Matter of Sagres 2001 LP v Sagres Partners LLC
Annotate this CaseDecided on April 24, 2012
Supreme Court, Queens County
In the Matter of the Application of Sagres 2001 LP, Petitioner,
against
Sagres Partners LLC and its wholly owned Seq. No. 1 subsidiaries, SAGRES 1B2 LLC and SAGRES 9 LLC, Respondents.
6117/12
Orin R. Kitzes, J.
The following papers numbered 1 to 10 read on this motion by plaintiff for an Order declaring the "Special Meeting" of Sagres Partners LLC December 12th and all Resolutions resulting from said Meeting null and void; enjoining the Managing Members/Managing Agents, Frank Galasso and Daniel Torchio from executing any contracts for the sale of property owned by Sagres Partners LLC without the authorization and consent of Sagres (2001) LP; enjoining the Managing Members and Managing Agents, Frank Galasso and Daniel Torchio from closing on any contracts of sale for property owned by of Sagres Partners LLC without the authorization and consent of Sagres (2001) LP; or, in the alternative, in the event that any sale occurs during the course of these proceedings all proceeds received by Sagres 2001 Partners LLC and/or its wholly owned subsidiaries, Sagres 1B2 LLC and Sagres 9 LLC be held in escrow pending the resolution of any and all outstanding issues between the Members of Sagres Partners LLC and a full accounting of the books and records of Sagres Partners LLC.
PAPERSNUMBERED
Order to Show Cause-Affidavits-Affirmation-Exhibits.......1-3
Affirmation...........................................................................4
Affirmation in Opposition-Exhibits......................................5-6
Affidavit-Exhibits.................................................................7-8
Affidavit................................................................................9
Affidavit in Support..............................................................10
Upon the foregoing papers it is ordered that this motion by plaintiff for an Order declaring the "Special Meeting" of Sagres Partners LLC December 12th and all Resolutions resulting from said Meeting null and void; enjoining the Managing Members/Managing Agents, Frank Galasso and Daniel Torchio from executing any contracts for the sale of property owned by Sagres Partners LLC without the authorization and consent of Sagres (2001) LP; enjoining the Managing Members and Managing Agents, Frank Galasso and Daniel Torchio from closing on any contracts of sale for property owned by of Sagres Partners LLC without the authorization and consent of Sagres (2001) LP; or, in the alternative, in the event that any sale occurs during the course of these proceedings all proceeds received by Sagres 2001 Partners LLC and/or its wholly [*2]owned subsidiaries, Sagres 1B2 LLC and Sagres 9 LLC be held in escrow pending the resolution of any and all outstanding issues between the Members of Sagres Partners LLC and a full accounting of the books and records of Sagres Partners LLC, is decided as follows:
According to the petition, Petitioner, Philip Galasso is the President and CEO of Sagres (2001) Company Inc., the General Partner of Sagres 2001 LP, the owner of 25% of the Membership Units of the defendant, Sagres Partners LLC. Sagres Partners LLC is a Limited Liability Company organized under the Limited Liability Law of the State of New York. Sagres Partners LLC's Operating Agreement was amended in April, 2003 and January of 2005. The 2003 Amendment provided in paragraph number 2 that: The authority of Managing Members to manage the Company under Section 7.1 of the Agreement and to effectuate and/or bind the Company in any and all matters set forth in 7.3 requires the consent of those Members acting as Managing Members holding at least 78% of the Membership interest in the Company. From inception in 2001 through December 2011 Philip Galasso as a Managing Member/Agent negotiated and executed numerous contracts on behalf of Sagres Partners LLC.
On or about December 13, 2011, Philip Galasso was served with documents indicating that a Special Meeting had been held on December 12, 2011 wherein Sagres 2001 LP and Philip Galasso were removed as Managing Members and Managing Member Agents of Sagres Partners LLC, and notice of termination of employment and COBRA documents. Philip Galasso had never received notice of this Special Meeting. By letter dated January 6, 2012 Philip Galasso rejected the purported actions by Frank Galasso and Daniel Torchio, removing Sagres 2001 LP and Philip Galasso as a Managing Member and Managing Member Agent. Inasmuch as there was no notice of a Special Meeting and that the purported Resolutions as a result of that meeting were baseless allegations without evidence or documentation in support, petitioner, "respectfully submit[s] that the Resolutions passed at the purported Meeting are void and have no consequences."
The Petition also claims that Sagres Partners LLC's Operating Agreement, Article III sets forth that the purpose and nature of the business of Sagres Partners LLC is to acquire an owner or tenancy interest in certain real estate referred to as the "Phelps Dodge Laurel Hill Site" located in Maspeth, New York and to operate, develop and maintain and improve the premises in accordance with the Company's realty interest; which was done from 2002 through 2005. The 2003 Amendment to the Operating Agreement provides among other things, that the sale of Company property requires the consent of those Members holding in the aggregate 78% or more Membership interest in the Sagres Partners LLC. Upon information and belief Frank Galasso and Daniel Torchio are actively engaged in conducting contract negotiations for the sale of the principal portion of the Phelps Dodge Laurel Hill Site located in Maspeth, Queens and all other real estate assets owned by Sagres Partners LLC. These negotiations are taking place without consultation with or the consent of Sagres 2001 LP, a 25% holder of all the Membership Units of Sagres Partners LLC. Petitioner claims that any sale of property without the consent of at least 78% of the Membership Units of Sagres Partners LLC would be in violation of the Sagres Partners LLC Operating Agreement as amended. Petitioner is seeking an Order enjoining Sagres LLC from contracting or the sale of any of its property without the consent of Sagres (2001) LP. Petitioner has made the instant motion seeking, in essence, an Order, enjoining Sagres LLC from contracting or the sale of any of its property without the [*3]consent of Sagres (2001) LP.
Respondents have opposed this motion claiming that the petition appears to be nothing more than a request for an injunction without stating any cause of action to which liability, and thus any injunctive remedy, should attach; and petitioner has failed to provide evidence of its standing to bring this action against Respondents. Respondents also claim that petitioner has failed to satisfy the elements necessary to have its motion granted.
A preliminary injunction may issue only if the moving party can demonstrate (1) the likelihood of success on the merits; (2) irreparable injury if the preliminary injunction is not granted, and (3) a balancing of the equities in its favor. (Doe v Axelrod, 73 NY2d 748; Preston Corp. v Fabrication Enters., 68 NY2d 397; W.T. Grant Co. v Srogi, 52 NY2d 496.) "Preliminary injunctive relief is a drastic remedy that will not be granted unless a clear right to it is established under the law . . . and the burden of showing an undisputed right rests upon the movant." (Zanghi v State of New York, 204 AD2d 313, 314.)
This action was commenced by the service of the petition, and the contents of such are set forth in detail above. This petition seeks a preliminary injunction prohibiting respondents from selling any of its property without petitioner's consent. Contrary to petitioner's claim in its affidavit in support, the petition does not seek to have petitioner declared a member of the Respondents or to nullify any acts made at the Special Meeting on December 12, 2011. Thus, all that the petition contains is a statement that plaintiff wishes to obtain a preliminary injunction.
Regarding the first element petitioner needs to demonstrate, the likelihood of success on the merits. Here, the issue involved is whether the complained of Jetro Sale is something conducted in the ordinary course of business. If it is, then the Jetro Sale can be accomplished by a Managing Member, as done in this matter. While issues of fact alone will not justify the denial of a motion for a preliminary injunction, the issue raised by the defendant subvert[s] the plaintiff's likelihood of success on the merits in this case to such a degree that it cannot be said that the plaintiff established a clear right to relief'." (County of Westchester v United Water New Rochelle, 32 AD3d 979, quoting Milbrandt & Co. v Griffin, 1 AD3d 327, 328.) In particular, contrary to petitioner's claim, the Operating Agreement expressly permits the sale of real estate, executed through Managing Members without a vote of the Members, as happened in the instant matter. According to Section 7.3 of the Operating Agreement, Managing Members "shall have the authority to bind the Company [and] Subject to Section 6.1, ... shall have the power, on behalf of the Company, to do all things necessary or convenient to carry out the business and affairs of the Company (as described in Article III), including, without limitation ... ( c ) the sale, conveyance, mortgage, pledge, lease, exchange and other disposition of the Property, including the Premises." Clearly, then, the subject sale is within the purview of the Managing Members.
The only limitation on the power and authority of the Managing Members in carrying out the business purpose of the Operating Agreement, as that business purpose is described in Article III, are those set forth in Section 6.1. The Court finds that neither section restricts the power and authority of the Managing Members in this instance. Section 6.1 and Article III of the Operating Agreement must be read together because each addresses the business and business purpose of respondents. Article 6.1 states that the consent of eighty percent (80%) or [*4]more of the Membership Interests in the Company" is required for "(b) the sale of Company Property other than in the ordinary course of business." To determine the ordinary course of the business of respondents, Section 7.3 of the Operating Agreement refers to Article III, where the business of Sagres Partners is expressly described and listed. Paragraph 13 of the Petition purports to describe the business and business purpose and business of respondents by setting forth the language of Article III listing them, with two omissions. The omitted language describing the business and business purpose of Sagres are these: to "sell" and "lease" the exact property subject to the Jetro Sale. Consequently, the sale and lease of real property is not only business in the ordinary course for this real estate holding company, but the parties themselves expressly stated and listed this business and business purpose in the Operating Agreement. Accordingly, petitioner has not demonstrated a likelihood of success in arguing that the Operating Agreement does not permit the sale of property without the consent of 78% of the Managing Members.
Regarding the claims about the removal of Philip Galasso as a Managing Member, at the Special Meeting, without notice, petitioner has not established the likelihood of success on the merits, or its entitlement to a declaration nullifying and voiding that removal. The Operating Agreement provides for the removal of Managing Members in Section 7.7. That Section provides that a Managing Member may be removed "for fraud, misfeasance or breach of the Managing Members' standard of care described in Section 7.6." Section 7.7 further provides that the removal shall take place "by a vote of all Members other than the Managing Member whose removal is being sought ..." Respondents have submitted sufficient evidence in the form of affidavits of people with knowledge of the operations of respondents business that establishes Philip Glass was perpetrating a fraud against respondent. For example, respondents have submitted the affidavit of Edwin Lorah, the certified public accountant hired by Sagres Partners in 2009 because of the company's failure to file tax returns for four years at that time under Philip Galasso's management of the accounting and business records, Philip Galasso has refused to provide business and financial records for his review and necessary to prepare tax returns. The reason is found in the assorted collection of documents that have found their way to Lorah, which indicate a pattern of theft by Philip Galasso of at least $6 million and possibly greater than $11 million. Lorah cites examples of $800,000 simply disappearing from a real estate closing at which Philip Galasso represented the company, and partial records showing American express charges in excess of $36,000 per month for the personal expenses of Philip Galasso, his wife and children, including liquor deliveries to his home, international and domestic travel and vacations for Philip Galasso and his family, designer men's and women's designer clothing of the highest order, dining at most of the fancy restaurants in New York, home landscaping and remodeling costs, and $25,000 and $30,000 in recurring charges from a business or person about whom no one in the company has any knowledge whatever. Lorah describes the state of the accounting records as follows: "In more than 22 years of professional accounting practice, I have never before seen financial and business records of a company in such disarray." Petitioner has failed to submit sufficient evidence to refute these allegations.
Regarding the second element in procuring injunctive relief, establishing irreparable injury, in the instant case, petitioner seeks to enjoin the sale of property by respondents, a limited liability company set up for the purpose of the sale of the property at issue. Clearly this [*5]is not an instance of recovery for a unique property and thus granting an injunction is precluded. See, Schrager v. Klein, 267 AD2d 296. This is especially so since petitioner makes no allegation that if this property is sold, it will not be given its proper share of the proceeds of this transaction. In fact, petitioner makes no claim as to the injury it would suffer if this property is sold, other than the axiom that property is unique and a sale cannot be undone. Again, this does not show irreparable harm since, from the inception of respondents, it was understood its function was to sell this property and distribute the proceeds.
In regard to the third element, the weight of the equities, petitioner has not demonstrated that the alleged irreparable injury to be sustained by it is more burdensome to it, than the harm that will be caused to the respondents See, Reuschenberg v Town of Huntington, 16 AD3d 568 (2d Dept 2005.) Moreover, there is significant evidence that indicates Philip Galasso has engaged in inappropriate actions that has caused respondents a cash shortage that has the potential to prevent it from making payments on its obligations. In fact, there is evidence that the sale of the subject property is needed to make such payments. As such, petitioner has not established the third element, the balance of equities in its favor.
Consequently, petitioner's submissions have not established the necessary elements for obtaining the requested injunctive relief and the motion is denied, in its entirety. The Court notes that if any property is sold by respondents during the pendency of this action, a sufficient amount of the proceeds, that can pay petitioner's share of same, must be held in escrow.
Dated: April 24, 2012........................................................
ORIN R. KITZES, J.S.C.
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