Gallo v Rea Motors, Inc.

[*1] Gallo v Rea Motors, Inc. 2005 NY Slip Op 52373(U) [20 Misc 3d 1134(A)] Decided on June 16, 2005 Supreme Court, Orange County Owen, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 16, 2005
Supreme Court, Orange County

Steven Gallo, Individually and as a Stockholder of Rea Motors, Inc., a New York Corporation, Plaintiff,

against

Rea Motors, Inc., Joseph Rea, Individually and as Principal of Rea Motors, Inc., and Rea-Ford-Lincoln-Mercury, Inc., Defendants.



7738/01



Appearances: Drake, Sommers, Loeb, Tarshis, Catania & Liberth, PLLC, Attorneys for Plaintiff, One Corwin Court, Post Office Box 1479, Newburgh, New York 12550.

Law Offices of Fine & Schulman, Attorneys for Defendants, 170 Broadway, Monticello, New York 12701.

Joseph G. Owen, J.

This is an action to recover damages, inter alia, for the alleged breach of a shareholders' agreement. A bench trial was held on January 19, 2005, and the parties were thereafter directed to submit post-trial memoranda.

Upon all the evidence adduced at trial, as well as all prior proceedings, the Court decides as follows:

(1) Plaintiff Steven Gallo shall have judgment against defendants, on "Count 1" of his verified complaint, in the amount of $46,000, plus interest at the legal rate from July 13, 2000, together with the costs and disbursements of this action;

(2) The remaining causes of action set forth in plaintiff's verified complaint are dismissed; and

(3) Defendants' first and second counterclaims are dismissed.

Submit judgment to Orange County Clerk, as Clerk of the Court, with bill of costs.

Plaintiff Steven Gallo is a former services representative of defendant Rea Motors, Inc. His employment with that defendant was terminated on or about July 13, 2000, following a period of physical difficulties caused by injuries sustained in a May 3, 1997 motor vehicle accident.

Shortly after Rea Motors was incorporated in September of 1988, a written agreement dated December 14, 1988 was executed between the corporation and certain shareholders, comprised of the principals, Joseph Rea and Kathryn Rea, and four employees including plaintiff. Under the terms of this December 14, 1988 agreement, plaintiff was issued ten (10) shares of no par value stock, representing 5% of the corporate interest. The agreement further provided, in pertinent part; [*2]

4. REPURCHASE OF SHARES. In the event any of the aforesaid four (4) Shareholders shall discontinue service to the Corporation, whether by termination of employment, permanent disability, retirement, death or otherwise, the shares then owned by any Shareholder so discontinuing shall be purchased back by the Corporation at the then current evaluation fixed by the Accountant regularly employed by it upon the following terms and conditions:

* * *

a) Two (2) of the shares held by any or all of said four Shareholders may be redeemed on his or her request on March 31, 1989, or on any anniversary date thereof for the four (4) succeeding years.

b) In the event of discontinuance of service, the shares then held by any Shareholder so discontinuing shall be offered for redemption to the Corporation which shall have the right to repurchase those that shall have matured as set forth in subparagraph (a) above.

* * *

5. AFTER-ACQUIRED ENTERPRISES: In the event the Corporation and/or its principals, JOSEPH REA and KATHRYN REA, hereafter acquire any additional related business or businesses, the four (4) Shareholders shall similarly be entitled to shares of such after acquired enterprises on the same basis, terms and conditions thereof as to each such enterprise shall be as of the date of acquisition.

(December 14, 1988 Agreement, p. 2, ¶¶4 & 5).

Plaintiff's first cause of action alleges that defendants breached the December 14, 1988 agreement by failing to repurchase his shares. In its May 4, 2004 short form order, the Court held that the juxtaposition of the various clauses in ¶¶4 & 5 of the agreement created ambiguities which could only be resolved through trial.

Defendants' first two counterclaims [FN1] seek judgment against plaintiff on the basis of a claimed August 12, 1997 meeting of all shareholders. At this meeting, it was allegedly agreed that plaintiff would receive his full benefits as an employee "while he was out [due to the May 3, 1997 motor vehicle accident]...and upon settlement of his lawsuit he would reimburse the corporation the amount he was paid (less any disability payments reimbursed to the corporation) as long as the settlement was in excess of what the corporations had paid to him" (Verified Answer and Counterclaim, dated December 19, 2001, ¶21). Plaintiff denies that this meeting was ever held, or that any such agreement was ever reached. [FN2] FN1. Defendants' third and fourth counterclaims were dismissed by the Court's May 4, 2004 short form order.FN2. In its May 4, 2004 short form order, the Court held that evidence of this alleged oral agreement was not barred solely by the provisions of General Obligations Law §5-710(a)(1) because it was not, by its claimed terms, wholly incapable of performance within the applicable one-year period.

DEFENDANTS' BREACH OF THE DECEMBER 14.1988 AGREEMENT

Plaintiff claims that defendants breached the December 14, 1988 agreement by failing to purchase his 5% interest (Agreement, ¶4). Defendants argue, in essence, that plaintiff is precluded from seeking this relief because he never offered his matured shares for redemption (Agreement, ¶4[b]).

"It is an elementary rule of contract construction that clauses of a contract should be read together contextually in order to give them meaning...[and that] 'where two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect' " (HSBC Bank USA v. National Equity Corp., 279 AD2d 251, 253, quoting, Bijan Designer For Men v. Fireman's Fund Ins. Co., 264 AD2d 48, 53, leave to appeal denied 96 NY2d 707). The main portion of ¶4 in the parties' agreement is unequivocal, i.e., that upon discontinuance "the shares then owned by any Shareholder so discontinuing shall be purchased back by the Corporation at the then current evaluation fixed by the Accountant regularly employed by it...." This language, in itself, contains no ambiguities.

Any ambiguity is interjected solely because of the subsequent "terms and conditions", which include a provision that "the shares then held by any Shareholder so discontinuing shall be offered for redemption to the Corporation...." (Agreement, ¶4[b]). The most reasonable interpretation of this clause is not that it sets forth a absolute condition precedent whi?? would bar the shareholder in the event of untimely invocation, but that it was designed to protect the shareholder by permitting him or her to retain shares until offering them for redemption was considered beneficial. Accordingly, while the corporation may not force a shareholder to sell his or her shares, it is constrained to purchase them upon an offer of redemption. Clearly, at least by virtue of this action, plaintiff desires defendant corporations to redeem the shares.

Moreover, "I in determining the meaning of an indefinite or ambiguous term in a contract, the construction placed upon the term by the parties themselves as established by their conduct may be examined to determine the term's true meaning" (Harza Northeast, Incv. Lehrer McGovern Bovis, Inc., 255 AD2d 935, 936; see, also, Webster's Red Seal Publications, Inc. v. Gilberton World-Wide Publications, Inc., 67 AD2d 339, 343-345, appeal dismissed 49 NY2d 1047, order affirmed 53 NY2d 643). Defendants are the ones who interjected the issue of compensation for plaintiff's 5% interest. By letter dated June 8, 2001, defendants sought reimbursement from plaintiff in accordance with the alleged August 12, 1997 shareholders' agreement. In this letter, they specifically credited plaintiff with a setoff in the purported amount of his 5% interest. Clearly, at that time defendants themselves did not interpret the parties' agreement in accordance with the constrained terms now propounded, but rather believed that plaintiff was entitled to reimbursement for his shares. Nothing proffered by defendants at trial substantively counteracts this conclusion.

Under all the circumstances, the Court holds that defendants breached the December 14, 1988 [*3]agreement by failing to pay the stipulated valuation.

PLAINTIFF'S DAMAGES

Plaintiff claims that, pursuant to ¶¶ 4 & 5 of the agreement, he is entitled to a 5% interest not only in the subject two corporations themselves, but also in the real properties upon which they are located. He has proffered expert evaluations of the corporate entities as of December 31, 2000, and of the real properties as of July 16, 2004.

The valuation provisions of the parties' December 14, 1988 Agreement were, however, clear and unambiguous. As a discontinuing shareholder on July 13, 2000, plaintiff was entitled to have his shares "purchased back by the Corporation at the then current evaluation fixed by the Accountant regularly employed by it...." (Agreement, ¶4). While the Court must enforce the parties' agreement, it cannot rewrite the provisions of that agreement.

Given the unequivocal contractual provisions relating to valuation, plaintiff has proffered no credible evidence relating to valuation, as of July 13, 2000, rendered by the corporations' accountants. However fair or unfair plaintiff views this result, that was his agreement.

Defendants have, however, introduced a valuation of the corporate entities rendered by their retained accountants. According to these accountants, as of July 13, 2000, the fair market value of plaintiff's 5% interest was equal to $46,000. Although plaintiff contests the accuracy of this evaluation, it is the only evidence before the Court which falls within the parameters of the parties' agreement, and the Court therefore accepts it. Plaintiff's attacks on this valuation are self-defeating, and would leave him with nothing.

In light of the express provisions of the parties' agreement, plaintiff's further contention that he should be reimbursed for the value of real properties is at best questionable. The parties' agreed that the valuation was to be done by corporate accountants, who presumably would have no expertise in valuing real estate.

In any event, the only evidence of the properties' value as of July 13, 2000 was proffered by defendants. Plaintiff does not contest defendants' factual allegation that the corporate mortgage debt exceeded the value of these properties, and that they effectively had a net value of less than zero as of July 13, 2000.

Plaintiff offers no substantive evidence in support of his remaining causes of action and they are, accordingly, dismissed.

DEFENDANTS' COUNTERCLAIMS

The only evidence rendered by defendants' of the alleged August 12, 1997 shareholders' meeting is a typewritten one-page sheet (Deft. Ex. "R"), without any heading or indication of regularity, [*4]together with supporting testimony that this sheet represented the "minutes" of the claimed meeting. Plaintiff denies that the meeting ever took place, and denied that he ever agreed to reimburse the corporation from the proceeds of his personal injury compensation.

The Court agrees with plaintiff, after hearing all the evidence adduced at trial, that defendants' accounts of this alleged meeting are simply not credible. It is undisputed that plaintiff's position was discontinued as of July 13, 2000. However, defendants first raised the issue of the alleged August 12, 1997 shareholders' meeting by letter dated June 8, 2001, nearly one year later. No evidence was adduced by defendants that minutes of shareholders' meetings were kept in the no??al course of business and, in fact, aside from pro forma organizational meeting minutes, defendants produce no record of any shareholder meeting "minutes" other than those of the purported August 12, 1997 meeting. The totality of the circumstances, including the stilted manner in which the purported "minutes" are drafted, leads this Court to believe that they are a fabrication created solely to create an otherwise nonexistent claim against plaintiff.

Moreover, plaintiff has offered credible evidence that he continued to render services to defendants in some capacity until the July 13. 2000 discontinuance date, and that he was not "out" of work as required by the alleged agreement. While defendants dispute this account of events, their conduct is not consistent with the provisions of the alleged August 12, 1997 agreement. Moreover, had defendants considered plaintiff permanently disabled within the three-year period between plaintiff's accident and his discontinuance, their remedy was to invoke 14 of the December 14, 1988 Agreement, which specifically contemplated discontinuance by permanent disability.

Accordingly, defendants' first and second counterclaims are dismissed.

This shall constitute the decision of this Court.



Dated: June 16, 2005

Goshen, New York

APPEARANCES:

DRAKE, SOMMERS, LOEB, TARSHIS, CATANIA & LIBERTH, PLLC

Attorneys for Plaintiff

One Corwin Court

Post Office Box 1479 [*5]

Newburgh, New York 12550

LAW OFFICES OF FINE & SCHULMAN

Attorneys for Defendants

170 Broadway

Monticello, New York 12701

NCAS

Gallo v. Rea Motors, Inc.