Estate of Hermine Mautner v. The Alvin H. Glick Irrevocable Grantor Trust

Background

John Mautner and Alvin H. Glick founded Mautner-Glick Corp., a real-estate investment and management business. After John’s death, his interests passed to his wife, Hermine Mautner, and a trust for their son, Richard K. Mautner. In 1998, the parties formed 1329-37 Third Avenue LLC to own several New York City properties. Alvin was the managing member, but the operating agreement required all members to approve significant decisions, including sales outside the ordinary course, borrowing, mortgages, amendments, new members, and compensation for the managing member.

Alvin later assigned his membership interests to his son, Randy E. Glick, as trustee of the Alvin H. Glick Irrevocable Grantor Trust. Hermine died in 2012, and the Estate assigned its interest in the property company to Richard. The related trust also terminated, transferring its interest to Richard.

The Glick family later sought to develop the properties as a mixed-use project. Richard initially objected to development and preferred continued leasing or a sale. After negotiations, Richard agreed to cooperate, but he continued to object after the proposed development partners withdrew. The Glick family then negotiated to buy Richard’s interest so it could pursue the development.

In November 2016, Richard signed an agreement to sell his interest to 76-77 Street & Third Avenue LLC for $45 million. At the January 2017 closing, he signed an assignment agreement containing a release of the buyer and its affiliates, officers, directors, agents, and employees from all known and unknown claims connected with his interest in the property company. Northwell later agreed to buy the properties for $232 million, in a sale that closed in August 2018.

Claims and Procedural Posture

Plaintiffs alleged that, after the initial development arrangement failed, the Glick family secretly negotiated with Northwell and misled Richard into selling his interest without sharing the later sale’s value. The amended complaint asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, along with claims for breach of contract, breach of fiduciary duty, common-law fraud, and unjust enrichment.

Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court granted the motion.

Standing

The court held that the Estate lacked standing, meaning it had not shown a personal injury that gave it the right to bring these claims. Plaintiffs based their alleged injury on the difference between the $45 million Richard received and what he might have received from the later Northwell sale. Because the Estate had assigned its interest in the property company to Richard before the later sale, the court held that this was not an injury to the Estate.

Release and Common-Law Claims

Under New York law, a valid release generally bars claims covered by its terms, including unknown claims if the release was fairly and knowingly made. The court held that Richard’s release covered the common-law claims because it released all claims of any kind, whether known or unknown, connected with his interest in the property company.

The court rejected plaintiffs’ argument that Richard could not release claims against alleged fiduciaries because he was inexperienced and had trusted the Glick family. Plaintiffs did not argue that the release was invalid because of duress, illegality, fraud separate from the released subject, or mutual mistake. The court also found that Richard had substantial real-estate experience and had been represented throughout the buyout negotiations by Alan Hammer, an experienced real-estate attorney. The court therefore held that the release barred the common-law claims.

Securities-Fraud Claim

To plead a claim under Section 10(b) and Rule 10b-5, plaintiffs had to allege that Richard’s membership interests were securities. The court applied the test for an “investment contract,” which asks whether a person invested money in a common enterprise and expected profits primarily from the efforts of a promoter or third party.

The court held that Richard’s interests did not meet the requirement of a passive investment. Although Alvin controlled the company’s daily administration, the operating agreement gave Richard, as a 50% owner, veto power over many major decisions. It also gave members rights to receive financial reports and profits and allowed Richard to trigger dissolution by dissociating from the company, requiring compensation for his interests.

The court emphasized that the question was Richard’s objective ability to exercise control, not whether he actually used every control right. The amended complaint itself described Richard as informed about and involved in decisions concerning development and the property. The court therefore held that the membership interests were not investment contracts and dismissed the Section 10(b) and Rule 10b-5 claim.

Leave to Amend and Disposition

Plaintiffs requested permission to amend in a footnote, proposing to add names, locations, and approximate dates concerning alleged misrepresentations. The court denied leave to amend as futile because the proposed changes could not overcome the release barring the common-law claims or the conclusion that the membership interests were not securities.

The court granted defendants’ motion to dismiss, dismissed the unjust-enrichment claim because plaintiffs consented to its dismissal, and dismissed the amended complaint with prejudice. It directed the Clerk of Court to terminate the pending motions and close the case.