## Facts

- Steve Pappas, Constantine Ifantopoulos, and Steve Tzolis formed Vrahos LLC to acquire a long-term lease for a Lower Manhattan building.
- The members contributed capital ($50,000 from Pappas; $50,000 from Tzolis; $25,000 from Ifantopoulos) and executed an operating agreement permitting members to pursue other ventures, including competing ventures, without obligation to the LLC or other members.
- The parties’ relationship deteriorated amid business disputes, and Tzolis took control of the premises and caused the LLC to sublease to an entity he owned.
- On January 18, 2007, Tzolis bought out plaintiffs’ membership interests for $1,000,000 (Pappas) and $500,000 (Ifantopoulos).
- At the closing, plaintiffs executed a certificate stating, in substance, that they conducted their own due diligence, had counsel, were not relying on Tzolis’s representations outside the written documents, and that Tzolis owed them “no fiduciary duty” in connection with the assignments.
- In August 2007, after becoming sole owner, Tzolis caused the LLC to assign the lease for $17,500,000.
- Plaintiffs later alleged Tzolis secretly negotiated that assignment before buying them out and sued for breach of fiduciary duty, fraud/misrepresentation, conversion, and unjust enrichment.

## Issues

1. Whether LLC members who sold their interests to a co-member could sue for breach of fiduciary duty based on nondisclosure, despite a transaction-specific written acknowledgment that the buyer owed “no fiduciary duty” in the transaction.
2. Whether fraud/misrepresentation claims based on alleged nondisclosure of negotiations could proceed despite explicit nonreliance language limiting reliance to written closing documents.
3. Whether conversion and unjust enrichment claims could be maintained where the buyer obtained plaintiffs’ interests through written agreements governing the transaction.

## Decision

- The New York Court of Appeals reversed the Appellate Division and reinstated dismissal of the complaint in its entirety.
- The court held that the plaintiffs’ fiduciary-duty and fraud-based theories were foreclosed by the specific, bargained-for “no fiduciary duty” and nonreliance statements executed at closing by sophisticated parties represented by counsel.
- The court concluded that, given the parties’ adversarial posture and express disclaimers, plaintiffs could not plausibly claim justifiable reliance on omissions or extra-contractual representations.
- The court rejected conversion because Tzolis legally purchased the membership interests and did not wrongfully exercise dominion over property in which plaintiffs retained rights.
- The court rejected unjust enrichment because the parties’ rights and obligations were governed by their contracts, leaving no basis to impose equitable relief to alter the negotiated allocation of risk.

## Legal Principles

- Sophisticated parties may, through specific contractual language, disclaim reliance on extra-contractual representations and thereby bar later fraud claims premised on nondisclosure outside the written agreements.
- Parties to a buyout may contractually limit or negate fiduciary obligations as to that transaction through a clear, transaction-specific “no fiduciary duty” acknowledgment.
- Justifiable reliance is not established where the parties’ relationship is openly conflicted and the claimant expressly agrees it is not relying on the counterparty’s representations beyond the written documents.
- Conversion requires wrongful dominion over another’s property; lawful acquisition of the claimant’s ownership interest defeats the claim.
- Unjust enrichment is unavailable where valid, comprehensive contracts govern the subject matter of the dispute.

## Conclusion

The Court of Appeals enforced the buyout’s explicit nonreliance and “no fiduciary duty” disclaimers and dismissed all claims, holding that sophisticated LLC members who contractually accepted those terms could not later recast alleged nondisclosure of negotiations as fiduciary, fraud, conversion, or unjust enrichment liability.


Pappas v. Tzolis, 20 N.Y.3d 228 (N.Y. 2012)