Simon v. Francinvest, S.A.

1

2023 NY Slip Op 32264(U)

JEAN-PASCAL SIMON, Plaintiff, v. FRANCINVEST, S.A. (NOMINAL DEFENDANT), JJS GROUP, INC., FRENCH-AMERICAN SURGERY CENTER, INC., FRENCH AMERICAN CLINIC, INC., JEAN-FRANCOIS SIMON, CHARLES RAAB, GEORGE KESSLER, Defendant.

Index No. 162867/2014

Supreme Court, New York County

July 7, 2023

Unpublished Opinion

MOTION DATE 04/04/2023

PRESENT: HON. MELISSA A. CRANE, Justice

DECISION + ORDER ON MOTION

MELISSA CRANE, J.S.C.

The following e-filed documents, listed by NYSCEF document number (Motion 026) 1155, 1156, 1158, 1159, 1250, 1251, 1252, 1253 1254, 1262, 1263, 1264, 1265, 1266, 1267, 1280, 1283, 1516 1525, 1526, 1527, 1528, 1535, 1536, 1537, 1541, 1542, 1543, 1544, 1545, 1563, 1564, 1566, 1567, 1568, 1569, 1570, 1571, 1572, 1573, 1574, 1575, 1576, 1577, 1578, 1579, 1580, 1582, 1583, 1609, 1610, 1617, 1618 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER

Plaintiff Jean-Pascal Simon ("Plaintiff' or "Pascal") originally moved for partial summary judgment as to liability against Defendants Jean-Francois Simon ("Francois") and George Kessler ("Kessler") on September 28, 2021. The court stayed the action pending bankruptcy proceedings involving Francois. After the bankruptcy court approved a settlement between Plaintiff and Francois, Plaintiff renewed this motion only as to Kessler (February 3, 2023 Letter to Court, NYSCEF Doc. No. 1535). Plaintiff has also moved to strike all of Kessler's affirmative defenses and counterclaims from his answer to the third amended complaint. Additionally, Plaintiff has moved to compel Kessler to produce Francinvest bank statements for HSBC accounts from 2002 to the present and for an award of attorneys' fees and costs. For the following reasons, Plaintiffs motion is denied in its entirety.

FACTUAL AND PROCEDURAL HISTORY

The operative complaint in this 2014 action contains eighteen causes of action against numerous Defendants. This motion however, only relates to the eleventh cause of action against Kessler for aiding and abetting fraud. The case generally involves claims of fraud that Plaintiff brought both directly and derivatively^[1] against his brother Francois and others based on an alleged scheme by Francois to defraud the rest of the family in relation to the family's surgical center and associated premises.

The third amended complaint alleges that Jean-Jacques Simon ("Jean-Jacques"), the father of Pascal and Francois, was an OB/GYN doctor who started a practice called the French-American Clinic ("FAC") out of the premises at 1049 Fifth Avenue ("Premises") in 1982 (TAC, ¶¶ 67-68). Pascal worked to complete his residency requirements and then joined his father in 1988 to open the French-American Surgery Center ("FASC") (TAC, ¶¶ 91-92). Over the course of a number of years, Pascal allegedly made substantial financial contributions to FASC, investing a total of at least $1,239,000.00 (TAC, ¶¶ 103-104).

In 1995, Jean-Jacques formed JJS to purchase the Premises (TAC, ¶ 120). At the time of JJS's formation, Francinvest^[2]-a closely held corporation that Jean-Jacques previously created to bestow his wealth to his children (TAC, ¶ 5)-owned 80% of JJS, and Jean-Jacques owned 20% of JJS, individually (TAC, ¶ 121). Until December 2003, JJS leased the Premises to FAC, that in turn subleased the Premises to FASC (TAC, ¶¶ 122-123).

To put the complex interplay of corporate entities in simple terms as relevant for this motion: through Francinvest, the family jointly controlled JJS, that in turn controlled an extremely valuable piece of real estate on Fifth Avenue.

According to the third amended complaint, after Jean-Jacques died without a will in 2002, his entire estate passed to his wife, Francine Simon ("Francine"), who became the sole shareholder and President of FAC (TAC, ¶¶ 6, 125-128). Francois then allegedly engaged in a scheme to take control of Francinvest and JJS. In particular, Francois allegedly induced his sister Valerie to transfer her shares of Francinvest to him for minimal consideration (TAC, ¶¶ 152-153). Additionally, Francois allegedly induced his mother Francine to sign a document giving him power of attorney (TAC, ¶ 219). Plaintiff asserts that the power of attorney was written only in English even though Francine does not sufficiently understand English (see id, see also July 14, 2021 Francine Simon Letter, NYSCEF Doc. No. 1000). Kessler, an attorney who has represented members of the family and the various corporate entities, allegedly prepared the power of attorney (TAC, ¶ 221; see also June 23, 2011 Power of Attorney, NYSCEF Doc. No. 635). Francois allegedly then used his control over Francinvest to induce JJS to engage in transactions beneficial to him personally, ultimately culminating in an allegedly self-dealing sale of the surgery center as well as a series of mortgage refinancings of the Premises (see TAC, ¶¶ 222-227).

As is pertinent to the aiding and abetting fraud claim against Kessler, the third amended complaint alleges that Francois: (1) caused JJS to refinance the mortgage on the Premises multiple times, keeping cash-out proceeds from the mortgages for himself (TAC, ¶¶ 205, 217, 224); (2) used those cash-out proceeds to purchase Kessler's Hallandale, Florida condominium ("Hallandale Condo") for himself (TAC, ¶¶ 224-229); and (3) allowed JJS to enter into a below market lease for the Premises in exchange for personal kickbacks (TAC, ¶ 190). Subsequently, on November 7, 2007, FASC agreed to sell the surgery center to Fifth Avenue Surgery Center, LLC ("FAAA") for $2,300,000.00 pursuant to an asset purchase agreement (TAC, ¶ 257).

By a September 7, 2018 order, the court granted in part Defendants' motion to dismiss the second amended complaint (September 7, 2018 Decision, NYSCEF Doc. No. 539). In particular, the court dismissed the ninth cause of action for fraud against Francois that Plaintiff alleged double derivatively on behalf of JJS, finding that Plaintiff did not plead the cause of action with particularity (id. at 19). The court later dismissed the eleventh cause of action against Kessler on November 14, 2019 because of the dismissal of the underlying fraud claim against Francois (November 14, 2019 Decision, NYSCEF Doc. No. 768, p. 4)

However, the First Department reinstated the ninth cause of action in a December 3, 2019 decision, finding that Plaintiff met his burden to plead with particularity that Francois "concealed material facts from JJ.S [sic] shareholders" through the complaint's allegations that Francois "mismanaged JJ.S [sic] funds, including by refinancing the mortgage and keeping the cash-outs for himself, and receiving 'kickbacks' for negotiating a below market rate lease for the property" (Simon v Francinvest, S.A., 178 A.D.3d 436, 437 [1st Dept 2019]).

Once the First Department reinstated the cause of action for fraud against Francois, the court also reinstated the eleventh cause of action for aiding and abetting fraud against Kessler. The First Department found that the prior decision reinstating the fraud claim constituted a change in law warranting a renewal motion under CPLR 2221 and that the third amended complaint adequately alleged aiding and abetting fraud against Kessler by alleging that Kessler "negotiated and/or prepared certain documents, including a below-market-rate lease for the property, thereby aiding and abetting Francois in his scheme to gain control of Francinvest so as ultimately to sell FASC and defraud plaintiff' (Simon v Francinvest, S.A., 192 A.D.3d 565, 569-570 [1st Dept 2021]).

On July 9, 2021, Kessler again moved to dismiss the cause of action against him, and Plaintiff cross-moved for summary judgment (MS 23). In particular, Plaintiff argued that Kessler assisted Francois in the fraud against JJS through: (1) helping Francois to refinance the JJS mortgage in 2011 with the knowledge that Francois would use the cash-out proceeds to purchase the Hallandale Condo for himself, usurping the corporate opportunity for JJS; (2) preparing the meeting minutes for a JJS meeting where JJS approved the purchase of the Hallandale Condo but then conveying the condominium to Francois personally instead; and (3) helping Francois to incorporate a second JJS entity to divert rental income (Memo in Support of Cross-Motion, NYSCEF Doc. No. 1030, p. 11). At oral argument, counsel for Kessler defended the conveyance of the condominium to Francois, representing to the court that the condominium's bylaws prevented the sale of the property to anyone other than an individual (September 9, 2021 Oral Argument Transcript, NYSCEF Doc. No. 1142, p. 52). The court was deeply skeptical of this point, demanded that counsel promptly upload the bylaws, and indicated that if the bylaws did not prohibit corporate ownership, "that would be evidence of a breach" (id at 52-53, 63).

The court denied Plaintiffs cross-motion for summary judgment (id. at 65) but stated in the decision denying the cross-motion that "[i]f the by-laws do not prohibit corporate ownership . . . the defendants will be deemed to have breached and the plaintiff may renew its cross-motion for summary judgment (September 10, 2021 Decision and Order [Borrok, J.], NYSCEF Doc. No. 1139, p. 3).

The relevant bylaws^[3] make clear that corporate ownership was permitted at the time of the alleged conveyance of the condominium (By-Laws of Venetian Park Condominium II Association, Inc NYSCEF Doc. No. 1157, p. 10 of Ex. 4 ["If more than one person or a corporation own a unit, they shall file a certificate with the Secretary naming the person authorized to vote for said unit."] [emphasis added]). In light of this, Plaintiff renewed the motion for partial summary judgment on the ninth and eleventh causes of action on September 28, 2021...