926 Port Chester Mgt. Group LLC v Slabakis
Annotate this CaseDecided on June 29, 2016
Supreme Court, Kings County
926 Port Chester Management Group LLC, Plaintiff,
against
Angelo Slabakis, COURTNEY REDDING, INFORMAT, INC., MARY MOUNT SCHOOL, AND DR. GEORGE JOHN TSIOULIAS, Defendants.
513900/15
Attorneys for the plaintiff
926 PORT CHESTER MANAGEMENT GROUP LLC
LISA L SHREWSBERRY
TRAUB LIEBERMAN STRAUS & SHREWSBERRY LLP
7 Skyline Drive, Hawthorne, NY 10532
Phone: 914-347-2600 Fax: 914-347-8898
lshrewsberry@traublieberman.com
CARLOS JOSE CUEVAS
CARLOS J. CUEVAS,ESQ
1250 CENTRAL PARK AVE, YONKERS, NY 10704
Ccuevas576@aol.com
Attorney for the defendants ANGELO SLABAKIS, COURTNEY REDDING, INFORMAT, INC
SUSAN PAPANO
LAW OFFICES OF SCOTT B. TULMAN & ASSOCIATES, PLLC
369 LEXINGTON AVE FL 15TH, NEW YORK, NY 10017spapano@aol.com
Attorney for the Defendant MARY MOUNT SCHOOL
LEILANI J RODRIGUEZ, Esq.
Francois A. Rivera, J.
Recitation in accordance with CPLR 2219 (a) of the papers considered on the joint motion of defendants Angelo Slabakis (hereinafter Slabakis), Courtney Redding (hereinafter Redding) and Informat Inc., (hereinafter Informat) (hereinafter jointly the Slabakis defendants); filed on February 29, 2016, under motion sequence number two, for an order dismissing the complaint pursuant to CPLR 3211 (a) (3), (4), (7) and (10); or for an order staying the action pursuant to CPLR 3211 (a) (4).
Notice of motion
Affirmation in support
Exhibits A-D
Affirmation in opposition
Exhibit A
Affirmation in reply
Reply Memorandum of Law
MOTION PAPERS
The Slabakis defendants' motion papers consist of an attorney affirmation and four annexed exhibits labeled A through D. Exhibit A is the instant summons and complaint of the instant action. Exhibit B is described as a Bankruptcy Docket Sheet for Alan Glenn Friedberg (hereinafter Friedberg) for a bankruptcy proceeding in the District of New Jersey bearing case number 15-15934-VFP (hereinafter the bankruptcy proceeding). Exhibit C is described as a Verified Adversary Complaint for the bankruptcy proceeding. Exhibit D is a described as a document filed on February 2, 2016 in the bankruptcy proceeding and denominated "Certification in support of objection to Madison's motion to compel disclosure of information relating to professionals" and signed by Freidberg.
BACKGROUND
On November 12, 2015, 926 Port Chester Management Group, LLC (hereinafter Port Chester or plaintiff) commenced the instant action for damages and a declaratory judgment by filing a summons and complaint with the New York State Sullivan County Clerk's office. By order dated December 11, 2015, the instant action was transferred from Sullivan to Kings County.
The gravamen of the action is that the defendants misappropriated the plaintiff's property and funds for their personal use. There is no dispute that Slabakis and Freidberg are shareholders of the plaintiff. The fourth paragraph of the instant complaint alleges that Redding and Slabakis are married.
Port Chester's complaint contains seventy allegations of fact in support of fourteen causes of action. The fourteen causes of action are for conversion, unjust enrichment, fraudulent transfer pursuant to Debtor Creditor Law 274 and for the remedy of piercing the corporate veil. The first three causes of action are asserted against Slabakis individually.
The fourth cause of action is asserted against Slabakis and Redding and alleges that Redding and Slabakis are the alter ego of Informat. The fifth, sixth and seventh cause of action are asserted against Redding only. The fifth cause of action alleges conversion, the sixth alleges unjust enrichment and the seventh is for fraudulent conveyance pursuant to Debtor Creditor Law 274.
The eighth through tenth causes of action are asserted against Informat. The eighth cause of action alleges conversion, the ninth unjust enrichment and the tenth fraudulent conveyance pursuant to Debtor Creditor Law 274.
The remaining causes of action are asserted against the non-moving defendants and accordingly will not be discussed.
LAW AND APPLICATION
The movants seek dismissal of the complaint pursuant to CPLR 3211 (a) (3), (4), (7) and (10). As a preliminary matter, the Court will analyze the defendants' claims under CPLR 3211 (a) (7).
CPLR 3211 (a) (7)
Pursuant to CPLR 3211 (a) (7), a party may move for judgment dismissing one or more causes of action asserted against [her] on the ground that ... the pleading fails to state a cause of action. On a motion to dismiss pursuant to CPLR 3211 (a) (7), the pleading is to be afforded a liberal construction. The reviewing court accepts the facts as alleged in the complaint as true, accords the plaintiffs the benefit of every possible favorable inference, and determines only whether the facts as alleged fit within any cognizable legal theory (Epifani v Johnson, 65 AD3d 224, 229 [2nd Dept 2009]). While affidavits may be considered, if the motion has not been converted to a CPLR 3212 motion for summary judgment, they are generally intended to remedy pleading defects and not to offer evidentiary support for properly pleaded claims (Nonnon v City of New York, 9 NY3d 825 [2007] citing Rovello v Orofino Realty Co., 40 NY2d 633 [1976]). The test on a pre-answer motion to dismiss a complaint for failure to state a cause of action is whether a cognizable cause of action can be discerned from the four corners of the complaint, not whether the claim has been properly stated (Rovello v Orofino Realty Co., 40 NY2d 633 [1976]). As discussed above, the complaint alleges conversion, unjust enrichment, fraudulent transfer and alter ego. Furthermore, as the motion is pursuant to CPLR 3211, the Court will consider the affidavit of Friedberg which was submitted in opposition to the motion. Each cause of action will be discussed separately.
Conversion
Conversion is the unauthorized exercise of the right of ownership over property belonging to another to the exclusion of the owner's rights (State v Seventh Regiment Fund, 98 NY2d 249 [2002] citing Vigilante Ins. Co. of America v Housing Auth. Of the City of El Paso, 87 NY2d 36 [1995]). Money can be the subject of conversion when it can be described, identified, or segregated in the manner that a specific chattel can be and when it is subject to an obligation to be returned (see generally, Republic of Haiti v Duvalier, 211 AD2d 379 [1st Dept 1995]; see also Hebrew Institute for the Deaf and Exceptional Children v Kahana, 17 Misc 1110 (A) [NY Sup 2007]). Furthermore, a person may be liable for conversion by conniving with another in an act of conversion (Id.) (citing Ahles v Aztec Enterprises, 120 AD2d 903 [3rd Dept 1986]). The two essential elements of conversion are that the plaintiff has a possessory right or interest in the property in dispute and that the defendant's dominion over the property in dispute or interference with it, in derogation of plaintiff's rights. The mere right to payment cannot be basis of a cause of action for conversion (see Barker v Amorini, 121 AD3d 823 [2nd Dept 2014] see also Zendler Const. Co., Inc. v First Adjustment Group, Inc., 59 AD3d 439 [2nd Dept.2009]).
In the instant matter, the complaint and affidavit of Friedberg in opposition to the motion, allege that Slabakis made unauthorized withdrawals of money from Port Chester's bank account totaling over $400,000.00. Neither the complaint nor the affidavit of Friedberg specifies the account number, location, the number of withdrawals or the specific amount of money withdrawn. Accordingly, as the funds are not specifically identifiable in the matter that chattle can be, the complaint fails to state a cause of action for conversion as against Slabakis.
As to Redding and Informat, the complaint and affidavit of Friedberg contains even less information than what is plead or alleged as against Slabakis. The pleadings and affidavit allege that Redding transferred $78,344.74 to Informat for the benefit of Redding and that she has failed to repay the unauthorized withdrawals. The complaint fails to identify the entity that Redding allegedly withdrew the funds from. As to Informat, the complaint alleges that it received $78,344.74, which belongs to Port Chester from Slabakis and has failed to repay the money. The complaint and affidavit fail to allege which accounts the money was transferred from or when the alleged transfer or transfers occurred. Accordingly, the complaint and affidavit fail to state a cause of action for conversion against Redding and Informat.
That part of the defendants motion dismissing the causes of action alleging conversion based on 3211 (a) (7) is granted. Accordingly, the first, fifth and eight causes of action are dismissed.
Unjust Enrichment
The essence of unjust enrichment is that one party has received money or a benefit at the expense of another which, in good conscience, ought to be returned (Carriafielio-Diehl & Associates, Inc. v D & M Elec. Contracting, Inc., 12 AD3d 478, 479 [2nd Dept 2004]). Unjust enrichment claims are rooted in the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another (Georgia Malone & Co. v Rieder, 19 NY3d 511, 516 [2012][internal citations omitted]). Thus, in order to adequately plead such a claim, the plaintiff must allege that (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 (Id.).
In the instant matter, the complaint supplemented by the affidavit of Friedberg alleges that the defendant Slabakis was unjustly enriched by keeping money that was improperly withdrawn from Port Chester's account. Further, that Redding and Informat were unjustly enriched by receiving $78,344.74 from Slabakis with knowledge that the money was wrongfully obtained from Port Chester's account. The complaint adequately pleads the cause of action of conversion against Slabakis, Redding and Informat.
Fraudulent Conveyance Pursuant to Debtor Creditor Law § 274
Pursuant to New York law, a claim for fraudulent conveyance exists where the transferor makes a transfer without fair consideration and, after the conveyance, is undercapitalized (UBS Sec. LLC v Highland Capital Mgmt., L.P., 30 Misc 3d 1230 (A), (Sup. Ct. 2011) aff'd in part, modified in part, 93 AD3d 489 [2012][internal citations omitted] see also Debtor Creditor Law § 274). In order to state a legally viable claim for relief from a fraudulent conveyance, a plaintiff must demonstrate that the defendant is indebted to the plaintiff (Id.).
In the instant matter, the complaint and affidavit of Friedberg allege that Slabakis's withdrawals from Port Chester's accounts were not for fair consideration and those withdrawals left Port Chester with unreasonably small capital. However, the complaint and affidavit fail to allege how many withdrawals occurred. Further there is no debt allegedly owed to Port Chester by Slabakis other than the debt allegedly created by Slabakis' withdrawals. Accordingly, the complaint fails to state a cause of action for fraudulent transfers within the intendment of Debtor Creditor Law § 274.
As to Redding and Informat, the complaint alleges that they received money from Slabakis. The complaint fails to allege that either Redding or Informat actually transferred any funds from Port Chester, or were in any position to make such a transfer. Further, there are no allegations that Informat or Redding was indebted to Port Chester prior to the alleged transfers. Furthermore, there are no allegations as to any connection Redding had to Port Chester which would enable her to make any transfers or withdrawals from Port Chester. The allegation that Redding and Informat knowingly received the funds improperly does not sustain a cause of action for fraudulent transfer under the Debtor Creditor Law § 274. Accordingly, plaintiff fails to state a cause of action alleging fraudulent conveyance under the Debtor Creditor Law §274 and those claims are dismissed.
Alter Ego
A party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury (Peery v United Capital Corp., 84 AD3d 1201, 1202 [2nd Dept 2011][internal citations omitted]). The party seeking to pierce the corporate veil must establish that the controlling corporation or individuals abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene (Id.). Indicia of a situation warranting veil-piercing include (1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) [*2]overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own (Id.).
In the instant action the plaintiff alleges that Informat is the alter ego of Slabakis and Redding. In support of this contention the complaint and Friedberg's affidavit alleges the following. Redding is the sole shareholder and President of Informat. Redding was aware that Slabakis was improperly withdrawing funds from the plaintiff. Redding and Slabakis improperly transferred funds to Informat. Informat was dominated by Slabakis and Redding and they used the corporation to defraud the plaintiff.
These allegations are conclusory. Furthermore, an allegation of alter ego, or piercing of the corporate veil is not a cause of action. Rather, it is a mechanism to hold an individual responsible for corporate actions. The complaint buttressed by the affidavit of Friedberg fails to allege sufficient facts to find that Informat was the alter ego of Redding and Slabakis or that the wrongs allegedly performed by Informat should be attributed to either Redding or Slabakis.
CPLR 3211 (a) (3)
In light of the foregoing, the only remaining cause of action is for unjust enrichment. The defendants has also move to dismiss the complaint pursuant to CPLR 3211 (a) (3). CPLR 3211 (a) (3) provides that a party may move for judgment dismissing the causes of action asserted against him on the ground that the party asserting the cause of action has no legal capacity to sue (see CPLR 3211 (a) (3)). The complaint and Friedberg's affidavit allege that Friedberg and Slabakis are the only two shareholders of Port Chester. However, neither document provides the percentages of their respective ownership of the plaintiff. Friedberg alleges in his affidavit that he is the managing shareholder of plaintiff.
The movants assert that the plaintiff cannot bring the action because it is acting ultra vires. Specifically, the movants assert that Friedberg and Slabakis each hold 50% of the shares of the corporation. They further allege that due to the equal division of the shares between them, the matter should have been commenced as a derivative action rather than a direct action by the plaintiff.
The movants, however, did not annex an operating agreement nor any other proof of the amount of shares that Slabakis allegedly owns.
It is well established that "where there are only two stockholders each with a 50% share, an action cannot be maintained in the name of the corporation by one stockholder against another with an equal interest and degree of control over corporate affairs; the proper remedy is a stockholder's derivative action" (Executive Leasing Co. v Leder, 191 AD2d 199, 200 [1993][internal citations omitted]).
In order to commence a shareholders' derivative action the plaintiff must demand that the corporation initiate an action before commencing an action on the corporation's behalf, and the complaint must set forth with particularity his or her efforts to secure the initiation of such action [*3]by the board or the reasons for not making such effort (JAS Family Trust v Oceana Holding Corp., 109 AD3d 639 [2nd Dept 2013][internal citations omitted]). This pleading requirement may be excused because of "futility" where the complaint alleges with particularity, that a majority of the board of directors is interested in the challenged transactions. If a plaintiff alleges that the board is interested in the challenged transactions then it is insufficient to merely name a majority of the directors as defendants with conclusory allegations of wrongdoing or control by wrongdoers to justify failure to make a demand (Id.).
Here, the movants have failed to establish that the action must be brought as a derivative claim as they have failed to establish that Sklabakis and Freidberg are each 50% shareholders. Movants have also failed to establish that Freidberg lacked the authority to bring the instant action. Accordingly, the causes of action sounding in unjust enrichment will not be dismissed pursuant to CPLR 3211 (a) (3).
CPLR 3211 (a) (4)
The movants also contends that the instant action should be dismissed on the basis that there is another action pending. A court has broad discretion in determining whether an action should be dismissed pursuant to CPLR 3211 (a) (4) on the ground that there is another action pending (see Whitney v Whitney, 57 NY2d 731, 732 [1982]; Kent Dev. Co. v Liccione, 37 NY2d 899, 901 [1975]; Montalvo v Air Dock Sys., 37 AD3d 567 [2nd Dept 2007]; Liebert v TIAA CREF, 34 AD3d 756[2nd Dept 2006]). The other action can be pending in a New York court, in a federal court within or without New York, or in a court in a sister state (Practice Commentaries, by David D. Siegel NY CPLR 3211:14 Book 7b [2016]). The general rule is that for the instant action to qualify for dismissal on the ground of the other's pendency, the other must have been commenced first (Id.)
To dismiss the present suit because of the pendency of another one, the two must be shown to be "for the same cause of action". Given the fluidity of the concept of "cause of action", the courts have wisely refrained from insisting that the two actions be identical. It need not be shown that they pursued the same theories. A plaintiff can unreasonably burden a defendant with a series of suits emanating from a single wrong merely by basing each suit on a different theory of recovery (Practice Commentaries, by David D. Siegel NY CPLR 3211:14 [2016]). The critical element is that both suits arise out of the same subject matter or series of alleged wrongs (Scottsdale Ins. Co. v. Indem. Ins. Corp. RRG, 110 AD3d 783, 784 [2nd Dept 2013][internal citations omitted]).
In the alternative, the movants seek a stay of the instant action pursuant to CPLR 3211(a)(4). The statute grants the Court discretion to stay the pending action rather than dismiss it. Whenever something must yet be done in the other action before a determination can be made of whether its pendency would support a dismissal of the instant action, the instant one can be stayed pending that doing (Practice Commentaries, by David D. Siegel NY CPLR 3211:14 [2016]). If the other action is reasonably close to a determination on the merits, the stay can be applied to the present action so as to await the possible use of res judicata or collateral estoppel or other emanation from the other action. The court's general stay power comes from CPLR 2201, and may be resorted as an incident of a CPLR 3211 (a) (4) motion without specific request for it (Id.).
In the instant action, the movants allege that the pending bankruptcy proceeding satisfies the prior action pending requirement of CPLR 3211 (a) (4). The debtor in the bankruptcy proceeding is Friedberg. The movants have also annexed the verified adversary complaint of Friedberg in the bankruptcy proceeding. The adversary complaint names Madison Realty Investments, Inc., Antony Rodreric, James Pratt, Trainon, LLC, Angelo Slabakis, and John Does 1-10 as defendants. Angelo Slabakis is the only party that is both a party to the instant action and the bankruptcy proceeding. There is no identity of parties and accordingly the bankruptcy proceeding is not a prior action pending within the intendment of CPLR 3211 (a) (4). Furthermore, the movants have failed to establish that the adversary proceeding is reasonably close to a determination on the merits so as to await the possible use of res judicata or collateral estoppel. Accordingly, the movants have failed to establish that a prior action is pending necessitating dismissal or staying of the instant action.
CPLR 3211 (a) (10)
In the alternative the movants seek the court to dismiss the complaint because a necessary party is missing, namely Freidberg. CPLR 3211 (a) (10) provides for the Court to dismiss an action in the absence of a necessary party. "The only time a court should dismiss the case for nonjoinder of a person is where a series of factors all coincide: 1. the person is not subject to jurisdiction and will not appear voluntarily; 2. no CPLR 1001 (b) alternative is available; and 3. such person is so essential to the litigation that it cannot justly proceed in his absence." (Practice Commentaries, by David D. Siegel NY CPLR 3211(a)(10) 3211:34 [2016]). "The CPLR does not want any action dismissed for the nonjoinder of an unjoinable person unless there is some other reasonably accessible forum in which all requisite persons can be made parties" (Id.).
Movants allege that Friedberg is a necessary party because he is a shareholder of Port Chester. They further contend that he cannot be impleaded to the instant action due to the automatic stay provisions of the bankruptcy code. The movants have cite no legal authority to support the assertion that Friedberg is essential to the instant litigation based solely on his status as a shareholder of the plaintiff. Furthermore, the movants have not established that complete relief could not be accorded to the parties in this action without the presence of Friedberg (see Smith v Pasqua, 110 AD3d 710 [2nd Dept 2013]). Accordingly, the portion of the motion which seeks to dismiss the complaint because of the absence of a necessary party is denied.
CONCLUSION
The portion of the motion of Angelo Slabakis, Courtney Redding, and Informat Inc., for an order dismissing the complaint pursuant to CPLR 3211 (a) (7) is granted with respect to the causes of action alleging conversion, alter ego and fraudulent transfers pursuant to Debtor Creditor Law 274. The causes of action for unjust enrichment, namely, causes of action number two, six and nine are not dismissed.
The portion of the motion of Angelo Slabakis, Courtney Redding, and Informat Inc., for an order dismissing the complaint pursuant to CPLR 3211 (a) (3) is denied.
The portion of the motion of Angelo Slabakis, Courtney Redding, and Informat Inc., for an order dismissing the complaint or in the alternative for an order staying the action pursuant to CPLR 3211 (a) (4) is denied.
The portion of the motion of Angelo Slabakis, Courtney Redding, and Informat Inc., for an order dismissing the complaint, or in the alternative, for an order staying the action pursuant to CPLR 3211 (a) (10) is denied.
The foregoing constitutes the decision and order of this Court.
Enter: J.S.C.
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