Loewentheil v O'Hara

[*1] Loewentheil v O'Hara 2009 NY Slip Op 52153(U) [25 Misc 3d 1216(A)] Decided on October 6, 2009 Supreme Court, New York County Kapnick, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 6, 2009
Supreme Court, New York County

Stephan Loewentheil and Beth Loewentheil, Plaintiffs,

against

Edith O'Hara, Individually and as a Director and Shareholder of White Knight, Ltd., Defendants.



Edith O'Hara, Individually and as a Director and Shareholder of White Knight, Ltd., Third-Party Plaintiff,

against

Gordon Milde and 13th Street Repertory Company, Inc., Third-Party Defendants.



601761/05



The attorney for plaintiffs was Evan A. Belosa, Esq., Katten Munchin Rosenman LLP, 575 Madison Avenue, New York, NY 10022-2585, (212) 940-6529.

The attorney for defendants/third-party plaintiffs was Joel S. Stern, Esq., Stern & Zingman, LLP, 110 East 59th Street, New York, NY 10022, (212) 207-3825.

The attorney for third-party defendant Gordon Milde was Philip C. Landrigan, Esq., McCarthy Fingar, LLP, 11 Martine Avenue, White Plains, NY 10606, (914) 946-3700.

Barbara R. Kapnick, J.

Plaintiffs Stephan Loewentheil and Beth Loewentheil (the "Loewentheils") commenced this action to recover on three promissory notes issued by defendant White Knight, Ltd ("White Knight" or the "Corporation"). [*2]

Plaintiffs initially obtained a default judgment against White Knight.[FN1] However, by Decision/Order dated November 21, 2005, aff'd, 30 AD3d 360 (June 29, 2006), the Hon. Helen E. Freedman granted Ms. O'Hara, a minority shareholder, leave to intervene to defend on behalf of White Knight and vacated the default judgment.

O'Hara argued that the promissory notes were fraudulently recreated by plaintiffs in a conspiracy with Milde, the holder of the original notes which O'Hara claims were paid in full.[FN2] Justice Freedman dismissed plaintiffs' claims on the promissory notes by Decision/Order dated May 28, 2008, in which she determined that said claims were time barred.[FN3] Justice Freedman thus did not reach the issue of whether or not the notes were fraudulent.

Defendant/third-party plaintiff O'Hara, individually and as a Director and Shareholder of White Knight, now moves for an order granting her leave to amend the third-party Complaint to address the consequences of the prior decisions of Justice Freedman and events in recent months which O'Hara claims have created additional issues which ought to be resolved herein.

In the proposed first cause of action, O'Hara seeks a declaration that: (i) the transfer of third-party defendant Milde's stock in White Knight to plaintiffs, without the consent of O'Hara and the Repertory Company, violated the Cross Purchase Agreement ("Agreement") entered into between O'Hara, Milde and the Repertory Company on or about January 4, 1983 and said transfer should be declared null and void [FN4] and (ii) the election of the Loewentheils as officers and directors of White [*3]Knight is null and void.[FN5]

Plaintiffs argue in the first instance that this proposed amended claim clearly lacks merit because it is based on the Cross Purchase Agreement which they contend was terminated pursuant to subsection (2) of the Seventh Section of the Agreement,[FN6] upon the dissolution of White Knight, which was dissolved by State authorities on March 26, 1997 and again on June 25, 2003.

There is no dispute, however, that the Corporation was subsequently reinstated to de jure status nunc pro tunc and is currently in good standing. See, Flushing Plaza Associates v Albert, 31 AD3d 494 (2nd Dep't 2006); Propp v Chaya Amusement Corp., 155 AD2d 251 (1st Dep't 1989). Thus, this Court finds that the Agreement remained valid retroactively and was not terminated as a result of the temporary dissolution.

Plaintiffs argue that even if the Cross Purchase Agreement remained in effect, the Third Section of the Agreement specifically provides that "[t]he Repertory Company shall have the first option to buy the stock of Milde and/or O'Hara for a period of three (3) years from the date of this agreement [emphasis supplied] at a price equivalent to the cost of the stock purchased plus appreciation of eight (8%) per cent per annum." Thus, it appears that the restriction contained in the First Section of the Agreement with respect to the sale, assignment, transfer, pledge or disposition of any stock was subject to a duration of only three years.

According to the movant, the proposed first cause of action also seeks to nullify the election of the Loewentheils as officers and directors of White Knight, on the ground that the election violated the Second Section of the Agreement which provides as follows: The Stockholders agree to vote their shares for the election of the following as Directors of the Corporation:

1.Gordon Thompson Milde.

2.Edith O'Hara

3.Robert Flicker The Stockholders further agree to vote, in their capacities as Directors for the following officers of the Corporation.[*4]

1.President - Edith O'Hara

2.Vice-President - Gordon Thompson Milde

3.Secretary - Gordon Thompson Milde

4.Treasurer & Asst Secretary - Robert Flicker

Defendant O'Hara also refers to that portion of the Agreement which provides that "it is the intention of the Stockholders that the stock remain closely held to protect their interests and to continue the orderly management of the Corporation's business."

Plaintiffs argue that this proposed claim also lacks merit because the Agreement cannot be interpreted to grant O'Hara the right to be the eternal President of the Corporation. In addition, they contend that O'Hara ceased to operate as the President as far back as 1987, as evidenced by the minutes of the Annual Meeting of the Stockholders of the Corporation from May 7, 1987, and that she was later formally removed as President at a special meeting of the directors held on December 29, 2004.

However, in contrast to the provision governing the Repertory Company's first option to buy the stock of Milde and O'Hara, the Agreement contains no language limiting the duration that this provision relating to the management of the Corporation is in effect. Moreover, the Seventh Section of the Agreement specifically provides that "[n]o modification, termination or waiver shall be valid unless in writing and signed by the party sought to be charged thereunder;".

Since there is no evidence that the parties ever entered into such a writing, O'Hara has at least set forth a claim that the election of the Loewentheils as officers and directors of White Knight is null and void under the terms of the Agreement.

In the proposed second cause of action, O'Hara seeks an award of damages and counsel fees against third-party defendant Milde and plaintiffs "for their fraudulent conduct in creating the notes and suing the corporation to collect on the fraudulent notes[,] suing to collect monies that had already been paid by White Knight and upon claims that were barred by the statute of limitations."

This Court finds that the proposed second cause of action fails to plead the alleged fraud against either the Loewentheils or Milde with particularity, as required under CPLR § 3016(b). See, 1205-15 First Ave. Associates, LLC v McDonough, 7 AD3d 363 (1st Dep't 2004).

However, O'Hara may assert that part of the claim in which she alleges that the Lowentheils breached their fiduciary duty as officers and directors of the Corporation by bringing time barred claims in this action against White Knight.

In the proposed third cause of action, O'Hara seeks an order directing plaintiffs to account [*5]for their activities in regard to the Washington, D.C. property owned by White Knight [FN7] including, but not limited to, providing the names of the tenants, the rent being paid, and the expenses incurred in renovating and maintaining the premises. O'Hara argues that the fact she cannot obtain information about this property leads her to believe that the Loewentheils are using it for their or their families' personal use.

This Court finds that this request for documents regarding the Washington, D.C. property is an appropriate area for discovery,[FN8] but need not be asserted as a separate counterclaim.

Accordingly, based on the papers submitted and the oral argument held on the record on July 21, 2009, defendant/third-party plaintiff's motion for leave to serve an Amended Third-Party Complaint and counterclaims is granted only to the extent of permitting O'Hara to assert counterclaims against plaintiffs to nullify their election as officers and directors of the Corporation and for breach of fiduciary duty. That portion of the motion seeking leave to assert claims against Milde is denied.

Defendant/third-party plaintiff shall file and serve an Amended Answer and Counterclaims in accordance herewith within 30 days of entry of this Order.

Plaintiffs shall file and serve a reply to the counterclaims within 20 days of said service.

A status conference shall be held in IA Part 39, 60 Centre Street, Room 208 on December 16, 2009 at 10:00 a.m. in order to coordinate all outstanding discovery, including discovery with respect to the Washington, D.C. property.

This constitutes the decision and order of this Court.

Date:October, 2009_____________________________

Barabara R. Kapnick

J.S.C. [*6]

Footnotes

Footnote 1:Plaintiffs apparently intended to collect on the notes by selling the corporation's primary asset, a building located at 50 West 13th Street in Manhattan where defendant/third-party plaintiff Edith O'Hara ("O'Hara") has both resided and operated her theater company, third-party defendant 13th Street Repertory Company, Inc. (the "Repertory Company"), since the 1970s. White Knight was formed in 1982 by O'Hara and third-party defendant Gordon Milde ("Milde") as a vehicle to acquire the building.

Footnote 2:Plaintiffs deny that any fraud was involved in accurately recreating what they contend were lost records.

Footnote 3:Justice Freedman also directed that Stephan Loewentheil appear for a continued deposition, but that deposition has not yet been held.

Footnote 4:The First Section of the Agreement provides that "[n]o stockholder shall sell, assign, transfer, pledge or dispose of any of his respective stock in the Corporation by operation of law or otherwise except as hereinafter provided."

Footnote 5:At a special stockholders' meeting held on December 10, 2004, Milde, as majority shareholder, voted to appoint the Loewentheils, their daughter, and O'Hara as White Knight's directors.

Footnote 6:Third-party defendant Milde also opposes this portion of the motion, arguing that he had the right to sell his stock to the Loewentheils, since Justice Freedman previously determined in her May 28, 2008 Decision that he was a 62.5% shareholder of White Knight.

Footnote 7:White Knight apparently sold the air rights to the building located at 50 West 13th Street and used most of the proceeds of the sale to purchase a house in Washington, D.C. pursuant to a 1031 Exchange.

Footnote 8:This Court rejects plaintiffs' argument that such additional discovery should not be permitted at this late date because it will delay resolution of this action, since the parties clearly have not completed the discovery previously directed.