Sokol v Ventures Educ. Sys. Corp.

[*1] Sokol v Ventures Educ. Sys. Corp. 2005 NY Slip Op 51963(U) [10 Misc 3d 1055(A)] Decided on June 27, 2005 Supreme Court, New York County Lowe, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 27, 2005
Supreme Court, New York County

MARC J. SOKOL, Plaintiff,

against

VENTURES EDUCATION SYSTEMS CORP. and MAXINE E. BLEICH, Defendant.



602856/02

Richard B. Lowe, J.

In this corporate waste and minority freeze-out action, defendants Ventures Education Systems Corp. (VESC) and Maxine E. Bleich move for an order pursuant to CPLR 3212, BCL § 1104-a, and Delaware law granting partial summary judgment and dismissing the first and second causes of action for common-law dissolution of VESC and dismissing the fourth cause of action for an order directing defendants to remove plaintiff Marc J. Sokol as guarantor on the VESC credit card. Defendants also move for partial summary judgment on the second counterclaim and seek an order directing Sokol to return to defendants a corporate laptop computer. Sokol cross-moves for an order granting summary judgment on the first and second causes of action or, in the alternative, compelling defendants to buy out his minority interest in VESC at fair market value. Sokol also seeks appointment of a receiver; disqualification of defendants' counsel pursuant to the advocate-as-witness rule, 22 NYCRR 1200.21; summary judgment on the third cause of action for deferred compensation; and leave to amend the complaint pursuant to CPLR 3025 to add claims arising out of defendants' alleged wrongful use of his personal credit rating and status as guarantor while applying for an increase in VESC's credit line, after termination of his employment.

Background

VESC, a privately-held corporation incorporated in Delaware on May 6, 1997, provides educational services, teacher training seminars, and test preparation seminars to school systems nationwide. VESC licenses certain proprietary teaching materials and methods from nonparty Ventures in Education, Inc. (VIE), a New York not-for-profit corporation engaged, since June 18, 1990, in the utilization of improved teaching methods [*2]developed for use in improving the performance of disadvantaged and/or underachieving students. VESC subleases office space to VIE in Manhattan. Nonparty Heuer Corporation (Heuer), incorporated in Delaware on October 1, 1997, is a wholly-owned VESC subsidiary and provides seminars demonstrating improved teaching methods for school systems nationwide. Nonparty Ventures Thinking Works Publishing Corporation (Thinking Works), incorporated in Florida on January 21, 2003, is a wholly-owned VESC subsidiary and retails books on educational issues and methodology on the internet.

Bleich is president, majority shareholder, and founding member of VESC. Sokol is a VESC founding member and minority shareholder and former officer and employee of VESC and VIE. Sokol has also served on the boards of directors of VESC, VIE, and Heuer and has served as an officer of Heuer.

In this action, Sokol alleges that, in February 2002, VESC and Bleich unilaterally removed him from the VESC board of directors by falsely representing to the board that he had voluntarily resigned and, on May 14, 2002, improperly unilaterally terminated his position as director of VESC. Sokol further alleges that defendants have improperly refused to permit him to continue to play a role in VESC's management or to provide him with VESC financial information and have failed to remove him as a guarantor of the corporate credit card, in breach of their agreement to do so. Sokol also alleges that defendants have improperly failed to pay him approximately $40,000 in deferred compensation now due and owing. Sokol contends that Bleich froze him out of management and terminated his position in retaliation for his refusal to sign a personal guaranty of a tax liability incurred by Heuer as the result of Bleich's misconduct and his open criticism of Bleich's decisions regarding the expansion of VESC's business and the possibility of a public offering.

Sokol alleges that Bleich has mismanaged, wasted, misappropriated, and diverted VESC assets for her personal benefit. Specifically, Sokol alleges that, from VESC's inception through 2002, Bleich routinely shifted expenses and income between the financial books of VESC and VIE without any back-up documentation or explanation and failed to obtain proper VESC board of directors' approval of a variety of transactions, in violation of the corporate bylaws. Sokol also alleges that Bleich hired her "paramour" as VESC's attorney and, during a four-year period, paid his law firm and him more than $700,000 in VESC funds without itemized invoices for, or an accounting of, the legal services purportedly rendered. Sokol alleges that, although VESC had sufficient funds to meet its wage and 401K pension payment obligations in a timely manner, Bleich funneled these funds out of VESC, causing VESC to fall behind on these obligations. Sokol alleges that, under Bleich's direction, VESC spent almost $800,000 and hundreds of hours of employee time in futilely attempting to develop and copyright intellectual property already owned by others. Sokol also alleges that Bleich diluted his 11% interest in VESC by improperly issuing new shares. Sokol alleges that the VESC private placement or stock offering memoranda include incomplete and misleading information and omit [*3]essential information about the corporation's debt, legal actions, and prior stock offerings.

On these factual allegations, Sokol asserts claims for dissolution of VESC based upon his reasonable expectation of employment and continued participation in VESC management; dissolution of VESC based upon mismanagement, waste, and diversion of corporate assets; breach of an oral agreement to pay him $40,000 in deferred salary when VESC became profitable; and breach of an agreement to remove him as a guarantor of the corporate credit card. He seeks dissolution of VESC or a fair-market value buyout of his shares; appointment of a receiver over VESC; recovery of $40,000 in deferred salary, together with interest; removal of his name as guarantor of the corporate credit card; and indemnification of amounts owed by him as guarantor of the credit card.

In the amended answer, affirmative defenses, and counterclaims, defendants deny all allegations of misconduct and allege that Sokol voluntarily terminated his employment without notice on May 9, 2002, and has received partial payment of the deferred compensation. Defendants also allege that VESC cancelled the corporate credit card in 2002.

Defendants have withdrawn the first counterclaim to recover $7,500, together with interest, in loans to Sokol by VESC without proper authorization (see defendants' memo of law in support of the motion, preliminary statement, at 1).

In the second counterclaim, defendants seek to recover a corporate laptop computer and cellular telephone in Sokol's possession or, in the alternative, to recover the value of the property, estimated at $3,400. In the reply, Sokol admits possession of the laptop and cell phone and agrees to return them to defendants at a mutually convenient time and location.

Defendants now seek partial summary judgment in their favor and dismissal of the first and second causes of action for dissolution of VESC and appointment of a receiver and the fourth cause of action for an order directing defendants to remove Sokol as guarantor of the corporate credit card. Defendants also move for partial summary judgment on the second counterclaim for an order directing Sokol to return the corporate laptop to defendants.

In opposition, Sokol seeks summary judgment in his favor on the dissolution claims or, in the alternative, compelling defendants to buy out Sokol. Sokol also seeks appointment of a receiver; disqualification of defendants' counsel; summary judgment in his favor on the third cause of action for deferred compensation; and granting leave to amend the complaint.

Discussion

As a threshold matter, defendants contend that this court lacks subject matter jurisdiction to dissolve a corporation incorporated under the laws of another state.

In partial opposition, Sokol concedes that there have been no New York cases holding that a New York court may order dissolution of a corporation formed pursuant to the laws of a sister state (see Sokol's memo of law in support of the cross motion, at 5) [*4]and contends that this court has jurisdiction to grant him alternate relief, including an order directing defendants to buy his VESC shares at their fair market value.

"It is well settled that 'a foreign corporation is controlled, as to its dissolution, by the laws of its domicile, and is not affected by laws which are intended to govern the dissolution of corporations created under local laws' " (Matter of Warde-McCann v Commex, Ltd., 135 AD2d 541, 542 [2d Dept 1987], quoting 17A Fletcher's Cyclopedia of the Law of Private Corporations § 8579, at 516 [Perm ed] [now, at 454-55 (1998 rev ed)]; Matter of Porciello v Sound Moves, Inc., 253 AD2d 467 [2d Dept 1998]; Mook v Berger, 26 AD2d 925 [1st Dept 1966], appeal granted 19 NY2d 581 [1967]; see BCL § 1104-a). A corporation is domiciled only in the state where it is incorporated (Sease v Central Greyhound Lines, Inc., of New York, 306 NY 284 [1954]). VESC is incorporated under the laws of Delaware and, therefore, may be dissolved only by order of a Delaware court.

For these reasons, the branches of Sokol's cross motion for dissolution of VESC and appointment of a liquidating receiver are denied.

However, this court may exercise subject matter jurisdiction over the other issues raised by the parties. Subject matter jurisdiction over the internal affairs, short of dissolution, of a foreign corporation may be found, in the court's discretion, to exist in equity where the corporation's sole connection to a foreign state or country is its place of incorporation and the corporation has significant and substantial ties with New York (Matter of Dissolution of Hospital Diagnostic Equip. Corp. [Klamm], 205 AD2d 459 [1st Dept 1994]; Broida v Bancroft, 103 AD2d 88 [2d Dept 1984]; Tosi v Pastene & Co., 34 AD2d 520 [1st Dept 1970]). Where jurisdiction exists, "the fact that the relief nominally sought (i.e., dissolution and forfeiture of the corporate charter) is not technically within the power of the Court does not bar the award of lesser or alternative relief in this

action . . . which will attain substantial justice between the parties" (Matter of Dohring for the Dissolution of CVC Prods., Inc., 142 Misc 2d 429, 433 [Sup Ct, Monroe County 1989]).

Here, although VESC is incorporated in Delaware, it has no office, employees, or contacts in Delaware, and conducts no business there. VESC's principal place of business is located in New York City. VESC's board of directors meetings are also held in New York City, and its records and many of its officers and employees are located here as well. Both Bleich and Sokol are New York residents. These contacts with this state provide a sufficient basis for the exercise of subject matter jurisdiction over the internal affairs of VESC.

Next, and contrary to Sokol's contention, these contacts are not sufficient to warrant application of the law of this state to the internal governance of VESC, a Delaware corporation.

Under New York law, the law of the incorporating state has traditionally been applied to the internal affairs of a foreign corporation (Lama Holding Co. v Smith Barney Inc., 88 NY2d 413 [1996]; Hart v General Motors Corp., 129 AD2d 179 [1st Dept], appeal [*5]denied 70 NY2d 608 [1987]). "One of the abiding principles of the law of corporations is that the issue of corporate governance . . . is governed by the law of the state in which the corporation is chartered" (Hart v General Motors Corp., 129 AD2d at 182). Under Delaware law as well, "[c]harter provisions which facilitate corporate action and to which a stockholder assents by becoming a stockholder are normally upheld by the court unless they contravene a principle implicit in statutory or settled decisional law governing corporate management" (Frankel v Donovan, 120 A2d 311, 316 [Del Ch 1956], citing Sterling v Mayflower Hotel Corp., 93 A2d 107 [Del 1952]; 8 Del Code § 102 [b] [1]). Therefore, under the traditional rule, this dispute must be resolved under Delaware law.

Sokol urges this court to apply a "center of gravity" test and determine whether the forum state, here, New York, or the foreign state of incorporation has the most significant contacts with the corporation (see Intercontinental Planning, Ltd. v Daystrom, Inc., 24 NY2d 372, rearg denied 25 NY2d 959 [1969]; Matter of Lane v Sierra Club, 183 Misc 2d 944 [Sup Ct, NY County 2000]; Lewis v Dicker, 118 Misc 2d 28 [Sup Ct, Kings County 1982]).

Some courts have recognized that, in the rare circumstance where the corporation has no contacts with its state of incorporation, other than the fact of incorporation, and has more significant contacts with the forum state, the law of the forum state should be applied (see e.g. Greenspun v Lindley, 44 AD2d 20 [1st Dept 1974], affd 36 NY2d 473 [1975] [dicta]; Lewis v Dicker, 118 Misc 2d 28, supra [dicta]; Restatement 2d, Conflicts of Laws, § 302). Contrary to Sokol's contention, the parties' dispute is more properly resolved under Delaware law.

Although VESC maintains its corporate offices and transacts business here, the state of incorporation is the more significant contact (see Lewis v Dicker, 118 Misc 2d 28, supra). The VESC certificate of incorporation and the VESC bylaws clearly demonstrate that the founders of VESC, including Sokol, agreed to govern VESC's internal affairs in accordance with the laws of Delaware.

Moreover, the undisputed record demonstrates that VESC's business is not restricted to New York, that it employs personnel nationwide, and that the percentage of its yearly revenue derived from contract services provided in this state has been declining yearly. VESC is currently providing professional development programs for school systems in 17 states and Puerto Rico. VESC also transacts business nationwide through Thinking Works, a VESC wholly-owned subsidiary, incorporated and headquartered in Florida. Although VESC and Heuer, a VESC wholly-owned subsidiary, employ 11 full-time and 31 part-time and per diem employees in New York, they also employ three full-time employees and 56 part-time and per diem employees in other states and Puerto Rico. Although contract services provided in New York represented 65% of VESC's revenue in the fiscal year ending June 30, 1999, by fiscal year 2003, revenue from contract services had dropped to 34%.

For these reasons, the law of Delaware, rather than New York, applies to the [*6]substantive issues presented by the parties (see Leviton Mfg. Co. v Blumberg, 242 AD2d 205 [1st Dept 1997]). The court notes that, Sokol having commenced this action in New York, New York law governs procedural issues (see Ground to Air Catering Inc. v Dobbs Intl. Servs. Inc., 285 AD2d 931 [3d Dept 2001]). In addition, New York law also controls the claims which do not involve the governance of VESC's internal affairs.

The parties first seek summary judgment on the first cause of action and dispute whether Sokol has alleged sufficient facts to state a cause of action for oppression of a minority shareholder in a closely-held corporation under Delaware statutory or common law.

"On a motion for summary judgment, it is the burden of the summary judgment proponent to demonstrate, prima facie, that he is entitled to judgment as a matter of law with evidence sufficient to eliminate any material issue of fact; failure to do so requires denial of the motion regardless of the sufficiency of the opposing papers. . . . On the other hand, it is the burden of the summary judgment opponent to present admissible evidence showing the existence of a triable issue of fact or a defense warranting denial of summary judgment. Mere conclusions, expression of hope, allegations or assertions are insufficient to raise a triable issue of fact" (Plantamura v Penske Truck Leasing, Inc., 246 AD2d 347, 348 [1st Dept 1998], citing Alvarez v Prospect Hosp., 68 NY2d 320 [1986] and Zuckerman v City of New York, 49 NY2d 557 [1980]). Summary judgment is not appropriate where determinations as to the credibility of witnesses are necessary (S.J. Capelin Assocs. v Globe Mfg. Corp., 34 NY2d 338 [1974]).

Under Delaware law, disputes involving minority shareholders of a closely-held, or, non-public, Delaware corporation not qualified as a "close corporation" under Delaware statutory law must be determined in accordance with the same law that Delaware applies to corporations generally (Nixon v Blackwell, 626 A2d 1366 [Del 1993]; see Del Gen. Corp. Law subchap XIV). Here, VESC, although closely held, did not elect in its certificate of incorporation to be treated as a statutory close corporation.

In determining whether a plaintiff has properly stated a claim for oppression, Delaware courts apply one of two definitions. Oppression may be found to exist where there exists a "violation of the 'reasonable expectations' of the minority. . . . The reasonable expectations are the spoken and unspoken understandings on which the founders of a venture rely when commencing a venture" (Litle v Waters, 18 Del J Corp L 315, 327 [Del Ch 1992]). Oppression may also be found where there exists "burdensome, harsh, and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visible departure from the standards of fair dealing" (id.).

Here, Sokol alleges the existence of minority shareholder oppression arising out of defendants' unilaterally removing him from the board of directors and refusing to permit him to play a role in VESC management, refusing to provide him with shareholder information and VESC financial information, failing to keep him informed, diluting his [*7]shareholder interest, and refusing to buy back his shares of stock.

These allegations are not sufficient to raise a triable issue regarding the existence of oppression under either of the two definitions cited above.

The board [of directors of a corporation] has no duty in law or in equity to furnish shareholder information as requested; Section 220 of the Delaware corporation law describes the statutory obligations and it provides a remedy for its violation. The board has no legal or other duty 'to enter into arrangements with [the plaintiff]'; nor does the board have any obligation not to enter into or authorize transactions that will have an effect of diluting [the plaintiff's] proportionate shareholding; . . . so long as it acts in furtherance of its good faith view of the corporate interest. One cannot convert a series of permissible acts into a cause of action by the single expedient of alleging that they were done for the purpose of entrenching defendants.

(Gagliardi v TriFoods Intl., Inc., 683 A2d 1049, 1051 [Del Ch 1996]).

Significantly, the evidentiary record is devoid of any express agreement, written or oral, to provide Sokol with the rights and privileges that he claims defendants have denied him. Sokol can cite to no Delaware statute guarantying him the rights he seeks. Moreover, Sokol has alleged no facts in support of his allegations of misconduct which raise any triable issue regarding whether the alleged misconduct was intended to, or did, harm VESC.

Therefore, that branch of defendants' motion for summary judgment and dismissal of the first cause of action based on allegations of minority shareholder oppression is granted, and that branch of Sokol's cross motion for summary judgment on the same claim is denied.

Contrary to Sokol's contention, application of the "entire fairness" test to the alleged misconduct does not require a different conclusion. The test is most often applied in the context of a corporate merger, where a stock-related transaction affects the value of a minority shareholder's shares (see Nixon v Blackwell, 626 A2d 1366, supra). The test requires a showing of fair dealing by the corporation's directors who are on both sides of the transaction and fair price (id.). Here, Sokol alleges that defendants improperly issued additional VESC shares that were purchased by nonparty Robert Slater, Esq., a VESC founding member and minority shareholder and member of nonparty Slater & Cole LLP, VESC's attorneys. Sokol further alleges that Bleich caused the shares to be issued to benefit Slater, her "paramour," at Sokol's expense by diluting his equity share in VESC by approximately 1-2/3%. The undisputed record demonstrates that Sokol signed the various board resolutions authorizing issuance of the currently issued and outstanding VESC common shares. The record also demonstrates that the transfer of all other shares was the result of private transactions among existing shareholders. The record indicates that, for example, Sokol himself sold preferred shares to his relatives. Such transfers are not prohibited by the VESC constitution or bylaws, and these documents do not provide for [*8]preemptive rights in any class of shares. While defendants admit that Slater has increased his equity share and now owns, of record and beneficially, 13.37% of the issued and outstanding VESC common stock, the record is devoid of any factual support for Sokol's allegations that VESC improperly issued or sold the stock purchased by Slater. Therefore, Sokol has failed to raise a triable issue concerning whether the transaction passes the entire fairness test.

The parties next dispute whether Sokol has standing to assert the second cause of action for corporate waste and mismanagement and directors' self-dealing and whether these claims have sufficient factual support in the record.

Under either New York or Delaware law, claims of waste and mismanagement of corporate assets belong to the corporation, even where the shareholder has lost the value of his investment, and, therefore, must be brought in a shareholder's derivative, rather than individual, capacity (Abrams v Donati, 66 NY2d 951 [1985], rearg denied 67 NY2d 758 [1986]; Bordereaux v Salomon Smith Barney Holdings, Inc., 269 AD2d 217 [1st Dept], lv denied 95 NY2d 754 [2000]; Kramer v Western Pacific Indus., Inc., 546 A2d 348 [Del 1988]). Therefore, that branch of defendants' motion for summary judgment on the second cause of action is granted to the extent that the portions of the claim based on allegations of corporate waste and mismanagement and director's self-dealing are dismissed.

However, Sokol has standing to assert a claim for an injury separate and distinct from that suffered by other shareholders or for violations of rights granted to him under the VESC bylaws (see Kramer v Western Pacific Indus., Inc., 546 A2d 348, supra).

Sokol bases the second cause of action for waste, mismanagement, and self-dealing in large measure on allegations that defendants paid more than $700,000 over a four-year period to nonparty Slater & Cole in exchange for little or no legal services and without appropriate documentation because Bleich maintained a personal relationship with Slater, a member of the firm. Under Delaware law, "waste entails an exchange of corporate assets for consideration so disproportionately small as to lie beyond the range at which any reasonable person might be willing to trade. Most often the claim is associated with a transfer of corporate assets that serves no corporate purpose; or for which no consideration at all is received" (Lewis v Vogelstein, 699 A2d 327, 336 [Del Ch 1997] [internal citations omitted]; see Brehm v Eisner, 746 A2d 244 [Del 2000]).

The undisputed documentary record demonstrates that, during the four-year period cited by Sokol, Slater & Cole was compensated by means of a fixed retainer for which no itemized invoices were required. The evidence also demonstrates that the firm provided numerous legal services, including, but not limited to: all legal services for the start-up corporation, including the organization of VESC, preparation of its bylaws and minutes, and issuance of shares and maintenance of its stock book and ledger; preparation and administration of a tax-favored employee stock option plan; preparation of disclosure and other materials in compliance with federal and state law for four offerings of the [*9]corporation's securities; negotiation and drafting of the underwriter's contract; preparation and issuance of the underwriter's warrants; preparation of certifications of rights, privileges, and limitations for two classes of preferred shares; maintenance of a trademark prosecution program; employment and termination negotiations and agreements for various management personnel; negotiation and preparation of the master license providing for use of intellectual property developed by VIE; representation, negotiation, and settlement of a nonpayment landlord-tenant proceeding; negotiation of VESC's current lease; representation in an administrative hearing on an unemployment claim brought by the Florida Department of Labor; negotiation and settlement relating the embezzlement by Richard Kamenitzer, a former VESC director and officer; filing and prosecuting of claims in the Kamenitzer bankruptcy; defense of VIE in the bankruptcy trustee's preference proceeding; review and preparation of copyright opinions on all publications produced by VESC for use in its professional development programs; negotiations with factors and review of lien filings; preparation of periodic financial opinions and discussions and negotiations with the certified public accountants; and filing of franchise taxes and annual reports for VESC and VIE in Delaware and other states where they do business.

In view of the multitude and variety of services provided by Slater & Cole to VESC and VIE, Sokol has failed to raise any triable issues regarding whether payments to the firm constituted a waste of corporate assets or self-dealing by Bleich.

Sokol's allegation that VESC and VIE checks, usually in the amount of $5,000, were made out to "cash" and given, apparently as gifts, to Slater is belied by the corporate bank records which demonstrate that no such checks were negotiated by Slater.

Sokol also bases his claim of waste, mismanagement, and self-dealing on allegations that Bleich intentionally transferred funds and shifted financial obligations between VESC and VIE without documentation or board approval for her own personal gain. The undisputed record conclusively demonstrates that the practices of which Sokol complains are confined to the years Kamenitzer was employed as controller and that these practices were discontinued in 2000, after VESC discovered Kamenitzer's embezzlement and terminated his position with VESC. The record demonstrates that VESC retained two independent accounting firms to review the financial books and records of VESC and VIE and that they have approved the accounting methods used by the two corporations in apportioning and paying certain expenses, including executive salaries, telephone, and photocopying. The record also demonstrates that VESC, VIE, and Heuer each separately settled their respective claims against Kamenitzer for amounts equal to the extent of the financial loss suffered by each during Kamenizter's tenure, as calculated by a certified public accountant retained by VESC. The procedures followed in the settlement of the corporations' claims against Kamenitzer and in recording the settlement in the corporations' records were certified without qualification by independent auditors retained by the corporations for fiscal year ending June 30, 2000. [*10]

In view of this undisputed evidence, Sokol has failed to raise a triable issue concerning whether VESC or he himself suffered any financial loss as a result of the accounting practices followed before, or after, termination of Kamenizter's employment.

Last, Sokol bases the claims of waste, mismanagement, and self-dealing on allegations that, as the result of Bleich's looting of corporate funds, VESC was unable to meet its payroll and pension contribution payment obligations. The undisputed record demonstrates that, while VESC failed to timely make certain payments in 2001, by 2002, all outstanding payments had been made in full.

For these reasons, that branch of defendants' motion for summary judgment on the second cause of action based on allegations of corporate mismanagement, waste, and self-dealing is granted and this branch of the claim is dismissed, and the branch of Sokol's cross motion for summary judgment on this claim is denied.

The parties next seek summary judgment on the first and second causes of action on allegations that defendants improperly unilaterally terminated Sokol's employment and management role and that he held a reasonable expectation of continued employment and a continued role in VESC management.

The record conclusively demonstrates that Sokol's expectations were neither reasonable nor well-founded. Sokol does not allege the existence of an employment contract, shareholders' agreement, or any other written agreement which would enhance his rights as an employee, shareholder, or officer beyond those granted by law. Upon receipt of the VESC personnel policy manual, Sokol acknowledged in writing [FN1] that he was an at-will employee of the corporation. Under New York law, an employee at-will may be fired for any reason, or no reason (Kikis v McRoberts Corp., 225 AD2d 455 [1st Dept 1996]). With respect to the governance of the internal affairs of a corporation, Delaware law provides that a Delaware corporation owes no special fiduciary duty to a shareholder who is also an at-will employee with respect to continued employment (Ueltzhoffer v Fox Fire Dev. Co., 17 Del J Corp L 1297 [Del Ch 1991], affd sub nom Fox Fire Dev. Co. v Hans, 618 A2d 90 [Del 1992]). As VESC's director, he admittedly executed and understood the 1997 board minutes adopting the corporation's bylaws which provide that board members would be elected by majority vote of the shares (see plaintiff's answers to defendants' first set of interrogatories, at 5).

Sokol's allegation that Bleich verbally assured him that, as long as she controlled the majority, she would assure him a continued role in management is simply insufficient to create a triable issue regarding modification of the VESC bylaws or creation of an [*11]enforceable contract right.

Therefore, that branch of defendants' motion for summary judgment and dismissal of the branches of the first and second causes of action based on allegations of improper termination of employment and board directorship is granted in defendants' favor, and those branches are dismissed. Those branches of Sokol's cross motion for summary judgment on these claims are denied.

Next, that branch of defendants' motion for summary judgment on the fourth cause of action to remove Sokol's name as guarantor of the corporate credit card is granted and the claim is dismissed. The undisputed documentary record conclusively demonstrates that nonparty Chase Manhattan Bank notified Sokol on July 2, 2002 that the VESC credit card account had been closed and that the account balance was zero. On July 17, 2002, Sokol's attorney was notified that the account had been closed and the balance transferred to an account guaranteed by Bleich.

Those branches of defendants' motion and Sokol's cross motion for summary judgment on the second counterclaim for return of a corporate laptop and cellular telephone are granted. In the reply to the counterclaims, Sokol concedes liability and has offered to return the equipment. If they have not already made arrangements for return of the equipment, the parties are directed to do so.

Next, Sokol seeks summary judgment on the third cause of action to recover $40,000 in deferred compensation, together with judicial interest from July 2001, the date defendants first admitted that VESC was profitable.

In opposition, defendants contend that the agreement to pay when VESC "was profitable" or "when cash is available" is so vague and uncertain as to be unenforceable because it is impossible to determine when the deferred salary would become due and owing or the manner in which the salary would be paid.

VESC acknowledged the debt in its July 31, 2002, letter to Sokol in which it set forth an installment payment schedule and transmitted an initial $5,000 payment as a first installment. Sokol rejected the payment and installment plan and now demands payment in full of the amount admittedly owed.

The well-established law of contract interpretation provides that:

In interpreting a contract, the intent of the parties governs. A contract should be construed so as to give full meaning and effect to all of its provisions. Words and phrases are given their plain meaning. Rather than rewrite an unambiguous agreement, a court should enforce the plain meaning of that agreement. Where the intent of the parties can be determined from the face of the agreement, interpretation is a matter of law and the case is ripe for summary judgment. On the other hand, if it is necessary to refer to extrinsic facts, which may be in conflict, to determine the intent of the parties, there is a question of fact, and summary judgment should be denied.

(American Express Bank Ltd. v Uniroyal, Inc., 164 AD2d 275, 277 [1st Dept 1990], [*12]appeal denied 77 NY2d 807 [1991] [internal citations omitted].) Further, "[w]hether or not a writing is ambiguous is a question of law to be resolved by the courts" (W.W.W. Associates, Inc. v Giancontieri, 77 NY2d 157 [1990]).

The parties' agreement is embodied in an August 14, 1997, stipulation of compensation payment executed by Bleich on behalf of VESC and Sokol that refers to a "base annual compensation" for the 1997 fiscal year of $40,000 from VESC to be paid retroactive to July 1, 1997, "as soon as cash is available." Defendants admit that Sokol deferred $40,000 of earned compensation, as did Bleich and other VESC employees, and that they agreed to pay each of them at a later date (see defendants' memo of law in opposition to plaintiff's motion for summary judgment, § IV). Furthermore, in board minutes dated July 23-24, 1998, approved by the board directors, including Sokol, VESC recognizes that, in the first year of VESC's operation, compensation was paid to the chief executive officer and three other senior executives at reduced salary levels. Regarding future payment, the minutes provide in relevant part that "the subject of increased compensation for these executives will . . . be addressed when earned net profits and positive cash flow are available."

Clearly, then, the parties agreed that Sokol would defer $40,000 due him the first year that VESC was in operation and that VESC would pay him, once it was financially able to do so. Sokol now seeks payment in full because VESC is admittedly well-established and profitable. Sokol has refused to accept partial payment. Defendants represent that VESC, while profitable, is not profitable enough to make the payment in full without suffering economic harm. Inasmuch as the parties intentionally left ambiguous the terms regarding when and how the salary would be paid, discovery is necessary regarding whether VESC is financially able to make the payment in full now or whether the parties contemplated a series of partial payments, based on VESC's liquidity. For this reason, summary judgment in favor of either party is denied.

That branch of the motion to disqualify under the advocate-as-witness rule the law firm of Slater & Cole and its partners from representing defendants in this action is denied. The claims for waste, mismanagement, and self-dealing that Sokol alleges would require testimony by the firm partners have been dismissed above. Therefore, disqualification is unnecessary.

Sokol seeks leave to amend the complaint to assert claims based on defendants' alleged wrongful use of his personal credit rating and wrongful listing of him as a VESC guarantor in their attempt to obtain or extend a corporate line of credit after termination of his employment.

In opposition, defendants contend that the proposed amendment is based upon incorrect and unsubstantiated factual allegations and, in any event, that Sokol was not damaged by the alleged misconduct.

Sokol alleges that, in October 2003, he learned from nonparty JPMorgan Chase Bank that VESC had recently applied for an increase to $60,000 in its small business [*13]revolving line of credit and had listed Sokol as a guarantor. Defendants allege that, in 1998, when VESC applied to the Bank's predecessor for its original line of credit, Sokol agreed to guaranty the debt. Sokol alleges that, in connection with the 2003 application, he also learned for the first time that, when VESC applied in 1999 for a credit line in the amount of $35,000, VESC provided Chase with a guaranty apparently bearing his signature. Sokol alleges that the signature is a forgery. Sokol advised the Bank that he had never agreed to guaranty the line of credit and that he objected to the imposition of personal liability on him for any portion of the debt. The Bank subsequently rescinded its approval of the credit line increase, but advised Sokol that he remained liable as a guarantor of the $35,000 line of credit. Sokol does not allege that the Bank has ever sought to enforce its rights against him, as guarantor of the debt.

Leave to amend a pleading shall be freely granted, absent a showing of prejudice engendered by the delay in correcting the omission or error (Fahey v County of Ontario, 44 NY2d 934 [1978]; CPLR 3025 [b]). Where the proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit, leave to amend may be denied (Thomas Crimmins Contr. Co. v City of New York, 74 NY2d 166 [1989]).

Leave to amend is granted. At this juncture, it cannot be said that the proposed claims are palpably without merit. The court notes that, although defendants have closed VESC's credit card account bearing his name, they have not agreed to replace Sokol as guarantor of the line of credit.

Conclusion

Accordingly, it is

ORDERED that defendants' motion for partial summary judgment is granted to the extent that summary judgment in their favor is granted on the first, second, and third causes of action and these claims are dismissed in their respective entireties; and it is further

ORDERED that the first counterclaim is permitted to be withdrawn and summary judgment on the second counterclaim is granted in favor of defendants and plaintiff Marc J. Sokol is directed to return the corporate laptop and cell phone to defendant Ventures Education Systems Corp. within 20 days after service of a copy of this order with notice of entry; and it is further

ORDERED that the third cause of action shall continue; and it is further

ORDERED that the branch of plaintiff's cross motion for summary judgment is denied; and it is further

ORDERED that the branch of plaintiff's cross motion for leave to amend the complaint is granted to the extent that plaintiff is directed to serve a complaint amended to include a cause of action for the unauthorized use of plaintiff as a guarantor of defendant Ventures Education Systems Corp.'s line of credit and forgery of his signature

within 20 days of service of a copy of this order with notice of entry. [*14]

Dated: June 27, 2005

ENTER:

_______________________________

J.S.C. Footnotes

Footnote 1:The acknowledgment executed by Sokol provides that "I understand that nothing in this manual is intended to create a contract between [VESC] and me, and that neither of us are [sic] obliged to continue an employment relationship for any specific period of time. I specifically acknowledge that my employment may be terminated by me or [VESC] at any time, with or without notice and with or without cause."