Ditlya v Grinberg

[*1] Ditlya v Grinberg 2012 NY Slip Op 51580(U) Decided on August 17, 2012 Supreme Court, Kings County Schmidt, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 17, 2012
Supreme Court, Kings County

David Ditlya, Plaintiff,

against

Vyacheslav Grinberg, et ano., Defendants.



13573/11



Plaintiff Attorney: Miguel A. Terc, Esq., 31-87 Steinway St., Ste. 2, Astoria, NY 11103

Defendant Attorney: Ryan G. Blanch, Esq. And Richard M. Langweber, Esq., The Blanch Law Firm, P.C., 261 Madison Avenue, 12th Fl., New York, NY 10016

David Schmidt, J.

The following papers numbered 1 to 3 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1 - 2

Opposing Affidavits (Affirmations)

Reply Affidavits (Affirmations)3

Affidavit (Affirmation)

Other Papers

Upon the foregoing papers, defendants Vyacheslav Grinberg and Igor Kleyman move for an order, pursuant to CPLR 3211 (a)(7), dismissing the complaint of plaintiff David Ditlya and awarding costs.

Plaintiff, Grinberg and Kleyman are equal shareholders in Sprague-Goodman Electronics, Inc. (SGE), with each party holding sixty shares. In February 2006, the parties entered into a shareholders' agreement which set forth, among other things, Grinberg's authority as day-to-day operations manager of the corporation. Plaintiff commenced this action by filing a complaint on June 14, 2011. In his complaint, plaintiff makes the following claims: that he loaned SGE $500,000.00 and has not recovered the sums; defendants denied plaintiff access to SGE's books and records; Grinberg violated the shareholders' agreement by issuing checks over $5,000 without obtaining the consent and signature of plaintiff; that defendants were convicted of crimes in New York and Florida in violation of the shareholders' agreement; that "at the most recent partnership distribution, defendants authorized a smaller distribution for plaintiff" and that Grinberg authorized shipments of products to customers with large debts. Plaintiff alleged causes of action against both defendants for breach of fiduciary duty, breach of contract, unjust enrichment and promissory estoppel. [*2]

On August 9, 2011, defendants brought the instant motion to dismiss the complaint pursuant to CPLR 3211 (a)(7). Among the contentions made was that plaintiff lacks standing as an individual to seek redress for harm suffered by SGE; that such claims must be brought by was of a derivative action. Plaintiff did not serve or file any opposition to the motion. Rather, plaintiff filed an amended complaint whereby he recasted this action as a derivative action and named SGE as an additional defendant. Plaintiff does not make any substantive changes to the allegations or causes of action in the original complaint, but adds that Grinberg and Kleyman are the directors and officers of SGE and have complete and exclusive control of the money, property and affairs of the corporation and that "[p]laintiff did not make any demand upon the defendant [SGE] through the individual defendants named above as its officers and board of directors that it commence an action against the individual defendants for the wrongful and fraudulent acts alleged above because the individual defendants comprise the entire board of directors and all of the officers of the defendant [SGE] and they are completely in control of it so that it would be futile and useless to demand that they bring an action against themselves." Plaintiff also supplements his allegations regarding defendants' convictions for crimes in New York and Florida, providing the specific criminal statues violated and court docket numbers.

In determining whether a complaint is sufficient to withstand a motion pursuant to CPLR 3211 (a)(7), "the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). The court must accept the facts alleged in the complaint to be true and determine only whether the facts alleged fit within any cognizable legal theory (see Dye v Catholic Med. Ctr. of Brooklyn & Queens, 273 AD2d 193 [2000]). However, bare legal conclusions are not entitled to the benefit of the presumption of truth and are not accorded every favorable inference (see Doria v Masucci, 230 AD2d 764 [1996]). Further, where a plaintiff's factual allegations are flatly contradicted by documentary evidence, they are not to be presumed true or accorded favorable inference (see Sweeney v Sweeney, 71 AD3d 989, 991 [2010]; Zurich Depository Corp. v. New York Iron Works Mtn. Info. Mgt. Inc., 61 AD3d 750, 751 [2009]).

"[A] motion to dismiss which is addressed to the merits may not be defeated by an amended pleading (Livadiotakis v Tzitzikalakis, 302 AD2d 369, 370 [2003]; see Treano v Fine, 17 AD3d 449 [2005]). A defendant whose motion is addressed to the merits retains the option of applying the motion to the amended pleadings (see Sage Realty Corp. v Proskauer Rose, 251 AD2d 35 revd on other grounds, 91 NY2d 30 [1997]; DiPasquale v Security Mut. Life Ins. Co. of NY, 293 AD2d 394 [2002]). In their reply papers, defendants challenge the merits of the amended complaint. As a result, this court will examine whether plaintiff's amended complaint is sufficient to withstand defendants' pre-answer motion to dismiss.

The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct (Rut v Young Adult Institute, Inc., 74 AD3d 776 [2010]). A breach of fiduciary duty cause of action must be pleaded with the requisite particularity under CPLR 3016 (b) (see Parekh v Cain, 96 AD3d 812, 816 [2012]; Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 AD3d 804, 808 [2011]; Chiu v Man Choi Chiu, 71 AD3d 621, 623 [2010]).

The essential elements of a breach of contract are "the existence of a contract, the plaintiff's performance pursuant to that contract, the defendants' breach of their obligations pursuant to the contract, and damages resulting from that breach" (Elisa Dreier Reporting Corp. v Global Naps Networks, Inc., 84 AD3d 122, 127 [2011]).

As an initial matter, the court notes that "[f]or a wrong against a corporation a shareholder has no individual cause of action, though he loses the value of his investment" (Abrams v Donati, 66 NY2d 951, 953 [1985]). In a derivative suit brought by a minority shareholder on behalf of a corporation, the complaint must set forth with particularity the shareholder's demand upon the board of directors to bring the action, or the reasons that a demand would have been futile (Business [*3]Corporation Law § 626 [c]). Demand is futile, and excused, when a complaint alleges with particularity: 1) that a majority of the board of directors is interested in the challenged transaction; 2) that the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances or 3) that the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors (Bansbach v Zinn, 1 NY3d 1, 9 [2003]; Marx v Akers, 88 NY2d 189, 200—201 [1996]).Plaintiff does not allege with particularity any of these reasons, but merely alleges, in essence, that a demand would be futile because defendants would refuse to bring the suit. Therefore, insofar as plaintiff's claims are based upon alleged harm caused by defendants to SGE, such claims must be dismissed for failure to comply with Business Corporation Law § 626.

Regardless of this statutory pleading deficiency, the court finds that the allegations in the both the original and amended complaint are insufficient to satisfy the elements of the proposed causes of action for breach of fiduciary duty or breach of contract. With respect to the loan, plaintiff states only that he "has not recovered any of the five hundred thousand dollars loaned to the company." However, there are no allegations that the loan had matured, was in default, or that repayment was otherwise due to plaintiff. Plaintiff does not allege that a demand was made to defendants and was refused, or that the loans were repaid to defendants but not to plaintiff. Further, there is no recitation in either the original or amended compliant as to what terms of the shareholders' agreement were breached with respect to the repayment of the loan.

With respect to the allegations regarding Grinberg's refusal to allow plaintiff to examine the books and records of SGE, Grinberg's issuance of checks over $5,000 without procuring plaintiff's consent or signature and defendants' criminal convictions, plaintiff has failed to allege what palpable damages were suffered by either him or SGE as a result these actions.

Plaintiff alleges that Grinberg's authorization of shipments of SGE products to customers with large debts is "in violation of [SGE] policy" and has caused SGE "to lose profits." The court cannot discern from these allegations how Grinberg's action amounts to "misconduct," an element necessary to state a claim for breach of fiduciary duty, and plaintiff does not recite what contractual terms were violated as a result of Grinberg's action. The business judgment rule "bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" (Auerbach v Bennett, 47 NY2d 619, 629 [1979]). There is no allegation from plaintiff that Grinberg's decision to ship products to customers with outstanding debt was made in bad faith or was not for a legitimate business purpose.The remaining gravamen set forth by plaintiff in the amended complaint is that "[u]pon information and belief, at the most recent partnership distribution, Defendants Grinberg and Kleyman authorized a smaller distribution for the Plaintiff." First, it is unclear what plaintiff means by "partnership distribution" as SGE is a corporation. Further, the allegation that a "smaller distribution was authorized" for plaintiff is equivocal. The shareholders' agreement does not set forth how, when and in what amounts "distributions" are authorized. Also, the court cannot discern whether plaintiff means his distribution was smaller than what defendants authorized for themselves, or that his distribution was smaller than that which had been authorized in previous times. Since the allegation regarding the "distribution" is not set forth in sufficient detail, such does not meet the particularity requirements for a cause of action for breach of fiduciary duty.

"The elements of a cause of action based upon promissory estoppel are a clear and unambiguous promise, reasonable and foreseeable reliance by the party to whom the promise is made, and an injury sustained in reliance on that promise" (Williams v Eason, 49 AD3d 866, 868 [2008]). The elements required for unjust enrichment are "(1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" (Old Republic Natl. Title Ins. Co. v Luft, 52 AD3d 491 [2008]). There are no factual allegations in either the original or amended complaint which, if accepted as true, would comprise all of the elements of these causes of action. For instance, plaintiff has not identified what promises where made by defendants and plaintiff has not specified how defendants were unconscionably enriched at plaintiff's expense. [*4]

As a result, defendants' motion pursuant to CPLR 3211 (a)(7) is granted. The complaint and amended complaint are hereby dismissed. That part of defendants' motion for costs is denied.

The forgoing constitutes the decision and order of the court.

E N T E R,

J. S. C.