Ehrlich v Froehlich
Annotate this CaseDecided on July 24, 2007
Supreme Court, Nassau County
Mel Ehrlich and Daniel Ehrlich, Plaintiff,
against
Randolph Froehlich, William Froehlich, Michael Loturco, Paul V. Craco and Mark D. Mermel, and the Christopher Companies, Ltd., Defendants.
2628-04
COUNSEL FOR Plaintiff
Robert L. Folks & Associates, LLP
510 Broad Hollow Road -Suite 305
Melville, New York 11747
COUNSEL FOR Defendant
(for Paul V. Craco)
Craco & Ellsworth, Esqs.
7 High Street - Suite 200
Huntington, New York 11743
(for Mark D. Mermel)
L'Abbate, Balkan, Colavita & Contini, LLP
1050 Franklin Avenue
Garden City, New York 11530
(for Randolph Froehlich) Certilman, Balin, Adler & Hyman, LLP
1393 Veterans Memorial Highway
Suite 301S
Hauppauge, New York 11788
(for The Christopher Companies)
Berkman, Henoch, Peterson & Peddy, P.C.
100 Garden City Plaza
Garden City, New York 11530
Michael LoTurco - Pro Se
223 Nassau Road
Huntington, New York 11743
Leonard B. Austin, J.
Plaintiffs Mel Ehrlich and Daniel Ehrlich move for an order permitting them to amend their Verified Amended Complaint to add two new causes of action for breach of contract against Defendants Randolph Froehlich and William Froehlich and to add additional party defendants.
BACKGROUND
The facts of this matter are recited in this Court's order dated October 24, 2005 and will not be repeated here except insofar as related to this, Plaintiffs' second application to amend.
This action arises out of a failed business/real estate deal in which Plaintiff Mel Ehrlich provided funding in the form of a loan to Defendant Michael Loturco to settle litigation seeking the return of a down payment for property located in Yaphank, New York after the parties therein failed to close. Loturco was a principal of Defendant,
The Christopher Companies, Ltd., assignee of the purchaser. Defendants Randolph [*2]Froehlich and William Froehlich owned the Yaphank property.
Plaintiff, Daniel Ehrlich ("Daniel") brokered the $145,000 loan to Loturco. In return, Daniel was to receive a 25% interest in a corporation Loturco was forming to purchase, mine and develop the Yaphank property.
Specifically, the proposed amendments to the Verified Amended Complaint are premised upon a written agreement between Loturco and Daniel regarding the "twenty five (25%) percent interest in an entity to be formed" in exchange for a $145,000 collateralized loan. The "entity" was to "enter into a contract for the purchase of the Property" with the Froehlichs, operate a sand mine, and "develop residential housing" after depletion of the sand lode. The sand mine operations promised "substantial revenues", not only to repay the Ehrlich loan, but also to fund development of the Property, pay rent to the Froehlichs, pay substantial salaries to Loturco and Daniel for the mine operations, and return a profit after expenses to be distributed to "shareholders" (Proposed Second Amended Verified Complaint).
The proposed seventh and eighth causes of action are asserted against the Froehlich Defendants for breach of contract and allege that there was a contract between Froehlich and the entity formed by Loturco to purchase property located in Yaphank, New York. Plaintiffs allege that Froehlich breached that contract by failing to close and by failing to obtain proper permits and subdivisions necessary to convey good title to Plaintiffs. They seek damages and specific performance.
The case has been certified as ready for trial.
DISCUSSION
"Although the general rule is that leave to serve amended pleadings shall be freely given upon such terms as may be just' * * * [w]hen a case has long been certified as ready for trial, judicial discretion in allowing amendments should be "discreet, circumspect, prudent and cautious" * * * [and] [w]here a plaintiff has been guilty of an extended delay in moving to amend, an affidavit of reasonable excuse for the delay in making the motion and one of merit should be submitted in support of the motion'." Perricone v. City of New York, 96 AD2d 531, 533 (2nd Dept. 1983), affd., 62 NY2d 661 (1984). Further, where the proposed amendments are "palpably insufficient as a matter of law or . . . totally devoid of merit" leave should be denied. Ricca v. Valenti, 24 AD3d 647, 648 (2nd Dept. 2005). Here, the amendments are devoid of merit as well as pursued after the case has been certified ready for trial.
It is assumed arguendo, for purposes of this motion only, that there is a sufficient written agreement between the Froehlich and Loturco to purchase the Yaphank property.
All parties understood that Loturco, negotiating with Froehlich, acted on his own behalf or as agent for a non-existent principal, i.e. a corporation to be formed. The rule governing non-existent principals is well settled under agency law. Loturco is personally liable on the contract if the corporation does not come into existence. Metro Kitchenworks Sales, LLC v. Continental Cabinets, LLC, 31 AD3d 722, 723 (2nd Dept 2006). Loturco did not act as agent for Ehrlich in the purchase. Plaintiffs do not allege that he did. Accordingly, Ehrlich cannot claim the status of undisclosed principals who would have a right to enforce a contract. See, Kelly Asphalt Block Co. v. Barber Asphalt Paving Co., 211 NY 68 (1914). Plaintiffs have no right to bring a cause of action for [*3]breach, either for damages or specific performance, as they were not parties to the alleged real estate contract; the purchaser was either Loturco or the corporation to be formed. Hoffman v. Unterberg, 9 AD3d 386, 388 (2nd Dept. 2004).
A corporation "exists independently of its owners, as a separate legal entity." Matter of Morris v. Department of Taxation and Finance, 82 NY2d 135, 140 (1993). The proposed Second Amended Verified Complaint refers to Loturco's promise of a distribution of net profits to the "shareholders" of the entity to be formed. Only an incorporated entity has shareholders. See, e.g., Business Law § § 601, et seq.; and Barklee Realty Co., LLC. v. Pataki, 309 AD2d 310, 317 (1st Dept. 2003)(discussing unincorporated business entities). Absent allegations sufficient to pierce the corporate veil, shareholders do not have the right to enforce the corporation's contract rights personally or on their own behalf. Morris v. New York State Dept. of Taxation and Finance, supra at 141.
Plaintiffs do not allege any other theory by which they would have a legal right to purchase the Yaphank property, such as under a third party beneficiary theory. Cf. Polizzi v. Profaci, 5 AD3d 456 (2nd Dept. 2004)(there was no contract between landowner and brother that made creditor a third-party beneficiary). Neither do Plaintiffs bring the action on behalf of the putative corporation. See, Business Corporation Law § 616. Indeed, they allege only a promise by Loturco that they would receive a 25% share of an entity to be formed and related rights, which include a purchase of the Yaphank property by the corporation to be formed. Nothing entitles Plaintiffs to enforce the alleged real estate contract.
Moreover, even were Plaintiffs able to support a cause of action on their own behalf with respect to the Yaphank property, which they cannot, their damages would be limited to 25% of net corporate profits; not 100% ownership of the Yaphank property. See, Business Corporation Law § 626 (e).
Thus, the motion to amend the amended verified complaint must be denied.
Insofar as Plaintiffs seek to add Sandpit Operations Partners, LLC, Zion Investments, Inc. and Woodside Industrial Associates, LLC as party defendants, the proposed Second Amended Verified Complaint raises no allegations to support a claim against such entities. The claim of conversion against "all" defendants is unsupported by any allegation that the Plaintiffs' loan went to or remained with the proposed additional defendants. Indeed, Plaintiffs apparently wish to add these parties only to "establish the chain of privity" and "give meaning to documents executed in the names of these entities". Plaintiffs could have achieved such goals by way of non-party depositions. The time for disclosure has expired and there are no clear claims against such proposed defendants. Thus, the motion must be denied.
Accordingly, it is,
ORDERED, that Plaintiffs' motion to amend the Amended Verified Complaint and to add additional parties defendant is denied.
This constitutes the decision and Order of the Court.
Dated: Mineola, NY_____________________________
July 24, 2007Hon. LEONARD B. AUSTIN, J.S.C.
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