1034-00003 · Ridgeway, Tanaka & Schiff LLP · Pleadings

summons-and-verified-complaint.docx DOCUMENT Litigation

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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS

SUMMONS

TO THE ABOVE-NAMED DEFENDANTS:

MARCUS D. WHITFIELD 88 Montague Street, Penthouse B Brooklyn, New York 11201

PINNACLE GREYSTONE CAPITAL LLC 330 Furman Street, Suite 410 Brooklyn, New York 11201

YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance on Plaintiffs' attorneys within twenty (20) days after the service of this summons, exclusive of the day of service (or within thirty (30) days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint.

Venue: The basis of the venue designated is Kings County, which is the county in which the subject real property is situated, to wit, the premises located at 540-548 Atlantic Avenue, Brooklyn, New York 11217, and is the county in which both defendants reside and/or maintain their principal offices.

Dated: September 18, 2023 New York, New York

CALDERWOOD & HARKNESS LLP Attorneys for Plaintiffs 599 Lexington Avenue, 34th Floor New York, New York 10022 Tel: (212) 555-4800

Fax: (212) 555-4801

By: ________

Douglas Carmichael, Esq. Francesca Morano, Esq. Patrick Gallagher, Esq. Simone Laroche, Esq.

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS

Plaintiffs Jonathan R. Caldwell ("Caldwell") and Caldwell Urban Ventures LLC ("Caldwell Ventures"), by their attorneys, Calderwood & Harkness LLP, for their verified complaint against defendants Marcus D. Whitfield ("Whitfield") and Pinnacle Greystone Capital LLC ("Pinnacle Greystone"), allege upon knowledge as to their own acts and upon information and belief as to all other matters, as follows:

PRELIMINARY STATEMENT

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 fully below, defendants engaged in a calculated pattern of misrepresentation, concealment, and self-dealing that was designed to induce Caldwell to commit millions of dollars to a project whose true condition, encumbrances, and economics were fundamentally different from what defendants represented.

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 on the Property, and Caldwell reposed trust and confidence in Whitfield and Pinnacle Greystone as the managing co-investors responsible for sourcing, vetting, and overseeing the investment.

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 contamination on the Property requiring an estimated $620,000 in remediation costs, while representing to Caldwell that environmental assessments of the Property were "clean";

(c) provided Caldwell with an inflated pro forma rent roll projecting $2,160,000 in annual gross rental income at stabilization when market rents for the Property, as subsequently confirmed by independent analysis, supported only approximately $1,580,000 in annual gross rental income — an overstatement of approximately $580,000 per year, or approximately 26.9%; and

(d) entered into a concealed consulting agreement dated April 30, 2021, with Glenmore Realty Advisors Inc. — a firm controlled by Neil Osterberg, Whitfield's brother-in-law — under which $370,000 in project funds were diverted to Glenmore as an "acquisition advisory fee" without Caldwell's knowledge or consent.

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 loan. It was only upon receipt of those updated reports — which Caldwell had no prior occasion or ability to independently obtain given Whitfield's exclusive control over due diligence materials — that the full scope of defendants' fraud came to light.

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 interest, costs, and such other relief as this Court deems just and proper.

PARTIES

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 in approximately 2018. Caldwell holds a Bachelor of Science in Finance from the Wharton School of the University of Pennsylvania and a Master of Business Administration from Columbia Business School. Caldwell's estimated net worth is approximately $34,000,000, of which approximately $19,000,000 is deployed in real estate investments in the New York metropolitan area.

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 in the Property and holds a 40% membership interest in Atlantic Yards Development Partners LLC, the special purpose vehicle organized for the acquisition and development of the Property.

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 Queens, New York. Whitfield holds a Bachelor of Arts in Economics from New York University and a Juris Doctor from Fordham University School of Law, though he is not admitted to practice law and does not hold an active license in any jurisdiction.

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 responsible for sourcing the deal, conducting all due diligence, managing the acquisition process, and overseeing the development and renovation of the Property. Pinnacle Greystone holds a 60% membership interest in AYDP.

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 is National Filing Services Inc., 28 Liberty Street, New York, New York 10005. AYDP is the entity that holds fee simple title to the Property.

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 County.

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 ALLEGATIONS

A. Background of the Co-Investment Relationship

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 space that Whitfield proposed to convert to residential use. The Property is situated in a rapidly developing corridor of Brooklyn with proximity to the Atlantic Terminal, Northpoint Financial Center, and multiple subway lines, which Whitfield emphasized as indicators of strong demand and appreciation potential.

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 profile relative to comparable opportunities in the Brooklyn market at that time.

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 Investment Materials were prepared by or under the direction of Whitfield and Pinnacle Greystone and were presented to Caldwell for the purpose of inducing Caldwell to participate in the co-investment.

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 subsequent capital calls to finance the renovation and conversion of the building.

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 ground-floor retail spaces, facade restoration, and building systems replacement.

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 approximately 2.13x on invested equity. These returns were presented by Whitfield as achievable within a projected timeline of approximately 30 to 36 months from acquisition to stabilization.

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 contribution of $2,072,000 on or about May 14, 2021, and subsequently funded additional capital calls in the aggregate amount of $3,848,000, bringing Caldwell Ventures' total equity investment to $5,920,000.

B. Whitfield's Material Misrepresentations and Omissions

(i) Concealment of $1,340,000 in Pre-Existing Tax Liens

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 communications between Whitfield and Caldwell in or about April and May 2021.

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 not independently retain a title company or conduct his own lien search, relying instead on Whitfield's representations and on Whitfield's assumed performance of his obligations as managing co-investor.

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 Assessment

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 laboratory analysis of soil and groundwater samples collected from the Property.

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 approximately $620,000, inclusive of excavation, soil disposal, groundwater monitoring, and regulatory compliance costs.

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 disclose that a Phase II assessment had been conducted at all, and did not disclose the findings of petroleum contamination or the estimated $620,000 remediation cost. The Investment Materials made no reference to the Phase II assessment or to any environmental contamination.

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 contamination been disclosed.

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 in this regard.

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 or to AYDP.

(iii) Inflation of the Pro Forma Rent Roll

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 in reliance on Whitfield's expertise and local market knowledge.

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 comprehensive market study, including a review of comparable rental transactions, current asking rents for similar properties in the Atlantic Avenue corridor and surrounding neighborhoods, and interviews with local commercial and residential leasing brokers.

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 approximately 26.9% above actual achievable market rents.

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 have entered into the co-investment on the terms presented.

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.

(iv) Concealed Side Agreement with Glenmore Realty Advisors Inc.

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-investor.

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, and was not consulted regarding or asked to approve the payment of the $370,000 fee.

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 information and belief, the services purportedly rendered by Glenmore were either not performed at all or were duplicative of services that Whitfield and Pinnacle Greystone were already obligated to perform in their capacity as managing co-investor.

C. Discovery of the Fraud

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 contamination that had encumbered the project from its inception.

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 event of default under the loan agreement, potentially triggering acceleration of the loan and foreclosure on the Property.

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. Whitfield had affirmatively represented that environmental assessments of the Property were "clean."

61. Upon learning of the undisclosed tax liens and environmental contamination, Caldwell conducted further investigation into the finances and operations of AYDP. In the course of this investigation, Caldwell also discovered the Glenmore Consulting Agreement dated April 30, 2021, and the payment of $370,000 in AYDP project funds to Glenmore Realty Advisors Inc. The Glenmore Consulting Agreement was found among AYDP's financial records, which Whitfield had theretofore controlled and to which Caldwell had not been afforded regular or meaningful access.

62. Additionally, Caldwell retained the certified public accounting firm of Ellerby & Associates CPAs LLP to conduct an independent analysis of the pro forma rent roll that Whitfield had included in the Investment Materials. The analysis performed by Ellerby & Associates confirmed that the pro forma overstated projected annual gross rental income by approximately $580,000 per year, or approximately 26.9%, above achievable market rents. This analysis corroborated Caldwell's growing concern that the Investment Materials had been systematically inflated and manipulated to induce his investment.

D. Damages

63. As a direct and proximate result of defendants' fraud, fraudulent inducement, constructive fraud, breach of fiduciary duty, unjust enrichment, and aiding and abetting, Caldwell has suffered damages in an amount not less than $6,200,000.

64. Caldwell's total out-of-pocket equity investment in AYDP through Caldwell Ventures was $5,920,000, consisting of $2,072,000 in closing equity funded on or about May 14, 2021, and $3,848,000 in subsequent capital call contributions. This entire investment was made in reliance on defendants' material misrepresentations and omissions.

65. Caldwell Ventures' 40% pro rata share of the $370,000 in AYDP project funds diverted to Glenmore Realty Advisors Inc. under the concealed Glenmore Consulting Agreement is $148,000. This amount represents a direct diminution of the value of Caldwell's investment attributable to defendants' self-dealing.

66. In addition, Caldwell has incurred approximately $132,000 in additional carrying costs, professional fees (including accounting, appraisal, and legal fees incurred in connection with the investigation and discovery of defendants' fraud), and lost opportunity costs directly attributable to defendants' misconduct. These additional costs include, without limitation, fees paid to Ellerby & Associates CPAs LLP for the independent rent roll analysis, fees paid to Tidewater Appraisal Group LLC for the retrospective appraisal, and the diversion of Caldwell's time, resources, and capital from other investment opportunities.

67. Total compensatory damages suffered by Caldwell as a result of defendants' conduct amount to not less than $6,200,000, calculated as follows:

68. Tidewater Appraisal Group LLC, located at 26 Court Street, Suite 901, Brooklyn, New York 11242 (senior appraiser Kevin Romero, MAI), has conducted a retrospective appraisal of the Property as of the acquisition date of May 14, 2021. The Tidewater appraisal confirms that the true as-is value of the Property at the time of acquisition, accounting for the undisclosed $1,340,000 in tax liens, the $620,000 in environmental remediation costs, and the correct market rental income of approximately $1,580,000 per year, was materially below the $14,800,000 acquisition price paid by AYDP. Plaintiffs will offer the Tidewater appraisal and the expert testimony of Kevin Romero, MAI, at trial.

69. Defendants' conduct, as described herein, was willful, wanton, and malicious. Defendants engaged in a deliberate and calculated scheme to defraud their co-investor, concealing critical information and affirmatively misrepresenting the condition, encumbrances, and economics of the Property in order to induce Caldwell's investment and to divert project funds to a related party for their own benefit. Such conduct warrants the imposition of punitive damages in an amount sufficient to punish defendants and to deter similar conduct in the future.

70. Plaintiffs respectfully reserve the right to amend the damages sought herein as additional information is obtained through discovery in this action. Plaintiffs anticipate that discovery will reveal additional instances of misconduct, self-dealing, and misrepresentation by defendants, and that the full extent of plaintiffs' damages may exceed the amounts currently alleged.

CAUSES OF ACTION

FIRST CAUSE OF ACTION Common-Law Fraud (Against All Defendants)

71. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 70 above as though fully set forth herein.

72. Defendants made material misrepresentations of fact to Caldwell, including, but not limited to, the following: (a) that the Property was free and clear of real property tax liens when, in fact, the Property was encumbered by $1,340,000 in outstanding New York City tax liens; (b) that environmental assessments of the Property were "clean" when, in fact, a Phase II environmental site assessment had revealed petroleum contamination requiring an estimated $620,000 in remediation; (c) that the pro forma rent roll projecting $2,160,000 in annual gross rental income at stabilization was reflective of market conditions when, in fact, market rents supported only approximately $1,580,000, an overstatement of approximately 26.9%; and (d) that no side agreements with related parties existed, when, in fact, Pinnacle Greystone had entered into the concealed Glenmore Consulting Agreement under which $370,000 in project funds were diverted to an entity controlled by Whitfield's brother-in-law.

73. Each of these representations was false when made. The Property was encumbered by $1,340,000 in tax liens. The Phase II environmental assessment was not "clean" but revealed contamination requiring costly remediation. The pro forma rent roll was inflated by approximately 26.9%. And the Glenmore Consulting Agreement existed and resulted in the undisclosed diversion of $370,000.

74. Defendants knew that the foregoing representations were false at the time they were made, or defendants made the representations recklessly, without knowledge of their truth or falsity and with a conscious disregard for the truth. Whitfield had access to the title reports disclosing the tax liens, had received the Phase II environmental assessment from Ridgepoint, had prepared or directed the preparation of the inflated pro forma, and had personally executed the Glenmore Consulting Agreement.

75. The material misrepresentations were made by defendants with the intent to induce Caldwell's reliance thereon and to cause Caldwell to invest $5,920,000 in the project through Caldwell Ventures. Defendants' purpose in making the misrepresentations was to secure Caldwell's participation as a co-investor and to obtain the benefit of Caldwell's capital.

76. Caldwell justifiably relied on defendants' representations in deciding to enter into the co-investment, in forming AYDP, in executing the AYDP operating agreement, and in funding his equity contributions totaling $5,920,000.

77. Caldwell's reliance was reasonable under the circumstances. Whitfield and Pinnacle Greystone were the managing co-investors who had sourced the deal, conducted all due diligence, and controlled the flow of information regarding the Property. Caldwell had no independent access to the title reports, environmental assessments, or other due diligence materials, and was entitled to rely on Whitfield's representations as the managing co-investor charged with conducting and reporting on due diligence.

78. As a direct and proximate result of defendants' fraud, Caldwell has been damaged in an amount not less than $6,200,000, as set forth more fully above.

79. Defendants' fraudulent conduct was egregious, willful, wanton, and malicious, and demonstrated a conscious disregard for the rights of their co-investor. Such conduct warrants the imposition of punitive damages in an amount to be determined at trial.

SECOND CAUSE OF ACTION Fraudulent Inducement (Against All Defendants)

80. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 79 above as though fully set forth herein.

81. Prior to and in connection with the formation of AYDP, the execution of the AYDP operating agreement, and the closing of the acquisition of the Property on May 14, 2021, defendants made material misrepresentations and omissions to Caldwell for the purpose of inducing Caldwell to enter into the co-investment. These misrepresentations and omissions were made in the Investment Materials, in oral communications, and through defendants' silence and concealment of material facts.

82. Specifically, defendants: (a) concealed $1,340,000 in outstanding New York City real property tax liens on the Property, which Whitfield had represented were resolved; (b) suppressed the Phase II environmental site assessment conducted by Ridgepoint in February 2021, which revealed petroleum contamination requiring an estimated $620,000 in remediation, while representing that environmental assessments were "clean"; (c) inflated the pro forma rent roll by approximately $580,000 per year, or approximately 26.9%, overstating projected annual gross rental income at stabilization by representing $2,160,000 when market rents supported only approximately $1,580,000; and (d) concealed the Glenmore Consulting Agreement dated April 30, 2021, under which $370,000 in AYDP project funds were diverted to an entity controlled by Whitfield's brother-in-law without Caldwell's knowledge or consent.

83. Each of these misrepresentations and omissions was material to Caldwell's decision to invest. The undisclosed tax liens, environmental contamination, inflated rent projections, and concealed related-party transaction, individually and collectively, materially altered the risk profile, economics, and projected returns of the investment. Had any one of these facts been disclosed, Caldwell would have demanded further investigation, renegotiation of the investment terms, or withdrawal from the transaction.

84. Defendants intended that Caldwell rely on the false representations and omissions. Defendants' misrepresentations and concealments were specifically designed to present a materially more favorable picture of the investment than reality warranted, for the purpose of securing Caldwell's participation and capital.

85. But for defendants' misrepresentations and omissions, Caldwell would not have entered into the co-investment, would not have formed AYDP with Pinnacle Greystone, and would not have invested $5,920,000 in the project. Caldwell would have either declined the investment entirely or insisted on a substantially different transaction structure, purchase price, and level of due diligence.

86. Caldwell justifiably relied on defendants' misrepresentations and omissions. As set forth above, Caldwell had no independent access to the due diligence materials controlled by Whitfield and Pinnacle Greystone, and Caldwell reasonably reposed trust and confidence in Whitfield's representations as the managing co-investor.

87. As a direct and proximate result of defendants' fraudulent inducement, Caldwell was induced to invest $5,920,000 in a project whose true condition, encumbrances, and economics were fundamentally different from what was represented. Caldwell has been damaged in an amount not less than $6,200,000.

88. Defendants' conduct in fraudulently inducing Caldwell to invest was willful, wanton, and malicious, and warrants the imposition of punitive damages in an amount to be determined at trial.

THIRD CAUSE OF ACTION Constructive Fraud (Against All Defendants)

89. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 88 above as though fully set forth herein.

90. By virtue of the co-investment arrangement, the formation and operation of AYDP, and Whitfield's and Pinnacle Greystone's role as managing co-investor with exclusive control over due diligence and project management, defendants occupied a position of trust and confidence with respect to Caldwell. This relationship imposed upon defendants duties of candor, full disclosure, good faith, and fair dealing in all matters relating to the co-investment and the Property.

91. Defendants breached the trust and confidence reposed in them by Caldwell by making material misrepresentations and omissions regarding the condition, encumbrances, and economics of the Property, including the concealment of $1,340,000 in tax liens, the suppression of the Phase II environmental assessment revealing $620,000 in remediation costs, the inflation of the pro forma rent roll by approximately 26.9%, and the diversion of $370,000 in project funds to a related party without disclosure or consent.

92. Regardless of whether defendants acted with the specific intent to defraud (i.e., scienter), the misrepresentations and omissions described herein were material, were made in the context of a relationship of trust and confidence, and resulted in injury to Caldwell. Under New York law, a constructive fraud claim lies where a party in a fiduciary or confidential relationship makes material misrepresentations, even absent proof of specific fraudulent intent.

93. Caldwell relied on defendants' representations and on the trust and confidence inherent in the co-investment relationship. Caldwell trusted Whitfield and Pinnacle Greystone to conduct due diligence honestly and to disclose all material information bearing on the investment.

94. Such reliance was reasonable given the nature of the relationship, Whitfield's role as managing co-investor, and Caldwell's lack of independent access to the due diligence materials and project records controlled by defendants.

95. As a direct and proximate result of defendants' constructive fraud, Caldwell has been damaged in an amount not less than $6,200,000.

96. Defendants' conduct was sufficiently egregious to warrant the imposition of punitive damages in an amount to be determined at trial.

FOURTH CAUSE OF ACTION Breach of Fiduciary Duty (Against All Defendants)

97. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 96 above as though fully set forth herein.

98. As co-members of AYDP and as the managing co-investor with exclusive control over due diligence, acquisition management, and development oversight, Whitfield and Pinnacle Greystone owed fiduciary duties to Caldwell and Caldwell Ventures. These duties included, without limitation, duties of loyalty, candor, good faith, and fair dealing, as well as obligations to refrain from self-dealing, to disclose all material information, and to act in the best interests of AYDP and all of its members.

99. Defendants breached their fiduciary duties by:

(a) concealing material information regarding the Property's $1,340,000 in outstanding real property tax liens;

(b) suppressing the Phase II environmental site assessment revealing petroleum contamination requiring an estimated $620,000 in remediation;

(d) entering into the self-dealing Glenmore Consulting Agreement with an entity controlled by Whitfield's brother-in-law; and

(e) diverting $370,000 in AYDP project funds to Glenmore as an "acquisition advisory fee" without Caldwell's knowledge or consent.

100. Defendants placed their own financial interests above those of their co-investor and above the interests of AYDP. Defendants' concealment of material information and self-dealing were undertaken for the purpose of enriching defendants at the expense of Caldwell and Caldwell Ventures.

101. The Glenmore Consulting Agreement dated April 30, 2021, executed approximately two weeks before the closing of the acquisition on May 14, 2021, constitutes a self-dealing transaction entered into by Whitfield and Pinnacle Greystone without disclosure to or consent from Caldwell. The payment of $370,000 to an entity controlled by Whitfield's brother-in-law from AYDP project funds, without any discernible benefit to AYDP or its members, is a paradigmatic breach of the duty of loyalty.

102. Defendants profited from the breach of their fiduciary duties, including through the receipt of the $370,000 diverted to Glenmore, through the acquisition of the Property at a price that did not account for the undisclosed encumbrances and contamination, and through the use of Caldwell's capital to fund a project whose true economics were materially different from what was represented.

103. As a direct and proximate result of defendants' breach of fiduciary duty, Caldwell has been damaged in an amount not less than $6,200,000.

104. Caldwell is entitled to disgorgement of all profits derived by defendants from their misconduct, including, without limitation, the $370,000 diverted to Glenmore and any other profits or benefits obtained by defendants as a result of their breaches of fiduciary duty.

105. Defendants' conduct was willful, wanton, and malicious, and demonstrated a conscious disregard for their fiduciary obligations. Such conduct warrants the imposition of punitive damages in an amount to be determined at trial.

FIFTH CAUSE OF ACTION Unjust Enrichment (Against All Defendants)

106. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 105 above as though fully set forth herein.

107. Defendants were enriched at Caldwell's expense by, among other things: (a) inducing Caldwell to invest $5,920,000 in a project whose true value, condition, and economics were materially different from what defendants represented; (b) obtaining the use and benefit of Caldwell's capital to fund the acquisition and development of the Property; and (c) diverting $370,000 in AYDP project funds to Glenmore Realty Advisors Inc., a related party controlled by Whitfield's brother-in-law, without Caldwell's knowledge or consent.

108. Caldwell Ventures' 40% pro rata share of the $370,000 diverted to Glenmore is $148,000. This amount represents a direct transfer of value from Caldwell to defendants and their related party.

109. Defendants' enrichment was at the expense of and to the detriment of Caldwell. Caldwell invested $5,920,000 in reasonable reliance on defendants' misrepresentations, and the value of that investment has been materially impaired by the undisclosed encumbrances, contamination, inflated projections, and self-dealing described herein.

110. Under the circumstances, it would be against equity and good conscience to permit defendants to retain the benefits they obtained through their fraudulent and self-dealing conduct. Defendants should not be allowed to profit from their own wrong.

111. Caldwell is entitled to restitution of all amounts by which defendants were unjustly enriched, including all benefits derived from Caldwell's investment and from the diversion of project funds to Glenmore.

112. Plaintiffs seek damages in an amount not less than $6,200,000, or, in the alternative, the full amount of defendants' unjust enrichment, as determined at trial.

SIXTH CAUSE OF ACTION Aiding and Abetting Fraud (Against Pinnacle Greystone Capital LLC)

113. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 112 above as though fully set forth herein.

114. As set forth above, Whitfield committed fraud against Caldwell by making material misrepresentations and omissions regarding the condition, encumbrances, and economics of the Property, and by diverting project funds to a related party through the concealed Glenmore Consulting Agreement.

115. Pinnacle Greystone Capital LLC, as Whitfield's sole vehicle for conducting the transaction, had actual knowledge of Whitfield's fraud and substantially assisted Whitfield in the commission of the fraud. Pinnacle Greystone was not a passive instrumentality but was the active corporate vehicle through which each element of the fraud was executed.

116. Pinnacle Greystone was the entity through which Whitfield sourced the deal, executed the acquisition, retained Ridgepoint to conduct the environmental assessments, received and controlled the Phase II assessment results, prepared and circulated the Investment Materials (including the inflated pro forma), entered into the Glenmore Consulting Agreement, and made the material misrepresentations and omissions to Caldwell. Every fraudulent act and omission attributed to Whitfield was accomplished through Pinnacle Greystone.

117. Pinnacle Greystone's actual knowledge of the fraud is established by the identity of interest between Pinnacle Greystone and Whitfield. Whitfield is the sole member and sole manager of Pinnacle Greystone. Whitfield's knowledge is therefore imputed to Pinnacle Greystone as a matter of law, and Pinnacle Greystone had the same knowledge of the misrepresentations, omissions, and self-dealing as Whitfield himself.

118. Pinnacle Greystone substantially assisted the fraud by, among other things: (a) serving as the contracting party for the undisclosed Glenmore Consulting Agreement; (b) executing the disbursement of $370,000 in AYDP project funds to Glenmore; (c) controlling the flow of information regarding the Property's tax liens, environmental condition, and rental income potential; (d) preparing and circulating the Investment Materials containing the inflated pro forma rent roll; and (e) concealing the Phase II environmental assessment from Caldwell and from AYDP's records.

119. As a direct and proximate result of Pinnacle Greystone's aiding and abetting of Whitfield's fraud, Caldwell has been damaged in an amount not less than $6,200,000.

120. Pinnacle Greystone's conduct in knowingly and substantially assisting Whitfield's fraud was willful, wanton, and malicious, and warrants the imposition of punitive damages in an amount to be determined at trial.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs Jonathan R. Caldwell and Caldwell Urban Ventures LLC respectfully request that this Court enter judgment as follows:

(a) On the First Cause of Action for Common-Law Fraud, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;

(b) On the Second Cause of Action for Fraudulent Inducement, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;

(c) On the Third Cause of Action for Constructive Fraud, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;

(d) On the Fourth Cause of Action for Breach of Fiduciary Duty, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with disgorgement of all profits derived by Defendants from their misconduct, and punitive damages in an amount to be determined at trial;

(e) On the Fifth Cause of Action for Unjust Enrichment, awarding Plaintiffs restitution and/or damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, or, in the alternative, the full amount of Defendants' unjust enrichment;

(f) On the Sixth Cause of Action for Aiding and Abetting Fraud, awarding Plaintiffs compensatory damages against Defendant Pinnacle Greystone Capital LLC in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;

(g) Awarding Plaintiffs prejudgment interest at the statutory rate from May 14, 2021 through the date of judgment;

(h) Awarding Plaintiffs the costs and disbursements of this action;

(i) Granting such other and further relief as this Court deems just and proper.

VERIFICATION

STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )

Jonathan R. Caldwell, being duly sworn, deposes and says:

I am a plaintiff in this action. I have read the foregoing Verified Complaint and know the contents thereof. The same is true to my knowledge, except as to those matters therein stated to be alleged upon information and belief, and as to those matters, I believe them to be true.

The reason this verification is made by me and not by Caldwell Urban Ventures LLC is that I am the sole member and manager of Caldwell Urban Ventures LLC and am fully familiar with the facts alleged herein.

________________________________________

JONATHAN R. CALDWELL

Sworn to before me this __ day of September 2023.

________________________________________

Notary Public, State of New York

My Commission Expires: ____

ATTORNEY SIGNATURE BLOCK

CALDERWOOD & HARKNESS LLP Attorneys for Plaintiffs Jonathan R. Caldwell and Caldwell Urban Ventures LLC 599 Lexington Avenue, 34th Floor New York, New York 10022 Telephone: (212) 555-4800 Facsimile: (212) 555-4801

By: ________

Douglas Carmichael, Esq.

Dated: September 18, 2023

ATTORNEYS' CERTIFICATION PURSUANT TO 22 NYCRR § 130-1.1a

The undersigned, an attorney admitted to practice in the courts of the State of New York, hereby certifies that, upon information and belief formed after an inquiry reasonable under the circumstances, the contentions contained in the foregoing Verified Complaint are not frivolous as defined in 22 NYCRR Section 130-1.1(c). Specifically, the claims and factual contentions set forth in the Verified Complaint have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation and discovery.

________________________________________

Douglas Carmichael, Esq. CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 34th Floor New York, New York 10022

Dated: September 18, 2023

JONATHAN R. CALDWELL and CALDWELL URBAN VENTURES LLC,

Index No. 519847/2023

Plaintiffs,

-against-

MARCUS D. WHITFIELD and PINNACLE GREYSTONE CAPITAL LLC,

Defendants.

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS
SUMMONS
TO THE ABOVE-NAMED DEFENDANTS:
MARCUS D. WHITFIELD 88 Montague Street, Penthouse B Brooklyn, New York 11201
PINNACLE GREYSTONE CAPITAL LLC 330 Furman Street, Suite 410 Brooklyn, New York 11201
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance on Plaintiffs' attorneys within twenty (20) days after the service of this summons, exclusive of the day of service (or within thirty (30) days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint.
Venue: The basis of the venue designated is Kings County, which is the county in which the subject real property is situated, to wit, the premises located at 540-548 Atlantic Avenue, Brooklyn, New York 11217, and is the county in which both defendants reside and/or maintain their principal offices.
Dated: September 18, 2023 New York, New York
CALDERWOOD & HARKNESS LLP Attorneys for Plaintiffs 599 Lexington Avenue, 34th Floor New York, New York 10022 Tel: (212) 555-4800
Fax: (212) 555-4801
By: ________
Douglas Carmichael, Esq. Francesca Morano, Esq. Patrick Gallagher, Esq. Simone Laroche, Esq.
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS
Plaintiffs Jonathan R. Caldwell ("Caldwell") and Caldwell Urban Ventures LLC ("Caldwell Ventures"), by their attorneys, Calderwood & Harkness LLP, for their verified complaint against defendants Marcus D. Whitfield ("Whitfield") and Pinnacle Greystone Capital LLC ("Pinnacle Greystone"), allege upon knowledge as to their own acts and upon information and belief as to all other matters, as follows:
PRELIMINARY STATEMENT
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 fully below, defendants engaged in a calculated pattern of misrepresentation, concealment, and self-dealing that was designed to induce Caldwell to commit millions of dollars to a project whose true condition, encumbrances, and economics were fundamentally different from what defendants represented.
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 on the Property, and Caldwell reposed trust and confidence in Whitfield and Pinnacle Greystone as the managing co-investors responsible for sourcing, vetting, and overseeing the investment.
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 contamination on the Property requiring an estimated $620,000 in remediation costs, while representing to Caldwell that environmental assessments of the Property were "clean";
(c) provided Caldwell with an inflated pro forma rent roll projecting $2,160,000 in annual gross rental income at stabilization when market rents for the Property, as subsequently confirmed by independent analysis, supported only approximately $1,580,000 in annual gross rental income — an overstatement of approximately $580,000 per year, or approximately 26.9%; and
(d) entered into a concealed consulting agreement dated April 30, 2021, with Glenmore Realty Advisors Inc. — a firm controlled by Neil Osterberg, Whitfield's brother-in-law — under which $370,000 in project funds were diverted to Glenmore as an "acquisition advisory fee" without Caldwell's knowledge or consent.
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 loan. It was only upon receipt of those updated reports — which Caldwell had no prior occasion or ability to independently obtain given Whitfield's exclusive control over due diligence materials — that the full scope of defendants' fraud came to light.
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 interest, costs, and such other relief as this Court deems just and proper.
PARTIES
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 in approximately 2018. Caldwell holds a Bachelor of Science in Finance from the Wharton School of the University of Pennsylvania and a Master of Business Administration from Columbia Business School. Caldwell's estimated net worth is approximately $34,000,000, of which approximately $19,000,000 is deployed in real estate investments in the New York metropolitan area.
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 in the Property and holds a 40% membership interest in Atlantic Yards Development Partners LLC, the special purpose vehicle organized for the acquisition and development of the Property.
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 Queens, New York. Whitfield holds a Bachelor of Arts in Economics from New York University and a Juris Doctor from Fordham University School of Law, though he is not admitted to practice law and does not hold an active license in any jurisdiction.
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 responsible for sourcing the deal, conducting all due diligence, managing the acquisition process, and overseeing the development and renovation of the Property. Pinnacle Greystone holds a 60% membership interest in AYDP.
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 is National Filing Services Inc., 28 Liberty Street, New York, New York 10005. AYDP is the entity that holds fee simple title to the Property.
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 County.
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 ALLEGATIONS
A. Background of the Co-Investment Relationship
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 space that Whitfield proposed to convert to residential use. The Property is situated in a rapidly developing corridor of Brooklyn with proximity to the Atlantic Terminal, Northpoint Financial Center, and multiple subway lines, which Whitfield emphasized as indicators of strong demand and appreciation potential.
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 profile relative to comparable opportunities in the Brooklyn market at that time.
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 Investment Materials were prepared by or under the direction of Whitfield and Pinnacle Greystone and were presented to Caldwell for the purpose of inducing Caldwell to participate in the co-investment.
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 subsequent capital calls to finance the renovation and conversion of the building.
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 ground-floor retail spaces, facade restoration, and building systems replacement.
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 approximately 2.13x on invested equity. These returns were presented by Whitfield as achievable within a projected timeline of approximately 30 to 36 months from acquisition to stabilization.
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 contribution of $2,072,000 on or about May 14, 2021, and subsequently funded additional capital calls in the aggregate amount of $3,848,000, bringing Caldwell Ventures' total equity investment to $5,920,000.
B. Whitfield's Material Misrepresentations and Omissions
(i) Concealment of $1,340,000 in Pre-Existing Tax Liens
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 communications between Whitfield and Caldwell in or about April and May 2021.
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 not independently retain a title company or conduct his own lien search, relying instead on Whitfield's representations and on Whitfield's assumed performance of his obligations as managing co-investor.
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 Assessment
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 laboratory analysis of soil and groundwater samples collected from the Property.
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 approximately $620,000, inclusive of excavation, soil disposal, groundwater monitoring, and regulatory compliance costs.
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 disclose that a Phase II assessment had been conducted at all, and did not disclose the findings of petroleum contamination or the estimated $620,000 remediation cost. The Investment Materials made no reference to the Phase II assessment or to any environmental contamination.
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 contamination been disclosed.
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 in this regard.
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 or to AYDP.
(iii) Inflation of the Pro Forma Rent Roll
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 in reliance on Whitfield's expertise and local market knowledge.
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 comprehensive market study, including a review of comparable rental transactions, current asking rents for similar properties in the Atlantic Avenue corridor and surrounding neighborhoods, and interviews with local commercial and residential leasing brokers.
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 approximately 26.9% above actual achievable market rents.
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 have entered into the co-investment on the terms presented.
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.
(iv) Concealed Side Agreement with Glenmore Realty Advisors Inc.
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-investor.
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, and was not consulted regarding or asked to approve the payment of the $370,000 fee.
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 information and belief, the services purportedly rendered by Glenmore were either not performed at all or were duplicative of services that Whitfield and Pinnacle Greystone were already obligated to perform in their capacity as managing co-investor.
C. Discovery of the Fraud
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 contamination that had encumbered the project from its inception.
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 event of default under the loan agreement, potentially triggering acceleration of the loan and foreclosure on the Property.
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. Whitfield had affirmatively represented that environmental assessments of the Property were "clean."
61. Upon learning of the undisclosed tax liens and environmental contamination, Caldwell conducted further investigation into the finances and operations of AYDP. In the course of this investigation, Caldwell also discovered the Glenmore Consulting Agreement dated April 30, 2021, and the payment of $370,000 in AYDP project funds to Glenmore Realty Advisors Inc. The Glenmore Consulting Agreement was found among AYDP's financial records, which Whitfield had theretofore controlled and to which Caldwell had not been afforded regular or meaningful access.
62. Additionally, Caldwell retained the certified public accounting firm of Ellerby & Associates CPAs LLP to conduct an independent analysis of the pro forma rent roll that Whitfield had included in the Investment Materials. The analysis performed by Ellerby & Associates confirmed that the pro forma overstated projected annual gross rental income by approximately $580,000 per year, or approximately 26.9%, above achievable market rents. This analysis corroborated Caldwell's growing concern that the Investment Materials had been systematically inflated and manipulated to induce his investment.
D. Damages
63. As a direct and proximate result of defendants' fraud, fraudulent inducement, constructive fraud, breach of fiduciary duty, unjust enrichment, and aiding and abetting, Caldwell has suffered damages in an amount not less than $6,200,000.
64. Caldwell's total out-of-pocket equity investment in AYDP through Caldwell Ventures was $5,920,000, consisting of $2,072,000 in closing equity funded on or about May 14, 2021, and $3,848,000 in subsequent capital call contributions. This entire investment was made in reliance on defendants' material misrepresentations and omissions.
65. Caldwell Ventures' 40% pro rata share of the $370,000 in AYDP project funds diverted to Glenmore Realty Advisors Inc. under the concealed Glenmore Consulting Agreement is $148,000. This amount represents a direct diminution of the value of Caldwell's investment attributable to defendants' self-dealing.
66. In addition, Caldwell has incurred approximately $132,000 in additional carrying costs, professional fees (including accounting, appraisal, and legal fees incurred in connection with the investigation and discovery of defendants' fraud), and lost opportunity costs directly attributable to defendants' misconduct. These additional costs include, without limitation, fees paid to Ellerby & Associates CPAs LLP for the independent rent roll analysis, fees paid to Tidewater Appraisal Group LLC for the retrospective appraisal, and the diversion of Caldwell's time, resources, and capital from other investment opportunities.
67. Total compensatory damages suffered by Caldwell as a result of defendants' conduct amount to not less than $6,200,000, calculated as follows:
68. Tidewater Appraisal Group LLC, located at 26 Court Street, Suite 901, Brooklyn, New York 11242 (senior appraiser Kevin Romero, MAI), has conducted a retrospective appraisal of the Property as of the acquisition date of May 14, 2021. The Tidewater appraisal confirms that the true as-is value of the Property at the time of acquisition, accounting for the undisclosed $1,340,000 in tax liens, the $620,000 in environmental remediation costs, and the correct market rental income of approximately $1,580,000 per year, was materially below the $14,800,000 acquisition price paid by AYDP. Plaintiffs will offer the Tidewater appraisal and the expert testimony of Kevin Romero, MAI, at trial.
69. Defendants' conduct, as described herein, was willful, wanton, and malicious. Defendants engaged in a deliberate and calculated scheme to defraud their co-investor, concealing critical information and affirmatively misrepresenting the condition, encumbrances, and economics of the Property in order to induce Caldwell's investment and to divert project funds to a related party for their own benefit. Such conduct warrants the imposition of punitive damages in an amount sufficient to punish defendants and to deter similar conduct in the future.
70. Plaintiffs respectfully reserve the right to amend the damages sought herein as additional information is obtained through discovery in this action. Plaintiffs anticipate that discovery will reveal additional instances of misconduct, self-dealing, and misrepresentation by defendants, and that the full extent of plaintiffs' damages may exceed the amounts currently alleged.
CAUSES OF ACTION
FIRST CAUSE OF ACTION Common-Law Fraud (Against All Defendants)
71. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 70 above as though fully set forth herein.
72. Defendants made material misrepresentations of fact to Caldwell, including, but not limited to, the following: (a) that the Property was free and clear of real property tax liens when, in fact, the Property was encumbered by $1,340,000 in outstanding New York City tax liens; (b) that environmental assessments of the Property were "clean" when, in fact, a Phase II environmental site assessment had revealed petroleum contamination requiring an estimated $620,000 in remediation; (c) that the pro forma rent roll projecting $2,160,000 in annual gross rental income at stabilization was reflective of market conditions when, in fact, market rents supported only approximately $1,580,000, an overstatement of approximately 26.9%; and (d) that no side agreements with related parties existed, when, in fact, Pinnacle Greystone had entered into the concealed Glenmore Consulting Agreement under which $370,000 in project funds were diverted to an entity controlled by Whitfield's brother-in-law.
73. Each of these representations was false when made. The Property was encumbered by $1,340,000 in tax liens. The Phase II environmental assessment was not "clean" but revealed contamination requiring costly remediation. The pro forma rent roll was inflated by approximately 26.9%. And the Glenmore Consulting Agreement existed and resulted in the undisclosed diversion of $370,000.
74. Defendants knew that the foregoing representations were false at the time they were made, or defendants made the representations recklessly, without knowledge of their truth or falsity and with a conscious disregard for the truth. Whitfield had access to the title reports disclosing the tax liens, had received the Phase II environmental assessment from Ridgepoint, had prepared or directed the preparation of the inflated pro forma, and had personally executed the Glenmore Consulting Agreement.
75. The material misrepresentations were made by defendants with the intent to induce Caldwell's reliance thereon and to cause Caldwell to invest $5,920,000 in the project through Caldwell Ventures. Defendants' purpose in making the misrepresentations was to secure Caldwell's participation as a co-investor and to obtain the benefit of Caldwell's capital.
76. Caldwell justifiably relied on defendants' representations in deciding to enter into the co-investment, in forming AYDP, in executing the AYDP operating agreement, and in funding his equity contributions totaling $5,920,000.
77. Caldwell's reliance was reasonable under the circumstances. Whitfield and Pinnacle Greystone were the managing co-investors who had sourced the deal, conducted all due diligence, and controlled the flow of information regarding the Property. Caldwell had no independent access to the title reports, environmental assessments, or other due diligence materials, and was entitled to rely on Whitfield's representations as the managing co-investor charged with conducting and reporting on due diligence.
78. As a direct and proximate result of defendants' fraud, Caldwell has been damaged in an amount not less than $6,200,000, as set forth more fully above.
79. Defendants' fraudulent conduct was egregious, willful, wanton, and malicious, and demonstrated a conscious disregard for the rights of their co-investor. Such conduct warrants the imposition of punitive damages in an amount to be determined at trial.
SECOND CAUSE OF ACTION Fraudulent Inducement (Against All Defendants)
80. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 79 above as though fully set forth herein.
81. Prior to and in connection with the formation of AYDP, the execution of the AYDP operating agreement, and the closing of the acquisition of the Property on May 14, 2021, defendants made material misrepresentations and omissions to Caldwell for the purpose of inducing Caldwell to enter into the co-investment. These misrepresentations and omissions were made in the Investment Materials, in oral communications, and through defendants' silence and concealment of material facts.
82. Specifically, defendants: (a) concealed $1,340,000 in outstanding New York City real property tax liens on the Property, which Whitfield had represented were resolved; (b) suppressed the Phase II environmental site assessment conducted by Ridgepoint in February 2021, which revealed petroleum contamination requiring an estimated $620,000 in remediation, while representing that environmental assessments were "clean"; (c) inflated the pro forma rent roll by approximately $580,000 per year, or approximately 26.9%, overstating projected annual gross rental income at stabilization by representing $2,160,000 when market rents supported only approximately $1,580,000; and (d) concealed the Glenmore Consulting Agreement dated April 30, 2021, under which $370,000 in AYDP project funds were diverted to an entity controlled by Whitfield's brother-in-law without Caldwell's knowledge or consent.
83. Each of these misrepresentations and omissions was material to Caldwell's decision to invest. The undisclosed tax liens, environmental contamination, inflated rent projections, and concealed related-party transaction, individually and collectively, materially altered the risk profile, economics, and projected returns of the investment. Had any one of these facts been disclosed, Caldwell would have demanded further investigation, renegotiation of the investment terms, or withdrawal from the transaction.
84. Defendants intended that Caldwell rely on the false representations and omissions. Defendants' misrepresentations and concealments were specifically designed to present a materially more favorable picture of the investment than reality warranted, for the purpose of securing Caldwell's participation and capital.
85. But for defendants' misrepresentations and omissions, Caldwell would not have entered into the co-investment, would not have formed AYDP with Pinnacle Greystone, and would not have invested $5,920,000 in the project. Caldwell would have either declined the investment entirely or insisted on a substantially different transaction structure, purchase price, and level of due diligence.
86. Caldwell justifiably relied on defendants' misrepresentations and omissions. As set forth above, Caldwell had no independent access to the due diligence materials controlled by Whitfield and Pinnacle Greystone, and Caldwell reasonably reposed trust and confidence in Whitfield's representations as the managing co-investor.
87. As a direct and proximate result of defendants' fraudulent inducement, Caldwell was induced to invest $5,920,000 in a project whose true condition, encumbrances, and economics were fundamentally different from what was represented. Caldwell has been damaged in an amount not less than $6,200,000.
88. Defendants' conduct in fraudulently inducing Caldwell to invest was willful, wanton, and malicious, and warrants the imposition of punitive damages in an amount to be determined at trial.
THIRD CAUSE OF ACTION Constructive Fraud (Against All Defendants)
89. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 88 above as though fully set forth herein.
90. By virtue of the co-investment arrangement, the formation and operation of AYDP, and Whitfield's and Pinnacle Greystone's role as managing co-investor with exclusive control over due diligence and project management, defendants occupied a position of trust and confidence with respect to Caldwell. This relationship imposed upon defendants duties of candor, full disclosure, good faith, and fair dealing in all matters relating to the co-investment and the Property.
91. Defendants breached the trust and confidence reposed in them by Caldwell by making material misrepresentations and omissions regarding the condition, encumbrances, and economics of the Property, including the concealment of $1,340,000 in tax liens, the suppression of the Phase II environmental assessment revealing $620,000 in remediation costs, the inflation of the pro forma rent roll by approximately 26.9%, and the diversion of $370,000 in project funds to a related party without disclosure or consent.
92. Regardless of whether defendants acted with the specific intent to defraud (i.e., scienter), the misrepresentations and omissions described herein were material, were made in the context of a relationship of trust and confidence, and resulted in injury to Caldwell. Under New York law, a constructive fraud claim lies where a party in a fiduciary or confidential relationship makes material misrepresentations, even absent proof of specific fraudulent intent.
93. Caldwell relied on defendants' representations and on the trust and confidence inherent in the co-investment relationship. Caldwell trusted Whitfield and Pinnacle Greystone to conduct due diligence honestly and to disclose all material information bearing on the investment.
94. Such reliance was reasonable given the nature of the relationship, Whitfield's role as managing co-investor, and Caldwell's lack of independent access to the due diligence materials and project records controlled by defendants.
95. As a direct and proximate result of defendants' constructive fraud, Caldwell has been damaged in an amount not less than $6,200,000.
96. Defendants' conduct was sufficiently egregious to warrant the imposition of punitive damages in an amount to be determined at trial.
FOURTH CAUSE OF ACTION Breach of Fiduciary Duty (Against All Defendants)
97. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 96 above as though fully set forth herein.
98. As co-members of AYDP and as the managing co-investor with exclusive control over due diligence, acquisition management, and development oversight, Whitfield and Pinnacle Greystone owed fiduciary duties to Caldwell and Caldwell Ventures. These duties included, without limitation, duties of loyalty, candor, good faith, and fair dealing, as well as obligations to refrain from self-dealing, to disclose all material information, and to act in the best interests of AYDP and all of its members.
99. Defendants breached their fiduciary duties by:
(a) concealing material information regarding the Property's $1,340,000 in outstanding real property tax liens;
(b) suppressing the Phase II environmental site assessment revealing petroleum contamination requiring an estimated $620,000 in remediation;
(c) inflating the pro forma rent roll by approximately 26.9% to overstate the projected returns of the investment;
(d) entering into the self-dealing Glenmore Consulting Agreement with an entity controlled by Whitfield's brother-in-law; and
(e) diverting $370,000 in AYDP project funds to Glenmore as an "acquisition advisory fee" without Caldwell's knowledge or consent.
100. Defendants placed their own financial interests above those of their co-investor and above the interests of AYDP. Defendants' concealment of material information and self-dealing were undertaken for the purpose of enriching defendants at the expense of Caldwell and Caldwell Ventures.
101. The Glenmore Consulting Agreement dated April 30, 2021, executed approximately two weeks before the closing of the acquisition on May 14, 2021, constitutes a self-dealing transaction entered into by Whitfield and Pinnacle Greystone without disclosure to or consent from Caldwell. The payment of $370,000 to an entity controlled by Whitfield's brother-in-law from AYDP project funds, without any discernible benefit to AYDP or its members, is a paradigmatic breach of the duty of loyalty.
102. Defendants profited from the breach of their fiduciary duties, including through the receipt of the $370,000 diverted to Glenmore, through the acquisition of the Property at a price that did not account for the undisclosed encumbrances and contamination, and through the use of Caldwell's capital to fund a project whose true economics were materially different from what was represented.
103. As a direct and proximate result of defendants' breach of fiduciary duty, Caldwell has been damaged in an amount not less than $6,200,000.
104. Caldwell is entitled to disgorgement of all profits derived by defendants from their misconduct, including, without limitation, the $370,000 diverted to Glenmore and any other profits or benefits obtained by defendants as a result of their breaches of fiduciary duty.
105. Defendants' conduct was willful, wanton, and malicious, and demonstrated a conscious disregard for their fiduciary obligations. Such conduct warrants the imposition of punitive damages in an amount to be determined at trial.
FIFTH CAUSE OF ACTION Unjust Enrichment (Against All Defendants)
106. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 105 above as though fully set forth herein.
107. Defendants were enriched at Caldwell's expense by, among other things: (a) inducing Caldwell to invest $5,920,000 in a project whose true value, condition, and economics were materially different from what defendants represented; (b) obtaining the use and benefit of Caldwell's capital to fund the acquisition and development of the Property; and (c) diverting $370,000 in AYDP project funds to Glenmore Realty Advisors Inc., a related party controlled by Whitfield's brother-in-law, without Caldwell's knowledge or consent.
108. Caldwell Ventures' 40% pro rata share of the $370,000 diverted to Glenmore is $148,000. This amount represents a direct transfer of value from Caldwell to defendants and their related party.
109. Defendants' enrichment was at the expense of and to the detriment of Caldwell. Caldwell invested $5,920,000 in reasonable reliance on defendants' misrepresentations, and the value of that investment has been materially impaired by the undisclosed encumbrances, contamination, inflated projections, and self-dealing described herein.
110. Under the circumstances, it would be against equity and good conscience to permit defendants to retain the benefits they obtained through their fraudulent and self-dealing conduct. Defendants should not be allowed to profit from their own wrong.
111. Caldwell is entitled to restitution of all amounts by which defendants were unjustly enriched, including all benefits derived from Caldwell's investment and from the diversion of project funds to Glenmore.
112. Plaintiffs seek damages in an amount not less than $6,200,000, or, in the alternative, the full amount of defendants' unjust enrichment, as determined at trial.
SIXTH CAUSE OF ACTION Aiding and Abetting Fraud (Against Pinnacle Greystone Capital LLC)
113. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 112 above as though fully set forth herein.
114. As set forth above, Whitfield committed fraud against Caldwell by making material misrepresentations and omissions regarding the condition, encumbrances, and economics of the Property, and by diverting project funds to a related party through the concealed Glenmore Consulting Agreement.
115. Pinnacle Greystone Capital LLC, as Whitfield's sole vehicle for conducting the transaction, had actual knowledge of Whitfield's fraud and substantially assisted Whitfield in the commission of the fraud. Pinnacle Greystone was not a passive instrumentality but was the active corporate vehicle through which each element of the fraud was executed.
116. Pinnacle Greystone was the entity through which Whitfield sourced the deal, executed the acquisition, retained Ridgepoint to conduct the environmental assessments, received and controlled the Phase II assessment results, prepared and circulated the Investment Materials (including the inflated pro forma), entered into the Glenmore Consulting Agreement, and made the material misrepresentations and omissions to Caldwell. Every fraudulent act and omission attributed to Whitfield was accomplished through Pinnacle Greystone.
117. Pinnacle Greystone's actual knowledge of the fraud is established by the identity of interest between Pinnacle Greystone and Whitfield. Whitfield is the sole member and sole manager of Pinnacle Greystone. Whitfield's knowledge is therefore imputed to Pinnacle Greystone as a matter of law, and Pinnacle Greystone had the same knowledge of the misrepresentations, omissions, and self-dealing as Whitfield himself.
118. Pinnacle Greystone substantially assisted the fraud by, among other things: (a) serving as the contracting party for the undisclosed Glenmore Consulting Agreement; (b) executing the disbursement of $370,000 in AYDP project funds to Glenmore; (c) controlling the flow of information regarding the Property's tax liens, environmental condition, and rental income potential; (d) preparing and circulating the Investment Materials containing the inflated pro forma rent roll; and (e) concealing the Phase II environmental assessment from Caldwell and from AYDP's records.
119. As a direct and proximate result of Pinnacle Greystone's aiding and abetting of Whitfield's fraud, Caldwell has been damaged in an amount not less than $6,200,000.
120. Pinnacle Greystone's conduct in knowingly and substantially assisting Whitfield's fraud was willful, wanton, and malicious, and warrants the imposition of punitive damages in an amount to be determined at trial.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs Jonathan R. Caldwell and Caldwell Urban Ventures LLC respectfully request that this Court enter judgment as follows:
(a) On the First Cause of Action for Common-Law Fraud, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;
(b) On the Second Cause of Action for Fraudulent Inducement, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;
(c) On the Third Cause of Action for Constructive Fraud, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;
(d) On the Fourth Cause of Action for Breach of Fiduciary Duty, awarding Plaintiffs compensatory damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, together with disgorgement of all profits derived by Defendants from their misconduct, and punitive damages in an amount to be determined at trial;
(e) On the Fifth Cause of Action for Unjust Enrichment, awarding Plaintiffs restitution and/or damages against all Defendants, jointly and severally, in an amount not less than $6,200,000, or, in the alternative, the full amount of Defendants' unjust enrichment;
(f) On the Sixth Cause of Action for Aiding and Abetting Fraud, awarding Plaintiffs compensatory damages against Defendant Pinnacle Greystone Capital LLC in an amount not less than $6,200,000, together with punitive damages in an amount to be determined at trial;
(g) Awarding Plaintiffs prejudgment interest at the statutory rate from May 14, 2021 through the date of judgment;
(h) Awarding Plaintiffs the costs and disbursements of this action;
(i) Granting such other and further relief as this Court deems just and proper.
VERIFICATION
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )
Jonathan R. Caldwell, being duly sworn, deposes and says:
I am a plaintiff in this action. I have read the foregoing Verified Complaint and know the contents thereof. The same is true to my knowledge, except as to those matters therein stated to be alleged upon information and belief, and as to those matters, I believe them to be true.
The reason this verification is made by me and not by Caldwell Urban Ventures LLC is that I am the sole member and manager of Caldwell Urban Ventures LLC and am fully familiar with the facts alleged herein.
________________________________________
JONATHAN R. CALDWELL
Sworn to before me this __ day of September 2023.
________________________________________
Notary Public, State of New York
My Commission Expires: ____
ATTORNEY SIGNATURE BLOCK
CALDERWOOD & HARKNESS LLP Attorneys for Plaintiffs Jonathan R. Caldwell and Caldwell Urban Ventures LLC 599 Lexington Avenue, 34th Floor New York, New York 10022 Telephone: (212) 555-4800 Facsimile: (212) 555-4801
By: ________
Douglas Carmichael, Esq.
Dated: September 18, 2023
ATTORNEYS' CERTIFICATION PURSUANT TO 22 NYCRR § 130-1.1a
The undersigned, an attorney admitted to practice in the courts of the State of New York, hereby certifies that, upon information and belief formed after an inquiry reasonable under the circumstances, the contentions contained in the foregoing Verified Complaint are not frivolous as defined in 22 NYCRR Section 130-1.1(c). Specifically, the claims and factual contentions set forth in the Verified Complaint have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation and discovery.
________________________________________
Douglas Carmichael, Esq. CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 34th Floor New York, New York 10022
Dated: September 18, 2023
JONATHAN R. CALDWELL and CALDWELL URBAN VENTURES LLC,
Index No. 519847/2023
Plaintiffs,
-against-
MARCUS D. WHITFIELD and PINNACLE GREYSTONE CAPITAL LLC,
Defendants.
JONATHAN R. CALDWELL and CALDWELL URBAN VENTURES LLC,
Index No. 519847/2023
Plaintiffs,
-against- | VERIFIED COMPLAINT
MARCUS D. WHITFIELD and PINNACLE GREYSTONE CAPITAL LLC, | Filed: September 18, 2023
Defendants.
Category | Amount
Total out-of-pocket equity investment | $5,920,000
40% share of diverted Glenmore fee | $148,000
Additional carrying costs, professional fees, and lost opportunity costs | $132,000
Total Compensatory Damages | $6,200,000

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS

SUMMONS

TO THE ABOVE-NAMED DEFENDANTS:

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS

PRELIMINARY STATEMENT

PARTIES

JURISDICTION AND VENUE

FACTUAL ALLEGATIONS

CAUSES OF ACTION

PRAYER FOR RELIEF

VERIFICATION

JONATHAN R. CALDWELL

ATTORNEY SIGNATURE BLOCK

Record

Parties

Dates

Amounts