Coppelson v. Serhant

Background

The case concerned plaintiffs’ 2015 purchase of the Tribeca Property, real estate on Washington Street in lower Manhattan, for investment purposes. Nightengale NY1, LLC purchased the property. The opinion states that Nightengale is a California corporation and that Aaron Coppelson and Dariush Fakheri allegedly served as its manager and principal, respectively.

Plaintiffs alleged that Ryan Serhant, a principal of Nest Seekers International LLC, acted as their real estate broker. They alleged that Serhant recommended the property and represented on May 11, 2015, through Coppelson’s financial advisor, that it was a deal plaintiffs could not pass up. The alleged statements included that the property would soon be worth more than $5 million, was a “gold mine,” was being sold by an underwater seller who had to sell immediately, and was priced below comparable properties. Plaintiffs also alleged that they were promised a leaseback by the seller.

Plaintiffs claimed that these statements caused them to abandon an opportunity to invest in another property in Manhattan Beach, California. They further alleged that, after the purchase, they learned Serhant had represented both sides of the transaction and had received undisclosed referral fees. The First Amended Complaint asserted claims under New York’s consumer-fraud statute, for fraudulent inducement and concealment, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and an accounting.

Motion and procedural issues

Serhant moved under Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particularity, and Rule 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. Plaintiffs argued that the motion was procedurally improper because defendants had already answered the original complaint. The court rejected that argument. It held that the motion could be considered under Rule 12(b)(6), and that even if that rule did not technically apply, the court would consider the motion as a motion for judgment on the pleadings under Rule 12(c), which uses the same standard.

Nightengale’s registration argument

Defendants argued that Nightengale could not maintain the lawsuit under New York Business Corporation Law § 1312(a) because it was not registered to do business in New York. The court stated that Nightengale’s lack of New York registration was undisputed but held that defendants had not shown that Nightengale’s New York activities were sufficiently systematic and regular to trigger the statute. This argument therefore did not provide a basis for dismissal.

Consumer-fraud claim

The court dismissed the claim under New York General Business Law § 349. That statute requires allegations that the challenged conduct was directed toward consumers generally, materially misleading, and caused injury. The court held that plaintiffs described a private dispute involving one real estate transaction and one property, not conduct affecting the public or consumers at large. Plaintiffs did not allege that defendants advertised or solicited the transaction publicly or that the alleged statements affected similarly situated consumers.

Plaintiffs argued that Serhant’s alleged undisclosed dual agency showed a broader deceptive practice. The court rejected that argument, explaining that an alleged violation of New York’s real-estate licensing law, without more, did not establish a private claim under the consumer-fraud statute.

The court also held that the consumer-fraud claim was untimely. According to the complaint, plaintiffs lost the opportunity to invest in the California property at the end of May 2015, but they did not begin this action until July 15, 2019—more than three years later. The court held that the claim therefore was barred by the applicable three-year limitations period.

Fraudulent inducement and concealment

The court held that the fraud claims failed for several independent reasons. First, Rule 9(b) required plaintiffs to specify the fraudulent statements or omissions, who made them, when and where they were made, and why they were false. Although the complaint identified Serhant, a date, and the general content of the statements, it did not adequately state where the statements were made or explain what made them false when they were made.

Second, the court held that the alleged statements about the property’s value, future appreciation, favorable pricing, and status as a “gold mine” were opinions or sales talk rather than actionable statements of existing fact. The complaint also did not allege facts showing that statements about comparable properties or the seller’s financial condition were false when made. The court rejected what it characterized as an attempt to establish fraud only from the property’s later performance.

Third, the court held that plaintiffs did not allege facts supporting a strong inference that Serhant knew the statements were false or acted recklessly. A generalized desire to benefit financially from the transaction was not enough to establish fraudulent intent.

Fourth, the court held that plaintiffs did not plead recoverable damages. New York’s rule for fraud damages generally compensates for the difference between what was received and what was paid, not profits that might have been earned elsewhere. Plaintiffs alleged only that they lost the opportunity to purchase more lucrative properties, which the court held was not recoverable as fraud damages.

Other claims

The implied-covenant claim failed because plaintiffs did not allege a contract with defendants. The unjust-enrichment claim contained only conclusory allegations and did not explain how Serhant was enriched at plaintiffs’ expense. Although plaintiffs argued that defendants received improperly earned commissions, the complaint did not provide details about those commissions or allege that plaintiffs paid them.

The accounting claim also failed. Plaintiffs did not allege that they entrusted money or property to Serhant, that they lacked an adequate legal remedy, or that they demanded an accounting and were refused. The court stated that information relevant to damages could be obtained through discovery in the existing legal claims.

Disposition

Judge Lewis J. Liman granted Serhant’s motion. The court dismissed the First Amended Complaint for failure to state a claim for relief and failure to plead fraud with particularity. The dismissal was without prejudice because the litigation was at an early stage and plaintiffs had not previously had an opportunity to amend in response to a motion to dismiss. The court set February 12, 2021, as the deadline for any further amended complaint.