Adam Leitman Bailey, P.C. Successfully Vindicates a Condominium Sponsor Against Baseless Fraud Claims Alleging Wrongfully Misstating Operating Budget to Increase Sales Prices
Adam Leitman Bailey, P.C. was retained to defend the sponsor and sponsor-appointed board members of a beautifully built, luxury Manhattan condominium in a complex, multi-million dollar litigation brought by the condominium’s board of managers. In the lawsuit, the plaintiff-board brought claims against the sponsor and sponsor-appointed board members for fraud and breach of fiduciary duty, alleging that the sponsor purposely misstated the operating budget for the condominium in the original offering plan and its subsequent amendments, to keep common charges low and increase sales, and that the sponsor appointed board members purposely failed to raise common charges for the same purposes, in an effort to benefit the sponsor.
To establish a claim of fraudulent inducement, a plaintiff must allege “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.” Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011).
Through extensive discovery, Adam Leitman Bailey, P.C. was able to establish the falsity of the plaintiff’s claims and disprove the key element of scienter, by showing that neither the sponsor nor the sponsor-appointed board members had any knowledge that the offering plan or its subsequent amendments did not accurately estimate the common charges for the condominium at the time that those documents were submitted to the New York Attorney General. Specifically, Adam Leitman Bailey, P.C. obtained and then used the plaintiff’s own financial records, board minutes, and witness testimony to establish that the condominium’s projected operating budget was accurate at the time of the offering plan and remained so at the time that the sponsor submitted offering plan amendments with budget projections to the New York Attorney General, and that plaintiff possessed no evidence that defendants knowingly understated common charges or acted for an improper purpose. Adam Leitman Bailey, P.C. was able to establish that it was not until years after the condominium began its operations, and after all amendments with budget projections were submitted to the Attorney General, that it became clear to the sponsor and the sponsor appointed board members that the budget was too low to support the condominium’s operations.
The only evidence plaintiff ever presented to support its claims that the sponsor purposely misstated the operating budget for the condominium to increase sales was a vaguely worded affidavit from the condominium’s prior managing agent. However, when Adam Leitman Bailey, P.C. deposed that managing agent, we demonstrated that the affidavit was long on conclusions but short on actual facts. We established that the affidavit failed to identify when the alleged budget deficits arose, when warnings were purportedly given to the sponsor-appointed board members, or when the sponsor allegedly became aware that the condominium’s operating expenses exceeded projected revenues. At deposition, the managing agent supplied those missing facts, actually establishing that: (a) the condominium largely operated within its projected budget through the years that the purportedly false amendments were submitted to the New York Attorney General; (b) budget deficits did not become a significant issue until several years into condominium operations; (c) a significant portion of the increase in the condominium’s budget was due to expenditures specifically requested by the unit owners themselves; and (d) the sponsor-appointed board members were not informed of those issues until well after the Offering Plan and challenged amendments had been issued. Those admissions by the managing agent, which were corroborated by the plaintiff’s own financial records, undermined the key requirements of plaintiff’s fraud claim: later-arising financial difficulties could not serve as evidence that the budget projections were knowingly false when made.
Ultimately, the plaintiff’s principal (and only) witness essentially supported our defense: the condominium’s budget projections were reasonable and accurate when made and the defendants lacked any knowledge of material inaccuracies during the relevant offering plan period. This evidentiary record put the defendants in an excellent position to succeed in litigation.
However, rather than risk the uncertainty of a trial, the parties agreed to mediation. At the mediation, Adam Leitman Bailey, P.C. presented all of the evidence obtained during discovery and systematically took down plaintiff’s claims before the mediator. When plaintiff was unable to present any evidence beyond its own conjecture, the mediator successfully persuaded plaintiff to accept an offer representing just a small fraction of plaintiff’s original, multi-million dollar demand.
The favorable resolution of the litigation was the direct result of Adam Leitman Bailey, P.C.’s discovery strategy, which was focused on dismantling the factual foundation of the plaintiff’s claims and dismantling all of the purported evidence plaintiff argued supported its claims. The strength of the evidentiary record developed during discovery created significant litigation leverage, which Adam Leitman Bailey, P.C. was able to turn into a favorable settlement for its clients.
Adam Leitman Bailey and Courtney J. Lerias, Esq., of the Real Estate Litigation Group achieved this successful result for the client.