RONI LLC v. ArfaRONI LLC v. Arfa
OPINION OF THE COURT
Memorandum.
The order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.
This action arises from a series of related business transactions in which a number of Israeli investors acquired mеmbership interests in seven limited liability companies that purchased residential buildings in the Bronx and Harlem for renovation and resale. The promoter defendants organized the limited liability companies, located and mаnaged the properties, and solicited the investors. Plaintiffs—the majority of the investors or their assignees—brought this action, alleging that the promoter defendants deliberately concealed that property sellers and mortgage brokers paid them commissions of up to 15% of the purchase prices of the properties and that these commissions inflated the purchase prices by millions of dollars. The complaint contаins claims for an accounting, waste, breach of fiduciary duty, actual fraud and constructive fraud. The promoter
Supreme Court granted the motion to the extent of dismissing the causes of action for waste and actual fraud. It also permitted plaintiffs to replead their fraud claim. The Appellate Division affirmed (
The promoter defendants argue that the three claims at issue on this appeal—an accounting, breach of fiduciary duty and constructive fraud—must be dismissed because no fiduciary relationship existed between the promoter defendants and plaintiffs befоre the formation of the limited liability companies. On a CPLR 3211 motion to dismiss, however, we must give the complaint a libеral construction, accept the allegations as true and provide plaintiffs with the benefit of every favorable inference. Indeed, the question of “[w]hether a plaintiff can ultimately establish its allegations is not рart of the calculus in determining a motion to dismiss”
(EBC I, Inc. v Goldman, Sachs & Co.,
A fiduciary relationship arises “between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scopе of the relation”
(id.
[internal quotation marks and citation omitted]). Put differently, “[a] fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other”
(AG Capital Funding Partners, L.P v State St. Bank & Trust Co.,
Here, plaintiffs assert that the promoter defendants planned the business venture, organized the limited liability companies, solicited their involvement and exercised control over the invested funds. We agree with plaintiffs that the promoters of a limited liability company are in the best position to disclose matеrial facts to investors and can reveal those facts more efficiently than individual investors, who would otherwise incur expense investigating what the
The promoter defendants’ alternative contention that plaintiffs’ accounting, breach of fiduciary duty and constructive fraud claims are preempted by the Martin Act is without merit
(see Assured Guar. [UK] Ltd. v J.P. Morgan Inv. Mgt. Inc.,
Chief Judge Lippman and Judges Cipajrick, Gbaffeo, Read, Pigott and Jones concur in memorandum. Tаking no part: Judge Smith.
Order affirmed, etc.
Notes
. Certainly, there are differences between limited liability companies and traditional corporations, but the distinctions are not relevant to the allegations in this case: a potential exists regаrdless of corporate form for “conscienceless promoters [to] aceumulatef ] property at a low price under a well-devised scheme to unload it upon others at a high price”
(Heckscher v Edenborn,
. Based on the foregoing analysis, we need not decide the question of whether the promoter defendants’ status as organizers of the limited hability companies, standing alone, was sufficient to allege a fiduciary relationship.