St. George Seaport Associates v. CSX Realty, Inc., 1993 WL 16116 (E.D.N.Y., Jan 15, 1993) (NO. 90 CV 2271 SJ)

Only the Westlaw citation is currently available.


United States District Court, E.D. New York.
ST. GEORGE SEAPORT ASSOCIATES, and Emmanuel Development Group, Inc.,Plaintiffs,v.CSX REALTY, INC., Ticor Title Guaranty Company, and Ticor Title InsuranceCompany, Defendants.
No. 90 CV 2271 SJ.
Jan. 15, 1993.
 Ray Beckerman, New York City.
 Sidley & Austin by Steven M. Bierman, James D. Arden, New York City.
 Kirschenbaum & Kirschenbaum by Samuel Kirschenbaum, Ira Levine, Garden City, NY.

MEMORANDUM AND ORDER
 JOHNSON, District Judge:
 *1 This action arises out a joint venture of Emmanuel Development Group, Inc. ("Emmanuel") and CSX Realty, Inc. ("CSX").  Before the court are the following motions:  (1) plaintiffs request that this case be remanded to state court;  (2) plaintiffs seek leave to file their proposed amended complaint; (3) plaintiffs move for partial summary judgment on the issue of liability with respect to the express warranty claim that they assert in their proposed amended complaint;  (4) defendant CSX cross-moves to dismiss the proposed amended complaint;  and (5) Ticor Title Guaranty Company and Ticor Insurance Company (the "Ticor defendants") seek reargument of the denial of certification pursuant to F.R.Civ.P. 54(b).
BACKGROUND I. Facts
 In April 1985, Emmanuel and CSX formed a limited partnership, St George Association (the "Partnership") to acquire and to develop a piece of property in St. George, Staten Island, New York. [FN1]  The Partnership purchased an irrevocable option on property previously used for railroad purposes, from Staten Island Cranford, ("SIC"), a CSX subsidiary.   Via special warranty deed, CSX represented that the land was "free and clear of any lien, encumbrance or claim."   The Ticor defendants insured the title on the property to the same extent as the special warranty deed.
 Plaintiffs now sue CSX for breach of an express warranty, breach of fiduciary duty, common law fraud, negligent misrepresentation and dissolution of the Partnership. [FN2]
 II. Judge Dearie's Prior Ruling
 The Ticor defendants moved for dismissal of this action before Judge Dearie.  Plaintiffs argued that the express warranty of free title had been breached by CSX because the New York State Department of Transportation ("DOT") had a preemptory right to purchase the land pursuant to Section 18 of the New York Transportation Law.   After advising the parties that he was treating the Ticor motion as one for summary judgment and then receiving supplemental affidavits, Judge Dearie granted judgment in favor of the Ticor defendants.
 Judge Dearie analyzed Section 18 and concluded that it made title to the subject land voidable and not immediately void.   As DOT chose not to exercise its preemptory right to the land, Judge Dearie determined that there had been no breach of the express warranty.   He concluded that "[t]he defect in title has been fully cured ... and, like it or not, plaintiffs now have clear title to the subject parcel."   Much of the motion practice that is now before this court derives from this ruling.
DISCUSSION
 I. Plaintiffs' Motions for Leave to Amend the Complaint and CSX's Motion to Dismiss the Complaint
 Fed.R.Civ.P. 15(a) provides that the court should freely grant leave to amend a party's pleading when justice so requires.   Whether to grant leave is within the sound discretion of the court, but refusal to allow a proposed amendment must be based on a valid ground.  Kaster v. Modification Systems, Inc., 731 F.2d 1014, 1018 (2d Cir.1984).   Leave to amend may be denied where the amended complaint is offered in bad faith or for a dilatory purpose.   S.S. Silberblatt, Inc. v. East Harlem Pilot Block--Bldg. 1 Housing Development Fund Co., Inc., 608 F.2d 28, 42 (2nd Cir.1979) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962));  U.S. For and on Behalf of Maritime Admin. v. Continental Illinois Nat. Bank and Trust Co. of Chicago, 889 F.2d 1248, 1254, 15 Fed.R.Serv.3d 972 (2nd Cir.1989).   Leave may also be denied where the proposed amended pleading is insufficient to state a claim and would be subject to a motion to dismiss, rendering the amendment futile.   Silberblatt, 608 F.2d at 42;  CBS, Inc. v. Ahern, 108 F.R.D. 14, 18-19 (S.D.N.Y.1985).
 *2 A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) may be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."  Green v. Maraio, 722 F.2d 1013, 1015-16 (2d Cir.1983) quoting, Conley v. Gibson, 355 U.S. 41, 45-46 (1957).   The court must accept as true all material facts well pleaded in the complaint and make all reasonable inferences in the light most favorable to the plaintiff.  In Re Energy Systems Equipment Leasing Securities Litigation, 642 F.Supp. 718, 723 (E.D.N.Y.1986).
a. The Express Warranty Claim
 Plaintiffs allege that CSX violated its express warranty that title was "free and clear of any lien encumbrance or claim."   Plaintiffs aver that because the property that the Partnership purchased falls squarely within the rubric of N.Y.Transp. Law §  18(1), [FN3] DOT's preferential right to purchase the parcel constituted a lien, encumbrance or claim on such land.   In this instance, DOT declined to exercise its preferential right to the property.
 The only issue is whether such preferential right, though unexercised, constituted a defect in title and, thereby, a breach of the warranty.   The court concludes that plaintiffs' express warranty claim hinges on the very issue that Judge Dearie resolved in the motion made by the Ticor defendants. As described above, Judge Dearie unambiguously concluded that DOT's preferential right did not divest the Partnership, actually or constructively, of title.   At best, DOT's preferential right made title voidable at the discretion of DOT.   Because DOT declined to exercise that right, Judge Dearie found that title has been fully cured and thus no action is maintainable. This holding is now the "law of the case," thereby controlling the outcome of plaintiffs' instant motion in regard to CSX.
 Indeed, plaintiffs' motion amounts to no more than an effort to obtain reconsideration of Judge Dearie's earlier decision.   This court declines to do so.   Accordingly, the motion to dismiss the first claim (the express warranty claim) is granted.   Plaintiffs' cross-motion for leave to amend this claim is denied.
b. Fraud Claim
 Defendant CSX argues that plaintiffs should be denied leave to file their proposed fourth claim on the ground that it fails to indicate the time and place of the alleged fraud and the person(s) responsible for making the fraudulent statements.   Further, CSX contends that plaintiffs have not presented any factual evidence that CSX intended to defraud plaintiffs.
 Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be state with particularity."   The elements for pleading with particularity are: [I]ndicating (1) precisely what statements or omissions were made, and in what documents or through what oral representations those statements were made, (2) the time and place of each such statement and the persons responsible for making (or, in the case of omissions for not making each such statement, (3) the content of such statements and the manner in which the statements misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.
 *3 Wiesner v. Willkie Farr & Gallagher, 785 F.Supp. 408, 411  (S.D.N.Y.1992) (citing Lasky v. Shearson Lehman Bros., Inc., 139 F.R.D. 597 (S.D.N.Y.1991));  DiVittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2nd Cir.1987);  Luce v. Edelstein, 802 F.2d 49, 55 (2nd Cir.1986).   In addition to establishing the aforementioned elements, a plaintiff must make some factual showing that the defendants intended to defraud the victim.  Stern v. General Elec. Co., 924 F.2d 472, 477 (2nd Cir.1991);  DiVittorio, 822 F.2d at 1247.
 Plaintiffs' fraud claim is, in essence, two pronged:  They aver that CSX misrepresented (a) that the property could be used for commercial purposes without special permission, and (b) that the property land is free of all "liens, encumbrances and claims."
 The court finds that plaintiffs fail to state a claim with respect to prong  (b) above for the same reasons that the express warranty claim must be dismissed.
 With respect to prong (a), the court agrees with defendants that the proposed amended complaint fails to satisfy the standardsto Rule 9(b).   Accordingly, the court denies leave to file the proposed amended complaint.   But, the court will grant plaintiffs one more opportunity to replead the fraud claim with particularity.  Goldman v. Belden, 754 F.2d 1059, 1065 (2nd Cir.1985) (unless plaintiff can prove no set of facts that would entitle him to relief, a court which dismisses complaint should grant plaintiff who has already amended his complaint, the opportunity to cure the defect of the complaint);  see also, Stern, 924 F.2d at 477.
c. Breach of Fiduciary Duty
 Plaintiff Emmanuel claims that CSX breached a fiduciary duty to it by (1) assuring it (Emmanuel) that the parcel was free of all liens, encumbrances and claims, and (2) concealing the fact that the parcel required special approvals in order to be utilized for commercial purposes.
 Because the court discerns no authority to support the proposition that a limited partner owes a fiduciary obligation to a general partner vested with management and control, this claim must be dismissed.   Indeed, case law suggests that no fiduciary duty runs between a limited to a general partner regardless of the circumstances.  See e.g., In Re Grotzinger, 81 A.D.2d 268, 440 N.Y.S.2d 189 (1st Dept 1981);  Union Circulation Co. v. Hardel Publishers Service, Inc., 6 Misc.2d 340, 164 N.Y.S.2d 435 (Sup.Ct.1957).  [FN4]
d. Negligent Misrepresentation
 CSX argues that Emmanuel's fifth claim for negligent misrepresentation must be dismissed pursuant to Rule 12(b)(6).   In order to sustain a cause of action for negligent misrepresentation, plaintiffs must show that CSX had a duty, based upon some special relationship, to provide certain information correctly, that the information was false or incorrect and that it was reasonably relied upon.  Liberatore v. Kondrat, 583 N.Y.S.2d 991 (3d Dept.1992);  Pappas v. Harrow Stores, Inc., 140 A.D.2d 501, 528 N.Y.S.2d 404 (2d Dept.1988).
 *4 CSX asserts that because it owed no fiduciary duty to Emmanuel, Emmanuel has failed to demonstrate that there exists a "special relationship" between itself and CSX.   This contention is beside the point.   The mere fact that no fiduciary duty runs from CSX to Emmanuel does not determine whether there exists a "special relationship" between the two for purposes of a negligent misrepresentation claim.   The "special relationship" has been found to exist in various circumstances where the parties were not also in a relationship that was fiduciary in nature.   See generally, Indosuez v. Barclays Bank PLC, 181 A.D.2d 447, 580 N.Y.S.2d 765, 766 (1st Dept.1992);  Coolite Corporation v. American Cyanamid Company, 52 A.D.2d 486, 384 N.Y.S.2d 808 (1st Dept.1976).
 The court determines that, at this preliminary stage of the proceedings, the  "special relationship" pleaded in the instant complaint is sufficient.  See, AFA Protective Systems v. American Tel. & Tel. Co., 57 N.Y.2d 912, 456 N.Y.S.2d 757, 758, 442 N.E.2d 1268 (1982);  Hutchins v. Utica Mut. Ins. Co., 107 A.D.2d 871, 484 N.Y.S.2d 686, 687 (3d Dept.1985).   Therefore, the motion to dismiss the negligent misrepresentation claim is denied.
e. Dissolution of the partnership
 Emmanuel's petition for dissolution of the partnership is based upon its claim of fraud.   The court cannot address plaintiffs' dissolution claim at this time as the fraud claim is likely to be replead.
 II. Rule 54(b) Certification for Ticor
 The Ticor defendants seek reconsideration of this court's order vacating the final judgment entered in their favor.   Because the court determines that the Ticor defendants' position is inextricably related to some of CSX's defenses, the court is compelled to deny Rule 54(b) certification to Ticor.   The motion for reconsideration is, accordingly, denied.
 III. Motion for Remand
 Plaintiffs request that the court remand this action to New York State Supreme Court.   The application is denied.   This court is intimately familiar with the details of this case.   And, it would be inefficient judicial administration to remand a case which has had extensive and complicated motion practice, though it remains mired at the pre-answer phase.
CONCLUSION
 The court dismisses plaintiffs' first, second and third claims with prejudice.   Plaintiffs are granted leave to file an amended complaint including count five (as pleaded), and, if they so desire, repleading counts four and six in light of the principles enunciated in this decision.   The cross-motion to amend is granted in part and denied in part in accordance with the foregoing instructions.   Plaintiffs' motion for partial summary judgment with respect to the issue of liability on the express warranty claim is denied.   The Ticor defendants' motion for reconsideration is denied.   Thus, no final judgment (and Rule 54(b) certification) may be entered in their favor at this time.  The motion for remand is also denied.
 *5 Due to the vexatious litigation in this case to date, the court directs that no motions may be filed without the parties first seeking leave of the court.
 SO ORDERED.

FN1. The court assumes familiarity with the Memorandum and Order of Judge Dearie dated August 27, 1991 and only recites the significant relevant facts herein.

FN2. In their amended complaint, plaintiffs include a claim on title against the Ticor defendants.   This claim has already been dismissed by Judge Dearie.   As such, the claim is not discussed herein but dismissed in accordance with Judge Dearie ruling.

FN3. The relevant portion of the statute states:  Notwithstanding the provisions of any general, special or local law to the contrary, the commissioner shall have a preferential right to acquire, for and in behalf of the people of the state of New York, for use in the future for transportation purposes, as such purposes are set forth in this chapter....  No property owner shall dispose of any such property without having first obtained notification from the commissioner that the preferential right of acquisition granted under this section does not apply, or a release of such preferential right from the commissioner. Conveyances of property in violation of this section shall be null and void. NY.Transp.Law §  18(1).

FN4. Further, the liability of a limited partner in certain instances to third-parties does not issue because there is a fiduciary duty between the limited and the third-party, but arises for other reasons.  See generally, Micheli Contracting Corp. v. Fairwood Associates, 68 A.D.2d 460, 418N.Y.S.2d 164 (Dept.1979).   Accordingly, any liability CSX may be found to owe to a third-party in a pending state proceeding is not dispositive of whether a cause of action may be stated against CSX for breach of a fiduciary duty.
1993 WL 16116, 1993 WL 16116 (E.D.N.Y.)
END OF DOCUMENT