Matter of Coco
2012 NY Slip Op 30985(U)
April 2, 2012
Supreme Court, Nassau County
Docket Number: 001930-11
Judge: Timothy S. Driscoll
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SUPREME COURT- STATE OF NEW YORK
SHORT FORM ORDER
HON. TIMOTHY S. DRISCOLL
Justice Supreme Court
In the Matter of the Application of James R. Coco , Sr.,
and James R. Coco, Jr., the Holders of More than
20 Percent of All Outstanding Shares of
Advanced Arch Griles, Inc.
TRIAL/IAS PART: 16
Index No: 001930-
Motion Seq. No.
Submission Date: 3/27/12
For the Dissolution of Advanced Arch Griles, Inc.,
A Domestic Corporation,
Papers Read on this Motion:
Notice of Motion , Affirmation in Support and Prior Decision....
Appendix to Affirmation in Support - 1 of 2 ...........................
Appendix to Affirmation in Support - 2 of 2 ............................
Memorandum of Law in Support....................................................
Memorandum of Law in Further Support and Exhibits............
Memorandum of Law in Opposition...............................................
This matter is before the court on the motion by Respondent Advanced Arch Griles , Inc.
Advanced Arch" or " Respondent" ) fied Januar 11 2012 and submitted on March 27 , 2012.
For the reasons set forth below , the Court grants reargument and , upon reargument , declines to
modify its prior decision dated December 12 , 2011. The Court reminds counsel
for the paries
their required appearance before the Court on April 12 , 2012 , at which time the Court wil
schedule the hearing as directed therein.
Respondent moves for an Order 1) granting reargument of Respondent' s opposition to the
initial and amended Petition as sought discovery of the financial records of Respondent and
upon such reargument , denying Petitioner s request for such discovery; 2) granting reargument of
so much of the motion of Petitioner James R. Coco , Sr. (" Coco , Sr. ) to amend the Petition
herein as granted a hearing on the issue of whether the Non-Compete Provision of the
Shareholders ' Agreement governing the Respondent (" Restrictive Covenant" ) should be deemed
unenforceable and , upon such reargument , denying the application for a hearing and dismissing
Petitioners ' claim that the Restrictive Covenant is unenforceable; and 3) granting reargument of
the Cross Motion fied by Respondent on or about May 26 , 2011 which sought , among other
, a) dismissal of the Petition pursuant to the holding in
Matter oj Doninger
Psychiatric Hospital Center, Inc. 122 AD. 2d 873 (2d Dept. 1986), b) dismissal of the Petition
based on the false claims made by Coco , Sr. in connection with the initial Order to Show Cause
in this proceeding, and c) an award of a monetar sanction , including attorney s fees; and 4) upon
such reargument , granting the originally-requested relief.
The Parties History
In the initial Petition , Coco Sr. , the owner of 39% of the outstanding common shares of
Advanced Arch (" Company
), sought dissolution of the Company, pursuant to BCL
based on his allegation that Daniel L. Roeper (" Roeper ), a 60% shareholder in the Company,
has engaged in oppressive conduct towards Petitioner.
By decision dated July 28 2011 (" July Decision ), the Court granted Petitioner s motion
to amend the Petition to add James R. Coco , Jr. (" Coco , Jr. ) as a petitioner , directed Petitioner
to fie its Second Amended Verified Petition , and reserved decision on that branch of Petitioner
motion seeking a declaratory judgment declaring the Restrictive Covenant unenforceable.
Pursuant to the July Decision , Petitioner filed a Second Amended Verified Petition (" Second
Amended Petition ) on August 16 , 2011. The Court permitted the parties to provide the Court
with respect to other motions then pending before the Cour , with supplemental submissions
addressing the Second Amended Petition.
In the Second Amended Petition , which names both Coco , Sr. and Coco , Jr. as
Petitioners , Petitioners seek dissolution of the Company, pursuant to BCL S 1104-a , based on the
allegations that Roeper has engaged in oppressive conduct towards Petitioners who own 39% and
1 % of
the outstanding shares of the Company, respectively. In the Second Amended Petition
Petitioners also seek an Order 1) directing the examination and accounting of the books and
records of the Company to effectuate the dissolution including, but not limited to , obtaining
financial statements necessary to . oversee shareholder distributions; 2) enjoining the Company,
Roeper and their agents from transferring any assets of the Company, selling shares in the
Company or taking any other action outside the ordinary course of business , without the
paricipation of Petitioners; 3) distributing commissions and unpaid distributions due and owing
to Petitioners; and 4) enjoining the use of the name Advanced Architectural Griles and the mark
AAG and directing the payment of damages arising from the dilution of the name and mark.
In a decision dated December 12 2011 (" December Decision ) (Attachment to Daw Aff.
in Supp. ), the Court addressed 1) Petitioner s motion for an Order granting the relief requested in
its Amended Verified Petition fied Februar 9 , 2011 (" First Amended Petition ), pursuant to
New Yark Business Corporation Law (" BCL" ) ~ 1104-a , 2) Respondent's motion for an Order
a) dismissing the First Amended Petition; and b) staying the inspection and copying of the
corporate financial books and records for the three (3) years preceding the First Amended
Petition or , in the alternative , scheduling a hearing on the issue of whether the requested
inspection and copying of corporate financial books and records was made in good faith and for a
proper purpose , and 3) Respondent's cross motion for an Order a) dismissing the First Amended
Petition; b) suppressing an allegedly improperly obtained document and granting discovery,
including the deposition of Coco , Jr. , as well as a hearing on the issue of how the document was
obtained and whether the sanction of dismissal of the First Amended Petition should be imposed
for alleged misconduct; and c) awarding attorney s fees based on Petitioner s allegedly
In the December Decision , the Cour 1) referred Petitioner s motion to a hearing;
2) referred Respondent's motion to dismiss the Second Amended Petition to a hearing, and
denied Respondent' s application to stay the Court-ordered inspection and copying of corporate
financial books and records; and 3) referred Respondent's motion to dismiss the Second
Amended Petition , and Respondent' s application for sanctions , to a hearing. l
The Court also
referred to a hearing the branch of Respondent's prior motion (motion sequence # 3) seeking a
declaratory judgment declaring the Restrictive Covenant unenforceable.
I In the December Decision
, the Court noted that the motion papers contained a copy of the Second
Amended Petition which the Court considered in issuing the December Decision.
With respect to the motions addressed in the December Decision , Respondent argued that
1) pursuant to the Shareholders ' Agreement , Petitioners have invoked the buy-out provisions by
initiating this action , and Respondent has advised Petitioners that the Company accepts their
offer to sell their shares
Ex. A to Resp. s Memo of Law in Furer Supp. ); accordingly, the
Cour should enforce those buy-out provisions and dismiss the Second Amended Petition; 2) the
Court should enforce the Restrictive Covenant in light of Respondent' s allegations regarding
Petitioners ' conduct which establishes that Petitioners are now " attempting to threaten (the
Company s) ongoing existence in any form... and to prevent it from doing business; " 3) the Court
should dismiss the action based on Coco Sr. ' s false claim that he was not represented by counsel
when the Shareholders ' Agreement was negotiated; and 4) the Court should award counsel fees
to Respondent in light of Coco ,
' s allegedly frivolous conduct in pursuing this litigation that
involved his allegedly false statement regarding whether he was represented by counsel during
the negotiation of the Shareholders ' Agreement.
Petitioners disputed Respondent's assertion that Coco , Sr. was represented by counsel
during the negotiation of the shareholders agreement. With respect to the motions addressed in
the December Decision , Petitioners argued that 1) dissolution is appropriate in light of the
allegations regarding the oppressive conduct by Roeper; 2) disclosure of the books and records of
the Company is required pursuant to BCL ~ 1104-a(c); 3) the Restrictive Covenant is not
enforceable , paricularly in light of the Petitioners ' retur to the Company of all customer lists
and business documents in their possession; and 4) they are entitled to a ruling that the
Shareholders ' Agreement does not mandate the valuation of the Coco shares by the " non-
appealable opinion of the (C)ompany accountant " but rather by fair market value in accordance
with BCL ~ 1118.
The Restrictive Covenant , contained in Article XVII of the Shareholders ' Agreement
provides as follows:
1. So long as either Coco Sr. , Coco Jr. or Roeper are a Shareholder and/or employee of
the Corporation , and for a period of three (3) years following the sale and/or transfer
of his stock, and/or the termination of his employment , Coco Jr. , Coco Sr. and Roeper
wil not , directly or indirectly, in any capacity whatsoever (whether as employee
consultant , proprietor , parner , co-venturer , stockholder , representative or otherwise)
and whether individually or for a competitor or subcontractor of the Corporation
solicit or attempt to solicit business from , or engage or attempt to engage in any
business with any client or customer of the Corporation , or of any affiliates of the
Corporation , or to compete with the Corporation s then existing business , within a
75 mile radius of any client , customer , or location (as defined below) ofthe Corporation.
purposes of this Agreement , client or customer or location shall include
any and all businesses or entities , and any location , division , subdivision and/or
affliate of any business or entity, with whom the Corporation or its affliates has
either performed services for , transacted business with , or solicited in an attempt
to perform services for , or transact business with , during the Shareholder s tenure
with the Corporation.
2. For the
(3) years following the sale and/or transfer of his Stock
each shareholder wil not directly or indirectly, in any capacity whatsoever , solicit
for employment or employ, interfere with , or attempt to influence or entice , any
employee or subcontractor of the Corporation to leave his or its respective employment
3. For a period of three
Article XXII , titled " Miscellaneous " provides as follows at subdivisions 5 and 6:
In the event a Shareholder brings an action for dissolution under New York' s (BCL)
~ 11 04-a , same shall be deemed an offer to sell such shares at the price and upon the
terms as set forth herein upon the death or permanent disability of a Shareholder.
In the event there is a disagreement concerning any financial term or calculation
under this agreement , the opinion of the Corporation s outside accountants shall
be binding and non-appealable.
Article IX , titled " Death of a Shareholder " provides in pertinent part as follows at
Upon the death of any shareholder , the Corporation , or if the Corporation declines , then
the surviving shareholders (pro rata) shall purchase the decedent's stock from his estate
and the estate shall sell the stock to the surviving shareholders...
Article X , titled " Permanent Disability of a Shareholder " provides as follows at
In the event of permanent disability of a Shareholder , the legal representative of the
disabled Shareholder , or the disabled Shareholder if legally competent to do so , shall
sell to the Corporation , or the remaining Shareholders (pro rata) if the Corporation
declines , within sixty (60) days of the date of his appointment or of the disability
becoming permanent , or insurance proceeds are received if any, whichever is later
as the case may be , all the Stock in the Corporation owned by the disabled Shareholder
at the time of his permanent disability at the same value and in the same manner
as prescribed for a sale of stock in the case of the death of a Shareholder.
Article VII, titled " Distribution of Profits and Losses " sets forth " other remuneration "
which the shareholders are entited.
That remuneration includes I) profit and loss distributions
2) additional shares to the Coco Group if Annual Gross Sales exceed designated amounts , and
3) a commission on Annual Gross Sales.
The Paries '
In support of its motion to reargue , Respondent argues , first, that the Court should not
have scheduled a hearing on the issue of the enforceability of the Restrictive Covenant , but rather
should have enforced the Restrictive Covenant. Respondent notes that the Restrictive Covenant
is not being enforced against an employee , but rather against Coco , Sr. , an offcer of the
Company who benefitted from the Shareholders ' Agreement by receiving a larger share of the
Company without being required to contribute additional capital. Moreover , Respondent
contends , Coco , Jr. and Coco , Sr. are precluded by their duty of loyalty to the Company from
competing in a business engaged in by the Company. Respondent disputes Petitioners ' claim
that Respondent is attempting to prevent Petitioners from pursuing their livelihood; rather
Respondent seeks only to preclude Petitioners from pursuing opportunities in the architectural
grile work segment of the medical fabrication business.
Respondent argues , further , that the Court " failed to recognize the binding effect of the
provisions of the Shareholders ' Agreement on the viability of the Petition (and) Amended
. Petition " (Resp. ' s Memo. of Law in Supp. at p. 6). Respondent submits that the Shareholders
Agreement reflects the parties ' agreement that , in the event that a dissolution proceeding was
commenced , it would be deemed an offer to sell the Petitioners ' shares to Advanced Arch
pursuant to an agreed-upon formula. Thus , by bringing this action, Petitioners offered their
shares for sale to the Respondent Company which accepted that offer , and the Cour should this
dismiss this action under the reasoning of cases including
Hospital Center, Inc. 122 AD. 2d
Matter oj Doninger
873 (2d Dept. 1986).
Finally, Respondent contends that the Court should deny Petitioners ' request for
inspection of Respondents ' financial records. Respondent submits that Petitioners are competing
with Respondent in violation of the Shareholders ' Agreement, and providing them with access to
the financial records wil facilitate that competition. Respondent also argues that Petitioners
request to inspect the financial records is made in bad faith in light of the provision in the
Shareholders ' Agreement prescribing the method for valuing the stock.
In its Memorandum of Law in Further Support , Respondent asserts that , as recently as
2012 , Coco , Jr. contacted a customer of Advanced Arch and expressed his desire to
work with the customer s company again , making reference to specifications for prior projects in
which Respondent was involved. Respondent provides a copy of the applicable email (Ex. B to
Resp. s Memo. of Law in Furher Supp.
In opposition , Petitioners submit that with respect to the Restrictive Covenant
Respondent's alleged " freeze out" of Petitioners (Pets. ' Aff in Opp. at p. 2) constitutes a breach
of the Shareholders ' Agreement and supports a determination by the Court that the Restrictive
Covenant wil not be enforced. Petitioners note that , pursuant to a prior Order of the Court , they
retured to Arch all customer lists and business documents in their possession. Petitioners also
submit that the Court should not enforce the Restrictive Covenant in light of policy
considerations that militate against the enforcement of covenants that restrict an individual'
ear a living. .
With respect to Respondent' s contention that Petitioners ' fiing of the instant action
constituted an offer to sell their shares , which Respondent accepted , Petitioners argue that " (t)his
argument is particularly absurd when placed in front of an argument that disclosure of financial
books and records should be denied to the Petitioners - as is done by the Respondent here
contend that , pursuant to BCL ~ 1104-a(c), disclosure is mandatory.
RULING OF THE COURT
It is well settled that a motion for reargument is addressed to the sound discretion of the
Court , and may be granted upon a showing that the Court overlooked or misapprehended the
McGil v. Goldman 261 AD.2d
relevant facts or misapplied any controlling principle oflaw.
593 594 (2d Dept. 1999). It is not designed , however , to provide an unsuccessful pary with
successive opportunities to reargue issues previously decided or to present arguments different
!d. ; Pahl Equip. Corp.
from those originally presented.
Kassis 182 A.
2d 22 ,
Accord Matter of Carter 916 N. Y.S. 2d 821 (2d Dept. 2011).
Effect of Buy- Out Provision in Shareholders ' Agreement
Matter oj Doniger
Rye Psychiatric Hospital Center, Inc. 122 A. D.2d 873 (2d Dept.
1986), petitioners appealed from a judgment of the trial court which dismissed the dissolution
proceeding pursuant to BCL ~ 11
and awarded respondents specific performance of a
shareholders ' agreement providing that each petitioner was to transfer his shares of stock in the
corporation to respondents for a designated purchase price.
Concluding that a proceeding for
judicial dissolution was one of the means by which the buyout provisions in the agreement would
be triggered ,
and further concluding that the hearing testimony supported that conclusion , the
Second Department affrmed ,
holding that the trial court had correctly dismissed the proceeding
and granted the counterclaim of the individual respondents for specific performance of the
shareholders ' agreement such that the petitioners were directed to transfer their shares in the
corporation to the individual respondents.
at 877- 888.
Examination of Corporate Books and Records
At common law , the right to inspect corporate books and records is qualified and can only
be asserted when a corporate shareholder is acting in good faith and has established that the
inspection is for a proper purose.
(2d Dept. 2003). In
Polish and Slavic Center, Inc.
the Second Department reversed the trial court' s Order denying
petitioner s motion to compel the inspection of the corporation
s books and records.
Concluding that petitioner had demonstrated his good faith and proper purpose in his affidavit in
support , the Second Department remitted the matter to the trial court for a hearing and
determination by the court , in its discretion , as to whether inspection of all of the books and
records listed in his motion was necessar and necessar for the petitioner s puroses.
D. Restrictive Covenants
Where the shareholders of a commercial enterprise sell their interest in the business for
consideration , which includes payment for the good wil of the business , a covenant restricting
the sellers ' right to compete with the purchaser is enforceable.
AD.2d 557 , 558 (2d Dept. 1997). The sole limitation on the enforceability of such a covenant is
that its duration and scope be reasonably necessar to protect the buyer s legitimate interest in the
Haradi the contract of sale contained a restrictive covenant that
prohibited the defendants from inter alia accepting or performing intercom installation work
within the City of New York for a period of 5 years. Three years after the sale, the plaintiff
commenced the action at issue alleging that defendants had breached the restrictive covenant by
accepting electrical contracts within the City of New York which included the performance of
intercom installation work.
at 557- 558. The Second Deparment held that , in light of the fact
that the record reflected disputed factual issues as to whether the restrictive covenant was
reasonable in scope and whether the defendants breached the terms of the covenant , the trial
court properly denied defendants ' motion for summar judgment dismissing the breach of
contract and accounting causes of action.
Breach of Contract
The elements of a cause of action to recover damages for breach of contract are 1) the
existence of a contract , 2) the plaintiff's performance under the contract , 3) the defendant'
breach of the contract , and 4) resulting damages.
Palmetto Partners, L.P.
Partners, LLC 83 AD. 3d 804 , 806 (2d Dept. 2011).
Application of these Principles to the Instant Action
The Court is persuaded by Respondent' s Argument that , pursuant to the relevant
provisions in the Shareholders ' Agreement , Petitioners ' fiing of the petition for dissolution
pursuant to BCL S 11
constitutes an offer to sell their shares to the Respondent Company,
which accepted that offer. The Cour concludes , however , that dismissal of the Petition is not
appropriate in light of Petitioners ' allegations that 1) Respondent breached the Shareholders
Agreement by failing to pay Petitioners commissions and distributions to which they were
entitled; and 2) the Court should not enforce the Restrictive Covenant which unduly burdens
their ability to ear
a living. In light of those allegations , the C('urt concludes that a hearing is
necessar to address issues including 1) whether the Court should enforce the Shareholders
Agreement in whole or in part; and 2) if the Court concludes that Respondent has the right to
purchase Petitioners ' shares , how the valuation of those shares should proceed.
The Court also concludes that Petitioners have established that, even if production of
Arch' s books and records is not waranted pursuant to the BCL , production ofthose books and
records is nonetheless appropriate. In light of Petitioners ' allegations that Respondent has failed
to pay Petitioners commissions and distributions to which they are entitled , and the Court'
conclusion that requiring Petitioners to proceed with the hearing without the benefit of access to
those books and records would be patently unfair , the Court directs Respondent to make the
books and records of Arch , including financial statements necessar to oversee shareholder
distributions , available to Petitioners for inspection and copying, at Petitioners ' expense , on or
before May 11 , 2012.
All matters not decided herein are hereby denied.
This constitutes the decision and order of the Court.
The Court reminds counsel for the parties of their required appearance before the Court
for a conference on April 12 , 2012 at 9:30 a.
, at which time the Cour wil schedule the hearing
as directed herein and in the prior decision of the Court.
DATED: Mineola, NY
April 2 ,
HON. TIMOTHY S. DR!
1 0 201