The family is large, and the husband has been married at least twice. There are adult children from the first marriage, and the husband has significant sums of money. What is this? It is a recipe for internecine war; of course, it is over money. Did Dad fraudulently and wrongfully give the adult kids money that belonged to wife #2? Did the accountants help out?
Swartz v Swartz 2016 NY Slip Op 08390 Decided on December 14, 2016 Appellate Division, Second Department looks into this question.
“In April 2009, the plaintiff, Starnette Swartz, commenced an action for a divorce and ancillary relief against her husband, Jerome Swartz (hereinafter the matrimonial action). In connection with the matrimonial action, Starnette Swartz and Jerome Swartz entered into a so-ordered stipulation, which, inter alia, restricted their ability to transfer or dispose of certain assets. The plaintiff then commenced this action against Jerome Swartz; James P. King and James P. King & Associates, LLC (hereinafter together the King defendants), who were the accountants for the plaintiff and Jerome Swartz during their marriage; Shanah Swartz-Gordon and Nikola Swartz-Hennes, who are Jerome Swartz’s two daughters from a prior marriage (hereinafter together the Swartz daughters); Joshua Swartz, who is Jerome Swartz’s son from the prior marriage; and 27 trust, partnership, and corporate entities that Jerome Swartz allegedly had an interest in or controlled (hereinafter collectively the corporate defendants). In an amended summons and complaint, 3 partnerships and 1 corporate entity were added as defendants (hereinafter collectively the added defendants). The plaintiff contended that Jerome Swartz, with the help of the King defendants, transferred assets to his children, the corporate defendants, and the added defendants in order to hide these assets and to deprive the plaintiff of her right to equitable distribution in connection with the matrimonial action.”
“The plaintiff moved for a preliminary injunction, inter alia, enjoining the corporate defendants, the Swartz daughters, and Joshua Swartz (hereinafter collectively the Swartz defendants), and the King defendants from transferring or disposing of assets or funds to the extent that they received such assets or funds from Jerome Swartz beginning on January 1, 2009, until the present. The King defendants moved, inter alia, to dismiss the amended complaint insofar as [*3]asserted against them pursuant to CPLR 3211(a)(7), or to stay the action pending resolution of the matrimonial action. The Swartz defendants separately moved, inter alia, to dismiss the amended complaint insofar as asserted against them pursuant to CPLR 3211(a)(4) and (7), and for sanctions pursuant to 22 NYCRR 130-1.1 from the plaintiff. The plaintiff cross-moved for sanctions pursuant to 22 NYCRR 130-1.1 against all of the defendants.”
“With respect to that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the sixth cause of action, which alleged breach of fiduciary duty insofar as asserted against them, ” [t]he elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct'” (Stortini v Pollis, 138 AD3d 977, 978-979, quoting Deblinger v Sani-Pine Prods. Co., Inc., 107 AD3d 659, 660, and Rut v Young Adult Inst., Inc., 74 AD3d 776, 777). A cause of action sounding in breach of fiduciary duty must be pleaded with particularity under CPLR 3016(b) (see Deblinger v Sani-Pine Prods. Co., Inc., 107 AD3d at 660; Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 AD3d 804, 808). Here, affording the amended complaint a liberal construction, accepting the facts alleged therein to be true, and granting the plaintiff the benefit of every possible favorable inference, the amended complaint failed to plead with the requisite particularity the existence of a fiduciary duty between the plaintiff and the King defendants and a breach thereof (see Theaprin Pharms., Inc. v Conway, 137 AD3d 1254, 1255). Accordingly, the Supreme Court properly granted that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging breach of fiduciary duty asserted against them.”
“The Supreme Court properly granted those branches of the motions of the King defendants and the Swartz defendants which were pursuant to CPLR 3211(a)(7) to dismiss the first cause of action, which alleged fraud insofar as asserted against the King defendants, the Swartz daughters, and the corporate defendants. The elements of a cause of action to recover damages for fraud are (1) a misrepresentation or a material omission of fact which was false, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance by the plaintiff, and (5) damages (see Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 892). To sustain a cause of action alleging fraudulent concealment, the plaintiff must allege that the defendant had a duty to disclose the material information (see Bannister v Agard, 125 AD3d 797, 798). Pursuant to CPLR 3016(b), where a cause of action is based on fraud, the “circumstances constituting the wrong” must be “stated in detail,” including “specific dates and items” (Orchid Constr. Corp. v Gottbetter, 89 AD3d 708, 710 [internal quotation marks omitted]; see Doukas v Ballard, 135 AD3d 896, 898).
With respect to the King defendants, although the amended complaint alleged that they made a statement to the plaintiff to transfer her interest in certain real property for tax purposes, there was no factual support for the plaintiff’s assertion that this statement was false or a misrepresentation of fact (see Nanomedicon, LLC v Research Found. of State Univ. of N.Y., 112 AD3d 594, 598; Caldwell v Gumley-Haft L.L.C., 55 AD3d 408). The remaining allegations in the amended complaint regarding alleged misstatements that the King defendants made to the plaintiff, including that they issued false financial statements and accounting reports to the plaintiff, were not pleaded in accordance with CPLR 3016(b). The amended complaint also failed to allege a basis for imposing a duty on the King defendants to disclose to the plaintiff the alleged transfers that Jerome Swartz made because they did not have a fiduciary or confidential relationship with the plaintiff. Additionally, the amended complaint failed to allege that the Swartz daughters made any material misrepresentations of fact to the plaintiff or that they owed a duty to the plaintiff to disclose the transfers that Jerome Swartz allegedly made (see Nafash v Allstate Ins. Co., 137 AD3d 1088, 1090; Sanford/Kissena Owners Corp. v Daral Props., LLC, 84 AD3d 1210, 1211). Similarly, there were no allegations in the amended complaint that the corporate defendants made any misrepresentations of fact to the plaintiff or that they owed a duty to disclose information to the plaintiff.
“The elements of a cause of action alleging aiding and abetting fraud are an underlying fraud, [the] defendants’ knowledge of this fraud, and [the] defendants’ substantial assistance in the achievement of the fraud'” (Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 894, quoting High Tides, LLC v DeMichele, 88 AD3d 954, 960-961), and, pursuant to CPLR 3016(b), the “circumstances constituting the wrong” must be “stated in detail” (Doukas v Ballard, 135 AD3d at 898 [internal quotation marks omitted]). Here, the Supreme Court properly granted those branches of the motions of the King defendants and the Swartz defendants which were pursuant to CPLR 3211(a)(7) to dismiss the ninth cause of action alleging aiding and abetting fraud insofar as asserted against the King defendants, the Swartz daughters, and the corporate defendants (see McBride v KPMG Intl., 135 AD3d 576, 579; High Tides, LLC v DeMichele, 88 AD3d at 960-[*4]961; CRT Invs., Ltd. v BDO Seidman, LLP, 85 AD3d 470, 472; Stanfield Offshore Leveraged Assets, Ltd. v Metropolitan Life Ins. Co., 64 AD3d 472, 476).”
“The King defendants were not entitled to dismissal pursuant to CPLR 3211(a)(7) of the eighth cause of action, which alleged unjust enrichment insofar as asserted against them. “The elements of a cause of action to recover for unjust enrichment are (1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered'” (GFRE, Inc. v U.S. Bank, N.A., 130 AD3d 569, 570, quoting Mobarak v Mowad, 117 AD3d 998, 1001). A cause of action alleging unjust enrichment requires the plaintiff to set forth that the defendant possessed property or assets of the plaintiff (see Roslyn Union Free School Dist. v Barkan, 71 AD3d 660, 661, mod 16 NY3d 643). Here, construing the amended complaint liberally, as augmented by the plaintiff’s affidavit, the plaintiff sufficiently alleged that her assets were used to compensate the King defendants for their accounting services, and that they were unjustly enriched at her expense when they failed to perform or negligently performed these services on her behalf. Accordingly, the Supreme Court erred in granting that branch of the King defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging unjust enrichment insofar as asserted against them.”