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
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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.
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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
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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
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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
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(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.
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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
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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.
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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
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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.
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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.
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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
