Herman v. Herman

Background

Rosemarie A. Herman and her children, through a trust, allegedly owned a 50-percent interest in six Manhattan apartment buildings with her brother, Julian Maurice Herman. The opinion states that, through a series of transactions, Julian obtained full ownership of the properties and later sold five of them. He retained the building at 952 Fifth Avenue, which was held through Windsor Plaza LLC.

Rosemarie previously sued in New York state court. That court entered orders restricting Julian and related entities from assigning or encumbering the 952 Building, except for certain residential leases. The state court later ordered the building transferred to Julian and Ariel E. Belen, as temporary trustee of the 1991 Trust, and ultimately determined that Belen owned the building as trustee.

The plaintiffs’ federal complaint challenged two transactions involving an apartment in the building: a 99-year, rent-free lease from Windsor Plaza LLC to Revenue Funding Services LLC, and an assignment of that lease to TPG Global Ventures LLC. The complaint also asserted claims for fraud, slander of title, conspiracy to commit slander of title, ejectment, and use and occupancy. The defendants removed the case from New York state court and moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6).

Arguments and analysis

The defendants first argued that the plaintiffs lacked standing because they did not own the property when the lease and assignment were executed. The court rejected that argument. It held that the plaintiffs alleged a sufficient injury because they owned title to the building and claimed that the transactions interfered with their rights to use and dispose of an apartment. The court also stated that the timing of the alleged conduct did not defeat standing when the injury was fairly traceable to that conduct.

The defendants next argued that TPG was a bona fide purchaser for value, meaning a purchaser who acquired property in good faith, for valuable consideration, without notice of another party’s adverse interest. The court treated that status as an affirmative defense. A plaintiff generally does not have to plead facts disproving an affirmative defense, and dismissal on that basis is proper only when the defense clearly applies from the face of the complaint. The court found that standard was not met because the defendants relied on materials outside the complaint.

The court also concluded that the good-faith-purchaser argument failed even if those outside materials could be considered. The complaint alleged that the defendants had notice of the plaintiffs’ property claim because of the recorded notice of pendency. The court determined, for purposes of the motion, that the notice remained effective when the assignment was made and recorded. The court further noted that there appeared to be no evidence properly considered on the motion showing that TPG paid adequate consideration, but it stated that it did not need to decide those additional issues.

Finally, the defendants argued that the fraud claim against Lounsbury did not meet Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particular detail. The court held that the plaintiffs identified the allegedly fraudulent statement—the assignment’s statement that it was made on May 2, 2014—identified why they believed that date was false, and alleged facts supporting an inference that Lounsbury knew the statement was false. The court found that the alleged rent-free transfer, delayed recording, omission of the transactions from the state-court litigation, and alleged motive made the fraud claim sufficiently plausible at the pleading stage. Any innocent explanation for the facts presented a factual issue that could not be resolved on a motion to dismiss.

Disposition

Judge Jesse M. Furman denied the defendants’ motion to dismiss in its entirety. The defendants were ordered to file an answer within three weeks of the opinion and order. The clerk was directed to terminate the motion from the docket, and the court stated that an initial pretrial conference would be scheduled by separate order. The opinion decided only whether the complaint could proceed past the dismissal stage; it did not resolve the ultimate merits of the claims.