Scibelli v Beacon Bldg. Group, LLC

[*1] Scibelli v Beacon Bldg. Group, LLC 2014 NY Slip Op 24199 Decided on June 20, 2014 Supreme Court, Queens County Siegal, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on June 20, 2014
Supreme Court, Queens County

Robert F. Scibelli, Petitioner,

against

Beacon Building Group, LLC and Craig Belesi, Individually, , Respondents.



14376/12



The appearances of counsel:

Attorney for Petitioner

Law Offices of Karl Brodzansky

One Old Country Rd.

Ste 427

Carle Place, NY 11514

Attorney for Respondents

Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Einiger, LLP

1111 Marcus Avenue, Ste 107

Lake Success, New York 11042
Bernice D. Siegal, J.

The following papers numbered 1 to 16 read on this motion for an order granting to petitioner (1) pursuant to New York Limited Liability Company Law §702, dissolving respondent, Beacon building Group, LLC; (2) pursuant to New York Limited Liability Company Law §1104-a, dissolving respondent, Beacon building Group, LLC; (3) appointing petitioner as Receiver for purpose of winding down, obtaining a full accounting and liquidating the respondent, Beacon building Group, LLC; (4) directing and compelling the respondent, Belesi, to fully account for his conduct in the management and disposition of the profits and property of the respondent, Beacon building Group, LLC; (5) directing and compelling the respondent, Belesi, to pay to the petitioner his rightful and proportionate share of any money the value of any property which the respondent acquired unto himself, and/or transferred to others, or lost, wasted, dissipated, by or through the actions of the respondent, Belesi, and/or failure to perform or by violation of his duties; (6) enjoining and restraining the respondent, Belesi, from transferring, hypothecating, encumbering and/or dissipating any asset(s) of Beacon building Group, LLC; and (7) awarding petitioner a sum for [*2]damages sustained.

PAPERS

NUMBERED

Order to Show Cause - Affidavits-Exhibits..............................1 - 4

Affirmation in Opposition........................................................5-9

Reply Affirmation.....................................................................10 - 12

Sur-Reply..................................................................................13 - 14

Petitioner's Rebuttal to Sur-Reply...........................................15 - 16

Upon the foregoing papers, it is hereby ordered that the motion is resolved as follows:

I. Facts

In this action, petitioner, Robert Scibelli, has filed an Order to Show Cause to dissolve Beacon Building Group, LLC (Beacon), pursuant to Limited Liability Company Law § 702 and Business Corporation Law § 1104-a, for an accounting, to be appointed a Receiver, for certain damages, to compel respondent Craig Belesi to provide certain documents needed for an accounting, and for attorneys' fees. This Court allowed Belesi to file a Sur-Reply and Scibelli to file a Rebuttal to Sur-Reply.

Scibelli and Belesi were co-owners of Beacon, a limited liability corporation. As per Beacon's Operating Agreement, Scibelli owned 25% of the shares in the company, while Belesi owns 75% of the shares in the company. Scibelli alleges that Belesi rescinded Scibelli's access to Beacon's financial records and bank accounts; failed to pay the amount due on one of Beacon's credit cards that was guaranteed by Scibelli, resulting in Scibelli paying $9,921.00 to Chase; improperly used Beacon's funds to make payments to himself and family members; and stopped paying Scibelli a salary or benefits while paying himself and family members.

Belesi has not disputed those allegations.

The Operating Agreement, signed by both parties, provides for dissolution upon a vote of the Members holding a majority of the Membership Interests; dissolution pursuant to Limited Liability Company Law § 702; or if there are no Members of Beacon.

II. Discussion

For the following reasons, Scibelli's Order to Show Cause is granted as to the dissolution of Beacon; an accounting; and to compel Belesi to provide financial records. Scibelli's Order to Show Cause is denied as to the appointment of Scibelli as a Receiver; for attorneys' fees; and for damages.

A. Dissolution

Scibelli is moving to dissolve Beacon based on Limited Liability Company Law § 702 and Business Corporation Law § 1104-a. Dissolution is warranted based on both of those statutes.

i. Limited Liability Company Law § 702

Limited Liability Company Law § 702 provides that:

On application by or for a member, the supreme court in the judicial district in which the office of the limited liability company is located may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. A certified copy of the order of dissolution shall be filed by the applicant with the department of state within thirty days of its issuance.

(Limited Liability Company Law § 702.) The "not reasonably practicable" standard means "(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible." (In re 1545 Ocean Ave., LLC, 72 AD3d 121, 131 [2d Dep't 2010]; see also Mizrahi v. Cohen, 104 AD3d 917, 920 [2d Dep't 2013].) Being disjunctive, only one prong of the "not reasonably practicable" standard needs to be met for dissolution under Limited Liability Company Law § 702. "The appropriateness of an order of dissolution of a limited liability company is vested in the sound discretion of the court." (In re Extreme Wireless, LLC, 299 AD2d 549, 550 [2d Dep't 2002].)

Here, dissolution of Beacon is appropriate under Limited Liability Company Law § 702 because Beacon's management is contravening the stated purpose of Beacon, which, as per Beacon's Operating Agreement, is to "conduct any lawful business." However, Beacon "is no longer conducting business, is in the process of winding down, and only operates to collect monies owed for construction projects already completed," (emphasis added.) (Sur-Reply at 10.) Thus, Beacon's management is "unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved." (In re 1545 Ocean Ave., LLC, 72 AD3d at 131.)

Under the second type of the "not reasonably practicable" test, it is not clear that having Beacon continue in operation is "financially unfeasible." (In re 1545 Ocean Ave., LLC, 72 AD3d at 131.) Cognizant of the Court's discretion in whether to grant a dissolution (In re Extreme Wireless, LLC, 299 AD2d at 550), the Appellate Division has not given a definition to "financially unfeasible." (See Doyle v. Icon, LLC, 103 AD3d 440 [1st Dep't 2013]; In Re 1545 Ocean Ave., LLC, 72 AD3d 121 [2d Dep't 2010]; In re Eight of Swords, LLC, 96 AD3d 839 [2d Dep't 2012]; Mizrahi v. Cohen, 104 AD3d 917 [2d Dep't 2013].) But it is clear that the parties' actions have propelled Beacon into a state of financial unfeasibility. Belesi is admittedly winding down Beacon's business. Belesi failed to pay Scibelli a salary; failed to pay one of Beacon's credit cards; allegedly used corporate assets to pay himself and family members (which Belesi does not dispute); and has admitted that Beacon is no longer transacting any business. Scibelli has not done anything to involve Beacon in business transactions either; indeed, Scibelli stopped doing any work for Beacon in 2011. With Beacon's lack of business, inability or unwillingness to pay bills or salaries, and misuse of corporate funds, having Beacon continue in operation would be "financially unfeasible." (In re 1545 Ocean Ave., LLC, 72 AD3d at 131.)

Only one prong of the "not reasonably practicable" test needs to be satisfied for dissolution under Limited Liability Company Law § 702. (In re 1545 Ocean Ave., LLC, 72 AD3d at 131.) Here, Scibelli has satisfied both prongs and is entitled to dissolution pursuant to Limited Liability Company Law § 702. ii. Business Corporation Law § 1104-aBusiness Corporation Law § 1104-a provides two ways in which dissolution may be granted upon petition by an owner or owners of 20% more of the company's shares: when "[t]he [*3]directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders; [or] [t]he property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation." (Business Corporation Law § 1104-a.) Being disjunctive, only one prong of Business Corporation Law § 1104-a must be satisfied. Similar to dissolution under Limited Liability Company Law § 772, "[t]he appropriateness of an order of dissolution pursuant to Business Corporation Law § 1104-a 'is in every case vested in the sound discretion of the court considering the application."' (Matter of Fancy Windows & Doors Mfg. Corp., 244 AD2d 484, 484 [2d Dep't 1997] (quoting Matter of Kemp & Beatley, Inc., 64 NY2d 63, 73 [1984]).) As used in Business Corporation Law §1104-a, "oppression should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner's decision to join the venture." (In re Charleston Square, Inc., 295 AD2d 425, 426 [2d Dep't 2002] (quoting Matter of Kemp & Beatley, Inc., 64 NY2d at 73).) As used in Business Corporation Law §1104-a, waste includes the "misappropriation of corporate assets for private purpose." (Cunningham v. 344 6th Ave. Owners Corp., 256 AD2d 406, 407 [2d Dep't 1998].)

The Operating Agreement signed by the parties does not provide for dissolution pursuant to Business Corporation Law § 1104-a. However, Scibelli can still dissolve Beacon pursuant to Business Corporation Law § 1104-a because dissolution pursuant to that statute is a right that all owners of 20% or more of a corporation have. Business Corporation Law § 1104-a "provides minority shareholders in close corporations with protection from oppressive conduct by majority interests." (Matter of Seagroatt Floral Co., Inc., 78 NY2d 439, 444 [1991].) In enacting Business Corporation Law § 1104-a, "the Legislature has shown a special solicitude toward the rights of minority shareholders of closely held corporations." (emphasis added) (Matter of Kemp & Beatley, Inc., 64 NY2d 63, 70 [1984].) Business Corporation Law § 1104-a was enacted to safeguard minority shareholders' "need for protection from the majority." (Ingle v. Glamore Motor Sales, Inc., 73 NY2d 183, 197 [1989].) Business Corporation Law § 1104-a was "enacted to afford a minority shareholder the right to bring a proceeding to dissolve the corporation." (emphasis added) (Blake v. Blake Agency, Inc., 107 AD2d 139, 144 [2d Dep't 1985].) Thus, the Legislature, in enacting Business Corporation Law, wanted to ensure that minority shareholders always had the right to dissolve a corporation when the majority shareholders were acting improperly.

Here, Scibelli has shown an entitlement to dissolution under both prongs of Business Corporation Law § 1104-a. As to the first prong, Scibelli has made a prima facie showing of oppressive conduct by having Bilesi deny Scibelli access to Beacon's bank accounts and financial records; failing to pay Scibelli a salary; not paying off Beacon's credit card that was guaranteed by Scibelli; and using corporate funds for personal purposes. (See Cassata v. Brewster-Allen-Wichert, Inc., 248 AD2d 710, 711 [2d Dep't 1998] (holding that petitioner made a prima facie showing of oppressive conduct when the majority shareholders stopped issuing dividends to shareholders, refused to pay petitioner's salary, and rescinded petitioner's authority to sign corporate checks).) Again, Belesi has not contested those allegations. Thus, Scibelli has satisfied the first prong of Business Corporation Law § 1104-a.

Scibelli has also satisfied prong of Business Corporation Law § 1104-a, because Scibelli has shown that there was waste. Waste as used in the statute includes the "misappropriation of corporate assets for private purpose." (Cunningham, 256 AD2d at 407.) Here, Scibelli has [*4]alleged that Belesi was using Beacon's funds to give money to himself and his family. Belesi has not disputed this, and the checks provided to the Court show that, indeed, Belesi received over $40,000.00 from Beacon's corporate funds. Scibelli asserts that receipt of such funds was improper. Belesi does not dispute that assertion. The Court finds that there has been waste in the form of using corporate funds for personal purposes. Thus, Scibelli is also entitled to dissolution under the second prong ofBusiness Corporation Law § 1104-a. Although only one prong of Business Corporation Law § 1104-a must be satisfied for dissolution, Scibelli has satisfied both prongs.

Scibelli has shown that he is entitled to have Beacon dissolved under both Limited Liability Company Law § 702 and Business Corporation Law § 1104-a. Thus, petitioner's Order to Show Cause is granted as to the dissolution of Beacon.

B. Accounting

Scibelli also moved for an accounting in his Order to Show Cause. In order to receive an accounting, there must be "'a confidential or fiduciary relationship and a breach of the duty imposed by that relationship."' (Center for Rehabilitation and Nursing at Birchwood, LLC v. S & L Birchwood, LLC, 92 AD3d 711, 713 [2d Dep't 2012] (quoting Palazzo v. Palazzo, 121 AD2d 261, 265 [2d Dep't 1986]); see also Weinstein v. Natalie Weinstein Design Associates, Inc., 86 AD3d 641, 643 [2d Dep't 2011].)

A fiduciary relationship exists "'between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation."' (Roni LLC v. Arfa, 18 NY3d 846, 848 [2011] (quoting EBC I, Inc. v. Goldman Sachs & Co., 5 NY3d 11, 19 [2005]).) "Generally, where parties have entered into a contract, courts look to that agreement 'to discover the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency."' (EBC I, Inc., 5 NY3d at 19-20 (quoting Northeast Gen. Corp. v. Wellington Adv., 82 NY2d 158, 160 [1993]).) Whether a fiduciary relationship exists is "'necessarily fact-specific' and is also "grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions."' (Oddo Asset Management v. Barclays Bank PLC, 19 NY3d 584, 593 [2012] (quoting EBC I, Inc., 5 NY3d at 19).)

Here, Scibelli has shown that he is entitled to an accounting. There is no dispute that, as per the Operating Agreement that both parties signed, Scibelli and Belesi each owned shares in Beacon. Shareholders in a limited liability company are generally in a fiduciary relationship with each other. (See Salm v. Feldstein, 20 AD3d 469, 469, 470 [2d Dep't 2005].) Moreover, as noted above, Belesi breached that duty by writing checks to himself and family members; failing to pay Scibelli's salary; and failing to pay the Beacon credit card that was guaranteed by Belesi. Thus, Scibelli's Order to Show Cause is granted as to an accounting.

C. Appointment of Receiver

Scibelli also moves in his Order to Show Cause to be appointed the receiver of Beacon. The Court has the discretion to appoint a receiver to preserve the corporation's property and ensure it carries on its business. (Business Corporation Law § 1113.) The appointment of a receiver must be "necessary to preserve the assets of the corporation, operate the business, or protect the interests of the parties." (Matter of Hessert v. Brooklyn Home Dialysis Center, Inc., 231 AD2d 719, 719-720 [2d Dep't 1996]; see also Matter of Steinberg, 249 AD2d 551, 553 [2d Dep't 1998].)

Here, the Court finds that the appointment of a receiver is necessary to preserve Beacon's [*5]assets. Scibelli alleges-and Belesi does not contest-that Belesi used Beacon's funds for personal purposes. Indeed, the checks that Belesi provided to Scilebbi show that Belesi or his family cashed over $40,000.00 in corporate checks. Thus, the appointment of a receiver is necessary to protect Beacon's assets and protect the parties.

However, the Court will not appoint Scibelli as the receiver. Instead, the Court will appoint a third-party as receiver, who shall be paid from Beacon's funds.

D. Missing Documents

Scibelli claims that Belesi has failed to provide documentation necessary for an accounting.Once a party has a right to an accounting, that party is entitled to discovery of financial documents. (King v. Olsen, 178 AD2d 512, 513 [2d Dep't 1991].)

In his Reply Affidavit, Scibelli's counsel lists a plethora of financial documents that Belesi has failed to produce. However, since then, Belesi claims that he has provided certain documents to Scibelli. In his Rebuttal to Sur-Reply, Scibelli's counsel again emphasizes that Belesi has still not provided credit card statements or a 2012 tax return. Thus, it is ordered that Belesi provide relevant credit card statements; a copy of Beacon's of 2012 tax return; and all other documents listed in Mr. Brodzansky's December 18, 2012, letter to Belesi's counsel (Exhibit B to Scibelli's Reply Affidavit) that have not yet been disclosed to Scibelli.

E. Damages

Scibelli also requests damages, including 25% of money that Belesi and his family received from Beacon's funds and 75% of the settlement that Scibelli paid to Chase for the credit card that was guaranteed by Scibelli. An accounting is an action in equity. (Seneca v. Novaro, 80 AD2d 909, 910 [2d Dep't 1981]; Minion v. Warner, 238 NY 413, 417 [1924].) Courts have a wide amount of discretion concerning remedies in an equitable action. "Once a court of equity has jurisdiction of a cause, it has the power to dispose of all matters at issue and grant complete relief." (Ferguson v. Village of Hamburg, 272 NY 234, 239 [1936].) In an action at equity, the Court can "'mould [sic] each decree to the necessities of the particular case."' (State v. Barone, 547 NY2d 332, 336 [1989] (quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 [1944]).) Indeed, in an action at equity, the court "will adapt its relief to the exigencies of the case." (Phillips v. West Rockaway Land Co., 226 NY 507, 515 [1919]; Zeiser v. Cohn, 207 NY 407, 420 [1913].) "Equitable relief may be tailored to the demands of the circumstances" of the case. (Lipschutz v. Gutwirth, 304 NY 58, 63 [1952]; see also Turner v. Hygiene Waterproofing Co., 255 A.D. 716 [2d Dep't 1938].) Where, as here, "a demand for damages is part of the relief sought in an equitable action damages may be assessed in such manner as the discretion of the court dictates." (Ashley v. Gimbel Bros, 170 Misc. 369, 370 [Sup. Ct. NY Cnty. 1938].)The Court will not award any damages at this time, but may do so after an accounting is performed. The Court finds that "the amount of profits appropriated by the defendants cannot be ascertained without an accounting." (Griffith v. Dodgson, 103 A.D. 542, 545 [1st Dep't 1905].) This is especially true in light of the fact that Scibelli has not received credit card statements or a copy of the 2012 tax return, among other documents. The damages that Scibelli requests are an integral part of the accounting. The Court, if it chooses to do so, will only award Scibelli damages after an accounting, which will utilize all relevant financial documents from Beacon, is completed. F. Attorneys' Fees

Finally, Scibelli moves for attorneys' fees due to Belesi's failure to comply with court orders; Specifically, Belesi has failed to comply with the Order of April 24, 2013. Belesi has [*6]failed to provide the petitioner credit card statements and Beacon's 2012 tax return, both of which Belesi were required to provide, and to explain why.

Nonetheless, Scibelli did not move for attorneys' fees until his Rebuttal to Sur-Reply. Because it was raised in reply papers, Scibelli's request for attorneys' fees must be denied. (North Shore Environmental Solutions, Inc. v. Glass, 17 AD3d 427, 428 [2d Dep't 2005].)

III. ConclusionScibelli's Order to Show Cause is granted as to the dissolution of Beacon; an accounting; and to compel Belesi to provide financial records. Scibelli's Order to Show Cause is denied as to the appointment of Scibelli as a Receiver; for attorneys' fees; and for damages. The Court shall appoint a third-party to serve as a Receiver for Beacon, who shall be paid from Beacon's funds.

Submit Order.

Dated:___________________________

Bernice D. Siegal, J. S. C.