Toobian v. Golzad

193 A.D.3d 778

147 N.Y.S.3d 61

Payam TOOBIAN, respondent,

v.Mehrdad GOLZAD, et al., appellants.

2018–02266

Index No. 504238/15

Supreme Court, Appellate Division, Second Department, New York.

Argued—November 23, 2020

April 7, 2021

Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., New York, N.Y. (Christopher J. Sullivan, Dominic J. Picca, Kara M. Cormier, and Alexandra G. Calistri of counsel), for appellants.

Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone, LLP, Brooklyn, N.Y. (Mark Furman of counsel), for respondent.

MARK C. DILLON, J.P., CHERYL E. CHAMBERS, HECTOR D. LASALLE, ANGELA G. IANNACCI, JJ.

DECISION & ORDER

In an action, inter alia, to impose a constructive trust, the defendants appeal from an order of the Supreme Court, Kings County (Lawrence Knipel, J.), dated January 11, 2018. The order, insofar as appealed from, denied those branches of the defendants’ motion which were, in effect, for summary judgment declaring that the subject property and the defendant DBK 2102, LLC, were not held in trust for the plaintiff and for summary judgment dismissing the causes of action for the imposition of a constructive trust, and alleging breach of fiduciary duty and unjust enrichment.

ORDERED that the order is affirmed insofar as appealed from, with costs.

The plaintiff and the defendant Mehrdad Golzad (hereinafter the defendant) met in 2005 and, upon discovering their shared cultural background, language, and interests, became close friends who trusted, relied upon, and helped one another. The defendant made loans to the plaintiff in the hundreds of thousands of dollars. The plaintiff sometimes repaid those loans via payments to the defendant's creditors.

In 2009, the plaintiff, an experienced real estate investor, became aware of a commercial property in Brooklyn (hereinafter the subject property). He believed the subject property was a good investment and discussed it with the defendant. According to the plaintiff, due to the credit shortage resulting from the 2008 financial crisis and derogatory items on his credit, he sought the defendant's help, proposing that the defendant purchase and hold the subject property and thereafter convey it to the plaintiff when the latter was able to obtain credit. This agreement was not memorialized in writing. According to the defendant, there was no agreement. Instead, the defendant contends that the plaintiff simply recommended to the defendant that he purchase the subject property as a means of producing income for the defendant's disabled son. The plaintiff promised to help the defendant manage the subject property, as the defendant had little real estate experience.

According to the plaintiff, he contributed approximately $1.5 million toward the purchase of the subject property, albeit partly in the form of loans extended by the defendant. The defendant, in contrast, contends that he made no such loans and that the plaintiff's cash contributions were for the purpose of repaying unrelated prior loans.

In April 2010, the defendant purchased and financed the subject property and held legal title to it via the defendant BK 2102, LLC (hereinafter the LLC), of which he was the sole member. The defendant also obtained and personally guaranteed a mortgage loan of $2.8 million for the subject property. From the time of purchase until mid–2014, the plaintiff performed the majority of the management tasks for the subject property, including evicting a nonpaying tenant and re-letting that unit.

In early 2014, the plaintiff obtained financing for the subject property in his own name. While the plaintiff expected the defendant to convey the subject property and the LLC membership to him pursuant to the oral agreement, the defendant declined to do so, denying having made any promise to hold either the property or the LLC for the plaintiff's benefit. According to the defendant, he was the sole owner of both the subject property and the LLC and the plaintiff had no financial interest in either entity.

In April 2015, the plaintiff commenced this action against the defendant and the LLC seeking, inter alia, a judgment declaring that the subject property and the LLC were held in trust for him, and imposing a constructive trust upon the subject property. The defendants moved, in effect, for summary judgment declaring that the subject property and the LLC were not held in trust for the plaintiff, for summary judgment dismissing the remaining causes of action, and on their third counterclaim.

The Supreme Court, inter alia, found triable issues of fact as to whether the plaintiff could establish part performance to defeat the defendants’ statute of frauds defense. The court further found triable issues of fact regarding whether there was a breach of fiduciary duty warranting imposition of a constructive trust. Accordingly, the court denied those branches of the defendant's motion which were for summary judgment dismissing the causes of action alleging breach of fiduciary duty, unjust enrichment, to impose a constructive trust on the subject property and the LLC, and, in effect, for summary judgment declaring that the subject property and the LLC were held in trust for the plaintiff. The defendant appeals.

" ‘The statute of frauds prohibits the conveyance of real property without a written contract’ " ( Gendler v. Guendler, 174 A.D.3d 507, 509, 107 N.Y.S.3d 300, quoting Pinkava v. Yurkiw, 64 A.D.3d 690, 692, 882 N.Y.S.2d 687 ; see General Obligations Law § 5–703[3] ). However, " ‘[n]othing contained in [ General Obligations Law § 5–703 ] abridges the powers of courts of equity to compel the specific performance of agreements in cases of part performance’ " ( Korman v. Corbett, 183 A.D.3d 608, 610, 123 N.Y.S.3d 192, quoting General Obligations Law § 5–703[4] ; see Zito v. County of Suffolk, 106 A.D.3d 814, 815, 964 N.Y.S.2d 644 ). Thus, "the statute of frauds is not a defense to a properly pleaded cause of action to impose a constructive trust on real property" ( Ubriaco v. Martino, 36 A.D.3d 793, 794, 828 N.Y.S.2d 490 ).

A party who relies on the part performance exception must demonstrate that his or her actions are "unequivocally referable" to the oral agreement which he or she seeks to establish (see Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v. Aegis Group, 93 N.Y.2d 229, 235, 689 N.Y.S.2d 674, 711 N.E.2d 953 ; Weiss v. Halperin, 149 A.D.3d 1143, 1145, 53 N.Y.S.3d 176 ; Barretti v. Detore, 95 A.D.3d 803, 806, 944 N.Y.S.2d 166 ). " ‘Unequivocally referable’ conduct is conduct which is inconsistent with any other explanation" ( Barretti v. Detore, 95 A.D.3d at 806, 944 N.Y.S.2d 166 [internal quotation marks omitted]). "It is insufficient that the oral agreement gives significance to plaintiff's actions. Rather, the actions alone must be unintelligible or at least extraordinary, explainable only with reference to the oral agreement" ( Gendler v. Guendler, 174 A.D.3d at 509, 107 N.Y.S.3d 300 [internal quotation marks omitted]; see Anostario v. Vicinanzo, 59 N.Y.2d 662, 664, 463 N.Y.S.2d 409, 450 N.E.2d 215 ). "Significantly, the doctrine of part performance ‘is based on principles of equity, in particular, recognition of the fact that the purpose of the Statute of Frauds is to prevent frauds, not to enable a party to perpetrate a fraud by using the statute as a sword rather than a shield’ " ( Pinkava v. Yurkiw, 64 A.D.3d at 692, 882 N.Y.S.2d 687, quoting Nicolaides v. Nicolaides, 173 A.D.2d 448, 450, 569 N.Y.S.2d 968 ).

Here, while the plaintiff's work in negotiating the purchase of the subject property and in managing it might be susceptible to other explanations, his contribution of approximately $1.5 million toward its purchase, albeit partially in the form of loans from the defendant, would be "unintelligible or at least extraordinary" without reference to the alleged oral agreement ( Gendler v. Guendler, 174 A.D.3d at 509, 107 N.Y.S.3d 300 [internal quotation marks omitted]). Accordingly, the Supreme Court properly determined that although the defendant demonstrated, prima facie, that the alleged oral agreement was barred by the statute of frauds, the plaintiff raised a triable issue of fact regarding part performance.

In addition, since the statute of frauds is not a defense to a cause of action to impose a constructive trust on real property (see Mackenzie v. Croce, 54 A.D.3d 825, 827, 864 N.Y.S.2d 474 ), the Supreme Court properly found that a triable issue of fact exists as to whether a constructive trust should be imposed under the circumstances of this case. " ‘A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee’ " ( Ubriaco v. Martino, 36 A.D.3d at 794, 828 N.Y.S.2d 490, quoting Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378 ). The four factors to be considered in ascertaining whether the imposition of a constructive trust is warranted are the existence of a fiduciary or confidential relationship, a promise, a transfer in reliance thereon, and unjust enrichment (see Delidimitropoulos v. Karantinidis, 186 A.D.3d 1489, 1490, 130 N.Y.S.3d 831 ; Ubriaco v. Martino, 36 A.D.3d at 794, 828 N.Y.S.2d 490 ). However, since it is an equitable remedy, a constructive trust is "necessarily flexible to accomplish its purpose" ( Counihan v. Allstate Ins. Co., 194 F.3d 357, 361 [2d Cir.] ). Therefore, these factors are guidelines, not inflexible elements (see Delidimitropoulos v. Karantinidis, 186 A.D.3d at 1490–1491, 130 N.Y.S.3d 831 ; Galasso, Langione & Botter, LLP v. Galasso, 176 A.D.3d 1176, 1184, 113 N.Y.S.3d 110 ; Hernandez v. Florian, 173 A.D.3d 1144, 1145, 104 N.Y.S.3d 683 ).

"A fiduciary relationship arises between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon...