Matter of Shure v S&S Eatery, L.L.C.

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Matter of Shure v S&S Eatery, L.L.C. 2012 NY Slip Op 31091(U) April 9, 2012 Sup Ct, Nassau County Docket Number: 000950-12 Judge: Timothy S. Driscoll 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. .... .......... ......... ... .... ..... ",.., ......... .... ... .... " .... .... .... [* 1] SUPREME COURT- STATE OF NEW YORK SHORT FORM ORDER Present: HON. TIMOTHY S. DRISCOLL Justice Supreme Court ------------------------------------------------------------------- x In the Matter of the Petition of Elaine Shure, TRIAL/IAS PART: 16 NASSAU COUNTY Petitioner Index No: 000950- For the Judicial Dissolution of S&S Eatery, L.L.c., Motion Seq. Nos: 1 and 2 Submission Date: 2/17/12 Respondent. --------------------------------------------------------- x The following papers have been read on these motions: Order to Show Cause, and Verified Petition.................................................. Affidavit in Support and Exhibits...........................................................8....... Emergency Affirmation in . Su ppo rt......................................... ........................ Proposed Order of DissoIution""""""""""""""""""""", ... Memorandum of Law in Support...................................................8.............." Notice of Cross Mo tio D.... ..... "... I' ""'8""'" ... .... Affdavit in Support/Opposition Affrmation in Support/Opposition and Exhibits........................................ Affrmation in Opposition to Cross Motion and Exhibit.......................... This matter is before the Cour for decision on 1) the Order to Show Cause filed by Petitioner Elaine Shure (" Shure " fied by or " Petitioner ) on January 26 2012 , and 2) the cross motion Anthony Spota , a member of Respondent S&S Eatery, L.L.C. (" S&S" ) and the plaintiff in the related action titled Anthony Spota v. Elaine Shure Nassau County Index Number 8663- Related Action ) also pending before the Court. For the reasons set forth below , 1) with respect to Petitioner s Order to Show Cause, the Court a) concludes that Petitioner has established her right to dissolution of S&S; b) detennines that a hearing is necessar to detennine 1 In a recent decision in the Related Action (" injunctive relief. Related Decision ), the Court denied plaintiffs motion for [* 2] whether the appointment of a receiver and/or granting of injunctive relief is appropriate; c) denies Petitioner s application for injunctive relief at this juncture; and d) denies , as moot, Petitioner application for an Order directing Respondent to produce certain records , in light of the stipulation entered into by the paries and so-ordered by the Court; and 2) reserves decision on Respondent's cross motion to consolidate the above-captioned action (" Instant Action ) and the Related Action. BACKGROUND A. Relief Sought In her Order to Show Cause , Petitioner moves for an Order I) dissolving S&S pursuant to New York Limited Liability Company Law (" LLCL" ) g 702; 2) winding up the affairs of S&S pursuant to LLCL g 703; 3) temporarily, preliminarily and permanently restraining Anthony Spota from a) transacting any business and from exercising any LLC powers , except by permission of the Court; and b) collecting or receiving any debt or other property of S&S , and/or from disbursing or otherwise transferring or delivering any property of S&8 , except by permission ofthe Cour , pursuant to LLCL g 703(a) and/or CPLR Article 63; 4) upon the grant of dissolution , appointing a receiver for S&S so that its assets can be properly safeguarded preserved and protected; and 5) directing that Anthony Spota provide to the accountant for S&S Kenneth Neu , CPA , all records of sales and cash receipts (including all cash register tapes), all inventory records, all purchase records , any sales journal , purchase journal , and all other records necessar to calculate the amount of sales tax and other taxes due and owing to the State of New York and ultimately to fairly distribute the assets of S&S to the members , adjusting such distribution by the amount that Mr. Spota has already wrongfully withheld. Respondent opposes Petitioner s Order to Show Cause and cross moves , pursuant to CPLR g 602(a), for an Order consolidating the Instant Action with the Related Action. B. The Paries ' History The Verified Petition (" Petition ) alleges as follows: Shure was and is a member and 50% owner of S&S , a domestic limited liability company. S&S is a restaurant business that was formed on or about July 15 2010 for the purpose of developing and operating a restaurant at 908 Rockaway Avenue , Valley Stream, N ew [* 3] York (" Premises ). Respondent Anthony Spota (" Spota ) is the only other member of S&S. S&S is operated pursuant to an Operating Agreement dated August of 20 1 0 (Ex. A to Shure Aff. in Supp. ). The Operating Agreement was modified by an agreement dated September 3 2010 September Agreement" (id. at Ex. B). In or about June of 20 1 0 , Spota approached Shure and proposed that they enter into a joint venture involving the operation of a restaurant/luncheonette. Spota advised Shure that had extensive experience in the restaurant business , and Shure had business experience operating an antique store. Spota and Shure agreed that Spota would manage the kitchen and Shure responsibilities would include overseeing the company s books , responsibilties and picking up caring out other administrative and delivering food to the restaurant. By virtue of her position as trustee of Unified Credit Trust Under the Wil of Barett Shure , Landlord (her late husband) (" Trust" ), Shure was able to arange for the lease of the Premises to S&S. Spota represented to Shure that if, in addition to arranging for the Premises to she would also provide fuding for the venture in an amount equal to the amount of money provided by Spota , Shure would be given an equal share of the business , as well as co- be leased , management responsibilities. Shure provided half of the financing, arranged for the lease Lease ) and , therefore, is a 50% owner of S&S. Petitioner further alleges that she was promised that her rights as a manager would include the right to determine which employees should be hired and other similar business decisions. The September Agreement provides inter alia that 1) the work time at the restaurant would be divided equally between Shure and Spota ( 9); 2) all bils related to S&S must be paid before any profits are " obtained" by Elaine or Anthony ( 6); 3) no salar bils are paid ( wil be paid unless all 10); and 4) any check over $4 000 must be authorized by both paries ( 8). Petitioner further alleges that she performed daily activities for S&S , including picking up and unloading groceries and other necessar supplies. The members ' rights were also memorialized in the Operating Agreement which provides at Article II , Paragraph 1 that " management of this Company shall be vested in the members(.J Petitioner also alleges that she was promised full access to S&S books and records , which right was memorialized in Article II , Paragraph 4 of the Operating Agreement which states that [* 4] (eJach member may inspect and copy, at his own expense , for any purpose reasonably related to such member s interest as a member , the Aricles of Organization , the Operating Agreement minutes of any meeting of members and all tax returns or financial statements of the Company for the three years immediately preceding his inspection , and other infonnation regarding the affairs of this Company as is just and reasonable. The Petitioner alleges , further , that Spota has been hostile and abusive towards Shure which conduct included the use of profane language when speaking with her and disparaging her ability to operate the business. As a result , Shure alleges , she has been afraid to confront Spota regarding his refusal to permit her to participate in the management of S&S. She affnns that Spota has prevented her from exercising her management rights , and denied her access to the company s books and records, as well as infonnation necessar to operate the business. Petitioner alleges that Spota has conducted the affairs of S&S in a maner that renders it impracticable for S&S to continue in existence as an LLC. His conduct has included 1) engaging in intimidating conduct designed to prevent Shure from exercising her management rights; 2) denying Shure access to the company s financial records; 3) failing to pay real estate taxes and utility fees pursuant to the Lease; and 4) failing to collect sales tax , thereby exposing S&S to civil and criminal liability. In opposition , Spota reaffinns the truth of the allegations in the complaint in the Related Action , which are set forth in detail in the Related Decision. Those allegations include Spota claims that 1) Shure breached the provisions in the agreements dated July 9 , 2010 and September 3 2010 stating that the hours would be divided equally between the parties regarding the daily operation of S & S by refusing to perfonn any work related to S & s' s daily operations; and 2) Shure is liable for abandonment and breach of the covenant of good faith and fair dealing as a result of her reopening the antique store previously operated by her son and late husband, and failing to devote the required time to operating S & S. Spota also affinns that Shure , in her capacity as trustee of the Trust , initiated a landlord- tenant action against Spota on behalf of S&S related to the Lease at the Premises. [* 5] Spota agrees that the eventual dissolution and winding up of the affairs of S&S is appropriate , but submits that the Court should not grant dissolution until the issues raised in the Related Action are addressed. He submits that if the dissolution proceeds without first addressing his claims in the Related Action , he wil lose the time and money he has invested in S&S , as well as any potential resale value , including the company fuher , that Shure wil be unjustly enriched s good wil. He argues if S&S is dissolved without compensating Spota for the improvements for which he paid. Spota submits , further , that the Cour should not enjoin the operations of S&S, but rather permit the business to continue to operate until its eventual dissolution. While Spota affirms that he wil comply with the Cour' s directives if a receiver is appointed, he doesnot believe that such an appointment is necessar in light of the fact that S&S is a small business , and in consideration of the significant costs attendant to the appointment of a receiver. With respect to Shure s application for an Order directing Spota to provide documentation to Mr. Neu , the company accountant , Spota affirms that 1) he has always provided Mr. Neu with updated cash and check receipts; 2) as of Januar 23 , 2012 , Mr. Neu was provided with current financial records of S&S; and 3) Spota agrees to provide updated financial information to Mr. Neu in the maner requested. The Cour notes that the stipulation dated Januar 27 , 2012 , paries executed a which the Court so-ordered , reflecting Spota s agreement to provide certain documentation to Mr. Neu by Februar 6, 2012. Finally, Shure submits that consolidation of the Instant and Related Actions is appropriate in light of their common questions of law and fact , and because consolidation wil serve the ends of judicial economy. C. The Paries ' Positions Petitioner submits that the Petition establishes Petitioner s right to an Order 1) determining that , pursuant to LLCL 9 702 , the continued existence of S&S has been rendered impracticable and issuing an Order terminating and dissolving S&S; 2) enjoining S&S and/or Spota from transferring or concealing any assets of S&S , or sellng any portion of the shares of S&S to any individual; 3) directing Respondent immediately to turn over the financial books and records of S&S to Kenneth Neu , CPA , the accountant for S&S , so that the dissolution of S&S [* 6] and the payment of any taxes or other liabilities due to the State or any other governmental body can be effected in an effcient maner; and 4) directing that , upon the audit of S&S by the accountant, the Cour is authorizing the distribution of such profits as are disclosed to the members of S&S. Petitioner opposes consolidation of the Instant and Related Actions on the grounds that consolidation wil unduly prejudice Shure s rights to a speedy resolution of the Instant Action and wil allow Spota to continue to engage in his allegedly improper conduct. RULING OF THE COURT Dissolution of a Limited Liabilty Company 702 , titled " Judicial dissolution " provides as follows: LLCL On application by or for a member , the supreme court in the judicial district in which the office of the limited liability company is located may decree dissolution of a limited liability company whenever it is not reasonably practicable to car on the business in conformity with the articles of organization or operating agreement. A certified copy of the order of dissolution shall be filed by the applicant with the department of state within thirty days of its issuance. 702 , there is no definition of Despite the standard for dissolution enunciated in LLCL not reasonably practicable " in the context ofthe dissolution of an LLC. Avenue, LLC v. Matter of 1545 Ocean Ocean Suffolk Properties, LLC 72 AD. 3d 121 , 127 (2d Dept. 2010). Most New York decisions involving LLC dissolution issues have avoided discussion of this standard altogether. Id. inter alia , Matter of Extreme Wireless 299 AD. 2d 549 , 550 (2d Dept. citing, 2002). The standard is not to be confused with the standard for the dissolution of corporations pursuant to Business Corporation Law (" BCL" Partnership Law 62. Id. 1104 and 11 04-a , or parnerships pursuant to Unlike the judicial dissolution standards in the BCL and Parnership Law , the court must first examine the LLC' s operating agreement to determine , in light of the circumstances presented , whether it is or is not " reasonably practicable " for the LLC to continue to carr on its business in conformity with the operating agreement. dissolution of an LLC under LLCL Id. at 128. Thus , the 702 is initially a contract- based analysis. [* 7] The Second Deparment , in Matter of 1545 Ocean Avenue, LLC outlined relevant case law in New York and other jurisdictions , including Delaware , and concluded that , for dissolution 702 , the petitioning member must establish , in the context of the of an LLC pursuant to LLCL terms of the operating agreement or aricles of incorporation , that 1) the management of the entity is unable or unwiling to reasonably permit or promote the stated purpose of the entity to be realized or achieved; or 2) continuing the entity is financially unfeasible. 72 AD. 3d The Cour noted that dissolution is a drastic remedy, id., citing at 131. Matter of Arrow Inv. Advisors 2009 Del Ch LEXIS 66 , * 2 (2009), and that the appropriateness of an order for dissolution , quoting of the LLC is vested in the sound discretion of the court hearing the petition id. at 133 LLC, Matter of Extreme Wireless 299 AD.2d at 550. B. Consolidation CPLR 602(a) permits consolidation " when actions involving a common question oflaw or fact are pending before a court , the cour , upon motion , may order a joint trial or any or all the matters in issue , may order the actions consolidated , and may make such other orders concerning 602(b) provides proceedings therein as may tend to avoid unnecessar costs or delay. " CPLR inter alia, that where an action is pending in the supreme court it may, upon motion , remove to itself an action pending in another court and consolidate it or have it tried together with that in the supreme court. Consolidation or ajoint trial should be ordered when the actions involve common questions of law and fact so as to avoid unnecessar duplication of trials , save unnecessar costs Viafax Corp. and to avoid the possibility of inconsistent decisions based upon the same facts. Citicorp Leasing, Inc. 54 A. 3d 846 (2d Dept. 2008); Gutman v, Klein 26 AD. 3d 464 (2d Dept. 2006). A motion to consolidation rests in the sound discretion of the trial court. Food Emporium , Inc. 259 AD. 2d or fact. Mattia 527 (2d Dept. 1999). The pary seeking consolidation must establish the existence of common questions of law 17 AD. 3d 302 (2d Dept. 2005). Once the movant has established v. Morhaim Beerman the existence of common questions of law or fact , the par opposing consolidation must demonstrate that it wil v. suffer prejudice to a substantial right if consolidation is granted. Food Emporium , Inc. , supra. Mattia Absent that showing, consolidation should be granted if the [* 8] movant meets its burden. Edwards v. Citicorp Leasing, Inc. , supra; and Mas- Ultimate Services, Inc. 45 AD. 3d 540 (2d Dept. 2007). v. C. Id. See also Viafax Corp. Appointment of a Receiver With respect to Petitioner s application for the appointment of a receiver , CPLR g 6401 provides as follows: (a) Appointment of temporar receiver; joinder of moving pary. Upon motion of a person having an apparent interest in property which is the subject of an action in the supreme or a county cour , a temporary receiver of the property may be appointed bef9- e or after service of summons and at any time prior to judgment , or during the pendency of an appeal , where there is danger that the propert wil be removed from the state , or lost , materially injured or destroyed. A motion made by a person not already a pary to the action constitutes an appearance in the action and the person shall be joined as a pary. . (b) Powers of temporary receiver. The court appointing a receiver may authorize him to take and hold real and personal propert, and sue for , collect and sell debts or claims , upon such conditions and for such puroses as the cour shall direct. A receiver shall have no power to employ counsel unless expressly so authorized by order of the court. Upon motion of the receiver or a pary, powers granted to a temporar receiver may be extended or limited or the receivership may be extended to another action involving the propert. (c) Duration of temporar receivership. A temporar receivership shall not continue . after final judgment unless otherwise directed by the court. The appointment of a receiver is an extreme remedy resulting in the taking and withholding of possession of property from a pary without an adjudication on the merits. Vardaris Tech Paleros Inc. 49 A. v. 3d 631 , 632 (2d Dept. 2008), quoting Schachner Sikowitz 94 AD. 2d 709 (2d Dept. 1983). The court should grant a motion seeking such an appointment only when the moving pary has made a clear evidentiary showing of the necessity for the conservation of the property at issue and the need to protect the moving part' s interests. Id. quoting Lee v. 183 Port Richmond Ave. Realty, 303 AD.2d 379 , 380 (2d Dept. 2003). In Valderis , supra the Second Deparment reversed the trial court' s order granting plaintiffs motion for appointment of temporar receiver in light of plaintiffs failure to make the required evidentiar showing. Id. at 631- 632. [* 9] C. Application of these Principles to the Instant Action The Court concludes that Petitioner has established her right to dissolution of the LLC in light of the terms of the Operating Agreement regarding the paries ' obligation to contribute equally to the management of the LLC , and their allegations that the other member has not fulfilled his/her obligation. Moreover , Respondent agrees that the eventual dissolution and winding up of the affairs of S&S is appropriate , but submits that the Cour should not grant dissolution until the issues raised in the Related Action are addressed. Under these circumstances; the Court concludes that it is not reasonably practicable to carr on the business conformity with the Operating Agreement. In light of the issues raised by the parties however , including Respondent' s concerns as outlined in the Related Action that Shure may be unjustly enriched if S&S is dissolved without compensating Spota for the improvements for which he paid , and the conflicting affidavits regarding the paries ' conduct , the Court concludes that a hearing is necessar to determine whether the appointment of a receiver and/or granting of injunctive relief is appropriate. The Court denies Petitioner s application for injunctive relief at this juncture , concluding that it is appropriate to permit the business to continue to operate until its eventual dissolution. The Cour denies , as moot , Petitioner s application for an Order directing Respondent to produce certain records , in light of the stipulation entered into by the paries and so-ordered by the Court. With respect to Respondent' s cross motion for consolidation , the Court agrees that consolidation of the Instant and Related Actions is appropriate in light of the similarity of issues in the Instalt and Related Actions. Consolidation of these Actions , however , is complicated somewhat by the fact that the instant dissolution proceeding is a matter to be tried before the Court but the plaintiff in the Related Action may have a right to a jury trial. Accordingly, the Cour reserves decision on Respondent' s cross motion to consolidate and wil discuss with counsel, at the next conference , a stipulation that the two Actions wil be tried before the Court. [* 10] All matters not decided herein are hereby denied. This constitutes the decision and order of the Court. The Court directs counsel for the parties to appear before the Court for a conference on June 6 2012 at 9:30 a. ENTER DATED: Mineola , NY April 9 , 2012 RON. TIMOTHY S. DRISCOLL lS. ENTERED APR 11 2012 NA.,AU COUNTY COUNTY CLIRK" G'ftCl

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