Feldman v. Byrne

Cyruli Shanks & Zizmor, LLP, New York, NY (James E. Schwartz of counsel), for appellants.

Chiesa Shahinian & Giantomasi, P.C., New York, NY (A. Ross Pearlman and Melissa F. Wernick of counsel), for respondents.

FRANCESCA E. CONNOLLY, J.P. REINALDO E. RIVERA JOSEPH A. ZAYAS WILLIAM G. FORD, JJ.

DECISION & ORDER

In an action, inter alia, to recover damages for fraudulent inducement, the plaintiffs appeal from an order of the Supreme Court, Nassau County (Vito M. DeStefano, J.), entered July 23, 2021. The order, insofar as appealed from, granted those branches of the defendants' motion which were pursuant to CPLR 3211(a)(7) to dismiss the causes of action alleging fraudulent inducement and negligent misrepresentation.

ORDERED that the order is modified, on the law, by deleting the provision thereof granting that branch of the defendants' motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging fraudulent inducement, and substituting therefor a provision denying that branch of the motion; as so modified, the order is affirmed insofar as appealed from, with costs to the plaintiffs.

According to the complaint, in October 2018, the plaintiff Eric Feldman, a licensed radiologist, began employment as a remote radiologist interpreting films and studies via teleradiology for a practice operating under nonparty radiologist Jeffrey Lyons, and then known as Lyons Medical (hereinafter the Lyons practice) at a location in Valley Stream (hereinafter the Valley Stream location). Approximately one month into his employment, the defendant Jeffrey Byrne, a layman who individually or through his corporation JAVS Ventures, Inc., ostensibly owned the Lyons practice, approached Feldman with a business proposition, advising Feldman that the Lyons practice would soon cease operations and that Feldman would have an opportunity to open his own practice under his name.

In furtherance of Byrne's offer, Feldman and Byrne met on November 18, 2018. Feldman alleges that, at that meeting, Byrne made several misrepresentations on which the complaint rests. As relevant here, in particular, Feldman alleges that, at their meeting, Byrne stated that the Lyons practice had a stable source of patients and otherwise benefitted from referrals from local practicing physicians, and that the Lyons practice was a "clean practice" and that the referrals it received "were not based on payoffs." Feldman alleges that, in reliance on these representations, amongst others, he opened a radiological practice the plaintiff, Instar Medical, P.C. (hereinafter Instar), at the Valley Stream location, retaining all of the support staff previously employed by the Lyons practice.

Feldman alleges that, shortly after opening Instar, Byrne advised him that he would have to give certain people "thousands of pineapples" if he wanted the practice's patient referral stream to continue unabated. Feldman claims that, in response, he refused and ceased seeing patients at the Valley Stream location and, as a result, he terminated Instar's lease and eventually ceased operations. Measuring their damages based on four months' operation, the plaintiffs commenced this action seeking recovery of the sum of $300,000 in damages premised on causes of action alleging fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty. The plaintiffs alleged that "[b]ut for" Byrne's misrepresentations of material facts, Feldman would not have opened Instar at the Valley Stream location.

In lieu of answering, the defendants moved pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action. The plaintiffs opposed the motion. In an order entered July 23, 2021, the Supreme Court, inter alia, granted those branches of the defendants' motion which were pursuant to CPLR 3211(a)(7) to dismiss the causes of action alleging fraudulent inducement and negligent misrepresentation. The plaintiffs appeal.

"Upon a motion to dismiss [pursuant to CPLR 3211(a)(7)], the sole criterion is whether the subject pleading states a cause of action, and if, from the four corners of the complaint, factual allegations are discerned which, taken together, manifest any cause of action cognizable at law, then the motion will fail" (Ruggiero v DePalo, 153 A.D.3d 870, 871 [internal quotation marks omitted]; see Bank of N.Y. Mellon Trust Co., N.A. v Universal Dev., LLC, 136 A.D.3d 850, 850). In assessing the adequacy of a complaint under CPLR 3211(a)(7), the court must afford the pleading a liberal construction, accept the facts alleged in the complaint to be true, and accord the plaintiff the benefit of every possible favorable inference (see J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 N.Y.3d 324, 334; Leon v. Martinez, 84 N.Y.2d 83, 87; Amsterdam Tobacco Co., Inc. v Harold Levinson Assoc., LLC, 201 A.D.3d 846, 848-849). The court is to determine only whether the facts as alleged fit within any cognizable legal theory (see Gorbatov v Tsirelman, 155 A.D.3d 836, 837). However, "allegations consisting of bare legal conclusions as well as factual claims flatly contradicted by documentary evidence are not entitled to any such consideration" (Santoro v Poughkeepsie Crossings, LLC, 180 A.D.3d 12, 16 [internal quotation marks omitted]). "The allegations of the pleading cannot be vague and conclusory, but must contain sufficiently particularized allegations from which a cognizable cause of action reasonably could be found" (Monaghan v Roman Catholic Diocese of Rockville Ctr., 165 A.D.3d 650, 652 [internal quotation marks omitted]).

"'To state a [cause of action to recover damages] for fraudulent inducement, there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury'" (Louie's Seafood Rest., LLC v Brown, 199 A.D.3d 790, 793, quoting Tsinias Enters. Ltd. v Taza Grocery, Inc., 172 A.D.3d 1271, 1273 [internal quotation marks omitted]; see 651 Bay St., LLC v Discenza, 189 A.D.3d 952, 953-954).

"Where a cause of action is based upon fraud, the circumstances constituting the wrong shall be stated in detail" (Trump Vil. Section 4, Inc. v Vilensky, 202 A.D.3d 865, 866 [internal quotation marks omitted]). The pleading requirements of CPLR 3016(b) may be met when the facts are sufficient to permit a reasonable inference of the alleged conduct (see Qureshi v Vital Transp., Inc., 173 A.D.3d 1076, 1077), and the statute "should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud" (Farro v Schochet, 190 A.D.3d 698, 699 [internal quotation marks omitted]).

Regarding reasonable reliance on a misrepresentation of a material fact, the "plaintiff is expected to exercise ordinary diligence and may not claim to have reasonably relied on a defendant's representations [or silence] where he [or she] has means available to him [or her] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation" (Benjamin v Yeroushalmi, 178 A.D.3d 650, 654 [internal quotation marks omitted]; see Avery v WJM Dev. Corp., 197 A.D.3d 1141, 1144; Weiss v Hager, 151 A.D.3d 906, 909).

The "question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive" (DDJ Mgt., LLC v Rhone Group L.L.C., 15 N.Y.3d 147, 155 [internal quotation marks omitted]). The resolution of the issue of whether a plaintiff reasonably relied on a defendant's misrepresentation in support of a cause of action alleging fraud in the inducement is ordinarily relegated to the finder of fact (see Lawson-Groome v Smalls, 144 A.D.3d 633, 634; Lunal Realty, LLC v DiSanto Realty, LLC, 88 A.D.3d 661, 665; Jablonski v Rapalje, 14 A.D.3d 484, 488). Thus, contrary to the defendants' contention, the plaintiffs adequately stated a cause of action to recover damages for fraudulent inducement insofar as the determination of the reasonableness of Feldman's reliance on Byrne's alleged misrepresentations concerning, among other things, the source of the Lyons practice's patient referrals itself entailed a question of fact not appropriate for summary disposition as a matter of law.

Accordingly, the Supreme Court should have denied that branch of the defendants' motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging fraudulent inducement.

In order for the plaintiffs to recover on a cause of action sounding in negligent misrepresentation, they must demonstrate the existence of (1) a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information (see Broecker v Conklin Prop., LLC, 189 A.D.3d 751). "[A] duty to speak with care exists when the relationship of the parties, arising out of contract or otherwise, [is] such that in morals and good conscience the one has the right to rely upon the other for information" (Krobath v South Nassau Communities Hosp., 178 A.D.3d 807, 808 [internal quotation marks omitted]). "[L]iability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified" (HSBC Bank USA, N.A. v Ngo, 197 A.D.3d 1102, 1105 [internal quotation marks omitted]; see International Shoppes, Inc. v At the Airport, LLC, 131 A.D.3d 926, 937; High Tides, LLC v DeMichele, 88 A.D.3d 954, 959).

Here, contrary to the plaintiffs' contention, the Supreme Court did not err in its determination that the complaint failed to state a cause of action to recover damages for negligent misrepresentation. Generally, a special relationship does not arise out of an ordinary arm's length business transaction between two parties (see High Tides, LLC v DeMichele, 88 A.D.3d at 960; US Express Leasing, Inc. v Elite Tech. [NY], Inc., 87 A.D.3d 494, 497). "[A] conventional business relationship, without more, is insufficient to create a fiduciary relationship. Rather, a plaintiff must make a showing of 'special circumstances' that could have transformed the parties' business relationship to a fiduciary one, such as control by one party of the other for the good of the other" (Saul v Cahan, 153 A.D.3d 947, 949 [citation and internal quotation marks omitted]; see AHA Sales, Inc. v Creative Bath Prods., Inc., 58 A.D.3d 6, 21).

Here, the allegations in the complaint do not support an inference that a special relationship was created or existed between Feldman and Byrne prior to the opening of Instar. Accordingly, the Supreme Court properly granted that branch of the defendants' motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging negligent misrepresentation.

In light of our determination, we do not reach the plaintiffs' remaining contention.

CONNOLLY, J.P., RIVERA, ZAYAS and FORD, JJ., concur.