Alizio v Perpignano

[*1] Alizio v Perpignano 2005 NY Slip Op 51217(U) Decided on July 5, 2005 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 5, 2005
Supreme Court, Nassau County

Anthony Alizio, Plaintiff,

against

Peter Robert Perpignano, IRVING EISENBERG, LEONARD EISENBERG, JOSEPH ALIZIO, CHARLES S. TITONE, GREGORY RONAN, GODARD, RONAN & DINEEN, LLP, OCEAN VIEW REALTY COMPANY, OCEAN VIEW ASSOCIATES, OCEAN VIEW II ASSOCIATES, HEYSON GARDENS ASSOCIATES, BRIDGEVIEW II COMPANY, BRIDGEVIEW II ASSOCIATES and BRIDGEVIEW III ASSOCIATES, Defendants.



19181/03



Counsel for Plaintiff:

Bracken, Margolin & Gouvis, LLP

One Suffolk Square Suite 300 Islandia, NY 11749

Counsel for Defendants:

Herrick Feinstein, LLP

2 Park Avenue

New York, NY 10016

Godard, Ronan & Dineen, LLP

500 Old Country Road

Garden City, NY 11530

Todtman, Nachamie, Spizz & Johns PC

425 Park Avenue

New York, NY 10020

Rosenberg Calica & Birney, LLP

100 Garden City Plaza Suite 408

Garden City, NY 11530

Snow Becker Krauss, PC

605 Third Avenue

New York, NY 10158

Leonard B. Austin, J.

Plaintiff, Anthony Alizio ("Anthony"), moves to hold defendants Gregory Ronan ("Ronan"), Peter Robert Perpignano ("Peter") and Irving Eisenberg ("Irving") in contempt; for an order directing Ronan, Perpignano and Eisenberg, jointly and severally to pay Anthony the sum of $112,289 plus interest from July 12, 2004; and for an order directing the appointment of a receiver for the partnership entities: Ocean View Realty Company, Ocean View Associates, Ocean View II Associates, Heyson Gardens Associates, Bridgeview II Company, Bridgeview II Associates and Bridgeview III Associates ( "Partnerships").

BACKGROUND

This motion arises from disputes between Anthony, Joseph Alizio ("Joseph"), Peter and Irving regarding the distribution of the proceeds of the sale of real property owned by Heyson Gardens Associates ("Heyson"), Ocean View II Associates, ("Associates"), Ocean View Realty Co. ("Realty") and Bridgeview II Associates. ("Bridgeview").

This action is one of the several actionsf presently pending in which Anthony, Joseph, Peter and Irving are parties. The actions arise out of the termination of an over 30 year business relationship involving the ownership of HUD subsidized apartment buildings, primarily in the Borough of Queens.

Anthony, Joseph, Peter and Irving were the general partners in Heyson, Associates, Realty and Bridgeview.

Heyson, Associates, Realty and Bridgeview owned HUD subsidized apartment buildings in Far Rockaway. Due to ongoing disputes among the partners regarding the operation of these properties, the parties decided to sell the Heyson, Associates, Realty and Bridgeview properties.

By Stipulation dated and "So Ordered" on May 14, 2004, the partners agreed that the Partnership properties could be sold. Paragraph 5 of the Stipulation provided that the partnerships could make distribution of the net sales proceeds to the general partners, limited partners and/or their assignees. The distributions were to be made in accordance with the general and limited partner's pro rata ownership interests.

Heyson, Associates, Realty and Bridgeview were sold to limited liability companies in which Tim Ziss ("Ziss") was the principal.

Due to the complexity of closing on four properties, the closing lasted two days.[FN1] [*2]

At some point during the closings, Ziss revealed that he did not have sufficient funds available to pay the full purchase price. He was approximately $1,000,000 short.

Ziss attempted to negotiate a downward modification of the purchase price which was rejected. After further negotiation, the parties agreed to accept an unsecured, promissory note from Ziss in the sum of $814,500 as payment for the balance of the purchase price.[FN2] The promissory note was allegedly payable with interest six (6) months from the date of the closing. Anthony alleges that Ziss is now in default in payment of the promissory note.

Ronan is the attorney who represented Heyson, Associates, Realty and Bridgeview at the closing.

The funds received from Ziss in payment of the purchase price for the Partnerships' properties were deposited into Ronan's escrow account. After deduction of certain amounts which the parties agreed would be held in escrow pending the final resolution of these actions, the payment of legal fees and the other usual closing costs and expenses, Ronan distributed the net proceeds.

Joseph received his full share of the net proceeds of sale without taking into account his pro rata share of the promissory note. Joseph received his share of the net proceeds of sale as if Ziss had paid the purchase price in full in cash.

All of the other general and limited partners distributive shares were calculated taking into account their pro rata share of the amount due on the promissory note taken from Ziss as part of the purchase price. The amount distributed to the other general and limited partners also took into account the fact that Joseph received his full share. The additional amount due to the other general and limited partners will be distributed to them when and if the Ziss promissory note is paid.

Joseph attended a substantial portion of the closing. When he learned that Ziss lacked the funds needed to pay the full amount due on closing, he advised Irving and Peter, who were present at the closing, that he would not agree to Ziss' proposal to pay part of the purchase price with a promissory note. He also advised Irving and Peter that he would not accept anything less than immediate distribution of his full share.

Joseph avers that Peter and Ronan assured him at the closing that when the proceeds of sale were distributed he would receive his full share without taking into account the Ziss promissory note.

Anthony did not attend the closing. However, he had his personal attorney, Neil Galfunt, Esq. attend the closing to represent his interests. When Mr. Galfunt learned of the shortfall, he advised Peter and Ronan that they should declare the purchaser in default, retain the deposit paid on contract as liquidated damages and sell the property to a properly financed buyer.

Mr. Galfunt avers that Irving, who was the managing partner, left the closing [*3]before the issue involving the shortfall was resolved. Irving resides in Florida and left to catch his flight back to Florida rather than change his reservation for a later flight.

Mr. Galfunt asserts that Peter and Ronan made the decision to accept the promissory note from Ziss without consulting with Irving. That decision was over the objection of Galfunt and Joseph as well as the representative of the limited partners.

Galfunt claims that he was surprised that Peter and Ronan agreed to accept the promissory note since Peter had asserted that the property was being sold for far less than its fair market value. Peter has since asserted, in one of the related actions, that the property was sold for less than its fair market value because of Anthony's actions.

Ronan relates a different account of these events. He avers that Ziss revealed that he did not have sufficient funds to close at the beginning of the closing. Ziss immediately suggested a reduction in the purchase price. This suggestion was rejected by Irving and Joseph, the two general partners who were then present at the closing.

Ziss then suggested that the partnerships accept his personal note for the shortfall. Irving, acting as the managing partner, accepted this offer since Ziss had already filed a Notice of Pendency of the properties.[FN3] Ronan also suggests that Irving,

as managing partner, exercised sound business judgment in accepting the promissory note.

Anthony asserts that the distribution in which Joseph received his full share violates the terms of the Stipulation. He asserts that Joseph's share should have been distributed taking into account his pro rata share of the note payable. Since the Stipulation was "So Ordered", it became an order of the Court, violation of which is punishable by contempt.

In his contempt application, Anthony seeks damages in the sum of $112,289 the amount due in payment of his full pro rata share on the sale of Heyson, Associates, Realty and Bridgeview. Anthony also seeks the appointment of a receiver for the property of all of the partnerships.

DISCUSSION

A. Contempt

Irving and Peter cannot be held in contempt because of Anthony's failure to comply with Judiciary Law §§ 756 which requires that a motion for contempt contain the following legend in at least eight point bold type:

WARNING:

YOUR FAILURE TO APPEAR IN COURT

MAY RESULT IN YOUR IMMEDIATE ARREST [*4]

AND IMPRISONMENT FOR CONTEMPT OF

COURT.

The motion for contempt does not contain this warning as required by Judiciary Law §756. Thus, even though Irving and Peter did not oppose the contempt motion, the failure to include such language is jurisdictional warranting denial of the application as to them. See, P & N Tiffany Properties, Inc. v. Williams, 302 AD2d 466 (2nd Dept. 2003); and Pizzirusso v. Grossman, 286 AD2d 428 (2nd Dept. 2001).

Nevertheless, the failure to place the warning required by Judiciary Law §756 on the contempt application may be waived. Id. In order to waive the required notice and warning, the party against whom contempt is sought must contest the application on the merits and must fail to timely object to the omission of the notice and warning. Matter of Rappaport, 58 NY2d 724 (1982). See also, Restivo v. Cincu, 11 AD3d 621 (2nd Dept. 2004); and Weinreich v. Weinreich, 184 AD2d 505 (2nd Dept. 1992).

Judiciary Law §761 mandates that an application for contempt be served upon the accused unless service upon the attorney for the alleged contemnor is ordered by the Court. In this case, the application was brought on by Notice of Motion served upon the attorneys for the parties pursuant to CPLR 2103(b)(2).

Ronan appeared and contested the application on the merits. Therefore, he has waived any objections relating to the absence of the statutorily required notice and service. See, Matter of Rappaport, supra (the legend and warning required by Judiciary Law § 756 may be waived). See also, People ex rel. Golden v. Golden, 57 AD2d 807 (2nd Dept. 1977); and Continental Bank v. Moscatiello, 115 Misc 2d 617 (Sup.Ct., Queens Co. 1982) (service by a method prescribed by Judiciary Law § 761 may be waived).

In order to find a person in civil contempt, the Court must find that (1) a lawful order of the court, expressing an unequivocal mandate, was in effect; (2) the order was disobeyed; (3) the party to be held in contempt must have had knowledge of the court's order even if the order had not been served upon the party; and (4) the failure to obey the court's order caused prejudice to the rights of a party to the litigation. Matter of McCormack v. Axelrod, 59 NY2d 574(1983); and Judiciary Law §750(A)(3).

In order to sustain a finding of civil contempt, the court does not have to find that the disobedience be deliberate or willful. Ryan v. Caputo, 222 AD2d 438 (2nd Dept. 1995); and Walter Doors v. Greenberg, 151 AD2d 550 (2nd Dept. 1989). The court must find that the disobedience with the court order, regardless of motive, is sufficient if such disobedience defeats, impairs, impedes or prejudices the rights of a party. Id.Anthony has established the three of the four elements required to establish contempt, to wit: that (1) the court had issued a lawful order expressing an unequivocal mandate of the court; (2) the order was disobeyed; and (3) Ronan had knowledge of the order.

The Stipulation was "So Ordered" thus making it a Court order. See, CPLR 5014; and Fuerst v. Fuerst, 131 AD2d 426 (2nd Dept. 1987). The order also expressed an unequivocal mandate of the Court that distributions to the general and limited partners be made from the proceeds of sale of the partnership properties on a pro rata [*5]

basis.

Ronan was obligated to distribute the net proceeds of sale of the Partnerships property in accordance with the terms of the Stipulation. Ronan disobeyed the Stipulation by making a full distribution to Joseph without taking into account the Ziss promissory note. Ronan could make the distribution demanded by Joseph only if all of the other general and limited partners agreed to modify the Stipulation to permit such a distribution or if the Court modified the terms of the Stipulation.

However, Anthony has not established the fourth required element, that the contemnor's actions defeated, impaired, impeded or prejudiced his rights. While Joseph received more than his pro rata share and actually received his full share of the proceeds to sale of the partnership property, none of Ronan's actions defeated, impaired, impeded or prejudiced Anthony of his right to receive his full pro rata share of the proceeds of sale.

The parties to this action, and the other related actions, have rather significant disputes regarding the operation of these properties and the amounts due to each of them from the operation of the properties and the dissolution of the business entities that own the properties. The parties also have significant disputes regarding the amounts due to each party. When all of these actions are resolved, the amounts due to each of the parties will be determined.

Holding Ronan in contempt for improperly distributing the funds he received on the sale of the partnership assets would only result in more, unnecessary litigation. Ronan was not a member of any of the Partnerships. He is not entitled to receive any of the proceeds of sale of the Partnership assets other than the agreed payment for his legal service and disbursements incurred in connection with his representation of the Partnerships in the sale of the property. If the Court were to find Ronan in contempt and direct that he pay any money to Anthony, Ronan would almost certainly commence an action against Peter, Irving and/or Joseph to recover the amount he is directed to pay.[FN4]

The party bringing the application for civil contempt has the burden of establishing the contempt. Rupp-Elmasri v. Elmasri, 305 AD2d 394 (2nd Dept. 2003); and Beverina v. West, 257 AD2d 957 (3rd Dept. 1999). The party bringing the application must establish the contempt by clear and convincing evidence. Beverina v. West, supra; Fierro v. Fierro, 211 AD2d 676 (2nd Dept. 1995). See also, Levin v. Tiber Holding Corp., 277 F.3d 243 (2nd Cir. 2002).

Since Plaintiff's papers fail to establish one of the necessary elements, the [*6]application for contempt must be denied. See, Hom v. Weintraub, 6 AD3d 579 (2nd Dept. 2004); and Cherico, Styx & Assocs. v. Abramson, 235 AD2d 515 (2nd Dept. 1997).

Although Ronan is not being held in contempt of this Court's order, the Court must caution Ronan regarding conduct which may be sanctionable and/or a violation of the Disciplinary Rules. The Court is obligated to report violations of the Disciplinary Rules to the Disciplinary Committee. See, 22 NYCRR 100.3(D)(2).

In addition, the Court may impose sanctions upon a party who engages in frivolous conduct. See, 22 NYCRR 130-1.1(a). Conduct is frivolous if it asserts factual statements that are false. 22 NYCRR 130-1.1(c)(3).

In his affidavit in opposition to the motion, Ronan states that Joseph demanded that Ziss make payment to Joseph directly by certified check. Ronan states that Ziss agreed to the proposal. Joseph categorically denies this and states that the only money he ever received on the sale of the Partnership properties was the money disbursed to him by Ronan.

Joseph's statement is confirmed by the documentary evidence. The closing statements prepared by Ronan or his firm contain a calculation of the amounts due each of the general and limited partners from the net proceeds of sale. The closing statements include a calculation indicating the full amount due to each general and limited partner and the amount being distributed. The closing statements also reflect the amount that will be paid to each general and limited partner when Ziss makes payment of the promissory note. Ronan did not take the Ziss promissory note into account when calculating the amount due and the amount paid to Joseph.

Additionally, Ronan received the money due on closing and deposited same into his firm's IOLA account. He then wrote checks to each of the general and limited partners for their share as calculated on the closing statement. The checks written by Ronan to Joseph constitutes payment of his full share of the net proceeds of the sale of the partnership property without deducting for the amount due on the Ziss promissory note. Thus, Joseph did not receive any money directly from Ziss as Ronan affirms (see, fn. 1) but received his entire distribution from Ronan out of the proceeds of the sale.

Based upon this material, which was prepared by Ronan and which was in Ronan's possession, the Court finds that Ronan's statement that Joseph received a portion of his share of the partnership distributions directly from Ziss by certified check is false. Such a statement, being false, is sanctionable. 22 NYCRR 130-1.1(c)(3).

The checks issued to the partners were written on the Goddard, Ronan & Dineen, LLP IOLA account. IOLA accounts are accounts maintained by attorneys into which an attorney shall deposit funds received in a fiduciary capacity from a client or a beneficial owner which are too small or which will be held for too short a period of time to justify the expense of opening a segregated account. Judiciary Law §497.

An attorney is required to maintain a separate account for funds belonging to clients. 22 NYCRR 1200.46(a)(b)(1)[DR 9-102(a)(b)(1)]. An account into which client's funds are deposited shall be identified as an "Attorney Special Account" or "Attorney Trust Account" or "Attorney Escrow Account". The checks and deposit slips for such accounts must bear such title. 22 NYCRR 1200.46(b)(2)[DR 9-102(b)(2)]. While the checks issued by Ronan indicate that he drew the checks from an IOLA account, the checks do not contain title required by 22 NYCRR 1200.46(b)(2). Failure to have the [*7]proper title on an IOLA account is a violation of the Disciplinary Rules. In re Madison, 280 AD2d 873 (3rd Dept. 2001).

The Court is deeply troubled by Ronan's distribution of the net proceeds on the sale of the Partnership property in violation of the Stipulation since this may be a violation of the Disciplinary Rules. See, 22 NYCRR 1200.1 et seq. More specifically, 12 NYCRR 1200.3(A)(5)[DR1-102(a)(5)] provides that an attorney shall not engage in conduct that is prejudicial to the administration of justice. Disregard of or failure to comply with the provisions of a court order is conduct prejudicial to the administration of justice. See, In re Robert, 10 AD3d 236 (2nd Dept. 2004); and In re Pollack, 268 AD2d 153 (2nd Dept. 2000). It too is sanctionable as being completely without merit in law or fact or any reasonable argument thereunder. 22 NYCRR 130-1.1(c)(1).

Ronan may also have violated 22 NYCRR 1200.24(A)[DR 5-105(A)] which prohibits attorneys from representing parties who have different interests. Once Joseph indicated that he was unwilling to accept anything but full payment and Peter indicated a willingness to accept payment by way of the Ziss promissory note, the partners had irreconcilably different interests. Ronan then opted to represent both by acceding to Peter's demand that the Partnerships accept the Ziss promissory note in partial payment of the promissory note and by acceding to Joseph's demand that he receive payment in full notwithstanding the Ziss promissory note. The distribution establishes that Ronan favored one partner, Joseph, over the others. The circumstances at the closing gave Ronan three (3) options; to wit: (1) declare Ziss in default and retain the deposit paid on contract as liquidated damages; (2) advise Joseph that he would not distribute the funds in any way other than the manner prescribed in the Stipulation; or (3) adjourn the closing so that the partners could meet and determine the appropriate course of action. Ronan chose none of these alternatives.

B. Appointment of a Receiver

CPLR 6401(a) permits the court to appoint a temporary receiver during the pendency of the action where there is a danger that the property will be removed from the state, lost, materially injured or destroyed. A temporary receiver should be appointed only when the application makes a clear evidentiary showing that a receiver is required for the conservation of the property or the protection of the interests of the litigants. Modern Collection Assocs. Inc. v. Capital Group, Inc., 140 AD2d 594 (2nd Dept. 1988); and Schachner v. Sikowitz, 94 AD2d 709 (2nd Dept. 1983). The party seeking the appointment of a receiver must make a detailed evidentiary showing of the need for an appointment of a receiver. Scharff v. SS & K Partnership, 187 AD2d 645 (2nd Dept. 1992).

In this case, the Court is dealing with what is essentially a dissolution of partnerships and distribution of partnership assets. In such a case, the party seeking the appointment of a receiver must demonstrate that unless a receiver is appointed, the partner would suffer irreparable harm, the partnership's assets would be diverted or wasted. Matter of Armienti & Brooks, P.C., 309 AD2d 659 (1st Dept. 2003).

Anthony has failed to make the evidentiary showing required to obtain the appointment of a temporary receiver.

The only remaining assets of Heyson, Associates, Realty and Bridgeview are the funds being held in escrow by Ronan pursuant to the terms of the Stipulation and the [*8]agreement of the parties and the note payable from Ziss. Based upon the evidence presented, Plaintiff's concerns are justified. However, Plaintiff's concerns with regard to the integrity of the escrow and its management can be assuaged in a manner far less onerous than the appointment of a receiver. That is, Ronan and, his firm, Godard, Ronan & Dineen, LLP, shall be removed as the escrow agent forthwith and replaced as herein provided.

If Ziss is in default in the payment of the note taken as part of the purchase price for the Partnership properties, counsel for the Partnerships can and should commence an action to recover the amount due on the note.

The other remaining asset is the HUD subsidized apartment building owned by Bridgeview III Associates. Anthony fails to place before the Court any evidence that the other partners or their agents have done or are doing anything which would cause the property or Anthony's interest in the partnership that owns the property to be lost, materially injured or destroyed.

The current managing agent for the property is T.U.C. Management, Inc. ("TUC"). Anthony has failed to place before the Court any evidence that TUC, a HUD approved agent, is mismanaging the property or diverting or wasting the income derived from the operation of this property.

The other partners have expressed a desire to sell the real property owned by Bridgeview III Associates. They have retained Eastern Consolidated Properties, Inc. ("Eastern") to act as the real estate broker for the sale of the property. Eastern is a firm which has experience in the sale of HUD subsidized housing.

Irving and Peter assert that the retention of a broker for the sale of the property is appropriate since it will ensure that the property is properly marketed and sold for the highest possible price. Anthony does not dispute the usefulness of having a broker involved in offering the property for sale.

Irving and Peter have advised Joseph and Anthony that they may bid on the property or solicit bids from parties who may be interested in purchasing the property. Irving and Peter assure Anthony that the property will be sold for the highest possible price.

Since Anthony has failed to make the showing necessary to obtain the appointment of a temporary receiver, his application for the appointment of a temporary receiver must be denied.

Therefore, it is,

ORDERED, that Anthony's motion to hold Peter, Irving and Ronan in contempt is

denied; and it is further,

ORDERED, that Anthony's motion for the appointment of a temporary receiver for the property of Ocean View Realty Co., Ocean View II Associates, Heyson Gardens Associates, Bridgeview II Associates and Bridgeview III Associates is denied; and it is further,

ORDERED, that, on the Court's own motion, Gregory Ronan, Esq. and Godard, Ronan & Dineen, LLP are hereby discharged as escrow agent. The "So Ordered" Stipulation is hereby modified to provide that Scott E. Mollen, Esq. shall act as the escrow agent. Gregory Ronan and Godard, Ronan & Dineen, LLP are hereby directed [*9]to turn over all books, records and accountings of the escrowed funds and the escrowed funds themselves to Scott E. Mollen, Esq. not later than July 20, 2005; and it is further,

ORDERED, that, on the Court's own motion pursuant to 22 NYCRR 130-1.1, Gregory Ronan, Esq. is directed to show cause before this Court on July 20, 2005 at 2:00 p.m. why sanctions should not be awarded against him consistent herewith.

This constitutes the decision and Order of this Court.

Dated: Mineola, NY

July 5, 2005

_______________________________

Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1:The exact dates on which the closings took place are not clear. The closing statements prepared by Ronan indicate the closings took place on July 7, 2004. Ronan states in his affidavit that the closings took place on July 8 and 9, 2004. The closing statements indicate that different closing adjustments were made through different dates. Some adjustments were made through July 6, 2004, some were made through July 7, 2004 and others were made through July 9, 2004.

Footnote 2:Although all of the parties make reference to the promissory note, the terms of the promissory note are not specified in the papers submitted in support and opposition to the motion. The Court has not been provided with a copy of the promissory note.

Footnote 3:Although Ronan claims that Ziss had filed Notices of Pendency on the Partnership properties, he did not attach copies of those Notices of Pendency to the motion papers. Additionally, the Court takes judicial notice that a Notice of Pendency can be filed in connection with action in which the judgment would affect title to or use, possession or enjoyment of real property. CPLR 6501. In order to be valid, the summons must be served within 30 days of the filing of the Notice of Pendency. CPLR 6512. None of the parties indicate that Ziss had commenced any actions relating to the properties or, if he had, what relief was requested or the status of those actions.

Footnote 4:Although Ronan and his firm, Goddard, Ronan & Dineen, LLP, are named as parties in this litigation, the only relief sought in the complaint is to disqualify them from representing the Partnerships in this litigation. Although not presented on this motion, the Court questions whether such a cause of action proper. The appropriate procedure to use to disqualify an attorney or firm from representing a client in an action is to move to recuse the attorney on the grounds that the firms continued representation of the client would violate the Disciplinary Rules. See generally, Kassis v. Teacher's Insurance and Annuity Assoc., 93 NY2d 611 (1999); and S & S Hotel Ventures Ltd. Partnership v. 777 S.H. Corp., 69 NY2d 437 (1987).