Pappas v. Tzolis

20 N.Y.3d 228 (2012)

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Nature of the Case

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Facts

Pappas and Ifantopoulos (Ps) along with D formed and managed a limited liability company (LLC), for the purpose of entering into a long-term lease on a building in Lower Manhattan. Pappas and D each contributed $50,000 and Ifantopoulos $25,000, in exchange for proportionate shares in the company. D agreed to post and maintain in effect a security deposit of $1,192,500 and was permitted to sublet the property. The Agreement further provided that any of the three members of the LLC could 'engage in business ventures and investments of any nature whatsoever, whether or not in competition with the LLC, without obligation of any kind to the LLC or the other Members.' D agreed to post and maintain in effect a security deposit of $1,192,500 and was permitted to sublet the property. The Agreement further provided that any of the three members of the LLC could 'engage in business ventures and investments of any nature whatsoever, whether or not in competition with the LLC, without obligation of any kind to the LLC or the other Members.' Many disputes erupted between the parties. D took sole possession of the property, which was subleased by the LLC to a company he owned, for approximately $20,000 per month, in addition, to rent payable by the LLC under the lease. Ps claimed that D was obstructing and blocking their efforts to lease the building. On January 18, 2007, D bought Ps' membership interests in the LLC for $1,000,000 and $500,000, respectively. At closing, Ps represented that, as sellers, they had 'performed their own due diligence in connection with the assignments … engaged [their] own legal counsel, and [were] not relying on any representation by D or any of his agents or representatives. The LLC, now owned entirely by D, assigned the lease to a subsidiary of Extell Development Company for $17,500,000. Ps commenced this action against D, claiming that, by failing to disclose the negotiations with Extell, D breached his fiduciary duty to them. D moves to dismiss, and it was granted. A divided Appellate Division modified the dismissal order, allowing four of Ps' claims to proceed--breach of fiduciary duty, conversion, unjust enrichment, and fraud and misrepresentation. D appealed. A question was certified.