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FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018
NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
PAMELA GOLDSTEIN,
ELLYN & TONY BERK,
and PAUL BENJAMIN, on behalf of Index No. 60767/2018
themselves and all others similarly
Hon. Linda S. Jamieson
situated,
Plaintiffs, Motion Sequence 3
v. Return Date: Dec. 7, 2018
HOULIHAN/LAWRENCE INC.,
Defendant.
PLAINTIFFS'
MEMORANDUM OF LAW IN
OPPOSITION TO DEFENDANT'S MOTION TO DISMISS
Dated: November 20, 2018
Boies Schiller Flexner LLP
333 Main Street
Armonk, NY 10504
914 749 8200
Attorneys for Plaintiffs
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CONTENTS
TABLE OF AUTHORITIES..........................................................................................ii
PRELIMINARY 1
STATEMENT.....................................................................................
ARGUMENT..................................................................................................................
3
1. Breach of Fiduciary Duty: Houlihan Lawrence Fails to Prove Its
Defense of Disclosure and Informed Consent as a Matter of Law....................3
A. Houlihan Lawrence Acted as a Dual Agent and Must Prove It
Did So Only After Full Disclosure and Informed Written Consent.......... 4
B. The Statutory Disclosure Forms Do Not Establish Disclosure
and Informed Consent ................................................................................
5
C. Houlihan Lawrence Failed to Disclose Material Facts, Including
Its Dual-Agency Kickback Scheme.............................................................
8
D. The Documentary Evidence Shows Houlihan Lawrence Failed
Its Disclosure-and-Informed-Consent Obligations.................................. 10
E. Houlihan Lawrence Created a Sham Statutory Disclosure Form
"Unassailable"
and Proffered It as Proof 12
.................................................
2. Section 443 Implies a Private Right of Action to Enable Consumers
to Protect Themselves from Unscrupulous Brokers........................................
15
3. Houlihan Lawrence's Firm-Wide Dual-Agency Scheme Is Deceptive,
Consumer-Oriented Conduct that Violates Section 349 .................................
19
4. Houlihan Lawrence Was Unjustly Enriched by Collecting
Commissions on Transactions in Which It Was 22
Disloyal................................
A. Houlihan Lawrence Cannot Avoid Liability for Its Unjust
Enrichment by Denying that Buyers Pay the Commission 22
....................
B. Houlihan Lawrence Cannot Avoid Liability for Its Unjust
Sellers'
Enrichment by Invoking Contract 24
..............................................
Berks'
5. The Statutory Claims Are Timely.........................................................
25
6. The Berks Have Standing.................................................................................
26
CONCLUSION.............................................................................................................
27
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TABLE OF AUTHORITIES
Cases
2 Park Ave. Assocs. v. Cross & Brown Co.,
36 N.Y.2d 286 (1975)..........................................................................................
17, 18
Banks v. Consumer Home Mortg., Inc.,
No. 01-CV-8508 (ILG), 2003 WL 21251584 (E.D.N.Y. Mar. 28, 2003)................... 21
Birnbaum v. Birnbaum,
73 N.Y.2d 461 (1989)..................................................................................................
9
Century Fed. Sau. & Loan Ass'n v. Net Realty Holding Trust,
87 A.D.2d 858 (2d Dep't 1982) .................................................................................
25
Connery v. Sultan,
129 A.D.3d 455 (1st Dep't 2015) ..............................................................................
27
Dep't of State v. Christiana,
164 DOS 92.................................................................................................................
8
Dep't of State v. Robin,
80 DOS 97...................................................................................................................
5
Dep't of State v. Werner,
160 DOS 11
96...............................................................................................................
Dep't of State v. Winograd,
86 DOS 11
93.............................................................................................................
4,
Dubbs v. Stribling Assocs.,
96 N.Y.2d 337 (2001)..............................................................................................
4, 8
Fox Paine & Co. v. Hous. Cas. Co.,
No. 52607/2014 (Sup. Ct. Westchester Cty. Apr. 6, 2018)......................................
25
Gaidon v. Guardian Life Ins. Co. of Am.,
96 N.Y.2d 201 (2001)................................................................................................
26
Goldstein v. Dep't of State,
144 A.D.2d 463 (2d Dep't 1998) 4
.................................................................................
Hasbrouck v. Rymkevitch,
25 A.D.2d 187 (3d Dep't 1966) ...................................................................................
6
..
11
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Henry v. Isaac,
214 A.D.2d 188 (2d Dep't 1995)...............................................................................
17
Hochman v. LaRea,
14 A.D.3d 653 (2d Dep't 24
2005).................................................................................
Kaufman v. Cohen,
307 A.D.2d 113 (1st Dep't 2003)..............................................................................
26
Liberty Mut. Ins. Co. v. Excel Imaging, P.C.,
879 F. Supp. 2d 243 (E.D.N.Y. 2012).......................................................................
26
Maimonides Med. Ctr. v. First United Am. Life Ins. Co.,
116 A.D.3d 207 (2d Dep't 2014)...............................................................................
17
Maraia v. Orange Reg'l Med. Ctr.,
63 A.D.3d 1113 (2d Dep't 2009)...............................................................................
16
N. State Autobahn, Inc. v. Progressive Ins. Grp.,
102 A.D.3d 5 (2d Dep't 2012).............................................................................
19, 20
Laborers'
Oswego Local 214 Pension Fund v. Marine Midland Bank,
85 N.Y.2d 20 (1995)..................................................................................................
20
Pinkston v. Weiss,
238 A.D.2d 393 (2d Dep't 1997)...............................................................................
10
Polonetsky v. Better Homes Depot, Inc.,
185 Misc. 2d 282 (Sup. Ct. N.Y. Cty. 22
2000).............................................................
Polonetsky v. Better Homes Depot, Inc.,
97 N.Y.2d 46 21
(2001)..................................................................................................
Rallis v. Brannigan,
No. 6738-03, 2008 N.Y. Misc. LEXIS 7676 (N.Y. Sup. Ct. Nassau Cty. 2008)...... 18
Rivkin v. Century 21 Teran Realty LLC,
10 N.Y.3d 344 (2008)..........................................................................................
16, 26
Ross v. Cmty. Gen. Hosp. of Sullivan Cty.,
150 A.D.2d 838 (3d Dep't 1989)...............................................................................
25
Sambrotto v Bond N.Y. Props. Brokerage, LLC,
No. 109889/2011, 2013 WL 685223 (Sup. Ct. N.Y. Cty. Feb. 20, 2013)................. 18
Sarva v. Self Help Cmty. Servs.,
73 A.D.3d 1155 (2d Dep't 2010).................................................................................3
...
111
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Schneider v. Wien & Malkin LLP,
5 Misc. 3d 1011(A), 2004 WL 2495843 (Sup. Ct. N.Y. Cty. Nov. 1, 2004)................6
Schwartz v. O'Grady,
No. 86 CIV. 4243 (JMC), 1990 WL 156274 (S.D.N.Y. Oct. 12, 1990)...................5, 9
Sebastian Holdings, Inc. v. Deutsche Bank AG,
78 A.D.3d 446 (1st Dep't 2010) ..........................................................................
24, 25
Sotheby's Int'l Realty, Inc. v. Black,
No. 06 CIV. 1725 (GEL), 2007 WL 4438145 (S.D.N.Y. Dec. 17, 2007)............... 5, 12
Talk of the Millennium Realty Inc. v. Sierra,
12 Misc. 3d 1153(A), 2006 WL 1341014 (Civ. Ct. Richmond Cty. Jan. 3, 2006).... 16
TPL Assocs. v. Helmsley-Spear, Inc.,
146 A.D.2d 468 (1st Dep't 1989) ................................................................................
6
Tsutsui v. Barasch,
67 A.D.3d 896 (2d Dep't 2009) .................................................................................
23
Weill v. E. Sunset Park Realty, LLC,
101 A.D.3d 859 (2d Dep't 2012) .................................................................................
3
Wendt v. Fischer,
243 N.Y. 439 (1926)....................................................................................................
5
statutes
Conn. Gen. Stat. § 4
20-325g............................................................................................
N.Y. Est. Powers & Trusts Law § 11-3.1 ....................................................................
27
N.Y. Real Prop. Law § 11
443...................................................................................
4, 6,
Other Authorities
86 N.Y. Jur. 2d Process & Papers § 31 .......................................................................
27
Restatement (Third) of Agency § 4
8.03...........................................................................
Restatement (Third) of Agency § 8.06...........................................................................
5
Restatement (Third) of Restitution & Unjust Enrichment § 1 (2011).......................23
.
IV
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PRELIMINARY STATEMENT
Rarely does a defendant's motion to dismiss bolster the plaintiffs'case
Houlihan Lawrence's motion does just that. Its proffered documentary
revealed a new element of Houlihan Lawrence's dual-agency scheme:
sham statutory disclosure forms. The motion features (at 12) an undat
diaclosure form which Houlihan Lawrence claims Plaintiffs Tony and
signed. But inspection of the document shows that the signatures on
were copied and pasted from a prior, differently marked form-all wit
Berks'
knowledge or consent:
Seller(s) identically underlined Same stray marks Signatures intersect
S'
e of Buyer(s d/or Selles(s): o uyer(s
Date: 2 fy / Date:
Mot. Ex. C
Effort taken to remove date & prompt Residual marks from removed date Patching
These documents show that Houlihan Lawrence has created a
"executed"
form, has proffered it to this Court as a documant the Berks
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Plaintiffs'
Houlihan Lawrence's legal position also bolsters claims. Plaintiffs
allege that Houlihan Lawrence engages in rampant disloyal dual agency, including
"consent"
by extracting uninformed, invalid from clients. In response, Houlihan
"consent" Plaintiffs'
Lawrence contends those same bogus forms defeat claims as a
matter of law. But the Department of State and other industry authorities have
made clear that the forms, standing alone, are insufficient to fulfill a broker's
disclosure and consent obligations.
Houlihan Lawrence's argument reveals that it wrongfully treats signed forms
as a free pass to engage in dual agency-even as it also systematically pays secret
dual-agency kickbacks to its agents; impermissibly pre-marks the forms; fails to
fully disclose the risks, downsides, and options of dual agency; fails to disclose
familial and other entrenched relationships among its dual agents; provides
forms'
disclosure forms too late to be effective; misleads clients by downplaying the
significance; and engages in myriad other deceptive and unfair business practices to
dupe clients into dual agency.
Plaintiffs'
Apparently recognizing that it cannot succeed in dismissing claims,
Houlihan Lawrence uses its motion as an occasion to preview its argument for a
Plaintiffs'
later stage in the case, that claims "cannot be maintained on a class
basis"
(Mot. 1 n.1). Its class certification arguments ignore the fact that this case is
based on Houlihan Lawrence's firm-wide scheme to steer clients into undisclosed,
non-consensual dual agent transactions, including through secret dual-agency
kickbacks to its agents and a long list of other deceptive and unfair practices.
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Houlihan Lawrence has engaged in a common course of conduct affecting all class
members and involving common questions of fact and law that compel class-wide
Plaintiffs'
adjudication of claims.
ARGUMENT
On a motion to dismiss, "the court must accept the facts as alleged in the
complaint as true, accord the plaintiff the benefit of every possible favorable
inference, and determine only whether the facts as alleged fit within any cognizable
theory."
legal Sarva v. Self Help Cmty. Servs., 73 A.D.3d 1155, 1155-56 (2d Dep't
2010). When a defendant submits evidentiary material in support of a motion to
fact"'
dismiss, '"unless it has been shown that a material alleged by plaintiffs is "'not
all,"'
a fact at and '"unless it can be said that no significant dispute exists regarding
it,"' eventuate."'
then '"dismissal should not Weill v. E. Sunset Park Realty, LLC,
101 A.D.3d 859, 859 (2d Dep't 2012).
1. Breach of Fiduciary Duty: Houlihan Lawrence Fails to Prove Its
Defense of Disclosure and Informed Consent as a Matter of Law
Plaintiffs allege that Houlihan Lawrence breached its fiduciary duty by
thousands of homebuyers and sellers into non-consensual dual-
luring uninformed,
agent transactions as part of a firm-wide dual-agency scheme, including by paying
secret kickbacks to its agents for dual-agent transactions. In response, Houlihan
Lawrence effectively asks this Court to make a conclusive presumption that simply
because Plaintiffs executed statutory disclosure forms, they must be deemed to have
provided informed consent to Houlihan Lawrence's dual agency. That is not New
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York law. Other states have adopted statutes establishing a "conclusive
presumption" relationship"
of "informed consent to a dual agency if the client
executes a statutory form. Conn. Gen. Stat. § 20-325g. New York, by contrast, does
not create such a conclusive presumption, and the execution of a statutory
disclosure form does not "limit or alter the application of the common law of
agency."
N.Y. Real Prop. Law § 443(6). Indeed, consumer advocates hailed Section
443 as "the most progressive, consumer-oriented agency disclosure law of any
state,"
because itfollows New York common law in recognizing that informed
consent requires more than a pro forma signature on a form. Am. Compl. ¶ 99 (Dkt.
155) [hereinafter "AC"].
Houlihan Lawrence does not and cannot contend that it fully disclosed the
risks, downsides, and options of dual agency, as it was duty-bound to do.
A. Houlihan Lawrence Acted as a Dual Agent and Must Prove It Did So
Only After Full Disclosure and Informed Written Consent
A real estate broker "is a fiduciary with a duty of loyalty and an obligation to
principal."
act in the best interests of the Dubbs v. Stribling Assocs., 96 N.Y.2d 337,
340 (2001). The broker "has the affirmative duty not to act for a party whose
principal."
interests are adverse to those of the Goldstein v. Dep't of State, 144
A.D.2d 463, 464 (2d Dep't 1998); see also Restatement (Third) of Agency § 8.03.
In the context of a dual-agent transaction, plaintiffs meet their prima facie
burden to establish a breach of fiduciary duty by showing that the broker acted as
dual agent, on behalf of both a homebuyer and seller. Dep't of State v. Winograd, 86
agency"
DOS 93 at 4 (Opp'n Ex. P-3). Once the "fact of the double is established,
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establishing" disclosure"
the broker then bears "the burden of that it made "full of
clients'
the risks, downsides, and options of dual agency and obtained the informed
consent. Id.; see also Restatement (Third) of Agency § 8.06 & cmt. b (the "agent
requirements"
bears the burden of establishing that the for acting as a dual agent
"have been fulfilled"); Dep't of State v. Robin, 80 DOS 97 at 9 (Opp'n Ex. P-4) (broker
failed to meet "burden of establishing the affirmative defense of full disclosure on
the issue of dual representation"). "To establish the requisite consent for dual
agency,"
the broker must "demonstrate 'that both principals are fully informed of
every fact material to their interests and that they consent freely in the presence of
knowledge."'
such Sotheby's Int'l Realty, Inc. v. Black, No. 06 CIV. 1725 (GEL),
2007 WL 4438145 at *2 (S.D.N.Y. Dec. 17, 2007).
A broker's disclosure of dual agency "must lay bare the truth, without
significance."
ambiguity or reservation, in all its stark Wendt v. Fischer, 243 N.Y.
exacting."
439, 443 (1926) (Cardozo, J). Its proof of informed consent "must be
Schwartz v. O'Grady, No. 86 CIV. 4243 (JMC), 1990 WL 156274, at *5 (S.D.N.Y.
Oct. 12, 1990).
B. The Statutory Disclosure Forms Do Not Establish Disclosure and
Informed Consent
Houlihan Lawrence does not dispute that it owed Plaintiffs a fiduciary duty
Plaintiffs'
and that it acted as a dual agent in transactions. Instead, it argues (at 8)
form," Plaintiffs'
that "because each Plaintiff executed the statutory disclosure
law."
claims fail "as a matter of Houlihan Lawrence is wrong. Viewed in the light
of Houlihan Lawrence's firm-wide scheme to profit from dual-agent transactions,
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Plaintiffs' all-
statutory disclosure forms do not represent informed consent at
much less as a matter of law.
The relevant inquiry "is not merely whether the dual agency was disclosed,
consent."
but whether the disclosure was sufficient to permit informed Schneider v.
Wien & Malkin LLP, 5 Misc. 3d 1011(A), 2004 WL 2495843 at *15 (Sup. Ct. N.Y.
Cty. Nov. 1, 2004). Houlihan Lawrence must show that it made "nothing less than
disclosure."
full and complete TPL Assocs. v. Helmsley-Spear, Inc., 146 A.D.2d 468,
470 (1st Dep't 1989). It must show that Plaintiffs were "fully informed of every fact
interests"
material to their and consented "freely in the presence of such
knowledge."
Hasbrouck v. Rymkevitch, 25 A.D.2d 187, 189 (3d Dep't 1966). Among
other things, an "agent acting as a dual agent must explain carefully to both buyer
well,"
and seller that the agent is acting for the other party as and "also explain the
possible effects of dual representation, including that by consenting to the dual
loyalty."
agency the buyer and seller are giving up their right to undivided N.Y.
Real Prop. Law § 443(a). A mountain of common evidence relevant to all class
members will show that Houlihan Lawrence's culture of dual-agency and its unfair
practices and policies guarantee that clients do not receive these required
disclosures.
Houlihan Lawrence's motion does not even confront the disclosure-and-
informed-consent standard, much less meet it. Houlihan Lawrence's statutory
disclosure forms, the only evidence on which it relies, do not demonstrate "full and
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disclosure"
complete or that Plaintiffs were "fully informed of every fact material to
their interest"-far from it.
The statutory disclosure form states "very briefly and not in an informed
is." -
manner, what a dual agent NYSAR, Agency Dual & Designated Agents,
July 21, 2015, at 13:10, available at https://www.nysar.com/legal/nysar-radio
(emphasis added). The Department of State and the state's major trade association,
NYSAR (New York State Association of Realtors), have recognized that "merely
insufficient"
presenting the form to a prospective purchaser or seller is to fulfill a
broker's disclosure and informed consent duties. AC ¶ 112 (emphasis added).
When recommending approval of Section 443, the Department of State explained
relieve"
that the form "does not and was not intended to brokers of their "common
duty"
law to "obtain informed consent through full disclosure of the implications of
the proposed dual agency relationship"-rather, the form is "the beginning of full
disclosure,"
and is not a "substitution for the rigorous duties of full disclosure in the
law."
common Opp'n Ex. P-5 at 2-3, Memo from Executive Deputy Secretary of
State to Counsel for the Governor, July 12, 1991 (emphasis added). NYSAR's
counsel has repeated that guidance time and again, advising New York brokers that
the "form in and of itself is not sufficient to provide informed consent"; brokers must
disclose "more than what is on the form"; and brokers "have to do more than give
it."
[clients] the form and have them sign AC ¶ 113.
Because obtaining informed consent requires brokers to do "more than give
it," assist"
[clients] the form and have them sign NYSAR "drafted a document to
7
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FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER PAMELA GOLDSTEIN, ELLYN & TONY BERK, and PAUL BENJAMIN, on behalf of Index No. 60767/2018 themselves and all others similarly Hon. Linda S. Jamieson situated, Plaintiffs, Motion Sequence 3 v. Return Date: Dec. 7, 2018 HOULIHAN/LAWRENCE INC., Defendant. PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT'S MOTION TO DISMISS Dated: November 20, 2018 Boies Schiller Flexner LLP 333 Main Street Armonk, NY 10504 914 749 8200 Attorneys for Plaintiffs 1 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 CONTENTS TABLE OF AUTHORITIES..........................................................................................ii PRELIMINARY 1 STATEMENT..................................................................................... ARGUMENT.................................................................................................................. 3 1. Breach of Fiduciary Duty: Houlihan Lawrence Fails to Prove Its Defense of Disclosure and Informed Consent as a Matter of Law....................3 A. Houlihan Lawrence Acted as a Dual Agent and Must Prove It Did So Only After Full Disclosure and Informed Written Consent.......... 4 B. The Statutory Disclosure Forms Do Not Establish Disclosure and Informed Consent ................................................................................ 5 C. Houlihan Lawrence Failed to Disclose Material Facts, Including Its Dual-Agency Kickback Scheme............................................................. 8 D. The Documentary Evidence Shows Houlihan Lawrence Failed Its Disclosure-and-Informed-Consent Obligations.................................. 10 E. Houlihan Lawrence Created a Sham Statutory Disclosure Form "Unassailable" and Proffered It as Proof 12 ................................................. 2. Section 443 Implies a Private Right of Action to Enable Consumers to Protect Themselves from Unscrupulous Brokers........................................ 15 3. Houlihan Lawrence's Firm-Wide Dual-Agency Scheme Is Deceptive, Consumer-Oriented Conduct that Violates Section 349 ................................. 19 4. Houlihan Lawrence Was Unjustly Enriched by Collecting Commissions on Transactions in Which It Was 22 Disloyal................................ A. Houlihan Lawrence Cannot Avoid Liability for Its Unjust Enrichment by Denying that Buyers Pay the Commission 22 .................... B. Houlihan Lawrence Cannot Avoid Liability for Its Unjust Sellers' Enrichment by Invoking Contract 24 .............................................. Berks' 5. The Statutory Claims Are Timely......................................................... 25 6. The Berks Have Standing................................................................................. 26 CONCLUSION............................................................................................................. 27 2 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 TABLE OF AUTHORITIES Cases 2 Park Ave. Assocs. v. Cross & Brown Co., 36 N.Y.2d 286 (1975).......................................................................................... 17, 18 Banks v. Consumer Home Mortg., Inc., No. 01-CV-8508 (ILG), 2003 WL 21251584 (E.D.N.Y. Mar. 28, 2003)................... 21 Birnbaum v. Birnbaum, 73 N.Y.2d 461 (1989).................................................................................................. 9 Century Fed. Sau. & Loan Ass'n v. Net Realty Holding Trust, 87 A.D.2d 858 (2d Dep't 1982) ................................................................................. 25 Connery v. Sultan, 129 A.D.3d 455 (1st Dep't 2015) .............................................................................. 27 Dep't of State v. Christiana, 164 DOS 92................................................................................................................. 8 Dep't of State v. Robin, 80 DOS 97................................................................................................................... 5 Dep't of State v. Werner, 160 DOS 11 96............................................................................................................... Dep't of State v. Winograd, 86 DOS 11 93............................................................................................................. 4, Dubbs v. Stribling Assocs., 96 N.Y.2d 337 (2001).............................................................................................. 4, 8 Fox Paine & Co. v. Hous. Cas. Co., No. 52607/2014 (Sup. Ct. Westchester Cty. Apr. 6, 2018)...................................... 25 Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001)................................................................................................ 26 Goldstein v. Dep't of State, 144 A.D.2d 463 (2d Dep't 1998) 4 ................................................................................. Hasbrouck v. Rymkevitch, 25 A.D.2d 187 (3d Dep't 1966) ................................................................................... 6 .. 11 3 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 Henry v. Isaac, 214 A.D.2d 188 (2d Dep't 1995)............................................................................... 17 Hochman v. LaRea, 14 A.D.3d 653 (2d Dep't 24 2005)................................................................................. Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep't 2003).............................................................................. 26 Liberty Mut. Ins. Co. v. Excel Imaging, P.C., 879 F. Supp. 2d 243 (E.D.N.Y. 2012)....................................................................... 26 Maimonides Med. Ctr. v. First United Am. Life Ins. Co., 116 A.D.3d 207 (2d Dep't 2014)............................................................................... 17 Maraia v. Orange Reg'l Med. Ctr., 63 A.D.3d 1113 (2d Dep't 2009)............................................................................... 16 N. State Autobahn, Inc. v. Progressive Ins. Grp., 102 A.D.3d 5 (2d Dep't 2012)............................................................................. 19, 20 Laborers' Oswego Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20 (1995).................................................................................................. 20 Pinkston v. Weiss, 238 A.D.2d 393 (2d Dep't 1997)............................................................................... 10 Polonetsky v. Better Homes Depot, Inc., 185 Misc. 2d 282 (Sup. Ct. N.Y. Cty. 22 2000)............................................................. Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46 21 (2001).................................................................................................. Rallis v. Brannigan, No. 6738-03, 2008 N.Y. Misc. LEXIS 7676 (N.Y. Sup. Ct. Nassau Cty. 2008)...... 18 Rivkin v. Century 21 Teran Realty LLC, 10 N.Y.3d 344 (2008).......................................................................................... 16, 26 Ross v. Cmty. Gen. Hosp. of Sullivan Cty., 150 A.D.2d 838 (3d Dep't 1989)............................................................................... 25 Sambrotto v Bond N.Y. Props. Brokerage, LLC, No. 109889/2011, 2013 WL 685223 (Sup. Ct. N.Y. Cty. Feb. 20, 2013)................. 18 Sarva v. Self Help Cmty. Servs., 73 A.D.3d 1155 (2d Dep't 2010).................................................................................3 ... 111 4 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 Schneider v. Wien & Malkin LLP, 5 Misc. 3d 1011(A), 2004 WL 2495843 (Sup. Ct. N.Y. Cty. Nov. 1, 2004)................6 Schwartz v. O'Grady, No. 86 CIV. 4243 (JMC), 1990 WL 156274 (S.D.N.Y. Oct. 12, 1990)...................5, 9 Sebastian Holdings, Inc. v. Deutsche Bank AG, 78 A.D.3d 446 (1st Dep't 2010) .......................................................................... 24, 25 Sotheby's Int'l Realty, Inc. v. Black, No. 06 CIV. 1725 (GEL), 2007 WL 4438145 (S.D.N.Y. Dec. 17, 2007)............... 5, 12 Talk of the Millennium Realty Inc. v. Sierra, 12 Misc. 3d 1153(A), 2006 WL 1341014 (Civ. Ct. Richmond Cty. Jan. 3, 2006).... 16 TPL Assocs. v. Helmsley-Spear, Inc., 146 A.D.2d 468 (1st Dep't 1989) ................................................................................ 6 Tsutsui v. Barasch, 67 A.D.3d 896 (2d Dep't 2009) ................................................................................. 23 Weill v. E. Sunset Park Realty, LLC, 101 A.D.3d 859 (2d Dep't 2012) ................................................................................. 3 Wendt v. Fischer, 243 N.Y. 439 (1926).................................................................................................... 5 statutes Conn. Gen. Stat. § 4 20-325g............................................................................................ N.Y. Est. Powers & Trusts Law § 11-3.1 .................................................................... 27 N.Y. Real Prop. Law § 11 443................................................................................... 4, 6, Other Authorities 86 N.Y. Jur. 2d Process & Papers § 31 ....................................................................... 27 Restatement (Third) of Agency § 4 8.03........................................................................... Restatement (Third) of Agency § 8.06........................................................................... 5 Restatement (Third) of Restitution & Unjust Enrichment § 1 (2011).......................23 . IV 5 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 PRELIMINARY STATEMENT Rarely does a defendant's motion to dismiss bolster the plaintiffs'case Houlihan Lawrence's motion does just that. Its proffered documentary revealed a new element of Houlihan Lawrence's dual-agency scheme: sham statutory disclosure forms. The motion features (at 12) an undat diaclosure form which Houlihan Lawrence claims Plaintiffs Tony and signed. But inspection of the document shows that the signatures on were copied and pasted from a prior, differently marked form-all wit Berks' knowledge or consent: Seller(s) identically underlined Same stray marks Signatures intersect S' e of Buyer(s d/or Selles(s): o uyer(s Date: 2 fy / Date: Mot. Ex. C Effort taken to remove date & prompt Residual marks from removed date Patching These documents show that Houlihan Lawrence has created a "executed" form, has proffered it to this Court as a documant the Berks 6 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 Plaintiffs' Houlihan Lawrence's legal position also bolsters claims. Plaintiffs allege that Houlihan Lawrence engages in rampant disloyal dual agency, including "consent" by extracting uninformed, invalid from clients. In response, Houlihan "consent" Plaintiffs' Lawrence contends those same bogus forms defeat claims as a matter of law. But the Department of State and other industry authorities have made clear that the forms, standing alone, are insufficient to fulfill a broker's disclosure and consent obligations. Houlihan Lawrence's argument reveals that it wrongfully treats signed forms as a free pass to engage in dual agency-even as it also systematically pays secret dual-agency kickbacks to its agents; impermissibly pre-marks the forms; fails to fully disclose the risks, downsides, and options of dual agency; fails to disclose familial and other entrenched relationships among its dual agents; provides forms' disclosure forms too late to be effective; misleads clients by downplaying the significance; and engages in myriad other deceptive and unfair business practices to dupe clients into dual agency. Plaintiffs' Apparently recognizing that it cannot succeed in dismissing claims, Houlihan Lawrence uses its motion as an occasion to preview its argument for a Plaintiffs' later stage in the case, that claims "cannot be maintained on a class basis" (Mot. 1 n.1). Its class certification arguments ignore the fact that this case is based on Houlihan Lawrence's firm-wide scheme to steer clients into undisclosed, non-consensual dual agent transactions, including through secret dual-agency kickbacks to its agents and a long list of other deceptive and unfair practices. 2 7 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 Houlihan Lawrence has engaged in a common course of conduct affecting all class members and involving common questions of fact and law that compel class-wide Plaintiffs' adjudication of claims. ARGUMENT On a motion to dismiss, "the court must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable theory." legal Sarva v. Self Help Cmty. Servs., 73 A.D.3d 1155, 1155-56 (2d Dep't 2010). When a defendant submits evidentiary material in support of a motion to fact"' dismiss, '"unless it has been shown that a material alleged by plaintiffs is "'not all,"' a fact at and '"unless it can be said that no significant dispute exists regarding it,"' eventuate."' then '"dismissal should not Weill v. E. Sunset Park Realty, LLC, 101 A.D.3d 859, 859 (2d Dep't 2012). 1. Breach of Fiduciary Duty: Houlihan Lawrence Fails to Prove Its Defense of Disclosure and Informed Consent as a Matter of Law Plaintiffs allege that Houlihan Lawrence breached its fiduciary duty by thousands of homebuyers and sellers into non-consensual dual- luring uninformed, agent transactions as part of a firm-wide dual-agency scheme, including by paying secret kickbacks to its agents for dual-agent transactions. In response, Houlihan Lawrence effectively asks this Court to make a conclusive presumption that simply because Plaintiffs executed statutory disclosure forms, they must be deemed to have provided informed consent to Houlihan Lawrence's dual agency. That is not New 3 8 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 York law. Other states have adopted statutes establishing a "conclusive presumption" relationship" of "informed consent to a dual agency if the client executes a statutory form. Conn. Gen. Stat. § 20-325g. New York, by contrast, does not create such a conclusive presumption, and the execution of a statutory disclosure form does not "limit or alter the application of the common law of agency." N.Y. Real Prop. Law § 443(6). Indeed, consumer advocates hailed Section 443 as "the most progressive, consumer-oriented agency disclosure law of any state," because itfollows New York common law in recognizing that informed consent requires more than a pro forma signature on a form. Am. Compl. ¶ 99 (Dkt. 155) [hereinafter "AC"]. Houlihan Lawrence does not and cannot contend that it fully disclosed the risks, downsides, and options of dual agency, as it was duty-bound to do. A. Houlihan Lawrence Acted as a Dual Agent and Must Prove It Did So Only After Full Disclosure and Informed Written Consent A real estate broker "is a fiduciary with a duty of loyalty and an obligation to principal." act in the best interests of the Dubbs v. Stribling Assocs., 96 N.Y.2d 337, 340 (2001). The broker "has the affirmative duty not to act for a party whose principal." interests are adverse to those of the Goldstein v. Dep't of State, 144 A.D.2d 463, 464 (2d Dep't 1998); see also Restatement (Third) of Agency § 8.03. In the context of a dual-agent transaction, plaintiffs meet their prima facie burden to establish a breach of fiduciary duty by showing that the broker acted as dual agent, on behalf of both a homebuyer and seller. Dep't of State v. Winograd, 86 agency" DOS 93 at 4 (Opp'n Ex. P-3). Once the "fact of the double is established, 4 9 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 establishing" disclosure" the broker then bears "the burden of that it made "full of clients' the risks, downsides, and options of dual agency and obtained the informed consent. Id.; see also Restatement (Third) of Agency § 8.06 & cmt. b (the "agent requirements" bears the burden of establishing that the for acting as a dual agent "have been fulfilled"); Dep't of State v. Robin, 80 DOS 97 at 9 (Opp'n Ex. P-4) (broker failed to meet "burden of establishing the affirmative defense of full disclosure on the issue of dual representation"). "To establish the requisite consent for dual agency," the broker must "demonstrate 'that both principals are fully informed of every fact material to their interests and that they consent freely in the presence of knowledge."' such Sotheby's Int'l Realty, Inc. v. Black, No. 06 CIV. 1725 (GEL), 2007 WL 4438145 at *2 (S.D.N.Y. Dec. 17, 2007). A broker's disclosure of dual agency "must lay bare the truth, without significance." ambiguity or reservation, in all its stark Wendt v. Fischer, 243 N.Y. exacting." 439, 443 (1926) (Cardozo, J). Its proof of informed consent "must be Schwartz v. O'Grady, No. 86 CIV. 4243 (JMC), 1990 WL 156274, at *5 (S.D.N.Y. Oct. 12, 1990). B. The Statutory Disclosure Forms Do Not Establish Disclosure and Informed Consent Houlihan Lawrence does not dispute that it owed Plaintiffs a fiduciary duty Plaintiffs' and that it acted as a dual agent in transactions. Instead, it argues (at 8) form," Plaintiffs' that "because each Plaintiff executed the statutory disclosure law." claims fail "as a matter of Houlihan Lawrence is wrong. Viewed in the light of Houlihan Lawrence's firm-wide scheme to profit from dual-agent transactions, 5 10 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 Plaintiffs' all- statutory disclosure forms do not represent informed consent at much less as a matter of law. The relevant inquiry "is not merely whether the dual agency was disclosed, consent." but whether the disclosure was sufficient to permit informed Schneider v. Wien & Malkin LLP, 5 Misc. 3d 1011(A), 2004 WL 2495843 at *15 (Sup. Ct. N.Y. Cty. Nov. 1, 2004). Houlihan Lawrence must show that it made "nothing less than disclosure." full and complete TPL Assocs. v. Helmsley-Spear, Inc., 146 A.D.2d 468, 470 (1st Dep't 1989). It must show that Plaintiffs were "fully informed of every fact interests" material to their and consented "freely in the presence of such knowledge." Hasbrouck v. Rymkevitch, 25 A.D.2d 187, 189 (3d Dep't 1966). Among other things, an "agent acting as a dual agent must explain carefully to both buyer well," and seller that the agent is acting for the other party as and "also explain the possible effects of dual representation, including that by consenting to the dual loyalty." agency the buyer and seller are giving up their right to undivided N.Y. Real Prop. Law § 443(a). A mountain of common evidence relevant to all class members will show that Houlihan Lawrence's culture of dual-agency and its unfair practices and policies guarantee that clients do not receive these required disclosures. Houlihan Lawrence's motion does not even confront the disclosure-and- informed-consent standard, much less meet it. Houlihan Lawrence's statutory disclosure forms, the only evidence on which it relies, do not demonstrate "full and 6 11 of 34 FILED: WESTCHESTER COUNTY CLERK 11/20/2018 11:34 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 346 RECEIVED NYSCEF: 11/20/2018 disclosure" complete or that Plaintiffs were "fully informed of every fact material to their interest"-far from it. The statutory disclosure form states "very briefly and not in an informed is." - manner, what a dual agent NYSAR, Agency Dual & Designated Agents, July 21, 2015, at 13:10, available at https://www.nysar.com/legal/nysar-radio (emphasis added). The Department of State and the state's major trade association, NYSAR (New York State Association of Realtors), have recognized that "merely insufficient" presenting the form to a prospective purchaser or seller is to fulfill a broker's disclosure and informed consent duties. AC ¶ 112 (emphasis added). When recommending approval of Section 443, the Department of State explained relieve" that the form "does not and was not intended to brokers of their "common duty" law to "obtain informed consent through full disclosure of the implications of the proposed dual agency relationship"-rather, the form is "the beginning of full disclosure," and is not a "substitution for the rigorous duties of full disclosure in the law." common Opp'n Ex. P-5 at 2-3, Memo from Executive Deputy Secretary of State to Counsel for the Governor, July 12, 1991 (emphasis added). NYSAR's counsel has repeated that guidance time and again, advising New York brokers that the "form in and of itself is not sufficient to provide informed consent"; brokers must disclose "more than what is on the form"; and brokers "have to do more than give it." [clients] the form and have them sign AC ¶ 113. Because obtaining informed consent requires brokers to do "more than give it," assist" [clients] the form and have them sign NYSAR "drafted a document to 7 12 of 34 FILED: WESTCHE