Troy v Carolyn D. Slawski, C.P.A., P.C.
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Troy v Carolyn D. Slawski, C.P.A., P.C. 2012 NY Slip Op 30856(U) April 4, 2012 Sup Ct, NY County Docket Number: 105968-2009 Judge: Judith J. Gische Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCANNED ON41512012 [* 1] ;:I TROY, EDWARD [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART fo X l -- - - - l " - II - l- " - - - I II -l * - -' L -"IF Edward Troy, Plaintiff (s), -against- ~ N I O R RP E Index No.: 105968-2009 Seq. No.: 003 PRESENT: J-bn, Judith J. Carolyn 0. Slawski, C.P.A., P C , Toy & Troy, P.C., William J. Troy, 111, Joseph B. Troy, and James J. Troy, J.S.C. Recitation, 8s required by CPLR 2219 [a], of the papers considered in the review of this (these) mOtiOn(S): Papm Numbered Troy Defs' n/m (3212) w/JJT affid, exhs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Pltfsoppw/ ¬JTaffid,exhs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Def JJT reply affid, exhs + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 P l t k sur reply w/EJT amd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Various stipulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Stipulation of Settlement w/ SLaWski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 . Upon the foregoing papers, the decision and orcfer of the court is as follows: This is an action by Edward Troy ("plaintiff") against Troy & Troy, P.C. the law firm ("law firm" sometimes "Troy & Troy") that he was a member and shareholder of, the other shareholders and member8 of the taw firm ("individual defendants"), and the accountant, Carolyn D. Slawski, C.P.A., P.C. ("accountant") who the law firm hired to prepared its corporate tax returns. Plaintiff has since settled his claims with against the accountant. The law firm and individual defendants (collectively "Troy defendants") have answered and now move fqr summary judgment dismissing the amended complaint against them. Since this mqtion was timely brought after plaintiff Rled his note of issue, Page 1 of 10 [* 3] summary judgment relief is available (CPLR 5 3212;Brfll v. City of New York, 2 NY3d 648 [2004]).The reader is presumed to be familiar the court's prior orders in this action. Facts Alleged and Arguments Raked In 2007, Troy 8 Troy, P.C., a subchapter S corporation, had four shareholders, all brothers. In April 1, 2007 plaintiff left the firm but retained his 25% interest therein. In May 2007, he brought 8 dissolution action as a minority shareholder of "25 percent o all f outstanding shares" (Supreme Court, Suffolk County, In r Troy, Index No. 14816/07) e ("dissolution action"). The dissolution qf Troy & Troy was resolved pursuant to an undated so-ordered stipulation of settlement ("settlement agreement") made sometime in October 2008. Pursuant to that settlement agreement, plaintiff agreed to surrender his 25% ownership in the law firm and a realty company. In exchange, Tray & Troy would pay him the aggregate sum of $150,000 in 22 quarterly payments of $8,818.18 each. Plainti and Troy & Troy each reserved certain rights in the settlement agreement. In the action at bar, plaintiff contends the Troy defendants issued him a K-1 in 2007, showing he had taxable inoome of $75,000 that year when, in fact, h a was never paid that money, He has incurred taxes as a result. Plaintiff claims further that the remaining shareholders (the individual defendants) divided corporate profits three (3) ways but then divided the corporate tax liability four (4) ways, treating him differently because he was a mtnqrity shareholder. Plaintiff claims that before 2007 the firm had issued "cash disbumtamentg" to the members of tha firm so they could pay their tax liabilrty and that these disbyrsements were not conqidered salary to them. He claims further that the Troy defendants' refusal to follow that practice in 2007 together with the Page 2 of I O [* 4] issuance of the K-1 showing income paid to him in 2007 Is a breach of the Troy defendants fiduciary duty to him (1 and 2 6causes of action) ( _COA). Plaintiff contends that the individual members have lowered their tax exposure at his expense (3 , 4th 5th 6 I h CQA). These actions have, according to plaintiff, caused him to incur , and improper and unnecessary (tax liabilities and penalties (1Oth COA). The Troy defendants maintain they are entitled to summary judgment because this court has already decided that there is no agreement among the parties for payment of plaintiffs personal taxes. The Troy defendants argue further that plaintiff does not have standing to maintain this action because he is alleging a wrong to the corporation and, therefore, this action can only be maintained derivatively, not in plaintiff 8 individual capacity, A related argument is that plaintiff was no longer a shareholder when he brought this action in April 2009 and, therefore, It was brought in contravention of BCL 626 [b], requiring its dismissal on that basis alone. James J. Troy ( J a ~ e s ) provides his sworn affidavit in support of this motion. James states that plaintiff was the managing partner of the firm when he decided to leave the firm and start his own business. At the time Troy & Troy had a large debt and et or about 2007 - 2008, when plaintiff brought the dissolution action, the remaining members of the law firm decided to retire as much of that debt as possible, James contends that some of the debt was personally guaranteed by plaintiff and that this decisiOn benefitted plaintiff as much, if not more, than the firm. James states that [to] achieve this goal [ofdebt reduction]...the firm put their employees, includlng the shareholders still working at the firm, on payroll such that all Page 3 of 10 [* 5] necessary taxes were being withheld each paycheck. This resulted in K-Is being issued for tax year 2007 to each shareholder, including plaintiff. James contends that plaintiff regularly received money from the firm s Credit line, but did not pay taxes on that money and, therefore, had taxable income. James contends these issues were already resolved in the underlying dissolution action and that plaintiff is attempting to re-lltigate those issues. The Troy defendants point uut that plalntiff has asserted contradictory claims because he testified at his EBT that he stopped being 8 shareholder of the corporate defendant a8 of April 1, 2007 but argues in opposition to this motion that he was a sharehotder until at least October 2008 and maybe later... Plaintiff denies that this is a derivative action. He denies that he is seeking any redress for any wrong committed to the corporate defendant and, therefore, denies there is any need for him to comply with the requirements of BCL 3 626. He claims further that there is a real question concerning the status of his shares in the corporation because no canceled certificates or affidavits of surrender were issued to him and the settlement agreement is not self-effectuating in that regard. Relying on older tax returns of the law firm, plaintiff contends that the Troy defendants recharacterired income and structured transactions so as to increase his personal tax liability, thereby acting improperly towards a minority shareholder, He points out that income rose after he left the firm, compensation to the remaining shareholders rose by 80%. Page4of 10 [* 6] Disaurelon Since Troy defendants contend that plaintiff does not have standing to bring this action In his individual capacity, and they move for summary judgment on that basis, the first issue for the court to decide Is whether plaintiffs claims are derivative. A shareholder, wen 8 sole shareholder or one in a closely held corporation, typically does not have standing to sue directly for a wrong committed against the corporation but must instead commence a derivative action on behalf o the corporation f (see, Abrarns v. Donati, 66 N.Y.2d 951, 953 [1985]). Allegati~ns mismanagement or of diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation anily, for which a shareholder may sue derivatively but not indivldually (Abram8 v. nomte, 66 NY2d at 953). If, however, the plaintiffhtogkholdsr has suffered an injury that is either separate and distinct from the injury suffered by the corporation or if the injury arises out of a violation of a special duty running from the alleged wrongdoer directly to the stockholder and that special duty is independent and extrinsic to the corporation, an individual action may be maintained (u.). The Troy defendants have not proved their defense, that plaintiffs claims are derivative. To the contrary, plaintlffs claims are, in fact, individual because he is challenging the issuance of a K-1 to him for salary or income although he dld not actually remlve the money, compounded by tha fact that he now has to pay taxes on this income. Thus, plaintiff is not seeking to assert a claim for some wrong committed to the corporation, such as the misappropriation or waste of corporate assets. Consequently, Page5of 10 [* 7] BCL 5 626 [b] -the so-called "contemporaneous ownership rule" applying to derivative actions on behalf of a corporation - does not apply and he does not have to show he was a shareholder when the challenged transaction occurred and when he brought this action Jndustrieg, 181 AD2d 66 [la'Dept 1992J).Therefore, the requirements of 8CL Q 026 [b] is not a reason to grant the moving defendants summary judgment, dismissing the complaint for lack of standing Bchorr v Steiner, 46 AD3d 435 (18tDept 20071). tn its decision/order dated February 28, 2011 ("prior order"), the court denied plaintiffs motion for partial summary judgment stating that: The parties' settlement agreement, that the Troy defendants would 'hold Edward Troy harmless for any liability for the payment of taxes or other debts of the respondent and 3783 Reatty Corp," does not support plaintiffs interpretation, that the defendants agreed to pay his personal income taxea. The settlement agreement was made within the context of a corporate dissolution promeding and the "taxes"clearly refer to corporate, not personal, taxes. The parties dtsagrw whether the court's prior order resolves the claims in the amended complaint in the Troy defendants' favor. Plaintiff argues the prior order does not resolve of his claims because he only moved for partial summary judgment on the "hold harmless" clause of the settlement agreement (paragraph 11) but there is an addendum to the settlement agreement which contain language supporting his claims. The "hold harmless" clause provides as follows: Upon surrender by Edward Troy of his shares of stock in the respondent and 3783 Realty Corp . . . the respondent will hald Edward Troy harmless for any liability for the Page 6 of 10 [* 8] payment of taxes or other debt$ of the respondent and 3783 Realty Carp which exist December 31, 2007. The addendurn to the settlement agreement, however, differently provides that *[the] parties agree that this stipulation shall not bar Edward Troy from asserting a claim agalnst Troy & Troy, P.C. for personal tax liqbility he incurred by reason of the 2007 K-I he received from Troy & Troy, P.C." Thus, plaintiff contends the court's prior order does not justify the grant of summary judgment in favor of the moving defendants. Although not articulated as such,the parties' dispute is over the prior order is "the law of the case." The doctrine of the law of the case applies only to legal determinations that were necessarily resolved on the merits in the prior decision (aldasano v, &ank of New York, 199 A.D.2d 184 11It Dept 1m3]). In his prior motion plaintiff only sought partial summary judgment againstithe Troy defendants based solely on the strength of the hold harmless clause. Neither side addressed, nor did the court decide, whether the addendum barred this action. The court's prior order does not bar this action and the Troy defendants are not entitled to summary judgment on that basis. The Troy defendants maintain that plaintiffs claims are contrary to what the legal requirements of a subchapter S corporation are. In support of their motion, the Troy defendants rely on the sworn affidavit of Andrew P. Ross, a certified public accountant ("Ross"), Plaintiff objects to the Rms affidavit on procedural grounds and on the merits. He claims Ross was not previously disclosed, though he served CPLR 3101 [d] demand. He atso objects to Ross's affidavit because it i8 submitted for the first time in reply. Plaintiff contends, in any event, that Ross's opinion is "nonsensical" because he was Page 7 of 10 [* 9] retained by Slawski on the issue of whether she committad malpractice, having nothing to do with plaintiffs claims against the moving defendants. CPLR § 3101 [d] does not set a deadline by which expert disclosure must be provided. It onty requires that upon belng served with a demand for such disclosure, the party in receipt of the demand shall "disclose in reasonable detail the subject matter on which each expert i expected to testify, the substance of the facts and wpinions on which s each expert is expected to testify, the qualificatlons of each expert witness and a summary of the grounds for each expert's opinion." Here, plaintiff has established he served a demand, but no infarmation about this expert was provided. Even were the court inclined to allow the affidavit, Ross states his Opinion is "in support of [Slawski's] motion for summary judgment dismissing plaintiff 8 negligence and professional malpractice clqims against [her and her practice]." Consequently, Ross's affidavit has no bearing on plaintiffs claims against the Troy defendants and does not support their motion for summary judgment or eliminate any issues of fact. The parties disagree whether plaintiff continued to be a shareholder after April 2007. This issue i raised by the Troy defandants, however, to show that plaintiff did not s comply with the requirements of BCL 626 [b] and, therefore, he did not have standing to commence this action. Having decided the issue of standing in favor of plaintiff (see discussion, supra; BCL 628 [b]), the court does not have to decide whether plaintiff was a shareholder (Le his status) beyond April 2007. Plaintiff also raised the issue of his post April 2007 status, arguing that the necessary documents were never issued cancelling his shares. This point, however, goes to the issue of whether the issuance of a K-1 in 2007 Page8of 10 [* 10] was an aberration and evidence of Troy defendants breach of fiduciary duty. Consequently, this issue Is collateral to the Troy defendants motion and daes nat present an issue of law that has to be decided at this time. Having decided the iSsue of standing, the moving defendants must now make a prima facie showing they are entitled to judgment as a matter of law by tendering sufficient evidence to eliminate any material issues of fact from the case (Winenrad v- pew York Univ. Med. Ctr., 64 N.Y.2d 851 [lSSS]). Ifthe movant falls to make out their prima facie case for sumwry judgment the motion must be denied, regardless of the sufficiency of the opposing pqpers (Atvarez v. ProaDect Hosdtal, 68 N.Y.2d 320 [1980]; Avotte v, Gervasio, 81 N.Y.2d 1062 [1993]). Although the Troy defendants broadly contend that plaintiffs claims are without merit and his rendition of facts is mislesding, ddendants have not met their burden of establishing their prima facie case. Defendants argument, that plaintiffs causes of action am duplicative of one anather, are offered by way of commentary and without any kind of legal analysis. Having failed to show they are entitled to summary judgment on any of plaintiffs claims, the motion by the Troy defendants is denied. Since the note of issue was filed, this case is ready to be tried. Plaintiff shall serve a copy of this decisionlordar on the Office of Trial Support so the trial can be scheduled. Conclusion In accordance with the foregoing, It i hereby, s OROERED the rtwtign by defendants Troy & Troy, P.C.,WIlliam J. Troy, 111, that Page 9 of I O [* 11] c Joseph B. Troy and Jams5 J. Troy for summary judgment is denied for the reasons Gtated; and it is further ORDERED plaintiff shall serve a copy of this decision/order on the Office of Trial that Support so the trial can be scheduled; and it is further ORDERED any relief requested but not specifically addressed is hereby denied; that and it is further ORDERED that this constitutes the decision and order of the court. Dated: New York, New York So Ordered: April 4, 2012 f J Hon. J ith - Gische, J.S.C. Page 10of I O
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