Petrakis v Rose

[*1] Petrakis v Rose 2006 NY Slip Op 51566(U) [12 Misc 3d 1194(A)] Decided on August 9, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through August 16, 2006; it will not be published in the printed Official Reports.

Decided on August 9, 2006
Supreme Court, Nassau County

Peter Petrakis, Plaintiff,

against

Allan V. Rose, DINE ALEX, LLC and YIANNIES, LTD., Defendants.



11195-02



COUNSEL FOR PLAINTIFF

Mary T. Lucere, Esq.

34 W. Hoffman Avenue

Lindenhurst, New York 11757

COUNSEL FOR DEFENDANT

Jaspan, Schlesinger, Hoffman, LLP

300 Garden City Plaza

Garden City, New York 11530

Leonard B. Austin, J.

Defendant Allan V. Rose ("Rose") moves pursuant to CPLR 3212 for summary judgment dismissing the amended complaint insofar as asserted against him.

Plaintiff Peter Petrakis ("Petrakis") cross-moves for an order: (1) compelling Defendants to comply with certain discovery demands; and (2) granting him a default judgment pursuant to CPLR 3215 as against Defendant Yiannies, Ltd. ("Yiannies").

BACKGROUND

In November 1999, Petrakis, as tenant, entered into a lease agreement with non-party Alexandria Hotel Corp. ("Alexandria"), as landlord, for the rental of a commercial premises located in Fairfax, Virginia, which Petrakis intended to operate as a "New York style" family restaurant.

Petrakis contends that Rose is the sole owner of Alexandria and an "extremely wealthy real estate entrepreneur" who had previously operated the property as a restaurant himself. Rose also owns a hotel which is adjacent to the restaurant premises.

Petrakis assigned the November 1999 lease to Yiannies, a corporation formerly owned by Petrakis and his father, which operated the restaurant.

After operating the restaurant for a year and making significant improvements to the property, Petrakis decided that he no longer wanted to run the business and agreed to sell it to Rose.

In late July 2000, the parties executed a series of documents all allegedly drafted by Rose's counsel which redefined their relationship and the manner in which the restaurant would be owned and operated.

By a document dated July 31, 2000, entitled "Assignment and Agreement," the parties memorialized the sale transaction from Petrakis to Rose, which provided for Petrakis to assign 75% of his interest in the lease to Rose.

The purchase price for Petrakis' 75% share was to be $1.35 million. The sum of $450,000.00 was payable "simultaneously" upon the execution of the agreement.

The $900,000.00 contract balance was to be paid with interest, in monthly installments over a period of three years, commencing September 1, 2000. It is undisputed that Rose made the initial $450,000.00 payment in July 2000.

To complete the July 2000 transaction, Rose and Petrakis then assigned their respective interests in the lease to a newly created Virginia limited liability company, Defendant, Dine Alex, LLC ("Dine Alex"). More particularly, and also on July 31, 2000, the parties executed a so-called "Assignment and Assumption of Lease, Release and Landlord Consent" ("Assignment/Release" agreement) by which Rose and Petrakis assigned their respective interests in the lease to Dine Alex, through which the restaurant was to be operated. That understanding was memorialized in a so-called [*2]"Operating Agreement of Diner Alex, LLC," ("Operating Agreement") which was executed on July 31, 2000 by Petrakis and Rose.

As set forth in the Operating Agreement, Rose owned a 75% interest in Dine Alex, while Petrakis would retain the remaining 25% interest in the company.

Significantly, the Assignment/Release agreement contains a prefatory section entitled "Statement of Facts," which briefly summarizes the history of the parties' contractual relationship leading up to the July 31 transactions.

In particular, the Statement of Facts section refers to the November 1999 lease; makes mention of Petrakis' transfer of his 75% lease interest to Rose; and defines the term "lease documents" as used in the agreement: "Rose acquired seventy-five (75%) percent interest as tenant under the Lease pursuant to that certain Assignment and Agreement dated the date hereof [July 31, 2000](the Agreement' which together with the Lease is sometimes hereinafter referred to collectively as the Lease Documents'") [Emphasis supplied].

The Assignment/Release agreement also provides that Dine Alex was to assume "all of the Assignor's [Rose and Petrakis] obligations under the Lease Documents." More significantly, the agreement further states that "[t]he parties to this assignment [Rose and Petrakis] agree that each Assignor [Rose and Petrakis] is hereby released from all of their respective obligations under the Lease Documents as of the date hereof (except that Petrakis shall remain liable for any breach of his representations set forth in the Agreement)" [Emphasis supplied].

After the July, 2000 documents were executed, Petrakis claims that: (1) Rose failed to pay him the $900,000.00 balance due and owing under the Assignment Agreement; (2) he surreptitiously filed permit applications authorizing the expansion of his adjacent hotel and the demolition of the restaurant (which was later closed in December 2004); and (3) in July 2005, he discovered that the restaurant interior had been "totally destroyed [and] gutted, * * *".

Petrakis also asserts, in substance, that from the inception of the transaction, Rose engaged in self-dealing and intended to appropriate his interest in Dine Alex so as to further his plans to expand his adjacent hotel.

Significantly, the Operating Agreement provides that

"Rose shall have the sole authority to act and to bind the LLC with respect to all matters pertaining to the Lease, the Premises and the Operations and business therein, including, without limitation, the authority to modify, amend or terminate the Lease; or assign, finance, sell or transfer the LLC's interest thereunder"(Operating Agreement, ¶ 2.6) [Emphasis added.]

The Operating Agreement additionally states that

"[N]o party shall be liable, in damages or otherwise, to the other parties for any act or acts performed by him within the scope of the authority conferred by him under this agreement except for acts of malfeasance, gross negligence or fraud" (Operating Agreement, ¶ 2.3). Significantly in July 2000, Petrakis and his father assigned their interest in Yiannies to Dine Alex. [*3]

Thereafter, in July 2002, Petrakis commenced this action, alleging breach of contract claims against both Dine Alex and Rose for the unpaid $900,000.00 allegedly due under the Assignment Agreement.

Petrakis subsequently served an amended complaint adding Yiannies as a Defendant, and expanded his claims to include several new theories of recovery alleging, among other things, breach of fiduciary duty; waste and mismanagement arising from Rose's destruction of the restaurant premises; scheme to defraud; breach of the duty of good faith and fair dealing; unjust enrichment; mismanagement of Yiannies; injunction; and an accounting.

Rose now moves for summary judgment dismissing the complaint insofar as asserted against him. He principally argues that the July 31 Assignment/Release agreement contains language which releases him from all individual liability contained in the "Lease Documents"; and (2) that the Operating Agreement immunizes him, as a matter of law, from the claims of misconduct advanced by Petrakis.

Petrakis cross-moves for a default judgement as against Yiannies and for an order compelling Dine Alex and Rose to comply with certain discovery demands dated October 15, 2005.

DISCUSSION

A.Summary Judgment

First, with respect to Petrakis' breach of contract claim, "when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." W.W.W. Assocs. v. Giancontieri, 77 NY2d 157, 162 (1990). See, R/S Assoc. v. New York Job Dev. Auth., 98 NY2d 29, 32 (2002); Greenfield v. Philles Records, Inc., 98 NY2d 562 (2002); and Katina, Inc. v. Famiglietti, 306 AD2d 440 (2nd Dept. 2003).

Moreover, "[t]he best evidence of what parties to a written agreement intend is what they say in their writing." Slamow v. Del Col, 79 NY2d 1016, 1018 (1992); and In re Matco-Norca, Inc.[Matz], 22 AD3d 495 (2nd Dept. 2005). See also, Greenfield v. Philles Records, Inc., supra ; and Civil Service Employees Assn., Inc. v. Plainedge Union Free School Dist., 12 AD3d 395, 396 (2nd Dept. 2004). Further, "courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing" Schmidt v. Magnetic Head Corp., 97 AD2d 151, 157 (1983), quoting Morlee Sales Corp. v. Manufacturers Trust Co., 9 NY2d 16, 19 (1961). See also, Reiss v. Financial Performance Corp., 97 NY2d 195, 199 (2001).

Reviewing the relevant documents with these principles in mind, the Court agrees that the cited contract language releases Rose from any personal liability for the $900,000.00 balance.

The determinative language in the Assignment/Release agreement provides that the assignors (Rose and Petrakis), "[are] hereby released from all of their obligations under the Lease Documents * * *" [Emphasis added]. The Assignment/Release agreement then defines the phrase, "Lease Documents" collectively, as including both the Assignment and Agreement as well as the Lease. It follows then, that the release extends to all obligations owed by Rose set forth in both the lease and assignment agreements including the payment obligation which forms the basis of the Plaintiff's [*4]breach of contract and related theories of recovery.

The Court cannot agree that the term "Lease Documents," is ambiguous in light of the clear, definitional language providing that the term is to be read collectively, so as to include both the lease and the Assignment and Agreement which contain Rose's payment obligation. Further, if, as the Plaintiff contends, the parties intended the release language to apply solely to the obligations contained in the lease, they would not have employed the collective term "Lease Documents" in defining the intended scope of the release. Civil Service Employees Assn., Inc. v. Plainedge Union Free School Dist., supra at 396.

Since the applicable contract language establishes, as a matter of law, that the release was intended to apply to the Assignment and Agreement containing Rose's payment obligation, Petrakis' breach of contract claim, insofar as interposed against Rose, must be dismissed.

Similarly, the essentially duplicative ninth cause of action for a declaration that the Assignment and Agreement should deemed null and void in light of Rose's failure to pay, should also be dismissed.

The fourth and fifth (scheme to defraud and duty of fair dealing) causes of action must be dismissed as against Rose, since the linchpin allegation underlying both asserted theories is that Rose "intentionally" declined to pay the contract balance as part of a "scheme to defraud Plaintiff of his right to collect the [contract] purchase price * * *" and also breached a contractual duty of good faith to Petrakis.

Nor will a claim for breach of the duty of good faith and fair dealing lie where, as here, the asserted duty would be inconsistent with the terms of the contract in question. (See, Horn v. New York Times, 100 NY2d 85, 92 [2003]; Murphy v. American Home Prods. Corp., 58 NY2d 293, 304 [1983]; Fitzgerald v. Hudson National Golf Club, 11 AD3d 426, 427-428 [2nd Dept. 2004]; and Gill v. Bowne Global Solutions, Inc., 8 AD3d 339, 340 [2nd Dept. 2004]), or where the claim made is no more than a "substitute for * * * [a] non-viable contract claim." National Union Fire Ins. Co. of Pittsburgh, PA v. Xerox Corp., 25 AD3d 309 (1st Dept. 2006). See also, Cohen v. Nassau Educators Federal Credit Union,12 Misc 3d 1164(A), at * 4 (Sup. Ct., Nassau Co. 2006).

The bare-boned sixth cause of action, alleges unjust enrichment and incorporates by reference, certain preceding allegations, and then merely asserts, without explanatory and/or particularized supporting averments, that the Rose was "unjustly enriched" by certain unspecified actions. Unjust enrichment "is an obligation the law creates in the absence of any agreement" and "lies as a quasi-contract claim." Goldman v. Metropolitan Life Ins. Co., 5 NY3d 561 (2005). Here, and as narrowly pleaded, there is no "unjust enrichment [claim] because the matter is controlled by contract" (Id.), albeit controlled in a way which precludes any contract recovery by Petrakis. Accordingly, the sixth cause of action should be dismissed.

However, Petrakis' opposing submissions have established a triable issue of fact with respect to the claims of self-dealing, breach of fiduciary duty, fraud and malfeasance under the Operating Agreement.

The Operating Agreement broadly confers upon Rose sole authority to manage the business and even permits him to, inter alia, terminate the lease and/or assign, [*5]finance, sell or transfer the LLC's interest thereunder." Nevertheless, the scope of his authority is not without limit, since liability will arise pursuant to ¶ 2.3 of the Operating Agreement where the complained of acts constitute gross negligence, fraud or malfeasance.

Petrakis asserts that Rose acted outside the scope of his authority by unilaterally gutting the restaurant interior and thereby destroying valuable fixtures therein; terminating the restaurant's business activities; and by filing permit applications for permission to remove the building to further a self-serving scheme to expand a nearby hotel which he owns or effectively controls.

The Court notes that neither Rose nor any other individual with personal knowledge of the key events, has submitted an opposing affidavit which explains away or disputes Petrakis' factual claims that: (1) the building has indeed been gutted; (2) that permit applications have been filed; and (3) that the objective of these activities is to demolish the restaurant and then expand the adjacent hotel.

While Rose certainly possesses broad discretion and authority under the Operating Agreement to manage and act on behalf of the LLC, there is nothing in that document which confers unfettered authority to waste or destroy its assets in order to further an alleged, self-serving plan to enhance a third party asset.

In short, and "[v]iewed in the light most favorable to * * * [the Plaintiff], as is appropriate in the context of * * * [a] motion for summary judgment." (Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P., 7 NY3d 96 [2006]; and Mosheyev v. Pilevsky, 283 AD2d 469 [2nd Dept. 2004]), issues of fact exist with respect to the allegation that Rose was acting solely in furtherance of his own interests and in derogation of his duty to Petrakis as a minority member of the LLC. That is, his actions allegedly amounted to malfeasance, or a "reckless disregard" for the rights of Petrakis. See gen'lly, Colnaghi, U.S.A., Ltd. v. Jewelers Protection Services, Ltd., 81 NY2d 821, 828 (1993); Obremski v. Image Bank, Inc., __A.D. 3d__, 816 NYS2d 448 (2nd Dept. 2006). See also, Lubell v. Samson Moving & Storage, Inc., 307 AD2d 215, 216 (1st Dept. 2003) ["Ordinarily the question of gross negligence is a matter to be determined by the trier of fact"].

Summary judgment is a drastic remedy. See, Andre v. Pomeroy, 35 NY2d 361 (1974). "Even the color of a triable issue forecloses the remedy." Rudnitsky v. Robbins, 191 AD2d 488, 489 (2nd Dept. 1993). See, Matter of Cuttitto Family Trust, 10 AD3d 656 (2nd Dept. 2004). Moreover, "[s]ince summary judgment is the procedural equivalent of a trial, any doubt as to the existence of a triable issue, or where the material issue of fact is arguable,' the motion should be denied." Peerless Ins. Co. v. Allied Bldg. Products Corp., 15 AD3d 373 (2nd Dept. 2005), quoting, In re Cuttitto Family Trust, supra .

B.Discovery [*6]

That branch of Petrakis' cross-motion which is to compel compliance with a notice to produce and a notice of "combined discovery demands", both dated October 15, 2005, should be granted.

In support of his application to compel, Petrakis has identified certain demands to which responses have not been produced. He has also shown that Defendants have employed "blanket" denials in framing their objections.

In reply, the Defendants have not offered any substantive objection to the requested production, but instead, argue only that the Court should not compel discover during the pendency of a summary judgment motion. This objection lacks merit in light of the Court's disposition of Rose's summary judgment motion.

C.Default Judgment

Lastly, that branch of Petrakis' cross-motion which is for an order granting a default judgment as against Yiannies, must be denied.

In view of the absence of any prejudice to Petrakis, the lack of willfulness on the part of the Defendant, and the public policy favoring resolution of cases on the merits, the Court finds that Yiannies' delay in answering should be excused. Yonkers Rib House, Inc. v. 1789 Central Park Corp., 19 AD3d 687 (2nd Dept. 2005); and Trimble v. SAS Taxi Co. Inc., 8 AD3d 557 (2nd Dept. 2004). The verified answer annexed as Exhibit "G" to Rose's reply papers shall be deemed served. See, Amad v. Aniolowiski, 28 AD3d 692 (2nd Dept. 2006); and Friedman v. Crystal Ball Group, Inc., 28 AD3d 514 (2nd Dept. 2006).

The Court has considered the parties' remaining contentions and concludes that they are lacking in merit.

Accordingly, it is,

ORDERED, that Defendant Allan V. Rose's motion for summary judgment is granted to the extent that the first, fourth, fifth and ninth causes of action are dismissed and, in all other respects, is denied; and it is further,

ORDERED, that Plaintiff's cross-motion for a default judgment against Yiannies, Ltd. is denied. The proposed answer submitted on this motion shall be deemed served upon service of a copy of this Order with notice of entry upon counsel for Plaintiff; and it is further,

ORDERED, that Plaintiff's cross-motion to compel disclosure is granted. All outstanding discovery demands of Plaintiff shall be answered within thirty (30) days of service of a copy of this order with notice of entry upon counsel for Defendants.

This constitutes the decision and Order of the Court

Dated: Mineola, NY _____________________________

August 9, 2006 Hon. LEONARD B. AUSTIN, [*7]J.S.C.