Defendants' order to show cause to dismiss plaintiff's complaint in its entirety against defendant Yehuda Cohen ("Cohen") and to dismiss plaintiff's seventh cause of action for fraud for failure to state a claim and plaintiff's order to show cause seeking an injunction enjoining defendants from mortgaging, encumbering or transferring certain real properties at issue herein, among other relief, are decided as follows:

Plaintiff brings this action in connection with its alleged investment of over $46,000,000.00 in real estate development opportunities in fourteen (14) properties in Brooklyn, New York, as part of a joint venture brought to plaintiff by Cohen and his company, defendant All Brooklyn Management LLC ("All Brooklyn"). By way of background and according to plaintiff, on October 31, 2018, the parties executed a Cooperation Agreement that details the [*2]roles, responsibilities and obligations of the parties as investment properties are identified regarding (a) the formation of a separate LLC to purchase each identified asset; (b) the allocation of membership interests in each LLC; (c) capital contributions to each LLC; (d) management of each LLC; (e) distributions and profit sharing; (f) All Brooklyn's guarantee of the return of plaintiff's capital contribution plus annual rate of return; and (g) purchase and sale options for any property by the parties. Within a short period of time after the execution of the Cooperation Agreement, Cohen identified 14 properties for purchase and redevelopment in Brooklyn, New York (the "Properties"). In accordance with the terms of the Cooperation Agreement, plaintiff contributed $46,881,941.00 toward the purchase and development of the Properties, each in the name of a newly or recently formed LLC. Each LLC is governed by a separate operating agreement dated October 31, 2018, and reflects plaintiff as owning 90% of the LLC membership interest and All Brooklyn owning 10% and being designated as Manager of each LLC.

Upon certain occurrences, namely the payment of a certain amount of funds to plaintiff, the parties agreed that plaintiff would transfer its 90% interest in the LLC to All Brooklyn. After entering into the Cooperation Agreement, the parties also entered into several other agreements governing their relationship and which are referred to in the complaint as Amendments to the Cooperation Agreement, the Settlement and Resolution Agreement, and the Supplemental Agreement.

For purposes of the instant motions, plaintiff's seventh cause of action against defendants alleges that, in connection with obtaining refinancing loans from Spencer Savings Bank and other banks (the "Lenders") for six properties, defendants fraudulently misrepresented to the Lenders and title companies that All Brooklyn was the sole member of certain borrower LLCs despite defendants' knowledge that plaintiff was still the 90% percent member. Plaintiff further alleges that defendants knew that the representation was false when made and that the Lenders would rely on this information regarding the refinancing loans. Plaintiff further alleges that the fraudulent misrepresentation is a material event of default under the loan documents which exposes plaintiff to potential liability to the Lenders and acceleration of the debt and other negative consequences.

In their motion to dismiss, defendants argue that the complaint fails to state a cause of action for fraud since the alleged fraudulent misrepresentation was made to a third-party and not to plaintiff. Defendants assert that the Court of Appeals has held that a plaintiff may not establish the reliance element of a fraud claim by showing that a third-party relied on a defendant's false statements. Rather, that a fraud claim requires the plaintiff to have relied upon a misrepresentation by a defendant to his or her detriment. Because plaintiff fails to allege any misrepresentation made to plaintiff, or any reliance by plaintiff on any alleged misrepresentation, defendants argue that the fraud claim must be dismissed.

In addition, defendants contend that the complaint must be dismissed in its entirety as against Cohen because the documentary evidence establishes that Cohen only executed the relevant agreements as a member of All Brooklyn, and not in his individual capacity. Notably, defendants assert that the Settlement Agreement signed by plaintiff and All Brooklyn in June 2021 (which was reaffirmed by the Supplemental Agreement) explicitly contains a clause disclaiming any personal obligation, liability or guaranty by Cohen in his individual capacity. As such, defendants argue that plaintiff is estopped from maintaining any claims against Cohen individually.

In opposition to defendants' motion, plaintiff argues that because the agreements at issue are, to a great extent, ambiguous as to the rights and obligations of Cohen, individually, to plaintiff, use of the agreements to dismiss the complaint against Cohen must fail. Plaintiff also asserts that its allegations are sufficient to support the claim that Cohen participated in the commission of a tort (fraud) and, therefore, Cohen is not insulated from liability. Additionally, unlike the Settlement Agreement, plaintiff points out that the Cooperation Agreement does not include the disclaimer of personal obligation or guaranty by Cohen, nor is the disclaimer found in the relevant operating agreements of the fourteen LLCs.

With regard to its fraud claim, plaintiff contends that it was also a victim of defendants' misrepresentation because plaintiff justifiably relied upon Cohen to act lawfully in the administration of its duties as the managing member of each borrower LLC when applying for loans, and that such reliance was to plaintiff's detriment.

Plaintiff seeks an order granting it a preliminary injunction (1) prohibiting defendants from mortgaging, encumbering or transferring the remaining 12 properties without the express written consent of plaintiff; (2) prohibiting Cohen from holding himself out as the sole member of the LLC entities; and (3) prohibiting defendants from interfering with, obstructing or impeding plaintiff's unfettered access to the financial books and records of the aforementioned LLCs. The basis for the injunction, as argued by plaintiff, is its concern that Cohen will continue to misrepresent his status as sole member of any or all of the LLC entities and attempt to mortgage, sell or otherwise encumber the Properties since he has previously done so with Spencer Savings Bank on certain mortgage applications and assignments of leases and rents.

In opposition to plaintiff's motion, defendants contend that a preliminary injunction is unwarranted as each of the LLC operating agreements includes a mechanism whereby defendants would be the sole owners of the corresponding property at the closing of each refinance and upon certain proceeds being paid to plaintiff. Thus, defendants argue that, at the time of each refinancing, they were in fact the sole member of the corresponding LLC and correctly represented such to the corresponding lender. Defendants emphasize that plaintiff has failed to offer a shred of evidence that it was unaware of or objected to defendants listing Cohen as the sole owner of the corresponding LLC when executing each refinancing. In fact, defendants claim that, per a July 15, 2021 email from plaintiff's prior counsel to defendants' prior counsel which is attached as an exhibit, with respect to the refinancing of Brooklyn properties located at 471 Evergreen Avenue, 1185 Dean Street, and 37 Irving Place, plaintiff expressly approved each of the corresponding LLCs to be transferred to Cohen as the sole owner in order to refinance each property.

In considering a motion to dismiss pursuant to CPLR 3211 (a) (7), the court is required to accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (New York Tile Wholesale Corp. v Thomas Fatato Realty Corp., 153 AD3d 1351, 1353 [2d Dept 2017][citing Leon v Martinez, 84 NY2d 83, 87-88, 638 NE2d 511, 614 NYS2d 972 [1994]). "The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages" (Introna v Huntington Learning Ctrs., Inc., 78 AD3d 896, 898 [2d Dept 2010]). Where the alleged [*3]fraudulent misrepresentation is directed to a third-party, the plaintiff must allege that the third-party "acted as a conduit to relay [any] false statement[s] to [the] plaintiff, who then relied on the misrepresentation[s] to [its] detriment" (Pasternack v Laboratory Corp. of Am. Holdings, 27 NY3d 817, 829 [2016]).

Here, plaintiff's fraud claim centers on defendants' alleged misrepresentation to certain lenders on loan documents regarding their status as sole member of the LLC entities. This is insufficient to state a claim for fraud. Additionally, plaintiff's claim that it was a victim of fraud because it relied on defendants to act properly and "lawfully" is wholly insufficient to state a claim for fraud. Thus, plaintiff's cause of action for fraud against defendants must be dismissed.

With regard to dismissal of the complaint against Cohen, individually, a review of the parties' Supplemental Agreement reflects that Cohen signed such agreement in his individual capacity as well as in his capacity as a member of All Brooklyn (see NYSCEF Doc. Nos. 7, 17). Thus, it is premature to dismiss the action in its entirety against Cohen.

Turning then to plaintiff's motion, to be entitled to a preliminary injunction, the movant must establish "(1) the likelihood of success on the merits, (2) irreparable injury absent granting the preliminary injunction, and (3) a balancing of the equities in the movant's favor" (538 Morgan Ave. Props., LLC v 538 Morgan Realty, LLC, 186 AD3d 657, 658 [2d Dept 2020]). "A court evaluating a motion for a preliminary injunction must be mindful that the purpose of a preliminary injunction is to maintain the status quo and not to determine the ultimate rights of the parties" (id. [citations omitted]).

Here, plaintiff fails to establish entitlement to the relief sought. The sole basis for the injunction is plaintiff's allegation that defendants are misrepresenting themselves to be the sole member of the LLC entities to lenders. However, defendants provide evidence that, under certain circumstances, this representation was proper pursuant to the parties' agreements. Moreover, the parties' agreements reflect that, upon plaintiff receiving a certain rate of return on his investment for each property, defendants would obtain control and ownership of the real property at issue. Thus, plaintiff's harm is purely monetary. "Economic loss, which is compensable by money damages, does not constitute irreparable harm" (EdCia Corp. v McCormack, 44 AD3d 991, 994 [2d Dept 2007]). As such, plaintiff's motion for a preliminary injunction is denied and any previously issued temporary restraining order is hereby lifted.

Accordingly, defendants' motion to dismiss is granted to the extent that plaintiff's cause of action for fraud is dismissed as to both defendants. Plaintiff's motion for a preliminary injunction is denied.