Hill v Estate of Avnet

[*1] Hill v Estate of Avnet 2006 NY Slip Op 51773(U) [13 Misc 3d 1210(A)] Decided on September 14, 2006 Supreme Court, Nassau County Austin, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 14, 2006
Supreme Court, Nassau County

Alfred Hill, Jr., Dennis Hill, John Bannister, Admiral Air Freight Services, Inc. and Seven Cerro Street Corp., Plaintiffs,

against

The Estate of Michael Avnet, Alicia Avnet, Richard Furman and Hemisphere Forwarding, Inc., Defendants.



3541-06



COUNSEL FOR PLAINTIFF

Ruskin, Moscou & Faltischek, P.C.

1425 Reckson Plaza

Uniondale, New York 11556-1425

COUNSEL FOR DEFENDANT

Michael A. Markowitz, P.C.

1553 Broadway

Hewlett, New York 11557

Leonard B. Austin, J.

Defendants, Estate of Michael Avnet, Alicia Avnet, and Hemisphere Forwarding, Inc. move for an order: (1) dissolving the Plaintiff Seven Cerro Street Corp. pursuant to BCL §§ 1104(a) and 1104-a; (2) appointing a receiver for Seven Cerro Street Corp. pursuant to BCL §§ 1113 and 1202(a)(1) and CPLR 6301; (3) dismissing the first and second causes of action pursuant to CPLR 3211(a)(7) or, alternatively granting summary judgment, pursuant to CLR 3212; and (4) enjoining Seven Cerro Street Corp. and its shareholders from: (i) transacting any unauthorized business; (ii) exercising any unauthorized powers except upon permission of the Court; (iii) collecting or receiving rents or other debt or other property of the corporation; and (iv) paying out or otherwise transferring or delivering any property of the corporation.

BACKGROUND

In 1987, Plaintiff Seven Cerro Street Corp. ("Cerro") was formed to purchase and operate commercial property located in Inwood, New York located near JFK International Airport (the "Inwood Property").

Although, upon formation, Cerro apparently had some seven original shareholders, the currently remaining shareholders (and their respective interests) include: the decedent Michael Avnet ("Avnet") (now the Defendant Estate of Micahel Avnet ["Estate"]) 75%; the Plaintiffs Alfred Hill ("Alfred") 5%; his brother, Dennis Hill ("Dennis") 5% (collectively the "Hills"); and John Banister ("Banister") 15%.

At one time, Avnet, Alfred, Dennis and Bannister each owned separate corporations which occupied the Inwood property and paid rent to Cerro pursuant to written lease agreements.

The Hills owned a corporation known as Admiral Freight Services, Inc ("Admiral"), a co-Defendant herein; Bannister owned Escort Forwarding, Inc ("Escort"). Avnet owned co-Defendant, Hemisphere Forwarding, Inc ("Hemisphere").

Cerro was operated and managed exclusively by Avnet. Until 2001, it was run without major incident or controversy.

In early 2001, however, Escort moved out of the building. Prior to its departure, Escort was a significant source of income for Admiral.

Plaintiffs claim that Avnet was aware that Escort's departure would reduce Admiral's income and, thereby, impair its ability to pay rent. Instead of seeking out a new tenant to replace Escort, Avnet used the space for his own corporation Hemisphere.

In light of the detrimental impact of Escort's departure, Plaintiffs claim that they entered into discussions with Avnet which focused on obtaining a new tenant to replace Escort at the premises. Plaintiffs contend that a binding agreement was ultimately reached, pursuant to which Avnet would move Hemisphere out of the former Escort space and place a new tenant in the premises.

Although the Hills claim that they identified several potential tenants who could have replaced Escort, Avnet neither moved Hemisphere out of the former Escort space nor placed a new tenant at the premises. As a result, they claim that Avnet breached what they have described as the Bannister Space Agreement. Notably, there is no written agreement evidencing the existence of the Bannister Space Agreement or memorializing its terms. [*2]

Ultimately, Admiral's financial distress became acute. Thus, it was no longer able to pay the rent due. Plaintiffs claim that Avnet knew of Admiral's rental default and never once objected or threatened Admiral's tenancy.

In light of Admiral's continuing financial distress, Plaintiffs claim that, Avnet, agreed to sublet one-half of Admiral's warehouse space. Again, he allegedly never honored this commitment either.

In addition, the shareholders agreement personally "obligated [Avnet] to maintain a life insurance policy on his own life for the purposes of funding the purchase of his stock in the event of his death".

Plaintiffs contend that Avnet who died of cancer in July 2005 wrongfully allowed a $600,000.00 life insurance policy to lapse in violation of the Cerro shareholders agreement.

Article VI (A)(1) of the shareholders agreement provides that "[t]he Corporation hereby covenants to obtain a term life insurance policy upon the lives of each of the Shareholders * * *."

Article VI (B)(2) further states that, "[t]he Corporation shall pay all premiums due on the policy purchased on the lives of the shareholders" but continues by stating that "[I]f any Shareholder [sic] fails to pay a premium within thirty (30) days after the premium due date, the Shareholder * * * may pay such premium" which "shall be considered a loan to the Corporation * * *".

Article VI (B)(1) provides that "[u]pon the death of any Shareholder the CORPORATION must purchase the decedent's stock from his estate and the estate shall sell such stock to the CORPORATION."

Plaintiffs contend that since Avnet permitted the policy to lapse, there was "no insurance policy in place to fund the purchase of * * * Avent's stock * * * in favor of the surviving shareholders" as contemplated by the shareholders agreement.

In any event, according to the Estate, since the corporations owned by the Plaintiffs were no longer paying rent in late July 2005, Cerro "had no funds for basic operating costs." Against this backdrop, the parties agreed to met in early 2006 to discuss the possible sale of the Inwood property Cerro's only real asset, which had recently been valued at some $1, 275,000.00.

Apparently, a consensus was reached at the meeting, pursuant to which, it was agreed that Plaintiffs would attempt to acquire the building. A subsequently scheduled, follow-up meeting never took place. Shortly thereafter, this action was commenced.

By summons and complaint dated February 2006, the Hills, Bannister, Admiral and Cerro commenced this action against the Estate of Alicia Avnet (Michael's wife and co-executrix of his estate) and Hemisphere, alleging: (1) breach of the shareholders agreement by virtue of Avnet's failure to renew his life insurance policy; (2) breach of the so-called Bannister Space Agreement; and (3) breach of the sublet agreement with Admiral.

Defendants have answered and interposed counterclaims for dissolution of Cerro pursuant to BCL §§ 1104(a) and 1104-a.

Defendants now move by order to show cause for dissolution of Cerro and for dismissal of the Plaintiffs' first and second causes of action pursuant to CPLR 3211(a)(7) and 3212.

DISCUSSION

Defendants have sustained their prima facie burden of establishing entitlement to judgment as a matter of law dismissing the first and second causes breach of contract causes of action. CPLR 3212(b). See, Zuckerman v. City of New York, 49 NY2d 557, [*3]562 (1980).

A.First Cause of Action

With respect to first cause of action alleging breach of the shareholders agreement, Plaintiffs' theory is that Avent violated a personal duty imposed by the shareholders agreement, which was the duty to maintain life insurance so as to ensure the continued existence of a fund "enabling the surviving shareholders to purchase shares from the spouse of the deceased shareholder." The Court disagrees.

"[T]he best evidence of what parties to a written agreement intend is what they say in their writing." Slamow v. Del Col, 79 NY2d 1016, 1018 (1992). See also, Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002). Further, since "[t]he meaning of a writing may be distorted where undue force is given to single words or phrases," the court must interpret the document as a whole giving effect to, not nullifying the agreement's general or primary purpose. Matter of Westmoreland Coal Co. v. Entech, Inc., 100 NY2d 352, 358 (2003), quoting, Empire Properties Corp. v Manufacturers Trust Co., 288 NY 242, 248 (1942) (Internal quotes omitted). See, South Road Assocs., LLC v. International Business Machines Corp., 4 NY3d 272, 277 (2005).

A review of the shareholders agreement reveals that there is nothing in that document which obligates the individual shareholders to pay life insurance premiums. To the contrary, the language of the agreement provides that the "Corporation hereby covenants to obtain a term life insurance policy upon the lives of each of the Shareholders," and further states in that "[t]he Corporation shall pay all premiums due on the policy purchased on the lives of the shareholders" (Emphasis added).

Although paragraph VI (A)(2) does provide, "[i]f any shareholder fails to pay a premium within 30 days after the premium due date, the shareholder * * * may pay such premium," the Defendants and their attorney-draftsman have demonstrated that the phrase "any shareholder fails to pay," is simply a typographical error and should, when viewed in context, be construed to mean: "[i]f the Corporation fails to pay * * *." This view is buttressed by the fact that the sentence as written, would constitute a virtual non sequitur, to wit: "if the shareholder fails to pay," then the "shareholder may pay * * *" [emphases added]. Such an absurd result should be avoided.

More significantly, Defendants' construction is in accord with the unambiguous language of the two prior provisions quoted above, which provide that: (1) the corporation was to acquire the policies; and (2) the corporation was then to pay the premiums due. Even as written, the shareholder's agreement does not state that a shareholder must or is duty-bound to pay premiums but provides at best, that he or she "may" make those payments. Additionally, since there is no relevant ambiguity with respect to the import of the corporation's obligation to pay the premiums, extrinsic evidence of the parties' intent may not be considered. See, e.g., South Road Assoc., LLC v. International Business Machines Corp., supra at 278; Madison Ave. Leasehold, LLC v. Madison Bentley Assocs. LLC, 30 AD3d 1, 12 (1st Dept. 2006); 767 Third Ave. LLC v. Orix Capital Markets, LLC, 26 AD3d 216 (1st Dept. 2006).

Accordingly, the first cause of action, which is predicated upon the breach of a personal duty to maintain insurance coverage, must be dismissed. [*4]

B.Second Cause of Action

Plaintiffs' second cause of action is based upon Avnet's alleged breach of the unwritten, Bannister Space Agreement by which he purportedly agreed but failed to place new tenants in the space formerly occupied by Escort.

More particularly, the second cause of action states, in sum, that (1) some six years prior to Michael Avnet's death, he allegedly (and orally) agreed that certain

portions of the building would be leased to tenants "positioned to refer business" to Admiral; and (2) Avnet later reneged on the agreement.

Defendants contend that the transaction as pleaded by the Plaintiffs is inclusively pleaded, makes no reference to the existence of a viable consideration and, amounts to no more than a inconclusively depicted agreement to agree.

In general, the formation of a contract requires at least two parties with legal capacity to contract, mutual assent to the terms of the contract and consideration. See gen'lly, Executive Towers At Lido, LLC. v. Metro Construction Services Inc., 9 Misc 3d 1109(A) (Sup. Ct., Nassau Co. 2005); New Express Industries and Terminal Corp. v. New York State Dept. of Transportation, 93 NY2d 584, 589-590 (1999); Elias v. Serota, 103 AD2d 410, 414-5 (2nd Dept. 1984); and 22 NY Jur 2nd, Contracts, §§ 11, 13).

Further, "[i]n order to plead a breach of contract cause of action, a complaint must allege the provisions of the contract upon which the claim is based [and] [t]he pleadings must be sufficiently particular to give the court and [the] parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved as well as the material elements of each cause of action or defense." Atkinson v. Mobil Oil Corp., 205 AD2d 719, 720 (2nd Dept. 1994) (Internal quotation marks omitted). See also, Peters v. Accurate Bldg. Inspectors Div. of Ubell Ent., Inc., 29 AD3d 972 (2nd Dept. 2006); and Maldonado v. Olympia Mechanical Piping & Heating Corp., 8 AD3d 348, 350 (2nd Dept. 2004). Vague and conclusory allegations will not suffice. Gordon v. Dino De Laurentiis Corp., 141 AD2d 435, 436 (1st Dept. 1988). See, Fowler v. American Lawyer Media, Inc., 306 AD2d 113 (1st Dept. 2003); Long Island Women's Health Care Associates v. Haselkorn-Lomansky, 10 Misc 3d 1068(A) (Sup. Ct. Nassau Co. 2005).

The Court agrees that the alleged transaction, as pleaded, is unclear, vague and fails to adequately to identify terms and conditions establishing the existence of a binding agreement with respect to Avnet in his personal capacity. Id.

Rather, and to the extent articulated in the complaint, the transaction depicted suggests, at best, that certain discussions ensued many years prior to Avnet's death in 2005 [FN1] and that Avnet allegedly made some sort of statement that he would take steps to lease certain space in premises owned by the corporation. [*5]

The fact that as the Plaintiffs claim in their opposing submissions Avnet (actually Hemisphere) would be able to "stop paying rent" once the disputed space was rented, or that the "corporation as a whole" would supposedly secure some incidental benefit upon execution of a new lease, does not establish the existence of a contractual

duty personally binding upon Avnet, or his estate. Accordingly, the second cause of action should be also dismissed.

C.Dissolution/Receiver

In support of their application, the Defendants assert, among other things, that (1) the shareholders are deadlocked; (2) intractable, internal dissension exists within the meaning of BCL § 1104(a) (1)-(3); and (3) by virtue of the foregoing, Cerro is no longer capable of meeting its financial obligations including mortgage, tax and utility expenses. Defendants further advise that Cerro's primary asset the Inwood Property will be in jeopardy "if immediate steps are not taken to sell" it.

Plaintiffs do not oppose the dissolution of Cerro. Nor do they materially dispute the relevant factual assertions advanced by Defendants in support of the application, except to the extent that they request that proceeds of any sale be placed in escrow pending the outcome of this litigation.

The Court agrees that upon these facts, Defendants' unopposed counterclaim for dissolution of Cerro should be granted. Moreover, while Plaintiffs rely on the purported debt owed by virtue of the insurance policy lapse to support their escrow claim, the Court has already dismissed the first and second causes of action, thereby negating the viability of these factual theories.

The Court has considered the remaining contentions advanced by the Plaintiffs including the claim that further discovery is required (Casey v. Clemente, 31 AD3d 361, [2nd Dept. 2006]), and concludes that none is sufficient to defeat the Defendants' motion.

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss the first and second causes of action is granted; and it is further,

ORDERED, that Defendants' motion to dissolve Seven Cerro Street Corp. is granted; and it is further,

ORDERED, that Defendants' motion to appoint a receiver is granted. Defendants shall settle an order on ten (10) days notice providing for the appointment of a receiver to sell the Inwood property and including provision for the posting of an undertaking, consistent herewith; and it is further,

ORDERED, that the third cause of action is hereby severed and continued; and it is further,

ORDERED, that counsel for the parties are directed to appear for a status conference on October 12, 2006 at 9:30 a.m. [*6]

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

September 14, 2006Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1:Although it was not raised in the moving papers, it appears that this purported agreement occurred more than six years prior to the commencement of this action. Thus, this cause of action may also be barred by the applicable statute of limitations. CPLR 213(2).