d 573, 586 (2d Cir. 2006) (quoting Kaye v. Grossman, 202 F.3d 611, 616 (2d
Cir. 2000)). “The ‘essence’ of such a claim ‘is that one party has received money or a benefit at
the expense of another.’” Kaye, 202 F.3d at 616 (quoting City of Syracuse v. R.A.C. Holding,
Inc., 685 N.Y.S.2d 381, 381 (App. Div. 1999)). Because an unjust enrichment action is a “quasicontract claim,” Goldman v. Metropolitan Life Ins. Co., 841 N.E.2d 742, 746 (N.Y. 2005), “the
11

existence of an express contract between the [parties] governing the particular subject matter of
[plaintiff's] claim for unjust enrichment precludes the plaintiff from maintaining a cause of action
[for unjust enrichment],” Best W. Int'l, Inc. v. CSI Int'l Corp., No. 94 Civ. 0360, 1994 WL
465905, at *7 (S.D.N.Y. Aug. 23, 1994) (quoting Metro. Elec. Mfg. Co. v. Herbert Constr. Co.,
583 N.Y.S.2d 497, 498 (App. Div. 1992)); see also IDT Corp. v. Morgan Stanley Dean Witter &
Co., 907 N.E.2d 268, 274 (N.Y. 2009) (“Where the parties executed a valid and enforceable
written contract governing a particular subject matter, recovery on a theory of unjust enrichment
for events arising out of that subject matter is ordinarily precluded.”); Clark-Fitzpatrick, Inc. v.
Long Island R. Co., 516 N.E.2d 190, 193 (N.Y. 1987) (“The existence of a valid and enforceable
written contract governing a particular subject matter ordinarily precludes recovery in quasi
contract for events arising out of the same subject matter.”).
In the instant action, the note and mortgage are valid and enforceable contracts governing
the subject matter of the suit, and therefore preclude Plaintiff from making an unjust enrichment
claim against the ParkStone Defendants as a matter of law. See, e.g., Hinds v. Option One Mortg.
Corp., No. 11 Civ. 06149, 2012 WL 6827477, at *6-7 (E.D.N.Y. Dec. 6, 2012), report and
recommendation adopted, No. 11 Civ. 06149, 2013 WL 132719 (E.D.N.Y. Jan. 10, 2013); Scott
v. Saxon Loan Servs., No. 09 Civ. 2119, 2010 WL 1529281, at *11-12 (E.D.N.Y. Apr. 9, 2010)
(“Since plaintiff's claims arise out of the same subject matter as the mortgage and note, plaintiff
cannot establish an unjust enrichment claim against defendant, [the mortgagee]’s assignee, as a
matter of law.”). Further, a lender can only recover monies that it is legally entitled to through a
foreclosure sale, so a lender cannot be unjustly enriched simply by exercising its rights pursuant
to a valid note and mortgage. See, e.g., Mazeh Const. Corp. v. VNB N.Y. Corp., No. 500728/11,
2012 WL 2097690, at *6 (N.Y. Sup. Ct. June 11, 2012) (“Upon foreclosure, the [lender] can

12

only recover the loan funds they advanced to [the mortgagor] and . . . expenses. Any surplus
recovered upon the sale of the Property would be available only to [the mortgagor], as the owner
of the equity, and any lienors or others having a claim against the Property.”).
Thus, the existence of the note and mortgage means that Plaintiff’s unjust enrichment
claim must be dismissed, as it fails as a matter of law.
D.

Count 4 (Imposition of a Joint Venture)

In its fourth cause of action, Plaintiff alleges that the parties “entered into a [sic]
intentional and voluntary joint venture . . . and therefore, the contract set forth [in the Complaint]
for re-sale of the property to the Plaintiff should be enforced.” (Compl. ¶ 43.) Plaintiff further
alleges that each party made a contribution to the venture, the parties intended to share the profits
of the completed venture, each party had a joint proprietary interest and right of mutual control
over the project, and the parties were engaged in a single business transaction. (Compl. ¶¶ 4447.)
A party seeking to establish the existence of a joint venture under New York law must
demonstrate five elements: (1) a specific agreement between two or more persons to carry out an
enterprise for profit; (2) evidence in the agreement of the parties’ intent to be joint venturers; (3)
a contribution of property, financing, skill, knowledge, or effort by each party to the joint
venture; (4) some degree of joint control over the venture by each party; and (5) the existence of
a provision for the sharing of both profits and losses. Cohen v. Treuhold Capital Grp., LLC (In re
Cohen), 422 B.R. 350, 377 (E.D.N.Y. 2010) (citing Dinaco, Inc. v. Time Warner, Inc., 346 F.3d
64, 67-68 (2d Cir. 2003)). Failure to establish any single element is fatal to the claim of the party
seeking to establish the joint venture. See Kidz Cloz, Inc. v. Officially For Kids, Inc., 320 F.
Supp. 2d 164, 171 (S.D.N.Y. 2004).

13

Plaintiff’s claim encounters at least two fatal problems. First, the Complaint fails to
allege that the parties agreed to share losses in addition to sharing profits. “Under New York law,
where a plaintiff fails to plead ‘a mutual promise or undertaking to share the burden of losses of
the alleged enterprise,’ a cause of action alleging a joint venture should be dismissed.” Jacobs v.
Baum, No. 07 Civ. 167, 2008 WL 819037, at *6 (N.D.N.Y. Mar. 24, 2008) (quoting Latture v.
Smith, 766 N.Y.S.2d 906, 906-07 (App. Div. 2003)). This is because the “sharing of both profits
and losses . . . is essential to the creation of a joint venture.” Cohen, 422 B.R. at 377 (citing
Williams v. Forbes, 571 N.Y.S.2d 818, 819 (App. Div. 1991)). Second, even if Plaintiff amended
the Complaint to cure this first defect, the claim would fail as a matter of law because the
Complaint alleges that the parties intended to reduce the Loan Workout Agreement to writing but
never did so. (See Compl. ¶¶ 12-15, 17.) Under New York law, a joint venture claim fails as a
matter of law where “the parties intended to finalize their agreement in a writing[] which never
materialized.” Langer v. Dadabhoy, 843 N.Y.S.2d 262, 263 (App. Div. 2007) (“[D]ocumentary
evidence in the form of e-mails conclusively established that the parties intended to finalize their
agreement in a writing, which never materialized . . . . As such, there was no mutual assent or
meeting of the minds as to the proposed joint venture.”). Plaintiff’s allegations, combined with
the emails attached to the Complaint, conclusively establish that the parties intended to finalize
their agreement in a writing which never materialized. As a result, Plaintiff’s joint venture claim
fails as a matter of law and must be dismissed.
II.

Portions of the Decision Not Specifically Objected to by the Parties
Having reviewed Chief Judge Morris’s Decision, as well as the objections and responses

submitted by the parties, the Court adopts all other portions of the Decision not specifically
objected to by Plaintiff (as enumerated in the prior section of this Opinion) and which have not
otherwise been discussed in this Opinion.
14

CONCLUSION
For the foregoing reasons, the Court adopts Chief Judge Monis's Proposed Findings of
Fact and Conclusions of Law and grants Defendants' motion to dismiss the complaint. The Clerk
of Comt is directed to enter judgment accordingly and close this case.

Dated:

~

SO ORDERED:

Junef'b. 2015
White Plains, New York

~

United States District Judge

15