Fresh Meadow Food Servs., LLC v R.B. 175 Corp.

[*1] Fresh Meadow Food Servs., LLC v R.B. 175 Corp. 2011 NY Slip Op 52462(U) Decided on October 18, 2011 Supreme Court, Queens County Grays, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 18, 2011
Supreme Court, Queens County

Fresh Meadow Food Services, LLC and THOMAS J. CLARKE, Petitioner(s),

against

R.B. 175 Corp., RAPHY BENAIM, TOVIT BENAIM, EMPIRE NATIONAL BANK, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE AND NEW YORK CITY DEPARTMENT OF FINANCE., Respondent(s).



12528/2011



Attorneys of Record:

Wilk Auslander (212) 421-2233 [plaintiff]

Paul Siegert (2112) 564-8181 [defendants R.B 175, Benaim's]

Balfe & Holland (631) 501-1000 [defendant Empire National Bank]

Marguerite A. Grays, J.

The following papers numbered 1 to 25 read on this motion by petitioners pursuant to CPLR 5228, and Business Corporation Law §§ 1008, 1115 and 1202 for leave to appoint a temporary receiver of the property of respondent R.B. 175 Corp. (RB), and the shares of stock in respondent corporation owned by respondents Raphy Benaim and Tovit Benaim, (respondents Benaim) and to enjoin, pending the determination of this special proceeding, respondents, their attorneys and any other persons or entities acting on their behalf, from taking any steps to dispose of any assets of respondent RB, and any shares of RB stock owned by respondents Benaim, and others in privity with them or related to them; and this cross motion by respondent Empire National Bank (Empire) pursuant to CPLR 3211(a)(7) and CPLR 404 to dismiss the petition for failure to state a claim against it.

Papers

Numbered

Order to Show Cause - Affidavits - Exhibits .......................................1-12

Notice of Cross Motion - Affidavits - Exhibits ...................................13-22

Answering Affidavits - Exhibits ..........................................................23-25 [*2]

Reply Affidavits ...................................................................................

Upon the foregoing papers it is ordered that the motion and cross motion are determined as follows:

Petitioners commenced this special proceeding pursuant to Business Corporation Law § 1008, seeking judicial supervision of the liquidation of respondent RB, a New York corporation. In their petition, they allege that petitioner Fresh Meadow Food Services, LLC (Fresh Meadows), is the tenant in possession of the real property known as 175-14 Horace Harding Blvd., Fresh Meadow, New York (Block 6895, Lot 10) (the real property), pursuant to an assignment of a 30-year lease executed by petitioner Thomas J. Clarke, the managing member of Fresh Meadows (the lease). Petitioners also allege that the lease is recorded against the real property, which is owned by respondent RB. Petitioners further allege they operate a restaurant there, which Fresh Meadows constructed at its sole expense. Respondent RB allegedly was dissolved on October 27, 2010, by proclamation of the New York State Secretary of State (Secretary of State). Petitioners are judgment creditors of respondents Benaim, the alleged sole shareholders of respondent RB, and respondent RB (collectively the Benaim respondents), having obtained money judgments dated October 19, 2010 and December 21, 2010, against them in an action in the United States District Court for the Eastern District of New York entitled Fresh Meadow Food Services, LLC v RB 175 Corp., (2004 CV 4767) (the money judgments).[FN1] Petitioners allege they have a liquidated claim for interest in the amount of $189,847.84 against the Benaim respondents based upon an order dated December 14, 2010 issued in that federal action.[FN2] Petitioners additionally allege that the federal money judgments have been docketed against the RB respondents in the office of the Queens County Clerk, and became a lien on the real property. Petitioners claim the Benaim respondents cannot be trusted to proceed with liquidation in a manner which will take into account creditors' interests, and thus the liquidation of respondent RB requires judicial supervision. Petitioners allege that the Benaim respondents have engaged in fraudulent conduct in connection with the initial lease transaction, failed to file tax returns and may incur additional tax liabilities. Petitioners also allege respondents RB and Raphy Benaim have incurred large fines for violating environmental laws. Petitioners additionally allege that respondents New York State Department of Taxation and Finance and New York City Department of Finance (the governmental respondents) have filed tax liens totaling $127,380.47 as of April 13, 2011 against the RB real property, and that Empire is the holder of a substantial mortgage lien recorded against that property. [*3]

By order to show cause and temporary restraining order dated May 24, 2011, petitioners move, pursuant to CPLR 5228, and Business Corporation Law §§ 1008, 1115 and 1202, for the appointment of a temporary receiver of the assets of respondent RB and the shares of RB stock held by respondents Benaim, and to enjoin all the respondents from transferring the assets of respondent corporation and the RB shares of stock. Petitioners assert that the Benaim respondents have failed to pay anything towards the satisfaction of the money judgments or their liquidated claim, taken no steps to wind up respondent RB's affairs, and are attempting to structure a sale of the real property in such a way as to render their judgments and liquidated claim to be uncollectible. They also assert respondent Raphy Benaim stipulated in the federal action that he had not filed tax returns.

Respondent Empire opposes the motion to the extent petitioners seek to enjoin Empire from pursuing its rights, including the right to foreclose, and cross moves to dismiss the petition for failure to state a claim against it. Respondent Empire asserts it is the holder of a first and second mortgage against the real property, which mortgages were recorded prior to the entry of the judgments obtained by petitioners. Respondent Empire claims that as a result, a buyer at a property execution sale pursuant to a levy would take subject to its mortgage liens (see CPLR 5233). Respondent Empire argues that as the holder of the mortgages, it has the right to foreclose against respondent RB's real property in the event of a default.

The Benaim respondents oppose the motion by petitioners, asserting that petitioners have failed to establish a basis for the relief sought, and are acting in bad faith by seeking the appointment of a receiver. In addition, the Benaim respondents assert petitioners have wrongfully withheld payment of rent to respondent RB since April 2010, thus contributing to respondent RB's default in payment of its tax obligations. They further assert they are trying to restore respondent RB to "active" status.

Respondent New York City Department of Finance appears in response to the motion by petitioners, but takes no position regarding it or the cross motion.

A corporation dissolved as a delinquent corporation under the Tax Law is authorized to conduct business only to the extent necessary to wind up its affairs (see Brandes Meat Corp. v Cromer, 146 AD2d 666 [1989]). Business Corporation Law § 1005 defines "winding up" as the performance of acts directed toward the liquidation of the corporation, including the collection and sale of corporate assets (see Business Corporation Law § 1005[a][2]; 172 East 122 Street Tenants Assn. v Schwarz, 73 NY2d 340 [1989]). Business Corporation Law § 1008 provides for judicial supervision of the liquidation of a New York State corporation which has been dissolved, including one dissolved pursuant to Tax Law § 203-a (see Business Corporation Law § 1009), and permits the appointment of a receiver under article 12 of the Business Corporation Law and the issuance of injunctions for one or more of the purposes as provided in Business Corporation Law § 1115 (see Business Corporation Law § 1008[a][8], [9]). Business Corporation Law § 1202(a) allows for the appointment of a receiver of the property of a corporation in a special proceeding brought under article 10 of the Business Corporation Law (non-judicial dissolution). [*4]Business Corporation Law § 1207(a)(1)(c) requires that the provisions regarding the giving of notice to creditors and claimants and the filing and barring of claims (Business Corporation Law § 1007), be followed by a receiver appointed in a non-judicial dissolution proceeding. Business Corporation Law § 1115 authorizes the court to issue an injunction for the purpose of restraining the corporation, and its directors and officers, from transacting any unauthorized business, exercising any corporate powers, collecting or receiving any debt or property of the corporation, and paying out or otherwise transferring or delivering any property of the corporation, except by permission of the court (Business Corporation Law § 1115[a][1], [2]). The court has the authority, pursuant to Business Corporation Law § 1008, to make all such proper orders in connection with the liquidation of the corporation's property, including, but not limited to, establishing the validity, amount and priority of the claims presented to the corporation, payment, satisfaction or compromise of the claims against the corporation, and determining the adequacy of provisions made for the payment of liabilities of the corporation (see Business Corporation Law § 1008[a]).

In addition, pursuant to CPLR 5228, upon the motion of a judgment creditor, the court, in an exercise of discretion, may appoint a receiver to administer, collect, improve, lease, repair or sell any real or personal property of the judgment debtor, or to do any other acts designed to satisfy the judgment (see CPLR 5228[a]; Sealy v Sealy, 57 AD2d 893 [1997]; see also Matter of Chlopecki v Chlopecki, 296 AD2d 640 [2002]; United States v Zitron, 1990 WL 13278, *1, 1990 US Dist LEXIS 1049, *2 [SD NY, Feb. 2, 1990, Carter, J.]). However, "[a] motion to appoint a receiver should only be granted ... when a special reason appears to justify one' (Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C5228:l, at 324). In deciding whether the appointment of receiver is justified, courts have considered the (1) alternative remedies available to the creditor ...; (2) the degree to which receivership will increase the likelihood of satisfaction ...; and (3) the risk of fraud or insolvency if a receiver is not appointed' (United States v Zitron, 1990 WL 13278, 1990 US Dist LEXIS 1049, [SD NY, Feb. 2, 1990] [supra] [citations omitted])" (Hotel 71 Mezz Lender LLC v Falor, 14 NY3d 303 [2010]).

The cross motion by respondent Empire to dismiss the petition asserted against it based upon failure to state a claim is granted without opposition.

With respect to that branch of the motion by petitioners for leave to appoint a receiver for the shares of stock owned by respondents Benaim and enjoin their transfer, the purpose of this special proceeding is to obtain judicial supervision of the liquidation of the assets, whether real property and personal property, of respondent RB, as a dissolved corporation. To the extent Benaim respondents assert they are trying to restore respondent RB to "active" status, they have made no showing that the delinquent taxes have been paid, or the dissolution has been annulled, and do not cross move to suspend or annul the dissolution. Thus, the Benaim respondents remain obligated to wind up the affairs of the corporation, and liquidate its assets.

Petitioners, however, have failed to show the manner in which enjoining the transfer of [*5]the shares of stock owned by respondents Benaim, or appointing a receiver over the shares will promote the liquidation of corporate assets. Petitioners make no claim that a transfer of the shares would stymy liquidation. Furthermore, even considering whether an injunction or receivership vis-a-vis the shares would promote satisfaction of petitioners' judgments, petitioners make no claim that the shares of stock are not subject to levy or capable of delivery. Petitioners also make no claim that respondents Benaim are insolvent, or at risk to become insolvent, or are about to assign or transfer the shares of stock in an effort to defeat petitioners' liquidated claim, or other creditors' claims against respondent RB (cf. CPLR 6201). In addition, to the extent respondents Benaim were found guilty of fraud in the inducement of the lease, such finding would not constitute a ground for attachment of the shares of stock in connection with petitioners' liquidated claim (see CPLR 6201; see generally Siegel, New York Practice § 314, at 519-520 [5th ed] [2011]).

With respect to that branch of the motion for leave to appoint a receiver in relation to the assets of respondent RB, petitioners have identified the real property and the lease with petitioner Fresh Meadow as the assets of the corporation. Petitioners do not claim respondent RB is in possession of the real property, or that income is being produced at the property. To the extent petitioners claim the real property remains environmentally contaminated, they have failed to offer proof thereof. In any event, they have failed, at this juncture, to point to any corporate assets which could be used by a receiver to fund remediation in advance of a liquidation sale of the property. Petitioners do not dispute that Fresh Meadows has failed to pay rent to respondent RB, and have made no showing that it is legally excused from doing so, or is entitled to any offset, as a holder of the unsatisfied money judgments. Petitioners presumably do not wish a receiver to be appointed simply to collect rent arrears or current rent from Fresh Meadows in an effort to gather assets and wind up the corporation's affairs.

To the extent petitioners assert the Benaim respondents are attempting to sell the real property, a corporation retains both title to its real property and legal authority to transfer such title, notwithstanding its dissolution for failure to pay franchise taxes (see Matter of Sullivan, 31 AD3d 651 [2006]). "The dissolution of a business corporation for failure to pay franchise taxes does not affect the corporation's right to collect or distribute its assets (see Tax Law § 203-a [10]; Business Corporation Law §§ 1006, 1009; Vinlis Constr. Co. v Roreck, 67 Misc 2d 942, 944 [1971], affd 43 AD2d 911 [1974]; see also Cassetta Frank, Inc. v P.G.C. Assoc., 264 AD2d 375, 377 [1999])" (Matter of Sullivan, 31 AD3d 651, 652-653 [2006]). Moreover, petitioners do not deny that they have been involved in unsuccessful negotiations to purchase the real property from respondent RB. To the extent petitioners contend the Benaim respondents are attempting to structure a sale of the real property in a manner to defeat creditors, any tax liability for delinquent franchise taxes will attach to the corporation's real and personal property " or of a transferee liable to pay the same' (see Tax Law § 1092[j]; Matter of Costello v New York State Dept. of Taxation & Fin., 125 AD2d 775 [1986])" (Matter of Sullivan, 31 AD3d 651 [2006], supra at 653). A potential purchaser, furthermore, by virtue of the Recording Act, will be furnished with at least constructive notice of previous mortgages, encumbrances and liens that might affect the purchaser's interests, including petitioners' own judgment liens. Petitioners [*6]make no allegation that respondent RB is insolvent, or at risk to become insolvent, or allege any specific facts to show the Benaim respondents intend to avoid paying an unsecured claim presented by them.

Thus, petitioners have failed to show, at this point, that the appointment of a receivership over the real property, or an injunction against the transfer of the real property will promote the winding up of corporate affairs or the liquidation of corporate assets. Clearly, petitioners can exercise their right to sell the real property under an execution, notwithstanding their argument such remedy is time-consuming and cumbersome.

Under such circumstances, the motion by petitioners is denied. The cross motion by respondent Empire to dismiss the petition asserted against it based upon failure to state a claim is granted without opposition.

Dated: October 18, 2011

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J.S.C. Footnotes

Footnote 1: In the federal action, the United States District Court found RB 175 Corp., Raphy Benaim and Tovit Benaim had fraudulently induced Clarke to sign the lease, based upon a misrepresentation that the property was free from underground storage tanks and petroleum contamination.

Footnote 2:According to petitioners, the liquidated claim has not been reduced to judgment yet because the federal order was issued after an appeal from the judgments was taken.