VanLeeuwen v VanLeeuwen

[*1] VanLeeuwen v VanLeeuwen 2005 NY Slip Op 52369(U) [20 Misc 3d 1130(A)] Decided on May 4, 2005 Supreme Court, Dutchess County Brands, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 4, 2005
Supreme Court, Dutchess County

John VanLeeuwen, Louis VanLeeuwen, Sr., and Molly Sirignano, Individually and as Shareholders of Van Wen Realty Corporation, Plaintiffs,

against

Henry P. VanLeeuwen and VanWen Realty Corporation, Defendants,



2885/00



McCarthy, Fingar, Donovan, Drazen & Smith, LLP

Robert H. Rosh, Esq.

11 Martine Avenue, 12th Floor

White Plains NY 10606-1934

Benjamin Ostrer & Associates, P.C.

Benjamin Ostrer, Esq.

111 Main Street, PO Box 509

Chester NY 10918

James V. Brands, J.

BACKGROUND

This is an action brought by the individual plaintiffs on behalf of themselves and as shareholders of Van Wen Realty Corporation. The individual defendant, Henry P. VanLeeuwen is a brother of the individual plaintiffs in this action. In 1970 the corporation Van Wen Realty Corporation was formed for the specific purpose of accepting a deed to real estate owned by Petronella VanLeeuwen, mother of the individual parties. At the time of the formation of the corporation, Petronella VanLeeuwen received 110 shares of stock. 15 shares of stock each were issued to Henry VanLeeuwen, Louis VanLeeuwen, John VanLeeuwen, Molly Sirignano, Maria Kondracki Dwyer and Theresa Makuen, her six children. Thus, Petronella VanLeeuwen by retaining 110 shares of stock was the owner of 55% of the outstanding shares issued by the corporation.

Thereafter between 1979 and 1988 the corporation subdivided and conveyed its real property in what were apparently arms length transactions on three separate occasions. The first sale in 1979 was for $5,100.00 to individuals named Zolendjeski, the second sale in 1981 to Forino for $79,400.00 at which time it received cash of $23,400.00 and held a purchase money mortgage in the amount of $56,000.00 and last, a sale to Abalard of Stoney Point Corp., in 1988 for a total sum of $224,000.00 comprised of $65,000.00 in cash and a mortgage of $159,000.00.

Payments on the two mortgages were made by the mortgagors until the Forino mortgage was paid off in 1989 and the Abalard was likewise paid off in 1993. Prior to the time of any final distribution of the corporate's assets, Van Wen Realty Corp. was dissolved in 1990. Petronella VanLeeuwen thereafter died in 1998. [*2]

Plaintiffs' contention is that following the first sale in 1979 through the final payoff of the last sale in 1993, the defendant, Henry P. VanLeeuwen received a portion of the proceeds from the sales including mortgage payments which were diverted into his own account and/or an account set up in his son's name and that the family never received an appropriate accounting of all the monies that should have been paid to Van Wen Realty resulting in a shortfall of approximately $200,000.00 which is the amount for which they seek judgment. The defendant, Henry P. VanLeeuwen's position is that he is a high school graduate with no accounting skills and that while there may have been sloppy bookkeeping involved, each of his siblings received their fair share from profits which were realized. Additionally, he attended to all of the expenses of the corporation over the years and took care of their mother in a variety of ways which financially equaled any differences between all of them.

Many of the facts were not in dispute in this litigation so far as the formation and dissolution of the corporation, the shares of stock issued to each sibling, the shares of stock issued to Petronella VanLeeuwen, the fact that three of the siblings have elected to sue their brother while two are not involved in the proceedings, and certain distributions which were made to each of the brothers and sisters.

STIPULATED FACTS

The parties stipulated to the following:

1:The real property that was transferred to the corporation in 1970 consisted of 135 acres more or less.

2:There were 3 sales:

(a) $5,100.00 to a person named Zolendjski. (b) Forino sale, June 1981. Sale price $79,400.00 cash $23,400.00 mortgage $56,000.00. On the mortgage there were approximately 100 payments of $690.22. In 1989 the purchasers paid off the mortgage balance of $33,281.00.(c) A sale to Abalard of Stoney Point, March 15, 1988 was for $224,000.00. They received $65,000.00 cash and a mortgage of $159,000.00. There were received approximately 34 payments of $1,500.00 each totaling $51,000.00 and the mortgage balance was paid off in 1993 in the amount of $110,000.00. There was also a broker's commission paid on that sale of around $7,000.00.

Therefore, the total amounts received not counting the first sale was roughly $335,681.00. Two distributions were made of $54,000.00 and $110,000.00 to the family members leaving a balance more or less unaccounted for of $171,681.00.

3:They also stipulated that there were 200 shares in the corporation, each of the children had 15 shares of 7.5% and the other 110 went to their mother Petronella. [*3]

4:The corporation was dissolved in June 1990.

5:In 1988, $54,000.00 was distributed to the six siblings.

6:A majority of the checks for the mortgage payments went into the personal account of the defendant or his son.

The defendant, a high school graduate, testified concerning the conveyance of the land to the corporation and the shares of stock that each child held. The mother retained her 55% until her death and no one sought an accounting or an estate proceeding regarding the 55%.

Following the three sales of land, the decedent continued to clean houses and received approximately $300.00 to $400.00 on social security until she died in 1998 at age 90. It is the defendant's position that some of the money went to the decedent for cars and allowance together with gifts and that she consented to the money being placed in the accounts that he set forth. Additionally, he paid for her funeral as part of the distributions from the monies.

The defendant acknowledged that he was the president of the corporation but alleged that his siblings were aware of all of the financial dealings including tax returns and so forth. An account was set up in his son's name so that all the monies would go in there and be kept segregated from any other monies that he had. His son was not aware of this. However, the defendant's brothers Louis and John were made aware of it. He never provided bank statements to his siblings because they didn't ask for them and they understood he was the guardian of his mother's money.

There was a company called Van Wen Partners which he claimed to never hear of, however, when the mortgage of $33,000.00 was paid off on the Forino account, it was made payable to Van Wen Partners and indeed he acknowledged the satisfaction (Exhibit 9) that he signed on behalf of Van Wen Partners. Although he claimed that the monies for the payoff were made payable to Van Wen Partners and his mother, the check that was issued indicated that it just went to Van Wen Partners. He does not know where this money was deposited.

The witness identified two checks drawn to the order of plaintiff John Van Leeuwen for $1,000.00 and $3,000.00 in May and June of 1995 as distribution from his account as part of the proceeds received (Exhibit 16). He was asked to identify an invoice (Exhibit 17) for $4,000.00 for certain excavation work done by his brother John. However, he denied that the checks totaling $4,000.00 were for this excavation work which also totaled $4,000.00. When asked why he gave $1,000.00 to each of the other siblings and only John received an additional $3,000.00 his response was that John asked for money.

The defendant further identified a check in the sum of $10,000.00 given to his brother Lou at his mother's direction (a portion of the checks in Exhibit 16). He testified that she would [*4]direct him to do certain things with the monies which he would then do. Again, it was this witness' position that the $10,000.00 came from the proceeds of one of the mortgages. When asked on cross examination if in fact those were not separate funds from an unrelated death case involving Lou's father's death, he answered in the negative.

The witness acknowledged that a check in the amount of $7,834.59, part of the proceeds from the Abalard mortgage was deposited directly into his business Arkel Motors as he was short on funds (Exhibit 18). He further acknowledged that all of the payments on the Abalard mortgage were made and a payoff of $110,000.00 occurred on January 11, 1993. Notwithstanding the fact that all of the payments were made, it was acknowledged by him and his attorney that some checks were missing and unaccounted for approximating $20,000.00 to $25,000.00. Further that the Abalard and Forino

checks went to his and his son Peter's account. There was also a check in the amount of $40,000.00 from his son's account to the defendant in 1987 characterized as a loan from his mother.

The defendant testified that the distributions each child received were the $110,000.00 on the payoff of the Abalard mortgage and $9,000.0 each from the Forino payoff. He testified that in addition, his mother would give out certain money at Christmas time, and for birthdays, and he additionally paid $1,000.00 per month for her care in the last year of her life. This witness also paid for the funeral expenses of approximately $10,000.00 when she died in addition to other monies to help her sustain herself while she was alive.

Gerald Federholtz, an attorney in Orange County, testified that he organized the corporation and represented the family for some period of time. Each child was given 15 shares and the remainder when to their mother. The corporate records are inconsistent as to whether she surrendered her shares. Although there was a shareholder resolution showing shares numbered 9, 10 and 11 as being issued, in fact, they are blank in the book. It would appear as though the parties' mother resigned as a director and may have given up her shares in 1979.

John Van Leeuwen, one of the plaintiffs, testified that he is an excavator and at the time of the formation of the corporation each sibling received 15 shares with their mother keeping 110. In 1979 she surrendered her shares. During the time of the corporation being in effect he was never an officer. However, his brother was secretary. This witness was aware of the three real estate sales and the fact that defendant was in charge and they agreed that the sales would take place. Neither this witness nor any of his siblings was involved and never reviewed any of the documents at the time of the closings. He never consented to any money going into the defendant's son's Peter's account, did not know that

the mortgages were made payable to his mother, not the corporation, and never knew or was aware of Van Wen Realty Partners until these proceedings were commenced. He believed that his mother was president of the corporation until she resigned and gave up her shares in 1979. [*5]

He identified Exhibit 16 as payment for the excavation work accomplished for the defendant for which he was paid a total of $4,000.00. It was brought out on cross examination of this witness that the invoice dated in May of 1985 (Exhibit 17) had his present address on there which was changed in the 1990s when 911 came into Orange County. This witness had no explanation as to how his new address appeared on an old invoice.

As far as the $10,000.00 given to Lou Van Leeuwen in 1995, this witness testified that there was a car accident and the case was settled for quite a bit of money and defendant got a big commission out of which he gave $10,000.00 to Lou. It had nothing to do with distributions from the sale of the properties.

He was unaware that the defendant had been loaned $40,000.00 by his mother and was generally unaware of any of the proceedings that occurred. In 1987 he asked his brother for an accounting and was basically told to get out that there was no money. Thereafter when his mother died, again he asked where the money is and was told that there was no money. Again at a later date, the defendant told him that there was no money, I earned the money and I'm keeping it. On cross examination, he acknowledged that from 1970 to 1988 taxes were paid on the property but did not know who paid them. Further, he knew that there were corporate franchise taxes paid but again was not sure who paid those. He acknowledged borrowing $14,200.00 from his mother after 1970 and at one point believed $7,000.00 of it came from sale of cattle and equipment but did not know where the rest was from, although in his examination before trial he stated that she gave it to him in one lump sum. Additionally, although he believed that his mother turned her shares of stock in, at his examination before trial, he did not recall that she had turned them in. So far as the sum of money that he borrowed, interest was paid at 6% until his mother died and then the figure of $14,200.00 was offset against monies that others owed to their mother including his brother Louis who owed $25,000.00. They all made adjustments for this.

This witness was also aware that after his mother moved down to Florida to reside with his sister, that money was being sent by the defendant to her and also to pay for a home health aid. He was also aware that his brother paid for the funeral expenses of roughly $10,000.00, that other sums were given to her by the defendant, and that his business purchased a car for her.

Louis VanLeeuwen, Sr. testified that he is the vice president of a trucking business that he owns with his brother, the defendant, Henry P. VanLeeuwen. He described the meeting in late 1970 where the corporation, VanWen Realty, was set up. There were the three sales which he and his siblings were told about but not really involved in. The six siblings each owned 7 ½ % of the stock with their mother owning the remaining. After a sale of the properties, they received very little information and never obtained an accounting.

At one point, he observed documents in the trucking business which related to VanWen Realty and showed that monies were being deposited in the defendant's account or an account set up in the defendant's son's name. He never discussed this with the defendant. He testified to the fact that he received $10,000.00 at one point and a loan for another $25,000.00. However, when [*6]his mother died he satisfied it by paying one-sixth of that amount to each of his siblings, except to his brother Hank. Additionally, he received another $9,000.00.

This witness acknowledged at an examination before trial, he indicated a further check in the amount of $10,000.00 had been given to him on a prior occasion. He also identified a check in the amount of $10,000.00 (part of Exhibit 16) which he described as coming from monies emanating from a lawsuit by the estate of his uncle against the State of New York. These monies were not connected to the income from the sale of the properties.

He was not aware of how any taxes on the real estate owned by the company were paid over the years, nor how the corporate franchise taxes were paid. This witness was aware that certain sums of money were paid to his sister for roughly a four year period when their mother resided with her in Florida but he did not know the total of those funds. Although he now believed his mother may have turned in her shares of stock, he testified at an examination before trial that he did not know what had occurred with them. There was also an additional sum of money he received from his mother on a separate occasion.

The interest which he paid on $25,000.00 which had been loaned to him ostensibly by the corporation was paid to his mother, not the corporation.

This witness acknowledged that he had not spoken to his other siblings except for his co-plaintiffs so far as the sums of money that they may have received from the corporation or from his brother Henry VanLeeuwen. He was aware that one sister received money for a car and then some other funds, and additionally that his mother had traveled to Europe in her later years but was not sure how that was paid for.

DECISION

If trials are intended as a search for the truth, that goal has proven elusive in this matter. So elusive in fact that it is unclear who are the proper plaintiffs and in what capacity the lawsuit has been commenced. Indeed one named plaintiff, Molly Sirignano declined to testify and effectively abandoned her cause of action before this court. When asked by the court at the conclusion of the case to identify who the check should be made payable to in the event of a decision against the defendant, plaintiff's counsel was unable to articulate a response. He did, however, assure the court that he would address that in his post trial memorandum. That has not occurred.

To lend confusion, following completion of testimony and after each side rested, defendant for the first time in the four year history of this case recalled that there is a statute limitations for this type of action and brought an application to amend his answer to allege a statute of limitations defense. Plaintiffs then brought a post trial cross-motion seeking a declaration that the ad damnum clause gave defendant sufficient notice of their claim for counsel fees or alternatively allowing plaintiffs to amend the complaint to seek same. [*7]

Addressing the motions in reverse order, plaintiffs seek counsel fees pursuant to Section 626 (e) of the Business Corporation Law which permits such recovery if an action on behalf of the corporation is successful. This is a specific statutory right as otherwise the general rule in New York is that the loser in a legal dispute is not liable to the prevailing party, Glenn v. Hoteltron Systems, 74 NY2d 386. This naturally contemplates an action having been brought under BCL Section 626 (a) in the name of the corporation in which case the recovery would be in the name of the corporation and the attorney's fees "...should be paid by the corporation, which had benefitted from the plaintiff's efforts..." Glenn v. Hoteltron Systems, Inc., supra.

It is axiomatic that for a wrong alleged against a corporation, the lawsuit is in the corporate name as a shareholder has no individual right of action, Abrams v. Donati, 66 NY2d 951. In the normal course of events, certain predicates so far as demands by plaintiff under BCL Section 626 (c) must be set forth, although in a particular case strict application may be deemed waived. Curreri v. Verni, 156 AD2d 420. The caption in this case specifically states that the plaintiffs are suing individually and as shareholders. A cause of action by the corporation itself is precluded where a derivative cause of action is alleged. Silver v. Chase Manhattan Bank, 49 AD2d 851. It is apparent that the action before this court is brought by plaintiffs on their own behalf. This is not a suit maintained by the corporation. Therefore, counsel fees may not be awarded against the defendants. As a matter of fact, the corporation itself for whatever reason is named as a defendant by the plaintiffs so it is inconceivable that the corporation could be both plaintiff and defendant.

The court is disallowing the motion to amend the complaint to include a defense of statute of limitations. This was never brought out until after proof was submitted and the matter submitted for decision.

From the outset, it has been impossible to ascertain who owns what shares of stock in this corporation which was dissolved 15 years ago. Testimony was in conflict as to whether Petronella VanLeeuwen went to her grave as the majority shareholder owning 110 shares of stock or whether they were turned back to the corporation. No estate proceedings were ever undertaken following her death which might have shed some light on this aspect.

The testimony is inconclusive as to who obtained what monies over a period of time or from what source. It is apparent that although the real property was placed in the name of the corporation, all of the participants in this lawsuit treated that as mere formality and utilized the funds received as though it was still their mother's funds. For example, John VanLeeuwen, one of the plaintiffs, acknowledged borrowing $14,200.00 from Petronella VanLeeuwen after the sale of the properties and no one seriously disputes that the sale of the real property was the source of these funds.

While the defendant, Henry P. VanLeeuwen received various funds from the sales of properties, he correctly points out that there were expenses attendant to the corporation and the properties including corporate franchise taxes, real property taxes, brokers commissions and the [*8]like in addition to which he independently paid a variety of expenses for Petronella VanLeeuwen until she passed away.

The court also notes that in addition to Molly Sirignano, whose claim is being dismissed by this order for failure to proceed at trial, there are several other siblings who have not joined the lawsuit for whatever reason. Although plaintiffs have been unable to articulate the legal characterization of this litigation, it would appear not be a direct action by Van Wen Realty Corporation nor is it a derivative action as all of the shareholders have not been affected equally, see In Re WorldCom, Inc., U.S.-SDNY, NYLJ May 2, 2005, pg.21, col l. Even accepting plaintiffs' argument that all funds were not accounted for, and allowing no offsets to defendant against the highest gross receipts estimated by plaintiffs ($393,637.00), it would appear as though the 7 ½ interest that the two remaining plaintiff shareholders could claim against the gross proceeds approximate $29,500.00 each. They have already received more than that from the sales.

Additionally, were this court to hold otherwise, it is apparent that any amounts ever to be received would be more than consumed in counsel fees and expenses which would be necessitated to resurrect the corporation which has been dissolved for 15 years, pay any franchise taxes, conduct estate proceedings, and the like. In that regard, plaintiffs' counsel indicates that it has spent in excess of $100,000.00 pursuing this matter to date. It would be inequitable to the parties for this court to open those doors.

The court therefore finds that the claims by the plaintiffs have not been sustained by the required quantum of evidence, and it is therefore

ORDERED that the complaint is dismissed.

The foregoing constitutes the decision and order of this court.

Dated: May 4, 2005

Poughkeepsie, New York

ENTER:

______________________

JAMES V. BRANDSSupreme Court Justice

AN APPEAL FROM THIS ORDER MUST BE TAKEN WITHIN 30 DAYS AFTER SERVICE BY A PARTY UPON THE APPELLANT OF A COPY OF THIS ORDER WITH WRITTEN NOTICE OF ITS ENTRY, OR WITHIN 30 DAYS OF SERVICE BY THE APPELLANT OF A COPY OF THIS ORDER AND NOTICE OF ITS ENTRY, WHICHEVER IS EARLIEST.