Pokoik v Poloik

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Pokoik v Poloik 2013 NY Slip Op 30132(U) January 21, 2013 Supreme Court, New York County Docket Number: 115224/2010 Judge: Joan M. Kenney Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCANNED ON 11251201 [* 1] SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PART Justice index Number : 115224/2010 POKOIK, LEE vs. POKOIK, GARY SEQUENCE NUMBER : 006 -2- MOTION DATE MOTION SEQ.NO. @O SUMMARY JUDGMENT The following papers, numbered Ito , were read on this motion tolfor Notice of MotionlOrder to Show Cause -Affidavits Answering AtTidavits - Exhibits IWS). I NOW. I No(a)* - Exhibib ReplyingAffidavits Upon the foregolng papers, it is ordered that this motion is MOTION IS DECIDED IN ACCORDANCE WITH THE ATTACHED MEMORANDUM DECIStON, FILED JAN 2 5 2013 * NEW YORK COUNTY CLERK'S OFFICE ,J.S.C. JOAN M. KENMEY ..................................................................... 2. CHECK AS APPROPRIATE: .............. MOTION IS: 3. CHECK IF APPROPRIATE: ................................................ 1. CHECK ONE: @ NON-dt&EOlSPOSiTtON , CASE DISPOSED [7 GRANTED SETTLE ORDER DO NOT POST DENIED OTHER GRANTED IN PART 0SUBMIT ORDER FIDUCIARY APPOINTMENT REFERENCE [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK : IAS PART 8 X Lee Pokoik a/k/a Leon Pokoik,. Plaintiff, -againstGary Pokoik, Jonathan P o k o i k and J. Pokoik Realty, LLC, FILED JAN 2 5 2013 Index Number: 115224/2010 DECISION & ORDER Joan M. Kenney, J.: Gary Pokoik (Gary) and Jonathan Pokoik (Jonathan) move for summary judgment, pursuant to CPLR 3212, dismissing plaintiff's (Leon) complaint Leon cross-moves for summary judgment, and pursuant to CPLR 3212, and for leave to add 242-44 East 77th Street, LLC and 234 East 82nd Street, LLC as defendants. The complaint against J. Pokoik Realty, LLC (Realty) was dismissed by the court's order dated July 2, 2011 (the J u l y 2011 Order). Factual Background and Procedural History Leon alleges that he and Gary are managing members of Realty (complaint, 4), and that they were involved in owning and ¶ managing various real estate properties, together with other family members (id., ¶ 5). He contends that he had the actual management of these businesses until A p r i l 2006, when he yielded management control to Gary (id., ¶ 8). He further states that R e a l t y was formed thereafter in 2006 by Gary and Jonathan to manage the properties (id. ) The complaint concerns Leon's claims regarding p r o p e r t y [* 3] located at 221 East 76th Street (the East 76th Street Property), property located at 234 East 82nd Street, New Y o r k , N.Y. (the East 82nd Street Property), property located at 242-244 East 77th Street, New York, N.Y. (the East 77th Street Property) and p r o p e r t y l o c a t e d at 521 East 8 3 r d Street, New York, N.Y. (the E a s t 83rd Street Property (collectively, the Properties) (id., 9 11). Leon asserts that the Properties' ownership and management rights and obligations are embodied in operating agreements or similar documents, which provide for distribution payments (id., ¶ 6). He further contends that he has a 20% ownership interest in the East 76th Street Property, pursuant to a co-tenancy agreement dated December 31, 1985 (the East 76th Street Agreement); a onethird ownership interest in 234 East 82nd Street LLC (the East 82nd Street LLC), which owns the East 82nd Street Property, pursuant to an operating agreement dated J u l y 28, 1997 (the E a s t 82nd Street Operating Agreement); a one-quarter ownership interest in 242-244 East 77th Street, LLC (the East 77th Street LLC), which owns the East 77th Street Property, pursuant to an operating agreement dated July 28, 1997 (the East 77th Street Operating Agreement); and a one-sixth ownership interest in the East 83rd Street Property, under a tenancy-in-common Agreement) ( i d . , ¶¶ agreement (the East 83rd Street 11-12). Leon contends that Defendants breached their obligation to make "appropriate distributions" to him 2 (id. , ¶ 1 5 ) , instead, [* 4] making a lesser or no distribution to him (id., ¶ 16), and that this constituted a breach ok their fiduciary duty to him (first cause of action) * Lean s remaining causes of action are only against breach Gary for of contract for failure to make appropriate distributions regarding the East 76th Street P r o p e r t y (second cause of action), the East 82nd Street Property (third cause of action), the East 77th Street Property (fourth cause of action) and the East 8 3 r d Street Property (fifth cause of action). This action was commenced on November 24, 2010. The underlying facts are set forth in detail in the J u l y 2 0 1 1 Order and, therefore, need not be repeated. In the July 2011 Order, the court dismissed the complaint against Realty, stayed proceedings related to the East 7 6 t h Street Property and directed the parties to proceed to arbitration on that claim and dismissed the third and fourth causes of action ( J u l y 2011 Order, at 11-13). The c o u r t denied plaintiff s motion to add additional parties by order dated October 24, 2011 (the October 2011 Order). Since plaintiff never appealed the October 2011 Order, it is the law of the case and the portion of Leon s cross motion that s e e k s to add the East 77th Street LLC and the East 82nd Street LLC as defendants is denied. Moreover, Leon has f a i l e d to submit a proposed amended complaint, also warranting denial of this aspect of his cross motion. Leon contends that a dispute arose between he and Gary 3 [* 5] regarding the management of the Properties. Eisner & Eisner & They arranged f o r Lubin to perform a forensic accounting (the Agreement). Lubin ultimately issued a report in June 2006 (the Report). He and G a r y executed a settlement agreement in July 2006 (the Settlement), that resolved the dispute (Leon affidavit, ¶¶ 5- 11). Leon further asserts that he made the required payments under the Settlement, but that defendants wrote down his capital accounts in the Properties improperly and failed to make required payments due to him based upon these allegedly improper write downs (id., ¶ ¶ 12-14, 18, 21-28). He states that this conduct establishes Gary's bad faith and that because Jonathan signed distribution checks he too is liable (id., ¶¶ 34-39). Gary and Jonathan allege that Gary was the managing member of the East 82nd Street LLC and the East 77th Street LLC, and that Gary and Leon each have a one-sixth interest in the East 83rd Street Property (Gary affidavit, ¶ 5). They assert that in F e b r u a r y 2006, Gary discovered that Leon had misappropriated more than $2 million from the Properties to fund his own personal business ventures and that as a result, management of the Properties was transferred from Leon to Gary and the Agreement was entered into in order to determine the exact amount Leon had taken (id., ¶ ¶ 7-10). They state that the Settlement required that Leon pay back certain amounts and that any discrepancies between the amounts p a i d and the amounts shown on the books of the Properties 4 [* 6] be written off by the respective entities (Settlement, ¶ 5) and that the write down of Leon's capital accounts was done f o r that reason (Gary affidavit, 12, 14-15). Jonathan contends that Leon's complaint should be dismissed against him, since Gary was the managing partner of the Properties and that Jonathan had no discretionary authority o v e r the amount of the distributions, affidavit, ¶¶ but merely signed the checks (Jonathan 3, 6). Gary and Jonathan state that Gary a c t e d in good faith, based upon Eisner & Lubin's advice that it was appropriate to write down Leon's capital accounts (Erdmann EBT, at 74, 85-87). Eisner & However, Lubin stated that the Agreement was not a general reconciliation (id. at 6 9 ) . Summary Judgment A party seeking summary judgment must make a prima facie case showing that it is entitled to judgment as a matter of law by proffering sufficient evidence to demonstrate the absence of any material issue of fact ( A l v a r e z v Prospect Hosp., 6 8 N Y 2 d 320, 324 [1986]) If the movant fails to make this showing, the motion must be denied (id.). Once the movant meets its burden, then the opposing party must produce evidentiary p r o o f in admissible form sufficient to raise a triable issue of material fact (Zuckerman v C i t y of N e w York, 49 NY2d 557, 562 [1980]). In deciding the motion, the court must draw all reasonable inferences in favor of 5 [* 7] the nonmoving party and deny summary judgment if there is any doubt as to the existence of a material issue of fact ( B r a n h a m v Loews Orpheum Cinemas, I n c . , 8 NY3d 931, 932 [ 2 0 0 7 ] ; Dauman Displays v Masturzo, 168 AD2d 204, 205 [lst Dept 19901, Iv dismissed 77 NY2d 939 [1991]). Breach of Fiduciary Duty "'[Tlhe elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct'" (Palmetto Partners, L.P. v AJW Q u a l i f i e d Partners, LLC, 8 3 AD3d 804, 8 0 7 [2d Dept [internal citation omitted]). 20111 "A majority shareholder in a close corporation is in a fiduciary relationship with the minority [shareholder]" ( R i c h b e l l Info. Servs. v J u p i t e r P a r t n e r s , 3 0 9 AD2d 2 8 8 , 300 [lst Dept 20031). company ... [owes] (Salm v F e l d s t e i n , ... Similarly, "the managing member of the a fiduciary duty [to the other members]" 2 0 AD3d 469, 470 [2d Dept 20051; C o t t o n e v S e l e c t i v e S u r f a c e s , Inc., 68 AD3d 1 0 3 8 , see a l s o 1 0 3 9 [2d Dept 20091). The business judgment rule "bars judicial inquiry into actions P of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" (Auerbach v Bennett, 47 NY2d 619, 629 [ 1 9 7 9 ] ) . However, it "does n o t foreclose judicial inquiry into the decision 6 [* 8] of a board of directors where the board acted in bad faith, e . g . , by deliberately singled out an individual f o r harmful treatment" ( O w e n v Hamilton, 4 4 AD3d 452, 4 5 6 [lst Dept 20071, lv d i s m i s s e d 10 NY3d 757 [ 2 0 0 8 ] ; B a r b o u r v Knecht, 2 9 6 AD2d 2 1 8 , 224 [lst Dept 20021). Contract Interpretation Generally, "when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms [and extrinsic evidence] is generally inadmissible to add to or v a r y the writing" (W.W.W. Assoc. v G i a n c o n t i e r i , 7 7 NY2d 162 [ 1 9 9 0 ] ) . 157, It is improper for the court to rewrite the parties' agreement and the best evidence of the parties' agreement is their written contract ( G r e e n f i e l d v P h i l l e s Records, 98 N Y 2 d 562, 5 6 9 [ Z 0 0 2 ] ) . Analysis Applying the aforementioned principles to this case, Jonathan's motion for summary judgment dismissing the complaint against him must be granted. He has presented evidence that he had no authority to determine the amount of the distributions to Leon and only wrote the checks, moareover, Leon has failed to rebut this showing. Since Jonathan was neither the majority stakeholder, nor the managing member, therefore he was not in a fiduciary relationship with Leon ( C o t t o n e , 68 AD3d at 1039; S a l m , 20 AD3d at 470). Further, Leon has not 7 shown any "misconduct" by on [* 9] Jonathan's (Palmetto behalf Partners, AD3d 83 at 807) . Accordingly, Leon's complaint is dismissed against Jonathan. There is no dispute that Leon's capital account was written down and that, therefore, he was treated differently from the other shareholders. He contends that the Settlement limited his responsibility f o r his alleged misappropriation of funds to partial repayment and that, consequently, the write down of his capital account was improper and due to bad faith. Gary contends that the write down of Leon's capital account was proper, because the decision was made based upon Eisner & Lubin's determination, which was embodied in the Settlement, and was necessary to comply with the relevant Treasury regulations and proper accounting practices. Gary therefore, argues that the write down of Leon's account was not "misconduct" capital claim of breach of and Leon's fiduciary duty must fail ( P a l m e t t o Partners, 83 AD3d at 8 0 7 ) . The reasons for the write down cannot be determined as a matter of law, particularly since the Eisner & Lubin review was not a general reconciliation (Erdmann EBT, at 69). The Settlement is ambiguous in reference to the write down. The reasons for, and the appropriateness of the write down, the purported bad faith of Gary in determining to write down Leon's capital accounts and the degree to which Gary relied upon Eisner & Lubin's advice are factual issues that are more properly. resolved by a finder of fact at trial. Accordingly, Gary's motion and Leon's 8 cross motion for [* 10] summary judgment are both denied. ORDERED Consequently, it is that the motion of Jonathan Pokoik for summary judgment dismissing the complaint and any cross claims against him is granted, and said complaint and any cross claim against said party are dismissed in their entirety, with costs and disbursements as taxed by the of the Court upon Clerk submission of an appropriate bill of costs, and the C l e r k is directed to enter judgment accordingly in favor of said ,party; and it is further ORDERED that the action is severed and continued against the remaining party; and it is further ORDERED t h a t t h e motion of Gary Pokoik f o r summary judgment dismissing the complaint against him is denied; and it is further ORDERED that the cross motion of Lee Pokoik a/k/a Leon P o k o i k f o r summary judgment and f o r leave to add 242-44 E a s t 77th Street, LLC and 234 East 82nd Street, LLC as defendants is denied. Dated: January 21, 2013 FILED ENTER: JAN 25 2013 COUNTY CLERK'S OFFICE 9

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