SFR HOLDINGS LTD v. RICE (2019)

Order, Supreme Court, New York County (O. Peter Sherwood, J.), entered September 20, 2017, which, insofar as appealed from, denied defendants John Rice, Joseph Ingrassia, Capstone Cayman Special Purpose Fund LP, Capstone Special Purpose Fund LP, Capstone Capital Management, Inc., Capstone Capital Group I, LLC, Capstone Trade Partners, Ltd., Capstone Business Credit, LLC, Amincor Other Assets Inc., and Amincor, Inc.'s motion for summary judgment dismissing the fraud cause of action,¹ unanimously modified, on the law, to grant the motion as to the claim asserted by plaintiff Cannonball Stability Fund LP, and otherwise affirmed, without costs.

Plaintiffs claim that defendants concealed their investments in real estate from them, made false statements, issued false and misleading reports about the investments, and misrepresented the magnitude of the investments to induce them to refrain from redeeming their interests (see Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559, 883 N.Y.S.2d 147, 910 N.E.2d 976 [2009] ).  The claim is supported by monthly progress reports that failed to reveal the nature and extent of the real estate investments, and testimony and sworn statements about a meeting at which defendants significantly understated the amount of money used to fund real estate deals and about defendants' assurances that 90% of the improper investments would be transferred to another fund.

Defendants argue, citing HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 941 N.Y.S.2d 59 [1st Dept. 2012], that plaintiffs are sophisticated investors who knew or should have known of the real estate holdings by August 2007.  However, only post-investment fraud is at issue here (except as to Cannonball Stability Fund LP, discussed below), and defendants failed to establish that plaintiffs had a means of ascertaining the breadth of the fraud.

Defendants failed to establish the absence of any causally related damages (see generally Laub v. Faessel, 297 A.D.2d 28, 31, 745 N.Y.S.2d 534 [1st Dept. 2002] ).  They maintain that, even if plaintiffs had redeemed their full investments by November 30, 2007, they would not have been repaid, because the Capstone Partnerships lacked the liquidity to cash out the redemption requests.  However, their proof was inadequate;  they relied on a chart purporting to list the names of investors who had outstanding redemption requests, made as early as October 1, 2007, and defendant Ingrassia's affidavit saying that “[n]one of the investors [listed] received all of their money back.”  Defendants did not address the preceding period at all, despite the fact that the fraud allegations pre-date October 1, 2007.

Plaintiff Cannonball Stability Fund LP accepted a position in the Capstone Partnerships on January 1, 2008, after it had been disclosed that defendants were investing heavily in real estate deals.  Thus, its fraud claim should be dismissed.

We have considered defendants' remaining arguments and find them unavailing.

FOOTNOTES

1.   On a prior appeal, this Court modified so much of an order as granted defendants' motion to dismiss the fraud claim to deny the motion as to defendants Rice, Ingrassia, Capstone Capital Management Inc., Capstone Cayman Special Purpose Fund LP, and Capstone Special Purpose Fund LP (132 A.D.3d 424, 17 N.Y.S.3d 398 [1st Dept. 2015] ), lv dismissed in part, denied in part 27 N.Y.3d 977, 31 N.Y.S.3d 452, 50 N.E.3d 920 [2016] ).