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    STATE OF NEW YORKSUPREME COURT : COUNTY OF ERIE

    PHILLIP A. DELMONT, as Administratoro

    the Estateo

    WILLIAMA

    DELMONT,

    Plaintiff,

    V

    SOUTH PARK AVE. PROPERTIES, LLC,G STEVEN PIGEON,JOHN F O DONNELL, JR., andSADEQ S AHMED,

    Defendants.

    Index No.: 811246/2014

    DEFENDANTS MEMORANDUM OF LAW IN OPPOSITION TO MOTIONFOR SUMMARY JUDGMENT IN LIEU OF COMPLAINT

    DeMARIE SCHOENBORN, P.C.Edward A Betz, Esq.Attorneys for DefendantsSouth Park Ave. Properties, LLG Steven Pigeon andJohn F 0 Donnell, Jr403 Main Street, Suite 615Buffalo, New York 14203(716) 856-0024

    LED: ERIE COUNTY CLERK 12/11/2014 01:08 PM INDEX NO. 811246/2014SCEF DOC. NO. 16 RECEIVED NYSCEF: 12/11/2014

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    T BLE OF CONTENTS

    STATEMENT OF FACTS 1

    ARGUMENT 2

    CONCLUSION 7

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    I ST TEMENT OF F CTS

    n 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 o f The Front Page Group, Inc., a business whose

    holdings consisted o f 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 o f the capital stock mentioned above, and said real

    prope1iy transaction closed contemporaneously with a purchase price o f 250,000.

    Simultaneously with the execution and delive1y o f 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.

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    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 e 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.

    Similar·Jy, 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 n o t e

    were 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 failureof

    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 4 (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, 2014Buffalo, New York

    TO: SHAW SHAW, P.C.Jacob A Piorkowski, Esq.Attorneys for Plaintiff4819 South Park A venueHamburg, New York 14075Telephone No. 716) 648-3020

    PHILLIPS LYTLE LLPSean C McPheeAttorneys for DefendantSadeq S hmedOne Canalside125 Main StreetBuffalo, New York 14203-2887Telephone No. 716) 847-8400

    By:

    Respectfully submitted,

    DeMARIE SCHOENBORN, P.C.

    0 z ~DWARD A. BETZ

    Attorneys.for DefendantsSouth Pa rk Ave. Properties, LLCG Steven Pigeon andJohn F 0 Donnell, Jr403 Main Street, Suite 615Buffalo, New York 14203716) 856-0024

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