FILED NEW YORK COUNTY CLERK 09/15/2016 0125 PM INDEX NO. 653287/2016 NYSCEF DOC. NO. 23 RECEIVED NYSCEF 09/15/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------------------------------------------------------------- x LPJA L.L.C., -against- Plaintiff, IDM FIFTH AVENUE DEVELOPMENT LLC; CITIC HOLDINGS FIFTH AVENUE, LLC; CITIC ACQUISITION, LLC; 5TH AVE GATEWAY LAND, LLC and AHRON FREILICH, Defendants. Index No. 653287/2016 AFFIRMATION IN SUPPORT OF MOTION TO DISMISS MOT SEQ 1 ----------------------------------------------------------------------- x THEODORE S. STEINGUT, an attorney-at-law, affirms under the penalties of perjury that the following statements are true 1. I am the attorney for defendants Citic Acquisition, LLC & 5 th Ave Gateway Land, LLC. (collectively Gateway ) I make this affirmation in support of those defendants motion to dismiss the complaint as to them and to discharge notices of pendency filed against two parcels of real property in which the moving Defendants have an interest. The Complaint s Allegations 2. In the verified complaint, attached hereto as Exhibit A, Plaintiff in substance claims that it was a silent partner with the IDM/Freilich ( IDM ) Defendants in the assemblage and development of the project at 312-316 Fifth Avenue. Plaintiff proceeds to allege, in effect, that IDM concealed its dealings with Citic and Gateway and others in order to induce the termination of a memorandum of understanding that plaintiff claims may have created a partnership or joint venture between those parties in the underlying project. 3. There is an abject absence of specific allegations concerning the moving Defendants participation in the alleged wrongdoing; Plaintiff merely alleges at paragraphs 36 and 65 of the complaint that, upon information and belief, Citic Acquisition and Gateway were 1 of 17
aware of IDM s misconduct, thus implying aiding and abetting liability as the theory of its case against these defendants. 4. For the reasons set forth in the accompanying memorandum of law, the causes of action seeking aiding and abetting liability as against the Gateway moving Defendants are legally insufficient and should be dismissed. 5.. Dated New York, New York September 15, 2016 _s/ THEODORE S. STEINGUT 2 2 of 17
EXHIBIT A 3 of 17
FILED NEW YORK COUNTY CLERK 06/21/2016 0321 PM INDEX NO. 653287/2016 NYSCEF DOC. NO. 2 RECEIVED NYSCEF 06/21/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK COMMERCIAL DIVISION -------------------------------------------------------------------------x LPJA L.L.C., - against - Plaintiff, IDM FIFTH AVENUE DEVELOPMENT LLC; CITIC HOLDINGS FIFTH AVENUE, LLC; CITIC ACQUISITION, LLC; 5TH AVE GATEWAY LAND, LLC and AHRON FREILICH, Index No. Date Purchased IAS Part VERIFIED COMPLAINT Defendant. -------------------------------------------------------------------------x Plaintiff LPJA, L.L.C. ( LPJA ), by its attorney Gershburg Law, P.C., for its Verified Complaint against defendants IDM Fifth Avenue Development LLC ( IDM Fifth Avenue ), CITIC Holdings Fifth Avenue LLC ( CITIC Holdings ), CITIC Acquisition, LLC ( CITIC Acquisition ), 5 th Ave Gateway Land, LLC ( Gateway ) and Ahron Freilich, hereby respectfully alleges as follows NATURE OF THIS ACTION 1. This Complaint is the result of a stolen real estate opportunity. LPJA spent years developing a real estate opportunity and brought it to IDM Fifth Avenue and its Chief Operating Officer, Ahron Freilich, in order to bring it to a reality. IDM Fifth Avenue and Freilich instead decided to take this project and sell it to CITIC Acquisition and Gateway instead, keeping LPJA in the dark about these actions until it was too late through a series of affirmative misrepresentations. This was a breach of IDM Fifth Avenue s fiduciary duties to LPJA, aided and abetted by CITIC Acquisition and Gateway, as well as a breach of the implied covenant of good 14 of 14 17
faith and fair dealing, misappropriation of business opportunities, constructive fraud and fraudulent concealment. THE PARTIES 2. Plaintiff LPJA, L.L.C. is a New York limited liability company, maintain principal offices at 481 Eighth Avenue, Suite 727, New York, New York 10001, where it is engaged in the business of real estate investment and development. 3. Upon information and belief, Defendant IDM Fifth Avenue Development LLC is a New York limited liability company, maintaining principal offices at 809 Broadway, New York, New York 10003, where it is engaged in the business of real estate development. 4. Upon information and belief, Defendant CITIC Holdings Fifth Avenue, LLC is a New York limited liability company, with principal address 798 McDonald Avenue, Brooklyn, New York 11218, where it is engaged in the business of real estate development. 5. Upon information and belief, Defendant CITIC Acquisition, LLC is a Delaware limited liability company, qualified to conduct business in New York, with a listed address for purposes of service of process at 80 State Street, Albany, New York 12207, where it is engaged in the business of real estate development. 6. Upon information and belief, Defendant 5 th Ave Gateway Land, LLC is a Delaware limited liability company, qualified to conduct business in New York, with a listed address for purposes of service of process at 80 State Street, Albany, New York 12207, where it is engaged in the business of real estate development. 7. Upon information and belief, Defendant Ahron Freilich is the Chief Operating Officer of IDM Fifth Avenue and its corporate parent IDM Capital US LLC ( IDM ), as well as a member of CITIC Holdings. He is also, on information and belief, a resident of the State of New York. 2 25 of 14 17
JURISDICTION AND VENUE 8. This Court has personal jurisdiction over Defendants IDM Fifth Avenue and CITIC Holdings since they are limited liability companies with their principal place of business within the State of New York, CITIC Acquisition and Gateway since they are limited liability companies qualified to conduct business within the State of New York, and has personal jurisdiction over Freilich as a resident of the State of New York. 9. Venue in this county is proper pursuant to N.Y. CPLR 503(c) (Venue Based on Residence) and N.Y. C.P.L.R. 501 (Contractual Provisions Fixing Venue). PERTINENT FACTS A. LPJA Begins the Process of Developing the Properties at 314 and 316 Fifth Avenue 10. Beginning in 2010, LPJA began to execute a plan to purchase the properties at 312, 314 and 316 Fifth Avenue in order to build a high-rise that included mixed use, hotel, residential, and commercial space at the corner of 32 nd Street and Fifth Avenue in Manhattan. 1 LPJA retained architects and economic consulting firms in order to properly value how best to carry out its plans, and proceeded to enter into negotiations to purchase the necessary properties. 11. LPJA entered into an agreement to purchase the first of these properties, 316 Fifth Avenue, from its owner Bakal Realty LLC ( Bakal ) for $30,000,000 during June of 2013. Closing was scheduled to take place by October 21, 2013. A true and correct copy of the Contract of Sale between LPJA and Bakal is attached as Exhibit A. 12. This was followed by an agreement in October 2013 to purchase the other necessary property, 314 Fifth Avenue, from its owner Madison Avenue Realties, LLC ( Madison ) for $14,500,000. Closing was scheduled to take place within 90 days of the agreement. A true and 1 Acquiring the property at 312 Fifth Avenue was optional, but not required in order for the project to be feasible. 3 36 of 14 17
correct copy of the Purchase and Sale Agreement between LPJA and Madison is attached as Exhibit B. B. LPJA and IDM Reach Agreement and Begin the Process of Developing the Project 13. Believing that it had firm agreements to purchase the necessary properties, LPJA set out to find a real estate developer and investor in order to turn its dream into reality. After speaking to multiple potential developers, LPJA decided to work with IDM. 14. LPJA and IDM accordingly entered into a Memorandum of Understanding on November 26, 2013, providing for IDM to invest in the project and reimburse certain of LPJA s costs following IDM s completion of due diligence. This Memorandum of Understanding was extended by consent of the parties during January 2014. 15. Following the completion of due diligence, the Memorandum of Understanding was superseded by another Memorandum (the MOU ) between LPJA and IDM Fifth Avenue. This MOU stated that LPJA and IDM Fifth Avenue had entered into a partnership to purchase 312, 314 and 316 Fifth Avenue, with the parties agreeing to establish an entity that would be used for the development and would be 63.75% owned by IDM Fifth Avenue and 36.25% by LPJA. As part of the agreement, LPJA committed to provide $1,150,000 and IDM Fifth Avenue committed to provide $1,000,000 to cover common obligations. LPJA also agreed to assign the existing contract to purchase 316 Fifth Avenue to the newly-formed partnership or to facilitate the negotiation of a new contract for the purchase of that property by the partnership. The MOU also provided that IDM Fifth Avenue would pay $2,000,000 to LPJA upon the closing of the real property purchases in order to reimburse LPJA s pre-development expenses. Notably, the MOU did not provide for a termination date beyond providing that it would terminate when the partnership s contract to purchase 316 Fifth Avenue expired, and requesting that LPJA endeavor 4 47 of 14 17
to extend this contract until January 15, 2015. A true and correct copy of the MOU is attached as Exhibit C. 16. Shortly after the execution of the MOU, Freilich proposed that parties modify its terms to use IDM Fifth Avenue as the corporate entity for the development project, rather than form a new partnership entity. LPJA verbally agreed to this change. 17. IDM Fifth Avenue, by taking the majority share of this project and assuming the contracts for the property sales, necessarily created a relationship wherein LPJA had to repose trust and confidence in them, creating a fiduciary duty from IDM Fifth Avenue to LPJA. 18. On April 3, 2014, IDM Fifth Avenue then entered into a new Contract of Sale with Bakal to purchase 316 Fifth Avenue. Under this agreement, the closing date for the sale was set for March 18, 2015, and could be extended at IDM Fifth Avenue s request until September 18, 2015. In order to facilitate this new Contract of Sale and to supplement the $200,000 down payment it had already made on the property, LPJA transferred $500,000 to IDM Fifth Avenue. A true and correct copy of this Contract of Sale is attached as Exhibit D. 19. On September 5, 2014, Freilich requested that LPJA make an additional $400,000 deposit to IDM Fifth Avenue. Even though this deposit was not due until the marketing and the acquisition of 316 and 314 Fifth Avenue had been completed. Nevertheless, LPJA provided such payment as an accommodation and to avoid any project delays. 20. Shortly following receipt of this amount, on September 11, 2014, IDM Fifth Avenue entered into a revised Purchase and Sale Agreement with 314 Fifth Avenue, Inc. to acquire 314 Fifth Avenue. Under the contract, which was signed by Freilich, the seller was required to set a closing date on 60 days notice, and was required to give such notice by September 10, 2015. A true and correct copy of this Purchase and Sale Agreement is attached as Exhibit E. 5 58 of 14 17
21. Freilich then represented to LPJA that he had paid a $1,500,000 deposit to 314 Fifth Avenue, Inc. Notably, this amount was equal to the sum of the $400,000 transfer and the $1,100,000 in prior payments LPJA made to IDM Fifth Avenue under the MOU. C. IDM Fifth Avenue Betrays LPJA 22. At this point, Freilich apparently decided that he had wrung enough cash from LPJA and decided to maximize his profits by diverting the purchases of 314 and 316 Fifth Avenue to another buyer, namely entities under the auspices of the CITIC Group, a state-owned investment company of the People's Republic of China. 23. To facilitate this brazen theft of the opportunity LPJA had worked so hard to create, CITIC Holdings was formed on November 13, 2014 with Freilich as a member. Upon information and belief, the CITIC Group was aware of this scheme. Indeed, without their explicit acquiescence, IDM Fifth Avenue and Freilich would never have been able to divert the purchases of 314 and 316 Fifth Avenue into their hands. 24. CITIC Holdings then entered into an agreement with 314 Fifth Avenue Inc. to purchase the 314 Fifth Avenue Property on December 24, 2014. Freilich did not notify LPJA about this agreement, and LPJA did not become aware of it until the contract of sale and deed transfer were publicly recorded on the ACRIS system in May of 2016. A true and correct copy of the contract of sale, as well as agreements assigning the contract to CITIC Acquisition and amending the contract (which will be discussed below) are attached as Exhibit F. 25. Freilich, in fact, intentionally misled LPJA regarding the fact that he was now working to deliver the properties to CITIC when, in March 2015, he invoked IDM Fifth Avenue s contractual right to delay the closing of the 316 Fifth Avenue property until September 18, 2015. Freilich informed LPJA that this was done in order to give IDM Fifth Avenue more time to 6 69 of 14 17
negotiate the price of 314 Fifth Avenue when, in fact, he had already agreed to purchase that property on behalf of CITIC Holdings, not IDM Fifth Avenue. 26. Finally, during May 2015, Freilich informed LPJA that the contract to purchase 314 Fifth Avenue was no longer viable due to its high selling price which, if true, was entirely the result of his own acts of betrayal. In addition, Freilich stated that the MOU had expired due to its inability to purchase 314 Fifth Avenue and that IDM Fifth Avenue would no longer need to compensate LPJA for its losses. 27. Freilich s betray was extremely costly for LPJA. Not only did LPJA expend over $4,400,000 in direct costs for the project, but they and IDM Fifth Avenue had received firm indications of interest that would have allowed LPJA to realize an immediate $2,000,000 profit if it had chosen to sell the properties immediately after purchasing them. As the recipient of these indications of interest, IDM Fifth Avenue was well aware of the consequential damages it was inflicting on LPJA. D. The Purported Termination of the MOU 28. Facing the loss of its substantial investment in this project, LPJA proposed that they be compensated via IDM Fifth Avenue s participation in an alternative project LPJA was developing in Fort Lee, N.J. Freilich verbally agreed to participate in this project, but only on condition that the parties sign a letter formally terminating the MOU. LPJA agreed, but only on the conditions that IDM Fifth Avenue repay $1,100,000 to it and sign a memorandum of understanding with another IDM entity for the New Jersey project. 29. Freilich then sent LPJA a proposed memorandum for this project, which LPJA sent back with minor changes. Freilich reviewed these changes and indicated that a final, signed 7 10 7 of 14 17
memorandum of understanding would be sent to LPJA in a few days. However, the letter terminating the MOU had to be signed first. 30. Accordingly, on June 10, 2015, IDM Fifth Avenue and LPJA signed a letter terminating the MOU. This letter, which purported to state that the MOU expired on its own terms on January 15, 2015 (a position belied by IDM Fifth Avenue s own conduct), contained a general release for both parties and provided that IDM Fifth Avenue would pay LPJA $400,000 on signing and another $700,000 when IDM Fifth Avenue completed the purchase of 316 Fifth Avenue. A true and complete copy of this letter is attached as Exhibit G. 31. As soon as the termination letter was signed, Freilich refused to sign the New Jersey memorandum of understanding and suspended all contact with LPJA until the latter threatened litigation in September 2015. 32. IDM s refusal to sign the New Jersey memorandum of understanding rendered the letter terminating the MOU (which did not contain an integration clause) a nullity. E. Freilich Misrepresents the Purchase of 316 Fifth Avenue 33. Facing the threat of litigation, Freilich informed LPJA in September of 2015, that the purchase contract for 316 Fifth Avenue was extended to December 24 th of 2015. 34. On December 24, 2015, Freilich told LPJA that there were problems with last minute investor issues and that the closing would be postponed to Monday December 28 th of 2015. 35. On December 28, 2015, Freilich completed the fraud. He orchestrated the sale of 316 Fifth Avenue to a CITIC entity (Gateway), bypassing IDM Fifth Avenue in, on information and belief, an attempt to evade its obligation to pay LPJA $700,000 under the MOU termination 8 11 8 of 14 17
letter. 2 On the same date, CITIC Holdings (in an agreement signed by Freilich) assigned the purchase contract of 314 Fifth Avenue to another CITIC entity (CITIC Acquistion) as well. 36. CITIC Acquisition later transferred the ownership of 314 Fifth Avenue to Gateway 37. Upon information and belief, CITIC Acquisition and Gateway, through their common corporate parent, were fully aware of and participated in Freilich s scheme. 38. Finally, the fraud became fully revealed in May of 2016 as the sale of 314 Fifth Avenue became public. to LPJA. FIRST CAUSE OF ACTION BREACH OF FIDUCIARY DUTY (Against IDM Fifth Avenue) 39. LPJA repeats and realleges paragraphs 1 through 33 as if fully set forth herein. 40. Due to the nature of their relationship, IDM Fifth Avenue assumed a fiduciary duty 41. IDM Fifth Avenue, due to its misconduct, breached this duty. 42. As a result of this breach, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits, plus pre-judgment interest at New York s statutory rate of 9% from the date of breach. SECOND CAUSE OF ACTION BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (Against IDM Fifth Avenue) 43. LPJA repeats and realleges paragraphs 1 through 37 as if fully set forth herein. 44. LPJA and IDM Fifth Avenue were parties to a valid contract, specifically the MOU. 2 IDM Fifth Avenue eventually paid LPJA $125,000 of this amount. 9 12 9 of 14 17
45. IDM Fifth Avenue acted in a manner that, although not expressly forbidden by the MOU, acted to deprive LPJA of the right to receive the benefits under their agreement. 46. The implied promise, to wit that IDM Fifth Avenue would work with LPJA to acquire and develop 314 and 316 Fifth Avenue, is not contrary to any express provision in the MOU. 47. As a result of this breach, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits, plus pre-judgment interest at New York s statutory rate of 9% from the date of breach. THIRD CAUSE OF ACTION MISAPPROPRIATION OF BUSINESS OPPORTUNITY (Against Freilich and CITIC Holdings) 48. LPJA repeats and realleges paragraphs 1 through 42 as if fully set forth herein. 49. LPJA had a tangible expectancy that it would have the opportunity to develop 314 and 316 Fifth Avenue through its agreement with IDM Fifth Avenue. 50. Freilich, despite being an officer of IDM Fifth Avenue, improperly diverted this opportunity away from LPJA for his own benefit and that of CITIC Holdings. 51. As a result of Freilich and CITIC Holdings actions, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits, as well as punitive damages in an amount to be determined at trial. FOURTH CAUSE OF ACTION CONSTRUCTIVE FRAUD (Against IDM Fifth Avenue) 52. LPJA repeats and realleges paragraphs 1 through 46 as if fully set forth herein. 10 10 13 of 14 17
53. IDM Fifth Avenue made false misrepresentations to LPJA in reference to material facts regarding the purchase of 314 and 316 Fifth Avenue and the termination of the MOU for the purpose of inducing LPJA to rely on these misrepresentations. 54. LPJA justifiably relied on these misrepresentations to its detriment. 55. A fiduciary relationship existed between IDM Fifth Avenue and LPJA. 56. Accordingly, IDM Fifth Avenue s actions, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits, as well as punitive damages in an amount to be determined at trial. FIFTH CAUSE OF ACTION CONSTRUCTIVE FRAUD (Against Freilich and IDM Fifth Avenue) 57. LPJA repeats and realleges paragraphs 1 through 52 as if fully set forth herein. 58. Freilich and IDM Fifth Avenue concealed material facts from LPJA, most notably that Freilich orchestrated the sale of 314 Fifth Avenue to CITIC Holdings. 59. Freilich and IDM Fifth Avenue had knowledge of these facts. 60. LPJA could not have discovered these facts, despite acting with reasonable diligence. 61. Freilich and IDM Fifth Avenue failed to disclose these facts with the intention that LPJA be misled, and LPJA was misled as a result. 62. Accordingly, IDM Fifth Avenue s actions, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits, as well as punitive damages in an amount to be determined at trial. 11 11 14 of 14 17
SIXTH CAUSE OF ACTION AIDING AND ABETTING BREACH OF FIDUCIARY DUTY (Against CITIC Acquisition and Gateway) 63. LPJA repeats and realleges paragraphs 1 through 61 as if fully set forth herein. 64. As set forth above, IDM Fifth Avenue breached its fiduciary duties to LPJA. 65. CITIC Acquistion and Gateway knew of and participated in this breach. 66. As a result of the breach, LPJA suffered damages of at least $4,400,000 in direct damages and $2,000,000 in lost profits. WHEREFORE, Plaintiff LPJA demands judgment as follows A. on its First Cause of Action, for judgment against IDM Fifth Avenue in an amount no less than $4,400,000 in direct damages and $2,000,000, plus statutory prejudgment interest; B. on its Second Cause of Action, for judgment against IDM Fifth Avenue in an amount no less than $4,400,000 in direct damages and $2,000,000, plus statutory pre-judgment interest; C. on its Third Cause of Action, for judgment against Freilich and CITIC Holdings in an amount no less than $4,400,000 in direct damages and $2,000,000, plus punitive damages in an amount to be determined at trial; D. on its Fourth Cause of Action, for judgment against IDM Fifth Avenue in an amount no less than $4,400,000 in direct damages and $2,000,000, plus punitive damages in an amount to be determined at trial; E. on its Fifth Cause of Action, for judgment against Freilich and IDM Fifth Avenue in an amount no less than $4,400,000 in direct damages and $2,000,000, plus punitive damages in an amount to be determined at trial; F. on its Sixth Cause of Action, for judgment against CITIC Acquisition and Gateway in an amount no less than $4,400,000 in direct damages and $2,000,000, and G. for such other relief as the Court deems proper. 12 12 15 of 14 17
Dated New York, New York June 21, 2016 Respectfully, GERSHBURG LAW, P.C. Attorneys for Plaintiff LPJA, L.L.C. By /s/ Theodore S. Geiger Theodore Geiger, Esq. Of Counsel 85 Broad Street 18 th Floor New York, New York 10004 Tel (212) 390-8866 13 13 16 of 14 17
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