Ragucci v Smith

[*1] Ragucci v Smith 2008 NY Slip Op 52429(U) [21 Misc 3d 1139(A)] Decided on September 26, 2008 Supreme Court, Richmond County Aliotta, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 26, 2008
Supreme Court, Richmond County

Carmine F. Ragucci, Plaintiff,

against

Richard F. Smith, Defendant.



12288/98

Thomas P. Aliotta, J.

Upon the foregoing papers, the supplemented motion of defendant RICHARD SMITH for dismissal of the complaint, having been duly converted upon notice to the parties into one for summary judgment (see CPLR 3211[c]), is granted.

This action was commenced by plaintiff CARMINE RAGUCCI (hereinafter "RAGUCCI") to recover damages allegedly arising out of defendant RICHARD SMITH (hereinafter "SMITH")'s breach of a purported March 1992 agreement negotiated by them to "resurrect" and operate the port facility located on Staten Island, New York, known as the Howland Hook Terminal. It is alleged in relevant part that, in furtherance of this business venture, a corporation called Howland Hook Marine Terminal and Container Services, Inc. (hereinafter, "HHMTCS") was formed. As set forth in a certain Stock Subscription Agreement dated October 26, 1992, HHMTCS sought to raise $4 million in aggregate initial capitalization as follows: 33 1/3% of the corporation's authorized shares of stock were to be issued to SMITH upon his payment of the subscription price of $2 million, and 33 1/3% of the corporation's authorized shares of stock were reserved for an investor to be found by RAGUCCI in exchange for $2 million.[FN1] The remaining 33 1/3% of the corporation's authorized shares of stock were reserved for RAGUCCI in exchange for his negotiation and procurement of a fifteen year lease from the Port Authority of New York and New Jersey to operate the Howland Hook facility and his satisfactory performance in the position of Chief Executive Officer. It is the alleged breach of this agreement which is the subject of this action.

On October 24, 2006, defendant SMITH supplemented his pending motion to compel discovery in this matter to request dismissal of the complaint based on his timely assertion of the affirmative defense of plaintiff's lack of standing to bring this action (see CPLR 3211[a][3]; Security Pac. Natl. Bank v Evans, 31 AD3d 278, 279, app dismissed 8 NY3d 837; accord Wells Fargo Bank Minn., N. A. v Mastropaolo, 42 AD3d 239, 241-242). By Decision and Order dated June 23, 2008, this Court notified the parties of its intention to treat said supplemented motion as one for summary judgment and afforded the parties ample time within which to submit additional supporting and [*2]opposing papers (CPLR 3211[c]).

In support of summary judgment, defendant SMITH maintains as he did previously that the complaint fails to state a cause of action, and that plaintiff lacks the legal capacity to sue. In particular, SMITH notes that there was no contractual relationship between himself and plaintiff RAGUCCI, as he entered into the stock subscription agreement with HHMTCS and, as such, any purported cause of action against him in connection with the resurrection of the Howland Hook Terminal lies with HHMTCS rather than RAGUCCI.

Defendant further maintains that, in any event, all right, title and interest in the October 26, 1992 Subscription Agreement was subsequently assigned by HHMTCS to another business entity, i.e., Howland Hook Container Terminal, Inc. (hereinafter, "HHCT"), which was allegedly formed by RAGUCCI to operate the Howland Hook Terminal with his new business partner, Orient Overseas International (hereinafter, "Orient"). Under that agreement, RAGUCCI was required to make a $200,000.00 capital contribution to HHCT in exchange for a twenty percent interest therein (i.e., 200,000 shares of common stock). According to SMITH, and as evidenced by a certain Amended and Restated Agreement dated July 14, 1995, RAGUCCI's $200,000.00 capital contribution to HHCT represented all of the remaining assets of HHMTCS, which were assigned on or about June 30, 1995 to Howland Hook Holding, Inc. (hereinafter, "HHH"), a special purpose entity formed by RAGUCCI for the sole purpose of acting as his designated shareholder in HHCT, and thereafter to the corporation itself.[FN2] Stated otherwise, HHMTCS assigned all of its assets to HHH (which presumably included any causes of action it might have had against SMITH in connection with the subject subscription agreement), and HHH simultaneously contributed/assigned those assets to HHCT as RAGUCCI's $200,000.00 capital contribution.[FN3] As a result, HHCT effectively absorbed the prior business venture between SMITH, RAGUCCI and Mallick known as HHMTCS on or about June 30, 1995. Further, defendant SMITH asserts that in aid of the new venture (HHCT), the Board of Directors of HHMTCS simultaneously adopted a Resolution (also dated June 30, 1995) cancelling the underlying SMITH Subscription Agreement by declaring it null and void.[FN4] Although SMITH correctly maintains that his Subscription Agreement entitled him to a pro rata share of the stock in HHMTCS, on or about September 11, 1995, its successor, HHCT, merely tendered him the sum of $380,500.00 in purported repayment of his "due diligence loans", i.e., his advances to HHMTCS in furtherance of the project.[FN5] [*3]

Finally, SMITH argues that, as evidenced by a certain Settlement Agreement dated November 16, 2001 between, inter alia, HHH, HHMTCS, HHCT and RAGUCCI, HHH sold its 20% shareholder interest in HHCT for $1.975 million. Pertinently, HHCT did not assign any claim or interest in the SMITH Subscription Agreement to HHH, HHMTCS or RAGUCCI.

It is well established that a shareholder has no standing to sue for a wrong committed against a corporation (see Abrams v Donati, 66 NY2d 951, 953). Accordingly, it is the Court's opinion that the moving defendant has established his prima facie entitlement to judgment as a matter of law on his affirmative defense (see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853) by the tender of admissible evidence which demonstrates on its face the absence of triable issues as to the following facts: (1) that the October 26, 1992 Stock Subscription Agreement expressly "contain[ed] the entire understanding between the subscribers [RAGUCCI and SMITH] and the corporation [HHMTCS]", thereby merging any purported prior agreements or business proposals between the parties; (2) that the Board of Directors of HHMTCS resolved to exercise its right to terminate the SMITH Subscription Agreement upon allegations of nonpayment on June 30, 1995; (3) that on June 30, 1995, all right, title and interest in any claim against SMITH or in connection with the simultaneously-terminated subscription agreement was assigned to HHCT as part of RAGUCCI's (HHH's) $200,000.00 capital contribution; (4) that RAGUCCI, as a shareholder of HHMTCS, possessed no individual or direct cause of action against SMITH, a fellow shareholder; (5) that in his status as such, RAGUCCI was required to commence a shareholder's derivative action on behalf of HHMTCS or its assignee, HHCT (see Business Corporation Law §626; Abrams v Donati, 66 NY2d at 953); (6) that on November 16, 2001, RAGUCCI caused HHH to sell its shareholder interest in HHCT; and (7) that any right, title or interest in any surviving claim against SMITH for breach of the subscription agreement was purportedly terminated by the Board of Directors of HHMTCS on June 30, 1995.

In view of all the foregoing, movant has adequately established that RAGUCCI has no legal capacity as an individual to pursue any alleged injury to HHMTCS or any successor corporation, since any individual damages sustained by RAGUCCI did not result from the breach of any duty owed by SMITH to the plaintiff/shareholder other than SMITH's corporate duties, if any (see Abrams v Donati, 66 NY2d at 953; cf. Bialobroda v Buchwald, 51 AD3d 467, 467). Moreover, RAGUCCI, is no longer a shareholder in HHCT, the legal and equitable owner of any claims which may still exist under SMITH's Subscription Agreement with HHMTCS. Finally, it appears that any purported interest that RAGUCCI may have had personally in the underlying subscription agreement was relinquished by virtue of the November 16, 2001 Settlement Agreement.

As for the balance of the complaint, it fails to state a derivative cause of action against SMITH, inter alia, by (1) failing to identify RAGUCCI as a shareholder of either HHMTCS or HHCT, an entity in which RAGUCCI was only derivatively a shareholder through HHH (see BCL §626[b]), and (2) failing to "set forth with particularity the efforts [by RAGUCCI]...to secure the initiation of such action by the board[s of such corporations,] or the reasons for not making such effort" (BCL §626[c]).[FN6] As previously indicated, the complaint also fails to plead any facts that would support a claim against SMITH by RAGUCCI individually (see Lama Holding Co. v Smith Barney, 88 NY2d 413, 424; Abrams v Donati, 66 NY2d at 953; Lawrence Ins. Group v KPMG Peat Marwick, 5 AD3d 918; cf. Bialobroda v Howard Buchwald, 51 AD3d at 467).

On these facts, the moving defendant is also entitled to summary judgment dismissing [*4]RAGUCCI's claim that SMITH's false assurances of his financial ability to capitalize the project caused plaintiff to "fail to pursue on behalf of HHMTCS" certain rent payments totaling $48,000.00 allegedly due from SMITH and a third party based on their purported occupancy of the Howland Hook Terminal from November 1995 through August 1997. Here, the documentary evidence demonstrates that HHCT was the lessor at the time in question.[FN7] Accordingly, RAGUCCI again lacked the requisite standing to bring any such claim against SMITH.

In addition, it is worthwhile to reiterate that the subject subscription agreement specifically provides that it constitutes the "entire understanding" between the parties. Therefore, any claim for compensatory damages predicated upon SMITH's failure, if any, to honor previous business negotiations would not have survived the execution of the subscription agreement, and is not actionable. As a result, defendant is entitled to summary judgment dismissing RAGUCCI's claims for compensatory and punitive damages predicated on the assertion that SMITH's false and misleading financial assurances seriously jeopardized and lengthened the lease negotiations, resulting in personal financial hardship to the plaintiff. In this regard, RAGUCCI has alleged that while working to secure the Howland Hook lease, he (1) resigned his position as executive vice-president of the New York Shipping Association in April 1992, (2) deferred compensation for himself, (3) was without medical insurance, and (4) was forced to sell his personal residence and several other properties in order to maintain his financial stability during the protracted delay.

Finally, RAGUCCI's allegation of a related $280,000.00 loan from an entity owned by SMITH to one owned by RAGUCCI is barred by the doctrine of res judicata since said claim has already been adjudicated in SMITH's favor in the Commercial Part of the New York County Supreme Court under Index No. 603661/00, and was affirmed by the Appellate Division, First Department on May 16, 2002 (Crest Shipping Agency (NY) v Commodore Consulting Inc., 294 AD2d 192).

In view of plaintiff's failure to rebut defendant's prima facie showing in support of summary judgment, the complaint must be dismissed (see Zuckerman v City of New York, 49 NY2d 557).

Accordingly, it is

ORDERED, that defendant's motion to dismiss, converted pursuant to CPLR 3211© into one for summary judgment, is granted, and the complaint is dismissed; and it is further

ORDERED, that the Clerk enter judgment in favor of defendant RICHARD SMITH and against plaintiff.

E N T E R,

Dated: September 26, 2008__/s/_________________________

Hon. Thomas P. Aliotta

J.S.C. Footnotes

Footnote 1: On or about October 30, 1992, the second subscriber/investor, Raj Mallick, entered into a Stock Subscription Agreement similar to the Smith Subscription Agreement dated October 26, 1992.

Footnote 2: For its part, Orient agreed to contribute $800,000.00 in exchange for 80% of HHCT's common stock and $5.2 million in exchange for 86.6% of its preferred shares of stock through Consolidated Leasing & Terminals, Inc., its special purpose entity/designated shareholder.

Footnote 3: Notably, plaintiff RAGUCCI served as the president, chief executive officer and director of HHMTCS, HHCT and HHH.

Footnote 4: Pertinently, the SMITH Subscription Agreement provides in paragraph 8, inter alia, that if payment of the subscription price is not made, the corporation (HHMTCS) may cause the subscription agreement to become null and void and any payments made by the subscriber shall become the property of the corporation.

Footnote 5: Rather than a shareholder, SMITH was listed as a creditor on Schedule 4 of HHCT's shareholders' agreement dated July 14, 1995.

Footnote 6: See footnote 3.

Footnote 7: The complaint alleges that the " lease agreement between the Port Authority of New York and New Jersey and HHMTCS [ended]... in July, 1995."