Matter of Carter

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Matter of Carter 2017 NY Slip Op 32656(U) November 2, 2017 Supreme Court, Bronx County Docket Number: 260038/12 Judge: Ben R. Barbato Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF BRONX ------------------------------------------x IN THE MATTER OF THE APPLICATION OF NEIL A. CARTER, GLENRICK RHOOMS, AND KWAME GYAMFL, PETITIONERS, DECISION AND ORDER FOR THE JUDICIAL DISSOLUTION OF RICWARNER, INC., PURSUANT TO SECTION 1104(A) OF THE BUSINESS CORPORATION LAW. Index No: 260038/12 -----------------------------------------x In this corporation, BCL § special seeking petitioners seek an order, dissolution of a pursuant to inter alia, 1104-a(d) ordering a downward stock valuation adjustment of nonparty shareholder Bernard respondent RICWARNER, INC. Petitioners seek the inter assets and corporate failed assets respondent, stock. each of bereft of stock profits whom own the dissipated proportionate to petitioners, 25 percent of Pilgrim, respondent's shares of shareholders the proof that he all in corporation's instant motion asserting that competent in and surcharging Pilgrim. recklessly distribute Pilgrim opposes is ( Ricwarner) and to and (Pilgrim) Pilgrim's foregoing relief on grounds that willfully alia, record proceeding dissipated the any corporate assets, such that a downward stock valuation adjustment of Pilgrims' surcharge are stock in respondent unwarranted. and Pilgrim inter alia, and order pursuant to BCL Page 1 of also § 17 the imposition cross-moves of a seeking, 1207(a) (2) directing that [* 2] the receiver previously appointed by this Court - Carl M. Lucas (Lucas) an - call a meeting of all respondent's creditors, accounting of respondent's distribute respondent's Petitioners and Lucas liabilities asserts oppose in and assets, cross-motion distribution of respondent's assets, asserting, and therewith. accordance Pilgrim's provide seeking inter alia, that such distribution cannot transpire until after determination of petitioners' motion, which, if granted would affect the distribution of respondent's assets. For the reasons that follow hereinafter, petitioners' motion and Pilgrim's cross-motion are denied, with leave to renew. The instant petition, alleges action the is for following: corporate dissolution. Ricwarner is a The corporation engaged in the business of delivering items as a contractor for nonparty Fed Ex Home Delivery shareholders in Ricwarner, (Fed Ex). Petitioners who along with Pilgrim, are each own 25 percent of Ricwarner's stock and all of whom work for Ricwarner as operators of one of five Fed Ex deli very routes. becoming a shareholder in Ricwarner, one Fed Ex deli very route. Prior to Pilgrim owned and operated At the time, each petitioner also individually owned operated a Fed Ex delivery Route. Because Fed Ex decided that it would no longer grant delivery routes to any entity or person owning less Page 2 of than 17 three deli very route, [* 3] petitioners acquire and Pilgrim Pilgrim and agreed to form petitioners' Ricwarner that routes, who would Pilgrim and petitioner's would become equal shareholders in Ricwarner, that Pilgrim and respondents would each operate one of the four routes owned by Ricwarner, and that Pilgrim and petitioners would each draw a salary of $800 from Ricwarner as a result of the operation of the foregoing routes and that Pilgrim and petitioners would equally share Ricwarner's since May 2011, profits. Petitioner's allege that they have not received their agreed upon salary from Ricwarner nor any of Ricwarner's profits, which monies have been deposited solely since in controlled the Ricwarner' s by foregoing accounting of Ricwarner' s business CARTER (Gyamfi), and Pilgrim. time, has with fired has them, rehired fired allege to any Pilgrim has deprived them of a to an discuss NEIL KWAME access is that provide petitioner petitioner petitioners account failed has has also failed regarding Ricwarner's management and affairs. allege that which Petitioner's income, and denied account, Pilgrim Ricwarner's (Carter), bank or A. GYAMFI voice Petitioner's also substantial sum of money previously awarded to Ricwarner by Fed Ex as a result of acquiring all four delivery routes and that Pilgrim has looted the corporate assets, allocating them for personal purposes. Page 3 of 17 As [* 4] a result of the foregoing, petitioners seek to dissolve Ricwarner, liquidate, and distribute its assets to petitioners. On October 28, 2013, the Court (Aarons, J.) issued an order, which after a hearing granted petitioner's petition and dissolved The petitioners Court each Ricwarner. owned found, a 25 inter percent alia, share that of Pilgrim and Ricwarner, that Pilgrim engaged in oppressive conduct warranting dissolution of Ricwarner pursuant dissolution, to BCL § 1104-a, that for of Pilgrim was to provide an accounting of Ricwarner's assets and liabilities, that Pilgrim was to provide petitioners with copies of Ricwarner's books pursuant to BCL that Ricwarner' s the § 1104(c), and assets upon dissolution would be split evenly between Pilgrim and respondents. provide purposes accounting and The Court ordered that Pilgrim Ricwarner' s records to petitioners within 30 days thereof and further ordered that within 60 days all parties submit a proposed judgment of dissolution and a plan for the liquidation of Ricwarner' s assets. Notably, never reached the issue of whether Pilgrim "looted, the Court wasted, diverted," Ricvwarner's assets within the meaning of BCL a, noting, not be albeit by implication, made liabilities. BCL § absent an § or 1104- that such determination could accounting of Ricwarner's assets and Indeed, the Court noted that it could, pursuant to 1104-a(d), upon a finding of wilful or reckless dissipation Page 4 of 17 [* 5] by Pilgrim or transfer of Ricwarner's assets, order an adjustment of stock valuations and impose a surcharge. On December 23, conference that 2013, Pilgrim after being apprised at a settlement failed to comply with the directive mandating the production of Ricwarner' s accounting, dissolved and and distributed, upon finding assets its the a Court that had issued Ricwarner' s permanent receiver, an to comply with those directives in had not been liquidated appointing inter alia, marshal and liquidate Ricwarner's assets. to be order who, books and an Ricwarner yet Court's and Lucas as was ordered to Lucas was also ordered the Court's order dated October 28, 2013, namely, to submit a judgment of dissolution for Ricwarner. On November 15, 2016, this Court (Barbato, J.) issued an order denying petitioner's application pursuant to BCL 1104-a(d), seeking a reduction surcharging him on of Pilgrim's grounds that share he had Noting that BCL all of the relief requested (BCL § § Ricwarner willfully Rickwarner's assets to himself and his wife, personal purposes. in and transferred using the same for 1104-a(d) did not provide 1104-a[d] authorizes stock re- evaluation not, as sought, share diminution), the Court declined to grant the motion; noting that because Pilgrim had yet to provide the portions of Ricwarner's books in his possession and Page 5 of 17 [* 6] had not yet determine provided whether an he Ricwarner's assets. accounting, had, in it fact, was impossible willfully to dissipated The Court did, once again order that Pilgrim comply with the portion of the Court's order dated October 28, 2013, mandating production of Ricwarner's records. Petitioner's Motion Petitioner's motion seeking, to BCL § inter alia, an order pursuant 1104-a(d) adjusting Ricwarner's stock value and imposing a surcharge upon Pilgrim on grounds that he willfully dissipated Ricwarner' s assets, using Significantly, denied. the BCL § same for personal 1104-a (d), does application by Pilgrim to purchase petitioners' to BCL § has Ricwarner's extent to assets, absent, an shares pursuant if yet to books, which provide the Pilgrim any. Moreover, because movants aver that Court has Moreover, provided possession, in with the all with cannot while of absence them of a complete accurately willfully papers related to this motion, been not is 1118, authorize the court to revalue Pilgrim's shares or impose a surcharge upon him. Pilgrim purposes, upon determine dissipated the set of the Ricwarner's submission of all it appears that petitioners have Ricwarner's an books independent, in Pilgrim's accounting, Court cannot make the determination urged by petitioners. Page 6 of 17 the [* 7] BCL 1104-a § authorizes the judicial dissolution of a corporation on a myriad of grounds, including when the directors representing "twenty percent or more outstanding shares of a corporation dissolution" (BCL § 1104-a[a]). of the votes of all . present a petition of A court is authorized to dissolve a corporation, when it finds, inter alia, that [t] he directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders [and] [ t] he property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation ( BCL § 110 4-a [a] [ 1] , BCL § [ 2] ) . 1104-a[d], also allows a court to order stock valuations be adjusted and may provide for a surcharge upon the directors or those in control of the corporation upon a finding of wilful or reckless dissipation or transfer of assets or corporate property without just or adequate compensation therefor (BCL § 1104-a [d]). Significantly, the valuation and surcharge prescribed by the foregoing section are to be used only when upon dissolution, the corporation and/or another shareholder seeks to purchase the shares in the corporation held by the proponent of the dissolution Agency, Inc., as 107 prescribed by AD2d 149 139, Page 7 of BCL [2d 17 § 1118 Dept (Blake 1985] v Blake ["Business [* 8] Corporation Law § 1104-a minority shareholders, was enacted for the protection of and the corporation should therefore not receive a windfall in the form of a discount because it elected to purchase the minority interest Corporation Law§ 1118."]; Balk v 125 W. 194, 195-196 [1st Dept 2005] pursuant Business to 92nd St. Corp., 24 AD3d [In proceeding pursuant to BCL § 1104-a and § 1118, the court correctly adjusted the price of the shares owned by petitioner in respondent's corporation. The court held that "[w]e are satisfied that equity was accomplished by a closing adjustment that did not award petitioner any interest on the $825, 000 but also did not award respondent any use and occupancy over and above petitioner's maintenance of $973 a month. This was accomplished in effect by the valuation court, by a 'closing adjustment' that awarded interest to petitioner and use and occupancy above maintenance amounts that were deemed to be to equal respondent and in unstated offsetting. Such adjustment fairly balanced petitioner's right to payment for his shares with interest as of the beginning of the valuation date."] ) . In support of the instant application, petitioners submit an affidavit from Brad M. Aron (Aron), an attorney, who details his qualifications and his review of an accounting Pilgrim to petitioners on December 20, 2016. Page 8 of 17 provided by Aron states that in [* 9] addition to his licence to practice law, he also holds an LLM in taxation, holds an accounting firms Coopers. Upon MBA, of and for Deloitte reviewing five years & Touche the worked and foregoing Price at the Waterhouse accounting and the documents annexed thereto, Aron concludes that the same fails to provide all financial documents of Ricwarner which were ordered produced by this Court in two separate orders. Specifically, for the referee period preceding Lucas' appointment as Ricwarner had two accounts with Chase Bank. accounts, records contends related related that to reviewing 2013, With regard to those Pilgrim failed to provide any of Ricwarner's cancelled checks for the years 2011 through 2013. some in one of Pilgrim the the to failed other account. documents the to provided While Pilgrim provided foregoing provide Despite in accounts, much the relation documentation foregoing, to Aron the upon foregoing accounts, namely bank statements, Aron was able to ascertain that in 2011, accounts, wife's Pilgrim withdrew $107,305.75 from one of the foregoing transferring large 's personal account. regarding $70,800.53 sums of money to Aron came to the withdrawn by $163, 116. 8 8 withdrawn from Ricwarner' s Pilgrim Pigrim and his same conclusion in 2013, second account and in 2011. Aron notes that nothing provided by Pilgrim establishes that the sums withdrawn from Ricwarner's Page 9 of accounts 17 and deposited into [* 10] Pilgrim's personal As purpose. a account result, were Aron for any legitimate concludes that the business $341,223.16 withdrawn from Ricwarner's accounts between 2011 and 2013, of which was deposited Pilgrim's into personal much account, constitutes a willful dissipation of Ricwarner's assets. Petitioners also submit the accounting on which Aron relies, and statements account for Ricwarner's accounts two and Pilgrim's personal account. Pilgrim petitioners submits motion, a legion saliently of documents urging the in opposition rejection of to Aron's affidavit and its conclusions on grounds of bias and Aron's lack of qualifications. Since, as will be discussed below, the salient reason for denial of petitioner's motion is the absence of a complete, independent comprehensive and accounting, Pilgrim's opposition merits no further discussion. Based on the foregoing, petitioners' motion must be denied. As noted above, "order stock valuations surcharge upon or transfer while BCL of § be 1104-a (d) authorizes adjusted the Court to and [impose a] . a finding of wilful or reckless dissipation assets or corporate property," the forgoing statute does not, as urged by petitioners, authorize a diminution of corporate shares, the salient relief sought here. Moreover, the valuation and surcharge prescribed by BCL 1104-a(d) are to be Page 10 of 17 [* 11] used only when upon dissolution, the corporation and/or a shareholder seeks to purchase the shares in the corporation held by proponent of the dissolution (Blake at 149; Balk at 195-196). on BCL § 1104- (d), where the as prescribed by BCL § 1118 Here, then, insofar as premised relief sought falls outside the relief accorded by the statute, the Court cannot grant the relief sought for this reason alone. To the extent, however, that the Court has already ordered the dissolution of Ricwarner pursuant to BCL § 1104-a (a) (2), can grant petitioners inartfully seek under BCL the relief sought, § 1104-a(d). but which To be sure, it they petitioners actually seek dissolution of Ricwarner and distribution of its assets based on their respective shares in the corporation plus any sums due to them which were willfully withheld and dissipated by Pilgrim. BCL § Thus, petitioners actually seek relief pursuant to llll(c), which states that [i]f the judgment or final order shall provide for a dissolution of the corporation, the court may, in its discretion, provide therein for the distribution of the property of the corporation to those entitled thereto according to their respective rights. To be sure, upon dissolution of a corporation, the court has broad powers to determine how the assets of the corporation shall be distributed and to what share each shareholder is entitled (In Page 11 of 17 [* 12] re Seneca Oil Co., 153 AD 594, 596 [4th Dept 1912], affd, 208 NY 54 5 [ 1913] ["The court might, therefore, provide by its fin al order for the distribution of the remaining assets among those entitled thereto. determine the To accomplish this it was necessary to first relative rights of the stockholders as between themselves in the distribution of the corporate assets. So far as the exercise of that implied power is necessary to ascertain who are rightfully entitled to share in the distribution, which the court is specifically empowered to direct, and the share to which each is entitled, it must necessarily be given to the court, else the court could not direct any proper distribution of the assets."] ) Thus, here, while the Court's statutory authority to grant the relief requested by petitioners under BCL § 1111 is obvious, such relief cannot Significantly, Ricwarner' s unbiased any be fair assets must accounting particularly true granted and be of here, on just based the the order on a it is of records. alleged before distribution complete, Ricwarner's where record that it. of accurate and This is Pilgrim has dissipated and looted Ricwarner's assets, converting the same for his personal use. Moreover, where as here, it is alleged that Pilgrim has failed to provide a legion of records - Ricwarner's cancelled checks for the years 2011-2013, Page 12 of 17 which records are [* 13] critical to the proper distribution of the remaining corporate assets - it is readily apparent that the Court cannot yet issue any order distributing Ricwarner' s assets - let alone an order diminishing Pilgrim's share of Ricwarner's assets by those sums alleged to have been dissipated and converted by him. Indeed, the latter, the crux of petitioners' application is impossible to determine without knowing to whom Pilgrim issued checks on behalf of Ricwarner and for what purpose. Accordingly, Aron's the Court need not address the sufficiency of affidavit as urged by Pilgrim - and its conclusions based upon his review of some of Ricwarner's records. Instead, denial of petitioners' motion is warranted based on the foregoing reasons and any order of the distribution of the corporate assets will be issued upon a further application by petitioners, after a forensic accounting of the Ricwarner's records by an accountant of the Court's choosing. Notably, while petitioners initially assert that Pilgrim has failed to provide cancelled checks for Ricwarner's Pilgrim has provided the same in his reply papers. accounts, To the extent that, as correctly averred by petitioners, reply papers cannot be used to cure deficiencies in the moving 1 papers 1 , here, the Generally arguments proffered for the first time within reply papers shall not be considered by the court (Wal-Mart Stores, Page 13 of 17 [* 14] cancelled checks submitted by Pilgrim for the first time in reply are not being considered in support of his cross-motion. they are being considered as compliance with previous orders mandating the production of all of Ricwarner' s Indeed, it consider inures the to petitioners' foregoing records benefit since, it to Rather, have finally court records. the Court enables, as discussed above, a comprehensive and independent accounting; such accounting being critical to petitioners' motion seeking distribution Ricwarner's assets and all sums due to them. While petitioners' above, will Ricwarners' motion is denied, nevertheless order that the Court, petitioners records provided to them - as alluded submit all of including the cancelled Inc., v United States Fidelity and Guaranty Company, 11 AD3d 300, 301 [1st Dept 2004]; Johnston v Continental Broker-Dealer Corp., 287 AD2d 546, 546 [2d Dept 2001]; Dannasch v Bifulco, 184 AD2d 415, 417 [1st Dept 1992]). Moreover, prevailing law makes it abundantly clear that the foregoing prohibition is meant to specifically preclude the consideration of new evidence, submitted for the first time on reply in order to cure deficiencies in the moving papers (Migdal v City of New York, 291 AD2d 201, 201 [1st Dept 2002] [Court rejected affidavit submitted with reply papers since it sought to remedy deficiencies in motion rather than respond to arguments made by opponent.]; Lumbermens Mutual Casualty Company v Morse Shoe Company, 218 AD2d 624, 625-626 [1st Dept 1995] [Court rejected defendant's reply papers which included two new documents provided to support a new assertion not previously made in initial motion.]; Ritt v Lenox Hill Hospital, 182 AD2d 560, 562 [1st Dept 1992] [Court rejected defendant's reply papers which contained a medical affidavit designed to cure the conclusory affidavit submitted with its initial motion.]) Page 14 of 17 [* 15] checks provided to them in Pilgrim's reply - to an accountant of the Court's choosing for purposes of a comprehensive accounting. Indeed, Const. this court "is vested with inherent plenary power art. VI, 7) § to fashion (N.Y. any remedy necessary for the proper administration of justice" (64 B Venture v Am. Realty Co., 194 AD2d 504, 504 [1st Dept 1993]), which here includes the appointment of an accountant. Pilgrim's Cross-Motion Pilgrim's pursuant to BCL cross-motion § inter seeking, 1207 (a) (2), and alia, order directing Lucas to call a meeting of Ricwarner's creditors and thereafter, pursuant to BLC 1216(a), directing Lucas to file a final accounting of the Ricwarner' s assets and liabilities, is denied. As discussed above, absent an independent and comprehensive accounting of Ricwarner's records, the Court is unable to determine how Ricwarner's assets shall be distributed - the crux of petitioners' motion. Absent relief sought by Pilgrim is, Court has a clear the foregoing thus premature. unbiased picture of accounting, Indeed, Ricwarner' s the until the assets and liabilities as well as how funds were used by Pilgrim prior to Lucas' appointment, the relief sought by Pilgrim must be denied, with leave to renew. Page 15 of 17 [* 16] Notably, the relief while the Court is not inclined to grant he saliently requests directing Lucas to meeting and file an accounting in furtherance thereof - Pilgrim call a because the Court shall assign an independent accountant to examine all of Ricwarner's provide all records, of the Court's accountant must records Ricwarner's Court in also his direct Lucas possession to to the so as to have the same provide a meaningful and comprehensive accounting. Al though, the instant remedy is not authorized by the BCL, as noted above this Court can fashion any remedy necessary Venture at 504). offices at appointed review, the administration Steven Kaplan (Kaplan), 333 Westchester Avenue, to review Ricwarner' s White an justice ( 64 financial of Ricwarner' s assets and liabilities; Ricwarner's income and through present; expenditures and ( 3) a (2) since detailed accountant, Plains, NY records. Kaplan is to provide this Court with the of B It is hereby that ORDERED for (1) with 10604, Upon be such a full account a detailed report of it was report established informing the Court to what extent, if any Pilgrim used Ricwarner funds for his personal benefit payments, if incorporation. and/or any non-corporate made to purposes petitioners It is further Page 16 of 17 as since well as any Ricwarner's [* 17] ORDERED that Pilgrim and petitioners provide Kaplan with all of Ricwarner's financial records namely those records previously provided to petitioners, all cancelled checks provided in reply records of Pilgrim's cross-motion, and any in Pilgrim's possession within 30 days other financial hereof. It is further ORDERED that Lucas provide Kaplan with copies of Ricwarner's financial records in his possession within 30 days hereof. It is further ORDERED that petitioners serve a copy of this Order with Notice of Entry upon all defendants within ten (10) hereof. This constitutes this Court's decision and Order. Dated 2017 Bronx, New York Ben Barbato, J.S.C. Page 17 of 17

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