<partyblock><br><table width="75%" border="1" cellspacing="1" cellpadding="4" align="center"><tr><td><br><div align="center"><b><font size="+1">John P. Essepian,Plaintiff,<br><br>against<br><br>The United Group of Companies, Inc.; DAVIS CAPITALGROUP, INC.; DCG FUNDS MANAGEMENT, LLC; DCG/UGOC FUNDS MANAGEMENTII, LLC; RICHARD W. DAVIS JR; MICHAEL J. UCCELLINI and JESSICA F. STEFFENSENas Executor and Executrix, Respectively, of the ESTATE OF WALTER F. UCCELLINI;MICHAEL J. UCCELLINI; MCM SECURITIES, LLC; and MILLENNIUM CREDITMARKETS, LLC, Defendants.</font></b></div><br><br></td></tr></table><br><br>903795-16<br><br><br><br>Devine, Snyder &amp; Bruno, LLP<br>Attorneys for Plaintiff<br>(Terrence J.Devine, of counsel)<br>52 Corporate Circle, Suite 207<br>Albany, New York 12203<br><br>Keller Rohrback, LLP<br>Attorneys for Plaintiff (pro hac vice)<br>(David J. Ko andDavid Mensher, of counsel)<br>1201 Third Avenue, Suite 3200<br>Seattle, Washington98109<br><br>Keller Rohrback, LLP<br>Attorneys for Plaintiff (pro hac vice)<br>(GaryA. Gotto, of counsel)<br>3101 North Central Avenue, Suite 1400<br>Phoenix, AZ 85012<br><br>Cozen O'Connor<br>Attorneys for The United Group of Companies, Inc.; DCG/UGOCFunds Management II; Michael J. Uccellini and Jessica F. Steffensen, as Executor and Executrix,respectively, of the Estate of Walter F. Uccellini; Michael J. Uccellini; MCM Securities, LLC;and Millennium Credit Markets, LLC<br>(Michael de Leeuw, Tamar S. Wise and Matthew E.Lewitz, of counsel)<br>45 Broadway<br>New York, New York 10006<br>Richard M. Platkin, J.<p>Plaintiff John P. Essepian brings this commercial action against two sets of defendants: (1)the United Group of Companies, Inc. ("UGOC"), Davis Capital Group, Inc. ("Davis"), RichardW. Davis, Jr., DCG Funds Management, LLC ("DCG"), DCG/UGOC Funds Management II,LLC ("Management II"), Michael J. Uccellini and Jessica F. Steffensen, as executor andexecutrix of the Estate of Walter F. Uccellini, and Michael J. Uccellini (collectively, "UnitedDefendants"); and (2) MCM Securities, LLC ("MCM") and Millennium Credit Markets, LLC("Millennium") (collectively, "MCM Defendants").<sup><a href="#1FN" name="1CASE"><b>[FN1]</b></a></sup></p><p>Plaintiff sues to recover for injuries allegedly sustained as a result of investments he made innonparty DCG/UGOC Income Fund, LLC ("Income Fund" or "Fund"). The Income Fund ismanaged by Management II, which consists of two members: UGOC, which served as themanager, and DCG. MCM is an SEC-registered broker dealer that was responsible forsupervising and monitoring the Fund's sales of securities, and Millennium is an investment bankthat is the majority owner of MCM and allegedly is controlled by the United Defendants.</p><p>Plaintiff's second amended complaint ("Complaint") alleges causes of action forcommon-law fraud, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty,negligent misrepresentation and unjust enrichment against the United Defendants, and anaiding-and-abetting claim against the MCM Defendants.</p><p>The United Defendants and MCM Defendants (collectively, "Moving Defendants") move,pre-answer, for an order pursuant to CPLR 3211 (a) (5) and (7) dismissing the Complaint, <font color="FF0000">[*2]</font>arguing principally that plaintiff's claims are time-barred.<sup><a href="#2FN" name="2CASE"><b>[FN2]</b></a></sup> Plaintiff opposes the motion.</p><br><br><b>BACKGROUND</b><p>According to the Complaint, plaintiff made two investments of $375,000 in the Income Fundon July 13, 2010 and July 14, 2010, respectively (<i>see</i> NY St Cts Elec Filing [NYSCEF]Doc No. 11 ["Complaint"] at ¶¶ 1, 51-55). The Income Fund was established,managed and operated by the United Defendants to secure financing for various projectsundertaken by UGOC (<i>see id</i>. at ¶¶ 1, 11-16).</p><p>UGOC is a long-time real estate investment and development firm. Prior to 2008, UGOClaunched an initiative to develop student housing projects near State University of New York("SUNY") campuses in Plattsburgh, Brockport and Cortland (<i>see id</i>. at ¶¶ 3,11-12). The late Walter Uccellini was the founder and chairman of UGOC, and his son, MichaelUccellini, is the corporation's President and CEO (<i>see id</i>. at ¶¶ 6-7,11-12).</p><p>The 2008 financial crisis created serious financial problems for UGOC and its plan to obtainbank financing to build the student housing projects (<i>see id</i>. at ¶¶ 13-14).UGOC eventually secured $50 million in financing from TIAA-CREF, but that loan wasconditioned upon UGOC raising $18 million in equity (<i>id</i>. at ¶ 15). The UnitedDefendants established the Income Fund in August 2008 as a vehicle to raise such funds fromindividual investors (<i>see id</i>. at ¶ 16).</p><p>On August 8, 2008, the United Defendants issued a private placement memorandum("PPM") offering for sale $20 million in membership interests in the Income Fund (<i>seeid</i>. at ¶ 30; <i>see also</i> NYSCEF Doc No. 12 ["PPM"]). "All of the UnitedDefendants were involved in the preparation . . . of all disclosures made . . . in the PPM"(Complaint at ¶ 59).</p><p>The PPM identified Management II as the Fund's manager with "responsib[ility] for theoverall management and administration of the Fund, including the acquisition, management anddisposition of the Fund's assets" (PPM at 3). "All decisions regarding the use and investment ofIncome Fund assets were to be made by Management II as [m]anager, by and through [thecompany's two members:] DCG and UGOC" (Complaint at ¶ 32).</p><p>The stated objective of the Income Fund was "to generate . . . stable and durable current yieldand, where possible, the potential for longer-term gains" (PPM at 2, 13). The Fund's investmentstrategy was to:</p><blockquote>[I]nvest in (A) securities and debt instruments secured by assets and/or credibleguarantors, real estate and real estate related investments, (B) real estate assets which targetexisting properties which have achieved stabilized occupancy levels with demonstrated recordsof distributing cash flow or where cash flows can be significantly enhanced and (C) real estateproperty and investments that can be converted to cash during the next five to seven years withtargeted annual current rates of returns to the Income Fund of greater than 9%</blockquote><p class="auto-style1">(Complaint at ¶ 31; <i>see</i> PPM at 2). The Fund's OperatingAgreement described an identical <font color="FF0000">[*3]</font>investment strategy(<i>see</i> NYSCEF Doc No. 13 ["Operating Agreement"] at 8).<sup><a href="#3FN" name="3CASE"><b>[FN3]</b></a></sup></p><p>The first pages of the PPM disclosed the risks associated with an investment in the IncomeFund and offered the following warning to potential investors:</p><blockquote>AN INVESTMENT IN THE INTERESTS WILL INVOLVE SIGNIFICANTRISKS DUE, AMONG OTHER THINGS, TO THE NATURE OF THE FUND'SINVESTMENTS. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY ANDWILLINGNESS TO ACCEPT THE RISKS AND LACK OF LIQUIDITY THAT ARECHARACTERISTIC OF THE INVESTMENT DESCRIBED HEREIN. NO ASSURANCEWILL BE GIVEN THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVEDOR THAT INVESTORS WILL RECEIVE A RETURN ON THEIR CAPITAL (PPM atiii).</blockquote><p>The body of the PPM then went on to discuss the"<b>INVESTMENT CONSIDERATIONS AND RISK FACTORS</b>" and warned of the"<b>High Risk of Loss</b>": "An investment in the [Income Fund] is highly speculative andinvolves significant risks, including the possible loss of the entire amount invested" (<i>id</i>.at 24-31 [emphasis in original]).</p><p>The PPM represented that Management II could retain "placement agents," with the consentof investors, to "assist in the private placement of [i]nterests in the Fund" (PPM at 14; <i>see</i>Complaint at ¶ 63), but neither the PPM nor the Operating Agreement disclosed anyfinancial arrangements between UGOC and any such agents (<i>see</i> Complaint at¶¶ 62, 67). The only disclosure "even remotely touching" on the financialarrangements between UGOC and third-party consultants was a "vague" disclosure filed with theSecurities and Exchange Commission ("SEC") by PageOne Financial Inc. ("PageOne") on orabout July 31, 2009 and amended on September 14, 2010 (<i>see id</i>. at ¶¶64-66).</p><p>Edgar Page was an investment advisor and the chief executive of PageOne, anSEC-registered investment advisory firm (<i>see id</i>. at ¶ 17). Page and his firm hadlong-standing relationships of trust with high-net-worth investors who relied upon his investmentadvice (<i>see id</i>. at ¶ 18). Plaintiff was a client of PageOne, and he allegedlypurchased $750,000 in membership interests in the Income Fund on the advice andrecommendation of Page (<i>see id</i>. at ¶ 29).</p><p>The Complaint alleges that prior to plaintiff's investment, UGOC secretly had agreed topurchase PageOne in exchange for Page's commitment to buy $18.3 million worth of UGOCpreferred stock using the assets of PageOne's clients (<i>see id</i>. at ¶¶ 24, 26).UGOC also allegedly offered to hire Page as its manager, refer him over $1 billion in assets fromlabor unions, and provide PageOne with a commission for each sale of UGOC securities made toPageOne's clients (<i>see id</i>. at ¶¶ 25, 27). </p><p>Page was aware that the United Defendants were investing the Income Fund's assets intostudent housing projects that faced significant problems, rendering the investments highly risky(<i>see id</i>. at ¶¶ 37-38, 42, 43-50). For instance, Walter Uccellini informed Pagein February 2009 that if UGOC did "not have several million dollars collected (in our hands to bespent) by next week, it might very well be necessary to shut down the student housing [projects]"(<i>id</i>. ¶ 37). <font color="FF0000">[*4]</font>The various construction andoccupancy issues associated with the projects were not disclosed to potential investors by theUnited Defendants in any communications associated with the Income Fund (<i>see id</i>. at¶¶ 45-47, 56-57). The projects eventually defaulted and became the subject offoreclosure and/or bankruptcy proceedings (<i>see id</i>. at ¶¶ 48-50).</p><p>Nevertheless, Page met with plaintiff in late June and/or early July 2010 and persuaded himto invest in the Income Fund (<i>see id</i>. at ¶¶ 51-55). In soliciting plaintiff'sinvestment, Page represented that student housing projects "were a sound and conservativeinvestment which would generate an internal rate of return of investment of not less than 9%annually and as much as 20-25% or more" (<i>id</i>. at ¶ 52). Page also claimed that "theUnited Defendants guaranteed that [plaintiff] would generate a return on investment of not lessthan 9% each year" (<i>id</i>. at ¶ 53).</p><p>Relying on Page's advice, plaintiff executed Subscription Agreements for the purchase ofmembership interests in the Fund, allegedly on July 13, 2010 and July 14, 2010 (<i>see id</i>. at¶ 54). Simultaneously therewith, plaintiff executed the Operating Agreement for the Fundand paid $750,000 (<i>see id</i>. at ¶ 55). By the time these transactions took place,Walter Uccellini had "directed MCM to refrain from performing compliance and supervisoryactivity regarding sale of securities in the Income Fund" (<i>id</i>. at ¶ 129).</p><p>The SEC initiated proceedings against Page and PageOne in August 2014 (<i>see id</i>. at¶ 68) and issued an Order Making Findings ("SEC Order") in March 2015. The SEC foundthat Page and his firm had "willfully violated Sections 206(1) and 206(2) of the [InvestmentAdvisers Act of 1940], which prohibit fraudulent conduct by an investment adviser[,]" andSection 207 of the Advisers Act, "which makes it unlawful for any person willfully to make anyuntrue statement of a material fact in any registration application or report filed with the [SEC] . .. or willfully to omit to state in any such application or report any material fact which is requiredto be stated therein" (<i>id</i>. at ¶ 69 [internal quotation marks omitted]). </p><p>The SEC Order confirmed that Page had failed to disclose his arrangement with UGOC toclients (<i>see id</i>. at ¶¶ 70-72). The SEC also found that Page knew that UGOC"did not have sufficient liquidity . . . to complete the acquisition of PageOne" and was "sellingpersonal assets to keep [UGOC's] business going" (<i>id</i>. at ¶ 78). The SEC ultimatelyconcluded that PageOne's clients "invested between approximately $13 and $15 million" and thatUGOC had paid Page approximately $2.7 million during the same period (<i>id</i>. at¶¶ 75-78).</p><p>Plaintiff commenced this action on July 12, 2016 (<i>see</i> NYSCEF Doc No. 1) and filedhis Second Amended Complaint ("Complaint") on or about August 29, 2016. The Complaintalleges causes of action for common law fraud, breach of fiduciary duty and/or aiding andabetting in a breach of fiduciary duty, negligent misrepresentation and unjust enrichment againstthe United Defendants (<i>see</i> Complaint at ¶¶ 94-123), as well as a claim ofaiding and abetting against the MCM Defendants (<i>see id</i>. at ¶¶ 124-135).While Page and PageOne are not named as defendants, the Complaint refers to them extensivelyand asserts that they acted as an agent of the United Defendants relative to plaintiff's investment(<i>see id</i>. at ¶¶ 28, 56, 82, 87).</p><p>Plaintiff alleges that the United Defendants, together with Page as their alleged agent, madefactual misrepresentations in soliciting plaintiff's investments. Specifically, plaintiff alleges thatthe United Defendants falsely claimed that the Fund would invest in secured debt instrumentsbacked by real estate assets that could quickly be converted to cash and would generate a highannual rate of return for investors, whereas the United Defendants allegedly knew <font color="FF0000">[*5]</font>that the troubled student-housing projects faced significantproblems that made these returns highly unlikely and created a substantial risk of default (<i>seeid</i>. at ¶ 56). Plaintiff also alleges that the United Defendants misrepresented UGOC'sserious financial problems and its history of poor performance on similar projects (<i>seeid</i>.).</p><p>The Complaint further alleges that the United Defendants and Page failed to disclose factsthat were highly material to plaintiff's decision to invest in the Income Fund:</p><blockquote>(A) UGOC was in serious financial distress and was unable to survive withoutinvestor funds;</blockquote><blockquote>(B) UGOC lacked sufficient finances to maintainoperations and, therefore, had to use unsecured Fund assets to cover its operatingcosts;</blockquote><blockquote>(C) the Fund had invested almost all of its assets inunsecured notes receivable to UGOC-affiliated companies;</blockquote><blockquote>(D)the student housing projects in Plattsburgh, Brockport, and Cortland, which had borrowed morethan $7.1 million from the Fund, had encountered serious financial problems and low occupancythat created a material risk that the Fund's note receivables would not be repaid or would notgenerate the promised interest rate of return to investors;</blockquote><blockquote>(E) theFund's assets had been used to cover personal expenses of the Uccellini family and futureinvestments would continue to be used in that manner;</blockquote><blockquote>(F)UGOC and its related entities had no procedures in place to assure that Fund investments wouldonly be used to generate for its members stable and durable current yields and, where possible,the potential for longer-term gains; and</blockquote><blockquote>(G) the Fund regularlyrenewed unsecured loans to UGOC affiliates and accrued interest income on such loans due atmaturity even though the United Defendants failed to assess the credit risk exposure of eachborrower entity at the time and report to investors an adequate allowance for credit losses in theFund financial statements (<i>id</i>. at ¶ 57 [internal quotation marks and bracketsomitted]).</blockquote><p>Plaintiff alleges that he would not have invested in the IncomeFund but-for the foregoing misrepresentations and concealments by the United Defendants andtheir alleged agents (<i>see id</i>. at ¶¶ 89, 91). Now, however, "[u]nder the termsof the [O]perating [A]greement governing the Fund, [p]aintiff is unable to liquidate hisinvestment without the approval of the United Defendants which has never been authorized"(<i>id</i>. at ¶ 91). The Complaint seeks the rescission of the Subscription Agreements, aswell as various forms of monetary damages (<i>see id</i>., Wherefore clause). </p><p>On September 19, 2016, the United Defendants and MCM Defendants moved to dismiss theComplaint for, among other things, failure to state a claim (<i>see</i> NYSCEF Doc Nos. 8-13).After the motion was fully briefed, the Moving Defendants discovered that the Complaintcontained a highly material irregularity bearing on the timeliness of plaintiff's claims.</p><p>The Complaint alleged that plaintiff entered into Subscription Agreements for the purchaseof interests in the Income Fund on July 13, 2010 and July 14, 2010, respectively (<i>see</i>Complaint at ¶ 54). However, review of the actual Subscription Agreements shows thatplaintiff signed the documents on June 18, 2010 (<i>see</i> NYSCEF Doc Nos. 45-46["Subscription Agreements"]). Upon making this discovery, the Moving Defendants alertedplaintiff's counsel <font color="FF0000">[*6]</font>and asserted that all of plaintiff's claimswere time-barred (<i>see</i> NYSCEF Doc No. 42).</p><p>In response, plaintiff's counsel confirmed that the allegations of the Complaint were incorrectand that plaintiff had "signed the Subscription Agreements reflecting his interest in the IncomeFund on June 18, 2010" (NYSCEF Doc No. 43). Counsel further indicated that a similarstatute-of-limitations issue was pending before Hon. Gary L. Sharpe in the U.S. District Court forthe Northern District of New York in <i>Grasso, et al. v United Group of Companies, Inc.</i>,<i>et al</i>., Case No. 1:16-cv-00965-GLS-CFH (ND NY) ("<i>Grasso</i>") — avirtually identical case brought by a group of Fund investors against the same defendants suedherein (<i>see</i> NYSCEF Doc No. 51 ["<i>Grasso</i> Complaint"]).<sup><a href="#4FN" name="4CASE"><b>[FN4]</b></a></sup></p><p>By so-ordered stipulation dated February 16, 2017, the parties agreed to stay this actionpending Judge Sharpe's ruling on the statute-of-limitations issue in <i>Grasso</i> and tothereafter provide supplemental briefing (<i>see</i> NYSCEF Doc No. 44).</p><p>On March 26, 2018, Judge Sharpe issued a Decision and Order in <i>Grasso</i> thatdismissed the majority of plaintiffs' claims as time-barred (<i>see</i> NYSCEF Doc No. 50;<i>Grasso v United Group of Companies, Inc.</i>, 2018 WL 1472579, 2018 US Dist LEXIS48841 [ND NY, Mar. 26, 2018, No. 1:16-cv-965 (GLS/CFH)], <i>op amended andsuperseded</i> 2018 WL 1737619 [ND NY, Apr. 9, 2018, No. 1:16-cv-965 (GLS/CFH)]).</p><br><br><b>ANALYSIS</b><p>Dismissal is warranted under CPLR 3211 (a) (5) where the movant establishes that a claimmay not be maintained due to the expiration of the statute of limitations. The movant bears theinitial burden of "support[ing] the motion with an affidavit or other competent proof sufficient, ifuncontroverted, to establish the [statute of limitations] defense as a matter of law" (<i>State ofNY Higher Educ. Servs. Corp. v Starr</i>, 158 AD2d 771, 771 [3d Dept 1990]; <a href="../2010/2010_06368.htm" target="_blank"><i>see Romanelli v Disilvio</i>, 76 AD3d553</a>, 554 [2d Dept 2010]). Upon such proof, "the burden shifts to the party opposing themotion to aver evidentiary facts" sufficient to defeat the statute of limitations defense, or at leastraise factual questions concerning the defense (<i>Hoosac Val. Farmers Exch. v AG Assets</i>,168 AD2d 822, 823 [3d Dept 1990]; <i>see Doyon v Bascom</i>, 38 AD2d 645, 645-646 [3dDept 1971]).</p><p>On a motion to dismiss made pursuant to CPLR 3211 (a) (7), "the court must afford thepleadings a liberal construction, take the allegations of the complaint as true and provide plaintiffthe benefit of every possible inference" (<a href="../2005/2005_04478.htm" target="_blank"><i>EBC I, Inc. v Goldman, Sachs &amp; Co.</i>, 5 NY3d 11</a>, 19 [2005]).The court's "sole criterion is whether the pleading states a cause of action" (<i>Polonetsky vBetter Homes Depot</i>, 97 NY2d 46, 54 [2001] [internal quotation marks and citationomitted]). However, the court need not "accept as true legal conclusions or factual allegationsthat are either inherently incredible or flatly contradicted by documentary evidence" (<i>1455Washington Ave. Assoc. v Rose &amp; Kiernan</i>, 260 AD2d 770, 771 [3d Dept 1999][internal quotation marks and citations omitted]).</p><br><br><b>A. Fraud-Based Claims</b><p>Under New York law, "[a]n action to recover damages for fraud must be commenced within'the greater of six years from the date the cause of action accrued or two years from the <font color="FF0000">[*7]</font>time the plaintiff . . . discovered the fraud, or could with reasonablediligence have discovered it' (CPLR 213 [8]; <i>see</i> CPLR 203 [g])" (<a href="../2010/2010_00113.htm" target="_blank"><i>Marasa v Andrews</i>, 69 AD3d 584</a>,584 [2d Dept 2010]; <a href="../2015/2015_06459.htm" target="_blank"><i>see Soghanalian vYoung</i>, 131 AD3d 744</a>, 745 [3d Dept 2015]; <a href="../2007/2007_09844.htm" target="_blank"><i>Giarratano v Silver</i>, 46 AD3d 1053</a>, 1056 [3d Dept 2007]).Plaintiff's causes of action for breach of fiduciary duty, aiding and abetting, and negligentmisrepresentation all sound in actual fraud and, therefore, are subject to the same limitationsperiod as his fraud claim (<a href="../2018/2018_00876.htm" target="_blank"><i>see KrogCorp. v Vanner Group, Inc.</i>, 158 AD3d 914</a>, 917 [3d Dept 2018]; <a href="../2016/2016_01758.htm" target="_blank"><i>Cusimano v Schnurr</i>, 137 AD3d527</a>, 530 [1st Dept 2016]; <i>see also Brick v Cohn-Hall-Marx Co.</i>, 276 NY 259, 264[1937] [courts must look at "the essence of the action and not its mere name"]). </p><p>The Subscription Agreements provide that "the Investor's obligation . . . shall be completeand binding upon execution and delivery" of the Subscription Agreements, and the investor willbe admitted as a member of the Fund "[u]pon acceptance of the subscription by [Management II]on behalf of the Fund" (NYSCEF Doc Nos. 45 at 1 &amp; Doc No. 46 at 1). There is no disputethat plaintiff executed and delivered the Subscription Agreements, and Management II acceptedthem, on June 18, 2010 (<i>see id</i>. at 10). Thus, for purposes of the six-year limitationsperiod, the fraud-based claims accrued on June 18, 2010, at which point plaintiff became legallybound to the Income Fund in alleged reliance on the United Defendants' fraudulentmisrepresentations and concealments (<i>see</i> CPLR 203 [a]; <a href="../2008/2008_02488.htm" target="_blank"><i>Prichard v 164 Ludlow Corp.</i>, 49 AD3d408</a>, 408 [1st Dept 2008]; <i>Matter of Blake</i>, 282 AD2d 905, 906 [3d Dept2001]).<sup><a href="#5FN" name="5CASE"><b>[FN5]</b></a></sup> As such, there can be "no serious dispute" that the fraud-based claims are untimely under thesix-year limitations period (<i>Pommer v Trustco Bank</i>, 183 AD2d 976, 977 [3d Dept1992]).<sup><a href="#6FN" name="6CASE"><b>[FN6]</b></a></sup></p><p>The issue then becomes whether the fraud claims are timely under CPLR 213 (8)'s two-<font color="FF0000">[*8]</font>year discovery rule. "For the purposes of the discovery rule, aplaintiff's cause of action accrues at the time the plaintiff possesses knowledge of facts fromwhich the fraud could have been discovered with reasonable diligence" (<i>Marasa</i>, 69AD3d at 584 [internal quotation marks and citations omitted]; <i>see</i> CPLR 213 [8]; 203[g]; <a href="../2011/2011_05629.htm" target="_blank"><i>Gutkin v Siegal</i>, 85 AD3d687</a>, 687 [1st Dept 2011]). </p><p>"The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered thefraud turns on whether the plaintiff was 'possessed of knowledge of facts from which [the fraud]could be reasonably inferred'" (<i>Sargiss v Magarelli</i>, 12 NY3d 527, 532 [2009] [internalquotation marks and citation omitted]; <a href="../2013/2013_05273.htm" target="_blank"><i>see Elhannon, LLC v Brenda J. DeLuca Trust</i>, 108 AD3d 911</a>, 912[3d Dept 2013]). "Where the circumstances are such as to suggest to a person of ordinaryintelligence the probability that he [or she] has been defrauded, a duty of inquiry arises, and if he[or she] omits that inquiry when it would have developed the truth, and shuts [one's] eyes to thefacts which call for investigation, knowledge of the fraud will be imputed to him [or her]"(<i>Gutkin</i>, 85 AD3d at 688 [internal quotation marks, citations and brackets omitted]; <a href="../2015/2015_04558.htm" target="_blank"><i>accord CIFG Assur. N. Am., Inc. v CreditSuisse Sec. [USA] LLC</i>, 128 AD3d 607</a>, 608 [1st Dept 2015];<a href="../2012/2012_02095.htm" target="_blank"><i> see Shalik v Hewlett Assoc., L.P.</i>, 93AD3d 777</a>, 778 [2d Dept 2012]).</p><p>"The burden of establishing that the fraud could not have been discovered before thetwo-year period prior to the commencement of the action rests on the plaintiff, who seeks thebenefit of the exception" (<a href="../2017/2017_06153.htm" target="_blank"><i>Celestin vSimpson</i>, 153 AD3d 656</a>, 657 [2d Dept 2017] [internal quotation marks and citationomitted]; <a href="../2007/2007_08339.htm" target="_blank"><i>see Grasso v Grasso</i>, 45AD3d 1022</a>, 1023 [3d Dept 2007]). "[W]hile . . . New York courts will not grant a motion todismiss a fraud claim where the plaintiff's knowledge is disputed, it is proper under New Yorklaw to dismiss a fraud claim on a motion to dismiss pursuant to the two-year discovery rule whenthe alleged facts [or documentary evidence] establish that a duty of inquiry existed and that aninquiry was not pursued" (<i>Koch v Christie's Intern. PLC</i>, 699 F3d 141, 155-156 [2d Cir2012]; <i>see e.g. Elhannon</i>, 108 AD3d at 912-913;<i> Shalik</i>, 93 AD3d at 778;<i>Gutkin</i>, 85 AD3d at 688). </p><p>Plaintiff concedes that following his June 18, 2010 investment in the Income Fund, hereceived "statements, letters and other correspondence" regarding his investment, including theFund's 2012 and 2013 Audited Financial Statements (Complaint at ¶ 67; <i>see id</i>. at¶¶ 39, 57 [G]; <i>see also</i> NYSCEF Doc Nos. 47, 48). For the reasons thatfollow, the Court agrees with Judge Sharpe that the Fund's 2012 and 2013 financial statementsplainly "raised red flags that would have made a reasonable investor of ordinary intelligenceaware of the probability that he [or she] had been defrauded" (<i>Grasso</i>, 2018 WL 1737619,*8).<sup><a href="#7FN" name="7CASE"><b>[FN7]</b></a></sup></p><p>The 2013 Financial Statement, which plaintiff admittedly received no later than May 30,2014 (<i>see</i> NYSCEF Doc No. 52, p. 6), advised plaintiff that the student housing projectsat SUNY Plattsburgh, Brockport and Cortland "continue to have occupancy issues" and informedhim that "the lender commenced a foreclosure action against the project[s]" (NYSCEF Doc No.47 ["2013 Financial Statement"] at 1-3, 5, 15, 20-22; <i>see also</i> NYSCEF Doc No. 48["2012 <font color="FF0000">[*9]</font>Financial Statement"] at 20-21).</p><p>The 2013 Financial Statement, which included the report of the Fund's independent auditor,also cautioned plaintiff in several places that "the Fund is substantially invested in debtinvestments with an entity that is in foreclosure proceedings. The outcome of these proceedingsis unknown; however, <i>the proceedings raise substantial doubt about the Fund's ability tocontinue as a going concern</i>" (2013 Financial Statement at 5 [emphasis added]; <i>see alsoid</i>. at 15 ["uncertainty about the Fund's ability to continue as a going concern"]).</p><p>In addition, the 2013 Financial Statement advised plaintiff that "debt investments make up55% of the [Income] Fund's total assets" (<i>id</i>. at 15). And both the 2012 and 2013statements alerted investors that the Fund had invested in classes of assets that plaintiff believesto have been improper and contrary to the representations made to him to induce his execution ofthe Subscription Agreements (<i>see</i> 2012 Financial Statement at 5-14; 2013 FinancialStatement at 7-11).</p><p>These disclosures go to the heart of plaintiff's fraud-based allegations regarding thestruggling SUNY housing projects (<i>see</i> Complaint at ¶¶ 43-50) and themanner in which the Fund invested the capital it had raised from plaintiff and other investors(<i>see id</i>. at ¶¶ 38, 56-57). In fact, plaintiff admits in his Complaint that the2012 and 2013 financial statements "created uncertainty regarding the Income Fund's ability tocontinue as a going concern . . . [and] affected the debt instruments . . . of . . . student housingprojects developed by UGOC and represented . . . as the primary investments to be financedusing the assets of the [Fund]" (<i>id</i>. at ¶ 42). In other words, "the knowledge gleanedfrom the information contained within the 2012 and 2013 [F]inancial [S]tatements [was]completely at odds with the representations that plaintiff[] allegedly relied upon" in deciding toinvest in the Income Fund (<i>Grasso</i>, 2018 WL 1737619, *8; <i>see</i> Complaint at¶¶ 56 [C], [D]; 57 [D])</p><p>In opposing dismissal, plaintiff argues that "no duty of inquiry arose in 2014 . . . because the2012 and 2013 Financial Statements . . . informed [p]laintiff [that] the Fund's performance was<i>improving</i> year after year" (NYSCEF Doc. No. 52 at 5). In particular, plaintiff stressesthat "the 2013 Financial Statement indicated [that] the Fund's total assets increased from $16.7million to $17.8 million from 2012 to 2013, and the investors' collective equity in the Fundincreased at a nearly identical rate" (<i>id</i>.). "The statement also revealed that the Fund'sinvestment income was approximately $1.6 million, and that on an income tax basis, the netbalance of the Fund grew from $15.8 million as of January 1, 2012 to $17.8 million as ofDecember 31, 2013" (<i>id</i>. at 5-6). "The 2012 Financial Statement . . . painted a similarlyoptimistic picture" (<i>id</i>. at 6). Plaintiff also notes that the 2013 Financial Statementreassured the investors that the management had implemented a plan to address the occupancyissues with respect to the student housing projects (<i>see id</i>. at 8).</p><p>In rejecting the same contentions in <i>Grasso</i>, Judge Sharpe aptly noted that plaintiff'sargument "misses the mark" (<i>Grasso</i>, 2018 WL 1737619, *8). The issue is not whetherthe 2012 and 2013 financial statements revealed the full and complete extent of the MovingDefendants' alleged fraud, but rather whether the circumstances disclosed in the financialstatements reasonably suggested that plaintiff "may have been defrauded, so as to trigger a dutyto inquire" (<i>Shalik</i>, 93 AD3d at 778; <i>see Davis v Smith Corp.</i>, 262 AD2d 752,755 [3d Dept 1999]).</p><p>In light of the auditor's warning that the Fund's major investments were in default and/or<font color="FF0000">[*10]</font>foreclosure and that there were substantial doubts about theFund's ability to continue as a going concern, the fact that the Fund's management offered avague reassurance regarding a "plan" for increasing student occupancy is not the type ofreassurance that would — or should — put a reasonable investor's mind at ease(<i>see</i> 2013 Financial Statement at 8-11; <i>Grasso</i>, 2018 WL 1737619, *8). In otherwords: [N]o reasonable investor would look at the serious warnings set out by the auditor— warnings that the Income Fund's future was in jeopardy — and rely on vague,unspecified hopes for a turnaround. Instead, the financial statements raised red flags that wouldhave made a reasonable investor of ordinary intelligence aware of the probability that he [or she]had been defrauded (<i>Grasso</i>, 2018 WL 1737619, *8 [brackets omitted]; <i>see</i><i>Gutkin</i>, 85 AD3d at 688; <i>Ballhaus v Morgan Guar. Trust Co. of NY</i>, 232 AD2d320, 320 [1st Dept 1996], <i>lv denied </i>89 NY2d 808 [1997]).</p><p>As to the argument that the Fund's bottom line was increasing, plaintiff ignores the fact thatthe financial statements "used an analysis centered on an income tax basis" (<i>Grasso</i>, 2018WL 1737619, *8). Indeed, the 2013 Financial Statement expressly disclosed that the use of anincome tax basis did not comport with "accounting principles generally accepted in the UnitedStates" (<i>pp. </i>4-5;<i> see also Grasso</i> Complaint, ¶ 160 [alleging that the use ofan income tax basis "avoid[s] the disclosures of fair value measures and credit quality offinancing receivables"]). Indeed, the auditor found the use of an income tax basis to be sosignificant that the bottom of each page of the financial statement cautioned readers that "incometax basis" was "an integral part of the[] financial statements" (2013 Financial Statement,Independent Auditor's Report, at 3-11).</p><p>The Court therefore concludes that the Financial Statements for 2012 and 2013 placed anobjective investor in the Fund on notice of the substantial prospect that he or she had beendefrauded.<sup><a href="#8FN" name="8CASE"><b>[FN8]</b></a></sup> Plaintiff does not allege in his Complaint that he made any inquiry in response to the financialstatements to determine whether he had been defrauded. Nor does plaintiff submit proof inopposition to the motion demonstrating any such inquiry. Accordingly, knowledge of the fraudmust be imputed to plaintiff as of the date the duty to investigate arose, which occurred no laterthan May 30, 2014, by which time plaintiff had received both the 2012 and 2013 FinancialStatements (<a href="../2016/2016_02511.htm" target="_blank"><i>see Aozora Bank, Ltd. vDeutsche Bank Sec. Inc.</i>, 137 AD3d 685</a>, 689-690 [1st Dept 2016]; <i>CIFG Assur. N.Am.</i>, 128 AD3d at 608; <i>Shalik</i>, 93 AD3d at 778; <i>Gutkin</i>, 85 AD3d at 688).</p><p>As plaintiff failed to commence this action within two years of being put on inquiry notice,plaintiff's fraud-based claims are not saved by application of the discovery rule. Accordingly, thefraud-based claims must be dismissed as barred by the expiration of the statute <font color="FF0000">[*11]</font>of limitations.</p><br><br><b>B.Unjust Enrichment</b><p>The Moving Defendants also seek dismissal of the unjust enrichment claim as barred by theexpiration of the statute of limitations. In their opening brief, they argued principally that theclaim is subject to the three-year limitations period of CPLR 214 (3), rather than the six-yearlimitations period of CPLR 213 (1) (<a href="../2007/2007_09362.htm" target="_blank"><i>seeIngrami v Rovner</i>, 45 AD3d 806</a>, 808 [2d Dept 2007]; <a href="../2006/2006_04987.htm" target="_blank"><i>Lambert v Sklar</i>, 30 AD3d 564</a>,566 [2d Dept 2006]).<sup><a href="#9FN" name="9CASE"><b>[FN9]</b></a></sup> </p><p>Regardless, given plaintiff's admission that the Subscription Agreements were executed,delivered and accepted more than six years prior to the commencement of this action, the Courtconcludes that the unjust enrichment claim is time-barred regardless of which limitations periodapplies. "A cause of action for unjust enrichment accrues 'upon the occurrence of the wrongfulact giving rise to the duty of restitution'" (<a href="../2006/2006_00200.htm" target="_blank"><i>Elliott v Qwest Communications, Corp.</i>, 25 AD3d 897</a>, 898 [3dDept 2006], quoting <i>Congregation Yetev Lev D'Satmar v 26 Adar N.B. Corp.,</i> 192 AD2d501, 503 [2d Dept 1993]; <a href="../2017/2017_07918.htm" target="_blank"><i>see NYAHSAServs., Inc., Self-Ins. Trust v People Care Inc.</i>, 156 AD3d 99</a>, 104 [3d Dept 2017]).Here, the United Defendants are alleged to have benefitted from the alleged misrepresentationsand omissions that induced plaintiff to purchase membership interests in the Fund, whichoccurred by June 18, 2010. Thus, the claim is untimely.</p><br><br><b>CONCLUSION</b><p>Based on the foregoing,<sup><a href="#10FN" name="10CASE"><b>[FN10]</b></a></sup> it is</p><p><b>ORDERED</b> that the motion to dismiss of defendants The United Group ofCompanies, Inc., DCG/UGOC Funds Management II, Michael J. Uccellini and Jessica F.Steffensen, as Executor and Executrix of the Estate of Walter F. Uccellini, Michael J. Uccellini,MCM Securities, LLC and Millennium Credit Markets, LLC is hereby granted, and the SecondAmended Complaint is dismissed as against these defendants, with prejudice; and it isfurther</p><p><b>ORDERED</b> that plaintiff shall advise the Court as to the status of his claims againstdefendant Richard W. Davis Jr. and his intentions with regard to the prosecution of such claimswithin <b>twenty (20) days</b> of being served with a copy of this Decision &amp; Order withnotice of <font color="FF0000">[*12]</font>entry.</p><p>This constitutes the Decision &amp; Order of the Court, the original of which is beingtransmitted to the Albany County Clerk for electronic filing and entry. Upon such entry, counselfor the Moving Defendants shall promptly serve notice of entry on all other parties to this action(<i>see</i> Uniform Rules for Trial Cts [22 NYCRR] § 202.5-b [h] [1], [2]).</p><br><br>Dated: Albany, New York<br>July 23, 2018<br>RICHARD M. PLATKIN<br>A.J.S.C.<br><br>Papers Considered:<br><br>NYSCEF Doc Nos. 1, 8-16, 23-27,39-53.<div align="center"><b>Footnotes</b></div><br><br><a name="1FN" href="#1CASE"><b>Footnote 1:</b></a> Counsel for the movingdefendants does not represent DCG, which is a wholly-owned subsidiary of Davis, or Richard W.Davis Jr, who is the CEO and founder of Davis. Plaintiff's claims against DCG and Davis (butnot Davis Jr.) are stayed pursuant to a receivership order of the U.S. District Court for theWestern District of North Carolina (<i>see</i> NYSCEF Doc Nos. 16, 28). With respect toDavis Jr., the Court observes that he purportedly was served with process on October 27, 2016(<i>see</i> NYSCEF Doc No. 29), but the record contains no answer or notice of appearance byor on his behalf. Nor is there a record of any proceedings for a default judgment taken by plaintiffagainst Davis Jr. (<i>see generally </i>CPLR 3215). <br><br><a name="2FN" href="#2CASE"><b>Footnote 2:</b></a> The motion also is madepursuant to CPLR 3211 (a) (1), but the documentary evidence relied upon by the MovingDefendants pertains to their statute-of-limitations defense, which is cognizable under CPLR 3211(a) (5).<br><br><a name="3FN" href="#3CASE"><b>Footnote 3:</b></a> According to the PPM, theOperating Agreement also controlled the parties' relationship (<i>see</i> PPM at iii-iv).<br><br><a name="4FN" href="#4CASE"><b>Footnote 4:</b></a> Further, the parties in <i>Grasso</i>were represented by the same attorneys who have appeared herein.<br><br><a name="5FN" href="#5CASE"><b>Footnote 5:</b></a> Contrary to plaintiff'scontention, the accrual of fraud-based claims in New York is not based on when the plaintiff"had full knowledge of the fraud, including the injury and damages he sustained from it"(NYSCEF Doc No. 52 at 1, 5, 9). As the Moving Defendants observe, if this were the law, therewould be no need for the two-year discovery rule of CPLR 213 (8). Moreover, this argument isinconsistent with the allegations of plaintiff's own Complaint, which maintains that thefraud-based claims are timely because they were brought "within six years from the date of thewrongful acts and within two years of the date of discovery of [d]efendants' fraud through theexercise of reasonable diligence" (<i>id</i>. at ¶ 93). Relatedly, the Court observes that theComplaint does allege that plaintiff sustained injury once the Subscription Agreements becamefinal and binding on June 18, 2010, at which point his investment was irrevocably tied up in theFund, and plaintiff had the right to pursue a claim for recision (<i>see</i> Complaint ¶ 91&amp; Wherefore clause).<br><br><a name="6FN" href="#6CASE"><b>Footnote 6:</b></a> While plaintiff concedes that heexecuted the Subscription Agreements on June 18, 2018, the Complaint continues to allege thathe received the PPM for the Income Fund in "late June or early July 2010" (Complaint at ¶51) and that the misrepresentations in the PPM induced him to purchase interests in the Fund(<i>see e.g. id</i>. at ¶¶ 56, 61-63). Inasmuch as plaintiff executed the SubscriptionAgreements prior to receiving the PPM, he could not have relied upon the PPM in choosing toinvest in the Fund. Thus, plaintiff's allegations of fraud based on the contents of the PPM are notplausible.<br><br><a name="7FN" href="#7CASE"><b>Footnote 7:</b></a> While the New York courts arenot bound by the holdings of the lower federal courts (<i>see generally People v Kin Kan</i>, 78NY2d 54, 59-60 [1991]), particularly as to matters of New York law, this Court finds JudgeSharpe's decision in <i>Grasso</i> to be a highly persuasive application of the two-yeardiscovery rule.<br><br><a name="8FN" href="#8CASE"><b>Footnote 8:</b></a> In so concluding, the Courtnotes that plaintiff's reliance on <i>Milman v Box Hill Sys. Corp. </i>(72 F Supp 2d 220 [SDNY 1999]) is misplaced. That case involved the discovery rule under Section 13 of the SecuritiesAct (<i>see id</i>. at 228-229), not the discovery rule of CPLR 213 (8). Further, the SecondCircuit subsequently confirmed, in a case involving New York's discovery rule, that "reassuringstatements will prevent the emergence of a duty to inquire or dissipate such a duty . . . <i>only if</i>an investor of ordinary intelligence would reasonably rely on the statements to allay theinvestor's concern" (<i>AXA Versicherung AG v New Hampshire Ins. Co.</i>, 391 Fed Appx25, 30 [2d Cir 2010] [internal quotation marks and citation omitted] [emphasis added]). <br><br><a name="9FN" href="#9CASE"><b>Footnote 9:</b></a> The CPLR does not prescribe alimitations period for unjust enrichment, and there appears to be a split between the Second andFirst Departments as to whether a six-year or a three-year limitations period should be applied(<a href="../2016/2016_06049.htm" target="_blank"><i>compare Deutsche Bank, AG vVik</i>, 142 AD3d 829</a>, 829 [1st Dept 2016], <i>with Lambert</i>, 30 AD3d at 566; <a href="../2010/2010_04258.htm" target="_blank"><i>but see Board of Mgrs. of the Chelsea 19Condominium v Chelsea 19 Assoc.</i>, 73 AD3d 581</a>, 582 [1st Dept 2010] [applyingthree-year statute of limitations, relying on <i>Lambert</i>]). However, the Moving Defendantshave not cited any authority from the Third Department in support of their contention that theCourt should apply the three-year limitations period, and, in fact, the Third Department routinelyapplies the six-year statute of limitations to unjust enrichment claims (<a href="../2017/2017_07918.htm" target="_blank"><i>see e.g. NYAHSA Servs., Inc., Self-Ins.Trust v People Care Inc.</i>, 156 AD3d 99</a>, 104 [3d Dept 2017]; <a href="../2006/2006_00200.htm" target="_blank"><i>Elliott v Qwest Communications Corp.</i>,25 AD3d 897</a>, 898 [3d Dept 2006]). <br><br><a name="10FN" href="#10CASE"><b>Footnote 10:</b></a> Having concluded that all ofplaintiff's claims against the Moving Defendants are barred by the expiration of the statute oflimitations, the Court has no occasion to consider the Moving Defendants' challenges to the legalsufficiency of plaintiff's claims.<br><br><br><br><div align="center"><form method="LINK" action="../../slipidx/com_div_idxtable.shtml"><input type="submit" value="Return to Decision List"></form></div></partyblock>