Blue Ridge Farms, Inc. v Kontogiannis

[*1] Blue Ridge Farms, Inc. v Kontogiannis 2009 NY Slip Op 52673(U) [26 Misc 3d 1206(A)] Decided on November 10, 2009 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 10, 2009
Supreme Court, Kings County

Blue Ridge Farms, Inc., et al., Plaintiffs,

against

Thomas Kontogiannis, et al., Defendants.



23246/08





Plaintiff Counsel: Massoud & Pashoff

Defendants Counsel: 1) Jaspen Schlesinger 2) Sills, Cummis & Gross, 3) Maizes & Maizes

David Schmidt, J.

Upon the foregoing papers, the motion by defendants Annette Apergis, Chloe Kontogiannis, Georgia Kontogiannis, Lisa DiPinto, Andrew Themis, Chloe Foods S.A., Anperg Inc., BRF Acquisition LLC, Cross Island Plaza Inc. and Edgewater Development Inc. (collectively, defendants) for an order, pursuant to CPLR 3211 (a) (1), (3), (5), (7) and (10), dismissing the amended complaint insofar as asserted against them or, alternatively, staying certain causes of action herein is granted only to the extent of dismissing the twenty-first cause of action and staying the fifth, ninth through fifteenth, seventeenth, eighteenth and twenty-second causes of action.

In this action for legal, equitable and declaratory relief, plaintiffs Blue Ridge Farm, Inc. (Blue Ridge), Jeffrey Siegel and Richard Siegel, in their individual capacities and as legal and beneficial owners of at least five per cent of the common shares of Chloe Foods Corp., suing in the right of Chloe Foods Corp., allege, among other things, that in early 2004 defendant Thomas Kontogiannis (Kontogiannis) proposed to invest in Blue Ridge, a family-owned business, and that he made certain promises to Blue Ridge regarding financing which he knew to be false for the purpose of causing Blue Ridge to reject another offer of financing which it had received and of converting valuable property rights in Blue Ridge for the personal benefit of himself and defendants. Plaintiffs further allege that Kontogiannis was, unbeknownst to them, a convicted criminal involved in immigration fraud, bribery, money laundering, and mortgage fraud.

On March 17, 2004, plaintiffs and Kontogiannis entered into a Stock Sale Agreement (the Agreement) pursuant to which Blue Ridge was to purchase the interest in the corporation of June Siegel and Seymour Siegel for $4,000,000 and Kontogiannis was to purchase a 6% interest from Blue Ridge for $5,000,000, thus giving him a 50% interest in the corporation, [*2]equal to the shares of Richard Siegel and Jeffrey Siegel. Plaintiffs further allege that, notwithstanding his failure to make an additional payment of $1,000,000 required by the Agreement, Kontogiannis installed his own "management personnel" at Blue Ridge and usurped control over its operations. Thereafter, Kontogiannis allegedly informed plaintiffs that he would not pay the $1,000,000 unless they agreed to give him a full 100% ownership interest in a warehousing facility which the corporation owned in Illinois (the Chicago property) and its manufacturing facility in Brooklyn (the Brooklyn property). Since plaintiffs were facing the threat of foreclosure by a bank as a result of Kontogiannis' reluctance to pay the $1,000,000 he was obliged to do, they acceded to Kontogiannis' demands. Subsequently, defendants obtained financing of $15,000,000 from Marathon Structured Finance LLP, secured by a mortgage on the Brooklyn property. All the while, Kontogiannis still refused to make the $1,000,000 payment due for Blue Ridge's shares or to arrange the financing which he promised. Plaintiffs allege that Kontogiannis thereafter looted the assets of Blue Ridge and otherwise transferred them to Chloe Foods Corp. (Chloe Foods), a corporation of which Richard Siegel and Jeffrey Siegel were to become shareholders. Plaintiffs additionally allege that defendants thereafter looted the assets of Chloe Foods. As a result of the multitude of misdeeds alleged against , Kontogiannis, his relatives and the business entities he controls, plaintiffs seek declaratory relief with respect to the parties' rights and interests, an accounting, money damages and the appointment of a receiver .

In their motion, defendants assert that the second, third and fourth cause of action, which involve allegations that various defendants looted the assets of Blue Ridge, fail to allege that Jeffrey Siegel relied upon any misrepresentations and that plaintiffs have asserted claims for conversion by coercive means, which claims are barred by the applicable three-year statute of limitations. Defendants also point out that none of them were officers or directors of Blue Ridge and, therefore, no fiduciary relationship existed between them and Blue Ridge. Defendants also argue that, since Jeffrey Siegel and Richard Siegel relinquished all of their interest in Blue Ridge on June 3 2005, they no longer have a right to pursue a lawsuit on behalf of the corporation. With respect to the claims against Chloe Foods, defendants point out that the corporation has filed for bankruptcy and that all such claims should be dismissed or stayed. Insofar as the sixth, seventh and eighth causes of action are concerned (those dealing with the transfer of Blue Ridge's real property in Brooklyn and Chicago), defendants likewise characterize them as "conversion by coercion" claims, which are time-barred and predicated only upon the alleged wrongful demands of Kontogiannis. Defendants assert that plaintiffs' nineteenth cause of action arising out of the alleged conversion of Jeffery Siegel's personal property should be dismissed because he never made any demand therefor[FN1] and that plaintiffs' twentieth cause of action regarding the execution [*3]of mortgages in the name of Richard Siegel without his consent is deficient because plaintiffs have not alleged any misrepresentations by any of the defendants except for Kontogiannis.

In opposition to the motion, plaintiffs describe the the Kontogiannis family, which includes a number of the individual defendants, as a "criminal enterprise" which has used corporate entities to further their nefarious schemes, including mortgage fraud and money laundering. Preliminarily, plaintiffs indicate that they have no objection to the dismissal or a stay of the fifth, ninth, seventeenth, eighteenth and twenty-second causes of action, given Chloe's filing of a bankruptcy petition. Plaintiffs suggest that any reliance by defendants upon a release or settlement agreement executed by Richard Siegel of the individual plaintiffs' relinquishment of an ownership interest in Blue Ridge is misplaced since the settlement agreements were procured by fraud and Jeffrey Siegel is still the president of Blue Ridge. Plaintiffs point out that the complaint contains particularized allegations regarding the misconduct of three directors of Blue Ridge - Kontogiannis, Annette Apergis and Andrew Themis — and the knowing participation of the other defendants in the breach of those fiduciary obligations. Plaintiffs argue that, since the damages sought by Blue Ridge do not refer to specific articles of property owned by it, their claims do not sound in conversion. With respect to their real property claims- - - the sixth, seventh and eighth causes of action - - - plaintiffs characterize them as claims predicated upon a breach of contract and for unjust enrichment. Plaintiffs also point out that a demand was made, prior to commencement of this action, for the return of Jeffrey Siegel's personal property. Plaintiffs further note that Kontogiannis has admitted his role in the mortgage fraud alleged in the twentieth cause of action and they have sufficiently pleaded the active participation of defendants in that scheme.

In reply, defendants characterize the amended complaint as "a series of rambling, convoluted and conclusory allegations that various defendants participated in the looting the assets of Blue Ridge in early 2005 and that, after Chloe Foods acquired the assets in June 2005, various defendants wrongfully diverted the assets of Chloe Foods to themselves." With respect to the twentieth cause of action for mortgage fraud, defendants repeat their contention that there is no allegation that they made any misrepresentations to Richard Siegel or had knowledge of the false representations allegedly made by Kontogiannis. Insofar as plaintiffs allege (in the second, third and fourth causes of action) that defendants looted the assets of Blue Ridge, defendants assert there was no deception on Kontogiannis' part; rather, Jeffrey Siegel believed that the representations made by Kontogiannis were false, but signed various documents because of alleged threats. Defendants also challenge plaintiffs' standing to sue in the name of Blue Ridge because Kontogiannis owned 50% of the outstanding shares of Blue Ridge. Defendants suggest that the sixth, seventh and eighth causes of action are similarly deficient but that, "[i]n an endeavor to avoid these fatal flaws, plaintiffs now assert that these claims for relief sound in breach of contract and unjust enrichment." According to defendants, such claims are without merit since the contract concerning the real property [*4]was between plaintiffs and Kontogiannis (and not them) and a claim for unjust enrichment will not lie where, as here, there is a written agreement governing the subject matter.

In a supplemental affirmation, plaintiffs point out that Jeffery Siegel has the authority to institute this action because he is the President and Chief Executive Officer of Blue Ridge and the shares of Kontogiannis were cancelled because he failed to pay for them. Plaintiffs further argue that their claims for breach of fiduciary duty (the second, third, and fourth causes of action) are timely, even as measured by a three-year statute of limitations, because the wrongful transfer of Blue Ridge's assets to Chloe Foods occurred in June 2006.[FN2] Because there was no written agreement between plaintiffs and defendants, plaintiffs contend that their unjust enrichment claims have been properly pleaded. With respect to the mortgage fraud claims, plaintiffs suggest that they have provided specific examples of each defendant's participation in the mortgage fraud conspiracy.

In papers designated as a "reply affirmation II", which are submitted in response to plaintiffs' supplemental affirmation, defendants challenge plaintiffs' contention that Blue Ridge's assets were transferred in 2006 and that, therefore, the second, third and fourth causes of action are not barred by a three-year statute of limitations. Defendants further assert that, where there is a contract governing the subject matter, a claim of unjust enrichment against a defendant must be dismissed even though the defendant is not a party to the contract. Defendants add that the nineteenth cause of action for conversion of Jeffrey Siegel's personal property must be dismissed or stayed because the demand was made to Chloe Foods which is in bankruptcy.

The First and Sixteenth Causes of Action

Initially, the court notes that, according to a footnote in defendants' memorandum of law, "no relief is sought against the moving defendants on the first cause of action and the sixteenth cause of action "and, therefore, they have not sought dismissal of such claims.

The Fifth, Ninth through Fifteenth, Seventeenth, Eighteenth and

Twenty-Second Causes of Action

The Bankruptcy Code states that the filing of a bankruptcy petition automatically operates to stay "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title or to recover a claim against the debtor that arose before the commencement of the case under this title" (11 USC § 362 [a] [1]). A bankruptcy stay does not, however, prevent a plaintiff from proceeding on causes of action against nonbankrupt defendants, which do not involve the bankrupt's property (see Golden v Moscowitz, 194 AD2d 385 [1993]). Although plaintiffs [*5]indicate that they "have no objection to the dismissal . . . of the seventeenth and eighteenth causes of action" and acknowledge that the fifth, ninth, and twenty-second cause of action should be stayed, plaintiffs do not refer specifically to the tenth through fifteenth causes of action which seek, on behalf of Richard Siegel and Jeffrey Siegel, a 50% share of the profits of Chloe Foods and an injunction barring a transfer of those shares. Because Chloe Foods is a necessary party to the relief sought in these causes of action, resolution thereof is likewise stayed.

The Twenty-First Cause of Action

The piercing a corporate veil is not a cause of action independent of that against the corporation; "rather, it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). Plaintiffs have sufficiently pleaded other causes of action to recover against the individual defendants for the alleged wrongs committed by the corporate defendants pursuant to a piercing of the corporate veil theory. The twenty-first cause of action, which is a separate cause of action to pierce the corporate veil, is insufficient (see Rosen v Kessler, 51 AD3d 761 [2008]).

The Nineteenth Cause of Action

"Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's right" (Peters Griffin Woodward, Inc. v WCSC, Inc., 88 AD2d 883 [1982]). A conversion does not occur until the defendant refuses to return the property after demand or sooner disposes of the property (see Bernstein v Larue, 120 AD2d 476, 477 [1986]). Here, not only does the complaint allege that a demand was made, but plaintiffs have submitted a copy of an email requesting the return of the property at issue. Although Chloe Foods is under bankruptcy protection, the demand sufficed to assert a claim of ownership against the other defendants and the prejudice to plaintiffs in being required to await the conclusion of the bankruptcy proceedings before obtaining any remedy against them on this conversion cause of action outweighs any potential inconvenience to defendants (see Lottes v Slater, 114 AD2d 580, 581 [1985] ). Accordingly, that branch of the motion which seeks dismissal of the nineteenth cause of action is denied, except that resolution of such claim against Chloe Foods is stayed.

The Second, Third and Fourth Causes of Action

In plaintiffs' second, third and fourth causes of action, they allege that Kontogiannis, Annette Apergis and Andrew Themis, in their capacity as officers and directors of Blue Ridge, breached their fiduciary duty to the corporation by stripping it of its assets, that the other individual defendants facilitated them in their scheme and that the corporate defendants were used as vehicles for the looting of Blue Ridge.

Initially, the court notes that, although defendants allege that plaintiffs lack standing to pursue claims on Blue Ridge's behalf because Jeffrey Siegel owned only 50% of the shares of the corporation, the claims for breach of fiduciary duty, like several other claims, presuppose that Kontogiannis did not validly acquire any interest in Blue Ridge because he [*6]never paid any money for his shares. At the pleading stage of this complicated action, this court is not prepared to determine otherwise.

Contrary to defendants' contention, these causes of action sound in breach of fiduciary duty and, consequently, the statute of limitations applicable to a claim for conversion does not apply. New York law does not provide a single statute of limitations for breach of fiduciary duty claims; rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks (see Loengard v Sante Fe Indus., 70 NY2d 262, 266 [1987]). Where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8) (see Kaufman v Cohen, 307 AD2d 113, 119 [2003]). In this case, plaintiffs rely upon more than allegations that Kontogiannis presented a notice to Jeffrey Siegel which stated that Blue Ridge was in default under a security agreement, that Jeffrey Siegel knew the notice was invalid and that, subsequently, he felt coerced into signing various documents favorable to Kontogiannis. Plaintiffs allege, in particularized terms, that Kontogiannis and his co-defendants committed fraud by, among other things, invoicing Blue Ridge for goods and services that were never delivered, for selling products to Blue Ridge from entities under their control at inflated prices, and for funneling money from Blue Ridge to themselves. Those allegations are sufficient to state valid causes of action against defendants and the defenses set forth by them with respect to those causes of action are without merit. Therefore, to the extent that defendants seek dismissal of the second, third, and fourth causes of action, such relief is denied.

The Twentieth Cause of Action

In opposition to the twentieth cause of action which alleges that Richard Siegel was the victim of mortgage fraud, defendants fault plaintiffs for failing to particularize their allegations of fraudulent conduct and to plead a factual basis upon which one can infer knowledge on their part of Kontogiannis' scheme. While plaintiffs have alleged that Kontogiannis was the mastermind of a scheme to record mortgages in the name of Richard Siegel without his consent and that Kontogiannis admitted his role in a plea agreement in a criminal case, they have also alleged, in detail, how various corporate entities (defendants Coastal Capital Corp., Parkview Financial Center, Inc. and Edgewater Development Inc., for example) and the individuals who controlled them (defendants Annette Aspergis, Chloe Kontogiannis and Lisa DiPinto) participated in the mortgage transactions as title company, lender, seller and "straw buyer." If plaintiffs' claim that defendants participated in a conspiracy to defraud Richard Siegel is true, then they are jointly and severally liable, notwithstanding the amount of any direct benefit conferred upon them through the fraudulent transaction (see American Transit Ins. Co. v Raison, 242 AD2d 201 [1997]). At this stage of the proceedings, with respect to the twentieth cause of action, dismissal is unwarranted.

The Sixth, Seventh and Eighth Causes of Action

In these causes of action, plaintiffs allege that, in reliance upon promises made by Kontogiannis in a Stock Sale Agreement, two parcels of real property were transferred to [*7]Kontogiannis' entities, that plaintiffs never received any money pursuant to the agreement and that several of the defendants borrowed money against the properties, thus diminishing their value. Although defendants urge that the claims should be dismissed because they are time-barred (if thought to be sounding in conversion) or because they lack the requisite particularity under CPLR 3016 (b) (if they sound in fraud), a reading of the complaint indicates that the basis for the claim is plaintiffs' contention that Kontogiannis breached a contract (the Stock Sale Agreement) and used economic duress to deprive plaintiffs of their property interest and that several of the other defendants borrowed money against the properties so as to unjustly enrich themselves.[FN3]

Although the existence of an agreement governing the subject matter of a plaintiff's claims also bars an unjust enrichment cause of action asserted against defendants who were not signatories to that agreement (see, e.g., Vitale v Steinberg, 307 AD2d 107, 111 [2003]), the written contract precludes recovery in quasi contract for events arising out of the same subject matter governed by the written contract (see Feigen v Advance Capital Management Corp., 150 AD2d 281, 283 [1989]). Here, the alleged unjust enrichment by defendants did not arise out of the Stock Sale Agreement; rather, according to plaintiffs, Kontogiannis repudiated the Stock Sale Agreement and, in doing so, placed plaintiffs in an untenable position with respect to their creditors, thus leading to their accession to his demand to cede the real property to defendants and, ultimately, to their encumbrance of the properties and retention of the proceeds for themselves. Under the circumstances, that branch of the motion which seeks dismissal of the sixth, seventh and eighth cause of action is likewise denied.

The foregoing constitutes the decision and order of this court.

ENTER,

J.S.C. Footnotes

Footnote 1: Defendants point out that the claim has also been asserted against Chloe Foods, a bankrupt entity.

Footnote 2: Plaintiffs continue to insist, nevertheless, that a six-year statute of limitations applies because allegations of actual fraud have been made and are essential to the claims of breach of fiduciary duty.

Footnote 3: The causes of action incorporate by reference prior allegations of the complaint, including paragraphs "148-156," which refer to the "Brooklyn Property" and the "Chicago Property."