Court Opinion

ID: 5704556
Source: CourtListenerOpinion
Date Created: 2022-01-12 15:45:16.304473+00
Date Added: 2024-06-11T08:40:23.729551
License: Public Domain

Sweeny, J., dissents
in a memorandum as follows: Flaintiffs’ causes of action alleging fraud based on defendants’ alleged misrepresentation about Verizon’s commitment to invest in OmniSky should not have been dismissed. The IAS court’s June 10, 2003 order was erroneous in not allowing the complaint to be amended to allow plaintiffs to assert these causes of action.
CPLR 3025 (b) provides: “A party may amend his pleading, *317or supplement it by setting forth additional or subsequent transactions or occurrences, at any time by leave of court or by stipulation of all parties. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances.”
In determining whether to grant leave to amend pleadings, a two-step analysis is required. First, legally sufficient facts must be alleged by the proponent which establish a prima facie cause of action or proposed defense. Next, the court must test the pleading’s merit. However, there is “a presumption of validity in favor of the moving party” and the “merit of a proposed amended pleading must be sustained . . . unless the alleged insufficiency or lack of merit is clear and free from doubt” (Daniels v Empire-Orr, Inc., 151 AD2d 370, 371 [1989]). Our policy in this regard “has always been consistent with the rule that, in the absence of prejudice or unfair surprise, requests for leave to amend should be granted freely” (id. at 372).
To state a claim for fraud in the inducement, a plaintiff “must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). Likewise, a cause of action for common-law fraud is sufficiently stated where plaintiff “adequately alleged misrepresentation of or failure to disclose a material fact, falsity, scienter, justifiable reliance by plaintiff and injury” (Bernstein v Kelso & Co., 231 AD2d 314, 321 [1997]).
In both the original and proposed amended complaint, plaintiffs alleged that during the negotiations with defendants, they were specifically told Verizon had committed to invest $20 million in OmniSky even though defendants knew that statement was false. In the proposed amended complaint, plaintiffs further alleged that they reasonably relied on this representation. The basis for this reliance, according to plaintiffs, was that the amount of Verizon’s commitment indicated OmniSky’s viability as a company. Plaintiffs also argue that Verizon’s commitment would most certainly attract other investors to OmniSky. Indeed, the IAS court, in its decision on the motion to dismiss the original complaint found that the allegation concerning Verizon’s commitment to OmniSky was an “existing fact,” although five months later in its June 10, 2003 order addressed to the amended complaint, the court referred to it as a misrepresentation about the future.
Plaintiffs clearly made out a cause of action that the Verizon *318commitment was a present statement of fact upon which they relied to their detriment. The fact that analyst reports stated OmniSky would need significant additional capital before the end of 2001 does not make plaintiffs’ reliance on defendants’ representations per se unreasonable. In fact, none of the analysts’ reports or OmniSky’s SEC filings specifically contradicted defendant McVeigh’s statement that Verizon had committed to invest $20 million in OmniSky. We have repeatedly held that “resolution of a reasonable reliance claim is generally left to a finder of fact” (Talansky v Schulman, 2 AD3d 355, 361 [2003]; see also Country World v Imperial Frozen Foods Co., 186 AD2d 781, 782 [1992]). Likewise, plaintiffs’ claim that defendants knowingly misrepresented OmniSky’s subscriber projections were statements of present fact, not future projections, and should not have been dismissed.
Plaintiffs were provided with analyst reports estimating that by the end of 2001, OmniSky’s subscribers would total 226,000. Although OmniSky adopted these reports, by mid-November 2000 it had lowered the projections to approximately 160,000 but never advised plaintiffs of this. On December 30, 2000, plaintiffs specifically asked defendant Cleeman and OmniSky’s then president, one Berkowitz, whether the high subscriber projections would be met, and both individuals assured plaintiffs that they would. Two weeks later, only days prior to closing, plaintiffs learned that the projections had been lowered to 160,000. Even at that point, however, plaintiffs were not aware that defendants had known for some time that the target projections would not be met and that defendants knew this at the time they were making affirmative assurances to plaintiffs to the contrary.
On a motion to dismiss pursuant to CPLR 3211 (a) (7), we must afford the pleadings a liberal construction, accept the allegations of the complaint as true and provide plaintiff “the benefit of every possible favorable inference” (Leon v Martinez, 84 NY2d 83, 87 [1994]). In addition, on this type of motion “any deficiencies in the complaint may be amplified by supplemental pleadings and other evidence” (AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 591 [2005]). “Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss” (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]).
While it is true that a fraud cause of action is “fatally undermined” when a plaintiff learns of all the material facts yet still decides to close on a deal (Chelsea, LLC v Seventh Chelsea Assoc., 304 AD2d 498 [2003]), plaintiffs alleged it was much *319later when they learned defendants had known well in advance the projections would not be met yet continued to represent otherwise. Plaintiffs sufficiently alleged that defendants knowingly made false subscriber statements, and in their amended complaint alleged they relied on these projections because they were essential to OmniSky’s revenues and continued financial viability. The fact that plaintiffs learned of the lower subscriber projections a few days prior to closing does not make that reliance unreasonable as a matter of law. By that point, plaintiffs had already signed certain documents putting this complex deal into motion. Whether plaintiffs reasonably believed they were still required to go ahead with the deal is a question of fact, and is “not subject to summary disposition” (Brunetti v Musallam, 11 AD3d 280, 281 [2004]).
1 would therefore modify to the extent of reinstating plaintiffs’ causes of action for fraud in the inducement and common-law fraud concerning defendants’ representations about Verizon’s commitment, and the claims as they relate to defendants’ representations concerning subscriber projections, and otherwise affirm.