Taub v Kaplan

[*1] Taub v Kaplan 2009 NY Slip Op 50097(U) [22 Misc 3d 1112(A)] Decided on January 13, 2009 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 13, 2009
Supreme Court, Nassau County

David Taub and Marc Taub, Plaintiffs,

against

Richard Kaplan, The H. Company, Ltd. and PRK Stores LLC, Defendants, Action # 2 - 12434-07 x DAVID TAUB and MARC TAUB, Plaintiffs, PRK Stores LLC, Richard Kaplan, Defendants, Action # 3 - 18593-06 x Priscilla S. Kaplan, Plaintiff, Richard S. Kaplan, Defendant Action # 4 - 17726-07 David Taub and Marc Taub, Petitioners, Richard S. Kaplan, Priscilla Kaplan, Rhonda Hamilton and Vesna Milocic, - and - PRK Stores LLC, Nominal, Respondents. Action # 5 - 15984-07 David Taub and Marc Taub, as Directors on Behalf of and for the Benefit of the H Company, Ltd. Plaintiffs, Richard Kaplan, and the H Company, Ltd. (as a nominal defendant) Defendants,



DAVID TAUB and MARC TAUB, Plaintiffs, - against -

against

PRK Stores LLC, Richard Kaplan, Defendants, Action # 3 - 18593-06



Priscilla S. Kaplan, Plaintiff, - against -

against

Richard S. Kaplan, Defendant Action # 4 - 17726-07



David Taub and Marc Taub, Petitioners, - against -

against

Richard S. Kaplan, Priscilla Kaplan, Rhonda Hamilton and Vesna Milocic, - and - PRK Stores LLC, Nominal Respondents. Action # 5 - 15984-07



David Taub and Marc Taub, as Directors on Behalf of and for the Benefit of the H Company, Ltd. Plaintiffs, - against -

against

Richard Kaplan, and the H Company, Ltd. (as a nominal defendant) Defendants,



12553-06



COUNSEL FOR PLAINTIFFS

Sawyer, Halpern & Demetri, Esqs.

666 Old Country Road - Suite 701

Garden City, New York 11530

COUNSEL FOR DEFENDANTS

Fogel & Wachs, P.C.

31 Edgewood Avenue

Larchmont, New York 10538

Leonard B. Austin, J.

ORDER

The following papers were read on the motion of David Taub, Mark Taub and H Company for an order granting judgment pursuant to the Stipulation of Settlement and the motion of Robert Kaplan and PRK Stores LLC to direct the appointment of an independent accounting firm to value H Co.'s ending inventory and related relief:

David Taub, Marc Taub, and the H Company Ltd. ("H Co."), move for an order directing entry of judgment pursuant to the Stipulation of Settlement in this matter, and directing the Clerk of the Court to enter judgment in favor of H Co. and against PRK

Stores LLC ("PRK") and Richard S. Kaplan, in the sum of $276,958.90 with interest from March 6, 2008.[FN1]

Richard Kaplan and PRK seek an order directing the appointment of an accounting firm to make a valuation of H Co.'s ending inventory; payment of the accounting fees by the Taubs and Priscilla Kaplan; discovery regarding various items including the valuation method for the 2007 ending inventory of H Co.; and payment of all professional and attorneys' fees by the Taubs and Priscilla Kaplan.

BACKGROUND

The background to this commercial action and the four related actions is set forth in two decisions and Orders of this Court dated June 5, 2007. In addition to marital issues between Richard and Priscilla Kaplan, the various actions concern control of H Co., a corporation [*2]organized and founded by Richard and Priscilla Kaplan to operate a Hermes store in the Americana Mall. David Taub and Marc Taub, and others, owned a small percentage of H Co. Richard was the majority stockholder.

In the Stipulation of Settlement dated November 13, 2007 ("Stipulation"), all five of the actions were settled. The closing under the Stipulation took place on December 3, 2007, pursuant to which the Taubs and Priscilla Kaplan redeemed all stock in H Co. held by Richard Kaplan and the eight other individual stockholders in exchange for a payment to Richard of $1,195,000.

The Taubs and H Co. now seek to enforce the Stipulation. They move for judgment for a sum set forth in the Stipulation at ¶¶ 33-35. These paragraphs provide:

33. PRK and Richard represent and warrant that $276,958.90 is owed to H Co. by PRK. Richard further represents that PRK is owed the sum of $666,667 by Michael Kors Stores, LLC and Michael Kors, LLC (jointly "MKS"), payable in two (2) installments, per the note annexed as Exhibit Y.

34. Richard agrees that he shall, as managing member of PRK, apply the payments received by PRK from MKS, as follows:

(a) First, in payment of all indebtedness from PRK to GE Capital Small Business Finance Corp. ("GE"), the principal amount of which is currently in the approximate amount of $350,000; and

(b) Second, in payment of the aforesaid $276,958.90

due from PRK to H Co.

35. In the event that the payments received from MKS shall not be sufficient to discharge the aforesaid obligations of PRK to GE and H Co, then and in such event, Richard agrees to be personally liable to H Co in an amount equal to 45% of the difference between the $276,958.90 owed to H Co and the actual amount of the payments made to H Co in partial discharge of that obligation. By way of illustration, if MKS shall pay less than the full amount it owes to PRK which results in a payment to H Co of $176,958.90, leaving a balance due of $100,000, then and in such event, Richard shall remain personally liable to H Co in the sum of $45,000.

Richard agrees to be personally liable to H Co in an amount equal to 100% of the difference between the $666,667 actually paid by MKS and the amount actually paid to GE Capital Small Business Finance Corp., but in any event not more than $276,958.90.

(Moving Papers, Ex. 1). PRK is a limited liability company which operates a Michael Kors store adjoining the Hermes store. Exhibit Y referred to in ¶ 33 of the Stipulation was not provided to this Court.

The Taubs and H Co. claim that MKS paid PRK $333,333, but that PRK made no payments from these monies to H Co. Consequently, the 45% clause was not activated, and they argue that the Court should render a judgment for H Co. and against PRK and Richard Kaplan, individually, in the amount of $276,958.90.

DISCUSSION

A.The Taub/H Co. Motion [*3]

A contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language used. Wallace v. 600 Partners Co., 86 NY2d 543, 548 (1995). Where the terms are unambiguous, the parties' intent must be gleaned from the "plain meaning" of the words used by the parties. American Bridge Co v. Acceptance Ins. Co., 51 AD3d 607 (2nd Dept. 2008); Fukilman v. 31st Ave Realty Corp., 39 AD3d 812, 813 (2nd Dept. 2007). See, Greenfield v. Philles Records Inc., 98 NY2d 562 (2002); and Hugh O'Kane Electric Co., Inc v. County of Westchester, 54 AD3d 660 (2nd Dept. 2008).

The plain meaning of the quoted paragraphs of the Stipulation is that under circumstances presented PRK owes H Co. $276,958.90, and that Richard Kaplan agreed to be personally liable for this amount. No evidence of any payments have been presented, nor any valid reason to delay in enforcement of the Stipulation. Thus, H Co. is entitled to judgment against PRK and Richard Kaplan in the amount of $276,958.90.

Prejudgment interest is recoverable on a breach of contract (see gen'lly, Halsey v. Connor, 287 AD2d 597 [2nd Dept. 2001]) from the earliest ascertainable date. CPLR 5001(a) and (b). Although the Stipulation contains no date of performance for the payment of the $276,958.90, the payment was to be triggered by the receipt of monies by PRK from MKS. H Co. insists that the transfer from MKS to PRK took place on March 6, 2008, and therefore it seeks interest from that date. In the absence of any evidence to the contrary, pre-judgment interest should be hereby awarded on the $276,958.90, from March 6, 2008.

B.The Kaplan/PRK Motion

In order to grant relief sought by Richard Kaplan and PRK, vacatur of the Stipulation would be required.

Stipulations of settlement are judicially favored and will not be lightly set aside (Hallock v. State of New York, 64 NY2d 224, 230[1984]; Cooper v. Hempstead Gen'l Hosp., 2 AD3d 566 [2nd Dept. 2003], lv. app. dsmd., 2 NY3d 823 [2004]; Kelley v. Chavez, 33 AD3d 590[2nd Dept. 2006]), especially here where the party seeking to vacate the stipulation was represented by counsel. Trakansook v. Kerry, 45 AD3d 673 (2nd Dept. 2007); Kelley v. Chavez, supra; Town of Clarkstown v. MRO Pump & Tank, Inc., 287 AD2d 497 (2nd Dept. 2001). Unless public policy is affronted, parties to a civil dispute are free to chart their own course. Mitchell v. New York Hosp., 61 NY2d 208, 214 (1984); J & A Vending, Inc. v JAM Vending, Inc., 303 AD2d 370, 371 (2nd Dept. 2003). No public policy issue is presented here.

A party seeking to set aside a stipulation of settlement will be granted such relief only upon a showing of good cause sufficient to invalidate a contract, such as fraud, duress, mistake or accident. Hallock v. State of New York, supra; Chernow v. Chernow, 51 AD3d 705, 706 (2nd Dept.), lv. app. dsmd., 11 NY3d 780 (2008); Trakansook v. Kerry, supra; and Kelley v. Chavez, supra. Here, Richard alleges fraud and mistake.

The essential elements of a cause of action for fraud are a misrepresentation or a material omission of fact which was false and known to be false, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413, 421 (1996); Shovac v. Long Island Commercial Bank, 50 AD3d 1118 (2nd Dept.), lv. app. dsmd. in part den. in part,11 NY3d 762 (2008); and Orlando v. Kukielka, 40 AD3d 829 (2nd Dept. 2007).

Mutual mistake, sufficient to reform a contract, must be shown by clear and convincing evidence. Moshe v. Town of Ramapo, 54 AD3d 1030 (2nd Dept. 2008); and Yu Han Young v. Chiu, 49 AD3d 535 (2nd Dept. 2008). [*4]

Richard's main claim of fraudulent behavior by H Co.'s new directors involves the change in the methodology used to value the inventory of H Co. Prior to the 2007 year end, H Co's inventory was valued pursuant to the "lower of cost or market" method. After the closing, the inventory was valued pursuant to the "retail" method. The consequence of the change was that H Co.'s net income ballooned four-fold in 2007. As a result, Richard received a K-1 that showed what he describes as taxable "phantom income" of $1,151,197. In the prior seven years, the highest net income reported by H Co. was $430,000 in 2006. Richard states that he was "dumbfounded" (Richard Kaplan aff. ¶ 19).

H. Co's new accountants, Berdon LLP by John Fitzgerald, in opposition to Richard's claims, point out that the method used by Berdon to prepare the 2007 tax returns was the exact method used by Richard, an accountant himself, in valuing H Co.'s inventory as of October 29, 2007, for purposes of the sale of H Co. He further notes that for the year ended December 31, 2006, Kaplan had taken "an arbitrary inventory reserve" to reduce the value of H Co.'s inventory in order to reduce taxable income, and it was the reversal of this "improper unspecified reserve by Kaplan" that was primarily responsible for the increase in H Co.'s income over 2006 (Fitzgerald aff. ¶¶ 14-17).

The Court finds that the change in valuation method by H Co. does not rise to the level of fraud or mutual mistake. Whatever the ramifications are for the IRS, the change in valuation method of H Co. cannot be packaged to meet the elements of a claim of fraud, nor is there evidence of any mistake mutual.

Justice Falanga reached the same result in the matrimonial action:

The reporting of 70% of its 2007 income as K-1 income by "The H Corporation," an event that occurred in April or May 2008, months after the stipulation was placed on the record in the above captioned action on December 11, 2007, is neither a fraudulent failure to disclose by the wife (the husband was the accountant for said business during its tenure) or a mutual mistake of an existing fact.

(Decision and Order dated August 11, 2008, by Hon. Anthony J. Falanga, annexed as Exhibit 30 to the Fitzgerald aff.). Since Justice Falanga expressly granted Richard leave to pursue "any plenary claims [he] may have against the wife [Priscilla] and/or other owners of The H Corporation' with regard to their acts subsequent to December 11, 2007," the Court has considered Richard's claims of fraud and mistake de novo. Even so, these claims fail.

Furthermore, the case of Thompson v Central Ohio Cellular, Inc., 93 Ohio App. 3d 530 (Ohio Ct. App. 8th Dist. 1994), cited by Richard, is inapposite. The distinguishing factor is that Richard himself used the valuation method of which he now complains.

Richard complains of numerous additional instances of wrongdoing, including: the extension of the H Co. lease, from December 31, 2007, to February 28, 2008, thereby deferring H Co.'s deduction for abandoned leasehold improvements until 2008; missing and damaged Hermes inventory to which he was entitled, and the disappearance of fixtures from the old Hermes store.

As to the lease extension, the parties dispute whether Richard tacitly agreed to the extension and why it was necessary. H Co. and Priscilla Kaplan deny that there is missing inventory, and reject Richard's claims of damaged inventory as unfounded. Richard has failed to connect the disappearance of fixtures to H Co. and Priscilla. Overall, there has been no showing that any of the matters which are the subject of Richard's motion rise to the level of fraud or [*5]mutual mistake.

Based on the foregoing, the motion by Richard and PRK for appointment of an independent accounting firm, a disclosure schedule and other relief, must be denied in its entirety.

Accordingly, it is,

ORDERED, that the motion by David Taub, Marc Taub, and H Co. for judgment against PRK and Richard Kaplan in the amount of $276,958.90, with interest from March 6, 2008, is granted. The County Clerk is directed to enter judgment in favor of David Taub, Marc Taub and H Co. Ltd. and against Richard Kaplan and PRK in the sum of $276,958.90 together with interest from March 6, 2008 and costs and disbursements as taxed by the Clerk; and it is further,

ORDERED, that the motion by Richard Kaplan and PRK seeking the appointment of an accounting firm to make a valuation of H Co.'s ending inventory, payment of the accounting fees by the Taubs and Priscilla Kaplan, authorization for discovery, and payment of all professional and attorneys' fees by the Taubs and Priscilla Kaplan, is denied in its entirety

This constitutes the decision and Order of the Court.

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

Dated: January 13, 2009

Mineola, NY Footnotes

Footnote 1:The moving parties, by letter dated December 15, 2008, have withdrawn the second part of their motion which sought an order regarding four paid promissory notes that are now back in the possession of counsel for the H Co.