By Friedman, J.P., Gische, Tom, Kern, Singh, JJ.Epiphany Community Nursery School, Plaintiff-Appellant, -against- Hugh W. Levey, et al., Defendants-Respondents. Plaintiff appeals from the order of the Supreme Court, New York County (Shirley W. Kornreich, J.), entered August 7, 2017, which granted defendants’ motions to dismiss the complaint as against them pursuant to CPLR 3211(a)(5). Loeb & Loeb, LLP, New York (John A. Piskora, Jason R. Lilien and Helen Gavaris of counsel), for appellant. Harter Secrest & Emery LLP, Rochester (Peter H. Abdella, Samantha A. Maurer, Brian M. Feldman and Lauren R. Mendolera of counsel), for Hugh W. Levey, Claire Gruppo, Gruppo, Levey & Co., Gruppo, Levey Holdings Inc., January Management, Inc., and Frog Pond Partners L.P., respondents. Woods Oviatt Gilman LLP, Rochester (Brian J. Capitummino of counsel), for Davie Kaplan CPA, P.C, respondent.SINGH, J.There are two central issues on this appeal. The first involves the application of the statute of limitations. The second is whether plaintiff has pleaded the element of justifiable reliance to support its cause of action sounding in fraud pertaining to unauthorized bank transfers made by defendants between 2007 and 2013. We find the fraud claim relating to the bank transfers is not time-barred and that justifiable reliance has been sufficiently pleaded. Accordingly, we reinstate plaintiff’s fraud claims relating to the bank transfers.The facts are taken from plaintiff Epiphany Community Nursery School’s (Epiphany) complaint. For the purposes of defendants’ motion to dismiss we “accept as true the facts as alleged in the complaint [and]… accord plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory” (Sokoloff v. Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]).In 1973 Wendy Levey (Wendy) married defendant Hugh Levey (Hugh). Two years later Wendy founded Epiphany, a not-for-profit corporation that operates a kindergarten and nursery school on the Upper East Side of Manhattan. Hugh is an investment banker with an undergraduate degree from Yale University and a M.B.A. from Harvard. Hugh and defendant Claire Gruppo co-founded defendant Gruppo Levey & Co. (GLC), a small investment banking firm that provides strategic advice and private capital raising services to businesses, financial sponsors and management teams throughout the United States. Defendant Gruppo, Levey Holdings Inc. (GLH) is GLC’s parent company, and defendant Frog Pond Partners L.P. (Frog Pond) is a limited partnership owned indirectly by Hugh and Gruppo. Of this group, all but Hugh are the “collateral defendants.” Defendant Davie Kaplan CPA, P.C. (Davie Kaplan) was an outside auditor for Epiphany from 2010 to 2012.The complaint alleges two sets of fraudulent acts. These acts were allegedly uncovered in a matrimonial action between Wendy and Hugh that was settled in October 2016. Wendy and Hugh are now divorced.The first series of fraudulent acts occurred between 2002 and 2003 when Hugh induced Epiphany to sell its extracurricular programs to nonparty Magic Management LLC (Magic) for an unreasonably low price. At that time, Hugh had a 100% ownership interest in defendant January Management, Inc., general partner of nonparty January Partners, L.P., which was the sole member of Magic. Pursuant to an asset purchase agreement dated February 12, 2003, Epiphany sold its extracurricular programs to Magic for $300,000, $30,000 of which was paid in cash and the remaining $270,000 was to be paid pursuant to a promissory note payable over 10 years in installments of $27,000, plus interest. Magic also agreed to pay monthly rent to use Epiphany’s facilities. Hugh claimed that although Magic occupied less than 10% of Epiphany’s space, Magic’s rent would be $481,026. Magic’s rent was represented to be more than $100,000 above Epiphany’s rent for the building. Wendy, Epiphany’s Executive Director, did not have a financial background. She believed it was in the school’s best interest to have someone with Hugh’s financial expertise to assist with Epiphany’s financial affairs. Wendy signed the asset purchase agreement on Epiphany’s behalf without obtaining her own appraisal or verifying whether Magic paid the school what it owed.The complaint alleges that the $300,000 purchase price was based on a fraudulent valuation commissioned by Hugh, which was “substantially inaccurate.” By applying false figures, Hugh allegedly reduced the purchase price by $1.5 million. The complaint further alleges that if the valuation had been properly calculated the purchase price would have exceeded $1.8 million.In addition, Magic failed to pay rent or the amount owed on the promissory note. The complaint alleges that Hugh manipulated Epiphany’s corporate and financial records to hide Magic’s failure to pay. The second set of fraudulent acts allegedly took place between 2007 and 2013. Hugh made unauthorized transfers of over $5.9 million from Epiphany’s bank accounts to himself and some of the collateral defendants by linking the bank accounts to his private banking portfolio. Hugh, with the assistance of Davie Kaplan, falsely recorded these transfers in Epiphany’s general ledgers as “loans.” However, there were no documents to memorialize these “loans.” Nor were any loan payments ever made. The “loans” were subsequently characterized as “other receivables.” At the end of each year, the other receivables were offset by fake charges Epiphany owed GLC or GLH for “consulting fees” and “lease commissions.” In September 2010, Hugh allegedly arranged for his long-time personal accountant, David Pitcher, who was employed by defendant Davie Kaplan to serve as Epiphany’s outside auditor. Davie Kaplan delivered 2010, 2011, and 2012 audit reports. Davie Kaplan also performed an audit for fiscal year 2013 but it did not issue a 2013 audit report.Epiphany commenced this action on August 31, 2016. It alleges 13 causes of action, including: (1) fraud by Hugh and Davie Kaplan; (2) aiding and abetting fraud by collateral defendants and Davie Kaplan; (3) breach of fiduciary duty by Hugh; and (4) aiding and abetting breach of fiduciary duty by the collateral defendants and Davie Kaplan. Defendants moved to dismiss the complaint. Supreme Court granted the motion and dismissed the complaint with prejudice. The motion court held that the first set of fraud claims were time-barred. The second set of fraudulent acts constituted conversion and were also time-barred. Supreme Court also found that the nonfraud claims sounded in accounting malpractice and were time-barred as well. Epiphany appealed. A fraud claim must be commenced within “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff… discovered the fraud, or could with reasonable diligence have discovered it” (CPLR 213[8]).On a motion to dismiss a fraud claim based on the two-year discovery rule, a defendant must make a prima facie case that a plaintiff was on inquiry notice of its fraud claims more than two years before it commenced the action, in this case, before August 31, 2014. The burden then shifts to the plaintiff to establish that even if it had exercised reasonable diligence, it could not have discovered the basis for its claims before that date (see Berman v. Holland & Knight, LLP, 156 AD3d 429, 430 [1st Dept 2017]; Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc., 137 AD3d 685, 689 [1st Dept 2016]). “The issue of when a plaintiff, acting with reasonable diligence, could have discovered an alleged fraud… involves a mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds. Instead, the question is one for the trier-of-fact” (Berman, 156 AD3d at 430 [internal quotation marks omitted]; see also Sargiss v. Magarelli, 12 NY3d 527, 532 [2009]; Trepuk v. Frank, 44 NY2d 723, 725 [1978]).Turning first to the sale of Epiphany’s extracurricular programs in 2002 and 2003, the Supreme Court properly dismissed as time-barred this branch of the fraud claim. The action was commenced more than six years after this cause of action accrued. Accordingly, to be timely, the action must have been brought within two years from the time that Epiphany discovered the alleged fraud, or from when it could have discovered it in the exercise of reasonable diligence.We find that Epiphany could have discovered the alleged fraud when Wendy, as Epiphany’s Executive Director, signed the asset purchase agreement on Epiphany’s behalf in 2003. She signed it without obtaining her own appraisal. Further, Epiphany did not question the disproportionally high rent, which was the basis for the undervaluation of the asset. Nor did Epiphany verify whether Magic paid the rent due or made payments on the promissory note (see Aozora Bank, Ltd, 137 AD3d at 689; Gutkin v. Siegal, 85 Ad3d 687, 688 [1st Dept 2011]). As for the second set of fraudulent acts relating to the unauthorized bank transfers that occurred between 2007 and 2013, we find that the unauthorized transfers sound in fraud, not conversion and that the fraud claim is timely under the two-year discovery rule. The complaint alleges that Hugh — with assistance from Davie Kaplan’s employee, David Pitcher — devised a fraudulent scheme to intentionally falsify the financial statements and books and records of Epiphany and kept the knowledge of these transfers from the school. Hugh made the alleged illicit and unauthorized transfers from Epiphany’s bank accounts and fraudulently concealed them by falsely designating the entries in Epiphany’s books and records as “loans”, by falsely manipulating Epiphany’s books and records to convert the purported “loans” into “other receivables”, and offsetting the loans by falsely claiming monies owed by Epiphany for consulting services that were never provided. Since the acts were allegedly concealed from Epiphany, defendants have not established a prima facie case that the school was on notice of the unauthorized transfers. Moreover, even if defendants have established a prima facie case, it does not conclusively appear that Epiphany had knowledge of the facts from which the fraud could reasonably be inferred. Furthermore, the complaint sufficiently states a cause of action sounding in fraud. ”The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages” (Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). In contrast, “[a] conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession” (Colavito v. New York Organ Donor Network, Inc., 8 NY3d 43, 49-50 [2006]).Here, the alleged manipulation is not simply Hugh controlling or interfering with funds that rightfully belong to Epiphany. Rather, the claim is that defendants knowingly made material representations of fact relating to Epiphany’s books and records that were false.The dissent takes issue with plaintiff’s failure to allege that Wendy, as founder and director, or other agents of the school justifiably relied upon Hugh’s misrepresentations. It views this omission as a failure to plead fraud with particularity pursuant to CPLR 3016(b).We disagree. CPLR 3016(b) requires that “the circumstances constituting the wrong shall be stated in detail.” The statutory provision is satisfied when the facts suffice to permit a “reasonable inference” of the alleged misconduct (see Pludeman v. Northern Leasing Sys., Inc., 10 NY3d 486, 492 [2008]; see also Eurycleia Partners, LP, 12 NY3d at 559; Credit Suisse Fin. Corp. v. Reskakis, 139 AD3d 509 [1st Dept 2016]). Further, “in certain cases, less than plainly observable facts may be supplemented by the circumstances surrounding the alleged fraud” (Pludeman, 10 NY3d at 493). This requirement is to inform a defendant of the acts that the plaintiff is complaining about (id. at 491; see also DDJ Mgt., LLC v. Rhone Group LLC, 78 AD3d 442, 443 [1st Dept 2010]). Here, the complaint states in detail Hugh’s fraudulent misconduct and meets the requirements of CPLR 3016(b). Epiphany alleges that it justifiably relied on Hugh’s “material misrepresentations and omissions based on his position as a director, his financial expertise, and the expectation that he would act solely in the interests of [Epiphany], its students, and faculty, consistent with his fiduciary obligations.” The allegations in the complaint are not bare legal conclusions. Nor are they inherently incredible. Epiphany alleges that Wendy relied on Hugh’s representations because of their familial relationship and his position as director of Epiphany. From the mid-1990s, Hugh began to involve himself in the financial matters of Epiphany. He became a member of the Board of Directors and held the position until 2013. Wendy trusted her husband. He was an experienced investment banker who had consulted on multi-billion dollar transactions. She believed that Hugh would use his skills to further the financial interests of Epiphany. Wendy had no reason to believe that he would loot Epiphany’s funds, treating it as one of his businesses. Epiphany alleges that Hugh’s explanation for his conduct was that he had helped set up Epiphany and had a 50% interest in it. The dissent’s conclusion that Epiphany cannot prove that Wendy actually relied on the fraudulent ledger entries is an impermissible factual finding, not warranted on a pleading motion. Moreover, the dissent completely ignores the close familial relationship between Hugh and Wendy, which impacts on whether Wendy’s reliance on Hugh properly managing Epiphany’s finances was justifiable. In determining whether justifiable reliance is sufficiently alleged, we consider two relevant circumstances: first, the existence of a relationship of trust or confidence and second, the superior knowledge or means of knowledge on the part of the person making the representation. In Braddock v. Braddock (60 AD3d 84, 89 [1st Dept 2009]), we held that since the plaintiff and the defendant were cousins, the plaintiff’s reliance on the defendant’s good faith “may be found to be reasonable even where it might not be reasonable in the context of an arms’ length transaction with a stranger.” We noted that “[f]amily members stand in a fiduciary relationship toward one another in a co-owned business venture” (id.; compare Castellotti v. Free, 138 AD3d 198, 209 [1st Dept 2016]; Genger v. Genger, 121 AD3d 270, 278 [1st Dept 2014]). Here, the complaint alleges that Hugh went to great lengths to conceal the unauthorized transfers and therefore, Epiphany – and Wendy, in her capacity as Executive Director of Epiphany – could not have discovered the alleged fraud with reasonable due diligence.1 In particular, Hugh “caused [Epiphany's] bank statements to be diverted to the offices of Gruppo Levy and GLH” so that his fraudulent scheme would not be discovered. He also allegedly initiated these transfers at meetings with the employees of Gruppo Levy and GLH, not Epiphany. Additionally, he recorded the transfers as loans on the books and records, before offsetting them by services that were allegedly not provided so that Epiphany would not be alerted to the transfers. The complaint alleges that Hugh and Davie Kaplan’s actions prevented the public and government regulators from uncovering the fraud. The dissent acknowledges that whether plaintiff’s reliance was justifiable generally raises factual issues inappropriate for resolution on a motion to dismiss (see ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 NY3d 1043, 1045; Braddock, 60 AD3d at 88; Brunetti v. Musallam, 11 AD3d 280, 281 [1st Dept 2004]; Knight Sec. v. Fiduciary Trust Co., 5 AD3d 172, 173 [1st Dept 2004]).The breach of fiduciary duty by Hugh as to the transfers between 2007 and 2013 should also be reinstated as “[t]he discovery accrual rule also applies to fraud-based breach of fiduciary duty claims” (Kaufman v. Cohen, 307 AD2d 113, 122 [1st Dept 2003]; see also Yatter v. William Morris Agency, 268 AD2d 335, 336 [1st Dept 2000]; Unibell Anesthesia P.C. v. Guardian Life Ins. Co. of Am., 239 AD2d 248 [1st Dept 1997]). The aiding and abetting fraud claim as against the collateral defendants should be reinstated (see Stanfield Offshore Leveraged Assets, Ltd v. Metropolitan Life Ins. Co, 64 AD3d 472, 476 [1st Dept 2009], lv denied 13 NY3d 709 [2009] [the elements of an aiding and abetting claim include: "(1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud"] [internal quotation marks omitted]). Here, the complaint states with specificity that the collateral defendants had knowledge of the fraud, permitted discussions of the bank transfers to take place at the offices of GLC and GLH, that January Management was formed to facilitate the transfers, that Epiphany’s bank statements were diverted to the offices of GLC and GLH so that the fraud would be concealed and that ultimately the transfers were made to the bank accounts of the collateral defendants. However, the aiding and abetting breach of fiduciary duty claim against the collateral defendants should be dismissed as the allegations in the complaint are conclusory (see Kaufman, 307 AD2d at 125 ["a claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach"]). The defendants must have actual knowledge, and not constructive knowledge of the breach of fiduciary duty (id.).Epiphany does not allege any facts in support of its claim that the collateral defendants aided and abetted the breach of fiduciary duty owed by Hugh. Instead, it merely states that the collateral defendants assisted, facilitated and accepted the bank transfers. Finally, we affirm Supreme Court’s dismissal of the fraud, aiding and abetting fraud and breach of fiduciary claims against Davie Kaplan as duplicative of Epiphany’s untimely accounting malpractice claim (see Murray Hill Invs. v. Parker Chapin Flattau & Klimpl, LLP, 305 AD2d 228 [1st Dept 2003] [affirming dismissal of fraud claim as duplicative of the untimely legal malpractice claim, and noting that it was asserted in an attempt to circumvent the legal malpractice limitations period]). We have considered Epiphany’s remaining arguments and find them unavailing.Accordingly, the order of the Supreme Court, New York County (Shirley W. Kornreich, J.), entered August 7, 2017, which granted defendants’ motions to dismiss the complaint as against them pursuant to CPLR 3211(a)(5), should be modified, on the law, to deny Hugh W. Levey’s motion as to fraud and breach of fiduciary duty, and to deny the collateral defendants’ motion as to the claims for aiding and abetting fraud for the bank transfers, and otherwise affirmed, without costs.All concur except Friedman, J.P. and Tom, J. who dissent in part in an Opinion by Friedman, J.P.
FRIEDMAN, J.P. (dissenting in part):
