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FILED: ERIE COUNTY CLERK 12/11/2014 01:08 PM

NYSCEF DOC. NO. 16

INDEX NO. 811246/2014


RECEIVED NYSCEF: 12/11/2014

STATE OF NEW YORK


SUPREME COURT : COUNTY OF ERIE

PHILLIP A. DELMONT, as Administrator


of the Estate of WILLIAM A. DELMONT,
Plaintiff,
Index No.: 811246/2014

V.

SOUTH PARK AVE. PROPERTIES, LLC,


G. STEVEN PIGEON,
JOHN F. O'DONNELL, JR., and
SADEQ S. AHMED,
Defendants.

DEFENDANTS' MEMORANDUM OF LAW IN OPPOSITION TO MOTION


FOR SUMMARY JUDGMENT IN LIEU OF COMPLAINT

DeMARIE & SCHOENBORN, P.C.


Edward A. Betz, Esq.
Attorneys for Defendants
South Park Ave. Properties, LLC
G. Steven Pigeon and
John F. 0 'Donnell, Jr.
403 Main Street, Suite 615
Buffalo, New York 14203
(716) 856-0024

TABLE OF CONTENTS

STATEMENT OF FACTS ......................................................................................................................... 1


ARGUMENT .............................................................................................................................................. 2
CONCLUSION ........................................................................................................................................... 7

I.

STATEMENT OF FACTS

On October 22, 2010, South Park Ave. Properties, LLC simultaneously executed a
Secured Promissory Note and a Stock Purchase Agreement and delivered same to William A.
Delmont thereby purchasing his capital shares of The Front Page Group, Inc., a business whose
holdings consisted of newspapers know as The Front Page News and The South Buffalo News.
The Secured Promissory Note was in the amount of$150,000.

A purchase of certain real prope1iy owned by Delmont's friend, Beverly Mazur, was
mutually contingent upon the purchase of the capital stock mentioned above, and said real
prope1iy transaction closed contemporaneously with a purchase price of $250,000.

Simultaneously with the execution and delive1y of the Note and the Stock Purchase
Agreement, the individual Defendants herein executed Personal Guarantees. Throughout the
months leading up to the purchase, Delmont maintained to Defendants Pigeon and O'Dmmell
that The Front Page News and The South Buffalo News were profitable businesses, all the while
advertising their paid circulation as a combined 13,500.

Upon taking control of The Front Page News and The South Buffalo News, Pigeon and
O'Donnell discovered this to be untrue. The papers had a combined paid circulation closer to
6,000 and were rapidly losing money. After over a year of making payments pursuant to the
Note, it was no longer financially viable to do so in that the business they had been induced to
purchase was substantially different than advertised.

II.

ARGUMENT

"While generally the breach of a related contract cannot defeat a motion for sununary
judgment on an instrument for money only, that rule does not apply where the contract and
instrument are intertwined." Cohen v. Marvlee, Inc., 208 A.D.2d 792, 792 (2d Dep't 1994)
(emphasis added); accord Ssangyong (US.A.) Inc. v. Sung Ae Yoo, 88 A.D.2d 572, 573 (1st
Dep't 1982); Chisholm Ryder Co., Inc. v. Munro Games, Inc., 58 A.D.2d 972 (4th Dep't 1977)
("grant of summary judgment violated the well-established rule that it is improper to award
summary judgment where a meritorious cause of action exists for an amount equal to or greater
than that demanded in the complaint and where the two causes of action are so inseparable that
entry of judgment shall be withheld pending a plenary trial").
Thus, "where a fundamental question exists as to whether the agreement between [the]
parties can be viewed as being distinct and separate from the note, sununary judgment must be
denied." River Bank Am. v. Daniel Equities Corp., 205 A.D.2d 476,476 (1st Dep't 1994)
(internal quotation marks omitted).
Case law has identified certain characteristics of intertwined agreements. For example, in

A+ Associates Inc. v. Naughter, 236 A.D.2d 655 (3d Dep't 1997), the court found that a
promissmy note was inextricably interiwined with a purchase agreement for the sale of a
business because "a significant portion of the consideration that [the buyers were] to receive in
exchange for the purchase price was [the seller]'s covenant not to compete," a provision whose
breach the buyers later invoked as a defense to the note. Id. at 655. Thus, the Appellate Division
concluded that summary judgment on the note was improperly granted. See id.
SimilarJy, in Fitzpatrick v. Animal Care Hospital, P LLC, 104 A.D.3d 1078 (3d Dep't
20 13 ), the co uti found an asset purchase agreement inextricably intertwined with a note where
the note was pariial consideration for the assets purchased, the two documents were
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contemporaneously executed, and the asset purchase agreement specifically referred to the note.

See id. at I 081.


In Jngalsabe v. Mueller, 257 A.D.2d 894 (3d Dep't 1999), the comi held that a contract,
its amendment, and a promissory note were "inextricably inte1iwined" where the note was
consideration for the goods sold pursuant to the amended contract and the contract referred to,
and attached a copy of, the note. See id. at 894.
Here, South Park agreed to purchase the stock of The Front Page, and signed the Note as
consideration for that stock, only after Delmont represented that The Front Page was profitable
and had a circulation of 13,500 customers. Thus, as inA+ Associates, Fitzpatrick, and

Jnga/sabe, the Note was consideration for an essential element of the intertwined contract.
Indeed, as shown in the Pigeon Affidavit, the Note was signed contemporaneously with, and
attached to, the Stock Purchase Agreement and the amount of the Note reflects the debt allegedly
owed under the Stock Purchase Agreement, which fmiher confirms the close relationship
between the two documents. Pigeon Aff.

'lf 6.

Because the Note and the Stock Purchase Agreement are inextricably intertwined, South
Park's counterclaim for fraud in the inducement is a defense to the Note, precluding summary
judgment. More specifically, a claim for fraudulent inducement lies against a party who
knowingly misrepresents a material fact to another party, intending to deceive that other party
and induce it to rely on the misrepresentation, thereby causing injury. See Sokolow, Dunaud,

Mercadier & Carreras LLP v. Lacher, 299 A.D.2d 64, 70 (1st Dep't 2002). Courts routinely
hold that allegations of fraudulent inducement defeat motions for summary judgment. See, e.g.,

US. Bank Nat 'lAss 'n TR U/S 6/01/98 (Home Equity Loan Trust 1998-2) v. Alvarez, 49 A.D.3d

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711, 712 (2d Dep't 2008); Black Rock, Inc. v. Z Best Car Wash, Inc., 27 A.D.3d 409,409-10 (2d
Dep't 2006); Magi Commc 'ns, Inc. v. Jac-Lu Assocs., 65 A.D.2d 727, 729 (1st Dep't 1978).
In Epstein v. Scally, 99 A.D.2d 713 (1st Dep't 1984), a case with remarkably similar
facts, the court held that a doctor sufficiently alleged a claim for fraudulent inducement by
stating that he had executed a promissory note and contract for the purchase of a medical practice
in reliance on the seller's representations that the practice had 891 active patients, only to
discover that the practice had many fewer patients, only a fraction of whom were truly "active."
See id. at 714. Noting that "summary judgment is a drastic remedy," the court held that the
doctor's defense of fraudulent inducement precluded summary judgment on the promissory note.
!d. at714.
The drastic remedy of summary judgment is equally inappropriate here, for the same
reason. Plaintiff alleges that South Park owes $140,274.10 on the Note. See Delmont Aff.

~2.

South Park, however, alleges that Delmont induced it sign the Note with false representations as
to the financial condition of The Front Page. See Pigeon Aff.

8. In support of this

counterclaim, South Park has submitted documentary evidence regarding Delmont's false
representations concerning the Front Page's circulation and South Park's reliance thereon. !d.
Ex. A. This is a factual dispute that cannot be resolved on summaty judgment.
Ofpatiicular importance are Mr. Pigeon's and Mr. O'Donnell's affidavits and the
communications between them at1d Delmont. In Slavin v. Victor, 168 A.D.2d 399 (1st Dep't
1990), the comi held that summary judgment on promissory notes is inappropriate where a patiy
asse1iing fraudulent inducement as a defense submits an affidavit from one with first-hand
knowledge, detailing "the centrality and materiality of the alleged fraud to the underlying
trat1saction." !d. at 399.

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Likewise, in Silber v. Muschel, !90 A.D.2d 727 (2d Dep't 1993), the court held that the
defendant's allegations of fraudulent inducement-asserted as a defense to a promiss01y notewere stated with sufficient specificity where the defendant alleged, in a "fact-specific affidavit
which evinced his first-hand Imowledge of the misrepresentations made by the plaintiff," that
"the plaintiff had misrepresented the number of years in which premium payments would be
required under an insurance contract," and also "submitted a hand-written memorandum ...
memorializ[ing] the plaintiffs misrepresentation." Id. at 728.
Here too, Mr. Pigeon's affidavits speak from personal knowledge; it was to him that the
representations as to the financial condition of The Front Page and its alleged circulation were
made. These affidavits also detail the centrality and materiality of the misrepresentations
underlying the Stock Purchase Agreement by explaining the imp01iance of the circulation of The
Front Page. As shown in these affidavits, The Front Page's circulation was approximately 6,000,
a mere 45% of the circulation that had been represented. Pigeon Aff.

8. Given such a low

circulation, it is not surprising that The Front Page was not profitable, another material
misrepresentation made to, and relied upon by, South Park. Id.

4. At a minimum, these factual

disputes makes summary judgment inappropriate.


South Park has also alleged a failure of consideration based upon Delmont's
representations regarding the financial condition of the Front Page. Pigeon Aff.

4. Courts

routinely deny sununary judgment in lieu of a complaint pursuant to CPLR 3213 where a
defendant alleges failure of consideration in c01mection with the underlying transaction. This is
because such claims are inseparable from the plaintiffs cause of action. See, e.g., Laclanann
Food Service, Inc. v. E&S Vending Co., Inc., 125 A.D.2d 366 (2d Dep't 1986) (citing Torres &
Leonard v. Select Prof Realties, 118 A.D.2d 467 (1st Dep't 1986); Beninati v. Hanley, 95

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A.D.2d 816 (2d Dep't 1983); Ssangyong US. A. Inc. v. Sung Ae Yoo, 88 A.D.2d 411 (1st Dep 't
1982); Dorman v. Cohen, 66 A.D.2d 411 (1st Dep't 1979); Chisholm Ryder Co. v. Munro
Games, 58 A.D.2d 972 (4th Dep't 1977). See also Goodman, Rakower & Agiato v. Lieberman,

226 A.D.2d 343 (2d Dep't 1996) (affirming denial of motion for summary judgment on
promissory note because issue of fact was presented by defendant's defense of failure of
consideration); Cafaro v. Squitieri, 290 A.D.2d 472 (2d Dep't 2002) (reversing trial Court's
grant of summary judgment pursuant to CPLR 3213 because "[t]he defendants raised a triable
issue of fact as to whether failure of consideration constitutes a valid defense to the promissory
note."); Tibball v. Catalanotto, 269 A.D.2d 386 (2d Dep't 2000) (affirming denial of motion for
summary judgment pursuant to CPLR 3213 because defense of failure of consideration of
underlying purchase agreement created question of fact rendering summary judgment on the note
premature); Eurotech Dev. Inc. v. Adirondack Pennysaver Inc., 224 A.D.2d 738 (3d Dep't 1996)
(reversing grant of summary judgment pursuant to CPLR 3213 based on existence of triable
issues of fact because "[i]t appear[ed] that defendants may be entitled to recision of the purchase
agreement if their allegations of fraud in the inducement of failure of consideration can be
proven.")
For this additional reason, Plaintiffs motion for summaty judgment in lieu of complaint
should be denied.

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III.

CONCLUSION

For these foregoing reasons, Plaintiffs Motion for Summmy Judgment in Lieu of
Complaint should be denied, or, at a minimum, converted to a traditional Sunm10ns and
Complaint.

Dated: December 11, 2014


Buffalo, New York
Respectfully submitted,
DeMARIE & SCHOENBORN, P.C.

0-z~

By:

EDWARD A. BETZ
Attorneys.for Defendants
South Park Ave. Properties, LLC
G. Steven Pigeon and
John F. 0 'Donnell, Jr.
403 Main Street, Suite 615
Buffalo, New York 14203
(716) 856-0024
TO:

SHAW & SHAW, P.C.


Jacob A. Piorkowski, Esq.
Attorneys for Plaintiff
4819 South Park Avenue
Hamburg, New York 14075
Telephone No. (716) 648-3020
PHILLIPS LYTLE LLP
Sean C. McPhee
Attorneys for Defendant
Sadeq S. Ahmed
One Canalside
125 Main Street
Buffalo, New York 14203-2887
Telephone No. (716) 847-8400

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