CPI Aerostructures, Inc. v Air Indus. Group

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CPI Aerostructures, Inc. v Air Indus. Group 2020 NY Slip Op 33249(U) September 23, 2020 Supreme Court, New York County Docket Number: 653397/2018 Judge: Andrea Masley Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. ANDREA MASLEY PART IAS MOTION 48EFM Justice ----------------------------------------------------------------···X CPI AEROSTRUCTURES, INC., INDEX NO. 65339712018 . MOTION DATE Plaintiff, MOTION SEQ. NO. --~~- -vAIR INDUSTRIES GROUP, WELDING METALLURGY, INC., and COMPAC DEVELOPMENT CORP., DECISION + ORDER ON MOTION Defendants. I· -----·----··-·----·-··------·------·--··--··--------------------·--·---·-·-X 8 MASLEY;J.: The following e-filed documents, listed by NYSCEF document number (Motion 003) 98, 99, 100, 101, 1O?. 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 135, 136. ENFORCE were read on this motion to/for On March 21, 2018, defendant Air Industries Group (Air IG) and plaintiff CPI Aerostructures, Inc. (CPI) entered into a Stock Purchase Agreement (SPA). (NYSC'E~fM Doc. No [NYSCEF] 100, Stock Purchase Agreement at 1.) Pursuant to the SPA, Air I?_ promised to sell shares of defendant Welding Metallurgy, Inc. (WM) to CPI. (Id.) On July 5, 2018, CPI commenced an action in this court alleging that Air IG breached the SPA by failing to provide data and information needed by CPl's accountants to satisfy_. conditions of the closing as set out in Section 5.02. (NYSCEF 1, Complaint '11112-5.) §pacifically, in the first cause of action, CPI sought a declaratory judgment that CP1"1~ifM iii entitled to specific performance of Section 5.02. (Id. 'If 85.) In the second cause of action, CPI sought damages for at least $5,000,000. (/d. 'If 91.) The action was commenced with CPl's filing of motion sequence number 001 in which CPI sought a ,65339712018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, t Motion No. 003 1 of 9 Page 1 of9 • I [*FILED: 2] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 preliminary injunction enjoining Air lG to produce the data a·nd information required by 5.02. (NYSCEF 16, Order to Show Cause.) Section .. Air IG counterclaimed for breach of contract alleging that CPI breached the SPA by performing due diligence in a dilatory manner. (NYSCEF 14, Answer with Counterclaims 111130-31.) Air IG also counterclaimed for breach of the implied covenant of good faith and fair dealing. (/d.1!1136-40.) Air IG specifically alleged that CPI \'entered into the [SPA] ... to divert resources to negotiating and providing due diligence for the (SPA] that CPI had no intention of closing." (Id. 111138-39.) The action was initially assigned to Justice Charles Ramos1 who metwith the· A ;~ parties to resolve motion sequence number 001 and the action. (NYSCEF 99, Palazzolo Affidavit 11117-9.) The parties entered into a stipulation and order dated October 2, 2018 in which Air IG promised to provide CPI with certain financials of WM. ·(; (NYSCEF 101, First Stipulation.) The parties also created a protocol to resolve ottiere ;; .·t, lnatters. The parties entered into a second stipulation and order that effectively amended the SPA to reflect their resolutions to their di$putes. (NYSCEF 102, Sec0nci'Stipulation.) On December 20, 2018, the parties entered into a stipulation of discontinuance. (NYSCEF 103, Stipulation of Discontinuance.) The stipulation provides that "[a]ll monetary causes of action, claims and counterclaims asserted herein by the parties in this action are discontinued with prejudice." (Id.) It further provides that ''the' fi;ourt retains continuing jurisdiction over this case." (Id.) Justice Ramos retired on December 31, 2018. This case was reassigned to Part 48 on October 8, 2019. (See NYSCEF comments). 1 ;~5339712018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, Page 2 of 9 i: Motion No. 003 ., 2 of 9 [*FILED: 3] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 Because the parties entered the stipulation, Justice Ramos "deemed moot" motion sequence number 001. (NYSCEF 97, Decision and Order.) The action was also marked disposed on NYSCEF and remains disposed to date. CPI and Air IG closed the acquisition on December 20, 2018. (NYSCEF 99, Palazzolo aff~ 6.) Apparently, CPI filed this motion (sequence number 003) because another dispute arose. Specifically, the SPA provides that, at the closing, the initial purchase price shall be adjusted according to certain factors. (NYSCEF 100, SPA§ 2.04 [a][i].) This "Post-Closing Adjustment" is defined in the SPA as '30 "an amount equal to the Closing Working Capital minus the Estimated Closing Working Capital (the 'Post-Closing Adjustment'). If the Post-Closing Adjustment amount is a positive number, such among will be paid by Buyer to Seller and if the Post-Closing Adjustment Amount is a negative number, the absolute value of such amount will be paid by Seller to Buyer, in each case in accordance with Section 2.04(d)." (Id§ 2.04 [b)[ii].) The SPA allows Air IG 30 days from receipt of CPl's Closing Working l:..1 Capital Statement to review and object to it by delivering to CPI a written statement setting forth Air IG's objections (Statement of Objections). (Id § 2.04[c][i],[ii].) The parties promised to subsequently negotiate in good faith to resolve these disputes in the Statement of Objections. (Id§ 2.04[c][ii].) Nevertheless, the SPA also provides a protocol for disputes that the parties could not resolve through negotiation. This provision, Section 2.04(c)(iii), provides "If Seller and Buyer fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute ('Disputed Amounts' with any amounts not so disputed, the 'Undisputed Amounts') shall be submitted for resolution to EisnerAmper LLP or, if EisnerAmper LLP is unable to serve, Buyer and Seller shall appoint by mutual agreement an impartial nationally 65339712018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, Motion No. 003 3 of 9 Page 3 of 9 [*FILED: 4] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 recognized firm of independent certified public accountants other than Seller's Accountants or Buyer's Accountants (the 'Independent Accountant') who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Post-Closing Adjustment, as the case may be, and the Closing Working Capital Statement. The parties hereto agree that all adjustment shall be made without regard to materiality. The Independent Accountant shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be in within the range of values assigned to each such item in the Closing Working Capital Statement and the Statement of Objections, respectively." (NYSCEF 100, SPA§ 2.04 [c][iii].) The scope of the Independent Accountant's authority is set out Section 2.04(c)(v). "The Independent Accountant shall make a determination as soon as practicable within 30 calendar days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their adjustments to the Closing Working Capital Statement and/or the Post-Closing Adjustment shall be conclusive and binding upon the parties hereto." (Id§ 2.04 [c][v].) The fees of the Independent Accountant are calculated and governed.Y by Section 2.04(c)(iv). "The fees and expenses of the Independent Accountant shall be paid by Seller, on the other one hand, and by Buyer, on the other hand, based upon the percentage that the amount actually contested but not awarded to Seller or Buyer, respectively, bears to the aggregate amount actually contested by Seller and Buyer." (Id§ 2.04 [c](iv].) . j, ( Apparently, CPI maintained that the Post-Closing Adjustment amounted to $4, 145,870 (the difference between Air IG's Estimated Closing Working Capital in the amount of $8, 107, 172 and CPl's Closing Working Capital in the amount of $3,961,302). (NYSCEF 99, Palazzolo aff ff 18.) Air IG, however, delivered a Statement of Objections 653397/2018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, . Motion No. 003 4 of 9 Page4of9 [*FILED: 5] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 t9 CPI upon receipt of CPl's Closing Working Capital Statement. (/d.111120-22.) The : i parties could not negotiate a resolution and they submitted their unresolved disputes-tq~ an Independent Accountant, not EisnerAmper LLP, but nonparty BOO USA, LLP (BOO) whom the parties jointly retained. (NYSCEF 107, Retainer Agreement) BOO issued its Independent Accountant's Report (Report) on September 3, 2019. (NYSCEF 111, Report.) In that report it reiterated the background of this matter, ~Pl's .. ~that position, and Air IG's position. (Id. at 1-6.) BOO found in favor of CPI and ruf~d no change is required to Closing Working Capital as presented on [CPl's] Closing1y Working Capital Statement.• (Id. at 6.) In support of its determination, BOO explainedl) that "[CPI] has provided detailed and thorough support for its proposed Inventory Value and has furnished emails supporting (CPl's] claims regarding the sampling discrepancies that were discovered. [Air IG's] position appears to be almost entirely predicated on its claim that [CPl's] proposed Inventory Value is not credible in comparison [to] [Air IG's] own Pre-Closing Estimate. [Air IG] has never provided an actual alternative to the Buyer's Inventory Value calculation." (Id. at 6.) BOO further stated that CPI "was awarded 100% of the 'amount actually contested,' therefore, [Air IG] is responsible for 100% of the fees and expenses of the Independent Accountant" (Id.) ,, "' ri .f CPI now alleges that Air IG did not pay the Post-Closing Adjustment amount . . ,~ .. totaling $4, 145,870 nor BOO's fees totaling $13;818,50. (NYSCEF 99, Palazzolo aff 1111 ~ ) 40, 60.) Accordingly, in motion sequence number 003, CPI moves for (1) a judgment against AIR IG in those amounts and (2} an order directing Air IG to execute a Joint .r· 1• : 65339712018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, Page 5 of 9 Motion No. 003 .. -~ j1:~, ' 5 of 9 "' :u' .; [*FILED: 6] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 f}elease Instruction providing that the parties' escrow agent release certain escrow . .,;. funds to CPL ; .. Air IG cross-moves pursuant to CPLR 7601, 408 and 3102 to vacate BDO's determination and conduct discovery. Discussion In the notice of motiorifor motion sequence number 003, CPI does not articulate. ~. CPLR provision under which it seeks the c~rrent relief. Implicit in CPl's papers, however, is CPl's reliance on CPLR 7601 .. Effectively CPI. seeks specific enforcement:;;.. -~ _..;, of the SpA's provision to submit an issue of valuation to an Independent Accountant, BOO, At common law, such provisions were unenforceable, however, CPLR 7601 now . . ' . ·. . . ~· .. : --'-'· authorizes their enforcement. (Vincent C. Alexander, Practice Commentaries, . . ' . .r . . . . . . McKinney'.s Cons Laws of NY, CPLR 7601.) ·Air IG is more explicit that CPLR 7601 ''" §-pplies. Nevertheless,·the motion and cross motion are procedurally.improper and . ) !:lenied. CPLR 7601 provides that "A special proceeding maY be commenced to specifically · enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be.selected. The court may enforce such an agreement as ·if it were an arbitration a·greement, in which case the proceeding be conducted as if brought under article seventy~five of this chapter." Article 75, specifically CPL.R7502 (a), ptovides that "(a]special proceeding shall be' f' · used to bring before a court the first appiication arising out of an arbitrable controversy : which is not made by motion in a pending action~" In other words, a plaintiff need not bring a special proceeding when a pending action already.exists between the parties. . - u (Grosz vSerge Sabarsky, Inc., 24 AD3d 264J1st Dept 1999].) . . ' a53397/2018 CPI AEROSTRCTURES,' INC,'v AIR INDUSTRIES GROUP et al, Motion No. 003 · ,, . ,_ _,,.,.. 6 of 9 Page a of 9 [*FILED: 7] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 This action, however, was no longer pending at the time that CPI filed motion sequence number 003 and Air IG cross-moved. An action is no longer pending once the parties enter a stipulation of discontinuance with prejudice. (Matter of HSBC Bank USA, NA (Makowski}, 72 AD3d 1515, 1516 [4th Dept 2010]; Kurtz v Kurtz, 135 AD2d 615, 616 [2d Dept 1987]; Greenberg v New York City Planning Commn., 48 AD2d 830, 830 [2d Dept 1975].) Here, the parties entered into a stipulation of discontinuance, and it explicitly provides that "[a]ll monetary causes of action, claims and counterclaims asserted herein by the parties in this action are discontinued with prejudice." (NYSCEj:ie 103, Stipulation of Discontinuance.) Accordingly, CPl's initial claims for a declaratory~'. judgment that CPI is entitled to specific performance of Section 5.02 and damages of $5,000,000 along with Air !G's counterclaims for breach of contract and the implied covenant were no longer pending at the time of this motion and cross motion. (NYSCEF 1, Complaint '!Ml 85, 91; NYSCEF 14, Answer with Counterclaims '!Ml 30-40.) In fact, by discontinuing the action with prejudice, "the action is as if it never had been." (Matter bf HSBC Bank USA, NA (Makowski), 72 AD3d at 1516.) Therefore, filing a motion and cross motion in this disposed action is insufficient under CPLR 7601 and 7502 (a). CPI must commence a special proceeding to obtain the relief it seeks despite the stipulation of discontinuance's provision that "the Court retains continuing jurisdiction over this case." (NYSCEF 103, Stipulation of Discontinuance.) Of course, CPLR 103 provides that "[i]f a court has obtained jurisdiction over the parties, a civil judicial -"' proceeding shall not be dismissed solely because it is not brought in the proper form", but the improper form of this proceeding is not the sole deficiency. The dispute raised in motion sequence number 003 and the cross motion is a new dispute not previously mentioned in the complaint or answer. Whereas the complaint and answer concerned 653397/2018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, Motion No. 003 7 of 9 Page7of9 [*FILED: 8] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 ,. )\ir IG's alleged failure to provide information necessary to close the acquisition and CPl's alleged dilatory tactics, this motion and cross motion concern enforcement oMh~'"' ~,_ SPA provision to submit disputes to an Independent Accountant. Article 4 entitled Special Proceedings, specifically CPLR 402, states that ... .A ' r "[t)here shall be a petition, which shall comply with the requirements for a complaint in an action, and an answer where there is an adverse party. There shall be a reply to a counterclaim denominated as such and there may be a reply to a new matter in the answer in any case." ..• ! ·a1,~ Neither CPI nor Air IG complied with these pleading requirements. In fact, there are no pleadings that address these new disput~s. j'ust a motion and a cross motion filed in a disposed action. "[T]he net effect of this is that instead of commencing a special ' . proceeding, [the parties have) brougjlt on what in legal effect is nothing more than a . mere practice motion." (Levine v Lending, 176 Misc462, 463 [Sup Ct, NY County ,, .' ' 1.941].) This court in similar circumstances has stated that "[a)ll special proceedings ~ .~ must be litigated on pleadings" and that "pleadings are indispensably required." (Id:) "_f"""i,- 0 Moreover,. "[i]n special proceedings under statutes, and in general, the long-established practice has required petition, answer and reply, and codification thereof is the legislative approval that for the proper adjudication of the rights and status of parties, pleadings and a distinct issue are essential and that there can be no orderly administration of justice without them." (Id.) The parties have not only sought relief through the improper form of • o civil judicial proceedings, but they have also failed to include pleadings. They are litigating a different dispute with· no pleadings. Accordingly, the court cannot invoke CPLR 103 (c) to convert this motion into ' a'special proceeding. ' ' 65339712018 CPI AEROSTRCTURES, INC. v AIR INDUSTRIES GROUP et al, ; Motion No. 003 8 of 9 Page 8 of 9 [*FILED: 9] NEW YORK COUNTY CLERK 10/01/2020 04:22 PM NYSCEF DOC. NO. 138 INDEX NO. 653397/2018 RECEIVED NYSCEF: 10/01/2020 ' •• The.motion and cross motion are denied without prejudice. The parties must follow the proper procedure for bringing this matter before the court. It bears noting thiii " · although Justice Ramos, who .sat in Part 53 of this court, retained jurisdiction, that does· ofthls court must hear this subsequent dispute. In . ·not necessarily mean that Part 53 .11, t '.:i•_' ' -,;,·· . . . ,. -# - ·- ·, .- _.•; ~·-- ·, fact, this motion and cross motion were randomly assigned·topart 48, and it is likely that be randomly assigned to another Part in this court should the subsequent disputes.shall ' .. '':> .. . ..! • , . ·~ ~ -~- parties follow the proper procedure. ·~ ;, Accordingly; it is . • -- ,.,, ~-~ ,,. ' • -~ .f ~ ' - ~. ORDERED that r:notion sequence number003 and the cross motion are denied:'! > ~?JJ~, CHECK ONE: · CASE DISPOSED ,- ·aRANTE0 'J. ~ - fAPPUCATION: 0 • ~ DENIED ; -r. SETTLE OROElt CHECK IF APPROPRIATE: ' "' . < ""- -~: ., Ji . -. ._._ i ..,, GRA~TED IN PART . ;'.,. . :,.. F10UCIARY APPOINTMENT -£. , i '~ .~ - .)· ' . ~\. . ~ . . d.- .~\_•:: . f '653397/2018 CPI AEROsTRCTURES, 1NC. v AIR INDUSTRIES GROUP et al, Motion No. 003 . OTHER . . ., D SUBMIT ORDER INC~U~ES TRANSF._E~~SSIGN ""Jts- NON-FINAL DISPOSITION : 9 of 9 •. ' . Page 9 of 9

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