Matter of Schapira v Grunberg

[*1] Matter of Schapira v Grunberg 2006 NY Slip Op 51585(U) [12 Misc 3d 1195(A)] Decided on February 27, 2006 Supreme Court, Bronx County Billings, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 27, 2006
Supreme Court, Bronx County

In the Matter of the Application of Ruth Schapira, Individually and as Co-Trustee of the Trust Under Paragraph Fifth(B) of the Last Will and Testament of Hans E. Schapira, Susan W. Morris, as Co-Trustee of the Trust Under Paragraph Fifth(B) of the Last Will and Testament of Hans E. Schapira, Jeffrey Moerdler, and Whitehall Tenants Corp., Petitioners

against

Fred Grunberg, Horace Bullard, Ludwig Bravmann, Joseph Sternberg, and Ethel Scher, Respondents.



18621/2005



For Petitioners

Eric B. Levine Esq.

Wolf Haldenstein Adler Freeman & Herz LLP

270 Madison Avenue, New York, NY 10016

Jeffrey A. Moerdler Esq.

Mintz, Levin, Cohn, Ferris, Govsky & Popeo, P.C.

666 3rd Avenue, New York, NY 10017

For Respondents

Barry S. Gedan Esq.

555 West 235th Street, Bronx, NY 10463

Lucy Billings, J.

I.INTRODUCTION

On November 10, 2005, in this special proceeding concerning a June 2005 election of cooperative corporation directors, the court ordered a trial on the second counterclaim of shareholder respondents Grunberg, Bullard, and Bravmann, which seeks to inspect the records of that election, including the ballots voted in person and by proxy and the proxies. C.P.L.R. § 410. The issue to be tried is these respondents' good faith and the validity of their purpose in seeking those records.

Respondents' first counterclaim sought relief pursuant to NY Bus. Corp. Law (BCL) § 619: either confirmation of the election of the five candidates remaining with the highest vote [*2]count after petitioner Schapira was disqualified or a new election after written disclosure to shareholders regarding Schapira's nonshareholder status. The decision of November 10, 2005, dismissed this counterclaim.

Respondents now demand a jury trial on the issues to be tried. Petitioners move to strike that demand. The answer to the question posed, whether respondents are entitled to a jury trial on their claim for inspection of corporate election records, like many questions on the right to a jury trial, lies buried in the law of earlier centuries. Despite what our modern instincts might suggest regarding this claim for strictly non-monetary relief, respondents are entitled to a jury trial on their second counterclaim. By interposing their first counterclaim, which is not triable by a jury, however, they have waived that right to a jury, even though the court now has dismissed their first counterclaim.

II.THE NATURE OF RESPONDENTS' SECOND COUNTERCLAIM

Business Corporation Law § 624(b) entitles corporate shareholders, after their written demand, to examine the corporation's "minutes of the proceedings of its shareholders and record of shareholders." Upon the corporation refusing such a demand, the demanding shareholders may commence a proceeding pursuant to BCL § 624(d) to compel the inspection. Where shareholders invoke this statutory proceeding seeking relief unavailable before BCL § 624's enactment, the rules delineated below would not entitle the shareholders to a jury trial.

Respondents, however, do not seek to inspect the minutes of a shareholder meeting or of another shareholder proceeding or the record of shareholders. As corporate shareholders, respondents have a right not only to inspect the records specified under BCL § 624, Estate of Purnell v. LH Radiologists, 90 NY2d 524, 531-32 (1997), but, simply by virtue of that status, also to inspect other corporate records. Crane Co. v. Anaconda Co., 39 NY2d 14, 18 (1976); Dyer v. Indium Corp. of Am., 2 AD3d 1195, 1196 (3d Dep't 2003); Trocolli v. L & B Contract Indus., 259 AD2d 754 (2d Dep't 1999); Berkowitz v. Astro Moving & Stor. Co., 240 AD2d 450, 451 (2d Dep't 1997). Respondents' second counterclaim thus seeks to compel petitioner Whitehall Tenants Corp. "to perform a duty enjoined upon it by law" pursuant to C.P.L.R. § 7803(1), albeit not a duty specifically provided by statute. Crane Co. v. Anaconda Co., 39 NY2d at 18; Dyer v. Indium Corp. of Am., 2 AD3d at 1196; Trocolli v. L & B Contract Indus., 259 AD2d 754; Niggli v. Richlin Mach., 257 AD2d 623 (2d Dep't 1999). Because respondents' right is conditioned on showing that their demand is in good faith for a proper purpose, the court ordered a trial on that disputed issue. Crane Co. v. Anaconda Co., 39 NY2d at 18, 23; Mayer v. National Arts Club, 223 AD2d 440, 441 (1st Dep't 1996); Dyer v. Indium Corp. of Am., 2 AD3d at 1196-97; Trocolli v. L & B Contract Indus., 259 AD2d 754. See Ochs v. Washington Hgts. Fed. Sav. & Loan Assn., 17 NY2d 82, 86 (1966).

III.DETERMINING THE RIGHT TO A JURY TRIAL

New York Constitution art. I, § 2, adopted in 1938, provides that: "Trial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever." The determination of whether a claim entitles the claimants to a trial by jury thus begins with an analysis of whether the right to a jury historically attached to that claim. The New York Constitution of 1894 guaranteed a jury trial on all claims for which it was afforded by common law before 1777 or extended by statute between 1777 and 1894. Matter of DES Mkt. Share Litig., 79 NY2d 299, 304 (1992); Hudson View II Assocs. v. Gooden, 222 AD2d 163, 165 (1st Dep't 1996); Forrest v. Fuchs, 126 Misc 2d 8, 11 (Sup. Ct. Kings Co. 1984). See C.P.L.R. § 4101(3). If the claim was historically cognizable in the courts of equity, the claimant is not entitled to a jury trial today. If, on the other hand, the claim historically was tried in the common law courts before a jury, the right to a jury trial endures. Hudson View II Assocs. v. Gooden, 222 AD2d at 165. A.The Second Counterclaim's Determinative Features

A shareholder's right to compel a corporation, by mandamus, to permit his inspection of all corporate records, where not expressly authorized by statute, first was recognized in New [*3]York in 1899, where, as here, the corporation refused the inspection, insisting that the shareholder's purpose was hostile to the corporate interest. In re Steinway, 159 NY 250, 254-55 (1899). See Crane Co. v. Anaconda Co., 39 NY2d at 23; Dyer v. Indium Corp. of Am., 2 AD3d at 1196-97; Niggli v. Richlin Mach., 257 AD2d 623; Vasinkevich v. Elm Drugs, 208 AD2d 522, 524 (2d Dep't 1994). The Court of Appeals found this right of a corporator . . . to inspect the books and papers of the corporation, for a proper purpose and under reasonable circumstances, was recognized by the courts of king's bench and chancery from an early day, and enforced by a motion or mandamus, but always with a caution, so as to prevent abuse.

In re Steinway, 159 NY at 258. The original supreme court established in the colony of New York in 1691 assumed the full powers and authority of the Courts of King's Bench. Id. at 255-56, 265. Without a specific legal remedy authorized by statute, this firmly rooted legal right to know the corporation's affairs was enforceable through mandamus. Id. at 261-62. Statutes giving shareholders rights to inspect corporate records, such as BCL § 624, moreover, did not supplant or abridge "the common-law right." Ochs v. Washington Hgts. Fed. Sav. & Loan Assn., 17 NY2d at 86; In re Steinway, 159 NY at 262, 264.

While Steinway may have determined an equitable way to provide claimants the relief to which they are entitled, the court created neither a new nor an equitable claim. See Matter of DES Mkt. Share Litig., 79 NY2d at 305-306, 308. Even though a mandamus proceeding seeks affirmative action in compelling performance of a duty, akin to the equitable remedy of an injunction, mandamus historically and accurately is used in "an action at law," where a legal right is established, Stern v. South Chester Tube Co., 390 U.S. 606, 609 (1968), and not in "an action in equity," seeking to establish the "right to an injunction." Jamaica Sav. Bank v. M.S. Investing Co., 274 NY 215, 221 (1937). B.Respondents' Right to a Jury Trial on Their Claim for Inspection of Corporate Records

In a mandamus proceeding for enforcement of an established legal right, as here, the court makes the ultimate determination whether and how to order performance of the legal duty. Nevertheless, where facts that are disputed must be established, such as bad faith or good faith, to confer the legal right on the claimants that entitle them to relief ordered by the court, those facts are triable by a jury. Durr v. Paragon Trading Corp., 270 NY 464, 469-70 (1936); Coniglio v. Falasco, 168 AD2d 680, 681 (2d Dep't 1990). See In the Matter of DES Mkt. Share Lit., 79 NY2d at 307; Schulman v. Dejonge & Co., 270 A.D. 147, 149-50 (1st Dep't 1945); In re Chanel, 74 NYS2d 203, 207-208 (Sup. Ct. NY Co. 1947). Upon the facts established by the jury's verdict, the court still will determine whether, when, and in what scope to order performance, as necessary to the claimant shareholders' purpose, and to protect against injury or inconvenience to corporate business and safeguard all shareholders' interests. Durr v. Paragon Trading Corp., 270 NY at 470; In re Steinway, 159 NY at 262-63; Schulman v. Dejonge & Co., 270 A.D. at 149; In re Chanel, 74 NYS2d at 208-209.

Under the former New York Civil Practice Act (CPA), now supplanted by the Civil Practice Law and Rules, where the record in a special proceeding raised factual issues regarding the claimants' good faith and purpose in seeking to inspect corporate records, the issues were to be tried in accordance with CPA § 1295. Breswick & Co. v. Greater NY Inds., 308 NY 1041, 1043 (1955); Wilder v. Straus-Duparquet, 5 AD2d 1, 3 (1st Dep't 1957); Schulman v. Dejonge & Co., 270 A.D. at 150. Section 1295 required: If a triable issue of fact is duly raised, it shall be forthwith tried . . . , where the proceeding is to review a determination or to compel performance of a duty specifically enjoined by law and a jury trial is demanded on or before the return day, before a court and a jury.

[*4]See Green v. Commissioner of Environmental Conservation of State of NY, 94 AD2d 872, 873 (3d Dep't 1983).

C.P.L.R. § 410 now provides: If issues are triable of right by jury, the court shall give the parties an opportunity to demand a jury trial of such issues.

Thus the jury demand no longer must be made by the return date. Here, once the court ordered a trial of the specified issues, the court gave the parties an opportunity to demand a jury trial if they were so entitled, and respondents availed themselves of that opportunity. Because C.P.L.R. § 410 applies to all special proceedings, however, not just Article 78 proceedings, and not just § 7803(1) proceedings to compel performance "of a duty enjoined . . . by law," omission of CPA § 1295's reference to a jury trial for these particular proceedings did not eliminate that previously recognized right. Green v. Commissioner of Environmental Conservation of State of NY, 94 AD2d at 873. When the Civil Practice Law and Rules replaced the CPA, a claimant seeking Article 78 relief in the nature of mandamus retained the right to a jury trial. Preddice v. Callanan, 96 AD2d 613, 614 (3d Dep't 1983); Green v. Commissioner of Environmental Conservation of State of NY, 94 AD2d at 873.

IV.RESPONDENTS HAD NO RIGHT TO A JURY TRIAL ON THEIR FIRST COUNTERCLAIM.

Business Corporation Law § 619 authorizes the court to hear the petition of shareholders aggrieved by a corporate election at a shareholders' meeting and "confirm the election, order a new election, or take such other action as justice may require." See Heisler v. Gringas, 90 NY2d 682, 686 (1997); Ronnen v. Ajax Elec. Motor Corp., 88 NY2d 582, 591 (1996); Buckley v. Wild Oaks Park, 44 NY2d 560, 566 (1978); Visutton Assocs. v. Anita Terrace Owners, 254 AD2d 295, 296 (2d Dep't 1998). In their first counterclaim, respondents challenged the validity of Schapira's election as a cooperative corporation director. They sought confirmation of the election of the five other candidates with the highest vote count after Schapira's disqualification or a new election after written disclosure to shareholders of her nonshareholder status.

Business Corporation Law § 619, like § 624, derives from the Stock Corporation Law of 1890: statutes enacted between 1777 and the 1894 Constitution that did not by their terms extend the right to a jury trial on claims pursuant to those statutes. Matter of DES Mkt. Share Litig., 79 NY2d at 304; Hudson View II Assocs. v. Gooden, 222 AD2d at 165. See C.P.L.R. § 4101(3). Treatment of these corporate proceedings as equitable is consistent with the treatment of most corporate proceedings, which often involve "difficult and technical" valuation and other issues "commonly addressed by the court without a jury." Cawley v. SCM Corp., 72 NY2d 465, 475 (1988). Such issues as arise in appraising dissenting shareholders' interests, examining the customary markets for similar transactions, and weighing elements of future value, however, are distinguishable from the factual issues requiring resolution in connection with the second counterclaim. E.g., Tripoli v. Tripoli, 83 AD2d 764 (4th Dep't 1981), aff'd, 56 NY2d 684 (1982). See BCL § 623; Cawley v. SCM Corp., 72 NY2d at 471-72.

Respondents' first counterclaim pursuant to BCL § 619, on the other hand, may not involve valuation issues, but this statute, by its terms, and consistent with its equitable nature, expressly provides the court broad discretionary alternatives to confirming an election or ordering a new one. Goldfield Corp. v. General Host Corp., 29 NY2d 264, 270 (1971). Instead, the court may "take such other action as justice may require." BCL § 619. From inception, the statute has broadly empowered "the Supreme Court summarily to inquire into and determine the validity of elections of corporations and any proceeding, act, or matter touching the same" and "determine any question relating to the election, even such as is merely incidental." Matter of Catholic Relief & Beneficiary Assn., Supreme Council, 142 A.D. 307, 312 (4th Dep't 1911). In considering whether to set aside an election, the court must determine whether improprieties produced a result different from what it otherwise "would have been" or whether "an equitable [*5]result has been thereby produced," Goldfield Corp. v. General Host Corp., 29 NY2d at 271, and "the practical problems entailed" in a new election. Id. at 273. Not only are these determinations inherently equitable and rife with imprecision and balancing, but the test used is a "reasonable showing" or "substantial likelihood" that an impropriety led voters to grant proxies or vote differently, rather than the usual burdens of proof charged to a jury. Id. at 271.

In contrast to the established legal right of shareholders to inspect corporate records, BCL § 619 does not establish a right to confirmation or annulment of a corporate election. These alternatives are authorized potential remedies upon establishing circumstances that warrant the remedy. Goldfield Corp. v. General Host Corp., 29 NY2d at 272. The right to a jury trial depends on the facts pleaded to establish a legal duty and consequent right to relief, not on the relief sought. Kaplan v. Long Is. Univ., 116 AD2d 508, 509 (1st Dep't 1986). Thus a proceeding pursuant to BCL § 619 to review a corporate election, confirm it, or set it aside and order a new one, from the statute's inception, has not been historically a mandamus proceeding to compel performance of an established legal duty. People ex rel. Putzel v. Simonson, 16 N.Y.S. 118 (NY 1891); People ex rel. Wilson v. African W.M.E. Church, 156 A.D. 386, 389 (2d Dep't 1913).

In sum, respondents joined a second counterclaim for legal relief with a first counterclaim for equitable relief.

V.RESPONDENTS WAIVED THEIR RIGHT TO A JURY TRIAL.

Where parties join an equitable claim and a legal claim arising from the same occurrence or transaction, they waive their right to a jury trial on the legal claim. Paralegal Inst. v. Big Sol Mfg. Co., 190 AD2d 595, 596 (1st Dep't 1993); Zimmer-Masiello, Inc. v. Zimmer, Inc., 164 AD2d 845, 846-47 (1st Dep't 1990); Herbil Holding Co. v. Mitrany, 11 AD3d 430, 432 (2d Dep't 2004); Whipple v. Trail Props., 261 AD2d 470 (2d Dep't 1999). Elimination of the equitable claim, by discontinuance, amendment, severance, or dismissal, does not erase the waiver and revive the right. Zimmer-Masiello, Inc. v. Zimmer, Inc., 164 AD2d at 846-47; O'Rorke v. Carpenter, 125 AD2d 223, 224 (1st Dep't 1986); Whipple v. Trail Props., 261 AD2d 470; Kaplan v. Long Is. Univ., 116 AD2d at 508-509.

Even if the petition included equitable claims that, had they raised factual issues, would not have been triable by a jury, respondents could have interposed their legal counterclaim by itself without waiving a jury trial. When they joined their legal claim with their own equitable claim, however, they risked irretrievably waiving a jury trial. C.P.L.R. § 4102(c); Mercantile & Gen. Reins. Co. v. Colonial Assur. Co., 82 NY2d 248, 252-53 (1993); Forrest v. Fuchs, 126 Misc 2d at 10. See Chenango Mut. Ins. Co. v. Charles, 235 AD2d 667, 670 (3d Dep't 1997).

Respondents' only safety net would extend if their two claims did not arise from or relate to the same occurrence, transaction, or "alleged wrong." Zimmer-Masiello, Inc. v. Zimmer, Inc., 164 AD2d at 847. See C.P.L.R. § 4102(c); Forrest v. Fuchs, 126 Misc 2d at 8-9. Were they not so related, the legal claim could be tried before a jury jointly with any remaining equitable claims, leaving their determination to the court, C.P.L.R. §§ 4101, 4212; Mercantile & Gen. Reins. Co. v. Colonial Assur. Co., 82 NY2d at 252-53; Hudson View II Assocs. v. Gooden, 222 AD2d at 169; Chenango Mut. Ins. Co. v. Charles, 235 AD2d at 670, or severed and tried separately before a jury. Merchants Bank of NY v. Bass & Bass, 208 AD2d 468 (1st Dep't 1994); Connolly v. Griffin, 201 AD2d 371, 372 (1st Dep't 1994).

The court must strive to honor the "inviolate" right to a jury trial wherever guaranteed. NY Const. art. I, § 2. Nevertheless, it is impossible to uncouple respondents' two counterclaims. Upon incorporation of all the allegations in the first counterclaim, V. Answer ¶ 61, the second counterclaim seeks to inspect the June 2005 election records expressly because respondents claim "improprieties" regarding the proxy ballots cast at the election, in that signatures on Schapira's proxies "appeared questionable." Id. ¶ 68. Most significantly, "counterclaiming respondents desire to review the election records for potentially vote changing irregularities," particularly regarding the proxy ballots. Id. ¶ 69 (emphasis added). Further, after reviewing the election records, respondents seek to claim those vote changing election irregularities that the review uncovers. Id. ¶ 73. [*6]

The reliance on the first counterclaim in ¶ 61 of respondents' answer might be simply a perfunctory precaution. Yet the further allegations demonstrate that in fundamental substance the second counterclaim in fact (1) is premised on the very same election results and process by which those results were reached as the first counterclaim sought to change and (2) likewise seeks to change both the process and the outcome. At no point, even outside the pleadings, have respondents articulated any different basis or purpose. Each counterclaim may be a different route to comparable relief, but each route traces back to the same basis: the June 2005 election.

Thus the two counterclaims both originate from the same occurrence or transaction and, in tandem, seek to arrive at the same end. Only an extreme contortion of reality would construe the counterclaims as arising "from entirely different transactions" or occurrences to negate the first counterclaim's waiver of a jury trial. Connolly v. Griffin, 201 AD2d at 372. See Merchants Bank of NY v. Bass & Bass, 208 AD2d 468. Nor have respondents offered any interpretation or reasoning that would sufficiently disconnect their claims.

Having waived their right with their first claim, respondents are not entitled to a jury trial on their remaining claim. Consequently, the court grants petitioners' motion to strike respondents' jury demand.

DATED: February 27, 2006

_____________________________

LUCY BILLINGS, J.S.C.