Contract analysis

1. This action arises from a scheme of fraud perpetrated by defendant Marcus D. Whitfield and his solely controlled entity, defendant Pinnacle Greystone Capital LLC, against their co-investor, plaintiff Jonathan R. Caldwell, in connection with a joint $14,800,000 investment in a mixed-use real estate development project located at 540-548 Atlantic Avenue, Brooklyn, New York 11217 (the "Property"). As set forth more f

2. Whitfield, acting individually and through Pinnacle Greystone, induced Caldwell to invest $5,920,000 — representing a 40% co-investment share — by making a series of material misrepresentations and omissions designed to conceal the true condition, encumbrances, and economics of the Property. Whitfield held himself out as a sophisticated and trustworthy real estate developer who had conducted thorough due diligence

3. Specifically, Whitfield, acting individually and through Pinnacle Greystone: (a) concealed $1,340,000 in outstanding New York City real property tax liens against the Property that he had represented had been resolved prior to the closing of the acquisition; (b) suppressed a Phase II environmental site assessment conducted by Ridgepoint Environmental Consultants LLC in February 2021, which revealed petroleum conta

4. Caldwell discovered these misrepresentations and omissions in or about August 2023 when the project encountered financing difficulties and Broadmark Commercial Lending Corp. ("Broadmark"), the senior lender that had provided a $9,620,000 acquisition and construction loan secured by the Property, required updated title reports and environmental assessments as conditions of extending the maturity of the construction

5. By reason of the fraudulent acts and omissions of Whitfield and Pinnacle Greystone, as described more fully herein, Caldwell has been damaged in an amount not less than $6,200,000 in compensatory damages. Plaintiffs additionally seek punitive damages by reason of the willful, wanton, and malicious character of defendants' conduct.

6. This action asserts claims for common-law fraud, fraudulent inducement, constructive fraud, breach of fiduciary duty, unjust enrichment, and aiding and abetting fraud.

7. Plaintiffs' claims for common-law fraud and fraudulent inducement are predicated upon defendants' affirmative misrepresentations regarding the tax status, environmental condition, and rental income potential of the Property, as well as defendants' concealment of the self-dealing side agreement with Glenmore Realty Advisors Inc.

8. Plaintiffs' claim for constructive fraud is predicated upon the relationship of trust and confidence between the co-investors, which imposed upon defendants duties of candor and full disclosure that defendants systematically violated.

9. Plaintiffs' claim for breach of fiduciary duty arises from defendants' status as co-members of the project entity, Atlantic Yards Development Partners LLC, and Whitfield's and Pinnacle Greystone's assumption of the role of managing co-investor, which gave rise to fiduciary obligations that defendants breached through their concealment of material information and self-dealing.

10. Plaintiffs' claims for unjust enrichment and aiding and abetting fraud seek, respectively, restitution of the unjust benefits obtained by defendants at Caldwell's expense and damages against Pinnacle Greystone for its knowing and substantial assistance in the commission of Whitfield's fraud. Through these causes of action, plaintiffs seek full compensatory damages, punitive damages, disgorgement, prejudgment inte

11. Plaintiff Jonathan R. Caldwell ("Caldwell") is an individual residing at 440 East 72nd Street, Apartment 18D, New York, New York 10021. Caldwell is a seasoned real estate and asset management professional, fifty-eight (58) years of age, who formerly served as a Managing Director at Hargrove Meridian Partners LLC, a New York-based real estate private equity firm, before transitioning to direct personal investing i

12. Plaintiff Caldwell Urban Ventures LLC ("Caldwell Ventures") is a New York single-member limited liability company formed on March 8, 2021, with a registered address at 440 East 72nd Street, Apartment 18D, New York, New York 10021 (Employer Identification Number: 86-4031278). Caldwell is the sole member and manager of Caldwell Ventures. Caldwell Ventures was formed for the purpose of holding Caldwell's investment

13. Defendant Marcus D. Whitfield ("Whitfield") is an individual residing at 88 Montague Street, Penthouse B, Brooklyn, New York 11201, fifty-two (52) years of age. Whitfield is a real estate developer and investment manager who operates principally through Pinnacle Greystone Capital LLC. By his own representations, Whitfield has been involved in over $200,000,000 in aggregate real estate transactions in Brooklyn and

14. Defendant Pinnacle Greystone Capital LLC ("Pinnacle Greystone") is a New York limited liability company formed on June 14, 2019, with its principal office at 330 Furman Street, Suite 410, Brooklyn, New York 11201 (Employer Identification Number: 83-2917465). Whitfield is the sole member and manager of Pinnacle Greystone. Pinnacle Greystone served as the managing co-investor with respect to the Property and was re

15. Non-party Atlantic Yards Development Partners LLC ("AYDP") is a New York limited liability company formed on April 22, 2021 (Employer Identification Number: 87-1253946), to serve as the special purpose vehicle for the acquisition and development of the Property. Caldwell Ventures holds a 40% membership interest in AYDP and Pinnacle Greystone holds a 60% membership interest in AYDP. The registered agent for AYDP i

16. Non-party Glenmore Realty Advisors Inc. ("Glenmore") is a New York corporation controlled by Neil Osterberg, who is the brother-in-law of defendant Whitfield. Glenmore received $370,000 in project funds from AYDP under the concealed consulting agreement dated April 30, 2021, described more fully below.

17. Non-party Broadmark Commercial Lending Corp. ("Broadmark") is a New York corporation with offices at 140 Broadway, 22nd Floor, New York, New York 10005. Broadmark provided a $9,620,000 acquisition and construction loan to AYDP, secured by a first-priority mortgage on the Property. The Broadmark loan officer assigned to the AYDP loan was David Poulos.

18. Non-party Ridgepoint Environmental Consultants LLC ("Ridgepoint") is a New York environmental consulting firm that was retained by Pinnacle Greystone to conduct environmental assessments of the Property. In February 2021, Ridgepoint conducted a Phase II environmental site assessment of the Property, the results of which were suppressed by defendants as alleged herein. JURISDICTION AND VENUE

19. This Court has subject matter jurisdiction over this action pursuant to Article VI, Section 7 of the New York State Constitution, which vests the Supreme Court with general original jurisdiction in law and equity. The amount in controversy exceeds $25,000, exclusive of interest and costs.

20. This Court has personal jurisdiction over defendant Whitfield, who is an individual residing at 88 Montague Street, Penthouse B, Brooklyn, Kings County, New York 11201, and who is therefore domiciled within the State of New York and within Kings County.

21. This Court has personal jurisdiction over defendant Pinnacle Greystone Capital LLC, which is a New York limited liability company organized under the laws of the State of New York with its principal office located at 330 Furman Street, Suite 410, Brooklyn, Kings County, New York 11201. Pinnacle Greystone regularly transacts business in Kings County and committed the tortious acts alleged herein within Kings Count

22. Venue is proper in Kings County pursuant to CPLR Section 503(a) because the Property that is the subject of this action is located at 540-548 Atlantic Avenue, Brooklyn, Kings County, New York 11217, and both defendants reside and/or maintain their principal offices in Kings County. In addition, a substantial part of the events and omissions giving rise to plaintiffs' claims occurred in Kings County. FACTUAL ALLEG

23. In or about early 2021, Whitfield approached Caldwell about a co-investment opportunity in a mixed-use building located at 540-548 Atlantic Avenue, Brooklyn, New York 11217. The Property consists of an approximately 42,000 square foot multi-story building situated on a 0.38-acre lot zoned C6-2A under the New York City Zoning Resolution. The building features ground-floor retail space with upper-floor commercial s

24. Whitfield, through Pinnacle Greystone, represented to Caldwell that he had sourced and vetted the deal through his extensive network of contacts in the Brooklyn real estate market, that he had conducted thorough due diligence on the Property — including title searches, environmental assessments, physical inspections, and market rent analyses — and that the investment presented a compelling risk-adjusted return pr

25. In or about March 2021, Whitfield circulated to Caldwell a comprehensive set of investment materials for the Property (the "Investment Materials"), including detailed financial projections, a proposed capital structure, a development budget, a projected construction timeline, architectural renderings, comparable sales and rental data, and a summary of the results of Whitfield's purported due diligence. These Inve

26. As presented in the Investment Materials, the proposed acquisition price for the Property was $14,800,000. The proposed capital structure consisted of a $9,620,000 senior acquisition and construction loan from Broadmark Commercial Lending Corp., representing approximately 65% loan-to-value at acquisition, and total co-investor equity of $5,180,000 at closing, with additional equity commitments to be funded in sub

27. Under the proposed co-investment structure, Caldwell, through Caldwell Ventures, would invest 40% of the total required equity, and Pinnacle Greystone would invest 60% of the total required equity. The 60/40 split reflected Whitfield's larger allocation as the sponsoring and managing co-investor who sourced the deal and would manage all aspects of the development.

28. Accordingly, Caldwell Ventures' equity contribution at the closing of the acquisition was $2,072,000, representing 40% of the $5,180,000 in closing equity. Pinnacle Greystone's equity contribution at the closing of the acquisition was $3,108,000, representing 60% of the $5,180,000 in closing equity.

29. Caldwell Ventures' total committed equity over the life of the project was $5,920,000, representing 40% of the $14,800,000 total investment. Pinnacle Greystone's total committed equity over the life of the project was $8,880,000, representing 60% of the $14,800,000 total investment. These equity commitments were set forth in the operating agreement of AYDP.

30. The projected total development budget for the project — including the acquisition price plus estimated renovation and conversion costs — was $22,350,000. This implied renovation costs of approximately $7,550,000 (i.e., $22,350,000 total budget minus $14,800,000 acquisition price). The renovation budget contemplated a comprehensive gut renovation of the upper floors for residential conversion, upgrades to the gro

31. Whitfield's pro forma financial model, as set forth in the Investment Materials, projected a stabilized value of $31,200,000 for the Property upon completion of the renovation and lease-up. Based on the projected total development cost of $22,350,000 and the projected stabilized value of $31,200,000, the pro forma projected a profit margin of approximately $8,850,000 and a projected equity multiple of approximate

32. Based on these representations, and in reasonable reliance thereon, Caldwell agreed to proceed with the co-investment. The parties caused the formation of AYDP on April 22, 2021, and executed an operating agreement for AYDP on or about that same date. The acquisition of the Property by AYDP closed on May 14, 2021, at the stated acquisition price of $14,800,000. Caldwell Ventures funded its closing equity contribu

33. At the time of the acquisition of the Property on May 14, 2021, the Property was encumbered by $1,340,000 in outstanding New York City real property tax liens. These liens had accumulated over a period of years under the prior ownership and had not been satisfied or discharged as of the closing date.

34. Prior to and at the closing, Whitfield represented to Caldwell that all tax obligations on the Property had been fully resolved, that the title to the Property was clear of any tax liens or encumbrances of a similar nature, and that the Property would be conveyed to AYDP free and clear of any such liens. These representations were made both in the Investment Materials circulated in March 2021 and in oral communic

35. Whitfield knew, or in the exercise of reasonable diligence should have known, that the $1,340,000 in real property tax liens remained outstanding as of the closing date. As the managing co-investor responsible for all due diligence and for managing the acquisition process, Whitfield had access to title reports, lien searches, and tax records that would have disclosed the existence of the liens.

36. Whitfield, in his capacity as the managing co-investor and as the sole member and manager of Pinnacle Greystone, had exclusive access to title and lien information relating to the Property and exercised sole control over the closing process, including the retention of title companies, the review of title commitments, and the coordination of the closing with Broadmark and the seller's representatives. Caldwell did

37. Whitfield deliberately concealed and failed to disclose the existence of the $1,340,000 in outstanding tax liens to Caldwell. Whitfield's concealment was intentional and was designed to prevent Caldwell from discovering a material encumbrance that would have materially altered Caldwell's assessment of the risk and value of the investment.

38. The $1,340,000 in tax liens materially impaired the value of the Property and Caldwell's investment therein. The liens created a senior encumbrance on the Property, increased the effective cost of the acquisition, and posed a risk of foreclosure by the City of New York, which would have priority over the interests of AYDP and its members.

39. The existence of these outstanding tax liens was not discovered by Caldwell until in or about August 2023, when Broadmark required updated title reports as a condition of extending the maturity of the $9,620,000 construction loan. The updated title search conducted at that time revealed the $1,340,000 in outstanding liens that Whitfield had represented were resolved. (ii) Suppression of Phase II Environmental Ass

40. In or about February 2021, prior to the circulation of the Investment Materials and prior to the closing of the acquisition, Ridgepoint Environmental Consultants LLC was retained by Pinnacle Greystone to conduct environmental assessments of the Property. Ridgepoint performed both a Phase I and a Phase II environmental site assessment of the Property. The Phase II assessment involved subsurface sampling and labora

41. The Phase II environmental site assessment conducted by Ridgepoint revealed the presence of petroleum contamination on the Property, including elevated concentrations of total petroleum hydrocarbons and volatile organic compounds in subsurface soils and groundwater. The Phase II assessment report concluded that remediation of the contamination would be required and estimated the cost of remediation at approximate

42. Despite having received the Phase II assessment results from Ridgepoint prior to the circulation of the Investment Materials and prior to the closing, Whitfield represented to Caldwell that a Phase I environmental site assessment had been conducted on the Property and that the results were "clean," indicating no environmental concerns. Whitfield did not disclose the existence of the Phase II assessment, did not d

43. Whitfield intentionally suppressed the Phase II environmental assessment and its findings in order to induce Caldwell to proceed with the co-investment. Whitfield understood that disclosure of the contamination and the associated remediation cost would have materially altered Caldwell's evaluation of the project economics and risk profile, and that Caldwell might well have declined to participate had the contamin

44. The $620,000 in estimated remediation costs was a material additional cost that was not reflected in the $22,350,000 development budget provided to Caldwell in the Investment Materials. Inclusion of this cost would have reduced the projected profit margin, lowered the projected equity multiple, and fundamentally changed the return profile of the investment.

45. Caldwell had no independent access to the environmental reports commissioned by Pinnacle Greystone and reasonably relied on Whitfield's representations regarding the environmental condition of the Property. Whitfield, as the managing co-investor, was responsible for conducting and reporting on all due diligence, including environmental assessments, and Caldwell was entitled to rely on Whitfield's representations

46. The environmental contamination and the associated remediation obligation were not discovered by Caldwell until in or about August 2023, when Broadmark required updated environmental reports as a condition of extending the maturity of the construction loan. The updated environmental review at that time revealed the existence of the Phase II assessment by Ridgepoint, which Whitfield had never disclosed to Caldwell

47. In the Investment Materials circulated to Caldwell in or about March 2021, Whitfield presented a pro forma rent roll for the Property that projected $2,160,000 in annual gross rental income at stabilization. The pro forma rent roll included projected rents for both the ground-floor retail spaces and the upper-floor residential units that were to be created through the planned conversion.

48. Whitfield represented that these rental projections were reflective of then-current market conditions in the Atlantic Avenue corridor and surrounding neighborhoods, and that the projected rents were achievable for the Property upon completion of the renovation and conversion. Whitfield supported these projections with purported comparable rental data included in the Investment Materials, which Caldwell accepted i

49. Following the discovery of defendants' other misrepresentations in August 2023, Caldwell retained the certified public accounting firm of Ellerby & Associates CPAs LLP, located at 757 Third Avenue, Suite 1800, New York, New York 10017 (managing partner Grace Ellerby, CPA), to conduct an independent analysis of the pro forma rent roll and the underlying rental assumptions. Ellerby & Associates performed a comprehe

50. The independent analysis conducted by Ellerby & Associates determined that market rents for the Property, as of both the date of the Investment Materials and the date of the analysis, supported only approximately $1,580,000 in annual gross rental income at stabilization. Whitfield's pro forma thus overstated projected annual rental income by approximately $580,000 per year, representing an overstatement of approx

51. The inflated rent roll materially overstated the projected return on investment, artificially enhancing the apparent attractiveness of the co-investment and the projected equity multiple. The inflated projections were a material factor in inducing Caldwell to invest $5,920,000 in the project. Had accurate rent projections been used, the projected return would have been substantially lower, and Caldwell would not

52. Whitfield either knew that the rental projections were inflated above achievable market rents when he prepared and circulated the Investment Materials, or he recklessly disregarded the accuracy of the projections by failing to conduct a reasonable market analysis to support them. In either case, the projections were materially misleading and were designed to, or had the effect of, inducing Caldwell's investment.

53. On or about April 30, 2021 — approximately two weeks before the closing of the acquisition on May 14, 2021 — Whitfield, acting through Pinnacle Greystone, entered into a consulting agreement (the "Glenmore Consulting Agreement") with Glenmore Realty Advisors Inc. The Glenmore Consulting Agreement was not disclosed to Caldwell at any time prior to its discovery in August 2023.

54. Glenmore Realty Advisors Inc. is controlled by Neil Osterberg, who is the brother-in-law of defendant Whitfield. Upon information and belief, Osterberg is the sole or majority shareholder, president, and directing officer of Glenmore. The familial relationship between Whitfield and Osterberg made the Glenmore Consulting Agreement a related-party transaction that Whitfield was obligated to disclose to his co-inves

55. Under the terms of the Glenmore Consulting Agreement, Pinnacle Greystone caused AYDP to pay Glenmore a fee of $370,000, characterized as an "acquisition advisory fee," from AYDP project funds. This payment was made without Caldwell's knowledge or consent. Caldwell was not informed of the existence of the Glenmore Consulting Agreement, was not informed of the familial relationship between Whitfield and Osterberg,

56. The diversion of $370,000 in AYDP project funds to a related party controlled by Whitfield's brother-in-law constituted self-dealing and a breach of Whitfield's and Pinnacle Greystone's obligations to their co-investor. Caldwell Ventures' 40% share of the diverted funds amounts to $148,000. The payment of the "acquisition advisory fee" to Glenmore conferred no discernible benefit on AYDP or its members, and upon

57. In or about August 2023, the development project at the Property encountered significant financing difficulties. Certain construction milestones set forth in the Broadmark loan agreement had not been met within the specified timeframes, and the project was behind schedule and over budget. These delays and cost overruns were attributable, at least in part, to the undisclosed tax liens and environmental contaminati

58. As a consequence of the missed milestones, Broadmark Commercial Lending Corp., through its loan officer David Poulos, informed AYDP that it would require updated title reports and updated environmental assessments of the Property as conditions of extending the maturity date of the $9,620,000 acquisition and construction loan. Broadmark further indicated that failure to satisfy these conditions would constitute an

59. The updated title search conducted in August 2023 at Broadmark's direction revealed the $1,340,000 in outstanding New York City real property tax liens on the Property. These were the same liens that Whitfield had represented to Caldwell had been fully resolved prior to the closing. The title company's report indicated that the liens had been of record throughout the entire period of AYDP's ownership.

60. The updated environmental review conducted in August 2023 at Broadmark's direction revealed the existence of the Phase II environmental site assessment conducted by Ridgepoint Environmental Consultants LLC in February 2021. This Phase II assessment — which documented the petroleum contamination and the estimated $620,000 remediation cost — had never been disclosed to Caldwell by Whitfield or by Pinnacle Greystone