INDE
X
NO. 13614/02
SUPREME COURT - STATE OF NEW YORK
IAS TERM PART 23 NASSAU COUNTY
PRESENT:
HONORABLE LEONARD B. AUSTIN
Justice
Motion R/D: 10-30-02
Submission Date: 02-I 8-03
Motion Sequence No.: OOl/MOT D
X
ANGELA MOTTAHEDEH, as Trustee
and PARVIZ LAVI,
Plaintiff,
COUNSEL FOR PLAINTIFF
Dollinger, Gonski & Grossman, Esqs.
1 Old Country Road
Carle Place, New York 11514
- against -
COUNSEL FOR DEFENDANTS
Michael G. Levin, Esq.
98 Cutter Mill Road - Suite 395N
Great Neck, New York 11021
OLD CEDAR DEVELOPMENT CORP.
and M. PIERRE RAFIY,
Defendants.
ORDER
The following papers were read on Defendant ’s motion to dismiss:
Notice of Motion dated September 27, 2002;
Affirmation of Michael G. Levin, Esq. dated September 27, 2002;
Affirmation of Matthew Dollinger, Esq. dated December 12, 2002;
Affidavit of Pat-viz Lavi sworn to on December 12, 2002;
Affidavit of Kourosh Javaheri sworn to on December 12, 2002;
Affirmation of Michael G. Levin, Esq. dated February 4, 2003.
INTRODUCTION
Defendants move to dismiss this action pursuant to [I] CPLR 3211 (a) (1)
because of a defense based upon documentary evidence; [2] CPLR 3211 (a) (3) based
upon Plaintiffs’lack of standing to bring this action; [3] CPLR 3211 (a) (4) on the ground
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of prior actions pending; [4] CPLR 3211 (a) (5) upon the ground of the action is barred
by collateral estoppel or resjudicafa; [5] CPLR 3211 (a) (7) failure to state a cause of
action; [6] CPLR 3211 (a) (10) failure to join an indispensable party; and
[7] CPLR 3016
(b) because the complaint fails to plead a cause of action against M. Pierre Rafiy with
sufficient specificity.
This is the fourth action or special proceeding commenced in which the question
of the current the ownership 19 shares of Old Cedar Development Corp. (
“Old Cedar ”),
issued to Plaintiff Pat-viz Lavi ( “Lavi ”) in 1990, has been presented. Although this issue
was raised in the three prior actions or proceedings, the Plaintiffs argue that it has
never been judicially determined. The confusion is compounded by the fact that
Plaintiffs in this action Lavi and his daughter, Angela Mottahedeh, take irreconcilably
different positions and make diametrically opposed allegations in the various actions
and proceedings which precede this action.
BACKGROUND
Old Cedar is the owner of real property in Old Brookville, New York on which the
Cedar Brook Country Club is located. The property is leased to the country club.
Defendant M. Pierre Rafiy ( “Rafiy ”) is the president and a director of Old Cedar.
He is also a shareholder in Old Cedar.
On July 20, 1987, Lavi along with the other Old Cedar shareholders, executed
the Old Cedar Subscriber and Stockholders Agreement (
“Shareholder Agreement ”).
Pursuant to Paragraph 13 of this agreement, all Subscribers and Shareholders agreed:
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“In the event that any shareholder shall * * *
have a money judgment entered against him which
remains unsatisfied for a period of 10 days, then and
in such event, the shares of the Corporation shall be
deemed to have been sold to the Corporation for the
amount of the original subscription. ”
Lavi paid the sum of $2,375,000.00 as the initial subscription price. On May 1 ,I 990 a
stock certificate was issued to Lavi evidencing his ownership of 19 shares of Old Cedar.
A.
Creation of the Lavi Trust
In November, 1993, Lavi created an irrevocable trust for the benefit of his
children (the “Lavi Trust ”). His daughter, Angela Mottahedeh ( “Mottahedeh ” or
“Trustee ”), was named as the sole trustee. Mottahedeh continues to serve as the sole
trustee of this trust.
B.
Litiaation with Jamshid Lavi
Lavi and his brother, Jamshid Lavi, were involved in an action entitled Jamshid
Lavi against Pat-viz Lavi and Omega industries Development Corporations
which bore
Supreme Court, Nassau County Index No. 24491/95 (“Jamshid action ”). Just prior to an
inquest on damages in the Jamshid action, the action was settled as part of a general
settlement of all litigation involving the Lavi brothers.
In accordance with the terms of the settlement agreement,
Jamshid Lavi entered
a judgment against Par-viz Lavi in the sum of $1,805,156.56 on May 27, 1998. The
settlement agreement provided that this judgment was to be immediately assigned to
Edmond Lavi.
MOTTAHEDEH, et a/., v. OLD CEDAR DEVELOPMENT CORP. et a/.,
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Instead of assigning this judgment to Edmond Lavi, Jamshid Lavi asserted that
Lavi violated the provisions of the settlement agreement by failing to execute
documents necessary to effectuate the settlement and by failing to pay legal fees.
Jamshid Lavi asserted that this breach of the settlement agreement by Lavi permitted
him to enforce the judgment.
As a result, Jamshid Lavi served a restraining notice upon Old Cedar preventing
Old Cedar from making any distribution on account of Lavi
’s shares of Old Cedar.
Jamshid Lavi then commenced a turnover proceeding pursuant to CPLR 5225(b)
seeking an order directing Old Cedar to turn over to Jamshid Lavi all funds of Lavi being
held by Old Cedar pursuant to the restraining notice.
He also sought vacatur of the
transfer of the stock from Lavi to the Lavi trust on the grounds that the transfer
constituted a fraudulent conveyance. Jamshid Lavi thus sought to have Lavi ’s 19
shares be turned over to him.
By order of the Hon. Marvin Segal, IAS Justice presiding, dated April 23, 1999,
the restraining notice was vacated. Justice Segal reasoned that Jamshid Lavi could not
assert that the settlement agreement was void and thereby attempt to enforce a
judgment entered pursuant to the settlement agreement. Justice Segal held that
Jamshid Lavi could either compel compliance with the terms of the settlement
agreement or seek to vacate the agreement but not both. Justice Segal dismissed the
turnover proceeding and vacated the restraining notice served upon Old Cedar. Justice
Segal never reached the issue of who owned the Old Cedar stock or whether the
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transfer from Lavi to the Lavi trust was a fraudulent conveyance.
C.
Transfer of Lavi ’s Old Cedar Stock
By letter dated October 4, 1999, Old Cedar indicated that it would recognize the
transfer of the Old Cedar stock by Lavi to the Lavi Trust and that all distributions made
on the stock by Old Cedar after August 31,1999, would be made to the Trustee. Lavi
was directed to turn in his stock certificate to Old Cedar so that Old Cedar could issue a
new stock certificate to the Trustee evidencing her beneficial ownership these shares.
Since 1999, the K-l ’s issued by Old Cedar for these shares reflect that Mottahedeh, as
Trustee, is the owner of these shares and that the income referable to these shares was
distributed to the Trustee.
D.
Powerserve International Litiaation
An action entitled Powersewe International, Inc., against Edward Lavi and
Edmond Lavi, Individually and as
Parfners of and d/b/a the Continental Group,
Lavi a/k/a Pat-viz Lavi, Tony Zar and Omega Industries
Peter
& Development Corp.
(“Powerserve action ”) was commenced in the United States District Court, Eastern
District of New York in November, 1996.
A brief synopsis of this litigation is appropriate. In September, 1995, Powerserve
entered into an agreement with the Defendants to purchase a specific gas turbine rotor
for $740,000.00. The gas turbine rotor was identified by its serial number. The
purchase was subject to Powerserve
’s inspection and acceptance of the gas turbine
rotor. However, Powerserve agreed to pay the purchase price within 24 hours of
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delivery.
The Defendants (including Lavi) in the Powerserve action warranted that the gas
turbine rotor would be fit for the purposes for which Powerserve had purchased it. If it
was not as warranted, Defendants would either replace or repair it at Defendant
’s cost.
The rotor was delivered and Powerserve paid the purchase price. Upon
inspection, Powerserve discovered that the rotor was defective and unusable and was
not the rotor which was the subject of the transaction. The serial number on the rotor
delivered to Powerserve was different from the one on the rotor that Powerserve had
agreed to purchase.
Powerserve revoked its acceptance and demanded repayment of the purchase
price. The Defendants did not return the purchase price and did not give Powerserve
instructions for the rotor ’s return or disposition. The Powerserve action was then
commenced.
Two judgments were entered in the Powerserve action against Lavi on default.
The first judgment, in the sum of $999,289.87, was entered on September 14, 1999.
The second judgment, in the sum of $14,778.34, was entered on October 7, 1999.
These judgments were later docketed with the County Clerk, Nassau County on
October 28, 1999 and December 6, 1999, respectively. An amended judgment in the
sum of $1,027,321.79 was entered in the Powerserve litigation on March 31, 2000.
Lavi appealed from those judgments which were affirmed on appeal. (See,
Powersen/e International, Inc. v. Lavi, 239 F.3d 508 [2nd Cir., 20011).
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In December, 1999, as part of Powerserve
’s attempt to enforce these judgments,
Powerserve served a restraining notice on Old Cedar restraining it from making any
distributions on the subject Old Cedar stock. Upon receipt of to the restraining notice,
the attorneys for Old Cedar advised the Trustee that Old Cedar would withhold all future
distribution to Lavi or Mottahedeh until the validity of the restraining notice served on
behalf of Powerserve had been judicially determined.
E.
The Trustee ’s Action Auainst Powerserve
In February, 2000, Mottahedeh commenced a proceeding entitled Angela
Mottahedeh, as Trustee against
Powerserve International, Inc., Old Cedar Development
Corp., and Pat-viz Lavi in this Court ( “Trustee proceeding ”). The matter bore Supreme
Court, Nassau County, Index No. 2439100. In the Trustee action, Mottahedeh sought
an order and judgment (a) determining the rights of the Trustee and Powerserve in the
19 shares of Old Cedar stock issued to Lavi in 1990; (b) declaring that Powerserve
claims on this stock were null and void; (c) determining that the restraining notice
served by Powerserve on Old Cedar should be vacated; and (d) directing that all
distributions and dividends due on the Lavi stock should be paid to the Trustee.
Powerserve counter-petitioned for an order and judgment (a) setting aside the
transfer of the Old Cedar stock from Lavi to the Trustee as fraudulent pursuant to
Debtor and Creditor Law §§ 273, 273-a, 275, 276, 278 and seeking legal fees pursuant
to Debtor & Creditor Law § 276 - a; (b) directing Old Cedar to pay over to Powerserve
the funds being held by Old Cedar pursuant to the restraining notice; and (c) if those
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funds were insufficient to satisfy Powerserve
’s judgment, directing that the shares of Old
Cedar be the turned over to the Nassau County Sheriff for sale so that the proceeds of
sale could be applied to satisfy Powerserve
’s judgment against Lavi.
The Trustee, in support of her application, submitted a petition and affidavits in
which she averred that Lavi had transferred the 19 shares of Old Cedar stock to the
Lavi trust in 1998 in consideration of the forgiveness of an antecedent debt. The
Trustee claimed that the debt arose from a loan purportedly made by the Trustee to Lavi
in 1993 in the sum of $1,140,000, together with interest at the rate of 10% per annum
from December 31, 1993.
The Trustee ’s petition and Powerserve ’s counter-petition were heard by Hon.
Bruce D. Alpert of this Court. By decision dated June 21, 2000, Justice Alpert found
that antecedent debt , the $1,140,000.00 loan, claimed by Trustee to be the
consideration for the transfer of the Old Cedar stock was entirely fictitious. Since the
loan was fictitious, the transfer of the 19 shares of Old Cedar stock from Lavi to the Lavi
trust was made without fair consideration and was fraudulent pursuant Debtor and
Creditor Law §§273 and 273-a. Justice Alpert held that Powerserve ’s restraining notice
was valid and directed the entry of a judgment on favor of Powerserve on its first and
second claims/counterclaims which alleged that the transfer of the stock was fraudulent
pursuant to Debtor and Creditor Law §§273 and 273-a.
The turnover of the Old Cedar shares to the Sheriff for sale and the necessity of
having the shares appraised and valued by the Court was obviated by Justice Alpert’s
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direction that all future distributions made on the Old Cedar stock be made to
Powerserve until such time that its judgment had been satisfied.
Powerserve was
granted leave to renew its application for a turnover order if the payment of distributions
proved unwieldy or ineffective as a means for satisfying its judgment.
Powerserve ’s third counterclaim which alleged a claim pursuant to Debtor and
Creditor Law § 275 and fourth counterclaim which alleged a claim pursuant to Debtor
and Creditor § 276 were severed and continued. Powerserve
’s fifth counterclaim
seeking legal fees was set down for a hearing. A judgment and order incorporating the
provisions of Justice Alpert ’s June 21, 2000 decision was entered on July 21, 2000.
The judgment and order was appealed to the Appellate Division, Second
Department which affirmed same. (Mottahedeh v. Powerserve International, Inc., 284
A.D. 2d 465 [2nd Dept. 20011). Leave to appeal to the Court of Appeals was denied by
both the Appellate Division and Court of Appeals.
Since the entry of the judgment in the Trustee proceeding on July 21, 2000, all
Old Cedar distributions from due on account of the Lavi shares has been made to
Powerserve in partial satisfaction of the judgment. A portion of the judgment remains
unsatisfied.
Powerserve has not proceeded to trial on its third and fourth counterclaims.
These claims are still pending in the Calendar Control Part of this court. Thus, that
action is still pending.
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E.
Old Cedar ’s Divestiture of the Lavi Stock
After the judgement in the Powerserve litigation had been affirmed by the Second
Circuit Court of Appeals and the judgment and order in the Trustee proceeding had
been affirmed by the Appellate Division and all further appeals had been exhausted, Old
Cedar advised Lavi by letter dated June 25, 2002, that it intended to exercise its rights
under Paragraph 13 of the Subscriber and Shareholder Agreement by divesting Lavi of
his shares and returning to Lavi the amount he paid as his original subscription price.
Old Cedar demanded that Lavi turn over his stock certificate to Old Cedar. Upon
receipt of the stock certificate, Old Cedar would send Lavi his original subscription
amount, $2,375,000.00, subject to the claims of any creditors. The letter further
indicated that Old Cedar, in accordance with paragraph 13, would thereupon list the
shares previously owned by Lavi on the corporate books as being owned by the
corporation itself.
Despite the demand contained in the letter, neither Lavi nor the Trustee has
turned the shares over to Old Cedar. Nor has Old Cedar paid or tendered to Lavi his
subscription amount. In addition, the restraining notice served on behalf of Powerserve
remains in full force and effect.
Thus, Old Cedar is continuing to pay over to
Powerserve the distributions made on the disputed shares of Old Cedar stock.
F.
Lavi Special Proceedinq
In September, 2002, Lavi and the Trustee commenced Par-viz Lavi and Angela
Mottahedeh, as Trustee against Powersetve International,
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Inc. as a special proceeding
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Index No. 13614-02
(“Lavi proceeding ”) against Powerserve (a) seeking a judgment determining the rights
of Lavi, Mottahedeh and Powerserve to future distributions made by Old Cedar; (b)
determining that the rights to the proceeds of the sale of a turbine rotor; (c) determining
that the judgments entered in the Powerserve action had been satisfied; (d) vacating the
restraining notices served by Powerserve upon Old Cedar; and (e) directing that
Powerserve pay to Lavi proceeds received from the sale of the turbine rotor to the
extent that the amount received by Powerserve exceeded the remaining balance on the
judgment entered in the Powerserve action. This action bore Supreme Court, Nassau
County Index No. 14382-01 and was assigned to Hon. Ira B. Warshawsky.
Lavi and the Trustee ’s primary allegation in the Lavi special proceeding was that
Powerserve had sold the gas turbine rotor which had been the subject of the
Powerserve litigation and that the amount realized on that sale was sufficient to satisfy
the balance of the judgment entered in the Powerserve litigation against Lavi. If the
judgment had been satisfied, then the restraining notice should be vacated and the
future dividends or distributions paid on the Old Cedar stock should be paid to Lavi or
the Trustee as the owner of that stock.
By Order dated November 7, 2002, Justice Warshawsky held that the
outstanding amount due on the judgment entered in the Powerserve litigation be
reduced by $140,020, the amount received by Powerserve for the sale of the
compressor removed from the turbine. Justice Warshawsky denied all other claims for
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relief since there was still a balance due on the judgment entered in the Powerserve
litigation.
G.
This Action
This presently pending action was commenced in August, 2002.
In this action,
the Trustee and Lavi allege that the Old Cedar stock should have been transferred from
Lavi to the Lavi trust in 1997. Had Old Cedar complied with this request, Plaintiffs
argue, the stock would not be subject to the divestiture provision of Paragraph 13 of the
Old Cedar Shareholder Agreement.
Plaintiffs ’ first cause of action seeks to void Paragraph 13 on the competing
grounds that it is an illegal forfeiture; violative of public policy; barred by the laches of
Old Cedar in exercising its rights under Paragraph 13; and barred on the ground of
estoppel. Their second cause of action seeks money damages against the Defendants
alleging that Rafiy, as president and a director of Old Cedar, has breached his fiduciary
duties to Lavi and the Trustee
Defendants now move to dismiss this action.
DISCUSSION
Initially, the court must first determine whether the ownership of the 19 shares of
Old Cedar stock issued to Lavi has been determined in the prior actions. The court will
have to decide this issue since the rights of the parties and their ability to maintain this
action depends upon this determination. Alternatively, if this issue has not yet been
decided, the Court will have to decide whether this is the appropriate action in which to
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litigate this issue or whether any of those prior actions which are still pending are the
appropriate forum for that determination.
A.
Estoppel
(1) Judicial Estoppel
The doctrine of judicial estoppel or estoppel against inconsistent positions
prevents a party who asserted a factual position in a prior action from taking an
inconsistent position in subsequent litigation. Black v. White & Case, 280 A.D.2d 407
(lst Dept. 2001); and McCaffrey v. Schaffer, 251 A.D.2d 300 (2nd Dept. 1998). “The
doctrine rests upon the principle that a litigant
‘should not be permitted * **to lead a
court to find a fact one way and then contend in another judicial proceeding that the
same fact should be found otherwise
’ (citation omitted). ” Environmental Concern, Inc.
v. Larchwood Construction Corp., 101 A.D.2d 591, 593 (2nd Dept. 1984).
The doctrine
is invoked to prevent a party from adopting contrary positions because the courts
cannot tolerate a party playing
“fast and loose with the courts.
” Environmental Concern,
Inc. v. Larchwood Construction Corp., supra at 594. See also, Ford Motor Credit Co.
v. Colonial Funding Corp., 215 A.D.2d 434 (2”d Dept.1995).
(2) Collateral Estoppel
The doctrine of collateral estoppel precludes a party from re-litigating in a
subsequent litigation an issue which that party had a full and fair opportunity to litigate in
prior litigation. Gilbers v. Barbieri, 53 N.Y.2d 285 (1981). Collateral estoppel involves
issue preclusion. Sinqleton Manaqement, Inc., v. Compere, 243 A.D.2d 213 (lst Dept.
1
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1998).
In order to invoke the doctrine, the identical issue must have been presented in
the prior litigation and be dispositive in the subsequent litigation.
The party being
precluded from litigating the issue must have had a full and fair opportunity to litigate the
issue in the prior proceedings. D’Arata v. New York Central Mutual Fire Ins. Co., 76
N.Y.2d 659 (1990); and Kaufman v. Eli Lilly and Co., 65 N.Y.2d 449 (1985). See also,
Color By Perqament, Inc. v. O’Henrv ’sFilm Works, Inc., 278 A.D.2d 92 (lst Dept. 2000).
The party seeking to invoke the doctrine has the burden of establishing that the same
issues were presented and decided in the prior litigation while the party opposing the
application of the doctrine has the burden of establishing the absence of a full and fair
opportunity to litigate the issue. Kaufman v. Eli Lillv and Co., supra.
(3) Application of the Estoppel Doctrines
Upon the record presented on this motion, Plaintiffs must be judicially and
collaterally estopped from alleging in this action that the 19 shares of Old Cedar stock
should have been transferred in 1997.
The Plaintiffs in this action are collaterally estopped from litigating the stock
transfer and ownership issue in this action.
The issue of transfer and ownership of the
19 shares of Old Cedar stock has been decided by Justice
Alpert in the Trustee
proceeding. Justice Alpert found that the antecedent debt which was the purported
consideration for the transfer was fictitious.
He also found that the stock had been
transferred from Lavi to Mottahedeh in 1998. This finding was specifically affirmed by
the Appellate Division which stated:
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“Furthermore, Powerserve demonstrated, prima
facie, that Parviz Lavi fraudulently transferred
the 19 shares of stock issued by Old Cedar
Development Corp. to a trust of which Angela
Mottahedeh was the trustee... ” (Emphasis
added) Mottahedeh v. Powerserve
International, Inc., 284 A.D. 2d at 466.
A “conveyance ” for the purposes of Debtor and Creditor Law Article 10 includes,
“every * * * transfer * * * of tangible or intangible property.
” Debtor and Creditor Law
$270. The effect of Justice Alpert ’s decision and the judgment entered thereon and the
Appellate Division ’s affirmance of Justice Alpert is that the stock was transferred from
Lavi to Mottahedeh in 1998 and was fraudulent. Therefore, the issue of whether the
stock had been transferred and when that transfer took place has been fully litigated
and decided.
Justice Alpert could not have held that the transfer was fraudulent
without first concluding that there had, in fact, been a transfer of the stock. This Court is
bound by this prior decision and finding of fact. The stock was transferred from Lavi to
the Lavi trust in 1998.
Plaintiffs are also judicially estopped from litigating this issue here because the
Trustee has previously alleged in her Trustee proceeding that this Old Cedar stock was
transferred from Lavi to Mottahedeh, as trustee, in 1998. The allegation made in this
case, that the stock should have been transferred in 1997, plainly contradicts the
affirmative statements of facts made by Mottahedeh in the prior Trustee action.
Additionally, such claim here is contradicted by the holding of the court in the prior
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action. To permit Plaintiffs to make and litigate that issue in this case would be to
permit the Plaintiffs to play “fast and loose with the court ” and would permit the Plaintiffs
to attempt to avoid the effect of a prior holding by this court by making alternate,
conflicting allegations in this action. This cannot and will not be permitted. Therefore,
the Plaintiffs are judicially estopped from re-litigating the issue of the date of the transfer
of the stock in this matter or its propriety.
The documentary evidence in this case supports the 1998 transfer of the stock. A
letter sent by Rafiy to Lavi confirms that the stock was being transferred on the books of
Old Cedar in October, 1998. The K-l ’s issued for the years subsequent to 1999 reflect
Mottahedeh as the owner of the stock. A letter from counsel for Old Cedar to the
corporation dated October 8, 1999 advised Old Cedar that all the requirements for
transfer of the stock had been met and that the stock should be transferred on the
books of Old Cedar from Lavi to Mottahedeh as Trustee.
Furthermore, whether the stock was transferred by Lavi to the Trustee in 1997 or
1998 is irrelevant for the purposes of the constructive fraud provisions of Debtor and
Creditor Law § 273-a which renders fraudulent any transfer of property made by a
Defendant in an action for money damages which is made without fair consideration
and where the judgment is not satisfied upon entry.
See, Durrant v. Kellv, 186 A.D.2d
237 (2nd Dept.1992). The transfer of the stock by Lavi to the Lavi trust in 1997 would
have been fraudulent with respect to Powerserve. The Powerserve litigation was
commenced in 1996. Therefore, Lavi was a Defendant in that action for money
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Index No. 13614-02
al.,
damages against him in 1997. The judgment entered in that action was not satisfied
upon entry. Thus, as a matter of law, the transfer of the stock from Lavi to the Trustee,
regardless of the date, was made without consideration. Thus, it was fraudulent as to
Powerserve.
Since Justice Alpert has previously held that the stock in question was
transferred from Lavi to Mottahedeh, as trustee, this Court must now determine what is
the effect of the finding that the transfer was fraudulent as to Powerserve.
B.
Fraudulent Convevance
A conveyance made in violation of the provisions of the Debtor & Creditor Law is
fraudulent as to creditors but not void.
30 N.Y. Jur. 2d Creditors Rights and Remedies
§ 372. Such conveyances are valid as between the grantor and grantee and all others
except for the defrauded creditor. Petretti v. Finniqan, 69 Misc.2d 1007 (Sup Ct.
Nassau Co. 1972). See also, Lawson v. Libertv National Bank
& Trust Co., 18 B.R. 384
(W.D.N.Y., 1982); 30 N.Y. Jur. 2d, Creditors Rights and Remedies
§ 372; and Brownell
Realtv, Inc. v. L. B. Kelly, 103 Mich. App. 690 (1981).
Once the creditor establishes that the transfer is fraudulent, the creditor has the
option of having the conveyance set aside or disregarding the conveyance and
attaching and levying upon the conveyed property. Debtor and Creditor Law
9278(l)(a)(b). If the creditor chooses to have the conveyance set aside, the
conveyance may be set aside only to the extent necessary to satisfy the judgment.
Blakeslee v. Rabinor, 182 A.D.2d 390 (lst Dept. 1992); Centurv 21 Construction Corp.,
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v. Rabolt, 143 A.D.2d 873 (2nd Dept. 1988); Bucklev Petroleum Products, Inc., v. Battle,
28 A.D.2d 640 (4th Dept.1 967); and Debtor and Creditor Law § 278 (1) (a).
Only Powerserve had the right to set the transfer of the Old Cedar stock from
Lavi to the Trustee and then only to the extent necessary to satisfy the judgment
entered in the Powerserve litigation. However, Powerserve did not have the transfer
vacated. The decision of Justice Alpert and the judgment entered thereon found the
rights of Powerserve to be superior to those of Mottahedeh and directed the
distributions made on the 19 shares of Old Cedar stock be paid to Powerserve until
such time as the judgment entered in the Powerserve litigation had been satisfied.
Thus, ownership of the stock remained with the Trustee.
C.
Lavi ’s Standing
Since the Trustee is the owner of the stock as to all but Powerserve, Lavi lacks
standing to bring this action. Only a party aggrieved by the Defendant
standing to bring an action. One not affected by the Defendant
’s action has
’s actions has no right to
bring suit. See, Siegel, New York Practice 3rd §136. Since Lavi does not own the stock,
he lacks standing to maintain this action.
The first cause of action seeks to void or prevent the enforcement of the
automatic divestiture provisions of Paragraph 13 of the Old Cedar Shareholder
Agreement. Since Lavi does not own the stock, he cannot be divested of the stock.
A person who does not own stock in a corporation may not maintain an action regarding
that stock. See, Silverstein v. Excitina Fashions, Inc., 281 A.D. 854 (2nd Dept. 1953);
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and European American Bank v. Lofrese, 182 A.D.2d 67 (2nd Dept. 1992). See also,
Gallerv Garaqe Manaqement Corp., v. Chemical Bank, 226 A.D.2d 305 (lst Dept. 1996);
and Scali v. Kev Bank of New York, N.A., 203 A.D.2d 551 (2nd Dept. 1994). Since Lavi
does not own the stock, he cannot be aggrieved by the attempted enforcement of this
provision.
For the same reason, the second cause of action must be dismissed regarding
Lavi. He is not the owner of and has no beneficial interest in the stock he transferred
the Lavi trust. The fiduciary obligations imposed by Business Corporation Law § 720
run only to shareholders. Since Lavi is not a shareholder, Rafiy does not have any
fiduciary duty or obligations to Lavi with regard to this Old Cedar stock.
D.
Dismissal of the Trustee ’s Claims
A shareholder agreement is a contract which is to be construed in accordance
with general contract principles. Rehberqer v. Rehberqer, 295 A.D. 2d 490,
2002); and Matter of Validation Review Associates, Inc., 223 A.D. 2d 134
(lst Dept.
(2nd Dept.
1996). Where the terms of an agreement are clear and unambiguous, the court will
enforce the terms of the agreement without resort to extrinsic evidence. Greenfield v.
Philles Records Inc., 98 N.Y. 2d 562 (2002).
In considering a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must
accept as true the facts alleged in the complaint. The court must also give the Plaintiff
the benefit of all favorable inferences which may be drawn from the pleadings. Sokoloff
v. Harriman Estates Development Corp., 96 N.Y. 2d 409 (2001); and Leon v. Martinez,
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MOTTAHEDEH, et al., v. OLD CEDAR DEVELOPMENT CORP. et al.,
Index No. 13614-02
84 N.Y. 2d 83 (1994). The sole criteria is whether the pleading states a cause of action.
Simply stated, the Court must decide whether the allegations in the complaint and any
reasonable inferences which can be drawn from those allegations state a cause of
action which is legally cognizable. Rovello v. Orofino Realtv Co., (1976); See also,
Collins v. Telcoa International Corp., 283 A.D. 2d 128
(2nd Dept. 2001).
Paragraph 13 of the Old Cedar shareholder agreement provides for the
divestiture of the stock upon the entry of a judgment against a shareholder which is not
satisfied within 10 days of entry. The Old Cedar stock was transferred by Lavi to the
Lavi trust in 1998. That transfer has never been vacated or set aside. A judgment has
never been entered against Mottahedeh in her representative capacity. Therefore, the
predicate event which triggers the divestiture, the entry of a judgment against a
shareholder which is not satisfied within 10 days of entry, has not occurred regarding
the Lavi trust. Since the divestiture provisions cannot be enforced against the current
shareholder, the action seeking to void the provisions of the shareholder agreement
fails to state a cause of action upon which relief can be granted and must be dismissed.
E.
The Claims Aaainst Rafiv
A corporate officer and director has a fiduciary duty to both the corporation and
the individual shareholders. Wolff v. Wolff, 67 N.Y. 2d 638 (1986). See also, Tornick v.
Dinex Furniture Industries, Inc., 148 A.D. 2d 602 (2nd Dept.1989). The fiduciary duty to
the individual shareholders includes a duty to treat all of the shareholders fairly and
evenly. Failure to do so constitutes a breach of this fiduciary duty. Aronson v. Crane,
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MOTTAHEDEH, et al., v. OLD CEDAR DEVELOPMENT CORP. et al.,
Index No. 13614-02
145 A.D. 2d 455 (2nd Dept.1988).
An individual shareholder may bring an action
against an officer and director in his or her own right, in addition to any derivative claim
which exists on behalf of the corporation. Knox v. Estate of James T. Spraque, 293
A.D. 2d 451 (2nd Dept. 2002); Tornick v. Dinex Furniture Industries. Inc., supra; and
Business Corporations Law $j720.
However, if Plaintiff is seeking to plead a claim for unequal or unfair treatment,
the complaint must allege specific factual allegations which support such a claim. See,
Aronson v. Crane, supra. If Plaintiff is basing her claim upon a breach of some other
fiduciary duty, then the Plaintiff must make factual allegations in evidentiary form
sufficient to establish the officer or director
’s alleged misconduct. Lewis v. Riklis, 82
A.D. 2d 789 (lst Dept.1981). In this case, Mottahedeh makes no factual allegations
demonstrating that she has been treated differently from any other shareholder in the
same circumstances or that there has been a breach of any other fiduciary duty by
Rafiy. Vague, unsubstantiated allegations of misconduct or breach of fiduciary duty are
not sufficient to support a claim. Callas v. Eisenberq, 192 A.D. 2d 349 (lst Dept.1993);
and Burrouqhs Corp. v. Datacap, Inc., 124 A.D. 2d 622 (2nd Dept.1 986).
In order to establish a claim of fraud, Plaintiff must plead and prove a knowing
misrepresentation of a material fact which the other party relies on to its detriment.
Graudbard, Mollen. Danett & Horowitz v. Moskovitz, 86 N.Y. 2d 112 (1996). To the
extent that Mottahedeh asserts that the actions of Rafiy constitute a fraud upon her, the
complaint must be dismissed for failure to comply with CPLR 3016(b), which requires
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MOTTAHEDEH, et al., v. OLD CEDAR DEVELOPMENT CORP. ef al.,
Index No. 13614-02
that actions, “based upon * * * fraud, ** breach of trust * * * be stated in detail.
” This
provision requires that the misconduct underlying the cause of action be set forth in
sufficient detail to give the Defendant notice of the incidents or activities which give rise
to the cause of action. Lanzi v. Brooks, 43 N.Y. 2d 778 (1977). See also, Modell
’s
N.Y., Inc. v. Noodle Kidoodle, Inc., 242 A.D. 2d 248 (lst Dept.1997); and 107 Realty
Corp., v. National Petroleum U.S.A.. Ltd., 181 A.D. 2d 817
(2nd Dept.1992).
The complaint in this case is totally devoid of any factual allegations which
would place the Defendant Rafiy on notice of what activities or misconduct constitutes a
fraud or a breach of trust. Under such circumstances, dismissal is the appropriate relief.
Modell ’s N.Y., Inc., v. Noodle Kidoodle, Inc., supra.
F.
Leave to Replead
Mottahedeh ’s submission fails to establish its entitlement to an order permitting it
to replead her second cause of action as requested in her opposing papers. CPLR
3211 (e). See, e.g., Lesesne v. Lesesne, 292 A.D. 2d 507, 509 (2nd Dept. 2002);
Cuolietto v. Ferone, 269 A.D. 2d 556 (2nd Dept. 2000); and Shafran v. New York Citv
Emplovee ’s Retirement Svstem, 234 A.D. 2d 444,446 (2nd Dept. 1996). In the absence
of demonstrtible merit to Plaintiffs claim, leave to replead should not be granted.
Montefiore v. Soia, 292 A.D. 2d 241, 242 (lst Dept. 2002); and Hornstein v. Wolf, 67
N.Y. 2d 721 (1986).
Furthermore, in view of the prolonged history of litigation between the parties to
this action it would appear that any facts underlying any claim of fraud or breach of
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MOTTAHEDEH, et al., v. OLD CEDAR DEVELOPMENT CORP. et al.,
Index No. 13614-02
fiduciary duty would be known to the parties and should have been plead in the
complaint.
G.
Lavi ’s Further Claims
Finally, Lavi ’s allegation that this action should not be dismissed because he is
entitled to be issued 3 addtional shares of Old Cedar stock is without merit. The
complaint does not plead a cause of action seeking the issuance of an additional 3
shares of Old Cedar to either the Trustee or Lavi. Therefore, such claim is not before
the court. Furthermore, it appears that this issue has been previously tried in an action
in Supreme Court, Suffolk County. The parties are presently awaiting a decision on this
claim. If this is so, and this not denied by the Plaintiffs, then this claim would be barred
by CPLR 3211 (a) (4).
The court has considered the other arguments of the Plaintiff and finds them
without merit.
Accordingly, it is,
ORDERED, the Defendants ’ motion to dismiss the complaint pursuant to CPLR
3211 (a) (3), 3211 (a) (5) 3211 (a) (7) is granted; and it is further,
23
MOTTAHEDEH, et al., v. OLD CEDAR DEVELOPMENT CORP. et al.,
Index No. 13614-02
ORDERED, that Defendant Mottahedeh ’s application for leave to
replead is
denied.
This constitutes the decision and Order of this Court.
Dated: Mineola, NY
May 27,2003
xx’x
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