Unit 3B 11 Beach LLC v. Kim

Background

Unit 3B 11 Beach LLC owns a condominium unit at 11 Beach Street, Unit 3B, New York, New York. David Kim had made loans to HFZ Capital Group, LLC, an affiliate of the condominium’s sponsor. In 2016, Kim and HFZ Capital entered an agreement concerning the loans and the possible purchase of the condominium unit. Kim later entered an option agreement to purchase the unit. Unit 3B LLC alleged that the required down payments were never made and that Kim therefore had no valid option to acquire the unit. The unit was transferred to Unit 3B LLC in November 2020.

On December 21, 2020, Kim sued Unit 3B LLC and the sponsor in New York state court to enforce his claimed purchase rights. He also filed a notice of pendency, which is a public filing that gives notice of a lawsuit affecting title to or possession, use, or enjoyment of real property. Kim later added HFZ Capital and other defendants, alleging that he had exercised his purchase right, had been falsely told that the down payment was made, and had essentially been defrauded.

The state court declined to dismiss Kim’s claims against Unit 3B LLC for specific performance, voidable transfer, and tortious interference. It granted in part Unit 3B LLC’s request to cancel the notice of pendency, ordering the “double bonding” procedure under New York law. Unit 3B LLC then brought this federal action, alleging that the notice of pendency caused it damages and interfered with its ability to sell the condominium unit.

Claims and Analysis

Unit 3B LLC’s First Amended Complaint asserted ten claims. In its opposition to the motion to dismiss, Unit 3B LLC withdrew four claims “without prejudice.” Because it did not substantively respond to the request to dismiss those claims, the court dismissed them as abandoned.

The six remaining claims were for tortious interference with prospective business relations, fraud, fraudulent misrepresentation, injurious falsehood, private nuisance, and civil conspiracy. All were based on the filing of the notice of pendency.

For tortious interference, the court held that the allegations did not satisfy New York’s requirement that the defendant use wrongful means or act for a wrongful purpose. The allegation that Kim’s state lawsuit was meritless was insufficient, particularly because the state court had allowed certain claims to proceed. The court also rejected the argument that Kim’s alleged motive of pressuring HFZ Capital to repay an unrelated debt was enough. The notice served its intended function of notifying the public about the litigation and the competing claim to the property. The court noted that bringing a civil lawsuit by summons and complaint is not, under New York law, process that can support an abuse-of-process claim.

The court dismissed the fraud, fraudulent misrepresentation, and injurious falsehood claims for failure to plead the alleged misrepresentations with the particularity required by Federal Rule of Civil Procedure 9(b). The complaint did not provide sufficient details about how often the statement was made, to whom, where, or in what circumstances. The court also stated that the claims would fail even if those details had been adequately pleaded. Kim’s assertion that he had a right to acquire the unit was not shown to be false when made, because that issue remained under consideration in the state lawsuit. The notice of pendency also accurately reported the existence of litigation involving the unit.

The private nuisance claim failed because the complaint did not allege interference with Unit 3B LLC’s use, enjoyment, or possession of the property. It alleged only that the notice interfered with the ability to sell the unit, which the court held was not actionable as private nuisance. The civil conspiracy claim failed because the other claims failed and New York does not recognize civil conspiracy as an independent tort.

Disposition

The court granted Kim’s motion to dismiss. It stated that it did not believe the identified deficiencies could be cured or that a different viable claim could be stated. However, if Unit 3B LLC wished to seek permission to replead, it could submit within 14 days a red-lined proposed second amended complaint and a letter application explaining how the proposed claims would cure the deficiencies. The order did not state that the dismissal was with or without prejudice.