FILED: NEW YORK COUNTY CLERK 11/18/2011

NYSCEF DOC. NO. 10

INDEX NO. 652126/2011 RECEIVED NYSCEF: 11/18/2011

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------------------------------------------------------------x GEORGE L. OLSEN and EMPIRE GATEWAY, LLC : Plaintiffs/Counterclaim Defendants, : - against Index No. 652126/2011 : SANDRA DYCHE, : Defendant/Counterclaimant. ---------------------------------------------------------------------x SANDRA DYCHE, Individually and derivatively on behalf of Empire Gateway, LLC, New York City : Regional Center LLC and New Jersey Regional Center LLC, : Third-Party Plaintiff, - against CHAMBERS HOLDINGS, LLC, NEW YORK CITY CITY REGIONAL CENTER LLC, NEW JERSEY REGIONAL CENTER LLC and JOHN DOES #1 THROUGH 10, : : Index No. 590787/2011 : :

: Third-Party Defendants. ---------------------------------------------------------------------x THIRD-PARTY DEFENDANT CHAMBERS HOLDINGS, LLCS MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS

WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 MILLER & WRUBEL P.C. 570 Lexington Avenue New York, NY 10022 (212) 336-3500 Attorneys for Third-Party Defendant Chambers Holdings, LLC

TABLE OF CONTENTS

PRELIMINARY STATEMENT .....................................................................................................1 FACTUAL BACKGROUND ..........................................................................................................2 ARGUMENT ...................................................................................................................................4 I. THE COMPLAINT SHOULD BE DISMISSED BASED ON DOCUMENTARY EVIDENCE ALONE. ..........................................................................................................5 THE THIRD-PARTY CLAIMS ARE OTHERWISE LEGALLY DEFICIENT. ...............8 A. The Forfeiture Claim (Count One) Should Be Dismissed. ......................................8 1. 2. New Yorks Business Corporation Law Does Not Apply Here. .................8 Even Under the Business Corporation Law, the Facts Alleged Do Not Give Rise to a Forfeiture Claim. .........................................................10

II.

B.

The Claims for Aiding and Abetting Breach of Fiduciary Duty (Count Two) and Fraud (Count Seven) also Fail To State a Cause of Action. ..................10 1. 2. 3. No Existence of Fraud or Breach ...............................................................12 No Actual Knowledge................................................................................13 No Substantial Assistance or Participation ................................................14

C. D.

The Injunction Claim (Count Six) Should Be Dismissed as It Is Not a Separate Cause of Action, But a Remedy. .............................................................15 The Third-Party Complaint Fails To Establish Grounds for an Appointment of a Receiver, (Count Three), an Inspection (Count Four), or a Constructive Trust (Count Five). ........................................................................16

CONCLUSION ..............................................................................................................................16

TABLE OF AUTHORITIES FEDERAL CASES Cords-Auth v. Crunk, LLC, No. 09-CV-8017 (KMK), 2011 WL 4471928, at *13, n.14 (S.D.N.Y. Sept. 27, 2011) ........................................................................................................14 Kolbeck v. LIT Am., Inc., 939 F. Supp. 240 (S.D.N.Y. 1996), affd, 152 F.3d 918 (2d Cir. 1998) (Table) ...............................................................................................................10, 11, 12 Musalli Factory for Gold & Jewellry v. JPMorgan Chase Bank, N.A., 261 F.R.D. 13 (S.D.N.Y. 2009), affd, 382 F. Appx 107 (2d Cir. 2010) ...........................................11, 14, 15 O Zon Inc. v. Charles, 272 F. Supp. 2d 307 (S.D.N.Y. 2003) .......................................................15 Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F. Supp. 2d 163 (S.D.N.Y. 2006) .................................................................................................11 Reuben H. Donnelley Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285 (S.D.N.Y. 1995) ..............15 Sharp Intl Corp. v. State St. Bank & Trust Co. (In re Sharp Intl. Corp.), 281 B.R. 506 (Bankr. E.D.N.Y. 2002), affd, 302 B.R. 760 (E.D.N.Y. 2003), affd, 403 F.3d 43 (2d Cir. 2005) .................................................................................................................................12 STATE CASES Added Extras, Inc. v. Party City Corp., 193 Misc. 2d 403 (N.Y. Sup. Ct., N.Y. Cnty. 2002) ..........................................................................................................................................5 Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76 (1st Dept 1999), affd, 94 N.Y.2d 659 (2000) .....................................................................................................................5 Caniglia v. Chi. Tribune-N.Y. News Syndicate, 204 A.D.2d 233 (1st Dept 1994) .........................4 Colasacco v. Robert E. Lawrence Real Estate, 68 A.D.3d 706 (2d Dept 2009) ....................11, 14 Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (2009) ..................11, 12, 14, 15 Fink v. Citizens Mortg. Banking Ltd., 148 A.D.2d 578 (2d Dept 1989) ......................................11 Fratellis Pizza & Rest. Corp. v. Kayzee Realty Corp., 74 A.D.3d 481 (1st Dept 2010)...............5 Glatt v. Mariner Partners, Inc., 63 A.D.3d 428 (1st Dept 2009) ...................................................8 In re 1545 Ocean Ave., LLC, 72 A.D.3d 121 (2d Dept 2010) ........................................................9

ii

Intl Strategies Grp., Ltd. v. ABN AMRO Bank N.V., 49 A.D.3d 474 (1st Dept 2008) ................11 Kaufman v. Cohen, 307 A.D.2d 113 (1st Dept 2003) ....................................10, 11, 12, 13, 14, 15 Mark Hampton, Inc. v. Bergreen, 173 A.D.2d 220 (1st Dept 1991) ..............................................8 Mayerhoff v. Timenides, 269 A.D.2d 369 (2d Dept 2000) .........................................................5, 8 Peacock v. Herald Square Loft Corp., 67 A.D.3d 442, 443 (1st Dept 2009) ..............................14 Quatrochi v. Citibank, N.A., 210 A.D.2d 53 (1st Dept 1994) ........................................................5 R & A Food Servs., Inc. v. Halmar Equities, Inc., 278 A.D.2d 398 (2d Dept 2000) .....................7 Robinson v. Robinson, 303 A.D.2d 234 (1st Dept 2003) ...............................................................5 Skillgames, L.L.C. v. Brody, 1 A.D.3d 247 (1st Dept 2003) ..........................................................4 Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472 (1st Dept 2009) ..................................................................................................................10, 12, 14 Wilhelmina Models, Inc. v. Fleisher, 19 A.D.3d 267 (1st Dept 2005) .........................................12 STATUTES BCL 102(a)(4) (McKinney 2011) .................................................................................................9 BCL 103(a) ...................................................................................................................................9 BCL 503 ..................................................................................................................................8, 10 BCL 503(d) .................................................................................................................................10 CPLR 3016(b) ..................................................................................................................1, 8, 10, 14 CPLR 3211.....................................................................................................................................13 CPLR 3211(a)(1) .....................................................................................................................1, 2, 5 CPLR 3211(a)(3) .........................................................................................................................1, 8 CPLR 3211(a)(7) .................................................................................................................1, 4, 5, 8 LLCL 102(m) (McKinney 2011) ..................................................................................................9 LLCL 203(d) .................................................................................................................................6 LLCL 417..................................................................................................................................6, 7 N.J. Rev. Stat. 42:2B-11.a(b) (2011) ............................................................................................6 iii

Third-party defendant Chambers Holdings, LLC (Chambers) respectfully submits this Memorandum of Law in Support of its Motion To Dismiss the Third-Party Complaint of Sandra Dyche (Dyche or plaintiff), pursuant to New York Civil Practice Law and Rules (CPLR) 3016(b), 3211(a)(1), (3) and (7). PRELIMINARY STATEMENT The Third-Party Complaint is premised on a conveyance that does not exist. Dyche asserts that in early 2008, George Olsen, fellow principal of Empire Gateway, LLC (Empire), improperly transferred 45% of Empires interest in New York City Regional Center (NYCRC) and New Jersey Regional Center (NJRC) (collectively, the Regional Centers) to Chambers. Conspicuously, however, it makes no mention of the formation of the Regional Centers as LLCs, or of the NYCRC and NJRC Operating Agreements governing the entities. Nor does it explain why Dyche waited over three years to make these bold, wholly conclusory allegations. The reason is clear: to do so would concede Chambers original 45% membership interest in both entities since their inception, as plainly stated on the very contracts. Indeed, the allegations are flatly contradicted by the documentary evidence in this case and for that reason alone the Third-Party Complaint should be dismissed. But even without the documents, the Third-Party Complaint fails to plead, as it must, facts sufficient to show that Chambers aided and abetted any breach of fiduciary duty or fraud, or to support the litany of other causes of action alleged. At one moment, Dyche asserts that Chambers was also a victim of the alleged false representation, Third-Party Compl. (Compl.) 25, and the next, Chambers was in cahoots with the alleged fraud, id. 68-71. When the conclusory legal allegations are pared away, the factsas alleged by Dychedemonstrate that she has failed to state a cognizable claim for relief.

FACTUAL BACKGROUND Plaintiff, an accomplished business woman with decades of experience in banking and economic development, is part-owner of Empire, a New York limited liability company in which neither Chambers, nor its single-member, Paul Levinsohn, has any rights or interest. Compl. 1-2, 11-12.1 Rather, as the Third-Party Complaint concedes, plaintiff/counterclaim defendant George Olsen and non-party Mehreen Shah own the remaining interest in Empire. Compl. 11-12. Plaintiffs chief allegation is that Olsen has improperly controlled [Empire] for his own benefit and excluded Dyche from participation in the corporate and financial affairs of [Empire], Compl. 3, and that Olsen has improperly excluded Dyche from the corporate affairs of the New York City Regional Center, LLC [and NJRC], fifty-five (55%) of which is owned by Empire, id. By virtue of this improper control, plaintiff alleges, Olsen fraudulently and unilaterally sold a 45% ownership interest in NYCRC and NJRC to Chambers. Id. 2026.2 The Regional Centers operate within the EB-5 program of the United States Department of Homeland Securitys United States Citizenship and Immigration Service (USCIS). Compl. 5. The purpose of the program is to stimulate economic development in the United States through foreign investment. Under the program, foreign nationals who invest a certain amount of money in regional center projects that create and/or save jobs in the regions are granted resident alien visas by the USCIS. Id.
1

On a motion to dismiss under CPLR 3211(a)(1), factual allegations presumed to be true may be properly negated by affidavits and documentary evidence. See infra pp. 4-5.

Olsen also allegedly interfered with Dyches contract to purchase additional Empire shares from fellow shareholder Mahreen Shah, resulting in Olsens unlawful acquisition of his majority share in Empire. Compl. 4. 2

Dyche alleges that she originally conceived of the NYCRC business model and thereafter invited Olsen to join her. Id. 6. On November 27, 2007, Dyche and Olsen formed Empire as a New York limited liability company to serve as the holding company for all of their activities related to EB-5 business throughout the New York City-New Jersey regions. Id. 9. Empires Operating Agreement itself provides that [t]he business of the LLC shall be to be a member of the New York Regional Center, LLC and the New Jersey Regional Center, LLC. Id. 17. NYCRC and NJRC were formed as limited liability companies in the respective States of New York and New Jersey in May 2008. See Compl. 5; Ex. A to Olsen Decl., Tab 3 (Ex. X will refer to exhibits to the Declaration of George L. Olsen); Ex. B, Tab 3. On June 10, 2008, an Operating Agreement was entered for NYRC, naming Empire and Chambers as members, with 55% and 45% interests, respectively. Ex. A, Tab 4. NJRCs Operating Agreement was entered on June 11, 2008, again with Empire and Chambers listed as members. Ex. B, Tab 4. The application process to receive the regional center designations was quite extensive, requiring voluminous submissions. See Compl. 19. Both NYCRC and NJRC submitted applications to the USCIS on June 16, 2008. Exs. A & B. The applications included the Operating Agreements for both NYCRC and NJRC, organization charts detailing the management structure, and the resumes of all four managers: Levinsohn, Chambers, Dyche and Shah. Id. NYCRC and NJRC received the official designation of USCIS as regional centers on October 30, 2008 and November 27, 2008, respectively. Compl. 19. Three years later, plaintiff filed this third-party action against Chambers. Though the Third-Party Complaint references the lengthy application process and Dyches alleged hard work to gain regional center status, id. 18, it makes no mention of Chambers (and Levinsohns) involvement therein, the formation of the Regional Centers as LLCs, or the NYCRC and NJRC

Operating Agreements which identify Chambers and Empire as the sole members. See Ex. A, Tabs 3-4; Ex. B, Tabs 3-4. To the contrary, Dyche alleges that in early 2008, Olsen proposed to Dyche and Shah that Empire sell 45% of its member interest in NYCRC and NJRC to Chambers and its singlemember, Levinsohn. Compl. 20 (emphasis added). When they would not agree, [u]pon information and belief, in early 2008, Olsen . . . falsely represented to Levinsohn that he had the necessary consent of and authority to do so, and proceeded to fraudulently and unilaterally sell a 45% ownership interest and voting rights in NYCRC and NJRC to Chambers. Id. 25-26. Based on these allegations, plaintiff asks the Court to (1) order Chambers to forfeit its 45% interest in both Regional Centers, (2) find Chambers liable for aiding and abetting Olsens alleged breach of fiduciary duty, and award her $5 Million individually and $25 Million derivatively, (2) appoint a receiver, (3) impose a constructive trust, (4) direct Chambers to permit Dyche to inspect the books and records of both the Regional Centers and Empire, (5) enjoin Chambers from selling, assigning, encumbering, transferring or otherwise affecting the ownership structure, voting rights or assets of the Regional Centers, and (7) find Chambers liable for aiding and abetting Olsens alleged fraud. ARGUMENT Under CPLR 3211(a)(7), a complaint that fails to state a cause of action must be dismissed. In deciding a 3211(a)(7) motion, a court should not accept as true factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence. Skillgames, L.L.C. v. Brody, 1 A.D.3d 247, 250 (1st Dept 2003) (citing Caniglia v. Chi. Tribune-N.Y. News Syndicate, 204 A.D.2d 233, 234 (1st Dept 1994)). The Court may consider documents referenced in the complaint, other evidentiary submissions, or matters of which judicial notice 4

may be taken to assess the viability of the complaint. See, e.g., Mayerhoff v. Timenides, 269 A.D.2d 369, 369-70 (2d Dept 2000) (stating that a court may consider evidentiary submissions to assess the viability of the complaint under 3211(a)(7)); Quatrochi v. Citibank, N.A., 210 A.D.2d 53, 53-54 (1st Dept 1994) (granting 3211(a)(7) motion based on documentary evidence attached to complaint). Moreover, under CPLR 3211(a)(1), a complaint must also be dismissed where documentary evidence refutes its allegations. See Fratellis Pizza & Rest. Corp. v. Kayzee Realty Corp., 74 A.D.3d 481, 481-82 (1st Dept 2010) (granting motion to dismiss because parties lease was dispositive of plaintiffs cause of action). Among other things, the documents may include correspondence, including emails. See Robinson v. Robinson, 303 A.D.2d 234, 23536 (1st Dept 2003) (considering correspondence between parties as basis for dismissing breach of contract claim); Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76, 81 (1st Dept 1999) (extrinsic evidence submitted by defendant, including correspondence, affirmations, exhibits, a settlement agreement and a prior federal complaint demonstrated that plaintiff had no cause of action), affd, 94 N.Y.2d 659 (2000); Added Extras, Inc. v. Party City Corp., 193 Misc. 2d 403 (N.Y. Sup. Ct., N.Y. Cnty. 2002) (considering email exchange between parties in granting motion to dismiss). I. THE COMPLAINT SHOULD BE DISMISSED BASED ON DOCUMENTARY EVIDENCE ALONE. Every one of plaintiffs claimsranging from forfeiture to fraudrelies on the faulty premise that Chambers interest in the Regional Centers derives from a fraudulent sale. See Compl. 3, 20-35, 39-40, 46, 50, 57, 60, 64, 67-73. The Regional Centers Operating Agreements alone belie that claim. Plaintiff alleges that sometime in early 2008 or thereafter, Olsen executed an invalid Agreement to sell an interest in two 100% subsidiaries of Empire 5

Gateway, namely the NYCRC and the NJRC[,] to Chambers. Compl. 50; see id 25. The necessary predicate for such an allegation is that these entities were formed either during or prior to early 2008 as 100% subsidiaries of Empire. Nowhere in the Third-Party Complaint does plaintiff reference an operating agreement for either of these purported 100% subsidiaries, setting forth the alleged ownership, member and managerial rights of these entities. See N.Y. Ltd. Liab. Co. Law (LLCL) 417 (McKinney 2011). That is because none exists. Reading between the lines of her conclusory allegations, plaintiff suggests Empire alone formed the LLCs, entered the Operating Agreements, assembled the USCIS applications and obtained the requisite approval to operate as Regional Centers, and that Olsen somehow surreptitiously conveyed a member interest in the Regional Centers to Chambers. Nothing could be further from the truth. As made plain by the documentary evidence submitted with this Memorandum of Law, Chambers has been a 45% member since the Regional Centers inception. With the filing of its Articles of Organization, NYCRC was formed on May 9, 2008. See LLCL 203(d) (McKinney 2011) (The filing of the articles of organization shall, in the absence of actual fraud, be conclusive evidence of the formation of the limited liability company as of the time of filing or effective date if later . . . .); Ex. A, Tab 3. NJRC was formed on May 6, 2008, the date on which its Certificate of Formation as an LLC was filed with New Jerseys Secretary of State. See Ex. B, Tab 3; N.J. Rev. Stat. 42:2B-11.a(b) (2011) (A limited liability company is formed at the time of the filing of the initial certificate of formation in the office of the Secretary of State or at any later date or time specified in the certificate of formation . . . .). Indeed, Levinsohn himself is listed as NJRCs initial registered agent. Ex. B, Tab 3.

The Regional Centers are governed by their respective operating agreements, which set forth the identities of the members and managers, as well as their rights, powers, limitations and responsibilities within the LLC. See LLCL 417; Ex. A, Tab 4; Ex. B, Tab 4. The NYCRC Operating Agreement plainly states that it was entered by and among Empire Gateway, LLC . . . and Chambers Holdings, LLC. Ex. A, Tab 4 at 2. Chambers and Empire are listed as the sole members, id. at 22, and their respective capital contributions and percentage interests are specifically laid out in Schedule B to the Agreement, id. at 23. Levinsohn and Olsen, are named as the sole Managers. Id. at 3. The NJRC Operating Agreement is identical in these respects. See Ex. B, Tab 4 at 2-3, 22-23. These Operating Agreementsidentifying Chambers as owning a 45% member interest in the Regional Centers and Levinsohn as a managerwere included in the Regional Centers applications to the USCIS, along with a host of documents specifically identifying the principals of the Regional Centers as Olsen, Shah, Dyche and Levinsohn. See Ex. A, Tabs 2, 4, 12; Ex. B, Tabs 2, 4, 12. The cover letter itself names these four as principals. Ex. A at 2; Ex. B at 2. Levinsohns biography is included in the applications, and he again is listed among the four members of the management team on the organization chart, also attached to the applications. Ex. A, Tabs 2, 12 & Ex. B, Tabs 2, 12. That Dychean accomplished businesswoman . . . for over 25 yearswas somehow unaware of Levinsohns interest from the get go is fanciful, and at this late and opportunistic date, she has waived any right to assert otherwise. See R & A Food Servs., Inc. v. Halmar Equities, Inc., 278 A.D.2d 398, 399 (2d Dept 2000) (holding plaintiff waived fraudulent inducement claim by waiting more than one year to commence action and failing to take any other action to rescind lease); see Glatt v. Mariner Partners, Inc., 63 A.D.3d 428, 430 (1st Dept

2009) (finding brokers delay of over three years in seeking to rescind contract waived right to sue in quantum meruit). As the documents make patently clear, the Third-Party Complaint should be dismissed against Chambers. See Mayerhoff, 269 A.D.2d at 369 (holding court may consider evidentiary submissions on a 3211(a)(7) motion where such evidence demonstrates that a material fact alleged by a plaintiff to be true is not a fact at all, and that no significant dispute exists regarding it) (internal quotation marks omitted); Mark Hampton, Inc. v. Bergreen, 173 A.D.2d 220, 221 (1st Dept 1991) (affirming dismissal where defendants counterclaim was flatly contradicted by documentary evidence.) (internal quotation marks omitted). II. THE THIRD-PARTY CLAIMS ARE OTHERWISE LEGALLY DEFICIENT. Even without the documentary evidence overwhelmingly supporting dismissal of the Third-Party Complaint, the claims otherwise fail to state a cause of action under CPLR 3211(a)(7) and 3016(b) for the reasons set forth below.3 A. The Forfeiture Claim (Count One) Should Be Dismissed. 1. New Yorks Business Corporation Law Does Not Apply Here.

Plaintiff asserts that, pursuant to New Yorks Business Corporation Law (BCL) Section 503, Chambers should forfeit its ownership interest and voting rights in NYCRC and NJRC because another party (Olsen) allegedly (1) breached an operating agreement to which Chambers has no interest (Empire), and (2) acted in bad faith by executing purported sales contracts and other documentation, resulting in the alleged sale of Empires member interest and voting rights in the Regional Centers. Compl. 28.

For the reasons discussed in the Regional Centers memorandum of law, incorporated herein, Dyche also lacks standing to sue on their behalf. See Mem. of Law in Supp. of Regional Centers Mot. To Dismiss, Section II; CPLR 3211(a)(3); see infra, p. 16. 8

First, the application of any BCL provision is obviously misplaced. As plaintiff herself concedes, every single entity involved in this proceeding is a limited liability company. See Compl. 2, 5,4 19, 26. The BCL statute, by its terms, applies to corporationsnot limited liability companies. It applies to every domestic corporation and to every foreign corporation which is authorized or does business in this state, and also to a corporation of any type or kind, formed for profit under any other chapter of the laws of this state except a chapter of the consolidated laws. BCL 103(a) (McKinney 2011) (emphasis added); see In re 1545 Ocean Ave., LLC, 72 A.D.3d 121, 127 (2d Dept 2010) (Limited liability companies . . . fall within the ambit of neither the Business Corporation Law nor the Partnership Law.). A [c]orporation within the meaning of the BCL is defined as a corporation for profit formed under this chapter, or existing on its effective date and theretofore formed under any other general statute or by any special act of this state for a purpose or purposes for which a corporation may be formed under [this chapter] . . . . BCL 102(a)(4) (McKinney 2011) (footnote omitted). Indeed, there is an entirely separate statute governing limited liability companies in the State of New York: the Limited Liability Company Law. See LLCL 102(m) (defining limited liability company as an unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business . . . formed and existing under this chapter and the laws of this state); In re 1545 Ocean Place, 72 A.D.3d at 128 (Thus, the existence and character of these various entities are statutorily dissimilar . . . .). There exists no provision within the LLCL that provides for forfeiture of ones ownership interest. For this reason alone, the forfeiture claim should be dismissed. Though plaintiff characterizes NYCRC as a New York Limited Liability Corporation, incorporated on May 9, 2008, Compl. 5, NYCRCs Articles of Organization, filed on May 9, 2008, clearly identify its formation as a limited liability company. Ex. A, Tab 3 (emphasis added). 9
4

2.

Even Under the Business Corporation Law, the Facts Alleged Do Not Give Rise to a Forfeiture Claim.

Second, even if Empire, Chambers, NYCRC and NJRC were corporationsand they are notBusiness Corporation Law Section 503 is inapposite to the facts alleged here. Section 503 governs subscription[s] for shares of a corporation and forfeiture of such shares [i]n the event of default in the payment of any installment or call when due. BCL 503(d) (McKinney 2011). The statute provides that in the event of such default, [n]o forfeiture of the subscription shall be declared as against any subscriber unless the amount due thereon shall remain unpaid for a period of thirty days after written demand has been made therefor. Id. Plaintiffs reliance on this provision is misguided and confusing. No facts alleged in the Third-Party Complaint come remotely close to the scenario envisioned by Section 503. There is no allegation of a board call, a default in payment or a written demand. Count One should be dismissed. B. The Claims for Aiding and Abetting Breach of Fiduciary Duty (Count Two) and Fraud (Count Seven) also Fail To State a Cause of Action.

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. Kaufman v. Cohen, 307 A.D.2d 113, 125 (1st Dept 2003); see Kolbeck v. LIT Am., Inc., 939 F. Supp. 240, 245 (S.D.N.Y. 1996), affd, 152 F.3d 918 (2d Cir. 1998) (Table). To state a cause of action for aiding and abetting fraud, the plaintiff must plead facts demonstrating (1) the existence of a fraud, (2) the defendants knowledge of the fraud, (3) that the defendant provided substantial assistance to further the frauds commission, and (4) damages. Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dept 2009). Pursuant to CPLR 3016(b), the Third-Party Complaint must allege each of the elements of fraud with particularity and must support each element with an allegation of fact. Fink v. Citizens Mortg. Banking Ltd., 10

148 A.D.2d 578, 578 (2d Dept 1989); see Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009); Colasacco v. Robert E. Lawrence Real Estate, 68 A.D.3d 706, 708-709 (2d Dept 2009). Courts have noted several similarities shared by these two causes of action. For example, both causes of action require the putative secondary violator to have actual knowledge of the primary violators wrongdoing. Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F. Supp. 2d 163, 201 & n.279 (S.D.N.Y. 2006) (citing, inter alia, Kolbeck, 939 F. Supp. at 246 (collecting cases) (actual knowledge standard consistent with New York and U.S. Supreme Court case law, the Restatement of Torts, and other elements of aiding and abetting claim)). Constructive knowledge does not suffice; it is not enough to allege that the defendant should have known of the breach or fraud. Kaufman, 307 A.D.2d at 125 (aiding and abetting breach of fiduciary duty); Intl Strategies Grp, Ltd. v. ABN AMRO Bank N.V., 49 A.D.3d 474, 474-75 (1st Dept 2008) (aiding and abetting fraud). In addition, aiding and abetting liability may attach under New York law when a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed. Pension Comm., 446 F. Supp. 2d at 201 (internal quotation omitted); see Musalli Factory for Gold & Jewellry v. JPMorgan Chase Bank, N.A., 261 F.R.D. 13, 23 (S.D.N.Y. 2009), affd, 382 F. Appx 107 (2d Cir. 2010). When a plaintiff adequately pleads such assistance, concealment, or failure to act, she fulfills both the substantial assistance element of the fraud-based claim and the participation element of the breach of fiduciary dutybased claim. Pension Comm., 446 F. Supp. 2d at 201 (citation omitted). It is important to note, however, that the mere inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the

11

plaintiff. Kaufman, 307 A.D.2d at 126 (citing Sharp Intl. Corp. v. State St. Bank & Trust Co. (In re Sharp Intl. Corp.), 281 B.R. 506, 516 (Bankr. E.D.N.Y. 2002), affd, 302 B.R. 760 (E.D.N.Y. (2003), affd, 403 F.3d 43 (2d Cir. 2005)); see Eurycleia, 910 N.E.2d at 562 (finding claims for fraud or aiding and abetting fraud predicated on defendants silence fail for lack of duty to disclose); Stanfield, 64 A.D.3d at 476 (same). If this were not the case, [t]o hold all defendants to a standard of constructive knowledge and subject to a duty of inquiry would mean that all defendants, regardless of their independent obligations to plaintiff, could be liable for inaction. Kolbeck, 939 F. Supp. at 247. 1. No Existence of Fraud or Breach

Plaintiff alleges that, as holder of a majority voting interest in [Empire], Olsen owed a fiduciary duty to Dyche, a minority shareholder of Empire. Compl. 32. Olsen breached this fiduciary duty, Dyche asserts, by reason of the unauthorized sale of 45% of Empire Gateways ownership interest in NYCRC to Chambers, as well as the majority rights, and other acts of misconduct described herein.5 Id. 33. This unauthorized sale also constitutes Olsens alleged fraud. Id. 25-26. In so doing, Olsen drafted and executed the documents relating to the purported sale and made various statements to Dyche, Shah and others regarding the purchase and sale transaction with Levinsohn and Chambers that were false and misleading. Id. 6768. As previously discussed, however, the documentary evidence plainly refutes any assignment, fraudulent or otherwise, of the Regional Centers. See supra pp. 5-8; Wilhelmina Models, Inc. v. Fleisher, 19 A.D.3d 267, 269 (1st Dept 2005) (Factual allegations presumed to

These other acts of misconduct, presumably, are Olsens alleged improper interference with the contract of sale between Dyche and Shah, and Olsens alleged unlawful acquisition of a majority share in Empire. Compl. 4. 12

be true on a motion pursuant to CPLR 3211 may properly be negated by affidavits and documentary evidence.) (citation omitted). 2. No Actual Knowledge

Even assuming, arguendo, the existence of a breach of fiduciary duty or a fraud, plaintiff fails to properly allege Chambers actual knowledge of such breach or fraud. To the contrary, the Complaint asserts quite the opposite: Upon information and belief, in early 2008, Olsen . . . falsely represented to Levinsohn that he had the necessary consent of and authority from the Founding Members and managers of Empire Gateway to sell a 45% Member Interest and a 50% voting rights percentage in NYCRC and NJRC, and proceeded with the sale to Chambers. Compl. 25-26 (emphasis added). After suggesting that Levinsohn (i.e., Chambers) was deceived by Olsen in this (fictitious) sale, the Complaint proceeds to summarily allege that Chambers is nonetheless liable for aiding and abetting the breach of Olsens fiduciary duty based [u]pon information and beliefand nothing more. Id. 34. As in Kaufman v. Cohen, these allegations of actual knowledge are extremely sparse and wholly conclusory. 307 A.D.2d at 125. There are no facts alleged in the Complaint from which it could be inferred that Chambers had actual knowledge that Olsen breached any fiduciary duty to Dyche. Similarly, Chambers actual knowledge of a fraud is insufficiently pled. The Complaint alleges: Olsen made various statements to Dyche, Shah and others regarding the purchase and sale transaction with Levinsohn and Chambers that were false and misleading and which, upon information and belief, were aided and abetted by Third Party Defendants in that they knew said statements were false, but failed to advise Dyche and others that Olsens representations were false. [Specifically, Chambers] failed to correct Olsens statements to Dyche and others . . . that he was not selling more than 20% of 13

Empire[s] . . . interest in NYCRC and NJRC . . . when they well knew that such representation was false . . . . Compl. 68-69. There are no facts pleaded to support the inference that Chambers was aware of such statementsor any alleged fraud. In fact, plaintiff concedes as much by alleging, earlier in the Complaint, that Chambers was itself subject to the fraud. See Compl. 25 (Olsen falsely represented to Levinsohn that he had the necessary consent of and authority from . . . Empire Gateway to sell a 45% Member Interest in NYCRC and NJRC.). There are no facts alleged upon which Chambers liability could be predicated. The allegations that do exist are far too vague and conclusory to suggest actual knowledge of fraud, particularly under the specificity requirements of CPLR 3016(b). See Musalli Factory, 261 F.R.D. at 24-25; Colasacco, 68 A.D.3d at 708. 3. No Substantial Assistance or Participation

Even if the Complaint adequately pleaded actual knowledge of a fraud or breach of fiduciary duty, these claims would still fail because Chambers alleged actions did not rise to the level of rendering substantial assistance to Olsens fraud. One knowingly participates in a breach of fiduciary duty or fraud when he or she provides substantial assistance to the primary violator. See Stanfield, 64 A.D.3d at 476 (aiding and abetting fraud); Kaufman, 307 A.D.2d at 126 (aiding and abetting breach of fiduciary duty). But in the absence of a fiduciary duty, inaction does not constitute substantial assistance. See id.; Eurycleia, 12 N.Y.3d at 562. Plaintiff does not claimnor could shethat Chambers owed her a fiduciary duty, as Dyche is not a member of Chambers, and even if she were, it is not at all clear that a New York LLC owes fiduciary duties to its [own] members. Cords-Auth v. Crunk, LLC, No. 09-CV-8017 (KMK), 2011 WL 4471928, at *13, n.14 (S.D.N.Y. Sept. 27, 2011); see Peacock v. Herald Square Loft Corp., 67 A.D.3d 442, 443 (1st Dept 2009) (corporation owes no fiduciary duties to 14

its shareholders or members under New York law). Accordingly, the Complaint must allege that Chambers committed affirmative acts that furthered Olsens breach of fiduciary duty and fraud. Musalli Factory, 261 F.R.D. at 25. It does not. At most, the Third-Party Complaint asserts that Chambers inactionits fail[ure] to correct Olsens statements to Dyche and others constituted aidor and abettor liability. Compl. 69; see id. 73 (Dyche relied on . . . Third Party Defendants silence regarding Olsens fraud . . . .). Given the lack of a fiduciary relationship with Dyche, Chambers had no legal duty to make affirmative disclosures to plaintiff. See Eurycleia, 12 N.Y.3d at 562; Kaufman, 307 A.D.2d at 126. For the foregoing reason, the causes of action for aiding and abetting breach of fiduciary duty and fraud should be dismissed. C. The Injunction Claim (Count Six) Should Be Dismissed as It Is Not a Separate Cause of Action, But a Remedy.

Count Six seeks to preliminarily and permanently enjoin Chambers from selling, assigning, encumbering, transferring or otherwise affecting the ownership structure, voting rights, assets of [Empire], NYCRC and/or NJRC. Compl. 65. Plaintiff raises injunctive relief as a separate cause of action, yet [t]here is no injunctive cause of action under New York . . . law. Instead, [Dyche] must allege some wrongful conduct on the part of [Chambers] for which [the] requested injunction is an appropriate remedy. Reuben H. Donnelley Corp. v. Mark I Mktg Corp., 893 F. Supp. 285, 293 (S.D.N.Y. 1995); see O Zon Inc. v. Charles, 272 F. Supp. 2d 307, 312 (S.D.N.Y. 2003). The basis for this injunction is Chambers alleged aiding and abetting of Olsen in the purported fraudulent sale of Empires interest in the Regional Centers in violation of the Empire Operating Agreement and Olsens fiduciary duties owed to Dyche, id. 64, i.e., Counts Two (Aiding & Abetting Breach of Fiduciary Duty) and Seven (Aiding & Abetting Fraud). For the reasons discussed above, Counts Two and Seven both fail to state a claim.

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Because injunctive relief is not itself a cause of action, Count Six of the Third-Party Complaint should be dismissed.

D.

The Third-Party Complaint Fails To Establish Grounds for an Appointment of a Receiver, (Count Three), an Inspection (Count Four), or a Constructive Trust (Count Five).

In further support of its motion to dismiss, Chambers incorporates and relies on the Memorandum of Law in Support of Third Party Defendant Regional Centers' Motion to Dismiss the Third Party Complaint, both on Counts Three through Five and the remaining causes of action. Chambers also incorporates and relies on the Memorandum of Law in Support of Plaintiffs' [George Olsen and Empire Gateway, LLC's] Motion to Dismiss DefendantCounterclaimant Sandra Dyche's Counterclaims, where applicable.

CONCLUSION
For these reasons, Chambers requests that the Court dismiss the Third-Party Complaint in its entirety against Chambers. Dated: New York, New York November 18,2011 Respectfully submitted,

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JolmG. Moon Amanda F. Parsels MILLER & WRUBEL P.C. 570 Lexington Avenue, 25 th Floor New York, NY 10022 (212) 336-3500 -and-

Dane Butswinkas (dbutswinkas@wc.com) (pending forthcoming application for admission pro hac vice) Mara Murphy (mmumhy@wc.com) (pending forthcoming application for admission pro hac vice) WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 16

Attorneys for Third-Party Defendant Chambers Holdings, LLC

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