Nathan v TAA Apparel, Inc.

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Nathan v TAA Apparel, Inc. 2017 NY Slip Op 31409(U) June 30, 2017 Supreme Court, New York County Docket Number: 653474/2014 Judge: Barry Ostrager Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. INDEX NO. 653474/2014 [*FILED: NEW YORK COUNTY CLERK 06/30/2017 03:21 P 1] NYSCEF DOC. NO. 106 RECEIVED NYSCEF: 06/30/2017 SUPREME COURT OF THE STA TE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 61 --------------------------------------------------------------------X NA THAN NATHAN, ELY AHOO TOMI NATHAN, Plaintiff, INDEX NO. MOTION DATE -v - TAA APP AREL, INC., RONNY BEN JOSEPH, RONEN BEN JOSEPH, INTIMO GROUP LLC MOTION SEQ. NO. 653474/2014 51112017 003 & 004 DECISION AND ORDER Defendant. ---------------------------------------------------------------------x HON. BARRY R. OSTRAGER: Presently before the Court are two post-note of issue motions for summary judgment. Motion sequence 003 is a motion for partial summary judgment by the Defendants an.d Counterclaim-Plaintiffs, Ronen Ben Joseph, Ronny Ben Joseph (collectively, the "Ben Josephs"), T AA Apparel, Inc. ("TAA''), and Intimo Group, LLC ("Intimo") to dismiss the Third, Fourth, and Fifth Causes of Action sounding in breach of contract, conversion, and breach of fiduciary duty, respectively, pursuant to CPLR § 3212. 1 Motion sequence 004 is a motion by Plaintiffs, Nathan Nathan and Elyahoo Tomi Nathan (collectively, the "Nathans"), for summary judgment on all claims and to dismiss all counterclaims sounding in conversion, breach of contract, breach of fiduciary duty, an accounting, contractual indemnification, unjust enrichment, and common law and statutory indemnification, pursuant to CPLR §3212. A jury trial in this matter is scheduled for July I 7, 2017. Both motions are denied for the following reasons. 1 The defendants did not move to dismiss the First Cause of Action for an accounting (see N.YSCEF Doc. No. 55). The Second Cause of Action for a declaratory judgment was dismissed pursuant to a short-form Order dated December 9, 2015 (see NYSCEF Doc. No. 16). 653474/2014 Motion No. 003 Page 1of5 2 of 6 INDEX NO. 653474/2014 [*FILED: NEW YORK COUNTY CLERK 06/30/2017 03:21 P 2] NYSCEF DOC. NO. 106 RECEIVED NYSCEF: 06/30/2017 Intimo is a Limited Liability Company formed on or about February 6, 2012 to engage in the manufacture, import, and wholesale distribution of underwear and sleepwear (Amended Complaint, '1113). Intimo is governed by an Operating Agreement dated April 4, 2012 (see Affidavit ofRonen Ben Joseph, Exh. I). Pursuant to Intimo's Operating Agreement, the Nathans held a 50% interest in lntimo. TAA, an entity owned and/controlled by the Ben Josephs, held a 50% interest in Intimo (Am. Comp!., 'ill). Section 6.l(b) of the Operating Agreement designated the Ben Josephs and the Nathans to serve on Jntimo's Board of Directors (Ben Joseph Aff., Exh. I at 8). In addition, the Operating Agreement granted TAA "exclusive authority" with respect to certain actions, including entering into agreements with third parties, extending credits to customers, capital expenditure, and banking relationships, among others (Ben Joseph Aff., Exh. 1 at 12). In addition, Section 6.4 of the Operating Agreement provides that the Board of Directors "shall be the sole body of the Company with the power to bind the Company ... ,. (id. at 9). And, Section 6.6(b)(v) provides that the Directors "shall act only as a Board and the individual Directors shall have no power as such." (id. at 11). It is alleged that Intimo operated for approximately one year before tensions between T AA and the Nathans led to a June 20, 2013 Dissolution Agreement which provided for the division oflntimo's unsold inventory and available cash, among other provisions (Am. Comp!., 'i!'i!l4-15; Exh. B).' However, during the winding down process of the business, tensions between the parties continued to escalate and they mediated their disputes with a third-party mediator which resulted in a Mutual General Release and Indemnification Agreement dated June 20, 2014 (Affidavit of Nathan Nathan, Exh. D). The tensions and business disputes between the parties continued through the summer of2014, after the execution of the Settlement Agreement. On July 31, 2014 Ronny Ben Joseph unilaterally transferred $263,000 from Intimo's account to another bank account, which is being held in TAA's name pending resolution of the parties' disputes 653474/2014 Motion No. 003 Page 2 of 5 3 of 6 INDEX NO. 653474/2014 [*FILED: NEW YORK COUNTY CLERK 06/30/2017 03:21 P 3] NYSCEF DOC. NO. 106 RECEIVED NYSCEF: 06/30/2017 and to pay expenses for which Jntimo is responsible (Ben Joseph Aff., iJ13); (Nathan Aff., Exh. F) (see also, Nathan Aff., iJ4). The Ben Josephs claim that the transfer was necessary to prevent the Nathans from improperly drawing down funds from Intimo's account because, on prior occ.asions, Nathan Nathan withdrew funds from lntimo's account for non-business purposes (see NYSCEF Doc. No. 76 and 77). For example, in an email dated April 22, 2014, a bank representative sent an email to lntimo's controller about Nathan's unauthorized wire transfers from the Intimo account (see NYSCEF Doc. No. 76). In addition, the Ben Josephs claim that in late June 2014, they learned that the Nathans failed to deliver some 11,000 pieces of inventory that TAA had purchased pursuant to the Dissolution Agreement (and other arrangements the parties had made during the winding down process), allegedly because the Nathans were selling the inventory for their own benefit (Ben Joseph Aff., iJ'lll 0-12). An email dated September 3, 2014 from Ronny Ben Joseph to the Nathans and others states that 11,368 units were sold "without authorization or consent from Intimo," and the goods left over in that warehouse were "substantially broken down and un-assorted" and "of no use to TAA." (Nathan Aff., Exh. G). The Ben Josephs subsequently issued "Debit Notes" for $82,215.89 and $115,521.12 for the inventory that they claim they never received (Am. Comp!., iJ30); (Nathan Aff., Exh. G). On their part, the Nathans claim that Inti mo located 5,978 pieces of inventory that had been "misdelivered" and shipped those goods back to TAA, but TAA failed to accept the goods (Nathan Aff., iJ7). Significantly, the Nathans claim that they "never sold and retained the proceeds of any inventory owned by TAA" (iJ9). Moreover, the Nathans assert that Ronny's unilateral transfer of $263,000 from lntimo's account on July 31, 2014 was designed to deprive the Nathans o~their share of available cash because only two days earlier, on July 29, lntimo's controller informed Nathan Nathan by email that the $215,000 in available cash should be split equally between the partners ($107,500 to the Nathans and $107,500 TAA) with approximately $50,000 as "hold back" to cover company debts (Nathan Aff., 'lf'lfl2, 653474/2014 Motion No. 003 Page 3 of 5 4 of 6 INDEX NO. 653474/2014 [*FILED: NEW YORK COUNTY CLERK 06/30/2017 03:21 PM 4] NYSCEF DOC. NO. 106 RECEIVED NYSCEF: 06/30/2017 14; Exh. E). Thus, the Nathans claim that the Ben Josephs' story about 11,000 pieces of inventory is nothing but a pretext for the improper and unilateral transfer of money to which the Nathans are entitled (see Nathan Aff., ifif4-6). In their competing motions for summary judgment, the parties raise various arguments, each asserting that they are entitled to judgment as a matter oflaw. For example, the Ben Josephs argue that the transfer of$263,000 falls within TAA's authority under the Operating Agreement as a change in "banking relationship" and TAA has had certain authority over lntimo's finances from the inception of Intimo. Further, the Ben Josephs argue that the money was not misappropriated but rather is held in a TAA account pending resolution of their disputes. In opposition, the Nathans argue that the Ben Josephs engaged in classic self-dealing because they cannot unilaterally transfer funds out of a business account without proper disclosure. At the very least, they argue, the money should been placed in an escrow account. In addition, the Nathans argue that the Mutual General Release and Indemnification Agreement bars each and every counterclaim because the parties mutually agreed to "irrevocably and unconditionally" release one another from "any and all charges, complaints, claims liabilities, obligations, promises ... and demands of any nature whatsoever, whether known to them or unknown" (Nathan Aff., Exh D at 1). It is undisputed that Ronny Ben Joseph unilaterally transferred $263,000 out of lntimo's account and placed it in an account held in TAA's name in the same bank. However, there are material issues of fact as to whether such actions constituted misconduct, were unauthorized, or constituted a breach of the Operating Agreement, particularly since TAA was granted "exclusive authority" over certain aspects of Intimo's finances and since there is evidence that the Nathans made improper withdrawals from Intimo's account in 2014 which prompted bank representatives to alert Intimo's controller and others to alleged misconduct by the Nathans. There are also issues of fact as to the alleged missing inventory, which the 653474/2014 Motion No. 003 Page 4 of 5 5 of 6 INDEX NO. 653474/2014 [*FILED: NEW YORK COUNTY CLERK 06/30/2017 03:21 PM 5] NYSCEF DOC. NO. 106 RECEIVED NYSCEF: 06/30/2017 parties dispute in their respective affidavits. While the Operating Agreement states that only the Board of Directors is authorized to act on behalf of lntimo, there are issues of fact as to whether Ronny Ben Joseph acted improperly by transferring the funds to another account to which the Nathans had no access, especially since the business was a going concern for only one year and the parties have had a history of business disputes and disagreements. As for the releases, the parties released claims up to the date of the Agreement, June 20, 2014, and the alleged wrongdoings at issue here allegedly arose after the execution of the Release (see e.g. Luxus Aviation. LLC v Kerwin Media LLC, 91 AD3d 569, 572 [Isl Dept 2012]) (claim for misappropriation of trade secrets survived dismissal because the alleged conduct occurred after the date of the release). Accordingly, it is hereby ORDERED that motions for summary judgment are denied; and it is further Dated: June 30, 2017 " ·~·. ·.~ 65347412014 Motion No. 003 Page 5 of 5 6 of 6

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